<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
- --------------------------------------------------------------------------------
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999 or
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to________
- --------------------------------------------------------------------------------
Commission file number: 000-20923
SUMMIT DESIGN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 93-1137888
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification Number)
9305 S. W. GEMINI DRIVE,
BEAVERTON, OREGON 97008
(Address of principal executive office)
Registrant's Telephone number, including area code: (503) 643-9281
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
--- ---
As of May 12, 1999, the Registrant had outstanding 15,682,124 shares of Common
Stock.
<PAGE>
SUMMIT DESIGN, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998. 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 1999 and 1998 (unaudited). 4
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1999 and 1998 (unaudited). 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 27
Items 1, 2,3, 4 and 5 Not Applicable 27
Signature 28
Exhibit Index 29
</TABLE>
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<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $23,676 $27,693
Accounts receivable, net..................... 8 ,719 8,852
Prepaid expenses and other................... 547 862
Deferred income taxes........................ 792 792
-------------------- ----------------
Total current assets....................... 33,734 38,199
Furniture and equipment, net.................... 4,132 4,113
Intangibles, net................................ 2,195 2,870
Goodwill, net................................... 2,554 2,742
Deposits and other assets....................... 2,786 2,286
==================== ==============
Total assets............................ $45,401 $50,210
==================== ==============
LIABILITIES
Current liabilities:
Long-term debt, current portion.............. $ 109 $ 54
Capital lease obligation, current portion.... 32 43
Accounts payable............................. 1,552 2,520
Accrued liabilities.......................... 4,304 5,687
Deferred revenue............................. 5,459 5,640
-------------------- --------------
Total current liabilities.................. 11,456 13,944
Long-term debt, less current portion............ - 156
Deferred revenue, less current portion.......... 131 146
Deferred income taxes........................... 489 489
-------------------- --------------
Total liabilities.......................... 12,076 14,735
-------------------- --------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, $.01 par value. Authorized
30,000 shares; issued and outstanding 15,598
shares at March 31, 1999 and 15,457 shares at
December 31, 1998. ............................. 156 155
Additional paid-in capital...................... 44,122 44,039
Accumulated deficit............................. (10,953) (8,719)
-------------------- --------------
Total stockholders' equity................. 33,325 35,475
-------------------- --------------
Total liabilities and stockholders'
equity. $45,401 $50,210
==================== ==============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
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<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1999 1998
------------- ------------
<S> <C> <C>
Revenue:
Product licenses................................. $4,056 $8,201
Maintenance and services......................... 2,760 2,064
Other............................................ - 92
------------- ------------
Total revenue.................................. 6,816 10,357
Cost of revenue:
Product licenses................................. 132 193
Maintenance and services......................... 257 225
Amortization of purchased technologies........... 165 165
------------- ------------
Total cost of revenue.......................... 554 583
------------- ------------
Gross profit................................ 6,262 9,774
------------- ------------
Operating expenses:
Research and development......................... 2,676 2,929
Sales and marketing.............................. 2,908 3,048
General and administrative....................... 1,167 1,062
Amortization of goodwill and other intangibles... 698 698
Non-recurring charges............................ 1,340 -
------------- ------------
Total operating expenses....................... 8,789 7,737
------------- ------------
Income (loss) from operations....................... (2,527) 2,037
Interest expense.................................... (1) (1)
Other income, net................................... 294 289
------------- ------------
Income (loss) before income taxes................... (2,234) 2,325
Income tax provision................................ - 923
------------- ------------
Net income (loss) .................................. $(2,234) $ 1,402
============= ============
Earnings (loss) per share:
Basic......................................... $ (0.14) $ 0.09
============= ============
Diluted ..................................... $ (0.14) $ 0.09
------------- ------------
Number of shares used computing
earnings (loss) per share:
Basic......................................... 15,576 14,910
============= ============
Diluted ..................................... 15,576 16,190
============= ============
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
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<PAGE>
SUMMIT DESIGN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ (2,234) $1,402
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 1,262 1,117
Amortization of contingent share liabiltiy...... - 550
Deferred taxes.................................. - (51)
Equity in losses of and transactions with
unconsolidated joint venture.................. 60 -
Changes in assets and liabilities:
Accounts receivable........................ 133 (268)
Prepaid expenses and other................. 315 95
Accounts payable........................... (968) 49
Accrued liabilities........................ (1,383) (261)
Deferred revenue........................... (196) (172)
Other, net................................. (150) 153
------------- -------------
Net cash provided by (used in) operating
activities...................................... (3,161) 2,614
------------- -------------
Cash flows from investing activities:
Additions to furniture and equipment................. (418) (452)
Notes receivable from related parties, net........... (410) (125)
------------- -------------
Net cash used in investing activities............. (828) (577)
------------- -------------
Cash flows from financing activities:
Issuance of common stock, net of issuance costs...... 84 288
Tax benefit of option exercises...................... - 450
Payments to acquire treasury stock................... - (2,329)
Principal payments of debt obligations............... (101) (2)
Principal payments of capital lease obligations...... (11) (15)
------------- -------------
Net cash used in financing activities............. (28) (1,608)
------------- -------------
Increase (decrease) in cash and cash equivalents.. (4,017) 429
Cash and cash equivalents, beginning of period............ 27,693 19,973
------------- -------------
Cash and cash equivalents, end of period.................. $ 23,676 $20,402
============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest........................................ $ 1 $ 1
Income taxes.................................... 1,166 547
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements
-5-
<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared by Summit
Design, Inc. ("Summit" or "the Company") in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted in accordance with such rules and regulations. In the
opinion of management, the accompanying unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company, and its
results of operations and cash flows. These financial statements should be
read in conjunction with the audited financial statements and notes thereto
for the years ended December 31, 1998, 1997 and 1996 included in the
Company's Form 10-K filed for December 31, 1998.
The results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999 or any other future interim period, and the Company makes
no representations related thereto.
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<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
2. BALANCE SHEET COMPONENTS (IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
---------------------- ----------------------
(Unaudited)
<S> <C> <C>
Accounts receivable:
Trade receivables............................... $ 9,230 $ 9,363
Less allowance for doubtful accounts............ (511) (511)
---------------------- ----------------------
$ 8,719 $ 8,852
====================== ======================
Furniture and equipment:
Office furniture equipment ..................... $ 1,324 $ 1,201
Computer equipment.............................. 5,320 5,138
Leasehold improvements.......................... 604 491
---------------------- ----------------------
7,248 6,830
Less: accumulated depreciation and amortization.... (3,116) (2,717)
---------------------- ----------------------
$ 4,132 $ 4,113
====================== ======================
Accrued expenses:
Payroll and related benefits.................... $ 1,841 $ 3,051
Severance....................................... 1,340 -
Sales and marketing............................. 140 332
Accounting and legal............................ 302 310
Federal and state income taxes payable.......... 372 1,549
Sales taxes payable............................. 46 160
Other ......................................... 263 285
---------------------- ----------------------
Total accrued expenses........................ $ 4,304 $ 5,687
====================== ======================
</TABLE>
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<PAGE>
SUMMIT DESIGN, INC.
Notes to Condensed Consolidated Financial Statements
(In thousands, except per share data)
3. RECONCILIATION OF EARNINGS PER SHARE
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share." In accordance with SFAS No.
128, basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Dilutive common equivalent
shares consist of common stock issuable upon exercise of stock options using
the treasury stock method. The following provides a reconciliation of the
numerators and denominators of the basic and diluted per share computations:
<TABLE>
<CAPTION>
March 31,
---------------------------------
1999 1998
---------------- ----------------
(Unaudited)
<S> <C> <C>
Numerator:
Net income (loss) $ (2,234) $ 1,402
========= =======
Denominator:
Denominator for basic earnings (loss) per share:
Weighted average shares 15,576 14,910
Effect of dilutive securities:
Employee stock options - 1,280
--------- -------
Denominator for diluted earnings (loss) per share 15,576 16,190
========= =======
Net income (loss) per share - basic $(0.14) $ 0.09
========= =======
Net income (loss) per share - diluted $(0.14) $ 0.09
========= =======
</TABLE>
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<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IMPORTANT NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions identify such
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those indicated in the forward-looking statements. Factors which could
cause actual results to differ materially include those set forth in the
following discussion, and, in particular, the risks discussed below under the
subheading "Additional Risk Factors that Could Affect Operating Results and
Market Price of Stock." Unless required by law, the Company undertakes no
obligation to update publicly any forward-looking statements.
