EX-99.2 5 dex992.htm PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION Pro Forma Condensed Combined Financial Information

Exhibit 99.2

 

PRO FORMA FINANCIAL INFORMATION

 

RITA and Horizon Unaudited Pro Forma Condensed Consolidated Financial Information

 

The following unaudited pro forma condensed consolidated financial information give effect to the merger of RITA and Horizon in a transaction to be accounted for as a purchase with RITA treated as the acquiror. The unaudited pro forma condensed consolidated balance sheet combines the historical consolidated balance sheets of RITA and Horizon as of March 31, 2004, giving effect to the merger as if it occurred on March 31, 2004. The unaudited pro forma condensed consolidated statements of operations combine the historical consolidated statements of operations of RITA and Horizon for the year ended December 31, 2003 and the three months ended March 31, 2004, giving effect to the merger as if it occurred on January 1, 2003, reflecting only pro forma adjustments expected to have a continuing impact on the combined results.

 

The unaudited pro forma condensed consolidated financial information is for informational purposes only. It does not purport to indicate the results that would have actually been obtained had the merger been completed on the assumed date or for the periods presented, or which may be realized in the future. To produce the pro forma financial information, RITA allocated the purchase price using its best estimates of fair value. These estimates are based on the most recently available information. To the extent there are significant changes to Horizon’s business, including results from ongoing clinical trials, the assumptions and estimates herein could change significantly. Furthermore, the parties expect to have reorganization and restructuring expenses as well as potential operating efficiencies as a result of combining the companies. The pro forma condensed consolidated financial information does not reflect these potential expenses and efficiencies. The unaudited pro forma condensed consolidated financial information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements, including the related notes, of RITA and Horizon covering these periods, contained in this joint proxy statement/prospectus and incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” on page 170 for more information.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Three months ended March 31, 2004

(Amounts in thousands, except per share amounts)

 

     Historical
RITA


    Historical
Horizon


    Pro forma
adjustments


    Pro
forma


 

Sales

   $ 4,644     $ 7,086     $ —       $ 11,730  

Cost of goods sold

     1,615       2,863       144 (a)     4,622  
    


 


 


 


Gross profit

     3,029       4,223       (144 )     7,108  
    


 


 


 


Operating expenses:

                                

Research and development

     843       172       —         1,015  

Selling, general and administrative

     4,366       4,469       221 (a)     9,056  
    


 


 


 


Total operating expenses

     5,209       4,641       221       10,071  
    


 


 


 


Loss from operations

     (2,180 )     (418 )     (365 )     (2,963 )

Interest income

     25       —         —         25  

Interest expense

     —         (570 )     —         (570 )

Other expense, net

     (15 )     (8 )     —         (23 )
    


 


 


 


Net loss

   $ (2,170 )   $ (996 )   $ (365 )   $ (3,531 )
    


 


 


 


Net loss per common share, basic and diluted

   $ (0.12 )   $ (0.02 )           $ (0.10 )(b)
    


 


         


Shares used in computing net loss per common share, basic and diluted

     17,998       43,888               36,642  
    


 


         


 

 

The accompanying notes are an integral part of the pro forma condensed consolidated financial information.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2003

(Amounts in thousands, except per share amounts)

 

     Historical
RITA


    Historical
Horizon


    Pro forma
adjustments


    Pro forma

 

Sales

   $ 16,607     $ 27,975     $ —       $ 44,582  

Cost of goods sold

     6,166       11,248       575 (a)     17,989  
    


 


 


 


Gross profit

     10,441       16,727       (575 )     26,593  
    


 


 


 


Operating expenses:

                                

Research and development

     4,294       973       —         5,267  

Selling, general and administrative

     17,418       14,123       892 (a)     32,433  
    


 


 


 


Total operating expenses

     21,712       15,096       892       37,700  
    


 


 


 


Income (loss) from operations

     (11,271 )     1,631       (1,467 )     (11,107 )

Interest income

     201       —         —         201  

Interest expense

     —         (2,373 )     —         (2,373 )

