ELECTRONICS FOR IMAGING, INC.
INTRODUCTORY NOTE TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements are presented to illustrate the effects of the merger on the historical financial position and operating results of EFI. The unaudited pro forma condensed combined balance sheet gives effect to the merger as if it was completed on March 31, 2005. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2005 and for the year ended December 31, 2004 give effect to the merger as if it was completed on January 1, 2004.
The following unaudited pro forma condensed combined financial statements were derived from (a) EFI’s audited statement of income for the year ended December 31, 2004 (filed on Form 10-K on March 16, 2005), its unaudited statement of income for the three months ended March 31, 2005 and its unaudited balance sheet as of March 31, 2005 (filed on Form 10-Q on May 10, 2005); and (b) VUTEk’s audited statement of operations for the year ended December 31, 2004, VUTEk’s unaudited balance sheet as of March 31, 2005 and VUTEk’s unaudited statement of operations for the three months ended March 31, 2005, included elsewhere in this Form 8-K, as amended, as an exhibit.
The following unaudited pro forma condensed combined financial statements are not necessarily indicative of EFI’s financial position or results of operations if the merger had been completed as of the dates indicated. Additionally, the following unaudited pro forma condensed combined financial statements are not necessarily indicative of EFI’s future financial condition or operating results.
The following unaudited pro forma condensed combined financial statements are based on estimates and assumptions set forth in the notes to these statements. These estimates and assumptions are preliminary and have been made solely for the purpose of developing these unaudited pro forma condensed combined financial statements.EFI is in the process of finalizing third-party valuations of certain assets acquired and liabilities assumed, as well as performing its own internal assessment.
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ELECTRONICS FOR IMAGING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2005
(in thousands)
| EFI | VUTEk | Pro Forma | EFI | |||||||||||||||||
| Historical | Historical | Adjustments | Pro Forma | |||||||||||||||||
| ASSETS | | |||||||||||||||||||
| Cash, cash equivalents, and short-term investments | $ | 656,794 | $ | 7,846 | $ | (290,798 | ) | (a) | $ | 373,842 | ||||||||||
| Accounts receivable, net | 42,310 | 28,830 | — | 71,140 | ||||||||||||||||
| Inventories | 5,952 | 20,852 | 846 | (d) | 27,650 | |||||||||||||||
| Other current assets | 23,134 | 2,898 | 8,763 | (e) | 34,795 | |||||||||||||||
| Total current assets | 728,190 | 60,426 | (281,189 | ) | 507,427 | |||||||||||||||
| Property and equipment, net | 44,227 | 8,214 | — | 52,441 | ||||||||||||||||
| Deferred financing costs | — | 4,053 | (4,053 | ) | (c) | — | ||||||||||||||
| Restricted investments | 88,580 | — | — | 88,580 | ||||||||||||||||
| Goodwill | 73,866 | 35,516 | 68,112 | (b) | 177,494 | |||||||||||||||
| Intangible assets, net | 37,696 | 20,242 | 107,558 | (b) | 165,496 | |||||||||||||||
| Other assets | 41,539 | 231 | (28,753 | ) | (e) | 13,017 | ||||||||||||||
| Total assets | $ | 1,014,098 | $ | 128,682 | $ | (138,325 | ) | $ | 1,004,455 | |||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||
| Accounts payable | $ | 20,658 | $ | 11,308 | — | $ | 31,966 | |||||||||||||
| Accrued and other liabilities | 59,062 | 6,116 | 3,903 | (g) | 69,081 | |||||||||||||||
| Customer deposits | — | 2,793 | 2,793 | |||||||||||||||||
| Current portion of long-term debt | — | 6,500 | (6,500 | ) | (c) | — | ||||||||||||||
| Income taxes payable | 24,261 | 2,519 | — | 26,780 | ||||||||||||||||
| Total current liabilities | 103,981 | 29,236 | (2,597 | ) | 130,620 | |||||||||||||||
| Long-term debt | 240,000 | 118,625 | (118,625 | ) | (c) | 240,000 | ||||||||||||||
| Other long-term liabilities | — | 1,918 | 1,918 | |||||||||||||||||
| Common stock | 640 | 1 | (1 | ) | (f) | 640 | ||||||||||||||
| Treasury stock | (214,722 | ) | (89,951 | ) | 89,951 | (f) | (214,722 | ) | ||||||||||||
| Additional paid-in capital | 363,351 | 16,140 | (16,140 | ) | (f) | 363,351 | ||||||||||||||
