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Table of Contents
Exhibit 99.2
Urology Associates of North Texas, L.L.P.
Condensed Combined Financial Statements
For the six months ended June 30, 2012
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Urology Associates of North Texas, L.L.P.
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Urology Associates of North Texas, L.L.P.
CONDENSED COMBINED BALANCE SHEETS
June 30, 2012 | December 31, 2011 |
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(unaudited) | ||||||||
ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
$ | 1,482,105 | $ | 1,953,587 | ||||
Accounts receivable net of contractual allowances and allowance for doubtful accounts |
3,697,743 | 3,540,286 | ||||||
Accounts receivable - other |
1,297,351 | 679,723 | ||||||
Due from related parties |
149,644 | 370,708 | ||||||
Prepaid expenses and other current assets |
655,086 | 633,672 | ||||||
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Total current assets |
7,281,929 | 7,177,976 | ||||||
Property and equipment, net |
13,511,166 | 14,865,002 | ||||||
Goodwill |
4,987,660 | 4,987,660 | ||||||
Partnership interests in closely held businesses at cost |
40,934 | 40,934 | ||||||
Partnership interests in closely held businesses at cost plus equity in undistributed earnings |
8,842,756 | 7,941,451 | ||||||
Deposits |
33,000 | 33,000 | ||||||
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TOTAL ASSETS |
$ | 34,697,445 | $ | 35,046,023 | ||||
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LIABILITIES AND PARTNERS CAPITAL |
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CURRENT LIABILITIES |
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Accounts payable and other current liabilities |
$ | 2,460,760 | $ | 2,728,202 | ||||
Accrued salaries and wages |
1,543,129 | 1,700,352 | ||||||
Due to related parties |
105,429 | 242,908 | ||||||
Current maturities of long-term debt |
5,324,058 | 5,819,235 | ||||||
Current portion of capital lease obligations |
79,583 | 121,494 | ||||||
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Total current liabilities |
9,512,959 | 10,612,191 | ||||||
Long-term debt, net of current portion |
7,611,106 | 9,162,433 | ||||||
Capital lease obligations, net of current portion |
| 27,209 | ||||||
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Total liabilities |
17,124,065 | 19,801,833 | ||||||
Commitments and Contingencies |
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Partners capital |
17,573,380 | 15,244,190 | ||||||
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TOTAL LIABILITIES AND PARTNERS CAPITAL |
$ | 34,697,445 | $ | 35,046,023 | ||||
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The accompanying notes are an integral part of these condensed combined financial statements.
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Urology Associates of North Texas, L.L.P.
CONDENSED COMBINED STATEMENTS OF INCOME
For the six months ended June 30,
(Unaudited)
2012 | 2011 | |||||||
Net patient services revenue |
$ | 29,069,622 | $ | 27,251,498 | ||||
Expenses |
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Salaries and benefits |
10,529,131 | 8,123,260 | ||||||
Rent |
1,941,195 | 1,455,354 | ||||||
Incentive plan payments to partners |
4,700,368 | 5,366,926 | ||||||
Medical supplies and services |
2,458,089 | 1,967,408 | ||||||
Insurance |
300,561 | 312,095 | ||||||
Bad debt expense |
639,374 | 592,345 | ||||||
Depreciation and amortization |
1,869,802 | 1,690,949 | ||||||
Computer and telecommunication expenses |
498,742 | 553,281 | ||||||
Other |
3,129,819 | 2,877,260 | ||||||
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Total expenses |
26,067,081 | 22,938,878 | ||||||
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Operating income |
3,002,541 | 4,312,620 | ||||||
Other income (expense) |
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Equity in earnings from investments in partnerships |
2,959,667 | 3,313,649 | ||||||
Interest expense, net |
(288,310 | ) | (303,570 | ) | ||||
Gain on sale of investment in partnership |
| 85,000 | ||||||
Other income |
1,637,355 | 872,700 | ||||||
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Total other income, net |
4,308,712 | 3,967,779 | ||||||
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Net income |
$ | 7,311,253 | $ | 8,280,399 | ||||
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The accompanying notes are an integral part of these condensed combined financial statements.
