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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 0-27692
ORCAD, INC.
(EXACT NAME OF SMALL REGISTRANT IN ITS CHARTER)
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DELAWARE 5045 93-1062832
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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9300 S.W. NIMBUS AVENUE, BEAVERTON, OREGON 97008
(503) 671-9500
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 Par Value.
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 [ ]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB [ ]
State Registrant's revenues for its most recent fiscal year $20,906,543.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $52,699,879 as of March 1, 1997 based upon the last sales
price as reported by Nasdaq.
The number of common shares outstanding of the Registrant's Common Stock as
of March 1, 1997 was 6,689,468 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the annual meeting of
stockholders to be held June 19, 1997 are incorporated by reference into Part
III of this Report.
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ORCAD, INC.
1996 FORM 10-KSB
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business.................................................................... 1
Item 2. Properties.................................................................. 5
Item 3. Legal Proceedings........................................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......................... 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....... 6
Item 6. Selected Financial Data..................................................... 7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 7
Item 8. Financial Statements and Supplementary Data................................. 17
Item 9. Financial Disclosure........................................................ 34
PART III
Item 10. Directors and Executive Officers of the Registrant.......................... 34
Item 11. Executive Compensation...................................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 34
Item 13. Certain Relationships and Related Transactions.............................. 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............. 34
Signatures ............................................................................ 36
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PART I
ITEM 1. BUSINESS
OVERVIEW
OrCAD develops, markets and supports Microsoft Windows-based electronic
design automation("EDA") software products that assist electronics designers in
designing printed circuit boards ("PCBs"), field-programmable gate arrays
("FPGAs") and complex programmable logic devices ("CPLDs"). PCBs, FPGAs and
CPLDs are found in a majority of today's electronic products, and are often
referred to as "mainstream" components. The Company believes that by using
OrCAD's products, electronics designers working on personal computers ("PCs")
can reduce time to market, improve product capability, and reduce design costs.
OrCAD's Windows-based EDA solutions support the design process for mainstream
components, from schematic capture to programmable logic design and verification
to printed circuit board layout. Over 200,000 products bearing the OrCAD name
have been sold worldwide since 1986.
INDUSTRY BACKGROUND
During the last two decades, there has been considerable growth in a wide
variety of electronics markets, including those for telecommunications
equipment, computers, and consumer electronics products. According to a 1995
report from market research firm Dataquest, the broad electronic equipment
market is expected to reach $1 trillion by 1998. Advances in electronics
technology have enabled the development of products with significantly greater
functionality, lower cost, and smaller size. The electronic functionality of
these products today is contained in multiple, diverse integrated circuits
("ICs") combined into electronic subsystems on one or more PCBs. While extremely
complex components such as microprocessors, memory, and custom digital signal
processors are central to a number of these subsystems, most subsystems are
primarily composed of mainstream components. Competitive pressures and the
proliferation of programmable logic devices and PCBs in product design have led
to increasing demand for lower cost, easier-to-use solutions for design
engineers creating mainstream components. The complexity of FPGAs and PCBs is
continuously increasing as electronics manufacturers seek to increase
functionality and reduce product cost and size. This increasing complexity is
demonstrated by comparing today's mainstream designs to those of twenty years
ago. Early programmable devices typically contained fewer than 100 gates, had
speeds of less than 20 MHz, and required power at 5 volts. Today's mainstream
FPGAs are full-scale systems on chips, typically ranging in size from a few
thousand to 20,000 gates and operating at 50 to 100 MHz and 3.3 volts.
Similarly, twenty years ago, PCBs were typically double-sided boards with a few
hundred components, and ran at relatively low speeds. Today's mainstream PCBs
may be multi-layer boards containing up to a thousand components and driven by
high speed (> 50 MHz) microprocessors. The Company believes that the majority of
manufacturers' electronic design-starts today involve these mainstream types of
FPGAs, CPLDs, and PCBs. Today's Intel PCs running Windows are increasingly
powerful and easy to use, and are ideal for most of today's electronics design
activities.
PRODUCTS
OrCAD's Design Desktop for Windows is a family of products designed as
32-bit applications, each of which operates in an integrated fashion with other
applications for Microsoft Windows.
OrCAD Capture for Windows is a 32-bit schematic capture tool that enables
the acceleration of the engineer's overall design process for both FPGA and PCB
design. Its integrated design management tools allow design engineers to browse
their schematic database to find and edit objects, and to reuse portions of
their designs. OrCAD Capture for Windows includes: (i) a schematic editor
designed to speed the drawing of complex schematics; (ii) a part editor that
allows designers to modify any of the more than 20,000 included parts, or to
create new ones easily; (iii) an electrical rules checking program that detects
and flags common design errors on the schematic page; and (iv) features to
produce output such as netlists, bills of materials and design documentation.
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Capture Enterprise Edition adds to Capture a design data and library
management tool developed by Q Point Technology, Inc. This tool links parts
placed in an OrCAD Capture for Windows design with the information in the
manufacturers' internal part databases, which increases the ease and efficiency
of part selection for the designer and transfers all information necessary to
create correct bills of material and netlists to capture schematics.
OrCAD Simulate for Windows is a gate-level simulator developed specifically
for FPGA design. It supports the architecture of leading FPGA and CPLD vendors,
including among others Actel, Advanced Micro Devices, Altera, Lattice
Semiconductor and Xilinx. OrCAD Simulate for Windows supports industry standards
for data exchange including VHDL (VITAL/SDF), Open PLA and EDIF 2 0 0, and
direct import of Xilinx XNF, which in turn provides for complete logic and
timing simulation for popular FPGAs and ensures reusability of design data.
The OrCAD Layout for Windows family of products allows rapid completion of
most mainstream PCBs. OrCAD Layout for Windows' 16-layer autorouter applies
proprietary "push and shove" technology to enable high density routing. The
Company's interactive routing gives design engineers the power of
"user-assisted" autorouting to precisely control critical routes. OrCAD Layout
Plus for Windows adds shape-based autorouting, automatic cluster placement,
component push-and-shove, auto-interactive placement, auto-path completion and
single-layer autorouting. OrCAD Layout Ltd. for Windows, used for simple PCB
designs, is a component and connection limited version of OrCAD Layout for
Windows without autorouting or autoplacement.
OrCAD Express for Windows is a complete design environment for the design
of FPGAs and CPLDs. It integrates VHDL, schematic, and mixed-mode design entry,
simulation and synthesis into a single application. With OrCAD Express for
Windows, engineers can design board-level systems with FPGSs and CPLDs from
OrCAD Solution Partners Xilinx, Altera, Lattice Semiconductor, Actel, and
Vantis.
OrCAD's integrated solutions address the entire process for designing PCBs
and programmable logic devices. The Company's products are intended to be
intuitive and relatively easy to use by a broad range of electronics designers.
The Company's products include extensive on-line help and tutorials to help
design engineers become productive quickly, often within just a few days. In
addition, the Company's products feature a familiar Windows user interface and
can be used with other Windows applications, such as Microsoft Word and
Microsoft Excel. This eliminates the need for separate platforms for design and
office automation applications. In addition, OrCAD software can be linked to
place-and-route software from the leading vendors of programmable logic.
The Company believes that the desktop EDA market is at the beginning of a
trend toward greater use of the Microsoft Windows operating systems, and
anticipates that the use of Windows-based products in such market will grow and
expand. Accordingly, all of the new products introduced by the Company during
its preceding and current fiscal year, and all of the products the Company is
currently developing, are designed for use on Microsoft's Windows NT and Windows
95 operating systems. Any factor adversely affecting the demand for, or use of,
the Microsoft Windows operating systems, for EDA applications or in general,
could result in a material adverse effect on the Company's business, financial
condition and results of operations.
Software products as complex as those offered by the Company may contain
defects or failures when introduced or when new versions are released. The
Company has in the past discovered software defects in certain of its products
and may experience delays or lost revenue to correct such defects in the future.
There can be no assurance that, despite testing by the Company, errors will not
be found in new products or versions after commencement of commercial shipments,
resulting in loss of market share or failure to achieve market acceptance. Any
such occurrence could have a material adverse effect upon the Company's
business, financial condition or results of operations.
MARKETING AND SALES
The Company markets and sells its products in North America directly
through its marketing and telesales organizations, which is supplemented by a
field sales force. The Company designs its marketing
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programs to reinforce the recognition of its brand through integrated
advertising, direct mail, electronic marketing, and other promotional
activities. The Company's sales effort is designed to capture, qualify and
respond effectively to the leads generated by the marketing programs. The
Company also generates leads through customer and consultant references. To
effectively target and measure all of these efforts, the Company has invested in
an information system that tracks contacts with customers and prospects. The
Company's distribution strategy is intended to address the mainstream electronic
design market in a productive, cost-effective manner. The Company believes that
its direct field sales force will allow it to better meet the unique buying
requirements of management in large organizations. The Company intends to use
its penetration at the individual and group level in large organizations to help
achieve enterprise-wide standardization on its products.
The Company maintains an ongoing program of market research based on
industry reports, customer input, surveys, and frequent communication with VARs.
This research helps the Company to set priorities for product development,
technical support, and other functional areas. Trade shows and the Company's
training classes provide additional means of soliciting customer feedback.
Direct Sales. The Company's direct sales effort consists primarily of a
telesales force supplemented with a targeted field sales presence. Telesales are
typically generated by inbound inquiries stimulated by the Company's marketing
programs, additional sales to existing customers, and references from customers.
The Company believes telesales has been a cost-effective means of distributing
its products and gaining customer acceptance. The Company believes that its
direct field sales force will allow it to better meet the unique requirements of
selling directly to management at large organizations.
Indirect Sales. The Company's VARs are a key component of the Company's
sales and marketing strategy in international markets, outside of Japan. VARs
provide local technical support and local language documentation, and run a
variety of direct marketing programs that build on materials developed for the
North American direct marketing efforts. The Company derived approximately $8.2
million, $4.1 million and $3.9 million, or approximately 39%, 30% and 39% of its
total revenue, from international sales in 1996, 1995 and 1994, respectively.
The Company believes that international sales will increase as a percentage of
total revenue as the Company extends its international coverage. Substantially
all of the Company's international revenue to date has been derived from
indirect sales made by its VARS and Japanese distributor. For distribution in
Japan, the Company purchased its Japanese distributor in 1995 to increase its
direct presence in that country. Beyond North America and Japan, the Company
distributes its products through leading EDA value-add resellers (VARs).
