EX-99.4 4 a08-5697_1ex99d4.htm EX-99.4

Exhibit 99.4

 

InnerWorkings, Inc.

 

Unaudited Pro Forma Condensed Consolidated Financial Statements

 

On November 30, 2007, InnerWorkings, Inc. (the “Company”) acquired New York City-based Corporate Edge, Inc. (“Corporate Edge”), a major national distributor of promotional products, which creates cutting-edge corporate business solutions for Fortune 500 clients. Corporate Edge offers an experienced team with creative expertise and tactical flexibility that delivers quality branded merchandise on time and on budget.

 

For purposes of the Unaudited Pro Forma Condensed Consolidated Income Statements for the nine months ended September 30, 2007 and the year ended December 31, 2006, we have assumed the Corporate Edge acquisition occurred on January 1, 2006.

 

The Unaudited Pro Forma Condensed Consolidated Balance Sheet gives effect to the Corporate Edge acquisition as if it had occurred on September 30, 2007.

 

The Company and Corporate Edge have the same fiscal year end, December 31.  The Unaudited Pro Forma Condensed Consolidated Income Statement for the nine months ended September 30, 2007 has been derived from:

 

 

·

 

the unaudited historical consolidated income statement of the Company for the nine months ended September 30, 2007; and

 

 

·

 

the unaudited historical consolidated income statement of Corporate Edge for the nine months ended September 30, 2007.

 

The unaudited pro forma condensed consolidated income statement for the year ended December 31, 2006 has been derived from:

 

 

·

 

the audited historical consolidated income statement of the Company for the year ended December 31, 2006; and

 

 

·

 

the audited historical consolidated income statement of Corporate Edge for the year ended December 31, 2006.

 

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2007 has been derived from:

 

 

·

 

the unaudited historical consolidated balance sheet of the Company as of September 30, 2007; and

 

 

·

 

the unaudited historical consolidated balance sheet of Corporate Edge as of September 30, 2007.

 

These Unaudited Pro Forma Condensed Consolidated Financial Statements (“the unaudited pro forma financial statements”) have been prepared based on preliminary estimates of fair values of the assets acquired and liabilities assumed as of the acquisition date. The actual amounts recorded for the acquisition may differ from the information presented here. The purchase price has been allocated on a preliminary basis based on management’s best estimates of fair value, with the excess cost over net tangible and intangible assets acquired being allocated to goodwill. These allocations are subject to change pending a final analysis of the fair value of the assets acquired and liabilities assumed as of the acquisition date. In addition, post-closing adjustments to the purchase price will affect the purchase price allocation.

 

The unaudited pro forma financial statements presented are for illustration purposes only and do not necessarily indicate the operating results or financial position that would have been achieved if the Corporate Edge acquisition had occurred on January 1, 2006 or September 30, 2007, as applicable, nor is it indicative of future operating results or financial position.

 

The unaudited pro forma financial statements do not reflect any operating efficiencies or cost savings that we may achieve with respect to the combined companies, nor do they include the effects of restructuring activities.

 

The unaudited pro forma financial statements should be read in conjunction with the accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements and the historical consolidated financial statements and accompanying notes included in this Form 8-K filing, and the Company’s historical consolidated financial statements filed as part of our most recent Form 10-K filing and Form 10-Q filing.

 

 

1


InnerWorkings, Inc

Unaudited Pro Forma Condensed Consolidated Balance Sheet

September 30, 2007

 

 

 

 

 

 

 

Acquisition

 

 

 

 

 

InnerWorkings, Inc.

