EX-99.2 4 a15-18345_1ex99d2.htm EX-99.2

Exhibit 99.2

 

 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

FOR THE PERIODS ENDED MARCH 31, 2015 AND 2014

 



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

FOR THE PERIODS ENDED MARCH 31, 2015 AND 2014

 

TABLE OF CONTENTS

 

 

PAGE NO

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
March 31, 2015 and December 31, 2014

2

 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
For the three months ended March 31, 2015 and 2014

3

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended March 31, 2015 and 2014

4

 

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5 - 22

 



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

MARCH 31, 2015 AND DECEMBER 31, 2014

(in thousands)

 

ASSETS

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

116,125

 

$

114,022

 

Investments, at amortized cost

 

6,697

 

6,564

 

Accounts receivable, net

 

661,727

 

648,947

 

Accrued receivables

 

112,510

 

87,219

 

Reinsurance recoverable

 

 

13,520

 

Uninsured plans receivable

 

24,561

 

 

Income tax receivable

 

 

614

 

Inventory

 

6,490

 

6,140

 

Prepaid expenses and other current assets

 

13,986

 

6,047

 

Deferred tax asset

 

644

 

940

 

 

 

942,740

 

884,013

 

PROPERTY AND EQUIPMENT - AT COST

 

 

 

 

 

Land

 

571

 

571

 

Building and improvements

 

3,926

 

3,932

 

Furniture, fixtures and equipment

 

12,650

 

11,759

 

 

 

17,147

 

16,262

 

Less: Accumulated depreciation and amortization

 

(4,095

)

(3,368

)

 

 

13,052

 

12,894

 

OTHER ASSETS

 

 

 

 

 

Deposits and other assets

 

540

 

540

 

Deferred financing fees, net

 

20,985

 

21,931

 

Other investments

 

1,750

 

1,750

 

Intangible assets, net

 

714,595

 

720,872

 

Goodwill

 

424,401

 

424,401

 

 

 

1,162,271

 

1,169,494

 

 

 

$

2,118,063

 

$

2,066,401

 

 



 

LIABILITIES

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

CURRENT LIABILITIES

 

 

 

 

 

Current portion of long-term debt

 

$

5,132

 

$

5,262

 

Accounts payable

 

508,220

 

480,247

 

Accrued expenses

 

29,719

 

22,493

 

Income taxes payable

 

43

 

 

Contract funds on deposit

 

3,450

 

5,314

 

Ceded reinsurance premiums payable

 

21,967

 

 

Funds held under reinsurance treaties

 

324,239

 

329,785

 

 

 

892,770

 

843,101

 

LONG-TERM LIABILITIES

 

 

 

 

 

Deferred tax liabilities

 

105

 

104

 

Interest rate swaps

 

 

5,665

 

Long-term debt

 

737,000

 

738,256

 

 

 

737,105

 

744,025

 

 

 

1,629,875

 

1,587,126

 

 

MEMBERS’ EQUITY

 

MEMBERS’ EQUITY

 

489,600

 

486,348

 

ACCUMULATED DEFICIT

 

(1,412

)

(1,408

)

ACCUMULATED COMPREHENSIVE LOSS

 

 

(5,665

)

 

 

488,188

 

479,275

 

 

 

$

2,118,063

 

$

2,066,401

 

 

See notes to condensed consolidated financial statements (unaudited).

 

2



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

 

FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(in thousands)

 

 

 

For the three

 

For the three

 

 

 

months ended

 

months ended

 

 

 

March 31, 2015

 

March 31, 2014

 

REVENUES

 

$

1,262,815

 

$

934,268

 

COST OF REVENUES

 

1,184,914

 

878,545

 

GROSS PROFIT

 

77,901

 

55,723

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

Selling, general and administrative

 

43,293

 

34,242

 

Depreciation and amortization

 

9,067

 

6,971

 

 

 

52,360

 

41,213

 

INCOME FROM OPERATIONS

 

25,541

 

14,510

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

Interest income

 

63

 

55

 

Interest expense

 

(21,312

)

(11,181

)

State and local taxes and other

 

(90

)

(124

)

 

 

(21,339

)

(11,250

)

INCOME BEFORE PROVISION FOR FEDERAL INCOME TAXES

 

4,202

 

3,260

 

PROVISION FOR FEDERAL INCOME TAXES

 

 

 

 

 

Current

 

657

 

 

Deferred

 

297

 

33

 

 

 

954

 

33

 

NET INCOME

 

$

3,248

 

$

3,227

 

 

 

 

 

 

 

COMPREHENSIVE INCOME:

 

 

 

 

 

Net income

 

$

3,248

 

$

3,227

 

Change in fair market value of interest rate swaps

 

5,665

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME

 

$

8,913

 

$

3,227

 

 

See notes to condensed consolidated financial statements (unaudited).

