Form 8-K/A CEB Inc. For: Apr 29

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K/A

Amendment No. 1

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of The Securities Exchange Act of 1934

Date of report (Date of earliest event reported): April 29, 2016

 

CEB Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code: (571) 303-3000

N/A

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 

 

 

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Introductory Note

As previously reported, on April 29, 2016, CEB Inc. (the “Company”) completed the acquisition of 100% of the outstanding capital stock of CXO Acquisition Co. and Sports Leadership Acquisition Co. (collectively referred to as “Evanta”) from CXO Acquisition Holdings, LLC (the “Acquisition”). The Company paid cash consideration of $275 million, subject to a customary working capital adjustment and other price adjustments as provided in the stock purchase agreement, dated April 4, 2016, as amended on April 29, 2016 (the “Purchase Price”). The Company, together with certain of its subsidiaries acting as guarantors, amended the Company’s senior secured credit agreement to, among other changes, allow for additional term loan and revolving credit borrowings in order to fund the Acquisition (“Amendment No. 5”).

On May 2, 2016, the Company filed a Current Report on Form 8-K (the “Original Current Report”) to report the completion of the Acquisition and entry into Amendment No. 5. This Current Report on Form 8-K/A is being filed to amend Item 9.01 of the Original Current Report. This Current Report on Form 8-K/A provides financial statements of the business acquired as required by Item 9.01(a) and the pro forma financial information required by Item 9.01(b), which financial statements and information were not included in the Original Current Report. The financial statements provided are the consolidated statements of CXO Acquisition Holdings, LLC, which reflects the acquired Evanta business.

 

 

Item 9.01. Financial Statements and Exhibits.

The following information is filed as exhibits hereto:

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

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Exhibit Index

 

 

 

EXHIBIT 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated March 4, 2016 (except the “Fair Value Instruments” and “Goodwill” paragraphs in Note 2, and Notes 3, 6, 7, and 13, which are as of July 14, 2016) with respect to the consolidated financial statements of CXO Acquisition Holdings, LLC included in this Current Report on Form 8-K/A of CEB Inc. We hereby consent to the incorporation by reference of said report in the Registration Statements of CEB Inc. on Forms S-8 (File No. 333-74145, 333-39832, 333-67238, 333-103538, 333-117774, 333-138685, 333-150744, and 333-183156).

/s/ Grant Thornton LLP

Portland, Oregon

July 14, 2016

Grant Thornton LLP

U.S. member firm of Grant Thornton International Ltd

 

Exhibit 99.1

CXO Acquisition Holdings, LLC AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2015

 

 

 

 

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CXO Acquisition Holdings, LLC AND SUBSIDIARIES

 

TABLE OF CONTENTS

 

 

 

 

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Board of Directors

CXO Acquisition Holdings, LLC and Subsidiaries

We have audited the accompanying consolidated financial statements of CXO Acquisition Holdings, LLC and subsidiaries (a Delaware corporation), which comprise the consolidated balance sheet as of December 31, 2015, and the related consolidated statement of operations, changes in members’ deficit, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CXO Acquisition Holdings, LLC and subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLP

Portland, Oregon

March 4, 2016 (except the “Fair Value Instruments” and “Goodwill” paragraphs in Note 2, and Notes 3, 6, 7, and 13, which are as of July 14, 2016)

 

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CXO Acquisition Holdings, LLC AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 2015

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

 

See notes to the Financial Statements.

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CXO ACQUISITION HOLDINGS, LLC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 2015

(IN THOUSANDS)

 

 

See notes to the Financial Statements.

 

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CXO ACQUISITION HOLDINGS, LLC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ DEFICIT

YEAR ENDED DECEMBER 31, 2015

(IN THOUSANDS)

 

 

See notes to the Financial Statements.

 

 

 

 

 

 

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CXO ACQUISITION HOLDINGS, LLC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31, 2015

(IN THOUSANDS)

 

 

See notes to the Financial Statements.

 

 

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CXO ACQUISITION HOLDINGS, LLC AND SUBSIDIARIES

NOTES TO THE FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

 

 

CXO Acquisition Holdings, LLC (the Company) was formed on September 17, 2012 in the state of Delaware. The Company provides solutions that drive peer-to-peer engagement, networking and leadership development to C-Suite executives. The principal offices are located in Portland, Oregon.

