THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING SUCH UNAUDITED PROSPECTIVE FINANCIAL INFORMATION ARE NO LONGER APPROPRIATE.
Catalyst Summary Unaudited Prospective Financial Information
Catalyst does not as a matter of course make public long-term projections as to future revenues, earnings or other results due to, among other reasons, the inherent uncertainty of such projections due to the uncertainties relating to the underlying assumptions and estimates on which the forecasts are based. However, in connection with the review of the proposed transactions with SXC, Catalyst management prepared unaudited prospective financial information for Catalyst on a stand-alone basis (the “Catalyst Projections”). Catalyst management provided the Catalyst board of directors only with the unaudited prospective financial information summarized in the first table below. The SXC board of directors was only provided with the unaudited adjusted prospective financial information summarized in the second table below. Catalyst is providing the summary unaudited prospective financial information summarized below solely to provide the stockholders of Catalyst and the shareholders of SXC access to certain non-public unaudited prospective financial information that was made available to the Catalyst board of directors and the SXC board of directors, as applicable, for purposes of considering and evaluating the transaction. The Catalyst Projections summarized in the first table below were used by the financial advisor of Catalyst and the Catalyst Projections summarized in the second table below were used by the financial advisors of SXC. See also the sections entitled “The Merger—Opinion of SXC’s Financial Advisors” and “The Merger—Opinion of Catalyst’s Financial Advisor” beginning on page 71. Catalyst
management provided to Catalyst’s financial advisor this prospective financial information of Catalyst, together with certain prospective financial information for Catalyst for the 2016 fiscal year, which was compiled by Catalyst management by extrapolating from the prior years’ information. Catalyst management also provided to Catalyst’s financial advisor the prospective financial information for SXC summarized above, together with certain prospective financial information for SXC for the fiscal years ending 2015 and 2016, which was compiled by Catalyst management by extrapolating from SXC’s unaudited prospective financial information for the fiscal years ending 2012 through 2014. The Catalyst Projections were not prepared with a view toward public
regarded as an indication that any of Catalyst, SXC or any other recipient of this information considered, or now considers, it to be necessarily predictive of actual future results. Neither Catalyst, SXC or their respective affiliates assumes any responsibility to stockholders or any other person for the accuracy of this information.
The Catalyst Projections were prepared solely for internal use or for the use of SXC, as applicable, and are subjective in many respects and thus subject to interpretation. In preparing long-term financial forecasts, Catalyst management considers a number of factors including, but not limited to, organic growth rate assumptions, client retention rates, margin expansion opportunities, product and service line expansion, potential PBM outsourcing opportunities with managed care organizations (“MCOs”), operating expense assumptions, capital expenditure requirements and contributions from investing free cash flow generated from operations. In the context of its long-term capital allocation strategy, Catalyst management, therefore, makes certain assumptions regarding potential uses of excess cash which may include acquisitions, strategic partnerships, joint ventures or other investment opportunities, including PBM outsourcing arrangements with MCOs. The Catalyst Projections were prepared solely for the purpose of illustrating the potential financial impact of the Catalyst stand-alone plan and, as such, the Catalyst Projections include a range of target assumptions as it relates to Catalyst’s long-term strategy and capital allocation. Accordingly, the Catalyst Projections assume that Catalyst will continue to benefit from additional acquisitions (in the case of the Catalyst Projections summarized in the first table below), PBM outsourcing relationships and other investment opportunities over the time period covered by the Catalyst Projections. There is no assurance that Catalyst will be able to identify attractive acquisition or other investment opportunities or that, if identified, Catalyst will be able to successfully complete and integrate any such
acquisitions or investment opportunities. While presented with numeric specificity, the Catalyst Projections reflect numerous estimates and assumptions made by the management of Catalyst with respect to industry performance and competition, general business, economic, market and financial conditions and matters specific to Catalyst’s business, all of which are difficult to predict and many of which are beyond Catalyst’s control. There can be no assurance that the results reflected in the Catalyst Projections will be realized. Actual results are expected to vary from those set forth in the Catalyst Projections and such variations are likely to be material. Since the Catalyst Projections cover multiple years, such information by its nature becomes less predictive with each successive year. Stockholders are urged to review Catalyst’s most recent SEC filings for a description of risk factors with respect to Catalyst’s business.Seealso “Cautionary Statement Concerning Forward-Looking Statements” beginning on page 38 and “Summary—Information About the Companies” beginning on page 40 and “Risk Factors” beginning on page 29. The Catalyst Projections were not prepared with a view toward complying with the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information.
The Catalyst unaudited prospective financial information has been prepared by, and is the responsibility of, Catalyst management. PricewaterhouseCoopers LLP has neither examined, compiled nor performed any procedures with respect to the Catalyst unaudited prospective financial information or the summary information set forth below and, accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto. The PricewaterhouseCoopers LLP reports incorporated by reference in this joint proxy statement/prospectus relate to Catalyst’s historical financial information. They do not extend to the Catalyst unaudited prospective financial information and should not be read as such.