 

3



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014

(in thousands)

 

 

 

For the three

 

For the three

 

 

 

months ended

 

months ended

 

 

 

March 31, 2015

 

March 31, 2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net income

 

$

3,248

 

$

3,227

 

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

 

 

 

 

 

Add back: Items not affecting cash

 

 

 

 

 

Depreciation and amortization

 

9,067

 

6,971

 

Deferred financing fees amortization

 

946

 

726

 

Bad debts

 

213

 

629

 

Interest incurred on payoff of interest rate swap

 

7,076

 

 

Amortization of investments

 

24

 

25

 

Amortization of original issue discount

 

239

 

197

 

Deferred income taxes

 

297

 

33

 

Compensation expense for equity grant

 

 

50

 

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

 

 

 

 

 

Increase in accounts receivable

 

(12,993

)

(52,409

)

(Increase) decrease in accrued receivables

 

(25,291

)

7,295

 

Decrease in reinsurance recoverable

 

13,520

 

6,403

 

Increase in uninsured plans receivable

 

(24,561

)

(13,438

)

(Increase) decrease in inventory

 

(350

)

949

 

Increase in prepaid expenses and other current assets

 

(7,939

)

(354

)

Increase (decrease) in accounts payable

 

27,973

 

(7,225

)

Increase (decrease) in accrued expenses

 

7,226

 

(1,386

)

(Increase) decrease in income taxes receivable/payable, net

 

657

 

(315

)

Decrease in contract funds on deposit

 

(1,864

)

(1,306

)

Increase in ceded reinsurance premiums payable

 

21,967

 

 

Increase (decrease) in funds held under reinsurance treaties

 

(5,546

)

26,830

 

Net cash provided by (used in) operating activities

 

13,909

 

(23,098

)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Acquisitions of property and equipment

 

(891

)

(375

)

Investment in intangible assets

 

(2,057

)

(1,841

)

Purchases of investments, net

 

(157

)

 

Net cash used in investing activities

 

(3,105

)

(2,216

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Payments of principal on long-term debt

 

(1,625

)

(1,333

)

Payoff of interest rate swaps

 

(7,076

)

 

Capital contributions

 

 

1,670

 

Distributions

 

 

(29

)

Net cash provided by (used in) financing activities

 

(8,701

)

308

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

2,103

 

(25,006

)

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD

 

114,022

 

79,962

 

CASH AND CASH EQUIVALENTS - END OF PERIOD

 

$

116,125

 

$

54,956

 

 

See notes to condensed consolidated financial statements (unaudited).

 

4



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and therefore do not include all of the information and footnotes required by GAAP for complete annual financial statements. The accompanying financial information reflects all adjustments which are of a recurring nature and, in the opinion of management, are necessary for a fair presentation of the results for the interim period. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the December 31, 2014 audited consolidated financial statements and notes thereto.

 

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).

 

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

 

Consolidation Policy

 

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

 

Subsequent Events

 

The Company has evaluated subsequent events through August 18, 2015, the date these financial statements were available to be issued. There were no material subsequent events that required recognition or additional disclosure in these financial statements.

 

5



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

2.                      PLANNED MERGER WITH RITE AID CORPORATION

 

On February 10, 2015, Topco and Rite Aid Corporation (“Rite Aid”) entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, Rite Aid will acquire Topco through a merger of a wholly-owned subsidiary of Rite Aid with and into Topco, with Topco continuing as the surviving limited liability company and a wholly-owned subsidiary of Rite Aid. Rite Aid will also acquire TPG VI Envision BL, LLC (the “Blocker”) through a merger of a wholly-owned subsidiary of Rite Aid with and into the Blocker, with the Blocker continuing as the surviving limited liability company and a wholly-owned subsidiary of Rite Aid.

