SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): March 23, 2000
INNOVEDA, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
000-20923 93-1137888
--------------------------- --------------------------------------
(Commission File Number) (IRS Employer Identification No.)
293 Boston Post Road West, Marlboro, Massachusetts 01752
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(508) 480-0881
- --------------------------------------------------------------------------------
Registrant's Telephone Number, Including Area Code
Summit Design, Inc., 9305 S.W. Gemini Drive, Beaverton, Oregon 97008
- --------------------------------------------------------------------------------
(Former Name or Address, if Changed Since Last Report)
EXPLANATORY NOTE
This Amendment No. 1 to Current Report on Form 8-K/A is filed for the
purpose of filing financial statements of Viewlogic Systems, Inc. required by
Item 7(a) of Form 8-K and the pro forma financial information required by
Item 7(b) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Viewlogic Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Viewlogic
Systems, Inc. and subsidiaries (the "Company") as of January 2, 1999 and January
1, 2000, and the related consolidated statements of operations, comprehensive
income, stockholders' equity (deficiency), and cash flows for the years then
ended. We have also audited the consolidated statement of revenues and expenses
for the year ended December 31, 1997 of the Systems Business (Note 1). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 2, 1999
and January 1, 2000, and the results of their operations, comprehensive income
and their cash flows for the year then ended in conformity with generally
accepted accounting principles. Also, in our opinion, the consolidated statement
of revenues and expenses presents fairly, in all material respects, the revenues
and expenses of the Systems Business for the year ended December 31, 1997 in
conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 1, through October 2, 1998, the Company and the Systems
Business were operated as a subsidiary of Synopsys, Inc. or a component of the
Prior Viewlogic, respectively.
/s/ Deloitte & Touche LLP
February 25, 2000
(March 23, 2000 as to Note 14)
-2-
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 1999 AND JANUARY 1, 2000
(In Thousands, Except Per Share Data)
- -------------------------------------------------------------------------------
January 2, January 1,
1999 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,487 $ 531
Accounts receivable (less allowances
of $1,940 at January 2, 1999 and
$1,465 at January 1, 2000 9,581 14,290
Prepaid income taxes - 1,228
Prepaid expenses and other 1,189 2,722
Deferred income taxes 1,580 1,342
-------- --------
Total current assets 16,837 20,113
-------- --------
PROPERTY AND EQUIPMENT:
Equipment 11,259 13,087
Furniture and fixtures 1,459 1,421
-------- --------
Total 12,718 14,508
Less accumulated depreciation 7,967 10,031
-------- --------
PROPERTY AND EQUIPMENT - Net 4,751 4,477
-------- --------
OTHER ASSETS:
Capitalized software costs, net 2,310 2,427
Purchased technology, net - 3,508
Other 994 920
-------- --------
Total other assets 3,304 6,855
-------- --------
TOTAL $ 24,892 $ 31,445
Unaudited
Pro Forma
Stockholders'
Equity
(Deficiency)
January 2, January 1, January 1,
1999 2000 2000
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Note payable - current portion $ 2,250 $ 3,125
Current portion of capital lease
obligations 71 372
Accounts payable 1,315 2,840
Accrued compensation 3,262 3,542
Accrued expenses 3,506 3,377
Due to related party 549 221
Deferred revenue 12,393 14,595
-------- --------
Total current liabilities 23,346 28,072
-------- --------
LONG-TERM LIABILITIES:
Note payable - long-term portion 15,250 12,125
Line of credit 500 1,700
Deferred tax liability 1,518 2,393
Capital lease obligations 123 554
-------- --------
Total long-term liabilities 17,391 16,772
-------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE, CONVERTIBLE PREFERRED STOCK 32,000 32,000
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock, $.001 par value, authorized, 35,000 shares,
issued, 3,966 shares at January 2, 1999 and 7,969 shares
at January 1, 2000; pro forma shares outstanding at
January 1, 2000; 23,969 4 8 $ 24
Notes from stockholders - (927) (927)
Additional paid-in capital 1,918 4,777 36,761
Deferred compensation (1,801) (1,701) (1,701)
Accumulated deficit (48,104) (47,845) (47,845)
Accumulated other comprehensive income 138 289 289
-------- --------- -------
Total stockholders' equity (deficiency) (47,845) (45,399) (13,399)
-------- --------- -------
TOTAL $ 24,892 $ 31,445
======== =========
-3-
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT OF REVENUES AND EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 2, 1999 AND JANUARY 1, 2000
(In Thousands Except Per Share Data)
- -------------------------------------------------------------------------------
Year Ended
December 31, January 2, January 1,
1997 1999 2000
(Note 1)
REVENUE:
Software $ 29,071 $22,683 $ 23,853
Services and other 34,916 32,554 29,646
-------- ------- --------
Total revenue 63,987 55,237 53,499
-------- ------- --------
COSTS AND EXPENSES:
Cost of software (excludes $1 and $5 of noncash stock based
compensation for the years ended January 2, 1999
and January 1, 2000, respectively) 3,340 5,112 5,986
Cost of services (excludes $8 and $39 of noncash stock based
compensation for the years ended January 2, 1999
and January 1, 2000, respectively) 7,513 5,072 6,387
Selling and marketing (excludes $23 and $105 of noncash
stock based compensation for the years ended January 2, 1999
and January 1, 2000, respectively) 24,897 18,930 22,479
Research and development (excludes $42 and $191 of noncash
stock based compensation for the years ended January 2, 1999
and January 1, 2000, respectively) 14,954 10,028 11,322
General and administrative (excludes $42 and $191 of noncash
stock based compensation for the years ended January 2, 1999
and January 1, 2000, respectively) 4,054 3,675 3,942
Amortization of intangibles - - 670
Amortization of stock compensation - 116 531
Litigation settlement and related costs 4,500 - -
Restructuring charge 6,725 - -
Transaction costs - recapitalization - 452 -
-------- ------- --------
Total operating expenses 65,983 43,385 51,317
INCOME (LOSS) FROM OPERATIONS (1,996) 11,852 2,182
-------- ------- --------
OTHER INCOME (EXPENSE):
Interest income - 171 101
Interest expense (15) (342) (1,339)
Other, net, principally foreign exchange losses (56) (1,761) (404)
-------- ------- --------
Other income (expense), net (71) (1,932) (1,642)
-------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES (2,067) 9,920 540
PROVISION (BENEFIT) FOR INCOME TAXES (868) 4,053 281
-------- ------- --------
NET INCOME (LOSS) $ (1,199) $ 5,867 $ 259
======== ======= ========
EARNINGS PER SHARE (Note 1):
Net income per common share - basic $ 1.48 $ 0.04
======= =======
Net income per common share - diluted $ 0.73 $ 0.01
======= =======
Weighted-average shares outstanding - basic 3,966 5,797
======= =======
Weighted-average shares outstanding - diluted 7,999 22,945
======= =======
See notes to consolidated financial statements.
-4-
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED JANUARY 2, 1999 AND JANUARY 1, 2000
(In Thousands)
- -------------------------------------------------------------------------------
January 2, January 1,
1999 2000
NET INCOME $ 5,867 $ 259
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 1,800 151
------- -----
COMPREHENSIVE INCOME $ 7,667 $ 410
======= =====
See notes to consolidated financial statements.
