Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 (1)
(In thousands, except for per share amounts)
American Public Education, Inc. | Rasmussen, LLC Adjusted (Note 4) | Transaction accounting adjustments | Notes | Other transaction accounting adjustments | Notes | Pro Forma Combined | ||||||||||||||||||
Revenue | $ | 264,803 | $ | 182,181 | $ | - | $ | - | $ | 446,984 | ||||||||||||||
Costs and expenses | - | |||||||||||||||||||||||
Instructional costs and services | 105,257 | 70,851 | - | - | 176,108 | |||||||||||||||||||
Selling and promotional | 60,350 | 43,294 | - | - | 103,644 | |||||||||||||||||||
General and administrative | 75,579 | 39,205 | - | - | 114,784 | |||||||||||||||||||
Loss on disposals of long-lived assets | 182 | - | - | - | 182 | |||||||||||||||||||
Depreciation and amortization | 9,561 | 13,831 | 818 | 7(a) | - | 24,210 | ||||||||||||||||||
Total costs and expenses | 250,929 | 167,181 | 818 | - | 418,928 | |||||||||||||||||||
Income from operations before interest expense, interest income and income taxes | 13,874 | 15,000 | (818 | ) | - | 28,056 | ||||||||||||||||||
Interest (expense) income | (1,167 | ) | (1,926 | ) | - | (6,950 | ) | 7(b) | (10,043 | ) | ||||||||||||||
Income from operations before income taxes | 12,707 | 13,074 | (818 | ) | (6,950 | ) | 18,013 | |||||||||||||||||
Income tax expense (benefit) | 3,509 | - | 1,445 | 7(c) | - | 4,954 | ||||||||||||||||||
Equity investment loss | (827 | ) | - | - | (827 | ) | ||||||||||||||||||
Net income | $ | 8,371 | $ | 13,074 | $ | (2,263 | ) | $ | (6,950 | ) | $ | 12,232 | ||||||||||||
Net income per common share: | ||||||||||||||||||||||||
Basic | $ | 0.47 | $ | 0.70 | ||||||||||||||||||||
Diluted | $ | 0.46 | $ | 0.82 | ||||||||||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||||||||||
Basic | 17,874 | 17,454 | ||||||||||||||||||||||
Diluted | 18,048 | 14,948 |
(1) | The unaudited pro forma condensed combined statement of income for the nine months ended September 30, 2021 includes the historical results of Rasmussen, LLC for the eight month period January 1, 2021 through August 31, 2021 which was derived from Rasmussen's internal financial statements. |
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2020
(In thousands, except for per share amounts)
American Public Education, Inc. | Rasmussen, LLC Adjusted (Note 4) | Transaction accounting adjustments | Notes | Other transaction accounting adjustments | Notes | Pro Forma Combined | ||||||||||||||||||
Revenue | $ | 321,785 | $ | 261,545 | $ | - | $ | - | $ | 583,330 | ||||||||||||||
Costs and expenses | - | |||||||||||||||||||||||
Instructional costs and services | 122,161 | 107,812 | - | 229,973 | ||||||||||||||||||||
Selling and promotional | 72,989 | 68,368 | - | 141,357 | ||||||||||||||||||||
General and administrative | 88,043 | 40,931 | - | - | 128,974 | |||||||||||||||||||
Loss on disposals of long-lived assets | 851 | - | - | 851 | ||||||||||||||||||||
Depreciation and amortization | 12,984 | 20,137 | 2,099 | 7(a) | - | 35,220 | ||||||||||||||||||
Total costs and expenses | 297,028 | 237,248 | 2,099 | - | 536,375 | |||||||||||||||||||
Income from operations before interest expense, interest income and income taxes | 24,757 | 24,297 | (2,099 | ) | - | 46,955 | ||||||||||||||||||
Interest expense | - | 3,573 | - | 8,859 | 7(b) | 12,432 | ||||||||||||||||||
Interest income, net | 1,092 | 86 | - | - | 1,178 | |||||||||||||||||||
Income from operations before income taxes | 25,849 | 20,810 | (2,099 | ) | (8,859 | ) | 35,701 | |||||||||||||||||
Income tax expense (benefit) | 7,020 | - | 2,798 | 7(c) | - | 9,818 | ||||||||||||||||||
Equity investment loss | (7 | ) | - | - | - | (7 | ) | |||||||||||||||||
Net income | $ | 18,822 | $ | 20,810 | $ | (4,897 | ) | $ | (8,859 | ) | $ | 25,876 | ||||||||||||
Net income per common share: | ||||||||||||||||||||||||
Basic | $ | 1.27 | - | $ | 1.74 | |||||||||||||||||||
Diluted | $ | 1.25 | - | $ | 1.72 | |||||||||||||||||||
Weighted average number of shares outstanding: | ||||||||||||||||||||||||
Basic | 14,876 | - | 14,876 | |||||||||||||||||||||
Diluted | 15,047 | - | 15,047 |
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On September 1, 2021, American Public Education, Inc. (“APEI”) completed its previously announced acquisition of Rasmussen University (the "Acquisition"), a nursing- and health sciences-focused institution serving over 18,000 students at its 23 campuses across six states and online. The Acquisition was completed pursuant to a Membership Interest Purchase Agreement (the "Purchase Agreement") dated October 28, 2020, by and among APEI, FAH Education, LLC (“Seller”), Rasmussen, LLC (“Rasmussen”), and Rasmussen College, LLC, a wholly owned subsidiary of Rasmussen ("Rasmussen College").
