Exhibit 99.3
WILLDAN GROUP, INC. AND INTEGRAL ANALYTICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On July 28, 2017, Willdan Group, Inc. (the “Company”) and its wholly-owned subsidiary, Willdan Energy Solutions (“WES”) acquired substantially all of the outstanding shares of Integral Analytics, Inc. (“Integral Analytics”), a data analytics and software company, pursuant to the terms of a Stock Purchase Agreement, dated as of July 28, 2017 (the “Purchase Agreement”), by and among the Company, WES, Integral Analytics, the stockholders of Integral Analytics (the “IA Stockholders”) and the Seller’s Representative (as defined therein). The unaudited pro forma condensed combined financial statements presented herein are based on, and should be read in conjunction with:
· | the Company’s historical financial statements and related notes thereto contained in its Annual Report on Form 10‑K for the year ended December 30, 2016 filed with the SEC on March 10, 2017; |
· | the Company’s historical financial statements and related notes thereto contained in its Quarterly Reports on Form 10‑Q for the three months ended March 31, 2017 and six months ended June 30, 2017, filed with the SEC on May 5, 2017 and August 4, 2017, respectively; and |
· | Integral Analytics’ historical financial statements and related notes thereto as of and for the year ended December 31, 2016 and the three months ended March 31, 2017 and 2016 attached to this Form 8‑K/A as Exhibits 99.2 and 99.1, respectively. |
The unaudited pro forma condensed consolidated financial statements are prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined balance sheet as of June 30, 2017 reflects the acquisition of Integral Analytics as if the acquisition occurred on June 30, 2017. The pro forma condensed consolidated statements of operations for the six months ended June 30, 2017 and the year ended December 31, 2016 are presented as if the acquisition of Integral Analytics occurred on January 2, 2016. The pro forma adjustments are described in the accompanying notes and are based upon information and assumptions available at the time of the filing of this report on Form 8‑K/A.
We present the pro forma financial statements for informational purposes only. The pro forma financial statements are not necessarily indicative of what our financial position or results of operations would have been had we completed the acquisition as of the dates indicated. In addition, the pro forma financial statements do not purport to project the future financial position or operating results of the combined company. The unaudited pro forma condensed combined statements of operations do not reflect the realization of any expected cost savings and other synergies resulting from the acquisition of Integral Analytics as a result of any cost saving initiatives planned subsequent to the closing of the acquisition nor do they reflect any nonrecurring costs directly attributable to the acquisition and related financing. The accounting policies used in the presentation of the following unaudited pro forma condensed combined financial information are those set out in the Company’s audited consolidated financial statements for the fiscal year ended December 30, 2016.
We prepared the pro forma financial statements using the acquisition method of accounting. The maximum purchase price is $30.0 million, consisting of (i) $15.0 million in cash paid at closing (subject to certain post-closing tangible net asset value adjustments), (ii) 90,611 shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”) issued at closing, equaling $3.0 million, calculated based on the volume-weighted average price of shares of Common Stock for the ten trading days immediately prior to, but not including, the closing date of the IA Acquisition (the “Closing Date”) and (iii) up to $12.0 million in cash for a percentage of sales attributable to the business of Integral Analytics during the three years after the Closing Date, as more fully described below (such potential payments of up to $12.0 million, being referred to as “Earn-Out Payments” and $12.0 million in respect thereof, being referred to as the “Maximum Payout”).
The size of the Earn-Out Payments to be paid will be determined based on two factors. First, the IA Stockholders will receive 2% of gross contracted revenue for new work sold by the Company in close collaboration with Integral Analytics during the three years following the Closing Date (the “Earn-Out Period”). Second, the IA Stockholders will receive 20% of the gross contracted revenue specified in each executed and/or effective software licensing agreement, entered into by the Company or one of its affiliates that contains pricing either equal to or greater
1
than standard pricing, of software offered for licensing by Integral Analytics during the Earn-Out Period. The amounts due to the IA Stockholders pursuant to these two factors will in no event, individually or in the aggregate, exceed the Maximum Payout. Earn-Out Payments will be made in quarterly installments for each year of the Earn-Out Period. For the purposes of both of these factors credit will be given to Integral Analytics for the gross contracted revenue in the quarter in which the contract/license is executed, regardless of when the receipt of payment thereunder is expected. The amount of gross contracted revenue for contracts with unfunded ceilings or of an indeterminate contractual value will be mutually agreed upon. Further, in the event of a change of control of WES during the Earn-Out Period, any then-unpaid amount of the Maximum Payout will be paid promptly to the IA Stockholders, even if such Earn-Out Payments have not been earned at that time. The Company has agreed to certain covenants regarding the operation of Integral Analytics during the Earn-Out Period, of which a violation by the Company could result in damages being paid to the IA Stockholders in respect of the Earn-Out. In addition, the Earn-Out Payments will be subject to certain subordination provisions in favor of BMO Harris Bank, N.A. (“BMO”), the Company’s senior secured lender.
