EXHIBIT 99.1
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial information is included in
this report:
- Pro Forma Condensed Combined Balance Sheet as of April 30, 2004 (unaudited)
- Pro Forma Condensed Combined Statement of Operations for the three months
ended April 30, 2004 (unaudited)
- Pro Forma Condensed Combined Statement of Operations for the nine months
ended April 30, 2004 (unaudited)
- Pro Forma Condensed Combined Statement of Operations for the year ended July
31, 2003 (unaudited)
The unaudited pro forma condensed combined balance sheet as of April 30, 2004
combines the unaudited condensed consolidated balance sheet of NaviSite as of
April 30, 2004 with the condensed consolidated balance sheet of Surebridge as of
March 31, 2004.
The unaudited pro forma condensed combined statement of operations for the
year ended July 31, 2003 combines the unaudited pro forma condensed consolidated
statement of operations of NaviSite for the fiscal year ended July 31, 2003 with
the unaudited condensed consolidated results of operations of Surebridge for the
twelve months ended June 30, 2003. As required under Article 11(c)(3) of
Regulation S-X, Surebridge's December 31, 2002 fiscal year end has been
conformed to be within 93 days of NaviSite's July 31, 2003 fiscal year end by
using Surebridge's results of operations for the twelve months ended June 30,
2003. In addition, the unaudited pro forma condensed combined statements of
operations for the three and nine months ended April 30, 2004 combine the
unaudited condensed consolidated statements of operations of NaviSite for the
three and nine months ended April 30, 2004 with the unaudited condensed
consolidated statements of operations of Surebridge for the three and nine
months ended March 31, 2004.
The unaudited pro forma condensed combined statement of operations for the
year ended July 31, 2003 also gives pro forma effect to NaviSite's other recent
acquisitions of ClearBlue Technologies, Inc., or CBT, Interliant, Inc., or
Interliant, Conxion Corporation, or Conxion, and ClearBlue Technologies
Management, Inc., or CBTM, as if they had occurred as of August 1, 2002.
The following is a summary of the additional acquisitions noted above for
which pro forma effect is given in the unaudited pro forma condensed combined
statement of operations for the year ended July 31, 2003 for the portion of the
fiscal year ended July 31, 2003 that each respective company was not owned by
NaviSite:
- In August 2003, NaviSite acquired all of the outstanding shares of six
wholly-owned subsidiaries of CBT with data centers in various U.S. locations
and assumed the revenue and expense of four additional wholly-owned
subsidiaries of CBT. Pursuant to the acquisition agreement, as amended,
NaviSite had the right to acquire the four additional subsidiaries for no
additional consideration at any time on or prior to August 8, 2005. In April
2004, NaviSite exercised its right to acquire the additional four
subsidiaries and thereby acquired all of the outstanding shares of the
additional four wholly-owned subsidiaries of CBT. This transaction was
accounted for as a combination of entities under common control, similar to
a pooling-of-interests, whereby the assets and liabilities of the ten
wholly-owned subsidiaries of CBT (as described above) and NaviSite were
combined at their historical amounts as of the date CBT had control of both
entities (September 11, 2002). CBT's results of operations and cash flows
for the eleven months ended July 31, 2003 are included in NaviSite's
consolidated statement of operations and consolidated statement of cash
flows for the year ended July 31, 2003. The subsidiaries of CBT that
NaviSite acquired are now operated as wholly-owned subsidiaries of NaviSite.
- In May 2003, NaviSite acquired assets of Interliant related to managed
messaging, application hosting and application development services.
Interliant's results of operations and cash flows for
1
the two-and-one-half months ended July 31, 2003 are included in NaviSite's
consolidated statement of operations and consolidated statement of cash
flows for the year ended July 31, 2003. The Interliant business is now
operated as a wholly-owned subsidiary of NaviSite.
- In April 2003, NaviSite acquired Conxion, a provider of application hosting,
content and electronic software distribution and security services.
Conxion's results of operations and cash flows for the four months ended
July 31, 2003 are included in NaviSite's consolidated statement of
operations and consolidated statement of cash flows for the year ended July
31, 2003. Conxion is operated as a wholly-owned subsidiary of NaviSite.
