Exhibit 99.3
NAVTECH, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
On November 22, 2005, European Aeronautical Group AB and Subsidiaries (“EAG”) was acquired by a wholly owned subsidiary of Navtech, Inc. (“Navtech”) for an estimated purchase price of SEK 162 million in cash and possible future cash payments to a maximum of SEK 30 million conditional on the achievement of certain business performance measures. The purchase price is subject to adjustment based on finalization of the working capital of EAG at closing. In connection with the Securities Purchase Agreement, Navtech executed the Preferred Stock Offering and the Private Placement (each as described in Note 3 below) to fund the cash consideration paid to acquire EAG.
The following unaudited pro forma condensed consolidated financial statements are based upon the historical consolidated financial statements of Navtech and EAG and should be read in conjunction with the financial statements and the notes thereto. EAG’s historical consolidated financial statements are included in Exhibits 99.1 and 99.2 to this Form 8-K. The fiscal period end dates are those of Navtech. Certain reclassifications have been made to the historical presentation of EAG’s financial statements to conform to the presentation used in the unaudited condensed consolidated pro forma financial statements.
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended October 31, 2004 consolidates information from the audited historical Consolidated Statements of Operations of Navtech and EAG for the twelve months ended October 31, 2004 and December 31, 2004, respectively. The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the nine months ended July 31, 2005 consolidates information from the unaudited interim historical Consolidated Statements of Operations of Navtech and EAG for the nine months ended July 31, 2005 and September 30, 2005, respectively. The Unaudited Pro Forma Condensed Consolidated Statements of Operations assume that the acquisition of EAG and the related financing transactions occurred on November 1, 2003.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet consolidates information from the unaudited interim historical Consolidated Balance Sheets of Navtech and EAG as of July 31, 2005 and September 30, 2005, respectively. The Unaudited Pro Forma Condensed Consolidated Balance Sheet assumes that the acquisition of EAG and the related financing transactions occurred on July 31, 2005.
In accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations”, Navtech has determined it is the accounting acquirer and the Unaudited Pro Forma Condensed Consolidated Financial Statements are prepared using the purchase method of accounting. The pro forma adjustments are described in the accompanying notes and give effect to events that are (a) directly attributable to the acquisition, (b) factually supported and (c) with respect to the statements of operations, expected to have a continuing impact.
The allocation of the purchase price is based upon preliminary estimates of the fair values of certain assets acquired and liabilities assumed as of the date of the acquisition. Management, with the assistance of independent valuation specialists, is currently assessing the fair values of the tangible and intangible assets acquired and liabilities assumed. This preliminary allocation of the purchase price is dependent upon certain estimates and assumptions, which have been made solely for the purpose of developing such unaudited pro forma financial statements. As a final determination of the required purchase accounting adjustments has not yet been made, the financial position and results of operations will vary, perhaps significantly, from the pro forma amounts reflected herein.
The Unaudited Pro Forma Condensed Consolidated Financial Statements presented are for information purposes only and do not purport to represent what Navtech’s financial position or results of operations as of the dates or for the periods presented would have been had the acquisition occurred on such date or at the beginning of the periods indicated, or to project Navtech’s financial position or results of operations for any future date or period.
