UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): July 26, 2011

 

ACCURAY INCORPORATED

(Exact name of registrant as specified in charter)

 

Delaware

(State or other jurisdiction of incorporation)

 

001-33301

 

20-8370041

(Commission File Number)

 

(IRS Employer Identification No.)

 

1310 Chesapeake Terrace

Sunnyvale, California 94089

(Address of principal executive offices, including Zip Code)

 

Registrant’s telephone number, including area code: (408) 716-4600

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 2.02. Results of Operations and Financial Condition

 

On June 10, 2011, Accuray Incorporated (“Accuray”) completed a merger (the “Merger”) between TomoTherapy Incorporated (“TomoTherapy”) and Jaguar Acquisition, Inc. (“Merger Sub”), a wholly-owned subsidiary of Accuray, whereby Merger Sub merged with and into TomoTherapy, with TomoTherapy surviving as a wholly-owned subsidiary of Accuray.  The Merger was effected pursuant to the Agreement and Plan of Merger, dated as of March 6, 2011 (the “Merger Agreement”), by and among Accuray, Merger Sub and TomoTherapy.

 

The information below with respect to financial results for Accuray’s fiscal year ended June 30, 2011 and TomoTherapy’s quarter ended June 30, 2011 are preliminary based upon Accuray’s estimates and subject to its closing procedures.  These data have been prepared by management.  Accuray’s independent registered public accounting firm, Grant Thornton LLC, has not audited, reviewed or performed any procedures with respect to these data, and does not express an opinion or any other form of assurance with respect to these data.  TomoTherapy’s results of operations will be included with Accuray’s results of operations for the period commencing June 10, 2011.  The information regarding revenue of Accuray and TomoTherapy given below is calculated on a separate basis except as otherwise indicated, and do not reflect any adjustments required by purchase accounting.  This summary is not a comprehensive statement of Accuray’s financial results for this period and its actual results may differ materially from these estimates due to our completion of our financial closing procedures, final adjustments, purchase accounting adjustments and other developments that may arise between now and the time that the consolidated financial statements for this period are issued.

 

Accuray currently expects that its consolidated revenue for the fiscal year ended June 30, 2011 (including revenue of TomoTherapy from June 10, 2011 through June 30, 2011) will be between $221 million and $224 million. These numbers do not include any adjustments for TomoTherapy revenue as a result of purchase accounting which could result in consolidated revenue under GAAP being lower or higher for the three months ended June 30, 2011.

 

In Accuray’s earnings release on May 5, 2011, it announced that it was maintaining its expectation that Accuray revenue for fiscal 2011 would be in the range of $210 million to $225 million.  Accuray disclosed in its earnings conference call on May 5, 2011 that it expected Accuray revenue for fiscal 2011 to be towards the lower end of that range.  Consistent with its disclosure in its earnings conference call, Accuray currently expects that its revenue for the year ended June 30, 2011, excluding any revenue from TomoTherapy, will be between $210 million and $211 million.

 

Accuray currently expects that TomoTherapy’s revenue for the three months ended June 30, 2011 will be between $43 million and $45 million calculated on a stand-alone basis.  This revenue is calculated using TomoTherapy’s revenue recognition policies for the period from April 1, 2011 through June 9, 2011 and Accuray’s revenue recognition policies for the period from June 10, 2011 through June 30, 2011.  These numbers do not include any adjustments as a result of purchase accounting, which could result in lower or higher GAAP revenue for TomoTherapy for the three months ended June 30, 2011.

 

Accuray expects purchase accounting adjustments in connection with its acquisition of TomoTherapy to have a significant effect on its results of operations for the fiscal year ended June 30, 2011 and future periods.  For example, Accuray currently expects that inventory and other adjustments that it will make to its financial statements for the year ended June 30, 2011 pursuant to purchase accounting standards will reduce its GAAP gross profit significantly compared to the amount its GAAP gross profit would have been absent such purchase accounting adjustments.  Accuray expects to record a significant amount of goodwill and intangible assets on its balance sheet in connection with the Merger.  The intangible assets will be amortized over their expected life, which will be several years, and result in a charge of expense to Accuray’s income statement.

 

Item 7.01.  Regulation FD Disclosure

 

The unaudited pro forma condensed combined financial information of Accuray and its subsidiaries as of, and for the nine months ended, March 30, 2011, giving effect to the Merger and the issuance of Notes (as defined below) in the proposed Notes offering, is filed as Exhibit 99.1 and is incorporated herein by reference.

