<PAGE>
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
Date of Report (Date of earliest event reported): August 9, 2000
Silicon Laboratories Inc.
(Exact Name of Registrant as Specified in Charter)
Delaware 000-29823 74-2793174
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
4635 Boston Lane, Austin, Texas 78735
(Address of Principal Executive Offices) (Zip Code)
Company's telephone number, including area code: (512) 416-8500
Not Applicable.
(Former Name or Former Address, if Changed Since Last Report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
This Form 8-K/A is being filed to amend the Form 8-K filed on August 11, 2000 by
Silicon Laboratories Inc. (Silicon Laboratories) to include the financial
statements and pro forma financial information referred to in Item 7 below
relating to Silicon Laboratories' acquisition of Krypton Isolation, Inc.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following financial statements and pro forma financial information are being
provided in accordance with the instructions to this item.
(a) Financial Statements of Business Acquired
Report of Independent Auditors
Balance sheets of Krypton Isolation, Inc. at April 30, 2000 and 1999.
Statements of operations of Krypton Isolation, Inc. for the years ended
April 30, 2000 and 1999.
Statements of stockholders' equity of Krypton Isolation, Inc. for the
years ended April 30, 2000 and 1999.
Statements of cash flows of Krypton Isolation, Inc. for the years ended
April 30, 2000 and 1999.
Notes to financial statements
(b) Pro forma financial information.
Unaudited pro forma condensed balance sheet as of July 1, 2000 and
accompanying explanatory notes.
Unaudited pro forma condensed statement of operations for the year
ended January 1, 2000 and accompanying explanatory notes.
Unaudited pro forma condensed statement of operations for the six
months ended July 1, 2000 and accompanying explanatory notes.
(c) Exhibits
2.1** Merger Agreement and Plan of Reorganization dated as of June
22, 2000, by and among Silicon Labs, Karst Corporation, a
California corporation and wholly-owned subsidiary of Silicon
Labs, and Krypton Isolation, Inc., a California corporation,
and with respect to Section 7.2 of the Merger Agreement only,
Charles Welch, as Shareholder Agent.
23.1 Consent of Independent Auditors
99.1** Press Release dated August 10, 2000, of the Registrant.
-----------------
**Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on August 11, 2000.
2
<PAGE>
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.
September 8, 2000
SILICON LABORATORIES INC.,
a Delaware corporation
By: /s/ John W. McGovern
----------------------
John W. McGovern
Chief Financial Officer
3
<PAGE>
Report of Independent Auditors
The Board of Directors
Krypton Isolation, Inc.
We have audited the accompanying balance sheets of Krypton Isolation, Inc. (the
Company) as of April 30, 2000 and 1999, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Krypton Isolation, Inc. at
April 30, 2000 and 1999, and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Austin, Texas
July 26, 2000
4
<PAGE>
<TABLE>
<CAPTION>
Krypton Isolation, Inc.
Balance Sheets
April 30
2000 1999
-----------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,880,691 $ 2,268,171
Accounts receivable, net of allowance for
doubtful accounts of $35,895 and $10,200 at
April 30, 2000 and 1999, respectively 202,300 251,125
Inventories 390,757 410,881
Notes receivable from officers 100,000 100,000
Prepaid expenses and other 25,266 16,518
-----------------------------------
Total current assets 2,599,014 3,046,695
Property and equipment, net 250,768 232,059
Other assets 3,092 3,092
-----------------------------------
Total assets $ 2,852,874 $ 3,281,846
===================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 408,163 $ 505,112
Accrued expenses 67,752 83,304
Obligations under capital leases - 759
Other liabilities 10,024 5,199
-----------------------------------
Total current liabilities 485,939 594,374
Stockholders' equity:
Series A Convertible Preferred Stock - no par value; 2,000,000
shares authorized; 0 shares issued and outstanding - -
Series B Convertible Preferred Stock - no par value; 2,000,000
shares authorized; 0 shares issued and outstanding - -
Series C Convertible Preferred Stock - no par value; 1,500,000
shares authorized; 1,077,587 shares issued and outstanding;
aggregate liquidation preference of $2,500,002 2,475,771 2,475,771
Common Stock - no par value; 12,000,000 shares authorized;
4,527,500 and 4,500,000 shares issued and outstanding at April
30, 2000 and 1999, respectively 1,173,875 1,138,125
Preferred Stock warrants 8,900,000 360,000
Accumulated deficit (10,182,711) (1,286,424)
-----------------------------------
Total stockholders' equity 2,366,935 2,687,472
-----------------------------------
Total liabilities and stockholders' equity $ 2,852,874 $ 3,281,846
===================================
</TABLE>
See accompanying notes.
