Form: 8-K/A

Current report filing

January 29, 2019

Exhibit 99.2

 

Unaudited Pro Forma Condensed Combined Financial Information



On November 13, 2018, ResMed Operations Inc. (“ResMed Operations”) completed its previously announced acquisition of MatrixCare Holdings, Inc., a Delaware corporation (“MatrixCare”), in accordance with an Agreement and Plan of Merger (the “Merger Agreement”), dated November 5, 2018, with Evolved Sub, Inc. a Delaware corporation and a  wholly-owned subsidiary of ResMed Operations (“Merger Sub”), ResMed Inc. (“ResMed”), and OPE LGI Holdings Limited, a Canadian private company in its capacity as the agent acting on behalf of the holders of common stock and common stock options of MatrixCare. Pursuant to the Merger Agreement, Merger Sub merged with and into MatrixCare, with MatrixCare continuing as the surviving entity and becoming a wholly-owned subsidiary of ResMed Operations (the “Merger”).  The Merger Agreement was filed as Exhibit 2.1 to ResMed’s Current Report on Form 8-K, which was filed with the Securities and Exchange Commission on November 14, 2018 (the “Original 8-K”).



ResMed’s most recent fiscal year ended on June 30, 2018 and MatrixCare’s most recent fiscal year ended on December 31, 2017. Accordingly, the unaudited pro forma condensed combined balance sheet as of September 30, 2018 combines ResMed’s historical unaudited consolidated balance sheet as of September 30, 2018 and MatrixCare’s unaudited consolidated balance sheet as of September 30, 2018. It is presented as if the acquisition of MatrixCare by ResMed had occurred on September 30, 2018 and includes items that are directly attributable to the acquisition and factually supportable, regardless of whether they have a continuing impact or are nonrecurring.



To present results for comparable periods, the unaudited pro forma condensed combined statements of income for the twelve months ended June 30, 2018 combines the historical results of ResMed for the fiscal year ended June 30, 2018 and the historical results of MatrixCare for the twelve months ended June 30, 2018, and the unaudited pro forma condensed combined statements of income for the three months ended September 30, 2018 combines the historical results of ResMed for the three months ended September 30, 2018 and the historical results of MatrixCare for the three months ended September 30, 2018. The unaudited pro forma condensed combined statements of income are presented as if the acquisition of MatrixCare by ResMed had occurred on July 1, 2017, the beginning of ResMed’s 2018 fiscal year, and excludes items related to the acquisition that are nonrecurring but includes items that are directly attributable to the acquisition, expected to have a continuing impact, and factually supportable.



The following unaudited pro forma condensed combined financial information should be read in conjunction with:



·

the notes to the unaudited pro forma condensed combined financial statements;

·

the Original 8-K;

·

the historical audited consolidated financial statements and accompanying notes of ResMed included in its Annual Report on Form 10-K as of and for the year ended June 30, 2018;

·

the historical unaudited interim consolidated financial statements and accompanying notes of ResMed included in its Quarterly Report on Form 10-Q as of and for the three months ended September 30, 2018; and

·

the historical audited consolidated financial statements and accompanying notes of MatrixCare as of and for the year ended December 31, 2017 (presented in Exhibit 99.1 to this Amendment No. 1 to the Original 8-K); and

·

the historical unaudited consolidated financial statements and accompanying notes of MatrixCare as of and for the nine months ended September 30, 2018 (presented in Exhibit 99.1 to this Amendment No. 1 to the Original 8-K).



The preliminary allocation of the purchase price presented below, in Note 2, and used to prepare the unaudited pro forma financial information, is based on a preliminary valuation of assets acquired and liabilities assumed. Accordingly, the pro forma purchase price adjustments are subject to further adjustments as additional information becomes available and as additional analysis is performed. The preliminary pro forma purchase price adjustments have been made solely to provide the unaudited pro forma financial statements included herewith. A final determination of these fair values will be based on the actual net tangible and intangible assets of MatrixCare that exist as of the closing date of the transaction. In addition, the unaudited pro forma condensed combined financial statements do not reflect the costs of integration or benefits that may result from realizing future cost savings from operating efficiencies or revenue synergies expected to result from the acquisition.



The unaudited pro forma condensed combined financial statements are provided for informational purposes only and do not necessarily indicate results that would have occurred had the acquisition been completed as of the dates indicated. In addition, the unaudited pro forma financial information does not purport to indicate the future financial position or operating results of the combined operations.

