ther is a dochtml October 18, 2012 - EXHIBIT - 8-K/A: Current report filing | Microchip Technology Incorporated (MCHP)

Form: 8-K/A

Current report filing

October 18, 2012

Documents



EXHIBIT 99.1

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet and statements of operations are presented to give effect to the acquisition of Standard Microsystems Corporation (“Target”) by Microchip Technology Incorporated (“Company”). The pro forma information was prepared based on the historical financial statements and related notes of the Company and Target (which are incorporated by reference in this document), as adjusted for the pro forma impact of applying the purchase method of accounting in accordance with Generally Accepted Accounting Principles in the United States (“US GAAP”). The pro forma adjustments are based upon available information and assumptions that the Company believes are reasonable. The allocation of the purchase price of the Target acquisition reflected in these unaudited pro forma combined financial statements has been based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. The pro forma adjustments are therefore preliminary and have been prepared to illustrate the estimated effect of the acquisition.  
The unaudited pro forma combined balance sheet has been prepared to reflect the transaction as of June 30, 2012. The unaudited pro forma combined statements of operations combine the results of operations of the Company and Target for the fiscal year ended March 31, 2012 and the three months ended June 30, 2012 as if the transaction had occurred on April 1, 2011.
The unaudited pro forma combined financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been achieved had the Company and Target been a combined company during the respective periods presented. These unaudited pro forma combined financial statements should be read in conjunction with the Company’s historical consolidated financial statements and related notes included in its Form 10-K for the fiscal year ended March 31, 2012 filed on May 30, 2012 and in its Form 10-Q for the period ended June 30, 2012 filed on August 9, 2012 as well as Target’s historical consolidated financial statements and related notes included in its Form 10-K for the fiscal year ended February 29, 2012 filed on April 23, 2012 and in its Form 10-Q for the period ended May 31, 2012 filed on July 3, 2012.
The unaudited pro forma combined financial statements were prepared using the purchase method of accounting with the Company treated as the acquiring entity. Accordingly, the aggregate value of the consideration paid by the Company to complete the acquisition will be allocated to the assets acquired and liabilities assumed from Target based upon their estimated fair values on the closing date of the acquisition. As of the date of this Form 8-K/A, the Company has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from Target and the related allocations of purchase price, nor has the Company identified all adjustments necessary to conform Target’s accounting policies to the Company’s accounting policies. Additionally, a final determination of the fair value of assets acquired and liabilities assumed from Target will be based on the actual net tangible and intangible assets and liabilities of Target that existed as of the closing date. Accordingly, the pro forma purchase price adjustments presented herein are preliminary, and may not reflect any final purchase price adjustments made. These pro forma purchase price adjustments have been made solely for the purpose of providing the unaudited pro forma combined financial statements required pursuant to Item 9.01 of Form 8-K.  The Company estimated the fair value of Target’s assets and liabilities based on discussions with Target’s management, due diligence and preliminary work performed by third-party valuation specialists. As the final valuations are being performed, increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments, which may result in material differences from the information presented herein.
The Company expects to incur costs and realize benefits associated with integrating the operations of the Company and Target.  The unaudited pro forma combined financial statements do not reflect the costs of any integration activities or any benefits that may result from operating efficiencies or revenue synergies.


1


MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
(in thousands, except share and per share amounts)
(unaudited)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Microchip
 
SMSC
 
Total
 
 
Pro Forma
 
 
June 30,
 
May 31,
 
Pro Forma
 
 
June 30,
 
 
2012
 
2012
 
Adjustments
 
 
2012
Cash and cash equivalents
$
779,848

$
161,824

$
(312,701
)
(a)
$
628,971

Short-term investments
 
881,913

 
-

 
-

 
 
881,913

Accounts receivable, net
 
174,685

 
60,399

 
-

 
 
235,084

Inventories
 
221,481

 
37,623

 
50,000

(b)
 
309,104

Prepaid expenses
 
25,588

 
-

 
-

 
 
25,588

Deferred tax assets
 
94,968

 
19,610

 
4,000

(c)
 
118,578

Other current assets
 
50,815

 
9,496

 
-

 
 
60,311

Total current assets
 
2,229,298

 
288,952

 
(258,701
)
 
 
2,259,549

 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
 
506,229

 
62,063

 
-

 
 
568,292

Long-term investments
 
159,476

 
27,647

 
-

 
 
187,123

Goodwill
 
102,193

 
113,050

 
31,042

(d)
 
246,285

Intangible assets, net
 
110,257

 
27,960

 
490,840

(e)
 
629,057

Other assets
 
37,387

 
11,790

 
-

 
 
49,177

Total assets
$
3,144,840

$
531,462

$
263,181

 
$
3,939,483

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
Accounts payable
$
52,646

$
21,354

$
-

 
$
74,000

Accrued liabilities
 
86,550

 
79,209

 
(26,982
)
(f)
 
138,777

Deferred income on shipments to distributors
 
110,793

 
18,659

 
(18,659
)
(g)
 
110,793

Total current liabilities
 
249,989

 
119,222

 
(45,641
)
 
