-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, If6uJ4WgtM0EAShvIFoJkw7TagdraB7nufmbYPEL1op17KPaTQc7npHfJKnN3We/ xtN1ccHnJoO/G7jQSXfDew== 0000891618-94-000233.txt : 19941117 0000891618-94-000233.hdr.sgml : 19941117 ACCESSION NUMBER: 0000891618-94-000233 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADENCE DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000813672 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 770148231 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10606 FILM NUMBER: 94559649 BUSINESS ADDRESS: STREET 1: 555 RIVER OAKS PKWY CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089431234 MAIL ADDRESS: STREET 1: 555 RIVER OAKS PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 FORMER COMPANY: FORMER CONFORMED NAME: ECAD INC /DE/ DATE OF NAME CHANGE: 19880609 10-Q 1 FORM 10-Q REGISTRATION STATEMENT 1 FORM 10-Q -------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 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 1-10606 CADENCE DESIGN SYSTEMS, INC. - - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 77-0148231 - - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 555 River Oaks Parkway, San Jose, California 95134 - - -------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (408) 943-1234 - - -------------------------------------------------- Registrant's telephone number, including area code 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 _____ At October 28, 1994 there were 38,751,031 shares of the registrant's Common Stock, $0.01 par value outstanding. 2 CADENCE DESIGN SYSTEMS, INC. INDEX
PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Financial Statements Condensed Consolidated Balance Sheets: September 30, 1994 and December 31, 1993 3 Condensed Consolidated Statements of Income: Three and Nine Months Ended September 30, 1994 and 1993 4 Condensed Consolidated Statements of Cash Flows: Nine Months Ended September 30, 1994 and 1993 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 1. Legal Proceedings 12 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 16
2 3 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA)
September 30, December 31, 1994 1993 ------------- ------------ (Unaudited) ASSETS Current Assets: Cash and cash investments $ 57,051 $ 61,382 Short-term investments 19,264 31,423 Accounts receivable, net 70,260 101,890 Inventories 5,360 5,744 Prepaid expenses and other assets 14,452 18,036 --------- -------- Total current assets 166,387 218,475 --------- -------- Property, plant and equipment, net 93,172 61,477 Software development costs, net 28,996 31,265 Purchased software and other intangibles, net 10,959 12,787 Other assets 10,089 15,297 --------- -------- Total assets $ 309,603 $339,301 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term obligations $ 2,991 $ 3,962 Accounts payable 11,866 13,513 Accrued liabilities 46,350 51,352 Income taxes payable 6,465 6,541 Deferred revenue 51,297 38,111 --------- -------- Total current liabilities 118,969 113,479 --------- -------- Long-term obligations 2,409 4,001 Lease liabilities 9,763 10,722 Deferred income taxes 2,243 2,243 Other noncurrent liabilities 2,620 2,734 --------- -------- Total long-term liabilities 17,035 19,700 --------- -------- Stockholders' Equity: Common stock 470 460 Additional paid-in capital 258,522 250,501 Treasury shares at cost (8,519,384 and 4,857,200 shares, respectively) (109,419) (52,178) Retained earnings 22,445 8,527 Accumulated translation adjustment 1,581 (1,188) --------- -------- Total stockholders' equity 173,599 206,122 --------- -------- Total liabilities and stockholders' equity $ 309,603 $339,301 ========= ========
The accompanying notes are an integral part of these statements. 3 4 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 1994 1993 1994 1993 ---- ---- ---- ---- (Unaudited) (Unaudited) REVENUE: Product $ 68,017 $ 63,174 $ 191,849 $170,589 Maintenance 41,581 34,442 115,570 91,958 -------- -------- --------- -------- Total revenue 109,598 97,616 307,419 262,547 -------- -------- --------- -------- COST OF REVENUE: Product 20,078 18,869 59,054 54,652 Maintenance 3,018 3,967 10,152 11,770 -------- -------- --------- -------- Total cost of revenue 23,096 22,836 69,206 66,422 -------- -------- --------- -------- Gross margin 86,502 74,780 238,213 196,125 -------- -------- --------- -------- OPERATING EXPENSES: Marketing and sales 40,566 41,216 119,008 117,683 Research and development 18,858 17,911 54,146 50,963 General and administrative 9,942 9,635 30,348 28,482 Restructuring costs - - - - - - - - - 13,450 Provision for settlement of litigation - - - - - - 10,054 - - - Write-off of in-process research and development 4,653 - - - 4,653 - - - -------- -------- --------- -------- Total operating expenses 74,019 68,762 218,209 210,578 -------- -------- --------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS 12,483 6,018 20,004 (14,453) Other income, net 160 369 950 1,471 -------- -------- --------- -------- Income (loss) from continuing operations before provision (benefit) for income taxes 12,643 6,387 20,954 (12,982) Provision (benefit) for income taxes 3,160 1,314 5,238 (4,126) -------- -------- --------- -------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS 9,483 5,073 15,716 (8,856) LOSS FROM DISCONTINUED OPERATIONS - - - (1,331) - - - (2,886) -------- -------- --------- -------- NET INCOME (LOSS) $ 9,483 $ 3,742 $ 15,716 $(11,742) ======== ======== ========= ======== NET INCOME (LOSS) PER SHARE From continuing operations $ .22 $ .11 $ .36 $ (.20) From discontinued operations - - - (.03) - - - (.07) -------- -------- --------- -------- Net income (loss) per share $ .22 $ .08 $ .36 $ (.27) ======== ======== ========= ======== Weighted average common and common equivalent shares outstanding 43,044 45,016 44,330 43,385 ======== ======== ========= ========
