<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 March 31, 1998
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 May 5, 1998, the registrant had outstanding an aggregate of 46,821,771 shares
of its Common Stock, $.01 par value.
<PAGE>
Concentra Managed Care, Inc.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets (Unaudited) at December 31, 1997 and
March 31, 1998 3
Consolidated Statements of Operations (Unaudited) for the Three Months
Ended March 31, 1997 and 1998 4
Consolidated Statements of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1997 and 1998 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, 1997 AND MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
December March
ASSETS 31, 1997 31, 1998
- ---------------------------------------- ------------- -------------
Restated
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,576,000 $ 95,660,000
Accounts receivable, net 106,963,000 110,994,000
Prepaid expenses and prepaid taxes 26,212,000 27,314,000
------------- -------------
Total current assets 145,751,000 233,968,000
PROPERTY AND EQUIPMENT, NET 65,703,000 73,173,000
GOODWILL AND OTHER INTANGIBLES, NET 262,592,000 262,473,000
OTHER ASSETS 8,925,000 12,753,000
------------- -------------
$ 482,971,000 $ 582,367,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
CURRENT LIABILITIES:
Revolving credit facility $ 49,000,000 $ --
Current portion of long-term debt 7,497,000 459,000
Accounts payable and accrued expenses 52,136,000 61,473,000
------------- -------------
Total current liabilities 108,633,000 61,932,000
LONG-TERM DEBT 150,103,000 297,922,000
LONG-TERM DEFERRED TAX AND OTHER LIABILITIES 17,794,000 17,445,000
STOCKHOLDERS' EQUITY:
Common stock 436,000 465,000
Paid-in-capital 257,022,000 256,258,000
Retained deficit (51,017,000) (51,655,000)
------------- -------------
Total stockholders' equity 206,441,000 205,068,000
------------- -------------
$ 482,971,000 $ 582,367,000
------------- -------------
------------- -------------
</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 MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1997 1998
------------- -------------
Restated
<S> <C> <C>
REVENUE:
Field case management $ 32,389,000 $ 41,840,000
Specialized cost containment 28,370,000 44,379,000
------------- -------------
Managed care services 60,759,000 86,219,000
Health services 46,383,000 59,325,000
------------- -------------
Total revenue 107,142,000 145,544,000
COST OF SERVICES:
Managed care services 47,357,000 64,758,000
Health services 35,805,000 46,288,000
------------- -------------
Total cost of services 83,162,000 111,046,000
------------- -------------
Total gross profit 23,980,000 34,498,000
General and administrative expenses 9,033,000 10,699,000
Amortization of intangibles 1,235,000 2,027,000
Non-recurring charge -- 12,600,000
------------- -------------
Operating income 13,712,000 9,172,000
Interest expense 2,427,000 3,882,000
Interest income (851,000) (233,000)
Other, net 327,000 109,000
------------- -------------
Income before income taxes 11,809,000 5,414,000
Provision for income taxes 4,106,000 4,567,000
------------- -------------
Net income $ 7,703,000 $ 847,000
------------- -------------
------------- -------------
Pro forma net income (see Note 2) $ 7,080,000
-------------
-------------
Basic earnings per share $ 0.17 $ 0.02
------------- -------------
------------- -------------
Weighted average common shares outstanding 42,383,000 44,939,000
------------- -------------
------------- -------------
Diluted earnings per share $ 0.15 $ 0.02
------------- -------------
------------- -------------
Weighted average common shares and equivalents outstanding 46,309,000 47,769,000
------------- -------------
------------- -------------
</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 THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1998
------------- -------------
Restated
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,703,000 $ 847,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation of property and equipment 2,215,000 3,178,000
Amortization of goodwill and other intangibles 1,235,000 2,027,000
Amortization and write-off of start-up costs 135,000 --
Amortization of deferred finance costs 74,000 202,000
Change in assets and liabilities:
Accounts receivable, net (7,873,000) (3,370,000)
Prepaid expenses, prepaid income taxes and other assets (230,000) 808,000
Accounts payable, accrued expenses and income taxes (1,661,000) 6,927,000
------------- -------------
Cash flows provided by operating activities 1,598,000 10,619,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in acquisitions, net of cash acquired (1,512,000) (1,577,000)
