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8-K/A - FORM 8-K AMENDMENT - RigNet, Inc.d410609d8ka.htm
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EX-99.1 - EX-99.1 - RigNet, Inc.d410609dex991.htm

Exhibit 99.2

RIGNET, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

On July 5, 2012 RigNet, Inc. (RigNet or the Company) completed the acquisition of Nessco Group Holdings Ltd. (Nessco) for a purchase price of $46.5 million, (the Nessco Acquisition). The following unaudited pro forma condensed combined balance sheet as of June 30, 2012 and the unaudited pro forma condensed combined statements of income for the six months ended June 30, 2012 and for the year ended December 31, 2011 are based on the historical financial statements of RigNet and Nessco using the acquisition method of accounting.

The unaudited condensed combined pro forma balance sheet as of June 30, 2012 gives effect to the Nessco Acquisition as if it had occurred on June 30, 2012, and includes all adjustments that give effect to events that are directly attributable to the Nessco Acquisition and are factually supportable. The unaudited pro forma condensed combined statements of income for the year ended December 31, 2011 and the six months ended June 30, 2012 give effect to the Nessco Acquisition as if it had occurred on January 1, 2011, and include all adjustments that give effect to events that are directly attributable to the Nessco Acquisition, are expected to have a continuing impact, and are factually supportable.

The unaudited pro forma condensed combined financial statements reflect managements’s preliminary estimates of the fair values of tangible and intangible assets acquired and liabilities assumed. Upon completion of detailed valuation studies the Company may make additional adjustments, and these valuations could change significantly from those used in the pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements are presented for informational purposes only and are not intended to represent or to be indicative of the results of operations or financial position that RigNet would have reported had the Nessco Acquisition been completed as of the dates set forth in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements are not intended to project the future financial results of RigNet after the transaction. The assumptions used to prepare the unaudited pro forma condensed combined financial statements are contained in the notes to the unaudited pro forma condensed combined financial statements, and such assumptions should be reviewed in their entirety.

These unaudited pro forma condensed combined financial statements should be read in conjunction with RigNet’s historical consolidated financial statements and notes thereto contained in RigNet’s Annual Report on Form 10-K for the year ended December 31, 2011, RigNet’s Quarterly Report on Form 10-Q for the six months ended June 30, 2012, RigNet’s Current Report on Form 8-K filed with the United States Securities and Exchange Commission on July 5, 2012, Nessco’s historical financial statements and notes thereto for the periods ended March 31, 2012 and 2011 contained herein as Exhibit 99.1.

As RigNet has a fiscal year ending on December 31 and Nessco has a fiscal year ending on March 31, the unaudited pro forma condensed combined statements of income for the twelve months ended combines the historical results of RigNet for the fiscal year ended December 31, 2011 with the historical results of Nessco for the twelve months ended March 31, 2012. The unaudited pro forma condensed combined statements of income for the six months ended June 30, 2012, combines the historical results of RigNet and Nessco for the six months ended June 30, 2012.

 

1


RigNet, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

(In thousands of US Dollars)

 

     June 30, 2012                          
     RigNet     Nessco      Reclassifications     Pro Forma
Adjustments
         Pro
Forma
Combined
 

Assets

              

Current assets:

              

Cash and cash equivalents

     51,999        5,940         —          —             57,939   

Accounts receivable, net

     24,803        14,126         —          (2,336   D      36,593   

Contracts in progress

     —          —           7,717        —             7,717   

Prepaid expenses and other current assets

     4,890        9,839         (7,825     (48   D      6,856   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total current assets

     81,692        29,905         (108     (2,384        109,105   

Property and equipment, net

     35,974        6,426         210        1,108      D      43,718   

Restricted cash

     —          97         —          —             97   

Goodwill

     13,812        5,775         —          (5,775   E      31,582   
            17,770      D   

Intangibles

     5,253        —           —          17,326      D      22,579   

Deferred tax and other assets

     6,246        —           (2,106     478      D      4,618   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total assets

