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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: MARCH 20, 2001
COMMISSION FILE NO. 000-22688
MACROMEDIA, INC.
(A DELAWARE CORPORATION)
I.R.S. EMPLOYER IDENTIFICATION NO. 94-3155026
600 TOWNSEND STREET
SAN FRANCISCO, CALIFORNIA 94103
(415) 252-2000
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ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
On March 20, 2001, Macromedia, Inc. ("Macromedia") filed a Form 8-K to
report the acquisition of Allaire Corporation. ("Allaire"). Pursuant to Item 7
of Form 8-K, Macromedia indicated that it would file certain financial
information no later than the date required by Item 7 of Form 8-K. This
Amendment No. 1 is filed to provide the required financial information.
Report of Independent Accountants............................................ 2
Consolidated Balance Sheets as of December 31, 1999 and 2000................. 3
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1999, and 2000....................................................... 4
Consolidated Statement of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the Years Ended December 31,
1998, 1999, and 2000....................................................... 5
Consolidated Statement of Cash Flows for the Years Ended December 31,
1998, 1999, and 2000....................................................... 7
Notes to Consolidated Financial Statements................................... 8
(b) PRO FORMA FINANCIAL INFORMATION.
The Pro Forma financial information required by Item 7 of Form 8-K can
be found on pages 20 through 28 of this Amendment No. 1.
(c) EXHIBITS.
2.01 Amended and Restated Agreement and Plan of Merger dated January 29,
2001, by and among Macromedia, Inc., Alaska Acquisition Corporation, and
Allaire Corporation.(1)
2.02 Stock Option Agreement dated January 16, 2001 by and between Macromedia,
Inc. and Allaire Corporation.(2)
2.03 Form of Voting Agreement dated January 16, 2001, by and between
Macromedia, Inc. and each of certain individual stockholders of
Allaire Corporation.(3)
(1) Incorporated by reference to Exhibit 2.01 to the Registrant's
Registration Statement on Form S-4 (File No. 333-54930) filed with the
Commission on February 2, 2001.
(2) Incorporated by reference to Exhibit 2.02 to the Registrant's
Current Report on Form 8-K filed with the Commission on January 24,
2001.
(3) Incorporated by reference to Exhibit 2.03 to the Registrant's
Current Report on Form 8-K filed with the Commission on January 24,
2001.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Allaire Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of redeemable convertible preferred stock
and stockholders' equity (deficit) and of cash flows present fairly, in all
material respects, the financial position of Allaire Corporation and its
subsidiaries at December 31, 1999 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 16, 2001, except as
to the information in Note 15, for
which the date is May 15, 2001
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ALLAIRE CORPORATION
CONSOLIDATED BALANCE SHEET
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DECEMBER 31,
-------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1999 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 106,624 $ 26,753
Short-term investments ........................................ 12,405 82,004
Investment in marketable securities ........................... -- 486
Accounts receivable, net of allowance for doubtful accounts
and sales returns of $701 and $978 at December 31, 1999
and 2000, respectively ................................... 7,926 12,812
Prepaid expenses and other current assets ..................... 1,028 2,602
--------- ---------
Total current assets ................................ 127,983 124,657
Property and equipment, net ................................... 4,948 25,247
Goodwill and other intangibles, net ........................... 584 13,417
Other assets .................................................. 25 2,006
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Total assets ....................................................... $ 133,540 $ 165,327
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations .................. $ 159 $ --
Current portion of notes payable .............................. 488 547
Accounts payable .............................................. 3,358 9,346
Accrued expenses .............................................. 8,536 18,990
Accrued employee compensation and benefits .................... 6,591 8,089
Deferred revenue .............................................. 11,937 30,966
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Total current liabilities ........................... 31,069 67,938
Notes payable ...................................................... 547 --
--------- ---------
Total liabilities ................................... 31,616 67,938
--------- ---------
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, $.01 par value; Authorized: 5,000,000 shares
at December 31, 1999 and December 31, 2000; none issued
and none outstanding -- --
Common stock, $.01 par value; Authorized: 35,000,000 and
100,000,000 shares at December 31, 1999 and December 31,
2000, respectively; Issued and outstanding: 26,849,532
issued and 26,816,312 outstanding at December 31, 1999;
27,637,991 issued and 27,604,771 outstanding at
December 31, 2000 ........................................... 268 276
Additional paid-in capital .................................... 139,050 142,642
Accumulated deficit ........................................... (36,746) (45,655)
Accumulated other comprehensive income ........................ -- 486
Deferred compensation ......................................... (638) (350)
Stock subscriptions receivable ................................ (10) (10)
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Total stockholders' equity ......................................... 101,924 97,389
--------- ---------
Total liabilities and stockholders' equity ......................... $ 133,540 $ 165,327
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See Accompanying Notes to Consolidated Financial Statements
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ALLAIRE CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
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YEAR ENDED DECEMBER 31,
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(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1999 2000
--------- --------- ---------
Revenue:
Software license fees .................................... $ 17,966 $ 45,555 $ 97,242
Services ................................................. 3,396 9,608 22,053
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Total revenue ....................................... 21,362 55,163 119,295
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Cost of revenue:
Software license fees .................................... 1,937 2,525 5,100
Services ................................................. 4,057 7,480 20,773
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Total cost of revenue ............................... 5,994 10,005 25,873
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Gross profit ..................................................... 15,368 45,158 93,422
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Operating expenses:
Research and development ................................. 8,027 12,873 24,925
Sales and marketing ...................................... 19,135 30,294 66,642
General and administrative ............................... 4,946 7,148 15,948
Stock-based compensation ................................. 412 263 243
Amortization of goodwill and other intangibles ........... -- -- 1,440
Merger costs ............................................. -- 2,930 --
--------- --------- ---------
Total operating expenses ............................ 32,520 53,508 109,198
--------- --------- ---------
Loss from operations ............................................. (17,152) (8,350) (15,776)
Interest income, net ............................................. 13 2,811 6,997
--------- --------- ---------
Loss before income taxes .................................... (17,139) (5,539) (8,779)
Income tax provision ............................................. -- -- 130
--------- --------- ---------
Net loss .................................................... $ (17,139) $ (5,539) $ (8,909)
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Basic and diluted net loss per share ............................. $ (2.39) $ (0.24) $ (0.33)
Shares used in computing basic and diluted net loss per share .... 7,175 22,771 27,183
See Accompanying Notes to Consolidated Financial Statements
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ALLAIRE CORPORATION
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
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REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ----------------------- ------------------------ PAID-IN
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE CAPITAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 .......... 3,020,415 12,673 56,557 255 7,361,870 74 10,550
Stock issued by pooled companies,
net ............................... 64,726 1 (13)
Issuance of Series A convertible
preferred stock, net of issuance
costs of $9 ....................... 31,906 496
Exercise of employee stock options .. 2,292,172 22 519
Repurchase of common stock held in
treasury .......................... (2)
Deferred compensation relating to
grants of stock options ........... 997
Compensation relating to grants of
stock options ..................... 265
Dividend paid to shareholder ........
Net loss ............................
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 .......... 3,020,415 12,673 88,463 751 9,718,768 97 12,316
Pooling of interests with Valto
(Note 4) .......................... 450,000 4 (4)
Stock issued by pooled companies .... 212,322 2 1,969
Conversion of redeemable
convertible preferred stock
and convertible preferred
stock to common stock ............. (3,020,415) (12,673) (88,463) (751) 7,697,882 77 13,347
Issuance of common stock in
initial public offering, net
of issuance costs of $5,200 ....... 5,750,000 58 52,271
Issuance of common stock in
follow-on public offering, net of
issuance costs of $3,910 .......... 2,000,000 20 58,070
Exercise of employee stock options .. 1,020,560 10 1,042
Repurchase of common stock held in
treasury .......................... (12)
Deferred compensation relating to
grants of stock options ........... 125
Compensation relating to grants of
stock options ..................... (74)
Repayment of stock subscription
receivable ........................
Net loss ............................
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Balance, December 31, 1999 .......... -- -- -- -- 26,849,532 268 139,050
Exercise of employee stock options .. 765,836 8 2,977
Issuance of common stock from
employee stock purchase plan ...... 22,623 -- 660
Deferred compensation relating to
cancellation of stock options ..... (45)
Compensation relating to grants of
stock options .....................
Comprehensive loss:
Net loss
Unrealized gain on
marketable securities ...........
Comprehensive loss ..................
