1
EXHIBIT 99.2
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Financial Statements are based on the
historical presentation of the consolidated financial statements of Medaphis and
the historical presentation of the consolidated financial statements of HDS. The
Unaudited Pro Forma Combined Statements of Operations for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996 give
effect to (i) the Merger as if it had occurred on January 1, 1993 and (ii)
certain pro forma adjustments related to the Atwork, MMS, Rapid Systems and BSG
mergers. The Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1995 also gives effect to the 1995 acquisitions, which
include the acquisition of Medical Management, Inc., Medical Billing Service,
Computers Diversified, Inc. and The Receivables Management Division of MedQuist
Inc. (the "1995 Acquisitions") as if each had occurred as of January 1, 1995.
The Unaudited Pro Forma Combined Balance Sheet as of March 31, 1996 gives effect
to the Merger as if it had occurred on March 31, 1996. The Unaudited Pro Forma
Combined Financial Statements do not include the effects of the Decisions
Support Group, Medical Office Consultants, Inc., Consort Technologies, Inc.
("Consort"), Billing and Professional Services, Inc., The Halley Exchange, Inc.,
Medical Management Computer Sciences, Inc., CBT Financial Services, Inc.,
Intelligent Visual Computing, Inc. and The MEDICO Group, Ltd. acquisitions, as
they are not considered significant individually or in the aggregate.
The Merger is expected to be accounted for under the pooling-of-interests
method of accounting. Each of the 1995 Acquisitions has been accounted for under
the purchase method of accounting. The total purchase price for each of these
acquisitions has been allocated to tangible and identifiable intangible assets
and liabilities based upon management's estimate of their respective fair market
values with the excess of cost over the fair value of net assets acquired
allocated to goodwill. The allocation of the purchase price for certain of the
1995 Acquisitions is subject to revision when additional information concerning
asset and liability valuation is obtained. Management believes the asset and
liability valuations utilized for these acquisitions will not be materially
different from the pro forma information presented herein.
For purposes of preparing the Unaudited Pro Forma Combined Statements of
Operations for the years ended December 31, 1993 and 1994, HDS's operating
results for the years ended March 31, 1994 and 1995 were combined with Medaphis'
operating results for the years ended December 31, 1993 and 1994, respectively.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1995 was prepared by combining Medaphis' 1995 operating results
with HDS's 1995 operating results, which were restated to a calendar year basis.
Accordingly, HDS's operating results for the three months ended March 31, 1995
were duplicated in each of the years ended December 31, 1994 and 1995. HDS's
revenues and net income for that three-month period were $12,716,000 and
$6,314,000, respectively.
Each of the Unaudited Pro Forma Combined Statements of Operations includes
the historical operating results of each of the acquired companies included
therein from the beginning of the period covered by such statement until the
earlier of the date of acquisition or the end of the period covered by such
statement.
The Unaudited Pro Forma Combined Financial Statements do not purport to be
indicative of the results that actually would have been obtained if the combined
operations had been conducted during the periods presented and they are not
necessarily indicative of operating results to be expected in future periods.
The Unaudited Pro Forma Combined Financial Statements and notes thereto should
be read in conjunction with the supplemental consolidated financial statements
and notes thereto of Medaphis, which are incorporated herein by reference, and
the historical financial statements and notes thereto of HDS, which are included
elsewhere herein, and the historical financial statements and notes thereto of
certain of the companies acquired in the 1995 Acquisitions, which are contained
in certain documents incorporated herein by reference.