Because the Company's products are used by highly skilled professional
engineers, effective VARs must possess sufficient technical, marketing and sales
resources and must devote these resources to sales efforts, customer education,
training and support. Only a limited number of potential VARs possess these
criteria. There can be no assurance that the Company will be able to attract and
retain a sufficient number of qualified VARs to successfully market the
Company's products, and the failure to do so would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's relationship with its VARs is usually established through a formal
reseller agreement, which generally may be terminated by either party at any
time without cause. There can be no assurance that any VAR will continue to
represent the Company's products, and the inability to retain VARs could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Strategic Relationships. The Company has strategic relationships with and
works closely with other companies to develop and market their products and to
provide customers with application-specific solutions. In addition, the Company
has developed relationships with a number of FPGA and CPLD vendors such as
Actel, Altera, Lattice Semiconductor, Vantis, and Xilinx for the purpose of
marketing integrated solutions to joint prospects and customers.
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SERVICE AND SUPPORT
The Company believes that to compete in the desktop EDA marketplace, it
must provide a unique variety of support services, including customer service,
software implementation, technical support, training and consulting service
referrals.
The Company offers product support agreements that include product updates,
access to electronic bulletin board services, newsletters and technical support
available by telephone, fax, electronic mail and through its World Wide Web
page. The Company has created programs for both in-house and on-site training
for all products. In North America, OrCAD has developed a strong technical
support capability comprised primarily of electrical engineers who understand
the customers' design processes and OrCAD's products. Internationally, OrCAD
Japan and VARs provide support to OrCAD customers. In addition, the Company's
technical support resources are available to support OrCAD Japan and VARs.
PRODUCT DEVELOPMENT
The Company's product development process is customer-centric, led by a
product marketing group which researches customer requirements, and supported by
research and development, test, and documentation teams which develop the
Company's products. General technology directions for the Company's future
developments include productivity improvements for target applications;
language-based design and synthesis; component-informations systems development
and support for advanced PCB routing technology. The Company has a highly
productive Windows, C++ development environment, in which it develops its
products using Microsoft Foundation Class UI objects. As of December 31, 1996,
there were 47 people in the above mentioned groups. In 1996, 1995 and 1994, the
Company invested 21%, 26% and 30% of revenue, respectively, in research and
development. All software development costs are expensed as incurred.
The EDA industry is characterized by rapid technological change, frequent
new product introductions, evolving industry standards, and changing customer
requirements. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
un-marketable. The Company believes that it must continue to commit substantial
resources to product development and, that its future success will depend on its
continued ability to enhance its current products and to develop or acquire new
products that keep pace with technological developments, emerging industry
standards and changing customer requirements. There can be no assurance that the
Company will be successful in developing and marketing any such new products or
product enhancements, or that such new products and enhancements will adequately
meet the requirements of the marketplace and achieve market acceptance. In the
past, the Company has experienced delays in its introduction of product
enhancements and new products. If the Company is unable, for technological or
other reasons, to develop and introduce products in a timely manner in response
to changing market conditions or customer requirements, the Company's business,
financial condition and results of operations will be materially and adversely
affected.
COMPETITION
The EDA industry is highly competitive. The Company currently competes in
the desktop EDA market directly with Viewlogic, which offers Windows and
UNIX-based products. The Company also faces competition from larger vendors of
traditional UNIX-based EDA products. Some of these companies, such as Cadence,
Mentor Graphics and others, have announced Windows products. OrCAD also competes
with smaller, privately held companies. A number of the Company's competitors
have significantly greater financial, technical and marketing resources than the
Company, and strong name recognition. There can be no assurance that these
competitors will not use their superior resources and visibility, and installed
customer bases, to successfully develop better products and/or market their
products more effectively than those of the Company. In particular, as a result
of the wide acceptance of UNIX-based EDA tools, vendors of such tools have
established long-term relationships with many of the Company's current and
potential customers, and may have the ability to offer these customers a broad
suite of Windows and UNIX-based products to satisfy the entire range of their
design needs. Finally, in addition to competition from EDA software vendors, the
Company faces competition from the internal design groups of many of its
customers, who design and develop
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their own customized schematic capture, simulation or synthesis tools for their
own particular needs and therefore may be reluctant to purchase products offered
by the Company or other independent vendors. There can be no assurance that the
Company will be able to convert such internal design groups into users of the
Company's products. More generally, there can be no assurance that the Company
will be able to compete successfully against current and future competitors,
both direct and indirect, or that competitive pressures faced by the Company
will not materially adversely affect its business, financial condition and
results of operations.
PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary software
technology. The Company currently relies on a combination of trade secret,
copyright and trademark laws, and contractual provisions to protect its
proprietary rights in its software products. The Company also ships its software
with a security device to all customers outside the U.S. and Canada. The Company
generally enters into proprietary information and confidentiality agreements
with its employees and distributors, and limits access to and distribution of
its software, documentation and other proprietary information. The Company does
not license or release the source code for its proprietary software to its
customers, except in connection with OEM development agreements. Despite these
precautions, there can be no assurance that a third party will not copy or
otherwise obtain and use the Company's products or technology without
authorization, or develop similar or superior technology independently. In
particular, the Company distributes its products pursuant to "shrink-wrap"
licenses. There can be no assurance that such licenses are enforceable.
In addition, effective copyright and trade secret protection may be
unavailable or limited in certain foreign countries. Although the Company
believes that its products do not infringe on the proprietary rights of third
parties, and although the Company has received no communications from third
parties alleging the infringement of the proprietary rights of such parties,
there can be no assurance that infringement claims will not be asserted against
the Company in the future and that any such claims will not require the Company
to enter into costly litigation. Irrespective of the validity or the successful
assertion of such claims, any such litigation could result in significant
diversions of effort by the Company's technical and management personnel, as
well as the Company's incurring significant costs with respect to the defense
thereof, and could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, if any claims or
actions are asserted against the Company, the Company may choose to or be
required to obtain a license under a third party's intellectual property rights.
There can be no assurance that under such circumstances a license would be
available upon reasonable terms or at all.
EMPLOYEES
As of December 31, 1996, the Company had 123 employees, including 61 in
marketing and sales, 40 in research and development and 22 in general and
administrative capacities. Of these, 111 are located at the Company headquarters
in Beaverton, Oregon, and 12 are located at the Company's subsidiary in
Yokohama, Japan. None of the Company's employees is represented by a labor union
or is subject to a collective bargaining agreement. The Company believes that
its employee relations are good.
The Company's future success depends in significant part upon the continued
service of its key senior management and technical personnel. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key employees or that it can attract, assimilate or retain other highly
qualified personnel in the future.
ITEM 2. PROPERTIES
The Company occupies approximately 32,000 square feet of space at its
headquarters in Beaverton, Oregon under a lease expiring in 2001, subject to
OrCAD's right to extend. In 1995, the Company exercised an option to rent an
additional 7,780 square feet of space in the same building, which is being
sublet through June 1997. The Company's subsidiary in Japan leases approximately
3,000 square feet of space at its
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Yokohama, Japan office. The Company believes that its existing facilities,
including expansion options, are adequate for its current needs and that
suitable additional space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company becomes involved in ordinary, routine or
regulatory legal proceedings incidental to the business of the Company. The
Company is not presently a party to any litigation, the outcome of which would
have a material adverse effect on the Company's business, financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the 1996 calendar year
to a vote of security holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq National Market
System under the symbol "OCAD" on March 1, 1996. As of March 1, 1997 there were
105 stockholders of record of the Company's Common Stock. The Company has never
declared or paid cash dividends on its Common Stock. The Company currently
intends to retain the earnings from operations for use in the operation and
expansion of its business and does not anticipate paying cash dividends with
respect to the Common Stock in the foreseeable future. The following table sets
forth, for the periods shown, the range of high and low closing prices for the
Company's Common Stock on the Nasdaq National Market System.
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MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
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Common Stock Price:
High............................................... $ 13.00 $16.25 $ 15.00 $11.50
Low................................................ $ 10.75 $11.00 $ 8.38 $ 8.38
</TABLE>
During 1996, 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 193,946 shares
of Common Stock were issued at exercise prices ranging from $.35 to $7.88. 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.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
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YEAR ENDED DECEMBER 31,
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1996 1995 1994 1993 1992
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENTS OF OPERATIONS:
Revenue:
Products................................ $17,822 $10,627 $8,020 $ 7,874 $ 7,960
Service................................. 3,085 3,032 1,792 662 942
------- ------- ------ ------- -------
Total revenue................... 20,907 13,659 9,812 8,536 8,902
Cost and expenses:
Cost of sales -- products............... 1,771 1,587 1,713 1,708 1,936
Cost of sales -- service................ 727 488 387 347 375
Research and development................ 4,286 3,561 2,907 4,140 4,468
Marketing and sales..................... 7,079 4,934 3,569 3,442 2,514
General and administrative.............. 3,063 1,904 1,363 962 1,945
In-process research and development..... -- 971 -- -- --
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Total cost and expenses......... 16,926 13,445 9,939 10,599 11,238
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Income (loss) from operations............. 3,981 214 (127) (2,063) (2,336)
Other income, net......................... 1,272 105 156 122 245
------- ------- ------ ------- -------
Income (loss) before taxes................ 5,253 319 29 (1,941) (2,091)
Income tax expense........................ 1,051 4 -- -- --
------- ------- ------ ------- -------
Net income (loss)......................... $ 4,202 $ 315 $ 29 $(1,941) $(2,091)
======= ======= ====== ======= =======
Net income (loss) per share............... $ .63 $ .07 $ .01 $ (.99) $ (1.05)
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Weighted average number of common and
common equivalent shares outstanding.... 6,618 4,775 4,211 1,960 1,986
</TABLE>
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DECEMBER 31,
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1996 1995
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents................................................ $20,308 $ 2,080
Working capital.......................................................... 29,645 1,611
Total assets............................................................. 38,250 10,665
Total stockholders' equity............................................... 33,934 6,114
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Annual Report contain
forward-looking statements within the meaning of the Securities Litigation
Reform Act of 1995 that involve risks and uncertainties. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"
and variations of such words and similar expressions are intended to identify
such forward-looking statements. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in
"Quarterly Results of Operations" as well as those discussed in this section and
elsewhere in this Annual Report, and other risks detailed from time to time in
the Company's Securities and Exchange Commission reports. The industry in which
the Company competes and the markets that it serves are highly cyclical. The
Company is dependent upon the semiconductor and, more generally, the computer
and electronics industries. Each of these industries is characterized by rapid
technological change, short product life cycles, fluctuations in manufacturing
capacity and pricing and gross margin pressures. Segments of these industries,
in each of the United States, Europe and Japan, have from time to time
experienced
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significant economic downturns characterized by decreased product demand,
reductions in capital expenditures, production over-capacity, price erosion,
work slowdowns and layoffs. In addition, portions of these industries have
experienced downturns at different times. Over the past few years, these
industries have experienced an extended period of significant economic growth in
North America, although in Europe and Japan the growth of such industries has
been flat. There can be no assurance that such economic growth in North America
will continue, and if it does not, any downturn could be especially severe. The
Company's operations may in the future reflect substantial fluctuations from
period to period as a consequence of such industry patterns, general economic
conditions affecting the timing of orders from major customers, and other
factors affecting capital spending. There can be no assurance that such factors
will not have a material adverse effect upon the Company's business, financial
condition and results of operations.