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 2000 .......... -- $ -- -- $ -- 27,637,991 $ 276 $ 142,642
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See Accompanying Notes to Consolidated Financial Statements
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ALLAIRE CORPORATION
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
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ACCUMULATED TOTAL
OTHER STOCK STOCKHOLDERS'
DEFERRED ACCUMULATED COMPREHENSIVE COMPREHENSIVE SUBSCRIPTION EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA) COMPENSATION DEFICIT LOSS INCOME RECEIVABLE (DEFICIT)
------------ ----------- ------------- ------------- ------------ -------------
Balance, December 31, 1997 ................... -- (13,885) -- (16) (3,022)
Stock issued by pooled
companies, net ............................. (10) (22)
Issuance of Series A convertible
preferred stock, net of
issuance costs of $9 .................... 496
Exercise of employee stock options ........... 541
Repurchase of common stock
held in treasury ........................... (2)
Deferred compensation relating
to grants of stock options .............. (997) --
Compensation relating to grants
of stock options ........................ 147 412
Dividend paid to shareholder ................. (146) (146)
Net loss ..................................... (17,139) (17,139)
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Balance, December 31, 1998 ................... (850) (31,170) -- (26) (18,882)
Pooling of interests with
Valto (Note 4) ............................. (37) (37)
Stock issued by pooled companies ............. 1,971
Conversion of redeemable convertible
preferred stock and convertible
preferred stock to common stock ......... 12,673
Issuance of common stock in
initial public offering, net of
issuance costs of $5,200 ................ 52,329
Issuance of common stock in follow-on
public offering, net of issuance
costs of $3,910 ........................ 58,090
Exercise of employee stock options ........... 1,052
Repurchase of common stock
held in treasury ........................... (12)
Deferred compensation relating to
grants of stock options ................. (125) --
Compensation relating to grants of
stock options .............................. 337 263
Repayment of stock subscription receivable ... 16 16
Net loss ..................................... (5,539) (5,539)
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Balance, December 31, 1999 ................... (638) (36,746) -- -- (10) 101,924
Exercise of employee stock options ........... 2,985
Issuance of common stock from employee
stock purchase plan ........................ 660
Deferred compensation relating to
cancellation of stock options ........... 45 --
Compensation relating to grants of
stock options .............................. 243 243
Comprehensive loss:
Net loss .................................. (8,909) (8,909) (8,909)
Unrealized gain on marketable securities .. 486 486 486
--------
Comprehensive loss ........................... (8,423)
-------- -------- -------- -------- -------- --------
Balance, December 31, 2000 ................... $ (350) $(45,655) $ 486 $ (10) $ 97,389
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See Accompanying Notes to Consolidated Financial Statements
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ALLAIRE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
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YEAR ENDED DECEMBER 31,
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(IN THOUSANDS, EXCEPT SHARE DATA) 1998 1999 2000
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Cash flows from operating activities:
Net loss $ (17,139) $ (5,539) $ (8,909)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation and amortization 1,801 3,105 7,175
Compensation expense relating to issuance of equity instruments 412 263 243
Changes in assets and liabilities:
Accounts receivable (1,764) (4,730) (4,886)
Prepaid expenses and other current assets (858) 66 (1,574)
Other assets (237) (465) (728)
Accounts payable 1,514 32 5,988
Accrued expenses 3,571 8,411 11,952
Deferred revenue 3,481 7,111 19,029
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Total adjustments 7,920 13,793 37,199
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Net cash provided by (used for) operating activities (9,219) 8,254 28,290
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Cash flows from investing activities:
Purchases of short-term investments (6,283) (80,422) (328,568)
Proceeds from sales of short-term investments 10,504 68,513 258,958
Purchases of property and equipment (2,720) (3,511) (25,374)
Purchase of Open Sesame -- -- (5,125)
Purchase of TekTools -- -- (9,050)
Investment in partners -- -- (2,000)
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Net cash provided by (used for) investing activities 1,501 (15,420) (111,159)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of promissory notes 1,500 -- --
Principal payments on promissory notes -- (1,500) --
Principal payments on capital lease obligations (315) (340) (159)
Proceeds from issuance of notes payable 1,891 -- --
Principal payments on notes payable (168) (1,563) (488)
Proceeds from sale of common stock 519 113,942 3,645
Proceeds from sale of convertible preferred stock, net of issuance costs 496 -- --
Payments to acquire treasury stock (2) (12) --
Payment received on stock subscription receivable -- 16 --
Payment of dividend to shareholders (146) -- --
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Net cash provided by financing activities 3,775 110,543 2,998
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Net increase (decrease) in cash and cash equivalents (3,943) 103,377 (79,871)
Cash and cash equivalents, beginning of year 7,190 3,247 106,624
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Cash and cash equivalents, end of year $ 3,247 $ 106,624 $ 26,753
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Supplemental disclosure of cash flow information:
Cash paid for income taxes $ -- $ -- $ 24
Cash paid for interest $ 258 $ 325 $ 130
Supplemental disclosure of non-cash investing and financing activities:
Conversion of redeemable convertible preferred stock to common stock $ -- $ 12,673 $ --
Conversion of Series A into common stock $ -- $ 751 $ --
Common stock issued in acquisition of Valto $ -- $ 2 $ --
See Accompanying Notes to Consolidated Financial Statements
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ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1: NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
Allaire Corporation develops, markets and supports Web application servers and
related software products that enable the development and deployment of
sophisticated e-business Web sites and applications. Allaire's products
interoperate with emerging Web application technologies as well as key
enterprise information systems technologies, and include features and tools that
increase the productivity of Web developers.
Allaire was incorporated in the state of Minnesota in February 1996 as the
surviving entity of a reorganization of Allaire, L.L.C., a Minnesota limited
liability company originally formed in May 1995. At the time of the
reorganization, the members of Allaire, L.L.C. exchanged their existing
ownership interests for a proportionate number of shares of Allaire's common
stock and substantially all assets and liabilities of Allaire, L.L.C. were
transferred to Allaire at historical cost. In April 1997, Allaire was
reorganized as a Delaware corporation.
The consolidated financial statements include the accounts of Allaire and its
subsidiaries. All significant intercompany transactions have been eliminated.
Certain 1999 amounts have been reclassified to conform to the 2000 method of
presentation.
As described in Note 4, during 1999 Allaire completed three acquisitions, all of
which were accounted for as poolings of interests. Accordingly, the accompanying
financial statements and notes have been restated for all periods presented to
include the two material poolings of interests acquisitions.
Allaire operates in one industry segment and is subject to risks and
uncertainties common to growing technology-based companies, including rapid
technological change, growth and commercial acceptance of the Internet,
dependence on principal products and third party technology, new product
development, new product introductions and other activities of competitors,
dependence on key personnel, reliance on a limited number of distributors,
international expansion, lengthening sales cycle and limited operating history.
On January 16, 2001, Allaire entered into a definitive agreement to be acquired
by Macromedia, Inc. (see Note 15).
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS Allaire considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents. Allaire invests its excess cash, cash equivalents and
short term investments in money market funds, commercial paper and U.S. Treasury
securities which are subject to minimal credit and market risk. Allaire's cash
equivalents and short term investments are classified as available-for-sale and
recorded at amortized cost which approximates fair value. Allaire's short term
investments all mature within one year from the date of purchase. Gross
unrealized and realized gains or losses on sales of securities as of December
1999 and 2000 and for the years ended December 31, 1998, 1999 and 2000 were not
significant. The following table summarizes Allaire's short term investments:
DECEMBER 31, 1999 2000
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Commercial paper $12,405,000 $63,561,000
U.S. government agencies -- 13,380,000
Foreign debt -- 5,063,000
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$12,405,000 $82,004,000
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REVENUE RECOGNITION Allaire recognizes revenue from software license fees upon
delivery to customers provided no significant post-delivery obligations or
uncertainties remain and collection of the related receivable is probable.
Revenue under arrangements where multiple products or services are sold together
under one contract is allocated to each element based on their relative fair
values, with these fair values being determined using the price charged when
that element is sold separately. For arrangements that include specified upgrade
rights, the fair value of such upgrade right is deferred until the specified
upgrade is delivered. Allaire provides most of its distributors with certain
rights of return, however, sales to the
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ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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distributors are generally not recognized until products are sold through by the
distributor. An allowance for estimated future returns is recorded at the time
revenue is recognized based on Allaire's return policies and historical
experience. Allaire offers subscriptions that entitle customers to all new
releases for a specific product during the term of the subscription agreement.
Revenue from subscription sales is recognized ratably over the term of the
subscription agreement. Training and consulting services revenue is recognized
as services are rendered, and revenue under support agreements is recognized
ratably over the term of the support agreement. Revenue from long-term
consulting and service contracts are recognized over the term of the contract
using the percentage of completion method of accounting, based upon the
proportion of costs incurred to total estimated costs at completion.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of Allaire's financial
instruments, which include cash equivalents, short term investments, accounts
receivable, accounts payable, accrued expenses, and notes payable, approximate
their fair values at December 31, 2000.
CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS Financial instruments
which potentially expose Allaire to concentrations of credit risk consist
primarily of trade accounts receivable. To minimize this risk, ongoing credit
evaluations of customers' financial condition are performed, although collateral
generally is not required. One customer accounted for 37% and 10% of gross
accounts receivable at December 31, 1999 and 2000, respectively. In addition,
this same customer accounted for 28%, 37% and 29% of total revenue for the years
ended December 31, 1998, 1999 and 2000, respectively. Allaire maintains reserves
for potential credit losses and such losses, in the aggregate, historically have
not exceeded existing reserves.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS Costs incurred in the
research and development of Allaire's products are expensed as incurred, except
for certain software development costs. Costs associated with the development of
computer software are expensed prior to the establishment of technological
feasibility (as defined by Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed") and capitalized thereafter when material to Allaire's
financial position or results of operations. Allaire has capitalized no software
development costs since costs eligible for capitalization under SFAS No. 86 have
been insignificant.
