API Technologies Corp. - FORM 8-K - EX-99.2

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8-K - 8-K - API Technologies Corp.	d525719d8k.htm
EX-2.1 - EX-2.1 - API Technologies Corp.	d525719dex21.htm
EX-99.1 - EX-99.1 - API Technologies Corp.	d525719dex991.htm

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information is derived from the historical consolidated financial statements of API Technologies Corp. (“API”) and give effect to (i) the sale (the “Sale”) of all of the issued and outstanding shares of capital stock or other equity interests of Spectrum Sensors and Controls, Inc., a Pennsylvania corporation (“Sub 1”), Spectrum Sensors and Controls, LLC, a California limited liability company (“Sub 2”), and Spectrum Sensors and Controls, Inc., an Ohio corporation (“Sub 3” and together with Sub 1 and Sub 2, the “Companies”), ii) the repayment of certain of API’s indebtedness with the net proceeds from the Sale and (iii) the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed consolidated financial information. The following unaudited pro forma condensed consolidated financial information reflects API’s continued ownership of its businesses other than the Companies.

Pro forma financial information is intended to provide investors with information about the continuing impact of a transaction by showing how a specific transaction might have affected historical financial statements, illustrating the scope of the change in the historical financial position and results of operations. The adjustments made to historical information give effect to events that are (i) directly attributable to the Sale, (ii) factually supportable and (iii) expected to have a continuing impact. Pro forma adjustments are based on preliminary estimates and assumptions.

The unaudited pro forma condensed consolidated financial information consists of:

•

the unaudited pro forma condensed consolidated balance sheet of API as of February 28, 2013;

•

the unaudited pro forma condensed consolidated statement of operations and comprehensive income (loss) for the three months ended February 28, 2013;

•

the unaudited pro forma condensed consolidated statement of operations and comprehensive income (loss) for the year ended November 30, 2012; and

•

the unaudited pro forma condensed consolidated statement of operations and comprehensive income (loss) for the six months ended November 30, 2011.

The consolidated statement of operations and comprehensive income (loss) for the fiscal years ended May 31, 2011 and May 31, 2010 as presented in API’s Annual Report on Form 10-K for the year ended November 30, 2012 filed on February 12, 2013 (the
“Form 10-K”) did not include the results of the Companies, as they had not yet been acquired by API. Accordingly, no pro forma financial information is presented for such periods.

The unaudited pro forma condensed consolidated financial information should be read in conjunction with the historical audited consolidated financial statements and notes thereto included in the Form 10-K and API’s Quarterly Report on Form 10-Q for the three months ended February 28, 2013 filed on April 9, 2013, which are incorporated herein by reference.

The unaudited pro forma condensed consolidated financial information is prepared in accordance with Article 11 of Regulation S-X and in a manner consistent with API’s accounting policies. The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of the filing of the Current Report on Form 8-K to which such financial information is attached.

The unaudited pro forma condensed consolidated financial information does not purport to represent, and is not necessarily indicative of what API’s financial position and results of operations actually would have been had the Sale occurred on by the dates indicated. In addition, the unaudited pro forma consolidated financial information should not be considered to be fully indicative of API’s future financial performance. No effect has been given in the unaudited pro forma consolidated financial information for the costs or benefits of any activities that may result from any restructuring that may take place following the Sale. The unaudited pro forma consolidated financial information was prepared based on certain assumptions and estimates that API believes are reasonable, including the allocation of goodwill to the Companies and expenses used in calculating the accounting gain on the sale of the Companies.

API Technologies Corp.

Pro Forma Condensed Consolidated Balance Sheet

As at February 28, 2013

(Expressed in US Dollars)

(Unaudited) (Dollar Amounts in Thousands)

API Techologies
Corp.
Per 10-Q

Less:
Sensors Group

Pro-forma
Adjustments

API Technologies
Corp.
Pro Forma

ASSETS

Current

Cash and cash equivalents

10,064

—

10,064

Restricted cash

—

1,500

(a)

1,500

Accounts receivable, less allowance for doubtful accounts

49,202

(3,724

)

45,478

Inventories, less provision for obsolescence

71,012

(5,913

)

65,099

Deferred income taxes

1,039

—

1,039

Prepaid expenses and other current assets

2,737

(92

)

2,645

134,054

(9,729

)

1,500

125,825

Fixed assets, net

39,647

(1,317

)

38,330

Fixed assets held for sale

900

Goodwill

156,002

(22,786

)

133,216

Intangible Assets, net

47,646

(2,058

)

45,588

Others non-current assets

3,451

381,700

(35,890

)

1,500

347,310

Liabilities, Redeemable Preferred Stock and Shareholder’s Equity

Current

Accounts payable and accrued expenses

41,421

(1,871

)

