Exhibit 99.1

 

Summary Pro Forma Financial Information

 

The unaudited pro forma combined consolidated financial information of Team Health included in this offering memorandum reflects adjustments to the historical financial statements of Team Health to give effect to the Transactions and the other acquisitions described below. The unaudited pro forma combined balance sheet information as of September 30, 2015 reflects the Transactions as if each occurred on September 30, 2015. The unaudited pro forma combined statements of operations information reflects the Transactions and the Prior Acquisitions as if each occurred on January 1, 2014. See “Unaudited Pro Forma Combined Financial Information.”

 

The unaudited pro forma combined statement of operations information for the year ended December 31, 2014 combines the audited consolidated statement of operations of Team Health for the year ended December 31, 2014, the unaudited consolidated statement of operations for Team Health’s completed 2014 and 2015 (through September 30, 2015) acquisitions for the period from January 1, 2014 to the closing of such acquisitions (or, if earlier, December 31, 2014), the audited consolidated statement of operations of IPC for the year ended December 31, 2014, and the unaudited consolidated statement of operations for IPC’s completed 2014 and 2015 (through September 30, 2015) acquisitions for the period from January 1, 2014 to the closing of such acquisitions (or, if earlier, December 31, 2014) and applies pro forma adjustments as described in “Unaudited Pro Forma Combined Financial Information.”

 

The unaudited pro forma combined statement of operations information for the nine months ended September 30, 2015 combines the unaudited consolidated statement of operations of Team Health for the nine months ended September 30, 2015, the unaudited consolidated statement of operations for Team Health’s completed 2015 (through September 30, 2015) acquisitions for the period from January 1, 2015 to the closing of such acquisitions, the unaudited consolidated statement of operations of IPC for the nine months ended September 30, 2015, and the unaudited consolidated statement of operations of IPC’s completed 2015 (through September 30, 2015) acquisitions for the period from January 1, 2015 to the closing of such acquisitions and applies pro forma adjustments as described herein.

 

The unaudited pro forma combined statement of operations information for the nine months ended September 30, 2014 combines the unaudited consolidated statement of operations of Team Health for the nine months ended September 30, 2014, the unaudited consolidated statement of operations for Team Health’s completed 2014 and 2015 (through September 30, 2015) acquisitions for the period from January 1, 2014 to the closing of such acquisitions (or, if earlier, September 30, 2014), the unaudited consolidated statement of operations of IPC for the nine months ended September 30, 2014, and the unaudited consolidated statement of operations for IPC’s completed 2014 and 2015 (through September 30, 2015) acquisitions for the period from January 1, 2014 to the closing of such acquisitions (or, if earlier, September 30, 2014) and applies pro forma adjustments as described herein.

 

The unaudited pro forma combined statement of operations information for the twelve months ended September 30, 2015 was calculated by adding unaudited pro forma combined statement of operations information for the nine months ended September 30, 2015 to the corresponding unaudited pro forma combined statement of operations information for the year ended December 31, 2014 and subtracting the corresponding unaudited pro forma combined statement of operations information for the nine months ended September 30, 2014.

 

The financial information that was utilized in developing the unaudited consolidated statement of operations for Team Health’s and IPC’s completed acquisitions was developed using each acquiree’s most appropriate historical financial information obtained as a part of the due diligence procedures during the acquisition process. All historical financial information was obtained from each acquiree’s internal financial reporting team and not necessarily subject to attestation by an independent auditor.

 

1

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The unaudited pro forma combined financial information is for illustrative purposes only and does not purport to represent what our financial position or results of operations actually would 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 combined financial information should be read in conjunction with the consolidated financial statements, notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Team Health and IPC in addition to the sections “Summary—The Transactions” and “Capitalization.”

