RFMD » Topics » NOTE 3. PRO FORMA ADJUSTMENTS

This excerpt taken from the RFMD 8-K filed Jan 25, 2008.
NOTE 3.     PRO FORMA ADJUSTMENTS

The following is a description of pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements:

Balance Sheet

1.  Cash Equivalents and Short-Term Investments

The pro forma adjustment to cash reflects the use of cash equivalents and short-term investments to finance the cash portion of the merger consideration as well as cash paid for transaction costs through September 29, 2007.

2.   Inventories

Raw material inventory is estimated at the current replacement value.  Work-in-process inventory is estimated at the fair market value which is the estimated selling price less the sum of (a) costs to complete the manufacturing process, (b) costs of disposal and (c) a reasonable profit margin for the completing and selling effort.  Finished goods inventory is estimated at the fair market value which is the estimated selling price less the sum of (a) costs of disposal and (b) a reasonable profit margin for the completing and selling effort.

3.  Property, plant and equipment

Property, plant and equipment is estimated at the current replacement value.  These estimates are based on a preliminary valuation dated as of November 13, 2007 and are subject to further review by management.


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)

4.   Goodwill

The adjustment primarily represents the elimination of Sirenza's historical goodwill and an adjustment of $592.3 million to record goodwill associated with this transaction, which is defined as a preliminary estimate of the excess of the purchase price over the historical net assets of Sirenza, as adjusted to reflect estimates of fair value (see "Note 1, Basis of Pro Forma Presentation").  Also included is an adjustment of approximately $7.8 million which relates to the total difference between the net assets acquired on November 13, 2007 as compared to the pro forma net assets as of September 30, 2007.

5.   Intangible Assets

The adjustment reflects the elimination of Sirenza's previously-existing acquisition-related intangible assets as well as the preliminary estimated fair value of Sirenza's identifiable intangible assets with definite lives totaling $212.5 million (see "Note 1, Basis of Pro forma Presentation"). 

6.    Accrued Liabilities

The adjustment of $9.1 million reflects estimated unpaid transaction and restructuring costs.

7.       Deferred Margin on Distributor Inventory

The adjustment reflects the elimination of deferred margin in accordance with EITF 01-3 "Accounting in a Business Combination for Deferred Revenue of an Acquiree" as no legal performance obligation is being assumed by RFMD.

8.       Deferred Taxes

The adjustments reflect an increase in deferred tax liabilities related to the increase in the value of Sirenza's inventory, the removal of Sirenza's deferred tax liabilities related to previously existing acquisition related intangible assets, the addition of deferred tax liabilities related to the preliminary estimated fair market value of Sirenza's identified intangible assets (excluding in-process research and development), the removal of Sirenza's deferred tax assets related to deferred revenue, and the reduction of Sirenza's valuation reserve against deferred tax assets based on a preliminary estimate of realizability subsequent to completion of the mergers (see "Note 1, Basis of Pro Forma Presentation").

9.       Shareholders' Equity

To eliminate Sirenza's historical Shareholders' Equity

 $

(188,764)

Assumed total purchase price

880,866 

Less cash consideration

(293,404)

Less transaction costs

(9,967)

Less in-process research and development

(13,860)

Net adjustments to Shareholders' Equity

 $

374,871 


Income Statement

a.   Cost of Goods Sold, Marketing and Selling and Research and Development

The adjustments reflect the amortization for the developed product technology, customer relationships and order backlog, which will be recognized in the income statement using a straight line method over a term of seven years, ten years and twelve weeks, respectively.  The pro forma amortization expense resulting from the $212.5 million of identifiable intangible assets was $13.3 million for the six months ended September 29, 2007 and $28.3 million for the twelve months ended March 31, 2007.

b.   Other Operating (Income) Expense

The adjustment reflects the elimination of Sirenza's amortization related to the previously-existing acquisition-related intangible assets.

 

 



NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS - (Continued)

c.   Interest Expense


The Company has included an adjustment to reflect pro forma interest expense.  This adjustment is based on the assumption that the issuance of $300.0 million of the $375.0 million subordinated notes that were actually issued in April 2007, were theoretically issued in April 2006 to assist in financing the Sirenza acquisition.  Therefore, interest expense has been calculated for the period from April 2, 2006 to March 31, 2007, based on the effective interest method.

 d.   Interest Income

The adjustment reflects the reduction of recorded interest income related to the lower cash and short term investment balances as a result of the cash used to fund the cash portion of the purchase price.  The interest was calculated using an average interest rate for the six months ended September 29, 2007.

e.   Income Taxes

To adjust tax provision to reflect the effect of the pro-forma adjustments at the statutory rate.  The pro forma combined provision for income taxes does not reflect the amounts that would have resulted had RFMD and Sirenza filed consolidated income tax returns during the periods presented.

f.   Shares Used in Per Share Calculation

The pro forma earnings per share reflect the weighted average number of RFMD shares that would have been outstanding had the transaction occurred at the beginning of the periods presented.  Sirenza's shares outstanding were converted at the exchange ratio of 1.7848.

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