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8-K - FORM 8-K - AMSURG CORPd793395d8k.htm
EX-15.1 - EX-15.1 - AMSURG CORPd793395dex151.htm
EX-99.2 - EX-99.2 - AMSURG CORPd793395dex992.htm

Exhibit 99.1

Introductory Note

As previously announced, on July 16, 2014, AmSurg Corp., a Tennessee corporation (the “AmSurg”), completed its acquisition (the “Merger”) of Sunbeam Holdings, L.P. and its subsidiaries, pursuant to the Purchase Agreement and Plan of Merger (the “Merger Agreement”), dated May 29, 2014, as amended, by and between the Company, Arizona Merger Corporation, a Delaware corporation and direct wholly-owned subsidiary of the Company, Arizona II Merger Corporation, a Delaware corporation and direct wholly-owned subsidiary of the Company, Sunbeam GP Holdings, LLC, a Delaware limited liability company, solely for purposes of Article V and Section 2.8 and solely in its capacity as the sole holder of membership interests in the General Partner (“Seller”), Sunbeam GP LLC, a Delaware limited liability company and the general partner of the Partnership (the “General Partner”), Sunbeam Holdings, L.P., a Delaware limited partnership (the “Partnership”), Sunbeam Primary Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of the Partnership, and HFCP VI Securityholders’ Rep LLC, a Delaware limited liability company, solely in its capacity as agent and attorney-in-fact for Seller and the unitholders of the Partnership (the “Unitholders”). The Partnership was an indirect parent company of Sheridan Healthcare, Inc.

AmSurg paid the Seller and the Unitholders aggregate consideration of $2.35 billion, less proceeds used to retire certain Partnership indebtedness, adjusted for closing adjustments (the “Merger Consideration”).

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The accompanying unaudited pro forma condensed combined statements of earnings (the “Pro Forma Statements of Earnings”) for the six months ended June 30, 2014 and 2013 and for the year ended December 31, 2013 combine the historical consolidated statements of earnings of AmSurg and the Partnership and its subsidiaries, whose wholly-owned subsidiaries include Sunbeam Primary Holdings, Inc. and Sheridan Holdings, Inc. (collectively “Sheridan”). The Pro Forma Statements of Earnings give effect to the Merger as if it had been completed on January 1, 2013, the beginning of the earliest period presented. The accompanying unaudited pro forma condensed combined balance sheet (the “Pro Forma Balance Sheet”) as of June 30, 2014 combines the historical consolidated balance sheets of AmSurg and Sheridan, giving effect to the Merger as if it had been completed on June 30, 2014.

The accompanying unaudited pro forma condensed combined financial statements (the “Statements”) and related notes were prepared using the acquisition method of accounting with AmSurg considered the acquirer of Sheridan. Accordingly, the Merger Consideration has been allocated to the assets and liabilities of Sheridan based upon their estimated fair values. The pro forma adjustments for the Merger do not include all of the adjustments to the Merger Consideration that may occur pursuant to the Merger Agreement and any such adjustments may be material. Any amount of the Merger Consideration that is in excess of the estimated fair values of assets acquired and liabilities assumed will be recorded as goodwill in AmSurg’s balance sheet after the completion of the Merger. As of the date of hereof, AmSurg has not completed the detailed valuation work necessary to arrive at the required estimates of the fair value of the Sheridan assets to be acquired and the liabilities to be assumed and the related allocation of the Merger Consideration, nor has it identified all adjustments necessary to conform Sheridan’s accounting policies to AmSurg’s accounting policies. A final determination of the fair value of Sheridan’s assets and liabilities will be based on the actual net tangible and intangible assets and liabilities of Sheridan that existed as of the date of completion of the Merger. Increases or decreases in the fair value of relevant balance sheet amounts will result in adjustments to the balance sheet and/or statements of earnings until the Merger Consideration allocation is finalized. There can be no assurance that such finalization will not result in material changes from the preliminary Merger Consideration allocation included in the accompanying Statements. The preliminary Merger Consideration allocation was based on AmSurg’s historical experience and AmSurg’s due diligence review of Sheridan’s business. Accordingly, the accompanying unaudited pro forma Merger Consideration allocation is preliminary and is subject to further adjustments as additional information becomes available and as additional analyses are performed. The preliminary unaudited pro forma Merger Consideration allocation has been made solely for the purpose of preparing the accompanying Statements.

