EXHIBIT 99-2
CALIFORNIA AMPLIFIER, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial
statements include the pro forma condensed combined balance sheet of
California Amplifier at February 28, 2004, which gives effect to the
acquisition of Vytek by California Amplifier as if the transaction were
consummated on that date. The pro forma condensed combined balance sheet
combines California Amplifier's balance sheet as of February 28, 2004 and
Vytek's balance sheet as of December 31, 2003.
Also presented is the pro forma condensed combined statement of
operations of California Amplifier for the year ended February 28, 2004,
giving effect to the acquisition of Vytek as if it had been consummated on
March 1, 2003. The pro forma condensed combined statement of operations for
the year ended February 28, 2004 combines the results of California
Amplifier for its fiscal year then ended and Vytek's results for its fiscal
year ended December 31, 2003.
These pro forma financial statements are based on the combined
historical statements of California Amplifier and Vytek, giving effect to
the acquisition by California Amplifier of Vytek under the purchase method
of accounting, and to the assumptions and adjustments described in the
accompanying notes to the unaudited pro forma condensed combined financial
statements. The pro forma adjustments set forth in the following unaudited
pro forma condensed combined financial statements are estimates and may
differ from the actual adjustments when they become known.
Vytek was formed in April 2000 and grew principally through a "roll-up"
process in which it acquired seven privately held companies from September
2000 through April 2003. Consequently, the historical financial statements
of Vytek for the year ended December 31, 2003 include nonrecurring costs and
expenses in connection with acquiring and integrating certain of these
companies into Vytek's business that have not been eliminated in the
accompanying pro forma condensed combined statement of operations.
Furthermore, the following unaudited pro forma condensed combined financial
statements do not give effect to certain cost and expense savings that
management of California Amplifier believes may be realized following the
acquisition of Vytek. These savings are expected to be realized primarily
through integration of Vytek's operations with California Amplifier's
operations and elimination of redundant corporate functions.
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California Amplifier, Inc.
Pro Forma Condensed Combined Balance Sheet (Unaudited)
February 28, 2004
(In thousands)
Historical
-----------------------
California Pro Forma Pro Forma
Amplifier Vytek (A) Adjustments Total
---------- --------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 22,885 $ 2,458 $ (2,600)(B) $ 22,743
Accounts receivable, net 18,579 6,696 25,275
Inventories, net 20,253 1,311 24 (C) 21,588
Costs and estimated earnings
in excess of billings on
uncompleted contracts - 1,755 1,755
Deferred income tax assets 2,404 2,404
Prepaid expenses and other
current assets 3,244 742 3,986
------- ------- ------ -------
Total current assets 67,365 12,962 (2,576) 77,751
Property and equipment, net 4,381 1,580 (50)(D) 5,911
Deferred income tax assets,
less current portion 4,359 - 4,359
Goodwill 20,938 22,737 (22,737)(E) 98,505
77,567 (F)
Intangible assets, net - 2,774 (2,774)(E) 4,476
4,476 (G)
Other assets 599 2,130 2,729
------- ------- ------- -------
$ 97,642 $ 42,183 $ 53,906 $193,731
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit and current
portion of long-term debt $ 3,603 $ 3,223 $ 6,826
Accounts payable 17,395 1,991 19,386
Accrued payroll and employee
benefits 1,513 1,629 3,142
Accrued expenses and other
current liabilities 2,078 2,334 1,375 (H) 6,537
750 (I)
Deferred revenue - 2,083 (715)(J) 1,368
------- ------- ------ -------
Total current liabilities 24,589 11,260 1,410 37,259
------- ------- ------- -------
Long-term debt 7,690 123 7,813
------- ------- ------- -------
Other non-current liabilities - 258 258
------- ------- ------- -------
Redeemable convertible preferred stock - 50,270 (50,270)(K) 0
------- ------- ------- -------
Stockholders' equity:
Common stock and additional
paid-in capital 44,635 28,809 (28,809)(K) 137,738
93,103 (L)
Less common stock held in escrow (9,594)(L) (9,594)
Stock subscriptions receivable (29) 29 (K) 0
Unearned stock compensation (1,966) 1,966 (K) 0
Retained earnings (accumulated
deficit) 21,550 (46,542) 46,542 (K) 21,079
(471)(H)
Accumulated other comprehensive loss (822) - (822)
------- ------- ------- -------
Total stockholders' equity
(deficit) 65,363 (19,728) 102,766 148,401
------- ------- ------- -------
$ 97,642 $ 42,183 $ 53,906 $193,731
======= ======= ======= =======
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California Amplifier, Inc.
