Exhibit 99.2
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The unaudited pro forma combined condensed consolidated financial statements are based upon the historical consolidated financial statements of CryoLife, Inc. and its subsidiaries (“CryoLife,” the “Company,” “we,” or “us”) and On-X Life Technologies Holdings, Inc. ("On-X") and have been prepared to illustrate the effect of CryoLife’s acquisition of On-X for approximately $130.0 million, subject to certain adjustments. Per the Company’s preliminary analysis, the purchase price of the transaction totaled approximately $128.1 million in cash and stock.
The unaudited pro forma combined condensed consolidated balance sheet combines the historical consolidated balance sheets of CryoLife and On-X as of September 30, 2015 and reflects the pro forma effect as if the acquisition of On-X had occurred on that date. The unaudited pro forma combined condensed consolidated statements of operations for the nine months ended September 30, 2015 and the year ended December 31, 2014 combine the historical statements of operations of CryoLife and On-X, adjusted to reflect the pro forma effect as if the acquisition of On-X had occurred on January 1, 2014 (the first day of the Company’s 2014 fiscal year). The historical consolidated financial statements referred to above for CryoLife were included in its Quarterly Report on Form 10-Q for the nine months ended September 30, 2015 and Annual Report on Form 10-K for the year ended December 31, 2014. The historical financial statements referred to above for On-X for the comparable periods are included in this Current Report on Form 8-K. The accompanying unaudited pro forma combined condensed consolidated financial information and the historical consolidated financial information presented therein should be read in conjunction with the historical consolidated financial statements and notes thereto for CryoLife described above. The historical financial statements of On-X have been adjusted to reflect certain reclassifications to conform to the Company's financial statement presentation.
The unaudited pro forma combined condensed consolidated balance sheet and statements of operations include pro forma adjustments which reflect transactions and events that (a) are directly attributable to the acquisition, (b) are factually supportable, and (c) with respect to the statement of operations, are expected to have a continuing impact on consolidated results. The pro forma adjustments are described in the accompanying combined notes to the unaudited pro forma combined condensed consolidated financial statements.
The unaudited pro forma combined condensed consolidated financial information does not reflect future events that may occur after the acquisition, including potential general and administrative savings. The unaudited pro forma combined condensed consolidated financial information is provided for informational purposes only and is not necessarily indicative of the results of operations that would have occurred if the acquisition of On-X had occurred on January 1, 2014 nor is it necessarily indicative of our future operating results. The pro forma adjustments are subject to change and are based upon currently available information.
[Insert pro forma financias from separate file here.]
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CryoLife, Inc. and Subsidiaries | |||||||
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET | |||||||
September 30, 2015 | |||||||
(In Thousands) | |||||||
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| CryoLife |
| On-X |
| Pro Forma Adjustments |
| Pro Forma |
ASSETS |
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Current Assets: |
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Cash and cash equivalents | $ 38,497 |
| $ 1,891 |
| $ (18,472) | (b) | $ 21,916 |
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Restricted securities | 848 |
| 344 |
| - |
| 1,192 |
Receivables, net | 24,443 |
| 7,084 |
| - |
| 31,527 |
Inventories | 14,432 |
| 10,103 |
| 3,081 | (c) | 27,616 |
Deferred preservation costs | 23,480 |
| - |
| - |
| 23,480 |
Deferred income taxes | 5,729 |
| 731 |
| (2,531) | (a), (f) | 3,929 |
Prepaid expenses and other | 5,399 |
| 366 |
| - |
| 5,765 |
Total current assets | 112,828 |
| 20,519 |
| (17,922) |
| 115,425 |
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Property and equipment, net | 12,036 |
| 4,977 |
| 1,036 | (d) | 18,049 |
Restricted cash | 5,000 |
| - |
| - |
| 5,000 |
Goodwill | 11,365 |
| - |
| 65,563 | (g) | 76,928 |
Patents, net | 1,446 |
| - |
| - |
| 1,446 |
Trademarks and other intangibles, net | 17,713 |
| - |
| 53,950 | (e) | 71,663 |
Deferred income taxes, long-term | 14,141 |
| 2,385 |