OVERVIEW
Summit was founded in December 1993 to act as the holding company for Test
Systems Strategies, Inc. ("TSSI") and SEE Technologies, (now Summit Design
(EDA) Ltd.) (collectively, the "Reorganization"). TSSI was founded in 1979 to
develop and market integrated circuit ("IC" or "chip") manufacturing test
products. In January 1993, TSSI retained a new Chief Executive Officer and
began to restructure its senior management team. Thereafter, the Company
broadened its strategy from focusing primarily on manufacturing test products
to include providing HLDA design creation and verification tools and
integrating these with its core technology. As part of its strategy, in early
1994, TSSI acquired SEE Technologies, an Israeli company that, through its
predecessor, began operations in 1983 and had operated primarily as a
research and development and consulting company focused on the electronic
design automation ("EDA") market. As a result of the Reorganization, TSSI and
SEE Technologies became wholly-owned subsidiaries of Summit in the first
quarter of 1994.
Prior to the Reorganization, the Company's TDS product and related
maintenance revenue accounted for all of the Company's revenue. After the
Reorganization and through June 30, 1997, the Company's revenue was
predominantly derived from two product lines, Visual HDL, which includes
Visual HDL for VHDL and Visual HDL for Verilog, and TDS. As a result of the
July 1997 sale of the TDS product line, Design to Test products are no longer
a source of revenue for the Company. With the acquisition of TriQuest Design
Automation, Inc. ("TriQuest") in February 1997, Simulation Technologies Corp
("SimTech"), in September 1997, and ProSoft OY ("ProSoft") in June 1998, the
Company has also derived revenue from verification products which include
hardware-software co-verification, code coverage, and HDL debugging products
as well as analysis, verification and RTL optimization tools.
Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer training. Product license revenue is
derived from the sale of software licenses to distributors and end-users.
Revenue from the sale of software licenses is recognized upon shipment of the
product if remaining vendor obligations are insignificant and collection of
the resulting receivable is probable, otherwise revenue from such software
products is deferred until such time as vendor obligations are met.
Maintenance revenue is deferred and recognized ratably over the term of the
maintenance agreement, which is typically 12 months. Revenue from customer
training is recognized when the service is performed. Revenue earned on
software arrangements involving multiple elements is allocated to each
element based on vendor-specific objective evidence (VSOE) of the fair value
of the various elements within the arrangement. The Company sells its
products through a direct sales force in North America and selected European
countries and through distributors in the Company's other international
markets. Revenue from product sales through distributors is recognized net of
the associated distributor discounts. Fees received for granting distribution
rights are deferred and recognized ratably over the term of the distribution
agreement. Although the Company has not adopted a formal return policy, the
Company generally reimburses customers in full for returned products.
Estimated sales returns are recorded when the related revenue is recognized.
The Company's products perform a variety of functions, certain of which are,
and in the future may be, offered as separate products or discrete point
solutions by the Company's existing and future competitors. For example,
certain companies currently offer design entry products without simulators.
There can be no
-9-
<PAGE>
assurance that such competition will not cause the Company to offer point
solutions instead of, or in addition to, the Company's current software
products. Such point solutions would be priced lower than the Company's
current product offerings and could cause the Company's average selling
prices to decrease. Accordingly, based on these and other factors, the
Company expects that average selling prices for its products may continue to
fluctuate in the future.
Summit entered into a joint venture with Anam, effective April 1, 1996,
pursuant to which the joint venture corporation (Summit Asia, Ltd. ("Summit
Asia")) acquired exclusive rights to sell, distribute and support all of
Summit's products in the Asia-Pacific regions, excluding Japan. Prior to that
date, Anam was an independent distributor of Summit's products in Korea. In
April 1998, the joint venture corporation, Summit Asia, which is
headquartered in Korea, was renamed Asia Design Corporation ("ADC"). In May
1998, Summit exchanged a portion of its ownership in ADC for ownership in
another company located in Hong Kong, Summit Design Asia, Ltd. ("SDA"). SDA
also acquired an equity investment in ADC. In June 1998, Summit and Anam each
loaned SDA $750,000, which is guaranteed by ADC. SDA acquired from ADC the
exclusive rights to sell, distribute and support Summit's products in Asia
Pacific region, excluding Japan. SDA granted distribution rights to Summit's
products to ADC for the Asia Pacific region, excluding Japan. For the three
months ended March 31, 1999 and 1998, sales through SDA and ADC combined
accounted for approximately 1% and 4% of Summit's revenue, respectively.
The Company accounts for its ownership interest in SDA and ADC on the equity
method of accounting and, as a result, the Company's share of the earnings
and losses of SDA and ADC are recognized as income or losses in the Company's
income statement in "Other income, net." The Company does not expect SDA or
ADC to recognize a profit for the foreseeable future and thus does not expect
to recognize income from its investment in SDA or ADC for the foreseeable
future, if at all. There can be no assurance that the restructuring will
result in SDA or ADC becoming profitable or that revenue attributable to
sales in the Asia Pacific region, excluding Japan, would increase.
Approximately 47% and 32% of the Company's total revenue for the three months
ended March 31, 1999 and 1998, respectively, were attributable to sales made
outside the United States which includes the Asia Pacific region and Europe.
Approximately, 29% and 21% of the Company's revenue for the three months
ended March 31, 1999 and 1998, respectively, were attributable to sales made
in the Asia Pacific region and approximately 18% and 11% the Company's
revenue for the three months ended March 31, 1999 and 1998, respectively,
were attributable to sales made in Europe. The increase in the percentage of
revenue from sales made outside the United States in 1999 is due to a
decrease in domestic sales, primarily as a result of the Company ceasing to
receive revenue from Credence Systems Corporation ("CSC") pursuant to
an OEM agreement. As of December 31, 1998, CSC had satisfied its obligations
under the OEM agreement and the Company will not receive any additional
revenue pursuant to the OEM agreement. The Company expects that international
revenue will continue to represent a significant portion of its total
revenue. The Company's international revenue is currently denominated in U.S.
dollars. As a result, increases in the value of the U.S. dollar relative to
foreign currencies could make the Company's products more expensive and,
therefore, potentially less competitive in those markets. The Company pays
the expenses of its international operations in local currencies and does not
engage in hedging transactions with respect to such obligations.
International sales and operations are subject to numerous risks, including
tariff regulations and other trade barriers, requirements for licenses,
particularly with respect to the export of certain technologies,
collectability of accounts receivable, changes in regulatory requirements,
difficulties in staffing and managing foreign operations and extended payment
terms. There can be no assurance that such factors will not have a material
adverse effect on the Company's future international sales and operations
and, consequently, on the Company's business, financial condition, results of
operations or cash flows. In addition, financial markets and economies in the
Asia Pacific region have been experiencing adverse economic conditions.
Demand for and sales of Summit's products in the Asia Pacific region have
decreased and there can be no assurance that such adverse economic conditions
will not worsen or that demand for and sales of Summit's products in such
region will not further decrease.(1)
- ----------------------------
(1) This paragraph contains forward-looking statements reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 18 for a discussion of factors that could affect future performance.
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<PAGE>
On February 28, 1997, Summit completed its acquisition of TriQuest. TriQuest
develops HDL analysis, optimization, and verification tools for the design of
high performance, deep submicron integrated circuits. The transaction has
been accounted for as a "pooling of interest" in accordance with generally
accepted accounting principles.
Effective July 1, 1997 the Company sold substantially all of the assets used
in its business of developing and marketing its Test Development Series "TDS"
Products (the "Asset Sale") to CSC. As of July 1, 1997, TDS products ceased
to be a source of such revenues. CSC assumed the Company's obligations under
TDS maintenance contracts entered into prior to the closing and the Company
has not recognized deferred revenue associated with such contracts since June
30, 1997.
The Company maintained exclusive rights to its Visual Testbench technology
and CSC agreed to purchase a minimum of $16 million of Visual Testbench
licenses over a thirty-month period beginning July 1997, subject to specified
quarterly maximums and certain additional conditions, and $2 million of
maintenance over an eighteen-month period beginning July 1997. In December
1998, the Company and CSC agreed to amend the agreement and as of December
31, 1998, CSC had satisfied its obligation to purchase $16.0 million of
Visual Testbench licenses. CSC also obtained shared ownership of the Visual
Testbench source code in December 1998 and has the right to sell Visual
Testbench licenses based on the source code received from the Company.
On September 9, 1997, the Company acquired SimTech, a company that develops
and distributes hardware-software co-verification, code coverage and HDL
debugging software. The aggregate consideration for the acquisition was
1,256,800 shares of Summit common stock, 723,200 options to purchase Summit
common stock and $3.9 million in cash. The transaction was accounted for
using the purchase method of accounting. Accordingly, SimTech's results of
operations for the period from September 9, 1997 are included in the
consolidated statements of operations. The purchase price was allocated to
the net assets acquired based on their estimated fair market values at the
date of acquisition.
