EX-99.1 3 a15-18345_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONSOLIDATED FINANCIAL STATEMENTS

 

FOR THE YEAR ENDED DECEMBER 31, 2014 (SUCCESSOR), PERIOD FROM

NOVEMBER 4, 2013 TO DECEMBER 31, 2013 (SUCCESSOR), PERIOD FROM

JANUARY 1, 2013 TO NOVEMBER 3, 2013 (PREDECESSOR), AND YEAR ENDED

DECEMBER 31, 2012 (PREDECESSOR)

 

 



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

FOR THE YEAR ENDED DECEMBER 31, 2014 (SUCCESSOR), PERIOD FROM

NOVEMBER 4, 2013 TO DECEMBER 31, 2013 (SUCCESSOR), PERIOD FROM

JANUARY 1, 2013 TO NOVEMBER 3, 2013 (PREDECESSOR), AND YEAR ENDED

DECEMBER 31, 2012 (PREDECESSOR)

 

TABLE OF CONTENTS

 

 

PAGE NO.

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

2

 

 

CONSOLIDATED BALANCE SHEETS

 

December 31, 2014 (Successor), 2013 (Successor) and 2012 (Predecessor)

3

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

For the year ended December 31, 2014 (Successor), period from November 4, 2013 to December 31, 2013 (Successor), period from January 1, 2013 to November 3, 2013 (Predecessor) and year ended December 31, 2012 (Predecessor)

4

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY

 

For the year ended December 31, 2014 (Successor), period from November 4, 2013 to December 31, 2013 (Successor), period from January 1, 2013 to November 3, 2013 (Predecessor) and year ended December 31, 2012 (Predecessor)

5

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

For the year ended December 31, 2014 (Successor), period from November 4, 2013 to December 31, 2013 (Successor), period from January 1, 2013 to November 3, 2013 (Predecessor) and year ended December 31, 2012 (Predecessor)

6 - 7

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8 - 41

 

 

UNAUDITED SUPPLEMENTARY INFORMATION

 

 

 

2014 PRO FORMA CONSOLIDATED STATEMENT OF INCOME

42 - 43

 



 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

TO THE BOARD OF DIRECTORS

ENVISION TOPCO HOLDINGS, LLC

AND SUBSIDIARIES

 

We have audited the accompanying consolidated financial statements of Envision Topco Holdings, LLC and Subsidiaries (together the “Company”), which comprise the consolidated balance sheets as of December 31, 2014 (Successor), 2013 (Successor) and 2012 (Predecessor), and the related consolidated statements of operations and comprehensive income (loss), changes in members’ equity, and cash flows for the year ended December 31, 2014, period from November 4, 2013 through December 31, 2013 (Successor), period from January 1, 2013 through November 3, 2013 (Predecessor), and for the year ended December 31, 2012 (Predecessor), and the related notes to the financial statements.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all  material respects, the financial position of Envision Topco Holdings, LLC and Subsidiaries as of December 31, 2014 (Successor), 2013 (Successor) and 2012 (Predecessor), and the results of their operations and their cash flows for the year ended December 31, 2014, period from November 4, 2013 through December 31, 2013 (Successor), period from January 1, 2013 through November 3, 2013 (Predecessor), and for the year ended December 31, 2012 (Predecessor) in conformity with accounting principles generally accepted in the United States of America.

 

Other Matter

 

As described in Note 2, the Predecessor Company was acquired in a purchase transaction on November 4, 2013. The acquisition was accounted for as a purchase and, accordingly, the consolidated financial statements of the Successor Company are not comparable to those of the Predecessor Company.

 

SKODA MINOTTI

 

 

Cleveland, Ohio

March 9, 2015, except as to Note 20, which is as of August 17, 2015

 

Akron   |   3320 West Market Street, Suite 300, Fairlawn, Ohio 44333   |   ph  330 668 1100   |   fx  440 646 1615

Cleveland | 6685 Beta Drive, Mayfield Village, Ohio 44143 |  ph  440 449 6800  |  fx  440 646 1615

Skoda Minotti   |   Certified Public Accountants   |    www.skodaminotti.com

AKRON   |   CLEVELAND   |   TAMPA

 



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

DECEMBER 31, 2014, 2013 AND 2012

(in thousands)

 

ASSETS

 

 

 

Successor

 

Successor

 

Predecessor

 

 

 

2014

 

2013

 

2012

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

114,022

 

$

79,962

 

$

60,501

 

Investments, at amortized cost

 

6,564

 

6,557

 

6,462

 

Accounts receivable, net

 

648,947

 

393,870

 

314,574

 

Accrued receivables

 

87,219

 

63,527

 

46,261

 

Reinsurance recoverable

 

13,520

 

16,009

 

 

Income tax receivable

 

614

 

 

 

Inventory

 

6,140

 

5,478

 

4,628

 

Prepaid expenses and other current assets

 

6,047

 

3,443

 

2,855

 

Deferred tax asset

 

940

 

527

 

 

 

 

884,013

 

569,373

 

435,281

 

PROPERTY AND EQUIPMENT - AT COST

 

 

 

 

 

 

 

Land

 

571

 

571

 

571

 

Building and improvements

 

3,932

 

3,921

 

4,462

 

Furniture, fixtures and equipment

 

11,759

 

9,247

 

13,490

 

 

 

16,262

 

13,739

 

18,523

 

Less: Accumulated depreciation and amortization

 

(3,368

)

(508

)

(6,800

)

 

 

12,894

 

13,231

 

11,723

 

OTHER ASSETS

 

 

 

 

 

 

 

Employee advance

 

 

 

316

 

Deposits and other assets

 

540

 

528

 

2,328

 

Deferred financing fees, net

 

21,931

 

19,361

 

5,010

 

Other investments

 

1,750

 

1,750

 

1,750

 

Intangible assets, net

 

720,872

 

562,403

 

37,459

 

Goodwill

 

424,401

 

390,444

 

4,854

 

 

 

1,169,494

 

974,486

 

51,717

 

 

 

$

2,066,401

 

$

1,557,090

 

$

498,721

 

 



 

LIABILITIES

 

 

 

Successor

 

Successor

 

Predecessor

 

 

 

2014

 

2013

 

2012

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

5,262

 

$

4,468

 

$

10,262

 

Accounts payable

 

480,247

 

374,663

 

263,747

 

Accrued expenses

 

22,493

 

9,675

 

6,933

 

Income taxes payable

 

 

246

 

 

Contract funds on deposit

 

5,314

 

3,374

 

2,284

 

Ceded reinsurance premiums payable

 

 

 

2,965

 

Funds held under reinsurance treaties

 

329,785

 

185,277

 

143,761

 

 

 

843,101

 

577,703

 

429,952

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

Deferred tax liabilities

 

104

 

113

 

 

Accrued expenses

 

 

1,054

 

 

Interest rate swaps

 

5,665

 

 

 

Long-term debt

 

738,256

 

569,687

 

177,553

 

 

 

744,025

 

570,854

 

177,553

 

 

 

1,587,126

 

1,148,557

 

607,505

 

 

MEMBERS’ EQUITY

 

SUCCESSOR: MEMBERS’ EQUITY

 

486,348

 

407,234

 

 

