-----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, PE0cEql4WX/OZPH+NsBVOu8jWeN4Ag5SXP0iYGbuYJ0dY0bgT8Vks/q5X8RU+2vk e2WQJwEB2Qqhb+uzHgq1lw== 0000912057-00-023370.txt : 20000512 0000912057-00-023370.hdr.sgml : 20000512 ACCESSION NUMBER: 0000912057-00-023370 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CADENCE DESIGN SYSTEMS INC CENTRAL INDEX KEY: 0000813672 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770148231 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10606 FILM NUMBER: 626405 BUSINESS ADDRESS: STREET 1: 2655 SEELY ROAD BLDG 5 CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089431234 MAIL ADDRESS: STREET 1: 555 RIVER OAKS PARKWAY CITY: SAN JOSE STATE: CA ZIP: 95134 FORMER COMPANY: FORMER CONFORMED NAME: ECAD INC /DE/ DATE OF NAME CHANGE: 19880609 10-Q 1 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 APRIL 1, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 1-10606 ------------------------ CADENCE DESIGN SYSTEMS, INC. (Exact name of Registrant as Specified in Its Charter) ------------------------ DELAWARE 77-0148231 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2655 SEELY AVENUE, BUILDING 5, SAN JOSE, CALIFORNIA 95134 (Address of Principal Executive Offices) (Zip Code)
(408) 943-1234 (Registrant's Telephone Number, including Area Code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / At May 5, 2000, there were 245,650,622 shares of the registrant's common stock, $0.01 par value, outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CADENCE DESIGN SYSTEMS, INC. INDEX
PAGE -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets: April 1, 2000 and January 1, 2000......................... 3 Condensed Consolidated Statements of Operations: Three Months Ended April 1, 2000 and April 3, 1999........ 4 Condensed Consolidated Statements of Cash Flows: Three Months Ended April 1, 2000 and April 3, 1999........ 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................... 24 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 28 Item 2. Changes in Securities and Use of Proceeds................... 29 Item 3. Defaults Upon Senior Securities............................. 29 Item 4. Submission of Matters to a Vote of Security Holders......... 29 Item 5. Other Information........................................... 29 Item 6. Exhibits and Reports on Form 8-K............................ 29 Signatures................................................................ 31
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
APRIL 1, JANUARY 1, 2000 2000 ----------- ---------- (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents................................. $ 110,964 $ 111,401 Short-term investments.................................... 7,270 7,357 Receivables, net.......................................... 213,377 248,034 Inventories, net.......................................... 15,570 19,872 Prepaid expenses and other................................ 96,163 93,248 ---------- ---------- Total current assets.................................... 443,344 479,912 Property, plant, and equipment, net......................... 339,723 330,409 Software development costs, net............................. 10,702 10,692 Acquired intangibles, net................................... 394,554 402,154 Installment contract receivables............................ 56,134 84,160 Other assets................................................ 161,118 152,332 ---------- ---------- $1,405,575 $1,459,659 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current portion of capital leases....... $ 3,695 $ 3,924 Accounts payable and accrued liabilities.................. 225,806 265,518 Deferred revenue.......................................... 166,459 152,116 ---------- ---------- Total current liabilities............................... 395,960 421,558 ---------- ---------- Long-term Liabilities: Long-term notes payable and capital leases................ 4,494 25,024 Other long-term liabilities............................... 32,910 26,928 ---------- ---------- Total long-term liabilities............................. 37,404 51,952 ---------- ---------- Stockholders' Equity: Common stock and capital in excess of par value........... 831,407 857,960 Treasury stock at cost.................................... (209,429) (240,748) Retained earnings......................................... 332,438 344,247 Accumulated other comprehensive gain...................... 17,795 24,690 ---------- ---------- Total stockholders' equity.............................. 972,211 986,149 ---------- ---------- $1,405,575 $1,459,659 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 -------- -------- Revenue: Product................................................... $105,532 $187,357 Services.................................................. 75,815 72,474 Maintenance............................................... 76,146 75,360 -------- -------- Total revenue........................................... 257,493 335,191 -------- -------- Costs and expenses: Cost of product........................................... 20,478 18,536 Cost of services.......................................... 49,001 47,258 Cost of maintenance....................................... 14,189 12,900 Amortization of acquired intangibles...................... 19,666 12,714 Marketing and sales....................................... 86,167 80,063 Research and development.................................. 62,573 50,868 General and administrative................................ 22,532 21,260 Unusual items............................................. -- 14,192 -------- -------- Total costs and expenses................................ 274,606 257,791 -------- -------- Income (loss) from operations......................... (17,113) 77,400 Other income, net........................................... 1,046 135 -------- -------- Income (loss) before provision (benefit) for income taxes............................................... (16,067) 77,535 Provision (benefit) for income taxes........................ (4,258) 24,673 -------- -------- Net income (loss)..................................... $(11,809) $ 52,862 ======== ======== Basic net income (loss) per share........................... $ (0.05) $ 0.22 ======== ======== Diluted net income (loss) per share......................... $ (0.05) $ 0.20 ======== ======== Weighted average common shares outstanding.................. 244,629 240,073 ======== ======== Weighted average common and potential common shares outstanding--assuming dilution............................ 244,629 259,253 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CADENCE DESIGN SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 -------- -------- Cash and Cash Equivalents at Beginning of Period $111,401 $209,074 -------- -------- Cash Flows from Operating Activities: Net income (loss)......................................... (11,809) 52,862 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization........................... 48,839 37,598 Asset impairment and write-off of equipment and non-current assets.................................... -- 3,091 Deferred income taxes................................... 14 13,716 Investment equity income and write-down of venture capital partnership................................... (413) 425 Write-off of acquired in-process technology............. -- 8,900 Change in other long-term liabilities and minority interest expense...................................... 5,982 (1,391) Provisions for losses on trade accounts receivable...... (366) 2,019 Non-cash restructuring charges.......................... 1,312 1,564 Changes in operating assets and liabilities, net of effect of acquired businesses: Receivables........................................... (4,714) (36,484) Inventories........................................... (1,160) 1,792 Prepaid expenses and other............................ (2,847) (7,190) Installment contract receivables...................... 29,193 9,538 Accounts payable and accrued liabilities.............. (27,275) (53,021) Income taxes payable.................................. -- 3,412 Deferred revenue...................................... 14,343 9,527 -------- -------- Net cash provided by operating activities........... 51,099 46,358 -------- -------- Cash Flows from Investing Activities: Maturities of short-term investments--held-to-maturity.... 999 20,609 Purchases of short-term investments--held-to-maturity..... -- (44) Maturities of short-term investments--available-for-sale......................... 107 -- Purchases of property, plant, and equipment............... (21,730) (32,830) Capitalization of software development costs.............. (8,810) (6,394) Increase in acquired intangibles and other assets......... (16,335) (3,624) Investment in venture capital partnership and equity investments............................................. (9,487) (2,992) Cash effect of business acquisitions...................... (4,503) (1,632) Sale of put warrants...................................... 25,516 3,609 Purchase of call options.................................. (25,516) (3,609) -------- -------- Net cash used for investing activities................ (59,759) (26,907) -------- -------- Cash Flows from Financing Activities: Proceeds from long-term debt.............................. -- 30,000 Principal payments on long-term debt and capital leases... (20,693) (80,306) Proceeds from issuance of common stock.................... 21,041 31,640 Purchases of treasury stock............................... (30,698) (20,784) Proceeds from transfer of financial assets in exchange for cash.................................................... 38,799 48,244 -------- -------- Net cash provided by financing activities............. 8,449 8,794 -------- -------- Effect of exchange rate changes on cash..................... (226) 858 -------- -------- Increase (decrease) in Cash and Cash Equivalents............ (437) 29,103 -------- -------- Cash and Cash Equivalents at End of Period.................. $110,964 $238,177 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 CADENCE DESIGN SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION The condensed consolidated financial statements included herein have been prepared by Cadence, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, Cadence 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 consolidated financial statements and the notes thereto included in Cadence's Annual Report on Form 10-K for the fiscal year ended January 1, 2000. 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. The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain amounts in the condensed consolidated financial statements as of January 1, 2000 and for the three months ended April 3, 1999 have been reclassified to conform with the April 1, 2000 presentation. INVENTORIES Cadence's inventories include high technology parts and components for complex computer systems that emulate the performance and operation of computer chips and electronic systems. A summary of inventories follows:
APRIL 1, JANUARY 1, 2000 2000 -------- ---------- (IN THOUSANDS) Raw materials............................................ $13,188 $19,033 Work in process.......................................... 2,382 839 ------- ------- Total inventories, net................................. $15,570 $19,872 ======= =======