- In December 2002, NaviSite acquired all of the issued and outstanding stock
of CBTM, a wholly-owned subsidiary of CBT, NaviSite's then parent company
which previously had acquired assets from the bankrupt estate AppliedTheory
Corporation related to application management and application hosting
services. As CBT had a controlling interest in both companies at the time of
the combination, the transaction was accounted for as a combination of
entities under common control, similar to a pooling-of-interests, whereby
the assets and liabilities of CBTM and NaviSite were combined at their
historical amounts as of the date CBT had control of both entities
(September 11, 2002). CBTM's results of operations and cash flows for the
eleven months ended July 31, 2003 are included in NaviSite's consolidated
statement of operations and consolidated statement of cash flows for the
year ended July 31, 2003. CBTM is operated as a wholly-owned subsidiary of
NaviSite.
The unaudited pro forma financial information is not necessarily indicative of
the results of operations or financial position of NaviSite had the transactions
assumed therein occurred, nor are they necessarily indicative of the results of
operations or financial position, which may be expected to occur in the future.
Furthermore, the unaudited pro forma financial information is based on
assumptions that NaviSite believes are reasonable and should be read in
conjunction with NaviSite's Form 10-K for the fiscal year ended July 31, 2003,
Forms 10-Q for the fiscal quarters ended October 31, 2003, January 31, 2004
and April 30, 2004 and Form 8-K dated June 10, 2004 (filed June 14, 2004)
previously filed.
2
NAVISITE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<Table>
<Caption>
CONSOLIDATED PRO FORMA PRO FORMA
NAVISITE SUREBRIDGE ADJUSTMENTS TOTAL
APRIL 30, 2004 MARCH 31, 2004 APRIL 30, 2004 APRIL 30, 2004
-------------- -------------- -------------- --------------
ASSETS
Current assets:
Cash and cash equivalents........... $ 7,630 $ 1,725 $ -- $ 9,355
Accounts receivable, net............ 13,583 4,564 -- 18,147
Due from related party.............. 12 43 -- 55
Prepaid expenses and other current
assets............................ 4,224 1,461 -- 5,685
--------- -------- -------- ---------
Total current assets.............. 25,449 7,793 -- 33,242
Property and equipment, net........... 15,388 7,782 -- 23,170
Intangible assets, net................ 10,279 4,319 -- 14,598
Goodwill.............................. 3,206 6,327 40,090(a) 49,623
Other assets.......................... 5,913 162 -- 6,075
Restricted cash....................... 1,253 475 -- 1,728
--------- -------- -------- ---------
Total assets...................... $ 61,488 $ 26,858 $ 40,090 $ 128,436
========= ======== ======== =========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts receivable financing
line.............................. $ 15,786 $ -- $ -- $ 15,786
Current notes payable............... 1,048 3,618 -- 4,666
Capital lease obligations, current
portion........................... 2,418 139 -- 2,557
Current note payable to related
party............................. 3,000 -- -- 3,000
Accounts payable.................... 3,856 4,778 -- 8,634
Accrued expenses.................... 13,628 1,943 500(b) 16,071
Deferred revenue.................... 2,196 936 -- 3,132
Customer deposits................... 135 250 -- 385
--------- -------- -------- ---------
Total current liabilities......... 42,067 11,664 500 54,231
Capital lease obligations, less
current portion..................... 830 24 -- 854
Accrued impairment, less current
portion............................. 1,782 -- -- 1,782
Note to AppliedTheory Estate.......... 6,000 -- -- 6,000
Notes payable......................... 1,352 1,019 39,300(b) 41,671
Other long-term liabilities........... 737 71 -- 808
--------- -------- -------- ---------
Total liabilities................. 52,768 12,778 39,800 105,346
--------- -------- -------- ---------
Redeemable convertible preferred
stock............................... -- 62,144 (62,144)(b) --
Stockholders' equity (deficit):
Treasury stock...................... -- (465) 465(b) --
Common stock........................ 249 109 (79)(b) 279
Deferred compensation............... (1,699) -- -- (1,699)
Accumulated other comprehensive
income............................ 9 -- -- 9
Additional paid-in capital.......... 438,482 9,487 4,853(b) 452,822
