FORM 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended September 28, 2002 | ||
| OR | ||
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to | ||
Commission file number 1-10606
CADENCE DESIGN SYSTEMS, INC.
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Delaware (State or Other Jurisdiction of Incorporation or Organization) |
77-0148231 (I.R.S. Employer Identification No.) |
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2655 Seely Avenue, Building 5, San Jose,
California (Address of Principal Executive Offices) |
95134 (Zip Code) |
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(408) 943-1234
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 November 2, 2002, there were 268,880,372 shares of the registrant’s common stock, $0.01 par value, outstanding.
CADENCE DESIGN SYSTEMS, INC.
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PART I.
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FINANCIAL INFORMATION | ||||||
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Item 1.
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Financial Statements: | ||||||
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Condensed Consolidated Balance
Sheets: September 28, 2002 and December 29, 2001 |
3 | ||||||
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Condensed Consolidated Statements of
Operations: Three and Nine Months Ended September 28, 2002 and September 29, 2001 |
4 | ||||||
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Condensed Consolidated Statements of Cash
Flows: Nine Months Ended September 28, 2002 and September 29, 2001. |
5 | ||||||
| Notes to Condensed Consolidated Financial Statements | 6 | ||||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | |||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 46 | |||||
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Item 4.
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Controls and Procedures | 50 | |||||
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PART II.
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OTHER INFORMATION | ||||||
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Item 1.
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Legal Proceedings | 51 | |||||
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Item 2.
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Changes in Securities and Use of Proceeds | 53 | |||||
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Item 3.
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Defaults Upon Senior Securities | 53 | |||||
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Item 4.
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Submission of Matters to a Vote of Security Holders | 53 | |||||
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Item 5.
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Other Information | 53 | |||||
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Item 6.
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Exhibits and Reports on Form 8-K | 54 | |||||
| Signatures | 55 | ||||||
| Certifications | 56 | ||||||
2
PART I. FINANCIAL INFORMATION
CADENCE DESIGN SYSTEMS, INC.
ASSETS
| September 28, | December 29, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
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Current Assets:
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Cash and cash equivalents
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$ | 164,135 | $ | 206,311 | ||||||
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Short-term investments
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20,972 | 68,483 | ||||||||
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Receivables, net
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298,300 | 258,402 | ||||||||
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Inventories
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7,575 | 18,151 | ||||||||
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Prepaid expenses and other
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90,826 | 83,575 | ||||||||
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Total current assets
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581,808 | 634,922 | ||||||||
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Property, plant and equipment, net
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440,245 | 417,189 | ||||||||
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Software development costs, net
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13,194 | 11,938 | ||||||||
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Acquired intangibles, net
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874,083 | 413,641 | ||||||||
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Installment contract receivables, net
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99,095 | 58,918 | ||||||||
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Other assets
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199,347 | 193,422 | ||||||||
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Total Assets
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$ | 2,207,772 | $ | 1,730,030 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current Liabilities:
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Current portion of capital leases
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$ | 1,685 | $ | 1,397 | ||||||
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Accounts payable and accrued liabilities
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245,918 | 259,029 | ||||||||
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Deferred revenue
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193,449 | 211,965 | ||||||||
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Total current liabilities
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441,052 | 472,391 | ||||||||
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Long-Term Liabilities:
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Long-term debt and capital leases
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95,867 | 1,476 | ||||||||
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Other long-term liabilities
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168,349 | 134,816 | ||||||||
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Total long-term liabilities
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264,216 | 136,292 | ||||||||
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Stockholders’ Equity:
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Common stock and capital in excess of par value
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1,040,707 | 628,697 | ||||||||
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Deferred stock compensation
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(46,331 | ) | (56,241 | ) | ||||||
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Retained earnings
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518,766 | 535,511 | ||||||||
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Accumulated other comprehensive income (loss)
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(10,638 | ) | 13,380 | |||||||
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Total stockholders’ equity
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1,502,504 | 1,121,347 | ||||||||
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Total Liabilities and Stockholders’ Equity
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$ | 2,207,772 | $ | 1,730,030 | ||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
CADENCE DESIGN SYSTEMS, INC.