6 RESTRUCTURING The following table summarizes Cadence's restructuring activity during the first quarter of 2000:
FOR THE THREE MONTHS ENDED APRIL 1, 2000 ------------------------------------------------------------ SEVERANCE AND EXCESS OTHER BENEFITS FACILITIES RESTRUCTURING ASSETS TOTAL --------- ---------- ------------- -------- -------- (IN THOUSANDS) Balance, January 1, 2000............ $8,013 $ 6,464 $ 426 $ 5,861 $20,764 Non-cash charges.................. (47) (6) (62) (1,197) (1,312) Cash charges...................... (901) (127) (364) (82) (1,474) ------ ------- ----- ------- ------- Balance, April 1, 2000.............. $7,065 $ 6,331 $ -- $ 4,582 $17,978 ====== ======= ===== ======= =======
CREDIT FACILITY In October 1998, Cadence entered into a senior unsecured credit facility, referred to as the 1998 Facility, with a syndicate of banks that allows Cadence to borrow up to $355 million. As amended in September and November of 1999, the 1998 Facility is divided between a $177.5 million two year revolving credit facility, or the Two Year Facility, and a $177.5 million 364-day revolving credit facility convertible into a one year term loan, or the 364-Day Facility. The Two Year Facility expires on September 29, 2001. The 364-Day Facility will either expire on September 27, 2000, be converted to a one year term loan with a maturity date of September 27, 2001, or, at the request of Cadence and with the agreement of the bank group, be renewed for one additional year. Cadence has the option to pay interest based on LIBOR plus a spread of between 1.25% and 1.50%, based on a pricing grid tied to a financial covenant, or the higher of the Federal Funds Rate plus 0.50% or the prime rate. As a result, Cadence's interest rate expenses associated with this borrowing will vary with market rates. In addition, commitment fees are payable on the unutilized portions of the Two Year Facility at rates between 0.23% and 0.30% based on a pricing grid tied to a financial covenant and on the unutilized portion of the 364-Day Facility at a fixed rate of 0.18%. The 1998 Facility contains certain financial and other covenants. During the three months ended April 1, 2000, Cadence repaid all of the $20 million outstanding under the unsecured credit facility at January 1, 2000. At April 1, 2000, there were no borrowings outstanding under this unsecured credit facility. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) includes foreign currency translation gains and losses and other unrealized gains and losses that have been previously excluded from net income (loss) and reflected instead in equity. A summary of comprehensive income (loss) follows:
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 -------- -------- (IN THOUSANDS) Net income (loss)........................................... $(11,809) $52,862 Translation income (loss)................................... (118) 939 Unrealized gain (loss) on investments....................... (6,777) (52) -------- ------- Comprehensive income (loss)................................. $(18,704) $53,749 ======== =======
7 NET INCOME (LOSS) PER SHARE The following is a reconciliation of the weighted average common shares used to calculate basic net income (loss) per share to the weighted average common and potential common shares used to calculate diluted net income (loss) per share:
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 -------- -------- (IN THOUSANDS) Weighted average common shares used to calculate basic net income (loss) per share 244,629 240,073 Options................................................... -- 18,519 Puts...................................................... -- 401 Warrants and other contingent common shares................. -- 260 ------- ------- Weighted average common and potential common shares used to calculate diluted net income (loss) per share............. 244,629 259,253 ======= =======
Options to purchase 52,173,200 shares of common stock at the weighted average price of $14.59 per share were outstanding at April 1, 2000, but were not included in the computation of diluted net loss per share because their effect would be antidilutive. These options expire at various dates through 2010. Warrants to purchase 140,000 shares of common stock at the weighted average price of $3.22 were outstanding at April 1, 2000, but were not included in the computation of diluted net loss per share because their effect would be antidilutive. These warrants expire in June 2003. Put warrants to purchase 9,127,015 shares of common stock at the weighted average price of $20.71 per share were outstanding at April 1, 2000, but were not included in the computation of diluted net loss per share because their effect would be antidilutive. The put warrants outstanding expire on various dates through February 2001. CONTINGENCIES Refer to Part II, Item 1 for a description of legal proceedings. PUT WARRANTS AND CALL OPTIONS Cadence has authorized three seasoned systematic stock repurchase programs under which it repurchases common stock to satisfy estimated requirements for shares to be issued under its Employee Stock Purchase Plan, or ESPP, the 1997 Nonstatutory Stock Option Plan, referred to as the 1997 Plan, and the 2000 Nonstatutory Stock Option Plan, referred to as the 2000 Plan. Such repurchases are intended to cover Cadence's expected reissuances under the ESPP and both the 1997 Plan and 2000 Plan for the next 12 months and 24 months, respectively. As part of its authorized repurchase programs, Cadence has sold put warrants through private placements. At April 1, 2000, there were 9.1 million put warrants outstanding, each of which entitles the holder to sell one share of common stock to Cadence on a specified date and at a specified price ranging from $18.02 to $22.31 per share. Additionally, during this same period, Cadence purchased call options that entitle Cadence to buy shares of its common stock at a specified price to satisfy anticipated stock repurchase requirements under Cadence's systematic stock repurchase programs. At April 1, 2000, Cadence had 6.9 million call options outstanding at prices ranging from $18.27 to $22.56 per share. The put warrants and call options outstanding at April 1, 2000 are exercisable on various dates through February 2001 and Cadence has the contractual ability to settle the options prior to their maturity. At April 1, 2000, the fair value of the call options was approximately $18.4 million and the fair value of the put warrants was approximately $32.4 million. The fair value of the put warrants and call options was estimated by Cadence's investment bankers. 8 If exercised, Cadence has the right to settle the put warrants with Cadence common stock equal to the difference between the exercise price and the fair value at the date of exercise. Settlement of the put warrants with stock could cause Cadence to issue a substantial number of shares, depending on the exercise price of the put warrants and the per share fair value of Cadence's common stock at the time of exercise. In addition, settlement of put warrants in stock could lead to the disposition by put warrant holders of shares of Cadence's common stock that such holders may have accumulated in anticipation of the exercise of the put warrants or call options, which may negatively affect the price of Cadence's common stock. At April 1, 2000, because Cadence had the ability to settle these put warrants with stock no amount was classified out of stockholders' equity in the condensed consolidated balance sheets. SEGMENT REPORTING The following tables present information about reported segments for the three months ended April 1, 2000 and April 3, 1999:
FOR THE THREE MONTHS ENDED APRIL 1, 2000 -------------------------------------------------------- PRODUCT SERVICES MAINTENANCE OTHER TOTAL -------- -------- ----------- --------- -------- (IN THOUSANDS) Revenue.................................. $105,532 $75,815 $76,146 $ -- $257,493 Cost of revenue.......................... 20,478 49,001 14,189 -- 83,668 Amortization of acquired intangibles..... 10,578 9,088 -- -- 19,666 -------- ------- ------- --------- -------- Gross margin........................... 74,476 17,726 61,957 -- 154,159 Marketing and sales...................... -- -- -- (86,167) (86,167) Research and development................. -- -- -- (62,573) (62,573) General and administrative............... -- -- -- (22,532) (22,532) Other income, net........................ -- -- -- 1,046 1,046 -------- ------- ------- --------- -------- Income (loss) before provision (benefit) for income taxes....................... $ 74,476 $17,726 $61,957 $(170,226) $(16,067) ======== ======= ======= ========= ======== FOR THE THREE MONTHS ENDED APRIL 3, 1999 -------------------------------------------------------- (IN THOUSANDS) Revenue.................................. $187,357 $72,474 $75,360 $ -- $335,191 Cost of revenue.......................... 18,536 47,258 12,900 -- 78,694 Amortization of acquired intangibles..... 11,319 1,395 -- -- 12,714 -------- ------- ------- --------- -------- Gross margin........................... 157,502 23,821 62,460 -- 243,783 Marketing and sales...................... -- -- -- (80,063) (80,063) Research and development................. -- -- -- (50,868) (50,868) General and administrative............... -- -- -- (21,260) (21,260) Unusual items............................ -- -- -- (14,192) (14,192) Other income, net........................ -- -- -- 135 135 -------- ------- ------- --------- -------- Income (loss) before provision (benefit) for income taxes....................... $157,502 $23,821 $62,460 $(166,248) $ 77,535 ======== ======= ======= ========= ========
NEW ACCOUNTING STANDARDS In December 1999, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or SAB 101, and amended it in March 2000. Cadence is required to adopt the provisions of SAB 101 in its second fiscal quarter of 2000. Cadence is currently reviewing the provisions of SAB 101 and has not fully assessed the impact of its adoption. While SAB 101 does not supercede the software industry specific revenue recognition guidance, 9 which Cadence believes it is in compliance with, the SEC Staff has recently informally indicated its views related to SAB 101 which may change current interpretations of software revenue recognition requirements. Such SEC interpretations could result in many software companies, including Cadence, recording a cumulative effect of a change in accounting principles retroactive to January 1, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. It requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met and that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," was issued. The statement defers the effective date of SFAS No. 133 until the first quarter of fiscal 2001. Cadence has not yet determined the effect SFAS No. 133 will have on its financial position, results of operations, or cash flows. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE HEREIN. EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. CADENCE'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE ACTUAL RESULTS OR PERFORMANCE TO DIFFER MATERIALLY OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW IN "RESULTS OF OPERATIONS," "LIQUIDITY AND CAPITAL RESOURCES," "FACTORS THAT MAY AFFECT FUTURE RESULTS," AND "DISCLOSURES ABOUT MARKET RISK." OVERVIEW Cadence Design Systems, Inc., or Cadence, provides comprehensive software and other technology and offers design and methodology services for the product development requirements of the world's leading electronics companies. Cadence licenses its leading-edge electronic design automation, or EDA, software and hardware technology and provides a range of services to companies throughout the world to help its customers optimize their product development processes. Cadence is a supplier of products and services which are used by companies to design and develop complex chips and electronic systems including semiconductors, computer systems and peripherals, telecommunications and networking equipment, mobile and wireless devices, automotive electronics, consumer products, and other advanced electronics. RESULTS OF OPERATIONS REVENUE
