Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On May 9, 2023, Aviat Networks, Inc. (“Aviat” or the “Company”) entered into a Master Sale of Business Agreement (as amended on November 30, 2023, the “Purchase Agreement”) with NEC Corporation (“NEC”), to acquire NEC’s wireless transport business (the “NEC Transaction”). The Company completed the NEC Transaction on November 30, 2023 (the “Closing Date”). Under the terms of the Purchase Agreement, consideration due at the closing of the NEC Transaction was comprised of (i) an amount in cash equal to $42.1 million, subject to certain post-closing adjustments, and (ii) the issuance of $23.4 million in Company common stock. The Company obtained permanent financing to fund the cash portion of the NEC Transaction.
The following tables set forth unaudited pro forma condensed combined financial information of Aviat and NEC’s wireless transport business as of and for (i) the twelve months ended June 30, 2023 and (ii) the three months ended September 29, 2023.
The unaudited pro forma condensed combined balance sheet gives effect to the NEC Transaction as if it had occurred on September 29, 2023. The unaudited pro forma condensed combined statements of operations give effect to the NEC Transaction as if it had occurred on July 2, 2022.
Aviat’s historical financial data as of and for the twelve months ended June 30, 2023 is derived from the Company’s historical audited consolidated financial statements which are included in the 2023 Annual Report on Form 10-K. Aviat’s historical financial data as of and for the three months ended September 29, 2023 is derived from the Company’s historical unaudited condensed consolidated financial statements which are included in the September 29, 2023 Quarterly Report on Form 10-Q.
The historical financial data of NEC’s wireless transport business as of and for the twelve months ended March 31, 2023 is derived from the audited combined carve-out financial statements which are included in this Current Report on Form 8-K. The historical financial data of NEC’s wireless transport business as of and for the three months ended June 30, 2023 is derived from the unaudited combined carve-out financial statements.
The unaudited pro forma condensed combined financial information includes estimated adjustments directly attributable to the NEC Transaction that are expected to have an ongoing impact on the Company. The pro forma adjustments are described in the notes accompanying the unaudited pro forma condensed combined financial information. The pro forma adjustments are based upon available information and certain assumptions the Company believe are reasonable. The unaudited pro forma condensed combined financial information does not purport to represent what the results of operations and financial condition would have been had the NEC Transaction occurred as of the dates indicated, nor does it project the results of operations for any future period or the financial condition at any future date.
The unaudited pro forma condensed combined financial information should be read in connection with (i) Aviat’s audited consolidated financial statements, and the related notes thereto, and the risk factors set forth in Aviat’s Annual Report on Form 10-K for the year ended June 30, 2023, and (ii) the audited combined carve-out financial statements and related notes for NEC’s wireless transport business for the year-ended March 31, 2023 included in this Current Report on Form 8-K.
