<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
---------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 30, 1998
CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
1-10606 77-0148231
(Commission File No.) (IRS Employer Identification No.)
2655 SEELY ROAD, BUILDING 5, SAN JOSE, CA 95134
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 943-1234
---------------
<PAGE>
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Pursuant to paragraph (a)(4) of Item 7 of Form 8-K, the attached
financial statements were omitted from the disclosure contained in the
Registrant's Current Report on Form 8-K dated September 30, 1998 and
filed with the Securities and Exchange Commission on October 13, 1998.
Attached hereto as Exhibit 99.2 are the audited financial statements
for the fiscal years ended June 30, 1998 and 1997 of Ambit Design
Systems, Inc.
(b) Pro Forma Financial Information.
Pursuant to paragraph (b)(2) of Item 7 of Form 8-K, the following pro
forma financial information was omitted from the disclosure contained
in the Registrant's Current Report on Form 8-K dated September 30, 1998
and filed with the Securities and Exchange Commission on October 13,
1998. Attached hereto as Exhibit 99.4 are the unaudited pro forma
condensed combined statements of operations for the fiscal year ended
January 3, 1998 and the nine months ended October 3, 1998, reflecting
the acquisition of Ambit Design Systems, Inc. and including the notes
to the unaudited pro forma statements of operations.
(c) Exhibits.
<TABLE>
<S> <C>
+ 2.01 Agreement and Plan of Reorganization, dated September 3, 1998,
by and among the Registrant, Ambit Design Systems, Inc. and
Adirondack Transaction Corp.
+99.1 Press Release, dated September 30, 1998.
99.2 Audited Financial Statements of Ambit Design Systems, Inc. for
the fiscal years ended June 30, 1998 and 1997.
99.3 Consent of PricewaterhouseCoopers LLP with respect to Ambit
Design Systems, Inc. financial statements.
99.4 Unaudited pro forma condensed combined statements of
operations for the fiscal year ended January 3, 1998 and nine
months ended October 3, 1998, reflecting the acquisition of
Ambit Design Systems, Inc. and including the notes to the
unaudited condensed combined statements of operations.
</TABLE>
- ---------------
+Previously filed
2.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CADENCE DESIGN SYSTEMS, INC.
Dated: December 10, 1998 By: /s/ R.L. SMITH MCKEITHEN
------------------------------
R.L. SMITH MCKEITHEN
Senior Vice President, General Counsel
and Secretary
3.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
<S> <C>
+ 2.01 Agreement and Plan of Reorganization, dated September 3, 1998, by
and among the Registrant, Ambit Design Systems, Inc. and
Adirondack Transaction Corp.
+99.1 Press Release, dated September 30, 1998.
99.2 Audited Financial Statements of Ambit Design Systems, Inc. for
the fiscal years ended June 30, 1998 and 1997.
99.3 Consent of PricewaterhouseCoopers LLP with respect to Ambit
Design Systems, Inc. financial statements.
99.4 Unaudited pro forma condensed combined statements of operations
for the fiscal year ended January 3, 1998 and nine months ended
October 3, 1998, reflecting the acquisition of Ambit Design
Systems, Inc. and including the notes to the unaudited condensed
combined statements of operations.
</TABLE>
+Previously filed
4.
<PAGE>
Exhibit 99.2
AMBIT DESIGN SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
JUNE 30, 1998 AND 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Ambit Design Systems, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Ambit Design
Systems, Inc. and subsidiary at June 30, 1998 and 1997, and the results of their
operations and their cash flows for the years ended June 30, 1998 and 1997, in
conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers, LLP
San Jose, California
August 7, 1998
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,062,271 $ 3,859,668
Accounts receivable, net of allowance for doubtful accounts of
$150,000 and $0, respectively 3,802,007 201,739
Other receivables 79,869
Prepaid expenses and other assets 228,022 15,661
---------------- --------------
Total current assets 14,172,169 4,077,068
Property and equipment, net 3,245,951 683,667
Other assets 132,838 141,065
---------------- --------------
Total assets $ 17,550,958 $ 4,901,800
---------------- --------------
---------------- --------------
LIABILITIES
Current liabilities:
Accounts payable $ 661,588 $ 85,047
Accrued liabilities 1,317,117 846,375
Deferred revenue 2,018,175 862,909
Deferred rent 1,600
Current portion of notes payable 430,759 104,847
---------------- --------------
Total current liabilities 4,429,239 1,899,178
Deferred rent 14,800
Notes payable, net of current portion 388,940 329,589
---------------- --------------
Total liabilities 4,818,179 2,243,567
---------------- --------------
Commitments and contingency (Note 4)
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Mandatorily redeemable convertible preferred stock, no par value
Series I:
Authorized: 3,000,000 shares
Issued and outstanding: 2,704,460 shares 10,572,267
(Liquidation value: $11,228,016 at June 30, 1998)
Warrants 124,048
---------------- --------------
10,696,315
---------------- --------------
SHAREHOLDERS' EQUITY
Convertible preferred stock, (no par value)
Authorized: 12,000,000 shares;
Issued and outstanding: 9,371,497 shares in 1998 and
7,550,201 shares in 1997 14,120,575 8,046,513
(Liquidation value: $13,808,436 at June 30, 1998)
Common stock, (no par value)
Authorized: 25,000,000 shares;
Issued and outstanding: 9,370,548 shares in 1998 and
7,255,637 shares in 1997 1,754,863 1,304,236
Notes receivable from shareholders (405,510) (214,990)
Accumulated deficit (13,433,464) (6,477,526)
---------------- --------------
Total shareholders' equity 2,036,464 2,658,233
---------------- --------------
Total liabilities, mandatorily redeemable convertible preferred
stock and shareholders' equity $ 17,550,958 $ 4,901,800
---------------- --------------
---------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Revenues
License fees $ 8,849,202 $ 425,951
Services and other 1,382,521 177,839
--------------- ---------------
Total revenues 10,231,723 603,790
Cost of revenues
License fees 190,024 712
Services and other 1,318,270 32,237
--------------- ---------------
Total cost of revenues 1,508,294 32,949
--------------- ---------------
Gross profit 8,723,429 570,841
Operating expenses:
Research and development 4,712,219 1,715,545
Sales and marketing 8,067,650 1,780,616
General and administrative 2,864,025 2,231,675