1


 

 

RESMED INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AT SEPTEMBER 30, 2018

(In USD thousands)









 

 

 

 

 

 

 

 

 

 

 

 

 



ResMed
Historical

 

MatrixCare
Historical

 

Pro Forma
Adjustments
(Note 2)

 

Ref

 

Pro-Forma
Combined

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

230,188 

 

$

15,293 

 

$

 -

 

 

 

$

245,481 

Accounts receivable, net

 

463,743 

 

 

18,230 

 

 

 -

 

 

 

 

481,973 

Inventories

 

282,555 

 

 

 -

 

 

 -

 

 

 

 

282,555 

Prepaid expenses and other current assets

 

111,757 

 

 

10,722 

 

 

 -

 

 

 

 

122,479 

Total current assets

 

1,088,243 

 

 

44,245 

 

 

 -

 

 

 

 

1,132,488 

Non-current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

381,822 

 

 

20,795 

 

 

 -

 

 

 

 

402,617 

Goodwill

 

1,192,030 

 

 

213,838 

 

 

345,281 

 

a

 

 

1,751,149 

Other intangible assets, net

 

242,193 

 

 

82,762 

 

 

162,238 

 

a, b

 

 

487,193 

Deferred income taxes

 

46,226 

 

 

 -

 

 

 -

 

 

 

 

46,226 

Prepaid taxes and other non-current assets

 

117,024 

 

 

3,548 

 

 

 -

 

 

 

 

120,572 

Total non-current assets

 

1,979,295 

 

 

320,943 

 

 

507,519 

 

 

 

 

2,807,757 

Total assets

$

3,067,538 

 

$

365,188 

 

$

507,519 

 

 

 

$

3,940,245 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

$

98,709 

 

$

5,082 

 

$

 -

 

 

 

$

103,791 

Accrued expenses

 

169,465 

 

 

9,111 

 

 

20,372 

 

c

 

 

198,948 

Deferred revenue

 

64,822 

 

 

24,341 

 

 

(7,496)

 

 

 

 

81,667 

Income taxes payable

 

76,137 

 

 

 -

 

 

 -

 

 

 

 

76,137 

Short-term debt, net

 

11,975 

 

 

149,421 

 

 

(149,421)

 

d

 

 

11,975 

Total current liabilities

 

421,108 

 

 

187,955 

 

 

(136,545)

 

 

 

 

472,518 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

73,810 

 

 

3,441 

 

 

 -

 

 

 

 

77,251 

Deferred income taxes

 

16,091 

 

 

17,313 

 

 

57,428 

 

a

 

 

90,832 

Other long-term liabilities

 

534 

 

 

994 

 

 

 -

 

 

 

 

1,528 

Long-term debt, net

 

517,637 

 

 

 -

 

 

762,494 

 

d

 

 

1,280,131 

Long-term income taxes payable

 

138,102 

 

 

 -

 

 

 -

 

 

 

 

138,102 

Total non-current liabilities

 

746,174 

 

 

21,748 

 

 

819,922 

 

 

 

 

1,587,844 

Total liabilities

 

1,167,282 

 

 

209,703 

 

 

683,377 

 

 

 

 

2,060,362 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 -

 

 

 -

 

 

 -

 

 

 

 

 -

Common stock

 

570 

 

 

13 

 

 

(13)

 

g

 

 

570 

Additional paid-in capital

 

1,463,669 

 

 

175,286 

 

 

(175,286)

 

g

 

 

1,463,669 

Retained earnings

 

2,296,473 

 

 

(19,670)

 

 

(703)

 

g

 

 

2,276,100 

Treasury stock

 

(1,623,256)

 

 

(144)

 

 

144 

 

g

 

 

(1,623,256)

Accumulated other comprehensive loss

 

(237,200)

 

 

 -

 

 

 -

 

 

 

 

(237,200)

Total stockholders’ equity

 

1,900,256 

 

 

155,485 

 

 

(175,858)

 

 

 

 

1,879,883 

Total liabilities and stockholders’ equity

$

3,067,538 

 

$

365,188 

 

$

507,519 

 

 

 

$

3,940,245 





See accompanying notes to unaudited pro forma condensed combined financial statements.

