PROGRESS SOFTWARE CORP /MA - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - December 13, 2012

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8-K - FORM 8-K - PROGRESS SOFTWARE CORP /MAdivestiture8-k.htm


Exhibit 99.1


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

On December 7, 2012, Progress Software Corporation (the "Company") completed the sale of its Actional, DataXtend, Savvion and Sonic product lines to Aurea Software, Inc., (“Aurea”), a new company formed by ESW Capital, the investment arm of Trilogy Enterprises. The sale of the Actional, DataXtend, Savvion and Sonic product lines was completed pursuant to the terms of a Master Asset Purchase Agreement, dated October 17, 2012. As contemplated by the Master Asset Purchase Agreement, the Company assigned various assets exclusively used by the Company in these product lines, including fixed assets, intellectual property and customer and vendor agreements, to Aurea, and Aurea assumed related liabilities.

Simultaneously with the completion of the sale of the Actional, DataXtend, Savvion and Sonic product lines, the Company also completed the sale of its ObjectStore product line to Metatomix, Inc. (“Metatomix”), a separate subsidiary of ESW Capital and an affiliate of Aurea. The sale of the ObjectStore product line was completed pursuant to the terms of a Master Asset Purchase Agreement, dated November 30, 2012. As contemplated by the ObjectStore Master Asset Purchase Agreement, the Company assigned various assets exclusively used by the Company in the ObjectStore product line, including fixed assets, intellectual property and customer and vendor agreements, to Metatomix, and Metatomix assumed related liabilities.

The aggregate purchase price paid to the Company for the Actional, DataXtend, Savvion, Sonic and ObjectStore product lines was $60.5 million, all of which was paid on the closing date.

Prior to the sale of the product lines discussed above, the Company entered into agreements with Red Hat, Inc. and Rocket Software, Inc. for the sales of its FuseSource and Shadow product lines, respectively. The transactions closed in September 2012 and October 2012, respectively, for total proceeds of $53.2 million, less $5.4 million which is held in escrow to secure indemnification claims, if any, for up to 15 months.

The Company's Quarterly Report on Form 10-Q for the period ended August 31, 2012, reflects the assets and liabilities of the FuseSource product line as held for sale in the unaudited condensed consolidated balance sheet as of August 31, 2012, and reflects the results of operations for the nine months ended August 31, 2012 and 2011, as discontinued operations. The assets and liabilities and results of operations of the Actional, DataXtend, ObjectStore, Savvion, Shadow and Sonic product lines have not previously been reflected as held for sale or as discontinued operations. The historical results of all divested product lines will be reclassified and presented as discontinued operations in future financial statement filings.

The unaudited pro forma condensed consolidated financial information presented in the balance sheet and income statements below, show how the Company may have appeared if the sales described above occurred on August 31, 2012 (in the case of the condensed consolidated balance sheet) or on December 1, 2008 (in the case of the condensed consolidated statements of income). The unaudited financial information presented should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended November 30, 2011, and the Quarterly Report on Form 10-Q for the quarter ended August 31, 2012.

The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and does not
purport to represent what the results of operations or financial position of the Company would actually have been had the transactions described above occurred on the dates noted above, or to project the results of operations or financial position of the Company for any future period. The pro forma adjustments are based on available information and certain assumptions that management believes are reasonable. The pro forma adjustments are directly attributable to the transaction and are expected to have a continuing impact on the results of operations of the Company. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma financial information have been made.





