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8-K - FORM 8-K - REHABCARE GROUP INCd70237e8vk.htm
EX-10.1 - EX-10.1 - REHABCARE GROUP INCd70237exv10w1.htm
EX-99.1 - EX-99.1 - REHABCARE GROUP INCd70237exv99w1.htm
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
     On November 24, 2009, RehabCare Group, Inc. (the “Company”) completed its transaction with Triumph HealthCare Holdings, Inc. (“Triumph HealthCare”) whereby RehabCare Merger Sub Corporation, a newly formed, indirect, wholly owned subsidiary of the Company merged with and into Triumph HealthCare (the “Merger”), with Triumph HealthCare surviving as a wholly-owned, indirect subsidiary of the Company. The unaudited pro forma condensed combined financial statements give effect to the Merger and related financing transactions, as if they had occurred on the dates indicated herein and after giving effect to the pro forma adjustments discussed herein. The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 2009 and unaudited pro forma condensed combined statements of earnings for the nine months ended September 30, 2009 and the year ended December 31, 2008, are based on the historical consolidated financial statements of the Company and Triumph HealthCare. The Merger will be accounted for using the acquisition method of accounting as of and from November 24, 2009, the date the Merger was consummated. The unaudited pro forma condensed combined balance sheet as of September 30, 2009 was prepared assuming the Merger and related financing transactions were completed on September 30, 2009. The unaudited pro forma condensed combined statements of earnings for the nine months ended September 30, 2009 and the year ended December 31, 2008 were prepared assuming the Merger and related transactions were completed on January 1, 2008.
     The adjustments necessary to fairly present the unaudited pro forma condensed combined financial statements have been made based on available information and, in the opinion of management, are reasonable. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements.
     The unaudited pro forma condensed combined financial information is for comparative purposes only and does not purport to represent what our financial position or results of operations would actually have been had the events noted above in fact occurred on the assumed dates or to project our financial position or results of operations for any future date or future period. The unaudited pro forma condensed combined statements of earnings do not include costs that we expect to incur in connection with the Merger, which we expect to be approximately $9.0 million to $10.0 million, or any cost savings that may result from the combination of the Company’s and Triumph HealthCare’s operations or the costs necessary to achieve those cost savings. In addition, the allocation of the purchase price by the Company to the assets acquired and liabilities assumed is preliminary. The final allocation, which will be made on the basis of the estimated fair values of such assets and liabilities as of November 24, 2009 may differ materially from the amounts reflected herein.
     The unaudited pro forma condensed combined financial information should be read in conjunction with, and are qualified by reference to, our consolidated financial statements and related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Current Report on Form 8-K filed on October 9, 2009, our unaudited condensed consolidated financial statements and related notes and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Quarterly Report on Form 10-Q for the nine months ended September 30, 2009, filed November 5, 2009 and Triumph HealthCare’s historical financial statements and the accompanying notes thereto included in our Current Report on Form 8-K filed on November 9, 2009.

 


 

REHABCARE GROUP, INC.
Pro Forma Condensed Combined Balance Sheet (Unaudited)
September 30, 2009
(amounts in thousands)
                                                 
                    Triumph             Allocation of        
            Triumph     HealthCare     Transaction     Purchase     Combined  
    RehabCare     HealthCare     Excludable     Funding     Price     Pro Forma  
                    (a)     (b)     (c)          
ASSETS
                                               
Current assets:
                                               
Cash and cash equivalents
  $ 34,541     $ 54,392     $ (54,392 )   $ (15,316 )   $     $ 19,225  
Accounts receivables, net
    137,681       55,360                         193,041  
Deferred tax assets
    14,750       6,311                         21,061  
Other current assets
    8,016       6,977       (907 )                 14,086  
 
                                   
Total current assets
    194,988       123,040       (55,299 )     (15,316 )           247,413  
Property and equipment, net
    42,141       58,286                   13,611       114,038  
Goodwill
    173,462       171,561       (171,561 )           399,508       572,970  
Intangible assets, net
    25,571       35,601                   74,099       135,271  
Investment in Triumph HealthCare
                      545,581       (545,581 )      
Investment in unconsolidated affiliate
    4,725                               4,725  
Other
    6,132       7,367       (5,514 )     19,538             27,523  
Net assets transferred by seller
                (92,570 )           92,570        
 
                                   
Total assets
  $ 447,019     $ 395,855     $ (324,944 )   $ 549,803     $ 34,207     $ 1,101,940  
 
                                   
LIABILITIES AND EQUITY
                                               
Current liabilities:
                                               
