EX-99.3 5 dex993.htm EXHIBIT 99.3 Exhibit 99.3

Exhibit 99.3

 

 

Pro Forma Financial Information

 


Unaudited Pro Forma Combined Balance Sheet

(in thousands)

 

     As of March 31, 2009
     Historical    Pro Forma
     ICF    Adjustments     Consolidated

Current Assets:

       

Cash and cash equivalents

   $ 2,049    $ (61 )(a)   $ 1,988

Contract receivables, net

     184,337        184,337

Prepaid expenses and other

     5,270        5,270

Restricted cash

     2,180        2,180

Deferred income taxes

     8,134        8,134
                     

Total Current Assets

     201,970      (61 )     201,909
                     

Total Property and Equipment, net

     23,457        23,457

Other Assets:

       

Goodwill

     299,650      4,133  (b,c)     303,783

Other intangible assets

     42,101      (3,052 )(c)     39,049

Restricted cash

     1,534        1,534

Other assets

     4,257        4,257
                     

Total Assets

   $ 572,969    $ 1,020     $ 573,989
                     

Current Liabilities:

       

Accounts payable

   $ 34,937    $ (61 )(a)   $ 34,876

Accrued expenses

     30,970      1,423  (b,d)     32,393

Accrued salaries and benefits

     33,344      (348 )(e)     32,996

Deferred revenue

     14,671        14,671

Income taxes payable

     1,642        1,642
                     

Total Current Liabilities

     115,564      1,014       116,578
                     

Long-Term Liabilities:

       

Long-term debt

     226,008            226,008

Deferred rent

     2,055        2,055

Deferred income taxes

     12,571        12,571

Other liabilities

     5,532        5,532
                     

Total Liabilities

     361,730      1,014       362,744

Stockholders’ Equity

     211,239      6  (f)     211,245
                     

Total Liabilities and Stockholders’ Equity

   $ 572,969    $ 1,020     $ 573,989
                     

The accompanying notes are an integral part of these combined financial statements.

Note that the preliminary balance sheet for Macro International, Inc. as of March 31, 2009 was reflected in the consolidated balance sheet of ICF International, Inc. as of the date of acquisition on March 31, 2009, as reported in ICF’s quarterly report on Form 10-Q filed May 8, 2009.

 

2


Unaudited Pro Forma Combined Statements of Earnings

(in thousands, except per share amounts)

 

     For the three months ended March 31, 2009  
     Historical     Pro Forma  
     ICF     Macro     Adjustments     Consolidated  

Revenue

   $ 157,862     $ 35,440     $       $ 193,302  

Direct Costs

     99,237       25,735         124,972  

Operating costs and expenses:

        

Operating expenses

     45,289       5,963       (1,378 )(g)     49,874  

Depreciation and amortization

     1,559       738         2,297  

Amortization of intangible assets

     1,747       1,165       254  (h)     3,166  
                                

Total operating costs and expenses

     48,595       7,866       (1,124 )     55,337  
                                

Operating income (loss)

     10,030       1,839       1,124       12,993  

Interest (expense)/ income

     (703 )     (872 )     368  (i)     (1,207 )

Other income

     134       2         136  
                                

Income (loss) before taxes

     9,461       969       1,492       11,922  

Income tax expense (benefits)

     3,579       370       597  (j)     4,546  
                                

Net income (loss)

   $ 5,882     $ 599     $ 895     $ 7,376  
                                

Earnings per Share:

        

Basic

   $ 0.39         $ 0.49  
                    

Diluted

   $ 0.38         $ 0.47  
                    

Weighted-average Common Shares Outstanding:

        

Basic

     15,079           15,079  
                    

Diluted

     15,572           15,572  
                    

The accompanying notes are an integral part of these combined financial statements.

