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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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)
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 March 25, 1994 by
non-affiliates of the registrant: $433,260,556
Number of shares of common stock outstanding: 41,265,044
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting to be held on May 17,
1994 are incorporated by reference into Part III hereof.
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CADENCE DESIGN SYSTEMS, INC.
1993 FORM 10-K/A ANNUAL REPORT
Table of Contents
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Page
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PART 1
Item 1. Business 1
PART II
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports 19
on Form 8-K
Signatures 47
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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
that automate, enhance and accelerate the design and verification of integrated
circuits ("ICs") and electronic systems. Cadence's product lines are composed of
suites of software packages or tools, integrated through Cadence's proprietary
software architecture.
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"). 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
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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 1993 statement of income.
Valid had acquired two companies by merger in February 1989: Integrated
Measurements Systems, Inc. ("IMS"), a company that manufactured and marketed
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.
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. 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 timeframe
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. EDA technology has 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 is developing an analog hardware description language
("AHDL") which it will seek to make an industry-standard.
Much as a sketch is detailed into a blueprint before building a house,
behavioral descriptions must be detailed into lower-level descriptions (also
called structural designs) before the IC or PCB
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can be manufactured. This process can be done manually, or in an automated
fashion using a process called logic synthesis and a software tool such as the
Cadence Synergy(TM) synthesizer. 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 "glossing" 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 the 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 for digital, analog and mixed-signal devices; system
design for both digital and analog systems; 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 design environments optimized for customer
project or product needs.
PRODUCT STRATEGY AND PRODUCTS
Cadence's goal is to provide technology that accelerates 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 development efforts on collapsing the most complex and
time-consuming aspects of the design process
- Provide full integration of leading-edge tools into a unified environment
- Deliver solutions that combine software tools and advanced design
methodologies to streamline the overall design process
CORE PRODUCT TECHNOLOGY Cadence believes that within its integrated
solutions approach, customers still 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 Prance-XL(TM) for board and MCM layout, along with
integrated layout analysis tools, DF/SigNoise(TM), DF/Thermax(TM), and
DF/Viable(TM)
- Analog Artist(TM) and Analog Workbench(TM) for analog IC and system
design, respectively
- Composer(TM) and Concept(TM) design entry environments
- Design Framework II(TM) framework technology
- Dracula(R) and Diva(TM) for verification
- Gate Ensemble(TM), Cell Ensemble(TM) and Block Ensemble(TM) for place and
route
- Preview(TM) for ASIC and IC floorplanning
- Profile(TM) analog behavioral language
- Spectre(TM), Cadence Spice(TM) and SpicePlus(TM) for analog simulation
- Synergy(TM) family for circuit synthesis and optimization
- Verilog-XL(TM) and Leapfrog(TM) VHDL for top-down digital simulation
- Virtuoso(TM) products 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 Design Framework(TM) in 1985. In 1990 Cadence delivered
Design Framework II, so that designers can work with multiple tools more
efficiently. Through its communication and design management features, Design
Framework II also improves project and data management, critical for today's
large designs and design teams.
Design Framework II gives users an easy-to-use EDA software system,
which can easily be customized, combined with third party tools, and ported to
new computer platforms as they become available.
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.
The CAD Framework Initiative (CFI), a standards committee comprised of
EDA vendors and customers, has developed a reference architecture as an initial
step towards a universal framework definition. As a founding member, Cadence
works closely with CFI to develop this standard, and is advancing Design
Framework II to adhere to CFI's evolving guidelines.
INTEGRATED DESIGN SOLUTIONS
Cadence offers a full line of EDA software combined with framework
technology and
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advanced design methodologies to provide complete EDA solutions that enhance
productivity.
IC DESIGN Cadence's products have been used in every major 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 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 supporting polygon
layout, symbolic layout and layout synthesis; the Ensemble(TM) product family
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
product family of physical verification tools.
For analog designers, Cadence offers complete front-to-back solutions
for analog, mixed-signal and microwave circuits. The Analog Artist 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.
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 complete front-to-back digital and
analog system design solutions built around the Concept design entry system; the
Verilog-XL and Leapfrog VHDL simulators; and the Allegro PCB/MCM physical design
system.
Allegro, one of the industry's most comprehensive and production-proven
systems 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 the Prance-XL(TM) routers.
For analog board and system design, Cadence provides the Analog
Workbench, for top-down, front-to-back analog design. The Analog Workbench
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.
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 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.
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Included is 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 Optimizer(TM) synthesis
software; fully integrated mixed-level logic simulation with Verilog-XL(TM) and
Leapfrog(TM) VHDL verification tools; and the Preview(TM) floorplanner that
enable the sharing of consistent timing data from design entry through place and
route. Completing the ASIC design process is Cadence's Gate Ensemble place and
route system. 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.
In addition, 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.
MARKETING AND CUSTOMERS
CUSTOMERS AND MARKETING 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 1993, 1992 and 1991 one customer, Cadence's
distributor in Japan, Innotech Corporation ("Innotech"), accounted for 13%, 14%
and 13% of total revenue, respectively.
Cadence's principal marketing objectives are:
- Offer high quality, complete and integrated design solutions
- Provide best-in-class technologies in critical design areas
- Deliver a standards-driven, open design environment
- Utilize Cadence's worldwide resources to solve customers' complex
design challenges and serve global customers
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.
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 custom design 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 design environment.
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, Systems Design
and Systems Physical Design 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
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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, participating companies can integrate their products
and technologies more easily into Cadence's design framework. This provides
customers with the flexibility to mix and match third-party and proprietary
tools to specifically meet their design automation needs. Today over 70
companies have integrated their tools into Cadence's design framework.
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, 1993, Cadence had 796 employees engaged in field
sales and sales support, representing approximately 32% of its total employees.
Cadence's sales people present 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, 1993, Cadence had 419
regional sales people and applications engineers licensing and supporting
Cadence's products 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, 1993, employed 86 salespeople and 291 other sales and support
personnel.
Cadence licenses its products in Japan through three distributors:
Innotech, Kanematsu Electronics and Sony Tektronics. Cadence's systems products
are marketed in Japan through a wholly-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
Singapore, Hong Kong, Brazil, Australia, India and The People's Republic of
China, Cadence uses CAD/CAM Systems, Modern Devices Ltd., Quick Chip Eng. E.
Projectos Ltd., Cadence Design Systems Pty Ltd., Wipro Information Technology
and IMAG Industries, Inc. and ReMA Ltd., respectively, as its distributors.
Revenue from international sources was $183.6 million, $215.4
million and $197.6 million or approximately 50%, 51% and 52% of total revenue
for the years ended December 31, 1993, 1992 and 1991, 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
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from international sales may be adversely affected. Cadence enters into forward
exchange contracts to reduce the impact of foreign currency fluctuations
resulting from transaction gains and losses. Cadence is required to have United
States Department of Commerce export licenses for shipment of its products
outside 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.
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.
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. The Cadence consulting
services team is a group of Cadence employees whose services can be retained by
customers to provide a wide range of engineering activities from specialized
training to custom programming projects or contract design. These services are
intended to assist customers in becoming productive quickly through use of
Cadence's products, thereby improving customer satisfaction and increasing the
likelihood of follow-on sales.
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PRODUCT DEVELOPMENT AND ENGINEERING
As of December 31, 1993, Cadence's product development was performed
by 750 employees, 476 employees located at its research and development
facilities in San Jose, Foster City, Santa Cruz and San Diego, California, 106
employees in Chelmsford, Massachusetts, 59 employees in India, 13 employees in
Taiwan, 15 employees in Lawrence, Kansas, 2 employees in Ohio and 5 employees in
Albany, New York. 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 26
employees in the U.K. and 3 employees in France and specializes in research and
development activities in the EDA and ASIC design markets. The Company also has
45 employees in Beaverton, Oregon at its IMS subsidiary.
For the years ended December 31, 1993, 1992 and 1991 Cadence's
research and development expenses were approximately $84.3 million, $81.2
million and $84.3 million (before capitalizing approximately $15.2 million,
$14.7 million and $16.2 million of software development costs in 1993, 1992 and
1991), respectively. Cadence began capitalizing certain of its software
development costs in 1986 in accordance with Statement of Financial Accounting
Standards No. 86. See Note 3 of Notes to Consolidated Financial Statements at
December 31, 1993 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
Cadence competes with a number of companies in each of Cadence's
tool categories, as well as with internal CAD development groups of potential
customers. The EDA software industry is characterized by rapid technological
change and is intensely competitive. In Cadence's opinion, the principal
competitive factors in its markets include performance, ease of use, breadth of
tool offering, open system architecture, software portability, pre-sales and
post-sales support and price.
PROPRIETARY RIGHTS
Cadence relies principally upon a combination of copyright and trade
secret laws and license agreements to protect Cadence's 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. 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 to copy aspects of
Cadence's products or to obtain and use information that Cadence regards as
proprietary without authorization. In addition, effective copyright and trade
secret protection for software products may be unavailable in certain foreign
countries.
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), Verifault-XL(R) and Thermax(R)
are registered trademarks of Cadence and substantially all of the other Cadence
product and product family names used herein are trademarks of Cadence.
