<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 24, 1998
-------------------
CONCENTRA MANAGED CARE, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other 04-3363415
jurisdiction of 000-22751 (I.R.S. Employer
incorporation) (Commission File Number) Identification Number)
312 Union Wharf
Boston, Massachusetts
(Address of principal 02109
executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 367-2163
Not Applicable
(former address if changed since last report)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Form 8-K filed March 2, 1998 as
set forth in the pages attached hereto:
<PAGE>
Item 2. Acquisition or Disposition of Assets
On February 24, 1998, Concentra Managed Care, Inc. ("Concentra")
acquired all of the outstanding shares of Preferred Payment Systems, Inc. in
exchange for approximately $15 million in cash, 7.1 million shares of
Concentra common stock and the assumption by Concentra of PPS options
totalling approximately 580,000 shares (for each share of PPS common stock
outstanding at the time of the acquisition, Concentra issued 2.6474 shares of
Concentra common stock). PPS, now known as "Concentra Preferred Systems,"
became a wholly owned subsidiary of Concentra. The transaction was accounted
for as a pooling of interests. Concentra purchased the stock of PPS from PPS'
thirty shareholders on the date the transaction was consummated. Certain of
these shareholders, who had been officers of PPS prior to the acquisition,
became officers of Concentra Preferred Systems following the effective date
of the acquisition.
PPS, founded in 1990, is a nationwide provider of specialized cost
containment and outsourcing services for healthcare payors. Through its
portfolio of products, PPS reduces costs ordinarily payable on medical bills
submitted by healthcare providers and the administrative expense associated with
reviewing and analyzing such bills. PPS' services include professional fee
negotiation, line-item analysis, and other specialized audit and bill review
processes, as well as access to a nationwide PPO network. Concentra intends to
continue using the assets of PPS in a manner consistent with PPS' past practice
and in furtherance of the delivery of services described above.
2
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Consolidated Financial Statements of Business Acquired
Preferred Payment Systems, Inc. and Subsidiary Report of
Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997, 1996 and 1995
Consolidated Statements of Income for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(b) Consolidated Condensed Pro Forma Financial Statements (Unaudited)
Pro Forma Consolidated Condensed Balance Sheet as of December 31,
1997
Pro Forma Consolidated Condensed Statements of Operations for the
years ended December 31, 1997, 1996 and 1995
Notes to Pro Forma Consolidated Condensed Financial Statements
(c) Exhibits
3
<PAGE>
Preferred Payment Systems, Inc.
and Subsidiary
Consolidated Financial Statements
as of December 31, 1997, 1996 and 1995
Together With Auditors' Report
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Preferred Payment Systems, Inc. and Subsidiary:
We have audited the accompanying consolidated balance sheets of PREFERRED
PAYMENT SYSTEMS, INC. (a Delaware corporation) AND SUBSIDIARY as of December 31,
1997, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity (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 Preferred Payment Systems, Inc.
and Subsidiary as of December 31, 1997, 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
Chicago, Illinois
February 16, 1998
(except with respect to
matters discussed in
Note 10, as to which the
date is February 24,
1998)
5
<PAGE>
Exhibit 1
PREFERRED PAYMENT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1997 1996 1995
- ---------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,530,193 $ 2,164,528 $ 634,537
Accounts receivable, less allowance for
doubtful accounts of $1,254,204,
$283,129 and $230,164 for 1997, 1996 and
1995, respectively 7,032,161 3,597,958 4,067,064
Prepaid expenses 356,091 -- --
----------- ----------- -----------
Total current assets 9,918,445 5,762,486 4,701,601
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net 1,517,816 1,290,650 792,363
OTHER ASSETS:
Deferred financing costs, net 1,586,484 1,167,995 --
Goodwill, net 33,481,596 72,836 --
Other 43,597 2,935 110,918
----------- ----------- -----------
Total other assets 35,111,677 1,243,766 110,918
----------- ----------- -----------
Total assets $46,547,938 $ 8,296,902 $ 5,604,882
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
<PAGE>
Exhibit 1
Continued
PREFERRED PAYMENT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1997 1996 1995
- ---------------------------------------------- ------------ ------------ ----------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 7,000,000 $ 3,125,000 $ --
Accounts payable 1,190,922 547,039 319,518
Accrued expenses 2,045,023 1,152,170 576,460
Commissions payable 1,393,209 970,515 1,571,780
------------ ------------ ----------
Total current liabilities 11,629,154 5,794,724 2,467,758
------------ ------------ ----------
LONG-TERM INTEREST PAYABLE 401,092 100,273 --
------------ ------------ ----------
LONG-TERM DEBT:
Line of credit 500,000 500,000 --
Term loan 34,500,000 15,875,000 --
Convertible Subordinated Notes 10,000,000 10,000,000 --
Subordinated Notes 7,000,000 7,000,000 --
------------ ------------ ----------
Total long-term debt 52,000,000 33,375,000 --
------------ ------------ ----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, 1,000,000 shares
authorized and 0 shares issued and
outstanding during the years -- -- --
Common stock, $.01 par value, voting,
10,000,000 shares authorized in 1997
and 1996; 1,810,631 and 1,186,631 shares
issued and outstanding in 1997 and 1996,
respectively 18,106 11,866 --
Common stock, Class A, no par value,
9,500,000 shares authorized in 1995;
1,146,000 shares issued and outstanding
in 1995 -- -- 1,146
Common stock, Class B, no par value, 500,000
shares authorized in 1995; 24,531 shares
issued and outstanding in 1995 -- -- 95,200
Additional paid-in capital 9,923,604 127,968 --
Accumulated earnings (deficit) (27,424,018) (31,112,929) 3,040,778
------------ ------------ ----------
Total stockholders' equity
(deficit) (17,482,308) (30,973,095) 3,137,124
------------ ------------ ----------
Total liabilities and
stockholders' equity (deficit) $ 46,547,938 $ 8,296,902 $5,604,882
============ ============ ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