-5-
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JANUARY 2, 1999 AND JANUARY 1, 2000
(In Thousands)
- -------------------------------------------------------------------------------
Retained Accumulated
Stock Notes Due Additional Earnings Other
Common Par From Paid-in Deferred (Accumulated Comprehensive
Shares Value Stockholders Capital Compensation Deficit) Income (Loss) Total
BALANCE, JANUARY 1, 1998 AFTER
CORPORATE REORGANIZATION (Note 1) 3,966 $ 4 $ - $ - $ - $ (3,971) $ (1,662) $ (5,629)
Compensation related to stock options - - - 1,918 (1,918) - - -
Amortization of stock compensation - - - - 117 - - 117
Net income - - - - - 5,867 - 5,867
Foreign currency translation adjustment - - - - - - 1,800 1,800
Recapitalization payment to parent - - - - - (50,000) - (50,000)
-------- ----- ----- ------ ------ ------- -------- --------
BALANCE, JANUARY 2, 1999 3,966 4 - 1,918 (1,801) (48,104) 138 (47,845)
Issuance of common stock 1,124 1 - 1,482 - - - 1,483
Compensation related to stock options - - - 431 (431) - - -
Amortization of stock compensation - - - - 531 - - 531
Net income - - - - - 259 - 259
Foreign currency translation adjustment - - - - - - 151 151
Exercise of stock options 2,879 3 (927) 946 - - - 22
-------- ----- ----- ------ ------ ------- -------- --------
BALANCE, JANUARY 1, 2000 7,969 $ 8 $(927) $4,777 $(1,701) $(47,845) $ 289 $(45,399)
======== ===== ===== ====== ====== ======== ======== ========
See notes to consolidated financial statements.
-6-
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 2, 1999 AND JANUARY 1, 2000
(In Thousands)
- --------------------------------------------------------------------------------
Year Ended
January 2, January 1,
1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,867 $ 259
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,205 3,998
Compensation under stock option agreements 117 531
Loss on disposal of fixed assets 820 -
Change in assets and liabilities:
Accounts receivable (668) (4,500)
Prepaid and other assets (213) (1,532)
Deferred income taxes 220 70
Accounts payable 872 1,081
Accrued compensation (2,412) 207
Accrued expenses (6,946) (1,274)
Deferred revenue 2,005 1,598
-------- -------
Net cash provided by operating activities 2,867 438
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,257) (1,000)
Capitalized software costs (1,111) (1,068)
Purchase of OmniView - (1,153)
Purchase of Transcendent, net of cash acquired (Note 1) - 285
Other (449) (300)
-------- -------
Net cash used in investing activities (2,817) (3,236)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt (500) (2,250)
Proceeds from debt 18,500 1,200
Recapitalization payment to Parent (50,000) -
Advances from parent 3,100 -
Proceeds from sales of redeemable convertible preferred stock 32,000 -
Proceeds from exercise of stock options - 22
Repayments of capital lease obligations (64) (169)
-------- -------
Net cash provided by (used in) financing activities 3,036 (1,197)
-------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 1,401 39
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,487 (3,956)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR - 4,487
-------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,487 $ 531
======== =======
See notes to consolidated financial statements.
-7-
VIEWLOGIC SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF BUSINESS - Viewlogic Systems, Inc. (the "Company") operates in
the United States and international markets developing, marketing and
providing technical support for a comprehensive family of software tools
used by engineers in the design of advanced electronic products and
systems, and services related thereto.
BASIS OF PRESENTATION - Prior to December 4, 1997, a company also named
Viewlogic Systems, Inc. (the "Prior Viewlogic") offered two primary
product lines, consisting of software tools used by engineers designing
integrated circuits (the "ASIC Business") and software tools used by
engineers designing printed circuit boards and complete systems (the
"Systems Business"). On December 4, 1997, the Prior Viewlogic became a
wholly owned subsidiary of Synopsys, Inc. ("Synopsys") in a transaction
accounted for as a pooling of interests. On January 1, 1998, the Prior
Viewlogic transferred the ASIC Business and certain other assets to
Synopsys, leaving only the Systems Business in the Prior Viewlogic. The
Prior Viewlogic operated as the Systems Business through March 31, 1998
when, in a legal reorganization, the Systems Business was transferred to a
new legal entity, Viewlogic Systems, Inc. The reorganization was for legal
purposes only and there was no substantive change in the operations of the
business.
On October 2, 1998, a group of investors purchased 16,000 shares of the
Company's preferred stock for $32,000 and the Company borrowed $18,000
from a bank. The proceeds of these financings were paid to Synopsys with
the result that Synopsys' interest in the Company was reduced to 19.9%.
This transaction was accounted for as a recapitalization.
The accompanying consolidated financial statements include the operations
of the Prior Viewlogic through March 31, 1998 and of the Company from
April 1, 1998 through January 2, 1999. For the period from January 1, 1998
through the October 2, 1998 recapitalization, certain treasury services
were provided by Synopsys at no charge. The fair value of services was not
significant. The Company charged Synopsys $1,386 for transition services
for the nine months ended October 3, 1998, and $987 and $153 for occupancy
costs for the years ended January 2, 1999 and January 1, 2000,
respectively, related to the transfer of the ASIC Business to Synopsys.
The Company did not charge Synopsys for any additional costs beyond July
3, 1999.
The statement of revenues and expenses for the year ended December 31,
1997 represents a "carve out" of the Systems Business from the historical
financial statements of the Prior Viewlogic. Accordingly, it excludes the
ASIC Business and other operations transferred to Synopsys on January 1,
1998. Prior to January 1, 1998, certain administrative, marketing, sales,
and other services of the Prior Viewlogic were centralized. Accordingly,
allocations of these expenses have been made primarily based on personnel,
revenue, space, direct costs of related activities or estimates of time
spent to provide services. These allocations include amounts for
facilities, marketing, general management, treasury, audit, legal,
financial reporting, benefits administration, insurance, communication,
public affairs, information management, income taxes, termination costs,
and other miscellaneous services.
-8-
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Management believes that the foregoing allocations were made on a
reasonable basis, however, they are not necessarily indicative of the
costs that would have been incurred on a stand-alone basis. Because the
Prior Viewlogic did not account separately for the Systems and ASIC
Businesses, it is not practicable to prepare a complete statement of cash
flows for the year ended December 31, 1997. However, for the year ended
December 31, 1997, significant cash flow information is as follows:
Net income (loss) $(1,199)
Noncash charges:
Depreciation expense 2,300
Amortization of capitalized software 678
Restructuring charge 3,908
---------
Operating cash flow before changes in operating
assets and liabilities $ 5,687
=========
Investing activities:
Purchases of property and equipment $ 3,100
Capitalized software costs 1,229
---------
Cash flow used in investing activities $ 4,329
=========
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY (DEFICIENCY) - The holders of
preferred stock converted all of the shares of preferred stock into shares
of common stock upon the closing of the Merger (Note 14). The unaudited
pro forma stockholders' equity (deficiency) reflects the conversion as if
had occurred on January 1, 2000.
FISCAL YEAR - Prior to 1998, the Company's year end was December 31. The
Company has changed its year end to a 52-53-week year ending on the
Saturday closest to December 31.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts and disclosures of certain assets and liabilities at the
balance sheet date. Actual results may differ from such estimates.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Viewlogic Systems, Inc. and its subsidiaries, all
of which are wholly owned. All significant intercompany balances and
transactions have been eliminated.
-9-
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION - The functional currency of international
operations is deemed to be the local country's currency. Assets and
liabilities of operations outside the United States are translated into
United States dollars using current exchange rates at the balance sheet
date. Results of operations are translated at average exchange rates
prevailing during each period. Translation adjustments are included in
other comprehensive income. In 1998, as part of the recapitalization, one
of the Company's international subsidiaries repaid an amount that had been
previously treated as a long-term investment. The repayment of this amount
resulted in a realized transaction loss of $1,400 that is included in
other expense.
REVENUE RECOGNITION - Software revenue is recognized upon the shipment of
the product provided that the license fee is fixed and determinable and
collection is probable. Revenue earned on software arrangements involving
multiple elements are allocated to each element based on vendor-specific
objective evidence ("VSOE") of the fair value of the various elements in a
multiple element arrangement. VSOE is determined based on the prices at
which the elements are sold separately. Revenue from maintenance and
support contracts is deferred and recognized ratably over the service
period. Revenue from training and consulting is recognized as the related
services are performed. Maintenance and support revenue included with an
initial license fee is unbundled and recognized ratably over the service
period.
CASH EQUIVALENTS - The Company considers all short-term, highly liquid
investments purchased with a remaining maturity of three months or less to
be cash equivalents.
