UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
-------------------------------
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 30, 200029, 2001 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _______ to ________.to__________
COMMISSION FILE NUMBER: 000-20923
INNOVEDA, INC.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Charter)
DELAWARE 93-1137888
------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
of Organization) Identification No.)
Organization)
293 Boston Post Road West, Marlboro, MassachusettsBOSTON POST ROAD WEST, MARLBORO, MASSACHUSETTS 01752
--------------------------------------------------------
(Address, including zip code, of principal executive office)offices)
Registrant's Telephone number, including area code: (508) 480 0881
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X/X/ No --- ----/ /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held by non-affiliates of
the Registrant, based upon the closing per share sale price of the Common Stock
on February 28, 20012002 as reported on the Nasdaq National Market ($3.875)2.35), was
approximately $88,546,877.$46,977,560. Shares of Common Stock held by each named executive
officer and director and by each entity known to the Registrant to beneficially
own 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of February 28, 2001,2002, Registrant had outstanding 39,067,28539,874,760 shares of Common
Stock.
1
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its 20012002 Annual
Meeting of Stockholders scheduled to be held on June 15, 2001May 31, 2002 (the "2001"2002 Proxy
Statement"), which will be filed with the Securities and Exchange Commission not
later than 120 days after December 30, 2000,29, 2001, are incorporated by reference into
Part III of this Annual Report on Form 10-K. With the exception of the portions
of the 20012002 Proxy Statement expressly incorporated into this Annual Report on
Form 10-K by reference, such document shall not be deemed filed as part of this
Annual Report on Form 10-K.
2
INNOVEDA, INC FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001
TABLE OF CONTENTS
PAGE
NUMBER
PART I
Item 1. Business 4
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 13
Executive Officers of the Registrant 13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 41
Item 8. Financial Statements and Supplementary Data 43
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 44
PART III
Item 10. Directors and Executive Officers of the Registrant 44
Item 11. Executive Compensation 44
Item 12. Security Ownership of Certain Beneficial Owners and Management 44
Item 13. Certain Relationships and Related Transactions 44
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 44
Signatures 46
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IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that are subject to a number of risks and
uncertainties. All statements, other than statements of historical facts,
included in this Annual Report on Form 10-K, regarding our strategy, future
operations, financial position, estimated revenues, projected costs, the
availability of financial resources, prospects, plans and objectives of
management are forward-looking statements. When used in this Annual Report on
Form 10-K, the words "will", "believe", "anticipate", "intend", "estimate",
"expect", "project", "plans", "preliminary" and similar expressions, are
intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. We cannot guarantee
future results, levels of activity, performance or achievements and you should
not place undue reliance on our forward-looking statements. Our forward-looking
statements do not reflect the potential impact of any future acquisitions,
mergers, dispositions, reorganizations, restructurings, joint ventures or
strategic alliances. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including in particular, the risks discussed below under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Additional Risk Factors that Could Affect Operating Results and
Market Price of Stock". Unless required by law, the Registrant undertakes no
obligation to update any forward-looking statements it may make.
PART I
ITEM 1. BUSINESS
GENERAL
Innoveda, Inc. was incorporated in the State of Delaware on December 29, 1993.
The Company's principal executive offices are located at 293 Boston Post Road
West, Marlboro, Massachusetts 01752 and its telephone number is (508) 480-0881.
Unless the context otherwise requires, the terms "Corporation", "Company",
"Registrant" and "Innoveda" as used in this report refer to Innoveda, Inc. and
its wholly owned subsidiaries.
On March 23, 2000, the Company completed the business combination of Viewlogic
Systems, Inc. and Summit Design, Inc. and was renamed Innoveda, Inc. At the
effective time of the merger, the former holders of Viewlogic's capital stock
held approximately 51% of the shares of the Company's Common Stock and thus, for
accounting and tax purposes, Viewlogic is considered to be the acquirer in that
transaction. On September 22, 2000, the Company completed its acquisition of
PADS Software, Inc.
INNOVEDA'S BUSINESS
Innoveda offers productivity enhancingis a leading provider of electronic design automation (EDA) software
and services for themajor markets, with a focus on critical-path solutions for
developers of electronic design automation market.systems. Electronic systems are a combination of
multiple integrated circuits and other electronic components, often merged with
software to create an electronic end-product. Innoveda's products automateaddress the
needs of several of the largest electronics design markets, including consumer
electronics, computers, telecommunications, automotive and aerospace. Innoveda's
computer-aided design (CAD) solutions for electronics engineers help customers
around the world accelerate the design entry,
analysis and testingdevelopment of their electronic
end-products. These end-products span a wide range and include such things as
cellular telephones, personal organizers, network equipment, personal computers
and laptop computers, consumer electronics, routers, satellites, wireless
products, (including their componentsautomobiles and systems). An electronic product is a product that is differentiated from
competitive products through its electronic content, including:
o entire electronic systems or products;
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o electrical devices, known as printed circuit boards, that contain
multiple chips and other components to create larger electrical
functions;
o high-speed components;
o cabling and interconnects;
o field programmable gate arrays;
o application-specific standard parts; and
o less complicated field programmable gate arrays known as
programmable logic devices.
Innoveda's service offerings help large organizations developing electronic
products become more productive, adopt new methods for designing their products
and accelerate their adoption of new software tools.aircraft. Innoveda markets and supports its software
and services worldwide through direct and indirect distribution channels to the telecommunications, networking,
consumer electronics, computer, medical, industrial and automotive industries.
The electronic products developed by companies in these industries include
everything from cellular telephones and personal organizers to network
equipment, personal computers and laptop computers, modems, automated teller
machines, televisions, video cassette recorders, automobiles and airplanes.
Industry Backgroundchannels.
4
INDUSTRY BACKGROUND
Electronic design automation software is software that automates the tasks and
processdesign of designing electronic
products and their related components and systems. Its objective is to reduce
time-to-market and the costs associated with product design, analysis, testing
and optimization; and enable development of more high-speed, highly complex
product designs that can be manufactured reliably.
This software has played a critical role in accelerating the dramatic advances
in the electronics industry overduring the past two decades. For most of this
period, the need for more advanced electronic design automation tools has been
driven by thea rapid increase in complexity and speed of integrated circuits, or
chips, which are found in virtually all electronic products. An integrated
circuit, or chip, is an electrical device consisting of various components,
connections and switches that can be designed to perform a specific function.
The increaseIntegrated circuits have increased in complexity of integrated circuits has been compounded byand speed; at the scarcitysame time,
there is a serious shortage of engineers skilled in the design and testing of
these more complex chips. Moreover, the increase in
the complexity ofDevelopment cycles lengthen as chips lengthens their development cycle.become more
complex. As a result, a
greater number ofmore engineering hours are required to design many of
today's more complex chips, leading to either longer development schedules or
the need for larger design teams. At the same time,In addition, competitive pressures shorten the
life cycles of the electronic products that incorporate chips.
Innoveda believes thatthe combination of chip design complexity, shrinking market
windows, and time-to-market pressures and the complexity of designing
chips will cause manufacturers of electronic productsproduct
manufacturers to move towards differentiating their products at the system level
- - a design abstraction that involves the design of the entire electronic system
or subsystem - rather than at the chip level, and plans to focus on providing tools for that purpose.
Electronic design automation has come to mean hardware design automation, and
Innoveda believes that term alone is no longer appropriate to describe the
breadth of the market for software tools used to automate the design of
electronic products. The scope of this expanded market can be defined by the
stages of the electronic design process that it includes, as shown in Figure 1.
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Figure 1. Electronic Product Design Automation Market
[Graphic; Strategic Business Planning/Product Proposal]
The system-level design automation phase of development is comprised of the
software and services that serve the needs of designers designing electronic
products that are composed of hardware, software and the interconnection between
hardware components. This system-levellevel.
System-level design is based on the cooperative design of both hardware and
software for the completed electronic product. An
increasing number ofMore and more electronic products
now include software as a major component of the product.component. Therefore, system-level design
involves managing tradeoffs among the following factors:
o system performance and features;
ofeatures, system memory
requirements;
orequirements, processor selection;
oselection, chip area and cost;
ocost, product cost;
ocost, system
power and battery life;
olife, effects of cables and connectors;
oconnectors, system
programmability;programmability, and othe project schedule.
It is alsoDuring the system-level design stage of a project, where decisions usually are usually made
about adopting new design partners, methodologies, policies and automation
tools. These decisions include choices regarding software development tools,
strategies needed for the designco-design and testtesting of hardware and software
components, together, chip vendors, and electronic design automation tools and processes.
In addition, refinements to the processes and tools that are created to help large design teams
work together efficiently also emerge atduring this phase of development.
4
In addition to the move towards differentiating products at the system level
rather than at the chip level, in recent years the lengtheningChip design cycles for
chips and significant time-to-market pressures for electronic products have
influenced the choice of chip technologies. There has been a shiftshifted away from fullyhighly customized integrated circuits and partially pre-designed integrated
circuits, also known asbut inflexible
application-specific integrated circuits to more flexible, technologies that shorten the design cycle. These more flexible
technologies include:
o chips whose function can be changed with software-like programming,
known as field programmable gate arrays;
o chips created to provide a fixed function for a specific
application, known as application-specific
standard parts;parts and
o multi-purpose processing chips that actually run software programs,
known as embedded processors.chips. These integrated circuit
choices help to provide greater flexibility and faster time to market for companies that design electronic products.market. They also
present new design automation challenges, including designing and testing
systems that contain significant embedded software programs. Further complicating the design task is the effect that faster chips have on
overall system design. Fast-switching
signals (whenin which an electrical signal changes voltage beyond a predetermined
amount)amount are required to achieve the very fast processor speeds we now take for
granted. These fast signals can cause electrical signals to radiate from the
chip or printed circuit board on which the chips are placed, and cause
unintentional negative effects on other signals on the chip or printed circuit
board, potentially causing theincluding potential system to fail.failure. If
the necessary analysis and testing isare not
performed before the system is manufactured, these problems can affect the
quality of the final system in which the chips are embedded. This situation has
created the need for sophisticated software tools to design and test the wires
on the chip and those that connect the chips and other components within
electronic products.
These emerging design challenges driven by faster, more complex chips create
many new problems for the manufacturers of electronic products, and many new
opportunities for companies that provide toolstechnology for the design of electronic
products.
The
objectives of electronic5
INNOVEDA STRATEGY
Innoveda's strategy is threefold:
- To create and deliver solutions in key system design automation are to reduce time-to-marketmarket segments,
including printed circuit board (PCB) design, system-level design
(SLD), and electromechanical design (EM);
- To provide point tools representing the costs associated withgreatest leverage in each
segment; and
- To help customers achieve product design, analysis, testingdifferentiation, problem discovery
and optimization, while
permitting the development of a greater number of product designs of higher
speed and greater complexity that can be manufactured reliably.
Innoveda Strategy
Innoveda's strategic objective is to become the leading provider of software and
services that help automatedetection earlier in the design ofcycle.
INNOVEDA PRODUCTS
Innoveda's products enable electrical engineers to design state-of-the-art
electronic products by focusingand their components and systems more efficiently, reduce
development costs and shorten the time needed to get products to market. These
products are focused on those productsPCB design, system-level design, and services that are targeted at system-level productelectromechanical
design.
PCB DESIGN
Innoveda offers a complete design solution for the design and verification
of high-speed printed circuit boards and certain components thereof, and(PCBs). Offerings cover the design,
analysis, layout, routing (the placement and analysisconnection of certain electro-mechanical components on a
PCB) and systems.
Innoveda plans to sell its products and services to electronic product design
companies worldwide, primarily in the following industry segments:
o telecommunications and networking;
o consumer electronics;
o computers and related devices;
o automotive; and
o industrial and medical.
Innoveda intends to compete in these segments by developing differentiated
products and services that address the special requirements for the design of
electronic products by companies in these industries. Two key issues dominate
the design of electronic products today. First, unprecedented design complexity
5
has exceeded human ability to efficiently address design issues unaided,
requiring increased automation of the process for the design of electronic
products. Second, design problems are occurring in the gaps between design
stages as indicated in Figure 1 on page 4.
Innoveda intends to become the leading provider of design automation software
and services for electronic products by virtue of its product and market
strengths and its focus on addressing key electronic product design challenges.
Innoveda believes that the greatest advances in producing a competitive
electronic product will not come solely through incremental improvements in the
chip design process, but rather by creating an electronic product design
environment that enables design and testing at a more conceptual level and
across design stages and engineering disciplines. To achieve this electronic
product design automation environment takes a special focus.
Innoveda has chosen to focus on the system-level design, printed circuit board
design and electro-mechanical design markets. Most of our major competitors have
focused their resources on solving the challenges of application-specific
integrated circuit design automation.
Innoveda's market strategy is to focus on the following application segments:
o System-level design automation: the determination of whether
functions should be performed by hardware (and the type of hardware)
or software;
o Printed circuit board design: the designverification of printed circuit boards and programmable components
used with printed circuit boards;
o Interconnect design: theboards. Collaborative design of cables and the connections of
various devices within an electronic product; and
o Collaborative design: Internet-enabledis enabled by
Internet-savvy tools for design data management, component information
management, component library development and maintenance, the re-use of
designs, and integration with other
systems withinenterprise integration.
Within the design environment.
Innoveda Products
Innoveda's software products enable electrical engineers to design
state-of-the-art electronic products, and their components and systems, more
efficiently, while reducing development costs and reducing the time to get
products to market. These software products help designers to translate their
ideas into designs and verify the accuracy and manufacturability of those
designs.
eProduct Designer
eProduct Designer, Innoveda's umbrella design environment, offers engineers a
user interface running on the Windows environment and under UNIX on
workstations. eProduct Designer also has been created as an "Internet-aware"
suite of tools. This enables the product design and related data to be located
anywhere on the Internet. The related data can consist of many disparate data
sources such as engineering, purchasing and manufacturing that are merged and
presented in an accessible format through eProduct Designer. Data management
tools enable versions of designs to be created and enable teams of engineers to
work simultaneously on the same design data from any site in the world.
Through Innoveda's eProduct Designer design capture environment, engineers can
enter and maintain their design throughout the entire design process. Innoveda's
tool suites are organized around the specific challenges systems designers face,
including printed circuit board design, field programmable gate array design,market, Innoveda focuses on three key
areas: signal integrity/EMI (electromagnetic interference) analysis;
high-speed design, design verificationPCB design; and enterprise integration. The printed circuit board design portion of Innoveda's eProduct Designer
environment is based on ViewDraw, used for graphical capture and manipulation of
the design, itself. With ViewDraw, ViewSim (one of Innoveda's simulation tools)
and Innoveda's printed circuit board Netlisters (the software tools that
6
convert the graphical design into a format readable by other design tools) form
the backbone of Innoveda's design methodology. Additionally, InnovedaIt offers the Fusion co-simulation products, SpeedWavefollowing
solutions in these areas:
SIGNAL INTEGRITY/EMI ANALYSIS SOLUTIONS
XTK. Post-route investigation and ViewAnalog.
Product offerings within eProduct Designer include:
oanalysis of signal integrity, delay and
crosstalk issues in complex PCBs, multi chip modules (MCMs), and other
systems.
QUIET. Simulation and analysis of EMI radiation from complex PCB/MCM
structures and systems with enclosure and cables.
QUIET EXPERT. Assessment of EMC (electromagnetic compatibility)/EMI
problems in complex PCBs; can incorporate proprietary design rule checks.
HYPERLYNX. Signal integrity analysis of high-speed boards.
BLAST. Advanced static timing verification for PCB designs; analysis for
manufacturing tolerances; pinpoints location of timing violations.
HIGH-SPEED PCB DESIGN SOLUTIONS
DXDESIGNER HSD. Design definition with high-speed PCB planning and
simulation (including constraint management, pre-placement prototyping, and
topology exploration); includes tools for library and data management,
design reuse, component selection from corporate databases, and schematic
documentation and Web-based schematic viewing. DxDesigner HSD also is
available with logic simulators and mixed-signal co-simulation. Modules
also are available individually under a variety of product names including
DxDataBook, DxVariantManager and ePlanner.
A new product that simulates electrical characteristics
before producing the printed circuit board. ePlanner allows the user
to enter overall product design constraints into the software toolPOWERPCB. Automatic and to specify many physical design aspects of a printed circuit
board long before committing the design to manufacturing;
o eArchitect. A product for design specificationinteractive routing and determining
whether functions should be performed by hardware or softwareOLE (object linking and
making other critical system-level tradeoffs during the early stages
of the electronic product design process; and
o Dx Variant Manager. A product that provides web-based capabilities
that enable designs to be reused and customized.
In August 1999, Innoveda acquired Transcendent Design Technology, Inc.
Transcendent's products are used, primarily in the automotive and aerospace
industries, to design cable systems and connectors. The Transcendent product
family includes:
o TransCable, a design environmentembedding) automation functionality for the design of cableshigh-speed printed
circuit boards. Includes fabrication analysis tools.
BLAZEROUTER. Routing algorithms for multi-layer, high-density PCBs and
connectors;
o TransDatabook, a parts library (containing previously designed
cablesadvanced packages.
XTK. See "Signal Integrity/EMI Analysis Solutions".
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ENTERPRISE INTEGRATION SOLUTIONS
DXENTERPRISE. Links the engineering world with purchasing and connectors) browser system;
o TransLayout, for synthesizing cable connectors;
o interfaces to mechanical computer aided design systems;manufacturing
through integration with enterprise solutions from Agile Software and
o TransAnalysis, for simulating the electronic effects of wire harness
and cable systems within electronic products.
o TransOVM, an options and variants manager that simplifies the
process of designing complex wiring harnesses.
o TransHarness, a tool for defining manufacturable harnesses.
o TranSACT, a tool for the automated creation of physical schematics.
o Computer Graphics Metafiles (CGM) Interfaces, three interfaces that
complement Innoveda's TransCable, TransLayout and TranSACT tools.
o CAT/TransCable, Bi-directional software interface to CATIA.
o SDRC/TransCable, Bi-directional software interface to SDRC's
I-DEAS(TM)
Visual HDL
Visual HDL is a graphical design entryMatrixOne.
DXPARTS. Web-based component search tool that allowsprovides automatic symbol
generation, details on life-cycle status, alternative part sourcing and
detailed specifications for over 14 million parts.
DXLIBRARYSTUDIO. A graphical environment for managing component and design
reuse data; open architecture accommodates third-party tool integration.
DXPDF. Distributes schematics and designs (including hierarchy) via
intelligent PDF files for easy viewing.
SYSTEM-LEVEL DESIGN
Innoveda's system-level design (SLD) offerings help engineers design and
analyze systems consisting of complex integrated circuits with embedded
software. These solutions enable customers to conceptualizedesign their software and
capture a design. It provides systemhardware simultaneously, and verify that the product will work, well before
they prototype it. Innoveda's solutions cover the specification, design management,
graphical design creation, graphical level simulation, automatic code generation
and high-speed compiled code simulation of the design. It assists design
engineers in meeting the market demands for rapid time-to-market, increased
product functionality and lower product cost while providing the companies that
employ these engineers an efficient way to document, revise and distribute the
highly valuable intellectual property they create. Visual HDL automates manual
design entry and
verification by enabling design engineers to createof complex field programmable gate arrays (FPGAs),
system-on-chip and verify
designs using familiar graphical paradigms rather than less
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intuitive textual code. Visual HDL allows engineers to quickly determine the
cause of a bug by highlighting the specific line of text and the related
graphical representation where the error exists, thereby significantly
shortening the time to debug a program. Visual HDL has become an industry leader
for graphical design creation, analysis and intellectual property management and
is available for use on both UNIX workstations and personal computers.
Visual HDL is designed to providemultiple-board systems.
Innoveda offers the following key benefits:
o increasedsystem level design productivity;
o highly interactive causeproducts:
VISUAL ELITE. An HDL (hardware description language) and effect feedback forsystem-level
design debugging;
o enhanced documentation of designs algorithms;
o graphical presentation to allow new developers to better understand
a design; and
o complete and understandable design archives for future design
revisions.
Visual Elite
Visual Elite, which the Company released in January of 2001, is the next
generation of the company's Visual HDL toolsolution for high-level graphical and textual design, verification
and reuse. It is an advanced HDL (hardware description
language)provides virtual prototyping and system-level design tool thatsystem architect performance
analysis, and supports C/C++, VHDL and Verilog (the most common design
languages used by hardware engineers) language modeling with a
state-of-the-art Graphical User Interfacegraphical user interface (GUI) and multi-language textual
and graphical editors.
Visual Elite supports system-levelVISUAL IP. Encrypts, packages and distributes confidential design
enablingsimulation models to selected users, to capture and integrate their specification at any
level, and co-simulate both C++ and HDL, all in the same design environment
through a common GUI. Visual Elite is part of the Innoveda SLD (system level
design) suite, a complete, integrated environment for the design, exploration
and verification of hardware and software architectures.
Visual Elite is designed to provide the following key benefits:
o enable users to create C/C++, VHDL and Verilog blocks in a single
tool;
o perform co-simulation of Verilog and VHDL designs;
o co-simulate C/C++ and HDL designs.
o allow users to generate a virtual prototype of the system (C-based
design) that can be linked to the application software for early
verification of the software against the system hardware model.
Text To Graphics
Text To Graphics converts a design model initially created in an all-text style
to the graphical representation of Visual HDL where it can be visualized by
those new to the design team and used for making modifications to the model.
Text to Graphics provides companies who purchase Visual HDL and Visual Elite
with an automated methodology to convert their existing designs into the Visual
HDL or Visual Elite format. Prior to developmentreuse of this product, Visual HDL was
generally purchased for doing new designs. Existing text-based designs, which
can contain thousands of lines of code, had to be reviewed line by line to
understand how a model worked. Text to graphics thus expanded the use of Visual
HDL by making it easy to convert text-based code to a graphics-based
presentation. Working from a graphics representation is especially useful to
international users who may not understand the nuances of the common English
programming constructs.
8
Text to Graphics is designed to provide the following key benefits:
o automatic conversion from a text-based design to a graphical
representation of the design which can be used in Visual HDL for
design analysis and simulation; and
o Re-constructs the design graphically so that new users can easily
grasp the designs concepts and algorithms.
Visual IP
Visual IP provides a method of packaging design models, a common form of
intellectual
property so they may be re-used in and thus reducing the design
time for, subsequent versions or other designs.
Companies spend significant
amounts in developing and testing models, and re-use is a key strategy for many
companies to leverage their existing technology. Visual IP provides a mechanism
for distributing these highly confidential simulation models to other users,
either within the organization or externally, while at the same time protecting
the intellectual property value through encryption. The protection is not only
so they cannot be copied, but so that internal users cannot change the source
code which represents the design, thus eliminating the value of all the prior
testing that has been done on the model.
Visual IP is designed to provide the following benefits:
o encryption of intellectual property for design re-use;
o generation of models which can be used with any simulator;
o generation of models which can be executed stand-alone allowing the
user to apply his own criteria to a model before selecting it for
reuse; and
o providing a safe mechanism for companies to provide soft versions of
their design while maintaining the proprietary nature of their
intellectual property.
High-Speed System Design Products
As the speed at which electronic products run continually increases, traditional
system design methods are no longer adequate. Innoveda's High-Speed System
Design products allow designers to consider high-speed effects early and
throughout the design process so that they can eliminate this type of design
error before being prototyped.
Innoveda's High-Speed System Design product line includes:
o BLAST: for analyzing the speed of various parts of the design to
ensure that the product will function correctly;
o XTK: for analyzing the effects that one connection on the printed
circuit board may have on another;
o QUIET and QUIET Expert: for analyzing the potential for electrical
radiation from a wire;
o AC Grade: for analyzing the effect of large ground-plane signal
changes on the rest of the printed circuit board; and
o ISIS Preview: for producing a graphical diagram of how chips are
located on the printed circuit board and relocating those chips as
needed.
o HyperLynx: for pre- and post-layout signal integrity simulation,
including EMC and crosstalk analysis.
o Field Programmable Gate Array Design Products
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Innoveda's IntelliFlow automated process manager pulls the entire field
programmable gate array solution together. With IntelliFlow, users can control
their design process from a single, easy-to-use graphical interface. IntelliFlow
manages the tools and data throughout the entire field programmable gate array
design process, even running the applicable device vendor's place and route
tools - those tools used for the final physical design of the chip.
Innoveda's Field Programmable Gate Array products include:
o HDLPad: for editing the textual description of the field
programmable gate array;
o ViewDraw: for graphical entry of the design;
o StateCAD: for a high-level graphical description of the function of
the field programmable gate array; and
o Fusion: for simulation of designs to test whether the function of
the design matches its expectations.
For field programmable gate array synthesis (to translate and optimize the
design), Innoveda partners with Synopsys to sell and support FPGA Express.
HDL Score
HDL Score is a verification tool that verifiesSCORE. Verifies quantitatively how well a particular testone or more tests have
exercised a design. It provides a quantitative measure of the quality
of simulation tests that have been applied to an entire design model or to
selected portions of athe design.
Simply stated, HDL Score answers the question
"have I adequately tested my design with the tests I have developed?" To answer
this question, HDL Score provides a percentage measurement of how much of the
design has been exercised with the tests. At the end of any simulation, the user
can get the "score" (or coverage) he has accomplished. HDL Score works with all
popular simulation environmentsE-SIM. A Native Software Simulation (NSS) environment for embedded software
development and fits seamlessly into the design verification
process. In addition, HDL Score provides a graphic user interface that displays
exactly which statements in the model have been executed and, more importantly,
which statements have not been executed.
HDL Score is designed to provide the following benefits:
o determine how much of the design has been tested;
o provide graphical display of untested areas of the design;
o provide a percentage of the design covered by each test so that
tests that are redundant can be eliminated to save simulation time;
and
o provide test ordering capability so high coverage tests can be
simulated first, thus exposing potential errors early in the
simulation run.
V-CPU
V-CPU is atesting.
V-CPU. A co-verification tool that allows the system designer to execute
software code by running it on a simulated model of a chip or system.
It is used
for hardware/software co-verification to ensure the software design works
properly7
ELECTROMECHANICAL DESIGN
Innoveda's electromechanical (EM) product family, called TransDesign,
focuses on the proposed hardware before the chipdesign and verification of wire harnesses for electronic
systems. It helps companies involved in transportation - automotive,
aerospace, shipping and rail - differentiate their products electronically.
TransDesign is produced. V-CPU allows
embedded-system designersintended to analyzereduce costs, shorten development time and
validate the interaction between
hardware and software early in the development process, while design options are
still open. Co-verification of software can begin as soon as there is an
executable description of the software and hardware. This early integration
allows problemsaccelerate time to be detected while they are still easy to fix. With V-CPU,
software developers can test software against simulated hardware at high
execution rates, and hardware developers can validate the system architecture
with stimulus provided by the software. In short, V-CPU allows early simulation
of hardware with the actual software before the hardware is built.
10
V-CPU is designed to provide the following benefits:
o use of the actual software to test the hardware under design,
exposing potential miscommunication between hardware and software
groups;
o encourage early design communication between hardware and software
groups when co-verification displays unexpected results;
o minimize the activity in the hardware simulator allowing for faster
run times; and
o provide a specific interface to the hardware simulator to allow use
of standard programming languages to create test suites.
Design Exchange
To enhance productivity in a geographically diverse company or enterprise,
Innoveda has a set of Internet-enabled design data management tools called
Design Exchange. These tools include:
o Dx Databook: for chip search and selection from a local or corporate
database;
o Dx Library Studio: for centralized chip and model (an electrical
description of the chip) management; and
o Dx Data Manager: for team-based, work-in-progress design data
management.
Design Exchange tools allow disperse teams of designers to work together over
the Internet or an Intranet and link to a customer's other systems, so that
design teams can work with the approved library of electronic components and
with manufacturing groups within their company.
In September 2000, Innoveda acquired PADS Software. Innoveda plans to integrate
PADS products into Innoveda's design tools to provide solutions from concept
through the manufacturing of printed circuit boards. The PADS product familymarket.
TRANSDESIGN technology includes:
PowerPCB
PowerPCB, is a shape-based printed circuit board layout system. PowerPCB enables
design engineers to develop complex printed circuit boards while optimizing
board geometries, electrical performance and manufacturing efficiencies.
Innoveda also offers additional integrated products that address other steps in
the interconnect design process, including:
o BlazeRouter, for automatic interconnect routing;
o PowerBGA, a high density interconnect solution that automates
advanced packaging design;
o LineSim, a tool that calculates transmission line constraints at the
schematic entry level;
o BoardSim, a tool for printed circuit board signal integrity and
emission analysis;
o CAM350, a tool that automates and optimizes the fabrication process
for printed circuit boards, multi-chip modules and advanced
packaging designs; and
o PowerLogic, a tool for creating schematic diagrams.
When employed as a family, these products integrate the interconnect development
process fromTRANSCABLE. An intelligent schematic capture through board fabrication.
11
Innoveda Customerssystem for wire harness and
cable design.
TRANSDATABOOK. A parts library browser system.
TRANSLAYOUT. A topological system design environment for wire synthesis and
routing.
TRANSOVM. A complexity management system that captures and integrates
options and variants into the design process.
TRANSHARNESS. Technology for capturing harness-manufacturing diagrams.
Diagrams can be automatically generated from TransLayout.
TRANSACT. An automated physical schematic generator based on TransCable and
TransLayout designs.
UNIFIED BILL OF MATERIALS (UBOM). A single repository for electrical and
mechanical data, supported by a commercial database (Oracle).
INNOVEDA CUSTOMERS
Users of Innoveda's products range from small companies to some of the world's
largest manufacturing organizations. Industries represented include computers,
consumer electronics, semiconductors, telecommunications, military/defense,
automotive and aerospace, industrial, medical equipment and universities. In
2001, 2000 1999 and 1998,1999, no single customer accounted for more than 10% of total
revenue.
Innoveda BacklogINNOVEDA BACKLOG AND SEASONALITY
Innoveda generally ships its products within 30 days after acceptance of a
customer purchase order and execution of a license agreement.order. Accordingly, Innoveda does not believe that its backlog at any
particular point in time is indicative of future sales levels.
Innoveda SalesHistorically, the Company has observed a seasonal pattern in the EDA market
which reflects that the fourth quarter of the calendar year normally has the
highest amount of customer spending while the first quarter has the lowest.
Therefore the Company expects its revenue in a typical year will be lowest in
the first quarter and highest in the fourth quarter.
8
INNOVEDA SALES
Innoveda has developed multiple distribution channels, including a direct sales
organization, telesales, independent distributors and value-added resellers, and
strategic sales alliances with certain significant semiconductor and printed
circuit board layout software vendors.
Direct Sales Organization.resellers.
DIRECT SALES ORGANIZATION. Innoveda markets its products in North America,
Europe and China primarily through a direct sales organization, which consisted
of 95104 salespersons and application engineers as of February 28, 2001.2002. Innoveda
currently has 2422 sales offices located throughout North America, Europe and
China.
Direct sales teams, generally consisting of one salesperson and one application
engineer, focus on large accounts in assigned territories. These sales teams are
responsible for all sales activities within their assigned territories and
coordinate the activities of distributors and value-added resellers. Application engineers
specializing in certain products are assigned to each sales territory and
support individual sales teams. Each member of Innoveda's direct sales and
support teams is assigned sales quotas and has a significant portion of their
compensation based on sales performance. Approximately 50% and 30% of expected
compensation for salespersons and application engineers, respectively, are
typically based on sales performance.
Telesales.TELESALES. The telesales channel consists of telesales representatives covering
assigned geographic territories in North America and Europe. These
representatives are an inside counterpart to the field, focusing on upgrading
and servicing the installed customer base. They provide sales support forbase, selling to smaller accounts and
selling renewal maintenance, software sales and otherwise upgrade existing customers by
selling additional seats.maintenance. Approximately 45% of expected compensation for a
telesales representative is based on sales performance.
Distributors.DISTRIBUTORS. Innoveda appoints independent distributors to market its products
to customers not served by Innoveda's direct sales organization. Innoveda uses
distributors as its principal distribution channel in much of Asia, and
currently has distributors covering Japan, Israel, Taiwan, Korea, Australia,
Singapore, China and India. Distributors are also appointed in the United States
and Europe to
supplement Innoveda's direct sales efforts by focusing on customers not served
by direct sales teams.
Value Added Reseller.VALUE-ADDED RESELLER. Innoveda has established a broad-based value added
reseller distribution network. This group primarily focuses on selling
Innoveda's software tools to the small and medium size accounts in North
America.