7
<PAGE>
Exhibit 2
PREFERRED PAYMENT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
NET REVENUE $34,927,024 $22,995,806 $ 22,313,762
DIRECT COSTS 9,252,762 6,335,990 7,768,670
----------- ----------- ------------
Gross profit 25,674,262 16,659,816 14,545,092
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 12,782,824 8,287,138 7,652,559
DEPRECIATION AND AMORTIZATION 1,264,392 386,710 187,205
----------- ----------- ------------
Income from operations 11,627,046 7,985,968 6,705,328
INTEREST EXPENSE (INCOME) 3,694,658 909,515 (46,895)
MINORITY INTEREST IN INCOME OF
SUBSIDIARY 556,000 -- --
----------- ----------- ------------
Income before state
replacement taxes 7,376,388 7,076,453 6,752,223
PROVISION FOR STATE REPLACEMENT TAXES 212,909 171,463 138,020
----------- ----------- ------------
NET INCOME $ 7,163,479 $ 6,904,990 $ 6,614,203
=========== =========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
8
<PAGE>
Exhibit 3
PREFERRED PAYMENT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Issued
(Number of Shares) Amount ($)
------------------------------- ---------------------------
Common Common
Stock Class A Class B Stock Class A Class B
--------- ---------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 -- 1,126,000 22,864 $ -- $ 1,126 $ 88,712
Issuance of common stock -- 20,000 1,667 -- 20 6,488
Net income -- -- -- -- -- --
Distributions to stockholders -- -- -- -- -- --
--------- ---------- ------- ------- ------- --------
BALANCE, December 31, 1995 -- 1,146,000 24,531 -- 1,146 95,200
1996 Transaction 1,170,531 (1,146,000) (24,531) 11,705 (1,146) (95,200)
Issuance of common stock 16,100 -- -- 161 -- --
Net income -- -- -- -- -- --
Distributions to stockholders -- -- -- -- -- --
--------- ---------- ------- ------- ------- --------
BALANCE, December 31, 1996 1,186,631 -- -- 11,866 -- --
Issuance of common stock 624,000 -- -- 6,240 -- --
Issuance of equity -- -- -- -- -- --
Accretion to redemption value -- -- -- -- -- --
Elimination of accretion to
redemption value -- -- -- -- -- --
Net income -- -- -- -- -- --
Distributions to stockholders -- -- -- -- -- --
--------- ---------- ------- ------- ------- --------
BALANCE, December 31, 1997 1,810,631 -- -- $18,106 $ -- $ --
========= ========== ======= ======= ======= ========
<CAPTION>
Additional Retained Stockholders'
Paid-in Earnings Equity
Capital (Deficit) (Deficit)
---------- ------------ ------------
<S> <C> <C> <C>
BALANCE, December 31, 1994 $ -- $ 2,564,401 $ 2,654,239
Issuance of common stock -- -- 6,508
Net income -- 6,614,203 6,614,203
Distributions to stockholders -- (6,137,826) (6,137,826)
---------- ------------ ------------
BALANCE, December 31, 1995 -- 3,040,778 3,137,124
1996 Transaction 84,641 -- --
Issuance of common stock 43,327 -- 43,488
Net income -- 6,904,990 6,904,990
Distributions to stockholders -- (41,058,697) (41,058,697)
---------- ------------ ------------
BALANCE, December 31, 1996 127,968 (31,112,929) (30,973,095)
Issuance of common stock 6,709,348 -- 6,715,588
Issuance of equity 3,086,288 -- 3,086,288
Accretion to redemption value -- (1,226,219) (1,226,219)
Elimination of accretion to
redemption value -- 1,226,219 1,226,219
Net income -- 7,163,479 7,163,479
Distributions to stockholders -- (3,474,568) (3,474,568)
---------- ------------ ------------
BALANCE, December 31, 1997 $9,923,604 $(27,424,018) $(17,482,308)
========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
9
<PAGE>
Exhibit 4
PREFERRED PAYMENT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,163,479 $ 6,904,990 $ 6,614,203
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 985,536 386,710 187,205
Loss recorded on property and equipment 278,856 -- --
Minority interest in income of
subsidiary 556,000 -- --
Changes in assets and liabilities-
Accounts receivable (1,618,489) 469,106 (130,133)
Prepaids (356,091) -- --
Accounts payable 605,063 227,521 120,159
Accrued expenses 620,194 51,643 (256,485)
Commissions payable 265,899 (601,265) (418,711)
Interest payable 300,819 624,340 --
------------ ------------ -----------
Net cash provided by operating
activities 8,801,266 8,063,045 6,116,238
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (609,754) (820,973) (347,312)
Cash paid in About Health Transaction, net (26,000,412) -- --
Change in other assets (37,434) 28,900 (24,287)
------------ ------------ -----------
Net cash used in investing
activities (26,647,600) (792,073) (371,599)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 26,489,243 37,500,000 --
Payments on long-term debt (3,989,243) (1,000,000) --
Distributions to stockholders and minority
interest (3,759,949) (41,058,697) (6,137,826)
Issuance of common stock 68,198 43,488 6,508
Deferred financing costs (596,250) (1,225,772) --
------------ ------------ -----------
Net cash provided by (used in)
financing activities 18,211,999 (5,740,981) (6,131,318)
------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 365,665 1,529,991 (386,679)
CASH AND CASH EQUIVALENTS, beginning of year 2,164,528 634,537 1,021,216
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,530,193 $ 2,164,528 $ 634,537
============ ============ ===========
</TABLE>
10
<PAGE>
Exhibit 4
Continued
PREFERRED PAYMENT SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period-
Interest $3,859,587 $301,044 $ 22,734
Taxes 176,013 120,296 225,445
========== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS:
Issuance of equity in connection with
About Health Transaction and the
Merger of About Health into PPS $9,733,678 $ -- $ --
========== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
11
<PAGE>
PREFERRED PAYMENT SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
1. DESCRIPTION OF BUSINESS
Preferred Payment Systems, Inc. and Subsidiary (the "Company" or "PPS") was
incorporated in August, 1996 as the successor to an Illinois corporation
organized in July, 1990. PPS is a leading nationwide provider of specialized
cost containment and outsourcing services for healthcare payors. Through its
comprehensive portfolio of services, the Company reduces for its clients
costs ordinarily payable on medical bills submitted by healthcare providers
and the administrative expense associated with reviewing and processing
medical bills. The Company's clients include indemnity health insurers, HMOs
and other managed care organizations, third-party administrators,
reinsurers, large self-insured employers, Blue Cross and Blue Shield
organizations and Taft-Hartley funds.