SUCCESSOR: RETAINED EARNINGS (DEFICIT)

 

(1,408

)

1,299

 

 

SUCCESSOR: ACCUMULATED COMPREHENSIVE LOSS

 

(5,665

)

 

 

PREDECESSOR: COMMON STOCK, no par or stated value

 

 

 

208

 

PREDECESSOR: ADDITIONAL PAID-IN CAPITAL

 

 

 

435

 

PREDECESSOR: SUBSCRIPTION RECEIVABLE

 

 

 

(1,661

)

PREDECESSOR: RETAINED EARNINGS

 

 

 

72,640

 

PREDECESSOR: TREASURY STOCK, at cost

 

 

 

(180,406

)

 

 

479,275

 

408,533

 

(108,784

)

 

 

$

2,066,401

 

$

1,557,090

 

$

498,721

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands)

 

 

 

Successor

 

Successor

 

Predecessor

 

Predecessor

 

 

 

For the year

 

November 4, 2013

 

January 1, 2013

 

For the year

 

 

 

ended

 

through

 

through

 

ended

 

 

 

December 31, 2014

 

December 31, 2013

 

November 3, 2013

 

December 31, 2012

 

 

 

 

 

 

 

 

 

 

 

REVENUES

 

$

4,071,402

 

$

640,936

 

$

3,003,492

 

$

2,743,946

 

 

 

 

 

 

 

 

 

 

 

COST OF REVENUES

 

3,832,928

 

608,418

 

2,833,265

 

2,573,145

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

238,474

 

32,518

 

170,227

 

170,801

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

144,886

 

20,398

 

97,054

 

100,715

 

Depreciation and amortization

 

30,198

 

4,176

 

4,510

 

3,767

 

Incurred in connection with Acquisition

 

 

878

 

24,246

 

 

 

 

175,084

 

25,452

 

125,810

 

104,482

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

63,390

 

7,066

 

44,417

 

66,319

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 

 

 

Interest income

 

46

 

13

 

113

 

208

 

Interest expense

 

(52,226

)

(7,169

)

(6,477

)

(5,335

)

Write-off of deferred financing fees

 

 

 

(4,014

)

(4,540

)

State and local taxes and other

 

(5

)

 

(1,149

)

(1,393

)

 

 

(52,185

)

(7,156

)

(11,527

)

(11,060

)

INCOME (LOSS) BEFORE

 

 

 

 

 

 

 

 

 

PROVISION FOR (BENEFIT FROM) FEDERAL INCOME TAXES

 

11,205

 

(90

)

32,890

 

55,259

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR (BENEFIT FROM) FEDERAL INCOME TAXES

 

 

 

 

 

 

 

 

 

Current

 

55

 

247

 

 

 

Deferred

 

(422

)

103

 

 

 

 

 

(367

)

350

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

11,572

 

$

(440

)

$

32,890

 

$

55,259

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

11,572

 

$

(440

)

$

32,890

 

$

55,259

 

Change in fair market value of interest rate swaps

 

(5,665

)

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$

5,907

 

$

(440

)

$

32,890

 

$

55,259

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ EQUITY

(in thousands, except shares)

 

Shares

 

 

 

 

 

Additional

 

 

 

Retained

 

 

 

Accumulated

 

 

 

 

 

Common
Stock

 

Treasury
Stock

 

 

 

Common
Stock

 

Paid-in
Capital

 

Subscription
Receivable

 

Earnings
(Deficit)

 

Treasury
Stock

 

Comprehensive
Loss

 

Members’
Equity

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,689,500

 

199,030

 

Predecessor: Balance at December 31, 2011

 

$

208

 

$

335

 

$

(2,964

)

$

45,375

 

$

(2,450

)

$

 

$

 

40,504

 

 

 

Net income

 

 

 

 

55,259

 

 

 

 

55,259

 

 

360,577

 

Treasury stock buyback

 

 

 

 

 

(177,956

)

 

 

(177,956

)

2,500

 

 

Receipt of subscription receivable

 

 

100

 

(100

)

 

 

 

 

 

 

 

Collection of subscription receivable

 

 

 

1,403

 

 

 

 

 

1,403

 

 

 

Distributions

 

 

 

 

(27,994

)

 

 

 

(27,994

)

1,692,000

 

559,607

 

Balance at December 31, 2012

 

208

 

435

 

(1,661

)

72,640

 

(180,406

)

 

 

(108,784

)

 

 

Net income

 

 

 

 

32,890

 

 

 

 

32,890

 

2,500

 

 

Receipt of subscription receivable

 

 

100

 

(100

)

 

 

 

 

 

 

 

Distributions

 

 

 

 

(45,354

)

 

 

 

(45,354

)

1,694,500

 

559,607

 

Predecessor: Balance at November 3, 2013

 

$

208

 

$

535

 

$

(1,761

)

$

60,176

 

$

(180,406

)

$

 

$

 

$

(121,248

)

 

 

 

 

Successor: Balance at November 4, 2013

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

Capital contribution from members, net of transaction costs

 

 

 

 

 

 

 

382,546

 

382,546

 

 

 

 

 

Opening deferred tax assets

 

 

 

 

517

 

 

 

 

517

 

 

 

 

 

Net income (loss)

 

 

 

 

782

 

 

 

(1,222

)

(440

)

 

 

 

 

Capital contributions for Laker purchase

 

 

 

 

 

 

 

17,000

 

17,000

 

 

 

 

 

Rollover of Laker member interests

 

 

 

 

 

 

 

8,910

 

8,910

 

 

 

 

 

Successor: Balance at December 31, 2013

 

 

 

 

1,299

 

 

 

407,234

 

408,533

 

 

 

 

 

Capital contributions for MedTrak purchase

 

 

 

 

 

 

 

54,808

 

54,808

 

 

 

 

 

Rollover of MedTrak member interests

 

 

 

 

 

 

 

13,090

 

13,090

 

 

 

 

 

Grant of member interest

 

 

 

 

 

 

 

50

 

50

 

 

 

 

 

Contributions

 

 

 

 

 

 

 

2,570

 

2,570

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

(5,683

)

(5,683

)

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

(5,665

)

 

(5,665

)

 

 

 

 

Net income (loss)

 

 

 

 

(2,707

)

 

 

14,279

 

11,572

 

 

 

 

 

Successor: Balance at December 31, 2014

 

$

 

$

 

$

 

$

(1,408

)

$

 

$

(5,665

)

$

486,348

 

$

479,275

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

Successor

 

Successor

 

Predecessor

 

Predecessor

 

 

 

For the year

 

November 4, 2013

 

January 1, 2013

 

For the year

 

 

 

ended

 

through

 

through

 

ended

 

 

 

December 31, 2014

 

December 31, 2013

 

November 3, 2013

 

December 31, 2012

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$11,572

 

$(440

)

$32,890

 

$55,259

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Add back (deduct): Items not affecting cash

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

30,198

 

4,176

 

4,510

 

3,767

 

Loss on disposals of intangible assets

 

40

 

 

 

 

Deferred financing fees amortization

 

3,181

 

460

 

887

 

957

 

Write-off of deferred financing fees

 

 

 

4,014

 

4,540

 

Bad debts

 

205

 

205

 

1,790

 

1,186

 

