Exhibit 99.3
CONTINUCARE CORPORATION
INDEX TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
CONDENSED FINANCIAL STATEMENTS
Page Number | ||
Unaudited Pro Forma Combined Condensed Financial Statements | 2 | |
Unaudited Pro Forma Combined Condensed Balance Sheet as of September 30, 2006 | 3 | |
Unaudited Pro Forma Combined Condensed Statements of Income for the three-months ended September 30, 2006 | 4 | |
Unaudited Pro Forma Combined Condensed Statements of Income for the year ended June 30, 2006 | 5 | |
Notes to Unaudited Pro Forma Combined Condensed Financial Statements | 6 |
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements are based on the historical financial statements of Continucare and the MDHC Companies and have been prepared to illustrate the effects of the Acquisition. The unaudited pro forma combined condensed balance sheet as of September 30, 2006 combines the historical consolidated balance sheets of Continucare and the MDHC Companies giving effect to the Acquisition as if it had occurred on September 30, 2006. The unaudited pro forma combined condensed statements of income for the three months ended September 30, 2006 and for the year ended June 30, 2006 combine the historical consolidated statements of income of Continucare and the MDHC Companies giving effect to the Acquisition as if it had been consummated at the beginning of the earliest period presented, or July 1, 2005.
The allocation of the Acquisition consideration in the Acquisition as reflected in the unaudited pro forma combined condensed financial statements has been based in part upon estimates that we developed with the assistance of an independent valuation specialist of the fair value of assets acquired and liabilities assumed as of October 1, 2006, the date of the Acquisition. This allocation of the Acquisition consideration was based on available public information and is dependent upon estimates and assumptions we made solely for the purpose of developing such unaudited pro forma combined condensed financial statements.
The unaudited pro forma combined condensed financial statements do not give effect to any integration expenses or cost savings or unexpected acquisition costs that may be realized or incurred in connection with the Acquisition. Non-continuing expenses of approximately $8.3 million and $3.6 million, respectively, are included in the unaudited pro forma combined condensed operating expenses for the three months ended September 30, 2006 and the year ended June 30, 2006. The pro forma information does not necessarily indicate the combined financial position or the results of operations in the future or the combined financial position or the results of operations that would have been realized had the Acquisition been consummated during the periods or as of the date for which the pro forma information is presented.
The unaudited pro forma combined condensed financial statements should be considered together with the historical financial statements of Continucare and the MDHC Companies, including the respective notes to those financial statements.
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CONTINUCARE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 2006
MDHC | Pro Forma | Pro Forma | ||||||||||||||||||
Continucare | Companies | Adjustments | Note | Combined | ||||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 12,005,651 | $ | 777,631 | $ | (6,464,322 | ) | (1 | ) | $ | 6,318,960 | |||||||||
Other receivables, net | 317,942 | — | — | 317,942 | ||||||||||||||||
Due from HMOs, net | 6,265,871 | 1,557,962 | 450,000 | (2 | ) | 8,273,833 | ||||||||||||||
