<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 31, 1994
CADENCE DESIGN SYSTEMS, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10606 77-0148231
- - ------------------------------- ------------ -------------------
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
555 River Oaks Parkway, San Jose, CA 95134
-----------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (408) 943-1234
--------------
<PAGE> 2
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS.
Note 11 of Item 1 of the Form 10-Q of Cadence Design Systems, Inc.
(the "Registrant") for the quarter ended June 30, 1994, and item 5 of the Form
10-Q/A, Amendment No. 1 to the Form 10-Q for the quarter ended June 30, 1994
filed on November 14, 1994 (together, the "Second Quarter 1994 Form 10-Q")
is incorporated herein by reference. The acquisition of Redwood Design
Automation, Inc. ("Redwood") by the Registrant, as described therein, was
closed on August 31, 1994.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Pursuant to paragraph (a)(4) of Item 7 of Form 8-K, the following
financial statements were omitted from the disclosure contained in the Second
Quarter 1994 Form 10-Q but are filed herewith:
(i) Audited balance sheets of Redwood as of January 31, 1993 and
1994, the related audited statements of operations, stockholders' equity and
cash flows of Redwood for the years ended January 31, 1992, 1993 and 1994 and a
manually signed report of Arthur Andersen LLP with respect to the balance
sheets of Redwood as of January 31, 1993 and 1994 and the statements of
operations, stockholders' equity and cash flows for the years ended January 31,
1992, 1993 and 1994, which are attached as Exhibit 99.01 hereto;
(ii) Unaudited balance sheet of Redwood as of July 31, 1994 and the
related unaudited statements of operations and cash flows of Redwood for the
six month periods ended July 31, 1993 and 1994, which are attached as Exhibit
99.02 hereto.
(b) Pro Forma Financial Information.
Pursuant to paragraph (b)(2) of Item 7, the unaudited pro forma
condensed combined balance sheet of the Registrant and Redwood as of June 30,
1994 and the unaudited pro forma condensed combined statements of operations of
the Registrant and Redwood for the year ended December 31, 1993 and for the six
months ended June 30, 1994 are attached as Exhibit 99.03 hereto. The unaudited
pro forma condensed combined financial statements give effect to the merger of
the Registrant and Redwood on a purchase accounting basis. The pro forma
condensed combined balance sheet assumes the merger took place on June 30, 1994
and combines the June 30, 1994 balance sheet of the Registrant with the July
31, 1994 balance sheet of Redwood. The pro forma combined statements of income
assume that the merger took place as of the beginning of each company's most
recently completed fiscal year and combine the Registrant's historical results
for the year ended December 31, 1993 and the six months ended June 30, 1994
with the corresponding results for Redwood for its fiscal year ended January
31, 1994 and the six months ended July 31, 1994, respectively. The pro forma
information is presented for illustrative purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred had the acquisition of Redwood by the Registrant been consummated at
the beginning of the periods presented, nor is it necessarily indicative of
future operating results or financial position. These pro forma financial
statements are based on and should be read in conjunction with the historical
consolidated financial statements and the related notes thereto of the
Registrant and Redwood.
2
<PAGE> 3
(c) Exhibits.
2.01 Agreement of Merger and Plan of Reorganization by and among
Registrant, Simon Software, Inc. and Redwood dated as of July 8, 1994.
(Filed as Exhibit 2.01 to the Registrant's Form 10-Q/A, Amendment No. 1
to the Registrant's Form 10-Q, filed November 14, 1994 (the "Form
10-Q/A"), and incorporated herein by reference).
2.02 Agreement of Merger dated as of August 1, 1994 between Redwood and CDS
Acquisition Corporation. (Filed as Exhibit 2.02 to the Registrant's
Form 10-Q/A, Amendment No. 1 to the Registrant's Form 10-Q and
incorporated herein by reference).
23.01 Consent of Arthur Andersen LLP.
99.01 Audited balance sheets of Redwood as of January 31, 1993 and 1994, the
related audited statements of operations, stockholders' equity and cash
flows of Redwood for the years ended January 31, 1992, 1993 and 1994
and a manually signed report of Arthur Andersen LLP with respect to the
balance sheets of Redwood as of January 31, 1993 and 1994 and the
statements of operations, stockholders' equity and cash flows for the
years ended January 31, 1992, 1993 and 1994.
99.02 Unaudited balance sheet of Redwood as of July 31, 1994 and the related
unaudited statements of operations and cash flows of Redwood for the
six month periods ended July 31, 1993 and 1994.
99.03 Unaudited pro forma condensed combined balance sheet of the Registrant
and Redwood as of June 30, 1994 and the unaudited pro forma condensed
combined statements of operations of the Registrant and Redwood for
the year ended December 31, 1993 and for the six months ended June 30,
1994.
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 14, 1994
CADENCE DESIGN SYSTEMS, INC.
By: /s/ H. Raymond Bingham
---------------------------
H. RAYMOND BINGHAM
Executive Vice President
and Chief Financial Officer
4
<PAGE> 5
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
- - ------- ----------------------
2.01 Agreement of Merger and Plan of Reorganization by and among
Registrant, Simon Software, Inc. and Redwood dated as of
July 8, 1994. (Filed as Exhibit 2.01 to the Registrant's
Form 10-Q/A, Amendment No. 1 to the Registrant's Form 10-Q,
filed November 14, 1994 (the "Form 10-Q/A"), and incorporated
herein by reference).
2.02 Agreement of Merger dated as of August 1, 1994 between Redwood
and CDS Acquisition Corporation. (Filed as Exhibit 2.02 to the
Registrant's Form 10-Q/A, Amendment No. 1 to the Registrant's
Form 10-Q and incorporated herein by reference).
