EXHIBIT 99.1
RADNET, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial statements are based on the
historical consolidated statements of RadNet after giving effect to the merger
with Radiologix, borrowings used to finance the merger and the assumptions and
adjustments described in the attached notes to the unaudited pro forma condensed
combined financial statements.
The unaudited pro forma condensed combined statement of operations is prepared
using the historical consolidated statements of operations of RadNet for the
year ended October 31, 2005 and the nine months ended July 31, 2006 and the
historical consolidated statements of operations of Radiologix for the year
ended December 31, 2005 and the nine months ended June 30, 2006 as if the merger
and borrowings to finance the merger occurred on November 1, 2004. The unaudited
pro forma condensed combined balance sheet is presented as if the merger and
borrowings used to finance the merger occurred on July 31, 2006 and combines the
unaudited condensed balance sheets of RadNet as of July 31, 2006 and Radiologix
as of June 30, 2006.
The allocation of purchase price used in the unaudited pro forma condensed
combined financial statements is based upon estimates. The estimates and
assumptions are subject to change upon the finalization of the valuation of
Radiologix's assets and liabilities. The unaudited pro forma condensed combined
financial statements do not include the effects of any anticipated operating
efficiencies or cost savings upon the merger. The unaudited pro forma condensed
combined financial statements are for illustrative purposes only, and are not
necessarily indicative of the consolidated, and should not be taken as
representative of the future consolidated results of operations or financial
position of RadNet. The pro forma adjustments are based on preliminary
information available at the time of the preparation of this document. Estimated
valuation of stock-based compensation included in the unaudited pro forma
condensed combined financial statement for the year ended October 31, 2005 for
RadNet and the year ended December 31, 2005 for Radiologix, and the first
quarter of the nine months ended June 30, 2006 for Radiologix do not include the
impact of SFAS No. 123 (revised 2004) Share-Based Payment ("SFAS No. 123R").
GE Healthcare Financial Services provided us with $405.0 million of senior debt
financing, which includes a $45.0 million revolving credit facility for working
capital and general corporate purposes. The remaining $360.0 million funded the
cash purchase price of Radiologix and refinanced substantially all of the
existing debt of RadNet and Radiologix.
The unaudited pro forma condensed combined financial statements and the
accompanying notes are based upon the respective historical consolidated
financial statements of RadNet and Radiologix and should be read in conjunction
with the historical consolidated financial statements and accompanying notes of
RadNet and Radiologix included in this filing.
EXHIBIT 99.1
RADNET, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JULY 31, 2006
(in thousands)
RadNet Radiologix Pro Forma Pro Forma
July 31, 2006 June 30, 2006 Adjustments Combined
------------ ------------ ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2 $ 43,671 $ (43,180) A $ 493
Restricted cash -- 5,750 (5,750) A --
Accounts receivable, net of allowances 24,299 41,237 -- 65,536
Unbilled receivables and other receivables 1,035 -- -- 1,035
Due from affiliates -- 704 -- 704
Federal and state income tax receivables -- 6,101 -- 6,101
Other current assets 3,533 4,643 -- 8,176
------------ ------------ ------------ ------------
Total current assets 28,869 102,106 (48,930) 82,045
Long-term assets:
Property and equipment, net 62,836 68,610 14,020 B 145,466
Accounts receivable, net of allowances 1,379 -- -- 1,379
Investments in joint ventures -- 9,113 -- 9,113
Goodwill 23,099 -- 43,034 C 66,133
Other intangible assets, net -- 52,384 7,725 D 60,109
Deferred financing costs, net 5,198 4,117 340 E 9,655
Other assets 5,219 824 (1,075) F 4,968
------------ ------------ ------------ ------------
