-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R+z+9GEmAs0yDn8fHJvtDD1SM2LYMFnIWU4Dj7ohsczYQRRr9y7kvtl1u33fkLn9 sy+1TkR71pJnGDciIF6nQg== 0000912057-96-017251.txt : 19960927 0000912057-96-017251.hdr.sgml : 19960927 ACCESSION NUMBER: 0000912057-96-017251 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUICKTURN DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000914252 STANDARD INDUSTRIAL CLASSIFICATION: 3825 IRS NUMBER: 770159619 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22738 FILM NUMBER: 96609222 BUSINESS ADDRESS: STREET 1: 440 CLYDE AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 BUSINESS PHONE: 4159673300 MAIL ADDRESS: STREET 1: 440 CLYDE AVE CITY: MOUNTAIN VIEW STATE: CA ZIP: 94043 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 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 : 0-22738 QUICKTURN DESIGN SYSTEMS, INC. (Exact name of registrant as specified in its charter) DELAWARE 77-0159619 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 440 Clyde Avenue, Mountain View, California 94043 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (415) 967-3300 NO CHANGE ------------------------------------------------------------ (Former name or former address, if changed since last report) 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 August 2, 1996 there were 13,870,109 shares of the registrant's common stock outstanding. This quarterly report on Form 10-Q contains 14 pages, of which this is page 1. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS QUICKTURN DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, ------------------ ------------------ 1996 1995 1996 1995 -------- -------- -------- -------- Revenue $ 25,339 $ 19,600 $ 48,433 $ 37,600 Cost of revenue 7,854 6,013 14,985 11,560 -------- -------- -------- -------- Gross profit 17,485 13,587 33,448 26,040 Operating expenses: Research and development 4,408 3,576 8,485 6,840 Sales and marketing 7,627 6,141 14,638 11,923 General and administrative 1,604 1,169 3,070 2,233 -------- -------- -------- -------- Total operating expenses 13,639 10,886 26,193 20,996 Operating profit 3,846 2,701 7,255 5,044 Other income, net 467 167 770 320 -------- -------- -------- -------- Net income before provision for income taxes 4,313 2,868 8,025 5,364 Provision for income taxes 1,421 717 2,644 1,341 -------- -------- -------- -------- Net income $ 2,892 $ 2,151 $ 5,381 $ 4,023 -------- -------- -------- -------- -------- -------- -------- -------- Net income per share $ 0.19 $ 0.15 $ 0.36 $ 0.28 -------- -------- -------- -------- -------- -------- -------- -------- Shares used in per share calculations 15,171 14,552 15,001 14,471 -------- -------- -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these condensed consolidated statements. - 2 - QUICKTURN DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
June 30, December 31, 1996 1995 ----------- ------------ ASSETS (unaudited) Current assets Cash and cash equivalents $ 21,292 $ 17,216 Marketable securities 15,109 14,181 Accounts receivable, net of allowance for doubtful accounts of $1,840 in 1996 and 1995 21,175 20,706 Inventories 10,055 7,805 Prepaid expenses and other current assets 7,935 7,285 --------- --------- Total current assets 75,566 67,193 Marketable securities 9,895 9,110 Fixed assets, net 13,085 13,003 Other assets 4,718 3,478 --------- --------- $ 103,264 $ 92,784 --------- --------- --------- --------- LIABILITIES Current liabilities Note payable to stockholder $ 600 $ 600 Capital lease obligations 2,190 2,801 Accounts payable 3,201 869 Accrued liabilities 14,309 15,847 Deferred revenue 8,156 3,538 --------- --------- Total current liabilities 28,456 23,655 Note payable to stockholder 1,200 1,200 Capital lease obligations, less current portion 1,241 2,302 --------- --------- 30,897 27,157 STOCKHOLDERS' EQUITY Common stock, $.001 par value: Authorized: 20,000,000 shares Issued and outstanding: 13,864,217 shares in 1996; 13,596,060 shares in 1995 14 14 Additional paid-in capital 73,060 71,507 Unrealized holding gain (loss) on marketable securities (92) 102 Accumulated deficit (615) (5,996) --------- --------- Total stockholders' equity 72,367 65,627 --------- --------- $ 103,264 $ 92,784 --------- --------- --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements. - 3 - QUICKTURN DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