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and
depreciated over their estimated useful lives, generally three to five years,
using the straight-line method. Leasehold improvements are depreciated over the
lesser of the life of the lease or their estimated useful lives. Equipment held
under capital leases are stated at the lower of fair market value of the related
asset or the present value of the minimum lease payments at the inception of the
lease and are amortized on a straight-line basis over the shorter of the life of
the related asset or the lease term. Repair and maintenance costs are expensed
as incurred.
COMPUTER SOFTWARE FOR INTERNAL USE Computer software costs that are incurred in
the preliminary project stage are expensed as incurred. Once the capitalization
criteria of SOP 98 -1 "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use" have been met, external direct costs of materials
and services consumed in developing or obtaining internal-use computer software;
payroll and payroll-related costs for employees who are directly associated with
and who devote time to the internal-use computer software project (to the extent
of the time spent directly on the project); and interest costs incurred when
developing computer software for internal use are capitalized. Training costs
and data conversion costs, except as noted in paragraph .21 of SOP 98-1, are
expensed as incurred.
Certain direct costs relating to activities of developing and obtaining
internal-use software that occurred during the application development stage
have been capitalized and will be amortized over the estimated useful life of
the computer software on a straight-line basis.
ACCOUNTING FOR STOCK-BASED COMPENSATION Allaire accounts for stock-based awards
to employees using the intrinsic value method as prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, no compensation expense is
recorded for options issued to employees in fixed amounts and with fixed
exercise prices at least equal to the fair market value of Allaire's common
stock at the date of grant. Allaire has adopted the provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," through disclosure only (Note 10).
All stock-based awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.
INCOME TAXES Prior to its reorganization as a C Corporation in February 1996
(Note 1), Allaire was treated as a
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ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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partnership for federal and state income tax purposes. Accordingly, no provision
for corporate income taxes was recorded during this period and all losses were
passed through to Allaire's members. At the time of its reorganization, Allaire
adopted the liability method of accounting for income taxes as set forth in SFAS
No. 109, "Accounting for Income Taxes."
ADVERTISING EXPENSE Allaire recognizes advertising expense as incurred.
Advertising expense was $1,021,000, $4,052,000 and $12,778,000 for the years
ended December 31, 1998, 1999 and 2000, respectively.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE Net loss per share is computed under SFAS No. 128, "Earnings
Per Share." Basic net loss per share is computed using the weighted average
number of shares of common stock outstanding, excluding shares of common stock
subject to repurchase. Diluted net loss per share does not differ from basic net
loss per share since potential common shares from conversion of preferred stock,
stock options and warrants and outstanding shares of common stock subject to
repurchase are anti-dilutive for all periods presented.
COMPREHENSIVE LOSS Allaire adopted SFAS No. 130, Reporting Comprehensive
Income(Loss), in 1998. SFAS No. 130 requires that a full set of general purpose
financial statements be expanded to include the reporting of "comprehensive
income(loss)". Comprehensive income(loss) includes net income(loss) as currently
reported under generally accepted accounting principles and also considers the
effect of additional economic events that are not required to be recorded in
determining net income(loss) but are rather reported as a separate component of
stockholders' equity. Allaire reports unrealized gains or losses on marketable
securities as a component of comprehensive income(loss).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The new
standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The implementation of SFAS No. 133 did not have a material
affect on Allaire's financial position or results of operations.
3. PUBLIC OFFERINGS
In January 1999, Allaire sold 5,750,000 shares of its common stock through an
initial public offering. Net proceeds from the offering were approximately $52.3
million after deducting the underwriting discount and other offering expenses.
At the time of the initial public offering, all of Allaire's outstanding
preferred stock automatically converted into 7,697,882 shares of common stock.
In September 1999, Allaire sold 2,000,000 shares of common stock and selling
stockholders sold 2,800,000 shares of common stock through a follow-on public
offering. The Company's net proceeds from the offering were approximately $58.1
million after deducting the underwriting discount and other offering expenses.
Proceeds from the transaction were received by Allaire in October 1999.
4. ACQUISITIONS
ACQUISITIONS OF BRIGHT TIGER AND LIVE SOFTWARE On April 12, 1999, Allaire
completed its acquisition of Bright Tiger Technologies, Inc. ("Bright Tiger"), a
Massachusetts company that develops and markets Web site resource management
software. In connection with the transaction, Allaire issued 577,166 shares of
its common stock for all of the issued and outstanding shares of Bright Tiger.
On June 25, 1999, Allaire completed its acquisition of Live Software, Inc.
("Live Software"), a California company that develops, markets and supports
server-side Java development and deployment technology. In connection with the
transaction, Allaire issued 1,056,752 shares of its common stock for all the
issued and outstanding shares of Live Software. These mergers were accounted for
as poolings of interests. Accordingly, Allaire's consolidated financial
statements have been restated to include the accounts and operations of Bright
Tiger and Live Software for all periods presented.
Revenues and net income of the combined entities for the three-month period
prior to these mergers are presented in the
10
12
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
following table. Prior to these mergers during the quarter ended March 31, 1999,
the companies had intercompany sales of $40,000. The intercompany sales have
been eliminated and certain amounts in the merged companies' financial
statements were reclassified to conform to Allaire's presentations.
Pro Forma Results
THREE MONTHS ENDED MARCH 31, 1999
- ------------------------- -----------
(UNAUDITED)
REVENUE:
Allaire $ 7,836,000
Bright Tiger 168,000
Live Software 693,000
-----------
Combined $ 8,697,000
===========
Net Income (Loss):
Allaire $(1,684,000)
Bright Tiger (1,199,000)
Live Software 267,000
-----------
Combined $(2,616,000)
===========
The following table represents a reconciliation of net revenues and net loss
previously reported by the combining companies to those presented in the
accompanying consolidated financial statements. Prior to the merger, during
1998, the companies had intercompany sales of $140,000. The intercompany sales
have been eliminated.
YEARS ENDED DECEMBER 31, 1998
- ---------------------------- ------------
Revenue:
Allaire $ 20,512,000
Bright Tiger 352,000
Live Software 498,000
------------
Combined $ 21,362,000
============
Net Income (Loss):
Allaire $(10,770,000)
Bright Tiger (6,342,000)
Live Software (27,000)
------------
Combined $(17,139,000)
============
ACQUISITION OF VALTO SYSTEMS On December 23, 1999, Allaire completed its
acquisition of Valto Systems, a Massachusetts company that develops and markets
Enterprise JavaBeans (EJB) server technology. In connection with the
transaction, Allaire issued 450,000 shares of its common stock for all the
issued and outstanding shares of Valto Systems. This merger was accounted as a
pooling of interests. Acquired net liabilities of approximately $37,000 have
been recorded at historical amounts. Prior periods were not restated due to
immateriality, and accordingly, results of operations have been included since
the date of acquisition.
ACQUISITION OF OPEN SESAME In March 2000, Allaire acquired Open Sesame
technology from Bowne Internet Solutions for a total purchase price of $5.1
million. Open Sesame is profiling and personalization technology that delivers
personalized customer interaction capabilities. Allaire accounted for this
acquisition as a purchase. The excess of the purchase price over identified
tangible and intangible assets was considered goodwill. Goodwill and other
intangibles are amortized over four years. Pro forma financial statements have
not been disclosed due to immateriality.
ACQUISITION OF KAWA In October 2000, Allaire acquired the Kawa product from
Tek-Tools, Inc. for a total purchase price of $9.1 million. Kawa is an
integrated development environment (IDE) for Java programming that delivers
support for Enterprise JavaBeans development and remote debugging. Allaire
accounted for this acquisition as a purchase. The excess of the purchase price
over identified tangible and intangible assets was considered goodwill. Goodwill
and other intangibles are amortized over four years. Pro forma financial
statements have not been disclosed due to immateriality.
5. INVESTMENTS
In July 1998, Allaire entered into an agreement under which it contributed
certain non-core technology and agreed to provide certain services to Alive.com,
Inc. ("Alive.com" formerly known as Yesler Software, Inc.) in exchange for
907,591 shares of
11
13
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Alive.com's voting common stock, representing approximately 34% of the
outstanding capital stock of Alive.com at that time. Subsequently, Allaire
transferred 76,903 shares of Alive.com common stock to three of its employees.
The value of the shares transferred was not material at the date transferred. Of
the shares acquired, an aggregate of 605,060 shares are subject to repurchase at
a price of $0.10 per share under certain circumstances. The number of shares
subject to this repurchase right will be reduced quarterly over a three-year
period. Allaire has no obligation to fund the future operations of Alive.com. In
December 1999, Alive.com merged with Loudeye Technologies, Inc. At the time of
the merger, Allaire owned approximately 16% of the outstanding capital stock of
Alive.com. As of December 31, 2000, Allaire owned approximately 1% of the
outstanding capital stock of Loudeye Technologies, Inc. Allaire accounts for its
investment in Loudeye Technologies, Inc. under the cost method and has
classified this investment as available for sale.
In 2000, Allaire made investments of approximately $2.0 million in partners that
are private entities, and has accounted for these investments under the cost
method.
