<PAGE>
- ------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED COMMISSION FILE NUMBER
June 30, 1996 0-19730
- ------------------------------------------------------------
VIEWLOGIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2830649
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
293 BOSTON POST ROAD WEST
MARLBORO, MASSACHUSETTS 01752-4615
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 480-0881
- ------------------------------------------------------------
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
------------ ------------
The number of shares outstanding of each of the
issuer's classes of common stock, as of:
DATE CLASS OUTSTANDING SHARES
July 31, 1996 Common stock, $.01 par value 16,634,608
1
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VIEWLOGIC SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income 3
for the Quarter and Six Months Ended June 30,
1996 and 1995
Condensed Consolidated Balance Sheets as of 4
June 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Cash 5
Flows for the Six Months Ended June 30,
1996 and 1995
Notes to Condensed Consolidated Financial 6
Statements
ITEM 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 4. Submission of Matters to a Vote of 14
Security Holders
ITEM 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software $20,116 $17,829 $37,566 $34,590
Services and other 12,371 11,241 23,733 20,736
------- ------- ------- -------
Total revenue 32,487 29,070 61,299 55,326
------- ------- ------- -------
Costs and expenses:
Cost of software 2,798 2,746 5,122 5,366
Cost of services and other 3,324 2,874 6,573 5,516
Selling and marketing 13,938 13,556 27,954 26,918
Research and development 6,817 5,519 12,990 11,041
General and administrative 2,715 2,328 5,204 4,402
------- ------- ------- -------
Total operating expenses 29,592 27,023 57,843 53,243
------- ------- ------- -------
Income from operations 2,895 2,047 3,456 2,083
------- ------- ------- -------
Other income:
Interest income, net 454 436 839 978
Other income (expense), net (31) (126) 13 (199)
------- ------- ------- -------
Total other income 423 310 852 779
------- ------- ------- -------
Income before income taxes 3,318 2,357 4,308 2,862
Provision for income taxes 1,276 860 1,657 1,044
------- ------- ------- -------
Net income $2,042 $1,497 $2,651 $1,818
======= ======= ======= =======
Income per common share:
Net income $0.12 $0.09 $0.15 $0.11
======= ======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding 17,601 17,293 17,254 17,141
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------- -----------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $36,247 $34,387
Marketable securities 23,281 23,381
Accounts receivable (less allowance for
doubtful accounts, $1,685 and $1,215,
respectively) 25,915 29,054
Prepaid expenses and other 6,683 5,494
Deferred income taxes 322 322
-------- --------
Total current assets 92,448 92,638
-------- --------
Marketable securities - non-current 2,873 3,619
-------- --------
Property and equipment:
Equipment 28,998 26,213
Furniture and fixtures 3,569 3,329
-------- --------
Total 32,567 29,542
Less accumulated depreciation 19,856 17,503
-------- --------
Property and equipment - net 12,711 12,039
-------- --------
Other assets:
Capitalized software costs - net 5,513 5,102
Purchased technology - net 2,688 3,127
Goodwill - net 1,061 1,177
Deposits and other 1,197 1,281
-------- --------
Total other assets 10,459 10,687
-------- --------
Total $118,491 $118,983
======== ========
Liabilities and stockholders' equity:
Current liabilities:
Current portion of capital lease
obligations $55 $77
Accounts payable 2,590 2,926
Accrued compensation 7,288 7,255
Accrued expenses 5,016 4,279
Notes payable to former Silerity
shareholders 2,805
Deferred revenue 20,111 17,447
Deferred income taxes 1,329 1,412
-------- --------
Total current liabilities 36,389 36,201
-------- --------
Deferred income taxes 4,742 5,453
Capital lease obligations 14 38
Stockholders' equity:
Common stock, $.01 par value 173 170
Additional paid-in capital 72,484 70,093
Retained earnings 9,789 7,138
Unrealized holding gains, net of tax 2,156 3,537
Cumulative translation adjustment (225) (82)
-------- --------
84,377 80,856
Less: Treasury stock, at cost (7,031) (3,565)
-------- --------
Total stockholders' equity 77,346 77,291
-------- --------
Total $118,491 $118,983
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $2,651 $1,818
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 2,433 2,348
Amortization of capitalized software
and purchased technology 1,418 1,168
Amortization of goodwill 116 117
Change in assets and liabilities:
Accounts receivable, net 3,139 2,800
Prepaid expense and other (1,189) (262)
Accounts payable (336) (745)
Accrued compensation 33 (4,071)
Accrued expenses 737 (2,491)