 

Item 8.01. Other Events

 

On July 26, 2011, Accuray issued a press release announcing that it proposes to offer, subject to market and other conditions, $75 million principal amount of convertible senior notes due 2016 (the “Notes”) in a transaction exempt from registration under the Securities Act of 1933, as amended. Accuray intends to grant the initial purchaser of the Notes an option to purchase

 

2



 

up to an additional $11.25 million principal amount of the Notes.  A copy of the press release is attached hereto as Exhibit 99.2.

 

Item 9.01.  Financial Statements and Exhibits

 

Number

 

Description

99.1

 

Unaudited pro forma condensed combined financial information of Accuray and its subsidiaries as of, and for the nine months ended, March 30, 2011, giving effect to the Merger and the issuance of Notes in the proposed Notes offering

 

 

 

99.2

 

Press release dated July 26, 2011

 

3



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

ACCURAY INCORPORATED

 

 

 

By:

/s/ Darren J. Milliken

 

 

Darren J. Milliken

Date: July 26, 2011

Senior Vice President, General Counsel & Corporate Secretary

 

4



 

EXHIBIT INDEX

 

Number

 

Description

99.1

 

Unaudited pro forma condensed combined financial information of Accuray and its subsidiaries as of, and for the nine months ended, March 30, 2011, giving effect to the Merger and the issuance of Notes in the proposed Notes offering

 

 

 

99.2

 

Press release dated July 26, 2011

 

5


Exhibit 99.1

 

Pro forma financial data

 

The unaudited pro forma condensed combined statements of operations for the nine months ended March 31, 2011 and for the year ended June 30, 2010 give effect to the acquisition of TomoTherapy and the issuance of $75 million aggregate principal amount of convertible senior notes due 2016 (the “notes”) in the proposed notes offering as if they were consummated on July 1, 2009 and include all adjustments which give effect to events that are directly attributable to the acquisition and the notes offering, expected to have a continuing impact beyond a 12-month period and that are factually supportable. The unaudited pro forma condensed combined balance sheet as of March 31, 2011 gives effect to the acquisition and the notes offering as if they had been consummated on March 31, 2011 and includes all adjustments which give effect to events that are directly attributable to the acquisition and the notes offering and that are factually supportable. The notes to the pro forma financial information describe the pro forma amounts and adjustments presented below.

 

Accuray and TomoTherapy have different fiscal year ends. Accordingly, the unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2011 combines the unaudited historical results of Accuray for the nine months ended March 31, 2011 and the unaudited historical results of TomoTherapy for the six months ended December 31, 2010 derived from the audited historical results of TomoTherapy for the year ended December 31, 2010 less the unaudited historical results of TomoTherapy for the six months ended June 30, 2010, in addition to the unaudited historical results of TomoTherapy for the three months ended March 31, 2011. The unaudited pro forma condensed combined statement of operations for the fiscal year ended June 30, 2010 combines the audited historical results of Accuray for the year ended June 30, 2010 and the unaudited historical results of TomoTherapy for the year ended June 30, 2010, derived from the audited historical results of TomoTherapy for the year ended December 31, 2009 less the unaudited historical results of TomoTherapy for the six months ended June 30, 2009, in addition to the unaudited historical results of TomoTherapy for the six months ended June 30, 2010. Certain reclassification adjustments have been made to conform the historical reported balances to the pro forma condensed combined financial statement presentation.

 

The pro forma adjustments reflecting the consummation of the acquisition are based upon the acquisition method of accounting in accordance with U.S. GAAP, and upon the assumptions set forth in the notes herein. The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the preliminary allocation of the estimated purchase price to identifiable net assets acquired and the excess purchase price to goodwill. The allocation of the purchase price is preliminary and based on valuations derived from estimated fair value assessments and assumptions used by management. The estimated purchase price was calculated based upon the closing price for Accuray common stock of $7.39 per share on June 10, 2011. The final purchase price allocation will be based on the actual net tangible and intangible assets of TomoTherapy that exist on the effective date of the acquisition. Accordingly, the final purchase accounting adjustments may be materially different from the preliminary pro forma adjustments presented herein.