Other expense, net

     (9 )     (45 )     —         (54 )
    


 


 


 


Net loss

   $ (11,079 )   $ (787 )   $ (1,467 )   $ (13,333 )
    


 


 


 


Net loss per common share, basic and diluted

   $ (0.63 )   $ (0.02 )           $ (0.37 )(b)
    


 


         


Shares used in computing net loss per common share, basic and diluted

     17,647       36,656               36,291  
    


 


         


 

 

The accompanying notes are an integral part of the pro forma condensed consolidated financial information.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of March 31, 2004

(Amounts in thousands)

 

     Historical
RITA


    Historical
Horizon


    Pro forma
adjustments


    Pro forma

 

Assets

                                

Current assets:

                                

Cash and cash equivalents

   $ 6,122     $ 1,538     $ (2,450 )(e)   $ 5,210  

Marketable securities

     1,726       —         —         1,726  

Accounts and note receivable, net

     3,006       4,552       —         7,558  

Inventories

     1,777       5,597       —         7,374  

Prepaid and other current assets

     796       296       —         1,092  
    


 


 


 


Total current assets

     13,427       11,983       (2,450 )     22,960  

Long term marketable securities

     264       —         —         264  

Long term note receivable, net

     315       —         —         315  

Property and equipment, net

     905       1,989       —         2,894  

Goodwill

     —         15,650       72,813 (c)     88,463  

Intangible assets

     4,673       5,019       22,631 (f)     32,323  

Other assets

     47       6       —         53  
    


 


 


 


Total assets

   $ 19,631     $ 34,647     $ 92,994     $ 147,272  
    


 


 


 


Liabilities and Shareholders’ Equity

                                

Current liabilities:

                                

Accounts payable

   $ 736     $ 1,033     $ —       $ 1,769  

Accrued liabilities

     1,751       1,659       —         3,410  

Current portion of long-term debt

     —         1,347       —         1,347  
    


 


 


 


Total current liabilities

     2,487       4,039       —         6,526  

Long-term debt, less current portion

     —         16,661       —         16,661  

Other liabilities

     25       86       —         111  
    


 


 


 


Total liabilities

     2,512       20,786       —         23,298  
    


 


 


 


Shareholders’ equity:

                                

Common stock

     18       44       (25 )(d)     37  

Additional paid-in capital

     98,241       75,015       31,864 (d)     205,120  

Accumulated other comprehensive income

     3       —         —         3  

Shareholder’s note receivable

     —         (43 )     —         (43 )

Accumulated deficit

     (81,143 )     (61,155 )     61,155 (d)     (81,143 )
    


 


 


 


Total shareholders’ equity

     17,119       13,861       92,994       123,974  
    


 


 


 


Total liabilities and shareholders’ equity

   $ 19,631     $ 34,647     $ 92,994     $ 147,272  
    


 


 


 


 

The accompanying notes are an integral part of the pro forma condensed consolidated financial information.

 

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NOTES TO UNAUDITED PRO FORMA CONDENSED

CONSOLIDATED FINANCIAL INFORMATION

 

1. Basis of presentation

 

On May 13, 2004, RITA Medical Systems, Inc. (“RITA”) and Horizon Medical Products, Inc. (“Horizon”) announced that the parties had signed a definitive agreement to merge the two companies in a transaction to be accounted for as a purchase under accounting principles generally accepted in the United States of America. Under the terms of the merger agreement, each share of Horizon common stock outstanding at the closing of the merger will be converted into 0.4212 of a share of RITA’s common stock. In addition, outstanding Horizon stock options and warrants will be accelerated and assumed by RITA, with each option to purchase a share of Horizon’s common stock becoming an option to purchase 0.4212 of a share of RITA’s common stock at an exercise price equal to the exercise price of the Horizon option divided by 0.4212.

