EXHIBIT 99.3
HURON CONSULTING GROUP INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information reflects the estimated effect of the acquisition of Callaway Partners, LLC (“Callaway”) by Huron Consulting Group Inc. (the “Company”).
The unaudited pro forma consolidated balance sheet as of June 30, 2007 combines the respective balance sheets of the Company and Callaway as if the acquisition was consummated on June 30, 2007. The unaudited pro forma consolidated statements of income for the year ended December 31, 2006 and for the six months ended June 30, 2007 combine the respective statements of income of the Company and Callaway as if the acquisition was consummated on January 1, 2006.
The unaudited pro forma balance sheet and consolidated statements of income are based on the purchase method of accounting and the pro forma adjustments as described in the accompanying notes. Such pro forma adjustments give effect to transactions that are directly attributable to the acquisition and are factually supportable.
Pursuant to the asset purchase agreement, additional purchase consideration is payable in cash to the sellers of Callaway if specific performance targets are met over the five-year period beginning on January 1, 2008 and ending on December 31, 2012. The amount of additional purchase consideration that may become payable is not determinable at this time and therefore, the pro forma statements do not reflect the potential impact of such contingent payments.
The allocation of the purchase price is preliminary and is subject to refinement pending the completion of a valuation of the intangible assets acquired.
The unaudited pro forma financial information should be read in conjunction with Callaway’s financial statements and notes thereto, which are filed as Exhibits 99.1 and 99.2 to this Current Report on Form 8-K/A. The unaudited pro forma financial information should also be read in conjunction with the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2006 included in the Company’s Annual Report on Form 10-K, as well as the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, 2007 and June 30, 2007.
The unaudited pro forma consolidated financial information is not necessarily indicative of what actually would have occurred if the acquisition had been effective for the periods presented and should not be taken as representative of our future consolidated results of operations or financial position.
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HURON CONSULTING GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2007
(In thousands)
Company | Callaway | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||
Assets | ||||||||||||||||
| Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 3,437 | $ | 2,717 | $ | (2,717 | ) | (3) | $ | 3,437 | ||||||
Receivables and unbilled services, net | 100,240 | 10,047 | ¾ | 110,287 | ||||||||||||
Income tax receivable | 1,651 | ¾ | ¾ | 1,651 | ||||||||||||
Deferred income taxes | 22,280 | ¾ | ¾ | 22,280 | ||||||||||||
Other current assets | 12,204 | 402 | (151 | ) | (3) | 12,455 | ||||||||||
Total current assets | 139,812 | 13,166 | (2,868 | ) | 150,110 | |||||||||||
Property and equipment, net | 32,017 | 725 | ¾ | 32,742 | ||||||||||||
Deferred income taxes | 3,029 | ¾ | ¾ | 3,029 | ||||||||||||
Deposits and other assets | 7,508 | 41 | ¾ | 7,549 | ||||||||||||
Intangible assets, net | 15,002 | ¾ | 5,000 | (2) | 20,002 | |||||||||||
Goodwill | 137,707 | ¾ | 49,375 | (2) | 187,082 | |||||||||||
Total assets | $ | 335,075 | $ | 13,932 | $ | 51,507 | $ | 400,514 | ||||||||
Liabilities and Stockholders’/Members’ Equity | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 24,396 | $ | 1,460 | $ | 3,404 | (2) | $ | 28,174 | |||||||
(1,086 | ) | (3) | ||||||||||||||
Accrued payroll and related benefits | 35,100 | 2,712 | (1,256 | ) | (3) | 36,556 | ||||||||||
Deferred revenues | 6,608 | ¾ | ¾ | 6,608 | ||||||||||||
Current portion of notes payable andcapital lease obligations | 1,141 | ¾ | ¾ | 1,141 | ||||||||||||
Total current liabilities | 67,245 | 4,172 | 1,062 | 72,479 | ||||||||||||
| Non-current liabilities: | ||||||||||||||||
Deferred compensation and other liabilities | 2,737 | 74 | ¾ | 2,811 | ||||||||||||
Bank borrowings | 107,000 | ¾ | 60,000 | (1) | 167,000 | |||||||||||
Deferred lease incentives | 10,246 | 131 | ¾ | 10,377 | ||||||||||||
Total non-current liabilities | 119,983 | 205 | 60,000 | 180,188 | ||||||||||||
Stockholders’/members’ equity | 147,847 | 9,555 | (9,555 | ) | (3) | 147,847 | ||||||||||
Total liabilities and stockholders’ equity | $ | 335,075 | $ | 13,932 | $ | 51,507 | $ | 400,514 | ||||||||
See accompanying notes.