The total purchase price is allocated to the net tangible and identifiable intangible assets of Integral Analytics acquired, based on their respective fair values. The final purchase price is based on management’s current estimate of the expected Earn-Out Payments and the purchase price allocation is dependent upon valuations and other studies that have not progressed to a stage where there is sufficient information to make a definitive allocation. The final purchase price and the purchase price allocation pro forma adjustments are preliminary and have been made using our best judgment given the information currently available solely for the purpose of providing the pro forma financial statements. The final purchase price allocation and its effect on results of operations may differ significantly from the pro forma amounts included in the pro forma financial statements. These amounts represent management’s best estimate as of the date of this Form 8‑K/A.
2
WILLDAN GROUP, INC. AND INTEGRAL ANALYTICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF JUNE 30, 2017
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| Company |
| Pro Forma |
| Combined | |||
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| Historical |
| Adjustments |
| Pro Forma | |||
Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 26,323,000 |
| $ | (14,634,000) | (a) | $ | 11,689,000 |
Accounts receivable, net of allowance for doubtful accounts of $594,000 and $785,000 at June 30, 2017 and December 30, 2016, respectively |
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| 28,141,000 |
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| 990,000 | (b) |
| 29,131,000 |
Costs and estimated earnings in excess of billings on uncompleted contracts |
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| 29,738,000 |
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| — |
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| 29,738,000 |
Other receivables |
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| 1,550,000 |
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| — |
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| 1,550,000 |
Prepaid expenses and other current assets |
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| 3,146,000 |
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| 65,000 | (c) |
| 3,211,000 |
Total current assets |
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| 88,898,000 |
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| (13,579,000) |
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| 75,319,000 |
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Equipment and leasehold improvements, net |
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| 5,293,000 |
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| — |
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| 5,293,000 |
Goodwill |
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| 21,947,000 |
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| 19,110,000 | (d) |
| 41,057,000 |
Other intangible assets, net |
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| 4,846,000 |
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| 6,960,000 | (e) |
| 11,806,000 |
Other assets |
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| 678,000 |
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| 2,000 | (f) |
| 680,000 |
Total assets |
| $ | 121,662,000 |
| $ | 12,493,000 |
| $ | 134,155,000 |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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| 22,567,000 |
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| 418,000 | (g) |
| 22,985,000 |
Accrued liabilities |
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| 22,296,000 |
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| 1,944,000 | (h) |
| 24,240,000 |
Contingent consideration payable |
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| 1,525,000 |
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| 1,800,000 | (i) |
| 3,325,000 |
Billings in excess of costs and estimated earnings on uncompleted contracts |
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| 7,098,000 |
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| 1,632,000 | (j) |
| 8,730,000 |
Notes payable |
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| 2,244,000 |
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| — |
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| 2,244,000 |
Capital lease obligations |
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| 301,000 |
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| — |
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| 301,000 |
Total current liabilities |
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| 56,031,000 |
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| 5,794,000 |
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| 61,825,000 |
Contingent consideration payable |
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| 1,709,000 |
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| 3,600,000 | (i) |
| 5,309,000 |
Notes payable |
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| 1,500,000 |
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| — |
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| 1,500,000 |
Capital lease obligations, less current portion |
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| 168,000 |
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| — |
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| 168,000 |
Deferred lease obligations |
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| 681,000 |
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| — |
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| 681,000 |
Deferred income taxes, net |
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| 2,587,000 |
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| — |
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| 2,587,000 |
Total liabilities |
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| 62,676,000 |
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| 9,394,000 |
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| 72,070,000 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued and outstanding |
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| — |
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| — |
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| — |
Common stock, $0.01 par value, 40,000,000 shares authorized; 8,628,000 and 8,348,000 shares issued and outstanding at June 30, 2017 and December 30, 2016, respectively |
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| 86,000 |
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| 1,000 | (k) |
| 87,000 |
Additional paid-in capital |
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| 45,488,000 |
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| 3,098,000 | (l) |
| 48,586,000 |
Retained Earnings |
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| 13,412,000 |
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| — |
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| 13,412,000 |
Total stockholders’ equity |
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| 58,986,000 |
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| 3,099,000 |
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| 62,085,000 |
Total liabilities and stockholders’ equity |
| $ | 121,662,000 |
| $ | 12,493,000 |
| $ | 134,155,000 |
3
Notes to Unaudited Pro Forma Condensed Combined Balance Sheets
The following are explanations of the amounts included in the accompanying pro forma condensed consolidated balance sheets:
(a) Reflects $15,000,000 cash paid out for purchase of Integral Analytics and $366,000 cash acquired from Integral Analytics. |
(b) Reflects estimated accounts receivable, net acquired. |
(c) Reflects estimated prepaid and other assets acquired. |
(d) Reflects estimated goodwill resulting from the acquisition. |
(e) Reflects estimated other intangible assets acquired. |
(f) Reflects estimated other assets acquired. |
(g) Reflects estimated accounts payable acquired. |
(h) Reflects estimated accrued liabilities acquired. |
(i) Reflects the current and non-current portions of contingent consideration. |
(j) Reflects estimated billings in excess of costs and estimated earnings on uncompleted contracts acquired. |
(k) Reflects the shares of common stock issued in connection with the acquisition. |
(l) Reflects the amount of additional paid in capital issued in connection with the acquisition. |
4
WILLDAN GROUP, INC. AND INTEGRAL ANALYTICS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATION
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2016 AND THE SIX MONTHS ENDED JUNE 30, 2017
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| Fiscal Year Ended December 30, 2016 |
| Fiscal Six Months Ended June 30, 2017 | ||||||||||||||
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| Company |
