UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8–K/A
(Amendment
#1)
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
July 8,
2008
Date of
Report (Date of earliest event reported)
Huron
Consulting Group Inc.
(Exact
name of registrant as specified in its charter)
|
Delaware
|
000-50976
|
01-0666114
|
|
(State
or other jurisdiction
|
(Commission
|
(IRS
Employer
|
|
of
incorporation)
|
File Number)
|
Identification
Number)
|
550
West Van Buren Street
Chicago,
Illinois
60607
(Address
of principal executive offices)
(Zip
Code)
(312)
583-8700
(Registrant’s
telephone number, including area code)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
|
o
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
|
o
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
|
o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Explanatory
Note
On
July 8, 2008, we and our indirect, wholly-owned subsidiary, Huron
Consulting Services LLC, acquired Stockamp & Associates, Inc. (“Stockamp”)
pursuant to an Asset Purchase Agreement dated as of July 8, 2008. A Current
Report on Form 8-K was filed on July 9, 2008 disclosing the
acquisition. Pursuant to Item 9.01(a)(4), audited financial
statements of the business acquired and related pro forma financial information
are being filed by this amendment.
Item
9.01 Financial
Statements and Exhibits.
|
(a)
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Financial
statements of business acquired.
|
Audited
financial statements of Stockamp & Associates, Inc. as of December 31,
2007 and 2006 and for the years ended December 31, 2007, 2006 and 2005, together
with the accompanying Independent Auditors’ Report, are set forth in
Exhibit 99.1.
Financial
statements of Stockamp & Associates, Inc. as of June 30, 2008 and
December 31, 2007 and for the six months ended June 30, 2008 and
June 30, 2007 are set forth in Exhibit 99.2.
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(b)
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Pro
Forma Financial Information.
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The
unaudited pro forma financial information is set forth in
Exhibit 99.3.
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(d)
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Exhibits.
|
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23.1
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Consent
of independent accountants.
|
|
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99.1
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Audited
financial statements of Stockamp & Associates, Inc. as of
December 31, 2007 and 2006 and for the years ended December 31, 2007,
2006 and 2005.
|
|
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99.2
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Financial
statements of Stockamp & Associates, Inc. as of June 30, 2008 and
December 31, 2007 and for the six months ended June 30, 2008 and
June 30, 2007.
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99.3
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Unaudited
pro forma financial
information.
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- 1
- -
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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Huron
Consulting Group Inc.
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|||
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(Registrant)
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|||
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Date:
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September 23,
2008
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/s/
Gary L. Burge
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Gary
L. Burge
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|||
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Vice
President,
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|||
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Chief
Financial Officer and Treasurer
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- 2
- -
EXHIBIT
INDEX
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Exhibit
Number
|
Description
|
|
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23.1
|
Consent
of independent accountants.
|
|
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99.1
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Audited
financial statements of Stockamp & Associates, Inc. as of
December 31, 2007 and 2006 and for the years ended December 31, 2007,
2006 and 2005.
|
|
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99.2
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Financial
statements of Stockamp & Associates, Inc. as of June 30, 2008 and
December 31, 2007 and for the six months ended June 30, 2008 and
June 30, 2007.
|
|
|
99.3
|
Unaudited
pro forma financial
information.
|
EXHIBIT
23.1
CONSENT OF INDEPENDENT
ACCOUNTANTS
We hereby
consent to the incorporation by reference in the Registration Statements on Form
S-8 (Nos. 333-119697 and 333-137107) of Huron Consulting Group Inc. of our
report dual dated June 30, 2008 and September 20, 2008 relating to the
financial statements of Stockamp & Associates, Inc., which appears in
Exhibit 99.1 of this Current Report on Form 8-K/A.
/s/ Perkins
& Company, P.C.
Portland,
Oregon
September 23,
2008
EXHIBIT
99.1
STOCKAMP
& ASSOCIATES, INC.
FINANCIAL
STATEMENTS
INDEX
|
Page
|
|
| Independent Auditors’ Report |
1
|
| Balance Sheets as of December 31, 2007 and 2006 |
2
|
| Statements of Operations for the years ended December 31, 2007, 2006 and 2005 |
3
|
| Statements of Stockholders’ Deficit for the years ended December 31, 2007, 2006 and 2005 |
4
|
| Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 |
5-6
|
| Notes to Financial Statements |
7-13
|
INDEPENDENT
AUDITORS’ REPORT
To the
Board of Directors
Stockamp
& Associates, Inc.
Portland,
Oregon
We have
audited the accompanying balance sheets of Stockamp & Associates, Inc. as of
December 31, 2007 and 2006, and the related statements of operations,
stockholders’ deficit and cash flows for the years ended December 31, 2007, 2006
and 2005. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Stockamp & Associates, Inc. as
of December 31, 2007 and 2006, and the results of its operations and its cash
flows for the years ended December 31, 2007, 2006 and 2005, in conformity with
accounting principles generally accepted in the United States of
America.
As
discussed in Note 11 to the financial statements, the Company has corrected
errors in its previously issued financial statements related to revenue
recognition for the years ended December 31, 2007, 2006 and 2005.
/s/ Perkins &
Company, P.C.
Portland, Oregon
June 30,
2008, except for Notes 11 and 12,
as to which the date is September 20, 2008
- 1
- -
STOCKAMP
& ASSOCIATES, INC.
BALANCE
SHEETS
DECEMBER 31, 2007 AND 2006
|
2007
|
2006
|
|||||||
|
(Restated)
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(Restated)
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 1,747,367 | $ | 1,883,406 | ||||
|
Accounts receivable
|
8,476,570 | 5,707,550 | ||||||
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Due from stockholders
|
9,165 | 19,468 | ||||||
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Prepaid expense
|
710,516 | 280,393 | ||||||
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Total current assets
|
10,943,618 | 7,890,817 | ||||||
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PROPERTY
AND EQUIPMENT
|
1,606,429 | 1,638,712 | ||||||
| $ | 12,550,047 | $ | 9,529,529 | |||||
|
LIABILITIES AND
STOCKHOLDERS’ DEFICIT
|
||||||||
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CURRENT
LIABILITIES:
|
||||||||
|
Accounts payable
|
$ | 253,441 | $ | 135,417 | ||||
|
Accrued employee benefits
|
6,201,895 | 3,730,213 | ||||||
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Other accrued liabilities
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182,335 | 147,202 | ||||||
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Unearned revenue
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10,699,733 | 5,944,333 | ||||||
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Collections in excess of amounts earned
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25,551,068 | 12,075,342 | ||||||
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Deferred compensation liability
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5,091,828 | 4,107,394 | ||||||
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Capital lease obligations
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13,742 | 6,186 | ||||||
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Total current liabilities
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47,994,042 | 26,146,087 | ||||||
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CAPITAL
LEASE OBLIGATIONS, NET
|
||||||||
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OF CURRENT PORTION
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42,511 | 20,539 | ||||||
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DEFERRED
COMPENSATION LIABILITY,
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||||||||
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NET OF CURRENT PORTION
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50,940,870 | 45,545,387 | ||||||
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COMMITMENTS
AND CONTINGENCIES
|
||||||||
|
STOCKHOLDERS’
DEFICIT:
|
||||||||
|
Class A common stock, no par value; 200,000
|
||||||||
|
shares authorized
|
1,401,687 | 1,367,817 | ||||||
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Class B nonvoting common stock, no par
|
||||||||
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value; 200,000 shares authorized
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2,444,715 | 2,357,471 | ||||||
|
Accumulated deficit
|
(90,228,644 | ) | (65,738,148 | ) | ||||
| (86,382,242 | ) | (62,012,860 | ) | |||||
|
Stock subscriptions receivable
|
(45,134 | ) | (169,624 | ) | ||||
| (86,427,376 | ) | (62,182,484 | ) | |||||
| $ | 12,550,047 | $ | 9,529,529 | |||||
See notes to financial statements.
- 2
- -
STOCKAMP
& ASSOCIATES, INC.
STATEMENTS
OF OPERATIONS
YEARS
ENDED DECEMBER
31, 2007, 2006
AND
2005
|
2007
|
2006
|
2005
|
||||||||||
|
(Restated)
|
(Restated)
|
(Restated)
|
||||||||||
|
REVENUES
AND REIMBURSABLE EXPENSES:
|
||||||||||||
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Service, licensing and support revenue
|
$ | 71,368,267 | $ | 85,271,345 | $ | 97,536,650 | ||||||
|
Reimbursable expenses
|
8,187,522 | 9,039,642 | 11,673,973 | |||||||||
| 79,555,789 | 94,310,987 | 109,210,623 | ||||||||||
|
OPERATING
EXPENSES
|
67,560,924 | 62,194,766 | 67,729,044 | |||||||||
|
OPERATING
INCOME BEFORE BONUS
|
||||||||||||
|
DISTRIBUTIONS
|
11,994,865 | 32,116,221 | 41,481,579 | |||||||||
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BONUS
DISTRIBUTIONS TO OWNERS
|
27,500,000 | 18,298,675 | 41,984,100 | |||||||||
|
OPERATING
INCOME (LOSS)
|
(15,505,135 | ) | 13,817,546 | (502,521 | ) | |||||||
|
OTHER
INCOME (EXPENSE):
|
||||||||||||
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Interest income
|
128,923 | 85,123 | 71,920 | |||||||||
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Interest expense
|
(9,088,017 | ) | (7,618,621 | ) | (9,651,777 | ) | ||||||
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Loss on disposition of property and equipment
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(8,679 | ) | (64,254 | ) | (84,888 | ) | ||||||
| (8,967,773 | ) | (7,597,752 | ) | (9,664,745 | ) | |||||||
|
NET
INCOME (LOSS)
|
$ | (24,472,908 | ) | $ | 6,219,794 | $ | (10,167,266 | ) | ||||
See notes to financial
statements.
