EXHIBIT 99.3
UNAUDITED FINANCIAL STATEMENTS OF THE HEALTH & FITNESS SERVICES BUSINESS, WHICH
OPERATES AS A DIVISION OF JOHNSON & JOHNSON HEALTH CARE SYSTEMS INC., A
SUBSIDIARY OF JOHNSON & JOHNSON FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2003 AND
SEPTEMBER 29, 2002.
HEALTH & FITNESS SERVICES BUSINESS
(AS DESCRIBED IN NOTE 1)
BALANCE SHEET
AS OF SEPTEMBER 28, 2003 AND DECEMBER 29, 2002
(DOLLARS IN THOUSANDS)
SEPT. 28,
2003 DEC. 29,
UNAUDITED 2002
ASSETS
Current assets
Accounts receivable, net of allowance for doubtful
accounts of $100 in 2003 and 2002 $ 2,267 $ 3,150
Other receivables - 167
Unbilled revenue 60 196
Inventory 40 85
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TOTAL CURRENT ASSETS 2,367 3,598
Computer software, net 850 1,085
Fixed assets, net 34 53
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TOTAL ASSETS 3,251 4,736
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LIABILITIES AND DIVISION EQUITY
Current Liabilities
Accounts payable 300 465
Accrued salaries - 199
Accrued special compensation 706 593
Restructuring costs (Note 4) - 150
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TOTAL CURRENT LIABILITIES 1,006 1,407
Commitments and Contingencies
Division equity 2,245 3,329
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TOTAL LIABILITIES AND DIVISION EQUITY $ 3,251 $ 4,736
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The accompanying notes are an integral part of these financial statements.
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HEALTH & FITNESS SERVICES BUSINESS
(AS DESCRIBED IN NOTE 1)
INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2003 AND SEPTEMBER 29, 2002
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SEPT. 28, SEPT. 29,
2003 2002
REVENUES
Trade $ 14,668 $ 13,681
Affiliate 3,892 3,318
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Total revenues 18,560 16,999
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EXPENSES
Cost of services provided 14,721 13,106
Selling and marketing 764 905
General and administrative 1,472 1,308
Support Costs 2,520 2,556
Restructuring costs - 514
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Total expenses 19,477 18,389
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Loss before tax provision (917) (1,390)
Tax provision - -
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NET LOSS $ (917) $ (1,390)
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The accompanying notes are an integral part of these financial statements.
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HEALTH & FITNESS SERVICES BUSINESS
(AS DESCRIBED IN NOTE 1)
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2003 AND SEPTEMBER 29, 2002
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SEPT. 28, SEPT. 29,
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (917) $ (1,390)
Adjustments to reconcile net loss to operating cash flows:
Amortization and depreciation 254 250
Bad debt expense - -
Changes to assets and liabilities
(Increase) decrease in accounts receivable 883 (980)
Decrease in other receivables 167 -
(Increase) decrease in unbilled revenues 136 (147)
(Increase) in inventory 45 (56)
(Decrease) in accounts payable (165) -
(Decrease) in accrued salaries (199) (200)
Increase (decrease) in special compensation 113 (355)
(Decrease) increase in restructuring costs (150) 290
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NET CASH FLOWS FROM/(USED BY) OPERATING ACTIVITIES 167 (2,588)
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NET CASH USED BY INVESTING ACTIVITIES - -
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CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in division equity (167) 2,588
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NET CASH FLOWS/(USED BY) FROM FINANCING ACTIVITIES (167) 2,588
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(DECREASE)/INCREASE IN CASH - -
Cash and cash equivalents, beginning of year - -
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CASH AND CASH EQUIVALENTS, END OF YEAR $ - $ -
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The accompanying notes are an integral part of these financial statements.
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HEALTH & FITNESS SERVICES BUSINESS
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BACKGROUND
The Health & Fitness Services Business (the "Health & Fitness
Business") operates as a division of Johnson & Johnson Health Care
Systems Inc. ("HCS"), a subsidiary of Johnson & Johnson ("J&J"). The
Health & Fitness Business is engaged in health and fitness center
operations management. In connection with the management of health and
fitness centers, the Health & Fitness Business provides services
relating to health risk assessment programs, consulting services, data
analysis and wellness programs. The Health & Fitness Business provides
health risk assessments through various platforms, including the
HealthMate(R) computer kiosk, Insight(R) and Insight+ (R) online
surveys, and centrally delivered paper surveys.
2. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements and related
notes should be read in conjunction with the audited December 29, 2002
Financial Statements and related notes of the Health & Fitness Services
Business of Johnson & Johnson Health Care Systems Inc., a subsidiary of
Johnson & Johnson, which are an integral part of the unaudited interim
financial statements. The unaudited interim financial statements
include all adjustments (consisting only of normal recurring
adjustments) and accruals necessary in the judgment of management for a
fair presentation of such statements. The results of operations for
interim periods are not necessarily indicative of the results to be
expected for the full year. In addition, due to the reliance of the
Health & Fitness Services Business on HCS and J&J for certain
information technology, insurance, human resources, accounting, tax and
legal support, the historical operating results may not be indicative
of the results had the Health & Fitness Services Business been operated
as a stand alone entity.
3. EMPLOYEE STOCK OPTIONS
Certain Health & Fitness Business employees are granted options to
purchase shares of J&J common stock under J&J's stock option plans. The
Health & Fitness Business accounts for the options using the intrinsic
value method of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees". As all options that are
granted have an exercise price equal to the market price at the date of
grant, no compensation expense is recognized. The Health & Fitness
Business applies the disclosure provisions of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure, an amendment of FASB Statement No. 123".
Had the fair value method been applied, pro forma net loss would have
been as follows:
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HEALTH & FITNESS SERVICES BUSINESS
(AS DESCRIBED IN NOTE 1)
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
SEPT. 28, SEPT. 29,
2003 2002
Net loss as reported $ (0.9) $ (1.4)
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Pro forma stock-based compensation
expense,
net of related tax effects $ (0.1) $ (0.2)
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Pro forma net loss $ (1.2) $ (1.7)
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4. RESTRUCTURING CHARGE
In 2002 the Health & Fitness Business reorganized to increase
efficiencies. As a result, the Health & Fitness Business incurred
employee separation costs of $0.5 million for 25 employees. These
separation costs are included in Restructuring Costs in the income
statement for the nine months ended September 29, 2002. There was $0.2
million of restructuring costs (of the $0.5 million total) included in
accrued liabilities as of December 29, 2002. The remaining $0.2 million
of restructuring costs was paid in the first six months of 2003 and
thus there is no restructuring accrued liability at September 28, 2003.
5. SUBSEQUENT EVENT
On December 8, 2003 Health Fitness Corporation (HFC) purchased the
business assets of the Health & Fitness Services Business of Johnson &
Johnson Health Care Systems Inc. for $4.8 million. Assets acquired by
HFC consist primarily of client contracts, proprietary wellness,
lifestyle and health promotion programs, software, and other health and
wellness services. As part of the transaction, HFC has entered into a
multi-year management contract with another subsidiary of Johnson &
Johnson whereby HFC will manage more than 50 Johnson & Johnson
affiliate fitness center sites. HFC also entered into a one-year
agreement to use 660 square feet of office space of Johnson & Johnson
Health Care Systems Inc. for a fee of $0.0015 million per month.
Johnson & Johnson Health Care Systems Inc. will retain its integrated
behavioral solutions business unit, and will license certain behavioral
solution methodologies to HFC for use in its business.
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