KVH INDUSTRIES, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS



Exhibit 99.2
KVH INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

Background

On May 13, 2019, KVH Industries, Inc., a Delaware corporation (the “Company”), and Oakley Capital, a UK company, entered into a Stock Purchase Agreement (the “Purchase Agreement”) pursuant to which Xxxxxx agreed to purchased from the Company all of the outstanding equity of Xxxxx Xxxxxx Limited and Videotel Marine Asia Limited (together referred to as “Videotel”) for $90.0 million in cash, on a cash-free, debt-free basis, subject to working capital adjustments.The sale (“Transaction”) was completed immediately upon execution of definitive agreements. The Company expects to receive payment of the purchase price within 30 business days, subject to subsequent adjustment for working capital. Payment of the purchase price is pursuant to a loan agreement (the “Bridge Loan”) secured by a charge (a type of foreign security interest) over the shares of Xxxxx Xxxxxx Limited and Videotel Marine Asia Limited, and is further backed by an equity commitment letter from Oakley Capital IV Master SCSp that has recently raised in excess of €1 billion of capital commitments.

The Company entered into a consent with Bank of America, N.A., the administrative agent of its Credit Agreement, authorizing the Purchase Agreement and Bridge Loan. The proceeds of the sale will be used to repay the term note in full and any outstanding amounts on the Revolver such that the Consolidated Leverage Ratio is not more than 2.75:1.00. The Revolver will remain at $20.0 million through the term of the Credit Agreement.

Pro Forma Information

The accompanying unaudited pro forma consolidated statement of operations of the Company for the years ended December 31, 2018, 2017, and 2016 are presented as if the Transaction had occurred on January 1, 2016. The accompanying unaudited pro forma consolidated statement of operations of the Company for the three months ended March 31, 2019 is presented as if the Transaction had occurred on January 1, 2019. The unaudited consolidated balance sheet of the Company as of March 31, 2019 is presented as if the Transaction had occurred on March 31, 2019. The pro forma adjustments related to the Transaction do not reflect the final purchase price or final asset and liability balances of the Videotel Business. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma consolidated financial information. The unaudited pro forma financial information is not necessarily indicative of the results of operations or financial position that might have been achieved for the dates or periods indicated, nor is it necessarily indicative of the results of operations or financial position that may occur in the future.

The historical consolidated financial information has been adjusted in the unaudited pro forma financial information to give effect to pro forma events that are (1) directly attributable to the disposal, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results. The pro forma information does not reflect several changes the Company expects to realize after the Transaction because the changes are not certain.

The following is a brief description of the amounts recorded under each of the column headings in the unaudited pro forma consolidated statements of operations and consolidated balance sheet:

KVH Industries, Inc.

This column reflects the Company’s audited operating results for the years ended December 31, 2018, 2017, and 2016 and the unaudited operating results and financial condition as of and for the three months ended March 31, 2019 prior to any adjustment for the Transaction. As of March 31, 2019, the Company had determined that the Videotel Business had not met the held for sale criteria, as prescribed in ASC 000-00-00.





Disposal of Videotel

This column reflects the elimination of the historical operating results of the Videotel Business for the years ended December 31, 2018, 2017, and 2016 and the three months ended March 31, 2019 at the amounts that have been reflected in the Company’s consolidated statements of operations for those periods. Videotel was a part of the Company’s mobile connectivity segment. The disposal column on the unaudited pro forma consolidated balance sheet as of March 31, 2019 reflects the recorded amounts of assets and liabilities included in Videotel Business as of that date.

The tax expense on the disposal is a preliminary estimate and is based on the statutory tax rate for the three months ended March 31, 2019 and the years ended December 31, 2018, 2017, and 2016.

