Form: 8-K/A

Current report filing

June 9, 2016

Exhibit 99.2

Unaudited Pro Forma Condensed Combined Financial Information

On April 4, 2016, ResMed Corp., a Minnesota corporation and wholly-owned subsidiary of ResMed Inc. completed the acquisition of Brightree LLC, a Delaware limited liability company, for $802 million in cash under the Agreement and Plan of Merger dated February 19, 2016, by and among ResMed Corp., Eagle Acquisition Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of ResMed Corp., Shareholder Representative Services LLC, and Brightree. 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 February 22, 2016.

ResMed’s most recent fiscal year ended on June 30, 2015 and Brightree’s most recent fiscal year ended on December 31, 2015. Accordingly, the unaudited pro forma condensed combined balance sheet as of December 31, 2015 combines ResMed’s historical unaudited consolidated balance sheet as of December 31, 2015 and Brightree’s audited consolidated balance sheet as of December 31, 2015. It is presented as if the acquisition of Brightree by ResMed had occurred on December 31, 2015 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, 2015 combines the historical results of ResMed for the fiscal year ended June 30, 2015 and the historical results of Brightree for the twelve months ended June 30, 2015, and the unaudited pro forma condensed combined statements of income for the six months ended December 31, 2015 combines the historical results of ResMed for the six months ended December 31, 2015 and the historical results of Brightree for the six months ended December 31, 2015. The unaudited pro forma condensed combined statements of income are presented as if the acquisition of Brightree by ResMed had occurred on July 1, 2014, the beginning of ResMed’s 2015 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 Current Report on Form 8-K ResMed filed on February 22, 2016;

 

  •   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, 2015;

 

  •   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 six months ended December 31, 2015; and

 

  •   the historical audited consolidated financial statements and accompanying notes of Brightree as of and for the year ended December 31, 2015 (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 Brightree 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.

 


RESMED INC.

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AT DECEMBER 31, 2015

(In USD thousands)

 

     ResMed
Historical
    Brightree
Historical
    Pro Forma
Adjustments
(Note 2)
    Ref    Pro-Forma
Combined
 

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 658,804        26,224        (29,035   a, d      655,993   

Trade accounts receivable, net

     331,747        7,976        (647        339,076   

Inventories

     237,463        —          —             237,463   

Deferred tax assets

     32,731        —          —             32,731   

Prepaid expense and other current assets

     90,096        2,649        —             92,745   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current assets

     1,350,841        36,849        (29,682        1,358,008   
  

 

 

   

 

 

   

 

 

      

 

 

 

Property, plant and equipment, net

     375,224        1,109        —             376,333   

Goodwill and Other intangibles, net

     466,418        43,424        765,044      a, b      1,274,886   

Other assets and Deferred tax assets

     46,528        1,377        (273   d      47,632   
  

 

 

   

 

 

   

 

 

      

 

 

 
   $ 2,239,011        82,759        735,089           3,056,859   
  

 

 

   

 

 

   

 

 

      

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

           

Current liabilities:

           

Accounts payable

   $ 215,242        9,709        2,075      c, g      227,026   

Short-term debt

     985        3,549        (3,549   d      985   

Deferred revenue

     36,101        7,214        —             43,315   

Other current liabilities

     13,242        —          —             13,242   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current liabilities

     265,570        20,472        (1,474        284,568   
  

 

 

   

 

 

   

 

 

      

 

 

 

Long-term debt

     400,591        23,953        776,047      d      1,200,591   

Deferred revenue

     28,928        1,845        —             30,773   

Other non-current liabilities

     19,651        —          —             19,651   
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     714,740        46,270        774,573           1,535,583   
  

 

 

   

 

 

   

 

 

      

 

 

 

Commitments and contingencies

           

Stockholders’ equity:

           

Preferred stock

     —          35,671        (35,671   h      —     

Common stock

     560        3,306        (3,306   h      560   

Additional paid-in capital

     1,268,374        —          —             1,268,374   

Accumulated other comprehensive loss

     (260,937     —          —             (260,937

Retained earnings

     2,062,885        (2,488     (506   h      2,059,891   

Treasury stock

     (1,546,611     —          —             (1,546,611
  

 

 

   

 

 

   

 

 

      

 

 

 

Stockholders’ equity

     1,524,271        36,489        (39,483        1,521,277   
  

 

 

   

 

 

   

 

 

      

 

 

 
   $ 2,239,011        82,759        735,089           3,056,859   
  

 

 

   

 

 

   

 

 

      

 

 

 

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

 


RESMED INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED DECEMBER 31, 2015

(In USD thousands, except per share amounts)

 

     ResMed
Historical
     Brightree
Historical
    Pro Forma
Adjustments
(Note 2)
    Ref    Pro Forma
Combined
 

Net revenue

   $ 866,187         59,364        (1,528   g      924,023   

Cost of sales

     361,059         16,285        —             377,344   
  

 

 

    

 

 

   

 

 

      

 

 

 

