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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 March 31, 1997
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 March 31, 1997, 6,689,468 shares of the registrant's common
stock were issued and outstanding.
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OrCAD, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- -------------------------------------------- ---------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations -- Three months
ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -- Three months
ended March 31, 1997 and 1996 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 2. Changes in Securities 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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OrCAD, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(Unaudited) 1996
-------------------- --------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 20,628 $ 20,308
Short-term investments 8,900 8,964
Trade accounts receivable, net of doubtful accounts
and sales return allowances of $612 and $637 3,717 3,081
Inventory, net 429 504
Royalty receivable 122 193
Other 917 911
-------- --------
Total current assets 34,713 33,961
-------- --------
Fixed assets, net 1,652 1,018
Purchased software technology, net 385 429
Goodwill and intangible assets, net 2,591 2,704
Other assets 133 138
======== ========
Total assets $ 39,474 $ 38,250
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 538 $ 484
Accrued payroll and related liabilities 912 936
Accrued liabilities 839 857
Accrued income taxes 1,042 607
Deferred revenue 1,325 1,432
-------- --------
Total current liabilities 4,656 4,316
-------- --------
Shareholders' equity:
Preferred stock -- --
Common stock 67 67
Additional paid-in capital 35,996 35,992
Accumulated deficit (1,180) (2,091)
Net unrealized gain on investments 2 9
Foreign currency translation adjustment (67) (43)
-------- --------
Total shareholders' equity 34,818 33,934
-------- --------
Total liabilities and shareholders' equity $ 39,474 $ 38,250
======== ========
</TABLE>
See notes to Consolidated Financial Statements.
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OrCAD, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
March 31, March 31,
1997 1996
-------------------- -------------------
<S> <C> <C>
Revenue:
Product Revenue $ 4,967 $ 4,248
Service Revenue 935 677
------- -------
Total revenue 5,902 4,925
Cost and expenses:
Cost of revenue -- product 615 447
Cost of revenue -- service 171 165
Research and development 1,284 1,005
Marketing and sales 2,032 1,695
General and administrative 765 756
------- -------
Total cost and expenses 4,867 4,068
------- -------
Income from operations 1,035 857
------- -------
Other income (expense):
Interest income 370 86
Other, net (3) 24
------- -------
367 110
------- -------
Income before income taxes 1,402 967
Income taxes 491 184
------ -------
Net income $ 911 $ 783
======= =======
Net income per share $ 0.13 $ 0.14
======= =======
Weighted average common and common
equivalent shares outstanding 6,950 5,414
======= =======
</TABLE>
See notes to Consolidated Financial Statements.
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OrCAD, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------
March 31, March 31,
1997 1996
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 911 $ 783
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 316 256
Provision for losses on trade accounts receivable (1) 159
Provision for inventory reserves 10 5
Deferred income taxes 2 111
Changes in assets and liabilities:
Trade accounts receivable (665) (107)
Inventory 59 57
Royalty receivable 71 46
Other current assets (19) 44
Accounts payable 68 165
Accrued payroll and related liabilities (22) 10
Accrued liabilities (3) (131)
Accrued income taxes 444 102
Deferred revenue (104) (124)
-------- --------
Total adjustments 156 593
-------- --------
Net cash provided by operating activities 1,067 1,376
-------- --------
Cash flows from investing activities:
Acquisition of fixed assets (795) (260)
Proceeds from maturity (purchase) of investments, net 56 (3,991)
-------- --------
Net cash used in investing activities (739) (4,251)
Cash flows from financing activities:
Payments on capital leases -- (33)
Issuance of common stock, net 4 19,399
-------- --------
Net cash provided by financing activities 4 19,366
-------- --------
Effects of exchange rate on cash (12) (13)
-------- --------
Net increase in cash and cash equivalents 320 16,478
Cash and cash equivalents at the beginning of period 20,308 2,080
-------- --------
Cash and cash equivalents at the end of period $ 20,628 $ 18,558
======== ========
Supplemental Disclosures of Cash Flow Information:
Income taxes paid $ 45 $ --
Noncash investing activities
Exchange of royalty receivable for
software technology $ -- $ 210
</TABLE>
See notes to Consolidated Financial Statements.
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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, 1996, as included
in the Company's Annual Report on Form 10-KSB 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 extended 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 maintenance
period, generally three months to one year. Revenue from customer
training, support and other 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.
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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 combined federal and state statutory rate of
approximately 38.5% primarily due to the utilization of net operating
loss carryforwards, the utilization of research and experimentation tax
credits, and the benefit of the Company's foreign sales corporation.
7. Reclassifications
-----------------
Certain reclassifications have been made to prior periods data to
conform with the March 31, 1997 presentation.
