SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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): June 18, 1997
CRA MANAGED CARE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 02-25856 004-2658593
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
organization)
312 Union Wharf, Boston, Massachusetts 02109
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 367-2163
N/A
(Former name or former address, if changed since last report)
Exhibit Index located at Page 4
Item 2. Acquisition or Disposition of Assets.
CRA Managed Care, Inc. (the "Registrant"), a Massachusetts corporation, and
FNS Acquisition Corp. ("Acquisition Sub"), a Delaware corporation and a wholly
owned subsidiary of the Registrant, acquired substantially all of the assets of
First Notice Systems Company, a Massachusetts business trust ("FNS"), pursuant
to an Asset Purchase Agreement (the "FNS Agreement"), dated as of June 4, 1997,
by and among the Registrant, Acquisition Sub, FNS, and the shareholders of FNS
(the "FNS Shareholders") a copy of which is attached hereto and incorporated by
reference. The effective date of the acquisition is May 31, 1997. In
consideration for the assets of FNS, the Registrant paid a purchase price of $40
million cash and assumed certain liabilities of FNS. This acquisition was
accounted for as a purchase and was funded with amounts borrowed under the
Registrant's senior revolving credit facility with First Union National Bank of
North Carolina.
Description of the Business
FNS is currently a leading provider of outsourced call center reporting for
first notice of loss/injury to the insurance industry. Today, FNS provides its
services primarily to the auto insurance industry for first notice of loss
reporting; however, the company has recently begun to do more business with
workers' compensation carriers for first report of injury reporting with P&C
carriers who write both auto and workers' compensation insurance. Significant
investment in technology and personnel over the past four years has positioned
FNS to offer its call center services to some of the largest insurance carriers
in the country 24 hours per day, 365 days per year at a cost effective price.
FNS has over 300 employees handling 70,000 calls per month from two call centers
in Massachusetts and has capacity to substantially increase its call volume
without adding an additional call center.
FNS provides a flexible service that can range from simple acceptance and
transmission of a report of loss to a full turn-key service that could include
one or more of the following: notice of loss reporting; direction into an FNS
preferred towing company, glass company or auto body shop with a discounted
price; arrangement for car rental or alternative mode of transportation; or, in
the event of an injury, direction into a PPO network of providers and hospitals.
Approximately 25% of all calls are not related to a report of loss, but instead
are information requests for which FNS charges a separate fee.
Description of the Transaction
FNS Agreement
General. The FNS Agreement provides, among other things, for the
acquisition of substantially all of the assets subject to substantially all
of the liabilities of FNS by Acquisition Sub. Acquisition Sub acquired from
FNS the business of FNS as a going concern (the "Business") including all of
FNS' assets of every kind and description other than certain enumerated
Retained Assets and acquired such assets subject only to the Assumed
Liabilities of FNS. The Assumed Liabilities include all liabilities of FNS
other than the Retained Liabilities which are (i) all liabilities and
obligations of FNS owing to any one or more of Cross Country Motor Club,
Inc., Cross Country Motor Club of California, Inc., Cross Country Service
Corp., Cross Country House Assistance Services, Inc. and Homeowners Assurance
Company, Inc. or their respective
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affiliates, (ii) all liabilities of FNS relating to indebtedness for borrowed
money, to the extent such liabilities are not reflected on FNS' last
regularly prepared balance sheet, (iii) all liabilities of FNS or the FNS
Shareholders resulting from, constituting or relating to a breach of any of
the representations, warranties, covenants or agreements of FNS or the FNS
Shareholders in the FNS Agreement, (iv) all liabilities of FNS for federal,
state, local or foreign taxes; (v) any liability incurred by FNS in
connection with the FNS Agreement or related agreements; (vi) any liability
with respect to a loan from Government Land Bank to East Coast Springfield
Development, L.L.C. and (vii) liabilities incurred by FNS after the Closing
Date other than those incurred pursuant to an ancillary agreeement to the
transaction.
