000-52073 |
(Commission File Number) |
Yukon Territory, Canada | 75-2578509 | |||
(State or Other Jurisdiction of Incorporation) | (IRS Employer Identification Number) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 9.01 | Financial Statements and Exhibits. |
(a) | Financial Statements of Business Acquired |
(b) | Pro Forma Financial Information |
(d) | Exhibits |
Exhibit No. | Description | |
2.1 | Unit Purchase Agreement, dated November 16, 2011, by and among SXC Health Solutions, Inc., HealthTran LLC, HealthTrans Data Services, LLC, ABRY Senior Equity II, L.P., ASE II-A HealthTran, L.P., ABRY Senior Equity Co-Investment, L.P., The Jack and Mary McClurg Exempt Trust, The Hutchison Family Exempt Trust, Jack W. McClurg, both in his individual capacity and in his capacity as the trustee of The Jack and Mary McClurg Exempt Trust, Louis W. Hutchison, Jr., both in his individual capacity and in his capacity as the trustee of The Hutchison Family Exempt Trust, and HealthTrans Data Services, LLC, in its capacity as the Sellers' Agent thereunder* (incorporated by reference to Exhibit 2.1 to the January 5 Form 8-K) | |
23.1 | Consent of Grant Thornton LLP | |
99.1 | Press release of SXC Health Solutions Corp. issued January 4, 2012 (incorporated by reference to Exhibit 99.1 to the January 5 Form 8-K) | |
99.2 | Audited consolidated balance sheets of HealthTran as of May 31, 2011 and May 31, 2010 and related audited consolidated statements of earnings, changes in members' deficit and cash flows for the fiscal years ended May 31, 2011 and May 31, 2010, including the notes thereto | |
99.3 | Unaudited consolidated balance sheet of HealthTran as of November 30, 2011, and related unaudited consolidated statements of earnings, changes in members' deficit and cash flows for the six months ended November 30, 2011 and 2010, including the notes thereto | |
99.4 | Unaudited pro forma combined balance sheet of SXC and HealthTran (excluding the TPA Business) as of December 31, 2011 and the unaudited pro forma combined statement of operations of SXC and HealthTran (excluding the TPA Business) for the year ended December 31, 2011, including the notes thereto |
* | The registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit upon the request of the Securities and Exchange Commission in accordance with Item 601(b)(2) of Regulation S-K. |
SXC HEALTH SOLUTIONS CORP. | ||
By: | /s/ Jeffrey Park | |
Name: Jeffrey Park Title: Executive Vice President and Chief Financial Officer |
Exhibit No. | Description | |
2.1 | Unit Purchase Agreement, dated November 16, 2011, by and among SXC Health Solutions, Inc., HealthTran LLC, HealthTrans Data Services, LLC, ABRY Senior Equity II, L.P., ASE II-A HealthTran, L.P., ABRY Senior Equity Co-Investment, L.P., The Jack and Mary McClurg Exempt Trust, The Hutchison Family Exempt Trust, Jack W. McClurg, both in his individual capacity and in his capacity as the trustee of The Jack and Mary McClurg Exempt Trust, Louis W. Hutchison, Jr., both in his individual capacity and in his capacity as the trustee of The Hutchison Family Exempt Trust, and HealthTrans Data Services, LLC, in its capacity as the Sellers' Agent thereunder* (incorporated by reference to Exhibit 2.1 to the January 5 Form 8-K) | |
23.1 | Consent of Grant Thornton LLP | |
99.1 | Press release of SXC Health Solutions Corp. issued January 4, 2012 (incorporated by reference to Exhibit 99.1 to the January 5 Form 8-K) | |
99.2 | Audited consolidated balance sheets of HealthTran as of May 31, 2011 and May 31, 2010 and related audited consolidated statements of earnings, changes in members' deficit and cash flows for the fiscal years ended May 31, 2011 and May 31, 2010, including the notes thereto | |
99.3 | Unaudited consolidated balance sheet of HealthTran as of November 30, 201, and related unaudited consolidated statements of earnings, changes in members' deficit and cash flows for the six months ended November 30, 2011 and 2010, including the notes thereto | |
99.4 | Unaudited pro forma combined balance sheet of SXC and HealthTran (excluding the TPA Business) as of December 31, 2011 and the unaudited pro forma combined statement of operations of SXC and HealthTran (excluding the TPA Business) for the year ended December 31, 2011, including the notes thereto |
* | The registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit upon the request of the Securities and Exchange Commission in accordance with Item 601(b)(2) of Regulation S-K. |
As of May 31, | |||||||
2011 | 2010 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 11,475,245 | $ | 13,933,725 | |||
Restricted cash | 663,954 | 722,211 | |||||
Trade accounts receivable, less allowances for doubtful accounts of $404,693 and $289,000, respectively | 22,896,251 | 24,813,110 | |||||
Other current assets | 1,713,657 | 1,600,270 | |||||
Total current assets | 36,749,107 | 41,069,316 | |||||
Property and equipment, net | 6,598,507 | 6,437,092 | |||||
Goodwill | 4,403,815 | 4,403,815 | |||||
Intangibles, net | 13,814,520 | 17,204,716 | |||||
Customer acquisition costs, net | 204,781 | 371,827 | |||||
Debt issuance costs, net | 1,411,156 | 1,842,509 | |||||
Total assets | $ | 63,181,886 | $ | 71,329,275 | |||