The accompanying notes are an integral part of these statements. 4 5 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Nine Months Ended ----------------- September 30, September 30, 1994 1993 ------------- ------------- (Unaudited) CASH AND CASH INVESTMENTS AT BEGINNING OF PERIOD $ 61,382 $ 78,976 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) 15,716 (11,742) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 32,655 32,775 Lease liabilities (1,033) (2,488) Deferred income taxes, noncurrent - - - 5,824 Write-offs of capitalized software development costs, purchased software and intangibles 807 - - - Accruals for severance and facilities restructure costs - - - 6,833 Decrease in other noncurrent liabilities (140) (14) Write down and reserve of assets related to restructure - - - 6,617 Write-off of in-process research and development 4,653 - - - Net changes in current assets and liabilities, net of business combinations accounted for as a purchase: Decrease in accounts receivable 35,560 42,461 Decrease (increase) in inventories 340 (446) Decrease (increase) in prepaid expenses and other assets 6,391 (11,942) Decrease in accrued liabilities and payables (2,208) (11,421) Increase in deferred revenue 12,121 7,750 Increase in deferred taxes - - - 1,221 -------- -------- Net cash provided by operating activities 104,862 65,428 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of short-term investments (47,337) (73,014) Sale of short-term investments 59,496 39,800 Purchase of property and equipment (10,516) (14,553) Capitalization of software development costs (8,223) (11,754) Increase in other assets and purchased software and intangibles (1,411) (908) Payment for purchase of third-party interests in partnerships, net of cash acquired (8,729) - - - Cash advanced to Redwood prior to acquisition (1,855) - - - Sale of put warrants 8,051 - - - Purchase of call options (8,051) - - - -------- -------- Net cash used for investing activities (18,575) (60,429) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on notes payable and long-term obligations (28,571) (6,577) Sale of common stock, net of notes receivable from stockholders 8,031 8,178 Purchase of treasury stock, net (69,655) (31,910) -------- -------- Net cash used for financing activities (90,195) (30,309) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (423) (1,326) -------- -------- DECREASE IN CASH AND CASH INVESTMENTS (4,331) (26,636) -------- -------- CASH AND CASH INVESTMENTS AT END OF PERIOD $ 57,051 $ 52,340 ======== ========
The accompanying notes are an integral part of these statements. 5 6 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to 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 pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1993. The unaudited condensed consolidated financial statements included herein reflect all adjustments (which include only normal, recurring adjustments) that are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. ACQUISITION OF THIRD-PARTY INTERESTS IN REAL ESTATE PARTNERSHIPS In March 1994 the Company acquired all third-party interests in two real estate partnerships in which it was a 46.5% and 80% limited partner, respectively, for approximately $9 million in cash and the assumption of a secured construction loan of approximately $23.5 million. The Company leased buildings from one of the limited partnerships and the second limited partnership owned unencumbered land adjacent to the leased property. The Company paid off the secured construction loan with its cash reserves in May 1994. 3. PURCHASE OF REDWOOD DESIGN AUTOMATION, INC. In August 1994 the Company acquired all of the outstanding stock of Redwood Design Automation, Inc. ("Redwood") for approximately 419,000 shares of the Company's common stock. The purchase price also includes $1.8 million of net advances made to Redwood, prior to the acquisition, which were not repaid. Redwood was a development stage company formed to design, develop and market software for use in electronic system design. The acquisition was accounted for as a purchase, and the results of Redwood from the date of acquisition forward have been recorded in the Company's consolidated financial statements. In connection with the acquisition, net intangibles of $6.8 million were acquired, of which $4.7 million is reflected as a one-time charge to operations in the third quarter for the write-off of in-process research and development as it had not reached technological feasibility. The remaining intangibles of $2.1 million will be amortized over a useful life of two years. 6 7 The following pro forma information shows the results of operations for the nine months ended September 30, 1994 and 1993 as if the Redwood acquisition had occurred at the beginning of each period presented and at the purchase price established in August 1994. The results are not necessarily indicative of what would have occurred had the acquisition actually been made at the beginning of each of the respective periods presented or of future operations of the combined companies. The pro forma results for 1994 combine the Company's results for the nine month period ended September 30, 1994 with the results of Redwood for the period from January 1, 1994 through the date of acquisition. The pro forma results for 1993 combine the Company's results for the nine month period ended September 30, 1993 with Redwood's nine month fiscal period from February 1, 1993 through October 31, 1993. The following unaudited pro forma results include the straight-line amortization of intangibles over a period of two years.
