EXHIBIT 99.6
HMS HOLDINGS CORP.
Unaudited Pro Forma Condensed Combined Financial Statements
On September 13, 2006, HMS Holdings Corp. (the “Company”) acquired the assets used exclusively or primarily in the Benefit Solutions Practice Area (BSPA) of Public Consulting Group, Inc. The acquisition was effective August 31, 2006 and the results of BSPA for the month of September 2006 are included in the Company’s results of operations for the nine months ended September 30, 2006. The following unaudited pro forma condensed combined financial statements have been prepared to give effect to the completed acquisition, which was accounted for using the purchase method of accounting.
The unaudited pro forma condensed combined statements of income for the nine months ended September 30, 2006 and the year ended December 31, 2005, are presented herein. The Company’s consolidated balance sheet filed in the Company's Third Quarter Report on Form 10-Q reflects the acquisition of BSPA. The unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2006 and the year ended December 13, 2005 combines the historical results of the Company and BSPA and gives effect to the acquisition as if it had occurred on January 1, 2006 and 2005, respectively.
The unaudited pro forma condensed combined financial statements presented are based on the assumptions and adjustments described in the accompanying notes. Unaudited pro forma results of operations assuming the acquisition was consummated at the beginning of 2005 and 2006 are presented for illustrative purposes. The pro formas represent the historical results of the Company combined with those of BSPA for the periods presented, adjusted for specific factually supportable items such as amortization of intangible assets and interest expense. The pro forma results of operations do not include the costs of integration or any nonrecurring costs and are not necessarily indicative of either future results or operations or results that would have been achieved if the acquisitions had been consummated at the beginning of the periods presented in the accompanying financial statements. The unaudited pro forma condensed combined financial statements, and accompanying notes, are based upon the respective historical consolidated and combined financial statements of the Company and BSPA, and should be read in conjunction with the historical financial statements and related notes of the Company contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, and Annual Report on Form 10-K for the year ended December 31, 2005, as well as the historical combined financial statements and related notes of BSPA, which are attached as Exhibit 99.5 to the Company’s Current Report on Form 8-K/A (Amendment No. 1) filed on November 16, 2006.
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HMS HOLDINGS CORP.
Unaudited Pro Forma Condensed Combined Statement of Income
Nine Months Ended September 30, 2006
(In thousands except per share amounts)
| | | | | | | BSPA | | | | | | | | | |
| | | | | | | For the Eight | | | | | | | | | |
| | | HMS Holdings, | | | Months Ended | | | Pro Forma | | | | | Pro Forma | |
| | | as reported | | | August 31, 2006 | | | Adjustments | | | | | Combined | |
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| Revenue | | $ | 54,319 | | | $ | 43,415 | | | | | | | $ | 97,734 | |
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| Cost of services: | | | | | | | | | | | | | | | | |
| Compensation | | | 24,938 | | | | 10,846 | | | 606 | | (G) | | | 36,390 | |
| Data processing | | | 4,781 | | | | 407 | | | | | | | | 5,188 | |
| Occupancy | | | 4,280 | | | | 1,712 | | | | | | | | 5,992 | |
| Direct project costs | | | 8,225 | | | | 7,346 | | | | | | | | 15,571 | |
| Other operating costs | | | 5,432 | | | | 1,286 | | | 750 | | (F) | | | 7,468 | |
| Amortization of acquisition related intangibles | | | 2,827 | | | | | | | 5,565 | | (C) | | | 8,392 | |
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| Total cost of services | | | 50,483 | | | | 21,597 | | | 6,921 | | | | | 79,001 | |
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| Operating income | | | 3,836 | | | | 21,818 | | | (6,921 | ) | | | | 18,733 | |
| Interest expense | | | (329 | ) | | | | | | (1,867 | ) | (B) | | | (2,196 | ) |
| Net interest income | | | 1,536 | | | | | | | (1,204 | ) | (A) | | | 332 | |
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| Income from continuing operations before income taxes | | | 5,043 | | | | 21,818 | | | (9,992 | ) | | | | 16,869 | |
| Income taxes | | | 2,113 | | | | | | | 4,967 | | (D) | | | 7,080 | |
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| Income from continuing operations | | $ | 2,930 | | | $ | 21,818 | | $ | (14,959 | ) | | | $ | 9,789 | |
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| Basic income per share data: | | | | | | | | | | | | | | | | |
| Income from continuing operations per basic share | | $ | 0.14 | | | | | | | | | | | $ | 0.43 | |
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| Weighted average common shares outstanding, basic | | | 21,220 | | | | | | | 1,641 | | (E) | | | 22,861 | |
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| Diluted income per share data: | | | | | | | | | | | | | | | | |
| Income from continuing operations per diluted share | | $ | 0.13 | | | | | | | | | | | $ | 0.39 | |
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| Weighted average common shares, diluted | | | 23,287 | | | | | | | 1,641 | | (E) | | | 24,928 | |
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See accompanying notes to unaudited pro forma condensed combined financial statements.