Liabilities and members' deficit | |||||||
Current liabilities | |||||||
Accounts payable | $ | 1,052,883 | $ | 1,031,272 | |||
Current portion of revolving loan | — | 605,118 | |||||
Current portion of long-term debt | 2,523,945 | 6,679,430 | |||||
Current portion of capital leases | 270,299 | 312,788 | |||||
Current portion of deferred revenue | 219,044 | 497,834 | |||||
Current portion of deferred rent and landlord incentives | 336,146 | 302,864 | |||||
Deposits received | 7,613,430 | 6,773,820 | |||||
Pharmacy network payable | 10,665,081 | 18,655,859 | |||||
Rebates payable | 4,949,260 | 6,766,643 | |||||
Accrued expenses | 9,820,131 | 6,683,968 | |||||
Other liabilities – current | 3,691,492 | 2,859,105 | |||||
Total current liabilities | 41,141,711 | 51,168,701 | |||||
Capital leases, less current portion | 146,671 | 163,249 | |||||
Revolving loan, net of current portion | — | 8,094,882 | |||||
Long-term debt, net of current portion and discount | 13,246,125 | 8,124,998 | |||||
Class C preferred units dividends payable (Note E) | 5,046,483 | 655,890 | |||||
Class C preferred units subject to mandatory redemption, net of discount (Notes D and E) | 24,983,539 | 24,081,083 | |||||
Class A warrants subject to put (Note D) | 6,693,539 | 6,317,193 | |||||
Deferred revenue, less current portion | 5,594 | 15,368 | |||||
Deferred rent and landlord incentives, less current portion | 560,724 | 920,499 | |||||
Other liabilities, less current portion | — | 997,251 | |||||
Total liabilities | 91,824,386 | 100,539,114 | |||||
Members’ deficit | (28,642,500 | ) | (29,209,839 | ) | |||
Total liabilities and members’ deficit | $ | 63,181,886 | $ | 71,329,275 |
Years ended May 31, | |||||||
2011 | 2010 | ||||||
Revenue | |||||||
Pharmacy benefit administration | $ | 250,418,554 | $ | 280,244,472 | |||
Service revenue | 15,171,657 | 15,381,628 | |||||
Total revenue | 265,590,211 | 295,626,100 | |||||
Direct pharmacy benefit administration expenses, excluding depreciation and amortization | 215,409,047 | 250,747,277 | |||||
Gross profit | 50,181,164 | 44,878,823 | |||||
Operating expenses | |||||||
Selling, general and administrative expenses | 33,613,760 | 32,106,095 | |||||
Depreciation and amortization | 6,543,263 | 7,783,881 | |||||
Total operating expenses | 40,157,023 | 39,889,976 | |||||
Earnings from operations | 10,024,141 | 4,988,847 | |||||
Interest income | 1,400 | 25,771 | |||||
Interest expense | (1,916,134 | ) | (1,531,329 | ) | |||
Dividends on Class C preferred units | (4,519,815 | ) | (1,851,600 | ) | |||
Accretion of Class C preferred units discount | (902,456 | ) | (398,276 | ) | |||
Net earnings | $ | 2,687,136 | $ | 1,233,413 |
Member Interests | Warrants | Total | |||||||||
Balances at June 1, 2009 | $ | 1,911,338 | $ | 746,898 | $ | 2,658,236 | |||||
Net earnings | 1,233,413 | — | 1,233,413 | ||||||||
Distributions (Note D) | (31,262,860 | ) | — | (31,262,860 | ) | ||||||
Stock-based compensation expense (Note E) | 1,602,000 | — | 1,602,000 | ||||||||
Redemption of Class B units (Note E) | (1,602,000 | ) | — | (1,602,000 | ) | ||||||
Exercise of warrants for Class A units (Note D) | 1,398,622 | (198,622 | ) | 1,200,000 | |||||||
Redemption of Class A units (Note D) | (3,000,000 | ) | — | (3,000,000 | ) | ||||||
Cumulative effect of adoption of accounting for uncertain tax positions (Note B) | (38,628 | ) | — | (38,628 | ) | ||||||
Balances at May 31, 2010 | (29,758,115 | ) | 548,276 | (29,209,839 | ) | ||||||
Net earnings | 2,687,136 | — | 2,687,136 | ||||||||
Distributions | (2,119,797 | ) | — | (2,119,797 | ) | ||||||
Balances at May 31, 2011 | $ | (29,190,776 | ) | $ | 548,276 | $ | (28,642,500 | ) |
Years ended May 31, | |||||||
2011 | 2010 | ||||||
Operating activities | |||||||
Net earnings | $ | 2,687,136 | $ | 1,233,413 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities | |||||||
Depreciation expense | 2,830,371 | 3,973,278 | |||||
Amortization on customer acquisition costs | 329,424 | 443,881 | |||||
Amortization on purchased intangible assets | 3,383,468 | 3,366,722 | |||||
Amortization of debt issuance costs and debt discount | 705,489 | 292,066 | |||||
Amortization of landlord incentives | 220,625 | 220,625 | |||||
Accretion of Class C preferred units discount | 902,456 | 398,276 | |||||
Accretion of dividend on Class C preferred units | 4,519,815 | 1,851,600 | |||||
Interest expense due to change in fair value of Class A warrants subject to put | 376,346 | — | |||||
Stock-based compensation expense | — | 1,602,000 | |||||
Provision for bad debts | 235,363 | 96,703 | |||||
(Gain) Loss on disposal of property and equipment | 6,072 | (944 | ) | ||||
Net change in operating assets and liabilities | |||||||
Decrease in restricted cash | 58,258 | 213,569 | |||||
Decrease in trade accounts receivable | 1,681,496 | 4,777,440 | |||||
Decrease (increase) in other current assets | (113,387 | ) | 344,426 | ||||
(Decrease) Increase in accounts payable | 21,611 | (1,206,999 | ) | ||||
Increase (decrease) in accrued expenses, deposits received, pharmacy network and rebates payable | (5,806,260 | ) | 129,111 | ||||
Decrease in deferred revenue | (288,564 | ) | (471,393 | ) | |||
Decrease in deferred rent | (547,118 | ) | (479,194 | ) | |||