Purchase of property and equipment (4,779,000) (10,395,000)
Purchase of short-term investments (28,546,000) --
Proceeds from sale of property and equipment -- 440,000
------------- -------------
Cash flows used in investing activities (34,837,000) (11,532,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under the credit facility 312,000 (49,000,000)
Proceeds from the issuance of long-term debt -- 200,000,000
Payment of deferred financing costs -- (5,120,000)
Payments to dissenting shareholders -- (15,047,000)
Payment on long-term debt and capital leases (1,265,000) (49,219,000)
Payment of dividends (852,000) (1,509,000)
Proceeds from the sale of common stock under employee
stock purchase plan and stock option plans 1,266,000 3,892,000
------------- -------------
Cash flows provided by (used in) financing activities (539,000) 83,997,000
------------- -------------
NET INCREASE (DECREASE) IN CASH (33,778,000) 83,084,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 58,221,000 12,576,000
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 24,443,000 $ 95,660,000
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,203,000 $ 2,557,000
Income taxes paid $ 1,112,000 $ 1,897,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
Concentra Managed Care, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The accompanying unaudited financial statements have been prepared by Concentra
Managed Care, Inc. (the "Company" or "Concentra") 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, 1997 included in the Company's Form 10-K, where certain terms have
been defined, Form 8-Ks and Form 8-K\A relating to the acquisition of Preferred
Payment Systems, Inc. ("PPS"), and Form S-3 relating to the issuance of 4.5%
Convertible Subordinated Notes.
(1) BASIS OF PRESENTATION AND RECENT ACQUISITIONS
On February 24, 1998, the Company acquired all of the outstanding common stock
of Preferred Payment Systems, Inc. ("PPS") of Naperville, Illinois, in exchange
for approximately 7,100,000 shares of Concentra common stock, the assumption of
PPS options totaling approximately 580,000 shares of Concentra common stock, the
payment of $15,047,000 in cash to dissenting PPS shareholders, and the
assumption of approximately $49,000,000 of debt which was repaid at the time of
the acquisition (see Note 3). This transaction was accounted for as a pooling of
interests. PPS, founded in 1990, is a provider of specialized cost containment
and outsourcing services for healthcare payors.
The financial statements as of December 31, 1997 and March 31, 1998 and for the
three month periods ended March 31, 1997 and 1998 have been restated to reflect
the acquisition of PPS in accordance with Accounting Principles Bulletin No. 16,
"Business Combinations" ("APB 16"). The Company also completed several
immaterial acquisitions during the first quarter of 1998.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130")
effective in the first quarter of 1998. SFAS 130 establishes standards for
reporting comprehensive income and its components in the consolidated financial
statements. The Company's reported net income for the three months ended March
31, 1997 and 1998 does not differ from comprehensive income as defined in SFAS
130.
(2) PRO FORMA NET INCOME AND EARNINGS PER SHARE
Pro forma net income and basic and diluted earnings per share for the three
months ended March 31, 1997 have been calculated as if the acquisition of PPS
had been subject to federal and state income taxes for the entire period, based
upon an effective tax rate indicative of the statutory rates in effect. Prior to
its acquisition, PPS elected to be taxed as an S corporation, and accordingly,
was not subject to federal and state income taxes in certain jurisdictions.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which
supersedes Accounting Principles Board Opinion No. 15. Under SFAS 128, Basic
Earnings Per Share is computed by dividing reported net income by weighted
average common shares outstanding and Diluted Earnings Per Share is computed
assuming the exercise of common stock equivalents, including the conversion of
the 5% Convertible Subordinated Notes (see Note 3) and the elimination of the
related interest tax expense, net of their related income tax effects. The
Company's $97,750,000 6% Convertible Subordinated Notes and $200,000,0000 4.5%
Convertible Subordinated Notes are not assumed to be converted in the Diluted
Earnings Per Share calculation as the effect is antidilutive for the three
months ended March 31, 1997 and 1998.