Current portion of long-term debt
  $ 444     $ 6,403     $ (3,060 )   $ 4,500     $     $ 8,287  
Accounts payable
    6,027       14,730                         20,757  
Accrued salaries and wages
    58,852       14,717                         73,569  
Accrued interest
    40       2,064       (2,064 )                 40  
Income taxes payable
    2,634       2,508                         5,142  
Other current liabilities
    31,019       10,936       (1,862 )                 40,093  
 
                                   
Total current liabilities
    99,016       51,358       (6,986 )     4,500             147,888  
Long-term debt, less current portion
    26,273       394,754       (384,140 )     411,500             448,387  
Deferred tax liabilities
    9,762       7,743                   34,207       51,712  
Other
    4,375       6,910                         11,285  
 
                                   
Total liabilities
    139,426       460,765       (391,126 )     416,000       34,207       659,272  
 
                                   
Stockholders’ equity:
                                               
Preferred stock
                                   
Common stock
    218       79       (79 )     62             280  
Additional paid-in capital
    149,662       478       (478 )     140,491             290,153  
Retained earnings
    199,336       (65,622 )     65,622       (6,750 )           192,586  
Treasury stock
    (54,704 )                             (54,704 )
Accumulated other comprehensive earnings
    (143 )     (1,117 )     1,117                   (143 )
 
                                   
Total stockholders’ equity
    294,369       (66,182 )     66,182       133,803             428,172  
Noncontrolling interests
    13,224       1,272                         14,496  
 
                                   
Total equity
    307,593       (64,910 )     66,182       133,803             442,668  
 
                                   
Total liabilities and equity
  $ 447,019     $ 395,855     $ (324,944 )   $ 549,803     $ 34,207     $ 1,101,940  
 
                                   
See accompanying notes to unaudited pro forma condensed combined financial statements.

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REHABCARE GROUP, INC.
Pro Forma Condensed Combined Statement of Earnings (Unaudited)
Nine Months Ended September 30, 2009
(amounts in thousands, except per share data)
                                         
                    Triumph              
            Triumph     HealthCare     Pro Forma     Combined  
    RehabCare     HealthCare     Excludable     Adjustments     Pro Forma  
    (d)     (e)     (f)                  
Operating revenues
  $ 614,735     $ 328,455     $     $     $ 943,190  
Costs and expenses:
                                       
Operating
    565,754       260,157             (414 )(g)     825,497  
Depreciation and amortization
    11,379       10,759       (10,759 )     8,604 (h)     21,891  
 
                            1,908 (i)        
 
                             
Total costs and expenses
    577,133       270,916       (10,759 )     10,098       847,388  
 
                             
Operating earnings
    37,602       57,539       10,759       (10,098 )     95,802  
Interest income
    19                         19  
Interest expense
    (1,619 )     (22,693 )     21,578       (23,310 )(j)     (26,044 )
Other income (expense)
    4                         4  
Equity in net income of affiliates
    326                         326  
 
                             
Earnings from continuing operations, before income taxes
    36,332       34,846       32,337       (33,408 )     70,107  
Income taxes
    14,799       12,832             (418 )(k)     27,213  
 
                             
Earnings from continuing operations, net of tax
    21,533       22,014       32,337       (32,990 )     42,894  
Net loss (income) attributable to noncontrolling interests
    1,614       (1,814 )                 (200 )
 
                             
Net earnings from continuing operations attributable to RehabCare
  $ 23,147     $ 20,200     $ 32,337     $ (32,990 )   $ 42,694  
 
                             
Net earnings from continuing operations attributable to RehabCare per common share:
                                       
Basic
  $ 1.31                             $ 1.78  
 
                                   
Diluted
  $ 1.28                             $ 1.76  
 
                                   
Weighted-average number of common shares outstanding:
                                       
Basic
    17,733                       6,210 (l)     23,943  
 
                                 
Diluted
    18,050                       6,210 (l)     24,260  
 
                                 
See accompanying notes to unaudited pro forma condensed combined financial statements.