The consolidated financial statements include the accounts of CXO Acquisition Co. (CXO) and Sports Leadership Acquisition Co. (SLI). All significant intercompany balances and transactions have been eliminated upon consolidation.

On September 28, 2012, the Company acquired the assets of Evanta Ventures, Inc. and Sports Leadership, Inc. Consideration for the assets purchased and liabilities assumed was in the form of cash paid of $93,657. The Company recognized $33,500 of amortizable intangibles, comprised of customer relationships, trade names and delegate relationships. Goodwill of $65,780 was also recognized as a result of this transaction. This transaction was accounted for using the acquisition method of accounting in accordance with generally accepted accounting principles in the United States of America (GAAP) and the operating results of Evanta Ventures, Inc. and Sports Leadership, Inc. from the date of acquisition are included in the consolidated statement of operations.

 

 

Basis of Presentation – The accompanying consolidated financial statements have been prepared to present the financial position of the Company and the results of its operations and cash flows in conformity with GAAP.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents – The Company considers cash on hand, cash in bank accounts, and investments with maturity of three months or less when purchased as cash and cash equivalents. At times, balances may exceed amounts insured by the Federal Deposit Insurance Corporation.

Accounts Receivable –The Company recognizes contractually non-refundable sponsorship fees less related cash receipts as accounts receivable with a corresponding entry to deferred revenue if the related event has not occurred. Substantially all billings and collections occur prior to the date of the related event, which mitigates the Company’s exposure to bad debts. Non-current accounts receivable represents customer obligations associated with events that are scheduled to occur more than 12 months after the date of the financial statements. One customer made up 11% of total billed and unbilled, current and non-current, accounts receivable as of December 31, 2015.  The Company has recorded an allowance for uncollectible accounts receivable of $57 as of December 31, 2015.

Deferred Event Expenses – Expenses, including staff costs, which are directly related to production of the event are recorded as deferred costs in the balance sheet and are expensed on the date the event occurs.

Property and Equipment – Property and equipment are recorded in the balance sheet at cost less accumulated depreciation. The Company depreciates fixed assets using the straight-line method of depreciation over the estimated useful life, ranging from three to five years with the exception of leasehold improvements, which are depreciated over the shorter of the lease term or useful life of leasehold improvements. The cost of repairs and maintenance are expensed as incurred. When assets are retired or disposed of, the cost and accumulated depreciation thereon are removed and any resulting gain or loss is recognized in the consolidated statement of operations.

Deferred Financing Costs – Deferred financing costs consist of capitalized amounts for bank financing fees and are stated at cost, less accumulated amortization computed on a straight-line basis over the period of the underlying debt.

 

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Fair Value of Financial Instruments – Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. There is a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The Company’s level one fair value measurements include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to their short-term maturities. The Company’s level fair value measurements include the carrying value of bank borrowings under the credit facility, which approximate fair value due to the variable rate nature of the indebtedness. The level three asset measured at fair value on a nonrecurring basis consists of goodwill.

Goodwill – In assessing the fair value of goodwill, we first make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If, after completing our qualitative assessment, we determine that it is more likely than not that the carrying value exceeds estimated fair value, we compare the fair value to our carrying value (including goodwill). If the estimated fair value is greater than the carrying value, we conclude that no impairment exists. If the estimated fair value of the reporting unit is less than the carrying value, a second step is performed in which the implied fair value of goodwill is compared to its carrying value. If the implied fair value of goodwill is less than its carrying value, goodwill must be written down to its implied fair value, resulting in goodwill impairment. We test goodwill for impairment during the fourth quarter of every fiscal year and when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.

The qualitative analysis included assessing the impact of changes in certain factors including: (1) changes in forecasted operating results and a comparison of actual results to projections, (2) changes in the industry or our competitive environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition date, (4) trends in the stock price and related market capitalization and enterprise values, (5) trends in peer companies’ total enterprise value metrics, and (6) additional factors such as management turnover and changes in regulations.