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 % CHANGE -------- -------- -------- (IN MILLIONS) Product................................................... $105.5 $187.3 (44)% Services.................................................. 75.8 72.5 5% Maintenance............................................... 76.2 75.4 1% ------ ------ Total revenue........................................... $257.5 $335.2 (23)% ====== ======
SOURCES OF REVENUE AS A PERCENT OF TOTAL REVENUE Product.................................................... 41% 56% Services................................................... 29% 22% Maintenance................................................ 30% 22%
Product revenue decreased $81.8 million in the first quarter of 2000, compared to the first quarter of 1999, primarily due to the implementation of Cadence's new software subscription licensing model, first implemented during the third quarter of 1999 and, to a lesser extent, an overall decrease in sales volume of Cadence's software products. The decrease in sales volume of products was primarily attributable to lower sales of integrated circuit implementation products, which include place and route and physical design and verification products. Services revenue increased $3.3 million in the first quarter of 2000, compared to the first quarter of 1999, primarily due to an increase in demand for Cadence's design services engagements, partially offset by a decrease in methodology services engagements. Increases in design services revenue were due to general 11 increases in each of the four major areas, wireless communications, wired communications, information appliances, and industrial electronics. The most significant increase was in the wireless communications area. Decreases in methodology services were due to a shortage of delivery resources. Maintenance revenue remained relatively flat in the first quarter of 2000, when compared to the first quarter of 1999. REVENUE BY GEOGRAPHY
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 % CHANGE -------- -------- -------- (IN MILLIONS) Domestic.................................................. $152.2 $134.6 13% International............................................. 105.3 200.6 (47)% ------ ------ Total revenue........................................... $257.5 $335.2 (23)% ====== ======
REVENUE BY GEOGRAPHY AS A PERCENT OF TOTAL REVENUE Domestic................................................... 59% 40% International.............................................. 41% 60%
International revenue decreased $95.3 million in the first quarter of 2000, when compared to the first quarter of 1999, primarily due to decreases in product and services revenue in Europe and Japan. The decrease in product revenue is primarily attributable to Cadence's new subscription licensing model. Other differences in the rate of revenue growth over the years presented and when compared geographically are primarily due to fluctuations in sales volume of place and route and physical design and verification products and for Cadence's design and methodology services offerings. Foreign currency exchange rates positively affected reported revenue by $1.8 million during the first quarter of 2000, primarily due to the strengthening of the Japanese yen in relation to the U.S. dollar, offset partially by the weakening of the French franc and German deutsche mark. Foreign currency exchange rates positively affected revenue by $4.1 million during the first quarter of 1999, primarily due to the strengthening of the Japanese yen in relation to the U.S. dollar. COST OF REVENUE
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 % CHANGE -------- -------- -------- (IN MILLIONS) Product.................................................... $20.5 $18.5 11% Services................................................... $49.0 $47.3 4% Maintenance................................................ $14.2 $12.9 10%
COST OF REVENUE AS A PERCENT OF RELATED REVENUE Product.................................................... 19% 10% Services................................................... 65% 65% Maintenance................................................ 19% 17%
12 Cost of product revenue includes costs of production personnel, packaging and documentation, royalties, and amortization of capitalized software development costs for software products. Manufacturing costs associated with hardware emulation system products include materials, labor, and overhead. Cost of product revenue increased $2 million for the first quarter of 2000, when compared to the first quarter of 1999, primarily due to higher amortization of software development costs and costs associated with the acquisition of OrCAD, Inc., or OrCAD, which was completed in the third quarter of 1999 and for which there were no similar costs in the first quarter of 1999. Because the majority of Cadence's cost of software product revenue does not vary significantly with changes in revenue, product gross margin decreased in the first quarter of 2000 when compared to the first quarter in 1999, due primarily to the implementation of Cadence's new software subscription licensing model, which was implemented during the third quarter of 1999 and, to a lesser extent, a decrease in sales volume of software products. Cost of services revenue includes costs associated with providing services to customers, primarily salaries and costs to recruit, develop, and retain personnel, and costs to maintain the infrastructure necessary to manage a services organization. Cost of services revenue increased $1.7 million in the first quarter of 2000, when compared to the first quarter of 1999, primarily due to Cadence's addition of services professionals, resulting from the acquisition of Diablo Research Company LLC, or Diablo, which was completed in the fourth quarter of 1999. Services gross margin remained flat for the first quarter of 2000, when compared to the first quarter of 1999. Services gross margin has been, and may continue to be, harmed by Cadence's inability to fully utilize its services resources. In addition, services gross margin may continue to be harmed by Cadence's inability to achieve operating efficiencies when implementing a growing number of services offerings. Cost of maintenance revenue includes the cost of customer services, such as hot-line and on-site support, production personnel, packaging, and documentation of maintenance updates. Cost of maintenance revenue increased $1.3 million in the first quarter of 2000, when compared to the first quarter of 1999, primarily due to employee-related costs associated with the OrCAD acquisition which was completed in the third quarter of 1999 and for which there were no similar costs in the first quarter of 1999. AMORTIZATION OF ACQUIRED INTANGIBLES
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 -------- -------- (IN MILLIONS) Amortization of acquired intangibles........................ $19.7 $12.7
AMORTIZATION OF ACQUIRED INTANGIBLES AS A PERCENT OF TOTAL REVENUE Amortization of acquired intangibles........................ 8% 4%
Amortization of acquired intangibles increased $7 million in the first quarter of 2000, when compared with the first quarter of 1999, primarily due to the 1999 acquisitions of OrCAD and Diablo. 13 OPERATING EXPENSES
THREE MONTHS ENDED ------------------- APRIL 1, APRIL 3, 2000 1999 % CHANGE -------- -------- -------- (IN MILLIONS) Marketing and sales........................................ $86.2 $80.1 8% Research and development................................... $62.6 $50.9 23% General and administrative................................. $22.5 $21.3 6%
EXPENSES AS A PERCENT OF TOTAL REVENUE Marketing and sales........................................ 34% 24% Research and development................................... 24% 15% General and administrative................................. 9% 6%
Marketing and sales expenses increased $6.1 million in the first quarter of 2000, when compared to the first quarter of 1999, primarily due to an increase in employee-related costs associated with the 1999 acquisition of OrCAD for which there were no similar costs in the first quarter of 1999. Foreign currency exchange rates negatively affected reported marketing and sales expenses by $0.7 million during the first quarter of 2000, primarily due to the strengthening of the Japanese yen in relation to the U.S. dollar, offset partially by the weakening of the French franc and German deutsche mark. During the first quarter of 1999, foreign currency exchange rates negatively affected marketing and sales expenses by $0.6 million, primarily due to the strengthening of the Japanese yen in relation to the U.S. dollar. Cadence's expenses in research and development, prior to the reduction for capitalization of software development costs, was $71.4 million in the first quarter of 2000 and $57.3 million for the first quarter of 1999, representing 28% and 17% of total revenue, respectively. Cadence capitalized software development costs of $8.8 million in the first quarter of 2000 and $6.4 million in the first quarter of 1999, which represented 12% and 11% of total research and development expenditures made in each of those periods, respectively. The increase in capitalized software development costs for the first quarter of 2000 resulted primarily from general increases in new product development. In any given period, the amount of capitalized software development costs may vary depending on the exact nature of the development performed. The increase in net research and development expenses of $11.7 million for the first quarter of 2000, when compared to the first quarter of 1999, was primarily attributable to employee-related costs, consulting costs, and costs attributable to OrCAD. General and administrative expenses increased $1.2 million in the first quarter of 2000, when compared to the first quarter of 1999, primarily due to costs attributable to OrCAD and Diablo, offset partially by a reduction in bad debt expense. 14 UNUSUAL ITEMS There were no unusual items in the first quarter of 2000. The following table presents information regarding unusual items for the quarter ended April 3, 1999:
THREE MONTHS ENDED APRIL 3, 1999 ------------- (IN MILLIONS) Write-off of acquired in-process technology................. $ 8.9 Asset impairment............................................ 3.1 Restructuring charges....................................... 2.2 ----- Total unusual items....................................... $14.2 =====
ACQUISITIONS AND IN-PROCESS TECHNOLOGY In January 1999, Cadence acquired Design Acceleration, Inc., or DAI, a supplier of design verification technology used in system-on-a-chip, or SOC, design. The total purchase price was $25.7 million and the acquisition was accounted for as a purchase. Upon consummation of the DAI acquisition, Cadence immediately charged to expense $8.9 million representing acquired in-process technology that had not yet reached technological feasibility and had no alternative future use. The value assigned to acquired in-process technology was determined by identifying research projects in areas for which technological feasibility has not been established. The value was determined by estimating the costs to develop the acquired in-process technology into commercially viable products, estimating the resulting net cash flows from such projects, and discounting the net cash flows back to their present value. The discount rate included a factor that took into account the uncertainty surrounding the successful development of the acquired in-process technology. Certain acquired in-process technology under development at the time of acquisition was initially expected to become commercially viable in 1999, but has since been delayed to 2000 and 2001. Expenditures to complete this in-process technology are expected to total approximately $1.5 million. These estimates are subject to change, given the uncertainties of the development process, and no assurance can be given that deviations from these estimates will not occur. Additionally, these projects will require expenditures for additional research and development after they have reached a state of technological and commercial feasibility. To date, DAI's results have not differed significantly from the forecasted assumptions. In addition, Cadence's research and development expenditures since the acquisition have not differed materially from expectations. Revenue contribution from the acquired technology falls within an acceptable range of plans in its role in Cadence's suite of design systems and tools. The risks associated with the research and development are still considered high and no assurance can be made that these future products will meet market expectations. ASSET IMPAIRMENT AND RESTRUCTURING In the first quarter of 1999, Cadence incurred charges totaling $3.1 million in connection with the abandonment of certain third-party software licenses that will no longer be used by its design services business and capitalized software development costs associated with Cadence products that will no longer be sold. The impairment loss recorded was the amount by which the carrying amount of the intangible assets exceeded fair market value. In addition, Cadence recorded $2.2 million in severance costs to terminate 45 employees. These actions were taken to complete Cadence's restructuring program initiated in the fourth quarter of 1998. The restructuring plan was primarily aimed at reducing the cost of excess personnel in its services business. 15 Actual amounts of termination benefits, facilities, and other restructuring related payments can be found in Notes to Condensed Consolidated Financial Statements under "RESTRUCTURING." OTHER INCOME AND INCOME TAXES Other income increased $0.9 million in the first quarter of 2000, when compared to the first quarter of 1999, primarily due to a decrease in interest expense of $0.7 million, a decrease in foreign exchange losses of $0.7 million, and a decrease in interest income of $0.9 million. The decrease in interest expense was due to a decrease in borrowings under Cadence's unsecured credit facility. The decrease in interest income was due to a lower average balance of invested cash and short-term investments. Cadence's estimated effective tax rate in the first quarter of 2000 was 26.5%. The effective tax rate for the first quarter of 1999 was 28.5%, excluding the effect of the write-off of acquired in-process technology of $8.9 million, which is not deductible for income tax purposes. The decrease in the 2000 effective tax rate, when compared to 1999, is primarily due to foreign earnings being taxed at a lower rate. LIQUIDITY AND CAPITAL RESOURCES At April 1, 2000, Cadence's principal sources of liquidity consisted of $118.2 million of cash and short-term investments, compared to $118.8 million at January 1, 2000, and a $355 million senior unsecured credit facility. As of April 1, 2000, Cadence had no outstanding borrowings. Cash provided by operating activities increased $4.7 million to $51.1 million for the first quarter of 2000 when compared to the first quarter of 1999. The increase was primarily due to increases in depreciation and amortization, receivables, installment contract receivables, and accounts payable and accrued liabilities, partially offset by decreases in net income before unusual items and amortization of acquired intangibles and deferred income taxes. At April 1, 2000, Cadence had net working capital of $47.4 million compared with $58.4 million at January 1, 2000. The working capital decrease was driven primarily by a decrease in receivables of $34.7 million and an increase in deferred revenue of $14.3, partially offset by a decrease in accounts payable and accrued liabilities of $39.7 million. The decrease in accounts payable and accrued liabilities was primarily attributable to payments made for commissions, bonuses, and stock purchased under Cadence's Employee Stock Purchase Plan. In addition to its short-term investments, Cadence's primary investing activities consisted of purchases of property, plant, and equipment, capitalization of software development costs, acquired intangibles and other assets, venture capital partnership investments, and acquisitions, which combined represented $60.9 million and $47.5 million of cash used for investing activities in the first quarters of 2000 and 1999, respectively. Since 1994, Cadence has sold put warrants and purchased call options through private placements. See "Notes to Condensed Consolidated Financial Statements." At April 1, 2000, Cadence had a maximum potential obligation related to put warrants to buy back 9.1 million shares of its common stock at an aggregate price of approximately $189 million. The put warrants will expire on various dates through February 2001, and Cadence has the contractual ability to settle the options prior to their maturity. Cadence has the ability to settle these put warrants with stock and, therefore, no amount was classified out of stockholders' equity in the condensed consolidated balance sheets. Anticipated cash requirements for the remainder of 2000 includes the purchase of treasury stock through Cadence's stock repurchase programs and the contemplated additions of property, plant, and equipment of approximately $95 million. As part of its overall investment strategy, Cadence has become a limited partner in a venture capital fund and is committed to invest up to $100 million. As of April 1, 2000, Cadence had contributed 16 approximately $41.3 million to this partnership, which is reflected in other assets in the accompanying condensed consolidated balance sheets, net of operating losses. Cadence anticipates that current cash and short-term investment balances, cash flows from operations, and its $355 million revolving credit facility will be sufficient to meet its working capital requirements on a short-and long-term basis. NEW ACCOUNTING STANDARDS In December 1999, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or SAB 101, and amended it in March 2000. Cadence is required to adopt the provisions of SAB 101 in its second fiscal quarter of 2000. Cadence is currently reviewing the provisions of SAB 101 and has not fully assessed the impact of its adoption. While SAB 101 does not supercede the software industry specific revenue recognition guidance, which Cadence believes it is in compliance with, the SEC Staff has recently informally indicated its views related to SAB 101 which may change current interpretations of software revenue recognition requirements. Such SEC interpretations could result in many software companies, including Cadence, recording a cumulative effect of a change in accounting principles retroactive to January 1, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. It requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met and that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," was issued. The statement defers the effective date of SFAS No. 133 until the first quarter of fiscal 2001. Cadence has not yet determined the effect SFAS No. 133 will have on its financial position, results of operations, or cash flows. FACTORS THAT MAY AFFECT FUTURE RESULTS The following risk factors and other information included in this Quarterly Report on Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, operating results, and financial condition could be materially harmed. CADENCE LACKS LONG-TERM EXPERIENCE IN ITS ELECTRONICS DESIGN AND METHODOLOGY SERVICES BUSINESS Cadence has no long-term experience in offering electronics design and methodology services and therefore may not be as experienced in this business as others. The market for these services is relatively new and rapidly evolving. Cadence's failure to succeed in these services businesses may seriously harm Cadence's business, operating results, and financial condition. THE SUCCESS OF CADENCE'S ELECTRONIC DESIGN AND METHODOLOGY SERVICES BUSINESSES DEPENDS ON MANY FACTORS THAT ARE BEYOND ITS CONTROL In order to be successful with its electronics design and methodology services, Cadence must overcome several factors that are beyond its control, including the following: - MANY SERVICE CONTRACTS GENERALLY REPRESENT LARGE AMOUNTS OF REVENUE. Cadence's electronics design and methodology services contracts generally represent a relatively large amount of revenue per order. 