EX-99.4 5 exhibit994.htm EXHIBIT 99.4 Exhibit
Exhibit 99.4

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
 
On November 16, 2016 (the "Closing Date"), LendingTree, LLC ("Buyer"), a wholly-owned subsidiary of LendingTree, Inc. (the "Company"), acquired all of the membership interests of Iron Horse Holdings, LLC, a Delaware limited liability company (the "Acquisition"), which does business under the name CompareCards.com ("CompareCards"), pursuant to a Membership Interest Purchase Agreement (the "Purchase Agreement") by and among Buyer, CompareCards, all of the members of CompareCards (collectively, the "Sellers"), and Christopher J. Mettler, as the Member Representative. CompareCards operates a leading online credit card comparison shopping, credit health and credit education platform.
Pursuant to the terms of the Purchase Agreement, Buyer was required to make an upfront cash payment to Sellers of $85.0 million, subject to adjustments for working capital, transaction expenses of Sellers, CompareCards indebtedness as of the Closing Date, and CompareCards cash on hand as of the Closing Date. As a result of these adjustments, Buyer paid $80.5 million of cash to Sellers for the membership interests of CompareCards as of the Closing Date. The final cash payment amount owed to Sellers is subject to a final adjustment for working capital and transaction expenses of the Sellers. Buyer deposited $8 million of such purchase price into an escrow account to secure the Sellers' indemnification obligations pursuant to the Purchase Agreement.
Additionally, Sellers are eligible to receive two earnout payments from Buyer based on the EBITDA generated by CompareCards during the periods of January 1, 2017 through December 31, 2017 and January 1, 2018 through December 31, 2018 (the "Earnout Payments"). The Sellers are eligible to receive up to $45 million in aggregate Earnout Payments which are payable in cash unless the parties agree to payment in a form other than cash.
The Unaudited Pro Forma Condensed Combined Statements of Operations presented below (the “pro forma statements of operations”) for the nine months ended September 30, 2016 and the year ended December 31, 2015 combine the historical results of operations of the Company and CompareCards giving effect to the Acquisition as if it was consummated on January 1, 2015. The Unaudited Pro Forma Condensed Combined Balance Sheet presented below (the “pro forma balance sheet”) is based on the historical balance sheet of the Company and CompareCards and has been prepared to reflect the effects of the Acquisition as if the Acquisition was consummated on September 30, 2016. The Unaudited Pro Forma Condensed Combined Statements of Operations and Unaudited Pro Forma Condensed Combined Balance Sheet are collectively referred to as the "Statements". The historical consolidated financial information has been adjusted in the Statements to give effect to pro forma events that are (1) directly attributable to the Acquisition (2) factually supportable and (3) with respect to the statements of operations, expected to have a continuing impact on the results of operations.
The accompanying Statements and related notes are being provided for illustrative purposes only in accordance with Article 11 of Regulation S-X and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of the Company would have been had the Acquisition occurred on the dates assumed, nor are they necessarily indicative of the Company's future consolidated results of operations or consolidated statement of financial position.
As of the date of this filing, the upfront cash payment has not been finalized for the adjustments noted above and the Company has not fully completed the valuation procedures necessary to arrive at the final estimate of the fair value of the assets acquired and liabilities assumed. The Statements are based upon currently available information and estimates and assumptions that the Company's management believes are reasonable as of the date hereof. Any of the factors underlying these estimates and assumptions may change or prove to be materially different upon finalization of the Company's valuation procedures.
The Statements should be read in conjunction with:

•the accompanying notes to the Statements;
•
the Company's audited financial statements and related notes for the year ended December 31, 2015, contained within the Company's Annual Report on Form 10-K filed with the SEC on March 1, 2016;
•
the Company's historical unaudited condensed consolidated interim financial statements and related notes as of and for the nine months ended September 30, 2016, included in the Company's Quarterly Report on Form 10-Q filed with the SEC on October 28, 2016;
•
the historical financial statements of CompareCards as of and for the year ended December 31, 2015 included as Exhibit 99.2 to the Company's Amendment No. 1 to Current Report on Form 8-K/A filed herewith; and
•
the historical unaudited financial statements of CompareCards as of and for the nine months ended September 30, 2016, included as Exhibit 99.3 to the Company's Amendment No. 1 to Current Report on Form 8-K/A filed herewith. 




