Exhibit 99.4
CONCENTRA OPERATING CORPORATION
Unaudited Pro Forma Financial Statements
The following unaudited pro forma financial statements have been prepared to give effect to the October 3, 2005 acquisition of Beech Street Corporation (“Beech Street”) by Concentra Operating Corporation (the “Company” or “Concentra”), under the purchase method of accounting. The unaudited pro forma statements of operations and pro forma balance sheet give effect to (i) the acquisition and (ii) the related refinancing. The unaudited pro forma balance sheet information as of September 30, 2005 has been prepared as if such transactions had occurred on that date, and the unaudited pro forma statements of operations for the nine months ended September 30, 2005 and for the year ended December 31, 2004 have been prepared as if such transactions had occurred at January 1, 2004. The adjustments are described in the accompanying notes.
Concentra acquired all of the outstanding shares of capital stock of Beech Street on October 3, 2005, in a $165.0 million cash transaction. Beech Street was privately-held and was based in Lake Forest, California. Beech Street is one of the country’s leading preferred provider organizations and has approximately 400,000 physicians, 52,000 ancillary providers, and 3,800 acute care hospitals within its provider network. In connection with this acquisition, Concentra refinanced its senior credit facility. Concentra replaced its existing $501.5 million term loan facility with a new $675.0 million senior credit facility, consisting of a $150.0 million revolving credit facility and a $525.0 million term loan facility. The new senior credit facility also provides Concentra with a lower interest rate payable on its borrowings under this agreement. As part of the refinancing of the senior credit facility, Concentra wrote-off approximately $6.0 million of related, unamortized deferred financing fees.
Unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have actually been reported had the acquisition occurred at the beginning of the periods presented, nor is it necessarily indicative of future financial position or results of operations. The unaudited pro forma financial statements presented herein are based upon the respective historical consolidated financial statements of Concentra and Beech Street and notes thereto. These unaudited pro forma financial statements do not include, nor do they assume, any benefits from cost savings or synergies of operations of the combined companies. Additionally, the unaudited pro forma income statements do not include restructuring charges expected to be incurred in connection with the acquisition.
The unaudited pro forma financial statements should be read in conjunction with the historical consolidated financial statements of Concentra Operating Corporation and Beech Street.
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CONCENTRA OPERATING CORPORATION
Pro Forma Consolidated Balance Sheets (Unaudited)
As of September 30, 2005
(in thousands)
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| | Historical
| | | Pro Forma
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| | Concentra
| | | Beech Street
| | | Adjustments
| | | Consolidated
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ASSETS | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 82,481 | | | $ | 2,752 | | | $ | (13,088 | )(1) | | $ | 72,145 | |
Restricted cash and short-term investments | | | 4,175 | | | | — | | | | — | | | | 4,175 | |
Accounts receivable, net | | | 174,820 | | | | 6,142 | | | | (133 | )(2) | | | 180,829 | |
Prepaid expenses and other current assets | | | 38,787 | | | | 9,000 | | | | — | | | | 47,787 | |
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Total current assets | | | 300,263 | | | | 17,894 | | | | (13,221 | ) | | | 304,936 | |
Property and equipment, net | | | 111,729 | | | | 2,422 | | | | 3,473 | (3) | | | 117,624 | |
Goodwill and other intangible assets, net | | | 453,473 | | | | 22,216 | | | | 152,527 | (4),(5),(6) | | | 628,216 | |
Other assets | | | 31,721 | | | | 154 | | | | (626 | )(7),(8),(9) | | | 31,249 | |
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Total assets | | $ | 897,186 | | | $ | 42,686 | | | $ | 142,153 | | | $ | 1,082,025 | |
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LIABILITIES AND STOCKHOLDER’S EQUITY | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Revolving credit facility | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current portion of long-term debt | | | 3,979 | | | | — | | | | 1,538 | (10) | | | 5,517 | |
Accounts payable and accrued expenses | | | 135,982 | | | | 14,191 | | | | 2,981 | (2),(11),(12) | | | 153,154 | |
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Total current liabilities | | | 139,961 | | | | 14,191 | | | | 4,519 | | | | 158,671 | |
Long-term debt, net | | | 697,592 | | | | — | | | | 156,909 | (10) | | | 854,501 | |
Deferred income taxes and other liabilities | | | 66,840 | | | | — | | | | 15,257 | (7),(12) | | | 82,097 | |
Fair value of economic hedges | | | 131 | | | | — | | | | — | | | | 131 | |
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Total liabilities | | | 904,524 | | | | 14,191 | | | | 176,685 | | | | 1,095,400 | |
Stockholder’s equity: | | | | | | | | | | | | | | | | |
Common stock | | | — | | | | 303 | | | | (303 | )(13) | | | — | |
Paid-in capital | | | 43,734 | | | | 30,985 | | | | (30,985 | )(13) | | | 43,734 | |
Accumulated deficit | | | (51,072 | ) | | | (2,793 | ) | | | (3,244 | )(8),(13) | | | (57,109 | ) |
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Total stockholder’s equity (deficit) | | | (7,338 | ) | | | 28,495 | | | | (34,532 | ) | | | (13,375 | ) |
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Total liabilities and stockholder’s equity | | $ | 897,186 | | | $ | 42,686 | | | $ | 142,153 | | | $ | 1,082,025 | |
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See accompanying notes to pro forma consolidated financial statements.
