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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1997
Commission File Number 0-27692
OrCAD, INC.
(Registrant)
Incorporated in the State of Delaware
I.R.S. Employer Identification Number 93-1062832
9300 S.W. Nimbus Avenue, Beaverton, OR 97008
Telephone: (503) 671-9500
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
--- ---
On June 30, 1997, 6,737,301 shares of the registrant's common stock were
issued and outstanding.
OrCAD, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ----------------------------------------------------------------------------------------------
Item 1. Financial Statements
Consolidated Balance Sheets June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations -- Three months
and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -- Six months
ended June 30, 1997 and 1996 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
- ----------------------------------------------------------------------------------------------
Item 2. CHANGES IN SECURITIES 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS 17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 19
2
OrCAD, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30,
1997 December 31,
(Unaudited) 1996
----------- ------------
Assets
Current assets:
Cash and cash equivalents $22,602 $20,308
Short-term investments 5,157 8,964
Trade accounts receivable, net of doubtful accounts
and sales return allowances of $652 and $637 4,604 3,081
Inventory, net 440 504
Royalty receivable 49 193
Deferred taxes 78 79
Other 1,042 832
------- -------
Total current assets 33,972 33,961
------- -------
Fixed assets 3,896 2,747
Less accumulated depreciation 2,060 1,729
------- -------
1,836 1,018
------- -------
Purchased software technology, net 585 429
Goodwill and intangible assets, net 2,632 2,704
Other assets 133 138
======= =======
Total assets $39,158 $38,250
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 705 $ 484
Accrued payroll and related liabilities 1,237 936
Accrued liabilities 950 857
Accrued income taxes 228 607
Deferred revenue 1,547 1,432
------- -------
Total liabilities 4,667 4,316
------- -------
Shareholders' equity:
Preferred stock -- --
Common stock 67 67
Additional paid-in capital 36,093 35,992
Accumulated deficit (1,637) (2,091)
Unrealized gain on investments 5 9
Foreign currency translation adjustment (37) (43)
------- -------
Total shareholders' equity 34,491 33,934
------- -------
Total liabilities and shareholders' equity $39,158 $38,250
======= =======
See notes to Consolidated Financial Statements.
3
OrCAD, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
-----------------------------------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Revenue:
Product Revenue $ 5,846 $4,579 $10,813 $ 8,827
Service Revenue 1,157 730 2,092 1,407
------- ------ ------- -------
Total revenue 7,003 5,309 12,905 10,234
Cost and expenses:
Cost of revenue -- product 786 395 1,401 842
Cost of revenue -- service 175 192 346 357
Research and development 1,385 1,150 2,669 2,155
Marketing and sales 2,799 1,813 4,831 3,508
General and administrative 750 741 1,515 1,497
In-process research and development 2,203 -- 2,203 --
------- ------ ------- -------
Total cost and expenses 8,098 4,291 12,965 8,359
------- ------ ------- -------
Income (loss) from operations (1,095) 1,018 (60) 1,875
------- ------ ------- -------
Other income:
Interest 367 353 737 439
Other, net 24 14 21 38
------- ------ ------- -------
391 367 758 477
------- ------ ------- -------
Income (loss) before income taxes (704) 1,385 698 2,352
Income tax expense (benefit) (247) 310 244 494
------- ------ ------- -------
Net income (loss) $ (457) $1,075 $ 454 $ 1,858
======= ====== ======= =======
Net income (loss) per share $ (0.07) $ 0.15 $ 0.07 $ 0.30
======= ====== ======= =======
Weighted average common and common
equivalent shares outstanding 6,727 6,985 6,961 6,112
======= ====== ======= =======
See notes to Consolidated Financial Statements.
