The following unaudited pro forma combined condensed financial statements (the
"Pro Forma Statements") of Micromuse Inc. ("Micromuse" or "the Company") were
prepared to illustrate the effect of the acquisition of NetOps Corporation
("NetOps"), a privately-held company that develops network problem diagnosis
technology, pursuant to an agreement and plan of merger and reorganization (the
Merger Agreement") among the Company, NetOps and Salamander Acquisition
Corporation, dated June 21, 2000 (the "Merger"). Under the terms of the Merger
Agreement, Micromuse issued approximately 143,000 shares of the Company's
common stock, or approximately $18.6 million (see footnote (e)), and assumed
liabilities in the amount of approximately $1.3 million to acquire all of the
outstanding common and preferred shares of NetOps. In addition, Micromuse will
pay approximately $1.0 million of expenses related to the Merger. The Merger
will be accounted for under the purchase method of accounting and will be
treated as a tax-free reorganization for federal income tax purposes.
An estimate of the allocation of the purchase price is as follows (in millions):
In-process research and development $ 2.0
Net tangible assets 0.5
Assumed liabilities (1.3)
Intangible assets:
Assembled workforce 1.3
Core technology 10.0
Goodwill 8.0
-------
Total intangible assets 19.3
-------
Total $ 20.5
=======
The estimated aggregate fair value of NetOps' research and development efforts
that will not have reached technological feasibility as of the acquisition date
and had no alternative future uses is estimated by the Company's management to
be approximately $2.0 million, and will be expensed at the acquisition date.
Goodwill, which represents the excess of the purchase price over the fair value
of identifiable tangible and intangible assets acquired less liabilities
assumed, will be amortized over the estimated life, which is expected to be
approximately five years. An independent valuation of the purchase price
allocation is expected to be complete within one month of this filing.
The Pro Forma Statements were prepared as if the Merger had occurred on October
1, 1998 and combine the Company's consolidated results of operations with
NetOps' results of operations for their fiscal years ended September 30, 1999
and December 31, 1999, respectively, and for the nine months ended June 30,
2000. NetOps quarterly results for the quarter ended December 31, 1999 included
revenues of $1.9 million and a net loss of $0.3 million and are included in both
the statements of operations for the full year presentation and the nine month
period ended June 30, 2000. The pro forma combined condensed balance sheet was
prepared as if the Merger had occurred on June 30, 2000.
The Pro Forma Statements include the impact of certain adjustments including the
additional amortization relating to intangible assets acquired. These
adjustments were based upon available information and certain assumptions and
estimates that management believes were reasonable under the circumstances. In
the opinion of management, all adjustments have been made that were necessary to
present fairly the pro forma data. In connection with the transaction, Micromuse
estimates a charge of $2.0 million representing the fair value of in-process
research and development acquired from NetOps. This one-time charge is excluded
from the pro forma results of operations.
The Pro Forma Statements are presented for informational purposes only and do
not purport to represent (i) the future results of operations of Micromuse or
(ii) the actual results of operations or financial position of the Company had
the Merger occurred on the dates assumed. In addition, the pro forma results are
not intended to be a projection of future results. The pro forma statements
should be read in conjunction with the Micromuse Quarterly Report on Form 10-Q
and Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on August 14, 2000 and December 28, 1999, respectively, and the
financial statements of NetOps appearing elsewhere in this document.
<PAGE>
MICROMUSE INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended
------------------------------------------------------
September 30, December 31,
1999 1999 Pro Forma Pro Forma
Micromuse NetOps Adjustments Combined
------------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 58,070 $ 2,500 $ -- $ 60,570
Cost of revenues 9,844 1,006 -- 10,850
-------- -------- -------- --------
Gross profit 48,226 1,494 -- 49,720
Sales and marketing 27,420 1,205 -- 28,625
Research and development 9,453 838 -- 10,291
General and administrative 5,998 2,566 -- 8,564
Purchased In-Process R&D -- -- -- --
Amortization of goodwill and purchased
intangible assets -- -- 4,041 (a) 4,041
Executive recruiting costs 720 -- -- 720
-------- -------- -------- --------
Income (loss) from operations 4,635 (3,115) (4,041) (2,520)
Other income, net 4,091 154 -- 4,245
-------- -------- -------- --------
Income (loss) before income taxes 8,726 (2,961) (4,041) 1,725
Income tax provision 840 -- -- 840
-------- -------- -------- --------
Net income (loss) $ 7,886 $ (2,961) $ (4,041) $ 885
======== ======== ======== ========
Per share data:
Basic net income $ 0.25 $ 0.03
Diluted net income $ 0.23 $ 0.03
Weighted average shares used in computing:
Basic net income per share 31,818 31,962
Diluted net income per share 35,008 35,152
</TABLE>
Pro Forma Adjustments:
(a) Reflects the amortization of goodwill and purchased intangible
assets over the estimated useful lives of three to five years.