Total long-term assets 97,731 135,048 64,044 296,823
------------ ------------ ------------ ------------
Total assets $ 126,600 $ 237,154 $ 15,114 $ 378,868
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash disbursements in transit $ 5,748 $ -- $ -- $ 5,748
Accounts payable and other accrued expenses 20,962 8,777 (3,760) G 25,979
Accrued physician retention -- 8,115 -- 8,115
Accrued salaries and benefits -- 7,767 3,403 H 11,170
Accrued interest -- 683 357 I 1,040
Accrued restructuring charges -- -- 314 J 314
Current maturities of term loan B -- -- 2,250 K 2,250
Current maturities of notes payable 867 -- (860) K 7
Current maturities of capital lease obligations 1,849 33 -- 1,882
Other current liabilities -- 682 -- 682
------------ ------------ ------------ ------------
Total current liabilities 29,426 26,057 1,704 57,187
Long-term liabilities:
Subordinated bond debentures 16,147 -- (16,147) K --
Line of credit 6,868 -- (6,425) K 443
Term loan B-long term -- -- 222,750 K 222,750
Second lien credit facility-long term -- -- 135,000 K 135,000
Long-term debt, net of current portion 145,154 158,270 (303,356) K 68
Convertible debt -- 11,980 (11,980) K --
Capital lease obligations, net of current portion 3,552 45 -- 3,597
Deferred revenue -- 6,290 (6,290) L --
Other liabilities 22 1,372 -- 1,394
------------ ------------ ------------ ------------
Total long-term liabilities 171,743 177,957 13,552 363,252
Commitments and contingencies -- -- -- --
Minority interests in consolidated subsidiaries -- 1,145 -- 1,145
Stockholders' equity (74,569) 31,995 (142) M (42,716)
------------ ------------ ------------ ------------
Total liabilites and stockholders' equity $ 126,600 $ 237,154 $ 15,114 $ 378,868
============ ============ ============ ============
RADNET, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended July 31, 2006
(in thousands, except per share data)
For the Nine For the Nine
Months Months
Ended Ended
July 31, 2006 June 30, 2006 Pro Forma Pro Forma
RadNet Radiologix (1) Adjustments Combined
------------- ------------- ------------- -------------
Service fee revenue $ 118,462 $ 192,366 $ (307) N $ 310,521
Cost of operations:
Cost of services 88,701 121,308 12,667 O 222,676
Equipment leases -- 11,095 174 P 11,269
Provision for doubtful accounts 4,739 16,273 -- 21,012
Depreciation and amortization 12,175 18,021 1,374 Q 31,570
Loss (gain) on disposal of equipment, net 210 -- -- 210
------------- ------------- ------------- -------------
Gross profit 12,637 25,669 (14,522) 23,784
Severance and other related costs -- 670 -- 670
Corporate general and administrative -- 12,841 (12,841) S --
Impairment of goodwill, intangible and long-lived assets -- 2,241 -- 2,241
Interest expense, net, including amortization of
deferred financing costs 14,386 13,296 2,099 T 29,781
Loss (gain) on debt extinguishment 2,097 -- -- 2,097
Other expense (income), net 788 -- -- 788
------------- ------------- ------------- -------------
Income (loss) before equity in earnings of unconsolidated
affiliates, minority interests in consolidated
subsidiaries, income taxes and discontinued operations (4,634) (3,379) (3,780) (11,793)
Equity in earnings of unconsolidated affiliates 61 3,110 -- 3,171
Minority interests in income of consolidated subsidiaries -- (523) -- (523)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES FROM
CONTINUING OPERATIONS (4,573) (792) (3,780) (9,145)
Income tax expense -- 388 -- 388
------------- ------------- ------------- -------------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (4,573) $ (1,180) $ (3,780) $ (9,533)
============= ============= ============= =============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations--basic $ (0.11) $ (0.05) $ (0.15)
Income (loss) from continuing operations--diluted $ (0.11) $ (0.05) $ (0.15)
============= ============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 41,663,841 22,242,417 379,505 M 64,285,763
Diluted 41,663,841 22,242,417 379,505 M 64,285,763
- --------------------------
(1) The financial statements of Radiologix, Inc. for the interim period were
