UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (AMENDMENT NO. 1) X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1998 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _________to_________ Commission file number: 000-20923 SUMMIT DESIGN, INC. (Exact name of registrant as specified in its charter) DELAWARE 93-1137888 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 9305 S. W. GEMINI DRIVE, BEAVERTON, OREGON 97008 (Address of principal executive office) Registrant's Telephone number, including area code: (503) 643-9281 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of August 11, 1998, the Registrant had outstanding 15,237,624 shares of Common Stock. SUMMIT DESIGN, INC. INDEX PART I FINANCIAL INFORMATION Item 1 Consolidated Financial Statements Consolidated Balance Sheets as of June 30, 1998 (unaudited) and December 31, 1997. 3 Consolidated Statements of Operations for the three month periods ended June 30, 1998 and 1997 and for the six month periods ended June 30, 1998 and 1997 (unaudited). 4 Consolidated Statements of Cash Flows for the six month periods ended June 30, 1998 and 1997 (unaudited). 5 Notes to Consolidated Financial Statements. 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II OTHER INFORMATION Item 1 Not Applicable Item 2 Changes in Securities and Use of Proceeds 28 Item 3 Not Applicable Item 4 Submission of Matters to a Vote of Security Holders 28 Item 5 Not Applicable Item 6 Exhibits and Reports on Form 8-K 29 Signature 30 Exhibit Index 31 This Quarterly Report on Form 10-Q/A ("Form 10-Q/A") is being filed as Amendment No. 1 to the Registrant's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 1998 ("Form 10-Q") for the purpose of amending Item 1 in its entirety. -2- SUMMIT DESIGN, INC. CONSOLIDATED BALANCE SHEETS (in thousands) June 30, 1998 December 31, 1997 ------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents....................... $ 24,768 $ 19,973 Accounts receivable, net........................ 5,672 5,131 Prepaid expenses and other...................... 323 540 Deferred income taxes........................... 1,268 1,209 ------------- ----------------- Total current assets....................... 32,031 26,853 Furniture and equipment, net......................... 3,208 2,698 Intangibles, net..................................... 1,376 1,622 Deferred taxes....................................... 555 533 Deposits and other assets............................ 1,649 1,055 ------------- ----------------- Total assets.......................... $ 38,819 $ 32,761 ------------- ----------------- ------------- ----------------- LIABILITIES Current liabilities: Note payable to bank............................ $ - $ 29 Long-term debt, current portion................. 151 105 Capital lease obligation, current portion....... 42 49 Accounts payable................................ 1,307 1,210 Accrued liabilities............................. 6,394 5,190 Deferred revenue................................ 5,462 5,674 ------------- ----------------- Total current liabilities.................. 13,356 12,257 Long-term debt, less current portion................. 156 194 Capital lease obligations, less current portion...... 24 43 Deferred revenue, less current portion............... 175 - ------------- ----------------- Total liabilities.......................... 13,711 12,494 ------------- ----------------- Commitments and contingencies STOCKHOLDERS' EQUITY Common stock, $.01 par value. Authorized 30,000 shares; issued and outstanding 15,213 shares at June 30, 1998 and 15,841 shares at December 31, 1997.................. 152 159 Additional paid-in capital.......................... 39,791 51,797 Treasury stock, at cost, 939 shares at December 31, 1997................................... - (11,555) Accumulated deficit................................. (14,835) (20,134) ------------- ----------------- Total stockholders' equity................ 25,108 20,267 ------------- ----------------- Total liabilities and stockholders' equity............................ $ 38,819 $ 32,761 ------------- ----------------- ------------- ----------------- The accompanying notes are an integral part of the consolidated financial statements -3- SUMMIT DESIGN, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30 June 30, ------------------------ ------------------------- 1998 1997 1998 1997 -------- -------- --------- --------- Revenue: Product licenses................... $ 8,574 $ 5,611 $ 16,775 $ 10,507 Maintenance and services........... 2,347 1,444 4,411 2,926 Other.............................. 91 125 183 267 -------- -------- --------- --------- Total revenue................. 11,012 7,180 21,369 13,700 Cost of revenue: Product licenses................... 205 164 484 349 Maintenance and services........... 279 142 505 252 -------- -------- --------- --------- Total cost of revenue......... 484 306 989 601 -------- -------- --------- --------- Gross profit............. 