Amortization of investments

 

2

 

13

 

69

 

61

 

Amortization of original issue discount

 

844

 

124

 

 

 

Deferred income taxes

 

(422

)

103

 

 

 

Compensation expense for equity grant

 

50

 

 

 

 

Cash provided by (used in) changes in the following items:

 

 

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable

 

(239,091

)

(236,335

)

156,568

 

(155,620

)

(Increase) decrease in accrued receivables

 

(5,956

)

356,604

 

(373,870

)

(12,432

)

(Increase) decrease in reinsurance recoverable

 

2,489

 

(16,009

)

 

5,402

 

Increase in inventory

 

(662

)

(554

)

(296

)

(592

)

(Increase) decrease in prepaid expenses and other current assets

 

(2,523

)

796

 

(1,381

)

56

 

(Increase) decrease in deposits and other assets

 

15

 

2,507

 

(707

)

(2,087

)

Increase in accounts payable

 

74,786

 

14,727

 

96,160

 

62,413

 

Increase (decrease) in accrued expenses

 

(608

)

4,135

 

10,236

 

(763

)

Increase in income taxes receivable/payable

 

(860

)

246

 

 

 

Increase (decrease) in contract funds on deposit

 

1,940

 

(585

)

1,675

 

(3,134

)

Increase (decrease) in ceded reinsurance premiums payable

 

 

 

(2,965

)

2,965

 

Increase (decrease) in funds held under reinsurance treaties

 

144,508

 

(73,533

)

115,049

 

125,468

 

Net cash provided by operating activities

 

19,708

 

56,640

 

44,629

 

87,446

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Acquisitions of property and equipment

 

(1,876

)

(1,154

)

(1,474

)

(795

)

Investment in intangible assets

 

(8,247

)

(1,095

)

(3,612

)

(4,358

)

(Purchases of) proceeds from investments, net

 

(9

)

(8

)

(169

)

20

 

Acquisition of Laker Software, LLC, net of cash acquired

 

 

(35,121

)

 

 

Acquisition of Envision Pharmaceutical Holdings, LLC and Subsidiaries

 

 

(620,002

)

 

 

Acquisition of MedTrak Services, LLC, net of cash acquired

 

(189,631

)

 

 

 

Collection of advance to employee

 

 

313

 

3

 

3

 

Net cash used in investing activities

 

(199,763

)

(657,067

)

(5,252

)

(5,130

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

Proceeds from long-term debt borrowings

 

173,250

 

572,450

 

 

139,437

 

Payments of principal on long-term debt

 

(5,079

)

(179,292

)

(7,896

)

(5,861

)

Financing fees incurred

 

(5,751

)

(19,712

)

 

(657

)

Purchase of treasury shares

 

 

 

 

(177,956

)

Collection of subscription receivable

 

 

1,761

 

 

1,403

 

Capital contributions

 

57,378

 

258,554

 

 

 

Distributions

 

(5,683

)

 

(45,354

)

(27,994

)

Net cash provided by (used in) financing activities

 

214,115

 

633,761

 

(53,250

)

(71,628

)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

34,060

 

33,334

 

(13,873

)

10,688

 

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

79,962

 

46,628

 

60,501

 

49,813

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$114,022

 

$79,962

 

$46,628

 

$60,501

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6


 


 

 

 

Successor

 

Successor

 

Predecessor

 

Predecessor

 

 

 

For the year

 

November 4, 2013

 

January 1, 2013

 

For the year

 

 

 

ended

 

through

 

through

 

ended

 

 

 

December 31, 2014

 

December 31, 2013

 

November 3, 2013

 

December 31, 2012

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

CASH PAID DURING THE YEAR FOR:

 

 

 

 

 

 

 

 

 

INTEREST

 

$

48,947

 

$

6,596

 

$

5,590

 

$

4,490

 

INCOME TAXES

 

$

892

 

$

 

$

1,149

 

$

1,155

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

The Company incurred capital lease obligations to directly finance the acquisition of various equipment of $0.3 million, $0.9 million and $2.5 million during the year ended December 31, 2014 (Successor), period from January 1, 2013 to November 3, 2013 (Predecessor) and year ended December 31, 2012 (Predecessor), respectively.

 

Various shareholders exercised stock options in exchange for subscription receivables held by the Company in the amount of $.1 million during the period from January 1, 2013 to November 3, 2013 (Predecessor) and year ended December 31, 2012 (Predecessor).

 

During the period from November 4, 2013 to December 31, 2013 (Successor), the Company recognized a deferred tax asset of $.5 million as a result of EIC becoming a C corporation.

 

During the year ended December 31, 2012 (Predecessor), the Company executed two term loan refinancings.  In addition to cash received, the refinancing provided for the settlement of $157.5 million of previously held term loans, $3.7 million of previously held subordinate debt instruments, and $9.3 million of fees incurred for the refinancing.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7


 


 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization

 

Envision Topco Holdings, LLC (Topco or the Parent) was formed by, and is majority-owned by, funds affiliated with TPG Capital L.P. (the Sponsor) on July 1, 2013. Topco wholly owns Envision Intermediate Holdings, LLC (Intermediate Holdings). Intermediate Holdings was formed on July 1, 2013, and Intermediate Holdings wholly owns Envision Acquisition Company, LLC (EAC). EAC was formed on July 1, 2013, and EAC acquired Envision Pharmaceutical Holdings, LLC (Envision Holdings) on November 4, 2013 (the Acquisition Date) in a transaction (the Acquisition) sponsored by the Sponsor. Topco does not have any business activities other than its investment in Intermediate Holdings. Intermediate Holdings does not have any business activities other than in connection with its investment in EAC. EAC does not have any business activities other than in connection with its investment in Envision Holdings.

 

Envision Holdings wholly owns, directly or indirectly, each of the following entities (collectively, the Subsidiaries): Rx Options, LLC, Envision Pharmaceutical Services, LLC (Ohio), Envision Pharmaceutical Services, LLC (Nevada), MedTrak Services, LLC (MedTrak), Envision Medical Solutions, LLC, First Florida Insurers of Tampa, LLC (FFI), Advance Benefits, LLC (ABI), Envision Insurance Company (EIC), Ascend Health Technologies, LLC (formerly, Midwest Technology Investments LLC), Laker Software, LLC (Laker); Design Rx Holdings LLC, Design Rx, LLC, Design Rxclusives, LLC, Rx Initiatives L.L.C. (collectively, Design Rx Companies); and Orchard Pharmaceutical Services, LLC (Orchard).

 

Throughout 2012 and 2013, the Design Rx Companies, FFI and ABI were single member limited liability companies. As of December 31, 2012, all other companies included in the consolidated financial statements were S corporations. Effective November 4, 2013, all companies included in the consolidated financial statements (other than EIC) are single member limited liability companies.  Effective November 4, 2013, EIC is a C corporation.

 

Basis of Presentation

 

These are the financial statements of Topco, Intermediate Holdings, EAC, and Envision Holdings and the Subsidiaries (collectively, the Company).