4
OrCAD, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six-months Ended
------------------------
June 30, June 30,
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 454 $ 1,858
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 668 528
Provision for losses on trade accounts receivable 92 242
Provision for inventory reserves 27 11
Deferred income taxes 2 138
Write-off of research and development costs acquired 2,203 --
Changes in assets and liabilities:
Trade accounts receivable (1,520) (214)
Inventory 37 (84)
Royalty receivable 143 115
Lease receivable 3 --
Other, net (216) (219)
Accounts payable 98 (122)
Accrued payroll and related liabilities 300 30
Accrued liabilities 122 (143)
Deferred revenue 114 (126)
Accrued income taxes (380) 228
------- -------
Total adjustments 1,693 384
------- -------
Net cash provided by operating activities 2,147 2,242
------- -------
Cash flows from investing activities:
Acquisition of fixed assets (1,146) (381)
Acquisition of software technology (2,450) --
Intangible assets acquired (165) --
Proceeds from maturity (purchase) of investments, net 3,803 (7,965)
------- -------
Net cash provided by (used in) investing activities 42 (8,346)
Cash flows from financing activities:
Payments on capital leases -- (76)
Issuance of common stock, net 101 23,285
------- -------
Net cash provided by financing activities 101 23,209
------- -------
Effects of exchange rate on cash 4 (23)
------- -------
Net increase in cash and cash equivalents 2,294 17,082
Cash and cash equivalents at the beginning of period 20,308 2,080
------- -------
Cash and cash equivalents at the end of period $22,602 $19,162
======= =======
Supplemental Disclosures of Cash Flow Information:
Interest paid $ 4 $ 8
Income taxes paid $ 457 $ 51
Noncash investing activities
Exchange of royalty receivable for
software technology $ -- $ 210
See notes to Consolidated Financial Statements.
5
OrCAD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share amounts)
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
statements include all adjustments necessary (which are of a normal and
recurring nature) for the fair presentation of the results of the interim
periods presented. These financial statements should be read in
conjunction with the Company's audited consolidated financial statements
for the year ended December 31, 1996, as included in the Company's Annual
Report on Form 10-KSB filed with the Securities and Exchange Commission.
2. Net Income Per Common and Common Equivalent Share
-------------------------------------------------
Net income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
assumed to be outstanding during the period. Common equivalent shares
consist of options to purchase common stock.
3. Use of Estimates
----------------
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets,
liabilities and contingencies at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
4. Revenue Recognition
-------------------
Revenue primarily includes revenue from software product shipments and
revenue from training and consulting related services and extended support
agreements. The Company recognizes revenue from software licenses after
shipment of product and when no significant contractual obligations remain
outstanding. When the Company receives payment prior to shipment or
fulfillment of a significant obligation to the customer, such payments are
recorded as deferred revenue and recognized as revenue upon shipment or
fulfillment of such obligation. A portion of revenue from product sales is
deferred and recognized ratably over the maintenance period, generally
three months to one year. Revenue from training and consulting is
recognized as the related services are performed. Maintenance revenue is
deferred and recognized ratably over the maintenance period, generally
twelve months.
5. Software Development Costs
--------------------------
Under Statement of Financial Accounting Standards No. 86 (SFAS 86),
software development costs are to be capitalized beginning when a product's
technological feasibility has been established and ending when a product is
made available for general release to customers. To date, the establishment
of technological feasibility of the Company's products has occurred shortly
before general release, and accordingly no costs have been capitalized.
6
6. Income Taxes
------------
The provision for income taxes has been recorded based on the Company's
current estimate of the Company's annual effective tax rate. This rate
differs from the combined federal and state statutory rate of approximately
38.5% primarily due to the utilization of net operating loss carryforwards,
the utilization of research and experimentation tax credits, and the
benefit of the Company's foreign sales corporation.
7. Cash Equivalents and Short-Term Investments
-------------------------------------------
Cash equivalents consist of highly liquid investments with original
maturities of three months or less. Cash equivalents are stated at cost and
consist primarily of money market funds, commercial paper, municipal bonds
and municipal auction preferred stock. The carrying amount approximates
fair value due to the short-term nature of these investments. Those
instruments with original maturities greater than three months and less
than one year from the balance sheet date are considered to be short-term
investments. Short-term investments, which primarily consist of debt
securities and U.S. Treasury Notes, are reported at fair value, and are
classified as available-for-sale securities. The cost of securities sold is
determined using the specific identification method when computing realized
gains and losses. Fair value is determined using available market
information.