Pro Forma Adjustments

This column on the unaudited pro forma consolidated balance sheet reflects the pro forma effect of the receipt and use of the cash consideration, and estimated gain from the Transaction as well as the repayment of the Term Note. This column on the unaudited pro forma consolidated statements of operations reflects the pro forma effect of the associated interest expense related to the repayment of the Term Note as if it had not been outstanding in each period. See the notes below which describe the pro forma adjustments as reflected in the unaudited pro forma consolidated financial statements based on preliminary estimates, which may change as additional information is obtained.





UNAUDITED PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
MARCH 31, 2019
(In thousands, except share data)
 
March 31, 2019
 
KVH Industries, Inc.
 
Disposal of Videotel
 
Pro Forma
Adjustments
 
Note
 
Pro Forma KVH Industries, Inc.
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
14,259

 
$
(1,696
)
 
$
69,913

 
a
 
$
82,476

Marketable securities
25

 
—

 
—

 
 
 
25

Accounts receivable, net
28,832

 
(1,496
)
 
—

 
 
 
27,336

Intercompany accounts receivable
—

 
(12,236
)
 
12,236

 
c
 
—

Inventories
26,062

 
(23
)
 
—

 
 
 
26,039

Prepaid expenses and other assets
4,320

 
(906
)
 
—

 
 
 
3,414

Current contracts assets
3,678

 
—

 
—

 
 
 
3,678

Total current assets
77,176

 
(16,357
)
 
82,149

 
 
 
142,968

 
 
 
 
 
 
 
 
 
 
Property and equipment, net
53,697

 
(2,788
)
 
—

 
 
 
50,909

Intangible assets, net
9,807

 
(4,258
)
 
—

 
 
 
5,549

Goodwill
32,845

 
(17,572
)
 
—

 
 
 
15,273

Right of use asset operating lease
9,411

 
(90
)
 
—

 
 
 
9,321

Other non-current assets
7,021

 
(1,415
)
 
—

 
 
 
5,606

Non-current contract assets
7,342

 
—

 
—

 
 
 
7,342

Non-current deferred income tax asset
210

 
—

 
—

 
 
 
210

Total assets
$
197,509

 
$
(42,480
)
 
$
82,149

 
 
 
$
237,178

LIABILITIES AND STOCKHOLDERS' EQUITY
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
20,270

 
$
(1,086
)
 
$
—

 
 
 
$
19,184

Accrued compensation and employee-related expenses
4,249

 
(154
)
 
—

 
 
 
4,095

Accrued other
10,131

 
(2,138
)
 
17,434

 
b,d
 
25,427

Accrued product warranty costs
2,021

 
—

 
—

 
 
 
2,021

Current portion of long-term debt
10,585

 
—

 
(3,034
)
 
a
 
7,551

Contract liabilities
12,211

 
(2,971
)
 
—

 
 
 
9,240

Current operating lease liability
4,749

 
(86
)
 
—

 
 
 
4,663

Liability for uncertain tax positions
1,141

 
(496
)
 
496

 
d
 
1,141

Total current liabilities
65,357

 
(6,931
)
 
14,896

 
 
 
73,322

 
 
 
 
 
 
 
 
 
 
Other long-term liabilities
1,752

 
—

 
—

 
 
 
1,752

Long-term operating lease liability
4,672

 
(4
)
 
—

 
 
 
4,668

Long-term contract liabilities
9,634

 
—

 
—

 
 
 
9,634

Long-term debt, excluding current portion
18,749

 
—

 
(18,749
)
 
a
 
—

Non-current deferred income tax liability
1,747

 
(840
)
 
—

 
 
 
907

Total liabilities
$
101,911

 
$
(7,775
)
 
$
(3,853
)
 
 
 
$
90,283

 
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; none issued
—

 
—

 
—

 
 
 
—

Common stock, $0.01 par value. Authorized 30,000,000 shares, 19,134,469 issued and 17,743,971 shares outstanding
191

 
—

 
—

 
 
 
191

 Additional paid-in capital
140,790

 
—

 
—

 
 
