<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 3, 1996
OCCUSYSTEMS, INC.
-----------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-24440 75-2543036
--------------- ---------------- ----------------
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification
incorporation) Number)
3010 LBJ Freeway
Suite 400
Dallas, Texas 75234
--------------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
(972) 484-2700
--------------
(Registrant's Telephone Number, Including Area Code)
<PAGE>
Item 5. Other Events
See the following press release dated December 3, 1996 announcing the
Company's intent to make a Rule 144A offering of $85 million aggregate
principal amount of unsecured convertible subordinated notes due 2001.
(a) See the press release attached hereto as Exhibit 99.1.
(b) See the Summary Selected Consolidated Financial and Operating Data of
OccuSystems, Inc., the registrant, as attached hereto as Exhibit 99.2. The
term "Notes" as used in Exhibits 99.2 - 99.5 means the convertible
subordinated notes due 2001 described in Exhibit 99.1.
(c) See the Pro Forma Consolidated Financial Statements attached hereto as
Exhibit 99.3.
(d) See Management's Discussion and Analysis of Financial Condition and Results
of Operations attached hereto as Exhibit 99.4.
(e) See the Registrant's Consolidated Financial Statements attached hereto as
Exhibit 99.5.
<PAGE>
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.
By:
Date: December 4, 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 99.1
FOR IMMEDIATE RELEASE Contact: James M. Greenwood
- --------------------- Senior Vice President and
Chief Financial Officer
(972) 484-2700
OCCUSYSTEMS ANNOUNCES PROPOSED
PRIVATE PLACEMENT OF CONVERTIBLE NOTES
DALLAS, Texas (December 3, 1996) - OccuSystems, Inc. (Nasdaq/NM:OSYS) today
announced that it intends to make a Rule 144A offering of $85 million aggregate
principal amount of unsecured convertible subordinated notes due 2001. The
Company also intends to grant the initial purchasers in the offering an over-
allotment option to purchase an additional $12,750,000 of such notes. The
Company intends to use the net proceeds of the offering to repay bank
indebtedness incurred in connection with acquisitions and for general corporate
purposes, including the funding of potential future acquisitions.
The notes and underlying common stock have not been registered under
the Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirements of the Securities Act and applicable state securities laws.
-END-
<PAGE>
EXHIBIT 99.2
SUMMARY SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------- ----------------------------
PRO PRO
FORMA FORMA
1991 1992 1993(1) 1994 1995 1995(2) 1995 1996 1996(2)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA(3):
Net revenues........... $ 7,766 $14,937 $ 64,185 $ 85,502 $136,986 $155,117 $101,920 $127,345 $129,214
Operating income (loss)
from continuing
operations............ (137) 452 (17,910) 1,768 10,322 13,440 8,848 15,964 16,206
Interest expense....... 88 489 1,710 1,869 3,015 4,647 2,587 1,552 3,486
Income (loss) from
continuing operations
before cumulative
effect of change in
accounting principle
and extraordinary
charge................ (277) (76) (19,538) (1,149) 3,900 4,866 3,349 8,868 7,768
Net income (loss)...... $ (277) $ 156 $(19,386) $ (773) $ 3,220 $ 4,186 $ 2,669 $ 8,868 $ 7,768
Income (loss) per share
from continuing
operations before
cumulative effect of
change in accounting
principle and
extraordinary charge.. $ (0.09) $ (0.01) $ (1.58) $ (0.08) $ 0.22 $ 0.27 $ 0.18 $ 0.41 $ 0.36
Net income (loss) per
share................. $ (0.09) $ 0.03 $ (1.57) $ (0.05) $ 0.19 $ 0.23 $ 0.15 $ 0.41 $ 0.36
Weighted average number
of common shares
outstanding........... 3,095 5,317 12,358 14,333 19,115 19,412 18,261 21,981 21,993
OTHER DATA:
EBITDA(4).............. $ 291 $ 1,008 $ 4,999 $ 5,254 $ 16,899 $ 19,739 $ 13,595 $ 20,888 $ 21,190
Ratio of EBITDA to
interest expense...... 4.2x 6.1x
Ratio of earnings to
fixed charges(5)...... 2.5x 3.5x
Practices acquired
during the period(6).. 3 16 9 17 24 13 18
Practices developed
during the period..... 0 2 3 6 3 2 6
Number of centers at
end of period(7)...... 7 24 36 54 71 64 89
Number of affiliated
physicians at end of
period................ 14 45 72 95 129 118 160
Same market revenue
growth(8)............. 9.8% 16.5% 33.8% 13.4% 12.2% 12.3% 11.4%
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED(9)
<S> <C> <C>
BALANCE SHEET DATA(3):
Working capital................................... $ 20,095 $ 85,895
Total assets...................................... 181,900 243,200
Total debt........................................ 25,088 86,388
Stockholders' equity.............................. 127,322 127,322
</TABLE>
- --------------------
(1) Operating results for the year ended December 31, 1993 include certain
nonrecurring charges of approximately $20.6 million, principally incurred
in connection with the write-down of goodwill. See Note 6 to the Company's
Consolidated Financial Statements.
(2) The pro forma statement of operations data give effect to the following pro
forma adjustments as if they had occurred on January 1, 1995:
(a) consummation of the Company's acquisitions (the "Recent Acquisitions")
of Medical Plaza Industrial Clinic, Corporate Health Services, Inc.
("CHS"), Medical and Surgical Clinic Association, P.A., Occupational Health
Resources, Inc. ("OHR"), Flagstaff Urgent Care, Deer Park Clinic and Austin
Regional Clinic ("ARC"); and (b) sale of the Notes and use of proceeds
therefrom. All of the Recent Acquisitions were effective on or before July
1, 1996. See "Use of Proceeds," "Pro Forma Consolidated Financial
Statements" and the Company's Consolidated Financial Statements included
elsewhere herein.
(3) Restated to give effect to the following pooling acquisitions (the "Recent
Poolings") consummated subsequent to January 1, 1995: (a) Baltimore
Industrial Medical Center, Maryland Industrial Medical Center
<PAGE>
and Washington Industrial Medical Center (collectively, the "Baltimore
Industrial Medical Group"); (b) Concerned Care L.L.C.; (c) Occupational
Medicine Services, Inc.; (d) Prizm Environmental and Occupational Health,
Inc.; and (e) Ideal Occupational Medical Centers, Inc. The last three Recent
Poolings were completed subsequent to September 30, 1996.
(4) "EBITDA" consists of operating income plus depreciation, amortization and
non-recurring charges. EBITDA data is presented because the Company
believes that such data is used by investors and securities analysts to
determine a company's ability to meet debt service requirements. The
Company considers EBITDA to be indicative of the Company's operating
performance. However, such information should not be considered as an
alternative to net income, operating profit, cash flows from operations,
or any other operating or liquidity performance measure prescribed by
generally accepted accounting principles. The EBITDA measure presented by
the Company may not be comparable to similarly titled measures used by
other companies.
(5) Computed by dividing the sum of net earnings, before deducting provisions
for income taxes and fixed charges, by total fixed charges. Fixed charges
consist of interest on debt, including amortization of debt issuance
costs, and one-fourth of rent expense, estimated by management to be the
interest component of such rentals. The adjusted ratio of earnings to
fixed charges gives effect to the net change in interest expense resulting
from the sale of the principal amount of Notes and application of the
estimated net proceeds therefrom.
(6) Represents practices the assets of which were acquired during each period
presented and not subsequently divested.
(7) Does not include practices the assets of which were acquired and
subsequently divested or consolidated into existing centers within a
market.
(8) Same market revenue growth sets forth the aggregate net change from the
prior year for all markets in which the Company operated for the entire
period (excluding revenue growth due to acquisitions and the Recent
Poolings).
(9) Gives pro forma effect to the sale of the Notes and the use of proceeds
therefrom as if those transactions had occurred on September 30, 1996. See
"Pro Forma Consolidated Financial Statements" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Overview."
<PAGE>
EXHIBIT 99.3
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited Pro Forma Consolidated Statements of Operations
for the year ended December 31, 1995 and for the nine months ended September
30, 1996 reflect the historical results of the Company (i) as originally
reported, (ii) as restated for the Recent Poolings and (iii) as further
adjusted to reflect the following events as if they had occurred on January 1,
1995: (a) consummation of the Recent Acquisitions; and (b) the sale of the
Notes and use of proceeds therefrom. The accompanying unaudited Pro Forma
Consolidated Balance Sheet as of September 30, 1996 reflects the historical
results of the Company (i) as originally reported, (ii) as restated for the
Recent Poolings and (iii) as further adjusted to reflect the sale of the Notes
and use of proceeds therefrom as if they had occurred on September 30, 1996.
