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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________to ________________
Commission file number 1-10606
CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0148231
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 River Oaks Parkway, San Jose, California 95134
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / X /
Aggregate market value of the voting stock held on February 28, 1995 by
non-affiliates of the registrant:
$863,877,764
Number of shares of common stock outstanding at March 24, 1995: 38,260,205
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting to be held on May 11,
1995 are incorporated by reference into Part III hereof.
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CADENCE DESIGN SYSTEMS, INC.
1994 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
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PAGE
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Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 13
PART II
Item 5. Market for the Registrant's Common Equity and Related 15
Stockholder Matters
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial 16
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on 24
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and 24
Management
Item 13. Certain Relationships and Related Transactions 24
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports 25
on Form 8-K
Signatures 52
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PART I
ITEM 1. BUSINESS
Cadence Design Systems, Inc. ("Cadence" or the "Company") develops,
markets, and supports electronic design automation ("EDA") software products
and services that automate, enhance and accelerate the design and verification
of integrated circuits ("ICs") and electronic systems. The Company combines
its software products and professional services to provide customers with
optimized electronic product development environments ("PDEs").
Cadence was formed as a result of the merger of SDA Systems, Inc.
("SDA") into ECAD, Inc. ("ECAD") in May 1988. ECAD commenced operations in
1982. SDA commenced operations in 1983. The Company's name was changed to
Cadence Design Systems, Inc. in June 1988. In March 1989, Cadence acquired
Tangent Systems Corporation ("Tangent"). In December 1989, Cadence merged with
Gateway Design Automation Corporation ("Gateway"), a leading EDA supplier of
digital logic simulation software. In July 1990, Cadence merged with Automated
Systems, Inc. ("ASI"), a company that marketed products and services related to
the design and manufacture of electronic printed circuit boards ("PCBs") to the
aerospace, defense, computer and telecommunications industries. In December
1991, Cadence merged with Valid Logic Systems Incorporated ("Valid"), a company
that developed and supported EDA software used to design electronic systems,
PCBs and applications for electronic product designs involving advanced
packaging technology such as hybrids and multi-chip modules ("MCMs"). Valid
had acquired two companies by merger in February 1989: Integrated Measurements
Systems, Inc. ("IMS"), a company that manufactures and markets verification
systems used in testing prototype application specific integrated circuits
("ASICs"), and Analog Design Tools, Inc. ("ADT"), a supplier of computer-aided
engineering ("CAE") software for the design of analog electronic circuits. In
June 1993 Cadence acquired the business and certain assets of Comdisco Systems,
Inc. ("Comdisco") a subsidiary of Comdisco, Inc. Comdisco develops, markets and
supports digital signal processing software products in the electronic systems
applications area. In December 1993, the Company sold its ASI division. The
operating results of ASI have been reported as a disposal of a division and
included as loss (income) from operations of disposed division within operating
expenses for all years presented. The loss on disposal of $6.0 million is
classified in other income (expense) in the Company's 1993 statement of income.
In August 1994, Cadence acquired Redwood Design Automation, Inc. ("Redwood"), a
company that had developed microprocessor and microcontroller software products
in the electronic systems applications area. The operations of Comdisco and
Redwood comprise the Company's Alta Group. In December 1994, the Company also
acquired the business and certain assets of Parsec Software, Inc. ("Parsec"),
a company which developed, marketed and supported a software product used for
static timing analysis in the electronic design area.
CADENCE BUSINESS STRATEGY
Since the inception of the electronic design automation industry, EDA
vendors have been operating under a traditional selling business model where
software products would in general be sold to internal customer design
automation groups. These internal groups would then be responsible for
building software solutions that would be used by that customer's IC, ASIC and
systems designers. If problems were subsequently uncovered in the design
process, the internal design automation groups would ask the EDA vendors to fix
the problems by coming in after the fact.
This has not been a satisfactory working relationship and may in fact
have contributed to the lack of overall satisfaction electronics customers have
had with the EDA industry in general. In addition, many of the new
technologies being adopted by semiconductor and systems companies are requiring
a new design methodology. For example, technology changes associated with deep
sub-micron IC design will significantly impact the way semiconductor companies
design chips in the future.
Cadence has recognized a need in the industry for a new approach. In
1994, Cadence set a new strategic direction for the Company and a new business
model has emerged. Central to this new model are its customers' business
objectives. Cadence intends to provide enhanced value by
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understanding the customer's business objectives and translating these
objectives into a PDE. The PDE is a semi-custom solution that will enable the
building of electronic products that are optimized to a customer's business
objectives. Cadence is uniquely qualified to help customers build these PDEs
by offering a combination of technology components, professional services and
design and staffing expertise. Cadence believes that it is positioned to
provide this new level of partnership to customers because of its broad
technology base, design technology expertise, large customer franchise and
global presence.
Cadence will continue to invest heavily in developing new design
technologies as technology remains a critical component of an overall PDE. The
Company expects the services component of the business to grow at a rate faster
than the software component in the next few years as its customers recognize
the enhanced value of this model.
THE ELECTRONIC PRODUCT DEVELOPMENT CYCLE
ELECTRONIC DESIGN AUTOMATION EDA refers to the use of engineering
software to design electronic circuits and systems. A critical and enabling
technology for the global electronics industry, EDA allows engineers to develop
complex and high quality electronic products within accelerated time-to-market
schedules. The Company believes EDA software is one of the key forces driving
electronics innovation and production.
Virtually all complex computer, telecommunication, aerospace and
semiconductor projects depend on advanced EDA solutions to handle the large
amounts of data associated with these designs. In addition, the short product
life cycles of consumer electronics products depend on the accelerated design
schedules that EDA software allows. EDA software can literally cut months from
a production schedule, allowing design teams to complete projects in a time
frame that would be impossible if done manually.
Electronics manufacturing has a synergistic relationship with EDA.
Without EDA simulation software to verify design performance, the design
quality required for profitable high volume production of ICs and PCBs would be
compromised. The capabilities inherent in Electronic Design Automation
technology have also enabled the quick production time and enormous market
growth of semi-custom circuits and subsystems such as ASICs, Programmable Logic
Devices ("PLDs"), Field Programmable Gate Arrays ("FPGAs") and MCMs.
EDA systems address two major functions in the electronic product
development cycle: electrical design, often referred to as CAE, and physical
design, often referred to as computer-aided design ("CAD"). Together, CAE and
CAD address the major phases in the design of electronic systems, PCBs, MCMs,
ASICs, PLDs, FPGAs and full-custom ICs.
CAE DESIGN PROCESSES The electrical design process involves design
description, model development and simulation of the design's behavior and
timing performance. Additional design automation technologies, such as
architectural design and logic and test synthesis, can simplify the design
entry process; IC floorplanning can provide greater accuracy in simulation.
Design description (called design entry, design capture or schematic
capture) is the first step in the electronic design process. To handle the
complexity of large designs, design entry often consists of several levels of
design description. At the highest level of abstraction, a design can be
expressed in a behavioral description, a convention that allows engineers to
describe large and complex designs quickly. Behavioral design description
typically involves the use of equations, or a special design description
language called a Hardware Description Language ("HDL").
For digital designs, the most common HDLs are Verilog(R) HDL, a
language developed by Cadence that is now in the public domain, and VHDL, a
language standardized and backed by the U.S. Department of Defense and
supported by Cadence as well as many other EDA vendors. A similar standard is
emerging for analog design. Cadence introduced an analog hardware description
language ("AHDL") in 1994, and is seeking to make it an industry standard.
Much as a sketch is detailed into a blueprint before building a house,
behavioral descriptions
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must be detailed into lower-level descriptions (also called structural designs)
before the IC or PCB can be manufactured. This process can be done manually, or
in an automated fashion using a process called logic synthesis. In structural
design, the engineer specifically defines components, their interconnections,
and associated physical properties. This description can be the text file
produced by logic synthesis, or a graphical drawing called a schematic. In
structural design, critical design time is saved by pulling components from an
electronic library and including them in the design, rather than recreating
symbols and data for each design. A database, containing the design's
electrical characteristics, interconnections and specific design rules is
automatically created and used as the foundation for subsequent design steps.
Simulation is used to verify the design electronically before it is
manufactured, enabling engineers to explore design alternatives quickly and to
catch costly design errors before the design is manufactured. Simulation can
be performed with different levels of design description: behavioral,
structural and mixed-level. These levels allow designers to test their design
concept, actual structure and performance, and a combination of concept and
structure. A key element in the simulation process is the use of component
libraries containing software models of commonly used parts. These are either
developed and supplied by Cadence, or are provided by third-parties such as
ASIC vendors or independent modeling companies that have certified their
libraries for use with Cadence's simulation products.
When the functionality and timing are determined to be correct, the
engineer generates a netlist. A netlist is a non- graphic description, in list
form, of all design components and interconnects. The netlist is the link
between the CAE design environment and the CAD process.
CAD DESIGN PROCESSES An electronic product's physical design process
varies depending on whether the final product is a full-custom IC, an ASIC or a
PCB. However, the physical design process typically includes the placement of
devices or components, electrical routing or wiring between those devices and
components, analysis of the layout to check for compliance with design rules
and performance specifications and the generation of data for use in
manufacturing and test activities.
If the design is a full custom IC, the process includes chip-level
architectural design, creation of cells and blocks, floorplanning, placement,
routing and compaction of the cells/blocks, analysis of conformance to
electrical and physical design rules, analysis of wire lengths, load factors
and timing performance, and generation of mask data for chip fabrication. If
the design is produced as a PCB or MCM incorporating off-the-shelf components,
full custom ICs and/or ASICs, physical design typically includes floorplanning
and pre-placement of critical components, automatic or interactive component
placement, analysis of thermal conditions and high-frequency transmission line
characteristics, analysis of testability and generation of test documentation,
pre-manufacturing clean-up or OglossingO of the board design, and generation
of a wide range of manufacturing data and artwork.
CADENCE'S EDA PRODUCT FAMILY
Cadence's full line of integrated EDA software solutions has been
developed to support engineers at two levels. At one level, individual
engineers need solutions to solve their specific design needs. A second level
is to support teams of engineers working on larger projects. These engineers
need to share information across their entire company and can do so effectively
with a variety of solutions from Cadence.
Cadence offers a full line of integrated EDA solutions for three basic
design areas: IC design, system design and ASIC design, particularly for
high-performance sub-micron ASICs.
These three areas include solutions for the electrical and physical
design of all types of systems, subsystems and ICs, including PCBs, MCMs,
hybrids, ASICs, PLDs, FPGAs and full custom and semi-custom ICs.
The major advantages of Cadence products are in the areas of design
methodologies and integration of electrical and physical design tools.
Cadence's commitment to industry standard
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hardware platforms, operating systems and networking protocols allows users to
configure an open design environment tailored to their specific needs. As
design needs grow, the Cadence design environment can be expanded to include
additional Cadence tools or third-party tools. Customizing environments can be
handled through Cadence's Spectrum Services Group, responsible for working with
customers to define and implement product development environments optimized
for customer project or product needs.
PRODUCT STRATEGY AND PRODUCTS
Cadence's goal is to provide technology and services that accelerate the
creation of innovative electronic products, enabling designers to bring complex
products to market quickly and reliably. To meet this goal consistently,
Cadence has adopted the following core product strategies:
- Focus product development efforts on collapsing the most complex and
time-consuming aspects of the design process
- Deliver solutions that combine software tools, advanced design
methodologies and specialized services to streamline the overall
design process and optimize the PDE.
CORE PRODUCT TECHNOLOGY Cadence believes that within its solutions
approach, customers demand high performance point tools for certain functions.
By focusing technology development efforts to address the most complex and
time-consuming aspects of the design process, Cadence has delivered a suite of
individual design tools that has become well known in the industry. These
tools, which address all major areas of the design process, include:
- Allegro(TM) and Allegro MCM for board and MCM layout respectively, along
with integrated layout analysis tools, DF/EM Control(TM),
DF/SigNoise(TM), DF/Thermax(TM), and DF/Viable(TM)
- Analog Artist(TM) and Analog Workbench(TM) for analog/mixed-signal IC
and system design, respectively, Resolve(TM) for analog/mixed-signal
board optimization
- Concept(TM), CheckPlus(TM), Logic Workbench(TM), OpenSim(TM) for
board-level design and verification
- Device-Level Editing(TM) for IC layout
- Dracula(R), Diva(TM) and Vampire(TM) for IC physical verification
- Gate Ensemble(TM), Cell Ensemble(TM), Block Ensemble(TM) and QPlace(TM)
for IC and ASIC place and route
- Layout Synthesis(TM) for IC synthesis and optimization
- Preview(TM) for ASIC and IC floorplanning
- Profile(TM) analog behavioral language
- Signal Processing Workbench(TM) for DSP electronic system design
- Spectre(TM), Cadence Spice(TM) and SpicePlus(TM) for analog simulation
- SpectreHDL(TM) analog behavioral simulation system
- Synergy(TM) and Placement-Based Synthesis(TM) for circuit synthesis and
optimization
- Team Design Manager(TM) and Component Information Workbench(TM) for
enterprise data management
- Verilog-XL(TM), Verilog-XL Turbo(TM), Verilog-XL Twin-Turbo(TM) and
Leapfrog(TM) VHDL for digital simulation
- Virtuoso(TM) for custom IC layout and library development
OPEN ENVIRONMENT Cadence pioneered the ability to link and manage a
variety of design tools under a consistent graphical user interface with the
introduction of its framework technologies in 1985. Cadence has continued to
enhance its framework capabilities so that designers today can work with
multiple tools more efficiently. Through its Team Design Manager and Component
Information Workbench capabilities, Cadence provides for project and data
management and library development and management, both critical for today's
large designs and distributed design teams.
Cadence's software operates on industry standard workstations from
Digital Equipment Corporation, Hewlett-Packard/Apollo, International Business
Machines Corporation and Sun Microsystems, Inc. Cadence believes that it is
well positioned to port its systems quickly to other UNIX-based workstations
that may gain broad customer acceptance in the future.
Cadence works closely with standards organizations to further the value of
electronic design automation solutions. Cadence is actively involved with CFI
(CAD Framework Initiative), OVI
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(Open Verilog International), VI (VHDL International), and VITAL (VHDL
Initiative Towards ASIC Libraries).
INTEGRATED DESIGN SOLUTIONS
Integrated circuit design requirements continue to grow as ICs become
more complex and product life cycles continue to shrink. Cadence has a long
history of providing a full line of EDA software combined with advanced design
methodologies and specialized services that help solve semiconductor company's
evolving design challenges.
IC DESIGN Cadence's products have been used in every major type of
electronic product design ranging from microprocessors that are at the heart of
personal computers and workstations to mixed signal chips that are driving the
telecommunications and networking industries. Cadence's IC solutions feature
proven tools for custom library development and editing, automated custom
design, advanced digital and analog and mixed-signal simulation, and IC
physical verification. Building on this full-line of IC tools, Cadence offers
complete, front-to-back solutions for designing digital, analog, mixed-signal
and microwave ICs. These solutions streamline the design of complex chips and
help design teams get to market with innovative, high quality products.
For each step in the IC design process Cadence provides a complete
design environment to meet individual design tasks. Cadence's solution
includes the Virtuoso(TM) product family of custom layout tools with DLE(TM)
for enhanced layout productivity and Layout Synthesis(TM) for layout synthesis;
the Ensemble(TM) product family with the new Qplace(TM) placement option
providing automatic place and route for both ASIC and custom cell-based design
styles; Chip Assembly Solution for multi-layered block placement and routing;
the Diva(TM) product family of interactive verification tools; and the
Dracula(R) product family of physical verification tools. Cadence recently
introduced a new IC physical verification tool, Vampire(TM), which provides
significant new capabilities to verify extremely complex circuits accurately
and more efficiently than previously available tools.
For analog designers, Cadence offers complete front-to-back solutions
for analog, mixed-signal and microwave circuits. The Analog Artist(TM) for IC
design provides advanced simulation, layout and verification, featuring
products like the Profile(TM) behavioral modeling and simulation software and
the Spectre(TM) high-speed circuit simulator. This solution supports design
teams with productive tools for fast, early evaluation of design alternatives
on complex analog designs, allowing teams to manage the critical
interdependencies between electrical design and physical layout. In 1994,
Cadence announced SpectreHDL(TM), the industry's first analog behavioral
simulation system for analog and mixed-signal applications.
Cadence's front-to-back IC solution includes a unique timing-driven
design methodology to minimize costly downstream iterations. All tools, from
synthesis and simulation to floorplanning and place and route, share critical
timing information to maintain consistency and ensure that key performance
requirements are met.
SYSTEM DESIGN Cadence provides front-to-back digital, analog and
mixed-signal system design solutions. During 1994, Cadence significantly
enhanced its solution by adding additional capabilities to help customers meet
the growing challenges of successfully incorporating increasingly complex
silicon into system designs for computer, telecommunications, consumer,
automotive, and avionics applications.
For board-level design and verification, Cadence provides a complete
flow. Concept(TM) is a mixed-level schematic and HDL design entry tool.
CheckPlus(TM) is a user-customizable rule checking system. Cadence's Logic
Workbench(TM) is a mixed-level simulation environment that features the
OpenSim(TM) simulation backplane for integrating a variety of commercial or
customer simulators. Verilog-XL(TM) and Leapfrog(TM) VHDL are fully supported
within the OpenSim(TM) environment.
Allegro(TM), one of the industry's most comprehensive and
production-proven systems physical design environments includes: the
DF/Viable(TM) reliability analyzer, the DF/SigNoise(TM) and signal integrity
analysis modules, the DF/Thermax(R) thermal analysis software and
DF/EMControl(TM) for
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electromagnetic compliance.
For analog and mixed-signal board and system design, Cadence provides
the Analog Workbench(TM), for top-down, front-to-back analog design. The Analog
Workbench(TM) provides simulation tools, integrated physical layout, extensive
analog model libraries and advanced analysis tools for tasks such as thermal
analysis and post-layout simulation with extracted temperatures. The Resolve
Optimizer(TM) tunes (optimizes) design parameters to meet desired system or
circuit performance specifications.
Cadence's system design tools, combined with design methodologies such
as rules-driven design and correct-by-design, allow engineers to shorten design
cycles and improve the product quality of high-speed PCBs, MCMs, hybrids and
multiwire boards.
With Cadence's solutions, important design or technology
considerations are defined in advance and are automatically checked and
enforced throughout the design process to shorten design cycles and optimize
designs for performance, quality and cost. For additional accuracy,
flexibility and overall process control, Cadence's unique "synchronized"
library approach and in-process analysis tools cover electrical, thermal,
reliability, testability, manufacturing and design management constraints.
ASIC DESIGN Cadence helped pioneer the use of top-down design by ASIC
designers with its Verilog-XL(TM) simulator and Verilog(R) HDL design language.
Building on what is now the most broadly used top-down method in the industry,
Cadence offers a complete and production-proven top-down design system.
Capabilities offered include a flexible environment with Composer(TM)
mixed-level design entry using either Verilog HDL or VHDL; large-capacity,
high-performance logic synthesis and optimization with the Synergy and
Placement-Based Synthesis software; fully integrated mixed-level logic
simulation with Verilog-XL(TM), Verilog-XL Turbo, Verilog-XL Twin Turbo and
Leapfrog(TM) VHDL verification tools. In addition, the Preview(TM)
floorplanner enables the sharing of consistent timing data from design entry
through place and route. Completing the ASIC design process is Cadence's Gate
Ensemble(TM) place and route system and the new QPlace(TM) option for place and
route. A new series of design-for-test tools, offering advanced test synthesis
and test pattern generation capabilities, helps to shorten ASIC design cycles
and improve yields. With Cadence's Model Import capability, customers can use
VHDL for top-down (HDL) design and verify their designs with the Verilog
simulation models that are widely adopted by the major ASIC vendors.
Cadence's extensive list of over 185 ASIC libraries and endorsements
from major ASIC vendors help ensure a production path for the most complex,
leading-edge ASIC designs.
Although a top-down design methodology has been available for some
time, many designers have not yet adopted it because of the perceived risks
involved. To help designers make the transition to top-down design, Cadence
introduced a complete packaged solution of simulation and synthesis software
and specialized services in 1994.
With the advent of deep submicron technologies, ASIC designers need to
adopt a whole new design approach. Cadence is leading the industry in deep
sub-micron design by providing new methodologies and new technologies. During
1994, Cadence announced Silicon Synthesis(TM) to help bridge the gap between
logical and physical design. Silicon Synthesis is part of Cadence's new
Silicon Based Logic Design (SBLD) methodology to address the issues associated
with deep sub-micron design.
ELECTRONIC SYSTEM DESIGN AUTOMATION ("ESDA") Cadence continues to
invest in new areas of electronic design automation that further the
productivity and quality of our customers' design process. With the formation
of the Alta Group, Cadence is able to provide customers with a higher level
of design automation for a number of applications areas including wireless
communications, networking and multi-media.
ESDA is seen as a natural evolution of EDA that enables customers to
include product concept
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in the design environment. Alta's focus is on Virtual Product Design, a new
approach that starts with the creation of a product prototype in
software...what is called virtual prototype. Virtual prototyping allows the
designer to focus on what is needed for the product to be successful as opposed
to how the design is implemented.
Alta's product offerings include SPW(TM), HDS(TM) and the
Race/Reveal(TM) Package Components which include a large applications library
of design blocks, a complete technology base and a visualization and analysis
environment. Once the design is conceptualized, Alta provides links to
implementation which include multiple capabilities that allow the design to be
passed downstream to ASIC/IC engineers.
CADENCE SPECTRUM SERVICES Customizing design automation systems can
require a major time and resource investment from the customer. Spectrum
Services provides a structured consultative approach to analyzing the design
process. After an extensive review of a customer's business and technical
objectives and design processes, a comprehensive plan is developed for an
advanced product development environment. By integrating Cadence's solutions
with the customer's software tools and third-party and custom-designed tools
and augmenting the software with expert advice on streamlining the design
process, customers benefit from a custom optimized Product Development
Environment.
