EX-99.2 4 g97176exv99w2.txt EX-99.2 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION FOR PSYCHIATRIC SOLUTIONS, INC. Exhibit 99.2 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION The following tables set forth the unaudited pro forma condensed combined financial data for Psychiatric Solutions, Inc., giving effect to the acquisitions of Ardent Health Services, Inc. ("Ardent Behavioral"), Heartland Healthcare ("Heartland"), Brentwood Behavioral Health ("Brentwood") and other non-significant acquisitions during the fiscal year ended December 31, 2004 and the Financing Transactions (as defined below) as if they had occurred on the dates indicated and after giving effect to certain pro forma adjustments discussed herein. The unaudited pro forma condensed balance sheet as of June 30, 2005 has been derived from Psychiatric Solutions' and Ardent Behavioral's historical balance sheets, adjusted to give effect to these acquisitions and the Financing Transactions as if they occurred on June 30, 2005. The pro forma condensed combined income statement for the twelve months and the six months ended June 30, 2005 gives effect to the acquisition of Ardent Behavioral and the Financing Transactions, as if they occurred at the beginning of the period presented. The pro forma condensed combined income statement for the year ended December 31, 2004 gives effect to the acquisitions of Ardent Behavioral, Heartland, Brentwood and other non-significant acquisitions during 2004 and the Financing Transactions, as if they occurred at the beginning of the period presented. For the purposes of this Current Report on Form 8-K Financing Transactions shall refer to our offering of senior subordinated notes, the amendment and restatement of our existing credit facility and our new senior secured term loan. The adjustments necessary to fairly present the unaudited pro forma condensed combined financial data have been made based on available information and in the opinion of management are reasonable. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma condensed combined financial data. The pro forma adjustments are preliminary and revisions to the preliminary purchase price allocations and financing of the transactions may have a significant impact on the pro forma adjustments. A final valuation of net assets acquired associated with the Ardent Behavioral acquisition cannot be made at this time. A final determination of these fair values will be conducted by Psychiatric Solutions' independent valuation specialists. The consideration of this valuation will most likely result in a change in the value assigned to the fixed and intangible assets acquired from Ardent Behavioral. The unaudited pro forma condensed combined financial data is for comparative purposes only and does not purport to represent what our financial position or results of operations would actually have been had the events noted above in fact occurred on the assumed dates or to project our financial position or results of operations for any future date or future period. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 2005 (DOLLARS IN THOUSANDS)
FINANCING PRO FORMA TRANSACTIONS PSYCHIATRIC ARDENT ACQUISITION PRO FORMA PRO FORMA PRO FORMA SOLUTIONS BEHAVIORAL ADJUSTMENTS COMBINED ADJUSTMENTS PSI ----------- --------- -------------- --------- ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 7,593 $ 1,729 $ (500,000)(1) $(490,678) $498,600 (1) $ 7,922 Accounts receivable, net 82,640 45,079 - 127,719 - 127,719 Other current assets 17,761 16,621 - 34,382 - 34,382 --------- --------- ---------- --------- -------- ----------- Total current assets 107,994 63,429 (500,000) (328,577) 498,600 170,023 Property and equipment, net 222,656 83,160 68,288 (3) 374,104 374,104 Costs in excess of net assets acquired 131,428 11,210 391,464 (4) 534,102 7,300 (1) 541,402 Other assets 23,936 94,594 (94,461)(5) 24,069 10,727 (8) 34,796 --------- --------- ---------- --------- -------- ----------- Total assets $ 486,014 $ 252,393 $ (134,709) $ 603,698 $516,627 $ 1,120,325 ========= ========= ========== ========= ======== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,938 $ 9,876 $ - $ 20,814 $ - $ 20,814 Accrued liabilities 56,645 17,778 - 74,423 - 74,423 Current portion of long-term debt 427 - - 427 3,250 (1) 3,677 --------- --------- ---------- --------- -------- ----------- Total current liabilities 68,010 27,654 - 95,664 3,250 98,914 Long-term debt, less current portion 143,482 - - 143,482 525,450 (1) 668,932 Other liabilities 17,074 17,151 8,113 (6) 42,338 - 42,338 --------- --------- ---------- --------- -------- ----------- Total liabilities 228,566 44,805 8,113 281,484 528,700 810,184 Stockholders' equity: Common Stock 205 - 14 (7) 219 - 219 Additional paid-in capital 228,942 - 64,752 (7) 293,694 - 293,694 Accumulated earnings 28,301 207,588 (207,588)(2) 28,301 (12,073)(9) 16,228 --------- --------- ---------- --------- -------- ----------- Total stockholders' equity 257,448 207,588 (142,822) 322,214 (12,073) 310,141 --------- --------- ---------- --------- -------- ----------- Total liabilities and stockholders' equity $ 486,014 $ 252,393 $ (134,709) $ 603,698 $516,627 $ 1,120,325 ========= ========= ========== ========= ======== ===========
