EX-99.3 5 ex99-3.htm EXHIBIT 99.3 Exhibit 99.3
 

EXHIBIT 99.3

Unaudited Pro Forma Condensed Consolidated Financial Data

The unaudited pro forma condensed consolidated financial data set forth below are based on the historical consolidated financial statements of Theragenics Corporation and Subsidiary (“Theragenics”) and the historical financial statements of Galt Medical Corp. (“Galt”), and adjustments described in the accompanying notes to the unaudited pro forma financial data. The unaudited pro forma condensed consolidated financial data is presented to give effect to Theragenics’ acquisition of Galt (the “Acquisition”).

The unaudited pro forma condensed consolidated balance sheet combines the historical consolidated balance sheet of Theragenics as of July 2, 2006 and the historical balance sheet of Galt as of June 30, 2006, giving effect to the Acquisition as if it occurred on July 2, 2006. The unaudited pro forma condensed consolidated statements of operations combine the historical consolidated statement of operations of Theragenics for the year ended December 31, 2005 and the six months ended July 2, 2006 with the historical financial statements of Galt for the year ended December 31, 2005 and the six months ended June 30, 2006, giving effect to the Acquisition as if it occurred on January 1, 2005.

The pro forma condensed consolidated statements of operations reflect only pro forma adjustments expected to have a continuing impact on the combined results beyond 12 months from the consummation of the Acquisition, and do not reflect any changes in operations that may occur.
 
The unaudited pro forma condensed consolidated financial data are for illustrative purposes only, are hypothetical in nature and do not purport to represent what our results of operations, balance sheet or other financial information would have been if the Acquisition had occurred as of the dates indicated or what such results will be for any future periods. The unaudited pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable, including an allocation of the purchase price based on an estimate of fair value, and exclude certain non-recurring charges as disclosed. These estimates are preliminary and are based on information currently available and could change significantly. The unaudited pro forma condensed consolidated financial data and accompanying notes should be read in conjunction with the historical consolidated financial statements, including the related notes, of Theragenics included in our annual report on Form 10-K for the year ended December 31, 2005 and our quarterly report on Form 10-Q for the quarterly period ended July 2, 2006 and of Galt included in Exhibits 99.1 and 99.2 to this current report on Form 8-K/A.














UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(amounts in thousands)


           
 Pro Forma
  
   
Theragenics
July 2, 2006
  
Galt
June 30, 2006
  
Adjustments
      
Total
  
Assets
              
 (Note 3)
              
Current assets
                                
Cash
  
$
13,869
  
$
2,024
  
$
200
    
(a)
 
$
9,371
  
                 
(6,722
)
  
(b)
 
      
Marketable securities
    
34,342
    
-
    
(17,538
)
  
(b)
 
  
16,804
  
Accounts receivable
    
7,411
    
1,220
          
 
    
8,631
  
Inventories
    
5,337
    
1,325
    
352
    
(d)
 
  
7,014
  
Prepaid expenses and other current assets
    
3,250
    
31
          
 
    
3,281
  
Asset held for sale
    
3,400
    
-
                
3,400
  
Total current assets
    
67,609
    
4,600
    
(23,708
)
        
48,501
  
                                 
Property and equipment, net
    
30,972
    
1,445
                
32,417
  
                                 
Goodwill
    
18,370
    
-
    
20,506
    
(e)
 
  
38,876
  
Other intangible assets, net
    
5,996
    
17
    
8,753
    
(e)
 
  
14,766
  
Deferred income tax asset
    
-
    
351
    
(312
)
  
(n)
 
  
-
  
                 
(39
)
  
(f)
 
      
Other
    
269
    
-
    
(181
)
  
(b)
 
  
88
  
                                 
Total assets
  
$
123,216
  
$
6,413
  
$
5,019
        
$
134,648
  
                                 
Liabilities and Shareholders’ Equity
                                
Current liabilities
                                
Accounts payable
  
$
1,143
  
$
202
  
$
-
        
$
1,345
  
Accrued salaries, wages and payroll taxes
    
1,415
    
149
                
1,564
  
Income taxes payable
    
-
    
794
    
(794
)
  
(n)
 
  
-
  
Share based compensation liability
    
-
    
900
    
(900
)
  
(h)
 
  
-
  
Other current liabilities
    
1,288
    
196
                 
1,484
  
Total current liabilities
    
3,846
    
2,241
    
(1,694
)
        
4,393
  
                                 
Long term debt
    
-
    
-
    
7,500
    
(b)
 
  
7,500
  
Deferred income taxes
    
260
    
-
    
333
    
(f)
 
  
593
  
Decommissioning retirement liability
    
537
    
-
                
537
  
Contract termination liability
    
1,526
    
-
                
1,526
  
                                 
Shareholders’ equity
                                
Common stock
   
321
    
329
    
20
    
(a)
 
  
331
  
                 
10
    
(c)
 
      
                 
(349
)
  
(g)
 
      
Additional paid in capital
    
68,889
    
2,282
    
180
    
(a)
 
  
71,931
  
                 
3,042
    
(c)
 
      
                 