Decrease in other liabilities | (164,864 | ) | (615,858 | ) | |||
Net cash provided by operating activities | 11,037,737 | 16,168,722 | |||||
Investing activities | |||||||
Purchases of property and equipment | (2,674,146 | ) | (2,079,082 | ) | |||
Purchase of intangible assets | (19,400 | ) | — | ||||
Customer acquisition costs | (162,378 | ) | (15,846 | ) | |||
Proceeds from disposal of assets | — | 944 | |||||
Net cash used in investing activities | (2,855,924 | ) | (2,093,984 | ) | |||
Financing activities | |||||||
Payments on long-term debt | (14,846,705 | ) | (7,276,724 | ) | |||
Payments on revolving loan | (13,200,000 | ) | (8,000,000 | ) | |||
Proceeds from revolving loan | 4,500,000 | 8,700,000 | |||||
Proceeds from new debt | 15,538,211 | — | |||||
Payments on capital leases | (382,780 | ) | (417,409 | ) | |||
Proceeds from issuance of Class C preferred units | — | 30,000,000 | |||||
Exercise of warrants for Class A units | — | 1,200,000 | |||||
Distributions | (2,119,797 | ) | (31,262,860 | ) | |||
Redemption of Class A units | — | (3,000,000 | ) | ||||
Redemption of Class B units | — | (1,602,000 | ) | ||||
Debt issuance costs incurred | — | (1,776,280 | ) | ||||
Dividend distributions on Class C preferred units | (129,222 | ) | (1,195,710 | ) | |||
Net cash used in financing activities | (10,640,293 | ) | (14,630,983 | ) | |||
Net decrease in cash and cash equivalents | (2,458,480 | ) | (556,245 | ) | |||
Cash and cash equivalents at beginning of year | 13,933,725 | 14,489,970 | |||||
Cash and cash equivalents at end of year | $ | 11,475,245 | $ | 13,933,725 | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid during the period for interest | $ | 756,517 | $ | 1,093,664 | |||
Noncash investing and financing activities | |||||||
Adjustments to installment payments for purchase of business (Note I) | $ | 26,128 | $ | 535,100 | |||
Property and equipment acquired with capital leases | $ | 323,713 | $ | — |
Years ended May 31, 2010 and 2011 | ||||
Balance at June 1, 2009 | $ | 38,628 | ||
Additions for tax positions of prior years | - | |||
Additions for tax positions of current year | 44,755 | |||
Balance at May 31, 2010 | 83,383 | |||
Additions for tax positions of prior years | 105,393 | |||
Additions for tax positions of current year | 52,730 | |||
Settlements | (61,309 | ) | ||
Balance at May 31, 2011 | $ | 180,197 |
Computer equipment | 3 to 5 years |
Computer equipment – acquired assets | 1 to 3 years |
Furniture, fixtures and equipment | 5 to 7 years |
Software | 1.5 to 5 years |
Building | 39 years |
As of May 31, 2011 | |||||||||
Owned | Leased | Total | |||||||
Buildings and land | $ | 281,177 | $ | — | $ | 281,177 | |||
Computer equipment | 6,182,893 | 289,071 | 6,471,964 | ||||||
Furniture, fixtures and equipment | 957,196 | 957,200 | 1,914,396 | ||||||
Software | 14,305,644 | 13,787 | 14,319,431 | ||||||
Leasehold improvements | 1,963,233 | - | 1,963,233 | ||||||
23,690,143 | 1,260,058 | 24,950,201 | |||||||
Less accumulated depreciation | (17,669,049 | ) | (682,645 | ) | (18,351,694 | ) | |||
Total property and equipment | $ | 6,021,094 | $ | 577,413 | $ | 6,598,507 |
As of May 31, 2010 | |||||||||
Owned | Leased | Total | |||||||
Buildings and land | $ | 281,174 | $ | — | $ | 281,174 | |||
Computer equipment | 5,729,728 | 155,916 | 5,885,644 | ||||||
Furniture, fixtures and equipment | 761,795 | 957,200 | 1,718,995 | ||||||
Software | 11,847,489 | 322,874 | 12,170,363 | ||||||
Leasehold improvements | 1,953,395 | - | 1,953,395 | ||||||
20,573,581 | 1,435,990 | 22,009,571 | |||||||
Less accumulated depreciation | (14,710,140 | ) | (862,339 | ) | (15,572,479 | ) | |||
Total property and equipment | $ | 5,863,441 | $ | 573,651 | $ | 6,437,092 |
As of May 31, | ||||||
2011 | 2010 | |||||
Term Note | $ | 14,843,750 | $ | 14,113,833 | ||
Term Note discount | — | (274,136 | ) | |||
Key Note payable 1 | — | 7,399 | ||||
Key Note payable 3 | 425,645 | 957,332 | ||||
Key Note payable 4 | 383,433 | — | ||||
Key Note payable 5 | 117,242 | — | ||||
Class C preferred units subject to mandatory redemption | 30,000,000 | 30,000,000 | ||||
Class C preferred units discount | (5,016,461 | ) | (5,918,917 | ) | ||
Class A warrants subject to put | 6,693,539 | 6,317,193 | ||||
Total debt | 47,447,148 | 45,202,704 | ||||
Less current portion | (2,523,945 | ) | (6,679,430 | ) | ||
Total long-term debt | $ | 44,923,203 | $ | 38,523,274 |
• | In conjunction with the previous Senior Debt Facility agreement, a warrant was issued in March 2005 which expires in 2012, to purchase 300,000 Class A membership units of the Company for $4 per unit (aggregate of $1,200,000). The warrant was allocated a value of $198,622, based on the relative fair values of the debt and the warrant. The Company has the option to purchase the warrant for $4,800,000 at any time. |
• | In conjunction with the revised previous Senior Debt Facility agreement, a warrant was issued in December 2007, which expires in 2014, to purchase 104,667 Class A membership units of the Company for $11.46 per unit (aggregate of $1,200,000). The warrant was allocated a value of $548,276, based on the relative fair values of the debt and the warrant. The Company has the option to purchase the warrant for $4,800,000 at any time. |