 

8



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Basis of Presentation (continued)

 

In connection with the Acquisition: (i) Envision Holdings converted from an S corporation to a limited liability company and continues as a disregarded entity for tax purposes, with the same Delaware File Number and Federal Employer Identification Number both before and after the Acquisition, and (ii) all Subsidiaries (other than EIC) which were not limited liability companies, converted to limited liability companies. However, a new accounting basis was established in order to account for the merger as a business combination.  The accompanying consolidated statements of operations, cash flows and equity are presented for the years ended December 31, 2014, 2013 and 2012. However, the year ended December 31, 2013 is presented in two periods: the Predecessor fiscal 2013 period (January 1, 2013 to November 3, 2013) and the Successor fiscal 2013 period (November 4, 2013 to December 31, 2013), which relate to the period preceding the Acquisition Date and the period including and succeeding the Acquisition Date, respectively. Although the accounting policies are consistent for the Predecessor and Successor periods, financial information for such periods has been prepared under two different historical cost bases of accounting and is therefore not comparable. The results of the periods presented are not necessarily indicative of the results that may be achieved for future periods.

 

Consolidation Policy

 

The consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Nature of Operations

 

Certain subsidiaries of Envision Holdings are engaged in the design, service and sale of benefit cost- sharing prescription drug programs primarily to employer groups, health plans, business coalitions, unions, and governmental agencies throughout the United States. This is achieved through use of a preferred drug list, which is a tiered benefit based upon safety, efficacy, cost of the medication, and “partner” contributions (pharmaceutical and pharmacy companies).

 

EIC participates as a prescription drug plan sponsor through Part D of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Part D). Part D is administered by the Center for Medicare and Medicaid Services (CMS).

 

Laker provides claims processing systems and support services for prescription drug benefit programs.

 

The Design Rx Companies are engaged by pharmaceutical manufacturers and specialty pharmacies to offer programs to assist individuals with minimal prescription drug coverage by providing managed cash programs, coupon programs, co-pay offset programs, prescription data services, generics programs, direct to consumer programs, and patient education service programs. The Design Rx Companies also provide pharmacy claims adjudication services.

 

Orchard is a mail-order prescription drug pharmacy and specialty pharmacy.

 

9



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect certain amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company generates its pharmacy benefit management revenue primarily from charging a flat fee per employee/member per month or per claim to enroll under the Company’s drug plans. The Company recognizes revenue over the period to which the fee is applied.

 

The Company also provides a variety of pharmacy benefit programs that include such services as claims processing, nationwide pharmacy network, mail services, and formulary management. Revenue is recognized at the time these services are rendered.

 

The Company receives premiums for plans offered under a national Medicare Part D Prescription Drug Plan.  Premiums are earned on a monthly basis over the terms of the contract.

 

In accordance with GAAP, when the Company provides certain pharmacy benefit management services in the fulfillment of prescriptions through the retail pharmacy network, revenues are recognized at the gross prescription price (ingredient cost plus dispensing fee less applicable co- payment). Gross reporting is appropriate because the Company has separate contractual relationships with clients and with pharmacies and has credit risk for the prescription price due from the client.

 

In limited instances where there are no financial risks to the Company, revenue is recorded at the net amount of the administrative fee earned for processing the claim.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

 

Investments

 

The Company invests in debt securities to satisfy licensing and other requirements of various state insurance regulations. The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity.

 

Other investments consist of a minority investment in another company carried at cost. GAAP requires that an impairment loss be recognized if the carrying value is deemed to be not recoverable or exceeds fair value. During the years ended December 31, 2014, 2013, and 2012, the Company did not incur any impairment loss.

 

10



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Accounts Receivable

 

The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due, the previous loss history, the customer’s current ability to pay their obligations, and the general economy as a whole. The Company writes off accounts receivable when it determines them to be uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Any differences between estimated rebate billings and subsequent collections on those billings are recorded as a direct addition to rebate revenue. At December 31, 2014, 2013, and 2012, the Company provided an allowance for doubtful accounts of $1.6 million, $1.5 million, and $870 thousand, respectively.

 

Uninsured Plans

 

Portions of Part D are uninsured plans whereby the Company acts as an administrator and has no underwriting risk. The Company receives prospective payments from CMS in relation to Part D and amounts actually paid by the Company in excess of the prospective payments are recorded as a receivable due from CMS.

 

CMS reconciles the amounts actually paid and remits the final payment to the Company subsequent to year-end. Receivables from uninsured plans amounted to approximately $454 million, $258 million, and $193 million as of December 31, 2014, 2013 and 2012, respectively, and are included in accounts receivable in the accompanying consolidated balance sheets.

 

Accrued Receivables

 

Accrued receivables result from services provided to customers and earned rebates that have not been formally invoiced as of December 31, 2014, 2013, and 2012. Such amounts are generally invoiced on a monthly or quarterly basis.

 

Reinsurance

 

In the normal course of business, EIC seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by reinsuring certain levels of risk with a reinsurance company. EIC reports balances pertaining to reinsurance transactions “gross” on the balance sheet, meaning that reinsurance recoverable on unpaid losses and loss adjustment expenses are not deducted from insurance reserves but are recorded as a reinsurance recoverable asset.

 

Funds Held Under Reinsurance Treaties

 

The Company holds certain funds due to reinsurers as collateral for future claims to be paid. Amounts held in excess of payment of all claim obligations would be returned to the respective party.

 

11



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Property and Equipment

 

Depreciation and amortization of property and equipment are provided by use of the straight-line method over the following estimated useful lives:

 

Building and improvements

 

40 years

 

Furniture, fixtures and equipment

 

5 – 7 years

 

 

For the year ended December 31, 2014 (Successor), period from November 4, 2013 to December 31, 2013 (Successor), period from January 1, 2013 to November 3, 2013 (Predecessor), and year ended December 31, 2013 (Predecessor), depreciation expense was $2.9 million, $.5 million, $1.9 million and $1.8 million, respectively.

 

Deferred Financing Fees

 

Deferred financing fees represent fees paid to third parties that provided services in relation to securing financing. Amortization is recognized as a component of interest expense and is computed using the straight-line method over the life of the term loan.

 

Intangible Assets

 

Intangible assets are recorded at cost and consist primarily of patents, computer software development, pharmacy benefit management accreditation license, specialty pharmacy network, non-compete agreements, customer relationships, backlog, trademarks, state insurance license costs, and manufacturer rebate contracts. Patents and computer software development costs are being amortized over their estimated useful lives of 17 and 5 years, respectively. The pharmacy benefit management accreditation license is amortized over the life of the economic benefit received, 3 years. Specialty pharmacy network is being amortized over the estimated useful life of 30 years. Non-compete agreements are being amortized over 3 to 5 years, the terms of the agreements. Customer relationships are being amortized over their estimated useful lives of 30 years.  Certain trademarks are being amortized over their estimated useful lives of 20 years. Backlog is being amortized over its useful life, 3 years. Certain trademarks and the state insurance licenses have indefinite lives and as such are tested for impairment on an annual basis. The manufacturer rebate contracts are being amortized over the life of the contracts, 3 years. For the year ended December 31, 2014, the period from November 4, 2013 to December 31, 2013 (Successor), the period from January 1, 2013 to November 3, 2013 (Predecessor) and year ended December 31, 2012 (Predecessor), amortization expense was $27.3 million, $3.7 million, $2.6 million and $1.9 million, respectively.