After discussion with the staff of the Securities and Exchange Commission
(the "Staff") the Company restated the consolidated financial statements as
of and for the quarters ended September 30, 1997, March 31, 1998, June 30,
1998 and September 30, 1998 and as of December 31, 1997 and for the year
ended December 31, 1997 to reflect a change in the original accounting
treatment to the September 1997 acquisition of SimTech.
In connection with the acquisition of SimTech, the Company repurchased
939,000 shares of common stock in a private transaction at an average price of
$12.30 per share for $11.6 million in September 1997.
On December 23, 1997, the Company announced that the Board of Directors had
authorized the repurchase of up to 750,000 shares of the Company's Common
Stock. From January 1, 1998 to May 12, 1998, the Company repurchased 162,500
shares of its common stock at a cost of $2.3 million. The Company
subsequently issued these shares through the exercise of stock options during
the three months ended June 30, 1998. On June 29, 1998, the Company cancelled
this stock repurchase plan.
On June 30, 1998 the Company completed its acquisition of ProSoft. ProSoft
develops software tools used to verify embedded systems software prior to the
availability of a hardware prototype. The aggregate consideration for the
acquisition (including shares of common stock reserved for issuance upon
exercise of ProSoft options which were exchanged for options of Summit) was
248,334 shares of common stock. The transaction has been accounted for as a
pooling of interests in accordance with generally accepted accounting
principles. In compliance with such principles, Summit's financial statements
have been restated to include the accounts of ProSoft as if the acquisition
had occurred at the beginning of the first period presented.
In September 1998, the Company announced its proposed acquisition of OrCAD,
Inc. In February 1999, Summit announced that its planned acquisition of
OrCAD, Inc. had been terminated. During the quarter ended December 31, 1998,
the Company incurred approximately $1.0 million in costs related to the
terminated acquisition.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain financial
data as a percentage of revenue.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Revenue:
Product licenses.......................... 59.5 % 79.2 %
Maintenance and services.................. 40.5 19.9
Other..................................... - 0.9
---------- ----------
Total revenue........................ 100.0 100.0
Cost of revenue:
Product licenses.......................... 1.9 1.8
Maintenance and services.................. 3.8 2.2
Amortization of purchased technologies ... 2.4 1.6
---------- ----------
Total cost of revenue................ 8.1 5.6
---------- ----------
Gross profit......................... 91.9 94.4
Operating expenses:
Research and development.................. 39.3 28.3
Sales and marketing....................... 42.7 29.4
General and administrative ............... 17.1 10.3
Amortization of goodwill and other
intangibles............................ 10.2 6.7
Non-recurring charges (a)................. 19.7 -
---------- ----------
Total operating expenses............. 129.0 74.7
---------- ----------
Income (loss)from operations................... (37.1) 19.7
Other income, net.............................. 4.3 2.7
---------- ----------
Income (loss) before income taxes.............. (32.8) 22.4
Income tax provision........................... - 8.9
---------- ----------
Net income (loss).............................. (32.8) % 13.5 %
========== ==========
</TABLE>
(a) Non-recurring charges relate to severance obligations to certain
management personnel which will be paid in future periods.
TOTAL REVENUE
Total revenue decreased by 34.2% from $10.4 million for the three months
ended March 31, 1998 to $6.8 million for the three months ended March 31,
1999. Sales through one distributor accounted for 26.6% and 21.0% of the
Company's total revenue for the three months ended March 31, 1999 and 1998,
respectively. Sales to CSC accounted for 31.2% of the Company's total revenue
for the three months ended March 31, 1998. Such revenue included $2.9 million
of Visual Testbench license sales made pursuant to an OEM agreement with CSC.
As of December 31, 1998, CSC had fully satisfied its obligation to purchase
Visual Testbench Licenses pursuant to the OEM agreement and the Company does
not expect to receive any additional revenue from sales of Visual Testbench
licenses to CSC. The Company did not receive any revenue from CSC for the
three months ended March 31, 1999. Revenue generated pursuant to another OEM
agreement accounted for 14.9% and 7.2% of the Company's total revenue for the
three months ended March 31, 1999 and 1998, respectively.
REVENUE
PRODUCT LICENSES REVENUE
The Company's product licenses revenue is derived from license fees from the
Company's HLDA products. Product licenses revenue decreased by 50.5% from
$8.2 million for the three months ended March 31, 1998
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<PAGE>
to $4.1 million for the three months ended March 31, 1999. The decrease in
product licenses revenue was primarily attributable to the Company ceasing to
receive revenue from CSC pursuant to the OEM Agreement. The decrease was also
attributable to decreased sales as a result of the Company hiring fewer sales
and marketing personnel than planned in the fourth quarter of 1998 and the
first quarter of 1999 and attrition in the existing sales force during the
first quarter of 1999.
MAINTENANCE AND SERVICES REVENUE
The Company's maintenance and services revenue is derived from maintenance
contracts related to the Company's HLDA products and training classes offered
to purchasers of the Company's software products. Maintenance and services
revenue increased 33.7% from $2.1 million for the three months ended March
31, 1998 to $2.8 million for the three months ended March 31, 1999. This
increase is primarily attributable to maintenance contract renewals by the
installed base of HLDA customers, and to a lesser extent from non-recurring
engineering services provided to one customer which is not expected to
reoccur.
OTHER REVENUE
Other revenue consists of revenue from one-time technology sales and fees
received for granting distribution rights. Other revenue decreased 100% from
$92,000 for the three months ended March 31, 1998 to $0 for the three months
ended March 31, 1999. Although the Company renewed a significant distribution
agreement the renewal did not include additional fees. As a result, the
distribution rights fees paid at the inception of the agreement and amortized
into revenue at $92,000 each quarter over the agreement period were no longer
be a source of other revenue as of December 31, 1998.
COST OF REVENUE
COST OF PRODUCT LICENSES REVENUE
Cost of product licenses revenue includes product packaging, software
documentation, labor and other costs associated with handling, packaging and
shipping product and other production related costs. The cost of product
licenses revenue decreased 31.6% from $193,000 for the three months ended
March 31, 1998 to $132,000 for the three months ended March 31, 1999. As a
percentage of product licenses revenue, the cost of product licenses revenue
increased from 2.4% of product license revenue for the three months ended
March 31, 1998 to 3.3% of product license revenue for the three months ended
March 31, 1999. This increase as a percent of product license revenue was
primarily due to fixed costs spread over decreased product license revenue.
COST OF MAINTENANCE AND SERVICES REVENUE
Cost of maintenance and services revenue, which consists primarily of
personnel costs for customer support and training classes offered to
purchasers of the Company's products, increased 14.2% from $225,000 for the
three months ended March 31, 1998 to $257,000 for the three months ended
March 31, 1999. As a percentage of maintenance and services revenue, the cost
of maintenance and services revenue decreased from 10.9% for the three months
ended March 31, 1998 to 9.3% for the three months ended March 31, 1999. The
decrease in the cost of maintenance and services revenue as a percent of
revenue for the three months ended March 31, 1999 over the same period in
1998 was primarily the result of increased maintenance and services revenue
in 1999.
Amortization of Purchased Technologies
The Company recorded $2.4 million of purchased technologies (intangibles) as
part of the SimTech acquisition which are being amortized to cost of revenue
on a straight-line basis over periods ranging from two to five years
beginning September 9, 1997. The Company expensed $165,000 for the three
months ended March 31, 1999 and 1998.
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<PAGE>
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
Research and development expenses consist of the engineering and operations
support costs of developing new products and enhancements to existing
products and performing quality assurance activities. Research and
development expenses decreased 8.6% from $2.9 million for the three months
ended March 31, 1998 to $2.7 million for the three months ended March 31,
1999. Research and development expenses for the three months ended March 31,
1998 included $550,000 of compensation expense recorded in connection with
the Company's acquisition of SimTech in September 1997. The Company recorded
a total of $4.4 million of compensation expense for shares issued as part of
the acquisition which were contingent upon continued employment and were
being expensed as the employment obligation lapsed. This expense was being
recorded on a straight-line basis over the two year employment obligation
period. However, in December 1998, the employment agreements to which this
contingent compensation related were amended to eliminate the continued
employment obligation and at that time, the remaining unrecorded compensation
was expensed. Excluding the $550,000 of compensation expense recorded in the
three months ended March 31, 1998, research and development expense increased
12.5% from $2.4 million for the three months ended March 31, 1998 to $2.7
million for the same period in 1999. As a percentage of total revenue,
research and development expenses (including the $550,000 of compensation
expense) increased from 28.3% for the three months ended March 31, 1998 to
39.3% for the three months ended March 31, 1999. The increase in research and
development expenses as a percent of revenue is the result of decreased total
revenues for the three months ended March 31, 1999. The Company continues to
believe that significant investment in research and development is required
to remain competitive in its markets, and the Company therefore anticipates
that research and development expense will increase in absolute dollars in
future periods, but may vary as a percent of revenue.(2)
SALES AND MARKETING
Sales and marketing expenses, consisting primarily of salaries, commissions
and promotional costs, decreased 4.6% from $3.0 million for the three months
ended March 31, 1998 to $2.9 million for the three months ended March 31,
1999. This decrease was primarily attributable to the Company hiring fewer
sales and marketing personnel than planned in the fourth quarter of 1998 and
the first quarter of 1999 and attrition in the existing sales force during
the first quarter of 1999. As a percentage of total revenue, sales and
marketing expenses increased from 29.4% for the three months ended March 31,
1998 to 42.7% for the three months ended March 31, 1999. The increase as a
percentage of total revenue was primarily attributable to the decrease in
total revenue for 1999. In the future, the Company expects sales and
marketing expenses to continue to increase in absolute dollars, in part due
to the hiring of additional sales and marketing personnel.(2)
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of the corporate,
finance, human resource, information services, administrative, and legal and
accounting expenses of the Company. General and administrative expenses
increased 9.9% from $1.1 million for the three months ended March 31, 1998,
to $1.2 million for the three months ended March 31, 1999. As a percentage of
total revenue, general and administrative expenses increased from 10.3% for
the three months ended March 31, 1998 to 17.1% for the three months ended
March 31, 1999. The increase as a percentage of total revenue was
attributable to the decrease in total revenue in 1999. The Company expects
general and administrative expenses to increase in absolute dollars to
support future sales and operations.(2)
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(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 18 for a discussion of factors that could affect future performance.
