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Delaware
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000-50838
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77-0455244
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(State or Other Jurisdiction of Incorporation)
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(Commission File Number)
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(I.R.S. Employer Identification Number)
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¨
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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¨
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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¨
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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¨
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02.
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Results of Operations and Financial Condition.
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•
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Stock-based Compensation and Related Payroll Taxes. We provide non-GAAP information relative to our expense for stock-based compensation and related payroll tax. We began to include stock-based compensation expense in our GAAP financial measures in January 2006. Because of varying available valuation methodologies, subjective assumptions and the variety of award types, which affect the calculations of stock-based compensation, we believe that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies. Stock-based compensation is very different from other forms of compensation that have a fixed and unvarying cash cost. In contrast, the expense associated with awards of options for shares of our stock and restricted stock units for our stock are not directly correlated to the amount of compensation ultimately received by the employee. Furthermore, the amount of expense that we record is based on a stock-based compensation valuation methodology and underlying assumptions that may vary over time and that do not reflect any cash expenditure. The expense associated with an award for shares of company stock in one quarter may have a very different expense than an award of an identical number of shares in a different quarter. Finally, the expense we recognize for equity grants may be very different than the expense that other companies recognize for awarding a comparable equity grant, which can make it difficult to assess our operating performance relative to our competitors. Similar to stock-based compensation, payroll tax on stock option exercises is dependent on our stock price and the timing of employee exercises over which our management has little control, and as such does not correlate to the operation of our business. Because of these unique characteristics of stock-based compensation expense and the related payroll tax, management excludes these expenses when analyzing our business performance.
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•
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Acquisition-Related Expenses. We exclude certain expense items resulting from acquisitions including the following, when applicable: (i) changes in contingent earn-out liability; (ii) amortization of purchased intangible assets associated with our acquisitions; (iii) fair value adjustments of acquired inventory; and (iv) acquisition-related costs. We believe that providing non-GAAP information for acquisition-related expense items in addition to the corresponding GAAP information allows the users of our financial statements to better review and understand the historic and current results of our continuing operations, and also facilitates comparisons with less acquisitive peer companies.
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(i)
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Changes in contingent earn-out liability. In accordance with changes in GAAP requirements for business combination accounting of contingent earn-out consideration effective in 2009, an estimated fair value of contingent earn-out consideration is recorded at the close of an acquisition. As changes to the estimated fair value occur, which may be for a variety of reasons, including but not limited to, changes in our stock price, we are required to record the changes in the estimated liability through our operating results until the liability is fixed. Under the terms of the merger agreement with RMI, a substantial portion of the contingent earn-out consideration was payable in stock. We evaluated this contingent earn-out consideration as part of the total purchase consideration of the business and did not consider changes in the total purchase consideration recorded in our operating results for our fourth fiscal quarter of 2009 through our fourth fiscal quarter of 2010 to meaningfully reflect the near-term performance of our business.
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(ii)
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Amortization of intangible assets. The amortization of intangible assets associated with our acquisitions results in recording expenses in our GAAP financial statements but does not represent cash expenditure. Moreover, had we developed the products acquired, the amortization of intangible assets, and the expenses of uncompleted research and development would have been expensed in prior periods. Accordingly, we analyze the performance of our operations in each period without regard to such expenses.
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(iii)
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Fair value adjustments of acquired inventory and related taxes. As part of business combination accounting for acquired inventory, we increase the value of acquired inventory to effectively eliminate any accounting gross profit except for a portion attributed to any manufacturing effort to be completed post-acquisition and any incremental selling effort. Such adjustments do not reflect costs we would otherwise have expended to manufacture such inventory on our own. Therefore, we analyze the performance of our operations in each period without regard to such expenses recorded in our third fiscal quarter of 2009 through our second fiscal quarter of 2010. Similarly, we exclude the income tax effect of this item when evaluating our operating results.
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(iv)
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Acquisition-related costs. Acquisition-related costs include transaction costs and integration-related costs, including severance payments that were made by RMI prior to its acquisition by us, which severance payments might be construed to be undertaken for our benefit and therefore required to be recorded as our expense under GAAP during in each of the second, third and fourth fiscal quarters of 2009 and the first fiscal quarter of 2010. We consider these charges unrelated to our core operating performance. In addition, acquisitions result in non-continuing operating expenses, which would not otherwise have been incurred by us in the normal course of our business operations. For example, we have incurred deferred compensation charges related to assumed options and transition and integration costs such as retention bonuses and acquisition-related milestone payments to employees of the acquired entity.
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(v)
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Interest income on RMI bridge loan. We entered into an interest-bearing bridge loan with RMI in connection with our agreement to purchase the company. We completed the acquisition of RMI during the quarter ended December 31, 2009, and eliminated the bridge loan in our consolidated financial position. As the arrangement represented a temporary financing arrangement between the two parties in connection with the acquisition, we considered the interest income we earned during each of the second, third and fourth fiscal quarter of 2009 to be unrelated to the performance of our business.
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•
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Other Items. We exclude certain other items that are the result of either unique or unplanned events including the following, when applicable: (i) deferred tax asset valuation allowance and release on a portion of the Company’s California research and development credit carryforward for our first fiscal quarter of 2009 and our fourth quarter of fiscal 2010, and (ii) lease termination expenses incurred in our second fiscal quarter of 2010. The establishment and release of deferred tax asset valuation allowance on a portion of the Company’s California research and development credit carryforward arose as a result in changes in the law in 2009 and 2010. In connection with the early termination of our headquarter facility lease, we recorded charges related to lease termination fees, as well as asset write-off. We believe that providing financial information without these items, in addition to our GAAP operating results, provides our management and users of our financial statements with better clarity regarding the on-going performance and future liquidity of our business.
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•
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Non-GAAP net income per share is calculated by dividing non-GAAP net income by non-GAAP diluted weighted average shares. For purposes of calculating non-GAAP net income per share, the GAAP anti-dilutive weighted average shares outstanding is included after adjustments to exclude the benefits of stock-based compensation costs attributable to future services and not yet recognized in the financial statements. Under the GAAP treasury stock method, these stock-based compensation costs are treated as proceeds assumed to be used to repurchase shares. Since our non-GAAP net income does not reflect the effects of stock-based compensation costs, management believes these amounts should not be applied to the repurchase of shares in calculating non-GAAP net income per share.
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•
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Non-GAAP financial measures do not account for stock-based compensation expense related to equity awards granted to our employees. Our stock incentive plans are an important component of our employee incentive compensation arrangements and are reflected as expense in our GAAP results.
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•
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While amortization of purchased intangible assets does not directly affect our current cash position, such expenses represent the estimated decline in value of technology and other intangible assets we have acquired over their respective expected economic lives. We have excluded the expense associated with this decline in value from non-GAAP financial measures, and therefore the non-GAAP financial measures do not reflect the costs of acquired intangible assets that supplement our research and development efforts.
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Item 9.01.
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Financial Statements and Exhibits.
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Exhibits
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Description
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99.1
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Press Release dated February 2, 2011
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NetLogic Microsystems, Inc.
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Date: February 2, 2011
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By:
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/s/ Michael T. Tate
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Michael T. Tate
Vice President and Chief Financial Officer
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Exhibits
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Description
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99.1
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Press Release dated February 2, 2011
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