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8-K/A - FORM 8-K/A AMENDMENT NO. 1 - USMD Holdings, Inc.d440561d8ka.htm
EX-99.4 - UNAUDITED COMBINED FINANCIAL STATEMENTS-IMPEL MANAGEMENT AND THE MEDICAL CLINIC - USMD Holdings, Inc.d440561dex994.htm
EX-99.2 - UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS-UROLOGY ASSOCIATES - USMD Holdings, Inc.d440561dex992.htm
EX-99.3 - AUDITED COMBINED FINANCIAL STATEMENTS-IMPEL MANAGEMENT AND THE MEDICAL CLINIC - USMD Holdings, Inc.d440561dex993.htm

Exhibit 99.5

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA FOR USMD HOLDINGS, INC.

The following unaudited pro forma condensed combined financial information is based on the historical financial statements of USMD Holdings, Inc.(“Holdings”), the historical consolidated financial statements of USMD Inc.(“USMD”), and the historical combined financial statements of Urology Associates of North Texas, L.L.P (“UANT”) and UANT Ventures, L.L.P (“Ventures”) and The Medical Clinic of North Texas, P.A. (“MCNT”) and Impel Management Services, L.L.C (“Impel”), adjusted to give effect to pro forma events that are (1) directly attributable to the business combination (the “Contribution”), (2) factually supportable, and (3) with respect to the statements of operations/income, expected to have a continuing impact on the combined results of operations. The historical statements of operations are also adjusted to give effect to direct, incremental costs of the Contribution as nonrecurring charges directly related to the Contribution. Pro forma adjustments give effect to the Contribution as an acquisition of UANT, Ventures, MCNT and Impel by USMD into Holdings. The pro forma information does not give effect to any synergies that may be realized as a result of the Contribution, nor does it give effect to any nonrecurring restructuring charges that may be incurred as a result of the integration of USMD, UANT, Ventures, MCNT and Impel.

Holdings was formed in May 2010 to facilitate the Contribution. Through June 30, 2012, Holdings had no operations or cash flows except for the expenses associated with a share-based payment, periodic reporting associated with Securities and Exchange Commission (“SEC”) filings and in preparation for the Contribution and the new post-Contribution organization. Holdings’ only assets, liabilities and equity are related to these items. The financial statements of UANT include the accounts of Ventures, and the financial statements of MCNT include the accounts of Impel.

The unaudited pro forma condensed combined balance sheet as of June 30, 2012 gives effect to the Contribution as if it occurred on June 30, 2012 and combines the historical balance sheets of Holdings, USMD, UANT and Ventures, and MCNT and Impel as of June 30, 2012. The Holdings, USMD, UANT and Ventures and MCNT and Impel pro forma balance sheet information was derived from their respective unaudited June 30, 2012 balance sheets.

The unaudited pro forma condensed combined statement of operations the six months ended June 30, 2012 and the year ended December 31, 2011 are presented as if the Contribution had been consummated on January 1, 2011 and combines the historical results of Holdings, USMD, UANT and Ventures, and MCNT and Impel for the six months ended June 30, 2012 and for the year ended December 31, 2011. The historical results of Holdings, USMD, UANT and Ventures and MCNT and Impel for the six months ended June 30, 2012 were derived from their respective unaudited statements of operations/income for the six months ended June 30, 2012. The historical results of Holdings, USMD, UANT and Ventures and MCNT and Impel for the year ended December 31, 2011 were derived from their respective audited statements of operations/income for the year ended December 31, 2011. Holdings has made certain reclassification adjustments to conform historical reported balances to the unaudited pro forma condensed combined financial statement’s basis of presentation.

The unaudited interim financial statements of Holdings and USMD for the six months ended June 30, 2012 are included in Holdings’ Quarterly Report on Form 10-Q for the six months ended June 30, 2012 filed with the SEC. The unaudited interim financial statements of UANT and Ventures and MCNT and Impel for the six months ended June 30, 2012 are included elsewhere in this current report on Form 8-K/A.

The audited financial statements of Holdings and USMD for the year ended December 31, 2011 are included in Holdings’ Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC. The audited financial statements of UANT and Ventures for the year ended December 31, 2011 are included in Holdings’ Registration Statement on Form S-4 filed with the SEC. The audited financial statements of MCNT and Impel for the year ended December 31, 2011 are included elsewhere in this current report on Form 8-K/A.

