<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file 000-22751
CONCENTRA MANAGED CARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3363415
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
312 Union Wharf, Boston Massachusetts 02109
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 367-2163
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days.
Yes {X} No { }
At September 30, 1997, the registrant had outstanding an aggregate of
38,169,915 shares of its Common Stock, $.01 par value.
<PAGE>
Concentra Managed Care, Inc.
INDEX
<TABLE>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets at December 31, 1996 and September 30, 1997 (Unaudited)................................. 3
Consolidated Statements of Operations (Unaudited) for the Three and Nine Months ended September 30, 1996 and 1997.. 4
Consolidated Statements of Cash Flow (Unaudited) for the Nine Months Ended September 30, 1996 and 1997.............. 5
Notes to Consolidated Financial Statements (Unaudited).............................................................. 6
Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 8
PART II. OTHER INFORMATION.......................................................................................... 12
Signature........................................................................................................... 13
EXHIBIT INDEX....................................................................................................... 14
</TABLE>
2
<PAGE>
Concentra Managed Care, Inc.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND SEPTEMBER 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
ASSETS 31, 1996 30, 1997
- ------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................................... $ 56,056,000 $ 19,747,000
Short-term investments.......................................................... 12,045,000 --
Accounts receivable, net........................................................ 75,145,000 109,587,000
Prepaid expenses and prepaid taxes.............................................. 8,025,000 15,177,000
-------------- --------------
Total current assets.......................................................... 151,271,000 144,511,000
PROPERTY AND EQUIPMENT, NET...................................................... 44,564,000 58,682,000
GOODWILL AND OTHER INTANGIBLES, NET.............................................. 155,140,000 218,590,000
OTHER ASSETS..................................................................... 7,772,000 3,293,000
-------------- --------------
$ 358,747,000 $ 425,076,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit facility....................................................... $ 5,700,000 $ 39,000,000
Current portion of long-term debt............................................... 940,000 522,000
Accounts payable and accrued expenses........................................... 29,015,000 57,264,000
-------------- --------------
Total current liabilities..................................................... 35,655,000 96,786,000
LONG-TERM DEBT................................................................... 99,089,000 98,511,000
LONG-TERM DEFERRED TAX AND OTHER LIABILITIES..................................... 14,884,000 18,853,000
STOCKHOLDERS' EQUITY :
Common stock.................................................................... 373,000 382,000
Paid-in-capital................................................................. 234,207,000 241,025,000
Retained deficit................................................................ (25,461,000) (30,481,000)
-------------- --------------
Total stockholders' equity.................................................... 209,119,000 210,926,000
-------------- --------------
$ 358,747,000 $ 425,076,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
Concentra Managed Care, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
------------- ------------- ------------- --------------
REVENUE:
Field case management............................. $ 30,130,000 $ 35,150,000 $ 88,900,000 $ 102,171,000
Specialized cost containment...................... 15,918,000 29,441,000 42,132,000 78,039,000
------------- ------------- ------------- --------------
Managed care services........................... 46,048,000 64,591,000 131,032,000 180,210,000
Health services................................... 46,917,000 55,968,000 127,345,000 155,016,000
------------- ------------- ------------- --------------
Total revenue................................... 92,965,000 120,559,000 258,377,000 335,226,000
COST OF SERVICES:
Managed care services............................. 37,646,000 51,675,000 107,649,000 145,375,000
Health services................................... 34,655,000 40,009,000 97,268,000 114,225,000
------------- ------------- ------------- --------------
Total cost of services.......................... 72,301,000 91,684,000 204,917,000 259,600,000
------------- ------------- ------------- --------------
Total gross profit.............................. 20,664,000 28,875,000 53,460,000 75,626,000
General and administrative expenses................ 7,821,000 9,351,000 22,556,000 26,903,000
Amortization of intangibles........................ 877,000 1,348,000 2,381,000 3,658,000
Non-recurring charge............................... -- 38,625,000 -- 38,625,000