 

Upon consummation of the merger (the “Closing”), each of the issued and outstanding limited liability company interests in Topco and the Blocker and each of the restricted stock units and phantom units of Topco (other than any such interests or units held by Rite Aid, Topco or any of their direct or indirect wholly-owned subsidiaries) will be cancelled and converted into the right to receive the pro rata share (in accordance with the waterfall provisions in Topco’s governing documents), without interest and subject to any applicable tax withholding, of an aggregate purchase price comprised of 27,862,138 shares of Rite Aid’s common stock and $1.8 billion in cash, less Topco’s existing indebtedness and certain expenses and plus certain cash amounts, and subject to certain adjustments, all as further described in the Merger Agreement. In addition, following the Closing, Rite Aid is obligated to pay to the sellers’ representative on behalf of the former holders of company interests, restricted stock units and phantom units such former holders’ pro rata share of the settlement payment to be received by EIC from the Centers for Medicare and Medicaid Services in respect of the 2014 plan year, net of amounts due to EIC’s reinsurer.

 

The parties’ obligations to consummate the Mergers are subject to conditions, including, among others, customary closing conditions relating to (i) the expiration or termination of the applicable antitrust waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, (ii) the receipt of applicable required insurance and healthcare regulatory approvals, and (iii) the absence of a material adverse effect, as defined in the Merger Agreement, on Topco or Rite Aid, as applicable. There is no financing condition to Closing in the Merger Agreement.  On February 10, 2015, holders representing a majority of the outstanding limited liability company interests of Topco entitled to vote delivered a written consent approving and adopting the Merger Agreement and the transactions contemplated by the Merger Agreement.

 

The parties to the Merger Agreement have each made customary representations, warranties and covenants in the Merger Agreement, including, among others, (i) Topco’s agreement to conduct its business in the ordinary course consistent with past practice between the date of the Merger Agreement and the Closing, (ii) the parties’ agreement to obtain governmental approvals, subject to certain exceptions, and (iii) Rite Aid’s agreement to use reasonable best efforts to obtain debt financing to pay the cash portion of the merger consideration on the terms set forth in the debt commitment letters executed in connection with the Merger Agreement.

 

6



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

2.                     PLANNED MERGER WITH RITE AID CORPORATION (continued)

 

On April 2, 2015, Rite Aid issued $1.8 billion aggregate principal amount of 6.125% senior notes (the “6.125% Notes”) due 2023 to finance the cash portion of the pending acquisition of Topco. Upon completion of the Closing, Topco and certain of its subsidiaries other than EIC (the “Guarantors”) fully and unconditionally guarantee, jointly and severally, on an unsubordinated basis, the 6.125% Notes and other Rite Aid debt totaling $4.9 billion. The guarantees are unsecured. The 6.125% Notes are unsecured, unsubordinated obligations of Rite Aid and rank equally in right of payment with all of Rite Aid’s other unsecured, unsubordinated indebtedness.

 

The Closing occurred on June 24, 2015.

 

Guarantor and Non-Guarantor Statements

 

The following schedules present the financial information for the Guarantors and EIC (Non- Guarantor). Investments in subsidiaries are accounted for by their parent using the equity method of accounting. The Guarantor subsidiaries are presented on a combined basis. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

 

 

 

Condensed Consolidating Statements of Operations

 

 

 

and Comprehensive Income (Loss) (Unaudited)

 

 

 

For the Three Months Ended March 31, 2015

 

 

 

(in thousands)

 

 

 

Guarantors

 

Non-Guarantor

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,261,152

 

$

57,894

 

$

(56,231

)

$

1,262,815

 

Cost of revenues

 

1,184,914

 

55,240

 

(55,240

)

1,184,914

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

76,238

 

2,654

 

(991

)

77,901

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

42,576

 

1,708

 

(991

)

43,293

 

Depreciation and amortization

 

9,067

 

 

 

9,067

 

 

 

51,643

 

1,708

 

(991

)

52,360

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

24,595

 

946

 

 

25,541

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

Interest income

 

15

 

63

 

(15

)

63

 

Interest expense

 

(21,268

)

(59

)

15

 

(21,312

)

State and local taxes and other

 

(90

)

 

 

(90

)

 

 

(21,343

)

4

 

 

(21,339

)

Income before provision for Federal income taxes

 

3,252

 

950

 

 

4,202

 

 

 

 

 

 

 

 

 

 

 

Provision for Federal income taxes

 

 

954

 

 

954

 

 

 

 

 

 

 

 

 

 

 

Income before equity in loss of consolidated subsidiary

 

3,252

 

(4

)

 

3,248

 

 

 

 

 

 

 

 

 

 

 

Equity in loss of consolidated subsidiary

 

(4

)

 

4

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,248

 

$

(4

)

$

4

 

$

3,248

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,248

 

$

(4

)

$

4

 

$

3,248

 

Change in fair market value of interest rate swaps

 

5,665

 

 

 

5,665

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

8,913

 

$

(4

)

$

4

 

$

8,913

 

 

