Huron Consulting Group Inc. - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - January 7, 2016

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8-K - 8-K - Huron Consulting Group Inc.a8-kxclosingofsale.htm
EX-99.1 - EXHIBIT 99.1 - Huron Consulting Group Inc.exhibit991-pressrelease.htm
EX-2.1 - EXHIBIT 2.1 - Huron Consulting Group Inc.exhibit21-purchaseagreement.htm
Exhibit 99.2


HURON CONSULTING GROUP INC.
Unaudited Pro Forma Consolidated Financial Information

On December 31, 2015, Huron Consulting Group Inc. ("Huron" or "Company") completed its divestiture of the Huron Legal practice ("Huron Legal") pursuant to a Purchase Agreement (the "Agreement"). Huron sold Huron Legal for gross proceeds of $112 million in cash at closing, before taxes and transaction-related expenses, plus a cash post-closing payment ranging from zero to $22 million contingent upon final full year 2015 financial results, and subject to certain other adjustments set forth in the Agreement. Huron Legal's historical financial results will be reflected in Huron's consolidated financial statements as a discontinued operation.

The following unaudited pro forma consolidated balance sheet as of September 30, 2015 gives effect to the sale of Huron Legal as if the transaction occurred on September 30, 2015. The unaudited pro forma consolidated statement of earnings for the nine months ended September 30, 2015 and the years ended December 31, 2014, 2013, and 2012 give effect to the sale of Huron Legal as if the transaction occurred on January 1, 2012. The pro forma balance sheet and statement of earnings are hereafter collectively referred to as the "Pro Forma Financial Information." The Pro Forma Financial Information is unaudited and does not purport to represent what the consolidated balance sheet would have been if the sale of Huron Legal had occurred on September 30, 2015, or what the consolidated statements of earnings would have been if the sale of Huron Legal had occurred on January 1, 2012, or what those results will be for any future periods.

The Pro Forma Financial Information is based upon the historical financial statements of Huron and has been adjusted to reflect factually supportable items that are directly attributable to the sale, and, with respect to the statement of earnings only, are expected to have a continuing impact on the consolidated results. The adjustments are based upon currently available information and certain assumptions, and therefore, the actual adjustments will likely differ from the pro forma adjustments.

The Pro Forma Financial Information has been derived without adjustment from Huron's historical unaudited consolidated financial statements included in the Company's Quarterly Report on Form 10-Q for the nine months ended September 30, 2015 and the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

The Pro Forma Financial Information should be read in conjunction with:
•
The accompanying notes to the Pro Forma Financial Information;
•
The unaudited consolidated financial statements of Huron as of and for the nine months ended September 30, 2015 and the related notes thereto as presented in Huron's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission ("SEC") on October 22, 2015; and
•
The audited consolidated financial statements of Huron as of and for the years ended December 31, 2014, 2013, and 2012 and the related notes thereto as presented in Huron's Annual Report on Form 10-K filed with the SEC on February 24, 2015.





HURON CONSULTING GROUP INC.
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2015
(In thousands)
 
As Reported
 
Pro Forma Adjustments (a)
 
Pro Forma
 
 
 
Assets
 
 
 
 
 
Current assets:
 
 
 
 

Cash and cash equivalents
$
13,462

 
$
103,347

(b)
$
116,809

Receivables from clients, net
123,984

 
(23,642
)
 
100,342

Unbilled services, net
82,447

 
(12,117
)
 
70,330

Income tax receivable
4,778

 
—

 
4,778

Deferred income taxes, net
9,228

 
(437
)
 
8,791

Prepaid expenses and other current assets
22,962

 
(3,825
)
 
19,137

Total current assets
256,861

 
63,326

 
320,187

Property and equipment, net
47,457

 
(11,389
)
 
36,068

Long-term investment
34,050

 
—

 
34,050

Other non-current assets
24,525

 
(669
)
 
23,856

Intangible assets, net
102,450

 
(3,658
)
 
98,792

Goodwill
806,801

 
(59,699
)
 
747,102

Total assets
$
1,272,144

 
$
(12,089
)
 
$
1,260,055

Liabilities and stockholders’ equity
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accounts payable
$
9,718

 
$
—

 
$
9,718

Accrued expenses
25,227

 
(3,282
)
(c)
21,945

Accrued payroll and related benefits
62,600

 
—

 
62,600

Deferred revenues
22,721

 
(210
)
 
22,511

Total current liabilities
120,266

 
(3,492
)
 
116,774

Non-current liabilities:
 