 

		Pro Forma (Unaudited)
		Last Twelve Months Ended September 30, 2015				Nine Months Ended September 30,								Year Ended December 31, 2014
(dollars in thousands)						2015				2014
Statement of operations data:
Net revenues before provision for uncollectibles		$	6,950,966			$	5,043,573			$	4,511,186			$	6,418,114
Provision for uncollectibles			2,481,586				1,807,564				1,649,122				2,322,679
Net revenues			4,469,380				3,236,009				2,862,064				4,095,435
Cost of services rendered
Professional service expenses			3,475,709				2,510,020				2,179,475				3,145,164
Professional liability costs			129,337				95,101				93,527				127,763
General and administrative expenses (includes contingent purchase and other acquisition compensation expense)			472,480				330,973				298,938				440,445
Other (income) expenses, net			(2,261	)			(184	)			(2,493	)			(4,570	)
Transaction costs			3,322				1,905				5,734				7,151
Depreciation			27,546				20,947				18,260				24,859
Amortization			83,872				63,081				36,522				57,313
Interest expense, net			110,464				83,210				81,029				108,283
Loss on refinancing of debt			3,648				—				—				3,648
Earnings before income taxes			165,263				130,956				151,072				185,379
Provision for income taxes			65,631				52,828				60,266				73,069
Net earnings			99,632				78,128				90,806				112,310
Net earnings attributable to noncontrolling interest			61				(78	)			212				351
Net earnings attributable to Team Health Holdings, Inc. .		$	99,571			$	78,206			$	90,594			$	111,959

 

(dollars in thousands)		As of September 30, 2015
		(unaudited)
Balance sheet data:
Cash and cash equivalents		$	18,093
Working capital(1)			(149,939	)
Total assets			3,954,778
Total debt(2)			2,414,954
Total shareholders’ equity including noncontrolling interests			560,408

 

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(dollars in thousands, except ratio data)		Last Twelve Months Ended or as of September 30, 2015
		(unaudited)
Other financial information:
Pro Forma Adjusted EBITDA(3)		$	491,932
Ratio of total debt to Pro Forma Adjusted EBITDA(3)			4.9x

 

(1)

Working capital means current assets minus current liabilities.

(2)

Includes current portion of long-term debt.

(3)

We present Pro Forma Adjusted EBITDA as a supplemental measure of our performance. We present Pro Forma Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance.

 

Pro Forma Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles. In evaluating our performance as measured by Pro Forma Adjusted EBITDA, management recognizes and considers the limitations of this measure. Pro Forma Adjusted EBITDA does not reflect certain cash expenses that we are obligated to make, and although depreciation and amortization are non-cash charges, assets being depreciated and amortized will often have to be replaced in the future, and Pro Forma Adjusted EBITDA does not reflect any cash requirements for such replacements. In addition, other companies in our industry (including IPC) may calculate Pro Forma Adjusted EBITDA differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure. Because of these limitations, Pro Forma Adjusted EBITDA should not be considered in isolation or as a substitute for net earnings, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles.

 

The following unaudited table sets forth a reconciliation of net earnings attributable to Team Health Holdings, Inc. to Pro Forma Adjusted EBITDA for the last twelve months ended September 30, 2015:

 

(dollars in thousands)		Last Twelve Months Ended September 30, 2015
		(unaudited)
Net earnings attributable to Team Health Holdings, Inc.		$	99,571
Interest expense, net			110,464
Provision for income taxes			65,631
Depreciation			27,546
Amortization			83,872
Other (income) expenses, net(a)			(2,261	)
Loss on refinancing of debt(b)			3,648
Contingent purchase and other acquisition compensation expense(c)			25,884
Transaction costs(d)			12,115
Equity based compensation expense(e)			25,068
Insurance subsidiaries interest income			2,069
Severance and other charges			12,525
BPCI overhead(f)			800
Potential IPC Acquisition synergies(g)			25,000
Pro Forma Adjusted EBITDA		$	491,932

 

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(a)

Reflects gain or loss on sale of assets, realized gains on investments, and changes in fair value of investments associated with our non-qualified retirement plan.

(b)

Reflects the write-off of deferred financing costs as well as certain fees and expenses associated with the amendment of our Existing Credit Facility in October 2014.

(c)

Reflects expense recognized for historical and estimated future contingent payments and other compensation expense activity associated with acquisitions, including costs associated with the IPC Acquisition.

(d)

Reflects expenses associated with accounting, legal, due diligence and other transaction fees related to acquisition activity, including the IPC Acquisition.

(e)

Reflects costs related to options and restricted shares granted under the Team Health and IPC equity based compensation plans.

(f)

Reflects one-time expenses related to the preparation for BPCI program launch in mid-2015.