7



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

2.                     PLANNED MERGER WITH RITE AID CORPORATION (continued)

 

 

 

Condensed Consolidating Statements of Income
and Comprehensive Income (Unaudited)

 

 

 

For the Three Months Ended March 31, 2014

 

 

 

(in thousands)

 

 

 

Guarantors

 

Non-Guarantor

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

932,777

 

$

30,616

 

$

(29,125

)

$

934,268

 

Cost of revenues

 

878,545

 

28,086

 

(28,086

)

878,545

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

54,232

 

2,530

 

(1,039

)

55,723

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

32,825

 

2,456

 

(1,039

)

34,242

 

Depreciation and amortization

 

6,970

 

1

 

 

6,971

 

 

 

39,795

 

2,457

 

(1,039

)

41,213

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

14,437

 

73

 

 

14,510

 

 

 

 

 

 

 

 

 

 

 

Other income (expenses)

 

 

 

 

 

 

 

 

 

Interest income

 

32

 

23

 

 

55

 

Interest expense

 

(11,176

)

(5

)

 

(11,181

)

State and local taxes and other

 

(124

)

 

 

(124

)

 

 

(11,268

)

18

 

 

(11,250

)

Income before provision for Federal income taxes

 

3,169

 

91

 

 

3,260

 

 

 

 

 

 

 

 

 

 

 

Provision for Federal income taxes

 

 

33

 

 

33

 

 

 

 

 

 

 

 

 

 

 

Income before equity in income of consolidated subsidiary

 

3,169

 

58

 

 

3,227

 

 

 

 

 

 

 

 

 

 

 

Equity in income of consolidated subsidiary

 

58

 

 

(58

)

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,227

 

$

58

 

$

(58

)

$

3,227

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,227

 

$

58

 

$

(58

)

$

3,227

 

Change in fair market value of interest rate swaps

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

 

$

3,227

 

$

58

 

$

(58

)

$

3,227

 

 

8



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

2.                   PLANNED MERGER WITH RITE AID CORPORATION (continued)

 

 

 

Condensed Consolidating Balance Sheet
March 31, 2015 (Unaudited)

 

 

 

(in thousands)

 

 

 

Guarantors

 

Non-Guarantor

 

Eliminations

 

Total

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

83,454

 

$

32,671

 

$

 

$

116,125

 

Investments, at amortized cost

 

 

6,697

 

 

6,697

 

Accounts receivable, net

 

211,329

 

450,398

 

 

661,727

 

Related party receivable

 

108,970

 

 

(108,970

)

 

Accrued receivables

 

112,466

 

44

 

 

112,510

 

Uninsured plans receivable

 

 

24,561

 

 

24,561

 

Inventory

 

6,490

 

 

 

6,490

 

Prepaid expenses and other current assets

 

8,145

 

5,841

 

 

13,986

 

Deferred tax asset

 

 

644

 

 

644

 

 

 

530,854

 

520,856

 

(108,970

)

942,740

 

Property and equipment, net

 

13,052

 

 

 

13,052

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

Investment in subsidiary

 

27,621

 

 

(27,621

)

 

Related party note receivable

 

30,000

 

 

(30,000

)

 

Related party accrued interest receivable

 

15

 

 

(15

)

 

Deposits and other assets

 

540

 

 

 

540

 

Deferred financing fees, net

 

20,985

 

 

 

20,985

 

Other investments

 

1,750

 

 

 

1,750

 

Intangible assets, net

 

713,867

 

728

 

 

714,595

 

Goodwill

 

424,401

 

 

 

424,401

 

 

 

1,219,179

 

728

 

(57,636

)

1,162,271

 

Total assets

 

$

1,763,085

 

$

521,584

 

$

(166,606

)

$

2,118,063

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

5,132

 

$

 

$

 

$

5,132

 

Accounts payable

 

508,144

 

76

 

 

508,220

 

Related party payable

 

 

108,970

 

(108,970

)

 

Accrued expenses

 

21,171

 

8,548

 

 

29,719

 

Income taxes payable

 

 

43

 

 

43

 

Contract funds on deposit

 

3,450

 

 

 

3,450

 

Ceded reinsurance premiums payable

 

 

21,967

 

 

21,967

 

Funds held under reinsurance treaties

 

 

324,239

 

 

324,239

 

 

 

537,897

 

463,843

 

(108,970

)

892,770

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

105

 

 

105

 

Related party note payable

 

 

30,000

 

(30,000

)

 

Related party accrued interest payable

 

 

15

 

(15

)

 

Long-term debt

 

737,000

 