Innoveda MarketingINNOVEDA MARKETING
Innoveda's marketing organization performs the product marketing, technical
marketing, corporate communications and strategic marketing functions. TheAs of
February 28, 2002, the group consistsconsisted of 3828 marketing professionals with specialized technical knowledge and
experience in the design automation software business.professionals. The
marketing organization:
oorganization develops strategy and identifies target markets; 12
o keeps
abreast of customer design methodologies;
o identifies customer requirements and
new product opportunities;
o establishes product vision and direction for both
existing products and new products;
o provides the sales channel with training,
competitive analyses, pricing, packaging, collateral materials, demonstrations
and reference accounts; and o provides marketing communications support for
branding visibility and lead generation through press relations, advertising, direct mail,
promotions, trade shows, seminars and web sites.
Innoveda Competition9
INNOVEDA COMPETITION
The electronic design automation industry is highly competitive and Innoveda
expects competition to increase as other electronic design automation
companies continue to introduce new software tools used to design electronic
products. Innoveda principally competes with Cadence Design Systems, Mentor Graphics,
Zuken K.K., Altium, Inc., Intercept Technology, DDE, USA., and a number of
smallerother firms. Indirectly, Innoveda also competes with other firms
that offer alternatives to electronic product design automation tools and could
potentially offer more directly competitive products in the future. Certain of these companies have significantly greater financial,
technical, sales and marketing resources and larger installed customer bases
than Innoveda. They also have established relationships with many customers,
which can increase the complexity, difficulty and time required to compete
for business from these customers. Some of Innoveda's current and future
competitors offer or maymight offer a more complete range of electronic design
automation products and maymight distribute products that directly compete with
Innoveda's products.
Innoveda also competes on the basis of various factors including:
o product capabilities;
o product performance and capacity;
o availabilitywith manufacturers of electronic chip information;
o price;
o supportdevices that have
developed or have the capability to internally develop their own electronic
design automation products. Many manufacturers of electronic devices may be
reluctant to purchase services from independent vendors such as Innoveda
because they wish to promote their own internal design departments. In the
electronics design automation industry, standards;
o easeInnoveda competes with numerous
electronic design and consulting companies as well as with the internal
design capabilities of use;
o distribution channel alignment with customers;
o firstelectronics manufacturers. Other electronics companies
and management consulting firms continue to market; and
o customer technical support and service.
Innoveda believes that it competes favorably overall with respect to these
factors. However, in particular cases,enter the electronics design
automation industry.
Innoveda's competitors mayoffer or might offer products with functionality which is
sought by Innoveda's prospective customers and which differs from that
offered by Innoveda. In addition, some competitors maymight achieve a marketing
advantage by establishing formal alliances with other electronic design
automation vendors and chip manufacturers. Further, the electronic design
automation industry in general has experienced significantSignificant consolidation in
recent years, and the acquisition of one of Innoveda's competitors by a
larger, more established electronic design automation vendor could create a
more significant competitor.
Innoveda Product Developmentcompetes on the basis of various factors including product
capabilities, product performance and capacity, price, support of industry
standards; ease of use; distribution channel alignment with customers; and
customer technical support and service. Innoveda believes it competes favorably
overall with respect to these factors.
INNOVEDA PRODUCT DEVELOPMENT
Innoveda's product development efforts are focused on integrating products
acquired in recent acquisitions and enhancing and broadening itsInnoveda's current
line of products, including the development of new products and
13
the release of
improved versions of existing products on a regular basis. As of February 28,
2001,2002, Innoveda's product development and customer support staff consisted of 214159
persons. Innoveda's product development staff receives support from both
Innoveda's consulting services personnel and its product marketing organization
to enable it to develop products that satisfy market requirements.
Innoveda has product development facilities in Marlboro, Massachusetts;
Camarillo, California; Arden Hills, Minnesota; Redmond, Washington; Herzlia, Israel; and Oulu,
Finland. Innoveda also contracts with Melina, Inc. for certain development work that is
conducted in Moscow, Russia.
Innoveda maintains cooperative relationships with most major hardware vendors on
which Innoveda's products operate, as well as with new hardware vendors who desirewant
Innoveda to modify its products for operation on their computer systems.
Innoveda believes that these relationships allow it to design products that
respond to emerging trends in computing, graphics and networking technologies.
In certain instances, these relationships include joint marketing agreements
that primarily outline a procedure for communication between Innoveda and the
vendor with respect to technology and possible sales leads.
During the fiscal years ended December 29, 2001, December 30, 2000 and January
1, 2000, and January 2,
1999, Innoveda's research and development expenses were approximately $26.7
million, $22.6 million $11.3 million and $10$11.3 million, respectively. Innoveda believes that
it must continue to commit substantial resources to enhance and extend its
product line to remain competitive. Innoveda intends to continue to devote
substantial resources to its internally-funded product development and, if
appropriate, to enter into development agreements with third parties.
Innoveda Service and Support10
INNOVEDA SERVICE AND SUPPORT
A key part of Innoveda's strategy to help make its customers successful is to
provide a wide range of support services including on-site and hot-line support
for designers, in-house and on-site training on all products, and consulting
services for specialized tool development, tool and methodology training and
design work. Innoveda believes its focus on customer service has helped it
achieve a high degree of customer satisfaction.
Product support is provided pursuant to maintenance agreements that generally
extend for one year after the expiration of the product warranty, which is
generally thirty days, and are renewable annually thereafter. The standard
annual maintenance fee charged to customers is currently 15% of the then-current
list price for the product. Innoveda's distributors and strategic sales partners
charge their customers for maintenance and remit a negotiated portion to
Innoveda. Training and consulting services are generally not included in
Innoveda's software license or maintenance fees and are usually provided on a
separately negotiated basis.
Product Revisions and Upgrades.PRODUCT REVISIONS AND UPGRADES. Customers with maintenance agreements receive
all product revisions without additional charge. Product upgrades, which add
significant new product functionality, are provided to customers for a fee that
is generally equal to the difference between the list price for the upgrade and
the license fee previously paid by the customer for the applicable product.
On-Site, Web and HotLine Support.ON-SITE, WEB AND HOTLINE SUPPORT. Support is available to Innoveda's software
users on both a pre- and post-sale basis. Application engineers work directly
with Innoveda's direct sales force to provide on-site support that is often
needed during critical stages of the user's evaluation and design process. The majority of Innoveda's customers
requiring support contact Innoveda through Innoveda's toll-free hotlines, which
allow users access to engineers who are knowledgeable in the use of the product.
Support is available from 8:30 a.m. to 8:00 p.m., Eastern Time, Monday through
Friday, excluding holidays. In addition to the hotline, questions or suggestions
can be submitted by fax, an electronic bulletin board or the Internet network
mail system. Innoveda also offers a free web-based 24x7 streaming video service
called TecTips, that is available 24 hours per day and 7 days per week and that
answers the most commonly asked customer questions and shows customers how to
solve technical problems and use the Company's tools effectively.
14
In addition, post-sales product application support is provided to customers
through a series of automated support channels, including:
o- a quarterly technical support newsletter providing answers to common
questions;
o- an electronic bulletin board system (a web-based support system)
providing a forum for exchanging data and ideas; and
o- a fax-on-demand system enabling customers to retrieve faxes of
technical application notes.
An automatic call distribution system connects North American support callers
with technical support personnel based in Marlboro, Massachusetts, San Jose,
California and Camarillo, California. Additionally, technical support personnel
based in California, Massachusetts, the United Kingdom, Israel and Japan have
immediate access to shared, problem-solving technical information via a
sophisticated on-line software support system.
Customer Training.CUSTOMER TRAINING. Innoveda offers a variety of training programs for users
ranging from introductory, broad-based courses to advanced and specialized
courses. Training is offered at Innoveda's facilities in Marlboro,
Massachusetts; San Jose, California; London,Reading, England; Marseilles,Paris, France; Munich,
Germany; and Tokyo, Japan. On-site training is also available.
Innoveda Consulting Services.INNOVEDA CONSULTING SERVICES. The Innoveda Consulting Services Group is a global
consulting organization staffed by experts in electronic design. The goal of the
Innoveda Consulting Services Group is to meet the diverse and demanding needs of
customers designing today's complex systems. The Innoveda Consulting Services
Group provides a complete line of consulting services including training,
product jumpstart programs and product design methodology assessment and partial or
full design implementation.assessment. Other
specialized services include systems integration, design database translation
and custom library development.
Innoveda Proprietary Rights11
INNOVEDA PROPRIETARY RIGHTS
Innoveda relies on a combination of contracts, patents, copyright and trade
secret laws to establish and protect proprietary rights in its technology.
Innoveda generally licenses and distributes its products under agreements
providing for non-exclusive licenses. TheGenerally, the licensed software may be
used solely for internal operations on designated computers or networks. The
source code of Innoveda's products is protected both as a trade secret and as an
unpublished copyrighted work and is not generally made available to third
parties. Despite these precautions, third parties may unlawfully copy or
otherwise obtain and use Innoveda's products or technology.
Innoveda provides its products to end-users primarily under "shrink-wrap"
license agreements included within the software or as part of the packaging for
the software. In addition, Innoveda delivers certain of its products
electronically under an electronic version of a "shrink-wrap" license agreement.
These agreements are not negotiated with or signed by the licensee, and thus may
not be enforceable in certain jurisdictions. In addition, the laws of some
foreign countries do not protect Innoveda 's proprietary rights as fully as do
the laws of the United States. Innoveda's means of protecting its proprietary
rights in the United States or abroad may not be adequate, and competitors may
independently develop similar technology. Innoveda could be increasingly subject
to infringement claims as the number of products and competitors in Innoveda's
industry segment grows, the functionality of products in its industry segment
overlaps and an increasing number of software patents are granted by the United
States Patent and Trademark Office. Although Innoveda is not aware of any
threatened litigation or infringement claims, a third party may claim such
infringement by Innoveda with respect to current or future products. Any such
claims, with or without merit, could be time-consuming, result in costly
litigation, cause product delays or require Innoveda to enter into royalty or
licensing agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to Innoveda or at all. Failure to protect its
proprietary rights or claims of infringement could have a material adverse
effect on Innoveda 's business, financial condition, results of operations or
cash flows.
15
Innoveda EmployeesINNOVEDA EMPLOYEES
As of February 28, 20012002 Innoveda had 529395 employees, including 189132 in marketing
and sales, 181128 in product research and development, 6261 in customer support,
consulting and training, 2721 in manufacturing and sales administration and 7053 in
general and administrative activities. None of Innoveda's employees is
represented by a labor union or is subject to a collective bargaining agreement.
Innoveda has never experienced a work stoppage and believes that its employee
relations are excellent.
ITEM 2. PROPERTIES
Innoveda occupies 101,634101,585 square feet of space at its headquarters in Marlboro,
Massachusetts under a lease expiring in October 2002, subject to Innoveda's
right to extend the lease for up to six additional years. Innoveda also leases
14,397 square feet of office space in Herzlia, Israel, 8,52516,965 square feet of
office space in San Jose, California, 13,450 square feet of office space in
Camarillo, California, 8,50015,934 square feet of office space in the United KingdomEurope and
additional space in small sales and support offices in locations in North
America, Europe and Asia.
ITEM 3. LEGAL PROCEEDINGS
Innoveda is not currently subject to any material legal proceedings. From time
to time, Innoveda is subject to various legal proceedings incidental to the
conduct of its business.
12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 30, 2000,29, 2001, there were
no matters submitted to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, and their respective ages and positions
with the Company as of February 28, 2001,2002, are as follows:
Name Age Position
----NAME AGE POSITION
- ---------------------- --- ----------------------------------------------------------
William J. Herman 4142 Chairman of the Board and Chief Executive Officer
Richard G. Lucier 42 President and Chief Operating Officer
George M. ("Ken") Bado 47 Executive Officer; DirectorVice President
Paula J. Cassidy 3233 Vice President, of Human Resources
Peter T. Johnson 5354 Vice President, of Business Development and Chief
Legal Officer, Secretary
Gary L. Kiaski 46 Vice President of Worldwide Sales
Richard G. Lucier 41 Executive Vice President and Chief Operating Officer
Guy Moshe 4344 Senior Vice President and General Manager of
Innoveda- Israel
Kevin P. O'Brien 4445 Vice President, of Finance, Administration, Chief
Financial Officer and Chief Financial OfficerTreasurer
WilliamWILLIAM J. HermanHERMAN has served as the Company's President and Chief Executive Officer and a directoras
Chairman of the Board since March 2000.2000 and served as President of the Company
from March 2000 to February 2002. From October 1998 to March 2000, Mr. Herman
served as President and Chief Executive Officer and a director of Viewlogic
Systems, Inc.Inc, an electronic design automation company ("Viewlogic"). From
December 1997 to September 1998, Mr. Herman served as President of the Viewlogic
Systems Group of Synopsys, Inc., an electronic design automation company. From
1995 to November 1997, Mr. Herman served in various senior management
capacities, most recently as President and Chief Executive Officer, at Viewlogic
Systems, Inc. From 1994 to 1995,, an electronic design automation company distinct from Viewlogic
(the "Prior Viewlogic"), that Mr. Herman co-founded in 1984.
RICHARD G. LUCIER has served as the Company's President since February 2002. Mr.
Lucier has served as Executive Vice President and Chief Operating Officer since
March 2000. Mr. Lucier served as the Executive Vice President and Chief
Operating Officer of Viewlogic from October 1998 to March 2000 and served as a
director of Viewlogic from October 1998 to December 1999. From December 1997 to
September 1998, Mr. Lucier served as Senior Vice President of Silerity, Inc.,Engineering and
Marketing of the Viewlogic Systems Group of Synopsys. From 1986 to November
1997, Mr. Lucier served in various capacities, most recently as Group Vice
President of the Systems Group, at the Prior Viewlogic.
GEORGE M. ("KEN") BADO has served as the Company's Executive Vice President,
responsible for worldwide sales and the consulting services group, since July
2001. From March 2000 to June 2001, Mr. Bado served as the Executive Vice
President of Operations at Centric Software Incorporated, a computer-aided engineering software company.
PaulaFrom 1988 to November 1999, Mr. Bado served in various senior management
positions, most recently as Senior Vice President of World Trade, at Mentor
Graphics Corporation, an electronic design automation software company.
PAULA J. CassidyCASSIDY has served as the Company's Vice President of Human Resources
since March 2000. Ms. Cassidy served as the Vice President of Human Resources of
Viewlogic systems, Inc. from October 1998 to
16
March 2000. From December 1997 to September 1998,
Ms. Cassidy served as Vice President of Human Resources of the Viewlogic Systems
Group of Synopsys. From 1989 to November 1997, Ms. Cassidy served in various
capacities, most recently as Manager, Human Resources, at Viewlogic Systems, Inc.
Peterthe Prior Viewlogic.
13
PETER T. JohnsonJOHNSON has served as the Company's Vice President of Business
Development, Chief Legal Officer and Secretary since March 2000. Mr. Johnson
served as the Vice President of Business Development and Chief Legal Officer of
Viewlogic Systems, Inc. from October 1998 to March 2000 and as Secretary of Viewlogic from May
1999 to March 2000. From May 1998 to October 1998, Mr. Johnson served as Vice
President, Chief Legal Officer and Secretary of Avid Technology, Inc., a digital
media software developer. From December 1997 to April 1998, Mr. Johnson served
as Vice President and General Counsel of the Viewlogic Systems Group of
Synopsys. From 1995 to November 1997, Mr. Johnson served as Vice President,
General Counsel and Secretary of Viewlogic Systems, Inc.
Gary L. Kiaski has served as the Company's Vice President, Worldwide Sales since
March 2000. Mr. Kiaski served as the Vice President, Worldwide Sales of
Viewlogic System, Inc. from October 1998 to March 2000. From December 1997 to
September 1998, Mr. Kiaski served as Vice President of Worldwide Sales of the
Viewlogic Systems Group of Synopsys. From 1988 to November 1997, Mr. Kiaski
served in various capacities, most recently as Vice President, Western Region
Sales, at Viewlogic Systems, Inc.
Richard G. Lucier has served as the Company's Executive Vice President and Chief
Operating Officer since March 2000. Mr. Lucier served as the Executive Vice
President and Chief Operating Officer of Viewlogic Systems, Inc. from October
1998 to March 2000 and served as a director of Viewlogic from October 1998 to
December 1999. From December 1997 to September 1998, Mr. Lucier served as Senior
Vice President of Engineering and Marketing of the Viewlogic Systems Group of
Synopsys. From 1986 to November 1997, Mr. Lucier served in various capacities,
most recently as Group Vice President of the Systems Group, at Viewlogic
Systems, Inc.
Guy MoshePrior Viewlogic.
GUY MOSHE has served as the Company's Senior Vice President and General Manager
of Innoveda- - Israel since March 2000. Mr. Moshe served as Chief Technology Officer and
President of Summit Design (EDA), Ltd. from February 1999 to March 2000 and as
Vice President, General Manager and Chief Operating Officer of the Design
Solutions Division of the Company from September 1997 to March 2000. From May 1996
to September 1997 Mr. Moshe served as General Manager of Summit Design (EDA)
Ltd. Mr. Moshe served as the Vice President of Product Marketing of the Company
from 1994 to May 1996.
KevinKEVIN P. O'BrienO'BRIEN has served as the Company's Vice President, Finance,
andAdministration, Chief Financial Officer and Treasurer since March 2000. Mr.
O'Brien served as the Vice President, Finance and Chief Financial Officer of
Viewlogic Systems, Inc. from October 1998 to March 2000 and as Secretary of Viewlogic from
October 1998 to May 1999. From April 1998 to September 1998, Mr. O'Brien served
as Vice President of Finance of the Viewlogic Systems Group of Synopsys. From
September 1997 to March 1998, Mr. O'Brien served as an independent management
consultant. From October 1995 to August 1997, Mr. O'Brien served as Chief
Financial Officer at SmarTel Communications, Inc., a telecommunications company.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on the Nasdaq National Market under
the trading symbol SMMT"SMMT" on October 18, 1996. Prior to that date, there was no
established trading market for the Common Stock. On March 24, 2000, in
connection with the change of the Company's name from Summit Design, Inc. to
Innoveda, Inc., the common stock began trading on the Nasdaq National Market
under the symbol was changed to INOV."INOV". The closing sale price for the Common Stock on the
Nasdaq National Market as of the close of business on February 28, 20012002 was
$3.875$2.35 per share. As of February 28, 2001,2002, the Company had approximately 270229
stockholders of record. This number does not include stockholders who hold their
sharers in "street name" or through broker or nominee accounts.
17
The following table sets forth the high and low salessale prices per share of the
Company's Common Stock for the periods indicated, as quoted on the Nasdaq
National Market:
FISCAL 1999
Quarter ended March 31, 1999........................ $9.56 $3.31
Quarter ended June 30, 1999......................... $3.94 $2.47
Quarter ended September 30, 1999.................... $3.63 $2.25
Quarter ended December 31, 1999..................... $4.19 $2.13
FISCAL 2000
Quarter ended April 1, 2000......................... $9.38 $3.44
Quarter ended July 1, 2000.......................... $6.09 $3.19
Quarter ended September 30, 2000.................... $4.81 $3.53
Quarter ended December 30, 2000..................... $3.50 $1.75
FISCAL 2001
Quarter ended March 31, 2001........................ $4.31 $2.06
(through February 28, 2001)
HIGH LOW
FISCAL 2000
Quarter ended April 1, 2000 $ 9.38 $ 3.44
Quarter ended July 1, 2000 $ 5.75 $ 3.56
Quarter ended September 30, 2000 $ 4.81 $ 3.53
Quarter ended December 30, 2000 $ 3.50 $ 1.75
FISCAL 2001
Quarter ended March 31, 2001 $ 4.31 $ 2.06
Quarter ended June 30, 2001 $ 3.98 $ 2.38
Quarter ended September 29, 2001 $ 2.68 $ 0.67
Quarter ended December 29, 2001 $ 2.00 $ 0.65
FISCAL 2002
Quarter ended March 30, 2002 $ 2.75 $ 1.80
(through February 28, 2002)
The Company did not pay any cash dividends on its Common Stock during the fiscal
years ended December 30, 200029, 2001 and January 1,December 30, 2000. The Company intends to
retain any earnings for use in its business and does not anticipate paying any
cash dividends on its Common Stock in the foreseeable future. The terms of Innoveda's line of credit and term loan
with Fleet Bank containagreement contains restrictions on Innoveda's ability to pay dividends without
the consent of Fleet Bank.its lender.
The stock markets have experienced price and volume fluctuations that have
particularly affected technology companies, resulting in changes in the market
prices of the stocks of many companies which may not have been directly related
to the operating performance of those companies. Such broad market fluctuations
may adversely affect the market price of the Company's Common Stock. In
addition, factors such as announcements of technological innovations or new
products by the Company or its competitors, market conditions in the computer
software or hardware industries and quarterly fluctuations in the Company's
operating results may have a significant adverse effect on the market price of
the Company's Common Stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Additional Risk Factors That Could Affect Operating Results and
Market Price of Stock".
15
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data relating to the Company should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included herein. The
selected balance sheet financial data set forth below for the Company as of
December 30, 200029, 2001 and January 1,December 30, 2000 and the selected statement of operations
financial data for each of the three years in the period ended December 30, 200029, 2001
are derived from the audited financial statements included elsewhere herein. All
other selected financial data set forth below for the Company is derived from
the financial statements not included elsewhere herein.
18
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended(1)
------------------------------------------------------
2000(3)YEARS ENDED(1)
-----------------------------------------------------
2001 2000 (2) 1999 1998(2) 1997(2) 1996(2)
------------------------------------------------------1998 (3) 1997 (3)
-----------------------------------------------------
Consolidated Statement of Operations Data:CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenue $ 91,417 $ 89,859 $ 53,499 $ 55,237 $ 63,987
$69,626
Merger-related restructuringRestructuring and merger costs and
in-process5,865 2,736 - - 6,725
Impairment of intangible assets 32,945 - - - -
In-process research and development 8,189 6,725- 5,453 - - -
Total costs and operating expenses 147,315 98,896 51,317 43,385 65,983
60,770
Income (loss) from operations (55,898) (9,037) 2,182 11,852 (1,996)
8,856
Net income (loss) (42,637) (11,168) 259 5,867 (1,199)
Net income (loss) per diluted share (1.09) (0.40) 0.02 1.08
Number of shares used in computing diluted
earnings (loss) per share 39,224 28,252 15,586 5,434
Consolidated Balance Sheet Data:CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit) $ (9,532) $ 4,656 $ (7,959) $ (6,509) $(14,719)$ (14,719)
Total assets $ 72,292 $ 142,624 $ 31,445 $ 24,892 $ 25,377
Long term debt, less current portion $ 1,750 $ 6,000 $ 14,379 $ 15,873 $ 130
Redeemable convertible preferred stock 0$ - $ - $ 32,000 $ 32,000 0$ -
Stockholders' equity (deficit) $ 12,391 $ 54,600 $ (45,399) $ (47,845) $ (5,629)
(1) Innoveda was created by the mergerbusiness combination of Summit Design, Inc.
and Viewlogic Systems, Inc., which was consummated on March 23, 2000. The
business combination was accounted for as a reverse acquisition as former
shareholders of Viewlogic owned a majority of the outstanding capital
stock of Summit Design subsequent to the business combination. Therefore,
for accounting purposes, Viewlogic is deemed to have acquired Summit
Design. All pre-merger financial information presented represents the
financial results for Viewlogic.
(2) The financial information of Innoveda for the fiscal years presented
prior to December 31, 1997 represent revenue and expenses derived
from the historical financial statements of an entity of which the
Innoveda business was previously a part. Innoveda does not have
balance sheet data for its business prior to December 31, 1997.
(3) Financial information for the fiscal year ended December 30, 2000,
includes the results of Summit Design, Inc. from March 24, 2000 and PADS
Software, Inc. from September 22, 2000.
(3) Financial information for 1997 and 1998 represent revenue and expenses
derived from the historical financial statements of an entity of which
the Viewlogic business was previously a part.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion together with the consolidated
financial statements and related notes appearing elsewhere in this Annual
Report on FormYOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS ANNUAL REPORT
ON FORM 10-K. This Item contains forward-looking statements within the
meaning of SectionTHIS ITEM CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A of the Securities Act ofOF THE SECURITIES ACT OF 1933 and SectionAND SECTION 21E of the
Securities and Exchange Act ofOF THE SECURITIES
AND EXCHANGE ACT OF 1934 that involve risks and uncertainties.
Actual results may differ materially from those included in such
forward-looking statements. Factors which could cause actual results to
differ materially include those set forth under the heading "Additional Risk
Factors That Could Affect Operating Results and Market Price of Stock"
commencing on page 27, as well as those otherwise discussed in this section
and elsewhere in this Annual Report on FormTHAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS.
FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE THOSE SET
FORTH UNDER THE HEADING "ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING
RESULTS AND MARKET PRICE OF STOCK" COMMENCING ON PAGE 41, AS WELL AS THOSE
OTHERWISE DISCUSSED IN THIS SECTION AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM
10-K. See "Important Note About
Forward Looking Statements"SEE "IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS".
19
OVERVIEW
Innoveda,Inc., a Delaware corporation, was created by the business combination
of Summit Design, Inc. and Viewlogic Systems, Inc., which was consummated on
March 23, 2000. The merger of Summit Design with Viewlogic was accounted for as
a reverse acquisition as former shareholdersstockholders of Viewlogic owned a majority of
the outstanding stock of Summit subsequent to the business combination. For
accounting purposes, Viewlogic is deemed to have acquired Summit Design. On
September 22, 2000, the Company completed its acquisition of PADS Software, Inc.
Accordingly, all historicalfiscal 1999 financial information presented herein, with the
exception of pro forma results, represents only the financial results for
Viewlogic, except that theViewlogic. The fiscal 2000 financial information presented in the consolidated
statements of operations, and the consolidated statements of cash flows
represents the results for Viewlogic for the periods stated and includes the
financial results offor Summit fromcommencing March 24, 2000, and the financial
results for PADS fromcommencing September 22,23, 2000.
Innoveda operates in the United States and international markets developing,
marketing and providing a comprehensive family of software tools used by
engineers in the design of advanced electronic products and systems, and
technical support and consulting services for those software tools. Innoveda
currently markets and sells its products worldwide through multiple distribution
channels, including independent distributors, value-added resellers, direct
sales and telesales.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements which have been prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP). The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate these estimates, including
those related to bad debts, intangible assets, income taxes, financing
operations, restructuring, long-term service contracts, employee benefits, and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We have identified below the accounting policies that we believe are most
critical to our business operations and are discussed throughout Management's
Discussion and Analysis of Financial Condition and Results of Operations where
such policies affect our reported and expected financial results.
17
Our critical accounting policies are as follows:
- Revenue recognition
- Allowance for doubtful accounts
- Valuation of long-lived assets
- Accounting for income taxes
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with Statement of
Position (SOP) No. 97-2, "Software Revenue Recognition," as amended by SOP 98-9,
and Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements"
Software revenue is recognized upon the shipment of the product provided that
persuasive evidence of an arrangement exists, the arrangement fee is fixed and
determinable and collection is probable. For arrangements involving multiple
elements, the arrangement fee is allocated to each element based on
vendor-specific objective evidence ("VSOE") of the fair value of the various
elements. VSOE of fair value is determined based on the prices at which the
elements are sold separately. If VSOE of fair value exists for all undelivered
elements but not for the delivered element, the portion of the arrangement fee
allocated to the delivered element is determined using the residual method. If
VSOE of fair value does not exist for all of the undelivered elements, the
arrangement fee is recognized ratably over the term of the arrangement. In
determining VSOE, management considers several factors which include product and
service price lists, historical transactions with similar terms and conditions,
and interpretation of contracts and agreements. If any of these factors were to
be misinterpreted, the result could be an error in determining which period
revenue should be recognized.
For term licenses of one year or less, which include post contract customer
support, revenue is recognized ratably over the term of the agreement, unless
the only support provided is telephone support, in which case the entire
arrangement fee is recognized at the beginning of the term.
Revenue from maintenance and support contracts is deferred and recognized
ratably over the term of the service period. Revenue from training and
consulting is recognized as the related services are provided.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts, which reflects our
estimate of the amounts owed by customers that customers will be unable to pay.
Management performs ongoing credit evaluations of its customers' financial
condition and limits the amount of customer credit when deemed necessary. The
Company bases its decision to extend credit to customers on a variety of factors
including ratings from a credit reporting bureau, bank and financial statements
provided by customers, and historical payment history of existing customers.
However, if the financial condition of our customers deteriorates and they
are not able to make payments in excess of our estimates of our allowance,
then we may need to increase our allowance for doubtful accounts which would
adversely impact our ability to collect cash, which could adversely impact
operations. We believe that the current estimate of the allowance for
doubtful accounts recorded as of December 29, 2001, adequately covers any
potential credit risks.
18
VALUATION OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including goodwill, purchased
technology and other intangible assets for impairment whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.
Factors we consider important which could trigger an impairment review include,
but are not limited to the following:
- significant underperformance relative to expected historical or
projected future operating results;
- significant changes in the manner of our use of the acquired assets or
the strategy for our overall business;
- significant negative industry or economic trends;
- significant decline in our stock price for a sustained period; and
- our market capitalization relative to net book value.
If an impairment review is indicated, the review includes an analysis of the
estimated future undiscounted net cash flows expected to be generated by the
assets over their estimated useful lives. If the estimated future undiscounted
net cash flows are insufficient to recover the carrying value of the assets over
their estimated useful lives, we record an impairment charge in the amount by
which the carrying value of the assets exceeds their fair value. Fair value is
determined generally based on discounted cash flows. In fiscal 2001, we
recognized an impairment charge of $32.9 million as a result of the application
of this accounting policy.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 142,
"Goodwill and Other Intangible Assets". SFAS No.142 requires that goodwill no
longer be amortized and instead be tested annually for impairment. The
provisions of SFAS No. 142 are required to be applied starting with fiscal years
beginning after December 15, 2001.
In August 2001, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS 121,
and the accounting and reporting provisions of APB 30, for the disposal of a
segment of a business.
The Company is currently evaluating the impact of these statements and they will
be adopted effective fiscal 2002.
If the Company were to incorrectly estimate the carrying value and estimated
useful life of its long-lived assets, it may incur an additional impairment
charge that would impact net income.
19
ACCOUNTING FOR INCOME TAXES
The Company prepares estimates of income taxes in each of the jurisdictions in
which the Company operates when preparing its consolidated financial statements.
This includes estimating current tax exposure together with a review and
assessment of temporary differences resulting from differing treatment of items,
such as deferred revenue, for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included within the
Company's consolidated balance sheet. The Company then assesses the likelihood
that its deferred tax assets will be recovered from future taxable income and to
the extent we believe that recovery is not likely, we establish a valuation
allowance. To the extent we establish a valuation allowance or increase this
allowance in a period, we include an expense within the tax provision in the
statement of operations for the period reported.
Significant management judgment is required in determining our provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets.
In the event that actual results differ from these estimates or the Company
adjusts these estimates in future periods we may need to establish an additional
valuation allowance which could impact our financial position and results of
operations.
RESULTS OF OPERATIONS
The results of operations for the year ended December 31, 1997 represent the
results of the printed circuit board and complete system design tools business
derived from the historical financial statements of Viewlogic Systems, Inc., a
larger EDA company that was acquired by Synopsys, Inc. in 1997 (the "Prior
Viewlogic") and exclude the integrated circuit design tools business of the
Prior Viewlogic. During 1997, the Prior Viewlogic established separate
departments to capture product development, technical support and product
marketing expenses of both the printed circuit board and complete system design
tools business and the integrated circuit design tools business. The printed
circuit board and complete systems business was purchased from Sysnopsys,Synopsys, Inc. in
1998 and is now part of Innoveda. In addition, the Prior Viewlogic segregated
its revenue and product costs and created income statements for each business.
Prior to December 4, 1997, the Prior Viewlogic centralized many administrative,
marketing and other services. In addition, the Prior Viewlogic distributed both
its integrated circuit design tools and printed circuit board and complete
system design tools products primarily through one combined sales force.
Accordingly, the Prior Viewlogic made allocations of these expenses based on
revenue, personnel, space, estimates of time spent to provide services or other
appropriate bases. Innoveda's management believes that the Prior Viewlogic made
these allocations on a reasonable basis. However, they were not necessarily
indicative of the costs that would have been incurred on a stand-alone basis.
