NETGEAR, Inc. Unaudited Pro Forma Consolidated Financial Information
On December 31, 2018, NETGEAR, Inc. (“NETGEAR”) (NASDAQ: NTGR) completed the distribution of 62,500,000 shares of the outstanding common stock of Arlo Technologies, Inc. (“Arlo”) to NETGEAR’s shareholders (the “Distribution”). Prior to the Distribution, NETGEAR owned approximately 84.2% of Arlo common stock. Following the completion of the Distribution, NETGEAR no longer owns any shares of Arlo common stock. Beginning in the fourth quarter of 2018, Arlo’s historical financial results for periods prior to the Distribution will be reflected in NETGEAR’s consolidated financial statements as discontinued operations.
The following unaudited pro forma consolidated statements of operations of NETGEAR for the nine months ended September 30, 2018 and for each of the years ended December 31, 2017, 2016, and 2015 are presented as if the Distribution had occurred as of January 1, 2015 and exclude results from discontinued operations. The following unaudited pro forma consolidated balance sheet of NETGEAR as of September 30, 2018 is presented as if the Distribution occurred on September 30, 2018.
The following pro forma financial statements are based on information currently available including certain assumptions and estimates. They are intended for informational purposes only, and do not purport to represent what NETGEAR’s financial position and results of operations actually would have been had the Distribution occurred on the dates indicated, or to project NETGEAR’s financial position or results of operations for any future date or period.
The following unaudited pro forma consolidated financial statements have been derived from NETGEAR’s historical consolidated financial statements as of and for the three years ended December 31, 2017, 2016 and 2015 and the interim unaudited period ended September 30, 2018. The unaudited pro forma consolidated financial statements and the accompanying notes should be read in conjunction with (i) the audited consolidated financial statements, the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in NETGEAR’s Annual Report on Form 10-K for the year ended December 31, 2017 and (ii) the unaudited consolidated financial statements, the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in NETGEAR’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2018.
The information in the “Historical” columns in the unaudited pro forma consolidated statements of operations and the unaudited pro forma consolidated balance sheet were derived from NETGEAR’s historical consolidated financial statements for the periods and as of the date presented and does not reflect any adjustments related to the Distribution and related events.
The information in the “Arlo Separation” column in the unaudited pro forma consolidated balance sheet was derived from NETGEAR’s unaudited consolidated financial statements, in conjunction with Arlo’s unaudited condensed consolidated balance sheet included in Arlo's Quarterly Report on Form 10-Q dated November 2, 2018 filed with the Securities Exchange Commission (“SEC”) and the related accounting records as of September 30, 2018, reflecting assets and liabilities that are attributable to Arlo. The information in the “Other Pro Forma Adjustments” columns in the unaudited pro forma consolidated balance sheet reflects additional pro forma adjustments which are further described in the accompanying notes. The information in the “Arlo Separation” columns in the unaudited pro forma consolidated statements of operations was derived from NETGEAR’s audited consolidated financial statements and the related accounting records for the years ended December 31, 2017, 2016, and 2015, and the unaudited consolidated financial statements and related accounting records for the nine months ended September 30, 2018, and reflects the financial results of the Arlo business. The financial results of the Arlo business for the years ended December 31, 2017 and 2016 and for the nine months ended September 30, 2018 were obtained by utilizing Arlo’s prospectus filed with the SEC on August 6, 2018 pursuant to Rule 424(b) under the Securities Act of 1933, as amended, and Arlo’s Quarterly Report on Form 10-Q dated November 2, 2018 filed with the SEC, adjusted to include certain costs directly attributable
to Arlo and to exclude corporate overhead costs that were previously allocated to Arlo for each period, as well as other adjustments to remove the impact of certain service agreements.