OVERVIEW
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. From 1993 to 1994,
OrCAD upgraded its entire DOS product family to the 386+ series, intended for
optimal performance with PCs based on Intel 386 and 486 microprocessors. 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 six months of 1995, OrCAD earned substantially all
of its revenue from its DOS-based EDA products. For the year ended December 31,
1996, Windows-based products accounted for more than 90% of the Company's total
revenue.
In June 1995, the Company acquired Massteck Ltd., a developer of
Windows-based PCB layout technology. This acquisition enabled the Company to
introduce the OrCAD Layout for Windows product family in June 1995,
simultaneously with the release of OrCAD Capture for Windows. In December 1995,
OrCAD acquired Intelligent Systems Japan (ISJ), the Company's distributor in
Japan since 1991. The entity is now known as OrCAD Japan, K.K., and operates as
a wholly owned subsidiary of the Company.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected items of
the Company's statements of operations as a percentage of its total revenue:
<TABLE>
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YEAR ENDED DECEMBER
31,
---------------------
1996 1995 1994
--- --- ---
<S> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Products............................................................. 85% 78% 82%
Service.............................................................. 15 22 18
--- --- ---
Total revenue.......................................................... 100 100 100
Cost and expenses:
Cost of sales -- products............................................ 8 11 17
Cost of sales -- service............................................. 3 4 4
Research and development............................................. 21 26 30
Marketing and sales.................................................. 34 36 36
General and administrative........................................... 15 14 14
In-process research and development.................................. -- 7 --
--- --- ---
Total cost and expenses................................................ 81 98 101
--- --- ---
Income (loss) from operations.......................................... 19 2 (1)
Other income, net...................................................... 6 -- 1
--- --- ---
Income before taxes.................................................... 25 2 --
Income tax expense..................................................... 5 -- --
--- --- ---
Net income............................................................. 20% 2% --%
=== === ===
</TABLE>
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenue
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, technical support, bulletin board services and a
subscription to the OrCAD Design 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 53% to $20.9 million in 1996 from $13.7 million in
1995. Total revenue increased 39% in 1995 from $9.8 million in 1994. These
increases were due to growth in both product revenue and service revenue. As a
percentage of total revenue, product revenue increased to 85% in 1996 from 78%
in 1995 and 82% in 1994. Conversely, service revenue decreased as a percentage
of total revenue to 15% in 1996 from 22% in 1995 and 18% in 1994.
Product revenue increased 68% to $17.8 million in 1996 from $10.6 million
in 1995. Product revenue increased 33% in 1995 from $8.0 million in 1994. The
acquisition of OrCAD Japan accounted for approximately $3.2 million of the $7.2
million increase in product revenue in 1996. The remaining increase in product
revenue in 1996 was primarily attributable to growth in sales of OrCAD Design
Desktop for Windows, particularly in the PCB layout and simulation product
lines. The increase in 1995 was primarily due to increased revenue from sales of
the recently introduced OrCAD Design Desktop for Windows product family at
generally higher average selling prices than for previous products, and the
recognition of revenue previously deferred until the release of OrCAD Capture
for Windows, partially offset by decreased revenue from sales of
9
<PAGE> 12
DOS-based products. In 1994, the Company began selling its "Capture Upgrade,"
consisting of a product support agreement for SDT 386+ and the right to upgrade
to OrCAD Capture for Windows at no further charge. No product revenue from the
Capture Upgrade was recognized in 1994, although a portion of the revenue was
deferred until the release of OrCAD Capture for Windows. In addition, to the
extent the Company sold upgrades to its Windows-based products rather than the
new products themselves, product revenue in 1995 was less than it otherwise
might have been because upgrades have significantly lower average selling prices
than new products and a higher proportionate service revenue content.
Service revenue increased 2% to $3.1 million in 1996 from $3.0 million in
1995. Service revenue increased 69% in 1995 from $1.8 million in 1994. The
higher increase in product revenue in 1996 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. The increase in
service revenue in 1995 as a percentage of total revenue was primarily
attributable to a shift in product mix from new product sales to upgrade sales.
This shift resulted in increased service revenue because a higher proportion of
revenue from sales of upgrade products is generally allocated to and deferred as
service revenue than for new product sales.
Total North American revenue increased 34% to $12.7 million in 1996 from
$9.5 million in 1995. Total revenue generated outside North America increased
98% to $8.2 million in 1996 from $4.1 million in 1995. Total North American
revenue increased 60% to $9.5 million in 1995 from $6.0 million in 1994. Total
revenue generated outside North America remained relatively constant from 1994
to 1995, at $3.9 million and $4.1 million, respectively. As a percentage of the
Company's total revenue, revenue generated outside North America increased to
39% in 1996 from 30% in 1995 and decreased to 30% in 1995 from 39% in 1994. The
increase in the proportion of revenue generated outside of North America was
principally attributable to the acquisition of OrCAD Japan. In 1995 the
Company's sales to OrCAD Japan, which was the Company's distributor until
December 2, 1995, amounted to approximately 8% of total revenue. In 1996, sales
by OrCAD Japan amounted to approximately 21% of total revenue. This increase in
revenue attributable to OrCAD Japan 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 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. The greater proportion of North
American revenue to total revenue in 1995 was attributable to the earlier
releases of the Company's new Windows-based products in the North American
market. In addition, the Company's North American customer base traditionally
has adopted new products earlier than its international customer base.
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 12% to $1.8
million in 1996 from $1.6 million in 1995. The cost of product revenue decreased
7% to $1.6 million in 1995 from $1.7 million in 1994. The increase in cost of
product revenue in 1996 is primarily due to an increased level of product sales
partially offset by lower royalty costs resulting from the Company's purchase of
source code previously licensed from outside developers, and the Company's
decision to develop Windows-based products internally rather than through
outside developers, as well as to reduced expenditures for software
documentation and packaging. As a percentage of product revenue, cost of product
revenue decreased to 10% in 1996 from 15% in 1995 and from 21% in 1994. 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 technical support, software revision releases and updated
user documentation, and the costs of providing training. The cost of service
revenue increased 49% to $727,000 in 1996 from $488,000 in 1995. The cost of
service revenue increased 26% to $488,000 in 1995 from 387,000 in 1994. Both
increases reflected increased service obligations as a result of increased
training, product, upgrade and product support agreement sales. As a percentage
of service revenue, cost of service revenue increased to 24% in 1996 from 16% in
1995 and from 22% in 1994.
10
<PAGE> 13
This increase reflected the absorption of relatively fixed costs and costs of
increased technical support personnel in 1995 and 1996 over a relatively
constant 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 20% to $4.3 million in
1996 from $3.6 million in 1995. Research and development expenses increased 22%
to $3.6 million in 1995 from $2.9 million in 1994. The increase in research and
development expenses in 1996 was primarily attributable to increased headcount
largely resulting from the acquisitions of OrCAD Japan and Massteck, partially
offset by a reduction in costs for engineering consultants. The increase in
research and development expenses in 1995 over the same period a year earlier
was attributable to increased personnel costs, including costs associated with
increased headcount and the engagement of engineering consultants. As a
percentage of total revenue, research and development expenses decreased to 21%
in 1996 from 26% in 1995 and from 30% in 1994. 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 43% to $7.1 million in 1996 from $4.9 million in 1995.
Marketing and sales expenses increased 38% to $4.9 million in 1995 from $3.6
million in 1994. The growth in marketing and sales expenses in 1996 was
primarily attributable to increased compensation expense related to the growth
in the direct telesales organization and increased headcount for marketing
personnel, the acquisitions of OrCAD Japan and Massteck, and greater marketing
related activities. The Company incurred approximately $338,000 in additional
expenses in 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. The increase in sales and marketing expenses in 1995
was principally attributable to increased personnel costs, including costs
associated with increased headcount and compensation expenses related to growth
in the direct telesales organization and the establishment of a direct field
sales force. As a percentage of total revenue, marketing and sales expenses
decreased to 34% in 1996 from 36% in 1995 and 1994. 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 61% to $3.1
million in 1996 from $1.9 million in 1995. General and administrative expenses
increased 40% to $1.9 million in 1995 from $1.4 million in 1994. The increase in
general and administrative expenses in 1996 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 $493,000 of general and administrative expenses in 1996. The
increase in general and administrative expenses in 1995 was attributable to
expenses incurred as the Company built a more sophisticated information systems
infrastructure. As a percentage of total revenues, general and administrative
expenses increased to 15% in 1996 from 14% in 1995 and 1994. The Company expects
general and administrative expenses to continue to increase in absolute terms to
support the growth in operations and the additional costs associated with being
a public company.
11
<PAGE> 14
In-Process Research and Development
In connection with the Company's acquisition of Massteck in 1995, the
Company expensed approximately $971,000 of in-process research and development
costs associated with certain Windows-based PCB layout technology which had not
yet reached technological feasibility.
Other Income, Net
Other income, net consists of interest income, gains and losses on the
disposal of property and equipment, sublease income, royalty income and foreign
currency gains and losses. Interest income consists primarily of the earnings on
available cash balances and marketable securities, which have generally been
invested in short-term money market investments, treasury bills and corporate
debt securities. Other income, net increased to $1.3 million in 1996 from
$105,000 in 1995 and from $156,000 in 1994. The increase in other income, net in
1996 was almost entirely from higher interest income earned on increased cash
and marketable securities balances generated from the initial public offering
completed in March 1996. The decrease in other income, net from 1994 to 1995 was
due primarily to the completion in 1994 of the payments associated with the VHDL
modeling division divestiture.