23.01 Consent of Arthur Andersen LLP.
99.01 Audited balance sheets of Redwood as of January 31, 1993 and
1994, the related audited statements of operations,
stockholders' equity and cash flows of Redwood for the years
ended January 31, 1992, 1993 and 1994 and a manually signed
report of Arthur Andersen LLP with respect to the balance
sheets of Redwood as of January 31, 1993 and 1994 and the
statements of operations, stockholders' equity and cash flows
for the years ended January 31, 1992, 1993 and 1994.
99.02 Unaudited balance sheet of Redwood as of July 31, 1994 and the
related unaudited statements of operations and cash flows of
Redwood for the six month periods ended July 31, 1993 and 1994.
99.03 Unaudited pro forma condensed combined balance sheet of the
Registrant and Redwood as of June 30, 1994 and the unaudited pro
forma condensed combined statements of operations of the
Registrant and Redwood for the year ended December 31, 1993 and
for the six months ended June 30, 1994.
<PAGE> 6
EXHIBIT 23.01
Consent of Arthur Andersen LLP
<PAGE> 7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report on the financial statements of Redwood Design
Automation, Inc. included in this Form 8-K, into the previously filed
Registration Statements of Cadence Design Systems, Inc. on Forms S-8 and S-3
(File Nos. 33-36110, 33-43025, 33-45001, 33-48371, 33-53875 and 33-53913).
/s/ ARTHUR ANDERSEN LLP
-----------------------------
ARTHUR ANDERSEN LLP
San Jose, California
November 11, 1994
<PAGE> 1
EXHIBIT 99.01
Audited balance sheets of Redwood as of January 31, 1993 and 1994, the related
audited statements of operations, stockholders' equity and cash flows of
Redwood for the years ended January 31, 1992, 1993 and 1994 and a manually
signed report of Arthur Andersen LLP with respect to the balance sheets of
Redwood Design Automation, Inc. as of January 31, 1993 and 1994 and the
statements of operations, stockholders' equity and cash flows for the years
ended January 31, 1992, 1993 and 1994.
<PAGE> 2
REDWOOD DESIGN AUTOMATION, INC.
(A development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
TOGETHER WITH AUDITORS' REPORT
<PAGE> 3
Report of Independent Public Accountants
To Redwood Design Automation, Inc.:
We have audited the accompanying consolidated balance sheets of Redwood Design
Automation, Inc. (a California corporation in the development stage) and
subsidiaries as of January 31, 1994 and 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended January 31, 1994, and for the period from
inception (January 2, 1991) to January 31, 1994. 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 generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Redwood Design Automation,
Inc. and subsidiaries as of January 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1994, and for the period from inception to January 31, 1994, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
---------------------------------------
Arthur Andersen LLP
San Jose, California
November 11, 1994
<PAGE> 4
REDWOOD DESIGN AUTOMATION, INC.
(A development stage company)
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,114,809 $ 1,503,392
Accounts receivable, trade 151,842 -
Prepaid expenses and other 122,934 61,946
----------- -----------
Total current assets 1,389,585 1,565,338
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Equipment 792,234 531,671
Furniture and fixtures 188,656 99,410
Purchased software 283,994 152,435
Leasehold improvements 23,665 16,792
----------- -----------
1,288,549 800,308
Less- Accumulated depreciation and amortization (601,721) (262,925)
----------- -----------
Net property and equipment 686,828 537,383
----------- -----------
OTHER ASSETS 51,354 10,682
----------- -----------
$ 2,127,767 $ 2,113,403
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 327,705 $ 198,967
Accounts payable 89,157 65,321
Accrued compensation and related expenses 115,525 54,637
Deferred revenues 17,411 100,000
----------- -----------
Total current liabilities 549,798 418,925
----------- -----------
DEFERRED RENT 6,042 15,506
----------- -----------
CAPITAL LEASE OBLIGATIONS, net of current portion 432,934 386,076
----------- -----------
COMMITMENTS (Note 4)
STOCKHOLDERS' EQUITY:
Convertible preferred stock-
Authorized--13,000,000 shares
Series A, aggregate liquidating preference
($370,000)-
Authorized and outstanding--740,000 shares
in 1994 and 1993 363,550 363,550
Series B, aggregate liquidating preference
($5,075,000)-
Authorized and outstanding--5,516,306 shares
in 1994 and 1993 5,050,677 5,050,677
Series C, aggregate liquidating preference
($5,095,000)-
Authorized and outstanding--4,469,302 shares
in 1994 5,062,446 -
Common stock, no par value
Authorized--25,000,000 shares
Outstanding--2,212,850 and 2,156,700 shares in
1994 and 1993 79,845 75,915
Notes receivable from stockholders (20,125) (20,125)
Deficit accumulated during development stage (9,397,400) (4,177,121)
----------- -----------
Total stockholders' equity 1,138,993 1,292,896
----------- -----------
$ 2,127,767 $ 2,113,403
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 5
REDWOOD DESIGN AUTOMATION, INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
AND FOR THE PERIOD FROM INCEPTION (JANUARY 2, 1991)
TO JANUARY 31, 1994
<TABLE>
<CAPTION>
Inception
1994 1993 1992 to Date
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 311,524 $ - $ - $ 311,524
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of revenues 286,549 - - 286,549
Research and development 2,379,727 1,548,390 667,072 4,595,189
Sales and marketing 2,273,025 935,856 348,500 3,557,381
General and administrative 557,888 528,283 361,791 1,447,962
----------- ----------- ----------- -----------
Total operating
expenses 5,497,189 3,012,529 1,377,363 9,887,081
----------- ----------- ----------- -----------
Loss from operations (5,185,665) (3,012,529) (1,377,363) (9,575,557)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (130,774) (85,774) (27,925) (244,473)
Interest income 80,038 109,656 216,814 406,508
Other income 16,122 - - 16,122
----------- ----------- ----------- -----------
Total other income
(expense) (34,614) 23,882 188,889 178,157
----------- ----------- ----------- -----------
