Exhibit 99.4
InnerWorkings, Inc.
Unaudited Pro Forma Condensed Consolidated Financial Statements
On November 30, 2007, InnerWorkings, Inc. (the “Company”) acquired New York City-based Corporate Edge, Inc. (“Corporate Edge”), a major national distributor of promotional products, which creates cutting-edge corporate business solutions for Fortune 500 clients. Corporate Edge offers an experienced team with creative expertise and tactical flexibility that delivers quality branded merchandise on time and on budget.
For purposes of the Unaudited Pro Forma Condensed Consolidated Income Statements for the nine months ended September 30, 2007 and the year ended December 31, 2006, we have assumed the Corporate Edge acquisition occurred on January 1, 2006.
The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to the Corporate Edge acquisition as if it had occurred on September 30, 2007.
The Company and Corporate Edge have the same fiscal year end, December 31. The Unaudited Pro Forma Condensed Consolidated Income Statement for the nine months ended September 30, 2007 has been derived from:
| · | | the unaudited historical consolidated income statement of the Company for the nine months ended September 30, 2007; and |
| · | | the unaudited historical consolidated income statement of Corporate Edge for the nine months ended September 30, 2007. |
The unaudited pro forma condensed consolidated income statement for the year ended December 31, 2006 has been derived from:
| · | | the audited historical consolidated income statement of the Company for the year ended December 31, 2006; and |
| · | | the audited historical consolidated income statement of Corporate Edge for the year ended December 31, 2006. |
The unaudited pro forma condensed consolidated balance sheet as of September 30, 2007 has been derived from:
| · | | the unaudited historical consolidated balance sheet of the Company as of September 30, 2007; and |
| · | | the unaudited historical consolidated balance sheet of Corporate Edge as of September 30, 2007. |
These Unaudited Pro Forma Condensed Consolidated Financial Statements (“the unaudited pro forma financial statements”) have been prepared based on preliminary estimates of fair values of the assets acquired and liabilities assumed as of the acquisition date. The actual amounts recorded for the acquisition may differ from the information presented here. The purchase price has been allocated on a preliminary basis based on management’s best estimates of fair value, with the excess cost over net tangible and intangible assets acquired being allocated to goodwill. These allocations are subject to change pending a final analysis of the fair value of the assets acquired and liabilities assumed as of the acquisition date. In addition, post-closing adjustments to the purchase price will affect the purchase price allocation.
The unaudited pro forma financial statements presented are for illustration purposes only and do not necessarily indicate the operating results or financial position that would have been achieved if the Corporate Edge acquisition had occurred on January 1, 2006 or September 30, 2007, as applicable, nor is it indicative of future operating results or financial position.
The unaudited pro forma financial statements do not reflect any operating efficiencies or cost savings that we may achieve with respect to the combined companies, nor do they include the effects of restructuring activities.
The unaudited pro forma financial statements should be read in conjunction with the accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements and the historical consolidated financial statements and accompanying notes included in this Form 8-K filing, and the Company’s historical consolidated financial statements filed as part of our most recent Form 10-K filing and Form 10-Q filing.