The Unaudited Pro Forma Condensed Consolidated Financial Statements presented are preceded by the following adjusting statements to present the financial statements of EAG in generally accepted accounting principles in the Unites States of America (“US GAAP”) and to translate them to US Dollars:
• The unaudited statement of operations of EAG for the nine months ended September 30, 2005 prepared in accordance with US GAAP and in US Dollars
• The unaudited statement of operations of EAG for the year ended December 31, 2004 prepared in accordance with US GAAP and in US Dollars
• The unaudited balance sheet of EAG as at September 30, 2005 prepared in accordance with US GAAP and in US Dollars
EUROPEAN AERONAUTICAL GROUP AB AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
| | Nine Months Ended September 30, 2005 | |
| | Swedish
GAAP | | US GAAP Adjustments
(1) | | US GAAP | | US GAAP | |
| | Thousands
of SEK | | Thousands of
EK | | Thousands
of SEK | | Thousands of
US Dollars (2) | |
REVENUE | | | | | | | | | |
Net sales | | 148,614 | | — | | 148,614 | | 20,415 | |
| | | | | | | | | |
COSTS AND EXPENSES | | | | | | | | | |
Other external costs | | 67,959 | (c) | 90 | | 67,935 | | 9,332 | |
| | | (d) | (114 | ) | | | | |
Personnel costs | | 58,301 | | | | 58,301 | | 8,009 | |
Depreciation and amortization of tangible and intangible assets | | 11,168 | (a)(c) | (1,291 | ) | 9,877 | | 1,357 | |
| | 137,428 | | (1,315 | ) | 136,113 | | 18,698 | |
| | | | | | | | | |
OPERATING PROFIT | | 11,186 | | 1,315 | | 12,501 | | 1,717 | |
| | | | | | | | | |
RESULT FROM FINANCIAL INVESTMENTS | | | | | | | | | |
Interest income and similar profit/loss items | | 240 | | — | | 240 | | 33 | |
Interest income from group companies | | 315 | | — | | 315 | | 43 | |
Interest expense and similar profit/loss items | | (770 | ) | — | | (770 | ) | (106 | ) |
Interest expense from group companies | | (794 | ) | — | | (794 | ) | (109 | ) |
| | (1,009 | ) | — | | (1,009 | ) | (139 | ) |
| | | | | | | | | |
PROFIT AFTER FINANCIAL ITEMS | | 10,177 | | 1,315 | | 11,492 | | 1,578 | |
| | | | | | | | | |
TAX ON PROFIT FOR THE PERIOD | | (4,014 | ) (e) | (184 | ) | (4,198 | ) | (576 | ) |
| | | | | | | | | |
NET PROFIT FOR THE PERIOD | | 6,163 | | 1,131 | | 7,294 | | 1,002 | |
(1) Descriptions of these US GAAP adjustments (a, b, c, d and e) are provided in the notes to the unaudited interim condensed consolidated financial statements of EAG attached as Exhibit 99.1, which information is incorporated herein by reference. (2) Converted at the average exchange rate between SEK and US dollars during the nine-month period ended September 30, 2005 (one SEK equals US$0.13737)
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
| | Year Ended December 31, 2004 | |
| | Swedish
GAAP | | US GAAP Adjustments
(1) | | US GAAP | | US GAAP | |
| | Thousands
of SEK | | Thousands
of SEK | | Thousands
of SEK | | Thousands of US
Dollars (2) | |
REVENUE | | | | | | | | | |
Net sales | | 190,983 | | — | | 190,983 | | 26,048 | |
| | | | | | | | | |
COSTS AND EXPENSES | | | | | | | | | |
Other external costs | | 83,149 | (c) | 1,369 | | 84,366 | | 11,506 | |
| | | (d) | (152 | ) | | | | |
Personnel costs | | 78,860 | (b) | (36 | ) | 78,824 | | 10,751 | |
Depreciation and amortization of tangible and intangible assets | | 15,869 | (a)(c) | (1,645 | ) | 14,224 | | 1,940 | |
| | 177,878 | | (464 | ) | 177,414 | | 24,197 | |
| | | | | | | | | |
OPERATING PROFIT | | 13,105 | | 464 | | 13,569 | | 1,851 | |
| | | | | | | | | |
RESULT FROM FINANCIAL INVESTMENTS | | | | | | | | | |
Interest income and similar profit/loss items | | 875 | | — | | 875 | | 119 | |
Interest income from group companies | | 143 | | — | | 143 | | 20 | |
Interest expense and similar profit/loss items | | (121 | ) | — | | (121 | ) | (17 | ) |
Interest expense from group companies | | (1,144 | ) | — | | (1,144 | ) | (156 | ) |
| | (247 | ) | — | | (247 | ) | (34 | ) |
| | | | | | | | | |
PROFIT AFTER FINANCIAL ITEMS | | 12,858 | | 464 | | 13,322 | | 1,817 | |
| | | | | | | | | |
TAX ON PROFIT FOR THE YEAR | | (3,269 | )(e) | 64 | | (3,205 | ) | (437 | ) |
| | | | | | | | | |
NET PROFIT FOR THE YEAR | | 9,589 | | 528 | | 10,117 | | 1,380 | |
(1) Descriptions of these US GAAP adjustments (a, b, c, d and e) are provided in the notes to the consolidated financial statements of EAG attached as Exhibit 99.2, which information is incorporated herein by reference.