1


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 2016
 
LendingTree, Inc.
 
CompareCards
 
Pro Forma Adjustments (Note 3)
 
Pro Forma Combined
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
 
 
 
 
 
 
 
Revenue
$
283,561

 
$
54,071

 
$
—

 
$
337,632

Costs and expenses:
 

 
 

 
 

 
 

Cost of revenue (exclusive of depreciation and amortization shown separately below)
10,329

 
613

 
—

 
10,942

Selling and marketing expense
192,416

 
40,241

 
—

 
232,657

General and administrative expense
26,820

 
2,000

 
—

 
28,820

Product development
11,384

 
—

 
—

 
11,384

Depreciation
3,458

 
8

 
(8
)
(a)
3,458

Amortization of intangibles
263

 
1

 
7,214

(b)
7,478

Restructuring and severance
72

 
—

 
—

 
72

Litigation settlements and contingencies
109

 
—

 
—

 
109

Total costs and expenses
244,851

 
42,863

 
7,206

 
294,920

Operating income
38,710

 
11,208

 
(7,206
)
 
42,712

Other income (expense), net:
 

 
 

 
 

 
 

Interest expense
(424
)
 
(155
)
 
—

 
(579
)
Other income, net
—

 
108

 
—

 
108

Income before income taxes
38,286

 
11,161

 
(7,206
)
 
42,241

Income tax expense
(15,099
)
 
—

 
(1,599
)
(c)
(16,698
)
Net income from continuing operations
23,187

 
11,161

 
(8,805
)
 
25,543

Loss from discontinued operations, net of tax
(3,017
)
 
—

 
—

 
(3,017
)
Net income
$
20,170

 
$
11,161

 
$
(8,805
)
 
$
22,526

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
11,827

 
 
 
 
 
11,827

Diluted
12,782

 
 
 
 
 
12,782

Income per share from continuing operations:
 

 
 
 
0

 
 

Basic
$
1.96

 
 
 
 
 
$
2.16

Diluted
$
1.81

 
 
 
 
 
$
2.00

Loss per share from discontinued operations:
 

 
 

 
 
 
 

Basic
$
(0.26
)
 
 
 
 
 
$
(0.26
)
Diluted
$
(0.24
)
 
 
 
 
 
$
(0.24
)
Net income per share:
 

 
 

 
 
 
 

Basic
$
1.71

 
 
 
 
 
$
1.90

Diluted
$
1.58

 
 
 
 
 
$
1.76

 
The accompanying notes are an integral part of these statements.





2



UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
For the year ended December 31, 2015
 
LendingTree, Inc.
 
CompareCards
 
Pro Forma Adjustments (Note 3)
 
Pro Forma Combined
 
 
 
 
 
 
 
 
(in thousands, except per share amounts)
 
 
 
 
 
 
 
Revenue
$
254,216

 
$
54,431

 
$
—

 
$
308,647

Costs and expenses:
 

 
 

 
 

 
 

Cost of revenue (exclusive of depreciation and amortization shown separately below)
9,370

 
131

 
—

 
9,501

Selling and marketing expense
172,849

 
53,483

 
—

 
226,332

General and administrative expense
30,030

 
2,330

 
—

 
32,360

Product development
10,485

 
—

 
—

 
10,485

Depreciation
3,008

 
5

 
(5
)
(a)
3,008

Amortization of intangibles
149

 
2

 
9,618

(b)
9,769

Restructuring and severance
422

 
—

 
—

 
422

Litigation settlements and contingencies
(611
)
 
—

 
—

 
(611
)
Total costs and expenses
225,702

 
55,951

 
9,613

 
291,266

Operating income (loss)
28,514

 
(1,520
)
 
(9,613
)
 
17,381

Other income (expense), net:
 

 
 

 
 

 
 

Guaranteed payments
—

 
(260
)
 
—

 
(260
)
Interest expense
(171
)
 
(106
)
 
—

 
(277
)
Other income, net
—

 
31

 
—

 
31

Income (loss) before income taxes
28,343

 
(1,855
)
 
(9,613
)
 
16,875

Income tax benefit
22,973

 
—

 
4,637

(c)
27,610

Net income (loss) from continuing operations
51,316

 
(1,855
)
 
(4,976
)
 
44,485

Loss from discontinued operations, net of tax
(3,269
)
 
—

 
—

 
(3,269
)
Net income (loss)
$
48,047

 
$
(1,855
)
 