(g)

As discussed under “—The Transactions—Strategic and Financial Benefits of the IPC Acquisition,” we currently project to realize approximately $60 million in estimated cost and revenue synergies from the IPC Acquisition over the next three years. Approximately $25 million of such synergies are projected to be realized within one year of closing. The cost synergies relate to, among other things, combined overhead and public company costs, regional operating savings and procurement benefits, and technology cost savings, and the revenue synergies relate to, among other things, leveraging Team Health’s current managed care contracts and optimizing IPC’s legacy contracts, potential improvements in collections and opportunities to bundle services and the ability to offer enhanced post-acute service. These exclude costs expected to be incurred to achieve the potential cost savings and revenue synergies. We may not be successful in achieving these synergies within this period, or at all. See “Risk Factors—Risk Factors Relating to the IPC Acquisition—We may be unable to successfully integrate IPC’s operations or to realize targeted cost savings, revenues or other benefits of the IPC Acquisition” and “—We will incur significant transaction and acquisition-related costs in connection with the IPC Acquisition.”

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

The tables below set forth the unaudited pro forma combined financial information for Team Health giving effect to the Transactions and the other acquisitions described below.

 

With respect to the financing transactions, the unaudited pro forma combined financial information is based on the assumption that Team Health will incur $965.0 million of term loans under the New Tranche B Facility and issue $545.0 million of notes in connection with the Transactions.

 

The unaudited pro forma combined balance sheet as of September 30, 2015 reflects the Transactions as if each occurred on September 30, 2015. The unaudited pro forma combined statements of operations reflects the Transactions and the other acquisitions described below as if each occurred on January 1, 2014.

 

The unaudited pro forma combined statement of operations for the year ended December 31, 2014 combines the audited consolidated statement of operations of Team Health for the year ended December 31, 2014, the unaudited consolidated statement of operations for Team Health’s completed 2014 and 2015 (through September 30, 2015) acquisitions for the period from January 1, 2014 to the closing of such acquisitions (or, if earlier, December 31, 2014), the audited consolidated statement of operations of IPC for the year ended December 31, 2014, and the unaudited consolidated statement of operations for IPC’s completed 2014 and 2015 (through September 30, 2015) acquisitions for the period from January 1, 2014 to the closing of such acquisitions (or, if earlier, December 31, 2014) and applies pro forma adjustments as described herein.

 

The unaudited pro forma combined statement of operations for the nine months ended September 30, 2015 combines the unaudited consolidated statement of operations of Team Health for the nine months ended September 30, 2015, the unaudited consolidated statement of operations for Team Health’s completed 2015 (through September 30, 2015) acquisitions for the period from January 1, 2015 to the closing of such acquisitions, the unaudited consolidated statement of operations of IPC for the nine months ended September 30, 2015, and the unaudited consolidated statement of operations of IPC’s completed 2015 (through September 30, 2015) acquisitions for the period from January 1, 2015 to the closing of such acquisitions and applies pro forma adjustments as described herein.

 

The unaudited pro forma combined statement of operations for the nine months ended September 30, 2014 combines the unaudited consolidated statement of operations of Team Health for the nine months ended September 30, 2014, the unaudited consolidated statement of operations for Team Health’s completed 2014 and 2015 (through September 30, 2015) acquisitions for the period from January 1, 2014 to the closing of such acquisitions (or, if earlier, September 30, 2014), the unaudited consolidated statement of operations of IPC for the nine months ended September 30, 2014, and the unaudited consolidated statement of operations for IPC’s completed 2014 and 2015 (through September 30, 2015) acquisitions for the period from January 1, 2014 to the closing of such acquisitions (or, if earlier, September 30, 2014) and applies pro forma adjustments as described herein.

 

The unaudited pro forma combined financial information has been prepared using the acquisition method of accounting for business combinations under GAAP. The adjustments necessary to fairly present the unaudited pro forma combined financial information 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 this unaudited pro forma combined financial information. The pro forma adjustments related to the IPC Acquisition are preliminary and revisions to the fair value of assets acquired and liabilities assumed may have a significant impact on the pro forma adjustments. A final valuation of assets acquired and liabilities assumed has not been completed and the completion of fair value determinations may result in changes in the values assigned to property and equipment and other assets (including intangibles) acquired and liabilities assumed.