2. CERTAIN TRANSACTIONS
1996 Transaction
On August 31, 1996, the Company completed a series of transactions involving
funds managed by TA Associates, Inc., a private equity firm based in Boston,
Massachusetts (collectively, the "TA Investors"), and senior officers of the
Company (the "1996 Transaction"). In connection with the 1996 Transaction,
TA Investors invested $17.0 million to acquire $10.0 million in Convertible
Subordinated Notes of the Company (the "Convertible Subordinated Notes")
pursuant to a Convertible Note Purchase Agreement (the "Convertible Note
Purchase Agreement") and $7.0 million of Subordinated Notes of the Company
(the "Subordinated Notes") pursuant to a Subordinated Loan Agreement (the
"Subordinated Loan Agreement"). Each $1,000 principal amount of Convertible
Subordinated Notes is convertible into one share of the Company's Redeemable
Preferred Stock and one share of the Company's Convertible Preferred Stock.
In connection with the 1996 Transaction, the Company also incurred $20.5
million of indebtedness under a senior credit facility from two banks (the
"1996 Credit Facility"). The specific terms of these loans are described
more fully in Note 4. The Company, in turn, used the net proceeds from these
financing transactions to make distributions to its stockholders in an
aggregate amount of approximately $36.0 million and to purchase outstanding
options for approximately $430,000.
About Health Transaction
On July 31, 1997, the Company and About Health, Inc. ("About Health") formed
Preferred Payment Systems, LLC (the "Operating Company") for the purpose of
combining their businesses (the "About Health Transaction"). In connection
with the About Health Transaction, the Company contributed all of its assets
to the Operating Company in exchange for 10,000 Class A Preferred Units and
1,405,754 common units in the Operating Company and the assumption by the
Operating Company of substantially all the liabilities of the Company other
than the Convertible Subordinated Notes. About Health contributed
substantially all of its assets to the Operating Company in exchange for
$25.8 million in cash, 593,517 common units (valued at $5.20 per share) in
the Operating Company and the assumption by the Operating Company of
substantially all of the liabilities of About Health. In connection with the
About Health Transaction, the Company amended and restated the 1996 Credit
Facility (as so amended and restated, the "1997 Credit Facility") to
increase the amount available for borrowing by approximately $26.5 million.
The additional funds borrowed under the
12
<PAGE>
1997 Credit Facility were used to finance the $25.8 million cash payment to
the About Health stockholders and the fees associated with the About Health
Transaction and the amendment of the 1996 Credit Facility. On a fully
diluted basis, the Company owned 80% of the Operating Company plus a
security redeemable for $5 million. Profits, losses and cash distributions
of the Operating Company were generally allocated 80% to the Company and 20%
to About Health.
The About Health Transaction has been accounted for using the purchase
method. The purchase price was allocated to the fair value of the assets
acquired as follows:
<TABLE>
<S> <C>
Accounts receivable $1,815,714
Other assets 3,228
Property, plant and equipment 189,946
Accounts payable and accrued
expenses (468,274)
----------
$1,540,614
==========
</TABLE>
The excess of the purchase price over the net assets acquired of $27.5
million has been recorded as goodwill and is being amortized on a
straight-line basis over 30 years.
The following unaudited pro forma results of operations data for fiscal
1997, 1996 and 1995 assumes that the About Health Transaction and the Merger
of About Health into PPS occurred as of January 1, 1995 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net revenue $43,826 $33,130 $25,394
======= ======= =======
Net income $ 5,257 $ 9,023 $ 2,783
======= ======= =======
</TABLE>
The pro forma net income for 1997 includes a one-time charge of
approximately $3.7 million for bonuses relating to About Health.
Merger of About Health into PPS
Effective October 31, 1997, About Health merged into the Company, by
exchanging all of its outstanding common shares for an aggregate of 593,517
shares of Common Stock of the Company. The transaction was accounted for
using the purchase method of accounting. The total purchase price associated
with the Merger was approximately $6.6 million, was recorded as goodwill and
is being amortized on a straight-line basis over 30 years. In connection
with the Merger, the Operating Company became a wholly owned subsidiary of
the Company.
