Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of September 30, 2006 and the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2006 and the year ended December 31, 2005 are based on historical financial statements of Advanced Analogic Technologies, Inc. (“AATI”) and the Combined Statements of Revenues and Operating Expenses of Analog Power Semiconductor Corporation (“AP Semi”) for the nine months ended September 30, 2006 and the year ended December 31, 2005 and the Combined Statements of Assets Sold and Liabilities Transferred as of September 30, 2006 after giving effect to AATI’s acquisition of AP Semi using the purchase method of accounting and applying the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements as if such acquisition had occurred as of September 30, 2006 for pro forma balance sheet purposes and as of the first day of fiscal 2006 and 2005 for pro forma statement of operations’ purposes.
The acquisition has been accounted for under the purchase method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 141,Business Combinations. Under the purchase method of accounting, the total estimated preliminary purchase price, calculated as described in Note 1 to these unaudited pro forma condensed combined financial statements, is allocated to the net tangible and intangible assets acquired in connection with the acquisition, based on their estimated fair values. Management has made a preliminary allocation of the purchase price based on various preliminary estimates of fair value. AATI is in the process of obtaining a third party valuation of the intangible assets; thus, the allocation of the purchase price is subject to adjustment. Final purchase price adjustments may vary materially from the pro forma adjustments presented herein.
The unaudited pro forma condensed combined financial statements have been prepared by management for illustrative purposes only and do not include the realization of cost savings from operating efficiencies, revenue synergies or other costs expected to result from the acquisition. The unaudited pro forma condensed combined financial statements are therefore not necessarily indicative of the condensed consolidated financial position or results of operation in future periods that would actually have been realized had AATI and AP Semi been a combined company during the specified period.
The pro forma adjustments are based on preliminary information available at the time of this filing. The unaudited pro forma condensed combined financial statements, including the notes thereto, should be read in conjunction with AATI’s historical consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2005 and its Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. The statements should be also read in conjunction with AP Semi’s Combined Statements of Revenues and Operating Expenses for the nine months ended September 30, 2006 and 2005 and the years ended December 31, 2005 and 2004 and Combined Statements of Assets Sold and Liabilities Transferred as of September 30, 2006, December 31, 2005 and 2004, which are included as Exhibit 99.1 to this Form 8-K/A.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As at September 30, 2006
(unaudited - in thousands)
Historical AATI | Historical AP Semi | Pro Forma Adjustments (Note 2) | Pro Forma Combined | ||||||||||||
ASSETS | |||||||||||||||
Current assets | |||||||||||||||
Cash, cash equivalents and short-term investments | $ | 125,732 | $ | 273 | $ | (20,300 | )(a)(b) | $ | 105,705 | ||||||
Accounts receivable, net | 12,573 | 730 | (173 | )(b)(c) | 13,130 | ||||||||||
Inventories, net | 9,295 | 312 | 106 | (d) | 9,713 | ||||||||||
Prepaid expenses and other current assets | 1,838 | 293 | (49 | )(c) | 2,082 | ||||||||||
Deferred income tax assets | 5,369 | — | — | 5,369 | |||||||||||
Total current assets | 154,807 | 1,608 | (20,416 | ) | 135,999 | ||||||||||
Property and equipment, net | 2,281 | 854 | (182 | )(d) | 2,953 | ||||||||||
Deferred income tax assets | 1,812 | — | — | 1,812 | |||||||||||
Goodwill | — | — | 17,270 | (e) | 17,270 | ||||||||||
Intangible assets, net | — | — | 3,480 | (f) | 3,480 | ||||||||||
Other assets | 1,804 | — | 49 | (c) | 1,853 | ||||||||||
TOTAL ASSETS | $ | 160,704 | $ | 2,462 | $ | 201 | $ | 163,367 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||
Current liabilities | |||||||||||||||
Accounts payable | $ | 5,922 | $ | 595 | $ | 327 | (c) | $ | 6,844 | ||||||
Accrued liabilities | 5,969 | — | 1,500 | (g) | 7,469 | ||||||||||
Deferred revenue | — | 216 | (152 | )(d) | 64 | ||||||||||