 

The unaudited pro forma condensed combined financial statements do not include the effects of any future restructuring activities, including severance or other employee related costs, that pertain to the combined operations, or other operating efficiencies or inefficiencies, which may result from the acquisition but are either non-recurring or at this point not factually supportable. Furthermore, the unaudited pro forma condensed combined financial statements do not include any effects on revenue recognition due to employing Accuray’s terms and business practices. Also, the unaudited pro forma condensed combined statements of operations do not include certain non-recurring expenses, such as (i) accelerated vesting of employee awards and (ii) the increase in cost of sales due to the roll-out of the step-up in inventory pursuant to the acquisition method of accounting. Therefore, the unaudited pro forma condensed combined financial information is not necessarily indicative of results that would have been achieved had the businesses been combined as of the dates presented or the results that Accuray will experience in the future. In addition, the preparation of financial statements in

 



 

conformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are preliminary and have been made solely for purposes of developing this pro forma information. Actual results could differ materially from these estimates and assumptions.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with Accuray’s historical consolidated financial statements and accompanying notes in its Annual Report on Form 10-K as of and for the year ended June 30, 2010 and its Quarterly Report on Form 10-Q as of and for the nine months ended March 31, 2011, and TomoTherapy’s historical consolidated financial statements and accompanying notes in its Annual Report on Form 10-K as of and for the year ended December 31, 2010, as amended, and its Quarterly Reports on Form 10-Q as of and for the six months ended June 30, 2010 and the three months ended March 31, 2011, all of which are incorporated by reference herein.

 

2



 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

As of March 31, 2011

(in thousands)

 

 

 

March 31,

 

 

 

 

 

 

 

 

 

Accuray

 

TomoTherapy

 

 

 

Pro forma

 

Pro forma

 

 

 

2011

 

2011

 

Reclassifications(1)

 

adjustments

 

combined

 

Balance Sheet Data (at period end):

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

57,332

 

$

137,362

 

 

 

$

(41,522

)(A)

$

153,172

 

Restricted cash

 

22

 

 

 

 

 

 

22

 

Short-term available-for-sale securities

 

85,603

 

 

 

 

(60,603

)(A)

25,000

 

Accounts receivable, net of allowance for doubtful accounts of $225 at March 31, 2011

 

44,871

 

29,735

 

 

 

 

 

74,606

 

Inventories

 

34,408

 

59,094

 

 

 

8,968

(B)

102,470

 

Prepaid expenses and current assets

 

9,150

 

1,682

 

 

 

 

 

10,832

 

Deferred cost or revenue—current

 

5,131

 

 

 

 

 

 

5,131

 

Total current assets

 

236,517

 

227,873

 

 

(93,157

)

371,233

 

Deferred cost of revenue—noncurrent

 

2,193

 

 

 

 

 

 

2,193

 

Property, plant and equipment, net

 

16,514

 

21,065

 

 

 

 

 

37,579

 

Goodwill

 

4,495

 

 

354

 

54,670

(C)

59,519

 

Intangible assets, net

 

194

 

 

7,044

 

56,456

(D)

63,694

 

Other assets

 

1,816

 

13,326

 

(7,398

)

500

(E)

8,244

 

Total assets

 

$

261,729

 

$

262,264

 

$

 

$

18,468

 

$

542,461

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

9,873

 

$

21,498

 

 

 

 

 

$

31,371

 

Notes payable

 

 

754

 

 

 

 

 

754

 

Accrued warranty

 

 

4,354

 

 

 

9,420

(F)

13,774

 

Accrued compensation

 

9,941

 

 

5,250

 

10,989

(G),(H)

26,180

 

Other accrued liabilities

 

7,881

 

27,220

 

(5,250

)

7,541

(A),(I),(J)

37,392

 

Customer advances

 

13,484

 

14,154

 

 

 

 

 

27,638

 

Deferred revenue—current

 

35,626

 

32,441

 

 

 

16,288

(F)

84,355

 

Total current liabilities

 

76,805

 

100,421

 

 

44,238

 

221,464

 

Long-term other liabilities

 

999

 

1,614

 

 

 

(K)

2,613

 

Deferred revenue—noncurrent

 

4,655

 

435

 

 

 

438

(F)

5,528

 

Notes offered hereby

 

 

 

 

 

 

 

72,563

(L)

72,563

 

Total liabilities

 

82,459

 

102,470

 

 

117,239

 

302,168

 

Shareholder’s Equity (Deficiency)

 

 

 

 

 

 

 

 

 

 

 

Capital stock

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; authorized: 5,000,000 shares; no shares issued and outstanding

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; authorized: 100,000,000 shares; issued: 62,291,644 shares at March 31, 2011; outstanding: 60,151,626 shares at March 31, 2011

 

60

 

532

 

 

 

(532

)(M)

60

 

Additional paid-in capital

 

298,530

 

679,135

 

 

 

(604,976

)(M)

372,689

 

Treasury stock

 

 

(454

)

 

 

454

(M)

 

Accumulated other comprehensive loss

 

85

 

(759

)

 

 

759

(M)

85

 

Accumulated deficit

 

(119,405

)

(520,952

)

 

 

505,525

(M)

(134,832

)

Total shareholders’ equity (deficiency)

 

179,270

 

157,502

 

 

(98,770

)

238,002

 

Non-controlling interests

 

 

2,292

 

 

 

 

 

2,292

 

Total liabilities and shareholders’ equity (deficiency)

 

$

261,729

 

$

262,264

 

$

 

$

18,468

 

$

542,461

 

 


(1)                                 Certain reclasses recorded to conform to the Accuray presentation.