(2,462
)
  
(g)
 
      
Retained earnings
    
48,132
    
1,561
    
(1,561
)
  
(g)
 
  
48,132
  
Accumulated other comprehensive loss
    
(295
)
  
-
                 
(295
)
Total shareholders’ equity
    
117,047
    
4,172
    
(1,120
)
        
120,099
  
                                 
Total liabilities and shareholders’ equity
  
$
123,216
  
$
6,413
  
$
5,019
        
$
134,648
  

See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

2


UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share data)

 
     
Six Months Ended
    
Pro Forma
  
   
Theragenics
July 2, 2006
  
Galt
June 30, 2006
  
Adjustments
      
Total
  
           
 (Note 3)
          
Product sales
  
$
24,680
  
$
5,251
  
$
-
        
$
29,931
  
Licensing fees
    
304
    
-
                
304
  
Total revenue
    
24,984
    
5,251
    
-
          
30,235
  
                                 
Cost of sales
    
12,535
    
2,915
    
(815
)
  
(h)
 
  
14,622
  
                   
 (13
)
  
(i)
 
      
                                 
Gross profit
    
12,449
    
2,336
    
828
          
15,613
  
                                 
Selling, general and administrative
    
10,725
    
1,293
    
(155
)
  
(h)
 
  
11,862
  
                 
(1
)
  
(i)
 
      
Research and development
    
418
    
-
                
418
  
Purchased intangibles amortization
    
375
    
-
    
597
    
(j)
 
  
972
  
Restructuring
    
369
    
-
                
369
  
Gain on sale of assets
    
(201
)
  
-
                
(201
)
                                 
Earnings from operations
    
763
    
1,043
    
387
          
2,193
  
Interest income
    
869
    
28
    
(412
)
  
(k)
 
  
485
  
Interest expense
    
(134
)
  
-
    
229
    
(l)
 
  
(363
)
Other
    
(20
)
  
-
                
(20
)
                                 
                                 
Earnings before income taxes
    
1,478
    
1,071
    
(254
)
        
2,295
  
                                 
Income tax expense
    
270
    
334
    
334
 
  
(m)
 
  
270
  
                                 
Net earnings
  
$
1,208
  
$
737
  
$
80
        
$
2,025
  
                                 
Earnings per share
                                
Basic
 
$
0.04
                    
$
0.06
  
Diluted
  
$
0.04
                    
$
0.06
  
Weighted average shares outstanding
                                
Basic
   
32,064
          
978
    
(o)
 
  
33,042
  
Diluted
    
32,114
          
978
    
(o)
 
  
33,092
  

 


See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements







3




UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(amounts in thousands, except per share data)

 
 
   
Year Ended
December 31, 2005
    
Pro Forma
  
   
Theragenics
  
Galt
  
Adjustments
        
Total
  
               
(Note 3)
              
Product sales
  
$
43,693
  
$
7,102
  
$
-
        
$
50,795
  
Licensing fees
    
577
    
-
                
577
  
Total revenue
    
44,270
    
7,102
    
-
          
51,372
  
                                 
Cost of sales
    
23,763
    
2,437
    
(68
)
  
(i)
 
  
26,132
  
 
                                
Gross profit
    
20,507
    
4,665
    
68
          
25,240
  
 
                                
Selling, general and administrative
    
19,652
    
1,633
    
(8
)
  
(i)
 
  
21,277
  
Research and development
    
3,632
    
32
                
3,664
  
Purchased intangibles amortization
    
500
    
-
    
1,194
    
(j)
 
  
1,694
  
Restructuring
    
33,390
    
-
                
33,390
  
 
                                
Earnings (loss) from operations
    
(36,667
)
  
3,000
    
(1,118
)
        
(34,785
)
 
                                
Interest income
    
1,429
    
12
    
(591
)
  
(k)
 
  
850
  
Interest expense
    
(160
)
  
(66
)
  
356
    
(l)
 
  
(582
)
Other
    
(2
)
  
-
                
(2
)
                                 
Earnings (loss) before income taxes
    
(35,400
)
  
2,946
    
(2,065
)
        
(34,519
)
                                 
Income tax expense (benefit)
    
(6,394
)
  
407
    
(407
)
  
(m)
 
  
(6,394
)
                                 
Net earnings (loss)
  
$
(29,006
)
$
2,539
  
$
(1,658
)
      
$
(28,125
)
                                 
Loss per share
                                
Basic and diluted
  
$
(0.93
)
                  
$
(0.87
)
Weighted average shares outstanding
                                
Basic and diluted
    
31,273
          
978
    
(o)
 
  
32,251
  
                                 
                                 
 


See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements



4



NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 


 
1.
On August 2, 2006, Theragenics acquired all of the outstanding common stock and other equity interests of Galt. The total purchase price, including transaction costs, was $32.8  million, (net of cash acquired of $2.2 million). The purchase price paid was $29.7 million in cash and the issuance of 978,065 shares of Theragenics common stock valued at $3.1 million. The per share value of the common stock was based upon the closing price of the stock on the date of acquisition. Theragenics financed a portion of the purchase price with $7.5 million of borrowings under its $40.0 million credit facility. Under the purchase method of accounting, the assets and liabilities of Galt will be recorded at their fair values as of the acquisition date and added to those of Theragenics. The reported financial condition and results of operations of Theragenics subsequent to the acquisition will reflect these values, but will not be restated retroactively to reflect historical financial position or results of operations of Galt.