Deferred revenue 2,664 3,803
------- -------
Net cash provided by operating activities 11,666 4,485
------- -------
Cash flows from investing activities:
Purchase of marketable securities (9,753) (17,412)
Proceeds from sale of marketable securities 8,507 15,570
Expenditures for property and equipment (3,174) (1,620)
Capitalized software costs (1,390) (1,356)
Purchased technology (400)
Decrease (increase) in deposits and other 84 (796)
------- -------
Net cash used in investing activities (5,726) (6,014)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 743 607
Proceeds from exercise of stock options 1,651 241
Repurchase of common stock (3,466)
Principal payment of capital lease obligations (48) (232)
Repayment of notes to former Silerity
shareholders (2,805)
------- -------
Net cash provided by (used in)
financing activities (3,925) 616
------- -------
Effect of exchange rate changes on cash (155) 705
------- -------
Net increase (decrease) in cash and cash equivalents 1,860 (208)
Cash and cash equivalents, beginning of the period 34,387 34,552
------- -------
Cash and cash equivalents, end of the period $36,247 $34,344
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
VIEWLOGIC SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated
financial statements have been prepared by Viewlogic
Systems, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly,
they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete annual financial statements and
should be read in conjunction with the audited
financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31,
1995.
In the opinion of management the accompanying unaudited
condensed consolidated financial statements have been
prepared on the same basis as the audited financial
statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair
presentation of the interim periods presented. The
operating results for the interim periods presented are
not necessarily indicative of the results expected for
the full fiscal year.
2. Income per Common Share
-----------------------
Income per common share is computed using the weighted
average number of common and common equivalent shares
outstanding during each period presented.
3. Stock-Based Compensation
------------------------
In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which was effective for the Company
beginning January 1, 1996. SFAS No. 123 requires
expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does
not require) compensation cost to be measured based on
the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply
Accounting Principles Board ("APB") Opinion No. 25,
which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. The
Company will continue to apply APB Opinion No. 25 to
its stock based compensation awards to employees and
will disclose the required pro forma effect on net
income and earnings per share.
4. Litigation
----------
Between January 4, 1995 and January 13, 1995, eight
lawsuits were commenced by individual shareholders of
the Company in the United States District Court for the
District of Massachusetts. The suits purported to be
class actions on behalf of persons who purchased shares
in the Company during 1994. The various plaintiffs
consolidated the cases into one case. No class was
certified. The complaints purported to allege
misrepresentations arising from management's
description of the Company's performance and prospects
in 1994, and claimed violations of sections 10(b) and
20(a) of the Securities Exchange Act of 1934 (the
"Act"). The complaints sought monetary damages in an
unspecified amount. On March 13, 1996, the District
Court issued a ruling granting the Company's motion to
dismiss this action. The plaintiffs appealed that
ruling. On June 27, 1996, at the request of the
plaintiffs, the United States Court of Appeals
dismissed the appeal, terminating this case.
6
<PAGE>
On May 8, 1995, the Company and its wholly-owned
subsidiary, Chronologic, filed suit against John
Sanguinetti ("Sanguinetti"), the former president of
Chronologic, in the Middlesex County, Massachusetts
Superior Court. The suit sought a declaratory judgment
that a March 30, 1994 transaction, in which a wholly-
owned subsidiary of the Company merged with Chronologic
(the "Merger") and involving the parties, was not
fraudulent and that the agreements into which the
parties entered in connection with the Merger remain in
full force and effect. The suit also sought
unspecified damages, costs, attorneys' fees and
injunctions preventing Sanguinetti from acting in
breach of his fiduciary duty and duty of loyalty to the
Company and Chronologic. In May, 1996 the parties
settled this lawsuit by the exchange of mutual releases
of all claims raised in the litigation, without the
admission of wrongdoing or liability on the part of any
party and without the payment of damages by any party.