Supplemental cash flow information is as follows (in thousands):
Year Ended
January 2, January 1,
1999 2000
Cash paid for interest $ 14 $ 1,645
Cash paid for income taxes 90 1,543
Asset acquired under capital leases 89 898
Issuance of stock in OmniView acquisition - 280
Acquisition of Transcendent:
Fair value of assets acquired (including intangibles) - 3,373
Fair value of common stock issued - (1,159)
Fair value of Transcendent options assumed - (44)
Transaction costs - (354)
Liabilities assumed - 1,816
Exercise of stock options through issuance of stockholder notes 927
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of the related assets (three to five years). Equipment leased
under capital leases is amortized over the lesser of its useful life or
the lease term.
-10-
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE COSTS AND PURCHASED TECHNOLOGY - Certain software
costs for products and product enhancements are capitalized after
technological feasibility has been established. Amortization is provided
over estimated lives of four years on a straight-line basis or based on
the ratio of current revenues to the total expected revenues in a
product's life, if greater. Accumulated amortization was $2,135 and $3,143
at January 2, 1999 and January 1, 2000, respectively. Amortization expense
for the fiscal years ended December 31, 1997, January 2, 1999 and January
1, 2000 was $678, $1,057 and $966, respectively. Research and development
costs and software development costs incurred before technological
feasibility has been established are expensed as incurred. Purchased
technology is being amortized over three to four years.
OTHER ASSETS - Other assets consist primarily of financing costs incurred
in connection with the Company's long-term financing agreements. These
costs are being amortized over the term of the agreement using the
straight-line method.
INCOME TAXES - The Company computes deferred income taxes based on the
differences between the financial statement and tax basis of assets and
liabilities using enacted rates in effect in the years in which the
differences are expected to reverse. The Company establishes valuation
allowances to offset temporary deductible differences, net operating loss
carryforwards, and tax credits, which are not likely to be realized.
For the period from December 5, 1997 through October 3, 1998, the Company
was included in the consolidated returns of Synopsys. Prior to December 5,
1997, the Systems Business was included in the tax returns of the Prior
Viewlogic. For financial statement purposes, the Company has computed the
tax provision for the year ended December 31, 1997 based on the effective
tax rate of the Prior Viewlogic and for the year ended January 2, 1999, as
if it had filed separate returns.
FOREIGN EXCHANGE CONTRACTS - The Company enters into foreign exchange
contracts as a hedge against certain accounts receivable denominated in
foreign currencies. Market value gains and losses are recognized, and the
resulting credit or debit offsets foreign exchange gains or losses on
those receivables. Realized and unrealized gains and losses on foreign
exchange contracts for the year ended January 2, 1999 were insignificant.
There were no foreign exchange contracts used for the year ended January
1, 2000 and no open foreign exchange contracts outstanding as of January
1, 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Financial instruments held or used
by the Company include cash and cash equivalents, accounts receivable,
accounts payable, capital lease obligations, notes and line of credit
payables, foreign exchange contracts (if any) and interest rate swap
agreements. The fair values of these instruments, which could change if
market conditions change, are based on management's estimates. Management
believes that the carrying value of these instruments approximates their
fair values.
INTEREST RATE SWAP AGREEMENT - The net differential to be paid or received
under the Company's interest rate swap agreement is accrued as interest
rates change and is recognized over the life of the agreement.
STOCK-BASED COMPENSATION - The Company uses the intrinsic value-based
method of Accounting Principles Board Opinion No. 25, as permitted by SFAS
No. 123, "Accounting for Stock-Based Compensation," to account for
employee stock-based compensation plans.
-11-
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE - Basic earnings per share are based on the weighted
average number of common shares outstanding during each period. Diluted
earnings per share are computed based on the weighted-average number of
common shares outstanding for basic plus the effect of outstanding stock
options (using the treasury stock method) and preferred stock (using the
if converted method). If the preferred stock had been converted on January
3, 1999, basic earnings per share for the year ended January 1, 2000 on a
pro forma basis would be the same as actual diluted earnings per share for
that period.
NEW ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133, as amended, establishes new standards
of accounting and reporting for derivative instruments and hedging
activities and will be effective for the Company in fiscal 2001.
Management is currently evaluating the effect of adopting SFAS No. 133 on
the consolidated financial statements.
RECLASSIFICATION - Certain amounts in the prior year's consolidated
financial statements have been reclassified to conform with the current
year presentation.
2. RECAPITALIZATION
On October 2, 1998, a group of investors purchased 16,000 shares of the
Company's Preferred Stock for $32,000, and the Company borrowed $18,000
from a bank. The proceeds from these financings were paid to Synopsys as a
dividend of $30,000 and repayment of a note payable of $20,000.
The note payable resulted from the transfer of technology that was carried
on the books of Synopsys at zero basis and was recorded on the books of
Viewlogic at carryover basis because, at the time of the transfer,
Viewlogic was 100% owned by Synopsys.
As a result of the recapitalization, Synopsys' interest in the Company
being reduced to 19.9%. As part of the agreements relating to the sale of
the Preferred Stock (Note 5), the Company agreed not to compete with
Synopsys in its ASIC Business for a period of two years or until the
completion of an initial public offering by the Company, whichever occurs
first. In addition, there are certain conditions limiting changes of
control in the Company without the approval of Synopsys.
3. ACQUISITIONS
On March 1, 1999, the Company purchased certain assets and intellectual
property of OmniView, Inc. ("OmniView"). The purchase price consisted of
$1,100 in cash, 400 shares of the Company's common stock and acquisition
expenses. The purchase price has been allocated to the assets acquired
based on their fair values as follows:
Purchased technology $ 1,083
Intangible - workforce 197
Property and equipment 146
Prepaid expenses 7
-------
Total $ 1,433
=======
-12-
3. ACQUISITIONS (CONTINUED)
The unaudited consolidated results of operations on a pro forma basis, as
though the acquisition had occurred as of the beginning of the years
presented, are as follows:
JANUARY 2, JANUARY 1,
1999 2000
Revenue $55,443 $53,499
Net income 4,653 161
Net income per share:
Basic $ 1.17 $ 0.03
Diluted 0.58 0.01
On August 9, 1999, the Company acquired Transcendent Design Technologies
("Transcendent"). Transcendent develops, markets and distributes
electromechanical design and analysis software. The acquisition was
accounted for under the purchase method. The purchase price for the
acquisition was 724 shares of Viewlogic common stock, options to purchase
78 shares of Viewlogic common stock and $354 in direct acquisition costs.
The purchase price has been allocated to the acquired assets and
liabilities based on their fair values as follows:
Cash and cash equivalents $ 639
Accounts receivable 50
Purchased technology and other intangibles 2,609
Other assets 75
Accounts payable and accrued expenses (183)
Deferred revenue (592)
Deferred tax liability (1,041)
-------
$1,557
=======
The unaudited consolidated results of operations on a pro forma basis, as
though the acquisition had occurred as of the beginning of the years
presented, are as follows:
JANUARY 2, JANUARY 1,
1999 2000
Revenue $ 57,129 $ 54,554
Net income 5,571 (311)
Net income per share:
Basic $ 1.19 $ (0.05)
Diluted 0.64 (0.05)
-13-
4. DEBT
CREDIT FACILITY - On October 2, 1998, the Company entered into a $24,000
credit facility with a commercial bank consisting of a $6,000 revolving
line of credit ("Line of Credit") and an $18,000 term loan (the "Term
Loan") (together, the "Credit Facility"). Interest terms on the Line of
Credit and the Term Loan are determined, at the option of the Company, for
varying periods. The Company may elect to have the interest rate based on
the bank's prime rate or based on the LIBOR rate at the time of the
election, depending on the Company's leverage financial ratio as defined
in the Credit Facility. The interest rates on the Line of Credit and the
Term Loan at January 2, 1999 and January 1, 2000 were 8.25% and 7.3%,
respectively, and 9.5% and 8.26%, respectively. Payments of principal
outstanding under either the Line of Credit or the Term Loan may be made
at any time and must be repaid in full by September 30, 2003.