6
<PAGE>
Concentra Managed Care, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(3) REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT
Debt consists of the following as of:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ------------
Restated
<S> <C> <C>
Senior Credit Facility $ 49,000,000 $ --
4.5% Convertible Subordinated Notes
due March 2003 -- 200,000,000
6% Convertible Subordinated Notes
due December 2001 97,750,000 97,750,000
Other 850,000 631,000
5% Convertible Subordinated Notes
due 2006 (a) 10,000,000 --
10% Subordinated Notes (a) 7,000,000 --
PPS Credit Facility (a) 42,000,000 --
------------ ------------
Total debt 206,600,000 298,381,000
Less - Senior Credit Facility and current
portion of long-term debt 56,497,000 459,000
------------ ------------
Long-term debt $150,103,000 $297,922,000
------------ ------------
------------ ------------
(a) PPS indebtedness.
</TABLE>
On September 17, 1997, the Company entered into a $100,000,000 Senior Credit
Facility with a syndicate of five banks. Interest on borrowings under the Senior
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. On February 23, 1998, the Company signed an amendment to
expand the Company's borrowing capacity under the Senior Credit Facility to
$200,000,000 under similar terms and conditions in order to finance the
repayment of debt associated with its acquisition of PPS. On March 11, 1998, the
Senior Credit Facility borrowing capacity was reduced back to the original
$100,000,000 amount.
On March 11, 1998, the Company issued $200,000,000 4.5% Convertible Subordinated
Notes due March 15, 2003. On April 6, 1998, the underwriters exercised the
$30,000,000 overallotment provision. The 4.5% Convertible Subordinated Notes
will be convertible into the Company's common stock, at the option of the
holder, at a conversion price of $41.25 per share, representing a conversion
premium of 25% over the March 10, 1998 closing price. The 4.5% Convertible
Subordinated Notes are general unsecured obligations of the Company ranking
equal in right of payment with the 6% Convertible Subordinated Notes and all
other unsecured indebtedness of the Company and have similar terms and
conditions as the 6% Convertible Subordinated Notes.
On August 31, 1996, PPS issued $10,000,000 of 5% Convertible Subordinated Notes
due August 2006 (the "5% Convertible Subordinated Notes") and $7,000,000 of 10%
Subordinated Notes due August 2003 (the "10% Subordinated Notes"). In July 1997,
PPS entered into an amended and restated credit facility (the "PPS Credit
Facility") which provided for $51,500,000 of senior debt. On February 24, 1998,
the Company acquired PPS and retired $49,000,000 of PPS' outstanding
indebtedness (the PPS Credit Facility and 10% Subordinated Notes). The 5%
Convertible Subordinated Notes converted into 2,721,904 shares of Concentra
common stock.
The Senior Credit Facility contains customary covenants, including certain
financial covenants, such as cash flow, capital expenditures, and other
financial ratio tests including current ratios and interest expense coverage
ratios. The Company was in compliance with all such covenants as of March 31,
1998.
7
<PAGE>
Concentra Managed Care, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This document contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Reference is hereby made
to the Company's Annual Report on Form 10-K for the year ended December 31,
1997, where certain terms have been defined, Form 8-Ks and Form 8-K\A
relating to the acquisition of Preferred Payment Systems, Inc. ("PPS"), and
Form S-3 relating to the issuance of 4.5% Convertible Subordinated Notes all
filed with the Securities and Exchange Commission for certain considerations
that could cause actual results to differ materially from those contained in
this document.