------------- ------------- ------------- --------------
Operating income (loss)......................... 11,966,000 (20,449,000) 28,523,000 6,440,000
Interest expense................................... 612,000 2,525,000 2,211,000 6,370,000
Interest income.................................... (432,000) (582,000) (596,000) (2,214,000)
Other, net......................................... 338,000 226,000 634,000 1,035,000
------------- ------------- ------------- --------------
Income (loss) before income taxes.................. 11,448,000 (22,618,000) 26,274,000 1,249,000
Provision (benefit) for income taxes............... 4,312,000 (3,389,000) 10,183,000 5,999,000
------------- ------------- ------------- --------------
Net income (loss).................................. $ 7,136,000 ($19,229,000) $ 16,091,000 ($4,750,000)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Primary earnings (loss) per share.................. $ 0.19 ($0.49) $ 0.44 ($0.12)
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
Weighted average shares outstanding................ 38,426,000 39,270,000 36,736,000 38,796,000
------------- ------------- ------------- --------------
------------- ------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
Concentra Managed Care, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net income (loss)................................................................... $ 16,091,000 ($4,750,000)
Items not requiring cash:
Depreciation of property and equipment............................................ 4,624,000 7,468,000
Amortization of goodwill and other intangibles.................................... 2,381,000 3,658,000
Amortization and write-off of start-up costs...................................... 224,000 2,850,000
Change in assets and liabilities:
Accounts receivable............................................................... (13,121,000) (44,233,000)
Prepaid expenses, prepaid income taxes and other assets........................... (722,000) (5,313,000)
Accounts payable, accrued expenses and income taxes............................... 4,355,000 40,273,000
------------- -------------
Cash flows from (used for) operations............................................ 13,832,000 (47,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in acquisitions, net of cash acquired................................... (31,886,000) (69,524,000)
Purchase of property and equipment................................................. (15,735,000) (16,945,000)
Sale of short-term investments..................................................... -- 12,045,000
------------- -------------
Cash flows used for investing activities......................................... (47,621,000) (74,424,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under the credit facility........................................... (4,300,000) 33,300,000
Payment on the Junior Subordinated Notes........................................... (5,000,000) --
Proceeds from the issuance of long-term debt....................................... 19,347,000 1,438,000
Payments for equity issuance costs................................................. (168,000) --
Payment on long-term debt and capital Leases....................................... (1,816,000) (49,000)
Payment of dividends............................................................... (1,445,000) --
Net proceeds from sale of common stock............................................. 51,840,000 --
Proceeds from the sale of common stock under employee
stock purchase plan, stock option plans, and warrants............................. 4,673,000 3,473,000
------------- -------------
Cash flows from financing activities............................................. 63,131,000 38,162,000
------------- -------------
NET INCREASE (DECREASE) IN CASH..................................................... 29,342,000 (36,309,000)
------------- -------------
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........................................ 10,740,000 56,056,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD............................................ $ 40,082,000 $ 19,747,000
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Concentra Managed Care, Inc.
Notes to Financial Statements
(Unaudited)
The accompanying unaudited financial statements have been prepared by
Concentra Managed Care, Inc. (the "Company" or "Concentra Managed Care")
pursuant to the rules and regulations of the Securities and Exchange
Commission, and reflect all adjustments (all of which are of a normal
recurring nature, with the exception of the non-recurring charge) which, in
the opinion of management, are necessary for a fair statement of the results
of the interim periods presented. These financial statements do not include
all disclosures associated with the annual financial statements and,
accordingly, should be read in conjunction with the attached Management's
Discussion and Analysis of Financial Condition and Results of Operations and
the financial statements and footnotes for the year ended December 31, 1996
included in CRA Managed Care, Inc. ("CRA") and OccuSystems, Inc.
("OccuSystems") Form 10-Ks filed with the Securities and Exchange Commission
during March of 1997 and the Company's Form S-4 filed with the Securities and
Exchange Commission on July 31, 1997.
