<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, 1997 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 (Zip Code)
Executive Offices)
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, 1997 Common stock, $.01 par value 16,730,656
1
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VIEWLOGIC SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Condensed Consolidated Statements of 3
Income for the Quarter and Six Months
Ended June 30, 1997 and 1996
Condensed Consolidated Balance Sheets 4
as of June 30, 1997 and December 31, 1996
Condensed Consolidated Statements of 5
Cash Flows for the Six Months Ended
June 30, 1997 and 1996
Notes to Condensed Consolidated 6
Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 8
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE 14
OF 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,
------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Software $23,032 $20,116 $42,478 $37,566
Services and other 14,578 12,371 27,703 23,733
------- ------- ------- -------
Total revenue 37,610 32,487 70,181 61,299
------- ------- ------- -------
Costs and expenses:
Cost of software 2,992 2,798 5,626 5,122
Cost of services and other 3,857 3,324 7,468 6,573
Selling and marketing 15,103 13,938 29,822 27,954
Research and development 7,968 6,817 15,926 12,990
Purchased research and
development 5,500
General and administrative 2,561 2,715 4,735 5,204
------- ------- ------- -------
Total operating expenses 32,481 29,592 69,077 57,843
------- ------- ------- -------
Income from operations 5,129 2,895 1,104 3,456
------- ------- ------- -------
Other income:
Interest income, net 596 454 1,129 839
Other income (expense), net 1,057 (31) 2,715 13
------- ------- ------- -------
Total other income 1,653 423 3,844 852
------- ------- ------- -------
Income before income taxes 6,782 3,318 4,948 4,308
Provision for income taxes 2,612 1,276 4,023 1,657
------- ------- ------- -------
Net income $4,170 $2,042 $925 $2,651
======= ======= ======= =======
Income per common share:
Net income $0.23 $0.12 $0.05 $0.15
======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding 17,746 17,601 17,594 17,254
======= ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- -----------
(unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $41,972 $41,297
Marketable securities 18,309 20,482
Accounts receivable (less allowance
for doubtful accounts, $1,761 in
1997 and $1,503 in 1996) 29,935 32,507
Prepaid expenses and other 6,561 6,779
Deferred income taxes 302 302
------- -------
Total current assets 97,079 101,367
------- -------
Marketable securities - non-current 7,291 5,565
Property and equipment:
Equipment 28,501 25,360
Furniture and fixtures 4,009 3,625
------- -------
Total 32,510 28,985
Less accumulated depreciation 17,105 15,236
------- -------
Property and equipment - net 15,405 13,749
------- -------
Other assets:
Capitalized software costs - net 6,014 5,724
Purchased technology - net 2,780 2,261
Goodwill - net 2,279 1,582
Deposits and other 1,257 961
------- -------
Total other assets 12,330 10,528
------- -------
Total $132,105 $131,209
======= =======
Liabilities and stockholders' equity:
Current liabilities:
Current portion of capital lease
obligations $62 $32
Accounts payable 3,398 3,232
Accrued compensation 8,129 10,684
Accrued expenses 7,220 8,551
Deferred revenue 24,235 20,323
Deferred income taxes 1,304
------- -------
Total current liabilities 43,044 44,126
------- -------
Deferred income taxes 4,146 4,609
Capital lease obligations 208
Stockholders' equity:
Common stock, $.01 par value 177 174
Additional paid-in capital 76,630 73,944
Retained earnings 19,339 18,414
Unrealized holding gains, net of tax 32 1,470
Cumulative translation adjustment (903) (960)
------- -------
95,275 93,042
Less: Treasury stock, at cost (10,568) (10,568)
------- -------
Total stockholders' equity 84,707 82,474
------- -------
Total $132,105 $131,209
======= =======
</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,
------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $925 $2,651
Adjustments to reconcile net income to net
cash provided by operating activities:
Purchased research and development 5,500
Depreciation 2,669 2,433
Gain on sale of investment (2,431)
Amortization of capitalized software and
purchased technology 1,859 1,418
Amortization of goodwill 210 116
Change in assets and liabilities:
Accounts receivable 2,572 3,139
Prepaid expense and other 288 (1,189)
Accounts payable 164 (336)
Accrued compensation (2,611) 33
Accrued expenses (1,478) 737
Deferred revenue 3,312 2,664
------- -------
Net cash provided by operating
activities 10,979 11,666
------- -------
Cash flows from investing activities:
Purchase of marketable securities (15,260) (9,753)
Proceeds from sale of marketable securities 15,837 8,507
Expenditures for property and equipment (3,863) (3,174)
Capitalized software costs (1,668) (1,390)
Decrease (increase) in deposits and other (293) 84
Purchase of Eagle Design Automation, Inc.
