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8-K/A - FORM 8-K/A - ERESEARCHTECHNOLOGY INC /DE/c03742e8vkza.htm
EX-99.2 - EXHIBIT 99.2 - ERESEARCHTECHNOLOGY INC /DE/c03742exv99w2.htm
EX-23.1 - EXHIBIT 23.1 - ERESEARCHTECHNOLOGY INC /DE/c03742exv23w1.htm
EX-99.1 - EXHIBIT 99.1 - ERESEARCHTECHNOLOGY INC /DE/c03742exv99w1.htm
Exhibit 99.3
eResearchTechnology, Inc and Subsidiaries
Unaudited Pro Forma Condensed Combined Financial Information
The accompanying unaudited pro forma condensed combined financial statements present the historical financial information of eResearchTechnology, Inc. (“ERT” or the “Company”) as adjusted for the purchase of Research Services Germany 234 GmbH (“RS”), which was formed as a result of a demerger of CareFusion Germany 234 GmbH under German law which effectively divided CareFusion Germany 234 GmbH into RS and another entity. RS is comprised of the research services division of CareFusion Germany 234 GmbH and certain research operations of CareFusion Corporation, using the acquisition method of accounting.
The accompanying unaudited pro forma condensed combined balance sheet presents the historical financial information of ERT as of March 31, 2010, as adjusted for the purchase of RS as if the acquisition had occurred on March 31, 2010.
The accompanying unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2010 and the year ended December 31, 2009, combines the historical financial information of ERT for the three months ended March 31, 2010 and the year ended December 31, 2009 with the historical information of RS for the three months ended March 31, 2010 and the year ended December 31, 2009, respectively, as if the acquisition had occurred on January 1, 2009.
The Company will account for the acquisition using the acquisition method of accounting. As such, the Company will record the assets (including identifiable intangible assets) and liabilities of RS at their estimated fair value as of the date of acquisition. The difference between the purchase price and the estimated fair value of RS net assets and liabilities will result in goodwill.
Because these unaudited pro forma condensed combined financial statements have been prepared based on preliminary estimates of fair values, the actual amounts recorded may differ from the information presented in these unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements have been prepared by management, based upon the historical financial statements of ERT and RS. The pro forma condensed combined financial statements are for illustrative purpose only and may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. You should not rely on this information as being indicative of future consolidated results after the acquisition. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of ERT which have been previously filed with the Securities and Exchange Commission, and with the historical financial statements of RS as of December 31, 2009 and 2008 and March 31, 2010 and the years ended December 31, 2009 and 2008 and for the three months ended March 31, 2010, included elsewhere in this filing.

 

PF-1


 

eResearchTechnology, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
March 31, 2010
(In thousands)
                                 
    Historical     Pro Forma     Pro Forma  
    ERT     RS     Adjustments     Combined  
ASSETS
                               
Current Assets:
                               
Cash and cash equivalents
  $ 72,175     $ 95     $ (61,033 ) a, b, h   $ 11,237  
Short-term investments
    7,065                   7,065  
Investment in marketable securities
    1,317                   1,317  
Accounts receivable, net
    15,309       12,347             27,656  
Inventories, net
          3,473       704   c      4,177  
Prepaid income taxes
    2,563                   2,563  
Prepaid expenses and other assets
    4,569       741             5,310  
Deferred income taxes
    1,547                   1,547  
 
                       
Total current assets
    104,545       16,656       (60,329 )     60,872  
Property and equipment, net
    25,096       10,468             35,564  
Goodwill
    34,711       39,905       303   d      74,919  
Intangible assets
    1,493       17,579       3,506   e      22,578  
Other assets
    353       417             770  
 
                       
 
                               
Total assets
  $ 166,198     $ 85,025     $ (56,520 )   $ 194,703  
 
                       
 
                               
LIABILITIES AND STOCKHOLDERS’ EQUITY
                               
Current liabilities:
                               
Accounts payable
    3,085       2,055             5,140  
Current portion of long term debt
          2,018       (2,018 )  f      
Accrued expenses
    6,803       3,798             10,601  
Due to Carefusion
                2,482   g     2,482  
Deferred revenues
    11,167                   11,167  
 
                       
Total current liabilities
    21,055       7,871       464       29,390  
 
                               
Long-term debt
                23,000   h     23,000  
Deferred rent
    2,299                   2,299  
Deferred income taxes and other liabilities
    3,525       3,713       (3,231 )  i     4,007  
 
                       
 
                               
Total liabilities
    26,879       11,584       20,233       58,696  
 
                               
Stockholders’ Equity:
                               
Common stock `
    604                   604  
Parent company investment
          74,371       (74,371 )  j      
Additional paid-in capital
    98,048                   98,048  
Accumulated other comprehensive income (loss)
    (2,368 )     (930 )     930    j     (2,368 )
Retained earnings
    122,918             (3,312 )  b     119,606  
Treasury stock
    (79,883 )                 (79,883 )
 
                       
Total stockholders’ equity
    139,319       73,441       (76,753 )     136,007  
 
                       
Total liabilities and stockholders’ equity
  $ 166,198     $ 85,025     $ (56,520 )   $ 194,703  
 
                       
See Notes to Unaudited Condensed Combined Pro Forma Financial Statements.