39,550

Deferred revenue

492

190

(d)

682

Current portion of long-term debt

9,585

51,498

(1,871

)

190

49,817

Deferred income taxes

4,074

Other long-term liabilities

998

Long-term debt, net of current portion and discount

176,375

—

(47,719

) (a)

128,656

232,945

(1,871

)

(47,529

)

183,545

Commitments and contingencies

Redeemable Preferred Stock

25,234

Shareholders’ equity

—

Common shares

Special voting stock

—

Additional paid-in capital

327,363

Common stock subscribed but not issued

2,373

Accumulated deficit

(206,937

)

(34,019

)

49,029

(a) (d)

(191,927

)

Accumulated other comprehensive income

667

—

667

123,521

(34,019

)

49,029

138,531

381,700

(35,890

)

1,500

347,310

API Technologies Corp.

Pro Forma Condensed Consolidated Statement of Operations and Comprehensive income (loss)

Three Months Ended February 28, 2013

(Expressed in US Dollars)

(Unaudited) (Dollar Amounts in Thousands)

API Technologies
Corp.
Per 10-Q

Less:
Sensors Group
(a)

Pro-forma
Adjustments

API Technologies
Corp.
Pro Forma

Revenue, net

67,158

(6,146

)

851

(b)

61,863

Cost of revenues

52,031

(4,683

)

1,005

(b) (f)

48,353

Restructuring charges

103

(27

)

—

52,134

(4,710

)

1,005

48,429

Gross profit

15,024

(1,436

)

(154

)

13,434

Operating expenses

General and administrative

6,992

(264

)

140

(f)

6,868

Selling expenses

4,019

(302

)

—

3,717

Research and development

2,428

(124

)

—

2,304

Business acquisition related charges

468

)

468

Restructuring charges

242

—

242

14,149

(693

)

143

13,599

Operating income (loss)

875

(743

)

(297

)

(165

)

Other expenses (income), net

—

Interest expense, net

4,343

)

(1,076

) (c)

3,266

Amortization of note discounts and deferred financing costs

10,753

—

10,753

Other expenses (income), net

(798

)

(14,946

) (d)

(15,743

)

14,298

—

(16,022

)

(1,724

)

Income (loss) before income taxes

(13,423

)

(743

)

15,725

1,559

Expense (benefit) for income taxes

1,001

(11

)

381

(e)

1,371

Net income (loss)

(14,424

)

(732

)

15,344

188

Unrealized foreign currency translation adjustment

(1,418

)

(1,418

)

Comprehensive income (loss)

(15,842

)

(1,230

)

Net income (loss) per share - Basic and diluted

(0.26

)

0.00

Weighted average shares outstanding

Basic

55,369,100

Diluted

55,369,100

API Technologies Corp.

Pro Forma Condensed Consolidated Statement of Operations and Comprehensive income (loss)

Year Ended November 30, 2012

(Expressed in US Dollars)

(Unaudited) (Dollar Amounts in Thousands)

API Technologies
Corp.
Per 10-K

Less:
Sensors Group
(a)

Pro-forma
Adjustments

API Technologies
Corp.
Pro Forma

Revenue, net

280,820

(26,247

)

2,529

(b)

257,102

Cost of revenues

214,460

(18,961

)

2,825

(b) (f)

198,324

Restructuring charges

10,336

(288

)

—

10,048

224,796

(19,249

)

2,825

208,372

Gross profit

56,024

(6,998

)

(296

)

48,730

Operating expenses

General and administrative

26,825

(1,070

)

564

(f)

26,319

Selling expenses

15,753

(1,285

)

—

14,468

Research and development

10,297

(647

)

—

9,650

Business acquisition related charges

4,027

—

4,027

Restructuring charges

7,366

—

7,366

64,268

(3,002

)

564

61,830

Operating income (loss)

(8,244

)

(3,996

)

(860

)

(13,100

)

Other expenses (income), net

Goodwill impairment

111,300

Interest expenses, net

16,209

—

(4,233

) (c)

11,976

Amortization of note discounts and deferred financing costs

15,684

—

15,684

Other expenses (income), net

898

(14,946

) (d)

(14,045

)

144,091

(19,179

)

124,915

Income (loss) before income taxes

(152,335

)

(3,999

)

18,319

(138,015

)

Expense (benefit) for income taxes

(3,632

)

(51

)

414

(e)

(3,269

)

Net income (loss)

(148,703

)

(3,948

)

17,905

(134,746

)

Unrealized foreign currency translation adjustment

1,914

Comprehensive income (loss)

(146,789

)

(132,832

)

Net income (loss) per share - Basic and diluted

(2.69

)

(2.44

)

Weighted average shares outstanding

Basic

55,314,263

Diluted

55,314,263

API Technologies Corp.

