Attached files
| file | filename |
|---|---|
| 8-K - CURRENT REPORT OF MATERIAL EVENTS OR CORPORATE CHANGES - Digital Generation, Inc. | a13-26718_18k.htm |
Exhibit 99.1
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements of Digital Generation, Inc. (“DG”) consist of the unaudited pro forma combined balance sheet as of September 30, 2013, and the unaudited pro forma combined statements of operations for the nine months ended September 30, 2013, and the years ended December 31, 2012, 2011, and 2010.
On August 12, 2013, DG entered into a merger agreement with Extreme Reach and a wholly-owned subsidiary of Extreme Reach whereby the parties agreed to an integrated transaction, the spin-off and merger transaction, summarized as follows:
(i) DG will contribute its online business, and substantially all of the working capital of DG’s television business, to a newly formed wholly-owned subsidiary, The New Online Company;
(ii) Under the terms of the merger agreement as further described in the proxy statement, Extreme Reach may request The New Online Company to purchase $45 million of nominal value of newly-created Series D Preferred Stock of Extreme Reach for $40 million in cash, which will be used to fund a portion of the aggregate merger consideration. In the event that Extreme Reach does not require The New Online Company to make this investment, Extreme Reach will be required to pay The New Online Company $5 million in cash at the closing of the merger;
(iii) DG will distribute the shares of The New Online Company to DG’s shareholders in partial redemption of their shares of DG common stock, and The New Online Company will become a publicly held company; and
(iv) Extreme Reach will acquire DG pursuant to a merger in which a wholly-owned subsidiary of Extreme Reach will merge with and into DG, following which DG will survive the merger as a wholly-owned subsidiary of Extreme Reach.
At the time of the merger, DG’s business will consist of the television business without any debt or working capital. Each issued and outstanding share of DG common stock will be cancelled and converted automatically into the right to receive a pro rata portion of the aggregate merger consideration of $485 million, less DG’s outstanding indebtedness, which will be repaid in full upon the consummation of the merger.
DG’s unaudited pro forma condensed combined financial statements give effect to the spin-off as if the spin-off had occurred on September 30, 2013 for purposes of the combined DG unaudited pro forma condensed combined balance sheet, and on January 1, 2010 for purposes of DG unaudited pro forma condensed combined statements of operations.
DG’s unaudited pro forma condensed combined balance sheet and statements of operations do not purport to represent what the financial position or results of operations actually would have been if the spin-off had occurred as of such dates, or what such results will be for any future periods.
DG’s unaudited pro forma condensed combined financial statements are derived from the historical financial statements of DG. The pro forma adjustments are based on preliminary estimates and assumptions that DG believes are reasonable under the circumstances.
DG’s unaudited pro forma financial information should be read in conjunction with the historical financial statements and the accompanying notes thereto. DG’s unaudited pro forma condensed combined financial statements do not reflect any cost savings, restructuring charges or other economic efficiencies which may result from the spin-off.
DIGITAL GENERATION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2013
(in thousands)
|
|
|
|
|
(Note 1) |
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(Note 2) |
|
|
| ||||
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|
|
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Remove |
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Remove |
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| ||||
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|
Assets and Liabilities of |
|
Historical DG |
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|
| ||||
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Historical DG |
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The New Online Company |
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Assets and Liabilities |
|
|
| ||||
|
|
|
September 30, |
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September 30, |
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Assigned to The New |
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Proforma |
| ||||
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2013 |