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InnerWorkings, Inc
Unaudited Pro Forma Condensed Consolidated Balance Sheet
September 30, 2007
| | | | | | Acquisition | | | |
| | InnerWorkings, Inc. | | Corporate Edge | | Pro Forma | | Pro Forma | |
| | September 30, 2007 | | September 30, 2007 | | Adjustments | | as Adjusted | |
| | | | | | | | | |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | | $ | 54,317,892 | | $ | 261,995 | | $ | (17,977,754 | )(1) | $ | 36,602,133 | |
Marketable securities | | 15,950,000 | | — | | — | | 15,950,000 | |
Accounts receivable, net of allowance for doubtful accounts | | 57,453,661 | | 8,213,761 | | — | | 65,667,422 | |
Unbilled revenue | | 8,816,169 | | — | | — | | 8,816,169 | |
Inventories | | 3,786,805 | | 3,824,856 | | 47,810 | (2) | 7,659,471 | |
Note receivable | | — | | 229,341 | | — | | 229,341 | |
Prepaid expenses | | 4,297,425 | | 1,032,270 | | — | | 5,329,695 | |
Advances to related parties | | 73,309 | | — | | — | | 73,309 | |
Deferred income taxes | | 819,028 | | — | | — | | 819,028 | |
Other current assets | | 1,960,693 | | — | | — | | 1,960,693 | |
Total current assets | | 147,474,982 | | 13,562,223 | | (17,929,944 | ) | 143,107,261 | |
Property and equipment, net | | 3,603,532 | | 643,901 | | — | | 4,247,433 | |
Intangibles and other assets: | | | | | | | | | |
Goodwill | | 15,615,748 | | — | | 6,436,826 | (3) | 22,052,574 | |
Intangible assets, net of accumulated amortization | | 8,014,600 | | — | | 2,415,000 | (3) | 10,429,600 | |
Deposits | | 208,217 | | 186,817 | | — | | 395,034 | |
Investment | | 125,000 | | — | | — | | 125,000 | |
| | | | | | | | | |
Deferred income taxes | | 4,122,535 | | — | | — | | 4,122,535 | |
Other assets | | 26,792 | | 20,804 | | (20,804 | )(4) | 26,792 | |
| | 28,112,892 | | 207,621 | | 8,831,022 | | 37,151,535 | |
Total assets | | $ | 179,191,406 | | $ | 14,413,745 | | $ | (9,098,222 | ) | $ | 184,506,229 | |
| | | | | | | | | |
Liabilities and stockholders’ equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable-trade | | $ | 36,509,839 | | $ | 3,303,633 | | $ | — | | $ | 39,813,472 | |
Line of credit | | — | | 5,869,520 | | (5,869,520 | )(4) | — | |
Payable to related parties | | 103,389 | | — | | — | | 103,389 | |
Due to seller | | 633,368 | | — | | — | | 633,368 | |
Current maturities of capital lease obligations | | 67,773 | | — | | — | | 67,773 | |
Customer deposits | | 2,277,263 | | 596,847 | | — | | 2,874,110 | |
Other liabilities | | 1,201,576 | | — | | — | | 1,201,576 | |
Deferred revenue | | — | | — | | — | | — | |
Accrued expenses | | 3,534,183 | | 1,414,343 | | — | | 4,948,526 | |
Total current liabilities | | 44,327,391 | | 11,184,343 | | (5,869,520 | ) | 49,642,214 | |
Capital lease obligations, less current maturities | | 165,117 | | — | | — | | 165,117 | |
Subordinated note payable - affiliate | | — | | 2,250,000 | | (2,250,000 | )(4) | — | |
Total liabilities | | 44,492,508 | | 13,434,343 | | (8,119,520 | ) | 49,807,331 | |
Stockholders’ equity: | | | | | | | | | |
Common stock | | 479 | | — | | — | | 479 | |
Additional paid-in capital | | 163,068,551 | | 645,275 | | (645,275 | )(5) | 163,068,551 | |
Treasury stock at cost | | (40,000,000 | ) | — | | — | | (40,000,000 | ) |
Unrealized gain on marketable securities | | 77,814 | | — | | — | | 77,814 | |
Retained earnings | | 11,552,054 | | 334,127 | | (334,127 | )(5) | 11,552,054 | |
Total stockholders’ equity | | 134,698,898 | | 979,402 | | (979,402 | ) | 134,698,898 | |
Total liabilities and stockholders’ equity | | $ | 179,191,406 | | $ | 14,413,745 | | $ | (9,098,922 | ) | $ | 184,506,229 | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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InnerWorkings, Inc
Unaudited Pro Forma Condensed Consolidated Income Statement
For the Nine Months Ended September 30, 2007
| | InnerWorkings, Inc. | | Corporate Edge | | Acquisition | | | |
| | Nine Months Ended | | Nine Months Ended | | Pro Forma | | Pro Forma | |
| | September 30, 2007 | | September 30, 2007 | | Adjustments | | As Adjusted | |
| | | | | | | | | |
Revenue | | $ | 198,392,945 | | $ | 39,760,519 | | $ | — | | $ | 238,153,464 | |
Cost of goods sold | | 148,417,678 | | 29,181,517 | | — | | 177,599,195 | |
Gross profit | | 49,975,267 | | 10,579,002 | | — | | 60,554,269 | |
Operating expenses: | | | | | | | | | |