 

3



 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the nine months ended March 31, 2011

(in thousands, except per share data)

 

 

 

Historical

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

 

 

 

 

 

 

March 31, 2011

 

March 31, 2011

 

 

 

Pro forma

 

Pro forma

 

 

 

Accuray

 

TomoTherapy

 

Reclassifications(1)

 

adjustments

 

combined

 

Statements of Income Data:

 

 

 

 

 

 

 

 

 

 

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

88,915

 

$

109,559

 

 

 

 

 

$

198,474

 

Shared ownership programs

 

1,856

 

 

 

 

 

 

1,856

 

Services

 

54,833

 

43,267

 

 

 

 

 

98,100

 

Other

 

1,457

 

 

 

 

 

 

1,457

 

Total net revenue

 

147,061

 

152,826

 

 

 

299,887

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

Cost of products

 

34,508

 

53,661

 

 

 

$

3,178

(D)

91,347

 

Cost of shared ownership programs

 

379

 

 

 

 

 

 

379

 

Cost of services

 

35,397

 

64,481

 

 

 

 

 

99,878

 

Cost of other

 

1,761

 

 

 

 

 

 

1,761

 

Total cost of revenue

 

72,045

 

118,142

 

 

3,178

 

193,365

 

Gross profit

 

75,016

 

34,684

 

 

(3,178

)

106,522

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

23,874

 

43,879

 

$

(22,827

)

1,179

(D)

46,104

 

Research and development

 

26,651

 

24,471

 

 

 

(6

)(D)

51,116

 

General and administrative

 

27,461

 

 

22,827

 

(4,800

)(J)

45,488

 

Total operating expenses

 

77,986

 

68,350

 

 

(3,628

)

142,708

 

Loss from operations

 

(2,970

)

(33,666

)

 

450

 

(36,186

)

Other income(loss), net

 

2,314

 

3,714

 

 

 

(3,378

)(E),(L),(N)

2,650

 

Loss before provision for taxes

 

(656

)

(29,952

)

 

(2,928

)

(33,536

)

Provision for income taxes

 

1,046

 

929

 

 

 

 

 

1,975

 

Net loss

 

(1,702

)

(30,881

)

 

(2,928

)

(35,511

)

Non-controlling interest

 

 

5,393

 

 

 

 

 

5,393

 

Net loss attributable to shareholders

 

$

(1,702

)

$

(25,488

)

 

$

(2,928

)

$

(30,118

)

Weighted average common shares outstanding used in computing net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

59,298

 

52,652

 

 

 

 

 

68,351

 

Diluted

 

59,298

 

52,652

 

 

 

 

 

68,351

 

Net income/(loss) per share

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

(0.03

)

$

(0.48

)

 

 

 

 

$

(0.44

)

Diluted net income per share

 

$

(0.03

)

$

(0.48

)

 

 

 

 

$

(0.44

)

 


(1)                                 Certain reclasses recorded to conform to the Accuray presentation

 

4



 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

For the year ended June 30, 2010

(in thousands, except per share data)

 

 

 

Historical

 

 

 

 

 

 

 

 

 

Twelve months ended

 

 

 

 

 

 

 

 

 

June 30, 2010

 

June 30, 2010

 

 

 

Pro forma

 

Pro forma

 

 

 

Accuray

 

TomoTherapy

 

Reclassifications(1)

 

adjustments

 

combined

 

Statements of Income Data:

 

 

 

 

 

 

 

 

 

 

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

141,297

 

$

132,357

 

 

 

 

 

$

273,654

 

Shared ownership programs

 

1,890

 

 

 

 

 

 

1,890

 

Services

 

77,504

 

49,681

 

 

 

 

 

127,185

 

Other

 

934

 

 

 

 

 

 

934

 

Total net revenue

 

221,625

 

182,038

 

 

 

403,663

 

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

Cost of products

 

65,197

 

66,942

 

 

 

$

5,058

(D)

137,197

 

Cost of shared ownership programs

 

1,019

 

 

 

 

 

 

1,019

 

Cost of services

 

50,732

 

70,142

 

 

 

 

 

120,874

 

Cost of other

 

659

 

 

 

 

 

 

659

 

Total cost of revenue

 

117,607

 

137,084

 

 

5,058

 

259,749

 

Gross profit

 

104,018

 

