Attached files
| file | filename |
|---|---|
| 8-K/A - STANDARD MICROSYSTEMS 8-K A 11-12-2010 - STANDARD MICROSYSTEMS CORP | form8ka.htm |
| EX-23.1 - EXHIBIT 23.1 - STANDARD MICROSYSTEMS CORP | ex23_1.htm |
| EX-99.1 - EXHIBIT 99.1 - STANDARD MICROSYSTEMS CORP | ex99_1.htm |
EXHIBIT 99.2
Pro Forma Condensed Combined Financial Information for Standard Microsystems Corporation and Subsidiaries (“SMSC” or the “Company”) and Symwave, Inc. (“Symwave”)
Index - Unaudited Pro Forma Condensed Combined Financial Information
Basis of Presentation
The unaudited pro forma condensed combined financial information is based on the assumptions set forth in the notes to such information. The unaudited pro forma adjustments made in the compilation of the unaudited pro forma financial information are based upon available information and assumptions that the Company considers to be reasonable, and have been made solely for purposes of developing such unaudited pro forma financial information for illustrative purposes in compliance with the disclosure requirements of the Securities and Exchange Commission. The unaudited pro forma condensed combined financial information does not purport to be indicative of the results of operations for future periods or the combined financial position or the operating results that would have occurred had the transaction occurred on the dates assumed. The actual operating results for Symwave have been consolidated with the Company's operating results for all periods subsequent to the acquisition date of November 12, 2010.
The unaudited pro forma condensed combined statement of operations included herein does not reflect any potential cost savings or other operating efficiencies that could result from the transaction.
Under the provisions of FASB Accounting Standards Codification Topic 350, “Intangibles — Goodwill and Other” (“ASC 350”), goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to annual or event-based impairment tests. Intangible assets with finite lives are amortized over their estimated useful lives.
The Company did not present a November 30, 2010 unaudited pro forma condensed combined balance sheet as Symwave was included within SMSC’s unaudited condensed consolidated balance sheet as of November 30, 2010 as reported in the Company’s Form 10-Q filed on January 10, 2011.
The unaudited pro forma condensed combined statement of operations of SMSC for the nine months ended November 30, 2010 and the fiscal year ended February 28, 2010 and Symwave for the nine months ended September 30, 2010 and the fiscal year ended December 31, 2009 gives effect to the acquisition of Symwave by SMSC as if it had occurred effective March 1, 2009. These operating results for different fiscal year and nine-month periods may be appropriately combined for pro forma purposes, since the fiscal year-end and nine-month periods are within 93 days of each other, in accordance with Securities and Exchange Commission guidance contained within Regulation S-X.
This unaudited pro forma condensed combined financial information should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended February 28, 2010 filed on April 28, 2010, as well as the Company’s Quarterly Report on Form 10-Q for the three and nine month periods ended November 30, 2010 filed on January 10, 2011 and the audited consolidated financial statements and notes thereto of Symwave included in this report.
Standard Microsystems Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
(In thousands, except per share data)
|
SMSC
For the Year Ended
February 28, 2010
|
Symwave
For the Year Ended
December 31,2009
|
Pro Forma Adjustments
|
Pro Forma Combined
|
|||||||||||||
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Sales and Revenues
|
$ | 307,778 | $ | 1,158 | $ | - | $ | 308,936 | ||||||||
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Cost of goods sold
|
154,855 | 300 | 869 | (a)(d) | 156,024 | |||||||||||
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Gross profit on sales and revenues
|
152,923 | 858 | (869 | ) | 152,912 | |||||||||||
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Operating expenses:
|
||||||||||||||||
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Research and development
|
77,702 | 6,862 | - | 84,564 | ||||||||||||
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Selling, general and administrative
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85,066 | 4,792 | 186 | (a) | 90,044 | |||||||||||
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Restructuring charges
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2,123 | - | - | 2,123 | ||||||||||||
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Settlement charge, net
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2,019 | - | - | 2,019 | ||||||||||||
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Loss from operations
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(13,987 | ) | (10,796 | ) | (1,055 | ) | (25,838 | ) | ||||||||
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Other income (expense):
|
||||||||||||||||
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Interest income
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981 | 11 | - | 992 | ||||||||||||
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Interest expense
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(163 | ) | (37 | ) | - | (200 | ) | |||||||||
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Other income (expense), net
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(514 | ) | - | - | (514 | ) | ||||||||||
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Loss before income taxes
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(13,683 | ) | (10,822 | ) | (1,055 | ) | (25,560 | ) | ||||||||
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Benefit from income taxes
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(5,705 | ) | - | (410 | )(e) | (6,115 | ) | |||||||||
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Net loss
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$ | (7,978 | ) | $ | (10,822 | ) | $ | (645 | ) | $ | (19,445 | ) | ||||
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Basic net loss per share:
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$ | (0.36 | ) | $ | (0.88 | ) | ||||||||||
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Diluted net loss per share:
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$ | (0.36 | ) | $ | (0.88 | ) | ||||||||||
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Shares Used in the Calculation of Net Loss Per Share:
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||||||||||||||||
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Basic
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22,133 | 22,133 | ||||||||||||||
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Diluted
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22,133 | 22,133 | ||||||||||||||
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.