• | Immediately exercisable into 860,114 Class A units, representing an approximate 7.5% common equity interest in the Company, at an exercise price of $.001 per unit; |
• | Fully detachable from the Agreement and Class C preferred units; |
• | Put rights granted to the investing party are exercisable at any time on or after (i) an uncured or non-waived event of default, (ii) a change of control or any redemption of the Class C preferred, or (iii) December 22, 2016 (the mandatory redemption date for the Class C preferred). |
• | Put rights granted include both the Class A warrants and the underlying Class A units issuable under the warrants upon exercise by the investing party; |
• | Put price to be paid by the Company equal to: |
• | For Class A units – liquidation value per unit calculated assuming all outstanding options/warrants of the Company exercised |
• | For Class A warrants – liquidation value per unit calculated assuming all outstanding options/warrants of the Company exercised, less exercise price payable under Warrant. |
As of May 31, 2011 | |||
Year ending May 31, | |||
2012 | $ | 2,523,945 | |
2013 | 3,133,624 | ||
2014 | 3,137,826 | ||
2015 | 3,193,425 | ||
2016 | 3,781,250 | ||
Thereafter | 31,677,078 | ||
Total debt | $ | 47,447,148 |
• | The Class B units are granted to key employees, officers, directors and other service providers of the Company and do not have an exercise price, vest immediately, do not expire, are non-transferable, do not have any voting rights with respect to the Company, and do not have allocation rights to net income or net loss generated by the Company’s operations; |
• | Holders of the Class B units only have the right to receive distributions from the Company in connection with the sale of all or substantially all of the Company’s assets (i.e. upon a qualifying “change of control event”) provided the holder is still employed by the Company at the time of the change of control event (i.e. the units are immediately forfeited upon the voluntary or involuntary termination of the employee’s employment with the Company prior to a change of control event); |
• | The Company has the right to call the Class B units upon a change of control event. |
• | 14% annual preferred yield, compounded quarterly. Prior to redemption, dividends may be paid at the discretion of the Company subject to restrictions under the Credit Agreement (as described below); |
• | Liquidation value equal to unpaid Class C preferred capital plus unpaid Class C preferred dividends; |
• | Mandatory redemption on December 22, 2016 at the liquidation value; |
• | Redemption or payment of dividends related to Class C preferred is subject to compliance with all covenants of the Credit Agreement with the Company’s finance company; |
• | Pursuant to the Agreement and the Company’s amended limited liability company agreement, tax distributions are permitted to be paid to the holders of Class A units and Class C preferred, subject to limits placed by the Credit Agreement. |
As of May 31, 2011 | |||
Year ending May 31, | |||
2012 | $ | 1,375,577 | |
2013 | 1,338,448 | ||
2014 | 745,655 | ||
2015 | 87,273 | ||
2016 | 16,793 | ||
Thereafter | — | ||
Total future minimum operating lease payments | $ | 3,563,746 |
As of May 31, 2011 | |||
Year ending May 31, | |||
2012 | $ | 280,054 | |
2013 | 111,831 | ||
2014 | 37,277 | ||
Total future minimum capital lease payments | 429,162 | ||
Less amounts representing interest | (12,192 | ) | |
Present value of minimum capital lease payments | 416,970 | ||
Less current portion | (270,299 | ) | |
Future minimum rental payments, net | $ | 146,671 |
As of May 31, 2011 | ||||||||||
Estimated life | Gross carrying value | Accumulated amortization | Net intangibles | |||||||
Customer relationships | 9.7 | $ | 18,697,998 | $ | (6,562,686 | ) | $ | 12,135,312 | ||
Non-compete agreements | 5 | 7,865,000 | (6,204,653 | ) | 1,660,347 | |||||
Branding | 3 | 19,400 | (539 | ) | 18,861 | |||||
$ | 26,582,398 | $ | (12,767,878 | ) | $ | 13,814,520 |
As of May 31, 2010 | ||||||||||
Estimated life | Gross carrying value | Accumulated amortization | Net intangibles | |||||||
Customer relationships | 9.7 | $ | 18,724,126 | $ | (4,752,764 | ) | $ | 13,971,362 | ||
Non-compete agreements | 5 | 7,865,000 | (4,631,646 | ) | 3,233,354 | |||||
$ | 26,589,126 | $ | (9,384,410 | ) | $ | 17,204,716 |
As of May 31, 2011 | |||
Year ending May 31, | |||
2012 | $ | 2,557,868 | |
2013 | 1,847,410 | ||
2014 | 1,318,195 | ||
2015 | 1,307,934 | ||
2016 | 1,307,934 | ||
Thereafter | 5,475,179 | ||
$ | 13,814,520 |
• | Quoted prices for similar assets or liabilities in active markets; |
• | Quoted prices for identical or similar assets or liabilities in inactive markets; |
• | Inputs other than quoted prices that are observable for the asset or liability; |
Reconciliation of net income to adjusted EBITDA | |||||||
