Exhibit 99.3
CONCENTRA OPERATING CORPORATION
Unaudited Pro Forma Financial Statements
The following unaudited pro forma financial statements have been
prepared to give effect to the acquisition of National Healthcare Resources,
Inc. ("NHR") by Concentra Operating Corporation (the "Company" or "Concentra").
The unaudited pro forma statements of operations and pro forma balance sheet
give effect to (i) the acquisition and (ii) the related financings. The
unaudited pro forma balance sheet information as of September 30, 2001 has been
prepared as if such transactions had occurred on that date, and the unaudited
pro forma statements of operations information for the nine months ended
September 30, 2001 and for the year ended December 31, 2000 have been prepared
as if such transactions had occurred at January 1, 2000. The adjustments are
described in the accompanying notes.
Concentra Inc., the Company's parent, issued $83.0 million of
consideration to NHR's equity and option holders through an exchange of
Concentra Inc.'s common stock for all of the outstanding shares and share
equivalents of NHR. Also, concurrently with the closing of the acquisition,
Concentra Inc., ("Holdings"), contributed the capital stock and share
equivalents of NHR to Concentra Operating Corporation's ("Operating") capital
and NHR repaid $57.8 million of its indebtedness. Of this $57.8 million, (i)
$19.5 million was financed through Holdings' sale of new common stock and
warrants, which were subsequently contributed to operating's capital; and (ii)
the remainder was financed through the use of cash on hand and by drawing down
the Company's existing revolving credit line.
Because the Company is controlled by its primary shareholder, Welsh,
Carson, Anderson and Stowe ("WCAS") and because WCAS also owned approximately a
48% portion of NHR, the acquisition accounting is viewed as a reorganization of
entities under common control. Accordingly, the historical costs of NHR's assets
and liabilities have been utilized as if WCAS contributed their 48% interest in
NHR to Concentra at their historical cost. The remaining 52% of NHR that was
acquired by Concentra was accounted for under the purchase method of accounting
in accordance with SFAS 141, whereby assets and liabilities are "stepped-up" to
fair value with the remainder allocated to goodwill. The purchase price
allocation for the NHR acquisition is preliminary and further refinements are
likely to be made based on additional information becoming available.
The Company will recognize NHR's historical net income and loss as a
non-operating item in proportion to WCAS' investment in NHR utilizing the equity
method of accounting. Concentra will consolidate NHR's earnings after the
November 1, 2001 effective date of the acquisition. Because the pro forma
statements of operations assume that the acquisition date is at the beginning of
each period presented, NHR's historical results have been consolidated therein.
In connection with the acquisition, Concentra will expense approximately $6.1
million in restructuring costs primarily associated with employee severance,
facilities consolidation costs, and asset write-downs. Of this amount, $5.6
million will be expensed pursuant to the standards of "Entities Under Common
Control" accounting, and is reflective of the proportionate ownership percentage
of WCAS as applied to the total amount of asset write-downs and restructuring
liabilities which occurred in connection with the acquisition. The remaining
$0.5 million in restructuring charges reflect employee severance and facility
consolidation costs, which would have been incurred by Concentra under EITF 95-3
and FTB 85-5, irrespective of the common control nature of acquisition. The
effects of these restructuring costs have not been included in the unaudited pro
forma income statements.
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 with respect to the NHR acquisition are based
upon the respective historical consolidated financial statements of Concentra
and NHR 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 NHR.
