UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Exhibit 99.1
UNAUDITED
PRO FORMA CONDENSED
FINANCIAL INFORMATION
Introduction to Pro Forma Financial Information
On February 7, 2006, Xxxxx & Xxxxxxxxxx Computer Corporation (the “Company”) entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Rockwell Xxxxxxx, Inc. pursuant to which the Company agreed to sell substantially all of the assets and certain liabilities (the “Asset Sale”) of its commercial and military simulation businesses and related service and support operations (collectively, the “Simulation Business”). The Asset Purchase Agreement provided that, upon the closing of the Asset Sale, the Company and an affiliate of Rockwell Xxxxxxx would enter into a laser projection systems agreement (the “Laser Agreement”) pursuant to which the Company agreed to develop its laser projection systems for certain applications and grant exclusive and non-exclusive intellectual property licenses to such products in connection with the Simulation Business and certain related businesses of Rockwell Xxxxxxx (the Asset Sale and the transactions contemplated by the Laser Agreement are collectively referred to as the “Transaction”).
The Company also agreed with Xxxxxxxx Xxxxxxx to enter into certain ancillary agreements at the closing of the Transaction, including the Laser Agreement, a laser projection supply agreement, an intellectual property licensing agreement, an escrow agreement, an assumption and assignment agreement and a transition services agreement pursuant to which the Company agreed to, among other things, develop, manufacture, produce and sell laser projection systems to Rockwell Xxxxxxx.
The aggregate consideration in the Transaction was $71.5 million in cash, consisting of $66.5 million under the Asset Purchase Agreement for the assets and related service and support operations primarily related to the Simulation Business, subject to a potential post-closing adjustment, and $5.0 million under the Laser Agreement, subject to the Company achieving certain milestones. At the closing of the Transaction on May 26, 2006, the Company received $59.5 million in cash under the terms of the Asset Purchase Agreement and Rockwell Xxxxxxx deposited $10.0 million in cash (consisting of $7.0 million under the Asset Purchase Agreement and $3.0 million under the Laser Agreement) in escrow pursuant to an escrow agreement (the “Escrow Agreement”), dated as of May 26, 2006, by and between the Company, Xxxxxxxx Xxxxxxx and U.S. Bank National Association, as escrow agent. Another $2.0 million in cash will be paid to the Company under the Laser Agreement upon completion of manufacturing acceptance testing of the Company’s fixed-based laser projection system. Under the terms of the Escrow Agreement, the deposited amount will be held in escrow to secure (i) any post-closing reduction in the purchase price under the Asset Purchase Agreement, (ii) the Company’s indemnification obligations under the Asset Purchase Agreement and (iii) the Company’s obligations (not to exceed $3.0 million of the escrowed funds) to meet specified milestones under the Laser Agreement. The escrowed funds will be released in installments as set forth in the Escrow Agreement.
The accompanying unaudited pro forma condensed consolidated balance sheet of the Company gives effect to the Transaction as if it had been completed as of March 31, 2006. The unaudited pro forma condensed consolidated statements of operations give effect to the Transaction as if it had been completed as of the beginning of the Company’s first fiscal quarters ended April 1, 2005 and March 31, 2006. The pro forma adjustments are described in the accompanying notes. These unaudited pro forma condensed consolidated financial statements are presented for illustrative purposes only. Such information is not necessarily indicative of the operating results or financial position that would have occurred had the Transaction taken place on January 1 of 2005 or 2006, nor is it indicative of the results that may be expected for future periods. The pro forma condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes filed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and the Company’s first quarter 2006 results filed in its Quarterly Report on Form 10-X.