Income Taxes
The Company's effective tax rate for 1996 was 20.0%, 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. The Company incurred net
losses through 1994 for tax purposes and consequently paid no income taxes
through that year. Due to these losses, the Company had federal and state net
operating loss carryforwards for tax purposes of approximately $1.5 million and
$1.2 million as of December 31, 1996, respectively. These carryforwards expire
from 2006 through 2009. Net operating loss carryforwards were used to offset
taxes payable on 1995 net income.
QUARTERLY RESULTS OF OPERATIONS
The Company's quarterly operating results have in the past varied and may
in the future vary significantly 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. In particular, the Company's quarterly operating results
have in the past fluctuated as a result of the timing of the introduction of new
products to the market, with customers waiting to place orders until new
products became available. The Company's quarterly operating results have also
fluctuated as a result of seasonality of customer buying patterns. A substantial
portion of the Company's revenue in each quarter results from orders booked in
that quarter. Revenue from quarter to quarter is difficult to forecast, as
minimal backlog exists at the end of any quarter because the Company's products
typically are shipped and revenue recognized promptly after receipt of
customers' orders. 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. The Company has
recently experienced rapid growth and expansion. There can be no assurance that
the Company will be able to grow in future periods, that it will be able to
sustain its historical rate of revenue growth, or that its operations will
remain profitable. Due to the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
12
<PAGE> 15
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
------------------------------------------------------------------------------------
1996 1995
----------------------------------------- ----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- -------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Products...................... $4,248 $4,579 $4,537 $4,458 $2,076 $2,671 $2,714 $3,166
Service....................... 677 730 786 892 641 728 780 883
------ ------ ------ ------ ------ ------ ------ ------
Total revenue................... 4,925 5,309 5,323 5,350 2,717 3,399 3,494 4,049
Cost and expenses:
Cost of sales -- products..... 447 395 468 461 449 330 397 411
Cost of sales -- service...... 165 192 171 199 89 111 135 153
Research and development...... 1,005 1,150 1,067 1,064 773 934 915 939
Marketing and sales........... 1,695 1,813 1,829 1,742 937 1,232 1,171 1,594
General and administrative.... 756 741 743 823 395 430 447 632
In-process research and
development................. -- -- -- -- -- 971 -- --
------ ------ ------ ------ ------ ------ ------ ------
Total cost and
expenses............. 4,068 4,291 4,278 4,289 2,643 4,008 3,065 3,729
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations... 857 1,018 1,045 1,061 74 (609) 429 320
Other income (expense), net..... 110 367 411 384 (2) 10 44 53
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes...... 967 1,385 1,456 1,445 72 (599) 473 373
Income tax expense.............. 184 310 306 251 -- -- 1 3
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)............... $ 783 $1,075 $1,150 $1,194 $ 72 $ (599) $ 472 $ 370
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
------------------------------------------------------------------------------------
1996 1995
----------------------------------------- ----------------------------------------
MARCH 31 JUNE 30 SEPT.30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Total
Revenue:
Revenue:
Products...................... 86% 86% 85% 83% 76% 79% 78% 78%
Service....................... 14 14 15 17 24 21 22 22
--- --- --- --- --- --- --- ---
Total revenue.......... 100 100 100 100 100 100 100 100
Cost and expenses:
Cost of sales -- products..... 9 7 9 9 17 10 11 10
Cost of sales -- service...... 3 4 3 4 3 3 4 4
Research and development...... 20 22 20 20 28 27 26 23
Marketing and sales........... 34 34 34 33 34 36 34 39
General and administrative.... 15 14 14 15 15 13 13 16
In-process research and
development................. -- -- -- -- -- 29 -- --
--- --- --- --- --- --- --- ---
Total cost and
expenses............. 81 81 80 81 97 118 88 92
--- --- --- --- --- --- --- ---
Income (loss) from operations... 19 19 20 19 3 (18) 12 8
Other income (expense), net..... 2 7 8 7 -- -- 1 1
--- --- --- --- --- --- --- ---
Income (loss) before taxes...... 21 26 28 26 3 (18) 13 9
Income tax expense.............. 4 6 6 5 -- -- -- --
--- --- --- --- --- --- --- ---
Net income (loss)............... 17% 20% 22% 21% 3% (18%) 13% 9%
=== === === === === === === ===
</TABLE>
The Company's total revenue increased each quarter in 1996. The decline in
product revenue in the third and fourth quarters of 1996 was primarily due to a
higher proportion of product support agreement sales, reflecting renewals of
product support agreements and a general increase in the Company's installed
base. Total revenue and product revenue increased each quarter in 1995. Total
revenue and product revenue
13
<PAGE> 16
increased substantially in the second quarter of 1995, reflecting the release in
June 1995 of the first two OrCAD Design Desktop for Windows products -- OrCAD
Capture for Windows and the OrCAD Layout for Windows product family. Revenue
from these products resulted both from new sales during the quarter and from
revenue previously deferred on sales of the Capture Upgrade. Revenue also
increased significantly in the first quarter of 1996 primarily due to the
acquisition of OrCAD Japan in December 1995. Service revenue increased in each
quarter in 1996 and 1995, with the exception of the decline in the first quarter
of 1996. The decline in service revenue in the first quarter of 1996 was
primarily due to an increase in sales of Windows-based products, a higher
proportion of which are recognized as product revenue.
The cost of revenue has varied on a quarterly basis as a result of a number
of factors, including differing margins and royalties payable to third parties,
costs associated with providing product updates under both product support
agreements and initial product warranties, discounts allowed on sales to the
Company's distributor in Japan in 1995 and commissions paid to VARs. The cost of
revenue as a percentage of total revenue reflects a general downward trend in
the cost of revenue through the second quarter of 1996. The cost of revenue as a
percentage of total revenue in the first quarter of 1995 reflects the relatively
higher sales of lower margin products and royalty payments to third parties. The
subsequent decrease in the second quarter of 1995 reflects the elimination of
royalties formerly paid to Massteck as a result of the Massteck acquisition and
the discontinuation of a low margin OEM product family.
Operating expenses have generally increased in absolute terms as the
Company has increased expenditures and staffing in its research and development,
sales and marketing, and general and administrative functions. In particular,
personnel were added to research and development to accelerate the completion of
the OrCAD Design Desktop for Windows product family, supplemented by consultants
in various quarters. The Company also added personnel to marketing and sales to
create and expand its direct telesales organization and more recently its direct
field sales force for strategic accounts. In addition, the occurrence of major
tradeshows and associated product release publicity expenditures caused
marketing and sales expenses to increase substantially in the second quarter of
1996 and 1995. The Company incurred an increase in sales and marketing expenses
due to certain promotional costs associated with the release of certain of the
Company's Windows-based products in the fourth quarter of 1995. The Company's
general and administrative expenses increased substantially in the fourth
quarter of 1996 due to the incurrence of a bad debt charge related to a
distributor in Japan. General and administrative expenses increased
substantially in the fourth quarter of 1995 as a result of the consolidation of
OrCAD Japan's operations with those of the Company.
PRO FORMA COMBINED QUARTERLY FINANCIAL DATA
The following table sets forth certain unaudited pro forma combined
quarterly financial data for each of the three-month periods in 1995. The pro
forma combined quarterly financial data assume (i) a business combination
between the Company and Massteck accounted for as a purchase, and (ii) a
business combination between the Company and ISJ accounted for as a purchase.
The pro forma combined financial data combine the Company's historical quarterly
unaudited statements of operations for each of the three-month periods in 1995
with Massteck's historical unaudited statements of operations for the
three-month period ended March 31, 1995 and two-month period ended May 31, 1995
and ISJ's historical quarterly unaudited statements of operations for each of
the three-month periods through September 30, 1995 and two-month period ended
December 1, 1995, as if the transactions were consummated at the beginning of
the year.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the operating results that would have occurred
if the combinations had been consummated at the beginning of the period
presented, nor is it necessarily indicative of future operating results.
14
<PAGE> 17
The pro forma combined financial data should be read in conjunction with
the historical financial statements of the Company and the related notes
thereto, included herein.
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
---------------------------------------------
1995
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Products............................................ $3,154 $ 3,434 $3,577 $ 3,733
Service............................................. 753 810 811 909
------ ------ ------ ------
Total revenue............................... 3,907 4,244 4,388 4,642
Cost and expenses:
Cost of sales -- products........................... 494 345 595 436
Cost of sales -- service............................ 145 154 148 162
Research and development............................ 915 1,043 960 984
Marketing and sales................................. 1,325 1,632 1,470 1,870
General and administrative.......................... 803 827 714 556
------ ------ ------ ------
Total cost and expenses..................... 3,682 4,001 3,887 4,008
------ ------ ------ ------
Income from operations................................ 225 243 501 634
Other income, net..................................... 63 11 44 56
------ ------ ------ ------
Income before taxes................................... 288 254 545 690
Income tax expense.................................... 121 52 72 120
------ ------ ------ ------
Net income............................................ $ 167 $ 202 $ 473 $ 570
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
---------------------------------------------
1995
---------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
<S> <C> <C> <C> <C>
As a Percentage of Total Revenue:
Revenue:
Products............................................. 81% 81% 82% 80%
Service.............................................. 19 19 18 20
--- --- --- ---
Total revenue................................ 100 100 100 100
Cost and expenses:
Cost of sales -- products............................ 13 8 14 9
Cost of sales -- service............................. 3 4 3 4
Research and development............................. 23 25 22 21
Marketing and sales.................................. 34 38 34 40
General and administrative........................... 21 19 16 12
--- --- --- ---
Total cost and expenses...................... 94 94 89 86
--- --- --- ---
Income from operations................................. 6 6 11 14
Other income, net...................................... 1 -- 1 1
--- --- --- ---
Income before taxes.................................... 7 6 12 15
Income tax expense..................................... 3 1 1 3
--- --- --- ---
Net income............................................. 4% 5% 11% 12%
=== === === ===
</TABLE>
15
<PAGE> 18
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 7.9:1 at December 31, 1996 from 1.4:1 at December 31, 1995.
Working capital improved to $29.6 million at December 31, 1996 from $1.6 million
at December 31, 1995.