Net loss $(5,220,279) $(2,988,647) $(1,188,474) $(9,397,400)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
<TABLE>
REDWOOD DESIGN AUTOMATION, INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 2, 1991)
TO JANUARY 31, 1994
<CAPTION>
Convertible
Preferred Stock Common Stock
----------------------------- -------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Issuance of common stock at $.0318 per share to
founders for cash and notes receivable
(January 1991) - $ - 2,460,700 $78,295
Issuance of Series A convertible preferred stock
at $.50 per share, net of issuance costs of
$6,450 (January 1991) 740,000 363,550 - -
Issuance of Series B convertible preferred stock
at $.92 per share, net of issuance costs of
$24,325 (April 1991) 5,516,306 5,050,677 - -
Repurchase of common stock at $.0318 per share
from founders (May 1991) - - (495,000) (15,750)
Exercises of stock options at $.07 per share
(September 1991) - - 1,000 70
Issuance of common stock at $.07 per share for
cash to consultants under the 1991 Employee
Stock Plan (August - October 1991) - - 190,000 13,300
Net loss - - - -
---------- ----------- --------- -------
BALANCE, JANUARY 31, 1992 6,256,306 5,414,227 2,156,700 75,915
Net loss - - - -
---------- ----------- --------- -------
BALANCE, JANUARY 31, 1993 6,256,306 5,414,227 2,156,700 75,915
Issuance of Series C convertible preferred stock
at $1.14 per share, net of issuance costs of
$32,554 (March 1993) 4,469,302 5,062,446 - -
Exercises of stock options at $.07 per share
(February - December 1993) - - 56,150 3,930
Net loss - - - -
---------- ----------- --------- -------
BALANCE, JANUARY 31, 1994 10,725,608 $10,476,673 2,212,850 $79,845
========== =========== ========= =======
<CAPTION>
Deficit
Notes Accumulated
Receivable During the Total
From Development Stockholders'
Stockholders Stage Equity
------------ ------------ -------------
<S> <C> <C> <C>
Issuance of common stock at $.0318 per share to
founders for cash and notes receivable
(January 1991) $(35,875) $ - $ 42,420
Issuance of Series A convertible preferred stock
at $.50 per share, net of issuance costs of
$6,450 (January 1991) - - 363,550
Issuance of Series B convertible preferred stock
at $.92 per share, net of issuance costs of
$24,325 (April 1991) - - 5,050,677
Repurchase of common stock at $.0318 per share
from founders (May 1991) 15,750 - -
Exercises of stock options at $.07 per share
(September 1991) - - 70
Issuance of common stock at $.07 per share for
cash to consultants under the 1991 Employee
Stock Plan (August - October 1991) - - 13,300
Net loss - (1,188,474) (1,188,474)
-------- ----------- ----------
BALANCE, JANUARY 31, 1992 (20,125) (1,188,474) 4,281,543
Net loss - (2,988,647) (2,988,647)
-------- ----------- ----------
BALANCE, JANUARY 31, 1993 (20,125) (4,177,121) 1,292,896
Issuance of Series C convertible preferred stock
at $1.14 per share, net of issuance costs of
$32,554 (March 1993) - - 5,062,446
Exercises of stock options at $.07 per share
(February - December 1993) - - 3,930
Net loss - (5,220,279) (5,220,279)
-------- ----------- ----------
BALANCE, JANUARY 31, 1994 $(20,125) $(9,397,400) $1,138,993
======== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
REDWOOD DESIGN AUTOMATION, INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
AND FOR THE PERIOD FROM INCEPTION (JANUARY 2, 1991)
TO JANUARY 31, 1994
<TABLE>
<CAPTION>
Inception
1994 1993 1992 to Date
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,220,279) $(2,988,647) $(1,188,474) $(9,397,400)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization 340,094 187,594 78,036 605,724
Deferred rent (9,464) 6,151 9,355 6,042
Changes in net assets and liabilities-
Accounts receivable, trade (151,842) - - (151,842)
Prepaid expenses and other (60,988) (43,062) (18,884) (122,934)
Other assets (40,672) 400 (7,296) (47,568)
Accounts payable 23,836 47,761 17,560 89,157
Accrued compensation and related
expenses 60,888 24,289 30,348 115,525
Deferred revenues (82,589) 100,000 - 17,411
----------- ----------- ----------- -----------
Net cash used in operating
activities (5,141,016) (2,665,514) (1,079,355) (8,885,885)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (63,078) (14,267) (63,375) (140,720)
Organization costs - - (6,491) (6,491)
----------- ----------- ----------- -----------
Net cash used in investing
activities (63,078) (14,267) (69,866) (147,211)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease
obligations (250,865) (108,692) (28,931) (388,488)
Net proceeds from sale of preferred stock 5,062,446 - 5,414,227 10,476,673
Net proceeds from sale of common stock 3,930 - 55,790 59,720
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 4,815,511 (108,692) 5,441,086 10,147,905
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (388,583) (2,788,473) 4,291,865 1,114,809
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,503,392 4,291,865 - -
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,114,809 $ 1,503,392 $ 4,291,865 $ 1,114,809
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest expense paid $ 130,774 $ 85,774 $ 27,925 $ 244,473
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
REDWOOD DESIGN AUTOMATION, INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1994
1. ORGANIZATION AND OPERATIONS OF THE COMPANY:
Redwood Design Automation, Inc. (the "Company") was incorporated on January 2,
1991 for the purpose of designing, developing and marketing software for use in
Electronic System Design. The Company's products are software tools which
allow engineers to use visualization technologies to analyze and verify the
design of hardware and software for integrated circuits and printed circuit
boards. To date, the Company's efforts have been focused on raising capital of
approximately $10.5 million, developing its products and applications,
establishing marketing channels and recruiting personnel.
The Company is in the development stage and, consequently, is subject to risks
associated with a development stage company, including reliance on key
individuals, competition from larger, more established entities, continued need
for additional financing and rapid technological changes.