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2013 |
|
Online Co. |
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DG |
| ||||
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(unaudited) |
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(unaudited) |
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| ||||
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Assets |
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| ||||
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CURRENT ASSETS: |
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|
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|
|
| ||||
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Cash and cash equivalents |
|
$ |
60,223 |
|
$ |
(17,734 |
) |
$ |
(42,489 |
) |
— |
| |
|
Accounts receivable |
|
86,919 |
|
(41,101 |
) |
(45,818 |
) |
— |
| ||||
|
Deferred income taxes |
|
865 |
|
(843 |
) |
(22 |
) |
— |
| ||||
|
Restricted Cash |
|
1,692 |
|
(1,692 |
) |
|
|
— |
| ||||
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Other current assets |
|
14,523 |
|
(10,208 |
) |
(4,315 |
) |
— |
| ||||
|
Total current assets |
|
164,222 |
|
(71,578 |
) |
(92,644 |
) |
— |
| ||||
|
Property and equipment, net |
|
64,984 |
|
(23,058 |
) |
|
|
41,926 |
| ||||
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Goodwill |
|
368,556 |
|
(134,086 |
) |
|
|
234,470 |
| ||||
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Intangible assets, net |
|
157,287 |
|
(87,009 |
) |
|
|
70,278 |
| ||||
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Restricted Cash |
|
3,809 |
|
(3,415 |
) |
(394 |
) |
— |
| ||||
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Other non-current assets |
|
12,842 |
|
(1,741 |
) |
(512 |
) |
10,589 |
| ||||
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Total assets |
|
771,700 |
|
(320,887 |
) |
(93,550 |
) |
357,263 |
| ||||
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Liabilities and Stockholders’ Equity |
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CURRENT LIABILITIES: |
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|
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| ||||
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Current portion of long-term debt |
|
34,335 |
|
— |
|
|
|
34,335 |
| ||||
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Accounts payable |
|
5,480 |
|
(2,177 |
) |
(3,303 |
) |
— |
| ||||
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Accrued liabilities |
|
31,576 |
|
(16,309 |
) |
(15,267 |
) |
— |
| ||||
|
Deferred revenue |
|
1,828 |
|
|
|
(1,828 |
) |
— |
| ||||
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Total current liabilities |
|
73,219 |
|
(18,486 |
) |
(20,398 |
) |
34,335 |
| ||||
|
Long-term debt, net of current portion |
|
352,026 |
|
— |
|
|
|
352,026 |
| ||||
|
Deferred income taxes |
|
25,309 |
|
(12,731 |
) |
|
|
12,578 |
| ||||
|
Other non-current liabilities |
|
19,712 |
|
(6,837 |
) |
|
|
12,875 |
| ||||
|
Total liabilities |
|
470,266 |
|
(38,054 |
) |
(20,398 |
) |
411,814 |
| ||||
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STOCKHOLDERS’ EQUITY: |
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Common stock, $0.001 par value |
|
29 |
|
|
|
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|
29 |
| ||||
|
Treasury stock, at cost |
|
(35,548 |
) |
|
|
|
|
(35,548 |
) | ||||
|
Additional capital |
|
658,306 |
|
(283,192 |
) |
(73,152 |
) |
301,962 |
| ||||
|
Accumulated other comprehensive loss |
|
(2,810 |
) |
359 |
|
|
|
(2,451 |
) | ||||
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Accumulated deficit |
|
(318,543 |
) |
|
|
|
|
(318,543 |
) | ||||
|
Total stockholders’ equity |
|
301,434 |
|
(282,833 |
) |
(73,152 |
) |
(54,551 |
) | ||||
|
Total liabilities and stockholders’ equity |
|
$ |
771,700 |
|
$ |
(320,887 |
) |
$ |
(93,550 |
) |
$ |
357,263 |
|
Pro Forma Adjustments
(1) Represents all assets and liabilities of The New Online Company as of September 30, 2013, as shown in its Form 10, filed with the SEC on November 22, 2013.
(2) Represents cash and all working capital of DG’s historical television business that will be contributed to The New Online Company in accordance with the separation and distribution agreements.
DIGITAL GENERATION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SEPTEMBER 30, 2013
(in thousands)
|
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Pro Forma Adjustments |
|
|
| ||||||
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(Note 1) |
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(Note 2) |
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Remove costs |