Before 1997, the Prior Viewlogic did not prepare internal income statements for
the integrated circuit design tools and the printed circuit board and complete
systems design tools businesses and therefore did not capture revenue and costs
in the same manner as it did in 1997. To prepare the financial data for the
printed circuit board and complete system design tools business for the year
ended December 31, 1997, the Prior Viewlogic made assumptions in order to
classify revenue as related to either printed circuit board and complete system
design tools or integrated circuit design tools. Where possible, the
identifiable direct costs of printed circuit board and complete system design
tools revenue has been reflected as direct expenses. In additions to these
direct expenses, all expenses which could not be clearly identified as
integrated circuit design tools or printed circuit board and complete system
design tools expenses were allocated on bases which Innoveda's management
believes were appropriate, similar to the manner in which it allocated expenses
in 1997. Based on its methodology, Innoveda's management believes the income
statement for 1996 reasonably approximated the revenue, costs and expenses of
the printed circuit board and complete system design tools business on a
historical basis.
20
The following table sets forth, for the periods indicated, the percentage of
revenue of certain items in Innoveda'sthe Company's consolidated statements of operations:
YEAR ENDED
----------------------------------------------------------
DECEMBERYear Ended
------------------------------------------------------------------------
December 29, December 30, January 1, January 2, December 31,
DECEMBER 30, JANUARY 1, JANUARY 2, -----------------2001 2000 2000 1999 1997 1996
------------ ---------- ---------- -------- ------
Revenue:
Software......................................Software 49% 55% 45% 41% 45%
50%
MaintenanceServices and services......................other 51 45 55 59 55
50
--- --- --- --- ---------------- ------------- ------------- ------------- ------------
Total Revenue.................................Revenue 100 100 100 100 100
--- --- --- --- ---------------- ------------- ------------- ------------- ------------
Cost and expenses:
Cost of software..............................software 7 9 11 9 5
8
Cost of services and other....................other 12 10 12 9 12
13
Sales and marketing...........................marketing 45 37 42 34 39
42
Research and development......................development 29 25 21 18 23
17
General and administrative....................administrative 9 8 7 7 6
8
Amortization..................................Amortization of intangibles 16 12 2 -- --
In-process research and development -- Non-recurring charges......................... 96 -- -- --
Impairment of intangible assets 36 -- -- -- --
Restructuring and merger costs 7 3 -- -- 11
Transaction costs and litigation
settlement -- -- -- 1 18 --
--- --- --- --- ---7
------------- ------------- ------------- ------------- ------------
Total cost and expenses.......................Operating Expenses 161 110 95 78 103
88
--- --- --- --- ---------------- ------------- ------------- ------------- ------------
Income (loss) from operations.................operations (61) (10) 5 22 (3)
12%
===
Other income (expense), net................... 0expense, net -- -- (3) (3) 0--
Income (loss) before income taxes.............taxes (61) (10) 2 19 (3)
Provision (benefit) for income taxes....................taxes (15) 2 1 7 (1)
--- --- --- ---------------- ------------- ------------- ------------- ------------
Net income (loss)............................. (46)% (12)% 1% 12% (2)%
=== === === ================ ============= ============= ============= ============
TWELVE MONTHS ENDED DECEMBER 29, 2001 AND DECEMBER 30, 2000
SOFTWARE REVENUE
For the year ended December 29, 2001, software license revenue decreased 10% to
$44.5 million from $49.6 million for the year ended December 30, 2000. The
decrease in software license revenue is primarily attributable to the impact of
the global economic downturn, particularly in the telecom and computer
industries. Discretionary spending by these customers has been reduced, causing
delays and postponement of orders. In addition, the decrease is also due to the
August 2000 sale of our VirSim product line, which accounted for $2.6 million in
software license revenue for the year ended December 30, 2000. This decrease was
partially offset by additional software sales related to products acquired as
part of the acquisition of PADS Software in September 2000.
21
Our products have been organized into three distinct product groups: Printed
Circuit Board Design ("PCB"), System Level Design ("SLD"), and
Electromechanical Design ("EM"). For the year ended December 29, 2001, PCB,
SLD, and EM accounted for $32.9 million or 74%, $9.9 million or 22% and $1.7
million or 4%, respectively, of software license revenue. Recently the SLD
market has not been growing as fast as originally expected and revenue from
the Company's SLD products has been declining. As a result we do not expect
SLD software license revenue to grow in the near term. Due to mid-year
acquisitions during fiscal 2000, it is not practicable to present software
license revenue by these product categories for that period.
As a percentage of total revenue, software license revenue decreased to 49% for
the twelve months ended December 29, 2001 from 55% for the twelve months ended
December 30, 2000.
SERVICES AND OTHER REVENUE
For the year ended December 29, 2001, services and other revenue increased 17%
to $47.0 million from $40.2 million for the year ended December 30, 2000. This
increase is primarily related to the maintenance and services for products
acquired as part of the acquisition of PADS Software. In addition, we realized
increased consulting revenue during 2001 compared to 2000, attributable to an
increased focus in this area. This increase was partially offset by the August
2000 sale of our VirSim product line, which accounted for $1.6 million in
service and other revenue for the year ended December 30, 2000.
As discussed above, our products have been organized into three distinct product
groups: PCB, SLD, and EM. For the year ended December 29, 2001, PCB, SLD, and EM
accounted for $30.1 million or 64%, $14.1 million or 30% and $2.7 million or 6%,
respectively, of services and other revenue. Similar to SLD software we do not
expect SLD services and other revenue to grow in the near term. Due to mid-year
acquisitions during fiscal 2000, it is not practicable to present service and
other revenue by these product categories for that period.
As a percentage of total revenue, services and other revenue increased to 51%
for the twelve months ended December 29, 2001 from 45% for the twelve months
ended December 30, 2000.
COST OF SOFTWARE
Cost of software revenue consists primarily of the cost of manufacturing,
order processing, distributions and royalties. Cost of software revenue
decreased 14% to $6.8 million for the twelve months ended December 29, 2001
from $7.8 million for the twelve months ended December 30, 2000. The decrease
was primarily due to the decreased royalty costs consistent with the decrease
in software license revenue, along with the retirement of products with large
royalty costs as part of the restructuring. In addition, we realized cost
savings from economics of scale resulting from the acquisition of Summit
Design and PADS Software.
As a percentage of total revenue, cost of software decreased to 7% for the
twelve months ended December 29, 2001 from 9% for the twelve months ended
December 30, 2000.
COST OF SERVICES AND OTHER
Cost of services and other consists primarily of costs of providing technical
support, education and consulting services. Cost of services and other increased
29% to $11.1 million for the twelve months ended December 29, 2001 from $8.6
million for the twelve months ended December 30, 2000. This increase was
primarily due to increased salary and related costs of additional headcount
resulting from the acquisitions of Summit Design in March 2000 and PADS Software
in September 2000, as well as increased staffing and related costs in our
consulting organization necessary to build the infrastructure to support
expansion in that area of our business.
As a percentage of total revenue, cost of services and other increased to 12%
for the twelve months ended December 29, 2001 from 10% for the twelve months
ended December 30, 2000.
22
SALES AND MARKETING
Sales and marketing expenses increased 22% to $41.1 million for the twelve
months ended December 29, 2001 from $33.7 million for the twelve months ended
December 30, 2000. This increase was primarily due to increased salary and
related costs of additional headcount resulting from the acquisition of Summit
Design in March 2000 and PADS Software in September 2000 as well as additional
new hires in the sales area. Additionally, discretionary marketing spending for
trade shows, direct mail solicitations and advertising campaigns designed to
increase awareness of the Innoveda name, and marketing of our product lines,
resulted in higher sales and marketing expenses.
As a percentage of total revenue, sales and marketing expenses increased to 45%
for the twelve months ended December 29, 2001 from 37% for the twelve months
ended December 30, 2000.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of costs related to product
development. Research and development expenses increased 18% to $26.7 million
for the twelve months ended December 29, 2001 from $22.6 million for the twelve
months ended December 30, 2000. This increase was primarily due to increased
salary and related costs of additional headcount resulting from the acquisition
of Summit Design in March 2000 and PADS Software in September 2000.
As a percentage of total revenue, research and development expenses increased to
29% for the twelve months ended December 29, 2001 from 25% for the twelve months
ended December 30, 2000.
The amount of software development costs capitalized for the years ended
December 29, 2001 and December 30, 2000 was approximately $1.1 million or 4% of
research and development expense.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of the administrative,
finance, human resources, legal and information systems departments. General and
administrative expenses increased 11% to $7.9 million for the twelve months
ended December 29, 2001 from $7.1 million for the twelve months ended December
30, 2000. This increase was primarily due to the personnel costs needed to build
the infrastructure to support planned growth combined with an increase in bad
debt expense and insurance premiums.
As a percentage of total revenue, general and administrative expenses increased
to 9% for the twelve months ended December 29, 2001 from 8% for the twelve
months ended December 30, 2000.
AMORTIZATION OF INTANGIBLES AND STOCK COMPENSATION
Amortization expense increased 37% to $15.0 million in the twelve months ended
December 29, 2001 from $10.9 million for the twelve months ended December 30,
2000. This increase in amortization expense was mainly due to the increase in
intangibles from the acquisitions of Summit Design in March 2000 and PADS
Software in September 2000.
There were $26.4 million and $73.9 million in intangible assets as of December
29, 2001 and December 30, 2000, respectively. Intangible assets as of December
29, 2001 consisted primarily of purchased technology, goodwill, workforce and
trademarks, resulting from the Summit Design acquisition in March 2000, the PADS
Software acquisition in September 2000, and the acquisition of Transcendent
Design Technology, Inc. in 1999. As of December 30, 2000, intangible assets
consisted of purchased technology, goodwill, workforce and customer base
resulting primarily from the Summit Design acquisition, the PADS Software
acquisition, assets acquired from OmniView, Inc. in March 1999, and the
Transcendent acquisition. See "Impairment of Intangible Assets, Restructuring
and Merger Costs" below.
23
Amortization of stock compensation remained constant at $0.6 million for the
fiscal years ending December 29, 2001 and December 30, 2000. Amortization of
stock compensation is being amortized using the straight-line method over 4
years.
IN-PROCESS RESEARCH AND DEVELOPMENT
For the twelve months ended December 30, 2000, Innoveda charged approximately
$5.5 million to expense, related to the acquisition of PADS Software and the
business combination of Summit Design.
In conjunction with the acquisition of PADS Software in the third quarter of
2000, the Company charged to expense $3.1 million representing the write-off of
acquired in-process research and development that had not yet reached
technological feasibility and had no alternative future use, as determined by an
independent appraiser. The value assigned to in-process technology relates
primarily to three research projects, Power PCB Next Generation, BlazeDRE and
ACT Manufacturing. During the first quarter of 2001, ACT Manufacturing was
commercially released. BlazeDRE is expected to be commercially released during
the second quarter of fiscal 2002 and Power PCB Next Generation has yet to reach
technological feasibility. The nature of the efforts required to develop the
in-process technologies into commercially viable products principally relate to
the completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the products can be produced to
meet their design specifications, including function, features and technical
performance requirements.
Similarly, in conjunction with the business combination of Summit Design and
Viewlogic Systems in the first quarter 2000, we charged to expense $2.4 million
representing acquired in-process research and development that had not yet
reached technological feasibility and had no alternative future use, as
determined by an independent appraiser. The value assigned to in-process
technology related to two research projects, Visual HDL 2000 and Visual SLD. The
nature of the effort required in the development of the in-process technologies
into commercially viable products principally related to the completion of all
planning, designing, prototyping, verification and testing activities that are
necessary to establish that the products can be produced to meet their design
specifications, including function, features and technical requirements. Visual
HDL 2000 represented a major rearchitecture of the two existing Visual HDL
products. The new generation product integrates these two existing products
along with a newly developed compiler. The Visual SLD research project
represented the development of an entirely new product targeted at a customer
base not previously approached for the Visual product line. These technologies
were combined and commercially released during the fourth quarter of 2000 under
the product name Visual Elite.
There were no in-process research and development costs incurred in fiscal 2001.
24
IMPAIRMENT OF INTANGIBLE ASSETS, RESTRUCTURING AND MERGER COSTS
In August 2001, Innoveda, in response to current economic conditions and as part
of our revised technology focus, implemented a restructuring and streamlining of
company operations.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews carrying value of intangible assets for impairment
whenever events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable or that the useful
lives of these assets are no longer appropriate. If an impairment is
indicated, the asset is written down to its estimated fair value. During the
third quarter of 2001, the Company wrote down approximately $32.9 million of
impaired long-lived assets related to the goodwill, purchased technology,
workforce and customer base associated with the acquisitions of PADS Software
and Summit Design. Based on the declining historical and forecasted operating
results of such intangible assets as they relate to earlier estimates and the
general economic trends of the EDA industry as a whole, their estimated value
to the Company has decreased. Based on the Company's expectation of future
discounted net cash flows, these assets have been written-down to their net
realizable value.
RESTRUCTURING COSTS
As a result of the restructuring, we recorded charges of $5.3 million. The
restructuring costs include workforce reductions, closing facilities, reducing
space in other facilities and asset write-downs.
The restructuring program resulted in the reduction in workforce of
approximately 140 employees across all business functions and geographic
regions. The workforce reductions were substantially completed by the end of the
third quarter of 2001. We recorded a workforce reduction charge of $2.3 million
relating primarily to severance, fringe benefits and outplacement services.
We also recorded a restructuring charge of $1.5 million relating to lease
terminations, non-cancelable lease costs, and excess facility space. These
facility costs relate to business activities that have been exited or
restructured. In addition, the restructuring charge includes an additional $0.4
million in professional fees, travel expenses and other related costs incurred
in connection with the restructuring activities and a $1.1 million restructuring
charge related to certain fixed assets that became impaired as a result of the
decision to reduce the workforce and close facilities.
The following table sets forth an analysis of the components of the fiscal 2001
third quarter restructuring and intangible asset impairment charges. The table
indicates payments made against the reserve through December 29, 2001.
TOTAL NON-CASH AMOUNT DECEMBER 29, 2001
ACCRUAL WRITE-OFF PAID ACCRUAL BALANCE
-------------- -------------- -------------- ----------------------
Impairment of intangibles $ 32,945 $ 32,945 $ - $ -
Disposal of fixed assets 1,085 1,085 - -
Severance and related expenses 2,267 - 2,152 115
Lease commitment and related fees 1,511 - 293 1,218
Other 408 - 201 207
-------------- -------------- -------------- ----------------------
$ 38,216 $ 34,030 $ 2,646 $ 1,540
============== ============== ============== ======================
All remaining amounts are expected to be settled by the end of fiscal 2002.
25
PITTSBURGH OFFICE CLOSURE
In May 2001, we closed an office in Pittsburgh, Pennsylvania and transferred the
operations to other offices in the United States and overseas. The total charge
of $594 consists of intangible asset and fixed asset impairment charges of $415,
$64 of severance related to the termination of six employees and $115 of other
costs incurred due to the closure. All remaining amounts are expected to be
settled by the end of fiscal 2002.
Total Non-cash Amount December 29, 2001
Accrual Write-off Paid Accrual Balance
------------- ------------ ------------ ------------------------
Impairment of intangibles
and fixed assets $ 415 $ 415 $ - $ -
Severance 64 - 64 -
Lease commitment 48 - 48 -
Other 67 - 33 34
------------- ------------ ------------ ------------------------
$ 594 $ 415 $ 145 $ 34
============= ============ ============ ========================
MERGER RELATED COSTS
For the twelve months ended December 29, 2001, Innoveda did not incur any merger
related charges. For the twelve months ended December 30, 2000, Innoveda charged
approximately $2.7 million to expense for merger related charges.
During the third quarter of 2000, we recorded approximately $0.5 million in
restructuring charges relating to the PADS Software merger. This was primarily
comprised of severance and exit costs to close duplicative facilities.
During the first quarter ended April 1, 2000, we recorded approximately $2.2
million in merger related charges relating to the Summit Design merger. This
primarily included severance and other costs relating to the consolidation of
duplicative facilities. Other costs relating to property and equipment lease
contracts (less any applicable sublease income) after the properties were
abandoned, lease buyout costs, restoration costs associated with certain lease
arrangements and costs to maintain facilities during the period after
abandonment are also included. Further action was taken to restructure our sales
and services business in Japan as a result of an exclusive distributor agreement
during the first quarter of fiscal 2000. Charges associated with the Japanese
reorganization include severance and benefit continuance for approximately 14
employees, costs associated with office closings and subsequent lease
termination and other facility and exit related costs.
OTHER INCOME (EXPENSE), NET
Other income (expense) consists of the net of interest expense relating to our
term loan and revolving credit line, interest income from cash and cash
equivalent balances, and gains and losses from foreign currency transactions
resulting from foreign operations conducted in local currencies. Other expense
increased 36% to $0.4 million in the twelve months ended December 29, 2001 from
$0.3 million for the twelve months ended December 30, 2000. Other expense
increased primarily as a result of a decrease in interest income due to the
reduction of cash and cash equivalents, partially offset by the decrease in
interest expense due to the pay down of debt obligations.
PROVISION (BENEFIT) FOR INCOME TAXES
We recorded a benefit for income taxes of $13.7 million for the twelve months
ended December 29, 2001 and a $1.8 million provision for the twelve months
ended December 30, 2000. The benefit for income taxes in 2001 is primarily
due to the reversal of deferred taxes related to the impaired intangible
assets and the tax benefit of the loss in 2001. The income tax provision for
2000 includes approximately $1.5 million resulting from the sale of the
VirSim product line in August 2000.
26
TWELVE MONTHS ENDED DECEMBER 30, 2000 AND JANUARY 1, 2000
SOFTWARE REVENUE
For the twelve monthsyear ended December 30, 2000, totalsoftware license revenue increased 68% to
$89.9 million from $53.5 million for the twelve months ended January 1, 2000.
The increase in revenue consisted of a 108% increase in software license
revenue to
$49.6 million from $23.9 million anfor the year ended January 1, 2000. This
increase of 36% in
maintenance and services revenue to $40.2 million from $29.6 million.
These increases werewas primarily due to additional sales related to the System Level
Design ("SLD") product line acquired as part of the acquisition of Summit Design
in March 2000, and PCBPrinted Circuit Board ("PCB") product sales acquired as part
of the acquisition of PADS Software in September 2000. Additionally, the Company
realized increased revenue from sales of Innoveda'sour Enterprise and High Speed System
Design product lines as a result of additional customer demand for these
technologies.
As a percentage of total revenue, software license revenue increased to 55% for
the twelve months ended December 30, 2000 from 45% for the twelve months ended
January 1, 2000.
SERVICES AND OTHER REVENUE
For the year ended December 30, 2000, services and other revenue increased 36%
to $40.2 million from $29.6 million for the year ended January 1, 2000. This
increase was primarily related to the maintenance and services revenue for
products acquired as part of the acquisitions of Summit Design and PADS
Software.
As a percentage of total revenue, services and other revenue decreased to 45%
for the twelve months ended December 30, 2000 from 55% for the twelve months
ended January 1, 2000.
COST OF SOFTWARE
Cost of software revenue consists primarily of the cost of product media,manufacturing, order
processing, distributions, royalties documentation duplication, packaging, and royalties.purchasing. Cost of
software revenue increased 30%31% to $7.8 million for the twelve months ended
21
December 30, 2000 from $6.0 million for the twelve months ended January 1, 2000.
This increase was primarily due to increased salary and related costs of
additional headcount resulting from the acquisitions of Summit Design in March
2000 and PADS Software in September 2000, and to a lesser extent increased
royalty costs related to increased software license revenue.
As a percentage of software licensetotal revenue, cost of software decreased to 16%9% for the
twelve months ended December 30, 2000 from 25%11% for the twelve months ended
January 1, 2000, primarily due to economies of scale resulting from the
Company's acquisitions of Summit Design and PADS Software.
COST OF SERVICES AND OTHER
Cost of maintenanceservices and servicesother consists primarily of costs of providing technical
support, education and consulting services. Cost of maintenance and services
increased 34%35% to $8.6 million for the twelve months ended December 30, 2000 from
$6.4 million for the twelve months ended January 1, 2000. This was primarily due
to increased salary and related costs of additional headcount resulting from the
acquisitions of Summit Design in March 2000 and PADS Software in September 2000,
as well as increased staffing and related costs in our consulting organization
necessary to build the infrastructure to support expansion in that area of our
business.
As a percentage of maintenance and servicestotal revenue, cost of maintenanceservices and servicesother decreased to 21%10%
for the twelve months ended December 30, 2000 from 22%12% for the twelve months
ended January 1, 2000.
27
SALES AND MARKETING
Sales and marketing expenses increased 50% to $33.7 million for the twelve
months ended December 30, 2000 from $22.5 million for the twelve months ended
January 1, 2000. This was primarily due to increased salary and related costs of
additional headcount resulting from the acquisition of Summit Design in March
2000 and PADS Software in September 2000. The Company also incurred increased
costs associated with variable compensation plans as a result of the increase in
revenue year over year. Additionally, discretionary marketing spending for trade
shows, direct mail solicitations and advertising campaigns designed to increase
awareness of the Innoveda name, and marketing of our product lines resulted in
higher sales and marketing expenses.
As a percentage of total revenue, sales and marketing expenses decreased to 37%
for the twelve months ended December 30, 2000 from 42% for the twelve months
ended January 1, 2000.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 100% to $22.6 million for the twelve
months ended December 30, 200002000 from $11.3 million for the twelve months ended
January 1, 2000. This was primarily due to increased salary and related costs of
additional headcount resulting from the acquisition of Summit Design in March
2000 and PADS Software in September 2000. The increase was also attributable to
the development of new products, including Visual Elite, a new SLD product that
provides added functionality to existing SLD tools, and Innovate FPGA, a design
environment for high-density field programmable gate arrays.
As a percentage of total revenue, research and development expenses increased to
25% for the twelve months ended December 30, 2000 from 21% for the twelve months
ended January 1, 2000.
The amount of software development costs capitalized for the twelve months ended
December 30, 2000 was approximately $1.0 million or 4% of research and
development for that period, andperiod. The amount of software development costs
capitalized for the twelve months ended January 1, 2000 was approximately $1.0
million or 9% of research and development costs for that period.
22
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of the administrative,
finance, human resources, legal, and information systems departments of the
Company. General and administrative expenses increased 82%80% to $7.1 million for
the twelve months ended December 30, 2000 from $3.9 million for the twelve
months ended January 1, 2000. This increase was primarily a result of Innoveda
building its general and administrative infrastructure to support the growth in
revenue of the Company's products and services and related acquisitions. To a
lesser extent, the increase is due to expenses associated with becoming a
publicly traded company.
As a percentage of total revenue, general and administrative expenses increased
to 8% for the twelve months ended December 30, 2000 from 7% for the twelve
months ended January 1, 2000.
28
AMORTIZATION OF INTANGIBLES AND STOCK COMPENSATION
Amortization expense increased to $10.9 million in the twelve months ended
December 30, 2000 from $1.2 million for the twelve months ended January 1, 2000.
Innoveda had $73.9 million in intangible assets as of December 30, 2000,
consisting primarily of purchased technology, goodwill, and purchased workforce
and customer base, resulting from the Summit Design business combination in
March 2000 and the PADS acquisition in September 2000, and the remaining
intangible assets from the OmniView and Transcendent transactions described
below. Innoveda had $3.5 million in intangible assets as of January 1, 2000,
consisting of purchased technology and workforce from its acquisition of certain
assets from OmniView, Inc. in March 1999, and purchased technology related to
the acquisition of Transcendent Design Technology, Inc. in August 1999.
Innoveda's intangible assets are being amortized to expense over periods ranging
from three to seven years.
INTEREST EXPENSE,Amortization of stock compensation remained constant at $0.6 million for the
fiscal years ending December 30, 2000 and January 1, 2000.
IN-PROCESS RESEARCH AND DEVELOPMENT
In conjunction with the acquisition of PADS Software in the third quarter of
2000, Innoveda charged to expense $3.1 million representing the write-off of
acquired in-process research and development that had not yet reached
technological feasibility and had no alternative future use, as determined by an
independent appraiser. Similarly, in conjunction with the business combination
of Summit Design and Viewlogic in the first quarter 2000, we charged to expense
$2.4 million representing acquired in-process research and development that had
not yet reached technological feasibility and had no alternative future use, as
determined by an independent appraiser. For the twelve months ended December 30,
2000, Innoveda charged approximately $5.5 million to expense.
MERGER COSTS
During the third quarter of 2000, we recorded approximately $0.5 million in
restructuring charges relating to the PADS Software merger. This was primarily
comprised of severance and exit costs to close duplicative facilities.
During the first quarter ended April 1, 2000, we recorded approximately $2.2
million in merger related charges relating to the Summit Design merger. This
primarily included severance and other costs relating to the consolidation of
duplicative facilities. Other costs relating to property and equipment lease
contracts (less any applicable sublease income) after the properties were
abandoned, lease buyout costs, restoration costs associated with certain lease
arrangements and costs to maintain facilities during the period after
abandonment are also included. Further action was taken to restructure our sales
and services business in Japan as a result of an exclusive distributor agreement
during the first quarter of fiscal 2000. Charges associated with the Japanese
reorganization include severance and benefit continuance for approximately 14
employees, costs associated with office closings and subsequent lease
termination and other facility and exit related costs.
For the twelve months ended December 30, 2000, Innoveda charged approximately
$2.7 million to expense for merger related charges.
29
OTHER INCOME (EXPENSE), NET
Other expense, net consists of foreign currency gains and losses and
amortization of professional fees incurred in connection with Innoveda's credit
facility and the disposal of property and equipment. Other expense decreased 80%
to $0.3 million for the twelve months ended December 30, 2000 from $1.6 million
for the twelve months ended January 1, 2000. The decrease in other expense was
primarily due to a decrease in interest expense, net of interest income.
Interest expense, net of interest income, decreased to $92,000$0.1 million for the
twelve months ended December 30, 2000 compared tofrom $1.2 million for the twelve months
ended January 1, 2000. This decrease is primarily a result of an increase in
interest income from cash acquired as part of the Summit Design business
combination. Interest income increased for the twelve months ended December 30,
2000 as compared to the twelve months ended January 1, 2000 due to a higher
average cash balance and higher interest rates. Interest expense decreased for
the twelve months ended December 30, 2000 as compared to the twelve months ended
January 1, 2000 primarily because the Company paid down a portion of its
long
termlong-term debt obligations.
OTHER INCOME (EXPENSE), NET
Other expense, net consists of foreign currency gains and losses and
amortization of professional fees incurred in connection with Innoveda's credit
facility and the disposal of property and equipment. Other expense was $230,000
for the twelve months ended December 30, 2000 and was $404,000 for the twelve
months ended January 1, 2000.
INCOME TAXES
The provision for income taxes increased to $1.8 million for the twelve months
ended December 30, 2000 from $281,000$0.3 million for the twelve months ended January 1,
2000. Although the company has a pre-tax loss for reporting purposes for fiscal
2000, a significant amount of this loss is due to non-deductible expenses. The
most significant of these are amortization of goodwill from the Company's
acquisitions and as part of the sale of the VirSim product line to Synopsys,
in-process research and development charges and amortization of stock
compensation.
23
TWELVE MONTHS ENDED JANUARY 1, 2000 AND JANUARY 2, 1999
REVENUE
For the twelve months ended January 1, 2000 and January 2, 1999, total revenue
decreased 3% to $53.5 million from $55.2 million. The decrease in revenue was
primarily due to a 9% decrease in service revenue which was partially offset by
a 5% increase in software license revenue. As a percentage of total revenue,
software license revenue increased to 45% for the twelve months ended January 1,
2000 from 41% for the twelve months ended January 2, 1999. Software license
revenue for the twelve months ended January 1, 2000 and January 2, 1999
increased 5% to $23.9 million from $22.7 million. Service revenue decreased to
$29.6 million for the twelve months ended January 1, 2000 from $32.6 million for
the twelve months ended January 2, 1999, primarily due to decreased maintenance
revenues. This was primarily attributable to several certain customers not
renewing maintenance contracts due to the fact they were using products in
applications related to integrated circuit design tools, which are no longer
fully supported by Innoveda. Additionally, a number of customers migrated their
products from the version based on the Unix operating system to the version
based on the Windows/NT operating system, which have lower maintenance prices.
Services revenues remained relatively unchanged for the twelve months ended
January 1, 2000 and January 2, 1999.
COST OF SOFTWARE
Cost of software revenue increased 18% to $6.0 million for the twelve months
ended January 1, 2000 from $5.1 million for the twelve months ended January 2,
1999, primarily due to increased royalty costs payable to Synopsys resulting
from new licensing agreements. The amortization of capitalized software included
in cost of software revenue for the twelve months ended January 1, 2000 and
January 2, 1999 was approximately $1.0 million in each year.
COST OF SERVICES AND OTHER
Cost of service revenue increased 25% to $6.4 million from $5.1 million and, as
a percentage of service revenue, increased to 22% from 16%, for the twelve
months ended January 1, 2000 and January 2, 1999. The increase was primarily due
to an increase in the consulting staff in anticipation of future growth in this
area.
SALES AND MARKETING
Sales and marketing expenses increased 19% to $22.5 million for the twelve
months ended January 1, 2000 from $18.9 million for the twelve months ended
January 2, 1999. The increase was primarily attributable to higher
personnel-related costs due to an increase in the number of worldwide sales and
marketing personnel in 1999 compared to 1998. Selling and marketing expenses, as
a percentage of total revenue, increased to 42% from 34% for the twelve months
ended January 1, 2000 and January 2, 1999.
RESEARCH AND DEVELOPMENT
Research and development costs increased 13% to $11.3 million from $10.0 million
for the twelve months ended January 1, 2000 and January 2, 1999. The increase in
research and development expenses primarily reflects higher personnel-related
costs associated with investment in new product development and enhancement of
existing products. This includes the addition of staff associated with the
purchase of assets from Omniview, which was completed during the first quarter
of 1999, as well as the acquisition of Transcendent Design Technology which was
completed in August 1999. Research and development expense as a percentage of
total revenue was 21% for the twelve months ended January 1, 2000 and 18% for
the twelve months ended January 2, 1999. The amount of software development
costs capitalized for the twelve months ended January 1, 2000 was $1.1 million
or 9% of research and development costs for that period and for the twelve
months ended January 2, 1999 was $1.1 million or 11% of total research and
development costs for that period.
24
GENERAL AND ADMINISTRATIVE
General and administrative expense increased to $3.9 million from $3.7 million
for the twelve months ended January 1, 2000 and January 2, 1999. This was
primarily due to expenses related to building the infrastructure needed to
support future growth. General and administrative expense as a percentage of
total revenue remained unchanged at 7% for the twelve months ended January 1,
2000 and January 2, 1999.
AMORTIZATION OF INTANGIBLES
On March 16, 1999, Innoveda purchased substantially all of the assets and
intellectual property of OmniView. The purchase price consisted of $1.1 million
in cash, 271,712 shares of Innoveda common stock and acquisition expenses and
was allocated to the assets based on their fair value, including $1.2 million of
intangible assets. On August 15, 1999, Innoveda purchased Transcendent Design
Technology through a subsidiary merger in which Innoveda issued 491,799 shares
of common stock and assumed options exercisable into 52,984 additional shares of
Innoveda common stock. The allocation of the purchase price in this transaction
resulted in $2.7 million of intangible assets. The intangibles created in these
two transactions resulted in $670,000 of amortization expense for the twelve
months ended January 1, 2000.
INTEREST EXPENSE, NET
Interest expense, net of interest income, increased to $1.2 million for the
twelve months ended January 1, 2000 compared to $171,000 for the twelve months
ended January 2, 1999, primarily due to the increased borrowings under
Innoveda's credit facility. In addition, during 1999 Innoveda entered into
capital lease agreements to finance the purchases of computer equipment and
software, increasing its capital lease obligation, which also contributed to the
increase in interest expense.
OTHER INCOME (EXPENSE), NET
Other income (expense) consists of gains and losses on the disposal of property
and equipment, foreign currency gains and losses and amortization of
professional fees incurred in connection with Innoveda's credit facility. Other
expense was $404,000 for the twelve months ended January 1, 2000 and was $1.8
million for the twelve months ended January 2, 1999. During 1998 Innoveda's
Japanese subsidiary repaid an amount that had previously been treated as a
long-term investment. The repayment of this amount resulted in a realized
transaction loss of $1.4 million.