net of cash (6,573)
------- -------
Net cash used in investing activities (11,820) (5,726)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 904 743
Proceeds from exercise of stock options 1,785 1,651
Repurchase of common stock (3,466)
Principal payment of capital lease
obligations (58) (48)
Repayment of notes to former Silerity
shareholders (2,805)
Repayment of foreign tax grant (1,304)
------- -------
Net cash provided by (used in)
financing activities 1,327 (3,925)
------- -------
Effect of exchange rate changes on cash 189 (155)
------- -------
Net increase in cash and cash equivalents 675 1,860
Cash and cash equivalents, beginning of the
period 41,297 34,387
------- -------
Cash and cash equivalents, end of the period $41,972 $36,247
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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VIEWLOGIC SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(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,
1996.
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.
In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings per
Share," which will become effective for the Company for
annual and interim reporting periods ending after
December 15, 1997. SFAS No. 128 replaces the
presentation of primary earnings per share with a basic
earnings per share (which excludes dilution) and a
diluted earnings per share. Had SFAS No. 128 been
used for the periods presented, basic and diluted
earnings per share would have been $0.25 and $0.23,
respectively, for the quarter ended June 30, 1997 and
$0.12 and $0.12, respectively, for the quarter ended
June 30, 1996. Basic and diluted earnings per share
would have been $0.06 and $0.05, respectively, for the
six months ended June 30, 1997 and would have been
$0.16 and $0.15, respectively, for the six months ended
June 30, 1996.
3. New Accounting Pronouncements
-----------------------------
COMPREHENSIVE INCOME
In June 1997, FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a
full set of general-purpose financial statements. SFAS
No. 130 is effective for fiscal years beginning after
December 15, 1997. The Company has not determined the
effects, if any, that SFAS No. 130 will have on its
consolidated financial statements.
SEGMENTS OF AN ENTERPRISE
In June 1997, FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related
Information," which establishes standards for the way
that public companies report selected information about
operating segments. SFAS No. 131 is effective for financial
6
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statements for periods beginning after
December 15, 1997. The Company has not determined the
effects, if any, that SFAS No. 131 will have on the
disclosures in its consolidated financial statements.
4. Eagle Design Automation, Inc. Acquisition
-----------------------------------------
On February 19, 1997, the Company purchased the 80% of
the capital stock of Eagle Design Automation, Inc.
("Eagle") not previously owned for $5,788 in cash and
assumption of net liabilities. This acquisition was
accounted for as a purchase and the total purchase
price of $6,597, including acquisition expenses, was
allocated to the assets acquired and the liabilities
assumed based on their estimated fair values. Of the
total, $5,500 was allocated to purchased research and
development and was charged to expense as of the
acquisition date. This allocation resulted in goodwill
of $907 which is being amortized over seven years and
purchased software of $1,000 to be amortized over five
years. In addition, the Company is required to pay the
former shareholders of Eagle additional payments based
on the sale by the Company of Eagle's products over the
three year period beginning after certain sales targets
have been met. There are no minimum or maximum
payments based on the sale of Eagle's products,
however, if current sales projections are met, such
additional payments could total approximately $5,500.