Accumulated deficit................. (428,321) (57,195) 57,195(b) (428,321)
--------- -------- -------- ---------
Total stockholders' equity
(deficit)....................... 8,720 (48,064) 62,434 23,090
--------- -------- -------- ---------
Total liabilities, redeemable
convertible preferred stock and
stockholders' equity
(deficit)....................... $ 61,488 $ 26,858 $ 40,090 $ 128,436
========= ======== ======== =========
</Table>
3
NAVISITE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
CONSOLIDATED
NAVISITE SUREBRIDGE PRO FORMA
THREE MONTHS ENDED THREE MONTHS ENDED PRO FORMA THREE MONTHS ENDED
APRIL 30, 2004 MARCH 31, 2004 ADJUSTMENTS APRIL 30, 2004
------------------ ------------------ ----------- ------------------
Total revenue.......... $20,185 $11,940 $ -- $32,125
------- ------- ------ -------
Cost of revenue:
Cost of revenue...... 14,217 7,777 -- 21,994
Impairment,
restructuring and
other............. -- -- -- --
------- ------- ------ -------
Total cost of
revenue......... 14,217 7,777 -- 21,994
------- ------- ------ -------
Gross profit...... 5,968 4,163 -- 10,131
------- ------- ------ -------
Operating expenses:
Product
development....... 230 -- -- 230
Selling and
marketing......... 1,848 1,961 -- 3,809
General and
administrative.... 6,097 2,534 -- 8,631
Impairment,
restructuring and
other............. 206 -- -- 206
------- ------- ------ -------
Total operating
expenses........ 8,381 4,495 -- 12,876
------- ------- ------ -------
Loss from
operations...... (2,413) (332) -- (2,745)
Other income (expense):
Interest income...... 18 2 -- 20
Interest expense..... (656) (89) (983)(c) (1,728)
Other income
(expense), net.... 25 -- -- 25
------- ------- ------ -------
Net loss.......... $(3,026) $ (419) $ (983) $(4,428)
======= ======= ====== =======
Basic and diluted net
loss per share....... $ (0.12) $ (0.16)
======= =======
Weighted average basic
and diluted shares
used in computing net
loss per share....... 24,809 3,000(b) 27,809
======= ====== =======
</Table>
4
NAVISITE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
CONSOLIDATED
NAVISITE SUREBRIDGE PRO FORMA
NINE MONTHS ENDED NINE MONTHS ENDED PRO FORMA NINE MONTHS ENDED
APRIL 30, 2004 MARCH 31, 2004 ADJUSTMENTS APRIL 30, 2004
----------------- ----------------- ----------- -----------------
Total revenue............. $65,987 $33,079 $ -- $ 99,066
------- ------- ------- --------
Cost of revenue:
Cost of revenue......... 48,899 22,925 -- 71,824
Impairment,
restructuring and
other................ 633 -- -- 633
------- ------- ------- --------
Total cost of
revenue............ 49,532 22,925 -- 72,457
------- ------- ------- --------
Gross profit......... 16,455 10,154 -- 26,609
------- ------- ------- --------
Operating expenses:
Product development..... 890 -- -- 890
Selling and marketing... 5,724 6,533 -- 12,257
General and
administrative....... 16,342 8,633 -- 24,975
Impairment,
restructuring and
other................ 1,608 -- -- 1,608
------- ------- ------- --------
Total operating
expenses........... 24,564 15,166 -- 39,730
------- ------- ------- --------
Loss from
operations......... (8,109) (5,012) -- (13,121)
Other income (expense):
Interest income......... 115 10 -- 125
Interest expense........ (1,935) (250) (2,948)(c) (5,133)
Other income (expense),
net.................. 111 -- -- 111
------- ------- ------- --------
Net loss............. $(9,818) $(5,252) $(2,948) $(18,018)
======= ======= ======= ========
Basic and diluted net loss
per share............... $ (0.40) $ (0.65)
======= ========
Weighted average basic and
diluted shares used in
computing net loss per
share................... 24,685 3,000(b) 27,685
======= ======= ========
</Table>
5
NAVISITE, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
CONSOLIDATED
NAVISITE SUREBRIDGE PRO FORMA
TWELVE MONTHS TWELVE MONTHS CBT CBTM CONXION INTERLIANT YEAR ENDED
ENDED ENDED 8/1/02 - 8/1/02 - 8/1/02 - 8/1/02 - PRO FORMA JULY 31,
JULY 31, 2003 JUNE 30, 2003 8/31/02 8/31/02 3/31/03 5/15/03 ADJUSTMENTS 2003
------------- ------------- -------- -------- -------- ---------- ----------- ----------
Total revenue............. $ 76,591 $34,343 $1,437 $2,536 $12,241 $ 20,654 $ -- $147,802
Total cost of revenue..... 70,781 22,386 1,263 1,850 19,057 11,517 -- 126,854
-------- ------- ------ ------ ------- -------- ------- --------
Gross profit
(deficit)........... 5,810 11,957 174 686 (6,816) 9,137 -- 20,948
-------- ------- ------ ------ ------- -------- ------- --------