- 3
- -
STOCKAMP
& ASSOCIATES, INC.
STATEMENTS
OF STOCKHOLDERS’ DEFICIT
YEARS ENDED DECEMBER 31, 2007,
2006 AND 2005
|
Stock
|
||||||||||||||||||||||||||||
|
Common
Stock A
|
Common
Stock B
|
Accumulated
|
Subscriptions
|
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Deficit
|
Receivable
|
Total
|
||||||||||||||||||||||
|
STOCKHOLDERS'
DEFICIT,
|
136,508 | $ | 1,390,052 | 169,919 | $ | 2,381,274 | $ | (61,749,168 | ) | $ | (794,896 | ) | $ | (58,772,738 | ) | |||||||||||||
|
JANUARY
1, 2005 (Restated)
|
||||||||||||||||||||||||||||
|
Common
stock issued
|
- | - | 2,495 | 35,679 | - | - | 35,679 | |||||||||||||||||||||
|
Common
stock redeemed
|
(7,644 | ) | (106,160 | ) | (14,888 | ) | (196,698 | ) | (35,122 | ) | - | (337,980 | ) | |||||||||||||||
|
Collections
of stock subscriptions
receivable
|
- | - | - | - | - | 397,448 | 397,448 | |||||||||||||||||||||
|
Net
loss
|
- | - | - | - | (10,167,266 | ) | - | (10,167,266 | ) | |||||||||||||||||||
|
STOCKHOLDERS'
DEFICIT,
|
||||||||||||||||||||||||||||
|
DECEMBER
31, 2005 (Restated)
|
128,864 | 1,283,892 | 157,526 | 2,220,255 | (71,951,556 | ) | (397,448 | ) | (68,844,857 | ) | ||||||||||||||||||
|
Common
stock issued
|
9,642 | 144,630 | 18,738 | 267,953 | - | (370,056 | ) | 42,527 | ||||||||||||||||||||
|
Common
stock redeemed
|
(4,047 | ) | (60,705 | ) | (9,142 | ) | (130,737 | ) | (6,386 | ) | - | (197,828 | ) | |||||||||||||||
|
Collections
of stock subscriptions
receivable
|
- | - | - | - | - | 597,880 | 597,880 | |||||||||||||||||||||
|
Net
income
|
- | - | - | - | 6,219,794 | - | 6,219,794 | |||||||||||||||||||||
|
STOCKHOLDERS'
DEFICIT,
|
||||||||||||||||||||||||||||
|
DECEMBER
31, 2006 (Restated)
|
134,459 | 1,367,817 | 167,122 | 2,357,471 | (65,738,148 | ) | (169,624 | ) | (62,182,484 | ) | ||||||||||||||||||
|
Common
stock issued
|
6,047 | 90,705 | 31,228 | 446,560 | – | (537,265 | ) | - | ||||||||||||||||||||
|
Common
stock redeemed
|
(3,789 | ) | (56,835 | ) | (25,127 | ) | (359,316 | ) | (17,588 | ) | 248,282 | (185,457 | ) | |||||||||||||||
|
Collections
of stock subscriptions
receivable
|
- | - | - | - | - | 413,473 | 413,473 | |||||||||||||||||||||
|
Net
loss
|
- | - | - | - | (24,472,908 | ) | - | (24,472,908 | ) | |||||||||||||||||||
|
STOCKHOLDERS'
DEFICIT,
|
||||||||||||||||||||||||||||
|
DECEMBER
31, 2007 (Restated)
|
136,717 | $ | 1,401,687 | 173,223 | $ | 2,444,715 | $ | (90,228,644 | ) | $ | (45,134 | ) | $ | (86,427,376 | ) | |||||||||||||
See notes to financial
statements.
- 4
- -
STOCKAMP
& ASSOCIATES, INC.
STATEMENTS
OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2007, 2006 AND
2005
|
2007
|
2006
|
2005
|
||||||||||
|
(Restated)
|
(Restated)
|
(Restated)
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net income (loss)
|
$ | (24,472,908 | ) | $ | 6,219,794 | $ | (10,167,266 | ) | ||||
|
Adjustments to reconcile net income (loss) to net cash
|
||||||||||||
|
provided by (used in) operating activities:
|
||||||||||||
|
Depreciation and amortization
|
413,207 | 514,533 | 545,549 | |||||||||
|
Loss on disposition of property and equipment
|
8,679 | 64,254 | 84,888 | |||||||||
|
(Increase) decrease in:
|
||||||||||||
|
Accounts receivable
|
(2,769,020 | ) | 1,077,208 | (5,462,512 | ) | |||||||
|
Due from stockholders
|
10,303 | (6,467 | ) | (5,810 | ) | |||||||
|
Prepaid expense
|
(430,123 | ) | 61,552 | (172,467 | ) | |||||||
|
Increase (decrease) in:
|
||||||||||||
|
Accounts payable
|
118,024 | (178,985 | ) | (57,456 | ) | |||||||
|
Accrued employee benefits
|
2,471,682 | (2,232,992 | ) | 1,183,576 | ||||||||
|
Other accrued liabilities
|
35,133 | (1,202,011 | ) | 580,856 | ||||||||
|
Unearned revenue
|
4,755,400 | 2,458,583 | 1,153,807 | |||||||||
|
Collections in excess of amounts earned
|
13,475,726 | (9,381,359 | ) | 2,020,298 | ||||||||
|
Deferred compensation liability
|
6,379,917 | 3,381,951 | 8,727,175 | |||||||||
|
Net cash provided by (used in) operating activities
|
(3,980 | ) | 776,061 | (1,569,362 | ) | |||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Purchase of property and equipment
|
(349,576 | ) | (584,896 | ) | (674,345 | ) | ||||||
|
Proceeds from disposition of property and equipment
|
80 | 2,037 | 2,879 | |||||||||
|
Net cash used in investing activities
|
(349,496 | ) | (582,859 | ) | (671,466 | ) | ||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Repayment of capital lease obligations
|
(10,579 | ) | (12,484 | ) | (497,046 | ) | ||||||
|
Repayment of stock redemption payable
|
- | (337,980 | ) | - | ||||||||
|
Redemption of common stock
|
(185,457 | ) | (197,828 | ) | - | |||||||
|
Proceeds from issuance of common stock
|
- | 42,527 | 35,679 | |||||||||
|
Collections of stock subscriptions receivable
|
413,473 | 597,880 | 397,448 | |||||||||
|
Net cash provided by (used in) financing activities
|
217,437 | 92,115 | (63,919 | ) | ||||||||
|
NET
INCREASE (DECREASE) IN CASH
|
||||||||||||
|
AND CASH EQUIVALENTS
|
(136,039 | ) | 285,317 | (2,304,747 | ) | |||||||
|
CASH
AND CASH EQUIVALENTS
|
||||||||||||
|
AT BEGINNING OF YEAR
|
1,883,406 | 1,598,089 | 3,902,836 | |||||||||
|
CASH
AND CASH EQUIVALENTS
|
||||||||||||
|
AT END OF YEAR
|
$ | 1,747,367 | $ | 1,883,406 | $ | 1,598,089 | ||||||
See notes to
financial statements.
- 5
- -
STOCKAMP
& ASSOCIATES, INC.
STATEMENTS
OF CASH FLOWS (continued)
YEARS
ENDED DECEMBER 31, 2007, 2006 AND
2005
|
SUPPLEMENTAL
DISCLOSURES OF
|
2007
|
2006
|
2005
|
|||||||||
|
CASH FLOW INFORMATION:
|
(Restated)
|
(Restated)
|
(Restated)
|
|||||||||
|
Cash paid (received) during the year for:
|
||||||||||||
|
Interest
|
$ | 9,391 | $ | 4,458 | $ | 19,904 | ||||||
|
State and local taxes, net
|
$ | 453,716 | $ | (16,627 | ) | $ | 201,889 | |||||
|
Noncash investing and financing transactions:
|
||||||||||||
|
Purchase of equipment with capital lease
|
$ | 40,107 | $ | - | $ | 33,845 | ||||||
|
Sale of common stock on subscriptions receivable
|
$ | 537,265 | $ | 370,056 | $ | - | ||||||
|
Stock redemptions by cancellation of stock subscriptions
|
$ | 248,282 | $ | - | $ | - | ||||||
| Stock redemption with note payable to stockholder |
$
|
- | $ | - | $ | 337,980 | ||||||
See notes to financial
statements.