 
323,570

 
 
 
 
 
 
 
 
 
 
Junior convertible debentures
 
357,355

 
-

 
-

 
 
357,355

Long-term income tax payable
 
73,261

 
-

 
58,622

(c)
 
131,883

Deferred tax liability
 
416,980

 
-

 
35,000

(c)
 
451,980

Line of credit
 
-

 
-

 
600,000

(a)
 
600,000

Other long-term liabilities
 
29,265

 
20,540

 
-

 
 
49,805

 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
Preferred stock
 
-

 
-

 
-

 
 
-

Common stock
 
194

 
2,898

 
(2,898
)
(h)
 
194

Additional paid-in capital
 
1,269,607

 
399,833

 
(392,933
)
(h)
 
1,276,507

Retained earnings
 
1,510,326

 
120,790

 
(120,790
)
(h)
 
1,510,326

Accumulated other comprehensive income (loss)
 
2,963

 
1,585

 
(1,585
)
(h)
 
2,963

Treasury stock, at cost
 
(765,100
)
 
(133,406
)
 
133,406

(h)
 
(765,100
)
Total stockholders' equity
 
2,017,990

 
391,700

 
(384,800
)
 
 
2,024,890

Total liabilities and stockholders' equity
$
3,144,840

$
531,462

$
263,181

 
$
3,939,483


2



MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Microchip
Twelve Months Ended March 31,
 
SMSC
Twelve Months Ended February 29,
 
Total
Pro Forma Adjustments
 
 
Pro Forma Twelve Months Ended
March 31,
 
 
2012
 
2012
 
 
 
2012
Net sales
$
1,383,176

$
412,104

$
(10,000
)
(a)
$
1,785,280

Cost of sales
 
590,782

 
196,446

 
71,371

(b)
 
858,599

Gross profit
 
792,394

 
215,658

 
(81,371
)
 
 
926,681

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
 
182,650

 
100,350

 
5,543

(c)
 
288,543

Selling, general and administrative
 
212,391

 
86,706

 
44,874

(d)
 
343,971

Special charges
 
837

 
608

 
-

 
 
1,445

 
 
395,878

 
187,664

 
50,417

 
 
633,959

 
 
 
 
 
 
 
 
 
 
Operating income
 
396,516

 
27,994

 
(131,788
)
 
 
292,722

Losses on equity method investments
 
(195
)
 
-

 
-

 
 
(195
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income
 
17,992

 
301

 
-

 
 
18,293

Interest expense
 
(34,266
)
 
(155
)
 
(12,000
)
(e)
 
(46,421
)
Other, net
 
(352
)
 
86

 
-

 
 
(266
)
Income before income taxes
 
379,695

 
28,226

 
(143,788
)
 
 
264,133

Income tax provision
 
42,990

 
17,564

 
(19,964
)
(f)
 
40,590

Net income
$
336,705

$
10,662

$
(123,824
)
 
$
223,543

 
 
 
 
 
 
 
 
 
 
Basic net income per common share
$
1.76

 
 
 
 
 
$
1.16

Diluted net income per common share
$
1.65

 
 
 
 
 
$
1.09

Basic common shares outstanding
 
191,283

 
 
 
 
 
 
192,083

Diluted common shares outstanding
 
203,519

 
 
 
 
 
 
204,319









3


MICROCHIP TECHNOLOGY INCORPORATED AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Microchip
Three Months Ended June 30,
 
SMSC
Three Months Ended May 31,
 
Total Pro Forma Adjustments
 
 
Pro Forma Three Months Ended June 30,
 
 
2012
 
2012
 
 
 
 
2012
Net sales
$
352,134

$
103,078

$
-

 
$
455,212

Cost of sales
 
149,055

 
46,902

 
4,143

(b)
 
200,100

Gross profit
 
203,079

 
56,176

 
(4,143
)
 
 
255,112

 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
Research and development
 
48,826

 
31,956

 
(5,296
)
(c)
 
75,486

Selling, general and administrative
 
57,920

 
44,202

 
(12,386
)
(d)
 
89,736

Special charges
 
-

 
(794
)
 
-

 
 
(794
)
 
 
106,746

 
75,364

 
(17,682
)
 
 
164,428

 
 
 
 
 
 
 
 
 
 
Operating income
 
96,333

 
(19,188
)
 
13,539

 
 
90,684

Losses on equity method investments
 
(121
)
 
-

 
-

 
 
(121
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest income
 
4,332

 
40

 
-

 
 
4,372

Interest expense
 
(9,148
)
 
(28
)
 
(3,000
)
(e)
 
(12,176
)
Other, net
 
(532
)
 
(70
)
 
-

 
 
(602
)
Income before income taxes
 
90,864

 
(19,246
)
 
10,539

 
 
82,157

Income tax provision
 
12,154

 
(2,083
)
 
3,185

(f)
 
13,256

Net income
$
78,710

$
(17,163
)
$
7,354

 
$
68,901

 
 
 
 
 
 
 
 
 
 
Basic net income per common share
$
0.41

 
 
 
 
 
$
0.35

Diluted net income per common share
$
0.39

 
 
 
 
 
$
0.34

Basic common shares outstanding
 
193,452

 
 
 
 
 
 
194,252

Diluted common shares outstanding
 
203,700

 
 
 
 
 
 
204,500





4


NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

Adjustments to the pro forma combined balance sheet:

(a) This pro forma adjustment reflects the pro forma amount of cash paid for the transaction, less $600.0 million financed through the Company's existing line of credit.