INCOME TAXES
The provision for federal and state income taxes decreased to $281,000 for the
twelve months ended January 1, 2000 from $4.1 million for the twelve months
ended January 2, 1999, primarily due to the drop in income before taxes. The
effective tax rate for the twelve months ended January 1, 2000 was 52%, compared
to 41% for the twelve months ended January 2, 1999.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Innoveda finances its operations primarily through its cash balance and cash
generated from operations and short-term borrowings available from a revolving credit line. As
ofoperations. At December 30, 2000, Innoveda29, 2001, we had approximately $20.8$7.7 million in cash and
cash equivalentsequivalents. We have a Credit Facility with a commercial bank, which
includes a Term Loan and working capitala Line of approximately $4.7 million. Innoveda has a
$6.0 million revolving line of credit with Fleet Bank. As of February 28, 2001,
there was no balance outstanding under this line of credit. Innoveda has a term
loan with Fleet Bank, with approximately $8.4Credit. The Term Loan had $5.8 million
outstanding as of February
28,December 29, 2001. Payments of principal outstanding under
either the Line of Credit or the Term Loan expire by September 30, 2003. A
payment of $1.0 million is due in the first quarter of fiscal 2002. Successive
payments of $1.0 million are due each quarter through the fourth quarter of
2002, and $1.4 million and $0.4 million are due in the first and third quarters
of fiscal 2003, respectively. Borrowings under the credit facilityCredit Facility are secured
by substantially all of Innoveda'sour assets. The credit facilityCredit Facility contains limitations on
additional indebtedness and capital expenditures, and includes financial
covenants, which include but are not limited to the maintenance of minimum
levels of profitability interestand deferred revenue, and minimum working capital and
debt service coverage ratiosratios. If Innoveda defaults on its Credit Facility and maximum leverage
ratiosa
waiver is not obtained, the Company may be required to re-pay its Term Loan
earlier than scheduled thereby substantially decreasing its cash balance.
For the fiscal quarter ended June 30, 2001, we did not meet certain financial
covenants under our Credit Facility. The Company and minimum working capital ratios. To avoid default underthe lender have amended the
Credit Facility to revise certain of the covenants and provide a waiver for past
non-compliance. Under this amendment, the Term Loan portion of the Credit
Facility remains in place with the repayment schedule unchanged and the Line of
Credit portion of the Credit Facility has been reduced from $6.0 million to
approximately $0.4 million and may be used only to cover existing letters of
credit issued by the lender at our request. Innoveda is currently evaluating
proposals for both a new credit facility Innoveda must remainand other financing alternatives.
Although the lender has in 25the past waived non-compliance under the Credit
Facility, there can be no assurance that the lender will do so in the future.
30
compliance with these limitationsInterest rates on the Line of Credit and covenants and make all required repaymentsthe Term Loan are determined, at the
option of the Company, for varying periods. The Company may elect to have the
interest rate based on the bank's prime rate or Innoveda must obtain replacement financing. Innoveda wasbased on the LIBOR rate at the
time of the election, depending on the Company's leverage financial ratio, as
defined, in compliance with
allthe Credit Facility. The interest rate on the Line of its debt covenants as ofCredit at
December 30, 2000.2000 was 10%. The interest rates on the Term Loan at December 29,
2001 and December 30, 2000 were 4.7% and 9.2%, respectively. This agreement
effectively converts the whole floating-rate obligation into a fixed-rate
obligation of 7.4% for a period of 60 months, expiring on March 31, 2003.
Payments of principal outstanding under either the Line of Credit or the Term
Loan expire by September 30, 2003. A payment of $1.0 million is due in the first
quarter of fiscal 2002. Successive payments of $1.0 million are due each quarter
through the fourth quarter of 2002, and $1.4 million and $0.4 million are due in
the first and third quarters of fiscal 2003, respectively.
For the twelve months ended December 30, 2000,29, 2001, net cash provided byused in operating
activities was approximately $4.0$5.9 million. This was primarily due to a net
lossoperating losses, net of $11.2 million, offset by non-cash depreciationitems including amortization, impairment of
intangible assets, portions of the restructuring charge, deferred revenue and
amortization of
approximately $16.0 million and write-off of in process research and development
expenses of $5.5 million, an increase in accounts receivable of $6.2 million, an
increase in deferred income taxes of $4.7 million and a decrease in accounts
payable of approximately $2.3 million and an increase in accrued liabilities of
$5.0 million.taxes. Net cash provided byused in investing activities for the twelve months
ended December 30, 200029, 2001 was approximately $32$3.3 million, primarily due to the
purchase of property and equipment. Net cash acquiredused in financing activities was
approximately $3.7 million for the Summit Design and PADS acquisition,twelve months ended December 29, 2001,
primarily due to the repayment of principal on debt and the $7.0 millionrepurchase of our
common stock, partially offset by proceeds from the
Company's saleexercises of its VirSim product line.
The Company considersemployee stock
options.
We consider all highly liquid debt instruments with a remaining maturity of
three months or less when purchased to be cash equivalents. At December 30, 2000,29, 2001
and January 1,December 30, 2000, substantially all of the Company's cash and cash equivalents were invested
in interest-bearing deposits and other short-term investments with an original
maturity of three months or less as of the date of purchase. ByPursuant to the
Company's investment policy, all debt instruments must have quality ratings no
lower than an A rating.
Net cash used in financing activities was approximately $15.4 million for the
twelve months ended December 30, 2000, primarily due to the repayment of
principal on debt and the repurchase of common stock as discussed below.
As part of the PADS acquisition, Innoveda repaid approximately $7.4 million of
PADS' debt and made an aggregate cash payment of approximately $2.0 million to
PADS shareholders. Innoveda funded these amounts using cash acquired in the PADS
acquisition, which totaled approximately $4.8 million on the merger date of
September 22, 2000, as well as a portion of the net proceeds from the sale of
the VirSim product line as discussed above.
On October 19, 2000, Innoveda's Boardour board of Directorsdirectors authorized the Company to
repurchase of up to
2,000,0002.0 million shares of its common stock duringthrough the period ending October 31, 2001.
The repurchased shares will beare being held as treasury shares and may be used in
company stock option plans, employee stock purchase plans and for general
corporate purposes. AsWe purchased an aggregate of March 15, 2001, the Company had purchased 550,606 shares of common stock
at an aggregate cost of $1,663,371$1.7 million under itsthe stock re-purchase program.
Innoveda believesWe believe that itsour current cash and cash equivalents, combined with cash
expected to be generated from operations, and amounts available under the revolving line of
credit, will satisfy Innoveda's anticipated working
capital and other cash requirements for at least the next 12 months. However,
our liquidity and capital requirements will depend upon numerous factors,
including market acceptance of our products, the size and timing of customer
orders, product development costs and competitive and economic forces in the
electronic design automation industry. The effects of these factors may cause
our liquidity and capital requirements to vary and may require us to obtain
additional debt or equity financing, which may not be available on terms
acceptable to us, if at all.
31
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998,August 2001, the Financial Accounting Standards Board (FASB)(the "FASB") issued
SFAS No. 133,144, "Accounting for Derivative Instrumentsthe Impairment or Disposal of Long-Lived Assets"
("SFAS 144"), which addresses financial accounting and Hedging Activities".reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS establishes standardsNo.
121, and the accounting and reporting provisions of APB 30, for derivative instruments and hedging activities. SFAS
133 requires an entity to recognize all derivatives as either an asset or
liability in the statement of financial position and measure those instruments
at fair value. SFAS 133 requires that changes in the fair valuedisposal of
a derivative
be recognized currently in earnings unless specific hedge accounting criteria
are met and thatsegment of a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS 133 is
effective for fiscal years beginning after June 15, 2000. Innoveda is requiredbusiness. We plan to adopt SFAS 133No. 144 in the first quarter of
fiscal 2002.
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires that an entity account for business combinations
using the purchase method and eliminates the pooling method. In addition, SFAS
No. 141 provides guidance regarding the initial recognition and measurement of
goodwill and other intangible assets. SFAS No.142 requires that goodwill no
longer be amortized and instead be tested annually for impairment. The
provisions of SFAS No. 141 apply to all business combinations initiated after
June 30, 2001 and the provisions of SFAS No. 142 are required to be applied
starting with fiscal years beginning after December 15, 2001. Management does not
expectThe Company will
adopt SFAS No. 142 in the first quarter of fiscal 2002 and estimates that the
effect of the adoption of SFAS 133will be to have a material effect on Innoveda's
consolidated financial position or results of operations.
26reduce annual amortization expense by
approximately $0.2 million.
32
ADDITIONAL RISK FACTORS THAT COULD AFFECT OPERATING RESULTS AND MARKET PRICE OF
STOCK
INNOVEDA'S DEPENDENCE ON THE ELECTRONIC INDUSTRY MAKES IT VULNERABLE TO
GENERAL INDUSTRY-WIDE DOWNTURNS.
Innoveda's future operating results may reflect substantial fluctuations
from period to period as a consequence of industry patterns, general
economic conditions affecting the timing of orders from customers and other
factors. The electronics industry involves:
- rapid technological change;
- short product life cycles;
- fluctuations in manufacturing capacity; and
- pricing and margin pressures.
Correspondingly, certain segments, including the computer, semiconductor,
semiconductor test equipment and telecommunications industries, have
experienced sudden and unexpected economic downturns. During these periods,
capital spending and research and development budgets often fall, and the
number of design projects often decreases. Because Innoveda's sales depend
upon capital spending trends, research and development budgets and new
design projects, negative factors affecting the electronics industry could
have a material adverse effect on Innoveda's business, financial condition,
results of operations, or cash flows.
IF INNOVEDA CANNOT SUCCESSFULLY INTEGRATE SUMMITDEVELOP NEW PRODUCTS TO KEEP PACE WITH TECHNOLOGICAL
CHANGE AND VIEWLOGIC AND/OR THE
ACQUISITION BY INNOVEDA OF PADS, THE ANTICIPATED ADVANTAGES OF THEEVOLVING INDUSTRY STANDARDS, INNOVEDA'S BUSINESS COMBINATION BETWEEN SUMMIT AND VIEWLOGIC AND/OR INNOVEDA AND PADS MAY NOT BE
REALIZED, IN FULL, IF AT ALL.WILL SUFFER.
If Innoveda was formedcannot, for technological or other reasons, develop and
introduce products in a timely manner in response to changing market
conditions, industry standards or other customer requirements, particularly
if Innoveda has pre-announced the product releases, its business, financial
condition, results of operations or cash flows will be materially adversely
affected. The electronic design automation industry is characterized by
extremely rapid technological change, frequent new product introductions
and evolving industry standards. The introduction of products with new
technologies and the business combinationemergence of Viewlogic Systems, Inc.,new industry standards can render
existing products obsolete and Summit Design, Inc.unmarketable. In addition, customers in March 2000.the
electronic design automation industry require software products that allow
them to reduce time to market, differentiate their products, improve their
engineering productivity and reduce their design errors. Innoveda's future
success will depend upon its ability to enhance its current products,
develop and introduce new products that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of Innoveda's customers. Innoveda also acquired PADS Software, Incmay not succeed in
September 2000. The integrationdeveloping and marketing product enhancements or new products that respond
to technological change or emerging industry standards. It may experience
difficulties that could delay or prevent the successful development,
introduction and marketing of Summit Design and Viewlogic requiresthese products. Innoveda's products may not
adequately meet the dedication of Innoveda management resources. This may distract management's
attention from the effort to integrate PADS into Innoveda and from the
managementrequirements of the day-to-day business of Innoveda. Employee uncertaintymarketplace and lack
of focus during integration may also disrupt the business of Innoveda. Retention
of key employees by Innoveda has been, and will remain, critical to ensure
continued advancement, development and support of the Company's technologies and
ongoing sales and marketing efforts. During the integration phase, competitors
may intensify their efforts to recruit key employees. The inability to
successfully integrate Summit Design and Viewlogic and/or Innoveda and PADS and
to retain key technical, sales or marketing personnel after the Summit Design
and Viewlogic combination and the merger of Innoveda and PADS would adversely
affect the combined Company's business.achieve market
acceptance.
33
VARIOUS FACTORS WILL CAUSE INNOVEDA'S QUARTERLY RESULTS TO FLUCTUATE AND
FLUCTUATION MAY ADVERSELY AFFECT THE STOCK PRICE OF INNOVEDA COMMON STOCK.
Innoveda's quarterly operating results and cash flows have fluctuated in the
past and have fluctuated significantlywill likely continue to fluctuate in certain quarters.the future. These fluctuations resultedmay
result from several factors, including, among others:
o- - the size and timing of orders;
o- - large one-time charges incurred as a result of an acquisitionrestructurings, acquisitions
or consolidation;
oconsolidations;
- - seasonal factors;
o- - the rate of acceptance of new products;
o- - product, customer and channel mix;
o- - lengthy sales cycles;
and
o- - level of sales and marketing staff.
These fluctuations will likely continue in future periods because of the above
factors. Additional factors potentially causing fluctuations include, among
others:
o corporate acquisitions and consolidations and the integration of
acquired entities and any resulting large one-time charges;
ostaff;
- - the timing of new product announcements and introductions by Innoveda and
Innoveda's competitors;
o- - the rescheduling or cancellation of customer orders;
27
o- - the ability to continue to develop and introduce new products and product
enhancements on a timely basis;
o- - the level of competition;
o- - purchasing and payment patterns, pricing policies of competitors;
o- - product quality issues;
o- - currency fluctuations; and
o- - general economic conditions.
Innoveda believes that period-to-period comparisons of Innoveda's operating
results are not necessarily meaningful. As a result, you should not rely on
these comparisons as indications of Innoveda's future performance. In addition,
Innoveda operates with high gross margins, and a downturn in revenue could have
a significant impact on income from operations and net income. Innoveda's
results of operations could be below investors' and market makers' expectations
in future quarters, which could have a material adverse effect on the market
price of Innoveda's common stock.
34
INNOVEDA'S REVENUE IS DIFFICULT TO FORECAST BECAUSE OF THE TIMING OF REVENUE
RECOGNITION AND UNPREDICTABLE NATURE OF CUSTOMER BEHAVIOR.FORECAST.
Innoveda's revenue is difficult to forecast for several reasons. Innoveda
operates with little product backlog because Innoveda typically ships its
products shortly after it receives orders. Consequently, license backlog at the
beginning of any quarter has in the past represented only a small portion of
that quarter's expected revenue. Correspondingly, license fee revenue in any
quarter is difficult to forecast because it is substantially dependent on orders
booked and shipped in that quarter. Moreover, Innoveda generally recognizes a
substantial portion of its revenue in the last month of a quarter, frequently in
the latter part of the month. Any significant deferral of purchases of
Innoveda's products could have a material adverse affect on its business,
financial condition and results of operations in any particular quarter. If
significant sales occur earlier than expected, operating results for subsequent
quarters may also be adversely affected. Quarterly license fee revenue is
difficult to forecast also because Innoveda's typical sales cycle ranges from
six to nine months and varies substantially from customer to customer. In
addition, Innoveda makes a portion of its sales through indirect channels, and
these sales can be difficult to predict.
SHORTFALLS IN REVENUE COULD ADVERSELY IMPACT QUARTERLY OPERATING RESULTS.
Innoveda establishes its expenditure levels for product development, sales and
marketing and other operating activities based primarily on Innoveda's
expectations as to future revenue. Because a high percentage of Innoveda's
expenses are relatively fixed in the near term, if revenue in any quarter falls
below expectations, expenditure levels could be disproportionately high as a
percentage of revenue and materially adversely affect Innoveda's operating
results.
INNOVEDA HAS SUBSTANTIAL TERM DEBT, AND ITS CREDIT LINE HAS BEEN SUBSTANTIALLY
REDUCED, AND INNOVEDA MAY NOT BE ABLE TO REPLACE ITS CREDIT LINE OR TERM DEBT.
For the fiscal quarter ended June 30, 2001, Innoveda did not meet certain
financial covenants under its Credit Facility (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources"). Innoveda and its lender have amended the Credit Facility to
revise certain of the covenants and provide a waiver for past non-compliance.
See Exhibit 10.42 hereto. Under this amendment, the Term Loan portion of the
Credit Facility remains in place with the repayment schedule unchanged. However,
the Line of Credit portion of the Credit Facility has been reduced from
approximately $6.0 million to approximately $0.4 million and may be used only to
cover existing letters of credit issued by the lender at the request of the
Company. As of February 28, 2002, Innoveda had borrowings of approximately $4.9
million under its Credit Facility. Innoveda is currently evaluating proposals
for both a new credit facility and other financing alternatives but there can be
no guaranty that Innoveda will be able to secure a replacement for the Credit
Facility or alternative financing.
35
COVENANTS AND RESTRICTIONS INCLUDED IN INNOVEDA'S CREDIT FACILITY ENHANCE THE
RISK OF DEFAULT AND LIMIT MANAGEMENT'S FLEXIBILITY TO ADJUST INNOVEDA'S BUSINESS
AND STRATEGIES TO CURRENT MARKET AND ECONOMIC CONDITIONS.
As of February 28, 2002, Innoveda had borrowings of approximately $4.9 million
under its Credit Facility. Borrowings under the Credit Facility are secured by
substantially all of Innoveda's assets. The Credit Facility contains limitations
on additional indebtedness and capital expenditures, and includes financial
covenants, which include but are not limited to the maintenance of minimum
levels of profitability and deferred revenue, and minimum working capital and
debt service coverage ratios. To avoid default under this Credit Facility,
Innoveda must remain in compliance with these limitations and covenants and make
all required repayments or Innoveda must obtain replacement financing. Otherwise
Innoveda's lender may declare a default and exercise its security interest in
Innoveda's assets. Collectively, these limitations and covenants substantially
restrict the flexibility of Innoveda's management in quickly adjusting its
financial and operational strategies to react to changing economic and business
conditions and may compromise Innoveda's ability to react to the rapidly
evolving environment of the electronic design automation industry. While
Innoveda's lender has in the past waived non-compliance with specific breaches
of these limitations and covenants, there can be no assurance that it will do so
again in the future.
INNOVEDA HAS A LIMITED AMOUNT OF CASH AND UNEXPECTED SHORTFALLS IN CASH FLOW
COULD RESTRICT THE COMPANY'S OPERATING ABILITY.
As of February 28, 2002, Innoveda had approximately $7.8 million in cash and
cash equivalents. While Innoveda expects that its current cash and cash
equivalents, combined with cash expected to be generated from operations,
will be sufficient to fund its operations for at least the next 12 months, if
Innoveda does not meet its financial projections or is required to re-pay
it's term loan earlier than scheduled, it may not have sufficient cash to
fund its operations. As of February 28, 2002, Innoveda had borrowings of
approximately $4.9 million under its Credit Facility. If Innoveda were to
default under the Credit Facility due to Innoveda's failure to comply with
the limitations and covenants contained in the Credit Facility, then Innoveda
would be required to re-pay all amounts outstanding under the Credit
Facility, including the Term Loan, earlier than scheduled. Innoveda is
currently evaluating proposals for both a new credit facility and other
financing alternatives but there can be no assurance that Innoveda will be
able to secure a placement for the Credit Facility or alternative financing.
See "Liquidity and Capital Resources".
IF THE SYSTEM DESIGN PORTIONMARKET SEGMENTS OF THE ELECTRONIC DESIGN AUTOMATION INDUSTRY ON WHICH
INNOVEDA PRIMARILY FOCUSES DOESDO NOT GROW OR IF INNOVEDA CANNOT INCREASE ITS MARKET SHARE IN
THOSE SEGMENTS, INNOVEDA'S BUSINESS MAY SUFFER.
Innoveda focuses on the electro-mechanical, printed circuit board (PCB) and
system-level design (SLD) automation markets, while most major competitorselectronic design
automation software providers focus their resources on the application-specific
integrated circuit and integrated circuit design automation markets. Innoveda
has adopted this focus because it believes that the increased complexity of
application-specific integrated circuits and integrated circuit designs, and the
resulting increase in design time, will cause electronic product manufacturers
to differentiate their products at the system and PCB level. If the system, PCB
and electro-mechanical design portionportions of the electronic design automation
industry doesdo not grow, it
28
could have a material adverse effect on Innoveda's
business, financial condition, results of operations or cash flows. Recently the
SLD market has not been growing as fast as originally expected and revenue from
Innoveda's SLD products has been declining. Innoveda plans to reduce expenses in
the SLD business to be more closely aligned with revenue in the business. Such
action may adversely affect future growth in Innoveda's SLD business.
36
INNOVEDA FACES INTENSE COMPETITION IN THE INDUSTRY AND MUST COMPETE SUCCESSFULLY
IN VARIOUS ASPECTS OR ITS BUSINESS MAY SUFFER.
The electronic design automation industry is highly competitive, and Innoveda
expects competition to increase as other electronic design automation
companies introduce products. In the electronic design automation market,
Innoveda principally competes with Mentor Graphics, and Cadence Design Systems, Zuken K.K.,
Altium, Inc., Intercept Technology, DDE, USA., and a number of smallerother firms.
Indirectly, Innoveda also competes with other firms that offer alternative
products. These other firms could also offer more directly competitive
products in the future. Some of these companies have significantly greater
financial, technical and marketing resources and larger installed customer
bases than Innoveda. Some of Innoveda's current and future competitors offer
a more complete range of electronic design automation products.
Innoveda also competes with manufacturers of electronic devices that have
developed or have the capability to internally develop their own electronic
design automation products. Many manufacturers of electronic devices may be
reluctant to purchase services from independent vendors such as Innoveda
because they wish to promote their own internal design departments. In the
electronics design automation industry, Innoveda competes with numerous
electronic design and consulting companies as well as with the internal
design capabilities of electronics manufacturers. Other electronics companies
and management consulting firms continue to enter the electronics design
automation industry.
Innoveda competes on the basis of various factors including, among others:
o- - product capabilities;
o- - product performance;
o- - price;
o- - support of industry standards;
o- - ease of use;
o first- - helping customers get their products to market;market first; and
o- - customer technical support and service.
Innoveda believes that its products are competitive overall with respect to
these factors. However, in particular cases, Innoveda's competitors may offer
products with functionality sought by Innoveda's prospective customers and
which differs from those Innoveda offers. In addition, some competitors may
achieve a marketing advantage by establishing formal alliances with other
electronic design automation vendors. Further, the electronic design automation industry in
general has experienced significant consolidation in recent years, and the
acquisition of one of Innoveda's competitors by a larger, more established
electronic design automation vendor could create a more significant competitor. Innoveda may not compete successfully
against current and future competitors, and competitive pressures may have a
material adverse effect on Innoveda's business, financial condition, results
of operations, or cash flows. Innoveda's current and future competitors may
develop products comparable or superior to Innoveda's or more quickly adapt
new technologies, evolving industry trends or customer requirements.
Increased competition could result in price reductions, reduced margins and
loss of market share, all of which could have a material adverse effect on
Innoveda's business, financial condition, results of operations or cash flows.
INNOVEDA'S DEPENDENCE ON THE ELECTRONIC INDUSTRY MAKES IT VULNERABLE TO GENERAL
INDUSTRY-WIDE DOWNTURNS.
Innoveda's future operating results may reflect substantial fluctuations from
period to period as a consequence of industry patterns, general economic
conditions affecting the timing of orders from customers and other factors. The
electronics industry involves:
2937
o rapid technological change;
o short product life cycles;
o fluctuations in manufacturing capacity; and
o pricing and margin pressures.
Correspondingly, certain segments, including the computer, semiconductor,
semiconductor test equipment and telecommunications industries, have experienced
sudden and unexpected economic downturns. During these periods, capital spending
often falls, and the number of design projects often decreases. Because
Innoveda's sales depend upon capital spending trends and new design projects,
negative factors affecting the electronics industry could have a material
adverse effect on Innoveda's business, financial condition, results of
operations, or cash flows.
INNOVEDA DEPENDS ON THIRD PARTIES FOR PRODUCT INTEROPERABILITY, AND THAT MAKES
INNOVEDA VULNERABLE IF THESE THIRD PARTIES REFUSE TO COOPERATE WITH INNOVEDA ON
ECONOMICALLY FEASIBLE TERMS.
Because Innoveda's products must interoperate, or be compatible, with electronic
design automation products of other companies, Innoveda must have timely access
to third party software to perform development and testing of products. Although
Innoveda has established relationships with a variety of electronic design
automation vendors to gain early access to new product information, any of these
parties may terminate these relationships with limited notice. In addition,
these relationships are with companies that are Innoveda's current or potential
future competitors, including Synopsys, Mentor Graphics and Cadence. If any of
these relationships terminate and Innoveda
were unable to obtain, in a timely manner, information regarding modifications
of third party products, Innoveda would not have the ability to modify its
software products to interoperate with these third party products. As a result,
Innoveda could experience a significant increase in development costs, the
development process would take longer, product introductions would be delayed,
and Innoveda's business, financial condition, results of operations or cash
flows could be materially adversely affected.
IF INNOVEDA CANNOT DEVELOP NEW PRODUCTS TO KEEP PACE WITH TECHNOLOGICAL CHANGE
AND EVOLVING INDUSTRY STANDARDS, INNOVEDA'S BUSINESS WILL SUFFER.
If Innoveda cannot, for technological or other reasons, develop and introduce
products in a timely manner in response to changing market conditions, industry
standards or other customer requirements, particularly if Innoveda has
pre-announced the product releases, its business, financial condition, results
of operations or cash flows will be materially adversely affected. The
electronic design automation industry is characterized by extremely rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products with new technologies and the emergence
of new industry standards can render existing products obsolete and
unmarketable. In addition, customers in the electronic design automation
industry require software products that allow them to reduce time to market,
differentiate their products, improve their engineering productivity and reduce
their design errors. Innoveda's future success will depend upon its ability to
enhance its current products, develop and introduce new products that keep pace
with technological developments and emerging industry standards and address the
increasingly sophisticated needs of Innoveda's customers. Innoveda may not
succeed in developing and marketing product enhancements or new products that
respond to technological change or emerging industry standards. It may
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products. Innoveda's products may not
adequately meet the requirements of the marketplace and achieve market
acceptance.
30
INNOVEDA'S SOFTWARE MAY HAVE DEFECTS.
Innoveda's software products may contain errors that may not be detected until
late in the products' life cycles. Innoveda has in the past discovered software
errors in certain of its products and has experienced delays in shipment of
products during the period required to correct these errors. Despite testing by
Innoveda and by current and prospective customers, errors may persist, resulting
in loss of, or delay in, market acceptance and sales, diversion of development
resources, injury to Innoveda's reputation or increased service and warranty
costs, any of which could have a material adverse effect on its business,
financial condition, results of operations or cash flows.
INNOVEDA DEPENDS ON ITS DISTRIBUTORS TO SELL ITS PRODUCTS, ESPECIALLY
INTERNATIONALLY, BUT THESE DISTRIBUTORS MAY NOT DEVOTE SUFFICIENT EFFORTS TO
SELLING INNOVEDA'S PRODUCTS OR THEY MAY TERMINATE THEIR RELATIONSHIPS WITH
INNOVEDA.
DISTRIBUTORS' CONTINUED VIABILITY. If any of Innoveda's distributors fails,
Innoveda's business may suffer. Innoveda relies on distributors for licensing
and support of Innoveda's products, particularly in Japan and other parts of
Asia. Innoveda depends on the relationships with its distributors to maintain or
increase sales. Since Innoveda's products are used by skilled design engineers,
distributors must possess sufficient technical, marketing and sales resources
and must devote these resources to a lengthy sales cycle, customer training and
product service and support. Only a limited number of distributors possess these
resources. Accordingly, Innoveda depends on the continued viability and
financial stability of these distributors.
DISTRIBUTORS' EFFORTS IN SELLING INNOVEDA'S PRODUCTS. Innoveda's distributors
may offer products of several different companies, including Innoveda's
competitors. Innoveda's current distributors may not continue to market or
service and support Innoveda's products effectively. Any distributor may
discontinue to sell Innoveda's products or devote its resources to products of
other companies. The loss of, or a significant reduction in, revenue from
Innoveda's distributors could have a material adverse effect on its business,
financial condition, results of operations or cash flows.
JAPAN.JAPAN DISTRIBUTION. Innoveda has exclusive distribution agreements with twothree
distributors in Japan, which collectively cover a significant portion of
Innoveda's products in Japan. If eitherany of these distributors terminates its
relationship with Innoveda, it could have a material adverse affect on
Innoveda's business, financial condition, results of operations or cash flows.
38
INNOVEDA FACES THE RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS,
INCLUDING ITS BUSINESS ACTIVITIES IN ISRAEL, EUROPE AND ASIA.
International revenue and expenses represent a significant portion of Innoveda's
total revenue and expenses, and Innoveda expects this trend to continue.
International sales and operations involve numerous risks, including, among
others:
o- - fluctuations in the value of the dollar relative to foreign currencies can
make Innoveda's products and services more expensive in foreign markets or
increase Innoveda's expenses;
o- - tariff regulations and other trade barriers;
o- - requirements for licenses, particularly with respect to the export of
certain technologies;
o- - collectibility of accounts receivable;
o- - changes in regulatory requirements; and
o- - difficulties in staffing and managing foreign operations and extended
payment terms.
31
These factors may have a material adverse effect on Innoveda's future
international sales and operations and, consequently, on its business, financial
condition, results of operations or cash flows. In addition, financial markets
and economies in the Asia Pacific region have been experiencing adverse
conditions, and these adverse economic conditions may worsen. Demand for and
sales of Innoveda's products in this region may decrease.
In order to successfully expand international sales, Innoveda may need to
establish additional foreign operations, hire additional personnel and recruit
additional international distributors. This will require significant management
attention and financial resources and could adversely affect Innoveda's
operating margins. In addition, to the extent that Innoveda cannot effect these
additions in a timely manner, Innoveda can only generate limited growth in
international sales, if any. Innoveda may not maintain or increase international
sales of its products, and failure to do so could have a material adverse effect
on its business, financial condition, results of operations or cash flows.
INNOVEDA MUST MANAGE GROWTH AND ACQUISITIONS EFFECTIVELY, OR ITS FINANCIAL
CONDITION OR RESULTS OF OPERATIONS MAY SUFFER.
Innoveda's ability to achieve significant growth will require it to implement
and continually expand its operational and financial systems, recruit additional
employees and train and manage current and future employees. Innoveda expects
any growth to place a significant strain on its operational resources and
systems. Failure to effectively manage any growth would have a material adverse
effect on Innoveda's business, financial condition, results of operations or
cash flows. Innoveda regularly evaluates acquisition opportunities. Innoveda's
future acquisitions, if any, could result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities and
amortization expenses related to goodwill and other intangible assets, and large one-time charges
which could materially adversely affect Innoveda's results of operations.
Product and technology acquisitions entail numerous risks, including
difficulties in the assimilation of acquired operations, technologies and
products, diversion of management's attention to other business concern, risks
of entering markets in which Innoveda has no or limited prior experience and
potential loss of key employees of acquired companies. Innoveda may not
integrate successfully the operations, personnel or products that have been
acquired or that might be acquired in the future, and the failure to do so could
have a material adverse affect on its results of operations.
39
INNOVEDA FACES THE RISKS ASSOCIATED WITH OPERATIONS IN ISRAEL, INCLUDING
POLITICAL AND COORDINATION RISKS.
POLITICAL RISKS AND GOVERNMENTAL REGULATIONS. Innoveda's research and
development operations related to Visual HDL and Visual Elitemost of its SLD products are located in
Israel. Economic, political and military conditions may affect Innoveda's
operations in that country. Hostilities involving Israel for
example, could materially
adversely affect Innoveda's business, financial condition and results of
operations. Innoveda's ability to manufacture or transfer outside of Israel any
technology developed under research and development grants from the government
of Israel is subject to Israeli government restrictions which may limit
Innoveda's ability to extract the full benefit of that technology.
COORDINATION RISKS. In addition, coordination with and management of the Israeli
operations requires Innoveda to address differences in culture, regulations and
time zones. Failure to successfully address these differences could disrupt
Innoveda's operations.
INNOVEDA DEPENDS ON ITS KEY PERSONNEL, AND FAILURE TO HIRE OR RETAIN QUALIFIED
PERSONNEL COULD CAUSE INNOVEDA'S BUSINESS TO SUFFER.
Innoveda's future success will depend in large part on its key technical and
management personnel and its ability to continue to attract and retain highly-skilledhighly
skilled technical, sales and marketing and management
32
personnel. Innoveda's
business could be seriously harmed if it lost the services of its PresidentChairman of
the Board and Chief Executive Officer, William J. Herman and its President,
Richard G. Lucier, or if it fails to attract and retain other key personnel.
Competition for personnel in the software industry in general, and the
electronic design automation industry in particular, is intense. Innoveda has in
the past experienced difficulty in retaining and recruiting qualified personnel.
Innoveda may fail to retain its key personnel or attract and retain other
qualified technical, sales and marketing and management personnel in the future.
