EXHIBIT 99.3
Unaudited Pro Forma Condensed Consolidated Financial Data
The unaudited pro forma condensed consolidated financial data set forth below are based on the historical consolidated financial statements of Theragenics Corporation and Subsidiary (“Theragenics”) and the historical financial statements of Galt Medical Corp. (“Galt”), and adjustments described in the accompanying notes to the unaudited pro forma financial data. The unaudited pro forma condensed consolidated financial data is presented to give effect to Theragenics’ acquisition of Galt (the “Acquisition”).
The unaudited pro forma condensed consolidated balance sheet combines the historical consolidated balance sheet of Theragenics as of July 2, 2006 and the historical balance sheet of Galt as of June 30, 2006, giving effect to the Acquisition as if it occurred on July 2, 2006. The unaudited pro forma condensed consolidated statements of operations combine the historical consolidated statement of operations of Theragenics for the year ended December 31, 2005 and the six months ended July 2, 2006 with the historical financial statements of Galt for the year ended December 31, 2005 and the six months ended June 30, 2006, giving effect to the Acquisition as if it occurred on January 1, 2005.
The pro forma condensed consolidated statements of operations reflect only pro forma adjustments expected to have a continuing impact on the combined results beyond 12 months from the consummation of the Acquisition, and do not reflect any changes in operations that may occur.
The unaudited pro forma condensed consolidated financial data are for illustrative purposes only, are hypothetical in nature and do not purport to represent what our results of operations, balance sheet or other financial information would have been if the Acquisition had occurred as of the dates indicated or what such results will be for any future periods. The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable, including an allocation of the purchase price based on an estimate of fair value, and exclude certain non-recurring charges as disclosed. These estimates are preliminary and are based on information currently available and could change significantly. The unaudited pro forma condensed consolidated financial data and accompanying notes should be read in conjunction with the historical consolidated financial statements, including the related notes, of Theragenics included in our annual report on Form 10-K for the year ended December 31, 2005 and our quarterly report on Form 10-Q for the quarterly period ended July 2, 2006 and of Galt included in Exhibits 99.1 and 99.2 to this current report on Form 8-K/A.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(amounts in thousands)
| Pro Forma | ||||||||||||||||
Theragenics July 2, 2006 | Galt June 30, 2006 | Adjustments | Total | |||||||||||||
Assets | (Note 3) | |||||||||||||||
| Current assets | ||||||||||||||||
| Cash | $ | 13,869 | $ | 2,024 | $ | 200 | (a) | $ | 9,371 | |||||||
| (6,722 | ) | (b) | ||||||||||||||
| Marketable securities | 34,342 | - | (17,538 | ) | (b) | 16,804 | ||||||||||
| Accounts receivable | 7,411 | 1,220 | 8,631 | |||||||||||||
| Inventories | 5,337 | 1,325 | 352 | (d) | 7,014 | |||||||||||
| Prepaid expenses and other current assets | 3,250 | 31 | 3,281 | |||||||||||||
| Asset held for sale | 3,400 | - | 3,400 | |||||||||||||
| Total current assets | 67,609 | 4,600 | (23,708 | ) | 48,501 | |||||||||||
| Property and equipment, net | 30,972 | 1,445 | 32,417 | |||||||||||||
| Goodwill | 18,370 | - | 20,506 | (e) | 38,876 | |||||||||||
| Other intangible assets, net | 5,996 | 17 | 8,753 | (e) | 14,766 | |||||||||||
| Deferred income tax asset | - | 351 | (312 | ) | (n) | - | ||||||||||
| (39 | ) | (f) | ||||||||||||||
