Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On May 9, 2017, Surgery Partners, Inc. (“Surgery Partners” or, together with its subsidiaries, the “Company”), a Delaware corporation, entered into a definitive agreement (as amended on July 7, 2017) to acquire NSH Holdco, Inc., a Delaware corporation (“NSH” or “National Surgical Healthcare”), pursuant to a merger of a wholly-owned subsidiary of the Company with and into NSH, with NSH surviving the merger (the “NSH Acquisition”). NSH is a leading owner and operator of a national network of musculoskeletal focused surgical facilities, including 7 ASCs and 15 surgical hospitals. It operates in 15 markets in partnership with approximately 1,000 affiliated physicians. NSH facilities primarily provide nonemergency surgical procedures in a number of attractive specialties, including orthopedics, neuro / spine and interventional pain management. On August 31, 2017, Surgery Center Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“SCHI”), completed its acquisition of NSH for total cash consideration of approximately $762.9 million (the “NSH Acquisition”).
Also on August 31, 2017, as part of the financing for the NSH Acquisition, Surgery Partners completed the sale and issuance of 310,000 shares of preferred stock, par value $0.01 per share, of Surgery Partners, designated as 10.00% Series A Convertible Perpetual Participating Preferred Stock (the “Series A Preferred Stock”) to BCPE Seminole Holdings LP, an affiliate of Bain Capital Private Equity, at a purchase price of $1,000.00 per share in cash (the “Preferred Private Placement”).
On June 30, 2017, as part of the financing for the NSH Acquisition, SP Finco, LLC (the “Initial Issuer”), a Delaware corporation and wholly-owned subsidiary of SCHI, completed the issuance and sale of $370.0 million in gross proceeds of the Initial Issuer’s 6.750% senior unsecured notes due 2025 (the “notes” or the “Notes”), which were deposited into an escrow account established at Wilmington Trust, National Association. The Notes mature on July 1, 2025 and bear interest at a rate of 6.750% per year, payable semi‑annually on January 1 and July 1 of each year, beginning on January 1, 2018. On August 31, 2017, in connection with the closing of the NSH Acquisition, the gross proceeds of the Notes were released from the escrow account to SCHI, and the Initial Issuer merged with and into SCHI, with SCHI surviving such merger (the “Initial Issuer Merger”) and assuming, by operation of law, the rights and obligations of the Initial Issuer under the notes and the indenture governing such notes.
Also on August 31, 2017, as part of the financing for the NSH Acquisition, SP Holdco I, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, SCHI and certain wholly-owned subsidiaries of SCHI entered into a credit agreement with Jefferies Finance LLC, as administrative agent and collateral agent, and the other financial institutions party thereto from time to time, providing for a $1,290.0 million senior secured term loan and a $75.0 million revolving credit facility (collectively, the “Senior Secured Credit Facilities”).
On May 9, 2017, the Company and H.I.G. Surgery Centers, LLC, in its capacity as the stockholders representative, entered into an agreement to amend that certain Income Tax Receivable Agreement, dated September 30, 2015 (as amended, the “TRA”), pursuant to which the Company agreed to make payments to H.I.G. in its capacity as the stockholders representative pursuant to a fixed payment schedule. The amendment to the TRA became effective on August 31, 2017.
The NSH Acquisition, the Preferred Private Placement, the issuance of the Notes, the escrow of the gross proceeds of the Notes and eventual release of such gross proceeds from escrow, the entry into and borrowings under the Senior Secured Credit Facilities, the Initial Issuer Merger, the repayment the Existing NSH Debt (as defined herein), the repayment of the Company’s Existing Credit Facilities (as defined herein), the payments pursuant to the TRA, and the payment of the fees and expenses related to the foregoing are collectively referred to as the “Transactions.”
The unaudited pro forma condensed combined statement of operations of Surgery Partners for the year ended December 31, 2016 gives effect to the Transactions as if they had occurred on January 1, 2016. The unaudited pro forma condensed combined statement of operations of Surgery Partners for the six months ended June 30, 2017 gives effect to the Transactions as if they had occurred on January 1, 2016. The unaudited pro forma condensed combined balance sheet of Surgery Partners as of June 30, 2017 gives effect to the Transactions as if they occurred on June 30, 2017 and combines the unaudited condensed consolidated historical balance sheets of each of the Company and NSH as of June 30, 2017.