Nine months ended ----------------- September 30, September 30, 1994 1993 ---- ---- (in thousands) Revenue $308,005 $262,672 Net income (loss) from continuing operations $ 12,599 $(13,646) ======== ======== Net income (loss) per share from continuing operations $ .28 $ (.31) ======== ======== Weighted average common and common equivalent shares outstanding 44,725 43,804 ======== ========
4. DISCONTINUED OPERATIONS In December 1993 the Company sold its Automated Systems ("ASI") division. The operating results of ASI have been reported as discontinued operations in the consolidated statements of income for all periods presented. Revenue of the discontinued division was approximately $2.8 million and $8.9 million for the quarter and nine months ended September 30, 1993, respectively. 5. PURCHASE OF COMDISCO SYSTEMS, INC. In June 1993 the Company acquired the business and certain assets of Comdisco Systems, Inc. ("Comdisco"), a subsidiary of Comdisco, Inc., in exchange for 1,050,000 shares of the Company's common stock and a warrant to purchase 1,300,000 shares of the Company's common stock. The acquisition was accounted for as a purchase. Accordingly, the results of Comdisco from the date of acquisition forward have been recorded in the Company's consolidated financial statements. Comparative pro forma financial information has not been presented as the results of operations for Comdisco are not material to the Company's consolidated financial statements. 6. DISCLOSURE OF NONCASH INVESTING ACTIVITIES As discussed in Note 2 the Company purchased all third-party interests in two real estate partnerships for approximately $9 million. In connection with the acquisition, net assets acquired were as follows (in thousands): Property and other assets $ 36,083 Liabilities assumed (23,576) Less cash acquired (3,778) -------- Total $ 8,729 ========
As discussed in Note 3 the Company purchased all the outstanding stock of Redwood for approximately 419,000 shares of the Company's common stock. The purchase price also includes $1.8 million of net advances made to Redwood, prior to the acquisition, which were not repaid. In connection with the acquisition, net assets acquired were as follows (in thousands): 7 8 Trade accounts receivable and other current assets $ 562 Intangibles, including in-process research and development 6,756 Property, equipment and other long-term assets 541 Current liabilities assumed (1,162) Long-term liabilities assumed (292) ------- Net assets acquired $ 6,405 =======
7. INVESTMENTS IN DEBT AND EQUITY SECURITIES Effective January 1, 1994 the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". There was no effect on the Company's operating results due to the adoption of this statement. The Company classifies its investments as "held-to-maturity" for the purposes of this statement. The investments mature at various dates through August 1995. 8. NET INCOME (LOSS) PER SHARE Net income per share for each period is calculated by dividing net income by the weighted average number of common stock and common stock equivalents outstanding during the period. Common stock equivalents consist of dilutive shares issuable upon the exercise of outstanding common stock options and warrants. Net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock. Fully diluted net income (loss) per share is substantially the same as primary net income (loss) per share. 9. INVENTORIES Inventories, which consist primarily of testing equipment, are stated at the lower of cost (first-in, first-out method) or market. Cost includes labor, material and manufacturing overhead. Inventories consisted of the following (in thousands):
September 30, December 31, 1994 1993 ------------- ------------ (Unaudited) Raw materials and supplies $1,298 $2,240 Work-in-progress 2,327 2,214 Finished goods 1,735 1,290 ------ ------ Total $5,360 $5,744 ====== ======
10. COMMITMENTS AND CONTINGENCIES Securities class action lawsuits were filed against the Company and certain of its officers and directors in the United States District Court for the Northern District of California, San Jose Division, on April 8 and 9, 1991. The lawsuits, which were consolidated into a single action, allege violation of certain federal securities laws by maintaining artificially high market prices for the Company's common stock through alleged misrepresentations and nondisclosures regarding the Company's financial condition. Court rulings in response to the Company's motions to dismiss the lawsuit limited the class period to include purchasers of the Company's common stock between January 29, 1991 and April 3, 1991. On March 23, 1993 a separate class action lawsuit was filed against the Company and certain of its directors and officers in the United States District Court, Northern District of California, San Jose Division. This lawsuit, which was consolidated into a single action with two virtually identical lawsuits filed later in March and in April 1993, alleges violation of certain federal securities laws by maintaining artificially high market prices for the Company's common stock through alleged misrepresentations and nondisclosures regarding the Company's financial condition. On November 18, 1993, the District Court granted the Company's motion to dismiss the 1993 complaint. The effect of the ruling was to dismiss the complaint except as to a statement allegedly made on January 28, 1993, but plaintiffs were granted leave to further amend their complaint. 8 9 In April 1994 the Company entered into tentative agreements to settle both of the above class action lawsuits for a combined settlement of $16.5 million, of which approximately $7.5 million was covered by the Company's insurance carriers. The agreements are subject to negotiation and execution of final settlement agreements and final court approval. In May 1994, after negotiation, the Company's secondary insurance carrier agreed to provide coverage on the second lawsuit. Accordingly, net income for the second quarter included a credit to operating expenses of approximately $2.1 million for additional insurance proceeds and the reduction of accruals for legal expenses relating to the provision taken in the first quarter for settlement of the two shareholder class action suits. At September 30, 1994, the total settlement amount has been remitted into escrow. 