<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): July 31, 1997
AVANT! CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-25864 94-3133226
-------- ------- ----------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
46871 Bayside Parkway, Fremont, California 94538
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (510) 413-8000
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
On its Current Report on Form 8-K dated September 26, 1997, Avant!
Corporation, a Delaware corporation ("Avant!") announced its acquisition of
Compass Design Automation, Inc. ("Compass"). Avant! is filing this Current
Report on Form 8-K/A solely for the purpose of filing audited financial
statements and unaudited pro forma condensed financial statements relating to
the Compass acquisition.
EXHIBIT DESCRIPTION
------- -----------
27.1 Financial Data Schedule - December 27, 1996
27.2 Financial Data Schedule - June 27, 1997
99.1 Financial Statements of Business Acquired
99.2 Pro Forma Financial Information
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Avant! Corporation
Date: November 25, 1997 /s/ John P. Huyett
-----------------------------------------
John P. Huyett
Vice President of Finance, Treasurer and
Principal Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FILED AS
PART OF THIS FORM 8-K/A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-START> DEC-29-1995
<PERIOD-END> DEC-27-1996
<CASH> 1,668
<SECURITIES> 0
<RECEIVABLES> 12,799
<ALLOWANCES> 155
<INVENTORY> 0
<CURRENT-ASSETS> 14,886
<PP&E> 30,370
<DEPRECIATION> 24,698
<TOTAL-ASSETS> 21,048
<CURRENT-LIABILITIES> 31,304
<BONDS> 0
0
22
<COMMON> 191
<OTHER-SE> (10,469)
<TOTAL-LIABILITY-AND-EQUITY> 21,048
<SALES> 0
<TOTAL-REVENUES> 54,186
<CGS> 5,003
<TOTAL-COSTS> 11,009
<OTHER-EXPENSES> 50,677
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 995
<INCOME-PRETAX> 8,721
<INCOME-TAX> (3,310)
<INCOME-CONTINUING> (5,410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,410)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FILED AS
PART OF THIS FORM 8-K/A AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-START> DEC-28-1996
<PERIOD-END> JUN-27-1997
<CASH> 2,445
<SECURITIES> 0
<RECEIVABLES> 7,317
<ALLOWANCES> 149
<INVENTORY> 0
<CURRENT-ASSETS> 10,541
<PP&E> 30,439
<DEPRECIATION> 25,784
<TOTAL-ASSETS> 15,614
<CURRENT-LIABILITIES> 29,458
<BONDS> 0
0
22
<COMMON> 191
<OTHER-SE> (14,120)
<TOTAL-LIABILITY-AND-EQUITY> 15,614
<SALES> 0
<TOTAL-REVENUES> 24,744
<CGS> 1,862
<TOTAL-COSTS> 4,758
<OTHER-EXPENSES> 24,274
<LOSS-PROVISION> (6)
<INTEREST-EXPENSE> 589
<INCOME-PRETAX> (5,164)
<INCOME-TAX> (1,508)
<INCOME-CONTINUING> (3,656)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,656)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Compass Design Automation, Inc.:
We have audited the accompanying consolidated balance sheet of Compass Design
Automation, Inc. and subsidiaries (the Company) as of December 27, 1996, and the
related consolidated statements of operations, shareholders' deficit, and cash
flows for the year then ended. In connection with our audits of the accompanying
consolidated financial statements, we also have audited the accompanying
consolidated financial statement schedule. These consolidated financial
statements and related consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and consolidated financial
statement schedule based on our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Compass Design
Automation, Inc. and subsidiaries as of December 27, 1996, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles. Also in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
San Jose, California
November 18, 1997
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 27, JUNE 27,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Current assets:
Cash.................................................................................... $ 1,668 2,445
Accounts receivable, net................................................................ 12,644 7,168
Other receivables....................................................................... 322 294
Prepaid and other current assets........................................................ 252 634
------------ -----------
Total current assets.................................................................. 14,886 10,541
Property, plant, and equipment, net....................................................... 5,672 4,655
Other assets.............................................................................. 490 418
------------ -----------
Total assets.......................................................................... $ 21,048 15,614
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
- ----------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable........................................................................ $ 2,238 2,382
Payable to VLSI......................................................................... 13,423 11,781
Accrued compensation.................................................................... 3,779 3,938
Other accrued liabilities............................................................... 1,962 2,065
Deferred revenue........................................................................ 9,846 9,290
------------ -----------
Total current liabilities............................................................. 31,248 29,456