The unaudited consolidated results of operations on a
pro forma basis as though the acquisition had occurred
as of the beginning of the periods presented are as
follows:
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------
1997 1996
---- ----
<S> <C> <C>
Revenue $70,181 $61,299
Net income 512 1,695
Net income per share $ 0.03 $ 0.10
</TABLE>
The pro forma financial information is presented for
informational purposes only and is not indicative of
the operating results that would have occurred had the
Eagle acquistion been consummated as of the above
dates, nor are they necessarily indicative of future
operating results.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This discussion may contain certain forward looking
statements which involve risks and uncertainties, and the
Company's actual results may differ materially 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 15.8%
and 104.2% to $37,610,000 and $4,170,000, respectively, for
the quarter ended June 30, 1997 as compared to the quarter
ended June 30, 1996. After excluding $938,000 pre-tax gains
from the sale of an investment in the second quarter of
1997, net income was $3,593,000, which is a 76.0% increase
over the same period last year. Revenue and net income
increased 14.5% to $70,181,000 and decreased 65.1% to
$925,000, respectively, for the six months ended June 30,
1997, both as compared to the same periods of the previous
year. Excluding the non-recurring charge for in-process
research and development of $5,500,000 associated with the
first quarter 1997 acquisition of Eagle Design Automation,
Inc. ("Eagle"), net income for the six months ended June 30,
1997 was $6,425,000. Excluding that non-recurring item and
$2,431,000 pre-tax gains from the sales of an investment,
net income for the six months ended June 30, 1997 was
$4,930,000, which is an 86.0% increase over the first half
of 1996. Operating income before the non-recurring item, as
a percentage of revenue, was 13.6% and 9.4% for the quarter
and six month periods ended June 30, 1997, as compared to
8.9% and 5.6% for the same periods in 1996. 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 1997.
On February 19, 1997, the Company acquired Eagle. The
acquisition has been accounted for as a purchase, and
accordingly, the condensed consolidated financial statements
and management's discussion and analysis reflect the
combined operations only after the February 19, 1997 closing
date.
8
<PAGE>
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 Six Months Ended
June 30, June 30,
------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue: 100.0% 100.0% 100.0% 100.0%
Software 61.2 61.9 60.5 61.3
Services and other 38.8 38.1 39.5 38.7
Costs and expenses:
Cost of software 8.0 8.6 8.0 8.4
Cost of services and other 10.2 10.2 10.6 10.7
Selling and marketing 40.2 42.9 42.5 45.6
Research and development 21.2 21.0 22.7 21.2
Purchased research and
development 7.8
General and administrative 6.8 8.4 6.8 8.5
----- ----- ----- -----
Total operating expenses 86.4 91.1 98.4 94.4
----- ----- ----- -----
Income from operations 13.6 8.9 1.6 5.6
Total other income 4.4 1.3 5.4 1.4
----- ----- ----- -----
Income before income taxes 18.0 10.2 7.0 7.0
Provision for income taxes 6.9 3.9 5.7 2.7
----- ----- ----- -----
Net income 11.1% 6.3% 1.3% 4.3%
===== ===== ===== =====
</TABLE>
Revenue
- -------
The Company's total revenue increased 15.8% to
$37,610,000 in the second quarter of 1997 from $32,487,000
in the second quarter of 1996 and increased 14.5% to
$70,181,000 in the first six months of 1997 from $61,299,000
in the first half of 1996. The quarter ended June 30, 1997
was the largest revenue quarter in the Company's history.
The increase in total revenue was primarily due to a 52.6%
year to date increase in year-over-year revenues from the
Company's ASIC verification solutions, including the
Chronologic VCS(TM) simulator, Quad Motive(TM) timing analysis
tool and Sunrise TestGen(TM) tool suite. For the first time in
the Company's history, the ASIC product line accounted for more
than 50% of total quarterly revenues. The growth in ASIC
product sales was partially offset by a 14.9% decline in the
Company's sales of its Systems product line, the slower
growing Systems segment of the Electronic Design Automation
("EDA") market.
Software product revenue increased 14.5% and 13.1% to
$23,032,000 and $42,478,000 for the second quarter and first
six months of 1997, respectively, up from $20,116,000 and
$37,566,000 for the same periods in 1996. The Company's
percentage of total revenue attributable to software product
licenses was 61.2% and 60.5%, respectively, for the three
months and six months ended June 30, 1997 compared to 61.9%
and 61.3%, respectively, for the same periods in 1996.