11. PUT WARRANTS During the second and third quarters of 1994, the Company, through private placement, sold four million put warrants. Each warrant entitles the holder to sell one share of common stock to the Company on a specified date at a specified price ranging from $13.13 to $16.58 per share. Additionally, during this same period, the Company purchased three million call options that entitle the Company to buy on a specified date one share of common stock each, at prices ranging from $14.94 to $17.83 per share. The Company has the right to settle the put warrants with stock, or a cash or stock settlement equal to the difference between the exercise price and market value at the date of exercise. The put warrants and call options outstanding at September 30, 1994 are exercisable on various dates between April 1995 and September 1995. These securities had no significant dilutive effect on net income per share for the periods presented. At June 30, 1994 the amount related to the Company's maximum potential repurchase obligation under the put warrants had been classified as temporary equity (put warrants) outside of stockholders' equity. During the third quarter ended September 30, 1994 the Company amended its settlement agreements with respect to the put warrants to allow for a stock settlement equal to the difference between the exercise price and market value at the date of exercise. Accordingly, as the Company, at September 30, 1994, has both the unconditional right and the intent to settle these put warrants with stock, no amount has been classified out of stockholders' equity in the accompanying balance sheet. For information concerning the maximum potential repurchase obligation at September 30, 1994, see "Liquidity and Capital Resources" in Item 2., below. 12. SUBSEQUENT EVENT In October 1994 the Company acquired all third-party interests in a real estate partnership in which it was a 49% limited partner, for approximately $6.1 million in cash. The partnership owns land and buildings which are leased to the Company and are subject to a secured note in the amount of approximately $23.7 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenue for the third quarter ended September 30, 1994 was $109.6 million compared with $97.6 million for the same period of the prior year, an increase of 12%. For the nine months ended September 30, 1994 revenue was $307.4 million, an increase of 17% from revenue of $262.5 million recorded for the same period of 1993. Product revenue increased $4.8 million from $63.2 million for the quarter ended September 30, 1993 to $68.0 million for the quarter ended September 30, 1994. The increased product revenue is primarily the result of increased demand for the Company's integrated circuit (IC) and automated test engineering (ATE) products and increased Spectrum Services consulting revenue. For the nine month period ended September 30, 1994 product revenue was $191.8 million as compared to $170.6 million for the same period in 1993. The increase in product revenue for the nine month period is partially due to improved economic conditions, increased demand for the Company's products primarily in the IC and ATE product areas, the addition of Comdisco operations and increased Spectrum Services consulting revenue. Maintenance revenue increased by $7.1 million and $23.6 million for the three and nine month periods ended September 30, 1994, respectively, as 9 10 compared to the same periods in 1993, in part because of a larger customer base, continued focus on customer renewals and the addition of Comdisco operations in June 1993. Cost of product was $20.1 million and $59.1 million for the three and nine month periods ended September 30, 1994, respectively, as compared to $18.9 million and $54.7 million for the same periods in 1993. The increase in cost of product for the quarter ended September 30, 1994 related to the Company's consulting business, Spectrum Services, and purchased software amortization and was partially offset by decreased royalty expense. The increase in cost of product for the nine month period ended September 30, 1994 is partially the result of increased expenses related to the addition of Comdisco operations and increased Spectrum Services operations, increased amortization and write-off of purchased software and intangibles and increased costs associated with the higher ATE revenue which has lower gross margins. Cost of maintenance decreased from $4.0 million and $11.8 million for the quarter and nine month periods ended September 30, 1993, respectively, to $3.0 million and $10.2 million for the same periods in 1994. These decreases resulted primarily from utilizing a more cost-effective update program and lower cost media in 1994. As a result of the factors discussed above, gross margin increased from 77% and 75% for the three and nine month periods ended September 30, 1993, respectively, to 79% and 77% for the same periods in 1994. Marketing and sales expenses decreased to $40.6 million for the quarter ended September 30, 1994 as compared to $41.2 million for the same period in 1993. For the nine months ended September 30, 1994, as compared to the same period in the prior year, marketing and sales expenses increased from $117.7 million to $119.0 million. This increase in marketing and sales expense for the nine month period was primarily due to increased facilities costs and the addition of Comdisco operations. Research and development expenses for the quarter ended September 30, 1994 were $18.9 million as compared to $17.9 million for the same period of the prior year, an increase of 5%. Capitalization of software development costs for the quarters ended September 30, 1994 and 1993 was $2.1 million and $3.8 million, which represented 10% and 18% of total research and development expenditures made in each of those periods, respectively. For the nine months ended September 30, 1994, research and development expenses were $54.1 million compared with $51.0 million for the same period in 1993, after capitalization of $8.2 million and $11.8 million, which represented 13% and 19% of total research and development expenditures made in those periods, respectively. The amount of software development costs capitalized in any given period may vary depending on the exact nature of the development performed. Gross research and development expenditures before capitalization decreased from $21.8 million for the three months ended September 30, 1993 to $21.0 million for the same period in the current year and decreased from $62.7 million for the nine months ended September 30, 1993 to $62.4 million