Unaudited Condensed Consolidated Balance Sheet
As of August 31, 2012

(In thousands, except share data)
Historical (1)
 
Pro Forma Adjustments (2)
 
Pro Forma Adjustments (3)
 
Pro Forma
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
294,398

 
$
48,870

(a) (c)
$
60,500

(a)
$
403,768

Short-term investments
57,809

 
—

 
—

 
57,809

Total cash, cash equivalents and short-term investments
352,207

 
48,870

 
60,500

 
461,577

Accounts receivable, net
75,849

 
(2,196
)
(b)
(13,915
)
(b)
59,738

Other current assets
26,863

 
—

 
(667
)
(b)
26,196

Deferred tax assets
10,105

 
—

 
—

 
10,105

Assets held for sale
6,731

 
(6,731
)
(b)
—

 
—

Total current assets
471,755

 
39,943

 
45,918

 
557,616

Property and equipment, net
64,479

 
—

 
(287
)
(b)
64,192

Intangible assets, net
47,676

 
(2,631
)
(b)
(17,540
)
(b)
27,505

Goodwill
252,735

 
(8,123
)
(b)
(14,939
)
(b)
229,673

Deferred tax assets
32,808

 
965

(g)
4,679

(g)
38,452

Investments in auction rate securities
31,285

 
—

 
—

 
31,285

Other assets
5,588

 
5,430

(f)
—

 
11,018

Total assets
$
906,326

 
$
35,584

 
$
17,831

 
$
959,741

Liabilities and shareholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
4,827

 
1,164

(d)
1,076

(d)
7,067

Accrued compensation and related taxes
35,967

 
—

 
—

 
35,967

Income taxes payable
4,171

 
—

 
—

 
4,171

Other accrued liabilities
37,630

 
—

 
—

 
37,630

Short-term deferred revenue
129,606

 
(6,099
)
(b) (c)
(18,887
)
(b)
104,620

Liabilities held for sale
5,265

 
(5,265
)
(b)
—

 
—

Total current liabilities
217,466

 
(10,200
)
 
(17,811
)
 
189,455

Long-term deferred revenue
5,343

 
—

 
—

 
5,343

Deferred tax liabilities
1,499

 
—

 
—

 
1,499

Other noncurrent liabilities
2,574

 
—

 
—

 
2,574

Commitments and contingencies
 
 
 
 
 
 
 
Shareholders’ equity:
 
 
 
 
 
 
 
Preferred stock, $0.01 par value; authorized, 1,000,000 shares; issued, none
—

 
—

 
—

 
—

Common stock, $0.01 par value, and additional paid-in capital; authorized, 200,000,000 shares; issued and outstanding, 63,595,485 shares
352,773

 
—

 
—

 
352,773

Retained earnings, including accumulated other comprehensive loss of $12,292
326,671

 
45,784

(e) (g)
35,642

(e) (g)
408,097

Total shareholders’ equity
679,444

 
45,784

 
35,642

 
760,870

Total liabilities and shareholders’ equity
$
906,326

 
$
35,584

 
$
17,831

 
$
959,741


(1) Historical results represent balances as reported on the Company's unaudited condensed consolidated balance sheet included in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012.





(2) Pro forma adjustments relate to the divestitures of the FuseSource and Shadow product lines, which were sold in September 2012 and October 2012, respectively. The FuseSource product line assets and liabilities were presented as assets and liabilities held for sale in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012.

(3) Pro forma adjustments relate to the divestiture of the Actional, DataXtend, ObjectStore, Savvion and Sonic product lines, which were sold to two separate subsidiaries of ESW Capital, the investment arm of Trilogy Enterprises, in December 2012.







Unaudited Condensed Consolidated Statement of Income
Nine Months Ended August 31, 2012

(In thousands, except per share data)
Historical (1)
 
Pro Forma Adjustments (2)
 
Pro Forma Adjustments (3)
 
Pro Forma
Revenue:
 
 
 
 
 
 
 
Software licenses
102,148

 
(1,718
)
(a)
(17,919
)
(a)
82,511

Maintenance and services
235,010

 
(8,935
)
(a)
(45,090
)
(a)
180,985

Total revenue
337,158

 
(10,653
)
 
(63,009
)
 
263,496

Costs of revenue:
 
 
 
 
 
 
 