 

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The financial information that was utilized in developing the unaudited consolidated statement of operations for Team Health’s and IPC’s completed acquisitions was developed using each acquiree’s most appropriate historical financial information obtained as a part of the due diligence procedures during the acquisition process. All historical financial information was obtained from each acquiree’s internal financial reporting team and not necessarily subject to attestation by an independent auditor.

 

The unaudited pro forma combined financial information reflects the application of pro forma adjustments that are (1) directly attributable to the Transactions and the other acquisitions described above, (2) factually supportable and (3) expected to have a continuing impact on Team Health’s consolidated financial results. The unaudited pro forma combined financial information does not reflect any cost savings or synergies (including the approximately $60 million of combined cost and revenue synergies anticipated to be achieved within three years, which are described elsewhere in this offering memorandum) or associated costs to achieve such savings or synergies, utilization of IPC (or other acquired company) net operating loss carryforwards or other restructuring that may result from the Transactions and other acquisitions.

 

The unaudited pro forma combined financial information is for illustrative purposes only and does not purport to represent what our financial position or results of operations actually would 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 combined financial information should be read in conjunction with the consolidated financial statements, notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Team Health and IPC in addition to the sections “Summary—The Transactions” and “Capitalization”.

 

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UNAUDITED PRO FORMA COMBINED BALANCE SHEET

As of September 30, 2015

(In thousands)

 

		Team Health Historical				IPC Historical				IPC Acquisition Adjustments				Financing Adjustments				Pro Forma Combined
ASSETS
Current assets:
Cash and cash equivalents		$	18,194			$	1,975			$	(1,975	)(a)						$	18,093
											(101	)(a)
Accounts receivable, net			577,291				128,923												706,214
Prepaid expenses and other current assets			56,902				12,737				6,000	(a)			(221	)(b)			75,418
Receivables under insured programs			19,514				12,691												32,205
Total current assets			671,901				156,326				3,924				(221	)			831,930
Insurance subsidiaries’ and other investments			97,492				—												97,492
Receivables under insured programs			72,959				23,564												96,523
Deferred income taxes			39,694				—												39,694
Property and equipment, net			74,939				9,608												84,547
Other intangibles, net			326,959				5,145												332,104
Goodwill			800,583				492,407				1,087,892	(c)							2,380,882
Other			59,652				—								31,954	(b)			91,606
		$	2,144,179			$	687,050			$	1,091,816			$	31,733			$	3,954,778
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	48,886			$	16,053											$	64,939
Accrued compensation and physician payable			283,288				37,082												320,370
Other accrued liabilities			127,331				38,910								(76	)(a)			166,165
Income tax payable			20,650				—												20,650
Current maturities of long-term debt			200,000				130,000								(130,000	)(b)			377,650
															168,000	(a)
															9,650	(b)
Deferred income taxes			31,511				584												32,095
Total current liabilities			711,666				222,629				—				47,574				981,869
Long-term debt, less current maturities			555,000				—								1,482,304	(b)			2,037,304
Other non-current liabilities			308,105				67,092												375,197
Shareholders’ equity:
Common stock			725				17				(17	)(c)							725
Additional paid-in capital			750,089				192,501				(192,501	)(c)							750,089
Retained Earnings (deficit)			(185,099	)			204,811				(204,811	)(c)							(194,099	)
											(9,000	)(a)
Team Health shareholders’ equity			565,715				397,329				(406,329	)			—				556,715
Noncontrolling interests			3,693				—												3,693
Total shareholders’ equity including noncontrolling interests			569,408				397,329				(406,329	)			—				560,408
		$	2,144,179			$	687,050			$	(406,329	)		$	1,529,878			$	3,954,778

 

See accompanying notes to unaudited pro forma financial information.

 

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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the Year Ended December 31, 2014

(In thousands, except share data)

 

