Exhibit 99.1
Combined Financial Statements
National Healthcare Resources, Inc. and Affiliate
Nine months ended September 30, 2001
National Healthcare Resources, Inc. and Affiliate
Combined Financial Statements
Nine months ended September 30, 2001
(Unaudited)
Contents
Combined Balance Sheet ..................................................... 1
Combined Statement of Operations ........................................... 2
Combined Statement of Cash Flows ........................................... 3
Notes to Combined Financial Statements ..................................... 4
National Healthcare Resources, Inc. and Affiliate
Combined Balance Sheet (Unaudited)
September 30, 2001
Assets
Current assets:
Cash $ 3,381,243
Fees receivable, net of allowance for doubtful accounts of $3,044,973 20,617,944
Prepaid expenses 1,414,702
Income taxes receivable and prepaid income taxes 558,773
Deferred income taxes 296,000
-------------
Total current assets 26,268,662
Fixed assets, net 20,669,892
Excess of purchase price over net tangible assets acquired, net 78,612,872
Security deposits and other assets, net 485,177
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Total assets $ 126,036,603
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Liabilities and shareholders' equity Current liabilities:
Accounts payable and accrued liabilities $ 19,199,632
Revolving credit facility 56,983,968
Interest payable 616,005
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Total current liabilities 76,799,605
Deferred income taxes 534,000
Other liabilities 1,101,235
Fair value of interest rate derivative 2,320,943
Commitments and contingencies Redeemable common stock:
Class A convertible, redeemable common stock, $.01 par value, 125,000 shares authorized,
issued and outstanding (liquidation preference of $12,500,000) 12,452,312
Class B convertible, redeemable common stock, $.01 par value, 70,000 shares authorized,
issued and outstanding (liquidation preference of $7,000,000) 6,983,834
Class C non-voting, redeemable common stock, $.01 par value, 50,000 shares authorized,
issued and outstanding (liquidation preference of $6,958,348) 6,358,586
Class E convertible, redeemable common stock, $.01 par value, 210,000 shares
authorized, 183,228 shares issued and outstanding (liquidation preference of
$18,322,800) 18,235,202
Class F convertible, redeemable non-voting common stock, $.01 par value, 210,000
shares authorized, 26,772 shares issued and outstanding (liquidation
preference of $2,677,200) 2,664,456
Common shareholders' equity:
Common stock, $.01 par value; 20,000,000 shares authorized, 4,208,732 shares issued
and outstanding 42,087
Non-voting common stock, $.01 par value, 3,474,286 shares authorized, no shares
issued and outstanding --
Common stock, no par value, 200 shares authorized, 1 share issued and outstanding 10
Additional paid-in capital 10,609,608
Accumulated deficit (12,065,275)
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Total common shareholders' equity (1,413,570)
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Total liabilities and common shareholders' equity $ 126,036,603
=============
See accompanying notes.
1
National Healthcare Resources, Inc. and Affiliate
Combined Statement of Operations (Unaudited)
Nine months ended
September 30,
2001 2000
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Revenues
Professional services $ 56,932,500 $ 57,159,055
Claims management 42,182,938 39,119,658
Provider networks 12,126,372 10,272,904
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Total revenues 111,241,810 106,551,617
Operating expenses
Cost of services 51,666,164 48,414,187
Salaries and benefits 25,583,551 24,087,238
Outside services 2,332,677 746,064
Other operating expenses 14,840,236 12,589,555
Selling and administrative expenses 9,949,466 10,150,953
Depreciation and amortization of fixed assets 5,764,894 3,752,384
Amortization of intangible assets 2,113,258 1,862,645
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Total operating expenses 112,250,246 101,603,026
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(1,008,436) 4,948,591
Other income (expense):
Interest income 163,522 218,508
Interest expense (3,803,237) (3,513,532)
Loss on change in fair value of interest rate derivative (1,281,297) (456,401)
------------------------------
Net other expense (4,921,012) (3,751,425)
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Loss before income tax benefit (5,929,448) 1,197,166
Income tax benefit (938,235) 826,007
------------------------------
Net loss (4,991,213) 371,159
Accretion of Class A common stock to redemption value 9,537 9,537
Accretion of Class B common stock to redemption value 2,553 2,553
Accretion of Class C common stock to redemption value 121,002 113,048
Accretion of Class D common stock to redemption value -- 225,900
Accretion of Class E common stock to redemption value 35,836 35,836
Accretion of Class F common stock to redemption value 5,213 5,213
Class C common stock dividends 375,003 375,003
------------------------------
Net loss applicable to common shareholders $ (5,540,357) $ (395,931)
==============================
See accompanying notes.