--------------- ---------------
Total operating expenses 15,643,894 5,727,836
--------------- ---------------
Loss from operations (6,920,465) (5,156,995)
Interest and other income 470,578 188,587
--------------- ---------------
Loss before provision for income taxes (6,449,887) (4,968,408)
Provision for income taxes 25,256
--------------- ---------------
Net loss $(6,475,143) $ (4,968,408)
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
----------------------- ---------------------- FROM ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS DEFICIT TOTAL
---------- ----------- ---------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1996 5,311,338 $ 2,868,430 4,037,670 $ 46,074 $ (30,000) $(1,509,118) $ 1,375,386
Cash received for note
receivable from shareholder 30,000 30,000
Issuance of common stock
for note receivable from shareholder 300,000 24,990 (24,990)
Issuance of common stock,
net of issuance costs 140,000 8,651 8,651
Exercise of stock options 2,366,012 125,106 125,106
Conversion of note payable
to common stock 17,196 1,634 1,634
Repurchase of common stock (865,240) (5,298) (5,298)
Conversion of Series D
preferred stock to common stock (804,999) (670,829) 804,999 670,829
Conversion of note payable to
shareholder to Series E
preferred stock 108,790 103,351 103,351
Issuance of Series E preferred stock,
net of issuance costs of $33,111 1,759,349 1,650,706 1,650,706
Conversion of Series E preferred
stock to common stock (455,000) (432,250) 455,000 432,250
Issuance of Series F preferred stock
for note receivable from shareholder 200,000 190,000 (190,000)
Issuance of Series G preferred stock,
net of issuance costs of $58,495 1,430,723 4,337,105 4,337,105
Net loss (4,968,408) (4,968,408)
---------- ----------- ---------- ---------- ------------ ----------- -----------
Balances, June 30, 1997 7,550,201 8,046,513 7,255,637 1,304,236 (214,990) (6,477,526) 2,658,233
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, Continued
for the years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK RECEIVABLE
----------------------- ---------------------- FROM ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS DEFICIT TOTAL
---------- ----------- --------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1997 7,550,201 $ 8,046,513 7,255,637 $ 1,304,236 $ (214,990) $ (6,477,526) $ 2,658,233
Issuance of Series E preferred stock 157,894 631,577 631,577
Issuance of Series F preferred stock 329,991 313,491 313,491
Issuance of Series G preferred stock 200,443 615,820 615,820
Issuance of Series H preferred stock,
net of issuance cost of $18,663 1,132,968 4,513,174 4,513,174
Exercise of stock options 873,547 264,124 264,124
Exercise of stock options for a note 153,650 46,095 (46,095)
Issuance of common stock for a note 1,135,000 144,425 (144,425)
Repurchase of common stock (47,286) (4,017) (4,017)
Accretion of Series I preferred stock (480,795) (480,795)
Net loss (6,475,143) (6,475,143)
---------- ----------- --------- ----------- ------------ ------------ -----------
Balances, June 30, 1998 9,371,497 $14,120,575 9,370,548 $ 1,754,863 $ (405,510) $(13,433,464) $ 2,036,464
---------- ----------- --------- ----------- ------------ ------------ -----------
---------- ----------- --------- ----------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS
Net loss $(6,475,143) $(4,968,408)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 667,169 111,912
Provision for doubtful accounts 150,000
Change in operating assets and liabilities:
Accounts receivable (3,750,268) (201,739)
Other receivables (79,869) 4,573
Prepaid expenses and other current assets (214,270) 4,641
Other assets 8,227 (47,974)
Accounts payable 451,129 54,945
Accrued liabilities 1,043,665 721,194
Deferred rent (13,200) (6,800)
Deferred revenue 1,155,266 862,909
----------- -----------
Net cash used in operating activities (7,057,294) (3,464,747)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,102,132) (741,956)
----------- -----------
Net cash used in investing activities (3,102,132) (741,956)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 490,110 399,289
Principal payment on notes payable (104,847) (13,940)
Proceeds from issuance of common stock 8,651
Proceeds from exercise of stock options 264,125 125,106
Repurchase of common stock (4,017) (5,298)
Proceeds from repayment of note receivable from shareholder 30,000
Proceeds from issuance of mandatorily redeemable preferred stock 10,215,519
Proceeds from issuance of preferred stock, net of issuance costs 5,501,139 5,987,811
----------- -----------
Cash provided by financing activities 16,362,029 6,531,619
----------- -----------
Net increase in cash and cash equivalents 6,202,603 2,324,916
Cash and cash equivalents at beginning of period 3,859,668 1,534,752
----------- -----------
Cash and cash equivalents at end of period $10,062,271 $ 3,859,668
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $ 71,216 $ 14,729
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Conversion of Series D preferred stock to common stock $ 670,829
Conversion of Series E preferred stock to common stock $ 432,250
Conversion of notes payable to Series E preferred stock $ 103,351
Conversion of notes payable to common stock $ 1,634
Issuance of common stock for
note receivable from shareholder $ 24,990
Issuance of Series F preferred stock for note receivable from shareholder $ 190,000
Issuance of note payable for rent deposit $ 49,087
Deposit capitalized into property and equipment $ 4,986
Conversion of accrued liability to Series E preferred stock $ 481,577
Acquisition of property, plant, and equipment through accounts payable $ 125,412
Accretion to redemption value of Series I mandatorily redeemable
convertible preferred stock $ 480,795
Issuance of Series I preferred warrants $ 124,048
Liability in fiscal year 1997 for Series F preferred stock issued $ 91,346
Issuance of Series F preferred stock from subscribed Series F preferred $ 190,000
Exercise of stock options for a note from shareholder $ 46,095
Issuance of common stock for a note from shareholder $ 144,425
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY:
Ambit Design Systems, Inc. is in the business of developing,
manufacturing, and marketing specialized Electronic Design Automation
(EDA) application software products. The Company was incorporated under
the laws of the State of California on June 14, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Ambit
Design System, Inc. and its subsidiary (the Company). All significant
intercompany accounts and transactions have been eliminated in the
preparation of the consolidated financial statements.