 
 
 
 
Deferred compensation and other liabilities
16,204

 
(486
)
 
15,718

Long-term debt
419,426

 
—

 
419,426

Deferred lease incentives
14,535

 
(384
)
 
14,151

Deferred income taxes, net
53,842

 
(4,763
)
(d)
49,079

Total non-current liabilities
504,007

 
(5,633
)
 
498,374

Commitments and contingencies
 
 
 
 
 
Stockholder's equity
 
 
 
 
 
Common stock
243

 
—

 
243

Treasury stock
(101,239
)
 
—

 
(101,239
)
Additional paid-in capital
453,317

 
—

 
453,317

Retained earnings
294,523

 
(5,551
)
(f)
288,972

Accumulated other comprehensive income
1,027

 
2,587

(e)
3,614

Total stockholders’ equity
647,871

 
(2,964
)
 
644,907

Total liabilities and stockholders’ equity
$
1,272,144

 
$
(12,089
)
 
$
1,260,055




HURON CONSULTING GROUP INC.
Unaudited Pro Forma Consolidated Statement of Earnings
For the nine months ended September 30, 2015
(In thousands, except per share amounts)
 
As Reported
 
Pro Forma Adjustments
(g)
 
Continuing Operations
 
 
 
Revenues and reimbursable expenses:
 
 
 
 
 
Revenues
$
621,378

 
$
(107,468
)
 
$
513,910

Reimbursable expenses
55,900

 
(2,634
)
 
53,266

Total revenues and reimbursable expenses
677,278

 
(110,102
)
 
567,176

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
 
 
 
 
Direct costs
366,078

 
(68,630
)
 
297,448

Amortization of intangible assets and software development costs
12,277

 
(175
)
 
12,102

Reimbursable expenses
55,826

 
(2,632
)
 
53,194

Total direct costs and reimbursable expenses
434,181

 
(71,437
)
 
362,744

Operating expenses and other operating (gains) losses:
 
 
 
 
 
Selling, general and administrative expenses
132,627

 
(15,371
)
 
117,256

Restructuring charges
2,490

 
(913
)
 
1,577

Litigation and other (gains) losses
524

 
—

 
524

Depreciation and amortization
25,771

 
(7,370
)
 
18,401

Total operating expenses and other operating (gains) losses
161,412

 
(23,654
)
 
137,758

Operating income
81,685

 
(15,011
)
 
66,674

Other income (expense), net:
 
 
 
 
 
Interest expense, net of interest income
(13,800
)
 
6

 
(13,794
)
Other income (expense), net
(1,939
)
 
(43
)
 
(1,982
)
Total other expense, net
(15,739
)
 
(37
)
 
(15,776
)
Income from continuing operations before income tax expense
65,946

 
(15,048
)
 
50,898

Income tax expense
26,237

 
(4,590
)
 
21,647

Net income from continuing operations
$
39,709

 
$
(10,458
)
 
$
29,251

Earnings per share:
 
 
 
 
 
Basic
$
1.79

 
$
(0.47
)
 
$
1.32

Diluted
$
1.76

 
$
(0.47
)
 
$
1.29

Weighted average shares used in calculating earnings per share:
 
 
 
 
 
Basic
22,151

 
22,151

 
22,151

Diluted
22,616

 
22,616

 
22,616




HURON CONSULTING GROUP INC.
Unaudited Pro Forma Consolidated Statement of Earnings
For the year ended December 31, 2014
(In thousands, except per share amounts)
 
As Reported
 

Pro Forma Adjustments
(g)
 
Continuing Operations
 
 
 
Revenues and reimbursable expenses:
 
 
 
 
 
Revenues
$
811,332

 
$
(183,647
)
 
$
627,685

Reimbursable expenses
77,875

 
(4,028
)
 
73,847

Total revenues and reimbursable expenses
889,207

 
(187,675
)
 
701,532

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
 
 
 
 
Direct costs
500,171

 
(115,894
)
 
384,277

Amortization of intangible assets and software development costs
4,888

 
(298
)
 
4,590

Reimbursable expenses
77,856

 
(4,001
)
 
73,855

Total direct costs and reimbursable expenses
582,915

 
(120,193
)
 
462,722

Operating expenses and other operating (gains) losses:
 
 
 
 
 
Selling, general and administrative expenses
155,434

 
(22,635
)
 
132,799

Restructuring charges
3,438

 
(627
)
 
2,811

Litigation and other (gains) losses
(590
)
 
