Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - NATUS MEDICAL INC | exhibit992gnotometrics20.htm |
| EX-99.1 - EXHIBIT 99.1 - NATUS MEDICAL INC | exhibit991gnotometrics20.htm |
| EX-23.1 - EXHIBIT 23.1 - NATUS MEDICAL INC | exhibit231-ey8xka.htm |
| 8-K/A - 8-K/A - NATUS MEDICAL INC | a20178-kagnotometricsacqui.htm |
Exhibit 99.3
Unaudited Pro Forma Financial Statements
On January 3, 2017, Natus Medical Incorporated (“Natus” or the “Company”) completed the acquisition of Otometrics from GN Store Nord A/S for a cash purchase price of $149.2 million, including a $4.2 million net working capital adjustment. The significant terms of the Purchase Agreement were previously reported by the Company on January 3, 2017 in the Current report on Form 8-K filed on that date.
The following unaudited pro forma financial statements should be read in conjunction with the historical financial statements and accompanying notes of the Company included in its Annual Report on Form 10-K for the year ended December 31, 2016. Otometrics's audited financial statements and accompanying notes for the year ended December 31, 2015 and unaudited financial information for the six months ended June 30, 2016 and June 30, 2015 are presented above. The presentation of the unaudited pro forma balance sheet gives effect to the acquisition as if it had occurred on December 31, 2016 and includes items that are directly attributable to the acquisition and are factually supportable regardless of whether they have a continuing impact or are nonrecurring. The presentation of the unaudited pro forma statement of income reflects the combined results of operations as if the acquisition had occurred on January 1, 2016, the beginning of the Company's 2016 fiscal year, and excludes items related to the acquisition that are nonrecurring and includes items that are directly attributable to the acquisition, expected to have a continuing impact, and are factually supportable. Also, the unaudited pro forma financial statements gives effect to certain adjustments necessary to conform Otometrics's combined financial statements that were prepared under International Financial Reporting Standards as issued by the International Accounting Standards Board to U.S. GAAP.
The preliminary allocation of the purchase consideration presented in Note 2 and used to prepare the unaudited pro forma financial statements is based on a preliminary valuation of assets acquired and liabilities assumed. Accordingly, the purchase price allocation is considered preliminary and may materially change before final determination. The preliminary pro forma purchase price adjustments have been made solely for the purpose of providing the unaudited pro forma financial statements included herewith. A final determination of these fair values shall be based on the actual net tangible and intangible assets of Otometrics that exist as of the closing date of the transaction. In addition, the unaudited pro forma financial statements do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the acquisition.
The unaudited pro forma financial statements are provided for informational purposes only and are not necessarily indicative of results that would have occurred had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma financial statements does not purport to be indicative of the future financial position or operating results of the combined operations. There were no transactions between the Company and Otometrics during the periods presented in the unaudited pro forma financial statements that would need to be eliminated.
The historical financial information and pro forma adjustments in the pro forma financial statements have been translated from Danish Krone to U.S. dollars using historical exchange rates. The average exchange rate applicable to the Company during the year presented for the pro forma statement of income and the period end exchange rate for the pro forma balance sheet are as follows:
DKK/USD | |||
Year ended December 31, 2016 | Average rate | 0.1486 | |
December 31, 2016 | Spot rate | 0.1416 | |
NATUS MEDICAL INCORPORATED
UNAUDITED PRO FORMA BALANCE SHEET
AT DECEMBER 31, 2016
(In thousands)
Natus Historical | US GAAP Otometrics Historical | Pro Forma Adjustments | Pro Forma | ||||||||||||||
12/31/2016 | 12/31/2016 | (Note 2) | Ref | Combined | |||||||||||||
ASSETS | |||||||||||||||||
Current assets: | |||||||||||||||||
Cash and cash equivalents | $ | 213,551 | $ | 4,774 | $ | (149,247 | ) | a | $ | 69,078 | |||||||
Short-term investments | 34,019 | — | 34,019 | ||||||||||||||
Accounts receivable | 86,638 | 23,079 | 109,717 | ||||||||||||||
Inventories | 49,587 | 20,813 | 3,429 | a | 73,829 | ||||||||||||
Prepaid expenses and other current assets | 22,004 | 3,799 | 25,803 | ||||||||||||||
Total current assets | 405,799 | 52,465 | (145,818 | ) | 312,446 | ||||||||||||
Property and equipment, net | 17,333 | 3,107 | 20,440 | ||||||||||||||
Intangible assets, net | 77,165 | 15,915 | 41,585 | b | 134,665 | ||||||||||||
Goodwill | 113,112 | 57,813 | 12,171 | a, b | 183,096 | ||||||||||||
Deferred income tax | 14,915 | 8,312 | 23,227 | ||||||||||||||
Other assets | 20,688 | 88 | 20,776 | ||||||||||||||
Total assets | $ | 649,012 | $ | 137,700 | $ | (92,062 | ) | $ | 694,650 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||
Current liabilities: | |||||||||||||||||
Accounts payable | $ | 18,700 | $ | 8,398 | $ | 27,098 | |||||||||||
Accrued liabilities | 37,895 | 14,325 | 52,220 | ||||||||||||||
Deferred revenue | 23,346 | 767 | 24,113 | ||||||||||||||
Total current liabilities | 79,941 | 23,490 | — | 103,431 | |||||||||||||
Long-term liabilities: | |||||||||||||||||
Other liabilities | 8,013 | 1,061 | 9,074 | ||||||||||||||
Long-term debt | 140,000 | 33,000 | (33,000 | ) | a, d | 140,000 | |||||||||||
Deferred income tax | 3,684 | 9,457 | 11,630 | b | 24,771 | ||||||||||||
Total liabilities | 151,697 | 43,518 | (21,370 | ) | 173,845 | ||||||||||||
Commitments and contingencies | |||||||||||||||||
Total stockholders’ equity | 417,374 | 70,692 | (70,692 | ) | g | 417,374 | |||||||||||
Total liabilities and stockholders’ equity | $ | 649,012 | $ | 137,700 | $ | (92,062 | ) | $ | 694,650 | ||||||||
See accompanying notes to unaudited pro forma financial statements.