Based on our qualitative assessment performed during the fourth quarter of 2015, we concluded that it was more likely than not that the estimated fair values of our reporting units exceeded their carrying values as of December 31, 2015 and, therefore, determined it was not necessary to perform the two-step goodwill impairment test.

Impairment of Long-Lived Assets – The Company evaluates the carrying value of long-lived assets and intangibles with a finite life for possible impairment as events or changes arise indicating that such assets should be reviewed. If an asset is determined to be impaired, the loss is measured as the amount by which the carrying value of the asset exceeds its fair value. Fair value is determined by discounting estimated future cash flows, appraisal or other methods deemed appropriate. The Company determined as of December 31, 2015 that no triggering events have occurred for its long-lived assets.

Revenue Recognition – Substantially all of the Company’s revenue is generated from sponsorship fees for its events and is recognized on the date the event occurs. The Company has two product lines; CISO Coalition, a membership based service, and Professional Development Academy, an online leadership development learning platform, which both recognize revenue based on the term of service, generally one year. Other types of revenue, including no-show fees, attendance fees and service charges are recognized when earned based on contractual terms of the arrangements.

Income Tax – The Company is a limited liability corporation taxed as a partnership for federal and state income tax purposes.  Any items of income or expense of the Company pass through to its owners to be taxed.  The Company is the single owner of two C-corporations – CXO Acquisition Company, Inc. and Sports Leadership Acquisition Company, Inc.  These two companies hold all of the outstanding stock of two operating C-corporations, Evanta Ventures, Inc. (“EVI”) and Sports Leadership Institute, Inc. (“SLI”), respectively.  Each of these two holding companies and their respective underlying operating company join in filing a consolidated federal income tax return.  As C-corporations, these entities pay a corporate-level income tax on all net taxable earnings. The earnings or losses of these C-corporations do not pass through to the Company.

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The income tax benefit and deferred income tax assets and liabilities are presented herein using the separate-return method for each of the two aforementioned consolidated groups. For the year ended December 31, 2015, EVI is in a taxable position and is solely responsible for the current tax expense being accrued.  For the year ended December 31, 2015, SLI is in a taxable loss position and is responsible for the net operating loss carryforward deferred tax asset.

Income taxes are accounted for using the asset and liability method.  Deferred tax assets and liabilities are recognized for their future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable earnings in the years in which those temporary differences are expected to be recovered or settled.  A valuation allowance is recognized if it is more likely than not that some portion, or all, of the deferred tax asset will not be realized.

 

 

Recently Adopted

In January 2014, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2014-02 related to the accounting for goodwill by private companies. Under this guidance, private companies may elect to amortize goodwill over 10 years, or less than 10 years if the entity can demonstrate that another useful life is more appropriate, and to test goodwill for impairment only upon occurrence of a triggering event that indicates that the book value of the entity may exceed the fair value of the entity, as opposed to testing goodwill for impairment annually under prior accounting guidance. The accounting guidance is effective for the fiscal year beginning after December 15, 2014 and early adoption is permitted.

On January 1, 2013, the Company had adopted ASU 2014-02 related to the accounting for goodwill by private companies. However, these financial statements are being revised as the Company now meets the definition of a public business entity and is precluded from adopting ASU 2014-02.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The provisions of ASU 2015-17 are effective for fiscal years beginning after December 15, 2017, or January 1, 2018 for the Company, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an interim or annual reporting period. As permitted by ASU 2015-17, the Company adopted early the provisions of ASU 2015-17 effective as of January 1, 2015 on a prospective basis, which did not have an impact on its consolidated results of operations and consolidated statements of cash flows.

Not Yet Adopted

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue as the entity satisfies the performance obligations. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which provided a one-year deferral of the effective date to periods beginning after December 15, 2017 with early adoption permitted as early as the initial effective date. The Company is in the process of evaluating the methods of adoption and assessing its impact on the Company’s consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for private companies for fiscal years beginning after December 15, 2016.  The Company does not expect this ASU will have a material impact on the Company’s consolidated financial statements or related disclosures when adopted.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires entities to recognize assets and liabilities for most leases on their balance sheets. It also requires additional qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

 

 

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Property and equipment consist of the following:

 

 

Depreciation and amortization of property and equipment for the year ended December 31, 2015 was $1,178.