for the same period in the current year. The decrease for the nine month period was primarily due to cost savings resulting from the Company's purchase, in the first quarter of 1994 of previously leased facilities and decreased capital equipment costs which was partially offset by increased costs related to the addition of Comdisco and Redwood Operations. General and administrative expenses increased to $9.9 million for the quarter ended September 30, 1994 from $9.6 million for the same period in 1993, an increase of 3%. For the nine months ended September 30, 1994, general and administrative expenses were $30.3 million as compared to $28.5 million for the same period in 1993, an increase of 7%. The year over year increase for the nine month period was primarily the result of increased costs related to professional services, provision for bad debts and Comdisco operations partly offset by cost savings resulting from the Company's purchase in the first quarter of 1994 of previously leased facilities. In the third quarter of 1994 the Company recorded costs of $4.7 million related to the write-off of in-process research and development associated with the Redwood acquisition (see Note 3 of Notes to Condensed Consolidated Financial Statements). In March 1994 the Company recorded a provision of $12.1 million for settlement of the stockholder class action lawsuits filed against the Company and certain of its officers and directors in 1991 and 1993. This provision was comprised of $17.9 million for settlement payments and legal costs offset by $5.8 million of receivables due from the Company's insurance carriers. In May 1994, after negotiation, the Company's secondary insurance carrier agreed to provide coverage on the second lawsuit. Accordingly, the results of operations for the second quarter 10 11 ended June 30, 1994 included a $2.1 million credit to operating expenses for the additional insurance proceeds received and the reduction of accruals for legal expenses relating to the provision taken in the first quarter. In March 1993 the Company recorded restructuring costs of $13.5 million associated with a planned restructure of certain areas of sales, operations and administration due to business conditions. The restructuring charge reflects costs associated with employee terminations, excess facilities and the write-off of purchased software and intangibles arising from required adjustments to the Company's cost structure necessitated by lower revenue levels. Also included in the restructuring charge was an additional provision for doubtful accounts and the write-off of certain software development costs resulting from changes in the systems product strategy. Net other income for the third quarter ended September 30, 1994 was $.2 million compared with $.4 million for the same period in 1993. For the nine months ended September 30, 1994, net other income was $1.0 million as compared to $1.5 million for the same period in 1993. The decrease in other income for the nine month period is primarily the result of increased minority interest expense related to the Company's Japanese subsidiary. The Company's estimated annual effective tax rate for fiscal 1994 is 25% as compared to 26% for the nine months ended September 30, 1993. The Company's operating expenses are partially based on its expectations of future revenue. The Company's results of operations may be adversely affected if revenue does not materialize in a quarter as expected. Since expense levels are usually committed in advance of revenues and because only a small portion of expenses vary with revenue, the Company's operating results may be impacted significantly by lower revenue. Based on the Company's operating history and factors that may cause fluctuations in the quarterly results, quarter to quarter comparisons should not be relied upon as indicators of future performance. LIQUIDITY AND CAPITAL RESOURCES During the nine months ended September 30, 1994 the Company's cash and cash investments and short-term investments decreased $16.5 million from $92.8 million to $76.3 million. This decrease was primarily due to net cash used for investing and financing activities exceeding net cash generated from operating activities. Cash provided by operating activities included a $35.6 million decrease in accounts receivable due to improved collections and a $12.1 million increase in deferred revenue. The increase in deferred revenue is comprised of increased deferred maintenance due to a larger customer base and continued focus on customer renewals and an increase in certain product revenue deferred in accordance with the American Institute of Certified Public Accountants Statement of Position 91-1 entitled "Software Revenue Recognition". Cash used for financing activities included approximately $69.7 million of treasury stock purchases and an approximate $23.5 million payment of a construction loan. The Company has an authorized stock repurchase program. Prior to 1993, the Company authorized the repurchase of up to 2.8 million shares of common stock in the open market to satisfy its estimated requirements for shares to be issued under its employee stock option and stock purchase plans. In April 1993, February 1994 and June 1994, the Company authorized the repurchase of an additional 4.0 million shares, 2.9 million shares and 5.2 million shares, respectively, of common stock from time to time. Subsequent to September 30, 1994 the Company authorized the additional repurchase of 5.3 million shares. Some purchases are necessary to satisfy estimated requirements for shares to be issued under the Company's employee stock option and stock purchase plans. As part of its authorized stock repurchase program, the Company had a maximum potential obligation at September 30, 1994 to buy back four million shares of its common stock at an aggregate price of approximately $60.7 million. These potential obligations related to the sale of put warrants are exercisable on various dates between April 1995 and September 1995. The election by the Company to settle the put warrants with stock could cause the Company to issue a substantial number of shares, depending on the amounts of the repurchase obligations and the per share value of the Company's common stock at exercise. In addition, settlement of put warrants in stock or cash could lead to the disposition by holders of the put warrants of shares of the Company's common stock that such holders may have accumulated in