Minority interest......................................................................... 56 65
Commitments and contingencies
Shareholders' deficit:
Series A redeemable preferred stock, $0.01 par value; 2,200 shares authorized; 2,200
shares issued and outstanding as of December 31, 1996; liquidation preference of
$2,200................................................................................ 22 22
Common stock, $0.01 par value; 40,000 shares authorized; 19,100 shares issued and
outstanding as of December 31, 1996................................................... 191 191
Additional paid-in capital.............................................................. 3,897 3,902
Accumulated deficit..................................................................... (14,366) (18,022)
------------ -----------
Total shareholders' deficit........................................................... (10,256) (13,907)
------------ -----------
Total liabilities and shareholders' deficit........................................... $ 21,048 15,614
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX-MONTH
PERIODS ENDED
YEAR ENDED -------------------
DECEMBER 27, JUNE 28, JUNE 27,
1996 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Software................................................................................ $26,288 14,163 12,081
Software sales to VLSI.................................................................. 7,654 3,827 3,666
Services................................................................................ 20,243 10,658 8,997
------------ -------- --------
Total revenue......................................................................... 54,185 28,648 24,744
------------ -------- --------
Costs and expenses:
Costs of software....................................................................... 5,003 3,068 1,862
Costs of services....................................................................... 6,006 3,306 2,696
Research and development................................................................ 22,169 11,779 8,997
Selling and marketing................................................................... 22,234 11,021 12,517
General and administrative.............................................................. 6,274 2,566 2,960
------------ -------- --------
Total operating expenses.............................................................. 61,686 31,740 29,032
------------ -------- --------
Loss from operations.................................................................. (7,501) (3,092) (4,288)
Interest expense, net..................................................................... (995) (407) (589)
Other expense............................................................................. (225) (125) (287)
------------ -------- --------
Loss before taxes..................................................................... (8,721) (3,624) (5,164)
Income tax benefit........................................................................ 3,311 1,247 1,508
------------ -------- --------
Net loss.............................................................................. (5,410) (2,377) (3,656)
Cumulative dividends on Series A redeemable preferred stock............................... (220) (110) (110)
------------ -------- --------
Net loss attributable to common shareholders.......................................... $(5,630) (2,487) (3,766)
------------ -------- --------
------------ -------- --------
Net loss per common share............................................................. $ (0.29) (0.13) (0.20)
------------ -------- --------
------------ -------- --------
Shares used to compute net loss per common share.......................................... 19,100 18,821 19,162
------------ -------- --------
------------ -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A ADDITIONAL TOTAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
---------------- ---------------
SHARES AMOUNTS SHARES AMOUNTS CAPITAL DEFICIT DEFICIT
------ ------- ------ ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 29, 1995.................. 2,200 $22 18,678 $191 3,855 (8,956) (4,888)
Exercise of stock options......................... -- -- 422 -- 42 -- 42
Net loss.......................................... -- -- -- -- -- (5,410) (5,410)
------ ------- ------ ------- ----- ----------- -------------
Balances as of December 27, 1996.................. 2,200 22 19,100 191 3,897 (14,366) (10,256)
Exercise of stock options (unaudited)............. -- -- 62 -- 5 -- 5
Net loss (unaudited).............................. -- -- -- -- -- (3,656) (3,656)
------ ------- ------ ------- ----- ----------- -------------
Balances as of June 27, 1997 (unaudited).......... 2,200 $22 19,162 $191 3,902 (18,022) (13,907)
------ ------- ------ ------- ----- ----------- -------------
------ ------- ------ ------- ----- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX-MONTH
PERIODS ENDED
------------------------
YEAR ENDED
DECEMBER JUNE 28, JUNE 27,
27, 1996 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (5,410) (2,377) (3,656)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation............................................. 2,243 1,938 1,087
Minority interest in net loss of consolidated
subsidiary............................................. 56 66 9
Changes in operating assets and liabilities:
Accounts receivable, net............................... 532 1,200 5,477