Holdings will account for the Contribution in accordance with accounting guidance for business combinations, which will result in the recognition of assets acquired and liabilities assumed at fair value as of the acquisition date, which is the closing date of the Contribution. For the purposes of preparing the unaudited pro forma information, the assets and liabilities of UANT, Ventures, MCNT and Impel have been measured based on various estimates using assumptions that the USMD, UANT, Ventures, MCNT and Impel managements believe are reasonable. The estimated fair values of the assets acquired and liabilities assumed are final subject to final review and approval of valuations and working capital, ownership, capital expenditure and debt adjustments to be concluded upon in accordance with the Contribution and Purchase Agreement as Amended, but not longer than one year from the date of acquisition.

The unaudited pro forma condensed combined financial information of Holdings has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the financial position or results of operations that actually would have been realized had Holdings, USMD, UANT, Ventures, MCNT and Impel been a combined company during the specified periods. The unaudited pro forma condensed combined financial information, including the notes thereto, is qualified in its entirety by reference to, and should be read in conjunction with, the historical financial statements of Holdings, USMD, UANT and Ventures and MCNT and Impel for the year ended December 31, 2011.


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

(As of June 30, 2012)

 

     Holdings
Historical
    USMD  Inc.
Historical
    UANT and
Ventures
Historical
     MCNT
and Impel
Historical
    Pro Forma
Adjustments
    Note
Reference
  Pro Forma
Combined
 
ASSETS    (in thousands)  

Current assets:

               

Cash and cash equivalents

   $ —        $ 8,709      $ 1,482       $ 3,710      $ (876   (K)   $ 13,025   

Certificates of deposit-restricted

     —          —          —           3,069        —            3,069   

Accounts receivable, net of allowance for doubtful accounts

     —          3,477        3,698         10,038        (105   (A)     17,108   

Affiliate accounts receivable

     —          1,937        —           —          —            1,937   

Deferred tax assets, current

     —          86        —           563        —            649   

Prepaid expenses and other current assets

     —          440        2,102         1,228        —            3,770   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 

Total current assets

     —          14,649        7,282         18,608        (981       39,558   

Property and equipment, net

     —          2,856        13,511         6,997        3,728      (F)     27,092   

Investments in nonconsolidated affiliates

     —          12,300        8,883         —          12,975      (C),(F)     34,158   

Goodwill

     —          8,335        4,988         —          101,260      (F)     114,583   

Intangible assets, net

     —          287        —           —          32,479      (F)     32,766   

Deferred tax assets, less current portion

     538        1,386        —           3,781        —            5,705   

Cash surrender value of life insurance policies

     —          —          —           3,221        —            3,221   

Other assets

     —          —          33         105        —            138   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 

Total assets

   $ 538      $ 39,813      $ 34,697       $ 32,712      $ 149,461        $ 257,221   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 
LIABILITIES AND EQUITY                

Current liabilities:

               

Accounts payable

   $ 998      $ 251      $ 2,254       $ 2,860      $ (105   (A)   $ 6,258   

Accrued payroll

     187        1,491        1,543         7,355        —            10,576   

Other accrued liabilities

     —          1,534        —           1,805        314      (E)     3,653   

Line of credit

     —          —          —           2,152        (2,152   (K)     —     

Current portion of long-term debt and capital lease obligations

     —          1,968        5,404         975        (3,025   (K)     5,322   

Other current liabilities

     —          10        312         1,963        (207   (F)     2,078   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 

Total current liabilities

     1,185        5,254        9,513         17,110        (5,175       27,887   

Long-term debt and capital lease obligations, less current portion

     —          7,441        7,611         3,388        4,301      (K)     22,741   

Deferred tax liabilities, less current portion

     —          4,521        —           —          27,323      (F)     31,844   

Deferred compensation

     —          —          —           8,454        —            8,454   

Deferred rent, less current portion

     —          —          —           4,809        (4,809   (F)     —     

Other liabilities

     —          —          —           1,184        —            1,184   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 

Total liabilities

     1,185        17,216        17,124         34,945        21,640          92,110   

Equity:

               

Members’ and stockholders’ equity (deficit):

               

Members’ equity

     —          —          —           2,422        (2,422   (F)     —     

Common stock

     —          310        —           —          (210   (F)     100   

Additional paid-in capital

     354        7,568        —           7        142,727      (F)     150,656   

Retained earnings (accumulated deficit)