 
140,790

 Accumulated (deficit) earnings
(21,576
)
 
—

 
39,585

 
b,e
 
18,009

 Accumulated other comprehensive loss
(13,643
)
 
11,712

 
—

 
 
 
(1,931
)
 
105,762

 
11,712

 
39,585

 
 
 
157,059

Less: treasury stock at cost, common stock, 1,282,422 shares
(10,164
)
 
—

 
—

 
 
 
(10,164
)
Total stockholders' equity
95,598

 
11,712

 
39,585

 
 
 
146,895

Total liabilities and stockholders' equity
$
197,509

 
$
3,937

 
$
35,732

 
 
 
$
237,178

 
 
 
 
 
 
 
 
 
 
 See accompanying Notes to Pro Forma Combined Consolidated Financial Information




UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2019
(in thousands, except per share amounts)
 
Three Months Ended
March 31, 2019
 
KVH Industries, Inc.
 
Disposal of Videotel
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
KVH
Sales:
 
 
 
 
 
 
 
 
 
Product
$
12,874

 
$
—

 
$
—

 
 
 
$
12,874

Service
27,098

 
(3,987
)
 
50

 
h
 
23,161

Net sales
39,972

 
(3,987
)
 
50

 
 
 
36,035

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Costs of product sales
7,853

 
—

 
—

 
 
 
7,853

Costs of service sales
16,697

 
(1,374
)
 
—

 
 
 
15,323

Research and development
3,868

 
—

 
—

 
 
 
3,868

Sales, marketing and support
9,303

 
(1,169
)
 
30

 
g
 
8,164

General and administrative
8,080

 
(1,125
)
 
75

 
g
 
7,030

Total costs and expenses
45,801

 
(3,668
)
 
105

 
 
 
42,238

(Loss) income from operations
(5,829
)
 
(319
)
 
(55
)
 
 
 
(6,203
)
Interest income
175

 
—

 
—

 
 
 
175

Interest expense
385

 
—

 
(325
)
 
f
 
60

Other expense, net
(106
)
 
9

 
—

 
 
 
(97
)
(Loss) income before income tax expense
(6,145
)
 
(310
)
 
270

 
 
 
(6,185
)
Income tax expense (benefit)
34

 
(78
)
 
—

 
 
 
(44
)
Net (loss) income
$
(6,179
)
 
$
(232
)
 
$
270

 
 
 
$
(6,141
)
 
 
 
 
 
 
 
 
 
 
Pro forma per share information:
 
 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
$
(0.36
)
 
 
 
 
 
 
 
$
(0.35
)
 
 
 
 
 
 
 
 
 
 
Number of shares used in pro forma per share calculation:
 
 
 
 
 
 
 
 
 
 Basic and Diluted
17,302

 
 
 
 
 
 
 
17,302

 
 
 
 
 
 
 
 
 
 
 See accompanying Notes to Pro Forma Combined Consolidated Financial Information














UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2018
(in thousands, except per share amounts)
 
For the year ended
December 31, 2018
 
KVH Industries, Inc.
 
Disposal of Videotel
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
KVH
Sales:
 
 
 
 
 
 
 
 
 
Product
$
63,277

 
$
—

 
$
—

 
 
 
$
63,277

Service
107,484

 
(17,939
)
 
207

 
h
 
89,752

Net sales
170,761

 
(17,939
)
 
207

 
 
 
153,029

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Costs of product sales
39,510

 
—

 
—

 
 
 
39,510

Costs of service sales
60,590

 
(5,353
)
 
—

 
 
 
55,237

Research and development
14,951

 
—

 
—

 
 
 
14,951

Sales, marketing and support
34,910

 
(4,339
)
 
106

 
g
 
30,677

General and administrative
27,964

 
(4,842
)
 
545

 
g
 
23,667

Total costs and expenses
177,925

 
(14,534
)
 
651

 
 
 
164,042

(Loss) income from operations
(7,164
)
 