(1) BASIS OF PRESENTATION
On August 29, 1997, Concentra Managed Care, a corporation owned by CRA
and OccuSystems, CRA and OccuSystems merged pursuant to an Agreement and Plan
of Reorganization (the "Reorganization Agreement") dated April 21, 1997. The
Reorganization Agreement provided for the simultaneous mergers (the
"Mergers") (i) of OccuSystems with and into Concentra Managed Care, with
Concentra Managed Care as the surviving corporation of such merger and (ii)
of a newly-formed subsidiary of Concentra Managed Care into CRA, with CRA as
the surviving corporation of such merger. As a result of these mergers, CRA
changed its name to Concentra Managed Care Services, Inc. ("Managed Care
Services") and OccuCenters, Inc., the operating subsidiary of OccuSystems,
changed its name to Concentra Health Services, Inc. ("Health Services"). The
Mergers were a tax-free stock for stock exchange accounted for as a pooling
of interests. The outstanding shares of CRA and OccuSystems were exchanged
for new shares in Concentra Managed Care in the Mergers. The 22,022,378
outstanding shares of OccuSystems were exchanged one for one for shares of
Concentra Managed Care common stock while the 9,013,906 outstanding shares of
CRA were exchanged for 16,098,836 shares of Concentra Managed Care common
stock, representing a conversion ratio 1.786 to 1.0.
(2) CREDIT FACILITY
On September 4, 1997, the Company entered into a new $100,000,000 senior
credit facility (the "Credit Facility") with a syndicate of five banks. Interest
on borrowings under the Credit Facility is payable, at the Company's option, at
the bank's prime rate, or LIBOR plus an additional percentage of up to 1.25%,
depending on certain financial criteria. This Credit Facility replaces a
$60,000,000 credit facility that CRA had prior to the Mergers and a $60,000,000
credit facility that OccuSystems had prior to the Mergers.
6
<PAGE>
Concentra Managed Care, Inc.
Notes to Financial Statements
(Unaudited)
(3) PRO FORMA EARNINGS PER SHARE UNDER PENDING ACCOUNTING STANDARD
The Financial Accounting Standards Board issued Statement of Accounting
Standards No. 128 ("SFAS 128"), Earnings Per Share which supersedes
Accounting Opinion Bulletin No. 15. SFAS 128 establishes new accounting
standards for the presentation of earnings per share whereby primary earnings
per share is replaced with "Basic Earnings Per Share" and fully diluted
earnings per share is now called "Diluted Earnings Per Share". Under SFAS
128, Basic Earnings Per Share is computed by dividing reported earnings
available to common stockholders by weighted average common shares
outstanding and Diluted Earnings Per Share computes the effect of all other
outstanding common stock equivalents under the treasury stock method. SFAS
128 is effective for quarterly and annual periods ending after December 15,
1997. Had the Company adopted SFAS 128, Basic Earning Per Share and Diluted
Earnings Per Share would have been as shown in the following table. Diluted
Earning Per Share for the three and nine months ended September 30, 1997 have
not been shown as they are anti-dilutive.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
1996 1997 1996 1997
------------ ------------- ------------- ------------
Basic Earnings per Share:
Net income (loss) available to shareholders........... $ 7,136,000 ($19,229,000) $ 16,091,000 ($4,750,000)
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
Average shares of common stock outstanding............ 37,200,000 38,027,000 34,995,000 37,734,000
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
Basic Earnings (loss) per Share....................... $ 0.19 ($0.51) $ 0.46 ($0.13)
------------ ------------- ------------- ------------
------------ ------------- ------------- ------------
Diluted Earnings per Share:
Net income available to shareholders.................. $ 7,136,000 $ 16,091,000
Interest on common stock equivalents, net of tax...... 8,000 179,000
------------ -------------
Diluted net income................................... 7,144,000 16,270,000
------------ -------------
------------ -------------
Average shares of common stock outstanding............ 37,200,000 34,995,000
Dilutive options and warrants......................... 1,226,000 1,741,000
Dilutive convertible debentures....................... 95,000 138,000
------------ -------------
Diluted shares of common stock and equivalents...... 38,521,000 36,874,000
------------ -------------
------------ -------------
Diluted Earnings per Share............................ $ 0.19 $ 0.44
------------ -------------
------------ -------------
</TABLE>
7
<PAGE>
Concentra Managed Care, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the financial statements and
footnotes for the nine months ended September 30, 1997 and the year ended
December 31, 1996 contained in the CRA Managed Care, Inc. and OccuSystems, Inc.
