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EX-23.1 - CONSENT OF GRANT THORNTON LLP - MICROSEMI CORPdex231.htm
EX-99.2 - AUDITED FINANCIAL STATEMENTS OF WHITE ELECTRONIC DESIGNS CORP - MICROSEMI CORPdex992.htm
8-K/A - AMENDMENT NO. 1 TO FORM 8-K - MICROSEMI CORPd8ka.htm
EX-99.3 - UNAUDITED FINANCIAL STATEMENTS OF WHITE ELECTRONIC DESIGNS CORP - MICROSEMI CORPdex993.htm

Exhibit 99.4

MICROSEMI CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

Microsemi Corporation (“Microsemi”) acquired all of the outstanding common stock of White Electronic Designs Corporation (“White Electronic”) in a cash transaction announced on April 1, 2010 and fully consummated on April 30, 2010. The transaction was structured as a cash tender offer, that expired on April 27, 2010, by Rabbit Acquisition Corp. (“Rabbit”), a direct wholly-owned subsidiary of Microsemi, for all outstanding shares of White Electronic’s common stock, followed by a merger of Rabbit into White Electronic whereby White Electronic became a direct wholly-owned subsidiary of Microsemi. The following unaudited pro forma condensed combined financial statements are presented to illustrate the estimated effects of the acquisition of White Electronic (the “Transaction”) on our consolidated financial statements. The following unaudited pro forma condensed combined financial statements are based upon the historical consolidated financial statements and notes thereto of Microsemi Corporation and White Electronic.

The unaudited pro forma condensed combined balance sheet gives pro forma effect to the Transaction as if it had been completed on December 27, 2009 and due to different fiscal period ends, combines Microsemi’s December 27, 2009 unaudited consolidated balance sheet with White Electronic’s December 31, 2009 unaudited condensed consolidated balance sheet. The unaudited pro forma condensed combined income statements give pro forma effect to the Transaction as if it had been completed on September 29, 2008 and combines Microsemi’s audited consolidated statement of operations for the fiscal year ended September 27, 2009 with White Electronic’s audited consolidated statement of operations for the fiscal year ended September 30, 2009 and Microsemi’s unaudited consolidated income statement for the quarter ended December 27, 2009 with White Electronic’s unaudited condensed consolidated statement of operations for the quarter ended December 31, 2009.

The pro forma information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Transaction had been completed on the dates indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that Microsemi believes are reasonable under the circumstances. A final determination of fair values relating to the Transaction may differ materially from preliminary estimates and will include management’s final valuation of the fair value of assets acquired and liabilities assumed. This final valuation will be based on the actual net tangible and intangible assets of White Electronic that existed as of the date of the completion of the Transaction. The final valuation may materially change the allocation of the purchase price, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial statements.

These unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and related notes contained in the annual, quarterly and other reports filed by Microsemi and White Electronic with the Securities and Exchange Commission.


MICROSEMI CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 27, 2009

(in thousands)

 

     Historical
Microsemi
     Historical
White
Electronic
     Pro Forma
Adjustments
    Pro
Forma
Combined
ASSETS             

Current assets:

            

Cash and cash equivalents

   $ 234,895      $ 65,387       $ (165,648 )(1)    $ 134,408
             (226 )(2)   

Investment in auction rate securities

     36,550        —           —          36,550

Accounts receivable

     71,742        10,747         —          82,489

Inventories

     91,043        14,054         417 (3)      105,514

Deferred income taxes

     10,655        2,563         —          13,218

Other current assets

     22,312        3,965         —          26,277
                                

Total current assets

     467,197        96,716         (165,457     398,456
                                

Property and equipment, net

     66,922        10,992         —          77,914

Deferred income taxes

     —          1,145         (1,145 )(4)      —  

Goodwill

     222,731        1,764         31,380 (5)      255,875

Intangible assets, net

     51,500        —           51,500 (6)      103,000

Other assets

     10,211        67         —          10,278
                                

TOTAL ASSETS

   $ 818,561      $ 110,684       $ (83,722   $ 845,523
                                
LIABILITIES AND STOCKHOLDERS’ EQUITY             

Current liabilities:

            

Accounts payable

   $ 22,934      $ 2,350       $ —        $ 25,284

Accrued liabilities

     32,765        3,840         1,431 (7)      38,036

Auction rate securities credit facility

     36,550        —           —          36,550

Current maturity of long-term liabilities

     430        —           —          430
                                

Total current liabilities

     92,679        6,190         1,431        100,300
                                

Long-term liabilities

     33,467        1,155         (1,145 )(4)      54,077
             20,600 (8)   

Stockholders’ equity:

            

Preferred stock

     —          —           —          —  

Common stock

     16,566        2,583         (2,583 )(9)      16,566

Treasury stock

     —          (253      253 (9)      —  

Capital in excess of par value of common stock

     520,764        84,782         (84,782 )(9)      520,926
             162 (10)   

Retained earnings

     154,635        16,580         (16,580 )(9)      153,204
             (1,431 )(7)   

