Note 1. Basis of Presentation
The unaudited pro forma combined condensed financial information and related notes are prepared in accordance with Article 8 of Regulation S-X.
Redwire’s historical financial statements were prepared in accordance with U.S. GAAP and presented in U.S. Dollars (“USD”) and Space NV’s historical financial statements were prepared in accordance with accounting principles generally accepted in Belgium (“Belgian GAAP”) and presented in Euros. As discussed in Note 2. Reclassification and U.S. GAAP Adjustments, certain reclassification and U.S. GAAP adjustments were made to align Space NV’s accounting policies and financial statement presentation with that of Redwire. In addition, Redwire and Space NV have historically reported their year-end financial position and results of operations on December 31st and March 31st, respectively. For purposes of the unaudited pro forma combined condensed financial statements, Space NV's historical results for the year ended March 31, 2022 have been recaptioned and combined with the Company's fiscal year ended, December 31, 2021 financial statements as explained below.
The unaudited pro forma combined condensed financial information was prepared using the acquisition method of accounting in accordance with ASC 805, with Redwire as the accounting acquirer, and based on the historical consolidated financial statements of Redwire and Space NV’s. Under ASC 805, assets acquired and liabilities assumed in a business combination are recognized and measured at their assumed acquisition date fair value, while transaction costs associated with a business combination are expensed as incurred. The excess of acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The unaudited pro forma combined condensed balance sheet is presented as if the Acquisition and the Financing had occurred on June 30, 2022, and the unaudited pro forma combined condensed statement of operations for the six months ended June 30, 2022 and the year ended December 31, 2021 are presented as if the Acquisition and the Financing had occurred on January 1, 2021. Due to different fiscal year end dates, the unaudited pro forma combined condensed statement of operations for the six months ended June 30, 2022 combines the historical results of the Company with the historical results of Space NV for the six months ended June 30, 2022. Historical results of Space NV for the six months ended June 30, 2022 were derived from the combination of the audited annual accounts for the year ended March 31, 2022, adjusted to remove activity for the period of April 1, 2021 through December 31, 2021, and the unaudited accounts for the three months ended June 30, 2022. For purposes of preparing the unaudited pro forma combined condensed financial information, the Company has determined that adjustments to historical financial information for acquired entities with a fiscal year end date within one fiscal quarter of the Company's fiscal year are not material.
The unaudited pro forma combined condensed financial information does not reflect any anticipated synergies or dis-synergies, operating efficiencies or cost savings that may result from the Acquisition and integration costs that may be incurred. The pro forma adjustments represent Redwire’s best estimates and are based upon currently available information and certain assumptions that Redwire believes are reasonable under the circumstances. There were no material transactions between Redwire and Space NV during the periods presented. Accordingly, adjustments to eliminate transactions between Redwire and Space NV have not been reflected in the unaudited pro forma combined condensed financial information presented herein.
For purposes of preparing the unaudited pro forma combined condensed financial information, the historical financial information of Space NV and related U.S. GAAP and pro forma adjustments were translated from Euro to USD using the following historical exchange rates as posted by exchangerates.org.uk.
| | | | | |
| Period of Exchange Rate | €/$ |
| Balance Sheet as of June 30, 2022 period end exchange rate at June 30, 2022 | 1.048 |
| Statement of Operations for the year ended March 31, 2022 average exchange rate for that period | 1.162 |
| Statement of Operations for the six months ended June 30, 2022 average exchange rate for that period | 1.093 |
Note 2. Reclassification and U.S. GAAP Adjustments
During the preparation of this unaudited pro forma combined condensed financial information, management performed an analysis of Space NV’s financial information to identify differences in accounting policies compared to those of Redwire, and differences in financial statement presentation compared to the presentation of Redwire. At the time of preparing the unaudited pro forma combined condensed financial information, other than the adjustments described herein, the Company is not aware of any other material differences.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unaudited Condensed Consolidated Balance Sheet Adjustments |
| As of June 30, 2022 |
| (in thousands) |
| | | | | | | | |