MARKETING AND CUSTOMERS
CUSTOMERS AND MARKET STRATEGY Cadence's customers and target markets
include computer manufacturers, consumer electronics companies, defense
electronics companies, merchant semiconductor manufacturers, ASIC foundries and
telecommunications companies. In addition, Cadence licenses its products to
international distributors in certain countries (see "International Sales" below
in this "Business" section). In 1994, 1993 and 1992, one customer, Cadence's
Japanese distributor, Innotech Corporation ("Innotech"), accounted for 10%, 13%
and 14% of total revenue, respectively.
CUSTOMER SUPPORT Cadence's support group helps tailor new tools to a
customer's existing design environment, train designers on how to best utilize
their EDA software and provide ongoing software updates to enhance product
capabilities. The backbone of the global customer support process is the
customer response center program. These centers give Cadence customers
worldwide access to solution and product experts. A dedicated team of
application engineers is available to address customer applications issues as
well as provide links between customers and Cadence's product developers.
CUSTOMER PARTNERSHIPS Cadence has established close working
relationships with a number of semiconductor manufacturers and electronic
systems companies based on a business partnership model that has become a
central business model for the Company. To ensure that research and
development activities are properly prioritized, and also that finished
products meet customers' needs, major new product developments begin after
collaboration with a Cadence customer/partner.
There are presently several variations of Cadence partnerships: four
groups of technology partnerships (involving Cadence's IC, HDL and Systems
Groups, respectively) and a fifth group that focuses on development of specific
products ("Product Development Partnerships").
These technology partnerships allow Cadence to work with customers'
designers in defining and developing state-of-the-art solutions for current
and emerging design approaches. Through an engineer exchange program,
customers will often work on-site at Cadence facilities, giving Cadence
valuable insight into customer product planning. Product Development
Partnerships are generally directed at the development and refinement of
specific tools.
INDUSTRY ALLIANCES Cadence cooperates with other design automation
vendors to deliver full-scope technology to its customers. Through Cadence's
Connections(TM) Program, customers can more easily integrate Cadence products
and technologies with other company's products and technologies. This provides
customers with the flexibility to mix and match third-party and proprietary
tools to
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specifically meet their design automation needs. Today over 90 companies have
integrated their tools with Cadence's software.
UNIVERSITY SOFTWARE PROGRAM Cadence supports EDA research by
sharing its design automation technology and expertise with universities. More
than 500 universities worldwide participate, including the University of
California at Berkeley, Duke University, the Massachusetts Institute of
Technology and Stanford University.
SALES
As of December 31, 1994, Cadence had 738 employees engaged in field
sales and sales support, representing approximately 30% of its total workforce.
Cadence's salesforce presents Cadence and its products for licensing to
prospective customers, while applications engineers provide technical pre-sales
as well as post-sales support. Due to the complexity of EDA products, the
selling cycle is generally long, with three to six months being typical.
Activities during this sales cycle typically consist of a technical
presentation, a product demonstration, a design benchmark and often, an on-site
customer evaluation of Cadence software.
NORTH AMERICAN SALES In the domestic market Cadence uses a direct
sales force, utilizing both sales people and applications engineers in each
territory to license its products. As of December 31, 1994, Cadence had 328
regional sales people and applications engineers licensing and supporting
Cadence's products and 64 other sales and support personnel in the United
States and Canada. Cadence maintains domestic sales and support offices at
various locations across the United States.
INTERNATIONAL SALES In Europe and Asia, Cadence markets and
supports its products primarily through 12 majority-owned subsidiaries, which,
as of December 31, 1994, employed 246 salespeople and applications engineers
and 100 other sales and support personnel.
Cadence licenses its IC products in Japan primarily through a
distributor, Innotech. Cadence's systems products are marketed in Japan
through a majority-owned subsidiary and, until 1992, through a distributor,
CIC, Inc. In March 1992 Cadence reached an agreement to acquire CIC, Inc. and
consolidated its systems product marketing in Japan utilizing its subsidiary in
Japan, Cadence Design Systems K.K. ("Cadence K.K.").
Cadence also serves its international customers through a
manufacturer's representative in Europe, European Silicon Structures B.V.
("ES2"). The Company also uses distributors in various countries. In The
People's Republic of China, Brazil, Australia, India, Singapore, Spain,
Portugal, Greece and Turkey, Cadence uses IMAG Industries, QuickChip Eng. E.
Ltda., Cadence Design Systems Pty Ltd., Wipro, CAD/CAM Systems, SIDSA,
Technologias de Microelectronica, AMBIT Limited and MOMENTUM, respectively, as
its distributors.
Revenue from international sources was $221.6 million, $183.6
million and $215.4 million or approximately 52%, 50% and 51% of total revenue
for the years ended December 31, 1994, 1993 and 1992, respectively.
Prices for international customers are quoted from an international
price list. The list is maintained in U.S. dollars but reflects the higher
cost of doing business outside the United States. International customers are
invoiced in U.S. dollars using current exchange rates or the local currency.
In light of the large portion of Cadence's revenue derived from international
sales, if the dollar strengthens in relation to the Japanese yen or certain
European currencies, Cadence's revenue from international sales may be
adversely affected. Foreign subsidiaries' marketing and support expenses are
incurred in local currency and license fees paid by the subsidiaries to Cadence
are paid in local currency or U.S. dollars. Cadence is subject to the currency
conversion risks inherent in international transactions. It is Cadence's
policy to manage and minimize its foreign exchange risks. Cadence enters into
forward exchange contracts to reduce the impact of foreign currency
fluctuations resulting from transaction gains and losses, and any gains or
losses resulting from these transactions are recorded to other income and
expense in the Company's statement of income. Cadence is required to have
United States Department of Commerce export licenses for shipment of its
products outside
8
<PAGE> 11
the United States. Although to date Cadence has not encountered any material
difficulty in obtaining these licenses, any difficulty in obtaining necessary
export licenses in the future could have an adverse effect on revenue.
SERVICE AND SUPPORT
STANDARD SERVICE AND SUPPORT Cadence believes that customer
support is a key factor in successfully marketing EDA products and generating
repeat orders. A majority of Cadence's customers have purchased one-year
renewable maintenance contracts.
Product maintenance contracts entitle the customers to product
updates, documentation and ongoing support. Cadence tracks all service reports
using an on-line database that provides a mechanism for tracking progress in
solving any reported problem from first report to final software solution.
ENHANCED SERVICE AND SUPPORT Installing a new design automation
system, tailoring it to a customer's design environment and training designers
in the efficient use of this new system requires a major time and resource
investment from the customer. In response to customer requests, Cadence has
developed an enhanced consulting service capability. Cadence consulting
services is comprised of Cadence employees; application and consulting
engineers, whose services can be retained by customers to provide a wide range
of engineering activities that include training, contract programming, design
and building PDEs including outsourcing of a customer's design activities.
These services are intended to assist customers in becoming productive quickly
through use of Cadence products and methodologies, thereby improving customer
satisfaction and increasing the likelihood of follow-on sales.
PRODUCT DEVELOPMENT AND ENGINEERING
As of December 31, 1994, Cadence's product development was
performed by 774 employees, 448 employees located at its research and
development facilities in San Jose, Foster City, Santa Cruz and San Diego,
California, 113 employees in Chelmsford, Massachusetts, 98 employees in India,
18 employees in Taiwan and 17 employees in Lawrence, Kansas. The Company also
has 9 employees in various locations throughout North America and 3 individuals
in Europe and Asia. The development group includes experts in database
structures and industry specific algorithm technology. In June 1990, the
Company entered into a joint venture ("EuCAD") as majority owner with ES2.
During 1992, the Company acquired the minority interest in the joint venture.
EuCAD has 18 employees in the U.K. and specializes in research and development
activities in the EDA and ASIC design markets. The Company also has 50
employees in Beaverton, Oregon at its IMS subsidiary.
For the years ended December 31, 1994, 1993 and 1992, Cadence's
research and development expenses were approximately $83.4 million, $84.3
million and $81.2 million (before capitalizing approximately $10.8 million,
$15.2 million and $14.7 million of software development costs in 1994, 1993 and
1992), respectively. Cadence began capitalizing certain of its software
development costs in 1986 in accordance with Statement of Financial Accounting
Standards No. 86. See Note 2 of Notes to Consolidated Financial Statements at
December 31, 1994 for a more complete description of Cadence's capitalization
of certain software development costs.
Certain faculty members from the University of California at
Berkeley, considered to be a leading university for IC design software
research, have served as consultants to Cadence since its inception. These
consultants have helped Cadence to stay abreast of the latest developments and
directions in the rapidly changing IC design software industry.
COMPETITION
The Company faces intense competition in the EDA product market,
which continues to be characterized by aggressive pricing practices and new
market entrants. The Company competes with other companies that sell competing
products and with internal EDA software development groups of potential
customers. Some of the Company's competitors may have substantially greater
financial,
9
<PAGE> 12
marketing and technological resources than the Company. There can be no
assurance that the Company will be able to compete successfully.
Because the EDA industry is labor intensive rather than capital
intensive, the number of potential competitors to the Company is significant.
A potential competitor who possesses the necessary knowledge of electronic
circuit and systems design, production and operation could develop EDA tools
using a moderately priced computer workstation and bring such tools to market
quickly. If such an EDA software tool were to surpass the technology of a tool
of the Company, the attention of customers might rapidly shift to the new tool,
resulting in a precipitous decline in the sales of the Company's comparable
product.
The Company has in the past discounted EDA product prices where deemed
necessary for competitive reasons or in connection with volume purchase
agreements with major customers. In the past, discounts of up to 60% of the
list prices of the EDA products have been given. Although the Company is
striving to reduce discounts, it anticipates that it may be required to
discount EDA product prices under similar circumstances in the future.
PROPRIETARY RIGHTS
Cadence relies principally upon a combination of patent, copyright
and trade secret laws and license or nondisclosure agreements to protect its
proprietary interest in its products. Cadence's products are generally
licensed to end users pursuant to a license agreement that restricts the use of
the products to the customer's internal purposes. Cadence protects the source
code version of its products as a trade secret and as an unpublished
copyrighted work or, on a limited basis through patents. Cadence has made
portions of its source code available to certain customers under very limited
circumstances, subject to confidentiality, use and other restrictions. Despite
these precautions, it may be possible for third parties or former employees to
copy aspects of Cadence's products or to obtain and use information without
authorization that Cadence regards as proprietary. The Company has relatively
few patents, and existing copyright laws afford only limited protection. There
has been an increase in the number of patents issued in the United States
relating to EDA software, and, accordingly, the risk of patent infringement in
the industry can be expected to increase. In addition, effective patent,
copyright and trade secret protection for software products may be unavailable
in certain foreign locations.
Cadence believes that patent, trade secret and copyright protection
are less significant to Cadence's success than factors such as the knowledge,
ability and experience of Cadence's personnel, new product development,
frequent product enhancements, name recognition and ongoing reliable product
maintenance. Cadence does not believe that its products or processes infringe
on existing proprietary rights of others.
DRACULA(R), Verilog(R), Prance(R), BONeS(R), Verifault-XL(R),
DIVA(R), SPW(R) and Thermax(R) are registered trademarks of Cadence, and many
of the other Cadence product and product family names used are common law
trademarks of Cadence.
MANUFACTURING AND BACKLOG
Cadence's software production operations consist of configuring the
proper version of a product, recording it on magnetic tape or CD-ROM, and
producing customer unique access keys which allow customers to use purchased
products. User manuals and other documentation are generally available on
CD-ROM, but are occasionally supplied in hard copy format. Shipments are
generally made within two weeks of receiving an order.
Cadence's product line includes a series of design verification
systems offered by IMS. Logic Master is a family of design verification
systems designed to work with most computer systems, workstations or terminals
to receive and execute test commands and report the results of test procedures.
These systems are designed to match varying customer requirements. Generally,
they differ from one another as to speed, size of the device to be verified and
flexibility in the number and variety of applications in which a system can be
used and price.
10
<PAGE> 13
EMPLOYEES
As of December 31, 1994, Cadence employed 2,449 persons, including
1,429 in sales, marketing, support and manufacturing activities, 774 in product
development and 246 in management, administration and finance. Of these
employees, 1,903 were located in the United States and 546 were located in 14
other countries. None of Cadence's employees are represented by a labor union,
and Cadence has experienced no work stoppages. Cadence believes that its
employee relations are good.
Competition in recruiting of personnel in the software industry is
intense. Cadence believes that its future success will depend in part on its
continued ability to recruit and retain highly skilled management, marketing
and technical personnel.
ITEM 2. PROPERTIES
During June 1989 Cadence acquired a 49% interest as a limited
partner in a real estate partnership. Also in 1989, the Company signed
agreements to lease four buildings located at 535-575 River Oaks Parkway, San
Jose, California ("the River Oaks Campus") from this limited partnership that
is the owner of the River Oaks Campus for a period of ten years. During June
1991 the Company acquired a 46.5% interest as a limited partner in an
additional real estate partnership and signed lease agreements which commenced
in the second quarter of 1992 to lease three buildings close to the River Oaks
Campus from the limited partnership for a period of fifteen years. At this
same time the Company also acquired an 80% interest in a third real estate
partnership which purchased adjacent land for future expansion. The three
buildings and adjacent land are referred to as "the Seely Campus".
In March 1994 the Company acquired all third-party interests in the
Seely Campus for approximately $8.7 million in cash and the assumption of a
secured construction loan of approximately $23.5 million. The Company paid off
the secured construction loan with its cash reserves in May 1994. In October
1994 the Company acquired all third-party interests in the River Oaks Campus
for approximately $5.9 million in cash. The River Oaks Campus remains subject
to a secured note in the amount of approximately $23.7 million. The Company
expects that it will refinance the secured note of $23.7 million prior to
August 1995 when it becomes due, or it may elect to pay the secured note with
its cash reserves. The total square footage of these previously leased
buildings is approximately 483,000. The rent expense incurred in 1994 related
to these buildings was approximately $5.8 million.
The Company continues to lease three buildings with approximately
209,000 square feet at Plumeria Drive in San Jose, California at an annual
rental rate of approximately $3.4 million. The leases related to approximately
129,000 square feet expire in March 1998 and the remaining lease expires in
February 1999. Approximately one-third of the square footage of the Plumeria
facilities has been subleased and the balance remains available for sublease.
Cadence also leases approximately 100,000 square feet of facilities in
Chelmsford, Massachusetts at an annual rate of approximately $.5 million.
Cadence leases additional facilities for its sales offices in the United States
and various foreign countries, and research and development facilities in San
Diego and Santa Cruz, California, Lawrence, Kansas, United Kingdom, France,
Taiwan and India at an aggregate annual rental of approximately $7.5 million.
Cadence also leases approximately 75,000 square feet in a building
in Beaverton, Oregon, at a current annual rental of approximately $.7 million,
which houses manufacturing, engineering, marketing and administrative
operations for its IMS subsidiary and a regional software sales office. The
Company's Alta group also leases approximately 30,000 square feet in a building
in Foster City, California at an annual cost of approximately $.6 million.
Cadence believes that these facilities are adequate for its current
needs and that suitable additional or substitute space will be available as
needed to accommodate expansion of Cadence's operations.
11
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
Securities class action lawsuits were filed against the Company
and certain of its officers and directors in the United States District Court
for the Northern District of California, San Jose Division, on April 8 and 9,
1991. The lawsuits, which were consolidated into a single action, allege
violation of certain federal securities laws by maintaining artificially high
market prices for the Company's common stock through alleged misrepresentations
and nondisclosures regarding the Company's financial condition. Court rulings
in response to the Company's motions to dismiss the lawsuit limited the class
period to include purchasers of the Company's common stock between January 29,
1991 and April 3, 1991.
On March 23, 1993, a separate class action lawsuit was filed
against the Company and certain of its directors and officers in the United
States District Court, Northern District of California, San Jose Division.
This lawsuit, which was consolidated into a single action with two virtually
identical lawsuits filed later in March and in April 1993, alleges violation of
certain federal securities laws by maintaining artificially high market prices
for the Company's common stock through alleged misrepresentations and
nondisclosures regarding the Company's financial condition. On November 18,
1993, the District Court granted the Company's motion to dismiss the 1993
complaint. The effect of the ruling was to dismiss the complaint except as to
a statement allegedly made on January 28, 1993, but plaintiffs were granted
leave to further amend their complaint.
In April 1994, the Company entered into tentative agreements to
settle both of the above class action lawsuits for a combined settlement of
$16.5 million, of which approximately $7.5 million was covered by the Company's
insurance carriers. The agreements are subject to final court approval. At
December 31, 1994, the total settlement amount has been remitted into escrow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
12
<PAGE> 15
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive corporate officers of Cadence are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES
---- --- ---------------------
<S> <C> <C>
Joseph B. Costello 41 President, Chief Executive Officer and Director
H. Raymond Bingham 49 Executive Vice President, Chief Financial Officer and
Secretary
M. Robert Leach 47 Senior Vice President, Spectrum Services
John Olsen 43 Senior Vice President, Worldwide Sales
Scott W. Sherwood 43 Senior Vice President, Human Resources
James E. Solomon 58 Vice President and Principal Technologist
Mark S. Garrett 37 Vice President, Corporate Financial Planning and Analysis
Douglas J. McCutcheon 46 Vice President, Corporate Finance
William Porter 40 Vice President, Corporate Controller and Assistant Secretary
</TABLE>
Executive corporate officers are appointed by the Board of
Directors and serve at the discretion of the Board.
13
<PAGE> 16
JOSEPH B. COSTELLO has served as President and a director of the
Company since May 1988. In addition, Mr. Costello has served as Chief
Executive Officer of the Company since June 1988. Previously he served as a
director of SDA Systems, Inc. ("SDA"), from May 1987 to May 1988. From March
1986 to March 1987, he served as SDA's President and Chief Operating Officer.
He is also a director of Oracle Corporation, Microelectronics and Computer
Technology Corporation and Pano Corporation Display Systems.
H. RAYMOND BINGHAM joined Cadence in June 1993 as Executive Vice
President and Chief Financial Officer. From June 1985 to May 1993 he served as
Executive Vice President and Chief Financial Officer of Red Lion Hotels and
Inns, which owns and operates a chain of 54 hotels. From 1981 to 1985 Mr.
Bingham was the Managing Director of Agrico Overseas Investment Company, a
subsidiary of the Williams Companies, and was responsible for developing and
managing international manufacturing joint ventures.
M. ROBERT LEACH joined Cadence in June 1993 as Senior Vice
President of Spectrum Services. From September 1981 to June 1993 Mr. Leach
served as a partner in the worldwide electronics industry consulting practice
for Andersen Consulting.
JOHN OLSEN joined Cadence in May 1994 as Senior Vice President of
Field Operations and became Senior Vice President, Worldwide Sales in January
1995. For the five years immediately preceding his joining Cadence, Mr. Olsen
was a partner with KPMG Peat Marwick.
SCOTT W. SHERWOOD joined Cadence in July 1990 as Vice President of
Human Resources and was appointed Senior Vice President, Human Resources in
February 1992. From 1983 to 1990, he was Vice President Human Resources of
Mead Data Central, a division of Mead Corporation and provider of information
services to the legal community.
JAMES E. SOLOMON has served as a director of the Company since May
1988. Mr. Solomon has also served as Senior Vice President and Principal
Technologist for the Company since February 1994. Prior to that, he served as
Senior Vice President of the Company's Analog Division from February 1993 to
February 1994 and as President of the Company's Analog Division from December
1988 to February 1993. Mr. Solomon also served as Co-Chairman of the Board of
Directors of the Company from May 1988 until May 1989. As a founder of SDA,
Mr. Solomon served as its Chief Executive Officer from its inception in July
1983 to May 1988, as its President from July 1983 to March 1987, and its
Chairman of the Board from March 1987 until its merger with ECAD, Inc. in May
1988. Mr. Solomon is also the Chairman of the Board of Smart Machines, Inc.
MARK S. GARRETT joined Cadence in June 1991 as Division
Controller/Director of Finance, Systems Division. From December 1991 to
January 1995 Mr. Garrett held various financial positions at Cadence including
Division Controller/Director of Finance, CAE Division; Group Director,
Technology Development Finance; and Group Director, Spectrum Services Business
Operations. In February 1995 Mr. Garrett was appointed Vice President
Corporate Financial Planning and Analysis. Prior to joining Cadence, Mr.
Garrett held various financial positions at IBM Corporation since June 1979,
most recently as Site Financial Planning Manager, Storage Systems Products
Division.
DOUGLAS J. MCCUTCHEON joined Cadence in January 1991 as its
Director, Financial Planning and Analysis, and in July 1991 became its Vice
President, Corporate Finance. From November 1989 to November 1990, Mr.
McCutcheon was President of Toshiba America Medical Credit, Inc., the
wholly-owned captive financing subsidiary of Toshiba America Medical Systems,
Inc., which sells and provides maintenance services for diagnostic and
therapeutic medical systems. From November 1980 to November 1989, Mr.
McCutcheon held various positions with Diasonics, Inc., a medical equipment
company, most recently as Vice President and Treasurer.
WILLIAM PORTER joined Cadence in February 1994 as Vice President,
Corporate Controller and Assistant Secretary. From September 1988 to February
1994 Mr. Porter served as Technical Accounting and Reporting Manager and most
recently as Controller of Cupertino Operations with Apple Computer Corporation,
a worldwide manufacturer of computer equipment. From 1976 until 1988 Mr.
Porter held various positions with Arthur Andersen LLP, most recently as a
Senior Audit Manager.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock was traded on the NASDAQ National Market
System under the NASDAQ symbol ECAD from the Company's initial public offering
at $7.83 per share on June 10, 1987 until June 1, 1988 when it began trading
under the NASDAQ symbol CDNC. Since September 17, 1990 the Company's Common
Stock has traded on the New York Stock Exchange under the symbol CDN. The
Company has never declared or paid any cash dividends on its common stock in
the past and none are planned to be paid in the future. In addition, the
Company's line of credit agreement requires the prior written consent of the
lenders before the Company can pay any cash dividends on its capital stock. As
of December 31, 1994, the Company had approximately 1,975 stockholders of
record, which does not include those held in street or nominee name.
