Exhibit 99.2
Ventiv Health, Inc.
PRO FORMA FINANCIAL INFORMATION
On October 5, 2005, Ventiv Health, Inc. (“Ventiv”) completed the acquisition (the “Acquisition”) of all of the outstanding capital stock of inChord Communications, Inc. (“inChord”). The transaction was consummated pursuant to a definitive agreement dated September 6, 2005 (the “Acquisition Agreement”). Prior to the execution of the Acquisition Agreement, there were no material relationships between the Ventiv and inChord or its shareholders.
The closing consideration for the acquired capital stock consisted of promissory notes in an aggregate principal amount of $193.8 million (the “Purchase Price Notes”), exclusive of direct acquisition costs and fair market value adjustment of Common Stock. The Purchase Price Notes were repaid in accordance with their terms on October 7, 2005 by the delivery to the former shareholders of inChord of $177.2 million in cash, which includes a working capital adjustment of $8.8 million as well as the cancellation (by way of offset against amounts due under the Purchase Price Notes) of $4.1 million in indebtedness owing by certain of such shareholders to inChord. These former inChord shareholders also received 500,496 unregistered shares (fair market value of $24.975 per share) of Ventiv Common Stock, par value $0.001 per share. In addition to the closing consideration, the purchase price for the capital stock includes an earn-out provision pursuant to which inChord’s former shareholders will become entitled to additional consideration, which may be material, if inChord achieves specified financial targets during 2005 through 2007. A portion of this additional consideration may, at Ventiv’s option, be satisfied by the issuance of unregistered shares of Common Stock.
Because the selected unaudited pro forma condensed consolidated financial information is based upon inChord’s operating results during the period when inChord was not under the control, influence or management of Ventiv, the information presented may not be indicative of the results for the year ended December 31, 2004 or the nine months ended September 30, 2005 that would have actually occurred had the transaction been completed as of January 1, 2004, nor is it indicative of our future financial or operating results of the combined entity.
The unaudited pro forma condensed consolidated financial information is based on certain assumptions and adjustments described in the notes to the unaudited pro forma condensed consolidated financial information included in this report and should be read in conjunction with the audited historical consolidated financial statements and accompanying disclosures contained in Ventiv’s December 31, 2004 consolidated financial statements and notes thereto included on Form 10-K and unaudited Form 10-Q.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2005
(in thousands, except share amounts)
Ventiv | inChord | Pro Forma | Pro Forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
(see Note 2) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and equivalents | $ | 52,054 | 7,438 | (10,931 | ) | (a) | 48,561 | |||||||||
Restricted cash | 3,838 | 58 | -- | 3,896 | ||||||||||||
Accounts receivable, net | 76,797 | 32,937 | -- | 109,734 | ||||||||||||
Unbilled services | 35,382 | 14,002 | -- | 49,384 | ||||||||||||
Prepaid expenses and other current assets | 3,930 | 5,187 | -- | 9,117 | ||||||||||||
Current deferred tax assets | 13,271 | -- | -- | 13,271 | ||||||||||||
Total current assets | 185,272 | 59,622 | (10,931 | ) | 233,963 | |||||||||||
Property and equipment, net | 35,403 | 2,684 | -- | 38,087 | ||||||||||||
Equity Investments | -- | 5,209 | (228 | ) | (c) | 4,981 | ||||||||||
Goodwill | 73,640 | 1,330 | (1,330 | ) | (d) | 159,891 | ||||||||||
86,251 | (a) | |||||||||||||||
Other intangibles, net | 24,252 | 102 | (102 | ) | (d) | 118,592 | ||||||||||
94,340 | (a) | |||||||||||||||
Deferred taxes and other assets | 9,261 | 555 | 2,500 | (a) | 12,316 | |||||||||||
Total assets | $ | 327,828 | $ | 69,502 | $ | 170,500 | $ | 567,830 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of capital lease obligations | $ | 10,985 | -- | -- | $ | 10,985 | ||||||||||
Current portion of long-term debt | -- | -- | 1,726 | (a) | 1,726 | |||||||||||
Accrued payroll, accounts payable and accrued expenses | 44,507 | 20,663 | (1,423 | ) | (f) | 63,747 | ||||||||||
Current income tax liabilities | 14,308 | -- | -- | 14,308 | ||||||||||||
Client advances and unearned revenue | 6,102 | 24,323 | -- | 30,425 | ||||||||||||
Total current liabilities | 75,902 | 44,986 | 303 | 121,191 | ||||||||||||
Capital lease obligations, excluding current portion | 18,936 | -- | -- | 18,936 | ||||||||||||
Long-term debt, excluding current portion | -- | -- | 173,274 | (a) | 173,274 | |||||||||||
Other non-current liabilities | 4,510 | 7,856 | (7,500 | ) | (e) | 4,866 | ||||||||||
Total liabilities | 99,348 | 52,842 | 166,077 | 318,267 | ||||||||||||
Minority interests | -- | 917 | (902 | ) | (c) | 15 | ||||||||||
Stockholders' Equity: | ||||||||||||||||
Common stock, $.001 par value | 27 | 15,951 | 1 | (a) | 28 | |||||||||||
(15,951 | ) | (b) | ||||||||||||||
Treasury stock | -- | (3,511 | ) | 3,511 | (b) | -- | ||||||||||
Additional paid-in-capital | 216,525 | -- | 12,144 | (a) | 228,669 | |||||||||||
Deferred compensation | (2,682 | ) | -- | -- | (2,682 | ) | ||||||||||
Accumulated other comprehensive earnings | 256 | -- | -- | 256 | ||||||||||||
Retained earnings | 14,354 | 3,303 | (3,303 | ) | (b) | 23,277 | ||||||||||
7,500 | (e) | |||||||||||||||
1,423 | (f) | |||||||||||||||
Total stockholders' equity | 228,480 | 15,743 | 5,325 | 249,548 | ||||||||||||
Total liabilities and stockholders' equity | $ | 327,828 | $ | 69,502 | $ | 170,500 | $ | 567,830 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
VENTIV HEALTH, INC.