Accumulated other comprehensive income

     450        (353      353 (9)      450
                                

Total stockholders’ equity

     692,415        103,339         (104,608     691,146
                                

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

   $ 818,561      $ 110,684       $ (104,322   $ 845,523
                                


The total estimated consideration as shown in the table below is allocated to White Electronic’s tangible and intangible assets and liabilities based on their estimated fair values as of the date of the completion of the Transaction. The preliminary estimated consideration is allocated as follows (in thousands):

 

Calculation of consideration:

  

Cash consideration to White Electronic stockholders (1)

   $ 165,648   

Cash consideration paid on vested and non-assumed stock options (2)

     226   

Fair value of vested equity awards assumed by Microsemi (9)

     162   
        

Total consideration

     166,036   

Preliminary allocation of consideration:

  

Book value of White Electronic’s net assets

     103,339   

Adjustments to historical net book value:

  

Inventories (3)

     417   

Intangible assets (6)

     51,500   

Deferred tax liability (8)

     (20,600
        

Adjustment to goodwill (5)

   $ 31,380   
        

A final determination of fair values relating to the Transaction may differ materially from preliminary estimates and will include management’s final valuation of the fair value of assets acquired and liabilities assumed. This final valuation will be based on the actual net tangible and intangible assets of White Electronic that existed as of the date of the completion of the Transaction. The final valuation may materially change the allocation of the purchase price, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial statements.

 

(1) Cash consideration to White Electronic stockholders based upon approximately 23.7 million White Electronic shares issued and outstanding less treasury shares as of the Transaction date at $7.00 per share.

 

(2) Cash consideration paid on vested and non-assumed stock options based upon the difference between $7.00 per option and the exercise price of each option.

 

(3) Represents the estimated adjustment to mark up inventories to fair value less cost to sell.

 

(4) Represents a reclassification of White Electronic deferred income taxes for presentation purposes.

 

(5) Represents the estimated adjustment to reflect goodwill at fair value.

 

(6) Of the total estimated purchase price, we allocated $22.9 million to completed technologies that are expected to amortize over an average life of seven years; $5.1 million in backlog that is expected to amortize over a life of three years; $22.6 million to customer relationships that are expected to amortize over a life of eight years; and $0.9 million in trade name that is expected to amortize over a life of five years. We expect to utilize the straight line method of amortization for completed technology, customer relationship and trade name and the estimated fulfillment period for backlog. This allocation is preliminary and is based on our estimates. The amount ultimately allocated to intangible assets may differ materially from this preliminary allocation. A $1.0 million increase or decrease in value allocated to backlog would each increase or decrease annual amortization by approximately $0.3 million. A $1.0 million increase or decrease in value allocated to trade name would each increase or decrease annual amortization by approximately $0.2 million. A $1.0 million increase or decrease in value allocated to completed technologies or customer relationships would each increase or decrease annual amortization by approximately $0.1 million.

The fair value of the identified intangible assets was estimated by performing a discounted cash flow analysis using the “income” approach. This method includes a forecast of direct revenues and costs associated with the respective intangible assets and charges for economic returns on tangible and intangible assets utilized in cash flow generation. Net cash flows attributable to the identified intangible assets are discounted to their present value at a rate commensurate with the perceived risk. The projected cash flow assumptions considered contractual relationships, customer attrition, eventual development of new technologies and market competition.

The useful lives of completed technologies rights are based on the number of years in which net cash flows have been projected. The useful life of backlog is estimated based upon the fulfillment period. The useful lives of customer relationships are estimated based upon the length of the relationships currently in place, historical attrition patterns and natural growth and diversification of


other potential customers. The useful life of trade name was estimated based on the period in which a benefit could be ascribed to the White Electronic trade name.

Assumptions used in forecasting cash flows for each of the identified intangible assets included consideration of the following:

 

   

Historical performance including sales and profitability.

 

   

Business prospects and industry expectations.

 

   

Estimated economic life of asset.

 

   

Development of new technologies.

 

   

Acquisition of new customers.

 

   

Attrition of existing customers.

 

   

Obsolescence of technology over time.

The factors that contributed to a purchase price resulting in the recognition of goodwill include:

 

   

The premium paid over the pre-merger announcement market capitalization of White Electronic.

 

   

Our belief that the merger will create a more diverse semiconductor company with expansive offerings which will enable us to expand our product offerings.

 

   

Our belief that we are each committed to improving cost structures and that our combined efforts after the merger should result in a realization of cost savings and an improvement of overall efficiencies.

 

(7) Represents liabilities incurred by White Electronic due to change in control provisions in effect prior to the Transaction.

 

(8) Represents the deferred tax liability related to the $51.5 million in amortizable intangible assets.

 

(9) Represents the elimination of White Electronic’s historical equity accounts at December 27, 2009.

 

(10) Represents a preliminary estimate of the fair value of 29,640 vested White Electronic stock awards that were assumed and converted into Microsemi stock awards.