Other receivables...................................... (24) (127) 28
Prepaid and other current assets....................... 120 (268) (383)
Other assets........................................... (110) (43) 72
Accounts payable....................................... (164) 46 144
Payable to VLSI........................................ 3,486 440 (1,642)
Accrued compensation................................... (822) (72) 159
Other accrued liabilities.............................. 255 301 103
Deferred revenue....................................... 890 (496) (556)
----------- ----------- -----------
Net cash provided by operating activities............ 1,052 608 842
Cash flows used in investing activities--purchases of
property, plant, and equipment............................. (854) (1,107) (70)
Cash flows provided by financing activities--exercise of
stock options.............................................. 42 14 5
----------- ----------- -----------
Net increase (decrease) in cash.............................. 240 (485) 777
Cash, beginning of year/period............................... 1,428 1,428 1,668
----------- ----------- -----------
Cash, end of year/period..................................... $ 1,668 943 2,445
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 27, 1996, JUNE 28, 1996, AND JUNE 27, 1997
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Compass Design Automation, Inc. (the Company or Compass) develops, markets
and supports software products that assist design engineers in the automated
design, layout, physical verification and analysis of advanced integrated
circuits. Its primary customers are semiconductor companies in the United
States, Japan, Korea, Taiwan, and Europe. Compass is a majority owned subsidiary
of VLSI Technology, Inc. (VLSI) (see Note 10) and is dependent upon VLSI for
financial support.
FISCAL YEAR
The Company's fiscal year ends on the last Friday in December and consists
of 52 weeks.
PRINCIPLES OF PRESENTATION AND PREPARATION
The accompanying consolidated financial statements include the accounts of
the Company, its wholly owned subsidiaries and a majority owned subsidiary. The
Company owns 60% of the outstanding shares of Compass Design Automation Korea
Company, Ltd. (Compass Korea) and, accordingly, consolidates the financial
position and results of operations of Compass Korea. The minority interest in
the net loss of Compass Korea is presented in other expense in the consolidated
statements of operations. All significant intercompany accounts and transactions
have been eliminated in consolidation. The financial statements include charges
from VLSI for certain services provided to the Company by VLSI and for certain
payments made on the behalf of the Company as discussed in Note 2.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue consists primarily of fees for licenses of the Company's software
products, maintenance, and customer support.
SOFTWARE REVENUE
Revenue from the sale of software licenses is recognized upon shipment of
the products, delivery of permanent authorization codes, and fulfillment of
acceptance terms, if any, providing that no significant vendor and postcontract
support obligations remain and collection of the related receivable is probable.
Any remaining insignificant vendor or postcontract support obligations are
accrued at the time the revenue is recognized. If a contingency regarding the
sale exists, revenue recognition is delayed until the contingency has been
resolved. When the Company receives advance payments for software products, such
payments are reported as deferred revenue until all conditions for revenue
recognition are met.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
Revenue from the sale of custom software is recognized under the
percentage-of-completion method based on output measures which represent the
amounts of value added as specified in written custom software contracts.
SERVICES REVENUE
Maintenance revenue is deferred and recognized ratably over the term of the
maintenance agreement, which is typically 6 or 12 months. Revenue from customer
training, support and other services is recognized as the service is performed.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist primarily of computer workstations
and file servers for employees and are stated at cost net of accumulated
depreciation. Depreciation is provided on the straight-line method over the
estimated useful lives of the related assets (generally, five years).
SOFTWARE DEVELOPMENT COSTS
Development costs incurred in research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. To date, the Company's
software development has been completed concurrent with the establishment of
technological feasibility and, accordingly, no costs have been capitalized.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The tax provision has been prepared as if the Company filed separate tax
returns on a stand alone basis. Under the terms of the tax-sharing agreement
between the Company and VLSI, VLSI has reimbursed the Company for the tax
benefit of its federal and state losses and credits. As a result, the net
deferred tax asset relating to the federal and state temporary differences less
prior and current year payments, is recorded as a reduction of the payable to
VLSI in the accompanying consolidated balance sheet as of December 27, 1996.