XXXXX &
XXXXXXXXXX COMPUTER CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 2006
(in thousands)
|
|
Historical E&S |
|
Simulation Business |
|
Pro Forma |
|
Pro Forma E&S |
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|
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|
|
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|
|
|
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|
||||
ASSETS |
|
|
|
|
|
|
|
|
|
||||
Current assets: |
|
|
|
|
|
|
|
|
|
||||
Cash |
|
$ |
12,172 |
|
$ |
— |
|
$ |
19,641 |
(a) |
$ |
33,558 |
|
|
|
|
|
|
|
1,745 |
(b) |
|
|
||||
Restricted cash |
|
2,023 |
|
— |
|
(1,500 |
)(b) |
523 |
|
||||
Accounts receivable, net |
|
10,085 |
|
(7,331 |
) |
|
|
2,754 |
|
||||
Costs and estimated earnings in excess of xxxxxxxx on uncompleted contracts |
|
10,829 |
|
(7,305 |
) |
|
|
3,524 |
|
||||
Inventories |
|
10,444 |
|
(8,557 |
) |
|
|
1,887 |
|
||||
Prepaid expenses and deposits |
|
3,174 |
|
(594 |
) |
|
|
2,580 |
|
||||
Total current assets |
|
48,727 |
|
(23,787 |
) |
19,886 |
|
44,826 |
|
||||
Property, plant and equipment, net |
|
14,247 |
|
(8,014 |
) |
|
|
6,233 |
|
||||
Investments |
|
910 |
|
(910 |
) |
|
|
— |
|
||||
Other assets |
|
781 |
|
(33 |
) |
(245 |
)(b) |
503 |
|
||||
Total assets |
|
$ |
64,665 |
|
$ |
(32,744 |
) |
$ |
19,641 |
|
$ |
51,562 |
|
|
|
|
|
|
|
|
|
|
|
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LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT) |
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|
|
|
|
|
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|
||||
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|
|
|
|
|
|
|
|
|
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Current liabilities: |
|
|
|
|
|
|
|
|
|
||||
Accounts payable |
|
$ |
6,065 |
|
$ |
(2,966 |
) |
$ |
— |
|
$ |
3,099 |
|
Accrued liabilities |
|
8,776 |
|
(1,967 |
) |
(90 |
)(c) |
7,704 |
|
||||
|
|
|
|
|
|
1,239 |
(d) |
|
|
||||
|
|
|
|
|
|
(254 |
)(e) |
|
|
||||
Customer deposits |
|
6,150 |
|
(3,726 |
) |
|
|
2,424 |
|
||||
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
9,225 |
|
(7,866 |
) |
|
|
1,359 |
|
||||
Total current liabilities |
|
30,216 |
|
(16,525 |
) |
895 |
|
14,586 |
|
||||
Convertible subordinated debentures |
|
18,015 |
|
— |
|
(18,015 |
)(c) |
— |
|
||||
Deferred rent obligation |
|
3,710 |
|
— |
|
(2,026 |
)(f) |
1,684 |
|
||||
Pension and retirement obligations |
|
24,516 |
|
— |
|
(20,144 |
)(e) |
4,372 |
|
||||
Total liabilities |
|
76,457 |
|
(16,525 |
) |
(39,290 |
) |
20,642 |
|
||||
Shareholders’ equity (deficit): |
|
|
|
|
|
|
|
|
|
||||
Common stock |
|
2,178 |
|
— |
|
|
|
2,178 |
|
||||
Additional paid-in-capital |
|
50,344 |
|
— |
|
|
|
50,344 |
|
||||
Common stock in treasury, at cost |
|
(4,709 |
) |
— |
|
|
|
(4,709 |
) |
||||
Accumulated deficit |
|
(49,728 |
) |
— |
|
40,687 |
(d) |
(7,016 |
) |
||||
|
|
|
|
|
|
2,026 |
(f) |
|
|
||||
Accumulated other comprehensive loss |
|
(9,877 |
) |
— |
|
|
|
(9,877 |
) |
||||
Total shareholders’ equity (deficit) |
|
(11,792 |
) |
— |
|
42,713 |
|
30,921 |
|
||||
Total liabilities and shareholders’ equity (deficit) |