(2) Converted at the average exchange rate between SEK and US dollars during the year ended December 31, 2004 (one SEK equals US$0.13639)
EUROPEAN AERONAUTICAL GROUP AB AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
| | September 30, 2005 | |
| | Swedish
GAAP
Thousands of
SEK | | US GAAP
Adjustments (1)
Thousands of
SEK | | US GAAP
Thousands
of SEK | | US GAAP
Thousands
of US
Dollars (2) | |
ASSETS | | | | | | | | | |
FIXED ASSETS | | | | | | | | | |
Intangible Assets | | | | | | | | | |
Work-in-progress capitalized for intangible assets | | 11,922 | | (1,918 | ) | 10,004 | | 1,292 | |
| | | | | | | | | |
Goodwill | | 45,947 | | (12,000 | ) | 43,963 | | 5,680 | |
| | | | 10,016 | | | | | |
Other intangible assets | | 15,876 | | 12,000 | | 21,136 | | 2,731 | |
| | | | (6,740 | ) | | | | |
| | 73,745 | | 1,358 | | 75,103 | | 9,703 | |
Tangible Assets | | | | | | | | | |
Equipment, tools, fixtures and fittings | | 3,348 | | — | | 3,348 | | 433 | |
Financial Assets | | | | | | | | | |
Deferred tax assets | | — | | 1,035 | | 1,035 | | 134 | |
| | | | | | | | | |
Total Fixed Assets | | 77,093 | | 2,393 | | 79,486 | | 10,270 | |
| | | | | | | | | |
CURRENT ASSETS | | | | | | | | | |
Inventories | | | | | | | | | |
Finished products and goods for resale | | 3,206 | | — | | 3,206 | | 414 | |
Current Receivables | | | | | | | | | |
Accounts receivable - trade | | 21,014 | | — | | 21,014 | | 2,715 | |
Receivables from group companies | | 12,557 | | — | | 12,557 | | 1,622 | |
Income taxes recoverable | | 2,579 | | — | | 2,579 | | 333 | |
Other receivables | | 2,923 | | — | | 2,923 | | 378 | |
Prepaid expenses and accrued income | | 4,432 | | — | | 4,432 | | 573 | |
| | 43,505 | | — | | 43,505 | | 5,621 | |
Cash and Bank Balances | | 4,677 | | — | | 4,677 | | 604 | |
Total Current Assets | | 51,388 | | — | | 51,388 | | 6,639 | |
| | | | | | | | | |
TOTAL ASSETS | | 128,481 | | 2,393 | | 130,874 | | 16,909 | |
(1) Descriptions of these cumulative US GAAP adjustments are provided in the notes to the unaudited interim condensed consolidated financial statements of EAG attached as Exhibit 99.1, which information is incorporated herein by reference. Intangible assets also reflect a reclassification of 12 million SEK from goodwill to other intangible assets as explained in part (a) of “Explanation of current differences between Swedish GAAP and US GAAP” to the interim condensed consolidated financial statements of EAG attached as Exhibit 99.1, which information is incorporated herein by reference.