| Redwire Presentation | Historical QinetiQ Space NV Presentation | Historical QinetiQ Space NV EURO | Historical QinetiQ Space NV USD | Reclassification Adjustments | Notes | U.S. GAAP Adjustments | Notes | QinetiQ Space NV Adjusted
(Historical)
USD |
| ASSETS | | | | | | | | |
| CURRENT ASSETS | | | | | | | | |
| Cash and cash equivalents | Cash at bank and in hand | € | 6,266 | | $ | 6,564 | | $ | — | | | $ | 1,322 | | 2(a) | $ | 7,886 | |
| Trade debtors | 4,900 | | 5,133 | | (5,133) | | 1(a) | — | | | — | |
| Other amounts receivable | 371 | | 389 | | (389) | | 1(b) | — | | | — | |
| Accounts receivables, net | | | | 5,136 | | 1(a,b) | — | | | 5,136 | |
| Contract assets | Contracts in progress | 22,376 | | 23,442 | | — | | | (9,359) | | 2(c,e) | 14,083 | |
| Accruals and deferred income | 1,438 | | 1,506 | | (1,506) | | 1(c) | — | | | — | |
| Prepaid expenses and other current assets | | | | 2,008 | | 1(b,c,e) | 125 | | 2(a) | 2,133 | |
| Total current assets | | 35,351 | | $ | 37,034 | | $ | 116 | | | $ | (7,912) | | | $ | 29,238 | |
| | | | | | | | |
| Non-current assets: | | | | | | | | |
| Property, plant and equipment, net | Tangible fixed assets | 2,827 | | 2,962 | | — | | | — | | | 2,962 | |
| Right-of-use assets | | | | — | | | 1,675 | | 2(d) | 1,675 | |
| Intangible assets, net | Intangible fixed assets | 2,917 | | 3,056 | | — | | | (2,930) | | 2(b) | 126 | |
| Deferred tax assets | | | | — | | | 687 | | 2(f) | 687 | |
| Affiliated companies | 52 | | 55 | | (55) | | 1(d) | — | | | — | |
| Other companies linked by participating interests | 48 | | 50 | | (50) | | 1(d) | — | | | — | |
| Amounts receivable and cash guarantees | 17 | | 18 | | (18) | | 1(e) | — | | | — | |
| Equity method investment | | | | 105 | | 1(d) | 2,244 | | 2(a,g) | 2,349 | |
| Total non-current assets | | 5,861 | | 6,141 | | (18) | | | 1,676 | | | 7,799 | |
| Total assets | | € | 41,212 | | $ | 43,175 | | $ | 98 | | | $ | (6,236) | | | $ | 37,037 | |
| | | | | | | | |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unaudited Condensed Consolidated Balance Sheet Adjustments |
| As of June 30, 2022 |
| (in thousands) |
| | | | | | | | |
| Redwire Presentation | Historical QinetiQ Space NV Presentation | Historical QinetiQ Space NV EURO | Historical QinetiQ Space NV USD | Reclassification Adjustments | Notes | U.S. GAAP Adjustments | Notes | QinetiQ Space NV Adjusted
(Historical)
USD |
| LIABILITIES | | | | | | | | |
| | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | | | $ | 1,451 | | 1(f) | $ | 64 | | 2(a) | $ | 1,515 | |
| Suppliers | 14,300 | | 14,981 | | (14,981) | | 1(f) | — | | | — | |
| Short-term lease liabilities | | | | — | | | 505 | | 2(d) | 505 | |
| Taxes | 50 | | 52 | | (52) | | 1(g) | — | | | — | |
| Remuneration and social security | 2,954 | | 3,095 | | (3,095) | | 1(g) | — | | | — | |
| Accrued expenses | | | | 16,726 | | 1(c,f,g) | 1,067 | | 2(a) | 17,793 | |
| Deferred revenue | Advance payments on contracts in progress | 15,299 | | 16,027 | | — | | | (9,561) | | 2(c,e) | 6,466 | |
| Other amounts payable | 1,003 | | 1,051 | | (1,051) | | 1(h) | — | | | — | |
| Other current liabilities | | | | 1,100 | | 1(f,h) | (2) | | 2(a,d) | 1,098 | |
| Total current liabilities | | 33,606 | | 35,206 | | 98 | | | (7,927) | | | 27,377 | |
| | | | | | | | |
| Non-current liabilities: | | | | | | | | |
| Long-term lease liabilities | | | | — | | | 1,191 | | 2(d) | 1,191 | |
| Other non-current liabilities | Pensions and similar obligations | 229 | | 240 | | — | | | — | | | 240 | |
| Total non-current liabilities | | 229 | | 240 | | — | | | 1,191 | | | 1,431 | |
| Total liabilities | | 33,835 | | 35,446 | | 98 | | | (6,736) | | | 28,808 | |
| | | | | | | | |
SHAREHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | |
| Common stock | Issued capital | 1,000 | | 1,048 | | — | | | — | | | 1,048 | |
| Legal reserve | 100 | | 105 | | (105) | | 1(i) | — | | | — | |
| Accumulated profits (losses) | 6,277 | | 6,576 | | (6,576) | | 1(i) | — | | | — | |
| Retained earnings (accumulated deficit) | | | | 6,681 | | 1(i) | 357 | | 2(a,b,c,f,g) | 7,038 | |
| Total shareholders' equity | | 7,377 | | 7,729 | | — | | | 357 | | | 8,086 | |
| Noncontrolling interests | | | | — | | | 143 | | 2(a) | 143 | |
| Total noncontrolling interests | | | | — | | | 143 | | | 143 | |
| Total equity | | 7,377 | | 7,729 | | — | | | 500 | | | 8,229 | |
Total liabilities and equity | | € | 41,212 | | $ | 43,175 | | $ | 98 | | | $ | (6,236) | | | $ | 37,037 | |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1(a) Represents the reclassification from "Trade debtors" as reported by Space NV to "Accounts receivable, net" as reported by Redwire.
1(b) Represents the reclassification from "Other amounts receivable" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Accounts receivables, net | $ | 3 | |
| Prepaid expenses and other current assets | 386 | |
| $ | 389 | |
1(c) Represents the reclassification from "Accruals and deferred income" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Prepaid expenses and other current assets | $ | 1,604 | |
| Accrued expenses | (98) | |
| $ | 1,506 | |
1(d) Represents the reclassification from "Affiliated companies" and "Other companies linked by participating interests" as reported by Space NV to "Equity method investment" as reported by Redwire.
