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Pennsylvania | 8051 | 23-2923146 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification Number) |
Ronald Basso, Esq. Buchanan Ingersoll PC One Oxford Centre 301 Grant Street, 20th Floor Pittsburgh, PA 15219 (412) 562-8800 | Rosemary L. Corsetti, Esq. Vice President, General Counsel and Secretary 800 Concourse Parkway South Suite 200 Maitland, FL 32751 (407) 571-1550 or (412) 281-4420 | William M. Hartnett, Esq. Cahill Gordon & Reindelllp 80 Pine Street New York, New York 10005-1702 (212) 701-3000 |
Proposed Maximum | ||||||
Title of Each Class of | Aggregate Offering | Amount of | ||||
Securities to be Registered | Price(1) | Registration Fee | ||||
Common Stock, $0.00008 par value | $143,750,000 | $16,920 | ||||
(1) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. |
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Per Share | Total | |||
Public offering price | $ | $ | ||
Underwriting discount | $ | $ | ||
Proceeds, before expenses, to Tandem Health Care, Inc. | $ | $ |
Merrill Lynch & Co. | Citigroup |
Wachovia Securities | CIBC World Markets |
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Common stock offered by us | shares | |
Common stock offered by the selling shareholders | shares if the underwriters exercise their overallotment option in full. | |
Common stock to be outstanding after this offering(1) | shares | |
Use of proceeds | We estimate that our net proceeds from this offering will be approximately $ million. We intend to use these net proceeds principally: | |
• to redeem all shares of each series of our outstanding redeemable preferred stock; | ||
• to pay fees and expenses related to this offering, including a termination fee to our financial advisor; and | ||
• any remainder to repay indebtedness. | ||
See “Use of Proceeds” for additional information. | ||
Risk factors | See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock. | |
Proposed Nasdaq National Market symbol | “TAND” |
• | the automatic conversion of all of our shares of each series of convertible preferred stock into shares of common stock upon the consummation of this offering; | |
• | no exercise of the underwriters’ overallotment option, which will be granted by the selling shareholders; and | |
• | a -for- reverse stock split of our outstanding common stock effected on , 2005. |
(1) | The number of shares of common stock that will be outstanding after this offering is based on shares of common stock outstanding as of June 30, 2005, and excludes: |
• | 2,001,500 shares of common stock issuable upon the exercise of granted stock options with a weighted average exercise price of $1.24 per share and 43,500 shares of common stock reserved for issuance under our 1998 Stock Option and Restricted Stock Purchase Plan; | |
• | shares of common stock reserved for future grants under our 2005 Stock and Incentive Plan; | |
• | three warrants exercisable for shares of common stock in the aggregate with a weighted average exercise price of $ per share; and | |
• | shares of common stock reserved for issuance under our 2005 Employee Stock Purchase Plan. |
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Twelve Months | Six Months Ended June 30, | Year Ended | |||||||||||||||||
Ended June 30, | December 31, | ||||||||||||||||||
2005(1) | 2005(2) | 2004 | 2004 | ||||||||||||||||
(dollars in thousands, except ratios and operating data) | |||||||||||||||||||
Income Statement Data | |||||||||||||||||||
Revenues: | |||||||||||||||||||
Inpatient services | $ | 449,086 | $ | 232,298 | $ | 209,185 | $ | 425,973 | |||||||||||
Rehabilitation therapy | 47,856 | 24,979 | 22,227 | 45,104 | |||||||||||||||
Other | 46,370 | 24,551 | 22,715 | 44,534 | |||||||||||||||
Total revenues | 543,312 | 281,828 | 254,127 | 515,611 | |||||||||||||||
Expenses(3): | |||||||||||||||||||
Operating | 328,864 | 172,257 | 150,853 | 307,460 | |||||||||||||||
General and administrative | 134,488 | 66,930 | 69,407 | 136,965 | |||||||||||||||
Lease | 20,863 | 9,651 | 9,695 | 20,907 | |||||||||||||||
Interest | 18,589 | 9,295 | 9,296 | 18,590 | |||||||||||||||
Depreciation and amortization | 14,843 | 7,774 | 6,755 | 13,824 | |||||||||||||||
Total expenses | 517,647 | 265,907 | 246,006 | 497,746 | |||||||||||||||
Income (loss) before income taxes | 25,665 | 15,921 | 8,121 | 17,865 | |||||||||||||||
Provision (benefit) for income taxes | 2,763 | 5,968 | 3,110 | (95 | ) | ||||||||||||||
Net income (loss) | $ | 22,902 | $ | 9,953 | $ | 5,011 | $ | 17,960 | |||||||||||
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Twelve Months | Six Months Ended June 30, | Year Ended | ||||||||||||||||
Ended June 30, | December 31, | |||||||||||||||||
2005(1) | 2005(2) | 2004 | 2004 | |||||||||||||||
(dollars in thousands, except ratios and operating data) | ||||||||||||||||||
Other Financial Data | ||||||||||||||||||
EBITDA(4) | $ | 59,097 | $ | 32,990 | $ | 24,172 | $ | 50,279 | ||||||||||
Operating Data | ||||||||||||||||||
Number of facilities: | ||||||||||||||||||
Owned | 51 | 51 | 45 | 51 | ||||||||||||||
Leased | 19 | 19 | 25 | 19 | ||||||||||||||
Managed | 8 | 8 | 9 | 9 | ||||||||||||||
Number of owned and leased beds in service(5): | ||||||||||||||||||
Skilled nursing | 6,443 | 6,443 | 6,443 | 6,443 | ||||||||||||||
Assisted living | 311 | 311 | 311 | 311 | ||||||||||||||
Independent living | 128 | 128 | 128 | 128 | ||||||||||||||
Number of managed beds in service | 892 | 892 | 1,012 | 1,012 | ||||||||||||||
Occupancy (excludes managed facilities)(6) | 94.0 | % | 93.8 | % | 93.8 | % | 93.9 | % | ||||||||||
Quality mix(7): | ||||||||||||||||||
Inpatient days | 39.3 | % | 39.8 | % | 39.7 | % | 39.3 | % | ||||||||||
Inpatient services revenue | 52.2 | % | 54.4 | % | 54.2 | % | 53.8 | % | ||||||||||
Total revenue | 60.5 | % | 62.4 | % | 62.3 | % | 61.8 | % | ||||||||||
Selected Pro Forma LTM Ratios(8): | ||||||||||||||||||
EBITDA/ interest expense | 3.18 | x | ||||||||||||||||
Net debt/ EBITDA | 3.97 | x |
As of June 30, | |||||||||||||||||
2005 | |||||||||||||||||
Balance Sheet Data (dollars in thousands) | |||||||||||||||||
Cash and cash equivalents and current escrows | $ | 15,667 | |||||||||||||||
Working capital | 40,401 | ||||||||||||||||
Net property, plant and equipment | 181,294 | ||||||||||||||||
Total assets | 437,949 | ||||||||||||||||
Total debt | 250,000 | ||||||||||||||||
Stockholders’ equity | 108,190 |
(1) | The unaudited pro forma condensed combined financial and operating data for the twelve months ended June 30, 2005 includes the cumulative impact of the Pennsylvania nursing home provider assessment which was approved by CMS in January 2005. The Pennsylvania assessment was retroactive to July 1, 2003 and impacted 15 of our facilitieson a pro forma basis. All of the revenues and expenses associated with this Pennsylvania assessment were recognized in the twelve months ended June 30, 2005. This assessment was retroactive to periods prior to the twelve months ended June 30, 2005 and, accordingly, revenues, expenses, net income and EBITDA for the twelve months ended June 30, 2005 includes $6.3 million, $5.4 million, $0.5 million and $0.9 million, respectively, of the impact of these assessments which related to periods prior to the twelve months ended June 30, 2005. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends.” |
(2) | The unaudited pro forma condensed combined financial and operating data for the six months ended June 30, 2005 includes the cumulative impact of the Pennsylvania and New Jersey nursing home provider assessments which were approved by CMS during the six months ended June 30, 2005. The Pennsylvania assessment was retroactive to July 1, 2003 and impacted 15 of our facilitieson a pro forma basis. The New Jersey assessment was retroactive to July 1, 2004 and only impacted our single New Jersey facility. All of the revenues and expenses associated with these Pennsylvania and New Jersey assessments were recognized in the six months ended June 30, 2005. These combined assessments were retroactive to periods prior to the six months ended June 30, 2005 and, accordingly, revenues, expenses, net income and EBITDA for the six months ended June 30, 2005 includes $9.5 million, $8.3 million, $0.7 million and $1.2 million, respectively, of the impact of these assessments which related to periods prior to the six months ended June 30, 2005. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends.” |
(3) | Does not give effect to the $4.7 million charge to write off the balance of deferred financing costs and up to $1.7 million of termination fees associated with our existing indebtedness upon the payoff of such indebtedness. |
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(4) | We define EBITDA as earnings (loss) before interest expense, income taxes, depreciation and amortization. Other companies may define EBITDA differently and, as a result, our measure of EBITDA may not be directly comparable to EBITDA of other companies. EBITDA does not represent net income (loss), as defined by generally accepted accounting principles, or GAAP. EBITDA is a non- GAAP financial measure. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measure to net income (loss), the most directly comparable GAAP financial measure. |
Management believes that the presentation of EBITDA provides useful information to investors regarding our results of operations because it is useful for trending, analyzing and benchmarking the performance and value of our business. We use EBITDA primarily as a performance measure and believe that the GAAP financial measure most directly comparable to EBITDA is net income (loss). We believe that the inclusion of EBITDA in this prospectus is appropriate to provide additional information to investors about certain financial covenants that will be contained in our new credit facility and the indenture governing our new senior subordinated notes. EBITDA will be a material component of certain of these covenants. For instance, our new credit facility will contain financial covenant ratios, specifically total leverage and interest coverage ratios, that are calculated by reference to EBITDA. Non-compliance with the financial ratio maintenance covenants which will be contained in our new credit facility could result in the requirement to immediately repay all amounts outstanding under such new credit facility. In addition, under the restricted payments covenant that will be contained in the indenture governing our new senior subordinated notes, our ability to incur additional debt will be limited by a ratio of EBITDA to interest expense. For a description of required financial covenant levels and actual ratio calculations based on EBITDA, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” | |
We use EBITDA as a measure to assess the relative performance of our long-term healthcare facilities and other ancillary businesses. EBITDA is useful in this regard because it does not include such costs as interest expense, income taxes and depreciation and amortization expense, which may vary from business unit to business unit depending upon such factors as the method used to finance the original purchase of the business unit or the tax law in the state that a business unit operates in. By excluding such factors when measuring financial performance, management is better able to evaluate operating performance of the business unit. We also use EBITDA in our annual budget process. We believe EBITDA facilitates internal comparisons to historical operating performance of prior periods and external comparisons to competitors’ historical operating performance. | |
Although we use EBITDA as a financial measure to assess the performance of our business, the use of EBITDA is limited because it does not consider certain material costs necessary to operate our business. These costs include the cost to service our debt; the non-cash depreciation and amortization associated with our long-lived assets and the cost of our federal and state tax obligations. Because EBITDA does not consider these important elements of our cost structure, a user of our financial information who relies on EBITDA as the only measure of our performance could draw an incomplete or misleading conclusion regarding our financial performance. Consequently, a user of our financial information should consider net income (loss) as an important measure of our financial performance because it provides a more complete measure of our performance. |
Twelve Months | Six Months | |||||||||||||||||
Ended | Ended June 30, | Year Ended | ||||||||||||||||
June 30, | December 31, | |||||||||||||||||
2005(1) | 2005(2) | 2004 | 2004 | |||||||||||||||
(dollars in thousands) | ||||||||||||||||||
EBITDA Reconciliation | ||||||||||||||||||
Net income (loss) | $ | 22,902 | $ | 9,953 | $ | 5,011 | $ | 17,960 | ||||||||||
Plus: | ||||||||||||||||||
Income tax provision (benefit) | 2,763 | 5,968 | 3,110 | (95 | ) | |||||||||||||
Interest | 18,589 | 9,295 | 9,296 | 18,590 | ||||||||||||||
Depreciation and amortization | 14,843 | 7,774 | 6,755 | 13,824 | ||||||||||||||
EBITDA | $ | 59,097 | $ | 32,990 | $ | 24,172 | $ | 50,279 | ||||||||||
(5) | Excludes 23 licensed beds which are not currently in service. |
(6) | We define occupancy as the actual patient days (one patient day equals one patient or resident occupying one bed for one day) during any measurement period as a percentage of the number of available patient days. Available days are determined by multiplying the number of licensed beds in service during the measurement period by the number of calendar days during the measurement period. During any measurement period, the number of licensed beds in a long-term healthcare facility that are actually in service may be less than the actual licensed bed capacity due to, among other things, bed de-certifications. |
(7) | We measure both patient days and revenue by payor. The aggregation of payment sources and patient days other than Medicaid is referred to as quality mix. The inpatient days and inpatient revenue quality mix percentages are calculated as non-Medicaid inpatient days as a percentage of total patient days and non-Medicaid inpatient revenue as a percentage of total inpatient revenue, respectively. In addition, we calculate total revenue quality mix as total non-Medicaid inpatient services revenue as a percentage of total revenue. |
(8) | For the Selected Pro Forma LTM Ratios presented above, (i) EBITDA and interest expense are calculated for the twelve months ended June 30, 2005,on a pro forma basis, and (ii) net debt is calculated as of June 30, 2005 after giving effect to the Transaction. |
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Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||||
(dollars in thousands, except ratios and operating data) | |||||||||||||||||||||||
Income Statement Data | |||||||||||||||||||||||
Revenues: | |||||||||||||||||||||||
Inpatient services | $ | 197,909 | $ | 174,134 | $ | 353,085 | $ | 325,191 | $ | 298,246 | |||||||||||||
Rehabilitation therapy | 24,979 | 2,140 | 4,299 | 1,051 | 345 | ||||||||||||||||||
Other | 24,493 | 11,574 | 22,326 | 6,311 | 498 | ||||||||||||||||||
Total revenues | 247,381 | 187,848 | 379,710 | 332,553 | 299,089 | ||||||||||||||||||
Expenses: | |||||||||||||||||||||||
Operating | 146,712 | 109,373 | 221,664 | 193,821 | 176,974 | ||||||||||||||||||
General and administrative | 63,883 | 55,225 | 111,245 | 104,720 | 84,380 | ||||||||||||||||||
Lease | 9,651 | 9,534 | 20,555 | 21,921 | 19,098 | ||||||||||||||||||
Interest | 7,984 | 4,333 | 8,482 | 8,908 | 8,910 | ||||||||||||||||||
Depreciation and amortization | 6,969 | 5,058 | 10,430 | 10,468 | 7,835 | ||||||||||||||||||
Total expenses | 235,199 | 183,523 | 372,376 | 339,838 | 297,197 | ||||||||||||||||||
Income (loss) before income taxes | 12,182 | 4,325 | 7,334 | (7,285 | ) | 1,892 | |||||||||||||||||
Provision (benefit) for income taxes | 4,291 | 1,661 | (4,119 | ) | 4,200 | 658 | |||||||||||||||||
Net income (loss) | $ | 7,891 | $ | 2,664 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | ||||||||||||
Other Financial Data | |||||||||||||||||||||||
EBITDA(1) | $ | 27,135 | $ | 13,716 | $ | 26,246 | $ | 12,091 | $ | 18,637 | |||||||||||||
Operating Data | |||||||||||||||||||||||
Number of facilities: | |||||||||||||||||||||||
Owned | 51 | 30 | 36 | 30 | 26 | ||||||||||||||||||
Leased | 19 | 25 | 19 | 25 | 23 | ||||||||||||||||||
Managed | 8 | 9 | 9 | 9 | 1 |
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Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | ||||||||||||||||||
(dollars in thousands, except ratios and operating data) | ||||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||||
Number of owned and leased beds in service(2): | ||||||||||||||||||||||
Skilled nursing | 6,443 | 5,409 | 5,409 | 5,409 | 4,954 | |||||||||||||||||
Assisted living | 311 | 134 | 134 | 134 | 118 | |||||||||||||||||
Independent living | 128 | — | — | — | — | |||||||||||||||||
Number of managed beds in service | 892 | 1,012 | 1,012 | 1,012 | 100 | |||||||||||||||||
Occupancy (excludes managed facilities)(3) | 93.6 | % | 93.3 | % | 93.5 | % | 92.6 | % | 92.4 | % | ||||||||||||
Patient days | 1,015,048 | 942,593 | 1,897,807 | 1,837,564 | 1,740,809 | |||||||||||||||||
Quality mix(4): | ||||||||||||||||||||||
Inpatient days | 39.2 | % | 38.5 | % | 38.1 | % | 37.3 | % | 36.9 | % | ||||||||||||
Inpatient revenue | 53.8 | % | 54.1 | % | 54.0 | % | 51.3 | % | 51.5 | % | ||||||||||||
Total revenue | 63.1 | % | 57.5 | % | 57.2 | % | 52.4 | % | 51.6 | % |
As of December 31, | |||||||||||||
As of | |||||||||||||
June 30, 2005 | 2004 | 2003 | |||||||||||
(dollars in thousands) | |||||||||||||
Balance Sheet Data | |||||||||||||
Cash and cash equivalents and current escrows | $ | 14,976 | $ | 13,530 | $ | 14,350 | |||||||
Working capital | 5,033 | 3,445 | (1,592 | ) | |||||||||
Net property, plant and equipment | 181,294 | 135,674 | 112,212 | ||||||||||
Total assets | 435,197 | 321,017 | 231,569 | ||||||||||
Total debt | 275,514 | 196,032 | 141,577 | ||||||||||
Stockholders’ equity (deficit) | 1,383 | (12,261 | ) | (24,402 | ) |
(1) | We define EBITDA as earnings (loss) before interest expense, income taxes, depreciation and amortization. EBITDA, as discussed previously is a non-GAAP financial measure. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measure to net income (loss), the most directly comparable GAAP financial measure. |
Six Months Ended | ||||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||
EBITDA Reconciliation | ||||||||||||||||||||||
Net income (loss) | $ | 7,891 | $ | 2,664 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | |||||||||||
Plus: | ||||||||||||||||||||||
Income tax provision (benefit) | 4,291 | 1,661 | (4,119 | ) | 4,200 | 658 | ||||||||||||||||
Interest | 7,984 | 4,333 | 8,482 | 8,908 | 8,910 | |||||||||||||||||
Depreciation and amortization | 6,969 | 5,058 | 10,430 | 10,468 | 7,835 | |||||||||||||||||
EBITDA | $ | 27,135 | $ | 13,716 | $ | 26,246 | $ | 12,091 | $ | 18,637 | ||||||||||||
(2) | Excludes 23 licensed beds which are not currently in service. |
(3) | We define occupancy as the actual patient days (one patient day equals one patient or resident occupying one bed for one day) during any measurement period as a percentage of the number of available patient days. Available days are determined by multiplying the number of licensed beds in service during the measurement period by the number of calendar days during the measurement period. During any measurement period, the number of licensed beds in a long-term healthcare facility that are actually in service may be less than the actual licensed bed capacity due to, among other things, bed de-certifications. |
(4) | We measure both patient days and revenue by payor. The aggregation of payment sources and patient days other than Medicaid is referred to as quality mix. The inpatient days and inpatient revenue quality mix percentages are calculated as non-Medicaid inpatient days as a percentage of total patient days and non-Medicaid inpatient revenue as a percentage of total inpatient revenue, respectively. In addition, we calculate total revenue quality mix as total non-Medicaid inpatient services revenue as a percentage of total revenue. |
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Year Ended December 31, | |||||||||||||||
2004 | 2003 | 2002 | |||||||||||||
(dollars in thousands) | |||||||||||||||
Income Statement Data | |||||||||||||||
Revenues: | |||||||||||||||
Inpatient services | $ | — | $ | — | $ | — | |||||||||
Rehabilitation therapy | 40,805 | 36,052 | 32,524 | ||||||||||||
Other | 22,212 | 19,406 | 17,588 | ||||||||||||
Total revenues | 63,017 | 55,458 | 50,112 | ||||||||||||
Expenses: | |||||||||||||||
Operating | 37,420 | 33,117 | 29,323 | ||||||||||||
General and administrative | 22,755 | 16,044 | 14,611 | ||||||||||||
Lease | 352 | 374 | 324 | ||||||||||||
Interest | 53 | 26 | 87 | ||||||||||||
Depreciation and amortization | 549 | 451 | 390 | ||||||||||||
Total expenses | 61,129 | 50,012 | 44,735 | ||||||||||||
Income (loss) before income taxes | 1,888 | 5,446 | 5,377 | ||||||||||||
Provision (benefit) for income taxes | 79 | 116 | 53 | ||||||||||||
Net income (loss) | $ | 1,809 | $ | 5,330 | $ | 5,324 | |||||||||
Other Financial Data | |||||||||||||||
EBITDA(1) | $ | 2,490 | $ | 5,923 | $ | 5,854 | |||||||||
As of December 31, | |||||||||
2004 | 2003 | ||||||||
(dollars in thousands) | |||||||||
Balance Sheet Data | |||||||||
Cash and cash equivalents | $ | 2,817 | $ | 3,267 | |||||
Working capital | 9,358 | 13,115 | |||||||
Net property, plant and equipment | 2,437 | 1,971 | |||||||
Total assets | 21,461 | 18,325 | |||||||
Total debt | 1,083 | 462 | |||||||
Stockholders’ equity | 11,143 | 14,880 | |||||||
(1) | We define EBITDA as earnings (loss) before interest expense, income taxes, depreciation and amortization. EBITDA, as discussed previously, is a non-GAAP financial measure. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measure to net income (loss), the most directly comparable GAAP financial measure. |
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Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(dollars in thousands) | ||||||||||||||
EBITDA Reconciliation | ||||||||||||||
Net income (loss) | $ | 1,809 | $ | 5,330 | $ | 5,324 | ||||||||
Plus: | ||||||||||||||
Income tax provision (benefit) | 79 | 116 | 53 | |||||||||||
Interest | 53 | 26 | 87 | |||||||||||
Depreciation and amortization | 549 | 451 | 390 | |||||||||||
EBITDA | $ | 2,490 | $ | 5,923 | $ | 5,854 | ||||||||
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Four Months | |||||||||||||||
Ended | Year Ended December 31, | ||||||||||||||
April 30, | |||||||||||||||
2005 | 2004 | 2003 | |||||||||||||
(dollars in thousands, except ratios and | |||||||||||||||
operating data) | |||||||||||||||
Income Statement Data | |||||||||||||||
Revenues: | |||||||||||||||
Inpatient services | $ | 34,389 | $ | 72,888 | $ | 67,514 | |||||||||
Rehabilitation therapy | — | — | — | ||||||||||||
Other | 205 | 1,000 | 686 | ||||||||||||
Total revenues | 34,594 | 73,888 | 68,200 | ||||||||||||
Expenses: | |||||||||||||||
Operating | 25,545 | 48,376 | 47,887 | ||||||||||||
General and administrative | 5,821 | 17,829 | 16,954 | ||||||||||||
Lease | — | — | — | ||||||||||||
Interest | 353 | 1,093 | 1,076 | ||||||||||||
Depreciation and amortization | 908 | 2,780 | 2,925 | ||||||||||||
Total expenses | 32,627 | 70,078 | 68,842 | ||||||||||||
Income (loss) before income taxes | 1,967 | 3,810 | (642 | ) | |||||||||||
Provision (benefit) for income taxes | — | — | — | ||||||||||||
Net income (loss) | $ | 1,967 | $ | 3,810 | $ | (642 | ) | ||||||||
Other Financial Data | |||||||||||||||
EBITDA(1) | $ | 3,228 | $ | 7,683 | $ | 3,359 | |||||||||
Operating Data | |||||||||||||||
Number of facilities: | |||||||||||||||
Owned | 15 | 15 | 15 | ||||||||||||
Leased | — | — | — | ||||||||||||
Managed | — | — | — | ||||||||||||
Number of owned and leased beds in service: | |||||||||||||||
Skilled nursing | 1,034 | 1,034 | 1,034 | ||||||||||||
Assisted living | 177 | 177 | 177 | ||||||||||||
Independent living | 128 | 128 | 128 |
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Four Months | |||||||||||||
Ended | Year Ended December 31, | ||||||||||||
April 30, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
Occupancy(2) | 95.6 | % | 95.8 | % | 95.8 | % | |||||||
Quality mix(3): | |||||||||||||
Inpatient days | 43.9 | % | 44.0 | % | 45.6 | % | |||||||
Inpatient revenue | 34.8 | %(4) | 53.0 | % | 55.6 | % | |||||||
Total revenue | 35.2 | %(4) | 53.6 | % | 56.0 | % |
As of | As of December 31, | ||||||||||||
April 30, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
(dollars in thousands) | |||||||||||||
Balance Sheet Data | |||||||||||||
Cash and cash equivalents | $ | 6 | $ | 6 | $ | 6 | |||||||
Working capital | 3,018 | 1,887 | 2,547 | ||||||||||
Net property, plant and equipment | 28,784 | 29,405 | 31,201 | ||||||||||
Total assets | 44,152 | 43,990 | 46,629 | ||||||||||
Total debt | 23,428 | 24,181 | 24,602 | ||||||||||
Net assets | 7,157 | 6,478 | 9,173 |
(1) | We define EBITDA as earnings (loss) before interest expense, income taxes, depreciation and amortization. EBITDA, as discussed previously is a non-GAAP financial measure. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measure to net income (loss), the most directly comparable GAAP financial measure. |
December 31, | ||||||||||||||
April 30, | ||||||||||||||
2005 | 2004 | 2003 | ||||||||||||
(dollars in thousands) | ||||||||||||||
EBITDA Reconciliation | ||||||||||||||
Net income (loss) | $ | 1,967 | $ | 3,810 | $ | (642 | ) | |||||||
Plus: | ||||||||||||||
Income tax provision (benefit) | — | — | — | |||||||||||
Interest | 353 | 1,093 | 1,076 | |||||||||||
Depreciation and amortization | 908 | 2,780 | 2,925 | |||||||||||
EBITDA | $ | 3,228 | $ | 7,683 | $ | 3,359 | ||||||||
(2) | We define occupancy as the actual patient days (one patient day equals one patient or resident occupying one bed for one day) during any measurement period as a percentage of the number of available patient days. Available days are determined by multiplying the number of licensed beds in service during the measurement period by the number of calendar days during the measurement period. During any measurement period, the number of licensed beds in a long-term healthcare facility that are actually in service may be less than the actual licensed bed capacity due to, among other things, bed de-certifications. |
(3) | We measure both patient days and revenue by payor. The aggregation of payment sources and patient days other than Medicaid is referred to as quality mix. The inpatient days and inpatient revenue quality mix percentages are calculated as non-Medicaid inpatient days as a percentage of total patient days and non-Medicaid inpatient revenue as a percentage of total inpatient revenue, respectively. In addition, we calculate total revenue quality mix as total non-Medicaid inpatient services revenue as a percentage of total revenue. |
(4) | Absent the Pennsylvania provider tax assessment as discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Industry Trends — Effects of Inflation and Changing Prices” quality mix as a percentage of inpatient revenue and quality mix as a percentage of total revenue would have been approximately 49.0% and 51.4%, respectively, for the four months ended April 30, 2005. |
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• | administrative or legislative changes to the base rates under the applicable prospective payment systems; | |
• | the reduction or elimination of annual rate increases; | |
• | the imposition or increase by Medicare of mechanisms, such as shifting more responsibility for a portion of payment to beneficiaries; | |
• | adjustments to the relative components of the wage index used in determining reimbursement rates; or | |
• | changes to case mix or therapy thresholds. |
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Specific changes in federal and/or states laws, regulations and/or interpretations have the potential to impact Medicaid funding during each subsequent year. |
We are subject to extensive government regulation. Any changes in the laws governing our business, or the interpretation and enforcement of those laws or regulations, could cause us to modify our operations and could negatively impact our operating results. |
• | facility and professional licensure, certificates of need and permits of approval; | |
• | conduct of operations, including financial relationships among healthcare providers, Medicare fraud and abuse, and physician self-referral; | |
• | maintenance and protection of records, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA; | |
• | environmental protection, health and safety; | |
• | certification of additional facilities by the Medicare program; and | |
• | payment for services. |
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If any of our facilities fail to comply with the conditions of participation in the Medicare or Medicaid program, that facility could be terminated from Medicare or Medicaid, which would adversely affect our revenue and net income. |
We face periodic reviews, audits and investigations under our contracts with federal and state government agencies, and these audits could have adverse findings that may negatively impact our business. |
• | an obligation to refund amounts previously paid to us pursuant to the Medicare or Medicaid programs or from private payors, which amounts could be material to our business; | |
• | state or federal agencies imposing fines, penalties and other sanctions on us; | |
• | loss of our right to participate in the Medicare or Medicaid programs or one or more private payor networks; and | |
• | damage to our reputation in various markets. |
• | cost reporting and billing practices; | |
• | quality of care; | |
• | financial relationships with referral sources; and | |
• | medical necessity of services provided. |