9
<PAGE> 12
MANUFACTURING AND BACKLOG
Cadence's software production operations consist of configuring the
proper version of a product, recording it on magnetic tape or other recording
media and producing user manuals and other documentation. Shipments are
generally made within two weeks of receiving an order. In light of the short
time between order and shipment of Cadence's products, Cadence generally has
relatively little backlog at any given date.
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,
flexibility in the number and variety of applications in which a system can be
used and price.
EMPLOYEES
As of December 31, 1993, Cadence employed 2,476 persons, including
1,449 in sales, marketing, support and manufacturing activities, 750 in product
development and 277 in management, administration and finance. Of these
employees, 1,949 were located in the United States and 527 were located in 15
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.
10
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
For the years ended December 31,
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue $368,623 $418,724 $379,476 $374,357 $316,692
Restructuring costs 13,450 -- 49,901 37,978 --
Income (loss) from operations (8,415) 65,710 (14,744) 9,595 52,006
Net income (loss) (12,779) 55,360 (22,403) (9,348) 36,211
Net income (loss) per share (.30) 1.20 (.57) (.26) .87
Total assets 339,301 367,243 347,074 340,945 306,613
Long-term obligations and redeemable
convertible preferred stock 4,001 5,722 14,811 21,059 27,210
</TABLE>
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 ("PCBs").
In December 1991 the Company merged with Valid Logic Systems Incorporated
("Valid"). Valid commenced operations in 1981 and was involved in the
development, marketing and support of EDA products primarily used to design
electronic systems and PCBs. The merger was accounted for by the pooling of
interests method and all financial information prior to the merger has been
restated to combine the results of the Company and Valid. In connection with the
merger, the Company recorded $49.9 million of restructuring costs and $1.7
million of merger costs in the fourth quarter of 1991.
In June 1993 the Company 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. The acquisition was accounted for as a
purchase. Accordingly, the results of Comdisco from the date of the acquisition
forward have been recorded in the Company's consolidated financial statements.
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 included as a separate line item within operating expenses in the
consolidated statements of income for all years presented. The loss on disposal
of $6.0 million is classified in other income (expense) in the 1993 statement of
income.
11
<PAGE> 14
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 1993 1992
Year Ended December 31, Compared with
-------------------------------------
1993 1992 1991 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenue:
Product 65% 75% 77% (23)% 8%
Maintenance 35 25 23 23 19
--- --- ---
Total revenue 100 100 100 (12) 10
--- --- ---
Cost of revenue:
Product 20 18 17 (3) 18
Maintenance 4 4 6 (12) (23)
--- --- ---
Total cost of revenue 24 22 23 (5) 7
--- --- ---
Gross margin 76 78 77 (14) 11
--- --- ---
Operating expenses:
Marketing and sales 43 38 39 1 8
Research and development (1) 19 16 18 4 (3)
General and administrative 10 8 9 14 (6)
Restructuring costs 4 -- 13 * *
Loss (income) from operations
of disposed division 2 -- 1 * *
--- --- ---
Total operating expenses 78 62 80 9 (14)
--- --- ---
Income (loss) from operations (2) 16 (3) * *
--- --- ---
Total other income (expense) (1) -- -- * *
--- --- ---
Income (loss) before provision
for income taxes (3) 16 (3) * *
Provision for income taxes -- 3 3 * 27
--- --- ---
Net income (loss) (3) 13 (6) * *
Series A-1 preferred stock dividend -- -- -- -- % (58)%
--- --- ---
Net income (loss) attributable to
common stockholders (3)% 13% (6)% * *
=== === ===
</TABLE>
* Not meaningful
(1) The Company capitalizes software development costs in accordance with
SFAS No. 86. Total research and development expenses incurred prior to
capitalization represented 23%, 19% and 22% of total revenue for 1993,
1992 and 1991, respectively. The percentage change from 1992 to 1993 and
from 1991 to 1992 was an increase of 4% and a decrease of 4%,
respectively, on a pre-capitalization basis.
12
<PAGE> 15
Revenue
Total revenue was approximately $368.6 million, $418.7 million and
$379.5 million for the years ended December 31, 1993, 1992 and 1991,
respectively. Total revenue decreased approximately $50.1 million for the year
ended December 31, 1993 as compared to the prior year and increased
approximately $39.2 million in 1992 as compared to 1991. The decrease in total
revenue in 1993 was primarily due to a $74.0 million decrease in product revenue
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 in 1993. The decrease in product revenue was offset somewhat by the
acquisition of Comdisco. While product revenue decreased in 1993, maintenance
revenue increased by $23.9 million due to increased focus on customer renewals,
combined with a larger customer base. The growth in total revenue in 1992
compared to 1991 was comprised of $22.9 million in product revenue due to
increased demand for the Company's products, including the new Valid products as
a result of the merger, and improved economic conditions in 1992 as compared to
1991, and a $16.3 million increase in maintenance revenue.
Maintenance revenue continued to increase each year as the
Company's installed base of products has increased, growing by approximately
$23.9 million in 1993 compared to 1992 and by approximately $16.3 million in
1992 compared to 1991. As a percentage of total revenue, maintenance revenue has
grown over the last three years from approximately 23% to approximately 35% of
total revenue. The increase in maintenance revenue as a percentage of total
revenue is due in part to the Company's continued effort toward obtaining
customer renewals of maintenance coverage as well as the decrease in total
product revenue in 1993.
Revenue from international sources was approximately $183.6
million, $215.4 million and $197.6 million or 50%, 51% and 52% of total revenue
for each of the three years ended December 31, 1993, 1992 and 1991,
respectively. The decrease in 1993 was principally related to decreased sales
volume in Japan. In the first quarter of 1994, the Company began to take certain
steps to address the impact on its revenue of the weak Japanese economy. The
Company began to reorganize its direct sales force in Japan and make changes to
certain of its distribution relationships. There can be no assurance, however,
that these steps will 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, currency
conversion risks, limitations on repatriation of earnings and reduced protection
of intellectual property rights. Due to the continuing adverse business
conditions in Japan, the Company has experienced and can expect to experience a
reduced level of activity from this important market. A continued low level or
further reduction of orders from Japan could have a material adverse impact on
the Company's results of operations.
Cost of Revenue
Total cost of revenue was approximately $89.4 million, $94.0
million and $87.6 million for the years ended December 31, 1993, 1992 and 1991,
respectively. Total cost of revenue decreased $4.6 million in 1993 compared to
1992 and increased $6.4 million in 1992 compared to 1991. The decrease in 1993
consisted of a $2.5 million decrease in product cost of revenue due to the
decrease in product revenue and related costs, reduced costs due to restructure
actions including related headcount reductions as well as the discontinuance in
1992 of sales of third-party hardware. This decrease was slightly offset by an
increase in cost of product associated with the newly acquired Comdisco
operations and a $4.0 million increase in amortization of software development
costs, purchased software and other intangibles. Cost of maintenance also
decreased $2.1 million in 1993 as compared to 1992 even though revenue increased
due to the streamlining of the maintenance renewal process which includes a more
cost-effective update program and lower cost media. The
13
<PAGE> 16
increase in total cost of revenue in 1992 as compared to 1991 consisted of an
$11.7 million increase in cost of product, which was offset by a $5.4 million
decrease in cost of maintenance. The increase in cost of product was primarily
due to an increase in royalties of approximately $2.4 million and other related
software product costs. The increase in software costs in 1992 was primarily a
result of the expansion-related increase in personnel and capital expenditures
in the Company's operations departments, which include software tape
duplication, technical documentation and support, training and consulting
services. The decrease in cost of maintenance in 1992 was primarily due to
post-merger restructure and efficiencies, including the reduction of personnel
and other duplicate costs in 1992 due to the merger of the Company with Valid,
streamlining of the maintenance renewal process and a decrease in hardware
maintenance contracts and costs related to Valid. As a percentage of total
revenue, cost of maintenance revenue has remained in the range of approximately
4% to 6% and cost of product revenue has been at approximately 17% to 20%.
Gross Margin
Gross margin was 76%, 78% and 77% for the years ended December 31,
1993, 1992 and 1991, respectively.
Marketing and Sales
Marketing and sales expenses increased $1.2 million in 1993
compared to 1992 and $11.8 million in 1992 compared to 1991. The increase in
1993 is primarily due to increased costs associated with the acquired Comdisco
operations. This increase was partially offset by reduced costs related to
restructure actions, including headcount reduction. The increase in 1992 was due
to the establishment and continued growth of foreign subsidiaries and domestic
field offices, and increased personnel and related expenses. As a result of the
merger with Valid, there were a number of duplicate sales locations which were
consolidated during 1992. Notwithstanding this, during 1992 the Company
continued to focus on expanding its selling efforts. The costs associated with
the consolidation of sales offices were included in the restructuring costs
recorded in 1991. Marketing and sales expenses have increased as a percentage of
revenue from 39% in 1991 to 43% in 1993. The higher percentage in 1993 is due
primarily to the decrease in total revenue in 1993.