The Company’s primary evaluation of business performance is adjusted EBITDA. The Company defines adjusted EBITDA as net earnings before net interest expense, income taxes, depreciation and amortization, stock-based compensation expense, dividends on Class C preferred units, and accretion of Class C preferred units discount. Management acknowledges that adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with accounting principles generally accepted in the United States of America (“US GAAP)”. However, EBITDA or similar measures are widely used by analysts and investors in the Pharmacy Benefit Management (or “PBM”) industry to determine a company’s operating performance and ability to incur and service debt. The following table provides a reconciliation of net earnings to adjusted EBITDA for the specified periods: | |||||||
Years ended May 31, | |||||||
2011 | 2010 | ||||||
Net earnings | $ | 2,687,136 | $ | 1,233,413 | |||
Depreciation and amortization | 6,543,263 | 7,783,881 | |||||
Interest income | (1,400 | ) | (25,771 | ) | |||
Interest expense | 1,916,134 | 1,531,329 | |||||
Stock-based compensation expense | — | 1,602,000 | |||||
Dividends on Class C preferred units | 4,519,815 | 1,851,600 | |||||
Accretion of Class C preferred units discount | 902,456 | 398,276 | |||||
Adjusted EBITDA | $ | 16,567,404 | $ | 14,374,728 |
November 30, 2011 | May 31, 2011 | ||||||
Assets | (unaudited) | ||||||
Current assets | |||||||
Cash and cash equivalents | $ | 9,007,991 | $ | 11,475,245 | |||
Restricted cash | 664,973 | 663,954 | |||||
Trade accounts receivable, less allowances for doubtful accounts of $426,736 and $404,693, respectively | 21,736,933 | 22,896,251 | |||||
Other current assets | 1,926,526 | 1,713,657 | |||||
Total current assets | 33,336,423 | 36,749,107 | |||||
Property and equipment, net | 6,754,780 | 6,598,507 | |||||
Goodwill | 4,403,815 | 4,403,815 | |||||
Intangibles, net | 12,400,357 | 13,814,520 | |||||
Customer acquisition costs, net | 181,377 | 204,781 | |||||
Debt issuance costs, net | 1,295,660 | 1,411,156 | |||||
Total assets | $ | 58,372,412 | $ | 63,181,886 | |||
Liabilities and members' deficit | |||||||
Current liabilities | |||||||
Accounts payable | $ | 1,882,864 | $ | 1,052,883 | |||
Current portion of long-term debt | 2,807,360 | 2,523,945 | |||||
Current portion of capital leases | 161,110 | 270,299 | |||||
Current portion of deferred revenue | 117,891 | 219,044 | |||||
Current portion of deferred rent and landlord incentives | 365,542 | 336,146 | |||||
Deposits received | 7,601,753 | 7,613,430 | |||||
Pharmacy network payable | 9,582,970 | 10,665,081 | |||||
Rebates payable | 2,817,791 | 4,949,260 | |||||
Accrued expenses | 13,490,841 | 9,820,131 | |||||
Other liabilities – current | 3,720,087 | 3,691,492 | |||||
Total current liabilities | 42,548,209 | 41,141,711 | |||||
Revolving loan, net of current portion | — | — | |||||
Long-term debt, net of current portion and discount | 11,679,830 | 13,246,125 | |||||
Capital leases, less current portion | 92,203 | 146,671 | |||||
Deferred revenue, less current portion | 17,200 | 5,594 | |||||
Deferred rent and landlord incentives, less current portion | 395,962 | 560,724 | |||||
Class C preferred units dividends payable (Note E) | 345,205 | 5,046,483 | |||||
Class C preferred units subject to mandatory redemption, net of discount (Notes D and E) | 25,434,767 | 24,983,539 | |||||
Class A warrants subject to put (Note D) | 14,817,198 | 6,693,539 | |||||
Total liabilities | 95,330,574 | 91,824,386 | |||||
Members’ deficit | (36,958,162 | ) | (28,642,500 | ) | |||
Total liabilities and members’ deficit | $ | 58,372,412 | $ | 63,181,886 |
Six months ended November 30, | |||||||
2011 | 2010 | ||||||
(unaudited) | |||||||
Revenue | |||||||
Pharmacy benefit administration | $ | 119,220,808 | $ | 130,871,061 | |||
Service revenue | 7,859,675 | 7,688,684 | |||||
Total revenue | 127,080,483 | 138,559,745 | |||||
Direct pharmacy benefit administration expenses, excluding depreciation and amortization | 99,230,658 | 114,587,252 | |||||
Gross profit | 27,849,825 | 23,972,493 | |||||
Operating expenses | |||||||
Selling, general and administrative expenses | 19,001,860 | 15,772,695 | |||||
Stock-based compensation expense (Note E) | 9,604,619 | — | |||||
Settlement expense (Note F) | 3,149,990 | — | |||||
Depreciation and amortization | 2,883,324 | 3,333,949 | |||||
Total operating expenses | 34,639,793 | 19,106,644 | |||||
(Loss) earnings from operations | (6,789,968 | ) | 4,865,849 | ||||
Interest income | 309 | 749 | |||||
Interest expense | (8,546,891 | ) | (669,153 | ) | |||
Dividends on Class C preferred units | (2,132,503 | ) | (2,189,550 | ) | |||
Accretion of Class C preferred units discount | (451,228 | ) | (451,228 | ) | |||
Net (loss) earnings | $ | (17,920,281 | ) | $ | 1,556,667 |
Member Interests | Warrants | Total | |||||||||
Balances at June 1, 2010 | $ | (29,758,115 | ) | $ | 548,276 | $ | (29,209,839 | ) | |||
Net earnings | 1,556,667 | — | 1,556,667 | ||||||||
Distributions (Note D) | (1,051,591 | ) | — | (1,051,591 | ) | ||||||
Balances at November 30, 2010 (unaudited) | $ | (29,253,039 | ) | $ | 548,276 | $ | (28,704,763 | ) | |||
Balances at June 1, 2011 | $ | (29,190,776 | ) | $ | 548,276 | $ | (28,642,500 | ) | |||
Net loss | (17,920,281 | ) | — | (17,920,281 | ) | ||||||
Stock-based compensation expense (Note E) | 9,604,619 | — | 9,604,619 | ||||||||
Balances at November 30, 2011 (unaudited) | $ | (37,506,438 | ) | $ | 548,276 | $ | (36,958,162 | ) |