 

 

737,000

 

 

 

737,000

 

30,120

 

(30,015

)

737,105

 

 

 

 

 

 

 

 

 

 

 

 

 

1,274,897

 

493,963

 

(138,985

)

1,629,875

 

 

 

 

 

 

 

 

 

 

 

Members’ equity

 

 

 

 

 

 

 

 

 

Members’ equity

 

488,188

 

3,333

 

(1,921

)

489,600

 

Common stock

 

 

2,000

 

(2,000

)

 

Additional paid-in capital

 

 

23,700

 

(23,700

)

 

Accumulated deficit

 

 

(1,412

)

 

(1,412

)

 

 

488,188

 

27,621

 

(27,621

)

488,188

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and members’ equity

 

$

1,763,085

 

$

521,584

 

$

(166,606

)

$

2,118,063

 

 

9



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

2.                   PLANNED MERGER WITH RITE AID CORPORATION (continued)

 

 

 

Condensed Consolidating Balance Sheet
December 31, 2014

 

 

 

(in thousands)

 

 

 

Guarantors

 

Non-Guarantor

 

Eliminations

 

Total

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,515

 

$

19,507

 

$

 

$

114,022

 

Investments, at amortized cost

 

 

6,564

 

 

6,564

 

Accounts receivable, net

 

183,515

 

465,432

 

 

648,947

 

Related party receivable

 

135,020

 

 

(135,020

)

 

Accrued receivables

 

87,179

 

40

 

 

87,219

 

Reinsurance recoverable

 

 

13,520

 

 

13,520

 

Income tax receivable

 

 

614

 

 

614

 

Inventory

 

6,140

 

 

 

6,140

 

Prepaid expenses and other current assets

 

5,736

 

311

 

 

6,047

 

Deferred tax asset

 

 

940

 

 

940

 

 

 

512,105

 

506,928

 

(135,020

)

884,013

 

Property and equipment, net

 

12,696

 

198

 

 

12,894

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

Investment in subsidiary

 

27,625

 

 

(27,625

)

 

Related party note receivable

 

15,000

 

 

(15,000

)

 

Deposits and other assets

 

540

 

 

 

540

 

Deferred financing fees, net

 

21,931

 

 

 

21,931

 

Other investments

 

1,750

 

 

 

1,750

 

Intangible assets, net

 

720,144

 

728

 

 

720,872

 

Goodwill

 

424,401

 

 

 

424,401

 

 

 

1,211,391

 

728

 

(42,625

)

1,169,494

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,736,192

 

$

507,854

 

$

(177,645

)

$

2,066,401

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

5,262

 

$

 

$

 

$

5,262

 

Accounts payable

 

480,028

 

219

 

 

480,247

 

Related party payable

 

 

135,020

 

(135,020

)

 

Accrued expenses

 

22,392

 

101

 

 

22,493

 

Contract funds on deposit

 

5,314

 

 

 

5,314

 

Funds held under reinsurance treaties

 

 

329,785

 

 

329,785

 

 

 

512,996

 

465,125

 

(135,020

)

843,101

 

Long-term liabilities

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

104

 

 

104

 

Interest rate swaps

 

5,665

 

 

 

5,665

 

Related party note payable

 

 

15,000

 

(15,000

)

 

Long-term debt

 

738,256

 

 

 

738,256

 

 

 

743,921

 

15,104

 

(15,000

)

744,025

 

 

 

1,256,917

 

480,229

 

(150,020

)

1,587,126

 

 

 

 

 

 

 

 

 

 

 

Members’ equity

 

 

 

 

 

 

 

 

 

Members’ equity

 

484,940

 

3,333

 

(1,925

)

486,348

 

Common stock

 

 

2,000

 

(2,000

)

 

Additional paid-in capital

 

 

23,700

 

(23,700

)

 

Accumulated deficit

 

 

(1,408

)

 

(1,408

)

Accumulated comprehensive loss

 

(5,665

)

 

 

(5,665

)

 

 

479,275

 

27,625

 

(27,625

)

479,275

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and members’ equity

 

$

1,736,192

 

$

507,854

 

$

(177,645

)

$

2,066,401

 

 

10



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

2.                   PLANNED MERGER WITH RITE AID CORPORATION (continued)

 

 

 

Condensed Consolidating Statement of Cash Flows

 

 

 

For the Three Months Ended March 31, 2015 (Unaudited)

 

 

 

(in thousands)

 

 

 

Guarantors

 

Non-Guarantor

 

Eliminations

 

Total

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

15,786

 