State laws and regulations could affect our ability to grow. |
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Possible changes in the case mix of residents and patients as well as payor mix and payment methodologies may significantly affect our profitability. |
Implementation of annual caps that limit the amounts that can be paid for outpatient therapy services rendered to any Medicare beneficiary may reduce our future net operating revenues and profitability. |
Legislative initiatives could negatively impact our operations and financial results. |
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The application of state certificates of need and permit of approval regulations and compliance with federal and state licensing requirements could substantially limit our ability to operate and grow our business. |
Future cost containment initiatives undertaken by private third party payors may limit our future revenues and net income. |
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We are required to comply with laws governing the transmission and privacy of health information. |
A significant portion of our business is concentrated in certain markets, and changes in the laws affecting our business in those markets could have a material adverse effect on our operating results. |
We face various general and professional liability risks. |
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We may be subject to unionization activities, work stoppages or slowdowns. |
We face competition, including competition from entities with greater resources, which may make it difficult for us to compete effectively as a provider of long-term healthcare services. |
Shortages in qualified nurses, therapists and other healthcare professionals could increase our operating costs significantly or constrain our ability to grow. |
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We may make acquisitions that could subject us to a number of operating risks. |
• | inaccurate assessment of undisclosed liabilities; | |
• | entry into markets in which we may have limited or no experience; | |
• | diversion of management’s attention from our core business; | |
• | difficulties in assimilating the operations of an acquired business or in realizing projected efficiencies and cost savings; and | |
• | increasing our indebtedness and limiting our ability to access additional capital when needed. |
Our acquisition and internal development activity may impose strains on our existing resources. |
We may be unable to secure the additional capital necessary to implement our growth strategy. |
The loss of certain senior management could have a material adverse effect on our operations and financial performance. |
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If we are unable to maintain relationships with existing referral sources or establish new referral sources, our growth and net income could be adversely affected. |
Our financial leverage and debt service obligations could adversely affect our financial condition or our ability to fulfill our obligations, which could adversely affect our ability to operate our business. |
• | we may have difficulty satisfying our obligations with respect to our indebtedness; | |
• | we may have difficulty obtaining additional financing in the future for working capital, capital expenditures, acquisitions or other purposes; | |
• | we will need to use a substantial portion of our available cash flow to pay interest and principal on our debt, which will reduce the amount of money available to finance our operations and other business activities; | |
• | our substantial debt level increases our vulnerability to general economic downturns and adverse industry conditions; | |
• | our substantial financial leverage could place us at a competitive disadvantage compared to any of our competitors that have relatively less debt; | |
• | our failure to comply with the financial and other restrictive covenants in our debt instruments, which, among other things, require us to maintain specified financial ratios and limit our ability to incur debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or prospects; and | |
• | in the event that we are in default of our obligations to our lenders, we may be unable to cure the default or secure necessary waivers from our lenders, which could result in acceleration of our indebtedness and foreclosure by our lenders on our assets. |
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The agreements that govern our existing indebtedness, as well as our new credit facility and our senior subordinated notes, contain various covenants that limit our discretion in the operation of our business. |
• | incur more debt; | |
• | pay dividends, purchase company stock or make other distributions; | |
• | make certain investments; | |
• | create certain liens; | |
• | enter into transactions with affiliates; | |
• | make acquisitions; | |
• | merge or consolidate; and | |
• | transfer or sell assets. |
Our business is conducted through our subsidiaries. |
We will incur increased costs as a result of being a public company. |
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If we identify deficiencies in our internal controls over financial reporting, our business and our stock price could be adversely affected. |
Terrorist attacks, acts of war or natural disasters may seriously harm our business. |
Our executive officers, directors and their affiliates, including affiliates of Behrman Capital II L.P., hold a substantial portion of our common stock and could exercise significant influence over matters requiring shareholder approval, regardless of the wishes of other shareholders. |
Our common stock value may suffer from anti-takeover provisions that may impede potential takeovers that management opposes. |
• | classifying the board of directors such that only one-third of directors are elected each year; |
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• | authorizing the issuance of “blank check” preferred stock by our board of directors to increase the number of outstanding shares and thwart a takeover attempt; | |
• | prohibiting the use of cumulative voting for the election of directors; | |
• | limiting the ability of shareholders to call special meetings of shareholders; and | |
• | establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings. |
An active trading market for our common stock may not develop. |
If there are substantial sales of our common stock, our stock price could decline. |
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The trading price of our common stock is likely to be volatile, and you may not be able to sell your shares at or above the initial public offering price. |
• | actual or anticipated variations in quarterly operating results; | |
• | changes in financial estimates by securities analysts; | |
• | conditions or trends in our industry; | |
• | changes in the market valuations of other long term healthcare providers; | |
• | announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures or other strategic initiatives; | |
• | capital commitments; | |
• | changes in demand for the products and services that we offer; | |
• | litigation and professional liability claims; | |
• | pricing and other actions taken by our competitors; | |
• | changes in the healthcare regulatory environment; | |
• | general economic conditions; | |
• | additions or departures of key personnel; and | |
• | sales of our common stock. |
We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment is if the price of our common stock appreciates. |
You will incur immediate and substantial dilution as a result of this offering. |
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• | the effect of government regulations and changes in regulations governing the healthcare industry, including our compliance with such regulations; | |
• | periodic reviews, audits and investigations by federal and state agencies; | |
• | state regulation of construction or expansion by healthcare providers; | |
• | demographic changes and changes in payor mix; | |
• | our ability to maintain and increase census (volume of residents) levels; | |
• | changes in Medicare and Medicaid payment levels and methodologies, including annual therapy caps, and the application of such methodologies by the government and its fiscal intermediaries; | |
• | liquidity concerns, including as a result of delays in reimbursement; | |
• | the failure to comply with environmental and occupational health and safety regulations; | |
• | our ability to obtain and maintain individual state facility licenses to operate; | |
• | future cost containment initiatives by third party payors; | |
• | changes in, or the failure to comply with, regulations governing the transmission and privacy of health information; | |
• | national and local economic conditions, including their effect on the availability and cost of labor, utilities and materials; | |
• | pending or threatened litigation and professional liability claims; | |
• | changes in the current trends in the costs and volume of patient-care related claims, workers’ compensation claims and insurance costs related to such claims; | |
• | our ability to obtain adequate insurance coverage with financially viable insurance carriers, as well as the ability of our insurance carriers to fulfill their obligations; | |
• | unionization, work stoppages or slowdowns; | |
• | the competitive environment in which we operate; | |
• | our ability to attract and retain qualified personnel; | |
• | our ability to manage growth effectively; | |
• | our ability to integrate acquisitions and realize synergies and accretion; |
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• | the availability and terms of capital to fund acquisitions, capital expenditures and ongoing operations; | |
• | our ability to maintain good relationships with referral sources; | |
• | our existing and future debt, which may affect our ability to obtain financing in the future or to comply with our existing debt covenants; and | |
• | our ability to improve our fundamental business processes and reduce costs throughout the organization. |
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Sources (dollars in millions): | |||||
Common stock to be offered by Tandem | $ | 125.0 | |||
New senior subordinated notes | 150.0 | ||||
New credit facility(1) | 100.0 | ||||
Total sources | $ | 375.0 | |||
Uses (dollars in millions): | |||||
Redemption of all series of redeemable preferred stock | $ | 76.1 | |||
Repayment of Merrill Lynch Capital/LaSalle Bank indebtedness(2)(3) | 73.1 | ||||
Repayment of Merrill Lynch Capital indebtedness(4)(5) | 40.4 | ||||
Repayment of LaSalle Bank indebtedness(6)(7) | 105.0 | ||||
Repayment of Key Bank/JP Morgan indebtedness(8) | 23.8 | ||||
Repayment of Key Bank indebtedness(9) | 2.0 | ||||
Repayment of GE Capital indebtedness(10) | 6.4 | ||||
Repayment of GMAC Commercial Mortgage indebtedness(11) | 7.2 | ||||
Repayment of MMG promissory note(12) | 8.5 | ||||
Repayment of Lighthouse promissory note(13) | 1.7 | ||||
Repayment of CoastalMed promissory note(14) | 4.0 | ||||
Repayment of Villa Homes West promissory note(15) | 0.5 | ||||
Repayment of Smith-Packett Enterprises promissory note(16) | 2.5 | ||||
Repayment of remaining capital lease obligations | 0.3 | ||||
Aggregate repayment of indebtedness exit fees, prepayment penalties and prepayment premiums(17) | 1.7 | ||||
Redemption of warrant held by Health Care REIT, Inc.(18) | |||||
Behrman Brothers Management Corp. termination fee(19) | 2.5 | ||||
Transaction fees and expenses | 18.5 | ||||
Total uses | $ | ||||
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(1) | The new credit facility consists of a $100.0 million term loan and a $50.0 million revolver, which we anticipate will be undrawn at the closing of this offering. | |
(2) | Includes $69.9 million of debt entered into in connection with our acquisition of certain assets of Diakon with an interest rate of LIBOR plus 3.75% and an April 2010 maturity date. If the indebtedness is paid prior to February 1, 2006, we will incur an exit fee and a prepayment penalty, each in an amount equal to of 1% of the original aggregate principal amount of the indebtedness. If the indebtedness is paid subsequent to January 31, 2006, we will incur a prepayment fee equal to 1% of the original aggregate principal amount of the indebtedness. We intend to discharge approximately $38.0 million of this indebtedness on or about February 2, 2006, rather than upon the consummation of this offering. | |
(3) | Includes $3.2 million of outstanding working capital revolvers entered into in connection with our acquisition of certain assets of Diakon with an interest rate of LIBOR plus 3.75% and an April 2010 maturity date. | |
(4) | Includes a $7.0 million note entered into in connection with our acquisition of MMG and Lighthouse, with an interest rate of LIBOR plus 13.0% in year one and an interest rate of LIBOR plus 15.50% for years two through five with a November 2009 maturity date. | |
(5) | Includes (a) $28.9 million of indebtedness with an interest rate of LIBOR plus 3.75% and a December 2009 maturity date, (b) $2.2 million of indebtedness with an interest rate of LIBOR plus 6.00% and a December 2009 maturity date and (c) $2.3 million of outstanding working capital revolvers with an interest rate of LIBOR plus 3.75% and a December 2009 maturity date. As of June 30, 2005, the indebtedness described in (a) and (b) of this footnote are subject to an exit fee equal to 1.0% of the original aggregate principal amount of the indebtedness if paid subsequent to February 2, 2005. In the event that the indebtedness described in (a) and (b) of this footnote is refinanced by the lender, the 1.0% exit fee is waived. | |
(6) | Includes a $25.0 million note and a $0.9 million equipment note entered into in connection with our acquisition of MMG and Lighthouse with an interest rate of LIBOR plus 3.5% with maturity dates of November 2009 and December 2007, respectively. | |
(7) | Includes (a) $32.0 million of indebtedness with an interest rate of LIBOR plus 3.5% and a December 2009 maturity date, (b) $3.6 million of indebtedness with an interest rate of LIBOR plus 4.0% and a November 2009 maturity date, (c) $20.1 million of indebtedness with an interest rate of LIBOR plus 3.5% and a May 2009 maturity date, (d) $12.7 million of indebtedness with an interest rate of LIBOR plus 4.0% and a May 2009 maturity date, (e) $1.3 million of indebtedness with an interest rate of LIBOR plus 4.0% and an September 2006 maturity date, (f) $4.2 million of outstanding working capital revolvers with an interest rate of prime plus 0.5% and a November 2009 maturity date, (g) $4.2 million of outstanding working capital revolvers with an interest rate of prime plus 0.5% and a May 2009 maturity date and (h) $1.0 million of outstanding working capital revolvers with an interest rate of prime plus 1.0% and a September 2006 maturity date. As of June 30, 2005, the indebtedness described in (a), (b), (c) and (d) of this footnote are subject to a prepayment premium equal to 1.0% of the original aggregate principal amount of the indebtedness if paid prior to maturity. | |
(8) | Represents a $23.8 million loan entered into in conjunction with the purchase of the underlying real estate of six long-term healthcare facilities, which we previously leased. This debt bears interest at prime plus 0.75% and has a December 2009 maturity date. | |
(9) | Represents $2.0 million of outstanding working capital revolvers with an interest rate of prime plus 1.5% and a March 2006 maturity date. |
(10) | Represents $6.4 million of outstanding working capital revolvers with an interest rate of prime plus 0.5% and a February 2008 maturity date. |
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(11) | Represents $7.2 million of indebtedness with an interest rate of LIBOR plus 4.1% and a February 2008 maturity date. |
(12) | This $8.5 million promissory note, which was issued in connection with our acquisition of MMG, bears interest at 8.0% with a December 31, 2009 maturity date, and becomes immediately due and payable upon the consummation of this offering. Until the earlier of December 31, 2007 or the resolution of any indemnity claim in connection with the MMG acquisition, we will escrow up to $4.0 million of the aggregate principal amount of this promissory note. |
(13) | This $1.7 million promissory note, which was issued in connection with our acquisition of Lighthouse, bears interest at 8.0% with a December 31, 2009 maturity date, and becomes immediately due and payable upon the consummation of this offering. |
(14) | Represents $4.0 million of indebtedness with an interest rate of 6.0% and an October 2008 maturity date. |
(15) | Represents $0.5 million of indebtedness with an interest rate of 7.0% and a March 2008 maturity date. |
(16) | Represents $2.5 million of indebtedness with an interest rate of 8.0% and an April 2008 maturity date. |
(17) | Includes $0.7 million of exit fees and $0.3 million of prepayment penalties associated with the indebtedness set forth in footnote (2), and $0.7 million of aggregate prepayment premiums associated with the indebtedness described in footnotes (a), (b), (c) and (d) of footnote 7. |
(18) | Effective as of September 8, 2005, Health Care REIT, Inc. holds a warrant exercisable for shares of our common stock. In connection with this offering, Health Care REIT has the option, in its sole discretion, to exercise a put, which expires upon the consummation of this offering, which would require us to repurchase the shares of common stock issuable upon exercise of this warrant at the initial public offering price per share. As of the date hereof, Health Care REIT has not informed us of their intentions with respect to this warrant. The total amount shown is based on an initial public offering price of $ per share (the midpoint of the initial public offering price range indicated on the cover page of this prospectus). Health Care REIT also has certain registration rights, which if exercised, would require us to register the shares of common stock issuable upon exercise of the warrant. Health Care REIT cannot sell any shares of our common stock until at least 180 days after the date of this prospectus. See “Description of Capital Stock — Registration Rights.” |
(19) | A termination fee of $2.5 million, which represents 2% of the aggregate gross proceeds of this offering, is payable by us to Behrman Brothers Management Corp., an entity under common control with our majority shareholder Behrman Capital II L.P., pursuant to a financial advisor agreement between Behrman Brothers Management Corp. and us. An additional $375,000 payment to Behrman Brothers Management Corp. will be payable by us if the overallotment option is exercised in full. |
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• | on an actual basis; and | |
• | on an as adjusted basis to give effect to the Transaction. |
As of June 30, 2005 | |||||||||
Actual | As adjusted | ||||||||
Unaudited | |||||||||
(dollars in thousands) | |||||||||
Cash and cash equivalents and current escrows | $ | 14,976 | $ | ||||||
Debt: | |||||||||
New credit facility(1) | $ | — | $ | ||||||
Senior subordinated notes due 2015(2) | — | ||||||||
First mortgage debt | 200,998 | — | |||||||
Subordinated secured debt | 34,037 | — | |||||||
Unsecured debt | 17,212 | — | |||||||
Accounts receivable revolvers | 23,267 | — | |||||||
Total debt | 275,514 | ||||||||
Redeemable preferred stock(3) | 76,095 | — | |||||||
Stockholder’s equity: | |||||||||
Series A — convertible preferred stock(4) | 75 | — | |||||||
Series C — convertible preferred stock(4) | 25 | — | |||||||
Series E — convertible preferred stock(4) | 16 | — | |||||||
Series G — convertible preferred stock(4) | 51 | — | |||||||
Common stock(5) | — | — | |||||||
Warrants(6) | — | — | |||||||
Accumulated other comprehensive loss | (790 | ) | |||||||
Additional paid-in capital | 8,031 | ||||||||
Unearned stock compensation(7) | (2,280 | ) | |||||||
Retained earnings (deficit) | (3,745 | ) | — | ||||||
Total stockholder’s equity | 1,383 | ||||||||
Total capitalization | $ | 352,992 | $ | ||||||
(1) | Immediately prior to or concurrently with this offering, we plan to enter into a new credit facility consisting of a $100.0 million term loan and $50.0 million revolver, which we anticipate will be undrawn at the closing of this offering. Under our new credit facility, we will be the borrower, and certain of our domestic subsidiaries will act as guarantors. If we enter into this new credit facility, we will use a portion of the available proceeds for the repayment of certain indebtedness and for general |
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corporate purposes, including working capital and acquisitions. Our new credit facility will contain various financial covenants that we must adhere to, as well as other customary terms and conditions. |
(2) | Concurrently with this offering, we intend to issue $150.0 million aggregate principal amount of senior subordinated notes. The concurrent senior subordinated notes offering is not being registered under the Securities Act of 1933, as amended, and the senior subordinated notes offered thereby may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. Our payment obligations under the senior subordinated notes are expected to be guaranteed by certain of our domestic subsidiaries. If we issue the senior subordinated notes, we will use a portion of the available proceeds for the repayment of certain indebtedness and for general corporate purposes, including working capital. The indenture governing the senior subordinated notes will contain covenants that we must adhere to, as well as other customary terms and conditions. |
(3) | We have accrued dividends with respect to our redeemable preferred stock from the date that we received the funds from our investors with respect to such investor’s purchase of redeemable preferred stock, which in certain instances, was prior to the date that the share certificates relating to the redeemable preferred stock were actually issued. We deemed the accrual of this dividend to be as of the date we received the investment proceeds rather than the actual date of the share certificates in order to provide each respective investor with the actual intended benefit of their investment decision. |
(4) | Upon the consummation of this offering, and pursuant to applicable provisions of our amended and restated articles of incorporation, all outstanding shares of each series of our convertible preferred stock will automatically convert into shares of our common stock. |
(5) | The table above excludes an aggregate of shares of common stock issuable upon exercise of stock options, an additional shares of common stock reserved for issuance in connection with future stock options and other awards under our 2005 Stock and Incentive Plan and under our Employee Stock Purchase Plan, and an additional shares of common stock reserved for issuance in connection with the exercise of outstanding warrants. |
(6) | Reflects the termination of a prior warrant agreement between Health Care REIT, Inc. and us and the issuance of a new warrant with Health Care REIT, Inc. on September 8, 2005 in connection with an agreement and first amendment to master lease by and between Tandem and Health Care REIT. |
(7) | Includes $2.3 million of unearned stock compensation related to options issued during 2005 at below market value. This unearned stock compensation will be amortized over the next forty-six months after June 30, 2005. For further discussion, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Stock Option Grants.” |
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Assumed initial public offering price per share | $ | ||||
Pro forma net tangible book deficiency per share as of June 30, 2005 | |||||
Increase in pro forma net tangible book value per share attributable to new investors | |||||
Pro forma net tangible book deficiency per share after this offering | |||||
Dilution in pro forma net tangible book value per share purchased in this offering |
• | the number of shares of our common stock purchased from us; | |
• | the total cash consideration paid; | |
• | the average price per share paid by new investors before deducting estimated underwriting discounts and commissions and our estimated offering expenses; and | |
• | the average price per share paid by our existing holders of common stock. |
Shares Purchased | Total Consideration | Average | |||||||||||||||||||
Price Per | |||||||||||||||||||||
Number | Percent | �� | Number | Percent | Share | ||||||||||||||||
Existing shareholders | % | % | $ | ||||||||||||||||||
New investors in this offering | % | % | $ | ||||||||||||||||||
Total | 100% | 100% | $ | ||||||||||||||||||
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Transaction | Pro Forma | ||||||||||||||
Tandem | Pro Forma | Tandem | |||||||||||||
Health Care | Adjustments | Health Care | |||||||||||||
(dollars in thousands) | |||||||||||||||
Assets: | |||||||||||||||
Current assets: | |||||||||||||||
Cash and cash equivalents and current escrows | $ | 14,976 | $ | 691 | (1) | $ | 15,667 | ||||||||
Accounts receivable, net | 73,170 | — | 73,170 | ||||||||||||
Other current assets | 15,554 | — | 15,554 | ||||||||||||
Total current assets | 103,700 | 691 | 104,391 | ||||||||||||
Property and equipment, net | 181,294 | — | 181,294 | ||||||||||||
Other assets | 150,203 | 2,061 | (1) | 152,264 | |||||||||||
Total assets | $ | 435,197 | $ | 2,752 | $ | 437,949 | |||||||||
Liabilities and stockholders’ equity: | |||||||||||||||
Current liabilities: | |||||||||||||||
Accounts payable and accrued liabilities | $ | 41,172 | $ | — | $ | 41,172 | |||||||||
Other current liabilities | 24,264 | (2,446 | )(1) | 21,818 | |||||||||||
Revolving credit facilities | 23,267 | (23,267 | ) | — | |||||||||||
Current portion of long-term debt | 9,964 | (8,964 | )(1) | 1,000 | |||||||||||
Total current liabilities | 98,667 | (34,677 | ) | 63,990 | |||||||||||
Long-term debt, less current portion | 242,283 | 6,717 | (1) | 249,000 | |||||||||||
Other liabilities | 16,769 | — | 16,769 | ||||||||||||
Total liabilities | 357,719 | (27,960 | ) | 329,759 | |||||||||||
Redeemable preferred stock | 76,095 | (76,095 | )(1) | — | |||||||||||
Stockholders’ equity: | |||||||||||||||
Common stock | — | — | — | ||||||||||||
Preferred stock | 167 | (167 | )(1) | — | |||||||||||
Additional paid-in capital | 8,031 | 110,917 | (1) | 118,948 | |||||||||||
Unearned stock compensation | (2,280 | ) | — | (2,280 | ) | ||||||||||
Accumulated other comprehensive loss | (790 | ) | — | (790 | ) | ||||||||||
Retained earnings (deficit) | (3,745 | ) | (3,943 | )(1) | (7,688 | ) | |||||||||
Total stockholders’ equity | 1,383 | 106,807 | 108,190 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 435,197 | $ | 2,752 | $ | 437,949 | |||||||||
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(1) | Represents the sources and uses of funds from the Transaction: |
Equity offered hereby | $ | 125,000 | |||
Proceeds from planned senior subordinated notes offering and new credit facility | 250,000 | ||||
Redemption of redeemable preferred shares at offering date | (76,095 | ) | |||
Exit fees, prepayment penalties and prepayment premiums | (1,700 | )(i) | |||
Repayment of existing debt | (275,514 | ) | |||
Fees and expenses | (21,000 | ) | |||
Change in cash | $ | 691 | |||
Equity offered hereby | $ | 125,000 | |||
Fees and expenses | (14,250 | ) | |||
Par value of converted convertible preferred stock | 167 | ||||
Change in additional paid in capital | $ | 110,917 | |||
Proceeds from planned senior subordinated notes offering and new credit facility | $ | 250,000 | |||
Repayment of existing debt | (275,514 | ) | |||
Change in total debt | $ | (25,514 | ) | ||
Charge to write off balance of deferred financing costs on existing debt | $ | (4,689 | )(i) | ||
Deferred financing costs related to planned senior subordinated notes offering and new credit facility | 6,750 | ||||
Change in other assets | $ | 2,061 | |||
Note | |||||
(i) Represents impact to retained earnings of charges incurred in recapitalization. | |||||
Exit fees, prepayment penalties and prepayment premiums. | $ | (1,700 | ) | ||
Charge to write off balance of deferred financing costs on existing debt | (4,689 | ) | |||
$ | (6,389 | ) | |||
Income tax provision (benefit) | (2,446 | ) | |||
Impact to retained earnings, adjusted for tax | $ | (3,943 | ) | ||
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Certain | Acquisition | Transaction | Pro Forma | |||||||||||||||||||||||||||||||||||
MMG and | Assets of | Acquisitions | Pro Forma | Pro Forma | Tandem | Pro Forma | Pro Forma | Tandem | ||||||||||||||||||||||||||||||
Lighthouse(a) | Diakon(a) | Combined | Adjustments | Acquisitions | Health Care | Combined | Adjustments | Health Care | ||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||
Inpatient services | $ | 34,389 | $ | 34,389 | $ | 0 | $ | 34,389 | $ | 197,909 | $ | 232,298 | $ | — | $ | 232,298 | ||||||||||||||||||||||
Rehabilitation therapy | — | — | — | — | 24,979 | 24,979 | — | 24,979 | ||||||||||||||||||||||||||||||
Other | 205 | 205 | (147 | )(b) | 58 | 24,493 | 24,551 | — | 24,551 | |||||||||||||||||||||||||||||
Total revenues | — | 34,594 | 34,594 | (147 | ) | 34,447 | 247,381 | 281,828 | — | 281,828 | ||||||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||
Cost of operations | 25,545 | 25,545 | — | 25,545 | 146,712 | 172,257 | — | 172,257 | ||||||||||||||||||||||||||||||
General and administrative | 5,821 | 5,821 | (2,774 | )(c) | 3,047 | 63,883 | 66,930 | — | 66,930 | |||||||||||||||||||||||||||||
Lease | — | — | — | — | 9,651 | 9,651 | — | 9,651 | ||||||||||||||||||||||||||||||
Interest | 353 | 353 | 1,356 | (d) | 1,709 | 7,984 | 9,693 | (398 | )(g) | 9,295 | ||||||||||||||||||||||||||||
Depreciation and amortization | 908 | 908 | 219 | (e) | 1,127 | 6,969 | 8,096 | (322 | )(g) | 7,774 | ||||||||||||||||||||||||||||