NET LOSS PER COMMON SHARE
Cumulative dividends on Series A redeemable preferred are added to net loss
to arrive at net loss attributable to common shareholders. Net loss per common
share is computed using the weighted-average number of common shares outstanding
during each period presented. Common stock equivalents are excluded from the
computation as their effect is antidilutive.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
STOCK OPTION AND STOCK PURCHASE PLANS
The Company accounts for its stock-based compensation plans in accordance
with the provisions of Accounting Principles Board (APB) Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted the disclosure requirements of Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
Under SFAS No. 123, the Company must disclosure pro forma net loss for employee
stock option grants and employee stock purchases made in 1996 and future years
as if the fair value based method defined in SFAS No. 123 had been applied.
TRANSLATION OF FOREIGN CURRENCIES
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Resulting foreign exchange gains and losses are included in the
consolidated results of operations.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements as of June 27,
1997, and for the six-month periods ended June 28, 1996 and June 27, 1997, have
been prepared on substantially the same basis as the audited consolidated
financial statements, and include all adjustments, consisting only of normal
recurring adjustments, which management believes are necessary for a fair
presentation of the financial information set forth herein.
(2) RELATED PARTY TRANSACTIONS
The Company has a technology subscription agreement with VLSI whereby VLSI
pays $1,596,000 per quarter to the Company for the rights to use certain
products. VLSI also made other purchases of products for resale to VLSI
customers. Revenue from VLSI of $7,654,000 is included in software revenue in
the consolidated statement of operations for the year ended December 27, 1996.
VLSI charged the Company $864,000 during 1996 for finance, administrative,
legal, tax, and treasury services performed by VLSI or paid by VLSI on the
Company's behalf. Management believes these charges represent actual costs
incurred by VLSI on the Company's behalf. These costs are included in general
and administrative expenses in the consolidated statements of operations.
The Company rents its San Jose, California, facility under an operating
lease with VLSI. Total rent expense paid to VLSI during 1996 was $1,236,000 and
is included in general and administrative expenses in the consolidated financial
statements of operations.
(3) BALANCE SHEET COMPONENTS
ACCOUNTS RECEIVABLE
A summary of accounts receivable as of December 27, 1996, follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Trade receivables.................................................................. $ 12,799
Less allowance for doubtful accounts............................................... 155
---------
$ 12,644
---------
---------
</TABLE>
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment as of December 27, 1996, follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Computer equipment................................................................. $ 25,254
Office and other equipment......................................................... 3,031
Leasehold improvements............................................................. 2,085
---------
30,370
Less accumulated depreciation and amortization..................................... 24,698
---------
$ 5,672
---------
---------
</TABLE>
(4) SHAREHOLDERS' DEFICIT
PREFERRED STOCK
The Company authorized and issued 2,200,000 shares of redeemable preferred
stock, designated as Series A, at a par value of $0.01. The rights, preferences,
and privileges of the Series A redeemable preferred stock are as follows:
- Upon declaration by the Board of Directors, the Series A shareholders
receive dividends of $0.10 per share. Subsequent to September 30, 1994,
these dividends accumulate annually, whether or not declared by the Board
of Directors. As of December 27, 1997, undeclared accumulated dividends of
$495,000 were due to Series A shareholders.
- In the event of any liquidation, dissolution, or merger of the Company,
the Series A shareholders receive a $1.00 liquidation preference per share
(the initial purchase price) plus an amount equal to accrued and unpaid
dividends, prior to any distribution to the holders of common stock. In
addition, the holders of Series A preferred stock are entitled to
participate ratably in the remaining assets of the Company with the
holders of the common stock.
- The Series A shareholders have a voting right of one vote per share.
- The Series A redeemable preferred stock was scheduled for redemption at
$1.00 per share plus accrued and unpaid dividends at the option of the
Company in equal installments on October 1, 1994, 1995, and 1996. As of
June 27, 1997, no Series A redeemable preferred stock has been redeemed.
- The Company may not alter or amend any of the above rights, preferences,
and privileges of the shareholders of Series A redeemable preferred stock
without obtaining a majority vote or consent of the preferred stock
shareholders.
COMMON STOCK
The Company is authorized to issue 40,000,000 shares of $0.01 par value
common stock.
