Nuance Communications, Inc. - FORM 8-K/A - EX-99.3

Attached files

file	filename
8-K/A - FORM 8-K/A - Nuance Communications, Inc.	b89353e8vkza.htm
EX-99.1 - EX-99.1 - Nuance Communications, Inc.	b89353exv99w1.htm
EX-99.2 - EX-99.2 - Nuance Communications, Inc.	b89353exv99w2.htm
EX-23.1 - EX-23.1 - Nuance Communications, Inc.	b89353exv23w1.htm

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

On October 6, 2011, Nuance Communications, Inc. (“Nuance”) acquired all of the outstanding capital stock of Swype, Inc. (“Swype”), pursuant to an Agreement and Plan of Merger (“Merger Agreement”) by and among Nuance, Sonic Acquisition Corporation (a wholly-owned subsidiary of Nuance), the shareholders of Swype and Adrian Smith, as the representative of the Swype shareholders. The aggregate consideration payable to the former shareholders of Swype was $102.5 million, which consists of cash consideration of $77.5 million paid at closing and contingent consideration of $25.0 million which is payable on the eighteen month anniversary of the closing date. The contingent consideration is subject to certain adjustments and conditions, including the requirement that certain executives not terminate their employment with Nuance or have their employment terminated for certain reasons.

On June 16, 2011, Nuance acquired all of the outstanding capital stock of SVOX AG (“SVOX”), pursuant to a Share Purchase Agreement, as amended by and among Nuance, Ruetli Holding Corporation (a wholly-owned subsidiary of Nuance), the shareholders of SVOX and smac partners GmbH, as the shareholder representative. The aggregate consideration payable to the former stockholders of SVOX was
€ 87.0 million, which consists of cash consideration of € 57.0 million and a deferred acquisition payment of €30.0 million. The deferred acquisition payment is payable in cash or shares of our common stock at our option; € 8.3 million is due on June 16, 2012 and the remaining
€ 21.7 million is is due on December 31, 2012.

On June 15, 2011, Nuance acquired Equitrac Corporation (“Equitrac”), pursuant to an Agreement and Plan of Merger (the “Equitrac Merger Agreement”), dated as of May 10, 2011, as amended, by and among Nuance, Ellipse Acquisition Corporation, a Florida corporation and a wholly owned subsidiary of Nuance (“Sub”), Equitrac, U.S. Bank National Association, as escrow agent and Cornerstone Equity Investors, LLC, as the representative of Equitrac’s stockholders, optionholders and warrantholders pursuant to which Sub will merge with and into Equitrac. The consideration consists of approximately $162.0 million in cash. Under the terms of the Equitrac Merger Agreement, approximately $34.3 million of the consideration was used to payoff existing bank debt.

The following unaudited pro forma combined financial information is shown as if Nuance, Equitrac, SVOX and Swype had been combined as of October 1, 2010 for statement of operations purposes, and as if Nuance and Swype had been combined for balance sheet purposes as of September 30, 2011. Equitrac and SVOX are included in Nuance’s consolidated balance sheet as of September 30, 2011. The unaudited pro forma combined financial information is based on estimates and assumptions, which have been made solely for purposes of developing such pro forma information. The estimated pro forma adjustments arising from these completed acquisitions are derived from the preliminary purchase consideration and purchase price allocation and do not necessarily represent the final purchase price allocations.

The historical financial information of Swype for the period from October 1, 2010 to September 30, 2011 has been derived from the unaudited financial information for that period. The historical information for Equitrac for the period October 1, 2010 to June 30, 2011 has been derived from the unaudited financial information for the nine months ended May 31, 2011. The historical information for SVOX for the period October 1, 2010 to June 30, 2011 has been derived from the unaudited financial information for the nine months ended March 31, 2011.

The unaudited pro forma combined financial statements do not include the historical or pro forma financial information for individually insignificant acquisitions, which were acquired by Nuance during fiscal 2011 prior to their acquisition. The financial statements for these acquired companies and pro forma financial information for the transactions are not included herein as the transactions were determined not to be “significant” in accordance with the calculations required by Rule 1-02(w) of Regulation S-X of the Securities Exchange Act of 1934, pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transactions been consummated as of October 1, 2010, nor is the data necessarily indicative of future operating results.