MICROSEMI CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT

FOR THE FISCAL YEAR ENDED SEPTEMBER 27, 2009

(In thousands, except per share amounts)

 

     Historical
Microsemi
    Historical
White
   Pro Forma
Adjustments
    Pro Forma
Combined
 

Net sales

   $ 452,972      $ 62,559    $      $ 515,531   

Cost of sales

     272,565        37,993             310,558   
                               

Gross profit

     180,407        24,566             204,973   
                               

Operating expenses:

         

Selling and general and administrative

     113,080        16,385      (388 )(1)      129,077   

In-process research & development

     1,310                    1,310   

Amortization of intangible assets

     15,203             9,441 (2)      24,644   

Research and development costs

     41,435        4,408             45,843   

Restructuring and severance charges

     13,264                    13,264   

Impairment charges related to facility closures

     6,185                    6,185   
                               

Total operating expenses

     190,477        20,793      9,053        220,323   
                               

Operating income (loss)

     (10,070     3,773      (9,053     (15,350
                               

Other income:

         

Interest income, net

     869        441      (249 )(3)      1,061   

Other, net

     327                    327   
                               

Total other income

     1,196        441      (249     1,388   
                               

Income (loss) before income taxes

     (8,874     4,214      (9,302     (13,962
                               

Provision for income taxes

     17,949        1,218      (3,721 )(4)      15,446   
                               

Income (loss) from continuing operations

   $ (26,823   $ 2,996    $ (5,581   $ (29,408
                               

Loss from continuing operations per share:

         

Basic

   $ (0.34        $ (0.37

Diluted

   $ (0.34        $ (0.37

Weighted-average common shares outstanding:

         

Basic

     79,350             79,350   

Diluted

     79,350             79,350   


(1) Represents the change in expense related to stock compensation expense from White Electronic stock awards.

 

(2) Reflects amortization of intangibles related to the fair value of intangible assets acquired. We expect to utilize the straight line method of amortization for completed technology, customer relationship and trade name and the estimated fulfillment period for backlog. Calculation of pro forma amortization expense is as follows (in thousands):

 

     Asset
Amount
   Weighted
Average
Useful
Life
(Years)
   Amortization
Expense

Completed technology

   $ 22,900    7    $ 3,432

Backlog

     5,100    3      3,009

Customer relationships

     22,600    8      2,820

Trade name

     900    5      180
                
   $ 51,500       $ 9,441
                

 

(3) Represents the reduction of interest income that would have been recorded based on the cash consideration of the Transaction and an average marginal interest rate earned on the lowest yielding investments of 0.15%.

 

(4) Reflects the pro forma tax effect on the above adjustments.


MICROSEMI CORPORATION

UNAUDITED PRO FORMA COMBINED INCOME STATEMENT

FOR THE QUARTER ENDED DECEMBER 27, 2009

(In thousands, except per share amounts)

 

     Historical
Microsemi
    Historical
White
   Pro Forma
Adjustments
    Pro
Forma
Combined
 

Net sales

   $ 112,832      $ 15,568    $ —        $ 128,400   

Cost of sales

     60,564        9,817      —          70,381   
                               

Gross profit

     52,268        5,751      —          58,019   
                               

Operating expenses:

         

Selling and general and administrative

     25,813        4,072      (139 )(1)      29,746   

In-process research & development

     —          —        —          —     

Amortization of intangible assets

     3,883        —        2,093 (2)      5,976   

Research and development costs

     11,805        1,228      —          13,033   

Restructuring and severance charges

     295        —        —          295   

Impairment charges

     —          345      —          345   
                               

Total operating expenses

     41,796        5,645      1,954        49,395   
                               

Operating income (loss)

     10,472        106      (1,954     8,624   
                               

Other income (expenses):

         

Interest income (expense), net

     (21     77      (41 )(3)      15   

Other, net

     (157     —        —          (157
                               

Total other income (loss)

     (178     77      (41     (142
                               

Income (loss) before income taxes

     10,294        183      (1,995     8,482   
                               

Provision for income taxes

     2,334        56      (798 )(4)      1,592   
                               

Income from continuing operations

   $ 7,960      $ 127    $ (1,197   $ 6,890   
                               

Income from continuing operations per share:

         

Basic

   $ 0.10           $ 0.08   

Diluted

   $ 0.10           $ 0.08   

Weighted-average common shares outstanding:

         

Basic

     81,505             81,505   

Diluted

     82,117             82,117   


(1) Represents the change in expense related to stock compensation expense from White Electronic stock awards.

 

(2) Reflects amortization of intangibles related to the fair value of intangible assets acquired. We expect to utilize the straight line method of amortization for completed technology, customer relationship and trade name and the estimated fulfillment period for backlog. Calculation of pro forma amortization expense is as follows (in thousands):

 

     Asset
Amount
   Weighted
Average
Useful
Life
(Years)
   Amortization
Expense

Completed technology

   $ 22,900    7    $ 858

Backlog

     5,100    3      485

Customer relationships

     22,600    8      705

Trade name

     900    5      45
                
   $ 51,500       $ 2,093
                

 

(3) Represents the reduction of interest income that would have been recorded based on the cash consideration of the Transaction and an average marginal interest rate earned on the lowest yielding investments of 0.10%.

 

(4) Reflects the pro forma tax effect on the above adjustments.