2


 

 

RESMED INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2018

(In USD thousands, except per share amounts)







 

 

 

 

 

 

 

 

 

 

 

 

 



ResMed
Historical

 

MatrixCare
Historical

 

Pro Forma
Adjustments
(Note 2)

 

Ref

 

Pro-Forma
Combined



 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

$

588,279 

 

$

28,835 

 

$

 -

 

 

 

$

617,114 

Cost of sales

 

245,186 

 

 

8,458 

 

 

 -

 

 

 

 

253,644 

Gross profit

 

343,093 

 

 

20,377 

 

 

 -

 

 

 

 

363,470 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

147,303 

 

 

8,834 

 

 

 -

 

 

 

 

156,137 

Research and development

 

38,791 

 

 

4,925 

 

 

 -

 

 

 

 

43,716 

Amortization of acquired intangible assets

 

12,867 

 

 

9,066 

 

 

(3,078)

 

b

 

 

18,855 

Total operating expenses

 

198,961 

 

 

22,825 

 

 

(3,078)

 

 

 

 

218,708 

Income from operations

 

144,132 

 

 

(2,448)

 

 

3,078 

 

 

 

 

144,762 

Other income (loss), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

922 

 

 

 -

 

 

 -

 

 

 

 

922 

Interest expense

 

(3,708)

 

 

(2,966)

 

 

(3,168)

 

e

 

 

(9,842)

Other, net

 

(2,465)

 

 

12 

 

 

 -

 

 

 

 

(2,453)

Total other income (loss), net

 

(5,251)

 

 

(2,954)

 

 

(3,168)

 

 

 

 

(11,373)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

138,881 

 

 

(5,402)

 

 

(90)

 

 

 

 

133,389 

Income tax expense (benefit)

 

33,144 

 

 

271 

 

 

(1,424)

 

f

 

 

31,991 

Net income

$

105,737 

 

$

(5,673)

 

$

1,334 

 

 

 

$

101,398 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.74 

 

 

 

 

 

 

 

 

 

$

0.71 

Diluted earnings per share

$

0.73 

 

 

 

 

 

 

 

 

 

$

0.70 



 

 

 

 

 

 

 

 

 

 

 

 

 

Basic shares outstanding (000's)

 

142,668 

 

 

 

 

 

 

 

 

 

 

142,668 

Diluted shares outstanding (000's)

 

144,030 

 

 

 

 

 

 

 

 

 

 

144,030 







See accompanying notes to unaudited pro forma condensed combined financial statements.

3


 

 

RESMED INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE TWELVE MONTHS ENDED JUNE 30, 2018

(In USD thousands, except per share amounts)









 

 

 

 

 

 

 

 

 

 

 

 

 



ResMed
Historical

 

MatrixCare
Historical

 

Pro Forma
Adjustments
(Note 2)

 

Ref

 

Pro-Forma
Combined



 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

$

2,340,196 

 

$

117,046 

 

$

 -

 

 

 

$

2,457,242 

Cost of sales

 

978,032 

 

 

33,207 

 

 

 -

 

 

 

 

1,011,239 

Gross profit

 

1,362,164 

 

 

83,839 

 

 

 -

 

 

 

 

1,446,003 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

600,369 

 

 

34,689 

 

 

 -

 

 

 

 

635,058 

Research and development

 

155,149 

 

 

23,139 

 

 

 -

 

 

 

 

178,288 

Amortization of acquired intangible assets

 

46,383 

 

 

37,479 

 

 

(13,527)

 

b

 

 

70,335 

Restructuring Expenses

 

18,432 

 

 

 -

 

 

 -

 

 

 

 

18,432 

Total operating expenses

 

820,333 

 

 

95,307 

 

 

(13,527)

 

 

 

 

902,113 

Income from operations

 

541,831 

 

 

(11,468)

 

 

13,527 

 

 

 

 

543,890 

Other income (loss), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

16,378 

 

 

 -

 

 

 -

 

 

 

 

16,378 

Interest expense

 

(28,355)

 

 

(11,791)

 

 

(12,746)

 

e

 

 

(52,892)

Other, net

 

(8,542)

 

 

(25)

 

 

 -

 

 

 

 

(8,567)

Total other income (loss), net

 

(20,519)

 

 

(11,816)

 

 

(12,746)

 

 

 

 

(45,081)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

521,312 

 

 

