EX-99.2
Published on 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 ResMeds Current Report on Form 8-K, which was filed with the Securities and Exchange Commission on February 22, 2016.
ResMeds most recent fiscal year ended on June 30, 2015 and Brightrees most recent fiscal year ended on December 31, 2015. Accordingly, the unaudited pro forma condensed combined balance sheet as of December 31, 2015 combines ResMeds historical unaudited consolidated balance sheet as of December 31, 2015 and Brightrees 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 ResMeds 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 (USD000) |
||||||||||||||
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.
Brightrees debt balances were repaid in conjunction with the closing of the acquisition. Accordingly, Brightrees 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 Brightrees 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 ResMeds 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 Brightrees 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. ResMeds 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 (USD000) |
Tax Rate (%) |
Tax (Expense) Benefit (USD000) |
Pro Forma Adjustment (USD000) |
Tax Rate (%) |
Tax (Expense) Benefit (USD000) |
|||||||||||||||||||
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%, Brightrees 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 |
Brightrees 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.