—

 
(590
)
Depreciation and amortization
25,014

 
(9,347
)
 
15,667

Total operating expenses and other operating (gains) losses
183,296

 
(32,609
)
 
150,687

Operating income
122,996

 
(34,873
)
 
88,123

Other income (expense), net:
 
 
 
 
 
Interest expense, net of interest income
(8,741
)
 
62

 
(8,679
)
Other income (expense), net
353

 
47

 
400

Total other expense, net
(8,388
)
 
109

 
(8,279
)
Income from continuing operations before income tax expense
114,608

 
(34,764
)
 
79,844

Income tax expense
35,557

 
(2,910
)
 
32,647

Net income from continuing operations
$
79,051

 
$
(31,854
)
 
$
47,197

Earnings per share:
 
 
 
 
 
Basic
$
3.52

 
$
(1.42
)
 
$
2.10

Diluted
$
3.45

 
$
(1.39
)
 
$
2.06

Weighted average shares used in calculating earnings per share:
 
 
 
 
 
Basic
22,431

 
22,431

 
22,431

Diluted
22,925

 
22,925

 
22,925





HURON CONSULTING GROUP INC.
Unaudited Pro Forma Consolidated Statement of Earnings
For the year ended December 31, 2013
(In thousands, except per share amounts)
 
As Reported
 

Pro Forma Adjustments
(g)
 
Continuing Operations
 
 
 
Revenues and reimbursable expenses:
 
 
 
 
 
Revenues
$
720,522

 
$
(182,394
)
 
$
538,128

Reimbursable expenses
67,267

 
(2,644
)
 
64,623

Total revenues and reimbursable expenses
787,789

 
(185,038
)
 
602,751

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
 
 
 
 
Direct costs
443,539

 
(120,141
)
 
323,398

Amortization of intangible assets and software development costs
3,091

 
(431
)
 
2,660

Reimbursable expenses
67,320

 
(2,655
)
 
64,665

Total direct costs and reimbursable expenses
513,950

 
(123,227
)
 
390,723

Operating expenses and other operating (gains) losses:
 
 
 
 
 
Selling, general and administrative expenses
138,538

 
(21,562
)
 
116,976

Restructuring charges
761

 
(456
)
 
305

Litigation and other (gains) losses
(5,875
)
 
—

 
(5,875
)
Depreciation and amortization
20,510

 
(9,723
)
 
10,787

Total operating expenses and other operating (gains) losses
153,934

 
(31,741
)
 
122,193

Operating income
119,905

 
(30,070
)
 
89,835

Other income (expense), net:
 
 
 
 
 
Interest expense, net of interest income
(6,518
)
 
43

 
(6,475
)
Other income (expense), net
252

 
101

 
353

Total other expense, net
(6,266
)
 
144

 
(6,122
)
Income from continuing operations before income tax expense
113,639

 
(29,926
)
 
83,713

Income tax expense
47,176

 
(15,001
)
 
32,175

Net income from continuing operations
$
66,463

 
$
(14,925
)
 
$
51,538

Earnings per share:
 
 
 
 
 
Basic
$
2.98

 
$
(0.67
)
 
$
2.31

Diluted
$
2.92

 
$
(0.66
)
 
$
2.26

Weighted average shares used in calculating earnings per share:
 
 
 
 
 
Basic
22,322

 
22,322

 
22,322

Diluted
22,777

 
22,777

 
22,777





HURON CONSULTING GROUP INC.
Unaudited Pro Forma Consolidated Statement of Earnings
For the year ended December 31, 2012
(In thousands, except per share amounts)
 
As Reported
 

Pro Forma Adjustments
(g)
 
Continuing Operations
 
 
 
Revenues and reimbursable expenses:
 
 
 
 
 
Revenues
$
625,961

 
$
(184,918
)
 
$
441,043

Reimbursable expenses
55,764

 
(3,410
)
 
52,354

Total revenues and reimbursable expenses
681,725

 
(188,328
)
 
493,397

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
 
 
 
 
Direct costs
384,884

 
(123,792
)
 
261,092

Amortization of intangible assets and software development costs
3,809

 
(174
)
 
3,635

Reimbursable expenses
55,772

 
(3,412
)
 
52,360

Total direct costs and reimbursable expenses
444,465

 
(127,378
)
 
317,087

Operating expenses and other operating (gains) losses:
 
 
 
 
 
Selling, general and administrative expenses
125,266

 
(17,650
)
 
107,616

Restructuring charges
4,004

 
(957
)
 