anticipation of their exercise of the put warrants. In addition to the $76.3 million in cash and cash investments and short-term investments at September 30, 1994, the Company had available approximately $15.0 million under equipment lease 11 12 lines and $17.5 million under bank lines of credit. The Company was not in compliance with certain financial covenants under its lines of credit as of September 30, 1994, primarily due to its stock repurchase activity. The items of noncompliance related to net worth, stock repurchase and current ratio levels. Subsequent to September 30, 1994, the Company obtained waivers of the noncompliance from the banks. The Company is currently in the process of renegotiating the bank lines of credit and has obtained extensions of the current lines of credit through May and June 1995. Anticipated cash requirements for the fourth quarter of 1994 and fiscal 1995 include the purchase of treasury stock, payment of $6.1 million for the purchase of all third-party interests in a real estate partnership (see Note 12) and contemplated additions of capital equipment and the potential payment of the $23.7 million secured loan assumed as part of the October 1994 real estate acquisition. The Company anticipates that current cash and short-term investment balances, cash flows from operations and unused balances on equipment lease lines and lines of credit will be sufficient to meet its working capital and capital expenditure requirements for the foreseeable future. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Securities class action lawsuits were filed against the Company and certain of its officers and directors in the United States District Court for the Northern District of California, San Jose Division, on April 8 and 9, 1991. The lawsuits, which were consolidated into a single action, allege violation of certain federal securities laws by maintaining artificially high market prices for the Company's common stock through alleged misrepresentations and nondisclosures regarding the Company's financial condition. Court rulings in response to the Company's motions to dismiss the lawsuit limited the class period to include purchasers of the Company's common stock between January 29, 1991 and April 3, 1991. On March 23, 1993 a separate class action lawsuit was filed against the Company and certain of its directors and officers in the United States District Court, Northern District of California, San Jose Division. This lawsuit, which was consolidated into a single action with two virtually identical lawsuits filed later in March and in April 1993, alleges violation of certain federal securities laws by maintaining artificially high market prices for the Company's common stock through alleged misrepresentations and nondisclosures regarding the Company's financial condition. On November 18, 1993, the District Court granted the Company's motion to dismiss the 1993 complaint. The effect of the ruling was to dismiss the complaint except as to a statement allegedly made on January 28, 1993, but plaintiffs were granted leave to further amend their complaint. In April 1994 the Company entered into tentative agreements to settle both of the above class action lawsuits for a combined settlement of $16.5 million, of which approximately $7.5 million was covered by the Company's insurance carriers. The agreements are subject to negotiation and execution of final settlement agreements and final court approval. In May 1994 after negotiation, the Company's secondary insurance carrier agreed to provide coverage on the second lawsuit. Accordingly, net income for the second quarter included a credit to operating expenses of approximately $2.1 million for additional insurance proceeds and the reduction of accruals for legal expenses relating to the provision taken in the first quarter for settlement of the two shareholder class action suits. At September 30, 1994, the total settlement amount has been remitted into escrow. 12 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE - - ------- ------------- 10.01 The Registrant's 1987 Stock Option Plan, as amended to date, (incorporated by reference to Exhibit 4.01 to the Registrant's Form S-8 Registration Statement (No. 33-53913) filed on May 31, 1994 (the "1994 Form S-8")). 10.02 Form of Stock Option Agreement and Form of Stock Option Exercise Request, as currently in effect under the Registrant's 1987 Stock Option Plan (incorporated by reference to Exhibit 4.01 to the Registrant's Form S-8 Registration Statement (No. 33-22652) filed on June 20, 1988). 10.03 The Registrant's 1988 Directors Stock Option Plan, as amended to date, including the Stock Option Grant and Stock Option Exercise Notice and Agreement (the first document is incorporated by reference to Exhibit 4.02 of the Registrant's 1994 Form S-8 and the latter two documents are incorporated by reference to Exhibit 10.08 - 10.10 of the 1988 Form S-1). 10.04 The Registrant's 1993 Directors Stock Option Plan including the Stock Option Grant (incorporated by reference to Exhibit 4.04 of the Registrant's 1994 Form S-8). 10.05 The Registrant's 1990 Employee Stock Purchase Plan as amended to date (incorporated by reference to Exhibit 4.03 of the 1994 Form S-8). 10.06 The Registrant's Senior Executive Bonus Plan for 1993 (incorporated by reference to Exhibit 10.07 of the Registrant's Form 10-K for the fiscal year ended December 31, 1992 (the "1992 Form 10-K")). 10.07 The Registrant's Key Contributor Bonus Plan for 1993 (incorporated by reference to Exhibit 10.08 of the 1992 Form 10-K). 10.08 The Registrant's Senior Executive Bonus Plan for 1994 (incorporated by reference to the 1993 Form 10-K). 10.09 The Registrant's Key Contributor Bonus Plan for 1994 (incorporated by reference to the 1993 Form 10-K). 10.10 The Registrant's Cash or Deferred Profit Sharing Plan, as currently in effect (certain amendments are incorporated by reference to the 1993 Form 10-K; the Plan itself is incorporated by reference to Exhibit 10.12 to the Registrant's Form S-4 Registration Statement (No. 33-31673), originally filed on October 18, 1989 (the "1989 Form S-4")). 10.11 Amended and Restated Lease, dated June 29, 1989, by and between River Oaks Place Associates, a California limited partnership, ("ROPA") and the Registrant, for the Registrant's executive offices at 555 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the Registrant's Form 10-K for the fiscal year ended December 31, 1990) (the "1990 Form 10-K")).