| Other comprehensive income | (2,010 | ) | 284 | (284 | ) | (f) | (2,010 | ) | ||||||||||||
| Subscription receivable from stockholder | — | (492 | ) | 492 | (f) | — | ||||||||||||||
| Retained earnings | 522,858 | 52,921 | (91,121 | ) | (f) | 484,658 | ||||||||||||||
| Total stockholders’ equity | 670,117 | (21,097 | ) | (17,103 | ) | 631,917 | ||||||||||||||
| Total liabilities and stockholders’ equity | $ | 1,014,098 | $ | 128,682 | $ | (138,325 | ) | $ | 1,004,455 | |||||||||||
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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ELECTRONICS FOR IMAGING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2004
(in thousands except per share data)
| EFI | VUTEk | Pro Forma | EFI | |||||||||||||||||
| Historical | Historical | Adjustments | Pro Forma | |||||||||||||||||
| Revenue | $ | 394,604 | $ | 131,756 | $ | — | $ | 526,360 | ||||||||||||
| Cost of revenue | 138,382 | 59,082 | 3,082 | (h) | 200,546 | |||||||||||||||
| Gross profit | 256,222 | 72,674 | (3,082 | ) | 325,814 | |||||||||||||||
| Operating expense: | ||||||||||||||||||||
| Research and development | 111,134 | 6,222 | 201 | (h) | 117,557 | |||||||||||||||
| Sales and marketing | 74,711 | 24,817 | 520 | (h) | 100,048 | |||||||||||||||
| General and administrative | 27,264 | 11,689 | (1,682 | ) | (h) | 37,271 | ||||||||||||||
| Amortization of identified intangibles and in-process research and development costs | 14,690 | 2,629 | 23,471 | (i) | 40,790 | |||||||||||||||
| Depreciation | — | 2,121 | (2,121 | ) | (h) | — | ||||||||||||||
| Restructuring charge | 765 | 765 | ||||||||||||||||||
| Real estate related charge | 14,394 | — | — | 14,394 | ||||||||||||||||
| Total operating expenses | 242,193 | 48,243 | 20,389 | 310,825 | ||||||||||||||||
| Income from operations | 14,029 | 24,431 | (23,471 | ) | 14,989 | |||||||||||||||
| Other income (expense), net: | ||||||||||||||||||||
| Other income (expense) | 15,831 | (1,159 | ) | (7,270 | ) | (j) | 7,402 | |||||||||||||
| Interest expense | (5,632 | ) | (9,982 | ) | 9,982 | (k) | (5,632 | ) | ||||||||||||
| Total other income (expense), net | 10,199 | (11,141 | ) | 2,712 | 1,770 | |||||||||||||||
| Income before income taxes | 24,228 | 13,290 | (20,759 | ) | 16,759 | |||||||||||||||
| Benefit from (provision for) income taxes | 13,791 | (8,833 | ) | 8,096 | (l) | 13,054 | ||||||||||||||
| Net income | $ | 38,019 | $ | 4,457 | $ | (12,663 | ) | $ | 29,813 | |||||||||||
| Shares used in basic per share calculation | 53,898 | 53,898 | ||||||||||||||||||
| Net income (loss) per basic common share | $ | 0.71 | $ | 0.55 | ||||||||||||||||
| Shares used in diluted per share calculation | 63,996 | 63,996 | ||||||||||||||||||
| Net income (loss) per diluted common share | $ | 0.64 | $ | 0.51 | ||||||||||||||||
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
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ELECTRONICS FOR IMAGING, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three months Ended March 31, 2005
(in thousands, except per share data)
| EFI | VUTEk | Pro Forma | ||||||||||||||||||
| Historical | Historical | Adjustments | EFI Pro Forma | |||||||||||||||||
| Revenue | $ | 82,003 | $ | 36,286 | $ | — | $ | 118,289 | ||||||||||||
| Cost of revenue | 28,794 | 16,597 | 733 | (m) | 46,124 | |||||||||||||||
| Gross profit | 53,209 | 19,689 | (733 | ) | 72,165 | |||||||||||||||
| Operating expense: | ||||||||||||||||||||
| Research and development | 26,379 | 1,956 | 55 | (m) | 28,390 | |||||||||||||||
| Sales and marketing | 16,838 | 5,508 | 114 | (m) | 22,460 | |||||||||||||||
| General and administrative | 7,493 | 3,115 | (505 | ) | (m) | 10,103 | ||||||||||||||
| Amortization of identified intangibles and in-process research and development costs | 3,176 | 657 | 5,868 | (n) | 9,701 | |||||||||||||||
| Depreciation | — | 397 | (397 | ) | (m) | — | ||||||||||||||
| Restructuring charge | 2,685 | — | — | 2,685 | ||||||||||||||||
| Total operating expenses | 56,571 | 11,633 | 5,135 | 73,339 | ||||||||||||||||
| (Loss) Income from operations | (3,362 | ) | 8,056 | (5,868 | ) | (1,174 | ) | |||||||||||||
| Other income (expense), net: | ||||||||||||||||||||
| Other income | 3,774 | 198 | (1,817 | ) | (o) | 2,155 | ||||||||||||||