The Statements do not include any adjustment for liabilities or related costs that may result from integration activities, since management is in the process of making these assessments. Significant liabilities and related costs may ultimately be recorded for employee severance and costs associated with other integration activities. The Statements also do not include any adjustment for recent acquisitions made by AmSurg or Sheridan.

We anticipate that the Merger will result in significant annual synergies that would be unachievable without completing the Merger. No assurance can be made that we will be able to achieve these synergies and any such synergies have not been reflected in these Statements.

The Pro Forma Statements of Earnings do not include any material nonrecurring charges that might arise as a result of the Merger. The Pro Forma Balance Sheet only includes adjustments for transaction-related costs that are factually supportable.

The accompanying Statements and related notes are being provided for illustrative purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated balance sheet of AmSurg would have been had the Merger occurred on the dates assumed, nor are they necessarily indicative of AmSurg’s future consolidated results of operations or consolidated financial position. The Statements do not reflect synergies expected as a result of the Merger, nor do they reflect the full impact of acquisitions that occurred during the periods presented. The Statements are based upon currently available information and estimates and assumptions that AmSurg management believes are reasonable as of the date hereof. Any of the factors underlying these estimates and assumptions may change or prove to be materially different.

The accompanying Statements have been developed from and should be read in conjunction with the audited annual and unaudited interim consolidated financial statements and related notes of AmSurg and Sheridan filed with the SEC.

 

1


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS

For the six months ended June 30, 2014

(In thousands, except earnings per share data)

 

     Historical      Historical           Pro Forma  
     AmSurg      Sheridan     Adjustments     Combined  

Revenues

   $ 544,212       $ 542,292      $ —        $ 1,086,504   

Provision for uncollectibles

     —           (25,192     —          (25,192
  

 

 

    

 

 

   

 

 

   

 

 

 

Net revenues

     544,212         517,100        —          1,061,312   

Operating expenses:

         

Salaries and benefits

     168,060         365,196        —          533,256   

Supply cost

     80,003         —          2,729   (b)      82,732   

Other operating expenses

     115,600         82,927        (2,729 ) (b)      193,981   
          (1,817 (b)   

Depreciation and amortization

     16,924         20,004        12,948   (g)      49,876   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     380,587         468,127        11,131        859,845   

Gain (loss) on deconsolidation

     3,411         —          (1,817 (b)      1,594   

Equity in earnings of unconsolidated affiliates

     1,303         1,685        —          2,988   
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     168,339         50,658        (12,948     206,049   

Interest expense, net

     13,857         38,308        7,386   (h)      59,551   

Other income, net

     —           (42     —          (42
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings from continuing operations before income taxes

     154,482         12,392        (20,334     146,540   

Income tax expense

     25,978         4,804        (8,154 (i)      22,628   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net earnings from continuing operations before noncontrolling interests

     128,504         7,588        (12,180     123,912   

Less net earnings from continuing operations attributable to noncontrolling interests

     92,046         1,338        —          93,384   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net earnings from continuing operations

   $ 36,458       $ 6,250      $ (12,180   $ 30,528   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per share from continuing operations attributable to AmSurg Corp. common shareholders:

         

Basic

   $ 1.15           $ 0.55   (l) 

Diluted

   $ 1.13           $ 0.55   (m) 

Weighted average number of shares and share equivalents outstanding:

         

Basic

     31,770           15,489   (j)      47,259   

Diluted

     32,177           15,489   (j)      47,666   

The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.