STOCK OPTION PLAN
The Company has a stock option plan, under which 4,150,000 shares of the
Company's common stock have been authorized for issuance.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
The Company applies APB Opinion No. 25 in accounting for its option plan and
the VLSI stock purchase plan, and no compensation expense has been recognized
for stock option grants using the intrinsic value method. Had the Company
determined compensation expense based on the fair value at the grant date for
its stock options and the VLSI stock purchase plan under SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts indicated
below for the year ended December 27, 1996 (in thousands):
<TABLE>
<S> <C>
Net loss as reported: $ (5,410)
Additional compensation cost resulting from:
Fixed stock options.............................................. (2)
Employee stock purchase rights................................... (210)
---------
Pro forma net loss............................................. $ (5,622)
Cumulative dividends on Series A redeemable preferred stock.... (220)
---------
Pro forma net loss attributable to common shareholders......... $ (5,842)
---------
---------
Net loss per common shareholder as reported.................... $ (0.29)
Pro forma loss per common share................................ $ (0.31)
</TABLE>
The fair value of each option and purchase right is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for stock option grants and VLSI stock
purchase rights in 1996: expected volatility of 61%; risk-free interest rate of
6.16%; expected lives of four years and six months, respectively; and no
dividend yield.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
A summary of the status of the Company's stock option plan as of and for the
year ended December 27, 1996, is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
-------------- ---------
(IN THOUSANDS)
<S> <C> <C>
Outstanding at beginning of year.......................................................... 1,893 $0.10
Granted................................................................................. 138 0.10
Exercised............................................................................... (422) 0.10
Canceled................................................................................ (333) 0.10
------
Outstanding at end of year................................................................ 1,276 0.10
------
------
Options exercisable at end of year........................................................ 743 0.10
------
------
Weighted-average fair value of options granted during the year............................ $ 0.05
------
------
</TABLE>
The following summarizes information about fixed stock options outstanding
as of December 27, 1996 (in thousands, except per share and contractual life
data):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ----------------------------
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------- ------------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
$0.10 1,276 7.02 years $ 0.10 743 $ 0.10
</TABLE>
(5) EMPLOYEE BENEFIT PLANS
401(k) PLAN
The Company's employees participate in the VLSI 401(k) retirement savings
plan which covers substantially all Compass employees. The plan provides for
discretionary Company matching contributions, which have not been material.
VLSI STOCK PURCHASE PLAN
Certain eligible employees of the Company participate in the Qualified
Employees Stock Purchase Plan of VLSI, which permits the purchase of VLSI stock
through payroll deductions at a price equal to 85% of the lesser of the market
value of VLSI's stock as of the date of the beginning or ending of the
enrollment period. Under the plan, Compass employees purchased 57,542 shares of
VLSI stock in 1996. The weighted average fair market of purchase rights granted
during 1996 was $3.28.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
(6) INCOME TAXES
The Company files a consolidated tax return with VLSI. The tax provision has
been prepared as if the Company filed separate tax returns on a stand alone
basis. The components of income tax benefit, as presented in the accompanying
consolidated statement of operations, are comprised of federal taxes, state
taxes, and certain foreign taxes. The components of income tax benefit for the
year ended December 27, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal........................................................................... $ 1,712
Foreign........................................................................... (292)
State............................................................................. (2)
---------
Total current................................................................... 1,418
---------
Deferred:
Federal........................................................................... 1,820
Foreign........................................................................... 73
State............................................................................. --
---------
Total deferred.................................................................. 1,893
---------
Total income tax benefit........................................................ $ 3,311
---------
---------
</TABLE>
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
The Company's effective tax rate differs from the federal statutory income
tax rate of 35% for the year ended December 27, 1996, as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Income tax benefit at statutory rate................................................. $ 3,052
Other benefit........................................................................ 259
---------
Actual income tax benefit........................................................ $ 3,311
---------
---------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 27, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Accrued liabilities.............................................. $ 740
Deferred revenue................................................. 1,455
Warranty reserve................................................. 282
Accrued vacation................................................. 209
Net operating losses............................................. 5,455
Foreign tax credits.............................................. 4,134
Research and development credits................................. 1,477
Property and equipment, principally due to depreciation.......... 377
Other............................................................ 117
---------
Total net deferred tax asset................................... $ 14,246
---------
---------
</TABLE>
The Company files a consolidated tax return with VLSI. The tax provision has
been prepared as if the Company filed separate tax returns on a stand alone
basis. Under the terms of the tax-sharing agreement between the Company and
VLSI, VLSI has reimbursed the Company for the benefit of its federal and state
losses and credits. As a result, the net deferred tax asset relating to the
federal and state temporary differences shown in the accompanying table, less
prior and current year VLSI reimbursements, is recorded as a reduction of the
payable to VLSI in the accompanying consolidated balance sheet as of December
27, 1996.