| Interest expense | (1,255 | ) | (2,643 | ) | 2,643 | (p) | (1,255 | ) | ||||||||||||
| Total other income (expense), net | 2,519 | (2,445 | ) | 826 | 900 | |||||||||||||||
| (Loss) Income before income taxes | (843 | ) | 5,611 | (5,042 | ) | (274 | ) | |||||||||||||
| Benefit from (provision for) income taxes | 185 | (2,134 | ) | 1,967 | (q) | 18 | ||||||||||||||
| Net (loss) income | $ | (658 | ) | $ | 3,477 | $ | (3,075 | ) | $ | (256 | ) | |||||||||
| Shares used in basic per share calculation | 54,945 | 54,945 | ||||||||||||||||||
| Net (loss) income per basic & diluted common share | $ | (0.01 | ) | $ | (0.00 | ) | ||||||||||||||
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements
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ELECTRONICS FOR IMAGING, INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(in thousands, except per share data)
NOTE 1 DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
On June 2, 2005, EFI and VUTEk signed a merger agreement providing for the acquisition of VUTEk for $287,750 consideration in cash, including acquired cash of $7,395.
NOTE 2 PURCHASE PRICE
The purchase price allocation was based on preliminary information. The final valuations may differ and, accordingly, the amounts actually allocated to the identifiable assets and goodwill and certain other assets and liabilities may differ from those shown below. The purchase method of accounting has been used in the preparation of the accompanying unaudited pro forma condensed combined financial statements. Under this method of accounting, the purchase consideration is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed according to their respective fair values, with the excess purchase consideration being recorded as goodwill.
| Cash paid to VUTEk shareholders in exchange for VUTEk stock | $ | 287,750 | ||||||||||
| Estimated acquisition costs comprised of investment banking fees, legal fees and accounting and administrative fees | 3,048 | |||||||||||
| Total purchase price | $ | 290,798 | ||||||||||
| Net Assets Acquired | ||||||||||||
| Cash | 7,846 | |||||||||||
| Tangible assets in excess of liabilities assumed | 33,314 | |||||||||||
| In-process research and development | 38,200 | |||||||||||
| Developed technology | $ | 65,500 | (4 year life) | |||||||||
| Patents, trademarks & trade names | 27,000 | (30 year life) | ||||||||||
| Customer contracts & relationships | 35,300 | (4 year life) | ||||||||||
| Identifiable intangibles | 127,800 | |||||||||||
| Goodwill | 103,628 | |||||||||||
| Adjustments to Recorded Balances | ||||||||||||
| Increase in deferred tax liability related to intangibles | 19,990 | |||||||||||
As required by FASB Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method” (“FIN 4”), the portion of the purchase price allocated to the acquired in-process research and development of $38,200 has been immediately expensed. An adjustment for the estimated in-process research and development charge incurred by EFI has not been included in the unaudited pro forma condensed combined statements of income since such adjustment, as it relates to this acquisition, is non-recurring in nature.
NOTE 3 PRO FORMA ADJUSTMENTS
(a) To record the cash purchase price, acquisition costs and retirement of VUTEk debt that becomes due upon completion of the merger.
| Cash portion of purchase price | $ | (153,981 | ) | |
| Acquisition costs | (3,048 | ) | ||
| Redemption of warrants and options | (8,644 | ) | ||
| Retirement of VUTEk’s outstanding debt balances at March 31, 2005 | (125,125 | ) | ||
| $ | (290,798 | ) | ||
(b) To record the elimination of VUTEk intangibles as of March 31, 2005, and record the EFI intangible assets recognized as a result of the merger.
| Elimination of VUTEk goodwill | $ | (35,516 | ) | |
| Recognition of goodwill as a result of the EFI/VUTEk merger | 103,628 | |||
| $ | 68,112 | |||
| Elimination of VUTEk identified intangibles | $ | (20,242 | ) | |
| Recognition of identified intangibles as a result of the EFI/VUTEk merger | 166,000 | |||
| Write-off acquired in-process research & development costs | (38,200 | ) | ||
| $ | 107,558 | |||
(c) To record the payment by EFI of VUTEk’s outstanding debt balances as of March 31, 2005.