Selling, general, and administrative expenses | | 33,202,122 | | 9,714,305 | | — | | 42,916,427 | |
Depreciation and amortization | | 1,579,815 | | 161,242 | | 132,250 | (6) | 1,873,307 | |
Income from operations | | 15,193,330 | | 703,455 | | (132,250 | ) | 15,764,535 | |
Other income (expense): | | | | | | | | | |
Interest income | | 1,713,820 | | — | | (539,333 | )(7) | 1,174,487 | |
Interest expense | | (18,739 | ) | (468,221 | ) | 468,221 | (4) | (18,739 | ) |
Other, net | | 327,223 | | — | | — | | 327,223 | |
Total other income | | 2,022,304 | | (468,221 | ) | (71,112 | ) | 1,482,971 | |
Income before income taxes | | 17,215,634 | | 235,234 | | (203,362 | ) | 17,247,506 | |
Income tax expense (benefit) | | 6,705,397 | | 9,269 | | (3,162 | )(8) | 6,711,504 | |
Net income | | $ | 10,510,237 | | $ | 225,965 | | $ | (200,200 | ) | $ | 10,536,002 | |
| | | | | | | | | |
Basic earnings per share | | $ | 0.22 | | | | | | $ | 0.22 | |
Diluted earnings per share | | $ | 0.21 | | | | | | $ | 0.21 | |
| | | | | | | | | |
Number of shares used for calculation: | | | | | | | | | |
Basic earnings per share | | 47,340,337 | | | | | | 47,340,337 | |
Diluted earnings per share | | 49,885,117 | | | | | | 49,885,117 | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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InnerWorkings, Inc
Unaudited Pro Forma Condensed Consolidated Income Statement
For the Year Ended December 31, 2006
| | InnerWorkings, Inc. | | Corporate Edge | | Acquisition | | | |
| | Year Ended | | Year Ended | | Pro Forma | | Pro Forma | |
| | December 31, 2006 | | December 31, 2006 | | Adjustments | | As Adjusted | |
| | | | | | | | | |
Revenue | | $ | 160,514,987 | | $ | 57,850,691 | | — | | $ | 218,365,678 | |
Cost of goods sold | | 123,968,796 | | 42,756,237 | | — | | 166,725,033 | |
Gross profit | | 36,546,191 | | 15,094,454 | | — | | $ | 51,640,645 | |
Operating expenses: | | | | | | | | | |
Selling, general, and administrative expenses | | 22,675,423 | | 13,582,203 | | — | | 36,257,626 | |
Depreciation and amortization | | 1,029,968 | | 239,707 | | 176,333 | (6) | 1,446,008 | |
Income from operations | | 12,840,800 | | 1,272,544 | | (176,333 | ) | 13,937,011 | |
Other income (expense): | | | | | | | | | |
Interest income | | 949,036 | | 142 | | (719,110 | )(7) | 230,068 | |
Interest expense | | (168,784 | ) | (627,398 | ) | 627,398 | (4) | (168,784 | ) |
Other, net | | (5,242 | ) | — | | — | | (5,242 | ) |
Total other income | | 775,010 | | (627,256 | ) | (91,712 | ) | 56,042 | |
Income before income taxes | | 13,615,810 | | 645,288 | | (268,045 | ) | 13,993,053 | |
Income tax expense (benefit) | | 5,335,374 | | 38,320 | | (108,804 | )(8) | 5,264,890 | |
Net income | | 8,280,436 | | 606,968 | | (159,241 | ) | 8,728,163 | |
Dividends on preferred shares | | (1,408,740 | ) | — | | — | | (1,408,740 | ) |
Net income applicable to common shareholders | | $ | 6,871,696 | | $ | 606,968 | | $ | (159,241 | ) | $ | 7,319,423 | |
| | | | | | | | | |
Basic earnings per share | | $ | 0.22 | | | | | | $ | 0.23 | |
Diluted earnings per share | | $ | 0.21 | | | | | | $ | 0.22 | |
| | | | | | | | | |
Number of shares used for calculation: | | | | | | | | | |
Basic earnings per share | | 31,711,974 | | | | | | 31,711,974 | |
Diluted earnings per share | | 39,372,181 | | | | | | 39,372,181 | |
| | | | | | | | | | | | | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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InnerWorkings, Inc.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(1) Cash and cash equivalents:
The pro forma adjustment to cash and cash equivalents reflects the purchase price of $18.0 million, which includes repayment of the line of credit and subordinated note payable, paid to the shareholders of Corporate Edge in November 2007. In addition, there is up to an additional $10.5 million in cash purchase price which may be paid contingent the achievement of certain future annual performance measures by Corporate Edge in each of the three years following November 30, 2007. Up to $4.5 million of additional purchase price may be paid based upon the achievement of certain cumulative performance measures by Corporate Edge during the three year period following November 30, 2007. Any such additional payments will be recorded as an increase to goodwill.