 

The Company assesses its intangible assets for impairment in accordance with GAAP. GAAP requires that an impairment loss be recognized if the carrying amount of an intangible asset is deemed not to be recoverable and its carrying amount exceeds its fair value. During the years ended December 31, 2014, 2013 and 2012, the Company did not incur any impairment charges related to intangible assets.

 

12



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Goodwill

 

As of December 31, 2012, the Company recorded $4.9 million of goodwill in relation to the 2006 acquisition of FFI and ABI and the 2010 acquisition of the Design Rx Companies. Goodwill represents the excess of cost over the fair value of the tangible net assets acquired. This goodwill has been tested for impairment using qualitative analysis and, if necessary, fair value measurement techniques.  At December 31, 2012, no impairment charge was necessary.

 

As of December 31, 2013, the Company recorded $390.4 million of goodwill in relation to the 2013 acquisitions described in Note 2. This goodwill has been tested for impairment using qualitative analysis and, if necessary, fair value measurement techniques. At December 31, 2014, no impairment charge was necessary.

 

During the year ended December 31, 2014, the Company recorded $34.0 million of goodwill in relation to the MedTrak acquisition described in Note 2, which will be tested for impairment in 2015 and thereafter.

 

Contract Funds on Deposit

 

The Company holds certain funds as collateral for future claims to be paid and for expenses incurred related to the administration of contracts with Part D clients. Deposits are returned to clients subsequent to the expiration of the contracts.

 

Inventory

 

Inventory is carried at the lower of cost or market, with cost being determined by the first-in, first-out (FIFO) method. At December 31, 2014, 2013 and 2012, inventory consisted of prescription drugs purchased by Orchard.

 

Derivative Instruments and Hedging Activities

 

The Company utilizes interest rate swaps to hedge potential rate increases in its variable rate debt. At the inception of the interest rate swap contracts, the Company determined that the contracts were derivative instruments. Because the instruments are designed as an effective cash flow hedge, the mark-to-market gains or losses on each swap are deferred and included as a component of accumulated other comprehensive income or loss to the extent affected.

 

13



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.              SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Federal Income Taxes

 

For the period from January 1, 2013 through November 3, 2013 and the year ended December 31, 2012, Envision Holdings and subsidiaries, with the consent of its shareholders, elected under the Internal Revenue Code to be taxed as an S Corporation. In lieu of corporation Federal income taxes, the shareholders of an S Corporation are taxed on their proportionate share of a company’s taxable income. Therefore, no provision or liability for Federal income taxes has been included in these consolidated financial statements. Envision Holdings and subsidiaries have no uncertain tax positions that have been taken and believes it can defend its tax returns to any tax jurisdiction. Envision Holdings and the Subsidiaries are no longer subject to examination by tax authorities for years before 2011.

 

Effective November 4, 2013, the Company, other than EIC, is a single member limited liability company. The Company is treated as a disregarded entity for Federal income tax purposes. In lieu of corporation Federal income taxes, the members of the Parent are taxed on their proportionate share of the Company’s taxable income. Therefore, no provision or liability for Federal income taxes has been included in these consolidated financial statements for these entities.

 

The Parent files income tax or information returns in the U.S. Federal jurisdiction, and various state and local jurisdictions. The Parent currently has no uncertain tax positions that have been taken and believes it can defend its tax returns to any tax jurisdiction. The Parent is subject to examination by tax authorities for 2014 and 2013.

 

Effective with the acquisition of Envision Holdings by the Sponsor and its conversion to a limited liability company on November 4, 2013, EIC became taxed as a C Corporation under the Internal Revenue Code. Tax provisions for the year ended December 31, 2014 and the period from November 4, 2013 to December 31, 2013 have been recorded and applicable deferred taxes have been recorded as of December 31, 2014 and 2013. EIC currently has no uncertain tax positions that have been taken and believes it can defend its tax returns to any tax jurisdiction. EIC is subject to examination by tax authorities for 2014 and 2013.

 

EIC recognizes interest and penalties related to tax contingencies in operating expenses. As of and for the year ended December 31, 2014, as of December 31, 2013 and for the period from November 4, 2013 to December 31, 2013, EIC did not recognize any expense for interest and penalties.

 

Subsequent Events

 

The Company has evaluated subsequent events through March 9, 2015, the date these financial statements were available to be issued. Other than the matter described in Note 20, there were no material subsequent events that required recognition or additional disclosure in these financial statements.

 

14



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.              ACQUISITIONS

 

Acquisition - TPG

 

Envision Holdings was acquired on the Acquisition Date through the Acquisition described in Note 1.

 

The Acquisition has been accounted for as a purchase business combination. Acquisition-related transaction costs include investment banking, legal and accounting fees, and other external costs directly related to the Acquisition. Such transaction costs paid at closing totaled $65.6 million and include $19.7 million that was capitalized as debt issuance costs and $25.1 million which are included in operating expenses in the consolidated statements of operations.

 

The remaining $20.8 million was paid by the Company out of equity proceeds from the Acquisition. These costs have been reflected in the consolidated financial statements as a reduction of the capital contribution from the Sponsor.

 

Sources and Uses of Funds

 

The sources and uses of funds in connection with the Acquisition are summarized below (in thousands):

 

 

 

Successor

 

 

 

2013

 

Sources:

 

 

 

Proceeds from 1st Lien Term Loan, net of discount

 

$

400,950

 

Proceeds from 2nd Lien Term Loan, net of discount

 

171,500

 

Proceeds from equity contributions

 

403,372

 

Envision Holdings cash used in transaction

 

15,000

 

Company cash used for post-closing adjustment

 

51,124

 

 

 

$

1,041,946

 

Uses:

 

 

 

Payoff November 2012 Term Loan

 

$

178,063

 

Equity purchase price

 

759,338

 

Transaction costs

 

52,405

 

Employee retention program

 

2,820

 

Excess cash to balance sheet

 

49,320

 

 

 

$

1,041,946

 

 

Proceeds from equity contributions of $403.4 million include $141 million rollover equity contributions from certain employees who were shareholders of Envision Holdings prior to the Acquisition.

 

15



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.              ACQUISITIONS (continued)

 

Sources and Uses of Funds

 

The Acquisition was recorded under the acquisition method of accounting by the Parent and pushed- down to the Company by allocating the purchase consideration of $951.6 million to the cost of the assets acquired, including intangible assets, based on their estimated fair values at the Acquisition Date. The allocation of purchase price is based on management’s judgment after evaluating several factors, including, but not limited to, valuation assessments of tangible and intangible assets. The excess of the total purchase price over the fair value of assets acquired and the liabilities assumed of $372.5 million is recorded as goodwill. The goodwill arising from the Acquisition consists largely of the commercial potential of the Company.  The fair value of intangible assets acquired and residual goodwill was determined based on a third party valuation.