     (1,001     11,524        —           (4,662     5,349      (E), (F)     11,210   

Accumulated other comprehensive loss

     —          (15     —           —          —            (15

Treasury stock

     —          (1,184     —           —          1,184      (F)     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 

Total members’ and stockholders’ equity (deficit)

     (647     18,203        —           (2,233     146,628          161,951   

Partners’ capital

     —          —          17,573         —          (17,573   (F)     —     

Noncontrolling interests in subsidiaries

     —          4,394        —           —          (1,234   (C)     3,160   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 

Total equity

     (647     22,597        17,573         (2,233     127,821          165,111   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 

Total liabilities and equity

   $ 538      $ 39,813      $ 34,697       $ 32,712      $ 149,461        $ 257,221   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

     

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these financial statements.


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(For the six months ended June 30, 2012)

 

     Holdings
Historical
    USMD  Inc.
Historical
    UANT and
Ventures
Historical
    MCNT
and Impel
Historical
    Pro Forma
Adjustments
    Note
Reference
  Pro Forma
Combined
 
     (in thousands)  

Revenue:

              

Management services revenue

   $ —        $ 11,707      $ —        $ 5,331      $ (639   (A)   $ 16,399   

Net patient service revenue

     —          —          29,070        54,198        516      (B)     83,784   

Lithotripsy revenue

     —          11,000        —          —          —            11,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net operating revenue

     —          22,707        29,070        59,529        (123       111,183   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Operating expenses:

              

Salaries, wages and employee benefits

     176        10,721        15,229        39,383        4,922      (A), (H), (I)     70,431   

Medical supplies and services expense

     —          196        2,458        5,785        —            8,439   

Provision for doubtful accounts

     —          72        639        1,102        —            1,813   

Other operating expenses

     1,060        4,201        5,872        10,607        (2,347   (A),(E)     19,393   

Electronic Heath Record incentive income

     —          —          —          —          (910   (B)     (910

Depreciation and amortization

     —          537        1,870        1,044        46      (F),(G)     3,497   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total operating expenses

     1,236        15,727        26,068        57,921        1,711          102,663   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) from operations

     (1,236     6,980        3,002        1,608        (1,834       8,520   

Other income (expense):

              

Interest expense, net

     —          (410     (288     (310     487      (K)     (521

Equity in income of nonconsolidated affiliates, net

     —          757        2,960        —          (1,055   (D)     2,662   

Other income (expense), net

     —          135        1,637        —          (1,426   (B)     346   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Total other income (expense), net

     —          482        4,309        (310     (1,994       2,487   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Income (loss) before provision for income taxes

     (1,236     7,462        7,311        1,298        (3,828       11,007   

Provision (benefit) for income taxes

     (432     521        —          381        1,588      (J)     2,058   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss)

     (804     6,941        7,311        917        (5,416       8,949   

Less: net income attributable to noncontrolling interests

     —          (5,988     —          —          1,055      (D)     (4,933
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

Net income (loss) attributable to Holdings

   $ (804   $ 953      $ 7,311      $ 917      $ (4,361     $ 4,016   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

     

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these financial statements.


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

(For the year ended December 31, 2011)

 

     Holdings
Historical
    USMD
Inc.
Historical
    UANT and
Ventures
Historical
    MCNT
and Impel
Historical
    Pro Forma
Adjustments
    Note
Reference
   Pro Forma
Combined
 
     (in thousands)  

Revenue:

               

Management services revenue

   $ —        $ 23,211      $ —        $ 7,798      $ (1,213   (A)    $ 29,796   

Net patient service revenue

     —          —          55,541        101,217        1,669      (B)      158,427   

Lithotripsy revenue

     —          21,975        —          —          —             21,975   

Other operating revenue

     —          3,690        —          —          —             3,690   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net operating revenue

     —          48,876        55,541        109,015        456           213,888   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Operating expenses:

               

Salaries, wages and employee benefits

     178        20,208        27,426        73,806        9,128      (A), (H), (I)      130,746   

Medical supplies and services expense

     —          376        3,886        11,826        —             16,088   

Provision for doubtful accounts

     —          35        1,280        906        —             2,221   

Other operating expenses

     125        8,660        10,708        20,411        (3,584   (A), (E)      36,320   

Depreciation and amortization

     —          916        3,524        2,247        925      (F),(G)      7,612   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total operating expenses

