ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 99.1
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Introduction and Basis of Presentation
As previously disclosed, a wholly owned subsidiary of the Company (the “Highlands Sublessor”) entered into a sublease agreement on July 17, 2015, pursuant to which the Highlands Sublessor will lease one skilled nursing facility located in Arkansas to an affiliate of Aria Health Group, LLC (the “Highlands Sublessee”). Affiliates of the Company and Aria Health Group, LLC had entered into a sublease agreement, dated January 16, 2015, for the same facility but it was mutually terminated on April 30, 2015. The sublease agreement dated July 17, 2015 became effective on November 1, 2015, and the operations of the facility were transferred to the Highlands Sublessee on such date.
The facility for which the sublease agreement became effective on November 1, 2015 is as follows:
• | River Valley Health and Rehabilitation Center, a 129-bed skilled nursing facility located in Fort Xxxxx, Arkansas. |
The Highlands Sublessee is part of an affiliated group of eight additional entities for which the Company has entered into separate sublease agreements with affiliates of Aria Health Group, LLC. For a description of these arrangements, see: (i) “Notes to Consolidated Financial Statements (unaudited) - Note 7. Leases - Arkansas Leases” included in “Item 1. Financial Information” of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015; and (ii) the Company’s Current Report on Form 8-K filed with the Commission on May 6, 2015, which description is incorporated herein by reference.
The sublease agreement pertaining to the River Valley Health and Rehabilitation Center is in addition to several other sublease agreements which became effective on April 1, 2015, May 1, 2015, June 1, 2015, July 1, 2015, August 1, 2015, and September 30, 2015. See the Company’s Current Reports on Form 8-K filed on April 7, 2015, May 6, 2015, June 5, 2015, July 7, 2015, August 5, 2015, and October 6, 2015, respectively, for a description of these other sublease agreements. On a cumulative basis, the Company has entered into 23 sublease agreements (the "Cumulative Subleases") which are currently effective and under which operations of the applicable facilities have been transferred to third-party operators.
River Valley Sublease Agreement
The sublease agreement is structured as triple net lease wherein the Highlands Sublessee is responsible for the day-to-day operation, ongoing maintenance, taxes and insurance for the duration of the sublease. The initial term of the sublease agreement will expire on April 30, 2030 and may be renewed once, upon the exercise of the Highlands Sublessee’s option assuming the satisfaction of certain conditions, for an additional
five year period. The annual rent under the sublease agreement in the first year will be approximately $0.5 million, and the annual rent will escalate as follows: (i) in year two to approximately $0.6 million; (ii) by 102% of the immediately preceding year’s base rent in year three; (iii) by 103% of the immediately preceding year’s base rent in years four through six; and (iv) by 103.5% of the immediately preceding year’s base rent in years seven through fifteen. In connection with the sublease agreement, the current licensed operator of the facility, a wholly-owned subsidiary of the Highlands Sublessor, and the Highlands Sublessee also entered into an operations transfer agreement with respect to the facility, containing customary terms and conditions relating to the transfer of operations thereof.
Companions Specialized Care
As previously disclosed, on April 29, 2015, a wholly-owned subsidiary of the Company (the "Companions Seller") entered into an asset purchase agreement (the “Companions Sale Agreement”) with Gracewood Manor, LLC, an Oklahoma limited liability company (the “Companions Purchaser”), to sell Companions Specialized Care, a 102-bed skilled nursing facility located in Tulsa, Oklahoma ("Companions"). The Companions Sale Agreement was amended on May 19, 2015 and on September 30, 2015, to extend the closing date from July 1, 2015 to October 1, 2015, and from October 1, 2015 to October 31, 2015, respectively. In connection with entering into the Companions Sale Agreement, the Companions Seller and Companions Purchaser entered into an operations transfer agreement to transfer the operations of Companions concurrent with the closing of the asset purchase agreement.