The following unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with:
| |
| • | the historical consolidated financial statements and related notes of Surgery Partners, as of and for the year ended December 31, 2016, included in Surgery Partners’ Annual Report on Form 10-K, filed with the SEC on March 10, 2017; |
| |
| • | the historical consolidated financial statements and related notes of NSH as of and for the year ended December 31, 2016, included in NSH’s 2016 Annual Financial Statements and filed as Exhibit 99.1 to Surgery Partners’ Current Report on Form 8-K to which this Exhibit 99.3 is filed; |
| |
| • | the historical condensed consolidated financial statements and related notes of Surgery Partners as of and for the six months ended June 30, 2017, included in Surgery Partners’ Quarterly Report on Form 10-Q, filed with the SEC on August 9, 2017; and |
| |
| • | the historical condensed consolidated financial statements and related notes of NSH as of and for the six months ended June 30, 2017, included in NSH’s Q2 2017 Quarterly Review Report for the six months ended June 30, 2017 and filed as Exhibit 99.2 to Surgery Partners’ Current Report on Form 8-K to which this Exhibit 99.3 is filed. |
The consolidated financial statements and accounting records of NSH used to derive the unaudited pro forma combined condensed consolidated financial information are based on the historical consolidated results of operations and historical cost basis of the assets and liabilities of NSH, as adjusted to account for the exclusion of Casper Medical Center, LLC, a Wyoming limited liability company and NSH Wyoming Inc., a Wyoming corporation (together with Casper Medical Center, LLC, “Casper”), which were not acquired by the Company as part of the NSH Acquisition.. As a result of applicable Securities and Exchange Comission and public company financial reporting requirements, the historical consolidated results of operations and financial position of NSH filed with this Current Report on Form 8-K include the impact of Casper in all respects. Thus, the unaudited pro forma combined condensed consolidated financial information does not reflect the presentation and classification of NSH’s operations in the same manner as NSH’s historical consolidated financial statements.
The unaudited pro forma condensed combined financial statements have been prepared by our management for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations that would have been realized had the Transactions occurred on the dates indicated, nor is it meant to be indicative of any future consolidated financial position or future results of operations that the combined company will experience. The pro forma adjustments are based on the preliminary assumptions and information available that management believes are reasonable under the circumstances and give pro forma effect to events that are (1) directly attributable to the Transactions on a pro forma basis, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined statements of operations exclude certain non‑recurring charges that may have been or were incurred in connection with the Transactions, including certain expenses related to the Transactions, including acquisition related investment banker and professional fees of both Surgery Partners and NSH and the write-off of bridge commitment fees that were incurred in connection with the closing of the Transactions. At the closing of the Transactions, we recorded an expense to reflect these charges, which, in the aggregate, was $48.6 million. Such amounts have been reflected in the unaudited pro forma condensed combined balance sheet.
The unaudited pro forma financial information should be read in conjunction with the historical audited consolidated financial statements and the accompanying notes and the audited and unaudited condensed consolidated financial statements and the accompanying notes of each of Surgery Partners and NSH. The unaudited pro forma condensed combined financial statements do not purport to represent what our results of operations, balance sheet data or financial information would have been if the Transactions had occurred as of the dates indicated or what such results will be for any future periods.
The accounting for the NSH Acquisition is dependent upon a valuation that is preliminary and is subject to change. Management will finalize these amounts as it obtains the information necessary to complete the measurement processes. Fair value measurement can be highly subjective and the reasonable application of measurement principles may result in a range of alternative estimates using the same facts and circumstances. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of these unaudited pro forma condensed combined financial statements. Differences between these preliminary estimates and the final acquisition accounting may occur. The differences, if any, may have a material impact on Surgery Partners’ future results of operations and financial position. The final valuations are expected to be completed as soon as practicable, but no later than one year after the consummation of the NSH Acquisition.