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, 1999 2000
- ----------------------------------------------- ------------ ------------
Furniture and fixtures $ 1,690,000 $ 7,870,000
Furniture and fixtures under capital lease 78,000 --
Equipment 5,491,000 12,081,000
Equipment under capital lease 843,000 --
Software 799,000 1,349,000
Leasehold improvements 840,000 8,464,000
Construction in progress 214,000 2,462,000
------------ ------------
9,955,000 32,226,000
Less: Accumulated depreciation and amortization (5,007,000) (6,979,000)
------------ ------------
$ 4,948,000 $ 25,247,000
============ ============
Depreciation and amortization expense for the years ended December 31, 1998,
1999 and 2000 was $1,607,000, $2,874,000, and $5,098,000, respectively.
CAPITAL LEASE Amortization of property and equipment under capital leases
totaled $297,000, $307,000 and $136,000 for the years ended December 31, 1998,
1999 and 2000, respectively. Accumulated amortization on property and equipment
under capital lease $785,000 at December 31, 1999. At December 31, 2000, no
property and equipment under capital lease was in use. Interest expense relating
to capital lease obligations totaled $51,000, $26,000 and $4,000 for the years
ended December 31, 1998, 1999 and 2000, respectively.
7. LINES OF CREDIT
WORKING CAPITAL LINE At December 31, 1999, Allaire was party to a line of credit
agreement which provided for borrowings of up to $12,500,000 for working capital
purposes and for the issuance of letters of credit. Amounts available under the
line were determined based upon eligible accounts receivable. All borrowings and
letters of credit were collateralized by substantially all of Allaire's assets
and all borrowings bore interest at the bank's prime rate (8.50% as of December
31, 1999). As of December 31, 1999, letters of credit totaling $4,725,500 had
been issued against the line and $7,774,500 was available for additional
borrowings. The line of credit requires the maintenance of certain minimum
financial ratios and conditions. The line of credit expired in November 2000. As
of December 31, 2000, letters of credit totaling $11.4 million were outstanding.
EQUIPMENT CREDIT LINE In December of 1996, Bright Tiger entered into, and in
July 1997 amended and restated, an equipment loan line agreement with a bank,
under which Bright Tiger may borrow up to $875,000 for purchases of equipment,
subject to certain limitations. In June 1998, Bright Tiger entered into a second
agreement with the bank for an additional equipment loan line of $500,000
subject to the same limitations. All borrowings under these lines of credit were
collateralized by substantially all of Bright Tiger's assets. The terms of the
lines of credit include certain covenants requiring the maintenance of specified
financial ratios and restrictions on Bright Tiger's ability to sell or transfer
fixed assets and to declare or pay dividends to its stockholders. As of December
31, 1998, Bright Tiger was not in compliance with the
12
14
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
covenants relating to the maintenance of certain financial ratios. Accordingly,
the outstanding balance of $1,145,900 under the lines of credit was immediately
callable by the bank and was classified as a current liability in its entirety.
At December 31, 1998, $1,145,900 was outstanding under the aforementioned lines
of credit. The credit lines were paid in full in April 1999.
EQUIPMENT LOAN LINE In May 1998, Allaire entered into an equipment loan line
agreement (the "Equipment Loan Line") under which Allaire was able to borrow up
to $2,000,000 to finance fixed asset purchases through December 1998. The
initial term of each loan is 36 months from the borrowing date. Monthly payments
are equal to 3.155% of the original amount borrowed, for an effective interest
rate of approximately 15%. At the end of term, Allaire may choose to make one
additional payment of 15% of the original amount funded or, if no default has
occurred, the term may be extended for an additional 6 months at the original
monthly payment rate. The Equipment Loan Line contains no financial covenants
and there are no cross-default provisions in connection with the equipment and
working capital line described above. All borrowings are collateralized by the
purchased assets. Allaire borrowed $1,406,000 in June 1998 and $214,000 in
November 1998 under the Equipment Loan Line, which was collateralized by
previously purchased equipment. The Equipment Loan Line expired in December
1998. At December 31, 2000, annual cash payments on the borrowings under the
Equipment Loan Line are as follows:
2001 cash payments $ 583,000
Less-amount representing interest 36,000
-------------
Present value of notes payable $ 547,000
=============
PROMISSORY NOTES In November 1998, Bright Tiger issued promissory notes to
existing investors of Bright Tiger in exchange for $1,500,000 in cash proceeds.
These notes bear interest at 8% per year, and the principal and accrued interest
of the notes are payable upon demand by their holders. These notes contain
conversion rights whereby the holders of the notes may apply the unpaid
principal and interest under the notes to the purchase of equity securities of
Bright Tiger. The promissory notes were paid in full in April 1999.
8. PREFERRED STOCK
All shares of Series A, Series B, Series C and Series D preferred stock (the
"Preferred Stock") automatically converted into 7,697,882 shares of common stock
upon the closing of Allaire's initial public offering in January 1999. At
December 31, 2000, Allaire had no shares of Preferred Stock outstanding.
PREFERRED STOCK WARRANTS Pursuant to the terms of a capital lease line of credit
(Note 7), Allaire issued warrants to purchase 17,699 shares of Series A
preferred stock at a price of $4.52 per share, subject to certain anti-dilution
adjustments. These warrants are fully vested, exercisable at the option of the
holder, in whole or in part, and expire upon the earlier of ten years from the
date of grant or five years from the effective date of an initial public
offering of Allaire's common stock. The value ascribed to these warrants was not
significant. These warrants converted to warrants to purchase 70,796 shares of
common stock upon the closing of Allaire's initial public offering in January
1999. These warrants were fully exercised during the year ended December 31,
1999.
UNDESIGNATED PREFERRED STOCK At December 31, 1999 and 2000, Allaire has
authorized the issuance of up to 1,616,494 shares of undesignated preferred
stock. Issuances of the undesignated preferred stock may be made at the
discretion of the Board of Directors (without stockholder approval) in one or
more series and with such designations, rights and preferences as determined by
the Board. As a result, the undesignated preferred stock may have dividend,
liquidation, conversion, redemption, voting or other rights which may be more
expansive than the rights of the holders of the Preferred Stock and the common
stock.
9. COMMON STOCK
AUTHORIZED SHARES On March 13, 2000, Allaire's stockholders approved an increase
in the authorized shares of common stock, $.01 par value, to 100,000,000.
STOCK SPLIT In March 2000, Allaire completed a two-for-one split of its
outstanding shares of common stock. The stock split was effected in the form of
a stock dividend and entitled each stockholder of record at the close of
business on February 15, 2000 to receive one share for every outstanding share
of common stock held on the record date. Accordingly, the accompanying financial
statements and notes have been restated for all periods.
13
15
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
TREASURY SHARES Of the common stock issued, an aggregate of 33,220 shares with a
cost of $14,000 were held by Allaire as treasury shares and were included as a
reduction to additional paid-in capital at December 31, 1999 and 2000.
STOCKHOLDER RIGHTS AGREEMENT The Board of Directors of the Company adopted a
Rights Agreement, dated as of December 8, 2000, by and between Allaire and Fleet
Bank N.A., as Rights Agent. In connection with this agreement, the Board
distributed one purchase right for each share of common stock then or thereafter
outstanding. The rights will become exercisable only under certain
circumstances, such as if a person or group acquires beneficial ownership of 15%
or more of the outstanding common shares of the Company or attempts to acquire
such ownership through an unsolicited tender offer. Each right, when it becomes
exercisable, will entitle the holder to purchase from the Company one
one-thousandth of a share of Series A Participating Cumulative Preferred Stock,
par value $0.01 per share, of the Company, at a price of $55. In the event that
a person or group acquires beneficial ownership of 15% or more of the
outstanding common shares of the Company, each right will entitle its holder to
purchase shares of the Company's Series A Participating Cumulative Preferred
Stock with a value of twice the purchase price. Prior to any party acquiring 15%
or more of the outstanding common shares of the Company or prior to the
expiration date, the Board of Directors of the Company may redeem the Rights in
whole, but not in part, at a price, in cash or common shares or other securities
of the Company deemed by the Board of Directors to be at least equivalent in
value, of $.001 per Right. The rights expire on December 8, 2010 unless
otherwise redeemed by the Company prior to that date. On January 16, 2001 the
Board of Directors amended the Rights Agreement to exempt the transactions
contemplated by the Agreement and Plan of Merger by and among Macromedia, Inc.,
Alaska Acquisition Co. and the Company dated January 16, 2001.
STOCK RESTRICTION AGREEMENTS Allaire has executed stock restriction agreements
with its founder and certain of its employees. Under the terms of the founder's
stock restriction agreement, Allaire had the right to repurchase, at a price of
$1.13 per share, any unvested common shares in the event of the founder's
voluntary resignation. All other restriction agreements gave Allaire the right
to repurchase, for an amount equal to the original consideration paid, any
unvested common shares in the event of voluntary resignation or termination of
employment with Allaire for cause. Allaire's repurchase rights lapsed at various
dates through November 30, 1999 or, in the case of the founder, upon the closing
of an initial public offering of Allaire's common stock, which occurred in
January 1999. At December 31, 2000, no shares of Allaire's outstanding common
stock were subject to repurchase under the stock restriction agreements.