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Urology Associates of North Texas, L.L.P.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
(Unaudited)
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
$ | 7,311,253 | $ | 8,280,399 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Equity in earnings from investments in partnerships |
(2,959,667 | ) | (3,313,649 | ) | ||||
Gain on sale of investment in partnership |
| (85,000 | ) | |||||
Depreciation and amortization |
1,869,802 | 1,690,949 | ||||||
Bad debt expense |
639,374 | 592,345 | ||||||
Change in operating assets and liabilities: |
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Accounts receivable |
(796,831 | ) | (1,177,167 | ) | ||||
Prepaid expenses and other assets |
(417,978 | ) | (35,699 | ) | ||||
Accounts payable and other current liabilities |
(404,921 | ) | 233,178 | |||||
Accrued salaries and wages |
(157,223 | ) | (1,977,707 | ) | ||||
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Net cash provided by operating activities |
5,083,809 | 4,207,649 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
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Capital expenditures |
(515,966 | ) | (1,182,503 | ) | ||||
Disposal of partnership interests |
| 285,000 | ||||||
Distributions from equity method investees |
2,058,362 | 2,412,667 | ||||||
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Net cash provided by investing activities |
1,542,396 | 1,515,164 | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
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Proceeds from issuance of long-term debt |
793,868 | 510,000 | ||||||
Repayments of long-term debt and capital lease obligations |
(2,909,492 | ) | (2,678,010 | ) | ||||
Distributions to partners |
(4,982,063 | ) | (5,138,962 | ) | ||||
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Net cash used in financing activities |
(7,097,687 | ) | (7,306,972 | ) | ||||
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Net decrease in cash and cash equivalents |
(471,482 | ) | (1,584,159 | ) | ||||
Cash and cash equivalents at beginning of year |
1,953,587 | 3,367,215 | ||||||
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Cash and cash equivalents at end of period |
$ | 1,482,105 | $ | 1,783,056 | ||||
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Supplemental cash flow information: |
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Interest paid |
$ | 149,543 | $ | 159,564 |
The accompanying notes are an integral part of these condensed combined financial statements.
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Urology Associates of North Texas, L.L.P.
Notes to Unaudited Condensed Combined Financial Statements
NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS
Urology Associates of North Texas, L.L.P., a Texas limited liability partnership (the Partnership or UANT), was formed pursuant to the laws of the state of Texas on August 1, 1997. The Partnership is a urology group that specializes in various adult and pediatric bladder, prostate and kidney care, including robotic, laparoscopic, and cryotherapy surgeries throughout the Dallas/Fort Worth metropolitan area. Furthermore, the Partnership holds investment interests in other operating entities. The Partnership will dissolve on December 31, 2050, unless dissolved sooner. The liability of an individual partner of the L.L.P. for the Partnerships debt is limited to that partners investment in the Partnership. The accompanying condensed combined financial statements include the accounts of the Partnership, as well as UANT Ventures, L.L.P. (UANT Ventures). Due to UANT Ventures having an ownership group that mirrors the Partnership, it has been combined with the Partnership.
The accompanying unaudited condensed combined financial statements have been prepared in conformity with accounting principles generally accepted in the United States (GAAP) for interim financial statements. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those principles, although the Partnership believes that the disclosures made are adequate to make the information not misleading. These condensed combined financial statements reflect all adjustments that, in the opinion of management, are necessary for fair presentation of the periods presented. The December 31, 2011 condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The operating results for the interim periods are not necessarily indicative of results for the full fiscal year. These condensed combined financial statements should be read in conjunction with the Partnerships audited combined financial statements and notes thereto for the year ended December 31, 2011. There have been no significant changes in the information reported in those notes, other than from normal business activities and as discussed herein.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable
The Partnership records revenues net of contractual allowances as established with various government related programs and managed care and commercial payers. For the six months ended June 30, 2012 and 2011, contractual allowances totaled $20,511,000 and $13,939,000, respectively. Accounts receivable is stated net of an allowance for doubtful accounts of $328,000 and $337,000 and net of contractual allowances of $2,367,000 and $2,099,000 as of June 30, 2012 and December 31, 2011, respectively.