Notes to Pro Forma Condensed Combined Balance Sheet
(In thousands except per share amounts)
(A) The amounts shown for Vytek are the historical amounts
for Vytek as of December 31, 2003.
(B) To reflect cash paid for direct costs of acquisition .......... $ (2,600)
======
(C) To write-up finished goods inventory to fair value ............ $ 24
======
(D) To adjust Vytek's property and equipment to fair value ........ $ (50)
======
(E) To eliminate Vytek's goodwill and intangible asset balances.
(F) To reflect as goodwill the excess of cost over the fair
value of assets acquired and liabilities assumed (see
computation at (M) below) .................................... $ 77,567
======
(G) To record identifiable intangible assets arising from
the California Amplifier - Vytek merger:
Developed / core technology ..................... $ 3,349
In-process research and development ............. 471
Customer relationships and database ............. 1,127
-----
4,947
Less write-off of in-process
research and development (1) .................. (471)
-----
Intangible assets recorded at
time of merger ............................................. $ 4,476
=====
(1) California Amplifier will record an immediate write-off
of in-process research and development costs in the amount
of $471 at the consummation of merger with Vytek, which
will be reflected as a nonrecurring charge in California
Amplifier's actual income statement for the period which
includes the closing of the merger transaction. In-process
research and development consists of a next-generation
software version that provides urgent messaging and remote
problem resolution for distributed organizations. For
purposes of valuing this in-process research and development,
it is assumed that: (i) this new software would be introduced
in 2004; (ii) that annual revenue would range between $1.6
million and $2.1 million in 2004 through 2008; (iii) annual
revenues from this product are allocated 50% to in-process
research and development and 50% to core technology; (iv) the
gross margin percentage is 80%; and (v) the operating margin
is approximately 45% in years 2005 though 2008. The projected
after-tax cash flows were then present valued using a discount
rate of 23%.
(H) To accrue Vytek's merger-related non-recurring expenses ........ $ 1,375
======
(I) To accrue estimated merger integration costs ................... $ 750
======
(J) To adjust deferred revenue to fair value ....................... $ (715)
======
(K) To eliminate historical equity balances of Vytek.
(L) To reflect California Amplifier common
stock issued as consideration for the
purchase, as follows:
Deposited
Issued to to escrow
sellers account(2) Total
----- ------- -----
Number of common stock shares issued (000s) 7,268.7 854.7 8,123.4
Fair market value per share (3) $ 11.26 $ 11.26
------ ------
Value of shares issued $81,846 $ 9,624 $91,470
Less stock registration costs (270) (30) (300)
------ ------ ------
Fair value of shares issued net
of registration costs 81,576 9,594 91,170
Fair value of fully vested Vytek stock
options and warrants assumed by
California Amplifier (4) 1,933 1,933
------ ------ ------
Recorded value of common stock issued
and assumed options and warrants $83,509 $ 9,594 $93,103
====== ====== ======
(2) The common stock shares deposited to the escrow account are,
for accounting purposes, treated as contingent consideration,
and accordingly are excluded from the computation of goodwill
until such time as the shares are released from escrow.
(3) The fair market value per share is the average closing price
of California Amplifier's common stock on the Nasdaq National
Market for the period beginning two trading days before and
ending two trading days after December 23, 2003, the day that
the merger terms were agreed to and announced.
(4) The fair value of options and warrants assumed was estimated
using the Black-Scholes option pricing model with an interest
rate of 3.3%, a dividend yield of 0%, a volatility factor of
133.6%, and an expected life of 5 years in the case of stock
options and 1.75 years to 2 years in the case of warrants.
(M) Following is a computation of the excess of cost over the
value of net assets acquired (i.e., goodwill):
Recorded value of common stock issued to sellers
and assumed options and warrants (excluding shares
deposited to escrow account) ............................... $ 83,509
Direct costs of acquisition including legal,
accounting and financial advisory fees ..................... 2,600
------
Total cost of Vytek acquisition (excluding common
stock deposited to escrow account) ......................... 86,109
Fair value of net assets acquired:
Current assets .................................... $12,962
Adjust finished goods inventory to fair value ..... 24
Property and equipment ............................ 1,580
Adjust property and equipment to fair value ....... (50)
Intangible assets ................................. 4,947
Other assets ...................................... 2,130
Current liabilities ............................... (11,260)
Long-term debt and other non-current
liabilities ...................................... (381)
Accrued liability for Vytek's transaction
costs ............................................ (1,375)
Accrued liability for estimated merger
integration costs ................................ (750)
Adjust deferred revenue to fair value 715
------
Total fair value of net assets acquired ................... 8,542
------
Goodwill ..................................................... $77,567
======
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California Amplifier, Inc.