		Team Health Historical				Completed Team Health Acquisitions Pro Forma Adjustments (d)(f)				Team Health Pro Forma				IPC Historical				Completed IPC Acquisitions Pro Forma Adjustments (g)(i)				IPC Pro Forma				IPC Acquisition Adjustments				Financing Adjustments				Pro Forma Combined
Net revenue before provision for uncollectibles		$	4,800,883			$	779,227			$	5,580,110			$	710,836			$	127,168			$	838,004											$	6,418,114
Provision for uncollectibles			1,981,240				321,573				2,302,813				16,851				3,015				19,866												2,322,679
Net revenue			2,819,643				457,654				3,277,297				693,985				124,153				818,138				—				—				4,095,435
Cost of services rendered
Professional service expenses			2,179,837				381,912				2,561,749				490,573				92,842				583,415												3,145,164
Professional liability costs			97,609				10,547				108,156				16,632				2,975				19,607												127,763
General and administrative expenses (includes contingent purchase and other acquisition compensation expense)			281,054				27,462				308,516				116,410				15,519				131,929												440,445
Other (income) expenses, net			(4,588	)			23				(4,565	)			(5	)							(5	)											(4,570	)
Transaction costs			7,179								7,179				—								—				(28	)(l)							7,151
Depreciation			20,886				129				21,015				3,844								3,844												24,859
Amortization			55,647				129				55,776				1,537								1,537												57,313
Interest expense, net			15,050				1,071				16,121				1,328								1,328								(1,328	)(b)			108,283
																															92,162	(b)
Loss on refinancing of debt			3,648								3,648				—								—												3,648
Earnings before income taxes			163,321				36,381				199,702				63,666				12,817				76,483				28				(90,834	)			185,379
Provision for income taxes			65,232				14,516				79,748				24,646				4,960				29,606				11	(k)			(36,296	)(k)			73,069
Net earnings			98,089				21,865				119,954				39,020				7,857				46,877				17				(54,538	)			112,310
Net earnings (loss) attributable to noncontrolling interests			351								351				—								—												351
Net earnings attributable to Team Health Holdings, Inc.		$	97,738			$	21,865			$	119,603			$	39,020			$	7,857			$	46,877			$	17			$	(54,538	)		$	111,959
Net earnings per share of Team Health Holdings, Inc.
Basic		$	1.39							$	1.70																							$	1.59
Diluted		$	1.35							$	1.66																							$	1.54
Weighted average shares outstanding
Basic			70,400								70,400																								70,400
Diluted			72,164								72,164																474	(j)							72,638

 

See accompanying notes to unaudited pro forma financial information.

 

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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2015

(In thousands, except share data)

 

		Team Health Historical				Completed Team Health Acquisitions Pro Forma Adjustments (f)				Team Health Pro Forma				IPC Historical				Completed IPC Acquisitions Pro Forma Adjustments (i)				IPC Pro Forma				IPC Acquisition Adjustments				Financing Adjustments				Pro Forma Combined
Net revenue before provision for uncollectibles		$	4,390,682			$	49,442			$	4,440,124			$	563,165			$	40,284			$	603,449											$	5,043,573
Provision for uncollectibles			1,773,062				19,966				1,793,028				13,581				955				14,536												1,807,564
Net revenue			2,617,620				29,476				2,647,096				549,584				39,329				588,913				—				—				3,236,009
Cost of services rendered
Professional service expenses			2,058,876				25,374				2,084,250				396,037				29,733				425,770												2,510,020
Professional liability costs			81,371				706				82,077				12,081				943				13,024												95,101
General and administrative expenses (includes contingent purchase and other acquisition compensation expense)			219,214				1,076				220,290				105,767				4,916				110,683												330,973
Other (income) expenses, net			(182	)							(182	)			(2	)							(2	)											(184	)
Transaction costs			7,170								7,170												—				(5,265	)(l)							1,905
Depreciation			17,423								17,423				3,524								3,524												20,947
Amortization			62,085								62,085				996								996												63,081
Interest expense, net			14,132								14,132				936								936								(936	)(b)			83,210
											—												—								69,078	(b)
Earnings before income taxes			157,531				2,320				159,851				30,245				3,737				33,982				5,265				(68,142	)			130,956
Provision for income taxes			65,178				961				66,139				11,493				1,420				12,913				2,001	(k)			(28,225	)(k)			52,828
Net earnings			92,353				1,359				93,712				18,752				2,317				21,609				3,264				(39,917	)			78,128
Net earnings (loss) attributable to noncontrolling interests			(78	)							(78	)			—								—												(78	)
Net earnings attributable to Team Health Holdings, Inc.		$	92,431			$	1,359			$	93,790			$	18,752			$	2,317			$	21,609			$	3,264			$	(39,917	)		$	78,206
Net earnings per share of Team Health Holdings, Inc.
Basic		$	1.29							$	1.30																							$	1.08
Diluted		$	1.26							$	1.28																							$	1.06
Weighted average shares outstanding
Basic			71,900								71,900																								71,900
Diluted			73,351								73,351																556	(j)							73,907

 

See accompanying notes to unaudited pro forma financial information.