All employees who have been granted options by Allaire are generally eligible to
elect immediate exercise of all such options. However, shares obtained by
employees who elect to exercise prior to the original option vesting schedule
are subject to Allaire's right of repurchase, at the option exercise price, in
the event of termination. Allaire's repurchase rights lapse at the same rate as
the shares would have become exercisable under the original vesting schedule. At
December 31, 2000, Allaire had the right to repurchase 97,394 shares of common
stock.
STOCK SUBSCRIPTIONS RECEIVABLE Allaire holds recourse notes receivable from a
stockholder at December 31, 1999 and 2000 in consideration for the purchase of
Allaire common stock. This loan is secured by the underlying common stock and,
consequently, is reflected as an offset to stockholders' equity.
COMMON STOCK WARRANTS Pursuant to the issuance of convertible notes payable in
1996, Allaire issued warrants to purchase 17,198 shares of its common stock at a
price of $1.02 per share, subject to certain anti-dilution adjustments. These
warrants are fully vested, exercisable at the option of the holders, in whole or
in part, and expire in December 2001. The value ascribed to these warrants was
not significant. At December 31, 2000, 2,456 warrants were outstanding.
Pursuant to the issuance of convertible notes payable in 1997, Allaire issued
warrants to purchase 12,600 shares of its common stock at a price of $2.00 per
share, subject to certain anti-dilution adjustments. These warrants are fully
vested, exercisable at the option of the holder, in whole or in part, and expire
in March 2002. The value ascribed to these warrants was not significant. At
December 31, 2000, 12,600 warrants were outstanding.
RESERVED SHARES At December 31, 2000, Allaire had 14,580,000 shares of common
stock reserved for issuance upon the exercise of common stock warrants and
options.
10. STOCK OPTIONS
All options issued by Allaire during the year ended December 31, 1996 were
non-qualified, non-plan stock options issued to employees, advisors and
consultants of Allaire. All options granted by Allaire during this period of
time were issued at fair
14
16
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
market value at the date of grant, vest either immediately or over a four-year
period and expire ten years from the date of grant.
1997 STOCK INCENTIVE PLAN The 1997 Incentive Stock Plan (the "1997 Stock Plan")
provides for the granting of incentive and non-qualified stock options and stock
bonus awards to officers, directors, employees and consultants of Allaire. The
maximum number of common shares that may be issued pursuant to the 1997 Stock
Plan, as amended, is 3,452,000.
The exercise price of each stock option issued under the 1997 Stock Plan shall
be specified by the Board of Directors at the time of grant. However, incentive
stock options may not be granted at less than the fair market value of Allaire's
common stock as determined by the Board of Directors at the date of grant or for
a term in excess of ten years. All options granted under the 1997 Stock Plan
through December 31, 2000 vest either immediately or over a four-year period for
employees or over the service period for non-employees and expire ten years from
the date of grant.
1998 STOCK INCENTIVE PLAN The 1998 Incentive Stock Plan (the "1998 Stock Plan"),
as amended and approved by stockholders on March 13, 2000, provides for the
issuance of up to 8,800,000 shares of Allaire's common stock to eligible
employees, officers, directors, consultants and advisors of Allaire. Under the
1998 Stock Plan, the Board of Directors may award incentive and non-qualified
stock options, stock appreciation rights, performance shares and restricted and
unrestricted stock. Incentive stock options may not be granted at less than the
fair market value of Allaire's common stock at the date of grant and for a term
not to exceed ten years. The exercise price under each non-qualified and
incentive stock option shall be specified by the Compensation Committee. Grants
of stock appreciation rights, performance shares, restricted stock and
unrestricted stock may be made at the discretion of the Compensation Committee
with terms to be defined therein.
2000 STOCK INCENTIVE PLAN The 2000 Incentive Stock Plan (the "2000 Stock Plan"),
approved by stockholders on May 15, 2000, provides for the issuance of up to
4,000,000 shares of Allaire's common stock to eligible employees, officers,
directors, consultants and advisors of Allaire. Under the 2000 Stock Plan, the
Board of Directors may award incentive and non-qualified stock options, stock
appreciation rights, performance shares and restricted and unrestricted stock.
Incentive stock options may not be granted at less than the fair market value of
Allaire's common stock at the date of grant and for a term not to exceed ten
years. The exercise price under each non-qualified and incentive stock option
shall be specified by the Compensation Committee. Grants of stock appreciation
rights, performance shares, restricted stock and unrestricted stock may be made
at the discretion of the Compensation Committee with terms to be defined
therein.
The Company continues to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employee" (APB 25), and related interpretations
in accounting for its employee stock options. The alternative fair value
accounting provided for under Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation" (SFAS 123), requires use of
option valuation models that were developed for use in valuing employee stock
options. For the years ended December 31, 1998, 1999 and 2000, respectively,
compensation expense recognized for stock option grants under APB opinion 25
totaled $412,000, $263,000, and $243,000. Had compensation cost for Allaire's
option grants been determined based on the fair value at the date of grant
consistent with the method prescribed by SFAS No. 123, Allaire's net loss and
net loss per share would have been increased to the pro forma amounts indicated
below:
YEAR ENDED DECEMBER 31, 1998 1999 2000
------------ ------------ ------------
Net loss:
As reported $(17,139,000) $ (5,539,000) $ (8,909,000)
Pro forma $(17,278,000) $(13,229,000) $(39,062,000)
Basic and diluted net loss per share:
As reported $ (2.39) $ (0.24) $ (0.33)
Pro forma $ (2.41) $ (0.58) $ (1.44)
Under SFAS No. 123, the fair value of each employee option grant is estimated on
the date of grant using the Black-Scholes option pricing model to apply the
minimum value method with the following weighted-average assumptions used for
grants made during the years ended December 31, 1998, 1999 and 2000: no dividend
yield for all years; risk free interest rates of 5.1%, 5.8% and 6.0%,
respectively; a volatility of 0%, 95% and 110%, respectively, and an expected
option term of 5 years 1998, 4 years in 1999, and 4 years in 2000.
Stock option activity during the years ended December 31, 1998, 1999 and 2000
was as follows:
15
17
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
OUTSTANDING OPTIONS
-----------------------------
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
----------- -----------
Outstanding - December 31, 1997 4,774,764 $ 0.26
Granted (weighted average fair value of $1.48) 1,146,322 3.47
Exercised (2,294,768) 0.24
Canceled (249,126) 1.01
-----------
Outstanding - December 31, 1998 3,377,192 1.30
Granted (weighted average fair value of $24.22) 3,932,452 34.61
Exercised (945,048) 1.09
Canceled (388,090) 16.15
-----------
Outstanding - December 31, 1999 5,976,506 22.16
Granted (weighted average fair value of $15.43) 7,752,236 20.30
Exercised (765,836) 3.87
Canceled (1,315,471) 43.12
-----------
Outstanding - December 31, 2000 11,647,435 $ 19.77
===========
As of December 31, 2000, 93,347, 2,634,636, and 11,214 shares were available for
grant under the 1997 Stock Plan, the 1998 Stock Plan, and the 2000 Stock Plan,
respectively.
The following table summarizes information about stock options outstanding at
December 31, 2000:
VESTED AND EXERCISABLE
------------------------------
WEIGHTED-AVERAGE WEIGHTED-
REMAINING NUMBER AVERAGE
EXERCISE NUMBER CONTRACTUAL OF EXERCISE
PRICE OUTSTANDING LIFE (IN YEARS) SHARES PRICE
-------------- ------------ ------------ ------------ -------------
$ 0.13 - 4.50 1,262,855 6.29 1,046,505 $ 0.34
5.03 - 9.44 4,483,618 9.65 158,363 6.14
17.50 - 25.00 1,175,463 8.62 398,681 24.18
25.69 - 45.50 3,990,525 9.12 374,831 29.05
52.75 - 75.94 734,974 9.09 102,478 60.57
----------- ------------
$ 0.13 - 75.94 11,647,435 8.97 2,080,858 $ 13.49
=========== ============
DEFERRED COMPENSATION During 1998, Allaire granted stock options to purchase
955,900 shares of its common stock with exercise prices ranging from $.01 to
$6.80. Through December 31, 2000, Allaire recorded compensation expense and
deferred compensation relating to these options totaling $918,000 and $1.1
million, respectively, representing the difference between the estimated fair
market value of the common stock on the date of grant and the exercise price.
Compensation relating to options which vested immediately upon grant was
expensed in full at the date of grant, while compensation related to options
which vest over time was recorded as a component of stockholders' deficit and is
being amortized over the vesting periods of the related options.
1998 EMPLOYEE STOCK PURCHASE PLAN The 1998 Employee Stock Purchase Plan (the
"Purchase Plan") provides for the issuance of up to 600,000 shares of Allaire's
common stock to eligible employees. Under the Purchase Plan, Allaire is
authorized to make one or more offerings during which employees may purchase
shares of common stock through payroll deductions made over the term of the
offering. The per-share purchase price at the end of each offering is equal to
85% of the fair market value of the common stock at the beginning or end of the
offering period (as defined by the Purchase Plan), whichever is lower. Allaire's
first offering period under the Purchase Plan commenced on July 1, 1999 and
ended on December 31, 1999. During this offering period, employees purchased
9,858 shares of common stock, which were issued in January 2000. During 2000,
employees purchased 12,765 shares, which were issued in July 2000, and 56,706
shares, which were issued in January 2001.