NUANCE COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended September 30, 2011
(in thousands, except per share amounts)


	Historical			Historical Equitrac											Historical SVOX
	Nuance for the			for the period from											for the period from											Historical Swype
	Year Ended			September 1, 2010 to			Pro Forma					Pro Forma			July 1, 2010 to			Pro Forma					Pro Forma			for the twelve months ended			Pro Forma					Pro Forma
	September 30, 2011 (A)			May 31, 2011 (B)			Adjustments					Combined			March 31, 2011 (C)			Adjustments					Combined			September 30, 2011 (D)			Adjustments					Combined
Revenue:
Product and licensing	$	607,358		$	40,654		$	4,416		(A4	)	$	652,428		$	10,963		$	—				$	663,391		$	48		$	—				$	663,439
Professional services and hosting		509,141			—			—					509,141			—			—					509,141			—			—					509,141
Maintenance and support		202,242			—			—					202,242			—			—					202,242			—			—					202,242

Total revenue		1,318,741			40,654			4,416					1,363,811			10,963			—					1,374,774			48			—					1,374,822


Cost of revenue:
Product and licensing		65,601			15,083			2,632		(A4	)		83,316			747			—					84,063			—			—					84,063
Professional services and hosting		341,055			—			—					341,055			—			—					341,055			—			—					341,055
Maintenance and support		38,057						—					38,057			—			—					38,057			—			—					38,057
Amortization of intangible assets		55,111			—			2,357		(A1	)		57,468			244			696		(B1	)		58,408			—			2,357		(C1	)		60,765

Total cost of revenue		499,824			15,083			4,989					519,896			991			696					521,583			—			2,357					523,940

Gross profit (loss)		818,917			25,571			(573	)				843,915			9,972			(696	)				853,191			48			(2,357	)				850,882

Operating expenses:
Research and development		179,377			4,161			—					183,538			7,789			—					191,327			5,667								196,994
Sales and marketing		306,439			9,386			—					315,825			2,931			—					318,756			3,199			—					321,955
General and administrative		147,603			8,120			(1,012	)	(A2	)		154,711			3,003			—					157,714			4,049			(861	)	(C2	)		160,902
Amortization of intangible assets		88,219			353			3,116		(A1	)		91,688			246			2,125		(B1	)		94,059			—			1,010		(C1	)		95,069
Acquisition related costs, net		21,866			—			(1,701	)	(A5	)		20,165			—			(2,526	)	(B3	)		17,639			—			(1,002	)	(C2	)		21,797
																														5,160		(C5	)
Restructuring and other charges (credits), net		22,862			—			—					22,862			—			—					22,862			—			—					22,862

Total operating expenses		766,366			22,020			403					788,789			13,969			(401	)				802,357			12,915			4,307					819,579

Income (loss) from operations		52,551			3,551			(976	)				55,126			(3,997	)		(295	)				50,834			(12,867	)		(6,664	)				31,303
Other income (expense):
Interest income		3,159			—			(271	)	(A3	)		2,888			2			(135	)	(B2	)		2,755			8			(210	)	(C3	)		2,553
Interest expense		(36,703	)		(3,812	)		3,669		(A2	)		(36,846	)		(29	)		—					(36,875	)		(49	)		49		(C4	)		(36,875	)
Other (expense) income, net		11,010			(2,754	)		2,754		(A6	)		11,010			(122	)		—					10,888			(187	)		—					10,701


Income (loss) before income taxes		30,017			(3,015	)		5,176					32,178			(4,146	)		(430	)				27,602			(13,095	)		(6,825	)				7,682
Provision for (benefit from) income taxes		(8,221	)		(1,275	)		34,741		(A7	)		25,245			(68	)		—					25,177			766			—					25,943

Net income (loss)	$	38,238		$	(1,740	)	$	(29,565	)			$	6,933		$	(4,078	)	$	(430	)			$	2,425		$	(13,861	)	$	(6,825	)			$	(18,261	)


Net income per share:
Basic	$	0.13										$	0.02										$	0.01										$	(0.06	)

Diluted	$	0.12										$	0.02										$	0.01										$	(0.06	)


Weighted average common shares outstanding:
Basic		302,277											302,277											302,277											302,277

Diluted		315,960											315,960											315,960											315,960

(A) As reported in Nuance’s Form 10-K for the twelve months ended September 30, 2011 as filed with the SEC.

(B) As derived from Equitrac’s unaudited financial information for the nine months ended May 31, 2011.

(D) As derived from Swype’s unaudited financial information for the twelve months ended September 30, 2011.

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.