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HURON CONSULTING GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2006
(In thousands, except per share amounts)
Company | Callaway | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||
Revenues and reimbursable expenses: | ||||||||||||||||
Revenues | $ | 288,588 | $ | 73,063 | $ | ¾ | (4) | $ | 361,651 | |||||||
Reimbursable expenses | 33,330 | 11,721 | ¾ | 45,051 | ||||||||||||
Total revenues and reimbursable expenses | 321,918 | 84,784 | ¾ | 406,702 | ||||||||||||
Direct costs and reimbursable expenses (exclusive of depreciation and amortizationshown in operating expenses): | ||||||||||||||||
Direct costs | 163,569 | 52,423 | (2,325 | ) | (5) | 213,667 | ||||||||||
Intangible assets amortization | 2,207 | ¾ | 2,000 | (6) | 4,207 | |||||||||||
Reimbursable expenses | 33,506 | 11,721 | ¾ | 45,227 | ||||||||||||
Total direct costs and reimbursable expenses | 199,282 | 64,144 | (325 | ) | 263,101 | |||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 65,926 | 10,018 | ¾ | 75,944 | ||||||||||||
Depreciation and amortization | 9,201 | 177 | 200 | (6) | 9,578 | |||||||||||
Total operating expenses | 75,127 | 10,195 | 200 | 85,522 | ||||||||||||
Operating income | 47,509 | 10,445 | 125 | 58,079 | ||||||||||||
Other expense | (687 | ) | (243 | ) | (3,636 | ) | (7) | (4,566 | ) | |||||||
Income before provision for income taxes | 46,822 | 10,202 | (3,511 | ) | 53,513 | |||||||||||
Provision benefit for income taxes | 20,133 | ¾ | 2,737 | (8) | 22,870 | |||||||||||
Net income | $ | 26,689 | $ | 10,202 | $ | (6,248 | ) | $ | 30,643 | |||||||
| Earnings per share: | ||||||||||||||||
Basic | $ | 1.63 | $ | 1.87 | ||||||||||||
Diluted | $ | 1.54 | $ | 1.77 | ||||||||||||
| Weighted average shares used in calculating earnings per share: | ||||||||||||||||
Basic | 16,359 | 16,359 | ||||||||||||||
Diluted | 17,317 | 17,317 | ||||||||||||||
See accompanying notes.
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HURON CONSULTING GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2007
(In thousands, except per share amounts)
Company | Callaway | Pro Forma Adjustments | Note | Pro Forma Combined | ||||||||||||
Revenues and reimbursable expenses: | ||||||||||||||||
Revenues | $ | 234,275 | $ | 30,330 | $ | ¾ | (4) | $ | 264,605 | |||||||
Reimbursable expenses | 20,945 | 4,135 | ¾ | 25,080 | ||||||||||||
Total revenues and reimbursable expenses | 255,220 | 34,465 | ¾ | 289,685 | ||||||||||||
Direct costs and reimbursable expenses (exclusive of depreciation and amortizationshown in operating expenses): | ||||||||||||||||
Direct costs | 133,411 | 19,555 | ¾ | 152,966 | ||||||||||||
Intangible assets amortization | 4,544 | ¾ | ¾ | 4,544 | ||||||||||||
Reimbursable expenses | 20,931 | 4,135 | ¾ | 25,066 | ||||||||||||
Total direct costs and reimbursable expenses | 158,886 | 23,690 | ¾ | 182,576 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 49,433 | 6,605 | ¾ | 56,038 | ||||||||||||
Depreciation and amortization | 8,219 | 169 | 800 | (6) | 9,188 | |||||||||||
Total operating expenses | 57,652 | 6,774 | 800 | 65,226 | ||||||||||||
Operating income | 38,682 | 4,001 | (800 | ) | 41,883 | |||||||||||
Other income (expense) | (3,125 | ) | 38 | (1,818 | ) | (7) | (4,905 | ) | ||||||||
Income before provision for income taxes | 35,557 | 4,039 | (2,618 | ) | 36,978 | |||||||||||
Provision benefit for income taxes | 15,645 | ¾ | 581 | (8) | 16,226 | |||||||||||
Net income | $ | 19,912 | $ | 4,039 | (3,199 | ) | $ | 20,752 | ||||||||
| Earnings per share: | ||||||||||||||||
Basic | $ | 1.19 | $ | 1.24 | ||||||||||||
Diluted | $ | 1.11 | $ | 1.16 | ||||||||||||
| Weighted average shares used in calculating earnings per share: | ||||||||||||||||
Basic | 16,784 | 16,784 | ||||||||||||||
Diluted | 17,881 | 17,881 | ||||||||||||||
See accompanying notes.