The unaudited pro forma condensed combined balance sheet as of September 29, 2023 is derived by utilizing NEC’s unaudited historical financial data as of June 30, 2023 and combining with the Company’s unaudited historical financial data as of September 29, 2023. The unaudited pro forma condensed combined statement of operations for the twelve months ended June 30, 2023 is derived by utilizing NEC’s audited historical financial data for the fiscal year ended March 31, 2023 and combining with the Company’s audited historical financial data for the fiscal year ended June 30, 2023. The unaudited pro forma condensed combined statement of operations for the three months ended September 29, 2023 is derived by utilizing NEC’s unaudited historical financial data for the three months ended June 30, 2023 and combining with the Company’s unaudited historical financial data for the three months ended September 29, 2023.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2023
(U.S. Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Aviat Networks, Inc. (Historical) | | NEC’s Wireless Transport Business (Adjusted) | | Transaction Accounting Adjustments | | Notes | | Financing Adjustments | | Notes | | Pro Forma Combined |
| ASSETS | | | | | | | | | | | | | |
| Current Assets: | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 35,465 | | | $ | — | | | $ | (48,206) | | | 2A 2B | | $ | 49,921 | | | 2F | | $ | 37,180 | |
| Accounts receivable, net | 94,497 | | | 50,209 | | | — | | | | | — | | | | | 144,706 | |
| Unbilled receivables | 60,975 | | | — | | | — | | | | | — | | | | | 60,975 | |
| Inventories | 30,659 | | | 44,932 | | | — | | | | | — | | | | | 75,591 | |
| Other current assets | 22,814 | | | 1,104 | | | 4,962 | | | 2B | | — | | | | | 28,880 | |
| Total current assets | 244,410 | | | 96,245 | | | (43,244) | | | | | 49,921 | | | | | 347,332 | |
| Property, plant and equipment, net | 9,035 | | | 1,560 | | | — | | | | | — | | | | | 10,595 | |
| Goodwill | 5,112 | | | — | | | 344 | | | 2C | | — | | | | | 5,456 | |
| Intangible assets, net | 8,870 | | | — | | | 5,000 | | | 2C | | — | | | | | 13,870 | |
| Deferred income taxes | 86,452 | | | — | | | — | | | | | — | | | | | 86,452 | |
| Right of use assets | 2,984 | | | — | | | — | | | | | — | | | | | 2,984 | |
| Other assets | 13,436 | | | 185 | | | — | | | | | (418) | | | 2G | | 13,203 | |
| Total assets | $ | 370,299 | | | $ | 97,990 | | | $ | (37,900) | | | | | $ | 49,503 | | | | | $ | 479,892 | |
| | | | | | | | | | | | | |
| LIABILITIES AND EQUITY | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | |
| Accounts payable | $ | 61,767 | | | $ | 15,964 | | | $ | — | | | | | $ | — | | | | | $ | 77,731 | |
| Accrued expenses | 20,561 | | | 3,749 | | | 3,746 | | | 2D | | — | | | | | 28,056 | |
| Short-term lease liabilities | 723 | | | — | | | — | | | | | — | | | | | 723 | |
| Advance payments and unearned revenue | 46,050 | | | 16,724 | | | — | | | | | — | | | | | 62,774 | |
| Restructuring liabilities | 112 | | | — | | | — | | | | | — | | | | | 112 | |
| Current portion of long-term debt | — | | | — | | | — | | | | | 2,500 | | | 2H | | 2,500 | |
| Total current liabilities | 129,213 | | | 36,437 | | | 3,746 | | | | | 2,500 | | | | | 171,896 | |
| Long-term debt | — | | | — | | | — | | | | | 47,003 | | | 2F 2G 2H | | 47,003 | |
| Unearned revenue | 7,627 | | | — | | | — | | | | | — | | | | | 7,627 | |
| Long-term lease liabilities | 2,436 | | | — | | | — | | | | | — | | | | | 2,436 | |
| Other long-term liabilities | 317 | | | 666 | | | — | | | | | — | | | | | 983 | |
| Reserve for uncertain tax positions | 4,064 | | | — | | | — | | | | | — | | | | | 4,064 | |
| Deferred income taxes | 492 | | | — | | | — | | | | | — | | | | | 492 | |
| Total liabilities | 144,149 | | | 37,103 | | | 3,746 | | | | | 49,503 | | | | | 234,501 | |
| | | | | | | | | | | | | |
| Stockholders’ equity: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Common stock | 117 | | | — | | | 7 | | | 2A | | — | | | | | 124 | |
| Treasury stock | (6,147) | | | — | | | — | | | | | — | | | | | (6,147) | |
| Additional paid-in-capital | 832,060 | | | — | | | 22,980 | | | 2A | | — | | | | | 855,040 | |