Six Months Ended June 30, ---------------------- 1996 1995 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,381 $ 4,023 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,910 3,660 Provision for doubtful accounts 0 200 Write down of inventories 396 111 Changes in current assets and liabilities: Accounts receivable (469) 1,440 Inventories (4,038) (3,702) Prepaid expenses and other current assets (651) (32) Accounts payable and accrued liabilities 793 (3,869) Deferred revenue 4,618 1,340 --------- --------- Net cash provided by operating activities 9,940 3,171 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of fixed assets (2,323) (786) Sale of marketable securities 17,667 14,656 Purchase of marketable securities (19,574) (14,280) Increase in other assets (1,517) (707) --------- --------- Net cash used in investing activities (5,747) (1,117) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from equipment financing --- 1,500 Payments of capital lease obligations (1,671) (1,766) Proceeds from stock issuances 1,554 953 --------- --------- Net cash provided by (used in) financing activities (117) 687 --------- --------- Net increase in cash and cash equivalents 4,076 2,741 Cash and cash equivalents at beginning of period 17,216 6,897 --------- --------- Cash and cash equivalents at end of period $ 21,292 $ 9,638 --------- --------- --------- --------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 240 $ 364 Income taxes 4,400 531 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Increase (decrease) in unrealized holding loss on marketable securities 194 (342) Additions to fixed assets through capital lease obligations --- 2,593
The accompanying notes are an integral part of these condensed consolidated financial statements. - 4 - QUICKTURN DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The condensed consolidated financial statements are unaudited (except for the balance sheet information as of December 31, 1995, which is derived from the Company's audited financial statements) and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's 1995 Annual Report to Stockholders. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results for the entire fiscal year ending December 31, 1996, or any future interim period. 2. Fiscal year-end: For purposes of presentation, the Company has indicated that its fiscal year ends on December 31, although the Company operates on a 52-week or 53-week fiscal year, ending on the last Sunday in December. 3. Inventories comprise: (in thousands) June 30, December 31, 1996 1995 ----------- ------------ (unaudited) Raw materials $ 3,831 $ 5,819 Work in process 6,224 1,986 --------- --------- $ 10,055 $ 7,805 --------- --------- --------- --------- - 5 - ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUE: The Company's 1996 second quarter revenue of $25.3 million represented a 29% increase over the second quarter revenue in the prior fiscal year and was a 10% increase over revenue in the prior quarter. Revenue for the first six months of 1996 was $48.4 million, which was a 29% increase over the revenue of the first six months of the prior year. The revenue increase in each of the three and six month periods was primarily attributable to shipments of more emulation capacity. International sales accounted for approximately 41% and 37% of total revenue in the second quarters of the current and prior fiscal years, respectively. For the first six months of the current and prior fiscal years, international sales were approximately 42% and 35% of the total revenue, respectively. The increase in international sales as a percentage of revenue was primarily due to increased sales in the Far Eastern markets. Many of the Company's customers order on an as-needed basis and often delay delivery of firm purchase orders until commencement dates of such customers' development projects are determined. Moreover, a significant portion of the Company's revenue in each quarter generally results from shipments in the last few weeks of the quarter; therefore, a delay in the shipment of a few orders can have a significant impact upon revenue and results of operations in a given quarter. A relatively limited number of customers have historically accounted for a substantial portion of the Company's revenue. These customers represent early adopters of emulation technology, typically for the design of complex integrated circuits. In particular, the Company's top ten customers represented 74% of revenue in both the second quarters of 1996 and 1995. In the first six months of 1996 and 1995, the top ten customers represented approximately 64% and 53% of total revenue, respectively. The Company expects that sales of its products to a relatively limited number of customers will continue to account for a high percentage of revenue for the foreseeable future. The loss of a major customer or any reduction in orders by such a customer could have an adverse effect on the Company's financial condition or results of operations. The Company believes that in the future its results of operations in a quarterly period could be impacted by the timing of customer development projects and related purchase orders for the Company's emulation systems, new product announcements and releases by the Company, and economic conditions generally and in the electronics industry specifically. GROSS MARGINS: Gross margins were 69% in the second