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<PAGE>
AMORTIZATION OF INTANGIBLES AND GOODWILL
The Company recorded $4.1 million in intangibles (excluding $2.4 million of
purchased technologies) and $3.8 million of goodwill as part of the SimTech
acquisition which are being amortized to expense on a straight-line basis
over periods ranging from two to five years beginning September 9, 1997. The
Company expensed $698,000 for the three months ended March 31, 1999 and 1998,
respectively.
NON-RECURRING CHARGES
During the three months ended March 31, 1999, the Company recorded $1.3
million in non-recurring charges related to severance obligations for certain
management personnel, which will be paid in future periods. The Company did
not record any non-recurring charges for the three months ended March 31,
1998.
INTEREST EXPENSE
Interest expense remained constant at $1,000 for the three months ended March
31, 1999 and 1998. The Company incurred no interest expense associated with
the Company's bank line of credit for the three months ended March 31, 1999
and 1998.
OTHER INCOME, NET
Other income consists of interest income associated with available cash
balances, gains or losses from the sale of property and equipment, the
Company's pro rata share of the earnings and losses of SDA and ADC and
foreign exchange rate differences resulting from paying operating expenses of
foreign operations in the local currency. Other income was $289,000 for the
three months ended March 31, 1998 and $294,000 for the three months ended
March 31, 1999.
INCOME TAX PROVISION
The income tax provision decreased from $923,000 for the three months ended
March 31, 1998 to $0 for the three months ended March 31, 1999. The income
tax provision for the three months ended March 31, 1998 reflects the
Company's estimated consolidated tax rate for federal, state and foreign
taxes of approximately 40% of income. The Company's estimated effective rate
for the year ending December 31, 1999 is 0%, as the Company does not expect
to generate either taxable income or net operating losses in 1999.
EFFECTIVE CORPORATE TAX RATES
Prior to 1996, the Company had experienced losses for income tax purposes in
the United States. In 1997, the Company recognized the benefit of its U.S.
net operating loss carryforwards and tax credit carryforwards in its
financial statements.
The Company's Israeli operations are performed entirely by Summit Design
(EDA) Ltd., which is a separate taxable Israeli entity. The Company's
existing Israeli production facility has been granted "Approved Enterprise"
status under the Israeli Investment Law, which entitles the Company to
reductions in the tax rate normally applicable to Israeli companies with
respect to the income generated by its "Approved Enterprise" programs. In
particular, the tax holiday covers the seven year period beginning the first
year in which Summit Design (EDA) Ltd. generates taxable income from its
"Approved Enterprise" (after using any available NOLs), provided that such
benefits will terminate in 2006 regardless of whether the seven year period
has expired. The tax holiday provides that, during such seven year periods, a
portion of the Company's taxable income from its Israeli operations will be
taxed at favorable tax rates. The Company has recently applied for "Approved
Enterprise" status with respect to a new project and intends to apply in the
future with respect to additional projects. There can be no assurance that
the Company will be granted any approvals and therefore there can be no
assurance the Company will continue to have favorable tax status in Israel.
Management of the Company intends to permanently reinvest substantially all
earnings of the Israeli subsidiary
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<PAGE>
outside the U.S. If such earnings were remitted to the U.S., additional U.S.
federal and foreign taxes may be due.
The Company has foreign income tax net operating losses of approximately $5.6
million at December 31, 1998. These foreign losses were generated in Israel
over several years and have not yet received final assessment from the
Israeli government. Consequently, management is uncertain as to the
availability of a substantial portion of such foreign loss carryforwards.
The Company is also subject to risk that United States and foreign tax laws
and rates may change in a future period or periods, and that any such changes
may materially adversely affect the Company's tax rate. As a result of the
factors described above and other related factors, there can be no assurance
that the Company will maintain a favorable tax rate in future periods. Any
increase in the Company's effective tax rate, or variations in the effective
tax rate from period to period, could have a material adverse effect on the
Company's business, financial condition, results of operations and cash flows.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through a public offering
in 1996, the private placement of capital stock, as well as capital equipment
leases, borrowings under its bank line of credit, Israeli research and
development grants and cash generated from operations. As of March 31, 1999,
the Company had approximately $23.7 million in cash and cash equivalents.
Additionally, the Company had a $1.0 million bank line of credit which
expired on April 30, 1999. The Company does not intend to renew the line of
credit. As of March 31, 1999, the Company had no borrowings outstanding under
this line of credit.
The Company is obligated to lend up to $2.5 million to an independent
software Company pursuant to a secured loan agreement entered into during
July 1997. Borrowings under the agreement bear interest at prime plus 2%. At
March 31, 1999, $2.1 million had been advanced to the independent software
company.
As of March 31, 1999, the Company had working capital of approximately
$22.3 million.
For the three months ended March 31, 1999, net cash used in operating
activities was approximately $3.2 million. For the three months ended March
31, 1998, net cash generated by operating activities was approximately $2.6
million. Cash used in operations for the three months ended March 31, 1999
resulted from a net loss plus a reduction in accounts payable and accrued
liabilities, offset by depreciation and amortization. Cash generated by
operating activities resulted primarily from profitable operations and
depreciation and amortization less the decrease in deferred revenue and
accrued liabilities and the increase in accounts receivable for the three
months ended March 31, 1998.
Net cash used in investing activities was approximately $828,000 and $577,000
for the three months ended March 31, 1999 and 1998, respectively. Net cash
used in investing activities was related to the acquisition of furniture and
equipment and a loan to an independent software company for the three months
ended March 31, 1999 and 1998.
Net cash used by financing activities was approximately $28,000 and $1.6
million for the three months ended March 31, 1999 and 1998, respectively. For
the three months ended March 31, 1999, the use of cash was primarily from
debt repayment which was partially offset by proceeds from the issuance of
common stock through stock options plans For the three months ended March 31,
1998 the use of cash was primarily from repurchasing 162,500 shares of the
Company's common stock, less proceeds from the issuance of common stock and a
tax benefit from option exercises.
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<PAGE>
The Company presently believes that its current cash and cash equivalents
will satisfy the Company's anticipated working capital and other cash
requirements for at least the next 12 months.(2)
YEAR 2000
The Year 2000 issue results from computer programs written using two, rather
than four, digits to define the applicable year. These computer programs may
recognize a date using "00" as the year 1900 instead of 2000 and cause system
failures or miscalculations, material disruptions of business operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business operations. If Summit,
its significant customers, suppliers, service providers and other related
third parties fail to take the necessary steps to correct or replace these
problematic computer programs, the Year 2000 issue could have a material
adverse effect on Summit. Summit cannot, however, quantify the impact at this
time.
Summit has begun upgrading or replacing the software packages underlying its
financial, production, communication, desktop and other systems, as
appropriate, to address the Year 2000 issue. It has also performed an
in-depth analysis of all of its products and is in the process of modifying
those products that are not Year 2000 compliant. Moreover, Summit is
contacting all major external third parties that provide products and
services to Summit to assess their readiness for the Year 2000.
Management believes it has completed the review and assessment phase of
affected systems within Summit and those which are external to Summit. This
assessment indicated that most of Summit's significant internal information
systems could be affected by the Year 2000 issue, and that Summit could be
negatively impacted by non-compliance of related third parties. In addition,
this assessment concluded that certain of Summit's products were also at risk.