Consideration. The consideration paid to FNS for the purchased assets was
$40 million, payable in cash. Additionally, Acquisition Sub assumed the
Assumed Liabilities.
Indemnification. FNS and the FNS Shareholders ("FNS") agreed to
indemnify and hold harmless the Registrant and Acquisition Sub and the
Registrant and Acquisition Sub agreed to indemnify and hold harmless FNS and
the FNS Shareholders against all expense, loss or liability resulting from
any breach of their respective representations or warranties contained in the
FNS Agreement and any demands, claims, actions, suits or proceedings,
assessments, judgments, costs and legal and other expenses incident to the
foregoing in an amount up to $4 million. Each of the parties is liable to
the other party only if the injured party's losses subject to the
indemnification provision exceed $250,000, and the injured party will not be
indemnified for the first $150,000 of such losses. Claims under these
indemnification provisions must be asserted on or before the first to occur
of (i) the 30th day after the date audited financial statements of the
Registrant for the year ended December 31, 1997 are released to the
Registrant and (ii) May 31, 1998.
FNS and the FNS Shareholders indemnify the Registrant and Acquisition Sub
against any claims arising out of any of the Retained Liabilities, except for
those claims arising out of the breach of representations and warranties as
described above. This indemnification is not subject to the limitations
described above and survives the Closing.
The Registrant and Acquisition Sub indemnify FNS and the FNS Shareholders
against any claims arising out of any of the Assumed Liabilities, except for
those claims arising out of the breach of representations and warranties as
described above This indemnification is not subject to the limitations
described above and survives the Closing.
Non-Competition and Marketing Agreement and Other Agreements
A Non-Competition and Marketing Agreement was entered into by the
Registrant, Acquisition Sub, FNS, the FNS Shareholders and certain entities
controlled by the FNS Shareholders. The Agreement establishes a relationship
between Acquisition Sub and companies owned by the FNS Shareholders
(hereinafter "Cross Country"). This Agreement contains non-competition
provisions to protect the goodwill and business interests of Acquisition Sub
and Cross Country whereby each agrees not to compete with the other for a
period of up to 5 years in their respective businesses as defined in the
Agreement. Additionally, Cross Country and the Registrant agree to cooperate
in continuing to provide integrated services to common customers of Acquisition
Sub and Cross
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Country; to market to each of their respective customers services and
programs provided by each other; and to endorse the use of the services of
each other as part of a cooperative marketing effort. This Agreement sets
forth the provisions establishing this relationship.
Agreements regarding the provision of transitional services, sublease
arrangements and other similar agreements were also entered into by and among
Cross Country, FNS and the Registrant in connection with this transaction.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements.
First Notice Systems, Inc. Report of Independent Public
Accountants.
Balance Sheets as of September 30, 1995 and 1996 (audited) and
March 31, 1997 (unaudited).
Statement of Income and Accumulated Deficit for the years ended
September 30, 1995 and 1996 (audited) and the six months
ended March 31, 1997 (unaudited).
Statement of Cash Flows for the years ended September 30, 1995
and 1996 (audited) and the six months ended
March 31, 1997 (unaudited).
Notes to Financial Statements.
(b) Pro Forma Financial Information.
Pro Forma Consolidated Balance Sheet for the period ended
March 31, 1997.
Pro Forma Consolidated Statement of Operations for the three
months ended March 31, 1997.
Pro Forma Consolidated Statement of Operations for the year
ended December 30, 1996.
Notes to Pro Forma Consolidated Financial Statements.
(c) Exhibits - The following conformed copies of Exhibits to this
Form 8-K are hereby filed:
Exhibit 2.1 Asset Purchase Agreement among Registrant, Acquisition Sub, FNS
and the FNS Shareholders.
Exhibit 10.1 Non-Competition and Marketing Agreement among the FNS
Shareholders, FNS, Acquisition Sub and the Registrant.
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In accordance with Item 601(b) (2) of Regulation S-K, the Schedules, Exhibits
and other documents referred to in the Asset Purchase Agreement and the
Non-Competition and Marketing Agreement have not been filed as part of the
Exhibits to this Current Report on Form 8-K. The registrant agrees to furnish
supplementally a copy of such documents to the Commission upon request.