From the date of the About Health Transaction through the date of the
Merger, the Company recorded minority interest expense of $556,000 related
to the minority owners' 20% interest in the Operating Company. Upon
completion of the Merger, the remaining minority interest liability was
reversed.
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements consolidate the accounts of PPS and its wholly
owned subsidiary. All intercompany items and transactions have been
eliminated.
13
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents consist of cash in banks and overnight securities.
Revenue Recognition
The majority of the Company's fees is based on a percentage of the savings
generated as a result of the bill analysis performed. The Company recognizes
revenue upon completion of the bill analysis and as the invoice is
generated. Revenue may be adjusted through the issuance of credit memos
should a final disposition of the bill differ from the initial analysis
performed by the Company. A reserve has been established to provide for any
future adjustments when the revenue is initially recorded.
Property and Equipment
Property and equipment have been recorded at their cost. For both financial
and tax reporting purposes, depreciation is computed using the straight-line
and declining balance methods.
At December 31, 1997, 1996 and 1995, property and equipment, along with the
corresponding useful lives consisted of the following:
<TABLE>
<CAPTION>
Asset Description 1997 1996 1995 Life
- ---------------------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Computer equipment $1,647,585 $1,294,980 $ 818,695 5 years
Office equipment 366,270 296,195 160,481 5 to 7 years
Furniture and fixtures 387,101 255,166 197,972 7 years
Leasehold improvements 230,957 175,891 24,111 Length of lease
---------- ---------- -----------
Total property and
equipment 2,631,913 2,022,232 1,201,259
Less- Accumulated
depreciation 1,114,097 731,582 408,896
---------- ---------- -----------
Total property and
equipment, net $1,517,816 $1,290,650 $ 792,363
========== ========== ===========
</TABLE>
Deferred Financing Costs
As a result of the financing that was obtained in connection with the 1996
Transaction and the About Health Transaction, the Company incurred financing
fees of $1,225,772 and $596,250, respectively, which are being amortized
over the terms of the related loans. For the year ended December 31, 1997
and 1996, amortization totaled approximately $170,000 and $58,000,
respectively.
Goodwill
The cost of acquired businesses in excess of the fair value of identifiable
net assets acquired has been recorded as goodwill and is being amortized
over 30 years on a straight-line basis. As of December 31, 1997,
amortization related to goodwill was approximately $440,000.
The Company reviews goodwill for impairment whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable. To
date, no such events or changes in circumstances have occurred. If such
events or changes in circumstances occur, the Company will recognize an
impairment loss if the undiscounted future cash flows expected to be
generated by the acquired businesses are less than the carrying value of the
related goodwill. The impairment loss in such instances would adjust the
goodwill to its fair value.
14
<PAGE>
Concentration of Credit Risk
Concentration of credit risk is limited to trade accounts receivable and is
subject to the financial condition of certain major clients, including
insurance companies and large corporations. The Company does not require
collateral or other security to support a clients' receivables. The Company
conducts periodic reviews of its clients' financial conditions and vendor
payment practices to minimize collection risks on trade accounts receivable.
As shown in the following table, the Company had two clients which each
accounted for more than 10% of the Company's net revenue for the years ended
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Customer A 13.3% 15.9% 23.9%
Customer B 10.0 12.5 14.3
---- ---- ----
23.3% 28.4% 38.2%
==== ==== ====
</TABLE>
Fair Value of Financial Instruments
The carrying amounts of cash, receivables, accounts payable and accrued
expenses approximate fair value because of the short-term nature of the
items. The carrying values of the line of credit and the term loan
approximate their fair value primarily due to the floating interest rates
associated with the debt instruments. Although the interest rate on the
Subordinated Notes is fixed, the carrying value reasonably approximates the
fair value at both December 31, 1997 and 1996. The conversion, redemption
and put rights associated with the Convertible Subordinated Notes are
features that affect the fair value of the debt instrument. However, at
December 31, 1996, mainly because only a short time had elapsed since the
Company had issued the Convertible Subordinated Notes, the carrying value
reasonably approximated the fair value. At December 31, 1997, the
approximate fair value of the Convertible Subordinated Notes is $15.7
million.
Accretion to Redemption Value of the Convertible Preferred Stock
As more fully discussed in Note 4, the holders of the Convertible
Subordinated Notes have the right to convert into Redeemable Preferred Stock
and Convertible Preferred Stock. The Convertible Preferred Stock is
convertible into an aggregate of 968,316 shares of common stock of the
Company. The holders originally had a put right associated with these
shares, which was exercisable in 2003 and 2004. Accretion to redemption
value had been previously recorded which represented straight-line accretion
to the redemption dates from the date of the 1996 Transaction through
September 30, 1997. This put right was canceled effective October 1, 1997,
therefore, accretion to redemption value has been eliminated as of this
date.
Management's 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.
4. DEBT
In August, 1996, the Company entered into the 1996 Credit Facility with a
syndicate of two banks, which provided for $25 million of senior debt, $20
million of which was in the form of a term loan
15
<PAGE>
and $5 million of which was available pursuant to a line of credit. In
connection with the About Health Transaction (see Note 2), the Company
entered into an amended and restated credit facility (as so amended and
restated, the 1997 Credit Facility) to increase the term loan portion by
$26.5 million. The Company is obligated to make quarterly principal and
interest payments on the term loan (bearing interest of 7.8% and 8.0% at
December 31, 1997 and 1996, respectively) and quarterly interest payments on
the line of credit (bearing interest at 9.0% and 9.25% at December 31, 1997
and 1996, respectively). The 1997 Credit Facility expires in September,
2001. The 1997 Credit Facility also provides for mandatory principal
prepayments from the proceeds of certain sales of assets or equity or in the
event the Company exceeds specified levels of cash flow. The Company can
elect to have interest on its borrowings based either on the prime rate, the
federal funds rate, or LIBOR, plus in each case a margin which varies
according to the ratio of total debt to EBITDA, as defined. The Company is
also obligated to enter into interest rate swaps with an aggregate notional
principal amount equal to at least 50% of the outstanding term loan and with
a maturity of at least three years to reduce the impact of interest rate
fluctuations.