10,528 6,874 20,380 13,099 Operating expenses: Research and development........... 2,428 1,675 4,807 3,127 Sales and marketing................ 3,257 2,584 6,305 5,115 General and administrative......... 1,344 881 2,442 2,061 -------- -------- --------- --------- Total operating expenses...... 7,029 5,140 13,554 10,303 Income from operations.................. 3,499 1,734 6,826 2,796 Other income (expense), net............. 204 229 492 440 -------- -------- --------- --------- Income before income taxes.............. 3,703 1,963 7,318 3,236 Income tax provision.................... 1,041 100 2,019 180 -------- -------- --------- --------- Net income.............................. $ 2,662 $ 1,863 $ 5,299 $ 3,056 -------- -------- --------- --------- -------- -------- --------- --------- Earnings per share: Basic......................... $ 0.18 $ 0.13 $ 0.35 $ 0.22 -------- -------- --------- --------- -------- -------- --------- --------- Diluted....................... $ 0.16 $ 0.12 $ 0.33 $ 0.20 -------- -------- --------- --------- -------- -------- --------- --------- Number of shares used in computing earnings per share: Basic......................... 15,058 14,167 14,984 14,137 Diluted....................... 16,285 14,965 16,240 15,000 The accompanying notes are an integral part of the consolidated financial statements -4- SUMMIT DESIGN, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Six Months Ended June 30, ------------------------------ 1998 1997 -------- --------- Cash flows from operating activities: Net income................................................. $ 5,299 $ 3,056 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................... 781 403 Loss on asset disposition............................... - 1 Deferred taxes.......................................... (81) - Equity in losses and elimination of intercompany profits of unconsolidated joint venture.............. 350 - Changes in assets and liabilities: Accounts receivable..................................... (541) (354) Prepaid expenses and other.............................. 217 47 Accounts payable........................................ 97 155 Accrued liabilities..................................... 1,204 165 Deferred revenue........................................ (37) (370) Other, net.............................................. 131 104 -------- ------- Net cash provided by operating activities.................. 7,420 3,207 -------- ------- Cash flows from investing activities: Additions to furniture and equipment....................... (1,045) (751) Loan to joint venture...................................... (750) - Notes receivable, net...................................... (325) (425) -------- ------- Net cash used in investing activities................... (2,120) (1,176) -------- ------- Cash flows from financing activities: Issuance of common stock, net of issuance costs............ 1,046 303 Tax benefit of option exercises............................ 825 - Payments to acquire treasury stock......................... (2,329) - Principal payments of debt obligations..................... (21) (81) Principal payments of capital lease obligations............ (26) (49) -------- ------- Net cash (used in) provided by financing activities..... (505) 173 -------- ------- Increase in cash and cash equivalents................... 4,795 2,204 Cash and cash equivalents, beginning of period.................. 19,973 19,801 -------- ------- Cash and cash equivalents, end of period........................ $ 24,768 $22,005 -------- ------- -------- ------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 3 $ 9 Income taxes 667 38 Supplemental disclosure of non-cash financing activities: Retirement of treasury stock $ 11,555 $ - The accompanying notes are an integral part of the consolidated financial statements -5- SUMMIT DESIGN, INC. Notes to Consolidated Financial Statements (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared by Summit Design, Inc. ("Summit" or "the Company") in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company, and its results of operations and cash flows. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 1997, 1996 and 1995 included in the Company's Form 10-K filed for December 31, 1997. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998 or any other future interim period, and the Company makes no representations related thereto. 2. ACQUISITION OF PROSOFT OY On June 30, 1998, the Company acquired ProSoft Oy ("ProSoft"), a Company located in Finland. ProSoft develops software tools used to verify embedded systems software prior to the availability of a hardware prototype. The aggregate consideration for the acquisition (including shares of common stock reserved for issuance upon exercise of ProSoft options which were exchanged for options of the Company) was 248,334 shares of common stock. The transaction was accounted for as a "pooling of interests" in accordance with generally accepted accounting principles. In compliance with such principles, the Company's financial statements have been restated to include the accounts of ProSoft as if the acquisition had occurred at the beginning of the first period presented. The effect of the combination did not have a material impact on the net sales and net income of the combined entity. 