Pro Forma Condensed Combined Statement of Operations
Year Ended February 28, 2004
(In thousands except per share amounts)
Historical
-----------------------
California Pro Forma Pro Forma
Amplifier Vytek (A) Adjustments Total
---------- --------- ----------- ---------
Revenue:
Product sales $128,616 $ 17,565 $ (2,388)(B) $ 143,793
Service revenue 24,635 (833)(C) 23,215
(587)(D)
------- ------- ------ -------
Total revenue 128,616 42,200 (3,808) 167,008
Cost of revenue:
Cost of product sales 110,950 13,595 (1,671)(B) 122,874
Cost of service revenue 13,719 13,719
------- ------- ------ -------
Total cost of revenue 110,950 27,314 (1,671) 136,593
------- ------- ------ -------
Gross profit 17,666 14,886 (2,137) 30,415
------- ------- ------ -------
Operating expenses:
Research and development 5,363 3,389 8,752
Sales and marketing 2,336 5,903 8,239
General and administrative 3,984 10,048 14,032
Depreciation and amortization 1,483 1,483
Amortization of intangible assets 3,322 (2,427)(E) 895
------- ------- ------ -------
Total operating expenses 11,683 24,145 (2,427) 33,401
------- ------- ------ -------
Operating income (loss) 5,983 (9,259) 290 (2,986)
Non-operating income (expense) (243) 380 137
------- ------- ------ -------
Income (loss) before income taxes 5,740 (8,879) 290 (2,849)
Income tax benefit (provision) (26) 0 39 (F) 13
------- ------- ------ -------
Net income (loss) $ 5,714 $ (8,879) $ 329 $ (2,836)
======= ======= ====== =======
Earnings (loss) per share:
Basic $ 0.39 $ (0.13)
Diluted $ 0.37 $ (0.13)
Shares used in computing
earnings (loss) per share:
Basic 14,791 7,269 (G) 22,060
Diluted 15,390 6,670 (H) 22,060
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California Amplifier, Inc.
Notes to Pro Forma Condensed Combined Statement of Operations (Unaudited)
Year Ended February 28, 2004
(In thousands)
(A) The amounts shown for Vytek are the historical amounts
for Vytek's fiscal year ended December 31, 2003.
(B) To adjust revenue and costs of goods sold to eliminate
deferred revenue and deferred costs at December 31, 2002
which were recognized by Vytek in revenue and cost of
revenue during the year ended December 31, 2003, as follows:
(i) Reduction of product sales revenue .................. $(2,388)
=====
(ii) Reduction of cost of product sales .................. $(1,671)
=====
(C) To reflect as a reduction of service revenue for the
year ended December 31, 2003 the fair value adjustment
to Vytek's contracts backlog .............................. $ (833)
=====
(D) To reflect as a reduction of service revenue for the
year ended December 31, 2003 the fair value adjustment
to Vytek's deferred revenue on maintenance and support
service agreements ......................................... $ (587)
=====
(E) To adjust intangible asset amortization expense, as follows:
Amortization
Ascribed period in Amortization
Intangible asset description value years expense
-------------------------------- -------- ------- -------
Developed / core technology $ 3,349 5 $ 670
Customer relationships and database 1,127 5 225
----
Intangible asset amortization expense ...................... 895
Less: Vytek's intangible asset
amortization expense (3,322)
-----
Pro forma adjustment to reduce amortization expense ......... $(2,427)
=====
(F) To adjust the income tax provision to reflect the
effective rate that is reflected in California
Amplifier's historical results for the fiscal year
Ended February 28, 2004 ..................................... $ 39
=====
(G) The pro forma adjustment to shares used for
basic earning (loss) per share is comprised
as follows (in 000s):
Common shares issued for Vytek acquisition ................ 8,124
Less shares deposited to escrow account, treated
as contingent consideration .............................. (855)
-----
Pro forma adjustment to shares used for basic
earnings (loss) per share ................................ 7,269
=====
(H) The pro forma adjustment to shares used for
diluted earning (loss) per share is comprised
as follows (in 000s):
Common shares issued for Vytek acquisition ................ 8,124
Less anti-dilutive shares:
Shares deposited to escrow account, treated
as contingent consideration ............................ (855)
Equivalent shares related to California
Amplifier stock options that are included
in the historical diluted share amount for
the year ended February 28, 2004 ....................... (599)
-----
Pro forma adjustment to shares used for
diluted earnings (loss) per share ....................... 6,670
=====