13 14
EXHIBIT NUMBER EXHIBIT TITLE - - ------- ------------- 10.12 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 575 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.16 to the 1990 Form 10-K). 10.13 Lease dated June 29, 1989 by and between ROPA and the Registrant for the Registrant's offices at 535 and 545 River Oaks Parkway, San Jose, California (incorporated by reference to Exhibit 10.17 to the 1990 Form 10-K). 10.14 Lease dated September 3, 1985 by and among the Richard T. Peery and John Arrillaga Separate Property Trusts ("P/A Trusts") and Valid Logic Systems Incorporated ("Valid") (which merged into the Registrant) for the Registrant's offices at 75 West Plumeria Avenue, San Jose, California (incorporated by reference to Exhibit 10.16 to the Form 10-K for Valid for the fiscal year ended December 30, 1990 (the "1990 Valid Form 10-K")). 10.15 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 75 West Plumeria Avenue, San Jose, California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.17 to the 1990 Valid Form 10-K). 10.16 Lease dated December 19, 1988 by and among the P/A Trusts and Valid for the Registrant's offices at 2835 North First Street, San Jose, California (incorporated by reference to Exhibit 10.18 to the 1990 Valid Form 10-K). 10.17 Lease dated September 3, 1985 by and among the P/A Trusts and Valid for the Registrant's offices at 2820 Orchard Parkway, San Jose, California (incorporated by reference to Exhibit 10.14 to the 1990 Valid Form 10-K). 10.18 Amendment Number 1, dated March 2, 1988, to Lease Agreement for 2820 Orchard Parkway, San Jose, California, by and among Valid and the P/A Trusts (incorporated by reference to Exhibit 10.15 to the 1990 Valid Form 10-K). 10.19 Form of Executive Compensation Agreement dated May 1989 between Registrant and Mr. Costello (incorporated by reference to Exhibit 10.20 to the 1989 Form S-4). 10.20 Offer letter to H. Raymond Bingham dated May 12, 1993 (incorporated by reference to the 1993 Form 10-K). 10.21 Offer letter to M. Robert Leach dated May 17, 1993 (incorporated by reference to the 1993 Form 10-K). 10.22 Letter agreement dated March 9, 1994 by and among C.T. Properties, Inc. ("General Partner"), Registrant, Montague Investors, L.P. ("Montague") and David M. Thede ("Thede") whereby Registrant acquired all of Thede's ownership interests in the C.T. Montague I, L.P. and C.T. Montague II, L.P. limited partnerships and the General Partner and all of Montague's interests in C.T. Montague I, L.P. (incorporated by reference to the 1993 Form 10-K). 10.23 1993 Non-Statutory Stock Option Plan, (incorporated by reference to Exhibit 4.05 to the 1994 Form S-8).
14 15 EXHIBIT NUMBER EXHIBIT TITLE - - ------ ------------- 10.24 Consulting agreement dated May 1, 1994 with Henry E. Johnston, who was made a director on July 5, 1994 by unanimous written consent (incorporated by reference to the Registrant's Form 10-Q for the quarterly period ended June 30, 1994 (the "1994 Second Quarter Form 10-Q")). 10.25 Consulting agreement dated October 26, 1993 with Alberto Sangiovanni- Vincentelli (incorporated by reference to the 1994 Second Quarter Form 10-Q). 10.26 Letter agreement dated August 17, 1994 by and among Registrant, Morris Management Company (the "General Partner"), and Morris Associates VI, L.P. ("Morris") whereby Registrant acquired all of the interests in River Oaks Place Associates, L.P. (incorporated by reference to the Registrant's Form 8-K filed November 14, 1994). 10.27 Agreement of Merger and Plan of Reorganization by and among Registrant, Simon Software, Inc. and Redwood Design Automation, Inc. ("Redwood") dated as of July 8, 1994 (incorporated by reference to the Registrant's Form 10-Q/A, Amendment Number 1 to the 1994 Second Quarter Form 10-Q, filed November 14, 1994). 10.28 Agreement of Merger dated as of August 1, 1994 between Redwood and CDS Acquisition Corporation (incorporated by reference to the Registrant's Form 10-Q/A, Amendment Number 1 to the 1994 Second Quarter Form 10-Q, filed November 14, 1994). 10.29 Form of Stock Option Agreement for Registrant's 1993 Non-Statutory Stock Option Plan. 27.1 Financial data schedule for the period ended September 30, 1994. (b) No reports on Form 8-K have been filed during the quarter ended September 30, 1994.