(2) Converted at the exchange rate between SEK and US dollars as at September 30, 2005 (one SEK equals US$0.12920)
EUROPEAN AERONAUTICAL GROUP AB AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(Continued)
| | September 30, 2005 | |
| | Swedish
GAAP
Thousands of
SEK | | US GAAP
Adjustments (1)
Thousands
of SEK | | US GAAP
Thousands
of SEK | | US GAAP
Thousands of
US Dollars (2) | |
SHAREHOLDER’S EQUITY AND LIABILITIES | | | | | | | | | |
SHAREHOLDER’S EQUITY | | | | | | | | | |
Restricted Equity | | | | | | | | | |
Share capital | | 10,000 | | — | | 10,000 | | 1,292 | |
Statutory reserve | | 2,000 | | — | | 2,000 | | 258 | |
| | 12,000 | | — | | 12,000 | | 1550 | |
Non-Restricted Equity | | | | | | | | | |
Non-restricted reserves | | 56,783 | | 488 | | 57,271 | | 7,399 | |
Profit for the period | | 6,163 | | 1,131 | | 7,294 | | 943 | |
| | 62,946 | | 1,619 | | 64,565 | | 8,342 | |
| | | | | | | | | |
Total Shareholder’s Equity | | 74,946 | | 1,619 | | 76,565 | | 9,892 | |
| | | | | | | | | |
LIABILITIES | | | | | | | | | |
Long-Term Liabilities | | | | | | | | | |
Deferred liabilities | | — | | 774 | | 774 | | 100 | |
Current Liabilities | | | | | | | | | |
Accounts payable - trade | | 8,122 | | — | | 8,122 | | 1,050 | |
Liabilities to group companies | | 1,659 | | — | | 1,659 | | 214 | |
Income tax liability | | 4,589 | | — | | 4,589 | | 593 | |
Other liabilities | | 93 | | — | | 93 | | 12 | |
Accrued expenses and deferred income | | 39,072 | | — | | 39,072 | | 5,048 | |
| | 53,535 | | — | | 53,535 | | 6,917 | |
| | | | | | | | | |
Total Liabilities | | 53,535 | | 774 | | 54,309 | | 7,017 | |
| | | | | | | | | |
TOTAL SHAREHOLDER’S EQUITY AND LIABILITIES | | 128,481 | | 2,393 | | 130,874 | | 16,909 | |
(1) Descriptions of these cumulative US GAAP adjustments are provided in the notes to the unaudited interim condensed consolidated financial statements of EAG attached as Exhibit 99.1, which information is incorporated herein by reference.
(2) Converted at the exchange rate between SEK and US dollars as at September 30, 2005 (one SEK equals US$0.12920)
NAVTECH, INC.
EUROPEAN AERONAUTICAL GROUP AB AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 31, 2005
(Unaudited; US GAAP, in thousands of US dollars, except per share amounts)
| | Navtech | | EAG | | Pro Forma | | Pro Forma | |
| | Nine Months
Ended July
31, 2005 | | Nine Months
Ended
September
30, 2005 | | Adjustments | | Consolidated | |
REVENUE | | 7,664 | | 20,415 | | | | 28,079 | |
COSTS AND EXPENSES | | | | | | | | | |
Operating expenses | | 7,202 | | 17,341 | | | | 24,543 | |
Depreciation and amortization | | 151 | | 1,357 | (1) | (124 | ) | 2,148 | |
| | | | | (2) | 504 | | | |
| | | | | (3) | 260 | | | |
| | 7,353 | | 18,698 | | 640 | | 26,691 | |
EARNINGS FROM OPERATIONS | | 311 | | 1,717 | | (640 | ) | 1,388 | |
OTHER INCOME (EXPENSE) | | | | | | | | | |
Interest income | | — | | 76 | | | | 76 | |
Interest expense | | (17 | ) | (215 | )(5) | (1,811 | ) | (2,177 | ) |
| | | | | (6) | (200 | ) | | |
| | | | | (7) | 66 | | | |
| | (17 | ) | (139 | ) | (1945 | ) | (2,101 | ) |
EARNINGS (LOSS) BEFORE INCOME TAXES | | 294 | | 1,578 | | (2,585 | ) | (713 | ) |
(INCOME TAXES) RECOVERY | | — | | (576 | )(8) | 1,402 | | 826 | |
NET EARNINGS (LOSS) | | 294 | | 1,002 | | (1,183 | ) | 113 | |
PREFERRED STOCK DIVIDENDS | | | | | (4) | (150 | ) | (150 | ) |
EARNINGS APPLICABLE TO COMMON STOCKHOLDERS | | 294 | | 1,002 | | (1,333 | ) | (37 | ) |
| | | | | | | | | |
EARNINGS (LOSS) PER SHARE | | | | | | | | | |
Basic | | 0.06 | | | | (0.07 | ) | (0.01 | ) |
Diluted * | | 0.06 | | | | na | | na | |
| | | | | | | | | |
WEIGHTED AVERAGE COMMON SHARES | | | | | | | | | |
Basic—thousands | | 4,614 | | | | — | | 4,614 | |
Diluted—thousands * | | 5,245 | | | | — | | na | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements
* Diluted figures are not presented as the impact is anti-dilutive
NAVTECH, INC.