| Other | 269 | - | (181 | ) | (b) | 88 | ||||||||||
| Total assets | $ | 123,216 | $ | 6,413 | $ | 5,019 | $ | 134,648 | ||||||||
Liabilities and Shareholders’ Equity | ||||||||||||||||
| Current liabilities | ||||||||||||||||
| Accounts payable | $ | 1,143 | $ | 202 | $ | - | $ | 1,345 | ||||||||
| Accrued salaries, wages and payroll taxes | 1,415 | 149 | 1,564 | |||||||||||||
| Income taxes payable | - | 794 | (794 | ) | (n) | - | ||||||||||
| Share based compensation liability | - | 900 | (900 | ) | (h) | - | ||||||||||
| Other current liabilities | 1,288 | 196 | 1,484 | |||||||||||||
| Total current liabilities | 3,846 | 2,241 | (1,694 | ) | 4,393 | |||||||||||
| Long term debt | - | - | 7,500 | (b) | 7,500 | |||||||||||
| Deferred income taxes | 260 | - | 333 | (f) | 593 | |||||||||||
| Decommissioning retirement liability | 537 | - | 537 | |||||||||||||
| Contract termination liability | 1,526 | - | 1,526 | |||||||||||||
| Shareholders’ equity | ||||||||||||||||
| Common stock | 321 | 329 | 20 | (a) | 331 | |||||||||||
| 10 | (c) | |||||||||||||||
| (349 | ) | (g) | ||||||||||||||
| Additional paid in capital | 68,889 | 2,282 | 180 | (a) | 71,931 | |||||||||||
| 3,042 | (c) | |||||||||||||||
| (2,462 | ) | (g) | ||||||||||||||
| Retained earnings | 48,132 | 1,561 | (1,561 | ) | (g) | 48,132 | ||||||||||
| Accumulated other comprehensive loss | (295 | ) | - | (295 | ) | |||||||||||
| Total shareholders’ equity | 117,047 | 4,172 | (1,120 | ) | 120,099 | |||||||||||
| Total liabilities and shareholders’ equity | $ | 123,216 | $ | 6,413 | $ | 5,019 | $ | 134,648 | ||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share data)
| Six Months Ended | Pro Forma | |||||||||||||||
Theragenics July 2, 2006 | Galt June 30, 2006 | Adjustments | Total | |||||||||||||
| (Note 3) | ||||||||||||||||
| Product sales | $ | 24,680 | $ | 5,251 | $ | - | $ | 29,931 | ||||||||
| Licensing fees | 304 | - | 304 | |||||||||||||
| Total revenue | 24,984 | 5,251 | - | 30,235 | ||||||||||||
| Cost of sales | 12,535 | 2,915 | (815 | ) | (h) | 14,622 | ||||||||||
| (13 | ) | (i) | ||||||||||||||
| Gross profit | 12,449 | 2,336 | 828 | 15,613 | ||||||||||||
| Selling, general and administrative | 10,725 | 1,293 | (155 | ) | (h) | 11,862 | ||||||||||
| (1 | ) | (i) | ||||||||||||||
| Research and development | 418 | - | 418 | |||||||||||||
| Purchased intangibles amortization | 375 | - | 597 | (j) | 972 | |||||||||||
| Restructuring | 369 | - | 369 | |||||||||||||
| Gain on sale of assets | (201 | ) | - | (201 | ) | |||||||||||
| Earnings from operations | 763 | 1,043 | 387 | 2,193 | ||||||||||||
| Interest income | 869 | 28 | (412 | ) | (k) | 485 | ||||||||||
| Interest expense | (134 | ) | - | 229 | (l) | (363 | ) | |||||||||
| Other | (20 | ) | - | (20 | ) | |||||||||||
| Earnings before income taxes | 1,478 | 1,071 | (254 | ) | 2,295 | |||||||||||
| Income tax expense | 270 | 334 | 334 | (m) | 270 | |||||||||||
| Net earnings | $ | 1,208 | $ | 737 | $ | 80 | $ | 2,025 | ||||||||
| Earnings per share | ||||||||||||||||
| Basic | $ | 0.04 | $ | 0.06 | ||||||||||||
| Diluted | $ | 0.04 | $ | 0.06 | ||||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | 32,064 | 978 | (o) | 33,042 | ||||||||||||
| Diluted | 32,114 | 978 | (o) | 33,092 | ||||||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share data)
Year Ended December 31, 2005 | Pro Forma | |||||||||||||||
| Theragenics | Galt | Adjustments | Total | |||||||||||||
| (Note 3) | ||||||||||||||||
| Product sales | $ | 43,693 | $ | 7,102 | $ | - | $ | 50,795 | ||||||||
| Licensing fees | 577 | - | 577 | |||||||||||||
| Total revenue | 44,270 | 7,102 | - | 51,372 | ||||||||||||
| Cost of sales | 23,763 | 2,437 | (68 | ) | (i) | 26,132 | ||||||||||
| Gross profit | 20,507 | 4,665 | 68 | 25,240 | ||||||||||||