Summit has begun the remediation phase of Summit's internal information
technology systems and has set October 1999 as the target for Year 2000
compliance of all of Summit's internal information technology systems.
Summit's internal information technology systems include Summit's finance
systems and those systems used in the research and development of Summit's
products.
Summit's products are subject to periodic upgrades. These upgrades are
typically released to end-users once a year. Summit intends to modify its
products, as required, in order to make such products Year 2000 compliant by
July 1999.
Summit is currently in the process of creating contingency plans for its
internal information technology systems and products. These contingency plans
are expected to be in place by October 31, 1999. In the event Summit's
information technology systems and/or products are not Year 2000 compliant by
October 31, 1999, Summit will decide at that time whether to implement the
necessary contingency plan(s).
Summit has queried its important suppliers and service providers and is
presently obtaining assurances and verification from those selected third
parties that they are or will be Year 2000 complaint. The inability of those
parties to complete their Year 2000 resolution process could materially
impact Summit. The effects of non-compliance by third parties where no system
interface exists is not determinable.
Summit will determine whether a contingency plan is necessary in relation to
third parties with whom Summit has material relationships once the assessment
of these third parties' Year 2000 compliance is complete. It is anticipated
that third party assessment will be complete by July 31, 1999.
Concurrent with performing the above steps, Summit will make certain
investments in systems, applications and products to address Year 2000
issues. Summit has not tracked internal resources dedicated to the
- ----------------------------
(2) This sentence is a forward-looking statement reflecting current
expectations. There can be no assurance that the Company's actual future
performance will meet the Company's current expectations. Investors are
strongly encouraged to review the section entitled "Additional Risk Factors
That Could Affect Operating Results and Market Price of Stock" commencing on
page 18 for a discussion of factors that could affect future performance.
-17-
<PAGE>
resolution of the Year 2000 issue and, therefore, is unable to quantify
internal costs incurred to date that are associated with the Year 2000 issue.
Summit has, however, hired external consultants to resolve internal
information system issues related to the resolution of the Year 2000 issue.
Identifiable expenditures for these consultants were approximately $250,000
through December 31, 1998. Expenditures to resolve Year 2000 issues are not
expected to be material and are expected to be funded through cash generated
from operations.
Summit's plans to complete the Year 2000 modifications are based upon
management's best estimates, which were derived utilizing numerous
assumptions of future events including continued availability of certain
resources, and other factors. However, there can be no assurance that these
estimates will be achieved and actual results could differ materially from
those plans. Specific factors that might cause such material differences
included the availability and cost of personnel trained in this area, and the
ability to locate and correct all relevant computer codes.
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE
OF STOCK
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
FACTORS WHICH MAY CAUSE SUMMIT'S OPERATING RESULTS TO FLUCTUATE. Summit's
quarterly operating results and cash flows have fluctuated in the past and
have fluctuated significantly in certain quarters. Such fluctuations resulted
from several factors including the size and timing of orders, the incurrence
of a large one-time charge as a result of an acquisition, seasonal factors,
the rate of acceptance of new products, product, customer and channel mix,
and lengthy sales cycles. These fluctuations are likely to continue in future
periods as a result of the factors discussed above and potentially due to
corporate acquisitions and consolidations and the integration of acquired
entities and the incurrence of any large one-time charges as a result of any
acquisitions, the timing of new product announcements and introductions by
Summit and its competitors, the rescheduling or cancellation of customer
orders, Summit's ability to continue to develop and introduce new products
and product enhancements on a timely basis, the level of competition,
purchasing and payment patterns, pricing policies of Summit and its
competitors, product quality issues, currency fluctuations and general
economic conditions.
REVENUE DIFFICULT TO FORECAST. Summit's revenue is difficult to forecast for
several reasons. Summit operates with little product backlog because its
products are typically shipped shortly after orders are received.
Consequently, license backlog at the beginning of any quarter has in the past
represented only a small portion of that quarter's expected revenue. As a
result, license fee revenue in any quarter is difficult to forecast because
it is substantially dependent on orders booked and shipped in that quarter.
Moreover, Summit generally recognizes a substantial portion of its revenue in
the last month of the quarter, frequently in the latter part of the month.
Any significant deferral of purchases of the Company's products could have a
material adverse effect on the Company's business, financial condition and
results of operations in any particular quarter, and, to the extent that
significant sales occur earlier than expected, operating results for
subsequent quarters may be adversely affected. Quarterly license fee revenue
is also difficult to forecast because Summit's sales cycle is typically six
to nine months and varies substantially from customer to customer. In
addition, a portion of Summit's sales are made through indirect channels and
can be harder to predict.
SHORTFALLS IN REVENUE COULD ADVERSELY IMPACT QUARTERLY OPERATING RESULTS.
Summit establishes its expenditure levels for product development, sales and
marketing and other operating activities based primarily on its expectations
as to future revenue. Because a high percentage of Summit's expenses are
relatively fixed in the near term, if revenue in any quarter is below
expectations, expenditure levels could be disproportionately high as a
percentage of revenue and Summit's operating results would be materially
adversely affected.
OPERATING RESULTS LIKELY TO FLUCTUATE. Based upon the factors described
above, Summit believes that its quarterly revenue, expenses and operating
results are likely to vary significantly from quarter to quarter, that
period-to-period comparisons of its operating results are not necessarily
meaningful and that, as a result, such comparisons should not be relied upon
as indications of Summit's future performance. Additionally, as of
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<PAGE>
December 31, 1998, CSC had satisfied its obligation to purchase a minimum
number of Visual Testbench licenses pursuant to an OEM agreement entered into
in July 1997, and the Company does not expect to receive any additional
revenue from sales of Visual Testbench to CSC. Summit will need to replace
this revenue and the failure of Summit to replace this revenue would have a
material adverse affect on Summit's operating results. In addition, Summit
operates with high gross margins and as such, a downturn in revenue has had a
significant impact on income from operations and net income. Due to the
foregoing or other factors, Summit's results of operations were below
investors' and market makers' expectations for the quarter ended March 31,
1999 and are likely to be below investors' and market makers' expectations in
other quarters, which could have a severe adverse effect on the market price
of Summit's Common Stock.
DEPENDENCE ON HLDA PRODUCTS
Summit's future success depends primarily upon the broad market acceptance of
Summit's existing and future HLDA products. Summit commercially shipped its
first HLDA product, Visual HDL for VHDL, in the first quarter of 1994. For
the years ended December 31, 1998, 1997 and 1996, revenue from HLDA products
and related maintenance contracts represented 100%, 88.8%, and 63.9%,
respectively, of Summit's total revenue. As a result, factors adversely
affecting sales of these products, including increased competition, inability
to successfully introduce enhanced or improved versions of these products,
product quality issues and technological change, could have a material
adverse effect on Summit's business, financial condition and results of
operations.
UNCERTAINTY OF BROAD MARKET ACCEPTANCE OF HLDA PRODUCTS
The Company's HLDA products incorporate certain unique design methodologies
and thus represent a departure from industry standards for design creation
and verification. The Company believes that broad market acceptance of its
HLDA products will depend on several factors, including the ability to
significantly enhance design productivity, ease of use, interoperability with
existing EDA tools, price and the customer's assessment of the Company's
financial resources and its technical, managerial, service and support
expertise. The Company also depends on its distributors to assist the Company
in gaining market acceptance of its products. There can be no assurance that
sufficient priority will be given by the Company's distributors to marketing
the Company's products or whether such distributors will continue to offer
the Company's products. There can be no assurance that the Company's HLDA
products will achieve broad market acceptance. A decline in the demand for,
or the failure to achieve broad market acceptance of, the Company's HLDA
products will have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.
Although demand for HLDA products has increased in recent years, the market
for HLDA products is still emerging and there can be no assurance that it
will continue to grow or that, even if the market does grow, businesses will
continue to purchase the Company's HLDA products. If the market for HLDA
products fails to grow or grows more slowly than the Company currently
anticipates, the Company's business, financial condition, results of
operations or cash flows would be materially adversely affected.
Traditionally, EDA customers have been risk averse in accepting new design
methodologies. Because many of Summit's tools embody new design
methodologies, this risk aversion on the part of potential customers presents
an ongoing marketing and sales challenge to the Company and makes the
introduction and acceptance of new products unpredictable. The Company's
Visual Testbench product, introduced in the fourth quarter of 1995, provides
a new methodology and requires a change in the traditional design flow for
creating IC test programs. Accordingly, the Company cannot predict the
extent, to which it will realize revenue from Visual Testbench in excess of
the revenue already received from CSC pursuant to an OEM agreement entered
into in July 1997.