11. INCOME TAXES
16
18
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
No provision for income taxes was recorded in 1998 and 1999 as Allaire incurred
losses from operations. The provision for income taxes of $130,000 in 2000
relates to certain current state, local and foreign obligations.
Deferred tax assets are comprised of the following:
December 31,
-----------------------------
1999 2000
------------ ------------
Deferred tax assets:
Net operating loss carryforwards ................. $10,778,000 $9,732,000
Reserves not currently deductible ................ 381,000 506,000
Tax credit carryforwards ......................... 1,389,000 2,699,000
Amortization and depreciation related ............ 405,000 1,061,000
Capitalized research and development expense ..... 1,050,000 775,000
Compensation related ............................. 488,000 683,000
Deferred revenue ................................. 286,000 4,389,000
Other ............................................ 112,000 201,000
------------ ------------
Total deferred tax assets .................... 14,889,000 20,046,000
Deferred tax asset valuation allowance ........... (14,889,000) (20,046,000)
------------ ------------
$ -- $ --
============ ============
Realization of total deferred tax assets is contingent upon the generation of
future taxable income. Due to the uncertainty of realization of these tax
benefits, Allaire has provided a valuation allowance for the full amount of its
deferred tax assets.
Income taxes computed using the federal statutory income tax rate differs from
Allaire's effective tax rate primarily due to the following:
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1999 2000
----------- ----------- -----------
Income tax benefit at U.S. federal statutory tax rate ..... $(5,999,000) $(1,939,000) $(3,072,000)
State taxes, net of federal tax impact .................... (1,054,000) (342,000) (417,000)
Nondeductible acquisition related expenses ................ -- 921,000 213,000
Tax credit carryforwards .................................. (195,000) (345,000) (1,655,000)
Foreign taxes ............................................. -- -- 50,000
Other ..................................................... 81,000 (73,000) (146,000)
Change in valuation allowance ............................. 7,167,000 1,778,000 5,157,000
----------- ----------- -----------
Provision for income taxes ........................... $ -- $ -- $ 130,000
=========== =========== ===========
At December 31, 2000, Allaire had federal and state net operating losses
of approximately $80 million and $87 million, respectively, and federal and
state tax credit carryforwards of approximately $1,416,000 and $2,075,000
respectively, available to reduce future taxable income and future tax
liabilities. If not utilized, these carryforwards will expire at various dates
ranging from 2001 to 2020. Of the total net operating losses, $56,967,000
relates to the exercise of stock options. The tax benefit of this amount will
result in an increase in additional paid-in capital upon realization. Under the
provisions of the Internal Revenue Code, certain substantial changes in
Allaire's ownership may be limited, or may limit in the future, the amount of
net operating loss and research and development tax credit carryforwards which
could be utilized annually to offset future taxable income and income tax
liability. The amount of any annual limitation is determined based upon
Allaire's value prior to an ownership change.
In accordance with APB 23, the Company does not provide for U.S. Federal income
taxes on the earnings of the non-U.S. subsidiaries, as it is management's plan
to permanently reinvest in operations outside the U.S.
17
19
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
12. SEGMENT INFORMATION
Operating in one industry segment, Allaire develops, markets and supports
software for a wide range of Web development.
Revenue was distributed geographically as follows:
YEAR ENDED DECEMBER 31, 1998 1999 2000
----------- ------------ ------------
North America $18,659,000 $ 47,679,000 $ 94,895,000
Europe 1,802,000 4,958,000 15,247,000
Other international 901,000 2,526,000 9,153,000
----------- ------------ ------------
$21,362,000 $ 55,163,000 $119,295,000
=========== ============ ============
Allaire's sales to Europe and other international geographies are primarily
export sales from the United States. Substantially all of Allaire's services
revenue for the years ended December 31, 1998, 1999 and 2000 was generated in
North America. All long-lived assets were located in North America at December
31, 1999 and 2000.
13. EMPLOYEE SAVINGS PLAN
During 1997, Allaire adopted an employee retirement savings plan under Section
401(k) of the Internal Revenue Code which covers substantially all employees.
Under the terms of the 401(k) Plan, employees may contribute a percentage of
their salary, up to a maximum of 15%. Allaire did not make any contributions to
the 401(k) Plan on behalf of its employees for the years ended December 31,
1998, 1999 or 2000.
14. COMMITMENTS AND CONTINGENCIES
Allaire leases its facilities and certain office equipment under noncancelable
operating lease agreements. Rent expense under these leases for the years ended
December 31, 1998, 1999 and 2000, totaled $1,420,000, $1,834,000 and $6,091,000
respectively. In 2000, rent expense was offset by sublet income of $832,000.
Future minimum commitments under noncancelable operating leases at December 31,
2000 are as follows:
OPERATING
LEASES
------------
2000 $ 11,599,000
2001 12,028,000
2002 12,028,000
2003 11,985,000
2004 and thereafter 69,617,000
------------
Total lease payments 117,257,000
Less - amount representing sublease income 12,494,000
------------
Net lease payments $104,763,000
============
LETTER OF CREDIT In connection with facility leases Allaire is required to
maintain, on behalf of the landlord, an irrevocable letter of credit with a bank
over the term of the lease. As of December 31, 2000, letters of credit totaling
$11.4 million were outstanding.
LEGAL PROCEEDINGS
On or after September 25, 2000, the Company and certain of its officers or
directors were named as defendants in eleven virtually identical lawsuits filed
in the United States District Court for the District of Massachusetts: (i)
Krakauer v. Allaire Corporation, Joseph J. Allaire, Jeremy Allaire, David A.
Gerth and David J. Orfao, Civil Action No. 00-11972-WGY; (ii) Dargenzio v.
Allaire Corporation, Joseph J. Allaire, Jeremy Allaire, David A. Gerth and David
J. Orfao, Civil Action No. 00-11973-WGY; (iii) Gordon v. Allaire Corporation,
Joseph J. Allaire, Jeremy Allaire, David A. Gerth and David J. Orfao, Civil
Action No. 00-11974-WGY; (iv) Large v. Allaire Corporation, Joseph J. Allaire,
Jeremy Allaire, David A. Gerth and David J. Orfao, Civil Action No.
00-11986-WGY; (v) DiMaggio v. Allaire Corporation, Joseph J.
18
20
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Allaire, Jeremy Allaire, David A. Gerth and David J. Orfao, Civil Action No.
00-11996-WGY; (vi) Knorr v. Allaire Corporation, Joseph J. Allaire, Jeremy
Allaire, David A. Gerth and David J. Orfao, Civil Action No. 00-12014-WGY; (vii)
Jarvis v. Allaire Corporation, Joseph J. Allaire, Jeremy Allaire, David A. Gerth
and David J. Orfao, Civil Action No. 00-12016-WGY; (viii) Cordeiro v. Allaire
Corporation, Joseph J. Allaire, Jeremy Allaire, David A. Gerth and David J.
Orfao, Civil Action No. 00-12158-WGY; (ix) Fisher v. Allaire Corporation, Joseph
J. Allaire, Jeremy Allaire, David A. Gerth and David J. Orfao, Civil Action No.
00-12182-WGY; (x) Crippin v. Allaire Corporation, Joseph J. Allaire, Jeremy
Allaire, David A. Gerth and David J. Orfao, Civil Action No. 00-12333-WGY; and
(xi) Reagor v. Allaire Corporation, Joseph J. Allaire, Jeremy Allaire, David A.
Gerth and David J. Orfao, Civil Action No. 00-12377-WGY. Each of the plaintiffs
in each of the actions purport to bring their complaint on behalf of all
purchasers of the Company's stock during an alleged class period (July 20, 2000
and September 18, 2000). The plaintiffs claim that the defendants violated
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule
10b-5, by virtue of statements plaintiffs claim were materially false or
misleading. Plaintiffs seek damages, interest, costs, and attorneys' fees.
On December 5, 2000, Chief Judge Young of the District of Massachusetts
entered an order consolidating these cases as In re: Allaire Corporation
Securities Litigation, Case No. 00-CV-11972(WGY). The order appointed lead
plaintiffs for the class and permitted them to file a consolidated complaint, to
be treated as if it were the original complaint in the consolidated actions.
The defendants intend to file a motion to dismiss the consolidated
complaint. The litigation is in its early stages; and we are not able to predict
the outcome of the litigation at this time.
Although Allaire does not consider an unfavorable outcome to these claims
probable, Allaire cannot accurately predict the ultimate outcome of these claims
or whether they will have a material effect on Allaire's financial position.
From time to time Allaire has been, and expects to continue to be, subject
to legal proceedings and claims in the ordinary course of its business,
including claims of alleged infringement of third party trademarks and other
intellectual property rights by Allaire and its licensees. Such claims, even if
not meritorious, could result in the expenditure of significant financial and
managerial resources. Allaire is not aware of any legal proceedings or claims
other than those noted above that it believes will have, individually or in the
aggregate, a material adverse effect on its business, financial condition or
results of operations.
15. SUBSEQUENT EVENTS
ACQUISITION
In January 2001, Allaire acquired the M39 technology from EvolutionB
Information, Inc. for a cash purchase price of approximately $5.5 million. M39
is an Allaire Spectra-based application framework that provides solutions for
online marketing and customer service including campaign management, customer
self service and knowledge management. Allaire accounted for this acquisition as
a purchase. Pro forma financial statements have not been disclosed due to
immateriality.