$
(4,976
)
 
$
41,216

 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
11,516

 
 
 
 
 
11,516

Diluted
12,541

 
 
 
 
 
12,541

Income per share from continuing operations:
 

 
 

 
0

 
 

Basic
$
4.46

 
 
 
 
 
$
3.86

Diluted
$
4.09

 
 
 
 
 
$
3.55

Loss per share from discontinued operations:
 

 
 

 
 

 
 

Basic
$
(0.28
)
 
 
 
 
 
$
(0.28
)
Diluted
$
(0.26
)
 
 
 
 
 
$
(0.26
)
Net income per share:
 

 
 

 
 

 
 

Basic
$
4.17

 
 
 
 
 
$
3.58

Diluted
$
3.83

 
 
 
 
 
$
3.29



The accompanying notes are an integral part of these statements.


3


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of September 30, 2016
 
 
LendingTree, Inc.
 
CompareCards
 
Pro Forma Adjustments (Note 3)
 
Pro Forma Combined
(in thousands)
 
 
 
 
 
 
 
ASSETS:
 

 
 

 
 
 
 
Cash and cash equivalents
$
176,925

 
$
3,596

 
$
(84,492
)
(d)
$
96,029

Restricted cash and cash equivalents
4,091

 
—

 
—

 
4,091

Accounts receivable, net
38,185

 
6,312

 
(126
)
(e)
44,371

Prepaid and other current assets
3,925

 
237

 
—

 
4,162

Total current assets
223,126

 
10,145

 
(84,618
)
 
148,653

Property and equipment, net
13,399

 
34

 
(34
)
(f)
13,399

Goodwill
4,007

 
—

 
47,689

(g)
51,696

Intangible assets, net
15,229

 
552

 
54,848

(h)
70,629

Deferred income tax assets
16,341

 
—

 
176

(m)
16,517

Other non-current assets
855

 
334

 
(24
)
(i)
1,165

Non-current assets of discontinued operations
4,142

 
—

 
—

 
4,142

Total assets
$
277,099

 
$
11,065

 
$
18,037

 
$
306,201

 
 
 
 
 
 
 
 
LIABILITIES:
 

 
 

 
 
 
 
Accounts payable, trade
$
2,815

 
$
5,395

 
$
—

 
$
8,210

Accrued expenses and other current liabilities
37,719

 
866

 
—

 
38,585

Current liabilities of discontinued operations
11,978

 
—

 
—

 
11,978

Total current liabilities
52,512

 
6,261

 
—

 
58,773

Contingent consideration
—

 
—

 
23,100

(j)
23,100

Other non-current liabilities
1,753

 
1,510

 
(1,510
)
(k)
1,753

Non-current liabilities of discontinued operations
27

 
—

 
—

 
27

Total liabilities
54,292

 
7,771

 
21,590

 
83,653

 
 
 
 
 
 
 
 
SHAREHOLDERS' EQUITY:
 

 
 

 
 
 
 
Common stock
140

 
—

 
—

 
140

Additional paid-in capital
1,016,706

 
3,294

 
(3,294
)
(l)
1,016,706

Accumulated deficit
(729,954
)
 
—

 
(259
)
(m)
(730,213
)
Treasury stock
(64,085
)
 
—

 
—

 
(64,085
)
Total shareholders' equity
222,807

 
3,294

 
(3,553
)
 
222,548

Total liabilities and shareholders' equity
$
277,099

 
$
11,065

 
$
18,037

 
$
306,201

 
The accompanying notes are an integral part of these statements.

4


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands)


NOTE 1—BASIS OF PRESENTATION
The Statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and pursuant to Article 11 of Regulation S-X, and present the pro forma balance sheet and statements of operations of the Company based upon historical information after giving effect to the Acquisition and the adjustments described in these footnotes. The unaudited pro forma balance sheet is presented as if the Acquisition had occurred on September 30, 2016; and the unaudited pro forma statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 are presented as if the Acquisition had occurred on January 1, 2015.
The Statements have been derived from the historical consolidated financial statements of the Company and CompareCards for the year ended December 31, 2015. The historical results of the Company and CompareCards as of and for the nine months ended September 30, 2016 have been derived from unaudited financial information.
Certain financial statement line items included in CompareCards historical presentation have been reclassified and condensed to conform to corresponding financial statement line items included in the Company's historical financial statement presentation. These include adjustments for the following:
•
Commissions expense reclassified to cost of revenue; remaining operating expenses condensed within general and administrative expense with the exception of depreciation and amortization which have been disaggregated and shown separately;
•
Other receivables and prepaid expenses, which have been condensed into prepaid and other current assets;
•
Investment and deposit, which have been condensed into other non-current assets;
•
Payroll liabilities and credit cards payable, which have been condensed into accrued expense and other current liabilities; and
•
Notes payable which has been condensed into other non-current liabilities.
These reclassifications did not impact the historical earnings from continuing operations and had no impact on the historical total assets, total liabilities, members' equity or net income of CompareCards.