1(e) Represents the reclassification from "Amounts receivable and cash guarantees" as reported by Space NV to "Prepaid expenses and other current assets" as reported by Redwire.
1(f) Represents the reclassification from "Suppliers" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Accounts payable | $ | 1,451 | |
| Accrued expenses | 13,481 | |
| Other current liabilities | 49 | |
| $ | 14,981 | |
1(g) Represents the reclassification from "Taxes" and "Remuneration and social security" as reported by Space NV to "Accrued expenses" as reported by Redwire.
1(h) Represents the reclassification from "Other amounts payable" as reported by Space NV to "Other current liabilities" as reported by Redwire.
1(i) Represents the reclassification from "Legal reserve" and "Accumulated profits (losses)" as reported by Space NV to "Retained earnings (accumulated deficit)" as reported by Redwire.
2(a) Represents the U.S. GAAP adjustment to give effect to the consolidation of Redu Operations Services SA/NV ("ROS") into the financial statements of Space NV. Space NV held 52% of the equity interest in ROS as of June 30, 2022. The following table presents the related balance sheet impact as of June 30, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustment |
| ASSETS | |
| Cash and cash equivalents | $ | 1,322 | |
| Prepaid expenses and other current assets | 125 | |
| Equity method investment | (54) | |
| Total assets | $ | 1,393 | |
| |
| LIABILITIES | |
| Accounts payable | $ | 64 | |
| Accrued expenses | 1,067 | |
| Other current liabilities | 19 | |
| Total liabilities | 1,150 | |
| |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustment |
| SHAREHOLDERS’ EQUITY | |
| Retained earnings (accumulated deficit) | 100 | |
| Total noncontrolling interests | 143 | |
| Total equity | 243 | |
| Total liabilities and equity | $ | 1,393 | |
2(b) Represents the U.S. GAAP adjustment to reverse amounts capitalized under intangible assets with a corresponding adjustment to research and development expense. Research and development expense capitalized under intangible assets in accordance with Belgian GAAP relates to costs incurred in accumulation of necessary know-how for developing future equipment. These incurred costs are not related to the development of any tangible assets or software. The following table presents the related balance sheet impact as of June 30, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustment |
| ASSETS | |
| Intangible assets, net | $ | (2,930) | |
| Total assets | $ | (2,930) | |
| |
| SHAREHOLDERS’ EQUITY | |
| Retained earnings (accumulated deficit) | $ | (2,930) | |
| Total equity | $ | (2,930) | |
2(c) Represents the U.S. GAAP adjustment to determine revenue recognition using the Percentage of Completion (“POC”) method, including sub-contractor costs. Historical Space NV revenues were calculated whereby the POC excluded sub-contractor costs, which were recorded on an incurred cost basis in revenues and cost of goods sold. An adjustment was made to revenues by recalculating the POC using total project costs incurred to date (June 30, 2022) as a percentage of the total estimated costs to complete (i.e., including sub-contractor costs). The following table presents the related balance sheet impact as of June 30, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustment |
| ASSETS | |
| Contract assets | $ | (30) | |
| Total assets | $ | (30) | |
| |
| LIABILITIES | |
| Deferred revenue | $ | (232) | |
| Total liabilities | (232) | |
| |
| SHAREHOLDERS’ EQUITY | |
| Retained earnings (accumulated deficit) | 202 | |
| Total equity | 202 | |
| Total liabilities and equity | $ | (30) | |
2(d) Represents the U.S. GAAP adjustment to recognize right-of-use (“ROU”) assets and lease liabilities in accordance with ASC 842, Leases, including the elimination of deferred rent historically recorded. U.S. GAAP requires recognition of a ROU asset and lease liability for all leases, irrespective of their lease classification, while Belgian GAAP does not require the recognition of assets and liabilities associated with operating leases (similar to prior U.S. GAAP treatment under ASC 840). The following table presents the related balance sheet impact as of June 30, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustment |
| ASSETS | |
| Right-of-use assets | $ | 1,675 | |
| Total assets | $ | 1,675 | |
| |
| LIABILITIES | |
| Short-term lease liabilities | $ | 505 | |
| Other current liabilities | (21) | |
| Long-term lease liabilities | 1,191 | |
| Total liabilities | $ | 1,675 | |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
2(e) Represents the U.S. GAAP adjustment to present Historical Space NV contract assets and deferred revenue arising from the same contract on a net basis, whereas such amounts are recorded on a gross basis under Belgian GAAP. The following table presents the related balance sheet impact as of June 30, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustment |
| ASSETS | |
| Contract assets | $ | (9,329) | |
| Total assets | $ | (9,329) | |
| |
| LIABILITIES | |
| Deferred revenue | $ | (9,329) | |
| Total liabilities | $ | (9,329) | |
2(f) Represents the U.S. GAAP adjustment to record the tax impact of fair value adjustments associated with accounting for the Acquisition under ASC 805, assuming the Belgian statutory rate of 25%. The following table presents the related balance sheet impact as of June 30, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustment |
| ASSETS | |
| Deferred tax assets | $ | 687 | |
| Total assets | $ | 687 | |
| |
| SHAREHOLDERS’ EQUITY | |
| Retained earnings (accumulated deficit) | $ | 687 | |
| Total equity | $ | 687 | |
2(g) Represents the U.S. GAAP adjustment to record Space NV’s investment in Redu Space Services (“RSS”) as an equity method investment, whereas the investment in RSS was recorded at cost under Belgian GAAP. The following table presents the related balance sheet impact as of June 30, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustment |
| ASSETS | |
| Equity method investment | $ | 2,298 | |
| Total assets | $ | 2,298 | |
| |
| SHAREHOLDERS’ EQUITY | |
| Retained earnings (accumulated deficit) | $ | 2,298 | |
| Total equity | $ | 2,298 | |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unaudited Condensed Consolidated Statement of Operations Adjustments |
| For Six Months Ended June 30, 2022 |
| (in thousands) |
| | | | | | | | |
| Redwire Presentation | Historical QinetiQ Space NV Presentation | Historical QinetiQ Space NV EURO | Historical QinetiQ Space NV USD | Reclassification Adjustments | Notes | U.S. GAAP Adjustments | Notes | QinetiQ Space NV Adjusted
(Historical)
USD |
| | | | | | | | |
| Revenues | Turnover | € | 24,348 | | $ | 26,622 | | $ | — | | | $ | 1,413 | | 2(a, c) | $ | 28,035 | |
| Produced fixed assets | 2,209 | | 2,415 | | (2,415) | | 1(a) | — | | | — | |
| Other operating income | 653 | | 714 | | (714) | | 1(b) | — | | | — | |
| Cost of sales | | | | 21,705 | | 1(a,b,c,d,e,f,g) | 448 | | 2(a) | 22,153 | |
| Gross margin | | 27,210 | | 29,751 | | (24,834) | | | 965 | | | 5,882 | |
| Operating expenses | | | | | | | | |
| Selling, general and administrative expenses | | | | 2,486 | | 1(b,d,e,f,h,i) | 1,060 | | 2(a) | 3,546 | |
| Goods for resale, raw materials and consumables - Purchases | 16,970 | | 18,555 | | (18,555) | | 1(c) | — | | | — | |
| Services and other goods | 1,789 | | 1,956 | | (1,956) | | 1(d) | — | | | — | |
| Remuneration, social security and pensions | 5,813 | | 6,355 | | (6,355) | | 1(e) | — | | | — | |
| Amortisations of and other amounts written down on formation expenses, intangible and tangible fixed assets | 354 | | 387 | | (387) | | 1(f) | — | | | — | |
| Provisions for liabilities and charges: appropriations (uses and write-backs) | 50 | | 55 | | (55) | | 1(g) | — | | | — | |
| Other operating charges | 8 | | 9 | | (9) | | 1(h) | — | | | — | |
| Research and development | | | | — | | | 1,094 | | 2(b) | 1,094 | |
| Total operating expenses | | 24,984 | | 27,317 | | (24,831) | | | 2,154 | | | 4,640 | |
| Operating income (loss) | | 2,226 | | 2,434 | | (3) | | | (1,189) | | | 1,242 | |
| Interest expense, net | Debt charges | 24 | | 26 | | — | | | 8 | | 2(a) | 34 | |
| Other financial charges | 26 | | 28 | | (28) | | 1(i) | — | | | — | |
| Income from current assets | (1) | | (1) | | 1 | | 1(j) | — | | | — | |
| Other financial income | (58) | | (64) | | 64 | | 1(j) | — | | | — | |
| Other (income) expense, net | | | | (40) | | 1(b,d,i,j) | (377) | | 2(a, d) | (417) | |
| Income (loss) before income taxes | | 2,235 | | 2,445 | | — | | | (820) | | | 1,625 | |
| Income tax expense (benefit) | | | | 647 | | 1(k) | (145) | | 2(a, e) | 502 | |
| Taxes | 598 | | 654 | | (654) | | 1(k) | — | | | — | |
| Adjustment of income taxes and write-back of tax provisions | (6) | | (7) | | 7 | | 1(k) | — | | | — | |
| Net income (loss) | | 1,643 | | 1,798 | | — | | | (675) | | | 1,123 | |
| Net income (loss) attributable to noncontrolling interests | | | | — | | | (58) | | 2(a) | (58) | |
| Net income (loss) available to common shareholders | | € | 1,643 | | $ | 1,798 | | $ | — | | | $ | (617) | | | $ | 1,181 | |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1(a) Represents the reclassification from "Produced fixed assets" as reported by Space NV to "Cost of sales" as reported by Redwire.
1(b) Represents the reclassification from "Other operating income" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Cost of sales | $ | (703) | |
| Selling, general and administrative expenses | (3) | |
| Other (income) expense, net | (8) | |
| $ | (714) | |
1(c) Represents the reclassification from "Goods for resale, raw materials and consumables - Purchases" as reported by Space NV to "Cost of sales" as reported by Redwire.
1(d) Represents the reclassification from "Services and other goods" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Cost of sales | $ | 1,051 | |
| Selling, general and administrative expenses | 886 | |
| Other (income) expense, net | 19 | |
| $ | 1,956 | |
1(e) Represents the reclassification from "Remuneration, social security and pensions" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Cost of sales | $ | 4,824 | |
| Selling, general and administrative expenses | 1,531 | |
| $ | 6,355 | |
1(f) Represents the reclassification from "Amortisations of and other amounts written down on formation expenses, intangible and tangible fixed assets" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Cost of sales | $ | 338 | |
| Selling, general and administrative expenses | 49 | |
| $ | 387 | |
1(g) Represents the reclassification from "Provisions for liabilities and charges: appropriations (uses and write-backs)" as reported by Space NV to "Cost of sales" as reported by Redwire.
