SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
3DFX INTERACTIVE, INC.
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(Exact name of Registrant as specified in its charter)
CALIFORNIA 77-0390421
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(State of incorporation or organization) (IRS Employer
Identification No.)
4435 Fortran Drive
San Jose, California 95134
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(Address of principal executive offices) (Zip Code)
(408) 935-4400
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(Registrant's telephone number, including area code)
The undersigned Registrant hereby amends the following items,
financial statements, exhibits, or other portions of its Current Report
on Form 8-K, originally filed with the Securities and Exchange
Commission on May 21, 1999 (the "Form 8-K") as set forth in the pages
attached hereto:
Item 7. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
The following unaudited pro forma combined financial statements
are set forth below:
o Unaudited Pro Forma Combined Financial Information and Notes Thereto
o Unaudited Pro Forma Combined Balance Sheet
o Unaudited Pro Forma Combined Statement of Operations for
the fiscal year ended December 31, 1998
o Unaudited Pro Forma Combined Statement of Operations for the
three-month period ended April 30, 1999
o Notes to Unaudited Pro Forma Combined Financial Statements
Unaudited Pro Forma Combined Financial Information and Notes Thereto
The following unaudited pro forma combined financial statements
are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations
of future periods or the results that actually would have been realized
had 3Dfx Interactive, Inc. ("3Dfx") and STB Systems, Inc. ("STB") been
a combined company during the specific periods. The pro forma combined
financial statements, including the notes thereto, are qualified in
their entirety by reference to, and should be read in conjunction with,
the historical consolidated financial statements of 3Dfx included in
its Annual Report on Form 10-K for the year ended December 31, 1998 and
quarterly report on Form 10-Q for the three months ended April 30,
1999, and of STB included in its Annual Report on Form 10-K for the
fiscal year ended October 31, 1998 and its quarterly report on Form 10-
Q for the quarter ended January 31, 1999.
The following pro forma combined financial statements give effect
to the merger of 3Dfx and STB using the purchase method of accounting.
The pro forma combined financial statements are based on the respective
historical consolidated financial statements and the notes thereto of
3Dfx and STB. The pro forma adjustments are preliminary and based on
management's estimates. In addition, management is in the process of
assessing and formulating its integration plans, which may include
employee separations, employee relocations and facility consolidation.
While the exact amount of the restructuring costs is not known,
management believes that the costs approximate $1.0 million, of which
approximately $600,000 is for employee relocations, $100,000 is for
employee separations and $300,000 is for facility consolidation.
Based on the finalization of the integration plans and other
factors, the pro forma adjustments may differ materially from those
presented in these pro forma financial statements. A change in the pro
forma adjustments would result in a reallocation of the purchase price
affecting the value assigned to the long-term tangible and intangible
assets. The statement of operations effect of these changes will
depend on the nature and amount of the assets or liabilities adjusted
(see note 2 to the pro forma financial statements).
The pro forma combined balance sheet assumes that the merger took
place on April 30, 1999 and combines 3Dfx's and STB's April 30, 1999
consolidated balance sheets. The pro forma combined statements of
operations assume the merger took place as of the beginning of 1998 and
then carried forward into fiscal 1999. They combine:
o 3Dfx's consolidated statement of operations for the fiscal
year ended December 31, 1998 and STB's consolidated
statement of operations for the fiscal year ended
October 31, 1998, and
o 3Dfx's and STB's consolidated statements of operations for
the quarters ended April 30, 1999.