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REHABCARE GROUP, INC.
Pro Forma Condensed Combined Statement of Earnings (Unaudited)
Year Ended December 31, 2008
(amounts in thousands, except per share data)
                                         
                    Triumph              
            Triumph     HealthCare     Pro Forma     Combined  
    RehabCare     HealthCare     Excludables     Adjustments     Pro Forma  
    (d)     (e)     (f)                  
Operating revenues
  $ 735,412     $ 423,726     $     $     $ 1,159,138  
Costs and expenses:
                                       
Operating
    687,935       346,960             (g)     1,034,895  
Loss on disposal of assets
          1,806                   1,806  
Depreciation and amortization
    14,570       12,929       (12,929 )     11,470 (h)     28,584  
 
                            2,544 (i)        
 
                             
Total costs and expenses
    702,505       361,695       (12,929 )     14,014       1,065,285  
 
                             
Operating earnings
    32,907       62,031       12,929       (14,014 )     93,853  
Interest income
    143                         143  
Interest expense
    (3,897 )     (34,854 )     32,579       (31,091 )(j)     (37,263 )
Other income (expense)
    21                         21  
Equity in net income of affiliates
    471                         471  
 
                             
Earnings from continuing operations, before income taxes
    29,645       27,177       45,508       (45,105 )     57,225  
Income taxes
    12,063       9,898             157 (k)     22,118  
 
                             
Earnings from continuing operations, net of tax
    17,582       17,279       45,508       (45,262 )     35,107  
Net loss (income) attributable to noncontrolling interests
    1,986       (2,115 )                 (129 )
 
                             
Net earnings from continuing operations attributable to RehabCare
  $ 19,568     $ 15,164     $ 45,508     $ (45,262 )   $ 34,978  
 
                             
Net earnings from continuing operations, attributable to RehabCare per common share:
                                       
Basic
  $ 1.11                             $ 1.47  
 
                                   
Diluted
  $ 1.10                             $ 1.46  
 
                                   
Weighted-average number of common shares outstanding:
                                       
Basic
    17,583                       6,210 (l)     23,793  
 
                                 
Diluted
    17,798                       6,210 (l)     24,008  
 
                                 
See accompanying notes to unaudited pro forma condensed combined financial statements.

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REHABCARE GROUP, INC.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
1.  Preliminary Allocation of Acquisition Cost
     On November 24, 2009, the Company completed its acquisition of all of the outstanding common stock of Triumph HealthCare for a purchase price of $570.0 million in cash, subject to certain working capital and other purchase price adjustments. The initial purchase price payable in connection with the Merger was financed primarily by a new $450.0 million term loan with a six-year maturity and the net proceeds of the Company’s recent equity offering, which were approximately $140.6 million. The term loan will require principal payments of $4.5 million annually with the remaining principal balance due at maturity. On November 24, 2009, the Company entered into senior secured credit facilities (the “Senior Credit Facilities”) with a total availability of $575.0 million, including the $450.0 million term loan and a $125.0 million revolving credit facility with a five-year term. For purposes of these pro forma financial statements, the Company assumed that no funds were borrowed against the new revolving credit facility to finance the Merger. The Company expects to pay total debt issuance costs, including original issue discount, underwriting fees and other out of pocket costs, of approximately $28.5 million in connection with the Senior Credit Facilities. A portion of these costs have been included in the pro forma balance sheet as an increase to other assets and a reduction of cash with the portion representing original issue discount related to the term loan netted against long term debt.
     The Merger will be accounted for under the acquisition method of accounting as of and from November 24, 2009. The following table summarizes the consideration transferred at closing and presents a preliminary allocation of the purchase price to the assets acquired and the liabilities assumed as if the Merger was consummated on September 30, 2009. Amounts are in thousands of dollars.
         
Consideration Transferred at Closing:
       
Base purchase price
  $ 570,000  
Total debt assumed by RehabCare at closing
    (13,145 )
Initial working capital adjustment
     
Other purchase price adjustments
    (11,274 )
 
     
Total purchase price paid at closing
  $ 545,581  
 
     
Allocation of Purchase Price As if Merger Was Consummated on September 30, 2009:
       
Accounts receivable
  $ 55,360  
Deferred income taxes
    6,311  
Other current assets
    6,070  
Property and equipment
    71,897  
Identifiable intangibles, principally Medicare licenses, trade name and certificates of need
    109,700  
Other assets
    1,853  
Current portion of long-term debt
    (3,343 )
Accounts payable and other current liabilities
    (41,029 )
Noncurrent portion of long-term debt
    (10,614 )
Deferred tax liabilities
    (41,950 )
Other liabilities
    (6,910 )
 
     
Total identifiable net assets
    147,345  
Noncontrolling interests in Triumph HealthCare
    (1,272 )
Goodwill
    399,508  
 