3,047

Restatement related expenses
1,785

 
—

 
1,785

Litigation and other (gains) losses
1,150

 
—

 
1,150

Depreciation and amortization
18,529

 
(7,854
)
 
10,675

Goodwill impairment charge
13,083

 
—

 
13,083

Total operating expenses and other operating (gains) losses
163,817

 
(26,461
)
 
137,356

Operating income
73,443

 
(34,489
)
 
38,954

Other income (expense), net:
 
 
 
 
 
Interest expense, net of interest income
(8,223
)
 
81

 
(8,142
)
Other income (expense), net
428

 
(3
)
 
425

Total other expense, net
(7,795
)
 
78

 
(7,717
)
Income from continuing operations before income tax expense
65,648

 
(34,411
)
 
31,237

Income tax expense
29,695

 
(15,736
)
 
13,959

Net income from continuing operations
$
35,953

 
$
(18,675
)
 
$
17,278

Earnings per share:
 
 
 
 
 
Basic
$
1.64

 
$
(0.85
)
 
$
0.79

Diluted
$
1.61

 
$
(0.83
)
 
$
0.78

Weighted average shares used in calculating earnings per share:
 
 
 
 
 
Basic
21,905

 
21,905

 
21,905

Diluted
22,285

 
22,285

 
22,285





HURON CONSULTING GROUP INC.
Notes to Unaudited Pro Forma Consolidated Financial Information

(a) The adjustment reflects the elimination of Huron Legal's assets and liabilities attributed to the disposition.

(b) The adjustment reflects the net cash proceeds, less estimated taxes, received at closing.
Gross cash proceeds
 
$
112,000

Estimated net working capital adjustment
 
4,548

Transaction costs and other closing payments
 
(5,875
)
Net cash proceeds
 
110,673

Estimated tax expense on gain on sale
 
(8,417
)
Estimated tax benefit on disposal of foreign entities
 
1,091

Pro forma cash adjustment
 
$
103,347


(c) The adjustment includes the elimination of accrued transaction costs as of September 30, 2015.

(d) The adjustment includes the non-current deferred tax assets generated by the disposal of foreign entities.

(e) The adjustment reflects the write-off of the cumulative translation adjustment ("CTA") for disposed foreign entities.

(f) The adjustment reflects the estimated net loss on the sale of the Huron Legal practice. The actual net gain or loss will differ from the pro forma estimate due to the difference in timing between the assumed closing date for the Pro Forma Financial Information and the actual closing date of December 31, 2015, the consideration received, if any, for the post-closing payment contingent upon final full year 2015 financial results, and the actual tax expense incurred. We have excluded the fair value of the post-closing payment from the net consideration received below as we are unable to estimate the fair value at this time.

For purposes of the pro forma balance sheet adjustment, Huron Legal's weighted average statutory rate of 39.4% was used to calculate the estimated tax on the gain on sale. This rate does not reflect Huron’s effective tax rate, which includes other tax items, such as foreign taxes, as well as other tax charges or benefits, and does not take into account any historical or possible future tax events that may impact Huron.
Net cash proceeds
 
$
110,673

Transaction costs paid prior to September 30, 2015
 
(336
)
Net consideration received
 
110,337

Net assets sold
 
106,869

Write-off of CTA
 
2,587

Estimated pre-tax gain on sale
 
881

Estimated tax expense on gain on sale(1)
 
8,417

Estimated net loss on sale(2)
 
(7,536
)
Plus:
 
 
Estimated tax benefit on disposal of foreign entities(2)
 
1,091

Deferred tax assets generated by disposal of foreign entities(2)
 
416

Transaction costs expensed as of September 30, 2015
 
478

Pro forma retained earnings adjustment
 
$
(5,551
)
 
(1) The estimated tax expense on gain on sale is calculated as follows:
Estimated pre-tax gain on sale
 
$
881

Estimated additional taxable gain on sale
 
20,482

Total taxable gain on sale
 
21,363

Weighted average statutory tax rate
 
39.4
%
Estimated tax expense on gain on sale
 
$
8,417




The estimated additional taxable gain on sale shown above is primarily related to non-deductible goodwill and intangible assets attributable to the disposition.

(2) This balance was not recorded as an adjustment to the unaudited pro forma consolidated statements of earnings, as it is a non-recurring charge related to the divestiture of Huron Legal and will not have a continuing impact on the operations of the Company.

(g) The adjustment reflects the elimination of Huron Legal's operating results attributed to the disposition.

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