The Company has available borrowing capacity consisting of a $3.0 million
line of credit from a commercial bank. As of December 31, 1996, there was no
indebtedness outstanding under this facility. 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 has no
significant capital commitments other than commitments under facility operating
leases. The Company has from time to time evaluated and continues to evaluate
opportunities for acquisitions and expansion and, consistent with this practice,
is currently engaged in preliminary discussions with other parties regarding
possible acquisitions. Any such transactions, if consummated, may use a portion
of the Company's working capital or necessitate additional bank borrowings. No
assurance can be given that additional borrowing capacity will be available or
that, if available, such financing will be obtainable on terms favorable to the
Company or its stockholders.
Cash and cash equivalents increased $18.2 million from December 31, 1995 to
December 31, 1996 and $1.5 million from December 31, 1994 to December 31, 1995.
Net cash of $4.9 million, $1.6 million, and $1.3 million was provided by
operations in 1996, 1995 and 1994, respectively. Net income accounted for a
substantial portion of the change in cash from operations from 1995 to 1996, and
net income, after consideration of the non-cash in-process research and
development charge, accounted for a substantial portion of cash from operations
in 1995. Purchases of investment securities with the proceeds of the initial
public offering and acquisitions of fixed assets accounted for a substantial
portion of the cash used in investing activities of $9.9 million in 1996. In
1995, cash provided by investing activities of $21,000 reflected cash acquired
in the acquisitions of OrCAD Japan and Massteck, partially offset by the
acquisition of fixed assets and intangibles. Acquisitions of fixed assets
accounted for a substantial amount of the cash used in investing activities of
$180,000 in 1994. Proceeds from the initial public offering accounted for nearly
all of the $23.3 million of cash generated from financing activities in 1996.
Cash used in financing activities in 1995 of $87,000 reflected payments on
capital lease obligations, partially offset by the proceeds from the issuance of
common stock. Borrowings and repayments under the Company's line of credit
accounted for a substantial portion of the $825,000 used in financing activities
in 1994.
The functional currency of the Company's Japanese subsidiary, OrCAD Japan,
is the Japanese yen which must be translated to U.S. dollars for consolidation.
Generally, Japanese sales are denominated in the Japanese yen. From December 31,
1995 to December 31, 1996, the U.S. dollar strengthened by approximately 12%
against the Japanese yen. This strengthening of the U.S. dollar resulted in
lower reported revenues and operating expenses due to translation of the
Japanese yen to U.S. dollars for consolidated financial reporting. As such, the
Company's business and operating results will be impacted by the effects of
future U.S. dollar and Japanese yen currency fluctuations.
16
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
OrCAD, Inc.:
We have audited the accompanying consolidated balance sheets of OrCAD, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of OrCAD, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations, and their cash flows for each of the years in the three year period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
January 27, 1997
17
<PAGE> 20
ORCAD, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $20,308 $ 2,080
Short-term investments................................................. 8,964 --
Trade accounts receivable, net of doubtful accounts and sales return
allowances of $637 and $422 at December 31, 1996 and 1995,
respectively........................................................ 3,081 2,641
Inventory, net......................................................... 504 440
Royalty receivable..................................................... 193 406
Other.................................................................. 911 595
------- -------
Total current assets........................................... 33,961 6,162
------- -------
Fixed assets, net........................................................ 1,018 967
Purchased software technology, net....................................... 429 12
Goodwill and intangible assets........................................... 2,704 3,156
Other assets............................................................. 138 368
------- -------
$38,250 $10,665
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 484 $ 942
Accrued payroll and related liabilities................................ 936 816
Accrued liabilities.................................................... 857 1,411
Accrued income taxes................................................... 607 104
Deferred revenue....................................................... 1,432 1,159
Capital lease obligations, current..................................... -- 119
------- -------
Total current liabilities...................................... 4,316 4,551
------- -------
Stockholders' equity:
Series A preferred stock, par value $.01; 9,000,000 shares authorized;
-0- and 8,076,270 issued and outstanding at December 31, 1996 and
1995................................................................ -- 81
Common stock, par value $.01; 16,000,000 shares authorized; 6,681,902
and 1,782,546 issued and outstanding at December 31, 1996 and
1995................................................................ 67 18
Additional paid-in capital............................................. 35,992 12,312
Accumulated deficit.................................................... (2,091) (6,293)
Net unrealized gain on investments..................................... 9 --
Foreign currency translation adjustment................................ (43) (4)
------- -------
Total stockholders' equity..................................... 33,934 6,114
------- -------
$38,250 $10,665
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
ORCAD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Revenue:
Products..................................................... $17,822 $10,627 $8,020
Service...................................................... 3,085 3,032 1,792
------- ------- ------
Total revenue.................................................. 20,907 13,659 9,812
------- ------- ------
Cost and expenses:
Cost of sales -- products.................................... 1,771 1,587 1,713
Cost of sales -- service..................................... 727 488 387
Research and development..................................... 4,286 3,561 2,907
Marketing and sales.......................................... 7,079 4,934 3,569
General and administrative................................... 3,063 1,904 1,363
In-process research and development.......................... -- 971 --
------- ------- ------
Total cost and expenses........................................ 16,926 13,445 9,939
------- ------- ------
Income (loss) from operations.................................. 3,981 214 (127)
------- ------- ------
Other income (expense):
Interest..................................................... 1,207 53 (62)
Other, net................................................... 65 52 218
------- ------- ------
1,272 105 156
------- ------- ------
Income before income taxes..................................... 5,253 319 29
Income taxes................................................... 1,051 4 --
------- ------- ------
Net income..................................................... $ 4,202 $ 315 $ 29
======= ======= ======
Net income per share........................................... $ .63 $ .07 $ .01
======= ======= ======
Weighted average number of common and common equivalent shares
outstanding.................................................. 6,618 4,775 4,211
======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
ORCAD, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A NET FOREIGN TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL UNREALIZED CURRENCY STOCK-
--------------- --------------- PAID-IN ACCUMULATED GAIN ON TRANSLATION HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INVESTMENTS ADJUSTMENTS EQUITY
------ ------ ------ ------ ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993...................... 8,076 $ 81 574 $ 5 $ 7,281 $(6,637) -- $ (2) $ 728
Issuance of common stock
upon option exercises..... -- -- 73 1 24 -- -- -- 25
Foreign currency translation
adjustment................ -- -- -- -- -- -- -- 2 2
Net income.................. -- -- -- -- -- 29 -- -- 29
------ ---- ----- --- ------- ------- --- ---- -------
Balance, December 31,
1994...................... 8,076 81 647 6 7,305 (6,608) -- -- 784
Issuance of common stock
upon option exercises..... -- -- 199 2 68 -- -- -- 70
Issuance of common stock in
Massteck merger........... -- -- 510 5 1,958 -- -- -- 1,963
Issuance of common stock in
ISJ merger................ -- -- 427 5 2,981 -- -- -- 2,986
Foreign currency translation
adjustment................ -- -- -- -- -- -- -- (4) (4)
Net income.................. -- -- -- -- -- 315 -- -- 315
------ ---- ----- --- ------- ------- --- ---- -------
Balance, December 31,
1995...................... 8,076 81 1,783 18 12,312 (6,293) -- (4) 6,114
Issuance of common stock
upon option exercises..... -- -- 195 2 81 -- -- -- 83
Issuance of common stock
under employee stock
purchase plan............. -- -- 11 -- 88 -- -- -- 88
Issuance of common stock net
of offering costs of
$2,951.................... -- -- 2,382 24 23,230 -- -- -- 23,254
Issuance of common stock
upon the exercise of stock
warrants.................. -- -- 4 -- -- -- -- -- --
Issuance of common stock
upon the conversion of
preferred stock to common
stock..................... (8,076) (81) 2,307 23 58 -- -- -- --
Net unrealized gain on
investments -- -- -- -- -- -- 9 -- 9
Tax benefit of OrCAD stock
option transactions by
OrCAD employees........... -- -- -- -- 223 -- -- -- 223
Foreign currency translation
adjustment................ -- -- -- -- -- -- -- (39) (39)
Net income.................. -- -- -- -- -- 4,202 -- -- 4,202
------ ---- ----- --- ------- ------- --- ---- -------
Balance, December 31,
1995...................... -- $ -- 6,682 $ 67 $ 35,992 $(2,091) $ 9 $ (43) $33,934
====== ==== ===== === ======= ======= === ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 23
ORCAD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- ------ -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 4,202 $ 315 $ 29
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 1,103 591 442
Provision for losses on trade accounts receivable.......... 220 (47) 183
Provision for inventory reserves........................... 9 (20) --
Deferred income taxes...................................... 64 -- --
Write-off of research and development costs acquired....... -- 971 --
Gain on sale of investment securities...................... -- -- (70)
(Gain) loss on disposal of fixed assets.................... 23 (2) 15
Changes in assets and liabilities:
Trade accounts receivable................................ (703) (338) (482)
Inventory................................................ (84) (25) 17
Royalty receivable....................................... 245 133 --
Other current assets..................................... (421) (137) (110)
Accounts payable......................................... (437) 141 207
Accrued payroll and related liabilities.................. 123 359 79
Accrued liabilities...................................... (500) 70 221
Deferred revenue......................................... 276 (438) 756
Accrued income taxes..................................... 740 -- --
-------- ------ -------
Total adjustments..................................... 658 1,258 1,258
-------- ------ -------
Net cash provided by operating activities............. 4,860 1,573 1,287
-------- ------ -------
Cash flows from investing activities:
Cash acquired in mergers...................................... -- 503 --
Acquisition of fixed assets................................... (658) (409) (248)
Proceeds from sale of fixed assets............................ 24 -- --
Proceeds from maturity and sale of investments................ 2,000 -- 90
Acquisition of software technology............................ (300) (73) (2)
Purchase of investment securities............................. (10,964) -- (20)
-------- ------ -------
Net cash (used in) provided by investing activities... (9,898) 21 (180)
-------- ------ -------
Cash flows from financing activities:
Payments on capital leases.................................... (119) (157) (97)
Borrowings under line of credit............................... -- -- 6,047
Payments on line of credit.................................... -- -- (6,800)
Issuance of common stock, net................................. 23,425 70 25
-------- ------ -------
Net cash (used in) provided by financing activities... 23,306 (87) (825)
-------- ------ -------
Effects of exchange rate on cash................................ (40) (9) 2
-------- ------ -------
Net increase in cash and cash equivalents............. 18,228 1,498 284
Cash and cash equivalents at beginning of period................ 2,080 582 298
-------- ------ -------
Cash and cash equivalents at end of period...................... $ 20,308 $2,080 $ 582
======== ====== =======
Supplemental disclosures of cash flow information:
Interest paid................................................. $ 10 $ 26 $ 68
======== ====== =======
Income taxes paid............................................. $ 377 $ -- $ --
======== ====== =======
Non-cash investing and financing activities
Net assets acquired in mergers................................ $ -- $4,949 $ --
======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 24
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
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 segment, comprising the electronic design
automation industry.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, OrCAD Europe S.A.R.L. (OrCAD Europe), Massteck
Ltd. (Massteck) and Intelligent Systems Japan KK (ISJ) from the date of
inception or acquisition. All intercompany balances have been eliminated in
consolidation. In December 1995, the Company acquired ISJ in a transaction
accounted for as a purchase. In June 1995, the Company acquired Massteck in a
transaction accounted for as a purchase. In June 1994, the Company discontinued
all operations of its wholly-owned subsidiary, OrCAD Europe.
