PRSC Providence Service Corp

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

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FORM 8-K

 

CURRENT REPORT

 

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): November 5, 2015

 

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The Providence Service Corporation

(Exact name of registrant as specified in its charter)

 

Delaware		001-34221		86-0845127
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

64 East Broadway Blvd., Tucson, Arizona		85701
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code: (520) 747-6600

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

Item 2.01. Completion of Acquisition or Disposition of Assets

 

Effective November 1, 2015, The Providence Service Corporation (the “Company” or “Providence”) completed its previously reported sale to Molina Healthcare, Inc. (“Buyer”) of Providence Human Services, LLC and Providence Community Services, LLC, comprising Providence’s Human Services segment.

 

At closing, pursuant to the Membership Interest Purchase Agreement (the “Purchase Agreement”), dated September 3, 2015, by and among Providence, Ross Innovative Employment Solutions Corp. and the Buyer, the Buyer made a $200 million cash payment (prior to adjustments for estimated working capital, certain seller transaction costs, debt assumed by the Buyer, and a cash payment for the Providence Human Services cash and cash equivalents on hand at closing) for all membership interests in the entities comprising Providence’s Human Services segment.

 

The Purchase Agreement was previously filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Securities Exchange Commission on September 8, 2015.

 

Item 9.01 Financial Statements and Exhibits 

 

(b)

Pro Forma Financial Information

 

The unaudited pro forma condensed consolidated balance sheet of Providence and its subsidiaries as of June 30, 2015 and the unaudited pro forma condensed consolidated statements of income of Providence and its subsidiaries for the six months ended June 30, 2015 and the years ended December 31, 2014, 2013 and 2012 and the related notes thereto, are presented to give effect to the disposition of Providence Human Services, LLC and Providence Community Services LLC, and are filed as Exhibit 99.1 to this Current Report on Form 8-K and are incorporated herein by reference.

 

(d)      Exhibits

 

2.1	Amendment to Membership Interest Purchase Agreement dated as of October 30, 2015
99.1	The unaudited pro forma condensed consolidated balance sheet as of June 30, 2015 of Providence and its subsidiaries and the unaudited pro forma condensed consolidated statement of income of Providence and its subsidiaries for the six months ended June 30, 2015 and the years ended December 31, 2014, 2013 and 2012 giving effect to Providence’s disposition of Providence’s Human Services segment.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		THE PROVIDENCE SERVICE CORPORATION
Date: November 5, 2015		By:		/s/ David Shackelton
		Name:		David Shackelton
		Title:		Chief Financial Officer

 

Exhibit 2.1

 

 

AMENDMENT TO MEMBERSHIP INTEREST PURCHASE AGREEMENT

 

 

This Amendment to Membership Interest Purchase Agreement (this “Amendment”) is made and entered into as of October 30, 2015, by and among The Providence Service Corporation, a Delaware corporation (“PSC”), Ross Innovative Employment Solutions Corp., a Delaware Corporation (“Ross”, and together with PSC, each a “Seller” and together, the “Sellers”), and Molina Pathways, LLC, a Delaware limited liability company (“Buyer”) as assignee of all rights and obligations of Molina Healthcare, Inc., a Delaware corporation (“Molina”).

 

WHEREAS, the Sellers and Molina entered into that certain Membership Interest Purchase Agreement (the “Purchase Agreement”), dated as of September 3, 2015;

 

WHEREAS, pursuant to that certain Assignment and Assumption Agreement, dated as of October 29, 2015, by and between Molina and Buyer, Molina assigned all of its rights and obligations under the Purchase Agreement to Buyer;

 

WHEREAS, the Sellers and Buyer have agreed, pursuant to Section 10.5 of the Purchase Agreement, to amend the Purchase Agreement as provided in this Amendment; and

 

WHEREAS, all capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement.

 

NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and incorporating the recitals set forth above, the parties hereto hereby agree as follows:

 

1.             Certain Intercompany Obligations. Notwithstanding anything to the contrary in the Purchase Agreement, no Intercompanies between or among the Acquired Companies arising in the ordinary course of business consistent with past practice on or after October 15, 2015 through the Closing will be taken into account when determining Indebtedness of the Acquired Companies, the Estimated Purchase Price, Purchase Price or Final Purchase Price.