Research and Development
Total research and development expenditures incurred prior to
capitalization of software development costs increased 4% in 1993 as compared to
1992 and decreased 4% in 1992 as compared to 1991, an increase of approximately
$3.1 million and a decrease of approximately $3.2 million, respectively. The
increase in 1993 is primarily due to increased expenses due to the addition of
Comdisco's operations. The decrease in total research and development
expenditures in 1992 compared to 1991 is due primarily to post-merger
restructure and efficiencies, including the reduction of personnel and other
duplicate costs in 1992 related to the merger with Valid. Prior to the deduction
for capitalization of software development costs, research and development
expenses comprised approximately 23%, 19% and 22% of total revenue or
approximately $84.3 million, $81.2 million and $84.3 million for the years 1993,
1992 and 1991, respectively. The increase as a percentage of revenue in 1993 is
primarily due to the decrease in total revenue in 1993 as compared to 1992. The
decrease as a percentage of revenue in 1992 as compared to 1991 is due primarily
to the elimination of duplicate costs in 1992 as a result of the merger with
Valid. The Company capitalized approximately $15.2 million, $14.7 million and
$16.2 million of software development costs in the years 1993, 1992 and 1991,
respectively, which represented approximately 18%, 18% and 19% 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 $4.9
million in 1993 compared to 1992 and decreased approximately $2.2 million in
1992 compared to 1991. The increase in 1993 is due to the addition of Comdisco's
operations, increased bad debt expense due to the write-off of uncollectible
accounts, increased professional services and employee-related expenses. The
decrease in 1992 was due primarily to the result of post-merger efficiencies,
including the reduction
14
<PAGE> 17
of personnel and related expenses and duplicate facilities in 1992 as a result
of the merger with Valid. As a percentage of total revenue, general and
administrative expenses have been in the range of approximately 8% to 10%. The
higher percentage in 1993 is partially due to the decrease in total revenue in
1993.
Restructuring Costs
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 resulting from lower revenue levels.
In the fourth quarter of 1991 the Company recorded restructuring
costs of approximately $49.9 million associated with the merger of Valid with
the Company. This amount included accruals for severance and payroll-related
payments, costs of closing excess or duplicate facilities and write-offs of
equipment, other assets and capitalized software development costs due to the
overlap of products.
Loss (Income) from Operations of Disposed Division
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 statements of income. The ASI operations resulted in a loss of $6.2
million, income of $.3 million and a loss of $5.3 million for the years ended
December 31, 1993, 1992 and 1991, respectively. See Note 2 of Notes to
Consolidated Financial Statements for further discussion.
Other Income and Expense
Interest income was $3.2 million, $3.6 million and $6.2 million
for the years ended December 31, 1993, 1992 and 1991, respectively. The decrease
in interest income in 1993 and 1992 was primarily due to a decrease in interest
rates which in 1992 was combined with a $20.7 million decrease in cash and cash
investments and short-term investments. Interest expense was $.7 million, $.9
million and $2.6 million for the years ended December 31, 1993, 1992 and 1991,
respectively. The decrease in 1993 as compared to 1992 is due to a decrease in
capital lease borrowings and other debt obligations. The decrease of $1.8
million in 1992 as compared to 1991 was due to the repayment of $18.5 million in
notes payable to banks in 1991. In 1993 the Company recorded a $6.0 million loss
on the disposal of its ASI division (see Note 2 of Notes to Consolidated
Financial Statements). In addition, the Company incurred approximately $1.7
million of merger costs in the fourth quarter of 1991 related to the merger of
the Company and Valid.
Provision for Income Taxes
Through December 31, 1992, the Company accounted for income taxes
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 96.
Effective January 1, 1993, the Company retroactively adopted SFAS No. 109,
"Accounting for Income Taxes." This pronouncement requires, among other things,
recognition of future tax benefits, measured by enacted tax rates, attributable
to (a) deductible temporary differences between the financial statement and
income tax basis of assets and (b) liabilities and tax net operating loss
carryforwards, to the extent that realization of such benefits is more likely
than not. The adoption of this accounting pronouncement did not have a material
impact on amounts reported in prior years' financial statements.
As of December 31, 1993 the Company had gross deferred tax assets of
approximately $72.1 million against which the Company has recorded a valuation
allowance of $59.7 million, resulting in a net deferred tax asset of $12.4
million. A significant portion of the net operating loss and credit
carryforwards which created the deferred tax asset were generated by Valid prior
to its merger with the Company and by restructure charges recorded as a result
of the merger. Management has determined, based on the Company's history of
prior operating earnings and its expectations for
15
<PAGE> 18
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 tax provision for 1993 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, Valid's net operating losses
and temporary items generated in prior years but benefited currently.
The Company provided for income taxes in 1991 even though the
Company reflected a pretax loss. This provision was primarily attributable to
restructuring costs and foreign tax credits that the Company was not fully able
to benefit for financial statement purposes.
Net Income (Loss)
The net loss for 1993 was $12.8 million as compared with net
income of $55.4 million in 1992 and net loss of $22.4 million in 1991. The net
loss in 1993 was due to a decrease in product revenue, $13.5 million recorded
for restructuring costs and a $6.0 million loss on the disposal of the Company's
ASI division. The net income in 1992 compared to the net loss in 1991 was
partially due to increased revenue in 1992. Net income from operations was also
favorably impacted by the post-merger restructure and efficiencies, including
the reduction of personnel and other duplicate costs in 1992 related to the
merger with Valid. The fourth quarter of 1991 also included $49.9 million of
restructuring costs and $1.7 million of merger costs associated with the merger
of the Company and Valid.
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 from time to time 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 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. In addition, the Company's results
of operations for a particular quarter or quarters could be materially adversely
affected by the ultimate resolution of the disputes and litigation matters
discussed in Note 9 of Notes to Consolidated Financial Statements.
The Company's revenue decreased in each quarter in 1993 as
compared to the same quarter in the prior year. This decrease was due to weak
economic conditions and reduced demand for the Company's products as well as a
shift in the Company's system product strategy. In addition, the first quarter
of 1993 included approximately $13.5 million of restructuring costs related to
the Company's planned restructure and the fourth quarter included a $6.0 million
loss on the disposal of the Company's ASI division.
16
<PAGE> 19
(In thousands, except
per share data)
<TABLE>
<CAPTION>
1993 1992
----------------------------------------- --------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
-------- ------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue $106,076 $97,616 $88,814 $ 76,117 $116,918 $102,436 $101,416 $97,954
Costs and expenses 97,152 92,929 88,288 98,669 94,054 87,624 85,711 85,625
Income (loss) from
operations 8,924 4,687 526 (22,552) 22,864 14,812 15,705 12,329
Net income (loss) $ (1,037) $ 3,742 $ 832 $(16,316) $ 19,988 $ 12,715 $ 12,948 $ 9,709
======== ======= ======= ======== ======== ======== ======== =======
Net income (loss)
per share $ (.02) $ .08 $ .02 $ (.37) $.44 $ .28 $ .28 $ .21
======== ======= ======= ======== ======== ======== ======== =======
Weighted average
common and common
equivalent shares
outstanding 46,565 45,016 43,011 44,136 45,798 45,629 45,785 45,574
======== ======= ======= ======== ======== ======== ======== =======
</TABLE>
The amounts in the table above reflect the results of the Company adjusted to
reflect the reclassification of the disposal of its ASI division in the fourth
quarter of 1993 and the income and loss from operations of ASI as a component of
operating expenses. Previously, ASI was reported separately as a discontinued
operation in the statement of income (see Note 2 of Notes to Consolidated
Financial Statements).
The following table represents quarterly information as previously reported for
the Company.
(In thousands, except
per share data)
<TABLE>
<CAPTION>
1993 1992
------------------------------ -----------------------------------------------
3rd 2nd 1st 4th 3rd 2nd 1st
-------- ------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue $100,464 $91,697 $ 79,339 $120,817 $106,468 $105,854 $101,361
Costs and expenses 95,758 91,150 101,886 97,920 91,665 90,153 89,027
Income (loss) from
operations 4,706 547 (22,547) 22,897 14,803 15,701 12,334
Net income (loss) $ 3,742 $ 832 $(16,316) $ 19,988 $ 12,715 $ 12,948 $ 9,709
======== ======= ======== ======== ======== ======== ========
Net income (loss)
per share $ .08 $ .02 $ (.37) $ .44 $ .28 $ .28 $ .21
======== ======= ======== ======== ======== ======== ========
Weighted average
common and common
equivalent shares
outstanding 45,016 43,011 $ 44,136 45,798 45,629 45,785 45,574
======== ======= ======== ======== ======== ======== ========
</TABLE>
Inflation
To date, the Company's operations have not been impacted
significantly by inflation.
17
<PAGE> 20
Liquidity and Capital Resources
The Company raised approximately $10.8 million, $13.8 million and
$14.9 million through the sale of common stock pursuant to employee benefit
plans in 1993, 1992 and 1991, respectively. The Company purchased $52.2 million
of treasury stock and repurchased $10.8 million and $1.8 million of common stock
for the years ended December 31, 1993, 1992 and 1991, respectively. In addition,
the Company realized approximately $90.7 million, $40.4 million and $74.7
million in cash provided by operations in 1993, 1992 and 1991, respectively. The
Company's principal investing activities consist of the purchase of property,
plant and equipment and the capitalization of software development costs, which
in total were $34.5 million, $45.7 million and $44.6 million for the years ended
December 31, 1993, 1992 and 1991, respectively. In addition, the other major
component of investing activities is the change in short-term investments.