1
CONCENTRA OPERATING CORPORATION
Pro Forma Consolidated Balance Sheets (Unaudited)
As of September 30, 2001
(in thousands)
Historical Pro Forma
------------------------ -------------------------
ASSETS Concentra NHR Adjustments Consolidated
--------- --- ----------- ------------
Current assets:
Cash and cash equivalents $ 14,709 $ 3,381 $ (18,090)(1) $ --
Accounts receivable, net 170,594 20,618 (1,373)(2) 189,839
Prepaid expenses and other current assets 28,978 2,269 -- 31,247
---------- ----------- ----------- ----------
Total current assets 214,281 26,268 (19,463) 221,086
Property and equipment, net 108,717 20,670 (5,588)(3) 123,799
Goodwill and other intangible assets, net 329,219 78,613 31,425 (4) 439,257
Other assets 32,728 485 925 (3) 34,138
---------- ----------- ------------- ----------
Total assets $684,945 $126,036 $ 7,299 $818,280
======== ======== =========== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Revolving credit facility $ -- $ -- $ 21,203 (5) $ 21,203
Current portion of long-term debt 5,264 56,984 (56,984)(7) 5,264
Accounts payable and accrued expenses 78,932 19,816 5,763 (6,2) 104,511
---------- ---------- ----------- ----------
Total current liabilities 84,196 76,800 (30,018) 130,978
Long-term debt, net 553,187 -- -- 553,187
Long-term deferred tax and other liabilities 52,353 1,635 2,353 (3) 56,341
Fair value of hedging arrangements 26,139 2,321 -- 28,460
---------- ----------- ----------- ----------
Total liabilities 715,875 80,756 (27,665) 768,966
Redeemable common stock -- 46,694 (46,694)(8) --
Stockholder's equity (deficit):
Common stock -- 42 (42)(8) --
Paid-in capital 18,647 10,609 107,637 (9) 136,893
Retained deficit (49,577) (12,065) (25,937)(9) (87,579)
--------- --------- ---------- ----------
Total stockholder's equity (deficit) (30,930) (1,414) 81,658 49,314
---------- ---------- ---------- ----------
Total liabilities and stockholder's equity (deficit) $684,945 $126,036 $ 7,299 $818,280
======== ======== ========== ========
See accompanying notes to pro forma consolidated financial statements.
2
CONCENTRA OPERATING CORPORATION
Pro Forma Consolidated Statements of Operations (Unaudited)
For the Nine Months Ended September 30, 2001
(in thousands)
Historical Pro Forma
------------------------ -----------------------------
Concentra NHR Adjustments Consolidated
--------- --- ----------- ------------
Revenue:
Health Services $ 327,580 $ -- $ -- $ 327,580
Network Services 132,845 39,501 (1,384)(10) 170,962
Care Management Services 158,808 70,214 -- 229,022
---------- ----------- ----------- ----------
Total revenue 619,233 109,715 (1,384) 727,564
Cost of Services:
Health Services 260,270 -- -- 260,270
Network Services 79,283 29,222 (1,384)(10) 107,121
Care Management Services 139,310 59,937 -- 199,247
---------- ---------- ----------- ----------
Total cost of services 478,863 89,159 (1,384) 566,638
---------- ---------- ---------- ----------
Total gross profit 140,370 20,556 -- 160,926
General and administrative expenses 57,152 19,451 -- 76,603
Amortization of intangibles 11,315 2,113 551(11) 13,979
----------- ------------ ----------- -----------
Operating income (loss) 71,903 (1,008) (551) 70,344
Interest expense, net 50,227 3,640 (2,174)(12) 51,693
Loss on change in fair value of hedging
arrangements 16,553 1,281 -- 17,834
Other, net 612 -- -- 612
------------ ----------- ----------- ------------
Income (loss) before income taxes 4,511 (5,929) 1,623 205
Provision (benefit) for income taxes 4,939 (938) 637(13) 4,638
----------- ----------- ------------ -----------
Net income (loss) $ (428) $ (4,991) $ 986 $ (4,433)
=========== ========== =========== ===========
See accompanying notes to pro forma consolidated financial statements.