SURGERY PARTNERS, INC.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2017
|
| | | | | | | | | | | | | | | | | | |
| (in thousands, except shares and per share amounts) | Historical Surgery Partners | Historical National Surgical Healthcare Adjusted(A) |
Surgery Partners Acquisition Adjustments(T) | NSH Acquisition Adjustments(B) | Financing Adjustments | Pro-Forma Combined |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | $ | 57,034 |
| $ | 31,229 |
| $ | — |
| $(742,920)(D) |
| $591,730(F) |
| $ | 198,461 |
|
| | | | | | 310,000(E) |
| |
| | | | | (9,750)(O) |
| (38,863)(O) |
| |
| Accounts receivable, less allowance for doubtful accounts | 215,294 |
| 85,778 |
| (34,022 | ) | (9,247)(S) |
| — |
| 257,803 |
|
| Inventories | 29,680 |
| 13,845 |
| (356 | ) | 1,141(S) |
| — |
| 44,310 |
|
| Prepaid expenses and other current assets | 42,332 |
| 11,437 |
| (6,091 | ) | (687 | ) | (6,591)(R) |
| 37,113 |
|
| | | | | (3,287)(T) |
| | |
| Acquisition escrow asset | 7,971 |
| — |
| (3,401 | ) | — |
| — |
| 4,570 |
|
| Total current assets | $ | 352,311 |
| $ | 142,289 |
| $ | (43,871 | ) | $ | (764,750 | ) | $ | 856,277 |
| $ | 542,257 |
|
| Property and equipment, net | 205,744 |
| 172,185 |
| 5,968 |
| 2,189(S) |
| — |
| 386,086 |
|
| Intangible assets, net | 43,421 |
| 94,249 |
| (14,450 | ) | (66,509)(S) |
| — |
| 56,711 |
|
| Goodwill | 1,569,408 |
| 588,211 |
| 834,184 |
| 256,545 |
| — |
| 3,248,348 |
|
| Investments in and advances to affiliates | 34,488 |
| 9,443 |
| 18 |
| 20,294(T) |
| — |
| 64,243 |
|
| Restricted invested assets | 315 |
| — |
| — |
| — |
| — |
| 315 |
|
| Financing escrow asset | 370,000 |
| — |
| — |
| 19,600(U) |
| (370,000)(Q) |
| 19,600 |
|
| Long-term deferred tax asset | 80,166 |
| — |
| 100,587 |
| 27,775(S) |
| (4,266)(P) |
| 204,263 |
|
| Other long-term assets | 15,634 |
| 5,716 |
| (1,515 | ) | (1,378 | ) | 4,967(F) |
| 23,424 |
|
| | | | | 27,775(T) |
| | |
| Total assets | $ | 2,671,487 |
| $ | 1,012,093 |
| $ | 880,921 |
| $ | (506,233 | ) | $ | 486,979 |
| $ | 4,545,247 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| Current liabilities: | | | | | | |
| Accounts payable | $ | 48,210 |
| $ | 26,220 |
| $ | (12,941 | ) | $3,432(S) |
| $ | — |
| $ | 64,921 |
|
| Accrued payroll and benefits | 27,437 |
| 25,051 |
| (1,755 | ) | 2,262(S) |
| — |
| 52,996 |
|
| Acquisition escrow liability | 7,971 |
| — |
| (3,401 | ) | — |
| — |
| 4,570 |
|
| Other current liabilities | 72,465 |
| 146 |
| (7,503 | ) | (146 | ) | (3,663)(F) |
| 79,507 |
|
| | | | | 18,208(S) |
| | |
| Current maturities of long-term debt | 29,919 |
| 19,779 |
| 3,607 |
| (3,509)(D) |
| 2,400(F) |
| 52,196 |
|
| Total current liabilities | 186,002 |
| 71,196 |
| (21,993 | ) | 20,248 |
| (1,263 | ) | 254,190 |
|
| Long-term debt, less current maturities | 1,795,265 |
| 491,144 |
| — |
| (448,374)(D) |
| 239,741(F) |
| 2,077,776 |
|
| Long-term tax receivable agreement liability | 122,351 |
| — |
| (43,853 | ) | — |
| — |
| 78,498 |
|
| Acquisition escrow long-term liability | — |
| — |
| — |
| 19,600(U) |
| — |
| 19,600 |
|
| Other long-term liabilities | 76,101 |
| 85,760 |
| 13,021 |
| (373 | ) | — |
| 129,097 |
|
| | | | | (45,412)(S) |
| | |
| Noncontrolling interests, redeemable | 176,252 |
| 96,057 |
| (58,571 | ) | (107,896)(S) |
| — |
| 105,842 |
|
| Series A Convertible Preferred Stock | — |
| — |
| — |
| — |
| 310,000(E) |
| 310,000 |
|
| Stockholders’ equity: | | | | | | |
| Common stock | 488 |
| — |
| — |
| — |
| — |
| 488 |
|
| Additional paid-in-capital | 324,340 |
| 77,457 |
| 395,777 |
| (77,457 | ) | — |
| 720,117 |
|
| Retained deficit | (318,576 | ) | 25,320 |
| 393,969 |
| (29,464 | ) | (18,370)(F) |
| — |
|
| | | | | (9,750)(O) |
| (38,863)(O) |
| |
| | | | | | (4,266)(P) |
| |
| Total Surgery Partners stockholders’ equity | 6,252 |
| 102,777 |
| 789,746 |
| (116,671 | ) | (61,499 | ) | 720,605 |
|
| Noncontrolling interests, nonredeemable | 309,264 |
| 165,159 |
| 202,571 |
| 172,645(S) |
| — |
| 849,639 |
|
| Total equity | 315,516 |
| 267,936 |
| 992,317 |
| 55,974 |
| (61,499 | ) | 1,570,244 |
|
| Total liabilities and stockholders’ equity | $ | 2,671,487 |
| $ | 1,012,093 |
| $ | 880,921 |
| $ | (506,233 | ) | $ | 486,979 |
| $ | 4,545,247 |
|
See the accompanying notes to Unaudited Pro Forma Condensed Combined Financial Information.
SURGERY PARTNERS, INC.
