<PAGE>
________________________________________________________________________________
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from ___________________ to ______________
______________________________
Commission file number 0-24440
______________________________
OCCUSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2543036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3010 LBJ Freeway, Suite 400, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 484-2700
Not applicable (Former name, former address and former fiscal year, if
changed since last report)
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 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __________
---------
As of November 11, 1996, the number of shares outstanding of each of the
issuer's classes of common stock was as follows:
Common stock .......... 21,336,477 shares, par value $.01 per share
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
OCCUSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,220 $ 6,852
Accounts receivable, net 35,354 24,288
Other current assets 4,662 4,552
------------- ------------
Total current assets 46,236 35,692
------------- ------------
Property and equipment, net 29,247 17,656
Intangible assets, net 95,826 81,775
Other assets 3,936 2,735
------------- ------------
Total assets $ 175,245 $ 137,858
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 524 $ 1,487
Accounts payable 1,761 2,881
Accrued expenses 16,851 14,187
------------- ------------
Total current liabilities 19,136 18,555
Long term debt, net of current portion 17,355 1,983
Other liabilities 6,314 3,678
------------- ------------
Total liabilities 42,805 24,216
------------- ------------
Convertible exchangeable preferred stock - 15,000
Stockholders' equity:
Common stock ($.01 par value, 50,000,000 shares authorized,
20,076,065 and 17,246,407 shares issued and outstanding at
September 30, 1996, and December 31, 1995, respectively) 201 173
Additional paid-in capital 137,450 113,076
Accumulated deficit (5,211) (14,607)
------------- ------------
Total stockholders' equity 132,440 98,642
------------- ------------
Total liabilities and stockholders' equity $ 175,245 $ 137,858
============= ============
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1996 1996 1996 1996
------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenues:
Net revenues $ 40,625 $ 29,988 $ 111,615 $ 85,310
Costs and expenses:
Operating costs 28,587 21,382 82,064 63,282
General and administrative 3,135 3,262 9,266 9,517
Depreciation and amortization 1,649 1,048 4,405 2,958
Other nonrecurring charges - - - 559
------------- -------------- ------------ --------------
Total costs and expenses 33,371 25,692 95,735 76,316
------------- -------------- ------------ --------------
Operating income 7,254 4,296 15,880 8,994
Other (income) expense:
Interest expense 327 317 907 2,137
Interest income (38) (393) (116) (656)
Other, net 338 151 634 392
------------- -------------- ------------ --------------
Total other expense 627 75 1,425 1,873
------------- -------------- ------------ --------------
Income from continuing operations before extraordinary
charge and taxes 6,627 4,221 14,455 7,121
Provision for income taxes 2,319 1,889 5,059 3,180
------------- -------------- ------------ --------------
Income from continuing operations before extraordinary charge 4,308 2,332 9,396 3,941
------------- -------------- ------------ --------------
Extraordinary charge from early extinguishment of debt, net of
income tax benefit - - - (680)
------------- -------------- ------------ --------------
Net income $ 4,308 $ 2,332 $ 9,396 $ 3,261
============= ============== ============ ==============
Earnings per common and common equivalent share:
Income before extraordinary charge $ 0.21 0.12 $ 0.46 $ 0.24
Extraordinary charge on extinguishment of debt - - - (0.04)
------------- -------------- ------------ --------------
Net income $ 0.21 $ 0.12 $ 0.46 $ 0.20
============= ============== ============ ==============
Shares used in earnings per common and common equivalent
share computation 20,941 20,347 20,721 17,001
============= ============== ============ ==============
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1996 1995
------------- ---------------
<S> <C> <C>
Net cash provided by operating activities $ 6,491 $ 7,188
------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (13,613) (4,348)
Cash paid for acquisitions, net of cash received (12,190) (30,154)
------------- ---------------
Net cash used in investing activities (25,803) (34,502)
------------- ---------------
Cash flows from financing activities:
Payments for equity issuance costs (168) -
Payment of dividends - (375)
Proceeds from issuance of long-term debt 16,200 25,677
Proceeds from initial public offering, net of issuance costs - 68,109
Proceeds from exercise of stock options and warrants 2,763 539
Payments on long-term debt (115) (42,001)
------------- ---------------
Net cash provided by financing activities 18,680 51,949
------------- ---------------
Net increase (decrease) in cash (632) 24,635
Cash and cash equivalents at beginning of period 6,852 3,924
------------- ---------------
Cash and cash equivalents at end of period $ 6,220 $ 28,559
============= ===============
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. PRESENTATION
The balance sheet data at September 30, 1996, and the statement of
operations for the three and nine months ended September 30, 1996 and September
30, 1995, and the statement of cash flows data for the nine months ended
September 30, 1996 and September 30, 1995, have been derived from unaudited
consolidated financial statements which, in the opinion of the Company, reflect
all adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the financial position and results of operations of the
Company for those periods. The financial data for the three and nine months
ended September 30, 1995 has been restated to reflect the business combinations
accounted for under the pooling method of accounting. (See Note 3).