EUROPEAN AERONAUTICAL GROUP AB AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED OCTOBER 31, 2004
(Unaudited; US GAAP, in thousands of US dollars, except per share amounts)
| | Navtech | | EAG | | Pro Forma | | Pro Forma | |
| | Year Ended
October 31,
2004 | | Year Ended
December 31,
2004 | | Adjustments | | Consolidated | |
REVENUE | | 7,901 | | 26,048 | | | | 33,949 | |
COSTS AND EXPENSES | | | | | | | | | |
Operating expenses | | 7,479 | | 22,257 | | | | 29,736 | |
Depreciation and amortization | | 189 | | 1,940 | (1) | (163 | ) | 2,985 | |
| | | | | (2) | 672 | | | |
| | | | | (3) | 347 | | | |
| | 7,668 | | 24,197 | | 856 | | 32,721 | |
EARNINGS (LOSS) FROM OPERATIONS | | 233 | | 1,851 | | (856 | ) | 1,228 | |
OTHER INCOME (EXPENSE) | | | | | | | | | |
Interest income | | — | | 139 | | | | 139 | |
Interest expense | | (30 | ) | (173 | )(5) | (2,415 | ) | (2,749 | ) |
| | | | | (6) | (267 | ) | | |
| | | | | (7) | 136 | | | |
| | (30 | ) | (34 | ) | (2,546 | ) | (2,610 | ) |
EARNINGS (LOSS) BEFORE INCOME TAXES | | 203 | | 1,817 | | (3,402 | ) | (1,382 | ) |
(INCOME TAXES) RECOVERY | | 191 | | (437 | )(8) | 1,757 | | 1,511 | |
NET EARNINGS (LOSS) | | 394 | | 1,380 | | (1,645 | ) | 129 | |
PREFERRED STOCK DIVIDENDS | | | | | (4),(12) | (1,250 | ) | (1,250 | ) |
EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS | | 394 | | 1,380 | | (2,895 | ) | (1,121 | ) |
| | | | | | | | | |
EARNINGS (LOSS) PER SHARE | | | | | | | | | |
Basic | | 0.09 | | | | (0.37 | ) | (0.26 | ) |
Diluted * | | 0.07 | | | | na | | na | |
WEIGHTED AVERAGE COMMON SHARES | | | | | | | | | |
Basic—thousands | | 4,252 | | | | — | | 4,252 | |
Diluted—thousands * | | 5,259 | | | | — | | na | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements
* Diluted figures are not presented as the impact is anti-dilutive
NAVTECH, INC.