| (Accumulated deficit) retained earnings | (583,909) | | | 60,887 | | | (64,633) | | | 2D 2E | | — | | | | | (587,655) | |
| Accumulated other comprehensive loss | (15,971) | | | — | | | — | | | | | — | | | | | (15,971) | |
| Total stockholders’ equity | 226,150 | | | 60,887 | | | (41,646) | | | | | — | | | | | 245,391 | |
| Total liabilities and stockholders’ equity | $ | 370,299 | | | $ | 97,990 | | | $ | (37,900) | | | | | $ | 49,503 | | | | | $ | 479,892 | |
See accompanying notes to unaudited pro forma condensed combined financial information.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the three months ended September 30, 2023
(U.S. Dollars in thousands, except per share amount)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Aviat Networks, Inc. (Historical) | | NEC’s Wireless Transport Business (Adjusted) | | Transaction Accounting Adjustments | | Notes | | Financing Adjustments | | Notes | | Pro Forma Combined |
| Revenues | $ | 87,566 | | | $ | 33,513 | | | $ | — | | | | | $ | — | | | | | $ | 121,079 | |
| Cost of revenues | 55,714 | | | 24,330 | | | — | | | | | — | | | | | 80,044 | |
| Gross margin | 31,852 | | | 9,183 | | | — | | | | | — | | | | | 41,035 | |
| Research and development | 6,424 | | | 3,055 | | | — | | | | | — | | | | | 9,479 | |
| Selling and administrative | 19,237 | | | 9,242 | | | 178 | | | 2I | | — | | | | | 28,657 | |
| Restructuring charges | 644 | | | — | | | — | | | | | — | | | | | 644 | |
| Operating income | 5,547 | | | (3,114) | | | (178) | | | | | — | | | | | 2,255 | |
| Other expense (income), net | 901 | | | (1,855) | | | — | | | | | 938 | | | 2J | | (16) | |
| Income before income taxes | 4,646 | | | (1,259) | | | (178) | | | | | (938) | | | | | 2,271 | |
| Provision for income taxes | 641 | | | 367 | | | (55) | | | 2K | | (291) | | | 2K | | 662 | |
| Net income (loss) | $ | 4,005 | | | $ | (1,626) | | | $ | (123) | | | | | $ | (647) | | | | | $ | 1,609 | |
| | | | | | | | | | | | | |
| Net income (loss) per share of common stock outstanding: | | | | | | | | | | | | | |
| Basic | $ | 0.35 | | | | | | | | | | | | | $ | 0.13 | |
| Diluted | $ | 0.34 | | | | | | | | | | | | | $ | 0.13 | |
| Weighted-average shares outstanding: | | | | | | | | | | | | | |
| Basic | 11,574 | | | | | | | | | | | | | 12,311 | |
| Diluted | 11,943 | | | | | | | | | | | | | 12,680 | |
See accompanying notes to unaudited pro forma condensed combined financial information.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the twelve months ended June 30, 2023
(U.S. Dollars in thousands, except per share amount)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Aviat Networks, Inc. (Historical) | | NEC’s Wireless Transport Business (Adjusted) | | Transaction Accounting Adjustments | | Notes | | Financing Adjustments | | Notes | | Pro Forma Combined |
| Revenues | $ | 346,593 | | | $ | 188,645 | | | $ | — | | | | | $ | — | | | | | $ | 535,238 | |
| Cost of revenues | 222,422 | | | 138,117 | | | — | | | | | — | | | | | 360,539 | |
| Gross margin | 124,171 | | | 50,528 | | | — | | | | | — | | | | | 174,699 | |
| Research and development | 24,908 | | | 14,551 | | | — | | | | | — | | | | | 39,459 | |
| Selling and administrative | 69,842 | | | 38,649 | | | 4,456 | | | 2D 2I | | — | | | | | 112,947 | |
| Restructuring charges | 3,012 | | | — | | | — | | | | | — | | | | | 3,012 | |
| Operating income | 26,409 | | | (2,672) | | | (4,456) | | | | | — | | | | | 19,281 | |
| Other expense (income), net | 3,306 | | | (2,207) | | | — | | | | | 2,731 | | | 2J | | 3,830 | |
| Income before income taxes | 23,103 | | | (465) | | | (4,456) | | | | | (2,731) | | | | | 15,451 | |
| Provision for income taxes | 11,575 | | | — | | | (1,381) | | | 2K | | (847) | | | 2K | | 9,347 | |
| Net income (loss) | $ | 11,528 | | | $ | (465) | | | $ | (3,075) | | | | | $ | (1,884) | | | | | $ | 6,104 | |
| | | | | | | | | | | | | |
| Net income (loss) per share of common stock outstanding: | | | | | | | | | | | | | |
| Basic | $ | 1.01 | | | | | | | | | | | | | $ | 0.50 | |
| Diluted | $ | 0.97 | | | | | | | | | | | | | $ | 0.48 | |
| Weighted-average shares outstanding: | | | | | | | | | | | | | |
