<PAGE> 1
FORM 10-Q/A
AMENDMENT NO. 1
-------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 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 0-10606
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 Identification No.)
incorporation or organization)
555 River Oaks Parkway, San Jose, California 95134
(Address of principal executive offices) (Zip Code)
(408) 943-1234
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
At March 31, 1994 there were 41,227,171 shares of the registrant's Common Stock,
$0.01 par value outstanding.
1
<PAGE> 2
CADENCE DESIGN SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
March 31, 1994 and December 31, 1993 3
Condensed Consolidated Statements of Income:
Three Months Ended March 31, 1994 and 1993 4
Condensed Consolidated Statements of Cash Flows:
Three Months Ended March 31, 1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Signature 11
</TABLE>
2
<PAGE> 3
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash investments $ 62,259 $ 61,382
Short-term investments 43,550 31,423
Accounts receivable, net 88,580 101,890
Inventories 5,187 5,744
Prepaid expenses and other assets 15,865 18,036
-------- --------
Total current assets 215,441 218,475
-------- --------
Property, plant and equipment, net 94,601 61,477
Software development costs, net 31,401 31,265
Purchased software and other intangibles, net 10,935 12,787
Other assets 10,970 15,297
-------- --------
Total assets $363,348 $339,301
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion
of long-term obligations $ 27,540 $ 3,962
Accounts payable 12,234 13,513
Accrued liabilities 56,870 51,352
Income taxes payable 2,595 6,541
Deferred revenue 46,104 38,111
-------- --------
Total current liabilities 145,343 113,479
-------- --------
Long-term obligations 2,378 4,001
Lease liabilities 9,109 10,722
Deferred income taxes 2,008 2,243
Other noncurrent liabilities 2,981 2,734
-------- --------
Total long-term liabilities 16,476 19,700
-------- --------
Stockholders' Equity:
Common stock 462 460
Additional paid-in capital 251,177 250,501
Treasury shares at cost
(4,964,853 and 4,857,200 shares, respectively) (53,886) (52,178)
Retained earnings 4,210 8,527
Accumulated translation adjustment (434) (1,188)
-------- --------
Total stockholders' equity 201,529 206,122
-------- --------
Total liabilities and stockholders' equity $363,348 $339,301
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 31, March 31,
1994 1993
--------- ---------
REVENUE: (Unaudited)
<S> <C> <C>
Product $61,147 $ 47,114
Maintenance 35,631 29,003
------- --------
Total revenue 96,778 76,117
------- --------
COST OF REVENUE:
Product 19,716 16,889
Maintenance 3,825 3,958
------- --------
Total cost of revenue 23,541 20,847
------- --------
Gross margin 73,237 55,270
------- --------
OPERATING EXPENSES:
Marketing and sales 39,024 37,499
Research and development 16,989 16,918
General and administrative 10,599 9,477
Provision for settlement of litigation 12,104 --
Restructuring costs -- 13,450
Loss from operations
of disposed division -- 478
Total operating expenses 78,716 77,822
------- --------
LOSS FROM OPERATIONS (5,479) (22,552)
Other income, net 347 504
------- --------
Loss before benefit for income taxes (5,132) (22,048)
Benefit for income taxes 1,283 5,732
------- --------
NET LOSS $(3,849) $(16,316)
======= ========
NET LOSS PER SHARE $ (.09) $ (.37)
======= ========
Weighted average common and common
equivalent shares outstanding 41,208 44,136
======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
March 31, March 31,
1994 1993
--------- ---------
(Unaudited)
<S> <C> <C>
CASH AND CASH INVESTMENTS AT
BEGINNING OF PERIOD $ 61,382 $ 78,976
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (3,849) (16,316)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 10,600 10,873
Lease liabilities (1,619) (1,174)
Deferred income taxes, noncurrent (235) 1,253
Write-offs of capitalized software development costs
and purchased software and intangibles 807 377
Accruals for severance and facilities restructure costs -- 9,573
Increase in other noncurrent liabilities 247 82
Write down and reserve of assets related to restructure -- 3,500
Net changes in current assets and liabilities, net of
purchase of third-party interests in partnerships-
Decrease in accounts receivable 14,891 33,590
Decrease (increase) in inventories 560 (1,604)
Decrease (increase) in prepaid expenses
and other assets 2,267 (6,516)
Decrease in accrued liabilities and payables (735) (11,949)
Increase in deferred revenue 7,698 4,621
-------- --------
Net cash provided by operating activities 30,632 26,310
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (12,127) (3,499)
Purchase of property and equipment (2,340) (5,012)
Capitalization of software development costs (3,362) (3,760)
Decrease (increase) in other assets and purchased
software and intangibles 593 (333)
Payment for purchase of third-party interests in
partnerships, net of cash acquired (8,729) --
-------- --------
Net cash used for investing activities (25,965) (12,604)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations (2,057) (1,978)
Sale of common stock, net of notes receivable from
stockholders 678 5,597
Purchase of treasury stock, net (1,708) (4,245)
-------- --------
Net cash used for financing activities (3,087) (626)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (703) (1,044)
-------- --------
INCREASE IN CASH AND CASH INVESTMENTS 877 12,036
-------- --------
CASH AND CASH INVESTMENTS AT END OF PERIOD $ 62,259 $ 91,012
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1993.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) that
are, in the opinion of management, necessary to state fairly the results for the
periods presented. The results for such periods are not necessarily indicative
of the results to be expected for the full fiscal year.