During fiscal 1993, the Company changed its fiscal year from December 31 to
January 31. Although the Company was incorporated on January 2, 1991, its
activities during the first month were limited; consequently, the financial
statements for the year ended January 31, 1992, are for the period from
inception.
In August 1994, all of the Company's outstanding stock was acquired by Cadence
Design Systems, Inc.(see Note 10).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its two wholly-owned subsidiaries after elimination of intercompany
transactions and balances. Cumulative gains and losses from the translation of
the foreign subsidiaries' financial statements, which were insignificant, have
been included in other income in the accompanying consolidated statements of
operations.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
investments with an original maturity of three months or less to be cash
equivalents. As of January 31, 1994 and 1993, all of the Company's cash was
deposited in checking, money market accounts and in short-term certificates of
deposit.
<PAGE> 9
- 2 -
Supplemental Disclosure of Non-Cash Investing and Financing Activities
The Company acquired property and equipment by entering into capital lease
obligations in the amounts of approximately $480,000, $370,000 and $350,000 in
fiscal 1994, 1993 and 1992, respectively.
Software Development Costs
In accordance with Statement of Financial Accounting Standards No. 86, the
Company capitalizes eligible computer software development costs upon the
establishment of technological feasibility, which it has defined as completion
of a working model. As of January 31, 1994, the amount of eligible costs to be
capitalized has been minimal and, accordingly, the Company has not capitalized
any software development costs.
Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and amortization is
provided using the straight-line method over the estimated useful lives of the
assets (two to three years) or the term of the lease.
Revenue Recognition
Revenues from software licenses are recognized upon shipment of the software if
there are no, or insignificant, post-delivery obligations and payment is due
within one year.
The Company's support agreements generally call for the Company to provide
technical support and certain updates to customers. Revenue on support and
software update rights is recognized ratably over the term of the support
agreement.
3. CAPITAL LEASE OBLIGATIONS:
The Company leases certain equipment, software, furniture and fixtures under
capital lease agreements with a net book value of approximately $615,000 at
January 31, 1994. Future minimum lease payments at January 31, 1994 are
summarized as follows:
<TABLE>
<CAPTION>
Year Ending
January 31,
-----------
<S> <C>
1995 $ 399,555
1996 356,166
1997 156,426
1998 17,262
---------
Total minimum lease payments 929,409
Less- Amount representing interest
(14% to 18%) (168,770)
---------
Present value of minimum lease payments 760,639
Less- Current portion (327,705)
---------
Long-term portion $ 432,934
=========
</TABLE>
<PAGE> 10
- 3 -
In connection with the above leases, the Company has issued warrants to
purchase 74,728 and 71,739 shares of common stock at $.92 and $.836 per share,
respectively. These warrants may be exercised at any time and expire on the
earlier of the effective date of an initial public offering or ten years from
the execution of the warrant agreements (April 2002 and July 2001). No value
has been assigned to these warrants in the accompanying consolidated financial
statements.
4. COMMITMENTS:
The Company leases three office facilities under operating leases that extend
through August 1996. One lease agreement contains a provision that allows the
Company to terminate the lease by providing six months notice. However, in the
event the Company does terminate the lease before the full term of such lease,
the Company must pay the balance on certain leasehold improvements (at January
31, 1994, the balance was approximately $28,300). In addition, the lease
agreement provides for graduated rental payments. The Company has recorded
rent expense on a straight-line basis and, as a result, the Company has
recorded deferred rent in the accompanying consolidated balance sheets of
$6,042 and $15,506 as of January 31, 1994 and 1993, respectively. The minimum
future lease commitments are approximately:
<TABLE>
<CAPTION>
Year Ending
January 31,
-----------
<S> <C>
1995 $196,000
1996 152,000
1997 88,000
--------
$436,000
========
</TABLE>
Rent expense for the years ended January 31, 1994, 1993 and 1992 and the period
from inception to January 31, 1994 was approximately $180,000, $88,000, $50,000
and $318,000, respectively.
5. CONVERTIBLE PREFERRED STOCK:
The relative rights, preferences, privileges and restrictions granted to or
imposed on the respective classes of the shares of capital stock or the holders
thereof are as follows:
Dividends
The holders of Series B and C preferred stock are entitled to receive
dividends at a rate of $.092 and $.114 per share per annum,
respectively payable in preference to any payment of dividends on
Series A or common stock. In turn, holders of Series A preferred
stock are entitled to receive dividends at a rate of $.05 per share
per annum, payable in preference to any payment of dividends on
common stock. The dividends are not cumulative and do not accrue
unless declared by the Board of Directors.
<PAGE> 11
- 4 -
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company, or
any merger or sale of all or substantially all the assets of the Company,
holders of Series B and Series C preferred stock are entitled to receive, in
preference to holders of Series A and common stock, the amount of $.92 and
$1.14 per share, respectively. Such amounts will be adjusted for any
recapitalization as defined, plus all declared but unpaid dividends. In turn,
holders of Series A are entitled to receive, in preference to holders of common
stock, the amount of $.50 per share for each share of Series A, adjusted for
any recapitalization as defined, plus all declared but unpaid dividends. After
payment of the above amounts first to the Series B and C stockholders and then
to the Series A stockholders, any remaining assets would then be distributed
ratably between the Series A, B and C stockholders and the common stockholders
on an as-converted basis.
Voting Rights
The holders of the Series A, B and C preferred stock are entitled to the number
of votes equal to the number of shares of common stock into which such
preferred stock is convertible as of the record date.
Conversion
Each share of Series A, B and C preferred stock is convertible into 1.1, 1.1
and 1 share, respectively, of common stock, subject to adjustment for dilution,
at the option of the holder thereof, at any time after the date of issuance.
In addition, each share of preferred stock will automatically convert into
common stock at the then conversion price upon a majority vote by the holders
of each series of preferred stock or upon the closing of an initial public
offering of the Company's common stock at not less than $5.00 per share and an
aggregate offering price of not less than $10,000,000.