Pursuant to the Purchase Agreement, on the Closing Date, the Company purchased from Seller all membership interests in Rasmussen for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, and net of cash acquired, of $325.5 million in cash. Upon completion of the Rasmussen Acquisition, Rasmussen merged into Rasmussen College and Rasmussen College became a wholly owned subsidiary of the Company
The unaudited pro forma condensed combined statements of income for the year ended December 31, 2020 and nine months ended September 30, 2021 give pro forma effect to the Acquisition as if it had occurred on January 1, 2020. An unaudited pro forma balance sheet has not been presented as the Acquisition has already been fully reflected in the condensed consolidated balance sheet included in the Company's Quarterly Report on Form 10-Q for the nine months ended September 30, 2021, filed on November 8, 2021. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X.
The unaudited pro forma condensed combined financial information is based on and should be read in conjunction with the audited and unaudited historical financial statements of both APEI and Rasmussen and the notes thereto, as well as the disclosures contained in the section titled "Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021.
The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what APEI's and Rasmussen's combined financial condition or results of operations would have been had the Acquisition occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of APEI. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed. The pro forma condensed combined financial statements do not include the realization of future cost savings or synergies, integration-related costs to achieve those potential cost savings or restructuring charges that may occur following the Acquisition.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1—Basis of presentation
APEI accounts for its acquisition of Rasmussen using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, with APEI being the accounting acquirer. ASC 805 requires, among other things the fair value concepts defined in ASC Topic 820, Fair Value Measurements and Disclosures.
The pro forma adjustments reflect preliminary estimates of the fair value of the consideration transferred, the assets acquired and the liabilities assumed, which may change upon finalization of valuation studies. The transaction accounting adjustments for the Acquisition consist of those necessary to account for the Acquisition. The adjustments related to the issuance of debt are shown in a separate column as other transaction accounting adjustments. The final adjustments could be materially different from the pro forma adjustments presented herein. The unaudited pro forma condensed combined statements of income include certain accounting adjustments related to the Acquisition that are expected to have a continuing impact on the combined results, such as increased amortization of the acquired intangible assets.
Under ASC 805, acquisition-related transaction costs (such as costs of services of lawyers, investment bankers, and accountants) are not included as a component of consideration transferred. Such costs are expensed in the statements of income in the periods incurred. Transaction costs that have been already recognized in the historical financial statements of APEI and Rasmussen have not been eliminated in the pro forma condensed combined financial statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 2 - Estimated consideration and preliminary purchase price allocation
Estimated consideration was approximately $330.7 million including working capital adjustments and cash contributed at closing. Using the estimated consideration for the Acquisition, APEI has estimated the allocations to such assets and liabilities. The following table summarizes the components of the estimated consideration along with preliminary purchase price allocation:
Cash | $ | 329,000 | ||
Working capital adjustment and additional cash contributions | 1,704 | |||
Total estimated consideration to be paid | 330,704 | |||
Assets acquired: | ||||
Cash and cash equivalents | 5,200 | |||
Accounts receivable | 10,700 | |||
Prepaid expenses | 4,600 | |||
Property and equipment, net | 36,996 | |||
Operating lease assets | 75,800 | |||
Deferred tax asset | 3,205 | |||
Intangible assets | 86,500 | |||
Other assets | 600 | |||
Total assets acquired | 223,601 | |||
Liabilities assumed: | ||||
Accounts payable | 1,200 | |||
Accrued expenses | 6,700 | |||
Deferred revenue | 22,700 | |||
Operating lease liabilities, current | 11,200 | |||
Operating lease liabilities, long-term | 67,000 | |||
Other liabilities | 1,300 | |||
Total liabilities assumed | 110,100 | |||
Net assets acquired | 113,501 | |||
Goodwill | $ | 217,203 |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 3 - Significant Accounting Policies
The accounting policies used in the preparation of this unaudited pro forma condensed combined financial information are those set out in APEI's audited financial statements as of and for the fiscal year ended December 31, 2020. The pro forma condensed combined financial statements may not reflect all the adjustments necessary to conform the accounting policies of Rasmussen to those of APEI as APEI is still in the process of analyzing the accounting policies of Rasmussen as compared to those of APEI.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 4 - APEI and Rasmussen pro forma condensed combined income statement reclassification adjustments
During the preparation of the pro forma condensed combined financial information, a preliminary analysis of Rasmussen's financial information was completed in order to identify differences in accounting policies and financial statement presentation when compared to APEI.