For the Nine Months Ended September 30, 2005
(in thousands, except per share amounts)
Ventiv | inChord | Pro Forma | Pro Forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
Revenues | $ | 381,005 | 138,717 | -- | 519,722 | |||||||||||
Operating expenses: | ||||||||||||||||
Cost of services | 291,236 | 57,027 | 46,962 | (k) | 395,225 | |||||||||||
Selling, general and administrative expenses | 48,082 | 77,133 | (46,962 | ) | (k) | 70,876 | ||||||||||
(7,500 | ) | (e) | ||||||||||||||
(1,423 | ) | (f) | ||||||||||||||
1,546 | (g) | |||||||||||||||
Total operating expenses | 339,318 | 134,160 | (7,377 | ) | 466,101 | |||||||||||
Operating earnings | 41,687 | 4,557 | 7,377 | 53,621 | ||||||||||||
Other (expenses) income | ||||||||||||||||
Interest expense, net | (201 | ) | 215 | -- | 14 | |||||||||||
Total other (expenses) income | (201 | ) | 215 | -- | 14 | |||||||||||
Earnings from continuing operations before income taxes, minority interests and equity investments | 41,486 | 4,772 | 7,377 | 53,635 | ||||||||||||
Income tax provision | 8,229 | 120 | 12,998 | (h) | 21,347 | |||||||||||
Earnings from continuing operations before minority interests and equity investments | 33,257 | 4,652 | (5,621 | ) | 32,288 | |||||||||||
Minority interest in CHS | -- | (578 | ) | 578 | (j) | -- | ||||||||||
Minority interest in TSP | -- | (706 | ) | -- | (706 | ) | ||||||||||
Equity earnings in investments | -- | 79 | -- | 79 | ||||||||||||
Earnings from continuing operations | $ | 33,257 | $ | 3,447 | $ | (5,043 | ) | $ | 31,661 | |||||||
Earnings per share from continuing operations: | ||||||||||||||||
Basic | $ | 1.25 | $ | 1.17 | ||||||||||||
Diluted | $ | 1.19 | $ | 1.12 | ||||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic | 26,604 | 501 | (i) | 27,105 | ||||||||||||
Diluted | 27,890 | 501 | (i) | 28,391 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
(in thousands, except per share amounts)
Ventiv | inChord | Pro Forma | Pro Forma | |||||||||||||
Historical | Historical | Adjustments | Combined | |||||||||||||
Revenues | $352,184 | $151,276 | -- | $503,460 | ||||||||||||
Operating expenses: | ||||||||||||||||
Cost of services | 279,733 | 56,969 | 48,416 | (k) | 385,118 | |||||||||||
Selling, general and administrative expenses | 38,539 | 85,312 | (48,416 | ) | (k) | 77,497 | ||||||||||
2,062 | (g) | |||||||||||||||
Restructuring | (264 | ) | -- | (264 | ) | |||||||||||
Total operating expenses | 318,008 | 142,281 | 2,062 | 462,351 | ||||||||||||
Operating earnings | 34,176 | 8,995 | (2,062 | ) | 41,109 | |||||||||||
Other (expenses) income | ||||||||||||||||
Interest expense, net | (244 | ) | 176 | -- | (68 | ) | ||||||||||
Total other (expenses) income | (244 | ) | 176 | -- | (68 | ) | ||||||||||
Earnings from continuing operations before income taxes,minority interests and equity investments | 33,932 | 9,171 | (2,062 | ) | 41,041 | |||||||||||
Income tax provision (benefits) | 3,802 | (5 | ) | 11,798 | (h) | 15,595 | ||||||||||
Earnings from continuing operations before minority interests and equity investments | 30,130 | 9,176 | (13,860 | ) | 25,446 | |||||||||||
Minority interest in CHS | -- | (1,190 | ) | 1,190 | (j) | -- | ||||||||||
Minority interest in TSP | -- | (1,144 | ) | -- | (1,144 | ) | ||||||||||
Equity earnings in investments | -- | 158 | -- | 158 | ||||||||||||
Earnings from continuing operations | $ | 30,130 | $ | 7,000 | $ | (12,670 | ) | $ | 24,460 | |||||||
Earnings per share from continuing operations: | ||||||||||||||||
Basic | $ | 1.26 | $ | 1.00 | ||||||||||||
Diluted | $ | 1.18 | $ | 0.94 | ||||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic | 23,951 | 501 | (i) | 24,452 | ||||||||||||
Diluted | 25,437 | 501 | (i) | 25,938 |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
VENTIV HEALTH, INC.