COMPETITION
The EDA industry is highly competitive and the Company expects competition to
increase as other EDA companies introduce HLDA products. In the HLDA market,
the Company principally competes with
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<PAGE>
Mentor Graphics and a number of smaller firms. Indirectly, the Company also
competes with other firms that offer alternatives to HLDA and could
potentially offer more directly competitive products in the future. Certain
of these companies have significantly greater financial, technical and
marketing resources and larger installed customer bases than the Company.
Some of the Company's current and future competitors offer a more complete
range of EDA products and may distribute products that directly compete with
the Company's HLDA products by bundling such products with their core product
line. In addition, the Company's products perform a variety of functions,
certain of which are, and in the future may be, offered as separate products
or discrete point solutions by the Company's existing and future competitors.
For example, certain companies currently offer design entry products without
simulators. There can be no assurance that such competition will not cause
the Company to offer point solutions instead of, or in addition to, the
Company's current software products. Such point solutions would be priced
lower than the Company's current product offerings and could cause the
Company's average selling prices to decrease, which could have a material
adverse effect on the Company's business, financial condition, results of
operations, or cash flows.
The Company competes on the basis of certain factors including product
capabilities, product performance, price, support of industry standards, ease
of use, first to market and customer technical support and service. The
Company believes that they compete favorably overall with respect to these
factors. However, in particular cases, the Company's competitors may offer
HLDA products with functionality which is sought by the Company's prospective
customers and which differs from that offered by the Company. In addition,
certain competitors may achieve a marketing advantage by establishing formal
alliances with other EDA vendors. Further, the EDA industry in general has
experienced significant consolidation in recent years, and the acquisition of
one of the Company's competitors by a larger, more established EDA vendor
could create a more significant competitor. There can be no assurance that
the Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not have
a material adverse effect on its business, financial condition, results of
operations, or cash flows. There can be no assurance that the Company's
current and future competitors will not be able to develop products
comparable or superior to those developed by the Company or to adapt more
quickly than the Company to new technologies, evolving industry trends or
customer requirements. Increased competition could result in price
reductions, reduced margins and loss of market share, all of which could have
a material adverse effect on the Company's business, financial condition,
results of operations or cash flows.
DEPENDENCE ON ELECTRONICS INDUSTRY MARKET
Because the electronics industry is characterized by rapid technological
change, short product life cycles, fluctuations in manufacturing capacity and
pricing and margin pressures, certain segments, including the computer,
semiconductor, semiconductor test equipment and telecommunications
industries, have experienced sudden and unexpected economic downturns. During
these periods, capital spending is commonly curtailed and the number of
design projects often decreases. Because the Company's sales are dependent
upon capital spending trends and new design projects, negative factors
affecting the electronics industry could have a material adverse effect on
the Company's business, financial condition, results of operations, or cash
flows. A number of electronics companies, including customers of the Company,
have recently experienced a slowdown in their businesses. The Company's
future operating results may reflect substantial fluctuations from period to
period as a consequence of such industry patterns, general economic
conditions affecting the timing of orders from customers and other factors.
DEPENDENCE ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY
Because the Company's products must interoperate with EDA products of other
companies, particularly simulation and synthesis products, the Company must
have timely access to third party software to perform development and testing
of its products. Although the Company has established relationships with a
variety of EDA vendors to gain early access to new product information, these
relationships may be terminated by either party with limited notice. In
addition, such relationships are with companies that are current or potential
future competitors of the Company, including Synopsys, Mentor Graphics and
Cadence. If any of these relationships were terminated and the Company was
unable to obtain, in a timely manner, information regarding modifications of
third party products necessary for modifying its software products to
interoperate
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<PAGE>
with these third party products, the Company could experience a significant
increase in development costs, the development process would take longer,
product introductions would be delayed and the Company's business, financial
condition, results of operations or cash flows could be materially adversely
affected.
NEW PRODUCTS AND TECHNOLOGICAL CHANGE; EVOLVING INDUSTRY STANDARDS
The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and evolving industry standards. The
introduction of products embodying new technologies and the emergence of new
industry standards can render existing products obsolete and unmarketable. In
addition, customers in the EDA industry require software products that allow
them to reduce time to market, differentiate their products, improve their
engineering productivity and reduce their design errors. The Company's future
success will depend upon its ability to enhance its current products, develop
and introduce new products that keep pace with technological developments and
emerging industry standards and address the increasingly sophisticated needs
of its customers. There can be no assurance that the Company will be
successful in developing and marketing product enhancements or new products
that respond to technological change or emerging industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products, or that
its new products will adequately meet the requirements of the marketplace and
achieve market acceptance. 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, industry standards or other customer
requirements, particularly if such product releases have been pre-announced,
the Company's business, financial condition, results of operations or cash
flows will be materially adversely affected.
RISKS OF SOFTWARE DEFECTS
Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. The
Company has in the past discovered software errors in certain of its products
and has experienced delays in shipment of products during the period required
to correct these errors. There can be no assurance that, despite testing by
the Company and by current and potential customers, errors will not be found,
resulting in loss of, or delay in, market acceptance and sales, diversion of
development resources, injury to the Company's reputation or increased
service and warranty costs, any of which could have a material adverse effect
on the Company's business, financial condition, results of operations or cash
flows.
DEPENDENCE ON DISTRIBUTORS
The Company relies on distributors for licensing and support of its products
outside of North America. Approximately 46%, 24%, 23%, 29% and 46% of the
Company's revenue for the three months ended March 31, 1999 and 1998 and for
the years ended December 31, 1998, 1997 and 1996, respectively, were
attributable to sales made through distributors. Effective April 1, 1996, the
Company entered into a joint venture with Anam pursuant to which the joint
venture corporation Summit Asia acquired exclusive rights to sell, distribute
and support all of the Company's products in the Asia Pacific region,
excluding Japan. In April 1998, the joint venture corporation, Summit Asia,
which is headquartered in Korea, was renamed Asia Design Corporation "ADC."
In May 1998, Summit exchanged a portion of its ownership in ADC for ownership
in another company located in Hong Kong which was renamed Summit Design Asia,
Ltd. "SDA." SDA also has an equity investment in ADC. In June 1998, Summit
and Anam each loaned SDA $750,000, which is guaranteed by ADC. SDA acquired
from ADC the exclusive rights to sell, distribute and support Summit's
products in the Asia Pacific region, excluding Japan. SDA granted
distribution rights to Summit's products to ADC for the Asia Pacific region,
excluding Japan. There can be no assurance that this restructuring will
result in Summit Asia or ADC becoming profitable or that revenue attributable
to sales in the Asia Pacific region, excluding Japan, would increase. In
addition, in the first quarter of 1996, the Company entered into a
three-year, exclusive distribution agreement for its HLDA products in Japan
with Seiko. The agreement is renewable for successive five-year terms by
mutual agreement of the Company and Seiko and is terminable by either party
for breach. The agreement was renewed for an additional five-year term which
began in February 1999. In the event Seiko fails to meet specified quotas for
two or more quarterly periods, exclusivity can be terminated by Summit,
subject to Seiko's right to pay a specified fee to
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<PAGE>
maintain exclusivity. Sales through Seiko accounted for 27%, 21%, 18%, 15%,
and 15%, of Summit's total revenue for the three months ended March 31, 1999
and 1998 and for the years ended December 31, 1998, 1997, and 1996,
respectively.
There can be no assurance that Summit's relationships with Seiko, SDA, and
ADC will be effective in maintaining or increasing sales relative to the
levels experienced prior to such relationships. The Company also has
independent distributors in Europe and is dependent on the continued
viability and financial stability of its distributors. Since the Company's
products are used by skilled design engineers, distributors must possess
sufficient technical, marketing and sales resources and must devote these
resources to a lengthy sales cycle, customer training and product service and
support. Only a limited number of distributors possess these resources. In
addition, Seiko, SDA and ADC, as well as the Company's other distributors,
may offer products of several different companies, including competitors of
the Company. There can be no assurance that the Company's current
distributors will continue to market or service and support the Company's
products effectively, that any distributor will continue to sell the
Company's products or that the distributors will not devote greater resources
to products of other companies. The loss of, or a significant reduction in,
revenue from the Company's distributors could have a material adverse effect
on the Company's business, financial condition, results of operations or cash
flows.
INTERNATIONAL SALES AND OPERATIONS
Approximately 47%, 32%, 36%, 34%, and 50% of Summit's revenue for the three
months ended March 31, 1999 and 1998 and for the years ended December 31,
1998, 1997 and 1996, respectively, were attributable to sales made outside
the United States, which includes the Asia Pacific region and Europe.
