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8-K - FORM 8-K - Limelight Networks, Inc.d8k.htm

Exhibit 99.1

Pro Forma Financial Information

Introductory Note. On August 30, 2011, Limelight Networks, Inc. (the “Company”), together with Limelight Networks Germany GmbH, a German limited liability corporation (Gesellschaft mit beschränkter Haftung) and a wholly-owned subsidiary of the Company, entered into a Purchase Agreement (the “Purchase Agreement”) to sell EyeWonder, LLC and chors GmbH, video and rich media advertising companies and subsidiaries of the Company, to DG FastChannel, Inc. for approximately $66 million in cash, subject to certain adjustments. On September 1, 2011, the parties consummated the transactions contemplated by the Purchase Agreement. The pro forma financial data set forth herein gives effect to the sale of EyeWonder, LLC and chors GmbH (the “Transaction”).

The above summary of the Purchase Agreement is qualified in its entirety by reference to the full text of the Purchase Agreement, a copy of which is attached as Exhibit 2.1 to the Current Report on Form 8-K filed by the Company on September 6, 2011.

Summary Unaudited Pro Forma Consolidated Financial Data. The following tables set forth summary unaudited pro forma condensed consolidated statements of operations for the Company for the year ended December 31, 2010 and for the six months ended June 30, 2011 and its unaudited pro forma condensed consolidated balance sheet at June 30, 2011.

The summary unaudited pro forma consolidated statements of operations for the year ended December 31, 2010 and for the six months ended June 30, 2011 give effect to the Transaction as if it had occurred on January 1, 2010. The summary unaudited pro forma consolidated balance sheet gives effect to the Transaction as if it had occurred on June 30, 2011.

This information should be read in conjunction with Selected Consolidated Financial Data and the audited consolidated financial statements and the related notes filed as part of the Annual Report on Form 10-K of the Company for the year ended December 31, 2010 and the unaudited condensed consolidated financial statements and the related notes filed as part of the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011 and June 30, 2011. This summary unaudited pro forma consolidated financial data is not necessarily indicative of either our financial position or results of operations that will be achieved in the future. This summary unaudited pro forma condensed consolidated financial data has been included herein for informational and comparative purposes only. Our future results are subject to economic and industry specific conditions and financial, business and other known and unknown risks and uncertainties, certain of which are beyond our control.


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma condensed consolidated balance sheet as of June 30, 2011 has been presented after giving effect to the completion of the Transaction as if it had occurred on June 30, 2011.

The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2011 and the year ended December 31, 2010, have been presented after giving effect to the completion of the Transaction as if it had occurred on January 1, 2010.

The unaudited pro forma condensed consolidated financial information as of and for the respective periods presented have been derived primarily from the historical audited consolidated financial statements of Limelight Networks, Inc. (“Limelight”), contained in its Annual Report on Form 10-K for the year ended December 31, 2010 as well as the unaudited consolidated financial statements of Limelight contained in its quarterly report on Form 10-Q for the quarter ended June 30, 2011. The unaudited pro forma condensed consolidated financial information is based upon available information and assumptions that Limelight believes are reasonable under the circumstances and were prepared to illustrate the estimated effects of the Transaction, if the Transaction occurred as of and on the dates specified above. As Limelight has not finalized its accounting for discontinued operations for the periods presented herein, and therefore amounts reported in future financial statements with the Securities and Exchange Commission for the periods presented herein could differ from these pro forma estimates.

The unaudited pro forma condensed consolidated financial information have been provided for informational purposes and should not be considered indicative of the financial condition or results of operations that would have been achieved had the Transaction occurred as of or for the periods presented. In addition, the unaudited pro forma condensed consolidated financial information do not purport to indicate financial position or results of operations as of any future date or for any future period, including expected benefits and incremental earnings that may arise, if any, from the Transaction. The unaudited pro forma financial information, including the related notes, should be read in conjunction with the historical audited consolidated financial statements contained in Limelight’s Annual Report on Form 10-K for the year ended December 31, 2010 and the historical unaudited condensed consolidated financial statements included in Limelight’s quarterly report on Form 10-Q for the quarter ended June 30, 2011.