15 16 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. CADENCE DESIGN SYSTEMS, INC. (REGISTRANT) DATE: November 14, 1994 By: /s/ Joseph B. Costello ------------------ -------------------------------------- JOSEPH B. COSTELLO President and Chief Executive Officer DATE: November 14, 1994 By: /s/ H. Raymond Bingham ------------------ --------------------------------------- H. RAYMOND BINGHAM Executive Vice President and Chief Financial Officer 16 EX-10.29 2 NONSTATUTORY STOCK OPTION GRANT AGREEMENT 1 EXHIBIT 10.29 OPTION NO. __________ CADENCE DESIGN SYSTEMS, INC. NONSTATUTORY STOCK OPTION GRANT AGREEMENT CADENCE DESIGN SYSTEMS, INC., a Delaware corporation (the "Company"), hereby grants as of _______________ ("Date of Grant") to _____________ (the "Optionee") a nonstatutory stock option to purchase a total of ____ shares of Common Stock of the Company (the "Shares"), at an exercise price of $__________ per share ("Exercise Price") subject to the terms, definitions and provisions of this Option and the Company's 1993 Nonstatutory Stock Option Plan (the "Plan") which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein. Vesting of this Option shall commence on ___________ ("Vesting Commencement Date"). 1. Nature of the Option. This Option is a nonstatutory stock option and is not intended to qualify as an incentive stock option as defined in Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). 2. Exercise of Option. This Option shall be exercisable during its term in accordance with the provisions of Section 9 of the Plan as follows: (i) Right to Exercise. (a) This option shall become exercisable as to 25% of the Shares one year after the Vesting Commencement Date and as to an additional 1/48th of the Shares per month thereafter. (b) This Option may not be exercised for a fraction of a share. (c) In the event of Optionee's death, disability or other termination of employment, the exercisability of the Option is governed by Section 9 of the Plan and Section 5 and 6 below. (ii) Method of Exercise. This Option shall be exercisable by delivery to the Company of an executed written notice in the form attached hereto, or in such other form as may be approved by the Company, which shall state the election to exercise the option, the number of Shares in respect of which the Option is being exercised, 2 and such other representations and agreements as to the holder's investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Stock Administration Group of the Company and shall be accompanied by payment of the Exercise Price. 3. Method of Payment. Payment of the Exercise Price shall be made as follows: (i) by cash or check; or (ii) by delivery of an irrevocable written commitment from a broker-dealer approved by the Company that is a member in good standing of the New York Stock Exchange ("NYSE Dealer") to deliver the exercise price directly to the Company upon receipt of the Shares or, in the case of a margin loan, upon receipt of a copy of the notice of exercise of this Option. 4. Restrictions on Exercise. This Option may not be exercised unless such exercise, the issuance of the Shares upon such exercise and the method of payment of consideration for the Shares are in compliance with (i) the Securities Act of 1933, (ii) all applicable state securities laws, (iii) all other applicable federal and state laws and regulations and (iv) the rules of any stock exchange or national market system upon which the Shares may then be listed, as such laws, regulations and rules are in effect on the date of exercise. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 5. Termination of Status as an Employee. If Optionee ceases to serve as an Employee, Optionee may, but only within thirty (30) days after the date Optionee ceases to be an Employee of the Company, exercise this Option to the extent that Optionee was entitled to exercise it on the date of such termination. To the extent that Optionee was not entitled to exercise this Option on the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate. 6. Death of Optionee. In the event of the death of Optionee: (i) During the term of this Option and while an Employee of the Company and having been in Continuous Status as an Employee since the date of grant of the Option, the Option may be exercised, at any -2- 3 time within three (3) months following the date of death, by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had Optionee continued living three (3) months after the date of death; or (ii) Within one (1) month after the termination of Optionee's Continuous Status as an Employee, the Option may be exercised, at any time within three (3) months following the date of death, by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the right to exercise had accrued at the date of termination. 7. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws or descent or distribution and may be exercised during the lifetime of Optionee only by Optionee. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 8. Term of Option. Notwithstanding any other provision of this Option, this Option may not be exercised more than ten years from the date of Grant of this Option, and may be exercised during such term only in accordance with the Plan and the terms of this Option. 9. Tax Consequences. Set forth below is a brief summary as of the date of this Option of some of the federal and California tax consequences of exercise of this Option and disposition of the Shares. Tax consequences of other states are beyond the scope of this agreement. Employees should consult a tax adviser regarding the tax treatment for other states. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (i) Exercise of Nonstatutory Stock Option. If, on the date the Option is exercised, the fair market value of the Shares is greater than the Exercise Price, Optionee will then incur a regular federal income tax liability and a California income tax liability. Optionee will be treated as having then received compensation income (taxable at ordinary income tax rates) equal to the excess of the fair market value of the Shares on the date of exercise over the Exercise Price. The Company will be required to withhold from Optionee's compensation or collect from Optionee and pay to the applicable taxing authorities such amounts as are required by applicable federal and state tax laws. The compensation income is added to the purchase price of the shares to form a new cost basis. -3- 4 (ii) Disposition of Shares. If the Shares are held for more than one year, any gain or loss realized on Disposition of the Shares will be treated as long term capital gain or loss for federal and California income tax purposes. As of the Date of Grant, capital gains are taxed at a maximum 28% tax rate for federal and taxed at the same rate as ordinary income for California tax purposes. Capital gains, however, may be offset by capital losses. CADENCE DESIGN SYSTEMS, INC. a Delaware corporation By: ------------------------------ Its: Treasurer Optionee acknowledges receipt of a copy of the Plan, a copy of which is annexed hereto, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. Optionee acknowledges that there may be adverse tax consequences upon exercise of this Option or disposition of the Shares and that Optionee should consult a tax adviser prior to such exercise or disposition. Dated: ------------------------- ------------------------- Optionee -4- EX-27 3 FINANCIAL DATA SCHEDULE
5 1000 9-MOS DEC-31-1993 SEP-30-1994 57,051 19,264 70,260 0 5,360 166,387 183,903 90,731 309,603 118,969 0 149,573 0 0 24,026 309,603 307,419 307,419 69,206 69,206 218,209 0 0 20,954 5,238 15,716 0 0 0 15,716 .36 .36
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