17 Therefore, the loss of individual orders could seriously hurt Cadence's revenue and operating results. - CADENCE'S COST OF SERVICES PERSONNEL IS HIGH AND REDUCES GROSS MARGIN. Gross margin represents the difference between the amount of revenue from the sale of services and Cadence's cost of providing those services. Cadence must pay high salaries to professional services personnel to attract and retain them. This results in a lower gross margin than the gross margin in Cadence's software business. In addition, the high cost of training new services personnel or not fully utilizing these personnel can significantly lower gross margin. Additionally, a substantial portion of these services contracts are fixed-price contracts. This means that the customer pays a fixed price that has been agreed upon ahead of time, no matter how much time or how many resources Cadence must devote to perform the contract. If Cadence's cost in performing the services consistently and significantly exceeds the amount the customer has agreed to pay, it could seriously harm Cadence's business, operating results, and financial condition. CADENCE'S FAILURE TO RESPOND QUICKLY TO TECHNOLOGICAL DEVELOPMENTS COULD MAKE ITS PRODUCTS UNCOMPETITIVE AND OBSOLETE The industries in which Cadence competes experience rapid technology developments, changes in industry standards, changes in customer requirements and frequent new product introductions and improvements. Currently, the electronic chip design industry is experiencing several revolutionary trends: - The size of features such as wires, transistors, and contacts on chips is shrinking due to advances in semiconductor manufacturing processes. Process feature sizes refer to the width of the transistors and the width and spacing of the interconnect on the chip. Feature size is normally identified by the headline transistor length, which is shrinking from 0.35 microns to 0.18 microns and below. This is commonly referred to in the semiconductor industry as the migration to deep submicron and represents a major challenge for all levels of the semiconductor industry from design and design automation to design of manufacturing equipment and the manufacturing process itself. Shrinkage of transistor length to such infinitesimal proportions (for reference, the diameter of the period at the end of this sentence is approximately 400 microns) is challenging fundamental laws of physics and chemistry. - The ability to design very large chips, in particular integration of entire electronic systems onto a single chip instead of a circuit board (a process that is referred to in the industry as SOC), increases the complexity of managing a design that at the lowest level is represented by billions of shapes on the fabrication mask. In addition, systems typically incorporate microprocessors and digital signal processors that are programmed with software, requiring simultaneous design of the silicon chip and the related embedded software on the chip. If Cadence is unable to respond quickly and successfully to these developments and changes, Cadence may lose its competitive position and its products or technologies may become uncompetitive or obsolete. In order to compete successfully, Cadence must develop or acquire new products and improve its existing products and processes on a schedule that keeps pace with technological developments in its industries. Cadence must also be able to support a range of changing computer software, hardware platforms and customer preferences. There is no guarantee that Cadence will be successful in this regard. 18 CADENCE'S FAILURE TO OBTAIN SOFTWARE OR OTHER INTELLECTUAL PROPERTY LICENSES OR ADEQUATELY PROTECT ITS PROPRIETARY RIGHTS COULD SERIOUSLY HARM ITS BUSINESS Cadence's success depends, in part, upon its proprietary technology. Many of Cadence's products include software or other intellectual property licensed from third parties, and Cadence may have to seek new or renew existing licenses for this software and other intellectual property in the future. Cadence's design services business also requires it to license software or other intellectual property of third parties. Cadence's failure to obtain for its use software or other intellectual property licenses or other intellectual property rights on favorable terms, or the need to engage in litigation over these licenses or rights, could seriously harm Cadence's business, operating results, and financial condition. Also, Cadence generally relies on patents, copyrights, trademarks and trade secret laws to establish and protect its proprietary rights in technology and products. Despite precautions Cadence may take to protect its intellectual property, Cadence cannot assure you that third parties will not try to challenge, invalidate, or circumvent these patents. Cadence also cannot assure you that the rights granted under its patents will provide it with any competitive advantages, patents will be issued on any of its pending applications, or future patents will be sufficiently broad to protect Cadence's technology. Furthermore, the laws of foreign countries may not protect Cadence's proprietary rights in those countries to the same extent as U.S. law protects these rights in the U.S. Cadence cannot assure you that its reliance on licenses from or to third parties, or patent, copyright, trademark, and trade secret protection, will be enough to be successful and profitable in the industries in which Cadence competes. INTELLECTUAL PROPERTY INFRINGEMENT BY OR AGAINST CADENCE COULD SERIOUSLY HARM ITS BUSINESS There are numerous patents in the EDA industry and new patents are being issued at a rapid rate. It is not always economically practicable to determine in advance whether a product or any of its components infringes the patent rights of others. As a result, from time to time, Cadence may be forced to respond to or prosecute intellectual property infringement claims to protect its rights or defend a customer's rights. These claims, regardless of merit, could consume valuable management time, result in costly litigation, or cause product shipment delays, all of which could seriously harm Cadence's business, operating results, and financial condition. In settling these claims, Cadence may be required to enter into royalty or licensing agreements with the third parties claiming infringement. These royalty or licensing agreements, if available, may not have terms acceptable to Cadence. Being forced to enter into a license agreement with unfavorable terms could seriously harm Cadence's business, operating results, and financial condition. CADENCE OBTAINS KEY COMPONENTS FOR ITS HARDWARE PRODUCTS FROM A LIMITED NUMBER OF SUPPLIERS Cadence depends on several suppliers for certain key components and board assemblies used in its hardware-based emulation products. Cadence's inability to develop alternative sources or to obtain sufficient quantities of these components or board assemblies could result in delays or reductions in product shipments. In particular, Cadence currently relies on Xilinx, Inc. and Taiwan Semiconductor Manufacturing Corporation for the supply of key integrated circuits and on IBM for the hardware components for both Cadence's CoBALT-TM- product and Mercury Design Verification System-TM-. Other disruptions in supply may also occur. If there were such a reduction or interruption, Cadence's results of operations would be seriously harmed. Even if Cadence can eventually obtain these components from alternative sources, a significant delay in Cadence's ability to deliver products would result. FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS COULD HURT CADENCE'S BUSINESS AND THE MARKET PRICE OF ITS STOCK Cadence has experienced, and may continue to experience, varied quarterly operating results. Various factors affect Cadence's quarterly operating results and some of them are not within Cadence's control, 19 including the mix of products and services sold, the mix of licenses used to sell products and the timing of significant orders for its software products by customers. Quarterly operating results are affected by the mix of products sold because there are significant differences in margins from the sale of hardware and software products and services. For example, based on a three-year average in 1999 Cadence had realized gross margins on software product sales of approximately 91% but realized gross margins of approximately 65% on hardware product sales and 32% on its performance of services. In the first quarter of 2000, realized gross margins decreased to approximately 83% for software products and increased to approximately 73% for hardware products and to 35% for services. In addition, Cadence's quarterly operating results are affected by the mix of licenses entered into in connection with the sale of software products. Cadence has three basic licensing models: perpetual, fixed-term, and subscription. Perpetual and fixed-term licenses recognize a larger portion of the revenue at the beginning of the license period and subscription licenses recognize revenue ratably over each quarter of the term of the license. If Cadence customers purchase more software products pursuant to a subscription agreement in any one quarter, the operating results for that quarter may be lower than that of comparable quarters in which perpetual and fixed-term licenses were used for more software product transactions. Finally, Cadence's quarterly operating results are affected by the timing of significant orders for its software products because a significant number of contracts for software products are in excess of $5 million. The failure to close a contract for the sale of one or more orders of Cadence's software products could seriously harm its quarterly operating results. Cadence's hardware verification products typically have a lengthy sales cycle, during which Cadence may expend substantial funds and management effort without any assurance that a sale will result. Sales of Cadence's hardware products depend, in significant part, upon the decision of the prospective customer to commence a project for the design and development of complex computer chips and systems. Such projects often require significant commitments of time and capital. Cadence's hardware sales may be delayed if customers delay commencement of projects. Lengthy hardware sales cycles subject Cadence to a number of significant risks over which Cadence has little or no control, including inventory obsolescence and fluctuations in quarterly operating results. In addition, Cadence bases its expense budgets partially on its expectations of future revenue. However, it is difficult to predict revenue levels or growth. Revenue levels that are below Cadence's expectations could seriously hurt Cadence's business, operating results, and financial condition. If revenue or operating results fall short of the levels expected by public market analysts and investors, the trading price of Cadence common stock could decline dramatically. Also, because of the timing of large orders and its customers' buying patterns, Cadence may not learn of revenue shortfalls, earnings shortfalls or other failures to meet market expectations until late in a fiscal quarter, which could cause even more immediate and serious harm to the trading price of Cadence common stock. Because Cadence has no long-term experience providing services, it believes that quarter-to-quarter comparisons of its results of operations may not be meaningful. Therefore, stockholders should not view Cadence's historical results of operations as reliable indicators of its future performance. CADENCE EXPECTS TO ACQUIRE OTHER COMPANIES AND MAY NOT SUCCESSFULLY INTEGRATE THEM OR THE COMPANIES IT RECENTLY ACQUIRED Cadence has acquired other businesses before and may do so again. While Cadence expects to analyze carefully all potential transactions before committing to them, Cadence cannot assure you that any transaction that is completed will result in long-term benefits to Cadence or its stockholders, or that Cadence's management will be able to manage the acquired businesses effectively. In addition, growth through acquisition involves a number of risks. If any of the following events occurs after Cadence acquires another business, it could seriously harm Cadence's business, operating results, and financial condition: - Difficulties in combining previously separate businesses into a single unit; 20 - The substantial diversion of management's attention from day-to-day business when negotiating these transactions and then integrating an acquired