2. ACQUISITION OF THIRD-PARTY INTERESTS IN 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 $9 million in cash and the assumption of a secured construction
loan of approximately $23.5 million. The Company leases buildings from one of
the limited partnerships and the second limited partnership owns unencumbered
land adjacent to the leased property. The Company paid off the construction loan
with its cash reserves in May 1994.
3. LOSS FROM OPERATIONS OF DISPOSED DIVISION
In December 1993 the Company sold its Automated Systems ("ASI") division. In
prior filings, the Company had reported the operating results of ASI as a
discontinued operation in the statements 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, the Securities and Exchange Commission ("SEC")
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 by the SEC to be a major line of
business. As a result, the Company has classified the loss from operations of
the disposed division within operating expenses in the accompanying statement of
income. Revenue of the disposed division was $3,223,000 for the quarter ending
March 31, 1993.
4. PURCHASE OF 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. 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 financial information has not been presented
as the results of operations for Comdisco are not material to the Company's
consolidated financial statements for 1993.
6
<PAGE> 7
5. DISCLOSURE OF NONCASH INVESTING ACTIVITIES
As discussed in Note 2 the Company purchased all third-party interests in two
real estate partnerships for approximately $9 million. In connection with the
acquisition, net assets acquired were as follows (in thousands):
<TABLE>
<S> <C>
Property and other assets $ 36,083
Liabilities assumed (23,576)
Less cash acquired (3,778)
--------
Total $ 8,729
========
</TABLE>
6. INVESTMENTS IN DEBT AND EQUITY SECURITIES
Effective January 1, 1994 the Company adopted Statement of Financial Accounting
Standards 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. The Company classifies its investments as "held-to-maturity" for the
purposes of this statement. The investments mature at various dates through
December 1994.
7. NET LOSS PER SHARE
Net loss per share is calculated by dividing net loss by the weighted average
number of shares of common stock.
8. INVENTORIES
Inventories which consist primarily of testing equipment are stated at the lower
of cost (first-in, first-out method) or market. Cost includes labor, material
and manufacturing overhead. Inventories consisted of the following (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---------- -----------
(Unaudited)
<S> <C> <C>
Raw materials and supplies $1,361 $2,240
Work-in-progress 2,661 2,214
Finished goods 1,165 1,290
------ ------
Total $5,187 $5,744
====== ======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Stockholder 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 suits
were subsequently consolidated into a single lawsuit and the class period
changed to include purchasers of the Company's common stock during the period
from October 18, 1990 through April 3, 1991. The lawsuit 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 June 2, 1993 the
District Court granted in part and denied in part the Company's motion to
dismiss the complaint in the class action originally filed in April 1991. The
effect of this ruling was to limit the class period to include purchasers of the
Company's common stock between January 29, 1991 and April 3, 1991. Trial of this
matter was scheduled to commence August 8, 1994.
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. Two additional complaints
identical to the complaint filed on March 23, 1993 except for the identities of
the plaintiffs, were filed later in March and in April 1993. All three
complaints
7
<PAGE> 8
were consolidated into a single lawsuit which seeks unspecified damages on
behalf of all purchasers of the Company's common stock between October 12, 1992
and March 19, 1993. The lawsuit 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. The agreements are subject to negotiation and
execution of final settlement agreements, final court approval and certain
contingencies. The tentative agreements provide for payment by the Company, net
of insurance proceeds, of approximately $11 million in the second quarter of
1994. The Company is seeking to recover a portion of this payment from one of
its insurers. The provision for settlement of litigation recorded in the first
quarter includes the above settlement amount as well as legal costs associated
with the settlement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue for the first quarter ended March 31, 1994 was $96.8 million compared
with $76.1 million for the same period of the prior year, an increase of 27%.
This increase was partially due to improved economic conditions, increased
demand for the Company's products including the addition of the business of
Comdisco and higher maintenance revenue from a larger installed product base.
Also, revenue for the first quarter of 1993 was adversely impacted by 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 in 1993. Maintenance revenue
increased in absolute dollars by $6.6 million for the three months ended March
31, 1994 as compared to the same period in 1993, in part because of a larger
customer base, the increased focus on customer renewals and the addition of
Comdisco operations.
