Attached files
| file | filename |
|---|---|
| EX-99 - EXHIBIT 99.2 - INPHI Corp | ex99-2.htm |
| EX-23 - EXHIBIT 23.1 - INPHI Corp | ex23-1.htm |
| EX-99 - EXHIBIT 99.1 - INPHI Corp | ex99-1.htm |
| 8-K/A - FORM 8-K/A - INPHI Corp | iphi20141106_8ka.htm |
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On October 3, 2014, Inphi Corporation (the Company) completed the acquisition of Cortina Systems, Inc.’s high-speed interconnect and optical transport product lines (Cortina), pursuant to the terms of the Agreement and Plan of Merger dated July 30, 2014 as amended by Amendment No. 1 to the Agreement and Plan of Merger dated September 25, 2014. The Company did not acquire as part of the merger, Cortina Systems, Inc.’s access and digital Home business, which Cortina Systems, Inc. divested prior to the closing of the acquisition.
The following unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of the Company and historical abbreviated financial statements of Cortina after giving effect to the acquisition and applying the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed combined balance sheet is presented as if the merger had occurred on September 30, 2014. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2014 and the twelve months ended December 31, 2013 are presented as if the merger occurred on January 1, 2013.
Pursuant to the purchase method of accounting, the purchase price paid by the Company in connection with the acquisition has been preliminarily allocated to assets acquired and liabilities assumed based on their respective fair values. The Company’s management has determined the preliminary fair value of the intangible assets and tangible assets acquired and liabilities assumed at the pro forma combined balance sheet date. Any differences between the fair value of the consideration issued and the fair value of the assets acquired and liabilities assumed are recorded as goodwill. Since these unaudited pro forma condensed combined financial statements have been prepared based on preliminary estimates of fair values, the actual amounts recorded may differ materially from the information presented.
The pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the dates indicated, nor are they indicative of future operating results or financial position.
The unaudited pro forma condensed combined financial statements do not reflect:
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• |
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the costs to integrate the operations of the Company and Cortina; |
| • | any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the merger; or | ||
| • | the costs necessary to achieve any such cost savings, operating synergies and revenue enhancements. |
The unaudited pro forma condensed combined financial statements should be read in conjunction with (a) accompanying notes to the unaudited pro forma condensed combined financial statements, (b) the Company’s annual report on Form 10-K for the year ended December 31, 2013 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2014 and other filings with the Securities and Exchange Commission, and (c) Cortina Systems, Inc. Infrastructure Business Unit historical abbreviated financial statements and notes thereto filed herewith.
Inphi Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2014
|
Thousands of dollars except per share amounts |
Inphi |
Cortina System’s Inc Infrastructure Business Unit |
Pro Forma |
Inphi |
||||||||||||
|
Assets |
||||||||||||||||
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Current assets: |
||||||||||||||||
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Cash and cash equivalents |
$ | 79,612 | $ | — |
$ |
(52,833)(a) | $ | 26,779 | ||||||||
|
Investments in marketable securities |
39,550 | — | — | 39,550 | ||||||||||||
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Accounts receivable, net |
22,454 | 16,462 | — | 38,916 | ||||||||||||
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Inventories |
9,208 | 9,151 |
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20,931 (b) | 39,290 | |||||||||||
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Deferred tax asset |
907 | — | — | 907 | ||||||||||||
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Income tax receivable |
199 | — | — | 199 | ||||||||||||
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Prepaid expenses and other current assets |
3,256 | 1,120 | — | 4,376 | ||||||||||||
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Total current assets |
155,186 | 26,733 | (31,902 | ) | 150,017 | |||||||||||
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Property and equipment, net |
31,372 | 3,506 |
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3,198(c) | 38,076 | |||||||||||
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Goodwill |
5,875 | — |
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2,669(d) | 8,544 | |||||||||||
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Identifiable intangible assets |
1,027 | — |
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81,370(e) | 82,397 | |||||||||||
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Deferred tax charge |
3,496 | — | — | 3,496 | ||||||||||||
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Other assets, net |
4,335 | 821 | — | 5,156 | ||||||||||||
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Total assets |
$ | 201,291 | $ | 31,060 | $ | 55,335 | $ | 287,686 | ||||||||
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Liabilities and Stockholders’ Equity |
||||||||||||||||
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Current liabilities: |
||||||||||||||||
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Accounts payable |
$ | 10,787 | $ | 3,161 | $ | — | $ | 13,948 | ||||||||
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Deferred revenue |
3,349 | — | — | 3,349 | ||||||||||||
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Deferred margin on shipments to distributors |