See Notes to Unaudited Pro Forma Condensed Combined Balance Sheet. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (DOLLARS IN THOUSANDS) (1) Represents the sources and uses of funds from the Financing Transactions: 7 3/4% senior subordinated notes................................................ $220,000 Senior secured term debt........................................................ 325,000 Additional borrowings on amended and restated revolving credit facility......... 45,000 Repurchase of 10 5/8% senior subordinated notes................................. (61,300) -------- Increase in debt................................................................ 528,700 Excess cash on balance sheet at June 30, 2005................................... 1,400 Premium on repurchase of 10 5/8% senior subordinated notes...................... (8,600) Non-recurring bridge loan commitment fee........................................ (1,500) Estimate of capitalized finance costs........................................... (12,700) Estimate of purchase transaction costs.......................................... (7,300) -------- Cash paid to Ardent Behavioral and Ardent Health Services LLC................... 500,000 Less excess cash on balance sheet at June 30, 2005.............................. (1,400) -------- Net increase to cash and cash equivalents....................................... $498,600 ========
(2) Represents the elimination of Ardent Behavioral's accumulated earnings of $207,588. (3) Represents the adjustment to the value of the property and equipment of Ardent Behavioral to reflect their appraised value. (4) Represents adjustment to cost in excess of net assets acquired as follows: Cash paid to Ardent Behavioral and Ardent Health Services LLC....................................................... $ 500,000 Value of equity consideration issued to Ardent Health Services LLC.............................................. 64,766 Less: net assets acquired(a)................................ (162,092) --------- Cost in excess of net assets acquired....................... 402,674 Ardent Behavioral's historical cost in excess of net assets acquired.................................................. (11,210) --------- Pro forma adjustment to cost in excess of net assets acquired.................................................. $ 391,464 =========
--------------- (a) Net assets of Ardent Behavioral..................... $ 207,588 Cost in excess of net assets acquired of Ardent Behavioral........................................ (11,210) Pro forma acquisition adjustments to: Property and equipment, net.................... 68,288 Other assets................................... (94,461) Other liabilities.............................. (8,113) --------- Net assets acquired................................ $ 162,092 =========
(5) Represents elimination of Ardent's Behavioral intercompany receivables of $87,927 and reclassification of deferred tax assets to deferred tax liabilities of $6,534. (6) Represents an adjustment to long-term deferred tax liabilities related to the step-up in basis of the property and equipment of Ardent Behavioral and the reclassification of deferred tax assets of Ardent Behavioral and an adjustment to long-term deferred tax assets related to net operating losses acquired. Step up basis on property and equipment of Ardent facilities................................................ $ 27,315 Net operating losses obtained in acquisition of Ardent Behavioral................................................ (12,668) Reclassification of deferred tax assets of Ardent Behavioral................................................ (6,534) --------- $ 8,113 =========
(7) Represents the adjustment to common stock and additional paid in capital related to the issuance of 1,362,760 shares of our common stock, $.01 par value, at a price of $47.5250 per share. (8) Represents capitalized finance costs on Financing Transactions and write-off of capitalized finance costs related to 10 5/8% senior subordinated notes repurchased. Capitalized finance costs on Financing Transactions .................................. $ 12,700 Write-off of capitalized finance costs related to 10 5/8% senior subordinated notes repurchased ..................................................................... (1,973) --------- $ 10,727 =========
(9) Represents non-recurring fees and charges on loans related to the Financing Transactions as summarized below: Loan commitment fee on bridge facility ............................................... $ 1,500 Premium on repurchase of 10 5/8% senior subordinated notes ........................... 8,600 Write-off of capitalized loan costs related to 10 5/8% senior subordinated notes repurchased ........................................................................ 1,973 --------- $ 12,073 =========
UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR THE TWELVE MONTHS ENDED JUNE 30, 2005 (DOLLARS IN THOUSANDS)