- 6
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS
DECEMBER 31, 2007, 2006 AND 2005
NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES
Nature of
Operations - Stockamp & Associates, Inc., (the Company) is a leading
national provider of health care performance improvement
solutions. Stockamp helps providers implement changes that improve a
hospital or health system’s financial and operational performance, patient
access to services and delivery of care. The Company’s clients are
among the largest healthcare organizations in the United States.
Concentration
of Credit Risk - The Company provides professional services to clients
throughout the United States. The Company grants credit to clients,
which consist of public and private hospitals. Two clients accounted
for approximately 49% and 25% of accounts receivable at December 31, 2007 and
2006, respectively. During 2007 and 2006, two clients comprised 25%
and 28% of total service revenue, respectively. During 2005, three
clients comprised 40% of total service revenue. The Company maintains
cash balances with a financial institution located in Oregon. Cash
balances are insured by the Federal Deposit Insurance Corporation up to
$100,000.
Accounts
Receivable – Accounts receivable consist of charges for services,
software support contracts, and reimbursable expenses due from
clients. Clients are generally invoiced in the month for which
services are to be provided or when payable per contractual
terms. Receivables are considered delinquent if payment is not
received by the date due, which is 30 days after the invoice
date. Interest is not charged on delinquent balances. At
December 31, 2007 and 2006, the Company did not provide an allowance for
doubtful accounts as all accounts were deemed collectible. Accounts
receivable delinquent more than 90 days at December 31, 2007 amounted to
$53,244. No accounts receivable were delinquent more than 90 days at
December 31, 2006.
Revenue
Recognition - The Company earns revenue primarily from consulting
services, software licensing and software support and maintenance
services. The Company considers amounts to be earned once evidence of
an arrangement has been obtained, services are delivered, fees are fixed or
determinable, and collectibility is reasonably assured. Revenue from
consulting services is recognized in the period the services are provided using
an objective measure of output over the term of the contract.
In some
of the Company’s contracts, the Company bills and collects fees from clients
prior to recognizing revenue from performing the services. Such
amounts are included in the balance sheet as collections in excess of amounts
earned. In other service contracts, the Company performs the services
prior to billing clients. These amounts are included in accounts
receivable as unbilled accounts receivable.
Consulting
fees include amounts which are fixed and determinable along with contingent fees
based on contractual terms. Contingent fees are frequently based upon
measurable improvements in its clients’ cash flows or revenues and are generally
determined over a 12 month measurement period. The Company accounts
for contingent fees under Emerging Issues Task Force Topic D-96, “Accounting for Management fees Based
on a Formula.” Accordingly the Company recognizes contingent
revenue at the end of the measurement period. Amounts billed and
collected prior to the end of the measurement period are presented on the
balance sheet as collections in excess of amounts earned. Such
amounts are generally recognized as revenue in the subsequent year.
Expense
reimbursements that are billable to clients are generally recognized as revenue
in the period in which the expense is incurred.
- 7
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2007, 2006 AND 2005
The
Company has developed proprietary software that it utilizes in its performance
of services to its clients. It licenses this software to its clients
and provides related training and support during the term of the consulting
engagement. Licenses to the Company’s software are sold only as a
component of its consulting projects and as such, there is no vendor-specific
objective evidence of fair value. Therefore, revenue from software
licenses is recognized ratably over the term of the related consulting services
contract. Thereafter, clients pay an annual fee for support and
maintenance. Annual support and maintenance fee revenue is recognized
ratably over the support period which is generally one year. Fees for
support and maintenance are billed in advance and included in deferred revenue
until recognized.
See Note
11 for a discussion of the restatement relating to revenue
recognition.
Cash and
Cash Equivalents - For the purpose of the statement of cash flows, the
Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
Property
and Equipment - Property and equipment is stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets, which range from three to twenty
years. Minor repairs and maintenance that do not improve or extend the lives of
assets are expensed as incurred. Upon disposal of property and
equipment, the cost of assets and the related accumulated depreciation are
removed from the accounts. Gains or losses related to disposal of
property and equipment are reflected in current earnings.
Software
Development Costs – The Company accounts for the costs of software to be
marketed in compliance with Statement of Financial Accounting Standards (“SFAS”)
No. 86, Accounting for Costs
of Computer Software to be Sold, Leased or Otherwise
Marketed. Software development costs are expensed as incurred
until technological feasibility of the product is
established. Development costs incurred subsequent to technological
feasibility are capitalized and will be amortized over the estimated economic
life of the product. Amortization begins when the software is
available for general release to customers.
The
Company did not capitalize any software development costs in 2007, 2006 or
2005.
Deferred
Compensation Liability - The Company accounts for its deferred
compensation liability under Accounting Principles Board Opinion (“APB”) No. 12,
“Omnibus Opinion - 1967.” Accordingly the Company recognizes service cost as
well as interest expense on the accumulated obligation during the service
period. In periods subsequent to the service period, interest expense
is recognized until benefits have been paid in full.
Promotional
and Public Relations - Promotional and public relations costs are
expensed as incurred. In 2007, 2006 and 2005 promotional and public
relations costs amounted to $345,516, $135,727, and $182,788
respectively.
Income
Taxes - The Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions,
the Company generally does not pay federal or state corporate income taxes on
its taxable income. Instead, the stockholders are liable for
individual federal and state income taxes on the Company’s taxable
income. In certain state and county jurisdictions, the Company pays
income tax, franchise tax and business taxes based on income. Local
taxes paid by the Company are expensed as paid.
Estimates
- - The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
- 8
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2007, 2006 AND 2005
Reclassifications
– Certain reclassifications have been made to the 2005 financial statement
presentation to correspond to the current year’s format. Total equity
and net income are unchanged due to these reclassifications.
Recently
Issued Accounting Standards – In September 2006, the Financial Accounting
Standards Board (“FASB”) issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value
measurements in financial statements, but standardizes its definition and
guidance in GAAP. Thus, for some entities, the application of this
statement may change prior practice. The Company adopted SFAS No. 157
effective beginning on January 1, 2008 for financial assets and financial
liabilities, which did not have any impact on the Company’s financial
statements. In February 2008, the FASB issued FASB Staff Position FAS
157-2, “Effective Date of FASB Statement No. 157,” which delayed by one year the
effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). The
Company will adopt SFAS No. 157 for its nonfinancial assets and nonfinancial
liabilities effective January 1, 2009, which is not expected to have a material
impact on the Company’s future financial position, results of operations, or
cash flows.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115.” SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair
value. The objective of this statement is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. The
Company adopted SFAS No. 159 effective beginning on January 1,
2008. The adoption of this statement did not have any impact on the
Company’s financial statements.
NOTE
2 – ACCOUNTS RECEIVABLE
Accounts
receivable consists of the following at December 31:
|
2007
(Restated)
|
2006
(Restated)
|
|||||||
|
Consulting
fees, billed
|
$ | 47,000 | $ | 795,000 | ||||
|
Contingent
fees, billed
|
6,123,608 | 1,500,000 | ||||||
|
Contingent
and consulting fees, earned and unbilled
|
607,384 | 1,665,045 | ||||||
|
Software
support fees, billed
|
831,000 | 802,000 | ||||||
|
Expense
reimbursements, billed
|
145,594 | 168,284 | ||||||
|
Expense
reimbursements, unbilled
|
707,517 | 776,803 | ||||||
|
Other
receivables
|
14,467 | 418 | ||||||
| $ | 8,476,570 | $ | 5,707,550 | |||||
- 9
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2007, 2006 AND 2005
NOTE
3 – PROPERTY AND EQUIPMENT
Property
and equipment consists of the following at December 31:
|
2007
|
2006
|
|||||||
|
Furniture
and fixtures
|
$ | 1,372,155 | $ | 1,363,763 | ||||
|
Office
equipment
|
348,073 | 385,567 | ||||||
|
Computer
equipment
|
2,484,876 | 2,282,170 | ||||||
|
Leasehold
improvements
|
567,504 | 559,536 | ||||||
|
Deposits
on computer equipment in transit
|
58,734 | - | ||||||
| 4,831,342 | 4,591,036 | |||||||
|
Less
accumulated depreciation
|
3,224,913 | 2,952,324 | ||||||
| $ | 1,606,429 | $ | 1,638,712 | |||||
NOTE
4 – DUE FROM STOCKHOLDERS
The
Company files composite tax returns for certain stockholders in states that
allow such filings. Taxes paid with those tax returns are due from
stockholders. If refunds of composite taxes are received by the
Company, those refunds are payable to the stockholders. Due from
stockholders represents the net receivable arising from tax payments and tax
refunds.
NOTE
5 – RETIREMENT PLANS
The
Company has a 401(k) profit sharing plan. Employees, 21 years of age
or older, are eligible for 401(k) benefits after one year of service and
eligible for profit sharing contributions after two years of
service. Company profit sharing contributions and matching
contributions to the 401(k) plan are discretionary and are established annually
by the Board of Directors. Profit sharing contributions amounted to
$2,026,791, $1,906,527 and $1,651,563 for 2007, 2006 and 2005,
respectively. 401(k) matching contributions amounted to $925,585,
$913,148 and $77,686 for 2007, 2006 and 2005, respectively.
NOTE
6 – LINE OF CREDIT
The
Company has available a $4,000,000 line of credit with Bank of America, N.A.