— | 2,940 |
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(2,940)(f) | — | |||||||||||
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Accrued employee expenses |
5,501 | 1,483 | — | 6,984 | ||||||||||||
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Other accrued expenses |
2,631 | 1,319 | — | 3,950 | ||||||||||||
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Other current liabilities |
705 | 173 | — | 878 | ||||||||||||
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Total current liabilities |
22,973 | 9,076 | (2,940 | ) | 29,109 | |||||||||||
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Other long-term liabilities |
6,124 | 1,780 |
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656(g) | 8,560 | |||||||||||
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Total liabilities |
29,097 | 10,856 | (2,284 | ) | 37,669 | |||||||||||
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Stockholders’ equity: |
||||||||||||||||
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Acquired net assets and liabilities |
— | 20,204 | (20,204)(h) | — | ||||||||||||
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Common stock |
32 | — |
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5(i) | 37 | |||||||||||
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Additional paid-in capital |
243,096 | — |
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77,953(i) | 321,049 | |||||||||||
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Accumulated deficit |
(71,800 | ) | — | (135)(j) | (71,935 | ) | ||||||||||
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Accumulated other comprehensive income |
866 | — | — | 866 | ||||||||||||
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Total stockholders’ equity |
172,194 | 20,204 | 57,619 | 250,017 | ||||||||||||
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Total liabilities and stockholders’ equity |
$ | 201,291 | $ | 31,060 | $ | 55,335 | $ | 287,686 | ||||||||
Inphi Corporation and Subsidiaries
Unaudited Pro Forma Combined Statement of Operations
For the Nine Months Ended September 30, 2014
|
Thousands of dollars except per share amounts |
Inphi |
Cortina System’s Inc Infrastructure Business Unit |
Pro Forma |
Inphi |
||||||||||||
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Revenue |
$ | 101,389 | $ | 67,974 | — | $ | 169,363 | |||||||||
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Cost of revenue |
36,362 | 17,773 |
8,684 (A) |
62,819 | ||||||||||||
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Gross profit |
65,027 | 50,201 | (8,684 | ) | 106,544 | |||||||||||
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Operating expenses: |
||||||||||||||||
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Research and development |
45,263 | 26,747 |
173 (B) |
72,183 | ||||||||||||
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Sales, general and administrative |
24,058 | 13,436 |
(665) (C) |
36,829 | ||||||||||||
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Amortization of intangible assets |
52 | — |
734(D) |
786 | ||||||||||||
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Total operating expenses |
69,373 | 40,183 | 242 | 109,798 | ||||||||||||
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Income (loss) from operations |
(4,346 | ) | 10,018 | (8,926 | ) | (3,254 | ) | |||||||||
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Other income (expense) |
577 | — |
(346)(E) |
231 | ||||||||||||
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Income (loss) before income taxes |
(3,769 | ) | 10,018 | (9,272 | ) | (3,023 | ) | |||||||||
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Provision for income taxes |
1,449 | — |
(35)(F) |
1,414 | ||||||||||||
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Net income (loss) |
$ | (5,218 | ) | $ | 10,018 | $ | (9,237 | ) | $ | (4,437 | ) | |||||
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Earnings per share: |
||||||||||||||||
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Basic |
$ | (0.17 | ) | $ | (0.12 | ) | ||||||||||
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Diluted |
$ | (0.17 | ) | $ | (0.12 | ) | ||||||||||
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Weighted-average shares used in computing earnings per share: |
||||||||||||||||
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Basic |
31,247,483 |
5,274,625(G) |
36,522,108 | |||||||||||||
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Diluted |
31,247,483 |
5,274,625(G) |
36,522,108 | |||||||||||||
Inphi Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2013
|
Thousands of dollars except per share amounts |
Inphi |
Cortina System’s Inc. Infrastructure Business Unit Historical |
Pro Forma |
Inphi |
||||||||||||
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Revenue |
$ | 102,664 | $ | 89,302 | $ | — | $ | 191,966 | ||||||||
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Cost of revenue |
37,095 | 25,898 |
32,559 (A) |
95,552 | ||||||||||||
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Gross profit |
65,569 | 63,404 | (32,559 | ) | 96,414 | |||||||||||
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Operating expenses: |
||||||||||||||||
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Research and development |
50,516 | 26,933 |
285 (B) |
77,734 | ||||||||||||
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Sales, general and administrative |
27,355 | 18,336 |
512(C) |
46,203 | ||||||||||||
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Amortization of intangible assets |
— | 547 |
432(D) |
979 | ||||||||||||
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Total operating expenses |
77,871 | 45,816 | 1,229 | 124,916 | ||||||||||||
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Income (loss) from operations |
(12,302 | ) | 17,588 | (33,788 | ) | (28,502 | ) | |||||||||