FINANCING TRANSACTIONS PSYCHIATRIC ARDENT PRO FORMA PRO FORMA PRO FORMA PRO FORMA SOLUTIONS BEHAVIORAL ADJUSTMENTS COMBINED ADJUSTMENTS PSI ----------- ---------- ----------- --------- ----------- --------- Revenue $549,422 $309,813 $ - $ 859,235 $ - $859,235 Expenses: Salaries, wages and employee benefits 300,653 173,497 (66)(1)(a) 474,084 - 474,084 Professional fees 57,675 32,357 2,051 (1)(b) 92,083 - 92,083 Rentals and leases 9,944 3,383 (181)(1)(c) 13,146 - 13,146 Other operating expenses 95,913 39,248 328 (1)(d) 135,489 - 135,489 Provision for doubtful accounts 11,555 8,253 - 19,808 - 19,808 Depreciation and amortization 11,360 4,853 (45)(1)(e) 16,168 - 16,168 Interest expense 16,837 (1,832) 1,832 (1)(f) 16,837 32,593(1)(i) 49,430 Other expenses 6,990 13,293 (13,293)(1)(g) 6,990 - 6,990 -------- -------- -------- ---------- --------- -------- Total expenses 510,927 273,052 (9,374) 774,605 32,593 807,198 -------- -------- -------- --------- --------- -------- Earnings from continuing operations before income taxes 38,495 36,761 9,374 84,630 (32,593) 52,037 Provision for (benefit from) income taxes 14,824 13,803 3,532(1)(h) 32,159 (12,385)(1)(h) 19,774 -------- -------- -------- ---------- --------- -------- Income from continuing operations $ 23,671 $ 22,958 $ 5,842 $ 52,471 $ (20,208) $ 32,263 ======== ======== ======== ========== ========= ========
See Notes to Unaudited Pro Forma Consolidated Combined Income Statements. UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 2005 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FINANCING TRANSACTIONS PSYCHIATRIC ARDENT PRO FORMA PRO FORMA PRO FORMA PRO FORMA SOLUTIONS BEHAVIORAL ADJUSTMENTS COMBINED ADJUSTMENTS PSI ---------- ---------- ----------- --------- ------------ --------- Revenue $282,598 $161,951 $ - $444,549 $ - $444,549 Expenses: Salaries, wages and employee benefits 154,084 88,570 265 (1)(a) 242,919 - 242,919 Professional fees 29,085 15,860 727 (1)(b) 45,672 - 45,672 Rentals and leases 4,801 1,600 62 (1)(c) 6,463 - 6,463 Other operating expenses 49,761 19,553 164 (1)(d) 69,478 - 69,478 Provision for doubtful accounts 5,344 4,228 - 9,572 - 9,572 Depreciation and amortization 5,960 2,414 (108)(1)(e) 8,266 - 8,266 Interest (expense) income 6,844 (2,172) 2,172 (1)(f) 6,844 16,669(1)(i) 23,513 Other expenses 6,990 5,696 (5,696)(1)(g) 6,990 - 6,990 -------- -------- -------- -------- -------- -------- Total expenses 262,869 135,749 (2,414) 396,204 16,669 412,873 -------- -------- -------- -------- -------- -------- Income from continuing operations before income taxes 19,729 26,202 2,414 48,345 (16,669) 31,676 Provision for (benefit from) income taxes 7,694 9,803 1,358(1)(h) 18,855 (6,501)(1)(h) 12,354 -------- -------- -------- -------- -------- -------- Income from continuing operations $ 12,035 $ 16,399 $ 1,056 $ 29,490 $(10,168) $ 19,322 ======== ======== ======== ======== ======== ======== Basic earnings per share on continuing operations $ 0.59 $ 0.88 ======== ======== Diluted earnings per share on continuing operations $ 0.57 $ 0.86 ======== ======== Shares used in computing per share amounts (j): Basic 20,498 21,861 Diluted 21,201 22,564
See Notes to Unaudited Pro Forma Condensed Combined Income Statements. UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2004 (DOLLARS IN THOUSANDS)
FINANCING TRANSACTIONS PSYCHIATRIC PRO FORMA PRO FORMA PRO FORMA PRO FORMA SOLUTIONS ACQUISITIONS (1) COMBINED ADJUSTMENTS PSI ----------- ---------------- --------- ----------- --------- Revenue $487,190 $339,906 $827,096 $ - $827,096 Expenses: Salaries, wages and employee benefits 265,678 190,472 456,150 - 456,150 Professional fees 53,258 41,744 95,002 - 95,002 Rentals and leases 9,019 4,347 13,366 - 13,366 Other operating expenses 85,670 45,505 131,175 - 131,175 Provision for doubtful accounts 10,874 9,340 20,214 - 20,214 Depreciation and amortization 9,868 5,644 15,512 - 15,512 Interest expense 18,964 1,148 20,112 33,026(1)(i) 53,138 Other expenses 6,407 - 6,407 - 6,407 -------- -------- -------- --------- -------- Total expenses 459,738 298,200 757,938 33,026 790,964 -------- -------- -------- --------- -------- Income from continuing operations before income taxes 27,452 41,706 69,158 (33,026) 36,132 Provision for (benefit from) income taxes 10,432 15,848 26,280 (12,550)(1)(h) 13,730 -------- -------- -------- --------- -------- Income from continuing operations $ 17,020 $ 25,858 $ 42,878 $ (20,476) $ 22,402 ======== ======== ======== ========= ======== Basic earnings per share on continuing operations $ 1.12 $ 1.41 ======== ======== Diluted earnings per share on continuing operations $ 0.97 $ 1.18 ======== ======== Shares used in computing per share amounts (j): Basic 14,570 15,933 Diluted 17,573 18,936
See Notes to Unaudited Pro Forma Condensed Combined Income Statements. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS (Dollars in thousands) (1) The following pro forma condensed combined income statement for the year ended December 31, 2004 presents the incremental pro forma operations of Ardent Behavioral, Heartland, Brentwood and three non-significant acquisitions applying the purchase method of accounting as if the acquisitions, which were completed on July 1, 2005, June 1, 2004, March 1, 2004, and various dates during the second quarter of 2004, respectively, had all occurred on January 1, 2004.