8. Acquisitions
------------
In April 1997, the Company acquired certain technology and sales personnel
from TEAM Corporation for approximately $1.9 million. The cost of the
acquisition was allocated on the basis of the fair value of the assets
acquired. This allocation resulted in a charge for in-process research and
development of $1.8 million, and workforce capitalization of $126,000 at
the purchase date. The charge for in-process research and development
resulted from allocating a portion of the acquisition cost to TEAM's in-
process product development that had not reached technological feasibility.
In addition, there are certain contingent amounts payable over the next
three years based on the achievement of specific revenue milestones.
In June 1997, the Company acquired certain technology and development
personnel from Q Point Technology for approximately $720,000. The cost of
the acquisition was allocated on the basis of the fair value of the assets
acquired. This allocation resulted in a charge for in-process research and
development of $433,000, purchased technology capitalization of $248,000,
and workforce capitalization of $39,000 at the purchase date. The charge
for in-process research and development resulted from allocating a portion
of the purchase price to Q Point's in-process product development that had
not reached technological feasibility. The Company is amortizing the
capitalized workforce and purchased technology over a period of three years
and five years, respectively.
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
OrCAD develops, markets, and supports software products that assist
electronics designers in developing field-programmable gate arrays, including
complex programmable logic devices, and printed circuit boards. The Company
operates primarily in one business segment, comprising the electronic design
automation industry.
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, Massteck Ltd., and OrCAD Japan,
from the dates of acquisition. All intercompany balances have been eliminated in
consolidation.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
TOTAL REVENUES
The Company derives revenue from the licensing of its software
products and from the provision of maintenance, training, and consulting
services to customers. The Company recognizes revenue from software licenses
after shipment of product and when no significant contractual obligations remain
outstanding. Service revenue is derived primarily from extended support
agreements that provide customers access to product enhancements, technical
support, bulletin board services and a subscription to OrCAD Design Desktop
Quarterly, a newsletter produced by the Company. Revenue from each extended
support agreement is deferred and recognized ratably over the term of the
support agreement. Revenue from customer training and consulting is recognized
as services are performed.
Total revenue increased 32% from $5.3 million in the second quarter of
1996 to $7.0 million in the second quarter of 1997. The increase in revenue was
primarily due to successful release of new products and a new distribution
channel. In the second quarter of 1997, the Company introduced OrCAD Express
Enterprise Edition and OrCAD Enterprise Bridge. The Company also acquired
certain assets of TEAM Corporation and hired TEAM's field sales and support
organization which is now known as the Enterprise Group. The remaining increase
in total revenue was due to overall growth in product and service revenue. As a
percentage of total revenue, product revenue decreased from 86% in the second
quarter of 1996 to 83% in the second quarter of 1997. Conversely, service
revenue increased as a percentage of total revenue from 14% in the second
quarter of 1996 to 17% in the second quarter of 1997.
Product revenue increased 28% from $4.6 million in the second quarter
of 1996 to $5.8 million in the second quarter of 1997. The increase in product
revenue was primarily attributable to hiring of TEAM's field sales staff, the
introduction of OrCAD Express Enterprise Edition and OrCAD Enterprise Bridge,
and strong sales of OrCAD Capture Enterprise Edition and OrCAD Express products
in the second quarter of 1997.
Service revenue increased 58% from $730,000 in the second quarter of
1996 to $1.2 million in the second quarter of 1997. The increase in service
revenue from the second quarter of 1996 to the second quarter of 1997 was
primarily attributable to increased sales of customer training and extended
support agreements.
8
Total North American revenue increased 58% from $3.1 million in the
second quarter of 1996 to $4.9 million in the second quarter of 1997. Total
revenue generated outside of North America decreased 5% from $2.2 million in the
second quarter of 1996 to $2.1 million in the second quarter of 1997. As a
percentage of the Company's total revenue, North American revenue increased from
59% in the second quarter of 1996 to 70% in the second quarter of 1997. The
increase in the proportion of revenue generated in North America was principally
attributable to the formation and integration of the Enterprise Group into the
North American sales territory and the introduction of two new products, OrCAD
Express Enterprise Edition and OrCAD Enterprise Bridge. The decrease in the
proportion of revenue generated outside of North America was due in part to the
typical slower initial adoption rate of new products in Europe and Asia.
