<PAGE> 1
TOTAL NUMBER OF PAGES IS 17
PAGE 1 OF 17
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1996
Commission File Number 0-27692
ORCAD, INC.
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 93-1062832
9300 S.W. Nimbus Avenue Beaverton, OR 97008
Telephone: (503) 671-9500
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
----- -----
On September 30, 1996, 6,600,946 shares of the registrant's common stock
were issued and outstanding.
<PAGE> 2
ORCAD, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- --------------------------------------------------------------------------------------------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996
and December 31, 1995 3
Consolidated Statements of Operations -- Three months
ended September 30, 1996 and 1995 and Nine months
ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -- Nine months
ended September 30, 1996 and 1995 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ORCAD, INC.
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1996
ASSETS 1995 (UNAUDITED)
-------- -----------
<S> <C> <C>
Current Assets:
Cash And Cash Equivalents $ 2,080 $ 19,227
Short Term Investments -- 6,987
Trade Accounts Receivable, Net Of Doubtful Accounts
And Sales Return Allowances Of $422 And $551 2,641 3,203
Inventory, Net 440 517
Royalty Receivable 406 262
Deferred Taxes 144 --
Other 451 805
-------- --------
Total Current Assets 6,162 31,001
-------- --------
Long Term Investments -- 2,027
Fixed Assets 2,203 2,698
Less Accumulated Depreciation 1,236 1,634
-------- --------
967 1,064
-------- --------
Purchased Software Technology, Net 12 191
Royalty Receivable 242 --
Goodwill And Intangible Assets 3,156 2,817
Other Assets 126 128
-------- --------
Total Assets $ 10,665 $ 37,228
======== ========
Liabilities And Stockholders' Equity
Current Liabilities:
Accounts Payable $ 942 $ 670
Accrued Payroll And Related Liabilities 816 928
Accrued Liabilities 1,411 1,223
Accrued Income Taxes 104 600
Deferred Revenue 1,159 1,390
Capital Lease Obligations, Current 119 20
-------- --------
Total Liabilities 4,551 4,831
-------- --------
Stockholders' Equity:
Preferred Stock 81 --
Common Stock 18 66
Additional Paid-in Capital 12,312 35,644
Accumulated Deficit (6,293) (3,285)
Foreign Currency Translation Adjustment (4) (28)
-------- --------
Total Stockholders' Equity 6,114 32,397
-------- --------
Total Liabilities And Stockholders' Equity $ 10,665 $ 37,228
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- --------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Products $2,714 $4,537 $ 7,461 $13,364
Service 780 786 2,149 2,193
------ ------ ------- -------
Total Revenue 3,494 5,323 9,610 15,557
Cost And Expenses:
Cost Of Sales -- Products 397 468 1,176 1,310
Cost Of Sales -- Service 135 171 335 528
Research And Development 915 1,067 2,622 3,222
Marketing And Sales 1,171 1,829 3,340 5,337
General And Administrative 447 743 1,272 2,240
In-process Research And
Development -- -- 971 --
------ ------ ------- -------
Total Cost And Expenses 3,065 4,278 9,716 12,637
------ ------ ------- -------
Income (loss) From Operations 429 1,045 (106) 2,920
------ ------ ------- -------
Other Income:
Interest Income -- 381 -- 819
Other, Net 44 30 52 69
------ ------ ------- -------
44 411 52 888
------ ------ ------- -------
Income (loss) Before Income Taxes 473 1,456 (54) 3,808
Income Taxes 1 306 1 800
------ ------ ------- -------
Net Income (loss) $ 472 $1,150 $ (55) $ 3,008
====== ====== ======= =======
Net Income (loss) Per Common And
Common Equivalent Share $ 0.10 $ 0.16 ($ 0.03) $ 0.47
====== ====== ======= =======
Weighted Average Common And Common
Equivalent Shares Outstanding 4,799 6,988 1,934 6,407
====== ====== ======= =======
</TABLE>
Page 4
<PAGE> 5
ORCAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (loss) $ (55) $ 3,008
Adjustments To Reconcile Net Income To
Net Cash Provided By Operating Activities:
Depreciation And Amortization 392 805
Provision For Losses On Trade Accounts Receivable (23) 129
Provision For Inventory Reserves 22 (5)
Deferred Income Taxes -- 139
Write-off Of Research And Development Costs Acquired 971 --
Changes In Assets And Liabilities:
Trade Accounts Receivable (311) (723)
Inventory (38) (79)
Royalty Receivable -- 176
Other, Net (63) (375)
Accounts Payable 62 (257)
Accrued Payroll And Related Liabilities 31 114
Accrued Liabilities (32) (144)
