Exhibit 99.2
DIVERSICARE HEALTHCARE SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Effective September 1, 2013, Diversicare Healthcare Services, Inc. ("Diversicare") entered into an agreement with Omega Healthcare Investors, Inc. (NYSE: OHI) ("Omega") to terminate its lease with respect to eleven nursing facilities located in Arkansas and concurrently entered into operation transfer agreements to transfer the operations of each of those eleven facilities to an operator selected by Omega. Upon the completion of the transaction, Diversicare no longer operates any skilled nursing centers in the State of Arkansas.
In connection with the closing of this transaction, effective September 1, 2013, Diversicare and Omega entered into the Thirteenth Amendment to Consolidated Amended and Restated Master Lease ("Amendment No. 13") to amend the Consolidated Amended and Restated Master Lease ("Master Lease") most recently amended on January 22, 2013. Amendment No. 13 effectively modifies the terms of the Master Lease to terminate the terms surrounding the eleven nursing facilities in Arkansas (and only as to those eleven facilities) and effectively reduces the annual rent payable under the Master Lease by $5,000,000.
The following Unaudited Pro Forma Condensed Consolidated Financial Statements are presented to comply with Article 11 of Regulation S-X and follow prescribed SEC regulations. The Unaudited Pro Forma Condensed Consolidated Financial Statements do not purport to present what Diversicare's results would have been had the disposition actually occurred on the dates indicated or to project what Diversicare's results of operations will be for any future period. The prescribed regulations limit pro forma adjustments to those that are directly attributable to the disposition on a factually supported basis.
As permitted under Article 11 of Regulation S-X, Diversicare has elected to omit a columnar presentation of the condensed consolidated balance sheet as of June 30, 2013, due to the limited number of pro forma adjustments required as a result of the aforementioned transaction. As part of the agreement reached in the disposition, Diversicare will maintain all existing receivables and liabilities from the facilities that existed prior to the disposition date. The primary impact to the historical balance sheet is related to the write-off of certain leasehold improvements from the Property and Equipment line of the balance sheet. The total net book value of these fixed assets were $2.1 million which were impaired upon disposition of the Arkansas operations.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations have been prepared for informational purposes and to assist in the analysis of Diversicare's disposition of its Arkansas operations. This information should be read together with the historical consolidated financial statements and related notes of Diversicare included in its Annual Report on Form 10-K for the year ended December 31, 2012 and its Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the six months ended June 30, 2013 and the years ended December 31, 2012, December 31, 2011, and December 31, 2010 give effect to the transaction described above as if it had occurred on January 1, 2010. The Unaudited Pro Forma Condensed Consolidated Financial Statements are derived from the historical consolidated financial statements of Diversicare and are based on assumptions that management believes are reasonable in the circumstances.
EXHIBIT 99.2 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts)
|
| | | | | | | | | | | |
| | As Reported (a) | | Arkansas Region (b) | | Pro Forma |
| | Six Months Ended June 30, | | Six Months Ended June 30, | | Six Months Ended June 30, |
| | 2013 | | 2013 | | 2013 |
| PATIENT REVENUES, net | $ | 162,028 |
| | $ | 31,880 |
| | $ | 130,148 |
|
| EXPENSES: | | | | | |
| Operating | 127,279 |
| | 24,204 |
| | 103,075 |
|
| Lease and rent expense | 12,533 |
| | 2,440 |
| | 10,093 |
|
Professional liability (c) | 8,471 |
| | 4,320 |
| | 4,151 |
|
| General and administrative | 13,342 |
| | 856 |
| | 12,486 |
|
| Depreciation and amortization | 3,578 |
| | 348 |
| | 3,230 |
|
| Asset impairment | — |
| | — |
| | — |
|
| Total expenses | 165,203 |
| | 32,168 |
| | 133,035 |
|
| OPERATING LOSS | (3,175 | ) | | (288 | ) | | (2,887 | ) |
| OTHER EXPENSE: | | | | | |
| Equity in net losses of unconsolidated affiliate | (215 | ) | | — |
| | (215 | ) |
| Interest expense, net | (1,580 | ) | | — |
| | (1,580 | ) |
| Debt retirement costs | (320 | ) | | — |
| | (320 | ) |
| | (2,115 | ) | | — |
| | (2,115 | ) |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (5,290 | ) | | (288 | ) | | (5,002 | ) |
| BENEFIT FOR INCOME TAXES | 2,211 |
| | 60 |
| | 2,151 |
|
| LOSS FROM CONTINUING OPERATIONS | (3,079 | ) | | (228 | ) | | (2,851 | ) |
| | | | | | |
| Loss per common share from continuing operations – basic | $ | (0.56 | ) | | | | $ | (0.53 | ) |
| Loss per common share from continuing operations – diluted | $ | (0.56 | ) | | | | $ | (0.53 | ) |
| | | | | | |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | |
| Basic | 5,861 |