The Company usually implements significant changes to the operations of the
practices that it acquires to enhance profitability. Accordingly, these pro
forma financial statements are not necessarily indicative of the operating
results that would have been achieved had the aforementioned transactions
occurred at the beginning of each period presented nor are they necessarily
indicative of results that may be expected in future periods. Specifically, no
provisions have been made to reflect cost savings associated with the
businesses acquired in the Recent Poolings. In addition, no provision has been
made for interest income on the unused proceeds from the sale of the Notes.
The following Pro Forma Consolidated Financial Statements are based on the
assumptions set forth in the notes thereto and should be read in conjunction
with the related financial statements and notes thereto of the Company
included elsewhere herein.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS
OCCUSYSTEMS, ADJUSTMENTS HISTORICAL -------------------
INC. AS FOR THE OCCUSYSTEMS SALE
ORIGINALLY RECENT INC., RECENT OF AS
REPORTED POOLINGS RESTATED ACQUISITIONS NOTES ADJUSTED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $116,223 $20,763 $136,986 $18,131(A) $ -- $155,117
Costs and expenses:
Operating expenses.... 101,577 19,408 120,985 14,393(A) -- 135,378
Depreciation and
amortization......... 4,142 1,537 5,679 620(B) -- 6,299
-------- ------- -------- ------- ----- --------
Total costs and ex-
penses............... 105,719 20,945 126,664 15,013 -- 141,677
Operating income...... 10,504 (182) 10,322 3,118 -- 13,440
Other (income) expense:
Interest expense...... 2,453 562 3,015 1,289(C) 343 (F) 4,647
Interest income....... (809) (4) (813) -- -- (813)
Other, net............ 561 -- 561 -- -- 561
-------- ------- -------- ------- ----- --------
Total other (income)
expense.............. 2,205 558 2,763 1,289 343 4,395
Income before taxes..... 8,299 (740) 7,559 1,829 (343) 9,045
Provision for income
taxes.................. 3,659 -- 3,659 640(D) (120)(D) 4,179
-------- ------- -------- ------- ----- --------
Net income.............. $ 4,640 $ (740) $ 3,900 $ 1,189 $(223) $ 4,866
======== ======= ======== ======= ===== ========
Net income per share.... $ 0.28 $ 0.22 $ 0.27
======== ======== ========
Weighted average number
of common shares
outstanding.......... 17,855 1,260 19,115 297(E) 19,412
</TABLE>
The accompanying notes are an integral part of the Pro Forma Consolidated
Financial Statements.
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
OCCUSYSTEMS, ADJUSTMENTS HISTORICAL ADJUSTMENTS
INC. AS FOR THE OCCUSYSTEMS, --------------------
ORIGINALLY RECENT INC., RECENT SALE OF AS
REPORTED POOLINGS RESTATED ACQUISITIONS NOTES ADJUSTED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $111,615 $15,730 $127,345 $1,869(A) $ -- $129,214
Costs and expenses:
Operating expenses.... 91,330 15,127 106,457 1,567(A) -- 108,024
Depreciation and
amortization......... 4,405 519 4,924 60(B) -- 4,984
-------- ------- -------- ------ ------- --------
Total costs and ex-
penses............... 95,735 15,646 111,381 1,627 -- 113,008
Operating income...... 15,880 84 15,964 242 -- 16,206
Other (income) expense:
Interest expense...... 907 645 1,552 79(C) 1,855(F) 3,486
Interest income....... (116) (33) (149) -- -- (149)
Other, net............ 634 -- 634 -- -- 634
-------- ------- -------- ------ ------- --------
Total other (income)
expense.............. 1,425 612 2,037 79 1,855 3,971
Income before taxes..... 14,455 (528) 13,927 163 (1,855) 12,235
Provision for income
taxes.................. 5,059 -- 5,059 57(D) (649)(D) 4,467
-------- ------- -------- ------ ------- --------
Net income.............. $ 9,396 $ (528) $ 8,868 $ 106 $(1,206) $ 7,768
======== ======= ======== ====== ======= ========
Net income per share.... $ 0.46 $ 0.41 $ 0.36
======== ======== ========
Weighted average number
of common shares
outstanding............ 20,721 1,260 21,981 12(E) 21,993
</TABLE>
The accompanying notes are an integral part of the Pro Forma Consolidated
Financial Statements.
<PAGE>
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
OCCUSYSTEMS, ADJUSTMENTS HISTORICAL
INC. AS FOR THE OCCUSYSTEMS, ADJUSTMENTS
ORIGINALLY RECENT INC., FOR SALE OF
REPORTED POOLINGS RESTATED NOTES AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 6,220 $ 278 $ 6,498 $58,300 (G) $ 64,798
Accounts receivable,
trade net............ 35,354 4,305 39,659 -- 39,659
Other current assets.. 4,662 119 4,781 -- 4,781
-------- ------- -------- ------- --------
Total current
assets............. 46,236 4,702 50,938 58,300 109,238
Property and equipment,
net.................... 29,247 1,785 31,032 -- 31,032
Intangible assets, net.. 95,826 -- 95,826 -- 95,826
Other assets............ 3,936 168 4,104 3,000 7,104
-------- ------- -------- ------- --------
Total assets........ $175,245 $ 6,655 $181,900 $61,300 $243,200
======== ======= ======== ======= ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current liabilities:
Current portion of
long-term debt....... $ 524 $ 7,209 $ 7,733 $(7,500)(G) $ 233
Accounts payable...... 1,761 646 2,407 -- 2,407
Accrued expenses and
other current
liabilities.......... 16,851 3,852 20,703 -- 20,703
-------- ------- -------- ------- --------
Total current
liabilities........ 19,136 11,707 30,843 (7,500) 23,343
Long-term debt, net of
current portion........ 17,355 -- 17,355 68,800 (G) 86,155
Other liabilities....... 6,314 66 6,380 -- 6,380
-------- ------- -------- ------- --------
Total liabilities... 42,805 11,773 54,578 61,300 115,878
Stockholders' equity:
Common stock............ 201 12 213 -- 213
Additional paid-in
capital................ 137,450 1,561 139,011 -- 139,011
Accumulated deficit..... (5,211) (6,691) (11,902) -- (11,902)
-------- ------- -------- ------- --------
Total stockholders'
equity............. 132,440 (5,118) 127,322 -- 127,322
-------- ------- -------- ------- --------
Total liabilities
and stockholders'
equity............. $175,245 $ 6,655 $181,900 $61,300 $243,200
======== ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the Pro Forma Consolidated
Financial Statements.
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(A) Reflects the historical net revenues and operating expenses for the Recent
Acquisitions on a consolidated basis as if the Recent Acquisitions had
occurred on January 1, 1995. Gives effect to cost-saving measures
implemented subsequent to the acquisition date, totalling $725,000 for the
year ended December 31, 1995 and $75,000 for the nine months ended
September 30, 1996.
(B) Reflects incremental depreciation and amortization charges as a result of
the Recent Acquisitions.
(C) Reflects additional interest expense attributable to debt issued, assumed
or incurred as a direct result of the Recent Acquisitions.
(D) Represents an adjustment to reflect income tax expense at an assumed
effective tax rate of 35%.
(E) Represents shares issued in connection with the Recent Acquisitions.
(F) Represents interest expense on the Notes at an assumed rate of 4.75% plus
amortization of debt origination costs of the Notes, net of the
elimination of interest expense on historical debt balances that would
have been repaid with the proceeds from the sale of the Notes.
(G) Represents adjustments for the issuance of the Notes.
<PAGE>
EXHIBIT 99.4
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 47 acquisition transactions involving 100
physician practices and has developed another 24 physician practices. As of
November 30, 1996, the Company operated 105 centers located in 27 markets in
14 states.
The following table provides certain information concerning the Company's
acquisition and development of practices during the periods indicated. Such
information has not been restated to reflect pooling transactions. Pooling
transactions are shown in the table as practices acquired during the period in
which such transactions occurred.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------- NINE MONTHS ENDED
1991 1992 1993 1994 1995 SEPTEMBER 30, 1996
<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).
Since September 30, 1996, the Company has completed pooling transactions
with Occupational Medicine Services, Inc., Prizm Environmental and
Occupational Health, Inc. and Ideal Occupational Medical Centers, Inc., which
collectively added 12 centers. In addition, since September 30, 1996, the
Company has developed four centers in existing markets and has entered into a
joint venture with Mercy Clinics, Inc., an affiliate of Mercy Hospital System,
to establish a network of occupational healthcare centers in the Des Moines,
Iowa market.