NUANCE COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of September 30, 2011
(in thousands)


	Historical			Historical
	Nuance at			Swype at			Pro Forma					Pro Forma
	September 30, 2011 (A)			September 30, 2011 (B)			Adjustments					Combined
ASSETS
Current assets:
Cash and cash equivalents	$	447,224		$	10,161		$	(79,439	)	(C6)		$	377,946
Restricted cash		6,799			—			—					6,799
Marketable securities		31,244			—			—					31,244
Accounts receivable, net		280,186			1,184			—					281,370
Acquired unbilled accounts receivable		670			—			—					670
Prepaid expenses and other current assets		88,804			66			—					88,870


Total current assets		854,927			11,411			(79,439	)				786,899

Land, building and equipment, net		78,218			376			—					78,594
Goodwill		2,347,880			—			64,791		(C8	)		2,412,671
Other intangible assets, net		731,577			—			32,300		(C9	)		763,877
Other long-term assets		82,691			76			—					82,767

Total assets	$	4,095,293		$	11,863		$	17,652				$	4,124,808

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt and capital leases	$	6,905		$	1,939		$	(1,939	)	(C6	)	$	6,905
Contingent and deferred acquisition payments		23,783			—			—					23,783
Accounts payable		82,703			312			—					83,015
Accrued expenses and other current liabilities		176,074			158			—					176,232
Deferred revenue		185,605			183			(183	)	(C10	)		185,605


Total current liabilities		475,070			2,592			(2,122	)				475,540

Long-term portion of debt and capital leases		853,020			—			—					853,020
Deferred revenue, net of current portion		90,382			14,710			(14,710	)	(C10	)		90,382
Deferred tax liability		72,229			—			12,274		(C11	)		84,503
Other liabilities		111,221			327			16,444		(C12	)		127,992


Total liabilities		1,601,922			17,629			11,886					1,631,437

Manditorily Redeemable Preferred Stock		—			14,489			(14,489	)	(C7	)		—

Commitments and contingencies
Stockholders’ equity:
Preferred stock		4,631			—			—					4,631
Common stock		312			653			(653	)	(C7	)		312
Additional paid-in capital		2,745,931			1,331			(1,331	)	(C7	)		2,745,931
Treasury stock, at cost		(16,788	)		—			—					(16,788	)
Accumulated other comprehensive income		2,402			—			—					2,402
Accumulated deficit		(243,117	)		(22,239	)		22,239		(C7	)		(243,117	)


Total stockholders’ equity (deficit)		2,493,371			(20,255	)		20,255					2,493,371



Total liabilities and stockholders’ equity	$	4,095,293		$	11,863		$	17,652				$	4,124,808

(A) As reported in Nuance’s Form 10-K as of September 30, 2011, as filed with the SEC.

(B) As derived from Swype’s unaudited financial information as of September 30, 2011.

See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.

NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRO FORMA PRESENTATION

The pro forma data is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred had the transactions been consummated as of October 1, 2010. Pro forma adjustments reflect only those adjustments which are factually determinable and do not include the impact of contingencies which will not be known until the resolution of the contingency. The preliminary purchase consideration and purchase price allocation has been presented as if Swype had been acquired on September 30, 2011 and does not necessarily represent the final purchase price allocation. The preliminary allocations of the purchase consideration to tangible and intangible assets acquired and liabilities assumed herein were based upon preliminary valuations and our estimates and assumptions are still subject to change.

2. PRELIMINARY PURCHASE PRICE ALLOCATION

A summary of the purchase price allocations for the acquisition of Swype are as follows (in thousands):


Total purchase consideration:
Cash	$	77,500
Fair value of contingent consideration		16,444

Total purchase consideration	$	93,944


Allocation of the purchase consideration:
Current and other assets	$	9,924
Identifiable intangible assets		32,300
Goodwill		64,791

Total assets acquired		107,015
Current and other liabilities		797
Deferred tax liability		12,274

Total liabilities assumed		13,071

Net assets acquired	$	93,944

3. PRO FORMA ADJUSTMENTS

The following pro forma adjustments are based on preliminary estimates, which may change as additional information is obtained:

Equitrac

(A1)		Adjustment to eliminate historical amortization expense of $0.4 million on historical Equitrac intangible assets.

		Adjustment to record $5.8 million amortization expense for the $91.9 million of acquired intangible assets for Equitrac. Acquired intangible assets will be amortized using the straight line method, except for customer relationships which will be amortized over a term consistent with the related future cash flow streams. The estimated weighted average useful life of the acquired identifiable intangible assets is 12.3 years.

(A2)		Adjustment to eliminate historical amortization expense of debt issuance costs and interest expense relating to the existing financial indebtedness that was cancelled pursuant to the acquisition of Equitrac.

(A3)		Adjustment to reduce interest income by applying the rate of return for the respective period to the assumed net decrease in cash used to fund the acquisition.