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Other income (expense) |
876 | — |
(487)(E) |
389 | ||||||||||||
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Income (loss) before income taxes |
(11,426 | ) | 17,588 | (34,275 | ) | (28,113 | ) | |||||||||
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Provision for income taxes |
1,752 | — |
525(F) |
2,277 | ||||||||||||
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Net income (loss) |
$ | (13,178 | ) | $ | 17,588 | $ | (34,800 | ) | $ | (30,390 | ) | |||||
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Earnings per share: |
||||||||||||||||
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Basic |
$ | (0.45 | ) | $ | (0.87 | ) | ||||||||||
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Diluted |
$ | (0.45 | ) | $ | (0.87 | ) | ||||||||||
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Weighted-average shares used in computing earnings per share: |
||||||||||||||||
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Basic |
29,493,005 |
5,274,625(G) |
34,767,630 | |||||||||||||
|
Diluted |
29,493,005 |
5,274,625(G) |
34,767,630 | |||||||||||||
Inphi Corporation
Notes to the Unaudited Pro Forma Combined Financial Statements
(All tabular dollar amounts in thousands)
1. General
On October 3, 2014, Inphi Corporation (the Company) completed the acquisition of Cortina Systems, Inc.’s high-speed interconnect and optical transport product lines (Cortina) for approximately $52.7 million in cash and approximately 5.3 million shares of the Company’s common stock, pursuant to the terms of the Agreement and Plan of Merger dated July 30, 2014 as amended by Amendment No. 1 to the Agreement and Plan of Merger dated September 25, 2014. The Company did not acquire as part of the merger, Cortina Systems, Inc.’s access and digital Home business, which Cortina Systems, Inc. divested prior to the closing of the acquisition.
The preliminary fair value of consideration transferred to acquire Cortina was approximately $130.7 million and consisted of the following:
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Cash consideration |
$ | 52,698 | ||
|
Issuance of common stock |
77,958 | |||
| $ | 130,656 |
The following table summarizes the preliminary estimated fair value of tangible and intangible assets acquired and liabilities assumed as of the date of acquisition:
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Net assets acquired: |
||||
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Receivables |
$ | 15,283 | ||
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Inventories |
30,001 | |||
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Other current assets |
1,151 | |||
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Property and equipment |
6,704 | |||
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Identifiable intangible assets |
81,370 | |||
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Other noncurrent assets |
821 | |||
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Accounts payable and accrued expenses |
(5,597 | ) | ||
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Other long-term liabilities |
(1,778 | ) | ||
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Deferred tax liabilities, net |
(656 | ) | ||
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Total identifiable net assets |
127,299 | |||
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Goodwill |
3,357 | |||
| $ | 130,656 |
The goodwill is primarily attributable to the assembled workforce of Cortina. The acquisition was structured as a stock acquisition for income tax purposes. Therefore, none of the asset step-up or asset recognition required by purchase accounting, including the goodwill described above, is deductible for tax purposes.
The following table summarizes the estimated fair value of intangible assets and their estimated useful lives as of the date of acquisition:
|
Estimated Fair Value |
Estimated Useful Life |
|||||||
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Developed technology |
$ | 70,860 | 5-8 | |||||
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Customer relationships |
7,950 | 10 | ||||||
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Trade name |
920 | 5 | ||||||
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In-process research and development |
1,640 | |||||||
| $ | 81,370 | |||||||
Inphi Corporation
Notes to the Unaudited Pro Forma Combined Financial Statements
(All tabular dollar amounts in thousands)
The preliminary estimates of fair value and useful life will likely be different from the final acquisition accounting, and the difference could have a material impact on the accompanying unaudited pro forma condensed financial statements.
Developed technology was valued using the multi-period excess earnings method under the income approach. This method involves discounting the direct cash flow expected to be generated by the technologies over their remaining lives, net of returns on contributory assets. Customer relationships were valued using the incremental cash flow approach which involved discounting management’s estimate of the incremental revenues afforded by having the existing customer relationships in place as of the acquisition date, net of operating expense, taxes and returns on contributory assets. Trade name was valued based on application of relief-from-royalty approach under the income approach. This method is based on the application of a royalty rate to forecasted revenue. In-process research and development was valued using the multi-period excess earnings method under the income approach, with the additional inclusion of estimated costs required to complete the projects.
The Company incurred acquisition costs of $1.1 million which were included in sales, general and administrative expense in the Company’s condensed consolidated statement of operations for the nine months ended September 30, 2014.