| Pro Forma |
| Combined |
| Company |
| Pro Forma |
| Combined | ||||||
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| (B) |
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| (A) |
| (B) |
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Contract revenue |
| $ | 208,941,000 |
| $ | 4,590,000 |
| $ | 213,531,000 |
| $ | 140,184,000 |
| $ | 1,946,000 |
| $ | 142,130,000 |
Direct costs of contract revenue: |
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Salaries and wages |
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| 39,024,000 |
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| 243,000 |
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| 39,267,000 |
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| 22,169,000 |
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| 125,000 |
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| 22,294,000 |
Subconsultant services and other direct costs |
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| 104,236,000 |
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| 1,900,000 |
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| 106,136,000 |
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| 81,571,000 |
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| 953,000 |
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| 82,524,000 |
Total direct costs of contract revenue |
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| 143,260,000 |
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| 2,143,000 |
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| 145,403,000 |
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| 103,740,000 |
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| 1,078,000 |
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| 104,818,000 |
General and administrative expenses: |
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Salaries and wages, payroll taxes and employee benefits |
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| 31,084,000 |
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| 2,357,000 |
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| 33,441,000 |
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| 17,401,000 |
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| 1,370,000 |
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| 18,771,000 |
Facilities and facility related |
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| 4,085,000 |
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| 56,000 |
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| 4,141,000 |
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| 2,243,000 |
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| 29,000 |
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| 2,272,000 |
Stock-based compensation |
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| 1,239,000 |
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| — |
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| 1,239,000 |
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| 1,096,000 |
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| — |
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| 1,096,000 |
Depreciation and amortization |
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| 3,204,000 |
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| 889,000 |
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| 4,093,000 |
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| 1,843,000 |
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| 445,000 |
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| 2,288,000 |
Other |
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| 14,525,000 |
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| 1,413,000 |
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| 15,938,000 |
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| 7,334,000 |
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| 680,000 |
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| 8,014,000 |
Total general and administrative expenses |
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| 54,137,000 |
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| 4,715,000 |
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| 58,852,000 |
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| 29,917,000 |
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| 2,524,000 |
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| 32,441,000 |
Income from operations |
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| 11,544,000 |
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| (2,268,000) |
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| 9,276,000 |
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| 6,527,000 |
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| (1,656,000) |
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| 4,871,000 |
Other (expense) income: |
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Interest expense |
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| (179,000) |
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| — |
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| (179,000) |
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| (65,000) |
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| — |
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| (65,000) |
Other, net |
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| 2,000 |
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| — |
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| 2,000 |
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| 38,000 |
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| — |
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| 38,000 |
Total other (expense), net |
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| (177,000) |
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| — |
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| (177,000) |
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| (27,000) |
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| — |
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| (27,000) |
Income before income taxes |
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| 11,367,000 |
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| (2,268,000) |
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| 9,099,000 |
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| 6,500,000 |
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| (1,656,000) |
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| 4,844,000 |
Income tax expense (benefit) |
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| 3,068,000 |
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| (612,000) |
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| 2,456,000 |
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| 547,000 |
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| (139,000) |
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| 408,000 |
Net income |
| $ | 8,299,000 |
| $ | (1,656,000) |
| $ | 6,643,000 |
| $ | 5,953,000 |
| $ | (1,517,000) |
| $ | 4,436,000 |
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Earnings per share: |
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Basic |
| $ | 1.01 |
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| $ | 0.80 |
| $ | 0.70 |
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| $ | 0.52 |
Diluted |
| $ | 0.97 |
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| $ | 0.77 |
| $ | 0.66 |
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| $ | 0.48 |
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Weighted-average shares outstanding: |
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Basic |
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| 8,219,000 |
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| 91,000 |
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| 8,310,000 |
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| 8,505,000 |
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| 91,000 |
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| 8,596,000 |
Diluted |
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| 8,565,000 |
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| 91,000 |
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| 8,656,000 |
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| 9,078,000 |
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| 91,000 |
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| 9,169,000 |
5
Notes to Unaudited Pro Forma Condensed Combined Statements of Operations
The following are explanations of the amounts included in the accompanying pro forma condensed consolidated statements of operations:
(A) | Company Historical |
Reflects our historical condensed consolidated statements of operations for the six months ended June 30, 2017 and the year ended December 30, 2016.
