Exhibit 99.2
Gentiva Health Services, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Financial Data
On September 25, 2008, the Company completed the sale of 69% of its equity interest in the Company’s CareCentrix unit, a leading national provider of ancillary care benefit management services for major managed care organizations, to an affiliate of Water Street Healthcare Partners, a leading private equity firm focused exclusively on the health care industry, in a transaction valued at approximately $147 million. In a restructuring that preceded the sale and in the sale of its equity interest, Gentiva received approximately $84 million in cash and a $25 million interest bearing seller note and retained 31% of the capital stock of the holding company of CareCentrix, having an ascribed value of approximately $26 million. In addition, the total value of the transaction also included an aggregate of $12 million representing the funding by the Water Street Healthcare Partners affiliate of additional capital into the CareCentrix business on the closing date and the payment of certain transaction related costs.
Of the $84 million in cash proceeds received by Gentiva, $58 million was used to repay a portion of the Company’s term loan on the closing date and approximately $2.5 million will be used to pay certain transaction costs and credit facility amendment fees.
Pro Forma Results for the Six Months Ended June 29, 2008
The following unaudited pro forma financial information presents (i) the financial condition of the Company at June 29, 2008, as if the sale had occurred on June 29, 2008, the Company’s most recent balance sheet date, and (ii) the results of operations of the Company as if the sale had occurred at December 31, 2007, the beginning of fiscal year 2008.The information presented below is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the disposition had occurred as of the beginning of the Company’s 2008 fiscal year.
GENTIVA PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JUNE 29, 2008 (In thousands) (Unaudited) | ||||||||||
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| Historical Gentiva |
| Less: CareCentrix (1) |
| Pro Forma Adjustments |
| Gentiva Pro Forma | ||
ASSETS |
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Current Assets: |
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| Cash, cash equivalents and restricted cash |
| $ 22,079 |
| $ 303 |
| $ 23,533 | (a) | $ 45,309 | |
| Accounts receivable, gross |
| 223,011 |
| 58,176 |
| - |
| 164,835 | |
| Less:Allowance for doubtful accounts |
| (10,467) |
| (2,634) |
| - |
| (7,833) | |
| Net accounts receivable |
| 233,478 |
| 55,542 |
| - |
| 177,936 | |
| Deferred tax assets |
| 11,306 |
| - |
| - |
| 11,306 | |
| Prepaid expenses and other current assets |
| 14,455 |
| 725 |
| - |
| 13,730 | |
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| Total current assets |
| 281,318 |
| 56,570 |
| 23,533 |
| 248,281 |
Note receivable from affiliate |
| - |
| - |
| 25,000 | (b) | 25,000 | ||
Investment in affiliate |
| - |
| - |
| 26,000 | (c) | 26,000 | ||
Long-term investments |
| 12,641 |
| - |
| - |
| 12,641 | ||
Fixed assets, net |
| 66,181 |
| 2,705 |
| (1,189) | (d) | 62,287 | ||
Intangible assets, net |
| 240,158 |
| - |
| - |
| 240,158 | ||
Goodwill |
| 316,069 |
| - |
| - |
| 316,069 | ||
Other assets |
| 26,008 |
| - |
| - |
| 26,008 | ||
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| Total assets |
| $ 942,375 |
| $ 59,275 |
| $ 73,344 |
| $ 956,444 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current Liabilities: |
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| Accounts payable |
| $ 22,207 |
| $ 14,062 |
| $ - |
| $ 8,145 | |
| Payroll and related taxes |
| 19,094 |
| 417 |
| - |
| 18,677 | |
| Deferred revenue |
| 33,624 |
| - |
| - |
| 33,624 | |
| Medicare liabilities |
| 8,782 |
| - |
| - |
| 8,782 | |
| Cost of claims incurred but not reported |
| 22,089 |
| 22,089 |
| - |
| - | |
| Obligations under insurance programs |
| 38,805 |
| 1,242 |
| - |
| 37,563 | |
| Other accrued expenses |
| 34,138 |
| 5,159 |
| - |
| 28,979 | |
| Due to Gentiva |
| - |
| 16,306 |
| 16,306 | (e) | - | |
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| Total current liabilites |
| 178,739 |
| 59,275 |
| 16,306 |
| 135,770 |
Long-term debt |
| 331,000 |
| - |
| (58,000) | (f) | 273,000 | ||
Deferred tax liabilities, net |
| 57,152 |
| - |
| - |
| 57,152 | ||
Other liabilities |
| 22,109 |
| - |
| - |
| 22,109 | ||
Shareholders' equity |
| 353,375 |
| - |
| 115,038 | (g) | 468,413 | ||