| (14,608) | (a), (f) | 1,918 |
Other | 5,452 |
| - |
| - |
| 5,452 |
Total Assets | $ 179,981 |
| $ 27,881 |
| $ 88,019 |
| $ 295,881 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable | $ 4,637 |
| $ 1,532 |
| $ - |
| $ 6,169 |
Accrued compensation | 7,952 |
| - |
| - |
| 7,952 |
Accrued procurement fees | 4,683 |
| - |
| - |
| 4,683 |
Accrued expenses and other | 4,596 |
| 3,194 |
| - |
| 7,790 |
Deferred income | 362 |
| 260 |
| (260) | (a) | 362 |
Current portion of indebtedness, net | - |
| 1,231 |
| (1,231) | (a) | - |
Total current liabilities | 22,230 |
| 6,217 |
| (1,491) |
| 26,956 |
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Long-term debt |
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| 1,097 |
| 73,903 | (a), (b) | 75,000 |
Other | 5,858 |
| 835 |
| 746 | (e) | 7,439 |
Total liabilities | 28,088 |
| 8,149 |
| 73,158 |
| 109,395 |
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Shareholders' equity: |
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Preferred stock | - |
| 48,086 |
| (48,086) | (a) | - |
Common stock | 297 |
| 2 |
| 35 | (a), (b) | 334 |
Additional paid-in capital | 141,480 |
| 15,409 |
| 19,147 | (a), (b) | 176,036 |
Retained earnings (deficit) | 21,584 |
| (43,765) |
| 43,765 | (a) | 21,584 |
Accumulated other comprehensive loss | (245) |
| - |
| - |
| (245) |
Treasury stock at cost | (11,223) |
| - |
| - |
| (11,223) |
Total shareholders' equity | 151,893 |
| 19,732 |
| 14,861 |
| 186,486 |
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Total liabilities and shareholders' equity | $ 179,981 |
| $ 27,881 |
| $ 88,019 |
| $ 295,881 |
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.
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CryoLife, Inc. and Subsidiaries | |||||||
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
Nine Months Ended September 30, 2015 | |||||||
(In Thousands Except Per Share Amounts) | |||||||
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| CryoLife |
| On-X |
| Pro Forma Adjustments |
| Pro Forma |
Products | $ 59,168 |
| $ 25,083 |
| $ - |
| $ 84,251 |
Preservation Services | 46,892 |
| - |
| - |
| 46,892 |
Total revenues | 106,060 |
| 25,083 |
| - |
| 131,143 |
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Cost of Products | 13,555 |
| 7,557 |
| 406 | (j) | 21,518 |
Cost of Preservation Services | 28,302 |
| - |
| - |
| 28,302 |
Total costs | 41,857 |
| 7,557 |
| 406 |
| 49,820 |
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Gross margin | 64,203 |
| 17,526 |
| (406) |
| 81,323 |
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General, administrative, and marketing | 55,790 |
| 11,913 |
| 1,839 | (k) | 69,542 |
Research and development | 7,896 |
| 2,806 |
| - |
| 10,702 |
Operating expenses | 63,686 |
| 14,719 |
| 1,839 |
| 80,244 |
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Operating income (loss) | 517 |
| 2,807 |
| (2,245) |
| 1,079 |
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Interest expense | (18) |
| 77 |
| 2,370 | (l) | 2,429 |
Interest income | (29) |
| - |
| - |
| (29) |
Gain on sale of Medafor investment | (891) |
| - |
| - |
| (891) |
Other expense (income), net | 204 |
| (135) |
| - |
| 69 |
Total other (income) expenses | (734) |
| (58) |
| 2,370 |
| 1,578 |
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Income (loss) before income taxes | 1,251 |
| 2,865 |
| (4,615) |
| (499) |
Income tax expense (benefit) | (118) |
| 820 |
| (1,754) | (m) | (1,052) |
Net Income (loss) | $ 1,369 |
| $ 2,045 |
| $ (2,861) |
| $ 553 |
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Net income allocated to participating securities | (31) |
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| 9 | (n) | (22) |
Net income (loss) applicable to common shares - Basic | $ 1,338 |
| $ 2,045 |
| $ (2,852) |
| $ 531 |
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Net income allocated to participating securities | (32) |
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| 9 | (n) | (23) |
Net income (loss) applicable to common shares - Diluted | $ 1,337 |
| $ 2,045 |
| $ (2,852) |
| $ 530 |
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Income Per Common Share - Basic | $ 0.05 |
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| $ 0.02 |
Income Per Common Share - Diluted | $ 0.05 |
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| $ 0.02 |
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Weighted Average Common Shares Outstanding |
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Basic | 27,687 |
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| 3,704 | (o) | 31,391 |
Diluted | 28,487 |
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| 3,704 | (o) | 32,191 |
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.