Certain information with respect to line-of-credit borrowings was as
follows:
WEIGHTED-
AVERAGE MAXIMUM AVERAGE
INTEREST AMOUNT AMOUNT
RATE OUTSTANDING OUTSTANDING
Period October 2, 1998 to January 2, 1999 8.50 % $ 500 $ 500
Period January 2, 1999 to January 1, 2000 7.53 1,700 449
Under the Term Loan, minimum repayments are due as follows (on a quarterly
basis) as of January 1, 2000:
FISCAL YEARS
2000 $ 3,125
2001 3,625
2002 4,375
2003 4,125
-------
$ 15,250
========
The Credit Facility also calls for other mandatory repayments: (a) after
the end of each fiscal year in the case that cash flow leverage, as
defined in the Credit Facility, is greater than 2.0 times, 50% of the
excess cash flow as defined in the Credit Facility, (b) upon availability
of cash from the net proceeds of any sale of certain of the Company's
assets, and (c) upon completion of an initial public offering of common
stock.
The Company pays a commitment fee of .50% per annum of the unused portion
of the Line of Credit.
Borrowings under the Credit Facility are collateralized by substantially
all of the Company's assets. The Credit Facility contains certain
limitations on additional indebtedness, capital expenditures, and includes
financial covenants which include, but are not limited to, the maintenance
of certain minimum levels of interest, and debt service coverage ratios
and maximum leverage ratios.
-14-
4. DEBT (CONTINUED)
On October 3, 1998, as required under the Credit Facility, the Company
entered into a no fee interest rate-swap agreement with a bank to reduce
the impact of changes in interest rates on its floating rate Credit
Facility. This agreement effectively converts a portion of the
floating-rate obligation into a fixed-rate obligation of 7.2% for a period
of 60 months, expiring on September 30, 2003. The notional principal
amount of the interest rate-swap agreement is $7,750 as of January 1,
2000. The Company is exposed to credit loss in the event of nonperformance
by the counterparties to the interest rate-swap agreement.
Open interest rate contracts are reviewed regularly by the Company to
ensure that they remain effective as hedges of interest rate exposure. The
fair value of the interest rate-swap agreement was approximately $237 as
of January 1, 2000.
CAPITAL LEASES - The Company is obligated under capital leases for its
phone system, computer equipment and software that expire at various dates
during the next three years. The recorded value of the assets was $295 and
$1,201 as of January 2, 1999 and January 1, 2000, respectively. The
related accumulated amortization on these assets was $110 and $318 as of
January 2, 1999 and January 1, 2000, respectively.
Future aggregate minimum annual lease payments under capital leases at
January 1, 2000 are as follows:
FISCAL YEARS
2000 $ 430
2001 416
2002 176
-------
Total minimum payments (excluding taxes, maintenance and insurance) 1,022
Less amount representing interest (96)
Present value of minimum lease payments 926
Less current maturities (372)
-------
Long-term portion $ 554
=======
5. REDEEMABLE, CONVERTIBLE PREFERRED STOCK
The Company has authorized 22,000 shares of $.001 par value, redeemable,
convertible preferred stock ("Preferred Stock") of which 17,000 are
designated as Series A Voting Preferred Stock ("Series A") and 5,000 are
designated as Non-voting Series A-1 Preferred Stock ("Series A-1"). At
January 2, 1999 and January 1, 2000, 11,382 shares of Series A and 4,618
shares of Series A-1 were issued and outstanding.
-15-
5. REDEEMABLE, CONVERTIBLE PREFERRED STOCK (CONTINUED)
DIVIDENDS - The holders of the Preferred Stock are entitled to cumulative
dividends at a rate of $0.16 per share per year (the "Contingent
Dividend") if the Company fails to achieve 80% of its fiscal year 2000
operating income target and either (1) a liquidation event occurs in which
the holders of the Preferred Stock receive less than $2.00 per share plus
a 35% compound annual return, or (2) the Company completes a public
offering of its common stock in which the per share offering price is less
than $2.00 plus an amount equal to a 35% compound annual return on the
Preferred Stock. The holders of the Preferred Stock are also entitled to
receive dividends proportionate to any dividend declared on common stock
based on the number of shares of common stock into which the shares are
then convertible.
CONVERSION - Each share of Preferred Stock is convertible at any time at
the option of the holder into shares of common stock at an initial
conversion rate of one-for-one. The conversion rate is subject to
adjustment in the event of certain dilutive issuances of equity
securities. The Preferred Stock will be automatically converted into
common stock upon the closing of a public offering of the Company's common
stock at an equivalent price of $4.00 per share with aggregate proceeds of
$20,000. In connection with the merger (Note 14), the holders of the
Preferred Stock have agreed to convert all of the preferred shares into
common shares.
LIQUIDATION PREFERENCE - In the event of liquidation, the holders of the
Preferred Stock are entitled to receive $2.00 per share plus the
Contingent Dividend, if applicable, prior to any distribution to holders
of common stock. After the holders of common stock have received an amount
per share equal to the amount per share paid to the holders of the
Preferred Stock, the holders of the Preferred Stock participate in the
remaining distributions, if any, as if they had converted their shares
into common stock at the then applicable conversion rate. A liquidation
event for purposes of the liquidation preference includes, among other
things, a greater than 50% change in ownership of the Company or the sale
of substantially all of the Company's assets.
REDEMPTION - At any time after October 2, 2006, the holders of a majority
of the then outstanding shares of Preferred Stock may require the Company
to redeem all or a portion of the outstanding shares of Preferred Stock at
a price of $2.00 per share plus all declared but unpaid dividends.
VOTING RIGHTS - The Series A shares have voting rights equal to the number
of common shares into which they are convertible.
-16-
6. STOCK OPTIONS
On October 2, 1998, the Company adopted the 1998 Stock Incentive Plan (the
"Plan"). Under the Plan either shares of the Company's common stock or
options to purchase shares of the Company's stock may be issued at the
discretion of the Company's Board of Directors. The initial 6,656 shares
authorized to be issued under the Plan increase automatically by five
percent of the original shares authorized annually during the Plan's
existence. No more than 1,300 shares of stock can be awarded to a single
employee in any calendar year. Options generally vest over a period of
four years and expire after ten years. Options granted to certain officers
are exercisable when granted; however, the shares are subject to
repurchase rights by the Company at the exercise price. The Company's
right to repurchase the shares generally lapses ratably over four years.
The following is a summary of all option activity under the Plan:
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
Outstanding at January 1, 1998 $ - $ -
Granted 5,416 0.33
Exercised - -
Forfeited (8) 0.33
------- ------
Outstanding at January 2, 1999 5,408 0.33
Granted 690 0.68
Exercised (2,878) 0.33
Assumed Transcendent options 84 1.53
Forfeited (331) 0.41
------- ------
Outstanding at January 1, 2000 2,973 $ 0.44
======= ======
Options exercisable, January 2, 1999 3,075 $ 0.33
======= ======
Options exercisable, January 1, 2000 705 $ 0.46
======= ======
The weighted-average grant date fair value for options granted for the
years ended January 2, 1999 and January 1, 2000 was $0.49 and $0.89,
respectively.
At January 1, 2000, 2,809 shares issued upon exercise of options by
certain officers of the Company were subject to repurchase by the Company
at the exercise price.
-17-
6. STOCK OPTIONS (CONTINUED)
The following table sets forth information regarding options outstanding
as of January 1, 2000:
OPTIONS OUTSTANDING
------------------------------------------------------
WEIGHTED- OPTIONS EXERCISABLE
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE PERIODS EXERCISE EXERCISE
PRICES SHARES IN YEARS PRICE SHARES PRICE
$ 0.21 22 8.05 $ 0.21 22 $ 0.21
0.33 2,509 8.84 0.33 649 0.33
0.54 287 9.61 0.54 0 0.54
1.61 - 2.14 119 9.97 1.81 0 1.81
2.44 13 8.29 2.44 13 2.44
3.61 23 9.11 3.61 23 3.61
For financial reporting purposes, the deemed fair value of the common
stock at the dates of grants resulted in deferred compensation expense of
$1,918 for the year ended January 2, 1999 and $431 for the year ended
January 1, 2000. These charges are being recognized ratably over the
vesting period. Compensation expense recognized amounted to $117 and $531
for the year ended January 2, 1999 and January 1, 2000, respectively.