The Subordinated Notes mature on August 31, 2003, and bear interest at 10%
per annum, payable quarterly. Beginning February, 2002, the Company is
required to make semiannual principal payments on the Subordinated Notes of
$1.7 million. Under the Subordinated Loan Agreement, the Company is required
to prepay the Subordinated Notes in whole upon a qualifying public offering,
sale of the Company, or other change in control, as defined.
The Convertible Subordinated Notes are convertible at any time by the holder
into 10,000 shares of Redeemable Preferred Stock and 10,000 shares of
Convertible Preferred Stock. The Convertible Subordinated Notes mature in
August, 2006, subject to the right of the holders to accelerate the maturity
of the Convertible Subordinated Notes upon a public equity offering, a
qualifying sale of the Company, or a merger resulting in a change in
majority ownership of the Company and subject to the right of the holders to
require the Company to redeem 50% of the outstanding principal amount of the
Convertible Subordinated Notes on or after August, 2003 and 100% of the
outstanding principal amount of the Convertible Subordinated Notes on or
after August, 2004. The Convertible Subordinated Notes bear interest at 5%,
2% being payable quarterly and 3% being deferred and payable upon redemption
or maturity. The Redeemable Preferred Stock is redeemable for $5 million.
The 10,000 shares of Convertible Preferred Stock issuable upon conversion of
the Convertible Subordinated Notes are convertible into an aggregate of
968,316 shares of Common Stock. The Convertible Preferred Stock originally
provided for a put right, exercisable no earlier than 2003. Effective
October 1, 1997, the put right was canceled.
In March, 1997, the Company entered into an interest rate swap agreement
with its primary lender, which ends on December 31, 1999. The agreement
allows the Company to hedge a notional amount ranging between $4.2 million
and $9.1 million on a quarterly basis. The amount hedgable decreases through
the life of the swap agreement. During 1997, the impact of swapping variable
interest rate for a fixed interest rate was immaterial to the Company's
interest expense.
Long-term debt at December 31, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Line of credit $ 500,000 $ 500,000
Term loan 41,500,000 19,000,000
Convertible Subordinated Notes 10,000,000 10,000,000
Subordinated Notes 7,000,000 7,000,000
----------- -----------
59,000,000 36,500,000
Less- Current maturities 7,000,000 3,125,000
----------- -----------
Total long-term debt $52,000,000 $33,375,000
=========== ===========
</TABLE>
16
<PAGE>
The scheduled maturity of long-term debt outstanding at December 31, 1997,
is as follows:
<TABLE>
<S> <C>
1998 $ 7,000,000
1999 10,500,000
2000 12,000,000
2001 12,000,000
2002 and thereafter 17,500,000
-----------
$59,000,000
===========
</TABLE>
5. INCOME TAXES
The Company's shareholders have elected S Corporation taxing status. Thus,
the Company's taxable income is taxed directly to its shareholders. The
Company continues to pay state taxes in Illinois, Pennsylvania, California
and Utah based on its taxable income.
6. COMMITMENTS AND CONTINGENCIES
Preferred Provider Agreements
The Company has agreements with certain preferred provider organizations
("PPOs") to market the PPO networks to its customers. As part of the
arrangement, the Company provides analysis of the care provider bills. The
Company pays a commission of a specified percentage of the PPS fee to the
PPO on each case analyzed. These fees are recorded as commission expense and
included as a direct cost in the accompanying statements of income at the
same time that revenue is recorded.
Lease Commitments
The aggregate rental expense under noncancelable leases was $614,258,
$340,619 and $292,095 for fiscal years ended 1997, 1996 and 1995,
respectively.
At December 31, 1997, future minimum rental commitments (excluding
escalation payments and capitalized lease obligations) for all noncancelable
leases are as follows:
<TABLE>
<S> <C>
1998 $1,044,836
1999 1,027,675
2000 318,404
2001 9,257
2002 and thereafter --
----------
$2,400,172
==========
</TABLE>
Employment Agreements
The Company has employment agreements with certain key members of
management. These agreements provide for annual base salaries of $1 million
in the aggregate. The agreements expire either on August 31, 1998, or July
31, 1999, and are renewable for successive one-year terms, unless terminated
by either party.
Legal Proceedings
The Company is not involved in any material legal proceedings.
17
<PAGE>
7. EMPLOYEE BENEFIT PLAN
On January 1, 1993, the Company established a savings plan under the
provisions of Section 401(k) of the Internal Revenue Code for eligible
employees. Employee contributions may be supplemented by matching Company
contributions on a discretionary basis. No Company contributions are
required. For 1997 and 1996, the Company matched 25% of employee
contributions, limited to 7% of gross earnings per employee. The Company's
401(k) contributions were approximately $128,000, $55,000 and $43,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
8. CAPITAL STOCK AGREEMENTS
The Company, its existing shareholders and the TA Investors are parties to a
Shareholders' Agreement which provides for certain rights of first refusal
and co-sale rights in the event that a stockholder receives a bona fide
offer to sell his shares. The agreement also provides for pro rata rights to
participate in certain sales of additional securities by the Company. The
agreement further provides for "bring-along rights" whereby, if specified
stockholders determine to sell their shares, the other stockholders are also
required to sell their shares. Separate Registration Rights Agreements were
entered into in connection with the 1996 Transaction and the About Health
Transaction that provide certain stockholders with registration rights with
respect to their shares of Common Stock.