On October 30, 2015, the Company completed the sale of Companions for $3.5 million less customary closing and certain real property apportionments. Proceeds were used to repay certain mortgage indebtedness and for working capital purposes. Concurrent with the closing of the sale, the operations of Companions were transferred to the Companions Purchaser.
Pro Forma Financials
The unaudited pro forma balance sheet as of June 30, 2015 is based on the historical balance sheet of the Company as of June 30, 2015 after giving effect to the commencement of the Cumulative Subleases and sale of Companions as of such date. The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2015 and for the year ended December 31, 2014 are based on the historical statement of operations of the Company for the six months ending June 30, 2015 and for the year ending December 31, 2014, respectively, giving effect to the commencement of the Cumulative Subleases and sale of Companions as of January 1, 2014.
The unaudited pro forma condensed consolidated financial statements presented are based on the assumptions and adjustments set forth in the notes thereto. The unaudited pro forma adjustments made in the compilation of the unaudited pro forma consolidated financial statements were directly attributable to the commencement of the Cumulative Subleases and sale of Companions, based upon available information and assumptions, which we consider to be reasonable, and made solely for purposes of developing such unaudited pro forma
financial information in compliance with the disclosure requirements of the SEC. The unaudited pro forma consolidated financial information is presented for informational purposes only and should not be considered indicative of actual results that would have been achieved had the Cumulative Subleases and sale of Companions commenced on the dates indicated.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company's 2014 Annual Report on Form 10-K, filed on March 31, 2015, the Company's Current Report on Form 8-K, filed on April 7, 2015, the Company's Current Report on Form 8-K, filed on May 6, 2015, the Company's Current Report on Form 8-K, filed on June 5, 2015, the Company's Current Report on Form 8-K, filed on July 7, 2015, the Company's Current Report on Form 8-K, filed on August 5, 2015, the Company's 2nd Quarter 2015 Periodic Report on Form 10-Q, filed on August 13, 2015, and the Company's Current Report on Form 8-K, filed on October 6, 2015.
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2015
(Amounts in thousands)
Unaudited | Pro Forma | |||||||||||||
June 30, 2015 | Adjustments | June 30, 2015 | ||||||||||||
ASSETS | ||||||||||||||
Current Assets: | ||||||||||||||
Cash and cash equivalents | $ | 15,340 | $ | 482 | (1) (2) (3) (4) (6) | $ | 15,822 | |||||||
Restricted cash and investments | 8,354 | — | 8,354 | |||||||||||
Accounts receivable, net | 16,654 | — | 16,654 | |||||||||||
Prepaid expenses and other | 3,327 | 56 | (2) | 3,383 | ||||||||||
Deferred tax asset | 569 | — | 569 | |||||||||||
Assets of disposal group held for sale | 10,242 | (5,430 | ) | (6) | 4,812 | |||||||||
Assets of variable interest entity held for sale | 5,894 | — | 5,894 | |||||||||||
Total current assets | 60,380 | (4,892 | ) | 55,488 | ||||||||||
Restricted cash and investments | 6,009 | — | 6,009 | |||||||||||
Property and equipment, net | 128,693 | — | 128,693 | |||||||||||
Intangible assets, net | 6,225 | — | 6,225 | |||||||||||