| Selling, general and administrative | 19,652 | 1,633 | (8 | ) | (i) | 21,277 | ||||||||||
| Research and development | 3,632 | 32 | 3,664 | |||||||||||||
| Purchased intangibles amortization | 500 | - | 1,194 | (j) | 1,694 | |||||||||||
| Restructuring | 33,390 | - | 33,390 | |||||||||||||
| Earnings (loss) from operations | (36,667 | ) | 3,000 | (1,118 | ) | (34,785 | ) | |||||||||
| Interest income | 1,429 | 12 | (591 | ) | (k) | 850 | ||||||||||
| Interest expense | (160 | ) | (66 | ) | 356 | (l) | (582 | ) | ||||||||
| Other | (2 | ) | - | (2 | ) | |||||||||||
| Earnings (loss) before income taxes | (35,400 | ) | 2,946 | (2,065 | ) | (34,519 | ) | |||||||||
| Income tax expense (benefit) | (6,394 | ) | 407 | (407 | ) | (m) | (6,394 | ) | ||||||||
| Net earnings (loss) | $ | (29,006 | ) | $ | 2,539 | $ | (1,658 | ) | $ | (28,125 | ) | |||||
| Loss per share | ||||||||||||||||
| Basic and diluted | $ | (0.93 | ) | $ | (0.87 | ) | ||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic and diluted | 31,273 | 978 | (o) | 32,251 | ||||||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | On August 2, 2006, Theragenics acquired all of the outstanding common stock and other equity interests of Galt. The total purchase price, including transaction costs, was $32.8 million, (net of cash acquired of $2.2 million). The purchase price paid was $29.7 million in cash and the issuance of 978,065 shares of Theragenics common stock valued at $3.1 million. The per share value of the common stock was based upon the closing price of the stock on the date of acquisition. Theragenics financed a portion of the purchase price with $7.5 million of borrowings under its $40.0 million credit facility. Under the purchase method of accounting, the assets and liabilities of Galt will be recorded at their fair values as of the acquisition date and added to those of Theragenics. The reported financial condition and results of operations of Theragenics subsequent to the acquisition will reflect these values, but will not be restated retroactively to reflect historical financial position or results of operations of Galt. |
The purchase price is determined as follows (in thousands):
| Cash consideration paid | $ | 30,814 | ||
| Theragenics’ commons shares issued | 3,052 | |||
| Transaction costs | 1,127 | |||
| Gross purchase price | 34,993 | |||
| Less cash acquired | (2,224 | ) | ||
| Total purchase price | $ | 32,769 |
For purposes of this pro forma presentation, the purchase price has been allocated on a preliminary basis to the acquired tangible and intangible assets and liabilities based on their estimated fair values as of June 30, 2006 as follows (in thousands):
| Current assets | $ | 2,928 | ||
| Property and equipment | 1,445 | |||
| Identifiable intangible assets | 8,770 | |||
| Current liabilities | (547 | ) | ||
| Deferred income tax liability | (333 | ) | ||
| Goodwill | 20,506 | |||
| $ | 32,769 |
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The amount allocated to identifiable intangible assets and goodwill has been attributed to the following categories based on the preliminary valuation (in thousands):
Estimated fair value | Estimated Useful life | ||||||
| Trade name | $ | 900 | Indeterminate | ||||
| Acquired technology | 900 | 14 years | |||||
| Customer relationships | 5,100 | 7.5 years | |||||
| Non-compete agreements | 1,700 | 3-4 years | |||||
| Backlog | 170 | Less than 1 year | |||||
| Total Identifiable intangible assets | $ | 8,770 | |||||
| Goodwill | $ | 20,506 | Indeterminate | ||||
In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, intangible assets with indeterminate lives, including goodwill and trade name, will not be amortized. Amortization of all intangible assets identified above is not expected to be deductible for income tax purposes.