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| | |
| | NETGEAR, INC. | |
| | Unaudited Pro Forma Consolidated Balance Sheet | |
| | As of September 30, 2018 | |
| | (In thousands) | |
|
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | Historical | | Arlo Separation | | Other Pro Forma Adjustment | | Notes | | Pro Forma NETGEAR |
| ASSETS | | | | | | | | | |
| Current assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 393,640 |
| | $ | (148,073 | ) | | $ | — |
| | | | $ | 245,567 |
|
| Short-term investments | 136,173 |
| | (39,773 | ) | | — |
| | | | 96,400 |
|
| Accounts receivable, net | 358,982 |
| | (117,119 | ) | | — |
| | | | 241,863 |
|
| Inventories | 330,516 |
| | (132,479 | ) | | — |
| | | | 198,037 |
|
| Prepaid expenses and other current assets | 39,011 |
| | (9,529 | ) | | (175 | ) | | (a) | | 29,307 |
|
| Total current assets | 1,258,322 |
| | (446,973 | ) | | (175 | ) | | | | 811,174 |
|
| Property and equipment, net | 56,647 |
| | (39,610 | ) | | — |
| | | | 17,037 |
|
| Intangibles, net | 22,341 |
| | (3,204 | ) | | — |
| | | | 19,137 |
|
| Goodwill | 101,965 |
| | (15,638 | ) | | (5,511 | ) | | (b) | | 80,816 |
|
| Other non-current assets | 94,047 |
| | (10,198 | ) | | (15,277 | ) | | (c) | | 68,572 |
|
| Total assets | $ | 1,533,322 |
| | $ | (515,623 | ) | | $ | (20,963 | ) | | | | $ | 996,736 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
| Current liabilities: | | | | | | | | | |
| Accounts payable | $ | 168,155 |
| | $ | (49,947 | ) | | $ | — |
| | | | $ | 118,208 |
|
| Accrued employee compensation | 31,168 |
| | (7,969 | ) | | (200 | ) | | (d) | | 22,999 |
|
| Other accrued liabilities | 282,410 |
| | (96,550 | ) | | (7,334 | ) | | (e) | | 178,526 |
|
| Deferred revenue | 35,485 |
| | (26,514 | ) | | — |
| | | | 8,971 |
|
| Income taxes payable | 6,853 |
| | (199 | ) | | 199 |
| | (c) | | 6,853 |
|
| Total current liabilities | 524,071 |
| | (181,179 | ) | | (7,335 | ) | | | | 335,557 |
|
| Non-current income taxes payable | 21,273 |
| | (22 | ) | | 22 |
| | (c) | | 21,273 |
|
| Other non-current liabilities | 53,499 |
| | (41,097 | ) | | — |
| | | | 12,402 |
|
| Total liabilities | 598,843 |
| | (222,298 | ) | | (7,313 | ) | | | | 369,232 |
|
| Commitments and contingencies | | | | | | | | | |
| Stockholders’ equity: | | | | | | | | | |
| Common stock | 32 |
| | — |
| | — |
| | | | 32 |
|
| Additional paid-in capital | 785,694 |
| | — |
| | — |
| | | | 785,694 |
|
| Accumulated other comprehensive loss | (36 | ) | | (14 | ) | | — |
| | | | (50 | ) |
| Retained earnings | 124,488 |
| | (293,311 | ) | | 10,651 |
| | (f) (g) | | (158,172 | ) |
| Total NETGEAR stockholders’ equity | 910,178 |
| | (293,325 | ) | | 10,651 |
| | | | 627,504 |
|
| Non-controlling interest | 24,301 |
| | $ | — |
| | $ | (24,301 | ) | | (f) | | $ | — |
|
| Total stockholders' equity | 934,479 |
| | $ | (293,325 | ) | | $ | (13,650 | ) | | | | $ | 627,504 |
|
| Total liabilities and stockholders’ equity | $ | 1,533,322 |
| | $ | (515,623 | ) | | $ | (20,963 | ) | | | | $ | 996,736 |
|
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Statements.