|
$ |
64,665 |
|
$ |
(16,525 |
) |
$ |
3,422 |
|
$ |
51,562 |
|
XXXXX &
XXXXXXXXXX COMPUTER CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Quarter Ended March 31, 2006
(in thousands)
|
|
Historical E&S |
|
Simulation |
|
Pro Forma |
|
Pro Forma |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Sales |
|
$ |
15,792 |
|
$ |
(12,025 |
) |
$ |
— |
|
$ |
3,767 |
|
Cost of sales |
|
10,680 |
|
(8,256 |
) |
(59 |
)(h) |
2,365 |
|
||||
Gross profit |
|
5,112 |
|
(3,769 |
) |
59 |
|
1,402 |
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
6,233 |
|
(4,056 |
) |
(1,539 |
)(g) |
573 |
|
||||
|
|
|
|
|
|
(65 |
)(h) |
|
|
||||
Research and development |
|
4,149 |
|
(2,214 |
) |
(94 |
)(h) |
1,841 |
|
||||
Operating expenses |
|
10,382 |
|
(6,270 |
) |
(1,698 |
) |
2,414 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating loss |
|
(5,270 |
) |
2,501 |
|
1,757 |
|
(1,012 |
) |
||||
Other income (expense), net |
|
(710 |
) |
309 |
|
270 |
(i) |
(131 |
) |
||||
Loss before income taxes |
|
(5,980 |
) |
2,810 |
|
2,027 |
|
(1,143 |
) |
||||
Income tax benefit |
|
(112 |
) |
112 |
|
— |
|
— |
|
||||
Net loss |
|
$ |
(5,868 |
) |
$ |
2,698 |
|
$ |
2,027 |
|
$ |
(1,143 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
$ |
(0.56 |
) |
|
|
|
|
$ |
(0.11 |
) |
||
|
|
|
|
|
|
|
|
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|
||||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
10,523 |
|
|
|
|
|
10,523 |
|
XXXXX &
XXXXXXXXXX COMPUTER CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Quarter Ended April 1, 2005
(in thousands)
|
|
Historical |
|
Simulation |
|
Pro Forma |
|
Pro Forma |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Sales |
|
$ |
13,280 |
|
$ |
(10,920 |
) |
$ |
— |
|
$ |
2,360 |
|
Cost of sales |
|
8,652 |
|
(7,428 |
) |
(54 |
)(h) |
1,170 |
|
||||
Gross profit |
|
4,628 |
|
(3,492 |
) |
54 |
|
1,190 |
|
||||
Expenses: |
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
4,552 |
|
(3,450 |
) |
(60 |
)(h) |
1,042 |
|
||||
Research and development |
|
4,309 |
|
(3,301 |
) |
(86 |
)(h) |
922 |
|
||||
Restructuring charge (recovery) |
|
1,891 |
|
(1,758 |
) |
— |
|
133 |
|
||||
Operating expenses |
|
10,752 |
|
(8,509 |
) |
(146 |
) |
2,097 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating loss |
|
(6,124 |
) |
5,017 |
|
200 |
|
(907 |
) |
||||
Other income (expense), net |
|
(265 |
) |
160 |
|
270 |
(i) |
165 |
|
||||
Loss before income taxes |
|
(6,389 |
) |
5,177 |
|
470 |
|
(742 |
) |
||||
Income tax benefit |
|
(411 |
) |
411 |
|
— |
|
— |
|
||||
Net loss |
|
$ |
(5,978 |
) |
$ |
4,766 |
|
$ |
470 |
|
$ |
(742 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Net loss per common share: |
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
$ |
(0.57 |
) |
|
|
|
|
$ |
(0.07 |
) |
||
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
||||
Basic and diluted |
|
10,514 |
|
|
|
|
|
10,514 |
|
XXXXX &
XXXXXXXXXX COMPUTER CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Basis of Presentation
The accompanying unaudited pro forma condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.