Income tax payable | 663 | — | — | 663 | |||||||||||
Capital lease obligation | — | 340 | (196 | )(c) | 144 | ||||||||||
Other current liabilities | — | 127 | — | 127 | |||||||||||
Total current liabilities | 12,554 | 1,278 | 1,479 | 15,311 | |||||||||||
Other long term liabilities | 8 | — | 196 | (c) | 204 | ||||||||||
Total liabilities | 12,562 | 1,278 | 1,675 | 15,515 | |||||||||||
Stockholders’ equity | |||||||||||||||
Common stock and additional paid in capital | 160,411 | — | — | 160,411 | |||||||||||
Deferred stock compensation | (3,603 | ) | — | — | (3,603 | ) | |||||||||
Accumulated other comprehensive loss | (467 | ) | — | — | (467 | ) | |||||||||
Accumulated deficit/ excess of assets over liabilities | (8,199 | ) | 1,184 | (1,474 | )(c)(h) | (8,489 | ) | ||||||||
Total stockholders’ equity | 148,142 | 1,184 | (1,474 | ) | 147,852 | ||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 160,704 | $ | 2,462 | $ | 201 | $ | 163,367 | |||||||
See Notes to unaudited pro forma condensed combined financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 2006
(unaudited - in thousands, except for per share amounts)
Historical AATI | Historical AP Semi | Pro Forma Adjustments (Note 2) | Pro Forma Combined | |||||||||||||
Net revenues | $ | 60,210 | $ | 2,051 | $ | — | $ | 62,261 | ||||||||
Cost of revenues | 24,986 | 1,137 | 3 | (i) | 26,126 | |||||||||||
Gross profit | 35,224 | 914 | (3 | ) | 36,135 | |||||||||||
Operating expenses | ||||||||||||||||
Research and development | 17,214 | 2,115 | 291 | (i) | 19,620 | |||||||||||
Selling, general and administrative | 16,200 | 761 | 231 | (i) | 17,192 | |||||||||||
Amortization of acquired intangible assets | — | — | 870 | (f) | 870 | |||||||||||
Patent litigation | 5,247 | — | — | 5,247 | ||||||||||||
Total operating expenses | 38,661 | 2,876 | 1,392 | 42,929 | ||||||||||||
(Loss) from operations | (3,437 | ) | (1,962 | ) | (1,395 | ) | (6,794 | ) | ||||||||
Other income | 4,248 | — | (878 | )(j) | 3,370 | |||||||||||
Income (loss) before income taxes | 811 | (1,962 | ) | (2,273 | ) | (3,424 | ) | |||||||||
Provision for (benefit from) income taxes | 312 | — | (420 | )(k) | (108 | ) | ||||||||||
Net income (loss) | $ | 499 | $ | (1,962 | ) | $ | (1,853 | ) | $ | (3,316 | ) | |||||
Net income (loss) per share: | ||||||||||||||||
Basic | $ | 0.01 | $ | (0.08 | ) | |||||||||||
Diluted | $ | 0.01 | $ | (0.08 | ) | |||||||||||
Weighted average shares used in net income (loss) per share calculation: | ||||||||||||||||
Basic | 43,330 | 43,330 | ||||||||||||||
Diluted | 46,819 | 43,330 |
See Notes to unaudited pro forma condensed combined financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2005
(unaudited - in thousands, except for per share amounts)
Historical AATI | Historical AP Semi | Pro Forma Adjustments (Note 2) | Pro Forma Combined | ||||||||||||
Net revenues | $ | 68,298 | $ | 549 | $ | — | $ | 68,847 | |||||||
Cost of revenues | 26,964 | 412 | 4 | (i) | 27,380 | ||||||||||
Gross profit | 41,334 | 137 | (4 | ) | 41,467 | ||||||||||
Operating expenses | |||||||||||||||
Research and development | 19,479 | 1,719 | 388 | (i) | 21,586 | ||||||||||
Selling, general and administrative | 17,651 | 818 | 308 | (i) | 18,777 | ||||||||||
Amortization of acquired intangible assets | — | — | 1,160 | (f) | 1,160 | ||||||||||
Total operating expenses | 37,130 | 2,537 | 1,856 | 41,523 | |||||||||||
Income (loss) from operations | 4,204 | (2,400 | ) | (1,860 | ) | (56 | ) | ||||||||
Other income | 1,937 | — | (363 | )(j) | 1,574 | ||||||||||
Income (loss) before income taxes | 6,141 | (2,400 | ) | (2,223 | ) | 1,518 | |||||||||
Provision for (benefit from) income taxes | 4,056 | — | (276 | )(k) | 3,780 | ||||||||||
Net income (loss) | $ | 2,085 | $ | (2,400 | ) | $ | (1,947 | ) | $ | (2,262 | ) | ||||
Net income (loss) per share: | |||||||||||||||
Basic | $ | 0.10 | $ | (0.11 | ) | ||||||||||
Diluted | $ | 0.05 | $ | (0.11 | ) | ||||||||||
Weighted average shares used in net income (loss) per share calculation: | |||||||||||||||
Basic | 21,025 | 21,025 | |||||||||||||
Diluted | 40,147 | 21,025 |