Total cost of revenue was $23.5 million for the three months ended March 31,
1994 as compared to $20.8 million for the same period in 1993, an increase of
13%. Cost of product was $19.7 million for the first quarter of 1994 as compared
to $16.9 million for the same period in 1993. This increase in cost of product
was partially due to an increase in the amortization and write-off of purchased
software and intangibles, as well as increased expenses related to the addition
of Comdisco operations. Cost of maintenance decreased in absolute dollars for
the first quarter of 1994 as compared to the same period in the prior year. The
slight decrease was due to the streamlining of the maintenance renewal process
which includes a more cost-effective update program and lower cost media.
Gross margin was 76% and 73% for the first quarter ended March 31, 1994 and
1993, respectively.
Marketing and sales expenses were $39.0 million for the first quarter ended
March 31, 1994 compared with $37.5 million in the same period of the prior year,
an increase of 4%. This increase was primarily due to the addition of Comdisco
operations.
8
<PAGE> 9
Research and development expenses for the first quarter ended March 31, 1994
were $17.0 million compared with $16.9 million in the same period of the prior
year. Capitalization of software development costs for the quarters ended March
31, 1994 and 1993 was $3.4 million and $3.8 million, which represented 17% and
18% of total research and development expenditures made in each of those
periods, respectively. Gross research and development expenditures decreased
from $20.7 million to $20.4 million for the three months ended March 31, 1993 as
compared to March 31, 1994. The decrease was due to reduced equipment
maintenance and facility costs partially offset by increased expenses related to
the addition of Comdisco operations.
General and administrative expenses increased to $10.6 million for the first
quarter ended March 31, 1994 from $9.5 million in the same period of 1993, an
increase of 12%. This increase was primarily due to increases in legal expenses,
expenses related to the addition of Comdisco operations and increased bad debt
expense.
In March 1994 the Company recorded a provision of $12.1 million for settlement
of the stockholder class action lawsuits filed against the Company and certain
of its officers and directors in 1991 and 1993. This provision includes costs
related to the settlement payments as well as legal costs associated with the
settlement.
In March 1993 the Company recorded restructuring costs of $13.5 million
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 excess facilities, the write-off of software
development costs and purchased software and intangibles and employee
terminations arising from required adjustments to the Company's cost structure
necessitated by lower revenue levels.
The Company sold its ASI division in December 1993 and has reclassified the
financial information of prior periods to report the operating results of ASI as
a separate line item within operating expenses in the consolidated statement of
income. In the first quarter of 1993 the Company recorded a $.5 million loss
related to the operating results of the disposed division.
Net other income for the first quarter ended March 31, 1994 was $.3 million
compared with $.5 million for the same period in 1993. This decrease was
primarily due to increased expense related to foreign exchange loss and other
expenses which were partially offset by an increase in interest income.
The Company's estimated annual effective tax rate for fiscal 1994 is 25% as
compared to 26% for the same period in the prior year.
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 quarter 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 operating results may be impacted
significantly by lower revenue. 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.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1994 the Company's cash and cash
investments and short-term investments increased $13.0 million from $92.8
million to $105.8 million. This increase was primarily due to net cash generated
from operating activities ($30.6 million) exceeding net cash used for investing
activities ($13.8 million, excluding the $12.1 million increase in short-term
investments) and net cash used for financing activities ($3.1 million). In
addition to $105.8 million in cash and cash investments and short-term
investments at March 31, 1994, the Company had available $15.0 million under
equipment lease lines and $17.5 million under bank lines of credit. The Company
was not in compliance with certain covenants related to its lines of credit at
March 31, 1994. The Company subsequently obtained waivers of the noncompliance
from the banks. The bank lines of credit expire in May and June 1994. The
Company anticipates it will obtain new bank lines of credit to replace the
expiring lines.
Anticipated cash requirements in 1994 include payments related to the pay off of
the $23.5 million construction loan (paid in May 1994), the settlement of the
class action lawsuits (approximately $11 million to be paid during the second
quarter), the purchase of treasury stock, contemplated additions of capital
equipment and restructure costs accrued at March 31, 1994. Prior to 1993, the
Company authorized the repurchase of up to 2.8 million shares of common stock in
the open market over the next several years to satisfy its estimated
requirements for shares to be issued under its employee stock option and stock
purchase plans. In April 1993 the Company authorized the repurchase of an
additional 4.0 million shares of common stock from time to time in the open
market. In addition, in February 1994 the Company authorized the repurchase of
an additional 2.9 million shares. In total, as of March 31, 1994 approximately
5.9 million shares had been repurchased. The Company anticipates that current
cash and short-term investment balances, cash flows from operations and unused
balances on equipment lease lines and lines of credit will be sufficient to meet
its working capital and capital expenditure requirements for at least the next
year.
10
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CADENCE DESIGN SYSTEMS, INC.
(REGISTRANT)
DATE: March 9, 1995 By: /s/ H. Raymond Bingham
---------------------------
H. RAYMOND BINGHAM
Executive Vice President
and Chief Financial Officer
11