1(h) Represents the reclassification from "Other operating charges" as reported by Space NV to "Selling, general and administrative expenses" as reported by Redwire.
1(i) Represents the reclassification from "Other financial charges" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Selling, general and administrative expenses | $ | 14 | |
| Other (income) expense, net | 14 | |
| $ | 28 | |
1(j) Represents the reclassification from "Income from current assets" and "Other financial income" as reported by Space NV to "Other (income) expense, net" as reported by Redwire.
1(k) Represents the reclassification from "Taxes" and "Adjustment of income taxes and write-back of tax provisions" as reported by Space NV to "Income tax expense (benefit)" as reported by Redwire.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
2(a) Represents the U.S. GAAP adjustment to give effect to the consolidation of ROS into the historical financial statements of Space NV. Space NV held 52% of the equity interest in ROS as of June 30, 2022. The following table presents the related impact to the statement of operations for the six months ended June 30, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustments |
| Revenues | $ | 1,363 | |
| Cost of sales | 448 | |
| Gross margin | 915 | |
| Operating expenses | |
| Selling, general and administrative expenses | 1,060 | |
| Research and development | — | |
| Total operating expenses | 1,060 | |
| Operating income (loss) | (145) | |
| Interest expense, net | 8 | |
| Other (income) expense, net | (38) | |
| Income (loss) before income taxes | (115) | |
| Income tax expense (benefit) | 16 | |
| Net income (loss) | (131) | |
| Net income (loss) attributable to noncontrolling interests | (58) | |
| Net income (loss) available to common shareholders | (73) | |
2(b) Represents the U.S. GAAP adjustment to reverse amounts capitalized under intangible assets with a corresponding adjustment to research and development expense. Capitalized research and development relates to cost incurred in accumulation of necessary know-how for developing future equipment. This cost incurred is not related to development of any tangible assets or software. The income statement impact resulted in an increase in "Research and development" expense of $1.09 million for the six months ended June 30, 2022.
2(c) Represents the U.S. GAAP adjustment to determine revenue recognition using the POC method, including sub-contractor costs. Historical Space NV revenues were calculated whereby the POC excluded sub-contractor costs, which were recorded on an incurred cost basis in revenues and cost of goods sold. An adjustment was made to revenues by recalculating the POC using total project costs incurred to date (June 30, 2022) as a percentage of the total estimated costs to complete (i.e., including sub-contractor costs). The income statement impact resulted in an increase in "Revenues" of $0.05 million for the six months ended June 30, 2022.
2(d) Represents the U.S. GAAP adjustment to record Space NV’s investment in RSS as an equity method investment, whereas the investment in RSS was recorded at cost under Belgian GAAP. The income statement impact resulted in an increase in "Other (income) expense, net" of $0.34 million for the six months ended June 30, 2022. This amount corresponds to the recognition of Space NV's share of net income from the investment in RSS.
2(e) Represents the U.S. GAAP adjustment to record the tax impact of fair value adjustments associated with accounting for the Acquisition under ASC 805, assuming the Belgian statutory rate of 25%. The income statement impact resulted in a reduction of Historical Space NV income tax expense of $0.16 million for the six months ended June 30, 2022.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Unaudited Condensed Consolidated Statement of Operations Adjustments |
| For the Year Ended March 31, 2022 |
| (in thousands) |
| | | | | | | | |
| Redwire Presentation | Historical QinetiQ Space NV Presentation | Historical QinetiQ Space NV EURO | Historical QinetiQ Space NV USD | Reclassification Adjustments | Notes | U.S. GAAP Adjustments | Notes | QinetiQ Space NV Adjusted
(Historical)
USD |
| | | | | | | | |
| Revenues | Turnover | € | 43,876 | | $ | 51,004 | | $ | — | | | $ | 6,096 | | 2(a, c) | $ | 57,100 | |
| Produced fixed assets | 2,209 | | 2,568 | | (2,568) | | 1(a) | — | | | — | |
| Other operating income | 1,168 | | 1,358 | | (1,358) | | 1(a) | — | | | — | |
| Cost of sales | | | | 43,067 | | 1(a,b,c,d,e,f,g) | 1,552 | | 2(a) | 44,619 | |
| Gross margin | | 47,253 | | 54,930 | | (46,993) | | | 4,544 | | | 12,481 | |
| Operating expenses | | | | | | | | |
| Selling, general and administrative expenses | | | | 4,750 | | 1(c,d,e,g,h) | 4,360 | | 2(a) | 9,110 | |
| Goods for resale, raw materials and consumables - Purchases | 30,399 | | 35,337 | | (35,337) | | 1(b) | — | | | — | |
| Services and other goods | 3,039 | | 3,532 | | (3,532) | | 1(c) | — | | | — | |
| Remuneration, social security and pensions | 10,202 | | 11,860 | | (11,860) | | 1(d) | — | | | — | |
| Amortisations of and other amounts written down on formation expenses, intangible and tangible fixed assets | 789 | | 918 | | (918) | | 1(e) | — | | | — | |
| Provisions for liabilities and charges: appropriations (uses and write-backs) | 50 | | 58 | | (58) | | 1(f) | — | | | — | |