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| Total liabilities and shareholders' equity |
| $ 942,375 |
| $ 59,275 |
| $ 73,344 |
| $ 956,444 |
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GENTIVA PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 29, 2008 (In thousands, except per share amounts) (Unaudited) | |||||||
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| Historical Gentiva |
| Less: CareCentrix (1) |
| Pro Forma Adjustments |
| Gentiva Pro Forma |
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Net revenues | $ 669,947 |
| $ 157,171 |
| $ 1,767 | (h) | $ 514,543 |
Cost of services and goods sold | (379,078) |
| (128,226) |
| (1,767) | (h) | (252,619) |
Selling, general and administrative expenses | (235,562) |
| (19,896) | (i) | 425 | (j) | (215,241) |
Depreciation and amortization | (10,753) |
| (240) |
| - |
| (10,513) |
Operating income | 44,554 |
| 8,809 |
| 425 |
| 36,170 |
Interest expense | (11,685) |
| - |
| 1,827 | (k) | (9,858) |
Interest income | 940 |
| - |
| 1,250 | (l) | 2,190 |
Income before income taxes | 33,809 |
| 8,809 |
| 3,502 |
| 28,502 |
Income tax expense | (14,062) |
| (3,541) | (m) | (1,408) | (m) | (11,929) |
Income before equity in net earnings of affiliate | 19,747 |
| 5,268 |
| 2,094 |
| 16,573 |
Equity in net earnings of affiliate | - |
| - |
| 971 | (n) | 971 |
Net income | $ 19,747 |
| $ 5,268 |
| $ 3,065 |
| $ 17,544 |
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Net income per common share: |
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Basic | $0.70 |
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| $0.62 |
Diluted | $0.68 |
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| $0.60 |
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Weighted average shares outstanding: |
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Basic | 28,389 |
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| 28,389 |
Diluted | 29,147 |
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| 29,147 |
(1) Information is derived from the unaudited results of operations for the six months ended June 29, 2008.
NOTES TO GENTIVA UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED JUNE 29, 2008
(a) Adjustment to reflect $84.0 million of cash proceeds from the restructuring and sale of the Company’s 69% equity interest in CareCentrix less $58.0 million of payment on the term loan and approximately $2.5 million of expenses and fees.
(b) Adjustment to reflect the receipt of a $25.0 million, 10% note receivable due upon the occurrence of certain events, but in no event later than March 25, 2014 from CareCentrix.
(c) Adjustment to reflect Gentiva’s 31% equity interest in the holding company for CareCentrix.
(d) Adjustment to reflect the write-down of $1,189 related to developed software for a CareCentrix application that will not be utilized following the transaction.
(e) Adjustment to reflect the elimination of the due to Gentiva for the sale of the net assets in CareCentrix.
(f) Adjustment to reflect the prepayment of $58.0 million on the Company’s term loan from the proceeds of the restructuring and sale in connection with the First Amendment to the Company’s Credit Agreement dated August 20, 2008.
(g) Adjustment to reflect the gain on the sale of CareCentrix. There is no income tax liability recorded since the transaction results in a capital loss for federal income tax purposes.
(h) Adjustment to reflect intercompany transactions between Gentiva home care branches and CareCentrix that were previously eliminated in reporting Historical Gentiva results.
(i) Includes $3,800 of fees to be paid by CareCentrix to Gentiva in connection with a Transition Services Agreement between the Company and CareCentrix.
(j) Adjustment to reflect Gentiva’s management fee from CareCentrix ($200) and the elimination of Gentiva’s equity-based compensation expense associated with CareCentrix associates ($225).
(k) Adjustment to reflect $1,827 of reduced interest expense as a result of the prepayment of $58.0 million on the Company’s term loan at a weighted average interest rate of 6.3%.
(l) Adjustment of $1,250 to reflect interest income on the $25.0 million note receivable from CareCentrix that bears interest at an annual rate of 10%.
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(m) Adjustment to reflect a combined federal and state statutory tax rate of 40.2% on the CareCentrix results and the pro forma adjustments.
(n) Adjustment to reflect Gentiva’s 31% equity in CareCentrix’s earnings for the six months ended June 29, 2008.