$

(1,877

)

$

 

$

13,909

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Acquisitions of property and equipment

 

(891

)

 

 

(891

)

Proceeds from sale (purchase) of property and equipment from related party

 

(198

)

198

 

 

 

Investment in intangible assets

 

(2,057

)

 

 

(2,057

)

Purchases of investments, net

 

 

(157

)

 

(157

)

Issuance of related party note receivable

 

(15,000

)

 

15,000

 

 

Net cash provided by (used in) investing activities

 

(18,146

)

41

 

15,000

 

(3,105

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Payments of principal on long-term debt

 

(1,625

)

 

 

(1,625

)

Proceeds from issuance of related party note payable

 

 

15,000

 

(15,000

)

 

Payoff of interest rate swaps

 

(7,076

)

 

 

(7,076

)

Net cash provided by (used in) financing activities

 

(8,701

)

15,000

 

(15,000

)

(8,701

)

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(11,061

)

13,164

 

 

2,103

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents — beginning of year

 

94,515

 

19,507

 

 

114,022

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents — end of year

 

$

83,454

 

$

32,671

 

$

 

$

116,125

 

 

 

 

Condensed Consolidating Statement of Cash Flows

 

 

 

For the Three Months Ended March 31, 2014 (Unaudited)

 

 

 

(in thousands)

 

 

 

Guarantors

 

Non-Guarantor

 

Eliminations

 

Total

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

$

(29,459

)

$

6,361

 

$

 

$

(23,098

)

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Acquisitions of property and equipment

 

(375

)

 

 

(375

)

Investment in intangible assets

 

(1,841

)

 

 

(1,841

)

Net cash provided by (used in) investing activities

 

(2,216

)

 

 

(2,216

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Payments of principal on long-term debt

 

(1,333

)

 

 

(1,333

)

Capital contributions

 

1,670

 

 

 

1,670

 

Distributions

 

(29

)

 

 

(29

)

Net cash provided by (used in) financing activities

 

308

 

 

 

308

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(31,367

)

6,361

 

 

25,006

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents — beginning of period

 

65,555

 

14,407

 

 

79,962

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents — end of period

 

$

34,188

 

$

20,768

 

$

 

$

54,956

 

 

11



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

3.                   EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)

 

The Company uses EBITDA as a primary measurement of the Company’s earnings. The Company’s consolidated EBITDA for the three months ended March 31, 2015 and 2014 is summarized as follows (in thousands):

 

 

 

2015

 

2014

 

Net income

 

$

3,248

 

$

3,227

 

Interest expense

 

21,312

 

11,181

 

Other expenses

 

27

 

69

 

Provision for (benefit from)

 

 

 

 

 

Federal income taxes

 

954

 

33

 

Depreciation and amortization

 

9,067

 

6,971

 

 

 

 

 

 

 

EBITDA

 

$

34,608

 

$

21,481

 

 

EBITDA shown in the table above has not been adjusted to remove non-recurring and/or non- operating items included in income from operations.

 

4.                   INVESTMENTS

 

At March 31, 2015 and December 31, 2014, 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 March 31, 2015 and December 31, 2014 were as follows (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

Amortized cost

 

$

6,697

 

$

6,564

 

Gross unrealized gains

 

37

 

12

 

 

 

 

 

 

 

Estimated fair value

 

$

6,734

 

$

6,576

 

 

Contractual maturities of held-to-maturity securities at March 31, 2015 for the remainder of fiscal year 2015 and thereafter are as follows (in thousands):

 

 

 

March 31,

 

 

 

2015

 

Due in one year or less

 

$

1,930

 

Due after one year but less than five years

 

4,767

 

 

 

$

6,697

 

 

12



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

5.                   INTANGIBLE ASSETS

 

The following is a summary of the intangible assets that are presented in the accompanying condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014 (in thousands):

 

 

 

March 31, 2015

 

Description 

 

Cost

 

Accumulated
Amortization

 

Net Carrying
Value

 

Subject to amortization:

 

 

 

 

 

 

 

 

 

 

Backlog

 

$

19,500

 

$

9,154

 

$

10,346

 

Claims adjudication software

 

20,500

 

3,481

 

17,019

 

Computer software development

 

13,645

 

2,544

 

11,101

 

Customer relationships

 

395,600

 

15,497

 

380,103

 

Other intangibles

 

5,521

 

1,917

 

3,604

 

Non-compete agreements

 

12,938

 

4,699

 

8,239

 

Pharmacy benefit management accreditation license

 

 176

 

 89

 

 87

 