Cost of software licenses
6,488

 
(223
)
(a)
(2,472
)
(a)
3,793

Cost of maintenance and services
49,267

 
(648
)
(a)
(20,757
)
(a)
27,862

Amortization of acquired intangibles
11,013

 
(1,431
)
(a)
(2,247
)
(a)
7,335

Total costs of revenue
66,768

 
(2,302
)
 
(25,476
)
 
38,990

Gross profit
270,390

 
(8,351
)
 
(37,533
)
 
224,506

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
118,058

 
(1,314
)
(a)
(31,253
)
(a)
85,491

Product development
63,591

 
(1,499
)
(a)
(21,202
)
(a)
40,890

General and administrative
47,949

 
(19
)
(a)
(62
)
(a)
47,868

Amortization of acquired intangibles
5,270

 
(498
)
(a)
(2,512
)
(a)
2,260

Restructuring expenses
11,175

 
(527
)
(a)
(3,541
)
(a)
7,107

Acquisition-related expenses
215

 
—

 
—

 
215

Total operating expenses
246,258

 
(3,857
)
 
(58,570
)
 
183,831

Income from operations
24,132

 
(4,494
)
 
21,037

 
40,675

Other income
882

 
—

 
—

 
882

Income from continuing operations before income taxes
25,014

 
(4,494
)
 
21,037

 
41,557

Provision for income taxes
10,157

 
(1,573
)
(b)
7,363

(b)
15,947

Income from continuing operations
14,857

 
(2,921
)
 
13,674

 
25,610

Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.24

 
 
 
 
 
$
0.41

Diluted
$
0.23

 
 
 
 
 
$
0.40

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
62,888

 
 
 
 
 
62,888

Diluted
63,795

 
 
 
 
 
63,795


(1) Historical results represent balances as reported in the Company's unaudited condensed consolidated statement of income included in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012.

(2) Pro forma adjustments relate to the divestiture of the Shadow product line, which was sold in October 2012. The FuseSource product line, which was sold in September 2012, was reflected as discontinued operations in the condensed consolidated statement of income as of August 31, 2012, in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012.

(3) Pro forma adjustments relate to the divestiture of the Actional, DataXtend, ObjectStore, Savvion and Sonic product lines, which were sold to two separate subsidiaries of ESW Capital, the investment arm of Trilogy Enterprises, in December 2012.






Unaudited Condensed Consolidated Statement of Income
Nine Months Ended August 31, 2011

(In thousands, except per share data)
Historical (1)
 
Pro Forma Adjustments (2)
 
Pro Forma Adjustments (3)
 
Pro Forma
Revenue:
 
 
 
 
 
 
 
Software licenses
135,466

 
(3,547
)
(a)
(31,799
)
(a)
100,120

Maintenance and services
250,905

 
(9,260
)
(a)
(48,889
)
(a)
192,756

Total revenue
386,371

 
(12,807
)
 
(80,688
)
 
292,876

Costs of revenue:
 
 
 
 
 
 
 
Cost of software licenses
7,023

 
(301
)
(a)
(3,072
)
(a)
3,650

Cost of maintenance and services
52,648

 
(794
)
(a)
(22,781
)
(a)
29,073

Amortization of acquired intangibles
11,871

 
(1,431
)
(a)
(1,983
)
(a)
8,457

Total costs of revenue
71,542

 
(2,526
)
 
(27,836
)
 
41,180

Gross profit
314,829

 
(10,281
)
 
(52,852
)
 
251,696

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
130,030

 
(3,223
)
(a)
(47,343
)
(a)
79,464

Product development
57,491

 
(3,219
)
(a)
(18,857
)
(a)
35,415

General and administrative
45,937

 
(20
)
(a)
(96
)
(a)
45,821

Amortization of acquired intangibles
6,108

 
(498
)
(a)
(2,887
)
(a)
2,723

Restructuring expenses
4,627

 
(40
)
(a)
(355
)
(a)
4,232

Total operating expenses
244,193

 
(7,000
)
 