 

Corporate Edge

 

Pro Forma

 

Pro Forma

 

 

 

September 30, 2007

 

September 30, 2007

 

Adjustments

 

as Adjusted

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

54,317,892

 

$

261,995

 

$

(17,977,754

)(1)

$

36,602,133

 

Marketable securities

 

15,950,000

 

—

 

—

 

15,950,000

 

Accounts receivable, net of allowance for doubtful accounts

 

57,453,661

 

8,213,761

 

—

 

65,667,422

 

Unbilled revenue

 

8,816,169

 

—

 

—

 

8,816,169

 

Inventories

 

3,786,805

 

3,824,856

 

47,810

(2)

7,659,471

 

Note receivable

 

—

 

229,341

 

—

 

229,341

 

Prepaid expenses

 

4,297,425

 

1,032,270

 

—

 

5,329,695

 

Advances to related parties

 

73,309

 

—

 

—

 

73,309

 

Deferred income taxes

 

819,028

 

—

 

—

 

819,028

 

Other current assets

 

1,960,693

 

—

 

—

 

1,960,693

 

Total current assets

 

147,474,982

 

13,562,223

 

(17,929,944

)

143,107,261

 

Property and equipment, net

 

3,603,532

 

643,901

 

—

 

4,247,433

 

Intangibles and other assets:

 

 

 

 

 

 

 

 

 

Goodwill

 

15,615,748

 

—

 

6,436,826

(3)

22,052,574

 

Intangible assets, net of accumulated amortization

 

8,014,600

 

—

 

2,415,000

(3)

10,429,600

 

Deposits

 

208,217

 

186,817

 

—

 

395,034

 

Investment

 

125,000

 

—

 

—

 

125,000

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes

 

4,122,535

 

—

 

—

 

4,122,535

 

Other assets

 

26,792

 

20,804

 

(20,804

)(4)

26,792

 

 

 

28,112,892

 

207,621

 

8,831,022

 

37,151,535

 

Total assets

 

$

179,191,406

 

$

14,413,745

 

$

(9,098,222

)

$

184,506,229

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable-trade

 

$

36,509,839

 

$

3,303,633

 

$

—

 

$

39,813,472

 

Line of credit

 

—

 

5,869,520

 

(5,869,520

)(4)

—

 

Payable to related parties

 

103,389

 

—

 

—

 

103,389

 

Due to seller

 

633,368

 

—

 

—

 

633,368

 

Current maturities of capital lease obligations

 

67,773

 

—

 

—

 

67,773

 

Customer deposits

 

2,277,263

 

596,847

 

—

 

2,874,110

 

Other liabilities

 

1,201,576

 

—

 

—

 

1,201,576

 

Deferred revenue

 

—

 

—

 

—

 

—

 

Accrued expenses

 

3,534,183

 

1,414,343

 

—

 

4,948,526

 

Total current liabilities

 

44,327,391

 

11,184,343

 

(5,869,520

)

49,642,214

 

Capital lease obligations, less current maturities

 

165,117

 

—

 

—

 

165,117

 

Subordinated note payable - affiliate

 

—

 

2,250,000

 

(2,250,000

)(4)

—

 

Total liabilities

 

44,492,508

 

13,434,343

 

(8,119,520

)

49,807,331

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock

 

479

 

—

 

—

 

479

 

Additional paid-in capital

 

163,068,551

 

645,275

 

(645,275

)(5)

163,068,551

 

Treasury stock at cost

 

(40,000,000

)

—

 

—

 

(40,000,000

)

Unrealized gain on marketable securities

 

77,814

 

—

 

—

 

77,814

 

Retained earnings

 

11,552,054

 

334,127

 

(334,127

)(5)

11,552,054

 

Total stockholders’ equity

 

134,698,898

 

979,402

 

(979,402

)

134,698,898

 

Total liabilities and stockholders’ equity

 

$

179,191,406

 

$

14,413,745

 

$

(9,098,922

)

$

184,506,229

 

 

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

 

 

2


InnerWorkings, Inc

Unaudited Pro Forma Condensed Consolidated Income Statement

For the Nine Months Ended September 30, 2007

 

 

 

InnerWorkings, Inc.