Unaudited Pro Forma Condensed Combined Statements of Operations
Year Ended December 31, 2016
|
| | | | | | | | | | | | | | | | | | |
| (in thousands, except shares and per share amounts) | Historical Surgery Partners | Historical National Surgical Healthcare Adjusted(G) | Surgery Partners Acquisition Adjustments | NSH Acquisition Adjustments | Financing Adjustments | Pro-Forma Combined |
| Revenues: | | | | | | |
| Net patient services revenues | $ | 1,137,110 |
| $ | 527,494 |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,664,604 |
|
| Other services revenues | 2,967 |
| 6,266 |
| | 480(J) |
| | 9,713 |
|
| Management fee income | 5,362 |
| — |
| — |
| — |
| — |
| 5,362 |
|
| Total revenues | 1,145,438 |
| 533,760 |
| — |
| 480 |
| — |
| 1,679,678 |
|
| Operating expenses: | | | | | | |
| Salaries and benefits | 357,175 |
| 153,309 |
| — |
| — |
| — |
| 510,484 |
|
| Supplies | 269,239 |
| 138,535 |
| — |
| — |
| — |
| 407,774 |
|
| Professional and medical fees | 81,185 |
| 14,660 |
| — |
| — |
| — |
| 95,845 |
|
| Rent and lease expense | 52,147 |
| 19,857 |
| — |
| — |
| — |
| 72,004 |
|
| Other operating expenses | 61,450 |
| 66,146 |
| — |
| — |
| — |
| 127,596 |
|
| Total cost of revenues | 821,196 |
| 392,507 |
| — |
| — |
| — |
| 1,213,703 |
|
| General and administrative expense | 60,246 |
| 20,145 |
| — |
| (602)(C) |
| — |
| 79,586 |
|
| | | | | (203)(N) |
| | |
| Depreciation and amortization | 39,551 |
| 27,086 |
| (15,138)(V) |
| (11,538)(H) |
| — |
| 39,961 |
|
| Provision for doubtful accounts | 24,212 |
| 13,967 |
| — |
| — |
| — |
| 38,179 |
|
| Income on equity investments | (4,764 | ) | (2,796 | ) | — |
| — |
| — |
| (7,560 | ) |
| Loss on disposal of investments and long-lived assets, net | 2,355 |
| 591 |
| — |
| — |
| — |
| 2,946 |
|
| Merger Transaction Costs | 8,738 |
| — |
| — |
| (700)(C) |
| — |
| 8,038 |
|
| Loss on debt extinguishment | 11,876 |
| — |
| — |
| — |
| — |
| 11,876 |
|
| Gain on litigation | (14,101 | ) | — |
| — |
| — |
| — |
| (14,101 | ) |
| Electronic health record incentives | (408 | ) | (2,919 | ) | — |
| — |
| — |
| (3,327 | ) |
| Other Expense | 55 |
| — |
| — |
| — |
| — |
| 55 |
|
| Total operating expenses | 948,956 |
| 448,581 |
| (15,138 | ) | (13,043 | ) | — |
| 1,369,356 |
|
| Operating income | 196,482 |
| 85,179 |
| 15,138 |
| 13,523 |
| — |
| 310,323 |
|
| Tax receivable agreement expense | (3,733 | ) | — |
| — |
| — |
| — |
| (3,733 | ) |
| Interest expense, net | (100,571 | ) | (34,947 | ) | 1,232(W) |
| — |
| 30,155(I) |
| (152,569 | ) |
| | — |
| | | | (42,839)(K) |
| |
| | | | | | (5,600)(P) |
| |
| Income (loss) before income taxes | 92,178 |
| 50,232 |
| 16,370 |
| 13,523 |
| (18,284 | ) | 154,020 |
|
| Provision for income taxes | 7,095 |
| 6,837 |
| 6,221(L) |
| 5,139(L) |
| (6,948)(L) |
| 18,344 |
|
| Income (loss) from continuing operations | 85,083 |
| 43,395 |
| 10,150 |
| 8,384 |
| (11,336 | ) | 135,677 |
|
| Less: Net income attributable to noncontrolling interests | (75,630 | ) | (36,494 | ) | — |
| — |
| — |
| (112,124 | ) |
| Net income (loss) attributable to Surgery Partners | 9,453 |
| 6,901 |
| 10,150 |
| 8,384 |
| (11,336 | ) | 23,553 |
|
| Less: Preferred Dividends | — |
| — |
| — |
| — |
| (63,531)(E) |
| (63,531 | ) |
| Net income (loss) income attributable to Common Shareholders | $ | 9,453 |
| $ | 6,901 |
| $ | 10,150 |
| $ | 8,384 |
| $ | (74,867 | ) | $ | (39,979 | ) |
| | | | | | | |
| Net income (loss) per share attributable to common stockholders: | | | | | | |
| Basic | $ | 0.20 |
| | | | | $ | (0.83 | ) |
Diluted(1) | $ | 0.20 |
| | | | | $ | (0.83 | ) |
| Weighted average common shares outstanding: | | | | | | |
| Basic | 48,018,944 |
| | | | | 48,018,944 |
|
Diluted(1) | 48,190,738 |
| | | | | 48,018,944 |
|
(1) The impact of potentially dilutive securities for the pro forma combined financials was not considered because the effect would be anti-dilutive for the period.
See the accompanying notes to Unaudited Pro Forma Condensed Combined Financial Information.
SURGERY PARTNERS, INC.