COST OF REVENUE
The cost of product revenue represents the costs associated with the
licensing of the Company's products, such as expenses of reproducing product
documentation, disks and packaging, hardware locks, shipping costs and royalties
paid to external developers. The cost of product revenue increased 99% from
$395,000 in the second quarter of 1996 to $786,000 in the second quarter of
1997. The increase was primarily attributable to an increased level of product
sales, higher royalty costs associated with OrCAD Capture Enterprise Edition
and OrCAD Express Enterprise Edition relative to other product lines, and
certain commissions payable to North American value-added resellers. As a
percentage of product revenue, cost of product revenue increased from 9% in the
second quarter of 1996 to 13% in the second quarter of 1997. This increase was
primarily the result of the associated royalty costs for OrCAD Capture
Enterprise Edition and OrCAD Express Enterprise Edition, and commissions payable
to North American value-added resellers.
The cost of service revenue includes the costs of providing software
maintenance, such as technical support, software revision releases and updated
user documentation, and the costs of providing training. The cost of service
revenue decreased 9% from $192,000 in the second quarter of 1996 to $175,000 in
the second quarter of 1997. As a percentage of service revenue, the cost of
service revenue decreased from 26% in the second quarter of 1996 to 15% in the
second quarter of 1997. This decrease reflects the absorption of a relatively
small decrease in cost of service revenue in the second quarter of 1997 as
compared to the second quarter of 1996 over a higher service revenue base.
RESEARCH AND DEVELOPMENT
Research and development expenses include the costs of developing new
products and enhancements to existing products. Software development costs are
generally expensed as incurred, in that technological feasibility is generally
not established until shortly before the release of a new product and no
material development costs are incurred after establishment of technological
feasibility. Research and development expenses increased 20% from $1.2 million
in the second quarter of 1996 to $1.4 million in the second quarter of 1997.
The increase in research and development expenses was attributable to increased
personnel costs, including costs associated with increased headcount,
recruiting, relocation, and the engagement of contract engineers. As a
percentage of total revenue, research and development expenses decreased from
22% in the second quarter of 1996 to 20% in the second quarter of 1997. The
Company expects research and development expenses to continue to increase in
absolute terms.
9
MARKETING AND SALES
Marketing and sales expenses include salaries, commissions and related
personnel costs, and other sales and promotional expenses. Marketing and sales
expenses increased 54% from $1.8 million in the second quarter of 1996 to $2.8
million in the second quarter of 1997. The increase in marketing and sales
expenses was due to increased headcount, the formation of the Enterprise Group,
and promotional expenses associated with the new OrCAD Express Enterprise
Edition, and OrCAD Enterprise Bridge products. As a percentage of total
revenue, marketing and sales expenses increased from 34% in the second quarter
of 1996 to 40% in the second quarter of 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs associated with
the Company's executive office, human resources, finance, information systems
and operations functions. General and administrative expenses increased 1% from
$741,000 in the second quarter of 1996 to $750,000 in the second quarter of
1997. As a percentage of total revenue, general and administrative expenses
decreased from 14% in the second quarter of 1996 to 11% in the second quarter of
1997. This decrease reflects the absorption of a relatively small increase in
general and administrative costs in the second quarter of 1997 as compared to
the second quarter of 1996 over a higher revenue base.
IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the Company's acquisition of certain software
technology of TEAM Corporation and Q Point Technology in the second quarter of
1997, the Company expensed approximately $2.2 million of in-process research and
development costs associated with certain technology which had not yet reached
technological feasibility. There were no expensed in-process research and
development costs in the second quarter of 1996.
OTHER INCOME, NET
Other income increased from $367,000 in the second quarter of 1996 to
$391,000 in the second quarter of 1997. This improvement resulted primarily
from higher interest income earned on increased cash and cash equivalents and
short-term investment balances resulting from the proceeds of the Company's
initial public offering completed in March 1996.