The following table sets forth the high and low sales prices for
the Common Stock for each calendar quarter in the two- year period ended
December 31, 1994.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1993:
First Quarter $24.38 $ 9.25
Second Quarter 14.13 8.25
Third Quarter 14.38 9.75
Fourth Quarter 13.13 10.38
1994:
First Quarter $15.63 $10.25
Second Quarter 16.88 12.63
Third Quarter 18.25 13.25
Fourth Quarter 21.75 16.88
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
For the years ended December 31,
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $429,072 $368,623 $418,724 $379,476 $374,357
Unusual items (1) 14,707 19,650 (253) 55,236 40,987
Income (loss) from operations 44,047 (8,415) 65,710 (14,744) 9,595
Net income (loss) 36,648 (12,779) 55,360 (22,403) (9,348)
Net income (loss) per share .84 (.30) 1.20 (.57) (.26)
Total assets 361,048 339,301 367,243 347,074 340,945
Long-term obligations and redeemable
convertible preferred stock 2,098 4,001 5,722 14,811 21,059
</TABLE>
(1) See Note 7 of Notes to Consolidated Financial Statements for further
discussion.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cadence (the "Company") designs, develops, markets and supports
electronic design automation ("EDA") software products primarily used to
automate, enhance and accelerate the design, verification and testing of
integrated circuits, electronic systems and printed circuit boards. The Company
combines its software products and professional services to provide customers
with optimized electronic product development environments.
In December 1994 the Company acquired the business and certain assets of
Parsec Software, Inc. ("Parsec"). Parsec developed, marketed and supported a
software product used for static timing analysis in the electronic design area.
The acquisition was accounted for as a purchase and accordingly, the results of
the Parsec business from the date of the acquisition forward have been recorded
in the Company's consolidated financial statements.
In August 1994 the Company acquired the business and certain assets of
Redwood Design Automation, Inc. ("Redwood"). Redwood developed, marketed and
supported advanced software tools for electronic systems design. The
acquisition was accounted for as a purchase and accordingly, the results of
Redwood from the date of the acquisition forward have been recorded in the
Company's consolidated financial statements. In connection with the
acquisition, the Company recorded a one-time charge to operations of $4.7
million for the write-off of in-process research and development that had not
reached technological feasibility and, in management's opinion, had no probable
alternative future use. The Redwood business is now a part of the Company's
Alta division.
In June 1993 the Company acquired the business and certain assets of
Comdisco Systems, Inc. ("Comdisco"), a subsidiary of Comdisco, Inc. The
Comdisco business involves the development, marketing and support of digital
signal processing software products in the electronic systems applications
area. The acquisition was accounted for as a purchase and accordingly, the
results of Comdisco from the date of the acquisition forward have been recorded
in the Company's consolidated financial statements. The Comdisco business is
now a part of the Company's Alta division.
In December 1993 the Company sold its Automated Systems ("ASI") division.
ASI manufactures and provides design services for complex printed circuit
boards. The operating results of ASI have been reported as a disposal of a
division and are included as an unusual item within operating expenses in the
consolidated statements of income for all years presented. The loss on
disposal of approximately $6.0 million is classified in other income (expense)
in the 1993 statement of income.
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<PAGE> 19
Results of Operations
The following table sets forth for the years indicated (a) the percentage of
total revenue represented by each item reflected in the Company's consolidated
statements of income and (b) the percentage increase (decrease) in each such
item from the prior year.
<TABLE>
<CAPTION>
(b) Period to Period
Percentage
Increase (Decrease)
(a) Percentage of Total Revenue -------------------
Year Ended December 31, 1994 1993
--------------------------------- Compared with
1994 1993 1992 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Product 63% 65% 75% 12% (23)%
Maintenance 37 35 25 25 23
--- --- ---
Total revenue 100 100 100 16 (12)
--- --- ---
Cost of revenue:
Product 19 20 18 10 (3)
Maintenance 3 4 4 (14) (12)
-- -- --
Total cost of revenue 22 24 22 6 (5)
-- -- --
Gross margin 78 76 78 20 (14)
-- -- --
Operating expenses:
Marketing and sales 38 43 38 2 1
Research and development (1) 17 19 16 5 4
General and administrative 9 11 8 3 14
Unusual items 4 5 -- (25) *
-- - --
Total operating expenses 68 78 62 1 11
-- -- --
Income (loss) from operations 10 (2) 16 * *
Other income (expense) 1 (1) - * *
- --- --
Income (loss) before provision
for income taxes 11 (3) 16 * *
Provision for income taxes 3 - 3 * *
-- --- -
Net income (loss) 8% (3)% 13% * *
=== ==== ===
</TABLE>
* Not meaningful
(1) The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86. Total research and
development expenses incurred prior to capitalization represented 19%,
23% and 19% of total revenue for 1994, 1993 and 1992, respectively. The
percentage change from 1993 to 1994 and from 1992 to 1993 was a decrease
of 1% and an increase of 4%, respectively, on a pre-capitalization
basis.
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<PAGE> 20
Revenue
Total revenue was approximately $429.1 million, $368.6 million and
$418.7 million for the years ended December 31, 1994, 1993 and 1992,
respectively. Product revenue increased approximately $28.9 million in 1994 as
compared to 1993 due to increased sales volume related to the Company's
integrated circuit, automated test engineering and Alta products (formerly
Comdisco and Redwood), and increased Spectrum Services consulting revenue. The
Alta product revenue increase was a result of a full year of revenue related to
the Comdisco business included in 1994 as compared to 1993, which included
revenue only from the date of acquisition forward. Spectrum Services
consulting revenue increased in 1994 due to increased demand for this business.
Product revenue decreased approximately $74.0 million for the year ended
December 31, 1993 as compared to the prior year due to weak economic
conditions, principally in Japan and lower sales volume for the Company's
products, as well as a shift in the Company's systems product strategy. This
shift in strategy refocused the Company's development efforts on a product
previously developed and marketed by an acquired company. This product had
been discontinued near the time of the acquisition due to an overlap of
products in the newly combined company. As a result of this change, a
significant portion of the Company's selling efforts were focused on explaining
this shift in product strategy to the Company's existing and potential
customers rather than engaging in normal sales activities, resulting in a
reduction in revenue. This decrease in product revenue in 1993 was offset
somewhat by the acquisition of Comdisco.
Maintenance revenue continued to increase each year growing by
approximately $31.6 million in 1994 compared to 1993 and $23.9 million in 1993
compared to 1992. These increases were attributable to an increase in the
Company's installed base of products as well as the Company's continued
effort toward obtaining customer renewals of maintenance coverage. As a
percentage of total revenue, maintenance revenue has grown over the last three
years from approximately 25% to approximately 37% of total revenue. The
increase in maintenance revenue as a percentage of total revenue was also due
to the lower levels of product revenue in 1993 and 1994 as compared to 1992.
Revenue from international sources was approximately $221.6
million, $183.6 million and $215.4 million, or 52%, 50% and 51% of total
revenue for the years ended December 31, 1994, 1993 and 1992, respectively.
The increase in 1994 was due to increased sales volume in all major regions
which includes Europe and Asia/Pacific. The decrease in 1993 was principally
related to decreased sales volume in Japan. In 1994, the Company took certain
steps to address the impact on its revenue of the weak Japanese economy. The
Company reorganized its direct sales force in Japan, made changes to certain of
its distribution relationships and introduced new systems products to address
customer design needs. Although the Company experienced increased revenue from
Japan in 1994 as compared to 1993, there can be no assurance that these steps
will continue to strengthen the Company's revenue volume in Japan. It is
anticipated that international revenue will continue to constitute a
significant portion of total revenue. International revenues are subject to
certain additional risks normally associated with international operations,
including, among others, adoption and expansion of government trade
restrictions, volatile foreign exchange rates, currency conversion risks,
limitations on repatriation of earnings and reduced protection of intellectual
property rights. Due to the January 1995 earthquake in Japan, the Company
could experience a reduced level of activity from this important market, which
could have a material adverse impact on the Company's results of operations.
Cost of Revenue
Total cost of revenue was approximately $94.6 million, $89.4
million and $94.0 million for the years ended December 31, 1994, 1993 and 1992,
respectively. Total cost of revenue increased $5.3 million in 1994 as compared
to 1993 and decreased $4.6 million in 1993 as compared to 1992. The increase
in 1994 was due to a $7.1 million increase in costs associated with the
continued expansion of the Spectrum Services consulting business and a $2.5
million increase in costs related to the Alta division (formerly Redwood and
Comdisco operations). These increases were offset by cost reductions totaling
$3.6 million in occupancy, due to the Company's purchase of previously leased
facilities in the first and fourth quarters of 1994, and cost of maintenance.
The decrease in 1993 consisted of a $10.1 million decrease in product cost of
revenue due to lower revenue levels, reduced costs due to restructure actions
including related headcount reductions, as
18
<PAGE> 21
well as the discontinuance in 1992 of sales of third-party hardware. This
decrease was offset by a $5.5 million increase in cost of product associated
with the acquired Comdisco operations and increased amortization of
intangibles. Cost of maintenance decreased $2.2 million and $2.1 million in
1994 and 1993, respectively, as compared to the prior year, even though revenue
increased. These decreases were due to the streamlining of the maintenance
renewal process, which includes a more cost-effective update program whereby
update releases are aggregated into fewer releases each year, and the
increasing use of CD-ROM, a lower cost media, for software code distribution
and documentation. As a percentage of total revenue, cost of maintenance
revenue has remained in the range of 3% to 4% and cost of product revenue has
approximated 18% to 20%.
Gross Margin
As a result of the factors discussed above, gross margin was 78%,
76% and 78% for the years ended December 31, 1994, 1993 and 1992, respectively.
The Company's strategy is to help its customers meet their
business objectives through optimized product design environments. The Company
facilitates these optimized design environments through a combination of
software products and professional services. While historically the Company's
professional services revenue has been less than 10% of its product revenue,
this portion of its business is expected to become a larger percentage of the
Company's product revenue in the future. As a result, the Company's gross
margin percentage is expected to be reduced as the level of professional
service revenue increases because professional services have a lower gross
profit percentage than software product sales.
Marketing and Sales
Marketing and sales expenses increased $3.2 million in 1994 as
compared to 1993 and $1.2 million in 1993 as compared to 1992. The increase in
1994 was due to increased costs of $4.7 million related to the Alta operations
which were offset by reductions in discretionary spending. The increase in
1993 as compared to 1992 was due to increased costs of $4.4 million associated
with the Alta operations offset by reduced costs related to restructure actions
taken in the first quarter of 1993, including headcount reduction. Marketing
and sales expenses were 38%, 43% and 38% of revenue in 1994, 1993 and 1992,
respectively. The higher percentage in 1993 was due primarily to the decrease
in total revenue in 1993 as compared to 1992.
Research and Development
Total research and development expenditures incurred prior to
capitalization of software development costs decreased 1% in 1994 as compared
to 1993 and increased 4% in 1993 as compared to 1992, a decrease of $.9 million
and an increase of approximately $3.1 million, respectively. The decrease in
1994 was due to lower occupancy costs of $2.5 million and decreased capital
equipment costs of $1.5 million offset by increased costs of $2.4 million
related to the Alta division. The increase in 1993 was primarily a result of
increased expenses of $3.2 million due to the addition of Alta operations.
Prior to the reduction for capitalization of software development costs,
research and development expenses comprised approximately 19%, 23% and 19% of
total revenue or approximately $83.4 million, $84.3 million and $81.2 million
for the years 1994, 1993 and 1992, respectively. The increase as a percentage
of revenue in 1993 was primarily due to the decrease in total revenue in 1993
as compared to 1992. The Company capitalized approximately $10.8 million,
$15.2 million and $14.7 million of software development costs in the years
1994, 1993 and 1992, respectively, which represented approximately 13%, 18% and
18% of total research and development expenditures made in those years. The
amount of capitalized software development costs in any given period may vary
depending on the exact nature of the development performed.
General and Administrative
General and administrative expenses increased approximately $1.0
million in 1994 as compared to 1993 and $4.9 million in 1993 as compared to
1992. The increase in 1994 was primarily due to increased costs totaling $2.5
million related to increased employee related costs and Alta operations which
were offset by cost savings of $1.3 million resulting from lower occupancy
costs.
19
<PAGE> 22
The increase in 1993 compared to 1992 was due to the addition of Alta
operations, increased bad debt expense due to the write-off of uncollectible
accounts receivable and increased professional services and employee-related
expenses. As a percentage of total revenue, general and administrative
expenses were 9%, 11% and 8% for the years ended December 31, 1994, 1993 and
1992, respectively. The higher percentage in 1993 was partially due to the
decrease in total revenue in 1993 as compared to 1992.
Unusual Items
Unusual items were expenses of $14.7 million and $19.7 million and
income of $.3 million for 1994, 1993 and 1992, respectively.
The unusual items in 1994 include costs of $4.7 million related to
the September 1994 write-off of in-process research and development associated
with the Redwood acquisition as Redwood's development efforts that had not
reached technological feasibility and, in management's opinion, had no probable
alternative future use.
Also included in the 1994 unusual items was a $10.0 million
provision for settlement of litigation. In April 1994 the Company entered into
tentative agreements to settle two class action lawsuits for a combined
settlement of $16.5 million, of which approximately $7.5 million was covered by
the Company's insurance carriers. Reflected in the statement of income in 1994
is the net settlement cost of approximately $9.0 million plus approximately
$1.0 million for related legal costs.
The $19.7 million of unusual items in 1993 includes restructuring
costs of $13.5 million recorded in March 1993 associated with a planned
restructure of certain areas of sales, operations and administration due to
business conditions. The restructuring charge primarily reflects costs
associated with employee terminations, excess facilities and the write-off of
purchased software and intangibles arising from required adjustments to the
Company's cost structure necessitated by lower revenue levels. Also included
in the restructuring charge was an additional provision for doubtful accounts
and the write-off of certain software development costs resulting from changes
in the Company's systems product strategy as discussed above under "Revenue".
In December 1993 the Company also sold its ASI division. Included
in unusual items for the respective years was the division's loss from
operations of $6.2 million in 1993 and income of $.3 million in 1992.
Other Income and Expense
Other income and expense netted to income of $4.8 million in 1994,
expense of $4.4 million in 1993 and income of $2.6 million in 1992. Other
income and expense includes interest income, interest expense, minority
interest and foreign exchange gains and losses. Interest income was $3.3
million, $3.2 million and $3.6 million for the years ended December 31, 1994,
1993 and 1992, respectively. Interest expense was $1.0 million, $.7 million
and $.9 million for the years ended December 31, 1994, 1993 and 1992,
respectively. The increase in interest expense in 1994 as compared to 1993 was
due to an increase in notes payable related to the purchase of corporate
facilities in the first and fourth quarters of 1994. The note payable related
to the first quarter facility purchase was paid off in full in May 1994 from
the Company's cash reserves. Also included in other income in 1994 was the
fourth quarter gain of $4.2 million related to the sale of an equity
investment. In 1993 the Company recorded a $6.0 million loss on the disposal
of its ASI division which is also included in other income and expense for that
year.
Provision for Income Taxes
As of December 31, 1994 the Company had gross deferred tax assets of
approximately $71.5 million against which the Company has recorded a valuation
allowance of $53.2 million, resulting in a net deferred tax asset of $18.3
million. A significant portion of the net operating loss and credit
carryforwards which created the deferred tax asset were generated by acquired
companies prior to their merger with the Company and by restructuring charges
recorded as a result of these mergers. Management has determined, based on the
Company's history of prior operating earnings and its
20
<PAGE> 23
expectations for future years, that the recorded net deferred tax asset is
realizable. However, no assurances can be given that sufficient taxable income
will be generated in future years for the utilization of the net deferred tax
asset.
The Company's effective tax rate for 1994 was 25%. This rate reflects
the reduction in the valuation allowance during 1994 primarily from the
utilization of net operating losses generated in prior years.
In 1993 the Company's tax provision was zero as a result of the
operating loss in 1993 and the recording of the benefit of certain foreign
withholding and income taxes.
In 1992 the Company's effective tax rate was 19%. This rate reflects
the utilization of foreign tax credits and the reduction in the valuation
allowance from the utilization of net operating losses of acquired companies
and temporary items generated in prior years.
Quarterly Results of Operations
The following table sets forth selected unaudited quarterly
financial information for the Company's last eight quarters. This unaudited
information has been prepared on the same basis as the audited information and
in management's opinion reflects all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the information
for the periods presented. Based on the Company's operating history and
factors that may cause fluctuations in the quarterly results,
quarter-to-quarter comparisons should not be relied upon as indicators of
future performance. Although the Company's revenues are not generally seasonal
in nature, the Company has experienced decreases in first quarter revenue
versus the preceding fourth quarter which is believed to result primarily from
the capital purchase cycle of the Company's customers.
The level of the Company's operating expenses are partially based
on its expectations of future revenue. The Company's results of operations may
be adversely affected if revenue does not materialize in a period as expected.
Since expense levels are usually committed in advance of revenues and because
only a small portion of expenses vary with revenue, the Company's net income
may be impacted significantly by lower revenue. The Company's revenue
increased each quarter in 1994 as compared to the same quarter in the prior
year. This increase was due principally to increased sales volume of the
Company's products. Also included in the 1994 quarterly operations was a $4.2
million gain in the fourth quarter for the sale of an equity investment, a $4.7
million charge in the third quarter related to the write-off of in-process
research and development, a $12.1 million provision for settlement of
litigation in the first quarter and a $2.1 million credit to the provision for
settlement of litigation recorded in the second quarter. In addition, in 1993,
the fourth quarter included a $6.0 million loss on disposal related to ASI and
the first quarter included approximately $13.5 million of restructuring costs.
(In thousands, except
per share data)
<TABLE>
<CAPTION>
1994 1993
------------------------------------------ -------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
--------- --------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue $121,653 $109,598 $101,043 $ 96,778 $106,076 $97,616 $88,814 $ 76,117
Costs and expenses 97,610 97,115 88,043 102,257 97,152 92,929 88,288 98,669
Income (loss) from
operations 24,043 12,483 13,000 (5,479) 8,924 4,687 526 (22,552)
Net income (loss) $ 20,932 $ 9,483 $ 10,082 $ (3,849) $ (1,037) $ 3,742 $ 832 $(16,316)
======= ======= ======= ======== ======= ====== ====== =========
Net income (loss)
per share $.49 $.22 $.23 $(.09) $(.02) $.08 $.02 $(.37)
==== ==== ==== ====== ====== ==== ==== ======
Weighted average
common and common
equivalent shares
outstanding 42,661 43,044 44,576 41,208 46,565 45,016 43,011 44,136
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
21
<PAGE> 24
Inflation
To date, the Company's operations have not been impacted
significantly by inflation.
Factors That May Affect Future Results
The Company's future operating results are dependent on the Company's
ability to successfully implement its strategy to help its customers meet their
business objectives through optimized product design environments ("PDEs").
The Company provides these PDEs through a combination of software products and
professional services. Inherent in implementing this strategy are a number of
risks that the Company must manage and which could affect its future operating
results.
The Company competes in the highly competitive EDA market which
continues to be characterized by aggressive pricing practices, rapid
technological change and new market entrants. The Company's success is
dependent on its ability to develop innovative, cost-competitive EDA software
products and to bring them to market in a timely manner.
In order to more effectively work with customers to help them build
optimized PDEs, the Company has realigned its sales force along industry lines.
The Company expects this industry focus will allow the sales force to better
understand and prepare solutions to its customers' business needs thereby
increasing revenue. Should the benefits of this realignment take longer to
realize than expected, the Company's revenues could be adversely affected.
Another important part of the Company's strategy is to help its
customers through an increased offering of professional services. While the
Company has provided professional services to its customers for a number of
years, there are a number of risks the Company must successfully address in
order to develop this portion of its business. These risks include the ability
to successfully recruit, train and retain a skilled consulting force and the
ability to profitably deliver consulting services that meet customer
expectations. The Company's profitability could be adversely affected if it is
unable to develop its consulting services business as expected.
Due to the foregoing, as well as other factors, past financial
performance should not be considered a reliable indicator of future
performance. In addition, the Company's participation in a highly dynamic
industry often results in significant volatility of the Company's common stock
price. Any change in revenues or operating results below levels expected by
securities analysts for the Company or its competitors, and the timing of the
announcement of such shortfalls, could have an immediate and significant
adverse effect on the trading price of the Company's common stock in any given
period.
Liquidity and Capital Resources
The Company's cash and cash investments increased $13.6 million,
decreased $17.6 million and decreased $8.7 million for the years ended December
31, 1994, 1993 and 1992, respectively. The Company generated approximately
$154.4 million, $97.3 million and $45.6 million in cash from operating
activities for those same periods. The increase in 1994 as compared to 1993
was due primarily to an increase in net income and deferred revenue and a
decrease in prepaid expenses and other assets. The increase in 1993 as compared
to 1992 was due to a decrease in accounts receivable and an increase in
deferred revenue and accrued liabilities and payables which were offset by the
decrease in net income. The Company's principal investing activities consisted
of the purchase of facilities and equipment and the capitalization of software
development costs, which in total were $40.6 million, $33.7 million and $45.7
million for the years ended December 31, 1994, 1993 and 1992, respectively. In
addition, the other major component of investing activities was the purchase
and maturity of short-term investments. The Company's primary financing
activities included the sale of common stock pursuant to employee benefit plans
of $13.5 million, $4.3 million and $8.5 million in 1994, 1993 and 1992,
respectively, and the repurchase of $95.1 million, $52.2 and $10.8 million of
common stock for the years ended December 31, 1994, 1993 and 1992,
respectively. In addition, the Company made principal payments on capital
leases and notes payable of $29.2 million, $8.1 million and $13.5 million in
1994, 1993 and 1992, respectively.
22
<PAGE> 25
Working capital at December 31, 1994 was $27.5 million compared
with $105.0 million at December 31, 1993 and $153.3 million at December 31,
1992. The decrease in 1994 as compared to 1993 was primarily due to an
increase in notes payable of $23.7 million related to the purchase of corporate
facilities, an increase in deferred revenue of $23.1 million due to increased
maintenance billings and a $23.3 million decrease in accounts receivable due to
improved days sales outstanding. The decrease in 1993 as compared to 1992 was
primarily due to a decrease of $30.9 million in accounts receivable primarily
resulting from lower revenue, a $12.8 million increase in deferred revenue and
a $7.3 million increase in accrued liabilities related to restructuring
accruals recorded in 1993.