3DFX INTERACTIVE, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(In thousands)
3Dfx STB Pro Forma
April 30, April 30, Adjustments Pro Forma
1999 1999 (Note 2) Combined
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Assets:
Cash and cash equivalents $55,556 $31,407 $ -- $86,963
Short-term investments.. 23,192 -- 7,714 30,906
Accounts receivable, net 33,482 65,992 (25,159) 74,315
Inventory............... 18,306 31,894 (3,517) 46,683
Other current assets ... 13,396 13,019 (7,714) 18,701
----------- ----------- --------- ---------
Total current assets.. 143,932 142,312 (28,676) 257,568
Property and equipment, net 21,572 11,587 -- 33,159
Other assets............ 3,284 3,606 43,309 50,199
----------- ----------- --------- ---------
$168,788 $157,505 $14,633 $340,926
=========== =========== ========= =========
Liabilities and Shareholders' Equity:
Accounts payable........ $35,113 $49,627 ($20,659) $64,081
Accrued liabilities..... 10,670 3,181 -- 13,851
Short-term debt......... -- 15,500 -- 15,500
Current portion
of long-term liabilities 216 612 -- 828
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Total current liabilities 45,999 68,920 (20,659) 94,260
----------- ----------- --------- ---------
Long-term liabilities.... 449 1,786 7,639 9,874
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Shareholders' equity:
Common Stock........... 128,093 83,176 35,983 247,252
Retained earnings
(accumulated deficit) (5,460) 5,144 (12,963) (13,279)
Warrants .............. 242 -- -- 242
Deferred compensation.. (535) -- -- (535)
Unrealized gain on
equity securities -- 3,112 -- 3,112
Treasury stock at cost -- (4,633) 4,633 --
----------- ----------- --------- ---------
Total shareholders'
equity......... 122,340 86,799 27,652 236,792
----------- ----------- --------- ---------
$168,788 $157,505 $14,633 $340,926
=========== =========== ========= =========
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
3DFX INTERACTIVE, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share data)
3Dfx STB
Year ended Year ended Pro Forma
December 31, October 31, Adjustments Pro Forma
1998 1998 (Note 2) Combined
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Revenues................. $202,601 $266,270 (1,460)(e) $467,411
Cost of revenues......... 119,618 222,018 (774)(e) 340,862
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Gross profit............. 82,983 44,252 (686) 126,549
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Operating expenses:
Research and development 34,045 10,794 -- 44,839
Selling, general and
administrative... 35,441 30,383 12,345 (c) 78,169
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Total operating expenses 69,486 41,177 12,345 123,008
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Income (loss) from operations 13,497 3,075 (13,031) 3,541
Interest and other income
(expense), net........ 15,869 (439) -- 15,430
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Income (loss) before
income taxes.......... 29,366 2,636 (13,031) 18,971
Provision for income taxes 7,663 904 (240)(e) 8,327
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Net income (loss)........ $21,703 $1,732 ($12,791) 10,644
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Net income (loss) per share
Basic.................. $1.45 $0.14 $0.47
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Diluted................ $1.33 $0.13 $0.43
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Shares used in net income (loss) per
share calculations:
Basic.................. 14,917 12,134 22,804
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Diluted................ 16,353 12,883 24,727
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See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
3DFX INTERACTIVE, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(In thousands, except per share data)
3Dfx STB
Three month Three month Pro Forma
period ended period ended Adjustments Pro Forma
April 30, 1999 April 30, 1999 (Note 2) Combined
------------- ------------- ----------- ---------
Revenues................. $40,444 $90,667 ($19,218)(e) $111,893
Cost of revenues......... 26,190 74,511 (15,701)(e) 85,000
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Gross profit............. 14,254 16,156 (3,517) 26,893
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Operating expenses:
Research and development 11,756 2,994 -- 14,750
Selling, general and
administrative... 6,620 28,106 3,086 (c) 37,812
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Total operating expenses 18,376 31,100 3,086 52,562
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Income (loss) from operations (4,122) (14,944) (6,603) (25,669)
Interest and other income
(expense), net....... 911 (123) -- 788
------------- ------------- ----------- ---------
Income (loss) before
income taxes (3,211) (15,067) (6,603) (24,881)
Benefit for income taxes (1,027) (92) (1,231)(e) (2,350)
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Net income (loss)........ ($2,184) ($14,975) ($5,372) ($22,531)
============= ============= =========== =========
Net income (loss) per share
Basic................... ($0.14) ($1.19) ($0.94)
============= ============= =========
Diluted................. ($0.14) ($1.19) ($0.94)
============= ============= =========
Shares used in net income (loss) per
share calculations:
Basic................... 15,768 12,612 23,966
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Diluted................. 15,768 12,612 23,966
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See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
Notes to Unaudited Pro forma Combined Financial Statements
Note 1. Basis of Presentation
The pro forma combined balance sheet assumes that the merger took place
April 30, 1999 and combines 3Dfx's and STB's consolidated balance sheets.
The pro forma combined statements of operations assumes that the merger
took place as of the beginning of 1998 and then carried forward into
fiscal 1999. They combine:
0 3Dfx's consolidated statement of operations for the fiscal year ended
December 31, 1998 amd STB's consolidated statement of operations for
the fiscal year ended October 31, 1998, and
o 3Dfx's and STB's consolidated statements of operations for the
quarters ended April 30, 1999.