Goodwill | 4,224 | — | 4,224 | |||||||||||
Lease Deposits | 1,816 | — | 1,816 | |||||||||||
Deferred loan costs, net | 3,491 | — | 3,491 | |||||||||||
Other assets | 2,286 | 347 | (2) | 2,633 | ||||||||||
Total assets | $ | 213,124 | $ | (4,545 | ) | $ | 208,579 | |||||||
LIABILITIES AND EQUITY | ||||||||||||||
Current Liabilities: | ||||||||||||||
Current portion of notes payable and other debt | $ | 12,283 | $ | — | $ | 12,283 | ||||||||
Accounts payable and accrued expenses | 24,498 | (416 | ) | (3) | 24,082 | |||||||||
Liabilities of disposal group held for sale | 9,398 | (5,000 | ) | (6) | 4,398 | |||||||||
Liabilities of variable interest entity held for sale | 5,870 | — | 5,870 | |||||||||||
Total current liabilities | 52,049 | (5,416 | ) | 46,633 | ||||||||||
Notes payable and other debt | 118,739 | — | 118,739 | |||||||||||
Other liabilities and security deposits | 2,947 | 465 | (4) | 3,412 | ||||||||||
Deferred tax liability | 605 | — | 605 | |||||||||||
Total liabilities | 174,340 | (4,951 | ) | 169,389 | ||||||||||
Preferred stock | 47,950 | — | 47,950 | |||||||||||
Stockholders' equity: | ||||||||||||||
Common stock and additional paid-in-capital | 62,036 | — | 62,036 | |||||||||||
Accumulated deficit | (68,262 | ) | 406 | (5) (6) | (67,856 | ) | ||||||||
Total stockholders' equity | (6,226 | ) | 406 | (5,820 | ) | |||||||||
Noncontrolling interest in subsidiary | (2,940 | ) | — | (2,940 | ) | |||||||||
Total equity | (9,166 | ) | 406 | (8,760 | ) | |||||||||
Total liabilities and equity | $ | 213,124 | $ | (4,545 | ) | $ | 208,579 | |||||||
Notes:
(1) Lease inducement cash disbursements made to lessees
(2) Principal on lease inducements
(3) Cash paid for vacation accrual reduction due to transfer of employees to lessees
(4) Security deposits from tenants
(5) Interest on lease inducements
(6) Sale of Companions
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2015
(Amounts in thousands, except per share data)
Unaudited | Pro Forma | |||||||||||||
Six Months Ended | Six Months Ended | |||||||||||||
June 30, 2015 | Adjustments | June 30, 2015 | ||||||||||||
Revenues: | ||||||||||||||
Patient care revenues | $ | 38,088 | $ | (22,231 | ) | (1) | $ | 15,857 | ||||||
Management revenues | 474 | — | 474 | |||||||||||
Rental revenues | 5,545 | 7,042 | (2) | 12,587 | ||||||||||
Total revenues | 44,107 | (15,189 | ) | 28,918 | ||||||||||
Expenses: | ||||||||||||||
Cost of services | 33,822 | (18,446 | ) | (1) | 15,376 | |||||||||
General and administrative expenses | 5,683 | (1,903 | ) | (3) | 3,780 | |||||||||
Facility rent expense | 3,021 | — | 3,021 | |||||||||||
Depreciation and amortization | 3,473 | — | 3,473 | |||||||||||
Salary retirement and continuation costs | (47 | ) | — | (47 | ) | |||||||||
Total expenses | 45,952 | (20,349 | ) | 25,603 | ||||||||||
Income (Loss) from Operations | (1,845 | ) | 5,160 | 3,315 | ||||||||||
Other Income (Expense): | ||||||||||||||
Interest expense, net | (4,769 | ) | 137 | (4) (5) | (4,632 | ) | ||||||||
Loss on extinguishment of debt | (680 | ) | — | (680 | ) | |||||||||
Other expense | (480 | ) | — | (480 | ) | |||||||||
Total other expense, net | (5,929 | ) | 137 | (5,792 | ) | |||||||||
Loss from Continuing Operations Before Income Taxes | (7,774 | ) | 5,297 | (2,477 | ) | |||||||||
Income tax expense | (20 | ) | — | (20 | ) | |||||||||
Loss from Continuing Operations | $ | (7,794 | ) | $ | 5,297 | $ | (2,497 | ) | ||||||
Net Loss per Share attributable to AdCare | ||||||||||||||