Accrued Income Taxes -- 504
Deferred Revenue (416) 232
------- --------
Total Adjustments 595 516
------- --------
Net Cash Provided By Operating Activities 540 3,524
------- --------
Cash Flows From Investing Activities:
Acquisition Of Fixed Assets (354) (514)
Acquisition Of Software Technology (60) (18)
Cash Aquired In Merger 81 --
Payments Received Under Guaranteed Royalties 25 --
Purchase Of Short-term Investments And
Marketable Securities -- (9,014)
------- --------
Net Cash Used By Investing Activities (308) (9,546)
Cash Flows From Financing Activities:
Payments On Capital Leases (84) (99)
Proceeds From Issuance Of Common Stock 31 23,300
------- --------
Net Cash Provided (used) By Financing Activities (53) 23,201
------- --------
Effects Of Exchange Rate On Cash -- (32)
------- --------
Net Increase In Cash And Cash Equivalents 179 17,147
Cash And Cash Equivalents At The Beginning Of Period 582 2,080
------- --------
Cash And Cash Equivalents At The End Of Period $ 761 $ 19,227
======= ========
Supplemental Disclosures Of Cash Flow Information:
Interest Paid $ 17 $ 10
Income Taxes Paid $ -- $ 241
Noncash Investing Activities
Exchange Of Royalty Receivable For
Software Technology $ -- $ 210
Net Assets Acquired In Merger $ 1,963 $ --
</TABLE>
See Notes to Consolidated Financial Statements.
Page 5
<PAGE> 6
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
(Unaudited)
1. Basis of Presentation
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed, or omitted, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion
of management, the statements include all adjustments necessary (which
are of a normal and recurring nature) for the fair presentation of the
results of the interim periods presented. These financial statements
should be read in conjunction with the Company's audited consolidated
financial statements for the year ended December 31, 1995, as included
in the Company's Registration Statement on Form SB-2 (Registration No.
333-00198-LA) filed with the Securities and Exchange Commission.
2. Net Income Per Common and Common Equivalent Share
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
assumed to be outstanding during the period. Common equivalent shares
consist of options to purchase common stock.
3. Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets,
liabilities and contingencies at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
4. Revenue Recognition
Revenue primarily includes revenue from software product shipments and
revenue from training related services and product support agreements.
The Company recognizes revenue from software licenses after shipment of
product and when no significant contractual obligations remain
outstanding. When the Company receives payment prior to shipment or
fulfillment of a significant obligation to the customer, such payments
are recorded as deferred revenue and recognized as revenue upon
shipment or fulfillment of such obligation. A portion of revenue from
product sales is deferred and recognized ratably over the warranty
period, generally three months to one year. Deferred revenue on
product support agreements that are sold separately from product sales
is recognized ratably over the contract period, generally one year.
Revenue from training related services is recognized as services are
performed.
5. Software Development Costs
Under Statement of Financial Accounting Standards No. 86 (SFAS 86),
software development costs are to be capitalized beginning when a
product's technological feasibility has been established and ending
when a product is made available for general release to customers. To
date, the establishment of technological feasibility of the Company's
products has occurred shortly before general release, and accordingly
no costs have been capitalized.
6
<PAGE> 7
6. Income Taxes
The provision for income taxes has been recorded based on the Company's
current estimate of the Company's annual effective tax rate. This rate
differs from the federal statutory rate primarily because of the
utilization of net operating loss carryforwards and the foreign tax
rate differential applicable to earnings of OrCAD Japan.
7. Stockholders' Equity
On March 1, 1996, the Company completed a public offering of 3,200,0000
shares of common stock which generated net proceeds of approximately
$19.4 million after deducting applicable issuance costs and expenses.