| Basic | 11,358 | | | | | | | | | | | | | 12,095 | |
| Diluted | 11,855 | | | | | | | | | | | | | 12,592 | |
See accompanying notes to unaudited pro forma condensed combined financial information.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Description of Transaction
On May 9, 2023, the Company entered into a Master Sale of Business Agreement (as amended on November 30, 2023, the “Purchase Agreement”) with NEC Corporation (“NEC”), to acquire NEC’s wireless transport business (the “NEC Transaction”). The Company completed the NEC Transaction on November 30, 2023 (the “Closing Date”). Under the terms of the Purchase Agreement, consideration due at the closing of the NEC Transaction was comprised of (i) an amount in cash equal to $42.1 million, subject to certain post-closing adjustments, and (ii) the issuance of $23.4 million in Company common stock. The Company obtained permanent financing to fund the cash portion of the NEC Transaction.
Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and was based on the historical financial statements of the Company and NEC’s wireless transport business and has been prepared to illustrate the effects of the NEC Transaction as if it occurred on the first date of the period presented.
The Company’s historical financial statements were prepared in accordance with the accounting principles generally accepted in the United States (“U.S. GAAP”) and presented in U.S. Dollars (“USD”). The historical financial statements of NEC’s wireless transport business were prepared in accordance with International Financial Standards as adopted by the International Accounting Standards Board (“IFRS”) and presented in Japanese Yen (“JPY”). During the preparation of the unaudited pro forma condensed combined financial information, the Company reviewed the historical financial statements of NEC’s wireless transport business prepared under IFRS, to identify differences compared to the Company’s accounting policies in accordance U.S. GAAP. The Company did not identify any IFRS to U.S. GAAP differences that resulted in a pro forma adjustment within the unaudited pro forma condensed combined financial information presented.
The Company has made adjustments to translate the historical financial statements of NEC’s wireless transport business from JPY to USD based on applicable historical exchange rates, which may differ materially from future exchange rates. The historical financial statements of NEC’s wireless transport business have been adjusted for certain reclassifications to conform with the Company’s financial statement presentation.
The NEC Transaction was accounted for using the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed have been recorded based on preliminary estimates of fair value. The purchase accounting allocations in the NEC Transaction will be finalized at a later date and depend on a number of factors, including the final valuation of long-lived tangible and identified intangible assets acquired and liabilities assumed. The actual fair values of the assets acquired, liabilities assumed and resulting goodwill as a result of the NEC Transaction may differ materially from the adjustments set forth in the unaudited pro forma condensed combined financials. In accordance with ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.
The unaudited pro forma condensed combined balance sheet is presented as if the NEC Transaction had occurred on September 29, 2023. The unaudited pro forma condensed combined statement of operations for the three months ended September 29, 2023 and for the twelve months ended June 30, 2023 are presented as if the NEC Transaction had occurred on July 2, 2022.
The unaudited pro forma condensed combined financial information does not reflect any anticipated synergies, operating efficiencies or cost savings that may result from the NEC Transaction and integration costs that may be incurred. The pro forma adjustments represent the Company’s best estimates and are based upon currently available information and certain adjustments, assumptions and estimates that the Company believes are reasonable under the circumstances.