INCOME TAX EXPENSE
The effective tax rate for the second quarter of 1997 was 35.0%, which
differs from the combined federal and state statutory rate of approximately
38.5% because of the utilization of net operating loss carryforwards, the
utilization of research and experimentation tax credits, and the benefit of the
Company's foreign sales corporation. Income tax expense (benefit) for the
second quarter of 1997 was $(247,000) as compared to a $310,000 for the second
quarter of 1996. The decrease in income tax expense is primarily attributable
to in-process research and development charges related to the acquisition of
certain assets of TEAM Corporation and Q Point Technology. The increase in the
estimated effective tax rate in the second quarter of 1997 as compared to the
second quarter of 1996 is primarily due to the utilization of net operating loss
carryforwards in 1996.
10
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
TOTAL REVENUES
Total revenue increased 26% from $10.2 million in the first half of
1996 to $12.9 million in the first half of 1997. The increased revenue was due
to successful new products and a new distribution channel. In the first half of
1997, the Company introduced Capture Enterprise Edition, OrCAD Express, OrCAD
Express Enterprise Edition and OrCAD Enterprise Bridge and acquired certain
assets of TEAM Corporation and hired TEAM's field sales staff and support
organization which is now known as the Enterprise Group. The remaining increase
in total revenue was due to overall growth in product and service revenue. As a
percentage of total revenue, product revenue decreased from 86% in the first
half of 1996 to 84% in the first half of 1997. Conversely, service revenue
increased as a percentage of total revenue from 14% in the first half of 1996 to
16% in the first half of 1997.
Product revenue increased 22% from $8.8 million in the first half of
1996 to $10.8 million in the first half of 1997. The increase in product revenue
was primarily attributable to hiring of TEAM's field sales and support
organization, and the introduction of OrCAD Capture Enterprise Edition, OrCAD
Express, OrCAD Express Enterprise Edition and OrCAD Enterprise Bridge.
Service revenue increased 49% from $1.4 million in the first half of
1996 to $2.1 million in the first half of 1997. The increase in service revenue
from the first half of 1996 to the first half of 1997 was primarily attributable
to increased sales of customer training and extended support agreements.
Total North American revenue increased 51% from $5.9 million in the
first half of 1996 to $8.9 million in the first half of 1997. Total revenue
generated outside of North America decreased 7% from $4.4 million in the first
half of 1996 to $4.0 million in the first half of 1997. As a percentage of the
Company's total revenue, North American revenue increased from 57% in the first
half of 1996 to 69% in the first half of 1997. The increase in the proportion of
revenue generated in North America was principally attributable to the formation
and integration of the Enterprise Group into the North American sales territory
and the introduction of four new products; OrCAD Capture Enterprise Edition,
OrCAD Express, OrCAD Express Enterprise Edition and OrCAD Enterprise Bridge. The
decrease in the proportion of revenue generated outside of North America was due
in part to the typical slower initial adoption rate of new products in Europe
and Asia.
11
COST OF REVENUE
The cost of product revenue represents the costs associated with the
licensing of the Company's products, such as expenses of reproducing product
documentation, disks and packaging, hardware locks, shipping costs and royalties
paid to external developers. The cost of product revenue increased 66% from
$842,000 in the first half of 1996 to $1.4 million in the first half of 1997.
The increase was primarily attributable to an increased level of product sales,
higher royalty costs associated with OrCAD Capture Enterprise Edition and OrCAD
Express Enterprise Edition relative to other product lines, and certain
commissions payable to North American value-added resellers. As a percentage of
product revenue, cost of product revenue increased from 10% in the first half of
1996 to 13% in the first half of 1997. This increase was primarily the result
of the associated royalty costs for OrCAD Capture Enterprise Edition and OrCAD
Express Enterprise Edition and commissions payable to North American resellers.