     
Fair value of total consideration transferred
  $ 545,581  
 
     
     The above preliminary purchase price allocation has been prepared on the basis of a preliminary valuation study. Over the next several months, the valuation study will be finalized to establish the fair values of both the identifiable intangible assets acquired and the noncontrolling interests assumed.
     For the preliminary purchase price allocation, we have not made an adjustment to Triumph HealthCare’s carrying value for noncontrolling interests. Based on an initial review of the control, transferability and other terms of the partnership agreements, the fair value adjustments to the balance of noncontrolling interests are expected to be in the range of $5 million to $15 million. The final adjustments are expected to result in an increase to noncontrolling interests and a corresponding increase to goodwill.
2.  Explanation of Pro Forma Adjustments
     a) To remove the goodwill on Triumph HealthCare’s balance sheet and exclude Triumph HealthCare assets, liabilities and equity included in the Triumph HealthCare balance sheet at September 30, 2009 that are not included in the assets acquired and the liabilities

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assumed by the Company. To balance the assets acquired and liabilities assumed as reflected in this adjustment column, the net assets acquired by the Company are recorded as “net assets transferred by seller.”
     b) To record the funding of the purchase price paid by the Company in accordance with the financial terms outlined in Note 1 above. Total costs of the equity offering, including commissions and other direct costs, are estimated to be approximately $8.5 million and are reflected in the pro forma balance sheet as a reduction to cash and additional paid-in capital. Total acquisition-related transaction costs which are not yet reflected in the historical balance sheets are estimated to be approximately $6.8 million and are reflected in the pro forma balance sheet as a reduction to cash and retained earnings. No adjustment has been made for any restructuring and integration charges expected to be incurred in connection with the Merger. These costs will be expensed as incurred. The Company expects to incur total incremental costs of approximately $9.0 million to $10.0 million in connection with the Merger (which includes acquisition-related transaction costs, restructuring charges and integration charges).
     c) To adjust the assets acquired and liabilities assumed to reflect the preliminary allocation of the purchase price as summarized in Note 1 above. The fair values of the identifiable intangible assets and their useful lives have been estimated as follows. These estimates are based on a preliminary valuation study. The finalization of the valuation study could result in fair values and useful lives that differ materially from the amounts presented below. Dollar amounts are in thousands.
                 
    Estimated     Estimated  
    Fair Value     Useful Life  
Medicare licenses—indefinite lived
  $ 65,000     indefinite
Certificates of need—indefinite lived
    10,000     indefinite
Trade name
    32,500     17.5 years
Non-compete agreements
    2,200       2 to 10 years  
 
             
Total
  $ 109,700          
 
             
     d) To report RehabCare’s historical results of continuing operations for the period indicated.
     e) To report Triumph HealthCare’s historical results of operations for the period indicated.
     f) To eliminate Triumph HealthCare’s historical depreciation and amortization expense and eliminate Triumph HealthCare’s interest expense related to long-term debt that was not assumed by RehabCare.
     g) To eliminate the direct incremental costs of the transaction that are reflected in the historical income statements of both RehabCare and Triumph HealthCare.
     h) To record depreciation expense based on the depreciation of the estimated fair market value of the property and equipment acquired over each asset’s estimated useful life.
     i) To record amortization expense for estimated amortizable intangible assets acquired over each asset’s estimated useful life.
     j) To record interest expense based on the $450.0 million of new gross indebtedness incurred by the Company to finance the Merger together with the amortization of the estimated $28.5 million of debt issuance costs, inclusive of original issue discount, associated with the Merger, less interest expense recorded on the Company’s historical financial statements for $25.0 million of debt that was replaced by the new indebtedness. The transaction was funded primarily by a $450.0 million six-year term loan with a variable interest rate based on the London Interbank Offered Rate (“LIBOR”) with a LIBOR floor of 200 basis points and an interest rate spread of 400 basis points. For the purpose of calculating the pro forma interest expense adjustment on such borrowings, the Company assumed an interest rate of 6.0%.
     A hypothetical 1/8 of 1% increase in interest rates on the $450.0 million of new indebtedness would result in additional interest expense of approximately $0.6 million on an annualized basis. The interest that the Company will ultimately pay on the borrowings under the new term loan and the revolving credit facility could vary greatly from what is assumed in these unaudited pro forma condensed combined financial statements and will depend on the actual timing and amount of borrowings and repayments and the Company’s credit rating, among other factors.
     k) To adjust the tax provision to reflect the aggregate pro forma increase in earnings before income taxes at an assumed effective tax rate of 39.0%.
     l) To recognize the 6,210,000 shares of common stock, par value of $0.01 issued by the Company in connection with its public equity offering, which resulted in net proceeds of approximately $140.6 million. The net proceeds from the Company’s equity offering are based on the public offering price of $24.00 per share, less underwriting fees and estimated other direct costs.

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