The Catalyst unaudited prospective financial information was prepared based on Catalyst as a stand-alone company. Such forecasts do not take into account the proposed transactions with SXC, including the impact of negotiating or executing the transactions, the expenses that may be incurred in connection with consummating the transactions, the potential synergies that may be achieved by the combined company as a result of the transactions, or the effect of any business or strategic decision or action that has been or will be taken as a result of the merger agreement having been executed.
The following table presents summary selected unaudited Catalyst prospective financial information for the fiscal years ending December 31, 2012 through 2015 prepared by Catalyst management in connection with its evaluation of the transactions, along with actual financial results for the year ended December 31, 2011.
Catalyst Management Forecasts (Stand-Alone, Pre-Merger Basis) (in millions)
(unaudited)
Year Ending December 31,
2011 2012E 2013E 2014E 2015E
Revenue . . . $5,329.6 $6,522.4 $7,941.4 $9,550.0 $11,333.6 Adjusted EBITDA(1) . . . $ 201.9 $ 244.1 $ 294.1 $ 361.4 $ 436.3 Adjusted net income(1) . . . $ 114.3 $ 134.5 $ 161.6 $ 199.3 $ 242.5 (1) EBITDA is defined as earnings prior to interest income, interest expense and other expense, net, income
taxes, depreciation and amortization. Adjusted EBITDA and Adjusted net income have been calculated, in each case, by excluding certain charges recorded each year, such as integration-related expenses and amortization of acquisition-related intangible assets, as these expenses are not considered an indicator of ongoing company performance. EBITDA, Adjusted EBITDA and Adjusted net income are non-GAAP financial measures and should not be considered as alternatives to operating income or net income as measures of operating performance or cash flows or as measures of liquidity.
Following the delivery to SXC of Catalyst’s unaudited prospective financial information set forth above, SXC requested that Catalyst provide to SXC unaudited prospective financial information that did not give effect to the completion of additional acquisitions during the periods covered by the projections. SXC informed Catalyst management that removing the effect of contemplated acquisitions would facilitate a more meaningful comparison of the two companies, as SXC did not include contemplated acquisitions in its projections. Catalyst management does not believe that the adjustments requested by SXC to the prospective financial information are consistent with Catalyst’s assumptions regarding the future financial results of Catalyst on a stand-alone basis. Due to the nature of the capital allocation assumptions incorporated in the Catalyst Projections and based on its past experience, Catalyst believes that the identification and classification of additional forecast revenues as derived either from acquisitions or from new customer acquisition or PBM outsourcing activities is partially subjective and not susceptible to easy classification. Nevertheless, as requested by SXC, Catalyst provided to SXC a version of the unaudited prospective financial information described above, adjusted to eliminate the effect of additional acquisitions during the forecast periods. SXC has informed Catalyst that this adjusted forecast information was used by the SXC board of directors and by SXC’s financial advisors in considering the proposed transaction and are being presented here solely for that reason. Catalyst’s management does not believe that this unaudited adjusted prospective financial information is representative of Catalyst’s stand-alone plan. In addition, SXC informed Catalyst that in connection with J.P. Morgan’s and Barclays’ independent financial analyses, each of J.P. Morgan and Barclays applied different assumptions and adjustments to these projections. As a result, there were minor deviations in the projections that SXC management approved for use by each of J.P. Morgan and Barclays, none of which, individually or in the aggregate, materially affected J.P. Morgan’s or Barclays’ financial analyses.
Catalyst Adjusted Forecast Data (Pre-Merger Basis, Adjusted to Eliminate Acquisitions) (in millions)
(unaudited)
Year Ending December 31,
2011 2012E 2013E 2014E 2015E
Revenue . . . $5,329.6 $6,522.4 $7,312.1 $8,253.5 $9,219.2 Adjusted EBITDA(1) . . . $ 201.9 $ 244.1 $ 264.1 $ 299.6 $ 335.9 Adjusted net income(1) . . . $ 114.3 $ 134.5 $ 144.7 $ 165.9 $ 188.4 (1) EBITDA is defined as earnings prior to interest income, interest expense and other expense, net, income
taxes, depreciation and amortization. Adjusted EBITDA and Adjusted net income have been calculated, in each case, by excluding certain charges recorded each year, such as integration-related expenses and
amortization of acquisition-related intangible assets, as these expenses are not considered an indicator of ongoing company performance. EBITDA, Adjusted EBITDA and Adjusted net income are non-GAAP financial measures and should not be considered as alternatives to operating income or net income as measures of operating performance or cash flows or as measures of liquidity.
The adjusted forecast information described above was derived from, and is subject to the same limitations and qualifications as, the Catalyst Projections set forth above.
Readers of this joint proxy statement/prospectus are cautioned not to rely on the Catalyst Projections set forth above. No representation or warranty is or has been made to stockholders by Catalyst, SXC or any person regarding the information included in the Catalyst Projections or the ultimate performance of Catalyst or, following the transactions, the combined company, compared to the information set forth above. The inclusion of the Catalyst Projections in this joint proxy statement/prospectus should not be regarded as an indication that such prospective financial information will be necessarily predictive of actual future events nor construed as financial guidance, and they should not be relied on as such.
CATALYST DOES NOT INTEND TO UPDATE OR OTHERWISE REVISE THE CATALYST