UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
On December 1, 2018, Diversicare Healthcare Services, Inc. ("Diversicare" or the "Company") sold three Kentucky properties, which are collectively referred to as the "Kentucky Properties." On August 30, 2019, the Company terminated operations of ten centers in Kentucky and concurrently transferred operation to a new operator. These ten centers are collectively referred to as the "Kentucky Centers." The Kentucky Properties and the Kentucky Centers are referred to collectively as the "Kentucky Exit" throughout the unaudited pro forma condensed consolidated financial statements. The Kentucky Exit meets the accounting criteria to be reported as discontinued operations.
The accompanying unaudited pro forma condensed consolidated statements of operations (the “Pro Forma Statements of Operations”) for the six months ended June 30, 2019 and for the years ended December 31, 2018, 2017 and 2016 reflect the historical consolidated Statements of Operations of the Company and the unaudited historical carve-out results of operations related to the Kentucky Exit. The Pro Forma Statements of Operations give effect to the Kentucky Exit as if it had been completed on January 1, 2016, the beginning of the earliest period presented. The accompanying unaudited pro forma condensed balance sheet (the “Pro Forma Balance Sheet”) as of June 30, 2019 reflects the unaudited historical consolidated balance sheet of Diversicare and the assets and liabilities related to the ten Kentucky Centers, giving effect to the dispositions as if they had been completed on June 30, 2019.
The Pro Forma Statements of Operations do not include any material nonrecurring charges that might arise as a result of the dispositions.
The accompanying statements and related notes are being provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated balance sheet of Diversicare would have been had the dispositions occurred on the dates assumed, nor are they necessarily indicative of Diversicare's future consolidated results of operations or consolidated financial position. The statements are based upon currently available information and estimates and assumptions that Diversicare management believes are reasonable as of the date hereof.
The accompanying unaudited pro forma financial statements have been developed from and should be read in conjunction with the audited annual and unaudited interim consolidated financial statements and related notes of Diversicare on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2019, and Form 10-Q for the quarter ended June 30, 2019 filed with the SEC on August 5, 2019, respectively.
DIVERSICARE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended June 30, 2019
(in thousands, except per share amounts)
|
| | | | | | | | | | | |
| | Historical Diversicare | | Kentucky Centers | | Pro Forma |
| PATIENT REVENUES, net | $ | 269,723 |
| | $ | (34,206 | ) | (a) | $ | 235,517 |
|
| EXPENSES: | | | | | |
| Operating | 216,754 |
| | (28,413 | ) | (a) | 188,341 |
|
| Lease and rent expense | 31,606 |
| | (5,377 | ) | (a) | 26,229 |
|
| Professional liability | 6,378 |
| | (2,934 | ) | (a) | 3,444 |
|
| Litigation contingency expense | 3,100 |
| | — |
| | 3,100 |
|
| General and administrative | 15,107 |
| | (945 | ) | (a) | 14,162 |
|
| Depreciation and amortization | 5,496 |
| | (963 | ) | (a) | 4,533 |
|
| Total expenses | 278,441 |
| | (38,632 | ) | | 239,809 |
|
| OPERATING LOSS | (8,718 | ) | | 4,426 |
| | (4,292 | ) |
| OTHER EXPENSE: | | | | | |
| Other income | 205 |
| | (5 | ) | (a) | 200 |
|
| Interest expense, net | (3,016 | ) | | 146 |
| (f) | (2,870 | ) |
| Total other expense | (2,811 | ) | | 141 |
| | (2,670 | ) |
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (11,529 | ) | | 4,567 |
| | (6,962 | ) |
| BENEFIT (PROVISION) FOR INCOME TAXES | (16,396 | ) | | 101 |
| (b) | (16,295 | ) |
| NET LOSS FROM CONTINUING OPERATIONS | (27,925 | ) | | 4,668 |
| | (23,257 | ) |
| NET LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE: | | | | | |
| Per common share – basic | | | | | |
| Continuing operations | $ | (4.33 | ) | | | | $ | (3.61 | ) |
| Per common share – diluted | | | | | |
| Continuing operations | $ | (4.33 | ) | | | | $ | (3.61 | ) |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | |
|
| Basic | 6,448 |