Long-term obligations decreased $1.9 million in 1994 as compared
to the prior year and $1.7 million in 1993 as compared to 1992 due to a
decrease in capital lease borrowings.
The Company has an authorized stock repurchase program. Prior to
1993, the Company had authorized the repurchase of up to 2.8 million shares of
common stock in the open market. In 1993 and 1994, the Company authorized the
repurchase of an additional 4.0 million and 13.4 million shares, respectively,
of common stock from time to time. In total, as of December 31, 1994,
approximately 11.5 million shares had been repurchased. Some repurchases are
necessary to satisfy estimated requirements for shares to be issued under the
Company's employee stock option and stock purchase plans as well as in
connection with acquisitions. As part of its authorized stock repurchase
program, the Company sold 5.0 million put warrants and purchased 3.8 million
call options through private placement. The Company had a maximum potential
obligation related to the put warrants at December 31, 1994 to buy back five
million shares of its common stock at an aggregate price of approximately $81.3
million. The put warrants are exercisable on various dates between April 1995
and November 1995. Alternatively, the Company can elect to settle the put
warrants with stock which could cause the Company to issue a substantial number
of shares, depending on the amounts of the repurchase obligations and the per
share value of the Company's common stock at the time of exercise. In addition,
settlement of put warrants in stock or cash could lead to the disposition by
put warrant holders of shares of the Company's common stock that such holders
may have accumulated in anticipation of the exercise of the put warrants or
call options.
In addition to the $96.9 million in cash and cash investments and
short-term investments at December 31, 1994, the Company had available
approximately $10.0 million under a bank line of credit, which expires in June
1995. The Company is currently in negotiations with the bank regarding
possible extension/expansion of this line of credit, but there can be no
assurance that mutually acceptable terms can be reached. An unused bank line
of credit of $7.5 million was canceled by the Company effective December 30,
1994.
Anticipated cash requirements in 1995 include the purchase of
treasury stock through the exercise of the Company's call options and through
the open market. The Company has the right to purchase 3.8 million shares
through the exercise of call options during 1995 at a cost of approximately
$66.3 million. Subsequent to December 31, 1994 the Company repurchased a
portion of an outstanding warrant applicable to 1,000,000 shares of common
stock for approximately $12.1 million (see Note 12 of Notes to Consolidated
Financial Statements). Other cash requirements include the repayment in August
1995, if not refinanced, of a $23.7 million secured loan assumed as part of a
1994 purchase of corporate facilities and contemplated additions of capital
equipment of approximately $35 million.
The Company anticipates that current cash and short-term
investment balances, cash flows from operations and short and long-term
borrowing capabilities will be sufficient to meet its working capital and
capital expenditure requirements on a short and long-term basis.
23
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The quarterly supplementary data is included as part of Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The financial statements required by this item are submitted as a
separate section of this Form 10-K. See Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 as to directors is incorporated
by reference from the section entitled "Election of Directors" in the Company's
Proxy Statement for its annual stockholders' meeting to be held May 11, 1995.
The information required by this Item as to executive officers is included in
Part I under "Executive Officers of the Registrant."
The Company has reviewed all Forms 3, 4 and 5 filed with respect to
1994 and based thereon has determined that there has been no failure to timely
file any reports required by Section 16(a) of the Securities Exchange Act of
1934 for 1994 or prior years, except that one Form 3 initially filed for Mr.
Johnston, a member of the Board of Directors, was amended to reflect additional
ownership of 300 shares of the Company's common stock. This amended Form 3 was
filed March 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference
from the sections entitled "Director Compensation" and "Executive Compensation"
in the Company's Proxy Statement for its annual stockholders' meeting to be
held May 11, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference
from the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement for its annual stockholders'
meeting to be held May 11, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference
from the section entitled "Certain Transactions" in the Company's Proxy
Statement for its annual stockholders' meeting to be held May 11, 1995.
24
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(a)1. Financial Statements
o Report of Independent Public Accountants..................... 30
o Consolidated Financial Statements:
o Balance Sheets as of December 31, 1994 and 1993.............. 31
o Statements of Income for the years ended
December 31, 1994, 1993 and 1992..................... 32
o Statements of Stockholders' Equity for the
years ended December 31, 1994, 1993 and 1992........ 33
o Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992..................... 34
o Notes to Consolidated Financial Statements................... 35
(a)2. Financial Statement Schedules
II Valuation and Qualifying Accounts and Reserves.............. 51
</TABLE>
All other schedules are omitted because they are not required
or the required information is shown in the financial statements or notes
thereto.
(a)3. Exhibits
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
3.01 (a) The Registrant's Certificate of Incorporation, as filed with the Secretary of State of the State of
Delaware on April 8, 1987 (incorporated by reference to Exhibit 3.01 to Registrant's Form S-1
Registration Statement (No. 33-13845) originally filed on April 29, 1987 (the "1987 Form S-1")).
(b) The Registrant's Certificate of Retirement of Stock as filed with the Secretary of State of the State
of Delaware on September 28, 1987 (incorporated by reference to Exhibit 3.01(b) to Registrant's Form S-4
Registration Statement (No. 33-20724) originally filed on February 25, 1988).
(c) The Registrant's Certificate of Ownership and Merger as filed with the Secretary of State of the
State of Delaware on June 1, 1988 (incorporated by reference to Exhibit 3.02(c) to the Registrant's Form
S-1 Registration Statement (No. 33-23107) originally filed on July 18, 1988 (the "1988 Form S-1")).
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
(d) The Registrant's Certificate of Designations of Series A Junior Participating Preferred Stock as
filed with the Secretary of State of the State of Delaware on June 8, 1989 (incorporated by reference to
Exhibit 3A to the Registrant's Form 8-K originally filed on June 12, 1989).
(e) The Registrant's Certificate of Amendment of Certificate of Incorporation as filed with the Secretary
of State of the State of Delaware on July 26, 1991 (incorporated by reference to Exhibit 3.01(e) to the
Registrant's Form S-4 Registration Statement (No. 33-43400) originally filed on October 7, 1991 (the
"1991 Form S-4")).
(f) The Registrant's Certificate of Designation of Series A Convertible Preferred Stock as filed with the
Secretary of State of the State of Delaware on December 30, 1991 (incorporated by reference to Exhibit
3.01(f) from the Registrant's Form 10-K for the fiscal year ended December 31, 1991).
3.02 The Registrant's Bylaws, as currently in effect (as incorporated by reference to Exhibit 3.02 to the 1987
Form S-1 and as amended by Exhibit 3-b to Form 8-K filed June 12, 1989).
4.01 Specimen Certificate of the Registrant's Common Stock (incorporated by reference to Exhibit 4.01 to the
1991 Form S-4).
4.02 Amended and Restated Rights Agreement, dated as of June 19, 1988, between the Registrant and Bank of
America N.T. & S.A., as Rights Agent, which includes as exhibits thereto the form of Right Certificate
and the Summary of Rights to Purchase Common Shares (incorporated by reference to Exhibit 4a to the
Registrant's Form 8 filed on June 20, 1989).
4.03 Assumption of Obligations under Amended and Restated Rights Agreement between the registrant and Harris
Trust Company of California (incorporated by reference to Exhibit 10.34 to the Registrant's 1991 Form S-
4).
10.01 The Registrant's 1987 Stock Option Plan, as amended to date, (incorporated by reference to Exhibit 4.01
to the Registrant's Form S-8 Registration Statement (No. 33-53913) filed on May 31, 1994 (the "1994 Form
S-8")).*
10.02 Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect under
the Registrant's 1987 Stock Option Plan (incorporated by reference to Exhibit 4.01 to the Registrant's
Form S-8 Registration Statement (No. 33-22652) filed on June 20, 1988).*
10.03 The Registrant's 1988 Directors Stock Option Plan, as amended to date, including the Stock Option Grant
and Stock Option Exercise Notice and Agreement (the first document is incorporated by reference to
Exhibit 4.02 of the Registrant's 1994 Form S-8 and the latter two documents are incorporated by reference
to Exhibit 10.08 - 10.10 of the 1988 Form S-1).*
10.04 The Registrant's 1993 Directors Stock Option Plan including the Stock Option Grant (incorporated by
reference to Exhibit 10.04 of the 1994 Form S-8). *
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.05 The Registrant's 1990 Employee Stock Purchase Plan as amended to date (incorporated by
reference to Exhibit 4.03 of the 1994 Form S-8).*
10.06 The Registrant's Senior Executive Bonus Plan for 1994 (incorporated by reference to Exhibit 10.08 of the
Registrant's Form 10-K for the fiscal year ended December 31, 1993 (the "1993 Form 10-K")).*
10.07 The Registrant's Key Contributor Bonus Plan for 1994 (incorporated by reference to Exhibit 10.09 of the
1993 Form 10-K).*
10.08 The Registrant's Senior Executive Bonus Plan for 1995. *
10.09 The Registrant's Deferred Compensation Plan for 1994. *
10.10 Amended and Restated Lease, dated June 29, 1989, by and between River Oaks Place Associates, a California
limited partnership, ("ROPA") and the Registrant, for the Registrant's executive offices at 555 River
Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 Registrant's Form 10-K for
the fiscal year ended December 31, 1990 (the "1990 Form 10-K")).
10.11 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 575
River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.16 to the 1990 Form 10-
K).
10.12 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 535 and
545 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.17 to the 1990
Form 10-K).
10.13 Lease dated September 3, 1985 by and among the Richard T. Peery and John Arrillaga Separate Property
Trusts ("P/A Trusts") and Valid Logic Systems Incorporated ("Valid") (which merged into the Registrant)
for the Registrant's offices at 75 West Plumeria Avenue, San Jose, California (incorporated by reference
to Exhibit 10.16 to the Form 10-K for Valid for the fiscal year ended December 30, 1990 (the "1990 Valid
Form 10-K")).
10.14 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 75 West Plumeria Avenue, San Jose,
California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.17 to the 1990
Valid Form 10-K).
10.15 Lease dated December 19, 1988 by and among the P/A Trusts and Valid for the Registrant's offices at 2835
North First Street, San Jose, California (incorporated by reference to Exhibit 10.18 to the 1990 Valid
Form 10-K).
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.16 Lease dated September 3, 1985 by and among the P/A Trusts and Valid for the Registrant's offices at 2820
Orchard Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the 1990 Valid Form
10-K).
10.17 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 2820 Orchard Parkway, San Jose,
California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.15 to the 1990
Valid Form 10-K).
10.18 Form of Executive Compensation Agreement dated May 1989 between Registrant and Mr. Costello (incorporated
by reference to Exhibit 10.20 to the 1989 Form S-4).*
10.19 Offer letter to H. Raymond Bingham dated May 12, 1993 (incorporated by reference to Exhibit 10.24 of
the 1993 Form 10-K). *
10.20 Offer letter to M. Robert Leach dated May 17, 1993 (incorporated by reference to Exhibit 10.25 of the 1993
Form 10-K). *
10.21 Letter agreement dated March 9, 1994 by and among C.T. Properties, Inc.("General Partner"), Registrant,
Montague Investors, L.P. ("Montague") and David M. Thede ("Thede") whereby Registrant acquired all of
Thede's ownership interests in the C.T. Montague I, L.P. and C.T. Montague II, L.P. limited partnerships
and the General Partner and all of Montague's interests in C.T. Montague I, L.P. (incorporated by
reference to the 1993 Form 10-K).
10.22 1993 Non-Statutory Stock Option Plan (incorporated by reference to Exhibit 4.05 to the 1994 Form S-8). *
10.23 Consulting agreement dated May 1, 1994 with Henry E. Johnston, who was made a director on July 5, 1994 by
unanimous written consent (incorporated by reference to the Registrant's Form 10-Q for the quarterly
period ended June 30, 1994 (the "1994 Second Quarter Form 10-Q")). *
10.24 Consulting agreement dated October 26, 1993 with Alberto Sangiovanni-Vincentelli (incorporated by
reference to the 1994 Second Quarter Form 10-Q). *
10.25 Letter agreement dated August 17, 1994 by and among Registrant, Morris Management Company (the "General
Partner"), and Morris Associates VI, L.P. ("Morris") whereby Registrant acquired all of the interests in
River Oaks Place Associates, L.P. (incorporated by reference to the Registrant's Form 8-K filed November
14, 1994).
10.26 Agreement of Merger and Plan of Reorganization by and among Registrant, Simon Software, Inc. and Redwood
Design Automation, Inc. ("Redwood") dated as of July 8, 1994 (incorporated by reference to the
Registrant's Form 10-Q/A, Amendment Number 1 to the 1994 Second Quarter Form 10-Q, filed November 14,
1994).
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.27 Agreement of Merger dated as of August 1, 1994 between Redwood and CDS Corporation (incorporated by
reference to the Registrant's Form 10-Q/A, Amendment Number 1 to the 1994 Second Quarter Form 10-Q, filed
November 14, 1994).
10.28 Form of Stock Option Agreement for Registrant's 1993 Non Statutory Stock Option Plan (incorporated by
reference to the Registrant's Form 10-Q for the third quarter ended September 30, 1994). *
21.01 Subsidiaries of the Registrant
23.01 Consent of Arthur Andersen LLP
27.1 Financial data schedule for the period ended December 31, 1994.
-----------
* A Management contract or compensatory plan required to be filed as an exhibit to Form 10-K.
(b) Reports on Form 8-K
On November 14, 1994, Registrant filed a Current Report on Form 8-K, reporting the acquisition by the
Registrant of Redwood Design Automation, Inc. ("Redwood"), together with audited financial statements of
Redwood for the fiscal years ended January 31, 1994 and 1993, an unaudited balance sheet of Redwood as of
July 31, 1994 and the related unaudited statements of operations and cash flows of Redwood for the six
months ended July 31, 1994 and 1993, a pro forma condensed combined balance sheet of the Registrant and
Redwood as of June 30, 1994 and the unaudited pro forma condensed combined statements of operations of
the Registrant and Redwood for the six months ended June 30, 1994 and the year ended December 31, 1993.
This report was amended on March 10, 1995.
On November 14, 1994, Registrant filed a Current Report on Form 8-K, reporting the acquisition by the
Registrant of all third-party interests in River Oaks Place Associates, L.P.
On November 29, 1994, Registrant filed a Current Report on Form 8-K reporting the change in Registrant's
year end from December 31 to the Saturday closest to December 31, effective December 31, 1994.
(c) Exhibits
The Company hereby files as part of this Form 10-K the Exhibits listed in Item 14.(a)3. above.
(d) Financial Statement Schedules
See Item 14.(a)2. of this Form 10-K.
</TABLE>
29
<PAGE> 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cadence Design Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Cadence Design
Systems, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 financial statements referred to above present fairly, in
all material respects, the financial position of Cadence Design Systems, Inc.
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14. (a) 2. is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-------------------------
Arthur Andersen LLP
San Jose, California
January 20, 1995
30
<PAGE> 33
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash investments . . . . . . . . . . . . . . . . . . . . . $ 75,011 $ 61,382
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . 21,865 31,423
Accounts receivable, less allowance of $4,905 in 1994 and $3,471 in
1993 for doubtful accounts . . . . . . . . . . . . . . . . . . . . 78,629 101,890
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,137 5,744
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . 11,293 18,036
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . 191,935 218,475
------- -------
PROPERTY, PLANT AND EQUIPMENT, net . . . . . . . . . . . . . . . . . . . . 122,064 61,477
SOFTWARE DEVELOPMENT COSTS, net . . . . . . . . . . . . . . . . . . . . . . 27,832 31,265
PURCHASED SOFTWARE AND INTANGIBLES, net . . . . . . . . . . . . . . . . . . 10,557 12,787
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,660 15,297
------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 361,048 $ 339,301
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable and current portion of long-term obligations . . . . . $ 26,412 $ 3,962
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 12,522 13,513
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 56,359 51,352
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 7,944 6,541
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 61,205 38,111
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . 164,442 113,479
------- -------
LONG-TERM LIABILITIES:
Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . 2,098 4,001
Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 9,040 10,722
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 904 2,243
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . 8,501 2,734
------- -------
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . 20,543 19,700
------- -------
STOCKHOLDERS' EQUITY:
Common stock -- $.01 par value; authorized 150,000,000 shares
Issued: 47,593,924 shares for 1994 and 46,038,646 shares for 1993
Outstanding: 37,907,290 shares for 1994 and 41,181,446 shares
for 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . 476 460
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 264,697 250,501
Treasury stock, at cost (9,686,634 shares for 1994 and 4,857,200
shares for 1993). . . . . . . . . . . . . . . . . . . . . . (133,728) (52,178)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 43,377 8,527
Accumulated translation adjustment . . . . . . . . . . . . . . . . . 1,241 (1,188)
------- -------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 176,063 206,122
------- -------
Total liabilities and stockholders' equity . . . . . . . . $ 361,048 $ 339,301
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 34
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Product . . . . . . . . . . . . . . . . . . . . . . $269,910 $ 241,011 $ 315,024
Maintenance . . . . . . . . . . . . . . . . . . . . 159,162 127,612 103,700
-------- --------- ---------
Total revenue . . . . . . . . . . . . . . . 429,072 368,623 418,724
-------- --------- ---------
COST OF REVENUE:
Product . . . . . . . . . . . . . . . . . . . . . . 81,021 73,594 76,104
Maintenance . . . . . . . . . . . . . . . . . . . . 13,586 15,757 17,850
-------- --------- ---------
Total cost of revenue . . . . . . . . . . . 94,607 89,351 93,954
-------- --------- ---------
GROSS MARGIN . . . . . . . . . . . . . . . . . . . . . . 334,465 279,272 324,770
-------- --------- ---------
OPERATING EXPENSES:
Marketing and sales . . . . . . . . . . . . . . . . 163,408 160,212 159,009
Research and development . . . . . . . . . . . . . . 72,574 69,088 66,432
General and administrative . . . . . . . . . . . . . 39,729 38,737 33,872
Unusual items . . . . . . . . . . . . . . . . . . . 14,707 19,650 (253)
-------- --------- ---------
Total operating expenses . . . . . . . . . . 290,418 287,687 259,060
-------- --------- ---------
INCOME (LOSS) FROM OPERATIONS . . . . . . . . . . . . . . . 44,047 (8,415) 65,710
OTHER INCOME (EXPENSE) . . . . . . . . . . . . . . . . . . 4,816 (4,364) 2,636
-------- --------- ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES . . . . . 48,863 (12,779) 68,346
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . 12,215 - - - - 12,986
NET INCOME (LOSS) -------- --------- ---------
36,648 (12,779) 55,360
SERIES A-1 PREFERRED STOCK DIVIDEND . . . . . . . . . . . . - - - - - - - - 559
-------- --------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS . . . . . . . . . . . . . . . . . $ 36,648 $ (12,779) $ 54,801
======== ========= =========
NET INCOME (LOSS) PER SHARE . . . . . . . . . . . . . . . . $ .84 $ (.30) $ 1.20
======== ========= =========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING . . . . . . . . . 43,913 43,060 45,689
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 35
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Treasury Stock Earnings Accumulated
-------------- Paid-In ---------------- (Accumulated Translation
Shares Amount Capital Shares Amount Deficit) Adjustment Total
------ ------ ------- ------- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 42,196 $422 $213,234 - - - - - - - - $(33,495) $5,012 $185,173
Repurchase of common stock (557) (6) (10,792) - - - - - - - - - - - - - - - - (10,798)
Issuance of common stock to employees 1,410 15 13,802 - - - - - - - - - - - - - - - - 13,817
Conversion of preferred stock 861 8 10,989 - - - - - - - - - - - - - - - - 10,997
Tax benefits from employee stock
transactions - - - - - - - - 739 - - - - - - - - - - - - - - - - 739
Series A-1 preferred stock dividends - - - - - - - - - - - - - - - - - - - - (559) - - - - (559)
Translation adjustment - - - - - - - - - - - - - - - - - - - - - - - - (5,581) (5,581)
Net income - - - - - - - - - - - - - - - - - - - - 55,360 - - - - 55,360
------- ------- ------- ------- --------- ------- ------- -------
BALANCE, DECEMBER 31, 1992 43,910 439 227,972 - - - - - - - - 21,306 (569) 249,148
Purchase of treasury stock - - - - - - - - - - - - (4,857) (52,178) - - - - - - - - (52,178)
Issuance of common stock to employees 1,079 11 10,794 - - - - - - - - - - - - - - - - 10,805
Tax benefits from employee stock
transactions - - - - - - - - 842 - - - - - - - - - - - - - - - - 842
Common stock issued in connection
with acquisition 1,050 10 9,046 - - - - - - - - - - - - - - - - 9,056
Issuance of warrant in connection with
acquisition - - - - - - - - 1,847 - - - - - - - - - - - - - - - - 1,847
Translation adjustment - - - - - - - - - - - - - - - - - - - - - - - - (619) (619)
Net loss - - - - - - - - - - - - - - - - - - - - (12,779) - - - - (12,779)
------- ------- ------- ------- --------- ------- ------- -------
BALANCE, DECEMBER 31, 1993 46,039 460 250,501 (4,857) (52,178) 8,527 (1,188) 206,122
Purchase of treasury stock - - - - - - - - - - - - (5,974) (95,119) - - - - - - - - (95,119)
Issuance of common stock to employees 1,555 16 13,500 641 7,231 (1,165) - - - - 19,582
Tax benefits from employee
stock transactions - - - - - - - - 626 - - - - - - - - - - - - - - - - 626
Treasury stock issued in connection
with acquisitions - - - - - - - - 70 503 6,338 (633) - - - - 5,775
Translation adjustment - - - - - - - - - - - - - - - - - - - - - - - - 2,429 2,429
Net income - - - - - - - - - - - - - - - - - - - - 36,648 - - - - 36,648
------- ------- ------- ------ --------- ------- ------- -------
BALANCE, DECEMBER 31, 1994 47,594 $476 $264,697 (9,687) $(133,728) $43,377 $1,241 $176,063
======= ======= ======== ====== ========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 36
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CASH AND CASH INVESTMENTS AT
BEGINNING OF YEAR................................................. $ 61,382 $78,976 $ 87,681
-------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. 36,648 (12,779) 55,360
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization................................ 44,257 43,966 36,424
Lease liabilities............................................ (1,756) (2,970) (3,245)
Deferred income taxes, noncurrent............................ (1,323) (4,834) (352)
Write-off of in-process research and development............. 4,653 - - - - - - - -
Write down and reserve of assets related to restructure...... - - - - 3,500 - - - -
Increase in other long-term liabilities...................... 5,741 4,826 396
Accruals for severance and facilities restructure costs...... - - - - 7,210 - - - -
Write-offs of equipment and other long-term assets........... 1,229 3,140 4,310
Provisions for doubtful accounts and inventory write-offs.... 3,334 3,029 2,093
Changes in current assets and liabilities, net of business
combinations accounted for as purchases:
(Increase) decrease in accounts receivable................. 22,413 28,724 (14,342)
Increase in inventories.................................... (592) (32) (579)
(Increase) decrease in prepaid expenses and other assets... 7,089 (3,668) (6,516)
Increase (decrease) in accrued liabilities and payables.... 10,612 16,013 (15,266)
Increase (decrease) in deferred revenue.................... 22,133 11,134 (12,637)
-------- ------- --------
Net cash provided by operating activities............... 154,438 97,259 45,646
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturity of short-term investments................................ 69,796 63,273 63,578
Purchase of short-term investments................................ (60,238) (83,753) (51,605)
Purchase of property, plant and equipment ........................ (15,196) (18,500) (30,958)
Capitalization of software development costs...................... (10,790) (15,207) (14,741)
(Increase) decrease in purchased software and intangibles
and other assets................................................ 1,129 (4,228) (2,409)
Payment for purchase of third-party interests in partnerships, net
of cash acquired................................................ (14,624) - - - - - - - -
Cash advanced to Redwood prior to acquisition..................... (1,855) - - - - - - - -
Cash acquired from purchase of distributorship, net of cash paid.. - - - - - - - - 1,523
-------- ------- --------
Net cash used for investing activities................... (31,778) (58,415) (34,612)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable and long-term obligations (29,209) (8,117) (13,512)
Sale of common stock.............................................. 13,516 4,283 8,522
Repurchase of common stock........................................ (95,119) (52,178) (10,798)
Sale of put warrants.............................................. 10,321 - - - - - - - -
Purchase of call options.......................................... (10,321) - - - - - - - -
Payment of dividend on preferred stock............................ - - - - - - - - (559)
-------- ------- --------
Net cash used for financing activities.................. (110,812) (56,012) (16,347)
-------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... 1,781 (426) (3,392)
-------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS 13,629 (17,594) (8,705)
-------- ------- --------
CASH AND CASH INVESTMENTS AT END OF YEAR.............................. $ 75,011 $61,382 $ 78,976
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 37
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION OF THE COMPANY
Cadence Design Systems, Inc. (the "Company") develops, markets and
supports computer-aided design software products that automate, enhance and
accelerate the design, verification and testing of integrated circuits and
complex electronic circuits and systems. The Company combines leading-edge
technology with a complementary set of services that enable customers to
improve the quality and time-to-market performance of innovative electronic
products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries after elimination of intercompany
accounts and transactions. The ownership interest of minority participants in
subsidiaries that are not wholly-owned was approximately $.9 million and $.7
million at December 31, 1994 and 1993, respectively, and is included in other
long-term liabilities in the accompanying balance sheets.