 

Purchase Price Allocation

 

The following sets forth the Company’s purchase price allocation (in thousands):

 

Cash and cash equivalents

 

$

46,628

 

Investments

 

6,562

 

Accounts receivable and accrued receivables

 

588,492

 

Prepaid and other

 

4,009

 

Inventory

 

4,924

 

Property and equipment

 

12,284

 

Intangible assets

 

540,576

 

Goodwill

 

372,490

 

Other assets

 

4,785

 

Current liabilities

 

(629,149

)

Total purchase price allocation

 

$

951,601

 

 

Identifiable Intangible Assets

 

In performing the purchase price allocation, the Company considered, among other factors, the intended future use of acquired assets, analyses of historical financial performance and estimates of future performance. The following table sets forth the components of intangible assets as of the date of the Acquisition (in thousands):

 

 

 

Fair

 

Useful Life

 

Intangible Asset

 

Value

 

(in years)

 

Customer relationships

 

$

253,100

 

30

 

Backlog

 

19,500

 

3

 

Patented technology

 

11,200

 

14

 

Non-compete agreements

 

12,138

 

3 to 5

 

CMS license

 

186,600

 

indefinite

 

Trademarks

 

49,900

 

indefinite

 

Other

 

8,138

 

3 to 5

 

 

 

$

540,576

 

 

 

 

16



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.              ACQUISITIONS (continued)

 

Identifiable Intangible Assets (continued)

 

Customer relationships represent the fair value of the Company’s existing customer base. Backlog represents the fair value of the Company’s backlog of client contracts. Patented technology represents the fair value of the Company’s patented technology for passing 100% of earned rebates to the benefit payer at the point of sale for the Company’s pharmacy benefit management business. Non-compete agreements represent the fair value of the Company’s non-compete agreements with certain employees. Useful lives of the amortizable intangible assets were based on estimated economic useful lives and are being amortized using the straight-line method.

 

CMS license represents the fair value of the Company’s Part D license with CMS. Trademarks represent the fair value of the Company’s established trademarks in the pharmacy benefit management business and the infertility and fertility pharmacy services business. CMS license and trademarks are not amortized, but will be evaluated for potential impairment on a periodic basis.

 

Acquisition - Laker

 

On November 26, 2013 the Company purchased 100% of the equity interest of Laker Software LLC (Laker). The aggregate purchase price was $44.6 million and was comprised of the following (in thousands):

 

Cash

 

$

35,705

 

Class B Units of Topco

 

8,910

 

Total purchase price

 

$

44,615

 

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the purchase of Laker (in thousands):

 

Cash

 

$

584

 

Accounts receivable

 

1,524

 

Prepaid expenses

 

3

 

Property and equipment, net

 

300

 

Claims adjudication software

 

20,500

 

Other intangibles

 

3,900

 

Goodwill

 

17,954

 

Total assets acquired

 

44,765

 

Accounts payable and accrued expenses

 

150

 

Total liabilities assumed

 

150

 

Net purchase price

 

$

44,615

 

 

17



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.              ACQUISITIONS (continued)

 

Acquisition — Laker (continued)

 

The excess of the purchase price over the fair value of the net assets acquired and identifiable intangible assets acquired was allocated to goodwill. The Company believes the acquisition of Laker creates synergies from combining the operations of the Company and Laker, complements its existing business, increases the Company’s capabilities, and should enable the Company to provide broader product offerings to new and existing customers.

 

The fair value of $8.9 million for 8.9 million Class B units of Topco issued as part of the consideration paid for Laker was determined based on negotiations between the Company and the members of Laker. The fair value of intangible assets acquired and residual goodwill was determined based on a third party valuation.

 

As part of the Laker transaction, the Company incurred professional fees of $571 thousand during 2013, which are included as an element of selling, general and administrative expense in the accompanying Successor consolidated statement of operations.

 

In connection with the acquisition of Laker on November 26, 2013, certain Laker employees were granted 2,000,000 phantom units of Topco (the Phantom Units).

 

The Company entered into employment agreements through November 26, 2016 with two of the three individuals who were the sellers of Laker. The Company entered into a consulting agreement through November 26, 2015 with the third individual who was one of the sellers of Laker. The employment agreements and consulting agreement contain an annual incentive compensation plan based on Laker’s annual achievement of EBITDA in excess of a threshold level. The three individuals who were the sellers of Laker also entered into non-compete agreements.

 

Acquisition — MedTrak

 

On September 8, 2014 the Company purchased 100% of the equity interest of MedTrak Services, LLC (MedTrak). The aggregate purchase price was $211.8 million and was comprised of the following (in thousands):

 

Cash

 

$

198,693

 

Class B Units of Topco

 

13,090

 

Total purchase price

 

$

211,783

 

 

18



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.              ACQUISITIONS (continued)

 

Acquisition — MedTrak (continued)

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed in the purchase of MedTrak (in thousands):

 

Cash

 

$

9,062

 

Accounts receivable

 

33,927

 

Prepaid expenses

 

81

 

Property and equipment, net

 

299

 

Deposits and other assets

 

27

 

Customer relationships

 

140,800

 

Trademarks

 

36,400

 

Other intangibles

 

400

 

Goodwill

 

33,957

 

Total assets acquired

 

254,953

 

Accounts payable and accrued expenses

 

43,170

 

Total liabilities assumed

 

43,170

 

Net purchase price

 

$

211,783

 

 

The excess of the purchase price over the fair value of the net assets acquired and identifiable intangible assets acquired was allocated to goodwill. The Company believes the acquisition of Laker complements its existing business, increases the Company’s capabilities, and should enable the Company to provide broader product offerings to new and existing customers.

 

The fair value of $13.1 million for 12.6 million Class B units of Topco issued as part of the consideration paid for MedTrak was determined based on negotiations between the Company and the members of MedTrak. The fair value of intangible assets acquired and residual goodwill was determined based on a third party valuation.

 

As part of the MedTrak acquisition, transaction costs paid at closing totaled $6.5 million and include $5.8 million that was capitalized as debt issuance costs and $0.7 million that are included as an element of selling, general and administrative expense in the accompanying consolidated statement of operations.

 

The Company entered into employment agreements through September 8, 2017 with three members of MedTrak management. The employment agreements contain an annual incentive compensation plan based on the Company’s annual achievement of EBITDA in excess of a threshold level. The three individuals also entered into non-compete agreements.

 

19



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.              ACQUISITIONS (continued)

 

Acquisition — MedTrak (continued)

 

The following pro forma consolidated statements of income for 2014, 2013 and 2012 have been prepared as if the acquisitions of Laker and MedTrak had occurred on January 1, 2012 (in thousands):

 

 

 

2014
(unaudited)

 

2013
(unaudited)

 

2012
(unaudited)

 

Revenues

 

$

4,242,608

 

$

3,986,570

 

$

3,052,644

 

Cost of revenues

 

3,983,088

 

3,743,601

 

2,847,342

 

 

 

 

 

 

 

 

 

Gross profit

 

259,520

 

242,969

 

205,302

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling, general and administrative

 

149,521

 

128,256

 

110,973

 

Depreciation and amortization

 

38,009

 

19,567

 

14,724

 

Incurred in connection with Acquisition

 

 

25,124

 

 

 

 

187,530

 

172,947

 

125,697

 

 

 

 

 

 

 

 

 

Income from operations

 

71,990

 

70,022

 

79,605

 

 

 

 

 

 

 

 

 

Other expenses

 

(52,352

)

(18,745

)

(10,959

)

 

 

 

 

 

 

 

 

Income before (provision for) benefit from Federal income taxes

 

19,638

 

51,277

 

66,646

 

 

 

 

 

 

 

 

 

(Provision for) benefit from Federal income taxes

 

367

 

(350

)

 

 

 

 

 

 

 

 

 

Net income

 

20,005

 

50,927

 

66,646

 

 

 

 

 

 

 

 

 

Other expenses

 

52,352

 

18,745

 

10,959

 

 

 

 

 

 

 

 

 

Provision for (benefit from) Federal income taxes

 

(367

)

350

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

38,009

 

19,567

 

14,724

 

 

 

 

 

 

 

 

 

EBITDA

 

$

109,999

 

$

89,589

 

$

94,329

 

 

Operating earnings before interest, income taxes, depreciation and amortization (EBITDA) shown on a pro forma basis in the table above is calculated as net income excluding the impact of income taxes, interest expense, interest income, write-off of deferred financing fees, and depreciation and amortization, and has not been adjusted to remove expenses incurred in connection with the Acquisition or other non-recurring and/or non-operating items included in income from operations. EBITDA in the table above has not been adjusted to reflect the increase in gross profit realized through post-acquisition operational improvements and synergies.