On April 4, 1996, the Company's underwriters' exercised their
over-allotment option resulting in the issuance of an additional
382,299 shares of common stock which generated net proceeds of
approximately $3.9 million after deducting applicable issuance costs
and expenses. The net proceeds are expected to be used for working
capital and general corporate purposes, including product development,
the expansion of international sales and possible future acquisitions.
8. Reclassifications
Certain reclassifications have been made to prior periods data to
conform with the September 30, 1996 presentation.
9. Cash Equivalents, Short-term Investments and Long-term Marketable
Securities
Cash equivalents consist of short-term highly liquid investments with
original maturities of ninety days or less. The carrying amount
approximates fair value due to the short-term nature of these
investments. Those instruments with original maturities greater than
ninety days and less than one year from the balance sheet date are
considered to be short-term investments. Instruments with scheduled
maturities greater than one year from the balance sheet date are
considered to be long-term marketable securities. Short-term
investments and long-term marketable securities are composed
substantially of corporate debt securities which are carried at
amortized cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and interest are included in
interest income. The Company purchases such debt securities with the
intention of holding them to maturity.
7
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
OrCAD was formed in September 1991 as the successor to prior entities
engaged in developing electronic design automation (EDA) tools. From its
inception, OrCAD has been engaged in the development and marketing of a broad
family of EDA products including schematic capture, digital simulation,
programmable logic design and printed circuit board layout. In 1995, the Company
introduced OrCAD Design Desktop for Windows, a new product family designed for
the 32-bit Windows operating system that includes OrCAD Capture for Windows,
OrCAD Simulate for Windows, OrCAD Layout for Windows, OrCAD Layout Ltd. for
Windows and OrCAD Layout Plus for Windows. From the Company's inception through
the first nine months of 1995, OrCAD earned a substantial amount of its revenue
from its DOS-based EDA products.
In December 1995, the Company acquired Intelligent Systems Japan, K.K.
(ISJ), now OrCAD Japan, K.K. (OrCAD Japan) in a transaction accounted for as a
purchase. In June 1995, the Company acquired Massteck Ltd. (Massteck) in a
transaction accounted for as a purchase. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries, Massteck
and OrCAD Japan, from the dates of acquisition. All intercompany balances have
been eliminated in consolidation.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
TOTAL REVENUES
The Company derives revenue from the licensing of its software products
and from the provision of maintenance and training services to customers. The
Company recognizes revenue from software licenses after shipment of product and
when no significant contractual obligations remain outstanding. Service revenue
is derived primarily from product support agreements that provide customers
access to product enhancements, telephone hot line support, Bulletin Board
Service and a subscription to OrCAD Desktop Quarterly, a newsletter produced by
the Company. Revenue from each product support agreement is deferred and
recognized ratably over the term of the product support agreement. Revenue from
customer training is recognized as services are performed.
Total revenue increased 52% from $3.5 million in the third quarter of
1995 to $5.3 million in the third quarter of 1996. The acquisition of OrCAD
Japan accounted for approximately $669,000 of the $1.8 million increase in total
revenue. The remaining increase in total revenue was primarily due to growth in
product revenue. As a percentage of total revenue, product revenue increased
from 78% in the third quarter of 1995 to 85% in the third quarter of 1996.
Conversely, service revenue decreased as a percentage of total revenue from 22%
in the third quarter of 1995 to 15% in the third quarter of 1996.
Product revenue increased 67% from $2.7 million in the third quarter of
1995 to $4.5 million in the third quarter of 1996. The acquisition of OrCAD
Japan accounted for approximately $669,000 of the $1.8 million increase in
product revenue. The remaining increase in product revenue from the
8
<PAGE> 9
third quarter of 1995 to the third quarter of 1996 was primarily attributable to
growth in sales of OrCAD Design Desktop for Windows, particularly in the PCB
layout, and simulation product lines.
Service revenue remained relatively constant from the third quarter of
1995 to the third quarter of 1996 at $780,000 and $786,000, respectively. The
higher increase in product revenue as compared to service revenue is primarily
attributable to an increase in sales of Windows-based products, a higher
proportion of which is recognized as product revenue.