(2) Inventory
The pro forma balance sheet adjustment to inventory reflects the fair value adjustment to inventory.
(3) Purchase Price:
Preliminary Purchase Price Allocation
The purchase price allocation presented in these unaudited pro forma condensed consolidated financial statements will differ from the purchase price allocation to be performed as of November 30, 2007 (date of Corporate Edge acquisition). In addition, adjustments to the purchase price allocation will be made upon settlement of the working capital and other post-closing adjustments.
For purposes of the unaudited condensed consolidated balance sheet, the $18.0 million purchase price has been allocated to the assets recorded by Corporate Edge as of September 30, 2007, based on estimated fair values. Adjustments to these estimates will be included in the allocation of the purchase price of Corporate Edge, if the adjustment is determined within the purchase price allocation period of up to twelve months. The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill. The preliminary purchase price of $18.0 million has been allocated as follows:
Cash | | $ | 261,995 | |
Accounts receivable | | 8,213,761 | |
Inventory | | 3,872,666 | |
Prepaid expenses | | 1,032,270 | |
Other current assets | | 229,341 | |
Property, plant and equipment | | 643,901 | |
Other non-current assets | | 186,817 | |
Customer list | | 2,300,000 | |
Noncompete agreement | | 115,000 | |
Goodwill | | 6,436,826 | |
Accounts payable | | (3,303,633 | ) |
Customer deposits | | (596,847 | ) |
Accrued liabilities | | (1,414,343 | ) |
| | | |
Total purchase price | | $ | 17,977,754 | |
Goodwill and intangible assets
The pro forma adjustment to goodwill reflects the goodwill resulting from the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (SFAS No. 141). We have estimated the fair value of intangible assets through the use of an independent third-party valuation firm to value these identifiable intangible assets, which are subject to amortization. These estimates are based on a preliminary valuation and are subject to change upon management’s review of the final valuation.
The following table summarizes the intangible assets and goodwill acquired:
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| | | |
Customer list | | $ | 2,300,000 | |
Noncompete agreement | | 115,000 | |
| | | |
Goodwill acquired | | $ | 6,436,826 | |
(4) Subordinated note payable and line of credit balance:
The pro forma adjustment reflects the repayment of Corporate Edge’s outstanding subordinated note payable and line of credit balance and the reduction of the related interest expense as a result of the acquisition.
(5) Common stock, additional paid-in capital and retained earnings:
The pro forma adjustment to the common shares and retained earnings reflects the elimination of Corporate Edge’s historical shareholders’ equity as a result of the acquisition.
(6) Depreciation and amortization:
The pro forma adjustment reflects the amortization of intangible assets over their useful lives. The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the Company.
| | Useful Life | | Year Ended
December 31, 2006
Pro Forma Amortization | | Nine Months Ended
September 30, 2007
Pro Forma Amortization | |
Customer lists | | 15 years | | $ | 153,333 | | $ | 115,000 | |
Noncompete agreement | | 5 years | | $ | 23,000 | | $ | 17,250 | |
(7) Interest income:
The pro forma adjustment reflects the reduction in interest income related to the cash purchase price paid of approximately $18 million.
(8) Income tax expense:
The pro forma adjustment reflects the tax rate applied to the historical pre-tax income of Corporate Edge to reflect taxation as a C Corporation and to the pro forma adjustments related to the Corporate Edge acquisition as follows:
Nine months ended September 30, 2007 | | 39.00 | % |
Year ended December 31, 2006 | | 39.00 | % |
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