 

PF-2


 

eResearchTechnology, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2009
(In thousands, except per share amounts)
                                 
    Historical     Pro Forma     Pro Forma  
    ERT     RS     Adjustments     Combined  
Net revenues
  $ 93,823     $ 49,962     $     $ 143,785  
 
                               
Cost of revenues
    44,293       25,385       14,444   k, l     84,122  
 
                       
Gross margin
    49,530       24,577       (14,444 )     59,663  
 
                       
Operating expenses:
                               
Selling, general and administrative expenses
    27,764       19,301       (8,932 )  k, m     38,133  
Research and development
    3,853       1,606             5,459  
 
                       
Total operating expenses
    31,617       20,907       (8,932 )     43,592  
 
                       
Operating income
    17,913       3,670       (5,512 )     16,071  
Interest (expense)/income and other, net
    (435 )     (1,101 )     (583 )  n     (2,119 )
 
                       
Income before income taxes
    17,478       2,569       (6,095 )     13,952  
Income tax provision
    6,791       1,295       (2,663 )  p     5,423  
 
                       
Net income
  $ 10,687     $ 1,274     $ (3,432 )   $ 8,529  
 
                       
 
                               
Net income per share:
                               
Basic
  $ 0.22                     $ 0.17  
Diluted
  $ 0.22                     $ 0.17  
 
                               
Shares used in computing net income per share:
                               
Basic
    49,173                       49,173  
Diluted
    49,468                       49,468  
See Notes to Unaudited Condensed Combined Pro Forma Financial Statements.

 

PF-3


 

eResearchTechnology, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Three Months Ended March 31, 2010
(In Thousands, except per share amounts)
                                 
    Historical     Pro Forma     Pro Forma  
    ERT     RS     Adjustments     Combined  
Net revenues
  $ 21,868     $ 16,399     $     $ 38,267  
 
                               
Cost of revenues
    10,110       8,095       3,302   k, l     21,507  
 
                       
Gross margin
    11,758       8,304       (3,302 )     16,760  
 
                       
Operating expenses:
                               
Selling, general and administrative expenses
    8,153       6,245       (3,823 )  k, m, o     10,575  
Research and development
    858       627             1,485  
 
                       
Total operating expenses
    9,011       6,872       (3,823 )     12,060  
 
                       
Operating income
    2,747       1,432       521       4,700  
Interest (expense)/income and other, net
    100       1,088       (164 )  n     1,024  
 
                       
Income before income taxes
    2,847       2,520       357       5,724  
Income tax provision
    1,095       746       362    p     2,203  
 
                       
Net income
  $ 1,752     $ 1,774     $ (5 )   $ 3,521  
 
                       
 
                               
Net income per share:
                               
Basic
  $ 0.04                     $ 0.07  
Diluted
  $ 0.04                     $ 0.07  
 
                               
Shares used in computing net income per share:
                               
Basic
    48,675                       48,675  
Diluted
    48,845                       48,845  
See Notes to Unaudited Condensed Combined Pro Forma Financial Statements.

 

PF-4


 

eResearchTechnology, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Transaction Summary:
On May 28, 2010, eResearchTechnology, Inc. (the “Company” or “ERT”), through its indirect wholly-owned subsidiary Blitz F10-acht-drei-fünf GmbH & Co. KG (“Purchaser”) completed the acquisition of Research Services Germany 234 GmbH (“RS”) pursuant to the Amended Share Purchase Agreement among Purchaser and CareFusion Germany 234 GmbH (“Seller”), an indirect wholly-owned subsidiary of CareFusion Corporation.
RS is a leading provider of respiratory diagnostics services and of diagnostic devices and also offers cardiac safety and ePRO services. The purchase price for the acquisition is $83.2 million, after giving effect to preliminary closing balance sheet adjustments, and remains subject to final closing balance sheet adjustments that ERT does not anticipate will be material. $80.7 million of the purchase price was paid in cash, including a portion of the $23.0 million borrowed on the revolver loan under the Credit Agreement (the “Credit Agreement”) entered into on May 27, 2010 with Citizens Bank of Pennsylvania (“Citizens Bank”). Additional consideration of $2.5 million, resulting from preliminary closing balance sheet adjustments, is payable to CareFusion pending final review. Transaction costs related to the acquisition were $0.7 million for the three months ended March 31, 2010 with an additional approximately $3.3 million incurred subsequent to March 31, 2010. All transaction costs were expensed as incurred.
2. Preliminary Purchase Price Allocation
The purchase consideration of $83.2 million has been allocated to the assets acquired and the liabilities assumed, including identifiable intangible assets, based upon their respective fair values at the date of acquisition. The fair values were determined by management. Such allocations resulted in goodwill of approximately $40.2 million. These allocations are preliminary and are subject to final working capital adjustments. The purchase consideration has been allocated as follows (dollars in thousands):
Purchase Price:
         