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 28, | September 29, | September 28, | September 29, | |||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
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Revenue:
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Product
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$ | 210,286 | $ | 217,408 | $ | 655,399 | $ | 588,831 | ||||||||||
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Services
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33,992 | 57,992 | 114,284 | 211,810 | ||||||||||||||
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Maintenance
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82,958 | 84,608 | 247,087 | 251,599 | ||||||||||||||
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Total revenue
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327,236 | 360,008 | 1,016,770 | 1,052,240 | ||||||||||||||
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Costs and Expenses:
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Cost of product
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14,630 | 32,029 | 62,552 | 81,308 | ||||||||||||||
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Cost of services
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28,078 | 48,652 | 89,628 | 151,133 | ||||||||||||||
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Cost of maintenance
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16,007 | 16,849 | 49,775 | 49,725 | ||||||||||||||
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Marketing and sales
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103,216 | 96,593 | 296,167 | 286,243 | ||||||||||||||
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Research and development
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84,647 | 74,247 | 241,092 | 219,129 | ||||||||||||||
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General and administrative
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26,267 | 27,640 | 78,249 | 85,849 | ||||||||||||||
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Amortization of acquired intangibles
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22,034 | 23,995 | 59,731 | 71,915 | ||||||||||||||
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Amortization of deferred stock compensation(A)
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10,465 | 2,480 | 21,412 | 15,595 | ||||||||||||||
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Restructuring, asset impairment and special
charges
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6,600 | (167,686 | ) | 118,331 | (88,694 | ) | ||||||||||||
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Total costs and expenses
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311,944 | 154,799 | 1,016,937 | 872,203 | ||||||||||||||
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Income (loss) from operations
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15,292 | 205,209 | (167 | ) | 180,037 | |||||||||||||
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Other income (expense), net
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(492 | ) | 277 | (5,311 | ) | 435 | ||||||||||||
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Income (loss) before provision for income
taxes
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14,800 | 205,486 | (5,478 | ) | 180,472 | |||||||||||||
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Provision for income taxes
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6,569 | 78,061 | 11,267 | 78,114 | ||||||||||||||
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Net income (loss)
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$ | 8,231 | $ | 127,425 | $ | (16,745 | ) | $ | 102,358 | |||||||||
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Basic net income (loss) per share
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$ | 0.03 | $ | 0.52 | $ | (0.07 | ) | $ | 0.41 | |||||||||
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Diluted net income (loss) per share
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$ | 0.03 | $ | 0.50 | $ | (0.07 | ) | $ | 0.40 | |||||||||
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Weighted average common shares outstanding
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267,300 | 246,487 | 256,461 | 246,864 | ||||||||||||||
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Weighted average common and potential common
shares outstanding – assuming dilution
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271,437 | 256,978 | 256,461 | 258,700 | ||||||||||||||
| (A) Amortization of deferred stock compensation would be further classified as follows: | ||||||||||||||||||
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Cost of services
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$ | 1,360 | $ | 712 | $ | 2,131 | $ | 3,758 | ||||||||||
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Marketing and sales
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3,594 | 172 | 7,482 | 2,958 | ||||||||||||||
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Research and development
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4,258 | 365 | 7,472 | 2,443 | ||||||||||||||
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General and administrative
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1,253 | 1,231 | 4,327 | 6,436 | ||||||||||||||
| $ | 10,465 | $ | 2,480 | $ | 21,412 | $ | 15,595 | |||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
CADENCE DESIGN SYSTEMS, INC.
| Nine Months Ended | ||||||||||||
| September 28, | September 29, | |||||||||||
| 2002 | 2001 | |||||||||||
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Cash and Cash Equivalents at Beginning of Period
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$ | 206,311 | $ | 85,220 | ||||||||
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Cash Flows from Operating Activities:
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Net income (loss)
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(16,745 | ) | 102,358 | |||||||||
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Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
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Depreciation and amortization
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171,277 | 177,060 | ||||||||||
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Net investment gain on sale and equity loss
(income)
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(22,410 | ) | (2,736 | ) | ||||||||
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Minority interest income
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— | (1,959 | ) | |||||||||
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Fair market value of options issued to consultants
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(1,130 | ) | (690 | ) | ||||||||
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Deferred income taxes
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8 | 2,737 | ||||||||||
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Write-off of acquired in-process technology
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34,000 | 13,100 | ||||||||||
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Acquisition-related asset write-off
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2,167 | — | ||||||||||
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Write-off of goodwill
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— | 25,834 | ||||||||||
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Provision for impairment of investment held in
venture capital partnerships
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13,408 | — | ||||||||||
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Non-cash restructuring charges
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29,744 | 31,178 | ||||||||||
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Tax benefit (provision) on stock option
exercise
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— | 6,055 | ||||||||||
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Provisions for losses on trade accounts receivable
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8,433 | 18,554 | ||||||||||
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Changes in operating assets and liabilities, net
of effect of acquired businesses:
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Receivables
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(39,573 | ) | 31,979 | |||||||||
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Proceeds from transfer of financial assets in
exchange for cash
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162,797 | 155,252 | ||||||||||
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Inventories
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1,238 | (12,190 | ) | |||||||||
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Prepaid expenses and other
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3,977 | 28,919 | ||||||||||
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Installment contract receivables
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(211,184 | ) | (178,596 | ) | ||||||||
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Other assets
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(21,468 | ) | (28,135 | ) | ||||||||
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Accounts payable and accrued liabilities
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(55,512 | ) | (12,019 | ) | ||||||||
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Deferred revenue
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(22,065 | ) | (897 | ) | ||||||||
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Other long-term liabilities
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33,264 | 35,269 | ||||||||||
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Net cash provided by operating activities
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70,226 | 391,073 | ||||||||||
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Cash Flows from Investing Activities:
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Proceeds from sale and maturities of short-term
investments
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47,695 | 71,372 | ||||||||||
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Purchases of short-term
investments-available-for-sale
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(10,051 | ) | (39,651 | ) | ||||||||
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Purchases of property, plant and equipment
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(95,817 | ) | (120,142 | ) | ||||||||
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Capitalization of software development costs
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(20,204 | ) | (22,589 | ) | ||||||||
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Investment in venture capital partnership and
equity investments
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(6,193 | ) | (7,957 | ) | ||||||||
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Net cash effect of business acquisitions
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(40,226 | ) | (2,188 | ) | ||||||||
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Sale of put warrants
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— | 14,934 | ||||||||||
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Purchase of call options
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— | (14,934 | ) | |||||||||
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Net cash used for investing activities
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(124,796 | ) | (121,155 | ) | ||||||||
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Cash Flows from Financing Activities:
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Proceeds from credit facility
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95,000 | 222,900 | ||||||||||
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Principal payments on credit facility and capital
leases
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(1,150 | ) | (224,857 | ) | ||||||||
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Proceeds from repayment of notes receivable
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— | 10,523 | ||||||||||
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Proceeds from issuance of common stock
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73,608 | 48,077 | ||||||||||
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