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 the return to work. Managed Care Services' field case management
revenue growth has resulted from both local market share gains and geographic
office expansion. Managed Care Services believes that the size of its field case
management office network is sufficient to serve adequately the needs of its
nationwide customers. As a result, Managed Care Services anticipates opening
only a few new field case management offices per year to satisfy client needs in
selected regions. The Company would, however, examine the possibility of
acquiring additional field case management offices or businesses if an
appropriate strategic opportunity arose. Since 1990, Managed Care Services has
also offered specialized cost containment services. Specialized cost containment
services include utilization management, specialized preferred provider
organization ("PPO") network management, telephonic case management, and
retrospective medical bill review services that are designed to reduce the cost
of workers' compensation claims and automobile accident injury claims. On
February 24, 1998, the Company acquired Preferred Payment Systems, Inc. in a
pooling-of-interests transaction and significantly expanded its presence in the
out-of-network group health bill review market. The results of PPS are included
in the Managed Care Services results as part of its cost containment services.
The financial statements as of December 31, 1997 and March 31, 1998 and for the
three month periods ended March 31, 1997 and 1998 have been restated for the PPS
acquisition. Managed Care Services currently derives most of its revenues on a
fee-for-service basis.
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 generates 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. For the three months ended March
31, 1998, Health Services derived 63.7% of its net revenues from the treatment
of work-related injuries and illnesses and 36.3% 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>
Three
Years ended months
December 31, ended
--------------------- March 31,
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
Service locations at the end of the period:
Field case management 118 123 130
Cost containment services 70 83 83
Medical centers (1) 109 140 145
Physician practices acquired during the
period (2) 32 22 5
Physician practices developed during the
period 10 8 2
Number of affiliated physicians at the end
of the period 196 252 261
Medical centers - same market growth (3) 10.7% 11.0% 9.9%
</TABLE>
- -------------
(1) Does not include the assets of practices which were acquired and
subsequently divested or consolidated into existing centers within a market.
(2) Represents the assets of practices which were acquired during each period
presented and not subsequently divested.
(3) Same market revenue growth sets forth the aggregate net change from the
prior period for all markets in which Health Services has operated for
longer than one year (excluding revenue growth due to acquisitions of
additional centers).
Revenues
Total revenues increased 35.8% in the first quarter of 1998 to $145,544,000 from
$107,142,000 in the first quarter of 1997. Managed Care Services' revenues
increased 41.9% in the first quarter of 1998 to $86,219,000 as field case
management revenues increased 29.2% for the first quarter of 1998 to $41,840,000
from $32,389,000 in the first quarter of 1997 and specialized cost containment
revenues increased 56.4% in the first quarter of 1998 to $44,379,000 from
$28,370,000 in the first quarter of 1997. Health Services' revenues increased
27.9% in the first quarter of 1998 to $59,325,000 from $46,383,000 in the first
quarter of 1997.
The field case management revenue growth is primarily attributable to the
acquisition of a couple of field case businesses, continued growth in revenues
from existing service locations and the expansion of offices in selected areas.
The specialized cost containment revenue growth is largely attributable to the
acquisition of PPS (including the impact of its purchase of About Health, Inc.
in July of 1997), FNS and other immaterial acquisitions as well as continued
growth in retrospective bill review, telephonic case management and claims
review services. The Health Services' revenue growth resulted from the
acquisition of practices, including the acquisition of 16 occupational medical
centers and the management of an additional four medical centers from Vencor,
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 33.5% in the first quarter of 1998 to
$111,046,000 from $83,162,000 in the first quarter of 1997. Managed Care
Services' cost of services increased 36.7% in the first quarter of 1998 to
$64,758,000 from $47,357,000 in the first quarter of 1997 while Health Services'
cost of sales increased 29.3% in the first quarter of 1998 to $46,288,000 from
$35,805,000 in the first quarter of 1997.
Total cost of services as a percentage of revenue decreased to 76.3% in the
first quarter of 1998 compared to 77.6% in the first quarter of 1997. Managed
Care Services' cost of services as a percentage of revenue decreased to 75.1% in
the first quarter of 1998 compared to 77.9% in the first quarter of 1997, while
Health Services cost of services as a percentage of revenue increased to 78.0%
in the first quarter of 1998 compared to 77.2% in the first quarter of 1997.