NON- ACQUISITION ARDENT SIGNIFICANT ACQUISITIONS PRO FORMA PRO FORMA BEHAVIORAL HEARTLAND BRENTWOOD ACQUISITIONS COMBINED ADJUSTMENTS ACQUISITIONS ---------- --------- --------- ------------ ------------ ----------- ------------ Revenue......................... $294,282 $22,482 $5,612 $17,530 $339,906 $ -- $339,906 Expenses: Salaries, wages and employee benefits.................... 167,926 9,689 2,977 10,012 190,604 (132)(a) 190,472 Professional fees............. 32,744 4,841 653 1,389 39,627 2,117 (b) 41,744 Rentals and leases............ 3,564 788 37 559 4,948 (601)(c) 4,347 Other operating expenses...... 38,298 3,177 772 2,930 45,177 328 (d) 45,505 Provision for doubtful accounts.................... 7,245 1,500 370 225 9,340 -- 9,340 Depreciation and amortization................ 3,664 104 30 272 4,070 1,574 (e) 5,644 Interest expense.............. 2,854 127 2 136 3,119 (1,971)(f) 1,148 Other expenses................ 16,483 377 319 472 17,651 (17,651)(g) -- -------- ------- ------ ------- -------- -------- -------- Total expenses.............. 272,778 20,603 5,160 15,995 314,536 (16,336) 298,200 -------- ------- ------ ------- -------- -------- -------- Income from continuing operations before income taxes......................... 21,504 1,879 452 1,535 25,370 16,336 41,706 Provision for income taxes...... 8,159 -- -- -- 8,159 7,689 (h) 15,848 -------- ------- ------ ------- -------- -------- -------- Income from continuing operations.................... $ 13,345 $ 1,879 $ 452 $ 1,535 $ 17,211 $ 8,647 $ 25,858 ======== ======= ====== ======= ======== ======== ========
(a) Reflects adjustments to salaries, wages and employee benefits to include corporate level employees necessary to manage the facilities acquired from Ardent Behavioral and the reclassification of contract labor from salaries, wages and employee benefits to professional fees for Ardent Behavioral to conform to our presentation.
SIX TWELVE MONTHS ENDED MONTHS ------------------------ ENDED DECEMBER 31, JUNE 30, JUNE 30, 2004 2005 2005 ------------ --------- --------- Salaries, wages and employee benefits of corporate level employees to manage facilities acquired from Ardent Behavioral................................. $ 1,835 $ 1,835 $ 918 Reclassification of contract labor to professional fees to conform to our presentation............... (1,967) (1,901) (653) ------- ------- ------- $ (132) $ (66) $ 265 ======= ======= =======
(b) Reflects adjustment to professional fees to include additional costs at the corporate level for the acquisition of Ardent Behavioral and the reclassification of contract labor from salaries, wages and employee benefits to professional fees for Ardent Behavioral to conform to our presentation. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS -- (CONTINUED)
SIX TWELVE MONTHS ENDED MONTHS ------------------------ ENDED DECEMBER 31, JUNE 30, JUNE 30, 2004 2005 2005 ------------ --------- --------- Professional fees at corporate level to support facilities acquired from Ardent Behavioral........ $ 150 $ 150 $ 74 Reclassification from salaries, wages and employee benefits to conform to our presentation........... 1,967 1,901 653 ------- ------- ------- $ 2,117 $ 2,051 $ 727 ======= ======= =======
(c) Reflects adjustments to rentals and leases for real estate purchased subsequent to the acquisition of formerly leased facilities and adjustments to rentals and leases for additional office space at the corporate level necessary to accommodate employees hired as the result of the Ardent Behavioral acquisition.