 

20



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

2.              ACQUISITIONS (continued)

 

Acquisition — MedTrak (continued)

 

However, EBITDA in the table above has been adjusted to remove professional fees expense incurred in 2013 for the acquisition of Laker and 2014 for the acquisition of MedTrak, and to reflect contractual changes in compensation expense for 2013 for Laker. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisitions of Laker and MedTrak been consummated as of January 1, 2012.

 

3.              EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION

 

The Company uses EBITDA as a primary measurement of the Company’s earnings. The Company’s consolidated EBITDA for the year ended December 31, 2014, period from November 4, 2013 to December 31, 2013 (Successor), period from January 1, 2013 to November 3, 2013 (Predecessor), and year ended December 31, 2012 (Predecessor) is summarized as follows (in thousands):

 

 

 

Successor

 

Successor

 

Predecessor

 

Predecessor

 

 

 

2014

 

2013

 

2013

 

2012

 

Net income (loss)

 

$

11,572

 

$

(440

)

$

32,890

 

$

55,259

 

Interest expense

 

52,226

 

7,169

 

6,477

 

5,335

 

Other (income) expenses

 

(41

)

(13

)

5,050

 

5,725

 

Provision for (benefit from) Federal income taxes

 

(367

)

350

 

 

 

Depreciation and amortization

 

30,198

 

4,176

 

4,510

 

3,767

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

93,588

 

$

11,242

 

$

48,927

 

$

70,086

 

 

EBITDA shown in the table above has not been adjusted to remove expenses incurred in connection with the Acquisition, the Laker transaction, the MedTrak transaction, or other non-recurring and/or non-operating items included in income from operations.

 

4.              INVESTMENTS

 

At December 31, 2014, 2013 and 2012, EIC held investments in U.S. Treasury debt securities that were classified as held to maturity and carried at amortized cost. The amortized cost and estimated fair values of investments at December 31, 2014, 2013, and 2012 were as follows (in thousands):

 

 

 

Successor

 

Successor

 

Predecessor

 

 

 

2014

 

2013

 

2012

 

Amortized cost

 

$

6,564

 

$

6,557

 

$

6,462

 

Gross unrealized gains

 

12

 

38

 

77

 

 

 

 

 

 

 

 

 

Estimated fair value

 

$

6,576

 

$

6,595

 

$

6,539

 

 

21



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

4.              INVESTMENTS (continued)

 

Contractual maturities of held-to-maturity securities at December 31, 2014, 2013 and 2012, were as follows (in thousands):

 

 

 

Successor

 

Successor

 

Predecessor

 

 

 

2014

 

2013

 

2012

 

Due in one year or less

 

$

5,994

 

$

300

 

$

4,757

 

Due after one year but less than five years

 

570

 

6,257

 

1,705

 

 

 

 

 

 

 

 

 

 

 

$

6,564

 

$

6,557

 

$

6,462

 

 

5.              INTANGIBLE ASSETS

 

The following is a summary of the intangible assets that are presented in the accompanying consolidated balance sheets as of December 31, 2014, 2013, and 2012 (in thousands):

 

 

 

Successor

 

 

 

2014

 

Description

 

Cost

 

Accumulated
Amortization

 

Net Carrying
Value

 

Subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Backlog

 

$

19,500

 

$

7,529

 

$

11,971

 

Claims adjudication software

 

20,500

 

2,841

 

17,659

 

Computer software development

 

11,733

 

1,915

 

9,818

 

Customer relationships

 

395,600

 

11,844

 

383,756

 

Other intangibles

 

5,376

 

1,565

 

3,811

 

Non-compete agreements

 

12,938

 

3,855

 

9,083

 

Pharmacy benefit management accreditation license

 

176

 

77

 

99

 

Patents

 

11,200

 

926

 

10,274

 

Trademarks

 

36,400

 

476

 

35,924

 

 

 

 

 

 

 

 

 

 

 

$

513,423

 

$

31,028

 

482,395

 

 

 

 

 

 

 

 

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State insurance license costs

 

 

 

 

 

177

 

CMS license

 

 

 

 

 

186,600

 

Trademarks

 

 

 

 

 

51,700

 

 

 

 

 

 

 

238,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

720,872

 

 

22



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

5.              INTANGIBLE ASSETS (continued)

 

 

 

Successor

 

 

 

2013

 

 

 

 

 

Accumulated

 

Net Carrying

 

Description

 

Cost

 

Amortization

 

Value

 

Subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Backlog

 

$

19,500

 

$

1,029

 

$

18,471

 

Claims adjudication software

 

20,500

 

248

 

20,252

 

Computer software development

 

4,347

 

292

 

4,055

 

Customer relationships

 

254,800

 

1,261

 

253,539

 

Other intangibles

 

4,555

 

225

 

4,330

 

Non-compete agreements

 

12,538

 

500

 

12,038

 

Pharmacy benefit management accreditation license

 

176

 

13

 

163

 

Patents

 

11,200

 

122

 

11,078

 

 

 

 

 

 

 

 

 

 

 

$

327,616

 

$

3,690

 

323,926

 

 

 

 

 

 

 

 

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State insurance license costs

 

 

 

 

 

177

 

CMS license

 

 

 

 

 

186,600

 

Trademarks

 

 

 

 

 

51,700

 

 

 

 

 

 

 

238,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

562,403

 

 

 

 

Predecessor

 

 

 

2012

 

 

 

 

 

Accumulated

 

Net Carrying

 

Description

 

Cost

 

Amortization

 

Value

 

Subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Computer software development

 

$

2,764

 

$

1,148

 

$

1,616

 

Other intangibles

 

5,512

 

1,390

 

4,122

 

Non-compete agreements

 

2,300

 

1,162

 

1,138

 

Pharmacy benefit management accreditation license

 

238

 

156

 

82

 

Patents

 

881

 

406

 

475

 

Specialty pharmacy network

 

19,300

 

1,951

 

17,349

 

 

 

 

 

 

 

 

 

Balance to next page

 

$

30,995

 

$

6,213

 

24,782

 

 

23



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

5.              INTANGIBLE ASSETS (continued)

 

 

 

Predecessor

 

 

 