On May 22, 1995, Sanguinetti and several other former
employees of Chronologic filed suit against the Company
in the United States District Court, Northern District
of California, San Jose Division. The suit alleged
violation of section 10(b) of the Act and Rule 10b-5
under the Act, violation of section 25401 of the
California Corporation Code, fraud and breach of
contract. The suit sought a declaratory judgment that
one of the agreements entered into in connection with
the Merger had been lawfully terminated, rescission of
the Merger, unspecified damages, punitive and exemplary
damages, and costs of the suit. The Company asserted
counterclaims in this action seeking unspecified
damages, costs and attorney fees. In May, 1996 the
parties settled this lawsuit by the exchange of mutual
releases of all claims raised in the litigation,
without the admission of wrongdoing or liability on the
part of any party and without the payment of damages by
any party.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This discussion contains certain forward looking
statements which involve risks and uncertainties, and the
Company's actual results may differ from those discussed.
Some of the factors that might cause such a difference are
discussed below. (See "Factors That May Affect Future
Results and Financial Condition.")
Results of Operations
- ---------------------
The Company's revenue and net income increased 11.8%
and 36.4%, respectively, for the quarter ended June 30, 1996
and increased 10.8% and 45.8%, respectively, for the six
months ended June 30, 1996, both as compared to the same
periods of the previous year. Operating income as a
percentage of revenue was 8.9% and 5.6% for the quarter and
six month periods ended June 30, 1996, as compared to 7.0%
and 3.8% for the same periods in 1995. This increase in
operating income as a percentage of revenue was mainly due
to the larger increase in revenues over operating expenses
in the second quarter and first six months of 1996.
The second quarter 1996 results reflect continued
growth in product revenues. These results are consistent
with the Company's internal goals and expectations. The
Company has made substantial progress in strengthening its
sales infrastructure and the competitiveness of its product
lines, and remains focused on improving revenue growth
throughout the year. The Company continues to believe that
over the long term its revised strategies and new product
plans will enable it to meet its goal of growing at a rate
faster than the Electronic Design Automation ("EDA")
industry growth rate. While optimistic about its new
product plans and strategies, the Company is cautious
regarding the timing of their impact.
The following table sets forth, for the periods
indicated, the percentage of revenue of certain items in the
Company's Condensed Consolidated Statements of Income.
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
--------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue: 100.0% 100.0% 100.0% 100.0%
Software 61.9 61.3 61.3 62.5
Services and other 38.1 38.7 38.7 37.5
Costs and expenses:
Cost of software 8.6 9.5 8.4 9.7
Cost of services and other 10.2 9.9 10.7 10.0
Selling and marketing 42.9 46.6 45.6 48.6
Research and development 21.0 19.0 21.2 19.9
General and administrative 8.4 8.0 8.5 8.0
----- ----- ----- -----
Total operating expenses 91.1 93.0 94.4 96.2
----- ----- ----- -----
Income from operations 8.9 7.0 5.6 3.8
Total other income 1.3 1.1 1.4 1.4
----- ----- ----- -----
Income before income taxes 10.2 8.1 7.0 5.2
Provision for income taxes 3.9 3.0 2.7 1.9
----- ----- ----- -----
Net income 6.3% 5.1% 4.3% 3.3%
===== ===== ===== =====
</TABLE>
8
<PAGE>
Revenue
- -------
The Company's total revenue increased 11.8% to
$32,487,000 in the second quarter of 1996 from $29,070,000
in the second quarter of 1995 and increased 10.8% to
$61,299,000 in the first six months of 1996 from $55,326,000
in the first half of 1995. The Company's percentage of
total revenue attributable to software product licenses was
61.9% and 61.3%, respectively, for the quarter and six
months ended June 30, 1996 compared to 61.3% and 62.5%,
respectively, for the same periods in 1995. Software
product revenue increased 12.8% and 8.6% to $20,116,000 and
$37,566,000 for the second quarter and first six months of
1996, respectively, up from $17,829,000 and $34,590,000 for
the same periods in 1995. The increase in product revenue
was primarily due to a 47.7% year to date increase in year-
over-year revenues from the Company's ASIC design tool
suite, including the Chronologic VCS (TM), Quad Design Motive (TM)
and Sunrise (TM) products. Revenues from products used on PC
platforms as a percentage of total revenues grew from 28.7%
in the first half of 1995 to 30.0% in the same period of
1996, primarily as a result of sales of the Company's
Workview Office (TM) product line. Services and other revenue
increased 10.1% and 14.5% for the second quarter and first
six months of 1996, respectively. This increase was due to
the increase in maintenance and customer support revenue
from a growing installed base of customers.