13
2
UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------------------------
MEDAPHIS HDS
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
MEDAPHIS ADJUSTMENTS COMBINED HDS(9) ADJUSTMENTS COMBINED
-------- ----------- --------- ------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
revenue............................... $259,575 $ -- $259,575 $19,763 $-- $279,338
Salaries and wages.................... 158,703 (8,689)(1) 150,014 5,670 -- 155,684
Other operating expenses.............. 66,412 -- 66,412 5,157 -- 71,569
Depreciation.......................... 6,960 -- 6,960 232 -- 7,192
Amortization.......................... 5,317 -- 5,317 2,561 -- 7,878
Interest expense, net................. 6,517 -- 6,517 56 -- 6,573
Restructuring and other charges....... -- -- -- -- -- --
-------- ----------- --------- ------- --- ---------
Total expenses............... 243,909 (8,689) 235,220 13,676 -- 248,896
Income (loss) before taxes............ 15,666 8,689 24,355 6,087 -- 30,442
Income taxes.......................... 7,049 4,655(5) 11,704 -- -- 11,704
-------- ----------- --------- ------- --- ---------
Net income (loss)..................... $ 8,617 $ 4,034 $ 12,651 $ 6,087 $-- 18,738
========= =========== ========== ======= =========== ==========
Net income per common share........... $ 0.19 $ 0.28 0.36
========= ========== ==========
Weighted average shares outstanding... 45,505 45,505 6,540 52,045
========= ========== ======= ==========
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------------------------------
MEDAPHIS HDS
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
MEDAPHIS ADJUSTMENTS COMBINED HDS(9) ADJUSTMENTS COMBINED
-------- ----------- --------- ------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue................................. $376,870 $ -- $376,870 $22,115 $-- $398,985
Salaries and wages...................... 221,575 (6,716)(1) 214,859 5,402 -- 220,261
Other operating expenses................ 90,836 -- 90,836 4,589 -- 95,425
Depreciation............................ 9,269 -- 9,269 114 -- 9,383
Amortization............................ 7,748 -- 7,748 2,943 -- 10,691
Interest expense, net................... 5,896 -- 5,896 30 -- 5,926
Restructuring and other charges......... 1,905 -- 1,905 -- -- 1,905
-------- ----------- --------- ------- --- ---------
Total expenses................. 337,229 (6,716) 330,513 13,078 -- 343,591
Income (loss) before taxes.............. 39,641 6,716 46,357 9,037 -- 55,394
Income taxes............................ 13,155 5,147(5) 18,302 3,000 -- 21,302
-------- ----------- --------- ------- --- ---------
Net income (loss)....................... $ 26,486 $ 1,569 $ 28,055 $ 6,037 $-- $ 34,092
========= =========== ========== ======= =========== ==========
Net income per common share............. $ 0.48 $ 0.51 $ 0.56
========= ========== ==========
Weighted average shares outstanding..... 54,623 54,623 6,540 61,163
========= ========== ======= ==========
14
3
UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------------------------
MEDAPHIS HDS
PRIOR PRO FORMA PRO FORMA PRO FORMA PRO FORMA
MEDAPHIS ACQUISITIONS ADJUSTMENTS COMBINED HDS(9) ADJUSTMENTS COMBINED
-------- ------------ ----------- --------- ------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue................. $552,132 $ 22,679 $ -- $ 574,811 $22,249 $ -- $ 597,060
Salaries and wages...... 318,014 10,794 (2,925)(1) 325,883 5,330 -- 331,213
Other operating
expenses.............. 130,714 6,586 -- 137,300 10,091 -- 147,391
Depreciation............ 14,346 628 -- 14,974 85 -- 15,059
Amortization............ 14,112 580 75(2) 14,767 3,135 -- 17,902
Interest expense, net... 10,417 (16) 1,787(3) 12,188 (201) -- 11,987
Restructuring and other
charges............... 54,950 -- (750)(4) 54,200 -- -- 54,200
-------- ------------ ----------- --------- ------- ----------- ---------
Total expenses.... 542,553 18,572 (1,813) 559,312 18,440 -- 577,752
Income (loss) before
taxes................. 9,579 4,107 1,813 15,499 3,809 -- 19,308
Income taxes............ 6,903 -- 5,648(5) 12,551 1,524 14,075
-------- ------------ ----------- --------- ------- ----------- ---------
Net income (loss)....... $ 2,676 $ 4,107 $(3,835) $ 2,948 $ 2,285 $ -- $ 5,233
======== ========= ========= ======== ======= ========= ========
Net income per common
share................. $ 0.04 $ 0.05 $ 0.08
======== ======== ========
Weighted average shares
outstanding........... 61,520 61,520 6,540 68,060(6)
======== ======== ======= ========
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------------------
MEDAPHIS HDS
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
MEDAPHIS ADJUSTMENTS COMBINED HDS(9) ADJUSTMENTS COMBINED
-------- ----------- --------- ------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue......................... $159,869 $ -- $ 159,869 $3,743 $ -- $ 163,612
Salaries and wages.............. 88,963 -- 88,963 1,564 -- 90,527
Other operating expenses........ 38,618 -- 38,618 760 -- 39,378
Depreciation.................... 4,917 -- 4,917 33 -- 4,950
Amortization.................... 4,023 -- 4,023 886 -- 4,909
Interest expense, net........... 2,242 -- 2,242 (137) -- 2,105
Restructuring and other
charges....................... 150 -- 150 -- -- 150
-------- ----------- --------- ------ --------- ---------
Total expenses........ 138,913 -- 138,913 3,106 -- 142,019
Income (loss) before taxes...... 20,956 -- 20,956 637 -- 21,593
Income taxes.................... 8,613 (354)(5) 8,259 255 -- 8,514
-------- ----------- --------- ------ --------- ---------
Net income (loss)............... $ 12,343 $ 354 $ 12,697 $ 382 $ -- 13,079