Pro Forma Condensed Consolidated Statement of Operations and Comprehensive income (loss)

Six Months Ended November 30, 2011

(Expressed in US Dollars)

(Unaudited) (Dollar Amounts in Thousands)

API Techologies
Corp.
Per 10-K

Less:
Sensors Group
(a)

Pro-forma
Adjustments

API Technologies
Corp.
Pro Forma

Revenue, net

144,313

(14,182

)

1,378

(b)

131,509

Cost of revenues

109,734

(9,577

)

1,336

(b) (f)

101,493

Restructuring charges

205

—

205

109,939

(9,577

)

1,336

101,698

Gross profit

34,374

(4,605

)

29,811

Operating expenses

General and administrative

12,604

(471

)

277

(f)

12,410

Selling expenses

7,954

(735

)

—

7,219

Research and development

5,041

(302

)

—

4,739

Business acquisition related charges

638

—

638

Restructuring charges

2,125

—

2,125

28,362

(1,508

)

277

27,131

Operating income (loss)

6,012

(3,097

)

(235

)

2,680

Other expenses (income), net

Interest expenses, net

6,987

—

(2,122

) (c)

4,865

Amortization of note discounts and deferred financing costs

1,125

—

1,125

Other expenses (income), net

176

(14,946

) (d)

(14,768

)

8,288

(17,068

)

(8,778

)

Income (loss) before income taxes

(2,276

)

(3,099

)

16,833

11,458

Expense (benefit) for income taxes

(10,160

)

(1,132

)

9,783

(e)

(1,509

)

Net income (loss)

7,884

(1,967

)

7,050

12,967

Unrealized foreign currency translation adjustment

(115

)

(115

)

Comprehensive income (loss)

7,769

12,852

Net income (loss) per share - Basic and diluted

0.15

0.24

Weighted average shares outstanding

Basic

53,790,766

Diluted

53,802,763

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED

FINANCIAL INFORMATION

1.	REPORTING CURRENCY

The unaudited pro forma condensed consolidated financial statements are expressed in US dollars, to be consistent with the reporting currency.

2.	PRO FORMA ADJUSTMENTS AND ASSUMPTIONS

The unaudited pro forma condensed consolidated financial statements incorporate the following pro forma assumptions and adjustments: (i) the sale of the Companies, and (ii) the repayment of long-term debt using the net proceeds received from the sale of the Companies. The balance sheet adjustment reflects net reduction in long-term debt upon the sale of the Companies and the $1.5 million portion of the proceeds placed in escrow.

As part of the sale of the Companies, API entered into a transitional services agreement (“TSA”) with the Purchaser, whereby it will manufacture products for a period of up to 9 months and provide certain administrative services to the Purchaser over a period of up to 18 months. Pro forma adjustment has been made to reflect the revenue and costs expected as a result of the TSA.

Reflects pro forma adjustment of interest expense due to repayment of long-term debt using the net proceeds of approximately $47.7 million from the sale of the Companies after expenses of $2.2 million and cash placed in escrow of $1.5 million.

Reflects pro forma adjustment of other income due to the accounting gain on the sale of the Companies of approximately $14.9 million. A portion of this gain from the sale of the Companies has been deferred as a result of the pricing for the services used in the TSA, and that deferred gain will be recognized in revenue over the expected term of the TSA.

Tax adjustment due to reflecting the pro forma income (loss) before taxes of the consolidated companies after pro forma adjustments. For the period ending November 30, 2011, the pro forma tax expense is computed at the expected effective tax rate adjust for the impact of the sale of goodwill for which no tax basis exists. For the periods ending November 30, 2012 and February 28, 2013, only state income tax expense is reflected as the federal tax expense is reduced in each period by the release of valuation allowances relating to deferred tax assets.

Reflects pro forma adjustment of allocated overhead or administrative costs to the Companies that will remain with API following the sale.

3.	EARNINGS PER SHARE

API basic pro forma earnings (loss) per share was calculated based on the unaudited pro forma net income (loss) and the weighted average number of shares outstanding during the reporting periods. The net income (loss) and shares used in computing the net income (loss) per share for the three months ended February 28, 2013, the year ended November 30, 2012 and the six months ended November 30, 2011 are based on API’s historical weighted average common shares outstanding during the respective periods. The effect of any common stock issuable upon the exercise of API’s stock options or warrants have been excluded from the historical and pro forma computation of net loss per share for the year ended November 30, 2012 and the six months ended November 30, 2011 as the effect would be anti-dilutive.

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