 

As of May 13, 2004, there were 44,264,101 shares of Horizon common stock outstanding, and there were 9,342,617 common shares issuable upon exercise of outstanding options and warrants. Based on these amounts, if the merger had taken place on May 13, 2004, Horizon shareholders would have received approximately 18,644,039 shares of RITA’s common stock, and holders of Horizon’s options and warrants would then hold options to purchase approximately 3,935,110 shares of RITA’s common stock. The exact number of shares and options to be issued will depend on the number of Horizon common shares, options and warrants outstanding at the closing of the merger.

 

2. Purchase price

 

The estimated purchase price of the acquisition is $109.3 million as follows (in thousands):

 

Issuance of RITA common stock

   $ 91,281

Assumption of Horizon options and warrants

     15,617

Transaction costs

     2,450
    

Total

   $ 109,348
    

 

The fair value of the RITA shares used in determining the purchase price was $4.896 per share based on the average closing price of RITA’s common stock from the two days before through two days after May 13, 2004, the date of the public announcement of the merger. The fair value of the Horizon options and warrants assumed was determined using the Black-Scholes option pricing model assuming a market price of $4.896 per share, exercise prices ranging from $0.83 to $34.72 and averaging $1.95, an expected average life of five years, a risk-free interest rate of 3.79%, volatility of 75% and no expected dividends.

 

The preliminary allocation of purchase price is as follows:

 

Current assets

   $ 11,983  

Property and equipment

     1,989  

Intangible assets

     27,650  

Goodwill

     88,463  

Other assets

     6  

Current liabilities

     (4,039 )

Debt

     (16,661 )

Other liabilities

     (86 )

Shareholder's note receivable

     43  
    


Net assets

   $ 109,348  
    


 

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The final determination of the purchase price allocation will be based on the fair values of the assets and liabilities assumed at the date of the closing of the merger. The purchase price will remain preliminary until RITA is able to complete a third party valuation of significant intangible assets acquired and evaluate the fair value of other assets and liabilities acquired. The final determination of the purchase price will be completed as soon as practicable after the date of the closing of the merger. The final amounts allocated to assets and liabilities acquired could differ significantly from the amounts presented in the unaudited pro forma condensed consolidated financial information above.

 

3. Pro forma adjustments

 

a) Represents amortization of identifiable intangible assets based on estimated fair values and useful lives assigned to these assets at the date of acquisition.

 

b) Pro forma basic and diluted loss per share is calculated by dividing the pro forma net loss by the pro forma weighted average shares of RITA’s common stock outstanding (in thousands):

 

     Year ended
December 31,
2003


   Three months
ended
March 31,
2004


RITA historical weighted average common shares outstanding

   17,647    17,998

Common shares issued to acquire Horizon

   18,644    18,644
    
  

Pro forma weighted average common shares outstanding

   36,291    36,642
    
  

 

     Shares issuable upon the exercise of outstanding stock options have been omitted from the calculation of pro forma loss per share as their effect would be anti-dilutive.

 

c) Represents the estimated fair value of goodwill arising from the merger. The estimated goodwill arising from the merger is $88.5 million. In accordance with Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets,” the goodwill arising from the merger will be recorded as an asset on the balance sheet and will be reviewed for impairment on at least an annual basis.

 

d) Represents the elimination of historical shareholders’ equity accounts for Horizon, the issuance of RITA common stock and options as part of the purchase price and estimated cash closing costs of the merger.

 

e) Estimated cash closing costs of the merger.

 

f) The estimated fair values of identifiable intangible assets arising from the merger total $27.3 million, as follows (in thousands):

 

Trademarks (10 year life)

   $ 3,100

Product technology (12 year life)

     6,900

Customer relationships (15 year life)

     16,600

Contract with Medtronic, Inc. (4 year life)

     700
    

     $ 27,300
    

 

     Intangible assets arising from the merger will replace $4.7 million of the $5.0 million in pre-merger intangible assets of Horizon. The net pro forma adjustment to intangible assets is then $22.6 million as follows (in thousands):

 

Intangible assets arising from the merger

   $ 27,300  

Less: Horizon intangible assets replaced by intangible assets arising from the merger

     (4,669 )
    


Pro forma adjustment to intangible assets

   $ 22,631  
    


 

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