SIX TWELVE MONTHS ENDED MONTHS ------------------------ ENDED DECEMBER 31, JUNE 30, JUNE 30, 2004 2005 2005 ------------ --------- --------- Lease expense on properties purchased related to acquisition of facilities......................... $(725) $(305) $ -- Lease expense on additional corporate office space required for additional corporate level employees to manage facilities acquired from Ardent Behavioral........................................ 124 124 62 ----- ----- ----- $(601) $(181) $ 62 ===== ===== =====
(d) Reflects adjustments to other operating expenses at the corporate level, primarily for travel and related expenses, to be incurred by employees hired as the result of the Ardent Behavioral acquisition. (e) Reflects adjustments to depreciation expense for purchase accounting step-ups of property and equipment acquired and for real estate purchased subsequent to the acquisition of formerly leased facilities. Buildings are depreciated over 35 years and equipment over 5 years.
SIX TWELVE MONTHS ENDED MONTHS ------------------------ ENDED DECEMBER 31, JUNE 30, JUNE 30, 2004 2005 2005 ------------ --------- --------- Additional (reduction in) depreciation on acquired facilities for purchase accounting basis step-up........................................... $1,099 $(241) $(108) Depreciation on properties purchased related to acquisition of facilities......................... 475 196 -- ------ ----- ----- $1,574 $ (45) $(108) ====== ===== =====
(f) Reflects adjustments to include interest expense from the beginning of the period to the acquisition date and adjustments to eliminate interest expense for Ardent Behavioral. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENTS -- (CONTINUED)
SIX TWELVE MONTHS ENDED MONTHS ------------------------ ENDED DECEMBER 31, JUNE 30, JUNE 30, 2004 2005 2005 ------------ --------- --------- Interest expense.................................... $ 883 $ -- $ -- Less Ardent Behavioral Historical interest expense (income).......................................... (2,854) 1,832 2,172 ------- ------ ------ $(1,971) $1,832 $2,172 ======= ====== ======
(g) Reflects adjustments to eliminate management fees and other related party amounts paid or payable to the sellers prior to acquisition. Incremental expenses we expect to incur on an on-going basis for additional personnel, office space, etc. to manage these facilities are reflected as acquisition pro-forma adjustments in the appropriate income statement line item. (h) Reflects adjustment to bring combined pro forma provision for income taxes to 38%, 39% and 38% of income from continuing operations before income taxes for the twelve months ended June 30, 2005, the six months ended June 30, 2005 and the year ended December 31, 2004, respectively.
SIX TWELVE MONTHS ENDED MONTHS ------------------------ ENDED DECEMBER 31, JUNE 30, JUNE 30, 2004 2005 2005 ------------ --------- --------- Pro forma acquisition income from continuing operations before income taxes.................... $ 41,706 $ 84,630 $48,345 Effective income tax rate........................... 38% 38% 39% -------- -------- ------- Provision for income taxes.......................... 15,848 32,159 18,855 Provision prior to pro-forma adjustment............. 8,159 28,627 17,497 -------- -------- ------- Pro forma acquisition adjustment to provision for income taxes...................................... $ 7,689 $ 3,532 $ 1,358 ======== ======== ======= Pro forma PSI income from continuing operations before income taxes............................... $ 36,132 52,037 $31,676 Effective income tax rates.......................... 38% 38% 39% -------- -------- ------- Pro forma provision for income taxes................ $ 13,730 19,774 12,354 Pro forma combined provision for income taxes....... 26,280 32,159 18,855 -------- -------- ------- Offering pro forma adjustment....................... $(12,550) $(12,385) $(6,501) ======== ======== =======
(i) Reflects adjustment to give effect to interest on the $220,000 of 7 3/4 % senior subordinated notes and interest on the $325,000 senior secured term facility and $45,000 of additional borrowings under the amended and restated revolving credit facility at the LIBOR rate plus applicable margin. This adjustment has been offset by interest on the $61,300 of 10 5/8 % senior subordinated notes repurchased. The adjustment also includes amortization on capitalized finance costs and expense anticipated on interest rate swap arrangements. A 1/8% increase (decrease) in our interest rate assumptions would increase (decrease) our interest expense $462 for both the twelve months ended June 30, 2005 and the year ended December 31, 2004 and $231 for the six months ended June 30, 2005. (j) Pro forma numbers reflect adjustment to give effect to 1,362,760 shares issued in the acquisition of Ardent Behavioral.