5
<PAGE>
<TABLE>
<CAPTION>
Krypton Isolation, Inc.
Statements of Operations
Year ended April 30
2000 1999
-----------------------------------
<S> <C> <C>
Sales $ 1,961,181 $ 1,311,230
Cost of sales 1,151,125 778,406
-----------------------------------
Gross margin 810,056 532,824
Operating expenses:
Research and development 547,335 661,921
Selling and marketing 124,463 141,695
General and administrative 600,503 652,641
Warrants - strategic alliance 8,538,000 -
-----------------------------------
Operating expenses 9,810,301 1,456,257
-----------------------------------
Operating loss (9,000,245) (923,433)
Interest income, net 103,958 96,616
-----------------------------------
Net loss $ (8,896,287) $ (826,817)
===================================
</TABLE>
See accompanying notes.
6
<PAGE>
<TABLE>
<CAPTION>
Krypton Isolation, Inc.
Statements of Stockholders' Equity
Convertible Preferred Deferred
Preferred Stock Common Stock Stock Stock
Shares Amount Shares Amount Warrants Compensation
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of May 1, 1998 - $ - 4,250,000 $ 735,625 $ 360,000 $ (52,500)
Issuance of Series C convertible
preferred stock, net of
issuance costs of $24,231 1,077,587 2,475,771 - - - -
Stock compensation expense - - - 77,500 - 52,500
Exercise of stock options - - 250,000 325,000 - -
Net loss - - - - - -
------------------------------------------------------------------------------------------
Balance as of April 30, 1999 1,077,587 2,475,771 4,500,000 1,138,125 360,000 -
Exercise of stock options - - 27,500 35,750 - -
Warrants - strategic alliance - - - - 8,540,000 -
Net loss - - - - - -
------------------------------------------------------------------------------------------
Balance as of April 30, 2000 1,077,587 $ 2,475,771 4,527,500 $ 1,173,875 $ 8,900,000 $ -
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit Total
-----------------------------------
<S> <C> <C>
Balance as of May 1, 1998 $ (459,607) $ 583,518
Issuance of Series C convertible
preferred stock, net of
issuance costs of $24,231 - 2,475,771
Stock compensation expense - 130,000
Exercise of stock options - 325,000
Net loss (826,817) (826,817)
-----------------------------------
Balance as of April 30, 1999 (1,286,424) 2,687,472
Exercise of stock options - 35,750
Warrants - strategic alliance - 8,540,000
Net loss (8,896,287) (8,896,287)
-----------------------------------
Balance as of April 30, 2000 $ (10,182,711) $ 2,366,935
===================================
</TABLE>
See accompanying notes.
7
<PAGE>
<TABLE>
<CAPTION>
Krypton Isolation, Inc.
Statements of Cash Flows
Years ended April 30
2000 1999
------------------------------------
<S> <C> <C>
Operating activities
Net loss $ (8,896,287) $ (826,817)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization expense 78,909 57,903
Warrants - strategic alliance 8,538,000 -
Stock compensation expense - 130,000
Changes in operating assets and liabilities:
Accounts receivable, net 48,825 (81,502)
Inventories 20,124 (135,107)
Prepaid expenses and other (8,748) 5,001
Accounts payable (96,949) 424,522
Accrued expenses (15,552) (106,638)
Other liabilities 4,825 (3,377)
------------------------------------
Net cash used in operating activities (326,853) (536,015)
Investing activity
Purchases of property and equipment (97,618) (50,305)
------------------------------------
Net cash used in investing activity (97,618) (50,305)
Financing activities
Payments on capital leases (759) (2,863)
Proceeds from note receivable - 125
Net proceeds from issuances of Convertible Preferred Stock - 2,475,771
Net proceeds from exercise of stock options 35,750 -
Net proceeds from preferred stock warrants 2,000 -
------------------------------------
Net cash provided by financing activities 36,991 2,473,033
------------------------------------
Net increase (decrease) in cash and cash equivalents (387,480) 1,886,713
Cash and cash equivalents at beginning of year 2,268,171 381,458
------------------------------------
Cash and cash equivalents at end of year $ 1,880,691 $ 2,268,171
====================================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 12 $ 216
</TABLE>
See accompanying notes.