3. SOFTWARE REVENUE RECOGNITION During the first quarter of 1998, the Company adopted Statements of Position (SOP) 97-2, "Software Revenue Recognition" and 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, "Software Revenue Recognition."" The provisions of SOP's 97-2 and 98-4 have been applied to transactions entered into beginning January 1, 1998. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on vendor-specific objective evidence (VSOE) of the fair value of the various elements in a multiple element arrangement Revenue from the sale of software licenses is recognized at the later of the time of shipment or satisfaction of all acceptance terms. The revenue allocated to maintenance is recognized ratably over the term of the maintenance agreement and revenue allocated to services is recognized as the services are performed. SOP 98-4 defers for one year, the application of several paragraphs and examples in SOP 97-2 that limit the definition of vendor specific objective evidence (VSOE) of the fair value of various elements in a multiple element arrangement. The Company analyzed the elements included in its multiple element arrangements and determined that the Company has sufficient evidence to allocate revenue to the license and maintenance components of its product licenses. The adoption of SOP's 97-2 and 98-4 did not have a significant effect on revenue recognized for the three and six month periods ending June 30, 1998. -6- SUMMIT DESIGN, INC. Notes To Consolidated Financial Statements (Unaudited) 4. BALANCE SHEET COMPONENTS (IN THOUSANDS) June 30, 1998 December 31, 1997 ------------- ----------------- (Unaudited) Accounts receivable: Trade receivables........................... $ 6,061 $ 5,723 Less allowance for doubtful accounts........ (389) (592) --------- ---------- $ 5,672 $ 5,131 --------- ---------- --------- ---------- Furniture and equipment: Office furniture equipment.................. $ 930 $ 596 Computer equipment.......................... 4,377 3,679 Leasehold improvements...................... 79 66 --------- ---------- 5,386 4,341 Less: accumulated depreciation and amortization.. (2,178) (1,643) --------- ---------- $ 3,208 $ 2,698 --------- ---------- --------- ---------- Accrued expenses: Payroll and related benefits................ $ 3,369 $ 2,888 Sales and marketing......................... 985 435 Accounting and legal........................ 226 260 Federal and state income taxes payable...... 1,343 819 Sales taxes payable......................... 76 114 Other....................................... 395 674 --------- ---------- Total accrued expenses................. $ 6,394 $ 5,190 --------- ---------- --------- ---------- -7- SUMMIT DESIGN, INC. Notes To Consolidated Financial Statements (Unaudited) 5. RECONCILIATION OF EARNINGS PER SHARE Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of common stock issuable upon exercise of stock options using the treasury stock method. The following provides a reconciliation of the numerators and denominators of the basic and diluted per share computations: Three months ended Six months ended June 30, June 30, ------------------ -------------------- 1998 1997 1998 1997 --------- --------- --------- -------- Numerator: Net income $ 2,662 $ 1,863 $ 5,299 $ 3,056 --------- --------- --------- -------- --------- --------- --------- -------- Denominator: Denominator for basic earnings per share weighted average shares 15,058 14,167 14,984 14,137 Effect of dilutive securities: Employee stock options 1,227 798 1,256 863 --------- --------- --------- -------- Denominator for diluted earnings per share 16,285 14,965 16,240 15,000 --------- --------- --------- -------- --------- --------- --------- -------- Net income per share - basic $ 0.18 $ 0.13 $ 0.35 $ 0.22 --------- --------- --------- -------- --------- --------- --------- -------- Net income per share - diluted $ 0.16 $ 0.12 $ 0.33 $ 0.20 --------- --------- --------- -------- --------- --------- --------- -------- 6. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivitive Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivitive instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivitive instrument's fair value be recognized currently in results of operations unless specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The Company does not expect SFAS No. 133 to have a material impact on its consolidated financial statements. -8- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUMMIT DESIGN, INC. By: /s/ C. Albert Koob ------------------------------------ C. Albert Koob Vice President - Finance, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer and Duly Authorized Officer) Date: August 31, 1998 -9-