(B) | Pro Forma Adjustments |
The pro forma condensed consolidated statements of operations for the six months ended June 30, 2017 and the year ended December 30, 2016 are presented as if the acquisition of Integral Analytics occurred on January 2, 2016. The pro forma adjustments to the historical financial statements of Integral Analytics are computed as follows:
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| Fiscal Year Ended December 30, 2016 |
| Fiscal Six Months Ended June 30, 2017 | ||||||||||||||
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| Integral |
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| Integral |
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| Analytics |
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| Pro Forma |
| Analytics |
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| Pro Forma | ||||||
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| Historical |
| Adjustments |
| Adjustments |
| Historical |
| Adjustments |
| Adjustments | ||||||
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| (1) |
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| (1) |
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Contract revenue |
| $ | 4,590,000 |
| $ | — |
| $ | 4,590,000 |
| $ | 1,946,000 |
| $ | — |
| $ | 1,946,000 |
Direct costs of contract revenue: |
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Salaries and wages |
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| 243,000 |
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| — |
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| 243,000 |
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| 125,000 |
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| — |
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| 125,000 |
Subconsultant services and other direct costs |
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| 1,900,000 |
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| — |
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| 1,900,000 |
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| 953,000 |
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| — |
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| 953,000 |
Total direct costs of contract revenues |
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| 2,143,000 |
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| — |
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| 2,143,000 |
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| 1,078,000 |
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| — |
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| 1,078,000 |
General and administrative expenses: |
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Salaries and wages, payroll taxes and employee benefits |
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| 2,357,000 |
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| — |
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| 2,357,000 |
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| 1,370,000 |
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| — |
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| 1,370,000 |
Facilities and facilities related |
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| 56,000 |
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| — |
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| 56,000 |
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| 29,000 |
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| — |
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| 29,000 |
Depreciation and amortization |
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| 17,000 |
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| 872,000 | (2) |
| 889,000 |
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| 8,000 |
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| 437,000 | (2) |
| 445,000 |
Other |
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| 729,000 |
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| 684,000 | (3) |
| 1,413,000 |
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| 380,000 |
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| 300,000 | (3) |
| 680,000 |
Total general and administrative expenses |
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| 3,159,000 |
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| 1,556,000 |
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| 4,715,000 |
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| 1,787,000 |
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| 737,000 |
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| 2,524,000 |
(Loss) income from operations |
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| (712,000) |
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| (1,556,000) |
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| (2,268,000) |
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| (919,000) |
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| (737,000) |
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| (1,656,000) |
Other expense: |
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Interest expense |
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| (15,000) |
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| 15,000 | (4) |
| — |
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| (8,000) |
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| 8,000 | (4) |
| — |
Total other expense |
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| (15,000) |
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| 15,000 |
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| — |
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| (8,000) |
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| 8,000 |
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| — |
(Loss) income before income taxes |
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| (727,000) |
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| (1,541,000) |
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| (2,268,000) |
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| (927,000) |
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| (729,000) |
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| (1,656,000) |
Income tax (benefit) expense |
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| — |
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| (612,000) | (5) |
| (612,000) |
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| — |
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| (139,000) | (5) |
| (139,000) |
Net (loss) income |
| $ | (727,000) |
| $ | (929,000) |
| $ | (1,656,000) |
| $ | (927,000) |
| $ | (590,000) |
| $ | (1,517,000) |
(1)Reflects Integral Analytics condensed statement of operations for the year ended December 31, 2016 and the six months ended June 30, 2017.
(2)Reflects amortization of the preliminary estimated fair values of intangible assets related to the value of Integral Analytics’ existing contracts and non-competes. The amount is comprised of amortization for the twelve and six months, respectively.
(3)Reflects interest accretion on the fair value of current contingent consideration.
(4)Reflects Integral Analytics’ shareholder notes payable that were settled as part of the acquisition.
(5)Represents the income tax impact of the pro forma adjustments based on the appropriate blended rate for each jurisdiction. Integral Analytics was an S Corporation prior to the Company’s acquisition of Integral Analytics and accordingly, Integral Analytics did not incur income tax expenses (benefits) prior to the Company’s acquisition of it.
6