Attached files
file | filename |
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8-K/A - HEALTHTRONICS, INC. | f8ka072709fr.htm |
EX-23 - HEALTHTRONICS, INC. | exh231.htm |
EX-99 - HEALTHTRONICS, INC. | exh992.htm |
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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The following unaudited pro forma condensed consolidated
financial statements give effect to the acquisition of Endocare by HealthTronics (the Acquisition) as if this
transaction occurred as of June 30, 2009 for purposes of the pro forma condensed consolidated balance sheet, and
as of January 1, 2008 for the pro forma condensed consolidated statements of income. |
| net cash used in the Endocare operations between June 30, 2009 and the closing of the Acquisition; | |
| other changes in the Endocare net assets that occur prior to closing of the Acquisition, which could cause material differences in the information presented below; and | |
| the financial results of the combined company could change the future discounted cashflow projections. |
1 |
The unaudited pro forma condensed consolidated financial statements presented below are based on the
historical financial statements of HealthTronics and Endocare, adjusted to give effect to the acquisition of
Endocare by HealthTronics. The unaudited pro forma adjustments are described in the accompanying notes presented
on the following pages. These adjustments do not give effect to any synergies that may be realized as a result
of the Acquisition, nor do they give effect to any nonrecurring/unusual restructuring charges that may be
incurred as a result of the integration of the two companies. |
2 |
HEALTHTRONICS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2009 |
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($ in thousands) |
HealthTronics |
Endocare |
Pro Forma Adjustments |
Pro Forma Combined | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 12,173 | $ | 1,566 | $ | -- | $ | 13,739 | ||||||
Accounts receivable, net | 28,731 | 5,226 | (2,556 | )(E) | 31,401 | |||||||||
Inventory | 8,689 | 2,342 | 3,671 | (A) | 14,702 | |||||||||
Other current assets | 4,451 | 464 | (186 | )(A) | 4,729 | |||||||||
Total current assets | 54,044 | 9,598 | 929 | 64,571 | ||||||||||
Property and equipment, net | 30,281 | 813 | 593 | (A) | 31,687 | |||||||||
Goodwill | 94,141 | -- | (14,795 | )(A) | 99,685 | |||||||||
4,212 | (D) | |||||||||||||
2,136 | (B) | |||||||||||||
12,991 | (C) | |||||||||||||
1,000 | (F) | |||||||||||||
Intangible assets | 39,248 | 2,325 | 8,717 | (A) | 50,290 | |||||||||
Other noncurrent assets | 6,137 | 72 | -- | 6,209 | ||||||||||
$ | 223,851 | $ | 12,808 | $ | 15,783 | $ | 252,442 | |||||||
LIABILITIES | ||||||||||||||
Current liabilities: | ||||||||||||||
Current portion of long-term debt | $ | 37,954 | $ | 3,758 | $ | 4,212 | (D) | $ | 45,969 | |||||
45 | (D) | |||||||||||||
Accounts payable | 7,467 | 3,156 | (2,556 | )(E) | 8,067 | |||||||||
Accrued expenses | 7,299 | 7,491 | 2,200 | (F) | 15,452 | |||||||||
(1,538 | )(A) | |||||||||||||
Total current liabilities | 52,720 | 14,405 | 2,363 | 69,488 | ||||||||||
Long-term debt, net of current portion | 2,456 | 45 | (45 | )(D) | 2,456 | |||||||||
Other long term obligations | 1,664 | 482 | (462 | )(A) | 1,684 | |||||||||
Deferred income taxes | 4,797 | -- | -- | 4,797 | ||||||||||
Total liabilities | 61,637 | 14,932 | 1,856 | 78,425 | ||||||||||
STOCKHOLDER'S EQUITY | ||||||||||||||
Common stock | 211,952 | 12 | (12 | )(C) | 224,955 | |||||||||
13,003 | (C) | |||||||||||||
Additional paid-in capital | -- | 202,214 | (202,214 | )(B) | -- | |||||||||
Accumulated deficit | (87,133 | ) | (204,350 | ) | 204,350 | (B) | (88,333 | ) | ||||||
(1,200 | ) (F) | |||||||||||||
Treasury stock, at cost | (4,464 | ) | -- | -- | (4,464 | ) | ||||||||
Total stockholders' equity | ||||||||||||||
attributable to common shares | 120,355 | (2,124 | ) | 13,927 | 132,158 | |||||||||
Noncontrolling interest | 41,859 | -- | -- | 41,859 | ||||||||||
Total Equity | 162,214 | (2,124 | ) | 13,927 | 174,017 | |||||||||
$ | 223,851 | $ | 12,808 | $ | 15,783 | $ | 252,442 |
See notes to pro forma condensed consolidated financial statements. |
3 |
HEALTHTRONICS, INC. AND SUBSIDIARIES UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME AS OF JUNE 30, 2009 |