The cost of service revenue includes the costs of providing software
maintenance, such as technical support, software revision releases and updated
user documentation, and the costs of providing training. The cost of service
revenue decreased 3% from $357,000 in the first half of 1996 to $346,000 in the
first half of 1997. As a percentage of service revenue, the cost of service
revenue decreased from 25% in the first half of 1996 to 17% in the first half of
1997. This decrease reflects the absorption of a relatively small decrease in
cost of service revenue in the first half of 1997 as compared to the first half
of 1996 over a higher service revenue base.
RESEARCH AND DEVELOPMENT
Research and development expenses include the costs of developing new
products and enhancements to existing products. Software development costs are
generally expensed as incurred, in that technological feasibility is generally
not established until shortly before the release of a new product and no
material development costs are incurred after establishment of technological
feasibility. Research and development expenses increased 24% from $2.2 million
in the first half of 1996 to $2.7 million in the first half of 1997. The
increase in research and development expenses was attributable to increased
personnel costs, including costs associated with increased headcount,
recruiting, relocation and the engagement of contract engineers. As a
percentage of total revenue, research and development expenses remained constant
at 21% in the first half of 1996 and the first half of 1997. The Company
expects research and development expenses to continue to increase in absolute
terms.
MARKETING AND SALES
Marketing and sales expenses include salaries, commissions and related
personnel costs, and other sales and promotional expenses. Marketing and sales
expenses increased 38% from $3.5 million in the first half of 1996 to $4.8
million in the first half of 1997. The increase in marketing and sales expenses
was due to the formation of the Enterprise Group and promotional expenses
associated with the introduction of OrCAD Capture Enterprise Edition, OrCAD
Express, OrCAD Express Enterprise Edition, and OrCAD Enterprise Bridge products
in the first half of 1997. As a percentage of total revenue, marketing and
sales expenses increased from 34% in the first half of 1996 to 37% in the first
half of 1997.
12
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs associated with
the Company's executive office, human resources, finance, information systems
and operations functions. General and administrative expenses remained steady at
$1.5 million for the first half of 1996 and the first half of 1997. As a
percentage of total revenue, general and administrative expenses decreased from
15% in the first half of 1996 to 12% in the first half of 1997. This decrease
reflects the absorption of a relatively small increase in general and
administrative costs in the first half of 1997 as compared to the first half of
1996 over a higher revenue base.
IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the Company's acquisition of certain software
technology of TEAM Corporation and Q Point Technology in the first half of 1997,
the Company expensed approximately $2.2 million of in-process research and
development costs associated with certain technology which had not yet reached
technological feasibility. There were no expensed in-process research and
development costs in the first half of 1996.
OTHER INCOME, NET
Other income increased from $477,000 in the first half of 1996 to
$758,000 in the first half of 1997. This improvement resulted primarily from
higher interest income earned on increased cash and cash equivalents and short-
term investment balances resulting from the proceeds of the Company's initial
public offering completed in March 1996.
INCOME TAX EXPENSE
The effective tax rate for the first half of 1997 was 35.0%, which
differs from the combined federal and state statutory rate of approximately
38.5% because of the utilization of net operating loss carryforwards, the
utilization of research and experimentation tax credits, and the benefit of the
Company's foreign sales corporation. Income tax expense for the first half of
1997 was $244,000 as compared to a $494,000 expense for the first half of 1996.
The decrease in income tax expense is primarily attributable to in-process
research and development charges related to the acquisition of certain assets of
TEAM Corporation and Q Point Technology. The increase in the estimated
effective tax rate in the first half of 1997 as compared to the first half of
1996 is primarily due to the utilization of net operating loss carryforwards in
1996.
13
LIQUIDITY AND CAPITAL RESOURCES
Total cash and cash equivalents were $22.6 million at June 30, 1997 as
compared to $20.3 million at December 31, 1996. Cash provided by operations was
$2.1 million for the first half of 1997 as compared to $2.2 million for the
first half of 1996. The decrease in cash provided by operations for the first
half of 1997 as compared to the first half of 1996 was primarily due to an
increase in trade accounts receivable. Cash provided by investing activities
was $42,000 for the first half of 1997 as compared to $8.3 million used in the
first half of 1996. Purchases of investment securities with the proceeds of the
initial public offering in March 1996 accounted for a substantial portion of
cash used in investing activities in the first half of 1996. Cash provided by
investing activities during the first half of 1997 was generated primarily from
the sale of short-term securities.
