Exhibit 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements as of and for the year ended December 31, 2007 are based on the historical financial statements of Cavium and Star after giving effect to the acquisition of Star (the “Acquisition”) using the purchase method of accounting.
The unaudited pro forma combined condensed balance sheet as of December 31, 2007 is presented as if the Acquisition had occurred on December 31, 2007. The unaudited pro forma combined condensed statements of operations for the year ended December 31, 2007 is presented as if the Acquisition had occurred on January 1, 2007.
The Acquisition has been accounted for using 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 purchase consideration of the Acquisition was allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets was recorded as goodwill.
The unaudited pro forma combined condensed financial statements is for information purposes only and does not purport to represent what the Company’s actual results would have been if the Acquisition had been completed as of the date indicated above or that may be achieved in the future. The unaudited pro forma combined condensed statement of operations does not include the effects of any cost savings from operating efficiencies and synergies that may result from the Acquisition.
The unaudited pro forma combined condensed financial statements, including the notes thereto, should be read in conjunction with the Company’s historical financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 10, 2008, as well as Star’s historical financial statements for the year ended December 31, 2007 included as Exhibit 99.1 in this Current Report on Form 8-K/A.
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CAVIUM NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(in thousands)
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(in thousands)
Historical | ||||||||||||||||||||||||||||
As of December 31, 2007 | Pro Forma | Pro Forma | ||||||||||||||||||||||||||
Cavium | Star NT$ | Star NT$ (a) | Star NT$ | Star US$ (b) | Adjustments | Combined | ||||||||||||||||||||||
(In ROC | (US GAAP | (In US | (In US | |||||||||||||||||||||||||
GAAP) | Reconciliation) | GAAP) | GAAP) | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 98,462 | $ | 117,875 | $ | (67,900 | ) | $ | 49,975 | $ | 1,537 | $ | (10,301 | ) (c)(d) | $ | 89,698 | ||||||||||||
Short-term investments | — | — | 67,900 | 67,900 | 2,088 | (2,088 | ) (d) | — | ||||||||||||||||||||
Accounts receivable, net | 9,768 | 9,125 | — | 9,125 | 280 | — | 10,048 | |||||||||||||||||||||
Inventories, net | 9,573 | 14,002 | — | 14,002 | 431 | 371 | (e) | 10,375 | ||||||||||||||||||||
Restricted assets | — | 7,900 | — | 7,900 | 243 | — | 243 | |||||||||||||||||||||
Prepaid expenses and other current assets | 946 | 4,996 | — | 4,996 | 154 | (146 | ) (d) | 954 | ||||||||||||||||||||
Total current assets | 118,749 | 153,898 | — | 153,898 | 4,733 | (12,164 | ) | 111,318 | ||||||||||||||||||||
Property and equipment, net | 11,608 | 5,005 | — | 5,005 | 154 | 52 | (f) | 11,814 | ||||||||||||||||||||
Intangible assets, net | 4,096 | 7,021 | (1,072 | ) | 5,949 | 183 | 5,112 | (d)(f)(g) | 9,391 | |||||||||||||||||||
Goodwill | — | — | — | — | — | 2,894 | (g) | 2,894 | ||||||||||||||||||||
Other assets | 157 | 267 | — | 267 | 8 | (8 | ) (d) | 157 | ||||||||||||||||||||
Total assets | $ | 134,610 | $ | 166,191 | $ | (1,072 | ) | $ | 165,119 | $ | 5,078 | $ | (4,114 | ) | $ | 135,574 | ||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||||||
Accounts payable | $ | 5,311 | $ | 2,648 | $ | — | $ | 2,648 | $ | 81 | $ | — | $ | 5,392 | ||||||||||||||
Accrued expenses and other current liabilities | 2,253 | 11,480 | 452 | 11,932 | 367 | 516 | (d) | 3,136 | ||||||||||||||||||||
Deferred revenue | 1,666 | — | — | — | — | — | 1,666 | |||||||||||||||||||||
Capital lease and technology license obligations, current | 4,471 | — | — | — | — | — | 4,471 | |||||||||||||||||||||