| Other operating charges | 40 | | 47 | | (47) | | 1(g) | — | | | — | |
| Research and development | | | | — | | | 2,568 | | 2(b) | 2,568 | |
| Total operating expenses | | 44,519 | | 51,752 | | (47,002) | | | 6,928 | | | 11,678 | |
| Operating income (loss) | | 2,734 | | 3,178 | | 9 | | | (2,384) | | | 803 | |
| Interest expense, net | Debt charges | 52 | | 61 | | — | | | 18 | | 2(a) | 79 | |
| Other financial charges | 19 | | 22 | | (22) | | 1(h) | — | | | — | |
| Income from financial fixed assets | (2,436) | | (2,832) | | 2,832 | | 1(i) | — | | | — | |
| Income from current assets | (7) | | (8) | | 8 | | 1(i) | — | | | — | |
| Other financial income | (142) | | (165) | | 165 | | 1(i) | — | | | — | |
| Other (income) expense, net | | | | (2,974) | | 1(c,h,i) | 2,328 | | 2(a, d) | (646) | |
| Income (loss) before income taxes | | 5,248 | | 6,100 | | — | | | (4,730) | | | 1,370 | |
| Income tax expense (benefit) | | | | 907 | | 1(j) | (1,090) | | 2(a, e) | (183) | |
| Taxes | 786 | | 914 | | (914) | | 1(j) | — | | | — | |
| Adjustment of income taxes and write-back of tax provisions | (6) | | (7) | | 7 | | 1(j) | — | | | — | |
| Net income (loss) | | 4,468 | | 5,193 | | — | | | (3,640) | | | 1,553 | |
| Net income (loss) attributable to noncontrolling interests | | | | — | | | 25 | | 2(a) | 25 | |
| Net income (loss) available to common shareholders | | € | 4,468 | | $ | 5,193 | | $ | — | | | $ | (3,665) | | | $ | 1,528 | |
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
1(a) Represents the reclassification from "Produced fixed assets" and "Other operating income" as reported by Space NV to "Cost of sales" as reported by Redwire.
1(b) Represents the reclassification from "Goods for resale, raw materials and consumables - Purchases" as reported by Space NV to "Cost of sales" as reported by Redwire.
1(c) Represents the reclassification from "Services and other goods" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Cost of sales | $ | 1,939 | |
| Selling, general and administrative expenses | 1,570 | |
| Other (income) expense, net | 23 | |
| $ | 3,532 | |
1(d) Represents the reclassification from "Remuneration, social security and pensions" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Cost of sales | $ | 8,834 | |
| Selling, general and administrative expenses | 3,026 | |
| $ | 11,860 | |
1(e) Represents the reclassification from "Amortisations of and other amounts written down on formation expenses, intangible and tangible fixed assets" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Cost of sales | $ | 791 | |
| Selling, general and administrative expenses | 127 | |
| $ | 918 | |
1(f) Represents the reclassification from "Provisions for liabilities and charges: appropriations (uses and write-backs)" as reported by Space NV to "Cost of sales" as reported by Redwire.
1(g) Represents the reclassification from "Other operating charges" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Cost of sales | $ | 34 | |
| Selling, general and administrative expenses | 13 | |
| $ | 47 | |
1(h) Represents the reclassification from "Other financial charges" as reported by Space NV to the following line items as reported by Redwire (in thousands):
| | | | | |
| Redwire Presentation | Reclassification Adjustments |
| Selling, general and administrative expenses | $ | 14 | |
| Other (income) expense, net | 8 | |
| $ | 22 | |
1(i) Represents the reclassification from "Income from financial fixed assets", "Income from current assets" and "Other financial income" as reported by Space NV to "Other (income) expense, net" as reported by Redwire.
1(j) Represents the reclassification from "Taxes" and "Adjustment of income taxes and write-back of tax provisions" as reported by Space NV to "Income tax expense (benefit)" as reported by Redwire.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
2(a) Represents the U.S. GAAP adjustment to give effect to the consolidation of ROS into the historical financial statements of Space NV. Space NV held 52% of the equity interest in ROS as of March 31, 2022. The following tables presents the impact to the statement of operations for the year ended March 31, 2022 (in thousands):
| | | | | |
| Redwire Presentation | U.S. GAAP Adjustments |
| Revenues | $ | 5,944 | |
| Cost of sales | 1,552 | |
| Gross margin | 4,392 | |
| Operating expenses | |
| Selling, general and administrative expenses | 4,360 | |
| Research and development | — | |
| Total operating expenses | 4,360 | |
| Operating income (loss) | 32 | |
| Interest expense, net | 18 | |
| Other (income) expense, net | 73 | |
| Income (loss) before income taxes | (59) | |
| Income tax expense (benefit) | 61 | |
| Net income (loss) | (120) | |
| Net income (loss) attributable to noncontrolling interests | 25 | |
| Net income (loss) available to common shareholders | $ | (145) | |
2(b) Represents the U.S. GAAP adjustment to reverse amounts capitalized under intangible assets with a corresponding adjustment to research and development expense. Capitalized research and development relates to cost incurred in accumulation of necessary know-how for developing future equipment. This cost incurred is not related to development of any tangible assets or software. The income statement impact resulted in an increase in "Research and development" expense of $2.57 million for the year ended March 31, 2022.
