Attached files
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| 8-K - FORM 8-K ITEM 2.01 AND 9.01 (7.7.17) - VERIFONE SYSTEMS, INC. | form8-kitems201and9017717.htm |
Exhibit 99.1
VERIFONE SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On June 30, 2017, we completed the previously announced divestiture of a controlling interest in Verifone Systems (China), Inc., the entity which operates our China business. As a result of the divestiture, the general manager of our China business, Arthur Jiang, acquired 70% of the equity in Verifone China and we will retain a 30% equity interest in the form of non-voting equity that has a liquidation preference of $29 million and that is non-convertible for an initial two year period.
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet, as of April 30, 2017, reflects our financial position as if the divestiture transaction had occurred on that date. The following Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six months ended April 30, 2017 and fiscal year ended October 31, 2016 reflect our results of operations as if the divestiture transaction had occurred on November 1, 2015.
This Unaudited Pro Forma Condensed Consolidated Financial Information and the accompanying notes should be read in conjunction with:
i. The audited Consolidated Financial Statements and the accompanying notes and Management's Discussion and Analysis of the Financial Conditions and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2016, and
ii. The Unaudited Condensed Consolidated Financial Statements and accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-Q for the six months ended April 30, 2017.
The Historical column in the Unaudited Pro Forma Condensed Consolidated Financial Information reflects our historical financial statements for the periods presented and does not reflect any adjustments related to the divestiture transaction.
The China Business column in the Unaudited Pro Forma Condensed Consolidated Financial Information represents the adjustments required to exclude the financial position and results of the China business on a carve-out basis for the periods indicated, including all allocations necessary to operate the business.
The Other Pro Forma Adjustments column represents certain assets, liabilities and previously allocated corporate overhead costs of the China business that will be retained by us, as well as certain adjustments related to the divestiture transaction. The adjustments represent our current best estimates and may differ from the actual adjustments.
The Unaudited Pro Forma Condensed Consolidated Financial Information is presented based on information currently available for information purposes only, and is not intended to represent or be indicative of what our results of operations or financial position would have been had the divestiture transaction occurred on the dates indicated. The Unaudited Pro Forma Condensed Consolidated Financial Information also should not be considered representative of our future results of operations or financial position.
In accordance with Article 11 of SEC Regulation S-X, the Unaudited Pro Forma Condensed Consolidated Financial Information reflects adjustments to the extent they are directly attributable to the divestiture transaction, factually supportable and, for statements of operations purposes, are expected to have a continuing impact on our results of operations.
VERIFONE SYSTEMS, INC. | ||||||||||||||||||||
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS | ||||||||||||||||||||
SIX MONTHS ENDED APRIL 30, 2017 | ||||||||||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) | ||||||||||||||||||||
Historical | China Business | Other Pro Forma Adjustments | Notes | Pro Forma Results | ||||||||||||||||
Net revenues: | ||||||||||||||||||||
Systems | $ | 551,076 | $ | (6,901 | ) | $ | — | $ | 544,175 | |||||||||||
Services | 376,480 | (636 | ) | — | 375,844 | |||||||||||||||
Total net revenues | 927,556 | (7,537 | ) | — | 920,019 | |||||||||||||||
Cost of net revenues: | ||||||||||||||||||||
Systems | 342,611 | (7,684 | ) | — | 334,927 | |||||||||||||||
Services | 240,753 | (667 | ) | — | 240,086 | |||||||||||||||
Total cost of net revenues | 583,364 | (8,351 | ) | — | 575,013 | |||||||||||||||
Gross margin | 344,192 | 814 | — | 345,006 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 107,723 | (3,383 | ) | 327 | A | 104,667 | ||||||||||||||
Sales and marketing | 100,141 | (2,051 | ) | (58 | ) | A | 98,032 | |||||||||||||
General and administrative | 97,558 | (313 | ) | 223 | A | 97,468 | ||||||||||||||
Restructuring and related charges | 70,038 | (366 | ) | — | 69,672 | |||||||||||||||
Amortization of purchased intangible assets | 37,177 | — | — | 37,177 | ||||||||||||||||
Goodwill impairment | 17,384 | — | — | 17,384 | ||||||||||||||||
Total operating expenses | 430,021 | (6,113 | ) | 492 | 424,400 | |||||||||||||||
Operating loss | (85,829 | ) | 6,927 | (492 | ) | (79,394 | ) | |||||||||||||
Interest expense, net | (16,332 | ) | (3 | ) | — | (16,335 | ) | |||||||||||||
Other income (expense), net | 6,574 | (140 | ) | — | 6,434 | |||||||||||||||
Loss before income taxes | (95,587 | ) | 6,784 | (492 | ) | (89,295 | ) | |||||||||||||
Income tax provision | 11,802 | (223 | ) | (93 | ) | B | 11,486 | |||||||||||||
Consolidated net loss | (107,389 | ) | 7,007 | (399 | ) | (100,781 | ) | |||||||||||||
Net loss attributable to noncontrolling interests | (1,499 | ) | — | — | (1,499 | ) | ||||||||||||||
Net loss attributable to VeriFone Systems, Inc. stockholders | (105,890 | ) | 7,007 | (399 | ) | (99,282 | ) | |||||||||||||
Net loss per share attributable to VeriFone Systems, Inc. stockholders: | ||||||||||||||||||||
Basic | $ | (0.95 | ) | $ | (0.89 | ) | ||||||||||||||
Diluted | $ | (0.95 | ) | $ | (0.89 | ) | ||||||||||||||
Weighted average number of shares used in computing net loss per share attributable to VeriFone Systems, Inc. stockholders: | ||||||||||||||||||||
Basic | 111,522 | 111,522 | ||||||||||||||||||
Diluted | 111,522 | 111,522 | ||||||||||||||||||
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial information.
