EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet and statements of income are presented to give effect to the acquisition of Atmel Corporation ("Atmel") by Microchip Technology Incorporated (“Microchip”). The pro forma information was prepared based on the historical financial statements and related notes of Microchip and Atmel, as adjusted for the pro forma impact of applying the acquisition method of accounting in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). The pro forma adjustments are based upon available information and assumptions that Microchip believes are reasonable. The allocation of the purchase price of the Atmel 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 if the transaction had occurred on March 31, 2016. The unaudited pro forma combined statements of income combine the results of operations of Microchip and Atmel for the fiscal year ended March 31, 2016 and December 31, 2015, respectively, as if the transaction had occurred on April 1, 2015.
The unaudited pro forma combined financial statements were prepared using the acquisition method of accounting with Microchip treated as the acquiring entity. Accordingly, the aggregate value of the consideration paid by Microchip to complete the acquisition was allocated to the assets acquired and liabilities assumed from Atmel based upon their estimated fair values on the closing date of the acquisition. Microchip has not completed the detailed valuations necessary to estimate the fair value of the assets acquired and the liabilities assumed from Atmel and the related allocations of purchase price, nor has Microchip identified all adjustments necessary to conform Atmel's accounting policies to Microchip’s accounting policies. Additionally, a final determination of the fair value of assets acquired and liabilities assumed from Atmel will be based on the actual net tangible and intangible assets and liabilities of Atmel 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. Microchip estimated the fair value of Atmel's assets and liabilities based on discussions with Atmel'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.
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| | | | | | | | | | | | | | | | | |
| UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET |
| AS OF MARCH 31, 2016 |
| (in thousands) |
| | 3/31/2016 | | 12/31/2015 | | Pro Forma | | | | |
| | Microchip | | Atmel | | Adjustments | | Footnote | | Pro Forma |
| ASSETS | Historical | | Historical | | (Note 6) | | (Note 6) | | Combined |
| Cash and cash equivalents | $ | 2,092,751 |
| | $ | 210,252 |
| | $ | (2,037,749 | ) | | (1) | | $ | 265,254 |
|
| Short-term investments | 353,284 |
| | — |
| | — |
| | | | 353,284 |
|
| Accounts receivable, net | 290,183 |
| | 195,481 |
| | — |
| | | | 485,664 |
|
| Inventories | 306,815 |
| | 257,376 |
| | 146,332 |
| | (2) | | 710,523 |
|
| Prepaid expenses and other current assets | 53,680 |
| | 35,299 |
| | — |
| | | | 88,979 |
|
| Total current assets | 3,096,713 |
| | 698,408 |
| | (1,891,417 | ) | | | | 1,903,704 |
|
| Property, plant and equipment, net | 609,396 |
| | 131,154 |
| | — |
| | | | 740,550 |
|
| Long-term investments | 118,549 |
| | — |
| | — |
| | | | 118,549 |
|
| Goodwill | 1,012,652 |
| | 188,237 |
| | 1,212,577 |
| | (3) | | 2,413,466 |
|
| Intangible assets, net | 606,349 |
| | 38,943 |
| | 1,512,157 |
| | (4) | | 2,157,449 |
|
| Long-term deferred tax assets | 14,831 |
| | 157,929 |
| | — |
| | (8) | | 172,760 |
|
| Other assets | 109,025 |
| | 45,747 |
| | — |
| | | | 154,772 |
|
| Total assets | $ | 5,567,515 |
| | $ | 1,260,418 |
| | $ | 833,317 |
| | | | $ | 7,661,250 |
|
| LIABILITIES AND EQUITY |
| Accounts payable | $ | 79,312 |
| | $ | 59,470 |
| | $ | — |
| | | | $ | 138,782 |
|
| Accrued liabilities | 119,265 |
| | 113,012 |
| | 20,000 |
| | (5) | | 252,277 |
|
| Deferred income on shipments to distributors | 183,432 |
| | 38,710 |
| | (38,710 | ) | | (6) | | 183,432 |
|
| Total current liabilities | 382,009 |
| | 211,192 |
| | (18,710 | ) | | | | 574,491 |
|
| Senior convertible debentures | 1,234,733 |
| | — |
| | — |
| | | | 1,234,733 |
|
| Junior convertible debentures | 196,304 |
| | — |
| | — |
| | | | 196,304 |
|
| Long-term line of credit | 1,052,000 |
| | 55,000 |
| | 1,077,300 |
| | (7) | | 2,184,300 |
|
| Long-term income tax payable | 111,061 |
| | 49,965 |
| | — |
| | | | 161,026 |