USE OF ESTIMATES:
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
CERTAIN RISKS AND UNCERTAINTIES:
The Company's products and services are concentrated in a single
segment in the EDA sector of the high technology industry which is
characterized by rapid technological advances, changes in customer
requirements and evolving regulatory requirements and industry
standards. The success of the Company depends on the management's
ability to anticipate or to respond quickly and adequately to
technological developments in its industry, changes in customer
requirements or changes in regulatory requirements or industry
standards. Any significant delays in the development or introduction of
products or services could have a material adverse effect on the
Company's business and operating results.
CONCENTRATION OF CREDIT RISK:
The Company's cash and cash equivalents as of June 30, 1998 and 1997
are deposited with one U.S. financial institution and exceed federal
insured amounts. The Company monitors customers' payment history and
establishes reserves for bad debt as warranted.
Continued
7
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
SIGNIFICANT CUSTOMERS:
For the fiscal year ended June 30, 1998, one customer accounted for
25%, of the Company's consolidated revenue. For fiscal year ended June
30, 1997, another customer accounted for 55% of the Company's
consolidated revenue. As of June 30, 1998, one customer accounted for
28% of accounts receivable. As of June 30, 1997, another customer
accounted for 40% of accounts receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of certain financial instruments including cash
and cash equivalents, accounts receivable, accounts payable, accrued
expenses, notes payable and other liabilities approximate fair value
due to their short maturities.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash
equivalents.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related
assets, generally three to five years. Leasehold improvements are
depreciated over the lease term or the useful lives of assets,
whichever is shorter. Gains and losses upon asset disposal are taken
into income in the year of disposition.
REVENUE RECOGNITION:
Revenues from the sale of software products are recognized upon
delivery of the product if remaining vendor obligations are
insignificant and collection of the resulting receivable is probable.
Services and other revenues include software maintenance revenues and
other service revenues, primarily from consulting and training.
Software maintenance revenues are deferred and recognized ratably over
the life of the service contract. Other service revenues are recognized
as the related services are performed.
Continued
8
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
RESEARCH AND DEVELOPMENT COSTS:
Costs related to research, design and development of products are
charged to research and development expense as incurred. Software
development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a
product is available for general release to customers. To date,
completing a working model of the Company's products and general
release have substantially coincided. As a result, the Company has not
capitalized any software development costs since such costs have not
been significant.
ADVERTISING:
Advertising expenditures are charged to operations as incurred.
Advertising costs for fiscal year 1998 and 1997 were $351,760 and
$166,935, respectively.
INCOME TAXES:
The Company accounts for income taxes using the liability method. Under
this method, deferred tax assets and liabilities are determined based
on the differences between financial reporting and tax basis of assets
and liabilities, measured at tax rates that will be in effect when the
differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 130, "Reporting Comprehensive Income". This statement
established requirements for disclosure of comprehensive income and is
effective for financial statements issued for fiscal years beginning
after December 15, 1997, with reclassification of earlier financial
statements for comparative purposes. Comprehensive income generally
represents all changes in shareholders' equity except those resulting
from investments or contributions by shareholders.
Also in June 1997, the FASB issued FASB No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This Statement will
change the way companies report information about segments of their
business in financial statements. It also requires entity-wide
disclosures about the products and services an entity provides, the
material countries in which it holds assets and reports revenues, and
its major customers. The Statement is effective for fiscal years
beginning after December 15, 1997.
Continued
9
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
RECENT ACCOUNTING PRONOUNCEMENTS, continued:
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position No. 97-2, "Software Revenue
Recognition." This statement provides recognition and measurement
guidance in accounting for revenue from selling, leasing or licensing
of software and is effective for transactions entered into in fiscal
years beginning after December 15, 1997.
In March 1998, AICPA issued Statement of Position No. 98-4, "Deferral
of the Effective Date of a Provision of SOP 97-2." This statement
applies to all multiple element software arrangement and is effective
as of March 31, 1998.
The Company is evaluating the impact, if any, of the above
pronouncement on its financial statements.