     142,977        42,203         (2,004     28,523           211,699   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Liabilities and Equity Current liabilities:

              

Accounts payable

     5,921        5,185         —          —             11,106   

Accrued expenses

     6,172        13,490         102        (64   D      19,700   

Short-term debt and current maturities of long-term debt

     8,746        5,713         —          (5,713   D      8,746   

Income taxes payable

     3,774        1,038         —          (14   D      4,798   

Deferred revenue

     1,517        251         —          (131   D      1,637   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total current liabilities

     26,130        25,677         102        (5,922        45,987   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Long-term debt

     10,409        12,963         —          (12,963   D      56,444   
            46,487      A,J   
            (452   L   

Deferred revenue

     363        —           —          —             363   

Deferred tax liability

     48        —           (2,106     4,460      D      2,402   

Other liabilities

     16,009        —           —          476      D      16,485   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total liabilities

     52,959        38,640         (2,004     32,086           121,681   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Equity:

              

Common stock

     16        2,284         —          (2,284   H      16   

Additional paid in capital

     118,327        308         —          (308   H      118,327   

Retained earnings (accumulated deficit)

     (27,657     971         —          (971   H      (27,657

Accumulated other comprehensive loss

     (831     —           —          —             (831
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total shareholders’ equity

     89,855        3,563         —          (3,563        89,855   

Non-redeemable, non-controlling interest

     163        —           —          —             163   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total equity

     90,018        3,563         —          (3,563        90,018   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

Total liabilities and equity

     142,977        42,203         (2,004     28,523           211,699   
  

 

 

   

 

 

    

 

 

   

 

 

      

 

 

 

 

2


RigNet Inc.

Unaudited Pro Forma Condensed Combined Statement of Income

(In thousands of US Dollars, except per share data)

 

     12 Months Ended                   
     December
31, 2011
    March
31, 2012
                  
     RigNet     Nessco     Pro Forma
Adjustments
         Pro Forma
Combined
 

Revenue

     109,355        52,915        —             162,270   

Expenses:

           

Cost of revenue (excluding depreciation and amortization)

     48,645        44,954        —             93,599   

Depreciation and amortization

     14,584        509        749      F      18,881   
         3,039      G   

Selling and marketing

     2,276        —          —             2,276   

General and administrative

     26,960        2,045        —             29,005   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total expenses

     92,465        47,508        3,788           143,761   
  

 

 

   

 

 

   

 

 

      

 

 

 

Operating income (loss)

     16,890        5,407        (3,788        18,509   

Interest expense

     (1,249     (1,950     (931   K      (4,220
         (90   L   

Other income, net

     613        5        —             618   
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) from continuing operations before income tax provision

     16,254        3,462        (4,809        14,907   

Income tax benefit (expense)

     (6,502     (973     909      I      (6,566
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) from continuing operations

     9,752        2,489        (3,900        8,341   

Loss from discontinued operations, net of tax

     —          (651     —             (651
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

     9,752        1,838        (3,900        7,690   
  

 

 

   

 

 

   

 

 

      

 

 

 

Income per share from continuing operations attributable to RigNet common stockholders:

           

Basic

   $ 0.62             $ 0.53   
  

 

 

          

 

 

 

Diluted

   $ 0.57             $ 0.48   
  

 

 

          

 

 

 

Weighted average shares outstanding, basic

     15,387               15,387   
  

 

 

          

 

 

 

Weighted average shares outstanding, diluted

     16,814               16,814   
  

 

 

          

 

 

 

 

3


RigNet Inc.