(A4)		Adjustment to record the impact of Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Topic 605): “Multiple-Deliverable Revenue Arrangements, and ASU 2009-14, Software (Topic 985): Certain Revenue Arrangements that Include Software Elements to conform Equitrac’s accounting change with Nuance implementation date of October 1, 2010.

(A5)		Adjustment to eliminate transaction costs directly attributable to the acquisition of Equitrac.

(A6)		Adjustment to eliminate the change in fair value of Equitrac’s historical warrants that were canceled as part of the acquisition.

(A7)		We have recorded the net deferred tax liabilities related to Equitrac’s acquired intangible assets of $38.3 million. As a result of the consolidation of the businesses, we will now be allowed to utilize the Equitrac deferred tax liabilities to offset a portion of our existing deferred tax assets in the U.S., creating future tax benefits that had previously been reduced by a valuation allowance. During the quarter ended June 30, 2011, following the acquisition of Equitrac, we reduced the valuation allowance by $34.7 million and recorded the reduction as an increase to the tax benefit during the period. The adjustment eliminates this one-time benefit from the pro forma financial statements for the year ended September 30, 2011.

SVOX

(B1)		Adjustment to eliminate historical amortization expense of $0.5 million on historical SVOX intangible assets.

		Adjustment to record $3.3 million amortization expense, on a straight-line basis for the $42.2 million of acquired intangible assets for SVOX. Acquired intangible assets will be amortized using the straight line method. The estimated weighted average useful life of the acquired identifiable intangible assets is 12.1 years.

(B2)		Adjustment to reduce interest income by applying the rate of return for the respective period to the assumed net decrease in cash used to fund the acquisition.

(B3)		Adjustment to eliminate transaction costs directly attributable to the acquisition of SVOX.

Swype

(C1)		Adjustment to record $3.4 million amortization expense for the $32.3 million of acquired intangible assets for Swype. Acquired intangible assets will be amortized using the straight line method, except for customer relationships which will be amortized over a term consistent with the related future cash flow streams. The estimated weighted average useful life of the acquired identifiable intangible assets is 8.1 years.

(C2)		Adjustment to eliminate transactions costs directly attributable to the acquisition of Swype.

(C3)		Adjustment to reduce interest income by applying the rate of return for the respective period to the assumed net decrease in cash used to fund the acquisition.

(C4)		Adjustment to eliminate historical interest expense relating to the existing financial indebtedness that was cancelled pursuant to the acquisition of Swype.

(C5)		Adjustment to record compensation expense related to the deferred acquisition payment for Swype, contingent on the continued employment of certain executives.

(C6)		Adjustment to record cash consideration of $77.5 million paid in connection with the acquisition.

		Adjustment to record reduction in cash of $1.9 million used to payoff Swype’s debt in accordance with the terms of the Merger Agreement.

(C7)		Adjustment to eliminate the historical equity of Swype including the manditorily redeemable preferred stock.

(C8)		Adjustment to record goodwill of $64.8 million for the purchase price in excess of the preliminary fair value of assets acquired and liabilities assumed.

(C9)		Adjustment to record the fair value of the acquired intangible assets which consist primarily of Developed Technology and Customer Relationships.

(C10)		Adjustment to reduce the historical deferred revenue to its estimated fair value.

(C11)		Adjustment to record the deferred tax impact of the acquired intangible assets.

(C12)		Adjustment to record the fair value of the contingent consideration of $17.3 million, that is payable on the eighteen month anniversary of the closing date. The remaining contingent consideration of $7.7 million is contingent upon continued employment of certain defined executives with Nuance and is recognized as acquisition-related costs over the service period.

4. OTHER NON-RECURRING ACTIVITIES

Release of valuation allowance

We have recorded net deferred tax liabilities related to Equitrac’s acquired intangible assets of $38.3 million. As a result of the consolidation of the businesses, we will now be allowed to utilize the Equitrac deferred tax liabilities to offset a portion of our existing deferred tax assets in the U.S., creating future tax benefits that had previously been reduced by a valuation allowance. During the quarter ended June 30, 2011, following the acquisition of Equitrac, we reduced the valuation allowance by $34.7 million and recorded the reduction as an increase to the tax benefit during the period. This non-recurring benefit has not been reflected in these pro forma financial statements.

Restructuring

We expect that as we integrate Swype into our existing business we will incur restructuring costs. Restructuring costs are typically comprised of severance costs of consolidating duplicate facilities and contract termination costs. As of the acquisition date, we had not finalized any specific restructuring plans for Swype, and therefore no provision has been made for these costs in these pro forma financial statements.

Nuance Communications, Inc. - FORM 8-K/A - EX-99.3 - December 16, 2011

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Nuance Communications, Inc. Reports