Total North American revenue increased 26% from $2.7 million in the
third quarter of 1995 to $3.4 million in the third quarter of 1996. Total
revenue generated outside of North America increased 136% from $835,000 in the
third quarter of 1995 to $2.0 million in the third quarter of 1996. As a
percentage of the Company's total revenue, revenue generated outside of North
America increased from 24% in the third quarter of 1995 to 37% in the third
quarter of 1996. The increase in the proportion of revenue generated outside of
North America was principally attributable to the acquisition of OrCAD Japan. In
the third quarter of 1995, the Company's sales to OrCAD Japan, which was the
Company's distributor at the time, amounted to approximately 8% of total
revenues. In the third quarter of 1996, sales by OrCAD Japan amounted to
approximately 18% of total revenue. This increase in revenue attributable to
OrCAD Japan in the third quarter of 1996 as a percentage of total revenue was
primarily the result of the Company recognizing the full selling price of
product's sold by OrCAD Japan, whereas in the third quarter of 1995, prior to
the acquisition, the Company's products were sold to OrCAD Japan at prices
reflecting a substantial discount from OrCAD Japan's selling prices.
COST OF REVENUE
The cost of product revenue represents the costs associated with the
licensing of the Company's products, such as expenses of reproducing product
documentation, disks and packaging, shipping costs and royalties paid to
external developers. The cost of product revenue increased 18% from $397,000 in
the third quarter of 1995 to $468,000 in the third quarter of 1996. The increase
was primarily attributable to an increased level of product sales partially
offset by decreases in royalty costs resulting from the Company's purchase of
source code previously licensed from outside developers and the Company's
decision to develop its Windows-based products internally rather than through
outside developers. As a percentage of product revenue, cost of product revenue
decreased from 15% in the third quarter of 1995 to 10% in the third quarter of
1996. This decrease was primarily the result of higher average selling prices
resulting from the sale of OrCAD Design Desktop for Windows, primarily in the
PCB layout and simulation product lines.
The cost of service revenue includes the costs of providing software
maintenance, such as hotline telephone support, software revision releases and
updated user documentation, and the costs of providing training. The cost of
service revenue increased 27% from $135,000 in the third quarter of 1995 to
$171,000 in the third quarter of 1996. This increase was primarily attributable
to increased training services and personnel costs relating to technical
support, including costs associated with increased headcount and compensation
expenses as a result of increased product, upgrade, and product support
agreement sales. As a percentage of service revenue, the cost of service revenue
increased from 17% in the third quarter of 1995 to 22% in the third quarter of
1996. This increase reflects the absorption of relatively fixed costs and costs
of increased technical support personnel in the third quarter of 1996 over a
relatively constant revenue base.
9
<PAGE> 10
RESEARCH AND DEVELOPMENT
Research and development expenses include the costs of developing new
products and enhancements to existing products. Software development costs are
generally expensed as incurred, in that technological feasibility is generally
not established until shortly before the release of a new product and no
material development costs are incurred after establishment of technological
feasibility. Research and development expenses increased 17% from $915,000 in
the third quarter of 1995 to $1.1 million in the third quarter of 1996. The
increase in research and development expenses was attributable to increased
personnel costs, including costs associated with increased headcount resulting
from the acquisition of OrCAD Japan. As a percentage of total revenue, research
and development expenses decreased from 26% in the third quarter of 1995 to 20%
in the third quarter of 1996. The Company closed its office in Boxborough,
Massachusetts in September 1996. No significant closure costs were incurred as a
result of the closure. The Company expects research and development expenses to
continue to increase in absolute terms.