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.
CRA MANAGED CARE, INC.
June 18, 1997 /s/ Donald J. Larson
-------------------------
By: Donald J. Larson
President and Chief Executive Officer
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FIRST NOTICE SYSTEMS, INC.
FINANCIAL STATEMENTS
AS OF MARCH 31, 1997 (UNAUDITED), SEPTEMBER 30, 1996 AND 1995
TOGETHER WITH AUDITORS' REPORT
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
First Notice Systems, Inc.:
We have audited the accompanying balance sheets of First Notice Systems,
Inc. (a Massachusetts S corporation) as of September 30, 1996 and 1995, and the
related statements of income and accumulated deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of First Notice Systems, Inc.
as of September 30, 1996 and 1995, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 30, 1997
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FIRST NOTICE SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
ASSETS 1997 1996 1995
- ---------------------------------------------------------- ------------- ------------- -------------
(UNAUDITED)
Current Assets:
Cash and cash equivalents............................... $ 269 $ 100,269 $ 100,014
Accounts receivable..................................... 2,124,156 2,349,552 1,253,968
Prepaid expenses........................................ 17,315 5,236 8,555
------------- ------------ ------------
Total current assets................................. 2,141,740 2,455,057 1,362,537
------------- ------------ ------------
Property and Equipment:
Furniture, computer and office equipment................ 3,215,781 2,040,385 398,387
Motor vehicles.......................................... 18,459 18,459 18,459
Leasehold improvements.................................. 68,899 4,961 --
Less--Accumulated depreciation and amortization......... 508,978 306,664 105,817
------------- ------------ ------------
Total property and equipment, net.................... 2,795,161 1,757,141 311,029
------------- ------------ ------------
Software Development Costs, net of accumulated
amortization of $380,120, $204,375 and $41,641 at March
31, 1997, September 30, 1996 and 1995, respectively..... 1,554,584 1,126,055 215,627
------------- ------------ ------------
Total assets......................................... $ 6,491,485 $ 5,338,253 $ 1,889,193
------------- ------------ ------------
------------- ------------ ------------
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
LIABILITIES AND STOCKHOLDERS' DEFICIT 1997 1996 1995
- ---------------------------------------------------------- ------------- ------------- -------------
(UNAUDITED)
Current Liabilities:
Due to affiliates....................................... $ 6,930,533 $ 5,246,804 $ 2,759,889
Notes payable........................................... 86,902 -- --
Accounts payable........................................ 262,026 465,685 70,000
Accrued expenses........................................ 660,317 331,998 256,421
------------- ------------ ------------
Total current liabilities............................ 7,939,778 6,044,487 3,086,310
------------- ------------ ------------
Stockholders' Deficit:
Common stock, $.10 par value--
Authorized--10,000 shares issued and outstanding--
10,000 shares......................................... 1,000 1,000 1,000
Paid-in capital......................................... 4,000 4,000 4,000
Accumulated deficit..................................... (1,453,293) (711,234) (1,202,117)
------------- ------------ ------------
Total stockholders' deficit.......................... (1,448,293) (706,234) (1,197,117)
------------- ------------ ------------
Total liabilities and stockholders' deficit.......... $ 6,491,485 $ 5,338,253 $ 1,889,193
------------- ------------ ------------
The accompanying notes are an integral part of these financial statements.