 

2


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS

For the six months ended June 30, 2013

(In thousands, except earnings per share data)

 

     Historical      Historical           Pro Forma  
     AmSurg      Sheridan     Adjustments     Combined  

Revenues

   $ 525,291       $ 469,663      $ —        $ 994,954   

Provision for uncollectibles

     —           (26,512     —          (26,512
  

 

 

    

 

 

   

 

 

   

 

 

 

Net revenues

     525,291         443,151        —          968,442   

Operating expenses:

         

Salaries and benefits

     162,043         317,436        —          479,479   

Supply cost

     76,202         —          2,784   (b)      78,986   

Other operating expenses

     106,652         61,505        (2,784 (b)      165,373   

Depreciation and amortization

     16,133         17,694        12,948   (g)      46,775   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     361,030         396,635        12,948        770,613   

Gain on deconsolidation

     2,237         —          —          2,237   

Equity in earnings of unconsolidated affiliates

     1,098         —          —          1,098   
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     167,596         46,516        (12,948     201,164   

Interest expense, net

     15,054         23,748        20,840   (h)      59,642   

Loss on extinguishment of debt

     —           4,390        —          4,390   

Other expense, net

     —           1        —          1   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings from continuing operations before income taxes

     152,542         18,377        (33,788     137,131   

Income tax expense

     24,979         9,655        (13,549 (i)      21,085   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net earnings from continuing operations before noncontrolling interests

     127,563         8,722        (20,239     116,046   

Less net earnings from continuing operations attributable to noncontrolling interests

     91,396         1,773        —          93,169   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net earnings from continuing operations

   $ 36,167       $ 6,949      $ (20,239   $ 22,877   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per share from continuing operations attributable to AmSurg Corp. common shareholders:

         

Basic

   $ 1.16           $ 0.39   (l) 

Diluted

   $ 1.13           $ 0.39   (m) 

Weighted average number of shares and share equivalents outstanding:

         

Basic

     31,213           15,489   (j)      46,702   

Diluted

     31,872           15,489   (j)      47,361   

The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.

 

3


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS

For the year ended December 31, 2013

(In thousands, except earnings per share data)

 

     Historical      Historical           Pro Forma  
     AmSurg      Sheridan     Adjustments     Combined  

Revenues

   $ 1,079,343       $ 976,934      $ —        $ 2,056,277   

Provision for uncollectibles

     —           (57,691     —          (57,691
  

 

 

    

 

 

   

 

 

   

 

 

 

Net Revenues

     1,079,343         919,243        —          1,998,586   

Operating expenses:

         

Salaries and benefits

     333,190         654,941        —          988,131   

Supply cost

     157,771         —          5,344   (b)      163,115   

Other operating expenses

     222,677         135,041        (5,344 (b)      352,374   

Depreciation and amortization

     33,028         35,551        25,896   (g)      94,475   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     746,666         825,533        25,896        1,598,095   

Gain on deconsolidation

     2,237         —          —          2,237   

Equity in earnings of unconsolidated affiliates

     3,151         —          —          3,151   
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     338,065         93,710        (25,896     405,879   

Interest expense, net

     29,538         47,818        41,941   (h)      119,297   

Loss on extinguishment of debt

     —           11,018        —          11,018   

Other expense, net

     —           41        —          41   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings from continuing operations before income taxes

     308,527         34,833        (67,837     275,523   

Income tax expense

     49,754         18,300        (27,203 )  (i)      40,851   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net earnings from continuing operations before noncontrolling interests

     258,773         16,533        (40,634     234,672   

Less net earnings from continuing operations attributable to noncontrolling interests

     186,120         2,789        —          188,909   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net earnings from continuing operations

   $ 72,653       $ 13,744      $ (40,634   $ 45,763   
  

 

 

    

 

 

   

 

 

   

 

 

 

Earnings per share from continuing operations attributable to AmSurg Corp. common shareholders:

         

Basic

   $ 2.32           $ 0.78   (l) 

Diluted

   $ 2.27           $ 0.77   (m) 

Weighted average number of shares and share equivalents outstanding:

         

Basic

     31,338           15,489   (j)      46,827   

Diluted

     31,954           15,489   (j)      47,443   

The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.