44,954

 

 

(5,058

)

143,914

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

34,187

 

49,248

 

$

(23,973

)

1,571

(D)

61,033

 

Research and development

 

31,523

 

31,270

 

 

 

3

(D)

62,796

 

General and administrative

 

35,472

 

 

23,973

 

 

 

59,445

 

Total operating expenses

 

101,182

 

80,518

 

 

1,575

 

183,275

 

Income (loss) from operations

 

2,836

 

(35,564

)

 

(6,633

)

(39,361

)

Other income(loss), net

 

1

 

1,006

 

 

 

(6,005

)(E),(L),(N)

(4,998

)

Income (loss) before provision for taxes

 

2,837

 

(34,558

)

 

(12,638

)

(44,359

)

Provision for income taxes

 

(4

)

96

 

 

 

 

 

92

 

Net income (loss)

 

2,841

 

(34,654

)

 

(12,638

)

(44,451

)

Non-controlling interest

 

 

5,805

 

 

 

 

 

5,805

 

Net income (loss) attributable to shareholders

 

$

2,841

 

$

(28,849

)

 

$

(12,638

)

$

(38,646

)

Weighted average common shares outstanding used in computing net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

57,560

 

51,297

 

 

 

 

 

66,613

 

Diluted

 

60,191

 

51,297

 

 

 

 

 

66,613

 

Net income/(loss) per share

 

 

 

 

 

 

 

 

 

 

 

Basic net income(loss) per share

 

$

0.05

 

$

(0.56

)

 

 

 

 

$

(0.58

)

Diluted net income(loss) per share

 

$

0.05

 

$

(0.56

)

 

 

 

 

$

(0.58

)

 


(1)                                 Certain reclasses recorded to conform to the Accuray presentation

 

5



 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Note 1: Basis of Pro Forma Presentation

 

On March 6, 2011, Accuray and TomoTherapy entered into an Agreement and Plan of Merger (the “Merger Agreement”) providing for the merger of a wholly owned subsidiary of Accuray into TomoTherapy. On June 10, 2011, the merger was completed. The unaudited pro forma condensed combined balance sheet combines the unaudited historical consolidated balance sheet of Accuray and the unaudited historical consolidated balance sheet of TomoTherapy as of March 31, 2011 and gives effect to the merger as if it had been completed on March 31, 2011. The unaudited pro forma condensed combined statement of operations for the nine months ended March 31, 2011 combines the unaudited historical results of Accuray for the nine months ended March 31, 2011 and the unaudited historical results of TomoTherapy for the nine months ended March 31, 2011, derived from the year ended December 31, 2010 less the six months ended June 30, 2010 in addition to the three months ended March 31, 2011. The unaudited pro forma condensed combined statement of operations for the fiscal year ended June 30, 2010 combines the audited historical results of Accuray for the year ended June 30, 2010 and the unaudited historical results of TomoTherapy for the year ended June 30, 2010, derived from the twelve months ended December 31, 2009 less the six months ended June 30, 2009 in addition to the six months ended June 30, 2010 and gives effect to the merger as if it had been completed on July 1, 2009.

 

Under the terms of the Merger Agreement, each outstanding share of TomoTherapy common stock was converted into the right to receive $3.15 in cash and 0.1648 shares of Accuray common stock. Based on the closing price of Accuray’s common stock on June 10, 2011, the stock component of the merger consideration is valued at $1.22 per share, resulting in a total purchase value of $4.37 per share of outstanding TomoTherapy common stock for pro forma presentation purposes.

 

Preliminary Purchase Price

 

The total estimated preliminary purchase price expected to be transferred to effect the merger is as follows (in thousands except share and per share amounts):

 

Acquisition of 54.9 million shares of outstanding common stock of TomoTherapy at $3.15 per share in cash

 

$

174,187

 

Total cash consideration paid

 

$

174,187

 

Estimated fair value of Accuray shares issued in exchange for 54.9 million shares of outstanding common stock of TomoTherapy (A1)

 

$

66,905

 

Estimated fair value of outstanding TomoTherapy equity awards assumed (A2)

 

5,916

 

Estimated purchase price consideration

 

$

247,008

 

 

A1.  The fair value of the Accuray shares issued in exchange for outstanding shares of TomoTherapy common stock is computed as follows (in thousands, except per share data).