Approximately, 29%, 21%, 22%, 22%, and 34% of Summit's revenue for the three
months ended March 31, 1999 and 1998 and for the years ended December 31,
1998, 1997 and 1996, respectively, were attributable to sales made in the
Asia Pacific region and approximately 18%, 11%, 14%, 12% and 16% of Summit's
revenue for the three months ended March 31, 1999 and 1998 and for the years
ended December 31, 1998, 1997 and 1996, respectively, were attributable to
sales made in Europe. The Company expects that international revenue will
continue to represent a significant portion of its total revenue. The
Company's international revenue is currently denominated in U.S. dollars. As
a result, increases in the value of the U.S. dollar relative to foreign
currencies could make the Company's products more expensive and, therefore,
potentially less competitive in those markets. The Company pays the expenses
of its international operations in local currencies and does not engage in
hedging transactions with respect to such obligations. International sales
and operations are subject to numerous risks, including tariff regulations
and other trade barriers, requirements for licenses, particularly with
respect to the export of certain technologies, collectability of accounts
receivable, changes in regulatory requirements, difficulties in staffing and
managing foreign operations and extended payment terms. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international sales and operations and, consequently, on the
Company's business, financial condition, results of operations or cash flows.
In addition, financial markets and economies in the Asia Pacific region have
been experiencing adverse economic conditions. Demand for and sales of
Summit's products in the Asia Pacific region have decreased and there can be
no assurance that such adverse economic conditions will not worsen or that
demand for and sales of Summit's products in such region will not further
decrease.
In order to successfully expand international sales, the Company may need to
establish additional foreign operations, hire additional personnel and
recruit additional international distributors. This will require significant
management attention and financial resources and could adversely affect the
Company's operating margins. In addition, to the extent that the Company is
unable to effect these additions in a timely manner, the Company's growth, if
any, in international sales will be limited. There can be no assurance that
the Company will be able to maintain or increase international sales of the
Company's products, and failure to do so could have a material adverse effect
on the Company's business, financial condition, results of operations or cash
flows.
MANAGEMENT OF GROWTH AND ACQUISITIONS
Summit's ability to achieve significant growth will require it to implement
and continually expand its operational and financial systems, recruit
additional employees and train and manage current and future
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<PAGE>
employees. Summit expects any such growth will place a significant strain on
its operational resources and systems. Failure to effectively manage any such
growth would have a material adverse effect on Summit's business, financial
condition, results of operations or cash flows.
The Company has consummated a series of acquisitions including the
acquisition of TriQuest in February 1997, SimTech in September 1997, and
ProSoft in June 1998 and regularly evaluates acquisition opportunities.
Future acquisitions by Summit, if any, could result in potentially dilutive
issuances of equity securities, the incurrence of debt and contingent
liabilities, amortization expenses related to goodwill and other intangible
assets, and large one-time charges which could materially adversely affect
Summit's results of operations. Product and technology acquisitions entail
numerous risks, including difficulties in the assimilation of acquired
operations, technologies and products, diversion of management's attention to
other business concerns, risks of entering markets in which Summit has no or
limited prior experience and potential loss of key employees of acquired
companies. Summit's management has had limited experience in assimilating
acquired organizations and products into Summit's operations. No assurance
can be given as to the ability of Summit to integrate successfully any
operations, personnel or products that have been acquired or that might be
acquired in the future, and the failure of Summit to do so could have a
material adverse effect on Summit's results of operations.
OPERATIONS IN ISRAEL
RISKS ASSOCIATED WITH OPERATING IN ISRAEL. The Company's research and
development operations related to its Visual HDL products are located in
Israel and may be affected by economic, political and military conditions in
that country. Accordingly, the Company's business, financial condition and
results of operations could be materially adversely affected if hostilities
involving Israel should occur. This risk is heightened due to the
restrictions on the Company's ability to manufacture or transfer outside of
Israel any technology developed under research and development grants from
the government of Israel as described in "--Israeli Research, Development and
Marketing Grants." In addition, while all of the Company's sales are
denominated in U.S. dollars, a portion of the Company's annual costs and
expenses in Israel are paid in Israeli currency. These costs and expenses
were approximately $5.2, $4.7 and $4.3 million in 1998, 1997 and 1996,
respectively. Payment in Israeli currency subjects the Company to foreign
currency fluctuations and to economic pressures resulting from Israel's
generally high rate of inflation, which has been approximately 9%, 7% and 11%
during 1998, 1997, and 1996, respectively. The Company's primary expense
which is paid in Israeli currency is employee salaries for research and
development activities. As a result, an increase in the value of Israeli
currency in comparison to the U.S. dollar could increase the cost of research
and development expenses and general and administrative expenses. There can
be no assurance that currency fluctuations, changes in the rate of inflation
in Israel or any of the other aforementioned factors will not have a material
adverse effect on the Company's business, financial condition, results of
operations, or cash flows. In addition, coordination with and management of
the Israeli operations requires the Company to address differences in
culture, regulations and time zones. Failure to successfully address these
differences could be disruptive to the Company's operations.
RISKS ASSOCIATED WITH "APPROVED ENTERPRISE" STATUS. The Company's Israeli
production facility has been granted the status of an "Approved Enterprise"
under the Israeli Investment Law for the Encouragement of Capital
Investments, 1959 (the "Investment Law"). Taxable income of a company derived
from an "Approved Enterprise" is eligible for certain tax benefits, including
significant income tax rate reductions for up to seven years following the
first year in which the "Approved Enterprise" has Israeli taxable income
(after using any available net operating losses). The period of benefits
cannot extend beyond 12 years from the year of commencement of operations or
14 years from the year in which approval was granted, whichever is earlier.
The tax benefits derived from a certificate of approval for an "Approved
Enterprise" relate only to taxable income attributable to such "Approved
Enterprise" and are conditioned upon fulfillment of the conditions stipulated
by the Investment Law, the regulations promulgated thereunder and the
criteria set forth in the certificate of approval. In the event of a failure
by the Company to comply with these conditions, the tax benefits could be
canceled, in whole or in part, and the Company would be required to refund
the amount of the canceled benefits, adjusted for inflation and interest. No
"Approved Enterprise" tax benefits had been realized by Summit from its
Israeli operations as of December 31, 1995 since the Israeli operations were
still incurring losses at that time. During 1996, Summit realized income of
$1.4
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<PAGE>
million from its Israeli operations and "Approved Enterprise" tax benefits of
$53,000. During 1997, Summit realized income of $2.7 million from its Israeli
operations and "Approved Enterprise" tax benefits of $702,000. During 1998,
Summit realized income of $4.3 million from its Israeli operations and
"Approved Enterprise" tax benefits of $1.9 million. Summit has recently
applied for "Approved Enterprise" status with respect to a new project and
intends to apply in the future with respect to additional projects. However,
there can be no assurance that the Company's Israeli production facility will
continue to operate or qualify as an "Approved Enterprise" or that the
benefits under the "Approved Enterprise" regulations will continue, or be
applicable, in the future. Management of Summit intends to permanently
reinvest earnings of the Israeli subsidiary outside the U.S. If such earnings
were remitted to the U.S., additional U.S. federal and foreign taxes may be
due. The loss of, or any material decrease in, these income tax benefits
could have a material adverse effect on the Company's business, financial
condition, results of operations or cash flows.
DEPENDENCE ON KEY PERSONNEL
The Company's success will continue to depend in large part on its key
technical and management personnel and its ability to continue to attract and
retain highly-skilled technical, sales and marketing and management
personnel. The Company has entered into employment agreements with certain of
its executive officers, however, such agreements do not guarantee the
services of these employees and do not contain non-competition provisions. In
addition, the Company recently entered into new employment agreements with
Larry Gerhard, the Company's Chief Executive Officer, and C. Albert Koob, the
Company's Chief Financial Officer. Mr. Gerhard is currently entitled to
certain guaranteed severance payments and has been provided incentives to
remain with the Company through June 30, 1999. The Company currently expects
that Mr. Gerhard will retire on or before December 31, 1999, most likely as
soon as this summer. However, the exact timing of his retirement will depend
on developments at the Company as well as personal considerations. The
Company is currently seeking a qualified replacement for Mr. Gerhard. Mr.
Koob's employment agreement provides that he is entitled to certain
guaranteed severance payments if he remains employed through July 31, 1999.
However, there can be no assurance that Mr. Koob will continue his employment
until such date. The Company's failure to timely hire suitable replacements
for either Mr. Gerhard or Mr. Koob prior to or after their departure could
have a material adverse effect on Summit.
Competition for personnel in the software industry in general, and the EDA
industry in particular, is intense, and the Company has at times in the past
experienced difficulty in recruiting qualified personnel. There can be no
assurance that the Company will retain its key personnel or that it will be
successful in attracting and retaining other qualified technical, sales and
marketing and management personnel in the future. The loss of any key
employees or the inability to attract and retain additional qualified
personnel may have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows. The Company has
obtained a $1 million "key person" life insurance policy on its Chief
Executive Officer. Additions of new personnel and departures of existing
personnel, particularly in key positions, can be disruptive and can result in
departures of additional personnel, which could have a material adverse
effect on the Company's business, financial condition, results of operations
or cash flows.