|
| Long-term deferred tax liability | 399,218 |
| | — |
| | 155,553 |
| | (8) | | 554,771 |
|
| Other long-term liabilities | 41,271 |
| | 67,577 |
| | — |
| | | | 108,848 |
|
| Stockholders' equity: | | | | | | | | | |
| Preferred stock | — |
| | — |
| | — |
| | | | — |
|
| Common stock | 204 |
| | 421 |
| | (421 | ) | | (9) | | 204 |
|
| Additional paid-in capital | 1,391,553 |
| | 790,249 |
| | (294,391 | ) | | (9) | | 1,887,411 |
|
| Treasury stock | (820,066 | ) | | — |
| | — |
| | | | (820,066 | ) |
| Accumulated other comprehensive loss | (3,357 | ) | | (11,655 | ) | | 11,655 |
| | (9) | | (3,357 | ) |
| Retained earnings | 1,582,585 |
| | 94,645 |
| | (94,645 | ) | | (9) | | 1,582,585 |
|
| Total stockholders' equity | 2,150,919 |
| | 873,660 |
| | (377,802 | ) | | | | 2,646,777 |
|
| Non-controlling interest | — |
| | 3,024 |
| | (3,024 | ) | | (9) | | — |
|
| Total equity | 2,150,919 |
| | 876,684 |
| | (380,826 | ) | | | | 2,646,777 |
|
| Total liabilities and equity | $ | 5,567,515 |
| | $ | 1,260,418 |
| | $ | 833,317 |
| | | | $ | 7,661,250 |
|
| | | | | | | | | | |
| See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information |
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| | | | | | | | | | | | | | | | | |
| UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME |
| FOR THE YEAR ENDED MARCH 31, 2016 |
| (in thousands, except per share amounts) |
| | Year Ended | | Year Ended | | | | | | |
| | 03-31-2016 | | 12-31-2015 | | Pro Forma | | | | |
| | Microchip | | Atmel | | Adjustments | | Footnote | | Pro Forma |
| | Historical | | Historical | | (Note 6) | | (Note 6) | | Combined |
| Net sales | $ | 2,173,334 |
| | $ | 1,172,456 |
| | $ | — |
| | | | $ | 3,345,790 |
|
| Cost of sales | 967,870 |
| | 629,429 |
| | — |
| | | | 1,597,299 |
|
| Gross profit | 1,205,464 |
| | 543,027 |
| | — |
| | | | 1,748,491 |
|
| | | | | | | | | | |
| Operating expenses: | | | | | | | | | |
| Research and development | 372,596 |
| | 230,212 |
| | — |
| | | | 602,808 |
|
| Selling, general and administrative | 301,670 |
| | 246,559 |
| | — |
| | | | 548,229 |
|
| Amortization of acquired intangible assets | 174,896 |
| | 9,500 |
| | 207,500 |
| | (A) | | 391,896 |
|
| Special (income) charges, net | 3,957 |
| | 5,995 |
| | — |
| | | | 9,952 |
|
| | 853,119 |
| | 492,266 |
| | 207,500 |
| | | | 1,552,885 |
|
| | | | | | | | | | |
| Operating income | 352,345 |
| | 50,761 |
| | (207,500 | ) | | | | 195,606 |
|
| Losses on equity method investments | (345 | ) | | — |
| | — |
| | | | (345 | ) |
| Other income (expense): | | | | | | | | | |
| Interest income | 24,447 |
| | 1,117 |
| | (18,107 | ) | | (B) | | 7,457 |
|
| Interest expense | (104,018 | ) | | (2,681 | ) | | (25,850 | ) | | (C) | | (132,549 | ) |
| Other income, net | 8,864 |
| | 9,098 |
| | — |
| | | | 17,962 |
|
| Income before income taxes | 281,293 |
| | 58,295 |
| | (251,457 | ) | | | | 88,131 |
|
| Income tax (benefit) provision | (42,632 | ) | | 31,393 |
| | (68,139 | ) | | (D) | | (79,378 | ) |
| Net income | 323,925 |
| | 26,902 |
| | (183,318 | ) | | | | 167,509 |
|
| Less: Net loss (income) attributable to noncontrolling interests | 207 |
| | (11 | ) | | — |
| | | | 196 |
|
| Net income attributable to common stockholders | $ | 324,132 |
| | $ | 26,891 |
| | $ | (183,318 | ) | | | | $ | 167,705 |
|
| | | | | | | | | | |
| Basic net income per common share attributable to common stockholders | $ | 1.59 |
| | $ | 0.06 |
| |
| | | | $ | 0.79 |
|
| Diluted net income per common share attributable to common stockholders | $ | 1.49 |
| | $ | 0.06 |
| |
| | | | $ | 0.74 |
|
| Basic common shares outstanding | 203,384 |
| | 418,759 |
| | (408,834 | ) | | (E) | | 213,309 |
|
| Diluted common shares outstanding | 217,388 |
| | 420,287 |
| | (410,326 | ) | | (E) | | 227,349 |
|
| | | | | | | | | | |
| See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information |
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1 - DESCRIPTION OF THE TRANSACTION
On April 4, 2016, Microchip completed its acquisition of Atmel. Under the terms of the merger agreement executed on January 19, 2016, Atmel stockholders received $8.15 per share in a combination of cash and shares of Microchip common stock. The acquisition price represents a total equity value of about $3.47 billion, and a total enterprise value of about $3.43 billion, after excluding Atmel's cash and investments net of debt on its balance sheet of approximately $39.3 million at the acquisition date.