quarter of both the current year and the prior year, and were also 69% in the prior quarter. The Company was able to maintain its gross margins primarily due to a sufficiently large revenue base over which to spread fixed costs, and to continued manufacturing efficiencies, somewhat offset by a decreasing average price per logic gate. The Company expects competitive pressures to increase in its market from existing companies and new entrants, which among other things could accelerate the trend of such decreasing average price per logic gate. Accordingly, there can be no assurance that the Company will be able to sustain its recent gross margins. Furthermore, to the extent that the Company's cost reduction goals are achieved, any resulting cost savings that are passed on to the Company's customers may also have an adverse effect on gross margins. - 6 - RESEARCH AND DEVELOPMENT: Research and development expenses increased by 23% in the second quarter of 1996 compared to the second quarter of the previous year. This increase was primarily attributable to increased staffing and equipment costs necessary to enhance current products and research and development activities for the next generation emulation products. As a percentage of revenue, research and development expenses were approximately 17% and 18% for the second quarter of the current and prior fiscal years, respectively, and were approximately 18% for both the first six months of the current and prior years. To maintain growth and market leadership in emulation technology, the Company expects to continue to invest a significant amount of its resources in research and development. SALES AND MARKETING: Sales and marketing expenses increased by 24% in the second quarter of 1996 compared to the second quarter of the previous year. For the first six months of 1996, sales and marketing expenses increased by 23% compared to the first six months of the prior year. The increase in each of the three and six month periods was largely due to headcount increases to support both domestic and foreign markets. As a percentage of revenue, sales and marketing expenses were approximately 30% and 31% in the second quarter of the current year and the prior year, respectively, and were approximately 30% and 32% in the first six months of the current year and prior year, respectively. The Company expects that sales and marketing expenses will continue to increase in absolute dollar amounts as the Company expands its sales and marketing efforts. GENERAL AND ADMINISTRATIVE: General and administrative expenses increased by 37% in the second quarter of 1996 compared to the second quarter of the previous year. For the first six months of 1996, general and administrative expenses increased by 37% compared to the first six months of the prior year. This increase in each of the three and six month periods was largely due to increased legal costs related to a patent infringement lawsuit filed by the Company in January 1996. See Part II., Item 1. Legal Proceedings. As a percentage of revenue, general and administrative expenses were approximately 6% in both the second quarter of the current year and the prior year, and also were approximately 6% in both the first six months of the current and prior fiscal years. OTHER INCOME, NET: Other income, net increased by $300,000 and $450,000 in the second quarter and first six months of 1996, respectively, over the same periods in 1995 due primarily to decreased interest expenses associated with maturing lease lines used for the purchase of certain fixed assets, and an increase in interest income associated with a greater average quarterly balance of cash and cash equivalents and marketable securities. PROVISION FOR INCOME TAXES: The effective tax rates of 33% for the three and six month periods ended June 30, 1996 and 25% for the three and six month periods ended June 30, 1995 are lower than the statutory federal rate of 35% primarily because of federal and state general business credits, interest income on investments in tax-exempt obligations and benefit from foreign sales corporation for the period ended June 30, 1996 and utilization of net operating losses for the period ended June 30, 1995. - 7 - NET INCOME AND QUARTERLY RESULTS: Net income increased by 34% to $2.9 million in the second quarter of 1996 compared to the second quarter of 1995. Net income for the first six months of 1996 was $5.4 million which was a 34% increase over net income of $4.0 million in the first six months of the prior year. This increase in each of the three and six month periods was due primarily to an increase in revenue, partially offset by increased operating expenses and increased taxes. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION COMPETITION: The EDA industry is highly competitive and rapidly changing. The Company has begun to face significant competition for emulation-based system-level verification, in addition to competition from traditional design verification methodologies which rely on the approach of building and then testing complete system prototypes. Because of customers' requirements for a design verification methodology which reduces the number of costly design iterations and improves product quality, the Company expects competition in the market for system-level verification to increase as other companies attempt to introduce emulation products and product enhancements. Moreover, the Company expects to compete with companies which have significantly greater financial, technical and marketing resources, greater name recognition and larger installed bases than the Company. In addition, many of these competitors have established relationships with current and potential customers of the Company. Increased competition could result in price reductions, reduced margins and loss of market share, all of which could materially adversely affect the Company. The Company believes that the principal competitive factors in the EDA market are quality of results, the mission-critical nature of the technology, technical support, product performance, reputation, price and support of industry standards. The Company believes that it currently competes favorably with respect to these factors. However, 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 materially adversely affect its business, operating results and financial condition. In addition, competitors may resort to litigation as a means of competition. Such litigation may result in substantial costs to the Company and significant diversion of management time. For example, in 1995, Mentor Graphics Corporation, ("Mentor") filed suit against the Company for declarative judgment of noninfringement, invalidity and unenforceability of three of the Company's patents. Furthermore, in January 1996, the Company filed a complaint with the International Trade Commission, seeking to stop unfair importation of hardware logic emulation systems manufactured by Mentor's French subsidiary, Meta Systems ("Meta") on the grounds that such systems infringe the Company's patents. Although patent and intellectual property disputes in the software area are often settled through licensing, cross-licensing or similar arrangements, costs associated with such litigation and arrangements may be substantial. - 8 - OTHER FACTORS: Other factors which could adversely affect the Company's quarterly operating results in the future include efficiencies as they relate to managing inventories and fixed assets, the timing of expenditures in anticipation of increased sales, customer product delivery requirements and shortages of components or labor. Moreover, as a significant portion of the Company's revenue and net income may come from international operations, fluctuations of the U.S. dollar against foreign currencies and the seasonality of European, Far Eastern and other international markets could impact the Company's results of operation and financial condition in a particular quarter. Due to the factors above, the Company's future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. Any shortfall in revenue or earnings from levels expected by securities analysts has had and could in the future have an immediate and significant adverse effect on the trading price of the Company's common stock. Additionally, the Company may not learn of such shortfalls until late in a fiscal quarter, which could result in an even more immediate and adverse effect on the trading price of the Company's common stock. LIQUIDITY AND CAPITAL RESOURCES: Cash and cash equivalents increased by $4.1 million from December 31, 1995 to June 30, 1996. Net cash provided by operations was $9.9 million, due primarily to net income of $5.4 million, increased deferred revenue of $4.6 million and depreciation and amortization of $3.9 million, partially offset by $4.0 million of increased inventories. Net cash used in investments was $5.7 million due primarily to purchases of marketable securities of $19.6 million and increased fixed assets of $2.3 million, partially offset by sales of marketable securities of $17.7 million. Net cash used in financing activities was $117,000 due to payments of capital lease obligations of $1,671,000, offset by proceeds from stock issuances of $1,554,000. The Company believes that its current liquidity, together with its existing credit facility and the cash flows expected to be generated by operations will be sufficient to meet its cash needs for working capital, capital expenditures and marketing expansion through at least 1997. Thereafter, if cash generated from operations is insufficient to satisfy the Company's liquidity requirements, the Company may sell additional equity or debt securities or obtain additional credit facilities. - 9 - PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is