EX-99.2 3 exhibit992unauditedproform.htm EXHIBIT 99.2 Exhibit


Exhibit 99.2


THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On June 4, 2016, Hexis Cyber Solutions, Inc. (“Hexis”), a wholly-owned subsidiary of The KEYW Holding Corporation (“KEYW” or the “Company”), completed the sale of Hexis’ HawkEye G business and product line (the “HawkEye G Business”), including all of the contracts necessary to perform the HawkEye G Business, intellectual property rights relating to such contracts, and certain tangible property, records, files and other assets, to WatchGuard Technologies, Inc. (“WatchGuard”).

Previously, on May 2, 2016, Hexis and Hexis’ wholly-owned subsidiary SenSage, Inc. completed the sale of all of Hexis’ HawkEye AP business and product line (the “HawkEye AP Business”), including all of the contracts necessary to perform the HawkEye AP Business, intellectual property rights relating to such contracts, and certain tangible property, records, files and other assets, to Ignite Analytics, Inc. The sale of the HawkEye G business and the HawkEye AP business comprised our entire former Commercial Cyber Solutions reportable segment.

The following unaudited pro forma condensed consolidated statements of operations of KEYW for the three months ended March 31, 2016 and for each of the three fiscal years ended December 31, 2015, 2014, and 2013 reflect KEYW’s results of operations as if the sales had occurred on January 1, 2013. The following unaudited pro forma condensed consolidated balance sheet of KEYW as of March 31, 2016 assumes that the sales had occurred on March 31, 2016. In our condensed consolidated financial statements for the quarter ended March 31, 2016, contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 10, 2016, the assets and liabilities of our Commercial Cyber Solutions segment were classified as held for sale and the results of operations were classified as discontinued operations.

The unaudited pro forma condensed consolidated financial statements are presented based on information currently available, are intended for informational purposes and are not intended to represent what KEYW’s financial position and results of operations actually would have been had these divestitures occurred on the dates indicated. The pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable under the circumstances; however, actual amounts could differ. In addition, the unaudited pro forma condensed consolidated financial statements are not necessarily indicative of KEYW’s financial position and results of operations for any future period.

The unaudited pro forma condensed consolidated financial statements are based upon, and should be read in conjunction with, our historical consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed on March 15, 2016.

The Historical column in the unaudited pro forma condensed consolidated financial statements reflects KEYW’s historical financial statements for the periods presented and does not reflect any adjustments related to the divestitures and related events.

The Hexis Divestiture column in the unaudited pro forma condensed consolidated financial statements represent our former Commercial Cyber Solutions' assets, liabilities and results of operations.

The pro forma adjustments are based on available information and assumptions that KEYW’s management believes are reasonable, that reflect the impacts of events directly attributable to the divestitures and related transaction agreements that are factually supportable, and for purposes of the statements of earnings, are expected to have a continuing impact on KEYW.

In connection with these divestitures, KEYW received aggregate consideration consisting of: (i) an aggregate of $5.0 million in closing cash; (ii) approximately $2.0 million of retained trade receivables; (iii) 1.7 million shares of the common stock of the privately held parent of WatchGuard (“Parent Stock”) with a GAAP fair value of $0.34 million which is estimated to be liquidated eventually for $10 to $12 million assuming revenue growth and multiples of comparable companies offering similar security products and services; (iv) $3.0 million to be paid by WatchGuard Technologies, Inc. to Hexis on January 31, 2017; and (v) a potential earnout payment equal to the amount of all new HawkEye AP license sales in excess of an aggregate $4.0 million in the one year period following the closing of the HawkEye AP Business sale. In connection with the Hawkeye G Business sale, Hexis is obligated to pay approximately $3.85 million of operating expenses of the Hawkeye G Business for the period beginning on the closing date of the transaction and ending December 31, 2016.





THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Three months ended March 31, 2016
(In thousands, except per share amounts)

 
Historical
 
Hexis Divestiture
 
Pro Forma Adjustments
 
Pro Forma KEYW
Revenues
$
75,720

 
$
(2,078
)
 
$

 
$
73,642

Costs of Revenues, excluding amortization
51,773

 
(976
)
 

 
50,797

Gross Profit
23,947

 
(1,102
)
 

 
22,845

Operating Expenses
 
 
 
 
 
 
 
Operating expenses
25,714

 
(10,173
)
 
898

(a) 
16,439

Impairment of goodwill
6,980

 
(6,980
)
 

 

Estimated cost to sell disposal group
2,275

 
(2,275
)
 

 

Intangible amortization expense
1,848

 
(381
)
 

 
1,467

Total
36,817

 
(19,809
)
 
898

 
17,906

Operating (Loss) Income
(12,870
)
 
18,707

 
(898
)
 
4,939

Non-Operating Expense, net
1,634

 

 

 
1,634

(Loss) Income before Income Taxes
(14,504
)
 
18,707

 
(898
)
 
3,305

Income Tax Expense, net
906

 
490

 

 
1,396

Net (Loss) Income
$
(15,410
)
 
$
18,217

 
$
(898
)
 
$
1,909

 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic
39,850,003

 
39,850,003

 
39,850,003

 
39,850,003

Diluted
39,850,003

 
39,850,003

 
39,850,003

 
39,850,003

(Loss) Income per Share
 
 
 
 
 
 
 
Basic
$
(0.39
)
 
$
0.46

 
$
(0.02
)
 
$
0.05

Diluted
$
(0.39
)
 
$
0.46

 
$
(0.02
)
 
$
0.05



See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.









THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year ended December 31, 2015
(In thousands, except per share amounts)

 
Historical
 
Hexis Divestiture
 
Pro Forma Adjustments
 
Pro Forma KEYW
Revenues
$
311,810

 
$
(13,875
)
 
$

 
$
297,935

Costs of Revenues, excluding amortization
212,220

 
(4,014
)
 

 
208,206

Gross Profit
99,590

 
(9,861
)
 

 
89,729

Operating Expenses
 
 
 
 
 
 
 
Operating expenses
106,907

 
(43,520
)
 
3,125

(a) 
66,512

Impairment of goodwill
8,000

 
(8,000
)
 

 

Intangible amortization expense
11,449

 
(4,362
)
 

 
7,087

Total
126,356

 
(55,882
)
 
3,125

 
73,599

Operating (Loss) Income
(26,766
)
 
46,021

 
(3,125
)
 
16,130

Non-Operating Expense, net
10,258

 

 

 
10,258

(Loss) Income before Income Taxes
(37,024
)
 
46,021

 
(3,125
)
 
5,872

Income Tax Expense, net
21,598

 
(2,730
)
 
(1,094
)
(a) 
17,774

Net Loss
(58,622
)
 
48,751

 
(2,031
)
 
(11,902
)
 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic
38,722,340

 
38,722,340

 
38,722,340

 
38,722,340

Diluted
38,722,340

 
38,722,340

 
38,722,340

 
38,722,340

Loss per Share
 
 
 
 
 
 
 
Basic
$
(1.51
)
 
$
1.26

 
$
(0.05
)
 
$
(0.31
)
Diluted
$
(1.51
)
 
$
1.26

 
$
(0.05
)
 
$
(0.31
)


See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.






THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year ended December 31, 2014
(In thousands, except per share amounts)

 
Historical
 
Hexis Divestiture
 
Pro Forma Adjustments
 
Pro Forma KEYW
Revenues
$
290,574

 
$
(11,324
)
 
$

 
$
279,250

Costs of Revenues, excluding amortization
195,401

 
(2,493
)
 

 
192,908

Gross Profit
95,173

 
(8,831
)
 

 
86,342

Operating Expenses
 
 
 
 
 
 
 
Operating expenses
96,364

 
(39,502
)
 
2,993

(a) 
59,855

Intangible amortization expense
12,162

 
(4,425
)
 

 
7,737

Total
108,526

 
(43,927
)
 
2,993

 
67,592

Operating (Loss) Income
(13,353
)
 
35,096

 
(2,993
)
 
18,750

Non-Operating Expense, net
8,804

 

 

 
8,804

(Loss) Income before Income Taxes
(22,157
)
 
35,096

 
(2,993
)
 
9,946

Income Tax (Expense) Benefit, net
(8,622
)
 
13,026

 
(1,048
)
(a) 
3,356

Net (Loss) Income
$
(13,535
)
 
$
22,070

 
$
(1,945
)
 
$
6,590

 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic
37,442,680

 
37,442,680

 
37,442,680

 
37,442,680

Diluted
37,442,680

 
37,442,680

 
37,442,680

 
37,442,680

(Loss) Income per Share
 
 
 
 
 
 
 
Basic
$
(0.36
)
 
$
0.59

 
$
(0.05
)
 
$
0.18

Diluted
$
(0.36
)
 
$
0.59

 
$
(0.05
)
 
$
0.18



See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.






THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year ended December 31, 2013
(In thousands, except per share amounts)

 
Historical
 
Hexis Divestiture
 
Pro Forma Adjustments
 
Pro Forma KEYW
Revenues
$
298,732

 
$
(9,823
)
 
$

 
$
288,909

Costs of Revenues, excluding amortization
199,220

 
(1,840
)
 

 
197,380

Gross Profit
99,512

 
(7,983
)
 

 
91,529

Operating Expenses
 
 
 
 
 
 
 
Operating expenses
85,670

 
(19,659
)
 
634

(a) 
66,645

Intangible amortization expense
24,658

 
(4,125
)
 

 
20,533

Total
110,328

 
(23,784
)
 
634

 
87,178

Operating (Loss) Income
(10,816
)
 
15,801

 
(634
)
 
4,351

Non-Operating Expense, net
9,792

 

 