2
National Healthcare Resources, Inc. and Affiliate
Combined Statement of Cash Flows (Unaudited)
Nine months ended
September 30,
2001 2000
----------------------------
Cash flow from operating activities
Net income (loss) $ (4,991,213) $ 371,159
Adjustments to reconcile net income to cash flows provided by
operating activities:
Loss on change in fair value of interest rate derivative 1,281,297 456,401
Depreciation and amortization 7,513,304 5,400,180
Loss on disposition of software 900,000
Amortization of deferred financing cost 364,848 214,849
Provision for doubtful accounts 1,526,465 307,234
Changes in operating assets and liabilities, net of effects
of acquisitions:
Fees receivable (1,376,875) (5,810,198)
Prepaid expenses 69,589 (521,552)
Income taxes receivable and prepaid income taxes (1,383,074) (701,715)
Accounts payable and accrued liabilities 6,295,868 1,058,308
Other liabilities 1,885 1,057,191
Interest payable 41,001 112,607
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Cash flows provided by operating activities 10,243,095 1,944,464
Cash flow from investing activities
Purchase of Baseline, Resolve and CRT -- (2,890,410)
Fixed assets purchased (9,857,042) (8,437,432)
Other assets (34,584) 16,286
----------------------------
Cash flows used in investing activities (9,891,626) (11,311,556)
Cash flow from financing activities
Payment of note payable -- (214,207)
Proceeds from credit facility -- 8,000,000
Payment to the former holders of Class D stock (3,800,000) --
Deferred financing and other costs (330,613) --
Payment of long-term obligations (37,855) (99,874)
----------------------------
Cash flows provided by (used in) financing activities (4,168,468) 7,685,919
----------------------------
Decrease in cash (3,816,999) (1,681,173)
Cash at beginning of year 7,198,242 9,863,676
----------------------------
Cash at end of period $ 3,381,243 $ 8,182,503
============================
Supplemental disclosure of cash flow information
Cash paid for income taxes, net of refunds received $ 536,000 $ 1,528,000
============================
Cash paid for interest $ 3,762,000 $ 3,186,000
============================
See accompanying notes
3
National Healthcare Resources, Inc. and Affiliate
Notes to Combined Financial Statements
September 30, 2001
1. Basis of Presentation
The combined balance sheet as of September 30, 2001, the combined statement of
operations for the nine months ended September 30, 2001, and the combined
statement of cash flows for the nine months ended September 30, 2001 have been
prepared by the Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows at
September 30, 2001 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the combined financial
statements and notes thereto included in the Company's combined financial
statements for the year ended December 31, 2000. The results of operations for
the nine months ended September 30, 2001 are not necessarily indicative of the
results that may be expected for the full year.
2. Derivatives
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivatives and Hedging Activities", as
amended, which requires that all derivatives be recorded on the balance sheet at
fair value. If the derivative is a hedge that is eligible for special
accounting, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. Upon adoption on January 1, 2001, the cumulative
transition adjustment was insignificant.
To manage interest rate risk, the Company has entered into an interest rate swap
and option arrangement (the "Derivative") to reduce its exposures to movements
in interest rates. The Derivative has been designated as a cash flow hedge,
however, it does not qualify for hedge accounting in accordance with SFAS 133.
Accordingly, the Derivative is adjusted to fair value through earnings. At
September 30, 2001, the Company had a Derivative outstanding with a notional
amount of $23,583,968. The fair value of the Derivative at September 30, 2001
and December 31, 2000 was a liability of $2,320,943 and $1,039,646,
respectively. For the nine months ended September 30, 2001, the Company recorded
a loss on the change in the fair value of the interest rate Derivative of
$1,281,297.
3. Debt
On May 31, 2001 the revolving credit facility was amended to reduce the amount
available under the facility, change the financial ratio covenants, extend the
maturity date and modify the repayment terms. The amount currently available
under the facility, which includes the revolving loans and letters of credit, is
$61,000,000. The maturity date was extended to March 31, 2002. Under the amended
repayment terms, if the Company receives gross cash proceeds from the issuance
of any debt or equity securities of less than $25 million, the Company shall
prepay the revolving loans such that the facility shall be permanently reduced
to $50 million. If the Company receives gross cash proceed from the issuance of
any debt or equity securities of $25 million or more, the Company shall prepay
the revolving loans such that the facility shall be permanently reduced to $48
million.
4. Subsequent Events
On November 20, 2001, Concentra Inc., a related party through ownership,
acquired all of the outstanding shares of capital stock of the Company in a
transaction valued at $141.8 million. Under the terms of the transaction,
Concentra Inc. issued approximately $83.0 million of its common stock and
approximately $1 million in cash to the Company's shareholders in exchange for
all of the outstanding shares of common stock of the Company.
4
Concurrent with this transaction, Concentra Inc. contributed the capital stock
to Concentra Operating Corporation's capital and repaid $57.8 million of the
Company's indebtedness.
5