 

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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2014

(In thousands, except share data)

 

		Team Health Historical				Completed Team Health Acquisitions Pro Forma Adjustments (e)(f)				Team Health Pro Forma				IPC Historical				Completed IPC Acquisitions Pro Forma Adjustments (h)(i)				IPC Pro Forma				IPC Acquisition Adjustments				Financing Adjustments				Pro Forma Combined
Net revenue before provision for uncollectibles		$	3,493,892			$	402,932			$	3,896,824			$	527,951			$	86,411			$	614,362											$	4,511,186
Provision for uncollectibles			1,464,931				168,943				1,633,874				13,200				2,048				15,248												1,649,122
Net revenue			2,028,961				233,989				2,262,950				514,751				84,363				599,114				—				—				2,862,064
Cost of services rendered
Professional service expenses			1,557,696				194,904				1,752,600				363,599				63,276				426,875												2,179,475
Professional liability costs			73,482				5,111				78,593				12,912				2,022				14,934												93,527
General and administrative expenses (includes contingent purchase and other acquisition compensation expense)			195,842				7,164				203,006				85,387				10,545				95,932												298,938
Other (income) expenses, net			(3,457	)			968				(2,489	)			(4	)							(4	)											(2,493	)
Transaction costs			5,734								5,734				—								—				—	(l)							5,734
Depreciation			15,315				129				15,444				2,816								2,816												18,260
Amortization			35,203				129				35,332				1,190								1,190												36,522
Interest expense, net			10,758				1,071				11,829				1,057								1,057								(1,057	)(b)			81,029
											—				—								—								69,200	(b)
Earnings before income taxes			138,388				24,513				162,901				47,794				8,520				56,314				—				(68,143	)			151,072
Provision for income taxes			56,542				10,026				66,568				18,304				3,263				21,567				—	(k)			(27,869	)(k)			60,266
Net earnings			81,846				14,487				96,333				29,490				5,257				34,747				—				(40,274	)			90,806
Net earnings (loss) attributable to noncontrolling interests			212								212				—								—												212
Net earnings attributable to Team Health Holdings, Inc.		$	81,634			$	14,487			$	96,121			$	29,490			$	5,257			$	34,747			$	—			$	(40,274	)		$	90,594
Net earnings per share of Team Health Holdings, Inc.
Basic		$	1.16							$	1.37																							$	1.29
Diluted		$	1.13							$	1.34																							$	1.25
Weighted average shares outstanding
Basic			70,209								70,209																								70,209
Diluted			71,955								71,955																469	(j)							72,424

 

See accompanying notes to unaudited pro forma financial information.

 

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NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

(In thousands)

 

(a)

Reflects the incurrence of $965.0 million of term loans under the New Tranche B Facility, proceeds from the notes of approximately $545.0 million, and a draw on the Team Health Revolving Credit Facility of approximately $168.0 million to fund the IPC Acquisition, repay certain amounts of IPC’s existing debt, and fund debt issuance and other Transaction costs. A detailed estimate of the sources and uses of cash associated with the IPC Acquisition are as follows.

 

Sources:
IPC cash		$	1,975	(i)
Revolving Credit Facility draw			168,000
New Tranche B Facility			965,000
Notes			545,000
Total Sources		$	1,679,975
Uses:
IPC Acquisition consideration		$	1,485,000
Repay IPC debt and accrued interest			130,076	(ii)
Fees and expenses			65,000	(iii)
Cash to balance sheet			(101	)(i)
Total Uses		$	1,679,975

 

(i)

Represents net cash impact of the Transactions.

(ii)

Includes $76 of accrued interest.

(iii)

Represents the estimated financing and other fees and expenses in connection with the Transactions.

 

Fees and expenses		$	65,000
Deferred fees and expenses			50,000
Non-deferred fees and expenses		$	15,000
Tax impact			6,000
After-tax non-deferred fees and expenses		$	9,000

 

(b)

Represents the New Tranche B Facility and the notes and repayment of existing IPC debt and the elimination of related deferred financing costs.