NEED TO BUILD AND EXPAND SALES AND MARKETING ORGANIZATIONS
The Company's success will depend on its ability to build and expand its
sales and marketing organizations. The Company hired fewer sales and
marketing personnel than planned in the fourth quarter of 1998 and the first
quarter of 1999 and experienced attrition in the existing sales force during
the first quarter of 1999. As a result of the lack of sales people, the
Company's revenues for the fourth quarter of 1998 and first quarter of 1999
were lower than expected. In February 1999, the Company's Senior Vice
President of Worldwide Marketing and Sales resigned. The Company is seeking a
Vice President of Sales and a Vice President of Marketing. The Company's
future success will depend in part on its ability to hire and retain
qualified sales and marketing personnel and the ability of these new persons
to rapidly and effectively transition into their new positions. Competition
for qualified sales and marketing personnel is intense, and the Company may
not be able to hire and retain the number of sales and marketing personnel
needed which would have a material adverse effect on the Company's business,
financial condition, results of operations or cash flows.
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<PAGE>
ISRAELI RESEARCH, DEVELOPMENT AND MARKETING GRANTS
Summit's Israeli subsidiary obtained research and development grants from the
Chief Scientist in the Israeli Ministry of Industry and Trade of
approximately $232,000 and $608,000 in 1993 and 1995, respectively. As of
December 31, 1997, all amounts have been repaid. The terms of the grants
prohibit the manufacture of products developed under these grants outside of
Israel and the transfer of the technology developed pursuant to these grants
to any person, without the prior written consent of the Chief Scientist. The
Company's Visual HDL for VHDL products have been developed under grants from
the Chief Scientist and thus are subject to these restrictions. If the
Company is unable to obtain the consent of the government of Israel, the
Company would be unable to take advantage of potential economic benefits such
as lower taxes, lower labor and other manufacturing costs and advanced
research and development facilities that may be available if such technology
and manufacturing operations could be transferred to locations outside of
Israel. In addition, the Company would be unable to minimize risks particular
to operations in Israel, such as hostilities involving Israel. Although the
Company is eligible to apply for additional grants from the Chief Scientist,
it has no present plans to do so. The Company received a Marketing Fund Grant
from the Israeli Ministry of Industry and Trade for an aggregate of $423,000.
The grant must be repaid at the rate of 3% of the increase in exports over
the 1993 export level of all Israeli products, until repaid. As of March 31,
1999, approximately $92,000 was outstanding under the grant.
LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
NO ASSURANCE THAT EFFORTS TO PROTECT PROPRIETARY TECHNOLOGY WILL SUCCEED. The
Company's success depends in part upon its proprietary technology. The
Company relies on a combination of copyright, trademark and trade secret
laws, confidentiality procedures, licensing arrangements and technical means
to establish and protect its proprietary rights. As part of its
confidentiality procedures, the Company generally enters into non-disclosure
agreements with its employees, distributors and corporate partners, and
limits access to, and distribution of, its software, documentation and other
proprietary information. In addition, the Company's products are protected by
hardware locks and software encryption techniques designed to deter
unauthorized use and copying. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use the Company's products
or technology without authorization, or to develop similar technology
independently.
The Company provides products to end-users primarily under "shrink-wrap"
license agreements included within the packaged software. In addition, the
Company delivers certain of its verification products electronically under an
electronic version of a "shrink-wrap" license agreement. These agreements are
not negotiated with or signed by the licensee, and thus may not be
enforceable in certain jurisdictions. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights as fully as do the
laws of the United States. There can be no assurance that the Company's means
of protecting its proprietary rights in the United States or abroad will be
adequate or that competitors will not independently develop similar
technology.
RISKS OF INFRINGEMENT CLAIMS. The Company could be increasingly subject to
infringement claims as the number of products and competitors in the
Company's industry segment grows, the functionality of products in its
industry segment overlaps and an increasing number of software patents are
granted by the United States Patent and Trademark Office. There can be no
assurance that a third party will not claim such infringement by the Company
with respect to current or future products. Any such claims, with or without
merit, could be time-consuming, result in costly litigation, cause product
delays or require the Company to enter into royalty or licensing agreements.
Such royalty or license agreements, if required, may not be available on
terms acceptable to the Company or at all. Failure to protect its proprietary
rights or claims of infringement could have a material adverse effect on the
Company's business, financial condition, results of operations or cash flows.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the
market prices of the stocks of many companies which may not have
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<PAGE>
been directly related to the operating performance of those companies. Such
broad market fluctuations may adversely affect the market price of the Common
Stock. In addition, factors such as announcements of technological
innovations or new products by the Company or its competitors, market
conditions in the computer software or hardware industries and quarterly
fluctuations in the Company's operating results may have a significant
adverse effect on the market price of the Company's Common Stock.
YEAR 2000
Summit is currently reviewing its products, internal systems and
infrastructure in order to identify and modify those products and systems
that are not Year 2000 compliant. Summit expects any required modification to
be made on a timely basis and does not believe that the cost of any such
modification will have a material adverse effect on Summit's operating
results. There can be no assurance, however, that there will not be a delay
in, or increased costs associated with, implementation of any such
modifications and inability to implement such modifications could have an
adverse effect on Summit's future operating results.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from interest rate changes, foreign
currency fluctuations, and changes in the market values of its investments.
INTEREST RATE RISK. The Company invests its excess cash in debt instruments
of the U.S. Government and its agencies, and in high-quality corporate
issuers and, by policy, limits the amount of credit exposure to any one
issuer. The Company attempts to protect and preserve its invested funds by
limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their
fair market value adversely impacted due to a rise in interest rates, while
floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment
income may fall short of expectations due to changes in interest rates and
the Company may suffer losses in principal if forced to sell securities which
have declined in market value due to changes in interest rates.
FOREIGN CURRENCY RISK. The Company pays the expenses of its international
operations in local currencies. The Company's international operations are
subject to risks typical of an international business, including, but not
limited to: differing economic conditions, changes in political climate,
differing tax structures, other regulations and restrictions, and foreign
exchange rate volatility. Accordingly, the Company's future results could be
materially adversely impacted by changes in these or other factors.
The Company is also exposed to foreign exchange rate fluctuations as they
relate to operating expenses as the financial results of foreign subsidiaries
are translated into U.S. dollars in consolidation. As exchange rates vary,
these results, when translated, may vary from expectations and adversely
impact overall expected profitability. The effect of foreign exchange rate
fluctuations on the Company in 1999 was not material.
INVESTMENT RISK. The Company has made equity investments in ADC and SDA and
has provided loans to ADC and a privately-held, independent software company
for business and strategic purposes. These investments are included in other
long-term assets and are accounted for under the equity method when ownership
is greater than 20% and the Company does not exert control. For these
investments in privately-held companies, the Company's policy is to regularly
review the assumptions underlying the operating performance and cash flow
forecasts in assessing the carrying values. The Company identifies and
records impairment losses on long-lived assets when events and circumstances
indicate that such assets might be impaired.
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<PAGE>
PART II
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.34 Amendment to Employment Agreement between the
Registrant and Larry J. Gerhard
dated April 30, 1999
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On February 2, 1999, the Company filed a Current Report on
Form 8-K dated February 2, 1999 in connection with the
termination of the proposed acquisition of OrCAD, Inc.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUMMIT DESIGN, INC.
By: /s/ C. Albert Koob
-------------------------------------
C. Albert Koob
Vice President - Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
Date: May 13, 1999
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<PAGE>
EXHIBIT INDEX
EXHIBIT 10.34 Amendment to Employment Agreement between the Registrant and
Larry J. Gerhard dated April 30, 1999
EXHIBIT 27.1 Financial Data Schedule
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<PAGE>
SUMMIT DESIGN, INC.
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to the Employment Agreement dated
February 29, 1999 (the "Employment Agreement") is entered into on April 30,
1999, effective as of such date, between SUMMIT DESIGN, INC., a Delaware
corporation (the "Company"), and Larry J. Gerhard ("Gerhard").
1. In consideration of Gerhard agreeing to temporarily postpone his
vacation, the Company and Gerhard agree that the reference to "January 2000" in
Section 4 of the Employment Agreement is hereby amended to be "July 1, 1999."
2. Except as expressly provided in this Amendment, the Employment
Agreement shall remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Amendment as of April
30, 1999.
"COMPANY": SUMMIT DESIGN, INC.
a Delaware Corporation
By: /s/ Amihai Ben-David
---------------------------------------
Name: Amihai Ben-David
Title: Compensation Committee Member
By: /s/ William V. Botts
---------------------------------------
Name: William V. Botts
Title: Compensation Committee Member
"GERHARD":
/s/ Larry J. Gerhard
-------------------------------------
Larry J. Gerhard
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