Under the terms of the merger agreement, stockholders of Atmel received $7.00 per share in cash and $1.15 per share in shares of Microchip common stock, valued at the average closing price for a share of Microchip common stock for the ten most recent trading days ending on the last trading day prior to the closing of $48.44. Microchip financed the purchase price of the acquisition using approximately $2.04 billion of cash, cash equivalents, short-term investments and long-term investments held by certain of its foreign subsidiaries, approximately $0.94 billion from additional borrowings under its existing line of credit agreement and approximately $489 million by issuing an aggregate of 10.1 million shares of its common stock.
NOTE 2 - BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma combined balance sheet has been prepared to reflect the transaction as of March 31, 2016. The unaudited pro forma combined statements of operations combine the results of operations of Microchip and Atmel for the fiscal year ended March 31, 2016 as if the transaction had occurred on April 1, 2015. The unaudited pro forma combined balance sheet as of March 31, 2016 was prepared utilizing the Atmel historical balance sheet as of December 31, 2015. The unaudited pro forma combined statements of operations for the year ended March 31, 2016 was prepared utilizing the Atmel historical income statement for the year ended December 31, 2015.
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 Microchip and Atmel been a combined company during the respective periods presented. These unaudited pro forma combined financial statements should be read in conjunction with Microchip's historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2016 filed with the Securities and Exchange Commission (the "SEC") on May 24, 2016 as well as Atmel's historical consolidated financial statements and related notes included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the SEC on February 29, 2016 and incorporated by reference in Microchip's Registration Statement on Form S-4 (file number 333-209477). Certain reclassifications have been made to the historical presentation of Microchip and Atmel to conform to the presentation used in the unaudited pro forma condensed combined financial statements, as described below in Note 5.
Microchip expects to incur costs and realize benefits associated with integrating the operations of Microchip and Atmel. 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. The unaudited pro forma condensed combined statement of operations does not reflect any non-recurring charges directly related to the acquisition that the combined company may incur upon completion of the transaction.
NOTE 3 - ESTIMATED PRELIMINARY PURCHASE PRICE CONSIDERATION
The table below represents the total estimated preliminary purchase price consideration (amounts in thousands):
|
| | | |
| Total number of shares of Atmel common stock outstanding as of April 4, 2016 | 425,393 |
|
| | |
| $7.00 per share cash portion of purchase price | $ | 2,977,749 |
|
| $1.15 per share stock portion of purchase price | 489,202 |
|
| Exchange of unvested share-based payment awards | 6,656 |
|
| | $ | 3,473,607 |
|
NOTE 4 - ESTIMATED PRELIMINARY PURCHASE PRICE ALLOCATION
The table below represents the estimated preliminary purchase price allocation to the net assets acquired based on their estimated fair values, as well as the associated estimated useful lives of the acquired intangible assets (amounts in thousands). Such amounts were estimated using the most recent audited financial statements of Atmel as of December 31, 2015. Microchip does not believe the use of Atmel's balances as of December 31, 2015 instead of April 4, 2016 will result in a materially different allocation, however, certain amounts, such as the balances of cash and cash equivalents, accounts receivable, inventories, accounts payable and other current liabilities may vary based upon changes in Atmel’s balances between December 31, 2015 and April 4, 2016, with offsetting changes to goodwill. 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. Microchip's consolidated financial statements as of June 30, 2016 will include updated amounts reflecting the April 4, 2016 estimated fair values.