derived by adding the three months ended December 31, 2005, to Radiologix's six
months ended June 30, 2006. The nine months ended June 30, 2006, includes the
three-month period ended December 31, 2005, which also was included in the pro
forma income statement for the year ended December 31, 2005. Summarized
operating information about the duplicated quarter is as follows:
Service fee revenue $ 62,120
Cost of operations:
Cost of services 40,060
Equipment leases 3,453
Provision for doubtful accounts 5,386
Depreciation and amortization 5,997
-------------
Gross profit 7,224
Severance and other related costs 670
Corporate general and administrative 3,677
Impairment of goodwill, intangible and long-lived assets 2,241
Interest expense, net, including amortization of
deferred financing costs 4,493
-------------
Income (loss) before equity in earnings of unconsolidated
affiliates, minority interests in consolidated
subsidiaries, income taxes and discontinued operations (3,857)
Equity in earnings of unconsolidated affiliates 1,040
Minority interests in income of consolidated subsidiaries (145)
-------------
INCOME (LOSS) BEFORE INCOME TAXES FROM
CONTINUING OPERATIONS (2,962)
Income tax expense 218
-------------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (3,180)
=============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations--basic (0.14)
Income (loss) from continuing operations--diluted (0.14)
=============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 22,242,417
Diluted 22,242,417
=============
RADNET, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Twelve Months Ended October 31, 2005
(in thousands, except per share data)
For the Twelve For the Twelve
Months Months
Ended Ended
October 31, 2005 December 31, 2005 Pro Forma Pro Forma
RadNet Radiologix Adjustments Combined
------------ ------------ ------------ ------------
Service fee revenue $ 145,573 $ 251,440 $ (409) N $ 396,604
Cost of operations:
Cost of services 109,012 160,898 16,687 O 286,597
Equipment leases -- 13,035 166 P 13,201
Provision for doubtful accounts 4,929 19,033 -- 23,962
Depreciation and amortization 17,101 23,430 1,834 Q 42,365
Loss (gain) on disposal of equipment, net 696 -- 19 R 715
------------ ------------ ------------ ------------
Gross profit 13,835 35,044 (19,115) 29,764
Corporate general and administrative -- 16,872 (16,872) --
Impairment of goodwill, intangible and long-lived assets -- 2,241 -- S 2,241
Interest expense, net, including amortization of
deferred financing costs 17,493 18,295 3,926 T 39,714
Loss (gain) on debt extinguishment -- -- -- --
Other expense (income), net (523) 670 -- 147
------------ ------------ ------------ ------------
Income (loss) before equity in earnings of unconsolidated
affiliates, minority interests in consolidated
subsidiaries, income taxes and discontinued operations (3,135) (3,034) (6,169) (12,338)
Equity in earnings of unconsolidated affiliates -- 3,928 -- 3,928
Minority interests in income of consolidated subsidiaries -- (632) -- (632)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES FROM
CONTINUING OPERATIONS (3,135) 262 (6,169) (9,042)
Income tax expense -- 662 -- 662
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (3,135) $ (400) $ (6,169) $ (9,704)
============ ============ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations--basic $ (0.08) $ (0.02) $ (0.15)
Income (loss) from continuing operations--diluted $ (0.08) $ (0.02) $ (0.15)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 41,207,909 22,067,445 554,477 63,829,831
Diluted 41,207,909 22,067,445 554,477 63,829,831
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
On July 6, 2006, RadNet, Inc. and Radiologix, Inc. entered into a definitive
agreement under which RadNet would merge with and into Radiologix in a business
combination to be accounted for using the purchase method. The combined
unaudited pro forma historical financial statements assume the issuance of
22,621,922 shares of RadNet common stock and $42,950,000 in cash. The average
market price per share of RadNet common stock of $1.74 is based on the average
closing price for June 28, 2006 through July 13, 2006.