Prepaid expenses and other current assets | 547,838 | 533,197 | — | 1,081,035 | ||||||||||||||||
Deferred tax assets, net | 658,768 | — | 652,000 | (3 | ) | 1,310,768 | ||||||||||||||
Total current assets | 19,796,070 | 2,868,790 | (5,362,322 | ) | 17,302,538 | |||||||||||||||
Certificates of deposit, restricted | 1,145,130 | — | — | 1,145,130 | ||||||||||||||||
Property and equipment, net | 1,057,021 | 6,239,648 | 1,404,283 | (4 | ) | 8,700,952 | ||||||||||||||
Goodwill, net | 14,342,510 | — | 62,659,692 | (5 | ) | 77,002,202 | ||||||||||||||
Intangible assets, net | 649,031 | — | 7,440,000 | (6 | ) | 8,089,031 | ||||||||||||||
Deferred tax assets, net | 3,206,346 | — | — | 3,206,346 | ||||||||||||||||
Other assets, net | 641,187 | 25,274 | (552,728 | ) | (7 | ) | 113,733 | |||||||||||||
Total assets | $ | 40,837,295 | $ | 9,133,712 | $ | 65,588,925 | $ | 115,559,932 | ||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 661,221 | $ | 558,249 | $ | 879,822 | (8 | ) | $ | 2,099,292 | ||||||||||
Accrued expenses and other current liabilities | 1,149,644 | 1,950,410 | — | 3,100,054 | ||||||||||||||||
Notes and loans payable | — | 2,625,868 | (274,687 | ) | (9 | ) | 2,351,181 | |||||||||||||
Due to owners | — | 305,768 | (85,538 | ) | (10 | ) | 220,230 | |||||||||||||
Income taxes payable | 54,039 | — | — | 54,039 | ||||||||||||||||
Total current liabilities | 1,864,904 | 5,440,295 | 519,597 | 7,824,796 | ||||||||||||||||
Capital lease obligations, less current portion | 139,274 | — | — | 139,274 | ||||||||||||||||
Deferred tax liability | — | — | 4,397,000 | (11 | ) | 4,397,000 | ||||||||||||||
Notes and loans payable, less current portion | — | 5,815,058 | (4,647 | ) | (9 | ) | 5,810,411 | |||||||||||||
Total liabilities | 2,004,178 | 11,255,353 | 4,911,950 | 18,171,481 | ||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Common stock | 5,025 | 955 | (955 | ) | (12 | ) | 5,025 | |||||||||||||
Additional paid-in capital | 64,299,128 | 2,480,425 | 56,074,909 | (12 | ) | 122,854,462 | ||||||||||||||
Treasury stock | — | (90,000 | ) | 90,000 | (12 | ) | — | |||||||||||||
Accumulated deficit | (25,471,036 | ) | (4,513,021 | ) | 4,513,021 | (12 | ) | (25,471,036 | ) | |||||||||||
Total shareholders’ equity (deficit) | 38,833,117 | (2,121,641 | ) | 60,676,975 | 97,388,451 | |||||||||||||||
Total liabilities and shareholders’ equity | $ | 40,837,295 | $ | 9,133,712 | $ | 65,588,925 | $ | 115,559,932 | ||||||||||||
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
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CONTINUCARE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2006
MDHC | Pro Forma | Pro Forma | ||||||||||||||||||
Continucare | Companies | Adjustments | Note | Combined | ||||||||||||||||
Revenue: | ||||||||||||||||||||
Medical services revenue, net | $ | 35,881,917 | $ | 23,074,332 | $ | — | $ | 58,956,249 | ||||||||||||
Management fee revenue and other income | 51,682 | 168,452 | — | 220,134 | ||||||||||||||||
Total revenue | 35,933,599 | 23,242,784 | — | 59,176,383 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Medical services: | ||||||||||||||||||||
Medical claims | 27,061,040 | 15,532,418 | — | 42,593,458 | ||||||||||||||||
Other direct costs | 3,311,195 | 2,407,933 | — | 5,719,128 | ||||||||||||||||
Total medical services | 30,372,235 | 17,940,351 | — | 48,312,586 | ||||||||||||||||
Administrative payroll and employee benefits | 1,625,235 | 8,649,722 | — | 10,274,957 | ||||||||||||||||
General and administrative | 1,836,359 | 4,255,319 | 322,178 | (13 | ) | 6,413,856 | ||||||||||||||
Total operating expenses | 33,833,829 | 30,845,392 | 322,178 | 65,001,399 | ||||||||||||||||