There were no material transactions between the Company and NEC’s wireless transport business during the period presented. Accordingly, adjustments to eliminate transactions between the Company and NEC’s wireless transport business have not been reflected in the unaudited pro forma condensed combined financial information presented herein.
Note 1. Translation and Reclassification Adjustments
The unaudited pro forma condensed combined financial information contains adjustments to translate the historical financial statements of NEC’s wireless transport business from JPY to USD and to reflect certain reclassifications to align to the Company’s financial statement presentation.
Translation: This column represents the translation from JPY to USD using the applicable historical exchange rates for the period presented.
The historical financial statements of NEC’s wireless transport business and related pro forma adjustments were translated from JPY to USD using the following historical exchange rates:
| | | | | | | | |
| | JPY to USD |
| Balance sheet: | | |
| Closing exchange rate as of June 30, 2023 | | 144.47 |
| Statement of operations: | | |
| Average exchange rate for the three months ended June 30, 2023 | | 137.47 |
| Average exchange rate for the fiscal year ended March 31, 2023 | | 135.45 |
Reclassification: This column represents the adjustments that have been applied to conform the historical financial statements of NEC’s wireless transport business to the Company’s financial statement presentation. The italicized rows include the financial statement line presented in the historical financial statements of NEC’s wireless transport business.
Unaudited Condensed Combined Balance Sheet Adjustments
As of June 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NEC’s Wireless Transport Business (Historical) | | Translation | | Reclassification | | | | NEC’s Wireless Transport Business (Adjusted) |
| JPY in millions | | USD in thousands | | USD in thousands | | | | USD in thousands |
| ASSETS | | | | | | | | | |
| Current Assets: | | | | | | | | | |
| Cash and cash equivalents | ¥ | — | | | $ | — | | | $ | — | | | | | $ | — | |
| Accounts receivable, net | — | | | — | | | 50,209 | | | | | 50,209 | |
| Trade and other receivables | 7,254 | | | 50,209 | | | (50,209) | | | | | — | |
| Unbilled receivables | — | | | — | | | — | | | | | — | |
| Inventories | 6,491 | | | 44,932 | | | — | | | | | 44,932 | |
| Other current assets | 159 | | | 1,104 | | | — | | | | | 1,104 | |
| Total current assets | 13,904 | | | 96,245 | | | — | | | | | 96,245 | |
| Property, plant and equipment, net | 225 | | | 1,560 | | | — | | | | | 1,560 | |
| Goodwill | — | | | — | | | — | | | | | — | |
| Intangible assets, net | — | | | — | | | — | | | | | — | |
| Deferred income taxes | — | | | — | | | — | | | | | — | |
| Right of use assets | — | | | — | | | — | | | | | — | |
| Other assets | 27 | | | 185 | | | — | | | | | 185 | |
| Total assets | ¥ | 14,156 | | | $ | 97,990 | | | $ | — | | | | | $ | 97,990 | |
| | | | | | | | | |
| LIABILITIES AND EQUITY | | | | | | | | | |
| Current Liabilities: | | | | | | | | | |
| Accounts payable | ¥ | — | | | $ | — | | | $ | 15,964 | | | | | $ | 15,964 | |
| Trade and other payables | 2,306 | | | 15,964 | | | (15,964) | | | | | |
| Contract liabilities | 2,416 | | | 16,724 | | | (16,724) | | | | | |
| Accrued expenses | — | | | — | | | 3,749 | | | | | 3,749 | |
| Short-term lease liabilities | — | | | — | | | — | | | | | — | |
| Advance payments and unearned revenue | — | | | — | | | 16,724 | | | | | 16,724 | |
| Restructuring liabilities | — | | | — | | | — | | | | | — | |
| Other current liabilities | 542 | | | 3,749 | | | (3,749) | | | | | — | |
| Current portion of long-term debt | — | | | — | | | — | | | | | — | |
| Total current liabilities | 5,264 | | | 36,437 | | | — | | | | | 36,437 | |
| Long-term debt | — | | | — | | | — | | | | | — | |
| Unearned revenue | — | | | — | | | — | | | | | — | |