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Remove |
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Incurred for Spin off |
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|
| ||||
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|
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Historical |
|
The New |
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and Sale of DG |
|
Proforma |
| ||||
|
|
|
DG |
|
Online Co |
|
To Extreme Reach |
|
DG |
| ||||
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Revenues: |
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|
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|
|
|
|
| ||||
|
Television |
|
$ |
164,859 |
|
$ |
— |
|
— |
|
$ |
164,859 |
| |
|
Online |
|
113,564 |
|
(113,564 |
) |
— |
|
— |
| ||||
|
Total revenues |
|
278,423 |
|
(113,564 |
) |
— |
|
164,859 |
| ||||
|
Cost of revenues (excluding depreciation and amortization): |
|
|
|
|
|
|
|
|
| ||||
|
Television |
|
61,737 |
|
|
|
|
|
61,737 |
| ||||
|
Online |
|
39,370 |
|
(39,370 |
) |
— |
|
— |
| ||||
|
Total cost of revenues |
|
101,107 |
|
(39,370 |
) |
— |
|
61,737 |
| ||||
|
Operating expenses: |
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|
|
|
|
|
|
|
| ||||
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Sales and marketing |
|
51,900 |
|
(41,688 |
) |
— |
|
10,212 |
| ||||
|
Research and development |
|
14,564 |
|
(7,501 |
) |
— |
|
7,063 |
| ||||
|
General and administrative |
|
32,710 |
|
(13,432 |
) |
— |
|
19,278 |
| ||||
|
Acquisition, integration and other |
|
7,364 |
|
(3,394 |
) |
(2,159 |
) |
1,811 |
| ||||
|
Depreciation and amortization |
|
42,361 |
|
(17,642 |
) |
— |
|
24,719 |
| ||||
|
Goodwill impairment |
|
— |
|
— |
|
|
|
— |
| ||||
|
Total operating expenses |
|
148,899 |
|
(83,657 |
) |
(2,159 |
) |
63,083 |
| ||||
|
Income (loss) from operations |
|
28,417 |
|
9,463 |
|
2,159 |
|
40,039 |
| ||||
|
Other expense: |
|
|
|
|
|
|
|
|
| ||||
|
Interest expense |
|
25,842 |
|
— |
|
— |
|
25,842 |
| ||||
|
Interest (income) and other expense, net |
|
441 |
|
26 |
|
— |
|
467 |
| ||||
|
Income (loss) before income taxes |
|
2,134 |
|
9,437 |
|
2,159 |
|
13,730 |
| ||||
|
Provision (benefit) for income taxes |
|
1,530 |
|
(1,542 |
) |
864 |
(3) |
852 |
| ||||
|
Net Income (loss) |
|
$ |
604 |
|
$ |
10,979 |
|
$ |
1,295 |
|
$ |
12,878 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Basic (loss) per common share |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
0.02 |
|
|
|
|
|
$ |
0.46 |
| ||
|
Diluted |
|
$ |
0.02 |
|
|
|
|
|
$ |
0.46 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
27,791 |
|
|
|
|
|
27,791 |
| ||||
|
Diluted |
|
28,302 |
|
|
|
|
|
28,302 |
| ||||
Pro Forma Adjustments
(1) the stand-alone results of operations of The New Online Company for the nine-months ended September 30, 2013, as shown in its Form 10, filed with the SEC on November 22, 2013. Since The New Online Company operated at a loss for the period, amounts shown here for Income from Operations and Net Income are presented as positive amounts to add back their losses generated during the period, which were originally included in DG’s consolidated historical results.
(2) Represents the portion of transaction costs remaining at DG after the appropriate allocation to The New Online Company during the nine months ended September 30, 2013. Transaction costs include investment banking and financial advisory services, severance costs, legal and accounting fees, and printing and proxy solicitation costs. In total, we expect that transaction costs will ultimately range from $20 to $25 million of which $3.6M was incurred prior to September 30, 2013. Of the $3.6 million incurred, approximately $1.5 million was allocated to The New Online Company.
(3) The income tax impact of these pro forma adjustments is calculated at a combined federal and state statutory rate of 40%.
DIGITAL GENERATION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 2012
(in thousands)
|
|
|
|
|
Pro Forma Adjustment |
|
|
| |||
|
|
|
|
|
Note (1) |
|
|
| |||
|
|
|
|
|
Remove |
|
|
| |||
|
|
|
Historical |
|
The New |
|
Proforma |
| |||
|
|
|
DG |
|
Online Co |
|
DG |
| |||
|
Revenues: |
|
|
|
|
|
|
| |||
|
Television |
|
$ |
245,961 |
|
|
|
$ |
245,961 |
| |
|
Online |
|
140,652 |
|
(140,652 |
) |
— |
| |||
|
Total revenues |
|
386,613 |
|
(140,652 |
) |
245,961 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Cost of revenues (excluding depreciation and amortization): |
|
|
|
|
|
|
| |||
|
Television |
|
86,543 |
|
|
|
86,543 |
| |||
|
Online |
|
50,735 |
|
(50,735 |
) |
— |
| |||
|
Total cost of revenues |
|
137,278 |
|
(50,735 |
) |
86,543 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Operating expenses: |