 

 

Intangible assets consist of the following:

 

 

For the year ended December 31, 2015, the Company recognized amortization expense on intangible assets of $4,608. Future amortization expense is as follows:

 

 

 

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The provision for income taxes consists of the following:

 

 

The deferred tax liability pertaining to the Company comprises the following:

 

 

The Company’s provision for income taxes resulted in an effective tax rate that varied from the statutory federal income tax rate as follows:

 

 

The Company’s policy is to record accrued interest and penalties associated with uncertain tax positions in income tax expense in the statements of operations. As of December 31, 2015 the Company had no unrecognized tax benefits and no accrued interest or penalties related to unrecognized tax benefits.

The Company does not expect a material change in the amount of its unrecognized tax benefits over the next twelve months.

The Company is subject to income taxes in the U.S. federal jurisdiction, as well as a number of U.S. states, based upon the location of the events produced by the Company. The Company is no longer subject to income tax examination by the federal tax authorities for the tax years before September 30, 2011.

 

 

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The Company has authorized the issuance of up to 48,704 Preferred Units at the price of $1 per unit as of December 31, 2015. Holders of Preferred Units are entitled to voting rights and distributions in accordance with the LLC agreement.  The Preferred Units accrue a return of 8% per annum, compounding on the first day of each fiscal quarter, which totaled $1,934 for the year ended December 31, 2015.  The Preferred Return is payable upon an election to have a discretionary distribution from the Management Committee.  The cumulative preferred return as of December 31, 2015 is $11,376.

These preferred units are redeemable at any time after September 28, 2017, if the unit holders holding over 50% of the Preferred Units then outstanding choose to redeem. Due to this redemption option, these units are classified outside of members’ deficit. In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Preferred Units shall be entitled to receive, prior and in preference to distributions specified by the LLC agreement of any of the assets to the holders of Class A Common and Class B Common units by reason of their ownership thereof, an amount equal to all unreturned contributions plus any accrued and unpaid preferred return.

 

Class A Common Units

The Company has authorized the issuance of up to 25,634 Class A Common Units at a price of $0.10 per unit as of December 31, 2015. Holders of Class A Common Units are entitled to voting rights, distributions and profit/loss allocations in accordance with the LLC agreement.

In the event of any litigation, dissolution or winding up of the Company, either voluntarily or involuntarily, the holders of the Class A Common Units shall be entitled to receive, after and subject to the payment in full of amounts required to be distributed to holders of Preferred Units, an amount in proportion to their residual profit percentage. Class B Common Units will not be included in this distribution until an aggregate amount equal to the Class B Strike Price has been distributed, at which point Class B Units participate in any incremental distributions to the extent they are vested.

Class B Common Units – Profits Interest Units (PIUs)

The Company’s Operating Agreement and 2012 Equity Incentive Plan (the plan), approved September 28, 2012, authorizes the Company to issue 4,524 Class B units of the Company (PIUs) to key employees.

Each PIU award vests in two tranches; time-vested and performance-vested. One-third (33.33%) of the granted units vest in accordance with a time-based schedule: 20% vesting on each of the first five anniversaries of the Vesting Commencement Date, and two-thirds (66.67%) of the granted units vest based on achievement of the Investor Return on Investment which is defined in the plan. As of December 31, 2015 vested PIUs were 666.

In accordance with the Operating Agreement, PIU holders are not entitled to vote on any matter and only receive distributions after all previous priority returns to Preferred and Class A Common unit holders have been made. The Company has the right, but not the obligation, upon the occurrence of any Termination Event to repurchase any vested PIUs from the Grantee.  As the outcome of a liquidity event condition is not probable at December 31, 2015, and the amount of any compensation cost associated with the PIUs vested over time would not be significant, the Company has not recognized any compensation cost in connection with the issuance of the PIU grants.

The following table summarizes PIU activity for the year ended December 31, 2015:

 

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The total fair value of the units granted in 2015 amounted to $881. At December 31, 2015, the weighted average period of the unvested units was 2.1 years.