The Company's acquisitions have been funded by cash, debt, convertible notes
and shares of Common Stock. The Company has also agreed in certain of its
acquisitions to pay additional consideration in the form of cash, notes and
shares of Common Stock contingent primarily upon the achievement of certain
financial objectives over earn-out periods ranging from one to three years
following those acquisitions. The terms of the earn-outs vary significantly
from acquisition to acquisition. Among the variations are (i) the commencement
date of the earn-out period, (ii) the termination date of the earn-out period,
(iii) the multiplier used in computing the earn-out, and (iv) the amount
subject to the multiplier (e.g., net revenues or earnings before interest and
taxes).
<PAGE>
The amount of additional consideration payable pursuant to those arrangements
cannot be determined until the earn-out periods terminate (the last of which
is expected to terminate on February 28, 1997). Based on past experience in
similar transactions, the Company estimates that the amount of future earn-out
payments will be approximately $1.5 million, which amount has currently been
placed in escrow by the Company. Payments, if any, under these contingent
consideration arrangements will be accounted for as adjustments to the
purchase price of the acquired practices.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data as a
percentage of total net revenues for each of the three years ended December
31, 1995, and for each of the nine month periods ended September 30, 1995 and
1996, as restated for the Recent Poolings.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-----------------------------------------------
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
Net revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses.......... 77.8 82.6 75.9 75.2 74.5
General and administrative.. 14.5 11.2 11.7 11.5 9.1
Depreciation and
amortization............... 3.6 4.1 4.1 4.1 3.9
Write-down of goodwill...... 29.6 -- 0.3 -- --
Other nonrecurring charges.. 2.4 -- 0.5 0.5 --
------- ------- ------- -------- --------
Total costs and expenses.. 127.9 97.9 92.5 91.3 87.5
------- ------- ------- -------- --------
Operating income (loss)... (27.9) 2.1 7.5 8.7 12.5
------- ------- ------- -------- --------
Other (income) expense:
Interest expense............ 2.7 2.2 2.2 2.5 1.2
Interest income............. (0.3) (0.2) (0.6) (0.6) (0.1)
Other, net.................. -- -- 0.4 0.4 0.5
------- ------- ------- -------- --------
Total other expense....... 2.4 2.0 2.0 2.3 1.6
Income (loss) from continuing
operations before income
taxes, discontinued
operations and extraordinary
charge....................... (30.3) 0.1 5.5 6.4 10.9
Provision for income taxes.... 0.1 1.4 2.7 3.1 4.0
------- ------- ------- -------- --------
Income (loss) from continuing
operations before
discontinued operations and
extraordinary charge......... (30.4) (1.3) 2.8 3.3 6.9
------- ------- ------- -------- --------
Discontinued operations:
Income from operations of
discontinued business
segment, net of applicable
taxes...................... 0.2 0.2 -- -- --
Gain on disposition of net
assets of discontinued
business segment, net of
applicable taxes........... -- 0.2 -- -- --
------- ------- ------- -------- --------
Income (loss) before
extraordinary charge......... (30.2) (0.9) 2.8 3.3 6.9
Extraordinary charge from
early extinguishment of debt,
net of income tax benefit.... -- -- (0.4) (0.7) --
------- ------- ------- -------- --------
Net income (loss)............. (30.2)% (0.9)% 2.4% 2.6% 6.9%
======= ======= ======= ======== ========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
NET REVENUES
Net revenues increased 25.0% from $101,920,000 in the first nine months of
1995 to $127,345,000 in the first nine months of 1996. Of this increase,
$6,896,000 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, and
$423,000 resulted from consulting and other ancillary services.
<PAGE>
OPERATING EXPENSES
Operating expenses increased 23.9% from $76,593,000 in the first nine months
of 1995 to $94,875,000 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 75.2% in the first nine months of 1995 to 74.5% 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% due to increased volumes and efficiencies achieved in those
centers. 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 1.3% from $11,732,000 in the
first nine months of 1995 to $11,582,000 in the first nine months of 1996. As
a percentage of net revenues, these costs decreased from 11.5% in the first
nine months of 1995 to 9.1% in the first nine months of 1996. This percentage
decrease resulted primarily from economies of scale gained through continued
expansion in existing markets.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased 17.6% from $4,188,000 in the
first nine months of 1995 to $4,924,000 in the first nine months of 1996. This
increase resulted primarily from centers acquired in 1995 and 1996 and the
depreciation expense attributable to the rollout of the Company's new
proprietary information system. As a percentage of net revenues, depreciation
and amortization expense decreased from 4.1% in the first nine months of 1995
to 3.9% in the first nine months of 1996.
OTHER NONRECURRING CHARGES
The Company recorded a nonrecurring charge of $559,000 in the first quarter
of 1995 resulting from the write-down of certain assets acquired in business
combinations that were accounted for under the pooling of interests method of
accounting.
INTEREST EXPENSE
Interest expense decreased from $2,587,000 in the first nine months of 1995
to $1,552,000 in the first nine months of 1996. This decrease was primarily
the result of the retirement of debt with proceeds from the Company's initial
public offering in May 1995 and the conversion of $15,000,000 principal amount
of convertible debentures in March 1996. As a percentage of net revenues, this
expense decreased from 2.5% during the first nine months of 1995 to 1.2% in
the first nine months of 1996.
INCOME TAXES
The Company's effective tax rate decreased from 48.7% for the first nine
months of September 30, 1995 to 36.3% for the first nine months of September
30, 1996. This decrease was due to the restatement of the statement of
operations for the first nine month period of September 30, 1995 for certain
business combinations treated as poolings. Without this restatement, the
Company's effective tax rate would have remained constant for the nine month
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.
<PAGE>
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
NET REVENUES
Net revenues increased 33.2% from $64,185,000 in 1993 to $85,502,000 in 1994
and 60.2% to $136,986,000 in 1995. Of the increase from 1993 to 1994,
$5,548,000 resulted from practices acquired during 1994, $6,789,000 resulted
from practices acquired and developed in new markets during 1993, $3,824,000
resulted from increased business in same markets, and $945,000 resulted from
the three practices developed in other markets during 1994, and $4,211,000
resulted from practices acquired in 1996 accounted for under the pooling
method of accounting. Of the increase from 1994 to 1995, $30,952,000 resulted
from practices acquired during 1995, $9,187,000 resulted from practices
acquired and developed in new markets during 1994, $6,320,000 resulted from
increased business in same markets, $2,192,000 resulted from increased
consulting services, and $615,000 resulted from two practices developed in a
new market during the fourth quarter of 1994 and second quarter of 1995,
respectively, and $2,218,000 resulted from practices acquired in 1996
accounted for under the pooling method of accounting.
OPERATING EXPENSES
Operating expenses increased 41.5% from $49,910,000 in 1993 to $70,637,000
in 1994 and 47.2% to $104,010,000 in 1995. These increases were principally
due to the acquisition and development of additional practices. As a
percentage of total net revenues, these costs increased from 77.8% in 1993 to
82.6% in 1994 and decreased to 75.9% in 1995. The increase from 1993 to 1994
was primarily due to the lower operating margins of the practices acquired and
developed during 1994. The practices acquired and developed during 1994
contributed operating margins of 13.3%, as compared to the practices owned
prior to 1994, which produced operating margins of 21.6%. As certain functions
are consolidated and other staff-related changes occur, the operating margins
of acquired practices have tended to improve over time. Such consolidation and
changes were the principal contributing factors to the percentage decrease
from 1994 to 1995.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 3.6% from $9,276,000 in 1993
to $9,611,000 in 1994 and 67.3% to $16,077,000 in 1995. General and
administrative expenses have decreased as a percentage of revenues from 14.5%
in 1993 to 11.2% in 1994 and increased to 11.7% in 1995. These increased
expenses were principally a result of the incremental administrative costs
related to acquisitions. During 1995, the Company also invested additional
resources in the development of its information services to facilitate and
accommodate future growth, while providing a competitive advantage within the
occupational healthcare industry.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased 49.1% from $2,336,000 in
1993 to $3,484,000 in 1994 and 63.0% to $5,679,000 in 1995, primarily as a
result of the Company's growth through center acquisitions and development.
Depreciation and amortization expense as a percentage of revenues increased
from 3.6% in 1993 to 4.1% in 1994 and 1995 primarily due to the restatement of
the financial statements for the practices acquired in 1996 accounted for
under the pooling method of accounting.