See Notes to unaudited pro forma condensed combined financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1.Description of Transaction and Basis of Presentation.On October 31, 2006, Advanced Analogic Technologies Inc. (“AATI”) completed the acquisition of the Analog Power Semiconductor Corporation (“AP Semi”) of IPCore Technologies Corporation (“IPCore”) pursuant to the terms of the Share and Asset Purchase Agreement (the “Agreement”) dated September 3, 2006, and subsequently amended as of October 31, 2006, between AATI and IPCore. Under the terms of the Agreement, AATI purchased AP Semi for a total consideration of $23.0 million where $20.1 million of the purchase consideration was settled in cash to IPCore, $0.7 million was paid to the AP Semi employees transferred to AATI and $1.5 million represents acquisition costs. The remaining amount of $0.7 million is payable contingent upon the employees fulfilling a one year service period from the date of the transfer and will be accounted for as a compensation expense. AATI is in the process of obtaining a third party valuation of the intangible assets; thus, the allocation of the purchase price is subject to adjustment. The preliminary purchase price is:
(in thousands)
| |||
Cash | $ | 20,800 | |
Acquisition related transaction costs | 1,500 | ||
Total preliminary purchase price | $ | 22,300 | |
Acquisition related transaction costs include AATI’s estimate of legal and accounting fees and other external costs directly related to the merger.
The estimates of the allocation of the purchase price are as follows:
(in thousands)
| ||||
Allocation of purchase price: | ||||
Net tangible assets acquired | $ | 2,713 | ||
Net tangible liabilities assumed | (1,453 | ) | ||
Intangible assets acquired: | ||||
Core developed technology | 2,900 | |||
Customer relationships | 580 | |||
3,480 | ||||
In-process research and development | 290 | |||
Goodwill | 17,270 | |||
$ | 22,300 | |||
The amount allocated to in-process research and development represents an estimate of the fair value of research projects that have not reached technological feasibility and have no alternative future use. The valuation was determined using a discounted cash flows technique. The estimated fair value of in-process research and development was expensed immediately following the consummation of the acquisition. Other identifiable intangible assets are being amortized over their useful lives of three years for core developed technology and customer relationships.
Goodwill represents the excess of the purchase price over the fair values of the net tangible and intangible assets acquired. In accordance with SFAS No. 142,Goodwill and other Intangible Assets, goodwill will not be amortized but will instead be tested for impairment annually or more frequently if certain indicators are present.
NOTE 2.Pro Forma Adjustments
The unaudited pro forma condensed combined financial statements have been prepared as if the acquisition had occurred as of September 30, 2006 for pro forma balance sheet purposes, and as of the first day of fiscal 2006 and 2005 for pro forma statements of operations purposes, and reflect the following adjustments:
(a) | To record the cash payment of $20.8 million related to the acquisition. |
(b) | To record $500,000 cash received from IPCore and eliminate the corresponding receivable balance from IPCore. Pursuant to the Agreement, IPCore funded AP Semi $500,000 in cash prior to the completion of the merger. |
(c) | To reclassify AP Semi’s certain current assets and liabilities to long-term assets and liabilities in order to conform to AATI’s basis of presentation. |
(d) | To record the fair value adjustments relating to inventory, property and equipment and deferred revenue. |
(e) | To record the preliminary value of goodwill of $17.3 million (see Note 1). |
(f) | To record the fair value of identifiable intangible assets acquired (see Note 1) and the resulting amortization thereof. |
(g) | To record the estimated direct acquisition costs and liabilities associated with the acquisition. |
(h) | To record the fair value of the in-process research and development. This expense has not been reflected in the unaudited pro forma condensed combined statements of operations because it is a cost directly attributable to the transaction and will not have a continuing impact on the combined results of operations. |
(i) | To record compensation expense of $700,000. Under the Agreement, the amount is to be paid to AP Semi employees who stay with the Company for a year after the completion of the merger. |
(j) | To decrease interest income for the periods resulted from the cash payment for the acquisition based on AATI’s historical average interest rates and to increase interest expense on a pro forma loan, at an interest rate of 5.75%, used to finance the acquisition. |
(k) | To record income tax benefit as a result of AP Semi’s operating loss and amortization of intangibles arising from the acquisition. |