Operating expenses:
Product development..... 950 -- -- -- -- 958 -- 1,908
Selling and marketing... 5,960 6,702 9 157 4,104 1,853 -- 18,785
General and
administrative........ 20,207 9,728 237 500 1,590 16,479 -- 48,741
Impairment,
restructuring and
other................. 8,882 -- -- -- (4,135) -- -- 4,747
-------- ------- ------ ------ ------- -------- ------- --------
Total operating
expenses............ 35,999 16,430 246 657 1,559 19,290 -- 74,181
-------- ------- ------ ------ ------- -------- ------- --------
(Loss) income from
operations.......... (30,189) (4,473) (72) 29 (8,375) (10,153) -- (53,233)
Other income (expense):
Interest income......... 851 102 -- -- 99 32 -- 1,084
Interest expense........ (43,403) (299) -- (140) -- (3,284) (3,930)(c) (51,056)
Other income (expense),
net................... (733) (111) -- (21) (209) 6,149 -- 5,075
-------- ------- ------ ------ ------- -------- ------- --------
Loss before income tax
expense................. (73,474) (4,781) (72) (132) (8,485) (7,256) (3,930) (98,130)
Income tax expense........ (153) (237) -- -- -- -- -- (390)
-------- ------- ------ ------ ------- -------- ------- --------
Net loss.................. $(73,627) $(5,018) $ (72) $ (132) $(8,485) $ (7,256) $(3,930) $(98,520)
======== ======= ====== ====== ======= ======== ======= ========
Basic and diluted net loss
per share............... $ (6.32) $ (6.72)
======== ========
Weighted average basic and
diluted shares used in
computing net loss per
share................... 11,654 3,000(b) 14,654
======== ======= ========
</Table>
6
NAVISITE, INC. AND SUBSIDIARIES
NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(UNAUDITED)
PRO FORMA ADJUSTMENTS AND ASSUMPTIONS
(A) PURCHASE PRICE ALLOCATION
The following represents the preliminary allocation of the estimated purchase
price for NaviSite's acquisition of Surebridge over the historical net book
values of the acquired assets and assumed liabilities of Surebridge as of the
date of the pro forma balance sheet, and is for illustrative purposes only.
Assuming the transaction occurred on April 30, 2004, the estimated purchase
price allocation for the acquisition of Surebridge would have been as follows
(in thousands):
<Table>
Working capital, including cash acquired.................... $(3,871)
Property & equipment, net................................... 7,782
Other non-current assets.................................... 4,956
Long-term debt.............................................. (1,019)
Non-current liabilities..................................... (95)
Goodwill.................................................... 46,417
-------
Purchase price.............................................. $54,170
=======
</Table>
The goodwill adjustment in the pro forma condensed combined balance sheet was
determined as follows (in thousands):
<Table>
Elimination of pre-existing Surebridge goodwill............. $(6,327)
Goodwill resulting from the acquisition (see above)......... 46,417
-------
Goodwill adjustment......................................... $40,090
=======
</Table>
The purchase price allocation for the acquisition of Surebridge is preliminary
and is subject to adjustment upon finalization of the purchase accounting as of
the date of consummation of the acquisition. NaviSite has engaged a third party
to conduct a valuation of the intangible assets acquired. The third-party
valuation firm has not yet completed its valuation, but NaviSite anticipates
that, upon completion of the valuation, a substantial amount of the $46.4
million of preliminary goodwill will be assigned to an amortizable customer list
with an identifiable useful life. Assuming a five-year useful life, every $1.0
million of identifiable intangible assets recorded would result in approximately
$200,000 of annual amortization expense in the pro forma statements of
operations. The final allocation of the excess of the purchase price over the
book value of the net assets acquired could differ materially.
The primary reasons for the acquisition included the addition of service
offerings, specific contractual relationships with PeopleSoft and Microsoft, and
established contractual revenue base, as well as potential operations savings.
As the primary reasons for the acquisition were not related to the tangible net
assets of Surebridge, the purchase price was significantly in excess of the fair
value of the net assets acquired.