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CONCENTRA OPERATING CORPORATION
Pro Forma Consolidated Statements of Operations (Unaudited)
For the Nine Months Ended September 30, 2005
(in thousands)
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| | Historical
| | | Pro Forma
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| | Concentra
| | | Beech Street
| | | Adjustments
| | | Consolidated
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Revenue: | | | | | | | | | | | | | | | | |
Health Services | | $ | 495,089 | | | $ | — | | | $ | — | | | $ | 495,089 | |
Network Services | | | 203,726 | | | | 51,529 | | | | (869 | )(14) | | | 254,386 | |
Care Management Services | | | 152,858 | | | | — | | | | — | | | | 152,858 | |
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Total revenue | | | 851,673 | | | | 51,529 | | | | (869 | ) | | | 902,333 | |
Cost of services: | | | | | | | | | | | | | | | | |
Health Services | | | 401,134 | | | | — | | | | — | | | | 401,134 | |
Network Services | | | 120,550 | | | | 26,370 | | | | (313 | )(15) | | | 146,607 | |
Care Management Services | | | 131,309 | | | | — | | | | — | | | | 131,309 | |
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Total cost of services | | | 652,993 | | | | 26,370 | | | | (313 | ) | | | 679,050 | |
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Total gross profit | | | 198,680 | | | | 25,159 | | | | (556 | ) | | | 223,283 | |
General and administrative expenses | | | 91,717 | | | | 26,361 | | | | (201 | )(15) | | | 117,877 | |
Amortization of intangibles | | | 1,748 | | | | 63 | | | | 2,759 | (16) | | | 4,570 | |
Gain on sale of assets | | | (1,426 | ) | | | — | | | | — | | | | (1,426 | ) |
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Operating income (loss) | | | 106,641 | | | | (1,265 | ) | | | (3,114 | ) | | | 102,262 | |
Interest expense, net | | | 41,281 | | | | 104 | | | | 7,156 | (17) | | | 48,541 | |
Loss on change in fair value of economic hedges | | | 131 | | | | — | | | | — | | | | 131 | |
Other, net | | | 2,602 | | | | — | | | | — | | | | 2,602 | |
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Income (loss) before income taxes | | | 62,627 | | | | (1,369 | ) | | | (10,270 | ) | | | 50,988 | |
Provision (benefit) for income taxes | | | 8,490 | | | | (6,562 | ) | | | (4,365 | )(18) | | | (2,437 | ) |
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Income (loss) from continuing operations | | | 54,137 | | | | 5,193 | | | | (5,905 | ) | | | 53,425 | |
Loss from discontinued operations | | | 548 | | | | — | | | | — | | | | 548 | |
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Net income (loss) | | $ | 53,589 | | | $ | 5,193 | | | $ | (5,905 | ) | | $ | 52,877 | |
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See accompanying notes to pro forma consolidated financial statements.
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CONCENTRA OPERATING CORPORATION
Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 2004 (Unaudited)
(in thousands)
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| | Historical
| | Pro Forma
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| | Concentra
| | | Beech Street
| | Adjustments
| | | Consolidated
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Revenue: | | | | | | | | | | | | | | | |
Health Services | | $ | 576,880 | | | $ | — | | $ | — | | | $ | 576,880 | |
Network Services | | | 281,374 | | | | 69,896 | | | (1,108 | )(14) | | | 350,162 | |
Care Management Services | | | 237,595 | | | | — | | | — | | | | 237,595 | |
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Total revenue | | | 1,095,849 | | | | 69,896 | | | (1,108 | ) | | | 1,164,637 | |
Cost of services: | | | | | | | | | | | | | | | |
Health Services | | | 474,343 | | | | — | | | — | | | | 474,343 | |
Network Services | | | 163,800 | | | | 34,610 | | | (761 | )(15) | | | 197,649 | |
Care Management Services | | | 208,505 | | | | — | | | — | | | | 208,505 | |
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Total cost of services | | | 846,648 | | | | 34,610 | | | (761 | ) | | | 880,497 | |
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Total gross profit | | | 249,201 | | | | 35,286 | | | (347 | ) | | | 284,140 | |
General and administrative expenses | | | 130,263 | | | | 30,596 | | | (539 | )(15) | | | 160,320 | |
Amortization of intangibles | | | 3,234 | | | | 19 | | | 3,743 | (16) | | | 6,996 | |
Loss on impairment of goodwill and long-lived assets | | | 41,682 | | | | — | | | — | | | | 41,682 | |
Unusual gains | | | (96 | ) | | | — | | | — | | | | (96 | ) |
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Operating income (loss) | | | 74,118 | | | | 4,671 | | | (3,551 | ) | | | 75,238 | |
Interest expense, net | | | 55,606 | | | | 797 | | | 13,045 | (17) | | | 69,448 | |
Loss on early retirement of debt | | | 14,105 | | | | — | | | — | | | | 14,105 | |
Other, net | | | 3,047 | | | | — | | | — | | | | 3,047 | |
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Income (loss) before income taxes | | | 1,360 | | | | 3,874 | | | (16,596 | ) | | | (11,362 | ) |
Provision for income taxes | | | 10,627 | | | | 1,550 | | | (7,053 | )(18) | | | 5,124 | |
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Income (loss) from continuing operations | | | (9,267 | ) | | | 2,324 | | | (9,543 | ) | | | (16,486 | ) |
Loss from discontinued operations | | | 708 | | | | — | | | — | | | | 708 | |
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Net income (loss) | | $ | (9,975 | ) | | $ | 2,324 | | $ | (9,543 | ) | | $ | (17,194 | ) |
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See accompanying notes to pro forma consolidated financial statements.