8
<PAGE>
Krypton Isolation, Inc.
Notes to Financial Statements
April 30, 2000
1. Organization
Krypton Isolation, Inc. (the Company) develops and markets mixed-signal
analog/digital integrated circuits (ICs). The Company's products serve the
wireline communication market. Within the semiconductor industry, the Company is
known as a "fabless" company, meaning that the ICs are manufactured by
third-party semiconductor companies. The Company was founded in 1994.
2. Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits and investments with a
maturity of three months or less when purchased.
Inventories
Inventories are stated at the lower of cost, determined using the first-in,
first-out method, or market. Inventories consist of the following:
<TABLE>
<CAPTION>
April 30
2000 1999
----------------------------------
<S> <C> <C>
Work in progress $ 79,116 $ 63,934
Finished goods 311,641 346,947
----------------------------------
$ 390,757 $ 410,881
==================================
</TABLE>
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
useful lives of the assets (generally 5 to 7 years). Amortization of assets
recorded under capital leases is computed using the straight-line method over
the shorter of the asset's useful life or the term of the lease, and such
amortization is included with depreciation expense.
9
<PAGE>
2. Significant Accounting Policies (continued)
Property and equipment consist of the following:
<TABLE>
<CAPTION>
April 30
2000 1999
-----------------------------------
<S> <C> <C>
Lab and testing equipment $ 421,277 $ 327,207
Office equipment 10,608 10,608
Furniture and fixtures 49,260 45,712
-----------------------------------
481,145 383,527
Accumulated depreciation and amortization (230,377) (151,468)
-----------------------------------
$ 250,768 $ 232,059
===================================
</TABLE>
Fair Value of Financial Instruments
The Company's financial instruments consist principally of cash and cash
equivalents, receivables, and accounts payable. The Company believes all of the
financial instruments' recorded values approximate current market values.
Risks and Uncertainties
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
and accounts receivable. The Company places its cash and cash equivalents
primarily in cash deposits, money market accounts, and commercial paper. The
Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. The Company
provides an allowance for doubtful accounts receivable based upon the expected
collectibility of such receivables.
10
<PAGE>
2. Significant Accounting Policies (continued)
The following table summarizes the changes in the allowance for doubtful
accounts receivable:
<TABLE>
<S> <C>
Balance at May 1, 1998 $ -
Additions charged to costs and expenses 10,200
Write-off of uncollectible accounts -
--------
Balance at April 30, 1999 10,200
Additions charged to costs and expenses 25,695
Write-off of uncollectible accounts -
--------
Balance at April 30, 2000 $ 35,895
========
</TABLE>
All of the Company's products are currently manufactured by two companies, one
located in Singapore and one in the United States. A manufacturing disruption
experienced by either of the Company's manufacturing partners could impact the
production of the Company's products for a substantial period of time, which
could have a material adverse effect on the Company's business, financial
condition, and results of operations.
The following is a detail of customers that account for greater than 10% of
gross revenue in the respective fiscal years:
<TABLE>
<CAPTION>
Year Ended April 30
2000 1999
---------------- ------------------
<S> <C> <C>
Customer A 21% 4%
Customer B 19 15
Customer C 14 -
Customer D 5 12
Customer E - 11
Customer F - 10
</TABLE>
11
<PAGE>
2. Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. This Statement
prescribes the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Revenue Recognition
Revenue from product sales is generally recognized upon title transfer. Revenue
from shipments that include a right of return provision is deferred until the
return period has lapsed. Product returns have historically been minimal.
Advertising
Advertising costs are expensed as incurred. Advertising expenses were $11,474
and $12,608 in the fiscal years ended April 30, 2000 and 1999, respectively.
Stock-Based Compensation
The Financial Accounting Standards Board's (FASB) SFAS No. 123, Accounting for
Stock-Based Compensation, prescribes accounting and reporting standards for all
stock-based compensation plans, including employee stock options. As allowed by
SFAS No. 123, the Company has elected to continue to account for its employee
stock-based compensation in accordance with Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees.
Other Comprehensive Income (Loss)
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements. There were no differences
between net loss and comprehensive loss during any of the periods presented.