 
9,792

Loss before Income Taxes
(20,608
)
 
15,801

 
(634
)
 
(5,441
)
Income Tax Expense, net
(9,389
)
 
7,132

 
(222
)
(a) 
(2,479
)
Net Loss
$
(11,219
)
 
$
8,669

 
$
(412
)
 
$
(2,962
)
 
 
 
 
 
 
 
 
Weighted Average Common Shares Outstanding
 
 
 
 
 
 
 
Basic
36,618,919

 
36,618,919

 
36,618,919

 
36,618,919

Diluted
36,618,919

 
36,618,919

 
36,618,919

 
36,618,919

Loss per Share
 
 
 
 
 
 
 
Basic
$
(0.31
)
 
$
0.24

 
$
(0.01
)
 
$
(0.08
)
Diluted
$
(0.31
)
 
$
0.24

 
$
(0.01
)
 
$
(0.08
)


See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.






THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
Unaudited Pro Forma Condensed Consolidated Balance Sheets
As of March 31, 2016
(In thousands, except per share amounts)
 
Historical
 
Hexis Divestiture
 
Pro Forma Adjustments
 
Pro Forma KEYW
ASSETS
 
 
 
 
 
 

Current assets:
 
 
 
 
 
 

Cash and cash equivalents
$
31,854

 
$

 
$
2,725

(b) 
$
34,579

Receivables
53,874

 
(2,547
)
 
5,208

(c) 
56,535

Inventories, net
18,938

 
(3,252
)
 

 
15,686

Prepaid expenses
2,493

 
(1,175
)
 

 
1,318

Estimated cost to sell disposal group
(2,275
)
 
2,275

 

 

Income tax receivable
306

 

 

 
306

Total current assets
105,190

 
(4,699
)
 
7,933

 
108,424

 
 
 
 
 
 
 

Property and equipment, net
32,922

 
(4,964
)
 

 
27,958

Goodwill
290,477

 
(487
)
 

 
289,990

Other intangibles, net
11,709

 
(2,219
)
 

 
9,490

Other assets
1,305

 

 
340

(d) 
1,645

TOTAL ASSETS
$
441,603

 
$
(12,369
)
 
$
8,273

 
$
437,507

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable
$
10,871

 
$
(1,654
)
 
$
1,654

(e) 
$
10,871

Accrued expenses
14,140

 
(5,391
)
 
3,977

(f) 
12,726

Accrued salaries and wages
11,375

 
(2,259
)
 

 
9,116

Deferred income taxes
965

 

 

 
965

Total current liabilities
37,351

 
(9,304
)
 
5,631

 
33,678

Long-term liabilities:
 
 
 
 
 
 
 
Convertible senior notes, net of discount
127,742

 

 

 
127,742

Non-current deferred tax liability
27,758

 

 

 
27,758

Other non-current liabilities
11,762

 

 

 
11,762

TOTAL LIABILITIES
204,613

 
(9,304
)
 
5,631

 
200,940

Commitments and contingencies

 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
 
Preferred stock, $0.001 par value; 5 million shares authorized, none issued

 

 

 

Common stock, $0.001 par value; 100 million shares authorized, 39,881,064 and 39,940,667 shares issued and outstanding
40

 

 

 
40

Additional paid-in capital
327,620

 

 

 
327,620

Accumulated deficit / KEYW net investment in Hexis
(90,670
)
 
(3,065
)
 
2,642

(g) 
(91,093
)
Total stockholders’ equity
236,990

 
(3,065
)
 
2,642

 
236,567

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
441,603

 
$
(12,369
)
 
$
8,273

 
$
437,507



See Accompanying Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.






THE KEYW HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Pro Forma Adjustments

(a)
This adjustment reflects general corporate overhead costs which were historically allocated to our Commercial Cyber Solution segment and the related tax impact.

(b)
This adjustment represents the receipt of $5.0 million in closing cash net of the estimated costs to sell the disposal group.

(c)
This adjustment represents $3.0 million of cash consideration to be paid on January 31, 2017 and $2.2 million of receivables related to Commercial Cyber Solution segment that were excluded from the divestitures. As of the divestiture transaction date the excluded receivable balance was $1.7 million.

(d)
This adjustment represents the estimated fair value of the 1.7 million shares of the common stock of Gladiator Corporation.

(e)
This adjustment represents the accounts payable related to Commercial Cyber Solution segment that were excluded from the divestitures.

(f)
This adjustment represents the estimated operating expenses of the Hawkeye G Business for the period beginning on the closing date of the transaction and ending December 31, 2016, that Hexis is obligated to pay.

(g)
This adjustment represents KEYW's net equity position in Hexis, which was eliminated as part of the closing of the Hexis transactions and an estimated loss of approximately $0.4 million arising from the divestitures. This estimated loss has not been reflected in the pro forma condensed consolidated statement of operations as it is considered to be nonrecurring in nature. The estimated loss assumes that both divestitures occurred on March 31, 2016.