NOTE 2. EARNINGS PER SHARE
Earnings per common and common equivalent share are based upon the weighted
average number of common shares outstanding adjusted for the dilutive effect of
common stock equivalents consisting of stock options, warrants, and convertible
debt. Fully diluted earnings per common and common equivalent share are not
presented because such amounts approximate earnings per common and common
equivalent share.
NOTE 3. BUSINESS COMBINATIONS
Effective January 1, 1996, in a business combination accounted for as a
pooling of interests, the Company acquired all of the outstanding common stock
of Baltimore Industrial Medical Center and Maryland Industrial Medical Center,
in Baltimore, Maryland, and Washington Industrial Medical Center in Cheverly,
Maryland, in exchange for 225,000 shares of the Company's common stock.
Effective January 1, 1996, in a business combination accounted for as a
pooling of interests, the Company acquired all of the outstanding common stock
of Concerned Care L.L.C., a physician practice located in Columbia, Maryland, in
exchange for 66,414 shares of the Company's common stock.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- -------------
<S> <C> <C>
Land $ 1,665 $ 1,218
Building and improvements 4,141 3,558
Furniture and equipment 22,447 14,402
Leasehold improvements 9,321 5,000
------- --------
37,574 24,178
Accumulated depreciation (8,327) (6,522)
------- --------
$29,247 $ 17,656
======= ========
</TABLE>
<PAGE>
OCCUSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 5. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- -------------
<S> <C> <C>
Convertible notes payable, interest 6%:
Payable in September 1998...................... $ 185 $ 510
Payable in September 1999...................... 600 600
Payable in March 1997.......................... - 500
Note payable to an individual, interest at
8.5%, due March 1998............................. - 50
Note payable to an individual, interest at 8.75%,
payable in quarterly installments through
February 1999.................................... 77 -
Note payable to an individual, interest 9%,
payable in annual installments through
November 1996.................................... 435 435
Note payable to an individual, interest at 10%,
payable in monthly installments through
March 2005....................................... 135 143
Obligations under capital leases.................... 241 291
Note payable to stockholder, interest 9%, payable
in monthly installments through October 1996..... 6 36
Various lines of credit and notes payable, interest
at prime plus 1/2% to 1%, payable on demand...... - 675
Notes payable to a bank, interest at prime plus 1%,
payable in monthly installments through
October 1996..................................... - 230
Note payable to a bank, interest at 6.19%........... 16,200 -
------- --------
17,879 3,470
Less: Current maturities.................... ( 524) ( 1,487)
------ --------
$17,355 $ 1,983
======= ========
</TABLE>
The maturities of long-term debt at September 30, 1996, are as follows
(in thousands):
<TABLE>
<S> <C>
1996 $ 450
1997 100
1998 290
1999 683
2000 16,260
Thereafter 96
-------
$17,879
=======
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
- --------
The Company 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. For the nine month period ended September 30, 1996, the
Company derived 66% of its net revenues from the treatment of work-related
injuries and illnesses and 34% of its net revenues from non-injury related
medical services. Physician and physical therapy services are provided at the
Company's centers under management agreements with the Physician Groups, which
are independently organized professional corporations that hire licensed
physicians and physical therapists to provide medical services to the centers'
patients. The Company's consolidated results of operations reflect the revenues
generated by the Physician Groups and the costs associated with the delivery of
their services, including salaries, benefits, malpractice insurance premiums and
other related expenses.
The Company's rapid growth has resulted primarily from acquisitions of practices
principally engaged in occupational healthcare. Since December 1, 1991, the
Company has completed 43 acquisition transactions involving 87 physician
practices and has developed another 20 physician practices. As of September 30,
1996, the Company operated 89 centers located in 13 states and served 24
markets.
The following table provides certain information concerning the Company's
acquisition and development of practices during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30,1996
--------------------------------------------- -----------------
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Practices acquired during the period (1) ... 3 16 9 17 24 18
Practices developed during the period....... 0 2 3 6 3 6
Number of centers at end of period (2)...... 7 24 36 54 71 89
Number of affiliated physicians at end of
period...................................... 14 45 72 95 129 160
Same market revenue growth (3).............. 9.8% 16.5% 33.8% 13.4% 12.2% 11.4%
</TABLE>
____________________________________________
(1) Represents practices the assets of which were acquired during each period
presented and not subsequently divested.
(2) Does not include practices the assets of which were acquired and
subsequently divested or consolidated into existing centers within a
market.
(3) 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).