EUROPEAN AERONAUTICAL GROUP AB AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 31, 2005
(Unaudited; US GAAP, in thousands of US dollars)
| | Navtech | | EAG | | | | | |
| | July 31,
2005 | | September
30, 2005 | | Pro Forma
Adjustments | | Pro Forma
Consolidated | |
ASSETS | | | | | | | | | |
CURRENT ASSETS | | | | | | | | | |
Cash | | 594 | | 604 | (9) | 3,201 | | 4,399 | |
Accounts receivable | | 1,648 | | 4,337 | | | | 5,985 | |
Inventories | | — | | 414 | | | | 414 | |
Prepaid expenses and other | | 737 | | 1,284 | | | | 2,021 | |
| | 2,979 | | 6,639 | | 3,201 | | 12,819 | |
DEFERRED ASSETS | | 340 | | 134 | (6) | 670 | | 1,144 | |
CAPITAL ASSETS | | | | | | | | | |
Tangible assets | | 1,294 | | 433 | (10) | 1,854 | | 3,581 | |
Intangible assets | | — | | 4,023 | (10) | (4,023 | ) | 8,174 | |
| | | | | (10) | 4,706 | | | |
| | | | | (10) | 3,468 | | | |
Goodwill | | — | | 5,680 | (10) | (5,680 | ) | 12,782 | |
| | | | | (10) | 12,782 | | | |
| | 1,294 | | 10,136 | | 13,107 | | 24,537 | |
TOTAL ASSETS | | 4,613 | | 16,909 | | 16,978 | | 38,500 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
CURRENT LIABILITIES | | | | | | | | | |
Accounts payable and accrued liabilities | | 1,359 | | 1,050 | (6) | 670 | | 3,079 | |
Other liabilities | | 275 | | 819 | | | | 1,094 | |
Deferred revenue | | 810 | | 5,048 | | | | 5,858 | |
| | 2,444 | | 6,917 | | 670 | | 10,031 | |
LONG-TERM LIABILITIES | | | | | | | | | |
Senior Subordinated Notes | | | | | (5),(6) | 20,070 | | 20,070 | |
Deferred liabilities | | 503 | | 100 | (11) | 1,200 | | 1,803 | |
| | 503 | | 100 | | 21,270 | | 21,873 | |
STOCKHOLDERS’ EQUITY | | | | | | | | | |
Share capital | | 6 | | 1,292 | (10) | (1,292 | ) | 6 | |
Treasury stock | | (1 | ) | — | | | | (1 | ) |
Additional paid-in capital | | 3,403 | | — | (6) | 930 | | 5,383 | |
| | | | | (12) | 1,050 | | | |
Convertible Participating Preferred Stock | | | | | (4) | 4,000 | | 4,000 | |
Accumulated other comprehensive income | | 82 | | — | | | | 82 | |
Retained earnings (accumulated deficit) | | (1,824 | ) | 8,600 | (10) | (8,600 | ) | (2,874 | ) |
| | | | | (12) | (1,050 | ) | | |
| | 1,666 | | 9,892 | | (4,962 | ) | 6,596 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | 4,613 | | 16,909 | | 16,978 | | 38,500 | |
The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements
NAVTECH, INC.
EUROPEAN AERONAUTICAL GROUP AB AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited; US GAAP, in thousands of US dollars, except per share amounts)
1. EAG Acquisition
On November 22, 2005, a wholly-owned subsidiary of Navtech, Inc. acquired all of the issued and outstanding shares of European Aeronautical Group AB (“EAG”) from SAS Group AB. The estimated purchase price for the EAG Acquisition was SEK 162,000,000 (approximately $20.5 million USD) in cash and possible future cash payments to a maximum of SEK 30,000,000 (approximately $3.7 million USD) conditional on the achievement of certain business performance measures. The purchase price is subject to adjustment based on finalization of the working capital of EAG at closing. A portion of the proceeds of the Preferred Stock Offering and the Private Placement (each as defined below) were used to fund the purchase price.
2. Purchase Price Allocation
The estimated purchase price has been calculated and preliminary assigned to the net tangible and intangible assets acquired as follows:
Purchase Price Calculation | | | |
Cash consideration paid | | 20,469 | |
Acquisition costs | | 1,330 | |
Total Purchase Price | | 21,799 | |
A preliminary allocation of the estimated purchase price based on the estimated fair values of EAG’s assets acquired and liabilities assumed is shown below:
Purchase Price Allocation | | | |
Working capital | | (244 | ) |
Tangible assets | | 2,287 | |
Intangible assets | | | |
- Customer relationships | | 4,706 | |
- Library and copyrights | | 3,468 | |
Deferred income taxes | | (1,200 | ) |
Goodwill | | 12,782 | |
Total purchase price | | 21,799 | |
Upon completion of the valuation, which is currently being performed by independent consultants, the fair values of the identified intangibles and goodwill may require adjustments to the preliminary values presented above. The pro forma financial statements reflect a depreciation period of 3 to 5 years for tangible assets, an amortization period of 7 years for customer relationships and an amortization period of 10 years for library and copyrights. The depreciation and amortization periods will be reassessed as part of the final valuation of the assets acquired.