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CONCENTRA OPERATING CORPORATION
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(dollars in thousands)
NOTE 1 – PRELIMINARY PURCHASE PRICE ALLOCATION
Under the purchase method of accounting, the total purchase price of $165.0 million is allocated to Beech Street’s tangible and intangible assets and liabilities based on their estimated fair values as of the date of the completion of the acquisition, October, 3, 2005. The preliminary pro forma purchase price allocation assumes that the transaction occurred on the date of the unaudited pro forma consolidated balance sheet, September 30, 2005. The preliminary pro forma purchase price allocation is as follows:
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Cash and cash equivalents | | $ | 2,752 | |
Accounts receivable, net | | | 6,009 | |
Prepaid expenses and other current assets | | | 9,000 | |
Property and equipment | | | 5,895 | |
Goodwill | | | 140,913 | |
Marketing assets | | | 2,700 | |
Customer relations | | | 9,000 | |
Network | | | 21,000 | |
Non-compete agreements | | | 1,130 | |
Other assets | | | 1,254 | |
Accounts payable and accrued liabilities | | | (19,396 | ) |
Deferred income taxes and other liabilities | | | (15,257 | ) |
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Total allocated purchase price | | $ | 165,000 | |
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NOTE 2 – PRO FORMA ADJUSTMENTS
Pro forma consolidated balance sheet adjustments (1) through (13) below assume that the acquisition occurred as of September 30, 2005. Pro forma statement of operations adjustments (14) through (18) below assume that the acquisition occurred as of the beginning of the period presented. Certain amounts in the Beech Street historical statements of operations have been reclassified to conform to classifications used by Concentra.
(1) | To record the following: |
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Purchase of Beech Street | | $ | (165,000 | ) |
Payment of existing credit facility and accrued interest | | | (368,777 | ) |
Proceeds from new credit facility | | | 525,000 | |
Payment of fees and expenses for refinancing | | | (4,311 | ) |
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| | $ | (13,088 | ) |
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(2) | To eliminate intercompany balances. |
(3) | To adjust Beech Street’s property and equipment to fair value. |
(4) | To eliminate Beech Street’s historical goodwill and identifiable intangible assets. |
(5) | To record the fair value of Beech Street’s identifiable intangible assets. |
(6) | To record acquired goodwill. |
(7) | To record the deferred tax assets and liabilities based on the book to tax difference in the new assets and liabilities. |
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(8) | To record the write-off of remaining deferred financing fees of $6.0 million on the existing senior credit facility. |
(9) | To record capitalization of fees of $4.3 million related to the new senior credit facility. |
(10) | To record the repayment of the existing senior credit facility and the proceeds from the new senior credit facility. |
(11) | To record payment of accrued interest of $2.2 million on the retired senior credit facility. |
(12) | To record $5.2 million of Beech Street’s costs of acquisition, including severance and other costs. |
(13) | To eliminate Beech Street’s equity accounts. |
(14) | To eliminate intercompany revenue. |
(15) | To revise Beech Street’s depreciation expense based upon the change in the fair value of the property and equipment. |
(16) | To reverse amortization expense on Beech Street’s historical identifiable intangible assets and record amortization of the purchased identifiable intangible assets. |
(17) | To reverse interest expense on the retired existing senior credit facility and record interest expense on the new senior credit facility. |
(18) | To record income tax expense associated with the pro forma adjustments reflected above assuming a statutory rate of 42.5%. |
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