FOREIGN CURRENCY TRANSLATION
The functional currency of all of the Company's foreign
subsidiaries is the local currency. Gains and losses resulting from the
translation of the subsidiaries' financial statements are reported as a
separate component of stockholders' equity.
FOREIGN EXCHANGE CONTRACTS
The Company enters into forward exchange contracts to reduce the
impact of foreign currency fluctuations on those balance sheet accounts
denominated in foreign currency, other than the entities' local currency, that
give rise to transaction gains or losses. As of December 31, 1994 the Company
had entered into forward exchange contracts in the amount of approximately
$20.0 million maturing February 1, 1995. The fair value of foreign currency
contracts is estimated by obtaining quotes from banks. The market value was
approximately the same as the carrying value at December 31, 1994. Gains and
losses on these foreign exchange contracts are recorded in other income and
expense.
REVENUE RECOGNITION
Product revenue consists principally of revenue earned under
software license agreements and is generally recognized when the software has
been shipped and there are no significant obligations remaining. Revenue from
services is recognized as the related services are performed or when certain
milestones are met. Test equipment revenue is recognized upon shipment of the
test equipment.
Maintenance revenue consists of fees for providing system updates,
user documentation and technical support for software products. Maintenance
revenue is recognized ratably over the term of the agreement.
In 1994, 1993 and 1992 one customer (a distributor), which is also
a minority interest participant in a subsidiary of the Company, accounted for
10%, 13% and 14% of total revenue, respectively. Outstanding trade accounts
receivable from this related party were approximately $3.7 million and $10.3
million as of December 31, 1994 and 1993, respectively.
PUT WARRANTS AND CALL OPTIONS
The Company has an authorized stock repurchase program. In total,
as of December 31,
35
<PAGE> 38
1994, the Company had authorized the repurchase of 20.2 million shares and
approximately 11.5 million shares had been repurchased. Some repurchases are
necessary to satisfy estimated requirements for shares to be issued under the
Company's employee stock option and stock purchase plans as well as in
connection with acquisitions.
Throughout 1994 as part of its authorized stock repurchase
program, the Company sold 5.0 million put warrants through private placement.
Each warrant entitles the holder to sell one share of common stock to the
Company on a specified date at a specified price ranging from $13.13 to $20.59
per share. Additionally, during this same period, the Company purchased
approximately 3.8 million call options that entitle the Company to buy on a
specified date one share of common stock, at a specified price ranging from
$14.94 to $22.84 per share. The Company has the right to settle the put
warrants with stock, or a cash or stock settlement equal to the difference
between the exercise price and market value at the date of exercise. The put
warrants and call options outstanding at December 31, 1994 are exercisable on
various dates between April 1995 and November 1995.
At December 31, 1994 the Company has both the unconditional right
and the intent to settle these put warrants with stock, and therefore, no
amount has been classified out of stockholders' equity in the accompanying
balance sheet. Gains or losses from the exercise of these put warrants and
call options are reported in stockholders' equity.
Settlement of the put warrants with stock could cause the Company
to issue a substantial number of shares, depending on the amounts of the
repurchase obligations and the per share value of the Company's common stock at
the time of exercise. In addition, settlement of put warrants in stock or cash
could lead to the disposition by put warrant holders of shares of the Company's
common stock that such holders may have accumulated in anticipation of the
exercise of the put warrants or call options.
CASH, CASH INVESTMENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid debt instruments and
certificates of deposit with an original maturity of ninety days or less to be
cash investments.
Effective January 1, 1994 the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." There was no effect on the
Company's operating results due to the adoption of this statement. Under SFAS
115, the Company classifies its investments in debt securities as
"held-to-maturity". Accordingly, these investments, which mature at various
dates through August 1995, are valued using the amortized cost method. The
gross unrealized holding gains and losses at December 31, 1994 are not
material. Short-term investments consisted of the following:
<TABLE>
<CAPTION>
December 31,
------------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Commercial paper $ 10,795 $ 4,700
Certificates of deposit 6,031 18,719
European certificates of deposit 4,004 6,004
Medium term notes 1,035 - - - -
Municipal bonds - - - - 2,000
----------- ---------
Total short-term investments $ 21,865 $ 31,423
=========== =========
</TABLE>
CONCENTRATION OF CREDIT RISK
Financial instruments which may potentially subject the Company to
concentrations of credit risk consist principally of cash and cash investments,
short-term investments and accounts receivable. The Company's investment
policy limits investments to short-term, low-risk instruments. Concentration
of credit risk related to accounts receivable is limited due to the varied
customers comprising the Company's customer base and their dispersion across
geographies.
36
<PAGE> 39
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Cost includes labor, material and manufacturing overhead.
Inventories are comprised of testing equipment.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation and
amortization are provided over the following estimated useful lives, by the
straight-line method.
<TABLE>
<S> <C>
Equipment 2-8 years
Furniture and fixtures 3-5 years
Buildings 31 years
Leasehold improvements Shorter of the lease term or the estimated useful life
</TABLE>
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in compliance
with SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." Capitalization of software development costs
begins upon the establishment of technological feasibility for the product.
The establishment of technological feasibility and the ongoing assessment of
the recoverability of these costs requires considerable judgment by management
with respect to certain external factors, including, but not limited to,
anticipated future gross product revenue, estimated economic life and changes
in software and hardware technology.
Amortization of capitalized software development costs begins when
the products are available for general release to customers and is generally
computed on a straight-line basis over the remaining estimated economic life
of the product (three to five years). Amortization, which is included in cost
of revenue in the accompanying statements of income, amounted to approximately
$14.2 million, $13.1 million and $11.0 million for the years ended December 31,
1994, 1993 and 1992, respectively. The Company wrote off $1.5 million of
capitalized software in 1993 for projects discontinued during the year. The
Company also wrote off $2.8 million of capitalized software in 1992 due to an
overlap of products with those of an acquired company.
PURCHASED SOFTWARE AND INTANGIBLES
Purchased software and intangibles are stated at cost less
accumulated amortization. Amortization is generally computed on a
straight-line basis over the remaining estimated economic life of the
underlying product (two to seven years).
INCOME TAXES
The Company accounts for its income taxes under the provisions of
SFAS No. 109, "Accounting for Income Taxes". This statement provides for a
liability approach under which deferred income taxes are provided based upon
enacted tax laws and rates applicable to the periods in which the taxes become
payable.
NET INCOME (LOSS) PER SHARE
Net income per share for each period is calculated by dividing net
income attributable to common stockholders by the weighted average number of
common stock and common stock equivalents outstanding during the period
(calculated using the modified treasury stock method). Common stock
equivalents consist of dilutive shares issuable upon the exercise of
outstanding common stock options and warrants and the conversion of Series A-1
preferred stock. Net loss per share is calculated by dividing net loss
attributable to common stockholders by the weighted average number of common
shares outstanding. Fully diluted net income (loss) per share is substantially
the same as primary net income (loss) per share.
37
<PAGE> 40
3. BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
December 31,
------------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Inventories:
Raw materials and supplies $ 1,268 $ 2,240
Work-in-process 2,250 2,214
Finished goods 1,619 1,290
-------- --------
Total inventories $ 5,137 $ 5,744
======== ========
Property, Plant and Equipment:
Equipment $101,087 $ 98,675
Furniture and fixtures 19,762 20,474
Buildings 38,612 - - - -
Land 38,848 8,378
Leasehold improvements 22,442 17,334
-------- --------
Total cost 220,751 144,861
Less: Accumulated depreciation and amortization 98,687 83,384
-------- --------
Property, plant and equipment, net $122,064 $ 61,477
======== ========
Software Development Costs:
Cost $ 57,921 $ 67,783
Less: Accumulated amortization 30,089 36,518
-------- --------
Software development costs, net $ 27,832 $ 31,265
======== ========
Purchased Software and Intangibles:
Cost $ 28,242 $ 24,587
Less: Accumulated amortization 17,685 11,800
-------- --------
Purchased software and intangibles, net $ 10,557 $ 12,787
======== ========
Accrued Liabilities:
Payroll and payroll related accruals $ 35,452 $ 27,837
Other accrued liabilities 20,907 23,515
-------- --------
Total accrued liabilities $ 56,359 $ 51,352
======== ========
</TABLE>
4. OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Interest income $ 3,262 $ 3,159 $ 3,586
Interest expense (1,045) (723) (853)
Gain on sale of investment 4,196 - - - - - - - -
Loss on disposal of division (see Note 7) - - - - (5,972) - - - -
Minority interest income (expense) (485) 134 (196)
Loss on foreign exchange (204) (281) (360)
Other income (expense), net (908) (681) 459
------- -------- -------
Total other income (expense) $ 4,816 $ (4,364) $ 2,636
======= ======== =======
</TABLE>
In October 1994 the Company sold an equity investment carried at
cost for a gain of approximately $4.2 million. This investment was included in
other assets in the accompanying 1993 balance sheet.
38
<PAGE> 41
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 915 $ 541 $ 803
Income taxes (including foreign
withholding tax) $ 6,885 $ 3,884 $ 9,151
Non-cash investing and financing activities
(see also Note 6):
Capital lease obligations incurred for
equipment $ 1,466 $ 4,441 $ 5,498
Common and treasury stock issued
under the Employee Stock Purchase
Plan $ 6,066 $ 6,522 $ 5,295
</TABLE>
During 1992 all of the Company's outstanding Series A-1 preferred
stock was converted to approximately 861,000 shares of the Company's common
stock.
6. ACQUISITIONS
REDWOOD DESIGN AUTOMATION
In August 1994 the Company acquired all of the outstanding stock
of Redwood Design Automation, Inc. ("Redwood") for approximately 419,000 shares
of the Company's common stock valued at $4.6 million and $1.8 million of net
advances made to Redwood, prior to the acquisition, which were not repaid.
Redwood was a development stage company formed to design, develop and market
software for use in electronic systems design. The acquisition was accounted
for as a purchase, and the results of Redwood from the date of acquisition
forward have been recorded in the Company's consolidated financial statements.
In connection with the acquisition, net intangibles of $6.8 million were
acquired, of which $4.7 million is reflected as a one-time charge to operations
for the write-off of in-process research and development that had not reached
technological feasibility and, in management's opinion, had no probable
alternative future use. This one-time charge is reflected in the Company's
statement of income as an unusual item within operating expenses (see Note 7).
The remaining intangibles of $2.1 million are included in purchased software
and intangibles in the accompanying balance sheet and are being amortized over
their useful life of two years.
In connection with the acquisition, net assets acquired were as
follows (in thousands):
<TABLE>
<S> <C>
Trade accounts receivable and other current assets $ 562
Intangibles, including in-process research and development 6,756
Property, equipment and other long-term assets 541
Current liabilities assumed (1,162)
Long-term liabilities assumed (292)
-------
Net assets acquired $ 6,405
=======
</TABLE>
The following unaudited pro forma information shows the results of
operations for the twelve months ended December 31, 1994 and 1993 as if the
Redwood acquisition had occurred at the beginning of each period presented and
at the purchase price established in August 1994. The results are not
necessarily indicative of what would have occurred had the acquisition actually
been made at the beginning of each of the respective periods presented or of
future operations of the combined
39
<PAGE> 42
companies. The pro forma results for 1994 combine the Company's results for
the twelve month period ended December 31, 1994 with the results of Redwood for
the period from January 1, 1994 through the date of acquisition. The pro forma
results for 1993 combine the Company's results for the twelve month period
ended December 31, 1993 with Redwood's twelve month fiscal period from February
1, 1993 through January 31, 1994. The following unaudited pro forma results
include the straight-line amortization of intangibles over a period of two
years.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Revenue $ 429,658 $ 368,935
Net income (loss) $ 33,531 $ (19,051)
Net income (loss) per share $ .76 $ (.44)
Weighted average common and common
equivalent shares outstanding 44,209 43,479
========= =========
</TABLE>
REAL ESTATE PARTNERSHIPS
In March 1994 the Company acquired all third-party interests in
two real estate partnerships in which it was a 46.5% and 80% limited partner,
respectively, for approximately $8.7 million in cash and the assumption of a
secured construction loan of approximately $23.5 million. The Company leased
buildings from one of the limited partnerships and the second limited
partnership owned unencumbered land adjacent to the leased property. The
Company paid off the secured construction loan with its cash reserves in May
1994.
In October 1994 the Company acquired all third-party interests in
a third real estate partnership in which it was a 49% limited partner for
approximately $5.9 million in cash. The partnership owns land and buildings
which are leased to the Company and are subject to a secured note in the amount
of approximately $23.7 million.
In connection with the acquisition of the partnerships, net assets
acquired were as follows (in thousands):
<TABLE>
<S> <C>
Property and other assets $ 66,030
Liabilities assumed (47,423)
Less: cash acquired (3,983)
--------
Net cash paid $ 14,624
========
</TABLE>
PARSEC SOFTWARE, INC.
In December 1994 the Company acquired all of the outstanding stock
of Parsec Software, Inc. ("Parsec") for approximately 84,000 shares of the
Company's common stock valued at $1.2 million. The acquisition was accounted
for as a purchase and the results of Parsec from the date of acquisition
forward have been recorded in the Company's consolidated financial statements.
Comparative pro forma information has not been presented as the results of
operations for Parsec are not material to the Company's consolidated financial
statements. In connection with the acquisition, purchased software and
intangibles of $1.2 million were acquired and are being amortized over a useful
life of three years. These assets are included in purchased software and
intangibles in the accompanying balance sheet.
COMDISCO SYSTEMS, INC.
In June 1993 the Company acquired the business and certain assets
of Comdisco Systems, Inc. ("Comdisco"), a subsidiary of Comdisco, Inc. in
exchange for 1,050,000 shares of the Company's common stock and a warrant to
purchase 1,300,000 shares of the Company's common stock valued in total at
$10.9 million. The acquisition was accounted for as a purchase. Accordingly,
the results of Comdisco from the date of acquisition forward have been recorded
in the Company's consolidated financial statements. Comparative pro forma
information has not been presented as the
40
<PAGE> 43
results of operations of Comdisco are not material to the Company's
consolidated financial statements. The acquisition costs include amounts paid
for the net tangible assets of Comdisco and purchased software and other
intangibles. The cost in excess of net assets acquired was $6.5 million which
is being amortized over seven years and is included in purchased software and
intangibles in the accompanying balance sheets.
In connection with the acquisition, net assets acquired were as
follows (in thousands):
<TABLE>
<S> <C>
Trade accounts receivable and other current assets $ 4,381
Purchased software and other intangibles 6,500
Property, equipment and other long-term assets 1,909
Liabilities assumed (1,887)
---------
Net assets acquired in exchange for capital stock $ 10,903
=========
</TABLE>
JAPAN DISTRIBUTORSHIP
In March 1992 the Company acquired a distributorship in Japan,
which as its sole operation, had distributed the Company's systems products.
As part of this transaction, the Company paid approximately $.4 million in cash
and issued a note for $3.1 million in exchange for stock and a consulting
agreement. This acquisition was accounted for as a purchase. The cost in
excess of the net assets acquired was approximately $5.2 million which is being
amortized over five years and is included in other assets in the accompanying
balance sheets. The accumulated amortization as of December 31, 1994 and 1993
was approximately $3.2 million and $2.1 million, respectively.
In connection with the acquisition, net assets acquired were as
follows (in thousands):
<TABLE>
<S> <C>
Assets acquired $ 11,510
Net liabilities assumed (9,933)
Note payable issued for capital stock (3,100)
---------
Total cash acquired less cash paid for capital stock $ (1,523)
=========
</TABLE>
7. UNUSUAL ITEMS
Unusual items included within operating expenses are comprised of
the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Write-off of in-process research and
development $ 4,653 $- - - - $- - - - $- - - - $- - - -
Provision for settlement of litigation 10,054 - - - - - - - - - - - - - - - -
Loss (income) from operations of disposed
division - - - - 6,200 (253) 5,335 3,009
Restructuring costs - - - - 13,450 - - - - 49,901 37,978
-------- -------- -------- -------- --------
Total unusual items $ 14,707 $ 19,650 $ (253) $ 55,236 $ 40,987
======== ======== ======== ======== ========
</TABLE>
WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT
In August 1994 the Company acquired Redwood Design Automation,
Inc. In connection with the acquisition, net intangibles of $6.8 million were
acquired, of which $4.7 million is reflected as a one-time charge to operations
for the write-off of in-process research and development that had not reached
technological feasibility and, in management's opinion, had no probable
alternative future use.
41
<PAGE> 44
PROVISION FOR SETTLEMENT OF LITIGATION
In April 1994 the Company entered into tentative agreements to
settle two class action lawsuits for a combined settlement of $16.5 million, of
which approximately $7.5 million was covered by the Company's insurance
carriers. Reflected in the Company's operating expenses is the net settlement
cost of approximately $9.0 million plus approximately $1.0 million for related
legal costs.
LOSS (INCOME) FROM OPERATIONS OF DISPOSED DIVISION
In December 1993 the Company sold its Automated Systems ("ASI")
division. ASI was sold for a nominal amount of cash and future royalties
amounting to 5% of gross revenues of ASI for the period from January 1, 1994
through December 31, 2003, up to maximum royalties of $12.0 million. The
royalties will be recorded in future periods as earned. In light of the
nominal proceeds received, the sale of ASI resulted in a loss on disposal of
approximately $6.0 million. The loss was due principally to the loss on the
sale of the net operating assets, as well as amounts accrued for estimated
costs to be incurred in connection with the disposal. As of December 31, 1994
and 1993, respectively, the Company has recorded approximately $.9 million and
$1.4 million in accrued liabilities and approximately $1.1 million and $2.0
million in other long-term liabilities for liabilities associated with the
disposed division.
The Company had previously reported the operating results of ASI
as a discontinued operation in the statement of income. In connection with the
filing of a registration statement on Form S-3 to register common stock issued
to the shareholders of Comdisco and Redwood, the Securities and Exchange
Commission reviewed the Company's 1993 financial statements and requested that
the results of operations and the loss on disposal of ASI be reclassified as
components of continuing operations since ASI was not deemed a major line of
business. As a result, the Company has classified the respective income and
loss from operations of the disposed division as unusual items within
operations in the accompanying statements of income. The loss of $6.0 million
on disposal of the division is classified in other income (expense) in the
accompanying 1993 statement of income (see Note 4). Revenue from this
division was approximately $11.2 million and $15.8 million for the years ending
December 31, 1993 and 1992, respectively.