 

2.             Defined Terms: Any reference to the defined term “Real Property Representations” in the Purchase Agreement is hereby amended and restated to read in its entirety as “Real Estate Representations”.

 

3.             No Other Amendments: Except as otherwise expressly amended or modified hereby, all of the terms and conditions of the Purchase Agreement shall continue in full force and effect.

 

4.             Entire Agreement: This letter agreement and the Purchase Agreement together superseded any and all oral or written agreements and understandings heretofore made relating to the subject matter hereof and thereof and contain the entire agreement of the parties hereto relating to the subject matter hereof and thereof.

 

 

5.             Incorporation of Miscellaneous Provisions: This letter agreement shall be subject to the miscellaneous provisions contained in Article 10 of the Purchase Agreement, which are hereby incorporated by reference herein, mutatis mutandis.

 

6.             Counterparts: This letter agreement may be executed in two or more counterparts (including by means of facsimile or .pdf signature pages), each of which shall be deemed to constitute an original, but all of which together shall constitute one and the same document.

 

 

[Remainder of Page Intentionally Blank]

 

 

 

 

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed on its behalf as of the day and year first above written.

 

 

	THE PROVIDENCE SERVICE CORPORATION
	By:	/s/ James M. Lindstrom
		Name:	James N. Lindstrom
		Title:	CEO

 

 

 

	ROSS INNOVATIVE EMPLOYMENT SOLUTIONS CORP.
	By:	/s/ David Shackelton
		Name:	David Shackelton
		Title:	CFO

 

 

 

	MOLINA PATHWAYS, LLC
	By:	/s/ Terry Bayer
		Name:	Terry Bayer
		Title:	Manager

 

      

 

[Signature Page to Amendment to Membership Interest Purchase Agreement] 

Exhibit 99.1

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

The following unaudited pro forma condensed consolidated financial statements have been derived by the application of pro forma adjustments to the Company’s historical consolidated financial information, which have been presented to give effect to the disposition of Providence Human Services, LLC and Providence Community Services, LLC (Providence’s Human Services segment). The unaudited pro forma condensed consolidated balance sheet as of June 30, 2015 of Providence and its subsidiaries is presented as if the disposition had occurred as of June 30, 2015. The unaudited pro forma condensed consolidated statements of income of Providence and its subsidiaries for the six months ended June 30, 2015 and the years ended December 31, 2014, 2013, and 2012 are presented as if the disposition had occurred on January 1, 2012.

 

The Company’s historical financial information was derived from its audited consolidated financial statements for the years ended December 31, 2014, 2013 and 2012 (as filed in its Annual Report on Form 10-K with the Securities and Exchange Commission on March 16, 2015, March 14, 2014 and March 15, 2013, respectively) and the Company’s unaudited condensed consolidated financial statements for the six months ended June 30, 2015 (as filed in its Quarterly Report on Form 10-Q with the Securities and Exchange Commission on August 7, 2015). The Company’s historical financial statements used in preparing the unaudited pro forma financial data are summarized and should be read in conjunction with its historical financial statements and risk factors, all of which are included in the filings with the Securities and Exchange Commission noted above.

 

The unaudited pro forma adjustments are based on estimates, available information and certain assumptions that the Company believes are reasonable. The unaudited pro forma adjustments and primary assumptions are described in the accompanying notes. The unaudited pro forma condensed consolidated balance sheet and statements of income are being provided for illustrative purposes only and do not purport to represent what our results of operations or financial position would have been if the transaction had occurred on the dates indicated and are not intended to project our results of operations or financial position for any future period. Any of the factors underlying these estimates and assumptions may change or prove to be materially different and the estimates and assumptions may not be representative of facts that existed upon completion of the disposition.