Services and other revenue increased 17.8% to $14,578,000
and 16.7% to $27,703,000 for the second quarter and first
six months of 1997, respectively. These increases were due
to the increase in maintenance and customer support revenue
from a growing installed base of products, as well as
increased consulting and customization services and training
programs.
International revenue, as a percentage of total
revenue, decreased to 29.6% and increased to 33.6% for the
second quarter and first six months of 1997, respectively,
from 33.2% and 33.4%, respectively, for the same periods in
1996. The decrease for the second quarter was due primarily
to a
9
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significant increase in domestic sales of the Company's
ASIC products from the first quarter of 1997. The increase
for the six months ended June 30, 1997 was primarily due to
strong sales in Europe, where revenues increased 39.6% from
the first half of 1996 to the same period in 1997.
Cost of Revenue
- ---------------
Cost of software revenue increased 6.9% and 9.8% to
$2,992,000 and $5,626,000 for the three months and six
months ended June 30, 1997, respectively, as compared to the
same periods of the prior year. The increases in both
periods were primarily due to increased royalty costs and
amortization of capitalized software. These increases in
cost of software revenue were offset by a larger increase in
software revenue, which resulted in the decrease in cost of
software as a percentage of software revenue from 13.9% and
13.6% in the second quarter and first half of 1996,
respectively, to 13.0 % and 13.2% for the same periods in
1997.
Cost of services and other revenue increased 16.0% to
$3,857,000 and 13.6% to $7,468,000 in the quarter and six
months ended June 30, 1997, respectively, as compared to the
same periods of the prior year. The increases in both
periods were due to higher personnel-related costs incurred
in order to grow the Company's consulting business,
partially offset by the absence in 1997 of subcontracting
costs associated with a major outsourcing contract. These
net increases in cost of services and other revenue were
offset by a larger increase in service and other revenue,
which resulted in the decrease in cost of services and other
revenue as a percentage of services and other revenue from
26.9% and 27.7% in the second quarter and first half of 1996
to 26.5% and 27.0% for the same periods in 1997.
Selling and Marketing Expenses
- ------------------------------
Selling and marketing expenses increased 8.4% and 6.7%
to $15,103,000 and $29,822,000 for the three month and six
month periods ended June 30, 1997, respectively, up from
$13,938,000 and $27,954,000 for the same periods of 1996.
The increases in 1997 were primarily due to an increase in
commission expense on higher revenues and the result of
higher personnel-related costs due to an increase in the
number of worldwide sales and marketing personnel from 282
in June 1996 to 290 in June 1997. Selling and marketing
expenses, as a percentage of revenue, decreased from 42.9%
and 45.6% in the second quarter and first six months of 1996
to 40.2% and 42.5% for the same periods of 1997. The
reduction of selling and marketing expenses, as a percentage
of revenue, results from increasing sales productivity
requiring a smaller increase in selling costs needed to
produce the Company's revenue growth.
Research and Development Expenses
- ---------------------------------
Research and development costs increased 16.9% to
$7,968,000 and 22.6% to $15,926,000 for the second quarter
and six months ended June 30, 1997, respectively, as
compared to the same periods of the prior year. The
increases in research and development expenses for both
periods primarily reflect higher personnel-related costs
associated with the development of new products and
enhancement of existing products, including the
establishment of a research and development facility in
India in the fourth quarter of 1996. The increase for the
six months ended June 30, 1997 was also due the inclusion of
research and development costs associated with the Eagle
acquisition which closed during the first quarter of 1997.
Research and development expenses as a percentage of
revenues were 21.2% and 22.7% in the second quarter and
first half of 1997, respectively, compared to 21.0% and
21.2% for the same period of 1996.