12
<PAGE>
2. Significant Accounting Policies (continued)
Segment Reporting
The Company's chief operating decision maker allocates resources and assesses
the performance of its product development and sales activities as one segment.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income. The Company does not expect that the adoption of SFAS No.
133 will have a material impact on its financial statements because the Company
does not believe it currently holds any derivative instruments.
In December 1999, the Securities and Exchange Commission staff released Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
which provides guidance on the recognition, presentation, and disclosure of
revenue in financial statements. The Company does not expect the application of
SAB No. 101 to have a material impact on the financial statements of the
Company.
On March 31, 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB No. 25,
Accounting for Stock Issued to Employees. The interpretation clarifies guidance
for certain issues that arose in the application of APB No. 25. The
interpretation will be applied prospectively to new awards, modifications to
outstanding awards, and changes in employee status on or after July 1, 2000,
except as follows: (i) requirements related to the definition of an employee
apply to new awards granted after December 15, 1998; (ii) modifications that
directly or indirectly reduce the exercise price of an award apply to
modifications made after January 12, 2000. The application of Interpretation No.
44 is not expected to have a material impact on the financial statements.
13
<PAGE>
2. Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates, and such
differences could be material to the financial statements.
3. Lease Commitments
The Company has financed the acquisition of certain equipment under capital
lease transactions which are accounted for as financings and matured in fiscal
year 2000. As of April 30, 1999, equipment under capital lease included in
property and equipment was $8,039. Amortization of equipment under capital
leases is included with depreciation expense.
In addition, the Company leases its current office facilities under an operating
lease agreement that expires in December 2000. Rental payments under the lease
increase ratably from $5,900 per month to $6,700 per month over the term of the
lease. The minimum annual future rentals under the terms of the lease for the
year ended April 30, 2001 are $53,645.
Rent expense for operating leases was approximately $75,400 and $25,100 for the
years ended April 30, 2000 and 1999, respectively.
14
<PAGE>
4. Stockholders' Equity
Convertible Preferred Stock
The Articles of Incorporation authorize the issuance of up to 5,500,000 shares
of Convertible Preferred Stock with no par value. Each share is convertible into
common stock at the option of the stockholder at any time based on the number of
shares determined by dividing the original issue price by the conversion price
on the date of conversion, subject to certain adjustments (one-to-one as of
April 30, 2000). The Convertible Preferred Stockholders are entitled to the
number of votes equal to the number of shares of common stock into which each
share of Convertible Preferred Stock could be converted on the record date.
Conversion is automatic upon the closing of an underwritten public offering of
the Company's common stock of which the market capitalization is at least $60
million and the aggregate gross proceeds are not less than $10 million.
Additional contractual obligations by and between the Convertible Preferred
Stockholders and the Common Stockholders exist with regard to registration
rights, indemnification, right of first offer, right of first refusal, and
voting of shares.
The stockholders of Series A, B, and C Convertible Preferred Stock are entitled
to dividends of $0.004, $0.012, and $0.116, respectively, per share per annum
when declared.
In the event of a liquidation or winding up of the Company, stockholders of
Series A, B, and C Convertible Preferred Stock shall have a liquidation
preference of $0.05, $0.15, and $2.32 per share, respectively, plus declared and
unpaid dividends, over holders of common stock.
Warrants
The Company issued a warrant to purchase 2,000,000 shares of Series A
Convertible Preferred Stock at $0.05 per share in July 1994 for cash proceeds of
$30,000 to a customer in connection with a strategic alliance agreement. The
warrant was immediately exercisable and expired in October 1995. This warrant
was modified on several occasions to extend the expiration date ultimately to
January 29, 2001 for total cash consideration of $3,000.
15
<PAGE>
4. Stockholders' Equity (continued)
The Company issued a warrant to purchase 2,000,000 shares of Series B
Convertible Preferred Stock at $0.15 per share in January 1996 for cash proceeds
of $80,000 to a customer in connection with a strategic alliance agreement. The
warrant was immediately exercisable and expired in January 2000. This warrant
was modified in January 2000 to extend the expiration date from January 29, 2000
to January 29, 2001 for cash proceeds of $1,000.
The Company has valued the warrants at their fair value (using a Black-Scholes
pricing model) at the date of original issuance and at each modification date,
recording the resulting expense of $8,538,000 for the year ended April 30, 2000.