Health Systems, Inc. Common Stockholders-Basic: | ||||||||||||||
Continuing Operations | $ | (0.40 | ) | $ | (0.13 | ) | ||||||||
Net Loss per Share attributable to AdCare | ||||||||||||||
Health Systems, Inc. Common Stockholders-Diluted: | ||||||||||||||
Continuing Operations | $ | (0.40 | ) | $ | (0.13 | ) | ||||||||
Weighted Average Shares Outstanding: | ||||||||||||||
Basic | 19,499 | 19,499 | ||||||||||||
Diluted | 19,499 | 19,499 | ||||||||||||
Notes:
(1) Eliminate results of operations for the Cumulative Subleases
(2) Straight line rental revenue resulting from the Cumulative Subleases
(3) | Eliminate management's estimated general and administrative expense related to the Cumulative Subleases |
(4) Imputed interest payments on special rent
(5) Eliminate interest expense on line of credit
ADCARE HEALTH SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2014
(Amounts in thousands, except per share data)
Audited | Pro Forma | |||||||||||||
For the Year Ended | For the Year Ended | |||||||||||||
December 31, 2014 | Adjustments | December 31, 2014 | ||||||||||||
Revenues: | ||||||||||||||
Patient care revenues | $ | 189,989 | $ | (153,412 | ) | (1) | $ | 36,577 | ||||||
Management revenues | 1,493 | — | 1,493 | |||||||||||
Rental revenues | 1,832 | 19,610 | (2) | 21,442 | ||||||||||
Total revenues | 193,314 | (133,802 | ) | 59,512 | ||||||||||
Expenses: | ||||||||||||||
Cost of services | 159,434 | (127,697 | ) | (1) | 31,737 | |||||||||
General and administrative expenses | 15,541 | (5,349 | ) | (3) | 10,192 | |||||||||
Facility rent expense | 7,080 | — | 7,080 | |||||||||||
Depreciation and amortization | 7,300 | — | 7,300 | |||||||||||
Salary retirement and continuation costs | 2,636 | — | 2,636 | |||||||||||
Total expenses | 191,991 | (133,046 | ) | 58,945 | ||||||||||
Income (Loss) from Operations | 1,323 | (756 | ) | 567 | ||||||||||
Other Income (Expense): | ||||||||||||||
Interest expense, net | (10,780 | ) | 428 | (4) (5) | (10,352 | ) | ||||||||
Acquisition costs, net of gains | (8 | ) | — | (8 | ) | |||||||||
Loss on extinguishment of debt | (1,803 | ) | — | (1,803 | ) | |||||||||
Loss on legal settlement | (600 | ) | — | (600 | ) | |||||||||
Loss on disposal of assets | (7 | ) | — | (7 | ) | |||||||||
Other expense | (888 | ) | — | (888 | ) | |||||||||
Total other expense, net | (14,086 | ) | 428 | (13,658 | ) | |||||||||
Loss from Continuing Operations Before Income Taxes | (12,763 | ) | (328 | ) | (13,091 | ) | ||||||||
Income tax expense | (132 | ) | — | (132 | ) | |||||||||
Loss from Continuing Operations | $ | (12,895 | ) | $ | (328 | ) | $ | (13,223 | ) | |||||
Net Loss per Share attributable to AdCare | ||||||||||||||
Health Systems, Inc. Common Stockholders-Basic: | ||||||||||||||
Continuing Operations | $ | (0.72 | ) | $ | (0.74 | ) | ||||||||
Net Loss per Share attributable to AdCare | ||||||||||||||
Health Systems, Inc. Common Stockholders-Diluted: | ||||||||||||||
Continuing Operations | $ | (0.72 | ) | $ | (0.74 | ) | ||||||||
Weighted Average Shares Outstanding: | ||||||||||||||
Basic | 17,930 | 17,930 | ||||||||||||
Diluted | 17,930 | 17,930 | ||||||||||||
Notes:
(1) Eliminate results of operations for the Cumulative Subleases
(2) Straight line rental revenue resulting from the Cumulative Subleases
(3) | Eliminate management's estimated general and administrative expense related to the Cumulative Subleases |
(4) Imputed interest payments on special rent
(5) Eliminate interest expense on line of credit