 

Shares of TomoTherapy common stock outstanding

 

54,936

 

Per share exchange ratio

 

0.1648

 

Number of shares of Accuray common stock issued in the merger

 

9,053

 

Per share price of Accuray common stock on June 10, 2011

 

$

7.39

 

Fair value of shares of Accuray common stock issued in the merger

 

$

66,905

 

 

6



 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Continued)

 

A2.  Derived by applying a contractually defined exchange ratio of 0.61 to all outstanding stock option awards and determining the estimated fair market value of such converted stock option awards using the Black-Scholes valuation methodology with the following assumptions:

 

Dividend Yield

 

0%

Volatility

 

52.4%

Risk Free Rate

 

0.08% - 1.77%

Expected Life

 

0.07 - 4.10 years

Market Price of Accuray stock

 

$7.39 per share

 

The exchange ratio is based on Accuray’s and TomoTherapy’s volume-weighted average stock prices for the five-day period ended March 15, 2011.

 

The total fair value of all outstanding stock option awards was attributed to purchase price and post-transaction compensation expense based on the ratio of past service period to total service period for each award.

 

A3.  Fair value of the restricted stock awards assumed in the merger has been derived by applying the exchange ratio of 0.1648 and the estimated fair value of $7.39 per share to TomoTherapy’s unvested restricted stock awards. The total fair value of all unvested restricted stock awards was attributed to purchase price and post-transaction compensation expense based on the ratio of past service period to total service period for each award.

 

Preliminary Purchase Price Allocation

 

The purchase price has been allocated based on a preliminary estimate of the fair value of net assets acquired as of March 31, 2011 (in thousands):

 

Net book value of assets acquired

 

$

157,502

 

Less: impact to accumulated deficit for transaction related costs incurred by TomoTherapy

 

(5,500

)

Less: write off of existing TomoTherapy goodwill

 

(354

)

Adjusted net book value of assets acquired as of December 31, 2010

 

151,648

 

Increase in identifiable intangible assets

 

56,456

 

Change in inventory to fair value

 

8,968

 

Change in deferred revenue to fair value

 

(16,726

)

Change in warranty accrual to fair value

 

(9,420

)

Decrease in deferred rent

 

1,058

 

Goodwill

 

55,024

 

Total net assets acquired

 

$

247,008

 

 

7



 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Continued)

 

Note 2: Reclassifications

 

Certain reclassification adjustments have been made to conform TomoTherapy’s historical amounts to Accuray’s presentation. The balance sheet adjustments primarily relate to reclassifying other assets to goodwill and intangible assets, accrued compensation to other accrued liabilities and deferred revenue—noncurrent to long-term other liabilities. Reclassifications on the pro forma statement of operations relate to reclassifying selling, marketing and general and administrative expenses separately to selling and marketing and general and administrative expense.

 

Note 3: Pro Forma Adjustments

 

The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:

 

A.    Cash—Represents the estimated use of cash to fund the cash portion of the merger consideration offset by the $75.0 million in gross proceeds anticipated to be raised from the notes offering (see L), less $2.4 million in debt issuance costs paid.

 

B.    Inventory—To record the difference between the historical book value and preliminary estimated fair values of TomoTherapy inventory acquired in the transaction.

 

C.    Goodwill—To eliminate TomoTherapy historical goodwill and record the preliminary estimate of goodwill for the acquisition of TomoTherapy. The pro forma adjustment to goodwill includes the following: (in thousands).

 

 

 

TomoTherapy
historical
amount

 

Preliminary
estimated
fair value

 

Increase

 

Goodwill

 

$

354

 

$

55,024

 

$

54,670

 

 

D.    Intangible Assets—These estimated fair values are considered preliminary and are subject to change upon finalization of the acquisition valuation. Changes in fair value of the acquired intangible assets may be material. Determination of the estimated remaining useful lives of the individual categories of intangible assets was based on the nature of the applicable intangible asset and the expected future cash flows to be derived from the intangible asset. The acquired finite-lived intangible assets are being amortized over the estimated useful life in proportion to the economic benefits

 

8



 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Continued)

 

consumed, which for some intangibles assets are approximated by using the straight-line method. The acquired intangible assets include the following (in thousands):

 

 

 

 

 

 

 

 

 

Pro Forma Amortization

 

 

 

 

 

Historical
amounts, net

 

Preliminary
fair values

 

Increase

 

Year ended
June 30,
2010

 

Nine months
ended
March 31,
2011

 

Weighted
average
useful
life

 

Developed technology

 

$

7,044

 

$

47,600

 

$

40,556

 

$

6,800

 

$

5,100

 

7

 

Trade name

 

 

11,000

 

11,000

 

1,572

 

1,179

 

7

 

Order backlog

 

 

4,900

 

4,900

 

 

 

1

 

Total intangible assets

 

$

7,044

 

$

63,500

 

$

56,456

 

$

8,372

 

$

6,279

 

 

 

Total TomoTherapy historical amortization of intangible assets

 