1. Basis of Presentation
The unaudited pro forma condensed consolidated financial statements of Ventiv are based on the historical consolidated financial statements of Ventiv and inChord, and have been prepared to illustrate the effect of Ventiv’s acquisition of inChord. The unaudited pro forma condensed consolidated financial information has been prepared using the purchase method of accounting. The unaudited pro forma condensed consolidated balance sheet is presented as though the acquisition occurred on September 30, 2005. The pro forma condensed consolidated statements of operations give effect to the acquisition of inChord as if it had occurred on January 1, 2004.
2. Pro Forma Adjustments Related to the Acquisition
The following adjustments were applied to the historical consolidated financial statements of Ventiv and inChord to arrive at the unaudited pro forma condensed consolidated financial information:
(a) For purposes of the pro forma condensed consolidated financial information, a summary of the purchase price consideration for the acquisition is as follows:
Purchase price consideration | Amount (in thousands) | |||
Cash | $ | --- | ||
Stock issued | 12,500 | |||
Fair market value adjustment of Common Stock | (355) | |||
Long term debt | 172,500 | |||
Working capital adjustment | 8,767 | |||
Direct acquisition costs | 2,164 | |||
Total | $ | 195,576 |
The following represents the allocation of the purchase price to the acquired assets of inChord. The allocation is based upon the estimated fair value of inChord’s assets and liabilities as of September 30, 2005. However, changes to the estimates of the fair values of inChord’s assets acquired and liabilities assumed may be necessary as additional information becomes available and a third-party valuation of certain intangible assets is finalized.
Preliminary allocation of purchase price | Amount (in thousands) | |||
Current assets | $ | 59,622 | ||
Property and equipment, and other noncurrent assets | 3,239 | |||
Equity investments | 4,981 | |||
Goodwill | 86,251 | |||
Tradenames | 67,540 | |||
Customer relationships | 26,800 | |||
Liabilities assumed | (52,842 | ) | ||
Minority interest | (15 | ) | ||
Total | $ | 195,576 |
Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets. Deferred taxes and other assets proforma adjustments represent loan acquisition costs incurred as part of the Acquisition.
(b) | Represents the elimination of the historical stockholders’ equity accounts of inChord. |
(c) | Represents the elimination of inChord’s Olde Worthington Road LLC investment, which was sold prior to the acquisition. |
(d) | Represents the elimination of goodwill and other intangibles from inChord’s investments prior to the acquisition. |
(e) | Represents one-time special bonus plan for designated inChord executives, based on financial targets achieved during 2005 through 2007. |
(f) | Represents inChord buyout of all outstanding Stock Appreciation Rights units issued prior to the acquisition. |
(g) | Represents the amortization of customer relationships associated with Ventiv’s acquisition of inChord. These intangible assets are amortized over their useful lives of thirteen years. |
(h) | Represents pro-forma income tax expense as though inChord was taxed as a C-corporation at 39.8% for the nine months ended September 30, 2005 and at 38.0% for the year ended December 31, 2004. Prior to Ventiv’s acquisition, inChord was an S-corporation, in which case shareholders were taxed on their portion of inChord’s taxable income. |
(i) | Represents the issuance of Ventiv common stock pursuant to the acquisition. |
(j) | Reflects the purchase by inChord of 100 minority shares of CHS in exchange for shares of inChord giving inChord 100% ownership of CHS as of October 3, 2005. |
(k) | Represents payroll and benefit costs allocation from selling, general and administrative expenses to cost of services. This allocation is to conform with Ventiv’s income statement presentation. |
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 thereunto duly authorized.
VENTIV HEALTH, INC. | ||
| | |
Date: December 21, 2005 | By: | /s/ John R. Emery |
Title: Chief Financial Officer (Principal Accounting & Financial Officer) |