Total current liabilities | 13,701 | 14,128 | 452 | 14,580 | 448 | 516 | 14,665 | |||||||||||||||||||||
Capital lease and technology license obligations, net of current | 4,059 | — | — | — | — | — | 4,059 | |||||||||||||||||||||
Other non-current liabilities | — | — | 1,489 | 1,489 | 48 | (48 | ) (d) | — | ||||||||||||||||||||
Total liabilities | 17,760 | 14,128 | 1,941 | 16,069 | 496 | 468 | 18,724 | |||||||||||||||||||||
Stockholders’ equity | ||||||||||||||||||||||||||||
Common stock | 40 | 207,363 | — | 207,363 | 6,376 | (6,376 | ) | 40 | ||||||||||||||||||||
Capital received in advance | — | 430 | (430 | ) | — | |||||||||||||||||||||||
Additional paid-in capital | 175,540 | — | 503 | 503 | 15 | (15 | ) | 175,540 | ||||||||||||||||||||
Accumulated comprehensive income | — | — | (1,093 | ) | (1,093 | ) | (34 | ) | 34 | — | ||||||||||||||||||
Accumulated deficit | (58,730 | ) | (55,730 | ) | (1,993 | ) | (57,723 | ) | (1,775 | ) | 1,775 | (58,730 | ) | |||||||||||||||
Total stockholders’ equity | 116,850 | 152,063 | (3,013 | ) | 149,050 | 4,582 | (4,582 | ) (h) | 116,850 | |||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 134,610 | $ | 166,191 | $ | (1,072 | ) | $ | 165,119 | $ | 5,078 | $ | (4,114 | ) | $ | 135,574 | ||||||||||||
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CAVIUM NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
(in thousands, except per share data)
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2007
(in thousands, except per share data)
Historical | ||||||||||||||||||||||||||||
Year ended December 31, 2007 | Pro Forma | Pro Forma | ||||||||||||||||||||||||||
Cavium | Star NT$ | Star NT$ (a) | Star NT$ | Star US$ (b) | Adjustments | Combined | ||||||||||||||||||||||
(In ROC | (US GAAP | |||||||||||||||||||||||||||
GAAP) | Reconciliation) | (In US GAAP) | (In US GAAP) | |||||||||||||||||||||||||
Net revenue | $ | 54,203 | $ | 57,602 | $ | — | $ | 57,602 | $ | 1,771 | $ | — | $ | 55,974 | ||||||||||||||
Cost of revenue | 19,898 | 28,694 | 1,929 | 30,623 | 942 | 1,710 | (i) | 22,550 | ||||||||||||||||||||
Gross profit | 34,305 | 28,908 | (1,929 | ) | 26,979 | 829 | (1,710 | ) | 33,424 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Research and development | 19,548 | 59,597 | 239 | 59,836 | 1,840 | — | 21,388 | |||||||||||||||||||||
Sales, general and administrative | 14,688 | 17,825 | 153 | 17,978 | 553 | 44 | (i) | 15,285 | ||||||||||||||||||||
Total operating expenses | 34,236 | 77,422 | 392 | 77,814 | 2,393 | 44 | 36,673 | |||||||||||||||||||||
Income (loss) from operations | 69 | (48,514 | ) | (2,321 | ) | (50,835 | ) | (1,564 | ) | (1,754 | ) | (3,249 | ) | |||||||||||||||
Other income (expense), net: | ||||||||||||||||||||||||||||
Interest expense | (622 | ) | (36 | ) | — | (36 | ) | (1 | ) | — | (623 | ) | ||||||||||||||||
Warrant revaluation expense | (573 | ) | — | — | — | — | — | (573 | ) | |||||||||||||||||||
Interest income and other | 3,458 | 1,580 | 225 | 1,805 | 56 | — | 3,514 | |||||||||||||||||||||
Total other income (expense), net | 2,263 | 1,544 | 225 | 1,769 | 55 | — | 2,318 | |||||||||||||||||||||
Income (loss) before income tax expense | 2,332 | (46,970 | ) | (2,096 | ) | (49,066 | ) | (1,509 | ) | (1,754 | ) | (931 | ) | |||||||||||||||
Income tax (expense) benefit | (142 | ) | — | — | — | — | — | (142 | ) | |||||||||||||||||||
Net income (loss) | $ | 2,190 | $ | (46,970 | ) | $ | (2,096 | ) | $ | (49,066 | ) | $ | (1,509 | ) | $ | (1,754 | ) | $ | (1,073 | ) | ||||||||
Net income (loss) per common share, basic | $ | 0.08 | $ | (0.04 | ) | |||||||||||||||||||||||
Weighted average shares used in computing basic net income(loss) per common share | 29,006 | 29,006 | ||||||||||||||||||||||||||
Net income (loss) per common share, diluted | $ | 0.07 | $ | (0.04 | ) | |||||||||||||||||||||||
Weighted average shares used in computing diluted net income(loss) per common share | 32,432 | 29,006 |