LEGAL PROCEEDINGS
With respect to In re: Allaire Corporation Securities Litigation, Case No.
00-CV-11972(WGY), a consolidated complaint was filed on February 20, 2001.
On April 11, 2001, a twelfth complaint was filed, Kassin v. Allaire Corporation,
Joseph J. Allaire, Jeremy D. Allaire, David A. Gerth, and David J. Orfao, Civil
Action No. 01-10600-WGY. This complaint, filed on behalf of the plaintiff (and
not a class), contains substantially the same allegations as the consolidated
complaint, but in addition asserts claims for common law fraud and negligent
misrepresentation.
The defendants intend to file a motion to dismiss the consolidated complaint and
Kassin complaint. The litigation is in its early stages; and we are not able to
predict the outcome of the litigation at this time.
MERGER
On March 20, 2001, Allaire Corporation was acquired by Macromedia, Inc., a
Delaware corporation ("Macromedia") pursuant to a definitive Agreement and Plan
of Merger. Each Allaire common stock share converted into 0.2 shares of
Macromedia common stock along with $3.00 per share cash consideration.
Macromedia will account for this transaction as a purchase.
19
21
ALLAIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
b) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma combined condensed financial information
has been prepared to give effect to Macromedia's acquisition of Allaire (the
"merger"), accounted for using the purchase method of accounting. The unaudited
pro forma combined condensed balance sheet as of December 31, 2000 gives effect
to the merger as if it had occurred as of December 31, 2000 and combines the
historical consolidated balance sheet of Macromedia as of December 31, 2000 and
the historical consolidated balance sheet of Allaire as of December 31, 2000.
As a result of the differing fiscal years of Macromedia and Allaire,
results of operations for different periods have been combined. The unaudited
pro forma combined condensed statements of operations combines the historical
consolidated statement of operations of Macromedia for the year ended March 31,
2000 with the historical consolidated statement of operations of Allaire for the
year ended December 31, 1999 and excludes in-process research and development as
it is a non-recurring charge. The unaudited pro forma combined condensed
consolidated statement of operations for the nine months ended December 31, 2000
combines the historical consolidated statement of operations of Macromedia for
the nine months ended December 31, 2000 with the historical consolidated
statement of operations of Allaire for the nine months ended September 30, 2000
and excludes in-process research and development as it is a non-recurring
charge.
The unaudited pro forma combined condensed financial information is based
on estimates and assumptions. These estimates and assumptions have been made
solely for purposes of developing this pro forma information. Unaudited pro
forma combined financial information is presented for illustrative purposes only
and is not necessarily indicative of the combined financial position or results
of operations of future periods or the results that actually would have been
realized had the entities been a single entity during these periods. This
unaudited pro forma combined financial information is based upon and should be
read in conjunction with the respective historical consolidated financial
statements and related notes of Macromedia, included in the annual report on
Form 10-K for the year ending March 31, 2000 and the quarterly report on form
10Q for the quarter ended December 31, 2000, and the historical consolidated
financial statements and related notes of Allaire incorporated herein.
20
22
MACROMEDIA, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Index to Unaudited Pro Forma Combined Condensed Financial Statements
Page
----
Balance Sheet as of December 31, 2000................................... 23
Statement of Operations for Year Ended March 31, 2000................... 24
Statement of Operations for the nine months ended December 31, 2000..... 25
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.... 26
21
23
MACROMEDIA, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 2000
PRO FORMA
MACROMEDIA ALLAIRE ADJUSTMENTS COMBINED
---------- --------- ----------- ---------
ASSETS
Current assets
Cash, cash equivalents and
short-term investments
$ 207,940 $ 109,243 $ (83,331)(a) $ 233,852
Accounts receivable, net 50,108 12,812 (527)(b) 62,393
Prepaid expenses and other current assets 21,761 2,602 (278)(c) 24,085
Deferred tax assets, short-term 9,937 -- -- 9,937
--------- --------- --------- ---------
Total current assets 289,746 124,657 (84,136) 330,267
Land and building, net 18,322 -- 18,322
Fixed assets, net 73,725 25,247 (878)(c) 98,094
Goodwill and other intangibles 6,568 13,417 297,085 (d) 317,070
Related party loans 14,904 -- -- 14,904
Restricted cash 9,111 -- -- 9,111
Other long-term assets 22,904 2,006 -- 24,910
--------- --------- --------- ---------
Total assets $ 435,280 $ 165,327 212,071 812,678
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion on notes payable -- 547 -- 547
Accounts payable 3,118 9,346 (527)(b) 11,937
Accrued liabilities 41,793 18,990 10,865 (e) 71,648
Accrued compensation,
fringe benefits and payroll taxes 19,070 8,089 3,525 (f) 30,684
Unearned revenue 10,037 30,966 (24,009)(g) 16,994
--------- --------- --------- ---------
Total current liabilities 74,018 67,938 (10,146) 131,810
Long-term liabilities 943 -- -- 943
--------- --------- --------- ---------
Total liabilities 74,961 67,938 (10,146) 132,753
Minority Interest 11,409 -- -- 11,409
Stockholders' Equity
Common Stock 62 276 (270)(h) 68
Treasury Stock (33,649) -- -- (33,649)
Additional paid-in-capital 407,165 142,642 195,302 (i) 745,109
Notes receivable from stockholders (7,967) (10) 10 (h) (7,967)
Deferred compensation (27,833) (350) 6 (j) (28,177)
Accumulated other comprehensive income 535 486 (486)(h) 535
Retained earnings (deficit) 10,597 (45,655) 27,655 (k) (7,403)
--------- --------- --------- ---------
Total stockholders' equity 348,910 97,389 222,217 668,516
--------- --------- --------- ---------
Total liabilities and stockholders' equity $ 435,280 $ 165,327 $ 212,071 $ 812,678
========= ========= ========= =========
22
24
MACROMEDIA, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
-------------------------
MARCH 31, DECEMBER 31,
2000 1999 PRO FORMA
MACROMEDIA ALLAIRE ADJUSTMENTS COMBINED
---------- ------------- ----------- ---------
Revenues $ 264,159 $ 55,163 $ (731)(l) $ 318,591
Cost of revenues 28,829 10,005 (731)(l) 38,103
--------- -------- --------- ---------
Gross profit 235,330 45,158 -- 280,488
Operating expenses:
Sales and marketing 113,005 30,294 (105)(m) 143,194
Research and development 65,739 12,873 -- 78,612
General and administrative 24,610 7,148 -- 31,758
Acquisition related expenses 11,516 2,930 -- 14,446
Non-cash compensation 11,071 263 (71)(n) 11,263
Amortization of intangibles 1,013 -- 115,648 (o) 116,661
--------- -------- --------- ---------
Total operating expenses 226,954 53,508 115,472 395,934
--------- -------- --------- ---------
Operating income (loss) 8,376 (8,350) (115,472) (115,446)
Interest and investment income, net 6,305 2,811 -- 9,116
Other (118) -- -- (118)
-------- -------- --------- ---------
Total other income (loss) 6,187 2,811 -- 8,998
Minority interest 6,179 -- -- 6,179
--------- -------- --------- ---------
Income (loss)before taxes 20,742 (5,539) (115,472) (100,269)
Provision (benefit) for income taxes 11,975 -- (81)(p) 11,894
--------- -------- --------- ---------
Net income $ 8,767 $ (5,539) $(115,391) $(112,163)
Accretion of mandatorily redeemable
convertible preferred stock (2,538) -- -- (2,538)
--------- -------- --------- ---------
Net income (loss) applicable to
common stockholders $ 6,229 $ (5,539) $(115,391) $(114,701)
========= ======== ========= =========
Net income (loss) applicable to common stockholders
per share:
Basic $ 0.14 $ (2.29)
Diluted $ 0.12 $ (2.29)
Weighted average shares outstanding:
Basic 44,601 5,555 (q) 50,156
Diluted 52,270 (2,114)(q) 50,156
23
25
MACROMEDIA, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED
---------------------------
DECEMBER 31, SEPTEMBER 30,
2000 2000 PRO FORMA
MACROMEDIA ALLAIRE ADJUSTMENTS COMBINED
---------- ------------- ----------- ----------
Revenues $ 300,523 $ 89,242 $ (936)(l) $ 388,829
Cost of revenues 32,237 19,117 (936)(l) 50,418
--------- -------- -------- ---------
Gross profit 268,286 70,125 -- 338,411
Operating expenses
Sales and marketing 117,739 47,240 -- 164,979
Research and development 84,223 17,180 -- 101,403
General and administrative 29,430 11,821 -- 41,251
Acquisition related expenses 4,774 -- -- 4,774
Non-cash compensation 5,900 185 (41)(n) 6,044
Amortization of intangibles 1,558 744 85,992 (o) 88,294
--------- -------- -------- ---------
Total operating expenses 243,624 77,170 85,951 406,745
--------- -------- -------- ---------
Operating income (Loss) 24,662 (7,045) (85,951) (68,334)
Interest and investment income, net 10,411 5,352 -- 15,763
Loss on investment (5,000) -- -- (5,000)
Other 1,080 (119) -- 961
--------- -------- -------- ---------
Total other income (loss) 6,491 5,233 -- 11,724
Minority Interest 15,336 -- -- 15,336
--------- -------- -------- ---------
Income (loss) before taxes 46,489 (1,812) (85,951) (41,274)
Provision (benefit) for income taxes 11,341 89 (634)(p) 10,796
--------- -------- -------- ---------
Net income $ 35,148 $ (1,901) $(85,317) $ (52,070)
========= ======== ======== =========
Net income (loss) applicable to common
stockholders per share:
Basic $ 0.70 $ (0.93)
Diluted $ 0.62 $ (0.93)
Weighted average shares outstanding:
Basic 50,369 -- 5,555 (q) 55,924
Diluted 56,625 (701)(q) 55,924
24
26
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
On March 20, 2001, Macromedia acquired all the outstanding common stock,
options and warrants of Allaire in a business combination accounted for under
the purchase method. The unaudited pro forma combined condensed financial
statements reflect the issuance of 0.2 shares of Macromedia common stock and
$3.00 in cash in exchange for each Allaire share outstanding, as stated in the
merger document. In addition, Macromedia issued options and warrants to purchase
0.3414 of a share of Macromedia common stock in exchange for each Allaire
outstanding stock option and warrant, based on an exchange ratio calculated at
the time of the merger. At the merger date, Macromedia issued 5.6 million shares
to Allaire stockholders in exchange for shares outstanding and issued 4.2
million unvested and vested options and warrants in exchange for all outstanding
Allaire options and warrants. The following table presents the components of the
purchase price (in thousands):
PURCHASE PRICE
Common stock issued ................................................ $214,579
Cash consideration ................................................ 83,331
--------
Acquisition value ....................................... 297,910
Fair value of Allaire's options and warrants assumed .............. 123,027
Transaction costs ................................................. 7,073
--------
Total assumed purchase price ...................................... 428,010
========
The fair value of Macromedia's common stock of $214.6 million was
determined as the average market price from January 11 to January 18, 2000,
which includes two trading days prior and two trading days subsequent to the
public announcement of the merger. The fair value of the common stock options
and warrants was estimated using the Black-Scholes option pricing model with the
following weighted-average assumptions: risk-free interest rate of 5.7%,
expected life of 3.5 years, expected dividend rate of 0%, and volatility of 90%.