NOTE 3 PARTNERSHIP INTERESTS IN CLOSELY HELD BUSINESSES
The Partnership accounted for investments in the following closely held businesses under the equity method of accounting:
June 30, 2012 | December 31, 2011 | |||||||||||||||
Limited Partnership Interest |
Carrying Value |
Limited Partnership Interest |
Carrying Value |
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Dallas Stone Management, L.P. |
6.92 | % | $ | 467,043 | 6.92 | % | $ | 475,030 | ||||||||
North Texas Stone Management, L.P. |
30.00 | % | 95,895 | 30.00 | % | 121,667 | ||||||||||
USMD Hospital at Arlington, L.P. |
23.44 | % | 6,696,153 | 23.44 | % | 6,097,029 | ||||||||||
USMD Hospital at Fort Worth, L.P. |
10.86 | % | 913,027 | 10.86 | % | 718,271 | ||||||||||
Metro I Stone Management, L.P. |
88.55 | % | 670,638 | 88.55 | % | 529,454 | ||||||||||
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$ | 8,842,756 | $ | 7,941,451 | |||||||||||||
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NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30, 2012 | December 31, 2011 |
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Office equipment |
$ | 1,231,095 | $ | 1,227,448 | ||||
Medical equipment and systems |
17,011,365 | 16,596,194 | ||||||
Furniture and fixtures |
1,124,945 | 1,113,494 | ||||||
Leasehold improvements |
9,642,781 | 9,557,084 | ||||||
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Gross property and equipment |
29,010,186 | 28,494,220 | ||||||
Less: accumulated depreciation |
(15,499,020 | ) | (13,629,218 | ) | ||||
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Property and equipment, net |
$ | 13,511,166 | $ | 14,865,002 | ||||
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Urology Associates of North Texas, L.L.P.
Notes to Unaudited Condensed Combined Financial Statements (Continued)
NOTE 5 ADVANCE LOAN AND LONG-TERM DEBT
In March 2012, the Partnership executed an advance promissory note in the aggregate amount of $2,680,000. Advances are expected to be made on this advance note to fund 2012 capital expenditures until the advance loan termination date in March 2013. The advance note requires interest only payments on a monthly basis at LIBOR plus 2.25% with a minimum floor of 4.0% until March 2013. Beginning in March 2013, the outstanding balance is repaid in 60 equal monthly principle installments plus interest at LIBOR plus 2.25% with a minimum floor of 4.0%. As of June 30, 2012, the Partnership has received advances totaling $793,868.
NOTE 6 RELATED PARTY TRANSACTIONS
The Partnership has transactions in the ordinary course of business with entities that are related through common ownership or management or in which it holds investment interests.
For the six months ended June 30, 2012 and 2011, the Partnership was billed management fees and contract labor of $639,000 and $593,000, respectively, by USMD Cancer Treatment Centers, LLC, a wholly-owned subsidiary of USMD Inc., in which certain partners of UANT hold a cumulative 8.31% ownership interest. At June 30, 2012 and December 31, 2011, $105,000 and $97,000 was due to USMD Cancer Treatment Centers, LLC for these fees and costs and is included in due to related parties on the condensed combined balance sheets.
For the six months ended June 30, 2012 and 2011, the Partnership was billed monthly rental and common area maintenance fees totaling $475,000 and $321,000, respectively, by USMD Hospital at Arlington, L.P. (USMD Arlington), in which the Partnership has a limited partnership interest. For the six months ended June 30, 2012 and 2011, the Partnership was billed tenant improvement construction costs totaling $-0- and $285,000, respectively, by USMD Arlington. For the six months ended June 30, 2012 and 2011, for services rendered in connection with research studies conducted, the Partnership was billed $1,000 and $92,000, respectively, by USMD Arlington. At June 30, 2012 and December 31, 2011, $-0- and $145,900 was due to USMD Arlington for these fees and costs and included due to related parties on the condensed combined balance sheets.
For the six months ended June 30, 2012 and 2011, the Partnership billed USMD Arlington tenant improvement allowances totaling $160,000 and $-0-, respectively. As of June 30, 2012 and December 31, 2011, $19,000 and $196,000, respectively, was due from this related party and included in due from related parties on the condensed combined balance sheets.