INTEREST EXPENSE
Interest expense increased 9.3% from $1,710,000 in 1993 to $1,869,000 in
1994 and increased 61.3% to $3,015,000 in 1995. The increase in 1994 was
attributable to debt of the practices acquired in 1996 and accounted for under
the pooling method of accounting, offset in part by the repayment of a portion
of the Company's historical indebtedness with the use of proceeds of The
Travelers Indemnity Company's investment in the Company. The increase from
1994 to 1995 was due to the exchange of preferred stock for convertible debt
in May 1995 and to additional borrowings by the Company to provide cash for
acquisitions, which were subsequently retired with the proceeds of the
Company's initial public offering consummated in May 1995. As a percentage of
net revenues, interest expense was 2.7% in 1993, 2.2% in 1994 and in 1995.
<PAGE>
WRITE-DOWN OF GOODWILL AND OTHER NONRECURRING CHARGES
The value of goodwill is recorded at cost at the date of acquisition.
Goodwill, including any excess arising from earn-out payments, is amortized on
a straight-line basis over a 40-year period in accordance with the provisions
of Accounting Principles Board Opinion No. 17. The Company believes that the
life of the core businesses acquired and the delivery of occupational
healthcare services is indeterminate and likely to exceed forty years.
Subsequent to an acquisition, the Company continually evaluates whether
later events and circumstances have occurred that indicate that the remaining
balance of goodwill may not be recoverable or that the remaining useful life
may warrant revision. When external factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business segments' discounted cash flows over the remaining life of the
goodwill and compares it to the business segments' goodwill balance to
determine whether the goodwill is recoverable or if impairment exists. If such
impairment exists, an adjustment is made to the carrying value of the asset.
When an adjustment is required, the Company evaluates the remaining goodwill
amortization period using the factors outlined in Accounting Principles Board
Opinion No. 17. As a result of these ongoing reviews, the Company determined
the extent of impairment on certain amounts recorded as goodwill, and recorded
a $19,030,000 noncash write-down to estimated fair value for the year ended
December 31, 1993. This write-down was related principally to the excess
purchase price paid for the Company's acquisitions in Milwaukee, Denver,
Albuquerque and San Antonio. Due primarily to the uncertainty of proposed
healthcare reform, market multiples decreased in these cities subsequent to
acquisition. The Company does not anticipate that market forces requiring the
write-down of goodwill in those cities will result in similar write-downs in
the future. Nevertheless, the Company plans to periodically apply its
valuation methodology to determine if impairment exists.
The Company recorded an additional $1,543,000 nonrecurring charge related
principally to noncash write-downs of property and equipment, certain
personnel costs, including severance payments made to terminated employees,
and certain other costs associated with cessation of services and relocation
of three centers.
INCOME TAXES
The Company's effective tax rate before restatement for the practices
acquired in 1996 accounted for under the pooling method of accounting
decreased from 40% in 1994 to 35% in 1995 due to a reduction in the deferred
tax asset valuation allowance, initially recorded in 1993, as a result of
positive evidence with respect to the ultimate realization of the deferred tax
asset. The Company established the deferred tax asset valuation allowance of
$4,120,000 in 1993. In 1994 and 1995, the Company reduced this allowance by
$371,000 and $638,000, respectively. As of December 31, 1995, the Company's
deferred tax asset valuation allowance is $3,111,000 or 75.0% of the original
allowance.
EXTRAORDINARY CHARGE
In 1995, the Company recorded a $427,000 extraordinary charge for the
unaccreted original issue discount, net of income tax benefit, resulting from
the early extinguishment of $6,000,000 of indebtedness outstanding under the
Company's 10% Senior Subordinated Note due December 1, 2000. The Company also
recognized a charge of $253,000, net of income tax benefit, for the unaccreted
original issue discount on certain warrants issued to secure the Loan
Agreement.
SEASONALITY
The Company's business is seasonal in nature. Patient visits at the
Company's centers are lower in the first and fourth quarters, primarily
because of fewer occupational injuries and illnesses during those time periods
due to plant closings, vacations and holidays. In addition, employers
generally hire fewer employees in the fourth
<PAGE>
quarter, thereby reducing the number of pre-hiring physical examinations and
drug and alcohol tests conducted at the Company's centers during that quarter.
Although the Company's rapid growth may obscure the effect of seasonality in
the Company's financial results, the Company's first and fourth quarters
generally reflect lower net revenues on a same market basis when compared to
the Company's second and third quarters.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $20.1 million in working capital, an
increase of $8.9 million from December 31, 1995. The Company's principal
sources of liquidity consisted of (i) cash and cash equivalents aggregating
$6.5 million, (ii) net accounts receivable of $39.7 million, and (iii) $43.8
million in borrowing capacity under the Loan Agreement.
Cash and cash equivalents decreased $1.2 million from $7.7 million as of
December 31, 1995 to $6.5 million as of September 30, 1996. This decrease was
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 $13.9 million, offset by proceeds from loan
borrowings of $19.6 million and cash flow from operations of $6.2 million.
For the year ended December 31, 1995, $7.4 million in cash was provided by
operations. Cash of $55.2 million was used in investing activities in 1995,
$49.2 million of which related to certain acquisitions. Cash of $50.5 million
was provided by financing activities in 1995, primarily as a result of the net
proceeds of $68.9 million from the Company's initial public offering, of which
$45.7 million was used to retire certain indebtedness. In 1994, cash of $2.9
million was used for operations. Cash of $17.3 million was used in investing
activities in 1994, with $16.5 million related to certain acquisitions. Cash
of $18.3 million was provided by financing activities during 1994 primarily as
a result of the net proceeds of the Company's issuance of $15.0 million in
aggregate liquidation preference of Series B Preferred Stock. In 1993, $1.3
million in cash was provided by operations. Cash of $12.7 million was used in
investing activities in 1993, $9.5 million of which related to certain
acquisitions. Cash of $16.5 million was provided by financing activities
during 1993, primarily as a result of the net proceeds of the Company's
issuance of $16.0 million aggregate liquidation preference of Series A
Preferred Stock.
For the nine months ended September 30, 1996, $5.2 million in cash was
provided by operations. Cash of $26.0 million was used in investing activities
in the first nine months of 1996, $12.2 million of which related to certain
acquisitions. Cash of $19.5 million was provided by financing activities in
the first nine months of 1996, $18.4 million of which was provided by
additional borrowings under the Loan Agreement.
On December 31, 1993, the Company entered into the Loan Agreement, which was
amended and restated on January 3, 1995. The Loan Agreement currently provides
for revolving loans of up to $60.0 million to be used by the Company for
acquisitions and general working capital needs. As of September 30, 1996,
$16.2 million was outstanding under the Loan Agreement. Loans under the Loan
Agreement are secured by substantially all the assets of the Company
(including the capital stock of the Company's subsidiaries) and mature on
December 31, 2000. The Loan Agreement provides for payments of interest only
until maturity, at which time a balloon payment of outstanding principal is
due. Loans under the Loan Agreement are denominated at the Company's option as
either Eurodollar Tranches (loans bearing interest at a rate 0.75% above a
Eurodollar rate quoted by Creditanstalt) or Base Rate Tranches (loans bearing
interest at Creditanstalt's prime rate for U.S. commercial loans and the
Federal Funds Rate, whichever is greater).
A wholly-owned subsidiary of the Company has committed to guarantee $10.4
million in initial amount of senior discount notes, plus interest accruing
thereon, to be issued by Concentra Development Corp. ("Concentra"), a
corporation organized to develop occupational healthcare centers in selected
markets in the United States. The stated principal amount of the notes will
total $28.4 million, which will be their accreted value at their stated
maturity (five years after the date of issuance of each note). On December 3,
1996, Concentra issued $2.6 million ($7.4 million of stated principal amount)
of such debt which is currently guaranteed by such
<PAGE>
wholly-owned subsidiary of the Company. DLJ Investment Partners, L.P., DLJ
Investment Funding, Inc. and DLJ First ESC LLC, each of which are affiliates
of Donaldson, Lufkin & Jenrette Securities Corporation, purchased all of the
outstanding capital stock of Concentra for $2.1 million on December 3, 1996
($1.6 million of which will be funded at future dates) and has granted the
Company an option to purchase all such capital stock beginning in 1999. The
Company has entered into an agreement with Concentra to manage Concentra's
operations. See "Plan of Distribution."
The Company anticipates that the net proceeds from the sale of the Notes,
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.