 

 

The Providence Service Corporation

Pro Forma Condensed Consolidated Balance Sheet - Unaudited

June 30, 2015

(in thousands)

 

		Providence Service Corporation Historical				Disposition of Providence Human Services				Pro Forma Adjustments					Pro Forma
Assets
Current assets:
Cash and cash equivalents		$	145,161			$	(16,967	)		$	104,314		c		$	232,508
Accounts receivable, net			211,741				(46,741	)			-					165,000
Other current assets			61,919				(6,624	)			-					55,295
Total current assets			418,821				(70,332	)			104,314					452,803
Goodwill			358,483				(13,344	)			-					345,139
Intangible assets, net			321,535				(14,833	)			-					306,702
Other non-current assets			118,205				(17,204	)			10,000		f			111,001
Total assets		$	1,217,044			$	(115,713	)		$	114,314				$	1,215,645
Liabilities and stockholders' equity
Current liabilities:
Accrued expenses		$	127,722			$	(19,245	)		$	19,119		d		$	127,596
Other current liabilities			193,212				(4,434	)			-					188,778
Total current liabilities			320,934				(23,679	)			19,119					316,374
Long-term obligations, less current portion			458,667				-				(97,347	)	c			361,320
Other non-current liabilities			116,636				3,274				-					119,910
Total liabilities			896,237				(20,405	)			(78,228	)				797,604
Mezzanine equity
Convertible preferred stock, net			77,719				-				-					77,719
Stockholders' equity
Common stock and APIC			270,044				-				-					270,044
Other stockholders' equity			(26,956	)			-				97,234		e			70,278
Total stockholders' equity			243,088				-				97,234					340,322
Total liabilities and stockholders' equity		$	1,217,044			$	(20,405	)		$	19,006				$	1,215,645

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

 

  

The Providence Service Corporation

Pro Forma Condensed Consolidated Statements of Income

for the six months ended June 30, 2015

Unaudited

(in thousands, except share and per share data)

 

		Providence Service Corporation Historical				Disposition of Providence Human Services				Pro Forma Adjustments					Pro Forma
Service revenue, net		$	1,014,046			$	(175,979	)		$	-				$	838,067
Operating expenses:
Service expense			893,926				(155,820	)			-					738,106
General and administrative expense			48,000				(9,937	)			(206	)	a			37,857
Depreciation and amortization			29,857				(3,613	)			-					26,244
Total operating expenses			971,783				(169,370	)			(206	)				802,207
Operating income			42,263				(6,609	)			206					35,860
Other expenses:
Interest expense, net			10,552				29				(1,671	)	b			8,910
Loss on equity investment			3,542				-				-					3,542
(Gain) Loss on foreign currency translation			(395	)			-				-					(395	)
Income before income taxes			28,564				(6,638	)			1,877					23,803
Provision for income taxes			15,693				(2,782	)			746					13,657
Net income		$	12,871			$	(3,856	)		$	1,131				$	10,146
Net income available to common stockholders		$	9,243												$	6,750
Earnings per common share:
Basic		$	0.58												$	0.42
Diluted		$	0.57												$	0.42
Weighted-average number of common shares outstanding:
Basic			16,036,959													16,036,959
Diluted			16,193,372													16,193,372

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

 

   

The Providence Service Corporation

Pro Forma Condensed Consolidated Statements of Income

for the twelve months ended December 31, 2014

Unaudited

(in thousands, except share and per share data)

 

		Providence Service Corporation Historical				Disposition of Providence Human Services				Pro Forma Adjustments					Pro Forma
Service revenue, net		$	1,481,171			$	(344,960	)		$	-				$	1,136,211
Operating expenses:
Service expense			1,338,793				(315,008	)			-					1,023,785
General and administrative expense			63,635				(19,134	)			-					44,501
Depreciation and amortization			29,488				(6,655	)			-					22,833
Asset impairment charge			6,915				(6,915	)			-					-
Total operating expenses			1,438,831				(347,712	)			-					1,091,119
Operating income			42,340				2,752				-					45,092
Other expense:
Interest expense, net			14,600				41				(1,519	)	b			13,122
Gain on foreign currency translation			(37	)			-				-					(37	)
Income before income taxes			27,777				2,711				1,519					32,007
Provision for income taxes			7,502				(16	)			604					8,090
Net income		$	20,275			$	2,727			$	915				$	23,917
Earnings per common share:
Basic		$	1.37												$	1.62
Diluted		$	1.35												$	1.59
Weighted-average number of common shares outstanding:
Basic			14,765,303													14,765,303
Diluted			15,018,561													15,018,561