The Company capitalized software development costs of
$751,000 and $1,668,000 for the second quarter and first
half of 1997, respectively, as compared to $684,000 and
$1,391,000 for the corresponding periods of 1996 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 8.6% and 9.5% of total product
development costs for the three month and
10
<PAGE>
six month periods
ended June 30, 1997, respectively, as compared to 9.1% and
9.7% for the same periods of 1996. 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
$675,000 and $1,377,000 for the second quarter and first six
months of 1997, respectively, compared to $578,000 and
$980,000 for the same periods of 1996.
Purchased Research and Development Expenses
- -------------------------------------------
The Company recorded a non-recurring expense of
$5,500,000 in the first quarter of 1997 for purchased
research and development associated with the Eagle
acquisition.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses decreased 5.7% and
9.0% to $2,561,000 and $4,735,000 for the second quarter and
six months ended June 30, of 1997, respectively, as compared
to $2,715,000 and $5,204,000 for the same periods of the
previous year. The decreases in both periods were primarily
due to the elimination of the Company's share of losses of
Eagle which were required to be recognized under the equity
method of accounting during 1996. General and
administrative expenses as a percentage of revenue decreased
from 8.4% and 8.5% in the second quarter and first half of
1996, respectively, to 6.8% in both of the same periods of
1997.
Income from Operations
- ----------------------
Income from operations increased by 77.2% to $5,129,000
and decreased 68.1% to $1,104,000 for the three months and
six months ended June 30, 1997, respectively, as compared to
the corresponding periods in 1996. Excluding the non-
recurring costs associated with the Eagle acquisition,
income from operations for the six months ended June 30,
1997 increased 91.1% to $6,604,000. Both increases in
operating income primarily reflect a larger increase in
revenues offset by a lesser increase in operating expenses
from 1996 to 1997. Income from operations as a percentage
of revenue increased from 8.9% and 5.6% in the second
quarter and first half of 1996, respectively, to 13.6% and
9.4% in the same periods of 1997, excluding the non-
recurring costs associated with the Eagle acquisition.
Total Other Income
- ------------------
Total other income increased 290.8% and 351.2% to
$1,653,000 and $3,844,000 for the three month and six month
periods ended June 30, 1997, respectively, from $423,000 and
$852,000 for the same periods of 1996. These increases are
primarily due to $938,000 and $2,431,000 gains from the
sales of an investment in the second quarter and six months
ended June 30, 1997, respectively. These increases were
also due to the impact of foreign exchange gains and an
increase in interest income due to larger cash balances in
1997 compared to 1996.
Income Taxes
- ------------
The provision for federal and state income taxes
increased 104.7% from $1,276,000 for the second quarter of
1996 to $2,612,000 for the second quarter of 1997,
representing effective tax rates of 38.5% in both of those
periods. For the six months ended June 30 1997, the
provision was $4,023,000, a 142.8% increase from $1,657,000
in the same period of 1996, representing effective tax rates
of 38.5% in both of those periods (excluding the non-
recurring costs of $5,500,000 in 1997 related to the
purchased research and development associated with the Eagle
acquisition, which is not tax deductible.)
Net Income
- ----------
Net income in the second quarter of 1997 was
$4,170,000, or $0.23 per share, an increase of 104.2% from
the $2,042,000, or $0.12 per share, net income earned in the
second quarter of 1996. This
11
<PAGE>
includes $938,000, or $0.03
per share, gains on the sale of an investment in the second
quarter of 1997. For the six months ended June 30, 1997 net
income was $925,000, or $0.05 per share, a decrease of 65.1%
from the $2,651,000, or $0.15 per share, net income earned
in the same period of 1996. Excluding the after-tax effect
of non-recurring items ($5,500,000 purchased research and
development expense and $2,431,000 pre-tax gains on sales of
an investment), net income increased 86.0% to $4,930,000, or
$0.28 per share, for the six months ended June 30, 1997.
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 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.
12
<PAGE>
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, 1997, the Company had $67,572,000 of cash and marketable
securities compared to $67,344,000 of cash and marketable
securities as of December 31, 1996. These balances included
$7,291,000 and $5,565,000 of non-current marketable
securities in 1997 and 1996, respectively. Working capital
as of June 30, 1997 was $54,035,000. As of June 30, 1997,
the Company had $43,044,000 in current liabilities and
$208,000 of commitments under long-term capital lease
obligations.