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HMS HOLDINGS CORP.
Unaudited Pro Forma Condensed Combined Statement of Income
Year Ended December 31, 2005
(In thousands except per share amounts)
| | | | HMS Holdings, | | | | | | Pro Forma | | | | Pro Forma | |
| | | | as reported | | | BSPA | | | Adjustments | | | | Combined | |
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| Revenue | | $ | 60,024 | | $ | 37,812 | | | | | | $ | 97,836 | |
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| Cost of services: | | | | | | | | | | | | | | |
| Compensation | | | 26,945 | | | 13,695 | | | | | | | 40,640 | |
| Data processing | | | 4,793 | | | 520 | | | | | | | 5,313 | |
| Occupancy | | | 4,670 | | | 2,353 | | | | | | | 7,023 | |
| Direct project costs | | | 9,796 | | | 7,089 | | | | | | | 16,885 | |
| Other operating costs | | | 6,244 | | | 4,029 | | | 1,000 | | (F) | | 11,273 | |
| Amortization of acquisition related intangibles | | | - | | | | | | 9,546 | | (C) | | 9,546 | |
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| Total cost of services | | | 52,448 | | | 27,686 | | | 10,546 | | | | 90,680 | |
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| Operating income | | | 7,576 | | | 10,126 | | | (10,546 | ) | | | 7,156 | |
| Interest expense | | | - | | | | | | (3,500 | ) | (B) | | (3,500 | ) |
| Net interest income | | | 1,238 | | | | | | (904 | ) | (A) | | 334 | |
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| Income from continuing operations before income taxes | | | 8,814 | | | 10,126 | | | (14,950 | ) | | | 3,990 | |
| Income taxes | | | 465 | | | | | | (241 | ) | (D) | | 224 | |
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| Income from continuing operations | | $ | 8,349 | | $ | 10,126 | | $ | (14,709 | ) | | $ | 3,766 | |
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| Basic income per share data: | | | | | | | | | | | | | | |
| Income from continuing operations per basic share | | $ | 0.42 | | | | | | | | | $ | 0.17 | |
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| Weighted average common shares outstanding, basic | | | 19,865 | | | | | | 1,750 | | (E) | | 21,615 | |
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| Diluted income per share data: | | | | | | | | | | | | | | |
| Income from continuing operations per diluted share | | $ | 0.37 | | | | | | | | | $ | 0.16 | |
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| Weighted average common shares, diluted | | | 22,287 | | | | | | 1,750 | | (E) | | 24,037 | |
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See accompanying notes to unaudited pro forma condensed combined financial statements.
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HMS HOLDINGS CORP.Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2006 was prepared using the historical unaudited condensed consolidated statement of income of the Company for the nine months ended September 30, 2006 as included in the Company’s Quarterly Report on Form 10-Q for such period, and the unaudited management accounts of BSPA for the eight months ended August 31, 2006. The results of BSPA for the month of September 2006 are included in the Company’s results of operations as the acquisition was effective August 31, 2006. In the opinion of management, the unaudited management accounts of BSPA have been prepared on the same basis as the audited combined financial statements of BSPA included elsewhere herein and include all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of results of operations of BSPA.