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 FNS and PPS, which historically
have had higher gross profit margins than revenues derived from field case
management. Health Services' gross profit margin decreased primarily as a result
of an acceleration in the roll-out of patient tracking and billing systems into
the medical centers, increased spending on marketing and facility improvements
and the impact of lower margins from practices recently acquired and developed.
Historically, 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 18.4% in the first quarter of 1998
to $10,699,000 from $9,033,000 in the first quarter of 1997, or 7.4% and 8.4% as
a percentage of revenue for the first quarter of 1998 and 1997, respectively.
The increase in general and administrative expenses in 1998 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 64.1% in the first quarter of 1998 to
$2,027,000 from $1,235,000 in the first quarter of 1997, or 1.4% and 1.2% as a
percentage of revenue for the first quarter of 1998 and 1997, respectively. This
increase is the result of amortizing additional intangible assets such as
goodwill, customer lists and assembled workforces primarily associated with the
purchases of About Health, Inc. by PPS and FNS and various smaller acquisitions
by Health Services.
Non-Recurring Charge
The Company recorded a non-recurring charge of $12,600,000 primarily associated
with the acquisition of PPS. The charges incurred were approximately $5,100,000
for professional fees and services, $2,200,000 in costs associated with
personnel reductions, $2,400,000 in facility consolidations and closings,
$1,600,000 associated with the write-off of deferred financing fees on PPS
indebtedness retired and $1,300,000 of other merger and transitional costs.
Interest Expense
Interest expense increased $1,455,000 in the first quarter of 1998 to $3,882,000
from $2,427,000 in the first quarter of 1997 due primarily to increased
outstanding borrowings under the credit facilities to finance acquisitions and
the issuance of $200,000,000 in 4.5% Convertible Subordinated Notes in March
1998.
Interest Income
Interest income decreased $618,000 in the first quarter of 1998 to $233,000 from
$851,000 in the first quarter of 1997 due primarily to a decrease in investable
cash balances as a result of increased usage to finance acquisitions.
10
<PAGE>
Concentra Managed Care, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Other Expense
Other expense decreased $218,000 in the first quarter of 1998 to $109,000 from
$327,000 in the first quarter of 1997 due primarily to the write-off of deferred
start-up costs in the first quarter of 1997.
Provision for Income Taxes
The Company's provision for income taxes increased $461,000 in the first quarter
of 1998 to $4,567,000 from $4,106,000 in the first quarter of 1997. The
effective tax rate was 84.4% and 34.8% in the first quarters of 1998 and 1997,
respectively. Excluding the tax effects of the non-recurring charge, the
effective tax rate would have been 42.0% for the first quarter of 1998. The
above disparity in the effective tax rate for the non-recurring charge is the
result of the impact of the non-deductibility of certain fees and expenses
associated with the acquisitions. The Company expects to continue to provide for
its taxes at an effective tax rate of approximately 42% for the remainder of the
year.
Liquidity and Capital Resources
Cash flows generated from operations was $10,619,000 for the first three months
of 1998 and $1,598,000 for the first three months of 1997. During the first
three months of 1998, working capital provided $4,365,000 of cash due primarily
to an increase in accounts payable and accrued expenses and a decrease in
prepaid expenses partially offset by the continued increase in accounts
receivable. Accounts payable and accrued expenses increased due primarily to the
$12,600,000 non-recurring charge in the first quarter of 1998 partially offset
by the payment of year-end obligations, including certain obligations associated
with the non-recurring charge of $38,625,000 recorded in the third quarter of
1997.
The Company utilized net cash of $1,577,000 in connection with acquisitions and
$10,395,000 to purchase property and equipment during the first three months of
1998, the majority of which was spent on new computer and software technology.
Cash flows provided by financing activities of $83,997,000 was due primarily to
the issuance of $200,000,000 in 4.5% Convertible Subordinated Notes,
$194,880,000 net of deferred finance fees. A portion of the proceeds from the
issuance of the 4.5% Convertible Subordinated Notes were used to repay
borrowings under the Senior Credit Facility, repay debt assumed in the
acquisition of PPS, and the payment of $15,047,000 to PPS dissenting
shareholders.