 

 

 

 

 

 

1,739

 

1,928

 

 

 

Total increase in amortization of intangible assets

 

 

 

 

 

 

 

$

6,633

 

$

4,351

 

 

 

Included in cost of products

 

 

 

 

 

 

 

$

5,058

 

$

3,178

 

 

 

Included in research and development

 

 

 

 

 

 

 

3

 

(6

)

 

 

Included in selling and marketing

 

 

 

 

 

 

 

1,572

 

1,179

 

 

 

 

 

 

 

 

 

 

 

$

6,633

 

$

4,351

 

 

 

 

E.            Other Assets—Represents the estimated debt issuance costs that will be amortized over the five year life of the notes. Amortization expense of $0.1 million is included in other income/(loss) for both the nine months ended March 31, 2011 and the twelve months ended June 30, 2010.

 

F.             Deferred Revenue and Accrued Warranty—Represents the difference in the historical book value of TomoTherapy’s deferred service revenue and accrued warranty obligations and the preliminary estimated fair value. Fair value estimates the direct and indirect cost of the servicing of acquired service contracts with a normal profit margin to satisfy the remainder of the obligations under such contracts. Deferred revenue and accrued warranty has been increased to allow for a market rate of return on the costs required to fulfill these obligations, including indirect support and administrative costs.

 

G.            Severance—Represents the following adjustments to accrued expenses (in thousands):

 

 

 

As of
March 31,
2011

 

Liability for expected cash payment to TomoTherapy executives(G1)

 

$

7,904

 

 


(G1)                        Certain executives of TomoTherapy have employment agreements with dual-trigger severance clauses, meaning that if there is a change in control of TomoTherapy and within three months before or 24 months following the change in control, the individual is terminated without cause or the individual terminates his or her employment for good reason, severance benefits covering salary and other benefits are triggered. This amount represents an estimate of the amounts that will be due and payable for individuals who likely will not continue employment with TomoTherapy post closing. Additional amounts may be required if employment is not continued for additional employees.

 

9



 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Continued)

 

H.            Stock-based compensation—Includes the estimated accrued stock-based compensation expense of $3.1 million for the accelerated vesting of restricted stock awards for certain executives with dual-trigger severance clauses (see G1).

 

I.             Deferred Rent—To eliminate the historical amount of deferred rent of TomoTherapy in the amount of $1.1 million.

 

J.             Transaction costs—To record estimated directly related transaction costs of approximately $13.4 million, including estimated investment banking, legal and accounting fees, and other external costs directly related to the merger. Transaction costs of $4.8 million related to the merger included in the historical results of operations for TomoTherapy and Accuray have been reversed as the costs are not expected to have a continuing impact beyond the next twelve months. An accrual for TomoTherapy’s estimated transaction costs of $5.5 million related to the merger was included in net assets acquired and Accuray estimated transaction costs of $3.1 million related to the merger were included in accrued liabilities in the condensed combined balance sheet.

 

K.            Deferred Tax Liability—To record adjustments to deferred tax balances related to changes in fair value in connection with the purchase price allocation and the recording of the purchased intangible assets as well as the assumed equity awards. The result of this change is the recording of a net deferred tax liability of $14.0 million and a commensurate reduction of TomoTherapy’s valuation allowance. Due to TomoTherapy’s full valuation allowance, the pro forma adjustments do not result in a change to the provision for income taxes.

 

L.            Convertible Notes Offering—In connection with the issuance of the notes in the notes offering, net proceeds of $72.6 million are included in the cash balance at March 31, 2011. The remaining difference of $2.4 million between the net proceeds received and the face value of the notes represents debt issuance costs which will be amortized to interest expense over the life of the notes, or five years. For purposes of the unaudited pro forma condensed combined financial statements, it is assumed that the notes will bear an annual interest rate of 3.75%, resulting in interest expense of $2.1 million being recorded for the nine months ended March 31, 2011 and $2.8 million being recorded for the twelve months ended June 30, 2010 in the pro forma financials herein.

 

For purposes of the pro forma financials, the Company has not yet determined its allocation of the proceeds of the proposed notes offering between debt and equity. Therefore, the pro forma financials reflect the impact of the notes in the Company’s pro forma debt balance at net issuance value. The pro forma calculations of EPS also do not reflect the impact of the proposed notes offering as the method for determining EPS (if converted or treasury method) has not yet been determined.