INFLATION
When faced with increases in operating costs due to inflation, the Company
has implemented cost control measures intended to contain or reduce its
expenses. However, the Company cannot predict its ability to control future
cost increases or to increase its charges for certain medical services
provided to individuals covered by state and federal workers' compensation
laws.
ACCOUNTING DEVELOPMENTS
The Emerging Issues Task Force (the "Task Force") of the Financial
Accounting Standards Board has added an agenda item to review various
accounting and reporting matters relating to the physician practice management
industry. The Task Force is currently organizing its efforts and has yet to
publish a list of the matters under consideration. The Company anticipates
that such matters may address, among other things, the consolidation of
revenues of professional associations and accounting for business
combinations. Although the Company believes that its accounting and reporting
practices are in conformity with generally accepted accounting principles and
common industry practice, there can be no assurance that the conclusions
reached by the Task Force will not have a material impact on the Company.
FORWARD-LOOKING STATEMENTS
Forward-looking statements such as "believe," "anticipate," "expect,"
"plan," "intend," "estimate," "project," "will," "could," "may" and words of
similar import are intended to identify forward-looking statements that
involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and factors include, among others,
product and service demand and acceptance, the availability of appropriate
acquisition and joint venture candidates, economic conditions, the impact of
competition and pricing, changes in the availability, cost and terms of
financing, the impact of present or future occupational/healthcare legislation
and related legislation or rule making and changes in operating expenses.
Certain of these risks, uncertainties and factors are discussed in more detail
elsewhere in the Company's filings under the Securities Exchange Act of 1934, as
amended. Given these risks, uncertainties and factors, prospective investors in
the Notes are cautioned not to place undue reliance on such forward-looking
statements.
<PAGE>
EXHIBIT 99.5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of OccuSystems, Inc.:
We have audited the accompanying consolidated balance sheets of OccuSystems,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1995. 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 OccuSystems, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Dallas, Texas
November 27, 1996
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
(RESTATED)
(RESTATED) (RESTATED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 5,080 $ 7,735 $ 6,498
Accounts receivable, net of allowances of
$4,524, $6,987 and $8,316 at December
31, 1994 and 1995, and
September 30, 1996, respectively........ 22,398 28,521 39,659
Deferred income taxes.................... 579 2,185 --
Other current assets..................... 1,939 2,473 4,781
------- -------- --------
Total current assets................... 29,996 40,914 50,938
Property and equipment, net................ 13,692 19,799 31,032
Intangible assets:
Goodwill................................. 30,921 80,724 94,824
Assembled workforce...................... 593 550 547
Customer lists........................... 480 501 455
Other assets............................... 968 2,873 4,104
------- -------- --------
$76,650 $145,361 $181,900
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........ $ 3,297 $ 7,231 $ 7,733
Accounts payable......................... 3,090 4,610 2,407
Accrued expenses......................... 12,036 17,837 20,703
------- -------- --------
Total current liabilities.............. 18,423 29,678 30,843
Notes payable to related parties........... 10,758 1,661 --
Long term debt, net of current portion..... 10,014 1,447 17,355
Deferred income taxes...................... 700 2,019 --
Other liabilities.......................... 1,716 1,978 6,380
------- -------- --------
Total liabilities...................... 41,611 36,783 54,578
Convertible debenture...................... -- 15,000 --
Convertible exchangeable preferred stock... 15,000 -- --
Stockholders' equity:
Preferred stock ($1.00 par value,
20,000,000 shares authorized, 2,835,000,
0, and 0 shares issued and outstanding
at December 31, 1994 and 1995 and
September 30, 1996, respectively)....... 2,835 -- --
Common stock ($.01 par value, 50,000,000
shares authorized, 9,905,617, 18,506,819
and 21,336,477 shares issued and
outstanding at December 31, 1994 and
1995 and September 30, 1996,
respectively............................ 98 185 213
Additional paid in capital............... 38,764 113,529 139,011
Accumulated deficit...................... (21,658) (20,136) (11,902)
------- -------- --------
Total stockholders' equity............. 20,039 93,578 127,322
------- -------- --------
Total liabilities and stockholders'
equity................................ $76,650 $145,361 $181,900
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS ENDED
-------------------------------- -----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ----------- -----------
(RESTATED) (RESTATED)
(RESTATED) (RESTATED) (RESTATED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 64,185 $85,502 $136,986 $101,920 $127,345
Costs and expenses:
Operating expenses.... 49,910 70,637 104,010 76,593 94,875
General and
administrative....... 9,276 9,611 16,077 11,732 11,582
Depreciation and
amortization......... 2,336 3,484 5,679 4,188 4,924
Write-down of
goodwill............. 19,030 -- 339 -- --
Other nonrecurring
charges.............. 1,543 2 559 559 --
-------- ------- -------- -------- --------
Total costs and
expenses........... 82,095 83,734 126,664 93,072 111,381
-------- ------- -------- -------- --------
Operating income
(loss)................. (17,910) 1,768 10,322 8,848 15,964
Other (income) expense:
Interest expense...... 1,710 1,869 3,015 2,587 1,552
Interest income....... (196) (206) (813) (659) (149)
Other, net............ 1 28 561 391 634
-------- ------- -------- -------- --------
Total other
expense............ 1,515 1,691 2,763 2,319 2,037
Income (loss) from
continuing operations
before income taxes,
discontinued
operations, and
extraordinary charge... (19,425) 77 7,559 6,529 13,927
Provision for income
taxes.................. 113 1,226 3,659 3,180 5,059
-------- ------- -------- -------- --------
Income (loss) from
continuing operations
before discontinued
operations and
extraordinary charge... (19,538) (1,149) 3,900 3,349 8,868
-------- ------- -------- -------- --------
Discontinued operations:
Income from operations
of discontinued
business segment, net
of applicable taxes.. 152 168 -- -- --
Gain on disposition of
net assets of
discontinued business
segment, net of
applicable taxes..... -- 208 -- -- --
-------- ------- -------- -------- --------
Income (loss) before
extraordinary charge... (19,386) (773) 3,900 3,349 8,868
Extraordinary loss on
extinguishment of debt,
net of applicable
taxes.................. -- -- (680) (680) --
-------- ------- -------- -------- --------
Net income (loss)....... $(19,386) $ (773) $ 3,220 $ 2,669 $ 8,868
======== ======= ======== ======== ========
Net income (loss) per
share (primary and
fully diluted):
Income (loss) from
continuing operations
before discontinued
operations and
extraordinary
charge............... $ (1.58) $ (0.08) $ 0.22 $ 0.18 $ 0.41
Income from
discontinued
operations........... 0.01 0.03 -- -- --
-------- ------- -------- -------- --------
Income (loss) before
extraordinary charge... (1.57) (0.05) 0.22 0.18 0.41
Extraordinary charge.... -- -- (0.03) (0.03) --
-------- ------- -------- -------- --------
Net income (loss) per
common share........... $ (1.57) $ (0.05) $ 0.19 $ 0.15 $ 0.41
======== ======= ======== ======== ========
Weighted average shares
outstanding (in
thousands)............. 12,358 14,333 19,115 18,261 21,981
======== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
-------------------- ----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- -------- ---------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992, as previously
reported............... -- $ -- 6,686,637 $ 67 $ 19,066 $ (1,606) $ 17,527
Adjustment for pooling
of interests (see Note
2).................... -- -- 1,485,412 14 453 770 1,237
---------- -------- ---------- ---- -------- -------- --------
Balance, December 31,
1992, as restated...... -- -- 8,172,049 81 19,519 (836) 18,764
Common stock issued in
connection with
acquisitions.......... -- -- 1,182,357 12 4,950 -- 4,962
Issuance of preferred
stock, net of issuance
costs................. 3,200,000 3,200 -- -- 12,698 -- 15,898
Distribution to
shareholder for
taxes................. -- -- -- -- -- (289) (289)
Net loss............... -- -- -- -- -- (19,386) (19,386)
---------- -------- ---------- ---- -------- -------- --------
Balance, December 31,
1993................... 3,200,000 3,200 9,354,406 93 37,167 (20,511) 19,949
Common stock issued in
connection with
acquisitions.......... -- -- 185,211 1 1,228 -- 1,229
Exercise of options.... -- -- 1,000 -- 8 -- 8
Dividends on Series B
preferred stock....... -- -- -- -- -- (300) (300)
Conversion of Series A
preferred stock into
common stock.......... (365,000) (365) 365,000 4 361 -- --
Distribution to
shareholder for
taxes................. -- -- -- -- -- (74) (74)