VERIFONE SYSTEMS, INC. | ||||||||||||||||||||
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS | ||||||||||||||||||||
YEAR ENDED OCTOBER 31, 2016 | ||||||||||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) | ||||||||||||||||||||
Historical | China Business | Other Pro Forma Adjustments | Notes | Pro Forma Results | ||||||||||||||||
Net revenues: | ||||||||||||||||||||
Systems | $ | 1,236,361 | $ | (14,590 | ) | $ | — | $ | 1,221,771 | |||||||||||
Services | 755,788 | (1,879 | ) | — | 753,909 | |||||||||||||||
Total net revenues | 1,992,149 | (16,469 | ) | — | 1,975,680 | |||||||||||||||
Cost of net revenues: | ||||||||||||||||||||
Systems | 744,311 | (13,928 | ) | — | 730,383 | |||||||||||||||
Services | 453,527 | (1,514 | ) | — | 452,013 | |||||||||||||||
Total cost of net revenues | 1,197,838 | (15,442 | ) | — | 1,182,396 | |||||||||||||||
Gross margin | 794,311 | (1,027 | ) | — | 793,284 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 207,503 | (9,451 | ) | 1,394 | A | 199,446 | ||||||||||||||
Sales and marketing | 217,039 | (5,232 | ) | 224 | A | 212,031 | ||||||||||||||
General and administrative | 204,552 | (900 | ) | 449 | A | 204,101 | ||||||||||||||
Restructuring and related charges | 41,254 | (130 | ) | — | 41,124 | |||||||||||||||
Litigation settlement and loss contingency expense | 650 | — | — | 650 | ||||||||||||||||
Amortization of purchased intangible assets | 90,534 | — | — | 90,534 | ||||||||||||||||
Total operating expenses | 761,532 | (15,713 | ) | 2,067 | 747,886 | |||||||||||||||
Operating income | 32,779 | 14,686 | (2,067 | ) | 45,398 | |||||||||||||||
Interest expense, net | (34,564 | ) | (11 | ) | — | (34,575 | ) | |||||||||||||
Other income (expense), net | 3,612 | (501 | ) | — | 3,111 | |||||||||||||||
Income before income taxes | 1,827 | 14,174 | (2,067 | ) | 13,934 | |||||||||||||||
Income tax provision | 11,527 | (353 | ) | (385 | ) | B | 10,789 | |||||||||||||
Consolidated net income (loss) | (9,700 | ) | 14,527 | (1,682 | ) | 3,145 | ||||||||||||||
Net loss attributable to noncontrolling interests | (419 | ) | — | — | (419 | ) | ||||||||||||||
Net income (loss) attributable to VeriFone Systems, Inc. stockholders | $ | (9,281 | ) | 14,527 | (1,682 | ) | $ | 3,564 | ||||||||||||
Net income (loss) per share attributable to VeriFone Systems, Inc. stockholders: | ||||||||||||||||||||
Basic | $ | (0.08 | ) | $ | 0.03 | |||||||||||||||
Diluted | $ | (0.08 | ) | $ | 0.03 | |||||||||||||||
Weighted average number of shares used in computing net income (loss) per share attributable to VeriFone Systems, Inc. stockholders: | ||||||||||||||||||||
Basic | 110,829 | 110,829 | ||||||||||||||||||
Diluted | 110,829 | 111,571 | ||||||||||||||||||
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial information.