The estimated purchase price and the allocation of the estimated purchase price
discussed below are preliminary based on management's best estimate because the
proposed merger has not yet been completed and the final valuation has not been
completed. The final allocation of the purchase price will be based on
Radiologix's assets and liabilities on the closing date.
The following notes to the unaudited pro forma condensed consolidated financial
statements give effect to the Radiologix merger as if it had occurred, for
balance sheet purposes, on July 31, 2006 and, for statement of operations
purposes, on November 1, 2004. The preliminary estimated total purchase price of
the merger is as follows:
(in thousands)
--------------
Value of stock given by RadNet to Radiologix $ 39,400*
Cash 42,950
Estimated transaction fees and expenses 15,208**
------------
Total Purchase Price $ 97,558
============
(*) Calculated as 22,621,922 shares multiplied by $1.74 (average closing price
for June 28, 2006 to July 13, 2006).
(**) Includes $8,274,000 in assumed liabilities of Radiologix, including
$3,210,000 in merger and acquisition fees and $5,064,000 in bond prepayment
penalties.
Under the purchase method of accounting, the total estimated purchase price as
shown above is allocated to Radiologix's net tangible and intangible assets
based on their estimated fair values as of the date of the completion of the
merger. The preliminary allocation of the pro forma purchase price is as
follows:
(in thousands)
--------------
Current assets $ 102,106
Property and equipment, net 82,630
Identifiable intangible assets 59,034
Goodwill 43,034
Investments in joint ventures 9,113
Other assets 824
Current liabilities (26,057)
Accrued restructuring charges (314)
Long-term liabilities (171,667)
Minority interests in consolidated subsidiaries (1,145)
----------
Total purchase price $ 97,558
==========
We have estimated the fair value of tangible assets acquired and liabilities
assumed. Some of these estimates are subject to change, particularly those
estimates relating to the valuation of property and equipment and identifiable
intangible assets. The allocation of the purchase price is preliminary and based
upon management's best estimate because the proposed merger has not yet been
completed and the final valuation has not been completed. The final allocation
of the purchase price will be based upon Radiologix's assets and liabilities on
the closing date and the allocation of the purchase price will be reviewed by an
external valuation expert.
CASH, MARKETABLE SECURITIES, INVESTMENTS AND OTHER ASSETS: RadNet valued cash,
marketable securities, investments and other assets at their respective carrying
amounts as RadNet believes that these amounts approximate their current fair
values or the fair values.
IDENTIFIABLE INTANGIBLE ASSETS. RadNet expects identifiable intangible assets
acquired to include management service agreements. Management service agreements
represent the underlying relationships and agreements with certain professional
radiology groups.
Identifiable intangible assets consist of:
ESTIMATED
ESTIMATED AMORTIZATION ANNUAL
(IN THOUSANDS) FAIR VALUE PERIOD AMORTIZATION
- -------------- ---------- ------ ------------
Management service agreements $ 59,034 25 years $ 2,361
RadNet has determined the preliminary fair value of intangible assets with
limited discussions with Radiologix management and a review of certain
transaction-related documents prepared by Radiologix management.
Estimated useful lives for the intangible assets were based on the average
contract terms, which are greater than the amortization period that will be used
for management contracts. Intangible assets are being amortized using the
straight-line method, considering the pattern in which the economic benefits of
the intangible assets are consumed.
GOODWILL. Approximately $43,034,000 has been allocated to goodwill. Goodwill
represents the excess of the purchase price over the fair value of the
underlying net tangible and intangible assets. In accordance with SFAS No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS, goodwill will not be amortized but instead
will be tested for impairment at least annually. In the event that the
management of the combined company determines that the value of goodwill has
become impaired, the combined company will incur an accounting charge for the
amount of impairment during the fiscal quarter in which the determination is
made.
2. PRO FORMA ADJUSTMENTS
The following is a brief description of the preliminary adjustments which may
change as additional information is obtained. These adjustments are based on
management's best estimate. In addition, these adjustments include
reclassifications to conform the financial statement presentation of Radiologix
with RadNet.