| Long-term lease liabilities | — | | | — | | | — | | | | | — | |
| Other long-term liabilities | 96 | | | 666 | | | — | | | | | 666 | |
| Reserve for uncertain tax positions | — | | | — | | | — | | | | | — | |
| Deferred income taxes | — | | | — | | | — | | | | | — | |
| Total liabilities | 5,360 | | | 37,103 | | | — | | | | | 37,103 | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | | |
| | | | | | | | | |
| Common stock | — | | | — | | | — | | | | | — | |
| Treasury stock | — | | | — | | | — | | | | | — | |
| Additional paid-in-capital | — | | | — | | | — | | | | | — | |
| Retained earnings | 8,796 | | | 60,887 | | | — | | | | | 60,887 | |
| Accumulated other comprehensive loss | — | | | — | | | — | | | | | — | |
| Total stockholders’ equity | 8,796 | | | 60,887 | | | — | | | | | 60,887 | |
| Total liabilities and stockholders’ equity | ¥ | 14,156 | | | $ | 97,990 | | | $ | — | | | | | $ | 97,990 | |
Unaudited Condensed Combined Statement of Operations Adjustments
For the Three Months Ended June 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NEC’s Wireless Transport Business (Historical) | | Translation | | Reclassification | | | | NEC’s Wireless Transport Business (Adjusted) |
| JPY in millions | | USD in thousands | | USD in thousands | | | | USD in thousands |
| Revenues | ¥ | — | | | $ | — | | | $ | 33,513 | | | | | $ | 33,513 | |
| Net Revenues | 4,607 | | | 33,513 | | | (33,513) | | | | | — | |
| Cost of revenues | — | | | — | | | 24,330 | | | | | 24,330 | |
| Cost of Sales | 3,345 | | | 24,330 | | | (24,330) | | | | | — | |
| Gross margin | 1,262 | | | 9,183 | | | — | | | | | 9,183 | |
| Research and development | 420 | | | 3,055 | | | — | | | | | 3,055 | |
| Selling and administrative | — | | | — | | | 9,242 | | | | | 9,242 | |
| Selling, general and administrative | 1,271 | | | 9,242 | | | (9,242) | | | | | — | |
| Restructuring charges | — | | | — | | | — | | | | | — | |
| Operating income | (429) | | | (3,114) | | | — | | | | | (3,114) | |
| Other expense (income), net | (255) | | | (1,855) | | | — | | | | | (1,855) | |
| Income before income taxes | (174) | | | (1,259) | | | — | | | | | (1,259) | |
| Provision for income taxes | 50 | | | 367 | | | — | | | | | 367 | |
| Net income (loss) | ¥ | (224) | | | $ | (1,626) | | | $ | — | | | | | $ | (1,626) | |
Unaudited Condensed Combined Statement of Operations Adjustments
For the Twelve Months Ended March 31, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | |
| NEC’s Wireless Transport Business (Historical) | | Translation | | Reclassification | | | | NEC’s Wireless Transport Business (Adjusted) |
| JPY in millions | | USD in thousands | | USD in thousands | | | | USD in thousands |
| Revenues | ¥ | — | | | $ | — | | | $ | 188,645 | | | | | $ | 188,645 | |
| Net Revenues | 25,552 | | | 188,645 | | | (188,645) | | | | | — | |
| Cost of revenues | — | | | — | | | 138,117 | | | | | 138,117 | |
| Cost of Sales | 18,708 | | | 138,117 | | | (138,117) | | | | | — | |
| Gross margin | 6,844 | | | 50,528 | | | — | | | | | 50,528 | |
| Research and development | 1,971 | | | 14,551 | | | — | | | | | 14,551 | |
| Selling and administrative | — | | | — | | | 38,649 | | | | | 38,649 | |
| Selling, general and administrative | 5,235 | | | 38,649 | | | (38,649) | | | | | — | |
| Restructuring charges | — | | | — | | | — | | | | | — | |
| Operating income | (362) | | | (2,672) | | | — | | | | | (2,672) | |
| Other expense (income), net | (299) | | | (2,207) | | | — | | | | | (2,207) | |
| Income before income taxes | (63) | | | (465) | | | — | | | | | (465) | |
| Provision for income taxes | — | | | — | | | — | | | | | — | |
| Net income (loss) | ¥ | (63) | | | $ | (465) | | | $ | — | | | | | $ | (465) | |
Note 2. Transaction Accounting and Financing Adjustments
The NEC Transaction will be accounted for as a business combination using the acquisition method of accounting. The assets acquired and liabilities assumed will be recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill.