International revenue decreased slightly as a
percentage of total revenue to 33.2% and 33.4% for the
second quarter and first six months of 1996, respectively,
from 35.5% and 34.2%, respectively, for the same periods in
1995. This decrease was primarily due to a slowdown in the
European market, where revenues decreased 13.1% from the
first half of 1995 to the first half of 1996. This decrease
was offset by the positive impact of the Company's direct
sales operation in Japan where revenues in the first half of
1996 increased 71.8% from the first half of 1995.
Cost of Revenue
- ---------------
Cost of software revenue increased 1.9% to $2,798,000
and decreased 4.5% to $5,122,000 for the quarter and six
months ended June 30, 1996, respectively, as compared to the
same periods of the prior year. The increase in the second
quarter of 1996 was primarily due to increased amortization
of capitalized software, partially offset by decreased third-
party software royalty expenses and reduced documentation
costs. The decrease in the first six months of 1996 was
primarily due to decreased third-party software royalty
expenses and reduced documentation costs, partially offset
by increased amortization of capitalized software. These
factors, as well as the increase in software revenues,
resulted in the decrease in cost of software as a percentage
of software revenue from 15.4% and 15.5% in the second
quarter and first six months of 1995, respectively, to 13.9%
and 13.6% for the same periods in 1996.
Cost of services and other revenue increased 15.7% to
$3,324,000 and 19.2% to $6,573,000 in the quarter and six
months ended June 30, 1996, respectively, as compared to the
same periods of the prior year due to higher personnel-
related costs, increased customer support and training costs
and an increase in outside consulting fees required to
support the Company's growing customer base. These
increases resulted in the increase in cost of services and
other revenue as a percentage of services and other revenue
from 25.6% and 26.6% in the second quarter and first half of
1995 to 26.9% and 27.7% for the same periods in 1996.
Selling and Marketing Expenses
- ------------------------------
Selling and marketing expenses increased 2.8% and 3.8%
to $13,938,000 and $27,954,000 for the three month and six
month periods ended June 30, 1996, respectively, up from
$13,556,000 and $26,918,000 for the same periods of 1995.
The increases in 1996 were primarily due to increased
marketing and promotional costs and increased selling costs
in Asia, reflecting the Company's
9
<PAGE>
development of direct selling organizations in Japan and South Korea.
These increases were also the result of higher personnel-related
costs due to an increase in the number of worldwide sales
and marketing personnel from 265 in June 1995 to 282 in June
1996. Selling and marketing expenses, as a percentage of
revenue, decreased from 46.6% and 48.6% in the second
quarter and first six months of 1995 to 42.9% and 45.6% for
the same periods of 1996.
Research and Development Expenses
- ---------------------------------
Research and development costs increased 23.5% to
$6,817,000 and 17.7% to $12,990,000 for the second quarter
and six months ended June 30, 1996, respectively, as
compared to the same periods of the prior year. This
increase in research and development expenses primarily
reflects higher personnel and outside consulting costs
associated with the development of new products and
enhancement of existing products. Research and development
expenses as a percentage of revenues were 19.0% and 19.9% in
the second quarter and first half of 1995, respectively,
compared to 21.0% and 21.2% for the same period of 1996.