(the Bank) that matures on December 1, 2008. Interest is payable
monthly at either the Bank’s prime rate minus 0.25%, the Bank’s Interbank
Offered Rate (“IBOR”) plus 1.75% or at the London Interbank Offered Rate
(“LIBOR”) plus 1.75%. The IBOR rate option may be selected by the
Company for a period from 30 to 180 days with a minimum principal amount of
$500,000. The LIBOR rate option may be selected by the Company for a
period of one, two, three, four, five or six months with a minimum principal
amount of $500,000. Any balance not selected under the IBOR or LIBOR
rate option bears interest using the prime rate option. The Bank’s
prime rate was 7.25% and 8.25% at December 31, 2007 and 2006, respectively.
Under the credit agreement, the Company has available standby letters of credit
up to $1,250,000 with a maximum maturity of three hundred sixty-five (365)
days. At December 31, 2007 and 2006, the Company had no balance
outstanding under the line of credit and no outstanding letters of
credit. The Bank agreement contains provisions, among others,
requiring the maintenance of certain financial ratios and a certain level of
tangible net worth.
- 10
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2007, 2006 AND 2005
NOTE 7 – LEASE OBLIGATIONS
The
Company leases office equipment under noncancelable leases classified as capital
lease obligations. The amortization of these leases has been included in the
Company’s depreciation expense. The net book value of the equipment
under lease was $53,352 and $26,995 (net of accumulated amortization of $21,600
and $6,850, respectively) at December 31, 2007 and 2006,
respectively.
The
Company leases office space under a long-term noncancelable operating lease
agreement expiring December 31, 2012. This lease provides for a
renewal option for one additional period of five years at fair rental value at
the time of renewal. Additionally, the Company leases office
equipment and computers under operating leases expiring through December 31,
2012. In the normal course of business, operating leases are
generally renewed or replaced by other leases. Total rent expense
amounted to $1,244,574, $1,170,370 and $1,154,672 for 2007, 2006 and 2005,
respectively.
The
following is a schedule by years of future minimum payments under leases that
have initial lease terms in excess of one year, and the present value of net
minimum lease payments under capital leases which is carried as a liability, as
of December 31, 2007:
|
Capital
Leases
|
Operating
Leases
|
|||||||
|
2008
|
$ | 20,104 | $ | 1,067,503 | ||||
|
2009
|
20,104 | 988,457 | ||||||
|
2010
|
16,689 | 942,912 | ||||||
|
2011
|
10,529 | 892,738 | ||||||
|
2012
|
3,353 | 909,539 | ||||||
|
Thereafter
|
- | 3,911 | ||||||
|
Total
minimum lease payments
|
70,779 | $ | 4,805,060 | |||||
|
Less
amounts representing interest
|
14,526 | |||||||
|
Present
value of minimum payments
|
56,253 | |||||||
|
Less
current portion of capital lease obligations
|
13,742 | |||||||
| $ | 42,511 | |||||||
NOTE
8 – RELATED PARTY TRANSACTIONS
The
Company reimburses a stockholder for the business use charter costs of a plane
the stockholder leases from his wholly-owned company. Reimbursements
amounted to $1,014,790, $893,760 and $504,210 in 2007, 2006 and 2005,
respectively. No amounts are payable at December 31, 2007 and
2006.
NOTE
9 – EMPLOYMENT AGREEMENTS
Employment
Agreements
The
Company has entered into employment agreements with stockholders, which provide
for minimum annual salary and severance payments, unless terminated with
cause. The severance payments include one year’s salary and the
payment of life insurance and health insurance premiums for one
year. These agreements include noncompetition clauses that expire 5
years from the date of termination.
- 11
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2007, 2006 AND 2005
Stockholders’ Agreement
Under the
terms of a stockholders’ agreement effective January 1, 2004, the Company agrees
to repurchase stock from stockholders upon death, disability or termination at
the greater of an agreed value or the book value of the Company. The
agreed value is determined annually by the stockholders. The
agreement restricts the transfer of stock and only permits sales of stock by
stockholders to the Company.
Deferred Compensation
Plan
The
Company has a non-qualified deferred compensation plan for
stockholders. The obligation is unfunded and will be paid from the
future income of the Company. Benefits vest over a 10-year period;
however, participants must meet certain notice requirements and enter into
noncompete, separation and release agreements with the Company in order to
receive benefits. Benefits become immediately vested in the event of
certain corporate transactions. Benefits are payable over 5 years, without
interest, beginning after termination of employment. Amounts payable
to participants are based on a formula relating to each individual’s prior
compensation. The amount of benefits payable and related payment
dates are not determinable until the date of termination. See Note 12
regarding the impact of subsequent events on the deferred compensation
liability.
NOTE
10 – STOCK SUBSCRIPTIONS RECEIVABLE
Stock
subscriptions receivable are due in various amounts monthly and include interest
of 4.375% at December 31, 2007. Interest income received from stock
subscriptions receivable was $17,946, $20,238 and $35,567 in 2007, 2006 and
2005, respectively.
NOTE
11 – REISSUED REPORT
Subsequent
to the issuance of the Company’s financial statements for 2007, 2006 and 2005,
management became aware that certain revenue transactions were not accounted for
in the proper periods in accordance with generally accepted accounting
principles. In these restated financial statements, the Company
accounted for the fixed fee portion of its contracts using a units of output
measure. In addition, to the extent that the determination of units
of output indicated an extended measurement period, revenue recognition for the
contingent fee portion of the related contracts was deferred to the end of the
revised measurement period. The corrections had the following
effect:
|
2007
|
2006
|
2005
|
||||||||||
|
Increase
(decrease) in revenue
|
$ | 6,688,529 | $ | (2,800,382 | ) | $ | (1,301,988 | ) | ||||
|
Increase
(decrease) in net income
|
$ | 6,688,529 | $ | (2,800,382 | ) | $ | (1,301,988 | ) | ||||
|
Increase
(decrease) in accounts receivable
|
$ | (567,902 | ) | $ | (1,035,106 | ) | $ | 497,366 | ||||
|
Increase
(decrease) in collections in excess of amounts earned
|
$ | (1,148,193 | ) | $ | 5,073,132 | $ | 3,805,222 | |||||
|
Increase
(decrease) in accumulated deficit
|
$ | (580,291 | ) | $ | 6,108,238 | $ | 3,307,856 | |||||
- 12
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
DECEMBER 31, 2007, 2006 AND 2005
NOTE
12 – SUBSEQUENT EVENTS
On July
8, 2008, the Company sold substantially all of its assets, including its
business operations and certain liabilities to Huron Consulting Group Inc.
(“Huron”) in exchange for approximately $218.5 million, subject to a working
capital adjustment, of which $168.5 million was paid in cash and $50.0 million
was paid through the issuance of 1,100,740 shares of the common stock of
Huron. Of the common stock received, 330,222 shares with an aggregate
value of $15.0 million were deposited into escrow for a period of one year,
beginning on July 8, 2008, to secure certain indemnification obligations of the
Company and its stockholders. Additional purchase consideration
may be payable by Huron if specific performance targets are met over a period
beginning on July 8, 2008 and ending on December 31, 2011. In
addition, Huron will make the Company whole if the fair value of the common
stock received from Huron declines at certain measurement dates.
Upon
completion of the sale, both the payment obligations related thereto and the
vesting of deferred compensation benefits were accelerated. The
Company paid the resulting obligation of $102.0 million on July 14,
2008. These financial statements do not reflect any adjustment as a
result of the sale.
- 13
- -
EXHIBIT
99.2
STOCKAMP
& ASSOCIATES, INC.
FINANCIAL
STATEMENTS
INDEX
| Page | |
| Balance Sheets at June 30, 2008 and December 31, 2007 | 1 |
| Statements of Operations for the six months ended June 30, 2008 and June 30, 2007 | 2 |
| Statement of Stockholders’ Deficit for the six months ended June 30, 2008 | 3 |
| Statements of Cash Flows for the six months ended June 30, 2008 and June 30, 2007 | 4-5 |
| Notes to Financial Statements | 6-9 |
STOCKAMP
& ASSOCIATES, INC.