RESTRUCTURING COSTS
In March 1993 the Company recorded restructuring costs of
approximately $13.5 million associated with a planned restructure of certain
areas of sales, operations and administration due to business conditions. The
restructuring charge included approximately $4.5 million for employee
terminations. The Company terminated approximately 270 employees in 1993 at an
actual total cost of approximately $4.6 million. In addition, the
restructuring charge included approximately $3.5 million for excess facilities
and approximately $2.1 million for the write-off of purchased software and
intangibles arising from required adjustments to the Company's cost structure
necessitated by lower revenue levels. Substantially all of this excess
facilities accrual was utilized by December 31, 1993. The restructuring charge
also included an additional provision for doubtful accounts of approximately
$3.0 million, which was utilized by December 31, 1993 and write-off of certain
software development costs of $.4 million resulting from changes in the systems
product strategy.
42
<PAGE> 45
8. NOTES PAYABLE AND LONG-TERM OBLIGATIONS
Notes payable and long-term obligations consisted of the
following:
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
--------- --------
(In thousands)
<S> <C> <C>
Capital lease obligations (see Note 9) $ 4,840 $ 6,103
Note payable related to the acquisition of
Japan distributorship, paid in full in 1994 ----- 1,860
Secured mortgage due in 1995; principal
and interest paid monthly
(9.25% at December 31, 1994) 23,670 -----
--------- -------
Total 28,510 7,963
Less: Current portion 26,412 3,962
--------- -------
Long-term obligations $ 2,098 $ 4,001
========= =======
</TABLE>
The mortgage is secured by land and buildings which are part of
the Company's corporate facilities. The carrying amount of the Company's
secured mortgage is estimated based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for debt of the
same remaining maturity. The carrying amount of the Company's secured mortgage
approximates its fair value at December 31, 1994.
9. LEASES
Facilities and equipment are leased under various capital and
operating leases expiring on different dates through the year 2008. Certain of
these leases contain renewal options. Rental expense was approximately $19.0
million, $20.0 million and $21.3 million for the years ended December 31, 1994,
1993 and 1992, respectively.
In connection with a previous merger, the Company has closed
certain facilities and, accordingly, has accrued for estimated future minimum
rent and maintenance costs related to these facilities. Total costs accrued at
December 31, 1994 were $11.3 million of which $2.3 million is included in
accrued liabilities and approximately $9.0 million is included in lease
liabilities in the accompanying balance sheet.
At December 31, 1994 future minimum lease payments under capital
and operating leases and the present value of the capital lease payments were
as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ----------
<S> <C> <C>
Years ending December 31,
1995 $ 3,032 $ 12,675
1996 1,422 9,559
1997 633 7,931
1998 180 5,637
1999 6 2,704
Thereafter 5 10,459
-------- ----------
Total lease payments 5,278 $ 48,965
==========
Less: Amount representing interest
(average rate of 8.0%) 438
--------
Present value of lease payments 4,840
Less: Current portion 2,742
--------
Long-term portion $ 2,098
========
</TABLE>
43
<PAGE> 46
The cost of equipment under capital leases included in the balance sheet
as property, plant and equipment at December 31, 1994 and 1993 was
approximately $17.9 million and $22.2 million, respectively. Accumulated
amortization of the leased equipment at December 31, 1994 and 1993 was
approximately $13.9 million and $16.2 million, respectively.
10. LINES OF CREDIT
The Company has a line of credit with a bank allowing for maximum
borrowings of $10.0 million in the form of domestic rate revolving loans with
interest at the bank's prime lending rate or Eurodollar rate loans with
interest that exceeds three-quarters of one percent of the bank's current
Eurodollar rate quoted for the same amount and maturity. There were no
outstanding borrowings at December 31, 1994 under this agreement. Certain
financial covenants and restrictions are included in this agreement that the
Company was in compliance with at December 31, 1994.
This line of credit expires June 30, 1995, however, the Company is
currently in negotiations with the bank regarding possible extension/expansion
of this line of credit, but there can be no assurance that mutually acceptable
terms can be reached. An unused bank line of credit of $7.5 million was
canceled by the Company effective December 30, 1994.
11. COMMITMENTS AND CONTINGENCIES
The Company has entered into an executive compensation agreement
with one of its executive officers. This agreement provides severance benefits
to the executive in the event that within 120 days before or two years after
any change in control, or sale of all or substantially all assets of the
Company, the executive's employment is terminated by the Company or the
executive, in circumstances described in the agreement. The severance benefits
are a cash payment of two times the executive's base salary, plus accelerated
vesting of all outstanding stock options.
Securities class action lawsuits were filed against the Company
and certain of its officers and directors in the United States District Court
for the Northern District of California, San Jose Division, on April 8 and 9,
1991. The lawsuits, which were consolidated into a single action, allege
violation of certain federal securities laws by maintaining artificially high
market prices for the Company's common stock through alleged misrepresentations
and nondisclosures regarding the Company's financial condition. Court rulings
in response to the Company's motions to dismiss the lawsuit limited the class
period to include purchasers of the Company's common stock between January 29,
1991 and April 3, 1991.
On March 23, 1993 a separate class action lawsuit was filed
against the Company and certain of its directors and officers in the United
States District Court, Northern District of California, San Jose Division.
This lawsuit, which was consolidated into a single action with two virtually
identical lawsuits filed later in March and in April 1993, alleges violation of
certain federal securities laws by maintaining artificially high market prices
for the Company's common stock through alleged misrepresentations and
nondisclosures regarding the Company's financial condition. On November 18,
1993, the District Court granted the Company's motion to dismiss the 1993
complaint. The effect of the ruling was to dismiss the complaint except as to
a statement allegedly made on January 28, 1993, but plaintiffs were granted
leave to further amend their complaint.
In April 1994 the Company entered into tentative agreements to
settle both of the above class action lawsuits for a combined settlement of
$16.5 million, of which approximately $7.5 million was covered by the Company's
insurance carriers. The agreements are subject to final court approval. At
December 31, 1994, the total settlement amount has been remitted into escrow.
The Company is involved in various disputes and litigation matters
which have arisen in the ordinary course of business. These include disputes
and lawsuits related to intellectual property, contract law and employee
relations matters. Management believes that the ultimate resolution of these
disputes and litigation matters will not have a material adverse impact on the
Company's financial position or results of operations.
44
<PAGE> 47
12. STOCKHOLDERS' EQUITY
REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has 2,000,000 shares of authorized and unissued
preferred stock at $.01 par value per share. At December 31, 1994 and 1993
there were no shares of preferred stock outstanding.
In 1990 a corporation obtained a minority interest in the Company
through an initial investment of approximately $11.0 million in exchange for
86,133 shares of newly issued Series A-1 voting convertible preferred stock,
convertible into 861,330 common shares, at a purchase price equivalent to
$13.00 per common share. All of the preferred stock was converted to common
stock during 1992.
Each share of Series A-1 preferred stock was entitled to receive
cumulative annual dividends. The dividends were payable in cash. In 1992 the
Company recorded approximately $.6 million for dividends paid to the
corporation.
EMPLOYEE STOCK OPTION PLANS
The Company's Employee Stock Option Plan (the "Plan") provides for
the issuance of either incentive or nonqualified options at an exercise price
not less than fair market value of the stock on the date of grant. Options
granted under the Plan become exercisable over periods of one to four years and
expire five to ten years from the date of grant. During 1993 holders of the
Company's options were given the opportunity to exchange previously granted
stock options for new common stock options exercisable at $8.81 per share, the
fair market value of the common stock on the date of exchange. Under the terms
of the new options, one-third of the shares vest one year from the date of
grant and the remaining shares vest in 24 equal monthly installments. Options
to purchase 4,856,026 shares were exchanged.
During 1993 the Company adopted a Non Statutory-Stock Option Plan
(the "Non-Statutory Plan"). Options granted under the Non-Statutory Plan
become exercisable over a four year period, with one-fourth of the shares
vesting one year from the vesting commencement date and the remaining shares
vesting in 36 equal monthly installments. The options granted under the
Non-Statutory Plan generally expire ten years from the date of grant.
STOCK OPTION PLANS - COMPANIES ACQUIRED
The Company has assumed certain options granted to former
employees of companies acquired (the "Acquired Options"). The Acquired Options
were assumed by the Company outside the Plan, but all are administered as if
assumed under the Plan. All of the Acquired Options have been adjusted to
effectuate the conversion under the terms of the Agreements and Plans of
Reorganization between the Company and the companies acquired. The Acquired
Options generally become exercisable over a four year period and generally
expire either five or ten years from the date of grant. No additional options
will be granted under any of the acquired companies' plans.
45
<PAGE> 48
Combined activity with respect to the Employee Stock Option Plans
and Stock Option Plans - Companies Acquired was as follows:
<TABLE>
<CAPTION>
Number Option
of Shares Price
--------- -----
<S> <C> <C>
Outstanding, December 31, 1991 7,681,824 $
.41 - $ 34.13
Granted 4,877,991 15.69 - 28.50
Exercised (1,086,173) .41 - 26.31
Canceled (3,638,691) .96 - 34.13
---------- -----------------
Outstanding, December 31, 1992 7,834,951 .41 - 28.75
Granted 9,456,161 8.63 - 23.13
Exercised ( 550,051) .41 - 21.52
Canceled (5,876,739) 1.22 - 27.44
---------- -----------------
Outstanding, December 31, 1993 10,864,322 .41 - 28.75
Granted 2,006,540 10.69 - 20.75
Exercised (1,524,445) .41 - 21.52
Canceled (1,455,401) 3.87 - 28.75
---------- -----------------
Outstanding, December 31, 1994 9,891,016 $ .41 - $ 27.44
========== =================
</TABLE>
At December 31, 1994 there were 4,453,794 options exercisable to
purchase shares of common stock at prices ranging from $.41 to $27.44 per share
and 2,018,590 options were available for future grant.
OPTION AGREEMENTS
The Company occasionally has issued options outside of the Plan.
As of December 31, 1994 options to purchase 44,480 shares were outstanding
under these agreements, of which 21,405 were exercisable at prices ranging from
$9.31 to $18.25 per share.
DIRECTORS STOCK OPTION PLANS
The Company's Board of Directors has adopted the 1988 and 1993
Directors Stock Option Plans (the "Directors Plans") in the indicated years.
The Company has reserved 445,000 shares of common stock for issuance under
these plans. The Directors Plans provide for the issuance of nonqualified
stock options to nonemployee directors of the Company with an exercise price
equal to the fair market value of the common stock on the date of grant.
Options granted under the Directors Plans have a term of up to ten years, with
one-third of the shares vesting one year from the date of grant and two-thirds
ratably over the subsequent two years. As of December 31, 1994 options to
purchase 195,000 shares of common stock at $9.31 to $21.63 per share were
outstanding under the Directors Plans, of which options for 99,536 shares were
exercisable at prices ranging from $9.31 to $21.63 per share. Options to
purchase 47,223 shares are available for future grant under the Directors
Plans. Options to purchase 107,777 shares of common stock have been exercised
and 95,000 have expired as of December 31, 1994 under the Directors Plans. No
additional options will be granted under the 1988 Directors Plan.
EMPLOYEE STOCK PURCHASE PLANS
The Company has reserved 3,000,000 shares of common stock for
issuance under the 1990 Employee Stock Purchase Plan (the "ESPP"). Under the
ESPP the Company's employees may purchase shares of common stock at a price per
share that is 85% of the lesser of the fair market value as of the beginning or
the end of the semiannual option periods. For the years ended December 31,
1994, 1993 and 1992, shares issued under the plan were 641,988, 487,941 and
324,183, respectively. As of December 31, 1994, 1,307,680 shares were
available for future purchase under the ESPP.
46
<PAGE> 49
WARRANT
In connection with the purchase of certain assets of Comdisco, the
Company issued a warrant to purchase 1,300,000 shares of the Company's common
stock at $14.50 per share. Subsequent to December 31, 1994, the Company
repurchased a portion of the warrant applicable to 1,000,000 shares for
approximately $12.1 million. The warrant for the remaining 300,000 shares
expires in June 2003 and can be exercised at any time in increments of not less
than 50,000 shares. The warrant was valued at the time of issuance at
approximately $1.8 million which was included as part of the total purchase
price of Comdisco.
RESERVED FOR FUTURE ISSUANCE
As of December 31, 1994 the Company has reserved the following
shares of authorized but unissued common stock for future issuance:
<TABLE>
<S> <C>
Employee Stock Option Plans 11,909,606
Other Option Agreements 44,480
Directors Stock Option Plans 242,223
Employee Stock Purchase Plan 1,307,680
Put Warrants 5,000,000
Comdisco Warrant 1,300,000
---------
Total 19,803,989
==========
</TABLE>
STOCKHOLDER RIGHTS PLAN
During 1989 the Company adopted a Stockholder Rights Plan. As
part of this plan the Company's Board of Directors declared a dividend of one
Common Share Purchase Right (the "Right") for each share of the Company's
common stock outstanding on July 20, 1989. The Board also authorized the
issuance of one such Right for each share of the Company's common stock issued
after July 20, 1989 until the occurrence of certain events.
Each Right entitles the holder thereof to purchase one share of
the Company's common stock for $100, subject to adjustment in certain events.
The Rights are not exercisable until the occurrence of certain events related
to a person acquiring, or announcing the intention to acquire, 20% or more of
the Company's common stock. Upon such acquisition, each Right (other than
those held by the acquiring person) will be exercisable for that number of
shares of the Company's common stock having a market value of two times the
exercise price of the Right. If the Company subsequently enters into certain
business combinations, each Right (other than those held by the acquiring
person) will be exercisable for that number of shares of common stock of the
other party to the business combination having a market value of two times the
exercise price of the Right. The Rights currently trade with the Company's
common stock. The Rights are subject to redemption at the option of the Board
of Directors at a price of $.01 per Right until the occurrence of certain
events, and are exchangeable for the Company's common stock, at the discretion
of the Board of Directors, under certain circumstances. The Rights expire on
May 30, 1999.
47
<PAGE> 50
13. INCOME TAXES
The provision for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 4,624 $ 730 $ 1,227
State 881 180 2,104
Foreign 8,815 8,939 10,447
------- ------- -------
Total current 14,320 9,849 13,778
------- ------- -------
Deferred (prepaid):
Federal (1,103) (1,749) (987)
State (384) (1,220) (225)
Foreign (618) (6,880) 420
------- ------- -------
Total prepaid (2,105) (9,849) (792)
------- ------- -------
Total provision for income taxes $12,215 $ - - - $12,986
======= ======= =======
</TABLE>
Income (loss) before income taxes for the years ended December 31,
1994, 1993 and 1992 included income of approximately $19.2 million, $9.2
million and $5.5 million, respectively, from the Company's foreign
subsidiaries.
The provision for income taxes is net of the benefit of operating
loss carryforwards totaling $20.8 million, $2.8 million and $8.3 million, for
the years ended December 31, 1994, 1993 and 1992, respectively.
The provision for income taxes differs from the amount estimated
by applying the statutory federal income tax rate to income (loss) before
income taxes as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Provision (benefit) computed at federal
statutory rate $ 17,074 $ (4,473) $ 23,237
State income tax, net of federal tax effect 572 117 993
Change in valuation allowance (10,457) 7,172 (11,619)
Research and development tax credit (379) (1,270) - - -
Foreign tax credit (446) (6,958) (8,675)
Foreign taxes 3,446 6,958 9,627
Amortization of goodwill 2,398 372 123
Other 7 (1,918) (700)
-------- -------- --------
Provision for income taxes $ 12,215 $ - - - $ 12,986
======== ======== ========
Effective tax rate 25% - - -% 19%
======== ======== ========
</TABLE>
48
<PAGE> 51
The components of deferred tax assets and liabilities consisted of
the following :
<TABLE>
<CAPTION>
December 31,
-----------------------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Deferred tax assets:
Restructure reserves $ 3,829 $ 7,938
Net operating losses 19,146 24,276
Tax credits 33,910 31,837
Other 14,650 8,097
------ --------
Total deferred tax assets 71,535 72,148
Valuation allowance-provision for
income taxes (33,548) (44,005)
Valuation allowance-equity/
intangibles (19,713) (15,751)
-------- --------
Net assets 18,274 12,392
-------- --------
Deferred tax liabilities:
Capitalized software (11,233) (11,467)
Other (3,970) - - -
-------- --------
Total deferred tax liabilities (15,203) (11,467)
-------- --------
Total net deferred tax assets $ 3,071 $ 925
======== ========
</TABLE>
The deferred assets which will affect equity or intangibles and
which will not be available to offset future provisions for income taxes are
stated in the above table as "Valuation allowance-equity/intangibles." The net
operating losses will expire at various dates from 1997 through the year 2008
and tax credit carry forwards will expire at various dates from 1995 through
the year 2009.
The Company's federal income tax returns for 1989 through 1991
have been examined by the Internal Revenue Service ("IRS"). Tax credits of
$15.6 million have been disallowed by the IRS. The Company is contesting these
adjustments and is pursuing administrative remedies. Management believes that
adequate provision has been made for any deficiency that may result from this
examination and that the resolution of this matter will not have a material
impact on the Company's financial position or results of operations.
49
<PAGE> 52
14. OPERATIONS BY GEOGRAPHIC AREA
The Company operates primarily in one industry segment -- the
development and marketing of computer-aided design software and related
services. The Company's products have been marketed internationally through
distributors and through the Company's subsidiaries in Europe and Asia/Pacific.
Intercompany revenue results from licenses that are based on a percentage of
the subsidiaries' revenue from unaffiliated customers. The following table
presents a summary of operations by geographic area (in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenue:
Domestic operations (1) $ 344,696 $ 298,366 $ 344,370
European operations 79,404 73,181 76,196
Asia/Pacific operations 86,022 69,320 71,113
Eliminations (81,050) (72,244) (72,955)
--------- --------- ---------
Consolidated $ 429,072 $ 368,623 $ 418,724
========= ========= =========
Intercompany revenue
(eliminated in consolidation):
Domestic operations $ 58,837 $ 54,224 $ 54,084
European operations 9,495 9,494 8,824
Asia/Pacific operations 12,718 8,526 10,047
--------- --------- ---------
Consolidated $ 81,050 $ 72,244 $ 72,955
========= ========= =========
Income (loss) from operations:
Domestic operations $ 25,763 $ (15,124) $ 61,276
European operations 7,412 4,107 3,919
Asia/Pacific operations 10,872 2,602 515
--------- --------- ---------
Consolidated $ 44,047 $ (8,415) $ 65,710
========= ========= =========
Identifiable assets:
Domestic operations $ 368,226 $ 339,897 $ 370,289
European operations 56,343 50,186 52,536
Asia/Pacific operations 42,095 52,401 40,108
Eliminations (105,616) (103,183) (95,690)
--------- --------- ---------
Consolidated $ 361,048 $ 339,301 $ 367,243
========= ========= =========
</TABLE>
(1) Domestic operations revenue includes export revenue of approximately
$12.9 million, $10.1 million, and $11.5 million to Europe for the
years ended December 31, 1994, 1993 and 1992, respectively, and
approximately $65.4 million, $49.0 million and $75.4 million to
Asia/Pacific for the years ended December 31, 1994, 1993 and 1992,
respectively.
50
<PAGE> 53
SCHEDULE II
CADENCE DESIGN SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deductions Balance at
Beginning of Costs and From End of
Description Period Expenses Reserves Period
---------------------------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1994
Allowance for doubtful accounts $ 3,471 $2,178 $ (744) (1) $4,905
Inventory reserve 588 1,156 (736) (2) 1,008
Accrued restructuring costs 3,669 - (3,669) (3) -
Accrued costs for disposal of division 1,373 - (499) (5) 874
Year Ended December 31, 1993
Allowance for doubtful accounts $ 3,154 $5,648 $ (5,331) (1) $3,471
Inventory reserve 538 381 (331) (2) 588
Accrued restructuring costs 4,658 7,210 (8,199) (3) 3,669
Accrued costs for disposed division - 3,382 (2,009) (4) 1,373
Year Ended December 31, 1992
Allowance for doubtful accounts $ 3,068 $1,087 $ (1,001) (1) $3,154
Inventory reserve 1,271 1,006 (1,739) (2) 538
Accrued restructuring costs 22,015 - (17,357) (3) 4,658
</TABLE>
(1) Uncollectible accounts written-off
(2) Inventory costs written-off
(3) Incurred severance and facilities costs relating to the Company's
restructuring and a reclassification of $3,500 in 1993 from accrued
operating lease obligations to lease liabilities.
(4) Reflects a reclassification of $2,009 from accrued liabilities to other
noncurrent liabilities.
(5) Incurred severance and facilities costs relating to the Company's
disposal of a division.
51
<PAGE> 54
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Cadence Design Systems, Inc. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, March
31, 1995.
CADENCE DESIGN SYSTEMS, INC.
/s/ Joseph B. Costello
-----------------------------------
Joseph B. Costello
President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capabilities and on the date indicated.
<TABLE>
<CAPTION>
NAME/TITLE DATE
---------- ----
<S> <C>
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
/s/ Joseph B. Costello March 31, 1995
------------------------------------
Joseph B. Costello
CHIEF FINANCIAL OFFICER
/s/ H. Raymond Bingham March 31, 1995
------------------------------------
H. Raymond Bingham
CONTROLLER (Chief Accounting Officer)
/s/ William Porter March 31, 1995
------------------------------------
William Porter
</TABLE>
52
<PAGE> 55
ADDITIONAL DIRECTORS
<TABLE>
<S> <C>
/s/ Donald L. Lucas March 31, 1995
------------------------------------
Donald L. Lucas
/s/ Carol Bartz March 31, 1995
------------------------------------
Carol Bartz
March 31, 1995
------------------------------------
Henry E. Johnston
/s/ Raymond J. Lane March 31, 1995
------------------------------------
Raymond J. Lane
/s/ Dr. Leonard Y. W. Liu March 31, 1995
------------------------------------
Dr. Leonard Y.W. Liu
March 31, 1995
------------------------------------
Dr. Alberto Sangiovanni-Vincentelli
/s/ George M. Scalise March 31, 1995
------------------------------------
George M. Scalise
/s/ James E. Solomon March 31, 1995
------------------------------------
James E. Solomon
/s/ Dr. John B. Shoven March 31, 1995
------------------------------------
Dr. John B. Shoven
</TABLE>
53
<PAGE> 56
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE LOCATION
------ ------------- --------
<S> <C> <C>
3.01 (a) The Registrant's Certificate of Incorporation, as filed with
the Secretary of State of the State of Delaware on April 8, 1987
(incorporated by reference to Exhibit 3.01 to Registrant's Form
S-1 Registration Statement (No. 33-13845) originally filed on
April 29, 1987 (the "1987 Form S-1")).