(b) The pro forma adjustment to inventory reflects the fair value write-up of acquired inventory at the assumed acquisition date of approximately $50.0 million.

(c) The pro forma adjustments to deferred tax assets, long-term income taxes payable and deferred tax liabilities reflect the combination of the Company and the Target and the assessment of the tax attributes and tax liability exposure of the Target as of the assumed acquisition date.

(d) The pro forma adjustments to goodwill include the reversal of the Target's May 31, 2012 historical goodwill balance of approximately $113.0 million and the addition of approximately $144.0 million of goodwill as a result of the pro forma purchase price allocation.

(e) The intangible asset pro forma adjustments includes the reversal of the Target's May 31, 2012 historical intangible assets related to prior SMSC acquisitions of approximately $28.0 million and the addition of approximately $518.8 million as a result of the pro forma purchase price allocation.

(f) The pro forma adjustment to accrued liabilities includes the elimination of the Target's historical May 31, 2012 liability for stock appreciation rights in the amount of approximately $40.5 million, based upon the issuance of equity-based awards. Also included in the pro forma adjustment to accrued liabilities is approximately $13.5 million of estimated credits to be granted to distributors on the deferred margin adjustments described in (g) below.

(g) The pro forma adjustment to deferred income on shipments to distributors reflects the approximate amount of deferred margin recognized by the Target at May 31, 2012 which the Company will not recognize subsequent to the acquisition.

(h) The pro forma adjustments to equity includes the elimination of the Target's May 31, 2012 stockholders' equity amounts less approximately $6.9 million of transaction consideration related to pre-combination services of the Target's employee unvested shares converted to the Company's shares.

Adjustments to the pro forma combined statements of income:

(a) The pro forma adjustment to net sales reflects the reversal of revenue recognition for the sell-through of inventory held by the Target's distributors as of the assumed transaction date. The cost of sales related to this adjustment is noted in adjustment (b) below.

(b) The cost of sales pro forma adjustments are as follows:

 
Twelve months ended March 31, 2012
Three months ended June 30, 2012
 
(in thousands)
Estimate of the fair value write-up of acquired inventory and its subsequent sale after the acquisition date
$
50,000

$
—

Elimination of Target's historical share-based compensation expense
(661
)
(2,158
)
Addition of Company's share-based compensation for converted equity awards
2,252

356

Estimated amortization of acquired intangible assets
23,780

5,945

Cost of sales on distributor revenue recognition reversal
(4,000
)
—

Total pro forma cost of sales adjustments
$
71,371

$
4,143


(c) The research and development expense pro forma adjustments are as follows:


5


 
Twelve months ended March 31, 2012
Three months ended June 30, 2012
 
(in thousands)
Elimination of Target's historical share-based compensation expense
$
(2,486
)
$
(7,242
)
Addition of Company's share-based compensation for converted equity awards
8,029

1,946

Total pro forma research and development expense adjustments
$
5,543

$
(5,296
)


(d) The selling, general and administrative expenses pro forma adjustments are as follows:

 
Twelve months ended March 31, 2012
Three months ended June 30, 2012
 
(in thousands)
Elimination of Target's historical share-based compensation expense
$
(5,055
)
$
(18,601
)
Addition of Company's share-based compensation for converted equity awards
10,909

1,360

Estimated amortization of acquired intangible assets
39,020

4,855

Total pro forma selling, general and administrative expense adjustments
$
44,874

$
(12,386
)

(e) The pro forma adjustment to interest expense relates to the interest charge on loans from the Company's existing credit facility as a result of the transaction. The interest was calculated using a 2% interest rate on $600 million of borrowings against the line of credit.

(f) The pro forma adjustments to income tax expense are as follows:

 
Assumed tax rate applied
 
Twelve months ended March 31, 2012
Three months ended June 30, 2012
 
(in thousands, except tax rates)
Estimate of the fair value write-up of acquired inventory and its subsequent sale after the acquisition date
25
%
(1)
$
(12,500
)
$
—

Elimination of Target's historical share-based compensation expense
25
%
(1)
1,263

4,650

Addition of Company's share-based compensation for converted equity awards
25
%
(1)
(2,727
)
(340
)
Deferred margin adjustment
25
%
(1)
(1,500
)
—

Interest expense on line of credit
37.5
%
(2)
(4,500
)
(1,125
)
Total pro forma cost of sales adjustments
 
 
$
(19,964
)
$
3,185


(1) 25% is the assumed tax rate of the Target's ongoing business activities.
(2) 37.5% is the assumed combined U.S. federal and state tax rate of the Target.

6