Note F - Business Combinations

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

Business Combination Disclosure [Text Block]

NOTE F—BUSINESS COMBINATIONS

Olson

On November 5, 2014, the Company completed the acquisition of OCO Holdings, Inc. and its various subsidiaries, including Olson + Co., Inc. (collectively, “Olson”), a leading provider of marketing technology and digital services based in Minneapolis, Minnesota. As a result of the acquisition, Olson became a wholly owned subsidiary of the Company. The aggregate purchase price of approximately $298.2 million in cash was funded by the Company’s Credit Facility (as defined in “Note I – Long-Term Debt” below). The acquisition expanded the Company’s existing digital technology and strategic communications work and strengthened its ability to bring more integrated solutions to an expanded client base, including multi-channel marketing initiatives across web, mobile, email, social, print, broadcast and off-premise platforms.

The acquisition

was accounted for under the acquisition method. The allocation of the total purchase price to the tangible and intangible assets and liabilities of Olson is based on management’s estimate of fair value as of the acquisition date and was completed in the fourth quarter of 2015. The Company 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 $293.4 million. The Company has allocated approximately $228.5 million to goodwill and $64.9 million to other intangible assets. The goodwill recorded as part of the acquisition primarily reflects the value of providing an established platform to leverage the Company’s existing digital interactive technologies and domain expertise, synergies expected to arise from providing end-to-end customer solutions to a combined client-base across all channels, as well as any intangible assets that do not qualify for separate recognition. The weighted average amortization period for the amount allocated to other intangible assets in total is 9.6 years from the acquisition date. The intangible assets consist of approximately $60.3 million of customer-related intangibles that are being amortized over 10.2 years from the acquisition date, $4.0 million of marketing-related intangibles that were amortized over 1.2 years from the acquisition date, and $0.6 million of developed technology intangibles that are being amortized over 6.2 years from the acquisition date. Olson was a stock purchase for tax purposes; therefore, goodwill and amortization of other intangibles created via this acquisition are not deductible for income tax purposes.

During the year ended December 31, 2015, the Company recorded an increase to goodwill of $3.4 million related to measurement-period adjustments to the preliminary purchase price allocation. The measurement-period adjustments were primarily related to reductions of $7.3 million and $5.9 million to the valuation of fixed assets and accrued expenses and other liabilities, as well as a $1.8 million holdback adjustment that increased the purchase price to $298.2 million. Goodwill adjustments were not significant to our previously reported operating results or financial position.

The purchase price allocation is summarized as follows:

Cash	$	8,816
Contract receivables		36,879
Other current and non-current assets		1,512
Property and equipment		8,571
Customer-related intangibles		60,338
Marketing-related intangibles		3,947
Developed technology intangibles		578
Goodwill		228,527
Total Assets		349,168
Accounts payable		9,792
Accrued expenses and other liabilities		7,126
Accrued salaries and benefits		5,378
Deferred revenue		9,742
Deferred taxes and income tax payable		18,922
Total Liabilities		50,960
Net Assets	$	298,208

The results of operations of the Olson acquisition are included in the Company’s consolidated statements of comprehensive income for the year ended December 31, 2015. For the year ended December 31, 2014, Olson contributed net revenues of $23.0 million and net earnings of $2.2 million since the acquisition date of November 5, 2014

, excluding transaction-related acquisition costs of $1.6 million, as well as interest expense, amortization of intangible assets resulting from the acquisition, stock-based compensation expense, corporate allocations and integration costs.

The following unaudited condensed pro forma information presents combined financial information as if the acquisition of Olson had been effective at the beginning of fiscal year 2013. As a result, fiscal year 2014 represents the pro forma results for year two of the acquisition. The pro forma information includes adjustments reflecting changes in the amortization of intangibles, acquisition-related expense, stock-based compensation expense,

and interest expense, and records income tax effects as if Olson had been included in the Company’s results of operations. The pro forma information for fiscal year 2014 also includes an adjustment to eliminate $2.6 million of operating income related to the reduction of an Olson contingent liability that was settled as a result of the acquisition.

Pro forma Information

for the

Year Ended December 31

(Unaudited)

	2014		2013
Revenue	$	1,167,787	$	1,067,511
Operating income		78,518		67,051
Net income		42,461		35,992
Earnings per share:
Basic earnings per share	$	2.17	$	1.82
Diluted earnings per share	$	2.12	$	1.78

CityTech

In

March 2014, the Company acquired CityTech, Inc. (“CityTech”), a Chicago-based digital interactive consultancy specializing in enterprise applications development, web experience management, mobile application development, cloud enablement, managed services, and customer experience management solutions. The acquisition added expertise to the Company’s content management capabilities and complemented its digital and interactive business. During the first quarter of 2015, the Company finalized its valuation of the assets acquired and liabilities assumed as a result of the acquisition. The purchase was immaterial to the Company’s financial statements taken as a whole.

Mostra

In February 2014, the Company completed its acquisition of Mostra SA (“Mostra”), a strategic communications consulting company based in Brussels, Belgium. Mostra offers end-to-end, multichannel communications solutions to assist government and commercial clients, in particular the European Commission. The acquisition extended the Company’s strategic communications capabilities globally to complement its policy work and enhance its strategy of providing a full suite of services that leverages its research and advisory services. During the first quarter of 2015, the Company finalized its valuation of the assets acquired and liabilities assumed as a result of the acquisition. The purchase was immaterial to the Company’s financial statements taken as a whole.

ECA

In July 2013, the Company hired the staff of, and purchased certain assets and liabilities from, Ecommerce Accelerator LLC (“ECA”), an e-commerce technology-based services firm based in New York, New York. The addition of ECA enhanced ICF’s multi-channel, end-to-end e-commerce solutions. In connection with the acquisition, the Company recorded a contingent consideration payable reflected in other long-term liabilities at the estimated fair value of $2.8 million at December 31, 2013. The fair value of the contingent liability was reduced to zero in the first quarter of 2014 and the change in the fair value measurement of $2.8 million was recorded as a reduction to indirect and selling expenses. The Company is no longer required to pay contingent consideration to ECA, as the parties mutually agreed to the release of this potential obligation in the third quarter of 2014. The purchase was immaterial to the Company’s financial statements taken as a whole.