For the six months ended June 30, 2012 and 2011, the Partnership billed USMD Arlington for radiation therapy services of $158,000, and $65,000, respectively. As of June 30, 2012 and December 31, 2011, $80,000 and $93,000, respectively, was due from this related party for these fees and included in due from related parties on the condensed combined balance sheets.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Leases
The Partnership leases certain medical office space and medical equipment under non-cancelable operating leases expiring between the years 2012 and 2021. Total expenditures related to these leases were $1,941,195 and $1,455,354 for the six months ended June 30, 2012 and 2011, respectively, and are included in rent expense on the condensed combined statements of income. Future minimum lease payments under non-cancelable operating lease agreements at June 30, 2012 are as follows:
July 2012 - December 2012 |
$ | 1,393,323 | ||
2013 |
2,571,671 | |||
2014 |
2,125,704 | |||
2015 |
1,957,601 | |||
2016 |
1,835,328 | |||
2017 |
1,574,949 | |||
Thereafter |
3,672,490 | |||
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Total |
$ | 15,131,066 | ||
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Financial Guarantees
UANT Ventures along with other partners of USMD Arlington have guaranteed, in proportion to their limited partner interest in the hospital, USMD Arlington building, land, and equipment acquisition notes payable of $36.5 million and $37.6 million as of June 30, 2012 and December 31, 2011, respectively. UANT Ventures along with other partners of USMD Fort Worth have guaranteed, in proportion to their limited partner interest in the hospital, USMD Fort Worth equipment acquisition notes payable of $4.3 million and $5.0 million as of June 30, 2012 and December 31, 2011, respectively. Should USMD Arlington and USMD Fort Worth fail to pay the obligations due, the Partnership could potentially be required to make maximum aggregate payments totaling $9.0 million. The guarantees provide for recourse; however, if UANT were required to perform under the guarantee, recovery of any amount would be unlikely. The remaining terms of these guarantees range from one to 31 months. UANT records a liability for performance under financial guarantees, when, upon review of available financial information of USMD Arlington and/or USMD Fort Worth and in consideration of pertinent factors, management determines that it is probable it will have to perform under the guarantee and the liability is reasonably estimable. UANT has not recorded a liability for these guarantees, as UANT believes it is not probable that it will have to perform under these agreements.
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Urology Associates of North Texas, L.L.P.
Notes to Unaudited Condensed Combined Financial Statements (Continued)
In addition, the individual partners of UANT Ventures have guaranteed USMD Fort Worth building and land acquisition notes payable of $0.8 million as of June 30, 2012 and December 31, 2011.
Litigation
The Company is currently subject to a medical malpractice lawsuit. The parties are in the early stages of discovery and the plaintiff has not made specific demands for damages. As such, the Company is unable to estimate a range of loss. The Company is insured against such claims; however based on the facts known to date, the Company believes that any damage award related to such claims would be recoverable from its insurer.
Commitment to Enter into a Businesses Combination
On August 19, 2010, UANT entered into the Contribution and Purchase Agreement (such agreement, the Original Contribution Agreement), with USMD Holdings, Inc., a Delaware corporation (Holdings), USMD Inc., a Texas corporation (USMD), and UANT Ventures, L.L.P., a Texas limited liability partnership (Ventures) pursuant to which the entities agreed to combine into a single integrated health services company (such transaction, the Contribution). Immediately prior to the Contribution, a subsidiary of Ventures would merge with and into UANT, with UANT surviving as a wholly-owned subsidiary of Ventures, and certain of the USMD shareholders would contribute all or a portion of their shares of USMD common stock to Ventures in exchange for partnership interests in Ventures. When the Contribution is consummated, Ventures would contribute all of its assets, which would include its equity interests in USMD and UANT, and the remaining USMD shareholders would contribute their USMD shares to Holdings in exchange for shares of Holdings common stock. Holdings described the Contribution in its Registration Statement on Form S-4 filed with the Securities and Exchange Commission (the SEC) on December 23, 2010 (File No. 333-171386) and declared effective by the SEC on July 25, 2011. On August 23, 2011, the shareholders of USMD and the partners of Ventures voted on and approved the Original Contribution Agreement.
Prior to the consummation of the Contribution, Ventures and Holdings entered into a merger agreements with The Medical Clinic of North Texas, P.A., a Texas professional association (MCNT), and Impel Management Services, L.L.C., a Texas limited liability company (Impel). As a result of these merger agreements, on February 9, 2012, Holdings, USMD, UANT and Ventures executed an amendment to the Original Contribution Agreement (the Amendment) to reflect, among other changes, the effects of the merger agreements on the Contribution. On May 21, 2012, Ventures, Holdings, MCNT and Impel executed a corresponding amendment to the merger agreements. On May 29, 2012, USMD, Ventures, MCNT and Impel voted on and approved the Amendment.
On February 10, 2012, Holdings filed a post-effective amendment to its Form S-4 registration statement describing the amended transaction. The post-effective amendment to the Form S-4 registration statement was declared effective by the SEC on April 30, 2012.
NOTE 8 SUBSEQUENT EVENTS
The Partnership evaluated its financial statements for subsequent events through September 4, 2012, the date the financial statements were available to be issued.
Consummation of the Businesses Combination
Effective August 31, 2012, UANT and the other parties to the Contribution consummated the mergers and Contribution described in Note 7, and, as a result, UANT and Ventures were effectively acquired at that date as described in the Contribution and merger agreements.
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