Form 10-Ks filed with the Securities and Exchange Commission during March of
1997 and the Company's Form S-4 filed with the Securities and Exchange
Commission on July 31, 1997.
OVERVIEW
Managed Care Services provides field case management and specialized cost
containment services designed to reduce workers' compensation costs. Field
case management services involve working on a one-on-one basis with injured
employees and their various health care professionals, employers and
insurance company adjusters to assist in maximizing medical improvement and,
where appropriate, to expedite return to work. Historically, the Company's
field case management revenue growth has resulted from both local market
share gains as well as geographic office expansion. The Company believes that
its field case management office network is of sufficient size to serve
adequately the needs of its nationwide customers. As a result, the Company
anticipates opening open only a few new field case management offices per
year to satisfy client needs in selected regions. Since 1990, the Company has
also offered specialized cost containment services. Specialized cost
containment services include utilization management, telephonic case
management, and retrospective bill review services that are designed to
reduce the cost of workers' compensation claims and automobile accident
injury claims. Managed Care Services has experienced a significant amount of
growth in its specialized cost containment services by virtue of the
following acquisitions: 1) FOCUS HealthCare Management, Inc. ("FOCUS") on
April 2, 1996, 2) QMC3, Inc. ("QMC3") on May 29, 1996, 3) Prompt Associates,
Inc. ("Prompt") on October 29, 1996 and 4) First Notice Systems, Inc.
("FNS"), on June 4, 1997.
Health Services manages occupational healthcare centers at which it provides
support personnel, marketing, information systems, and management services to
its affiliated physicians. Health Services owns all of the operating assets of
the occupational healthcare centers, including leasehold interests and medical
equipment. Health Services derives its net patient service revenues primarily
from the diagnosis, treatment and management of work-related injuries and
illnesses and from other occupational healthcare services such as
employment-related physical examinations, drug and alcohol testing, functional
capacity testing and other related programs. Health Services rapid growth has
resulted primarily from acquisitions of practices principally engaged in
occupational healthcare. For the nine month period ended September 30, 1997,
Health Services derived 63.6% of its net revenues from the treatment of
work-related injuries and illnesses and 36.4% of its net revenues from
non-injury related medical services.
8
<PAGE>
Concentra Managed Care, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table provides certain information concerning the Company's
service locations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER NINE
MONTHS
31, ENDED
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -----------------
<S> <C> <C> <C>
Service locations at the end of the period:
Field case management.............................................................. 110 118 122
Cost containment services.......................................................... 50 70 83
Medical centers (1) (2)............................................................ 71 109 122
Physician practices acquired during the period(2)(3)................................ 24 32 6
Physician practices developed during the period..................................... 3 10 8
Number of affiliated physicians at the end of the period(2)......................... 129 196 217
Medical centers--same market growth(4).............................................. 12.2% 10.7% 10.7%
</TABLE>
(1) Does not include the assets of practices which were acquired and
subsequently divested or consolidated into existing centers within a market.
(2) Does not include the purchase of 16 occupational medical centers, or 32
affiliated physicians, in five states from Vencor, Inc. on September 30,
1997. This acquisition expands the Company's network of occupational health
centers to three new states and four new markets.
(3) Represents the assets of practices which were acquired during each period
presented and not subsequently divested.
(4) Same market revenue growth sets forth the aggregate net change from the
prior period for all markets in which the Company has operated for longer
than one year (excluding revenue growth due to acquisitions of additional
centers).