Unaudited Pro Forma Condensed Combined Statement of Income

(In thousands of US Dollars, except per share data)

 

     6 Months Ended
June 30, 2012
                  
     RigNet     Nessco     Pro Forma
Adjustments
         Pro
Forma
Combined
 

Revenue

     64,450        29,592        —             94,042   

Expenses:

           

Cost of revenue (excluding depreciation and amortization)

     29,343        24,597        —             53,940   

Depreciation and amortization

     7,734        214        395      F      9,863   
         1,520      G   

Selling and marketing

     1,387        —          —             1,387   

General and administrative

     16,405        1,365        (401   B      16,647   
         (722   C   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total expenses

     54,869        26,176        792           81,837   
  

 

 

   

 

 

   

 

 

      

 

 

 

Operating income (loss)

     9,581        3,416        (792        12,205   

Interest expense

     (316     (1,226     (465   K      (2,052
         (45   L   

Other income, net

     165        —          —             165   
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) from continuing operations before income tax provision

     9,430        2,190        (1,302        10,318   

Income tax benefit (expense)

     (4,075     (619     460      I      (4,234
  

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) from continuing operations

     5,355        1,571        (842        6,084   

Loss from discontinued operations, net of tax

     —          (469     —             (469
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

     5,355        1,102        (842        5,615   
  

 

 

   

 

 

   

 

 

      

 

 

 

Income per share from continuing operations attributable to RigNet common stockholders:

           

Basic

   $ 0.34             $ 0.39   
  

 

 

          

 

 

 

Diluted

   $ 0.31             $ 0.35   
  

 

 

          

 

 

 

Weighted average shares outstanding, basic

     15,515               15,515   
  

 

 

          

 

 

 

Weighted average shares outstanding, diluted

     16,939               16,939   
  

 

 

          

 

 

 

 

4


RIGNET, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

1. Description of the Transaction and Basis of Presentation

The unaudited pro forma condensed combined financial statements have been prepared based on RigNet, Inc. (RigNet or the Company) and Nessco Group Holdings Ltd. (Nessco) consolidated historical financial information, giving effect to the acquisition (Nessco Acquisition) and related adjustments described in these notes. The unaudited pro forma condensed combined balance sheet is presented as if the Nessco Acquisition had occurred on June 30, 2012. The unaudited pro forma condensed combined statements of income for the six months ended June 30, 2012, and the twelve months ended December 31, 2011 are presented as if the Nessco Acquisition had occurred on January 1, 2011.

Nessco prepared its annual consolidated financial statements in accordance with UK generally accepted accounting principles (GAAP). The historical Nessco Financial Statements have been adjusted to US GAAP.

Nessco historically reported its financial statements in British pound sterling (GBP), its local currency. In order to present the pro forma financial information in US dollars (USD), Nessco’s balance sheet has been translated using the spot rate at June 30, 2012, and each of Nessco’s statements of income has been translated using the average rate for the applicable period.

For purposes of preparing the unaudited pro forma condensed combined balance sheet, certain reclassifications have been made to the historical financial statements of Nessco to conform with RigNet’s presentation. Also, certain note disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed or omitted as permitted by the Securities and Exchange Commission rules and regulations.

RigNet accounts for business combinations in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 805, “Business Combinations.” The purchase price for the Nessco Acquisition has been allocated to the assets and liabilities acquired based on a preliminary estimate of their respective fair values and may change when the final valuation of certain tangible and intangible assets and acquired working capital is determined.

Pro Forma Footnotes

 

  A. Cash consideration paid for the Nessco Acquisition was $46.5 million, funded through borrowings under the Company’s Amended and Restated Credit Agreement.

 

  B. Reflects the payment of transaction costs related to the Nessco Acquisition of $0.4 million. The impact of transaction costs already incurred has not been reflected in the unaudited pro forma condensed combined statement of income since these costs are expected to be nonrecurring in nature.

 

  C. Reflects an accrual for estimated transaction costs related to the Nessco Acquisition of $0.7 million. The impact of estimated transaction costs has not been reflected in the unaudited pro forma condensed combined statement of operations since these costs are expected to be nonrecurring in nature.

 

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  D. Reflects the preliminary purchase price allocation and recognition of goodwill arising from the Nessco Acquisition as follows (in thousands):

 

Cash consideration paid to shareholders

   $ 26,676 *

Debt repayment

     19,811   
  

 

 

 

Total purchase price

   $ 46,487   

Liabilities assumed

   $ 24,341   

Less: Estimated fair value of assets acquired:

  

Current assets

     (27,413

Property and equipment

     (7,744

Trade name

     (4,353

Covenants not to compete

     (151

Backlog

     (1,116

Customer relationships

     (11,706

Other assets

     (575
  

 

 

 

Goodwill

   $ 17,770   
  

 

 

 

 

* Includes $0.1 million of contingent consideration paid in July and August 2012.

