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8-K - FORM 8-K - REHABCARE GROUP INC | d70237e8vk.htm |
EX-10.1 - EX-10.1 - REHABCARE GROUP INC | d70237exv10w1.htm |
EX-99.1 - EX-99.1 - REHABCARE GROUP INC | d70237exv99w1.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 Companys and Triumph HealthCares
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 Managements 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
Managements 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 HealthCares 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)
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.
2
REHABCARE GROUP, INC.
Pro Forma Condensed Combined Statement of Earnings (Unaudited)
Nine Months Ended September 30, 2009
(amounts in thousands, except per share data)
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.
3
REHABCARE GROUP, INC.
Pro Forma Condensed Combined Statement of Earnings (Unaudited)
Year Ended December 31, 2008
(amounts in thousands, except per share data)
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.
4
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 Companys 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
HealthCares 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 HealthCares 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
5
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 licensesindefinite lived |
$ | 65,000 | indefinite | |||||
Certificates of needindefinite 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 RehabCares historical results of continuing operations for the period indicated.
e) To report Triumph HealthCares historical results of operations for the period indicated.
f) To eliminate Triumph HealthCares historical depreciation and amortization expense and
eliminate Triumph HealthCares 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 assets estimated useful life.
i) To record amortization expense for estimated amortizable intangible assets acquired over
each assets 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 Companys 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 Companys 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 Companys equity offering are based on the public
offering price of $24.00 per share, less underwriting fees and estimated other direct costs.
6