Unaudited Pro Forma Condensed Combined Statements of Operations
Six Months Ended June 30, 2017
|
| | | | | | | | | | | | | | | | | | |
| (in thousands, except shares and per share amounts) | Historical Surgery Partners | Historic National Surgical Healthcare Adjusted(M) | Surgery Partners Acquisition Adjustments | NSH Acquisition Adjustments | Financing Adjustments | Pro Forma Combined |
| Revenues: | | | | | | |
| Net patient services revenues | $ | 565,343 |
| $ | 278,267 |
| $ | — |
| $ | — |
| $ | — |
| $ | 843,610 |
|
| Other services revenues | 6,663 |
| 2,916 |
| — |
| 240(J) |
| — |
| 9,819 |
|
| Management fee income | 2,530 |
| — |
| ��� |
| — |
| — |
| 2,530 |
|
| Total revenues | 574,536 |
| 281,183 |
| — |
| 240 |
| — |
| 855,959 |
|
| Operating expenses: | | | | | | |
| Salaries and benefits | 179,909 |
| 40,115 |
| — |
| — |
| — |
| 220,024 |
|
| Supplies | 145,244 |
| 35,859 |
| — |
| — |
| — |
| 181,103 |
|
| Professional and medical fees | 43,702 |
| 3,439 |
| — |
| — |
| — |
| 47,141 |
|
| Rent and lease expense | 27,300 |
| 5,179 |
| — |
| — |
| — |
| 32,479 |
|
| Other operating expenses | 32,245 |
| 122,974 |
| — |
| — |
| — |
| 155,219 |
|
| Total cost of revenues | 428,400 |
| 207,567 |
| — |
| — |
| — |
| 635,967 |
|
| General and administrative expense | 34,196 |
| 12,010 |
| — |
| (699)(P) |
| — |
| 45,375 |
|
| | | | | (132) (N) |
| | |
| Depreciation and amortization | 22,525 |
| 13,093 |
| (10,318)(V) |
| (5,319)(H) |
| — |
| 19,981 |
|
| Provision for doubtful accounts | 11,463 |
| 8,339 |
| — |
| — |
| — |
| 19,802 |
|
| Income on equity investments | (2,252 | ) | (1,499 | ) | — |
| — |
| — |
| (3,751 | ) |
| Loss on disposal of investments and long-lived assets, net | 1,601 |
| 1,347 |
| — |
| — |
| — |
| 2,948 |
|
| Merger Transaction Costs | 3,241 |
| — |
| — |
| (3,241)(C) |
| — |
| — |
|
| Gain on litigation settlements | (3,794 | ) | — |
| — |
| — |
| — |
| (3,794 | ) |
| Electronic health record incentives | (302 | ) | 10 |
| — |
| — |
| — |
| (292 | ) |
| Other Income | (2 | ) | — |
| — |
| — |
| — |
| (2 | ) |
| Total operating expenses | 495,076 |
| 240,867 |
| (10,318 | ) | (9,391 | ) | — |
| 716,223 |
|
| Operating income | 79,460 |
| 40,316 |
| 10,318 |
| 9,391 |
| | 139,726 |
|
| Interest expense, net | (50,782 | ) | (17,732 | ) | 616(W) |
| — |
| 14,894(I) |
| (76,101 | ) |
| | | | | | (20,297)(K) |
| |
| | | | | | (2,800)(P) |
| |
| Income (loss) before income taxes | 28,678 |
| 22,584 |
| 10,935 |
| 9,391 |
| (8,203 | ) | 63,624 |
|
| Provision for income taxes | 2,629 |
| 3,496 |
| 4,155(L) |
| 3,660(L) |
| (3,117)(L) |
| 8,747 |
|
| Income (loss) from continuing operations | 26,049 |
| 19,088 |
| 6,779 |
| 5,971 |
| (5,086 | ) | 55,382 |
|
| Less: Net income attributable to noncontrolling interests | (33,274 | ) | (18,663 | ) | — |
| — |
| — |
| (51,937 | ) |
| Net (loss) income attributable to Surgery Partners | (7,225 | ) | 425 |
| 6,779 |
| 5,971 |
| (5,086 | ) | 3,445 |
|
| Less: Preferred Dividends | — |
| — |
| — |
| — |
| (14,740)(E) |
| (14,740 | ) |
| Net (loss) income attributable to Common Shareholders | $ | (7,225 | ) | $ | 425 |
| $ | 6,779 |
| $ | 5,971 |
| $ | (19,826 | ) | $ | (11,295 | ) |
| | | | | | | |
| Net loss per share attributable to common stockholders: | | | | | | |
| Basic | $ | (0.15 | ) | | | | | $ | (0.22 | ) |
Diluted(1) | $ | (0.15 | ) | | | | | $ | (0.22 | ) |
| Weighted average common shares outstanding: | | | | | | |
| Basic | 48,112,909 |
| | | | | 48,112,909 |
|
Diluted(1) | 48,112,909 |
| | | | | 48,112,909 |
|
(1)The impact of potentially dilutive securities for the period was not considered because the effect would be anti-dilutive for the period.
See the accompanying notes to Unaudited Pro Forma Condensed Combined Financial Information.
Notes to Unaudited Pro Forma Condensed Combined Financial Information of
Surgery Partners, Inc.
(A) For presentation purposes, the historical results of Casper, which were not acquired by the Company as part of the NSH Acquisition, have been adjusted out of the NSH financial information presented below.