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CAVIUM NETWORKS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) | BASIS OF PRO FORMA PRESENTATION | |
On August 1, 2008, pursuant to the Asset Purchase Agreement, dated July 15, 2008, by and among Cavium Networks, Inc. (the “Company”), two of its subsidiaries, (collectively with the Company, the “Purchasers”) and Star Semiconductor Corporation (“Star”), a Taiwan-based design house in Hsinchu with expertise in building highly integrated ARM-based SOC processors for the broadband, connected home and SOHO market segments. The acquisition will provide the Company with a highly experienced stand-alone SOC processor team based in Taiwan. With this acquisition, the Company plans to deliver highly optimized, cost effective and low power SOC processors to address a significantly broader range of network connected, triple-play enabled devices for the digitally connected home and office. | ||
The unaudited pro forma combined condensed balance sheet as of December 31, 2007 and the unaudited pro forma combined statements of operations for the year ended December 31, 2007 are based on the historical financial statements of the Company and Star after giving effect to the Acquisition adjustments resulting from the Acquisition. The unaudited pro forma combined balance sheet as of December 31, 2007 is presented as if the Acquisition had occurred on December 31, 2007. The unaudited pro forma combined statement of operations for the year ended December 31, 2007 is presented as if the Acquisition had occurred on January 1, 2007. | ||
(a) | The amounts represent US GAAP adjustments (for details see Exhibit 99.1, footnote 11 - reconciliation from ROC GAAP to US GAAP). | |
(b) | Star maintains its accounting records and prepares its financial statements in New Taiwan (“NT”) dollars. For convenience only, the United States (“US”) dollar amounts disclosed in the unaudited pro forma combined condensed financial statements were translated at the rate of NT$32.52 (in dollars) to US$1.00 (in dollars), the U.S. interbank exchange rate on December 31, 2007. Such translation amounts are unaudited and should not be construed that the NT dollar amounts represent, or have been, or could be, converted into US dollars at that or any other rate. | |
(2) | ACQUISITION | |
Pursuant to the terms of the Asset Purchase Agreement, the Purchasers paid approximately $8.8 million, including acquisition related expenses of $0.8 million. Included in the purchase price was $1.0 million that was placed in escrow for 60 days after closing in order to indemnify the Purchasers for certain matters, including breaches of representations and warranties and covenants made by Star. The transaction was accounted for using the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations.” Under the purchase method of accounting, the estimated purchase price was allocated to the tangible assets and identifiable intangible assets and liabilities assumed based on their relative fair values. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill. The final purchase price allocation may differ based upon the final purchase price. The primary area of purchase price allocation that is not finalized is the acquisition related expenses. The purchase price allocation will be finalized in 2009. |
Amount | ||||
(in thousands) | ||||
Total purchase price of the acquisition of Star is as follows: | ||||
Cash consideration | $ | 7,915 | ||
Acquisition related expenses(1) | 849 | |||
Total purchase price | $ | 8,764 | ||
(1) | Acquisition related expenses include legal and accounting fees and other external costs directly related to the acquisition. |
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The preliminary allocation of purchase price based on estimated fair values and other adjustments (in thousands):
Net tangible assets | $ | 575 | ||
Identifiable intangible assets | ||||
Existing and core technology | 4,823 | |||
Customer contracts and relationships | 307 | |||