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
(A) The adjustment reflects the preliminary fair value of consideration transferred as if the NEC Transaction occurred on September 29, 2023:
| | | | | | | | |
| (In thousands) | | |
| Cash consideration | | $ | 43,244 | |
| Common stock consideration | | 22,987 | |
| Preliminary fair value of consideration transferred | | $ | 66,231 | |
The common stock consideration was determined as follows based on 736,750 shares issued to NEC at the closing of the NEC Transaction:
| | | | | | | | |
| (In thousands except per share amount) | | |
| Common shares issued ($0.01 par value) | | 737 | |
| Closing share price of Aviat common stock on September 29, 2023 | | $ | 31.20 | |
| Common stock consideration | | $ | 22,987 | |
(B) The adjustment reflects the recoverable VAT paid at the closing of the NEC Transaction of $4.96 million.
(C) The following table summarizes the allocation of preliminary purchase price, as if the NEC Transaction occurred on September 29, 2023:
| | | | | | | | |
| (In thousands) | | |
| Accounts receivable, net | | $ | 50,209 | |
| Inventories | | 44,932 | |
| Property, plant and equipment, net | | 1,560 | |
| Identifiable finite-lived intangible assets: | | |
| Customer relationships | | 2,900 | |
| Technology | | 2,100 | |
| Other assets | | 1,289 | |
| Accounts payable | | (15,964) | |
| Advance payments and unearned revenue | | (16,724) | |
| Other liabilities | | (4,415) | |
| Goodwill | | 344 | |
| Net assets acquired | | $ | 66,231 | |
The Company is in the process of obtaining an independent third-party valuation of certain intangible and tangible assets acquired. The fair values of the acquired intangible assets are based on estimates and assumptions that are considered reasonable by the Company. As of the acquisition date, the Company has recorded the assets acquired and the liabilities assumed at their respective estimated fair values. The final purchase consideration allocation will be determined when the Company completes the detailed valuations and necessary calculations and will be completed as soon as practicable within the measurement period. The final allocation may be materially different than that reflected in the preliminary allocation presented herein. Any increase or decrease in fair values of the net assets as compared with the unaudited pro forma condensed combined financial information may change the amount of the total consideration allocated to goodwill and other assets and liabilities and may impact the combined company’s statement of operations due to adjustments in the depreciation and amortization of the adjusted assets.
(D) To reflect estimated transaction costs of $3.76 million incurred or expected to be incurred by the Company in relation to the NEC Transaction. Total estimated transaction costs are $9.30 million, of which $5.55 million are included in the Company’s historical financial statements.
(E) To reflect the elimination of retained earnings from the historical financial statements of NEC’s wireless transport business.
(F) The change in cash and cash equivalents was determined as follows:
| | | | | | | | |
| (In thousands) | | |
| Proceeds from term loan | | $ | 50,000 | |
| Less: capitalized debt issuance costs | | (79) | |
| Pro forma adjustment - financing to cash and cash equivalents | | $ | 49,921 | |
(G) To reflect the capitalization of debt issuance costs incurred related to term loan funding and the reclass of $0.42 million of debt issuance costs previously incurred by the Company prior to the term loan funding and reported in other assets in the Company’s historical financial statements.