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------
1998 1997
--------------- -------------
<S> <C> <C>
Office furniture and equipment $ 307,148 $ 22,917
Communication equipment 165,591 46,823
Computer hardware 2,778,448 438,276
Computer software 655,173 283,136
Leasehold improvements 126,889 14,553
--------------- -------------
4,033,249 805,705
Less accumulated depreciation and amortization (787,298) (122,038)
--------------- -------------
$ 3,245,951 $ 683,667
--------------- -------------
--------------- -------------
</TABLE>
Continued
10
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
4. COMMITMENTS AND CONTINGENCY:
OPERATING LEASES:
The Company leases various facilities under noncancelable operating
lease agreements expiring through July 31, 2003. Future minimum lease
payments under the non-cancelable operating leases as of June 30, 1998
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
<S> <C>
1999 $ 758,623
2000 765,214
2001 139,567
2002 55,663
2003 4,000
-------------
Total minimum lease payments $ 1,723,067
-------------
-------------
</TABLE>
Rent expense was $688,800 and $231,373 for the years ended June 30,
1998 and 1997, respectively.
CONTINGENCY:
In July 1997, a former officer filed suit against the Company and
certain officers, alleging claims for breach of fiduciary duty and
interference with contract. The Company accrued approximately $480,000
for the estimated cost to settle this litigation in fiscal year 1997.
In fiscal year 1998, the Company entered into a settlement agreement
with the former employee. Under the settlement agreement, the Company
granted the employee the right to purchase 157,894 shares of Series E
preferred stock at $0.95 per share. This purchase price was below the
fair value of the Company's preferred stock of $4.00 per share at the
date of grant. The excess of the fair value of the Series E preferred
stock over the purchase price of $481,577 represents the actual cost to
settle this litigation. In June 1998, the former employee exercised the
right to purchase these shares.
Continued
11
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
5. NOTES PAYABLE:
In October 1996, the Company negotiated a $250,000 Equipment Line of
Credit with Silicon Valley Bank. The terms of the agreement allowed the
Company to make draws against the Equipment Line of Credit on an interest
only basis until March 31, 1997 at which time the outstanding balance was
converted to a term loan with monthly payments of principal and interest
over 30 months. The interest rate on the loan as of June 30, 1998 was
10.25% (the bank's prime rate plus 2 1/2%). The outstanding balance on
June 30, 1998 and 1997 on the term loan was $69,697 and $125,457,
respectively.
In June 1997, the Company negotiated an additional Equipment Line of
Credit in the amount of $750,000 with Silicon Valley Bank. Under the terms
of the agreement with the bank the Company is allowed to make draws
against the increased Equipment Line of Credit on an interest only basis
until June 30, 1998 at which time the outstanding balance will be
converted to a term loan and to be repaid over 24 months. The interest
rate on the equipment line of credit as of June 30, 1998 was 8.50% (the
bank's prime rate plus 0.75%). The outstanding balance on June 30, 1998
and 1997 on the Equipment Line of Credit was $750,000 and $259,890,
respectively.
Future minimum payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
<S> <C>
1998 $ 430,759
1999 388,940
---------------
$ 819,699
---------------
---------------
</TABLE>
In June 1997, the Company negotiated a $1,000,000 Revolving Line of Credit
which had not been used as of June 30, 1998. The interest rate on the
Revolving Line of Credit will be the Bank's prime rate. Under the
Revolving Line of Credit, the Company is eligible to be advanced funds on
a monthly basis on Eligible Accounts Receivable based upon a Borrowing
Base Formula. The Revolving Line of Credit expires in December 1998.
Continued
12
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
6. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
DIVIDENDS:
The holders of Series I preferred shares in preference to holders of
any junior shares shall be entitled to receive cumulative dividends at
the annual rate of 7% of the Series I issue price plus all accrued and
unpaid quarterly dividends on such Series I Preferred out of any funds
legally available when as declared by the Board or in the event of
liquidation or upon redemption of shares of Series I Preferred Stock.
LIQUIDATION:
Each of the Series I preferred shares will receive its full liquidation
preference amount including any cumulative unpaid dividends thereon
prior to any payments to a junior class. The liquidation value of
Series I is $4.00 per share.
CONVERSION:
Each share of Series I preferred share is convertible, at the option of
the holder, into such number of fully paid and non assessable shares of
common stock as determined by dividing the applicable original price by
the conversion price applicable to such shares in effect at the date of
conversion. Each share of Series I preferred stock shall automatically
be converted into shares of common stock immediately in the event of a
written public offering of the Company's common stock in which the
offering price per share is more than $9.00 and with $15,000,000 or
more in gross proceeds or in the event that the holders of at least a
majority of the Series I Preferred consent to conversion.
REDEMPTION:
One-third of the outstanding shares are redeemable prior to September
2003 at the option of the shareholders. The Company is required to
redeem at minimum two-thirds of the outstanding shares by December 2004
and the remaining outstanding shares by December 2005. The redemption
price is the greater of the issuance price adjusted for any stock
dividends, combinations, splits, recapitalization plus all the accrued
but unpaid dividends or the fair market value of such shares at
redemption date.
Continued
13
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
6. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, continued:
CONVERTIBLE PREFERRED STOCK WARRANTS:
In December 1997, in conjunction in obtaining the Series I financing,
the Company issued warrants to purchase 84,089 shares of Series I
Preferred Stock at $4.00 per share. The warrants were granted at the
fair market value of the underlying preferred stock at the date of
grant and expire on December 19, 2001.
7. SHAREHOLDERS' EQUITY:
CONVERTIBLE PREFERRED STOCK:
All shares issued before May 7, 1996 have been presented to reflect the
three-to-one stock split effective on that date.