The Company capitalized software development costs of
$684,000 and $1,391,000 for the second quarter and first
half of 1996, respectively, as compared to $621,000 and
$1,356,000 for the corresponding periods of 1995 in
accordance with Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed." The amounts
capitalized represent 9.1% and 9.7% of total product
development costs for the three month and six month periods
ended June 30, 1996, respectively, as compared to 10.1% and
10.9% for the same periods of 1995. Capitalized software
costs are amortized over the estimated life of the product
(in most cases four years). The amortization of software
development costs included in cost of software revenue was
$578,000 and $980,000 for the second quarter and first six
months of 1996, respectively, compared to $309,000 and
$696,000 for the same periods of 1995.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased 16.6% and
18.2% to $2,715,000 and $5,204,000 for the second quarter
and six months ended June 30, of 1996, respectively, as
compared to $2,328,000 and $4,402,000 for the same periods
of the previous year. These increases were primarily due to
increases in recruitment and employee relocation costs.
General and administrative expenses as a percentage of
revenue increased from 8.0% for both periods of 1995, to
8.4% and 8.5% for the second quarter and first half of 1996,
respectively.
Income from Operations
- ----------------------
Income from operations increased by 41.4% and 65.9% to
$2,895,000 and $3,456,000 for the second quarter and six
months ended June 30, 1996, respectively, as compared to the
corresponding periods in 1995. Both increases in operating
income primarily reflect a larger increase in revenues
offset by a lesser increase in operating expenses from 1995
to 1996.
Total Other Income
- ------------------
Total other income increased 36.5% and 9.4% to $423,000
and $852,000 for the three month and six month periods ended
June 30, 1996, respectively, from $310,000 and $779,000 for
the same periods of 1995. These increases were due
primarily to accruals for foreign exchange losses in 1995.
10
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Income Taxes
- ------------
The provision for federal and state income taxes
increased 48.4% and 58.7% for the second quarter and first
six months of 1996, respectively, from the same periods of
the previous year. The effective tax rate increased from
36.5% in both the second quarter and six months ended June
30, 1995 to 38.5% for the same periods of 1996. The
effective tax rate increase in the second quarter and first
half of 1996 primarily reflects higher tax rates incurred as
a result of increased profitability in Japan.
Net Income
- ----------
Net income in the second quarter of 1996 was
$2,042,000, an increase of 36.4% from the $1,497,000 net
income earned in the second quarter of 1995. For the six
months ended June 30, 1996 net income was $2,651,000, an
increase of 45.8% from the $1,818,000 net income earned in
the same period of 1995.
Factors That May Affect Future Results and Financial Condition
- --------------------------------------------------------------
Future financial results are difficult or impossible to
predict, despite the Company's past financial performance.
Intense competition and rapid technological changes are
inherent in the EDA industry. The Company faces the many
risks and uncertainties posed by that competition and
technological change, including the risks and uncertainties
affecting and relating to success in continuously developing
and marketing new products; protection of its products by
effective utilization of intellectual property laws; product
quality, reliability, ease of use, feature set and price;
diversity of product line; general economic and business
conditions; the ability to hire, retain and motivate highly
qualified personnel; business conditions and growth in the
EDA industry; industry-wide price erosion; and customer
acceptance of the Company's products.
The Company's products are in various stages of their
life cycles. The Company's success is dependent on its
ability to develop complex and competitive new products, to
introduce them to the marketplace ahead of the competition
and to have them selected by customers. The Company is
striving to bring new products to market to meet customer
needs, but there is no assurance that it will succeed in
doing so. Since product life cycles are continually
becoming shorter, if new product introductions are delayed
or if new products do not address market needs then revenues
and profits for current and future products may be affected
as customers may shift to competitors to meet their
requirements. The Company's competitors consist of large
companies, many of which have greater market share and
substantially greater financial and other resources than the
Company; emerging companies with new and innovative
technology; and customers who develop their own EDA tools.
As is common in the software industry, the Company
frequently ships more product in the third month of each
quarter than in either of the first two months of the
quarter, and shipments in the third month are higher at the
end of that month. This pattern is likely to continue. The
concentration of sales in the last month of the quarter
makes the Company's quarterly financial results difficult to
predict. Also, if sufficient business does not materialize
or a disruption in the Company's production or shipping
occurs near the end of a quarter, the Company's revenues for
that quarter may be materially reduced.