| | | | 6,448 |
|
| Diluted | 6,448 |
| | | | 6,448 |
|
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
DIVERSICARE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2018
(in thousands, except per share amounts) |
| | | | | | | | | | | |
| | Historical Diversicare | | Kentucky Centers | | Pro Forma |
| PATIENT REVENUES, net | $ | 563,462 |
| | $ | (87,339 | ) | (a) | $ | 476,123 |
|
| EXPENSES: | | | | | |
| Operating | 450,686 |
| | (70,868 | ) | (a) | 379,818 |
|
| Lease and rent expense | 57,073 |
| | (7,842 | ) | (a) | 49,231 |
|
| Professional liability | 11,796 |
| | (5,309 | ) | (a) | 6,487 |
|
| Litigation contingency expense | 6,400 |
| | — |
| | 6,400 |
|
| General and administrative | 32,791 |
| | (2,801 | ) | (a) | 29,990 |
|
| Depreciation and amortization | 11,201 |
| | (993 | ) | (a) | 10,208 |
|
| Gain on sale of assets | (4,825 | ) | | 4,825 |
| (c) | — |
|
| Total expenses | 565,122 |
| | (82,988 | ) | | 482,134 |
|
| OPERATING INCOME (LOSS) | (1,660 | ) | | (4,351 | ) | | (6,011 | ) |
| OTHER EXPENSE: | | | | | |
| Gain on sale of investment in unconsolidated affiliate | 308 |
| | — |
| | 308 |
|
| Debt retirement costs | (267 | ) | | — |
| | (267 | ) |
| Other income | 168 |
| | 11 |
| (a) | 179 |
|
| Interest expense, net | (6,653 | ) | | 1,119 |
| (f) | (5,534 | ) |
| Total other expense | (6,444 | ) | | 1,130 |
| | (5,314 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (8,104 | ) | | (3,221 | ) | | (11,325 | ) |
| BENEFIT (PROVISION) FOR INCOME TAXES | 750 |
| | 714 |
| (b) | 1,464 |
|
| INCOME (LOSS) FROM CONTINUING OPERATIONS | (7,354 | ) | | (2,507 | ) | | (9,861 | ) |
| NET LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE: | | | | | |
| Per common share – basic | | | | | |
| Continuing operations | $ | (1.15 | ) | | | | $ | (1.55 | ) |
| Per common share – diluted | | | | | |
| Continuing operations | $ | (1.15 | ) | | | | $ | (1.55 | ) |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | |
| Basic | 6,372 |
| | | | 6,372 |
|
| Diluted | 6,372 |
| | | | 6,372 |
|
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
DIVERSICARE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2017
(in thousands, except per share amounts) |
| | | | | | | | | | | |
| | Historical Diversicare | | Kentucky Centers | | Pro Forma |
| PATIENT REVENUES, net | $ | 574,794 |
| | $ | (89,298 | ) | (a) | $ | 485,496 |
|
| EXPENSES: | | | | | |
| Operating | 458,122 |
| | (67,358 | ) | (a) | 390,764 |
|
| Lease and rent expense | 54,988 |
| | (6,740 | ) | (a) | 48,248 |
|
| Professional liability | 10,764 |
| | (2,772 | ) | (a) | 7,992 |
|
| General and administrative | 33,311 |
| | (1,991 | ) | (a) | 31,320 |
|
| Depreciation and amortization | 10,902 |
| | (837 | ) | (a) | 10,065 |
|
| Lease termination receipts | (180 | ) | | — |
| | (180 | ) |
| Total expenses | 567,907 |
| | (79,698 | ) | | 488,209 |
|
| OPERATING INCOME | 6,887 |
| | (9,600 | ) | | (2,713 | ) |
| OTHER EXPENSE: | | | | | |
| Gain on sale of investment in unconsolidated affiliate | 733 |
| | — |
| | 733 |
|
| Gain on bargain purchase | 925 |
| | — |
| | 925 |
|
| Hurricane costs | (232 | ) | | — |
| | (232 | ) |
| Interest expense, net | (6,369 | ) | | 1,016 |
| (f) | (5,353 | ) |
| Total other expense | (4,943 | ) | | 1,016 |
| | (3,927 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 1,944 |
| | (8,584 | ) | | (6,640 | ) |
| BENEFIT (PROVISION) FOR INCOME TAXES | (6,743 | ) | | 4,209 |
| (b) | (2,534 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS | (4,799 | ) | | (4,375 | ) | | (9,174 | ) |
| NET LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE: | | | | | |
| Per common share – basic | | | | | |
| Continuing operations | $ | (0.76 | ) | | | | $ | (1.46 | ) |
| Per common share – diluted | | | | | |
| Continuing operations | $ | (0.76 | ) | | | | $ | (1.46 | ) |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | |
| Basic | 6,279 |
| | | | 6,279 |
|
| Diluted | 6,279 |
| | | | 6,279 |
|
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
DIVERSICARE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended December 31, 2016
(in thousands, except per share amounts) |
| | | | | | | | | | | |
| | Historical Diversicare | | Kentucky Centers | | Pro Forma |
| PATIENT REVENUES, net | $ | 426,063 |
| | $ | (87,412 | ) | (a) | $ | 338,651 |