2(c) Represents the U.S. GAAP adjustment to determine revenue recognition using the POC method, including sub-contractor costs. Historical Space NV revenues were calculated whereby the POC excluded sub-contractor costs, which were recorded on an incurred cost basis in revenues and cost of goods sold. An adjustment was made to revenues by recalculating the POC using total project costs incurred to date (March 31, 2022) as a percentage of the total estimated costs to complete (i.e., including sub-contractor costs). The income statement impact resulted in an increase in "Revenues" of $0.15 million for the year ended March 31, 2022.
2(d) Represents the U.S. GAAP adjustment to record Space NV’s investment in RSS as an equity method investment, whereas the investment in RSS was recorded at cost under Belgian GAAP. The income statement impact resulted in a reduction in "Other (income) expense, net" of $2.26 million for the year ended March 31, 2022. This amount corresponds to the reversal of cash dividends previously recorded on Historical Space NV's statement of operations as Income from financial fixed assets, partially offset by the recognition of Space NV's share of net income from the investment in RSS.
2(e) Represents the U.S. GAAP adjustment to record the tax impact of fair value adjustments associated with accounting for the Acquisition under ASC 805, assuming the Belgian statutory rate of 25%. The income statement impact resulted in a reduction of Historical Space NV income tax expense of $1.15 million for the year ended March 31, 2022.
Note 3. Transaction Accounting Adjustments
The Acquisition will be accounted for using the acquisition method of accounting in accordance with ASC 805, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their acquisition date fair values, with any excess of the consideration transferred over the estimated fair values of the identifiable assets acquired and liabilities assumed recorded as goodwill.
The accounting for the Acquisition is based on currently available information and is considered preliminary. The final accounting for the Acquisition may differ materially from that presented in the unaudited pro forma combined condensed financial information.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following table summarizes the preliminary purchase consideration allocation for the Acquisition as if it had been consummated on June 30, 2022 (in thousands):
| | | | | |
| Fair value |
| Cash paid | $ | 36,930 | |
| Note payable to seller | 296 | |
| Purchase consideration | 37,226 | |
| Assets: | |
| Cash and cash equivalents | 7,886 | |
| Accounts receivables, net | 5,136 | |
| Contract assets | 14,083 | |
| Prepaid expenses and other current assets | 2,133 | |
| Property, plant and equipment, net | 4,604 | |
| Right-of-use assets | 1,675 | |
| Intangible assets, net | 16,618 | |
| Equity method investment | 3,394 | |
| |
| Total assets | 55,529 | |
| Liabilities: | |
| Accounts payable | 1,515 | |
| |
| Accrued expenses | 17,793 | |
| Short-term lease liabilities | 505 | |
| Deferred revenue | 6,466 | |
| Other current liabilities | 1,098 | |
| Long-term lease liabilities | 1,191 | |
| Deferred tax liabilities | 3,846 | |
| Other non-current liabilities | 240 | |
| Total liabilities | 32,654 | |
| Fair value of net identifiable assets acquired | 22,875 | |
| Non-controlling interest | 143 | |
| Goodwill | $ | 14,494 | |
The preliminary purchase accounting was based on a benchmarking analysis of similar transactions in the industry in order to identify value allocations of purchase considerations to assets acquired and liabilities assumed including intangible assets, and real and personal property assets.
The final purchase consideration allocation will be determined when the Company completes the detailed valuations and necessary calculations and will be completed as soon as practicable within the measurement period in accordance with ASC 805, but in no event later than one year from the Acquisition. The final purchase consideration allocation may be materially different than that reflected in the preliminary purchase consideration allocation presented herein, and may include changes in (1) the fair values of property, plant and equipment and related useful lives; (2) the fair value of favorable lease arrangements, impacting the total operating lease right-of-use assets; (3) the fair values of equity method investments; (4) the determination of certain other assets and liability balances; (5) the valuation of pension liabilities; (6) the determination of deferred tax liabilities; (7) the fair values of intangible assets, such as trade names, customer relationships and developed technology; and (8) the final allocation to goodwill. Any increase or decrease in fair values of the net assets as compared with the proforma financial information may change the amount of the total purchase consideration allocated to goodwill and other assets and liabilities and may impact the combined company statements of operations.
A. Total purchase consideration was approximately $37.23 million, of which $0.30 million represents a note payable to seller. Transaction expenses of $2.86 million include legal and other advisory fees that have not been reflected in the historical statement of operations.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
B. Reflects the preliminary adjustment to cash in connection with the Acquisition and Financing, as follows (in thousands):
| | | | | |
| |
| Proceeds from AEI (1) | $ | 30,000 | |
| Proceeds from Bain Capital (1) | 50,000 | |
| Proceeds from the Additional Investors (1) | 1,250 | |
| Less: Payment of equity issuance costs (2) | (4,833) | |
| Net cash proceeds related to the Financing | 76,417 | |
| Less: Payment of purchase consideration to seller (3) | (36,930) | |
Less: Payment of buyer’s transaction costs (4) | (2,862) | |
| Pro forma adjustment to cash and cash equivalents | $ | 36,625 | |
(1) Represents the proceeds from issuance of the Preferred Shares.