     303        30,195        46,824        109,196        6,469           192,987   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) from operations

     (303     18,681        8,717        (181     (6,013        20,901   

Other income (expense):

               

Interest expense, net

     —          (846     (602     (346     613      (K)      (1,181

Equity in income of nonconsolidated affiliates

     —          1,715        5,721        —          (2,240   (D)      5,196   

Other income (expense), net

     —          (758     1,778        1,736        (1,669   (B)      1,087   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Total other income (expense), net

     —          111        6,897        1,390        (3,296        5,102   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Income (loss) before provision for income taxes

     (303     18,792        15,614        1,209        (9,309        26,003   

Provision (benefit) for income taxes

     (106     2,838        —          526        2,992      (J)      6,250   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss)

     (197     15,954        15,614        683        (12,301        19,753   

Less: net income attributable to noncontrolling interests

     —          (13,296     —          —          2,240      (D)      (11,056
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

Net income (loss) attributable to Holdings

   $ (197   $ 2,658      $ 15,614      $ 683      $ (10,061      $ 8,697   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

      

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial statements, which are an integral part of these financial statements.


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1 – Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial information is based on the historical financial statements of Holdings, the historical consolidated financial statements of USMD and the historical combined financial statements of UANT and Ventures and MCNT and Impel, adjusted to give effect to pro forma events that are (1) directly attributable to the Contribution, (2) factually supportable, and (3) with respect to the statements of operations/income, expected to have a continuing impact on the combined results of operations. The historical statements of operations are also adjusted to give effect to direct, incremental costs of the Contribution as nonrecurring charges directly related to the Contribution. Pro forma adjustments give effect to the Contribution as an acquisition of UANT, Ventures, MCNT and Impel by USMD into Holdings, a business combination related shell company.

The unaudited pro forma condensed combined balance sheet as of June 30, 2012 gives effect to the Contribution as if it occurred June 30, 2012 and combines the historical balance sheets of Holdings, USMD, UANT and Ventures, and MCNT and Impel as of June 30, 2012. The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2012 and for the year ended December 31, 2011 are presented as if the Contribution had been consummated on January 1, 2011 and combines the historical results of Holdings, USMD, UANT and Ventures, and MCNT and Impel for the six months ended June 30, 2012 and the year ended December 31, 2011, respectively.

Holdings prepared the pro forma financial information in accordance with accounting guidance for business combinations, which will result in the recognition of assets acquired and liabilities assumed at fair value as of the acquisition date, which is the closing date of the Contribution. The Contribution is accounted for as a reverse acquisition by USMD into Holdings, a business combination related shell company. Under reverse acquisition accounting, the financial statements are issued in the name of the legal parent (Holdings), but represent a continuation of the accounting acquirer’s (USMD) financial statements, with an adjustment to retroactively restate USMD’s legal capital to reflect the legal capital of Holdings. The assets and liabilities of USMD continue at their pre-combination carrying values. The assets and liabilities of Holdings are recorded at fair value at the acquisition date, which, for Holdings, equals their carrying values. The assets acquired and liabilities assumed from Ventures, UANT, MCNT and Impel are recorded at their respective fair values at the acquisition date. For the purposes of preparing the unaudited pro forma information, the assets and liabilities of UANT, Ventures, MCNT and Impel have been measured based on various estimates using assumptions that the managements of USMD, UANT, Ventures, MCNT and Impel believe are reasonable. The allocation of estimated fair values of the assets acquired and liabilities assumed is final subject to final review and approval of valuations and working capital, ownership, capital expenditure and debt adjustments to be concluded upon in accordance with the Contribution and Purchase Agreement as Amended, but not longer than one year from the date of acquisition.

Note 2 – Assets Acquired and Liabilities Assumed at Fair Value

Holdings prepared the allocation of the fair values of the assets acquired and liabilities assumed in the June 30, 2012 unaudited pro forma condensed combined balance sheet based on management’s best estimates of the fair value of assets acquired and liabilities assumed utilizing a valuation as of August 31, 2012. The allocation gives effect to the Contribution as an acquisition of UANT, Ventures, MCNT and Impel by USMD into Holdings, a business combination related shell company. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed of Holdings, Ventures, UANT, MCNT and Impel based on June 30, 2012 balances and subject to final closing adjustments to be made in accordance with the terms of the Contribution and Purchase Agreement as Amended (in thousands):

