EX-99.2 4 ex99-2.htm EXHIBIT 99.2 ex99-2.htm

Exhibit 99.2
 
Unaudited Pro Forma Condensed Combined Financial Statements of ExamWorks Group, Inc.
 
On February 28, 2011, ExamWorks Group, Inc. (“ExamWorks” or the “company’) completed the acquisition of MES Group, Inc (“MES”).  The following unaudited pro forma condensed combined financial statements are designed to show how the acquisition of MES by ExamWorks might have affected the historical financial data of ExamWorks, giving effect to the acquisition as if it had been consummated at an earlier date. The following unaudited pro forma condensed combined financial statements give effect to the acquisition as if it had been completed on December 31, 2010, with respect to the pro forma condensed combined balance sheet, and as of January 1, 2010 (the first day of ExamWorks’ fiscal year 2010), with respect to the pro forma condensed combined statement of operations. The historical financial statements have been adjusted to give effect to pro forma events that are directly attributable to the acquisition, factually supportable, and expected to have a continuing impact on the combined results.
 
The Company's December 31, 2010 consolidated balance sheet and consolidated statement of operations for the year then ended, were derived from audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.  The MES December 31, 2010 balance sheet and statement of operations for the year then ended, were derived from audited financial statements included in this Report on Form 8-K/A.
   
The following unaudited pro forma condensed combined financial statements were prepared using the purchase method of accounting with ExamWorks treated as the acquiring entity and reflect adjustments, which are based upon preliminary estimates, to allocate the estimated purchase price to MES’s assets acquired and liabilities assumed. The purchase price allocation reflected herein is preliminary insofar as the final allocation will be based upon the actual assets acquired and liabilities assumed of MES as of the date of the acquisition.  The excess of the purchase price over the estimated fair values of MES's assets acquired and liabilities assumed is recorded as other identifiable intangible assets and goodwill.  Additionally, ExamWorks has yet to complete the detailed valuation studies necessary to finalize the purchase price allocation.  Accordingly, the final purchase price allocation, which will be determined subsequent to the date of this filing, may differ materially from the preliminary allocation included in this filing, although these amounts represent ExamWorks management’s best estimates as of the date of this filing.
 
Preparation of the unaudited pro forma condensed combined financial statements was based on estimates and assumptions deemed appropriate by ExamWorks’ management. The pro forma adjustments and certain other assumptions are described in the accompanying notes. The pro forma condensed combined financial statements are unaudited and are presented for illustrative purposes only.   The unaudited pro forma condensed combined financial statements are not necessarily indicative of the financial condition or results of operations that actually would have been realized had the acquisition been competed on the dates indicated above.  In addition, the following unaudited pro forma financial statements do not purport to project the future financial condition or results of operations of the combined company.  ExamWorks’ management has not completed an evaluation of MES’s accounting policies and practices to determine if they conform to ExamWorks’ accounting policies and practices.  Any changes identified by management may impact the future combined results of operations of ExamWorks and MES. The pro forma financial information does not include the effects of expected operating synergies and cost savings related to the acquisition. The pro forma financial information also does not include costs for integrating ExamWorks and MES.

 
 

 
 
EXAMWORKS AND ACQUIRED BUSINESS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2010
                         
(In thousands)
 
 
      ExamWorks     MES    
Pro Forma
Adjustments
   
Pro Forma
Combined
 
                           
Assets
                         
Current assets:
                         
Cash and cash equivalents
    $ 33,624     $ 731     $ (20,000 )
(a)
$ 14,355  
Accounts receivable, net
      38,638       27,838       -       66,476  
Other receivables
      33       84       -       117  
Prepaid expenses
      2,175       641       -       2,816  
Deferred tax assets
      68       -       (68)   (d)   -  
Other current assets
      42       -       -       42  
Assets from discontinued operations
    -       6,337       (6,337 )
(b)
  -  
Total current assets       74,580       35,631       (26,405 )     83,806  
                                   
Building, equipment and leasehold improvements, net
    4,870       7,986       (6,186 )
(c)
  6,670  
Goodwill
      90,582       -       161,742  
(d)
  252,324  
Intangible assets, net
      66,914       1,936       55,081  
(d)
  123,931  
Deferred tax assets, noncurrent
      7,669       -       (7,669  ) (d)   -  
Deferred financing costs, net
      4,176       -       -       4,176  
Other assets
      271       302       -       573  
Assets from discontinued operations, noncurrent
    -       1,388       (1,388 )
(b)
  -  
Total assets     $ 249,062     $ 47,243     $ 175,175     $ 471,480  
                                   
Liabilities and Stockholders’ Equity
                               
Current liabilities:
                                 