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| | | |
| Assets acquired | Fair Value |
| Cash and cash equivalents | $ | 210,252 |
|
| Accounts receivable, net | 195,481 |
|
| Inventories | 403,708 |
|
| Prepaid expenses and other current assets | 35,299 |
|
| Property, plant and equipment, net | 131,154 |
|
| Goodwill | 1,400,814 |
|
| Intangible assets | 1,551,100 |
|
| Long-term deferred tax asset | 157,929 |
|
| Other assets | 45,747 |
|
| Total assets acquired | 4,131,484 |
|
| | |
| Liabilities assumed | |
| Accounts payable | (59,470 | ) |
| Other current liabilities | (133,012 | ) |
| Long-term line of credit | (192,300 | ) |
| Long-term deferred tax liabilities | (155,553 | ) |
| Long-term income tax payable | (49,965 | ) |
| Other long-term liabilities | (67,577 | ) |
| Total liabilities assumed | (657,877 | ) |
| Purchase price allocated | $ | 3,473,607 |
|
NOTE 5 - RECLASSIFICATION ADJUSTMENTS
Certain reclassifications have been made to the historical presentation of Atmel to conform to the presentation used in the unaudited pro forma condensed combined financial statements. They include the following:
Unaudited pro forma condensed combined balance sheet
| |
| • | Approximately $157.9 million reclassified from other assets to long-term deferred tax assets. |
| |
| • | Approximately $50.0 million reclassified from other long-term liabilities to long-term income tax payable. |
Unaudited pro form condensed combined statements of income
| |
| • | Amortization of acquired intangible assets includes approximately $9.5 million for the year ended December 31, 2015 that was included in acquisition-related charges in Atmel's historical income statements. |
| |
| • | Interest expense includes approximately $2.7 million for the year ended December 31, 2015 that was included in interest and other income (expense), net in Atmel's historical income statements. |
| |
| • | Interest income includes approximately $1.1 million for the year ended December 31, 2015 that was included in interest and other income (expense), net in Atmel's historical income statements. |
NOTE 6 - PRO FORMA ADJUSTMENTS
The following is a description of the unaudited pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements:
Adjustments to the pro forma condensed combined balance sheet:
(1) The pro forma adjustments to cash and cash equivalents, short-term and long-term investments reflects the cash paid for the acquisition as follows (amounts in thousands):
|
| | | |
| Cash portion of purchase consideration | $ | 2,977,749 |
|
| Proceeds from line of credit | (940,000 | ) |
| Total cash and cash equivalents, short-term and long-term investments used for purchase consideration | $ | 2,037,749 |
|
(2) The pro forma adjustment to inventory reflects approximately $146 million of fair value write-up of acquired inventory at the assumed acquisition date. The increased valuation of the inventory will increase cost of sales as the acquired inventory is sold after the closing date of the acquisition. There is no continuing effect of the acquired inventory adjustment on the combined operating results and, as such, this adjustment is not included in the unaudited pro forma condensed combined statements of income.