On October 16, 2014, the Compensation Committee of the Board of Directors granted one-time employment restricted stock unit awards of 1,000,000 shares to certain Cortina employees who entered employment with the Company starting at close of the acquisition. The awards vest over four years with vesting contingent upon continuous service. The stock-based compensation expense related to these restricted stock units was not included as a pro forma adjustment.
2. Preliminary Pro Forma Financial Statement Adjustments
The Unaudited Pro Forma Condensed Combined Balance Sheet has been adjusted as follows:
|
(a) |
Cash – The components of pro forma adjustments reflect the use of cash to purchase Cortina as follows: |
|
Cash consideration |
$ | (52,698 | ) | |
|
Transaction fees |
(135 | ) | ||
| $ | (52,833 | ) |
|
(b) |
Adjustment for step-up in fair value of inventory acquired from Cortina. |
|
(c) |
Adjustment for step-up in fair value of property and equipment acquired from Cortina. |
|
(d) |
Goodwill associated with Cortina acquisition. |
|
(e) |
Adjustment for estimated fair value of identifiable intangible assets acquired from Cortina. |
|
(f) |
Adjustment to write-off deferred margin on shipments to distributors. |
|
(g) |
Adjustment to record deferred taxes as a result of recording the acquired assets and assumed liabilities of Cortina at their fair value. | |
| Cortina has recorded provisions for uncertain tax positions. Income taxes continue to be accounted for under the guidance of ASC Topic 740, Accounting for Income Taxes, which includes accounting for uncertainty in income taxes. For the purpose of these unaudited pro forma condensed combined financial statements, the Company has not adjusted Cortina’s recorded book values for uncertain tax positions. This assessment is preliminary and subject to change. |
|
(h) |
Eliminate acquired net assets and liabilities of Cortina. |
|
(i) |
To record common stock issued as part of consideration of Cortina acquisition. |
|
(j) |
Estimated transaction fees from Cortina acquisition. |
Inphi Corporation
Notes to the Unaudited Pro Forma Combined Financial Statements
(All tabular dollar amounts in thousands)
The Unaudited Pro Forma Condensed Combined Statement of Operations has been adjusted as follows:
|
(A) |
Cost of revenue – The components of this adjustment are as follows: |
|
Nine Months Ended September 30, 2014 |
Year Ended December 31, 2013 |
|||||||
|
Amortization of intangible assets |
$ | 8,536 | $ | 11,381 | ||||
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Amortization of step-up in fair value of inventory acquired from Cortina |
— | 20,931 | ||||||
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Adjustment to depreciation expense |
148 | 247 | ||||||
| $ | 8,684 | $ | 32,559 | |||||
|
(B) |
Research and development – The components of this adjustment are as follows: |
|
Nine Months Ended September 30, 2014 |
Year Ended December 31, 2013 |
|||||||
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Adjustment to depreciation expense |
$ | 173 | $ | 285 | ||||
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(C) |
Sales, general and administrative – The components of this adjustment are as follows: |
|
Nine Months Ended September 30, 2014 |
Year Ended December 31, 2013 |
|||||||
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Eliminate acquisition costs |
$ | (1,091 | ) | $ | — | |||
|
Adjustment to depreciation expense |
426 | 512 | ||||||
| $ | (665 | ) | $ | 512 | ||||
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(D) |
Amortization of intangible assets – The components of this adjustment are as follows: |
|
Nine Months Ended September 30, 2014 |
Year Ended December 31, 2013 |
|||||||
|
Eliminate Cortina’s historical intangible asset amortization |
$ | — | $ | (547 | ) | |||
|
Amortization of intangible assets |
734 | 979 | ||||||
| $ | 734 | $ | 432 | |||||
|
(E) |
Other income (expense) – The components of this adjustment are as follows: |
|
Nine Months Ended September 30, 2014 |
Year Ended December 31, 2013 |
|||||||
|
Reduction in interest income related to the cash consideration paid |
$ | (346 | ) | $ | (487 | ) | ||
Inphi Corporation
Notes to the Unaudited Pro Forma Combined Financial Statements
(All tabular dollar amounts in thousands)
(F) Provision for income tax – The components of this adjustment are as follows:
|
Nine Months Ended September 30, 2014 |
Year Ended December 31, 2013 |
|||||||
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Income tax adjustment |
$ | (35 | ) | $ | 525 | |||
The effective tax rate of the combined company could be significantly different (either higher or lower) depending on post-acquisition activities, including repatriation decisions, cash needs and the geographical mix of income.
(G) Increase in common stock outstanding as part of consideration for the Cortina acquisition.
8