 

 

The Company leases its office spaces (Portland, OR, Scottsdale, AZ, and La Crosse, WI) and certain venue space. The Portland, OR location includes escalation clauses. The aggregate minimum rental commitments at December 31, 2015 amounted to $4,532 and is payable as follows:

 

 

Consolidated rent expense was $791 for the year ended December 31, 2015.

 

 

The Company has a 401(k) profit sharing plan which covers all employees that meet the plan’s eligibility requirements. Contributions to the plan in the form of profit sharing are made at the discretion of the Board of Directors. No profit sharing contributions were made to the plan for the year ended December 31, 2015.

 

 

For the year ended December 31, 2015, the Company paid management fees of $473 to a member of the Company, Leeds Equity Partners V LP.

 

 

On December 23, 2014, the Company entered into a second amendment to credit agreement that included an aggregate principal term loan of $65,800, and a revolving loan commitment of $5,000. The total commitment expires on December 23, 2019. As of December 31, 2015, the borrowing rate was 6.90%. Interest is paid quarterly.

At December 31, 2015, the outstanding term loan was $65,142, which included the current portion of $658.

At December 31, 2015, unamortized deferred financing fees amounted to $1,098, of which, $690 was presented as noncurrent asset in the accompanying consolidated balance sheets. Amortization of deferred financing costs in 2015 amounted to $383.

The credit agreement is secured by substantially all of the assets of the Company and contains certain financial covenants including a fixed charge coverage ratio and leverage ratio, computed quarterly. The Company was in compliance with those covenants as of December 31, 2015.

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At December 31, 2015, future principal payments on term debt are as follows:

 

 

 

The Company has evaluated subsequent events for potential recognition and disclosures through March 4, 2016, the date the financial statements were originally available to be issued.

In connection with the reissuance of the financial statements, the Company has further evaluated subsequent events for potential recognition and disclosures through July 14, 2016, the date the financial statements were available to be reissued.

On April 29, 2016, CEB Inc. acquired the assets of CXO Acquisition Co., Sports Leadership Acquisition Co., Evanta Ventures, Inc., and Sports leadership Institute, Inc. CEB Inc. paid cash consideration of $285,500. That acquisition resulted in term debt of $65,142 being paid off in full at that date.  Additionally, the acquisition triggered a liquidity event for the Company’s preferred stock and profit interest units, and these amounts were paid out consistent with the distribution preferences described in Notes 7 and 8.

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Exhibit 99.2

CEB INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On April 29, 2016, CEB Inc. (the “Company” or “CEB”) completed the acquisition of 100% of the outstanding capital stock of CXO Acquisition Co. and Sports Leadership Acquisition Co. (collectively referred to as “Evanta”) from CXO Acquisition Holdings, LLC for total cash consideration of $267.9 million, net of $17.6 million cash acquired. The Company financed the acquisition by entering into Amendment No. 5 to the Company’s senior secured credit agreement whereby the Company increased the size of its term loan facility by $150 million and increased its revolving credit facility by $100 million. To fund the acquisition, all $150 million of the additional term loans were drawn and a net amount of $135 million was drawn under the revolving credit facility.

The following unaudited pro forma condensed combined financial statements are based on CEB’s and Evanta’s historical consolidated financial statements as adjusted to give effect to the acquisition of Evanta and the related financing transactions. The unaudited pro forma condensed combined balance sheet at December 31, 2015 gives effect to these transactions as if they had occurred on December 31, 2015. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015 gives effect to these transactions as if they had occurred on January 1, 2015. The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s historical audited financial statements, related notes, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in the Company’s latest Annual Report on Form 10-K, and Evanta’s historical audited financial statements included as Exhibit 99.1 to this Current Report on Form 8-K/A.

The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial condition of CEB that would have been reported had the acquisition been completed as of the dates presented, and should not be construed as representative of the future consolidated results of operations or financial condition of the combined entity.

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CEB INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

DECEMBER 31, 2015

(in thousands)

 

 

See accompanying notes to the unaudited pro forma condensed combined financial information.

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CEB INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2015

(in thousands, except per share amounts)

 

 

See accompanying notes to the unaudited pro forma condensed combined financial information.