9. STOCK OPTION PLANS
In connection with the 1996 Transaction, the Company canceled all
outstanding stock options and terminated all existing stock option plans. In
return for the cancellation of outstanding options, the Company made a cash
payment to the holders of these options, which resulted in a compensation
charge of approximately $484,000. Upon the cancellation of the options, the
Company adopted the 1996 Replacement Stock Option Plan. The Company reserved
27,833 shares of common stock for grant under this plan. On August 30, 1996,
the Company granted options to purchase 27,833 shares to the individuals
that held options in the prior plan ("1993 Stock Option Plan") with grant
prices ranging between $.30 and $2.58 per share. These options vest between
the date of grant and two years.
As of August 30, 1996, the Company adopted a 1996 Incentive Stock Option
Plan for its key employees. The Plan is administered by a committee of the
Board of Directors. The plan provides for the issuance of up to 250,000
shares of common stock. The exercise price for the incentive stock options
may not be less than the fair market value of the underlying Common Stock on
the date of grant. The exercise price of incentive stock options granted to
a participant that holds more than 10% of the issued and outstanding shares
of Common Stock ("Ten Percent Holders") may not be less than 110% of the
fair market value of the underlying Common Stock on the date of grant.
Nonqualified stock options are not exercisable more than fifteen years after
the date of grant. Incentive stock options granted to Ten Percent Holders
are not exercisable more than five years after the date of grant. During
1996, the Company granted incentive stock options to purchase 135,500 shares
of Common Stock at per share exercise prices ranging from $2.58 to $2.84 per
share. Of these options granted, 25,300 options vested immediately on the
date of grant and the remaining vest over a four-year period.
In connection with the About Health Transaction, the Company amended and
restated its 1996 Incentive Stock Option Plan to increase the number of
shares reserved for issuance to 325,000 shares. During 1997, the Company
granted 139,690 options with a grant price ranging between $5.20 and $11.20
per share, which approximated fair market value at the date of grant. These
options vest ratably over a five-year period.
18
<PAGE>
Stock option activity for the Company's stock plans for the years ended
December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Shares Price Price
------- ----------- -----
<S> <C> <C> <C>
1996 INCENTIVE STOCK OPTION PLAN:
Year ended December 31, 1996-
Granted 135,500 $2.58-$2.84 $2.65
Exercised 14,600 2.58-2.84 2.71
Canceled -- -- --
------- ----------- -----
Outstanding as of December 31, 1996 120,900 $2.58-$2.84 $2.64
======= =========== =====
Year ended December 31, 1997-
Granted 139,690 $5.20-$11.20 $7.93
Exercised 22,650 2.58-2.84 2.60
Canceled 3,800 2.58 2.58
------- ----------- -----
Outstanding as of December 31, 1997 234,140 $2.58-$11.20 $5.90
======= =========== =====
Options exercisable-
At December 31, 1996 10,700 $2.58-$2.84 $2.58
======= =========== =====
At December 31, 1997 22,600 $2.58-$2.84 $2.73
======= =========== =====
</TABLE>
<TABLE>
<CAPTION>
Weighted
Average
Exercise Exercise
Shares Price Price
------- ----------- -----
<S> <C> <C> <C>
1996 REPLACEMENT STOCK OPTION PLAN:
Year ended December 31, 1996-
Granted 27,833 $0.30-$2.58 $1.03
Exercised 1,500 2.58 2.58
Canceled -- -- --
------- ----------- -----
Outstanding as of December 31, 1996 26,333 $0.30-$2.58 $1.23
======= =========== =====
Year ended December 31, 1997-
Granted -- -- --
Exercised 7,833 $0.30-$2.58 $1.00
Canceled 500 1.30 1.30
------- ----------- -----
Outstanding as of December 31, 1997 18,000 $0.30-$2.58 $0.94
======= =========== =====
Options exercisable-
At December 31, 1996 11,667 $0.30-$2.58 $0.30
======= =========== =====
At December 31, 1997 11,750 $0.30-$2.58 $0.56
======= =========== =====
</TABLE>
The fair value of each option is estimated on the date of grant based on the
Black-Scholes option-pricing model, assuming, among other things, no
dividend yield, a risk free rate of 7.09%, a volatility factor of 60% and an
expected life of ten years. The weighted average fair value of options
granted under the Company's stock option plans for the fiscal years ended
December 31, 1997 and 1996, was $7.93 and $1.41 per share, respectively.
Each option expires ten years after the date of grant. The weighted average
remaining term of all outstanding options was 9.4 years as of December 31,
1997.
19
<PAGE>
The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, no compensation expense has
been recognized for the stock option plans. Consistent with the
provisions of SFAS No. 123, had compensation expense for the Company's
stock plans been determined based upon the fair value at the grant date
using a Black-Scholes pricing model, the Company's pro forma net income
would have been approximately $7.0 million and $4.3 million for the
fiscal year ended December 31, 1997 and 1996, respectively.
10. MERGER WITH CONCENTRA MANAGED CARE, INC.
Effective February 24, 1998, the Company merged with Concentra Managed Care,
Inc. This transaction was accounted for as a stock-for-stock exchange and as
a pooling of interests.