MARKETING AND SALES
Marketing and sales expenses include salaries, commissions and related
personnel costs, and other sales and promotional expenses. Marketing and sales
expenses increased 56% from $1.2 million in the third quarter of 1995 to $1.8
million in the third quarter of 1996. The increase was principally attributable
to increased compensation expenses related to growth in the direct telesales
organization and increased headcount for marketing personnel, the acquisition of
OrCAD Japan, and greater marketing related activities in the third quarter of
1996. The Company incurred approximately $92,000 in additional expenses in the
third quarter of 1996 related to the amortization of intangible assets acquired
in connection with the acquisition of OrCAD Japan. As a percentage of total
revenue, marketing and sales expenses remained relatively constant from the
third quarter of 1995 to the third quarter of 1996. The Company expects
marketing and sales expenses to continue to increase in absolute terms.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs associated with
the Company's executive office, human resources, finance, information systems
and operations functions. General and administrative expenses increased 66% from
$447,000 in the third quarter of 1995 to $743,000 in the third quarter of 1996.
The increase in general and administrative expenses was attributable to the
acquisition of OrCAD Japan, increased personnel costs, including costs
associated with increased headcount to support the growth in operations and the
additional costs associated with being a public company. The acquisition of
OrCAD Japan resulted in approximately $98,000 of additional general and
administrative expenses in the third quarter of 1996. As a percentage of total
revenue, general and administrative expenses increased from 13% in the third
quarter of 1995 to 14% in the third quarter of 1996.
10
<PAGE> 11
OTHER INCOME, NET
Other income increased to $411,000 in the third quarter of 1996, as
compared to $44,000 in the third quarter of 1995. This improvement resulted
primarily from higher interest income earned on increased cash and cash
equivalents and investment balances resulting from the proceeds of the Company's
public offering completed in March 1996.
INCOME TAX EXPENSE
The effective tax rate for the quarter ended September 30, 1996 was
21.0%, which differs from the combined federal and state statutory rate of
approximately 38.5% primarily due to the use of net operating loss
carryforwards, and the foreign tax rate differential applicable to earnings of
OrCAD Japan. Income tax expense for the quarter ended September 30, 1996
increased to $306,000. The Company did not provide for income taxes, other than
foreign withholding taxes, in the third quarter of 1995 as a result of the
availability of net operating loss carryforwards to offset taxable income.
11
<PAGE> 12
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
TOTAL REVENUES
Total revenue increased 62% from $9.6 million in the first nine months
of 1995 to $15.6 million in the first nine months of 1996. The acquisition of
OrCAD Japan accounted for approximately $2.8 million of the $6.0 million
increase in total revenue. In addition, with the acquisition of Massteck the
Company acquired five value-added resellers which accounted for approximately
$246,000 in additional revenue in the first nine months of 1996 over the same
period in 1995. The remaining increase in total revenue was primarily due to
growth in product revenue. As a percentage of total revenue, product revenue
increased from 78% in the first nine months of 1995 to 86% in the first nine
months of 1996. Conversely, service revenue decreased as a percentage of total
revenue from 22% in the first nine months of 1995 to 14% in the first nine
months of 1996.
Product revenue increased 79% from $7.5 million in the first nine
months of 1995 to $13.4 million in the first nine months of 1996. The
acquisition of OrCAD Japan accounted for approximately $2.8 million of the $5.9
million increase in product revenue. The remaining increase in product revenue
from the first nine months of 1995 to the first nine months of 1996 was
primarily attributable to growth in sales of OrCAD Design Desktop for Windows,
particularly in the PCB layout and simulation product lines.
Service revenue increased 2% from $2.1 million in the first nine months
of 1995 to $2.2 million in the first nine months of 1996. The higher increase in
product revenue as compared to service revenue was primarily attributable to an
increase in sales of Windows-based products, a higher proportion of which is
recognized as product revenue.
Total North American revenue increased 32% from $7.0 million in the
first nine months of 1995 to $9.2 million in the first nine months of 1996.
Total revenue generated outside of North America increased 141% from $2.6
million in the first nine months of 1995 to $6.3 million in the first nine
months of 1996. As a percentage of the Company's total revenue, revenue
generated outside of North America increased from 27% in the first nine months
of 1995 to 41% in the first nine months of 1996. The increase in the proportion
of revenue generated outside of North America was principally attributable to
the acquisition of OrCAD Japan. In the first nine months of 1995, the Company's
sales to OrCAD Japan, which was the Company's distributor at the time, amounted
to approximately 6% of total revenues. In the first nine months of 1996, sales
by OrCAD Japan amounted to approximately 22% of total revenue. This increase in
revenue attributable to OrCAD Japan in the first nine months of 1996 as a
percentage of total revenue was primarily the result of the Company recognizing
the full selling price of product's sold by OrCAD Japan, whereas in the first
nine months of 1995, prior to the acquisition, the Company's products were sold
to OrCAD Japan at prices reflecting a substantial discount from OrCAD Japan's
selling prices.