Working capital at December 31, 1993 was $105.0 million compared
with $153.3 million at December 31, 1992 and $119.0 million at December 31,
1991. The decrease in 1993 as compared to 1992 was primarily due to a decrease
of $30.9 million in accounts receivable primarily due to 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. The increase in
1992 as compared with 1991 was primarily due to a $17.0 million increase in
accounts receivable due to higher revenue, a $21.4 million decrease in accrued
liabilities related to restructuring accruals recorded in 1991 associated with
the Company's merger with Valid and an $11.9 million decrease in deferred
revenue. These increases were offset by a decrease of $20.7 million in cash and
cash investments and short-term investments.
Long-term obligations decreased $1.7 million in 1993 as compared
to 1992 due to a decrease in capital lease borrowings and increased $1.9 million
in 1992 as compared to 1991 due to an increase in capital lease borrowings and
other debt obligations. At December 31, 1993 the Company had available $15.0
million under equipment lease lines for future capital expenditures and $17.5
million under two bank lines, which had not been drawn upon at December 31, 1993
(see Notes 7 and 8 of Notes to Consolidated Financial Statements for further
discussion).
Anticipated cash requirements in 1994 are payments related to the
purchase of treasury stock, contemplated additions of capital equipment and
restructure costs accrued at December 31, 1993. 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 total,
as of December 31, 1993, approximately 5.5 million shares had been repurchased.
In addition, in February 1994 the Company authorized the repurchase of an
additional 2.9 million shares. In March 1994 the Company acquired all
third-party interests in two real estate partnerships in which it is a 46.5% and
80% limited partner 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 (see Note 3
of Notes to Consolidated Financial Statements). The Company expects it will
refinance the construction loan with permanent financing when it comes due in
June 1994, although it may elect to pay off the construction loan with its cash
reserves. The Company anticipates that current cash balances, cash flow from
operations and unused balances on capital lease lines and lines of credit will
be sufficient to meet its working capital and capital expenditure requirements
for at least the next year.
18
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(a)1. Financial Statements
- Report of Independent Public Accountants................. 23
- Independent Auditor's Report............................. 24
- Consolidated Financial Statements:
- Balance Sheets as of December 31, 1993 and 1992... 25
- Statements of Income for the years ended
December 31, 1993, 1992 and 1991................ 26
- Statements of Stockholders' Equity for the
years ended December 31, 1993, 1992 and 1991.... 27
- Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991................ 28
- Notes to Consolidated Financial Statements........ 29
(a)2. Financial Statement Schedules
VIII Valuation and Qualifying Accounts and Reserves............. 44
IX Short-Term Borrowings...................................... 45
X Supplementary Income Statement Information................. 46
</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:
19
<PAGE> 22
<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")).
(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 (incorporated by
reference to Exhibit 3.02 to the 1987 Form S-1).
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).
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- - ------- -------------
<S> <C>
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. 33-48371) filed on June 4,
1992 (the "1992 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 1992 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. *
10.05 The Registrant's 1990 Stock Purchase Plan (incorporated by
reference to Exhibit 4.03 of the 1992 Form S-8).*
10.06 The Registrant's Senior Executive Bonus Plan for 1993
(incorporated by reference to Exhibit 10.07 of the Registrant's
Form 10-K for the fiscal year ended December 31, 1992 (the "1992
Form 10-K")).*
10.07 The Registrant's Key Contributor Bonus Plan for 1993
(incorporated by reference to Exhibit 10.08 of the 1992 Form
10-K).*
+10.08 The Registrant's Senior Executive Bonus Plan for 1994.*
+10.09 The Registrant's Key Contributor Bonus Plan for 1994.*
+10.10 The Registrant's Cash or Deferred Profit Sharing Plan, as
currently in effect (certain amendments are attached; the Plan
itself is incorporated by reference to Exhibit 10.12 Registrant's
Form S-4 Registration Statement (No. 33-31673), originally filed
on October 18, 1989 (the "1989 Form S-4")).*
10.11 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")).
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- - ------- -------------
<S> <C>
10.12 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).
10.13 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).
10.14 Lease dated September 3, 1985 by and among the Richard T. Peery
and John Arrillaga Seperate 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")).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 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).*
10.20 Leased dated as of June 18, 1991 by and between C.T. Montague I,
L.P., a California limited partnership, and the Registrant for
improved real property including office buildings located at
Seely Road and Montague Avenue, San Jose, California
(incorporated by reference to Exhibit 10.24 to the 1991 Form
S-4).
10.21 Employment Agreement dated as of December 1, 1989 between the
Registrant and Mr. Doug Hajjar (incorporated by reference to
Exhibit 10.36 to Form 10-K for Valid for the fiscal year ended
December 31, 1989). *
10.22 Modification to Employment Agreement with Mr. Hajjar
(incorporated by reference to Exhibit 10.03 to the 1991 Form
S-4). *
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C>
10.23 Amendment to Employment Agreement with Mr. Hajjar dated December
16, 1992 (incorporated by reference to Exhibit 10.18 to the
Registrant's Form 10-K for the fiscal year ended December 31,
1992). *
+10.24 Offer letter to H. Raymond Bingham dated May 12, 1993. *
+10.25 Offer letter to M. Robert Leach dated May 17, 1993. *
+10.26 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.
+21.01 Subsidiaries of the Registrant
23.01 Consent of Arthur Andersen LLP
23.02 Consent of Deloitte & Touche LLP
- - -------------
+ Previously filed
* A Management contract or compensatory plan required to be filed
as an exhibit to Form 10-K.
(b) Reports on Form 8-K
None
(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>
23
<PAGE> 26
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, 1993
and 1992, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits. We did
not audit the financial statements of Valid Logic Systems Incorporated, a
company acquired during 1991 in a transaction accounted for as a pooling of
interests, as discussed in Note 1. Such statements are included in the
consolidated financial statements of Cadence Design Systems, Inc. and reflect
total revenues of 40 percent of the consolidated total for the year ended
December 31, 1991. These statements were audited by other auditors whose report
has been furnished to us and our opinion, insofar as it relates to amounts
included for Valid Logic Systems Incorporated, is based solely upon the report
of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993, 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 schedules listed in Item 14. (a) 2. are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
San Jose, California
January 26, 1994 (except for the matters
discussed in Note 2, as to which the date
is January 20, 1995)
24
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
Cadence Design Systems, Inc.
San Jose, California
We have audited the consolidated statements of operations, stockholders' equity,
and cash flows of Valid Logic Systems Incorporated (a wholly-owned subsidiary of
Cadence Design Systems, Inc.) and subsidiaries for the year ended December 31,
1991. These financial statements (which are not presented separately herein) are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of Valid Logic
Systems Incorporated and subsidiaries for the year ended December 31, 1991 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 27, 1992
25
<PAGE> 28
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1993 AND 1992
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash investments ............................................ $ 61,382 $ 78,976
Short-term investments ............................................... 31,423 10,943
Accounts receivable, less allowance of $3,471 in
1993 and $3,154 in 1992 for doubtful accounts....................... 101,890 132,832
Inventories .......................................................... 5,744 6,062
Prepaid expenses and other ........................................... 18,036 18,638
-------- --------
Total current assets......................................... 218,475 247,451
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net........................................... 61,477 63,460
SOFTWARE DEVELOPMENT COSTS, net.............................................. 31,265 30,618
PURCHASED SOFTWARE AND INTANGIBLES, net...................................... 12,787 7,343
OTHER ASSETS ............................................................. 15,297 18,371
-------- --------
Total assets............................................... $339,301 $367,243
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations.............................. $ 3,962 $ 5,355
Accounts payable...................................................... 13,513 17,998
Accrued liabilities .................................................. 51,352 44,080
Income taxes payable.................................................. 6,541 1,377
Deferred income taxes ................................................ -- 20
Deferred revenue ..................................................... 38,111 25,355
-------- --------
Total current liabilities.................................... 113,479 94,185
-------- --------
LONG-TERM LIABILITIES:
Long-term obligations................................................. 4,001 5,722
Lease liabilities..................................................... 10,722 10,119
Deferred income taxes ................................................ 2,243 7,123
Other noncurrent liabilities.......................................... 2,734 946
------- --------
Total long-term liabilities.................................. 19,700 23,910
------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 9).......................................