The following table illustrates the effect of various reclassification adjustments made to Rasmussen's income statements for the eight month period ended August 31, 2021, and for the fiscal year ended December 31, 2020.
Rasmussen, LLC Eight months ended August 31, 2021 | Reclassification (1) | Rasmussen, LLC Adjusted | ||||||||||
Revenue | $ | 182,181 | $ | - | $ | 182,181 | ||||||
Costs and expenses | ||||||||||||
Instructional costs and services | - | 70,851 | 70,851 | |||||||||
Instructional | 78,761 | (78,761 | ) | - | ||||||||
Selling and promotional | - | 43,293 | 43,293 | |||||||||
General and administrative | 34,116 | 5,090 | 39,206 | |||||||||
Admissions | 45,794 | (45,794 | ) | - | ||||||||
Depreciation and amortization | - | 13,831 | 13,831 | |||||||||
Total costs and expenses | 158,671 | 8,510 | 167,181 | |||||||||
Income from operations before interest and income taxes | 23,510 | (8,510 | ) | 15,000 | ||||||||
Investment income | 45 | (45 | ) | - | ||||||||
Interest (expense) income | - | (1,926 | ) | (1,926 | ) | |||||||
Amortization expense | 8,510 | (8,510 | ) | - | ||||||||
Interest expense | 1,971 | (1,971 | ) | - | ||||||||
Net income | $ | 13,074 | $ | (0 | ) | $ | 13,074 |
(1) | The purpose of these reclassifications is to align Rasmussen's presentation of its income statement to that of APEI. |
Rasmussen, LLC Year Ended December 31, 2020 | Reclassification (1) | Rasmussen, LLC Adjusted | ||||||||||
Revenue | $ | 261,545 | $ | - | $ | 261,545 | ||||||
Costs and expenses | ||||||||||||
Instructional costs and services | 107,812 | 107,812 | ||||||||||
Instructional | 107,812 | (107,812 | ) | - | ||||||||
Selling and promotional | - | 68,368 | 68,368 | |||||||||
General and administrative | 40,931 | - | 40,931 | |||||||||
Admissions | 68,368 | (68,368 | ) | - | ||||||||
Depreciation and amortization | 20,137 | - | 20,137 | |||||||||
Total costs and expenses | 237,248 | - | 237,248 | |||||||||
Income from operations before interest income and income taxes | 24,297 | - | 24,297 | |||||||||
Investment income | 86 | (86 | ) | - | ||||||||
Interest income, net | - | 86 | 86 | |||||||||
Interest expense | (3,573 | ) | - | (3,573 | ) | |||||||
Net income | $ | 20,810 | $ | - | $ | 20,810 |
(1) | The purpose of these reclassifications is to align Rasmussen's presentation of its income statement to that of APEI. |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 5 - Pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statements of Income for the nine month period ended September 30, 2021 and for the year ended December 31, 2020
This note should be read in conjunction with Note 1- Basis of Presentation and Note 2-Estimated Consideration and Preliminary Purchase Price Allocation. Adjustments included in the column under the heading 'Transaction accounting adjustments' and 'Other transaction accounting adjustments' represent the following:
Nine months ended September 30, 2021 | Year ended December 31, 2020 | |||||||||
Expenses | ||||||||||
7(a) | Transaction accounting adjustments to depreciation and amortization expense | |||||||||
Elimination of Rasmussen's amortization on intangibles | $ | (8,510 | ) | $ | (12,765) | |||||
Amortization of Rasmussen's intangibles at stepped up value | 10,278 | 15,417 | ||||||||
Elimination of Rasmussen's depreciation expense on property and equipment | (5,330 | ) | (7,123) | |||||||
Depreciation expense of Rasmussen's property and equipment at stepped up value | 4,380 | 6,570 | ||||||||
Total adjustments to depreciation and amortization expense | $ | 818 | $ | 2,099 | ||||||
7(b) | Other transaction accounting adjustments to interest expense: | |||||||||
Elimination of interest expense on Rasmussen's debt | $ | (1,971 | ) | $ | (3,573) | |||||
Interest expense on new debt (1) | 7,235 | 10,767 | ||||||||
Elimination of deferred financing costs-outstanding on Rasmussen's debt | - | (842 | ) | |||||||
Amortization of new debt issuance costs | 1,686 | 2,507 | ||||||||
Total adjustments to interest income (expense), net | $ | (6,950 | ) | $ | (8,859 | ) | ||||
7(c) | Transaction accounting adjustments to income tax expense: | |||||||||
To adjust for pro forma income tax expense that was calculated using APEI's effective tax rate of 27.5% | $ | 1,445 | $ | 2,798 |
(1) | Interest expense was calculated to be 6.25% (Adjusted LIBO Rate plus 5.5%, Adjusted LIBO Rate not being less than 0.75%). If the interest rate was increased or decreased by 1/8 of a percentage point, pro forma net income for the nine months ended September 30, 2021 would change by $1,060 and pro forma net income for the year ended December 31, 2020 would change by $1,577. |