 

 

4


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

June 30, 2014

(In thousands)

 

     Historical      Historical            Pro Forma  
     AmSurg      Sheridan      Adjustments     Combined  

Assets

          

Current assets:

          

Cash and cash equivalents

   $ 44,911       $ 98,608       $ (98,608 (a)    $ 95,500   
           (2,198,609 (a)   
           2,655,038   (c)   
           (405,840 (c)   

Restricted cash and marketable securities

     —           28,030         —          28,030   

Accounts receivable, net

     110,538         131,121         —          241,659   

Supplies inventory

     18,808         —           929   (b)      19,737   

Deferred income taxes

     3,386         10,428         —          13,814   

Prepaid and other current assets

     34,658         36,485         (929 (b)      94,523   
           24,309   (e)   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current assets

     212,301         304,672         (23,710     493,263   

Property and equipment, net

     168,839         29,537         —          198,376   

Goodwill

     1,794,493         903,121         (903,121 (a)      3,364,054   
           1,569,561   (a)   

Intangible assets, net

     20,829         531,840         (531,840 (a)      1,214,007   
           1,141,569   (a)   
           51,609   (f)   

Investments in unconsolidated affiliates and other

     26,546         49,112         (19,266 ) (f)      56,392   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 2,223,008       $ 1,818,282       $ 1,284,802      $ 5,326,092   
  

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities and Equity

          

Current liabilities:

          

Current portion of long-term debt

   $ 20,208       $ 8,270       $ (8,270 (a)    $ 18,194   
           (10,714 ) (d)   
           8,700   (c)   

Accounts payable

     26,353         954         —          27,307   

Accrued salaries and benefits

     29,849         71,196         —          101,045   

Other accrued liabilities

     9,771         45,589         —          55,360   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total current liabilities

     86,181         126,009         (10,284     201,906   

Long-term debt

     556,793         1,201,001         (1,201,001 (a)      2,233,021   
           (285,072 (d)   
           1,961,300   (c)   

Deferred income taxes

     194,181         170,557         229,224   (a)      593,962   

Other long-term liabilities

     25,695         62,929         (2,817 (a)      85,807   

Noncontrolling interests - redeemable

     177,063         —           —          177,063   

Equity:

          

Mandatory convertible preferred shares

     —           —           167,025   (k)      167,025   

Common stock, no par value, 70,000 shares authorized

     189,822         —           693,619   (j)      883,441   

Members’ equity

     —           230,881         (230,881 (a)      —     

Retained earnings

     614,480         —           (36,311 (e)      578,169   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total AmSurg Corp. equity

     804,302         230,881         593,452        1,628,635   

Noncontrolling interests - non-redeemable

     378,793         26,905         —          405,698   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total equity

     1,183,095         257,786         593,452        2,034,333   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and equity

   $ 2,223,008       $ 1,818,282       $ 1,284,802      $ 5,326,092   
  

 

 

    

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of this unaudited pro forma condensed combined financial information.

 

5


Note 1. Description of the Transaction

On July 16, 2014, AmSurg completed its acquisition of Sheridan. The Partnership was an indirect parent company of Sheridan Healthcare, Inc.