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET REVENUES
- ------------
Net revenues increased 35.5% from $29,988,000 in the third quarter of 1995 to
$40,625,000 in the third quarter of 1996. Of this increase, $3,467,000 resulted
from practices acquired during 1996, $4,134,000 resulted from practices acquired
in 1995 and developed in new markets during 1995 and 1996, $2,838,000 resulted
from increased business in same markets (12.2% same market increase), and
$198,000 resulted from consulting and other ancillary services.
<PAGE>
OPERATING EXPENSES
- ------------------
Operating expenses increased 33.7% from $21,382,000 in the third quarter of 1995
to $28,587,000 in the third quarter of 1996. This increase was principally
related to the practices acquired in 1996 and to practices acquired and
developed during 1995. Operating expenses as a percentage of net revenues
decreased from 71.3% in the third quarter of 1995 to 70.4% in the third quarter
of 1996. For centers owned during the third quarter of 1995 and 1996, operating
expenses as a percentage of net revenues decreased 5.3%, to 68.6%.
The practices acquired and developed during 1996 contributed operating margins
of 23.2% in the third quarter of 1996, as compared to the practices owned prior
to 1996, which produced operating margins of 29.2%. As certain functions are
consolidated and other staff-related changes occur, the operating margins of
acquired practices have tended to improve over time.
GENERAL AND ADMINISTRATIVE
- --------------------------
General and administrative expenses decreased 3.9% from $3,262,000 in the third
quarter of 1995 to $3,135,000 in the third quarter of 1996. As a percentage of
net revenues, these costs decreased from 10.9% in the third quarter of 1995 to
7.7% in the third quarter of 1996. This decrease resulted primarily from
economies of scale gained through continued expansion in existing markets.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expense increased 57.3% from $1,048,000 in the
third quarter of 1995 to $1,649,000 in the third quarter of 1996. This increase
resulted primarily from centers acquired in 1995 and 1996, as well as the
depreciation expense attributable to the rollout of the Company's new
proprietary information system. As a percentage of net revenues, this expense
increased from 3.5% in the third quarter of 1995 to 4.1% in the third quarter of
1996.
INTEREST EXPENSE
- ----------------
Interest expense increased from $317,000 in the third quarter of 1995 to
$327,000 in the third quarter of 1996. As a percentage of net revenues, this
expense decreased from 1.1% during the third quarter of 1995 to 0.8% in the
third quarter of 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET REVENUES
- ------------
Net revenues increased 30.8% from $85,310,000 in the first nine months of 1995
to $111,615,000 in the first nine months of 1996. Of this increase, $7,776,000
resulted from practices acquired during 1996, $11,006,000 resulted from
practices acquired in 1995 and developed in new markets during 1995 and 1996,
$7,100,000 resulted from increased business in same markets (11.4% same market
increase), and $423,000 resulted from consulting and other ancillary services.
<PAGE>
OPERATING EXPENSES
- ------------------
Operating expenses increased 29.7% from $63,282,000 in the first nine months of
1995 to $82,064,000 in the first nine months of 1996. This increase was
principally related to the practices acquired in 1996 and to practices acquired
and developed during 1995. Operating expenses as a percentage of net revenues
decreased from 74.2% in the first nine months of 1995 to 73.5% in the first nine
months of 1996. For centers owned during the first nine months of 1995 and 1996,
operating expenses as a percentage of net revenues decreased 3.6%, to 71.8%.
The practices acquired and developed during 1996 contributed operating margins
of 18.2% in the first nine months of 1996, as compared to the practices owned
prior to 1996, which produced operating margins of 25.8%.
GENERAL AND ADMINISTRATIVE
- --------------------------
General and administrative expenses decreased 2.6% from $9,517,000 in the first
nine months of 1995 to $9,266,000 in the first nine months of 1996. As a
percentage of net revenues, these costs decreased from 11.2% in the first nine
months of 1995 to 8.3% in the first nine months of 1996. This decrease resulted
primarily from economies of scale gained through continued expansion in existing
markets.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expense increased 48.9% from $2,958,000 in the
first nine months of 1995 to $4,405,000 in the first nine months of 1996. This
increase resulted primarily from centers acquired in 1995 and 1996, as well as
the depreciation expense attributable to the rollout of the Company's new
proprietary information system. As a percentage of net revenues, this expense
increased from 3.5% in the first nine months of 1995 to 3.9% in the first nine
months of 1996.
OTHER NONRECURRING CHARGES
- --------------------------
A nonrecurring charge of $559,000 in the first quarter of 1995 resulted from the
write-down of certain assets that were acquired in the business combinations
which were accounted for under the pooling method of accounting (see Notes 1 and
3).
INTEREST EXPENSE
- ----------------
Interest expense decreased from $2,137,000 in the first nine months of 1995 to
$907,000 in the first nine months of 1996. This decrease is primarily the result
of the retirement of debt with proceeds from the Company's initial public
offering on May 8, 1995, as well as the March 1996 redemption of $15,000,000 in
convertible debentures. As a percentage of net revenues, this expense decreased
from 2.5% during the first nine months of 1995 to 0.8% in the first nine months
of 1996.