NATUS MEDICAL INCORPORATED
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2016
(In thousands, except per share amounts)
Natus Historical | US GAAP Otometrics Historical | Pro Forma Adjustments | Pro Forma | ||||||||||||||
Year Ended 12/31/2016 | Year Ended 12/31/2016 | (Note 2) | Ref | Combined | |||||||||||||
Revenue | $ | 381,892 | $ | 110,102 | 491,994 | ||||||||||||
Cost of revenue | 144,632 | 58,392 | 203,024 | ||||||||||||||
Intangibles amortization | 2,327 | 2 | 1,873 | b | 4,202 | ||||||||||||
Gross profit | 234,933 | 51,708 | (1,873 | ) | 284,768 | ||||||||||||
Operating expenses: | |||||||||||||||||
Marketing and selling | 84,834 | 36,500 | 121,334 | ||||||||||||||
Research and development | 33,443 | 16,333 | 49,776 | ||||||||||||||
General and administrative | 50,877 | 10,908 | (1,523 | ) | c | 60,262 | |||||||||||
Intangibles amortization | 8,983 | 7,012 | (869 | ) | b | 15,126 | |||||||||||
Restructuring | 1,536 | — | 1,536 | ||||||||||||||
Total operating expenses | 179,673 | 70,753 | (2,392 | ) | 248,034 | ||||||||||||
Income from operations | 55,260 | (19,045 | ) | 519 | 36,734 | ||||||||||||
Other expense, net | (357 | ) | (1,454 | ) | (2,937 | ) | e | (4,748 | ) | ||||||||
Income before provision for income tax | 54,903 | (20,499 | ) | (2,418 | ) | 31,986 | |||||||||||
Provision for income tax | 12,309 | (2,834 | ) | (751 | ) | f | 8,724 | ||||||||||
Net income | $ | 42,594 | $ | (17,665 | ) | $ | (1,667 | ) | $ | 23,262 | |||||||
Net income per share: | |||||||||||||||||
Basic | $ | 1.31 | $ | 0.72 | |||||||||||||
Diluted | $ | 1.29 | $ | 0.70 | |||||||||||||
Weighted average shares used in the calculation of net income per share: | |||||||||||||||||
Basic | 32,460 | 32,460 | |||||||||||||||
Diluted | 33,056 | 33,056 | |||||||||||||||
See accompanying notes to unaudited pro forma financial statements.
NATUS MEDICAL INCORPORATED
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Note 1. Basis of Pro Forma Preparation
The unaudited pro forma financial statements are based on the historical consolidated financial statements of the Company and and the unaudited historical combined financial statements of Otometrics after giving effect to the acquisition using the purchase method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and applying the assumptions and adjustments described in the accompanying notes. The unaudited pro forma balance sheet is presented as if the acquisition had occurred on December 31, 2016. The unaudited pro forma statement of income is presented as if the acquisition had occurred on January 1, 2016, the beginning of the Company's fiscal year.
NATUS MEDICAL INCORPORATED
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Note 2. Pro Forma Adjustments
(a) Purchase Price Allocation
For pro forma purposes, we have preliminarily allocated the purchase price to the net tangible and intangible assets based on their estimated fair values. Therefore, the assets acquired and liabilities assumed, including intangible assets, presented in the table below are provisional. The Company will finalize the purchase price allocation, after all available data is received and reviewed, as soon as practicable and not later than one year from the acquisition date.