The Prior Viewlogic had two stock options plans, the 1991 Restated Stock
Option Plan and the Outside Directors' Stock Option Plan. Under the
Company's 1991 Restated Stock Option Plan, nonqualified and incentive
stock options to purchase shares of common stock were granted to certain
employees, officers, consultants and directors at exercise prices not less
than fair market value at the date of grant. Options became exercisable in
installments of 25% per year on each of the first through the fourth
anniversaries of the grant date and continued for the period determined by
the Board of Directors, but not in excess of ten years for incentive stock
options and five years for incentive stock options granted to 10%
shareholders. The Outside Directors' Stock Option Plan permitted the
granting of nonqualified options to purchase shares of common stock to
nonemployee members of the Board of Directors. The exercise price of the
options could not be less than fair market value on the date of grant.
Options under the 1996 Director Plan became exercisable upon grant and
continued for the period determined by the Board of Directors, but not in
excess of five years. Effective with the pooling-of-interests by the Prior
Viewlogic and Synopsys, on December 4, 1997, all of the options
outstanding under these stock option plans were converted into options to
purchase Synopsys common stock.
No options were granted to employees of the Company under the Synopsys
stock options plans, and all options to purchase Synopsys shares held by
employees of the Company as a result of options granted by the Prior
Viewlogic expired, if not exercised, 90 days after the recapitalization
transaction described in Note 2.
The Prior Viewlogic accounted for stock options under Accounting
Principles Board ("APB") Opinion No. 25, and all options granted by the
Prior Viewlogic were granted at fair market value. Accordingly, there was
no compensation expense recognized with respect to those options. The
number of shares, as to which options were granted, and exercise prices
related to those options are not presented since the information is not
meaningful. The Company has included an allocation related to the Prior
Viewlogic options in the pro forma disclosures below.
-18-
6. STOCK OPTIONS (CONTINUED)
PRO FORMA DISCLOSURES - As described in Note 1, the Company applies the
intrinsic value method of APB Opinion No. 25 and related interpretations
in accounting for its stock option plan. Had compensation cost been
determined based on the fair value at the grant dates for awards under the
Plan and the Prior Viewlogic's stock option plans consistent with the
method required by FASB Statement 123, the Company's net income and net
income per share would have been:
DECEMBER 31, JANUARY 2, JANUARY 1,
1997 1999 2000
Net income (loss) $ (3,457) $ 5,838 $ 197
Net income per common share:
Basic - 1.47 0.04
Diluted - 0.73 0.01
For purposes of the pro forma disclosures, the fair value of the options
granted under the Company's stock option plans during the year ended
January 1, 2000 and January 2, 1999 was estimated on the date of grant
using the Black-Scholes option pricing model. The fair value of employee
purchase rights under the Company's stock purchase plans was also
estimated using the Black-Scholes option pricing model. For the period
from January 1, 1997 through December 31, 1997, the pro forma disclosure
of net income is based upon an allocation of the fair value of the options
granted under the Prior Viewlogic's option plans for that period.
Key assumptions used to apply this pricing model are as follows for the
periods presented:
DECEMBER 31, JANUARY 2, JANUARY 1,
1997 1999 2000
Risk-free interest rate 5.7% - 6.9% 6.0% 5.3% - 6.3%
Expected life of option grants 4 years 4 years 4 years
Expected volatility of underlying stock 58% 57% 59%
Expected dividend payment rate - - -
7. INCOME TAXES
The components of income before income taxes consisted of the following:
JANUARY 2, JANUARY 1,
1999 2000
Domestic $ 9,503 $ 124
Foreign 417 416
------- -----
Total $ 9,920 $ 540
======= =====
-19-
7. INCOME TAXES (CONTINUED)
The provision for income taxes consisted of the following:
JANUARY 2, JANUARY 1,
1999 2000
Current:
Federal $ 3,475 -
State 619 -
Foreign 75 250
------- -----
Total 4,169 250
Deferred:
Federal (353) 51
State (24) -
Foreign 261 (20)
------- -----
Total provision for income taxes $ 4,053 $ 281
======= =====
A reconciliation between the statutory U.S. federal income tax and the
Company's effective tax rate for the respective years is as follows:
JANUARY 2, JANUARY 1,
1999 2000
U.S. federal statutory rate 35.0% 35.0%
State taxes - net of federal tax benefit 2.9 -
Foreign taxes 1.5 15.6
Other - net 1.5 1.4
------- ------
Total 40.9% 52.0%
======= ======
For the period from December 5, 1997 through October 3, 1998, the Company
was included in the consolidated tax return of Synopsys. Prior to December
5, 1997, the Systems Business was included in the tax returns of the Prior
Viewlogic. For financial statement purposes, the Company has computed the
tax provision for the year ended December 31, 1997 based on the effective
tax rate of the Prior Viewlogic and for the year ended January 2, 1999, as
if it had filed separate returns.
-20-
7. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities consisted of the following:
JANUARY 2, JANUARY 1,
1999 2000
Current assets:
Accounts receivable $ 774 $ 537
Deferred compensation 411 504
Net operating loss carryforwards 229 301
Other 166 -
------ ------
Total current assets 1,580 1,342
------ ------
Noncurrent liabilities:
Purchased technology - 993
Capitalized software costs 891 822
Depreciation and amortization 534 530
Other 93 48
------ ------
Total liabilities 1,518 2,393
------ ------
Total net deferred tax asset (liability) $ 62 $ (1,051)
====== =========
At January 1, 2000, the Company had available federal and foreign net
operating loss carryforwards of approximately $758, which expire in 2003
to 2004.
8. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases its principal office facilities and certain
computer equipment under noncancelable operating leases expiring on
various dates through 2003. The Company's headquarters office lease is
through 2002. The lease includes three two-year renewal options to extend
the lease through 2008. The lease contains a three-month rental abatement
and a rental escalation clause, the effects of which are being recognized
ratably over the lease term. At January 1, 2000, future minimum lease
payments under these noncancelable leases were approximately as follows:
2000, $3,296; 2001, $2,753; 2002, $2,032; 2003, $373; and 2006, $190. The
Company leases other office facilities under operating lease agreements
for which lease terms are one year or less. Total rent expense was
approximately $1,778 and $2,232 for the years ended December 31, 1997,
January 2, 1999 and January 1, 2000, respectively.
CONTINGENCIES - The Company is involved in certain legal proceedings which
have arisen in the ordinary course of business. Management believes the
outcome of these proceedings will not have a material adverse impact on
the Company's consolidated financial condition or operating results.
-21-
9. RELATED-PARTY AGREEMENTS
On October 2, 1998, the Company entered into two OEM agreements with
Synopsys pursuant to which the Company has the right to resell certain
Synopsys software. The agreements are for two and three years and are
automatically renewed on a year-to-year basis thereafter. The three-year
agreement requires minimum annual payments of $750. Under a prior
agreement, the Company paid royalties to Synopsys aggregating
approximately $713. Under the new agreements, the Company paid royalties
to Synopsys of $0 and $1,890 for the years ended January 2, 1999 and
January 1, 2000, respectively. See Note 1 regarding transition services
and occupancy costs charged to Synopsys.
10. SEGMENT INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires that public companies report profits and losses and
certain other information on its "reportable operating segments" in its
annual and interim financial statements. Management has determined that
the Company has only one "reportable operating segment," given the
financial information provided to and used by the "chief decision maker"
of the Company to allocate and assess the Company's performance. Revenue
consists of software sales and service, and other.