NOTE 2—CONSIDERATION TRANSFERRED AND PRELIMINARY PURCHASE PRICE ALLOCATION
The accompanying Statements and related notes were prepared using the acquisition method of accounting, in accordance with ASC 805, Business Combinations ("ASC 805"), with the Company considered the acquirer of CompareCards. In accordance with ASC 805, the assets acquired and the liabilities assumed have been measured at fair value based on various preliminary estimates.
For purposes of measuring the estimated fair value, where applicable, of the assets acquired and the liabilities assumed as reflected in the Statements, the guidance in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) has been applied, which establishes a framework for measuring fair value. In accordance with ASC 820, fair value is an exit price and is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Under ASC 805, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred.
The pro forma adjustments are preliminary and are based upon available information and certain assumptions which management believes are reasonable under the circumstances and which are described in the accompanying notes to the Statements. Actual results may differ materially from the assumptions utilized within the Statements. Management believes the fair values recognized for the assets to be acquired and liabilities to be assumed are based on reasonable estimates and assumptions. Preliminary fair value estimates may change as additional information becomes available and such changes could be material.

5


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands)


The purchase price for the acquisition is $103.6 million comprised of an upfront cash payment of $80.5 million on November 16, 2016 and $23.1 million for the estimated fair value of the Earnout Payments.
Cash transferred
$
80,461

Estimated fair value of the Earnout Payments
23,100

Estimated fair value of consideration transferred
$
103,561

The estimated fair value of the Earnout Payments is determined using an option pricing model for each of the earnout periods, January 1, 2017 through December 31, 2017 and January 1, 2018 through December 31, 2018. For each of the earnout periods, the members of CompareCards are, generally, eligible to receive up to $22.5 million, or up to $45.0 million in aggregate Earnout Payments.
The estimated fair value of the Earnout Payments is preliminary and are based upon available information and certain assumptions, known at the time of this report, which management believes are reasonable. This preliminary fair value estimate for the Earnout Payments may change as additional information becomes available and such changes could be material. Upon final determination of the fair value of the Earnout Payments, any differences in the actual Earnout Payments will be recorded in operating income (expense) in the consolidated statements of operations.
The following is a summary of the preliminary estimated fair values of the assets acquired and liabilities assumed as if the Acquisition closed on September 30, 2016:
    
Current assets
$
6,423

Total intangible assets with definite lives, net
55,400

Goodwill
47,689

Other assets
310

Total assets acquired
109,822

 
 
Accounts payable and accrued liabilities
6,261

Estimated fair value of consideration transferred
$
103,561

This preliminary allocation is based on the information known to management as of the date of this report. The final determination of the accounting for the Acquisition is anticipated to be completed as soon as practicable. The Company expects the final determination of the purchase price allocation to include, but will not be limited to, valuations with respect to developed technology, customer relationships, trade names and other potential intangible assets. The valuations will consist of discounted cash flow analyses and other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed.
The final determination of the amounts allocated to the assets acquired and liabilities assumed in the Acquisition will be based on the fair value of the net assets acquired at the Acquisition date and could differ materially from the preliminary amounts presented in these pro forma statements as of September 30, 2016. A decrease in the fair value of assets acquired, or an increase in the fair value of liabilities assumed, from those preliminary valuations presented in these pro forma financial statements would result in a dollar-for-dollar corresponding increase in the amount of goodwill that will result from the Acquisition. In addition, if the value of the acquired assets is higher than the preliminary values above, it may result in higher amortization expense than is presented in these pro forma financial statements.