Accounts payable and bank overdraft
    $ 19,999     $ 2,854     $ -     $ 22,853  
Accrued expenses
      9,414       2,190       -       11,604  
Deferred revenue
      272       -       -       272  
Note payable
      -       11,282       (11,282 )
(e)
  -  
Current portion of subordinated unsecured notes payable
    2,312       -       -       2,312  
Current portion of contingent earnout obligation
    2,478       -       -       2,478  
Deferred tax liability
      -       8,510       (68)   (d)   8,442  
Other current liabilities
      3,105       75       -       3,180  
Liabilities from discontinued operations
    -       8,101       (8,101 )
(b)
  -  
Total current liabilities
 
    37,580       33,012       (19,451 )     51,141  
                                   
Senior revolving credit facility and discount facility
    4,998       -       165,000  
(e)
  169,998  
Long-term subordinated unsecured notes payable, less current portion
    2,546       -       -       2,546  
Long-term contingent earnout obligation, less current portion
    2,032       -       -       2,032  
Deferred tax liability, noncurrent
      -       30       13,813  
(d)
  13,843  
Other long-term liabilities
      1,666       -       -       1,666  
Total liabilities       48,822       33,042       159,362       241,226  
                                   
Commitments and contingencies
                               
Stockholders’ equity:
                                 
Preferred stock
      -       -       -       -  
Common stock
      3       7       (7 )
(f)
  3  
Additional paid-in capital
      211,861       112       29,902  
(f)
  241,875  
Accumulated other comprehensive loss
    1,216       (75 )     75  
(f)
  1,216  
Accumulated (deficit) earnings
    (12,840 )     14,157       (14,157 )
(f)
  (12,840 )
Total stockholders’ equity       200,240       14,201       15,813       230,254  
Total liabilities and stockholders' equity   $ 249,062     $ 47,243     $ 175,175     $ 471,480  
                                   
                                   
The accompanying Notes to Pro Forma Condensed Consolidated financial Statements are an integral part of these statements.
         
 
 
 

 
 
EXAMWORKS AND ACQUIRED BUSINESS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2010
                         
(In thousands, except share and per shares data)
                         
 
      ExamWorks       MES      
Pro Forma
Adjustments
     
Pro Forma
Combined
 
Revenues
  $ 163,511     $ 129,617     $ (478 )
(g)
$ 292,650  
Costs and expenses:
                               
Costs of revenues
    103,606       90,579       -       194,185  
Selling, general and administrative expenses
    37,689       29,392       (7,786 )
(h)
  59,295  
Depreciation and amortization
    19,505       1,719       9,534  
(i)
  30,758  
Total costs and expenses
    160,800       121,690       1,748       284,238  
Income (loss) from operations
    2,711       7,927       (2,225 )     8,413  
Interest and other expenses, net
    11,233       333       8,653  
(j)
  20,219  
Loss from continuing operations before income taxes
    (8,522 )     7,594       (10,878 )     (11,806 )
Provision (benefit) for income taxes
    (2,484 )     3,412       (4,243 )
(k)
  (3,315 )
Income (loss) from continuing operations
    (6,038 )     4,182       (6,636 )     (8,492 )
Income from discontinued operations
    -       365       (365 )
(l)
  -  
Net income (loss)
  $ (6,038 )   $ 4,547     $ (7,001 )   $ (8,492 )
                                 
Net loss attributable to common shareholders per share:
                               
Basic -
  $ (0.33 )                   $ (0.43 )
Diluted -
  $ (0.33 )                   $ (0.43 )
Pro Forma weighted average number of common shares
                               
outstanding used in computing per share amounts:
                               
Basic -
    18,500,859                  
(m)
  19,925,360  
Diluted -
    18,500,859                  
(m)
  19,925,360  
                                 
                                 
The accompanying Notes to Pro Forma Condensed Consolidated financial Statements are an integral part of these statements.
         
 
 
 

 
 
NOTES TO PRO FORMA
CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)

(1)           PURCHASE PRICE

On February 28, 2011, ExamWorks Group, Inc. (“ExamWorks” or the “company’) completed the acquisition of MES Group, Inc. (“MES”).

The stock price used to determine the preliminary estimated purchase price is based on the closing price of ExamWorks common stock on February 28, 2011.  The estimated fair values of assets acquired and liabilities assumed are based on a preliminary valuation.  The final valuation and related allocation of the purchase price may be materially different from the allocation based on this preliminary valuation.