(3,405
)
 
(444
)
 
 
 
(11,013
)
Interest income
635

 
(13
)
 
—

 
 
 
622

Interest expense
1,793

 
(9
)
 
(1,300
)
 
f
 
484

Other income (expense), net
655

 
55

 
—

 
 
 
710

(Loss) income before income tax expense
(7,667
)
 
(3,354
)
 
856

 
 
 
(10,165
)
Income tax expense
565

 
(236
)
 
—

 
 
 
329

Net (loss) income
$
(8,232
)
 
$
(3,118
)
 
$
856

 
 
 
$
(10,494
)
 
 
 
 
 
 
 
 
 
 
Pro forma per share information:
 
 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
$
(0.48
)
 
 
 
 
 
 
 
$
(0.61
)
 
 
 
 
 
 
 
 
 
 
Number of shares used in pro forma per share calculation:
 
 
 
 
 
 
 
 
 
 Basic and Diluted
17,211

 
 
 
 
 
 
 
17,211

 
 
 
 
 
 
 
 
 
 
 See accompanying Notes to Pro Forma Combined Consolidated Financial Information





UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2017
(in thousands, except per share amounts)
 
For the year ended
December 31, 2017
 
KVH Industries, Inc.
 
Disposal of Videotel
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
KVH
Sales:
 
 
 
 
 
 
 
 
 
Product
$
56,968

 
$
—

 
$
—

 
 
 
$
56,968

Service
103,120

 
(19,330
)
 
—

 
 
 
83,790

Net sales
160,088

 
(19,330
)
 
—

 
 
 
140,758

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Costs of product sales
37,474

 
—

 
—

 
 
 
37,474

Costs of service sales
52,692

 
(5,350
)
 
—

 
 
 
47,342

Research and development
15,858

 
—

 
—

 
 
 
15,858

Sales, marketing and support
33,896

 
(4,640
)
 
77

 
g
 
29,333

General and administrative
28,932

 
(5,004
)
 
586

 
g
 
24,514

Total costs and expenses
168,852

 
(14,994
)
 
663

 
 
 
154,521

(Loss) income from operations
(8,764
)
 
(4,336
)
 
(663
)
 
 
 
(13,763
)
Interest income
659

 
(5
)
 
—

 
 
 
654

Interest expense
1,467

 
—

 
(685
)
 
f
 
782

Other expense, net
(366
)
 
26

 
—

 
 
 
(340
)
(Loss) income before income tax expense
(9,938
)
 
(4,315
)
 
22

 
 
 
(14,231
)
Income tax expense
1,096

 
(795
)
 
—

 
 
 
301

Net (loss) income
$
(11,034
)
 
$
(3,520
)
 
$
22

 
 
 
$
(14,532
)
 
 
 
 
 
 
 
 
 
 
Pro forma per share information:
 
 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
$
(0.67
)
 
 
 
 
 
 
 
$
(0.89
)
 
 
 
 
 
 
 
 
 
 
Number of shares used in pro forma per share calculation:
 
 
 
 
 
 
 
 
 
 Basic and Diluted
16,419

 
 
 
 
 
 
 
16,419

 
 
 
 
 
 
 
 
 
 
 See accompanying Notes to Pro Forma Combined Consolidated Financial Information




UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2016
(in thousands, except per share amounts)
 
For the year ended
December 31, 2016
 
KVH Industries, Inc.
 
