EXHIBIT 99.2
Pro Forma Condensed Combined Financial Information for Standard Microsystems
Corporation and Subsidiaries (SMSC) and OASIS SiliconSystems Holding AG (OASIS)
Index - Unaudited Pro Forma Condensed Combined Financial Information
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Basis of Presentation
Unaudited Pro Forma Condensed Combined Balance Sheet as of February 28, 2005
Unaudited Pro Forma Condensed Combined Statement of Operations for the year
ended February 28, 2005
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Basis of Presentation
The unaudited pro forma condensed combined financial information is based on the
assumptions set forth in the notes to such information. The unaudited pro forma
adjustments made in the compilation of the unaudited pro forma financial
information are based upon available information and assumptions that the
Company considers to be reasonable, and have been made solely for purposes of
developing such unaudited pro forma financial information for illustrative
purposes in compliance with the disclosure requirements of the Securities and
Exchange Commission. The unaudited pro forma condensed combined financial
information does not purport to be indicative of the results of operations for
future periods or the combined financial position or the operating results that
would have occurred had the transaction occurred on the dates assumed. The
actual operating results for OASIS have been consolidated with the Company's
operating results for all periods subsequent to the acquisition date of March
30, 2005.
The unaudited pro forma condensed combined statement of operations included
herein does not reflect any potential cost savings or other operating
efficiencies that could result from the transaction.
The pro forma condensed combined financial information included herein does not
reflect any contingent consideration that may be paid to the former shareholders
of OASIS in the future. The actual amount of future consideration, if any, will
be recognized as an adjustment to goodwill in the period in which the
contingency is resolved.
The allocation of the initial purchase price consideration paid by SMSC for
OASIS to the assets acquired and liabilities assumed included in the unaudited
pro forma condensed combined financial information is based upon preliminary
estimates of the fair market values of the acquired assets and assumed
liabilities. These estimates of fair market values may change upon completion of
the Company's final valuation of the assets and liabilities of OASIS.
Under the provisions of Statements of Financial Accounting Standards (SFAS) No.
141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
goodwill and intangible assets deemed to have indefinite lives are not amortized
but are subject to annual impairment tests. Intangible assets with finite lives
are amortized over their estimated useful lives.
In accordance with the provisions of SFAS No. 142, the Company will not amortize
goodwill and intangible assets with indefinite lives recorded in connection with
the acquisition of OASIS, and will perform an annual impairment test of the
goodwill and any indefinite lived intangible assets.
The historical financial information for OASIS included within Exhibit 99.1 of
this report is presented in conformity with accounting principles generally
accepted in Germany. The financial information for OASIS used within the
unaudited pro forma condensed combined financial information presented herein
has been prepared in accordance with accounting principles generally accepted in
the United States of America.
The February 28, 2005 unaudited pro forma condensed combined balance sheet gives
affect to the acquisition of OASIS by SMSC as if it had occurred effective
February 28, 2005, by combining the Company's consolidated balance sheet as of
February 28, 2005 with OASIS' unaudited consolidated balance sheet as of
February 28, 2005.
The unaudited pro forma condensed combined statement of operations for the year
ended February 28, 2005 gives affect to the acquisition of OASIS by SMSC as if
it had occurred effective March 1, 2004, and includes the historical operating
results of SMSC for the fiscal year ended February 28, 2005 and the historical
operating results of OASIS for the year ended December 31, 2004. The Company's
financial results are reported on the basis of a fiscal year ending February 28,
and OASIS' financial results are reported on the basis of a calendar year ending
December 31. These operating results for different fiscal year-end periods may
be appropriately combined for pro forma purposes, since the fiscal year-end
periods are within 93 days of each other, in accordance with Securities and
Exchange Commission guidance contained within Regulation S-X.
This unaudited pro forma condensed combined financial information should be read
in conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended February 28, 2005 and the audited consolidated financial statements and
notes thereto of OASIS included in this report.
