1. Annual Report NovaMed Kristin Catlin ACG2021 Sect. 004

2. Executive Summary NovaMed Inc. is a healthcare services company that acquires, develops and operates ambulatory surgery centers (ASCs) in joint ownership with physicians throughout the United States. NovaMed currently owns and operates 30 ASCs in 16 states. NovaMed Annual Report

3. Part A. Introduction  Chief Executive Officer: Thomas S. Hall  Location of home office: Chicago, Illinois  Ending date of latest fiscal year: December 31, 2005  NovaMed’s owns and operates ambulatory surgery centers, optical laboratories, optical products purchasing organization and a marketing products and services business  Main geographic area of activity: United Sates

4. Part A. Audit Report  Name of the company’s independent auditors: PricewaterhouseCoopersLLP  In review of NovaMed’s 2005 consolidated financial statements, the auditing committee has declared the statements to be in compliance with the accounting principles generally accepted in the United States.

5. Part A. Stock Market Information  Most recent price of the company’s stock : $7.30  Twelve month trading range of the company’s stock: $4.10-$7.25  Dividend per share: 0.00  Date of the above information: April 21, 2006  I believe that NovaMed is a good investment. The company is acquiring more surgery centers and the stock price is steadily increasing.

6. Part B. Industry Situation and Company Plans NovaMed is continuing to grow. In 2005 alone, the company acquired four new ambulatory surgery centers. NovaMed plans to acquire and develop new ASCs, strengthen and build relationships with existing and new physician-partners, and continue to increase revenue and improve operating margins in their existing ASCs. http://novamed.com/ http://finance.yahoo.com/q/pr?s=nova

7. Part C. Income Statement  The format is most like a multi-step  NovaMed has increased in operating and net income, and gross profit since 2004. As the NovaMed acquires more ASCs, their income and profits increase, respectively. 20052004 Gross Profit$61,598 thousand$48,214 thousand Operating Income$16,357 thousand$10,885 thousand Net Income$5,589 thousand$2,846 thousand

8. Part C. Balance Sheet  The stockholders equity account remained relatively stable with a moderate increase from 2004 to 2005. The liabilities account increased fairly dramatically with a $12,521 thousand change. Assets =Liabilities +Stockholder Equity 2005$97,162 thousand $38,487 thousand $58,675 thousand 2004$76,787 thousand $25,966 thousand $50,821 thousand

9. Part C. Statement of Cash Flows Part C. Statement of Cash Flows  Cash flows from operations is significantly more than net income for the past two years ($11,759 thousand vs $5,589 thousand).  The company is growing through investing activities (acquisitions, property, equipment, minority interests, securities).  The company’s primary source of financing is borrowings under revolving credit agreement  Overall, cash has increased significantly over the past two years.

10. Part D. Accounting Policies  NovaMed consolidates the accounts of an ASC in which it does not hold a majority ownership interest. NovaMed uses the equity method of accounting for the other ASCs in which it owns a minority interest. The company consolidates two physician practice management (PPM) entities under the guidance of EITF 97-2. Inventory consists of optical products and surgical supplies used in operating the company’s ASCs.

11. Topics of the Notes to the Financial Statements  General Information  Restatement  Summary of Significant Accounting Policies  Earnings Per Common Share  Statement of Cash Flows- Supplemental  Acquisitions and Sales of Minority Interests  Property and Equipment  Goodwill and Other Intangible Assets  Accrued Expenses  Discontinued Operations  Income Taxes  Long-Term Debt  Operating and Capital Leases  Commitments and Contingents  Stockholders’ Equity  Employee Benefit Plans  Operating Segments  Related-Party Transactions  Subsequent Events  Quarterly Financial Data

12. Part E. Financial Analysis Liquidity Ratios 20052004 Working Capital$7,029 thousand$1,928 thousand Current Ratio1.651.16 Receivable Turnover7.35 times5.76 times Average days’ sales uncollected 49.66 days63.37 days Inventory turnover11.14 times8.76 times Average days’ inventory on hand 32.76 days41.67 days  As the number of ASCs NovaMed acquires increases, so does its working capital, current ratio, receivable, and inventory turnover.

13. Part E. Financial Analysis Profitability Ratios 20052004 Profit Margin6.89%4.47% Asset Turnover.93 times.73 times Return on assets6.43%3.27% Return on equity10.21%5.20%  The profit margin, asset turnover, return on assets, and return on equity have all increased from 2004 to 2005 due to additional ASCs acquired, thus increasing profits, assets, and stockholders equity.

14. Part E. Financial Analysis Solvency Ratio The debt to equity ratio of 18.44% for 2005 and 24.06% for 2004 means that NovaMed receives the majority of its financing from investors. 20052004 Debt to equity18.44%24.06%

15. Part E. Financial Analysis Market Strength Ratios 20052004 Price/earnings per share 29.2 times47.9 times Dividend yield _______