BALANCE
SHEETS
JUNE
30, 2008 AND DECEMBER 31, 2007
Unaudited
|
June
30,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash and cash equivalents
|
$ | 10,911,934 | $ | 1,747,367 | ||||
|
Accounts receivable
|
6,962,455 | 8,476,570 | ||||||
|
Due from stockholders
|
38,493 | 9,165 | ||||||
|
Prepaid expense
|
1,017,702 | 710,516 | ||||||
|
Total current assets
|
18,930,584 | 10,943,618 | ||||||
|
PROPERTY
AND EQUIPMENT
|
1,460,214 | 1,606,429 | ||||||
|
CAPITALIZED
SOFTWARE DEVELOPMENT
|
49,500 | - | ||||||
| $ | 20,440,298 | $ | 12,550,047 | |||||
|
LIABILITIES AND
STOCKHOLDERS’ DEFICIT
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts payable
|
$ | 1,299,343 | $ | 253,441 | ||||
|
Accrued employee benefits
|
6,594,510 | 6,201,895 | ||||||
|
Other accrued liabilities
|
188,457 | 182,335 | ||||||
|
Unearned revenue
|
6,338,200 | 10,699,733 | ||||||
|
Collections in excess of amounts earned
|
15,021,571 | 25,551,068 | ||||||
|
Deferred compensation liability
|
2,517,036 | 5,091,828 | ||||||
|
Capital lease obligations
|
18,769 | 13,742 | ||||||
|
Total current liabilities
|
31,977,886 | 47,994,042 | ||||||
|
CAPITAL
LEASE OBLIGATIONS, NET
|
||||||||
|
OF CURRENT PORTION
|
57,265 | 42,511 | ||||||
|
DEFERRED
COMPENSATION LIABILITY,
|
||||||||
|
NET OF CURRENT PORTION
|
55,544,859 | 50,940,870 | ||||||
|
COMMITMENTS
AND CONTINGENCIES
|
||||||||
|
STOCKHOLDERS’
DEFICIT:
|
||||||||
|
Class A common stock, no par value; 200,000
|
||||||||
|
shares authorized
|
1,401,687 | 1,401,687 | ||||||
|
Class B nonvoting common stock, no par
|
||||||||
|
value; 200,000 shares authorized
|
2,683,353 | 2,444,715 | ||||||
|
Accumulated deficit
|
(70,985,995 | ) | (90,228,644 | ) | ||||
| (66,900,955 | ) | (86,382,242 | ) | |||||
|
Stock subscriptions receivable
|
(238,757 | ) | (45,134 | ) | ||||
| (67,139,712 | ) | (86,427,376 | ) | |||||
| $ | 20,440,298 | $ | 12,550,047 | |||||
See notes to financial statements.
- 1
- -
STOCKAMP
& ASSOCIATES, INC.
STATEMENTS
OF OPERATIONS
SIX MONTHS
ENDED JUNE 30, 2008 AND
2007
Unaudited
|
Six
months ended
|
||||||||
|
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
REVENUES
AND REIMBURSABLE EXPENSES:
|
||||||||
|
Service, licensing and support revenue
|
$ | 58,199,861 | $ | 37,488,475 | ||||
|
Reimbursable
expenses
|
5,293,552 | 4,379,971 | ||||||
| 63,493,413 | 41,868,446 | |||||||
|
OPERATING
EXPENSES
|
39,673,182 | 33,727,831 | ||||||
|
OPERATING
INCOME BEFORE BONUS
|
||||||||
|
DISTRIBUTIONS
|
23,820,231 | 8,140,615 | ||||||
|
BONUS
DISTRIBUTIONS TO OWNERS
|
- | 3,000,000 | ||||||
|
OPERATING
INCOME
|
23,820,231 | 5,140,615 | ||||||
|
OTHER
INCOME (EXPENSE):
|
||||||||
|
Interest
income
|
67,327 | 55,925 | ||||||
|
Interest
expense
|
(4,644,909 | ) | (4,626,798 | ) | ||||
| (4,577,582 | ) | (4,570,873 | ) | |||||
|
NET
INCOME
|
$ | 19,242,649 | $ | 569,742 | ||||
See notes to
financial statements.
- 2
- -
STOCKAMP
& ASSOCIATES, INC.
STATEMENT
OF STOCKHOLDERS’ DEFICIT
SIX MONTHS
ENDED JUNE 30, 2008
Unaudited
|
Stock
|
||||||||||||||||||||||||||||
|
Common
Stock A
|
Common
Stock B
|
Accumulated
|
Subscriptions
|
|||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Deficit
|
Receivable
|
Total
|
||||||||||||||||||||||
|
STOCKHOLDERS'
DEFICIT,
|
||||||||||||||||||||||||||||
|
JANUARY
1, 2008
|
136,717 | $ | 1,401,687 | 173,223 | $ | 2,444,715 | $ | (90,228,644 | ) | $ | (45,134 | ) | $ | (86,427,376 | ) | |||||||||||||
|
Common
stock issued
|
- | - | 16,688 | 238,638 | - | (238,638 | ) | - | ||||||||||||||||||||
|
Collections
of stock subscriptions
receivable
|
- | - | - | - | - | 45,015 | 45,015 | |||||||||||||||||||||
|
Net
income
|
- | - | - | - | 19,242,649 | - | 19,242,649 | |||||||||||||||||||||
|
STOCKHOLDERS'
DEFICIT,
|
||||||||||||||||||||||||||||
|
JUNE
30, 2008
|
136,717 | $ | 1,401,687 | 189,911 | $ | 2,683,353 | $ | (70,985,995 | ) | $ | (238,757 | ) | $ | (67,139,712 | ) | |||||||||||||
See notes to financial statements.
- 3
- -
STOCKAMP
& ASSOCIATES, INC.
STATEMENTS
OF CASH FLOWS
SIX MONTHS
ENDED JUNE 30, 2008 AND
2007
Unaudited
|
Six
months ended
|
||||||||
|
June
30,
|
||||||||
|
2008
|
2007
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
|
Net income
|
$ | 19,242,649 | $ | 569,742 | ||||
|
Adjustments to reconcile net income to net cash
|
||||||||
|
provided by (used in) operating activities:
|
||||||||
|
Depreciation and amortization
|
199,630 | 213,202 | ||||||
|
(Increase) decrease in:
|
||||||||
|
Accounts receivable
|
1,514,114 | (1,767,714 | ) | |||||
|
Due from stockholders
|
(29,328 | ) | (6,671 | ) | ||||
|
Prepaid expense
|
(307,186 | ) | (442,891 | ) | ||||
|
Increase (decrease) in:
|
||||||||
|
Accounts payable
|
1,045,901 | 699,894 | ||||||
|
Accrued employee benefits
|
392,615 | 1,948,159 | ||||||
|
Other accrued liabilities
|
6,122 | 17,566 | ||||||
|
Unearned revenue
|
(4,361,533 | ) | (345,750 | ) | ||||
|
Collections in excess of amounts earned
|
(10,529,496 | ) | (3,916,495 | ) | ||||
|
Deferred compensation liability
|
2,029,197 | 2,785,176 | ||||||
|
Net cash provided by (used in) operating
|
9,202,685 | (245,782 | ) | |||||
|
activities
|
||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Purchase of property and equipment
|
(26,667 | ) | (47,431 | ) | ||||
|
Capitalized software development costs
|
(49,500 | ) | - | |||||
|
Proceeds from disposition of property and equipment
|
- | 80 | ||||||
|
Net cash used in investing activities
|
(76,167 | ) | (47,351 | ) | ||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Repayment of capital lease obligations
|
(6,966 | ) | (3,952 | ) | ||||
|
Collections of stock subscriptions receivable
|
45,015 | 45,253 | ||||||
|
Net cash provided by financing activities
|
38,049 | 41,301 | ||||||
|
NET
INCREASE (DECREASE) IN CASH
|
||||||||
|
AND CASH EQUIVALENTS
|
9,164,567 | (251,832 | ) | |||||
|
CASH
AND CASH EQUIVALENTS
|
||||||||
|
AT BEGINNING OF PERIOD
|
1,747,367 | 1,883,406 | ||||||
|
CASH
AND CASH EQUIVALENTS
|
||||||||
|
AT END OF PERIOD
|
$ | 10,911,934 | $ | 1,631,574 | ||||
See notes to financial statements.
- 4
- -
STOCKAMP
& ASSOCIATES, INC.
STATEMENTS
OF CASH FLOWS (continued)
SIX MONTHS
ENDED JUNE 30, 2008 AND
2007
Unaudited
|
Six
months ended
|
||||||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW
|
June
30,
|
|||||||
|
INFORMATION:
|
2008
|
2007
|
||||||
|
Cash paid (received) during the period for:
|
||||||||
|
Interest
|
$ | 3,984 | $ | 1,429 | ||||
|
State and local taxes, net
|
$ | 133,403 | $ | 45,707 | ||||
|
Noncash investing and financing transactions:
|
||||||||
|
Purchase of equipment with capital lease
|
$ | 26,748 | $ | 15,383 | ||||
|
Sale of common stock on subscriptions receivable
|
$ | 238,638 | $ | 537,265 | ||||
|
Stock redemptions by cancellation of stock subscriptions
|
$ | - | $ | 248,282 | ||||
See notes to financial statements.
- 5
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS
JUNE
30, 2008 AND DECEMBER 31, 2007
NOTE
1 – DESCRIPTION OF BUSINESS
Stockamp
& Associates, Inc., (the Company) is a leading national provider of health
care performance improvement solutions. Stockamp helps providers
implement changes that improve a hospital or health system’s financial and
operational performance, patient access to services and delivery of
care. The Company’s clients are among the largest healthcare
organizations in the United States.
NOTE
2 – BASIS OF PRESENTATION
The
accompanying interim financial statements as of June 30, 2008 and for the six
months ended June 30, 2008 and 2007 are unaudited. In the opinion of
management, these interim financial statements have been prepared on the same
basis as the audited financial statements and reflect all adjustments of a
normal, recurring nature necessary for the fair presentation of the Company’s
financial position, results of operations and cash flows. These
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto for the years ended December 31, 2007,
2006 and 2005 included as Exhibit 99.1 in this Current Report on Form
8-K/A. The Company’s results for any interim period are not
necessarily indicative of results for a full year or any other interim
period.