======== ========= ======== ====== ======= ========
Net income per common share..... $ 0.18 $ 0.18 $ 0.17
======== ======== ========
Weighted average shares
outstanding................... 69,164 69,164 6,540 75,704
======== ======== ====== ========
15
4
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
-----------------------------------------------
HDS PRO
FORMA PRO FORMA
MEDAPHIS HDS(9) ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 3,308 $ 14,167 $ -- $ 17,475
Restricted cash.................................. 16,473 -- -- 16,473
Accounts receivable, billed...................... 98,811 7,544 -- 106,355
Accounts receivable, unbilled.................... 85,100 10,834 -- 95,934
Other............................................ 18,523 106 -- 18,629
-------- -------- ----------- ---------
222,215 32,651 -- 254,866
Property and equipment............................. 120,202 687 -- 120,889
Intangible assets.................................. 463,278 7,768 -- 471,046
Other.............................................. 4,340 13,937 -- 18,277
-------- -------- ----------- ---------
$810,035 $ 55,043 $ -- $ 865,078
======== ======== ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable................................. $ 9,431 $ 5,244 $ -- $ 14,675
Accrued compensation............................. 29,711 992 -- 30,703
Accrued expenses................................. 58,405 2,726 4,750(7) 65,881
Current portion of long-term debt................ 10,651 -- -- 10,651
-------- -------- ----------- ---------
Total current liabilities................ 108,198 8,962 4,750 121,910
Long-term debt..................................... 191,823 -- -- 191,823
Other obligations.................................. 17,710 -- -- 17,710
Deferred income taxes.............................. 24,074 1,300 -- 25,374
Convertible subordinated debentures................ -- -- -- --
-------- -------- ----------- ---------
Total liabilities........................ 341,805 10,262 4,750 356,817
Stockholders' Equity:
Preferred Stock.................................. 16 366 (366)(8) 16
Common stock..................................... 609 274 (213)(8) 670
Paid-in capital.................................. 454,387 42,134 579(8) 497,100
Retained earnings (accumulated deficit).......... 13,218 2,007 (4,750)(7) 10,475
-------- -------- ----------- ---------
Total stockholders' equity............... 468,230 44,781 (4,750) 508,261
-------- -------- ----------- ---------
$810,035 $ 55,043 $ -- $ 865,078
======== ======== ========= ========
16
5
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) The pro forma adjustment to salaries and wages represents the
elimination of distributions that are non-recurring net of the compensation
expected to be paid to the former shareholders of Atwork and shareholders and
executive officers of MMS and the companies acquired in certain of the 1995
Acquisitions pursuant to employment contracts with Medaphis.
(2) The pro forma adjustment to amortization expense represents the change
in amortization expense recorded in conjunction with the 1995 Acquisitions,
which results from the adjustments to intangible assets recorded as part of the
purchase price allocations and conforming the historical amortization policies
to those of Medaphis, whereby goodwill is amortized using the straight-line
method generally over 25-40 years, client lists are amortized over their
estimated useful lives of 7-20 years and capitalized software is amortized over
its estimated useful life of 4-7 years.
(3) The pro forma adjustment to interest expense represents the interest
expense on indebtedness incurred by Medaphis (which accrued at an annual rate of
approximately 7.75% in 1995) in connection with the 1995 Acquisitions, net of
reductions in interest expense for obligations not assumed by Medaphis or for
obligations that Medaphis assumed and refinanced under the Medaphis Senior
Credit Facility to obtain lower interest rates.
(4) The pro forma adjustment to restructuring and other charges represents
the elimination of distributions that are non-recurring net of the compensation
to be paid to the former shareholders of Atwork pursuant to employment contracts
with Medaphis.
(5) The pro forma adjustment to income taxes represents (i) the imputed tax
expense on the operating results of Atwork, MMS, Consort, Rapid Systems and a
company acquired by BSG prior to BSG's merger with Medaphis, at statutory rates
in effect during the periods presented (as Atwork, MMS, Consort, Rapid Systems
and such company acquired by BSG were "S" corporations for income tax purposes
and therefore did not provide for federal income taxes), (ii) the tax impact of
applying Medaphis' pro forma effective tax rate to the income of certain of the
1995 Acquisitions (which were not "S" corporations for income tax purposes) as
well as the pro forma adjustments and (iii) the reversal of the adjustment
recorded to historical income taxes for the change in the tax status of Atwork,
MMS and Consort in 1995.
(6) The pro forma weighted average shares outstanding give effect to the
additional shares of Medaphis Common Stock to be issued and common stock
equivalents assumed in connection with the Merger.
(7) The pro forma adjustment to accrued expenses and retained earnings
represents the estimated costs associated with the Merger.
(8) The pro forma adjustments to preferred stock, common stock and paid-in
capital represent the adjustments necessary to give effect to the issuance of
Medaphis Common Stock to effect the Merger.
(9) Certain HDS amounts have been reclassified in order to conform to
Medaphis' presentation.
17