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FORM 10-Q/A
AMENDMENT NO. 1
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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
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Commission file number 1-10606
CADENCE DESIGN SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 77-0148231
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(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
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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
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At October 28, 1994 there were 38,751,031 shares of the registrant's Common
Stock, $0.01 par value outstanding.
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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
Signature 12
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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
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Total current liabilities 118,969 113,479
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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
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Total long-term liabilities 17,035 19,700
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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)
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Total stockholders' equity 173,599 206,122
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Total liabilities and stockholders' equity $ 309,603 $ 339,301
========= =========
The accompanying notes are an integral part of these statements.
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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
Provision for settlement of litigation -- -- 10,054 --
Restructuring costs -- -- -- 13,450
Loss from operations
of disposed division -- 1,331 -- 2,886
Write-off of in-process research and
development 4,653 -- 4,653 --
-------- -------- --------- ---------
Total operating expenses 74,019 70,093 218,209 213,464
-------- -------- --------- ---------
INCOME (LOSS) FROM OPERATIONS 12,483 4,687 20,004 (17,339)
Other income, net 160 369 950 1,471
-------- -------- --------- ---------
Income (loss)before provision (benefit)
for income taxes 12,643 5,056 20,954 (15,868)
Provision (benefit) for income taxes 3,160 1,314 5,238 (4,126)
-------- -------- --------- ---------
NET INCOME (LOSS) $ 9,483 $ 3,742 $ 15,716 $ (11,742)
======== ======== ========= =========
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.
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CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended
--------------------------------
September 30, September 30,
1994 1993
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(Unaudited)
CASH AND CASH INVESTMENTS AT
BEGINNING OF PERIOD $ 61,382 $ 78,976
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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
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Net cash provided by operating activities 104,862 65,428
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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)
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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.
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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.
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
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(in thousands)
Revenue $ 308,005 $ 262,672
Net income (loss) $ 12,599 $ (16,532)
========= ==========
Net income (loss) per share $ .28 $ (.38)
========= ==========
Weighted average common and common
equivalent shares outstanding 44,725 43,804
========= ==========
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4. LOSS FROM OPERATIONS OF DISPOSED DIVISION
In December 1993 the Company sold its Automated Systems ("ASI") division. In
prior filings, the Company had reported the operating results of ASI as a
discontinued operation in the statements of income. In connection with the
filing of a registration statement on Form S-3 to register common stock issued
to the shareholders of Comdisco, the Securities and Exchange Commission ("SEC")
reviewed the Company's 1993 financial statements and requested that the results
of operations and the loss on disposal of ASI be reclassified as components of
continuing operations since ASI was not deemed by the SEC to be a major line of
business. As a result, the Company has classified the respective loss from
operations of the disposed division within operating expenses in the
accompanying statements of income. Revenue of the disposed 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):
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.
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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.
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
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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 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.
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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 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.
The Company sold its ASI division in December 1993 and has reclassified the
financial information of prior periods to report the operating results of ASI
as a separate line item within operating expenses in the consolidated
statements of income. For the three and nine months ended September 30, 1993,
the Company recorded losses of $1.3 million and $2.9 million, respectively,
related to the operating results of the disposed division.
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
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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 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.
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SIGNATURE
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: March 9, 1995 By: /s/ H. Raymond Bingham
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H. RAYMOND BINGHAM
Executive Vice President
and Chief Financial Officer
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