2012

 

 

 

 

 

Accumulated

 

Net Carrying

 

Description

 

Cost

 

Amortization

 

Value

 

Balance from previous page

 

$

30,995

 

$

6,213

 

$

24,782

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

State insurance license costs

 

 

 

 

 

177

 

Trademarks

 

 

 

 

 

12,500

 

 

 

 

 

 

 

12,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

37,459

 

 

The Company expects amortization expense for the next 5 years to be as follows (in thousands):

 

YEAR ENDING

 

 

 

DECEMBER 31,

 

 

 

2015

 

$

31,881

 

2016

 

30,271

 

2017

 

23,263

 

2018

 

20,668

 

2019

 

19,197

 

 

6.                      DEFERRED FINANCING FEES

 

Deferred financing fees of $21.9 million, $19.4 million, and $5.0 million at December 31, 2014, 2013, and 2012, respectively, represents fees paid to third parties that provided services in relation to securing financing. The deferred financing fees are shown net of accumulated amortization of $3.2 million, $460 thousand, and $122 thousand at December 31, 2014, 2013, and 2012, respectively.

 

Expected future amortization expense for the deferred financing fees for the next 5 years is as follows

(in thousands):

 

YEAR ENDING

 

 

 

DECEMBER 31,

 

 

 

2015

 

$

3,761

 

2016

 

3,732

 

2017

 

3,732

 

2018

 

3,661

 

2019

 

3,277

 

 

 

 

 

 

 

$

18,344

 

 

24



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

7.              LINE OF CREDIT AND LONG-TERM DEBT

 

Predecessor

 

On November 30, 2012, the Company and the bank group entered into an amended and restated credit agreement (the 2012 Credit Agreement), which provided the Company with (i) a $185 million term loan (the 2012 Term Loan) payable in quarterly installments with a balloon payment in November 2017 and (ii) a $50 million revolving line of credit (the 2012 Line of Credit) maturing in November 2017.

 

The 2012 Term Loan and any outstanding borrowings on the 2012 Line of Credit bore interest at a variable rate based on the one-month LIBOR plus an interest margin based on the Company’s leverage ratio. As of December 31, 2012, the Company had $0 borrowings on the 2012 Line of Credit. The 2012 Term Loan and the 2012 Line of Credit were collateralized by (i) a first lien on substantially all assets of the Company (other than the assets of EIC) and (ii) a pledge of the stock of each of the Company’s subsidiaries (other than EIC). Each of the Company’s subsidiaries (other than EIC) guaranteed the 2012 Term Loan and the 2012 Line of Credit.  The 2012 Credit Agreement required the Company to maintain certain financial covenants pertaining to leverage and fixed charges.  The Company was in compliance with the covenants as of December 31, 2012.

 

Successor

 

In connection with the Acquisition, on November 4, 2013, EAC and various lenders entered into agreements for (i) a $65 million revolving credit facility (the Revolving Credit Facility), (ii) a $405 million first lien term loan (the 1st Lien Term Loan) and (iii) a $175 million second lien term loan (the 2nd Lien Term Loan). The 2012 Term Loan was repaid in-full on November 4, 2013 in connection with the Acquisition.

 

In connection with the acquisition of MedTrak, on September 8, 2014 EAC and various lenders entered into: (i) incremental amendment No. 1 to the first lien credit agreement which increased the 1st Lien Term Loan principal amount by $125 million (the Incremental 1st Lien Term Loan), (ii) incremental amendment No. 1 to the second lien term loan credit agreement which increased the 2nd Lien Term Loan principal amount by $50 million (the Incremental 2nd Lien Term Loan) and (iii) incremental amendment No. 2 to the first lien credit agreement which increased the Revolving Credit Facility from $65 million to $100 million.

 

The Revolving Credit Facility is fully available for borrowing, and is not subject to a borrowing base or any other availability calculations. The Revolving Credit Facility matures in November 2018, and any outstanding borrowings bear interest at a variable rate based on the one-month LIBOR plus an interest margin (based on the Company’s leverage ratio) in the range of 4.50% to 4.75%. As of December 31, 2014 and 2013, the Company had $0 borrowings on the Revolving Credit Facility. The Revolving Credit Facility requires the Company to comply with a financial covenant pertaining to secured first lien leverage as of the end of each quarter. The Company was in compliance with the financial covenant as of December 31, 2014 and 2013.

 

25



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

7.              LINE OF CREDIT AND LONG-TERM DEBT

 

Successor (continued)

 

The 1st Lien Term Loan is payable in quarterly installments of $1.3 million, with a balloon payment in November 2020. The 1st Lien Term Loan and Incremental 1st Lien Term Loan bears cash interest based on the one-month LIBOR (subject to a LIBOR floor of 1.00%) plus 4.75%.  The 1st Lien Term loan was issued net of an original issue discount of $4.0 million (the 1st Lien OID). The 1st Lien OID is amortized to interest expense over the contractual term of the 1st Lien Term Loan, which results in an effective interest rate of 6.01% annually.  The Incremental 1st Lien Term Loan of $125 million was issued net of an original issue discount of $0.6 million (the Incremental 1st Lien OID). The Incremental 1st Lien OID is amortized to interest expense over the contractual term of the Incremental 1st Lien Term Loan, which results in an effective interest rate of 5.93% annually.

 

The 2nd Lien Term Loan is non-amortizing, and matures in November 2021.  The 2nd Lien Term Loan and Incremental 2nd Lien Term Loan bears cash interest based on the one-month LIBOR (subject to a LIBOR floor of 1.00%) plus 8.75%. The 2nd Lien Term loan was issued net of an original issue discount of $3.5 million (the 2nd Lien OID). The 2nd Lien OID is amortized to interest expense over the contractual term of the 2nd Lien Term Loan, which results in an effective interest rate of 10.26% annually. The Incremental 2nd Lien Term Loan of $50 million was issued net of an original issue discount of $0.3 million (the Incremental 2nd Lien OID).  The Incremental 2nd Lien OID is amortized to interest expense over the contractual term of the Incremental 2nd Lien Term Loan, which results in an effective interest rate of 9.98% annually.

 

The Revolving Credit Facility and 1st Lien Term Loan are collateralized by (i) a first lien on substantially all assets of the Company (other than the assets of EIC) and (ii) a pledge of the stock of each of the Company’s subsidiaries (other than EIC). Each of the Company’s subsidiaries (other than EIC) guaranteed the Revolving Credit Facility and the 1st Lien Term Loan.

 

The 2nd Lien Term Loan is collateralized by (i) a second lien on substantially all assets of the Company (other than the assets of EIC) and (ii) a pledge of the stock of each of the Company’s subsidiaries (other than EIC). Each of the Company’s subsidiaries (other than EIC) guaranteed the 2nd Lien Term Loan.

 

As of December 31, 2014, 2013, and 2012, the Company has interest cap agreements with commercial banks which provide hedges that set the maximum LIBOR rate at 2.75% for approximately $76 million of debt principal outstanding through November 2015.

 

The first lien credit agreement and the second lien credit agreement restrict the Company’s ability to pay dividends or distributions to the amount that is required for income tax purposes.

 

26



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

7.              LINE OF CREDIT AND LONG-TERM DEBT (continued)