NATIONAL SURGICAL HEALTHCARE
Unaudited Adjusted Condensed Balance Sheet
As of June 30, 2017
|
| | | | | | | | | |
| (in thousands) | Historical National Surgical Healthcare (Unaudited) | Historical Casper | Historical National Surgical Healthcare Adjusted |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 34,748 |
| $ | 3,519 |
| $ | 31,229 |
|
| Accounts receivable, less allowance for doubtful accounts | 91,608 |
| 5,830 |
| 85,778 |
|
| Inventories | 14,878 |
| 1,033 |
| 13,845 |
|
| Prepaid expenses and other current assets | 13,808 |
| 2,371 |
| 11,437 |
|
| Total current assets | 155,042 |
| 12,753 |
| 142,289 |
|
| Property and equipment, net | 182,552 |
| 10,367 |
| 172,185 |
|
| Intangible assets, net | 100,105 |
| 5,856 |
| 94,249 |
|
| Goodwill | 665,534 |
| 77,323 |
| 588,211 |
|
| Investments in and advances to affiliates | 9,443 |
| — |
| 9,443 |
|
| Other long-term assets | 5,725 |
| 9 |
| 5,716 |
|
| Total assets | $ | 1,118,401 |
| $ | 106,308 |
| $ | 1,012,093 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 33,525 |
| $ | 7,305 |
| $ | 26,220 |
|
| Accrued payroll and benefits | 27,137 |
| 2,086 |
| 25,051 |
|
| Other current liabilities | 146 |
| — |
| 146 |
|
| Current maturities of long-term debt | 21,222 |
| 1,443 |
| 19,779 |
|
| Total current liabilities | 82,030 |
| 10,834 |
| 71,196 |
|
| Long-term debt, less current maturities | 500,710 |
| 9,566 |
| 491,144 |
|
| Other long-term liabilities | 90,824 |
| 5,064 |
| 85,760 |
|
| Long-term liabilities of discontinued operations | — |
| — |
| — |
|
| Noncontrolling interests, redeemable | 120,992 |
| 24,935 |
| 96,057 |
|
| Stockholders’ equity: | | | |
| Additional paid-in-capital | 77,457 |
| — |
| 77,457 |
|
| Retained deficit | 81,229 |
| 55,909 |
| 25,320 |
|
| Total stockholders’ equity | 158,686 |
| 55,909 |
| 102,777 |
|
| Noncontrolling interests, nonredeemable | 165,159 |
| — |
| 165,159 |
|
| Total equity | 323,845 |
| 55,909 |
| 267,936 |
|
| Total liabilities and stockholders’ equity | $ | 1,118,401 |
| $ | 106,308 |
| $ | 1,012,093 |
|
(B) The NSH Acquisition has been accounted for as a business combination in accordance with ASC 805, Business Combinations. The pro forma adjustments reflect the NSH Acquisition under the acquisition method of accounting as set forth below. In calculating the pro forma adjustments, the fair value of NSH’s identifiable assets acquired and liabilities assumed have been recorded on a preliminary basis. Therefore, the purchase price allocation is subject to adjustments and such adjustments may be material.
PURCHASE PRICE ALLOCATION SUMMARY ON NSH ACQUISITION
|
| | | |
| (in thousands) | |
| Purchase Price: | |
| Cash consideration: | $ | 762,850 |
|
| NSH pre-acquisition debt paid: | 59,186 |
|
| | |
| Allocation of purchase price: | |
| Cash and cash equivalents | 51,159 |
|
| Accounts receivable, less allowance for doubtful accounts | 76,531 |
|
| Inventories | 14,986 |
|
| Prepaid expenses and other current assets | 18,007 |
|
Property and equipment, net(1) | 174,374 |
|
Intangible assets, net(3) | 27,741 |
|
| Investments in advances to affiliates | 29,737 |
|
| Other long-term assets | 33,491 |
|
| Accounts payable | (29,652 | ) |
| Accrued payroll and benefits | (27,313 | ) |
| Other current liabilities | (18,355 | ) |
| Other long-term liabilities | (47,461 | ) |
| Total fair value of net assets acquired: | 303,245 |
|
| Fair Value of Noncontrolling interest: | 325,965 |
|
Goodwill(2) | $ | 844,756 |
|
(1) Represents adjustments to reflect the differences in depreciation and amortization expense historically recorded and what would have been recorded during the same periods.
(2) Represents the preliminary excess of purchase price over the fair values of assets acquired and liabilities assumed as a result of the NSH Acquisition. Approximately $153.5 million of the total goodwill is expected to be deductible for income tax purposes (dollars in thousands):
|
| |
| Amount Goodwill recorded in NSH Acquisition | $844,756 |
| Eliminate NSH’s existing goodwill | $588,211 |
| Net adjustment | $256,545 |
(3) The following table is a summary of the adjustment to record the fair value of acquired intangible assets (dollars in thousands):
|
| |
| Certificates of need | $711 |
| Tradenames | 0 |
| Non-compete agreements | 0 |
| Management contracts | 26,900 |
| Licenses | 130 |
| Eliminate NSH’s existing intangible assets | (94,249) |
| Net adjustment | $(66,509) |
(C) Represents the adjustments to eliminate non‑recurring amounts directly attributable to the NSH Acquisition, including transaction fees and expenses, recorded in the historical financial statements.
(D) Represents adjustments to reflect the repayment of historical indebtedness, and related unamortized deferred financing fees that will be repaid at the closing of the NSH Acquisition, including the Existing NSH Debt.
(E) Represents adjustments to account for the issuance of the Series A Preferred Stock and the related accumulated preferred dividend.
(F) Represents the adjustments to account for the refinancing of the Existing Credit Facilities, issuance of the Notes and the related loan costs and interest payable balances. The related cash impact of this refinancing transaction is as follows:
|
| | | |
| Net additional first lien borrowing | $ | 362,750 |
|
| Senior unsecured notes due 2025 borrowing | 370,000 |
|
| Revolver pay-down | (91,000 | ) |
| Subordinated notes pay-off | (1,000 | ) |
| Accrued interest payment | (3,663 | ) |
| Receipt of funds in escrow | 9,491 |
|
| Payment of new loan costs | (54,848 | ) |
| Net cash effect | $ | 591,730 |
|
(G) For presentation purposes, the historical results of Casper, which will not be acquired by the Company as part of the NSH Acquisition, have been adjusted out of NSH financial information below.