Net income............. -- -- -- -- -- (773) (773)
---------- -------- ---------- ---- -------- -------- --------
Balance, December 31,
1994................... 2,835,000 2,835 9,905,617 98 38,764 (21,658) 20,039
Adjustment for
Concerned Care pooling
of interests (see
Note 2)............... -- -- 66,414 1 184 -- 185
Distribution to
shareholder for
taxes................. -- -- -- -- -- (1,476) (1,476)
Common stock issued in
connection with
acquisitions.......... -- -- 63,910 1 1,319 -- 1,320
Issuance of common
stock warrants........ -- -- -- -- 450 -- 450
Exercise of options,
net................... -- -- 168,748 2 1,445 -- 1,447
Exercise of warrants... -- -- 82,222 1 246 -- 247
Dividends on Series B
preferred stock....... -- -- -- -- -- (222) (222)
Initial public offering
...................... -- -- 5,366,667 54 68,186 -- 68,240
Conversion of Series A
preferred stock into
common stock.......... (2,835,000) (2,835) 2,835,000 28 2,807 -- --
Conversion of note
payable into common
stock................. -- -- 18,241 -- 128 -- 128
Net income............. -- -- -- -- -- 3,220 3,220
---------- -------- ---------- ---- -------- -------- --------
Balance, December 31,
1995................... -- -- 18,506,819 185 113,529 (20,136) 93,578
Distribution to
shareholder for
taxes................. -- -- -- -- -- (634) (634)
Common stock issued in
connection with
acquisitions.......... -- -- 303,679 3 5,244 -- 5,247
Exercise of options,
net................... -- -- 414,744 4 1,867 -- 1,871
Exercise of warrants... -- -- 151,111 2 1,062 -- 1,064
Conversion of debenture
into common stock..... -- -- 105,983 1 14,429 -- 14,430
Conversion of note
payable into common
stock................. -- -- 1,854,141 18 2,880 -- 2,898
Net income............. -- -- -- -- -- 8,868 8,868
---------- -------- ---------- ---- -------- -------- --------
Balance, September 30,
1996 (unaudited)....... -- $ -- 21,336,477 $213 $139,011 $(11,902) $127,322
========== ======== ========== ==== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------- ---------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss)...... $(19,386) $ (773) $ 3,220 $ 2,669 $ 8,868
Adjustments to
reconcile net income
(loss) to net cash
provided by operating
activities--
Extraordinary loss on
extinguishment of
debt, net............ -- -- 680 680 --
Write-down of good-
will................. 19,030 -- 339 -- --
Depreciation and am-
ortization........... 2,546 3,484 5,679 4,188 4,924
Amortization of
preopening costs..... 75 143 370 260 224
Write-down of intan-
gible assets......... 594 2 559 559 --
Gain on sale of busi-
ness segment.......... -- (208) -- -- --
Changes in assets and
liabilities, net of
effects from business
combinations--
Accounts receivable.. (2,340) (2,427) (1,157) (935) (9,038)
Deferred income tax-
es, net............. 175 (343) (287) -- --
Other current as-
sets................ (399) (940) (513) (434) 160
Other assets......... (285) (238) (585) (493) (1,203)
Accounts payable..... 157 (1,058) 878 (403) (2,243)
Accrued expenses..... 741 1,107 (1,708) 1,889 3,793
Other liabilities.... 272 (935) 262 76 (253)
-------- -------- -------- ------- --------
Net cash provided
by (used in) oper-
ating activities.. 1,180 (2,186) 7,737 8,056 5,232
-------- -------- -------- ------- --------
Cash flows from invest-
ing activities:
Purchases of property
and equipment......... (3,084) (4,235) (6,887) (4,865) (13,775)
Proceeds from sale of
property and equip-
ment.................. -- -- 253 253 --
Cash paid for acquisi-
tions, including re-
lated costs, net of
cash received......... (9,510) (16,450) (49,245) (30,154) (12,190)
Proceeds from sale of
accounts receivable... -- -- 325 -- --
Issuances of loans re-
ceivable.............. -- (43) -- -- --
Proceeds from sale of
business segment...... -- 2,680 -- -- --
-------- -------- -------- ------- --------
Net cash used in
investing activi-
ties.............. (12,594) (18,048) (55,554) (34,766) (25,965)
-------- -------- -------- ------- --------
Cash flows from financ-
ing activities:
Proceeds from issuance
of long-term debt, net
of issuance costs..... 16,801 13,322 29,046 27,287 18,366
Payments on long-term
debt.................. (16,154) (9,790) (45,669) (43,302) (833)
Proceeds from issuance
of convertible pre-
ferred stock, common
stock, and capital
contributions, net of
issuance costs........ 15,898 14,973 68,943 68,648 2,596
Dividends.............. -- (224) (1,848) (1,404) (633)
-------- -------- -------- ------- --------
Net cash provided
by financing ac-
tivities.......... 16,545 18,281 50,472 51,229 19,496
-------- -------- -------- ------- --------
Net increase (decrease)
in cash................ 5,131 (1,953) 2,655 24,519 (1,237)
Cash and cash equiva-
lents, beginning of pe-
riod................... 1,902 7,033 5,080 5,080 7,735
-------- -------- -------- ------- --------
Cash and cash equiva-
lents, end of period... $ 7,033 $ 5,080 $ 7,735 $29,599 $ 6,498
======== ======== ======== ======= ========
Noncash transactions
during the period:
Stock issued in connec-
tion with acquisi-
tions.................. $ 4,962 $ 1,261 $ 1,320 $ -- $ 5,747
Liabilities and debt as-
sumed in acquisitions.. 3,819 1,025 13,177 13,177 1,314
Debt issued in acquisi-
tions.................. 1,648 1,110 -- -- --
Conversion of convert-
ible preferred stock
into convertible deben-
ture................... -- -- 15,000 15,000 --
Conversion of convert-
ible preferred stock or
debenture into common
stock.................. -- 365 2,835 2,835 16,108
Issuance of capital
lease obligation....... -- 64 -- -- --
Reduction of indebted-
ness through offset of
accrued expenses....... -- 35 -- -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994, AND 1993
1. GENERAL INFORMATION:
As of December 31, 1995, OccuSystems, Inc. (together with its subsidiaries,
"OccuSystems" or the "Company") managed the practices of 141 physicians in
OccuSystems' 80 occupational healthcare centers located in 13 states. The
occupational healthcare centers, in conjunction with certain physician
associations, provide treatment for work-related injuries and illnesses
including related physical therapy, as well as employee physical exams and
drug screens. Additionally, through its consulting services programs,
OccuSystems manages work-related injuries and illnesses for employers located
within and outside the service areas of OccuSystems' centers and provides an
assortment of other healthcare and education services to employers.
Physician services are provided at OccuSystems' centers under management
agreements with affiliated physician associations ("the Physician Groups"),
which are organized professional corporations that hire licensed physicians
who provide medical services to the centers' patients. Pursuant to each
management agreement, OccuSystems provides a wide array of business services
to the Physician Groups, including administrative services, support personnel,
facilities, marketing, and nonmedical services in exchange for a management
fee. Services are billed and collected by OccuSystems in the name of the
Physician Groups. The Physician Groups provide all medical aspects of
OccuSystems' services, including the development of professional standards,
policies, and procedures. As of December 31, 1995, physician services were
provided at 78 of OccuSystems' 80 centers under the terms of service
agreements with three physician associations, one of which expires in December
2033, with the other two expiring in January 2034.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements of OccuSystems include the accounts of
OccuSystems, Inc., its wholly owned subsidiaries, and the Physician Groups
(collectively the "Company"). The financial statements of the Physician Groups
are consolidated with OccuSystems because OccuSystems has unilateral control
over the assets and operations of the Physician Groups and, notwithstanding
the lack of technical majority ownership, consolidation of the Physician
Groups with OccuSystems is necessary to present fairly the financial position
and results of operations of OccuSystems because of the existence of a parent-
subsidiary relationship by means other than record ownership of the Physician
Groups' voting stock. Control of the Physician Groups is perpetual and other
than temporary because of the nature of this relationship and the management
agreements between the entities. The net assets of the Physician Groups were
not material at December 31, 1995. All significant intercompany accounts and
transactions have been eliminated.
ACCOUNTING DEVELOPMENTS
The Emerging Issues Task Force (the "Task Force") of the Financial
Accounting Standards Board has added an agenda item to review various
accounting and reporting matters relating to the physician practice management
industry. The Task Force is currently organizing its efforts and has yet to
publish a list of the matters under consideration. The Company anticipates
that such matters may address, among other things, the consolidation of
revenues of professional associations and accounting for business
combinations. Although the Company believes that its accounting and reporting
practices are in conformity with generally accepted accounting principles and
common industry practice, there can be no assurance that the conclusions
reached by the Task Force will not have a material impact on the Company. See
"Risk Factors--Dependence on Future Acquisitions and Joint Ventures."