3
CONCENTRA OPERATING CORPORATION
Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 2000 (Unaudited)
(in thousands)
Historical Pro Forma
-------------------- --------------------------
Concentra NHR Adjustments Consolidated
--------- --- ----------- ------------
Revenue:
Health Services $399,660 $ -- $ -- $399,660
Network Services 162,596 41,262 (1,351)(10) 202,507
Care Management Services 189,905 99,652 -- 289,557
---------- ---------- ----------- ----------
Total revenue 752,161 140,914 (1,351) 891,724
Cost of Services:
Health Services 321,784 -- -- 321,784
Network Services 100,741 32,574 (1,351)(10) 131,964
Care Management Services 170,899 81,673 -- 252,572
---------- ---------- ----------- ----------
Total cost of services 593,424 114,247 (1,351) 706,320
---------- ---------- ---------- ----------
Total gross profit 158,737 26,667 -- 185,404
General and administrative expenses 66,491 18,595 -- 85,086
Amortization of intangibles 14,628 2,483 1,005 (11) 18,116
---------- ---------- ---------- ----------
Operating income (loss) 77,618 5,589 (1,005) 82,202
Interest expense, net 68,129 4,564 (2,345)(12) 70,348
Loss on change in fair value of hedging arrangements 9,586 1,039 -- 10,625
Other, net (725) 78 526 (647)
---------- ---------- ---------- ----------
Income (loss) before income taxes and cumulative effect
of accounting change 628 (92) 1,340 1,876
Provision (benefit) for income taxes 4,362 455 526(13) 5,343
---------- ---------- ---------- ----------
Income (loss) before cumulative effect of accounting
change (3,734) (547) 814 (3,467)
Cumulative effect of accounting change, net of tax 2,817 -- -- 2,817
---------- ---------- ---------- ----------
Net income (loss) $ (6,551 $ (547) $ 814 $ (6,284)
========== ========== ========== ==========
See accompanying notes to pro forma consolidated financial statements.
4
CONCENTRA OPERATING CORPORATION
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(dollars in thousands)
Pro Forma Adjustments:
Pro forma balance sheet adjustments (1) through (9) below assume that
the acquisition occurred as of September 30, 2001. Pro forma statement of
operations adjustments (10) through (13) below assume that the acquisition
occurred as of the beginning of the period presented. Certain amounts in the NHR
historical statements of operations have been reclassified to conform to
classifications used by Concentra.
(1) To adjust for the utilization of the Company's cash on hand and cash
acquired from NHR to retire a portion of NHR's senior debt.
(2) To eliminate intercompany balances.
(3) To adjust to the fair value of NHR's fixed assets, deferred finance fees,
and deferred taxes.
(4) To record the historical value of WCAS' proportionate equity investment in
NHR's intangible assets and excess purchase price and to adjust to the
fair value of NHR's intangible assets and the excess purchase price in
accordance with the reorganization of entities under common control
accounting discussed herein. This adjustment includes the recognition of
$11.1 million of other identified intangible assets, including customer
contracts, servicing contracts, trademarks and noncompete agreements.
(5) To adjust for the draw down on the Company's existing revolving credit
facility to retire a portion of NHR's revolving credit facility.
(6) To eliminate interest payable on the NHR retired revolving credit
facility, to eliminate intercompany balances of approximately $1.4 million
and to adjust for anticipated transaction costs of approximately $6.8
million.
(7) To record the repayment of NHR's revolving credit facility.
(8) To record the elimination of NHR common stock.
(9) To record the proceeds from the exchange and sale of Concentra's common
stock, net of the historical value of WCAS' proportionate equity
investment in NHR's intangible assets and excess purchase price in
accordance with the reorganization of entities under common control
accounting discussed herein.
(10) To eliminate intercompany revenue and expenses.
(11) To record:
Nine Months Ended Year Ended
September 30, December 31,
2001 2000
----------------- ------------
(dollars in thousands)
Amortization of identified intangible assets $ 1,827 $ 2,436
Elimination of NHR's historical deferred finance fee amortization (365) (286)
Elimination of 52% of NHR's historical goodwill amortization (911) (1,145)
--------- ---------
$ 551 $ 1,005
========= =========
5
(12) Represents the adjustments to interest expense based on the acquisition
and the related financings had Concentra's current capital structure been
in place as of January 1, 2000.
Nine Months Ended Year Ended
September 30, December 31,
2001 2000
----------------- ------------
(dollars in thousands)
Interest expense and finance fees resulting from the borrowing
of $14.7 million at 10.0% and 8.8%, respectively, on the
Company's revolving credit facility. $ 1,040 $ 1,571
Reverse NHR's historical interest expense, net, to reflect the
repayment of their credit facility (3,640) (4,564)
--------- ---------
$ (2,600) $ (2,993)
========= =========
(13) To provide for the income tax effect of the pro forma adjustments
reflected above assuming a statutory rate of 39.2%.
6