As of June 30, 1998, preferred stock consists of the following:
<TABLE>
<CAPTION>
SHARES ISSUED AND PROCEEDS LIQUIDATION
SERIES AUTHORIZED OUTSTANDING (NET) VALUE
------ ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
A 1,800,000 1,368,000 $ 186,107 $ 190,000
C 1,423,338 1,423,338 617,433 650,000
D 2,520,000 1,715,001 1,392,703 1,429,171
E 2,026,033 1,571,033 1,954,941 1,492,481
F 530,000 529,991 503,491 503,491
G 1,700,000 1,631,166 4,952,925 5,011,420
H 2,000,000 1,132,968 4,513,175 4,531,873
Undesignated 629
---------------- ---------------- --------------- ----------------
12,000,000 9,371,497 $14,120,775 $ 13,808,436
---------------- ---------------- --------------- ----------------
---------------- ---------------- --------------- ----------------
</TABLE>
As of June 30, 1998, 21,250 shares of Series H preferred stock were
subscribed.
As of June 30, 1997, preferred stock consists of the following:
<TABLE>
<CAPTION>
ISSUED AND PROCEEDS LIQUIDATION
SERIES AUTHORIZED OUTSTANDING (NET) VALUE
------ ----------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C>
A 1,800,000 1,368,000 $ 186,107 $ 190,000
C 1,423,338 1,423,338 617,433 650,000
D 2,520,000 1,715,001 1,392,703 1,429,171
E 2,026,033 1,413,139 1,323,165 1,342,482
F - Subscribed 530,000 200,000 190,000
G 1,700,000 1,430,723 4,337,105 4,395,600
----------------- ------------ --------------- ---------------
9,999,371 7,550,201 $ 8,046,513 $ 8,007,253
----------------- ------------ --------------- ---------------
----------------- ------------ --------------- ---------------
</TABLE>
Continued
14
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY, continued:
CONVERTIBLE PREFERRED STOCK, continued:
The Company issued Series B Preferred Stock during fiscal year 1995 and
it was converted to Series C Preferred Stock in fiscal year 1996.
The Company offered eligible employees the right to participate in an
"Employee Only" Series F Preferred Stock offering during fiscal year
1997. Employees were eligible to participate up to twenty percent (20%)
of their annual salary, reduced on a pro-rata basis if the offering was
over subscribed.
The Company has reserved 9,371,497 and 7,550,201 common shares for
conversion of preferred stock for fiscal year 1998 and 1997,
respectively.
DIVIDENDS:
The holders of the Series A, C, D, E, F, G, and H convertible
preferred shares are entitled to receive, in any fiscal year, when
and as declared by the Board of Directors, out of any assets
legally available, dividends in the amount per share equal to
$.0133, $.0457, $.0833, $.095, $.076, $.3072, and $.40,
respectively, before and in preference to any dividends paid on
common shares.
LIQUIDATION:
In the event of any liquidation, dissolution or winding up of the
Company, after distribution has been made to Series I mandatorily
redeemable preferred shares, the holders of Series E, G, H
preferred shares shall be entitled to be paid at an amount equal to
$0.95, $3.0722928, and $4.00 per share, respectively. After
distributions have been made to Series I, E, G, and H preferred
shares, the holders of Series A, C, and D preferred shares are
entitled to be paid out at $0.1333, $0.4567, and $0.8333 per share,
respectively. Series F is then entitled to be paid at $0.95 per
share. Should there be any assets after providing for the full
liquidation preference of the preferred shares, the remaining
assets of the Company are to be distributed pro rata among the
holders of the common shares.
Continued
15
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY, continued:
CONVERTIBLE PREFERRED STOCK, continued:
CONVERSION:
Each share of Series A, C, D, E, F, G, and H preferred stock is
convertible, at the option of the holder, into such number of fully
paid and nonassessable shares of common stock as determined by
dividing the applicable original issue price (post-split) by the
conversion price applicable to such shares in effect at the date of
conversion. Each share of Series A, C, D, E, F, G, and H preferred
stock shall automatically be converted into shares of common stock
immediately in the event of a written public offerings in which the
offering price per share is more than $9.00 and with $15,000,000 or
more in gross proceeds or in the event that the holders of at least
two-thirds of the A, C, D, E, F, G, and H Preferred consent to
conversion.
REDEMPTION:
Series A, C, D, E, F, G, and H preferred stock are not redeemable.
RESTRICTED STOCK PURCHASE AGREEMENT:
On September 1, 1994, the Company issued 2,400,000 common shares to one
of its two founders at a price of $0.001 per share in exchange for each
founder's right, title and interest (rights) in and to the Company.
Under the stock repurchase agreement, the Company has the option to
repurchase the founder's unvested common shares should they cease to be
employed at the founder's original purchase price. The Company's
repurchase right lapses at a rate of 1/48 per month beginning on the
date of grant. On February 4, 1997, the founder of the Company was
terminated and the Company exercised its right to repurchase the
unvested common shares as of that date.
On September 1, 1994, the Company issued 1,320,000 common shares to the
other founder at a price of $0.001 per share in exchange for the
founder's right, title and interest (rights) in and to the Company.
Under the stock repurchase agreement, the Company has the option to
repurchase the unvested common shares should the founder cease to be
employed at the founder's original purchase price. The Company's
repurchase right lapses at a rate of 1/48 per month beginning on the
date of grant. At June 30, 1998 and June 30, 1997, 24,605 and 354,786
outstanding common shares were subject to repurchase, respectively.