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|
| NETGEAR, INC. |
| Unaudited Pro Forma Consolidated Statements Of Operations |
| Nine Months Ended September 30, 2018 |
| (In thousands, except per share data) |
|
| | | | | | | | | | | |
| | Historical | | Arlo Separation | | Pro Forma NETGEAR |
| | | | | | |
| Net revenue | $ | 1,112,379 |
| | $ | (342,491 | ) | | $ | 769,888 |
|
| Cost of revenue | 774,510 |
| | (255,666 | ) | | 518,844 |
|
| Gross profit | 337,869 |
| | (86,825 | ) | | 251,044 |
|
| | | | | | |
| Operating expenses: | | | | | |
| Research and development | 95,571 |
| | (32,298 | ) | | 63,273 |
|
| Sales and marketing | 139,646 |
| | (25,328 | ) | | 114,318 |
|
| General and administrative | 60,354 |
| | (9,951 | ) | | 50,403 |
|
| Separation expense | 25,822 |
| | (25,443 | ) | | 379 |
|
| Restructuring and other charges | 1,368 |
| | — |
| | 1,368 |
|
| Litigation reserves, net | 5 |
| | — |
| | 5 |
|
| Total operating expenses | 322,766 |
| | (93,020 | ) | | 229,746 |
|
| Income from operations | 15,103 |
| | 6,195 |
| | 21,298 |
|
| Interest income (expense), net | 3,310 |
| | (504 | ) | | 2,806 |
|
| Other income (expense), net | 638 |
| | (213 | ) | | 425 |
|
| Income before income taxes | 19,051 |
| | 5,478 |
| | 24,529 |
|
| Provision for income taxes | 9,541 |
| | (2,873 | ) | | 6,668 |
|
| Net income | 9,510 |
| | 8,351 |
| | 17,861 |
|
| Net loss attributable to non-controlling interest | (799 | ) | | 799 |
| (f) | — |
|
| Net income attributable to NETGEAR, Inc. | $ | 10,309 |
| | $ | 7,552 |
| | $ | 17,861 |
|
| | | | | | |
| Net income per share: | | | | | |
| Basic | $ | 0.33 |
| | | | $ | 0.56 |
|
| Diluted | $ | 0.31 |
| | | | $ | 0.54 |
|
| | | | | | |
| Weighted average shares used to compute net income per share: | | | | | |
| Basic | 31,634 |
| | | | 31,634 |
|
| Diluted | 32,826 |
| | | | 32,826 |
|
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Statements.
|
|
| NETGEAR, INC. |
| Unaudited Pro Forma Consolidated Statements Of Operations |
| Year Ended December 31, 2017 |
| (In thousands, except per share data) |
|
| | | | | | | | | | | | |
| | Historical | | Arlo Separation | | Pro Forma NETGEAR | |
| | | | | | | |
| Net revenue | $ | 1,406,920 |
| | $ | (367,751 | ) | | $ | 1,039,169 |
| |
| Cost of revenue | 1,010,878 |
| | (279,425 | ) | | 731,453 |
| |
| Gross profit | 396,042 |
| | (88,326 | ) | | 307,716 |
| |
| | | | | | | |
| Operating expenses: | | | | | | |
| Research and development | 94,603 |
| | (22,710 | ) | | 71,893 |
| |
| Sales and marketing | 158,168 |
| | (19,489 | ) | | 138,679 |
| |
| General and administrative | 55,037 |
| | (691 | ) | | 54,346 |
| |
| Separation expense | 1,384 |
| | (1,384 | ) | | — |
| |
| Restructuring and other charges | 97 |
| | — |
| | 97 |
| |
| Litigation reserves, net | 176 |
| | (28 | ) | | 148 |
| |
| Total operating expenses | 309,465 |
| | (44,302 | ) | | 265,163 |
| |
| Income from operations | 86,577 |
| | (44,024 | ) | | 42,553 |
| |
| | | | | | | |
| Interest income | 2,113 |
| | — |
| | 2,113 |
| |
| Other income (expense), net | 2,024 |
| | (466 | ) | | 1,558 |
| |
| Income before income taxes | 90,714 |
| | (44,490 | ) | | 46,224 |
| |
| Provision for income taxes | 71,278 |
| | (13,921 | ) | | 57,357 |
| |
| Net income (loss) | $ | 19,436 |
| | $ | (30,569 | ) | | $ | (11,133 | ) | |
| | | | | | | |
| Net income per share: | | | | | | |
| Basic | $ | 0.61 |
| | | | $ | (0.35 | ) | |
| Diluted | $ | 0.59 |
| | | | $ | (0.35 | ) | |
| | | | | | | |
| Weighted average shares used to compute net income per share: | | | | | | |
| Basic | 32,097 |
| | | | 32,097 |
| |
| Diluted | 33,044 |
| | | | 32,097 |
| (h) |
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Statements.