-8-
FIRST NOTICE SYSTEMS, INC.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, ---------------------------
1997 1996 1995
------------- ------------ -------------
(UNAUDITED)
Revenue............................................................... $ 5,278,868 $ 9,422,419 $ 5,341,332
------------- ------------ -------------
Operating Expenses:
Labor and related benefits.......................................... 3,264,944 4,855,802 2,704,602
Depreciation and amortization....................................... 377,182 361,651 147,458
General and administrative.......................................... 2,131,501 3,384,083 2,193,086
------------- ------------ -------------
Total operating expenses......................................... 5,773,627 8,601,536 5,045,146
------------- ------------ -------------
Income (Loss) from Operations......................................... (494,759) 820,883 296,186
Interest Expense...................................................... 247,300 330,000 193,083
------------- ------------ -------------
Net income (loss)................................................ (742,059) 490,883 103,103
Accumulated Deficit, beginning of year................................ (711,234) (1,202,117) (1,305,220)
------------- ------------ -------------
Accumulated Deficit, end of year...................................... $ (1,453,293) $ (711,234) $ (1,202,117)
------------- ------------ -------------
------------- ------------ -------------
The accompanying notes are an integral part of these financial statements.
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FIRST NOTICE SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
SIX MONTHS
ENDED YEAR ENDED SEPTEMBER 30,
MARCH 31, ------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)
Cash Flows from Operating Activities:
Net income (loss)...................................................... $ (742,059) $ 490,883 $ 103,103
Adjustments to reconcile net income to net cash provided by (used in)
operating activities--
Depreciation and amortization.......................................... 378,059 361,651 147,458
Changes in current assets and liabilities--
Accounts receivable.................................................. 225,396 (1,095,584) (1,186,124)
Prepaid expenses..................................................... (12,079) 3,319 (8,555)
Accounts payable and accrued expenses................................ 124,660 471,261 326,336
----------- ----------- -----------
Net cash provided by (used in) operating activities.................. (26,023) 231,530 (617,782)
----------- ----------- -----------
Cash Flows from Investing Activities:
Capital expenditures................................................... (1,844,608) (2,718,190) (674,114)
----------- ----------- -----------
Net cash used in investing activities................................ (1,844,608) (2,718,190) (674,114)
----------- ----------- -----------
Cash Flows from Financing Activities:
Net borrowings--other.................................................. 86,902 -- --
Net borrowings from affiliates......................................... 1,683,729 2,486,915 1,386,896
----------- ----------- -----------
Net cash provided by financing activities............................ 1,770,631 2,486,915 1,386,896
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents..................... (100,000) 255 95,000
Cash and Cash Equivalents, beginning of year............................. 100,269 100,014 5,014
----------- ----------- -----------
Cash and Cash Equivalents, end of year................................... $ 269 $ 100,269 $ 100,014
----------- ----------- -----------
----------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest................................. $ -- $ -- $ --
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
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FIRST NOTICE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) NATURE OF BUSINESS
First Notice Systems, Inc., a Massachusetts S corporation ("FNS"), was
organized to provide a variety of services to the insurance industry. These
services include accepting and processing insurance claims and providing
personal and commercial insurance policyholders with emergency assistance of all
types around-the-clock. FNS operates in North America.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
FNS considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Assets are being depreciated on
either a straight-line or an accelerated basis over the following estimated
useful lives:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
Furniture, computer and office equipment 5-10 years
Motor vehicles 5 years
Leasehold improvements Lesser of term of lease or useful
life of asset
Maintenance and repairs are charged to expense when incurred; renewals and
improvements are capitalized.
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FIRST NOTICE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SOFTWARE DEVELOPMENT COSTS
FNS capitalizes computer software costs for internal use. These
costs include direct internal and external costs associated with system design,
documentation, programming, testing and other installation work, in addition to
the actual software costs. Amortization of capitalized software costs is
provided over the estimated economic useful life of the software product on a
straight-line basis, generally three to seven years.
REVENUE RECOGNITION
Revenue is recognized from services when services are performed. Accounts
receivable at September 30, 1996 and 1995 include approximately $399,000 and
$648,000, respectively, of unbilled accounts receivable relating to services
rendered during the period but not invoiced until after the period-end.
INCOME TAXES
FNS has elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code. Under these provisions, the entity does not pay
federal or state corporate income taxes on its taxable income. Instead, the
stockholders are liable for income taxes. Therefore, no provision for income
taxes has been made.
(3) RELATED-PARTY TRANSACTIONS
Certain shareholders of FNS are also shareholders of SWW Realty
Trust, East Coast Springfield Development, LLC, and The Cross Country Group,
Inc. and its wholly owned subsidiaries (the "Group"). FNS receives
management, human resources, accounting and computer services from the Group.