 

3


Unaudited Pro Forma Combined Statements of Earnings

(in thousands, except per share amounts)

 

     For the year ended December 31, 2008  
     Historical     Pro Forma  
     ICF     Macro     Adjustments     Consolidated  

Revenue

   $ 697,426     $ 149,584     $       $ 847,010  

Direct Costs

     460,002       108,902         568,904  

Operating costs and expenses:

        

Operating expenses

     170,360       22,860       (1,088 )(k)     192,132  

Depreciation and amortization

     5,407       3,036         8,443  

Amortization of intangible assets

     8,683       4,660       1,064  (l)     14,407  
                                

Total operating costs and expenses

     184,450       30,556       (24 )     214,982  
                                

Operating income (loss)

     52,974       10,126       24       63,124  

Interest (expense)/ income

     (4,082 )     (3,488 )     (2,412 )(m)     (9,982 )

Other income

     581       63         644  
                                

Income (loss) before taxes

     49,473       6,701       (2,388 )     53,786  

Income tax expense (benefits)

     20,750       2,628       (955 )(j)     22,423  
                                

Net income (loss)

   $ 28,723     $ 4,073     $ (1,433 )   $ 31,363  
                                

Earnings per Share:

        

Basic

   $ 1.96         $ 2.14  
                    

Diluted

   $ 1.88         $ 2.05  
                    

Weighted-average Common Shares Outstanding:

        

Basic

     14,641           14,641  
                    

Diluted

     15,270           15,270  
                    

The accompanying notes are an integral part of these combined financial statements.

 

4


NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

On March 31, 2009, ICF International (“ICF” or the “Company”) acquired 100 percent of the outstanding shares of Macro International Inc. (“Macro”) and reflected the preliminary balance sheet for Macro in the ICF financial statements reported in ICF’s quarterly report on Form 10-Q filed May 8, 2009 for the quarter ending March 31, 2009. The unaudited pro forma condensed combined financial statements have been prepared to give effect to the completed acquisition, which was accounted for as a purchase business combination in accordance with the provisions of SFAS No. 141(R), Business Combinations, as if the acquisition had taken place at the beginning of the fiscal periods presented, January 1, 2008 and 2009.

The pro forma amounts have been developed from the unaudited consolidated financial statements for the three months ended March 31, 2009, for ICF and Macro as well as the audited consolidated financial statements of ICF contained in its Annual Report on Form 10-K for the year ended December 31, 2008, and audited consolidated financial statements for Macro for the year ended December 31, 2008. The assumptions, estimates and adjustments here have been made solely for the purposes of developing these combined consolidated financial statements.

In accordance with the purchase method of accounting, the assets and liabilities of Macro were recorded at their respective estimated fair values as of the date of acquisition. Management’s estimates of the fair value of assets acquired and liabilities assumed are based, in part, on third-party evaluations. The preliminary allocation of the purchase price was based upon a preliminary valuation, and our estimates and assumptions are subject to change.

The unaudited pro forma combined consolidated financial statements are provided for illustrative purposes only and are not intended to represent the actual consolidated results of operations or the consolidated financial position of ICF had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. The unaudited pro forma combined consolidated financial statements should be read in conjunction with the separate historical consolidated financial statements of ICF and Macro.

Note A. Basis of Presentation

Effective March 31, 2009, the Company acquired 100 percent of the outstanding common shares of Macro International Inc. (“Macro”). Macro provides research and evaluation, management consulting, marketing communications, and information services to key agencies of the federal government. Macro is recognized for its expertise in research, evaluation, consulting and implementation services, particularly in federal health programs, covering a wide range of health issues in the U.S. and internationally. In addition to its health-related expertise, Macro has strong credentials in housing, labor, and veterans affairs issues. The Company undertook the acquisition to expand its health-related and large project implementation capabilities across key federal markets, to add service offerings and clients in one of its largest markets, and to provide significant growth potential and cross-selling opportunities.

The acquisition was accounted for as a purchase in accordance with the provisions of SFAS No. 141(R), Business Combinations (“SFAS No. 141(R)”). The aggregate purchase price was approximately $155.0 million in cash, which was funded by our revolving credit facility. The stock purchase agreement contains a working capital adjustment provision that will affect the final purchase price. The effect of the working capital adjustment has not been finalized, but is estimated to be approximately $2.5 million in favor of the seller. The Company has engaged an independent valuation firm to assist management in the allocation of the purchase price to goodwill and to other acquired intangible assets. The excess of the purchase price over the estimated fair value of the net tangible assets acquired was approximately $130.4 million. The Company has preliminarily allocated approximately $105.0 million to goodwill and $25.4 million to other intangible assets. The intangible assets consist of approximately $25.4 million of intangibles that are being amortized over eight years. Macro was purchased under the election provisions of Internal Revenue Code 338(h)(10), and therefore, goodwill and the amortization of intangibles are deductible for tax purposes. The results of operations for Macro will be included in the Company’s statement of earnings after March 31, 2009. The effect of the acquisition is reflected in the Company’s March 31, 2009 consolidated balance sheet and related notes.