The loss of any key employees or the inability to attract and retain additional
qualified personnel may have a material adverse effect on Innoveda's business,
financial condition, results of operations or cash flows. Additions of new
personnel and departures of existing personnel, particularly in key positions,
can be disruptive and can result in departures of additional personnel, which
could have a material adverse effect on Innoveda's business, financial
condition, results of operations or cash flows.
IF INNOVEDA FAILS TO EXPAND AND TRAIN ITS SALES AND MARKETING ORGANIZATIONS, ITS
BUSINESS MAY SUFFER.
Innoveda's success will depend on its ability to build and expand its sales and marketing
organizations. Innoveda's future success will depend in part on its ability to
hire, train and retain qualified sales and marketing personnel and the ability
of these new persons to rapidly and effectively transition into their new
positions. Competition for qualified sales and marketing personnel is intense,
and Innoveda may not be able to hire, train and retain the number of sales and
marketing personnel needed, which would have a material adverse effect on its
business, financial condition, results of operations or cash flows.
INNOVEDA MUST CONTINUE TO ADD VALUE TO ITS CURRENT PRODUCTS TO SERVE ITS
INSTALLED CUSTOMER BASE OR ITS REVENUE DERIVED FROM MAINTENANCE AGREEMENTS WILL
DECREASE.
A substantial portion of Innoveda's revenue is derived from maintenance
agreements for existing products. In order to maintain that revenue, Innoveda
must continue to offer those customers updates for those products or convert
those customers to new products. Innoveda may not be able to do so.
INNOVEDA HAS SUBSTANTIAL SECURED DEBT, WHICH MAY SUBSTANTIALLY RESTRICT
INNOVEDA'S ABILITY TO REACT TO THE RAPIDLY CHANGING ENVIRONMENT OF THE
ELECTRONIC DESIGN AUTOMATION INDUSTRY, AND WHICH IT MAY NOT BE ABLE TO REPLACE.
As of February 29, 2001, Innoveda had cash and cash equivalents of $20.8 million
and had borrowings of approximately $8.4 million under its credit facility.
Borrowings under the credit facility are secured by substantially all of
Innoveda's assets. The credit facility contains limitations on additional
indebtedness and capital expenditures, and includes financial covenants, which
include but are not limited to the maintenance of minimum levels of profits,
interest and debt service coverage ratios and maximum leverage ratios.
Collectively, these limitations and covenants may substantially restrict the
flexibility of Innoveda's management in quickly adjusting its financial and
operational strategies to react to changing economic and business conditions and
may compromise Innoveda's ability to react to the rapidly evolving environment
of the electronic design automation industry. To avoid default under this credit
facility, Innoveda must remain in compliance with these limitations and
covenants and make all required repayments or Innoveda must obtain replacement
financing. Innoveda may not be able to secure replacement financing on terms
acceptable to it or to its stockholders, or at all. In the event of a default by
Innoveda, Innoveda's lender may enforce its security interest and take
possession of substantially all or some of Innoveda's assets.
3340
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
Innoveda is exposed to interest rate risk primarily through its credit facility.
The CompanyInnoveda has a $16,000 credit facility with a commercial bank consisting of a $6,000 revolving
line of credit ("Line of Credit") and $10,000a term loan (the "Term Loan") (together,
the "Credit Facility"). See Management's Discussion and Analysis of Financial
Condition and Results of Operations. Interest terms on the Line of Credit and
the Term Loan are determined, at the option of the Company,Innoveda, for varying periods.
The CompanyInnoveda may elect to have the interest rate based on the bank's prime rate or
based on the LIBOR rate at the time of the election, depending on the Company'sInnoveda's
leverage financial ratio, as defined, in the Credit Facility. The interest ratesrate
on the Line of Credit andat December 30, 2000 was 10%. The interest rates on the
Term Loan at December 29, 2001 and December 30, 2000 was 10.0%were 4.7% and 9.2%,
respectively.
Payments of principal outstanding under either the Line of Credit or the Term
Loan may be made at any time and
must be repaid in fullexpire by September 30, 2003. A payment of $1.0 million is due in the first
quarter of fiscal 2002. Successive payments of $1.0 million are due each quarter
through the fourth quarter of 2002, and $1.4 million and $0.4 million are due in
the first and third quarters of fiscal 2003, respectively.
As required under the Credit Facility, the CompanyInnoveda entered into a no fee interest
rate-swap agreement with a bank to reduce the impact of changes in interest
rates on its floating rate Credit Facility. This agreement effectively converts
a portion of the whole floating-rate obligation into a fixed-rate obligation of 7.4% for a
period of 60 months, expiring on March 31, 2003. The notional principal amount
of the interest rate-swap agreement is $9,250was $5.8 million as of December 30, 2000.29, 2001.
The counter parties to the interest rate-swapinterest-rate swap agreement exposeexposes Innoveda to credit losslosses in the event
of nonperformance.Innoveda repays its Term Loan earlier than is currently scheduled. Open interest
rate contracts are reviewed regularly by Innoveda to ensure that they remain
effectiveevaluate their
effectiveness as hedges of interest rate exposure. Management believes thatThe fair value obligation of
the interest rate-swap agreement approximateswas approximately $159 as of December 29, 2001.
As of December 29, 2001, a 100 basis point change in interest rates would not
result in a material change in the fair value.
The Companyvalue of the interest-rate swap
agreement.
Innoveda invests its excess cash in debt instruments of the U.S. Government and
its agencies, and in high-quality corporate issuers and, by policy, limits the
amount of credit exposure to any one issue. The CompanyInnoveda attempts to protect and
preserve its invested funds by limiting default, market and reinvestment risk.
Investments in both fixed rate and floating rate interest earning instruments
carry a degree of interest rate risk. Fixed rate securities may have their fair
market value adversely impacted due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest rates fall.
Due in part to these factors, the Company'sInnoveda's future investment income may fall short
of expectations due to changes in interest rates and the CompanyInnoveda may suffer losses
in principal if forced to sell securities which have declined in market value
due to changes in interest rates.
The CompanyInnoveda considers all highly liquid debt instruments with a remaining maturity
of three months or less when purchased to be cash equivalents. At December 30, 2000,29,
2001 and January 1,December 30, 2000, substantially all of the Company's cash and cash
equivalents were invested in interest-bearing deposits and other short-term
investments with an original maturity of three months or less as of the date of
purchase. ByPursuant to the Company's investment policy, all debt instruments must
have quality ratings no lower than A rating.
41
FOREIGN CURRENCY EXCHANGE RATE RISK
Innoveda is also exposed to the impact of foreign currency fluctuations. Since
Innoveda translates foreign currencies into U.S. dollars for reporting purposes,
weakened currencies in its subsidiaries have a negative, though immaterial,
impact on its results. Innoveda also believes that the exposure to currency
exchange fluctuation risk is insignificant because its international
subsidiaries sell to customers, and satisfy their financial obligations, almost
exclusively in their local currencies. Innoveda entered into foreign exchange
contracts as a hedge against certain accounts receivable denominated in foreign
currencies during the twelve months ended December 30, 2000.29, 2001. Realized and
unrealized gains and losses on foreign exchange contracts for the twelve months
ended December 30, 200029, 2001 were insignificant. There were no outstanding foreign
exchange contracts as of December 30, 2000.
3429, 2001.
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 30, 200029, 2001 and January 1,December 30, 2000 F-2
Consolidated Statements of Operations for the Years Ended December 29, 2001,
December 30, 2000 and January 1, 2000 and January 2, 1999 F-3
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended
December 29, 2001, December 30, 2000 and January 1, 2000 and January 2, 1999 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 29, 2001,
December 30, 2000 and January 1, 2000 and January 2, 1999 F-5
Consolidated Statements of Cash Flows for the Years Ended December 29, 2001,
December 30, 2000 and January 1, 2000 and January 2, 1999 F-6
Notes to Consolidated Financial Statements F-7
3543
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Innoveda, Inc.:
We have audited the accompanying consolidated balance sheets of Innoveda, Inc.
and subsidiaries as of January 1, 2000December 29, 2001 and December 30, 2000, and the related
consolidated statements of operations, comprehensive income (loss),
stockholders' equity (deficiency), and cash flows for each of the three years in
the period ended December 30, 2000.29, 2001. Our audits also included the financial
statement schedule listed in the Index at Item 14. These financial statements
and the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Innoveda, Inc. and subsidiaries as
of January 1, 2000December 29, 2001 and December 30, 2000, and the results of their operations,
their comprehensive income (loss) and their cash flows for each of the three
years in the period ended December 30, 200029, 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in Note 1, through October 2, 1998, the Company and the Systems
Business were operated as a subsidiary of Synopsys, Inc. or a component of the
Prior Viewlogic, respectively.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 2, 2001January 28, 2002
F-1
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, 2001 AND DECEMBER 30, 2000
AND JANUARY 1, 2000
(In Thousands, Except Per Share Data)
- --------------------------------------------------------------------------------(IN THOUSANDS, EXCEPT PER SHARE DATA)
DecemberDECEMBER 29, DECEMBER 30,
January 1,
ASSETS2001 2000
2000------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,7997,704 $ 53120,799
Accounts receivable (less allowances of $1,876 at
December 29, 2001 and $2,034 at December 30, 2000 and $1,465 at January 1, 2000) 21,876 27,260 14,290
Prepaid expenses and other current assets 2,511 2,800
3,950Income taxes receivable 1,233 -
Deferred income taxes 3,960 6,626
1,342
-------- --------------------- ------------
Total current assets 37,284 57,485
20,113
-------- --------------------- -----------
PROPERTY AND EQUIPMENT:
Equipment 19,703 18,887 13,087
Furniture and fixtures 1,359 1,394
1,421
-------- --------------------- ------------
Total property and equipment 21,062 20,281 14,508
Less accumulated depreciation 16,212 12,639
10,031
-------- --------------------- ------------
PROPERTY AND EQUIPMENT- NetEQUIPMENT, NET 4,850 7,642
4,477
-------- --------------------- ------------
OTHER ASSETS:
Capitalized software costs, net 2,342 2,358 2,427
Purchased technology and other intangibles, net 25,404 62,198 3,508
Goodwill and other assets, net 2,412 12,941
920
-------- --------------------- ------------
Total other assets 30,158 77,497
6,855
-------- --------------------- ------------
TOTAL $142,624 $ 31,445
======== ========72,292 $ 142,624
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
CURRENT LIABILITIES:
Note payable - current portion $ 3,5504,000 $ 3,1253,550
Current portion of capital lease obligations 270 548 372
Accounts payable 3,648 3,652 2,840
Accrued compensation 6,048 8,296 3,542
Accrued expenses 12,074 12,269 3,377
Due to related party -- 221
Deferred revenue 20,776 24,514
14,595
-------- --------------------- ------------
Total current liabilities 46,816 52,829
28,072
-------- --------------------- ------------
LONG-TERM LIABILITIES:
Note payable - long-term portion 1,750 5,750 12,125
Line of credit -- 1,700
Deferred tax liability 10,013 27,642 2,393
Capital lease obligations - 250 554
Other long term liabilities 1,322 1,553
--
-------- --------------------- ------------
Total long-term liabilities 13,085 35,195
16,772
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
REDEEMABLE, CONVERTIBLE PREFERRED STOCK -- 32,000------------- ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):EQUITY:
Preferred stock, $0.01 par value; authorized 5,000 in 2001 and 2000,
none issued or outstanding - -
Common stock, $0.01 par value, 100,000 authorized,
40,271 outstanding at December 29, 2001, 39,347 outstanding
at December 30, 2000 $0.001 par value,
35,000 authorized, 7,969 outstanding at January 1, 2000403 393 8
Additional paid-in capital 117,440 116,047 4,777
Accumulated deficit (101,650) (59,013) (47,845)
Accumulated other comprehensive income (loss) (681) 50 289
Notes from stockholders (932) (927)(932)
Treasury stock, at cost, 550 shares in 2001, 341 shares in 2000 (1,663) (832) --
Deferred compensation (526) (1,113)
(1,701)
-------- --------------------- ------------
Total stockholders' equity (deficiency)12,391 54,600
(45,399)
-------- --------------------- ------------
TOTAL $142,624 $ 31,445
======== ========72,292 $ 142,624
============= ============
See notes to consolidated financial statements.
F-2
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
AND JANUARY 2, 1999
(In Thousands Except Per Share Data)
- --------------------------------------------------------------------------------(IN THOUSANDS EXCEPT PER SHARE DATA)
Year Ended
--------------------------------------
DecemberYEAR ENDED
----------------------------------------------
DECEMBER 29, DECEMBER 30, JanuaryJANUARY 1,
January 2,2001 2000 2000
1999------------ ------------ -----------
REVENUE:
Software $ 44,466 $ 49,618 $ 23,853
$ 22,683
MaintenanceServices and servicesother 46,951 40,241 29,646
32,554
-------- -------- -------------------- ------------ -----------
Total revenue 91,417 89,859 53,499
55,237
-------- -------- -------------------- ------------ -----------
COSTS AND EXPENSES:
Cost of software(1)software (1) 6,753 7,816 5,986 5,112
Cost of services and other(1)other (1) 11,106 8,592 6,387
5,072
Selling and marketing(1)marketing (1) 41,118 33,689 22,479
18,930
Research and development(1)development (1) 26,661 22,588 11,322
10,028
General and administrative(1)administrative (1) 7,865 7,099 3,942 3,675
Amortization of intangibles 14,415 10,335 670 --
Amortization of stock compensation 587 588 531 116
In process research and development - 5,453 -- --
Merger-
Impairment of intangible assets 32,945 - -
Restructuring and merger costs 5,865 2,736 -- --
Transaction costs -
recapitalization -- -- 452
-------- -------- -------------------- ------------ -----------
Total operating expenses 147,315 98,896 51,317
43,385
-------- -------- -------------------- ------------ -----------
INCOME (LOSS) FROM OPERATIONS (55,898) (9,037) 2,182
11,852
-------- -------- -------------------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest income 413 1,051 101
171
Interest expense (531) (1,143) (1,339)
(342)
Other, net principally foreign exchange losses(320) (230) (404)
(1,761)
-------- -------- -------------------- ------------ -----------
Other income (expense),expense, net (438) (322) (1,642)
(1,932)
-------- -------- -------------------- ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES (56,336) (9,359) 540
9,920
PROVISION (BENEFIT) FOR INCOME TAXES (13,699) 1,809 281
4,053
-------- -------- -------------------- ------------ -----------
NET INCOME (LOSS) $(11,168)$ (42,637) $ (11,168) $ 259
$ 5,867
======== ======== ==================== ============ ===========
EARNINGS (LOSS) PER SHARE:
Net income (loss) per common share - basic $ (1.09) $ (0.40) $ 0.07
$ 2.18
======== ======== ==================== ============ ===========
Net income (loss) per common share - diluted $ (1.09) $ (0.40) $ 0.02
$ 1.08
======== ======== ==================== ============ ===========
Weighted-average shares outstanding - basic 39,224 28,252 3,938
2,694
======== ======== ==================== ============ ===========
Weighted-average shares outstanding - diluted 39,224 28,252 15,586
5,434
======== ======== ==================== ============ ===========
(1) Excludes noncash amortization of stock-based compensation as follows:
Cost of software $ 5 $ 5 $ 15
Cost of services and other 43 43 39 8
Selling and marketing 116 116 105 23
Research and development 212 212 191 42
General and administrative 211 212 191
42------------ ------------ -----------
$ 587 $ 588 $ 531
============ ============ ===========
See notes to consolidated financial statements.
F-3
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
AND JANUARY 2, 1999
(In Thousands)
- --------------------------------------------------------------------------------
December 30, January 1, January 2,
2000 2000 1999
NET INCOME (LOSS) $(11,168) $ 259 $ 5,867
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (239) 151 1,800
-------- -------- --------
COMPREHENSIVE INCOME (LOSS) $(11,407) $ 410 $ 7,667
======== ======== ========(IN THOUSANDS)
YEAR ENDED
----------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------ ------------ -----------
Net Income (Loss) $ (42,637) $ (11,168) $ 259
Foreign Currency Translation Adjustments (572) (239) 151
Fair Value Adjustment of Interest Rate Swap (159) - -
------------ ------------ -----------
Comprehensive Income (Loss) $ (43,368) $ (11,407) $ 410
============ ============ ===========
See notes to consolidated financial statements.
F-4
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
AND JANUARY 2, 1999
(In Thousands)
- --------------------------------------------------------------------------------(IN THOUSANDS)
Retained Accumulated
Stock Additional Earnings Other Notes Due
Common Par Paid-in (Accumulated Comprehensive From
Shares Value Capital Deficit) Income (Loss) StockholdersRETAINED ACCUMULATED
STOCK ADDITIONAL EARNINGS OTHER
COMMON PAR PAID-IN (ACCUMULATED COMPREHENSIVE
SHARES VALUE CAPITAL DEFICIT) INCOME(LOSS)
---------- -------- ----------- ---------------- ------------------
BALANCE, JANUARY 1, 1998 AFTER
CORPORATE REORGANIZATION (Note 1)2, 1999 3,966 $ 4 $ --1,918 $ (3,971) $(1,662)(48,104) $ --
Compensation related to stock options -- -- 1,918 -- -- --
Amortization of stock compensation -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- 1,800 --
Recapitalization payment to parent -- -- -- (50,000) -- --
Net income -- -- -- 5,867 -- --
------ ----- -------- -------- ------- -----
BALANCE, JANUARY 2, 1999 3,966 4 1,918 (48,104) 138 --
Issuance of common stock 1,124 1 1,482 -- -- --- -
Compensation related to stock options -- --- - 431 -- -- --- -
Amortization of stock compensation -- -- -- -- -- --- - - - -
Foreign currency translation adjustment -- -- -- --- - - - 151 --
Exercise of stock options 2,879 3 946 -- -- (927)- -
Net income -- -- --- - - 259 -- --
------ ------
---------- -------- -------- ------- ---------------- ---------------- ------------------
BALANCE, JANUARY 1, 2000 7,969 $ 8 $ 4,777 $ (47,845) $ 289 (927)
Exercise of stock options 545 5 737 -- -- --- -
Issuance of stock under ESPP 86 1 196 -- -- --- -
Amortization of stock compensation -- -- -- -- -- --- - - - -
Conversion of preferred shares to common stock 16,000 160 -- -- -- --- - -
Effect of adjustment to Summit acquisition
exchange ratio (7,715) (77) -- -- -- --- - -
Shares issued in connection with merger
of Innoveda and Summit 15,989 231 80,734 -- -- --- -
Options granted for Summit merger -- --- - 4,882 -- -- --- -
Options granted under PADS acquisition -- --- - 366 -- -- --- -
Issuance of shares in PADS acquisition 6,473 65 24,355 -- -- --- -
Shareholder note receivable acquired through
PADS acquisition -- -- -- -- -- (5)- - - - -
Foreign currency translation adjustment -- -- -- --- - - - (239) --
Repurchase of common stock -- -- -- -- -- --- - - - -
Net income -- -- --loss - - - (11,168) -- --
------ ------
----------- -------- -------- ------- ---------------- ---------------- ------------------
BALANCE, DECEMBER 30, 2000 39,347 $ 393 $116,047 $(59,013)$ 116,047 $ (59,013) $ 50
$(932)
====== =====Exercise of stock options 294 4 194 - -
Issuance of stock under ESPP 630 6 1,199 - -
Amortization of stock compensation - - - - -
Foreign currency translation adjustment - - - - (731)
Repurchase of common stock - - - - -
Net loss - - - (42,637) -
----------- -------- ------------ ---------------- ------------------
BALANCE, DECEMBER 29, 2001 40,271 $ 403 $ 117,440 $ (101,650) $ (681)
=========== ======== ======== ======= ================= ================ ==================
Treasury Deferred
Stock Compensation TotalNOTES DUE FROM TREASURY DEFERRED
STOCKHOLDERS STOCK COMPENSATION TOTAL
---------------- ---------- -------------- ---------------
BALANCE, JANUARY 1, 1998 AFTER
CORPORATE REORGANIZATION (Note 1) $ -- $ -- $ (5,629)
Compensation related to stock options -- (1,918) --
Amortization of stock compensation -- 117 117
Foreign currency translation adjustment -- -- 1,800
Recapitalization payment to parent -- -- (50,000)
Net income -- -- 5,867
----- ------- --------
BALANCE, JANUARY 2, 1999 --$ - $ - $ (1,801) $ (47,845)
Issuance of common stock -- -- $- - - 1,483
Compensation related to stock options --- - (431) ---
Amortization of stock compensation --- - 531 531
Foreign currency translation adjustment -- --- - - 151
Exercise of stock options -- --(927) - - 22
Net income -- --- - - 259
----- ------- ------------------------ ---------- -------------- ---------------
BALANCE, JANUARY 1, 2000 --$ (927) $ - $ (1,701) $ (45,399)
Exercise of stock options -- --- - - $ 742
Issuance of stock under ESPP -- --- - - 197
Amortization of stock compensation --- - 588 588
Conversion of preferred shares to common stock -- --- - - 160
Effect of adjustment to Summit acquisition
exchange ratio -- --- - - (77)
Shares issued in connection with merger
of Innoveda and Summit -- --- - - 80,965
Options granted for Summit merger -- --- - - 4,882
Options granted under PADS acquisition -- --- - - 366
Issuance of shares in PADS acquisition -- --- - - 24,420
Shareholder note receivable acquired through
PADS acquisition -- --(5) - - (5)
Foreign currency translation adjustment -- --- - - (239)
Repurchase of common stock - (832) --- (832)
Net income -- --loss - - - (11,168)
----- ------- ------------------------ ---------- -------------- ---------------
BALANCE, DECEMBER 30, 2000 $(832) $(1,113)$ (932) $ (832) $ (1,113) $ 54,600
===== ======= ========Exercise of stock options - - - $ 198
Issuance of stock under ESPP - - - 1,205
Amortization of stock compensation - - 587 587
Foreign currency translation adjustment - - - (731)
Repurchase of common stock - (831) - (831)
Net loss - - - (42,637)
---------------- ---------- -------------- ---------------
BALANCE, DECEMBER 29, 2001 $ (932) $ (1,663) $ (526) $ 12,391
================ ========== ============== ===============
See notes to consolidated financial statements.
F-5
INNOVEDA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 29, 2001, DECEMBER 30, 2000 AND JANUARY 1, 2000
AND JANUARY 2, 1999
(In Thousands)
- --------------------------------------------------------------------------------(IN THOUSANDS)
Year Ended
--------------------------------------
DecemberYEAR ENDED
------------------------------------
DECEMBER 29, DECEMBER 30, JanuaryJANUARY 1,
January 2,2001 2000 2000
1999------------------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(42,637) $(11,168) $ 259 $ 5,867
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 19,217 15,333 3,998
3,205Non cash portion of restructuring and impairment costs 34,445 - -
Compensation under stock option agreements 587 588 531 117
Write-off of in-process research and development - 5,453 -- --
Loss-
Tax benefit on disposal of fixed assets -- -- 820
Changestock option exercises 186 - -
Changes in current assets and current liabilities:
Accounts receivable 5,179 (6,172) (4,500) (668)
Prepaid and other assets (1,183) 1,788 (1,532) (213)
Deferred income taxes (14,987) (4,660) 70
220
Accounts payable 9 (2,250) 1,081
872
Accrued compensation (2,217) 1,026 207
(2,412)
Accrued expenses (916) 3,969 (1,274)
(6,946)
Deferred revenue (3,557) (545) 1,598
2,005
-------- -------- ----------------- --------- ---------
Net cash provided by (used in) operating activities (5,874) 3,362 438
2,867
-------- -------- ----------------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,187) (3,403) (1,000) (1,257)
Capitalized software costs (1,103) (1,021) (1,068) (1,111)
Purchase of OmniView --- - (1,153) --
Purchase of Transcendent, net of cash acquired --- - 285 --
Proceeds from sale of VirSim product - 7,000 -- ---
Cash acquired in acquisition of PADS, net of purchase costs - 2,857 -- ---
Cash acquired in acquisition of Summit, net of purchase costs - 27,036 -- ---
Other --- - (300)
(449)
-------- -------- ----------------- --------- ---------
Net cash provided by (used in) investing activities (3,290) 32,469 (3,236)
(2,817)
-------- -------- ----------------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt (3,550) (15,070) (2,250) (500)
Proceeds from debt --- - 1,200 18,500
Recapitalization payment to Synopsys, Inc. -- -- (50,000)
Advances from parent -- -- 3,100
Proceeds from sales of redeemable convertible preferred stock -- -- 32,000
Proceeds from exercise of stock options and stock purchase plan 1,216 944 22 --
Repayments of capital lease obligations (525) (460) (169) (64)
Purchase of treasury stock (831) (832) -- --
-------- -------- ---------
--------- --------- ---------
Net cash provided by (used in)used in financing activities (3,690) (15,418) (1,197)
3,036
-------- -------- ----------------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (241) (145) 39
1,401
-------- -------- ----------------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,095) 20,268 (3,956) 4,487
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 20,799 531 4,487
--
-------- -------- ----------------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,704 $ 20,799 $ 531
$ 4,487
======== ======== ================= ========= =========
See notes to consolidated financial statements.
F-6
INNOVEDA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of BusinessNATURE OF BUSINESS - Innoveda, Inc. (the "Company") operates in the United
States and international markets developing, marketing and providing
technical support for a comprehensive family of software tools used by
engineers in the design of advanced electronic products and systems, and
related services.
Basis of PresentationBASIS OF PRESENTATION - Innoveda, Inc., a Delaware corporation, was created
by the business combination of Summit Design, Inc. ("Summit") and Viewlogic
Systems, Inc. ("Viewlogic") which was consummated on March 23, 2000. In
addition, the Company subsequently acquired PADS Software, Inc. ("PADS") on
September 22, 2000. The business combination of Summit with Viewlogic was
effected by means of the merger of a wholly owned subsidiary of Summit with
and into Viewlogic, with Viewlogic surviving as a wholly owned subsidiary
of Summit. The business combination was accounted for as a reverse
acquisition, as the former shareholders of Viewlogic owned the majority of
the outstanding stock of Summit subsequent to the business combination.
Therefore, for accounting purposes, Viewlogic is deemed to have acquired
Summit. The business combination of Innoveda and PADS was accounted for as
a purchase of PADS by Innoveda.
All fiscal 1999 financial information presented herein, with the exception
of pro forma results in Note 2, represents only the financial results for
Viewlogic. The fiscal 2000 financial information presented in the
consolidated statements of operations and the consolidated statements of
cash flows represents the results for Viewlogic for the periods stated and
includes the financial results for Summit commencing March 24, 2000, and
the financial results for PADS commencing September 23, 2000.
Prior to December 4, 1997, a company also named Viewlogic Systems, Inc.
(the "Prior Viewlogic") offered two primary product lines, consisting of
software tools used by engineers designing integrated circuits (the "ASIC
Business") and software tools used by engineers designing printed circuit
boards and complete systems (the "Systems Business"). On December 4, 1997,
the Prior Viewlogic became a wholly owned subsidiary of Synopsys, Inc.
("Synopsys") in a transaction accounted for as a pooling of interests. On
January 1, 1998, the Prior Viewlogic transferred the ASIC Business and
certain other assets to Synopsys, leaving only the Systems Business in the
Prior Viewlogic.FISCAL YEAR - The Prior Viewlogic operated as the Systems Business
through March 31, 1998 when, in a reorganization for tax purposes, the
Systems Business was transferred to the Viewlogic Systems, Inc. which
would later merge with Summit as described above. The reorganization was
for tax purposes only and there was no substantive change in the
operations of the business.
On October 2, 1998, a group of investors purchased 16,000 shares of
Viewlogic's preferred stock for $32,000 and the Company borrowed $18,000
from a bank. The proceeds of these financings were paid to Synopsys with
the result that Synopsys' interest in Viewlogic was reduced to 19.9% at
the time of the transaction. This transaction was accounted for as a
recapitalization.
F-7
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
The accompanying consolidated financial statements include the operations
of the Prior Viewlogic through March 31, 1998 and of the Company from
April 1, 1998 through January 2, 1999. For the period from January 1, 1998
through the October 2, 1998 recapitalization, certain treasury services
were provided by Synopsys at no charge. The fair value of services was not
significant. The Company charged Synopsys $1,386 for transition services
for the nine months ended October 3, 1998, and $987 and $153 for occupancy
costs for the years ended January 2, 1999 and January 1, 2000,
respectively, related to the transfer of the ASIC Business to Synopsys.
The Company did not charge Synopsys for any additional costs beyond July
3, 1999.
Fiscal Year -The Company's fiscal year is a 52-53-week year ending on the
Saturday closest to December 31.
Use of EstimatesUSE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with accounting principles generally accepted accounting principlesin
the United States of America requires management to make estimates and
assumptions that affect the reported amounts and disclosures of certain
assets and liabilities at the balance sheet date. Actual results may differ
from such estimates.
Principles of ConsolidationPRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Innoveda, Inc. and its subsidiaries, all of which are
wholly owned. All significant intercompany balances and transactions have
been eliminated.
Foreign Currency TranslationFOREIGN CURRENCY TRANSLATION - The functional currency of international
operations is deemed to be the local country's currency. Assets and
liabilities of operations outside the United States are translated into
United States dollars using current exchange rates at the balance sheet
date. Results of operations are translated at average exchange rates
prevailing during each period. Translation adjustments are included in
other comprehensive income. Transaction gains and losses are recorded in
the statementsstatement of operations currently. In 1998, as part of the
recapitalization, one of the Company's international subsidiaries repaid
an amount that had been previously treated as a long-term investment.
The repayment of this amount resulted in a realized transaction loss of
$1,400 that is included in other expense.
Revenue Recognition - The Company's revenue recognition policies are in
compliance with Statement of Position (SOP) No. 97-2, "Software Revenue
Recognition," as amended by SOP 98-9, and Staff Accounting Bulletin (SAB)
No. 101, "Revenue Recognition in Financial Statements".operations.
F-7
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION Software revenue is recognized upon the shipment of
the product provided that persuasive evidence of an arrangement exists, the
arrangement fee is fixed and determinable and collection is probable. For
arrangements involving multiple elements, the arrangement fee is allocated
to each element based on vendor-specific objective evidence ("VSOE") of the
fair value of the various elements. VSOE of fair value is determined based
on the prices at which the elements are sold separately. If VSOE of fair
value exists for all undelivered elements but not for the delivered
element, the portion of the arrangement fee allocated to the delivered
element is determined using the residual method. If VSOE of fair value does
not exist for all of the undelivered elements, the arrangement fee is
recognized ratably over the term of the arrangement. For term licenses of
one year or less, which include post contract customer support, revenue is
recognized ratably over the term of the agreement, unless the only support
provided is telephone support, in which case the entire arrangement fee is
recognized at the beginning of the term.
Revenue from maintenance and support contracts is deferred and recognized
ratably over the term of the service period. Revenue from training and
consulting is recognized as the related services are provided.
F-8
1. NATUREALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company maintains an allowance for
doubtful accounts, which reflects our estimate of the amounts owed by
customers that customers will be unable to pay. Management performs ongoing
credit evaluations of its customers' financial condition and limits the
amount of customer credit when deemed necessary.
CONCENTRATION OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Cash EquivalentsCREDIT RISK - The Company's trade receivables and
investments do not represent a significant concentration of credit risk at
December 29, 2001 due to the wide variety of customers and markets into
which the Company's products are sold and their dispersion across many
geographic areas.
CASH EQUIVALENTS - The Company considers all short-term, highly liquid
investments purchased with a remaining maturity of three months or less to
be cash equivalents.
F-8
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Supplemental cash flow information is as follows (in thousands):
Year Ended
--------------------------------------
DecemberYEAR ENDED
------------------------------------
DECEMBER 29, DECEMBER 30, JanuaryJANUARY 1,
January 2,2001 2000 2000
1999----------- ----------- ----------
Cash paid for interest $ 449 $ 1,131 $ 1,645
$ 14
Cash paid for (received from) income taxes (545) 2,576 1,543 90
Assets acquired under capital leases --- - 898 89
Issuance of stock in OmniView acquisition --- - 280 --
Acquisition of Transcendent:
Fair value of assets acquired (including intangibles) --- - 3,373 --
Fair value of common stock issued --- - (1,159) --
Fair value of Transcendent options assumed --- - (44) --
Transaction costs --- - (354) --
Liabilities assumed --- - 1,816 --
Acquisition of Summit Design:
Fair value of assets acquired (including intangibles) - 49,842 -- ---
Fair value of common stock issued - (49,020) -- ---
Fair value of Summit Design options assumed - (4,882) -- ---
Transaction costs - (1,136) -- ---
Liabilities assumed - 25,350 -- ---
Acquisition of PADS Software:Software
Fair value of assets acquired (including intangibles) - 54,306 -- ---
Fair value of common stock issued - (23,870) -- ---
Fair value of PADS options assumed - (366) -- ---
Transaction costs - (550) -- ---
Liabilities assumed - 35,438 -- ---
Exercise of stock options through issuance of
stockholders' notes --- - 927 --
Property and EquipmentPROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of the related assets (three to five years). Equipment leased
under capital leases is amortized over the lesser of its useful life or the
lease term.