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HURON CONSULTING GROUP INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
| (1) | In connection with the acquisition, the Company borrowed $60.0 million under its bank credit agreement. Such borrowings bear a current interest rate of 6.06%. Also, pursuant to the stock purchase agreement, the purchase price will include a working capital adjustment. |
| (2) | The purchase price was allocated, based on a preliminary valuation, as follows (in thousands): |
| Net assets purchased | $ | 11,064 | ||
| Liabilities assumed | (2,035 | ) | ||
| Working capital adjustment | (3,404 | ) | ||
| Intangible assets identified | 5,000 | |||
| Goodwill | 49,375 | |||
Total purchase price | $ | 60,000 |
| (3) | This adjustment is to eliminate the assets and liabilities that the Company did not acquire or assume. |
| (4) | For the year ended December 31, 2006, one client accounted for approximately 43% of Callaway’s revenues. For the six months ended June 30, 2007, this same client accounted for approximately 17% of Callaway’s revenues. The Company expects the revenues generated by this client to continue to decline as the engagement winds down. |
| (5) | This adjustment is to record contractual obligations pursuant to an employment agreement entered into between the Company and a Callaway employee in connection with the acquisition and to reverse the employee’s respective salary and bonus recorded on Callaway’s financial statements. |
| (6) | This adjustment is to record estimated amortization expense for identifiable intangible assets as presented in the table below (in thousands). Amortization expense for customer contracts and non-competition agreements are recognized on a straight-line basis. Amortization expense for customer relationships is recognized based on projected discounted cash flows in each of the year beginning in 2007. |
| Intangible Asset | Value | Estimated Useful Life | Year Ended Dec 31, 2006 | Six Months Ended Jun 30, 2007 | |||||||||
| Customer contracts | $ | 2,000 | 5 months | $ | 2,000 | $ | ¾ | ||||||
| Customer relationships | $ | 1,800 | 36 months | $ | ¾ | $ | 700 | ||||||
| Non-competition agreements | $ | 1,200 | 72 months | 200 | 100 | ||||||||
$ | 200 | $ | 800 | ||||||||||
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| (7) | This adjustment is to record interest expense relating to borrowings of $60.0 million based on the interest rate on the acquisition date, calculated as follows (in thousands): |
Year Ended Dec 31, 2006 | Six Months Ended Jun 30, 2007 | ||||||
| Borrowings | $ | 60,000 | $ | 60,000 | |||
Interest rate (on acquisition date) | 6.06 | % | 6.06 | % | |||
Interest expense | $ | 3,636 | $ | 1,818 | |||
The $60.0 million of borrowings bear interest at LIBOR plus a spread, which is based on the Company’s debt to earnings before interest, depreciation and amortization ratio, as specified in the credit agreement. A variance of 0.125% in the interest rate would have a $75,000 and $37,500 pro forma effect on pre-tax income for the year ended December 31, 2006 and the six months ended June 30, 2007, respectively.
| (8) | This adjustment is to record the income tax effect of the afore-mentioned pro forma adjustments and also to record an income tax provision as if Callaway had filed its income tax returns on a consolidated basis with the Company, calculated as follows (in thousands): |
Year Ended Dec 31, 2006 | Six Months Ended Jun 30, 2007 | ||||||
| Salaries adjustment (see note 5 above) | $ | (2,325 | ) | $ | ¾ | ||
| Intangible assets amortization expense (see note 6 above) | 2,200 | 800 | |||||
Interest expense (see note 7 above) | 3,636 | 1,818 | |||||
Income before taxes, before pro forma adjustments | (10,202 | ) | (4,039 | ) | |||
Subtotal income | (6,691 | ) | (1,421 | ) | |||
Tax rate | 40.9 | % | 40.9 | % | |||
Provision for taxes | $ | 2,737 | $ | 581 | |||
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