Stock Options
In September 1997, the Company adopted the 1997 Stock Plan (the Plan) whereby
employees and consultants of the Company may be granted options to purchase
shares of the Company's Common Stock. As of April 30, 2000, 500,000 shares were
authorized for issuance under the Plan. The term of each option is no more than
ten years from the date of grant. The stock options generally vest over a four
year period.
Prior to the formation of the Plan, the Company also issued 1,350,000 stock
options with similar terms to various employees, and 250,000 stock options to an
outside consulting firm.
The Company issued the 250,000 stock options in exchange for consulting services
and cash consideration of $325,000. The options had an exercise price of $1.30,
a four year vesting period, certain other performance criteria which accelerated
vesting, and a provision that required the Company to refund the $325,000 if the
holder did not meet the performance criteria. Accordingly, the Company recorded
the cash received as a note payable. The fair value of these options as of the
grant date was $147,500, using the Black-Scholes pricing model. In December
1998, the consulting firm met all of the performance criteria and exercised the
options. Total general and administrative expense recognized related to these
stock options was $188,125, of which $130,000 was recognized during the year
ended April 30, 1999. The exercise proceeds of $325,000 was a non-cash
transaction in satisfaction of the note payable.
16
<PAGE>
4. Stockholders' Equity (continued)
A summary of the Company's stock option activity and related information for the
years ended April 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
Shares
Available for Exercise Weighted-Average
Grant Options Prices Exercise Price
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at May 1, 1998 440,000 1,660,000 $0.15-$1.30 $0.47
Granted - - - -
Exercised - (250,000) 1.30 1.30
Forfeited 30,000 (30,000) 1.30 1.30
-----------------------------------------------------------------
Outstanding at April 30, 1999 470,000 1,380,000 0.15-1.30 0.30
Granted - - - -
Exercised - (27,500) 1.30 1.30
Forfeited 2,500 (2,500) 1.30 1.30
-----------------------------------------------------------------
Outstanding at April 30, 2000 472,500 1,350,000 $0.15-$1.30 $0.28
=================================================================
</TABLE>
The following table summarizes information concerning outstanding options as of
April 30, 2000:
<TABLE>
<CAPTION>
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Options Contractual Exercise Options Exercise
Exercise Price Outstanding Life in Years Price Exercisable Price
-------------------- ------------------ ----------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
$ 0.15 1,200,000 5.75 $0.15 1,200,000 $0.15
1.30 150,000 5.91 1.30 150,000 1.30
------------------ ---------------
0.15-1.30 1,350,000 5.76 0.28 1,350,000 0.28
================== ===============
</TABLE>
Pro forma information regarding net income (loss) is required by SFAS No. 123,
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions: risk-free interest rate of 6%; no expected
dividends; an expected life of five years; and no volatility.
17
<PAGE>
4. Stockholders' Equity (continued)
For the purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net loss as of April 30, 2000 and 1999 was $8,922,148 and $857,621,
respectively.
Common Stock
Common stock reserved for future issuances at April 30, 2000 is as follows:
<TABLE>
<S> <C>
Convertible Preferred Stock 1,077,587
Preferred Stock warrants 4,000,000
Stock options under 1997 Plan 472,500
Other stock options 1,350,000
-----------
6,900,087
===========
</TABLE>
5. Income Taxes
As of April 30, 2000, the Company had federal net operating loss carryforwards
of approximately $1,202,000 and research and development credit carryforwards of
approximately $43,000. The net operating loss carryforwards and research and
development credit carryforwards will expire at various dates beginning in 2012,
if not utilized.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the "change in ownership" provisions of the Internal Revenue
Code of 1986. The annual limitation may result in the expiration of net
operating losses before utilization.
18
<PAGE>
5. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
April 30
2000 1999
----------------------------
<S> <C> <C>
Deferred tax assets:
Reserves and allowances $ 11,000 $ 5,000
Net operating loss and tax credit carryforwards 488,000 349,000
----------------------------
Net deferred tax asset before valuation allowance 499,000 354,000
Valuation allowance for net deferred tax asset (499,000) (354,000)
----------------------------
Net deferred taxes $ - $ -
============================
</TABLE>
The Company has established a valuation allowance equal to the net deferred tax
asset due to uncertainties regarding the realization of the deferred tax asset
based on the Company's lack of earnings history. The valuation allowance
increased by $145,000 for the year ended April 30, 2000.
The Company's provision for income taxes differs from the expected tax benefit
amount computed by applying the statutory federal income tax rate of 34% to loss
before income taxes as a result of permanent items and the application of a
valuation allowance.