The unaudited pro forma condensed combined statement of income for the year ended December 31, 2005 was prepared using the historical audited consolidated statement of income of the Company for the year ended December 31, 2005 as included in the Company’s Annual Report on Form 10-K for such period, and the unaudited combined statement of income of BSPA for the year ended December 31, 2005 which was derived by taking the audited combined statement of income for the year ended June 30, 2006 and subtracting the unaudited combined income statement for the six months ended June 30, 2006 and adding the unaudited combined income statement for the six months ended June 30, 2005. The derivation of the unaudited combined income statement of BSPA for the year ended December 31, 2005 is as follows:
(in thousands)
| Revenue
| Income from
Continuing Operations
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| Year ended June 30, 2006 | | | $ | 48,414 | | $ | 18,766 | |
| Deduct: Six months ended June 30, 2006 | | | | (33,386 | ) | | (17,020 | ) |
| Add: Six months ended June 30, 2005 | | | | 22,784 | | | 8,380 | |
| Year ended December 31, 2005 | | | | 37,812 | | | 10,126 | |
2. Purchase Price Allocation
The preliminary allocation of the purchase price is based upon estimates of the assets and liabilities acquired in accordance with SFAS No. 141 “Business Combinations.” The preliminary allocations may be revised when the Company completes its valuations. The acquisition of BSPA is based on management’s consideration of past and expected future performance as well as the potential strategic fit with the long-term goals of the Company. The expected long-term growth, market position and expected synergies to be generated by BSPA are the primary factors that gave rise to an acquisition price which resulted in the recognition of goodwill.
The following is a summary of the purchase price:
| | (in thousands) | | | | |
| | Cash | | $ | 80,838 | |
| | Common Stock-1,749,800 shares | | | 24,410 | |
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| | Purchase Price | | $ | 105,248 | |
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The preliminary allocation of the aggregate purchase price of this acquisition is as follows:
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| | Goodwill | | $ | 65,574 | |
| | Identifiable intangible assets | | | 31,240 | |
| | Net assets acquired | | | 8,434 | |
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| | | | $ | 105,248 | |
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Identifiable intangible assets primarily include customer relationships, backlog and software.
3. Acquisition Financing
On September 13, 2006, the Company entered into a credit agreement (the Credit Agreement) among the Company, the several banks and other financial institutions or entities from time to time parties thereto, and JPMorgan Chase Bank, N.A. (JPMCB), as administrative agent, to fund a portion of the purchase price for the Company’s acquisition of the BSPA assets . The Credit Agreement provides for a term loan of $40 million (the Term Loan) and revolving credit loans of up to $25 million. Borrowings under the Credit Agreement mature on September 13, 2011.
On September 13, 2006, the Company borrowed $40 million under the Term Loan to purchase the BSPA assets. Fees and expenses related to the Credit Agreement of $0.9 million have been recorded as Deferred Financing Costs (included in Other assets non-current) and will be amortized as interest expense over the five-year life of the credit facilities.
4. Pro Forma Adjustments
The following pro forma adjustments are based on preliminary estimates, which may change as additional information is obtained:
| | (A) | To reflect the estimated decrease in interest income earned on the cash paid for the acquisition as if the cash was not available for investment during the period. |
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| | (B) | To reflect the interest expense on the Company’s $40 million borrowing under the Term Loan for the period. The borrowing under the Term Loan is assumed to be $50 million for 2005 as the Company did not have sufficient cash on hand as of the beginning of such period. |
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| | (C) | To reflect amortization of the acquired intangible assets. |
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| | (D) | To reflect a tax provision on the income earned by BSPA operations which operated within a Subchapter S structure, and, accordingly, were not subject to income taxes at the corporate level and to record a tax benefit on pro forma adjustments to income. |
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| | (E) | To adjust the weighted average share calculation for shares issued as part of the acquisition. |
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| | (F) | To reflect additional general and administrative expense to manage the business as if BSPA was acquired at the beginning of the period. |
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| | (G) | To adjust for share-based compensation expense on stock options issued in connection with the BSPA acquisition. |
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