STOCKHOLDERS' EQUITY:
Common stock - - $.01 par value; authorized 150,000,000 shares
Issued: 46,038,646 shares for 1993 and 43,910,394 shares for 1992
Outstanding: 41,181,446 shares for 1993 and 43,910,394 shares
for 1992..................................................... 460 439
Additional paid-in capital ........................................... 250,501 227,972
Treasury stock, at cost (4,857,200 shares for 1993)................... (52,178) --
Retained earnings .................................................... 8,527 21,306
Accumulated translation adjustment.................................... (1,188) (569)
-------- --------
Total stockholders' equity................................... 206,122 249,148
-------- --------
Total liabilities and stockholders' equity................. $339,301 $367,243
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
26
<PAGE> 29
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Product.................................................. $241,011 $315,024 $292,126
Maintenance.............................................. 127,612 103,700 87,350
-------- -------- --------
Total revenue................................... 368,623 418,724 379,476
-------- -------- --------
COST OF REVENUE:
Product.................................................. 73,594 76,104 64,374
Maintenance.............................................. 15,757 17,850 23,208
-------- -------- --------
Total cost of revenue........................... 89,351 93,954 87,582
-------- -------- --------
GROSS MARGIN.................................................... 279,272 324,770 291,894
-------- -------- --------
OPERATING EXPENSES:
Marketing and sales...................................... 160,212 159,009 147,180
Research and development................................. 69,088 66,432 68,157
General and administrative............................... 38,737 33,872 36,065
Restructuring costs...................................... 13,450 -- 49,901
Loss (income) from operations
of disposed division................................ 6,200 (253) 5,335
-------- -------- --------
Total operating expenses........................ 287,687 259,060 306,638
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS.................................. (8,415) 65,710 (14,744)
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest income.......................................... 3,159 3,586 6,151
Interest expense......................................... (723) (853) (2,641)
Merger costs............................................. -- -- (1,660)
Loss on disposal of division............................. (5,972) -- --
Other, net............................................... (828) (97) 691
-------- -------- --------
Total other income (expense) ................... (4,364) 2,636 2,541
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES .............................. (12,779) 68,346 (12,203)
PROVISION FOR INCOME TAXES...................................... -- 12,986 10,200
-------- -------- --------
NET INCOME (LOSS)............................................... (12,779) 55,360 (22,403)
SERIES A-1 PREFERRED STOCK DIVIDEND............................. -- 559 1,344
-------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS........................................ $(12,779) $ 54,801 $(23,747)
======== ======== ========
NET INCOME (LOSS) PER SHARE:.................................... $ (.30) $ 1.20 $ (.57)
======== ======== ========
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING................................................ 43,060 45,689 41,355
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
27
<PAGE> 30
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(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, 1990 40,271 $403 $199,614 -- $ -- $ (9,748) $ 5,368 $195,637
Repurchase of common stock (80) (1) (1,824) -- -- -- -- (1,825)
Issuance of common stock to employees 1,806 18 14,839 -- -- -- -- 14,857
Payment of stock notes receivable -- -- 130 -- -- -- -- 130
Exchange of warrant for common stock 199 2 (2) -- -- -- -- --
Tax benefits from employee
stock transactions -- -- 477 -- -- -- -- 477
Series A-1 preferred stock dividends -- -- -- -- -- (1,344) -- (1,344)
Translation adjustment -- -- -- -- -- -- (356) (356)
Net loss -- -- -- -- -- (22,403) -- (22,403)
------ ---- -------- ------ -------- -------- ------- -------
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 13,801 -- -- -- -- 13,816
Conversion of preferred stock 861 8 10,989 -- -- -- -- 10,997
Payment of stock notes receivable -- -- 1 -- -- -- -- 1
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 Comdisco acquisition 1,050 10 9,046 -- -- -- -- 9,056
Issuance of warrant in connection with
Comdisco 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
====== ==== ======== ====== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 31
CADENCE DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH AND CASH INVESTMENTS AT
BEGINNING OF YEAR.................................................... $ 78,976 $87,681 $71,058
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................... (12,779) 55,360 (22,403)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization.................................... 43,966 36,424 38,884
Lease liabilities................................................ (2,970) (3,245) 35
Deferred income taxes, noncurrent................................ (4,834) (352) (913)
Write down and reserve of assets related to restructure.......... 3,500 -- --
Other noncurrent liabilities..................................... 4,826 396 (628)
Accruals for severance and facilities restructure costs.......... 7,210 -- 30,566
Write-offs of equipment and other assets......................... 400 1,516 2,334
Write-offs of capitalized software development costs and
purchased software and intangibles............................. 2,740 2,794 10,896
Provisions for doubtful accounts................................. 2,648 1,087 936
Provisions for inventory write-offs.............................. 381 1,006 363
Changes in current assets and liabilities, net of acquisition
of Comdisco and Japan distributorship---
(Increase) decrease in accounts receivable....................... 28,724 (14,342) (2,766)
(Increase) decrease in inventories............................... (32) (579) 892
(Increase) decrease in prepaid expenses and other................ (3,668) (6,516) 4,067
Increase (decrease) in accrued liabilities and payables.......... 9,238 (20,581) 918
Increase (decrease) in deferred revenue.......................... 11,134 (12,637) 11,812
Increase (decrease) in deferred income taxes..................... 253 20 (252)
-------- -- -------
Net cash provided by operating activities.......................... 90,737 40,351 74,741
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short-term investments........................ (20,480) 11,973 6,890
Purchase of property, plant and equipment ........................... (19,274) (30,958) (28,388)
Capitalization of software development costs......................... (15,207) (14,741) (16,188)
Increase in purchased software and intangibles
and other assets................................................... (4,228) (2,409) (2,994)
Proceeds from sale of equipment...................................... 774 -- 1,704
Cash acquired from purchase of distributorship, net of cash paid..... -- 1,523 --
-------- ------- -------
Net cash used for investing activities............................. (58,415) (34,612) (38,976)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations.......................... (8,117) (13,512) (52,142)
Proceeds from borrowings............................................. -- 24,099
Sales of common stock, net of notes receivable from stockholders..... 10,805 13,816 14,857
Payment of stock notes receivable.................................... -- 1 130
Repurchase of common stock........................................... (52,178) (10,798) (1,825)
Payment of dividend on preferred stock............................... -- (559) (2,300)
-------- ------- -------
Net cash used for financing activities............................. (49,490) (11,052) (17,181)
-------- ------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH................................... (426) (3,392) (1,961)
-------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH INVESTMENTS.......................... (17,594) (8,705) 16,623
-------- ------- -------
CASH AND CASH INVESTMENTS AT END OF YEAR.................................. $ 61,382 $78,976 $87,681
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 32
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
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.
In December 1991 the Company acquired all of the outstanding
common and preferred stock of Valid Logic Systems Incorporated ("Valid") in
exchange for approximately 10,816,000 shares of the Company's common stock and
86,133 shares of the Company's preferred stock. Valid was involved in the
design, development, marketing and support of electronic design automation
software products primarily used to design electronic systems and printed
circuit boards ("PCBs"). In connection with the merger, each share of Valid
common and preferred stock was converted into .323 shares of the Company's
common and preferred stock, respectively. The Company also issued approximately
199,000 shares of common stock in exchange for an outstanding warrant to
purchase common stock of Valid. The Company also assumed Valid's outstanding
stock options and all other outstanding warrants. Each such option and warrant
to purchase one share of Valid common stock was converted into an option and
warrant, respectively, to purchase .323 shares of the Company's common stock.
The merger was accounted for as a pooling of interests and, accordingly, the
financial statements for periods prior to the merger have been restated to
include the results of Valid.
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, 1992 and 1991. The
acquisition costs of $10,903,000 include amounts paid for the net tangible
assets of Comdisco and purchased software and other intangibles.
2. 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 $6.0
million. The loss was due principally to the loss on the sale of the net assets,
as well as amounts accrued for estimated costs to be incurred in connection with
the disposal. As of December 31, 1993, the Company has recorded $1.4 million in
accrued liabilities and $2.0 million in other noncurrent liabilities for
liabilities associated with the disposed division.
The Company had previously 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 respective income or loss
from operations of the disposed division within operating expenses in the
accompanying statements of income. The 1993 loss of $6.0 million on disposal of
the division is classified in other income (expense) in the accompanying
statement of income. The 1992 balance sheet reflects the net current assets of
ASI as of December 31, 1992 of $4.8 million in other current assets and the net
noncurrent assets of $3.0 million in other assets. There were no remaining
assets related to ASI on the Company's balance sheet as of
30
<PAGE> 33
December 31, 1993. Revenue of the discontinued division was $11.2 million, $15.8
million and $12.1 million for the years ending December 31, 1993, 1992 and 1991,
respectively.
3. 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 $725,000 and $946,000
at December 31, 1993 and 1992, respectively, and is included in other noncurrent
liabilities in the accompanying balance sheets. Minority interest income was
approximately $134,000 and $196,000 and minority interest expense was $268,000
for the years ended December 31, 1993, 1992 and 1991, respectively, and is
included in other income and expense in the accompanying statements of income.
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 2-7 years
Furniture and fixtures 5 years
Leasehold improvements Shorter of the lease term or the estimated useful life
</TABLE>
CASH AND CASH INVESTMENTS
For purposes of the statements of cash flows, the Company
considers all commercial paper, medium-term notes, bankers' acceptances,
certificates of deposit, municipal bonds, Euro certificates of deposit and money
market accounts with an original maturity of ninety days or less to be cash and
cash investments.
SHORT-TERM INVESTMENTS
Short-term investments are stated at cost, which approximates
market value, and consist principally of Euro certificates of deposit,
medium-term notes, money market accounts, commercial paper, bankers' acceptances
and certificates of deposit with an original maturity of greater than ninety
days that the Company intends to sell within one year.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. Cost includes labor, material and manufacturing overhead.
Inventories include testing equipment and accelerators.
31
<PAGE> 34
INVENTORIES CONSISTED OF THE FOLLOWING (IN THOUSANDS):
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1992
---- ----
<S> <C> <C>
Raw materials and supplies $2,240 $1,642
Work-in-progress 2,214 2,527
Finished goods 1,290 1,893
------ ------
Total inventories $5,744 $6,062
====== ======
</TABLE>
REAL ESTATE PARTNERSHIPS
During 1989 and 1991 the Company acquired a 49% and 46.5% interest
as a limited partner in two real estate partnerships and signed agreements to
lease buildings from the limited partnerships. Both of the above commitments are
included in future operating lease commitments in Note 7. The investment in
these partnerships of approximately $5.2 million at December 31, 1993 and 1992
is included in other assets in the accompanying balance sheets. The Company
accounts for these investments under the equity method of accounting. During
June 1991 the Company acquired an 80% interest in a third real estate
partnership which has purchased land for future expansion. This partnership
is consolidated in the accompanying financial statements.