19
<PAGE>
6. Related Party Transactions
The Company entered into a full recourse note receivable dated May 1, 1996 with
the President in the principal amount of $50,000, with an annual interest rate
of 5.33%. Principal and accrued interest of $10,660 are due and payable upon
demand.
The Company entered into a full recourse note receivable dated May 1, 1996 with
the Vice President of Engineering in the principal amount of $50,000, with an
annual interest rate of 5.33%. Principal and accrued interest of $10,660 are due
and payable upon demand.
The outstanding warrants discussed in Note 4 to the financial statements were
issued to a significant customer whose Chief Executive Officer and Chief
Financial Officer are Board of Directors of the Company.
7. Commitments and Contingencies
In March 1998, Sipex Corporation filed a lawsuit against the Company seeking
recovery of damages allegedly owed by the Company for semiconductor devices
manufactured by Sipex and delivered to the Company under a written foundry
agreement between Sipex and the Company. On June 19, 2000 the parties settled
the lawsuit through mediation and the Company paid Sipex $200,000. This amount
is recorded in these financials statements.
On June 22, 2000, the Company entered into a merger agreement with Silicon
Laboratories Inc. pursuant to which the Company has agreed to receive $42
million in cash and common stock (estimated using the value of Silicon
Laboratories' common stock on such date and subject to further adjustment) in
exchange for all outstanding common stock, preferred stock, stock options, and
warrants of the Company. This transaction is expected to close in the third
calendar quarter of 2000.
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial statements give effect
to the completed merger between Silicon Laboratories Inc. (Silicon
Laboratories), through its wholly-owned subsidiary Karst Corporation, and
Krypton Isolation, Inc. (Krypton). This merger will be accounted for as a
purchase business combination. These unaudited pro forma condensed financial
statements have been prepared from the historical consolidated financial
statements of Silicon Laboratories and Krypton and should be read in
conjunction therewith.
On August 9, 2000, Silicon Laboratories consummated a merger with Krypton for
a purchase price of $42.0 million. The consideration tendered by Silicon
Laboratories consisted of $15.0 million in cash, 384,100 shares of Silicon
Laboratories' common stock valued at $21.9 million, 90,449 options to
purchase Silicon Laboratories' common stock valued at $4.8 million, and
estimated direct acquisition costs of $275,000. The estimated direct
acquisition costs consist primarily of legal, accounting, and appraisal fees
to be incurred by Silicon Laboratories that are directly related to the
merger. There can be no assurance that Silicon Laboratories and Krypton will
not incur additional charges related to the merger or that management will be
successful in its efforts to integrate the operations of the two companies.
To determine the value associated with the stock and stock option portion of
the consideration paid to Krypton shareholders, we have used the average of
the closing prices of Silicon Laboratories' common stock for the three days
before and after the measurement date, August 4, 2000, in accordance with
Emerging Issues Task Force (EITF) 99-12 ACCOUNTING FOR FORMULA ARRANGEMENTS
UNDER EITF 95-19 "DETERMINATION OF THE MEASUREMENT DATE FOR THE MARKET PRICE
OF ACQUIRER SECURITIES ISSUED IN A PURCHASE BUSINESS COMBINATION". The
average of these closing prices was $56.96. The number of shares of Silicon
Laboratories' stock tendered was based on the average of the closing prices
of Silicon Laboratories common stock in the ten trading days ending on August
4, 2000 in accordance with the terms of the agreement.
The unaudited pro forma condensed balance sheet combines the unaudited
historical condensed balance sheets of Silicon Laboratories as of July 1, 2000
and Krypton as of April 30, 2000.
The unaudited pro forma condensed statement of operations for the year ended
January 1, 2000 combines the audited historical statement of operations of
Silicon Laboratories for the year ended January 1, 2000, and the unaudited
historical statement of operations of Krypton for the twelve months ended
October 31, 1999. The unaudited pro forma condensed statement of operations
for the six months ended July 1, 2000 combines the unaudited results of
operations for the six months ended July 1, 2000 for Silicon Laboratories,
and the unaudited results of operations for the six months ended April 30,
2000 for Krypton.