A substantial portion of the Company's revenue is
derived from its international operations. As a result, the
Company's operations and financial results could be
significantly affected by international factors, such as
weak economic conditions in foreign markets and differing
technology or product preferences in different countries.
The highly technical nature of the Company's products
and services and the intense competition in the Company's
markets heightens the need and importance of hiring,
retaining and motivating highly
11
<PAGE>
qualified technical personnel. The intense competition in the
EDA industry increases the difficulty in doing so and has created
a shortage of highly qualified engineering and sales
personnel.
Because of these and other factors, past financial
results may not be a useful predictor of future results and
any forward looking statements about the Company's financial
performance, business operations and other factors should be
viewed with caution. Also, the Company's participation in a
highly dynamic industry often results in significant
volatility of the Company's common stock price.
Liquidity and Capital Resources
- -------------------------------
The Company has funded its operations to date primarily
through sales of equity securities, equipment financing
leases and positive cash flow from operations. As of June
30, 1996, the Company had $62,401,000 of cash and marketable
securities compared to $61,387,000 of cash and marketable
securities as of December 31, 1995. These balances included
$2,873,000 and $3,619,000 of non-current marketable
securities in 1996 and 1995, respectively. Working capital
as of June 30, 1996 was $56,059,000. The Company has an
unsecured line of credit with Silicon Valley Bank under
which up to $12,500,000 may be borrowed. Borrowings bear
interest at the prime rate. As of June 30, 1996, there was
no indebtedness outstanding under this facility. As of June
30, 1996, the Company had $36,389,000 in current liabilities
and $14,000 of commitments under long-term capital lease
obligations.
In October 1995, the Company's Board of Directors
authorized the Company to repurchase up to 2,000,000 shares
of the Company's common stock from time to time over the
next year as market and business conditions warrant in open
market, negotiated and block transactions. The repurchased
shares will be used in the Company's stock option plans and
employee stock purchase plans and for general corporate
purposes. As of March 30, 1996, the Company had spent
$7,031,000 to repurchase 640,000 shares. No shares were
repurchased in the quarter ended June 30, 1996.
Based on its operating plan, the Company currently
believes that its available cash and cash generated from
operations and existing credit facilities will be sufficient
to fund the Company's operations for the foreseeable future.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Between January 4, 1995 and January 13, 1995, eight
lawsuits were commenced by individual shareholders of the
Company in the United States District Court for the District
of Massachusetts. The suits purported to be class actions
on behalf of persons who purchased shares in the Company
during 1994. The various plaintiffs consolidated the cases
into one case. No class was certified. The complaints
purported to allege misrepresentations arising from
management's description of the Company's performance and
prospects in 1994, and claimed violations of sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 (the
"Act"). The complaints sought monetary damages in an
unspecified amount. On March 13, 1996, the District Court
issued a ruling granting the Company's motion to dismiss
this action. The plaintiffs appealed that ruling. On June
27, 1996, at the request of the plaintiffs, the United
States Court of Appeals dismissed the appeal, terminating
this case.
On May 8, 1995, the Company and its wholly-owned
subsidiary, Chronologic, filed suit against John Sanguinetti
("Sanguinetti"), the former president of Chronologic, in the
Middlesex County, Massachusetts Superior Court. The suit
sought a declaratory judgment that a March 30, 1994
transaction, in which a wholly-owned subsidiary of the
Company merged with Chronologic (the "Merger") and involving
the parties, was not fraudulent and that the agreements into
which the parties entered in connection with the Merger
remain in full force and effect. The suit also sought
unspecified damages, costs, attorneys' fees and injunctions
preventing Sanguinetti from acting in breach of his
fiduciary duty and duty of loyalty to the Company and
Chronologic. In May, 1996 the parties settled this lawsuit
by the exchange of mutual releases of all claims raised in
the litigation, without the admission of wrongdoing or
liability on the part of any party and without the payment
of damages by any party.