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CEB INC.

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED INFORMATION

 

 

Note 1. Basis of Presentation

The unaudited pro forma condensed combined financial information has been prepared to give effect to Amendment No. 5 to the Company’s senior secured credit agreement and the acquisition of Evanta. The historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable, and (3) with respect to the pro forma condensed combined statement of operations, expected to have a continuing impact on the combined results following the business combination.

The business combination was accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations. The total purchase price was preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the amounts assigned to assets acquired and liabilities assumed was recognized as goodwill.

The unaudited pro forma condensed combined financial information included herein have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for the purposes of inclusion in CEB’s amended Current Report on Form 8-K/A prepared in connection with the acquisition of Evanta. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures provided herein are adequate to make the information presented not misleading. The significant accounting policies used in preparing the unaudited pro forma condensed combined financial information are set out in CEB’s consolidated audited financial statements for the year ended December 31, 2015.

The unaudited pro forma condensed combined financial information is provided for informational purposes only and does not purport to be indicative of the Company’s financial position or results of operations which would actually have been obtained had these transactions been completed as of the date or for the periods presented, or of the financial position or results of operations that may be obtained in the future.

Certain balances from Evanta’s historical financial statements were reclassified to conform to CEB’s financial statement presentation.

 

 

Note 2. Financing Transactions

The Company completed the acquisition of Evanta for total cash consideration of $267.9 million, net of $17.6 million cash acquired. The Company financed the acquisition by entering into Amendment No. 5 to the Company’s senior secured credit agreement whereby the Company increased the size of its term loan facility by $150 million and increased its revolving credit facility by $100 million. To fund the acquisition, all $150 million of the additional term loans were drawn and a net amount of $135 million was drawn under the revolving credit facility. The term loan and the revolving credit facility bear interest at a variable rate, which initially was 2.19%. The Company incurred $4.2 million of debt issuance costs in connection with Amendment No. 5, of which $1.9 million related to the revolving credit facility was recorded within other non-current assets, $1.7 million in debt modification losses was expensed immediately, and $0.6 million was recorded as a reduction to debt.

 

 

Note 3. Preliminary Purchase Price Allocation

The Company has performed a preliminary valuation analysis of the fair market value of Evanta’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price to the assets acquired and liabilities assumed based on their fair values in the December 31, 2015 balance sheet (in thousands):

 

 

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The preliminary purchase price allocation has been used to prepare the pro forma adjustments in the pro forma balance sheet and statement of operations. It was based in part on preliminary estimates of the fair value; however, additional analysis with respect to the value of certain assets and liabilities, including intangible assets, deferred revenue, and tax attributes could materially affect the final allocation of the purchase price. The allocation of the purchase price will be finalized upon receipt of final valuations and the necessary management reviews thereof.

Intangible assets consist primarily of sponsor relationships, developed technology, and intellectual property for which amortization expense will be recognized on a straight-line basis over the estimated useful lives ranging from 3 to 7 years.  The weighted-average amortization period is 6.4 years. The fair value of intangible assets was determined by a third-party using multiple valuation techniques. The sponsor relationships were valued using a multi-period excess earnings method, which estimates the present value of the intangible asset’s future economic benefit by utilizing the estimated available cash flows that the intangible asset is expected to generate in the future after considering the effects of contributory assets. The developed technology was valued using a relief from royalty method which measures the benefit of owning the intellectual property as the “relief” from the royalty expense that would otherwise be incurred by licensing the asset from a third party. A substantial portion of the intellectual property was valued using the lost income method which estimates the value of an intangible asset by quantifying the loss of economic profits under a hypothetical scenario where the subject intangible assets does not exist relative to a scenario in which the intangible does exist. The projected revenues, operating expenses, and cash flows are calculated in each “with” and “without” scenario, and the difference in the annual cash flows is then discounted to a present value equivalent to derive the assets fair value. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill and annual amortization expense of approximately $0.8 million, assuming a weighted average useful life of 6.4 years.

Goodwill includes approximately $49 million which is expected to be tax deductible through 2027.

 

 

Note 4. Pro Forma Adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change and include adjustments to:

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