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

 

  

The Providence Service Corporation

Pro Forma Condensed Consolidated Statements of Income

for the twelve months ended December 31, 2013

Unaudited

(in thousands, except share and per share data)

 

		Providence Service Corporation Historical				Disposition of Providence Human Services				Pro Forma
Service revenue, net		$	1,122,682			$	(323,916	)		$	798,766
Operating expenses:
Service expense			1,020,051				(283,382	)			736,669
General and administrative expense			48,633				(23,043	)			25,590
Depreciation and amortization			14,872				(5,541	)			9,331
Asset impairment charge			492				(492	)			-
Total operating expenses			1,084,048				(312,458	)			771,590
Operating income			38,634				(11,458	)			27,176
Other expense:
Interest expense, net			6,894				27				6,921
Loss on extinguishment of debt			525				-				525
Income before income taxes			31,215				(11,485	)			19,730
Provision for income taxes			11,777				(5,152	)			6,625
Net income		$	19,438			$	(6,333	)		$	13,105
Earnings per common share:
Basic		$	1.44							$	0.97
Diluted		$	1.41							$	0.95
Weighted-average number of common shares outstanding:
Basic			13,499,885								13,499,885
Diluted			13,809,874								13,809,874

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

 

  

The Providence Service Corporation

Pro Forma Condensed Consolidated Statements of Income

for the twelve months ended December 31, 2012

Unaudited

(in thousands, except share and per share data)

 

		Providence Service Corporation Historical				Disposition of Providence Human Services				Pro Forma
Service revenue, net		$	1,105,889			$	(328,879	)		$	777,010
Operating expenses:
Service expense			1,010,776				(278,534	)			732,242
General and administrative expense			53,383				(26,372	)			27,011
Depreciation and amortization			15,023				(5,417	)			9,606
Asset impairment charge			2,506				-				2,506
Total operating expenses			1,081,688				(310,323	)			771,365
Operating income			24,201				(18,556	)			5,645
Other expense:
Interest expense, net			7,508				5				7,513
Income before income taxes			16,693				(18,561	)			(1,868	)
Provision for income taxes			8,211				(7,717	)			494
Net income		$	8,482			$	(10,844	)		$	(2,362	)
Earnings per common share:
Basic		$	0.64							$	(0.18	)
Diluted		$	0.64							$	(0.18	)
Weighted-average number of common shares outstanding:
Basic			13,225,448								13,225,448
Diluted			13,354,613								13,225,448

 

 

The accompanying notes are an integral part of these unaudited pro forma condensed consolidated financial statements.

 

  

The Providence Service Corporation

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

(in thousands)

 

1.	Description of the transactions and basis of presentation

 

 

Description of the Transaction

 

Effective November 1, 2015, The Providence Service Corporation (the “Company” or “Providence”) along with Ross Innovative Employment Solutions Corp. (“Ross” and, collectively with Providence, the “Sellers”) completed the sale of Providence Human Services, LLC and Providence Community Services, LLC, comprising Providence’s Human Services segment, to Molina Healthcare, Inc. (“Buyer”) pursuant to a Membership Interest Purchase Agreement (the “Purchase Agreement”), dated September 3, 2015.

 

Pursuant to the Purchase Agreement, Buyer paid to Providence on November 2, 2015 a purchase price comprised of a $200,000 cash payment (prior to adjustments for estimated working capital, certain seller transaction costs, debt assumed by the Buyer, and a cash payment for the Providence Human Services cash and cash equivalents on hand at closing), (the “Transaction”). The Company intends to use 50% of the net cash proceeds, as further defined below, from the Transaction to fund a prepayment of revolving loans under its existing credit facility. Subject to additional management evaluation of market and business conditions, share price and other factors and evaluation and approval of the Board of Directors, the remaining proceeds of the Transaction may be used for acquisitions, investments in the long-term development of the Company’s other segments and the return of capital to stockholders through a stock repurchase program.