|
| EXPENSES: | | | | | |
| Operating | 342,932 |
| | (66,745 | ) | (a) | 276,187 |
|
| Lease and rent expense | 33,364 |
| | (6,827 | ) | (a) | 26,537 |
|
| Professional liability | 8,456 |
| | (3,051 | ) | (a) | 5,405 |
|
| General and administrative | 30,271 |
| | (1,514 | ) | (a) | 28,757 |
|
| Depreciation and amortization | 8,292 |
| | (799 | ) | (a) | 7,493 |
|
| Lease termination costs | 2,008 |
| | — |
| | 2,008 |
|
| Total expenses | 425,323 |
| | (78,936 | ) | | 346,387 |
|
| OPERATING INCOME (LOSS) | 740 |
| | (8,476 | ) | | (7,736 | ) |
| OTHER EXPENSE: | | | | | |
| Gain on sale of investment in unconsolidated affiliate | 1,366 |
| | — |
| | 1,366 |
|
| Debt retirement costs | (351 | ) | | — |
| | (351 | ) |
| Equity in net income from unconsolidated affiliate | 273 |
| | — |
| | 273 |
|
| Interest expense, net | (4,802 | ) | | 1,133 |
| (f) | (3,669 | ) |
| Total other expense | (3,514 | ) | | 1,133 |
| | (2,381 | ) |
| INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | (2,774 | ) | | (7,343 | ) | | (10,117 | ) |
| BENEFIT (PROVISION) FOR INCOME TAXES | 1,030 |
| | 2,601 |
| (b) | 3,631 |
|
| INCOME (LOSS) FROM CONTINUING OPERATIONS | (1,744 | ) | | (4,742 | ) | | (6,486 | ) |
| NET LOSS FROM CONTINUING OPERATIONS PER COMMON SHARE: | | | | | |
| Per common share – basic | | | | | |
| Continuing operations | $ | (0.28 | ) | | | | $ | (1.05 | ) |
| Per common share – diluted | | | | | |
| Continuing operations | $ | (0.28 | ) | | | | $ | (1.05 | ) |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | |
| Basic | 6,199 |
| | | | 6,199 |
|
| Diluted | 6,199 |
| | | | 6,199 |
|
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
DIVERSICARE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2019
(in thousands, except for par value)
|
| | | | | | | | | | | |
| | Historical Diversicare | | Transaction Adjustments | | Pro Forma |
| CURRENT ASSETS: | | | | | |
| Cash and cash equivalents | $ | 2,986 |
| | $ | (1,050 | ) | (e) (g) | $ | 1,936 |
|
| Receivables | 67,984 |
| | — |
| | 67,984 |
|
| Other receivables | 3,686 |
| | — |
| | 3,686 |
|
| Prepaid expenses and other current assets | 3,861 |
| | — |
| | 3,861 |
|
| Income tax refundable | 474 |
| | — |
| | 474 |
|
| Total current assets | 78,991 |
| | (1,050 | ) | | 77,941 |
|
| | | | | | |
| PROPERTY AND EQUIPMENT, at cost | 141,156 |
| | (10,214 | ) | | 130,942 |
|
| Less accumulated depreciation and amortization | (90,514 | ) | | 8,929 |
| | (81,585 | ) |
| Property and equipment, net | 50,642 |
| | (1,285 | ) | (d) | 49,357 |
|
| | | | | | |
| OTHER ASSETS: | | | | | |
| Operating lease assets | 371,289 |
| | (69,474 | ) | (d) | 301,815 |
|
| Other noncurrent assets | 3,342 |
| | — |
| | 3,342 |
|
| Acquired leasehold interest, net | 6,003 |
| | — |
| | 6,003 |
|
| Total other assets | 380,634 |
| | (69,474 | ) | | 311,160 |
|
| | $ | 510,267 |
| | $ | (71,809 | ) | | $ | 438,458 |
|
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
DIVERSICARE HEALTHCARE SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2019
(in thousands, except for par value)
|
| | | | | | | | | | | |
| | Historical Diversicare | | Transaction Adjustments | | Pro Forma |
| CURRENT LIABILITIES: | | | | | |
| Current portion of long-term debt and capitalized lease obligations | $ | 10,369 |
| | $ | — |
| | $ | 10,369 |
|
| Trade accounts payable | 16,112 |
| | — |
| | 16,112 |
|
| Current portion of operating lease liabilities | 23,011 |
| | (2,652 | ) | (d) | 20,359 |
|
| Accrued expenses: | | | | |
|
|
| Payroll and employee benefits | 17,444 |
| | (730 | ) | (e) | 16,714 |
|
| Self-insurance reserves, current portion | 12,590 |
| | — |
| | 12,590 |
|
| Other current liabilities | 10,228 |
| | (320 | ) | (g) | 9,908 |
|
| Total current liabilities | 89,754 |
| | (3,702 | ) | | 86,052 |
|
| NONCURRENT LIABILITIES: | | | | | |
| Long-term debt and capitalized lease obligations, less current portion and deferred financing costs | 67,130 |
| | — |
| | 67,130 |
|
| Operating lease liabilities, less current portion | 356,062 |
| | (67,879 | ) | (d) | 288,183 |
|
| Self-insurance reserves, noncurrent portion | 15,885 |
| | — |
| | 15,885 |
|
| Litigation contingency accrual | 9,000 |
| | — |
| | 9,000 |
|
| Other noncurrent liabilities | 1,498 |
| | — |
| | 1,498 |
|
| Total noncurrent liabilities | 449,575 |