The purchase price allocation above, including the amounts allocated to identifiable intangible assets and goodwill, is presented for pro forma information only. The actual purchase price allocation will be based on the fair values of the assets acquired and liabilities assumed as of August 2, 2006, which may be materially different than the estimated fair values at June 30, 2006.
| 2. | Theragenics recorded $32.9 million of restructuring charges in the third quarter of 2005 which resulted in, among other things, a net deferred income tax asset of $6.6 million. Due to the Company’s recent history of operating losses at that time, a valuation allowance for the full amount of the net deferred tax asset was recorded. Theragenics has been profitable for the six months ended July 2, 2006. However, management believes that a track record of quality earnings must be established prior to recognizing deferred tax assets that are dependent upon future taxable income. The acquisition of Galt is not expected to change management’s estimate related to the allowance for the net deferred tax asset at August 2, 2006. $2.9 million of deferred income tax liability arising from fair value adjustments in purchase accounting related to the Acquisition are expected to be recorded as a reduction of the allowance for the net deferred tax asset and a reduction in the goodwill arising from the transaction. Accordingly, the accompanying pro forma information reflects this treatment for all periods presented. |
| 3. | The following describes the pro forma adjustments related to the Acquisition made in the accompanying unaudited pro forma condensed consolidated balance sheet as of July 2, 2006 and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2005 and the six months ended July 2, 2006. |
| a. | To record the exercise of non-qualified stock options at Galt immediately prior to the Acquisition. |
| b. | To record the cash portion of the purchase price, including direct transaction costs paid prior to closing and borrowings under Theragenics’ credit facility utilized at closing. |
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| c. | To record the stock portion of the purchase price, consisting of 978,065 shares of Theragenics common stock. |
| d. | To record the estimated fair value adjustment to the carrying value of Galt’s inventory balance in purchase accounting. The related amortization expense has not been included as an adjustment to cost of sales in the accompanying pro forma statements of operations because its impact is not expected to extend beyond the next twelve months. |
| e. | To record the estimated fair values of the acquired identifiable intangible assets and goodwill. No pro forma expense has been included in the pro forma statements of operations for amortization of backlog because its impact is not expected to extend beyond the next twelve months. |
| f. | To record deferred tax liabilities related to identifiable intangible assets with indeterminate lives in connection with fair value adjustments in purchase accounting. |
| g. | To eliminate Galt’s historical shareholders’ equity account balances in purchase accounting. |
| h. | To reverse share based compensation expense at Galt related to phantom share that terminates upon change in control. |
| i. | To adjust depreciation expense for adjustments to depreciable lives of Galt property and equipment. |
| j. | To record amortization expense related to the acquired identifiable intangible assets arising from the Acquisition. |
| k. | To reduce interest income for reduction in cash used for the Acquisition. |
| l. | To record interest expense on long term borrowings used for the Acquisition. |
| m. | To reduce income tax expense attributable to Galt as a result of Theragenics’ allowance for its net deferred tax asset (see Note 2). |
| n. | To adjust income taxes payable and deferred income tax asset for Galt results of operations for the period January 1, 2006 to date of Acquisition. |
| o. | To record the weighted average shares issued for the Acquisition. |
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