Total expenses | — | 32,627 | 32,627 | (1,199 | ) | 31,428 | 235,199 | 266,627 | (720 | ) | 265,907 | |||||||||||||||||||||||||||
Income before income taxes | — | 1,967 | 1,967 | 1,052 | 3,019 | 12,182 | 15,201 | 720 | 15,921 | |||||||||||||||||||||||||||||
Provision (benefit) for income taxes | — | — | 1,156 | (f) | 1,156 | 4,291 | 5,447 | 521 | (f) | 5,968 | ||||||||||||||||||||||||||||
Net income (loss) | $ | — | $ | 1,967 | $ | 1,967 | $ | (104 | ) | $ | 1,863 | $ | 7,891 | $ | 9,754 | $ | 199 | $ | 9,953 | |||||||||||||||||||
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Certain | Acquisition | Transaction | Pro Forma | |||||||||||||||||||||||||||||||||||
MMG and | Assets of | Acquisitions | Pro Forma | Pro Forma | Tandem | Pro Forma | Pro Forma | Tandem | ||||||||||||||||||||||||||||||
Lighthouse | Diakon | Combined | Adjustments | Acquisitions | Health Care | Combined | Adjustments | Health Care | ||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||
Inpatient services | $ | — | $ | 35,051 | $ | 35,051 | $ | — | $ | 35,051 | $ | 174,134 | $ | 209,185 | $ | — | $ | 209,185 | ||||||||||||||||||||
Rehabilitation therapy | 20,087 | — | 20,087 | — | 20,087 | 2,140 | 22,227 | — | 22,227 | |||||||||||||||||||||||||||||
Other | 10,656 | 387 | 11,043 | 98 | (b) | 11,141 | 11,574 | 22,715 | — | 22,715 | ||||||||||||||||||||||||||||
Total revenue | 30,743 | 35,438 | 66,181 | 98 | 66,279 | 187,848 | 254,127 | — | 254,127 | |||||||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||
Cost of operations | 17,618 | 23,862 | 41,480 | — | 41,480 | 109,373 | 150,853 | — | 150,853 | |||||||||||||||||||||||||||||
General and administrative | 13,652 | 8,731 | 22,383 | (8,201 | )(c) | 14,182 | 55,225 | 69,407 | — | 69,407 | ||||||||||||||||||||||||||||
Lease | 161 | — | 161 | — | 161 | 9,534 | 9,695 | — | 9,695 | |||||||||||||||||||||||||||||
Interest | 9 | 546 | 555 | 3,784 | (d) | 4,339 | 4,333 | 8,672 | 624 | (g) | 9,296 | |||||||||||||||||||||||||||
Depreciation and amortization | 145 | 1,420 | 1,565 | 454 | (e) | 2,019 | 5,058 | 7,077 | (322 | )(g) | 6,755 | |||||||||||||||||||||||||||
Total expenses | 31,585 | 34,559 | 66,144 | (3,963 | ) | 62,181 | 183,523 | 245,704 | 302 | 246,006 | ||||||||||||||||||||||||||||
Income before income taxes | (842 | ) | 879 | 37 | 4,061 | 4,098 | 4,325 | 8,423 | (302 | ) | 8,121 | |||||||||||||||||||||||||||
Provision (benefit) for income taxes | — | — | — | 1,570 | (f) | 1,570 | 1,661 | 3,231 | (121 | ) (f) | 3,110 | |||||||||||||||||||||||||||
Net income (loss) | $ | (842 | ) | $ | 879 | $ | 37 | $ | 2,491 | $ | 2,528 | $ | 2,664 | $ | 5,192 | $ | (181 | ) | $ | 5,011 | ||||||||||||||||||
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Certain | Acquisition | Transaction | Pro Forma | |||||||||||||||||||||||||||||||||||
MMG and | Assets of | Acquisitions | Pro Forma | Pro Forma | Tandem | Pro Forma | Pro Forma | Tandem | ||||||||||||||||||||||||||||||
Lighthouse | Diakon | Combined | Adjustments | Acquisitions | Health Care | Combined | Adjustments | Health Care | ||||||||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||||||||
Inpatient services | $ | — | $ | 72,888 | $ | 72,888 | $ | 0 | $ | 72,888 | $ | 353,085 | $ | 425,973 | $ | — | $ | 425,973 | ||||||||||||||||||||
Rehabilitation therapy | 40,805 | — | 40,805 | — | 40,805 | 4,299 | 45,104 | — | 45,104 | |||||||||||||||||||||||||||||
Other | 22,212 | 1,000 | 23,212 | (1,004 | )(b) | 22,208 | 22,326 | 44,534 | — | 44,534 | ||||||||||||||||||||||||||||
Total Revenue | $ | 63,017 | $ | 73,888 | $ | 136,905 | $ | (1,004 | ) | $ | 135,901 | $ | 379,710 | $ | 515,611 | $ | — | $ | 515,611 | |||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||||||||
Cost of operations | 37,420 | 48,376 | 85,796 | — | 85,796 | 221,664 | 307,460 | — | 307,460 | |||||||||||||||||||||||||||||
General and administrative | 22,755 | 17,829 | 40,584 | (14,864 | )(c) | 25,720 | 111,245 | 136,965 | — | 136,965 | ||||||||||||||||||||||||||||
Lease | 352 | — | 352 | — | 352 | 20,555 | 20,907 | — | 20,907 | |||||||||||||||||||||||||||||
Interest | 53 | 1,093 | 1,146 | 7,531 | (d) | 8,677 | 8,482 | 17,159 | 1,431 | (g) | 18,590 | |||||||||||||||||||||||||||
Depreciation and amortization | 549 | 2,780 | 3,329 | 708 | (e) | 4,037 | 10,430 | 14,467 | (643 | )(g) | 13,824 | |||||||||||||||||||||||||||
Total expenses | 61,129 | 70,078 | 131,207 | (6,625 | ) | 124,582 | 372,376 | 496,958 | 788 | 497,746 | ||||||||||||||||||||||||||||
Income before income taxes | 1,888 | 3,810 | 5,698 | 5,621 | 11,319 | 7,334 | 18,653 | (788 | ) | 17,865 | ||||||||||||||||||||||||||||
Provision (benefit) for income taxes | 79 | — | 79 | 4,255 | (f) | 4,334 | (4,119 | ) | 215 | (310 | )(f) | (95 | ) | |||||||||||||||||||||||||
Net income (loss) | $ | 1,809 | $ | 3,810 | $ | 5,619 | $ | 1,366 | $ | 6,985 | $ | 11,453 | $ | 18,438 | $ | (478 | ) | $ | 17,960 | |||||||||||||||||||
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(a) | Represents the four month period prior to Tandem Health Care’s acquisition of certain assets from Diakon which occurred on April 30, 2005. The results for MMG and Lighthouse are already included in the historical results of Tandem Health Care for the six months ended June 30, 2005 as a result of the consummation of such acquisition on December 31, 2004. |
(b) | Reflects adjustments to revenue to exclude non-consolidating subsidiaries not acquired and revenue streams unique to a not-for-profit entity. |
Six Months Ended | ||||||||||||
Year Ended | ||||||||||||
June 30, | June 30, | December 31, | ||||||||||
2005 | 2004 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Equity income from subsidiaries not acquired by Tandem Health Care | $ | — | $ | 327 | $ | (306 | ) | |||||
Income from grants, contributions, bequests, subsidies and other revenue streams unique to a not-for-profit entity | (147 | ) | (229 | ) | (698 | ) | ||||||
$ | (147 | ) | $ | 98 | $ | (1,004 | ) | |||||
(c) | Adjustments to general and administrative expense to reflect Tandem Health Care’s corporate overhead structure. |
Six Months Ended | |||||||||||||
Year Ended | |||||||||||||
June 30, | June 30, | December 31, | |||||||||||
2005 | 2004 | 2004 | |||||||||||
(dollars in thousands) | |||||||||||||
MMG and Lighthouse: | |||||||||||||
Reduction in prior owners’ salaries, bonus, and other reimbursed expenses in connection with the acquisition and new compensation contracts | $ | — | $ | (4,919 | ) | $ | (5,687 | ) | |||||
Pension and 401(k) matching expenses not offered by Tandem Health Care | — | (82 | ) | (163 | ) | ||||||||
Legal, accounting and broker fees related to sale | — | — | (724 | ) | |||||||||
Certain assets acquired from Diakon: | |||||||||||||
Management and information technology services contract fees | (2,844 | ) | (3,998 | ) | (9,314 | ) | |||||||
Change in fair value of derivatives | (362 | ) | — | (560 | ) | ||||||||
Pension and 401(k) matching expenses not offered by Tandem Health Care | (433 | ) | (626 | ) | (1,264 | ) | |||||||
Projected incremental corporate overhead and real estate taxes to be incurred by Tandem Health Care to support facilities acquired from Diakon(i) | 865 | 1,424 | 2,848 | ||||||||||
$ | (2,774 | ) | $ | (8,201 | ) | $ | (14,864 | ) | |||||
(i) | Incremental corporate overhead is projected to be 2.5% of forecasted revenues. An increase or decrease in this estimate of 0.5% would result in an increase or decrease to general and administrative expense of $200 for both the six months ended June 30, 2005 and 2004 and $400 for the year ended December 31, 2004. |
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(d) | Additional interest expense from financing acquisitions. |
Six Months Ended | ||||||||||||
Year Ended | ||||||||||||
June 30, | June 30, | December 31, | ||||||||||
2005 | 2004 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Tandem Health Care’s interest expense on acquisitions as financed at purchase | $ | 1,709 | $ | 4,339 | $ | 8,677 | ||||||
Historical interest expense | (353 | ) | (555 | ) | (1,146 | ) | ||||||
$ | 1,356 | $ | 3,784 | $ | 7,531 | |||||||
(e) | Additional depreciation and amortization expense resulting from acquisitions. |
Six Months Ended | ||||||||||||
Year Ended | ||||||||||||
June 30, | June 30, | December 31, | ||||||||||
2005 | 2004 | 2004 | ||||||||||
(dollars in thousands) | ||||||||||||
Tandem Health Care’s depreciation and amortization expense on acquisitions as financed at purchase | $ | 1,127 | $ | 2,019 | $ | 4,037 | ||||||
Historical depreciation and amortization expense | (908 | ) | (1,565 | ) | (3,329 | ) | ||||||
$ | 219 | $ | 454 | $ | 708 | |||||||
(f) | Tax impact at blended statutory rate of 38.29%. |
Six Months Ended | ||||||||||||
Year Ended | ||||||||||||
June 30, | June 30, | December 31, | ||||||||||
2005 | 2004 | 2004 | ||||||||||
(dollars in thousands, except income | ||||||||||||
tax rates) | ||||||||||||
Pro forma acquisition income before income taxes | $ | 3,019 | $ | 4,100 | $ | 11,320 | ||||||
Statutory income tax rate | 38.29 | % | 38.29 | % | 38.29 | % | ||||||
Provision for income taxes | 1,156 | 1,570 | 4,334 | |||||||||
Provision prior to pro forma adjustment | — | — | 79 | |||||||||
Pro forma acquisition adjustment to provision for income taxes | $ | 1,156 | $ | 1,570 | $ | 4,255 | ||||||
Pro forma Tandem Health Care income before income taxes | $ | 15,921 | $ | 8,121 | $ | 17,865 | ||||||
Statutory income tax rate | 38.29 | % | 38.29 | % | 38.29 | % | ||||||
Pro forma provision for income taxes | $ | 6,096 | $ | 3,110 | $ | 6,841 | ||||||
Pro forma combined provision for income taxes | 5,447 | 3,231 | 215 | |||||||||
Reversal of valuation allowance | 128 | — | 6,936 | |||||||||
Offering pro forma adjustment | $ | 521 | $ | (121 | ) | $ | (310 | ) | ||||
(g) | Reflects adjustment to give effect to interest on the planned offering of $150,000 senior subordinated notes at %, and a term loan and revolver of $100,000 and $50,000, respectively, at LIBOR plus applicable margin. This adjustment has been offset by the interest expense on the current outstanding debt of $275,514. The adjustment also includes amortization of capitalized financing costs related to this planned debt offering, offset by amortization of capitalized financing costs on existing debt. An increase or decrease to LIBOR of1/8% would result in an increase or decrease to interest expense of $63 for both the six months ended June 30, 2005 and 2004 and $125 for the year ended December 31, 2004. |
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Six Months Ended | ||||||||||||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||
(dollars in thousands, except per share information) | ||||||||||||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||
Inpatient services | $ | 197,909 | $ | 174,134 | $ | 353,085 | $ | 325,191 | $ | 298,246 | $ | 273,300 | $ | 173,339 | ||||||||||||||||
Rehabilitation therapy | 24,979 | 2,140 | 4,299 | 1,051 | 345 | — | — | |||||||||||||||||||||||
Other revenue | 24,493 | 11,574 | 22,326 | 6,311 | 498 | 1,246 | 1,512 | |||||||||||||||||||||||
Total revenue | 247,381 | 187,848 | 379,710 | 332,553 | 299,089 | 274,546 | 174,851 | |||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||
Cost of operations | 146,712 | 109,373 | 221,664 | 193,821 | 176,974 | 162,579 | 101,155 | |||||||||||||||||||||||
General and administrative | 60,872 | 51,831 | 103,277 | 94,591 | 79,622 | 74,610 | 45,750 | |||||||||||||||||||||||
Provision for bad debts | 3,011 | 3,394 | 7,968 | 10,129 | 2,510 | 1,439 | 1,112 | |||||||||||||||||||||||
Minority interest | — | — | — | — | 109 | — | — | |||||||||||||||||||||||
Other expenses, net | — | — | — | — | 2,139 | — | 312 | |||||||||||||||||||||||
Lease | 9,651 | 9,534 | 20,555 | 21,921 | 19,098 | 21,234 | 17,543 | |||||||||||||||||||||||
Interest | 7,984 | 4,333 | 8,482 | 8,908 | 8,910 | 10,075 | 8,356 | |||||||||||||||||||||||
Depreciation and amortization | 6,969 | 5,058 | 10,430 | 10,468 | 7,835 | 7,179 | 4,177 | |||||||||||||||||||||||
Total expenses | 235,199 | 183,523 | 372,376 | 339,838 | 297,197 | 277,116 | 178,405 | |||||||||||||||||||||||
Income (loss) before income taxes | 12,182 | 4,325 | 7,334 | (7,285 | ) | 1,892 | (2,570 | ) | (3,554 | ) | ||||||||||||||||||||
Income tax (benefit) provision | 4,291 | 1,661 | (4,119 | ) | 4,200 | 658 | (546 | ) | (1,007 | ) | ||||||||||||||||||||
Net income (loss) | $ | 7,891 | $ | 2,664 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | $ | (2,024 | ) | $ | (2,547 | ) | |||||||||||||
Basic earnings (loss) available to common stockholders | $ | 3,523 | $ | (423 | ) | $ | 5,126 | $ | (17,208 | ) | $ | (3,460 | ) | $ | (6,091 | ) | $ | (5,830 | ) | |||||||||||
Basic earnings (loss) per share: | ||||||||||||||||||||||||||||||
Net income (loss) | $ | 2.34 | $ | (0.33 | ) | $ | 3.73 | $ | (13.96 | ) | $ | (2.81 | ) | $ | (4.94 | ) | $ | (4.73 | ) | |||||||||||
Diluted earnings (loss) per share: | ||||||||||||||||||||||||||||||
Net income (loss) | $ | 0.26 | $ | (0.33 | ) | $ | 0.47 | $ | (13.96 | ) | $ | (2.81 | ) | $ | (4.94 | ) | $ | (4.73 | ) | |||||||||||
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Six Months Ended | |||||||||||||||||||||||||||||
June 30, | Year Ended December 31, | ||||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||||||||||||||||
(dollars in thousands, except per share information) | |||||||||||||||||||||||||||||
Income Statement Data | |||||||||||||||||||||||||||||
Shares used in computing per share amounts: | |||||||||||||||||||||||||||||
Basic | $ | 1,504,238 | $ | 1,272,666 | $ | 1,374,316 | $ | 1,232,759 | $ | 1,232,759 | $ | 1,232,759 | $ | 1,232,759 | |||||||||||||||
Diluted | 18,842,341 | 1,272,666 | 14,302,766 | 1,232,759 | 1,232,759 | 1,232,759 | 1,232,759 | ||||||||||||||||||||||
Other Financial Data | |||||||||||||||||||||||||||||
EBITDA(1) | $ | 27,135 | $ | 13,716 | $ | 26,246 | $ | 12,091 | $ | 18,637 | $ | 14,684 | $ | 8,979 | |||||||||||||||
As of June 30, | As of December 31, | |||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||
Cash and cash equivalents and current escrows | $ | 14,976 | $ | 19,141 | $ | 13,530 | $ | 14,350 | $ | 11,264 | $ | 8,124 | $ | 7,910 | ||||||||||||||
Working capital | 5,033 | 1,818 | 3,445 | (1,592 | ) | 9,675 | 2,101 | 6,890 | ||||||||||||||||||||
Net property, plant and equipment | 181,294 | 112,750 | 135,674 | 112,212 | 101,187 | 102,884 | 58,064 | |||||||||||||||||||||
Total assets | 435,197 | 234,886 | 321,017 | 231,569 | 204,864 | 208,499 | 140,553 | |||||||||||||||||||||
Revolving credit facilities | 23,267 | 14,212 | 10,500 | 15,167 | 16,694 | 13,324 | 11,855 | |||||||||||||||||||||
Long-term debt (including current portion) | 252,247 | 124,996 | 185,532 | 126,410 | 108,022 | 115,307 | 68,269 | |||||||||||||||||||||
Redeemable preferred stock | 76,095 | 53,200 | 67,629 | 50,884 | 41,342 | 39,808 | 32,672 | |||||||||||||||||||||
Stockholder’s equity (deficit) | 1,383 | (21,182 | ) | (12,261 | ) | (24,402 | ) | (11,186 | ) | (8,228 | ) | (1,485 | ) |
(1) | We define EBITDA as earnings (loss) before interest expense, income taxes, depreciation and amortization. EBITDA, as discussed previously is a non-GAAP financial measure. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measure to, net income (loss), the most directly comparable GAAP financial measure. |
Six Months Ended | ||||||||||||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||||||||
EBITDA Reconciliation | ||||||||||||||||||||||||||||||
Net income (loss) | $ | 7,891 | $ | 2,664 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | $ | (2,024 | ) | $ | (2,547 | ) | |||||||||||||
Plus: | ||||||||||||||||||||||||||||||
Income tax provision (benefit) | 4,291 | 1,661 | (4,119 | ) | 4,200 | 658 | (546 | ) | (1,007 | ) | ||||||||||||||||||||
Interest | 7,984 | 4,333 | 8,482 | 8,908 | 8,910 | 10,075 | 8,356 | |||||||||||||||||||||||
Depreciation and amortization | 6,969 | 5,058 | 10,430 | 10,468 | 7,835 | 7,179 | 4,177 | |||||||||||||||||||||||
EBITDA | $ | 27,135 | $ | 13,716 | $ | 26,246 | $ | 12,091 | $ | 18,637 | $ | 14,684 | $ | 8,979 | ||||||||||||||||
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Facilities and Licensed Beds by Ownership Status | Owned(1) | Leased | Total Lease/ Owned | Managed | Total | |||||||||||||||
Facilities | 51 | 19 | 70 | 8 | 78 | |||||||||||||||
Percent Owned/Leased | 73 | % | 27 | % | 100 | % | ||||||||||||||
Skilled Nursing Beds(2) | 4,196 | 2,270 | 6,466 | 882 | 7,348 | |||||||||||||||
Assisted Living Beds | 311 | — | 311 | 10 | 321 | |||||||||||||||
Independent Living Beds | 128 | — | 128 | — | 128 | |||||||||||||||
Total Beds | 4,635 | 2,270 | 6,905 | 892 | 7,797 | |||||||||||||||
Percent Owned/Leased | 67 | % | 33 | % | 100 | % | ||||||||||||||
(1) | Includes eight facilities owned pursuant to an off-balance sheet financing arrangement. |
(2) | Includes 23 licensed beds not currently in service. |
Ohio | Florida | Pennsylvania | Virginia | Maryland | Tennessee | New Jersey | Total | |||||||||||||||||||||||||
Number of Facilities | 25 | 21 | 16 | 10 | 3 | 2 | 1 | 78 | ||||||||||||||||||||||||
Licensed Bed Count | 1,976 | 2,559 | 1,545 | 1,156 | 207 | 254 | 100 | 7,797 |
• | Rehabilitation Therapy — On December 31, 2004, we acquired MMG, which provides rehabilitation therapy services to residents and patients of non-Tandem facilities and other health service providers in twelve states. | |
• | Institutional Pharmacy Services — On October 1, 2003 we acquired CoastalMed Pharmacy, an institutional pharmacy servicing third party facilities in Florida. CoastalMed began servicing Tandem facilities in Florida in the second half of 2004 and we plan to expand this business to begin servicing both Tandem and non-Tandem facilities in other markets. | |
• | Mobile Diagnostic Imaging — MMG also provides mobile diagnostic imaging services. Mobile diagnostic imaging, which is exclusively a third party contract business, currently operates only in Michigan; however, we plan to expand this business to begin servicing both Tandem and non-Tandem facilities in other markets. | |
• | Hospice Services — On December 31, 2004, we acquired Lighthouse, which provides hospice services exclusively to third party nursing homes. Hospice services are currently provided only in Michigan; however, we plan to expand this business to begin servicing both Tandem and non-Tandem facilities in other markets. |
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Six Months Ended | Year Ended | ||||||||||||||||||||
June 30, | December 31, | ||||||||||||||||||||
Inpatient Services Payor Mix | 2005 | 2004 | 2004 | 2003 | 2002 | ||||||||||||||||
Medicaid | 46.2% | 45.9% | 46.0% | 48.7% | 48.5% | ||||||||||||||||
Medicare | 32.4% | 33.9% | 33.1% | 29.7% | 29.2% | ||||||||||||||||
Private pay and other | 21.4% | 20.2% | 20.9% | 21.6% | 22.3% | ||||||||||||||||
Inpatient services net revenues | 100.0% | 100.0% | 100.0% | 100.0% | 100.0% | ||||||||||||||||
• | Medicaid — Medicaid is an insurance program for the indigent funded by the federal government and each state. Medicaid pays the nursing home a per diem rate that is intended to cover the entire cost of the resident’s care excluding prescription drugs, which the state pays for under a separate arrangement. Effective January 1, 2006, most prescription drug coverage for Medicaid residents, most of whom are also eligible for Medicare, will be paid under a newly created federally funded program referred to as Medicare Part D. Like most nursing home operators, Medicaid is our single largest source of third party insured patient days and insurance payments for services provided to our residents. | |
• | Medicare — Generally, Medicare, under Medicare Part A, provides up to 100 days of care per incident of illness to a covered beneficiary in a nursing home following a three day stay in an acute care hospital when the resident requires certain medical care or rehabilitation services. Medicare pays nursing homes a flat per diem rate that is intended to cover all costs associated with the patient’s care based on RUGs, which are measurements of the resources required to care for the patient. Since Medicare patients consume prescription drugs and certain medical and rehabilitation services that the nursing home is responsible for providing without additional payment from Medicare, Medicare per diem rates under the RUGs payment system typically average two to three times a Medicaid per diem rate due to the fact that prescription drugs, certain medical and rehabilitation services generally are not covered services under the Medicaid nursing home benefit. | |
• | Private Pay and Other — Private pay and other includes revenue from the patient or resident and/or their responsible party, revenue from managed care organizations, which we refer to as MCOs, revenue from private insurance as well as other facility based ancillary and miscellaneous revenue sources. |
Occupancy |
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Six Months Ended | ||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||
Occupancy Statistics | 2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||
Licensed beds in service at end of period | 6,882 | 5,543 | 5,543 | 5,553 | 5,072 | |||||||||||||||
Available patient days | 1,084,962 | 1,009,834 | 2,029,746 | 1,984,005 | 1,883,080 | |||||||||||||||
Actual patient days | 1,015,048 | 942,593 | 1,897,807 | 1,837,564 | 1,740,809 | |||||||||||||||
Occupancy percentage | 93.6% | 93.3% | 93.5% | 92.6% | 92.4% |
Quality Mix |
Six Months | ||||||||||||||||||||
Ended | ||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||
Quality Mix | 2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||
Patient days | 39.2 | % | 38.5 | % | 38.1 | % | 37.3 | % | 36.9 | % | ||||||||||
Inpatient services revenue | 53.8 | % | 54.1 | % | 54.0 | % | 51.3 | % | 51.5 | % | ||||||||||
Total net revenue | 63.1 | % | 57.5 | % | 57.2 | % | 52.4 | % | 51.6 | % |
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Effects of Inflation and Changing Prices |
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Six Months Ended | ||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | ||||||||||||||||
Accounts Receivable and Bad Debts | ||||||||||||||||||||
(dollars in thousands, except ratios and operating data) | ||||||||||||||||||||
Revenue | $ | 247,381 | $ | 187,848 | $ | 379,710 | $ | 332,553 | $ | 299,089 | ||||||||||
Provision for bad debts | 3,011 | 3,394 | 7,968 | 10,129 | 2,510 | |||||||||||||||
Bad debts as a % of revenue | 1.2 | % | 1.8 | % | 2.1 | % | 3.0 | % | 0.8 | % |
As of June 30, | As of December 31, | |||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | ||||||||||||||||
(dollars in thousands, except ratios and operating data) | ||||||||||||||||||||
Accounts receivable | $ | 79,447 | $ | 45,271 | $ | 48,787 | $ | 53,602 | $ | 47,899 | ||||||||||
Reserve for doubtful accounts | (6,277 | ) | (2,063 | ) | (4,820 | ) | (6,828 | ) | (2,846 | ) | ||||||||||
Accounts receivable, net | 73,170 | 43,208 | 43,967 | 46,774 | 45,053 | |||||||||||||||
Reserve for doubtful accounts as a % of accounts receivable | 7.9 | % | 4.6 | % | 9.9 | % | 12.7 | % | 5.9 | % | ||||||||||
Days sales outstanding | 54 | 42 | 42 | 51 | 55 |
Provision for Self-Insured Professional Liability Reserves |
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Possible Impairment of Tangible and Intangible Assets |
Income Taxes |
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Six Months Ended | ||||||||||||||||||||||
June 30, | Year Ended December 31, | |||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | ||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||
Inpatient services | $ | 197,909 | $ | 174,134 | $ | 353,085 | $ | 325,191 | $ | 298,246 | ||||||||||||
Rehabilitation therapy | 24,979 | 2,140 | 4,299 | 1,051 | 345 | |||||||||||||||||
Other revenue | 24,493 | 11,574 | 22,326 | 6,311 | 498 | |||||||||||||||||
Total revenue | 247,381 | 187,848 | 379,710 | 332,553 | 299,089 | |||||||||||||||||
Expenses: | ||||||||||||||||||||||
Cost of operations | 146,712 | 109,373 | 221,664 | 193,821 | 176,974 | |||||||||||||||||
General and administrative | 60,872 | 51,831 | 103,277 | 94,591 | 79,622 | |||||||||||||||||
Provision for bad debts | 3,011 | 3,394 | 7,968 | 10,129 | 2,510 | |||||||||||||||||
Lease | 9,651 | 9,534 | 20,555 | 21,921 | 19,098 | |||||||||||||||||
Interest | 7,984 | 4,333 | 8,482 | 8,908 | 8,910 | |||||||||||||||||
Depreciation and amortization | 6,969 | 5,058 | 10,430 | 10,468 | 7,835 | |||||||||||||||||
Minority interest | — | — | — | — | 109 | |||||||||||||||||
Other expenses | — | — | — | — | 2,139 | |||||||||||||||||
Total expenses | 235,199 | 183,523 | 372,376 | 339,838 | 297,197 | |||||||||||||||||
Income (loss) before income taxes | 12,182 | 4,325 | 7,334 | (7,285 | ) | 1,892 | ||||||||||||||||
Income tax provision (benefit) | 4,291 | 1,661 | (4,119 | ) | 4,200 | 658 | ||||||||||||||||
Net income (loss) | $ | 7,891 | $ | 2,664 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | |||||||||||
EBITDA | $ | 27,135 | $ | 13,716 | $ | 26,246 | $ | 12,091 | $ | 18,637 | ||||||||||||
Reconciliation of Net Income to EBITDA | ||||||||||||||||||||||
Net income (loss) | $ | 7,891 | $ | 2,664 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | |||||||||||
Add back: | ||||||||||||||||||||||
Income tax provision (benefit) | 4,291 | 1,661 | (4,119 | ) | 4,200 | 658 | ||||||||||||||||
Interest | 7,984 | 4,333 | 8,482 | 8,908 | 8,910 | |||||||||||||||||
Depreciation and amortization | 6,969 | 5,058 | 10,430 | 10,468 | 7,835 | |||||||||||||||||
EBITDA | $ | 27,135 | $ | 13,716 | $ | 26,246 | $ | 12,091 | $ | 18,637 | ||||||||||||
Other Items: | ||||||||||||||||||||||
Hurricane costs(1) | — | — | 908 | — | — | |||||||||||||||||
Corporate office relocation(2) | — | — | — | 2,000 | — | |||||||||||||||||
Mediation settlement(3) | — | — | — | — | 2,537 |
(1) | In late summer and early fall of 2004, we incurred approximately $0.9 million in expenses in Florida due to four hurricanes that at various times affected all of our 21 Florida facilities. None of our facilities suffered any permanent damage, however we incurred additional costs for overtime wages, emergency generator fuel, repairs, transportation, temporary housing and multiple evacuations of various facilities. |
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(2) | During 2003, we relocated our corporate headquarters from Pennsylvania to Florida and incurred approximately $2.0 million in relocation costs, including temporary staff while we recruited new employees. |
(3) | In 1999, we entered into an agreement to purchase a facility, however we were unable to secure financing to close the transaction. This resulted in claims and counterclaims by the seller and us. In order to avoid the cost and uncertainty of litigation, we settled the dispute through mediation. The settlement resulted in a $2.5 million charge including the legal fees associated with this dispute. |
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Revenue |
Inpatient Services |
Other Revenue |
Operating Expenses |
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General and Administrative Expenses and Provision for Bad Debts |
Lease Expense |
Interest Expense |
Depreciation and Amortization |
Net Income Tax Provision (Benefit) |
Working Capital |
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Year Ended December 31, 2004 Compared With Year Ended December 31, 2003 |
Revenue |
Inpatient Services |
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Rehabilitation Therapy |
Other Revenue |
Operating Expenses |
General and Administrative Expenses and Provision for Bad Debts |
Lease Expense |
Interest Expense |
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Depreciation and Amortization |
Income Tax Provision (Benefit) |
Working Capital |
Year Ended December 31, 2003 Compared With Year Ended December 31, 2002 |
Revenue |
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Inpatient Services |
Rehabilitation Therapy |
Other Revenue |
Operating Expenses |
General and Administrative Expenses and Provision for Bad Debts |
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Lease Expense |
Interest Expense |
Depreciation and Amortization |
Minority Interest |
Net Income Tax Provision (Benefit) |
Working Capital |
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• | incur more debt; | |
• | pay dividends, purchase company stock or make other distributions; |
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• | make certain investments; | |
• | create certain liens; | |
• | enter into transactions with affiliates; | |
• | make acquisitions; | |
• | merge or consolidate; and | |
• | transfer or sell assets. |
Pro Forma Working Capital |
Historical |
Cash Flows |
Six Months Ended June 30, 2005 |
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Six Months Ended June 30, 2004 |
Year Ended December 31, 2004 |
Year Ended December 31, 2003 |
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Year Ended December 31, 2002 |
Pro Forma |
Payments Due by Period (dollars in millions) | ||||||||||||||||||||
Less than | After | |||||||||||||||||||
1 Year | 1-3 Years | 4-5 Years | 5 Years | Total | ||||||||||||||||
Long-term debt | $ | 1.0 | $ | 2.0 | $ | 2.0 | $ | 245.0 | $ | 250.0 | ||||||||||
Lease obligations | — | — | — | — | — | |||||||||||||||
Redeemable preferred stock(1) | — | — | — | — | — | |||||||||||||||
Operating lease obligations | 19.3 | 38.8 | 26.5 | 8.3 | 92.9 | |||||||||||||||
$ | 20.3 | $ | 40.8 | $ | 28.5 | $ | 253.3 | $ | 342.9 | |||||||||||
(1) | Assumes redemption in full of all of our outstanding redeemable preferred stock as a result of the Transaction. |
Historical |
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Payments Due by Period (dollars in millions) | ||||||||||||||||||||
Less than | ||||||||||||||||||||
1 year | 1-3 years | 4-5 years | After 5 years | Total | ||||||||||||||||
Long-term debt | $ | 33.0 | $ | 28.2 | $ | 213.9 | $ | 0.1 | $ | 275.2 | ||||||||||
Capital lease obligations | 0.2 | 0.1 | — | — | 0.3 | |||||||||||||||