NATIONAL SURGICAL HEALTHCARE
Unaudited Adjusted Condensed Statement of Income
Year ended December 31, 2016
|
| | | | | | | | | |
| (in thousands) | Historical National Surgical Healthcare Audit | Historical Casper | Historical National Surgical Healthcare Adjusted |
| Revenues: | | | |
| Net patient services revenues | $ | 589,946 |
| $ | 62,452 |
| $ | 527,494 |
|
| Other services revenues | 6,307 |
| 41 |
| 6,266 |
|
| Total revenues | 596,253 |
| 62,493 |
| 533,760 |
|
| Operating expenses: | | | |
| Salaries and benefits | 178,551 |
| 25,242 |
| 153,309 |
|
| Supplies | 151,529 |
| 12,993 |
| 138,535 |
|
| Professional and medical fees | 19,164 |
| 4,504 |
| 14,660 |
|
| Rent and lease expense | 24,021 |
| 4,164 |
| 19,857 |
|
| Other operating expenses | 75,775 |
| 9,629 |
| 66,146 |
|
| Total cost of revenues | 449,040 |
| 56,533 |
| 392,507 |
|
| General and administrative expense | 20,145 |
| — |
| 20,145 |
|
| Depreciation and amortization | 30,828 |
| 3,742 |
| 27,086 |
|
| Provision for doubtful accounts | 13,561 |
| (406 | ) | 13,967 |
|
| Income on equity investments | (2,796 | ) | — |
| (2,796 | ) |
| Loss (gain) on disposal of investments and long-lived assets, net | 587 |
| (4 | ) | 591 |
|
| Electronic health record incentives | (3,156 | ) | (237 | ) | (2,919 | ) |
| Total operating expenses | 508,209 |
| 59,628 |
| 448,581 |
|
| Operating income | 88,044 |
| 2,865 |
| 85,179 |
|
| Interest expense, net | (35,575 | ) | (628 | ) | (34,947 | ) |
| Income before income taxes | 52,469 |
| 2,237 |
| 50,232 |
|
| Provision for income taxes | (6,837 | ) | — |
| (6,837 | ) |
| Income from continuing operations | 45,632 |
| 2,237 |
| 43,395 |
|
| Less: Net income attributable to noncontrolling interests | (36,782 | ) | (288 | ) | (36,494 | ) |
| Net income attributable to National Surgical Healthcare | $ | 8,850 |
| $ | 1,949 |
| $ | 6,901 |
|
(H) Represents the following adjustments to depreciation and amortization expense for the acquisition of NSH.
|
| | | | | | |
| (dollars in thousands) | Fiscal Year Ended December 31, 2016 | Six Months Ended June 30, 2017 |
Pro forma depreciation and amortization(1) | $ | 15,548 |
| $ | 7,774 |
|
| Less: Depreciation and amortization, adjusted | (27,086 | ) | (13,093 | ) |
| Pro forma adjustment | $ | (11,538 | ) | $ | (5,319 | ) |
(1) Represents adjustments to reflect the differences in depreciation and amortization expense historically recorded and what would have been recorded during the same periods.
(I) Represents adjustments to eliminate interest expense on historical indebtedness that will be repaid at the closing of the Transactions, including the Existing NSH Debt.
(J) Represents the management fees to be received by Surgery Partners and NSH under the pre-existing management fee agreement with Casper.
(K) Represents adjustments to account for the repayment of the Existing Credit Facilities, issuance of the new Notes and the related loan costs and interest payable balances.
(L) Represents adjustments to record the income tax effects of the Pro Forma Statements of Earnings adjustments using a combined statutory and federal rate of 38%.
(M) For presentation purposes, the historical results of Casper, which will not be acquired by the Company as part of the NSH Acquisition, have been adjusted out of NSH financial information presented below.
NATIONAL SURGICAL HEALTHCARE
Unaudited Adjusted Condensed Statement of Income
Six Months ended June 30, 2017
|
| | | | | | | | | |
| (in thousands) | Historical National Surgical Healthcare (Unaudited) | Historical Casper | Historical National Surgical Healthcare Adjusted |
| Revenues: | | | |
| Net patient services revenues | $ | 303,443 |
| $ | 25,176 |
| $ | 278,267 |
|
| Other services revenues | 2,947 |
| 31 |
| 2,916 |
|
| Total revenues | 306,390 |
| 25,207 |
| 281,183 |
|
| Operating expenses: | | | |
| Salaries and benefits | 46,348 |
| 6,232 |
| 40,115 |
|
| Supplies | 38,496 |
| 2,637 |
| 35,859 |
|
| Professional and medical fees | 4,119 |
| 680 |
| 3,439 |
|
| Rent and lease expense | 6,188 |
| 1,009 |
| 5,179 |
|
| Other operating expenses | 138,323 |
| 15,349 |
| 122,974 |
|
| Total cost of revenues | 233,474 |
| 25,907 |
| 207,567 |
|
| General and administrative expense | 12,010 |
| — |
| 12,010 |
|
| Depreciation and amortization | 14,874 |
| 1,781 |
| 13,093 |
|
| Provision for doubtful accounts | 8,133 |
| (206 | ) | 8,339 |
|
| Income on equity investments | (1,499 | ) | — |
| (1,499 | ) |
| Loss (gain) on disposal of investments and long-lived assets, net | 1,298 |
| (49 | ) | 1,347 |
|
| Electronic health record incentives | 10 |
| — |
| 10 |
|
| Total operating expenses | 268,300 |
| 27,433 |
| 240,867 |
|
| Operating income | 38,090 |
| (2,226 | ) | 40,316 |
|
| Interest expense, net | (18,005 | ) | (273 | ) | (17,732 | ) |
| Income before income taxes and discontinued operations | 20,085 |
| (2,499 | ) | 22,584 |
|
| Provision for income taxes | (3,356 | ) | 140 |
| (3,496 | ) |
| Income from continuing operations | 16,729 |
| (2,359 | ) | 19,088 |
|
| Less: Net income attributable to noncontrolling interests | (18,198 | ) | 465 |
| (18,663 | ) |
| Net income (loss) attributable to National Surgical Healthcare | $ | (1,469 | ) | $ | (1,894 | ) | $ | 425 |
|
(N) Represents the elimination of stock compensation expense related to NSH’s stock option plan that will be terminated at the closing of the NSH Acquisition.