 

  E. Reflects the elimination of Nessco’s historical goodwill.

 

  F. Reflects fair value adjustments for property and equipment and related pro forma depreciation expense adjustments, as follows (in thousands):

 

                                Pro forma
depreciation expense
 
     Historical
amounts
     Fair
Value
     Fair value
adjustment
    Useful
lives (yrs)
     For the twelve
months ended
December 31, 2011
     For the six
months ended
June 30, 2012
 

Property:

                

Land

   $ 2,178       $ 1,405       $ (773     N/A         N/A         N/A   

Buildings and improvements

     3,622         4,395         773        10.0         439         220   
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

 

Subtotal - property

   $ 5,800       $ 5,800       $ —           $ 439       $ 220   
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

 

Equipment:

                

Computer hardware

   $ 43       $ 43       $ —          1.7       $ 25       $ 13   

Furniture and fixtures

     24         67         43        1.2         56         11   

Teleport

     139         595         456        1.8         331         165   

Motor vehicles

     —           7         7        0.5         7         —     

Rental assets

     273         852         579        2.3         380         190   

Tools and equipment

     147         170         23        8.5         20         10   
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

 

Subtotal - equipment

   $ 626       $ 1,734       $ 1,108         $ 819       $ 389   
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

 

Total property and equipment

   $ 6,426       $ 7,534       $ 1,108           1,258         609   
  

 

 

    

 

 

    

 

 

         

Historical depreciation expense

                509         214   
             

 

 

    

 

 

 

Pro forma increase to depreciation expense

              $ 749       $ 395   
             

 

 

    

 

 

 

 

6


  G. Reflects fair value adjustments for identifiable intangible assets and related amortization expense adjustments, as follows (in thousands):

 

                   Pro forma amortization expense  
     Fair
Value
     Amortization
period (yrs)
     For the twelve
months ended
December 31, 2011
     For the six
months ended
June 30, 2012
 

Identified Intangible Assets:

           

Trade name

   $ 4,353         7.0       $ 622       $ 311   

Covenants not to compete

     151         1.7         89         44   

Backlog

     1,116         1.7         656         328   

Customer relationships

     11,707         7.0         1,672         837   
  

 

 

       

 

 

    

 

 

 

Total identified intangible assets

   $ 17,326            3,039         1,520   
  

 

 

          

Historical amortization expense

           —           —     
        

 

 

    

 

 

 

Increase to pro forma amortization expense

         $ 3,039       $ 1,520   
        

 

 

    

 

 

 

 

  H. Reflects the elimination of Nessco’s historical shareholders’ equity balances.

 

  I. Reflects the tax impact of the Acquisition based on the statutory rates in effect during the six months ended June 30, 2012 and the year ended December 31, 2011.

 

  J. To reflect the issuance of new debt to finance the purchase price. Of the total $47.2 million term loan that was drawn on July 5, 2012, $46.5 million was used to fund the Nessco Acquisition, including the repayment of Nessco debt. The remaining $0.7 million was used to add to the Company’s liquidity; this amount has not been reflected in the unaudited pro forma condensed combined balance sheet as this portion of the debt is unrelated to the acquisition.

 

  K. To reflect the increase in interest expense resulting from the issuance of debt to finance the purchase price, as well as the amortization of related deferred financing costs. The interest rate on new debt to finance the cash consideration paid to Nessco shareholders of $26.7 million is assumed to be 3.49%, which is the current interest rate.

 

  L. Reflects the capitalization of $0.5 million of deferred financing costs incurred in connection with the term loan used to fund the Nessco Acquisition. Costs include bank fees, financial advisory, legal, and other professional fees. These costs are deferred and recognized over the term of the debt agreement using the straight-line method.

 

7