Redeemable preferred stock(1) | 76.1 | — | — | — | 76.1 | |||||||||||||||
Operating lease obligations | 19.3 | 38.8 | 26.5 | 8.3 | 92.9 | |||||||||||||||
$ | 128.6 | $ | 67.1 | $ | 240.4 | $ | 8.4 | $ | 444.5 | |||||||||||
(1) | Assumes redemption in full of all of our outstanding redeemable preferred stock as a result of the Transaction. |
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Pro Forma |
Expected Maturity Date (dollars in millions) | ||||||||||||||||||||||||||||||||||
2005-2006 | 2006-2007 | 2007-2008 | 2008-2009 | 2009-2010 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||||
Long-term debt: | ||||||||||||||||||||||||||||||||||
Fixed rate | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 150.0 | $ | 150.0 | $ | |||||||||||||||||||
Average interest rate | n/a | n/a | n/a | n/a | n/a | % | % | |||||||||||||||||||||||||||
Variable rate | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 95.0 | 100.0 | 100.0 | ||||||||||||||||||||||||||
Average interest rate | % | % | % | % | % | % | % | |||||||||||||||||||||||||||
Interest rate swaps: | ||||||||||||||||||||||||||||||||||
Variable to fixed | 0.6 | 0.6 | 0.6 | 0.6 | 27.4 | — | 29.8 | (0.2 | ) | |||||||||||||||||||||||||
Average pay rate | 7.5 | % | 7.5 | % | 7.5 | % | 7.5 | % | 7.5 | % | n/a | 7.5 | % | |||||||||||||||||||||
Average receive rate | 6.9 | % | 7.2 | % | 7.8 | % | 7.8 | % | 7.8 | % | n/a | 7.7 | % |
Historical |
Expected Maturity Date (dollars in millions) | ||||||||||||||||||||||||||||||||||
2005- | 2006- | 2007- | 2008- | 2009- | Fair | |||||||||||||||||||||||||||||
2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | Value | |||||||||||||||||||||||||||
Long-term debt: | ||||||||||||||||||||||||||||||||||
Fixed rate | $ | 1.2 | $ | 1.2 | $ | 1.8 | $ | 2.8 | $ | 10.2 | $ | 0.1 | $ | 17.3 | $ | 16.7 | ||||||||||||||||||
Average interest rate | 7.4 | % | 7.4 | % | 7.2 | % | 6.0 | % | 8.0 | % | 1.0 | % | 7.5 | % | ||||||||||||||||||||
Variable rate | 31.8 | 8.8 | 16.4 | 69.0 | 131.9 | — | 257.9 | 257.9 | ||||||||||||||||||||||||||
Average Interest Rate | 7.4 | % | 7.7 | % | 8.5 | % | 8.5 | % | 8.8 | % | n/a | 8.5 | % | |||||||||||||||||||||
Interest rate swaps: | ||||||||||||||||||||||||||||||||||
Variable to fixed | 0.6 | 0.6 | 0.6 | 0.6 | 27.4 | — | 29.8 | (0.2 | ) | |||||||||||||||||||||||||
Average pay rate | 7.5 | % | 7.5 | % | 7.5 | % | 7.5 | % | 7.5 | % | n/a | 7.5 | % | |||||||||||||||||||||
Average receive rate | 6.9 | % | 7.2 | % | 7.8 | % | 7.8 | % | 7.8 | % | n/a | 7.7 | % |
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Weighted Average | Weighted Average | |||||||||||||||
Number of | Weighted Average | Fair Value | Intrinsic Value | |||||||||||||
Grants Made During Quarter Ended | Options Granted | Exercise Price | per Share | per Share | ||||||||||||
September 30, 2004 | 73,500 | $ | 1.00 | $ | 1.00 | $ | — | |||||||||
December 31, 2004 | 39,000 | 1.00 | 1.00 | — | ||||||||||||
March 31, 2005 | 391,500 | 1.80 | 2.40 | 0.60 | ||||||||||||
June 30, 2005 | 286,000 | 1.80 | 9.37 | 7.57 |
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• | On December 31, 2004, we purchased MMG and Lighthouse, adding rehabilitation therapy services, mobile diagnostic imaging and hospice services to our ancillary business lines. These businesses are expected to generate higher growth rates and higher margins than our nursing facilities that already operate close to capacity. This acquisition was partially financed through the sale of redeemable preferred stock and convertible preferred stock with a cumulative compounding 9% quarterly dividend. The price per share of these preferred stock issuances was $2.52. | |
• | On April 30, 2005, we acquired 15 facilities at nine locations in two states with 1,339 beds from the Diakon acquisition. This group of facilities operates at high occupancy levels with solid operating margins but at lower acuity levels than most of our other facilities, which will provide us the opportunity to increase our Medicare payor mix over time and increase profitability from the acquired facilities. This acquisition was partially financed through the sale of redeemable preferred stock and convertible preferred stock with a cumulative compounding 9% quarterly dividend. The price per share of these preferred stock issuances was $2.52. |
One of the important benefits of these two acquisitions is the opportunity for Tandem to add revenue scale and spread its corporate overhead and fixed costs over a much larger revenue base. The economies of scale created by the two transactions should contribute to our future profitability because we did not need to materially increase our infrastructure or corporate overhead to accommodate the new business. |
• | During the quarter ended June 30, 2005, we engaged investment bankers to initiate the process of an initial public offering and began drafting a registration statement. | |
• | Before this offering there had been no public market for our common stock. | |
• | On , 2005, we effected a - for - reverse stock split of our outstanding common stock. | |
• | Management’s valuation of the options granted during the period from April 2005 to June 2005 was estimated by applying a market approach to the average of our forecasted 2005 and 2006 calendar year results. The estimated initial public offering price considers: |
• | prevailing market conditions, | |
• | market values and various valuation measures of publicly traded companies that are believed to be comparable to us, | |
• | prospects for our company and the industry in which we compete, | |
• | our past and present operations and the prospects for, and timing of, our future revenues, and | |
• | the present state of our development and the prospects for and timing of our future development. |
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• | A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123(R) for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. | |
• | A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123(R) for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. |
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Inpatient Services |
• | Long-term skilled nursing care; | |
• | Short-term transitional therapy and rehabilitation care; | |
• | Alzheimer’s care; | |
• | Assisted living services; and | |
• | Independent living services. |
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Rehabilitation Therapy |
Other |
• | Institutional pharmacy, | |
• | Mobile diagnostic imaging, | |
• | Hospice, and | |
• | Other corporate items. |
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• | The number of competing centers in each local market; | |
• | The types of services available; | |
• | The quality of care; | |
• | The reputation, age, location and physical appearance of each facility; and | |
• | The cost of care in each facility, with respect to private pay residents. |
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2004 | 2003 | 2002 | |||||||||||
Medicaid | 46.0 | % | 48.7 | % | 48.5 | % | |||||||
Medicare | 33.1 | % | 29.7 | % | 29.2 | % | |||||||
Private pay and other payors | 20.9 | % | 21.6 | % | 22.3 | % | |||||||
Total | 100 | % | 100 | % | 100 | % | |||||||
General |
Medicare and Medicaid Programs |
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Reimbursement for Specific Services |
Reimbursement for Long-Term Healthcare Services |
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Reimbursement for Rehabilitation Therapy Services |
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Reimbursement for Hospice Services |
Reimbursement for Institutional Pharmacy Services, Including Medical Supplies |
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Reimbursement for Mobile Diagnostic Imaging Services |
Civil and Criminal Fraud and Abuse Laws and Enforcement |
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Anti-Kickback Statute |
Stark Law |
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False Claims |
Health Insurance Portability and Accountability Act of 1996 |
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Certificates of Need and Other Regulatory Matters |
Proprietary Rights |
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Managed | ||||||||||||||||||||||||||||||||
Owned Facilities(1) | Leased Facilities | Facilities | Total | |||||||||||||||||||||||||||||
State | Facilities | Beds(2) | Facilities | Beds | Facilities | Beds | Facilities | Beds(2) | ||||||||||||||||||||||||
Ohio | 18 | 1,204 | — | — | 7 | 772 | 25 | 1,976 | ||||||||||||||||||||||||
Florida | 16 | 1,920 | 5 | 639 | — | — | 21 | 2,559 | ||||||||||||||||||||||||
Pennsylvania | 14 | 1,304 | 1 | 121 | 1 | 120 | 16 | 1,545 | ||||||||||||||||||||||||
Virginia | — | — | 10 | 1,156 | — | — | 10 | 1,156 | ||||||||||||||||||||||||
Maryland | 3 | 207 | — | — | — | — | 3 | 207 | ||||||||||||||||||||||||
Tennessee | — | — | 2 | 254 | — | — | 2 | 254 | ||||||||||||||||||||||||
New Jersey | — | — | 1 | 100 | — | — | 1 | 100 | ||||||||||||||||||||||||
Total | 51 | 4,635 | 19 | 2,270 | 8 | 892 | 78 | 7,797 | ||||||||||||||||||||||||
(1) | Includes eight facilities pursuant to an off-balance sheet financing arrangement. See “Description of Certain Indebtedness” for a more detailed description of this off-balance sheet financing arrangement. |
(2) | Includes 23 licensed beds not currently in service. |
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Name | Age | Position | ||||
Lawrence R. Deering | 48 | Chairman and Chief Executive Officer | ||||
Joseph D. Conte | 49 | Chief Operating Officer, President and Director | ||||
Eugene R. Curcio | 55 | Chief Financial Officer and Treasurer | ||||
Rosemary L. Corsetti | 52 | Vice President, General Counsel and Secretary | ||||
Carla G. Naegele | 50 | Vice President of Marketing and Network Development | ||||
Charlotte M. Albano | 56 | Vice President of Clinical and Regulatory Compliance | ||||
Jo Anne Annichiarico | 55 | Vice President of Human Resources | ||||
Robert W. Gluskin | 58 | Director | ||||
Marie Meisenbach Graul | 50 | Director | ||||
Philip Hertik | 54 | Director | ||||
William M. Matthes | 45 | Director | ||||
Mark P. Visser | 35 | Director | ||||
John J. Whitman | 52 | Director |
Name | Age | Position | ||||
Joseph A. Alesantrino | 39 | Vice President and Corporate Controller | ||||
Leo S. Eisenberg | 50 | Division President, Mobile Medical Group Division | ||||
Jeffrey K. Jellerson | 44 | Division President, Heritage Division | ||||
Logan Sexton | 54 | Division President, Landmark Division | ||||
Jeffrey L. Woodside | 42 | Division President, CoastalMed Pharmacy |
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Other Key Employees |
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Audit Committee |
• | Selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors; | |
• | Evaluating the qualifications, performance and independence of our independent auditors; | |
• | Monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; | |
• | Reviewing the adequacy and effectiveness of our internal control policies and procedures; | |
• | Establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal controls or auditing matters; and | |
• | Preparing the audit committee report that the SEC requires in our annual proxy statement. |
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Compensation Committee |
• | Reviewing and recommending to our board of directors, with respect to our chief executive officer and other executive officers: |
• | annual base salary, | |
• | annual incentive bonus, including the specific goals and amount, | |
• | equity compensation, | |
• | employment agreements, severance arrangements and change in control agreements/provisions, and | |
• | any other benefits, compensation or arrangements; |
• | Evaluating and recommending to the board compensation plans, policies and programs for our chief executive officer and other executive officers; | |
• | Preparing the compensation committee report that the SEC requires in our annual proxy statement; and | |
• | Acting as the administrator of our 2005 Stock and Incentive Plan (and other equity based incentive plans as may be established from time to time). |
Nominating and Corporate Governance Committee |
• | establishing standards for serving on our board of directors; | |
• | identifying individuals qualified to become members of our board of directors and recommending director candidates for election or re-election to our board; and | |
• | considering and making recommendations to our board regarding board size and composition, committee composition and structure and procedures affecting directors. |
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Long-Term | |||||||||||||||||||||
Annual Compensation | Compensation Awards | ||||||||||||||||||||
Securities | |||||||||||||||||||||
Other Annual | Underlying | All Other | |||||||||||||||||||
Name and Principal Position | Salary | Bonus(1) | Compensation(2) | Options/SARs (#) | Compensation(3) | ||||||||||||||||
Lawrence R. Deering | $ | 343,440 | $ | 171,794 | $ | 2,692 | — | $ | 45 | ||||||||||||
Chairman and Chief Executive Officer | |||||||||||||||||||||
Joseph D. Conte | $ | 309,095 | $ | 154,777 | $ | 4,981 | — | $ | 447 | ||||||||||||
Chief Operating Officer and President | |||||||||||||||||||||
Eugene R. Curcio | $ | 240,408 | $ | 120,381 | $ | 2,662 | — | $ | 521 | ||||||||||||
Chief Financial Officer and Treasurer | |||||||||||||||||||||
Rosemary L. Corsetti | $ | 224,640 | $ | 112,486 | — | 20,000 | $ | 478 | |||||||||||||
Vice President, General Counsel and Secretary | |||||||||||||||||||||
Carla G. Naegele | $ | 153,261 | $ | 28,000 | — | 7,500 | — | ||||||||||||||
Vice President of Marketing and Network Development |
(1) | We generally pay bonuses in the fiscal year following the fiscal year in which they were earned. Bonus amounts presented were earned in fiscal 2004 and were paid in fiscal 2005. |
(2) | Amounts shown represent the tax payment related to an automobile allowance which each executive received from us. The amounts do not include the value of perquisites and other personal benefits because they do not exceed the lesser of $50,000 or 10% of any such officer’s total annual salary and bonus. |
(3) | Represents the payment of life insurance premiums. |
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Potential | ||||||||||||||||||||||||
Realizable Value | ||||||||||||||||||||||||
at Assumed | ||||||||||||||||||||||||
Annual Rates of | ||||||||||||||||||||||||
Number of | Percent of | Stock Price | ||||||||||||||||||||||
Securities | Total Options | Appreciation for | ||||||||||||||||||||||
Underlying | Granted to | Exercise | Option Term(3) | |||||||||||||||||||||
Option/SARs | Employees in | Price Per | Expiration | |||||||||||||||||||||
Name | Granted (#) | 2004(1) | Share(2) | Date | 5% | 10% | ||||||||||||||||||
Lawrence R. Deering | — | — | — | — | — | — | ||||||||||||||||||
Joseph D. Conte | — | — | — | — | — | — | ||||||||||||||||||
Eugene R. Curcio | — | — | — | — | — | — | ||||||||||||||||||
Rosemary L. Corsetti | 20,000 | (4) | 7.89 | % | $ | 1.00 | 8/18/2014 | $ | — | $ | — | |||||||||||||
Carla G. Naegele | 7,500 | (4) | 2.96 | % | $ | 1.00 | 2/26/2014 | $ | — | $ | — |
(1) | The figures representing percentages of total options granted to employees in 2004 are based on a total of 253,000 shares of common stock underlying options granted to our employees during 2004. |
(2) | The exercise price of each stock option granted was equal to the fair market value of our common stock as determined by our board of directors on the date of grant. The exercise price must be paid in cash or bank draft or by using such consideration as our compensation committee may permit. |
(3) | The amounts shown in the table above as potential realizable value represent hypothetical gains that could be achieved. |
(4) | The stock options vest in equal annual amounts for a period of four years from the grant date. |
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Number of Securities | Value of Unexercised | |||||||||||||||||||||||
Underlying Unexercised | In-the-Money | |||||||||||||||||||||||
Options/SARs at | Options/SARs at | |||||||||||||||||||||||
Fiscal Year End (#) | Fiscal Year End(3) | |||||||||||||||||||||||
Shares Acquired | Value | |||||||||||||||||||||||
Name | on Exercise(1) | Realized(2) | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||||||||
Lawrence R. Deering | 242,103 | (4)(5) | $ | 334,708 | 346,725 | 41,817 | (6) | $ | — | $ | — | |||||||||||||
Joseph D. Conte | — | — | 669,389 | 41,817 | (6) | $ | — | $ | — | |||||||||||||||
Eugene R. Curcio(7) | — | — | 212,500 | 87,500 | $ | — | $ | — | ||||||||||||||||
Rosemary L. Corsetti(8) | — | — | 133,750 | 31,250 | $ | — | $ | — | ||||||||||||||||
Carla G. Naegele | — | — | 46,875 | 10,625 | $ | — | $ | — |
(1) | Represents shares acquired upon the exercise of options, a portion of which were immediately transferred into a trust for estate planning purposes. |
(2) | Amount reflects appreciated value of common stock underlying exercised options. Because there was no public trading market for our common stock, the value of the underlying common stock was based on a third party appraisal, which valued our common stock at such time at $1.80 per share. |
(3) | Amounts presented are based on the assumed initial public offering price of $ per share (the midpoint of the initial public offering price range indicated on the cover of this prospectus) minus the exercise price, multiplied by the number of shares underlying the option, without taking into account any taxes that might be payable in connection with such exercise. |
(4) | Does not include 80,561 shares of common stock held by Mr. Deering upon the exercise of options on April 26, 2005. |
(5) | Simultaneously upon the exercise of these options, Mr. Deering transferred 135,983 shares of our common stock into the Lawrence R. Deering Grantor Retained Annuity Trust for estate planning purposes. |
(6) | Upon the consummation of this offering all unvested options held by Mr. Deering and Mr. Conte will automatically accelerate and fully vest. |
(7) | Does not include an option for 50,000 shares of our common stock granted to Mr. Curcio on May 4, 2005 at an exercise price of $1.80 per share, which will vest ratably over a four-year period beginning on the last business day of the fiscal quarter in which the first anniversary of the date of grant occurs. |
(8) | Does not include an option for 10,000 shares of our common stock granted to Ms. Corsetti on May 4, 2005 at an exercise price of $1.80 per share, which will vest ratably over a four-year period beginning on the last business day of the fiscal quarter in which the first anniversary of the date of grant occurs. |
1998 Stock Option and Restricted Stock Purchase Plan |
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2005 Stock and Incentive Plan |
Awards |
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Administration |
Eligibility |
Adjustments |
Change in Control |
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• | our named executive officers and directors; | |
• | all directors and executive officers as a group; and | |
• | each person known to us to own beneficially more than 5% of any class of our outstanding shares. |
Shares of Common Stock | ||||||||||||||||||||||||||||
Beneficially Owned Prior to | Shares of Common Stock | |||||||||||||||||||||||||||
Offering | Beneficially Owned After Offering | |||||||||||||||||||||||||||
Fully Diluted | ||||||||||||||||||||||||||||
Ownership | ||||||||||||||||||||||||||||
Fully Diluted | Percentage with Full | |||||||||||||||||||||||||||
Ownership | Exercise of | |||||||||||||||||||||||||||
Name of Beneficial Owner(a) | Number | Total | Percent | Number | Percent | Percentage(b) | Overallotment Option | |||||||||||||||||||||
Executive Officers and Directors | ||||||||||||||||||||||||||||
Lawrence R. Deering(c) | ||||||||||||||||||||||||||||
Joseph D. Conte(d) | ||||||||||||||||||||||||||||
Eugene R. Curcio(e) | ||||||||||||||||||||||||||||
Rosemary L. Corsetti(f) | ||||||||||||||||||||||||||||
Carla G. Naegele(g) | ||||||||||||||||||||||||||||
Charlotte Albano(h) | ||||||||||||||||||||||||||||
Jo Anne Annichiarico(i) | ||||||||||||||||||||||||||||
Mark P. Visser(j) | ||||||||||||||||||||||||||||
William M. Matthes(k) | ||||||||||||||||||||||||||||
John J. Whitman(l) | ||||||||||||||||||||||||||||
Robert W. Gluskin(m) | ||||||||||||||||||||||||||||
Philip Hertik(n) | ||||||||||||||||||||||||||||
Marie Meisenbach Graul | ||||||||||||||||||||||||||||
All Executive Officers and Directors as a group (10 persons) | ||||||||||||||||||||||||||||
Five Percent Holders | ||||||||||||||||||||||||||||
Behrman Capital II L.P.(o) |
* | Percentage of shares of common stock beneficially owned does not exceed one percent. |
(a) | Unless otherwise indicated, the address of each beneficial owner listed in the table above is c/o Tandem Health Care, Inc., 800 Concourse Parkway South, Suite 200, Maitland, FL 32751. |
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(b) | Beneficial ownership of common stock after this offering: (1) assumes that all shares of common stock being offered in this offering will be sold, excluding the underwriters’ overallotment option, (2) assumes that all outstanding shares of convertible preferred stock will be automatically converted into shares of common stock upon the closing of this offering, and (3) excludes shares of common stock that may be purchased in this offering by officers or directors in the directed share program. | |
(c) | Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. Consists of shares of common stock held by the Lawrence R. Deering Grantor Retained Annuity Trust, of which Mr. Deering serves as trustee. | |
(d) | Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. | |
(e) | Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. | |
(f) | Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. | |
(g) | Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. | |
(h) | Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. | |
(i) | Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. | |
(j) | Consists of shares of common stock held of record by Behrman Capital II L.P. Excludes shares of common stock held of record by Strategic Entrepreneur Fund II, L.P. and shares of common stock held of record by Glen A. Tobias. Mr. Tobias is a senior advisor to Behrman Capital II L.P. Mr. Visser holds a limited liability company interest in Behrman Capital Employees Growth Investors, LLC, with a membership interest of approximately 10.2%. Behrman Capital Employees Growth Investors, LLC is a limited partner in Strategic Entrepreneur Fund II, L.P. with a limited partnership interest of approximately 9.2%. Mr. Visser disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in Behrman Capital II L.P., Strategic Entrepreneur Fund II, L.P. and Behrman Capital Employees Growth Investors, LLC. Mr. Visser is a member of Behrman Brothers LLC, the general partner of Behrman Capital II L.P. | |
(k) | Consists of shares of common stock held of record by Behrman Capital II L.P. Excludes shares of common stock held of record by Strategic Entrepreneur Fund, II, L.P. and shares of common stock held of record by Glen A. Tobias. Mr. Tobias is a senior advisor to Behrman Capital II L.P. Mr. Matthes disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in Behrman Capital II L.P. and Strategic Entrepreneur Fund II, L.P. Mr. Matthes is a managing member of Behrman Brothers LLC, the general partner of Behrman Capital II L.P. | |
(l) | Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. | |
(m) | Mr. Gluskin is an operating partner of Behrman Capital III L.P., a private equity fund where Behrman Brothers LLC also serves as the general partner. Includes shares of common stock issuable upon exercise of options that are presently exercisable or exercisable within 60 days of the date of this prospectus. | |
(n) | Strategic Entrepreneur Fund II, L.P., which holds shares of our common stock, is a co-investment fund which typically makes investments alongside Behrman Capital II L.P. Philip Hertik is a limited partner in Strategic Entrepreneur Fund II, L.P., with a limited partnership interest of approximately 1.4%. Mr. Hertik disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in Strategic Entrepreneur Fund II, L.P. | |
(o) | The general partner of Behrman Capital II L.P. is Behrman Brothers LLC. According to information provided by the shareholder, Behrman Capital II L.P. has delegated its dispositive powers with respect to the shares to Behrman Brothers LLC. The members of Behrman Brothers LLC, including Mark P. Visser (a special member) and William M. Matthes (a managing member), share voting and investment power with respect to the shares. Behrman Capital II L.P. and Strategic Entrepreneur Fund II, L.P. have granted the underwriters the right to purchase up to shares of common stock to cover overallotments. The address for Behrman Capital II L.P. is 126 East 56th Street, 27th Floor, New York, NY 10022. |
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• | incur additional indebtedness, including guarantees; | |
• | make investments and certain other restricted payments; | |
• | enter into transactions with affiliates; | |
• | impose restrictions on the ability of our restricted subsidiaries to make certain payments to us and our other restricted subsidiaries; | |
• | create liens; | |
• | consummate certain asset sales; and | |
• | consolidate, merge or sell all or substantially all of our consolidated assets. |
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Number of Shares | ||||
Eligible for Sale | Comment | |||
shares that are not subject to lock-up will be eligible for sale under Rule 144(k) upon effectiveness. | ||||
shares that are not subject to lock-up will be eligible for sale under Rule 144 and Rule 701, beginning 90 days after the date of this prospectus. | ||||
shares that will be eligible for sale, subject to applicable volume limitations, upon the expiration of the lock-up agreements, beginning 180 days after the date of this prospectus pursuant to Rule 144, Rule 144(k) or Rule 701. | ||||
shares that are subject to vested options will be eligible for sale pursuant to registration on Form S-8. | ||||
shares that are held for less than one year and will not be eligible for sale in compliance with Rule 144 until such one year holding period has been met. |
Rule 144 |
• | 1% of the number of shares of common stock then outstanding which will equal approximately shares immediately after this offering; and |
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• | the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. |
Rule 144(k) |
Rule 701 |
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• | an individual who is a citizen or resident of the United States; | |
• | a corporation (or entity classified as a corporation for such purposes) created or organized in or under the laws of the United States or of any political subdivision of the United States; | |
• | an estate whose income is includible in gross income for United States federal income tax purposes regardless of its source; or | |
• | a trust, if a United States court is able to exercise primary supervision over the administration of the trust and one or more United States persons have authority to control all substantial decisions of the trust or if the trust has a valid election in effect under applicable United States Treasury regulations to be treated as a “United States person” for such purposes. |
• | United States state and local or non-United States tax consequences; | |
• | the United States federal income tax consequences for the shareholders or beneficiaries of a non-U.S. holder; | |
• | special United States federal income tax rules that may apply to particular non-U.S. holders, such as financial institutions, insurance companies, tax-exempt organizations, partnerships or other pass through entities, United States expatriates, broker-dealers, and traders in securities; or | |
• | special United States federal income tax rules that may apply to a non-U.S. holder that holds our common stock as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment. |
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• | the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if an income tax treaty applies, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States; in these cases, the gain will be taxed on a net income basis at the regular graduated rates and generally in the manner applicable to United States persons (unless an applicable income tax treaty provides otherwise) and, if the non-U.S. holder is a foreign corporation, the “branch profits tax” described above may also apply; | |
• | the non-U.S. holder is an individual who holds our common stock as a capital asset, is present in the United States for more than 182 days in the taxable year of the disposition and meets other requirements; or | |
• | at any time during the five-year period ending on the date of a sale or other disposition of our stock (or, if shorter, the non-U.S. holder’s holding period), our company is classified as |
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a “United States real property holding corporation” for United States federal income tax purposes. |
• | is a United States person; | |
• | is a foreign person that derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States; | |
• | is a “controlled foreign corporation” for United States federal income tax purposes; or | |
• | is a foreign partnership that at any time during its tax year either has: |
• | one or more United States persons who are partners that, in the aggregate, hold more than 50% of the income or capital interests in the partnership; or | |
• | is engaged in the conduct of a United States trade or business. |
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Number of | ||||
Underwriter | Shares | |||
Merrill Lynch, Pierce, Fenner & Smith Incorporated | ||||
Citigroup Global Markets Inc. | ||||