REVENUE RECOGNITION
Product revenue consists principally of revenue earned under
software license agreements. Revenue earned under license agreements to end
users is generally recognized when a customer purchase order has been received,
the software has been shipped, the Company has a right to invoice the customer
and there are no significant obligations remaining. Design services revenue and
test equipment revenue are recognized upon delivery of the final design or
shipment of the test equipment. Nonrefundable revenue earned under guaranteed
revenue commitments from products relicensed through OEMs, system integrators
and software value-added relicensors is recognized at the latter of the
beginning of the commitment period or shipment of the initial product master.
Additional revenue under these agreements is recognized at the time such amounts
are reported to the Company.
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 1993, 1992 and 1991 one customer (a distributor) accounted for
13%, 14% and 13% of total revenue, respectively.
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes internally generated software development
costs in compliance with Statement of Financial Accounting Standards 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. Software development costs capitalized were $15,207,000, $14,741,000
and $16,188,000 for the years ended December 31, 1993, 1992 and 1991,
respectively.
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
32
<PAGE> 35
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 $13,065,000, $11,043,000 and $11,904,000 for
the years ended December 31, 1993, 1992 and 1991, respectively. The Company
wrote off $1,495,000 of capitalized software in 1993 for projects discontinued
during the year. In connection with the merger with Valid, the Company also
wrote off $2,794,000 and $10,896,000 of capitalized software in 1992 and 1991,
respectively, due to an overlap of products.
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). The cost and related accumulated amortization of purchased
software and intangibles were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
---- ----
<S> <C> <C>
Cost $ 24,587 $16,557
Less: Accumulated amortization 11,800 9,214
-------- -------
Net purchased software and intangibles $ 12,787 $ 7,343
======== =======
</TABLE>
INCOME TAXES
Through December 31, 1992 the Company accounted for income taxes
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 96,
"Accounting for Income Taxes." Effective January 1, 1993 the Company
retroactively adopted 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. The adoption of this accounting
pronouncement did not have a material impact on the prior years' financial
statements (see Note 11).
FOREIGN CURRENCY TRANSLATION
As of December 31, 1991 the functional currency of certain of the
Company's foreign subsidiaries was the U.S. dollar, whereas the functional
currency of the former Valid subsidiaries was the local currency. During 1992,
the Company made certain changes in the manner in which the subsidiaries'
operations were conducted to conform more closely to the Valid business model.
Accordingly, the functional currency of the U.S. dollar foreign subsidiaries was
changed to the respective local currency effective for the first quarter of
1992. Gains and losses resulting from the translation of the financial
statements for the subsidiaries are reported as a separate component of
stockholders' equity.
MERGER COSTS
Total costs incurred by the Company and Valid in 1991 in
connection with the merger of the two companies were $1,660,000. These costs,
consisting primarily of legal, accounting and other related expenses, were
charged to operations in the fourth quarter of 1991.
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. 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. Fully diluted net income (loss) per share is substantially the same as
primary net income (loss) per share.
33
<PAGE> 36
SUPPLEMENTAL STATEMENTS OF CASH FLOWS DISCLOSURES
Cash paid for interest and income taxes, including foreign
withholding taxes, was as follows (in thousands):
<TABLE>
<CAPTION>
Income
Interest Taxes
-------- ------
<S> <C> <C>
Year Ended December 31,
1993 $ 541 $ 3,884
1992 $ 803 $ 9,151
1991 $2,837 $10,921
</TABLE>
DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Notes payable and capital lease obligations incurred for property, plant and
equipment placed into service in 1993, 1992 and 1991 were $4,441,000, $5,498,000
and $2,195,000, respectively.
As discussed in Note 1, in June 1993 the Company acquired the
business and certain assets of Comdisco 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 cost in excess of net assets acquired was $6,500,000
which is being amortized over seven years and is included in purchased software
and intangibles in the accompanying balance sheet. The accumulated amortization
as of December 31, 1993 was approximately $436,000. In connection with the
acquisition, net assets acquired were as follows (in thousands):
<TABLE>
<S> <C>
Trade accounts receivables 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 $10,903
=======
</TABLE>
In March 1992 the Company acquired a distributorship in Japan,
which, as its sole operation, had distributed the Company's system products. As
part of this transaction, the Company paid approximately $400,000 in cash and
issued a note for $3,100,000 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, 1993 and 1992 was approximately
$2,079,000 and $854,000, respectively.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable to
estimate that value.
The carrying amount of cash and cash investments and short-term
investments is a reasonable estimate of fair value because of the short maturity
of those instruments.
The fair value of the Company's long-term obligations, excluding
capital leases, 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 maturities. The carrying amount of the Company's long-term debt
at December 31, 1993 approximates its fair value.
34
<PAGE> 37
The Company enters into forward exchange contracts to reduce the
impact of foreign currency fluctuations on those accounts that give rise to
transaction gains or losses. As of December 31, 1993 the Company had entered
into forward exchange contracts in the amount of $33,058,000, maturing January
31, 1994. 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 as of December 31, 1993.
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.
RESTRUCTURING COSTS
In March 1993 the Company recorded restructuring costs of
$13,450,000 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 resulting from the change in product strategy and lower
revenue levels.
In December 1991 the Company recorded restructuring costs of
$49,901,000 associated with the merger of Valid with the Company. This amount
included approximately $5,530,000 for excess fixed assets and other assets,
$13,385,000 for severance and payroll-related payments, $16,475,000 for closing
of excess and duplicate facilities, $10,896,000 for write-offs of capitalized
software due to overlap of products and $3,615,000 for other items.
POST RETIREMENT BENEFITS
Statement of Financial Accounting Standards No. 106, "Accounting
for Post Retirement Benefits other than Pensions," which was effective for the
Company in fiscal 1993, has no effect on the Company as the Company has not
offered such post retirement benefits.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," which will be effective
for the Company in fiscal 1994, is not expected to have a material impact on the
Company.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1993 1992
---- ----
<S> <C> <C>
Equipment $ 98,675 $109,001
Furniture and fixtures 20,474 18,471
Land and improvements 8,378 8,324
Leasehold improvements 17,334 18,697
-------- --------
Total cost 144,861 154,493
Less: Accumulated depreciation and amortization 83,384 91,033
-------- --------
Property, plant and equipment, net $ 61,477 $ 63,460
======== ========
</TABLE>
35
<PAGE> 38
The cost of equipment, furniture and fixtures under capital leases
included in property, plant and equipment at December 31, 1993 and 1992 was
$22,178,000 and $25,622,000, respectively. Accumulated amortization of the
leased equipment, furniture and fixtures at such dates was $16,199,000 and
$19,568,000, respectively.
5. ACCRUED LIABILITIES
Accrued liabilities consisted of (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
---- ----
<S> <C> <C>
Payroll and payroll-related accruals $27,837 $26,076
Accrued merger and restructuring costs 3,669 4,658
Other accrued liabilities 19,846 13,346
------- -------
Total accrued liabilities $51,352 $44,080
======= =======
</TABLE>
Accrued merger and restructuring costs consist principally of
severance obligations and the current portion of lease obligations for closing
of excess facilities.
6. LONG-TERM OBLIGATIONS
Long-term obligations consisted of (in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
---- ----
<S> <C> <C>
Capital lease obligations (Note 7) $6,103 $6,615
Note payable related to the acquisition of
Japan distributorship, due in annual
installments 1,860 2,480
Other notes payable -- 1,982
------ ------
Total 7,963 11,077
Less: Current portion 3,962 5,355
------ ------
Long-term obligations $4,001 $5,722
====== ======
</TABLE>
At December 31, 1993 future principal payments on long-term
obligations, excluding capital lease obligations, were $620,000 for each of the
years ending December 31, 1994, 1995 and 1996, respectively.
7. 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. The terms of several of the facilities
agreements, accounted for as operating leases, provide for the deferral of
several months' rental payments or scheduled rent increases. Rental expense
under these agreements is recognized on a straight-line basis. Rental expense
was approximately $19,983,000, $21,287,000 and $16,798,000 for the years ended
December 31, 1993, 1992 and 1991, respectively.
In connection with the merger with Valid and planned restructure,
the Company has closed certain excess and duplicate facilities. Accordingly, the
Company has accrued for estimated future minimum rent and maintenance costs
related to these facilities. Total costs accrued at December 31, 1993 were
$8,557,000, of which $1,193,000 is included in accrued liabilities and
$7,364,000 is included in lease liabilities in the accompanying balance sheet.
In connection with the disposition of ASI, the Company has accrued
for estimated future rent on facilities not assumed by the purchaser. Total
costs accrued at December 31, 1993 were $1,911,000, of which $102,000 is
included in accrued liabilities and $1,809,000 is included in other noncurrent
liabilities in the accompanying balance sheet.