(2) Represents the payment of equity issuance costs related to the Financing.
(3) Represents the payment of purchase consideration related to the Acquisition.
(4) Represents estimated transaction costs and fees payable related to the Acquisition at closing.
C. Reflects Space NV’s historical equity of $8.09 million which was reversed as part of the Acquisition.
D. Reflects the preliminary estimated fair value step up adjustment to the property, plant and equipment, investment in RSS, and identifiable intangible assets acquired pursuant to the Acquisition. Incremental depreciation expense on property, plant and equipment is calculated using the straight-line method over its estimated useful life. The acquired intangible assets will be amortized over the period the economic benefits of the intangible assets are expected to be consumed.
E. Reflects the estimated deferred taxes related to the purchase price allocation and income tax impact from the pro forma adjustments.
Note 4. Financing Adjustments
Pursuant to the Investment Agreements and the Additional Investment Agreements, Redwire issued 81,250 shares of Convertible Preferred Stock for aggregate gross proceeds of $81.25 million, or $76.42 million, net of equity issuance costs. The Investment Agreements and the Additional Investment Agreements contain certain customary representations, warranties and covenants of the Company and Investors.
Bain Capital Director and Nominees
Pursuant to the Bain Investment Agreement, for so long as Bain Capital has record and beneficial ownership of at least 50% of the Purchased Shares issued to it at the time of closing, Bain Capital has the right to designate one member to the Board of Directors of the Company.
Convertible Preferred Stock Features
No holder of Convertible Preferred Stock may transfer any of their shares to any unaffiliated person for twelve (12) months following the closing date of the applicable investment agreement, except for certain exceptions, including that Bain Capital and AEI may transfer shares to each other. Bain Capital and AEI have been provided customary preemptive rights with respect to the Convertible Preferred Stock and, after the seventh anniversary of their respective closing dates, for so long as each holder has record and beneficial ownership of at least 50% of the Purchased Shares initially issued to them, may cause the Company to retain an investment banker to identify and conduct a potential sale of the Company.
The holders of Convertible Preferred Stock are entitled to vote with the holders of Common Stock, on an as-converted basis. The holders of Convertible Preferred Stock have the right, at their option and at any time, to convert their shares into shares of the Common Stock. Each share of Convertible Preferred Stock will mandatorily convert upon achieving thresholds related to the Company’s market capitalization and profitability metrics and the Company is required to make an offer to repurchase the outstanding Convertible Preferred Stock upon a fundamental change. The Convertible Preferred Stock ranks senior to the Company’s common stock. Dividends on the Convertible Preferred Stock can be paid in either cash or in kind in the form of additional shares of Convertible Preferred Stock (such payment in kind, “PIK”), at the option of the Company, subject to certain exceptions. If paid in cash, such dividends will be paid at a rate of 13% per annum, subject to certain adjustments and exceptions or, if the Company issues PIK dividends, at a rate of 15% per annum, subject to certain adjustments and exceptions. Each holder of Convertible Preferred Stock has been given certain registration rights pursuant to the Registration Rights Agreement, dated October 28, 2022.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The Financing Adjustments included in the unaudited combined condensed financial statements are based on the Company's preliminary accounting analysis and is based on currently available information and certain estimates and assumptions that management believes are reasonable. The final accounting for the Financing may differ materially from the transaction adjustments presented in the unaudited pro forma combined condensed financial statements.
F. Reflects the issuance and sale of Series A Convertible Preferred Stock in exchange for $76.42 million in cash, net of $4.83 million in transaction costs.
Note 5. Net Income (Loss) Per Share
The following table sets forth the computation of pro forma basic and diluted earnings per share for the six months ended June 30, 2022 and the year ended December 31, 2021. Amounts are stated in thousands of U.S. Dollars, except for share and per share amounts.
| | | | | | | | | | | |
| Six Months Ended | | Year Ended |
| | June 30, 2022 | | December 31, 2021 |
| Numerator: | | | |
Pro forma combined net income (loss) | $ | (94,044) | | | $ | (64,979) | |
| Less: dividend on Convertible Preferred Stock | 6,871 | | | 12,492 | |
Pro forma combined net income (loss) available to common shareholders | $ | (100,915) | | | $ | (77,471) | |
| | | |
| Denominator: | | | |
Historical weighted average common shares outstanding - basic and diluted | 62,842,495 | | 45,082,544 |
| | | |
| Net income (loss) per share: | | | |
| Pro forma combined net income (loss) per share - basic and diluted | $ | (1.61) | | | $ | (1.72) | |
Because the Company had a net loss for all periods presented, the Company did not have any dilutive securities and/or other contracts that could, potentially, be exercised or converted into shares of the Company’s common stock and then share in the earnings of the Company. As a result, diluted net income (loss) per share is the same as basic net income (loss) per share for the periods presented. For the six months ended June 30, 2022 and the year ended December 31, 2021, potentially diluted shares consisted of Convertible Preferred Stock, warrants, stock options, and restricted stock units that were not included in the computation of diluted EPS because to do so would have been antidilutive for the period.