J.P. Morgan Securities Inc. | ||||
Wachovia Capital Markets, LLC | ||||
CIBC World Markets Corp. | ||||
Total | ||||
Per | Without | With | ||||||||||
Share | Option | Option | ||||||||||
Public offering price | $ | $ | $ | |||||||||
Underwriting discount | $ | $ | $ | |||||||||
Proceeds, before expenses, to Tandem Health Care, Inc. | $ | $ | $ | |||||||||
Proceeds, before expenses, to the selling shareholders | $ | $ | $ |
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• | offer, pledge, sell or contract to sell any common stock; | |
• | sell any option or contract to purchase any common stock; | |
• | purchase any option or contract to sell any common stock; | |
• | grant any option, right or warrant for the sale of any common stock; | |
• | lend or otherwise dispose of or transfer any common stock; | |
• | request or demand that we file a registration statement related to the common stock; or | |
• | enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise. |
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• | the valuation multiples of publicly traded companies that the representatives believe to be comparable to us; | |
• | our financial information; | |
• | the history of, and the prospects for, our company and industry in which we compete; | |
• | an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues; | |
• | the present state of our development; and | |
• | the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours. |
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TANDEM HEALTH CARE, INC. | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 | ||||
FIFTEEN FACILITIES AT NINE LOCATIONS ACQUIRED FROM DIAKON LUTHERAN SOCIAL MINISTRIES | ||||
F-41 | ||||
F-42 | ||||
F-43 | ||||
F-44 | ||||
F-45 | ||||
F-60 | ||||
THE MOBILE MEDICAL GROUP, INC. AND LIGHTHOUSE HOSPICE LIMITED PARTNERSHIP | ||||
F-61 | ||||
F-62 | ||||
F-63 | ||||
F-64 | ||||
F-65 | ||||
F-66 |
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/s/ Ernst & Young LLP |
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June 30 | December 31 | ||||||||||||
2005 | |||||||||||||
(Unaudited) | 2004 | 2003 | |||||||||||
(Dollars in Thousands) | |||||||||||||
ASSETS | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 3,653 | $ | 2,719 | $ | 8,083 | |||||||
Escrows | 11,323 | 10,811 | 6,267 | ||||||||||
Assets limited as to use — resident accounts | 1,038 | 1,097 | 975 | ||||||||||
Patient accounts receivable, net of allowances for doubtful accounts of $6,277, $4,820 and $6,828, respectively | 73,170 | 43,967 | 46,774 | ||||||||||
Estimated third party payor receivables | 3,600 | 1,246 | 1,501 | ||||||||||
Inventory | 1,940 | 2,019 | 1,742 | ||||||||||
Prepaid expenses and other current assets | 5,281 | 7,477 | 4,085 | ||||||||||
Deferred income taxes, net | 3,695 | 7,519 | — | ||||||||||
Total current assets | 103,700 | 76,855 | 69,427 | ||||||||||
Property and equipment, net | 181,294 | 135,674 | 112,212 | ||||||||||
Escrows | 423 | 343 | 500 | ||||||||||
Deposits on letters of credit | 1,185 | 1,185 | 1,256 | ||||||||||
Lease and other deposits | 8,129 | 8,362 | 8,886 | ||||||||||
Intangibles, net | 6,731 | 5,702 | 3,934 | ||||||||||
Goodwill, net | 117,925 | 77,048 | 19,979 | ||||||||||
Certificates of need, net | 15,076 | 15,076 | 15,076 | ||||||||||
Other noncurrent assets | 734 | 772 | 299 | ||||||||||
Total assets | $ | 435,197 | $ | 321,017 | $ | 231,569 | |||||||
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||||
Current liabilities: | |||||||||||||
Current portion of long-term debt | $ | 9,964 | $ | 7,590 | $ | 4,867 | |||||||
Short-term revolving credit facilities | 23,267 | 10,500 | 15,167 | ||||||||||
Accounts payable and accrued expenses | 41,172 | 33,711 | 32,570 | ||||||||||
Accrued payroll and benefits | 19,980 | 16,984 | 15,502 | ||||||||||
Estimated third party payor settlements | 3,245 | 3,528 | 1,956 | ||||||||||
Resident deposits | 1,039 | 1,097 | 957 | ||||||||||
Total current liabilities | 98,667 | 73,410 | 71,019 | ||||||||||
Deferred purchase obligations | — | — | 2,321 | ||||||||||
Deferred income tax payable | 4,174 | 3,922 | — | ||||||||||
Other long-term liabilities | 12,595 | 10,375 | 10,204 | ||||||||||
Long-term debt, less current portion | 242,283 | 177,942 | 121,543 | ||||||||||
Total liabilities | 357,719 | 265,649 | 205,087 | ||||||||||
Minority interest | — | — | — | ||||||||||
Redeemable preferred stock | 76,095 | 67,629 | 50,884 | ||||||||||
Stockholders’ equity (deficit): | |||||||||||||
Warrants outstanding | — | — | — | ||||||||||
Series A — 9% cumulative convertible preferred stock; each share of preferred stock convertible into one share of common stock at the option of the holder at any time; $.01 par value; 7,500,000 shares authorized, issued and outstanding | 75 | 75 | 75 | ||||||||||
Series C — 9% cumulative convertible preferred stock; each share of preferred stock convertible into one share of common stock at the option of the holder at any time; $.01 par value; 2,600,000 shares authorized; 2,500,000 shares issued and outstanding | 25 | 25 | 25 | ||||||||||
Series E — 9% cumulative convertible preferred stock; each share of preferred stock convertible into one share of common stock at the option of the holder at any time; $.01 par value; 2,100,667 shares authorized, 1,633,333 shares issued and outstanding | 16 | 16 | 16 | ||||||||||
Series G — 9% cumulative convertible preferred stock; each share of preferred stock convertible into one share of common stock at the option of the holder at any time; $.01 par value; 5,084,325 shares authorized, issued and outstanding at June 30, 2005; 1,587,302 shares authorized, issued and outstanding at December 31, 2004; and 0 shares authorized, issued and outstanding at December 31, 2003 | 51 | 16 | — | ||||||||||
Common stock, $1 par value; no shares authorized, issued, or outstanding at June 30, 2005 and December 31, 2004 and 2003 | — | — | — | ||||||||||
Common stock, $.00008 par value; 25,000,000 shares authorized at June 30, 2005 and December 31, 2004 and 2003; 1,555,424 shares issued and outstanding at June 30, 2005; 1,474,863 shares issued and outstanding at December 31, 2004; 1,232,760 shares issued and outstanding at December 31, 2003 | — | — | — | ||||||||||
Additional paid-in capital | 8,031 | — | — | ||||||||||
Unearned stock compensation | (2,280 | ) | (2 | ) | (6 | ) | |||||||
Accumulated other comprehensive loss | (790 | ) | (755 | ) | (2,083 | ) | |||||||
Retained deficit | (3,745 | ) | (11,636 | ) | (22,429 | ) | |||||||
Total stockholders’ equity (deficit) | 1,383 | (12,261 | ) | (24,402 | ) | ||||||||
Total liabilities, redeemable preferred stock and stockholders’ equity (deficit) | $ | 435,197 | $ | 321,017 | $ | 231,569 | |||||||
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Six Months Ended June 30 | Years Ended December 31 | ||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||
(Unaudited) (Dollars in Thousands) | |||||||||||||||||||||
Revenue: | |||||||||||||||||||||
Inpatient services | $ | 197,909 | $ | 174,134 | $ | 353,085 | $ | 325,191 | $ | 298,246 | |||||||||||
Rehabilitation therapy | 24,979 | 2,140 | 4,299 | 1,051 | 345 | ||||||||||||||||
Other revenue | 24,493 | 11,574 | 22,326 | 6,311 | 498 | ||||||||||||||||
Total revenue | 247,381 | 187,848 | 379,710 | 332,553 | 299,089 | ||||||||||||||||
Expenses: | |||||||||||||||||||||
Cost of operations | 146,712 | 109,373 | 221,664 | 193,821 | 176,974 | ||||||||||||||||
General and administrative | 60,872 | 51,831 | 103,277 | 94,591 | 79,622 | ||||||||||||||||
Provision for bad debts | 3,011 | 3,394 | 7,968 | 10,129 | 2,510 | ||||||||||||||||
Minority interest | — | — | — | — | 109 | ||||||||||||||||
Other expenses, net | — | — | — | — | 2,139 | ||||||||||||||||
Lease | 9,651 | 9,534 | 20,555 | 21,921 | 19,098 | ||||||||||||||||
Interest | 7,984 | 4,333 | 8,482 | 8,908 | 8,910 | ||||||||||||||||
Depreciation and amortization | 6,969 | 5,058 | 10,430 | 10,468 | 7,835 | ||||||||||||||||
Total expenses | 235,199 | 183,523 | 372,376 | 339,838 | 297,197 | ||||||||||||||||
Income (loss) before income taxes | 12,182 | 4,325 | 7,334 | (7,285 | ) | 1,892 | |||||||||||||||
Income tax provision (benefit) | 4,291 | 1,661 | (4,119 | ) | 4,200 | 658 | |||||||||||||||
Net income (loss) | $ | 7,891 | $ | 2,664 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | ||||||||||
Net income (loss) available to common stockholders | $ | 3,523 | $ | (423 | ) | $ | 5,126 | $ | (17,208 | ) | $ | (3,461 | ) | ||||||||
Basic earnings (loss) per share: | |||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 2.34 | $ | (0.33 | ) | $ | 3.73 | $ | (13.96 | ) | $ | (2.81 | ) | ||||||||
Diluted earnings (loss) per share: | |||||||||||||||||||||
Net income (loss) available to common stockholders | $ | 0.25 | $ | (0.33 | ) | $ | 0.47 | $ | (13.96 | ) | $ | (2.81 | ) | ||||||||
Shares used in computing per share amounts: | |||||||||||||||||||||
Basic | 1,504,239 | 1,272,667 | 1,374,317 | 1,232,760 | 1,232,760 | ||||||||||||||||
Diluted | 18,525,559 | 1,272,667 | 14,194,930 | 1,232,760 | 1,232,760 |
F-4
Table of Contents
Common | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||
Common | Stock | Series A | Series C | Series E | Series G | Additional | Unearned | Other | ||||||||||||||||||||||||||||||||||||||
Stock | $.00008 | Preferred | Preferred | Preferred | Preferred | Paid-In | Stock | Comprehensive | Retained | |||||||||||||||||||||||||||||||||||||
$1 par | par | Stock | Stock | Stock | Stock | Capital | Compensation | Loss | Deficit | Total | ||||||||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2002 | $ | 1 | $ | — | $ | 75 | $ | 20 | $ | 5 | $ | — | $ | 2,381 | $ | (18 | ) | $ | (2,281 | ) | $ | (8,411 | ) | $ | (8,228 | ) | ||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | — | 1,234 | 1,234 | |||||||||||||||||||||||||||||||||||
Stock compensation expense | — | — | — | — | — | — | — | 6 | — | — | 6 | |||||||||||||||||||||||||||||||||||
Undeclared dividend on redeemable preferred stock | — | — | — | — | — | — | (2,381 | ) | — | — | (1,140 | ) | (3,521 | ) | ||||||||||||||||||||||||||||||||
Declared dividend on Series D | — | — | — | — | — | — | — | — | — | (70 | ) | (70 | ) | |||||||||||||||||||||||||||||||||
Cumulative effect of change in accounting for derivative financial instruments, net of $393 tax | — | — | — | — | — | — | — | (607 | ) | — | (607 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2002 | 1 | — | 75 | 20 | 5 | — | — | (12 | ) | (2,888 | ) | (8,387 | ) | (11,186 | ) | |||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (11,485 | ) | (11,485 | ) | |||||||||||||||||||||||||||||||||
Change in fair market value of derivative financial instruments, net of $416 tax | — | — | — | — | — | — | — | — | 805 | — | 805 | |||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | 805 | (11,485 | ) | (10,680 | ) | |||||||||||||||||||||||||||||||||
Series E preferred stock issuance | — | — | — | — | 11 | — | 1,739 | — | — | — | 1,750 | |||||||||||||||||||||||||||||||||||
Stock compensation expense | — | — | — | — | — | — | — | 6 | — | — | 6 | |||||||||||||||||||||||||||||||||||
Undeclared dividend on redeemable preferred stock | — | — | — | — | — | — | (1,735 | ) | — | — | (2,557 | ) | (4,292 | ) | ||||||||||||||||||||||||||||||||
Recapitalization | (1 | ) | — | — | 5 | — | — | (4 | ) | — | — | — | — | |||||||||||||||||||||||||||||||||
Balance, December 31, 2003 | — | — | 75 | 25 | 16 | — | — | (6 | ) | (2,083 | ) | (22,429 | ) | (24,402 | ) | |||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | — | 11,453 | 11,453 | |||||||||||||||||||||||||||||||||||
Change in fair market value of derivative financial instruments, net of $639 tax | — | — | — | — | — | — | — | — | 1,039 | — | 1,039 | |||||||||||||||||||||||||||||||||||
Amortization of OCI into income for NSB treasury lock | — | — | — | — | — | — | — | — | 163 | — | 163 | |||||||||||||||||||||||||||||||||||
Change in fair market value of available-for-sale investments | — | — | — | — | — | — | — | — | (16 | ) | — | (16 | ) | |||||||||||||||||||||||||||||||||
Loss of hedge treatment of derivative financial instruments | — | — | — | — | — | — | — | — | 142 | — | 142 | |||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | 1,328 | 11,453 | 12,781 | |||||||||||||||||||||||||||||||||||
Common stock issuance | — | — | — | — | — | — | 101 | — | — | — | 101 | |||||||||||||||||||||||||||||||||||
Series G preferred stock issuance | — | — | — | — | — | 16 | 3,984 | — | — | — | 4,000 | |||||||||||||||||||||||||||||||||||
Undeclared dividend on redeemable preferred stock | (4,085 | ) | (660 | ) | (4,745 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock compensation expense | — | — | — | — | — | — | — | 4 | — | — | 4 | |||||||||||||||||||||||||||||||||||
Balance, December 31, 2004 | — | — | 75 | 25 | 16 | 16 | — | (2 | ) | (755 | ) | (11,636 | ) | (12,261 | ) | |||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | — | — | — | 7,891 | 7,891 | |||||||||||||||||||||||||||||||||||
Change in fair market value of derivative financial instruments, net of $93 tax | — | — | — | — | — | — | — | — | (140 | ) | — | (140 | ) | |||||||||||||||||||||||||||||||||
Amortization of OCI into income for NSB treasury lock | — | — | — | — | — | — | — | — | 92 | — | 92 | |||||||||||||||||||||||||||||||||||
Change in fair market value of available-for-sale investments | — | — | — | — | — | — | — | — | 13 | — | 13 | |||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | (35 | ) | 7,891 | 7,856 | ||||||||||||||||||||||||||||||||||
Common stock issuance | — | — | — | — | — | — | 34 | — | — | — | 34 | |||||||||||||||||||||||||||||||||||
Series G preferred stock issuance | — | — | — | — | — | 35 | 8,778 | — | — | — | 8,813 | |||||||||||||||||||||||||||||||||||
Undeclared dividend on redeemable preferred stock | — | — | — | — | — | — | (3,177 | ) | — | — | — | (3,177 | ) | |||||||||||||||||||||||||||||||||
Unearned stock compensation | — | — | — | — | — | — | 2,396 | (2,278 | ) | — | — | 118 | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2005 (unaudited) | $ | — | $ | — | $ | 75 | $ | 25 | $ | 16 | $ | 51 | $ | 8,031 | $ | (2,280 | ) | $ | (790 | ) | $ | (3,745 | ) | $ | 1,383 | |||||||||||||||||||||
F-5
Table of Contents
Six Months Ended | |||||||||||||||||||||||
June 30 | Years Ended December 31 | ||||||||||||||||||||||
2005 | 2004 | 2004 | 2003 | 2002 | |||||||||||||||||||
(Unaudited)(Dollars in thousands) | |||||||||||||||||||||||
OPERATING ACTIVITIES | |||||||||||||||||||||||
Net income (loss) | $ | 7,891 | $ | 2,664 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | ||||||||||||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | |||||||||||||||||||||||
Depreciation and amortization | 6,969 | 5,058 | 10,430 | 10,468 | 7,835 | ||||||||||||||||||
Provision for bad debts | 3,011 | 3,394 | 7,968 | 10,129 | 2,510 | ||||||||||||||||||
Accretion of deferred purchase option obligation | — | 107 | 904 | 199 | 196 | ||||||||||||||||||
Gain (loss) on sale of fixed assets | — | (38 | ) | 146 | (36 | ) | (398 | ) | |||||||||||||||
Gain on extinguishment of debt | — | (850 | ) | (850 | ) | — | — | ||||||||||||||||
Loss on extinguishment of debt | — | — | 686 | — | — | ||||||||||||||||||
Minority interest | — | — | — | (109 | ) | 109 | |||||||||||||||||
Stock compensation expense | 118 | — | 4 | 6 | 6 | ||||||||||||||||||
Change in: | |||||||||||||||||||||||
Assets limited as to use — resident accounts | 59 | 31 | (122 | ) | 36 | (28 | ) | ||||||||||||||||
Patient accounts receivable | (32,214 | ) | 173 | (5,161 | ) | (11,850 | ) | (3,506 | ) | ||||||||||||||
Estimated third party payor settlements | (2,637 | ) | 1,111 | 1,827 | 1,193 | (362 | ) | ||||||||||||||||
Inventory | 79 | 75 | (277 | ) | (120 | ) | (7 | ) | |||||||||||||||
Prepaid expenses and other current assets | 2,262 | (1,433 | ) | (3,024 | ) | (652 | ) | (484 | ) | ||||||||||||||
Deferred income taxes | 4,076 | 1,915 | (3,597 | ) | 5,688 | 327 | |||||||||||||||||
Accounts payable and accrued expenses | 6,238 | 41 | 883 | 7,228 | 1,443 | ||||||||||||||||||
Other long-term liabilities | 874 | (615 | ) | 171 | 658 | (832 | ) | ||||||||||||||||
Accrued payroll and benefits | 1,722 | (116 | ) | 1,482 | 4,664 | 1,148 | |||||||||||||||||
Resident deposits | (98 | ) | (13 | ) | 140 | (54 | ) | 28 | |||||||||||||||
Net cash (used in) provided by operating activities | (1,650 | ) | 11,504 | 23,063 | 15,963 | 9,219 | |||||||||||||||||
INVESTING ACTIVITIES | |||||||||||||||||||||||
Net purchase of property, equipment, and intangible assets — routine | (4,927 | ) | (5,026 | ) | (10,329 | ) | (16,136 | ) | (7,380 | ) | |||||||||||||
Acquisitions of businesses | (84,770 | ) | — | (79,833 | ) | (20,194 | ) | (29,294 | ) | ||||||||||||||
Proceeds from sale of property, equipment, and intangible assets | — | 65 | 125 | — | 10,217 | ||||||||||||||||||
Change in escrows | (78 | ) | (4,386 | ) | (4,387 | ) | 4,454 | (6,531 | ) | ||||||||||||||
Change in lease and other deposits | 233 | 67 | 542 | (1,836 | ) | (231 | ) | ||||||||||||||||
Change in other noncurrent assets | 38 | 61 | (473 | ) | 94 | (393 | ) | ||||||||||||||||
Net cash used in investing activities | (89,504 | ) | (9,219 | ) | (94,355 | ) | (33,618 | ) | (33,612 | ) | |||||||||||||
FINANCING ACTIVITIES | |||||||||||||||||||||||
Net change in revolving credit facilities | 12,767 | (955 | ) | (4,667 | ) | (1,527 | ) | 3,370 | |||||||||||||||
Deferred financing costs and deposits on letters of credit | (1,409 | ) | (1,440 | ) | (3,581 | ) | (982 | ) | (1,404 | ) | |||||||||||||
Proceeds from issuance of long-term debt obligations | 70,000 | 48,500 | 116,697 | 53,731 | 34,351 | ||||||||||||||||||
Repayments of long-term debt | (3,371 | ) | (49,064 | ) | (59,950 | ) | (35,343 | ) | (12,990 | ) | |||||||||||||
Redemption of preferred stock | — | — | — | — | (82 | ) | |||||||||||||||||
Net change in other comprehensive income | (35 | ) | 741 | 1,328 | 805 | (607 | ) | ||||||||||||||||
Net proceeds from issuance of common stock | 34 | 101 | 101 | — | — | ||||||||||||||||||
Net proceeds from issuance of preferred stock | 14,102 | — | 16,000 | 7,000 | — | ||||||||||||||||||
Net cash provided by (used in) financing activities | 92,088 | (2,117 | ) | 65,928 | 23,684 | 22,638 | |||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 934 | 168 | (5,364 | ) | 6,029 | (1,755 | ) | ||||||||||||||||
Cash and cash equivalents, beginning of period | 2,719 | 8,083 | 8,083 | 2,054 | 3,809 | ||||||||||||||||||
Cash and cash equivalents, end of period | $ | 3,653 | $ | 8,251 | $ | 2,719 | $ | 8,083 | $ | 2,054 | |||||||||||||
SUPPLEMENTAL CASH FLOW DISCLOSURES | |||||||||||||||||||||||
Cash paid during the period for: | |||||||||||||||||||||||
Interest | $ | 7,225 | $ | 4,052 | $ | 8,273 | $ | 8,901 | $ | 8,638 | |||||||||||||
Income taxes | 209 | 370 | 316 | 186 | 245 | ||||||||||||||||||
Noncash investing and financing activities: | |||||||||||||||||||||||
Fair value of assets acquired through a capital lease | — | — | — | 396 | 30,550 | ||||||||||||||||||
Capital lease obligation | — | — | — | (396 | ) | (30,550 | ) | ||||||||||||||||
Redemption of preferred stock and issuance of debt | — | — | — | — | 1,904 |
F-6
Table of Contents
Basis of Presentation |
Use of Estimates |
F-7
Table of Contents
Cash and Cash Equivalents |
Escrows |
Assets Limited as to Use — Resident Accounts |
Accounts Receivable and Allowance for Doubtful Accounts |
Six Months | ||||||||||||||||
Ended | Years Ended | |||||||||||||||
June 30 | December 31 | |||||||||||||||
2005 | 2004 | 2003 | 2002 | |||||||||||||
Balance, beginning of year | $ | 4,820 | $ | 6,828 | $ | 2,846 | $ | 2,310 | ||||||||
Additions charged to provision for bad debts | 3,011 | 7,968 | 10,129 | 2,510 | ||||||||||||
Accounts receivable written off, net of recoveries | (1,554 | ) | (9,976 | ) | (6,147 | ) | (1,974 | ) | ||||||||
Balance, end of year | $ | 6,277 | $ | 4,820 | $ | 6,828 | $ | 2,846 | ||||||||
Inventories |
F-8
Table of Contents
Property and Equipment, Net |
Intangibles |
Net Patient Service Revenue |
Laws and Regulations |
F-9
Table of Contents
Income Taxes |
Impairment of Long-Lived Assets |
Payment Policy |
Fair Value of Financial Instruments |
Derivative Financial Instruments |
F-10
Table of Contents
Stock-Based Compensation |
F-11
Table of Contents
Six Months | |||||||||||||||||
Ended | |||||||||||||||||
June 30 | Years Ended December 31 | ||||||||||||||||
2005 | |||||||||||||||||
(unaudited) | 2004 | 2003 | 2002 | ||||||||||||||
Net income (loss), as reported | $ | 7,891 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | ||||||||
Stock-compensation expense included in reported net income (loss), net of related tax effects | 73 | 2 | 4 | 4 | |||||||||||||
Pro forma stock-compensation expense included in reported net income (loss), net of related tax effects | (171 | ) | (66 | ) | (69 | ) | (46 | ) | |||||||||
Pro forma net income (loss) | $ | 7,793 | $ | 11,389 | $ | (11,550 | ) | $ | 1,192 | ||||||||
Earnings per share: | |||||||||||||||||
Basic earnings (loss) per share | $ | 2.28 | $ | 3.68 | $ | (14.01 | ) | $ | (2.84 | ) | |||||||
Diluted earnings (loss) per share | $ | 0.25 | $ | 0.47 | $ | (14.01 | ) | $ | (2.84 | ) |
Six Months | ||||||||||||||||
Ended | Years Ended December 31 | |||||||||||||||
June 30, 2005 | ||||||||||||||||
(unaudited) | 2004 | 2003 | 2002 | |||||||||||||
Dividend yield | —% | —% | —% | —% | ||||||||||||
Risk-free interest rate | 3.07%-5.28% | 3.59%-4.31% | 3.07%-6.78% | 3.40%-6.78% | ||||||||||||
Stock price volatility | —% | —% | —% | —% | ||||||||||||
Expected life | 5-7 years | 5-7 years | 5-7 years | 5-7 years |
June 30 | December 31 | |||||||||||||||
2005 | ||||||||||||||||
(unaudited) | 2004 | 2003 | 2002 | |||||||||||||
Exercise price equal to market price | $ | — | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||
Exercise price less than market price | $ | 5.36 | $ | — | $ | — | $ | — | ||||||||
Exercise price greater than market price | $ | — | $ | — | $ | — | $ | — |
Recently Issued Accounting Standards |
Share-Based Payments |
F-12
Table of Contents
Reclassifications |
F-13
Table of Contents
June 30 | December 31 | |||||||||||||||
2005 | ||||||||||||||||
Description | Useful Life | (unaudited) | 2004 | 2003 | ||||||||||||
Land and improvements | 5-10 years | $ | 14,803 | $ | 12,380 | $ | 12,063 | |||||||||
Buildings | 20-40 years | 130,695 | 92,222 | 33,975 | ||||||||||||
Building and leasehold improvements | 10-13 years | 14,564 | 16,174 | 56,006 | ||||||||||||
Furniture, fixtures, and equipment | 3-10 years | 48,354 | 40,804 | 30,373 | ||||||||||||
Vehicles | 4-5 years | 1,687 | 650 | 509 | ||||||||||||
Construction-in-progress and projects | 2,178 | 669 | 915 | |||||||||||||
Accumulated depreciation | (30,987 | ) | (27,225 | ) | (21,629 | ) | ||||||||||
Property and equipment, net | $ | 181,294 | $ | 135,674 | $ | 112,212 | ||||||||||
Diakon (unaudited) |
Current assets | $ | 73 | ||
Deposits | 514 | |||
Property and equipment | 47,422 | |||
Goodwill | 40,637 | |||
Noncompete covenants | 100 | |||
Assumed liabilities | (3,969 | ) | ||
Net assets acquired | $ | 84,777 | ||
OP Therapy and OP Hospice Acquisition |
F-14
Table of Contents
Current assets | $ | 368 | ||
Deposits | 18 | |||
Property and equipment | 2,123 | |||
Noncompete covenants | 53 | |||
Goodwill | 57,089 | |||
Accrued expenses | (258 | ) | ||
Net assets acquired | $ | 59,393 | ||
Purchase of Kenton and McCuen Properties (THC of Ohio) |
Long-term assets: | |||||
Land | $ | 500 | |||
Buildings and improvements | 18,143 | ||||
Furniture, fixtures, and equipment | 1,797 | ||||
Total assets acquired | $ | 20,440 | |||
F-15
Table of Contents
Laurel Pharmacy (Coastal Med) Acquisition |
Current assets: | |||||
Inventory | $ | 639 | |||
Long-term assets: | |||||
Furniture, fixtures and equipment | 149 | ||||
Goodwill | 7,642 | ||||
Total assets acquired | $ | 8,430 | |||
Kriner Acquisition |
Current assets: | |||||
Inventory | $ | 40 | |||
Long-term assets: | |||||
Land | 1,065 | ||||
Buildings and improvements | 8,880 | ||||
Furniture, fixtures, and equipment | 983 | ||||
Goodwill | 796 | ||||
Total assets acquired | $ | 11,764 | |||
Florida Region II Acquisition |
F-16
Table of Contents
Current assets: | |||||
Cash reserve | $ | 6,500 | |||
Long-term assets: | |||||
Land | 3,371 | ||||
Buildings and improvements | 23,304 | ||||
Furniture, fixtures, and equipment | 2,619 | ||||
Total assets acquired | $ | 35,794 | |||
Six Months Ended | Years Ended | |||||||||||||||
June 30 | ||||||||||||||||
2005 | December 31 | |||||||||||||||
(unaudited) | 2004 | 2003 | 2002 | |||||||||||||
Revenue | $ | 281,828 | $ | 515,611 | $ | 410,368 | $ | 328,213 | ||||||||
Net income | 9,754 | 19,884 | (6,212 | ) | 1,549 | |||||||||||
Net income available to common stockholders | 8,977 | 16,584 | (9,296 | ) | (849 | ) | ||||||||||
Earnings per common share, basic | $ | 3.06 | $ | 7.46 | $ | (12.18 | ) | $ | (4.50 | ) | ||||||
Earnings per common share, diluted | $ | 0.30 | $ | 0.69 | $ | (12.18 | ) | $ | (4.50 | ) |
Sale of Ravenwood Facility |
Health Care Industries Company Management Contract |
F-17
Table of Contents
Formation of Laurel Indemnity Co., Ltd |
Sale of Southington Facility |
6. | Definite Lived Intangibles |
Deferred | Purchase | ||||||||||||||||||||
financing | Deferred | option | Noncompete | ||||||||||||||||||
costs | lease costs | rights | agreement | Total | |||||||||||||||||
December 31, 2003 | |||||||||||||||||||||
Gross carrying cost | $ | 5,529 | $ | 1,907 | $ | 1,646 | $ | 50 | $ | 9,132 | |||||||||||
Accumulated amortization | 3,344 | 723 | 1,081 | 50 | 5,198 | ||||||||||||||||
December 31, 2004 | |||||||||||||||||||||
Gross carrying cost | 7,994 | 1,801 | – | 53 | 9,848 | ||||||||||||||||
Accumulated amortization | 3,211 | 935 | – | – | 4,146 | ||||||||||||||||
June 30, 2005 (unaudited) | |||||||||||||||||||||
Gross carrying cost | 8,375 | 1,801 | – | 153 | 10,329 | ||||||||||||||||
Accumulated amortization | 2,549 | 1,038 | – | 11 | 3,598 |
Year | Amount | |||
2005 | $ | 1,496 | ||
2006 | 1,495 | |||
2007 | 1,199 | |||
2008 | 885 | |||
2009 | 542 |
F-18
Table of Contents
7. | Goodwill and Certificates of Need |
Inpatient | Rehabilitation | ||||||||||||||||
Services | Therapy | Other | Total | ||||||||||||||
Balance at January 1, 2003, net of accumulated amortization of $523 | $ | 1,832 | $ | – | $ | 2,819 | $ | 4,651 | |||||||||
Acquisition of Laurel Pharmacy | – | – | 7,642 | 7,642 | |||||||||||||
Kriner Acquisition | 796 | – | – | 796 | |||||||||||||
Acquisition of minority interest in THC of Virginia | – | 6,890 | 6,890 | ||||||||||||||
Balance at December 31, 2003 | 2,628 | – | 17,351 | 19,979 | |||||||||||||
Disposal of Ravenwood Care Center | (20 | ) | – | – | (20 | ) | |||||||||||
Acquisition of OP Therapy & OP Hospice | – | 44,919 | 12,170 | 57,089 | |||||||||||||
Balance at December 31, 2004 | 2,608 | 44,919 | 29,521 | 77,048 | |||||||||||||
Revision to value of assets acquired | – | 244 | (4 | ) | 240 | ||||||||||||
Acquisition of Diakon facilities | 40,637 | — | — | 40,637 | |||||||||||||
Balance at June 30, 2005 (unaudited) | $ | 43,245 | $ | 45,163 | $ | 29,517 | $ | 117,925 | |||||||||
8. | Investments |
9. | Other Long-term Liabilities and Contingencies |
Asserted Claims |
F-19
Table of Contents
Insurance Risks |
Self-insurance |
Contingencies |
10. | Working Capital Revolving Credit Facilities |
F-20
Table of Contents
F-21
Table of Contents
December 31 | ||||||||||||
June 30 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Unaudited) | ||||||||||||
Term loan, interest at LIBOR plus 3.75%. Principal and interest payments of $100 due monthly through April 10, 2010. Secured by the assets of RE Selinsgrove, RE Mifflin, RE Hazleton, RE Pottsville, RE New Bloomfield, RE Millersburg, RE Everett, RE Salisbury, and RE Frostburg (see Note 5) | $ | 69,903 | $ | — | $ | — | ||||||
Note payable, interest at LIBOR plus 3.5%. Principal and interest payments of $186 payable monthly through December 1, 2009, at which time the remaining principal becomes due. Mortgage is secured by the assets of THC of Florida | 32,005 | 32,247 | 32,702 | |||||||||
Mortgage payable, interest at LIBOR plus 3.75% with a floor of 6.0%. Principal and interest payments of $200 payable monthly until December 1, 2009. Mortgage is secured by the assets of RE Kissimmee, RE Winter Haven, THC of Miami and RE North Strabane | 28,890 | 29,163 | — | |||||||||
Term loan, interest at LIBOR plus 3.5%. Interest payments of $140 payable monthly beginning July 2005 until November 30, 2009, at which time principal is due in full. Mandatory prepayment of principal equal to 50% of the Company’s prior year excess cash is due annually. Loan is secured by the assets of OP Therapy and OP Hospice. Lender has the option of accelerating the due date of the principal balance upon an initial public offering (IPO) of the Company’s common stock (see Note 5) | 25,000 | 25,000 | — | |||||||||
Mortgage payable, interest at prime plus 0.75%. Principal and interest payments of $200 payable monthly through December 29, 2009. Mortgage is secured by the assets of RE Wellston, RE Westerville, RE Greenfield, RE 2 Kenton, RE Lucasville I, and RE Lucasville II (see Note 5) | 23,814 | 24,300 | — |
F-22
Table of Contents
December 31 | ||||||||||||
June 30 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Unaudited) | ||||||||||||
Mortgage payable, interest at LIBOR plus 3.5%. Principal and interest payments of $135 payable monthly through May 31, 2009, at which time the remaining principal becomes due. The mortgage is secured by all assets of RE Bayonet Point, RE Jacksonville, RE Port Charlotte, RE Sarasota, RE Orange Park, RE St. Petersburg and RE Safety Harbor | $ | 20,061 | $ | 20,228 | $ | 20,543 | ||||||
Mortgage payable, interest at LIBOR plus 4.0%. Principal and interest payments of $100 payable monthly through May 31, 2009. Mortgage is secured by the assets of RE Bayonet Point, RE Jacksonville, RE Port Charlotte, RE Sarasota, RE Orange Park, RE St. Petersburg and RE Safety Harbor | 12,714 | 12,870 | — | |||||||||