The unaudited pro forma combined condensed financial statements do not include
the realization of cost savings from operating efficiencies, synergies or
other restructurings that may result from the merger.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the merger and the acquisition had been consummated at
the beginning of the earliest period presented, nor is it necessarily
indicative of future operating results or financial position. The pro forma
adjustments are based upon information and assumptions available at the time
of the filing of this document. The pro forma information should be read in
conjunction with the accompanying notes thereto, Silicon Laboratories'
historical financial statements and related notes thereto as filed with the
Securities and Exchange Commission, and Krypton's historical financial
statements and related notes included elsewhere in this filing.
21
<PAGE>
Silicon Laboratories Inc.
Unaudited Pro Forma Condensed Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
PRO FORMA
SILICON LABS KRYPTON ADJUSTMENTS PRO FORMA
7/1/00 4/30/00 NOTE 2 COMBINED
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 83,495 $ 1,881 $ (15,275) a $ 70,101
Short-term investments 22,195 - 22,195
Accounts receivable, net 10,575 202 10,777
Notes Receivable-Officers - 100 100
Inventories 6,792 391 7,183
Deferred income taxes 461 - 461
Prepaid expenses and other 1,097 25 1,122
---------------------------------------------------------------
Total Current Assets 124,615 2,599 (15,275) 111,939
Property, equipment and software, net 18,412 251 18,663
Intangibles, net - - 39,486 b 39,486
Other Assets 253 3 256
---------------------------------------------------------------
Total Assets $ 143,280 $ 2,853 $ 24,211 $ 170,344
===============================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 6,265 $ 408 $ 6,673
Accrued expenses and other payables 2,587 78 2,665
Deferred revenue 955 - 955
Current portion of long-term obligations 3,721 - 3,721
Deferred income taxes - - $ 350 b 350
Income taxes payable 238 - 238
---------------------------------------------------------------
Total Current Liabilities 13,766 486 350 14,602
Long-term debt and leases, net of current maturities 7,277 - 7,277
Other long-term obligations 304 - 304
---------------------------------------------------------------
Total Liabilities 21,347 486 350 22,183
Stockholders' Equity 121,933 2,367 26,657 a
(429) b
(2,367) c 148,161
---------------------------------------------------------------
Total liabilities and stockholders' equity $ 143,280 $ 2,853 $ 24,211 $ 170,344
===============================================================
</TABLE>
22
<PAGE>
Silicon Laboratories Inc.
Unaudited Pro Forma Condensed Statement of Operations
(in thousands except per share date)
<TABLE>
<CAPTION>
SILICON LABS KRYPTON PRO FORMA
YEAR-ENDED YEAR-ENDED ADJUSTMENTS PRO FORMA
1/1/00 10/31/99 NOTE 3 COMBINED
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 46,911 $ 1,942 $ 48,853
Cost of goods sold 15,770 1,164 16,934
---------------------------------------------------------------
Gross profit 31,141 778 - 31,919
Operating Expenses:
Research and development 8,297 556 8,853
Selling, general and administrative 7,207 681 7,888
Amortization of deferred stock compensation 976 - $ 11 d 987
Amortization of goodwill and other intangibles - - 7,965 a 7,965
---------------------------------------------------------------
Operating Expenses 16,480 1,237 7,976 25,693
Operating income (loss) 14,661 (459) (7,976) 6,226
Other (income) and expenses:
Interest income (402) (105) (507)
Interest expense 699 - 699
---------------------------------------------------------------
Income (loss) before tax expense 14,364 (354) (7,976) 6,034
Income tax expense (benefit) 3,324 - (326) b 2,998
---------------------------------------------------------------
Net income (loss) $ 11,040 $ (354) $ (7,650) $ 3,036
===============================================================
Net income per share:
Basic $ 0.73 $ 0.20
Diluted $ 0.25 $ 0.07
Weighted average common shares outstanding:
Basic 15,152 15,536 c
Diluted 43,657 44,098 c
</TABLE>
23
<PAGE>
Silicon Laboratories Inc.