Patents

 

11,200

 

1,126

 

10,074

 

Trademarks

 

36,400

 

855

 

35,545

 

 

 

$

515,480

 

$

39,362

 

$

476,118

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

State insurance license costs

 

 

 

 

 

177

 

CMS license

 

 

 

 

 

186,600

 

Trademarks

 

 

 

 

 

51,700

 

 

 

 

 

 

 

238,477

 

 

 

 

 

 

 

$

714,595

 

 

 

 

December 31, 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

 

Balance to next page

 

$

513,423

 

$

31,028

 

$

482,395

 

 

13



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

5.                   INTANGIBLE ASSETS (continued)

 

 

 

March 31, 2014

 

 

 

 

 

Accumulated

 

Net Carrying

 

Description

 

Cost

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

Balance from previous page

 

$

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

 

 

6.                   LINE OF CREDIT AND LONG-TERM DEBT

 

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).

 

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 March 31, 2015 and December 31, 2014, 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 March 31, 2015 and December 31, 2014.

 

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.

 

14



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

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

 

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.

 

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.

 

At March 31, 2015 and December 31, 2014, long-term debt consisted of the following (in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

1st Lien Term Loan payable to a lender group in quarterly installments of principal of $1.3 million plus variable interest (5.75% at March 31, 2015 and December 31, 2014) with a balloon payment in November 2020; collateralized by a first lien on substantially all assets of the Company (other than the assets of EIC) and a pledge of the stock of each of the Company’s subsidiaries (other than EIC); outstanding amount as of March 31, 2015 and December 31, 2014, is net of original issue discount of $3.9 million and $4.1 million, respectively

 

$

519,069

 

$

520,244

 

Balance to next page

 

519,069

 

520,244

 

 

15



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

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

 

 

 

March 31,

 

December 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Balance from previous page

 

$

519,069

 

$

520,244

 

 

 

 

 

 

 

2nd Lien Term Loan payable to a lender group in-full at maturity in November 2021 with variable interest (9.75% at March 31, 2015 and December 31, 2014) payable quarterly; collateralized bya second lien on substantially all assets of the Company (other than the assets of EIC) and a pledge of the stock of each of the Company’s subsidiaries (other than EIC); outstanding amount as of March 31, 2015 and December 31, 2014, is net of original issue discount of $3.3 million and $3.4 million, respectively

 

221,694

 

221,607

 

 

 

 

 

 

 

Capital leases payable to various vendors expiring in various years through 2017; collateralized by certain equipment and a vehicle

 

1,369

 

1,667

 

 

 

742,132

 

743,518

 

Less: Current portion

 

(5,132

)

(5,262

)

 

 

 

 

 

 

 

 

$

737,000

 

$

738,256

 

 

Future maturities of long-term debt for the remainder of fiscal year 2015 and thereafter are as follows (in thousands):

 

YEAR ENDING

 

 

 

DECEMBER 31,

 

 

 

2015

 

$

3,876

 

2016

 

4,845

 

2017

 

4,335

 

2018

 

4,108

 

2019

 

4,022

 

Thereafter

 

720,946

 

 

 

 

 

 

 

$

742,132

 

 

16



 

 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

7.                   CAPITALIZATION

 

The following table sets forth the fully vested Class A Units and Class B Units of Topco as of March 31, 2015 and December 31, 2014:

 

 

 

 

 

 

 

Total Class A

 

 

 

Class A

 

Class B

 

and Class B

 

 

 

Units

 

Units

 

Units

 

Issued and outstanding at March 31, 2015 and December 31, 2014

 

330,336,308

 

166,643,310

 

496,979,618

 

 

All Class A Units and Class B Units outlined in the table above were issued in exchange for an actual or deemed cash contribution to Topco of either $1.00 per Unit or $1.04 per Unit, which represented fair market value at the date of issuance.

 

Class B Units are subject to certain restrictions not imposed upon the Class A Units owned by the Sponsor. Such restrictions include limitations on transfer, such as (i) requisite holding periods, (ii) non-transferability to competitors, (iii) drag-along covenants imposed by, and rights of first offer in favor of, the Sponsor, (iv) call rights in favor of Topco in certain circumstances, and (v) lock-up periods which may be different than those imposed on Class A Units in the event of a public offering of Envision Holdings’ or Topco’s securities. Class A Units not owned by the Sponsor are similarly subject to the restrictions outlined in (iii) and (iv) of the previous sentence. In addition, owners of Class B Units are essentially restricted in their activities to being an investment vehicle in Topco, and may not perform certain business functions (including incurring indebtedness, redeeming equity outside of the parameters of the Limited Liability Company Agreement of Topco or issuing additional securities).