Calculation of equity in net earnings of affiliate: |
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| CareCentrix income before income taxes | $ | 8,809 | |
| Less: Interest on seller note @ 10% |
| (1,250) | |
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| Interest on senior debt @ 8% |
| (1,520) |
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| Management fees |
| (800) |
| Adjusted income before income taxes |
| 5,239 | |
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| Income tax expense @ 40.2% |
| (2,106) |
| Adjusted net income |
| 3,133 | |
| Equity in net earnings of affiliate @ 31% | $ | 971 |
Pro Forma Results for the Fiscal Year ended December 30, 2007
The following unaudited pro forma financial information presents the results of operations of the Company as if the sale had occurred at January 1, 2007, the beginning of fiscal 2007.The information presented below is for illustrative purposes only and is not necessarily indicative of results that would have been achieved if the disposition had occurred as of the beginning of the Company’s 2007 fiscal year.
GENTIVA PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 30, 2007 (In thousands, except per share amounts) (Unaudited) | |||||||
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| Historical Gentiva |
| Less: CareCentrix (1) |
| Pro Forma Adjustments |
| Gentiva Pro Forma |
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Net revenues | $ 1,229,297 |
| $ 290,786 |
| $ 5,115 | (a) | $ 943,626 |
Cost of services and goods sold | (700,299) |
| (231,537) |
| (5,115) | (a) | (473,877) |
Selling, general and administrative expenses | (429,321) |
| (37,779) | (b) | 850 | (c) | (390,692) |
Depreciation and amortization | (20,014) |
| (494) |
| - |
| (19,520) |
Operating income | 79,663 |
| 20,976 |
| 850 |
| 59,537 |
Interest expense | (27,285) |
| - |
| 4,408 | (d) | (22,877) |
Interest income | 3,204 |
| - |
| 2,500 | (e) | 5,704 |
Income before income taxes | 55,582 |
| 20,976 |
| 7,758 |
| 42,364 |
Income tax expense | (22,754) |
| (8,432) | (f) | (3,119) | (f) | (17,440) |
Income before equity in net earnings of affiliate | 32,828 |
| 12,544 |
| 4,639 |
| 24,924 |
Equity in net earnings of affiliate | - |
| - |
| 2,565 | (g) | 2,565 |
Net income | $ 32,828 |
| $ 12,544 |
| $ 7,204 |
| $ 27,489 |
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Net income per common share: |
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Basic | $ 1.18 |
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| $ 0.99 |
Diluted | $ 1.15 |
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| $ 0.96 |
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Weighted average shares outstanding: |
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Basic | 27,798 |
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| 27,798 |
Diluted | 28,599 |
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| 28,599 |
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(1) Information is derived from the unaudited results of operations for the year ended December 30, 2007. |
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NOTES TO GENTIVA UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 30, 2007
(a) Adjustment to reflect intercompany transactions between Gentiva home care branches and CareCentrix that were previously eliminated in reporting Historical Gentiva results.
(b) Includes $7,600 of fees to be paid by CareCentrix to Gentiva in connection with a Transition Services Agreement between the Company and CareCentrix.
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(c) Adjustment to reflect Gentiva’s management fee from CareCentrix ($400) and the elimination of Gentiva’s equity-based compensation expense associated with CareCentrix associates ($450).
(d)Adjustment to reflect $4,408 of reduced interest expense as a result of the prepayment of $58.0 million on the Company’s term loan at a weighted average interest rate of 7.6%.
(e) Adjustment of $2,500 to reflect interest income on the $25.0 million note receivable from CareCentrix that bears interest at an annual rate of 10%.
(f) Adjustment to reflect a combined federal and state statutory tax rate of 40.2% on the CareCentrix results and the pro forma adjustments.
(g) Adjustment to reflect Gentiva’s 31% equity in CareCentrix’s earnings for the fiscal year ended December 30, 2007.
Calculation of equity in net earnings of affiliate: |
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| CareCentrix income before income taxes | $ | 20,976 | |
| Less: Interest on seller note @ 10% |
| (2,500) | |
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| Interest on senior debt @ 8% |
| (3,040) |
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| Management fees |
| (1,600) |
| Adjusted income before income taxes |
| 13,836 | |
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| Income tax expense @ 40.2% |
| (5,526) |
| Adjusted net income |
| 8,274 | |
| Equity in net earnings of affiliate @ 31% | $ | 2,565 |
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