(23,284)

 

 

781 

 

 

 

 

498,809 

Income taxes

 

205,724 

 

 

(10,994)

 

 

4,693 

 

f

 

 

199,423 

Net income

$

315,588 

 

$

(12,290)

 

$

(3,912)

 

 

 

$

299,386 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share (note 11)

$

2.21 

 

 

 

 

 

 

 

 

 

$

2.10 

Diluted earnings per share (note 11)

$

2.19 

 

 

 

 

 

 

 

 

 

$

2.08 



 

 

 

 

 

 

 

 

 

 

 

 

 

Basic shares outstanding (000's)

 

142,764 

 

 

 

 

 

 

 

 

 

 

142,764 

Diluted shares outstanding (000's)

 

143,987 

 

 

 

 

 

 

 

 

 

 

143,987 





See accompanying notes to unaudited pro forma condensed combined financial statements.



 

4


 

Exhibit 99.2

RESMED INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS



Note 1. Basis of Pro Forma Preparation



The unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements of ResMed and MatrixCare after giving effect to the acquisition using the purchase method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and applying the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed combined balance sheet is presented as if the acquisition had occurred on September 30, 2018. The unaudited pro forma condensed combined statements of income for the three months ended September 30, 2018 and the twelve months ended June 30, 2018 are presented as if the acquisition had occurred on July 1, 2017.



Note 2. Pro Forma Adjustments



(a)

Purchase Price Allocation



For pro forma purposes, we have preliminarily allocated the purchase price to the net tangible and intangible assets based on their estimated fair values. Therefore, the assets acquired and liabilities assumed, including intangible assets, presented in the table below are provisional and will be finalized after ResMed receives and reviews all available data as soon as practicable and not later than one year from the acquisition date.



The following table is a summary of the preliminary purchase price allocation including preliminary estimates of the fair value of net assets acquired and the resulting goodwill of the acquisition of MatrixCare, as reflected in the unaudited pro forma condensed consolidated balance sheet at September 30, 2018:





 

 

 



 

USD ('000)

Cash paid at closing

 

$

613,072 

Developed technology

 

 

82,000 

Customer relationships

 

 

145,000 

Trade names

 

 

18,000 

Goodwill

 

 

554,335 

Deferred tax liability

 

 

(57,428)

Total intangible assets

 

$

741,907 

MatrixCare historical net assets/(liabilities)

 

 

155,485 

Add: Fair value adjustment to MatrixCare deferred revenue

 

 

7,496 

Less: MatrixCare historical goodwill

 

 

(209,053)

Less: MatrixCare historical intangible assets value

 

 

(82,762)

Total purchase price

 

$

613,072 







 

(b)

Acquired Intangible Assets



The acquired intangible assets and related amortization expense based on the preliminary estimate of fair value for the twelve months ended June 30, 2018 and three months ended September 30, 2018 are as follows:



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

Amortization Expense
(USD '000)



 

Preliminary
Fair Value ('000)

 

Useful

Lives

(years)

 

Twelve months ended
June 30, 2018

 

Three months

ended

September 30, 2018

Developed technology

 

$

82,000 

 

7

 

$

11,714 

 

$

2,929 

Customer relationships

 

 

145,000 

 

15

 

 

9,667 

 

 

2,417 

Trade names

 

 

18,000 

 

7

 

 

2,571 

 

 

643 

Total

 

$

245,000 

 

 

 

$

23,952 

 

$

5,988 

Less: Elimination of MatrixCare historical intangible assets and related amortization

 

 

(82,762)

 

 

 

 

(37,479)

 

 

(9,066)

Pro forma adjustment

 

$

162,238 

 

 

 

$

(13,527)

 

$

(3,078)





 



(c)

 

Acquisition-related Costs



ResMed and MatrixCare did not incur any significant acquisition costs in the twelve months ended June 30, 2018 or the three months ended September 30, 2018. As such, no adjustment for acquisition costs has been made to the unaudited pro forma condensed consolidated income statement for the twelve months ended June 30, 2018 or the three months ended September 30, 2018.  However, a pro forma adjustment to other current liabilities in the unaudited pro forma condensed consolidated balance sheet at September 30, 2018 was made to recognize direct acquisition-related costs incurred by ResMed and MatrixCare of $3.7 million and $16.7 million, respectively, which are not yet reflected in the historical financial statements.