Right to Purchase Additional New Securities
The holders of Series B and C preferred stock are entitled to purchase a
portion of certain new securities, which the Company may propose to issue, in
order that the holders of Series B and C may maintain a pro rata ownership
interest in the Company.
Registration Rights
The Series B and C stockholders are entitled to certain demand registration
rights (if at least 40% of the Series B and Series C stockholders so request)
or to certain piggyback registration rights (in the event the Company elects to
register additional securities after the completion of an initial public
offering).
<PAGE> 12
- 5 -
6. COMMON STOCK:
The Company has authorized 25,000,000 shares of common stock. In July 1991,
the Company effected a 1.1 for 1 stock split whereby each outstanding share of
common stock was split and converted into 1.1 shares of common stock. All
common stock shares and per share prices have been adjusted for this stock
split.
1991 Employee Stock Plan
In 1991, the Company adopted the 1991 Employee Stock Plan (the "Plan") to
provide additional incentives for employees and consultants and authorized the
issuance of 1,925,000 shares thereunder. During March 1993, the Board of
Directors authorized an increase of 500,000 shares to be issued under the Plan.
Under the Plan, the Board of Directors may grant incentive stock options,
nonstatutory stock options, or stock purchase rights to employees or
consultants. The price per share is to be determined by the Board of Directors
and may not be less than 85% of the fair market value on the date of grant for
nonstatutory stock options or stock purchase rights and not less than fair
value for incentive stock options. The options and stock purchase rights
generally vest ratably over a five-year period from the commencement date in
the case of new employees or from the grant date for existing employees or
consultants. The stock options or stock purchase rights expire after 10 years
if not exercised.
Below is a summary of activity under the above plan for the period from
inception to January 31, 1994:
<TABLE>
<CAPTION>
Shares
Plan Per Share Available for
Activity Price Future Grant
---------- --------- -------------
<S> <C> <C> <C>
Authorized 1,925,000
Granted - Options 609,500 $.07 (609,500)
- Stock purchase rights 190,000 .07 (190,000)
Exercised - Options (1,000) .07 -
- Stock purchase rights (190,000) .07 -
--------- ---------
Balance, January 31, 1992 608,500 1,125,500
Granted - Options 536,500 .07 (536,500)
--------- ---------
Balance, January 31, 1993 1,145,000 589,000
Authorized 500,000
Granted - Options 485,000 .07 (485,000)
Exercised - Options (56,150) .07 -
Cancelled - Options (27,350) .07 27,350
--------- ---------
Balance, January 31, 1994 1,546,500 631,350
========= =========
</TABLE>
As of January 31, 1994, options for 512,825 shares are exercisable at $.07 per
share.
<PAGE> 13
- 6 -
Founders Stock
Common stock issued to the founders and to certain employees/consultants vest
over five years and are subject to certain repurchase rights. The Company has
the right of first refusal to repurchase any vested shares at the then fair
value, or repurchase unvested shares, at the original purchase price. In the
event the Company is unable to or elects not to exercise such rights, the
holders of the Series B and Series C preferred stock have a right of first
refusal, subordinate to the Company's right, to purchase on a pro rata basis
shares not repurchased by the Company. Of the 2,212,850 shares of common stock
outstanding as of January 31, 1994, 773,833 unvested shares are subject to
repurchase at the original purchase price.
As of January 31, 1994, the Company has reserved shares of common stock for
future issuance as follows:
<TABLE>
<CAPTION>
Number
of Shares
----------
<S> <C>
Conversion of Series A 814,000
Conversion of Series B 6,067,937
Conversion of Series C 4,469,302
Exercise of stock options 2,177,850
Exercise of stock purchase warrants 146,467
----------
13,675,556
==========
</TABLE>
7. 401(K) RETIREMENT SAVINGS PLAN:
During 1991, the Company adopted a 401(k) Retirement Savings Plan (the
"Retirement Plan") which plan allows employees to contribute a percentage of
their annual compensation on a pretax basis to the Retirement Plan. All
employees over 21 years of age are eligible to participate. The Retirement
Plan includes a provision through which the Company may contribute to the
Retirement Plan. For the years ended January 31, 1994, 1993 and 1992, no
contributions to the Retirement Plan were made by the Company.
8. RELATED PARTY TRANSACTIONS:
A vendor of the Company, which is a preferred stockholder, received
approximately $24,000, $60,000 and $16,000 for services during fiscal 1994,
1993 and 1992, respectively. In addition, four consultants to the Company, who
are also stockholders, were paid a total of approximately $21,000 during fiscal
1994, $65,000 during fiscal 1993 and $20,000 during fiscal 1992 for services
rendered.
9. INCOME TAXES:
Through January 31, 1993, the Company accounted for income taxes pursuant to
Accounting Principles Board Opinion No. 11 (APB 11). Effective February 1,
1993, the Company adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes." SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
<PAGE> 14
- 7 -
A valuation allowance is recognized to the extent that deferred tax assets are
not likely to be realized. The adoption of SFAS 109 did not have a material
impact on current or prior year financial statements.
Deferred tax assets under SFAS 109 were comprised of the following:
<TABLE>
<CAPTION>
February 1, January 31,
1993 1994
----------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 340,867 $ 1,355,081
Temporary book to tax timing
differences, net 1,445,253 2,304,622
General business credit carryforwards 168,003 168,003
----------- -----------
Total deferred tax assets 1,954,123 3,827,706
Deferred tax assets valuation allowance (1,954,123) (3,827,706)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
</TABLE>
The Company had net operating loss carryforwards of $4,828,302 at January 31,
1994. The Company also had general business credit carryforwards of $168,003
at January 31, 1994. These carryforwards expire through the year 2008.
Under current tax law, net operating loss carryforwards available in any given
year may be limited upon the occurrence of certain events, including
significant changes in ownership interests.