Standard Microsystems Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
As of February 28, 2005
(In thousands)
Pro Forma Pro Forma
SMSC OASIS Adjustments Combined
---- ----- ----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 116,126 $ 24,146 $ (79,539) (a) $ 60,733
Short-term investments 56,519 - - 56,519
Accounts receivable, net 23,788 6,168 - 29,956
Inventories 33,310 10,990 1,726 (c) 46,026
Deferred income taxes 17,701 - - 17,701
Other current assets 4,295 1,175 - 5,470
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Total current assets 251,739 42,479 (77,813) 216,405
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Property, plant and equipment, net 22,630 2,664 - 25,294
Goodwill 29,435 - 53,507 (h) 82,942
Intangible assets, net 3,584 896 47,945 (b) 52,425
Deferred income taxes 7,163 - (7,163) (f) -
Other assets 4,708 - (1,076) (d) 3,632
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$ 319,259 $ 46,039 $ 15,400 $ 380,698
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Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 15,995 $ 2,242 $ - $ 18,237
Deferred income on shipments to distributors 7,689 - - 7,689
Accrued expenses, income taxes and other
liabilities 13,400 10,019 2,277 (d) 25,696
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Total current liabilities 37,084 12,261 2,277 51,622
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Deferred income taxes - - 12,018 (b)(c)(f) 12,018
Other liabilities 12,326 - - 12,326
Shareholders' equity:
Preferred stock - - - -
Common stock 2,053 13,254 (13,047) (a) (e) 2,260
Additional paid-in capital 187,854 16,376 19,200 (a) (e) 223,430
Retained earnings 100,612 4,606 (5,506) (e) (g) 99,712
Treasury stock, at cost (23,799) - - (23,799)
Deferred stock-based compensation (1,925) - - (1,925)
Accumulated other comprehensive income 5,054 (458) 458 (e) 5,054
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Total shareholders' equity 269,849 33,778 1,105 304,732
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$ 319,259 $ 46,039 $ 15,400 $ 380,698
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See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
Standard Microsystems Corporation and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended February 28, 2005
(In thousands, except per share data)
Pro Forma Pro Forma
SMSC OASIS * Adjustments Combined
---- ------- ----------- -------------
Sales and Revenues $ 208,815 $ 50,370 $ - $ 259,185
Cost of goods sold 114,066 29,170 4,050 (i) 147,286
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Gross profit 94,749 21,200 (4,050) 111,899
Operating expenses (income):
Research and development 42,988 9,612 - 52,600
Selling, general and administrative 48,759 8,881 (14) (k) 57,626
Amortization of intangible assets 1,113 - 1,313 (i) 2,426
Gains on real estate transactions (1,017) - - (1,017)
Settlement charge 6,000 - - 6,000
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Income (loss) from operations (3,094) 2,707 (5,349) (5,736)
Other income (expense):
Interest income 2,532 398 (1,233) (j) 1,697
Interest expense (134) - - (134)
Other income (expense), net 31 179 - 210
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Income (loss) before income taxes
and minority interest (665) 3,284 (6,581) (3,962)
Provision for (benefit from) income taxes (2,267) 1,225 (2,152) (3,194)
Net income (loss) $ 1,602 $ 2,059 $ (4,430) $ (769)
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Basic net income (loss) per share: $ 0.09 $ (0.04)
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Diluted net income (loss) per share: $ 0.08 $ (0.04)
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Shares Used in the Calculation of Net Income
(Loss) Per Share:
Basic 18,376 20,448
Diluted 19,318 20,448
* Reflects OASIS' historical operating results for the year ended December
31, 2004.
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
Standard Microsystems Corporation and Subsidiaries
Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. Summary of Transaction
On March 30, 2005, SMSC completed the acquisition of 100% of the outstanding
capital stock of OASIS in a transaction accounted for as a purchase under
accounting principles generally accepted in the United States of America. Under
the purchase method of accounting, the total estimated purchase price is
allocated to the net tangible and intangible assets acquired, based upon their
fair values as of the completion of the acquisition.
2. Consideration Paid, Assets Acquired and Liabilities Assumed
The following table sets forth the components of the purchase price (in
millions):
Cash paid $ 79.5
SMSC common stock issued 35.8
Estimated transaction costs 3.4
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$ 118.7
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The following table provides the estimated fair values of the assets acquired
and liabilities assumed, based upon OASIS' February 28, 2005 balance sheet (in
millions):
Net current assets, including $24.1 million of cash and
cash equivalents $ 31.9
Net non-current liabilities, including deferred income
taxes (15.9)
Intangible assets 48.3
Goodwill 53.5
In-process research and development 0.9
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$ 118.7
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In accordance with the provisions of SFAS No. 141, OASIS' finished goods
inventory has been valued at estimated selling prices less the costs of disposal
and a reasonable profit allowance for the related selling effort; work in
process inventory has been valued at estimated selling prices of the finished
goods less costs to complete, costs of disposal, and a reasonable profit
allowance for the completing and selling efforts; and raw materials have been
valued at current replacement costs. These values initially exceed OASIS'
historical cost by approximately $1.7 million. This value will be recorded as an
increase to the carrying value of inventory, and then recorded as a component of
cost of goods sold as the underlying inventory is sold. The unaudited pro forma
condensed combined balance sheet reflects this inventory valuation, but to the
extent that this inventory valuation exceeds historical cost, it has not been
reflected in the unaudited pro forma condensed combined statement of operations
as it is nonrecurring in nature.