36
<PAGE> 39
At December 31, 1993 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,
1994 $3,661 $ 19,451
1995 1,984 18,421
1996 564 17,278
1997 287 16,516
1998 147 14,212
Thereafter -- 59,736
------ ----------
Total lease payments 6,643 $ 145,614
==========
Less: Amount representing interest
(average rate of 7.5%) 540
------
Present value of lease payments 6,103
Less: Current portion 3,342
------
Long-term portion $2,761
======
</TABLE>
As of December 31, 1993 the Company had $15.0 million available
for future borrowings under capital lease agreements which expire in September
1994.
8. LINES OF CREDIT
The Company has unsecured lines of credit with two banks allowing
for combined maximum borrowings of $17,500,000 in the form of (a) domestic rate
revolving loans with interest at the banks' prime lending rate, (b) Eurodollar
rate loans with interest that exceeds three-quarters of one percent of the
banks' current Eurodollar rate quoted for the same amount and maturity, or (c)
issuances of letters of credit. There were no outstanding borrowings at December
31, 1993 or 1992 under these agreements. Certain financial covenants and
restrictions are included in these agreements. As a result of its treasury stock
purchase activity during 1993, the Company was not in compliance with certain
covenants related to one of its lines of credit, with a borrowing amount of
$10,000,000, as of December 31, 1993. The Company subsequently obtained a waiver
of the noncompliance from the bank. These lines of credit will expire in May
1994 and June 1994.
9. 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.
The Company assumed as part of the ASI acquisition an agreement
dated April 22, 1985 under which the Company is obligated to pay to a former ASI
officer a monthly annuity for a fifteen-year period after his retirement date or
a lump sum payment subject to the terms of the agreement. The Company has
accrued an amount equal to the present value of the estimated future payments at
the eligible retirement date. Such accrual amount is included in accrued
liabilities in the accompanying balance sheet.
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 and the stockholder class action lawsuits described below, which allege
violation of certain federal securities laws by maintaining artificially high
market
37
<PAGE> 40
prices for the Company's common stock through alleged misrepresentations and
nondisclosures regarding the Company's financial condition.
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 plaintiff in the
suit seeks compensatory damages unspecified in amount. 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 the 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 is scheduled to commence on August 8, 1994. The Company is vigorously
defending against the litigation.
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 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. 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. The Company is vigorously defending against the litigation.
Management believes that the ultimate resolution of the disputes
and litigation matters discussed above will not have a material adverse impact
on the Company's financial position or results of operations.
10. 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, 1993 and 1992 there
were no shares of preferred stock outstanding.
In 1990 a corporation acquired a minority interest in Valid
through an initial investment of $10,998,000, 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. In
1990 the corporation also purchased, for $1,187,500, a warrant to acquire up to
4,750,000 shares of Valid's common stock. This warrant was exchanged for
approximately 199,000 shares of common stock upon the merger of Valid with the
Company.
Each share of Series A-1 preferred stock was entitled to receive
cumulative annual dividends. The dividends were payable in cash. In 1992 and
1991 the Company recorded $559,000 and $1,344,000, respectively, for dividends
paid to the corporation.
EMPLOYEE STOCK OPTION PLANS
The Company's Employee Stock Option Plan (the "Plan") provides for
employees to be granted options to purchase up to 13,637,800 shares of common
stock. 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. At
December 31, 1993 options to purchase 8,320,101 shares were outstanding under
the Plan, of which options for 1,317,646 shares were exercisable at prices
ranging from $2.00 to $28.75. Options to purchase 1,284,864
38
<PAGE> 41
shares were available for future grant under the Plan. 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. Options to purchase 4,032,835 shares
of common stock have been exercised as of December 31, 1993.
During 1993 the Company adopted a Non-Statutory Stock Option Plan
(the "Non-Statutory Plan"). The Company has reserved 2,500,000 shares of common
stock for issuance under the Non-Statutory Plan. Since directors and officers of
the Company are not eligible to receive options under the Non-Statutory Plan,
stockholder approval is not required nor will it be sought. 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 Non-Statutory
options generally expire ten years from the date of grant. At December 31, 1993
options to purchase 1,230,225 shares were outstanding, none of which were
exercisable. Options to purchase 1,269,775 shares were available for future
grant under the Non-Statutory Plan.
STOCK OPTION PLANS - COMPANIES ACQUIRED
The Company has reserved a total of 1,313,996 shares of its
authorized common stock for issuance upon the exercise of 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. At December 31, 1993
Acquired Options to purchase a total of 1,313,996 shares were outstanding, of
which 1,128,756 were exercisable at prices ranging from $.41 to $21.52. No
additional options will be granted under any of the acquired companies' plans.
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, 1990 7,880,956 $ .41 - $27.69
Granted 1,754,754 3.68 - 34.13
Exercised (1,479,274) .41 - 25.25
Canceled (474,612) .72 - 28.75
---------- ---------------
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
Cancelled (5,876,739) 1.22 - 27.44
---------- ---------------
Outstanding, December 31, 1993 10,864,322 $ .41 - $28.75
========== ===============
</TABLE>
39
<PAGE> 42
OPTION AGREEMENTS
The Company occasionally has issued options outside of the Plan.
As of December 31, 1993 options to purchase 70,313 shares were outstanding under
these agreements, of which 21,250 were exercisable at prices ranging from $18.25
to $20.94 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 the
Directors 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 date of grant. Options
granted under the Directors Plans have a term of up to ten years and vest
one-third one year from the date of grant and two-thirds ratably over the
subsequent two years. As of December 31, 1993 options to purchase 265,000 shares
of common stock at $9.31 to $29.88 per share were outstanding under the
Directors Plans, of which options for 99,717 shares were exercisable at prices
ranging from $16.25 to $29.88 per share. Options to purchase 87,223 shares are
available for future grant under the Directors Plans. Options to purchase 92,777
shares of common stock have been exercised as of December 31, 1993 under the
Directors Plans. No additional options will be granted under the 1988 Directors
Plan.
EMPLOYEE STOCK PURCHASE PLANS
The Company has reserved 1,500,000 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. In addition, Valid had a similar plan
for which shares were approved for issuance in 1983. For the years ended
December 31, 1993, 1992 and 1991 shares issued under the combined plans were
487,941, 324,183 and 286,586, respectively. As of December 31, 1993, 449,668
shares were available for future purchase under the ESPP. No additional shares
will be issued under the Valid stock purchase plan.
WARRANT
In connection with the purchase of Comdisco, the Company issued a
warrant to purchase 1,300,000 shares of the Company's common stock at $14.50 per
share. The warrant 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
approximately $1,847,000 which was included as part of the total purchase price
of Comdisco.
RESERVED FOR FUTURE ISSUANCE
As of December 31, 1993 the Company has reserved the following
shares of authorized but unissued common stock for future issuance:
<TABLE>
<S> <C>
Employee Stock Option Plans 12,104,965
Stock Option Plans - Companies Acquired 1,313,996
Other Option Agreements 70,313
Directors Stock Option Plans 352,223
Employee Stock Purchase Plan 449,668
Warrant 1,300,000
----------
Total 15,591,165
==========
</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
40
<PAGE> 43
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.
11. INCOME TAXES
Through December 31, 1992 the Company accounted for income taxes
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 96,
"Accounting for Income Taxes." Effective January 1, 1993 the Company
retroactively adopted the provisions of SFAS No. 109, "Accounting for Income
Taxes." The adoption of this accounting pronouncement did not have a material
impact on amounts reported in prior years' financial statements.
The provision for income taxes for the year ended December 31,
consisted of the following components (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 730 $ 1,227 $ 1,688
State 180 2,104 516
Foreign 8,939 10,447 10,168
------- ------- -------
Total current 9,849 13,778 12,372
------- ------- -------
Deferred (prepaid):
Federal (1,749) (987) (692)
State (1,220) (225) (510)
Foreign (6,880) 420 (970)
------- ------- -------
Total prepaid (9,849) (792) (2,172)
------- ------- -------
Total provision for income taxes $ -- $12,986 $10,200
======= ======= =======
</TABLE>
Income (loss) before income taxes for the years ended December 31,
1993, 1992 and 1991 included income (loss) of $9,166,000, $5,478,000 and
$(4,493,000), respectively, from the Company's foreign subsidiaries.
41
<PAGE> 44
The provision for income taxes at December 31, differs from the
amount estimated by applying the statutory federal income tax rate to income
(loss) before taxes as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Provision (benefit) computed at federal $(4,473) $ 23,237 $(3,911)
statutory rate
State income tax (benefit), net of federal tax
effect 117 993 (147)
Change in valuation allowance 7,172 (11,619) 8,848
Research and development tax credits (1,270) -- --
Foreign income taxed at higher tax rate 372 123 1,040
Merger costs not deductible -- -- 680
Foreign tax credits utilized (6,958) (8,675) (3,215)
Foreign taxes incurred 6,958 9,627 5,021
Other (1,918) (700) 1,884
------- -------- -------
Provision for income taxes $ -- $ 12,986 $10,200
======= ======== =======
</TABLE>
The components of deferred tax assets and liabilities consisted of
the following (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------
1993 1992
---- ----
<S> <C> <C>
Deferred tax assets:
Restructure reserves $ 7,938 $ 9,092
Net operating losses 24,276 24,264
Tax credits 31,837 21,956
Other 8,097 --
-------- --------
Total assets 72,148 55,312
Valuation allowance-provision for
income taxes (44,005) (36,833)
Valuation allowance-equity/
intangibles (15,751) (11,882)
-------- --------
Net assets 12,392 6,597
-------- --------
Deferred tax liabilities:
Capitalized software (11,467) (11,261)
Other -- (2,479)
-------- --------
Total liabilities (11,467) (13,740)
-------- --------
Total net deferred tax assets (liabilities) $ 925 $ (7,143)
======== ========
</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 1998 through the year 2006
and tax credit carry forwards will expire at various dates from 1997 through the
year 2008.