INCOME TAXES
- ------------
The Company's effective tax rate decreased from 44.6% for the nine months ended
September 30, 1995 to 35% for the nine months ended September 30, 1996. This
decrease was due to the restatement of the statement of operations for the nine
month period ended September 30, 1995 for the business combinations treated as
poolings (See Notes 1 and 3). Without this restatement, the Company's effective
<PAGE>
tax rate would have remained constant for the periods ended September 30, 1995
and September 30, 1996.
EXTRAORDINARY CHARGE
- --------------------
The Company recorded a $680,000 extraordinary loss, net of income tax benefit,
in the third quarter of 1995 as a result of the early extinguishment of
$6,000,000 of indebtedness outstanding under the Company's 10% Senior
Subordinated Note due December 1, 2000, which resulted in a charge of $427,000
(net of tax) in unaccreted original issue discount associated with such debt.
The Company also recognized a charge of $253,000 (net of tax) for the unaccreted
original issue discount on certain warrants issued in January 1995, to secure a
revolving credit facility.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1996, the Company had $27.1 million in working capital, an
increase of $10.0 million from December 31, 1995. The Company's principal
sources of liquidity consisted of (i) cash and cash equivalents aggregating $6.2
million, (ii) net accounts receivable of $35.4 million, and (iii) $43.8 million
in borrowing capacity under a revolving loan agreement with Creditanstalt-
Bankverein ("Loan Agreement").
Cash and cash equivalents decreased $0.7 million from $6.9 million as of
December 31, 1995 to $6.2 million as of September 30, 1996. This decrease is
primarily the result of payments of $12.2 million pertaining to practices
acquired in 1996 and purchases of property and equipment related to new and
existing centers in 1996 of $13.6 million, offset by proceeds from loan
borrowings of $16.2 million, and cash flow from operations of $6.5 million.
The Company anticipates that funds generated from operations, cash and cash
equivalents, and funds available under the loan agreement, will be sufficient to
meet its working capital requirements and debt obligations and to finance any
necessary capital expenditures for the foreseeable future. On April 10, 1996,
the Company amended its Loan Agreement to provide for revolving loans of up to
$60 million at more favorable interest rates than the previous agreement.
Expansion of the Company's business through acquisitions, development centers,
and joint ventures may require additional funds, which, to the extent not
provided by internally generated sources, cash and cash equivalents and the
amended loan agreement, would require the Company to seek additional debt or
equity financing.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Statement re Computation of Earnings Per Common and
Common Equivalent Share.
(b) Reports on Form 8-K:
There have been no reports on Form 8-K for the quarter for which this
form on Form 10-Q is being filed.
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.
OccuSystems, Inc.
Date: November 12, 1996 John K. Carlyle
---------------------------
John K. Carlyle
President and Chief Executive Officer
James M. Greenwood
---------------------------
James M. Greenwood
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 11
OCCUSYSTEMS, INC.
NET INCOME BY QUARTER FOR 1996 AND 1995
Numbers, except per share amounts, in thousands
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
----------------------------- -----------------------------
9/30/96 9/30/95 9/30/96 9/30/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 4,308 $ 2,332 $ 9,396 $ 3,261
Interest on Common Stock Equivalents, net of tax 0 0 146 73
----------- ---------- ---------- ----------
Primary Earnings $ 4,308 $ 2,332 $ 9,542 $ 3,334
=========== ========== ========== ==========
Wtd. Average Shares 20,941 20,347 20,721 17,001
Net Income per share $ 0.21 $ 0.12 $ 0.46 $ 0.20
Weighted Common Shares Outstanding 20,051 17,210 19,314 13,055
Weighted Common Share Equivalents Outstanding 890 3,137 1,407 3,946
----------- ---------- ---------- ----------
Weighted Average Shares Outstanding 20,941 20,347 20,721 17,001
=========== ========== ========== ==========
</TABLE>
See accompanying notes.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,220
<SECURITIES> 0
<RECEIVABLES> 35,354
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,236
<PP&E> 37,574
<DEPRECIATION> (8,327)
<TOTAL-ASSETS> 175,245
<CURRENT-LIABILITIES> 19,136
<BONDS> 0
0
0
<COMMON> 201
<OTHER-SE> 132,239
<TOTAL-LIABILITY-AND-EQUITY> 175,245
<SALES> 40,625
<TOTAL-REVENUES> 40,625
<CGS> 0
<TOTAL-COSTS> 33,371
<OTHER-EXPENSES> 627
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> 6,627
<INCOME-TAX> 2,319
<INCOME-CONTINUING> 4,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,308
<EPS-PRIMARY> $.21
<EPS-DILUTED> $.21
</TABLE>