Six months ended November 30, | |||||||
2011 | 2010 | ||||||
Operating activities | (unaudited) | ||||||
Net (loss) earnings | $ | (17,920,281 | ) | $ | 1,556,667 | ||
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities | |||||||
Depreciation expense | 1,422,495 | 1,417,555 | |||||
Amortization on customer acquisition costs | 46,666 | 214,858 | |||||
Amortization on purchased intangible assets | 1,414,163 | 1,701,536 | |||||
Amortization of debt issuance costs and debt discount | 128,380 | 217,226 | |||||
Amortization of landlord incentives | 110,313 | 110,313 | |||||
Accretion of Class C preferred units discount | 451,228 | 451,228 | |||||
Accretion of dividend on Class C preferred units | 2,132,503 | 2,189,550 | |||||
Interest expense due to change in fair value of Class A warrants subject to put | 8,123,659 | — | |||||
Stock-based compensation expense | 9,604,619 | — | |||||
Provision for (recovery of) bad debts | (26,120 | ) | 121,998 | ||||
Loss on disposal of property and equipment | 407 | 6,073 | |||||
Net change in operating assets and liabilities | |||||||
(Increase) decrease in restricted cash | (1,019 | ) | 60,181 | ||||
(Increase) decrease in trade accounts receivable | 1,185,438 | (234,633 | ) | ||||
Increase in other current assets | (212,869 | ) | (145,858 | ) | |||
Increase in accounts payable | 829,981 | 491,677 | |||||
Increase (decrease) in accrued expenses, deposits received, pharmacy network and rebates payable | 445,453 | (7,501,824 | ) | ||||
Decrease in deferred revenue | (89,547 | ) | (309,909 | ) | |||
Decrease in deferred rent | (245,679 | ) | (284,377 | ) | |||
Increase in other liabilities | 28,595 | 61,866 | |||||
Net cash provided by operating activities | 7,428,385 | 124,127 | |||||
Investing activities | |||||||
Purchases of property and equipment | (1,579,175 | ) | (1,076,816 | ) | |||
Customer acquisition costs | (23,262 | ) | — | ||||
Proceeds from disposal of assets | — | 150 | |||||
Net cash used in investing activities | (1,602,437 | ) | (1,076,666 | ) | |||
Financing activities | |||||||
Payments on long-term debt | (1,282,880 | ) | (3,659,281 | ) | |||
Payments on revolving loan | — | (7,500,000 | ) | ||||
Proceeds from revolving loan | — | 2,500,000 | |||||
Payments on capital leases | (163,657 | ) | (185,494 | ) | |||
Distributions | — | (1,051,591 | ) | ||||
Debt issuance costs incurred | (12,884 | ) | — | ||||
Dividend distributions on Class C preferred units | (6,833,781 | ) | — | ||||
Net cash used in financing activities | (8,293,202 | ) | (9,896,366 | ) | |||
Net decrease in cash and cash equivalents | (2,467,254 | ) | (10,848,905 | ) | |||
Cash and cash equivalents at beginning of period | 11,475,245 | 13,933,725 | |||||
Cash and cash equivalents at end of period | $ | 9,007,991 | $ | 3,084,820 | |||
Supplemental disclosure of cash flow information | |||||||
Cash paid during the period for interest | $ | 264,052 | $ | 370,565 | |||
Noncash investing and financing activities | |||||||
Adjustments to installment payments for purchase of business (Note I) | $ | — | $ | 26,128 | |||
Property and equipment acquired with capital leases | $ | — | $ | 343,950 |
Six months ended November 30, | ||||||
2011 | 2010 | |||||
Balance at June 1 | $ | 180,197 | $ | 83,383 | ||
Additions for tax positions of prior years | 57,370 | — | ||||
Settlements | — | (61,309 | ) | |||
Balance at November 30 | $ | 237,567 | $ | 22,074 |
Computer equipment | 3 to 5 years |
Computer equipment - acquired assets | 1 to 3 years |
Furniture, fixtures and equipment | 5 to 7 years |
Software | 1.5 to 5 years |
Building | 39 years |
As of November 30, 2011 | |||||||||
Owned | Leased | Total | |||||||
Buildings and land | $ | 281,176 | $ | — | $ | 281,176 | |||
Computer equipment | 6,131,987 | 289,071 | 6,421,058 | ||||||
Furniture, fixtures and equipment | 954,227 | 957,200 | 1,911,427 | ||||||
Software | 15,694,975 | 13,787 | 15,708,762 | ||||||
Leasehold improvements | 1,986,835 | — | 1,986,835 | ||||||
25,049,200 | 1,260,058 | 26,309,258 | |||||||
Less accumulated depreciation | (18,752,986 | ) | (801,492 | ) | (19,554,478 | ) | |||
Total property and equipment | $ | 6,296,214 | $ | 458,566 | $ | 6,754,780 |
As of May 31, 2011 | |||||||||
Owned | Leased | Total | |||||||
Buildings and land | $ | 281,177 | $ | — | $ | 281,177 | |||
Computer equipment | 6,182,893 | 289,071 | 6,471,964 | ||||||
Furniture, fixtures and equipment | 957,196 | 957,200 | 1,914,396 | ||||||
Software | 14,305,644 | 13,787 | 14,319,431 | ||||||
Leasehold improvements | 1,963,233 | - | 1,963,233 | ||||||
23,690,143 | 1,260,058 | 24,950,201 | |||||||
Less accumulated depreciation | (17,669,049 | ) | (682,645 | ) | (18,351,694 | ) | |||
Total property and equipment | $ | 6,021,094 | $ | 577,413 | $ | 6,598,507 |
November 30, 2011 | May 31, 2011 | |||||
Term Note | $ | 13,906,250 | $ | 14,843,750 | ||
Term Note discount | — | — | ||||
Key Note payable 3 | 144,538 | 425,645 | ||||
Key Note payable 4 | 333,674 | 383,433 | ||||
Key Note payable 5 | 102,728 | 117,242 | ||||
Class C preferred units subject to mandatory redemption | 30,000,000 | 30,000,000 | ||||
Class C preferred units discount | (4,565,233 | ) | (5,016,461 | ) | ||