F-9
1. NATURE OF BUSINESS, BASIS OF PRESENTATIONCAPITALIZED SOFTWARE COSTS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Capitalized Software Costs and Purchased TechnologyPURCHASED TECHNOLOGY - Certain software
costs for products and product enhancements are capitalized after
technological feasibility has been established. Amortization is provided
over estimated lives of four years on a straight-line basis or based on the
ratio of current revenues to the total expected revenues in a product's
life, if greater. Accumulated amortization was $4,125$4,961 and $3,143$4,125 at
December 30, 200029, 2001 and January 1,December 30, 2000, respectively. Amortization expense
for the fiscal years ended December 29, 2001, December 30, 2000 and January
1, 2000 was $965, $1,013 and January 2, 1999 was $1,013, $966, and $1,057, respectively. Research and development
costs and software development costs incurred before technological
feasibility has been established are expensed as incurred.
F-9
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
PURCHASED TECHNOLOGY AND OTHER INTANGIBLES - Purchased technology is being
amortized over estimated lives ranging from three to four years.
Accumulated amortization was $7,320$36,224 and $627$7,320 at December 30, 200029, 2001 and
January 1,December 30, 2000, respectively. Amortization expense for the fiscal years
ended December 29, 2001, December 30, 2000 and January 1, 2000 was $11,052,
$7,031 and $615$656, respectively.
Goodwill and Other AssetsGOODWILL AND OTHER ASSETS - Goodwill and other assets consist primarily of
goodwill, which represents the excess of the purchase price over
identifiable net assets acquired and is being amortized over seven years.
Accumulated amortization at December 29, 2001 and December 30, 2000 was
$20,503 and January 1,
2000 was $3,085, and $74, respectively. Amortization expense for the fiscal yearyears
ended December 29, 2001, December 30, 2000 and January 1, 2000 was $3,362,
$3,304 and $55, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - The carrying values ofCompany reviews its long-lived
assets, including goodwill, purchased technology and other long-livedintangible
assets are reviewedfor impairment whenever events or changes in circumstances occur which indicate
that the carrying value may not be recoverable.
Income TaxesAs part of the Company's review of financial results during the third
quarter of 2001, the Company performed an assessment of the carrying values
of intangible assets recorded in connection with the acquisitions of PADS
Software and Summit Design. This assessment was performed as a result of
the current economic downturn and industry trends impacting the Company's
current operations and expected future growth rates. The conclusion of that
assessment was that the decline in economic conditions within the Company's
industry was significant and other than temporary. As a result, the Company
recognized pre-tax charges of $32,945 representing write downs to record
intangible assets at their estimated fair values. The impaired intangible
assets include goodwill, purchased technology, workforce and customer base.
The estimated fair value was based on expected future cash flows to be
generated, discounted at a rate commensurate with the risks involved.
INCOME TAXES - The Company computesprovides for deferred income taxes based on the
differences between the financial statement and tax basis of assets and
liabilities using enacted rates in effect in the years in which the
differences are expected to reverse. The Company establishes valuation
allowances to offset temporary deductible differences, net operating loss
carryforwards, and tax credits, which are not likely to be realized.
For the period from January 1, 1998 through October 3, 1998, the Company
was included in the consolidated returns of Synopsys. For financial
statement purposes, the Company has computed the tax provision for the
year ended January 2, 1999 as if it had filed separate returns.
Foreign Exchange ContractsFOREIGN EXCHANGE CONTRACTS - The Company enters into foreign exchange
contracts as a hedge against certain accounts receivable denominated in
foreign currencies. Market value gains and losses are recognized, and the
resulting credit or debit offsets foreign exchange gains or losses on those
receivables. Realized and unrealized gains and losses on foreign exchange
contracts for the years ended December 29, 2001, December 30, 2000 and
January 1, 2000 were insignificant. There were no outstanding foreign
exchange contracts outstanding as of December 30, 2000.
Fair Value of Financial Instruments29, 2001.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Financial instruments held or used by
the Company include cash and cash equivalents, accounts receivable,
accounts payable, capital lease obligations, notes and line of credit
payables, foreign exchange contracts, (if any)if any, and interest rate swap
agreements. The fair values of these instruments, which could change if
market conditions change, are based on management's estimates. Management
believes that the carrying valuevalues of these instruments approximates their
fair values.
Interest Rate Swap AgreementINTEREST RATE SWAP AGREEMENT - The net differential to be paid or received
under the Company's interest rate swap agreement is accrued as interest
rates change and is recognized over the life of the agreement. Stock-Based Compensation - The
Company usesCompany's interest-rate swap agreement has been recorded at fair value.
Changes in the intrinsic value-based
methodfair value are either recognized periodically in earnings
or in stockholders' equity as a component of Accounting Principles Board Opinion No. 25, as permitted by SFAS
No. 123, "Accountingcomprehensive income,
depending on whether the derivative financial instrument qualifies for
Stock-Based Compensation," to accounthedge accounting. Changes in fair values that do not qualify for employee stock-based compensation plans.hedge
accounting are reported in earnings.
F-10
1. NATURE OF BUSINESS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
NewSTOCK-BASED COMPENSATION - The Company accounts for stock-based employee
compensation arrangements using the intrinsic value method in accordance
with provisions of Accounting PronouncementsPrinciples Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Stock-based compensation expense is amortized, using the multiple option
method prescribed by Financial Accounting Standards Board Interpretation
("FIN") No. 28 over the option's vesting period.
NEW ACCOUNTING PRONOUNCEMENTS - On January 1, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), which
established accounting and reporting standards for derivative instruments.
All derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the
derivative is designated as a fair value hedge, the changes in the fair
value of the derivative and of the hedged item attributable to the hedged
risk are recognized in earnings. If the derivative is designated as a cash
flow hedge, the effective portions of changes in fair value of the
derivative are recorded in other comprehensive income and are recognized in
the income statement when the hedged item affects earnings. Ineffective
portions of changes in the fair value of cash flow hedges are recognized in
earnings. Adoption of SFAS 133 did not have a material effect on the
Company's consolidated financial position or results of operations.
In August 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. This
statement supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and For Long-Lived
Assets to be Disposed of" ("SFAS 121") and the accounting and reporting
provisions of APB 30, for the disposal of a segment of a business. The
Company will adopt SFAS No. 144 in the first quarter of fiscal 2002.
In June 1998,2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS
No. 133, as amended, establishes new standards141, "Business Combinations" and SFAS 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 requires that an entity account for
business combinations using the purchase method and eliminates the pooling
method. In addition, SFAS No. 141 provides guidance regarding the initial
recognition and measurement of accountinggoodwill and reportingother intangible assets. SFAS
No.142 requires that goodwill no longer be amortized and instead be tested
annually for derivative instrumentsimpairment. The provisions of SFAS No. 141 apply to all
business combinations initiated after June 30, 2001 and hedging
activitiesthe provisions of
SFAS No. 142 are required to be applied starting with fiscal years
beginning after December 15, 2001. The Company will adopt SFAS No. 142 in
the first quarter of fiscal 2002 and estimates that the effect of the
adoption will be effective for the Company in fiscal 2001.
Management does not expect the adoption of SFAS 133 to have a material
effect on Innoveda's consolidated financial position or results of
operations.
Reclassificationreduce annual amortization expense by approximately
$0.2 million.
RECLASSIFICATION - Certain amounts in the prior year consolidated financial
statements have been reclassified to conform with the current year
presentation.
F-11
2. ACQUISITIONS
Acquisition by Innoveda ofACQUISITION BY INNOVEDA OF PADS - On June 2, 2000, Innoveda entered into a
merger agreement with PADS. The merger was consummated on
September 22, 2000. The merger agreement provided that a wholly owned
subsidiary of Innoveda would merge with and into PADS, with PADS surviving
as a wholly owned subsidiary of Innoveda following the merger. For the
merger, Innoveda issued 6,473 shares of its common stock and paid
approximately $2.0 million$1,976 to the PADS stockholders. PADS capital stock
outstanding at the merger date was exchanged for shares of Innoveda common
stock at the rate of approximately 11.0 to 1.9 per share, plus $.579$0.579 per
share in cash. In addition, each outstanding option to purchase shares of
PADS common stock was converted into an option to purchase 2.0355 shares of
Innoveda common stock, and the option exercise prices were adjusted
accordingly.
The acquisition was accounted for under the purchase method of accounting.
The operating results of PADS have been included in the accompanying
consolidated financial statements from the date of acquisition. Under the
purchase method of accounting, the acquired assets and assumed liabilities
have been recorded at their estimated fair values at the date of
acquisition. Goodwill and other intangibles in the amount of approximately
$49,069 have beenwere capitalized. As a result of the acquisition, $3,053
relating to in-process research and development has been expensed. The
goodwill and other intangibles are being amortized over estimated useful
lives of three to seven years. In fiscal 2001, the Company recorded an
impairment charge related to certain of the assets acquired (see Note 4).
The valuation of the existing technology and in-process research and
development was determined using the income method. Revenue and expense
projections as well as technology assumptions were prepared through 2009.
The projected cash flows were discounted using a 17% to 23% rate. The valuation of
the in-process research and development was determined separately from all
other acquired assets using the percentage of completion method. The
percentage of completion ratio was calculated by dividing the total
expenditures to date for each project by the total estimated expenditures.
The value assigned to in-process technology relates primarily to three
research projects, Power PCB Next Generation, BlazeDRE and ACT
Manufacturing. During Q1the first quarter of 2000, ACT Manufacturing was
commercially released,released. BlazeDRE is expected to be commercially released
during Q4
2001,the second quarter of fiscal 2002 and Power PCB Next Generation has
yet to reach technological feasibility. The nature of the efforts required
to develop the in-process technologies into commercially viable products
principally relate to the completion of all planning, designing,
prototyping, verification and testing activities that are necessary to
establish that the products can be designedproduced to meet their design
specifications, including function, features and technical performance
requirements.
F-11F-12
2. ACQUISITIONS (CONTINUED)
Below is a table of the PADS acquisition costs and the purchase price
allocation:
Purchase price:
Common stock $ 23,870
Stock options 366
Cash payment to PADS stockholders 1,976
Acquisition costs 550
--------
Total purchase price $ 26,762
========
Purchase price allocation:
Tangible net assets acquired $ 657
Assumed debt (7,381)
Deferred income taxes (18,208)
Intangible net assets acquired:
Purchased technology, assembled workforce,
customer base, and trademarks 47,293
Goodwill 1,776
In-process research and development 3,053
Estimated PADS related severance and shutdown costs (428)
--------
Total $ 26,762
========
Purchase price:
Common stock $ 23,870
Stock options 366
Cash payment to PADS stockholders 1,976
Acquisition costs 550
-------------
Total purchase price $ 26,762
=============
Purchase price allocation:
Tangible net assets acquired $ 657
Assumed debt (7,381)
Deferred income taxes (18,208)
Intangible net assets acquired:
Purchased technology, assembled workforce,
customer base, and trademarks 47,293
Goodwill 1,776
In-process research and development 3,053
Estimated PADS related severance and shutdown costs (428)
-------------
Total $ 26,762
=============
Pursuant to the PADS merger agreement, Innoveda paid all of the assumed
debt after the closing.
The $428 accrued as estimated severance and shutdown costs includeincluded
involuntary employee separations costs and facilities consolidations. The
separationsseparation benefits relaterelated to one employee, in an administrative function
at PADS' corporate headquarters. The facilities consolidation amount
related primarily to sales offices to be closed as a result of the
acquisition. All such costs are expected to be paid within a year
of the acquisition date.have been paid.
Innoveda recorded merger costs of approximately $0.5 million$493 in restructuring
charges relating to the PADS merger. This was primarily comprised of
severance payments related to one employee and exit costs to close
Innoveda duplicative facilities as a result of the merger.
F-12
2. ACQUISITIONS (CONTINUED)
Business Combination of Viewlogic and SummitBUSINESS COMBINATION OF VIEWLOGIC AND SUMMIT - On March 23, 2000, the
stockholders of Viewlogic and the stockholders of Summit approved an
Agreement and Plan of Reorganization. Summit was a publicly held company
engaged in a business similar to that of Viewlogic. In connection with the
business combination contemplated by the Agreement and Plan of
Reorganization, (1) each share of Viewlogic common stock and preferred
stock issued and outstanding at the effective time of the business
combination was converted into 0.67928 (the "Exchange Ratio") of a share
of Summit common stock, and (2) each option to purchase shares of
Viewlogic Common Stock was converted into an option to purchase Summit
common stock based uponon the Exchange Ratio. The name of the combined company
was changed to Innoveda, Inc.
F-13
2. ACQUISITIONS (CONTINUED)
The business combination was accounted for under the purchase method of
accounting and was treated as a reverse acquisition, as the stockholders
of Viewlogic received the larger portion of the voting interests in the
combined company. Viewlogic was considered the acquirer for accounting
purposes and recorded Summit's assets and liabilities based uponon their
estimated fair values. The operating results of Summit have been included
in the accompanying consolidated financial statements from the date of
acquisition. Under the purchase method of accounting, the acquired assets
and assumed liabilities have been recorded at their estimated fair values
at the date of acquisition. Goodwill and other intangibles in the amount
of approximately $38,137 have beenwere capitalized. As a result of the business
combination, $2,400 relating to in-process research and development has
been expensed. The goodwill and other intangibles are being amortized over
estimated useful lives of three to seven years. In fiscal 2001, the
Company recorded an impairment charge related to certain of the assets
acquired (see Note 4).
The valuation of the existing technology and in-process research and
development was determined using the income method. Revenue and expense
projections as well as technology assumptions were prepared through 2009.
The projected cash flows were discounted using a 25% to 30% rate. The
valuation of the in-process research and development was determined
separately from all other acquired assets using the percentage of
completion method. The percentage of completion ratio was calculated by
dividing the total expected expenditures to date for each project by
the total estimated expenditures for each project by the total
estimated expenditures to achieve technological feasibility.
The value assigned to in-process technology relates primarilyrelated to two research
projects, Visual HDL 2000 and Visual SLD. The nature of the effort
required in the development of the in-process technologies into
commercially viable products principally related to the completion of all
planning, designing, prototyping, verification and testing activities that
are necessary to establish that the products can be designedproduced to meet their
design specifications, including function, features and technical performance
requirements. Visual HDL 2000 represented a major rearchitecture of the
two existing Visual HDL products. ThisThe new generation product integrates
these two existing products along with a newly developed compiler. The
Visual SLD research project represented the development of an entirely new
product targeted at a customer base not previously approached for the
Visual product line. These technologies were combined and commercially
released during the fourth quarter of 2000 under the product name Visual
Elite.
Below is a table of Summit acquisition costs and the purchase price
allocation (in thousands):
Purchase price:
Common stock $ 49,020
Stock options 4,882
Acquisition costs 1,136
--------
Total purchase price $ 55,038
========
Purchase price allocation:
Tangible net assets acquired $ 28,089
Assets impaired by the Merger (750)
Deferred income taxes (11,492)
Intangible net assets acquired:
Purchased technology, assembled workforce,
and customer base 23,200
Goodwill 14,937
In-process research and development 2,400
Estimated Summit related severance and shutdown costs (1,346)
--------
Total $ 55,038
========
F-13
Purchase price:
Common stock $ 49,020
Stock options 4,882
Acquisition costs 1,136
-------------
Total purchase price $ 55,038
=============
Purchase price allocation:
Tangible net assets acquired $ 28,089
Assets impaired by the Merger (750)
Deferred income taxes (11,492)
Intangible net assets acquired:
Purchased technology, assembled workforce,
and customer base 23,200
Goodwill 14,937
In-process research and development 2,400
Estimated Summit related severance and shutdown costs (1,346)
-------------
Total $ 55,038
=============
F-14
2. ACQUISITIONS (CONTINUED)
The $1.3 million$1,346 accrued as estimated severance and shutdown costs include
involuntary employee separations costs and facilities consolidations. The
separationsseparation benefits relaterelated to approximately 30thirty employees,
concentrated in administrative functions at Summit's
Beaverton corporate
headquarters. The facilities consolidation amount related primarily to
Summit's corporate headquarters facility in Beaverton and other sales
offices to be closed as a result of the acquisition. All such costs are expected to be paid within a year of
the acquisition date.
During the first quarter ended April 1, 2000,have been
paid.
Innoveda recorded approximately $2.2 million$2,243 in merger costs relating to the
Summit business combination. This primarily included severance and other
costs relating to the consolidation of duplicative facilities as a result
of the business combination between Summit and Viewlogic. Other costs
relating to property and equipment lease contracts (less any applicable
sublease income) after the properties were abandoned, lease buyout costs,
restoration costs associated with certain lease arrangements, and costs to
maintain facilities during the period after abandonment are also included.
Further action was taken to restructure the Innoveda sales and services
business in Japan as a result of an exclusive distributor agreement executed with Marubeni Solutions Corporation during
the first quarter of fiscal 2000. Charges associated with Japanese
reorganization include severance and benefit continuance for approximately
14fourteen employees, costs associated with office closings and subsequent
lease termination, and other facility and exit related costs.
The following table presents the components of the merger costs accrued
during the mergers with PADS and Summit and the charges against these
reserves through December 30, 2000.29, 2001. All significant amounts are expected
to be paid within one year from the date of the respective business
combinations.
Total Non-cash Amount December 30, 2000
Charge Write-off Paid Accrual Balance
PADS merger costs:
Severance $ 250 $ -- $ 218 $ 32
Non-cancelable commitments 199 -- 29 170
Capitalized software 44 44 -- --
------ ------ ------ ------
$ 493 $ 44 $ 247 $ 202
====== ====== ====== ======
Summit merger costs:
Severance $ 780 $ -- $ 775 $ 5
Non-cancelable commitments 1,389 -- 707 682
Capitalized software 74 74 -- --
------ ------ ------ ------
$2,243 $ 74 $1,482 $ 687
====== ====== ====== ======
Totals $2,736 $ 118 $1,729 $ 889
====== ====== ====== ======have been
paid.
YEAR ENDED
--------------------------------------------------------------------------------------
DECEMBER 30, 2000 DECEMBER 29, 2001
--------------------------------------------------------------------------------------
Total Non-Cash Amount Accrual Non-cash Amount Accrual
Charge Write-Off Paid Balance Write-off Paid Balance
---------- --------- --------- --------- ---------- -------- --------
PADS MERGER COSTS
Severance $ 250 $ - $ 218 $ 32 $ 32 $ - $ -
Non-cancelable
commitments 199 - 29 170 - 170 -
Capitalized software 44 44 - - - - -
---------- -------- --------- --------- ---------- -------- --------
$ 493 $ 44 $ 247 $ 202 $ 32 $ 170 $ -
========== ======== ========= ========= ========== ======== ========
SUMMIT MERGER COSTS
Severance $ 780 $ - $ 775 $ 5 $ 5 $ - $ -
Non-cancelable
commitments 1,389 - 707 682 - 682 -
Capitalized software 74 74 - - - - -
---------- -------- --------- --------- ---------- -------- --------
$ 2,243 $ 74 $ 1,482 $ 687 $ 5 $ 682 $ -
========== ======== ========= ========= ========== ======== ========
Totals $ 2,736 $ 118 $ 1,729 $ 889 $ 37 $ 852 $ -
========== ======== ========= ========= ========== ======== ========
The unaudited consolidated results of operations shown below are presented
on a pro forma basis and represent the results of Viewlogic, Summit and
PADS had the business combinations of these entities occurred at the
beginning of the periods presented. This schedule includes all
amortization and non-recurring charges for all entities for the periods
shown.
December 30, January 1,
2000 2000
Revenue $115,404 $109,434F-15
2. ACQUISITIONS (CONTINUED)
YEAR ENDED
--------------------------------
DECEMBER 30, JANUARY 1,
2000 2000
------------ ------------
Revenue $ 115,404 $ 109,434
============ ============
Net loss $ (19,312) $ (13,010)
============ ============
Net loss per share
Basic $ (0.50) $ (0.34)
Diluted $ (0.50) $ (0.34)
Diluted (0.50) (0.34)
The pro forma financial information is presented for informational purposes
only and is not indicative of the operating results that would have
occurred had the mergers been consummated as of the above dates, nor are
they necessarily indicative of future operating results.
F-14
2. ACQUISITIONS (CONTINUED)
On March 1, 1999, the Company purchased certain assets and intellectual
property of OmniView, Inc. ("OmniView"). The purchase price consisted of
$1,100 in cash, 272 shares of the Company's common stock and acquisition
expenses. The purchase price was allocated to the assets acquired based on
their fair values with $1.2 million$1,200 to purchased technologies and other
intangibles.
On August 9, 1999, the Company acquired Transcendent Design Technologies
("Transcendent"). Transcendent develops, markets and distributes
electro-mechanical design and analysis software. The acquisition was
accounted for under the purchase method. The purchase price for the
acquisition was 492 shares of Viewlogic common stock, options to purchase
53 shares of Viewlogic common stock and $354 in direct acquisition costs.
The purchase price was allocated to the acquired assets and liabilities
based on their fair values with $2.7 million$2,700 to purchased technologies and other
intangibles.
3. DEBT
Credit FacilityCREDIT FACILITY - The Company hashad a $16,000 credit facility with a
commercial bank consisting of a $6,000 revolving line of credit ("Line of
Credit") and a $10,000 term loan (the "Term("Term Loan") (together, the "Credit
Facility"). For the fiscal quarter ended June 30, 2001, the Company did not
meet certain financial covenants under its Credit Facility. Effective
September 29, 2001, the Company and the lender have amended the terms and
conditions of its Term Loan and its Line of Credit to revise certain
covenants and provide a waiver for past violations. Under this amendment,
the Term Loan portion of the Credit Facility remains in place with the
repayment schedule unchanged, and the Line of Credit portion of the Credit
Facility has been reduced to approximately $431 to cover only existing
letters of credit issued by the lender at the request of the Company.
Borrowings under the Credit Facility are secured by substantially all of
Innoveda's assets. The amended Credit Facility contains limitations on
additional indebtedness and capital expenditures, and includes financial
covenants, which include but are not limited to maintaining certain levels
of profitability, deferred revenue, working capital ratio and debt service
coverage ratio.
F-16
3. DEBT (CONTINUED)
Interest termsrates on the Line of Credit and the Term Loan are determined, at
the option of the Company, for varying periods. The Company may elect to
have the interest rate based on the bank's prime rate or based on the LIBOR
rate at the time of the election, depending on the Company's leverage
financial ratio, as defined, in the Credit Facility. The interest ratesrate on
the Line of Credit andat December 30, 2000 was 10%. The interest rates on the
Term Loan at December 29, 2001 and December 30, 2000 and January 1, 2000 were 10.0%4.7% and 9.2%,
respectively, and 9.50% and 8.26%,
respectively. Payments of principal outstanding under either the Line of
Credit or the Term Loan may be
made at any time and must be repaid in fullexpire by September 30, 2003. A payment of $1,000
is due in the first quarter of fiscal 2002. Successive payments of $1,000
are due each quarter through the fourth quarter of 2002, and $1,375 and
$375 are due in the first and third quarters of fiscal 2003, respectively.
As required under the Credit Facility, the Company entered into a no fee
interest rate-swap agreement with a bank to reduce the impact of changes in
interest rates on its floating rate Credit Facility. This agreement
effectively converts a portion of the whole floating-rate obligation into a fixed-rate
obligation of 7.4% for a period of 60 months, expiring on March 31, 2003.
The notional principal amount of the interest rate-swap agreement is $9,250$5,750
as of December 30, 2000.29, 2001. The Company is exposed to credit loss in the event
of nonperformance by the counterparties to the interest rate-swap
agreement.
Certain information with respect to line-of-credit borrowings wasis as
follows:
Weighted-
Average Maximum Average
Interest Amount Amount
Rate Outstanding OutstandingWEIGHTED-
AVERAGE MAXIMUM AVERAGE
INTEREST AMOUNT AMOUNT
RATE OUTSTANDING OUTSTANDING
------------ ------------- ---------------
Period January 2, 1999December 31, 2000 to January 1, 2000 7.5% $1,700 $449December 29, 2001 - - -
Period January 2, 2000 to December 30, 2000 9.29.2% $ 3,500 $ 407
F-15
3. DEBT (CONTINUED)
Under all debt agreements, minimum repayments are due as follows (on a
quarterly basis) as of
December 30, 2000:
Fiscal Years
2001 $3,550
2002 4,000
2003 1,750
------
$9,300
======29, 2001:
FISCAL YEARS
2002 $ 4,000
2003 1,750
-------
Total $ 5,750
=======
The Credit Facility also calls for other mandatory repayments: (a) after
the end of each fiscal year in the case that cash flow leverage, as defined
in the Credit Facility, is greater than 2.0two times, 50% of the excess cash
flow as defined in the Credit Facility, (b) upon availability of cash from
the net proceeds of any sale of certain of the Company's assets, and (c)
proceeds from settlements for casualty insurance policies greater than
$250.
The Company pays a commitment fee of .50% per annum of the unused portion
of the Line of Credit. Borrowings under the Credit Facility are
collateralized by substantially all of the Company's assets. The Credit
Facility contains certain limitations on additional indebtedness, capital
expenditures, and includes financial covenants which include, but are not
limited to, the maintenance of certain minimum levels of interest, and
debt service coverage ratios and maximum leverage ratios.
Open interest rate contracts are reviewed regularly by the Company to
ensure that they remain effective as hedges of interest rate exposure. The
fair value obligation of the interest rate-swap agreement was approximately
$40$159 as of December 30, 2000.
Capital Leases29, 2001 and has been recorded as a liability.
F-17
3. DEBT (CONTINUED)
CAPITAL LEASES - The Company is obligated under capital leases for its
phone system, computer equipment and software that will expire at various dates
during
the next three years.fiscal 2002. The recorded value of the assets was $1,232$1,173 and $1,201$1,232 as of
December 30, 200029, 2001 and January 1,December 30, 2000, respectively. The related
accumulated amortization on these assets was $636$985 and $318$636 as of December
29, 2001 and December 30, 2000, and January 1, 2000, respectively.
F-16
3. DEBT (CONTINUED)
Future aggregate minimum annual lease payments under capital leases at
December 30, 2000 are as follows:29, 2001 $ 559
2002 301
2003 2
-----
Total minimum payments (excluding taxes, maintenancewas $303 of which $33 represented interest and insurance) 862
Less amount representing interest (64)
-----
Present$270
represented principal to be paid by December 28, 2002.
4. RESTRUCTURING COSTS AND IMPAIRMENT OF LONG-LIVED ASSETS
In August 2001, Innoveda, in response to significant negative economic
trends, implemented a restructuring and streamlining of company operations.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews the carrying value of minimumintangible assets for impairment
whenever events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable or that the
useful lives of these assets are no longer appropriate. If an impairment is
indicated, the asset is written down to its estimated fair value. During
the third quarter of 2001, the Company wrote down approximately $32,945 of
impaired long-lived assets related to the goodwill, purchased technology,
workforce and customer base associated with the acquisitions of PADS
Software and Summit Design. Based on the declining historical and
forecasted operating results of such intangible assets as they relate to
earlier estimates and the general economic trends of the EDA industry as a
whole, their estimated value to the Company has decreased. Based on the
Company's expectation of future undiscounted net cash flows, these assets
have been written-down to their net realizable value.
RESTRUCTURING COSTS
As a result of the restructuring, the Company recorded charges of $5,271.
The restructuring costs include workforce reductions, closing facilities,
reducing space in other facilities and asset write-downs.
The restructuring program resulted in the reduction in workforce of
approximately one hundred forty employees across all business functions and
geographic regions. The workforce reductions were substantially completed
by the end of the third quarter of 2001. The Company recorded a workforce
reduction charge of $2,267 relating primarily to severance, fringe benefits
and outplacement services.
The Company also recorded a restructuring charge of $1,511 relating to
lease terminations, non-cancelable lease costs, and excess facility space.
These facility costs relate to business activities that have been exited or
restructured. In addition, the restructuring charge includes an additional
$408 in professional fees, travel expenses and other related costs incurred
in connection with the restructuring activities and a $1,085 restructuring
charge related to certain fixed assets that became impaired as a result of
the decision to reduce the workforce and close facilities.
F-18
4. RESTRUCTURING COSTS AND IMPAIRMENT OF LONG-LIVED ASSETS (CONTINUED)
The following table sets forth an analysis of the components of the
restructuring and intangible asset impairment charges. The table indicates
payments 798
Less current maturities (548)
-----
Long-term portion $ 250
=====
4.made against the reserve through December 29, 2001.
TOTAL NON-CASH AMOUNT DECEMBER 29, 2001
ACCRUAL WRITE-OFF PAID ACCRUAL BALANCE
------------ ------------ ---------- --------------------
Impairment of intangibles $ 32,945 $ 32,945 $ - $ -
Disposal of fixed assets 1,085 1,085 -
Severance and related expenses 2,267 - 2,152 115
Lease commitment and related fees 1,511 - 293 1,218
Other 408 - 201 207
------------ ------------ ---------- --------------------
$ 38,216 $ 34,030 $ 2,646 $ 1,540
============ ============ ========== ====================
All remaining amounts are expected to be paid by the end of fiscal 2002.
PITTSBURGH OFFICE CLOSURE
In May 2001, the Company closed an office in Pittsburgh, Pennsylvania and
transferred the operations to other offices in the United States and
overseas. The total charge of $594 consists of intangible asset and fixed
asset impairment charges of $415, $64 of severance related to the
termination of six employees and $115 of other costs incurred due to the
closure. All remaining amounts are expected to be settled by the end of
fiscal 2002.
TOTAL NON-CASH AMOUNT DECEMBER 29, 2001
ACCRUAL WRITE-OFF PAID ACCRUAL BALANCE
---------- ------------ --------- --------------------
Impairment of intangibles
and fixed assets $ 415 $ 415 $ - $ -
Severance 64 - 64 -
Lease commitment 48 - 48 -
Other 67 - 33 34
---------- ------------ --------- --------------------
$ 594 $ 415 $ 145 $ 34
========== ============ ========= ====================
5. STOCKHOLDERS' EQUITY
Preferred StockPREFERRED STOCK - InnovedaThe Company has 5,000 shares of Preferred Stock
authorized, of which there are no shares outstanding. The Innoveda Board of
Directors has the authority to issue these shares of Preferred Stock in one
or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any unissued and undesignated
shares of Preferred Stock and to fix the number of shares constituting any
series and the designations of such series, without any future vote or
action by the stockholders.
Redeemable, Convertible Preferred Stock - ViewlogicF-19
5. STOCKHOLDERS' EQUITY (CONTINUED)
REDEEMABLE, CONVERTIBLE PREFERRED STOCK -Viewlogic had authorized 22,000
shares of $.001 par value, redeemable, convertible preferred stock
("Preferred Stock") of which 17,000 were designated as Series A Voting
Preferred Stock ("Series A") and 5,000 were designated as Non-votingnon-voting Series
A-1 Preferred Stock ("Series A-1"). At January 1, 2000, 11,382 shares of
Series A and 4,618 shares of Series A-1 were issued and outstanding.
Effective with the business combination of Viewlogic and Summit, all Series
A and Series A.1A-1 shares were converted into shares of the Company's common
stock.
Stock Repurchase ProgramSTOCK REPURCHASE PROGRAM - Under a stock repurchase program announced in
October 2000, the Company iswas authorized to purchase up to 2 million2,000 shares of
its common stock from time to time on the open market or pursuant to
negotiated and block transactions. The repurchased shares will beare being held as
treasury shares and used underare authorized for use in the companyCompany's stock option
plans, employee stock purchase plans and for general corporate purposes.
The authorization expiresexpired in October 31, 2001. The Company had purchased 209
shares of common stock in 2001 at an aggregate cost of $831 and 341 shares
of common stock in 2000 at an aggregate cost of $832.
STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS
2000 Stock Incentive PlanSTOCK INCENTIVE PLAN - On May 31, 2000 the Board of Directors adopted
the Amended and Restated 2000 Stock Incentive Plan (the "2000 Plan"). On
July 13, 2000, Innoveda'sthe stockholders approved the 2000 Plan. Under the 2000 Plan
either shares of the Company's common stock or options to purchase shares
of the Company's stock may be issued at the discretion of the Company's
Board of Directors. The initial 4,500 shares authorized to be issued under
the 2000 Plan increase automatically by 2,000 shares annually during the
2000 Plan's existence. In addition, up to 2,400 shares which were
previously available for issuance under the Summit Design 1994 Stock Plan,
the Summit Design 1997 NonStatutoryNon-Statutory Stock Plan and the Viewlogic Systems,
Inc. 1998 Stock Incentive Plan (collectively, the "Prior Plans") may be
issued under the 2000 plan.Plan. No more than 500 shares of stock can be awarded
to a
F-17
4. STOCKHOLDERS' EQUITY (CONTINUED) single employee in any calendar year. Options generally vest over a
period of four years and expire after ten years. Options granted to certain
officers are exercisable when granted; however, the shares are subject to
repurchase rights by the Company at the exercise price. The Company's right
to repurchase the shares generally lapses ratably over four years.
1998 Stock Incentive PlanSTOCK INCENTIVE PLAN - The Company has the Viewlogic Systems, Inc.
1998 Stock Incentive Plan (the "1998 Plan"). Under the 1998 Plan, the
Company may issue stock or options to purchase shares at the discretion of
the Company's Board of Directors. The initial 4,521 shares authorized to be
issued under the 1998 Plan increase automatically by five percent of the
original shares authorized annually during the 1998 Plan's existence. No
more than 883 shares of stock can be awarded to a single employee in any
calendar year. Options generally vest over a period of four years and
expire after ten years. Options granted to certain officers are exercisable
when granted; however, the shares are subject to repurchase rights by the
Company at the exercise price. The Company's right to repurchase the shares
generally lapses ratably over four years.
Other Stock Option PlansF-20
5. STOCKHOLDERS' EQUITY (CONTINUED)
OTHER STOCK OPTION PLANS - The Company has the Incentive Stock Option Plan
("1994 Plan"), 1996 Director Option Plan (the "Director Plan") and the 1997
NonstatutoryNon-statutory Stock Option Plan ("NonstatutoryNon-statutory Plan") pursuant to which
the Company may grant options to employees and consultants. Under the terms
of the 1994 Plan, the option price is determined as the fair value of the
Company's common stock at the time the option is granted. Under the 1994
Plan, 3,447 shares of common stock are authorized for issuance..issuance. Options
generally vest 25% twelve months after the date of grant and the remainder
at 1/48th of the grant amount in each successive month thereafter. Options
expire no later than 10 years after the date of grant. Options granted
under the NonstatutoryNon-statutory Plan will be nonstatutorynon-statutory stock options and are
not intended to qualify as incentive stock options within the meaning of
Section 422 of the Internal Revenue Code. OptionsNon-statutory options generally
vest 25% twelve months after the date of grant and the remainder at 1/48th
of the grant amount in each successive month thereafter. Options expire no
later than 10 years after the grant date.
In addition, no more
than 25 options may be granted to directors and persons considered
"officers" by the NASDAQ Stock Market. The maximum aggregate number of
shares of common stock authorized for issuance is 1,050 shares.
There were 3,6001,519 shares of common stock reserved for the grant of stock
options under all Plans at December 30, 2000,29, 2001, subject to certain
limitations as discussed above.
F-18
4. STOCKHOLDERS' EQUITY (CONTINUED)
The following is a summary of all option activity under all Plans:
Weighted-
Number Average
of Exercise
Shares Price
Outstanding at January 1, 1998 -- $ --
Granted 3,679 0.49
Exercised -- --
Forfeited (5) 0.49
------ -----
Outstanding at January 2, 1999 3,674 0.49
Granted 469 1.00
Exercised (1,955) 0.49
Assumed Transcendent options 57 2.25
Forfeited (225) 0.60
------ -----
Outstanding at January 1, 2000 2,020 0.65
Granted 3,753 3.42
Exercised (504) 1.35
Assumed options from acquisitions 2,715 4.42
Forfeited (1,286) 3.36
------ -----
Outstanding at December 30, 2000 6,698 $3.17
====== =====plans:
Weighted-
Number Average
of Exercise
Shares Price
----------- ----------
Outstanding at January 2, 1999 3,674 $ 0.49
Granted 469 1.00
Exercised (1,955) 0.49
Assumed Transcendent options 57 2.25
Forfeited (225) 0.60
-----------
Outstanding at January 1, 2000 2,020 0.65
Granted 3,753 3.42
Exercised (504) 1.35
Assumed options from acquisitions 2,715 4.42
Forfeited (1,286) 3.36
-----------
Outstanding at December 30, 2000 6,698 3.17
Granted 5,320 1.63
Exercised (292) 0.57
Forfeited (1,678) 3.11
-----------
Outstanding at December 29, 2001 10,048 $ 2.46
===========
The following are the shares exercisable at the corresponding weighted
average exercise price at December 29, 2001, December 30, 2000 and January
1, 2000, and January
2, 1999, respectively: 3,412 at $3.20, 1,807 at $3.37 and 479 at $0.68, and 2,089 at $0.49.$0.68. The
weighted-average grant date fair value for options granted for the years
ended December 29, 2001, December 30, 2000 and January 1, 2000 was $1.46,
$2.28 and January 2, 1999 was
$2.28, $1.31, and $0.72, respectively.
F-21
5. STOCKHOLDERS' EQUITY (CONTINUED)
At December 30, 2000,29, 2001, 2,809 shares issued upon the exercise of options by
certain officers of the Company were subject to repurchase by the Company
at the exercise price.
F-19
4. STOCKHOLDERS' EQUITY (CONTINUED)
The following table sets forth information regarding options outstanding as
of December 30, 2000:29, 2001:
Options Outstanding Options Exercisable
------------------- -------------------
WeightedOPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------- ---------------------
WEIGHTED - Weighted -
Average Average WeightedAVERAGE WEIGHTED - Range of Contractual Exercise Average
Exercise Prices Shares Periods in Years Price Shares Exercise PriceWEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF EXERCISE PERIODS IN EXERCISE EXERCISE
PRICES SHARES YEARS PRICE SHARES PRICE
---------------- -------- ----------- ----------- --------- ------------
0.09 6 7.89 0.09 2 0.09
0.31 - 0.35 6 5.50 0.34 5 0.34
0.49 1,118 7.83 0.49 5370.67 808 7.02 0.50 551 0.49
0.80 - 1.17 134 8.30 0.84 55 0.89
1.751.99 3,223 9.54 1.13 349 0.99
2.06 - 2.63 441 8.60 2.34 191 2.28
2.692.95 2,936 8.84 2.39 880 2.44
3.00 - 3.98 2,213 8.21 3.51 1,077 3.50
4.00 4,014 9.33 3.25 640 3.35
4.06 - 5.57 609 9.12 4.91 107 5.24513 8.28 4.78 222 4.92
6.50 - 9.63 319 7.14 8.48 224 8.74
12.757.45 49 7.39 6.77 33 6.74
8.13 - 8.44 71 5.92 8.16 66 8.14
9.00 - 17.00 51 7.18 14.56 46 14.66235 5.71 10.84 234 10.84
-------- --------
10,048 3,412
-------- --------
For financial reporting purposes, the deemed fair value of the common stock
at the dates of grants resulted in deferred compensation expense of $431
for the year ended January 1, 2000 and $1,918 for the year ended January 2,
1999. These charges are being recognized ratably over the vesting period.
Compensation expense recognized amounted to $587, $588 $531 and $116$531 for the
years ended December 29, 2001, December 30, 2000 and January 1, 2000,
and
January 2, 1999.respectively.
2000 Employee Stock Purchase PlanEMPLOYEE STOCK PURCHASE PLAN - On May 16, 2000, the Company adopted
the 2000 Employee Stock Purchase Plan ("2000 Purchase Plan"). The 2000
Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue code, permits eligible employees of the Company to
purchase common stock through payroll deductions of up to 10% of their base
salary up to a maximum of $25 of common stock for all purchase periods
ending within any calendar year. The price of common stock purchased under
the 2000 Purchase Plan will be 85% of the lower of the fair market value of
the common stock on the first day of each 24-month offering period or the
last day of the applicable six-month purchase period. The Company has reserved
700 shares of common stock for issuance under the 2000 Purchase Plan.Plan, all
of which are expected to have been purchased by March 1, 2002. The Company
has not issuedplans to seek in 2002 Board of Director and shareholder approval for an
additional 1,100 shares of common
stockto be reserved for issuance under the 2000 Purchase Plan as of December 30, 2000.
1996 Employee Stock Purchase Plan - The Company has the 1996 Employee
Stock Purchase Plan ("1996 Purchase Plan") which was replaced by the 2000
Purchase Plan. The 1996 Purchase Plan, which was intended to qualify under
Section 423 of the Internal Revenue code, permitted eligible employees of
the Company to purchase common stock through payroll deductions of up to
10% of their base salary up to a maximum of $25 of common stock for all
purchase periods ending within any calendar year. The price of common
stock purchased under the 1996 Purchase Plan was 85% of the lower of the
fair market value of the common stock on the first day of each 24 month
offering period or the last day of the applicable six-month purchase
period. The Company issued approximately 86 shares of common stock under
the 1996 Purchase Plan during 2000. The Company does not intend to issue
any more shares under this plan.
F-20F-22
4.5. STOCKHOLDERS' EQUITY (CONTINUED)
Pro Forma DisclosuresPRO FORMA DISCLOSURES - As described in Note 1, the Company applies the
intrinsic value method of APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Had compensation cost been
determined based on the fair value at the grant dates for awards under the Plans and the Prior Viewlogic's stock option
plans consistent with the
method required by FASB Statement 123, the Company's net income (loss) and
net income (loss) per share would have been:
December 30, January 1, January 2,
2000 2000 1999
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------ ------------ ----------
Net income (loss) $ (44,415) $ (11,948) $ 197
Net income (loss) $ (11,948) $ 197 $ 5,838
Net income per
common share:
Basic (1.13) (0.42) 0.05 2.17
Diluted (1.13) (0.42) 0.01
1.07
For purposes of the pro forma disclosures, the fair value of the options
granted under the Company's stock option plans during the years ended
December 30, 2000, January 1, 2000 and January 2, 1999 was estimated on the date of
grant using the Black-Scholes option pricing model. The fair
value of employee purchase rights under the Company's stock purchase plans
was also estimated using the Black-Scholes option pricing model.
Key assumptions used to apply this pricing model are as follows for the
periods presented:
December 30, January 1, January 2,
2000 2000 1999
YEAR ENDED
------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------ ------------ ------------
Risk-free interest rate 5.2% - 6.7% 5.2% - 6.7% 5.3% - 6.3%
Expected life of option grants 4 years 4 years 4 years
Expected volatility of underlying stock 97% 90% 59%
Expected dividend payment rate - - -
6.7% 5.3% - 6.3% 6.0%
Expected life of option grants 4 years 4 years 4 years
Expected volatility of underlying stock 90% 59% 57%
Expected dividend payment rate -- -- --
5.
6. INCOME TAXES
The components of income (loss) before income taxes consisted of the
following:
December 30, January 1, January 2,
2000 2000 1999
Domestic $(8,463) $ 124 $ 9,503
Foreign (876) 416 417
------- ------- -------
Total $(9,339) $ 540 $ 9,920
======= ======= =======
F-21
YEAR ENDED
----------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
------------ ------------ ----------
Domestic $ (52,084) $ (8,483) $ 124
Foreign (4,252) (876) 416
------------ ------------ ----------
Total Income (Loss) Before Taxes $ (56,336) $ (9,359) $ 540
============ ============ ==========
F-23
5.6. INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consisted of the following:
December 30, January 1, January 2,
2000 2000 1999
Current:
Federal $ 6,717 -- $ 3,475
State -- -- 619
Foreign 472 250 75
------- ------- -------
Total 7,189 250 4,169
Deferred:
Federal (5,380) 51 (353)
State -- -- (24)
Foreign -- (20) 261
------- ------- -------
Total provision for income taxes $ 1,809 $ 281 $ 4,053
======= ======= =======
YEAR ENDED
-------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
-------------- ------------ -----------
Current:
Federal $ 977 $ 6,717 $ --
State 331 -- --
Foreign (543) 472 250
-------------- ------------ -----------
Total 765 7,189 250
Deferred:
Federal (12,570) (5,380) 51
State (2,038) -- --
Foreign 144 -- (20)
-------------- ------------ -----------
Total (14,464) (5,380) 31
Total provision (benefit) for income taxes $ (13,699) $ 1,809 $ 281
============== ============ ===========
A reconciliation between the statutory U.S. federal income tax and the
Company's effective tax rate for the respective years is as follows:
December 30, January 1, January 2,
2000 2000 1999
U.S. federal statutory rate (35.0)% 35.0% 35.0%
State taxes - net of federal tax benefit (4) -- 2.9
Foreign taxes 5.0 15.6 1.5
Goodwill 21.6 -- --
In-process research and development 22.7 -- --
Amortization of stock compensation 2.4 -- --
Other items 6.6 1.4 1.5
----- ---- ----
Total 19.3% 52.0% 40.9%
===== ==== ====
For the period from December 5, 1997 through October 3, 1998, the Company
was included in the consolidated tax return of Synopsys. For financial
statement purposes, the Company has computed the tax provision for the
year ended January 2, 1999 as if it had filed separate returns.
F-22
YEAR ENDED
-------------------------------------------
DECEMBER 29, DECEMBER 30, JANUARY 1,
2001 2000 2000
-------------- ------------ -----------
U.S. federal statutory rate% (35.0)% (35.0)% 35.0
State taxes - net of federal tax benefit (1.0) (4.0) -
Foreign taxes 2.1 5.0 15.6
Goodwill amortization 7.4 21.6 -
In-process research and development - 22.7 -
Amortization of stock compensation 0.4 2.4 -
Other items 1.8 6.6 1.4
-------------- ------------ -----------
Total% (24.3)% 19.3 52.0
============== ============ ===========
F-24
5.6. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities consisted of the following:
DecemberYEAR ENDED
--------------------------------------------------
DECEMBER 29, DECEMBER 30, JanuaryJANUARY 1,
January 2,2001 2000 2000
1999------------- -------------- --------------
Current assets:
Accounts receivable $ 764 $ 1,871 $ 537
$ 774
Deferred compensation 427 1,561 504 411
Foreign net operating loss carryforwards 1,050 1,123 301
229
Depreciation 490 -- --and amortization 1,044 1,061 -
In-process research and development - 949 -- --
Amortization of stock compensation 571 -- ---
Deferred revenue 408 - -
Other items 267 61 -- 166
-------- -------- ---------
------------- -------------- -------------
Total current assets $ 3,960 $ 6,626 $ 1,342
$ 1,580
-------- -------- --------------------- -------------- -------------
Noncurrent liabilities:
Purchased technology $ 8,749 $ 24,516 $ 993
$ --
Capitalized software costs 901 2,233 822 891
Depreciation and amortization - 230 530
534
Deferred revenues - 212 -- ---
Other 363 451 48
93
-------- -------- ---------------------- -------------- -------------
Total liabilities $ 10,013 $ 27,642 $ 2,393
$ 1,518
-------- -------- ---------------------- -------------- -------------
Total net tax deferred tax asset (liability) $(21,016)liability $ (6,053) $ (21,016) $ (1,051)
$ 62
======== ======== ===================== ============== =============
No valuation allowance is required as the deferred tax assets are expected
to be fully realized.
6.7. COMMITMENTS AND CONTINGENCIES
LeasesLEASES - The Company leases its principal office facilities and certain
computer equipment under noncancelablenon-cancelable operating leases expiring on
various dates through 2006. The Company's headquarters office lease is
through 2002. The lease includes three two-year renewal options to extend
the lease through 2008. The lease contains a three-month rental abatement
and a rental escalation clause, the effects of which are being recognized
ratably over the lease term. At December 30, 2000,29, 2001, future minimum lease
payments under these noncancelablenon-cancelable leases were approximately as follows:
2001, $5,135; 2002, $4,583;$4,732; 2003, $2,639;$2,836; 2004, $2,006;$1,852; 2005, $1,180;$1,456; and thereafter, $154.2006, $272. The
Company leases other office facilities under operating lease agreements for
which lease terms are one year or less. Total rent expense was
approximately $1,778,$4,569, $3,572 and $2,232 and $3,572 for the years ended January 2, 1999,December 29,
2001, December 30, 2000 and January 1, 2000, and December 30, 2000,
respectively.
ContingenciesCONTINGENCIES - The Company is involved in certain legal proceedings which
have arisen in the ordinary course of business. Management believes the
outcome of these proceedings will not have a material adverse impact on the
Company's consolidated financial condition or operating results.
F-23F-25
7.8. RELATED PARTY TRANSACTIONS
Sale of VirSim Product LineSALE OF VIRSIM PRODUCT LINE - On July 28, 2000, Innovedathe Company entered into an
agreement with Synopsys, Inc. By virtue of its ownership interest in Innoveda,the
Company, Synopsys may be deemed to be affiliated with Innoveda. Synopsys
agreed to acquire Innoveda's VirSim electronic design software tool and
certain related assets for a purchase price of $7.0 million.$7,000. The sale was
completed on August 2, 2000. There was no gain or loss on the sale as the
proceeds were offset by athe related write-off of the goodwill and other
intangible assets that were recorded from the business combination of
Summit and Viewlogic in March 2000. This transaction resulted in an
additional tax provision of approximately $1.5 million$1,500 in 2000.
Royalty AgreementsROYALTY AGREEMENTS - On October 2, 1998, the Company entered into two OEM
agreements with Synopsys pursuant to which the Company has the right to
resell certain Synopsys software. The agreements are for two and three
years and are automatically renewed on a year-to-year basis thereafter.
The three-year agreement requires minimum annual payments of $750. Under these agreements, the Company paid royalties to Synopsys of $1,315,
$2,279, $1,890, and $0$1,890 for the years ended December 29, 2001, December 30,
2000 and January 1, 2000, and
January 2, 1999, respectively. Under a priorIn fiscal 2001, the two year
agreement the Company paid
royalties towith Synopsys aggregating approximately $713 for thewas renewed. The three year ended
January 2, 1999.
Minority Stockholdersagreement with
Synopsys was terminated in fiscal 2001.
MINORITY STOCKHOLDERS - The minority stockholder in PADS Asia, a subsidiary
of the Company, is entitled to receive annually a performance bonus based
on PADS Asia's operations. The bonus amounted to $72 for the year ended
December 30, 2000. At December 29, 2001 and December 30, 2000, total
amounts payable to minority stockholders amounted to $66.$57 and $66,
respectively. Additionally, PADS Asia had sales to the minority stockholder
of $67 for the year ended December 30, 2000.
Other Related Party TransactionsOTHER RELATED PARTY TRANSACTIONS - Expensed fees for contract software
development paid to an employee-owned company amounted to $1,913 and $429
for yearyears ended December 29, 2001 and December 30, 2000.
8.2000, respectively.
In connection with the exercise of certain stock options, the Company
became the holder of a promissory note made by each of the executive
officers listed below. The notes bear no interest and are secured by a
pledge of the restricted shares issued upon the exercise of those stock
options. Each note must be repaid prior to the sale of the shares
securing that note, and in any event within three months after
termination of the executive's employment with the Company. In the
event of default under the promissory note, if the value of the restricted
shares is not sufficient to insure full payment of the promissory note,
the maximum liability of each individual is limited to the lesser of
one-half of the original principal amount of their promissory note and
the then current balance under the promissory note. Throughout fiscal
2001 and 2000, the principal balance of each promissory note was $418
for Mr. Herman, Chief Executive Officer; $330 for Mr. Lucier,
President; $22 for Ms. Cassidy, Vice-President of Human Resources; $69
for Mr. Johnson, Vice-President of Business Development and Chief Legal
Officer and $88 for Mr. O'Brien, Vice-President and Chief Financial
Officer.
F-26
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables sets forth selected quarterly financial information:
Quarters Ended
-------------------------------------------------
April 1, July 1, SeptemberQUARTERS ENDED
--------------------------------------------------------------
DECEMBER 29, SEPTEMBER 29, JUNE 30, December 30,
2000 2000 2000 2000
-------------------------------------------------MARCH 31,
2001 2001 2001 2001
--------------------------------------------------------------
Revenue $ 7,62822,050 $ 21,56020,032 $22,077 $ 23,103 $ 30,81127,258
Operating income (loss) (5,199) (944) (2,878) (16)129 (44,083) (8,885) (3,059)
Net income (loss) (4,442) (669) (4,814) (1,243)958 (34,751) (6,737) (2,107)
Net income (loss) per share - Basic (0.57) (0.02) (0.14) (0.03)0.02 (0.89) (0.17) (0.05)
Net income (loss) per share - Diluted (0.57) (0.02) (0.14) (0.03)0.02 (0.89) (0.17) (0.05)
Quarters Ended
-------------------------------------------------
April 3, July 3, October 2, JanuaryQUARTERS ENDED
--------------------------------------------------------------
DECEMBER 30, SEPTEMBER 30, JULY 1, 1999APRIL 1,
2000 1999 2000 -------------------------------------------------2000 2000
--------------------------------------------------------------
Revenue $ 6,53430,811 $ 13,24823,103 $21,560 $ 13,585 $ 12,68214,385
Operating income (loss) 1,655 592 700 (765)loss (16) (2,878) (944) (5,199)
Net income (loss) 740 135 192 (808)loss (1,243) (4,814) (669) (4,442)
Net income (loss)loss per share - Basic 0.27 0.05 0.04 (0.15)(0.03) (0.14) (0.02) (0.57)
Net income (loss)loss per share - Diluted 0.05 0.01 0.01 (0.15)(0.03) (0.14) (0.02) (0.57)
F-24
9.10. SEGMENT INFORMATION
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information,"Information", establishes standards for reporting information regarding
operating segments in annual financial statements and requires that public companies report profits and losses and
certain otherselected
information on its "reportable operating segments"for those segments to be presented in its
annual and interim financial statements. Management has determined that
the Company has only one "reportable operating segment," given thereports
issued to stockholders. SFAS No. 131 also establishes standards for related
disclosures about products and services and geographic areas. Operating
segments are identified as components of an enterprise about which separate
discrete financial information provided to and usedis available for evaluation by the "chief decision maker"chief
operating decision-maker, or decision-making group, in making decisions on
how to allocate resources and assess performance. The Company's chief
operating decision-makers, as defined under SFAS No. 131, is its executive
management team.
The Company views its operations and manages its business as principally
one segment with three distinct product groups: Printed Circuit Board
Design ("PCB"), System Level Design ("SLD"), and Electromechanical Design
("EM"). Due to mid-year acquisitions in 2000 which, in part, created the
distinct product groups, it is not practicable to present periods prior to
the year ended December 29, 2001.for the current product lines on this
basis. Revenues for each of the Company to allocate and assesscategories for the Company's performance.fiscal year ended
December 29, 2001 are as follows:
PRINTED SYSTEM ELECTRO-
CIRCUIT BOARD LEVEL MECHANICAL
DESIGN DESIGN DESIGN CONSOLIDATED
----------------- ------------- ------------- ---------------
REVENUE:
Software $ 32,882 $ 9,913 $ 1,671 $ 44,466
Services and other 30,080 14,144 2,727 46,951
----------------- ------------- ------------- ---------------
Total revenue $ 62,962 $ 24,057 $ 4,398 $ 91,417
F-27
10. SEGMENT INFORMATION (CONTINUED)
Revenue consists of software sales, maintenance, sales, and services. Summarized
information about the Company's operations by geographic area for the
periods stated are as follows:
North
America Europe Japan Israel Consolidated
December 30, 2000:
Revenue $65,979 $11,740 $12,140
NORTH
AMERICA EUROPE JAPAN CONSOLIDATED
------------ ------------- -------------- -------------
December 29, 2001:
Revenue $ 60,520 $ 21,299 $ 9,598 $ 91,417
Long-lived assets $ 33,135 $ 1,842 $ 31 $ 35,008
December 30, 2000:
Revenue $ 65,979 $ 11,740 $ 12,140 $ 89,859
Long-lived assets $ 83,123 $ 1,966 $ 50 $ 85,139
January 1, 2000:
Revenue $ 40,225 $ 8,820 $ 4,454 $ 53,499
Long-lived assets $ 10,455 $ 284 $ 593 $ 0 $89,859
Long-lived assets 83,123 438 50 1,528 85,139
January 1, 2000:
Revenue $40,225 $ 8,820 $ 4,454 $ 0 $53,499
Long-lived assets 10,455 284 593 0 11,332
January 2, 1999:
Revenue $41,667 $ 8,655 $ 4,915 $ 0 $55,237
Long-lived assets 7,109 344 612 0 8,065
No customer accounted for more than 10% of revenue for the years ended
December 29, 2001, December 30, 2000, January 1, 2000 and January 2, 1999.
10.1, 2000.
11. RETIREMENT SAVINGS PLAN
In 1988, theThe Company establishedhas a qualified 401(k) retirement savings
plan covering substantially all of the Company's domestic employees. As of
March 1, 1998 and effective through October 2, 1998, the Company adopted
and contributed to the Synopsys' 401(k) retirement savings plan. On
November 1, 1998, the Company established a new 401(k) retirement savings plan under which domestic
employees are allowed to contribute a certain percentage of their pay. The
Company matches 50% of employee elected pretax contributions, up to an
annual maximum. In addition, as part of the PADS and Summit mergers, the
Company acquired the former 401(k) retirement plans from those companies.
No further employee contributions were accepted after the respective merger
dates. Employer contributions for all plans amounted to $643, $235 $286 and
$361,$286, respectively, for the years ended December 29, 2001, December 30, 2000, January 1,
2000 and January 2, 1999.
11.1, 2000.
12. EARNINGS PER SHARE
Basic earnings per share is calculated using the weighted average number of
common shares outstanding. Diluted earnings per share is computed on the
basis of the weighted average number of common shares outstanding plus the
effect, if dilutive, of outstanding stock options using the treasury stock
method.method and the assumed conversion of preferred stock. Although Summit
Design is the surviving legal entity after the March 2000 business
combination and the legal acquirer, for accounting purposes the Summit
Design business combination was treated as an acquisition of Summit Design
by Viewlogic. The weighted average number of common shares outstanding has
been adjusted for all periods reported in the table below to reflect the
Summit Design exchange ratio of .67928.
F-250.67928.
F-28
11.12. EARNINGS PER SHARE (CONTINUED)
Year Ended
--------------------------------------
DecemberYEAR ENDED
----------------------------------------------------
DECEMBER 29, DECEMBER 30, JanuaryJANUARY 1,
January 2,2001 2000 2000
1999---------------- ---------------- ------------
Net income (loss) $ (42,637) $ (11,168) $ 259
$ 5,867
========= ======= ======================= ================ ============
Weighted-average number of common shares - basic 39,224 28,252 3,938 2,694
Assumed number of shares issued from:
Dilutive effects of stock options --- - 780 --
Assumed conversion of Preferred Stock (Note 1) --- - 10,868
2,740
--------- ------- ----------------------- ---------------- ------------
Weighted-average number of common and common
equivalents shares - diluted 39,224 28,252 15,586
5,434
========= ======= ======================= ================ ============
Net income (loss) per share - basic $ (1.09) $ (0.40) $ 0.07
$ 2.18
========= ======= ======================= ================ ============
Net income (loss) per share - diluted $ (1.09) $ (0.40) $ 0.02
$ 1.08
========= ======= ======================= ================ ============
For the years ended December 29, 2001, December 30, 2000 and January 1,
2000, and January 2,
1999, there were 6,056, 6,698 1,239 and 3,6741,239 anti-dilutive weighted
average potential common shares, respectively, not included in the table
above.
F-26F-29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers of the Registrant" in Part I of this Annual Report on
Form 10-K. The information required by Items 401 and 405 of Regulation S-K and
appearing in our definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on June 15, 2001,May 31, 2002, and which will be filed with the
Securities and Exchange Commission not later than 120 days after December 30,
2000,29,
2001, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K and appearing in our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
June 15, 2001,May 31, 2002, and which will be filed with the Securities and Exchange
Commission not later than 120 days after December 30, 2000,29, 2001, is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K and appearing in our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
June 15, 2001,May 31, 2002, and which will be filed with the Securities and Exchange
Commission not later than 120 days after December 30, 2000,29, 2001, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K and appearing in our
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
June 15, 2001,May 31, 2002, and which will be filed with the Securities and Exchange
Commission not later than 120 days after December 30, 2000,29, 2001, is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following financial statements and the Report of Independent Accountants
therein are filed as part of this Form 10-K:
The consolidated financial statements filed as part of this Annual Report on
Form 10-K are listed on the Index to Consolidated Financial Statements under
Item 8, which Index to Consolidated Financial Statements is incorporated herein
by reference.
3644
(a)(2) FINANCIAL STATEMENT SCHEDULE
The following financial statement schedulesschedule for the years ended December 29,
2001, December 30, 2000 and January 1, 2000, and January 2, 1999, filed as part of this Form 10-K
should be read in conjunction with the consolidated financial statements and
related notes thereto and report of independent accountants filed herewith:
Page No.
Schedule II Valuation and Qualifying Accounts S-1
Schedules not listed above have been omitted because the information required to
be set forth therein is not required, not applicable or the information is
otherwise included elsewhere in this Form 10-K.
(a)(3) EXHIBITS
The exhibits filed as a part of this Annual Report on Form 10-K are listed on
the Exhibit Index immediately preceding such exhibits, which Exhibit Index is
incorporated herein by reference. Documents listed on such Exhibit Index, except
for documents identified by footnotes, are being filed as exhibits herewith.
Documents identified by footnotes are not being filed herewith, and, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed with the Securities and Exchange Commission.
Innoveda's file number under the Securities Exchange Act of 1934 is 000-20923.
(b) REPORTS ON FORM 8-K
On October 6, 2000, Innoveda filed a Current Reportdid not file any current reports on Form 8-K dated September
22, 2000 (the "Current Report on Form 8-K") reporting: (i) under Item 2during the acquisition of assets in connection with Innoveda's acquisition of PADS
Software, Inc. ("PADS") and (ii) under Item 7, certain financial statements of
PADS and pro forma financial information of Innoveda and PADS. Allfourth quarter
of the following financial statements identified under Item 7 of the Current Report on
Form 8-K, the notes related thereto and, with respect to audited financial
statements, the independent auditors' report thereon had been previously
reported in Innoveda's Registration Statement on Form S-4 (File No. 333-42814),
as amended, and pursuant to General Instruction B.3 of Form 8-K, no additional
audited financial statements of PADS, unaudited financial statements of PADS or
pro forma financial statements were reported in the Current Report on Form 8-K.
A. Audited Consolidated Financial Statements of PADS and subsidiary:
1. balance sheets as of December 31, 1998 and 1999;
2. statements of operations for the yearsfiscal year ended December 31,
1997, 1998 and 1999;
3. statements of stockholders' deficiency for the years ended
December 31, 1997, 1998 and 1999; and
4. statements of cash flows for the years ended December 31,
1997, 1998 and 1999.
B. Unaudited Consolidated Financial Statements of PADS and subsidiary:
1. balance sheet as of March 31, 2000;
3729, 2001.
45
2. statements of operations for the three months ended March 31, 1999
and 2000;
3. statement of stockholders' deficiency for the three months ended
March 31, 2000; and
4. statements of cash flows for the three months ended March 31, 1999
and 2000.
C. Unaudited Pro Forma Combined Condensed Financial Statements of Innoveda
and PADS, along with their respective subsidiaries :
1. balance sheet as of April 1, 2000; and
2. statements of operations for the three months ended April 1, 2000
and for the year ended January 1, 2000.
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 30th29th day
of March 2001.2002.
INNOVEDA, INC.