Cash paid
  $ 80,721  
Additional consideration for preliminary closing balance sheet adjustments
    2,482  
 
     
Total
  $ 83,203  
 
     
 
       
Allocations:
       
Fair value of assets acquired
       
Cash
  $ 95  
Accounts receivable
    12,347  
Inventory
    4,177  
Other current assets
    741  
Property and equipment, net
    10,468  
Goodwill
    40,208  
Other intangible assets, net
    21,085  
Other assets
    417  
Liabilities assumed
       
Accounts payable
    (2,055 )
Accrued liabilities
    (4,280 )
 
     
Net assets acquired
  $ 83,203  
 
     
A summary of the acquired intangible assets and their estimated useful lives is as follows (dollars in thousands):
                 
    Estimated     Estimated  
Acquired Intangibles   Fair Value     Useful life  
Backlog
  $ 12,518 *     4  
Technology
    8,248       8  
Covenants-not-to-compete
    319       4  
 
             
Total
  $ 21,085          
 
             
     
*   The backlog will be amortized over 4 years on an accelerated basis.

 

PF-5


 

3. Pro Forma Adjustments
The following pro forma adjustments have been made in the Unaudited Pro Forma Condensed Combined Balance Sheet:
  a.   Adjustment to record $80.7 million cash consideration paid to the Seller
 
  b.   Adjustment to record transaction costs of $3.3 million incurred subsequent to March 31, 2010.
 
  c.   Adjustment to record the fair value step-up related to the finished goods inventory.
 
  d.   Adjustment to eliminate RS’s historical goodwill ($39.9 million) and to record the goodwill, of approximately $40.2 million.
 
  e.   Adjustment to eliminate RS’s historical intangible assets of $17.6 million and to record acquired intangible assets which include backlog, covenant not-to-compete and technology. The fair value of these acquired intangible assets is approximately $21.1 million.
 
  f.   Adjustment to eliminate RS debt due to CareFusion that was not acquired.
 
  g.   Adjustment to record additional purchase consideration due to CareFusion resulting from preliminary closing balance sheet adjustments.
 
  h.   Adjustment to record the $23.0 million borrowed on the revolver loan with Citizens Bank for the acquisition of RS including $9.0 million for additional working capital needs.
 
  i.   Adjustment to eliminate deferred taxes not acquired from RS as the acquisition is an asset purchase for tax purposes.
 
  j.   Adjustment to eliminate RS’s historical equity.
The following pro forma adjustments have been made in the Unaudited Pro Forma Condensed Combined Statements of Operations:
  k.   Adjustment to reclassify RS costs such as project and data management and product management expenses from Selling, general and administrative expenses to Cost of revenues to conform the reporting classifications with the classification historically used by ERT. The amounts reclassified were $6.4 million and $1.6 million for the year ended December 31, 2009 and the three months ended March 31, 2010, respectively.
 
  l.   Adjustment to record amortization expense of $8.0 million and $1.7 million for the acquired intangible assets for the year ended December 31, 2009 and for the three months ended March 31, 2010, respectively. Amortization of backlog is based upon forecasted contractual revenue by year.
 
  m.   Adjustment to eliminate RS historical amortization of $2.5 million and $1.5 million for the year ended December 31, 2009 and the three months ended March 31, 2010 respectively.
 
  n.   Adjustment to record the interest expense of $0.3 million and $0.1 million at December 31, 2009 and March 31, 2010 respectively, incurred on the $23.0 million borrowed on the revolver loan from Citizens Bank under the Credit Agreement. Interest accrues on amounts borrowed under the revolver loan at a rate equal to the Lender’s prime rate or LIBOR plus 1.00% to 1.75%. The interest rate at the acquisition date was 1.35375%. Adjustment also reflects the elimination of RS intercompany interest expense of $0.1 million for the year ended December 31, 2009 and $6,000 for the three months ended March 31, 2010 for intercompany debt that RS had with CareFusion and an adjustment for ERT’s foregone interest income (at an average rate of 0.5%) of $0.3 million for the year ended December 31, 2009 and $0.1 million for the three months ended March 31, 2010. An additional adjustment was made to amortize the debt issuance costs of $0.2 million in the amount of $0.1 million for the year ended December 31, 2009 and $17,000 for the three months ended March 31, 2010 over the 36 month life of the revolver loan. A change of 1/8% in the interest rate on the revolver loan would result in a change in annual interest expense of approximately $29,000.
 
  o.   Adjustment to eliminate non-recurring transaction costs related to the acquisition of $0.7 million incurred in the three months ended March 31, 2010.
 
  p.   Adjustment to taxes for the effect of the acquisition. The expected tax rate for ERT is assumed to be at the historical effective rate.

 

PF-6