The Company has available borrowing capacity consisting of a
commitment for a $3.0 million line of credit from a commercial bank. The Company
believes that current cash and investment balances, cash flows from operations
and the unused line of credit are sufficient to meet current and anticipated
future capital requirements for at least the next twelve months. The Company
currently does not have any material commitments for capital expenditures. The
Company has from time to time evaluated and continues to evaluate opportunities
for acquisitions and expansion and, consistent with this practice, is currently
engaged in preliminary discussions with other parties regarding possible
acquisitions. Any such transactions, if consummated, may use a portion of the
Company's working capital or necessitate additional bank borrowings. No
assurance can be given that additional borrowing capacity will be available or
that, if available, such financing will be obtainable on terms favorable to the
Company or its stockholders.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share".
This Statement establishes a different method of computing net income per share
than is currently required under the provisions of Accounting Principles Board
Opinion No. 15. Under SFAS No. 128, the Company will be required to present both
basic net income per share and diluted net income per share. Basic net income
per share is expected to be comparable or slightly higher than the currently
presented net income per share as the effect of dilutive stock options will not
be considered in computing basic net income per share. Diluted net income per
share is expected to be comparable or slightly lower than the currently
presented net income per share.
The Company plans to adopt SFAS No. 128 in the fourth quarter of 1997
and at that time all historical net income per share data presented will be
restated to conform to the provisions of this Statement.
VARIABILITY OF OPERATING RESULTS
The Company's quarterly operating results may vary significantly in
the future depending on factors such as increased competition, timing of new
product announcements, releases and pricing changes by the Company or its
competitors, length of sales cycles, market acceptance or delays in the
introduction of new or enhanced versions of the Company's products, timing of
significant orders, seasonal factors, mix of direct and indirect sales, product
mix, and economic conditions generally and in the EDA industry specifically.
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A substantial portion of the Company's revenue in each quarter results
from orders booked in that quarter. The Company's expense levels are based, in
part, on its expectations as to future revenue. If revenue levels are below
expectations, operating results are likely to be adversely affected. In
particular, net income may be disproportionately affected by a reduction in
revenue because only a certain portion of the Company's expenses varies with its
revenue.
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PART II - OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES
During the second quarter of 1997, the Company sold securities without
registration under the Securities Act of 1933 (the "Securities Act") upon the
exercise of stock options granted under the Company's stock option plans. An
aggregate of 35,848 shares of Common Stock were issued at exercise prices
ranging from $.35 to $7.38. These transactions were effected in reliance upon
Rule 701 promulgated pursuant to the authority of the Securities and Exchange
Commission under Section 3(b) of the Securities Act.
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ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The Company's annual shareholder's meeting was held on Thursday, June
19, 1997, at which the following actions were taken by a vote of shareholders:
1. The following persons were re-elected to the Board of Directors by the votes
and for the terms indicated:
Vote
--------------------------
Withhold Term
Director For Authority Ending
--- --------- ------
Michael F. Bosworth 5,358,034 4,832 1998
John C. Savage 5,358,334 4,532 1998
Stephen W. Director 5,358,034 4,832 1998
Richard P. Magnuson 5,357,834 5,032 1998
James P. Moon 5,357,834 5,032 1998
2. By a vote of 3,328,102 to 1,776,902 (with 30,733 abstentions and 227,129
Broker Non-Votes), the amendments to the OrCAD, Inc. 1995 Stock Incentive
Plan were approved.
3. By a vote of 5,352,934 to 5,132 (with 4,800 abstentions) the Company's
selection of KPMG Peat Marwick LLP as the Company's independent auditors for
the year ending December 31, 1997 was ratified.
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ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27.1 Financial Data Schedule
(b) No reports were filed on Form 8-K during the three months ended
June 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
OrCAD, Inc.
Dated: August 14, 1997 /s/ P. David Bundy
-----------------------
Vice President, Finance and Secretary
(Principal Financial and Accounting
Officer)
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