Seller notes, interest at 8.0%. Interest payments of $67 payable monthly through December 31, 2009, at which time principal is due in full. These notes are unsecured and contain provisions for mandatory prepayment of the outstanding principal upon an IPO (see Note 5) | 10,211 | 10,211 | — | |||||||||
Note payable, interest at LIBOR plus 4.1%. Principal and interest payments of $46 payable monthly through February 29, 2008, at which time the remaining principal becomes due. The note is secured by the assets of RE Fremont, RE Carey and RE Maumee | 7,239 | 7,304 | 7,454 | |||||||||
Note payable, interest at LIBOR plus 13.0% through December 31, 2005, and at LIBOR plus 15.5% thereafter. Interest payments payable monthly through November 30, 2009, at which time principal is due in full. Secured by the assets of OP Therapy and OP Hospice. Note contains provisions requiring mandatory prepayment of the outstanding principal upon an IPO (see Note 5) | 7,000 | 7,000 | — | |||||||||
Note payable, interest at 6.0%. Principal and interest payments of $50 payable monthly through October 1, 2008, at which time the remaining principal balance becomes due. This note is unsecured | 3,959 | 4,136 | 4,445 | |||||||||
Mortgage payable, interest at LIBOR plus 4.0%. Principal and interest payments of $30 payable monthly until November 30, 2009. Mortgage is secured by the assets of THC of Florida | 3,623 | 3,665 | — | |||||||||
Note payable, interest at 8.0%. Principal and interest payments of $81 payable monthly through April 17, 2008. This note is secured by the stock of THC of Virginia and is guaranteed by THC, Inc. | 2,524 | 2,901 | 3,611 | |||||||||
Mortgage payable, interest at LIBOR plus 6.0% with a floor of 8.5%. Principal and interest payments of $18 due monthly until December 1, 2009. Mortgage is secured by the assets of RE Kissimmee, RE Winter Haven, THC of Miami and RE North Strabane | 2,164 | 2,178 | — |
F-23
Table of Contents
December 31 | ||||||||||||
June 30 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Unaudited) | ||||||||||||
Note payable, interest at LIBOR plus 4.0%. Principal and interest payments of $83 payable monthly through September 30, 2006, at which time the remaining principal becomes due. The note is secured by all assets of Laurel Pharmacy, LLC (see Note 5) | $ | 1,333 | $ | 1,833 | $ | 2,833 | ||||||
Note payable, interest at LIBOR plus 3.5%. Interest and principal payments of $35 payable monthly until December 31, 2007. Note is secured by the assets of OP Therapy and OP Hospice (see Note 5) | 929 | 1,081 | — | |||||||||
Note payable, interest at 7.0%. Interest only payments of $3 payable monthly through March 1, 2008, at which time the principal balance becomes due. The note is secured by the assets of RE Fremont, RE Carey and RE Maumee | 500 | 500 | 500 | |||||||||
Equipment and vehicle loans and capital leases, interest at rates ranging from 10.0% to 20.5%. Interest and principal due monthly through August 2006. The loans and leases are secured by equipment and vehicles with a net book value of $166, $328 and $981 at June 30, 2005 (unaudited) and December 31, 2004 and 2003, respectively | 293 | 342 | 793 | |||||||||
Note payable, interest at 5.0%. Interest payments payable monthly through June 30, 2005, at which time principal is due in full. This note is unsecured and contains provisions for mandatory prepayment of the outstanding principal upon an initial public offering (see Notes 5 and 14) | — | 573 | — | |||||||||
Note payable, interest at 8.5%. Interest only payable monthly through May 31, 2007, at which time the principal balance becomes due. The note is secured by a subordinated interest in all assets of RE Bayonet Point, RE Jacksonville, RE Port Charlotte, RE Sarasota, RE Orange Park, RE St. Petersburg and RE Safety Harbor. This debt was refinanced effective June 30, 2004 | — | — | 13,000 | |||||||||
Note payable, interest at prime. Interest and principal payments of $53 payable monthly through April 2004, with outstanding principal due April 16, 2004. The note is secured by the North Strabane property. This note was refinanced effective February 6, 2004 | — | — | 9,166 | |||||||||
Note payable, interest at LIBOR plus 3.25%. Interest only payable monthly through April 2004, at which time the outstanding principal balance becomes due. The note is secured by the Winter Haven and Kissimmee properties inter alia. This note was refinanced effective February 6, 2004 | — | — | 8,591 |
F-24
Table of Contents
December 31 | ||||||||||||
June 30 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Unaudited) | ||||||||||||
Mortgage payable, interest at LIBOR plus 3.0%. Principal and interest payments of $45 payable monthly through April 1, 2004, at which time the remaining principal becomes due. The note was secured by the assets of THC of Miami. This note was paid off on February 6, 2004 | $ | — | $ | — | $ | 7,269 | ||||||
Note payable, interest at prime plus 1.0%. Interest payable monthly with outstanding principal due on December 31, 2007. This note is secured by a second mortgage on the assets of THC of Florida. This note was refinanced effective June 30, 2004 | — | — | 4,000 | |||||||||
Note payable, interest at 7.5%. Interest payable quarterly with principal due on or before September 1, 2007. This note is secured by leased facilities held in trust as part of a lease. This note was paid off effective December 31, 2004 (see Note 5) | — | — | 3,000 | |||||||||
Note payable, interest at 8.5%. Interest payable quarterly with principal due on or before April 1, 2006. This note is secured by tangible personal property of THC of Kissimmee and THC of Winter Haven. This note was refinanced effective February 6, 2004 | — | — | 2,499 | |||||||||
Loan payable, interest at 9.68%. Interest and principal payments of $21 payable monthly through April 30, 2007, at which time the outstanding principal becomes due. The debt is secured by the assets of three leased facilities. The debt was paid off on December 31, 2004 (see Note 5) | — | — | 1,841 | |||||||||
Note payable, interest at 8.5%. Interest only payable monthly through April 10, 2006, at which time the outstanding principal becomes due. The note is secured by all current and future assets of THC of Winter Haven. This note was paid off on February 6, 2004 | — | — | 979 | |||||||||
Note payable, interest at 8.5%. Interest only payable monthly through April 10, 2006, at which time the outstanding principal becomes due. The note is secured by all current and future assets of THC of Kissimmee. This note was paid off on February 6, 2004 | — | — | 925 | |||||||||
Note payable, interest at 6.0%. Principal due January 15, 2004 | — | — | 902 | |||||||||
Note payable, interest at 10.5%. Interest and principal of $21 payable monthly through September 1, 2007. The debt is secured by leased facilities held in trust as part of a lease. This note was paid off on December 31, 2004 (see Note 5) | — | — | 758 |
F-25
Table of Contents
December 31 | ||||||||||||
June 30 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(Unaudited) | ||||||||||||
Note payable, interest at prime plus 1.0%. Interest and principal ranging from $100 – $550 payable monthly through May 15, 2004. This note is unsecured | $ | — | $ | — | $ | 550 | ||||||
Other | 85 | — | 49 | |||||||||
252,247 | 185,532 | 126,410 | ||||||||||
Less current maturities | 9,964 | 7,590 | 4,867 | |||||||||
Total long-term debt | $ | 242,283 | $ | 177,942 | $ | 121,543 | ||||||
F-26
Table of Contents
Fiscal Year | Amount | ||||
2005 | $ | 7,590 | |||
2006 | 8,669 | ||||
2007 | 9,128 | ||||
2008 | 19,347 | ||||
2009 | 140,798 | ||||
Total | $ | 185,532 | |||
Redeemable Preferred Stock |
Series B | Series D | Series F | Series H | Total | |||||||||||||||||
January 1, 2002 | $ | 35,712 | $ | 2,110 | $ | 2,109 | $ | — | $ | 39,931 | |||||||||||
Dividend | 3,324 | 70 | 197 | — | 3,591 | ||||||||||||||||
Redemption | — | (2,180 | ) | — | — | (2,180 | ) | ||||||||||||||
December 31, 2002 | 39,036 | — | 2,306 | — | 41,342 | ||||||||||||||||
Shares issued | — | — | 5,250 | — | 5,250 | ||||||||||||||||
Dividend | 3,633 | — | 659 | — | 4,292 | ||||||||||||||||
December 31, 2003 | 42,669 | — | 8,215 | — | 50,884 | ||||||||||||||||
Shares issued | — | — | — | 12,000 | 12,000 | ||||||||||||||||
Dividend | 3,971 | — | 765 | 9 | 4,745 | ||||||||||||||||
December 31, 2004 | 46,640 | — | 8,980 | 12,009 | 67,629 | ||||||||||||||||
Shares issued | — | — | — | 5,289 | 5,289 | ||||||||||||||||
Dividend | 2,122 | — | 409 | 646 | 3,177 | ||||||||||||||||
June 30, 2005 (unaudited) | $ | 48,762 | — | $ | 9,389 | $ | 17,944 | $ | 76,095 | ||||||||||||
F-27
Table of Contents
Convertible Preferred Stock |
Preferred Stock Issuances |
Net Patient Service Revenue | ||||||||||||||||
Six Months | ||||||||||||||||
Ended | Years Ended | |||||||||||||||
June 30 | December 31 | |||||||||||||||
2005 | ||||||||||||||||
(Unaudited) | 2004 | 2003 | 2002 | |||||||||||||
Private | 11 | % | 11 | % | 12 | % | 12 | % | ||||||||
Medicare | 32 | 33 | 30 | 29 | ||||||||||||
Medicaid | 46 | 46 | 49 | 48 | ||||||||||||
Other third party payors | 11 | 10 | 9 | 11 |
F-28
Table of Contents
Gross Patients | ||||||||||||
Accounts Receivable | ||||||||||||
June 30 | December 31 | |||||||||||
2005 | ||||||||||||
(Unaudited) | 2004 | 2003 | ||||||||||
Private | 12 | % | 11 | % | 8 | % | ||||||
Medicare | 26 | 26 | 30 | |||||||||
Medicaid | 41 | 38 | 36 | |||||||||
Other third party payors | 21 | 25 | 26 |
F-29
Table of Contents
Tandem Health Care of Ohio Leases |
Tandem Health Care of Ohio Lease Refinancing |
F-30
Table of Contents
Future Minimum Lease Payments |
Fiscal Year | Amount | |||
2005 | $ | 18,200 | ||
2006 | 17,490 | |||
2007 | 17,641 | |||
2008 | 17,037 | |||
2009 | 11,360 | |||
Thereafter | 19,513 | |||
$ | 101,241 | |||
F-31
Table of Contents
Six Months Ended | Years Ended December 31 | |||||||||||||||
June 30, 2005 | ||||||||||||||||
(unaudited) | 2004 | 2003 | 2002 | |||||||||||||
Current provision | $ | 215 | $ | 160 | $ | 313 | $ | 213 | ||||||||
Utilization of net operating losses | 3,717 | — | (2,207 | ) | (512 | ) | ||||||||||
Deferred provision (benefit) — federal | 432 | 2,359 | (1,862 | ) | 850 | |||||||||||
Deferred provision (benefit) — state | 55 | 298 | (235 | ) | 107 | |||||||||||
Valuation allowance | (128 | ) | (6,936 | ) | 8,191 | — | ||||||||||
Net income tax (benefit) provision | $ | 4,291 | $ | (4,119 | ) | $ | 4,200 | $ | 658 | |||||||
June 30 | December 31 | |||||||||||
2005 | ||||||||||||
(unaudited) | 2004 | 2003 | ||||||||||
Net operating loss carryforwards | $ | 1,763 | $ | 5,480 | $ | 1,138 | ||||||
Vacation accrual | 1,494 | 1,384 | 1,520 | |||||||||
Allowance for doubtful accounts | 2,090 | 1,846 | 2,615 | |||||||||
Mark-to-market adjustment of derivative instruments | 93 | 90 | 787 | |||||||||
Accrued self insurance | 6,093 | 6,109 | 4,516 | |||||||||
Deferred lease expense | 945 | 900 | 1,338 | |||||||||
Depreciation and amortization | (12,095 | ) | (11,514 | ) | (4,423 | ) | ||||||
Other, net | 901 | 1,193 | 1,336 | |||||||||
1,284 | 5,488 | 8,827 | ||||||||||
Less valuation allowance | (1,763 | ) | (1,891 | ) | (8,827 | ) | ||||||
Net deferred tax asset | (479 | ) | 3,597 | — | ||||||||
Less current portion of deferred income taxes | 3,695 | 7,519 | — | |||||||||
Net long-term deferred tax liability | $ | (4,174 | ) | $ | (3,922 | ) | $ | — | ||||
F-32
Table of Contents
June 30 | December 31 | |||||||||||||||
2005 | ||||||||||||||||
(unaudited) | 2004 | 2003 | 2002 | |||||||||||||
Statutory federal income tax rate | 34.00 | % | 34.00 | % | 34.00 | % | 34.00 | % | ||||||||
State income taxes | 4.29 | % | 4.29 | % | 4.29 | % | 4.29 | % | ||||||||
State NOL (benefit) expense | 1.05 | % | (4.50 | )% | 7.84 | % | (17.11 | )% | ||||||||
Change in valuation allowance | (1.05 | )% | (94.57 | )% | (112.44 | )% | 0.00 | % | ||||||||
Other state tax adjustments | (1.35 | )% | 3.23 | % | (1.96 | )% | 3.47 | % | ||||||||
Tax credits | (1.40 | )% | (3.01 | )% | 5.09 | % | (9.44 | )% | ||||||||
Permanent tax differences | (0.29 | )% | 1.14 | % | (5.29 | )% | 16.69 | % | ||||||||
Miscellaneous adjustments | (0.03 | )% | 3.26 | % | 10.82 | % | 4.55 | % | ||||||||
Effective tax rate | 35.22 | % | (56.16 | )% | (57.65 | )% | 36.45 | % | ||||||||
On April 28, 1998, and as subsequently amended, the Company approved a stock option plan (the Option Plan) whereby 1,957,414 authorized common shares are reserved for issuance by the Company upon exercise of stock options granted to two officers of the Company. Options constitute both incentive stock options and nonqualified stock options. The following details the options granted by the Company. |
Options to purchase 142,241 shares of common stock at $.40 per share are exercisable at a rate of 25% annually with the first 25% exercisable on the one-year anniversary of the date of grant (March 25, 1999). All unexercised options expire upon the earlier of March 24, 2008, or termination of employment. None of the Class I options were exercised during the six months ended June 30, 2005 (unaudited). During 2004, options to purchase 71,120 shares of common stock were exercised. None of the Class I options were exercised in 2003. At June 30, 2005 (unaudited) and December 31, |
F-33
Table of Contents
2004, 71,121 of the Class I options were exercisable. At December 31, 2003, 142,241 of the Class I options were exercisable. |
Options to purchase 142,241 shares of common stock at $.44 per share are exercisable at a rate of 25% annually with the first 25% exercisable on the one-year anniversary of the date of the grant (March 25, 1999). All unexercised options expire upon the earlier of March 24, 2008, or termination of employment. None of the Class II options were exercised during the six months ended June 30, 2005 (unaudited). During 2004, options to purchase 71,120 shares of common stock were exercised. None of the Class II options were exercised in 2003. At June 30, 2005 (unaudited) and December 31, 2004, 71,121 of the Class II options were exercisable. At December 31, 2003, 142,241 of the Class II options were exercisable. |
Options to purchase 853,450 shares of common stock at $.44 per share are exercisable at a rate of 25% annually with the first 25% exercisable on the six-year anniversary of the date of the grant (March 25, 2004). Acceleration of the exercise date may occur if certain earnings targets are met, the Company consummates an initial public offering, or there is a change in ownership control, all as defined in the option agreements. All unexercised options expire upon the earlier of March 24, 2008, or termination of employment. During 2005, options to purchase 45,000 shares of common stock were exercised. During 2004, options to purchase 35,000 shares of common stock were exercised. None of the Class III options were exercised in 2003. The total of Class III options that were exercisable at June 30, 2005 (unaudited) and December 31, 2004 and 2003 was 773,450, 818,450, and 661,059, respectively. Compensation expense of $0, $1, $2 and $2 was recorded relative to the Class III options for the six months ended June 30, 2005 (unaudited) and the years ended December 31, 2004, 2003 and 2002, respectively. |
Options to purchase 284,482 shares of common stock at $.40 per share are exercisable at a rate of 25% annually with the first 25% exercisable on the six-year anniversary of the date of the grant (March 25, 2004). Acceleration of the exercise date may occur if certain earnings targets are met, the Company consummates an initial public offering, or there is a change in ownership control, all as defined in the option agreement. All unexercised options expire upon the earlier of March 24, 2008, or termination of employment. | |
During 2005, options to purchase 35,561 shares of common stock were exercised. During 2004, options to purchase 64,863 shares of common stock were exercised. None of the Class IV options were exercised in 2003. The total of the Class IV options that were exercisable at June 30, 2005, was 100,423. The total of the Class IV options that were exercisable at December 31, 2004 and 2003 was 64,864 and 58,606, respectively. Compensation expense of $0, $3, $4, and $4 was recorded relative to the Class IV options for the six months ended June 30, 2005 (unaudited) and the years ended December 31, 2004, 2003 and 2002, respectively. |
Management Stock Options |
As of June 30, 2005, the Option Plan authorized 2,045,000 shares for issuance as nonqualified stock options to management level employees and independent directors of the Company. Options granted vest at a rate of 25% per year beginning with the first anniversary date and expire ten years from the grant date. |
F-34
Table of Contents
Weighted Average | ||||||||||||||||
Number of Options | Fair Value of | Weighted Average | ||||||||||||||
Granted | Exercise Price | Common Stock | Intrinsic Value | |||||||||||||
September 30, 2004 | 73,500 | $ | 1.00 | $ | 1.00 | $ | — | |||||||||
December 31, 2004 | 39,000 | $ | 1.00 | $ | 1.00 | $ | — | |||||||||
March 31, 2005 | 391,500 | $ | 1.80 | $ | 2.40 | $ | 0.60 | |||||||||
June 30, 2005 | 286,000 | $ | 1.80 | $ | 9.37 | $ | 7.57 |
F-35
Table of Contents
Weighted-average | ||||||||||
Shares | Exercise Price | |||||||||
Outstanding at January 1, 2002 | 718,000 | $ | 0.88 | |||||||
Granted | 439,500 | 1.00 | ||||||||
Forfeited | (122,000 | ) | 0.88 | |||||||
Outstanding at December 31, 2002 | 1,035,500 | 0.93 | ||||||||
Granted | 286,000 | 1.00 | ||||||||
Forfeited | (146,500 | ) | 0.96 | |||||||
Outstanding at December 31, 2003 | 1,175,000 | 0.94 | ||||||||
Granted | 273,500 | 1.00 | ||||||||
Forfeited | (56,000 | ) | 0.97 | |||||||
Outstanding at December 31, 2004 | 1,392,500 | 0.95 | ||||||||
Granted | 677,500 | 1.80 | ||||||||
Forfeited | (68,500 | ) | 1.01 | |||||||
Outstanding at June 30, 2005 (unaudited) | 2,001,500 | $ | 1.24 | |||||||
Options exercisable at: | ||||||||||
December 31, 2002 | 328,591 | 0.93 | ||||||||
December 31, 2003 | 496,966 | 0.94 | ||||||||
December 31, 2004 | 724,249 | $ | 0.95 | |||||||
June 30, 2005 (unaudited) | 870,375 | $ | 0.93 |
Options Outstanding | Weighted Average | |||||||||||
Remaining | ||||||||||||
Range of | Weighted Average | Contractual Life in | ||||||||||
Exercise Prices | Number Outstanding | Exercise Price | Years | |||||||||
$0.40 - $0.45 | 158,000 | $ | 0.44 | 3.8 | ||||||||
$0.60 - $0.85 | 153,000 | $ | 0.62 | 5.7 | ||||||||
$1.00 - $1.25 | 944,500 | $ | 1.00 | 8.6 | ||||||||
$1.60 - $1.80 | 137,000 | $ | 1.60 | 5.3 | ||||||||
1,392,500 | $ | 0.95 | 8.0 | |||||||||
Options Exercisable | ||||||||
Range of | Weighted Average | |||||||
Exercise Prices | Number Exercisable | Exercise Price | ||||||
$0.40 - $0.45 | 158,000 | $ | 0.44 | |||||
$0.60 - $0.85 | 121,125 | $ | 0.63 | |||||
$1.00 - $1.25 | 307,375 | $ | 1.00 | |||||
$1.60 - $1.80 | 137,000 | $ | 1.60 | |||||
724,249 | $ | 0.95 | ||||||
F-36
Table of Contents
19. | Retirement Plan |
20. | Business Segments |
F-37
Table of Contents
Six Months | |||||||||||||||||
Ended | Years Ended | ||||||||||||||||
June 30 | December 31 | ||||||||||||||||
2005 | |||||||||||||||||
(Unaudited) | 2004 | 2003 | 2002 | ||||||||||||||
Revenues: | |||||||||||||||||
Inpatient services | $ | 197,909 | $ | 353,085 | $ | 325,191 | $ | 298,246 | |||||||||
Rehabilitation therapy | 39,712 | 28,579 | 23,341 | 18,800 | |||||||||||||
Other | 42,567 | 50,983 | 30,767 | 21,329 | |||||||||||||
280,188 | 432,647 | 379,299 | 338,375 | ||||||||||||||
Intercompany revenues: | |||||||||||||||||
Rehabilitation therapy | (14,733 | ) | (24,280 | ) | (22,290 | ) | (18,455 | ) | |||||||||
Other | (18,074 | ) | (28,657 | ) | (24,456 | ) | (20,831 | ) | |||||||||
(32,807 | ) | (52,937 | ) | (46,746 | ) | (39,286 | ) | ||||||||||
Consolidated revenue | 247,381 | 379,710 | 332,553 | 299,089 | |||||||||||||
Operating margin: | |||||||||||||||||
Inpatient services | 40,282 | 70,742 | 55,121 | 56,243 | |||||||||||||
Rehabilitation therapy | 3,508 | 105 | 153 | 585 | |||||||||||||
Other | 8,507 | 3,308 | 2,783 | 1,738 | |||||||||||||
52,297 | 74,155 | 58,057 | 58,566 | ||||||||||||||
Intercompany operating margin: | |||||||||||||||||
Other | (15,511 | ) | (27,354 | ) | (24,045 | ) | (20,831 | ) | |||||||||
Consolidated operating margin | 36,786 | 46,801 | 34,012 | 37,735 | |||||||||||||
Lease expense | 9,651 | 20,555 | 21,921 | 19,098 | |||||||||||||
Depreciation and amortization | 6,969 | 10,430 | 10,468 | 7,835 | |||||||||||||
Interest | 7,984 | 8,482 | 8,908 | 8,910 | |||||||||||||
Income (loss) from continuing operations before taxes | $ | 12,182 | $ | 7,334 | $ | (7,285 | ) | $ | 1,892 | ||||||||
F-38
Table of Contents
21. | Earnings (Loss) Per Common Share |
Six Months | ||||||||||||||||||
Ended | Years Ended | |||||||||||||||||
June 30 2005 | December 31 | |||||||||||||||||
(Unaudited) | 2004 | 2003 | 2002 | |||||||||||||||
Numerator: | ||||||||||||||||||
Net income (loss) | $ | 7,891 | $ | 11,453 | $ | (11,485 | ) | $ | 1,234 | |||||||||
Unaccrued, undeclared convertible preferred stock dividends | (1,191 | ) | (1,582 | ) | (1,431 | ) | (1,174 | ) | ||||||||||
Unaccrued, undeclared redeemable preferred stock dividends | (3,177 | ) | (4,745 | ) | (4,292 | ) | (3,521 | ) | ||||||||||
Net income (loss) available to common stockholders for basic EPS | 3,523 | 5,126 | (17,208 | ) | (3,461 | ) | ||||||||||||
Dividends on convertible preferred stock | 1,191 | 1,582 | 1,431 | 1,174 | ||||||||||||||
Net income (loss) available to common stockholders for diluted EPS | $ | 4,714 | $ | 6,708 | $ | (15,777 | ) | $ | (2,287 | ) | ||||||||
Denominator: | ||||||||||||||||||
Weighted average shares outstanding for basic EPS | 1,504,239 | 1,374,317 | 1,232,760 | 1,232,760 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||
Convertible preferred stock | 14,708,318 | 11,650,680 | — | — | ||||||||||||||
Effect of dilutive stock options and warrants | 2,313,002 | 1,169,933 | — | — | ||||||||||||||
Shares used in computing diluted EPS | 18,525,559 | 14,194,930 | 1,232,760 | 1,232,760 | ||||||||||||||
Basic earnings (loss) per common share: | ||||||||||||||||||
Net income (loss) | $ | 2.34 | $ | 3.73 | $ | (13.96 | ) | $ | (2.81 | ) | ||||||||
Diluted earnings (loss) per common share: | ||||||||||||||||||
Net income (loss) | $ | 0.25 | $ | 0.47 | $ | (13.96 | ) | $ | (2.81 | ) | ||||||||
Six Months | ||||||||||||||||
Ended June 30 | Years Ended December 31 | |||||||||||||||
2005 | ||||||||||||||||
(Unaudited) | 2004 | 2003 | 2002 | |||||||||||||
Stock options | — | — | 1,744,798 | 1,795,091 | ||||||||||||
Warrants — Health Care REIT | — | — | 189,655 | 189,655 | ||||||||||||
Warrants — Smith-Packett | — | — | 126,344 | 94,758 | ||||||||||||
Warrants — Renacci | — | 100,000 | 100,000 | 100,000 |
F-39
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F-40
Table of Contents
KPMG LLP | |
Suite 200 | |
30 North Third Street | |
PO Box 1190 | |
Harrisburg, PA 17108-1190 |
Diakon Lutheran Social Ministries:
F-41
Table of Contents
April 30, | December 31, | December 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||||
Assets: | |||||||||||||||
Current assets: | |||||||||||||||
Cash and cash equivalents | $ | 6,400 | 6,400 | 6,350 | |||||||||||
Assets limited as to use — required for current liabilities | 289,552 | 398,048 | 854,920 | ||||||||||||
Accounts receivable (net of allowance for doubtful accounts of $1,005,185, $1,081,710 and $739,844): | |||||||||||||||
Patients and residents | 8,311,769 | 7,133,992 | 7,333,602 | ||||||||||||
Estimated third party payor settlements | 700,533 | 823,725 | 868,698 | ||||||||||||
Prepaid expenses | 542,370 | 202,436 | 243,999 | ||||||||||||
Other assets | 70,836 | 386,006 | — | ||||||||||||
Total current assets | 9,921,460 | 8,950,607 | 9,307,569 | ||||||||||||
Assets limited as to use, net of current portion | 4,164,368 | 4,316,461 | 4,723,405 | ||||||||||||
Land, buildings, and equipment, net | 28,783,922 | 29,404,630 | 31,200,768 | ||||||||||||
Other assets: | |||||||||||||||
Deferred debt issuance costs, net | 1,276,826 | 1,313,466 | 1,395,179 | ||||||||||||
Other assets | 4,990 | 4,990 | 2,042 | ||||||||||||
Total assets | $ | 44,151,566 | 43,990,154 | 46,628,963 | |||||||||||
Liabilities and Net Assets: | |||||||||||||||
Current liabilities: | |||||||||||||||
Accounts payable — trade | $ | 1,558,785 | 1,891,951 | 1,650,602 | |||||||||||
Accrued expenses | 1,687,305 | 1,176,913 | 2,327,999 | ||||||||||||
Deposits — patients and residents | 311,355 | 311,900 | 328,420 | ||||||||||||
Estimated third party payor settlements | 55,981 | 613,340 | 3,926 | ||||||||||||
Current maturities of long-term debt | 1,071,782 | 1,013,744 | 403,673 | ||||||||||||
Other current liabilities | 2,217,872 | 2,055,814 | 2,045,770 | ||||||||||||
Total current liabilities | 6,903,080 | 7,063,662 | 6,760,390 | ||||||||||||
Deferred revenue — entrance agreements | 2,586,820 | 2,920,023 | 2,680,899 | ||||||||||||
Pension liability | 568,706 | 580,799 | 582,294 | ||||||||||||
Accrued workers’ compensation | 2,717,830 | 2,071,231 | 1,687,010 | ||||||||||||
Swap agreements | 1,862,343 | 1,709,136 | 1,546,748 | ||||||||||||
Long-term debt, less current maturities | 22,356,028 | 23,167,309 | 24,198,484 | ||||||||||||
Total liabilities | 36,994,807 | 37,512,160 | 37,455,825 | ||||||||||||
Net assets: | |||||||||||||||
Net equity of Diakon/unrestricted | 7,149,058 | 6,417,284 | 9,145,802 | ||||||||||||
Temporarily restricted | 7,701 | 60,710 | 27,336 | ||||||||||||
Total net assets | 7,156,759 | 6,477,994 | 9,173,138 | ||||||||||||
Total liabilities and net assets | $ | 44,151,566 | 43,990,154 | 46,628,963 | |||||||||||
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Four Months | Year Ended | Year Ended | ||||||||||||
Ended April 30, | December 31, | December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||||
Operating revenues, gains and other support: | ||||||||||||||
Patient and resident service revenue, net of contractual allowances | $ | 24,768,677 | 72,887,550 | 67,514,397 | ||||||||||
Patient and resident service revenue — nursing home assessment (see note 3) | 9,620,661 | — | — | |||||||||||
Amortization of entrance fees | 58,384 | 302,581 | 114,975 | |||||||||||
Other fees and services | 101,245 | 320,156 | 280,817 | |||||||||||
Contributions and bequests | 9,441 | 302,055 | 172,252 | |||||||||||
Investment income, net of expenses | 4,992 | 13,048 | 74,625 | |||||||||||
Net assets released from restrictions — operations | 30,886 | 62,332 | 42,855 | |||||||||||
Total operating revenues, gains and other support | 34,594,286 | 73,887,722 | 68,199,921 | |||||||||||
Expenses: | ||||||||||||||
Salaries and wages | 9,819,319 | 28,603,103 | 28,469,769 | |||||||||||
Employee benefits and other staff costs | 2,942,461 | 9,142,998 | 8,636,057 | |||||||||||
General and administrative allocated costs | 2,516,888 | 8,126,178 | 7,821,940 | |||||||||||
Other expenses | 7,368,852 | 19,772,845 | 19,417,557 | |||||||||||
Nursing home assessment (see note 3) | 8,357,062 | — | — | |||||||||||
Interest | 352,721 | 1,092,718 | 1,075,623 | |||||||||||
Depreciation | 908,428 | 2,779,652 | 2,924,696 | |||||||||||
Total expenses | 32,265,731 | 69,517,494 | 68,345,642 | |||||||||||
Operating income (loss) | 2,328,555 | 4,370,228 | (145,721 | ) | ||||||||||
Loss from early extinguishment of debt | — | — | (449,508 | ) | ||||||||||
Decrease in fair value of swap agreements | (361,928 | ) | (560,264 | ) | (46,837 | ) | ||||||||
Excess (deficiency) of operating revenues, gains and other support over expenses | 1,966,627 | 3,809,964 | (642,066 | ) | ||||||||||
Other changes: | ||||||||||||||
Net assets released from restrictions — capital | 48,685 | 10,857 | 17,485 | |||||||||||
(Increase) decrease in minimum pension liability | — | (112,975 | ) | 593,532 | ||||||||||
(Increase) decrease in fair value of swap agreements | 208,721 | 397,876 | 347,831 | |||||||||||
Transfer (to) from Diakon | (1,492,259 | ) | (6,834,240 | ) | 104,393 | |||||||||
Total other changes | (1,234,853 | ) | (6,538,482 | ) | 1,063,241 | |||||||||
Increase (decrease) in net equity of Diakon unrestricted | 731,774 | (2,728,518 | ) | 421,175 | ||||||||||
Temporarily restricted net assets: | ||||||||||||||
Contributions and bequests | $ | 26,562 | 106,563 | 76,507 | ||||||||||
Net assets released from restrictions — operations | (30,886 | ) | (62,332 | ) | (42,855 | ) | ||||||||
Net assets released from restrictions — capital | (48,685 | ) | (10,857 | ) | (17,485 | ) | ||||||||
(Decrease) increase in temporarily restricted net assets | (53,009 | ) | 33,374 | 16,167 | ||||||||||
Increase (decrease) in net assets | 678,765 | (2,695,144 | ) | 437,342 | ||||||||||
Net assets, beginning of period | 6,477,994 | 9,173,138 | 8,735,796 | |||||||||||
Net assets, end of period | $ | 7,156,759 | 6,477,994 | 9,173,138 | ||||||||||
F-43
Table of Contents
Four Months | Year Ended | Year Ended | |||||||||||||
Ended April 30, | December 31, | December 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||||
Cash flows from operating activities: | |||||||||||||||
Increase (decrease) in net assets | $ | 678,765 | (2,695,144 | ) | 437,342 | ||||||||||
Adjustments to reconcile increase (decrease) in net assets to net cash provided by operating activities: | |||||||||||||||
Depreciation and amortization | 945,068 | 2,861,365 | 2,924,696 | ||||||||||||
Amortization of entrance fees | (58,384 | ) | (302,581 | ) | (114,975 | ) | |||||||||
Gain (loss) on swap agreements | 153,207 | 162,388 | (300,994 | ) | |||||||||||
Loss from early extinguishment of debt | — | — | 449,508 | ||||||||||||
Restricted contributions and bequests | (26,562 | ) | (106,563 | ) | (76,507 | ) | |||||||||
Change in minimum pension liability | — | 112,975 | (593,532 | ) | |||||||||||
Provision for bad debts | 121,365 | 659,310 | 593,445 | ||||||||||||
Transfer to Diakon | 1,492,259 | 6,834,240 | (104,393 | ) | |||||||||||
Change in assets and liabilities: | |||||||||||||||
Accounts receivable | (1,299,142 | ) | (459,700 | ) | 49,378 | ||||||||||
Estimated third party payor settlements | (434,167 | ) | 654,387 | (823,011 | ) | ||||||||||