Cash and Cash Equivalents
For purposes of the accompanying consolidated statements of cash flows, the
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents. 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 of cash and cash
equivalents approximates fair value.
Short-Term Investments
Short-term investments, which consist of short-term 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.
Inventory
Inventory consists primarily of packaging materials, diskettes, compact
disks, hardware locks, and printed documentation. Inventory is carried at the
lower of cost or market determined on a first-in, first-out basis.
Fixed Assets
Fixed asset acquisitions are recorded at cost. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets,
generally three to seven years. Amortization of leasehold improvements and
assets under capital leases is calculated using the straight-line method over
the shorter of the related lease term or economic life of the leased asset.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and accounts receivable. Management believes the credit
risk associated with cash, cash equivalents and short-term investments is
minimal. The Company sells its products to customers who are primarily designers
and manufacturers of electronic components. The Company's accounts receivable
are derived primarily from customers located in North America, Europe and
22
<PAGE> 25
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Japan. Management believes that the risk of credit loss is substantially reduced
due to the diversity of its customers and their dispersion across many
geographic areas and electronic industries.
Revenue Recognition
Revenue primarily includes revenue from software product shipments and
revenue from 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 maintenance period, generally
three months. 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 customer training, support and other services
is recognized as the services are performed.
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.
Purchased Software Technology
The Company has acquired technologies in connection with certain business
combinations and licensing agreements. The cost of such purchased technology is
generally amortized using the straight-line method over its estimated useful
life. Amortization expense for the years ended December 31, 1996, 1995 and 1994
was $92, $77 and $98 respectively.
Foreign Currency
The local currencies of the Company's foreign subsidiaries are the
functional currencies. Assets and liabilities of the Company's foreign operation
are translated into U.S. dollars using exchange rates in effect at the
translation date, and revenue and expenses are translated into U.S. dollars
using average exchange rates. The effects of foreign currency translation
adjustments are included as a component of stockholders' equity. Gains or losses
occurring on transactions, which have been insignificant, are included in the
consolidated statements of operations as other income (expense). Foreign
currency gains (losses) for the years ended December 31, 1996, 1995 and 1994
were $(18), $11, and $(17), respectively.
Goodwill and Intangible Assets
Intangible assets of $2,685 and $300, resulting from the acquisition of
ISJ, are being amortized on a straight line basis over a ten year life and three
year life, respectively, commencing in December 1995. Goodwill of $250,
resulting from the acquisition of Massteck, is being amortized on a
straight-line basis over a three year life commencing in June 1995. Goodwill and
intangible asset amortization was $452, $79, and $0 for the years ended December
31, 1996, 1995 and 1994, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
23
<PAGE> 26
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bases and operating losses and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Net Income Per Share
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding. Common equivalent shares from
stock options, warrants, and preferred stock are excluded from the calculation
where their effect is antidilutive, except that, pursuant to Securities and
Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued at prices below the public offering price during the twelve months
immediately preceding the initial filing date have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method).
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, and
accounts payable approximate fair value due to the short-term nature of these
instruments. The fair value of short-term investments is based on current market
values. Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument when available. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore, cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
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.
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.
Reclassifications
Certain reclassifications have been made in the accompanying consolidated
financial statements for 1994 and 1995 to conform with the 1996 presentation.
(2) ACQUISITIONS
In December 1995, the Company issued 426,468 shares of common stock in
exchange for all of the outstanding common stock of ISJ. The acquisition has
been accounted for as a purchase, and the financial results of ISJ have been
included in the accompanying consolidated financial statements since the date of
24
<PAGE> 27
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquisition. The cost of the acquisition has been allocated on the basis of the
estimated fair value of the assets acquired and the liabilities assumed.
Intangible assets of $2,685 and $300 represent the estimated fair value of the
customer list and assembled workforce acquired from ISJ.
The fair values of assets and liabilities acquired are presented below:
<TABLE>
<S> <C>
Cash................................................................ $ 422
Accounts receivable................................................. 474
Inventory........................................................... 174
Deferred tax asset.................................................. 146
Prepaid and other................................................... 6
Fixed assets........................................................ 166
Other assets........................................................ 52
Intangible assets................................................... 2,985
Accounts payable.................................................... (366)
Accrued payroll..................................................... (60)
Other accrued liabilities........................................... (868)
Accrued income taxes................................................ (102)
Deferred revenue.................................................... (43)
------
Net assets acquired....................................... $2,986
======
</TABLE>
In June 1995, the Company issued 510,031 shares of common stock and
reserved 50,717 common shares for issuance upon exercise of vested common stock
options in exchange for all of the outstanding common and preferred stock and
vested stock options of Massteck. The acquisition has been accounted for as a
purchase, and the financial results of Massteck have been included in the
accompanying consolidated financial statements since the date of acquisition.
The cost of the acquisition has been allocated on the basis of the estimated
fair value of the assets acquired and liabilities assumed. This allocation
resulted in an in-process research and development charge of $971, because
certain acquired technology had not reached technological feasibility. The
excess of the aggregate purchase price over the fair value of net assets
acquired of approximately $250 was recognized as goodwill and is being amortized
on a straight-line basis over three years.
The fair values of assets and liabilities acquired are presented below:
<TABLE>
<S> <C>
Cash................................................................ $ 81
Accounts receivable, net............................................ 170
Royalties receivable................................................ 780
Inventory........................................................... 14
Prepaids and other.................................................. 12
Property and equipment.............................................. 103
Goodwill............................................................ 250
In-process research and development................................. 971
Accounts payable.................................................... (92)
Accrued payroll and related liabilities............................. (84)
Other accrued liabilities........................................... (65)
Deferred revenue.................................................... (127)
Capital lease obligations........................................... (50)
------
Net assets acquired....................................... $1,963
======
</TABLE>
25
<PAGE> 28
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) BALANCE SHEET COMPONENTS
Other Current Assets
The Company's other current assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
---- ----
<S> <C> <C>
Deferred income taxes......................................... $ 80 $144
Income tax receivable......................................... 94 --
Deferred initial public offering costs........................ -- 309
Prepaid expenses and other.................................... 737 142
---- ----
$911 $595
==== ====
</TABLE>
Fixed Assets
The Company's fixed assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Vehicles................................................. $ 48 $ 53
Furniture and fixtures................................... 386 347
Computer equipment....................................... 1,576 1,263
Leasehold improvements................................... 49 23
Software................................................. 688 517
------- -------
2,747 2,203
Less accumulated depreciation and amortization........... (1,729) (1,236)
------- -------
$ 1,018 $ 967
======= =======
</TABLE>
Depreciation and amortization expense was approximately $542, $428 and $344
for the years ended December 31, 1996, 1995 and 1994, respectively.
Accrued Liabilities
The Company's accrued liabilities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
---- ------
<S> <C> <C>
Accrued initial public offering costs....................... $ -- $ 365
Deferred rent............................................... 198 212
Obligations related to acquisition of ISJ................... 86 515
Accrued director and officer insurance...................... 227 --
Other....................................................... 346 319
---- ------
$857 $1,411
==== ======
</TABLE>
26
<PAGE> 29
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) SHORT-TERM INVESTMENTS
Certain additional information with respect to the Companys short-term
investments at December 31, 1996 is presented below. For the year ended December
31, 1995, the Company did not hold any short-term investments.
<TABLE>
<CAPTION>
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAIN (LOSS) VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Short-term investments Corporate notes &
bonds................................... $ 7,963 $ 6 $ (2) $7,967
US Government and related agencies...... 992 5 -- 997
------ --- --- ------
Total........................... $ 8,955 $ 11 $ (2) $8,964
====== === === ======
</TABLE>
At December 31, 1996, the contractual maturities of available-for-sale
short-term investments range from ninety days to less than one year. The Company
received proceeds from the maturity or sale of short term investments of $2,000,
$0, and $90 for the years ended December 31, 1996, 1995 and 1994, respectively.
(5) NOTE PAYABLE AND LINE OF CREDIT
From January 1, 1995, through August 1996, the Company had a Business Loan
Agreement with a commercial bank for a $1,500 line of credit to be used for
operating needs. On September 5, 1996, the Company entered into a Business Loan
Agreement with a commercial bank for a $3,000 line of credit to be used for
operating needs. The line of credit bears interest at the bank's prime rate plus
.50%. The Agreement is secured by all assets of the Company. There were no
outstanding borrowings under these agreements at either December 31, 1996 or
December 31, 1995.