(H) To reflect the split of current and non-current maturities for the term loan borrowings associated with the NEC Transaction.
Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations
(I) To reflect estimated amortization expense based on the preliminary estimated fair values of the acquired identifiable finite-lived intangible assets related to the NEC Transaction:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands except useful life) | Estimated useful life in years | | Preliminary estimated fair value | | Amortization expense for the three months ended September 29, 2023 | | Amortization expense for the twelve months ended June 30, 2023 |
| Customer relationships | 10 | | $ | 2,900 | | | $ | 73 | | | $ | 290 | |
| Technology | 5 | | 2,100 | | | 105 | | | 420 | |
| | | $ | 5,000 | | | $ | 178 | | | $ | 710 | |
(J) The following adjustments reflect the estimated interest expense and amortization of debt issuance costs to be incurred by the Company as a result of the term loan borrowings used to fund the cash portion of the consideration due for the NEC Transaction. Outstanding borrowings under the term loan bear interest at the adjusted Secured Overnight Financing Rate (“SOFR”) plus the applicable margin. The term loan matures five years from the date of issuance and has scheduled quarterly principal payments. For the purposes of estimating the pro forma interest expense for the three months ended September 29, 2023 and twelve months ended June 30, 2023, the Company used the historical 90 day average SOFR for the periods presented, plus an applicable margin of 2.50%. The amortization of debt issuance costs is recognized on a straight-line basis through the maturity of the term loan.
| | | | | | | | | | | | | | | | | |
| (In thousands except percentages) | Beginning principal balance as of July 2, 2022 | | Interest rate | | Interest expense for the twelve months ended June 30, 2023 |
| Interest expense on term loan | $ | 50,000 | | | 3.29% — 7.10% | | $ | 2,632 | |
| Amortization of debt issuance costs | 497 | | | | | 99 | |
| | | | | $ | 2,731 | |
| | | | | | | | | | | | | | | | | |
| (In thousands except percentages) | Beginning principal balance as of July 1, 2023 | | Interest rate | | Interest expense for the three months ended September 29, 2023 |
| Interest expense on term loan | $ | 48,125 | | | 7.59% | | $ | 913 | |
| Amortization of debt issuance costs | 398 | | | | | 25 | |
| | | | | $ | 938 | |
(K) This reflects the income tax effect of the pro forma transaction accounting and financing adjustments at an estimated combined effective tax rate of 31%.
Note 3. Net Income Per Share
The following table sets forth the pro forma basic and diluted net income per share for the three months ended September 29, 2023 and the twelve months ended June 30, 2023. The weighted average number of basic and diluted common shares outstanding includes the impact of the 736,750 common shares issued as a portion of the consideration transferred to NEC at the closing of the NEC Transaction. The pro forma impact to the weighted average number of basic and diluted common shares outstanding assumes the issuance occurred on July 2, 2022.
| | | | | | | | | | | | | | |
| (In thousands except per share amounts) | | Three months ended September 29, 2023 | | Twelve months ended June 30, 2023 |
| Numerator: | | | | |
| Pro forma combined net income | | $ | 1,609 | | | $ | 6,104 | |
| | | | |
| Denominator: | | | | |
| Historical weighted-average shares outstanding, basic | | 11,574 | | | 11,358 | |
| Pro forma adjustment for shares issued | | 737 | | | 737 | |
| Weighted-average shares outstanding, basic | | 12,311 | | | 12,095 | |
| Historical weighted-average shares outstanding, diluted | | 11,943 | | | 11,855 | |
| Pro forma adjustment for shares issued | | 737 | | | 737 | |
| Weighted-average shares outstanding, diluted | | 12,680 | | | 12,592 | |
| | | | |
| Pro forma combined net income per share: | | | | |
| Basic | | $ | 0.13 | | | $ | 0.50 | |
| Diluted | | $ | 0.13 | | | $ | 0.48 | |