On May 22, 1995, Sanguinetti and several other former
employees of Chronologic filed suit against the Company in
the United States District Court, Northern District of
California, San Jose Division. The suit alleged violation
of section 10(b) of the Act and Rule 10b-5 under the Act,
violation of section 25401 of the California Corporation
Code, fraud and breach of contract. The suit sought a
declaratory judgment that one of the agreements entered into
in connection with the Merger had been lawfully terminated,
rescission of the Merger, unspecified damages, punitive and
exemplary damages, and costs of the suit. The Company
asserted counterclaims in this action seeking unspecified
damages, costs and attorney fees. In May, 1996 the parties
settled this lawsuit by the exchange of mutual releases of
all claims raised in the litigation, without the admission
of wrongdoing or liability on the part of any party and
without the payment of damages by any party.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of
Stockholders held on May 14, 1996, the
following proposals were adopted by the vote
specified below:
<TABLE>
<CAPTION>
Proposal For Against Abstain Withheld
- -------- --- ------- ------- --------
<S> <C> <C> <C> <C>
1. Election of Directors:
Stanley F. Alfeld 13,742,710 N/A N/A 330,047
Larry E. Reeder 13,742,894 N/A N/A 329,863
The term of office of the following Directors also continued
after the meeting: Alain J. Hanover, William J. Herman,
Gregory T. George, Gordon Hoffman and Allyn C. Woodward, Jr.
2. Addition of 800,000 shares 4,921,012 4,119,700 166,534 4,865,511
to the Company's 1991
Restated Stock Option Plan.
3. Approval of the Company's 7,088,107 1,893,780 110,844 4,980,026
1996 Employee Stock
Purchase Plan.
4. Approval of the Company's 6,540,874 2,413,720 138,237 4,979,926
1996 Outside Directors'
Stock Option Plan.
5. Ratification of Deloitte 13,786,126 224,623 62,008 N/A
& Touche LLP as auditors
for the current fiscal year.
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11 - Statement Regarding Computation of Per
Share Earnings
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the
quarter for which this report is filed.
14
<PAGE>
SIGNATURES
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.
Viewlogic Systems, Inc.
(Registrant)
Date: August 12, 1996 /s/ William J. Herman
---------------------------
William J. Herman
President, Chief Operating
Officer and Director
Date: August 12, 1996 /s/ Ronald R. Benanto
---------------------------
Ronald R. Benanto
Senior Vice President of Finance,
Chief Financial Officer and Treasurer
15
<PAGE>
VIEWLOGIC SYSTEMS, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
------- ----
<S> <S> <C>
11 - Statement Regarding Computation of 17
Per Share Earnings
</TABLE>
16
<PAGE>
EXHIBIT 11
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Six Months
Ended June 30, Ended June 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
shares outstanding:
Common stock 16,671 16,964 16,901 16,900
Common equivalent shares
resulting from stock options and
warrants (treasury stock method) 930 329 596 241
Less: Repurchased shares (243)
------ ------ ------ ------
Total 17,601 17,293 17,254 17,141
====== ====== ====== ======
Net income $2,042 $1,497 $2,651 $1,818
====== ====== ====== ======
Net income per common share $ .12 $ .09 $ .15 $ .11
====== ====== ====== ======
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Income for the Six Months Ended June 30,
1996 and the Condensed Consolidated Balance Sheet as of June 30, 1996 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 36,247
<SECURITIES> 26,154
<RECEIVABLES> 27,600
<ALLOWANCES> 1,685
<INVENTORY> 0
<CURRENT-ASSETS> 92,448
<PP&E> 32,567
<DEPRECIATION> 19,856
<TOTAL-ASSETS> 118,491
<CURRENT-LIABILITIES> 36,389
<BONDS> 0
0
0
<COMMON> 173
<OTHER-SE> 77,173
<TOTAL-LIABILITY-AND-EQUITY> 118,491
<SALES> 37,566
<TOTAL-REVENUES> 61,299
<CGS> 5,122
<TOTAL-COSTS> 11,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 4,308
<INCOME-TAX> 1,657
<INCOME-CONTINUING> 2,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,651
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