10. ACQUISTION OF THE COMPANY:
On August 31, 1994, the Company was acquired by Cadence Design Systems, Inc.
("Cadence"). Cadence issued approximately 419,000 shares of its common stock
for all of the shares of the Company's common and preferred stock outstanding.
In addition, Cadence advanced to the Company $2.5 million in cash prior to the
effectiveness of the acquisition; upon completion of the merger, repayment of
the $2.5 million advance was waived. All of the Company's outstanding stock
options were canceled and were not assumed by Cadence. Subsequent to the date
of acquisition, the Company's operations were merged into those of Cadence.
<PAGE> 1
EXHIBIT 99.02
Unaudited balance sheet of Redwood as of July 31, 1994 and the related
unaudited statements of operations and cash flows of Redwood for the six month
periods ended July 31, 1993 and 1994.
<PAGE> 2
REDWOOD DESIGN AUTOMATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
July 31,
1994
-----------
(Unaudited)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,751
Accounts receivable 392
Prepaid expenses and other current assets 103
--------
Total current assets 2,246
Property and equipment, net 531
Other assets 50
--------
Total assets $ 2,827
========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of capital lease obligations $ 329
Accounts payable 207
Accrued liabilities 134
Deferred revenue 331
--------
Total current liabilities 1,001
Long-term obligations 2,817
Stockholders' Deficit:
Convertible preferred stock 10,900
Common stock 80
Notes receivable from stockholders (20)
Accumulated deficit (11,951)
--------
Total stockholders' deficit (991)
--------
Total liabilities and stockholders' deficit $ 2,827
========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 3
REDWOOD DESIGN AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 31, July 31, Inception to
1994 1993 July 31, 1994
---- ---- -------------
<S> <C> <C> <C>
REVENUE $ 434 $ 100 $ 745
------- ------- ---------
OPERATING EXPENSES:
Cost of revenue 208 117 495
Market development 1,181 1,114 4,738
Product development 1,225 1,150 5,820
General and administrative 325 305 1,773
------- ------- ---------
Total operating expenses 2,939 2,686 12,826
------- ------- ---------
Operating loss (2,505) (2,586) (12,081)
Other income (expense), net (49) - - - 130
------- ------- ---------
NET LOSS $(2,554) $(2,586) $ (11,951)
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
REDWOOD DESIGN AUTOMATION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------
July 31, July 31, Inception to
1994 1993 July 31, 1994
-------- -------- -------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD $ 1,115 $ 1,503 $ - - -
------- ------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (2,554) (2,586) (11,951)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 197 155 802
Deferred rent (5) (4) 1
Net changes in current assets and liabilities:
Increase in accounts receivable (240) - - - (392)
Decrease (increase) in prepaid expenses
and other assets 20 (35) (103)
Increase in accrued liabilities and payables 136 9 341
Increase (decrease) in deferred revenue 314 (50) 331
------- ------- --------
Net cash used for operating activities (2,132) (2,511) (10,971)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5) (7) (146)
Increase in other assets (1) (41) (55)
------- ------- --------
Net cash used for investing activities (6) (48) (201)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of secured debt 2,500 - - - 2,500
Principal payments on capital leases (149) (112) (537)
Proceeds from sale of convertible preferred stock 423 5,062 10,900
Proceeds from sale of common stock - - - 3 60
------- ------- --------
Net cash provided by financing activities 2,774 4,953 12,923
------- ------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 636 2,394 1,751
------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,751 $ 3,897 $ 1,751
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
REDWOOD DESIGN AUTOMATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto included elsewhere within
this filing.
2. In June and July, 1994 Cadence Design Systems, Inc. (Cadence) loaned the
Company $2.5 million in the form of a $1.0 million secured note payable due
August 30, 1996 and a $1.5 million secured note payable due September 30, 1996.
Interest on both notes is compounded monthly at a prime rate. In July 1994,
the Company and Cadence entered into a definitive merger agreement which
provides that all of the Company's outstanding stock will be exchanged for
approximately 419,000 shares of common stock of Cadence. In addition, upon
completion of the merger, repayment of the $2.5 million advanced to the Company
will be waived. The acquisition was completed during the third quarter of
1994.
3. Effective February 1, 1994 the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". There was no effect on the Company's prior or current
year's financial statements due to the adoption of this statement.
<PAGE> 1
EXHIBIT 99.03
Unaudited pro forma condensed combined balance sheet of the Registrant and
Redwood as of June 30, 1994 and the unaudited pro forma condensed combined
statements of operations of the Registrant and Redwood for the year ended
December 31, 1993 and for the six months ended June 30, 1994.
<PAGE> 2
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
reflect the acquisition by Cadence Design Systems, Inc. ("the Company") of
Redwood Design Automation, Inc. ("Redwood") in exchange for approximately
419,000 shares of the Company's common stock. The acquisition was accounted
for using the purchase method of accounting. The pro forma condensed combined
balance sheet assumes the merger took place on June 30, 1994 and combines the
June 30, 1994 balance sheet of the Company with the July 31, 1994 balance sheet
of Redwood. The pro forma combined statements of operations assume that the
merger took place as of the beginning of each company's most recently completed
fiscal year and combines the Company's statements of operations for the year
ended December 31, 1993 and the six months ended June 30, 1994 with Redwood's
statements of operations for the year ended January 31, 1994 and the six months
ended July 31, 1994, respectively. The pro forma statements of operations do
not include the effect of any nonrecurring charges directly attributable to the
acquisition.
The pro forma combined statements of operations are not necessarily indicative
of operating results which would have been achieved had the merger been
consummated as of the beginning of such periods and should not be construed as
representative of future operations.
The pro forma combined condensed financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of the Company for the year ended December 31, 1993,
previously filed on Form 10-K and for the six months ended June 30, 1994,
previously filed on Form 10-Q and the financial statements of Redwood which are
included elsewhere herein.