engaged in certain legal and administrative proceedings incidental to its normal business activities. While it is not possible to determine the ultimate outcome of these actions at this time, management believes that any liabilities resulting from such proceedings or claims which are pending or known to be threatened, will not have a material adverse effect on the Company's consolidated financial position or results of operations. In January 1995, the Company and certain of its officers and directors were named in a securities class action filed in the United States District Court for the Northern District of California. The complaint seeks unspecified damages and related fees and costs. In September 1995, the Court dismissed with prejudice all claims against several defendants, including the Company's outside directors. The Court also dismissed with prejudice many of the allegations and claims asserted against the Company and certain of its officers. While the Company believes that it has meritorious defenses to the claims remaining in the action, the Company has reached an agreement in principle with plaintiff's counsel to settle this action in order to conserve legal expenses and management resources. This agreement in principle is subject to completion of a formal settlement agreement with plaintiffs, as well as preliminary and final approval of that agreement by the Court. There can be no assurance that the Company will in fact succeed in completing the final settlement with the plaintiffs, or that the Court will ultimately approve any such settlement agreement. The Company's contribution to the contemplated settlement will not be material. In the event that the settlement is not completed and approved by the Court, the Company will continue to contest this action vigorously. While the outcome of the action in the absence of the comtemplated settlement cannot be predicted with certainty, management does not believe the outcome will have a material adverse impact on the Company's financial position or results of operations. Additionally, in January 1996, the Company filed a complaint with the International Trade Commission in Washington, DC, seeking to stop unfair importation of logic emulation systems manufactured by Meta Systems of France, a subsidiary of Mentor Graphics Corporation. As explained in the complaint, Quickturn alleges that Mentor's hardware logic emulation systems infringe Quickturn's patents. In July 1996, the ITC issued an Initial Determination granting a Temporary Exclusion Order stopping the importation of Mentor Graphic's emulation products into the U.S. The ITC also issued a Cease and Desist Order against all sales activities of the Mentor emulation products in the U.S. - 10 - ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held on April 12, 1996, the following members were elected to the Board of Directors: Votes Votes For Withheld ------------------------ Richard C. Alberding 11,647,376 27,543 Glen M. Antle 11,648,076 26,843 Frank J. Caufield 11,648,476 26,443 Michael R. D'Amour 11,648,476 26,443 Yen-Son (Paul) Huang 11,553,776 121,143 Keith R. Lobo 11,633,838 41,081 The following proposal was approved at the Company's Annual Meeting: Votes Votes Votes Abstained/ For Against Not Voted ------------------------------ 1. Ratification of appointment of Coopers & Lybrand L.L.P. as independent auditors. 11,648,398 7,760 18,761 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 11.1: Statement of computation of earnings per share. Exhibit 27: Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended June 30, 1996. - 11 - 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. QUICKTURN DESIGN SYSTEMS, INC. (Registrant) Date August 9, 1996 By: /s/ Raymond K. Ostby - - ------------------------------ ------------------------------------- Raymond K. Ostby, Vice-President, Finance and Administration, Chief Financial Officer and Secretary (Principal Accounting Officer and Duly Authorized Officer) - 12 - EX-11.1 2 EXHIBIT 11.1 EXHIBIT 11.1 COMPUTATION OF EARNINGS PER SHARE (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) Six Months Ended June 30, ---------------- 1996 1995 ------ ------ Weighted average shares outstanding: Common stock 13,698 13,186 Common stock equivalents 1,303 1,285 ------ ------ Weighted average common shares and equivalents 15,001 14,471 Net income $5,381 $4,023 ------ ------ ------ ------ Net income per share (1) $0.36 $0.28 ------ ------ ------ ------ - - -------------------------- (1) There is no difference between primary and fully diluted net income per share. -13- EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 21,292 15,109 23,015 1,840 10,055 75,566 30,525 17,440 103,264 28,456 0 0 0 14 72,353 103,264 48,433 48,433 14,985 14,985 26,193 0 240 8,025 2,644 5,381 0 0 0 5,381 0.36 0.36
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