 

M.           Equity—Adjustments to shareholders’ equity represents the elimination of TomoTherapy’s historical shareholders’ equity and the issuance of approximately 9.1 million shares of Accuray common stock in connection with the closing of the merger. The value of Accuray’s shares to be issued is approximately $66.9 million based on the assumed exchange ratio of 0.1648 per each share of Accuray common stock and the closing price of Accuray’s common stock as of June 10, 2011 of $7.39 per share. Also reflected is an adjustment to record the estimated fair value of assumed TomoTherapy stock options and restricted stock awards to be exchanged for Accuray stock.

 

10



 

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(Continued)

 

Adjustments to additional paid-in capital are as follows (in thousands):

 

Eliminate TomoTherapy historical additional paid-in capital 

 

$

(679,135

)

Estimated fair value of Accuray common shares to be issued

 

66,905

 

Estimated fair value of assumed stock options and restricted stock awards deemed as purchase consideration

 

5,916

 

Stock-based compensation expense recognized immediately upon closing of merger

 

1,338

 

Total

 

$

(604,976

)

 

Adjustments to accumulated deficit are as follows (in thousands):

 

Eliminate TomoTherapy historical accumulated deficit

 

$

520,952

 

Adjustment to record additional employee-related compensation (see note G above)

 

(7,904

)

Estimated merger costs incurred by Accuray

 

(3,100

)

Stock-based compensation expense recognized immediately upon closing of merger

 

(4,423

)

Total

 

$

505,525

 

 

N.            Interest Income—To record an assumed reduction in interest income due to reduced cash and cash equivalent and short-term investment balances as a result of the cash consideration of $174.2 million issued in the merger. Interest income was reduced by approximately $2.6 million based on an effective weighted-average interest rate of 1.5% for the year ended June 30, 2010. Interest income was reduced by $0.8 million based on an effective weighted-average interest rate of 0.63% for the nine months ended March 31, 2011.

 

The effective interest rate was determined based on the actual interest recognized during the presented fiscal year and six month periods.

 

Note 4. Pro Forma Net Loss Per Share

 

Pro forma basic and diluted net loss per share is calculated by dividing the pro forma combined net loss by the pro forma weighted-average number of shares outstanding. The pro forma basic and diluted net loss per share amounts presented in the unaudited pro forma condensed combined statements of operations are based on the weighted-average number of Accuray common shares outstanding and are adjusted for additional shares issued in the merger.

 

 

 

Year ended
June 30, 2010

 

Nine months ended
March 31, 2011

 

 

 

(in thousands)

 

Historical weighted-average shares outstanding

 

57,560

 

59,298

 

Additional common shares expected to be issued in the transaction

 

9,053

 

9,053

 

Pro forma weighted-average shares outstanding—basic and diluted

 

66,613

 

68,351

 

 

11


Exhibit 99.2

 

 

 

Contacts:

Tom Rathjen
Vice President, Investor Relations
+1 (408) 789-4458
trathjen@accuray.com

Rebecca Phillips
Corporate Communications
+1 (408) 789-4234
rphillips@accuray.com

 

ACCURAY ANNOUNCES PROPOSED OFFERING OF
$75 MILLION CONVERTIBLE SENIOR NOTES

 

SUNNYVALE, Calif., July 26, 2011 — Accuray Incorporated (Nasdaq: ARAY) (“Accuray”) today announced its intention to commence an offering, subject to market and other conditions, of $75 million aggregate principal amount of convertible senior notes due 2016 (the “notes”), to be offered and sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Accuray intends to grant the initial purchaser of the notes an option to purchase up to an additional $11.25 million aggregate principal amount of notes. The notes are expected to be convertible under certain conditions into common stock of Accuray, cash or a combination thereof, at Accuray’s election. The notes are expected to mature on August 1, 2016, unless earlier repurchased, redeemed or converted. The notes are expected to be redeemable at a redemption price of 100% of their principal amount plus accrued and unpaid interest, at Accuray’s option on or after August 1, 2014 if the closing sale price of its common stock exceeds 130% of the applicable conversion price of the notes for specified periods. The interest rate, conversion rate and other terms of the notes are to be determined by negotiations between Accuray and the initial purchaser of the notes.

 

Accuray intends to use the proceeds from the sale of the notes for general corporate purposes, including investing strategically in expanding its business and new product initiatives.

 

This announcement is neither an offer to sell nor a solicitation of an offer to buy any of these securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful.

 



 

The notes and any shares of common stock issuable upon conversion of the notes have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

 

Safe Harbor Statement

The matters discussed in this release include forward-looking statements. These statements are based on current expectations or beliefs and are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including without limitation, whether or not Accuray will offer the notes or consummate the offering, the anticipated terms of the notes, the offering and the anticipated use of the proceeds of the offering. Accuray is providing this information as of the date of this news release and assumes no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this press release.

 

###

 

2