business; - The discovery after the acquisition has been completed of liabilities assumed from the acquired business; - The failure to realize anticipated benefits such as cost savings and revenue enhancements; - The failure to retain key personnel of the acquired business; and - Difficulties related to assimilating the products of an acquired business in, for example, distribution, engineering, and customer support areas. CADENCE'S INTERNATIONAL OPERATIONS MAY SERIOUSLY HARM ITS FINANCIAL CONDITION BECAUSE OF SEVERAL WEAK FOREIGN ECONOMIES AND THE EFFECT OF FOREIGN EXCHANGE RATE FLUCTUATIONS Cadence has significant operations outside the United States. Cadence's revenue from international operations as a percentage of total revenue was approximately 41% for the three months ended April 1, 2000 and 60% for the three months ended April 3, 1999. Cadence also transacts business in various foreign currencies. Recent economic uncertainty and the volatility of foreign currencies in certain parts of the Asia-Pacific region, has had, and may continue to have, a seriously harmful effect on Cadence's revenue and operating results. Fluctuations in the rate of exchange between the U.S. dollar and the currencies of countries other than the U.S. in which Cadence conducts business could seriously harm its business, operating results, and financial condition. For example, if there is an increase in the rate at which a foreign currency exchanges into U.S. dollars, it will take more of the foreign currency to equal a specified amount of U.S. dollars than before the rate increase. If Cadence prices its products and services in the foreign currency, it will receive less in U.S. dollars than it did before the rate increase went into effect. If Cadence prices its products and services in U.S. dollars, an increase in the exchange rate will result in an increase in the price for Cadence's products and services compared to those products of its competitors that are priced in local currency. This could result in Cadence's prices being uncompetitive in markets where business is transacted in the local currency. Cadence's international operations may also be subject to other risks, including: - The adoption and expansion of government trade restrictions; - Volatile foreign exchange rates and currency conversion risks; - Limitations on repatriation of earnings; - Reduced protection of intellectual property rights in some countries; - Recessions in foreign economies; - Longer receivables collection periods and greater difficulty in collecting accounts receivable; - Difficulties in managing foreign operations; - Political and economic instability; - Unexpected changes in regulatory requirements; - Tariffs and other trade barriers; and - U.S. government licensing requirements for export which make licenses difficult to obtain. Cadence expects that revenue from its international operations will continue to account for a significant portion of its total revenue. 21 Exposure to foreign currency transaction risk can arise when transactions are conducted in a currency different from the functional currency of a Cadence subsidiary. A subsidiary's functional currency is the currency in which it primarily conducts its operations, including product pricing, expenses and borrowings. Cadence uses foreign currency forward exchange contracts and purchases foreign currency put options to help protect against currency exchange risks. These forward contracts and put options allow Cadence to buy or sell specific foreign currencies at specific prices on specific dates. Increases or decreases in the value of Cadence's foreign currency transactions are partially offset by gains and losses on these forward contracts and put options. Although Cadence attempts to reduce the impact of foreign currency fluctuations, significant exchange rate movements may hurt Cadence's results of operations as expressed in U.S. dollars. Foreign currency exchange risk occurs for some of Cadence's foreign operations whose functional currency is the local currency. The primary effect of foreign currency translation on Cadence's results of operations is a reduction in revenue from a strengthening U.S. dollar, offset by a smaller reduction in expenses. Exchange rate gains and losses on the translation into U.S. dollars of amounts denominated in foreign currencies are included as a separate component of stockholders' equity. CADENCE'S INABILITY TO DEAL EFFECTIVELY WITH THE CONVERSION TO THE EURO MAY NEGATIVELY IMPACT ITS MARKETING AND PRICING STRATEGIES On January 1, 1999, 11 member countries of the European Union adopted the Euro as their common legal currency and established fixed conversion rates between their sovereign currencies and the Euro. Transactions can be made in either the sovereign currencies or the Euro until January 1, 2002, when the Euro must be used exclusively. Currently, only electronic transactions may be conducted using the Euro. Cadence believes that its internal systems and financial institution vendors are capable of handling the Euro conversion and is in the process of examining current marketing and pricing policies and strategies that may be affected by conversion to the Euro. The cost of this effort is not expected to materially hurt Cadence's results of operations or financial condition. However, Cadence cannot assure you that all issues related to the Euro conversion have been identified and that any additional issues would not materially hurt Cadence's results of operations or financial condition. For example, the conversion to the Euro may have competitive implications on Cadence's pricing and marketing strategies and Cadence may be at risk to the extent its principal European suppliers and customers are unable to deal effectively with the impact of the Euro conversion. Cadence has not yet completed its evaluation of the impact of the Euro conversion on its functional currency designations. FAILURE TO OBTAIN EXPORT LICENSES COULD HARM CADENCE'S BUSINESS Cadence must comply with U.S. Department of Commerce regulations in shipping its software products and other technologies outside the U.S. Although Cadence has not had any significant difficulty complying with these regulations so far, any significant future difficulty in complying could harm Cadence's business, operating results, and financial condition. CADENCE'S INABILITY TO COMPETE IN ITS INDUSTRIES COULD SERIOUSLY HARM ITS BUSINESS The EDA market and the commercial electronics design and methodology services industries are highly competitive. If Cadence is unable to compete successfully in these industries, it could seriously harm Cadence's business, operating results, and financial condition. To compete in these industries, Cadence must identify and develop innovative and cost competitive electronic design automation software products and market them in a timely manner. It must also gain industry acceptance for its design and methodology services and offer better strategic concepts, technical solutions, prices and response time, or a combination of these factors, than those of other design companies and the internal design departments of electronics 22 manufacturers. Cadence cannot assure you that it will be able to compete successfully in these industries. Factors which could affect Cadence's ability to succeed include: - The development of competitive EDA products and design and methodology services could result in a shift of customer preferences away from Cadence's products and services and significantly decrease revenue; - The electronics design and methodology services industries are relatively new and electronics design companies and manufacturers are only beginning to purchase these services from outside vendors; - The pace of the technology change demands continuous technological development to meet the requirements of next-generation design challenges; and - There are a significant number of current and potential competitors in the EDA industry and the cost of entry is low. In the electronic design automation products industry, Cadence currently competes with a number of large companies, including Avant! Corporation, Mentor Graphics Corporation, Synopsys, Inc. and Zuken-Redac, and numerous small companies. Cadence also competes with manufacturers of electronic devices that have developed or have the capability to develop their own EDA products. Many manufacturers of electronic devices may be reluctant to purchase services from independent vendors such as Cadence because they wish to promote their own internal design departments. In the electronics design and methodology services industries, Cadence competes with numerous electronic design and consulting companies as well as with the internal design capabilities of electronics manufacturers. Other electronics companies and management consulting firms continue to enter the electronic design and methodology services industries. CADENCE'S FAILURE TO ATTRACT, TRAIN, MOTIVATE, AND RETAIN KEY EMPLOYEES MAY HARM ITS BUSINESS Competition for highly skilled employees is very intense. Cadence's business depends on the efforts and abilities of its senior management, its research and development staff, and a number of other key management, sales, support, technical, and services personnel. The robust economy and opportunities available in other companies has made and could continue to make employee retention and recruiting more difficult for Cadence. Cadence's failure to attract, train, motivate, and retain key employees would impair its development of new products, its ability to provide design and methodology services and the management of its businesses. This would seriously harm Cadence's business, operating results, and financial condition. ANTI-TAKEOVER DEFENSES IN CADENCE'S CHARTER, BY LAWS, AND UNDER DELAWARE LAW COULD PREVENT AN ACQUISITION OF CADENCE OR LIMIT THE PRICE THAT INVESTORS MIGHT BE WILLING TO PAY FOR CADENCE COMMON STOCK Provisions of the Delaware General Corporation Law that apply to Cadence and its Certificate of Incorporation could make it difficult for another company to acquire control of Cadence. For example: - Section 203 of the Delaware General Corporation Law generally prohibits a Delaware corporation from engaging in any business combination with a person owning 15% or more of its voting stock, or who is affiliated with the corporation and owned 15% or more of its voting stock at any time within three years prior to the proposed business combination, for a period of three years from the date the person became a 15% owner, unless specified conditions are met. - Cadence's Certificate of Incorporation allows Cadence's Board of Directors to issue, at any time and without stockholder approval, preferred stock with such terms as it may determine. No shares of preferred stock are currently outstanding. However, the rights of holders of any Cadence preferred stock that may be issued in the future may be superior to the rights of holders of its common stock. 23 - Cadence has a rights plan, commonly known as a "poison pill," which would make it difficult for someone to acquire Cadence without the approval of Cadence's Board of Directors. All or any one of these factors could limit the price that certain investors would be willing to pay for shares of Cadence common stock and could delay, prevent or allow Cadence's Board of Directors to resist an acquisition of Cadence, even if the proposed transaction was favored by a majority of Cadence's independent stockholders. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK Cadence's exposure to market risk for changes in interest rates relates primarily to its investment portfolio and long-term debt obligations. While Cadence is exposed with respect to interest rate fluctuations in many of the world's leading industrialized countries, Cadence's interest income and expense is most sensitive to fluctuations in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on Cadence's cash and cash equivalents, short-term and long-term investments, and interest paid on its long-term debt obligations as well as costs associated with foreign currency hedges. Cadence invests in high quality credit issuers and, by policy, limits the amount of its credit exposure to any one issuer. As stated in its policy, Cadence's first priority is to reduce the risk of principal loss. Consequently, Cadence seeks to preserve its invested funds by limiting default risk, market risk, and reinvestment risk. Cadence mitigates default risk by investing in only high quality credit securities that it believes to be low risk and by positioning its portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. In October 1998, Cadence entered into a senior unsecured credit facility, referred to as the 1998 Facility, with a syndicate of banks that allows Cadence to borrow up to $355 million. As amended in September and November of 1999, the 1998 Facility is divided between a $177.5 million two year revolving credit facility, or the Two Year Facility, and a $177.5 million 364-day revolving credit facility convertible into a one year term loan, or the 364-Day Facility. The Two Year Facility expires on September 29, 2001. The 364-Day Facility will either expire on September 27, 2000, be converted to a one year term loan with a maturity date of September 27, 2001, or, at the request of Cadence and with the agreement of the bank group, be renewed for an additional one year. Cadence has the option to pay interest based on LIBOR plus a spread of between 1.25% and 1.50%, based on a pricing grid tied to a financial covenant, or the higher of the Federal Funds Rate plus 0.50% or the prime rate. As a result, Cadence's interest rate expenses associated with this borrowing will vary with market rates. In addition, commitment fees are payable on the unutilized portions of the Two Year Facility at rates between 0.23% and 0.30% based on a pricing grid tied to a financial covenant and on the unutilized portion of the 364-Day Facility at a fixed rate of 0.18%. The 1998 Facility contains certain financial and other covenants. The table below presents the carrying value and related weighted average interest rates for Cadence's investment portfolio. All highly liquid investments with an original maturity of three months or less at the date of purchase are considered to be cash equivalents; investments with original maturities between three and 12 months are considered to be short-term investments. Investments with original maturities greater than 12 months are considered non-current assets. As of April 1, 2000, substantially all of Cadence's 24 investments have maturities less than 12 months. The carrying value approximated fair value at April 1, 2000.
CARRYING AVERAGE VALUE INTEREST RATE -------- ------------- (In millions, except for average interest rates) Investment Securities: Short-term investments--fixed rate........................ $ 7.3 5.68% Long-term investments--fixed rate......................... 1.0 6.90% ----- Total short-term and long-term securities............... 8.3 5.83% Cash equivalents--fixed rate.............................. 20.7 5.39% Cash equivalents-variable rate............................ 45.7 4.62% ----- Total interest bearing instruments...................... $74.7 4.97% =====
INTEREST RATE SWAP RISK Cadence entered into a 4.8% fixed interest rate-swap in connection with its accounts receivable financing program to modify the interest rate characteristics of the receivables sold to a financing institution on a non-recourse basis. At April 1, 2000, the notional amount payable was $15.2 million which will be amortized in quarterly installments of approximately $2.2 million through October 2001. The estimated fair value at April 1, 2000 was immaterial. FOREIGN CURRENCY RISK Cadence's operations include transactions in foreign currencies and, as such, Cadence benefits from a weaker dollar and is harmed by a stronger dollar relative to major currencies worldwide. Accordingly, the primary effect of foreign currency transactions on Cadence's results of operations is a reduction in revenue from a strengthening U.S. dollar, offset by a smaller reduction in expenses. Cadence enters into foreign currency forward exchange contracts and purchases foreign currency put options with financial institutions primarily to protect against currency exchange risks associated with existing assets and liabilities and probable but not firmly committed transactions, respectively. Forward contracts are not accounted for as hedges and, therefore, the unrealized gains and losses are recognized in other income, net in advance of the actual foreign currency cash flows with the fair value of these forward contracts being recorded as accrued liabilities. Cadence purchases put options to hedge the currency exchange risks associated with probable but not firmly committed transactions. Probable but not firmly committed transactions consist of revenue from Cadence's products and maintenance contracts in a currency other than the functional currency. These transactions are made through Cadence's subsidiaries in Ireland and Japan. The premium costs of the put options are recorded in other current assets while the gains and losses are deferred and recognized in income in the same period as the hedged transaction. Gains and losses on accounting hedges realized before the settlement date of the related hedged transaction are also generally deferred and recognized in income in the same period as the hedged transaction. Cadence does not use forward contracts and put options for trading purposes. Cadence's ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the forward contracts and put options mature. The table below provides information as of April 1, 2000 about Cadence's forward contracts and put options. The information is provided in U.S. dollar equivalent amounts. The table presents the notional amounts, at contract exchange rates, and the weighted average contractual foreign currency exchange 25 rates. These forward contracts mature prior to June 30, 2000. The put options mature prior to September 30, 2000.
AVERAGE NOTIONAL CONTRACT AMOUNT RATE -------- -------- Forward Contracts: (In millions, except for average contract rates) Japanese yen.............................................. $ 53.4 104.82 British pound sterling.................................... 27.6 1.59 Euro...................................................... 26.4 1.00 Canadian dollars.......................................... 5.6 1.45 Swedish krona............................................. 2.3 8.71 Singapore dollars......................................... 1.6 1.71 Hong Kong dollars......................................... 0.3 7.78 ------ $117.2 ====== Put Options: Japanese yen.............................................. $ 18.6 107.50 ======
While Cadence actively manages its foreign currency risks on an ongoing basis, there can be no assurance that Cadence's foreign currency hedging activities will substantially offset the impact of fluctuations in currency exchange rates on its results of operations, cash flows, and financial position. On a net basis, foreign currency fluctuations did not have a material impact on Cadence's results of operations and financial position during the three months ended April 1, 2000. Due to the short-term nature of the forward contracts and put options, the fair value at April 1, 2000 was negligible. The realized gain (loss) on the forward contracts and the put options as they matured was not material to the consolidated operations of Cadence. EQUITY PRICE RISK As part of its authorized repurchase program, Cadence has sold put warrants and purchased call options through private placements. The put warrants, if exercised, would entitle the holder to sell shares of Cadence common stock to Cadence at a specified price. Similarly, the call options entitle Cadence to buy shares of Cadence common stock at a specified price. Cadence repurchases shares of its common stock under stock repurchase programs for issuance under its Employee Stock Purchase Plan, or ESPP, its 1997 Stock Option Plan, referred to as the 1997 Plan, and its 2000 Stock Option Plan adopted in February 2000. As part of these repurchase programs, Cadence has purchased and will purchase call options or has sold and will sell put warrants. These transactions may result in sales of a large number of shares and consequent decline in the market price of Cadence common stock. Cadence's stock repurchase program includes the following characteristics: - Call options allow Cadence to buy shares of its common stock on a specified day at a specified price. If the market price of the stock is greater than the exercise price of a call option, Cadence will typically exercise the option and receive shares of its stock. If the market price of the common stock is less than the exercise price of a call option, Cadence typically will not exercise the option. - Call option issuers may accumulate a substantial number of shares of Cadence common stock in anticipation of Cadence's exercising its call option and may dispose of these shares if and when Cadence fails to exercise its call option. This could cause the market price of Cadence common stock to fall. 26 - Put warrants allow the holder to sell to Cadence shares of Cadence common stock on a specified day at a specified price. Cadence has the right to settle the put warrants with shares of Cadence common stock valued at the difference between the exercise price and the fair value of the stock at the date of exercise. - Depending on the exercise price of the put warrants and the market price of Cadence common stock at the time of exercise, settlement of the put warrants with Cadence common stock could cause Cadence to issue a substantial number of shares to the holder of the put warrant. The holder may sell these shares in the open market, which could cause the price of Cadence common stock to fall. - Put warrant holders may accumulate a substantial number of shares of Cadence common stock in anticipation of exercising their put warrants and may dispose of these shares if and when they exercise their put warrants and Cadence issues shares in settlement of their put warrants. This could also cause the market price of Cadence common stock to fall. The table below provides information at April 1, 2000 about Cadence's outstanding put warrants and call options. The table presents the contract amounts and the weighted average strike prices. The put warrants and call options expire on various dates through February 2001 and Cadence has the contractual ability to settle the options prior to their maturity.