Continued
16
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY, continued:
RESTRICTED STOCK PURCHASE AGREEMENT, continued:
The Company has issued 330,000 common shares to its directors at a
price of $.083 per share. Under the stock repurchase agreement, the
Company has the option to repurchase the unvested common shares should
they cease to be directors at the director's original purchase price.
The Company's repurchase right lapses at a rate of 1/48 per month
beginning on the date of their first board of directors meeting. At
June 30, 1998 and June 30, 1997, 79,359 and 154,400 outstanding common
shares were subject to repurchase, respectively.
The Company also has the right of first refusal for any common shares
purchased under these agreements that are no longer subject to the
Company's repurchase right should a holder desire to sell or transfer
such common shares.
STOCK OPTION PLAN:
Under the 1994 Stock Option Plan (the Plan), the Company initially
reserved 4,100,000, common shares for issuance to employees, officers,
directors, and consultants of the Company. In fiscal year 1996 and
1998, the Company reserved an additional 900,000 and 1,500,000 shares,
respectively, under the 1996 Stock Option Plan (as amended and
restated) bringing the cumulative shares reserved for issuance to
employees, officers, directors, and consultants of the Company to
6,500,000 shares.
Options granted under the Plan generally are exercisable to the extent
of 25% of the shares granted twelve months from the vesting
commencement date and the remainder to the extent of 1/36th of the
options granted each month thereafter, such that all options granted
will be exercisable four years from the vesting commencement date.
Options granted expire ten years from the date of grant.
Under the Plan incentive options to purchase the Company's common stock
may be granted to employees at prices not lower than fair market value
at the date of grant, as determined by the Board of Directors.
Nonqualified stock options (options that do not qualify as incentive
stock option) may be granted to employees, directors, and consultants,
at prices not lower than 85% of fair market value at the date of grant,
as determined by the Board of Directors. The Board also has the
authority to set the term of the options (no longer than ten years from
date of grant). Options granted generally vest over four years.
Continued
17
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY, continued:
STOCK OPTION PLAN, continued:
Activity under the 1994 and 1996 Stock Option Plan is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------------------------------------
WEIGHTED
SHARES NUMBER AGGREGATE AVERAGE
AVAILABLE OF PRICE PER EXERCISE EXERCISE
FOR GRANT SHARES SHARE PRICE PRICE
---------------- ---------------- ------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances, June 30, 1996 2,273,999 2,672,001 $ 233,023
Options granted (1,218,000) 1,218,000 $0.0833-$0.30 255,790 $0.2106
Options exercised (2,366,012) $0.0133-$0.4567 (125,106) $0.0521
Options canceled 2,750 (2,750) $0.095 (262) $0.0950
---------------- ---------------- ------------
Balances, June 30, 1997 1,058,749 1,521,239 363,445
Additional shares
reserved by Plan 1,500,000
Options granted (1,650,597) 1,650,597 $0.30-$0.50 644,274 $0.3903
Options exercised (1,027,197) $0.0533-$0.50 (310,219) $0.3011
Options canceled 169,145 (169,145) $0.0233-$0.50 (58,845) $0.3477
---------------- ---------------- ------------
Balances, June 30, 1998 1,077,297 1,975,494 $ 638,655
---------------- ---------------- ------------
---------------- ---------------- ------------
</TABLE>
STOCK-BASED COMPENSATION:
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting for
Stock-Based Compensation." Had compensation costs been determined based
on the fair value at the grant date for awards in 1998 and 1997,
consistent with the provisions of SFAS No. 123, the Company's net loss
for the year ended June 30, 1998 and 1997 would not have been
materially different from the reported net loss.
As the provisions of SFAS No. 123 are only applied to stock options
granted after January 1, 1995 in the above pro forma amounts, the
impact of the pro forma stock compensation cost will likely continue to
increase, assuming future option grants, as the vesting period for the
Company's options and the period over which the stock compensation is
charged to expense is generally four years.
The fair value of each option grant has been estimated on the date of
the grant using the minimum value method with the following weighted
average assumptions for year ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Risk - free interest rates 5.74% 6.30%
Expected life 4 years 4 years
Expected dividend yield 0.00% 0.00%
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 1998.
Continued
18
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
7. SHAREHOLDERS' EQUITY, continued:
STOCK-BASED COMPENSATION, continued:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
NUMBER REMAINING AVERAGE
EXERCISE OF SHARES CONTRACTUAL EXERCISE NUMBER
PRICE OUTSTANDING LIFE PRICE EXERCISABLE
--------------------- -------------- -------------- ----------- --------------------
<S> <C> <C> <C> <C>
$0.0333-$0.0555 109,190 7.28 years $0.053 67,877
$ 0.0833-$0.1000 292,800 7.71 years $0.088 164,831
$0.1367 900 7.03 years $0.134 900
$0.3000 862,900 8.92 years $0.300 190,395
$0.4567-$0.5000 709,704 9.45 years $0.498 34,704
-------------- --------------------
1,975,494 458,707
-------------- --------------------
-------------- --------------------
</TABLE>
As of June 30, 1997, options to purchase 537,763 shares of common stock
are exercisable.
8. INCOME TAXES:
The Company's provision for income taxes for the year ended June 30,
1998 is as follows:
<TABLE>
<S> <C>
Current provision:
Federal $ -
State 1,256
Foreign 24,000
-------------
$ 25,256
-------------
-------------
</TABLE>
At June 30, 1998, the Company has federal and state net operating loss
carryforwards of approximately $10,332,000 and $7,250,000, and federal and
state credits of approximately $186,000 and $176,000 respectively,
available to offset future regular and alternative minimum taxable income.