By: /s/ Kevin P. O'Brien
Kevin P. O'Brien
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/ William J. Herman President and Chief Executive Officer March 30, 2001
- --------------------- and Director (Principal Executive
William J. Herman Officer)
/s/ Kevin P. O'Brien Vice President of Finance and Chief March 30, 2001
- --------------------- Financial Officer (Principal Financial
Kevin P. O'Brien Officer and Principal Accounting Officer)
/s/ William V. Botts Director March 30, 2001
- ---------------------
William V. Botts
/s/ Lorne J. Cooper Director March 30, 2001
- ---------------------
Lorne J. Cooper
/s/ Steven P. Erwin Director March 30, 2001
- ---------------------
Steven P. Erwin
/s/ Keith B. Geeslin Director March 30, 2001
- ---------------------
Keith B. Geeslin
/s/ Hiroshi Hashimoto Director March 30, 2001
Signature Title Date
/s/ William J. Herman Chairman of the Board and Chief Executive March 29, 2002
- --------------------- Officer (Principal Executive Officer)
William J. Herman
/s/ Kevin P. O'Brien Vice President of Finance and Chief March 29, 2002
- -------------------- Financial Officer, Finance and Administration
Kevin P. O'Brien (Principal Financial Officer and Principal
Accounting Officer)
/s/ William V. Botts Director March 29, 2002
- --------------------
William V. Botts
/s/ Lorne J. Cooper Director March 29, 2002
- -------------------
Lorne J. Cooper
/s/ Steven P. Erwin Director March 29, 2002
- -------------------
Steven P. Erwin
/s/ Keith B. Geeslin Director March 29, 2002
- --------------------
Keith B. Geeslin
/s/ Hiroshi Hashimoto Director March 29, 2002
- ---------------------
Hiroshi Hashimoto
39
46
SCHEDULE II For the Fiscal Years Ended December 30, 2000, January 1, 2000 and January 2,
1999
(In Thousand of Dollars)VALUATION AND QUALIFYING ACCOUNTS
Balance at Additions Deductions Balance at
Beginning from End of
of Period Reserves Period
- ---------------------------------------------------------------------------------------------------------- ----------- ------------ ------------
For the fiscal year ended December 29, 2001 $ 2,034 $ 455 $ 613 $ 1,876
Allowance for doubtful accounts ============ =========== ============ ============
For the fiscal year ended December 30, 2000
Allowance for doubtful accounts $1,465 $ 8311,465 $ 831(1) $ 262 $2,034
====== ====== ====== ======$ 2,034
============ =========== ============ ============
For the fiscal year ended January 1, 2000
Allowance for doubtful accounts $1,940 $ 4541,357 $ 929 $1,465
====== ====== ====== ======
For the fiscal year ended January 2, 1999
Allowance for doubtful accounts $1,477747 $ 584639 $ 121 $1,940
====== ====== ====== ======1,465
============ =========== ============ ============
(1) Amounts represent allowances of $379 and $452 obtained through the
acquisition of Summit Design and the merger with PADS Software.
S-1
EXHIBIT INDEX
Exhibit No.No Description
2.1(1) Agreement and Plan of Merger and Reorganization, dated as of June 2,
2000, by and among the Registrant, Innovative Software, Inc., PADS
Software, Inc. and Kyoden Company, Ltd.
2.2(13)2.2(9) Agreement and Plan of Reorganization dated as of September 16, 1999
by and between between the Registrant, Hood Acquisition Corp. and Viewlogic
Systems Inc.
2.3(13) Form of Viewlogic Voting Agreement.
3.1(2) Amended and Restated Certificate of Incorporation of the Registrant,
as amended.
3.2(3) Amended and Restated By-laws of the Registrant.
4.1(9)4.1(7) Specimen stock certificate representing common stock, $.01 par value
per share, of the Registrant.
4.2(1) Voting and Transfer Restriction Agreement, dated as of June 2, 2000,
by and among the Registrant and certain affiliates of PADS Software,
Inc.
10.1(4) Form of Indemnification Agreement between the Registrant each of
William V. Botts and its
executive officers and directors.Steven P. Erwin.
10.2(4)* 1994 Stock Plan, as amended.
10.3(4)* 1996 Director Option Plan.
10.4(5)* Amended and Restated 2000 Stock Incentive Plan.
10.5(5)* 2000 Employee Stock Purchase Plan.
10.6(6)10.6(11)* Employment Agreement between the Registrant and Larry J. Gerhard
dated February 25, 1999.
10.7* Employment Agreement between the Registrant and Guy Moshe dated May
28, 2000.
10.8(3)+ Software OEM License Agreement between the Registrant, Test System
Strategies Inc. and Credence Systems Corporation dated May 19, 1997.
10.9(4)10.7(4)+ Distributor Agreement between the Registrant and Seiko Instruments,
Inc., dated February 1, 1996.
10.10(3)* Loan Agreement between the Registrant and Moshe Guy dated May 20,
1997.
10.11(8) Loan Agreement between the Registrant and Dasys, Inc. dated
July 16, 1997.
10.12(10)* TriQuest Design Automation, Inc. 1995 Stock Option Plan.
10.13(14)10.8(10)* Simulation Technologies Corp. 1994 Stock Option Plan and form of
agreement thereto.
10.14(11)10.9(8)* 1997 NonStatutoryNon-Statutory Stock Option Plan and form of agreement thereto.
10.15(7)10.10(6)+ Term Sheet Agreement between the Registrant and Seiko Instruments,
Inc.
10.16(6)+ Amendment to Software OEM License Agreement between the Registrant
and Credence Systems Corporation dated December 18, 1998.
10.17(12)* Amendment to Employment Agreement between the Registrant and Larry
J. Gerhard dated April 30, 1999.
40
10.18(1)10.11(1) Software Purchase Agreement and Source Code License Grant-Back
between the Registrant, Innoveda Minnesota Holdings, Inc., Synopsys,
Inc. and Synopsys International Limited dated July 28, 2000.
10.19(13)10.12(9)* Viewlogic 1998 Stock Incentive Plan, as amended, and form of
agreements thereto.
10.20(13)10.13(9)* Transcendent Design Technology, Inc. Restricted Stock Plan and form
of agreements thereto.
10.21(13)10.14(9)* Transcendent Design Technology, Inc. Stock Option Plan and form of
agreements thereto.
10.22(13)10.15(9)* Employment Agreement between Viewlogic and Richard G. Lucier dated
October 2, 1998.
10.23(13)10.16(9)* Employment Agreement between Viewlogic and William J. Herman dated
October 2, 1998.
10.24(13) Investors' Rights Agreement between Viewlogic and the parties named
therein dated October 2, 1998.
10.25(13)10.17(9) VCS OEM Agreement between Viewlogic and Synopsys dated October 2,
1998.
10.26(13)10.18(9) FPGA OEM Agreement between Viewlogic and Synopsys dated October 2,
1998.
10.27(13)10.19(9) Software Assignment and License Agreement between Viewlogic and
Synopsys dated October 2, 1998.
10.28(13)47
EXHIBIT INDEX (CONTINUED)
10.20(9) Patent Assignment and Cross-License Agreement between Viewlogic and
Synopsys dated October 2, 1998.
10.29(13)10.21(9) Blast Software License and Assignment Agreement between Viewlogic and
Synopsys dated October 2,1998.
10.30(1)10.22(1) Amended and Restated Loan Agreement among the Registrant, Viewlogic,
Fleet National Bank, as Agent and a Lender and the other financial
institutions now or hereafter parties hereto, dated July 31, 2000.
10.31(13)2000
10.23(9) Office Lease Agreement between Viewlogic and Rosewood III Associates
Limited Partnership, as amended, dated November 16, 1989.
10.32(13)1989
10.24(9)* Secured Promissory Note by Paula J. Cassidy and John F. Cassidy in
favor of Viewlogic dated August 11, 1999.
10.33(13)10.25(9)* Secured Promissory Note by Peter T. Johnson and Andrea R. Johnson in
favor of Viewlogic dated August 11, 1999.
10.34(13)10.26(9)* Secured Promissory Note by William J. Herman in favor of Viewlogic
dated August 11, 1999.
10.35(13)10.27(9)* Secured Promissory Note by Richard G. Lucier in favor of Viewlogic
dated August 12, 1999.
10.36(13)10.28(9)* Secured Promissory Note by Kevin P. O'Brien in favor of Viewlogic
dated August 11, 1999.
10.29(12)* Amendment dated September 25, 2001 to Secured Promissory Note by
Paula Cassidy and John Cassidy in favor of Viewlogic dated August 11,
1999
10.30(12)* Amendment dated September 25, 2001 to Secured Promissory Note by
William J. Herman in favor of Viewlogic dated August 11, 1999
10.31(12)* Amendment dated September 25, 2001 to Secured Promissory Note by
Peter T. Johnson and Andrea R. Johnson in favor of Viewlogic dated
August 11, 1999
10.32(12)* Amendment dated September 25, 2001 to Secured Promissory Note by
Richard G. Lucier in favor of Viewlogic dated August 12, 1999
10.33(12)* Amendment dated September 25, 2001 to Secured Promissory Note by
Kevin P. O'Brien in favor of Viewlogic dated August 11, 1999
10.34(16) Second Amendment and Waiver effective September 29, 2001 by and
Between Innoveda, Inc. and Fleet National Bank.
10.35 Form of Executive Stock Option Agreement
10.36 Severance Agreement with Gary Kiaski
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included in the signature page of this
Registration Statement).
48
- ---------------------------------
(1.) Incorporated by reference to the Registrant's Registration Statement
on Form S-4 (File No. 333-42814) as declared effective by the
Securities and Exchange Commission (the "Commission") on August 11,
2000.2000
(2.) Incorporated by reference to (i) the Registrant's Registration
Statement on Form S-1 (File No. 333-06445) as declared effective by
the Commission on October 17, 1996, to(ii) the Registrant's Current
Report on Form 8-K dated March 23, 2000 as filed with the Commission
on April 7, 2000 and to(iii) the Registrant's Registration Statement on
Form S-8 (File No. 333-43582) as filed with the Commission on August
11, 2000..
41
2000
(3.) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 as filed with the Commission
on August 14, 1997.1997
(4.) Incorporated by reference to the Registration Statement on Form S-1
(File No. 333-06445) as declared effective by the Securities and
Exchange Commission on October 17, 1996.1996
(5.) Incorporated by reference to the Registrant's Definitive Proxy
Statement on Schedule 14A as filed with the Commission on June 9, 2000.2000
(6.) Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998 as filed with the Commission
on March 31, 1999.
(7.) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 as filed with the
Commission on March 31, 1998.
(8.) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997 as filed with the
Commission on November 14, 1997.
(9.1998
(7.) Incorporated by reference to the Registrant's Current Report on Form
8-K dated March 23, 2000 as filed with the Commission on April 7, 2000.
(10.) Incorporated by reference to the Registration Statement on Form S-8 (File
No. 333-32551) as filed with the Commission on July 31, 1997.
(11.2000
(8.) Incorporated by reference to the Registration Statement on Form S-8
(File No. 333-47545) as filed with the Commission on March 9, 1998.
(12.) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 as filed with the Commission
on May 14, 1999.
(13.1998
(9.) Incorporated by reference to the Registrant's Registration Statement
on Form S-4 (Commission File No. 333-89491) as declared effective by
the Commission on February 14, 2000.
(14.2000
(10.) Incorporated by reference to the Registration Statement on Form S-8
(File No. 333-47481) as filed with the Commission on March 6, 1998.1998
(11.) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 30, 2000 as filed with the
Commission on March 30, 2001
(12.) Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 29, 2001 as filed with the
Commission on November 13, 2001
+ Documents for which confidential treatment has been granted.
* Indicates management compensatory plan, contract or arrangement.
42
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
By and Between
Summit Design (EDA) Ltd.
(Co. no. 51-100785-8)
of 8 Ha'Sadnaot Street
Herzlia, Israel
(hereinafter the "Company")
of one side
and
Guy Moshe
(I.D. no. 5043677)
of_______________
_________________
(hereinafter the "Executive")
of the other side
Whereas the Company is willing to employ the Executive in accordance with
the terms and conditions of this Agreement; and
Whereas the Executive desires to be employed by the Company in accordance
with the terms and conditions of this Agreement;
NOW THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. General
1.1 The preamble to this Agreement constitutes an integral part thereof.
1.2 The section headings used in this Agreement shall not be used in its
interpretation.
2. Employment and Duties
2.1 Subject to the terms and conditions set forth in this Agreement, the
Executive will be employed by the Company as General Manager and
hold the position of Senior Vice President of Innoveda, Inc.
(hereinafter - "Innoveda") responsible for Israeli Operations of
Innoveda. The Executive hereby represents that he has the knowledge,
qualifications, capabilities, experience and expertise required in
order to fulfill this position.
2.2. The Executive's authority, scope of responsibility and duties may
undergo changes, as the Board of Directors of the Company
(hereinafter the "Board") shall determine from time to time.
2.3 The Executive undertakes to perform his duties in accordance with
the rules and procedures issued by the Board from time to time.
2.4 The Executive undertakes to perform his duties and functions
skillfully, with the utmost expertise and devotion, faithfully and
honestly, and to act to the best of his ability to safeguard the
interests of the Company and Innoveda. For these purposes, the
Executive shall devote during his work with the Company, all of his
energy, abilities, knowledge and experience to the Company and
Innoveda.
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2.5 The Executive undertakes to inform the Company without delay
regarding any matter or issue in which he has a personal interest
and/or that may create a conflict of interest with his position at
the Company or with Innoveda.
2.6 This Agreement is a personal and special agreement regulating the
relations between the Company and the Executive, and exclusively
determines the terms of the Executive's employment with the Company.
Any collective agreement which applies, if at all, to the Company's
other employees shall not apply to the Executive.
3. Term
3.1 This Agreement shall have binding force and effect following the
closing of the merger (hereinafter - the "Merger") between Viewlogic
Systems, Inc. and Summit Design, Inc. under the Agreement and Plan
of Reorganization by and among Summit Design, Inc., Hood Acquisition
Corp. and Viewlogic Systems Inc. dated March 24, 2000. The term of
this Agreement shall commence immediately following the closing of
the Merger.
3.2 The term of this Agreement shall be for two (2) years from March 23,
2000 unless terminated as provided in sections 3.3 and 3.4 below.
It is agreed upon the parties that the entry into this Agreement
shall in no manner cause discontinuity in the Executive's employment
with the Company, which had initiated on August 15, 1992 and shall
be in effect until the termination of the Executive's employment
under this Agreement or the applicable law.
3.3 Either party to this Agreement may terminate same, thus terminating
the Executive's employment with the Company and his position with
Innoveda, at any time and with or without cause by giving 90
(ninety) days (the "Notice Period") prior written notice to the
other party.
Notwithstanding the above, the Company may elect to terminate the
Executive's employment with the Company and his position with
Innoveda immediately under this section 3.3 provided however, that
the Company shall pay the Executive in advance only his then current
Base Salary and fringe benefits as set forth in sections 4.2.1,
4.2.2, 4.2.3 hereof,
payable to the Executive throughout the Notice Period.
3.4 The Company shall be entitled to terminate the employment of the
Executive with the Company and his position with Innoveda hereunder
forthwith and without any prior notice and without payment of any
kind, in any of the following events:
3.4.1 The Executive was convicted of a criminal offense or unethical
practice connected with his employment or of any other serious
criminal offense, or if the Executive commits an act of moral
turpitude.
3.4.2 The Executive abandons the duties of his position under
section 2 above, other than as a result of illness or
disability.
3.4.3 The Executive materially breached this Agreement or any of his
duties towards the Company or Innoveda, including, without
limitation, a material breach by the Executive of any
employment, consulting, advisory, non-disclosure,
non-competition or other similar agreement between the
Executive and the Company or Innoveda, and failed to rectify
such breach within 48 (forty eight) hours following receipt of
notice regarding the breach, provided that no such curing
period shall be granted regarding a breach which cannot be
rectified, or
44
regarding a breach following a previous breach (whether the
same or not) which was cured following notice thereof.
3.4.4 The Company became entitled to legally dismiss the Executive
without payment of severance pay.
3.4.5 Reasonable determination by the Company or Innoveda of willful
misconduct by the Executive.
3.5 In the event that the Company or Innoveda require (in writing) the
Executive to perform in any role that does not include the
Executive's role of General Manager, as detailed in section 2.1
above and as a result the Executive terminates his employment with
the Company, the unvested portion of the stock option granted to the
Executive on February 25, 1999 exercisable for 100,000 (one hundred
thousand) shares of Innoveda's Common Stock shall automatically
accelerate and such option shall be fully exercisable.
Notwithstanding the foregoing, if it is determined by Innoveda's
independent public accountants that the grant of the option or the
acceleration of the vesting of the option would preclude accounting
for a transaction as a pooling of interests for financial accounting
purposes, the granting of the option or this acceleration provision,
as the case may be, shall be null and void.
3.6 It is agreed that the Executive will be entitled to all funds
(including earnings) accrued in the "Managers Insurance Plan" as
defined in section 4.2.1 below, in any event that the Executive's
employment is terminated by the Executive.
3.7 In the event that the Executive's employment with the Company is
terminated by the Company for reasons other than cause, the
Executive shall be entitled to receive (a) severance payments in
accordance with the applicable Law, minus any amount provided for by
"Managers Insurance Plan", as defined in section 4.2.1 below plus
(b) his then current monthly Base Salary and the Fringe Benefits
described in sections 4.2.1, 4.2.2, 4.2.3, both for a period of nine
(9) months.
3.8 In the event that a "change in control" of the Company or Innoveda,
as the case may be, occurs and within 12 (twelve) months after such
change in control, the employment of the Executive under this
Agreement is terminated by the Company, without cause, or by the
Executive for a "good reason(s)" (all as defined below), then:
3.8.1 The Company shall pay the Executive (a) severance payments in
accordance with applicable law, minus any amount provided for
by "Managers Insurance Plan," as defined in section 4.2.1
below plus (b) his his then current monthly Base Salary and
the Fringe Benefits described in sections 4.2.1, 4.2.2 and
4.2.3,each both for a period of nine (9) months., minus any
amount paid to the Executive throughout the Notice Period or
otherwise under section 3.3 above.
3.8.2 In addition, the unvested portion of the stock option granted
to the Executive on September, 1999 exercisable for 150,000
(one hundred and fifty thousand) shares of Innoveda's Common
Stock shall automatically accelerate and such option shall be
fully exercisable. Notwithstanding the foregoing, if it is
determined by Innoveda's independent public accountants that
the grant of the option or the acceleration of the vesting of
the option would preclude accounting for a transaction as a
pooling of interests for financial accounting purposes, the
granting of the option or this acceleration provision, as the
case may be, shall be null and void.
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3.9 For purposes of this Agreement, "change in control" shall mean the
occurrence of any of the events or circumstances set forth in
clauses (I) through (IV) hereunder. Pursuant to section 3.8 above,
"Company" in each of clauses (I) through (IV) hereunder, shall mean
the Company or Innoveda respectively:
(I) The acquisition by an individual, entity or group (within the
meaning of section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended) (a "Person") of beneficial
ownership of any capital stock of the Company if, after such
acquisition, such Person beneficially owns 50% or more of
either (A) the then outstanding shares of Common Stock (the
"Outstanding Common Stock") or (B) the combined voting powers
of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Voting Securities"), provided, however, that for
such purposes, the following acquisitions shall not constitute
a Change in Control: (i) any acquisition directly from or by
the Company, (ii) any acquisition by any Employee benefit plan
(or related trust) sponsored or maintained by the Company or
corporation controlled by the Company , or (iii) any
acquisition by any entity that previously held any shares of
any class of preferred stock of Viewlogic Systems, Inc. a
Delaware USA Corporation, or (iv) any acquisition by any
corporation pursuant to a transaction which complies with all
of clauses (A), (B) and (C) of subparagraph (III) of this
section 3.9.
(II) Individuals who, as of the date hereof, constitute the members
of the Company's Board of Directors (the "Incumbent
Directors") ceasing for any reason to constitute at least a
majority of the Company's Board of Directors; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
the Company's stockholders, was approved by a vote of at least
a majority of the Incumbent Directors then in office shall be
deemed to be an Incumbent Director (except that this proviso
shall not apply to any individual whose initial election as a
director occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Company's Board of Directors).
(III) The consummation of a reorganization, recapitalization, merger
or consolidation involving the Company or a sale or other
disposition of all or substantially all of the assets of the
Company (a "Business Combination"), unless, immediately
following such Business Combination, each of the following
three conditions is satisfied: (A) all or substantially all of
the individuals and entities who were the beneficial owners of
the Outstanding Common Stock immediately prior to such
Business Combination beneficially own, directly or indirectly,
more than 50% of the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors respectively of the resulting or acquiring
corporation in such Business Combination (which shall include,
without limitation, a corporation which as a result of such
transaction owns the Company or substantially all of the
Company's assets either directly or through one or more
subsidiaries) (such resulting or acquiring corporation is
referred to herein as the "Acquiring Corporation") in
substantially the same proportions as their ownership,
immediately prior to such Business Combination, of the
Outstanding Common Stock (B) no Person
46
(excluding the Acquiring Corporation or any Executive benefit
plan (or related trust) maintained or sponsored by the Company
or the Acquiring Corporation) beneficially owns, directly or
indirectly, 50% or more of the then outstanding shares of
common stock of the Acquiring Corporation or of the combined
voting power of the then outstanding voting securities of such
corporation (except to the extent that such ownership existed
prior to the Business Combination) and (C) a majority of the
members of the board of directors of the Acquiring Corporation
were Incumbent Directors at the time of the execution of the
initial agreement, or of the action of the Company's Board of
Directors, providing for such Business Combination.
(IV) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding any of the terms provided for in this section 3.9,
"change in control" shall not include any disposition by Innoveda of
all or part of its holdings in the Company or a change in the Board
of Directors of the Company provided however, that Innoveda shall
continue to maintain, directly or indirectly, control over the
Company.
3.10 For purposes of this Agreement, "good reason" shall mean the
occurrence without the Executive's prior written consent, of any of
the events or circumstances set forth in clauses (I) through (V)
hereunder. Notwithstanding the occurrence of any such event or
circumstance, such occurrence shall not be deemed to constitute good
reason if, (i) the Executive terminated his employment yet failed to
give notice to the Company with regard to such event or circumstance
and to provide the Company with the opportunity to cure same within
at least 30 days as of the date of receipt of notice by the Company;
or (ii) prior to the date of termination, such event or circumstance
has been fully corrected and the Executive has been reasonably
compensated for any losses or damages resulting therefrom (provided
that such right of correction by the Company shall only apply to the
first notice of termination at the election of the Executive for
good reason).
(I) Any significant diminution in the Executive's duties,
responsibilities or authority in effect immediately prior to
the earliest to occur of (A) the date on which a change in
control of the Company or Innoveda occurs, (B) the date of the
execution of an initial written agreement or instrument
providing for a change in control of the Company or Innoveda
or (C) the date of the adoption by the Board of a resolution
providing for a change in control of the Company or Innoveda
(with the earliest to occur of such dates referred to herein
as the "Measurement Date").
(II) Any reduction in the Base Salary (as defined below) as in
effect on the Measurement Date or as the same may be increased
from time to time thereafter.
(III) The failure by the Company to (A) continue in effect any
material compensation or benefit plan or program (each, a
"Benefit Plan") in which the Executive participates or which
is applicable to the Executive immediately prior to the
Measurement Date, unless an equitable arrangement
(embodied in
an ongoing substitute or alternative plan or reasonable cash
compensation in lieu thereof) has been made with respect to
such plan or program, (B) continue the Executive's
participation in a Benefit Plan (or in such substitute or
alternative plan or make reasonable cash compensation in lieu
thereof) on a
47
basis not materially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other employees, than the basis
existing immediately prior to the Measurement Date or (C)
award cash bonuses to the Executive in amounts and in a manner
substantially consistent with past practice in light of the
Company's financial performance.
(IV) The failure by the Company to obtain the agreement, in a form
reasonably satisfactory to the Executive, from any successor
to the Company to assume and agree to perform this Agreement
to the same extent that the Company would be required to
perform it if no such succession had taken place.
(V) Any failure of the Company to pay or provide to the Executive
any portion of the Executive's compensation or benefits due
under any Benefit Plan within 30 (thirty) days of the date
such compensation or benefits are due, or any material breach
by the Company of this Employment Agreement.
3.11 For the purpose of this Agreement "cause" shall mean any of the acts
or events described in section 3.4 hereof. The Executive shall be
considered to have been discharged for cause if the Company or
Innoveda determines within 30 (thirty) days of the Executive's
resignation that discharge for cause was warranted.
3.12 For the removal of all doubt, neither the Merger as defined in
section 3.1 above nor the change in Innoveda's Board of Directors
that resulted therefrom shall be considered as a "change in control"
and/or give rise to any "good reason" for the purposes of this
Agreement and accordingly does not grant the Executive any payments
under sections 3.8.1 and 3.8.2 above.
4. Compensation
During his employment under this Agreement, the Executive shall be
entitled to the salary and benefits as set forth in sections 4.1-4.2
below:
4.1 Salary
Annual base salary at the rate of the gross amount of NIS 937,640
(nine hundred thirty seven thousand six hundred and forty New
Israeli Shekels) ("Base Salary"). (The base salary was equivalent to
$US 220,000.00 on October 4, 1999.)
In addition, the Executive shall be entitled to receive an annual
bonus of up to 50% of his Base Salary, as shall be determined by the
Board from time to time and in accordance with assessment of
personal achievements and Company goals.
4.2 Fringe Benefits
4.2.1 Managers Insurance Plan
The Company shall ensure that the Executive is insured under a
Managers Insurance Plan to be owned by the Company. For this
purpose, the Company shall pay monthly installments in the
amount of 13 1/3 % (thirteen and one third of percent) of the
Executive's monthly Base Salary on account of severance and
pension payments. An additional 5% (five percent) of the
Executive's monthly Base Salary shall be deducted from the
Executive's Base Salary on behalf of the Executive on account
of pension.
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4.2.2 Advanced Studies Fund
The Company shall set aside seven and a half percent (7.5%) of
the Executive's monthly Base Salary, and shall deduct two and
a half percent (2.5%) of the Executive's monthly Base Salary,
for a fund for advanced studies (keren hishtalmut), provided
that in no event shall the amounts set aside be in excess of
the ceiling determined from time to time by law.
4.2.3 Company Car
The Company shall provide the Executive with the use of a car
throughout his employment according to the Company's then
current policy.
4.2.4 Annual Vacation
The Executive shall be entitled to annual vacation leave of 22
(twenty two) days, with maximum accrued up to 2 (two) years
(i.e. 44 days).
4.2.5 Sick Leave
The Executive shall be entitled to sick leave of up to 30
(thirty) days per year.
4.2.6 Convalescence Payments
The Executive shall be entitled to convalescence payments
according to the applicable "extension orders".
4.3 The Base Salary, potential bonus and benefits specified in this
section 4 above constitute the entire compensation to which the
Executive shall be entitled to in respect of his employment
hereunder. The Executive shall bear and pay the tax due on said
salary and benefits.
4.4 The Company shall deduct from the Executive's Base Salary and other
compensation all mandatory payments, including withholding taxes,
National Insurance contributions and National Health Insurance
contributions.
4.5 The Executive confirms that he is aware that his position requires a
special degree of fiduciary duty. Therefore, the provisions of the
Hours of Work and Rest Law, 5711-1951, shall not apply to the
Executive's employment hereunder and the Executive shall not be
entitled to additional payment of any kind in return for the
Executive's work, other than that expressly provided in this
Agreement.
4.6 During the period of the Executive's employment with the Company,
the Executive may not engage in any other work, with or without
remuneration, except with the prior written approval of the Company.
5. Confidentiality
5.1 During the term of the Executive's employment and indefinitely
thereafter, regardless of whether such employment was terminated by
the Company or the Executive and of the reasons for such
termination, the Executive undertakes not to use, communicate,
reveal, divulge or otherwise make available to any person or entity,
other than as required for the Executive to perform his duties under
this Agreement, any of the following:
5.1.1 Any confidential or proprietary information, including
technical, financial, marketing, manufacturing, distribution
or any other information of technical or business nature or
trade secrets of the Company or Innoveda, including, without
limitation, techniques, processes, methods, systems, designs,
cost data, computer
49
programs, formula, development or experimental work, work in
progress, customers and suppliers; and
5.1.2 Any information the Company or Innoveda shall have obtained
from any third party which the Company or Innoveda is obliged
to treat as confidential or proprietary.
5.2 Upon termination of this Agreement, the Executive shall transfer his
duties in an orderly manner and shall deliver to the Company all
papers, drawings, notes, memoranda, manuals, specifications,
designs, devices, documents, diskettes and tapes, and any other
material containing or disclosing any confidential or proprietary
technical or business information.
5.3 For avoidance of all doubt it is hereby clarified that the
confidential information to which this section 5 applies includes
any information, trade secret, patent, process, designs, techniques,
inventions, know-how, copyrights, all other intellectual property
and the like (hereinafter the "Developments") which shall have been
discovered, conceived or developed by the Executive during his
employment with the Company or throughout his position with
Innoveda.
5.4 The Company shall hold all rights to and interests in the
Developments referred to in section 5.3 above, including any patent
or copyright. The Executive agrees to and hereby does assign
exclusively to the Company any and all right, title and interest in
the Developments which, notwithstanding the forgoing, may still be
vested in the Executive under any applicable law. For avoidance of
all doubt, it is hereby clarified that the Executive shall not be
entitled to any compensation regarding the Developments and the
rights related thereto.
6. Non-Competition, Conflict of Interest and Non Solicitation
6.1 The Executive undertakes that during the period of his employment
with the Company, and for a period of 1 (one) year following the
termination thereof, be the cause of termination and the party who
initiated the termination as they may, the Executive shall not
directly or indirectly (whether as employee, consultant, individual,
proprietor, partner, shareholder or otherwise) engage in any
business or technological activity in which the Company or Innoveda
is involved, shall not take part in any activity which might compete
with the Company's or Innoveda's activities or might be in conflict
with the Company's or Innoveda's interests, shall not make any
business contacts with the Company's or Innoveda's customers,
shareholders, suppliers and/or employees and shall not render
services to any person, business or entity which renders services to
the Company's or Innoveda's customers and/or shareholders without
the prior written consent of the Company.
6.2 From the date of this Agreement until 2 (two) years after the later
of the date on which (i) the Executive's employment with the Company
ceases or is terminated (for any reason) or (ii) the Executive
ceases to receive any compensation or benefits from the Company or
Innoveda, whether on account of services rendered as an employee,
officer, director, consultant, advisor, contractor or otherwise, the
Executive shall not directly or indirectly (1) recruit, solicit,
induce or attempt to induce, any employee of the Company or Innoveda
to terminate their employment with the Company or Innoveda; or (2)
recruit or solicit for hire, as an employee, officer, director,
consultant, advisor, contractor or otherwise, any employee of the
Company or Innoveda; or (3) hire, as an employee, officer, director,
consultant, advisor, contractor or otherwise, any person who is, or
who has been an employee of the Company or Innoveda unless (i) such
person has
50
not been an employee, officer, director, consultant, advisor or
contractor of the Company or Innoveda, as the case may be, for more
than six (6) months prior to the date of such hire (directly or
indirectly), or (ii) such person's employment or other relationship
with the Company or Innoveda was terminated by the Company or
Innoveda respectively and not by such person.
If the Executive violates the provisions of either section 6.1 or
6.2 hereof, the Executive shall continue to be bound by the
restrictions set forth in sections 6.1 and 6.2 hereof until a period
of 1 (one) year in the case of section 6.1 and 2 (two) years in the
case of section 6.2, has expired without any violation of such
provision.
7. Injunction
In addition to other legal rights and remedies, Innoveda, the Company and
its subsidiaries and affiliates shall be entitled to obtain from any court
of competent jurisdiction preliminary and permanent injunctive relief of
any actual or threatened violation of any term hereof by the Executive.
8. Waiver
The waiver of either party of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach
thereof.
9. Limitation of Liability
Upon payment of the amounts required by this Agreement, under the
conditions where such payments are required, neither the Company nor
Innoveda shall have any further obligations or liability to the Executive
in connection with the employment of the Executive by the Company or in
connection with his position with Innoveda, or the termination of such
employment or position for any reason.
10. Miscellaneous
10.1 This Agreement shall constitute the sole and complete agreement
between the parties and shall fully supersede any and all previous
agreement(s) or understandings, written or oral, which may have been
in effect between the parties. Without limiting the generality of
the foregoing, this Agreement supersedes the employment agreement
dated as of February 25, 1999 between the Company and the Executive
and any other employment agreement(s) between the Executive and the
Company or Innoveda
10.2 Any change or amendment to this Agreement shall be effective only if
it is in a written instrument duly executed by the parties.
10.3 The addresses of the parties for the purpose of this Agreement are
as set forth in the preamble to this Agreement.
A notice sent by registered mail to one party according to the
address stated above shall be deemed received by such party 72 hours
after it was delivered at the post office, and a receipt bearing the
postmark shall be conclusive evidence of the date of delivery.
Executed on this ___ day of _________, 2000.
- ---------------------------- -------------------
Summit Design (EDA) Ltd. Guy Moshe
By:___________________
Title:________________ 7709
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