The final determination of the purchase price allocation will be based upon the
assets acquired and liabilities assumed as of the March 30, 2005 acquisition
date, and will be completed as soon as practicable, but no later than one year
from the acquisition date. The final amounts allocated to assets acquired and
liabilities assumed could differ from the amounts presented in this unaudited
pro forma condensed combined financial information.
3. Intangible Assets
The amounts allocated to acquired identifiable intangible assets consists of the
following (in millions):
Existing technologies $ 32.4
Customer relationships 10.5
Trademark 5.4
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$ 48.3
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The estimated fair value attributed to existing technologies was determined
based upon a discounted forecast of the estimated net future cash flows to be
generated from the technologies using a discount rate of 25%. The estimated fair
value of existing technologies will be amortized over a period of 8 years on a
straight-line basis, which approximates the pattern in which the economic
benefits of the existing technologies are expected to be realized.
The estimated fair value attributed to customer relationships was determined
based on a discounted forecast of the estimated net future cash flows to be
generated from the relationships discounted at a rate of 23%. The estimated fair
value of the customer relationships will be amortized over a period of 8 years
on a straight-line basis, which approximates the pattern in which the economic
benefits of the customer relationships are expected to be realized.
OASIS owns the MOST trademark, which is an acronym for Media Oriented Systems
Transport, the core of its automotive infotainment technology. The estimated
fair value attributed to this trademark was determined by calculating the
present value of the royalty savings related to the trademark using an assumed
royalty rate of 1.5% and a discount rate of 23%. This trademark has an
indefinite life and will therefore not be amortized, and will be subject to an
impairment test on an annual basis, or when an event or circumstance occurs
indicating a possible impairment in value.
Goodwill represents the excess of the purchase price over the fair values of the
net tangible and intangible assets. In accordance with SFAS No. 142, goodwill is
not amortized but will be tested for impairment at least annually.
4. In-Process Research and Development
The amount allocated to in-process research and development represents an
estimate of the fair value of purchased in-process technology for research
projects that, as of the closing date of the acquisition, have not reached
technological feasibility and have no alternative future use. These projects
primarily are focused on deployment of certain technology into consumer
applications. The estimated fair value of in-process research and development
will be recorded as an expense in the Company's fiscal quarter ended May 31,
2005. The unaudited pro forma condensed combined balance sheet gives effect to
this charge as if it had been incurred as of March 1, 2004, but the effect of
this in-process research and development has not been reflected in the unaudited
pro forma condensed combined statement of operations as it is nonrecurring in
nature.
5. Pro Forma Adjustments
The pro forma adjustments included in the unaudited pro forma condensed combined
financial information are as follows:
Unaudited Pro Forma Condensed Combined Balance Sheet:
(a) To reflect the cash payments of $79.5 million and issuance of common stock
valued at $35.8 million ($0.2 million of common stock and $35.6 million of
additional paid-in capital), to the former shareholders of OASIS.
(b) To reflect the preliminary $48.3 million fair value of the acquired
identifiable intangible assets of OASIS, less certain historical OASIS
intangible assets of $0.4 million, and $19.2 million of related deferred income
taxes.
(c) To reflect a preliminary $1.7 million fair value adjustment for the acquired
inventory of OASIS, and $0.5 million of related deferred income taxes.
(d) To reflect estimated direct costs of $3.3 million related to the acquisition
of OASIS, $1.1 million of which were accrued by SMSC at February 28, 2005.
(e) To eliminate OASIS' $33.8 million of historical shareholder's equity.
(f) To reflect a $0.6 million tax credit carryforward not reflected in OASIS
historical financial statements, and to reclassify deferred income taxes.
(g) To reflect the $0.9 million preliminary fair value for in-process research
and development related to the acquisition of OASIS. This expense is directly
attributable to the acquisition and will not have a continuing impact on the
Company's operating results, and therefore, it is not reflected as an expense in
the pro forma condensed combined statement of operations.
(h) To reflect the preliminary $53.5 million fair value of goodwill.
Unaudited Pro Forma Condensed Combined Statement of Operations:
(i) To reflect amortization expense related to the acquired identifiable
finite-lived intangible assets, calculated over estimated useful lives of 8
years, on a straight-line basis.
(j) To reduce interest income by $1.2 million for fiscal 2005, as if the $79.5
million cash payment related to the acquisition of OASIS had occurred on March
1, 2004. An interest rate of 1.55% and an effective income tax rate of 6% was
used in this pro forma adjustment. The majority of the Company's interest income
in fiscal 2005 was tax-exempt, resulting in the unusually low effective income
tax rate used in this adjustment.
(k) To eliminate amortization expense related to certain of OASIS' historical
intangible assets.
In addition, pro forma net income (loss) per share for the year ended February
28, 2005 has been adjusted to reflect the issuance of 2,072,000 shares of SMSC
common stock related to this transaction, and assumes that such shares were
outstanding from March 1, 2004.