The operating loss carryforwards and credits expire between 2003 to 2013,
if not utilized.
At June 30, 1997, the Company has federal and state net operating loss
carryforwards of approximately $3,515,000 and $3,598,000, and federal and
state credits of approximately $144,000 and $85,000 respectively,
available to offset future regular and alternative minimum taxable income.
The operating loss carryforwards and credits expire between 2002 to 2012,
if not utilized.
For federal and state tax purposes, a portion of the Company's net
operating loss carryforwards may be subject to certain limitations on
utilization in case of a change in ownership, as defined by federal and
state tax law.
Temporary differences which give rise to significant portions of deferred
tax assets and liabilities at June 30, 1998 and 1997 are as follows:
Continued
19
<PAGE>
AMBIT DESIGN SYSTEMS, INC.
NOTES CONSOLIDATED TO FINANCIAL STATEMENTS
8. INCOME TAXES, continued:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Deferred tax assets and liabilities:
Net operating loss carry forwards $ 3,905,000 $ 1,415,000
Research and development credit 483,000 200,000
Depreciation and amortization 592,000 739,000
Accrued liabilities and other 253,000 203,000
---------------- ----------------
5,233,000 2,557,000
Valuation allowance (5,233,000) (2,557,000)
---------------- ----------------
$ - $ -
---------------- ----------------
---------------- ----------------
</TABLE>
The Company has established a 100% valuation allowance because at this
time it appears more likely than not that no benefit will be realized for
its deferred tax assets.
9. EMPLOYEE BENEFIT PLANS:
The Company maintains a Profit Sharing Salary Deferral 401(k) Plan for all
of its employees. This Plan allows eligible employees to defer up to 15%,
but no greater than $9,500, of their pretax compensation in certain
investments at the discretion of the employee. Under the 401(k) Plan the
Company is not required to make Plan contributions. The Company has not
made any contributions to the Plan as of June 30, 1998.
10. RELATED PARTY TRANSACTIONS:
The Company earned revenues of $560,816 and $143,332 in fiscal year 1998
and fiscal 1997, respectively, from a customer who is also a holder of
1,430,723 shares of Series G preferred stock.
In December 1997, the Company issued 500,000 shares of Series I preferred
stock to a customer for $2,000,000 and recognized revenues of $2,595,524
from this customer in fiscal year 1998. In March 1998, the Company also
issued 500,000 shares of Series H preferred stock to another customer and
its affiliates for $2,000,000 and recognized revenues of $931,220 from
this customer and its affiliates in fiscal year 1998.
20
<PAGE>
Exhibit 99.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to Form 8-K
filed by Cadence Design Systems, Inc. of our audit report dated August 7,
1998 on our audits of the consolidated financial statements of Ambit Design
Systems, Inc. as of June 30, 1997 and 1998 and for the years then ended.
/s/ PricewaterhouseCoopers LLP
San Jose, California
December 10, 1998
<PAGE>
Exhibit 99.4
UNAUDITED PRO FORMA FINANCIAL INFORMATION
CADENCE AND AMBIT UNAUDITED PRO FORMA FINANCIAL INFORMATION
On September 30, 1998, Cadence Design Systems, Inc. ("Cadence")
acquired Ambit Design Systems, Inc. ("Ambit"), a privately held California
corporation that specializes in developing, manufacturing and marketing
specialized Electronic Design Automation (EDA) application software products.
The acquisition was accounted for as a purchase. The following unaudited pro
forma combined financial statements give effect to the acquisition and should
be read in conjunction with the historical financial statements and related
notes thereto for both Cadence and Ambit.
The unaudited pro forma condensed combined statements of operations
for the fiscal year ended January 3, 1998 and the nine-month period ended
October 3, 1998 give effect to the acquisition as if the acquisition was
completed at the beginning of each period, and combines Cadence's and Ambit's
statements of operations for each company's respective period. The required
pro forma balance sheet with respect to the acquired business is incorporated
by reference to Cadence's Quarterly Report on Form 10-Q for the period ended
October 3, 1998 filed with the Commission on November 16, 1998. The pro forma
combined results for the nine-month period ended October 3, 1998 excludes
acquisition-related charges of $214.4 million for purchased in-process
technology related to Ambit.
This method of combining historical financial statements for the
preparation of the pro forma condensed combined financial statements is for
presentation only. Actual statements of operations of the companies will be
combined from the acquisition date with no retroactive restatements. The
unaudited pro forma condensed combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or combined results of operations of future periods or the
results that actually would have resulted had the acquisition occurred on the
dates indicated.