FNS is also charged telephone, rent, office, building and other
expenses related to activities shared with the Group based on percentages of
services utilized by FNS. For the years ended September 30, 1996 and
1995, FNS was charged and allocated $3,689,862 and $2,543,505,
respectively, by the Group.
FNS occupies space at facilities leased from SWW Realty Trust and
East Coast Springfield Development, LLC to the Group and is allocated a share of
these costs as discussed above. Certain property and equipment of FNS
are pledged as collateral on certain of East Coast Springfield Development,
LLC's debt. In addition, FNS and the Group have guaranteed certain of
East Coast Springfield Development, LLC's debt.
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FIRST NOTICE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(3) RELATED-PARTY TRANSACTIONS (CONTINUED)
FNS's activities are funded as needed by borrowings from the Group. As of
September 30, 1996 and 1995, FNS owed the Group $5,246,804 and
$2,759,889, respectively. FNS is charged interest at 8% on outstanding
borrowings. For the years ended September 30, 1996 and 1995, FNS was charged
$330,000 and $193,083, respectively, in interest expense by the Group. The
Group has agreed to continue to provide financial support to FNS.
(4) BENEFIT PLANS
FNS participates in the Group's profit sharing plan covering all of its
employees that meet certain age and service requirements. The plan is a
defined contribution plan, with all contribution amounts determined by
management of the Group. Contributions to the plan for the benefit of FNS's
employees were approximately $45,000 and $21,500 for the years ended
September 30, 1996 and 1995, respectively.
FNS also participates in the Group's salary reduction/profit sharing plan
under the provisions of Section 401(k) of the Internal Revenue Code. The plan
covers all employees who have completed one full year of service with FNS.
The Group, at its option, may contribute additional amounts to the
plan based on each employee's contribution. Matching contributions for the
benefit of FNS's employees were approximately $8,000 and $2,500 for the years
ended September 30, 1996 and 1995, respectively.
(5) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
On November 27, 1996, FNS agreed to lease certain facilities from an
unrelated party. The lease is a long-term, noncancelable real estate lease
agreement expiring in 2001. The agreement provides for fixed minimum rental
payments and the payment of utilities, real estate taxes, insurance and
repairs. The lease also contains a renewal option of five years and various
fixed increases in rent.
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FIRST NOTICE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
(5) COMMITMENTS AND CONTINGENCIES (Continued)
LEASE COMMITMENTS (CONTINUED)
The future minimum annual rental commitments under this long-term,
noncancelable lease are as follows:
FISCAL YEARS AMOUNT
------------- ------------
1997 $ 448,000
1998 448,000
1999 448,000
2000 470,000
2001 470,000
------------
$ 2,284,000
------------
------------
LEGAL PROCEEDINGS
FNS is subject to various legal proceedings that arise in the
ordinary course of business. Based on the opinion of FNS's legal
counsel, management believes that the amount of ultimate liability with respect
to these actions will not be material to the financial position or results of
operations of FNS.
(6) SIGNIFICANT CUSTOMERS
Revenues from two customers for the year ended September 30, 1996 were $3.2
million and $2.1 million, which accounted for 34% and 22%, respectively, of
total revenue for the year. Revenues from three customers for the year ended
September 30, 1995 were $2.9 million, $0.6 million and $0.5 million, which
accounted for 55%, 11% and 10%, respectively, of total revenue for the year.
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CRA Managed Care, Inc.
CONSOLIDATED PRO FORMA BALANCE SHEET (UNAUDITED)
The following sets forth the Company's Consolidated Pro Forma Balance
Sheet as of March 31, 1997 giving effect to the acquisition of First Notice
Systems, Inc. ("FNS"). The Company's Consolidated Pro Forma Balance Sheet
presents the acquisition of FNS as if it had been consummated on March 31,
1997. The Consolidated Pro Forma Financial Statements of the Company do not
purport to present the financial position or results of operations of the
Company had the transaction assumed therein occurred on the dates indicated,
nor are they necessarily indicative of the results of operations which may be
expected to occur in the future.