Summarized information about the Company's operations by geographic area
for the periods stated are as follows:
NORTH
AMERICA EUROPE JAPAN CONSOLIDATED
January 1, 2000:
Revenue $ 40,225 $ 8,820 $ 4,454 $ 53,499
Long-lived assets 10,455 284 593 11,332
January 2, 1999:
Revenue $ 41,667 $ 8,655 $ 4,915 $ 55,237
Long-lived assets 7,109 344 612 8,065
December 31, 1997:
Revenue $ 48,805 $ 10,837 $ 4,345 $ 63,987
Long-lived assets 8,343 634 243 9,220
No customer accounted for more than 10% of revenue for the years ended
December 31, 1997, January 2, 1999 and January 1, 2000.
11. RETIREMENT SAVINGS PLAN
In 1988, the Company established a qualified 401(k) retirement savings
plan covering substantially all of the Company's domestic employees. As of
March 1, 1998 and effective through October 2, 1998, the Company adopted
and contributed to the Synopsys' 401(k) retirement savings plan. On
November 1, 1998, the Company established a new 401(k) retirement savings
plan under which domestic employees are allowed to contribute a certain
percentage of their pay. The Company matches 40% of employee elected
pretax contributions, up to an annual maximum. Employer contributions for
all plans amounted to $292, $361 and $286, respectively, for the years
ended December 31, 1997, January 2, 1999 and January 1, 2000.
-22-
12. LITIGATION SETTLEMENT AND RESTRUCTURING
LITIGATION SETTLEMENT - During calendar year 1997, at the time of its
merger with Synopsys, the Prior Viewlogic agreed to settle a claim for
product royalties alleged to be owed to a supplier under a licensing
agreement. The claim was primarily based on the allegation that the Prior
Viewlogic allowed its customers to evaluate a product which Viewlogic
licensed from this supplier for resale at no charge for periods
substantially longer than the thirty-day evaluation period permitted in
the supply agreement and otherwise underpaid royalties due to the supplier
for sales of this product by the Prior Viewlogic. The license agreement
with this supplier was terminated by the Prior Viewlogic and is not longer
in effect. The Prior Viewlogic paid approximately $4,000 to settle the
litigation and incurred approximately $500 in related fees. As part of the
settlement, Viewlogic and the supplier each released the other from all
claims and liabilities without admitting any liability by either party.
RESTRUCTURING - The restructuring plan for the Prior Viewlogic included
the merger of the non-Systems businesses to other divisions of Synopsys, a
discontinuation of marketing and sales efforts with respect to certain
Systems Business products, and workforce reductions resulting from these
changes in the businesses. A restructuring charge of approximately $6,700
has been included in the Company's financial statements for the year ended
December 31, 1997. The charge includes approximately $2,344 in severance
charges, $2,540 in noncash impairment of capitalized software assets,
$1,368 write-off of other assets associated with discontinued products,
and $415 of noncancelable commitments. The severance charge represents a
workforce reduction of 108 employees either directly related to the
Systems Business or whose salaries had been allocated to the Company's
financial statements for the year ended December 31, 1997, as discussed in
Note 1. The asset write-offs included $512 of furniture and computer
equipment associated with the terminated workforce and discontinued
products, $441 of prepaid royalties for products discontinued by the
Company in the restructuring and $415 of goodwill related to the
discontinuance of the operations of a previously acquired European
subsidiary. The non-cancelable commitments consisted principally of a
contract for phone service. The following table presents the components of
the restructuring charge accrued during the year ended December 31, 1997
and the charges against the reserves through January 2, 1999:
ACCRUAL ACCRUAL
NONCASH AMOUNTS BALANCE AMOUNTS BALANCE
TOTAL WRITE-OFFS PAID DECEMBER 31, PAID JANUARY 2,
CHARGE 1997 1997 1997 1998 1999
Severance and related $ 2,344 $ - $ - $ 2,344 $ 2,344 $ -
Noncancelable commitments 473 - - 473 473 -
Capitalized software 2,540 2,540 - - - -
Fixed assets associated with
terminated employees 512 512 - - - -
Prepaid royalties 441 441 - - - -
Goodwill 415 415 - - - -
-------- ----- ---- ------- ------- ----
Totals $ 6,725 $ 3,908 $ - $ 2,817 $ 2,817 $ -
======== ======= ==== ======== ======= ====
-23-
13. EARNINGS PER SHARE
The calculations for earnings per share for the fiscal years ended January
2, 1999 and January 1, 2000 are as follows (in thousands, except per share
amounts):
YEAR ENDED
JANUARY 2, JANUARY 1,
1999 2000
Net income $5,867 $ 259
Weighted-average number of common shares - basic 3,966 5,797
Assumed number of shares issued from:
Dilutive effects of stock options - 1,148
Assumed conversion of Preferred Stock (Note 1) 4,033 16,000
Weighted-average number of common and common
equivalents shares - diluted 7,999 22,445
Net income per share - basic $1.48 $ 0.04
====== ======
Net income per share - diluted $0.73 $ 0.01
====== ======
14. SUBSEQUENT EVENTS
MERGER WITH SUMMIT, INC. - On March 23, 2000, the stockholders of the
Company and the stockholders of Summit approved an Agreement and Plan of
Reorganization (the "Merger") with Summit, Inc. ("Summit"). Summit is a
publicly held company engaged a business similar to that of the Company.
In connection with the Merger, (1) each share of Viewlogic Common Stock
and Preferred stock issued and outstanding at the effective time of the
Merger was converted into 0.67928 (the "Exchange Ratio") of a share of
Summit Common Stock, and (2) each option to purchase shares of Viewlogic
Common Stock will be converted into an option to purchase Summit Common
Stock based upon the Exchange Ratio.
The Merger will be treated as a purchase for accounting purposes, and is
intended to qualify as a tax-free reorganization for federal income tax
purposes. The purchase price is expected to be approximately $54,000
consisting of the fair value of the common shares and options of Summit
outstanding and related transaction costs. For the year ended December 31,
1999, Summit reported the following summary income statement information:
Revenues $ 30,235
Loss from operations 5,968
Loss before taxes 4,821
Net loss 4,821
Upon completion of the Merger, the Company's stockholders will own a
majority of the outstanding shares of Summit. Consequently, for accounting
purposes the transaction will be accounted for as a reverse acquisition,
whereby the Company will be treated as the accounting acquirer. As a
result, the consolidated financial statements of the Company will become
the historical financial statements of the combined Company and the assets
and liabilities of Summit will be revalued based on the value of Summit's
equity interest at the date of the agreement.
* * * * * *
-24-
(b) PRO FORMA FINANCIAL INFORMATION.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Pursuant to the September 16, 1999 merger agreement between
Viewlogic and Summit, Viewlogic was merged with and into a wholly owned
subsidiary of Summit. Upon completion of the acquisition, the existing
Viewlogic shareholders owned approximately 51% of the outstanding common
stock of the combined company. Consequently, for accounting purposes, the
transaction is being accounted for as a reverse acquisition with Viewlogic as
the acquirer. The transaction was closed on March 23, 2000 and the historical
financial statements of Viewlogic have become the historical financial
statements of the combined company. The purchase price will be allocated to
the assets and liabilities of Summit based on their fair values. The purchase
price will be based on the value of Summit's equity using the average market
price of Summit's common stock of $3.075 for the five-day period (September
14, 1999 through September 20, 1999) that includes the date of the agreement.
Based on this price, the purchase price as of December 31, 1999 would be
estimated at $54,649,000, using a $3.075 common stock price, which includes
the value of the outstanding Summit common stock, the fair value of
outstanding options to purchase Summit common stock and Viewlogic's estimated
direct costs of the acquisition. The ultimate purchase price will be
dependent upon the number of Viewlogic shares and options outstanding upon
closing, as well as final transaction costs related to the merger.
The unaudited pro forma financial information does not give effect
to any cost savings and other synergies that may result from the merger.