| | (67,879 | ) | | 381,696 |
|
| COMMITMENTS AND CONTINGENCIES | | | | | |
| SHAREHOLDERS’ DEFICIT: | | | | | |
| Common stock, authorized 20,000 shares, $.01 par value, 6,911 shares issued, and 6,679 shares outstanding, respectively | 69 |
| | — |
| | 69 |
|
| Treasury stock at cost, 232 shares of common stock | (2,500 | ) | | — |
| | (2,500 | ) |
| Paid-in capital | 23,738 |
| | — |
| | 23,738 |
|
| Accumulated deficit | (50,958 | ) | | (228 | ) | (d) | (51,186 | ) |
| Accumulated other comprehensive loss | 589 |
| | — |
| | 589 |
|
| Total shareholders’ deficit | (29,062 | ) | | (228 | ) | | (29,290 | ) |
| | $ | 510,267 |
| | $ | (71,809 | ) | | $ | 438,458 |
|
See the accompanying notes to unaudited pro forma condensed consolidated financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF TRANSACTION
On December 1, 2018, the Company sold the three Kentucky Properties for a purchase price of $18.7 million. On May 17, 2019, the Company entered into an agreement with Omega Healthcare Investors, Inc. ("Omega") to amend its master lease to terminate operations of the ten Kentucky Centers, totaling approximately 885 skilled nursing beds, located in Kentucky and to concurrently transfer operations to an operator selected by Omega. On August 30, 2019, the Company completed the transaction and no longer operates any skilled nursing centers in the State of Kentucky. The Kentucky Exit meets the accounting criteria to be reported as discontinued operations.
NOTE 2. BASIS OF PRESENTATION
These unaudited pro forma financial statements have been derived from the historical consolidated financial statements of Diversicare on Form 10-K for the years ended December 31, 2018, 2017 and 2016, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2019, and the unaudited historical condensed consolidated financial statements of Diversicare on Form 10-Q for the six months ended June 30, 2019, filed with the SEC on August 5, 2019, and the unaudited historical carve-out financial statements related to the Kentucky Exit.
NOTE 3. ADJUSTMENTS TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
Adjustments that are directly attributable to the dispositions, factually supportable and expected to have a continuing impact are reflected in the pro forma financial statements. Pro forma adjustments are necessary to remove amounts related to the Kentucky Centers' assets and liabilities and the carve-out results of operations related to the Kentucky Exit, to adjust for costs directly related to the transactions, and to reflect the income tax effects related to the pro forma adjustments.
The accompanying statements have been prepared as if the disposition of the Kentucky Centers was completed on June 30, 2019 for balance sheet purposes and the disposition of the Kentucky Exit was completed on January 1, 2016 for statements of operations purposes, and reflect the following adjustments:
| |
| (a) | This adjustment reflects the elimination of revenues, operating expenses, lease and rent expense, professional liability, general and administrative, depreciation and amortization expense and other income related to the operations of the Kentucky Exit. |
| |
| (b) | This adjustment represents the estimated income tax effect of the pro forma adjustments. The tax effect of the pro forma adjustments was calculated using the historical statutory rates in effect for the periods presented. For the six months ended June 30, 2019, this adjustment includes the impact of the valuation allowance against the deferred tax assets related to the Kentucky Centers. |
| |
| (c) | This adjustment represents the elimination of the non-recurring gain on the sale of three Kentucky Properties in December 2018. |
| |
| (d) | This adjustment reflects the elimination of the assets abandoned and liabilities relieved attributable to the Kentucky Centers. |
| |
| (e) | This adjustment represents the cash the Company paid to the new operator for accrued vacation. |
| |
| (f) | This adjustment reflects the allocation of the estimated reduction in interest expense resulting from the debt repayment using proceeds from the December 1, 2018 sale of the Kentucky Properties and the cessation of the operations of the Kentucky Centers. |
| |
| (g) | This adjustment represents the cash the Company paid to the new operator for property taxes. |