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($ in thousands, except per share data) |
HealthTronics |
Endocare |
Pro Forma Adjustments |
Pro Forma Combined | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 87,768 | $ | 16,007 | $ | (5,529 | )(H) | $ | 98,246 | |||||
Cost of revenues | 42,563 | 4,436 | (5,593 | )(H) | 41,890 | |||||||||
484 | (G) | |||||||||||||
Gross profit | 45,205 | 11,571 | (420 | ) | 56,356 | |||||||||
Operating expenses | ||||||||||||||
Selling, general and administrative | 9,416 | 15,649 | -- | 25,065 | ||||||||||
Research and development | -- | 1,284 | -- | 1,284 | ||||||||||
Depreciation and amortization | 6,876 | 457 | 121 | (G) | 7,454 | |||||||||
16,292 | 17,390 | 121 | 33,803 | |||||||||||
Operating income | 28,913 | (5,819 | ) | (541 | ) | 22,553 | ||||||||
Other income (expenses): | ||||||||||||||
Interest and dividends | 82 | -- | -- | 82 | ||||||||||
Interest expense | (588 | ) | (360 | ) | (74 | )(D) | (1,022 | ) | ||||||
(506 | ) | (360 | ) | (74 | ) | (940 | ) | |||||||
Income (loss) from continuing operations before provision | ||||||||||||||
for income taxes | 28,407 | (6,179 | ) | (615 | ) | 21,613 | ||||||||
Provision for income taxes | 619 | -- | -- | 619 | ||||||||||
Consolidated net income (loss) | 27,788 | (6,179 | ) | (615 | ) | 20,994 | ||||||||
Less: Net income attributable to noncontrolling interest | (27,069 | ) | -- | -- | (27,069 | ) | ||||||||
Net income attributable to common shares | $ | 719 | $ | (6,179 | ) | $ | (615 | ) | $ | (6,075 | ) | |||
Basic earnings per share attributable to common shares: | ||||||||||||||
Net income attributable to common shares | $ | 0.02 | $ | (0.51 | ) | $ | (0.14 | ) | ||||||
Weighted average shares outstanding | 35,949 | 12,202 | (12,202 | )(C) | 43,213 | |||||||||
7,264 | (C) | |||||||||||||
Diluted earnings per share attributable to common shares: | ||||||||||||||
Net income attributable to common shares | $ | 0.02 | $ | (0.51 | ) | $ | (0.14 | ) | ||||||
Weighted average shares outstanding | 36,064 | 12,202 | (12,202 | )(C) | 43,328 | |||||||||
7,264 | (C) |
See notes to pro forma condensed consolidated financial statements. |
4 |
HEALTHTRONICS, INC. AND SUBSIDIARIES UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME AS OF DECEMBER 31, 2008 |
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($ in thousands, except per share data) |
HealthTronics |
Endocare |
Pro Forma Adjustments |
Pro Forma Combined | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | $ | 165,942 | $ | 31,562 | $ | (7,081 | )(H) | $ | 190,423 | |||||
Cost of revenues | 75,679 | 9,935 | (7,262 | )(H) | 79,320 | |||||||||
968 | (G) | |||||||||||||
Gross profit | 90,263 | 21,627 | (787 | ) | 111,103 | |||||||||
Operating expenses | ||||||||||||||
Selling, general and administrative | 20,006 | 27,556 | -- | 47,562 | ||||||||||
Research and development | -- | 2,275 | -- | 2,275 | ||||||||||
Gain on recovery of note receivable | -- | (750 | ) | -- | (750 | ) | ||||||||
Impairment charges | 144,000 | 918 | -- | 144,918 | ||||||||||
Depreciation and amortization | 12,363 | 213 | 242 | (G) | 12,818 | |||||||||
176,369 | 30,212 | 242 | 206,823 | |||||||||||
Operating income | (86,106 | ) | (8,585 | ) | (1,029 | ) | (95,720 | ) | ||||||
Other income (expenses): | ||||||||||||||
Interest and dividends | 1,233 | 168 | -- | 1,401 | ||||||||||
Interest expense | (1,077 | ) | -- | (148 | )(D) | (1,225 | ) | |||||||
156 | 168 | (148 | ) | 176 | ||||||||||
Loss from continuing operations before benefit | ||||||||||||||
for income taxes | (85,950 | ) | (8,417 | ) | (1,177 | ) | (95,544 | ) | ||||||
Benefit for income taxes | (11,516 | ) | -- | (11,516 | ) | |||||||||
Consolidated net loss | (74,434 | ) | (8,417 | ) | (1,177 | ) | (84,028 | ) | ||||||
Less: Net income attributable to noncontrolling interest | (54,259 | ) | -- | -- | (54,259 | ) | ||||||||
Net loss attributable to common shares | $ | (128,693 | ) | $ | (8,417 | ) | $ | (1,177 | ) | $ | (138,287 | ) | ||
Basic earnings per share attributable to common shares: | ||||||||||||||
Net income attributable to common shares | $ | (3.53 | ) | $ | (0.71 | ) | $ | (3.16 | ) | |||||
Weighted average shares outstanding | 36,499 | 11,902 | (11,902 | )(C) | 43,763 | |||||||||
7,264 | (C) | |||||||||||||
Diluted earnings per share attributable to common shares: | ||||||||||||||