|
|
| NETGEAR, INC. |
| Unaudited Pro Forma Consolidated Statements Of Operations |
| Year Ended December 31, 2016 |
| (In thousands, except per share data) |
|
| | | | | | | | | | | |
| | Historical | | Arlo Separation | | Pro Forma NETGEAR |
| | | | | | |
| Net revenue | $ | 1,328,298 |
| | $ | (184,853 | ) | | $ | 1,143,445 |
|
| Cost of revenue | 916,113 |
| | (146,570 | ) | | 769,543 |
|
| Gross profit | 412,185 |
| | (38,283 | ) | | 373,902 |
|
| Operating expenses: | | | | | |
| Research and development | 89,367 |
| | (18,463 | ) | | 70,904 |
|
| Sales and marketing | 150,355 |
| | (10,764 | ) | | 139,591 |
|
| General and administrative | 54,482 |
| | (486 | ) | | 53,996 |
|
| Restructuring and other charges | 3,881 |
| | (40 | ) | | 3,841 |
|
| Litigation reserves, net | 73 |
| | — |
| | 73 |
|
| Total operating expenses | 298,158 |
| | (29,753 | ) | | 268,405 |
|
| Income from operations | 114,027 |
| | (8,530 | ) | | 105,497 |
|
| Interest income | 1,163 |
| | — |
| | 1,163 |
|
| Other income (expense), net | (121 | ) | | (44 | ) | | (165 | ) |
| Income before income taxes | 115,069 |
| | (8,574 | ) | | 106,495 |
|
| Provision for income taxes | 39,218 |
| | (3,035 | ) | | 36,183 |
|
| Net income | $ | 75,851 |
| | $ | (5,539 | ) | | $ | 70,312 |
|
| | | | | | |
| Net income per share: | | | | | |
| Basic | $ | 2.32 |
| | | | $ | 2.15 |
|
| Diluted | $ | 2.25 |
| | | | $ | 2.08 |
|
| | | | | | |
| Weighted average shares used to compute net income per share: | | | | | |
| Basic | 32,758 |
| | | | 32,758 |
|
| Diluted | 33,728 |
| | | | 33,728 |
|
|
|
| NETGEAR, INC. |
| Unaudited Pro Forma Consolidated Statements Of Operations |
| Year Ended December 31, 2015 |
| (In thousands, except per share data) |
|
| | | | | | | | | | | |
| | Historical | | Arlo Separation | | Pro Forma NETGEAR |
| | | | | | |
| Net revenue | $ | 1,300,695 |
| | $ | (88,882 | ) | | $ | 1,211,813 |
|
| Cost of revenue | 933,016 |
| | (72,579 | ) | | 860,437 |
|
| Gross profit | 367,679 |
| | (16,303 | ) | | 351,376 |
|
| Operating expenses: | | | | | |
| Research and development | 86,499 |
| | (9,143 | ) | | 77,356 |
|
| Sales and marketing | 146,794 |
| | (4,781 | ) | | 142,013 |
|
| General and administrative | 45,313 |
| | (76 | ) | | 45,237 |
|
| Restructuring and other charges | 6,398 |
| | (39 | ) | | 6,359 |
|
| Litigation reserves, net | (2,682 | ) | | — |
| | (2,682 | ) |
| Total operating expenses | 282,322 |
| | (14,039 | ) | | 268,283 |
|
| Income from operations | 85,357 |
| | (2,264 | ) | | 83,093 |
|
| Interest income | 295 |
| | — |
| | 295 |
|
| Other income (expense), net | (88 | ) | | 41 |
| | (47 | ) |
| Income before income taxes | 85,564 |
| | (2,223 | ) | | 83,341 |
|
| Provision for income taxes | 36,980 |
| | (1,034 | ) | | 35,946 |
|
| Net income | $ | 48,584 |
| | $ | (1,189 | ) | | $ | 47,395 |
|
| | | | | | |
| Net income per share: | | | | | |
| Basic | $ | 1.47 |
| | | | $ | 1.43 |
|
| Diluted | $ | 1.44 |
| | | | $ | 1.40 |
|
| | | | | | |
| Weighted average shares used to compute net income per share: | | | | | |
| Basic | 33,161 |
| | | | 33,161 |
|
| Diluted | 33,788 |
| | | | 33,788 |
|
Other Pro Forma Adjustments:
(a) Reflects the elimination of prepaid separation expenses being incurred to effect the Distribution.
(b) Reflects the elimination of reported Arlo segment goodwill not contributed to Arlo Technologies, Inc.
(c) Reflects the elimination of deferred tax assets and liabilities in respect of Arlo.
(d) Reflects the elimination of compensation liabilities due to NETGEAR employees in the performance of Arlo activities and such amounts were recovered under transitional service arrangements.
(e) Reflects the elimination of liabilities payable by NETGEAR to effect the separation and Distribution of Arlo.
(f) Reflects the elimination of the non-controlling interests upon the Distribution.
(g) Reflects the net effect of the pro forma adjustments to assets and liabilities described above.
(h) For the period presented, certain common stock equivalents were previously dilutive relative to reported net income, but are excluded on a pro forma basis because the pro forma results reflect a net loss after removing the effect of Arlo’s financial results and therefore, the inclusion of such equivalents would have an anti-dilutive effect on pro forma loss per share.