The Company believes that its current cash balances, the cash flow generated
from operations and its borrowing capacity under the $100,000,000 Senior Credit
Facility, will be sufficient to fund the Company's working capital, medical
center acquisitions and capital expenditure 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 Shares Used in Determining Basic and Diluted
Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated February 18, 1998, Form 8-K dated March 2, 1998 and Form
8-K/A dated April 22, 1998, each regarding the February 24, 1998 acquisition of
the outstanding shares of Preferred Payment Systems, Inc.
Form 8-K dated March 11, 1998 and Form 8-K dated March 30, 1998, each
regarding the issuance of $200,000,000 4.5% Convertible Subordinated Notes due
March 15, 2003.
Form 8-K dated April 30, 1998 regarding the Company's press release
announcing the Company's earnings for the quarter ended March 31, 1998.
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: May 14, 1998 By: /s/ Joseph F. Pesce
------------ -------------------------
Joseph F. Pesce
Executive Vice President -
Finance and Administration,
Chief Financial Officer and Treasurer
13
<PAGE>
Concentra Managed Care, Inc.
Exhibit Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
11 Concentra Managed Care, Inc. - Calculation of Shares Used in
Determining Basic and Diluted Earnings Per Share 15
27 Financial Data Schedule 16
</TABLE>
<PAGE>
Exhibit 11
Concentra Managed Care, Inc.
Calculation of Shares Used in Determining Basic and Diluted Earnings Per Share
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1998
----------- -----------
RESTATED
<S> <C> <C>
Basic Earnings per Share:
Pro forma net income available to shareholders (1) $ 7,080,000 $ 847,000
----------- -----------
----------- -----------
Weighted average common shares outstanding 42,383,000 44,939,000
----------- -----------
----------- -----------
Basic earnings per share $ 0.17 $ 0.02
----------- -----------
----------- -----------
Diluted Earnings per Share:
Pro forma net income available to shareholders (1) $ 7,080,000 $ 847,000
Interest on common stock equivalents, net of tax 77,000 52,000
----------- -----------
Diluted pro forma net income $ 7,157,000 $ 899,000
----------- -----------
----------- -----------
Weighted average common shares outstanding 42,383,000 44,939,000
Diluted options, warrants and notes payable 1,204,000 1,469,000
Diluted convertible notes 2,722,000 1,361,000
----------- -----------
Weighted average common shares and equivalents outstanding 46,309,000 47,769,000
----------- -----------
----------- -----------
Diluted earnings per share $ 0.15 $ 0.02
----------- -----------
----------- -----------
</TABLE>
(1) Earnings per share for the three months ended March 31, 1997 has been
calculated as if the acquisition of PPS had been subject to federal and state
income taxes for the entire period, based upon an effective tax rate indicative
of the statutory rates in effect. Prior to its acquisition, PPS elected to be
taxed as an S corporation, and accordingly, was not subject to federal and state
income taxes in certain jurisdictions.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 95,660,000
<SECURITIES> 0
<RECEIVABLES> 110,994,000
<ALLOWANCES> 20,781,000
<INVENTORY> 0
<CURRENT-ASSETS> 233,968,000
<PP&E> 115,315,000
<DEPRECIATION> 42,142,000
<TOTAL-ASSETS> 582,367,000
<CURRENT-LIABILITIES> 61,932,000
<BONDS> 297,922,000
0
0
<COMMON> 465,000
<OTHER-SE> 204,603,000
<TOTAL-LIABILITY-AND-EQUITY> 582,367,000
<SALES> 0
<TOTAL-REVENUES> 145,544,000
<CGS> 0
<TOTAL-COSTS> 111,046,000
<OTHER-EXPENSES> 25,326,000
<LOSS-PROVISION> 4,208,000
<INTEREST-EXPENSE> 3,882,000
<INCOME-PRETAX> 5,414,000
<INCOME-TAX> 4,567,000
<INCOME-CONTINUING> 847,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 847,000
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