(6) TAXES
Domestic and foreign pre-tax income (loss) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Domestic............................................ $5,007 $346 $ 57
Foreign............................................. 246 (27) (28)
------ --- ---
Total..................................... $5,253 $319 $ 29
====== === ===
</TABLE>
27
<PAGE> 30
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Current:
Federal............................................ $ 306 $ -- $ --
State.............................................. 4 -- --
Foreign............................................ 677 5 --
------ ---- ---
987 5 --
------ ---- ---
Deferred:
Federal............................................ -- -- --
State.............................................. --
Foreign............................................ 64 (1) --
------ ---- ---
64 (1) --
------ ---- ---
Total...................................... $1,051 $ 4 $ --
====== ==== ===
</TABLE>
The actual income tax expense for the years ended December 31, 1996, 1995
and 1994 differs from the expected tax expense computed by applying the U.S.
federal corporate income tax rate of 34% to net income before income taxes as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------ ----- ----
<S> <C> <C> <C>
Expected income tax expense........................ $1,786 $ 108 $ 10
State income tax expense........................... 234 61 5
Increase (decrease) in the valuation allowance for
deferred tax assets.............................. (749) (321) 138
Unrealized benefit of research and experimentation
tax credit....................................... (128) (59) (99)
Realized loss on foreign operations................ -- -- (62)
Goodwill amortization and in-process costs
attributable to the Massteck acquisition......... 154 347 --
Net operating losses acquired in the Massteck
acquisition...................................... -- (68) --
Differences between financial and tax reporting for
common stock option exercises.................... (646) (71) --
Foreign tax rate differential...................... 546 -- --
Foreign sales corporation benefit.................. (67) -- --
Other.............................................. (79) 7 8
------ --- ---
Actual expense..................................... $1,051 $ 4 $ --
====== === ===
</TABLE>
28
<PAGE> 31
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax effects of temporary differences and carryforwards which
give rise to significant portions of deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful
accounts............................................ $ 174 $ 83
Inventory, due to reserve for obsolescence............. 93 51
Accrued vacation pay................................... 135 113
Purchased technology, due to differences in
amortization........................................ 24 277
In-process research and development, due to
amortization differences............................ -- 84
Research and experimentation credit carryforwards...... 601 336
Net operating loss carryforwards....................... 549 1,425
Other.................................................. 253 276
------- -------
Total gross deferred tax assets................ 1,829 2,645
Less valuation allowance................................. (1,735) (2,484)
------- -------
Net deferred tax assets........................ 94 161
Deferred tax liabilities:
Other.................................................. 14 17
------- -------
Total gross deferred tax liabilities........... 14 17
------- -------
Net deferred tax assets........................ $ 80 $ 144
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994 was
$2,667. The net change in the valuation allowance for the years ended December
31, 1996, 1995 and 1994 was an increase (decrease) of $(749), $(321), and $138,
respectively. At the time that tax benefits of the federal net operating loss
carryforwards acquired in the Massteck acquisition are recognized, up to $68 of
the valuation allowance for deferred tax assets will be applied to reduce
goodwill recognized as a result of the acquisition. In addition, the portion of
the valuation allowance for deferred tax assets for which subsequently
recognized tax benefits was applied directly to contributed capital was $223 at
December 31, 1996. This amount was attributable to differences between financial
and tax reporting for employee stock option exercises.
As of December 31, 1996, the Company has federal and state net operating
loss carryforwards for tax purposes of approximately $1,461 and $1,187,
respectively, which expire in 2006 through 2009. In addition, the Company has
unused research and experimentation credits of $397, which expire in 2006
through 2011. Such credits can be offset against future federal income taxes
after use of the loss carryforwards.
(7) LEASE COMMITMENTS
The Company leases office space under various noncancelable operating lease
agreements. Lease expense was $370, $382 and $352 for the years ended December
31, 1996, 1995 and 1994, respectively.
29
<PAGE> 32
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, OPERATING
--------------------------------------------------- ---------
<S> <C>
1997............................................... $ 381
1998............................................... 390
1999............................................... 409
2000............................................... 368
2001............................................... 118
Thereafter......................................... --
------
Total.................................... $ 1,666
======
</TABLE>
(8) FOREIGN OPERATIONS AND GEOGRAPHIC INFORMATION
The Company's subsidiary in Japan accounted for $4,332 and $361 of total
revenue and had net losses of $51 and $27 for the years ended December 31, 1996
and 1995, respectively. Identifiable assets of this subsidiary were $922 and
$1,277 at December 31, 1996 and 1995, respectively. The Company's European
subsidiary accounted for $141 of total revenue and had $28 of operating losses
for the year ended December 31, 1994. Identifiable assets of this subsidiary
were insignificant.
Revenue by geographical area is provided below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
United States.................................. $11,638 $ 9,045 $5,853
Canada......................................... 1,081 484 98
------- ------- ------
Total North America.................. 12,719 9,529 5,951
------- ------- ------
Europe......................................... 3,048 2,121 2,574
Japan.......................................... 4,332 1,102 782
Other international............................ 808 907 505
------- ------- ------
$20,907 $13,659 $9,812
======= ======= ======
</TABLE>
(9) STOCKHOLDERS' EQUITY
Common Stock
Effective December 15, 1995, the Company's stockholders authorized a .2857
for 1 reverse common stock split. All share and per share data have been
retroactively restated to give effect to this reverse stock split.
Also on December 15, 1995, the Company's stockholders approved an increase
in the number of common shares authorized for issuance from 15,000,000 to
16,000,000.
On March 1, 1996, the Company completed a public offering of 3,200,0000
shares of common stock which generated net proceeds of approximately $19,400
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 $3,900 after deducting applicable issuance costs and
expenses.
30
<PAGE> 33
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock
In connection with the completion of the Company s initial public offering
in March 1996, all of the outstanding Series A preferred stock was automatically
converted into 2,307,397 shares of the Company's common stock.
Reserved Common Stock
At December 31, 1996, the Company had 2,997,009 shares of common stock
reserved for future issuance under all stock option plans.
(10) STOCK OPTION PLANS
1995 Stock Incentive Plan
Under the 1995 Stock Incentive Plan, the Company may sell shares of common
stock and grant either incentive stock options or nonqualified stock options to
certain employees and consultants at the discretion of the Board of Directors.
The Company has reserved 2,000,000 shares of common stock which may be optioned
and/or sold under the 1995 Incentive Plan. The 1995 Incentive Plan provides that
(i) the exercise price of an incentive stock option must be no less than the
fair market value of the Company's common stock at the date of grant, (ii) the
exercise price of a nonqualified stock option must be no less than 85% of the
fair market value, and (iii) the exercise price to an optionee who possesses
more than 10% of the total combined voting power of all classes of stock must be
no less than 110% of the fair market value, all as determined by the Board of
Directors. The Board of Directors has the authority to set expiration dates no
longer than ten years from the date of grant (or five years for an optionee who
meets the 10% criteria), payment terms and other provisions for each grant.
Shares associated with unexercised options are generally canceled no more than
90 days after termination of employment and become available for grant under the
1995 Incentive Plan. There were 88,427 options granted, 312 options exercised,
and 422 options forfeited under the 1995 Incentive Plan during 1996.
1995 Stock Option Plan
Under the 1995 Stock Option Plan ("1995 Stock Option Plan"), the Company
may grant incentive stock options or nonqualified stock options up to a maximum
of 51,699 shares of common stock to directors, officers, employees and
consultants. Nonqualified stock options must be granted at not less than 85% of
the fair market value, and incentive stock options must be granted at not less
than the fair market value, at the date of grant. The exercise price to an
optionee who possesses more than 10% of the total combined voting power of all
classes of stock must be no less than 110% of the fair market value at the date
of grant. The Board of Directors has authority to set expiration dates no longer
than ten years from the date of grant (or five years for an optionee who meets
the 10% criteria), payment terms and other provisions for each grant. There were
no options granted or forfeited and 17,049 options exercised under the 1995
Incentive Plan during 1996.
1995 Stock Option Plan for Nonemployee Directors
Under the 1995 Stock Option Plan for Nonemployee Directors, the Company may
grant non-qualified stock options up to a maximum of 500,000 shares of common
stock. The exercise price of options granted under the Plan may not be less than
the fair market value of common stock on the date of grant. All options granted
under the Plan will be non-qualified and expire ten years from the date of
grant. Shares that are associated with options that are forfeited or terminated
will again be available for grant. There were 20,000 options granted under the
1995 Stock Option Plan for Nonemployee Directors during 1996.
31
<PAGE> 34
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1991 Non-Qualified Stock Option Plan
Under the 1991 Non-Qualified Stock Option Plan, the Company may grant
non-qualified stock options up to a maximum of 962,238 shares of common stock.
Options may be granted at the Board of Directors' discretion at not less than
85% of the fair market value of the common stock at the date of such grant.
Options shall expire on the date specified by the Board of Directors but this
date shall in no event exceed ten years from the date of grant. There were
20,000 options granted, 172,771 options exercised, and 9,505 options forfeited
under the 1991 Non-Qualified Stock Option Plan during 1996.
Stock option activity under the foregoing plans is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED-
SHARES AVERAGE
UNDER EXERCISE
OPTION PRICE
-------- ---------
<S> <C> <C>
Outstanding at December 31, 1993....................... 728,591 $ .35
Granted.............................................. 156,310 .35
Exercised............................................ (73,224) .35
Canceled............................................. (192,489) .35
--------
Outstanding at December 31, 1994....................... 619,188 .35
Granted.............................................. 276,217 2.87
Exercised............................................ (199,202) .35
Canceled............................................. (14,646) .35
--------
Outstanding at December 31, 1995....................... 681,557 1.36
--------
Granted.............................................. 128,427 11.70
Exercised............................................ (194,828) .42
Canceled............................................. (9,927) 1.94
--------
Outstanding at December 31, 1996....................... 605,229 $ 3.86
========
</TABLE>
The weighted-average fair value of options granted during 1996 and 1995 was
$6.78 and $1.08, respectively.
At December 31, 1996 the Company had four stock-based compensation plans,
which are described above and an employee stock purchase plan which is discussed
in note 11. The Company applies APB No. 25 and related Interpretations in
accounting for its plan. Accordingly, no compensation cost has been recognized
for its fixed stock option plans and its stock purchase plan. For SFAS No. 123
purposes, the fair value of each option grant has been estimated as of the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants and purchase rights in 1996 and 1995,
respectively: dividend yield of 0% for both years; expected volatility of 49%
and 0%; risk-free interest rate ranged from of 5.3% to 6.4% in 1996 and from
5.3% to 6.7% in 1995 for all plans; and expected lives of five years and five
years for all Plans except the 1995 Stock Option Plan and the 1996 Employee
Stock Purchase Plan options, 2 years and 2 years for the 1995 Stock Option Plan
and .5 years and .5 years for the 1996 Employee Stock Purchase Plan. Had
compensation expense been determined consistent with SFAS No. 123, utilizing the
assumptions
32
<PAGE> 35
ORCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
detailed above, the Company's net income and earnings per share for the years
ended December 31, 1996 and 1995, would have been reduced to the following pro
forma amounts:
<TABLE>
<CAPTION>
1996 1995
------ ----
<S> <C> <C>
Net income:
As reported............................................... $4,202 $315
Pro forma................................................. $3,772 $288
Net Income per common share:
As reported............................................... $ .63 $.07
Pro forma................................................. $ .58 $.06
</TABLE>
The resulting pro forma compensation costs may not be representative of
that expected in future years.