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CryoLife, Inc. and Subsidiaries | |||||||
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
Year Ended December 31, 2014 | |||||||
(In Thousands Except Per Share Amounts) | |||||||
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| CryoLife |
| On-X |
| Pro Forma Adjustments |
| Pro Forma |
Products | $ 81,883 |
| $ 33,080 |
| $ - |
| $ 114,963 |
Preservation Services | 62,758 |
| - |
| - |
| 62,758 |
Total revenues | 144,641 |
| 33,080 |
| - |
| 177,721 |
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Cost of Products | 17,167 |
| 12,247 |
| 3,450 | (i), (j) | 32,864 |
Cost of Preservation Services | 36,183 |
| - |
| - |
| 36,183 |
Total costs | 53,350 |
| 12,247 |
| 3,450 |
| 69,047 |
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Gross margin | 91,291 |
| 20,833 |
| (3,450) |
| 108,674 |
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General, administrative, and marketing | 73,754 |
| 13,291 |
| 2,452 | (k) | 89,497 |
Research and development | 8,699 |
| 4,356 |
| - |
| 13,055 |
Operating expenses | 82,453 |
| 17,647 |
| 2,452 |
| 102,552 |
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Operating income (loss) | 8,838 |
| 3,186 |
| (5,902) |
| 6,122 |
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Interest expense | 175 |
| 95 |
| 3,250 | (l) | 3,520 |
Interest income | (50) |
| - |
| - |
| (50) |
Gain on Medafor investment | (530) |
| - |
| - |
| (530) |
Other expense (income), net | 540 |
| (221) |
| - |
| 319 |
Total other expenses (income) | 135 |
| (126) |
| 3,250 |
| 3,259 |
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Income (loss) before income taxes | 8,703 |
| 3,312 |
| (9,152) |
| 2,863 |
Income tax expense (benefit) | 1,381 |
| (3,753) |
| (3,478) | (m) | (5,850) |
Net Income (loss) | $ 7,322 |
| $ 7,065 |
| $ (5,674) |
| $ 8,713 |
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Net income allocated to participating securities | (161) |
| - |
| (21) | (n) | (182) |
Net income (loss) applicable to common shares - Basic | $ 7,161 |
| $ 7,065 |
| $ (5,695) |
| $ 8,531 |
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Net income allocated to participating securities | (158) |
| - |
| (21) | (n) | (179) |
Net income (loss) applicable to common shares - Diluted | $ 7,164 |
| $ 7,065 |
| $ (5,695) |
| $ 8,534 |
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Income Per Common Share - Basic | $ 0.26 |
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| $ 0.27 |
Income Per Common Share - Diluted | $ 0.25 |
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| $ 0.27 |
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Weighted Average Common Shares Outstanding |
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Basic | 27,379 |
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| 3,704 | (o) | 31,083 |
Diluted | 28,313 |
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| 3,704 | (o) | 32,017 |
See accompanying notes to unaudited pro forma combined condensed consolidated financial statements.