|
|
|
|
|
|
| |||
|
Sales and marketing |
|
64,246 |
|
(51,250 |
) |
12,996 |
| |||
|
Research and development |
|
23,612 |
|
(12,629 |
) |
10,983 |
| |||
|
General and administrative |
|
53,248 |
|
(21,118 |
) |
32,130 |
| |||
|
Acquisition and integration |
|
8,513 |
|
(5,952 |
) |
2,561 |
| |||
|
Depreciation and amortization |
|
57,300 |
|
(25,084 |
) |
32,216 |
| |||
|
Goodwill impairment |
|
219,593 |
|
(219,593 |
) |
— |
| |||
|
Total operating expenses |
|
426,512 |
|
(335,626 |
) |
90,886 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income (loss) from operations |
|
(177,177 |
) |
245,709 |
|
68,532 |
| |||
|
Other expense: |
|
|
|
|
|
|
| |||
|
Interest expense |
|
31,329 |
|
— |
|
31,329 |
| |||
|
Interest (income) and other expense, net |
|
2,800 |
|
(2,855 |
) |
(55 |
) | |||
|
Income (loss) before income taxes |
|
(211,306 |
) |
248,564 |
|
37,258 |
| |||
|
Provision for income taxes |
|
27,449 |
|
10,359 |
|
37,808 |
| |||
|
Net Loss |
|
$ |
(238,755 |
) |
$ |
238,205 |
|
$ |
(550 |
) |
|
|
|
|
|
|
|
|
| |||
|
Basic (loss) per common share |
|
|
|
|
|
|
| |||
|
Basic |
|
$ |
(8.69 |
) |
|
|
$ |
(0.02 |
) | |
|
Diluted |
|
$ |
(8.69 |
) |
|
|
$ |
(0.02 |
) | |
|
|
|
|
|
|
|
|
| |||
|
Weighted average common shares outstanding |
|
|
|
|
|
|
| |||
|
Basic |
|
27,477 |
|
|
|
27,477 |
| |||
|
Diluted |
|
27,477 |
|
|
|
27,477 |
| |||
Pro Forma Adjustment
(1) Represents the stand-alone results of operations of The New Online Company for the year ended December 31, 2012, as shown in its Form 10, filed with the SEC on November 22, 2013. Since The New Online Company operated at a loss for the period, amounts shown here for Income from Operations and Net Income are presented as positive amounts to add back their losses generated during the period, which were originally included in DG’s consolidated historical results.
DIGITAL GENERATION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 2011
(in thousands)
|
|
|
|
|
Pro Forma Adjustment |
|
|
| |||
|
|
|
|
|
Note (1) |
|
|
| |||
|
|
|
|
|
Remove |
|
|
| |||
|
|
|
Historical |
|
The New |
|
Proforma |
| |||
|
|
|
DG |
|
Online Co |
|
DG |
| |||
|
Revenues: |
|
|
|
|
|
|
| |||
|
Television |
|
$ |
246,780 |
|
$ |
— |
|
$ |
246,780 |
|
|
Online |
|
77,477 |
|
(77,486 |
) |
(9 |
) | |||
|
Total revenues |
|
324,257 |
|
(77,486 |
) |
246,771 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Cost of revenues (excluding depreciation and amortization): |
|
|
|
|
|
|
| |||
|
Television |
|
81,720 |
|
|
|
81,720 |
| |||
|
Online |
|
24,721 |
|
(25,754 |
) |
(1,033 |
) | |||
|
Total cost of revenues |
|
106,441 |
|
(25,754 |
) |
80,687 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Operating expenses: |
|
|
|
|
|
|
| |||
|
Sales and marketing |
|
33,679 |
|
(23,980 |
) |
9,699 |
| |||
|
Research and development |
|
19,142 |
|
(10,901 |
) |
8,241 |
| |||
|
General and administrative |
|
42,831 |
|
(13,277 |
) |
29,554 |
| |||
|
Acquisition and integration |
|
15,119 |
|
(14,571 |
) |
548 |
| |||
|
Depreciation and amortization |
|
38,736 |
|
(10,995 |
) |
27,741 |
| |||
|
Goodwill impairment |
|
— |
|
— |
|
— |
| |||
|
Total operating expenses |
|
149,507 |
|
(73,724 |
) |
75,783 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income (loss) from operations |
|
68,309 |
|
21,992 |
|
90,301 |
| |||
|
Other expense: |
|
|
|
|
|
|
| |||
|
Interest expense |
|
14,915 |
|
— |
|
14,915 |
| |||
|
Interest (income) and other expense, net |
|
637 |
|
(1,072 |
) |
(435 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Income (loss) before income taxes |
|
52,757 |
|
23,064 |
|
75,821 |
| |||
|
Provision for income taxes |
|
26,220 |
|
5,291 |
|
31,511 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income (loss) from continuing operations |
|
$ |
26,537 |
|
$ |
17,773 |
|
$ |
44,310 |
|
|
|
|
|
|
|
|
|
| |||
|
Basic (loss) per common share |
|
|
|
|
|
|
| |||
|
Basic |
|
$ |
0.96 |
|
|
|
$ |
1.61 |
| |
|
Diluted |
|
$ |
0.96 |
|
|
|
$ |
1.60 |
| |
|
|
|
|
|
|
|
|
| |||
|
Weighted average common shares outstanding |
|
|
|
|
|
|
| |||
|
Basic |
|
27,516 |
|
|
|
27,516 |
| |||
|
Diluted |
|
27,760 |
|
|
|
27,760 |
| |||
Pro Forma Adjustments
(1) Represents the stand-alone results of operations of The New Online Company for the year ended December 31, 2011, as shown in its Form 10, filed with the SEC on November 22, 2013. Since The New Online Company operated at a loss for the period, amounts shown here for Income from Operations and Net Income are presented as positive amounts to add back their losses generated during the period, which were originally included in DG’s consolidated historical results.