Income (loss) from operations | 2,099,770 | (7,602,608 | ) | (322,178 | ) | (5,825,016 | ) | |||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 154,122 | 3,223 | (63,415 | ) | (14 | ) | 93,930 | |||||||||||||
Interest expense | (2,934 | ) | (186,451 | ) | — | (189,385 | ) | |||||||||||||
Income (loss) before income tax provision | 2,250,958 | (7,785,836 | ) | (385,593 | ) | (5,920,471 | ) | |||||||||||||
Income tax provision (benefit) | 853,839 | (1,998,912 | ) | (146,526 | ) | (15 | ) | (1,291,599 | ) | |||||||||||
Net income (loss) | $ | 1,397,119 | $ | (5,786,924 | ) | $ | (239,067 | ) | $ | (4,628,872 | ) | |||||||||
Net income (loss) per common share: | ||||||||||||||||||||
Basic | $ | .03 | (16 | ) | $ | (.07 | ) | |||||||||||||
Diluted | $ | .03 | (16 | ) | $ | (.06 | ) | |||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 50,247,936 | (16 | ) | 69,999,275 | ||||||||||||||||
Diluted | 51,521,917 | (16 | ) | 71,273,256 | ||||||||||||||||
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
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CONTINUCARE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED JUNE 30, 2006
MDHC | Pro Forma | Pro Forma | ||||||||||||||||||
Continucare | Companies | Adjustments | Note | Combined | ||||||||||||||||
Revenue: | ||||||||||||||||||||
Medical services revenue, net | $ | 132,629,665 | $ | 89,477,977 | $ | — | $ | 222,107,642 | ||||||||||||
Management fee revenue and other income | 361,247 | 130,631 | — | 491,878 | ||||||||||||||||
Total revenue | 132,990,912 | 89,608,608 | 222,599,520 | |||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Medical services: | ||||||||||||||||||||
Medical claims | 97,781,447 | 61,577,997 | — | 159,359,444 | ||||||||||||||||
Other direct costs | 13,137,396 | 9,217,277 | — | 22,354,673 | ||||||||||||||||
Total medical services | 110,918,843 | 70,795,274 | — | 181,714,117 | ||||||||||||||||
Administrative payroll and employee benefits | 6,538,295 | 8,992,375 | — | 15,530,670 | ||||||||||||||||
General and administrative | 7,584,205 | 6,161,582 | 1,489,715 | (13 | ) | 15,235,502 | ||||||||||||||
Total operating expenses | 125,041,343 | 85,949,231 | 1,489,715 | 212,480,289 | ||||||||||||||||
Income from operations | 7,949,569 | 3,659,377 | (1,489,715 | ) | 10,119,231 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 331,001 | 771 | (200,650 | ) | (14 | ) | 131,122 | |||||||||||||
Interest expense | (12,870 | ) | (544,414 | ) | — | (557,284 | ) | |||||||||||||
Income before income tax provision | 8,267,700 | 3,115,734 | (1,690,365 | ) | 9,693,069 | |||||||||||||||
Income tax provision | 2,930,161 | 1,280,000 | (642,339 | ) | (15 | ) | 3,567,822 | |||||||||||||
Net income | $ | 5,337,539 | $ | 1,835,734 | $ | (1,048,026 | ) | $ | 6,125,247 | |||||||||||
Net income per common share: | ||||||||||||||||||||
Basic | $ | .11 | (16 | ) | $ | .09 | ||||||||||||||
Diluted | $ | .10 | (16 | ) | $ | .09 | ||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||
Basic | 49,907,898 | (16 | ) | 69,659,237 | ||||||||||||||||
Diluted | 51,230,435 | (16 | ) | 70,981,774 | ||||||||||||||||
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
5
CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited pro forma combined condensed balance sheet as of September 30, 2006 gives effect to the Acquisition as if it had occurred on September 30, 2006. The unaudited pro forma combined condensed statements of income for the three months ended September 30, 2006 and the year ended June 30, 2006 give effect to the Acquisition as if it had occurred on July 1, 2005. The pro forma adjustments are based on estimates which may change as additional information is obtained.