6


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands)


NOTE 3—ADJUSTMENTS TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma adjustments included in the pro forma financial statements are as follows:
Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations
(a)
The adjustments represent the change in depreciation expense for the nine months ended September 30, 2016 and the year ended December 31, 2015 associated with the change in fair value of the property, plant and equipment recorded in relation to the Acquisition.
(b)
The adjustments represent the change in amortization expense for the nine months ended September 30, 2016 and the year ended December 31, 2015 associated with the change in fair value of the intangible assets recorded in relation to the Acquisition. The preliminary amortization of intangibles is as follows:
    
 
Preliminary fair value
 
Estimated weighted average life
 
Amortization expense for the nine months ended September 30, 2016
 
Amortization expense for the year ended December 31, 2015
Technology
$
27,900

 
4.0

 
$
5,232

 
$
6,975

Customer lists
23,200

 
13.0

 
1,338

 
1,785

Trade Name and Trademarks
4,300

 
5.0

 
645

 
860

Total
$
55,400

 
 
 
$
7,215

 
$
9,620

Less: CompareCards historical amortization expense
 
 
 
 
$
(1
)
 
$
(2
)
Pro forma adjustments
 
 
 
 
$
7,214

 
$
9,618

The estimated fair value of amortizable intangible assets is expected to be amortized on a straight-line basis over the estimated useful lives, which represent the periods over which the assets are expected to provide material economic benefit. With other assumptions held constant, a 10% increase in the fair value adjustment for amortizable intangible assets would increase annual pro forma amortization expense by $964.
(c)
The adjustments reflect the tax effects of the results of operations of CompareCards and the preliminary pro forma adjustments made to the pro forma statements of operations using the Company's statutory tax rates for the year ended December 31, 2015 and the nine months ended September 30, 2016 of 40.43% and 40.44%, respectively. CompareCards did not pay taxes at the entity level as it was a limited liability corporation.
Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet
(d)
Adjustments to cash and cash equivalents reflects the preliminary net adjustment to cash in connection with the Acquisition, subject to final working capital adjustments, on a cash-free, debt-free basis.
Cash portion of consideration
$
(80,461
)
Less: CompareCards cash balance
(3,596
)
Less: Estimated transaction expenses
(435
)
Total cash and cash equivalents adjustment
$
(84,492
)
(e)
The adjustment to accounts receivable reflects the preliminary estimated fair value adjustment of $126.
(f)
The adjustment to property, plant and equipment reflects the preliminary estimated fair value adjustment of $34.
(g)
The adjustment to goodwill reflects the preliminary estimate of the excess of the fair value of the consideration transferred over the estimated fair value of CompareCard's identifiable assets acquired and liabilities assumed in the Acquisition. The estimate of the fair value of the consideration transferred over the estimated fair value of the identifiable net assets acquired is calculated as follows:
Estimated fair value of consideration transferred
$
103,561

Less: fair value of net assets acquired
(55,872
)
Total goodwill adjustment
$
47,689


7


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(in thousands)


(h)
The adjustment to intangible assets, net reflects the preliminary estimate of fair value for the acquired intangible assets in the Acquisition. See pro forma footnote 3 (b) above for information related to the estimated fair value and related amortization expense of the intangible assets. The preliminary adjustment to intangible assets, net is calculated as follows:
Estimated fair value
$
55,400

Less: CompareCards book value of intangible assets, net
(552
)
Total intangibles, net adjustment
$
54,848

(i)
The adjustment to other noncurrent assets reflects the removal of a cost method investment in the amount of $24 that was not acquired by Buyer in connection with the Acquisition and therefore has been removed from the pro forma balance sheet.
(j)
The adjustment to contingent consideration reflects the preliminary estimated fair value of the Earnout Payments of $23.1 million. The contingent consideration is included in the preliminary estimated fair value of the consideration transferred in the Acquisition.
(k)
The adjustment to other noncurrent liabilities reflects the removal of a note payable in the amount of $1.5 million that was not assumed with the Acquisition and therefore has been removed from the pro forma balance sheet.
(l)
The adjustment to additional paid in capital reflects the elimination of CompareCard's historical equity balances.
(m)
The adjustment to deferred income tax assets and accumulated deficit reflects the estimated transaction expenses of $435 that were cash settled, or are expected to be cash settled, subsequent to September 30, 2016. These estimated costs have been excluded from the pro forma statements of operations as they reflect charges directly attributable to the Acquisition that will not have an ongoing impact on the Company.


8