(b) The Registrant's Certificate of Retirement of Stock as filed
with the Secretary of State of the State of Delaware on September
28, 1987 (incorporated by reference to Exhibit 3.01(b) to
Registrant's Form S-4 Registration Statement (No. 33-20724)
originally filed on February 25, 1988).
(c) The Registrant's Certificate of Ownership and Merger as filed
with the Secretary of State of the State of Delaware on June 1,
1988 (incorporated by reference to Exhibit 3.02(c) to the
Registrant's Form S-1 Registration Statement (No. 33-23107)
originally filed on July 18, 1988 (the "1988 Form S-1")).
(d)The Registrant's Certificate of Designations of Series A Junior
Participating Preferred Stock as filed with the Secretary of State
of the State of Delaware on June 8, 1989 (incorporated by
reference to Exhibit 3A to the Registrant's Form 8-K originally
filed on June 12, 1989).
(e) The Registrant's Certificate of Amendment of Certificate of
Incorporation as filed with the Secretary of State of the State of
Delaware on July 26, 1991 (incorporated by reference to Exhibit
3.01(e) to the Registrant's Form S-4 Registration Statement (No.
33-43400) originally filed on October 7, 1991 (the "1991 Form
S-4")).
(f) The Registrant's Certificate of Designation of Series A
Convertible Preferred Stock as filed with the Secretary of State
of the State of Delaware on December 30, 1991 (incorporated by
reference to Exhibit 3.01(f) from the Registrant's Form 10-K for
the fiscal year ended December 31, 1991).
3.02 The Registrant's Bylaws, as currently in effect (as incorporated
by reference to Exhibit 3.02 to the 1987 Form S-1 and as amended
by Exhibit 3-b to Form 8-K filed June 12, 1989).
4.01 Specimen Certificate of the Registrant's Common Stock
(incorporated by reference to Exhibit 4.01 to the 1991 Form S-4).
4.02 Amended and Restated Rights Agreement, dated as of June 19, 1988,
between the Registrant and Bank of America N.T. & S.A., as Rights
Agent, which includes as exhibits thereto the form of Right
Certificate and the Summary of Rights to Purchase Common Shares
(incorporated by reference to Exhibit 4a to the Registrant's Form
8 filed on June 20, 1989).
4.03 Assumption of Obligations under Amended and Restated Rights
Agreement between the registrant and Harris Trust Company of
California (incorporated by reference to Exhibit 10.34 to the
Registrant's 1991 Form S- 4).
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE LOCATION
------ ------------- --------
<S> <C> <C>
10.01 The Registrant's 1987 Stock Option Plan, as amended to date,
(incorporated by reference to Exhibit 4.01 to the Registrant's
Form S-8 Registration Statement (No. 33-53913) filed on May 31,
1994 (the "1994 Form S-8")).*
10.02 Form of Stock Option Agreement and Form of Stock Option Exercise
Request, as currently in effect under the Registrant's 1987 Stock
Option Plan (incorporated by reference to Exhibit 4.01 to the
Registrant's Form S-8 Registration Statement (No. 33-22652) filed
on June 20, 1988).*
10.03 The Registrant's 1988 Directors Stock Option Plan, as amended to
date, including the Stock Option Grant and Stock Option Exercise
Notice and Agreement (the first document is incorporated by
reference to Exhibit 4.02 of the Registrant's 1994 Form S-8 and
the latter two documents are incorporated by reference to Exhibit
10.08 - 10.10 of the 1988 Form S-1).*
10.04 The Registrant's 1993 Directors Stock Option Plan including the
Stock Option Grant (incorporated by reference to Exhibit 10.04 of
the 1994 Form S-8). *
10.05 The Registrant's 1990 Employee Stock Purchase Plan as amended to
date (incorporated by reference to Exhibit 4.03 of the 1994 Form
S-8).*
10.06 The Registrant's Senior Executive Bonus Plan for 1994
(incorporated by reference to Exhibit 10.08 of the Registrant's
Form 10-K for the fiscal year ended December 31, 1993 (the "1993
Form 10-K")).*
10.07 The Registrant's Key Contributor Bonus Plan for 1994 (incorporated
by reference to Exhibit 10.09 of the 1993 Form 10-K).*
10.08 The Registrant's Senior Executive Bonus Plan for 1995. *
10.09 The Registrant's Deferred Compensation Plan for 1994. *
10.10 Amended and Restated Lease, dated June 29, 1989, by and between
River Oaks Place Associates, a California limited partnership,
("ROPA") and the Registrant, for the Registrant's executive
offices at 555 River Oaks Parkway, San Jose, California
(incorporated by reference to Exhibit 10.14 Registrant's Form 10-K
for the fiscal year ended December 31, 1990 (the "1990 Form
10-K")).
10.11 Lease dated June 29, 1989 by and between ROPA and the Registrant
for the Registrant's offices at 575 River Oaks Parkway, San Jose,
California (incorporated by reference to Exhibit 10.16 to the 1990
Form 10- K).
10.12 Lease dated June 29, 1989 by and between ROPA and the Registrant
for the Registrant's offices at 535 and 545 River Oaks Parkway,
San Jose, California (incorporated by reference to Exhibit 10.17
to the 1990 Form 10-K).
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE LOCATION
------ ------------- --------
<S> <C> <C>
10.13 Lease dated September 3, 1985 by and among the Richard T. Peery
and John Arrillaga Separate Property Trusts ("P/A Trusts") and
Valid Logic Systems Incorporated ("Valid") (which merged into the
Registrant) for the Registrant's offices at 75 West Plumeria
Avenue, San Jose, California (incorporated by reference to Exhibit
10.16 to the Form 10-K for Valid for the fiscal year ended
December 30, 1990 (the "1990 Valid Form 10-K")).
10.14 Amendment Number 1, dated March 2, 1988, to Lease Agreement for
75 West Plumeria Avenue, San Jose, California, by and among Valid
and the P/A Trusts (incorporated by reference to Exhibit 10.17 to
the 1990 Valid Form 10-K).
10.15 Lease dated December 19, 1988 by and among the P/A Trusts and
Valid for the Registrant's offices at 2835 North First Street, San
Jose, California (incorporated by reference to Exhibit 10.18 to
the 1990 Valid Form 10-K).
10.16 Lease dated September 3, 1985 by and among the P/A Trusts and
Valid for the Registrant's offices at 2820 Orchard Parkway, San
Jose, California (incorporated by reference to Exhibit 10.14 to
the 1990 Valid Form 10-K).
10.17 Amendment Number 1, dated March 2, 1988, to Lease Agreement for
2820 Orchard Parkway, San Jose, California, by and among Valid and
the P/A Trusts (incorporated by reference to Exhibit 10.15 to the
1990 Valid Form 10-K).
10.18 Form of Executive Compensation Agreement dated May 1989 between
Registrant and Mr. Costello (incorporated by reference to Exhibit
10.20 to the 1989 Form S-4).*
10.19 Offer letter to H. Raymond Bingham dated May 12, 1993
(incorporated by reference to Exhibit 10.24 of the 1993 Form
10-K). *
10.20 Offer letter to M. Robert Leach dated May 17, 1993 (incorporated
by reference to Exhibit 10.25 of the 1993 Form 10-K). *
10.21 Letter agreement dated March 9, 1994 by and among C.T. Properties,
Inc.("General Partner"), Registrant, Montague Investors, L.P.
("Montague") and David M. Thede ("Thede") whereby Registrant
acquired all of Thede's ownership interests in the C.T. Montague
I, L.P. and C.T. Montague II, L.P. limited partnerships and the
General Partner and all of Montague's interests in C.T. Montague
I, L.P. (incorporated by reference to the 1993 Form 10-K).
10.22 1993 Non-Statutory Stock Option Plan (incorporated by reference to
Exhibit 4.05 to the 1994 Form S-8). *
10.23 Consulting agreement dated May 1, 1994 with Henry E. Johnston, who
was made a director on July 5, 1994 by unanimous written consent
(incorporated by reference to the Registrant's Form 10-Q for the
quarterly period ended June 30, 1994 (the "1994 Second Quarter
Form 10-Q")). *
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE LOCATION
------ ------------- --------
<S> <C> <C>
10.24 Consulting agreement dated October 26, 1993 with Alberto
Sangiovanni-Vincentelli (incorporated by reference to the 1994
Second Quarter Form 10-Q). *
10.25 Letter agreement dated August 17, 1994 by and among Registrant,
Morris Management Company (the "General Partner"), and Morris
Associates VI, L.P. ("Morris") whereby Registrant acquired all of
the interests in River Oaks Place Associates, L.P. (incorporated
by reference to the Registrant's Form 8-K filed November 14,
1994).
10.26 Agreement of Merger and Plan of Reorganization by and among
Registrant, Simon Software, Inc. and Redwood Design Automation,
Inc. ("Redwood") dated as of July 8, 1994 (incorporated by
reference to the Registrant's Form 10-Q/A, Amendment Number 1 to
the 1994 Second Quarter Form 10-Q, filed November 14, 1994).
10.27 Agreement of Merger dated as of August 1, 1994 between Redwood and
CDS Corporation (incorporated by reference to the Registrant's
Form 10-Q/A, Amendment Number 1 to the 1994 Second Quarter Form
10-Q, filed November 14, 1994).
10.28 Form of Stock Option Agreement for Registrant's 1993 Non Statutory
Stock Option Plan (incorporated by reference to the Registrant's
Form 10-Q for the third quarter ended September 30, 1994). *
21.01 Subsidiaries of the Registrant
23.01 Consent of Arthur Andersen LLP
27.1 Financial data schedule for the period ended December 31, 1994.
-----------
</TABLE>
* A Management contract or compensatory plan required to be filed
as an exhibit to Form 10-K.
57
<PAGE> 1
EXHIBIT 10.08
CADENCE DESIGN SYSTEMS, INC.
SENIOR EXECUTIVE BONUS PLAN
JANUARY 1, 1995 - DECEMBER 31, 1995
The purpose of the Senior Executive Bonus Plan is to motivate and reward the
Senior Executives of the company to profitably grow Cadence and achieve
corporate goals. The plan provides for a cash payment after January 1, 1996.
The financial performance will be based on the audited financial statements.
The Target Bonus Pool will be made up of the sum of each participant's salary
times a percentage as assigned by the Compensation Committee. The Actual Bonus
Pool will be a percentage of the Target Bonus Pool determined based on
Cadence's performance against Earnings Per Share (EPS) targets.
If Earnings Per Share fall outside the target range, the Bonus Pool will be
determined at the sole discretion of the Board of Directors.
The target bonus for each Senior Executive will be pre-established by the
Compensation Committee of the Board of Directors.
The individual Senior Executive bonus target will be adjusted in proportion to
the adjustment of the Bonus Pool, the portion of 1995 actively employed by
Cadence as a Senior Executive and an individual performance factor with a range
of .5 to 1.5 as assigned or approved by the Compensation Committee of the Board
of Directors. There will be no adjustment for the other Senior Executives if a
Senior Executive leaves the Company. The total of the individual bonuses will
be controlled to the bonus pool, as adjusted by the Earnings Per Share
performance factor.
The Board of directors reserves the right to terminate or modify this plan at
any time. The plan is only effective for 1995, and any future Senior Executive
Bonus or other bonus plan is at the discretion of the Board of Directors.
In order for the Bonus to be paid to a Senior Executive, he/she must be in the
active employment of Cadence as of December 31, 1995. All forfeitures revert
to Cadence.
<PAGE> 1
EXHIBIT 10.09
CADENCE DESIGN SYSTEMS, INC.
1994 DEFERRED COMPENSATION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Plan Provisions Page
--------------- ----
<S> <C>
Section 1 - Definitions 1
Section 2 - Eligibility 4
Section 3 - Deferred Compensation 4
Section 4 - Designation of Beneficiary 10
Section 5 - Change in Control 11
Section 6 - Trust Provisions 12
Section 7 - Amendment and Termination 12
Section 8 - Administration 13
Section 9 - General and Miscellaneous 13
Appendices
----------
Appendix 1 - Acknowledgment 15
Appendix 2 - Distribution Election 16
Appendix 3 - Election of Deferral 17
Appendix 4 - Beneficiary Designation 18
</TABLE>
<PAGE> 3
CADENCE DESIGN SYSTEMS, INC.
1994 DEFERRED COMPENSATION PLAN
Cadence Design Systems, Inc., a Delaware Corporation (referred to hereafter as
the "Employer") hereby establishes an unfunded plan for the purpose of
providing deferred compensation for a select group of management and highly
compensated executives.
RECITALS
WHEREAS, those employees and consultants identified by the Compensation
Committee of the Board of Directors of the Employer or any other committee
designated by the Board of Directors of the Employer to administer this Plan in
accordance with Section 8 hereof (hereinafter referred to as the "Committee") as
eligible to participate in this Plan (each of whom are referred to hereafter as
the "Employee" or collectively as the "Employees") are employed by Employer; and
WHEREAS, Employer desires to adopt an unfunded deferred compensation plan and
the Employees desire the Employer to pay certain deferred compensation and/or
related benefits to or for the benefit of Employees, or a designated
Beneficiary, or both;
NOW, THEREFORE, the Employer hereby establishes this deferred compensation plan.
SECTION 1
DEFINITIONS
1.1 "Account" shall mean the separate account(s) established under
this Plan and the Trust for each participating Employee. Employer shall
furnish each participant with a statement of his or her account balance at
least annually.
1.2 "Beneficiary" shall mean the Beneficiary designated by the
Employee to receive Employee's deferred compensation benefits in the event of
his or her death.
1.3 "Change in Control" shall have the meaning set forth in
Section 5.1 of the Plan.
<PAGE> 4
1.4 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations promulgated
thereunder.
1.5 "Committee" shall mean the Compensation Committee of the Board
of Directors of the Employer or any other committee designated by the Board of
Directors of the Employer to administer this Plan in accordance with Section 8
hereof.
1.6 "Compensation" shall mean the base salary and cash bonuses
described in Section 3.3.
1.7 "Effective Date" shall mean October 1, 1994, unless otherwise
specified by the Employer in a corporate resolution approving and adopting this
Plan.
1.8 "Eligible Compensation" shall mean projected annual
compensation from the Employer, determined on an annual basis by the Employer
at or before the beginning of the Plan Year, which may consist of salary, bonus,
and/or incentive payments, determined before any deductions under any qualified
plan of the Employer (including a Section 125 plan) and excluding any special or
non-recurring compensatory payments such as moving or relocation bonuses or
automobile allowances.
1.9 "Employee" shall mean each employee of Employer who (a) is a
U.S. citizen or is a lawful permanent resident of the U.S., within the meaning
of Code Section 7701(b)(1)(A)(i), (b) earns solely U.S. source income from
Employer, and (c) is exclusively on Employer's U.S. payroll system; references
to Employee herein shall include references to an Employee's Beneficiary where
the context so requires.
1.10 "Employer" shall mean Cadence Design Systems, Inc., a Delaware
Corporation, and any successor organization thereto, and including
subsidiaries.
1.11 "Employer Contributions" shall mean the Employer's
discretionary contribution, if any, pursuant to Section 3.1(b) of the Plan.
1.12 "Hardship" shall have the meaning set forth in Section 3.5 of
the Plan.
2
<PAGE> 5
1.13 "Plan Year" shall mean the year beginning each January 1 and
ending December 31; notwithstanding the foregoing, the initial Plan Year shall
mean the period beginning with the Effective Date and ending on December 31,
1994.
1.14 "Plan" shall mean the Cadence Design Systems, Inc. 1994
Deferred Compensation Plan.
1.15 "Permanent Disability" shall mean that the Employee is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or otherwise meets the definition of "Permanent Disability" as set forth
in the Employer's Long Term Disability Plan. An Employee will not be considered
to have a Permanent Disability unless he or she furnishes proof of such
condition sufficient to satisfy the Employer, in its sole discretion.
1.16 "Trust" or "Trust Agreement" shall mean the Cadence Design
Systems, Inc. 1994 Deferred Compensation Plan Rabbi Trust Agreement, including
any amendments thereto, entered into between the Employer and the Trustee to
carry out the provisions of the Plan.
1.17 "Trust Fund" shall mean the cash and other assets and/or
properties held and administered by Trustee pursuant to the Trust to carry out
the provisions of the Plan.
1.18 "Trustee" shall mean the designated Trustee acting at any time
under the Trust.
3
<PAGE> 6
SECTION 2
ELIGIBILITY
2.1 Eligibility. Eligibility to participate in the Plan shall be
limited to Employees of the Employer who (a) have Eligible Compensation of at
least $150,000 for the Plan Year, (b) are classified as officers,
vice-presidents, directors, or an equivalent title, and (c) have been selected
by the Committee to participate in the Plan. The Committee shall designate
Employees who shall be covered by this Plan in a separate Acknowledgment (in the
form attached hereto as Appendix 1) for each such Employee. Participation in
the Plan shall commence as of the date such Acknowledgment is signed by the
Employee and delivered to the Employer, provided that deferral of compensation
under the Plan shall not commence until the Employee has complied with the
election procedures set forth in Section 3.3. Nothing in the Plan or in the
Acknowledgment should be construed to require any contributions to the Plan on
behalf of the Employee by Employer.
SECTION 3
DEFERRED COMPENSATION
3.1 Deferred Compensation. (a) Each participating Employee may
elect, in accordance with Section 3.3 of this Plan, to defer annually the
receipt of a portion of the Compensation for active service otherwise payable to
him or her by Employer during each year or portion of a year that the Employee
shall be employed by the Employer. Any Compensation deferred by Employee
pursuant to Section 3.3 shall be recorded by the Employer in an Account,
maintained in the name of the Employee, which Account shall be credited with a
dollar amount equal to the total amount of Compensation deferred during each
Plan Year under the Plan, together with earnings thereon credited in accordance
with Section 3.7. The amount or percentage of Compensation that Employee elects
to defer under Section 3.3 will remain constant for the year of the election and
should not be subject to change during such year; each such election or
discontinuance of election will continue in force for each successive year until
or unless suspended or modified by the filing of a subsequent election with the
Employer by the Employee in accordance with Section 3.3 of the Plan. All
deferrals pursuant to this Section 3.1 shall be fully vested at all times.
Deferral elections shall be subject to a minimum dollar and maximum percentage
amounts as follows: (i) the minimum annual deferral amount is $5,000 which shall
be withheld from the employee's
4
<PAGE> 7
"base salary", and (ii) the maximum deferral percentage amount is 80% of the
Employee's "base salary" and 100% of the Employee's "cash bonus". For purposes
of this Section and Appendix 3 hereto, "base salary" means an Employee's regular
annual compensation for a Plan Year, determined as of the first day of that
year, excluding bonuses, commissions, overtime, incentive payments, non-monetary
awards, compensation deferred pursuant to all Section 125 plans of the Employer
and other special compensation. For purposes of this Section and Appendix 3
hereto, "cash bonus" shall mean amounts (if any) awarded under the bonus
policies maintained by the Employer and any commissions earned on sales.
(b) Employer shall not be obligated to make any other contribution to
the Plan on behalf of any Employee at any time. Employer may make Employer
Contributions to the Plan on behalf of one or more Employees. Employer
Contributions, if any, made to Accounts of Employees shall be determined in the
sole and absolute discretion of the Employer, and may be made without regard to
whether the Employee to whose Account such contribution is credited has made, or
is making, contributions pursuant to Section 3.1(a). The Employer shall not be
bound or obligated to apply any specific formula or basis for calculating the
amount of any Employer Contributions and Employer shall have sole and absolute
discretion as to the allocation of Employer Contributions among participating
Employee Accounts. The use of any particular formula or basis for making an
Employer Contribution in one year shall not bind or obligate the Employer to use
such formula or basis in any other year. Employer Contributions may be subject
to a substantial risk of forfeiture in accordance with the terms of a vesting
schedule, which may be selected by the Employer in its sole and absolute
discretion.
(c) Amounts deferred under the Plan shall be calculated and
withheld from the Employee's base salary and/or cash bonus after such
compensation has been reduced to reflect salary reduction contributions to the
Employer's Code Section 125 (cafeteria) and Code Section 401(k) (savings) plans,
but before any reductions for contributions to the Code Section 423 (employee
stock purchase) plan.
3.2 Payment Of Account Balances. (a) The Employee shall elect
whether he or she will receive distribution of his or her entire Account,
subject to tax withholding requirements, (i) upon reaching a specified age, (ii)
upon passage of a specified number of years, (iii) upon termination of
employment of Employee with Employer, (iv) upon the earlier to occur of (A)
termination of employment of Employee with Employer or (B) passage of a
specified number
5
<PAGE> 8
of years, or (v) upon the later to occur of (A) termination of employment of
Employee with Employer or (B) passage of a specified number of years, as elected
by Employee in accordance with the form attached hereto as Appendix 2. A
designation of the date of distribution shall be required as a condition of
participation under this Plan. The Employee shall also elect to receive all
amounts payable to him or her in a lump sum or in equal monthly installments
over a designated period of five or ten years, pursuant to the provisions of
Section 3.2(e). A separate election form regarding the timing and form of
distribution shall be required of the Employee for each year of participation in
the Plan. These elections shall be made in accordance with Section 3.4 of this
Plan.
(b) Distributions shall be made to the maximum extent allowable under
the election made by Employee, except that no distribution shall be made to the
extent that the receipt of such distribution, when combined with the receipt of
all other "applicable employee remuneration" (as defined in Code Section
162(m)(4)), would cause any remuneration received by the Employee to be
nondeductible by the Employer under Code Section 162(m)(1). The portion of any
distributable amount that is not distributed by operation of this Section 3.2(b)
shall be distributed in subsequent years in the manner elected by the Employee
until the Employee's Account has been fully liquidated. For Employees who have
elected to receive payment in a lump sum or over five or ten years, the
commencement date of the lump sum payment or the five- or ten-year period
(whichever is applicable) shall be automatically extended, when necessary to
satisfy the requirements of this subsection, for one-year periods until all
Account balances have been distributed in the manner elected by the Employee.