Trade name | 82 | |||
Order backlog | 83 | |||
Goodwill | 2,894 | |||
Total purchase price | $ | 8,764 | ||
Intangible Assets | ||
The fair value of intangible assets of $5.3 million has been allocated to the following identifiable intangible asset categories: |
Estimated | ||||||||
useful life (in | ||||||||
years) | Amount | |||||||
(in thousands) | ||||||||
Intangible Assets | ||||||||
Existing and core technology — product | 4.0 | $ | 4,316 | |||||
Existing technology — to be licensed | 0.2 | 507 | ||||||
Customer contracts and relationships | 7.0 | 307 | ||||||
Trade name | 2.0 | 82 | ||||||
Order backlog | 0.3 | 83 | ||||||
Total | $ | 5,295 | ||||||
The fair value of the existing technology- product, existing technology-to be licensed and the customer contracts and relationships was determined based on an income approach using the discounted cash flow method. The discount rate of 18.0% used to value the existing technology - product and discount rate of 20.0% used to value the customer contracts and relationships was estimated using a discount rate based on implied rate of return of the transaction, adjusted for the specific risk profile of each asset. The discount rate of 4.5% used to value the existing technology-to be licensed was based on a short-term risk free interest rate. The remaining useful life was estimated based on historical product development cycles, the projected rate of technology attrition, and the patterns of project economic benefit of the assets. | ||
The fair value of core technology and trade name was determined using a variation of income approach known as the profit allocation method. The estimated savings in profit were determined using a 3.0% profit allocation rate and a discount rate of 18.0%. The estimated useful life was determined based on the future economic benefit expected to be received from the asset. | ||
The fair value of order backlog was determined using cost approach where the fair value was based on estimated sales and marketing expenses expected to be incurred to regenerate the order backlog. The estimated useful life was determined based on the future economic benefit expected to be received from the asset. | ||
(3) | PRO FORMA ADJUSTMENTS | |
The unaudited pro forma combined condensed balance sheets and statements of operations give effect to the following pro forma adjustments: |
(c) | To record the cash consideration paid for the Acquisition (see footnote 2 above). | ||
(d) | To adjust Star’s assets and liabilities for the amounts acquired per the Asset Purchase Agreement. | ||
(e) | To record the fair market value of Star’s inventory, less the estimated costs to sell that inventory. This amount will be amortized through cost of sales over the estimated turn period of that inventory. This amount has not been adjusted in the pro forma combined statements of operations as it is non-recurring in nature. | ||
(f) | To reclassify $52,000 related to the tools acquired from Star from other intangibles to fixed assets to conform to the Company’s presentation. | ||
(g) | To record the fair value of identifiable intangibles and goodwill resulting from the Acquisition (see footnote 2 above). | ||
(h) | To eliminate Star’s historical stockholder’s equity. | ||
(i) | To record amortization of acquired intangibles resulting from the Acquisition. |
(4) | PRO FORMA COMBINED NET INCOME PER SHARE | |
The pro forma basic and diluted net income per share amounts presented are based upon the weighted average number of common shares outstanding during the period presented. Approximately, 196,000 restricted stock unit awards were issued to Star’s employees. The acquisition of Star had no impact to the basic and diluted weighted average common shares outstanding for the period presented. The pro forma diluted shares does not include the dilutive effect of restricted stock unit awards because the effect was anti-dilutive. |
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