Viewlogic is developing its plans for integration of the business but cannot
make final decisions until the merger is complete. For purposes of the pro
forma financial information, Viewlogic has estimated that merger and
integration costs, consisting primarily of severance costs, asset impairments
and facility shutdown costs, will be approximately 2,400,000. Viewlogic will
record a liability at the closing date of approximately $2,574,000,
representing the federal and state taxes expected to be owed upon the
repatriation of Summit's foreign earnings. The purchase price will be
allocated to the assets acquired and liabilities assumed based on their fair
values at the closing date. For purposes of the pro forma financial
information, Viewlogic has made a preliminary estimate of the fair values of
identifiable assets and liabilities of Summit at the date of acquisition.
An independent third party appraisal company conducted a preliminary
valuation of Summit's intangible assets. These intangibles include existing
technology, in-process research and development, the customer base and the
in-place workforce. The preliminary valuation of intangibles included
$16,550,000 for existing technology, $2,400,000 for in-process research and
development, $2,800,000 for the customer vase and $3,850,000 for the
workforce. The excess of the purchase price over the fair value of the
identifiable tangible and intangible net assets of $13,694,000 will be
allocated to goodwill. Intangible assets are expected to be amortized over
periods ranging from 3 to 10 years. The fair value of the in-process research
and development, which relates to Summit's Visual HDL 2000, Visual SLD and
Regent 2.0 research projects, will be recorded as an expense in the period in
which the merger is completed.
The valuation of the existing technology and in-process research and
development was determined using the income method. Revenue and expense
projections as well as technology assumptions were prepared through 2009
based on information provided by Summit management. The projected cash flows
were discounted using a 25% to 30% rate. The valuation of the in-process
research and development was determined separately from all other acquired
assets using the percentage of completion method. The percentage of
completion ratio was calculated by dividing the total expected expenditures
for each project by the total estimated expenditures to achieve technological
feasibility.
The value assigned to in-process technology relates primarily to two
research projects, Visual HDL 2000 and Visual SLD. These technologies have
not yet reached technological feasibility and have no alternative future use.
The nature of the efforts required to develop the in-process technologies
into commercially viable products principally relate to the completion of all
planning, designing, prototyping, verification and testing activities that
are necessary to establish that the products can be designed to meet their
design specifications, including function, features and technical performance
requirements. Visual HDL 2000 represents a major rearchitecture of the two
existing Visual HDL products. This new generation product will integrate
these two existing products along with a newly developed compiler. The
project is approximately 25% complete with an initial release date expected
to occur in the fourth quarter of 2000. The Visual SLD research project
represents the development of an entirely new product targeted at a customer
base not previously approached for the Visual product line. This project is
estimated to be 75% complete and is expected to reach technological
feasibility in the second quarter of 2000.
Based on the timing of the closing of the transaction, the
finalization of the integration plans and other factors, the pro forma
adjustments may differ materially from those presented in the pro forma
financial information. A final appraisal of the intangibles will be performed
as of the closing date and the allocation adjusted accordingly. The income
statement effect of these adjustments will depend on the nature and amount of
the assets or liabilities adjusted.
The pro forma financial information does not purport to represent
what the consolidated financial position or results of operations actually
would have been if the merger in fact had occurred on December 31, 1999 or at
the beginning of the periods presented or to project the consolidated
financial position or results of operations as of any future date or any
future period. It should be read in conjunction with the historical
consolidated financial statements of Viewlogic and Summit, including the
related notes, and other financial information included in this joint proxy
statement/prospectus.
(c) EXHIBITS.
The Exhibits filed as part of this Amendment No. 1 to Current Report
on Form 8-K/A are listed on the Exhibit Index immediately preceding such
Exhibits, which Exhibit Index is incorporated herein by reference. Documents
listed on such Exhibit Index, except for documents identified by footnotes,
are being filed as exhibits herewith. Documents identified by footnotes are
not being filed herewith and, pursuant to Rule 12b-32 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), reference is made to
such documents as previously filed as exhibits filed with the Securities and
Exchange Commission. The Registrant's file number under the Exchange Act is
000-20923.
-25-
INNOVEDA, INC.
PROFORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
HISTORICAL PROFORMA PROFORMA
SUMMIT VIEWLOGIC ADJUSTMENTS COMBINED
------ --------- ----------- --------
ASSETS
Current assets:
Cash and cash equivalents $28,403 $531 $28,934
Accounts receivable, net 7,391 14,290 21,681
Prepaid expenses and other 991 3,950 (785)(A) 4,156
Deferred income taxes 564 1,342 1,906
-------- -------- ----------- ----------
Total current assets 37,349 20,113 (785) 56,677
Property and equipment, net 3,598 4,477 (750)(A) 7,325
Capitalized software costs--net 2,427 (160)(B) 2,267
Purchased technology 3,508 16,550 (A) 20,058
Other intangibles 949 2,800 (A) 6,650
3,850 (A)
(949)(A)
Goodwill 1,991 13,694 (A) 13,694
(1,991)(A)
Other 157 920 1,077
-------- -------- ----------- ----------
Total assets $44,044 $31,445 $32,259 $107,748
======== ======== =========== ==========
LIABILITIES
Current liabilities:
Notes payable, current portion $56 $3,125 $3,181
Capital lease obligations, current portion 372 372
Accounts payable 1,448 2,840 4,288
Accrued compensation 3,542 3,542
Accrued expenses 5,667 3,377 1,133 (A) 10,177
Due to related party 221 221
Deferred revenue 5,476 14,595 (239)(A) 19,832
-------- -------- ----------- ----------
Total current liabilities 12,647 28,072 894 41,613
Notes payable, long-term portion 12,125 12,125
Line of credit 1,700 1,700
Deferred revenue, less current portion 88 (5)(A) 83
Deferred tax liability 0 2,393 11,482 (A) 13,875
Capital lease obligations, long-term portion 554 554
-------- -------- ----------- ----------
Total liabilities 12,735 44,844 12,371 69,950
-------- -------- ----------- ----------
Redeemable, convertible preferred stock 32,000 (32,000)(A) 0
-------- -------- ----------- ----------
STOCKHOLDERS' EQUITY
Common stock 158 8 (8)(A) 321
163 (A)
Additional paid-in capital 44,691 4,777 40,753 (A) 90,221
Loans receivable from officers (927) (927)
Deferred compensation (1,701) (1,701)
Accumulated deficit (13,540) (47,845) 13,540 (A) (50,405)
(2,400)(A)
(160)(B)
Accumulated other comprehensive income 289 289
-------- -------- ----------- ----------
Total stockholders' equity (deficit) 31,309 (45,399) 51,888 37,798
-------- -------- ----------- ----------
Total liabilities and stockholders' equity $44,044 $31,445 $32,259 $107,748
======== ======== =========== ==========
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL PRO FORMA PRO FORMA
SUMMIT VIEWLOGIC ADJUSTMENTS COMBINED
Revenues:
Product $18,620 $23,853 $ - $42,473
Maintenance, services and other 11,615 29,646 - 41,261
------------ ---------- ------------ ----------
Total revenues 30,235 53,499 - 83,734
------------ ---------- ------------ ----------
Cost of revenues:
Product 776 5,991 - 6,767
Maintenance, services and other 1,034 6,426 - 7,460
Amortization of purchased technologies 561 0 (561)(A) 3,310
3,310 (C)
------------ ---------- ------------ ----------
Total cost of revenues 2,371 12,417 2,749 17,537
------------ ---------- ------------ ----------
Gross margin 27,864 41,082 (2,749) 66,197
Operating expenses:
Sales and marketing 10,204 22,584 32,788
Research and development 11,143 11,513 - 22,656
General and administrative 5,151 4,133 9,284
Amortization of goodwill and other intangibles 2,111 670 (2,111)(A) 4,469
3,799 (C)
Merger costs 1,218 0 - 1,218
Severance and write-off of note receivable 4,005 0 - 4,005
------------ ---------- ------------ ----------
Total operating expenses 33,832 38,900 1,688 74,420
------------ ---------- ------------ ----------
Operating income (loss) (5,968) 2,182 (4,437) (8,223)
Interest expense (4) (1,339) - (1,343)
Other income, net 1,151 (303) - 848
------------ ---------- ------------ ----------
Income (loss) before income taxes (4,821) 540 (4,437) (8,718)
Income tax provision 0 281 (281)(D) 0
------------ ---------- ------------ ----------
Net income (loss) ($4,821) $259 ($4,156) ($8,718)
============ ========== ============ ==========
Net income (loss) per share--basic:
Net income(loss) per share ($0.31) $0.04 ($0.27)
============ ========== ============ ==========
Number of shares used in computing basic net
income per share 15,678 5,797 32,016
============ ========== ============ ==========
Net income (loss) per share--diluted:
Net income(loss) per share ($0.31) $0.01 ($0.27)
============ ========== ============ ==========
Number of shares used in computing diluted net
income per share 15,678 22,945 32,016
============ ========== ============ ==========
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma combined condensed financial statements give effect
to Summit's acquisition of Viewlogic through a merger and exchange of shares.
