Samsung extends AST share offer as vote is set

Electronic News, June 12, 1995

SAN JOSE, CALIF.--Samsung Electronics Co. Ltd. extended its cash tender offer to acquire up to 5,820,000 common shares of AST Research Inc. at $22.00 per share, to accommodate a special meeting set by AST on June 30 for stockholders to vote on Samsung's proposed $377.5 million investment (EN, March 6, 13).

At the same time, AST restated its FY94 and subsequent quarterly results to accommodate an SEC review of proxy materials for that meeting.

The restatement, which focuses on a change in accounting for AST's buy of Tandy Corp.'s PC manufacturing operations, principally results in a $33.6 million charge to cost of sales during 4Q94 leading to a loss in that quarter rather than a net gain, and increased pretax income in subsequent periods. The adjustment is non-cash and does not adversely affect working capital or cash flow, AST said.

SEC rules mandate that the tender offer remain open until five business days following the stockholder meeting, and, accordingly, the tender offer, proration period and withdrawal rights will now expire at 12:00 midnight, New York City time, on July 10, unless further extended. Samsung's acquisition of the AST shares is subject to approval by the Korean government. U.S. approvals were obtained. About 25,858,472 shares of AST were tendered as of June 7.

AST filed documents with the SEC to restate its historical financial results for FY94 ended July 2, 1994, and subsequent quarterly periods. The restatement shows the $33.6 million charge due to the acquisition of Tandy's PC manufacturing operations and a change in 4Q94 net income of $14.1 million to a net loss of $8.1 million for that quarter. For the fiscal year, the company adjusted net income to $31.3 million, down from $53.5 million.

The move also increases pre-tax income in the first, second and third quarters of FY95, as well as subsequent periods, by about $900,000 per quarter ($3.6 million per year) due to reduction in amortization linked to the lower amount of goodwill.

AST's total assets and shareholders' equity in 4Q94 are reduced by $32.7 million and $22.2 million, respectively; however, there is no decrease in tangible net worth. AST also will apply for an income tax refund based on the income reduction.

Previously, the Tandy acquisition was accounted for as a purchase, and accordingly, the cost of the acquisition was allocated to the assets and liabilities acquired based on their fair market value on the date of the acquisition. Included in the assets acquired was inventory relating to the GRiD pen-based product line. AST ultimately determined that the realizable value of the pen-based products inventory was significantly lower than that established in the preliminary valuation, and as part of its final purchase price allocation during 4Q94, reallocated approximately $33.6 million of the purchase price from inventory to goodwill. AST was amortizing this goodwill over a 10-year period.

The restatement occurred following discussions with the SEC in connection with the SEC's review of AST's proxy materials for the special stockholder meeting. "The Samsung transaction is of critical importance to the company and its shareholders," said CFO Bruce Edwards. "The restatement allows the company to mail its proxy materials and hold the special meeting to consider the transaction in a timely manner."

AST also filed with the SEC an amendment to its agreement with Samsung which will result in the issuance of additional shares of AST common stock (and in certain cases, preferred stock of AST) to Samsung if AST "incurs uninsured or unreimbursed losses in excess of a certain threshold from any litigation based upon or arising out of the restatement." AST and Samsung also have amended their existing agreements to extend the period of time to July 31, 1995 to complete the investment and Samsung waived any breach of the agreements that may have been caused by the restatement.