NOTE
3 – CONCENTRATION OF CREDIT RISK
The
Company provides professional services to clients throughout the United
States. The Company grants credit to clients, which consist of public
and private hospitals. One client accounted for approximately 34% of
accounts receivable at June 30, 2008. Two clients accounted for approximately
49% of account receivables at December 31, 2007. During the six
months ended June 30, 2008 and 2007, one client comprised 29% and 17% of total
service revenue, respectively. The Company maintains cash balances
with a financial institution located in Oregon. Cash balances are
insured by the Federal Deposit Insurance Corporation up to
$100,000.
NOTE
4 – NEW ACCOUNTING PRONOUNCEMENTS
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. SFAS No. 157 does not require any new fair value
measurements in financial statements, but standardizes its definition and
guidance in GAAP. Thus, for some entities, the application of this
statement may change prior practice. The Company adopted SFAS No. 157
effective beginning on January 1, 2008 for financial assets and financial
liabilities, which did not have any impact on the Company’s financial
statements. In February 2008, the FASB issued FASB Staff Position FAS
157-2, “Effective Date of FASB Statement No. 157,” which delayed by one year the
effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). The
Company will adopt SFAS No. 157 for its nonfinancial assets and nonfinancial
liabilities effective January 1, 2009, which is not expected to have a material
impact on the Company’s future financial position, results of operations, or
cash flows.
- 6
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
JUNE
30, 2008 AND DECEMBER 31, 2007
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115.” SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair
value. The objective of this statement is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions. The
Company adopted SFAS No. 159 on January 1, 2008. The adoption had no
impact on the Company’s financial statements.
NOTE
5 – ACCOUNTS RECEIVABLE
Accounts
receivable consists of the following at:
|
June
30,
2008
|
December
31,
2007
|
|||||||
|
Consulting
fees, billed
|
$ | 589,000 | $ | 47,000 | ||||
|
Contingent
fees, billed
|
1,972,500 | 6,123,608 | ||||||
|
Contingent
and consulting fees, earned and unbilled
|
2,273,509 | 607,384 | ||||||
|
Software
support fees, billed
|
731,500 | 831,000 | ||||||
|
Expense
reimbursements, billed
|
396,643 | 145,594 | ||||||
|
Expense
reimbursements, unbilled
|
994,449 | 707,517 | ||||||
|
Other
receivables
|
4,854 | 14,467 | ||||||
| $ | 6,962,455 | $ | 8,476,570 | |||||
NOTE
6 – PROPERTY AND EQUIPMENT
Property
and equipment consists of the following at:
|
June
30,
2008
|
December
31,
2007
|
|||||||
|
Furniture
and fixtures
|
$ | 1,379,449 | $ | 1,372,155 | ||||
|
Office
equipment
|
374,821 | 348,073 | ||||||
|
Computer
equipment
|
2,555,301 | 2,484,876 | ||||||
|
Leasehold
improvements
|
569,304 | 567,504 | ||||||
|
Deposits
on computer equipment in transit
|
4,410 | 58,734 | ||||||
| 4,883,285 | 4,831,342 | |||||||
|
Less
accumulated depreciation
|
3,423,071 | 3,224,913 | ||||||
| $ | 1,460,214 | $ | 1,606,429 | |||||
- 7
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
JUNE
30, 2008 AND DECEMBER 31, 2007
NOTE
7 – DUE FROM STOCKHOLDERS
The
Company files composite tax returns for certain stockholders in states that
allow such filings. Taxes paid with those tax returns are due from
stockholders. If refunds of composite taxes are received by the
Company, those refunds are payable to the stockholders. Due from
stockholders represents the net receivable arising from tax payments and tax
refunds. In addition, due from stockholders includes accrued interest
on stock subscription receivables of $6,235 and $13,965 at June 30, 2008 and
December 31, 2007, respectively. Interest income from stockholders
was $6,235 and $9,310 in the six months ended June 30, 2008 and 2007,
respectively.
NOTE
8 – RETIREMENT PLANS
The
Company has a 401(k) profit sharing plan. Employees, 21 years of age
or older, are eligible for 401(k) benefits after one year of service and
eligible for profit sharing contributions after two years of
service. Company profit sharing contributions and matching
contributions to the 401(k) plan are discretionary and are established annually
by the Board of Directors. Profit sharing contributions amounted to
$1,272,466 and $1,042,047 for the six months ended June 30, 2008 and 2007,
respectively. 401(k) matching contributions amounted to
$548,851 and $470,898 for the six months ended June 30, 2008 and 2007,
respectively.
NOTE
9 – LINE OF CREDIT
The
Company has available a $4,000,000 line of credit with Bank of America, N.A.
(the Bank) that matures on December 1, 2008. Interest is payable
monthly at either the Bank’s prime rate minus 0.25%, the Bank’s Interbank
Offered Rate (“IBOR”) plus 1.75% or at the London Interbank Offered Rate
(“LIBOR”) plus 1.75%. The IBOR rate option may be selected by the
Company for a period from 30 to 180 days with a minimum principal amount of
$500,000. The LIBOR rate option may be selected by the Company for a
period of one, two, three, four, five or six months with a minimum principal
amount of $500,000. Any balance not selected under the IBOR or LIBOR
rate option bears interest using the prime rate option. At June 30,
2008 and December 31, 2007 the Bank’s prime rate was 5% and 7.25%,
respectively. Under the credit agreement, the Company has available
standby letters of credit up to $1,250,000 with a maximum maturity of three
hundred sixty-five (365) days. At June 30, 2008 and December 31,
2007, the Company had no balance outstanding under the line of credit and no
outstanding letters of credit. The Bank agreement contains
provisions, among others, requiring the maintenance of certain financial ratios
and a certain level of tangible net worth.
NOTE
10 – RELATED PARTY TRANSACTIONS
The
Company reimburses a stockholder for the business use charter costs of a plane
the stockholder leases from his wholly-owned company. Reimbursements
amounted to $454,720 and $485,100 for the six months ended June 30, 2008 and
2007, respectively. Amounts payable at June 30, 2008 and December 31,
2007 were $454,720 and $0, respectively.
NOTE
11 – EMPLOYMENT AGREEMENTS
Employment
Agreements
The
Company has entered into employment agreements with stockholders, which provide
for minimum annual salary and severance payments, unless terminated with
cause. The severance payments include one year’s salary and the
payment of life insurance and health insurance premiums for one
year. These agreements include noncompetition clauses that expire 5
years from the date of termination.
- 8
- -
STOCKAMP
& ASSOCIATES, INC.
NOTES
TO FINANCIAL STATEMENTS - (Continued)
JUNE
30, 2008 AND DECEMBER 31, 2007
Stockholders’
Agreement
Under the
terms of a stockholders’ agreement effective January 1, 2004, the Company agrees
to repurchase stock from stockholders upon death, disability or termination at
the greater of an agreed value or the book value of the Company. The
agreed value is determined annually by the stockholders. The
agreement restricts the transfer of stock and only permits sales of stock by
stockholders to the Company.
Deferred Compensation
Plan
The
Company has a non-qualified deferred compensation plan for
stockholders. The obligation is unfunded and will be paid from the
future income of the Company. Benefits vest over a 10-year period;
however, participants must meet certain notice requirements and enter into
noncompete, separation and release agreements with the Company in order to
receive benefits. Benefits become immediately vested in the event of
certain corporate transactions. Benefits are payable over 5 years, without
interest, beginning after termination of employment. Amounts payable
to participants are based on a formula relating to each individual’s prior
compensation. The amount of benefits payable and related payment
dates are not determinable until the date of termination. See Note 12
regarding the impact of subsequent events on the deferred compensation
liability.
NOTE
12 – SUBSEQUENT EVENTS
On July
8, 2008, the Company sold substantially all of its assets, including its
business operations and certain liabilities to Huron Consulting Group Inc.
(“Huron”) in exchange for approximately $218.5 million, subject to a working
capital adjustment, of which $168.5 million was paid in cash and $50.0 million
was paid through the issuance of 1,100,740 shares of the common stock of
Huron. Of the common stock received, 330,222 shares with an aggregate
value of $15.0 million were deposited into escrow for a period of one year,
beginning on July 8, 2008, to secure certain indemnification obligations of the
Company and its stockholders. Additional purchase consideration
may be payable by Huron if specific performance targets are met over a period
beginning on July 8, 2008 and ending on December 31, 2011. In
addition, Huron will make the Company whole if the fair value of the common
stock received from Huron declines at certain measurement dates.
Upon
completion of the sale, both the payment obligations related thereto and the
vesting of deferred compensation benefits were accelerated. The
Company paid the resulting obligation of $102.0 million on July 14,
2008. These financial statements do not reflect any adjustment as a
result of the sale.
- 9
- -
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 Stockamp & Associates, Inc. (“Stockamp”) by
Huron Consulting Group Inc. (the “Company”).
The
unaudited pro forma consolidated balance sheet as of June 30, 2008 combines
the respective balance sheets of the Company and Stockamp as if the acquisition
was consummated on June 30, 2008. The unaudited pro forma consolidated
statements of income for the year ended December 31, 2007 and for the six
months ended June 30, 2008 combine the respective statements of income of
the Company and Stockamp as if the acquisition was consummated on
January 1, 2007.