 

New Tranche B Facility and the notes		$	1,510,000
Estimated total deferred financing costs for the notes			18,046
Current Portion			9,650
Long Term Portion		$	1,482,304
Estimated total deferred financing costs for New Tranche B Facility		$	31,954
Repayment of IPC debt		$	130,000
Elimination of IPC deferred financing costs		$	221

 

Removal of IPC’s total interest expense for year ended December 31, 2014		$	1,328
Removal of IPC’s total interest expense for nine months ended September 30, 2015		$	936
Removal of IPC’s total interest expense for nine months ended September 30, 2014		$	1,057
Total interest and amortization of deferred financing costs expense for the New Tranche B Facility and the notes for the year ended December 31, 2014		$	92,162
Total interest and amortization of deferred financing costs expense for the New Tranche B Facility and the notes for the nine months ended September 30, 2015		$	69,078
Total interest and amortization of deferred financing costs expense for the New Tranche B Facility and the notes for the nine months ended September 30, 2014		$	69,200

 

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If the weighted average interest rate of 5.74% of the New Tranche B Facility and the notes changed 0.25%, the total interest and amortization of deferred financing costs expense would be as follows:

 

			+0.25%				-0.25%
Total interest and amortization of deferred financing costs expense for the New Tranche B Facility and the notes for the year ended December 31, 2014		$	95,881			$	88,443
Total interest and amortization of deferred financing costs expense for the New Tranche B Facility and the notes for the nine months ended September 30, 2015		$	71,861			$	66,294
Total interest and amortization of deferred financing costs expense for the New Tranche B Facility and the notes for the nine months ended September 30, 2014		$	71,993			$	66,408

 

(c)

Represents adjustments based on preliminary estimates of fair value and the adjustment to goodwill derived from the difference in the estimated total consideration to be transferred by Team Health and the estimated fair value of assets acquired and liabilities assumed by Team Health. The estimated consideration is based on the cash paid by Team Health and the assumption of IPC’s net debt. Final consideration will be determined at the closing of the IPC Acquisition based on the number of shares of IPC common stock and other equity awards outstanding at such time.

 

The final amounts allocated to assets acquired and liabilities assumed in the IPC Acquisition could differ materially from the preliminary amounts presented herein. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the IPC Acquisition from those preliminary valuations presented herein would result in a dollar-for-dollar corresponding increase in the amount of goodwill that will result from the IPC Acquisition.

 

Estimated cash consideration		$	1,485,000
Assumption of debt, net of cash received			128,025
		$	1,613,025
Accounts receivable			128,923
Prepaid expenses and other current assets			12,516
Receivables under insured programs—current			12,691
Receivables under insured programs—noncurrent			23,564
Property and equipment			9,608
Intangible assets			5,145
Accounts payable—current			(16,053	)
Accrued compensation and physician payable—current			(37,082	)
Other accrued liabilities—current			(38,910	)
Deferred income taxes—current			(584	)
Other long term liabilities—noncurrent			(67,092	)
Fair value of assets acquired and liabilities assumed		$	32,726
Estimated goodwill			1,580,299
Less: historical goodwill		$	492,407
Goodwill adjustment		$	1,087,892
Common Stock		$	17	(i)
Additional Paid-in-Capital		$	192,501	(i)
Retained Earnings		$	204,811	(i)

 

(i)

The common stock, additional paid-in-capital, and retained earnings of IPC will be adjusted to zero upon the closing of the IPC Acquisition.

 

(d)

The amounts in this column represent pro forma adjustments for Team Health’s 15 completed acquisitions in 2014 for the period from January 1, 2014 to their closing dates. None of the acquisitions were individually material.

(e)

The amounts in this column represent pro forma adjustments for Team Health’s 11 completed 2014 acquisitions through September 30, 2014 for the period from January 1, 2014 to their closing dates. None of the acquisitions were individually material.

(f)

The amounts in this column represent pro forma adjustments for Team Health’s six completed acquisitions in 2015 through September 30, 2015 for the period from January 1, 2015 to their closing dates or, if included in prior year, for the period from January 1, 2014 to September 30, 2014 or December 31, 2014, as appropriate. None of the acquisitions were individually material.

(g)

The amounts in this column represent pro forma adjustments for IPC’s 22 completed acquisitions in 2014 for the period from January 1, 2014 to their closing dates. None of the acquisitions were individually material.