VERIFONE SYSTEMS, INC. | ||||||||||||||||||
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET | ||||||||||||||||||
AS OF APRIL 30, 2017 | ||||||||||||||||||
(IN THOUSANDS) | ||||||||||||||||||
Historical | China Business | Other Pro Forma Adjustments | Notes | Pro Forma | ||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 134,493 | $ | (1,939 | ) | $ | (4,061 | ) | C | $ | 128,493 | |||||||
Accounts receivable, net | 335,198 | (5,862 | ) | — | 329,336 | |||||||||||||
Inventories | 141,698 | (7,430 | ) | — | 134,268 | |||||||||||||
Prepaid expenses and other current assets | 195,158 | (2,773 | ) | 1,000 | D | 193,385 | ||||||||||||
Total current assets | 806,547 | (18,004 | ) | (3,061 | ) | 785,482 | ||||||||||||
Property and equipment, net | 130,488 | (1,179 | ) | — | 129,309 | |||||||||||||
Purchased intangible assets, net | 261,379 | — | — | 261,379 | ||||||||||||||
Goodwill | 1,069,900 | — | — | 1,069,900 | ||||||||||||||
Deferred tax assets, net | 35,459 | (1,349 | ) | — | 34,110 | |||||||||||||
Other long-term assets | 100,295 | (1,332 | ) | — | E | 98,963 | ||||||||||||
Total assets | $ | 2,404,068 | $ | (21,864 | ) | $ | (3,061 | ) | $ | 2,379,143 | ||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable | $ | 154,940 | $ | (1,213 | ) | $ | — | $ | 153,727 | |||||||||
Accruals and other current liabilities | 245,997 | (2,220 | ) | 519 | B | 244,296 | ||||||||||||
Deferred revenue, net | 109,207 | (889 | ) | — | 108,318 | |||||||||||||
Short-term debt | 74,540 | — | — | 74,540 | ||||||||||||||
Total current liabilities | 584,684 | (4,322 | ) | 519 | 580,881 | |||||||||||||
Long-term deferred revenue, net | 69,705 | (1,613 | ) | — | 68,092 | |||||||||||||
Deferred tax liabilities, net | 100,915 | — | — | 100,915 | ||||||||||||||
Long-term debt | 803,345 | — | — | 803,345 | ||||||||||||||
Other long-term liabilities | 68,623 | (405 | ) | — | 68,218 | |||||||||||||
Total liabilities | 1,627,272 | (6,340 | ) | 519 | 1,621,451 | |||||||||||||
Redeemable noncontrolling interest in subsidiary | 1,579 | — | — | 1,579 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||||
Common stock | 1,118 | — | — | 1,118 | ||||||||||||||
Additional paid-in capital | 1,792,238 | — | — | 1,792,238 | ||||||||||||||
Accumulated deficit | (724,229 | ) | (16,559 | ) | (3,580 | ) | F | (744,368 | ) | |||||||||
Accumulated other comprehensive loss | (318,998 | ) | 1,035 | — | (317,963 | ) | ||||||||||||
Total VeriFone Systems, Inc. stockholders’ equity | 750,129 | (15,524 | ) | (3,580 | ) | 731,025 | ||||||||||||
Noncontrolling interests in subsidiaries | 25,088 | — | 25,088 | |||||||||||||||
Total equity | 775,217 | (15,524 | ) | (3,580 | ) | 756,113 | ||||||||||||
Total liabilities, redeemable noncontrolling interest in subsidiary and equity | $ | 2,404,068 | $ | (21,864 | ) | $ | (3,061 | ) | $ | 2,379,143 | ||||||||
The accompanying notes are an integral part of this unaudited pro forma condensed consolidated financial information.
VERIFONE SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of April 30, 2017 and the Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six months ended April 30, 2017 and for the year ended October 31, 2016 include the following Other Pro Forma Adjustments:
A. | Reflects inclusion of costs and expenses that were historically allocated to the China business and will remain with Verifone’s operations. Certain of these costs may be recoverable prospectively as part of our transfer services agreement with Verifone Systems (China), Inc. |
B. | Reflects the pro forma tax adjustments related to Other Pro Forma Adjustments, which were estimated using applicable statutory rates. |
C. | Represents our cash contribution of $4.1 million. |
D. | Represents the estimated fair value of net intercompany receivables and payables that will be treated as third-party arrangements. |
E. | Reflects the 30% equity investment that we retained in connection with the divestiture transaction. |
F. | Represents adjustments to Retained earnings, as a result of Other Pro Forma Adjustments made per notes B, C, D, and E above. These adjustments reflect a loss of approximately $20.1 million arising from the divestiture transaction. The estimated loss has not been reflected in the Unaudited Pro Forma Condensed Consolidated Statements of Operations as it is considered to be nonrecurring in nature. |
The Unaudited Pro Forma Financial Condensed Consolidated Information and Other Pro Forma Adjustments do not include future costs related to the transfer services agreement, which are not expected to be material.