Class A warrants subject to put | 14,817,198 | 6,693,539 | ||||
Total debt | 54,739,155 | 47,447,148 | ||||
Less current portion | (2,807,360 | ) | (2,523,945 | ) | ||
Total long-term debt | $ | 51,931,795 | $ | 44,923,203 |
• | In conjunction with the previous Senior Debt Facility agreement, a warrant was issued in March 2005 which expires in 2012, to purchase 300,000 Class A membership units of the Company for $4 per unit (aggregate of $1,200,000). The warrant was allocated a value of $198,622, based on the relative fair values of the debt and the warrant. The Company has the option to purchase the warrant for $4,800,000 at any time. |
• | In conjunction with the revised previous Senior Debt Facility agreement, a warrant was issued in December 2007, which expires in 2014, to purchase 104,667 Class A membership units of the Company for $11.46 per unit (aggregate of $1,200,000). The warrant was allocated a value of $548,276, based on the relative fair values of the debt and the warrant. The Company has the option to purchase the warrant for $4,800,000 at any time. |
• | Immediately exercisable into 860,114 Class A units, representing an approximate 7.5% common equity interest in the Company, at an exercise price of $.001 per unit; |
• | Fully detachable from the Agreement and Class C preferred units; |
• | Put rights granted to the investing party are exercisable at any time on or after (i) an uncured or non-waived event of default, (ii) a change of control or any redemption of the Class C preferred, or (iii) December 22, 2016 (the mandatory redemption date for the Class C preferred); |
• | Put rights granted include both the Class A warrants and the underlying Class A units issuable under the warrants upon exercise by the investing party; and |
• | Put price to be paid by the Company equal to: |
As of November 30, 2011 | |||
Year ending May 31, | |||
2012 (six months) | $ | 1,241,065 | |
2013 | 3,133,624 | ||
2014 | 3,137,826 | ||
2015 | 3,193,425 | ||
2016 | 3,781,250 | ||
Thereafter | 40,251,965 | ||
Total debt | $ | 54,739,155 |
• | The Class B units are granted to key employees, officers, directors and other service providers of the Company and do not have an exercise price, vest immediately, do not expire, are non-transferable, do not have any voting rights with respect to the Company, and do not have allocation rights to net income or net loss generated by the Company's operations; |
• | Holders of the Class B units only have the right to receive distributions from the Company in connection with the sale of all or substantially all of the Company's assets (i.e. upon a qualifying “change of control event”) provided the holder is still employed by the Company at the time of the change of control event (i.e. the units are immediately forfeited upon the voluntary or involuntary termination of the employee's employment with the Company prior to a change of control event); |
• | The Company has the right to call the Class B units upon a change of control event. |
• | 14% annual preferred yield, compounded quarterly. Prior to redemption, dividends may be paid at the discretion of the Company subject to restrictions under the Credit Agreement (as described below); |
• | Liquidation value equal to unpaid Class C preferred capital plus unpaid Class C preferred dividends; |
• | Mandatory redemption on December 22, 2016 at the liquidation value; |
• | Redemption or payment of dividends related to Class C preferred is subject to compliance with all covenants of the Credit Agreement with the Company's finance company; |
• | Pursuant to the Agreement and the Company's amended limited liability company agreement, tax distributions are permitted to be paid to the holders of Class A units and Class C preferred, subject to limits placed by the Credit Agreement. |
As of November 30, 2011 | |||
Year ending May 31, | |||
2012 (six months) | $ | 686,928 | |
2013 | 1,338,448 | ||
2014 | 745,655 | ||
2015 | 87,273 | ||
2016 | 16,793 | ||
Thereafter | — | ||
Total future minimum operating lease payments | $ | 2,875,097 |
As of November 30, 2011 | |||
Year ending May 31, | |||
2012 (six months) | $ | 109,349 | |
2013 | 111,831 | ||
2014 | 37,277 | ||
Total future minimum capital lease payments | 258,457 | ||
Less amounts representing interest | (5,144 | ) | |
Present value of minimum capital lease payments | 253,313 | ||
Less current portion | (161,110 | ) | |
Future minimum rental payments, net | $ | 92,203 |
As of November 30, 2011 | ||||||||||
Estimated life | Gross carrying value | Accumulated amortization | Net intangibles | |||||||
Customer relationships | 9.7 | $ | 18,697,998 | $ | (7,337,116 | ) | $ | 11,360,882 | ||
Non-compete agreements | 5 | 7,865,000 | (6,841,152 | ) | 1,023,848 | |||||
Branding | 3 | 19,400 | (3,773 | ) | 15,627 | |||||
$ | 26,582,398 | $ | (14,182,041 | ) | $ | 12,400,357 |
As of May 31, 2011 | ||||||||||
Estimated life | Gross carrying value | Accumulated amortization | Net intangibles | |||||||
Customer relationships | 9.7 | $ | 18,697,998 | $ | (6,562,686 | ) | $ | 12,135,312 | ||
Non-compete agreements | 5 | 7,865,000 | (6,204,653 | ) | 1,660,347 | |||||
Branding | 3 | 19,400 | (539 | ) | 18,861 | |||||
$ | 26,582,398 | $ | (12,767,878 | ) | $ | 13,814,520 |