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
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
disclosures of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amount of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with original maturities of
three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation.
Property and equipment is depreciated using the straight-line method over the
following useful lives:
<TABLE>
<CAPTION>
YEARS
---------------------------
<S> <C>
Furniture........................................ 5-7
Equipment........................................ 5-7
Leasehold improvements........................... Remaining life of the lease
Buildings and improvements....................... 30
</TABLE>
INTANGIBLE ASSETS
The value of goodwill, assembled workforce, and customer list are recorded
at cost at the date of acquisition. Goodwill, including any excess arising
from earnout payments, is being amortized on a straight-line basis over a 40-
year period in accordance with APB No. 17, Intangible Assets. The Company
believes that the life of the core businesses acquired and the delivery of
occupational healthcare services is indeterminate and likely to exceed 40
years. The assembled workforce and customer list are being amortized over a
five-year and seven-year period, respectively.
Subsequent to an acquisition, the Company continually evaluates whether
later events and circumstances have occurred that indicate that the remaining
balance of goodwill may not be recoverable or that the remaining useful life
may warrant revision. When external factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business segments' discounted cash flows over the remaining life of the
goodwill and compares it to the business segment's goodwill balance to
determine whether the goodwill is recoverable or if impairment exists, in
which case an adjustment is made to the carrying value of the asset. When an
adjustment is required (see Note 6), the Company evaluates the remaining
goodwill amortization using the factors outlined in APB No. 17. As of December
31, 1995 and 1994, the amounts recorded as accumulated amortization were
$20,730,000 and $18,864,000 (see Note 6), respectively.
OTHER LIABILITIES
Other liabilities consist of the following at December 31, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Mark-to-market reserve for operating leases................... $1,382 $ 476
Minority interest............................................. 194 282
Other......................................................... 402 958
------ ------
$1,978 $1,716
====== ======
</TABLE>
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
Under the purchase method of accounting, the Company assigns a portion of
the purchase price to any operating lease of an acquired entity which is in
excess of fair market value at the date of acquisition. This mark-to-market
reserve represents the long-term portion of the excess of the contracted
operating lease over the fair market value of the same lease, discounted at a
market rate of interest.
REVENUE RECOGNITION
Revenue is recorded at estimated net amounts to be received from employers,
third-party payors, and others for services rendered. The Company operates in
certain states that regulate the amounts which the Company can charge for its
services associated with work-related injuries and illnesses.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share has been computed by dividing net income (loss)
by the weighted average number of common equivalent shares outstanding each
year. The Company has treated the preferred stock issued in June 1994, and the
convertible debenture for which the preferred stock was exchanged in May 1995,
as common stock equivalents for the purposes of computing net income (loss)
per share.
CASH PAID DURING THE YEAR
The Company paid the following amounts for interest and income taxes (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Interest................................................ $3,082 $1,813 $1,927
Income taxes............................................ $3,762 $ 202 $ 578
</TABLE>
PENDING ACCOUNTING STANDARDS
During 1995, the Financial Accounting Standards Board passed Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and SFAS No.
123, Accounting for Stock Based Compensation. SFAS No. 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS No. 121 requires that impairment losses for such assets be
based on the fair value of the assets. Long-lived assets to be disposed of
should be reported at the lower of carrying amount or fair value less cost to
sell. SFAS No. 121 is effective for financial statements issued for fiscal
years beginning after December 15, 1995. The Company intends to adopt SFAS No.
121 effective for the year ending December 31, 1996. Management does not
believe the adoption of this statement will have a material impact on the
financial position or results of operations of the Company.
SFAS No. 123 establishes accounting standards for stock-based employee
compensation. The statement allows companies to continue to utilize the
current methodology for accounting for stock-based employee compensation, as
prescribed by APB No. 25, Accounting for Stock Issued to Employees, or to
begin using an alternate method for transactions entered into after December
15, 1995. The statement also expands the disclosure standards with respect to
stock-based compensation to include an estimate of compensation cost using a
fair value based method. The Company intends to adopt this statement effective
for the year ending December 31, 1996. As the Company intends to continue
accounting for stock-based employee compensation under APB No. 25, management
does not believe the adoption of this statement will have any impact on the
financial position or results of operations of the Company.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
BASIS OF PRESENTATION--INTERIM FINANCIAL STATEMENTS
The financial statements for the nine months ended September 30, 1995 and
1996, have been prepared without audit, pursuant to Accounting Principles
Board (APB) Opinion No. 28,"Interim Financial Reporting." Certain information
and footnote disclosures normally included in the financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to APB Opinion No. 28; nevertheless, management
believes that the disclosures herein are adequate to prevent the information
presented from being misleading. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company with respect to the
results of its operations for the nine months ended September 30, 1995 and
1996, have been included herein. The results of operations for the nine-month
period is not necessarily indicative of the results for the full year.
3. BUSINESS COMBINATIONS:
1996 ACQUISITIONS
During 1996, OccuSystems effected five separate business combinations
accounted for as pooling of interests mergers in accordance with Accounting
Principles Bulletin No. 16, Business Combinations ("APB 16"). The entities
acquired in these transactions are hereafter collectively referred to as the
"Pooled Entities."
Effective January 1, 1996, in two transactions, OccuSystems 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 (collectively "Baltimore
Industrial Medical Group" or "BIMG"), in exchange for 225,000 shares of
OccuSystems' common stock, and all of the outstanding common stock of
Concerned Care L.L.C. ("Concerned Care"), located in Columbia, Maryland, in
exchange for 66,414 shares of OccuSystems' common stock.
Effective October 4, 1996, in the third transaction, OccuSystems acquired
all of the outstanding common stock of Occupational Medicine Services, Inc.
("OMS"), located in Tulsa, Oklahoma, in exchange for 135,412 shares of
OccuSystems' common stock.
Effective November 1, 1996, in the fourth transaction, OccuSystems acquired
all of the outstanding common stock of Prizm Environmental and Occupational
Health, Inc. ("Prizm"), located in central and southwestern New Jersey, in
exchange for 625,000 shares of OccuSystems' common stock.
Effective November 2, 1996, in the fifth transaction, OccuSystems acquired
all of the outstanding common stock of Ideal Occupational Medical Centers,
Inc. ("Ideal"), located in Detriot, Michigan, in exchange for 500,000 shares
of OccuSystems' common stock.
In accordance with the requirements of APB 16, the consolidated financial
statements for all periods presented have been restated to include the
accounts of the "Pooled Entities."
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
Results of operations for the separate companies for the periods preceding
the acquisitions were as follows (in thousands):
<TABLE>
<CAPTION>
CONCERNED
OCCUSYSTEMS BIMG CARE (1) OMS PRIZM IDEAL COMBINED
----------- ------- --------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1993:
Net revenues........... $ 42,819 $ 7,140 $ -- $1,921 $ 7,577 $4,728 $ 64,185
Net income (loss)...... (18,945) 43 -- 149 (932) 299 (19,386)
Year ended December 31,
1994:
Net revenues........... 59,900 7,120 -- 1,995 10,925 5,562 85,502
Net income (loss)...... 2,215 163 -- 14 (3,387) 222 (773)
Year ended December 31,
1995:
Net revenues........... 109,166 5,631 1,426 1,945 12,636 6,182 136,986
Extraordinary charge... (680) -- -- -- -- -- (680)
Net income (loss)...... 6,114 (1,797) (357) (25) (1,000) 285 3,220
</TABLE>
- ---------------------
(1) Concerned Care did not have operations until January 1, 1995
1995 ACQUISITIONS
Effective January 1, 1995, the Company acquired certain assets of Airport
Urgent Care of America, Inc., a California corporation; Phoenix Airport/OMC
Partners, a California limited partnership; Honolulu Airport Urgent Care,
Inc., a Hawaii corporation; Sun Valley Management Co., a California
corporation; and OMC Physical Rehabilitation Center, a California limited
partnership; in exchange for $25,000,000 in cash and the assumption of
$1,684,000 in indebtedness.
Effective August 1, 1995, the Company acquired the outstanding common stock
of Medical Plaza Industrial Clinic, P.A., a physician practice located in
Houston, Texas, in exchange for $2,014,000 in cash.
Effective October 1, 1995, the Company acquired all of the outstanding
capital stock of Corporate Health Services, Inc., a Michigan corporation, for
$7,000,000 in cash and 24,096 shares of the Company's common stock. The
purchase agreement also provides for contingent consideration based on the
performance of certain contracts, with $1,500,000 cash guaranteed.