| Current portion, long-term debt | $ | (6,500 | ) | |
| Long-term debt | (118,625 | ) | ||
| Subtotal | (125,125 | ) | ||
| Deferred financing costs | 4,053 | |||
| $ | (121,072 | ) | ||
(d) To adjust inventory acquired to fair value.
| Inventory valuation | $ | 846 |
(e) To establish deferred tax liability related to identified intangibles.
| Deferred short-term tax asset | $ | 8,763 | ||
| Deferred long-term tax liability, net | (28,753 | ) | ||
| Deferred tax liability | $ | ( | ||
| 19,990 | ) | |||
(f) Elimination of VUTEk equity balance at March 31, 2005 and write-off the acquired in-process research and development.
| Common stock | $ | (1 | ) | |
| Treasury stock | 89,951 | |||
| Additional paid-in capital | (16,140 | ) | ||
| Foreign currency translation adjustments | (284 | ) | ||
| Subscription receivable from stockholder | 492 | |||
| Retained earnings | (91,121 | ) | ||
| $ | (17,103 | ) | ||
(g) To record accrual for estimated additional legal costs and settlements and accrual for retention bonuses.
| Legal cost accrual | $ | (3,503 | ) | |
| Retention bonus accrual | (400 | ) |
(h) Reclassification of VUTEk depreciation and operating expense overhead including allocated depreciation to remaining expense categories for the twelve months ended December 31, 2004 to conform to EFI’s financial statement presentation.
| Elimination of depreciation expense presented as a separate line item | $ | (2,121 | ) | |
| Reclassification of depreciation and overhead expense to cost of revenue | 3,082 | |||
| Reclassification of depreciation and overhead expense to research and development expense | 201 | |||
| Reclassification of depreciation and overhead expense to sales and marketing expense | 520 | |||
| Reclassification of depreciation and overhead expense to general and administrative expense | (1,682 | ) |
(i) To eliminate VUTEk’s amortization of acquired identified intangibles, offset by the amortization of the acquired identifiable intangibles of $26,100. The developed technology and customer relationships have an estimated useful life of 4 years, trademarks and trade names have been assigned an estimated useful life of 30 years.
| Eliminate VUTEk amortization of acquired identified intangibles for twelve months ended December 31, 2004 | $(2,629) | |||
| Recognize amortization of EFI acquired identified intangibles for twelve months ended December 31, 2004 | 26,100 | |||
| $ | 23,471 | |||
(j) To reduce interest income related to reduction in cash balances expended upon completion of acquisition (cash consideration and payoff of VUTEk’s debt).
| Reduction of interest income earned on cash balance through December 31, 2004 | $(7,270) |
(k) To eliminate interest expense associated with VUTEk’s outstanding debt.
| Elimination of interest expense | $ | 9,982 |
(l) To record tax effect of pro forma adjustments. Pro forma adjustments for income taxes utilize a rate of 39% which reflects EFI’s best estimate of the underlying statutory tax rate of the businesses for the periods presented herein.
| Addition of benefit from income taxes | $ | 8,096 |
(m) Reclassification of VUTEk depreciation and operating expense overhead including allocated depreciation to remaining expense categories for the three months ended March 31, 2005 to conform to EFI’s financial statement presentation.
| Elimination of depreciation expense presented as a separate line item | $ | (397 | ) | |
| Reclassification of depreciation and overhead expense to cost of revenue | 733 | |||
| Reclassification of depreciation and overhead expense to research and development expense | 55 | |||
| Reclassification of depreciation and overhead expense to sales and marketing expense | 114 | |||
| Reclassification of depreciation and overhead expense to general and administrative expense | (505 | ) |
(n) To eliminate VUTEk’s amortization of acquired identified intangibles, offset by the amortization of the acquired identifiable intangibles of $6,525. The developed technology and customer relationships have an estimated useful life of 4 years, trademarks and trade names have been assigned an estimated useful life of 30 years.
| Eliminate VUTEk amortization of acquired identified intangibles for three months ended March 31, 2005 | $(657) | |||
| Recognize amortization of EFI acquired identified intangibles for three months ended March 31, 2005 | 6,525 | |||
| $ | 5,868 | |||
(o) To reduce interest income related to reduction in cash balances expended upon completion of acquisition (cash consideration and payoff of VUTEk’s debt).
| Reduction of interest income earned on cash balance through March 31, 2005 | $(1,817) |
(p) To eliminate interest expense associated with VUTEk’s outstanding debt.
| Elimination of interest expense | $ | 2,643 |
(q) To record tax effect of pro forma adjustments. Pro forma adjustments for income taxes utilize a rate of 39% which reflects EFI’s best estimate of the underlying statutory tax rate of the businesses for the periods presented herein.
| Addition of benefit from income taxes | $ | 1,967 |
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