<PAGE>
MICROMUSE INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the nine months ended June 30, 2000
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Micromuse NetOps Adjustments Combined
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 82,402 $ 2,647 $ -- $ 85,049
Cost of revenues 14,011 296 -- 14,307
-------- -------- -------- --------
Gross profit 68,391 2,351 -- 70,742
Sales and marketing 36,292 719 -- 37,011
Research and development 12,459 2,052 -- 14,511
General and administrative 7,680 2,467 -- 10,147
Purchased In-Process R&D 11,066 -- -- 11,066
Amortization of goodwill and purchased
intangible assets 3,224 -- 3,030 (a) 6,975
-------- -------- -------- --------
Loss from operations (2,330) (2,887) (3,030) (8,247)
Other income, net 3,387 61 -- 3,448
-------- -------- -------- --------
Income/(Loss) before income taxes 1,057 (2,826) (3,030) (4,799)
Income tax provision 5,678 440 -- 6,118
-------- -------- -------- --------
Net loss $ (4,621) $ (3,266) $ (3,030) $(10,917)
======== ======== ======== ========
Basic & diluted net loss per share $ (0.14) $ (0.32)
Weighted average shares used in computing
basic & diluted net loss per share 34,057 34,201
</TABLE>
Pro Forma Adjustments:
(a) Reflects the amortization of goodwill and purchased intangible
assets over the estimated useful lives of three to five years.
<PAGE>
MICROMUSE INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
As of June 30, 2000
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Micromuse NetOps Adjustments Combined
--------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 82,083 $ 200 $ -- $ 82,283
Short-term investments 18,466 -- -- 18,466
Accounts receivable, net 14,960 5 -- 14,965
Prepaid expenses and other current
assets 5,318 110 -- 5,428
Property and equipment, net 8,584 327 -- 8,911
Goodwill and purchased intangible
assets, net 28,516 -- 18,693 (c) 47,209
Other assets 1,031 29 -- 1,060
--------- --------- --------- ---------
Total assets $ 158,958 $ 671 $ 18,693 $ 178,323
========= ========= ========= =========
Accounts payable $ 2,734 $ 361 $ -- $ 3,095
Accrued expenses 15,021 -- 2,280 (b) 17,301
Income taxes payable 2,539 -- -- 2,539
Deferred revenue 20,924 139 (139)(f) 20,924
Preferred stock -- 8,021 (8,021)(d) --
Common stock 127,046 1,311 22,734 (d) 151,091
Accumulated deficit (8,135) (9,095) 7,095 (d) (10,135)
Other equity (1,171) (66) 66 (d) (1,171)
--------- --------- --------- ---------
Total liabilities &
stockholders' equity $ 158,958 $ 671 $ 18,693 $ 178,323
========= ========= ========= =========
</TABLE>
Pro Forma Adjustments:
(a) Reflects the amortization of goodwill and purchased intangible
assets over the estimated useful lives of three to five years.
(b) Reflects a $1.3 million bonus accrual for NetOps employees and an
estimated $1.0 million accrual related to closing costs.
(c) Reflects the capitalization of goodwill and purchased intangible
assets.
(d) Reflects the elimination of NetOps equity, the issuance of Micromuse
stock and the write-off of purchased in-process research and
development.
(e) The common stock was valued using Micromuse's average stock price on
the date the merger agreement was announced including the closing
price of the stock two days before and after the announcement. The
average value was $129.41.
(f) To record the reduction of deferred revenue related to the estimated
calculations of Micromuse's obligation to perform future services
equal to the expected costs to provide the services plus a normal
profit margin.