REVENUES
Revenues increased 29.7% in the third quarter of 1997 to $120,559,000 from
$92,965,000 in the third quarter of 1996. Field case management revenues
increased 16.7% in the third quarter of 1997 to $35,150,000 from $30,130,000 in
the third quarter of 1996, specialized cost containment revenues increased 85.0%
in the third quarter of 1997 to $29,441,000 from $15,918,000 in the third
quarter of 1996, while health services increased 19.3% in the third quarter of
1997 to $55,968,000 from $46,917,000 in the third quarter of 1996.
Revenues increased 29.7% for the nine months of 1997 to $335,226,000 from
$258,377,000 for the nine months of 1996. Field case management revenues
increased 14.9% for the nine months of 1997 to $102,171,000 from $88,900,000 for
the nine months of 1996, specialized cost containment revenues increased 85.2%
for the nine months of 1997 to $78,039,000 from $42,132,000 for the nine months
of 1996, while health services increased 21.7% for the nine months of 1997 to
$155,016,000 from $127,345,000 for the nine months of 1996.
The field case management revenue growth is primarily attributable to growth
in revenues from existing service locations and the opening of 12 offices
subsequent to December 31, 1995. The specialized cost containment revenue growth
is largely attributable to the acquisition of FOCUS, QMC3, Prompt and FNS.
Excluding these acquisitions, cost containment revenues for the nine months
ended September 30, 1997 would have increased approximately 41.3% over 1996.
This revenue increase is attributable to growth in retrospective bill review,
telephonic case management and claims review services in existing service
locations and the addition of 25 service locations subsequent to December 31,
1995, excluding the service locations associated with the FOCUS, QMC3, Prompt
and FNS acquisitions. The health services revenue growth resulted from the
acquisition of practices, development of sites in new markets, an increase of
business in existing markets, as well as an increase in consulting and other
ancillary services.
9
<PAGE>
Concentra Managed Care, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
COST OF SERVICES
Total cost of services increased 26.8% in the third quarter of 1997 to
$91,684,000 from $72,301,000 in the third quarter of 1996. Managed care services
cost of services increased 37.3% in the third quarter of 1997 to $51,675,000
from $37,646,000 in the third quarter of 1996 while health services increased
15.4% in the third quarter of 1997 to $40,009,000 from $34,655,000 in the third
quarter of 1996.
Total cost of services as a percentage of revenue decreased to 76.1% in the
third quarter of 1997 compared to 77.8% in the third quarter of 1996. Managed
care services cost of services as a percentage of revenue decreased to 80.0% in
the third quarter of 1997 compared to 81.8% in the third quarter of 1996, while
health services cost of services as a percentage of revenue decreased to 71.5%
in the third quarter of 1997 compared to 73.9% in the third quarter of 1996.
Total cost of services increased 26.7% in the nine months of 1997 to
$259,600,000 from $204,907,000 in the nine months of 1996. Managed care services
cost of services increased 35.0% in the nine months of 1997 to $145,375,000 from
$107,649,000 in the nine months of 1996 while health services increased 17.4% in
the nine months of 1997 to $114,225,000 from $97,268,000 in the nine months of
1996.
Total cost of services as a percentage of revenue decreased to 77.4% in the
nine months of 1997 compared to 79.3% in the nine months of 1996. Managed care
services cost of services as a percentage of revenue decreased to 80.7% in the
nine months of 1997 compared to 82.2% in the nine months of 1996 while health
services cost of services as a percentage of revenue decreased to 73.7% in the
nine months of 1997 compared to 76.4% in the nine months of 1996.