8. Cash Equivalents and Short-Term Investments
-------------------------------------------
Cash equivalents consist of highly liquid investments with original
maturities of three months or less. Cash equivalents are stated at cost
and consist primarily of money market funds, commercial paper,
municipal bonds and municipal auction preferred stock. The carrying
amount approximates fair value due to the short-term nature of these
investments. Those instruments with original maturities greater than
three months and less than one year from the balance sheet date are
considered to be short-term investments. Short-term investments, which
primarily consist of debt securities and U.S. Treasury Notes, are
reported at fair value, and are classified as available-for-sale
securities. The cost of securities sold is determined using the
specific identification method when computing realized gains and
losses. Fair value is determined using available market information.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
OrCAD develops, markets, and supports software products that assist
electronics designers in developing field-programmable gate arrays, including
complex programmable logic devices, and printed circuit boards. The Company
operates primarily in one business segement, comprising the elecronic design
automation industry.
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries, Massteck Ltd. and OrCAD Japan KK, from the
dates of acquisition. All intercompany balances have been eliminated in
consolidation.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
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 extended support agreements that provide customers
access to product enhancements, technical support, bulletin board services and a
subscription to OrCAD Design Desktop Quarterly, a newsletter produced by the
Company. Revenue from each extended support agreement is deferred and recognized
ratably over the term of the support agreement. Revenue from customer training
is recognized as services are performed.
Total revenue increased 20% from $4.9 million in the first quarter of
1996 to $5.9 million in the first quarter of 1997. The increase in total revenue
was due to growth in both product revenue and service revenue. As a percentage
of total revenue, product revenue decreased from 86% in the first quarter of
1996 to 84% in the first quarter of 1997. Conversely, service revenue increased
as a percentage of total revenue from 14% in the first quarter of 1996 to 16% in
the first quarter of 1997.
Product revenue increased 17% from $4.2 million in the first quarter of
1996 to $5.0 million in the first quarter of 1997. The increase in product
revenue was primarily attributable to first customer shipments of OrCAD Express
and Capture Enterprise Edition and strong sales of Capture in the first quarter
of 1997.
Service revenue increased 38% from $677,000 in the first quarter of
1996 to $935,000 in the first quarter of 1997. The increase in service revenue
from the first quarter of 1996 to the first quarter of 1997 was primarily
attributable to increased sales of customer training and extended support
agreements.
Total North American revenue increased 43% from $2.8 million in the
first quarter of 1996 to $3.9 million in the first quarter of 1997. Total
revenue generated outside of North America decreased 10% from $2.2 million in
the first quarter of 1996 to $2.0 million in the first quarter of 1997. As a
percentage of the Company's total revenue, North American revenue increased from
56% in the first quarter of 1996 to 67% in the first quarter of 1997. The
increase in the proportion of revenue generated
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in North America was principally attributable to first customer shipments of
OrCAD Express and Capture Enterprise Edition. Conversely, the decrease in the
proportion of revenue generated outside of North America was due in part to the
typical slower initial adoption rate of new products in Europe and Asia.
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, hardware locks, shipping costs and royalties
paid to external developers. The cost of product revenue increased 38% from
$447,000 in the first quarter of 1996 to $615,000 in the first quarter of 1997.
The increase was primarily attributable to an increased level of product sales,
increased royalty costs associated with Capture Enterprise Edition, and
non-recurring commissions payable to a North American reseller. As a percentage
of product revenue, cost of product revenue increased from 11% in the first
quarter of 1996 to 12% in the first quarter of 1997. This increase was primarily
the result of the associated royalty costs for Capture Enterprise Edition and
commissions payable to a North American reseller.
The cost of service revenue includes the costs of providing software
maintenance, such as technical support, software revision releases and updated
user documentation, and the costs of providing training. The cost of service
revenue increased 4% from $165,000 in the first quarter of 1996 to $171,000 in
the first quarter of 1997. 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 extended support agreement sales. As a
percentage of service revenue, the cost of service revenue decreased from 24% in
the first quarter of 1996 to 18% in the first quarter of 1997. This decrease
reflects the absorption of a relatively small increase in cost of service
revenue in the first quarter of 1997 as compared to the first quarter of 1996
over a higher service revenue base.
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 28% from $1.0 million
in the first quarter of 1996 to $1.3 million in the first quarter of 1997. The
increase in research and development expenses was attributable to increased
personnel costs, including costs associated with increased headcount,
recruiting, relocation and the engagement of contract engineers. As a percentage
of total revenue, research and development expenses increased from 20% in the
first quarter of 1996 to 22% in the first quarter of 1997. 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 20% from $1.7 million in the first quarter of 1996 to $2.0
million in the first quarter of 1997. The increase was principally
attributable to increased compensation expenses related to growth in the direct
telesales organization, increased headcount
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for marketing personnel, and increased promotional expenses primarily associated
with two new product offerings during the quarter. As a percentage of total
revenue, marketing and sales expenses remained constant at 34% from the first
quarter of 1996 to the first quarter of 1997. 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 1% from
$756,000 in the first quarter of 1996 to $765,000 in the first quarter of 1997.