Preliminary calculation of the allocation of the purchase price to the estimated fair value of net assets acquired and liabilities assumed:
 
       
   
Estimated
Purchase Price
(in thousands)
 
Cash
  $ 175,000  
ExamWorks common stock (1,424,501 shares at $21.07 per share)
    30,014  
Debt paid off at closing
    10,000  
     Total purchase price
  $ 215,014  
         
         
   
Estimated 
Fair Value
(in thousands)
 
Building, equipment and leasehold improvements
  $ 1,800  
Customer relationships
    37,003  
Tradename
    16,805  
Covenants not to compete
    511  
Technology
    762  
Goodwill
    161,742  
Deferred tax liability associated with step-up in book basis
    (21,482 )
Assets acquired and liabilities assumed, net
    17,873  
     Total
  $ 215,014  
 
 
 

 
 
(2)           PRO FORMA ADJUSTMENTS

Balance Sheet

                 
Item
(a)
 Adjustments to cash and cash equivalents are as follows (in thousands):
 
                 
             
 December 31, 2010
 
 
Total cash purchase price (includes cash paid at closing and debt repaid)
                                185,000
 
 
Borrowings under senior revolving credit facility
   
                                (165,000
 
Cash and cash equivalents not acquired
   
                                           -
 
 
     Net adjustment to cash and cash equivalents:
 
                                  20,000
 
                 
                 
Item
(b)
 Adjustments to eliminate assets and liabilities associated with discontinued operations.
 
                 
                 
Item
(c)
 Adjustments to building, equipment and leasehold improvements are as follows (in thousands):
 
                 
             
 December 31, 2010
 
 
Book value of building, equipment and  leasehold improvements as reported (includes $3,790 in assets that were
distributed to the owner of the acquired business in January 2011 and were not included as part of the acquisition)
$ (7,986
 
Fair value of building, equipment and  leasehold improvements acquired
 
                                      1,800
 
 
     Net adjustment to building, equipment and leasehold improvements:
                                 (6,186
                 
                 
Item
(d)
 Adjustments to eliminate acquired business's intangible assets and to record intangible assets, goodwill and the related deferred tax liability in the condensed combined balance sheet as detailed in Note 1 - Purchase Price and to net deferred tax positions.
 
                 
                 
Item
(e)
 Adjustments to debt are as follows (in thousands):
       
                 
             
 December 31, 2010
 
 
Borrrowing under senior revolving credit facility to fund acquisition
                                165,000
 
 
Repayment of acquired business's note payable
   
                                  (11,282
           
                                153,718
 
                 
                 
Item
(f)
 Adjustments to stockholders' equity reflects adjustments to the following:
 
                 
 
An adjustment was made to eliminate common stock, accumulated other comprehensive income and accumulated earnings of the acquired business.
 
                 
 
Adjustments to additional paid in capital:
       
 
 An adjustment was made to eliminate additional paid in capital of the acquired business of $112,000.
 
 
 An adjustment of approximately $30.0 million was made to reflect acquisition consideration.
 
 
 
 

 

 
Income Statement

                 
Item
(g)
 Adjustment to conform to the Companys revenue recognition policies.
                 
                 
Item
(h)
 Adjustment represents the elimination of certain selling, general and administrative costs that represent material, non-recurring costs related to the acquired business, predominately salary and related personal expenses attributable to the previous owners of the acquired business.  These adjustments represent contractual reductions for new compensation terms entered in to as part of the acquisition agreeement.  The expenses in the historical financial statements are considered to be non-recurring and are not expected to have a continuing impact on the operations of the Company.
                 
                 
Item
(i)
 Adjustments to reflect incremental depreciation and amortization expense for the pro forma period are as follows (in thousands):
                 
       
 
Fair Value
 
 Useful life
 (months)
 
 Expected depreciation and
amortization
 
Building, equipment and leasehold improvements
$
                   1,800
 
                              24
  $
                                            900
 
Customer relationships
 
                 37,003
 
                              60
 
                                       7,401
 
Non-compete agreement
 
                      511
 
                              36
 
                                            170
 
Tradename
 
                 16,805
 
                              84
 
                                         2,401
 
Technology
 
                      762
 
                              24
 
                                            381
        $
               56,881
     
                                       11,253
 
Less amounts recorded
         
                                         1,719
 
Net adjustment to depreciation and amortization expense
      $
                                     9,534
                 
                 
Item
(j)
 Adjustment assumes that acquisition related debt was incurred in January 1, 2010 and reflects additional interest expense incurred from this borrowing.  Adjustments consist of the following (in thousands):
                 
               
 Year ended
December 31, 2010
 
Incremental interest expense on senior revolving credit facility to finance acquisitions (assuming an interest rate of 4.5%) 
  $
                                       7,425
 
Eliminate acquired business's pre-acquisition interest expense
       
                                         (603)
 
Incremental interest expense incurred from the amortization of capitalized loan costs
 
                                         1,228
                $
                                       8,653
                 
                 
Item
(k)
 Adjustment to record income tax expense on pro forma adjustments for the Company and the acquired business at an effective tax rate of 39.0%.
   
 
         
                 
                 
Item
(l)
 Adjust to eliminate the effect of discontinued operations from the acquired business.
   
                 
                 
Item
(m)
 Adjustment to the weighted average number of common shares outstanding used in computing per share amounts, basic and diluted, includes the 1,424,501 shares of common stock issued in connection with the acquisition of MES.