Managed care services has seen improvement in gross margin primarily
resulting from a shift in its services revenue mix towards specialized cost
containment services, including the services provided by FOCUS, QMC3, Prompt
and FNS, which historically have had higher gross profit margins than
revenues derived from field case management. Health services gross profit
margin improvement has resulted from the practices acquired and developed
prior to 1997 having increased gross profit margins, partially offset by
lower margins or recent practices acquired or developed. As certain functions
are consolidated and other staff-related changes occur, coupled with
increased patient volume, the margins of acquired or developed practices have
tended to improve over time.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 19.6% in the third quarter of
1997 to $9,351,000 from $7,821,000 in the third quarter of 1996, or 7.8% and
8.4% as a percentage of revenue for the third quarter of 1997 and 1996,
respectively. General and administrative expenses increased 19.3% for the nine
months of 1997 to $26,903,000 from $22,556,000 for the nine months of 1996, or
8.0% and 8.7% as a percentage of revenue for the nine months of 1997 and 1996,
respectively. The increase in general and administrative expenses in 1997 was
due primarily to expenses associated with acquisitions and the continued
investment in the information, services and technology group.
AMORTIZATION OF INTANGIBLES
Amortization of intangibles increased 53.7% in the third quarter of 1997 to
$1,348,000 from $877,000 in the third quarter of 1996, or 1.1% and 0.9% as a
percentage of revenue for the third quarter of 1997 and 1996, respectively.
Amortization of intangibles increased 53.6% for the nine months of 1997 to
$3,658,000 from $2,381,000 for the nine months of 1996, or 1.1% and 0.9% as a
percentage of revenue for the nine months of 1997 and 1996, respectively. This
increase is the result of amortizing additional intangible assets such as
goodwill, customer lists and assembled workforces primarily associated with the
purchase of FOCUS , Prompt and FNS by Managed Care Services and various smaller
acquisitions by Health Services.
10
<PAGE>
Concentra Managed Care, Inc.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
NON-RECURRING CHARGE
The Company recorded a non-recurring charge of $38,625,000 associated with
the merger of CRA Managed Care, Inc. and OccuSystems, Inc. The charges incurred
were approximately $13,500,000 for professional fees and services, $7,500,000 in
costs associated with personnel reductions, $9,000,000 in facility
consolidations and closings, $5,600,000 associated with conforming accounting
policies related to the capitalization of deferred start-up costs and other
items and $3,025,000 of other merger and transitional costs.
INTEREST EXPENSE
Interest expense increased $1,913,000 in the third quarter of 1997 to
$2,525,000 from $612,000 in the third quarter of 1996 while interest expense
increased $4,159,000 for the nine months of 1997 to $6,370,000 from
$2,211,000 for the nine months of 1996 due primarily to increased outstanding
borrowings under the credit facilities to finance acquisitions and to the
issuance of $97,800,000 of 6% convertible subordinated notes in December,
1996.
INTEREST INCOME
Interest income increased $150,000 in the third quarter of 1997 to $582,000
from $432,000 in the third quarter of 1996 while interest income increased
$1,618,000 for the nine months of 1997 to $2,214,000 from $596,000 for the nine
months of 1996 due primarily to the investment of excess cash associated with
the issuance of the 6% Convertible Subordinated Notes until utilized to repay
borrowings under the Company's credit facilities.
OTHER EXPENSE
Other expense decreased $112,000 in the third quarter of 1997 to $226,000
from $338,000 in the third quarter of 1996 primarily due to the write-off of
deferred start-up costs which was included as part of the non-recurring charge.
Other expense increased $401,000 for the nine months of 1997 to $1,035,000 from
$634,000 for the nine months of 1996 due primarily to minority interests in
certain joint ventures.
PROVISION FOR INCOME TAXES
The Company's (benefit) provision for income taxes in the third quarter and
nine months of 1997 was $(3,389,000) and $5,999,000, respectively. Excluding the
tax effects of the non-recurring charge, the effective tax rate would have been
38.7% and 39.1% for the third quarter and nine months of 1997. The above
disparity in effective rate versus (benefit) provision is the result of the
impact of the non-deductibility of certain fees and expenses associated with the
merger. The Company expects to continue to provide for its taxes at an effective
tax rate of approximately 39%-40% for the remainder of the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used for operations was $47,000 for the first nine months of 1997
and cash flow generated from operations was $13,832,000 for the first nine
months of 1996. During the first nine months of 1997, working capital increased
$9,273,000 due primarily to an increase in accounts receivable of $44,233,000
and an increase in prepaid expenses and other assets of $5,313,000 offset by an
increase in accounts payable, accrued expenses and income taxes of $40,273,000.