 

Corporate Edge

 

Acquisition

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

Pro Forma

 

Pro Forma

 

 

 

September 30, 2007

 

September 30, 2007

 

Adjustments

 

As Adjusted

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

198,392,945

 

$

39,760,519

 

$

—

 

$

238,153,464

 

Cost of goods sold

 

148,417,678

 

29,181,517

 

—

 

177,599,195

 

Gross profit

 

49,975,267

 

10,579,002

 

—

 

60,554,269

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

33,202,122

 

9,714,305

 

—

 

42,916,427

 

Depreciation and amortization

 

1,579,815

 

161,242

 

132,250

(6)

1,873,307

 

Income from operations

 

15,193,330

 

703,455

 

(132,250

)

15,764,535

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

1,713,820

 

—

 

(539,333

)(7)

1,174,487

 

Interest expense

 

(18,739

)

(468,221

)

468,221

(4)

(18,739

)

Other, net

 

327,223

 

—

 

—

 

327,223

 

Total other income

 

2,022,304

 

(468,221

)

(71,112

)

1,482,971

 

Income before income taxes

 

17,215,634

 

235,234

 

(203,362

)

17,247,506

 

Income tax expense (benefit)

 

6,705,397

 

9,269

 

(3,162

)(8)

6,711,504

 

Net income

 

$

10,510,237

 

$

225,965

 

$

(200,200

)

$

10,536,002

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.22

 

 

 

 

 

$

0.22

 

Diluted earnings per share

 

$

0.21

 

 

 

 

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

Number of shares used for calculation:

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

47,340,337

 

 

 

 

 

47,340,337

 

Diluted earnings per share

 

49,885,117

 

 

 

 

 

49,885,117

 

 

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

 

 

3


InnerWorkings, Inc

Unaudited Pro Forma Condensed Consolidated Income Statement

For the Year Ended December 31, 2006

 

 

 

InnerWorkings, Inc.

 

Corporate Edge

 

Acquisition

 

 

 

 

 

Year Ended

 

Year Ended

 

Pro Forma

 

Pro Forma

 

 

 

December 31, 2006

 

December 31, 2006

 

Adjustments

 

As Adjusted

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

160,514,987

 

$

57,850,691

 

—

 

$

218,365,678

 

Cost of goods sold

 

123,968,796

 

42,756,237

 

—

 

166,725,033

 

Gross profit

 

36,546,191

 

15,094,454

 

—

 

$

51,640,645

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling, general, and administrative expenses

 

22,675,423

 

13,582,203

 

—

 

36,257,626

 

Depreciation and amortization

 

1,029,968

 

239,707

 

176,333

(6)

1,446,008

 

Income from operations

 

12,840,800

 

1,272,544

 

(176,333

)

13,937,011

 

Other income (expense):

 

 

 

 

 

 

 

 

 

Interest income

 

949,036

 

142

 

(719,110

)(7)

230,068

 

Interest expense

 

(168,784

)

(627,398

)

627,398

(4)

(168,784

)

Other, net

 

(5,242

)

—

 

—

 

(5,242

)

Total other income

 

775,010

 

(627,256

)

(91,712

)

56,042

 

Income before income taxes

 

13,615,810

 

645,288

 

(268,045

)

13,993,053

 

Income tax expense (benefit)

 

5,335,374

 

38,320

 

(108,804

)(8)

5,264,890

 

Net income

 

8,280,436

 

606,968

 

(159,241

)

8,728,163

 

Dividends on preferred shares

 

(1,408,740

)

—

 

—

 

(1,408,740

)

Net income applicable to common shareholders

 

$

6,871,696

 

$

606,968

 

$

(159,241

)

$

7,319,423

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.22

 

 

 

 

 

$

0.23

 

Diluted earnings per share

 

$

0.21

 

 

 

 

 

$

0.22

 

 

 

 

 

 

 

 

 

 

 

Number of shares used for calculation:

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

31,711,974

 

 

 

 

 

31,711,974

 

Diluted earnings per share

 

39,372,181

 

 

 

 

 

39,372,181

 

 

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

 

4


 

InnerWorkings, Inc.