2. Pro Forma Adjustments
The pro forma condensed consolidated financial statements give effect to the following pro forma adjustments in connection with the acquisition:
(a) Purchase Price, Proposed Use of Proceeds and Estimated Transaction Costs
Amount reflects net cash proceeds from the sale of the Simulation Business due on closing net of the proposed use of proceeds as follows:
Cash consideration under Asset Purchase Agreement |
|
|
|
$ |
66,500 |
|
|
Amount placed in escrow under the Asset Purchase Agreement |
|
|
|
(7,000 |
) |
||
Use of Proceeds: |
|
|
|
|
|
||
6% Debentures and interest |
|
$ |
18,105 |
(c) |
|
|
|
Funding of pension plan, SERP and ESP |
|
20,398 |
(e) |
|
|
||
Estimated transaction costs |
|
1,356 |
|
|
|
||
Total use of proceeds |
|
|
|
(39,859 |
) |
||
Net increase in cash |
|
|
|
$ |
19,641 |
|
|
(b) Release of Collateral Securing Our Outstanding Letters of Credit
Amounts reflect the release of cash collateral securing our reimbursement obligations under our outstanding letters of credit. Under the Asset Purchase Agreement, Xxxxxxxx Xxxxxxx agreed to cause all cash collateral securing our reimbursement obligations under our outstanding letters of credit to be released as of the closing.
(c) Satisfaction and Discharge of the Xxxxx & Xxxxxxxxxx Computer Corporation Subordinated 6% Debentures due 2012 (“6% Debentures”)
Amounts reflect the costs to satisfy and discharge the aggregate principal amount outstanding on our 6% Debentures, as required under the terms and conditions of the Asset Purchase Agreement, as follows:
Satisfaction and Discharge of 6% Debentures: |
|
|
|
|
Redemption amount (par) |
|
$ |
18,015 |
|
Accrued and unpaid interest through March 31, 2006 |
|
90 |
|
|
Total costs to satisfy and discharge the 6% Debentures |
|
$ |
18,105 |
|
(d) Income Taxes and Net Gain
Upon completion of the Transaction, we will record a gain from the Transaction. The sale of assets by the Company pursuant to the Asset Purchase Agreement will be a taxable transaction for income tax purposes. Accordingly, we will recognize a gain with respect to the sale of assets pursuant to the Asset Purchase Agreement in an amount equal to the difference between the amount of the consideration received for each asset over the adjusted tax basis in the asset sold. Although the asset sale will result in taxable gain, we believe that a substantial portion of the taxable gain in the United States will be offset by current year losses from operations, and available net operating loss and tax credit carryforwards. Income taxes have been provided for the taxable gain related to a foreign subsidiary in the pro forma condensed consolidated financial data. The following table summarizes our gain for financial reporting purposes.
Cash consideration under Asset Purchase Agreement |
|
|
|
$ |
66,500 |
|
Amount placed in escrow under Asset Purchase Agreement |
|
(7,000 |
) |
|
|
|
Estimated transaction costs |
|
(1,356 |
) |
|
|
|
Net proceeds |
|
|
|
58,144 |
|
|
Book value of assets acquired by Xxxxxxxx Xxxxxxx |
|
|
|
(32,744 |
) |
|
Book value of liabilities assumed by Xxxxxxxx Xxxxxxx |
|
|
|
16,525 |
|
|
Gain before income taxes |
|
|
|
41,925 |
|
|
Income taxes |
|
|
|
(1,249 |
) |
|
Net gain |
|
|
|
$ |
40,687 |
|
(e) Funding of Our Existing Obligations under the Pension, SERP and ESP
Amount required to fund 90% of our existing obligations under each of the pension, SERP and ESP.
(f) Deferred Rent Obligation
Amounts reflect deferred rent credits related to the assumption of certain leases with rent escalation provisions by Xxxxxxxx Xxxxxxx in connection with the Transaction.
(g) Accounting, Legal and Other Transaction Costs
Amount reflects accounting, legal and other transaction costs incurred in connection with the Transaction.
(h) Cost to Fund Benefit Plans
Amount reflects the reduction in operating expenses as a result of our funding of 90% of our obligations under each of the pension plan, SERP, and ESP.
(i) Interest Expense on the 6% Debentures
Amount reflects the reduction in interest expense resulting from the repayment of interest bearing 6% Debentures.