In addition, AmSurg has entered into a new senior secured credit facility comprised of an $870 million term loan and a $300 million revolving credit facility (the “New Term Loan Facility”) and completed its private offering of $1.1 billion aggregate principal amount of 5.625% senior unsecured notes due 2022 (the “Notes”). The net proceeds from the New Term Loan Facility and the Notes offering, together with AmSurg’s recently completed registered public offerings of common stock and 5.25% Mandatory Convertible Preferred Stock (the “Preferred Stock”), and cash on hand, were used to finance the cash consideration. Additionally, we issued approximately $272.0 million of our common stock, based upon the closing price of our common stock of $47.61 per share on July 16, 2014, to the Unitholders. The Preferred Stock will pay dividends quarterly and will convert into shares of our common stock on the third anniversary of the date of its issuance.

 

Note 2. Basis of Pro Forma Presentation

These Statements have been derived from the historical condensed consolidated financial statements of AmSurg and Sheridan that are filed with the SEC. Certain financial statement line items included in Sheridan’s historical presentation have been disaggregated or condensed to conform to corresponding financial statement line items included in our historical presentation. For the Pro Forma Statements of Earnings, Sheridan’s other practice expenses and general and administrative expense line items have been combined into other operating expenses to conform to our presentation. Additionally, for the Pro Forma Statements of Earnings, Sheridan’s net income (loss) from unconsolidated joint ventures line item has been moved to be included in operating income to conform to our presentation. The reclassification of these items had no impact on the historical earnings from continuing operations, total assets, total liabilities, or shareholders’ equity reported by AmSurg or Sheridan, respectively.

The Merger is reflected in the Statements as an acquisition of Sheridan by AmSurg using the acquisition method of accounting, in accordance with business combination accounting guidance under GAAP. Under these accounting standards, the total estimated Merger Consideration will be calculated as described in Note 3 to these Statements, and the assets acquired and the liabilities assumed will be measured at estimated fair value. For the purpose of measuring the estimated fair value of the assets acquired and liabilities assumed, we have applied the accounting guidance under GAAP for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The fair value measurements utilize estimates based on key assumptions in connection with the Merger, including historical and current market data. The final Merger Consideration allocation is not complete and may differ materially from that presented herein.

 

Note 3. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

Pro forma adjustments are necessary to reflect the estimated Merger Consideration, to adjust amounts related to Sheridan’s assets and liabilities to a preliminary estimate of their fair values, to reflect financing transactions associated with the Merger, to reflect changes in depreciation and amortization expense resulting from the estimated fair value adjustments to tangible and intangible assets, to reflect other transactions directly related to the Merger, and to reflect the income tax effects related to the pro forma adjustments. There were no inter-company transactions between AmSurg and Sheridan. Certain pro forma adjustments were required to conform Sheridan’s accounting policies and presentation to our accounting policies and presentation.

The accompanying Statements have been prepared as if the Merger was completed on June 30, 2014 for balance sheet purposes and January 1, 2013 for statement of earnings purposes, and reflect the following adjustments:

 

a) Records the estimated Merger Consideration of proposed Merger and elimination of Sheridan’s equity.

 

6


The estimated Merger Consideration was $2.35 billion which was funded through a combination of cash and our stock. In addition, we paid an amount equal to Sheridan’s cash and cash equivalents on hand at the date of the Closing. These Statements present the delivery of $2.199 billion in cash and $272.0 million in common stock that was funded at the date of Closing.

The allocation of the estimated Merger Consideration to the fair values of assets to be acquired and liabilities to be assumed in the Merger includes unaudited pro forma adjustments to reflect the estimated fair values of Sheridan’s assets and liabilities at the date of Closing. The preliminary allocation of the Merger Consideration is as follows (in millions):

 

Current assets

   $ 304.7   

Property and equipment (1)

     29.5   

Goodwill

     1,569.5   

Amortizable intangible assets

     1,005.5   

Indefinite-lived intangible assets

     136.1   

Other long-term assets

     29.8   

Current liabilities

     (117.7

Deferred income taxes (2)

     (399.8

Other long-term liabilities (3)

     (60.1

Noncontrolling interests in consolidated subsidiaries

     (26.9
  

 

 

 

Total consideration (4)

   $ 2,470.6   
  

 

 

 

 