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

 

(1) Cash and cash equivalents:

 

The pro forma adjustment to cash and cash equivalents reflects the purchase price of $18.0 million, which includes repayment of the line of credit and subordinated note payable, paid to the shareholders of Corporate Edge in November 2007. In addition, there is up to an additional $10.5 million in cash purchase price which may be paid contingent the achievement of certain future annual performance measures by Corporate Edge in each of the three years following November 30, 2007. Up to $4.5 million of additional purchase price may be paid based upon the achievement of certain cumulative performance measures by Corporate Edge during the three year period following November 30, 2007.  Any such additional payments will be recorded as an increase to goodwill.

 

(2) Inventory

 

The pro forma balance sheet adjustment to inventory reflects the fair value adjustment to inventory.

 

(3) Purchase Price:

 

Preliminary Purchase Price Allocation

 

The purchase price allocation presented in these unaudited pro forma condensed consolidated financial statements will differ from the purchase price allocation to be performed as of November 30, 2007 (date of Corporate Edge acquisition). In addition, adjustments to the purchase price allocation will be made upon settlement of the working capital and other post-closing adjustments.

 

For purposes of the unaudited condensed consolidated balance sheet, the $18.0 million purchase price has been allocated to the assets recorded by Corporate Edge as of September 30, 2007, based on estimated fair values. Adjustments to these estimates will be included in the allocation of the purchase price of Corporate Edge, if the adjustment is determined within the purchase price allocation period of up to twelve months. The excess of the purchase price over the identifiable intangible and net tangible assets was allocated to goodwill. The preliminary purchase price of $18.0 million has been allocated as follows:

 

Cash

 

$

261,995

 

Accounts receivable

 

8,213,761

 

Inventory

 

3,872,666

 

Prepaid expenses

 

1,032,270

 

Other current assets

 

229,341

 

Property, plant and equipment

 

643,901

 

Other non-current assets

 

186,817

 

Customer list

 

2,300,000

 

Noncompete agreement

 

115,000

 

Goodwill

 

6,436,826

 

Accounts payable

 

(3,303,633

)

Customer deposits

 

(596,847

)

Accrued liabilities

 

(1,414,343

)

 

 

 

 

Total purchase price

 

$

17,977,754

 

 

Goodwill and intangible assets

 

The pro forma adjustment to goodwill reflects the goodwill resulting from the purchase method of accounting in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (SFAS No. 141).  We have estimated the fair value of intangible assets through the use of an independent third-party valuation firm to value these identifiable intangible assets, which are subject to amortization.  These estimates are based on a preliminary valuation and are subject to change upon management’s review of the final valuation.

 

The following table summarizes the intangible assets and goodwill acquired:

 

 

5


 

 

 

 

 

Customer list

 

$

2,300,000

 

Noncompete agreement

 

115,000

 

 

 

 

 

Goodwill acquired

 

$

6,436,826

 

 

(4) Subordinated note payable and line of credit balance:

 

                The pro forma adjustment reflects the repayment of Corporate Edge’s outstanding subordinated note payable and line of credit balance and the reduction of the related interest expense as a result of the acquisition.

 

(5) Common stock, additional paid-in capital and retained earnings:

 

The pro forma adjustment to the common shares and retained earnings reflects the elimination of Corporate Edge’s historical shareholders’ equity as a result of the acquisition.

 

(6) Depreciation and amortization:

 

The pro forma adjustment reflects the amortization of intangible assets over their useful lives.  The useful life of an intangible asset is the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the Company.

 

 

 

Useful Life

 

Year Ended
December 31, 2006
Pro Forma Amortization

 

Nine Months Ended
September 30, 2007
Pro Forma Amortization

 

Customer lists

 

15 years

 

$

153,333

 

$

115,000

 

Noncompete agreement

 

5 years

 

$

23,000

 

$

17,250

 

 

(7) Interest income:

 

The pro forma adjustment reflects the reduction in interest income related to the cash purchase price paid of approximately $18 million.

 

(8) Income tax expense:

 

The pro forma adjustment reflects the tax rate applied to the historical pre-tax income of Corporate Edge to reflect taxation as a C Corporation and to the pro forma adjustments related to the Corporate Edge acquisition as follows:

 

Nine months ended September 30, 2007

 

39.00

%

Year ended December 31, 2006

 

39.00

%

 

 

6