Based on its operating plan, the Company currently
believes that its available cash and cash generated from
operations will be sufficient to fund the Company's
operations for the foreseeable future.
In February 1997, the Financial Accounting Standards
Board issued SFAS No. 128, "Earnings per Share" which will
become effective for the Company for annual and interim
reporting periods ending after December 15, 1997. SFAS No.
128 replaces the presentation of primary earnings per share
with a basic earnings per share (which excludes dilution)
and a diluted earnings per share. Had SFAS No. 128 been
used for the periods presented, basic and diluted earnings
per share would have been $0.25 and $0.23, respectively, for
the quarter ended June 30, 1997 and $0.12 and $0.12,
respectively, for the quarter ended June 30, 1996. Basic
and diluted earnings per share would have been $0.06 and
$0.05, respectively, for the six months ended June 30, 1997
and would have been $0.16 and $0.15, respectively, for the
six months ended June 30, 1996.
In June 1997, FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15,
1997. The Company has not determined the effects, if any,
that SFAS No. 130 will have on its consolidated financial
statements.
In June 1997, FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information,"
which establishes standards for the way that public
companies report selected information about operating
segments. SFAS No. 131 is effective for financial
statements for periods beginning after December 15, 1997.
The Company has not determined the effects, if any, that
SFAS No. 131 will have on the disclosures in its
consolidated financial statements.
13
<PAGE>
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders held on
May 13, 1997, the following proposals were adopted by
the vote specified below:
<TABLE>
<CAPTION>
Broker
Proposal For Against Abstain Withheld Non-Votes
- -------- --- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1. Election of Directors:
William J. Herman 14,400,303 N/A N/A 36,589 1,000
Allyn C. Woodward, Jr. 14,397,172 N/A N/A 39,720 1,000
The term of office of the following Directors also continued after the
meeting: Gregory T. George, Gordon B. Hoffman, Larry E. Reeder and
Gregory A. White.
<CAPTION>
2. Ratification of 14,398,020 9,527 29,345 N/A 1,000
Deloitte & Touche
LLP as independent
auditors for the
current fiscal year.
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11 - Statement Regarding Computation of Per Share Earnings
27 - Financial Data Schedule
(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.
Date: August 12, 1997 Viewlogic Systems, Inc.
-----------------------
(Registrant)
By: /s/ William J. Herman
---------------------
William J. Herman, President, Chief
Executive Officer and Director
Date: August 12, 1997 By: /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> <C> <C>
11 Statement Regarding Computation of Per Share Earnings 17
27(1) Financial Data Schedule --
<FN>
(1) In electronic version only.
</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,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of
shares outstanding:
Common stock 16,715 16,671 16,631 16,901
Common equivalent shares
resulting from stock options
and warrants (treasury stock
method) 1,031 930 963 596
Less: Repurchased shares (243)
------ ------ ------ ------
Total 17,746 17,601 17,594 17,254
====== ====== ====== ======
Net income $4,170 $2,042 $ 925 $2,651
====== ====== ====== ======
Net income per common share $ 0.23 $ 0.12 $ 0.05 $ 0.15
====== ====== ====== ======
</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,
1997 and the Condensed Consolidated Balance Sheet as of June 30, 1997 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 41,972
<SECURITIES> 25,600
<RECEIVABLES> 31,696
<ALLOWANCES> 1,761
<INVENTORY> 0
<CURRENT-ASSETS> 97,079
<PP&E> 32,510
<DEPRECIATION> 17,105
<TOTAL-ASSETS> 132,105
<CURRENT-LIABILITIES> 43,044
<BONDS> 0
0
0
<COMMON> 177
<OTHER-SE> 84,530
<TOTAL-LIABILITY-AND-EQUITY> 132,105
<SALES> 42,478
<TOTAL-REVENUES> 70,181
<CGS> 5,626
<TOTAL-COSTS> 13,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 530
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> 4,948
<INCOME-TAX> 4,023
<INCOME-CONTINUING> 925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 925
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