(1) We believe that the carrying value of property and equipment approximates fair value. Additionally, we reviewed Sheridan’s policies regarding its useful lives and determined that those policies were reasonable. Therefore, no adjustments have been made to historical depreciation.
(2) Amount includes the addition of approximately $229.2 million of deferred tax liabilities related to amortizable intangible assets acquired which are not expected to be deductible for tax purposes.
(3) Amount includes the elimination of $2.8 million of deferred rent credits.
(4) This amount differs from the cash payment made to Unitholders due to the additional shares issued to the Unitholders, in accordance with the Merger Agreement, with a fair value estimating $272.0 million.

The preliminary Merger Consideration allocation for Sheridan is subject to revision as more detailed analysis is completed and additional information on the fair values of Sheridan’s assets and liabilities become available. Any change in the fair value of the assets and liabilities of Sheridan will change the amount of the Merger Consideration allocable to goodwill. The final Merger Consideration allocation may differ materially from the allocation presented above.

We have made preliminary allocation estimates based on currently available information and will not have sufficient information to make final allocations until an independent valuation work is complete. The final determination of the Merger Consideration allocation is anticipated to be completed as soon as practicable.

We anticipate that the valuations of the acquired assets and liabilities will include, but not be limited to, fixed assets, customer relationships with hospitals, noncompete agreements and other potential intangible assets. The valuations will consist of physical appraisals, discounted cash flow analyses, or other appropriate valuation techniques to determine the fair value of the assets acquired and liabilities assumed.

The final amounts allocated to assets acquired and liabilities assumed in the Merger could differ materially from the preliminary amounts presented in these Statements. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the Merger from those preliminary valuations presented in these Statements would result in a dollar-for-dollar corresponding increase in the amount of goodwill that will result from the Merger. In addition, if the value of the acquired assets is higher than the preliminary estimate, it may result in higher amortization and depreciation expense than is presented in these Statements.

 

b) Adjusts the historical presentation of Sheridan’s financial statements to conform to our presentation.

 

7


c) Reflects the incurrence of approximately $1.970 billion of debt (of which $8.7 million is current), net proceeds of the common stock offering of approximately $421.6 million and net proceeds of the Preferred Stock offering of approximately $167.0 million to fund the Merger and repay certain of our existing debt and fund debt issuance costs. A detailed estimate of the sources and uses of cash associated with the Merger are as follows (in thousands):

 

Sources:

  

New Term Loan Facility (net of original issue discount of $2,175)

   $ 867,825   

Notes due 2022

     1,100,000   

Common Stock Offering, net of applicable discounts, commissions and expenses

     421,580   

Preferred Stock Offering, net of applicable discounts, commissions and expenses

     167,025   

Cash on hand at closing

     98,608   
  

 

 

 

Total Sources

   $ 2,655,038   
  

 

 

 

Uses:

  

Cash payments to Unitholders:

  

Merger Consideration (1)

   $ (2,198,609

Cash payments related to refinancing and debt repayments:

  

Existing senior secured revolving credit facility

   $ (231,500

Senior secured notes due 2020

     (64,286

Termination fee related to the senior secured notes due 2020

     (12,314

Other estimated transaction fees

     (43,672

Financing fees (2)

     (54,068
  

 

 

 
     (405,840

Working capital (3)

     (50,589
  

 

 

 

Total Uses

   $ (2,655,038
  

 

 

 

 

(1) This amount differs from the total Merger Consideration due to the additional shares issued to the Unitholders with a fair value estimating $272.0 million as defined in the Merger Agreement. In addition, amount includes a payment of $98.6 million to acquire Sheridan’s cash and cash equivalents on hand.
(2) Financing fees will be capitalized as deferred loan costs and amortized accordingly.
(3) Amount reflects working capital generated as part of the Merger.