(7) CONCENTRATIONS OF CREDIT RISK
To reduce credit risk, the Company performs ongoing evaluations of its
customers' financial condition. The Company maintains reserves for potential
credit losses, but historically has not experienced any significant losses
related to individual customers or groups of customers in any geographic area.
As of December 27, 1996, two customers represented 15% and 12%,
respectively, of total accounts receivable. For the year ended December 27,
1996, sales to one customer represented 11% of total revenue.
(8) BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates primarily in one business segment, comprising the
electronic design automation industry.
<PAGE>
COMPASS DESIGN AUTOMATION, INC.
AND SUBSIDIARIES
(A MAJORITY OWNED SUBSIDIARY OF VLSI TECHNOLOGY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 27, 1997 AND FOR THE SIX-MONTH
PERIODS ENDED JUNE 28, 1996 AND JUNE 27, 1997 IS UNAUDITED)
A summary of the Company's operations by geographic area is presented below
(in thousands):
<TABLE>
<CAPTION>
U.S. EUROPE ASIA ELIMINATIONS CONSOLIDATED
--------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue from unaffiliated customers.................... $ 18,430 14,696 13,405 -- 46,531
Revenue from affiliated customers...................... 7,654 -- -- -- 7,654
Intercompany revenue................................... 6,308 157 2,225 (8,690) --
Operating (loss) income................................ (7,869) 257 111 -- (7,501)
Identifiable assets.................................... 15,957 10,725 2,964 (8,598) 21,048
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
The Company leases its San Jose, California, headquarters and certain field
sales and research and development facilities under operating lease agreements
that expire over the next 12 years. Rental expense incurred by the Company under
operating lease agreements totaled $1,472,000 for the year ended December 27,
1996.
Future annual minimum lease payments under operating leases for the
following fiscal years, are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
ENDING
- -------------------------------------------------------------------------------------
<S> <C>
1997................................................................................. $ 1,232
1998................................................................................. 686
1999................................................................................. 357
2000................................................................................. 129
---------
$ 2,404
---------
---------
</TABLE>
On August 12, 1997, the Company received a letter from one of its customers
alleging that the Company had delivered a faulty product which caused the
customer to incur actual damages and loss of market share. No legal claim has
been filed, and, accordingly, the Company is unable to estimate the amount of
any such damages.
The Company is also subject to claims that have arisen in the ordinary
course of business. The Company believes it has adequate legal defenses and
believes the ultimate outcome of these actions will not have a material effect
on the Company's consolidated financial position or results of operations.
(10) SUBSEQUENT EVENTS
Avant! acquired Compass Design Automation, Inc. on September 12, 1997 in a
transaction accounted for as a purchase. The purchase price included cash of
$17,500,000, Avant! common stock valued at $17,500,000, and transaction costs of
4,948,000. In connection with the purchase, all unvested options were canceled.
<PAGE>
AVANT! AND COMPASS--UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
including the notes thereto, give effect to the September 12, 1997 acquisition
of Compass by Avant! in exchange for $17,500,000 cash, 522,192 shares of Avant!
common stock, and $4,948,000 of direct transaction costs in a transaction
accounted for as a purchase. The condensed combined financial statements are
based on and are qualified in their entirety by reference to, and should be read
in conjunction with, the consolidated financial statements of Avant!, as
previously filed, and Compass, included herein.
The financial statement data as of September 30, 1997 and for the nine-month
periods ended September 30, 1996 and 1997 are unaudited, and have been prepared
on the same basis as the financial information derived from the audited
financial statements, and in the opinion of management, contain all adjustments,
consisting of normal recurring accruals, necessary for the fair presentation of
the results of operations for such periods.