(69,538
)
 
167,655

Income from operations
70,636

 
(3,281
)
 
16,686

 
84,041

Other expense
(603
)
 
—

 
—

 
(603
)
Income from continuing operations before income taxes
70,033

 
(3,281
)
 
16,686

 
83,438

Provision for income taxes
21,536

 
(1,148
)
(b)
5,840

(b)
26,228

Income from continuing operations
48,497

 
(2,133
)
 
10,846

 
57,210

Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.73

 
 
 
 
 
$
0.86

Diluted
$
0.71

 
 
 
 
 
$
0.83

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
66,581

 
 
 
 
 
66,581

Diluted
68,728

 
 
 
 
 
68,728


(1) Historical results represent balances as reported in the Company's unaudited condensed consolidated statement of income included in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012.

(2) Pro forma adjustments relate to the divestiture of the Shadow product line, which was sold in October 2012. The FuseSource product line, which was sold in September 2012, was reflected as discontinued operations in the unaudited condensed consolidated statement of income as of August 31, 2011, in the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012.

(3) Pro forma adjustments relate to the divestiture of the Actional, DataXtend, ObjectStore, Savvion and Sonic product lines, which were sold to two separate subsidiaries of ESW Capital, the investment arm of Trilogy Enterprises, in December 2012.








Unaudited Condensed Consolidated Statement of Income
Year Ended November 30, 2011

(In thousands, except per share data)
Historical (1)
 
Pro Forma Adjustments (2)
 
Pro Forma Adjustments (3)
 
Pro Forma
Revenue:
 
 
 
 
 
 
 
Software licenses
$
184,173

 
$
(4,080
)
(a)
$
(43,246
)
(a)
$
136,847

Maintenance and services
349,422

 
(27,006
)
(a)
(64,669
)
(a)
257,747

Total revenue
533,595

 
(31,086
)
 
(107,915
)
 
394,594

Costs of revenue:
 
 
 
 
 
 
 
Cost of software licenses
8,962

 
(372
)
(a)
(3,962
)
(a)
4,628

Cost of maintenance and services
78,605

 
(8,747
)
(a)
(31,168
)
(a)
38,690

Amortization of acquired intangibles
15,728

 
(1,908
)
(a)
(2,732
)
(a)
11,088

Total costs of revenue
103,295

 
(11,027
)
 
(37,862
)
 
54,406

Gross profit
430,300

 
(20,059
)
 
(70,053
)
 
340,188

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
186,077

 
(9,881
)
(a)
(68,690
)
(a)
107,506

Product development
80,719

 
(8,266
)
(a)
(25,545
)
(a)
46,908

General and administrative
62,100

 
(26
)
(a)
(122
)
(a)
61,952

Amortization of acquired intangibles
8,018

 
(777
)
(a)
(3,831
)
(a)
3,410

Restructuring expenses
4,627

 
(37
)
(a)
(308
)
(a)
4,282

Acquisition-related expenses
536

 
—

 
—

 
536

Total operating expenses
342,077

 
(18,987
)
 
(98,496
)
 
224,594

Income from operations
88,223

 
(1,072
)
 
28,443

 
115,594

Other expense
(519
)
 
—

 
—

 
(519
)
Income from continuing operations before income taxes
87,704

 
(1,072
)
 
28,443

 
115,075

Provision for income taxes
28,075

 
(375
)
(b)
9,955

(b)
37,655

Income from continuing operations
59,629

 
(697
)
 
18,488

 
77,420

Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.91

 
 
 
 
 
$
1.18

Diluted
$
0.88

 
 
 
 
 
$
1.15

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
65,705

 
 
 
 
 
65,705

Diluted
67,540

 
 
 
 
 
67,540


(1) Historical results represent balances as reported in the Company's consolidated statement of income included in the Company's Annual Report on Form 10-K for the year ended November 30, 2011. The historical consolidated statement of income has been revised to reflect the impact of the immaterial correction of period period amounts. Refer to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012, for more information.