(3) The pro forma adjustment to goodwill includes the following (amounts in thousands):
|
| | | |
| Elimination of Atmel's historical goodwill balance | $ | (188,237 | ) |
| Addition of goodwill as a result of the estimated preliminary purchase price allocation | 1,400,814 |
|
| Total pro forma adjustment to goodwill | $ | 1,212,577 |
|
(4) The pro forma adjustment to intangible assets, net includes the following (amounts in thousands):
|
| | | |
| Elimination of Atmel's historical intangible asset balance | $ | (38,943 | ) |
Addition of intangible assets as a result of the estimated preliminary purchase price allocation (A) | 1,551,100 |
|
| Total pro forma adjustment to intangible assets, net | $ | 1,512,157 |
|
(A) The addition of intangible assets as a result of the estimated preliminary purchase price allocation is comprised of the following:
|
| | | | |
| | Estimated useful life | |
| | (in years) | (in thousands) |
| Developed technology | 10-15 | $ | 988,400 |
|
| In-process technology | 10-15 | 114,500 |
|
| Customer relationships | 5 | 435,900 |
|
| Product backlog | 1-2 | 12,300 |
|
| Total purchased intangible assets | | $ | 1,551,100 |
|
(5) The pro forma adjustments to accrued liabilities include the following (amounts in thousands):
|
| | | |
| Non-recurring acquisition related costs | $ | 15,000 |
|
Accrual for payments due to distributors for price adjustments (A) | 5,000 |
|
| Total pro forma adjustments to accrued liabilities | $ | 20,000 |
|
(A) Represents estimated future claims for sales to distributors for which revenue is recognized on a sell-through basis, primarily in the U.S. and Europe.
(6) The pro forma adjustment to deferred income to distributors reflects the amount of deferred margin recorded by Atmel which Microchip will not recognize subsequent to the acquisition.
(7) The pro forma adjustments to the long-term line of credit include the following (amounts in thousands):
|
| | | |
| Portion of purchase consideration funded by the long-term line of credit | $ | 940,000 |
|
| Payment related to the termination of the merger agreement between Atmel and Dialog Semiconductor plc | 137,300 |
|
| Total pro forma adjustments to the long-term line of credit | $ | 1,077,300 |
|
(8) The pro forma adjustments to deferred tax assets and liabilities include deferred tax assets and liabilities established on the preliminary purchase price allocation.
(9) The pro forma adjustments to total equity include the following (amounts in thousands):
|
| | | |
| Elimination of pre-acquisition Atmel equity balances | $ | (876,684 | ) |
| Impact of shares to be delivered as part of the stock portion of purchase consideration | 495,858 |
|
| Total pro forma adjustment to total equity | $ | (380,826 | ) |
Adjustments to the pro forma condensed combined statements of income:
(A) The amortization of acquired intangible assets pro forma adjustments are as follows (amounts in thousands):
|
| | | |
| | Year ended |
| | March 31, 2016 |
| Elimination of Atmel's historical acquired intangible asset amortization | $ | (9,500 | ) |
| Addition of the Microchip's estimated acquired intangible asset amortization | 217,000 |
|
| Total pro forma amortization of acquired intangible assets adjustments | $ | 207,500 |
|
(B) The pro forma adjustments to interest income relates to the lost interest income of Microchip as a result of the $2.04 billion of Microchip's cash used to fund the transaction.
(C) The pro forma adjustment to interest expense relates to the interest charge on additional borrowings under Microchip's revolving credit facility. The interest was calculated using a 2.75% interest rate on approximately $940.0 million of borrowings against the line of credit. The effect on pro forma net income utilizing an interest rate of 2.625% would be approximately $1.2 million for the the year ended March 31, 2016. The effect on pro forma net income utilizing an interest rate of 2.875% would be approximately $(1.2) million for the year ended March 31, 2016.
(D) The pro forma adjustments to income tax provision (benefit) represent the estimated tax effect of pro forma adjustments (A) and (C) above at estimated tax rates, which are lower than the U.S. Federal statutory rate due to foreign income taxed at a lower rate.
(E) The pro forma adjustments to basic and diluted common shares outstanding were calculated based on a conversion ratio of .0237. This conversion ratio was calculated by dividing the $1.15 per share equity portion of the purchase consideration by the trailing ten day average Microchip stock price of $48.44 per share.
|
| | |
| | Year ended |
| (in thousands) | March 31, 2016 |
| Basic common shares outstanding - Atmel historical | 418,759 |
|
| Exchange ratio | 0.0237 |
|
| | 9,925 |
|
| Microchip's historical basic common shares outstanding | 203,384 |
|
| Pro forma basic common shares outstanding | 213,309 |
|
| | |
| Diluted common shares outstanding - Atmel historical | 420,287 |
|
| Exchange ratio | 0.0237 |
|
| | 9,961 |
|
| Microchip's historical diluted common shares outstanding | 217,388 |
|
| Pro forma diluted common shares outstanding | 227,349 |
|