4
CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands)
Description of Transaction and Basis of Presentation
The unaudited pro forma combined condensed consolidated financial statements are based upon the historical consolidated financial statements of CryoLife, Inc. and its subsidiaries (“CryoLife,” the “Company,” “we,” or “us”) which were included in its Quarterly Report on Form 10-Q for the nine months ended September 30, 2015 and Annual Report on Form 10-K for the year ended December 31, 2014 and On-X, Inc. ("On-X") financial statements for these periods which are included in this Current Report on Form 8-K/A. The unaudited pro forma combined condensed consolidated statements of operations reflect the acquisition of On-X as if it had occurred on January 1, 2014 (the first day of our 2014 fiscal year). The unaudited pro forma combined condensed consolidated balance sheet as of September 30, 2015 reflects such acquisition as if it had occurred on that date.
In accordance with generally accepted accounting principles in the United States, the acquisition of On-X is being accounted for using the purchase method of accounting. As a result, the unaudited pro forma combined condensed consolidated balance sheet has been adjusted to reflect the preliminary allocation of the purchase price to identifiable net assets acquired based primarily on the Company's fair value assessment and the excess purchase price to goodwill. The purchase price allocation in these unaudited pro forma combined condensed consolidated financial statements is based upon a purchase price of approximately $128.1 million.
Pro Forma Adjustments
On January 20, 2016 CryoLife completed its acquisition of 100% of the outstanding equity of On-X, a privately held company, for $93.5 million in cash and 3,703,699 shares of CryoLife common stock, with an estimated value of $34.6 million as determined on the date of the closing, for a total purchase price of approximately $128.1 million. In connection with the closing of the On-X acquisition, the Company entered into the Third Amended and Restated Credit Agreement with Capital One, National Association; Healthcare Financial Solutions, LLC; Fifth Third Bank; and Citizens Bank National Association that provides CryoLife with a senior secured credit facility in an aggregate principal amount of $95.0 million, which includes a $75.0 million term loan and a $20.0 million revolving credit facility. CryoLife used the $75.0 million term loan to finance, in part, the acquisition. CryoLife operates On-X as a wholly owned subsidiary.
The following pro forma adjustments are included in the unaudited pro forma combined condensed consolidated balance sheet and/or the unaudited pro forma combined condensed consolidated statements of operations:
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(a) | The elimination of On-X non-retained assets, liabilities, and equity. |
(b) | The reduction in cash, issuance of debt, and issuance of CryoLife common stock representing the total purchase price consideration paid to the Sellers. |
(c) | Fair value adjustment to inventories. |
(d) | Fair value adjustment to property and equipment. |
(e) | Fair value of intangible assets acquired and liabilities assumed. |
(f) | Estimated deferred tax assets and liabilities acquired. |
(g) | Goodwill is the estimated excess of the purchase price over the tangible assets acquired as of the unaudited pro forma combined condensed consolidated balance sheet date. |
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CRYOLIFE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(In Thousands)
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(h) | The preliminary allocation of purchase price and estimated goodwill as of January 20, 2016, the date of the transaction, is summarized below: |
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Total purchase price | $128,065 |
Tangible assets acquired: |
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Cash and cash equivalents | 2,472 |
Receivables | 6,332 |
Intangible assets | 53,950 |
Other assets | 6,971 |
Liabilities assumed | (18,299) |
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Goodwill (estimated) | $63,528 |
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(i) | The effect of fair value adjustment to inventories on cost of products. |
(j) | The effect of additional depreciation included in cost of products resulting from the fair value adjustment to property and equipment. |
(k) | Net increase in amortization of intangible assets acquired. |
(l) | Net increase in interest expense as a result of the debt issued as a result of the transaction. |
(m) | The effect of the pro forma income statement adjustments on income taxes as calculated using an estimated combined U.S. federal and state statutory tax rate of 38%. |
(n) | The change in net income allocated to common shareholders as a result of the transaction. |
(o) | The change in weighted average common shares outstanding as a result of the common shares issued as a result of the transaction. |
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