On a combined basis, there were no material transactions between
3Dfx and STB during the periods presented except for sales of product
by 3Dfx to STB which have been eliminated (see note 2).
There are no material differences between the accounting policies
of 3Dfx and STB.
The pro forma combined provision (benefit) for income taxes may
not represent the amounts that would have resulted had 3Dfx and STB
filed consolidated income tax returns during the periods presented.
Note 2. Pro Forma Adjustments
The pro forma adjustments are preliminary and based on 3Dfx
management's estimates. In addition, management is in the process of
assessing and formulating its integration plans, which may include
employee separations, employee relocations and facility consolidation.
While the exact amount of the restructuring costs is not known,
management believes that these costs approximate $1.0 million, of which
approximately $600,000 is for employee relocations, $100,000 is for
employee separations and $300,000 is for facility consolidation.
The purchase price of $126.8 million includes $116.1 million of
stock to be issued at fair value (fair value being determined as the
average price of the 3Dfx stock for a period three days before and
after the announcement of the merger), $6.2 million in STB stock option
costs and $4.5 million in estimated expenses of the transaction. The
purchase price was allocated on a pro forma basis: $86.8 million to
the estimated fair value of STB net tangible assets purchased (as of
April 30, 1999), $(7.6) million to deferred tax liabilities associated
with the transaction, $4.3 million to purchased in-process research and
development, $11.4 million to purchased existing technology, $4.4
million to trademarks, $2.3 million to workforce-in-place, $1.0 million
to executive covenants and $24.2 million to goodwill. The allocation of
the purchase price to intangibles was based upon an independent, third
party appraisal and management's estimates.
The value assigned to purchased in-process research and
development ("IPR&D") was determined by identifying research projects
in areas for which technological feasibility had not been established.
These include projects for Voodoo3 as well as other specialized
technologies totaling $4.3 million. The value was determined by
estimating the expected cash flows from the projects once commercially
viable, discounting the net cash flows back to their present value and
then applying a percentage of completion to the calculated value as
defined below.
Net Cash Flows. The net cash flows from the identified projects
are based on our estimates of revenues, cost of sales, research and
development costs, selling, general and administrative costs, royalty
costs and income taxes from those projects. These estimates are based
on the assumptions mentioned below. The research and development costs
included in the model reflect costs to sustain projects, but exclude
costs to bring in-process projects to technological feasibility.
The estimated revenues are based on management projections of
each in-process project and the business projections were compared and
found to be in line with industry analysts' forecasts of growth in
substantially all of the relevant markets. Estimated total revenues
from the IPR&D product areas are expected to peak in the year ending
December 31, 1999 and decline from 2000 into 2001 as other new products
are expected to become available. These projections are based on our
estimates of market size and growth, expected trends in technology and
the nature and expected timing of new project introductions by our
competitors and us.
Projected gross margins approximate STB's recent historical
performance and are in line with comparable industry margins. The
estimated selling, general and administrative costs are consistent with
STB's historical cost structure, which is in line with industry
averages at approximately 10% of revenues. Research and development
costs are consistent with STB's historical cost structure.
Royalty rate. The Company applied a royalty charge of 25% of
operating income for each in-process project to attribute value for
dependency on predecessor core technologies.
Discount rate. Discounting the net cash flows back to their
present value is based on the industry weighted average cost of capital
("WACC"). The industry WACC is approximately 14%. The discount rate
used in discounting the net cash flows from IPR&D is 20%, a 600 basis
point increase from the industry WACC. This discount rate is higher
than the industry WACC due to inherent uncertainties surrounding the
successful development of the IPR&D, market acceptance of the
technology, the useful life of such technology and the uncertainty of
technological advances which could potentially impact the estimates
described above.
Percentage of completion. The percentage of completion for each
project was determined using costs incurred to date on each project as
compared to the remaining research and development to be completed to
bring each project technological feasibility. The percentage of
completion varied by individual project ranging from 50% to 91%.
If the projects discussed above are not successfully developed,
the sales and profitability of the combined company may be adversely
affected in future periods.
Based on the timing of the closing of the transaction,
finalization of the integration plans and other factors, the pro forma
adjustments may differ materially from those presented in these pro
forma combined financial statements. A change in the pro forma
adjustments would result in a reallocation of the purchase price
affecting the value assigned to long-term tangible and intangible
assets. The statement of operations effect of these changes will
depend on the nature and amount of the assets or liabilities adjusted.