Net income attributable to common shares | $ | (3.53 | ) | $ | (0.71 | ) | $ | (3.16 | ) | |||||
Weighted average shares outstanding | 36,499 | 11,902 | (11,902 | )(C) | 43,763 | |||||||||
7,264 | (C) |
See notes to pro forma condensed consolidated financial statements. |
5 |
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL |
1. Basis of Presentation
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2009 and the unaudited pro
forma condensed consolidated statements of income for the six months ended June 30, 2009 and the year ended
December 31, 2008 are based on the historical financial statements of HealthTronics and Endocare after giving
effect to the Acquisition and the assumptions and adjustments described in the accompanying notes to unaudited
pro forma condensed consolidated financial statements. |
2. Preliminary Purchase Price
On July 27, 2009, HealthTronics completed its acquisition of all of the outstanding shares of common
stock, $0.001 par value per share (and the related preferred stock purchase rights) (the Shares), of Endocare
pursuant to the Agreement and Plan of Merger (the Merger Agreement), dated as of June 7, 2009, among
HealthTronics, HT Acquisition, Inc., a Delaware corporation and wholly-owned subsidiary of HealthTronics
(Offeror), and Endocare. |
6 |
Following the consummation of the Offer, on July 27, 2009, Offeror filed a Certificate of Ownership and
Merger with the Secretary of State of the State of Delaware merging Endocare with and into Offeror pursuant to a
short form merger procedure available under Delaware law (the Merger). As a result, each Share not acquired
in the Offer converted into the right to receive, at the election of the holder (a) $1.35 in cash, without
interest, or (b) 0.7764 of a share of HealthTronics common stock, in each case subject to proration (other than
(i) Shares held by holders who comply with the relevant provisions of Section 262 of the Delaware General
Corporation Law regarding the rights of stockholders to demand appraisal of such shares in connection with the
Merger and (ii) Shares held in the treasury of Endocare or owned by HealthTronics, Offeror or any other
wholly-owned subsidiary of HealthTronics). Endocare stockholders who did not make an election within 30 days
after a letter of election and transmittal was mailed to them are deemed to have made no election and are subject
to the treatment set forth in the Merger Agreement. |
7 |
The following table summarizes the estimated fair values of net assets acquired and the pro forma purchase price allocation (in thousands): |
(in thousands) |
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Endocare outstanding shares |
||||||||
9,600,256 shares of Endocare common stock exchanged for | ||||||||
7,264,207 shares of HealthTronics' common stock | $ | 13,003 | ||||||
2,874,825 shares of Endocare common stock exchanged for cash | 4,212 | |||||||
17,215 | ||||||||
Total current assets | $ | (13,083 | ) | |||||
Property and equipment | (1,406 | ) | ||||||
Intangibles, net | (11,042 | ) | ||||||
Investments and other assets | (72 | ) | ||||||
Liabilities assumed | 13,932 | |||||||
Net tangible assets acquired: | (11,671 | ) | ||||||
Excess purchase price over the fair value of Endocare net assets acquired | ||||||||
(goodwill) based upon preliminary purchase price allocations | $ | 5,544 |
No adjustments were made for either stock options or stock warrants due to their exercise prices exceeding the Acquisition consideration. |
3. Pro Forma and Purchase Accounting Adjustments
The pro forma adjustments are as follows: |
(A) | To reflect the estimated fair value of Endocares tangible and intangible assets and the resulting goodwill assuming that the Acquisition was consummated as of June 30, 2009. Fair values of assets and liabilities were determined based on the provisions of SFAS No. 141R which defines fair value in accordance with FASB Statement No. 157, Fair Value Measurements (SFAS No. 157) as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal or most advantageous market at the measurement date. The carrying values for current assets and current liabilities other than inventory approximate fair value. The fair value of inventory, property and equipment and intangible assets are based on the following methodology which is consistent with the provisions of SFAS No. 141R: |