The estimated Acquisition consideration, including acquisition costs, of approximately $66.2 million has been allocated to the estimated fair value of acquired tangible and intangible assets of $18.5 million and assumed liabilities of $15.0 million as of September 30, 2006 resulting in goodwill totaling $62.7 million. The estimated Acquisition consideration of $66.2 million includes the estimated fair value of Continucare’s common stock issued to the MDHC Companies of $58.6 million, cash to be paid to the Owners of $6.9 million, and estimated acquisition costs of $0.7 million. The estimated fair value of the 20.0 million shares of Continucare’s common stock issued effective October 1, 2006, the date of the Acquisition, to the MDHC Companies was based on a per share consideration of $2.96 which was calculated based upon the average of the closing market prices of Continucare’s common stock for the period two days before through two days after the announcement of the execution of the Asset Purchase Agreement. In November 2006, 248,661 of such shares were canceled in connection with a post-closing purchase price adjustment. The fair value of such shares on the date of cancellation was approximately $0.6 million.
The allocation of the Acquisition consideration as reflected in the unaudited pro forma combined condensed financial statements has been based upon estimates that we developed with the assistance of an independent valuation specialist of the fair value of assets acquired and liabilities assumed as of the date of the Acquisition. This allocation of the Acquisition consideration was based on available public information and is dependent upon estimates and assumptions we made solely for the purpose of developing such unaudited pro forma combined condensed financial statements.
The foregoing unaudited pro forma combined condensed financial statements do not give effect to any integration expenses or cost savings or unexpected acquisition costs that may be incurred or realized in connection with the Acquisition. The unaudited pro forma combined condensed financial statements do not necessarily indicate our combined financial position or the results of operations in the future or the combined financial position or the results of operations that we would have realized had the Acquisition been consummated during the periods or as of the date for which the unaudited pro forma combined condensed financial statements are presented.
The unaudited pro forma combined condensed financial statements should be considered together with the historical financial statements of Continucare and the MDHC Companies, including the respective notes to those financial statements.
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CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Acquisition Consideration
Effective October 1, 2006, Continucare completed its acquisition of the MDHC Companies. In connection with the completion of the Acquisition and in consideration for the assets acquired pursuant to the Acquisition, Continucare paid the MDHC Companies approximately $5.0 million in cash, issued to the MDHC Companies 20.0 million shares of Continucare’s common stock and assumed or repaid certain indebtedness and liabilities of the MDHC Companies. The 20.0 million shares of Continucare’s common stock issued in connection with the Acquisition were issued pursuant to an exemption under the Securities Act of 1933, as amended, and 1.5 million of such 20.0 million shares were placed in escrow as security for indemnification rights of the MDHC Companies and their principal owners, and, in November 2006, 248,661 of such shares were cancelled in connection with a post-closing purchase price adjustment. Pursuant to the terms of the Acquisition, Continucare is also obligated to pay the principal owners of the MDHC Companies an additional $1.0 million in cash on October 1, 2007, the first anniversary date of the closing, and approximately $0.6 million in cash for capital expenditures incurred by the MDHC Companies in connection with the construction of one of the acquired facilities. In addition, upon the terms and subject to the conditions of the Asset Purchase Agreement, Continucare will pay to Owners up to $2.0 million cash based on the working capital of the MDHC Companies as of October 1, 2006 and the monthly payments in respect of the MDHC Companies’ business operations received by Continucare or any of its subsidiaries from certain identified third-party payors during the 14 day period commencing on October 1, 2006 and make certain other payments to Owners depending on the collection of certain receivables that were fully reserved on the books of the MDHC Companies as of December 31, 2005. These contingent payments are not included in the estimated Acquisition consideration of $66.2 million.