Gross profit

     505,128         43,079        (1,528        546,679   

Selling, general and administrative

     229,314         12,755        (1,528   g      240,541   

Research and development expense

     56,162         7,404        —             63,566   

Amortization of intangibles

     6,736         1,272        11,844      b      19,852   

Restructuring expenses

     6,914         —          —             6,914   
  

 

 

    

 

 

   

 

 

      

 

 

 

Operating income

     206,002         21,648        (11,844        216,806   

Interest income (expense), net

     5,898         (959     (7,189   e      (2,250

Other income (expense), net

     1,239         (48     —             1,191   
  

 

 

    

 

 

   

 

 

      

 

 

 

Income before income taxes

     213,139         20,641        (19,033        214,747   

Income tax expense (benefit)

     42,220         (1,135     (7,042   f      34,043   
  

 

 

    

 

 

   

 

 

      

 

 

 

Net income

   $ 170,919         21,776        (11,991        180,704   
  

 

 

    

 

 

   

 

 

      

 

 

 

Earnings per share – basic

   $ 1.22                1.29   
  

 

 

           

 

 

 

Earnings per share – diluted

   $ 1.21                1.28   
  

 

 

           

 

 

 

Number of shares used to compute earnings per share:

            

Basic

     140,118                140,118   
  

 

 

           

 

 

 

Diluted

     141,532                141,532   
  

 

 

           

 

 

 

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

 


RESMED INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE TWELVE MONTHS ENDED JUNE 30, 2015

(In USD thousands, except per share amounts)

 

     ResMed
Historical
     Brightree
Historical
    Pro Forma
Adjustments
(Note 2)
    Ref    Pro Forma
Combined
 

Net revenue

   $ 1,678,912         104,511        (2,697   g      1,780,726   

Cost of sales

     667,516         29,628        —             697,144   
  

 

 

    

 

 

   

 

 

      

 

 

 

Gross profit

     1,011,396         74,883        (2,697        1,083,582   

Selling, general and administrative

     478,627         26,808        (2,697   g      502,738   

Research and development

     114,865         13,719        —             128,584   

Amortization of intangible assets

     8,668         3,295        22,938      b      34,901   
  

 

 

    

 

 

   

 

 

      

 

 

 

Operating income

     409,236         31,061        (22,938        417,359   

Interest income (expense), net

     20,430         (1,678     (14,857   e      3,895   

Other income (expense), net

     6,250         (38     —             6,212   
  

 

 

    

 

 

   

 

 

      

 

 

 

Income before income taxes

     435,916         29,345        (37,795        427,466   

Income tax expense (benefit)

     83,030         (424     (13,984   f      68,622   
  

 

 

    

 

 

   

 

 

      

 

 

 

Net income

   $ 352,886         29,769        (23,811        358,845   
  

 

 

    

 

 

   

 

 

      

 

 

 

Earnings per share – basic

   $ 2.51                2.55   
  

 

 

           

 

 

 

Earnings per share – diluted

   $ 2.47                2.51   
  

 

 

           

 

 

 

Number of shares used to compute earnings per share:

            

Basic

     140,468                140,468   
  

 

 

           

 

 

 

Diluted

     142,687                142,687   
  

 

 

           

 

 

 

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

 


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 Brightree 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 December 31, 2015. The unaudited pro forma condensed combined statements of income for the six months ended December 31, 2015 and the twelve months ended June 30, 2015 are presented as if the acquisition had occurred on July 1, 2014.

 

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 Brightree, as reflected in the unaudited pro forma condensed consolidated balance sheet at December 31, 2015:

 

     USD(‘000)  

Cash paid at closing

     801,533   
  

 

 

 

Customer relationships

     51,000   

Trademarks

     28,700   

Technology

     114,700   

In-process research and development

     4,100   

Goodwill

     609,968   
  

 

 

 

Total Intangible Assets

     808,468   

Brightree historical net tangible assets

     36,489   

Less: Brightree historical goodwill

     (36,781

Less: Brightree historical intangible assets value

     (6,643
  

 

 

 

Total Purchase Price

     801,533   
  

 

 

 

 


RESMED INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

 

(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, 2015 and six months ended December 31, 2015 are as follows:

 

                 Amortization Expense
(USD’000)
 

Intangible Assets

   Preliminary
Fair Value
USD(‘000)
     Useful
Lives
(years)
   Twelve Months
Ended
June 30,
2015
     Six Months
Ended
December 31,
2015
 

Customer relationships

     51,000       10-15      4,187         2,093  

Trademarks

     28,700       10      2,870         1,435   

Technology

     114,700       5-6      19,176         9,588   

In-process research and development

     4,100       N/A      —          —    
  

 

 

       

 

 

    

 

 

 

Total

     198,500            26,233         13,116   

Less: Elimination of Brightree historical intangible assets and related amortization

     (6,643         (3,295      (1,272
  

 

 

       

 

 

    

 

 

 

Pro forma adjustment

     191,857            22,938         11,844   
  

 

 

       

 

 

    

 

 

 

 

(c) Acquisition-related Costs

ResMed and Brightree did not incur any significant acquisition costs in the twelve months ended June 30, 2015 or the six-months ended December 31, 2015. 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, 2015 or the six months ended December 31, 2015. However, a pro forma adjustment to other current liabilities in the unaudited pro forma condensed consolidated balance sheet at December 31, 2015 was made to recognize direct acquisition-related costs of $2.7 million, which are not yet reflected in the historical financial statements.