| Inventory: The fair value of raw materials inventory is based on replacement cost which approximates historical cost net of excess and obsolete inventory. The fair value of finished goods inventory is based on the estimated selling price adjusted for (1) costs of the selling effort and (2) a reasonable profit allowance for the selling effort by the acquiring entity, both estimated from the viewpoint of a market participant. The fair value of work-in-process inventory is determined based on the estimated selling price of the eventual finished inventories adjusted for a market participants expected (1) costs to complete the manufacturing process, (2) costs of the selling effort and (3) a reasonable profit allowance for the remaining manufacturing and selling effort. |
8 |
| Property and equipment: The determination of fair value of property and equipment to be held and used is based on the value that a market participant would ascribe for items in comparable physical condition. An analysis is performed to value the property and equipment on hand based on the approximate fair value of a new unit adjusted for estimated depreciation and obsolescence based on age of the unit and economic life. The fair value adjustment primarily relates to cryocare systems in the placement (i.e., rental) program. | |
| Intangible assets: Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in paragraph A19 of SFAS No. 141R. Intangible assets include patents, developed technology, tradenames, trademarks, and distribution network. In process research and development is deemed to have nominal value. The fair value for tradenames, trademarks and patents are calculated using the relief from royalty method. The cost approach is used to value the international distributor network and valuation of developed technology is determined based on the income approach and multi-period excess earnings method. |
The total fair value adjustment to increase inventory, fixed assets and intangible assets as of June 30, 2009, is approximately $13 million. |
(B) |
To reflect the elimination of the historical additional paid-in capital and accumulated deficit of Endocare.
|
(C) |
To reflect the exchange of Endocare common stock into HealthTronics common stock.
|
(D) |
To reflect additional debt and interest expense due to cash consideration paid by HealthTronics related to the
Acquisition, which includes amounts paid to Endocare stockholders ($4,212).
|
(E) |
To eliminate payable to Endocare as of June 30, 2009.
|
(F) |
To reflect estimated direct incremental costs of $2.2 million to consummate the Acquisition and to register the
shares issued in the Acquisition that are not yet reflected in the historical results of HealthTronics or
Endocare at June 30, 2009. Acquisition costs include fees payable for investment banking services, legal,
accounting, printing and other consulting services. Of the $2.2 million, $1.2 million relates to HealthTronics
and $1 million relates to Endocare. These costs are expensed as incurred and the additional costs are reflected
as an increase in other accrued liabilities and accumulated deficit. |
(G) |
To reflect additional depreciation and amortization for the write-up of assets to fair value. Intangibles (i.e.
trademarks, patents, international distributor network, and developed technology) are amortized over useful lives
ranging from five to eleven years. |
(H) | To eliminate Endocare revenues for sales to HealthTronics and to eliminate HealthTronics, Inc. cost of revenues for sales of Endocares products. |
Pro forma adjustments do not include effects of expected synergies due to the Acquisition. Such synergies consist primarily of approximately $4.2 million of non-recurring legal and advisory costs incurred by Endocare in 2008 and $2.8 million of annual savings from the elimination of duplicate public company costs and substantial additional synergies are expected. |
9 |
The total Acquisition purchase price was $17.2 million. Pro forma combined net loss attributable to common shares for the year ended December 31, 2008 and the six months ended June 30, 2009 was $138.3 million and $6.1 million, respectively, and pro forma combined basic and diluted loss per share attributable to common shares for the year ended December 31, 2008 and the six months ended June 30, 2009 would be $(3.16) and $(0.14), respectively. |
10 |