 

Current assets

   $ 26,557   

Property and equipment

     24,236   

Investments

     36,198   

Other assets

     8,039   

Identifiable intangible assets

     32,479   

Goodwill

     78,925   

Liabilities assumed, other than long-term debt

     (29,007

Long-term debt

     (19,530
  

 

 

 

Net assets acquired and liabilities assumed

   $ 157,897   
  

 

 

 

For the purpose of these pro forma condensed combined financial statements, the carrying value of all assets acquired, except for identifiable intangible assets, property and equipment and goodwill, and all liabilities assumed, approximates fair value. Holdings determined an estimated net enterprise value of each business unit of UANT, Ventures, MCNT and Impel primarily using an income approach—discounted cash flow methodology. The analysis included each business unit’s assumptions regarding 1) the development of new businesses and organic growth rates specific to it, 2) managed care reimbursement rates where applicable, 3) discount rates of 17.5% for UANT and Ventures, and 17.7% and 14.2% for MCNT and Impel, respectively, each developed by the individual business unit using a weighted average cost of capital analysis, and 4) the costs savings or increases, and any capital expenditure requirements, associated with any new initiatives developed by such business unit.

Identifiable intangible assets acquired, excluding goodwill, consist of the following (in thousands):

 

     Fair
Value
     Weighted-
Average
Amortization
Period

Noncompete agreements

   $ 17,542       10.0 years

Trade names

   $ 9,089       Indefinite

Trade name

   $ 402       5.0 years

Customer Relationships

   $ 767       3.0 years

Management agreements

   $ 4,679       30.0 years

Note 3 – Pro Forma Adjustments

The pro forma information does not give effect to any synergies that may be realized as a result of the Contribution, nor does it give effect to any nonrecurring restructuring charges that may be incurred as a result of the integration of Holdings, USMD, UANT, Ventures, MCNT and Impel. As Holdings continues to develop its integrated health system leadership team and public company infrastructure, Holdings expects to incur increases in compensation, legal and consultative and general and administrative expenses of approximately $0.8 million as compared to the six months ended June 30, 2012. The pro forma adjustments are as follows (in thousands):


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION – (Continued)

 

(A) To eliminate management services revenue earned by USMD CTC Division for services rendered to UANT. Upon consummation of the Contribution, this management services revenue and the related expenses will eliminate in consolidation.

The effects on the pro forma statements of operations for the six months ended June 30, 2012 and the year ended December 31, 2011 include reductions to management services revenue of $639 and $1,213, respectively. The pro forma statements of operations for the six months ended June 30, 2012 also include reductions to salaries, wages and employee benefits and other operating expense of $241 and $398, respectively, and the pro forma statements of operations for the year ended December 31, 2012 include reductions to salaries, wages and employee benefits and other operating expense of $442 and $771, respectively

The effect on the pro forma balance sheet at June 30, 2012 was a reduction to accounts receivable and accounts payable of $105.

 

(B) To reclassify UANT amounts from other income to net patient service revenue and Electronic Health Record (“EHR”) incentive income. The effects on the pro forma statements of operations for six months ended June 30, 2012 and the year ended December 31, 2011 were reclassifications to net patient service revenue of $516 and $1,669, respectively, and reclassifications to EHR incentive income of $910 and $-0-, respectively.

 

(C) To eliminate equity investments of UANT in three lithotripsy partnerships due to the consolidation of these entities in the USMD consolidated financial statements. The effect on the pro forma balance sheet at June 30, 2012 was a decrease in investments in nonconsolidated affiliates and equity-noncontrolling interests in subsidiaries of $1,234.

 

(D) To eliminate equity in income of nonconsolidated affiliates recorded by UANT from three lithotripsy partnerships due to the consolidation of these entities in the USMD consolidated financial statements and to eliminate the offsetting noncontrolling interest deductions. The effects on the pro forma statements of operations for the six months ended June 30, 2012 and the year ended December 31, 2011 were $1,055 and $2,240, respectively.

 

(E) To eliminate direct, incremental costs of the Contribution as nonrecurring charges directly related to the transaction. The pro forma statements of operations include adjustments to eliminate $1,949 and $2,813 of direct, incremental Contribution transaction costs incurred for the six months ended June 30, 2012 and the year ended December 31, 2011, respectively. The pro forma balance sheet includes a pro forma adjustment to reflect estimated future direct, incremental Contribution transaction costs of $314. The transaction costs include professional fees and other costs directly related to the Contribution.