(O) Represents adjustments for historic stock compensation expense that should be eliminated in the pro forma condensed combined statements of operations.
(P) Represents the adjustments to revalue the liability in connection with the TRA and the related deferred tax asset change and interest expense adjustment.
(Q) As stipulated within the Escrow Agreement, unless the consummation of the offering of the Notes occurred simultaneously with the consummation of the NSH Acquisition, the Initial Issuer was required to deposit within a segregated
escrow account (for the benefit of the holders of the notes), 100% of the gross proceeds of the offering plus an additional amount sufficient to fund a special mandatory redemption of the notes on October 5, 2017. This adjustment represents the elimination of the gross receivable associated with the escrow account which is eliminated upon the close of the Transactions.
(R) Represents the elimination of the previously recorded prepaid interest expense funded by the Company to compensate for holding the gross proceeds of the offering within an acquisition escrow account.
(S) Represents the adjustments recorded to NSH assets and liabilities assumed based upon the preliminary valuation analysis performed.
(T) On August 31, 2017, H.I.G. Surgery Centers, LLC. (“HIG”) completed its sale of 26,455,651 shares of Surgery Partners’ common stock, par value $0.01 per share (the “Purchased Shares”), beneficially owned by H.I.G. to Bain Capital at a purchase price per share of $19.00 for an aggregate purchase price of $502.7 million in cash pursuant to the Common Stock Purchase Agreement. Also on August 31, 2017, Surgery Partners completed the sale and issuance of 310,000 shares of preferred stock, par value $0.01 per share, of Surgery Partners, designated as 10.00% Series A Convertible Perpetual Participating Preferred Stock (the “Series A Preferred Stock”) to BCPE Seminole Holdings LP (“Bain Capital”), an affiliate of Bain Capital Private Equity, at a purchase price of $1,000 per share in cash (the “Preferred Private Placement”) pursuant to the Securities Purchase Agreement (the “Preferred Stock Purchase Agreement”), dated as of May 9, 2017, by and among the Company and Bain Capital.
As of August 31, 2017, prior to giving effect to the Preferred Private Placement, the Purchased Shares represented approximately 54% of the outstanding Common Stock of the Surgery Partners. As a result of the Private Sale and the Preferred Private Placement, Bain Capital holds Series A Preferred Stock and Common Stock that represent approximately 66% of the voting power of all classes of capital stock of the Company as of August 31, 2017, and H.I.G. and its affiliated investment funds no longer own any capital stock of Surgery Partners. The Private Sale and the Preferred Private Placement were funded by Bain Capital through an equity financing/equity commitment letter.
Following the completion of the Private Sale, Bain Capital became the controlling stockholder of the Company. In connection with the change of control, the Company elected to apply “pushdown” accounting by applying the guidance in Accounting Standards Codification Topic ("ASC") 805, Business Combinations. In accordance with ASC 805, all identifiable assets and liabilities of the Company were measured at and adjusted to fair value as of August 31, 2017, and similarly goodwill was recognized based on the terms of the transaction and the fair value of the new basis of net assets of the Company. These adjustments represents the adjustments recorded to Surgery Partners’ assets and liabilities based upon the the Company’s pushdown accounting analysis performed and also includes the effects of movements in working capital from June 30, 2017 and August 31, 2017.
(U) Represents an indemnification escrow long-term receivable and liability recorded as a result of the NSH Acquisition.
(V) Represents the following adjustments to depreciation and amortization expense for Surgery Partners pushdown accounting.
|
| | | | | | |
| (dollars in thousands) | Fiscal Year Ended December 31, 2016 | Six Months Ended June 30, 2017 |
Pro forma depreciation and amortization(1) | $ | 24,413 |
| $ | 12,207 |
|
| Less: Depreciation and amortization, adjusted | (39,551 | ) | (22,525 | ) |
| Pro forma adjustment | $ | (15,138 | ) | $ | (10,318 | ) |
(1) Represents adjustments to reflect the differences in depreciation and amortization expense historically recorded and what would have been recorded during the same periods.
(W) Represents the change in interest expense as a result of the change in fair value of the Company’s long-term debt based upon the preliminary valuation analysis performed.