The unaudited pro forma combined condensed statements of operations for the year
ended December 31, 1999 reflect this transaction as if it had taken place
January 1, 1999. The unaudited pro forma combined balance sheet gives effect to
this transaction as if it had taken place on December 31, 1999.
Below is a table of the estimated acquisition costs and purchase price
allocation (in thousands):
Estimated acquisition cost:
Common stock.............................................. $48,631
Stock options............................................. 4,882
Acquisition costs......................................... 1,136
-------
Total estimated acquisition cost...................... $54,649
=======
Purchase price allocation:
Tangible net assets acquired.............................. $28,369
Assets impaired by merger................................. (750)
Deferred income taxes..................................... (11,482)
Intangible net assets acquired:
Purchased technology, assembled workforce, and customer
base.................................................. 23,200
Goodwill.................................................. 13,694
In-process research and development....................... 2,400
Estimated merger related severance and shutdown costs, net
of tax benefits......................................... (782)
-------
Total................................................. $54,649
=======
Summit options outstanding were valued using a Black-Scholes formula with the
following assumptions:
Life of options: 4 years,
Interest Rate: 3.95% to 7.90%
Volatility: Calculated for a 3-year period
from 9/15/96 through 1/1/00,
volatility was calculated at
87.4%
Dividend Rate: 0%
This valuation was performed based on Summit options outstanding March 23,
2000. No changes have been made to this valuation based upon the fact that the
changes in options outstanding were not significant.
Tangible net assets of Summit acquired principally include cash, accounts
receivable, inventory, fixed assets, deferred income taxes, accounts payable,
accrued liabilities and deferred revenue. To determine the value of purchased
technology, the expected future cash flows attributable to all existing
technology was discounted, taking into account risks related to the
characteristics and applications of the technology, existing and future markets,
and assessments of the life cycle stage of the technology. The valuation of
purchased technology represents amounts which have reached technological
feasibility and will therefore be capitalizable. The value of the assembled
workforce was derived by estimating the costs to replace the existing employees,
including recruiting, hiring, and training costs for each category of employee.
The value allocated to projects identified as in-process research and
development of Summit and its wholly owned subsidiaries will be charged to
expense upon consummation of the merger but has not been reflected in the
unaudited pro forma combined condensed statements of operations as it is
nonrecurring in nature. However, this charge has been reflected in the unaudited
pro forma combined condensed balance sheet. The write-off was necessary because
the acquired in-process research and development had not yet reached
technological feasibility and had no future alternative uses. The combined
companies expect that the acquired in-process research and development will be
successfully developed, but these products may not achieve commercial viability.
The nature of the efforts required to develop the purchased in-process research
and development into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements.
NOTE 2. PRO FORMA ADJUSTMENTS
(A) To reflect the allocation of the purchase price and reverse acquisition
accounting to be recorded as a result of the merger (see note 1):
- record intangible assets and goodwill:
Purchased technology........................................ $ 16,550
Customer base............................................... 2,800
Workforce................................................... 3,850
Goodwill.................................................... 13,694
- record deferred taxes which relate to the difference between the tax and
book basis of assets acquired ($8.9 million) and unremitted earnings of
foreign subsidiaries ($2.6 million).
- deferred revenue after effect of adjustment for estimated selling costs
of 6% or approximately $244, represents the liability for the fair value
of the remaining services yet to be provided by Summit under contractual
terms. Management believes that deferred revenue approximates the cost
that would be incurred by Summit if these services were provided by a
third party.
- adjustment for merger related impairment of Summit's tangible assets of
$750 due to the closing of Summit's Beaverton Headquarters. Impaired
assets includes systems, computer equipment and furniture which will be no
longer used after the merger.
- accrual of Viewlogic's acquisition cost, estimated to be approximately
$2.3 million consisting of $1.1 million in direct transaction costs,
(primarily legal and accounting services) and approximately $1.2 million
in restructuring and severance costs (net of tax benefits of $0.5
million). While the exact amount of the restructuring costs is not known,
management believes that the costs approximate $0.9 million related to
involuntary employee separation benefits and $0.3 million in facilities
consolidations. The separation benefits relates to approximately 30
employees; primarily in Beaverton Administrative Functions, who will be
terminated as a result of the merger. The facilities consolidations amount
is an estimate related to costs expected to be incurred to combine Summit
and Viewlogic's field sales offices.
- impact of "reverse acquisition" accounting:
issuance of Summit shares (16.3 million at $0.01 per value
option)................................................... $ 163
elimination of Viewlogic outstanding preferred stock........ (32,000)
elimination of Viewlogic common stock....................... (8)
elimination of Summit's accumulated deficit................. 13,540
- To reflect the write off of in-process research and development of $2,400,
as of January 1, 2000
- To reflect the elimination of Summit intangibles ($949), goodwill
($1,991) and related amortization (a total of $2,672 for the year ended
December 31, 1999)
(B) To record write off of $160 of Viewlogic capitalized software impaired as a
result of merger.
(C) To reflect the amortization of purchased technology, other intangible assets
and goodwill recorded as a result of the merger. Amortization has been
estimated based on the following estimated useful lives:
Purchased technology........................................ 5 years
Customer base............................................... 5 years
Workforce................................................... 3 years
Goodwill.................................................... 7 years
Amortization has been calculated on the straight-line method for all
intangibles except purchased technology for which amortization has been
calculated based on the greater of the ratio of revenue per period to total
estimated revenue or the straight-line method.
(D) To reflect income taxes on a pro forma basis assuming the transaction took
place at the beginning of the period presented.
(E) As required by Article 11 of Regulation S-X, the unaudited pro forma
condensed combined statements of operations exclude material non recurring
charges which result directly from the merger and which will be recorded
within twelve months following the merger. The following schedule shows the
effects of the write-off of the in-process research and development
described in Note 1 above of $2,400 and the write off of capitalized
software of $160 that will become obsolete due to product changes resulting
from the merger:
YEAR ENDED
DECEMBER 31, 1999
------------------
Net loss............................................ $(11,278)
Net loss per share:
Basic............................................... (0.35)
Diluted............................................. (0.35)
NOTE 3. PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
The unaudited pro forma basic and diluted net income (loss) per share are
based on the weighted average number of shares of Summit common stock
outstanding during each period and the number of shares of Summit common stock
to be issued in connection with the Viewlogic merger. Options outstanding have
not been included in the computation of pro forma diluted net loss per share for
the year ended December 31, 1999 because their effect would be antidilutive.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INNOVEDA, INC.
Date: May 15, 2000 By: /s/ Kevin P. O'Brien
----------------------------------
Name: Kevin P. O'Brien
Title: Vice President, Finance and
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1(1) Agreement and Plan of Reorganization by and among the
Registrant, Hood Acquisition Corp. and Viewlogic Systems, Inc.
2.2(1) Form of Viewlogic Systems, Inc. Voting Agreement.
3.1* First Amendment to Amended and Restated Certificate of
Incorporation of the Registrant.
4.1* Specimen certificate for shares of Common Stock, $0.01 par
value per share, of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
- ---------------
* Previously filed with the Registrant's Current Report on Form 8-K dated
March 23, 2000.
(1) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-89491).