20
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(b) Consolidated Condensed Pro Forma Financial Statements (Unaudited)
The following unaudited consolidated condensed pro forma financial statements
give effect to the acquisition of Preferred Payment Systems, Inc. ("PPS") by
Concentra Managed Care, Inc. ("Concentra" or the "Company") using the pooling of
interest method of accounting (the "Transaction"), after giving effect to the
pro forma adjustments described in the accompanying notes. These unaudited pro
forma financial statements have been prepared from and should be read in
conjunction with the historical financial statements and notes thereto of PPS
filed under part (a) of this item and Concentra which is incorporated by
reference in this Form 8-K/A.
Concentra purchased First Notice Systems, Inc. ("FNS") on June 4, 1997. On July
31, 1997, PPS combined its operations with the operations of About Health, Inc.
("About Health") and About Health merged into PPS effective as of October 31,
1997. These acquisitions were not material to the Concentra and PPS pro forma
consolidated condensed financial statements and are not reflected in the pro
forma amounts presented.
The unaudited pro forma consolidated condensed balance sheet gives effect to the
Transaction as if it had occurred on December 31, 1997, combining the balance
sheets of Concentra and PPS. The unaudited pro forma consolidated condensed
statement of operations for the years ended December 31, 1997, 1996 and 1995
give effect to the Transaction as if it had occurred on January 1, 1995,
combining the results of operation of Concentra and PPS.
The consolidated condensed 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 been consummated at the dates indicated, nor is it
necessarily indicative of future operating results or financial position of the
Company. Certain reclassifications have been made to the unaudited historical
financial statements to conform to the presentation used by the Company.
As a result of the Transaction, the merged companies incurred certain deal fees
and transition costs, approximating $10 million (pre-tax), in connection with
consummating the Transaction. The transition costs will consist principally of
professional and registration fees, writeoff of deferred financing costs on debt
retired, systems modification costs, costs associated with the elimination and
consolidation of duplicate facilities and employee severance and relocation
resulting from the Transaction. The $10 million one time pre-tax charge will be
recorded in the quarter ended March 31, 1998, the period in which the
Transaction was consummated.
21
<PAGE>
CONCENTRA MANAGED CARE, INC.
AND
PREFERRED PAYMENT SYSTEMS, INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
As of December 31, 1997
----------------------------------------------------------
Pro Forma
Concentra PPS Adjustments Combined
---------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 10,046 $ 2,530 $ -- $ 12,576
Accounts receivable, net 99,931 7,032 -- 106,963
Prepaid expenses and tax assets 25,856 356 -- 26,212
---------- ---------- ---------- ----------
Total current assets 135,833 9,918 -- 145,751
Property and Equipment, net 64,185 1,518 -- 65,703
Intangible Assets:
Goodwill, net 225,586 33,482 -- 259,068
Assembled workforce and customer lists 3,524 -- -- 3,524
Other Assets 7,295 1,630 (1,586) [1] 7,339
---------- ---------- ---------- ----------
$ 436,423 $ 46,548 $ (1,586) $ 481,385
========== ========== ========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Revolving credit facilities $ 49,000 $ -- $ 49,000 [5] $ 113,048
15,048 [3]
Current portion of long-term debt 497 7,000 (7,000) [5] 497
Accounts payable and accrued expenses 31,985 3,236 8,414 [1] 41,635
(2,000) [1]
Accrued payroll and related expenses 15,522 1,393 -- 16,915
---------- ---------- ---------- ----------
Total current liabilities 97,004 11,629 63,462 172,095
Long-term debt 98,103 52,000 (42,000) [5] 98,103
(10,000) [4]
Long-term deferred tax and other liabilities 17,393 401 -- 17,794
Stockholders' equity (deficit) 223,923 (17,482) (15,048) [3] 193,393
10,000 [4]
(10,000) [2]
2,000 [2]
---------- ---------- ---------- ----------
$ 436,423 $ 46,548 $ (1,586) $ 481,385
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Pro Forma Consolidated Condensed
Financial Statements.
22
<PAGE>
CONCENTRA MANAGED CARE, INC.
AND
PREFERRED PAYMENT SYSTEMS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1997
-------------------------------------------------------
Pro Forms
Concentra PPS Adjustments Combined
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Net Revenues $ 458,952 $ 34,927 $ -- $ 493,879
Cost of Services 357,430 9,253 9,568 [6] 376,251
---------- ---------- --------- ----------
Gross Profit 101,522 25,674 (9,568) 117,628
General and Administrative Expense 36,224 13,607 (9,568) [6] 40,263
Amortization of Intangibles 5,249 440 -- 5,689
Non-recurring Charge 38,625 -- -- 38,625
---------- ---------- --------- ----------
Operating Income 21,424 11,627 -- 33,051
Interest Expense 8,972 3,695 (500) [7] 13,211
1,044 [8]
Interest Income (2,297) -- -- (2,297)
Other, net 1,063 556 -- 1,619
---------- ---------- --------- ----------
Income Before Taxes 13,686 7,376 (544) 20,518
Provision for Income Taxes 10,849 213 2,588 [9] 13,650
---------- ---------- --------- ----------
Net Income Before Extraordinary Items $ 2,837 $ 7,163 $ (3,132) $ 6,868
========== ========== ========= ==========
Earnings Per Share
Basic $ 0.07 $ 0.15
Fully Diluted $ 0.07 $ 0.15
Weighted Average Shares Outstanding
Basic 37,924 45,025
Fully Diluted 39,029 46,424
</TABLE>
See accompanying Notes to Pro Forma Consolidated Condensed
Financial Statements.
23
<PAGE>
CONCENTRA MANAGED CARE, INC.