The acquisition of FNS has been accounted for by the Company as a
purchase whereby the basis of accounting for FNS's assets and liabilities is
based upon their fair values at the date of acquisition. Pro forma
adjustments represent the Company's preliminary determination of these
adjustments and are based upon available information and certain assumptions
which the Company considers reasonable under the circumstances. Final amounts
could differ from those set forth below.
MARCH 31, 1997
--------------------------------------------------------------
PRO FORMA PRO FORMA
ASSETS CRA FNS ADJUSTMENTS COMBINED
-------------- ------------ ---------------- --------------
Current assets:
Cash and cash equivalents....................... $ 1,692,000 $ -- $ -- $ 1,692,000
Accounts receivable, net........................ 41,478,000 2,124,000 -- 43,602,000
Prepaid expenses and tax assets................. 939,000 17,000 -- 956,000
-------------- ------------ ---------------- --------------
Total current assets.......................... 44,109,000 2,141,000 -- 46,250,000
Property and equipment, net..................... 9,566,000 2,795,000 -- 12,361,000
Goodwill, net................................... 48,376,000 -- 37,000,000 (1) 85,376,000
Other assets.................................... 327,000 1,555,000 -- 1,882,000
-------------- ------------ ---------------- --------------
$ 102,378,000 $ 6,491,000 $ 37,000,000 $ 145,869,000
-------------- ------------ ---------------- --------------
-------------- ------------ ---------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit facilities..................... $ 6,012,000 $ -- $ 40,000,000 (2) $ 46,012,000
Current portion of long-term debt............... 40,000 86,000 -- 126,000
Due to affiliates............................... -- 6,931,000 (6,931,000)(3) --
Accounts payable and accrued expenses........... 14,698,000 922,000 2,483,000 (4) 18,103,000
-------------- ------------ ---------------- --------------
Total current liabilities..................... 20,750,000 7,939,000 35,552,000 64,241,000
Long-term deferred tax liabilities.............. 841,000 -- -- 841,000
Stockholders' equity (deficit).................. 80,787,000 (1,448,000) 1,448,000 (5) 80,787,000
-------------- ------------ ---------------- --------------
$ 102,378,000 $ 6,491,000 $ 37,000,000 $ 145,869,000
-------------- ------------ ---------------- --------------
-------------- ------------ ---------------- --------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
15
CRA Managed Care, Inc.
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
The following sets forth the Company's Consolidated Pro Forma Statement
of Operations for the three months ended March 31, 1997 and year ended
December 31, 1996 giving effect to the acquisition of FNS. The Statement of
Operations for FNS presented in the Pro Forma Results of Operation for year
ended December 31, 1996 represents FNS's fiscal year ended September 30,
1996. The Consolidated Pro Forma Financial Statements of the Company do not
purport to present the financial position or results of operations of the
Company had the transaction assumed therein occurred on the dates indicated,
nor are they necessarily indicative of the results of operations which may be
expected to occur in the future. Certain reclassifications have been made to
the historical financial statements of FNS to conform to the presentation
expected to be used by the Company.
The acquisition of FNS has been accounted for by the Company as a
purchase whereby the basis for of accounting for FNS's assets and liabilities
is based upon their fair values at the date of acquisition. Pro forma
adjustments represent the Company's preliminary determination of theses
adjustments and are based upon available information and certain assumptions
which the Company considers reasonable under the circumstances. Final amounts
could differ from those set forth below.