DIGITAL GENERATION, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 2010
(in thousands)
|
|
|
|
|
Pro Forma Adjustments |
|
|
| |||
|
|
|
|
|
Note (1) |
|
|
| |||
|
|
|
|
|
Remove |
|
|
| |||
|
|
|
Historical |
|
The New |
|
Proforma |
| |||
|
|
|
DG |
|
Online Co |
|
DG |
| |||
|
Revenues: |
|
|
|
|
|
|
| |||
|
Television |
|
$ |
222,894 |
|
$ |
— |
|
$ |
222,894 |
|
|
Online |
|
18,434 |
|
(18,377 |
) |
57 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total revenues |
|
241,328 |
|
(18,377 |
) |
222,951 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Cost of revenues (excluding depreciation and amortization): |
|
|
|
|
|
|
| |||
|
Television |
|
65,940 |
|
|
|
65,940 |
| |||
|
Online |
|
7,290 |
|
(7,474 |
) |
(184 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Total cost of revenues |
|
73,230 |
|
(7,474 |
) |
65,756 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Operating expenses: |
|
|
|
|
|
|
| |||
|
Sales and marketing |
|
13,534 |
|
(4,651 |
) |
8,883 |
| |||
|
Research and development |
|
10,601 |
|
(2,998 |
) |
7,603 |
| |||
|
General and administrative |
|
32,620 |
|
(3,718 |
) |
28,902 |
| |||
|
Acquisition and integration |
|
269 |
|
— |
|
269 |
| |||
|
Depreciation and amortization |
|
29,236 |
|
(2,375 |
) |
26,861 |
| |||
|
Goodwill impairment |
|
— |
|
— |
|
— |
| |||
|
|
|
|
|
|
|
|
| |||
|
Total operating expenses |
|
86,260 |
|
(13,742 |
) |
72,518 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income (loss) from operations |
|
81,838 |
|
2,839 |
|
84,677 |
| |||
|
Other expense: |
|
|
|
|
|
|
| |||
|
Interest expense |
|
7,350 |
|
— |
|
7,350 |
| |||
|
Interest (income) and other expense, net |
|
(221 |
) |
(31 |
) |
(252 |
) | |||
|
|
|
|
|
|
|
|
| |||
|
Income (loss) before income taxes |
|
74,709 |
|
2,870 |
|
77,579 |
| |||
|
Provision for income taxes |
|
29,407 |
|
(76 |
) |
29,331 |
| |||
|
|
|
|
|
|
|
|
| |||
|
Income (loss) from continuing operations |
|
$ |
45,302 |
|
$ |
2,946 |
|
$ |
48,248 |
|
|
|
|
|
|
|
|
|
| |||
|
Basic (loss) per common share |
|
|
|
|
|
|
| |||
|
Basic |
|
$ |
1.66 |
|
|
|
$ |
1.77 |
| |
|
Diluted |
|
$ |
1.64 |
|
|
|
$ |
1.75 |
| |
|
|
|
|
|
|
|
|
| |||
|
Weighted average common shares outstanding |
|
|
|
|
|
|
| |||
|
Basic |
|
27,226 |
|
|
|
27,226 |
| |||
|
Diluted |
|
27,570 |
|
|
|
27,570 |
| |||
Pro Forma Adjustment
(1) Represents the stand-alone results of operations of The New Online Company for the year ended December 31, 2010, as shown in its Form 10, filed with the SEC on November 22, 2013. Since The New Online Company operated at a loss for the period, amounts shown here for Income from Operations and Net Income are presented as positive amounts to add back their losses generated during the period, which were originally included in DG’s consolidated historical results.