The Company incurred approximately $1.0 million of transaction expenses related to the acquisition in the quarter prior to the assumed date of acquisition. The expenses are recorded on the statement of earnings as operating expenses. In addition, the Company incurred $0.6 million in debt issuance costs related to the acquisition. The debt issuance costs were recorded as other assets and will be amortized over the remaining life of the credit agreement.

(Continued)

 

5


NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

Because the assets and liabilities of Macro were included in the Company’s consolidated balance sheet as of March 31, 2009, the balance sheet of ICF as of March 31, 2009 used in these pro forma financial statements includes such assets and liabilities. The following table provides the preliminary allocation of assets acquired and liabilities assumed as of March 31, 2009 (in thousands of dollars):

 

Cash

   $ 75

Contract receivables

     36,585

Other current assets

     633

Customer-related intangibles

     24,574

Marketing-related intangibles

     797

Goodwill

     105,068

Other assets

     134

Property and equipment

     5,274
      

Total assets

     173,140
      

Accounts payable

     3,209

Accrued salaries and benefits

     8,419

Accrued expenses

     1,446

Billings in excess of costs

     2,574
      

Total liabilities

     15,648
      

Net assets

   $ 157,492
      

(Continued)

 

6


NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

Note B. Pro Forma Adjustments

The pro forma information included herein differs from the previously reported preliminary March 31, 2009 balance sheet of Macro that was consolidated with the ICF balance sheet as reported in the ICF quarterly report on Form 10-Q filed May 8, 2009, because it reflects adjustments resulting from a subsequent review of Macro’s preliminary March 31, 2009 balance sheet. These adjustments affect the estimated purchase price, including adjustments to goodwill, intangibles, taxes, intangible expense, interest expense, and other expenses. The pro forma unaudited combined consolidated financial statements do not include anticipated incremental business development and information technology expenses. The pro forma adjustments included in the unaudited combined consolidated financial statements are as follows:

 

(a)    Adjust opening cash balance to the corrected balance.
(b)    Adjust goodwill and accrued expenses for estimated working capital adjustment of $2.5 million.
(c)    Reduce the fair value of acquired identified intangibles by $1.6 million and record accumulated amortization of intangibles of $1.4 million in accordance with subsequent purchase price allocation.
(d)    Adjust accrued ICF acquisition expenses of $1.0 million and a reduction of $0.1 million in the accrued expense opening balance.
(e)    Adjust accrued salaries and benefits for acquisition-related liabilities.
(f)    Record impact of pro forma adjustments to stockholders’ equity.
(g)    Eliminate ICF acquisition-related expenses of $1.0 million, Macro acquisition-related expenses of $0.5 million, and Macro profit sharing expense of $0.8 million, partially offset by an increase of $0.3 million 401(k) plan expense, $0.5 million increase in incremental integration, and $0.1 in miscellaneous expenses.
(h)    Eliminate Macro historical intangible amortization expense of $1.2 million and record amortization expense of $1.4 million related to the Macro acquisition.
(i)    Eliminate Macro historical interest expense and record interest expense related to an average acquisition balance of $155 million at an estimated interest rate of 1.3% for the three-month period.
(j)    Record income tax provision for pro forma adjustments at a combined federal and state statutory tax rate of 40%.
(k)    Elimination of Macro profit sharing expense of $3.0 million partially offset by an increase of $1.4 million 401(k) plan expense and $0.5 million increase in incremental integration expenses.
(l)    Eliminate Macro historical intangible amortization expense of $4.7 million and record amortization expense of $5.7 million related to the Macro acquisition.
(m)    Eliminate Macro historical interest expense and record interest expense related to an average acquisition balance of $147.5 million at an estimated interest rate of 4.0% for the twelve month period.

 

7