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-------------------------------------------------------
PRO FORMA PRO FORMA
CRA FNS ADJUSTMENTS COMBINED
------------- ------------ ----------- -------------
Net revenues........................................... $ 54,489,000 $ 2,610,000 $ -- $ 57,099,000
Cost of services....................................... 44,571,000 2,003,000 308,000(6) 46,882,000
------------- ------------ ----------- -------------
Gross profit...................................... 9,918,000 607,000 (308,000) 10,217,000
General and administrative expenses.................... 4,251,000 806,000 -- 5,057,000
------------- ------------ ----------- -------------
Operating income.................................. 5,667,000 (199,000) (308,000) 5,160,000
Interest expense, net.................................. 140,000 137,000 700,000(7) 977,000
------------- ------------ ----------- -------------
Income before taxes............................... 5,527,000 (336,000) (1,008,000) 4,183,000
Provision for income taxes............................. 2,432,000 0 (591,000) 1,841,000
------------- ------------ ----------- -------------
Net income (loss)................................. $ 3,095,000 ($ 336,000) ($ 417,000)(8) $ 2,342,000
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
Earnings per share..................................... $ 0.34 $ 0.26
------------- -------------
------------- -------------
Weighted average shares outstanding.................... 9,102,000 9,102,000
------------- -------------
------------- -------------
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------
PRO FORMA PRO FORMA
CRA FNS ADJUSTMENTS COMBINED
-------------- ------------ ------------- --------------
Net revenues........................................ $ 179,652,000 $ 9,423,000 $ -- $ 189,075,000
Cost of services.................................... 147,747,000 6,545,000 1,233,000(6) 155,525,000
-------------- ------------ ------------- --------------
Gross profit...................................... 31,905,000 2,878,000 (1,233,000) 33,550,000
General and administrative expenses................. 14,439,000 2,057,000 -- 16,496,000
-------------- ------------ ------------- --------------
Operating income.................................. 17,466,000 821,000 (1,233,000) 17,054,000
Interest expense, net............................... 199,000 330,000 2,800,000(7) 3,329,000
-------------- ------------ ------------- --------------
Income before taxes............................... 17,267,000 491,000 (4,033,000) 13,725,000
Provision for income taxes.......................... 7,166,000 -- (1,470,000)(8) 5,696,000
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Net income (loss)................................. $ 10,101,000 $ 491,000 ($ 2,563,000) $ 8,029,000
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Earnings per share.................................. $ 1.19 $ 0.95
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Weighted average shares outstanding................. 8,475,000 8,475,000
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See accompanying Notes to Consolidated Pro Forma Financial Statements.
16
CRA MANAGED CARE, INC.
NOTES TO CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
(1) To record the excess of cost over fair value of net assets acquired
resulting from the preliminary purchase price allocation as follows:
Pro forma purchase price including fees and expenses:.......... $41,000,000
Purchase price allocated to:
Current assets............................................ 2,141,000
Property and equipment.................................... 2,795,000
Other long term assets.................................... 1,555,000
Current liabilities....................................... (2,491,000)
----------
Net assets acquired.................................. 4,000,000
----------
Excess of cost over fair value of net assets acquired.......... $37,000,000
----------
The foregoing purchase price allocation is based upon preliminary
information. The final purchase price allocation is contingent upon the final
determination of the fair value of the net assets acquired on June 4, 1997,
the date of acquisition. Based upon presently available information, the
Company does not believe that the final purchase price allocation will
materially differ from the preliminary allocation.
(2) To record the borrowing of $40,000,000 under the Company's recently
expanded $60,000,000 Credit Facility to finance the FNS acquisition.
(3) To eliminate the loans and advances from affiliates which will be
forgiven immediately prior to the closing of the transaction.
(4) To record fees and expenses associated with the purchase of FNS.
(5) To eliminate the historical stockholders' deficit of FNS.
(6) To record the amortization of FNS goodwill under a thirty year life.
(7) To record interest expense on the $40,000,000 of borrowings used to
finance the acquisition at an interest rate of 7%.
(8) To record the tax benefits associated with the pro forma adjustments and
record a tax provision for FNS's results of operation to an effective tax
rate of 41.5% and 44% for the three months ended March 31, 1997 and the year
ended December 31, 1996, respectively. Prior to its acquisition, FNS had
elected "S" corporation status under Section 1362 of the Internal Revenue
Code. Accordingly, FNS was not liable for federal and state income taxes as
income was taxed directly to its stockholders.
17