The following table summarizes information about fixed stock options
outstanding at December 31, 1996.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- --------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
RANGE OF AT REMAINING AVERAGE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1996 LIFE PRICE 1996 PRICE
- ------------- ------------ ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
$ .35 304,816 6.8 years $ .35 214,479 $ .35
.88 1,193 8.7 years .88 299 .88
3.50 141,836 8.8 years 3.50 38,640 3.50
7.88 - 11.00 111,869 9.3 years 9.15 19,613 8.73
15.50 45,515 9.5 years 15.50 23,222 15.50
$ .35 - 15.50 605,229 7.9 years $ 3.86 296,253 $ 2.50
</TABLE>
(11) EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company has a 401(k) retirement savings plan covering substantially all
employees, excluding employees of OrCAD Japan. Contributions to the plan were
matched at the discretion of the Board of Directors. The matching contributions
amounted to $151, $41 and $2 for 1996, 1995 and 1994, respectively.
1996 Employee Stock Purchase Plan
Under the 1996 Employee Stock Purchase Plan, which became effective May 1,
1996, eligible employees of the company are permitted to purchase common stock
through payroll deductions at a price equal to 85% of the fair market value of
the common stock at the beginning of each offering period or the end of each
offering period, whichever is lower. No employee is entitled to purchase shares
of common stock having a value (determined on the first day of the offering
period) of more than $25,000 in any calendar year. The Company has reserved
200,000 shares of common stock for issuance under the 1996 Employee Stock
Purchase Plan. During 1996, there were 10,686 shares issued under the Plan.
33
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no change of accountants nor any disagreements with
accountants on any matter of accounting principles or practices or financial
statement disclosure required to be reported under this Item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included under the captions
"Directors," "Management" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Company's Proxy Statement for its annual meeting of
stockholders to be held June 19, 1997 and is incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the caption
"Executive Compensation" in the Company's Proxy Statement for its annual meeting
of stockholders to be held June 19, 1997 and is incorporated by reference
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption "Stock
Owned by Management and Principal Stockholders" in the Company's Proxy Statement
for its annual meeting of stockholders to be held June 19, 1997 and is
incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement for its annual meeting of stockholders to be held June 19, 1997 and is
incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. (1) Financial Statements
The following financial statements are set forth in Item 8 of this Annual
Report:
<TABLE>
<S> <C>
Report of Independent Auditors....................................
Consolidated Balance Sheets, December 31, 1996 and 1995...........
Consolidated Statements of Operations, Years Ended December 31,
1996, 1995 and 1994.............................................
Consolidated Statements of Stockholders Equity, Years Ended
December 31, 1996, 1995 and 1994................................
Consolidated Statement of Cash Flows, Years Ended December 31,
1996, 1995 and 1994.............................................
Notes to Consolidated Financial Statements........................
</TABLE>
A. (2) Financial Statement Schedules
<TABLE>
<CAPTION>
FORM 10-KSB
PAGE NO.
-----------
<S> <C>
(a) II -- Valuation and Qualifying Accounts................... S-1
(b) Report of Independent Auditors............................ S-2
</TABLE>
34
<PAGE> 37
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes
thereto.
3. Exhibits
<TABLE>
<C> <S>
3.4 Restated Certificate of Incorporation of OrCAD, Inc.*
3.5 Restated Bylaws of OrCAD, Inc.*
4.6 Rights Agreement dated September 18, 1992*
4.7 Restricted Stock and Registration Rights Agreement dated May 30, 1995*
4.8 Piggyback Registration Rights Agreement dated December 1, 1995*
10.9 Form of Indemnity Agreement between OrCAD, Inc. and each of its executive officers
and directors*
10.10 1991 Non-Qualified Stock Option Plan*
10.11 1995 Stock Option Plan*
10.12 1995 Stock Option Plan for Nonemployee Directors*
10.13 1995 Stock Incentive Plan*
10.14 Stock Exchange Agreement dated December 2, 1995 by and among OrCAD, Inc., Intelligent
Systems Corporation, Stuart A. Harrington, Michael A. Burton, J. Leland Strang,
Bonnie L. Herron, Francis A. Marks and Takeo Maruichi.*
10.15 Agreement and Plan of Reorganization dated as of May 10, 1995, by and among OrCAD,
Inc. OM Merger, Inc. and Massteck Ltd.*
10.16 Lease between Pen Nom I Corp. and OrCAD, Inc. dated May 21, 1993*
10.17 Lease Agreement dated as of January 31, 1995 by and between Kurian Limited
Partnership and Massteck Ltd.*
10.18 1996 Employee Stock Purchase Plan*
11.0 Statement regarding earnings per share computation
21.0 Subsidiaries of the Registrant*
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated by reference to Exhibits of the Company's Registration Statement
on Form SB-2 as amended, effective March 1, 1996 (Commission Registration No.
333-00198-LA).
(b) No reports on Form 8-K have been filed by the Registrant during the
fourth quarter of calendar 1997.
35
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
OrCAD, Inc.
Dated March 28, 1997
By /s/ MICHAEL F. BOSWORTH
------------------------------------
Michael F. Bosworth
Chairman of the Board and
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ---------------
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:
/s/ MICHAEL F. BOSWORTH Chairman of the Board March 28, 1997
- ----------------------------------- Chief Executive Officer
Michael F. Bosworth and President
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ P. DAVID BUNDY Vice-President and Chief March 28, 1997
- ----------------------------------- Financial Officer
P. David Bundy
DIRECTORS:
/s/ STEPHEN W. DIRECTOR Director March 28, 1997
- -----------------------------------
Stephen W. Director
/s/ RICHARD P. MAGNUSON Director March 28, 1997
- -----------------------------------
Richard P. Magnuson
/s/ JAMES B. MOON Director March 28, 1997
- -----------------------------------
James B. Moon
/s/ JOHN C. SAVAGE Director March 28, 1997
- -----------------------------------
John C. Savage
</TABLE>
36
<PAGE> 39
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS OTHER
------------------------ CHARGED CHANGES
BALANCE AT CHARGED TO TO OTHER ADD BALANCE AT
BEGINNING COSTS AND ACCOUNTS (DEDUCT) END OF
YEAR DESCRIPTION OF YEAR EXPENSES (DESCRIBE) (DESCRIBE) YEAR
- ----- ---------------------------------- ---------- ---------- ---------- ---------- ----------
<C> <S> <C> <C> <C> <C> <C>
1996 Allowance for doubtful accounts
and sales returns................. $422 $921 -- $ (706)(a) $637
Allowance for obsolete
inventory......................... 40 50 -- (41)(b) 49
1995 Allowance for doubtful accounts
and sales returns................. 338 564 131(c) (611)(a) 422
Allowance for obsolete
inventory......................... 60 51 -- (71)(b) 40
1994 Allowance for doubtful accounts
and sales returns................. 155 447 -- (264)(a) 338
Allowance for obsolete
inventory......................... 60 40 -- (40)(b) 60
</TABLE>
- ---------------
(a) Write-off of accounts receivable against allowance account.
(b) Write-off of obsolete inventory.
(c) Addition to allowance for doubtful accounts as part of acquisitions.
S-1
<PAGE> 40
INDEPENDENT AUDITORS REPORT
The Board of Directors and Stockholders
OrCAD, Inc.
Under date of January 27, 1997, we reported on the consolidated balance
sheets of OrCAD, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996,
which are included in the 1996 annual report to stockholders. These consolidated
financial statements and our report thereon are included in the annual report on
Form 10-KSB for the year 1996. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related consolidated financial statement schedule as listed in the accompanying
index. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KMPG PEAT MARWICK LLP
Portland, Oregon
January 27, 1997
S-2
<PAGE> 1
EXHIBIT 11.0
ORCAD, INC.
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Earnings per share for the years ended December 31, 1996, 1995 and 1994
were computed based on the weighted average number of common and dilutive common
equivalent shares outstanding. Common equivalent shares for the years ended
December 31, 1995 and 1994 include shares of Series A Preferred Stock that will
be converted into common shares upon consummation of the Company's initial
public offering. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, all shares and options issued within one year prior to the
initial filing of the registration statement, if dilutive, were treated as if
they were outstanding for all reported periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Common Stock..................................................... 5,253 647 617
Common Stock issued for:
Massteck Ltd................................................... 510 510 510
Intelligent Systems Japan, K.K................................. 427 427 427
Common Stock Equivalents......................................... 526 534 --
Series A Preferred Stock......................................... -- 2,307 2,307
SAB 83 Adjustment................................................ -- 350 350
------ ------ ------
Tax benefit of non-qualified stock options....................... (98) -- --
Total............................................................ 6,618 4,775 4,211
====== ====== ======
Net Income (Loss)................................................ $4,202 $ 315 $ 29
====== ====== ======
Net Income (Loss) Per Share...................................... $ .63 $ .07 $ .01
====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
OrCAD, Inc.
We consent to incorporation by reference in the Registration Statements on
Form S-8 (Nos. 333-04811, 333-15099 and 333-15145) of OrCAD, Inc. and
subsidiaries of our reports dated January 27, 1997, relating to the consolidated
balance sheets of OrCAD, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows and related schedule for each of the years in the three-year period
ended December 31, 1996, which reports appear in the December 31, 1996 Annual
Report on Form 10-KSB of OrCAD, Inc. and subsidiaries.
KMPG PEAT MARWICK LLP
Portland, Oregon
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 20,308
<SECURITIES> 8,964
<RECEIVABLES> 3,718
<ALLOWANCES> 637
<INVENTORY> 504
<CURRENT-ASSETS> 33,961
<PP&E> 2,747
<DEPRECIATION> 1,729
<TOTAL-ASSETS> 38,250
<CURRENT-LIABILITIES> 4,316
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 33,867
<TOTAL-LIABILITY-AND-EQUITY> 38,250
<SALES> 20,907
<TOTAL-REVENUES> 20,907
<CGS> 2,498
<TOTAL-COSTS> 16,926
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 215
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 5,253
<INCOME-TAX> 1,051
<INCOME-CONTINUING> 4,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,202
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