COST OF REVENUE
The cost of product revenue increased 11% from $1.2 million in the
first nine months of 1995 to $1.3 million in the first nine months of 1996. The
increase was primarily attributable to an increased level of product sales
partially offset by decreases in royalty costs resulting from the Company's
purchase of source code previously licensed from outside developers and the
Company's
12
<PAGE> 13
decision to develop its Windows-based products internally rather than
through outside developers. As a percentage of product revenue, cost of product
revenue decreased from 16% in the first nine months of 1995 to 10% in the first
nine months of 1996. This decrease was primarily the result of higher average
selling prices resulting from the sale of OrCAD Design Desktop for Windows,
primarily in the PCB layout and simulation product lines.
The cost of service revenue increased 58% from $335,000 in the first
nine months of 1995 to $528,000 in the first nine months of 1996. This increase
was primarily attributable to increased training services provided by the
Company and personnel costs relating to technical support, including costs
associated with increased headcount and compensation expenses as a result of
increased product, upgrade, and product support agreement sales. As a percentage
of service revenue, the cost of service revenue increased from 16% in the first
nine months of 1995 to 24% in the first nine months of 1996. This increase
reflects the absorption of relatively fixed costs and costs of increased
technical support personnel in the first nine months of 1996 over a relatively
constant revenue base.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 23% from $2.6 million in
the first nine months of 1995 to $3.2 million in the first nine months of 1996.
The increase in research and development expenses was attributable to increased
personnel costs, including costs associated with increased headcount largely
resulting from the acquisitions of OrCAD Japan and Massteck, partially offset by
reductions in costs for engineering consultants in the first nine months of 1996
as compared to the same period in 1995. Research and development expenses
decreased in the third quarter of 1996 as compared to the second quarter of 1996
primarily due to the engagement of engineering consultants and recruiting costs
for certain employees incurred in the second quarter of 1996. As a percentage of
total revenue, research and development expenses decreased from 27% in the first
nine months of 1995 to 21% in the first nine months of 1996. The Company expects
research and development expenses to continue to increase in absolute terms.
MARKETING AND SALES
Marketing and sales expenses increased 60% from $3.3 million in the
first nine months of 1995 to $5.3 million in the first nine months of 1996. The
increase was principally attributable to increased compensation expenses related
to growth in the direct telesales organization and increased headcount for
marketing personnel, the acquisitions of OrCAD Japan and Massteck, and greater
marketing related activities in the first nine months of 1996. The Company
incurred approximately $276,000 in additional expenses in the first nine months
of 1996 related to the amortization of intangible assets acquired in connection
with the acquisition of OrCAD Japan. In addition, the Company increased its
sales and marketing headcount by four employees as a result of the acquisition
of Massteck. As a percentage of total revenue, marketing and sales expenses
decreased from 35% in the first nine months of 1995 to 34% in the first nine
months of 1996. The Company expects marketing and sales expenses to continue to
increase in absolute terms.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 76% from $1.3 million in
the first nine months of 1995 to $2.2 million in the first nine months of 1996.
The increase in general and administrative
13
<PAGE> 14
expenses was attributable to the acquisition of OrCAD Japan, increased personnel
costs, including costs associated with increased headcount to support the growth
in operations and the additional costs associated with being a public company.
The acquisition of OrCAD Japan resulted in approximately $261,000 of additional
general and administrative expenses in the first nine months of 1996. As a
percentage of total revenue, general and administrative expenses remained
relatively constant from the first nine months of 1995 to the first nine months
of 1996.
OTHER INCOME, NET
Other income increased to $888,000 in the first nine months of 1996, as
compared to $52,000 in the first nine months of 1995. This improvement resulted
primarily from higher interest income earned on increased cash and cash
equivalents and investment balances resulting from the proceeds of the Company's
public offering completed in March 1996.