 

In connection with the acquisition of Laker on November 26, 2013, 12 Laker employees were granted a total of 1,999,992 phantom units of Topco (the Phantom Units) (166,666 Phantom Units each). The Phantom Units are the economic equivalent of Class B Units of Topco, and vest as follows: (i) 0.5 million vested on November 26, 2014, (ii) 0.5 million on November 26, 2015 (subject to continuing employment) and (iii) 1.0 million immediately upon a qualifying liquidity event (subject to continuing employment) in which the Sponsor receives a multiple of money of at least 3.0 times its initial investment.  The Phantom Units are not reflected in the table set forth above.

 

The following table sets forth the Class C-1 Units of Topco (the Class C-1 Units) and the Class C-2 Units of Topco (the Class C-2 Units) as of March 31, 2015 and December 31, 2014:

 

 

 

 

 

 

 

Total Class C-1

 

 

 

Class C-1

 

Class C-2

 

and Class C-2

 

 

 

Units

 

Units

 

Units

 

Granted and outstanding at March 31, 2015 and December 31, 2014

 

15,145,000

 

16,895,000

 

32,040,000

 

 

17



 

 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

7.                   CAPITALIZATION (continued)

 

As outlined in the table above, in 2014 certain employees and certain members of Topco’s board of directors were granted 2,360,000 Class C-1 Units at a $1.04 per Unit hurdle rate and 2,360,000 Class C-2 Units at a $1.04 per Unit hurdle rate, which represented fair market value at the date of grant. All Class C-1 Units vest (subject to continuing employment) 20% per year on each of the first five anniversaries of the Acquisition Date (or first five anniversaries of the date of grant for Class C-1 Units grants subsequent to December 18, 2013). Except as outlined in the next sentence, Class C-2 Units vest (subject to continuing employment) 20% per year from 2014 through 2018 if the Company achieves a target-level of EBITDA established annually by Topco’s board of directors. A certain amount of Class C-2 Units granted to a member of Topco’s board of directors vest only upon a qualifying liquidity event in which the Sponsor receives a multiple of money of at least 3.0 times its initial investment. All Class C-2 Units immediately vest in full (subject to continuing employment) upon a qualifying liquidity event in which the Sponsor receives a multiple of money of at least 3.5 times its initial investment. All Class C-1 Units and Class C-2 Units are intended to represent “Profits Interests” in Topco within the meaning of IRS Revenue Procedure 93-27 (June 9, 1993) and IRS Revenue Procedure 2001-43 (August 3, 2001), and will not receive distributions from Topco (other than certain tax distributions) until such time as the holders of Class A Units and Class B Units have received their unreturned capital contributions from Topco.

 

In accordance with the terms of the Merger Agreement summarized in Note 2, all Phantom Units, Class C-1 Units and Class C-2 Units outstanding on the Closing date will be paid-out in connection with the Closing as if fully vested.

 

8.                   RELATED PARTY TRANSACTIONS

 

Pursuant to a management services agreement with TPG VI Management, LLC (Management), an affiliate of the Sponsor, and in exchange for on-going consulting and management advisory services provided to the Company, the Sponsor receives an annual monitoring fee of 1% of consolidated EBITDA.   For the three months ended March 31, 2015 and 2014, $285 thousand and $247 thousand, respectively, was recorded for monitoring fees and expenses and is included in general and administrative expenses in the consolidated statements of operations.

 

9.                   CONCENTRATIONS

 

The Company places its cash with regulated financial institutions. Balances with the financial institutions may exceed Federally insured limits.

 

10.            CONTINGENCIES

 

The Company is subject to various legal proceedings and claims that arise in the ordinary course of its business. In the opinion of management, the outcome of such current proceedings will not materially affect the Company’s operations, cash flows or financial position.

 

18



 

ENVISION TOPCO HOLDINGS, LLC AND SUBSIDIARIES

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

11.            DERIVATIVES AND OTHER COMPREHENSIVE INCOME

 

During the three months ended March 31, 2015, the Company paid off all of its interest rate swaps at their net fair value, which resulted in incremental interest expense of $7.1 million for the three months ended March 31, 2015. A credit for the net change was made to other comprehensive income (loss) for the three months ended March 31, 2015.

 

Balances of components comprising accumulated other comprehensive income (loss), included in members’ equity, at March 31, 2015 are as follows:

 

 

 

Interest

 

 

 

Rate

 

 

 

Swaps