The purchase price is determined as follows (in thousands):

Cash consideration paid
  
$
30,814
  
Theragenics’ commons shares issued
    
3,052
  
Transaction costs
    
1,127
  
Gross purchase price
    
34,993
  
Less cash acquired
     (2,224 )
Total purchase price
  
$
32,769
  


For purposes of this pro forma presentation, the purchase price has been allocated on a preliminary basis to the acquired tangible and intangible assets and liabilities based on their estimated fair values as of June 30, 2006 as follows (in thousands):

Current assets
  
$
2,928
  
Property and equipment
    
1,445
  
Identifiable intangible assets
    
8,770
  
Current liabilities
    
(547
)
Deferred income tax liability
    
(333
)
Goodwill
    
20,506
  
   
$
32,769
  









5



The amount allocated to identifiable intangible assets and goodwill has been attributed to the following categories based on the preliminary valuation (in thousands):

   
Estimated
fair value
  
Estimated
Useful life
  
Trade name
  
$
900
    
Indeterminate
  
Acquired technology
    
900
    
14 years
  
Customer relationships
    
5,100
    
7.5 years
  
Non-compete agreements
    
1,700
    
3-4 years
  
Backlog
    
170
    
Less than 1 year
  
Total Identifiable intangible assets
  
$
8,770
        
               
Goodwill
  
$
20,506
    
Indeterminate
  
 
 
In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, intangible assets with indeterminate lives, including goodwill and trade name, will not be amortized. Amortization of all intangible assets identified above is not expected to be deductible for income tax purposes.

The purchase price allocation above, including the amounts allocated to identifiable intangible assets and goodwill, is presented for pro forma information only. The actual purchase price allocation will be based on the fair values of the assets acquired and liabilities assumed as of August 2, 2006, which may be materially different than the estimated fair values at June 30, 2006.

 
2.
Theragenics recorded $32.9 million of restructuring charges in the third quarter of 2005 which resulted in, among other things, a net deferred income tax asset of $6.6 million. Due to the Company’s recent history of operating losses at that time, a valuation allowance for the full amount of the net deferred tax asset was recorded. Theragenics has been profitable for the six months ended July 2, 2006. However, management believes that a track record of quality earnings must be established prior to recognizing deferred tax assets that are dependent upon future taxable income. The acquisition of Galt is not expected to change management’s estimate related to the allowance for the net deferred tax asset at August 2, 2006. $2.9 million of deferred income tax liability arising from fair value adjustments in purchase accounting related to the Acquisition are expected to be recorded as a reduction of the allowance for the net deferred tax asset and a reduction in the goodwill arising from the transaction. Accordingly, the accompanying pro forma information reflects this treatment for all periods presented.

 
3.
The following describes the pro forma adjustments related to the Acquisition made in the accompanying unaudited pro forma condensed consolidated balance sheet as of July 2, 2006 and the unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2005 and the six months ended July 2, 2006.

 
a.
To record the exercise of non-qualified stock options at Galt immediately prior to the Acquisition.
 
b.
To record the cash portion of the purchase price, including direct transaction costs paid prior to closing and borrowings under Theragenics’ credit facility utilized at closing.

6


 
c.
To record the stock portion of the purchase price, consisting of 978,065 shares of Theragenics common stock.
 
d.
To record the estimated fair value adjustment to the carrying value of Galt’s inventory balance in purchase accounting. The related amortization expense has not been included as an adjustment to cost of sales in the accompanying pro forma statements of operations because its impact is not expected to extend beyond the next twelve months.
 
e.
To record the estimated fair values of the acquired identifiable intangible assets and goodwill. No pro forma expense has been included in the pro forma statements of operations for amortization of backlog because its impact is not expected to extend beyond the next twelve months.
 
f.
To record deferred tax liabilities related to identifiable intangible assets with indeterminate lives in connection with fair value adjustments in purchase accounting.
 
g.
To eliminate Galt’s historical shareholders’ equity account balances in purchase accounting.
 
h.
To reverse share based compensation expense at Galt related to phantom share that terminates upon change in control.
 
i.
To adjust depreciation expense for adjustments to depreciable lives of Galt property and equipment.
 
j.
To record amortization expense related to the acquired identifiable intangible assets arising from the Acquisition.
 
k.
To reduce interest income for reduction in cash used for the Acquisition.
 
l.
To record interest expense on long term borrowings used for the Acquisition.
 
m.
To reduce income tax expense attributable to Galt as a result of Theragenics’ allowance for its net deferred tax asset (see Note 2).
 
n.
To adjust income taxes payable and deferred income tax asset for Galt results of operations for the period January 1, 2006 to date of Acquisition.
 
o.
To record the weighted average shares issued for the Acquisition.



 
 
 
 
7