 

d) Records debt payoff and termination of our existing senior secured revolving credit facility and our senior secured notes due 2020 as follows (in thousands):

 

     Current      Long-term      Total  

Existing revolving credit facility

   $ —         $ 231,500       $ 231,500   

Senior secured notes due 2020

     10,714         53,572         64,286   
  

 

 

    

 

 

    

 

 

 
   $ 10,714       $ 285,072       $ 295,786   
  

 

 

    

 

 

    

 

 

 

 

e) Records estimated transaction fees paid to third parties related to the Merger, including related income tax effects as follows (in thousands):

 

Termination fee related to the senior secured notes due 2020

   $ 12,314   

Other estimated transaction fees

     43,672   

Disposal of deferred financing fees related to the existing senior secured revolving credit facility and senior secured notes due 2020

     4,634   
  

 

 

 
     60,620   

Expected tax benefit

     (24,309
  

 

 

 

Estimated impact on retained earnings at June 30, 2014

   $ 36,311   
  

 

 

 

 

f) Reflects the recording of debt issuance costs of $56.2 million incurred as a result of our New Term Loan Facility and the Notes, the write-off of debt issuance costs of $4.6 million related to the senior secured notes due 2020, and $19.3 million of debt issue costs related to debt retired by AmSurg and Sheridan, respectively, as a result of the Merger. Such amounts for our debt will be reflected in the results of operations as a loss from early extinguishment of debt.

 

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g) To record additional amortization expense of identifiable intangible assets related to the estimated fair value of such identifiable intangible assets held by Sheridan at the time of the Merger. Intangible assets will principally relate to noncompete agreements and customer relationships with hospitals and are expected to have a useful life of approximately three to 25 years.

 

h) To record estimated interest expense based upon the debt structure as follows (in thousands):

 

     Six months ended June 30,     Year ended  
     2014     2013     December 31, 2013  

Financing Transactions

     47,813        47,813        95,625   

Existing 2020 Notes

     7,032        7,032        14,063   

Deferred loan costs

     4,218        4,218        8,436   

Capitalized leases and other debt, net of interest income

     488        579        1,173   
  

 

 

   

 

 

   

 

 

 

Total estimated interest costs

     59,551        59,642        119,297   

Less: Historical interest expense, net

      

AmSurg

     (13,857     (15,054     (29,538

Sheridan

     (38,308     (23,748     (47,818
  

 

 

   

 

 

   

 

 

 

Net interest expense adjustment

     7,386        20,840        41,941   
  

 

 

   

 

 

   

 

 

 

As of the date of hereof, the interest rate for the New Term Loan Facility is currently 3.750% and the interest rate for the our revolving credit facility of up to $250.0 million is 3.20% (which has not been drawn upon as part of these statements). A fluctuation in our variable interest rates of 0.125% would have no impact on interest expense as calculated in the pro forma adjustment.

 

i) To record the income tax effects of the Pro Forma Statements of Earnings adjustments using a combined statutory and federal rate of 40.1%.
j) To record the issuance of approximately 15.5 million shares of our common stock in the common stock offering and as part of the Merger Consideration to the Unitholders as described in Note 1. We issued 9.775 million common shares in the common stock offering, resulting in net proceeds of approximately $421.6 million. Additionally, in accordance with the Merger Agreement, we issued approximately 5.7 million common shares, having an approximate fair value of $272.0 million, to the Unitholders, as previously described in Note 1.
(k) To record the issuance of 1.725 million shares of the Preferred Stock of which dividends will be paid quarterly at 5.25% and mandatorily converts to common shares after three years from the date of issuance.
(l) For purposes of calculating basic earnings per share, estimated dividends are subtracted from net earnings to arrive at net earnings available to common shareholders. Estimated dividends for the year ended December 31, 2013 was $9.1 million and for each of the six months ended June 30, 2014 and 2013 was $4.5 million, respectively.
(m) Diluted earnings per share was calculated under the if-converted method which assumes conversion of the Preferred Stock if the effect of such is dilutive.

 

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