(IN THOUSANDS)
--------------
(A) To record the cash portion of the purchase price:
Cash $ 42,950
Estimated transaction fees and expenses 15,208
------------
$ 58,158
Less: Increase in cash from borrowings (see Note K) 9,228
Use of restricted cash - Radiologix 5,750
------------
$ 43,180
============
(B) Adjustments to property and equipment, net:
To record the estimated fair market value adjustment
to net property and equipment $ 14,020
============
(C) Adjustments to goodwill:
To record the preliminary purchase price allocation to
goodwill as though the acquisition had occurred on
July 31, 2006:
Total purchase price $ 97,558
Net assets of Radiologix:
Book equity of Radiologix $ 31,995
Fair market value adjustment to property
and equipment 14,020
Increase in other intangible assets 6,650
Elimination of deferred financing costs (4,117)
Accrued restructuring charges (314)
Elimination of deferred revenue 6,290
------------
Adjusted net assets $ 54,524
------------
Goodwill $ 43,034
============
(D) Adjustments to other intangible assets:
To reclass RadNet intangible asset trade name from
other assets $ 1,075
To eliminate Radiologix historical intangible assets (52,384)
To record the preliminary purchase price allocation to
other intangible assets as though the acquisition had
occurred on July 31, 2006 59,034
------------
$ 7,725
============
(E) Adjustments to deferred financing costs:
To eliminate Radiologix historical net deferred
financing costs due to refinancing of this debt $ (4,117)
To write-off RadNet historical deferred financing
charges and and loan fees (5,198)
To record the estimated deferred financing costs 9,655
------------
$ 340
============
(F) Adjustments to other assets:
To reclass RadNet other asset trade name to
intangible assets $ (1,075)
============
(G) Adjustments to accounts payable and other accrued expenses:
To reclass RadNet accrued salaries and benefits $ (3,403)
To reclass RadNet accrued interest (357)
------------
$ (3,760)
============
(H) To reclass RadNet accrued salaries and benefits $ 3,403
============
(I) To reclass RadNet accrued interest $ 357
============
(J) To record restructuring charges related to severance for
certain employees of Radiologix. $ 314
============
(K) To record payments to be made from the proceeds of the new
indebtedness:
Sources:
--------
Term loan B--current $ 2,250
Line of credit 443
Term loan B--long-term 222,750
Second lien credit facility 135,000
------------
Total sources $ 360,443
Uses:
-----
Current maturities of notes payable--RadNet $ 860
Subordinated bond debentures--RadNet 16,147
Line of credit--RadNet 6,868
Long-term debt--RadNet 145,086
Long-term debt--Radiologix 158,270
Convertible debt--Radiologix 11,980
Deferred financing fees (see Note E) 9,655
RadNet fees and expenses (see Note M) 2,349
------------
Total uses $ 351,215
Increase in cash (see Note A) $ 9,228
============
(L) To eliminate Radiologix deferred revenue $ (6,290)
============
(M) Adjustments to stockholders' equity:
To eliminate Radiologix historical stockholders' equity
and weighted shares outstanding as part of the
purchase transaction $ (31,995)
To record the issuance of 22,621,922 shares of RadNet
stock at an average market price of $1.74 per share
to acquire Radiologix 39,400
To write-off RadNet historical deferred financing
charges and loan fees (5,198)
To record RadNet fees and expenses (2,349)
------------
$ (142)
============
NINE MONTHS ENDED YEAR ENDED
JULY 31, 2006 OCTOBER 31, 2005
------------- ----------------
(IN THOUSANDS)
(N) To eliminate Radiologix deferred revenue amortization $ (307) $ (409)
============= =============
NINE MONTHS ENDED YEAR ENDED
JULY 31, 2006 OCTOBER 31, 2005
------------- -------------
(IN THOUSANDS)