ESTIMATED 2000 2001 FAIR MATURITY MATURITY VALUE -------- -------- --------- (Shares and contract amounts in millions) Put Warrants: Shares................................................. 8.9 0.2 Weighted average strike price.......................... $20.73 $19.77 Contract amount........................................ $185.3 $ 3.7 $32.4 Call Options: Shares................................................. 6.8 0.1 Weighted average strike price.......................... $20.96 $20.02 Contract amount........................................ $141.5 $ 2.8 $18.4
27 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS From time to time Cadence is involved in various disputes and litigation matters that arise in the ordinary course of business. These include disputes and lawsuits related to intellectual property, licensing, contract law, distribution arrangements, and employee relations matters. Cadence filed a complaint in the U.S. District Court for the Northern District of California on December 6, 1995 against Avant! Corporation and certain of its employees for misappropriation of trade secrets, copyright infringement, conspiracy, and other illegal acts. On January 16, 1996, Avant! filed various counterclaims against Cadence and Joseph B. Costello, Cadence's former President and Chief Executive Officer, and with leave of the court, on January 29, 1998, filed a second amended counterclaim. The second amended counterclaim alleges, INTER ALIA, that Cadence and Mr. Costello had cooperated with the Santa Clara County, California, District Attorney and initiated and pursued its complaint against Avant! for anticompetitive reasons, engaged in wrongful activity in an attempt to manipulate Avant!'s stock price, and utilized certain pricing policies and other acts to unfairly compete against Avant! in the marketplace. The second amended counterclaim also alleges that certain Cadence insiders engaged in illegal insider trading with respect to Avant!'s stock. Cadence and Mr. Costello believe that they have meritorious defenses to Avant!'s claims, and each intends to defend such action vigorously. By an order dated July 13, 1996, the court bifurcated Avant!'s counterclaim from Cadence's complaint and stayed the counterclaim pending resolution of Cadence's complaint. The counterclaim remains stayed. In an order issued on December 19, 1997, as modified on January 26, 1998, the District Court entered a preliminary injunction barring Avant! from any further infringement of Cadence's copyrights in Design Framework II software, or selling, licensing or copying such product derived from Design Framework II, including, but not limited to, Avant!'s ArcCell products. On December 7, 1998, the District Court issued a further preliminary injunction, which enjoined Avant! from selling its Aquarius product line. Cadence posted a $10 million bond in connection with the issuance of the preliminary injunction. On July 30, 1999, the U.S. Court of Appeals for the Ninth Circuit affirmed the preliminary injunction. By an order dated July 22, 1997, the District Court stayed most activity in the case pending in that court and ordered Avant! to post a $5 million bond in light of related criminal proceedings pending against Avant! and several of its executives. On September 7, 1999, the District Court ruled on the parties' Motions for Summary Adjudication, and granted in part, and denied in part, each party's motion regarding the scope of a June 6, 1994 Release Agreement between the parties. The Court held that Cadence's copyright infringement claim against Avant! is not barred by the release and that Cadence may proceed on that claim. The Court also held that Cadence's trade secret claim based on Avant!'s use of Cadence's Design Framework II source code is barred by the release. The Ninth Circuit has agreed to hear both parties' appeal from the District Court's order. The trial date has been vacated pending a decision on the appeal. On April 30, 1999, Cadence and several of its officers and directors were named as defendants in a lawsuit filed in the U.S. District Court for the Northern District of California, entitled Spett v. Cadence Design Systems, et al., civil action no. C 99-2082. The action was brought on behalf of a class of stockholders who purchased Cadence common stock between November 4, 1998 and April 20, 1999, and alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The lawsuit arises out of Cadence's announcement of its first quarter 1999 financial results. In February 1998, Aptix Corporation and Meta Systems, Inc. filed a lawsuit against Quickturn Design Systems, Inc. in the U.S. District Court for the Northern District of California. In this lawsuit, entitled Aptix Corporation and Meta Systems, Inc. v. Quickturn Design Systems, Aptix and Meta Systems allege 28 infringement by Quickturn of a U.S. patent owned by Aptix and licensed to Meta. Quickturn named Mentor Graphics Corporation as a party to this suit and filed a counterclaim requesting the District Court to declare the Aptix patent to be unenforceable based on inequitable conduct during the prosecution of the patent. The case is set for trial in late 2000. On July 21, 1999, Mentor filed suit against Quickturn in the U.S. District Court for the District of Delaware, alleging patent infringement involving Quickturn's Mercury hardware emulation systems. The complaint seeks a permanent injunction and unspecified damages. Cadence intends to vigorously defend these claims. On July 22, 1999, Quickturn and Cadence filed a complaint against Mentor and Meta asking for declaratory relief in the U.S. District Court for the Northern District of California. The action brought by Mentor in Delaware has been transferred to California for consolidation with Quickturn's declaratory judgment action. On February 25, 2000, Cadence and several of its officers were named as defendants in a lawsuit filed in the U.S. District Court for the Northern District of California, entitled Maxick v. Cadence Design Systems, Inc., File No. C 00 0658PJH. The action was brought on behalf of a class of shareholders of OrCAD, Inc., and alleges violations of Section 14(d)(7) of the Securities Exchange Act of 1934, as amended, and Rule 14d-10 thereunder. The lawsuit arises out of Cadence's acquisition of OrCAD, which was completed in August 1999. On March 24, 2000 Mentor and Meta and several founders of Meta filed suit against Quickturn and Cadence and a former Quickturn employee in the U.S. District Court for the Northern District of California, File No. C 00-01030 WHA. The suit alleges patent infringement, misappropriation of trade secrets and breach of confidence, and seeks unspecified damages, injunctive relief and the assignment to Mentor of a patent previously issued to Quickturn. Management believes that the ultimate resolution of the disputes and litigation matters discussed above will not have a material adverse effect on Cadence's business, operating results, or financial condition. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed herewith:
EXHIBIT NUMBER EXHIBIT TITLE - --------------------- ------------- 27.01 Financial data schedule for the period ended April 1, 2000.
29 (b) Reports on Form 8-K: On March 15, 2000, the Registrant filed a Current Report on Form 8-K reporting the date of the Registrant's 2000 Annual Meeting of Stockholders and the record date for determining stockholders entitled to a vote at the annual meeting. 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CADENCE DESIGN SYSTEMS, INC. (REGISTRANT) DATE: May 11, 2000 By: /s/ H. RAYMOND BINGHAM ----------------------------------------- H. Raymond Bingham President, Chief Executive Officer, and Director DATE: May 11, 2000 By: /s/ WILLIAM PORTER ----------------------------------------- William Porter Senior Vice President and Chief Financial Officer
31 EX-27.01 2 EXHIBIT 27.01
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CADENCE DESIGN SYSTEMS, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED APRIL 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-30-2000 JAN-02-2000 APR-01-2000 110,964 7,270 213,377 41,800 15,570 443,344 621,459 281,736 1,405,575 395,960 0 0 0 621,978 350,233 1,405,575 0 257,493 0 103,334 171,272 (366) 522 (16,067) (4,258) (11,809) 0 0 0 (11,809) (0.05) (0.05)
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