 

(d) Debt Transactions

ResMed financed the acquisition with an increase in the existing revolving credit facility and funds from the new $300 million senior unsecured one-year term loan credit facility. This pro forma presentation assumes that ResMed utilized $500 million from its existing revolving credit facility and borrowed $300 million from the term loan. These debt obligation amounts are presented as pro forma adjustments to long term debt in the unaudited pro forma condensed consolidated balance sheet at December 31, 2015.

Brightree’s debt balances were repaid in conjunction with the closing of the acquisition. Accordingly, Brightree’s short term debt of $3.5 million and long term debt of $24.0 million at December 31, 2015 are presented as repaid in the unaudited pro forma condensed consolidated balance sheet. In addition, we have made an adjustment of $0.3 million to the unaudited pro forma condensed consolidated balance sheet at December 31, 2015 associated with the carrying value of Brightree’s remaining debt issuance costs.

 


RESMED INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

 

(e) Interest Expense

Pro forma interest expense is presented to include ResMed’s new $300 million term loan and the additional $500 million in funds drawn on the existing credit facility, discussed above, along with the reversal of Brightree’s interest expense for the twelve months ended June 30, 2015 and six months ended December 31, 2015 as presented below.

ResMed incurred debt issuance costs of $1.5 million in connection with the $300 million term loan and the increase in the existing revolving credit facility. These costs have been capitalized as a pro forma adjustment to prepaid expenses and other assets in the unaudited pro forma condensed consolidated balance sheet at December 31, 2015. 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, 2015 and six months ended December 31, 2015.

 

     Twelve Months Ended
June 30, 2015
     Six Months Ended
December 31, 2015
 
     USD(‘000)     USD(‘000)      USD(‘000)     USD(‘000)  

Company:

         

Term loan borrowing

     300,000           300,000     

LIBOR plus 1.5%

     1.94 %        1.94 %  
  

 

 

      

 

 

   

Interest expense

       5,820           2,910   

Credit facility borrowing

     500,000           500,000     

LIBOR plus 1.5%

     1.94 %        1.94 %  
  

 

 

      

 

 

   

Interest expense

       9,700           4,850   

Debt issuance cost amortization expense

       1,020           145   
    

 

 

      

 

 

 

Pro forma adjustment

       16,540           7,905   
    

 

 

      

 

 

 

Brightree:

         

Promissory note

     29,276           27,502     

LIBOR plus margin

     4.00 %        4.00 %  
  

 

 

      

 

 

   

Actual interest expense

       (1,458        (622

Debt issuance cost amortization expense

       (225        (94
    

 

 

      

 

 

 

Pro forma adjustment

       (1,683        (716
    

 

 

      

 

 

 

Total Pro forma adjustment

       14,857           7,189   
    

 

 

      

 

 

 

 


RESMED INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

 

(f) Income Taxes

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

 

          Twelve Months Ending
June 30, 2015
     Six Months Ended
December 31, 2015
 

Item

   Jurisdiction    Pro Forma
Adjustment
(USD’000)
     Tax
Rate
(%)
     Tax
(Expense)
Benefit
(USD’000)
     Pro Forma
Adjustment
(USD’000)
     Tax
Rate
(%)
     Tax
(Expense)
Benefit
(USD’000)
 

Amortization expense

   US      22,938         37.0         8,487         11,844         37.0         4,382   

Interest expense

   US      14,857         37.0         5,497         7,189         37.0         2,660   
           

 

 

          

 

 

 
              13,984               7,042   
           

 

 

          

 

 

 

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.

Brightree LLC (Brightree) is a limited liability company and Brightree and its U.S. subsidiaries Brightree Services, MedAct, Strategic AR, and Home Health & Hospice had elected to be treated as a partnership for U.S. Federal and state income tax purposes. Therefore, no income tax expense or benefit was recognized by Brightree as the taxable income or loss was reported for tax purposes by the members. Assuming a U.S. statutory rate of 37%, Brightree’s historical income tax expense would have been $10.9 million for the twelve months ended June 30, 2015 and $7.6 million for the six months ended December 31, 2015, respectively.

 

(g) Elimination of transactions and balances between ResMed and Brightree

Transactions and balances between ResMed and Brightree were considered to be intercompany transactions and have been eliminated in the unaudited pro forma condensed consolidated financial information.

Intercompany balances of $0.6 million, associated with trade accounts receivable and $0.6 million, associated with accounts payable, have been eliminated in the unaudited pro forma condensed consolidated balance sheet as of December 31, 2015.

Intercompany revenue and selling, general and administrative expenses of $2.7 million for the twelve months ended June 30, 2015 and $1.5 million for the six months ended December 31, 2015, respectively, have been eliminated in the unaudited pro forma condensed consolidated statements of income.

 

(h) Equity

Brightree’s historical net assets are eliminated as a pro forma adjustment to the unaudited pro forma condensed consolidated balance sheet at December 31, 2015. 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.