(2) Pro forma adjustments relate to the divestitures of the FuseSource and Shadow product lines, which were sold in September 2012 and October 2012, respectively.

(3) Pro forma adjustments relate to the divestiture of the Actional, DataXtend, ObjectStore, Savvion and Sonic product lines, which were sold to two separate subsidiaries of ESW Capital, the investment arm of Trilogy Enterprises, in December 2012.








Unaudited Condensed Consolidated Statement of Income
Year Ended November 30, 2010

(In thousands, except per share data)
Historical (1)
 
Pro Forma Adjustments (2)
 
Pro Forma Adjustments (3)
 
Pro Forma
Revenue:
 
 
 
 
 
 
 
Software licenses
$
192,568

 
$
(2,941
)
(a)
$
(46,969
)
(a)
$
142,658

Maintenance and services
336,552

 
(25,111
)
(a)
(64,208
)
(a)
247,233

Total revenue
529,120

 
(28,052
)
 
(111,177
)
 
389,891

Costs of revenue:
 
 
 
 
 
 
 
Cost of software licenses
7,923

 
(120
)
(a)
(1,891
)
(a)
5,912

Cost of maintenance and services
71,290

 
(9,358
)
(a)
(31,325
)
(a)
30,607

Amortization of acquired intangibles
20,109

 
(1,907
)
(a)
(3,934
)
(a)
14,268

Total costs of revenue
99,322

 
(11,385
)
 
(37,150
)
 
50,787

Gross profit
429,798

 
(16,667
)
 
(74,027
)
 
339,104

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
168,788

 
(11,141
)
(a)
(59,339
)
(a)
98,308

Product development
90,643

 
(8,029
)
(a)
(29,555
)
(a)
53,059

General and administrative
51,805

 
(26
)
(a)
(123
)
(a)
51,656

Amortization of acquired intangibles
10,449

 
(848
)
(a)
(3,883
)
(a)
5,718

Restructuring expenses
39,975

 
(1,049
)
(a)
(10,758
)
(a)
28,168

Acquisition-related expenses
468

 
—

 
(468
)
 
—

Total operating expenses
362,128

 
(21,093
)
 
(104,126
)
 
236,909

Income from operations
67,670

 
4,426

 
30,099

 
102,195

Other income
3,758

 
—

 
—

 
3,758

Income from continuing operations before income taxes
71,428

 
4,426

 
30,099

 
105,953

Provision for income taxes
23,330

 
1,549

(b)
10,535

(b)
35,414

Income from continuing operations
48,098

 
2,877

 
19,564

 
70,539

Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.75

 
 
 
 
 
$
1.10

Diluted
$
0.73

 
 
 
 
 
$
1.07

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
63,957

 
 
 
 
 
63,957

Diluted
66,212

 
 
 
 
 
66,212


(1) Historical results represent balances as reported in the Company's consolidated statement of income included in the Company's Annual Report on Form 10-K for the year ended November 30, 2011. The historical consolidated statement of income has been revised to reflect the impact of the immaterial correction of period period amounts. Refer to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012, for more information.

(2) Pro forma adjustments relate to the divestitures of the FuseSource and Shadow product lines, which were sold in September 2012 and October 2012, respectively.

(3) Pro forma adjustments relate to the divestiture of the Actional, DataXtend, ObjectStore, Savvion and Sonic product lines, which were sold to two separate subsidiaries of ESW Capital, the investment arm of Trilogy Enterprises, in December 2012.