 

(F) To account for assets acquired and liabilities assumed at fair value.

 

  i. Increase in investments in nonconsolidated affiliates of $14,209. The increase is net of an elimination in consolidation of $14,380 representing the fair value of equity investments of three lithotripsy partnerships acquired where these lithotripsy partnerships are already consolidated in the USMD consolidated financial statements—see (C) above.

 

  ii. Increase in goodwill of $73,937 directly related to the allocation of assets acquired and liabilities assumed and increases of $27,323 in noncurrent deferred tax liability and goodwill to record deferred tax liabilities associated with recording acquired amortizable intangible assets, partnership investments and property and equipment at fair value amounts in excess of their historical bases.

 

  iii. Increase in intangible assets of $32,479.

 

  iv. Eliminate deferred rent associated with acquired operating leases; $4,809 and $207 of the deferred rent, less current portion and other current liabilities line items, respectively.

 

  v. Increase in additional paid in capital of $142,727 and elimination of $17,573 of UANT partnership capital, $2,422 of member’s equity and $1,184 of treasury stock.

 

  vi. Convert USMD and MCNT common stock, Impel members’ equity and UANT partnership capital to equity in Holdings. Upon consummation of the Contribution Agreement, Holdings will have approximately ten million shares of common stock issued and outstanding at a par value of $0.01 per share.

 

  vii. Increase property and equipment $3,728 on the pro forma balance sheet. Also, to adjust property and equipment depreciation and amortization expense for the adjusted asset base and depreciable lives as determined per the fair value assessment. The effects on the pro forma statements of operations for the six months ended June 30, 2012 and the year ended December 31, 2011 were decreases in depreciation and amortization of $1,077 and $1,321 respectively.

 

(G) To account for amortization of intangible assets recorded at fair value as part of acquisition accounting. The effects on the pro forma statements of operations for six months ended June 30, 2012 and the year ended December 31, 2011 were increases in depreciation and amortization of $1,123 and $2,246, respectively.

 

(H) To reclassify UANT physician professional-services-based compensation previously paid as distributions of the partnership to salaries expense of Holdings. After the consummation of the Contribution, the physicians who previously received professional-services-based compensation from UANT in the form of distributions will become employees of USMD Physician Services, and these physician employees will receive equivalent professional-services-based compensation from UANT in the form of W-2 wages. The effects on the pro forma statements of operations for the six months ended June 30, 2012 and year ended December 31, 2011 were increases in $168 and $501, respectively, and is in addition to the pro forma adjustment described in (I) below.

 

(I) Historical salaries of physician employees are likely not representative of future compensation arrangements. In connection with the closing of the Contribution, each physician will enter into an employment agreement with USMD Physician Services and post-Contribution physician compensation arrangements will be based on fair market value. The effects on the pro forma statements of operations for the six months ended June 30, 2012 and the year ended December 31, 2011 were estimated increases in salary expenses of $4,995 and $9,069, respectively. In addition, the overall arrangement contains a base increase in future years that would have increased salaries, wages and employee benefits in 2012 by $300.

 

(J) To adjust the provision for income tax to account for UANT, Ventures and Impel as corporations subject to federal income tax and to estimate the federal income tax effect of the pro forma adjustments.

 

(K) To account for new debt of Holdings, of which the proceeds were used to pay down or retire certain debt and capital leases of USMD, UANT, MCNT and Impel, and the corresponding reduction in historical debt of USMD, UANT, MCNT and Impel. The effects on the pro forma balance sheet at June 30, 2012 included a decrease in cash of $876, net decreases in line of credit and current portion of long-term debt and capital lease obligations of $2,152 and $3,025, respectively, and a net increase in long-term debt and capital lease obligations, less current portion of $4,301.


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION – (Continued)

 

The effects on the pro forma statements of operations for six months ended June 30, 2012 and the year ended December 31, 2011 were decreases in interest expense of $487 and $613, respectively.

Note 4 – Commitments and Contingencies

UANT, MCNT and Impel intend to distribute approximately $3.0 million of cash immediately prior to the Contribution and the cash will not be a component of net working capital subsequent to the Contribution.

Note 5 – Subsequent Events

Effective August 31, 2012, Holdings and the other parties consummated the Contribution.