As of November 30, 2011 | |||
Year ending May 31, | |||
2012 (six months) | $ | 1,143,706 | |
2013 | 1,847,410 | ||
2014 | 1,318,195 | ||
2015 | 1,307,934 | ||
2016 | 1,307,934 | ||
Thereafter | 5,475,178 | ||
$ | 12,400,357 |
• | Quoted prices for similar assets or liabilities in active markets; |
• | Quoted prices for identical or similar assets or liabilities in inactive markets; |
• | Inputs other than quoted prices that are observable for the asset or liability; |
• | Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. |
SXC Health Solutions Corp. | |||||||||||||||
Unaudited Pro Forma Condensed Combined Balance Sheet | |||||||||||||||
December 31, 2011 | |||||||||||||||
(in thousands) | |||||||||||||||
SXC Health Solutions Corp. | HealthTran LLC | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | 341,382 | $ | 9,008 | $ | (150,000 | ) | A | $ | 200,390 | |||||
Restricted cash | 12,017 | 665 | — | 12,682 | |||||||||||
Accounts receivable, net | 240,425 | 21,737 | — | 262,162 | |||||||||||
Rebates receivable | 33,834 | — | — | 33,834 | |||||||||||
Prepaid expenses and other current assets | 6,409 | 1,927 | — | 8,336 | |||||||||||
Inventory | 19,554 | — | — | 19,554 | |||||||||||
Deferred income taxes | 9,642 | — | — | 9,642 | |||||||||||
Total current assets | 663,263 | 33,336 | (150,000 | ) | 546,599 | ||||||||||
Property and equipment, net | 21,658 | 6,755 | (3,509 | ) | B | 24,904 | |||||||||
Goodwill | 291,045 | 4,404 | 170,653 | C | 466,102 | ||||||||||
Other intangible assets, net | 69,777 | 12,400 | 64,730 | C | 146,907 | ||||||||||
Other assets | 4,564 | 1,477 | — | 6,041 | |||||||||||
Total assets | $ | 1,050,307 | $ | 58,372 | $ | 81,874 | $ | 1,190,553 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||||||
Current liabilities | |||||||||||||||
Accounts payable | $ | 19,679 | $ | 1,883 | $ | — | $ | 21,562 | |||||||
Accrued expenses and other current liabilities | 66,729 | 25,457 | — | 92,186 | |||||||||||
Current portion of long-term debt | 2,807 | (2,807 | ) | D | — | ||||||||||
Pharmacy benefit management rebates payable | 59,235 | 2,818 | — | 62,053 | |||||||||||
Pharmacy benefit claim payments payable | 199,701 | 9,583 | — | 209,284 | |||||||||||
Total current liabilities | 345,344 | 42,548 | (2,807 | ) | 385,085 | ||||||||||
Deferred income taxes | 18,361 | — | 18,361 | ||||||||||||
Class A warrants | — | 14,817 | (14,817 | ) | E | — | |||||||||
Class C preferred units | — | 25,780 | (25,780 | ) | E | — | |||||||||
Long-term debt | — | 11,680 | 88,320 | D | 100,000 | ||||||||||
Other liabilities | 15,564 | 505 | — | 16,069 | |||||||||||
Total liabilities | 379,269 | 95,331 | 44,916 | 519,516 | |||||||||||
Shareholders’ equity | |||||||||||||||
Common shares | 394,769 | — | — | 394,769 | |||||||||||
Additional paid-in capital | 37,936 | — | — | 37,936 | |||||||||||
Retained earnings | 238,333 | — | — | 238,333 | |||||||||||
Members deficit | (36,958 | ) | 36,958 | E | — | ||||||||||
Total shareholders’ equity | 671,038 | (36,958 | ) | 671,038 | |||||||||||
Total liabilities and shareholders’ equity | $ | 1,050,307 | $ | 58,372 | $ | 81,874 | $ | 1,190,553 |
SXC Health Solutions Corp. | |||||||||||||||
Unaudited Pro Forma Condensed Combined Statement of Operation | |||||||||||||||
For the Year Ended December 31, 2011 | |||||||||||||||
(in thousands) | |||||||||||||||
SXC Health Solutions Corp. | HealthTran LLC | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||
Revenue | $ | 4,975,496 | $ | 253,044 | $ | (23,505 | ) | F | $ | 5,205,035 | |||||
Cost of revenue | 4,666,008 | 199,796 | (23,505 | ) | F | 4,842,299 | |||||||||
Gross profit | 309,488 | 53,248 | — | 362,736 | |||||||||||
Expenses: | |||||||||||||||
Product development costs | 14,331 | — | — | 14,331 | |||||||||||
Selling, general and administrative | 131,457 | 44,478 | (9,605 | ) | G | 166,330 | |||||||||
Depreciation and amortization | 23,129 | 6,093 | 15,100 | H | 44,322 | ||||||||||
Settlement expense | — | 3,150 | — | 3,150 | |||||||||||
168,917 | 53,721 | 5,495 | 228,133 | ||||||||||||
Operating income (loss) | 140,571 | (473 | ) | (5,495 | ) | 134,603 | |||||||||
Interest income | (502 | ) | (1 | ) | 191 | I | (312 | ) | |||||||
Interest expense and other expense, net | 2,779 | 9,794 | (7,065 | ) | I | 5,508 | |||||||||
Dividends on Class C preferred units | — | 4,463 | (4,463 | ) | J | — | |||||||||
Accretion of Class C preferred units discount | — | 902 | (902 | ) | J | — | |||||||||
Income (loss) before income taxes | 138,294 | (15,631 | ) | 6,744 | 129,407 | ||||||||||
Income tax expense (benefit): | 46,508 | — | (8,964 | ) | K | 37,544 | |||||||||
Net income (loss) | $ | 91,786 | $ | (15,631 | ) | $ | 15,708 | $ | 91,863 | ||||||
Earnings per share: | |||||||||||||||
Basic | $ | 1.48 | — | — | $ | 1.48 | |||||||||
Diluted | $ | 1.46 | — | — | $ | 1.46 | |||||||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 62,126,656 | — | — | 62,126,656 | |||||||||||
Diluted | 62,951,758 | — | — | 62,951,758 |
Fair Value | Useful Life | ||||
Customer relationships | 72,400 | 4 to 9 years | |||
Non-compete agreements | 2,600 | 5 years | |||
Trademarks/Tradenames | 1,750 | 6 months | |||
Licenses | 380 | 3 years | |||
77,130 |