As a percentage of total revenue, general and administrative expenses decreased
from 15% in the first quarter of 1996 to 13% in the first quarter of 1997.
OTHER INCOME, NET
Other income increased to $367,000 in the first quarter of 1997, as
compared to $110,000 in the first quarter of 1996. This improvement resulted
primarily from higher interest income earned on increased cash and cash
equivalents and short-term investment balances resulting from the proceeds of
the Company's initial public offering completed in March 1996.
INCOME TAX EXPENSE
The effective tax rate for the first quarter of 1997 was 35.0%, which
differs from the combined federal and state statutory rate of approximately
38.5% because of the utilization of net operating loss carryforwards, the
utilization of research and experimentation tax credits, and the benefit of the
Company's foreign sales corporation. Income tax expense for the first quarter of
1997 was $491,000 as compared to $184,000 for the first quarter of 1996. The
increase in income tax expense is due to higher income before income taxes and a
higher estimated effective tax rate in the first quarter of 1997 as compared to
the same period in 1996. The increase in the estimated effective tax rate in the
first quarter of 1997 is primarily due to the utilization of net operating loss
carryforwards in 1996.
ACQUISITIONS
In April 1997, the Company acquired certain technology and sales
personnel from TEAM Corporation for approximately $2.0 million. The cost of the
acquisition is being allocated on the basis of the fair value of the assets
acquired. This allocation is expected to result in a charge for in-process
research and development of approximately $1.8 million in the second quarter of
1997. The charge for in-process research and development will result from
allocating a portion of the acquisition cost to TEAM's in-process product
development that has not reached technological feasibility. In addition, there
are certain contingent amounts payable annually over the next three years based
on the achievement of specific revenue milestones.
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LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents were $20.6 million at March 31, 1997 as
compared to $20.3 million at December 31, 1996. Cash provided by operations was
$1.1 million for the first quarter of 1997 as compared to $1.4 million for the
first quarter of 1996. The decrease in cash provided by operations from the
first quarter of 1996 to the first quarter of 1997 was primarily due to an
increase in trade accounts receivable. Cash used in investing activities was
$739,000 for the first quarter of 1997 as compared to $4.3 million for the first
quarter of 1996. Purchases of investment securities with the proceeds of the
initial public offering in March 1996 accounted for a substantial portion of
cash used in investing activities in the first quarter of 1996. Cash used in
investing activities in the first quarter of 1997 was primarily comprised of
acquisitions of fixed assets.
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
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share".
This Statement establishes a different method of computing net income per share
than is currently required under the provisions of Accounting Principles Board
Opinion No. 15. Under SFAS No. 128, the Company will be required to present both
basic net income per share and diluted net income per share. Basic net income
per share is expected to be comparable or slightly higher than the currently
presented net income per share as the effect of dilutive stock options will not
be considered in computing basic net income per share. Diluted net income per
share is expected to be comparable or slightly lower than the currently
presented net income per share.
The Company plans to adopt SFAS No. 128 in the fourth quarter of 1997
and at that time all historical net income per share data presented will be
restated to conform to the provisions of this Statement.
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 certain portion of the Company's expenses varies with its
revenue.
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PART II - OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
During the first quarter of 1997, the Company sold securities without
registration under the Securities Act of 1933 (the "Securities Act") upon the
exercise of stock options granted under the Company's stock option plans. An
aggregate of 7,566 shares of Common Stock were issued at exercise prices ranging
from $.35 to $3.50. These transactions were effected in reliance upon Rule 701
promulgated pursuant to the authority of the Securities and Exchange Commission
under Section 3(b) of the Securities Act.
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
March 31, 1997.
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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: May 14, 1997 P. David Bundy
--------------
Vice President, Finance and Secretary
(Principal Financial and Accounting Officer)
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 20,628
<SECURITIES> 8,900
<RECEIVABLES> 4,329
<ALLOWANCES> 612
<INVENTORY> 429
<CURRENT-ASSETS> 34,713
<PP&E> 3,526
<DEPRECIATION> 1,874
<TOTAL-ASSETS> 39,474
<CURRENT-LIABILITIES> 4,656
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 34,751
<TOTAL-LIABILITY-AND-EQUITY> 39,474
<SALES> 5,902
<TOTAL-REVENUES> 5,902
<CGS> 786
<TOTAL-COSTS> 4,867
<OTHER-EXPENSES> (3)
<LOSS-PROVISION> (1)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,402
<INCOME-TAX> 491
<INCOME-CONTINUING> 911
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 911
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