<PAGE>
CADENCE DESIGN SYSTEMS, INC. AND AMBIT DESIGN SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR NINE MONTHS ENDED OCTOBER 3, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
CADENCE AMBIT ADJUSTMENTS BALANCES
------- ----- ----------- --------
<S> <C> <C> <C>
Revenue:
Product $ 489,865 $ 8,562 $ -- $ 498,427
Service 184,733 381 -- 185,114
Maintenance 196,020 1,873 -- 197,893
-------------- -------------- --------------
Total revenue 870,618 10,816 -- 881,434
-------------- -------------- --------------
Costs and Expenses:
Cost of product 40,325 189 3,912 (a) 44,426
Cost of service 138,066 1,363 -- 139,429
Cost of maintenance 32,869 -- -- 32,869
Marketing and sales 216,663 8,432 -- 225,095
Research and development 129,522 4,519 -- 134,041
General and administrative 49,484 2,578 -- 52,062
Unusual items 149,890 -- -- 149,890
-------------- -------------- --------------
Total costs and expenses 756,819 17,081 3,912 777,812
-------------- -------------- --------------
Income (loss) from operations 113,799 (6,265) (3,912) 103,622
Other income, net 6,523 435 -- 6,958
-------------- -------------- --------------
Income (loss) before provision for
income taxes 120,322 (5,830) (3,912) 110,580
Provision (benefit) for income taxes 57,776 25 (1,565) (c) 56,236
-------------- -------------- --------------
Net income (loss) $ 62,546 $ (5,855) $ (2,347) $ 54,344
-------------- -------------- --------------
-------------- -------------- --------------
Basic net income per share $ 0.30 $ 0.26
-------------- --------------
-------------- --------------
Diluted net income per share $ 0.27 $ 0.23
-------------- --------------
-------------- --------------
Weighted average common shares
outstanding 211,505 211,505
-------------- --------------
-------------- --------------
Weighted average common and potential
common shares outstanding-assuming
dilution 234,385 234,385
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of these condensed
combined financial statements.
<PAGE>
CADENCE DESIGN SYSTEMS, INC. AND AMBIT DESIGN SYSTEMS, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR FISCAL YEAR ENDED JANUARY 3, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
PRO FORMA
CADENCE AMBIT ADJUSTMENTS BALANCES
------- ----- ----------- --------
<S> <C> <C> <C> <C>
Revenue:
Product $ 530,513 $ 2,361 $ -- $ 532,874
Service 160,890 14 -- 160,904
Maintenance 224,490 538 -- 225,028
-------------- -------------- -------------
Total revenue 915,893 2,913 -- 918,806
-------------- -------------- -------------
Costs and Expenses:
Cost of product 41,509 119 5,216 (b) 46,844
Cost of service 114,747 439 -- 115,186
Cost of maintenance 26,840 -- -- 26,840
Marketing and sales 257,867 4,207 -- 262,074
Research and development 140,375 2,811 -- 143,186
General and administrative 56,495 2,814 -- 59,309
Unusual items 44,053 -- -- 44,053
-------------- -------------- ------------
Total costs and expenses 681,886 10,390 5,216 697,492
-------------- -------------- ------------
Income (loss) from operations 234,007 (7,477) (5,216) 221,314
Other income, net 25,624 294 -- 25,918
-------------- -------------- ------------
Income (loss) before provision for income
taxes 259,631 (7,183) (5,216) 247,232
Provision (benefit) for income taxes 77,889 -- (2,086)(c) 75,803
-------------- -------------- ------------
Net income (loss) before cumulative
effect of change in accounting method $ 181,742 $ (7,183) $ (3,130) $ 171,429
-------------- -------------- -------------
-------------- -------------- -------------
Basic net income per share, before
cumulative effect of change in
accounting method $ 0.93 $ 0.88
-------------- -------------
-------------- -------------
Diluted net income per share, before
cumulative effect of change in
accounting method $ 0.83 $ 0.78
-------------- -------------
-------------- -------------
Weighted average common shares
outstanding 194,900 194,900
-------------- -------------
-------------- -------------
Weighted average common and
potential common shares
outstanding-assuming dilution 219,552 219,552
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed combined
financial statements.
<PAGE>
CADENCE DESIGN SYSTEMS, INC. AND AMBIT DESIGN SYSTEMS, INC.
NOTES TO THE PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
BASIS OF PRESENTATION
The pro forma condensed combined 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 consolidated
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
condensed combined financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 3,
1998 and the Quarterly Report on Form 10-Q for the quarter ended October 3,
1998.
The preparation of pro forma condensed combined financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the pro forma condensed combined financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made to the accompanying pro
forma condensed combined Statements of Operations as described below:
a) Reflects amortization of goodwill and identified intangible assets
for nine month period ended October 3, 1998 ($5.2 million per year
for 7 years).
b) Reflects amortization of goodwill and identified intangible assets
for twelve month period ended January 3, 1998 ($5.2 million per
year for 7 years).
c) Reflects tax benefit at the statutory rate of 40% relating to the
pro forma adjustments.
PURCHASE PRICE
The purchase price for the acquisition of Ambit is computed as follows
(in thousands):
<TABLE>
<S> <C>
Cash payment to Ambit Shareholders $ 252,990
Cadence ownership prior to acquisition 2,000
--------------
Total purchase price $ 254,990
--------------
--------------
</TABLE>
IN-PROCESS TECHNOLOGY
The acquisition of Ambit was accounted for as a purchase, allocating
the purchase price based upon the estimated fair value of the assets acquired
and the liabilities assumed. In connection with the acquisition, net
intangibles of $250.9 million were acquired. Management estimates that $214.4
million of the purchased intangibles was purchased in-process technology that
had not yet reached technological feasibility and has no alternative future
use. This amount was expensed in the period ended October 3, 1998 but is
excluded from the pro forma condensed combined statement of operations for
that period included herein. The value assigned to purchased in-process
technology, based on a valuation prepared by a third-party appraisal company,
was determined by identifying research projects in areas for which
technological feasibility has not been established. The remaining intangible
assets of $36.5 million were assigned to goodwill and identified intangible
assets and will be amortized on a straight-line basis over their estimated
useful lives of seven years. Management believes that the unamortized balance
is recoverable through future operating results. If these projects are not
successfully developed, business, operating results, and financial condition
of the Company may be adversely affected. Additionally, the value of the
other intangible assets acquired may become impaired.