12. RELATED PARTY TRANSACTIONS
During 1993 a customer of the Company entered into a consulting
joint venture with the Company. Revenue related to this customer was
approximately $5,928,000 for the year ended December 31, 1993. Outstanding trade
accounts receivable from this related party were $2,268,000 at December 31,
1993.
A minority interest participant in a subsidiary of the Company is
also a major customer of the Company. Revenue related to this customer (a
distributor) was approximately $48,655,000, $57,133,000 and $49,672,000 for the
years ended December 31, 1993, 1992 and 1991, respectively.
42
<PAGE> 45
Outstanding trade accounts receivable from this related party were approximately
$10,304,000 and $17,021,000 as of December 31, 1993 and 1992, respectively.
During 1990 a customer of the Company entered into a research and
development joint venture with the Company. During 1992 the Company acquired the
minority interest in the joint venture. Revenue related to this customer was
approximately $777,000 and $1,276,000 for the years ended December 31, 1992 and
1991, respectively. There were no accounts receivable outstanding for this
customer at December 31, 1992.
13. OPERATIONS BY GEOGRAPHIC AREA
The Company operates primarily in one industry segment -- the
development and marketing of computer-aided design software. The Company's
products have been marketed internationally through distributors and through the
Company's subsidiaries in Europe, Japan and the Far East. 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,
--------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenue:
Domestic operations (1) $298,366 $344,370 $350,547
European operations 73,181 76,196 75,018
Asia/Pacific operations 69,320 71,113 61,540
Eliminations (72,244) (72,955) (107,629)
-------- -------- --------
Consolidated $368,623 $418,724 $379,476
======== ======== ========
Intercompany revenue
(eliminated in consolidation):
Domestic operations $ 54,224 $ 54,084 $ 92,062
European operations 9,494 8,824 6,204
Asia/Pacific operations 8,526 10,047 9,363
-------- -------- --------
Consolidated $ 72,244 $ 72,955 $107,629
======== ======== ========
Income (loss) from operations:
Domestic operations $(15,124) $ 61,276 $(10,167)
European operations 4,107 3,919 (9,319)
Asia/Pacific operations 2,602 515 4,742
--------- -------- --------
Consolidated $ (8,415) $ 65,710 $(14,744)
========= ======== ========
Identifiable assets:
Domestic operations $339,897 $370,289 $355,561
European operations 50,186 52,536 36,221
Asia/Pacific operations 52,401 40,108 26,245
Eliminations (103,183) (95,690) (70,953)
-------- -------- --------
Consolidated $339,301 $367,243 $347,074
======== ======== ========
</TABLE>
(1) Domestic operations revenue includes export revenue of approximately
$10,137,000, $11,500,000 and $4,900,000 to Europe for the years ended
December 31, 1993, 1992 and 1991, respectively, and approximately
$48,971,000, $75,400,000 and $71,700,000 to Asia/Pacific for the years
ended December 31, 1993, 1992 and 1991, respectively.
43
<PAGE> 46
SCHEDULE VIII
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, 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 disposal of divsion -- 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
Year Ended December 31, 1991
Allowance for doubtful accounts 3,754 936 (1,622)(1) 3,068
Inventory reserve 4,254 363 (3,346)(2) 1,271
Accrued restructuring costs 6,487 34,616 (19,088)(3) 22,015
</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 and $13,135 in 1993 and
1991, respectively, from accrued operating lease obligations to lease
liabilities.
(4) Reflects a reclassification of $2,009 from accrued liabilities to other
noncurrent liabilities.
44
<PAGE> 47
SCHEDULE IX
CADENCE DESIGN SYSTEMS, INC.
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Maximum Average Weighted
Weighted Amount Amount Average
Average Outstanding Outstanding Interest Rate
Category of Aggregate Balance at Interest During the During the During the
Short-term Borrowings End of Year Rate Year Year(1) Year(2)
- - --------------------- ----------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991 $ -- --% $17,370 $11,274 9.8%
Bank line of credit
borrowings
</TABLE>
(1) Computed by dividing the average month-end balance
(2) Computed by averaging month-end balance interest rates
45
<PAGE> 48
SCHEDULE X
CADENCE DESIGN SYSTEMS, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
Amounts Charged to Costs
and Expenses
----------------------------
Year Ended December 31,
----------------------------
Item 1993 1992 1991
- - ---------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Repairs and maintenance $5,538 $6,007 $6,732
Amortization of software development
costs and purchased software and intangibles 18,293 14,136 14,422
Royalties 5,403 6,577 4,213
</TABLE>
46
<PAGE> 49
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 /s/ H. Raymond Bingham
-------------------- ---------------------------
H. RAYMOND BINGHAM
Executive Vice President
and Chief Financial Officer
47
<PAGE> 50
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 (incorporated by
reference to Exhibit 3.02 to the 1987 Form S-1).
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).
</TABLE>
48
<PAGE> 51
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE LOCATION
- - ------- ------------- --------
<S> <C> <C>
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. 33-48371) filed on June 4, 1992 (the
"1992 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 1992 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.*
10.05 The Registrant's 1990 Stock Purchase Plan (incorporated by reference
to Exhibit 4.03 of the 1992 Form S-8).*
10.06 The Registrant's Senior Executive Bonus Plan for 1993 (incorporated
by reference to Exhibit 10.07 of the Registrant's Form 10-K for the
fiscal year ended December 31, 1992 (the "1992 Form 10-K")).*
10.07 The Registrant's Key Contributor Bonus Plan for 1993 (incorporated
by reference to Exhibit 10.08 of the 1992 Form 10-K).*
+10.08 The Registrant's Senior Executive Bonus Plan for 1994.*
+10.09 The Registrant's Key Contributor Bonus Plan for 1994.*
+10.10 The Registrant's Cash or Deferred Profit Sharing Plan, as currently
in effect (certain amendments are attached; the Plan itself is
incorporated by reference to Exhibit 10.12 Registrant's Form S-4
Registration Statement (No. 33-31673), originally filed on October
18, 1989 (the "1989 Form S-4")).*
10.11 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")).
</TABLE>
49
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE LOCATION
- - ------- ------------- --------
<S> <C> <C>
10.12 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).
10.13 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).
10.14 Lease dated September 3, 1985 by and among the Richard T. Peery and
John Arrillaga Seperate 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")).
10.15 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).
10.16 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).
10.17 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).
10.18 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).
10.19 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).*
10.20 Leased dated as of June 18, 1991 by and between C.T. Montague I,
L.P., a California limited partnership, and the Registrant for
improved real property including office buildings located at Seely
Road and Montague Avenue, San Jose, California (incorporated by
reference to Exhibit 10.24 to the 1991 Form S-4).
10.21 Employment Agreement dated as of December 1, 1989 between the
Registrant and Mr. Doug Hajjar (incorporated by reference to Exhibit
10.36 to Form 10-K for Valid for the fiscal year ended December
31, 1989).*
</TABLE>
50
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE LOCATION
- - ------- ------------- --------
<S> <C> <C>
10.22 Modification to Employment Agreement with Mr. Hajjar (incorporated
by reference to Exhibit 10.03 to the 1991 Form S-4).*
10.23 Amendment to Employment Agreement with Mr. Hajjar dated December 16,
1992 (incorporated by reference to Exhibit 10.18 to the Registrant's
Form 10-K for the fiscal year ended December 31, 1992).*
+10.24 Offer letter to H. Raymond Bingham dated May 12, 1993.*
+10.25 Offer letter to M. Robert Leach dated May 17, 1993.*
+10.26 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..
+21.01 Subsidiaries of the Registrant
23.01 Consent of Arthur Andersen LLP 52
23.02 Consent of Deloitte & Touche LLP 53
+ Previously filed
* A Management contract or compensatory plan required to be filed as
an exhibit to Form 10-K.
</TABLE>
51
<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/A, 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.
ARTHUR ANDERSEN LLP
San Jose, California
March 9, 1995
52
<PAGE> 1
Exhibit 23.02
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in Registration Statement Numbers
33-48371, 33-45001, 33-43025, 33-36110 and 33-53913 of Cadence Design Systems,
Inc. on Form S-8 of our report dated January 27, 1992 (relating to the
consolidated financial statements of Valid Logic Systems Incorporated, not
presented separately herein) appearing in this Amendment No. 1 to the Annual
Report of Cadence Design Systems, Inc. on Form 10-K/A for the year ended
December 31, 1993.
Our audit of the financial statements referred to in our aforementioned report
also included the financial statement schedules of Valid Logic Systems
Incorporated for the year ended December 31, 1991 listed below (which are not
presented separately herein). These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
Schedule VIII - Valuation and qualifying accounts and reserves
Schedule IX - Short-term borrowings
Schedule X - Supplementary income statement information
DELOITTE & TOUCHE LLP
San Jose, California
March 9, 1995
53