AND
PREFERRED PAYMENT SYSTEMS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1996
----------------------------------------------------------
Pro Forms
Concentra PPS Adjustments Combined
----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Net Revenues $ 349,687 $ 22,996 $ -- $ 372,683
Cost of Services 277,839 6,336 5,753 [6] 289,928
----------- ---------- --------- -----------
Gross Profit 71,848 16,660 (5,753) 82,755
General and Administrative Expense 30,234 8,674 (5,753) [6] 33,155
Amortization of Intangibles 3,442 -- -- 3,442
Non-recurring Charge 964 -- -- 964
----------- ---------- --------- -----------
Operating Income 37,208 7,986 -- 45,194
Interest Expense 2,831 910 (167) [7] 4,719
1,145 [8]
Interest Income (859) -- -- (859)
Other, net 836 -- -- 836
----------- ---------- --------- -----------
Income Before Taxes 34,400 7,076 (978) 40,498
Provision for Income Taxes 13,266 171 2,329 [9] 15,766
----------- ---------- --------- -----------
Net Income Before Extraordinary Items $ 21,134 $ 6,905 $ (3,307) $ 24,732
=========== ========== ========= ===========
Diluted Earnings Calculation
Net Income Before Extraordinary Items Available
to Common Stockholders $ 21,134 $ 24,732
Interest on Common Stock Equivalents, net of tax 187 187
----------- -----------
Diluted Net Income Before Extraodrinary Items $ 21,321 $ 24,919
=========== ===========
Earnings Per Share
Basic $ 0.59 $ 0.58
Fully Diluted $ 0.57 $ 0.56
Weighted Average Shares Outstanding
Basic 35,561 42,662
Fully Diluted 37,293 44,688
</TABLE>
See accompanying Notes to Pro Forma Consolidated Condensed
Financial Statements.
24
<PAGE>
CONCENTRA MANAGED CARE, INC.
AND
PREFERRED PAYMENT SYSTEMS, INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1995
-----------------------------------------------------------
Pro Forma
Concentra PPS Adjustments Combined
--------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Net Revenues $ 283,041 $ 22,314 $ -- $ 305,355
Cost of Services 229,899 7,769 5,252 [6] 242,920
--------- --------- --------- ---------
Gross Profit 53,142 14,545 (5,252) 62,435
General and Administrative Expense 27,632 7,840 (5,252) [6] 30,220
Amortization of Intangibles 1,871 -- -- 1,871
Non-recurring Charge 898 -- -- 898
--------- --------- --------- ---------
Operating Income 22,741 6,705 -- 29,446
Interest Expense 5,499 -- 1,108 [8] 6,607
Interest Income (813) (47) -- (860)
Other, net 561 -- -- 561
--------- --------- --------- ---------
Income Before Taxes 17,494 6,752 (1,108) 23,138
Provision for Income Taxes 7,633 138 2,176 [9] 9,947
--------- --------- --------- ---------
Net Income Before Extraordinary Items $ 9,861 $ 6,614 $ (3,284) $ 13,191
========= ========= ========= =========
Earnings Per Share
Basic $ 0.34 $ 0.37
Fully Diluted $ 0.32 $ 0.35
Weighted Average Shares Outstanding
Basic 28,960 36,061
Fully Diluted 30,795 38,190
</TABLE>
See accompanying Notes to Pro Forma Consolidated Condensed
Financial Statements.
25
<PAGE>
CONCENTRA MANAGED CARE, INC.
AND
PREFERRED PAYMENT SYSTEMS, INC.
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
(1) To record the deal fees and transition costs of $10,000 associated with
the Transaction and the related estimated income tax benefit of $2,000.
The $10,000 charge related to deal fees and transition costs includes the
write-off of deferred financing costs related to PPS' financing
arrangements of $1,586.
(2) To record the effect of the above pro forma adjustments on stockholders'
equity.
(3) To record the payment of approximately $15,048 to dissenting PPS
stockholders via a drawdown on Concentra's revolving credit facility.
(4) To record the conversion of PPS' $10,000 convertible subordinated notes to
common stock.
(5) To record the retirement of PPS indebtedness of $49,000 via a drawdown on
Concentra's revolving credit facility.
(6) To record a reclassification of PPS' historical results of operations to
conform to Concentra's presentation.
(7) To eliminate interest expense related to PPS' $10,000 convertible
subordinated notes.
(8) To record interest expense for the $15,048 borrowing under Concentra's
revolving credit facility for payment to the dissenting PPS stockholders
at an average interest rate 7.36%, 7.61% and 6.94% for the years ended
December 31, 1995, 1996 and 1997, respectively.
(9) To adjust the tax provision for the pro forma adjustments and to reflect
PPS as if it had been subject to federal and state income taxes for the
entire year based upon an effective tax rate (approximately 41%)
indicative of the statutory rates in effect during the year. Prior to the
Transaction, PPS had elected to be taxed as an "S" corporation.
26
<PAGE>
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 thereunto duly authorized.
CONCENTRA MANAGED CARE, INC.
(Registrant)
By:
--------------------------------------
Name: Richard A. Parr II
Title: Executive Vice President and General Counsel
Date: April 22, 1998
27
<PAGE>
Item 7 Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
2.1 Agreement and Plan of Merger dated February 24, 1998 among the Registrant
and Preferred Payment Systems, Inc. (incorporated by reference to Exhibit 2.2 of
Concentra Managed Care, Inc.'s Annual Report on Form 10-K (File No. 000-22751)
filed with the Securities Exchange Commission on March 31, 1998).
28