(a) Adjustments to record the components of the purchase price-
$116.1 million in 3Dfx common stock, $5.6 million in 3Dfx
common stock options and $0.6 million of cash. The 3Dfx
common stock will be issued in exchange for outstanding
shares of STB common stock. 3Dfx common stock options,
with adjusted exercise prices ranging between $7.10 per
share and $39.49 per share, will be issued in exchange for
vested STB options at the conversion ratio of 0.65 options
to purchase 3Dfx common stock for each option to purchase
STB common stock. Cash is being exchanged for non-vested
options to purchase STB common shares, which accelerate,
vest and become exercisable upon the consummation of the
merger, for the difference between the fair value of STB
common stock on the date of the merger and the exercise
price of the underlying STB options. The value of the 3Dfx
common stock issued is based on the average price of 3Dfx
stock for a period of three days before and after the
announcement of the merger ($14.045). The value of the STB
common stock options is based on the estimated fair market
value of these options as of the date of the merger
agreement determined using the Black-Scholes option pricing
model, with a 70% volatility, a 2-year estimated life, a 0%
dividend yield and a risk-free rate of 6%.
Adjustment also reflects the elimination of STB
shareholders' equity.
(b) Adjustment includes $4.3 million for purchased in-process
research and development. As discussed in Note 2, the
value of this IPR&D was based upon a valuation prepared by
an independent, third-party appraisal company. This amount
will be expensed as a non-deductible charge upon the
consummation of the merger. This amount has been reflected
as a reduction to retained earnings and has not been
included in the pro forma combined statement of operations
due to its non-recurring nature. Adjustment also reflects
elimination of STB shareholders' equity and the inter-
company profit remaining in inventory of approximately $3.5
million April 30, 1999.
(c) Adjustments include the recording of $43.3 million in
intangible assets which are comprised of $11.4 million in
purchased existing technology, $4.4 million in trademarks,
$2.3 million in workforce-in-place, $1.0 million in
executive covenants and $24.2 million in goodwill.
The estimated annual amortization charge to income related
to intangible assets acquired approximates $12.3 million.
This charge is reflected in the pro forma combined
statement of operations and is recalculated below:
Calculated
Estimated 1998
Amount Useful Life Amortization
------------- ------------- -----------
Purchased existing technology:
1.5 year life.............. $6,475,000 1.5 years $4,317,000
3 year life................ 4,966,000 3 years 1,655,000
Trademarks......................... 4,406,000 5 years 881,000
Workforce-in-place................. 2,250,000 5 years 450,000
Executive covenants................ 1,000,000 5 years 200,000
Goodwill........................... 24,211,000 5 years 4,842,000
(d) Adjustment to reflect estimated merger-related expenses.
The impact of the fees and expenses has been reflected in
the pro forma combined balance sheet and statement of
operations as an increase in the purchase price of the
transaction and is allocated to the assets and liabilities
assumed, based upon their estimated fair value. Adjustment
also reflects the elimination of inter-company payables and
receivables for the inter-company sale of product.
(e) Adjustment to eliminate sales and related cost of sales and
the related tax impact by 3Dfx to STB for amounts remaining
in inventory at period end.
(f) Adjustment to reclassify equity securities held by STB for
consistency of presentation with 3Dfx.
(g) Adjustment reflects the recording of deferred tax
liabilities associated with non-goodwill intangible assets
recorded as part of this transaction. These liabilities
were recorded using statutory tax rates of 40%.
Note 3. Pro Forma Net Income (Loss) Per Common Share
Basic pro forma net income (loss) per common share was calculated
based on the conversion of 12.7 million shares of STB common stock
outstanding at April 30, 1999 into 8.3 million shares of 3Dfx common
stock. Diluted net income (loss) per share did not include any common
stock equivalents at April 30, 1999 as their effect is anti-dilutive.
Diluted net income (loss) per common share at December 31, 1999
included 1.9 million equivalent 3Dfx common shares of which less than
500,000 were attributable to STB stock options.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
3DFX INTERACTIVE, INC.
(Registrant)
/s/ L. GREGORY BALLARD
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L. Gregory Ballard
President and Chief Executive Officer
/s/ DAVID ZACARIAS
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David Zacarias
Vice President, Administration and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated: July 27, 1999