(c) Upon termination of Employee's employment with Employer by reason
of death or Permanent Disability prior to the date when payment of Account
balances otherwise would commence under the provisions of Section 3.2(a),
Employee or Employee's designated Beneficiary will be entitled to receive all
amounts credited to the Account of Employee as of the date of his or her death
or Permanent Disability (notwithstanding any contrary election to receive
distributions under the first sentence of Section 3.2(a)). Upon termination of
Employee's employment with Employer by reason other than death or Permanent
Disability prior to the date when payment of Account balances otherwise would
commence under the provisions of Section 3.2(a), the Employer may, in the sole
discretion of the Committee, distribute to Employee or Employee's designated
Beneficiary all amounts credited to the Employee's Account as of the date of
such termination (notwithstanding any contrary
6
<PAGE> 9
election to receive distributions under the first sentence of Section 3.2(a)).
Said amounts shall be payable, pursuant to the provisions of Section 3.2(e).
(d) Upon the death of Employee prior to complete distribution to him
or her of the entire balance of his or her Account (and after the date of
termination of employment with Employer), the balance of his or her Account on
the date of death shall be payable to Employee's designated Beneficiary
pursuant to Section 3.2(e).
(e) The Employer shall distribute or direct distribution of the
balance of amounts previously credited to Employee's Account, in a lump sum, or
in monthly installments over a period of five (5) years or ten (10) years as
Employee shall designate. A designation of the form of distribution shall be
required as a condition of participation under this Plan. Distribution of the
lump sum or the first installment shall be made or commence within ninety (90)
days following the date specified in the first sentence of Section 3.2(a).
Subsequent installments, if any, shall be made on the first day of each month
following the first installment as determined by Employer. The amount of each
installment shall be calculated by dividing the Account balance as of the date
of the distribution by the number of installments remaining pursuant to the
Employee's distribution election. Each such installment, if any, shall take
into account earnings credited to the balance of the Account remaining unpaid.
The Employee's distribution election shall be in the form attached hereto as
Appendix 2.
3.3 Election To Defer Compensation. Each election of an Employee to
defer compensation as provided in Section 3.1 of this Plan shall be in writing,
signed by the Employee, and delivered to Employer, together with all other
documents required under the provisions of this Plan, at least twenty (20) days
prior to the beginning of the Plan Year with respect to which the compensation
to be deferred is otherwise payable to Employee; provided, however, that an
Employee who is hired or promoted during a Plan Year to a position of
eligibility for participation in the Plan shall have twenty (20) days from the
date of such hiring or promotion in which to submit the required election
documents for the then-current Plan Year. For the Plan Year beginning October
1, 1994 only, each Employee shall have until October 30 , 1994, in which to make
an election for that Plan Year. Any deferral election made by Employee shall be
irrevocable with respect to any Compensation covered by such election, including
Compensation payable in the Plan Year in which the election
7
<PAGE> 10
suspending or modifying the prior deferral election is delivered to Employer.
The Employer shall withhold the amount or percentage of base salary specified
to be deferred in equal amounts for each payroll period and shall withhold the
amount or percentage of cash bonus specified to be deferred at the time or
times such bonus is or otherwise would be paid to the Employee. The election
to defer compensation shall be in the form attached as Appendix 3.
3.4 Distribution Election. Each distribution election of an
Employee as provided in Section 3.2 of this Plan shall be in writing, signed by
the Employee, and delivered to Employer, together with all other documents
required under the provisions of this Plan, at least twenty (20) days prior to
the beginning of the Plan Year with respect to which the distribution election
is to apply; provided, however, that an Employee who is hired or promoted
during a Plan Year to a position of eligibility for participation in the Plan
shall have twenty (20) days from the date of such hiring or promotion in which
to submit the required election documents for the then-current Plan Year. For
the Plan Year beginning October 1, 1994 only, each Employee shall have until
October 30 , 1994, in which to make a distribution election for that Plan Year.
Any distribution election made by Employee shall be irrevocable with respect to
any Compensation covered by such election. Employee's distribution election
shall be in the form attached hereto as Appendix 2.
3.5 Payment Upon Change in Control. Notwithstanding any other
provisions of this Plan, the aggregate balances credited to and held in the
Employees' Accounts shall be distributed to Employees in a lump sum within
thirty (30) days of a Change in Control, as defined in Section 5.1.
3.6 Hardship. (a) An Employee may apply for distributions from his
or her Account to the extent that the Employee demonstrates to the reasonable
satisfaction of the Committee that he or she needs the funds due to Hardship.
For purposes of this Section 3.6, a distribution is made on account of Hardship
only if the distribution is made on account of an unforeseeable immediate and
heavy financial need of the Employee and is necessary to satisfy that financial
need. Whether an Employee has an immediate and heavy financial need shall be
determined by the Committee based on all relevant facts and circumstances, and
shall include, but not be limited to: the need to pay funeral expenses of a
family member; the need to pay expenses for medical care for Employee, the
Employee's spouse or any dependent of Employee; or payments necessary to
prevent the eviction of Employee from Employee's
8
<PAGE> 11
principal residence or foreclosure on the mortgage on that residence. A
Hardship distribution shall not exceed the amount required to relieve the
financial need of the Employee, nor shall a Hardship distribution be made if the
need may be satisfied from other resources reasonably available to the Employee.
For purposes of this paragraph, an Employee's resources shall be deemed to
include those assets of the Employee's spouse and minor children that are
reasonably available to the Employee. Prior to approving a Hardship
distribution, Employer shall require the Employee to certify in writing that the
Employee's financial need cannot reasonably be relieved:
(i) through reimbursement or compensation by insurance or otherwise;
(ii) by cessation of elective contributions under the Plan; or
(iii) by other distributions or nontaxable (at the time of
the loan) loans from plans maintained by the Employer or by any other employer,
or by borrowing from commercial sources on reasonable commercial terms, in an
amount sufficient to satisfy the need.
(b) Any Employee receiving a Hardship distribution under this section
shall be ineligible to defer any additional compensation under the Plan until
the first day of the Plan Year following the second anniversary of the date of
the distribution. In addition, a new Election of Deferral must be submitted to
the Employer as a condition of participation in the Plan.
3.7 Employee's Rights Unsecured. The right of the Employee or his
or her designated Beneficiary to receive a distribution hereunder shall be an
unsecured claim against the general assets of the Employer, and neither the
Employee nor his or her designated Beneficiary shall have any rights in or
against any amount credited to his or her Account or any other specific assets
of the Employer, except as otherwise provided in the Trust. Nothing contained
in this Plan, and no action taken pursuant to its provisions, shall create or
be construed to create a trust of any kind or a fiduciary relationship between
the Plan and the Employer or any other person.
9
<PAGE> 12
3.8 Investment of Contribution. (a) The investment options
available to each Employee shall be determined by the Employer and set forth
in a separate written document, a copy of which shall be attached hereto and by
this reference is incorporated herein. Each Employee shall have the sole and
exclusive right to direct the Trustee as to the investment of his or her
Accounts in accordance with policies and procedures implemented by the Trustee.
Employer shall not be liable for any investment decision made by any Employee
while such funds are held by the Trustee.
(b) Accounts shall be credited with the actual financial performance or
earnings generated by such investments directed by the Employee and made by the
Trustee, until the Account has been fully distributed to the Employee or to the
Employee's designated Beneficiary.
(c) Notwithstanding in this Section 3.8 to the contrary, the Committee
may determine not to take account of Employee's designated investments and
determine to have the Employee's Account invested in any other manner as the
Committee shall determine.
SECTION 4
DESIGNATION OF BENEFICIARY
4.1 Designation of Beneficiary. Employee may designate a
Beneficiary or Beneficiaries to receive any amount due hereunder by Employee
via written notice thereof to Employer at any time prior to his or her death
and may revoke or change the Beneficiary designated therein without the
Beneficiary's consent by written notice delivered to Employer at any time and
from time to time prior to Employee's death. If Employee is married and a
resident of a community property state, one half of any amount due hereunder
which is the result of an amount contributed to the Plan during such marriage
is the community property of the Employee's spouse and Employee may designate a
Beneficiary or Beneficiaries to receive only the Employee's one-half interest.
If Employee shall have failed to designate a Beneficiary, or if no such
Beneficiary shall survive him or her, then such amount shall be paid to his or
her estate. Designations of Beneficiaries shall be in the form attached hereto
in Appendix 4.
10
<PAGE> 13
SECTION 5
CHANGE IN CONTROL
5.1 Change in Control. For purposes of this Trust, a
"Change of Control" means the happening of any of the following:
(i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 as amended ("Exchange Act")
(other than the Employer, a Subsidiary or an Employer employee benefit plan,
including any trustee of such plan acting as trustee) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Employer representing fifty percent (50%)
or more of the combined voting power of the Employer's then outstanding
securities, where such person's beneficial ownership of the Employer's
securities was not initiated by the Employer or approved by the Employer's
Board of Directors; or
(ii) The occurrence of a transaction requiring shareholder
approval, and involving the sale of all or substantially all of the assets of
the Employer or the merger of the Employer with or into another corporation,
where such merger was not initiated by the Employer and in which Employer is
not the surviving entity; or
(iii) A change in the composition of the Board of Directors
of the Employer, as a result of which fewer than a majority of the directors
are Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A) are directors of the Employer as of the date hereof, or (B) are elected, or
nominated for election, to the Board of Directors of the Employer with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination (but shall not include an individual whose
election or nomination is in connection with an actual or threatened proxy
contest relating to the election of directors to the Employer); or
(iv) Any liquidation or dissolution of the Employer.
SECTION 6
11
<PAGE> 14
TRUST PROVISIONS
6.1 Trust Agreement. The Employer may establish the Trust for the
purpose of retaining assets set aside by Employer pursuant to the Trust
Agreement for payment of all or a portion of the amounts payable pursuant to
the Plan. Any benefits not paid from the Trust shall be paid solely from
Employer's general funds, and any benefits paid from the Trust shall be
credited against and reduce by a corresponding amount the Employer's liability
to Employees under the Plan. No special or separate fund, other than the Trust
Agreement, shall be established and no other segregation of assets shall be
made to assure the payment of any benefits hereunder. All Trust Funds shall be
subject to the claims of general creditors of the Employer in the event the
Employer is Insolvent as defined in Section 3 of the Trust Agreement. The
obligations of the Employer to pay benefits under the Plan constitute an
unfunded, unsecured promise to pay and Employees shall have no greater rights
than general creditors of the Employer.
SECTION 7
AMENDMENT AND TERMINATION
7.1 Amendment. The Committee shall have the right to amend this
Plan at any time and from time to time, including a retroactive amendment. Any
such amendment shall become effective upon the date stated therein, and shall
be binding on all Employees, except as otherwise provided in such amendment;
provided, however, that said amendment shall not affect adversely benefits
payable to an affected Employee without the Employee's written approval.
SECTION 8
ADMINISTRATION
8.1 Administration. The Committee shall administer and interpret
this Plan in accordance with the provisions of the Plan and the Trust
Agreement. Any determination or
12
<PAGE> 15
decision by the Committee shall be conclusive and binding on all persons who at
any time have or claim to have any interest whatever under this Plan.
8.2 Liability of Committee; Indemnification. To the maximum extent
permitted by law, the Committee shall not be liable to any person for any
action taken or omitted in connection with the interpretation and
administration of this Plan unless attributable to his or her own bad faith or
willful misconduct. The Committee may employ legal counsel, consultants,
actuaries and agents as they may deem desirable in the administration of the
Plan and may rely on the opinion of such counsel or the computations of such
consultant or other agent. The Committee shall provide for the keeping of
detailed written minutes of its actions hereunder which shall be reviewed by
the legal counsel or the consultant engaged by the Committee prior to their
finalization.
8.3 Expenses. The costs of the establishment of the Plan and the
adoption of the Plan by Employer, including but not limited to legal and
accounting fees, shall be borne by Employer. The expenses of administering the
Plan shall be borne by the Trust; provided, however, that Employer shall bear,
and shall not be reimbursed by, the Trust for any tax liability of Employer
associated with the investment of assets by the Trust.
SECTION 9
GENERAL AND MISCELLANEOUS
9.1 Rights Against Employer. Except as expressly provided by the
Plan, the establishment of this Plan shall not be construed as giving to any
Employee or to any person whomsoever, any legal, equitable or other rights
against the Employer, or against its officers, directors, agents or
shareholders, or as giving to any Employee or Beneficiary any equity or other
interest in the assets, business or shares of Employer stock or giving any
Employee the right to be retained in the employment of the Employer. Neither
this plan nor any action taken hereunder shall be construed as giving to any
Employee the right to be retained in the employ of the Employer or as affecting
the right of the Employer to dismiss any Employee. Any benefit payable under
the Plan shall not be deemed salary or other compensation for the purpose of
computing benefits under any employee benefit plan or other arrangement of the
Employer for the benefit of its Employees.
13
<PAGE> 16
9.2 Assignment or Transfer. No right, title or interest of any kind
in the Plan shall be transferable or assignable by any Employee or Beneficiary
or be subject to alienation, anticipation, encumbrance, garnishment,
attachment, execution or levy of any kind, whether voluntary or involuntary,
nor subject to the debts, contracts, liabilities, engagements, or torts of the
Employee or Beneficiary. Any attempt to alienate, anticipate, encumber, sell,
transfer, assign, pledge, garnish, attach or otherwise subject to legal or
equitable process or encumber or dispose of any interest in the Plan shall be
void.
9.3 Severability. If any provision of this Plan shall be declared
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining provisions of this Plan but shall be fully severable, and
this Plan shall be construed and enforced as if said illegal or invalid
provision had never been inserted herein.
9.4 Construction. The article and section headings and numbers are
included only for convenience of reference and are not to be taken as limiting
or extending the meaning of any of the terms and provisions of this Plan.
Whenever appropriate, words used in the singular shall include the plural or
the plural may be read as the singular. When used herein, the masculine gender
includes the feminine gender.
9.5 Governing Law. The validity and effect of this Plan and the
rights and obligations of all persons affected hereby shall be construed and
determined in accordance with the laws of the State of Delaware unless
superseded by federal law.
9.6 Payment Due to Incompetence. If the Committee receives evidence
that an Employee or Beneficiary entitled to receive any payment under the Plan
is physically or mentally incompetent to receive such payment, the Committee
may, in its sole and absolute discretion, direct the payment to any other
person or Trust which has been legally appointed by the courts or to any other
person determined by the Employer to be a proper recipient on behalf of such
person otherwise entitled to payment, or any of them, in such manner and
proportion as the Employer may deem proper. Any such payment shall be in
complete discharge of the Employer's obligations under this Plan.
14
<PAGE> 17
9.7 Taxes. The Employer may withhold from any benefits payable
under this Plan, all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
9.8 Attorney's Fees. Employer shall pay the reasonable
attorney's fees incurred by any Employee in an action brought against Employer
to enforce Employee's rights under the Plan, provided that such fees shall only
be payable in the event that the Employee prevails in such action.
9.9 Plan Binding on Successors/Assignees. This Plan shall be
binding upon and inure to the benefit of the Employer and its successor and
assigns and the Employee and the Employee's designee and estate.
15
<PAGE> 18
APPENDIX 1
ACKNOWLEDGMENT
The undersigned Employee hereby acknowledges that Employer has selected him or
her as a participant in the Cadence Design Systems, Inc. 1994 Deferred
Compensation Plan, subject to all terms and conditions of the Plan, a copy of
which has been received, read, and understood by the Employee in conjunction
with executing this Acknowledgment. Employee acknowledges that he or she has
had satisfactory opportunity to ask questions regarding his or her
participation in the Plan and has received satisfactory answers to any
questions asked. Employee also acknowledges that he or she has sufficient
knowledge and experience in financial and business matters to be capable of
evaluating the merits and risks of participation in the Plan. Employee
understands that his or her participation in the Plan shall not begin until
this Acknowledgment has been signed by Employee and returned to Employer.
Dated: ____________________________________________
Signed: ____________________________________________
Employee
Dated: ___________________________________________
CADENCE DESIGN SYSTEMS, INC.
Signed: ___________________________________________
[Officer]
16
<PAGE> 19
APPENDIX 2
DISTRIBUTION ELECTION
Pursuant to Section 3.3 of the Cadence Design Systems, Inc. 1994 Deferred
Compensation Plan (the "Plan"), I hereby elect to have all amounts credited to
my Account during the period of my participation in the Plan, together with any
earnings credited thereon, distributed to me on the terms elected below:
I elect to have any distribution of my Account paid to me:
_______ upon reaching age: _____
_______ upon the passage of ______ years
_______ upon termination of employment
_______ upon the earlier to occur of termination of employment or
passage of _____ years
_______ upon the later to occur of termination of employment or
passage of _____ years
I elect to have any distribution of my Account paid to me in:
_______ A lump sum
_______ Sixty (60) monthly installments determined as of
each installment date by dividing the entire
amount in my Account (including earnings) by the
number of installments then remaining to be paid,
with the final installment to be the entire
remaining balance in the account.
_______ One hundred twenty (120) monthly installments
determined as of each installment date by dividing
the entire amount in my Account (including
earnings) by the number of installments then
remaining to be paid, with the final installment
to be the entire remaining balance in the account.
This election shall take effect for amounts deferred by me with respect to the
Plan Year beginning ________________. The distribution of amounts from my
Account pursuant to this election is subject to all of the terms and conditions
of the Plan and of the Cadence Design Systems, Inc. 1994 Deferred Compensation
Plan Trust Agreement, a copy of which I have been given by the Employer, and
which I have read and understood.
Dated: ______________________________________
17
<PAGE> 20
Signed: ______________________________________
18
<PAGE> 21
APPENDIX 3
ELECTION OF DEFERRAL
I understand that, under Section 3.1 of the Cadence Design Systems, Inc. 1994
Deferred Compensation Plan (the "Plan"), the minimum annual deferral amount is
$5,000 of base salary and the maximum annual deferral amount is 80% of "base
salary" and 100% of "cash bonus" for the Plan Year in question. I elect,
pursuant to Section 3.1 of the Plan, to make the following deferral(s) with
respect to compensation earned during the Plan Year beginning October 1, 1994
and ending December 31, 1994:
_____% of base salary (but not to exceed eighty percent
(80%)), payable to me by Employer [minimum =
$5,000], or
$______ of base salary payable to me by Employer (but not
to exceed eighty percent (80%)) [minimum = $5,000],
and
_____% of any cash bonus payable to me by Employer, or
$______ of any cash bonus payable to me by Employer, or
all of any cash bonus payable to me by Employer except for
$______
This election shall take effect for the Plan Year beginning October 1, 1994.
It may be terminated or modified by me only with written notice. The election
shall remain in effect for each successive Plan Year until a termination,
modification or subsequent election is submitted. The deferral of compensation
hereby elected is subject to all of the terms and conditions of the Plan and of
the Cadence Design Systems, Inc. 1994 Deferred Compensation Plan Trust
Agreement, a copy of which I have been given by the Employer, and which I have
read and understood.
Dated: ______________________________________
Signed: ______________________________________
19
<PAGE> 22
APPENDIX 4
BENEFICIARY DESIGNATION
In the event I should die prior to the receipt of all money accrued to my
credit under this election, I elect to have the balance paid to the following
named individual(s) in the following percentages(s):
Complete A if you are a resident of a community property state. Complete B if
the state in which you reside is not a community property state.
A. 50% to my spouse ____________________________
____% _________________________________________
____% _________________________________________
B. ____% _________________________________________
____% _________________________________________
____% _________________________________________
Dated: ____________________________________________
Signed: ____________________________________________
20
<PAGE> 1
Exhibit 21.01
SUBSIDIARIES OF THE REGISTRANT
The Registrant's subsidiaries and the state or country in
which each is incorporated or organized, are as follows:
<TABLE>
<S> <C>
Cadence Design Systems (Canada) Ltd. Canada
Cadence Design Systems S.A. France
Cadence Design Systems GmbH Germany
Cadence Design Systems Asia, Ltd. Hong Kong
Cadence Design Systems (Israel) Ltd. Israel
Cadence Design Systems S.r.l. Italy
Cadence Design Systems K.K. Japan
Cadence Korea Ltd. Korea
Cadence Design Systems AB Sweden
Cadence Taiwan, Inc. Taiwan
Cadence Europe Ltd. United Kingdom
Cadence Design Systems, Ltd. United Kingdom
Cadence International Sales Corporation U.S. Virgin Islands
European CAD Development Ltd. United Kingdom
Cadence Design Systems (India)
Private Ltd. India
Integrated Measurement Systems, Inc. Oregon
Cadence Design Systems AG Switzerland
Valid Europe S.A. Belgium
Valid Logic Systems GmbH Germany
Accent S.r.l. Italy
Redwood Design Automation Inc. California
Alta Group of Cadence Design
Systems K.K. Japan
Seely Properties, Inc. California
River Oaks Place Associates California
</TABLE>
<PAGE> 1
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements (File Nos. 33-36110, 33-43025, 33-45001, 33-48371 and
33-53913) on Form S-8.
/s/ ARTHUR ANDERSEN LLP
---------------------------
Arthur Andersen LLP
San Jose, California
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 75,011
<SECURITIES> 21,865
<RECEIVABLES> 78,629
<ALLOWANCES> 4,905
<INVENTORY> 5,137
<CURRENT-ASSETS> 191,935
<PP&E> 220,751
<DEPRECIATION> 98,687
<TOTAL-ASSETS> 361,048
<CURRENT-LIABILITIES> 164,442
<BONDS> 0
<COMMON> 131,445
0
0
<OTHER-SE> 44,618
<TOTAL-LIABILITY-AND-EQUITY> 361,048
<SALES> 429,072
<TOTAL-REVENUES> 429,072
<CGS> 94,607
<TOTAL-COSTS> 94,607
<OTHER-EXPENSES> 290,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,045
<INCOME-PRETAX> 48,863
<INCOME-TAX> 12,215
<INCOME-CONTINUING> 36,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,648
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
</TABLE>