Standard Microsystems Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
(In thousands, except per share data)
|
SMSC
For Nine Months Ended
November 30, 2010
|
Symwave
For Nine Months Ended
September 30, 2010
|
Pro Forma Adjustments
|
Pro Forma Combined
|
|||||||||||||
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Sales and Revenues
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$ | 308,268 | $ | 4,439 | $ | - | $ | 312,707 | ||||||||
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Cost of goods sold
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142,061 | 3,168 | 395 | (a)(d) | 145,624 | |||||||||||
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Gross profit
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166,207 | 1,271 | (395 | ) | 167,083 | |||||||||||
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Operating expenses (income):
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||||||||||||||||
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Research and development
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72,475 | 5,696 | - | 78,171 | ||||||||||||
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Selling, general and administrative
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74,425 | 3,350 | 24 | (a) | 77,799 | |||||||||||
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Restructuring Charges
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1,014 | - | - | 1,014 | ||||||||||||
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Revaluation of contingent acquisition expense
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(626 | ) | - | - |
(626)
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|||||||||||
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Gain on equity investment in Canesta
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(249 | ) | - | - | (249 | ) | ||||||||||
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Impairment loss on equity investment in Symwave
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3,208 | - | (3,208 | )(c) | - | |||||||||||
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Income (loss) from operations
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15,960 | (7,775 | ) | 2,789 | 10,974 | |||||||||||
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Other income (expense):
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||||||||||||||||
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Interest income
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559 | 6 | (93 | )(b) | 472 | |||||||||||
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Interest expense
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(114 | ) | (26 | ) | 26 | (b) | (114 | ) | ||||||||
| Loss on disposal | - | (70 | ) | - | (70 | ) | ||||||||||
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Other income (expense), net
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(475 | ) | 176 | - | (299 | ) | ||||||||||
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Income (loss) before income taxes
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15,930 | (7,689 | ) | 2,722 | 10,963 | |||||||||||
| 7,955 | ||||||||||||||||
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Provision for income taxes
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6,975 | - | 980 | (e) | ||||||||||||
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Net income (loss)
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$ | 8,955 | $ | (7,689 | ) | $ | 1,742 | $ | 3,008 | |||||||
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Basic net income per share:
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$ | 0.40 | $ | 0.13 | ||||||||||||
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Diluted net income per share:
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$ | 0.39 | $ | 0.13 | ||||||||||||
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Shares Used in the Calculation of Net Income Per Share:
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||||||||||||||||
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Basic
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22,586 | 22,586 | ||||||||||||||
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Diluted
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22,969 | 22,969 | ||||||||||||||
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.
Standard Microsystems Corporation and Subsidiaries
Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. Summary of Transaction
On November 12, 2010 SMSC completed the acquisition of 100% of the outstanding capital stock of Symwave, Inc. The total estimated purchase price was allocated to the net tangible and intangible assets acquired, based upon their fair values as of the completion of the acquisition. SMSC made an initial $5.2 million investment in Symwave in fiscal 2010, resulting in an equity stake upon conversion of their preferred stock investment of approximately 14 percent, and in fiscal 2011 provided $3.1 million in bridge financing to Symwave. At acquisition, the initial investment was revalued to $2.0 million and an impairment loss of $3.2 million was recorded within income from operations. The terms of the purchase agreement provide for quarterly cash payments to former Symwave shareholders upon achievement of certain revenue and gross profit margin goals. No cash was paid at acquisition and SMSC recorded a $3.1 million liability for contingent consideration. The Company performs a quarterly revaluation of contingent consideration and records the change as a component of operating income. The fair value of the initial equity investment of $2.0 million was estimated by applying the income approach. Key assumptions include a discount rate of 15 percent and probability-adjusted level of quarterly revenues and gross profit margins.