<PAGE> 3
<TABLE>
CADENCE DESIGN SYSTEMS, INC. AND REDWOOD DESIGN AUTOMATION, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
ADJUSTMENTS FOR PURCHASE PRO FORMA
CADENCE REDWOOD DEBIT CREDIT BALANCES
------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
CASH AND CASH INVESTMENTS $ 68,387 $ 1,751 $ 0 $ 0 $ 70,138
SHORT-TERM INVESTMENTS 28,412 0 0 0 28,412
ACCOUNTS RECEIVABLE, NET 74,156 392 0 0 74,548
INVENTORIES 5,204 0 0 0 5,204
OTHER CURRENT ASSETS 15,185 103 0 0 15,288
-------- -------- ------- ------- --------
TOTAL CURRENT ASSETS 191,344 2,246 0 0 193,590
NET PROPERTY & EQUIPMENT 93,421 531 0 0 93,952
OTHER ASSETS 11,227 50 0 2,500 (2) 8,777
PURCHASED SOFTWARE & INTANGIBLES 10,189 0 6,755 (1,3,4) 4,653 (5) 12,291
CAPITALIZED SOFTWARE 30,484 0 0 0 30,484
-------- -------- ------- ------- --------
TOTAL ASSETS $336,665 $ 2,827 $ 6,755 $ 7,153 $339,094
======== ======== ======= ======= ========
LIABILITIES:
ACCOUNTS PAYABLE $13,598 $ 207 $ 0 $ 0 $ 13,805
LOANS & LEASES - CURRENT 2,792 329 0 0 3,121
ACCRUED LIABILITIES 52,317 134 0 1,214 (4) 53,665
DEFERRED REVENUE 52,731 331 0 0 53,062
INCOME TAXES PAYABLE 5,548 0 0 0 5,548
-------- -------- ------- ------- --------
TOTAL CURRENT LIABILITIES 126,986 1,001 0 1,214 129,201
-------- -------- ------- ------- --------
LOANS & LEASES - LONG TERM 2,292 2,817 2,500 (2) 0 2,609
DEFERRED INCOME TAXES 2,202 0 0 0 2,202
LEASE LIABILITIES 9,819 0 0 0 9,819
OTHER LONG TERM LIABILITIES 2,558 0 0 0 2,558
-------- -------- ------- ------- --------
TOTAL LONG TERM LIABILITIES 16,871 2,817 2,500 0 17,188
-------- -------- ------- ------- --------
PUT WARRANTS 44,270 0 0 0 44,270
-------- -------- ------- ------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
PREFERRED STOCK 0 10,900 10,900 (3) 0 0
COMMON STOCK 465 80 80 (3) 4 (1) 469
STOCK NOTES RECEIVABLE (3) (20) 0 20 (3) (3)
PAID-IN CAPITAL 209,602 0 0 4,546 (1) 214,148
TREASURY STOCK (76,750) 0 0 0 (76,750)
RETAINED EARNINGS (DEFICIT) 14,292 (11,951) 4,653 (5) 11,951 (3) 9,639
ACCUMULATED TRANSLATION ADJUSTMENT 932 0 0 0 932
-------- -------- ------- ------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 148,538 (991) 15,633 16,521 148,435
-------- -------- ------- ------- --------
TOTAL LIABILITIES & EQUITY $336,665 $ 2,827 $18,133 $17,735 $339,094
======== ======== ======= ======= ========
(1) ENTRY TO RECORD THE ACQUISITION OF REDWOOD BY THE ISSUANCE OF APPROXIMATELY 419,000 SHARES OF THE COMPANY'S COMMON STOCK
(2) ENTRY TO ELIMINATE NOTE RECEIVABLE AND LOAN
(3) ENTRY TO ELIMINATE THE STOCKHOLDERS' DEFICIT OF REDWOOD
(4) ENTRY TO RECORD OBLIGATIONS OF REDWOOD TO STOCKHOLDERS AND OTHERS PAYABLE PRIOR TO THE CLOSING OF THE ACQUISITION AND
FACILITY RELOCATION COSTS
(5) ENTRY TO WRITE-OFF IN-PROCESS RESEARCH AND DEVELOPMENT AS IT HAD NOT
REACHED TECHNOLOGICAL FEASIBILITY
</TABLE>
<PAGE> 4
<TABLE>
CADENCE DESIGN SYSTEMS, INC. AND REDWOOD DESIGN AUTOMATION, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
PRO FORMA ADJUSTMENTS
PRO FORMA
CADENCE REDWOOD DEBIT CREDIT RESULTS
------- ------- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
PRODUCT $241,011 $ 312 $ 0 $ 0 $241,323
MAINTENANCE 127,612 0 0 0 127,612
-------- ------- ------- ----- --------
TOTAL REVENUE 368,623 312 0 0 368,935
-------- ------- ------- ----- --------
COST OF REVENUE:
PRODUCT 73,594 287 1,051 (1) 0 74,932
MAINTENANCE 15,757 0 0 0 15,757
-------- ------- ------- ----- --------
TOTAL COST OF REVENUE 89,351 287 1,051 0 90,689
-------- ------- ------- ----- --------
GROSS MARGIN 279,272 25 (1,051) 0 278,246
-------- ------- ------- ----- --------
OPERATING EXPENSES:
ENGINEERING EXPENSES 69,088 2,380 0 0 71,468
SALES & MARKETING EXPENSES 160,212 2,273 0 0 162,485
GENERAL & ADMINISTRATIVE EXPENSES 38,737 558 0 0 39,295
RESTRUCTURE EXPENSES 13,450 0 0 0 13,450
-------- ------- ------- ----- --------
TOTAL OPERATING EXPENSES 281,487 5,211 0 0 286,698
-------- ------- ------- ----- --------
LOSS FROM CONTINUING OPERATIONS (2,215) (5,186) (1,051) 0 (8,452)
OTHER INCOME (EXPENSE) 1,608 (35) 0 0 1,573
-------- ------- ------- ----- --------
NET LOSS FROM CONTINUING OPERATIONS (607) (5,221) (1,051) 0 (6,879)
-------- ------- ------- ----- --------
DISCONTINUED OPERATIONS:
LOSS FROM OPERATIONS (6,200) 0 0 0 (6,200)
LOSS ON DISPOSAL (5,972) 0 0 0 (5,972)
-------- ------- ------- ----- --------
LOSS FROM DISCONTINUED OPERATIONS (12,172) 0 0 0 (12,172)
-------- ------- ------- ----- --------
NET LOSS $(12,779) $(5,221) $(1,051) $ 0 $(19,051)
======== ======= ======= ===== ========
NET LOSS PER SHARE
FROM CONTINUING OPERATIONS $ (0.02) $ (0.16)
FROM DISCONTINUED OPERATIONS (0.28) (0.28)
-------- --------
NET LOSS PER SHARE $ (0.30) $ (0.44)
======== ========
WEIGHTED AVERAGE SHARES 43,060 419 43,479
======== ======= ========
(1) ENTRY TO RECORD ONE YEAR'S AMORTIZATION OF CAPITALIZED PURCHASED INTANGIBLES BASED ON AN ESTIMATED LIFE OF TWO YEARS.