Unaudited Condensed Consolidated Statement of Income
Year Ended November 30, 2009

(In thousands, except per share data)
Historical (1)
 
Pro Forma Adjustments (2)
 
Pro Forma Adjustments (3)
 
Pro Forma
Revenue:
 
 
 
 
 
 
 
Software licenses
$
175,566

 
$
(6,892
)
(a)
$
(34,042
)
(a)
$
134,632

Maintenance and services
318,571

 
(16,788
)
(a)
(42,726
)
(a)
259,057

Total revenue
494,137

 
(23,680
)
 
(76,768
)
 
393,689

Costs of revenue:
 
 
 
 
 
 
 
Cost of software licenses
7,776

 
(279
)
(a)
(1,373
)
(a)
6,124

Cost of maintenance and services
65,967

 
(4,512
)
(a)
(16,141
)
(a)
45,314

Amortization of acquired intangibles
19,459

 
(1,907
)
(a)
(3,080
)
(a)
14,472

Total costs of revenue
93,202

 
(6,698
)
 
(20,594
)
 
65,910

Gross profit
400,935

 
(16,982
)
 
(56,174
)
 
327,779

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
182,227

 
(14,521
)
(a)
(38,226
)
(a)
129,480

Product development
93,262

 
(13,152
)
(a)
(24,372
)
(a)
55,738

General and administrative
59,612

 
—

(a)
—

(a)
59,612

Amortization of acquired intangibles
9,047

 
(859
)
(a)
(590
)
(a)
7,598

Restructuring expenses
5,215

 
(177
)
(a)
(1,406
)
(a)
3,632

Acquisition-related expenses
440

 
—

 
—

 
440

Total operating expenses
349,803

 
(28,709
)
 
(64,594
)
 
256,500

Income from operations
51,132

 
11,727

 
8,420

 
71,279

Other income
48

 
—

 
—

 
48

Income from continuing operations before income taxes
51,180

 
11,727

 
8,420

 
71,327

Provision for income taxes
17,900

 
4,104

(b)
2,947

(b)
24,951

Income from continuing operations
33,280

 
7,623

 
5,473

 
46,376

Earnings per share from continuing operations:
 
 
 
 
 
 
 
Basic
$
0.55

 
 
 
 
 
$
0.77

Diluted
$
0.54

 
 
 
 
 
$
0.75

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
60,155

 
 
 
 
 
60,155

Diluted
61,562

 
 
 
 
 
61,562


(1) Historical results represent balances as reported in the Company's consolidated statement of income included in the Company's Annual Report on Form 10-K for the year ended November 30, 2011. The historical consolidated statement of income has been revised to reflect the impact of the immaterial correction of prior period amounts. Refer to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 2012, for more information.

(2) Pro forma adjustments relate to the divestitures of the FuseSource and Shadow product lines, which were sold in September 2012 and October 2012, respectively.

(3) Pro forma adjustments relate to the divestiture of the Actional, DataXtend, ObjectStore, Savvion and Sonic product lines, which were sold to two separate subsidiaries of ESW Capital, the investment arm of Trilogy Enterprises, in December 2012.







Notes to Unaudited Pro Forma Condensed Consolidated Financial Information

Pro Forma Adjustments to the Condensed Consolidated Balance Sheet as of August 31, 2012

(a) To record cash proceeds received from dispositions.

(b) To eliminate assets and liabilities sold in dispositions.

(c) To record proceeds received and associated deferred revenue for an arrangement entered into with a purchaser, as part of the disposition.

(d) To accrue estimated direct transaction costs associated with the dispositions.

(e) To record the gains on sales of the dispositions.

(f) To record amounts held in escrow, and expected to be received, as part of indemnification clauses under the disposition arrangements.

(g) To eliminate the deferred taxes associated with the dispositions.

Pro Forma Adjustments to the Condensed Consolidated Statements of Income for the Nine Months Ended August 31, 2012 and 2011 and for the Years Ended November 30, 2011, 2010 and 2009

(a) To eliminate the revenues and direct expenses of the divested product lines.

(b) To adjust the provision for income taxes for the effects of the pro forma adjustments, at statutory rates.



PROGRESS SOFTWARE CORP /MA Reports