(h)

The amounts in this column represent pro forma adjustments for IPC’s 15 completed 2014 acquisitions through September 30, 2014 for the period from January 1, 2014 to their closing dates. None of the acquisitions were individually material.

(i)

The amounts in this column represent pro forma adjustments for IPC’s 20 completed acquisitions in 2015 through September 30, 2015 for the period from January 1, 2015 to their closing dates or, if included in prior year, for the period from January 1, 2014 to September 30, 2014 or December 31, 2014, as appropriate. None of the acquisitions were individually material.

 

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(j)

Reflects additional diluted shares added to the weighted average shares outstanding calculation to factor in the effect of IPC’s diluted shares related to outstanding options.

(k)

Reflects adjustments to income taxes to reflect the impact of the above pro forma adjustments applying combined U.S. federal and state statutory tax rates.

(l)

Reflects the removal of IPC’s acquisition-related expenses, related to the IPC Acquisition, included in IPC’s historical statements of operations.

 

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Shareholder Derivative Lawsuit

 

On August 14, 2015, a purported shareholder of IPC filed a complaint in the Delaware Court of Chancery captioned Smukler v. IPC Healthcare, Inc., et al. (Case No. 11392-CB), on behalf of a purported class of IPC shareholders. The lawsuit names IPC, each of its current directors, us and our merger subsidiary. Intrepid Merger Sub, Inc. (“Sub”) as defendants. The lawsuit alleges that the individual defendants breached their fiduciary duties by, among other things, failing to take appropriate steps to maximize the value of IPC to its shareholders, failing to value IPC properly, and taking steps to avoid competitive bidding by alternate potential acquirers. The lawsuit also alleges that IPC, we and Sub aided and abetted those alleged breaches of fiduciary duties by the individual defendants. The lawsuit seeks, among other things, certification of the action as a class action; injunctive relief enjoining the merger; an accounting of all damages purportedly suffered by the plaintiff and the class including rescissory damages in favor of the plaintiff and the class; and the fees and costs associated with the litigation. On August 18, 2015, an additional lawsuit was filed in the Delaware Court of Chancery, asserting similar claims and allegations to those in the Smukler lawsuit and seeking similar relief on behalf of the same putative class. Crescente v. Singer, et al. (Case No. 11405-CB).

 

Additionally, on August 19, 2015, a lawsuit was filed in the Superior Court for the State of California in Los Angeles County. Khemthong v. IPC Healthcare Networks, Inc., et al. (No. BC 591953). The lawsuit asserted similar claims and allegations to those in the Smukler lawsuit and sought similar relief on behalf of the same putative class. On August 27, 2015, the plaintiff filed a request for voluntary dismissal of the suit without prejudice, and on August 28, 2015, the court entered an order granting that request.

 

By Order dated September 11, 2015 (the Consolidation Order), the Smukler and Crescente actions were consolidated, and all further litigation relating to or arising out of the merger were directed to be consolidated with such actions under the caption In re IPC Healthcare, Inc. Stockholders Litigation, C.A. No. 11392-CB (the “Consolidated Action”). On September 17, 2015, an action captioned Spencer v. IPC Healthcare, Inc., C.A.

 

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No. 11516-CB, was filed in the Delaware Court of Chancery. Under the Consolidation Order, such action is required to be consolidated with the previously-filed actions. On September 18, 2015, a Verified Consolidated Class Action Complaint was filed in the Consolidated Action. On October 2, 2015, the defendants moved to dismiss the operative complaint.

 

On November 6, 2015, we and the other defendants in the Consolidated Action entered into a Memorandum of Understanding with the plaintiffs in the Consolidated Action providing for the settlement and the release of all claims that were or could have been brought against us and the other defendants in the Consolidated Action based upon a duty arising under Delaware law to disclose or not omit material information in connection with the IPC Acquisition, upon entry of a final order by the Delaware Court of Chancery approving the settlement. The Memorandum of Understanding contemplates that, subject to completion of certain confirmatory discovery by counsel to the plaintiffs, the parties will enter into a stipulation of settlement. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Delaware Court of Chancery will approve the settlement even if the parties were to enter into such a stipulation. If the Delaware Court of Chancery does not approve the settlement, such proposed settlement, as contemplated by the Memorandum of Understanding, may be terminated.

 

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