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 to
the sellers of Stockamp if specific performance targets are met over the period
beginning on July 8, 2008 through December 31, 2011. 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 and the
final net working capital adjustment.
The
unaudited pro forma financial information should be read in conjunction with
Stockamp’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, 2007 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, 2008 and June 30, 2008.
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
the Company’s future consolidated results of operations or financial
position.
- 1
- -
HURON
CONSULTING GROUP, INC.
UNAUDITED
PRO FORMA CONSOLIDATED BALANCE SHEET
AS
OF JUNE 30, 2008
(In
thousands)
|
Company
|
Stockamp
|
Pro
Forma
Adjustments
|
Note
|
Pro
Forma
Combined
|
||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Current
assets:
|
||||||||||||||||||||
|
Cash and cash
equivalents
|
$ | 14,335 | $ | 10,912 | $ | (10,912 | ) | (4 | ) | $ | 14,335 | |||||||||
|
Receivables and unbilled
services, net
|
133,453 | 6,962 | — | 140,415 | ||||||||||||||||
|
Income tax
receivable
|
7,636 | — | — | 7,636 | ||||||||||||||||
|
Deferred income
taxes
|
13,960 | — | — | 13,960 | ||||||||||||||||
|
Other current
assets
|
13,298 | 1,056 | (38 | ) | (4 | ) | 14,316 | |||||||||||||
|
Total current
assets
|
182,682 | 18,930 | (10,950 | ) | 190,662 | |||||||||||||||
|
Property
and equipment, net
|
44,378 | 1,510 | 198 | (3 | ) | 46,086 | ||||||||||||||
|
Deferred
income taxes
|
2,662 | — | — | 2,662 | ||||||||||||||||
|
Other
non-current assets
|
12,876 | — | — | 12,876 | ||||||||||||||||
|
Intangible
assets, net
|
10,519 | — | 32,900 | (3 | ) | 43,419 | ||||||||||||||
|
Goodwill
|
246,386 | — | 185,183 | (3 | ) | 431,569 | ||||||||||||||
|
Total
assets
|
$ | 499,503 | $ | 20,440 | $ | 207,331 | $ | 727,274 | ||||||||||||
|
Liabilities
and Stockholders’ Equity (Deficit)
|
||||||||||||||||||||
|
Current
liabilities:
|
||||||||||||||||||||
|
Accounts payable and accrued
expenses
|
$ | 24,344 | $ | 1,487 | $ | 15,000 | (2 | ) | $ | 41,884 | ||||||||||
| 2,352 | (2 | ) | ||||||||||||||||||
| (1,299 | ) | (4 | ) | |||||||||||||||||
|
Accrued payroll and related
benefits
|
29,490 | 6,595 | (3,733 | ) | (4 | ) | 32,352 | |||||||||||||
|
Income tax
payable
|
2,843 | — | — | 2,843 | ||||||||||||||||
|
Deferred
revenues
|
7,377 | 6,338 | (2,565 | ) | (4 | ) | 11,150 | |||||||||||||
|
Collections in excess of
amounts earned
|
— | 15,022 | (15,022 | ) | (4 | ) | — | |||||||||||||
|
Current portion of deferred
compensation liability
|
— | 2,517 | (2,517 | ) | (4 | ) | — | |||||||||||||
|
Current portion of notes
payable and
capital lease
obligations
|
23,246 | 19 | — | 23,265 | ||||||||||||||||
|
Total current
liabilities
|
87,300 | 31,978 | (7,784 | ) | 111,494 | |||||||||||||||
|
Non-current
liabilities:
|
||||||||||||||||||||
|
Deferred compensation and other
liabilities
|
5,233 | 55,545 | (55,545 | ) | (4 | ) | 5,233 | |||||||||||||
|
Capital lease
obligations
|
127 | 57 | — | 184 | ||||||||||||||||
|
Bank borrowings
|
179,500 | — | 168,520 | (2 | ) | 348,020 | ||||||||||||||
|
Deferred lease
incentives
|
9,046 | — | — | 9,046 | ||||||||||||||||
|
Total non-current
liabilities
|
193,906 | 55,602 | 112,975 | 362,483 | ||||||||||||||||
|
Stockholders’
equity (deficit)
|
218,297 | (67,140 | ) | 35,000 | (2 | ) | 253,297 | |||||||||||||
| 67,140 | (4 | ) | ||||||||||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 499,503 | $ | 20,440 | $ | 207,331 | $ | 727,274 | ||||||||||||
See
accompanying notes.
- 2
- -
HURON
CONSULTING GROUP, INC.
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR
THE YEAR ENDED DECEMBER 31, 2007
(In
thousands, except per share amounts)
|
Company
|
Stockamp
|
Pro
Forma
Adjustments
|
Note
|
Pro
Forma
Combined
|
||||||||||||||||
|
Revenues
and reimbursable expenses:
|
||||||||||||||||||||
|
Revenues
|
$ | 504,292 | $ | 71,368 | $ | — | (1 | ) | $ | 575,660 | ||||||||||
|
Reimbursable
expenses
|
43,661 | 8,188 | — | 51,849 | ||||||||||||||||
|
Total revenues and reimbursable
expenses
|
547,953 | 79,556 | — | 627,509 | ||||||||||||||||
|
Direct
costs and reimbursable expenses
(exclusive
of depreciation and amortization
shown
in operating expenses):
|
||||||||||||||||||||
|
Direct
costs
|
293,387 | 35,500 | 2,200 | (5 | ) | 331,087 | ||||||||||||||
|
Intangible
assets amortization
|
7,993 | — | 9,875 | (6 | ) | 17,868 | ||||||||||||||
|
Reimbursable
expenses
|
43,449 | 8,188 | — | 51,637 | ||||||||||||||||
|
Total direct costs and
reimbursable expenses
|
344,829 | 43,688 | 12,075 | 400,592 | ||||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Selling,
general and administrative
|
102,176 | 23,460 | 313 | (5 | ) | 122,835 | ||||||||||||||
| (2,741 | ) | (7 | ) | |||||||||||||||||
| (373 | ) | (8 | ) | |||||||||||||||||
|
Depreciation
and amortization
|
17,207 | 413 | 2,107 | (6 | ) | 19,727 | ||||||||||||||
|
Bonus
distributions to owners
|
— | 27,500 | (27,500 | ) | (5 | ) | — | |||||||||||||
|
Total operating
expenses
|
119,383 | 51,373 | (28,194 | ) | 142,562 | |||||||||||||||
|
Operating
income (loss)
|
83,741 | (15,505 | ) | 16,119 | 84,355 | |||||||||||||||
|
Other
expense
|
(8,244 | ) | (8,968 | ) | 9,079 | (7 | ) | (16,559 | ) | |||||||||||
| (8,426 | ) | (9 | ) | |||||||||||||||||
|
Income
(loss) before provision for income taxes
|
75,497 | (24,473 | ) | 16,772 | 67,796 | |||||||||||||||
|
Income
tax (expense) benefit
|
(33,596 | ) | — | 3,157 | (10 | ) | (30,439 | ) | ||||||||||||
|
Net
income
|
$ | 41,901 | $ | (24,473 | ) | $ | 19,929 | $ | 37,357 | |||||||||||
|
Earnings
per share:
|
||||||||||||||||||||
|
Basic
|
$ | 2.47 | $ | 2.11 | ||||||||||||||||
|
Diluted
|
$ | 2.32 | $ | 1.95 | ||||||||||||||||
|
Weighted
average shares used in calculating earnings per share:
|
||||||||||||||||||||
|
Basic
|
16,944 | 771 | (11 | ) | 17,715 | |||||||||||||||
|
Diluted
|
18,033 | 1,101 | (11 | ) | 19,134 | |||||||||||||||
See
accompanying notes.
- 3
- -
HURON
CONSULTING GROUP, INC.