LIMELIGHT NETWORKS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands)

 

     June 30,
2011
    Adjustments            June 30,
2011
 
     Historical     Pro Forma  
ASSETS          

Current assets:

         

Cash and cash equivalents

   $ 109,973      $ 57,997        A       $ 167,970   

Marketable securities

     6,474        —             6,474   

Accounts receivable, net

     37,008        (10,685     A         26,323   

Income taxes receivable

     946        (500     A         446   

Prepaid expenses and other current assets

     12,540        10,855        A         23,395   
  

 

 

   

 

 

      

 

 

 

Total current assets

     166,941        57,667           224,608   

Property and equipment, net

     63,555        (1,688     A         61,867   

Marketable securities, less current portion

     1,567        (1,464     A         103   

Deferred income tax, less current portion

     944        —             944   

Goodwill

     113,006        (92,507     A         20,499   

Other intangible assets, net

     26,755        (14,912     A         11,843   

Other assets

     10,978        (347     A         10,631   
  

 

 

   

 

 

      

 

 

 

Total assets

   $ 383,746      $ (53,251      $ 330,495   
  

 

 

   

 

 

      

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY          

Current liabilities:

         

Accounts payable

   $ 11,596      $ (1,065     A       $ 10,531   

Deferred revenue

     6,595        (354     A         6,241   

Capital lease obligations, current portion

     1,477        (115     A         1,362   

Other current liabilities

     19,429        (570     A         18,859   
  

 

 

   

 

 

      

 

 

 

Total current liabilities

     39,097        (2,104        36,993   

Capital lease obligations, less current portion

     2,065        (49     A         2,016   

Deferred income tax, less current portion

     1,786        (1,163     A         623   

Other long term liabilities

     8,774        (53     A         8,721   
  

 

 

   

 

 

      

 

 

 

Total liabilities

     51,722        (3,369        48,353   

Commitments and contingencies

         

Stockholders’ equity:

         

Preferred stock

     —          —             —     

Common stock

     114        —             114   

Additional paid-in capital

     479,645        —             479,645   

Contingent consideration

     219        —             219   

Accumulated other comprehensive income (loss)

     2,065        (673     A         1,392   

Accumulated deficit

     (150,019     (49,209     B         (199,228
  

 

 

   

 

 

      

 

 

 

Total stockholders’ equity

     332,024        (49,882        282,142   
  

 

 

   

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 383,746      $ (53,251      $ 330,495   
  

 

 

   

 

 

      

 

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.


LIMELIGHT NETWORKS, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

Adjustment A.

On August 30, 2011 we entered into an agreement with DG FastChannel, Inc. (“DG”), and on September 1, 2011 (the “Closing Date”) we consummated the sale of our EyeWonder LLC and subsidiaries and chors GmbH operations (“EyeWonder and chors”) for net cash proceeds of $61.0 million ($66.0 million gross cash proceeds less $5.0 million held in escrow) plus an $11.7 million estimated net receivable from DG (the “Net Receivable from DG”). We estimate that we will incur approximately $0.6 million in state income taxes related to the Transaction and have sufficient federal net operating loss carryforwards to offset the federal taxable income associated with the Transaction. We estimate we incurred approximately $0.8 million in legal fees and transaction related expenses in connection with the sale.

The adjustments presented represent the receipt of net cash proceeds, the addition of the Net Receivable from DG, the removal of the book value of assets, liabilities and other comprehensive income based on carrying amounts at June 30, 2011, and recognition of the resulting loss on the sale including related income taxes.

The resulting loss from the Transaction is estimated as follows based on net cash proceeds, the estimated Net Receivable from DG and the estimated book value of net assets sold and liabilities and other comprehensive income released as of June 30, 2011 (also see Adjustment B). All such amounts are subject to change. The estimated book value of net assets sold includes the carrying value of the goodwill recorded in purchase accounting related to the EyeWonder and chors acquisitions. For purposes of calculating the loss on sale, the $5.0 million held in escrow is not anticipated to be collected. We are responsible for the payment of certain Closing Date current liabilities of EyeWonder and chors which will be settled in accordance with the terms of the Purchase Agreement with certain Closing Date current assets of EyeWonder and chors. Upon settlement of all such current liabilities, the estimated excess cash will be remitted to us by DG. The Net Receivable from DG is the estimate of the excess cash that will be remitted to us which has been determined based on information as of July 31, 2011. This estimate may materially differ from the final amount to be computed based on balances as of the Closing Date.

 

     (in thousands)  

Gross cash proceeds

   $ 66,000   

Less: escrow holdback

     (5,000

Plus: estimated net receivable from DG

     11,706   

Less: estimated income taxes

     (640

Less: estimated selling expenses

     (810
  

 

 

 

Estimated net proceeds

     71,256   

Less: book value of assets sold

     (125,957

Add: book value of liabilities and other comprehensive income balances released

     5,492   
  

 

 

 

Estimated loss on sale

   $ (49,209
  

 

 

 

Adjustment B.