NOTE 2. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
PURCHASE PRICE ALLOCATION -- The pro forma combined condensed balance sheet
gives effect to the merger as if it occurred on December 31, 2000 for both
Macromedia and Allaire. The purchase price is allocated to the tangible assets
and liabilities assumed on the basis of their respective fair values as of the
balance sheet date, intangible assets acquired, and in-process research and
development. Intangible assets, including goodwill, will be amortized over three
years.
The allocation of the purchase price to the net assets acquired is presented
below (in thousands):
NET ASSETS ACQUIRED
Book value of net assets of Allaire ................................ $ 97,389
Pro forma adjustments to reflect fair value ........................ 2,824
--------
Fair value of net assets of Allaire ................................ 100,213
Identified intangible assets:
Developed technology .......................................... 34,000
Assembled workforce ........................................... 24,000
Tradename ..................................................... 5,000
In-process research and development ................................ 18,000
Goodwill ........................................................... 246,797
--------
Total net assets acquired .......................................... $428,010
========
25
27
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The pro forma adjustments to reflect fair value consist of the following (in
thousands):
Reduction in Allaire's deferred revenue arising from the estimated calculation
of Macromedia's obligation to perform services equal to the expected costs,
plus a normal profit margin ....................................................... $ 24,009
Write off of Allaire's historical goodwill and other
intangibles from previous acquisitions ........................................... (12,712)
Accrued severance and facility exit costs .............................................. (4,755)
Allaire's accrued acquisition expenses ................................................. (2,562)
Adjusting entries to reflect fair value of assets acquired ............................. (1,156)
--------
Total pro forma adjustments to reflect fair value ...................................... $ 2,824
========
The $18.0 million in-process research and development charge is the result of
Allaire's ongoing projects at the time of the purchase, including the
development of the ColdFusion Server 5.0 and JRun 4.0 technologies which were
primarily aimed at building various application services on the Java 2
Enterprise Edition platform. The values assigned to the in-process research and
development used established valuation techniques and are the responsibility of
the Company's management. The value of the acquired in-process research and
development was calculated as the estimated future net cash flows factoring in
estimated future net revenues that may be generated from the products. The cash
flows were calculated for an estimated five-year life cycle with costs estimated
to improve over time, assuming that the products were successfully developed and
that the Company was able to effectively manage the product's contributions to
operating results. These cash flows were discounted to their net present value
using a discount factor of approximately 28%, considering the uncertainty
surrounding the successful development of the projects.
To determine the value of the developed technology, the expected future cash
flows attributable to all existing technology were discounted, including
application servers, design tools, and e-business application products. The net
present value analysis took into account risks related to the characteristics
and applications of the technology, existing and future markets, and assessments
of the life cycle stage of the technology.
The value of the assembled work force was derived by estimating the costs to
replace the existing employees, including recruiting, hiring, training, and
incentive costs for each category of employee.
The value of the tradename was determined by considering the assumption that in
lieu of a tradename, the company would be willing to pay a royalty in order to
exploit the related benefits of such tradename.
Goodwill was determined based on the residual difference between the amount paid
and the values assigned to identified tangible and intangible assets.
PRO FORMA ADJUSTMENTS -- The following pro forma adjustments are reflected on
the unaudited pro forma combined condensed balance sheet (in thousands):
(a) To record cash issued to Allaire shareholders upon the merger.
(b) To eliminate intercompany balances between Allaire and Macromedia.
(c) Adjusting entries to reflect fair value of assets acquired.
26
28
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(d) Goodwill and other intangibles is comprised of:
$246,797 To record goodwill
63,000 To record identified intangible assets
To remove Allaire's historical goodwill and other intangibles from previous
(12,712) acquisitions.
--------
$297,085
(e) Accrued liabilities is comprised of:
$ (7,073) To accrue for Macromedia's direct acquisition costs
(2,562) To accrue for Allaire's acquisition costs
(1,230) To record accrued facility exit costs
--------
$(10,865)
(f) To accrue for severance for employees terminated upon acquisition.
(g) To record a reduction in Allaire's deferred revenue arising from the
estimated calculation of Macromedia's obligation to perform services
equal to the expected costs, plus a normal profit margin.
(h) To eliminate Allaire's stockholders equity.
(i) Additional paid-in capital is comprised of:
$214,573 To record common stock issued to Allaire stockholders upon the merger
123,371 To record the fair value of vested stock options and warrants assumed
(142,642) To eliminate Allaire's stockholders equity
--------
$195,302
(j) Deferred compensation is comprised of:
$ 350 To eliminate Allaire's stockholders equity
(344) To record the fair value of unvested stock options assumed
-----
$ 6
(k) Retained earnings (deficit) is comprised of:
$ 45,655 To eliminate Allaire's stockholders equity
(18,000) To write off in-process research and development from the acquisition.
-------
$ 27,655
NOTE 3. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The unaudited pro forma combined condensed statement of operations gives
effect to the merger as if it had occurred at the beginning of the period
presented. The following pro forma adjustments have been made to the historical
financial statements of Macromedia and Allaire based upon assumptions made by
management for the purpose of preparing the unaudited pro forma combined
condensed statement of operations:
(l) To eliminate revenue and cost of revenues between Macromedia and
Allaire. The amount eliminated represents royalties paid by
Macromedia to Allaire.
(m) To reflect the elimination of Allaire's amortization of identified
intangibles from a previous acquisition.
27
29
MACROMEDIA, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(n) The non-cash compensation adjustment is comprised of:
Nine months
Year ended ended
March 31, 2000 December 31, 2000
- -------------- -----------------
To record amortization of deferred
$ 192 $ 144 compensation related to the acquisition.
(263) (185) To eliminate Allaire's stock based compensation.
----- -----
$ (71) $ (41)
===== =====
(o) The amortization of intangibles adjustment is comprised of:
Nine months
Year ended ended
March 31, 2000 December 31, 2000
- -------------- -----------------
Amortization of developed technology, calculated
$11,333 $8,500 as $34,000 amortized over three years.
Amortization of assembled workforce, calculated as
8,000 6,000 $24,000 amortized over three years.
Amortization of tradename, calculated as
1,667 1,250 $5,000 amortized over three years
Amortization of goodwill, calculated as
94,648 70,986 $283,944 amortized over three years.
To eliminate Allaire's amortization of goodwill
-- (744) and other intangibles arising from prior acquisitions.
-------- -------
$115,648 $85,992
======== =======
(p) To reduce income tax expense to reflect a consolidated tax filing with
Allaire and Macromedia.
(q) To reflect the common shares issued as consideration for the merger
and to reduce the number of shares used to calculate the antidilutive net loss
per share as their effects were antidilutive.
28
30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACROMEDIA, INC.
Date: June 4, 2001 By: /s/ Elizabeth A. Nelson
---------------------------------------
Elizabeth A. Nelson
Executive Vice President
and Chief Financial Officer
29