(O) To reclass Radiologix corporate overhead as cost of services $ 12,841 $ 16,872
To reclass RadNet equipment rental from cost of services (174) (166)
To reclass Radiologix losses from sale or disposal of assets
from cost of services -- (19)
------------- -------------
$ 12,667 $ 16,687
============= =============
NINE MONTHS ENDED YEAR ENDED
JULY 31, 2006 OCTOBER 31, 2005
------------- -------------
(IN THOUSANDS)
(P) To reclass RadNet equipment rental from cost of services $ 174 $ 166
============= =============
NINE MONTHS ENDED YEAR ENDED
JULY 31, 2006 OCTOBER 31, 2005
------------- -------------
(IN THOUSANDS)
(Q) To record additional depreciation on property and equipment
revaluation as a result of the purchase price allocation $ 2,103 $ 2,804
To eliminate Radiologix amortization expense on historical
intangible assets related to management service agreements (2,500) (3,331)
To add amortization of identifiable intangible assets recorded
as a result of purchase price allocation 1,771 2,361
------------- -------------
$ 1,374 $ 1,834
============= =============
NINE MONTHS ENDED YEAR ENDED
JULY 31, 2006 OCTOBER 31, 2005
------------- -------------
(IN THOUSANDS)
(R) To reclass Radiologix losses from sale or disposal of assets
from cost of services $ -- $ 19
============= =============
NINE MONTHS ENDED YEAR ENDED
JULY 31, 2006 OCTOBER 31, 2005
------------- -------------
(IN THOUSANDS)
(S) To reclass Radiologix corporate overhead as cost of services $ (12,841) $ (16,872)
============= =============
NINE MONTHS ENDED YEAR ENDED
JULY 31, 2006 OCTOBER 31, 2005
------------- -------------
(IN THOUSANDS)
(T) To eliminate Radiologix interest income with use of cash as
part of the purchase transaction $ 1,247 $ 1,128
To reverse interest expense related to historical notes,
leases, bonds and lines of credit with new financing
related to the purchase transaction:
For Radiologix (13,432) (17,908)
For RadNet (13,292) (15,871)
To add interest expense related to new financing related
to the purchase transaction (1) 28,380 37,840
To reverse interest expense related to historical deferred
financing charges and loan fees with new financing related
to the purchase transaction:
For Radiologix (1,237) (1,650)
For RadNet (710) (1,137)
To add interest expense related to new financing transaction
fees (2) 1,143 1,524
------------- -------------
$ 2,099 $ 3,926
============= =============
________________
(1) Assume a first lien six-year, 1% principal payment per year, note payable
of $225 million at LIBOR + 3.5%, or an estimated 9.0%, a second lien
seven-year, interest-only note payable of $135 million at LIBOR + 7.5%, or
an estimated 13.0%, and an estimated line of credit draw of $0.4 million.
The interest expense calculation presented above uses the actual LIBOR rates for
the periods presented to determine the interest rate applied to the borrowings
under the Term Loan B, the Second Lien Credit Facility and the line of credit.
If the LIBOR rate increases or decreases, the effect on interest expense would
be as follows:
EFFECT ON INTEREST EXPENSE
LIBOR RATE NINE MONTHS YEAR ENDED
INCREASE/DECREASE JULY 31, 2006 OCTOBER 31, 2005
- ----------------- ------------- ----------------
(IN THOUSANDS)
0.25% $ 676 $ 901
0.50% 1,352 1,802
0.75% 2,027 2,703
1.00% 2,703 3,604
__________________
(2) Estimated financing fees of $9.3 million for the RadNet acquisition of
Radiologix amortized over the weighted-average financing period of
approximately 76 months, or approximately $127,000 per month.
The pro forma statements of income contain no adjustment of the RadNet net
deferred financing costs of $5,198,000 as of July 31, 2006, and debt prepayment
penalties of $2,349,000 that will be expensed upon refinancing the existing debt
of RadNet.