As described in the introductory note, the historical information presented in this Form 8-K reflects the historical results of operations and financial position of Limelight. The accounting adjustments related to the Transaction will be recorded by Limelight during the third quarter of 2011. The actual gain or loss to be recognized will be dependent on the related accounting adjustments and may be materially different than the amount computed above. The unaudited pro forma condensed consolidated financial statements included herein should not be relied upon as indicative of the actual gain or loss to be recorded.


LIMELIGHT NETWORKS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

     For the Year
Ended

December 31,
2010
    Adjustments (C)     For the Year
Ended
December 31,
2010
 
     Historical     Pro Forma  

Revenues

   $ 183,327      $ (29,273   $ 154,054   
  

 

 

   

 

 

   

 

 

 

Cost of revenue:

      

Cost of services (exclusive of amortization)

     80,352        (7,994     72,358   

Depreciation — network

     22,367        (143     22,224   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue

     102,719        (8,137     94,582   
  

 

 

   

 

 

   

 

 

 

Gross profit

     80,608        (21,136     59,472   

Operating expenses:

      

General and administrative

     35,760        (5,134     30,626   

Sales and marketing

     46,752        (8,138     38,614   

Research and development

     15,755        (5,357     10,398   

Depreciation and amortization

     6,359        (3,901     2,458   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     104,626        (22,530     82,096   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (24,018     1,394        (22,624

Other income (expense):

      

Interest expense

     (77     15        (62

Interest income

     914        377        1,291   

Other expense

     (222     (28     (250
  

 

 

   

 

 

   

 

 

 

Total other income

     615        364        979   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (23,403     1,758        (21,645

Income tax expense (benefit)

     (3,052     3,646        594   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (20,351   $ (1,888   $ (22,239
  

 

 

   

 

 

   

 

 

 

Net loss per weighted average share:

      

Basic

   $ (0.22     $ (0.24
  

 

 

     

 

 

 

Diluted

   $ (0.22     $ (0.24
  

 

 

     

 

 

 

Shares used in per weighted average share calculations:

      

Basic

     94,300          94,300   

Diluted

     94,300          94,300   

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.


LIMELIGHT NETWORKS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

     For the Six
Months Ended

June 30,
2011
    Adjustments (C)     For the Six Months
Ended

June 30,
2011
 
        
     Historical     Pro Forma  

Revenues

   $ 100,355      $ (17,633   $ 82,722   
  

 

 

   

 

 

   

 

 

 

Cost of revenue:

      

Cost of services (exclusive of amortization)

     47,117        (6,447     40,670   

Depreciation — network

     14,156        (183     13,973   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue

     61,273        (6,630     54,643   
  

 

 

   

 

 

   

 

 

 

Gross profit

     39,082        (11,003     28,079   

Operating expenses:

      

General and administrative

     19,244        (4,161     15,083   

Sales and marketing

     26,916        (6,189     20,727   

Research and development

     11,898        (4,455     7,443   

Depreciation and amortization

     4,574        (2,820     1,754   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     62,632        (17,625     45,007   
  

 

 

   

 

 

   

 

 

 

Operating loss

     (23,550     6,622        (16,928

Other income (expense):

      

Interest expense

     (147     12        (135

Interest income

     446        230        676   

Other income

     64        (28     36   
  

 

 

   

 

 

   

 

 

 

Total other income (expense)

     363        214        577   
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (23,187     6,836        (16,351

Income tax expense (benefit)

     566        92        658   
  

 

 

   

 

 

   

 

 

 

Net loss

   $ (23,753   $ 6,744      $ (17,009
  

 

 

   

 

 

   

 

 

 

Net loss per weighted average share:

      

Basic

   $ (0.22     $ (0.16
  

 

 

     

 

 

 

Diluted

   $ (0.22     $ (0.16
  

 

 

     

 

 

 

Shares used in per weighted average share calculations:

      

Basic

     108,515          108,515   

Diluted

     108,515          108,515   

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.


LIMELIGHT NETWORKS, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Adjustment C.

These adjustments reflect the elimination of the estimated historical operations of EyeWonder and chors for the six months ended June 30, 2011 and the twelve months ended December 31, 2010 and estimated legal fees and transaction related expenses of $0.8 million in the twelve months ended December 31, 2010. Interest income was assumed to be earned on the net proceeds in the pro forma results of operations presentation.