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CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Pro Forma Balance Sheet Adjustments as of September 30, 2006
(1) | Represents a payment of $5.5 million to the MDHC Companies, a payment of $0.2 million for closing costs, a payment of $0.2 million to banks for debt assumed, and the elimination of $0.6 million of cash excluded from the acquisition of the MDHC Companies. | ||
(2) | Represents amounts due to an HMO of $0.5 million excluded from the acquisition of the MDHC Companies. | ||
(3) | Represents the deferred income tax asset recorded in connection with the assumption of certain liabilities of the MDHC Companies. | ||
(4) | Represents (a) an adjustment to increase the net book value of property and equipment to reflect estimated fair value and (b) the elimination of a warehouse building excluded from the acquisition of the MDHC Companies. | ||
(5) | Represents the excess of the Acquisition consideration, including acquisition costs, over the estimated fair value of tangible and identifiable intangible assets acquired and liabilities assumed, totaling approximately $62.7 million. Adjustments to goodwill may be made upon the finalization of the Acquisition consideration pursuant to the terms of the Acquisition. | ||
(6) | Represents the estimated fair value of the acquired trade name, customer relationships and a covenant not to compete agreement of $7.4 million. Amortization of the trade name and customer relationships and other intangible assets has been provided on a straight-line basis over an estimated useful life ranging from five to six years. The covenant not to compete will be amortized on a straight-line basis over the five year term of the agreement. | ||
(7) | Represents acquisition costs incurred by Continucare in connection with the acquisition of the MDHC Companies which includes, among other things, financial advisory, legal and accounting costs. | ||
(8) | Represents a payment of $1.0 million to the Owners on the first anniversary date of the closing of the Acquisition, estimated acquisition costs of $0.1 million, and the elimination of $0.2 million of other liabilities excluded from the acquisition of the MDHC Companies. | ||
(9) | Represents an adjustment for the refinancing of the debt assumed by Continucare and the outstanding balance of $0.1 million for notes payable excluded from the acquisition of the MDHC Companies. | ||
(10) | Represents amount due to owners of $0.2 million upon collection of an amount due from an HMO pursuant to the terms of the Acquisition, net of amounts due to owners of $0.3 million excluded from the acquisition of the MDHC Companies. |
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CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(11) | Represents the deferred income tax liabilities recorded in connection with the estimated fair values of acquired identifiable intangible assets and the increase in the net book value of property and equipment to reflect estimated fair value. | ||
(12) | Reflects (a) the issuance of approximately 19.8 million shares of Continucare common stock with an assumed total fair value of $58.6 million to holders of the MDHC Companies’ common stock and (b) an adjustment to eliminate shareholders’ equity reflected on the MDHC Companies’ historical combined balance sheet as of September 30, 2006. |
9
CONTINUCARE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Pro Forma Statements of Income Adjustments for the Three Months Ended September 30, 2006 and the Year Ended June 30, 2006
(13) | Represents amortization of intangible assets of approximately $0.3 million and $1.4 million for the three months ended September 30, 2006 and the year ended June 30, 2006 established as part of the Acquisition consideration allocation in connection with the Acquisition. Intangible assets are amortized on a straight-line basis over their estimated useful lives ranging from five to six years. | ||
The pro forma adjustment also includes (a) an estimated increase in depreciation expense of approximately $3,000 and $14,000 for the three months ended September 30, 2006 and the year ended June 30, 2006, respectively, related to the property adjustment discussed in note (4) and (b) an estimated increase in rent expense of approximately $9,000 and $36,000 for the three months ended September 30, 2006 and the year ended June 30, 2006, respectively, related to a lease for the warehouse building excluded from the acquisition of the MDHC Companies. | |||
(14) | Represents a reduction in interest income resulting from the use of Continucare’s cash and cash equivalents for payment of the cash consideration in the Acquisition. | ||
(15) | Represents the tax effect of the pro forma adjustments at a combined effective income tax rate of 38%. | ||
(16) | Represents the effect of the issuance of 19.8 million shares of Continucare’s common stock assuming such shares were issued on July 1, 2005. |
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