Unaudited Pro Forma Condensed Statement of Operations
(in thousands except per share data)
<TABLE>
<CAPTION>
SILICON LABS KRYPTON
SIX-MONTHS SIX-MONTHS PRO FORMA
ENDED ENDED ADJUSTMENTS PRO FORMA
7/1/00 4/30/00 NOTE 3 COMBINED
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 43,973 $ 849 $ 44,822
Cost of goods sold 15,146 467 15,613
---------------------------------------------------------------
Gross profit 28,827 382 29,209
Operating Expenses:
Research and development 8,024 322 8,346
Selling, general and administrative 7,574 412 7,986
Warrants - strategic alliance - 8,538 8,538
Amortization of deferred stock compensation 1,566 - $ 5 d 1,571
Amortization of goodwill and other intangibles - - 3,982 a 3,982
---------------------------------------------------------------
Operating Expenses 17,164 9,272 3,987 30,423
Operating income (loss) 11,663 (8,890) (3,987) (1,214)
Other (income) and expenses:
Interest income (1,506) (52) (1,558)
Interest expense 618 - 618
---------------------------------------------------------------
Income (loss) before tax expense 12,551 (8,838) (3,987) (274)
Income tax expense 5,365 - (208) b 5,157
---------------------------------------------------------------
Net income (loss) $ 7,186 $ (8,838) $ (3,779) $ (5,431)
===============================================================
Net income (loss) per share:
Basic $ 0.22 $ (0.17)
Diluted $ 0.15 $ (0.11)
Weighted average common shares outstanding:
Basic 32,212 32,596 c
Diluted 47,910 48,375 c
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. GENERAL
Silicon Laboratories will account for the acquisition of Krypton as a
purchase business combination. The accompanying unaudited pro forma condensed
financial statements reflect an estimated aggregate purchase price as
outlined in Note 2(a) below.
2. UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
The accompanying unaudited pro forma condensed balance sheet has been
prepared as if the acquisition was consummated on July 1, 2000. Pro forma
adjustments were made:
(a) To record the consideration given in acquisition of Krypton (in
thousands):
<TABLE>
<S> <C>
Cash $ 15,000
Value of common stock 21,878
Exchange of stock options 4,779
Transaction costs 275
-------------
Total purchase price $ 41,932
=============
</TABLE>
(b) To record allocation of purchase price to the assets and
liabilities of Krypton (in thousands):
<TABLE>
<CAPTION>
Amortization
Period
----------------
<S> <C> <C>
Intangibles:
Workforce $ 214 3 years
Customer base 1,006 5 years
Acquired technology 952 4-7 years
Patents 120 3 years
Goodwill 37,194 5 years
-------------
$ 39,486
-------------
Net fair value of tangible assets acquired and liabilities
assumed 2,367
Net deferred tax liabilities assumed (350)
Deferred stock compensation 35
In-process research and development 394
-------------
Total purchase price $ 41,932
=============
</TABLE>
(c) To record elimination of Krypton's shareholder's equity.
25
<PAGE>
3. UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
The accompanying unaudited pro forma condensed statements of operations have
been prepared as if the acquisition was consummated as of January 3, 1999.
Pro forma adjustments were made to reflect the:
(a) Amortization of acquired intangibles based on the estimated
economic lives as outlined in Note 2(b) above.
(b) Pro forma tax benefit that is attributable to the net loss of
Krypton (excluding non-deductible warrant costs), and deductible
amortization expense of certain intangible assets at Silicon
Laboratories' statutory tax rate of 37%. The acquired in-process
research and development charge, and the amortization of goodwill
and deferred stock compensation associated with the merger are not
tax deductible by Silicon Laboratories and therefore provide no
tax benefit.
(c) Issuance of approximately 384,100 shares of common stock and
90,449 stock options (using the treasury stock method) issued in
exchange for all outstanding shares and options of Krypton, based
on the number of Krypton shares and options outstanding as of
August 9, 2000, the closing date of the merger.
(d) The pro forma adjustments do not include the write-off of
purchased in-process research and development of $394,000 as it
will not have a continuing impact on the operations of the
Company.
Supplemental Disclosure - Adjusted Net Income/Earnings Per Share Calculation:
<TABLE>
<CAPTION>
Proforma Combined
(in thousands, except per share data)
-------------------------------------
Year-Ended Six-Months Ended
1/1/00 7/1/00
------ ------
<S> <C> <C>
Net income (loss) $ 3,036 $ (5,431)
Non-cash pro forma adjustments:
Amortization of goodwill and other intangibles 7,965 3,982
Warrants - strategic alliance 8,538
Amortization of deferred stock compensation 987 1,571
--------- ---------
8,952 14,091
Adjusted net income (loss) $ 11,988 $ 8,660
Shares used in computing diluted earnings per share 44,098 48,375
Adjusted diluted earnings per share $ 0.27 $ 0.18
</TABLE>
26