| | | | 5,861 |
|
| Diluted | 5,861 |
| | | | 5,861 |
|
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
EXHIBIT 99.2 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As Reported (a) | | Arkansas Region (b) | | Pro Forma |
| | Year Ended December 31, | | Year Ended December 31, | | Year Ended December 31, |
| | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 | | 2012 | | 2011 | | 2010 |
| PATIENT REVENUES, net | $ | 308,072 |
| | $ | 309,467 |
| | $ | 285,594 |
| | $ | 61,782 |
| | $ | 63,589 |
| | $ | 60,560 |
| | $ | 246,290 |
| | $ | 245,878 |
| | $ | 225,034 |
|
| EXPENSES: | | | | | | | | | | | | | | | | | |
| Operating | 242,591 |
| | 239,674 |
| | 225,469 |
| | 47,884 |
| | 48,320 |
| | 45,906 |
| | 194,707 |
| | 191,354 |
| | 179,563 |
|
| Lease and rent expense | 23,930 |
| | 22,939 |
| | 22,600 |
| | 4,879 |
| | 4,875 |
| | 4,874 |
| | 19,051 |
| | 18,064 |
| | 17,726 |
|
Professional liability (c) | 11,964 |
| | 10,466 |
| | 5,140 |
| | 5,875 |
| | 7,012 |
| | 3,198 |
| | 6,089 |
| | 3,454 |
| | 1,942 |
|
| General and administrative | 24,419 |
| | 25,589 |
| | 19,680 |
| | 1,651 |
| | 1,766 |
| | 1,515 |
| | 22,768 |
| | 23,823 |
| | 18,165 |
|
| Depreciation and amortization | 7,043 |
| | 6,365 |
| | 5,614 |
| | 767 |
| | 758 |
| | 591 |
| | 6,276 |
| | 5,607 |
| | 5,023 |
|
| Asset impairment | — |
| | 344 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 344 |
| | — |
|
| Total expenses | 309,947 |
| | 305,377 |
| | 278,503 |
| | 61,056 |
| | 62,731 |
| | 56,084 |
| | 248,891 |
| | 242,646 |
| | 222,419 |
|
| OPERATING INCOME (LOSS) | (1,875 | ) | | 4,090 |
| | 7,091 |
| | 726 |
| | 858 |
| | 4,476 |
| | (2,601 | ) | | 3,232 |
| | 2,615 |
|
| OTHER INCOME (EXPENSE): | | | | | | | | | | | | | | | | | |
| Equity in net losses of unconsolidated affiliate | (280 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (280 | ) | | — |
| | — |
|
| Interest expense, net | (2,809 | ) | | (2,355 | ) | | (1,632 | ) | | — |
| | (1 | ) | | 1 |
| | (2,809 | ) | | (2,354 | ) | | (1,633 | ) |
| Debt retirement costs | — |
| | (112 | ) | | (127 | ) | | — |
| | — |
| | — |
| | — |
| | (112 | ) | | (127 | ) |
| | (3,089 | ) | | (2,467 | ) | | (1,759 | ) | | — |
| | (1 | ) | | 1 |
| | (3,089 | ) | | (2,466 | ) | | (1,760 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (4,964 | ) | | 1,623 |
| | 5,332 |
| | 726 |
| | 857 |
| | 4,477 |
| | (5,690 | ) | | 766 |
| | 855 |
|
| BENEFIT (PROVISION) FOR INCOME TAXES | 1,747 |
| | (437 | ) | | (1,702 | ) | | (269 | ) | | (317 | ) | | (1,656 | ) | | 2,016 |
| | (120 | ) | | (46 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS | (3,217 | ) | | 1,186 |
| | 3,630 |
| | 457 |
| | 540 |
| | 2,821 |
| | (3,674 | ) | | 646 |
| | 809 |
|
| | | | | | | | | | | | | | | | | | |
| Income (Loss) per common share from continuing operations – basic | $ | (0.63 | ) | | $ | 0.15 |
| | $ | 0.57 |
| | | | | | | | $ | (0.71 | ) | | $ | 0.05 |
| | $ | 0.08 |
|
| Income (Loss) per common share from continuing operations – diluted | $ | (0.63 | ) | | $ | 0.14 |
| | $ | 0.56 |
| | | | | | | | $ | (0.71 | ) | | $ | 0.05 |
| | $ | 0.08 |
|
| | | | | | | | | | | | | | | | | | |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | | | | | | | | | | | | | |
| Basic | 5,821 |
| | 5,744 |
| | 5,732 |
| | | | | | | | 5,821 |
| | 5,744 |
| | 5,732 |
|
| Diluted | 5,821 |
| | 5,906 |
| | 5,854 |
| | | | | | | | 5,821 |
| | 5,906 |
| | 5,854 |
|
| | | | | | | | | | | | | | | | | | |
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following pro forma adjustments are included in the Unaudited Pro Forma Condensed Consolidated Statements of Operations:
| |
a) | Reflects the consolidated historical statements of operations of Diversicare for the six months ended June 30, 2013 and the years ended December 31, 2012, December 31, 2011, and December 31, 2010, as contained in the historical consolidated financial statements and notes thereto presented in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 and the Annual Report on Form 10-K for the year ended December 31, 2012, respectively. |
| |
| b) | Represents adjustments to reflect the disposition of the Company's Arkansas operations as follows: |
| |
• | The elimination of revenues and expenses directly attributable to Arkansas operations for the periods presented. |
| |
| c) | The Company has allocated all professional liability expense to the states where the Company operates based on calculations performed by Diversicare management with assistance from its external actuary’s calculation as completed semi-annually. The actuary designates a percentage allocation of ultimate loss to the states in which the Company operates based upon the result of multiple years of developed loss runs and trends. The actuary aggregates three broadly used actuarial methods in performing the analysis including the Frequency-Severity Method, the Reported Bornhuetter-Ferguson Method, and the Paid Bornhuetter-Ferguson Method. The aggregation of these methods provides the actuary a basis upon which to develop an appropriate statistical range within which the recommended percentage allocations are identified. |