Prepaid expenses and other current assets | (24,764 | ) | (344,443 | ) | 103,826 | ||||||||||
Other assets | — | (2,948 | ) | (450,253 | ) | ||||||||||
Workers’ compensation | 831,108 | 377,435 | 374,358 | ||||||||||||
Accounts payable, accrued expenses and other liabilities | 142,682 | (1,007,377 | ) | 137,684 | |||||||||||
Deposits — patients and residents | (545 | ) | (16,520 | ) | 68,636 | ||||||||||
Net cash provided by operating activities | 2,520,890 | 6,726,824 | 2,675,208 | ||||||||||||
Cash flows from investing activities: | |||||||||||||||
Changes in assets limited as to use, net | 260,589 | 863,816 | (1,574,394 | ) | |||||||||||
Purchase of property and equipment | (287,720 | ) | (983,514 | ) | (1,308,673 | ) | |||||||||
Net cash used in investing activities | (27,131 | ) | (119,698 | ) | (2,883,067 | ) | |||||||||
Cash flows from financing activities: | |||||||||||||||
Payment of long-term debt | (753,243 | ) | (421,104 | ) | (11,300,195 | ) | |||||||||
Proceeds from issuance of debt | — | — | 11,442,000 | ||||||||||||
Payment of bond issuance costs | — | — | (318,695 | ) | |||||||||||
Proceeds from restricted contributions | 26,562 | 106,563 | 76,507 | ||||||||||||
Transfers to Diakon | (1,492,259 | ) | (6,834,240 | ) | 104,394 | ||||||||||
Proceeds from entrance fees | — | 654,522 | 941,286 | ||||||||||||
Refunds on entrance fees | (274,819 | ) | (112,817 | ) | (737,388 | ) | |||||||||
Net cash (used in) provided by financing activities | (2,493,759 | ) | (6,607,076 | ) | 207,909 | ||||||||||
Net increase in cash and cash equivalents | — | 50 | 50 | ||||||||||||
Cash and cash equivalents, beginning of year | 6,400 | 6,350 | 6,300 | ||||||||||||
Cash and cash equivalents, end of year | $ | 6,400 | 6,400 | 6,350 | |||||||||||
F-44
Table of Contents
(1) | Summary of Significant Accounting Policies |
(a) | Background and Basis of Presentation |
Assisted Living | Independent | ||||||||||||
Nursing Beds | Beds | Living Units | |||||||||||
Penn Lutheran Village | 159 | — | 64 | ||||||||||
Locust Grove Retirement Village | 79 | — | 14 | ||||||||||
St. Luke Village | 224 | — | 28 | ||||||||||
Luther Ridge at Seiders Hill | — | 104 | — | ||||||||||
Perry Village | 123 | — | — | ||||||||||
Susquehanna Lutheran Village | 194 | — | 10 | ||||||||||
Pennknoll Village | 133 | — | — | ||||||||||
Frostburg Village of Alleghany County | 122 | 33 | — | ||||||||||
The Lutheran Village at Harbor Pointe | — | 40 | 12 | ||||||||||
Total | 1,034 | 177 | 128 | ||||||||||
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Table of Contents
(b) | Basis of Combination |
(c) | Basis of Accounting |
Permanently restricted net assetsare net assets subject to donor-imposed stipulations that are required to be maintained permanently by the Acquired Facilities. Generally, the donors of these assets permit the institution to use all or part of the income earned on related investments for general or specific purposes. There were no such net assets attributable to the Acquired Facilities. | |
Temporarily restricted net assetsare net assets subject to donor-imposed stipulations that may or will be met by actions of the Acquired Facilities and/or the passage of time. | |
Net equity of Diakon —unrestrictedis net equity not subject to donor-imposed stipulations and as the Acquired Facilities are operating divisions, the net equity of Diakon in the Acquired Facilities is classified as Net equity of Diakon — unrestricted in the combined balance sheet at the end of each period presented and represents unrestricted net assets. |
(d) | Contributions and Donor Restrictions |
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Table of Contents
(e) | Assets Limited as to Use |
(f) | Net Patient and Resident Services Revenue |
(g) | Charity Care |
F-47
Table of Contents
2005 | 2004 | 2003 | ||||||||||
Charity care in support of those in need | $ | 52,985 | 214,302 | 168,615 | ||||||||
(h) | Investments and Investment Income |
Land improvements | 10 to 25 years | |
Buildings | 10 to 40 years | |
Furniture and equipment | 3 to 20 years | |
Vehicles | 4 to 7 years | |
Leasehold improvements | 7 to 15 years |
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Table of Contents
F-49
Table of Contents
(r) | Use of Estimates |
(s) | Obligation to Provide Future Services to Continuing Care Residents |
(t) | Derivative Instruments |
(u) | Impairment of Long-Lived Assets |
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Table of Contents
(v) | Future Accounting Pronouncements |
(2) | Assets Limited as to Use |
April 30, | December 31, | December 31, | |||||||||||
2005 | 2004 | 2003 | |||||||||||
Under bond indentures | $ | 4,161,405 | 4,312,766 | 4,720,916 | |||||||||
Under agreement with U.S. government agencies as mortgagors | 2,963 | 3,695 | 2,489 | ||||||||||
Workers’ compensation trust | 11,498 | 139,441 | 594,086 | ||||||||||
Resident Custodial Funds | 278,054 | 258,607 | 260,834 | ||||||||||
Total assets limited as to use | 4,453,920 | 4,714,509 | 5,578,325 | ||||||||||
Less assets limited as to use required for current liabilities | 289,552 | 398,048 | 854,920 | ||||||||||
Noncurrent — assets limited as to use | $ | 4,164,368 | 4,316,461 | 4,723,405 | |||||||||
(3) | Third Party Reimbursement |
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Table of Contents
Revenues | Expenses | |||||||
July 1, 2003 — December 31, 2003 | $ | 2,705,394 | 2,241,783 | |||||
January 1, 2004 — December 31, 2004 | 5,192,687 | 4,559,854 | ||||||
January 1, 2005 — April 30, 2005 | 1,722,580 | 1,555,425 | ||||||
$ | 9,620,661 | 8,357,062 | ||||||
(4) | Deposits — Patients and Residents |
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Table of Contents
(5) | Land, Buildings, and Equipment |
2005 | 2004 | 2003 | ||||||||||
Land | $ | 1,869,630 | 1,869,630 | 1,869,630 | ||||||||
Land improvements | 6,282,291 | 6,257,455 | 6,122,934 | |||||||||
Buildings | 41,171,230 | 41,171,230 | 41,178,964 | |||||||||
Building improvements | 3,635,294 | 3,418,935 | 3,011,234 | |||||||||
Furniture and equipment | 13,731,251 | 13,632,740 | 13,294,694 | |||||||||
Vehicles | 626,588 | 626,588 | 572,734 | |||||||||
67,316,284 | 66,976,578 | 66,050,190 | ||||||||||
Accumulated depreciation | (38,532,362 | ) | (37,642,222 | ) | (34,925,323 | ) | ||||||
28,783,922 | 29,334,356 | 31,124,867 | ||||||||||
Construction in progress | — | 70,274 | 75,901 | |||||||||
$ | 28,783,922 | 29,404,630 | 31,200,768 | |||||||||
(6) | Long-term Debt |
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December 31, | December 31, | ||||||||||||
April 30, 2005 | 2004 | 2003 | |||||||||||
Bonds payable — Series A 2003 | $ | 1,087,000 | 1,107,000 | 1,107,000 | |||||||||
(interest at 3.05% at April 30, 2005) | |||||||||||||
Bonds payable — Series B 2003 | 1,710,000 | 2,268,000 | 2,268,000 | ||||||||||
(interest at 3.08% at April 30, 2005) | |||||||||||||
Bonds payable — Series D 2003 | 5,637,000 | 5,637,000 | 5,648,000 | ||||||||||
(interest at 3.05% at April 30, 2005) | |||||||||||||
Bonds payable — Series E 2003 | 2,410,000 | 2,419,000 | 2,419,000 | ||||||||||
(interest at 3.02% at April 30, 2005) | |||||||||||||
Bonds payable — Series A 1998 | 12,498,000 | 12,663,000 | 13,063,000 | ||||||||||
(interest at 3.00% at April 30, 2005) | |||||||||||||
Mortgages payable: | |||||||||||||
U.S. government agencies | 85,810 | 87,053 | 97,157 | ||||||||||
23,427,810 | 24,181,053 | 24,602,157 | |||||||||||
Current maturities | (1,071,782 | ) | (1,013,744 | ) | (403,673 | ) | |||||||
$ | 22,356,028 | 23,167,309 | 24,198,484 | ||||||||||
2006 | $ | 1,071,782 | ||
2007 | 1,103,995 | |||
2008 | 1,105,995 | |||
2009 | 632,597 | |||
2010 | 657,758 | |||
Thereafter | 18,855,683 | |||
$ | 23,427,810 | |||
(a) | Bonds Payable — 2003 |
• | Series A — $5,555,000 of tax exempt variable rate demand bonds secured by a letter of credit that expires September 29, 2008 issued by Wachovia Bank, National Association ($1,087,000 allocated to the Acquired Facilities at April 30, 2005) | |
• | Series B — $3,375,000 of taxable variable rate demand bonds secured by a letter of credit that expires September 29, 2008 issued by Wachovia Bank, National Association ($1,710,000 allocated to the Acquired Facilities at April 30, 2005) | |
• | Series D — $43,000,000 of tax exempt auction (variable) rate certificates insured by Radian Asset Assurance, Inc. until maturity ($5,637,000 allocated to the Acquired Facilities at April 30, 2005) |
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Table of Contents
• | Series E — $20,465,000 of tax exempt variable rate demand bonds secured by a letter of credit ($2,410,000 allocated to the Acquired Facilities at April 30, 2005) |
(b) | Bonds Payable — 1998 |
(c) | Mortgages Payable |
(d) | Interest |
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Table of Contents
(7) | Derivative Instruments |
F-56
Table of Contents
Within | Outside | |||||||||||
performance | performance | |||||||||||
indicator | indicator | Total | ||||||||||
Accumulated Swap Liability, January 1, 2003 | $ | — | (1,847,742 | ) | (1,847,742 | ) | ||||||
Series A 1993 Bonds | — | 73,636 | 73,636 | |||||||||
Series A 1998 Bonds | — | 274,195 | 274,195 | |||||||||
Series D 2003 Bonds | (46,837 | ) | — | (46,837 | ) | |||||||
2003 change in fair value | (46,837 | ) | 347,831 | 300,994 | ||||||||
Accumulated Swap Liability, December 31, 2003 | (46,837 | ) | (1,499,911 | ) | (1,546,748 | ) | ||||||
Series A 1993 Bonds | (97,895 | ) | 101,185 | 3,290 | ||||||||
Series A 1998 Bonds | (382,609 | ) | 296,691 | (85,918 | ) | |||||||
Series D 2003 Bonds | (79,760 | ) | — | (79,760 | ) | |||||||
2004 change in fair value | (560,264 | ) | 397,876 | (162,388 | ) | |||||||
Accumulated Swap Liability, December 31, 2004 | $ | (607,101 | ) | (1,102,035 | ) | (1,709,136 | ) | |||||
Series A 1993 Bonds | (60,922 | ) | 62,908 | 1,986 | ||||||||
Series A 1998 Bonds | (223,989 | ) | 145,813 | (78,176 | ) | |||||||
Series D 2003 Bonds | (77,017 | ) | — | (77,017 | ) | |||||||
2004 change in fair value | (361,928 | ) | 208,721 | (153,207 | ) | |||||||
Accumulated Swap Liability, April 30, 2005 | $ | (969,029 | ) | (893,314 | ) | (1,862,343 | ) | |||||
(8) | Pension Plans |
F-57
Table of Contents
(9) | Accrued Expenses |
April 30, | December 31, | December 31, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Accrued payroll | $ | 1,677,176 | 1,011,899 | 1,826,227 | ||||||||
Accrued health insurance | — | 82,852 | 495,404 | |||||||||
Other accrued expenses | 10,129 | 82,162 | 6,368 | |||||||||
Total accrued expenses | $ | 1,687,305 | 1,176,913 | 2,327,999 | ||||||||
April 30, | December 31, | December 31, | ||||||||||
2005 | 2004 | 2003 | ||||||||||
Current portion of pension liability | $ | 1,123,260 | 1,132,343 | 1,112,680 | ||||||||
Current portion of accrued workers’ compensation | 989,987 | 805,478 | 812,264 | |||||||||
Other accrued liabilities | 104,625 | 117,993 | 120,826 | |||||||||
Total other current liabilities | $ | 2,217,872 | 2,055,814 | 2,045,770 | ||||||||
(10) | Temporarily Restricted Net Assets |
(11) | Medical Malpractice Claims Coverage |
(12) | Self-Insurance |
F-58
Table of Contents
(13) | Transactions with Affiliated Organizations and Individuals |
(14) | Commitments and Contingencies |
F-59
Table of Contents
Balance at | Additions | Balance at | ||||||||||||||
Beginning of | Charged to | End of | ||||||||||||||
Period | Expense | Deductions | Period | |||||||||||||
For the year ended December 31, 2003 | $ | 672,305 | 593,445 | (525,906 | ) | 739,844 | ||||||||||
For the year ended December 31, 2004 | 739,844 | 659,310 | (317,444 | ) | 1,081,710 | |||||||||||
For the four months ended April 30, 2005 | 1,081,710 | 121,365 | (197,890 | ) | 1,005,185 |
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Table of Contents
/s/Ernst & Young LLP |
F-61
Table of Contents
December 31 | ||||||||||
2004 | 2003 | |||||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 2,816,588 | $ | 3,267,389 | ||||||
Accounts receivable — trade (net of allowances of $3,047,833 for 2004 and $1,921,940 for 2003) | 15,854,365 | 12,337,219 | ||||||||
Other receivables (employee and affiliates) | 21,534 | 348,381 | ||||||||
Prepaid expenses and other current assets | 274,968 | 325,247 | ||||||||
Total current assets | 18,967,455 | 16,278,236 | ||||||||
Property and equipment, net | 2,437,476 | 1,971,492 | ||||||||
Investments in affiliates | 37,683 | 51,551 | ||||||||
Notes receivable from affiliates | — | 10,000 | ||||||||
Other noncurrent assets | 18,056 | 13,869 | ||||||||
Total assets | $ | 21,460,670 | $ | 18,325,148 | ||||||
Liabilities and equity | ||||||||||
Current liabilities: | ||||||||||
Current portion of notes and capital leases payable | $ | 374,078 | $ | 180,616 | ||||||
Accounts payable and accrued expenses | 2,349,622 | 1,199,661 | ||||||||
Accrued payroll and benefits | 2,394,788 | 1,557,707 | ||||||||
Accrued bonus for officer and principal owner | 3,392,929 | — | ||||||||
Due to third-party reimbursement intermediary | 1,097,742 | 225,682 | ||||||||
Total current liabilities | 9,609,159 | 3,163,666 | ||||||||
Long-term liabilities: | ||||||||||
Notes and capital lease payable, net of current portion | 708,558 | 281,867 | ||||||||
Total liabilities | 10,317,717 | 3,445,533 | ||||||||
Equity: | ||||||||||
Common stock, 50,000 shares authorized, $1 par value, 10,000 shares issued and outstanding | 10,000 | 10,000 | ||||||||
Retained earnings | 9,142,816 | 12,899,023 | ||||||||
General Partner’s equity | 21,292 | 27,802 | ||||||||
Limited Partners’ equity | 1,968,845 | 1,942,790 | ||||||||
Total equity | 11,142,953 | 14,879,615 | ||||||||
Total liabilities and equity | $ | 21,460,670 | $ | 18,325,148 | ||||||
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Table of Contents
Years Ended December 31 | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Net service revenue | $ | 63,038,468 | $ | 55,527,066 | $ | 50,022,992 | |||||||
Expenses: | |||||||||||||
Costs of operations | 37,419,726 | 33,117,038 | 29,322,890 | ||||||||||
General and administrative | 20,234,402 | 14,249,906 | 11,915,629 | ||||||||||
Provision for doubtful accounts | 2,521,055 | 1,794,889 | 2,695,288 | ||||||||||
Operating lease expense | 352,225 | 373,654 | 323,884 | ||||||||||
Interest expense | 52,518 | 25,807 | 86,674 | ||||||||||
Depreciation and amortization | 549,173 | 450,577 | 389,719 | ||||||||||
Total costs and expenses | 61,129,099 | 50,011,871 | 44,734,084 | ||||||||||
Operating income | 1,909,369 | 5,515,195 | 5,288,908 | ||||||||||
Other income (loss): | |||||||||||||
Interest income | 24,422 | 15,194 | 7,860 | ||||||||||
(Loss)income from investments in affiliates | (45,253 | ) | (84,573 | ) | 80,932 | ||||||||
Total other (loss) income | (20,831 | ) | (69,379 | ) | 88,792 | ||||||||
Income before income taxes | 1,888,538 | 5,445,816 | 5,377,700 | ||||||||||
State income tax provision | 79,357 | 115,836 | 53,239 | ||||||||||
Net income | $ | 1,809,181 | $ | 5,329,980 | $ | 5,324,461 | |||||||
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Common Stock | General | Limited | ||||||||||||||||||||||
Retained | Partner’s | Partners’ | ||||||||||||||||||||||
Shares | Amount | Earnings | Equity | Equity | Total | |||||||||||||||||||
Balance at December 31, 2001 | 10,000 | $ | 10,000 | $ | 8,156,754 | $ | 12,091 | $ | 565,146 | $ | 8,743,991 | |||||||||||||
Net income | — | — | $ | 4,028,951 | $ | 21,765 | $ | 1,273,745 | $ | 5,324,461 | ||||||||||||||
Less distributions to stockholders and partners | — | — | $ | (573,793 | ) | $ | (2,940 | ) | $ | (128,312 | ) | $ | (705,045 | ) | ||||||||||
Balance at December 31, 2002 | 10,000 | $ | 10,000 | $ | 11,611,912 | $ | 30,916 | $ | 1,710,579 | $ | 13,363,407 | |||||||||||||
Net income | — | — | $ | 3,857,618 | $ | 24,736 | $ | 1,447,626 | $ | 5,329,980 | ||||||||||||||
Less distributions to stockholders and partners | — | — | $ | (2,570,507 | ) | $ | (27,850 | ) | $ | (1,215,415 | ) | $ | (3,813,772 | ) | ||||||||||
Balance at December 31, 2003 | 10,000 | $ | 10,000 | $ | 12,899,023 | $ | 27,802 | $ | 1,942,790 | $ | 14,879,615 | |||||||||||||
Net income | — | — | $ | 568,635 | $ | 20,841 | $ | 1,219,705 | $ | 1,809,181 | ||||||||||||||
Less distributions to stockholders and partners | — | — | $ | (4,324,842 | ) | $ | (27,351 | ) | $ | (1,193,650 | ) | $ | (5,545,844 | ) | ||||||||||
Balance at December 31, 2004 | 10,000 | $ | 10,000 | $ | 9,142,816 | $ | 21,292 | $ | 1,968,845 | $ | 11,142,953 | |||||||||||||
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Years Ended December 31 | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
Operating activities | ||||||||||||||
Net income | $ | 1,809,181 | $ | 5,329,980 | $ | 5,324,461 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization | 549,173 | 450,577 | 389,719 | |||||||||||
Provision for doubtful accounts | 2,521,055 | 1,794,889 | 2,695,288 | |||||||||||
Gain on equipment dispositions | (4,858 | ) | (2,128 | ) | (9,139 | ) | ||||||||
Loss (income) from investments in affiliates | 45,253 | 84,573 | (80,932 | ) | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Accounts receivable | (6,038,201 | ) | (2,113,681 | ) | (4,829,105 | ) | ||||||||
Other receivables (employee and affiliates) | 326,847 | (286,867 | ) | (61,514 | ) | |||||||||
Prepaid expenses and other current assets | 50,279 | (138,559 | ) | (135,444 | ) | |||||||||
Accounts payable and accrued expenses | 1,149,961 | 188,750 | (207,699 | ) | ||||||||||
Accrued payroll and benefits | 837,081 | (592,441 | ) | 276,567 | ||||||||||
Accrued bonus for officer and principal owner | 3,392,929 | — | — | |||||||||||
Due to third-party reimbursement intermediary | 872,060 | 178,774 | 46,908 | |||||||||||
Net cash provided by operating activities | 5,510,760 | 4,893,867 | 3,409,110 | |||||||||||
Investing activities | ||||||||||||||
Purchase of property and equipment, net | (154,679 | ) | (416,000 | ) | (177,908 | ) | ||||||||
Net change in investment in affiliates and notes receivable from affiliates | (21,385 | ) | (97,125 | ) | 52,112 | |||||||||
Change in other noncurrent assets | (4,187 | ) | (1,250 | ) | 3,182 | |||||||||
Net cash used in investing activities | (180,251 | ) | (514,375 | ) | (122,614 | ) | ||||||||
Financing activities | ||||||||||||||
Principal payments on notes and capital leases payable | (235,467 | ) | (223,077 | ) | (144,124 | ) | ||||||||
Line-of-credit proceeds | 1,782,200 | 1,650,000 | — | |||||||||||
Payments on line-of-credit | (1,782,200 | ) | (1,650,000 | ) | — | |||||||||
Distributions to partners and stockholders | (5,545,843 | ) | (3,813,772 | ) | (705,045 | ) | ||||||||
Net cash used in financing activities | (5,781,310 | ) | (4,036,849 | ) | (849,169 | ) | ||||||||
Net (decrease) increase in cash and equivalents | (450,801 | ) | 342,643 | 2,437,327 | ||||||||||
Cash and equivalents, beginning of year | 3,267,389 | 2,924,746 | 487,419 | |||||||||||
Cash and equivalents, end of year | $ | 2,816,588 | $ | 3,267,389 | $ | 2,924,746 | ||||||||
Supplemental disclosures of cash flow information | ||||||||||||||
Cash paid during the year for: | ||||||||||||||
Interest | $ | 49,363 | $ | 26,608 | $ | 85,556 | ||||||||
State income taxes | $ | 168,316 | $ | 102,277 | $ | 22,261 | ||||||||
Noncash investing and financing activities: | ||||||||||||||
Assets acquired through term notes and capital lease | $ | 855,620 | $ | 172,060 | $ | 510,782 | ||||||||
Term notes and capital lease obligation | $ | (855,620 | ) | $ | (172,060 | ) | $ | (510,782 | ) | |||||
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1. | The Company |
2. | Summary of Significant Accounting Policies |
Basis of Presentation and Consolidation |
Use of Estimates |
Cash and Cash Equivalents |
Accounts Receivable and Allowance for Doubtful Accounts |
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Other receivables |
Property and Equipment, Net |
Investments in Affiliates |
Ownership | ||||
The Home Dental Management Group, LLC | 25% | |||
The Home Services and Staffing Group, LLC (prior to consolidation in July 2004) | 50% | |||
The Home Services Care Group, LLC (prior to consolidation in July 2004) | 50% |
Net Service Revenue |
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Gross | ||||||||||||||||||||
Net Revenue For the | Accounts | |||||||||||||||||||
Year Ended | Receivable at | |||||||||||||||||||
December 31 | December 31 | |||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | ||||||||||||||||
Therapy services | 65 | % | 66 | % | 65 | % | 59 | % | 65 | % | ||||||||||
Diagnostic services | 22 | 23 | 25 | 17 | 19 | |||||||||||||||
Hospice | 13 | 11 | 10 | 24 | 16 |
Costs of Operations |
Advertising Expense |
Income Tax |
Fair Value of Financial Instruments |
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Recently Issued Accounting Standards |
3. | Property and equipment, net |
December 31 | ||||||||||||
Description | Useful life | 2004 | 2003 | |||||||||
Equipment and furnishings | 4-7 years | $ | 2,996,329 | $ | 2,505,772 | |||||||
Automobiles and trucks | 4-7 years | 1,544,412 | 1,151,711 | |||||||||
Leasehold improvements | 10 years | 595,788 | 583,132 | |||||||||
Software | 3 years | 44,154 | 44,154 | |||||||||
Less accumulated depreciation | (2,743,207 | ) | (2,313,277 | ) | ||||||||
Property and equipment, net | $ | 2,437,476 | $ | 1,971,492 | ||||||||
4. | Lines of Credit |
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5. | Notes Payable and Capital Lease Payable |
December 31 | ||||||||
2004 | 2003 | |||||||
Term note, with monthly principal payments of $10,208, plus interest at the bank’s prime rate. The note is secured by vehicles of the Company, and is due July 23, 2006 | $ | 147,371 | $ | 269,851 | ||||
Term note, with monthly principal payments of $433, plus interest at the bank’s prime rate. The note is secured by a vehicle of the Company and is due November 26, 2006 | 10,377 | 15,140 | ||||||
Term notes, with monthly payments totaling $20,556 in 2004 and $3,815 in 2003, including interest at the bank’s prime rate. The notes are secured by vehicles of the Company, and are due between July and November 2007 | 919,511 | 158,262 | ||||||
Capital lease, with monthly payments of $1,332, including interest at 14.786%. The lease is secured by the leased assets of the Company and expires May 13, 2005 | 5,377 | 19,230 | ||||||
1,082,636 | 462,483 | |||||||
Less current portion | (374,078 | ) | (180,616 | ) | ||||
Long-term portion | $ | 708,558 | $ | 281,867 | ||||
Fiscal Year | Amount | |||
2005 | $ | 374,078 | ||
2006 | 277,265 | |||
2007 | 224,483 | |||
2008 | 206,810 | |||
Total | $ | 1,082,636 | ||
6. | Commitments and Contingencies |
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Fiscal Year | Amount | |||
2005 | $ | 231,141 | ||
2006 | 84,791 | |||
2007 | 69,185 | |||
2008 | 65,506 | |||
2009 | 67,475 | |||
Thereafter | 69,498 | |||
Total | $ | 587,596 | ||
7. | Concentration of Credit Risk and Major Customers and Suppliers |
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Gross | ||||||||||||||||||||
Net Revenue For | Accounts | |||||||||||||||||||
the Year Ended | Receivable at | |||||||||||||||||||
December 31 | December 31 | |||||||||||||||||||
2004 | 2003 | 2002 | 2004 | 2003 | ||||||||||||||||
Medicare/ Medicaid | 35 | % | 33 | % | 33 | % | 39 | % | 35 | % | ||||||||||
Nursing Homes | 64 | 66 | 66 | 60 | 64 | |||||||||||||||
Other | 1 | 1 | 1 | 1 | 1 |
8. | 401(k) Plan |
9. | Related Party Transactions |
10. | Sale of Operations |
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Table of Contents
Item 13. | Other Expenses of Issuance and Distribution. |
Securities and Exchange Commission registration fee | $ | 16,920 | ||
National Association of Securities Dealers, Inc. filing fee | 14,875 | |||
Transfer Agent’s fees and expenses | * | |||
Printing and engraving expenses | * | |||
Legal fees and expenses | * | |||
Legal fees and expenses for selling shareholders’ counsel | * | |||
Director and officer insurance premium | * | |||
Blue sky fees and expenses | * | |||
Nasdaq National Market listing fee | * | |||
Accountants’ fees and expenses | * | |||
Miscellaneous | * | |||
Total Expenses | $ | |||
* | To be provided by amendment. |
Item 14. | Indemnification of Directors and Officers. |
Item 15. | Recent Sales of Unregistered Securities. |
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Item 16. | Exhibits and Financial Statement Schedules. |
Exhibit | ||||
Number | Description | |||
1 | .1* | Form of Underwriting Agreement. | ||
3 | .1 | Fifth Amended and Restated Articles of Incorporation. | ||
3 | .2* | Form of Amended and Restated Articles of Incorporation. | ||
3 | .3 | Amended and Restated By-laws. | ||
3 | .4* | Form of Amended and Restated By-laws. | ||
4 | .1* | Form of Common Stock Certificate. | ||
5 | .1* | Opinion of Buchanan Ingersoll PC. | ||
10 | .1 | Registration Rights Agreement, dated March 25, 1998, by and among Tandem Health Care, Inc. and certain of its shareholders. | ||
10 | .2 | Registration Rights Agreement, dated March 1, 2000, by and between Tandem Health Care, Inc. and the James B. Renacci Trust — 1998. | ||
10 | .3 | Registration Rights Agreement, dated September 8, 2005, by and between Tandem Health Care, Inc. and Health Care REIT, Inc. | ||
10 | .4 | Securities Purchase Agreement by and among Tandem Health Care, Inc., Behrman Capital II L.P., Strategic Entrepreneur Fund II, L.P. and Robert W. Gluskin dated as of April 26, 2005. | ||
10 | .5 | Warrant, dated September 8, 2005, by and between Tandem Health Care, Inc. and Health Care REIT, Inc. | ||
10 | .6 | Stockholders Agreement, dated March 25, 1998, by and among Tandem Health Care, Inc. and certain of its shareholders. | ||
10 | .7 | Omnibus Amendment and Waiver Agreement dated April 26, 2000 by and among Tandem Health Care, Inc., Lawrence R. Deering, Joseph D. Conte, Glen A. Tobias, Behrman Capital II L.P. and Strategic Entrepreneur Fund II, L.P. |
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Exhibit | ||||
Number | Description | |||
10 | .8 | Omnibus Amendment and Waiver Agreement dated April 26, 2005 by and among Tandem Health Care, Inc., Lawrence R. Deering, Lawrence R. Deering Grantor Retained Annuity Trust, Joseph D. Conte, Glen A. Tobias, Robert W. Gluskin, Behrman Capital II L.P. and Strategic Entrepreneur Fund II, L.P. | ||
10 | .9 | Financial Advisor Letter dated March 25, 1998 by and between Tandem Health Care, Inc. and Behrman Brothers Management Corp. | ||
10 | .10 | Financial Advisory Agreement dated August 24, 2005, by and between Tandem Health Care, Inc. and Behrman Brothers Management Corp. | ||
10 | .11 | Tandem Health Care, Inc. 1998 Stock Option and Restricted Stock Purchase Plan. | ||
10 | .12* | Tandem Health Care, Inc. 2005 Stock Incentive Plan. | ||
10 | .13* | Tandem Health Care, Inc. 2005 Employee Stock Purchase Plan. | ||
10 | .14 | Employment Agreement between Tandem Health Care, Inc. and Lawrence R. Deering dated as of March 25, 1998. | ||
10 | .15 | Employment Agreement between Tandem Health Care, Inc. and Joseph D. Conte dated as of March 25, 1998. | ||
10 | .16 | Employment Agreement between Tandem Health Care, Inc. and Eugene R. Curcio dated as of March 29, 2003. | ||
10 | .17 | Employment Agreement between Tandem Health Care, Inc. and Rosemary L. Corsetti dated as of July 1, 2003. | ||
10 | .18 | Letter Agreement between Tandem Health Care, Inc. and Marie M. Graul dated March 17, 2005. | ||
10 | .19 | Letter Agreement between Tandem Health Care, Inc. and Philip Hertik dated February 10, 2005. | ||
10 | .20 | Agreement dated as of March 25, 1998 by and among Tandem Health Care, Inc., Health Care REIT, Inc., Behrman Capital II L.P., Strategic Entrepreneur Fund II, L.P., Lawrence R. Deering and Joseph D. Conte. | ||
10 | .21 | Agreement dated as of January 18, 1999 by and among Tandem Health Care, Inc., Health Care REIT, Inc., Behrman Capital II L.P., Strategic Entrepreneur Fund II, L.P., Lawrence R. Deering and Joseph D. Conte. | ||
10 | .22 | Asset Purchase Agreement by and among OP Therapy, Inc. and The Mobile Medical Group, Inc. dated as of October 28, 2004. | ||
10 | .23 | First Amendment to Asset Purchase Agreement by and among OP Therapy, Inc. and The Mobile Medical Group, Inc. dated as of October 28, 2004. | ||
10 | .24 | Asset Purchase Agreement by and among OP Hospice, Inc. and Lighthouse Hospice Limited Partnership dated as of October 28, 2004. | ||
10 | .25 | First Amendment to Asset Purchase Agreement by and among OP Hospice, Inc. and Lighthouse Hospice Limited Partnership dated as of October 28, 2004. | ||
10 | .26 | Asset Purchase Agreement by and among Diakon Lutheran Social Ministries, Tressler Lutheran Services, The Lutheran Welfare Service of Northeastern Pennsylvania, The Lutheran Home at Topton Pennsylvania, Susquehanna Housing, Inc., RE Selinsgrove, LLC, RE Mifflin, LLC, RE Hazleton, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Frostburg, LLC, RE Salisbury, LLC, OP Selinsgrove, LLC, OP Mifflin, LLC, OP Hazleton, LLC, OP Hazleton II, LLC, OP Pottsville, LLC, OP New Bloomfield, LLC, OP Millersburg, LLC, OP Everett, LLC, OP Frostburg, LLC, OP Salisbury, LLC dated as of February 15, 2005. |
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Exhibit | ||||
Number | Description | |||
10 | .27 | First Amendment to Asset Purchase Agreement by and among Diakon Lutheran Social Ministries, Tressler Lutheran Services, The Lutheran Welfare Service of Northeastern Pennsylvania, The Lutheran Home at Topton Pennsylvania, Susquehanna Housing, Inc., RE Selinsgrove, LLC, RE Mifflin, LLC, RE Hazleton, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Frostburg, LLC, RE Salisbury, LLC, OP Selinsgrove, LLC, OP Mifflin, LLC, OP Hazleton, LLC, OP Hazleton II, LLC, OP Pottsville, LLC, OP New Bloomfield, LLC, OP Millersburg, LLC, OP Everett, LLC, OP Frostburg, LLC, OP Salisbury, LLC dated as of dated as of February 28, 2005. | ||