3. Acquisition Financing
Preferred Stock Offering
On November 22, 2005, Navtech, Inc. (“the Company”) issued 1,600,000 shares of Series A Convertible Participating Preferred Stock, and warrants to acquire 100,000 shares of the Company’s common stock with an exercise price of $3.00, for $4,000,000 cash consideration. The proceeds were used to consummate the EAG Acquisition.
The holders of the Series A Preferred Stock shall be entitled to receive, if and when declared by the Company’s Board of Directors and paid by the Company, in preference to the holders of the shares of Common Stock and any other capital stock of the Company ranking junior to the Series A Preferred Stock as to the payment of dividends, annual dividends at the rate per annum of $0.125 per share. The dividends accrue on a daily basis, whether or not earned or declared, and are compounded annually (to the extent dividends remain unpaid).
The Series A Preferred Stock is convertible to the equivalent number of common shares, subject to anti-dilution provisions. The number of common stock provided on conversion is increased by any accrued but unpaid dividends, at a conversion price of $2.50. Conversion of the preferred stock is at the option of the holder, or at the option of the company if the market price of the common stock reaches certain minimum levels.
Private Placement
On November 22, 2005, a wholly-owned subsidiary of the Company entered into a Note Purchase Agreement whereby the subsidiary agreed to sell (i) $6,000,000 Senior Subordinated Notes, with an interest rate of 9.0% and due 2011 and (ii) $15,000,000 Senior Subordinated Notes, with an interest rate of 12.5% and due 2011. In connection with the sale of the Senior Subordinated Notes, the Company also issued to the purchaser warrants to purchase 312,176 shares of common stock with an exercise price of $0.01 and are exercisable at any time during their 10 year term. The proceeds received in connection with the Private Placement were used to consummate the EAG Acquisition.
For a further discussion of the terms and conditions of the preferred stock offering and the private placement reference should be made to the Initial 8-K which information is incorporated here by reference.
4. Pro Forma Adjustments
The unaudited condensed consolidated pro forma financial statements include the following pro forma adjustments:
1) Reversal of the amortization of intangible assets from a previous acquisition by EAG, revalued on the acquisition of EAG by Navtech See note 2.
2) Amortization of intangible assets arising from the acquisition over 7 years - Customer Relations - Note 2 above.
3) Amortization of intangible assets arising from the acquisition over 10 years - Library and Copyrights - - Note 2 above.
4) Issuance of preferred stock as part of the acquisition financing and the related dividends at an annual rate of $0.125 per share - Note 3 above.
5) Issuance of subordinated debt as part of acquisition financing and the related interest expense. See note 3 above.
6) Recording of deferred financing costs representing costs associated with the private placement of $670,000 and a debt issuance discount of $930,000 arising from the issuance of common stock warrants. The debt issuance discount is calculated using the excess of the value of the common shares at the time of the warrant issuance (November 22, 2005) of $2.99 over the nominal exercise price multiplied by the number of warrants issued. The total deferred financing costs of $1.6 million are amortized to interest expense over the term of the underlying debt of six years.
7) Reversal of pre-acquisition net interest expense payable to group companies. The settlement of inter company loans was a condition of the acquisition agreement.
8) Recording of the tax effect of the pro forma adjustments including the tax benefit arising from the deduction of interest expense on the Senior Subordinated Notes.
9) Excess cash arising from the acquisition financing
10) Recording of the purchase price allocation - See note 2 above
11) Recording of a deferred tax liability that arises from the difference between the accounting and tax basis of the intangible assets determined in the purchase price allocation.
12) Recording of the fair value of warrants issued with the convertible preferred stock and the beneficial conversion feature associated with the conversion right. The allocation of proceeds to the beneficial conversion feature and the warrants represented an aggregate discount of $1,050,000 on the issuance of the preferred stock which was treated as a dividend in the unaudited pro forma condensed consolidated financial statements.