Disposal of Videotel
 
Pro Forma
Adjustments
 
Notes
 
Pro Forma
KVH
Sales:
 
 
 
 
 
 
 
 
 
Product
$
73,075

 
$
—

 
$
—

 
 
 
$
73,075

Service
103,047

 
(21,463
)
 
—

 
 
 
81,584

Net sales
176,122

 
(21,463
)
 
—

 
 
 
154,659

 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
Costs of product sales
46,334

 
—

 
—

 
 
 
46,334

Costs of service sales
52,966

 
(6,370
)
 
—

 
 
 
46,596

Research and development
16,030

 
—

 
—

 
 
 
16,030

Sales, marketing and support
33,942

 
(4,103
)
 
79

 
g
 
29,918

General and administrative
28,172

 
(5,198
)
 
463

 
g
 
23,437

Total costs and expenses
177,444

 
(15,671
)
 
542

 
 
 
162,315

(Loss) income from operations
(1,322
)
 
(5,792
)
 
(542
)
 
 
 
(7,656
)
Interest income
513

 
—

 
—

 
 
 
513

Interest expense
1,436

 
—

 
(495
)
 
f
 
941

Other income (expense), net
275

 
230

 
—

 
 
 
505

(Loss) income before income tax expense
(1,970
)
 
(5,562
)
 
(47
)
 
 
 
(7,579
)
Income tax expense
5,547

 
(1,209
)
 
—

 
 
 
4,338

Net (loss) income
$
(7,517
)
 
$
(4,353
)
 
$
(47
)
 
 
 
$
(11,917
)
 
 
 
 
 
 
 
 
 
 
Pro forma per share information:
 
 
 
 
 
 
 
 
 
Net loss per share, basic and diluted
$
(0.47
)
 
 
 
 
 
 
 
$
(0.75
)
 
 
 
 
 
 
 
 
 
 
Number of shares used in pro forma per share calculation:
 
 
 
 
 
 
 
 
 
 Basic and Diluted
15,834

 
 
 
 
 
 
 
15,834

 
 
 
 
 
 
 
 
 
 
 See accompanying Notes to Pro Forma Combined Consolidated Financial Information



















Notes to the Unaudited Pro Forma Consolidated Financial Statements
(unaudited)

Notes to the Unaudited Pro forma adjustments:

a)
Represents the estimated cash proceeds that will be received by the Company received when the Bridge Loan is settled as if the Disposition occurred on March 31, 2019, and net of the repayment of the then outstanding amount on the Term Note. Potential working capital adjustments are excluded from this estimate as the amount of such adjustments, if any, are unknown at this time.

b)
As the value received from the Disposition exceeded the tax basis of Videotel, a pro forma tax adjustment was made using the statutory tax rate with respect to the gain. It should be noted that the estimated gain on sale, in particular the tax impact associated with this sale, based on the March 31, 2019 balance sheet, may be significantly different from the gain that will be recognized during the six months ended June 30, 2019.

c)
Reflects the cancellation of the then outstanding amount due on the intercompany receivable.

d)
Reflects the estimated transaction costs and other debt-like liabilities assumed by the Company.

e)
Represents the estimated gain on sale, net of estimated transaction costs, cancellation of the net intercompany receivable, other debt-like liabilities assumed, and estimated taxes on the proceeds, as if the Disposition occurred on March 31, 2019. As the gain is directly attributable to the Disposition and is not expected to have a continuing impact on the Company’s operations, it is only reflected in retained earnings on the unaudited pro forma consolidated balance sheet.

f)
Reflects the associated reduction in interest expense for the repayment of the Term Note.

g)
Reflects the allocated costs which will remain with KVH after the Disposition of Videotel.

h)
Reflects Videotel's intercompany revenue which is eliminated in KVH's consolidation.

Other information:

The following table summarizes non-cash, and non-recurring financial information associated with Videotel for the three months ended March 31, 2019 and the years ended December 31, 2018, 2017, and 2016.
 
March 31, 2019
 
December 31, 2018
 
December 31, 2017
 
December 31, 2016
Depreciation
$
475

 
$
1,784

 
$
1,867

 
$
2,279

Amortization
711

 
3,039

 
3,115

 
3,576

Stock-based compensation expense
3

 
79

 
147

 
199

Other non-recurring costs
—

 
—

 
126

 
358









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Filed: May 16th, 2019
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