</TABLE>
<PAGE> 5
<TABLE>
CADENCE DESIGN SYSTEMS, INC. AND REDWOOD DESIGN AUTOMATION, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
PRO FORMA ADJUSTMENTS
PRO FORMA
CADENCE REDWOOD DEBIT CREDIT RESULTS
-------- ------- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
REVENUE:
PRODUCT $123,832 $ 419 $ 0 $ 0 $124,251
MAINTENANCE 73,989 15 0 0 74,004
-------- ------- ----- ---- --------
TOTAL REVENUE 197,821 434 0 0 198,255
-------- ------- ----- ---- --------
COST OF REVENUE:
PRODUCT 38,976 208 525 (1) 0 39,709
MAINTENANCE 7,134 0 0 0 7,134
-------- ------- ----- ---- --------
TOTAL COST OF REVENUE 46,110 208 525 0 46,843
-------- ------- ----- ---- --------
GROSS MARGIN 151,711 226 (525) 0 151,412
-------- ------- ----- ---- --------
OPERATING EXPENSES:
ENGINEERING EXPENSES 35,288 1,225 0 0 36,513
SALES & MARKETING 78,442 1,181 0 0 79,623
GENERAL & ADMINISTRATIVE EXPENSES 20,406 325 0 0 20,731
PROVISION FOR SETTLEMENT OF LITIGATION 10,054 0 0 0 10,054
-------- ------- ----- ---- --------
TOTAL OPERATING EXPENSES 144,190 2,731 0 0 146,921
-------- ------- ----- ---- --------
INCOME (LOSS) FROM OPERATIONS 7,521 (2,505) (525) 0 4,491
OTHER INCOME (EXPENSE) 790 (49) 0 0 742
-------- ------- ----- ---- --------
NET INCOME (LOSS) BEFORE INCOME TAXES 8,311 (2,554) (525) 0 5,233
PROVISION FOR INCOME TAXES (2,078) 0 0 769 (2) (1,309)
-------- ------- ----- ---- --------
NET INCOME (LOSS) $ 6,233 $(2,554) $(525) $769 $ 3,924
======== ======= ===== ==== ========
NET INCOME PER SHARE $ 0.14 $ 0.09
======== ========
WEIGHTED AVERAGE SHARES 44,973 419 45,392
======== ===== ========
(1) ENTRY TO RECORD SIX MONTHS AMORTIZATION OF CAPITALIZED PURCHASED INTANGIBLES BASED ON AN ESTIMATED LIFE OF TWO YEARS.
(2) ENTRY TO ADJUST CONSOLIDATED TAX PROVISION TO THE COMPANY'S ANNUAL EFFECTIVE RATE.
</TABLE>
<PAGE> 6
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1. In August 1994 the Company acquired all of the outstanding stock of Redwood
Design Automation, Inc. ("Redwood") for approximately 419,000 shares of the
Company's common stock. The purchase price also includes $2.5 million of
advances made to Redwood, prior to the acquisition, of which $.7 million was
offset against the cash of Redwood as of the closing date and the remaining
amount of $1.8 million was not repaid. Redwood was a development stage company
formed to design, develop and market software for use in electronic system
design. The acquisition was accounted for as a purchase. In connection with
the acquisition, net intangibles of $6.8 million were acquired of which $4.7
million was allocated to research and development in process and will be
charged to operations as the technology had not achieved technological
feasibility and had no alternative future use. The remaining $2.1 million will
be amortized over a useful life of two years. The pro forma combined condensed
financial statements reflect the combined operations of the two companies.
The pro forma combined condensed statements of operations for the year ended
December 31, 1993 and six months ended June 30, 1994 exclude the impact of the
one-time charge associated with expensing in-process research and development
as it had not reached technological feasibility. The charge is included in the
Company's results of operations for the quarter in which the transaction closed
which was the third quarter of 1994.
2. The pro forma combined condensed financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These pro forma combined condensed financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1993 and the financial statements of Redwood included in this
filing.
<PAGE> 7
3. Net income per share for each period is calculated by dividing net
income by the weighted average number of common stock and common stock
equivalents out standing during the period plus approximately 419,000 shares
of the Company's common stock which was exchanged for all outstanding shares
of Redwood common and preferred stock. Common stock equivalents consist of
dilutive shares issuable upon the exercise of outstanding common stock options
and warrants. Net loss per share is calculated by dividing net loss by the
weighted average number of shares of common stock. Fully diluted net income
(loss) per share is substantially the same as primary net income (loss) per
share.