An unaudited pro forma condensed combined balance sheet is not presented
herein because the Compass acquisition is reflected in Avant!'s historical
balance sheet as of September 30, 1997, as filed in Avant!'s September 30, 1997
Form 10-Q. The unaudited pro forma condensed combined statements of operations
combine Avant! results of operations for the nine months ended September 30,
1996 and 1997 and the year ended December 31, 1996 with Compass results of
operations for the six months ended June 30, 1996 and 1997 and the year ended
December 31, 1996, giving effect to the acquisition as if it had occurred on
January 1, 1996. Compass' condensed combined statements of operations are
presented for the six months ended June 30, 1996 and 1997 because the three
months ended June 30, 1997 was the last complete quarter of Compass operations
prior to its acquisition. Upon consummation of the acquisition in September
1997, the Company expensed approximately $41,186,000 of acquired in-process
research and development.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial condition that
would have occurred had the acquisition been consummated at January 1, 1996, nor
is it necessarily indicative of future operating results or financial position.
<PAGE>
AVANT! AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVANT! COMPASS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Software...................................................................... $ 82,134 $33,942 $-- $116,076
Services...................................................................... 23,953 20,243 -- 44,196
-------- ------- ----------- ---------
Total revenue............................................................... 106,087 54,185 -- 160,272
-------- ------- ----------- ---------
Costs and expenses:
Costs of software............................................................. 2,512 5,003 -- 7,515
Costs of services and other................................................... 7,269 6,006 -- 13,275
Selling and marketing......................................................... 29,928 22,169 -- 52,097
Research and development...................................................... 20,696 22,234 2,815(a) 45,745
General and administrative.................................................... 15,450 6,274 -- 21,724
Acquisition of technology..................................................... 1,700 -- -- 1,700
Merger expenses............................................................... 9,300 -- -- 9,300
-------- ------- ----------- ---------
Total operating expenses.................................................. 86,855 61,686 2,815 151,356
-------- ------- ----------- ---------
Income (loss) from operations............................................. 19,232 (7,501) (2,815) 8,916
Other income (expense), net..................................................... 4,204 (1,220) -- 2,984
-------- ------- ----------- ---------
Income (loss) before income taxes......................................... 23,436 (8,721) (2,815) 11,900
Income tax expense (benefit).................................................... 10,952 (3,311) (1,015)(a) 6,626
-------- ------- ----------- ---------
Net income (loss)......................................................... $ 12,484 $(5,410) $(1,800) $ 5,274
Cumulative dividends on Series A redeemable preferred stock..................... -- (220) -- (220)
-------- ------- ----------- ---------
Net income (loss) available to common shareholders.............................. $ 12,484 $(5,630) $(1,800) $ 5,054
-------- ------- ----------- ---------
-------- ------- ----------- ---------
Net income (loss) per common share.............................................. $ 0.47 $ 0.19
-------- ---------
-------- ---------
Weighted average shares outstanding............................................. 26,761 27,283
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVANT! COMPASS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Software...................................................................... $ 60,030 $17,990 $-- $78,020
Services...................................................................... 17,263 10,658 -- 27,921
-------- ------- ----------- ---------
Total revenue............................................................. 77,293 28,648 -- 105,941
-------- ------- ----------- ---------
Costs and expenses:
Costs of software............................................................. 1,802 3,068 -- 4,870
Costs of services and other................................................... 5,383 3,306 -- 8,689
Selling and marketing......................................................... 22,318 11,021 -- 33,339
Research and development...................................................... 15,133 11,779 1,408(a) 28,320
General and administrative.................................................... 10,609 2,566 -- 13,175
Acquired in-process research and development.................................. 300 -- -- 300
Merger expenses............................................................... 920 -- -- 920
-------- ------- ----------- ---------
Total operating expenses.................................................. 56,465 31,740 1,408 89,613
-------- ------- ----------- ---------
Income (loss) from operations............................................. 20,828 (3,092) (1,408) 16,328
Other income (expense), net..................................................... 3,100 (532) -- 2,568
-------- ------- ----------- ---------