5


 

Exhibit 99.2

RESMED INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

 

(d)

Debt Transactions



ResMed financed the acquisition with an increase in the existing revolving credit facility. This pro forma presentation assumes that ResMed utilized $762.5 million from its existing revolving credit facility. The debt obligation amount is presented as pro forma adjustment to long term debt in the unaudited pro forma condensed consolidated balance sheet at September 30, 2018.



MatrixCare’s debt balances were repaid in conjunction with the closing of the acquisition. Accordingly,  MatrixCare’s short term debt of $149.4 million at September 30, 2018 is presented as repaid in the unaudited pro forma condensed consolidated balance sheet.





 

(e)

Interest Expense



Pro forma interest expense is presented to include ResMed’s additional $762.5 million in funds, discussed above, along with the reversal of MatrixCare’s interest expense for the twelve months ended June 30, 2018 and three months ended September 30, 2018 as presented below.



ResMed incurred debt issuance costs of $1.8 million in connection with the increase in the existing revolving credit facility. ResMed’s amortization of these debt issuance costs are included as pro forma adjustments in the unaudited pro forma condensed consolidated statements of income for the twelve months ended June 30, 2018 and three months ended September 30, 2018.







 

 

 

 

 

 

 

 

 

 

 



 

Twelve Months Ended

 

 

Three Months Ended



 

June 30, 2018

 

 

September 30, 2018



 

USD(‘000)

 

 

USD(‘000)

 

 

USD(‘000)

 

 

USD(‘000)

Company:

 

 

 

 

 

 

 

 

 

 

 

Credit facility borrowing

 

762,494 

 

 

 

 

 

762,494 

 

 

 

LIBOR plus 0.75%

 

3.16 

%

 

 

 

 

3.16 

%

 

 

Interest expense

 

 

 

 

24,095 

 

 

 

 

 

6,024 

Debt issuance cost amortization expense

 

 

 

 

443 

 

 

 

 

 

111 

Pro forma adjustment

 

 

 

 

24,537 

 

 

 

 

 

6,134 

MatrixCare:

 

 

 

 

 

 

 

 

 

 

 

Term Loan

 

149,421 

 

 

 

 

 

149,248 

 

 

 

LIBOR plus margin

 

7.50 

%

 

 

 

 

7.50 

%

 

 

Actual interest expense

 

 

 

 

(9,196)

 

 

 

 

 

(2,314)

Debt issuance cost amortization expense

 

 

 

 

(2,595)

 

 

 

 

 

(653)

Pro forma adjustment

 

 

 

 

(11,791)

 

 

 

 

 

(2,966)

Total Pro forma adjustment

 

 

 

 

12,746 

 

 

 

 

 

3,168 



 

 

 

 

 

 

 

 

 

 

 



The pro forma presentation of the effect on income taxes was calculated using the U.S. statutory rate for adjustments related to MatrixCare and ResMed. The adjustments to income taxes are summarized in the following table:







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Twelve Months Ended

 

Three Months Ended



 

 

 

June 30, 2018

 

September 30, 2018



 

Jurisdiction

 

Pro Forma Adjustment

 

Tax Rate
(%)

 

USD(‘000)

 

Pro Forma Adjustment

 

Tax Rate
(%)

 

USD(‘000)

Amortization expense

 

US

 

(13,527)

 

28.0 

 

(3,787)

 

(3,078)

 

21.0 

 

(646)

Interest expense

 

US

 

12,746 

 

28.0 

 

3,569 

 

3,168 

 

21.0 

 

665 

Total Pro forma adjustment

 

 

 

 

 

 

 

(218)

 

 

 

 

 

19 



Although not reflected in the pro forma financial statements, the effective tax rate of the combined company could be significantly different depending on post-acquisition activities, such as the tax treatment applicable to each entity and the geographical mix of taxable income affecting state and foreign taxes, among other factors.





 



 

(g)

Equity



MatrixCare’s historical net assets are eliminated as a pro forma adjustment to the unaudited pro forma condensed consolidated balance sheet at September 30, 2018. In addition, as discussed above in 2(c) and 2(e), pro forma adjustments to retained earnings were made for activities that are not yet reflected in the historical financial statements for acquisition-related costs. These adjustments are not reflected in and do not affect the unaudited pro forma condensed combined statements of income as they are non-recurring.

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