The following table is a summary of the preliminary purchase price allocation including preliminary estimates of the fair value of net assets acquired and the resulting goodwill of the acquisition of Otometrics, as reflected in the unaudited pro forma balance sheet at December 31, 2016. The book values of the remaining assets and liabilities acquired reflect our preliminary assessment of their fair values so no additional purchase price adjustments are necessary.
USD('000) | December 31, 2016 | ||
Cash paid at closing | $ | 149,247 | |
Technology | 22,500 | ||
Customer related | 20,000 | ||
Trade names | 15,000 | ||
Goodwill | 58,354 | ||
Total net assets | 115,854 | ||
Otometrics historical net tangible assets | 70,692 | ||
Inventories fair value adjustment | 3,429 | ||
Add: Loan extinguished by Seller | 33,000 | ||
Less: Otometrics historical intangible asset value | (15,915 | ) | |
Less: Otometrics historical goodwill value | (57,813 | ) | |
$ | 149,247 | ||
(b) Acquired Intangible Assets
The acquired intangible assets and related amortization expense based on the preliminary estimate of fair value for the year ended December 31, 2016 is as follows:
Preliminary | Useful | Amortization Expense | |||||||
USD ('000) | Fair Value | Lives (years) | December 31, 2016 | ||||||
Intangible Assets | |||||||||
Technology | $ | 22,500 | 12 | $ | 1,875 | ||||
Customer related | 20,000 | 5 | 4,000 | ||||||
Trade names | 15,000 | 7 | 2,143 | ||||||
Total | 57,500 | 8,018 | |||||||
Less: Elimination of Otometrics historical intangible assets and related amortization | (15,915 | ) | (7,014 | ) | |||||
Total | $ | 41,585 | $ | 1,004 | |||||
We recognized a deferred tax liability with the offset to goodwill of $11.6 million relating to the intangible assets identified in the table above. The deferred tax liability represents the tax effect of the difference between the estimated fair value of identified intangible assets and the estimated tax basis of the assets, which is calculated using the tax rate applicable to the jurisdiction in which th assets are estimated to reside.
(c) Acquisition-related Costs
The Company incurred $1.5 million of acquisition costs primarily related to legal and advisory fees in the fourth quarter of 2016. These costs are reversed in the unaudited pro forma income statement as they represent non-recurring charges directly related to the acquisition of Otometrics.
(d) Debt Transaction
The Company financed the acquisition with available offshore cash and $140 million from a credit facility. The funds were drawn from this facility in December 2016 and were included in the Company's 2016 audited financial statements, therefore no pro forma adjustment is required for this debt.
Otometrics's long term debt of $33.0 million at December 31, 2016 is presented as repaid in the unaudited pro forma balance sheet as of December 31, 2016. This debt was settled by GN prior to closing.
(e) Interest Expense
Pro forma interest expense is presented to include the Company's $140 million loan discussed above, along with the reversal of Otometrics's interest expense for the year ended December 31, 2016 as presented below.
The Company incurred debt issuance costs of $0.5 million in connection with the loan, which were capitalized to prepaid expenses and other assets in the historical condensed consolidated balance sheet as of December 31, 2016. The Company's amortization of these debt issuance costs are included as pro forma adjustments in the unaudited pro forma statement of income for the year ended December 31, 2016.
December 31, 2016 | |||||
Company: | |||||
Revolving Line of Credit | 140,000 | ||||
LIBOR plus 1.75% | 2.51 | % | |||
3,514 | |||||
Debt issuance cost amortization expense | 107 | ||||
Pro forma adjustment | 3,621 | ||||
Otometrics: | |||||
Revolving Line of Credit | 30,000 | ||||
Average interest rate - LIBOR plus 1% | 1.76 | % | |||
Actual interest expense | (594 | ) | |||
Loan from parent | 3,000 | ||||
Interest rate - 3% | 3.00 | % | |||
Actual interest expense | (90 | ) | |||
Pro forma adjustment | (684 | ) | |||
Total pro forma adjustment | 2,937 | ||||
(f) Provision for Income Taxes
The pro forma presentation of the effect on the provision for income taxes was calculated using the Danish statutory rate for adjustments related to Otometrics and using the U.S. statutory blended federal and state rate for adjustments related to the Company. The adjustments to the provision for income taxes are summarized in the following table:
Year Ended December 31, 2016 | |||||||||||
Jurisdiction | Pro Form Adjustment USD ('000) | Tax Rate (%) | Tax (Expense) Benefit USD ('000) | ||||||||
Item | |||||||||||
Amortization expense | Denmark | $ | 1,004 | 22.0% | $ | 221 | |||||
Interest expense | United States | 2,937 | 37.5% | 1,101 | |||||||
General and administrative | United States | (1,523 | ) | 37.5% | (571 | ) | |||||
Pro forma adjustment | 751 | ||||||||||
(g) Equity
Otometrics's historical net assets are eliminated as a pro forma adjustment to the unaudited pro forma balance sheet as of December 31, 2016.