10 | .28 | Second Amendment to Asset Purchase Agreement by and among Diakon Lutheran Social Ministries, Tressler Lutheran Services, The Lutheran Welfare Service of Northeastern Pennsylvania, The Lutheran Home at Topton Pennsylvania, Susquehanna Housing, Inc., RE Selinsgrove, LLC, RE Mifflin, LLC, RE Hazleton, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Frostburg, LLC, RE Salisbury, LLC, OP Selinsgrove, LLC, OP Mifflin, LLC, OP Hazleton, LLC, OP Hazleton II, LLC, OP Pottsville, LLC, OP New Bloomfield, LLC, OP Millersburg, LLC, OP Everett, LLC, OP Frostburg, LLC, OP Salisbury, LLC dated as of March 15, 2005. | ||
10 | .29 | Third Amendment to Asset Purchase Agreement by and among Diakon Lutheran Social Ministries, Tressler Lutheran Services, The Lutheran Welfare Service of Northeastern Pennsylvania, The Lutheran Home at Topton Pennsylvania, Susquehanna Housing, Inc., RE Selinsgrove, LLC, RE Mifflin, LLC, RE Hazleton, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Frostburg, LLC, RE Salisbury, LLC, OP Selinsgrove, LLC, OP Mifflin, LLC, OP Hazleton, LLC, OP Hazleton II, LLC, OP Pottsville, LLC, OP New Bloomfield, LLC, OP Millersburg, LLC, OP Everett, LLC, OP Frostburg, LLC, OP Salisbury, LLC dated as of April 30, 2005. | ||
10 | .30 | Asset Purchase Agreement by and among Laurel Pharm, LLC, CoastalMed, Inc., CoastalMed of Panama City, Inc. and Randall A. McElheney dated as of August 22, 2003. | ||
10 | .31 | First Amendment to Asset Purchase Agreement by and among Laurel Pharm, LLC, CoastalMed, Inc., CoastalMed of Panama City, Inc. and Randall A. McElheney dated as of October 1, 2003. | ||
10 | .32 | Asset and Real Estate Purchase Agreement by and among Edgewood Manor of Lucasville, Inc., Edgewood Manor of Lucasville II, Inc., Edgewood Manor of Wellston, Inc., Edgewood Manor of Westerville, Inc., Edgewood Manor of Greenfield, Inc., RE Lucasville, Inc., RE Lucasville II, Inc., RE Wellston, Inc., RE Westerville, Inc., and RE Greenfield, Inc. dated as of December 30, 2004. | ||
10 | .33 | Asset and Real Estate Purchase Agreement by and among Baldwin/ Green Acres Limited Partnership and RE 2 Kenton, Inc. dated as of March 31, 2004. | ||
10 | .34 | First Amendment to Asset and Real Estate Purchase Agreement by and among Baldwin/ Green Acres Limited Partnership and RE 2 Kenton, Inc. dated as of April 26, 2004. | ||
10 | .35 | Second Amendment to Asset and Real Estate Purchase Agreement by and among Baldwin/ Green Acres Limited Partnership and RE 2 Kenton, Inc. dated as of December 28, 2004. | ||
10 | .36 | Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of August 30, 2002. | ||
10 | .37 | First Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of September , 2002. |
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Exhibit | ||||
Number | Description | |||
10 | .38 | Second Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of October 18, 2002. | ||
10 | .39 | Third Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of December 18, 2002. | ||
10 | .40 | Fourth Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of December 31, 2002. | ||
10 | .41 | Fifth Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of February 27, 2003. | ||
10 | .42 | Master Agreement by and among Tandem Health Care, Inc., Colonial Care, LLC, Smith/ Packett Med-Com, Inc., SP Enterprises, LLC, James R. Smith, SP Grayson, LLC, Generation Leasing Company II, LLC, Generation Development Company, LLC, SP Fisherville, LLC, SP Newport News, LLC, SP King’s Daughter, LLC, SP Williamsburg, LLC, SP Windsor, LLC and SP Lafayette Villa, LLC dated as of January 14, 1999. | ||
10 | .43 | First Amendment to Master Agreement by and among Tandem Health Care, Inc., Colonial Care, LLC, Smith/ Packett Med-Com, Inc., SP Enterprises, LLC, James R. Smith, SP Grayson, LLC, Generation Leasing Company II, LLC, Generation Development Company, LLC, SP Fisherville, LLC, SP Newport News, LLC, SP King’s Daughter, LLC, SP Williamsburg, LLC, SP Windsor, LLC and SP Lafayette Villa, LLC dated as of February 1, 1999. | ||
10 | .44 | Settlement and Release Agreement by and among Tandem Health Care, Inc., Colonial Care, LLC, Smith/ Packett Med-Com, Inc., SP Enterprises, LLC, James R. Smith, SP Grayson, LLC, Generation Leasing Company II, LLC, Generation Development Company, LLC, SP Fisherville, LLC, SP Newport News, LLC, SP King’s Daughter, LLC, SP Williamsburg, LLC, SP Windsor, LLC and SP Lafayette Villa, LLC dated as of September 30, 1999. | ||
10 | .45 | Promissory Note between Tandem Health Care, Inc. and Behrman Brothers Management Corp. dated December 31, 2004. | ||
10 | .46 | Promissory Note between OP Therapy, Inc. and The Mobile Medical Group, Inc. dated December 31, 2004. | ||
10 | .47 | Promissory Note between OP Hospice, Inc. and Lighthouse Hospice Limited Partnership dated December 31, 2004. | ||
10 | .48 | Agreement between Tandem Health Care, Inc. and Behrman Brothers Management Corp. dated April 28, 2005. | ||
10 | .49 | Master Lease dated as of December 30, 2004 by and between SELCO Service Corporation and Tandem Health Care of Ohio, Inc. | ||
10 | .50 | Participation Agreement dated as of December 30, 2004 by and among Tandem Health Care of Ohio, Inc., Tandem Health Care, Inc., SELCO Service Corporation, and Key Corporate Capital Inc. | ||
10 | .51 | Receivables Purchase Agreement dated as of December 30, 2004 among SELCO Service Corporation and Key Corporate Capital Inc. |
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Exhibit | ||||
Number | Description | |||
10 | .52 | Confirmation dated May 3, 2005 and ISDA Master Agreement dated May 26, 2005 with respect to the Swap Transaction entered into between KeyBank National Association and Tandem Health Care of Ohio, Inc. | ||
10 | .53 | First Omnibus Amendment dated as of March 30, 2005 among Tandem Health Care, Inc., Tandem Health Care of Ohio, Inc., Key Equipment Finance Inc., SELCO Service Corporation and KeyBank National Association. | ||
10 | .54 | Prime Vendor Agreement between Laurel Pharm, LLC. and Cardinal Health dated March 15, 2004. | ||
10 | .55 | Lease Agreement dated May 14, 2003, for corporate headquarters in Maitland, Florida by and among Maitland Concourse Phase II, LLP. and Tandem Health Care, Inc. | ||
10 | .56 | Master Lease Agreement dated January 1, 2002 between Health Care REIT, Inc., HCRI Pennsylvania Properties, Inc. and Tandem Health Care, Inc. | ||
10 | .57 | Agreement and First Amendment to Master Lease Agreement dated September 8, 2005 between Health Care REIT, Inc., HCRI Pennsylvania Properties, Inc. and Tandem Health Care, Inc. | ||
10 | .58 | Amended and Restated Master Lease among HCP Virginia, Inc. and Generation Leasing Company II, LLC, SP Fisherville, LLC, SP Grayson, LLC, SP Kings Daughters, LLC, SP Newport News, LLC, SP Williamsburg, LLC, SP Windsor, LLC, Tandem Health Care of Floyd, LLC and Tandem Health Care of Woodstock, LLC dated as of April 30, 2004. | ||
10 | .59 | First Amendment to Amended and Restated Master Lease among HCP Virginia, Inc. and Generation Leasing Company II, LLC, SP Fisherville, LLC, SP Grayson, LLC, SP Kings Daughters, LLC, SP Newport News, LLC, SP Williamsburg, LLC, SP Windsor, LLC, Tandem Health Care of Floyd, LLC and Tandem Health Care of Woodstock, LLC dated as of July 9, 2004. | ||
10 | .60 | Form of Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of Ohio, Inc., Health Care Industries Company and those certain entities listed on Schedule I attached thereto. | ||
10 | .61 | Partial Release and First Amendment to Management Agreement dated as of June 30, 2005 by and among Tandem Regional Management of Ohio, Inc., Health Care Industries Company, and Arcadia Nursing Center, Inc. d/b/a Arcadia Nursing Center. | ||
10 | .62 | Partial Release and First Amendment to Management Agreement dated as of June 30, 2005 by and among Tandem Regional Management of Ohio, Inc., Health Care Industries Company and Hickory Creek of Athens, Inc. d/b/a Hickory Creek Nursing Center. | ||
10 | .63 | Term Loan and Security Agreement by and among RE Bayonet Point, Inc., RE Jacksonville, Inc., RE Port Charlotte, Inc., RE Sarasota, Inc., RE Orange Park, Inc., RE St. Petersburg, Inc., RE Safety Harbor, Inc. and LaSalle Bank National Association dated as of May 31, 2002. | ||
10 | .64 | First Amendment to Term Loan and Security Agreement by and among RE Bayonet Point, Inc., RE Jacksonville, Inc., RE Port Charlotte, Inc., RE Sarasota, Inc., RE Orange Park, Inc., RE St. Petersburg, Inc., RE Safety Harbor, Inc. and LaSalle Bank National Association dated April 1, 2003. | ||
10 | .65 | Second Amendment to Term Loan and Security Agreement by and among RE Bayonet Point, Inc., RE Jacksonville, Inc., RE Port Charlotte, Inc., RE Sarasota, Inc., RE Orange Park, Inc., RE St. Petersburg, Inc., RE Safety Harbor, Inc. and LaSalle Bank National Association dated as of June 30, 2004. | ||
10 | .66 | Amended and Restated Term Loan and Security Agreement by and among Tandem Health Care of Florida, Inc. and LaSalle Bank National Association dated as of April 1, 2003. | ||
10 | .67 | First Amendment to Amended and Restated Term Loan and Security Agreement by and among Tandem Health Care of Florida, Inc. and LaSalle Bank National Association dated as of June 30, 2004. | ||
10 | .68 | Loan Agreement by and among Tandem Health Care of North Strabane, LLC, Tandem Health Care of Miami, Inc., RE Kissimmee, Inc., RE Winter Haven, Inc. and Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services dated as of February 2, 2004. |
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Exhibit | ||||
Number | Description | |||
10 | .69 | Term Loan Agreement by and among Tandem Health Care of Lucasville I, Inc., Tandem Health Care of Lucasville II, Inc., Tandem Health Care of Greenfield, Inc., Tandem Health Care of Wellston, Inc., Tandem Health Care of Westerville, Inc., Tandem Health Care of Kenton, Inc., RE Lucasville I, Inc., RE Lucasville II, Inc., RE Greenfield, Inc., RE Wellston, Inc., RE Westerville, Inc., and RE 2 Kenton, Inc., KeyBank National Association and JPMorgan Chase Bank, N.A. dated as of December 30, 2004. | ||
10 | .70 | First Omnibus Amendment to Term Loan Agreement by and among Tandem Health Care of Lucasville I, Inc., Tandem Health Care of Lucasville II, Inc., Tandem Health Care of Greenfield, Inc., Tandem Health Care of Wellston, Inc., Tandem Health Care of Westerville, Inc., Tandem Health Care of Kenton, Inc., RE Lucasville I, Inc., RE Lucasville II, Inc., RE Greenfield, Inc., RE Wellston, Inc., RE Westerville, Inc., and RE 2 Kenton, Inc., KeyBank National Association and JPMorgan Chase Bank, N.A. dated as of June 28, 2005. | ||
10 | .71 | Loan and Security Agreement by and among OP Therapy, Inc., OP Hospice, Inc. and LaSalle Bank National Association dated as of December 31, 2004. | ||
10 | .72 | Term Loan Agreement by and among RE Selinsgrove, LLC, RE Mifflin, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Hazleton, LLC, RE Frostburg, LLC, RE Salisbury, LLC, Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services and LaSalle Bank National Association dated as of April 29, 2005. | ||
10 | .73 | Securities Purchase Agreement by and among Tandem Health Care, Inc., Behrman Capital II L.P. and Strategic Entrepreneur Fund II, L.P. dated as of December 28, 2004. | ||
21 | .1 | Subsidiaries. | ||
23 | .1 | Consent of Ernst & Young LLP. | ||
23 | .2 | Consent of KPMG LLP. | ||
23 | .3* | Consent of Buchanan Ingersoll PC (included in its opinion filed as Exhibit 5.1 hereto). | ||
24 | .1 | Power of Attorney (included on signature page to this Registration Statement). |
* | To be filed by amendment. |
(i) Financial statement schedules not listed above have been omitted because they are inapplicable, are not required under applicable provisions of Regulation S-X, or the information that would otherwise be included in such schedules is contained in the registrant’s financial statements or accompanying notes. |
Item 17. | Undertakings. |
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(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. | |
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
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TANDEM HEALTH CARE, INC. |
By: | /s/Lawrence R. Deering |
Lawrence R. Deering | |
Chairman of the Board and | |
Chief Executive Officer |
Signature | Capacity | Date | ||||||
/s/Lawrence R. Deering | Chairman of the Board, Chief Executive Officer and Director | October 7, 2005 | ||||||
/s/Joseph D. Conte | Chief Operating Officer, President and Director | October 7, 2005 | ||||||
/s/Eugene R. Curcio | Chief Financial Officer and Treasurer (principal financial and accounting officer) | October 7, 2005 | ||||||
/s/Robert W. Gluskin | Director | October 7, 2005 | ||||||
/s/Marie Meisenbach Graul | Director | October 7, 2005 |
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Signature | Capacity | Date | ||||||
/s/Philip Hertik | Director | October 7, 2005 | ||||||
/s/William M. Matthes | Director | October 7, 2005 | ||||||
/s/Mark P. Visser | Director | October 7, 2005 | ||||||
/s/John J. Whitman | Director | October 7, 2005 |
II-11
Table of Contents
Exhibit | ||||
Number | Description | |||
1 | .1* | Form of Underwriting Agreement. | ||
3 | .1 | Fifth Amended and Restated Articles of Incorporation. | ||
3 | .2* | Form of Amended and Restated Articles of Incorporation. | ||
3 | .3 | Amended and Restated By-laws. | ||
3 | .4* | Form of Amended and Restated By-laws. | ||
4 | .1* | Form of Common Stock Certificate. | ||
5 | .1* | Opinion of Buchanan Ingersoll PC. | ||
10 | .1 | Registration Rights Agreement, dated March 25, 1998, by and among Tandem Health Care, Inc. and certain of its shareholders. | ||
10 | .2 | Registration Rights Agreement, dated March 1, 2000, by and between Tandem Health Care, Inc. and the James B. Renacci Trust — 1998. | ||
10 | .3 | Registration Rights Agreement, dated September 8, 2005, by and between Tandem Health Care, Inc. and Health Care REIT, Inc. | ||
10 | .4 | Securities Purchase Agreement by and among Tandem Health Care, Inc., Behrman Capital II L.P., Strategic Entrepreneur Fund II, L.P. and Robert W. Gluskin dated as of April 26, 2005. | ||
10 | .5 | Warrant, dated September 8, 2005, by and between Tandem Health Care, Inc. and Health Care REIT, Inc. | ||
10 | .6 | Stockholders Agreement, dated March 25, 1998, by and among Tandem Health Care, Inc. and certain of its shareholders. | ||
10 | .7 | Omnibus Amendment and Waiver Agreement dated April 26, 2000 by and among Tandem Health Care, Inc., Lawrence R. Deering, Joseph D. Conte, Glen A. Tobias, Behrman Capital II L.P. and Strategic Entrepreneur Fund II, L.P. | ||
10 | .8 | Omnibus Amendment and Waiver Agreement dated April 26, 2005 by and among Tandem Health Care, Inc., Lawrence R. Deering, Lawrence R. Deering Grantor Retained Annuity Trust, Joseph D. Conte, Glen A. Tobias, Robert W. Gluskin, Behrman Capital II L.P. and Strategic Entrepreneur Fund II, L.P. | ||
10 | .9 | Financial Advisor Letter dated March 25, 1998 by and between Tandem Health Care, Inc. and Behrman Brothers Management Corp. | ||
10 | .10 | Financial Advisory Agreement dated August 24, 2005, by and between Tandem Health Care, Inc. and Behrman Brothers Management Corp. | ||
10 | .11 | Tandem Health Care, Inc. 1998 Stock Option and Restricted Stock Purchase Plan. | ||
10 | .12* | Tandem Health Care, Inc. 2005 Stock Incentive Plan. | ||
10 | .13* | Tandem Health Care, Inc. 2005 Employee Stock Purchase Plan. | ||
10 | .14 | Employment Agreement between Tandem Health Care, Inc. and Lawrence R. Deering dated as of March 25, 1998. | ||
10 | .15 | Employment Agreement between Tandem Health Care, Inc. and Joseph D. Conte dated as of March 25, 1998. | ||
10 | .16 | Employment Agreement between Tandem Health Care, Inc. and Eugene R. Curcio dated as of March 29, 2003. | ||
10 | .17 | Employment Agreement between Tandem Health Care, Inc. and Rosemary L. Corsetti dated as of July 1, 2003. | ||
10 | .18 | Letter Agreement between Tandem Health Care, Inc. and Marie M. Graul dated March 17, 2005. | ||
10 | .19 | Letter Agreement between Tandem Health Care, Inc. and Philip Hertik dated February 10, 2005. | ||
10 | .20 | Agreement dated as of March 25, 1998 by and among Tandem Health Care, Inc., Health Care REIT, Inc., Behrman Capital II L.P., Strategic Entrepreneur Fund II, L.P., Lawrence R. Deering and Joseph D. Conte. |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .21 | Agreement dated as of January 18, 1999 by and among Tandem Health Care, Inc., Health Care REIT, Inc., Behrman Capital II L.P., Strategic Entrepreneur Fund II, L.P., Lawrence R. Deering and Joseph D. Conte. | ||
10 | .22 | Asset Purchase Agreement by and among OP Therapy, Inc. and The Mobile Medical Group, Inc. dated as of October 28, 2004. | ||
10 | .23 | First Amendment to Asset Purchase Agreement by and among OP Therapy, Inc. and The Mobile Medical Group, Inc. dated as of October 28, 2004. | ||
10 | .24 | Asset Purchase Agreement by and among OP Hospice, Inc. and Lighthouse Hospice Limited Partnership dated as of October 28, 2004. | ||
10 | .25 | First Amendment to Asset Purchase Agreement by and among OP Hospice, Inc. and Lighthouse Hospice Limited Partnership dated as of October 28, 2004. | ||
10 | .26 | Asset Purchase Agreement by and among Diakon Lutheran Social Ministries, Tressler Lutheran Services, The Lutheran Welfare Service of Northeastern Pennsylvania, The Lutheran Home at Topton Pennsylvania, Susquehanna Housing, Inc., RE Selinsgrove, LLC, RE Mifflin, LLC, RE Hazleton, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Frostburg, LLC, RE Salisbury, LLC, OP Selinsgrove, LLC, OP Mifflin, LLC, OP Hazleton, LLC, OP Hazleton II, LLC, OP Pottsville, LLC, OP New Bloomfield, LLC, OP Millersburg, LLC, OP Everett, LLC, OP Frostburg, LLC, OP Salisbury, LLC dated as of February 15, 2005. | ||
10 | .27 | First Amendment to Asset Purchase Agreement by and among Diakon Lutheran Social Ministries, Tressler Lutheran Services, The Lutheran Welfare Service of Northeastern Pennsylvania, The Lutheran Home at Topton Pennsylvania, Susquehanna Housing, Inc., RE Selinsgrove, LLC, RE Mifflin, LLC, RE Hazleton, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Frostburg, LLC, RE Salisbury, LLC, OP Selinsgrove, LLC, OP Mifflin, LLC, OP Hazleton, LLC, OP Hazleton II, LLC, OP Pottsville, LLC, OP New Bloomfield, LLC, OP Millersburg, LLC, OP Everett, LLC, OP Frostburg, LLC, OP Salisbury, LLC dated as of dated as of February 28, 2005. | ||
10 | .28 | Second Amendment to Asset Purchase Agreement by and among Diakon Lutheran Social Ministries, Tressler Lutheran Services, The Lutheran Welfare Service of Northeastern Pennsylvania, The Lutheran Home at Topton Pennsylvania, Susquehanna Housing, Inc., RE Selinsgrove, LLC, RE Mifflin, LLC, RE Hazleton, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Frostburg, LLC, RE Salisbury, LLC, OP Selinsgrove, LLC, OP Mifflin, LLC, OP Hazleton, LLC, OP Hazleton II, LLC, OP Pottsville, LLC, OP New Bloomfield, LLC, OP Millersburg, LLC, OP Everett, LLC, OP Frostburg, LLC, OP Salisbury, LLC dated as of March 15, 2005. | ||
10 | .29 | Third Amendment to Asset Purchase Agreement by and among Diakon Lutheran Social Ministries, Tressler Lutheran Services, The Lutheran Welfare Service of Northeastern Pennsylvania, The Lutheran Home at Topton Pennsylvania, Susquehanna Housing, Inc., RE Selinsgrove, LLC, RE Mifflin, LLC, RE Hazleton, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Frostburg, LLC, RE Salisbury, LLC, OP Selinsgrove, LLC, OP Mifflin, LLC, OP Hazleton, LLC, OP Hazleton II, LLC, OP Pottsville, LLC, OP New Bloomfield, LLC, OP Millersburg, LLC, OP Everett, LLC, OP Frostburg, LLC, OP Salisbury, LLC dated as of April 30, 2005. | ||
10 | .30 | Asset Purchase Agreement by and among Laurel Pharm, LLC, CoastalMed, Inc., CoastalMed of Panama City, Inc. and Randall A. McElheney dated as of August 22, 2003. | ||
10 | .31 | First Amendment to Asset Purchase Agreement by and among Laurel Pharm, LLC, CoastalMed, Inc., CoastalMed of Panama City, Inc. and Randall A. McElheney dated as of October 1, 2003. | ||
10 | .32 | Asset and Real Estate Purchase Agreement by and among Edgewood Manor of Lucasville, Inc., Edgewood Manor of Lucasville II, Inc., Edgewood Manor of Wellston, Inc., Edgewood Manor of Westerville, Inc., Edgewood Manor of Greenfield, Inc., RE Lucasville, Inc., RE Lucasville II, Inc., RE Wellston, Inc., RE Westerville, Inc., and RE Greenfield, Inc. dated as of December 30, 2004. | ||
10 | .33 | Asset and Real Estate Purchase Agreement by and among Baldwin/ Green Acres Limited Partnership and RE 2 Kenton, Inc. dated as of March 31, 2004. |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .34 | First Amendment to Asset and Real Estate Purchase Agreement by and among Baldwin/ Green Acres Limited Partnership and RE 2 Kenton, Inc. dated as of April 26, 2004. | ||
10 | .35 | Second Amendment to Asset and Real Estate Purchase Agreement by and among Baldwin/ Green Acres Limited Partnership and RE 2 Kenton, Inc. dated as of December 28, 2004. | ||
10 | .36 | Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of August 30, 2002. | ||
10 | .37 | First Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of September , 2002. | ||
10 | .38 | Second Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of October 18, 2002. | ||
10 | .39 | Third Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of December 18, 2002. | ||
10 | .40 | Fourth Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of December 31, 2002. | ||
10 | .41 | Fifth Amendment to Asset Purchase Agreement by and among Villa Homes West, Inc. D/B/A Woodsidemanagement Group, Ridgewood Manor, LLC, Parkview Real Estate, Ltd., Woodside Properties I, Ltd., Woodside Properties II, Ltd., RE Maumee, Inc., OP Maumee, Inc., RE Carey, Inc., OP Carey, Inc., RE 1 Fremont, Inc., OP 1 Fremont, Inc., RE 2 Fremont, Inc., OP 2 Fremont, Inc. and OP Kenton, Inc. dated as of February 27, 2003. | ||
10 | .42 | Master Agreement by and among Tandem Health Care, Inc., Colonial Care, LLC, Smith/ Packett Med-Com, Inc., SP Enterprises, LLC, James R. Smith, SP Grayson, LLC, Generation Leasing Company II, LLC, Generation Development Company, LLC, SP Fisherville, LLC, SP Newport News, LLC, SP King’s Daughter, LLC, SP Williamsburg, LLC, SP Windsor, LLC and SP Lafayette Villa, LLC dated as of January 14, 1999. | ||
10 | .43 | First Amendment to Master Agreement by and among Tandem Health Care, Inc., Colonial Care, LLC, Smith/ Packett Med-Com, Inc., SP Enterprises, LLC, James R. Smith, SP Grayson, LLC, Generation Leasing Company II, LLC, Generation Development Company, LLC, SP Fisherville, LLC, SP Newport News, LLC, SP King’s Daughter, LLC, SP Williamsburg, LLC, SP Windsor, LLC and SP Lafayette Villa, LLC dated as of February 1, 1999. | ||
10 | .44 | Settlement and Release Agreement by and among Tandem Health Care, Inc., Colonial Care, LLC, Smith/ Packett Med-Com, Inc., SP Enterprises, LLC, James R. Smith, SP Grayson, LLC, Generation Leasing Company II, LLC, Generation Development Company, LLC, SP Fisherville, LLC, SP Newport News, LLC, SP King’s Daughter, LLC, SP Williamsburg, LLC, SP Windsor, LLC and SP Lafayette Villa, LLC dated as of September 30, 1999. | ||
10 | .45 | Promissory Note between Tandem Health Care, Inc. and Behrman Brothers Management Corp. dated December 31, 2004. | ||
10 | .46 | Promissory Note between OP Therapy, Inc. and The Mobile Medical Group, Inc. dated December 31, 2004. |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .47 | Promissory Note between OP Hospice, Inc. and Lighthouse Hospice Limited Partnership dated December 31, 2004. | ||
10 | .48 | Agreement between Tandem Health Care, Inc. and Behrman Brothers Management Corp. dated April 28, 2005. | ||
10 | .49 | Master Lease dated as of December 30, 2004 by and between SELCO Service Corporation and Tandem Health Care of Ohio, Inc. | ||
10 | .50 | Participation Agreement dated as of December 30, 2004 by and among Tandem Health Care of Ohio, Inc., Tandem Health Care, Inc., SELCO Service Corporation, and Key Corporate Capital Inc. | ||
10 | .51 | Receivables Purchase Agreement dated as of December 30, 2004 among SELCO Service Corporation and Key Corporate Capital Inc. | ||
10 | .52 | Confirmation dated May 3, 2005 and ISDA Master Agreement dated May 26, 2005 with respect to the Swap Transaction entered into between KeyBank National Association and Tandem Health Care of Ohio, Inc. | ||
10 | .53 | First Omnibus Amendment dated as of March 30, 2005 among Tandem Health Care, Inc., Tandem Health Care of Ohio, Inc., Key Equipment Finance Inc., SELCO Service Corporation and KeyBank National Association. | ||
10 | .54 | Prime Vendor Agreement between Laurel Pharm, LLC. and Cardinal Health dated March 15, 2004. | ||
10 | .55 | Lease Agreement dated May 14, 2003, for corporate headquarters in Maitland, Florida by and among Maitland Concourse Phase II, LLP. and Tandem Health Care, Inc. | ||
10 | .56 | Master Lease Agreement dated January 1, 2002 between Health Care REIT, Inc., HCRI Pennsylvania Properties, Inc. and Tandem Health Care, Inc. | ||
10 | .57 | Agreement and First Amendment to Master Lease Agreement dated September 8, 2005 between Health Care REIT, Inc., HCRI Pennsylvania Properties, Inc. and Tandem Health Care, Inc. | ||
10 | .58 | Amended and Restated Master Lease among HCP Virginia, Inc. and Generation Leasing Company II, LLC, SP Fisherville, LLC, SP Grayson, LLC, SP Kings Daughters, LLC, SP Newport News, LLC, SP Williamsburg, LLC, SP Windsor, LLC, Tandem Health Care of Floyd, LLC and Tandem Health Care of Woodstock, LLC dated as of April 30, 2004. | ||
10 | .59 | First Amendment to Amended and Restated Master Lease among HCP Virginia, Inc. and Generation Leasing Company II, LLC, SP Fisherville, LLC, SP Grayson, LLC, SP Kings Daughters, LLC, SP Newport News, LLC, SP Williamsburg, LLC, SP Windsor, LLC, Tandem Health Care of Floyd, LLC and Tandem Health Care of Woodstock, LLC dated as of July 9, 2004. | ||
10 | .60 | Form of Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of Ohio, Inc., Health Care Industries Company and those certain entities listed on Schedule I attached thereto. | ||
10 | .61 | Partial Release and First Amendment to Management Agreement dated as of June 30, 2005 by and among Tandem Regional Management of Ohio, Inc., Health Care Industries Company, and Arcadia Nursing Center, Inc. d/b/a Arcadia Nursing Center. | ||
10 | .62 | Partial Release and First Amendment to Management Agreement dated as of June 30, 2005 by and among Tandem Regional Management of Ohio, Inc., Health Care Industries Company and Hickory Creek of Athens, Inc. d/b/a Hickory Creek Nursing Center. | ||
10 | .63 | Term Loan and Security Agreement by and among RE Bayonet Point, Inc., RE Jacksonville, Inc., RE Port Charlotte, Inc., RE Sarasota, Inc., RE Orange Park, Inc., RE St. Petersburg, Inc., RE Safety Harbor, Inc. and LaSalle Bank National Association dated as of May 31, 2002. | ||
10 | .64 | First Amendment to Term Loan and Security Agreement by and among RE Bayonet Point, Inc., RE Jacksonville, Inc., RE Port Charlotte, Inc., RE Sarasota, Inc., RE Orange Park, Inc., RE St. Petersburg, Inc., RE Safety Harbor, Inc. and LaSalle Bank National Association dated April 1, 2003. |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .65 | Second Amendment to Term Loan and Security Agreement by and among RE Bayonet Point, Inc., RE Jacksonville, Inc., RE Port Charlotte, Inc., RE Sarasota, Inc., RE Orange Park, Inc., RE St. Petersburg, Inc., RE Safety Harbor, Inc. and LaSalle Bank National Association dated as of June 30, 2004. | ||
10 | .66 | Amended and Restated Term Loan and Security Agreement by and among Tandem Health Care of Florida, Inc. and LaSalle Bank National Association dated as of April 1, 2003. | ||
10 | .67 | First Amendment to Amended and Restated Term Loan and Security Agreement by and among Tandem Health Care of Florida, Inc. and LaSalle Bank National Association dated as of June 30, 2004. | ||
10 | .68 | Loan Agreement by and among Tandem Health Care of North Strabane, LLC, Tandem Health Care of Miami, Inc., RE Kissimmee, Inc., RE Winter Haven, Inc. and Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services dated as of February 2, 2004. | ||
10 | .69 | Term Loan Agreement by and among Tandem Health Care of Lucasville I, Inc., Tandem Health Care of Lucasville II, Inc., Tandem Health Care of Greenfield, Inc., Tandem Health Care of Wellston, Inc., Tandem Health Care of Westerville, Inc., Tandem Health Care of Kenton, Inc., RE Lucasville I, Inc., RE Lucasville II, Inc., RE Greenfield, Inc., RE Wellston, Inc., RE Westerville, Inc., and RE 2 Kenton, Inc., KeyBank National Association and JPMorgan Chase Bank, N.A. dated as of December 30, 2004. | ||
10 | .70 | First Omnibus Amendment to Term Loan Agreement by and among Tandem Health Care of Lucasville I, Inc., Tandem Health Care of Lucasville II, Inc., Tandem Health Care of Greenfield, Inc., Tandem Health Care of Wellston, Inc., Tandem Health Care of Westerville, Inc., Tandem Health Care of Kenton, Inc., RE Lucasville I, Inc., RE Lucasville II, Inc., RE Greenfield, Inc., RE Wellston, Inc., RE Westerville, Inc., and RE 2 Kenton, Inc., KeyBank National Association and JPMorgan Chase Bank, N.A. dated as of June 28, 2005. | ||
10 | .71 | Loan and Security Agreement by and among OP Therapy, Inc., OP Hospice, Inc. and LaSalle Bank National Association dated as of December 31, 2004. | ||
10 | .72 | Term Loan Agreement by and among RE Selinsgrove, LLC, RE Mifflin, LLC, RE Pottsville, LLC, RE New Bloomfield, LLC, RE Millersburg, LLC, RE Everett, LLC, RE Hazleton, LLC, RE Frostburg, LLC, RE Salisbury, LLC, Merrill Lynch Capital, a Division of Merrill Lynch Business Financial Services and LaSalle Bank National Association dated as of April 29, 2005. | ||
10 | .73 | Securities Purchase Agreement by and among Tandem Health Care, Inc., Behrman Capital II L.P. and Strategic Entrepreneur Fund II, L.P. dated as of December 28, 2004. | ||
21 | .1 | Subsidiaries. | ||
23 | .1 | Consent of Ernst & Young LLP. | ||
23 | .2 | Consent of KPMG LLP. | ||
23 | .3* | Consent of Buchanan Ingersoll PC (included in its opinion filed as Exhibit 5.1 hereto). | ||
24 | .1 | Power of Attorney (included on signature page to this Registration Statement). |
* | To be filed by amendment. |