UNAUDITED
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR
THE SIX MONTHS ENDED JUNE 30, 2008
(In
thousands, except per share amounts)
|
Company
|
Stockamp
|
Pro
Forma
Adjustments
|
Note
|
Pro
Forma
Combined
|
||||||||||||||||
|
Revenues
and reimbursable expenses:
|
||||||||||||||||||||
|
Revenues
|
$ | 282,802 | $ | 58,200 | $ | — | $ | 341,002 | ||||||||||||
|
Reimbursable
expenses
|
24,178 | 5,293 | — | 29,471 | ||||||||||||||||
|
Total revenues and reimbursable
expenses
|
306,980 | 63,493 | — | 370,473 | ||||||||||||||||
|
Direct
costs and reimbursable expenses
(exclusive
of depreciation and amortization
shown
in operating expenses):
|
||||||||||||||||||||
|
Direct
costs
|
169,435 | 21,464 | 1,100 | (5 | ) | 191,999 | ||||||||||||||
|
Intangible
assets amortization
|
48 | — | 2,050 | (6 | ) | 2,098 | ||||||||||||||
|
Reimbursable
expenses
|
24,188 | 5,293 | — | 29,481 | ||||||||||||||||
|
Total direct costs and
reimbursable expenses
|
193,671 | 26,757 | 3,150 | 223,578 | ||||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Selling,
general and administrative
|
61,942 | 12,716 | 157 | (5 | ) | 72,716 | ||||||||||||||
| (722 | ) | (7 | ) | |||||||||||||||||
| (1,377 | ) | (8 | ) | |||||||||||||||||
|
Depreciation
and amortization
|
10,508 | 200 | 1,053 | (6 | ) | 11,761 | ||||||||||||||
|
Total operating
expenses
|
72,450 | 12,916 | (889 | ) | 84,477 | |||||||||||||||
|
Operating
income
|
40,859 | 23,820 | (2,261 | ) | 62,418 | |||||||||||||||
|
Other
expense
|
(4,456 | ) | (4,577 | ) | 4,641 | (7 | ) | (8,605 | ) | |||||||||||
| (4,213 | ) | (9 | ) | |||||||||||||||||
|
Income
before provision for income taxes
|
36,403 | 19,243 | (1,833 | ) | 53,813 | |||||||||||||||
|
Income
tax expense
|
(16,381 | ) | — | (7,139 | ) | (10 | ) | (23,520 | ) | |||||||||||
|
Net
income
|
$ | 20,022 |
$
|
19,243 | $ | (8,972 | ) | $ | 30,293 | |||||||||||
|
Earnings
per share:
|
||||||||||||||||||||
|
Basic
|
$ | 1.15 | $ | 1.63 | ||||||||||||||||
|
Diluted
|
$ | 1.10 | $ | 1.57 | ||||||||||||||||
|
Weighted
average shares used in calculating earnings per share:
|
||||||||||||||||||||
|
Basic
|
17,465 | 1,101 | (11 | ) | 18,566 | |||||||||||||||
|
Diluted
|
18,197 | 1,101 | (11 | ) | 19,298 | |||||||||||||||
See
accompanying notes.
- 4
- -
HURON
CONSULTING GROUP INC.
NOTES
TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
|
(1)
|
Historical Stockamp
Revenue Recognition – Stockamp earns revenue primarily from
consulting services, software licensing, and software support and
maintenance services. Consulting fees include amounts which are
fixed and determinable along with contingent
fees. Contingent-based fee engagements tie fees to the
attainment of contractually defined objectives, which are frequently based
upon measurable improvements in the client’s cash flows or
revenues. Historically, Stockamp’s engagement contract language
does not allow for contingent fee revenue recognition under generally
accepted accounting principles in the United States (“GAAP”) until upon
the completion of the engagement when the defined objectives are
measured. Because a number of engagements containing
contingent-based fees commenced in 2007 but will not be completed until
2008, a significant amount of cash collections was deferred at
December 31, 2007 (representing a $13.5 million increase from
December 31, 2006), as presented on Stockamp’s balance sheet included
in Exhibit 99.1 of this Current Report on Form 8-K/A (“Exhibit
99.1”). These amounts will be generally recognized as revenue
in 2008. On a prospective basis, Stockamp’s engagement contract
language will be revised to allow for GAAP revenue recognition of
contingent-based fees throughout the engagement period as opposed to all
at the conclusion of the engagement. Stockamp’s historical
revenue recognition policy is described in further detail in the notes to
its financial statements included in Exhibit
99.1.
|
|
(2)
|
This
adjustment is to record the funding of the acquisition, which consisted of
the following (in thousands):
|
|
Bank
borrowings
|
$ | 168,520 | ||
|
Common
stock issued (770,518
shares)
|
35,000 | |||
|
Common
stock issued and deposited into escrow (330,222 shares)
|
15,000 | |||
|
Transaction
costs
|
1,195 | |||
|
Preliminary
working capital adjustment
|
1,157 | |||
|
Total purchase
price
|
$ | 220,872 |
In
connection with the acquisition, the Company borrowed $168.5 million under
its bank credit agreement and issued 1,100,740 shares of common stock with an
aggregate value of $50.0 million. Borrowings under the bank
credit agreement currently bear an interest rate of approximately
5.0%. Also, pursuant to the asset purchase agreement, the purchase
price will include a working capital adjustment.
|
(3)
|
The
purchase price was allocated, based on a preliminary valuation, as follows
(in thousands):
|
|
Assets
purchased
|
$ | 9,688 | ||
|
Liabilities
assumed
|
(6,899 | ) | ||
|
Intangible
assets
identified
|
32,900 | |||
|
Goodwill
|
185,183 | |||
|
Total purchase
price
|
$ | 220,872 |
|
(4)
|
This
adjustment is to eliminate the assets and liabilities that the Company did
not acquire or assume.
|
- 5
- -
|
(5)
|
This
adjustment is to record contractual obligations pursuant to employment
agreements entered into between the Company and former Stockamp
stockholders in connection with the acquisition and to reverse their
respective bonus distributions recorded on Stockamp’s historical financial
statements.
|
|
(6)
|
This
adjustment is to record, based on a preliminary valuation, estimated
amortization expense for identifiable intangible assets as presented in
the table below (in thousands). Amortization expense for
customer contracts is recognized based on projected discounted cash flows
in each of the year beginning on January 31, 2007. Amortization
expense for internally-developed software, non-competition agreements and
the trade name are recognized on a straight-line
basis.
|
|
Intangible
Asset
|
Preliminary
Value
|
Estimated
Useful
Life
|
Year
Ended
December 31,
2007
|
Six
Months
Ended
June
30, 2008
|
|||||||||
|
Customer
Contracts
|
$ | 16,300 |
96
months
|
$ | 7,625 | $ | 925 | ||||||
|
Internally-developed
software
|
$ | 9,000 |
48
months
|
2,250 | 1,125 | ||||||||
|
Total
|
$ | 9,875 | $ | 2,050 | |||||||||
|
Non-competition
agreements
|
$ | 4,000 |
72
months
|
$ | 667 | $ | 333 | ||||||
|
Trade
name
|
$ | 3,600 |
30
months
|
1,440 | 720 | ||||||||
| Total | $ | 2,107 | $ | 1,053 | |||||||||
|
(7)
|
This
adjustment is to reverse service and interest costs relating to Stockamp’s
deferred compensation plan, which the Company did not purchase (in
thousands):
|
|
Year
Ended
December 31,
2007
|
Six
Months
Ended
June
30, 2008
|
|||||||
|
Service
cost
|
$ | 2,741 | $ | 722 | ||||
|
Interest
cost
|
9,079 | 4,641 | ||||||
|
Total
|
$ | 11,820 | $ | 5,363 | ||||
|
(8)
|
This
adjustment is to reverse legal, accounting and other professional fees
incurred by Stockamp relating to the
acquisition.
|
|
(9)
|
This
adjustment is to record interest expense relating to borrowings of
168.5 million on the acquisition date, calculated as follows (in
thousands):
|
|
Year
Ended
December 31,
2007
|
Six
Months
Ended
June
30, 2008
|
|||||||
|
Borrowings
|
$ | 168,520 | $ | 168,520 | ||||
|
Interest
rate
|
5.0 | % | 5.0 | % | ||||
|
Interest
expense – 12
months
|
$ | 8,426 | — | |||||
|
Interest
expense – 6
months
|
— | $ | 4,213 | |||||
The
$168.5 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 bank credit agreement. A
variance of 0.125% in the interest rate would have a $210,650
and
- 6
- -
$105,325
pro forma effect on pre-tax income for the year ended December 31, 2007 and
the six months ended June 30, 2008, respectively.
|
(10)
|
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
Stockamp had filed its income tax returns on a consolidated basis with the
Company, calculated as follows (in
thousands):
|
|
Year
Ended
December 31,
2007
|
Six
Months
Ended
June
30, 2008
|
|||||||
|
Bonus
adjustment (see note
5)
|
$ | (24,987 | ) | $ | 1,257 | |||
|
Intangible
assets amortization expense (see note 6)
|
11,982 | 3,103 | ||||||
|
Deferred
compensation adjustment (see note 7)
|
(11,820 | ) | (5,363 | ) | ||||
|
Acquisition-related
fees (see note
8)
|
(373 | ) | (1,377 | ) | ||||
|
Interest
expense (see note
9)
|
8,426 | 4,213 | ||||||
|
Loss
(income) before taxes, before pro forma adjustments
|
24,473 | (19,243 | ) | |||||
|
Subtotal (income) /
expense
|
7,701 | (17,410 | ) | |||||
|
Tax
rate
|
41.0 | % | 41.0 | % | ||||
|
Income
tax provision
(benefit)
|
$ | 3,157 | $ | (7,139 | ) | |||
|
(11)
|
This
adjustment is to present the dilutive effect of the shares issued in
connection with the acquisition (in
thousands):
|
|
Year
Ended
December 31,
2007
|
Six
Months Ended
June 30,
2008
|
|||||||||||||||
|
Basic
|
Diluted
|
Basic
|
Diluted
|
|||||||||||||
|
Weighted
average shares – historical
|
16,944 | 18,033 | 17,465 | 18,197 | ||||||||||||
|
Shares
issued to
Stockamp
|
771 | 771 | 771 | 771 | ||||||||||||
|
Shares
issued into
escrow
|
— | 330 | 330 | 330 | ||||||||||||
|
Weighted
average shares - pro forma
|
17,715 | 19,134 | 18,566 | 19,298 | ||||||||||||
- 7
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