Income (loss) before income taxes......................................... 23,928 (3,624) (1,408) 18,896
Income tax expense (benefit).................................................... 8,664 (1,247) (508)(a) 6,909
-------- ------- ----------- ---------
Net income (loss)......................................................... $ 15,264 $(2,377) $ (900) $11,987
Cumulative dividends on Series A redeemable preferred stock..................... -- (110) -- (110)
-------- ------- ----------- ---------
Net income (loss) available to common shareholders.............................. $ 15,264 $(2,487) $ (900) $11,877
-------- ------- ----------- ---------
-------- ------- ----------- ---------
Net income (loss) per share..................................................... $ 0.57 $ 0.44
-------- ---------
-------- ---------
Weighted average shares outstanding............................................. 26,621 27,143
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND COMPASS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AVANT! COMPASS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Software...................................................................... $ 77,669 $15,747 $-- $93,416
Services...................................................................... 26,663 8,997 -- 35,660
-------- ------- ----------- ---------
Total revenue............................................................. 104,332 24,744 -- 129,076
-------- ------- ----------- ---------
Costs and expenses:
Costs of software............................................................. 1,635 1,862 -- 3,497
Costs of services and other................................................... 8,664 2,696 -- 11,360
Selling and marketing......................................................... 29,596 12,517 -- 42,113
Research and development...................................................... 19,690 8,997 1,408(a) 30,095
General and administrative.................................................... 11,618 2,960 -- 14,578
Acquired in-process research and development.................................. 41,186 -- -- 41,186
-------- ------- ----------- ---------
Total operating expenses.................................................. 112,389 29,032 1,408 142,829
-------- ------- ----------- ---------
Income (loss) from operations............................................. (8,057) (4,288) (1,408) (13,753)
Other income (expense), net..................................................... 3,592 (876) -- 2,716
-------- ------- ----------- ---------
Income (loss) before income taxes......................................... (4,465) (5,164) (1,408) (11,037)
Income tax expense (benefit).................................................... (1,607) (1,508) (508)(a) (3,623)
-------- ------- ----------- ---------
Net income (loss)......................................................... $ (2,858) $(3,656) $ (900) $(7,414)
Cumulative dividends on Series A redeemable preferred stock..................... -- (110) -- (110)
-------- ------- ----------- ---------
Net income (loss) available to common shareholders.............................. $ (2,858) $(3,766) $ (900) $(7,524)
Net income (loss) per common share.............................................. $ (0.11) $ (0.29)
-------- ---------
-------- ---------
Weighted average shares outstanding............................................. 25,616 26,138
-------- ---------
-------- ---------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
<PAGE>
AVANT! AND COMPASS
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The Avant! and Compass statements of operations for the year ended December
31, 1996 and for each of the nine months ended September 30, 1996 and 1997 have
been combined, giving effect to the business combination as if it had occurred
on January 1, 1996. The balance sheet is not presented herein because the
Compass acquisition is reflected in Avant!'s historical balance sheet as of
September 30, 1997. The statements of operations combine Avant! results of
operations for the nine months ended September 30, 1996 and 1997 and the year
ended December 31, 1996 with Compass results of operations for the six months
ended June 30, 1996 and 1997 and the year ended December 31, 1996. The condensed
combined statements of operations include Compass through the June 30, 1997
quarter, as that was the last complete quarter of Compass operations. The
unaudited pro forma condensed combined financial statements, including the notes
thereto, should be read in conjunction with the consolidated financial
statements of Avant! and Compass included elsewhere herein.
No adjustments have been made to conform the accounting policies of the
combining companies. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant.
(2) PRO FORMA ADJUSTMENTS
The unaudited pro forma combined condensed statements of operations give
effect to the following pro forma adjustment (in thousands):
(a) Represents amortization of goodwill and other intangibles over expected
useful lives ranging from four to five years and related tax benefit.
(3) PURCHASE PRICE ALLOCATION
The Compass purchase price included cash of $17,500,000, 522,192 shares of
Avant! common stock valued at $17,500,000, and transaction costs of $4,948,000.
The net purchase price of $39,498,000 was allocated as follows: $6,701,000 to
current assets; $4,441,000 to property, plant and equipment; $41,186,000 to
in-process research and development; $14,822,000 to goodwill and other
identifiable intangibles; and $27,202,000 to assumed liabilities.