 

Additionally, on September 3, 2015, Providence entered into the Third Amendment and Consent to the Amended and Restated Credit and Guaranty Agreement (the “Amendment”) amending its Amended and Restated Credit and Guaranty Agreement, previously amended by that certain First Amendment dated May 28, 2014 and Second Amendment dated October 23, 2014 by and among Providence, certain domestic subsidiaries of Providence, Bank of America, as administrative agent, and the other lenders party thereto (as amended to date, the “Credit Agreement”). Pursuant to the Amendment, the lenders under the Credit Agreement consented to Providence’s sale of its Human Services segment pursuant to the Transaction and the use by Providence of 50% of the net cash proceeds of the Transaction to make restricted payments to repurchase common stock pursuant to the Providence stock repurchase program, provided that a minimum amount equal to 50% of the net cash proceeds, as defined in the Credit Agreement, of the Transaction would be applied pro rata to the prepayment of revolving loans and swingline loans under the Credit Agreement. The Amendment provides for appropriate amendments to the terms of the Credit Agreement to reflect such consents. The Credit Facility defines “net cash proceeds” to include cash proceeds or cash equivalents actually received in a disposition such as the Transaction, net of direct costs incurred, taxes paid or payable as a result of the disposition, the amount of required payments on indebtness as a result of the disposition, and the amount of any reasonable reserve established in accordance with generally accepted accounting principles for contingency payments, such as indemnification obligations.

 

Basis of Presentation

 

The unaudited pro forma condensed consolidated financial statements have been prepared based on the Company’s historical financial information giving effect to the disposition of Providence’s Human Services segment and related adjustments described in these notes. Certain note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted as permitted by the SEC rules and regulations.

 

2.	Pro forma adjustments to unaudited condensed consolidated financial statements

 

a.

Adjustment to remove transaction expenses recorded during the six months ended June 30, 2015.

 

b.

Adjustment to remove interest expense related to the portion of the revolving credit facility that was required by the Company’s lenders to be repaid upon sale of Providence’s Human Services segment. The portion of the revolving credit facility required by the Company’s lenders to be repaid upon sale of the Human Services segment is estimated to be $97,347.

 

c.

Adjustment of $97,347 to reflect the 50% of cash consideration of $194,694 from the Providence Human Services disposition, net of estimated seller transaction costs, estimated working capital adjustments, and debt assumed by Buyer required by the Company’s lenders to pay outstanding credit facility obligations; less an adjustment of $10,000 to reflect the portion of the closing cash consideration held in indemnity escrow (refer to Note f.); plus an adjustment of $16,967 to reflect the amount of Providence Human Services cash and cash equivalents as of June 30, 2015 purchased by the Buyer at closing. As a closing accommodation, Providence and Buyer agreed that Providence would not remove the Providence Human Services cash and cash equivalents on hand and that Buyer would pay Providence for this amount at closing (refer to Note e.).

 

d.

Adjustments to record the estimated income tax impacts related to the Providence Human Services disposition.

 

e.

Adjustment to reflect the estimated gain on sale, net of tax, from the Providence Human Services disposition is calculated as follows:

 

 

Purchase price		$	200,000
Add: Estimated working capital adjustments			3,883
Less: Debt assumed by Buyer			(600	)
Less: Estimated seller transaction costs			(8,589	)
Cash consideration, net of adjustments and before cash and cash equivalents acquired			194,694
Add: Cash paid for Providence Human Services cash and cash equivalents as of June 30, 2015			16,967	c
Total cash received, including cash held in indemnity escrow			211,661
Providence Human Services net book value as of June 30, 2015, excluding cash and cash equivalents			78,341
Add: Providence Human Services cash and cash equivalents as of June 30, 2015			16,967	c
Total Providence Human Services net book value as of June 30, 2015			95,308
Estimated pre-tax gain			116,353
Provision for income taxes			19,119
Estimated gain on sale, net of tax		$	97,234

 

 

f.

Adjustment of $10,000 to reflect the portion of the closing cash consideration held in indemnity escrow for the benefit of Providence.