INCOME TAX EXPENSE
The effective tax rate for the first nine months of 1996 was 21.0%,
which differs from the combined federal and state statutory rate of
approximately 38.5% primarily due to the use of net operating loss
carryforwards, and the foreign tax rate differential applicable to earnings of
OrCAD Japan. Income tax expense for the first nine months of 1996 increased to
$800,000. The Company did not provide for income taxes, other than foreign
withholding taxes, in the first nine months of 1995 as a result of the
availability of net operating loss carryforwards to offset taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The completion of the initial public offering of common stock in March
1996 and the exercise of the Company's underwriters' over-allotment option in
April 1996 resulted in net proceeds of $23.3 million which improved the
Company's current ratio to 6.4:1 at September 30, 1996 from 1.4:1 at December
31, 1995. Working capital increased to $26.1 million at September 30, 1996 from
$1.6 million at December 31, 1995.
The Company has available borrowing capacity consisting of a commitment
for a $3.0 million line of credit from a commercial bank. The Company believes
that current cash and investment balances, cash flows from operations and the
unused line of credit are sufficient to meet current and anticipated future
capital requirements for at least the next twelve months. The Company currently
does not have any material commitments for capital expenditures.
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1996 the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock Based Compensation". This statement permits a company to
choose either a new fair value based method of accounting for its stock based
compensation arrangements or to comply with the current APB Opinion 25 intrinsic
value based method adding pro forma disclosures of net income and earnings per
share computed as if the fair value based method had been applied in the
financial statements. The Company has adopted SFAS No. 123 by retaining the APB
Opinion 25 method of accounting for stock-based compensation with annual pro
forma disclosures of net income and earnings per share.
14
<PAGE> 15
On January 1, 1996 the Company adopted the Financial Accounting
Standards Board's SFAS No. 121 "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to be Disposed Of". This statement specifies
when long-lived assets should be reviewed for impairment, how to determine if
such an asset is impaired, and how to measure an impairment loss. This statement
also requires that long-lived assets held for disposal be valued at the lower of
the carrying amount or fair value less the cost to sell the asset, except for
assets that constitute part of a discontinued operation. The Company currently
does not have any material assets held for disposal and does not believe that
the value of any of its long-lived assets are impaired.
VARIABILITY OF OPERATING RESULTS
The Company's quarterly operating results may vary significantly in the
future depending on factors such as increased competition, timing of new product
announcements, releases and pricing changes by the Company or its competitors,
length of sales cycles, market acceptance or delays in the introduction of new
or enhanced versions of the Company's products, timing of significant orders,
seasonal factors, mix of direct and indirect sales, product mix, and economic
conditions generally and in the EDA industry specifically.
A substantial portion of the Company's revenue in each quarter results
from orders booked in that quarter. The Company's expense levels are based, in
part, on its expectations as to future revenue. If revenue levels are below
expectations, operating results are likely to be adversely affected. In
particular, net income may be disproportionately affected by a reduction in
revenue because only a small portion of the Company's expenses varies with its
revenue.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27.1 Financial Data Schedule
(b) No reports were filed on Form 8-K during the three months
ended September 30, 1996.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OrCAD, Inc.
Dated: November 12, 1996 P. David Bundy
---------------------------------
Vice President, Finance and Secretary
(Principal Financial and Accounting Officer)
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 19,227
<SECURITIES> 6,987
<RECEIVABLES> 3,754
<ALLOWANCES> 551
<INVENTORY> 517
<CURRENT-ASSETS> 31,001
<PP&E> 2,698
<DEPRECIATION> 1,634
<TOTAL-ASSETS> 37,228
<CURRENT-LIABILITIES> 4,831
<BONDS> 0
0
0
<COMMON> 66
<OTHER-SE> 32,331
<TOTAL-LIABILITY-AND-EQUITY> 37,228
<SALES> 15,557
<TOTAL-REVENUES> 15,557
<CGS> 1,838
<TOTAL-COSTS> 12,637
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 113
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 3,808
<INCOME-TAX> 800
<INCOME-CONTINUING> 3,008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,008
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