(B) COMPONENTS OF THE ESTIMATED PURCHASE CONSIDERATION
The pro forma financial information reflects NaviSite's acquisition of
substantially all the assets and liabilities of Surebridge for consideration
valued at approximately $54.2 million. The pro forma adjustments reconcile the
historical balance sheet of NaviSite to the allocated purchase price above and
7
NAVISITE, INC. AND SUBSIDIARIES
NOTES TO THE PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION -- (CONTINUED)
include the purchase consideration. The description of the components of the
estimated purchase price consideration is as follows (in thousands):
<Table>
Two promissory notes payable................................ $39,300
Fair value of 3 million shares of NaviSite common stock..... 14,370
Estimated direct acquisition costs.......................... 500
-------
Total estimated purchase price.............................. $54,170
=======
</Table>
The fair value of the shares of NaviSite common stock noted in the table above
was determined as follows (in thousands, except per share value):
<Table>
Issuance of 3 million shares................................ 3,000
Per share price of NaviSite common stock at closing......... $ 4.79
-------
Fair value of the common stock issued....................... $14,370
=======
</Table>
The equity components of the common stock issued which is noted in the table
above are as follows (in thousands):
<Table>
Common stock (assumes $.01 par value)....................... $ 30
Additional paid-in capital.................................. 14,340
-------
Fair value of the common stock issued....................... $14,370
=======
</Table>
For pro forma purposes, all equity accounts of Surebridge were eliminated. The
adjustments to both common stock and additional paid-in capital in the pro forma
condensed combined balance sheet were determined as follows (in thousands):
<Table>
Elimination of pre-existing Surebridge common stock......... $ (109)
Common stock (at par value) resulting from Navisite shares
issued.................................................... 30
-------
Common stock adjustment..................................... $ (79)
=======
Elimination of pre-existing Surebridge additional paid-in
capital................................................... $(9,487)
Additional paid-capital resulting from NaviSite shares
issued.................................................... 14,340
-------
Additional paid-in capital adjustment....................... $ 4,853
=======
</Table>
In connection with the acquisition, NaviSite did not assume any obligations
related to the redeemable convertible preferred stock of Surebridge.
(C) INTEREST EXPENSE ON THE PROMISSORY NOTES
Interest expense on the two promissory notes payable is calculated at 10%
annually. The pro forma statements of operations assume interest will be paid in
full. However, the promissory notes provide that no interest shall accrue or be
payable on any principal paid within nine months. The interest
8
NAVISITE, INC. AND SUBSIDIARIES
NOTES TO THE PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION -- (CONTINUED)
expense recorded in the pro forma condensed combined statements of operations
was calculated as follows (in thousands):
<Table>
<Caption>
THREE MONTHS NINE MONTHS YEAR
ENDED ENDED ENDED
APRIL 30, APRIL 30, JULY 31,
2004 2004 2003
------------ ----------- --------
Promissory notes principal..................... $39,300 $39,300 $39,300
Interest rate.................................. 10% 10% 10%
Interest expense recorded...................... $ 983 $ 2,948 $ 3,930
</Table>
We must repay the outstanding principal of the promissory notes, with all
accrued interest thereon, no later than June 10, 2006. In addition, if at any
time during the first six months after the date of issuance of the notes we
complete certain equity or debt financings, we are obligated to use a
significant portion of the proceeds to make payments on the notes, depending on
the total net proceeds received by us in the financing. If we receive net
proceeds of less than $20 million in a debt or equity financing, then we would
be obligated to make a payment on the notes equal to 75% of the net proceeds. If
we receive net proceeds of between $20 million and $30 million, then we would be
obligated to make a payment on the notes equal to $15 million. If we receive net
proceeds in excess of $30 million, then we would be obligated to make a payment
on the notes equal to 50% of the net proceeds.
In addition, if we realize net proceeds in excess of $1.0 million from certain
equity or debt financings or sales of assets at any time after six months from
the date the notes were issued, we are obligated to use a significant portion of
the proceeds to make payments on the notes, depending on the total payments, if
any, made on the notes during the first six months after the notes were issued.
If the amount we paid on the notes during the first six months the notes were
outstanding is less than $10 million, we would be obligated to make a payment on
the notes equal to 75% of the net proceeds. If the amount we paid on the notes
during the first six months the notes were outstanding was greater than $15
million, we would be obligated to make a payment on the notes equal to 50% of
the net proceeds. If the amount we paid on the notes during the first six months
the notes were outstanding is between $10 million and $15 million, we would be
obligated to make a payment on the notes equal to a percentage between 50% and
75% of the net proceeds received, such percentage to be calculated in accordance
with a formula set forth in the notes.
9