Accounts receivable increased due to continued revenue growth while accounts
payable increased due to the timing of payments and the remaining obligations
relating to the non-recurring charge in the third quarter. The Company utilized
net cash of $69,524,000 in connection with the acquisition of FNS, the purchase
of 16 occupational medical centers from Vencor, Inc., and other acquisitions.
The Company also utilized $16,945,000 of cash to purchase property and equipment
during the first nine months of 1997, the majority of which was spent on new
computer and software technology. The Company received cash of $12,045,000 in
the connection with the sale of short-term investments.
The Company believes that cash flow generated from operations supplemented
by short-term borrowings under the new $100,000,000 Credit Facility, will be
sufficient to fund the Company's working capital, capital expenditure and debt
service requirements for at least the next twelve months.
11
<PAGE>
Concentra Managed Care, Inc.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11--Calculation of Primary Earnings Per Share
(b) Reports on Form 8-K
Form 8-K, dated August 29, 1997, regarding the merger of CRA Managed Care,
Inc. ("CRA") and OccuSystems, Inc., ("OccuSystems") and the acquisition of
occupational medical centers owned by Vencor, Inc. CRA and OccuSystems announced
the completion of their previously announced mergers to form Concentra Managed
Care, Inc. ("Concentra") pursuant to the Agreement and Plan of Reorganization
dated April 21, 1997. The Company also announced that it executed a definitive
agreement to purchase a network of 16 occupational medical centers from Vencor,
Inc.
12
<PAGE>
Concentra Managed Care, Inc.
SIGNATURE
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 thereunto duly authorized.
CONCENTRA MANAGED CARE, INC.
Date: November 14, 1997 By: /s/ Joseph F. Pesce
--------------------------------------
Joseph F. Pesce Executive Senior Vice
President - Finance and Administration, Chief
Financial Officer and Treasurer
13
<PAGE>
Concentra Managed Care, Inc.
EXHIBIT INDEX
PAGE
----
11 Concentra Managed Care, Inc.--Calculation of Primary Earnings Per Share 15
14
<PAGE>
Exhibit 11
Concentra Managed Care, Inc.
CALCULATION OF SHARES PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
1996 1997 1996 1997
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss)....................................... $ 7,136,000 ($19,229,000) $ 16,091,000 ($4,750,000)
Interest on common stock equivalents, net of tax........ -- 2,000 146,000 6,000
------------ ------------- ------------ ------------
Primary earnings (loss)................................. $ 7,136,000 ($19,227,000) $ 16,237,000 ($4,744,000)
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Weighted average number of shares of common stock
outstanding during the period......................... 37,200,000 38,027,000 34,995,000 37,734,000
Common stock equivalents, under the treasury stock
method................................................ 1,226,000 1,243,000 1,741,000 1,062,000
------------ ------------- ------------ ------------
Weighted average shares outstanding..................... 38,426,000 39,270,000 36,736,000 38,796,000
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Primary earnings (loss) per share....................... $ 0.19 ($0.49) $ 0.44 ($0.12)
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1.00
<CASH> 19,747,000
<SECURITIES> 0
<RECEIVABLES> 109,587,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 144,511,000
<PP&E> 58,682,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 425,076,000
<CURRENT-LIABILITIES> 96,786,000
<BONDS> 0
0
0
<COMMON> 382,000
<OTHER-SE> 210,544,000
<TOTAL-LIABILITY-AND-EQUITY> 425,076,000
<SALES> 0
<TOTAL-REVENUES> 335,226,000
<CGS> 0
<TOTAL-COSTS> 259,600,000
<OTHER-EXPENSES> 26,903,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,370,000
<INCOME-PRETAX> 1,249,000
<INCOME-TAX> 5,999,000
<INCOME-CONTINUING> (4,750,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,750,000)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