2. Consideration Paid, Assets Acquired and Liabilities Assumed
The following table sets forth the components of the purchase price (in millions):
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Total Consideration at Fair Value at Acquisition date
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|
|
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|
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Fair value of initial investment in Symwave
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$
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2.0
|
||
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Assumption of liability for overdue accounts payable
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4.1
|
|||
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Assumption of liability for notes payable
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3.2
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|||
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Liability for contingent consideration
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3.1
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|||
|
|
$
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12.4
|
|
|
The following table summarizes the allocation of the purchase price (in millions):
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Cash and cash equivalents
|
|
$
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1.5
|
|
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Inventories
|
|
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3.2
|
|
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Accounts receivable
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|
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3.3
|
|
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Other current assets
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0.3
|
|
||
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Fixed assets
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|
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2.0
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|
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Customer relationships
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|
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0.3
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|
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Trade name
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|
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0.2
|
|
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Technology
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|
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3.6
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|
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Goodwill (all non-deductible for tax purposes)
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|
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3.6
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|
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Accounts payable and accrued liabilities
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|
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(5.3)
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|
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Deferred tax liabilities
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(0.3)
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|||
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$
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12.4
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|
Symwave’s finished goods inventory has been valued at estimated selling prices less the costs of disposal and a reasonable profit allowance for the related selling effort; work in process inventory has been valued at estimated selling prices of the finished goods less costs to complete, costs of disposal, and a reasonable profit allowance for the completing and selling efforts; and raw materials have been valued at current replacement costs. These values initially exceed Symwave’s historical cost by approximately $0.1 million. This value will be recorded as an increase to the carrying value of inventory, and then recorded as a component of cost of goods sold as the underlying inventory is sold.
3. Intangible Assets
The amounts allocated to acquired identifiable intangible assets consists of the following (in millions):
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Existing technologies
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$ | 3.6 | ||
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Customer relationships
|
0.3 | |||
|
Trade name
|
0.2 | |||
| $ | 4.1 |
The estimated fair value attributed to existing technologies was determined based upon a discounted forecast of the estimated net future cash flows to be generated from the technologies using a discount rate of 20%. The estimated fair value of existing technologies will be amortized over a period of 5 years ($60 thousand per month) on a straight-line basis, which approximates the pattern in which the economic benefits of the existing technologies are expected to be realized.
The estimated fair value attributed to customer relationships was determined based on a discounted forecast of the estimated net future cash flows to be generated from the relationships discounted at a rate of 20%. The estimated fair value of the customer relationships will be amortized over a period of 8 years ($3 thousand per month)on a straight-line basis, which approximates the pattern in which the economic benefits of the customer relationships are expected to be realized.
The estimated fair value attributed to the trade name was determined based on a discount rate of 20%. The estimated fair value of the trade name will be amortized over a period of 1 year on a straight-line basis, which approximates the pattern in which the economic benefits of the customer relationships are expected to be realized. Goodwill represents the excess of the purchase price over the fair values of the net tangible and intangible assets. In accordance with the provisions of ASC 350, goodwill is not amortized but will be tested for impairment at least annually.
4. Pro Forma Adjustments
The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:
Unaudited Pro Forma Condensed Combined Statement of Operations:
a) To reflect amortization expense related to the acquired identifiable intangible assets, calculated over the estimated useful lives on a straight-line basis (See Note 3 – Intangible Assets), less related amortization expense included within the operating results of the Company for the period in which Symwave’s results of operations were included in the Company’s results of operations (November, 2010). There was no amortization of intangibles included in Symwave’s results of operations.
b) To eliminate intercompany interest income and expense on bridge loan due to SMSC of $3.1 million and purchase order guarantee outstanding as of September 30, 2010.
c) To eliminate impairment loss on equity investment in Symwave (See Note 1 – Summary of Transaction).
d) To amoritze the value of the inventory step-up adjustment at acquisition for the twelve months ended February 28, 2010 and to eliminate amortization of inventory step-up included in cost of goods sold for the nine months ended Novemeber 30, 2010 (See Note 2 - Consideration Paid, Assets Acquired and Liabilities Assumed).
e) To adjust for taxes at the statutory rate of 36%.