Effective October 3, 1995, the Company acquired all the outstanding shares
of Medical and Surgical Clinic Association, a Texas professional corporation,
doing business as Advanced Occupational Health Care, for $5,250,000 in cash
and 36,145 shares of the Company's common stock.
1994 ACQUISITIONS
On January 1, 1994, the Company acquired certain assets of Western
Occupational Health Centers, Inc., a physician practice located in Tucson,
Arizona, in exchange for $350,000 in cash and the assumption of $50,000 in
liabilities.
On February 1, 1994, the Company entered into a partnership agreement
whereby the partnership repackages prescription drugs and distributes them to
certain of the Company's centers and markets pharmacy services to third
parties. The initial investment for its 75% interest in this joint venture was
$100,000 in cash.
On April 1, 1994, the Company acquired the outstanding common stock of ASAP
Medical Clinic, P.A. in Waco, Texas, in exchange for $2,678,510 in cash and
the issuance of a $500,000, 6% convertible promissory note.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
On September 1, 1994, the Company acquired the outstanding common stock of
Nevada Occupational Health Clinics, Inc. in Reno, Nevada, in exchange for
$1,975,000 in cash and 89,286 shares of the Company's common stock.
On October 1, 1994, the Company acquired certain assets of DEL, Inc. in
York, Pennsylvania, in exchange for $1,200,000 in cash, the assumption of
$72,262 in liabilities, and the issuance of a $600,000, 6% convertible
promissory note.
Also effective October 1, 1994, the Company acquired certain assets of
Associates in Occupational Medicine in Oklahoma City, Oklahoma, in exchange
for $628,000 in cash.
On November 1, 1994, the Company acquired certain assets of Gateway Medical,
P.A. in El Paso, Texas, in exchange for $1,305,000 in cash and 45,714 shares
of the Company's common stock.
Also effective November 1, 1994, the Company acquired certain assets of SWC
Association, PA in Dallas, Texas, and the outstanding stock of Airport
Industrial Medical Clinic, Inc. in Detroit, Michigan, in exchange for $310,000
and $1,200,000 in cash, respectively.
On December 31, 1994, the Company acquired certain assets of Detroit
Industrial Clinics, Inc. in Detroit, Michigan, in exchange for $7,600,000 in
cash.
These 1995 and 1994 acquisitions have been accounted for using the purchase
method of accounting. Accordingly, the purchase price was allocated to the
assets acquired and liabilities assumed based upon their estimated fair values
at the dates of acquisition. The results of operations of the acquired
practices are included in the consolidated financial statements from the
respective dates of acquisition.
In conjunction with certain acquisitions, the Company has entered into
contractual arrangements whereby the selling parties are entitled to receive
contingent consideration payments in cash, notes, and/or stock based upon a
multiple or percentage of earnings in excess of certain minimum operating
thresholds. Obligations related to these contingencies are reflected as
increases to goodwill in the period they become known. During 1995, payments
of approximately $4,288,000 in cash were made to selling parties under such
agreements. During 1994, payments of $1,107,000 in cash and 33,165 shares of
common stock were issued to selling parties under such arrangements. During
1996, $3,070,000 in cash is to be paid and 45,705 shares of common stock
issued under similar agreements. Any quantifiable unpaid balances are
reflected as liabilities in the accompanying consolidated financial
statements. The amount of cash, notes, and/or stock which may be issued under
similar arrangements in conjunction with other previous acquisitions entered
into cannot be determined at this time. The Company does not expect that those
payments will represent a substantial portion of the total consideration paid
for the acquired centers.
PRO FORMA INFORMATION
The following unaudited pro forma information reflects the effect on the
consolidated statements of operations assuming that significant acquisitions
were consummated as of January 1, 1995 and 1994. Future results may differ
substantially from pro forma results due to changes which may occur from
proposed healthcare reform and other factors. Therefore, pro forma statements
cannot be considered indicative of future operations.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
PRO FORMA (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Net revenues........................................ $ 155,117 $ 142,352
=========== ===========
Income before extraordinary charge.................. 4,866 3,531
=========== ===========
Net income.......................................... 4,186 3,531
=========== ===========
Income per share before extraordinary charge........ $ 0.27 $ 0.18
=========== ===========
Net income per share................................ $ 0.23 $ 0.18
=========== ===========
</TABLE>
4. DISCONTINUED OPERATIONS:
Effective September 1, 1994, the Company disposed of substantially all of
the assets of its rehabilitation service centers in Milwaukee, Wisconsin. As a
result of such disposition, the Company discontinued the operations of this
business unit which is substantially different from its core business
operations. Accordingly, in order for the financial data to be comparable,
under generally accepted accounting principles, the financial results for the
fiscal years ended December 31, 1994 and 1993, were restated to reflect the
net results of the discontinued business segment and are reflected as a single
line item, income from operations of discontinued business segment, net of
applicable taxes. The net assets of the seven rehabilitation service centers
were sold for $2,700,000 in cash, which resulted in a pre-tax gain on net
assets sold of $359,000. The Company also has an opportunity to recognize a
future return pursuant to the achievement of future earning levels.
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1995 and
1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Land....................................................... $ 1,218 $ 440
Buildings and improvements................................. 3,558 1,752
Furniture and equipment.................................... 18,046 12,973
Leasehold improvements..................................... 6,767 5,229
------- -------
29,589 20,394
Accumulated depreciation................................. (9,790) (6,702)
------- -------
$19,799 $13,692
======= =======
</TABLE>
6. WRITE-DOWN OF GOODWILL AND OTHER NONRECURRING CHARGES:
During 1993, the Company recorded a charge of $19,030,000 related to the
write-down of goodwill to estimated fair value. The Company continually
compares the actual operating performance of its acquisitions with the
expected results at the time of acquisition. As a result of these ongoing
comparisons, the Company determines the extent of impairment on certain
amounts recorded as intangible assets, and recorded a $19,030,000 noncash
write-down to estimated fair value for the year ended December 31, 1993. This
write-down was principally related to excess purchase price paid for the
Company's acquisitions in Milwaukee, Denver, Albuquerque, and San Antonio. Due
primarily to the uncertainty of proposed healthcare reform, market multiples
decreased in these cities subsequent to acquisition. The Company does not
anticipate that the market forces requiring the write-down of goodwill in
these cities will result in similar write-downs in the future. Nevertheless,
the Company plans to periodically apply its valuation methodology to determine
if impairment exists.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
The $1,543,000 in nonrecurring charges incurred during 1993 related
primarily to noncash write-downs of property and equipment of $594,000,
certain personnel costs, including severance payments made to terminated
employees, and certain other costs associated with the cessation of services
and relocation of three centers.
As described in Note 2, the accompanying consolidated financial statements
have been restated to include the results of operations of the Pooled
Entities. During 1995, Concerned Care performed a goodwill impairment analysis
consistent with the process described above and determined that a charge of
$339,000 related to the write-down of goodwill to fair value was required. In
addition, the $559,000 of nonrecurring charges in 1995 relates to noncash
write-downs of leasehold improvements at BIMG.
7. NOTES PAYABLE AND LONG-TERM DEBT:
Long-term debt at December 31, 1995 and 1994, consists of the following (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Note payable to a bank, interest at LIBOR plus 2.25%, due
December 2000............................................ $ -- $ 7,600
Note payable to a stockholder, interest at 10%, due
December 2000 (less unamortized discount of $737 at
December 31, 1994)....................................... -- 5,263
Notes payable to a stockholder, interest at rates ranging
from 6% to 8%, principal and accrued interest due at
varying intervals through 1998........................... 3,253 3,527
Notes payable to a stockholder, interest at prime plus 1%,
due on demand............................................ -- 975
Notes payable to an individual, interest at 9%, payable in
monthly and annual installments through November 1996.... 435 830
Convertible notes payable, interest at 6%:
Payable in September 1998............................... 510 638
Payable in September 1999............................... 600 600
Payable in March 1997................................... 500 500
Note payable to an individual, interest at 10%, payable in
monthly installments through May 2005.................... 143 --
Note payable to a stockholder, interest at 9%, payable in
monthly installments through October 1996................ 36 70
Note payable to stockholder............................... -- 150
Note payable to an individual, interest at 15%, due on
demand................................................... -- 45
Note payable to an individual, interest at 8.5%, due March
1998..................................................... 50 --
Various lines of credit and notes payable, interest at
prime plus 1/2% to 1%, payable on demand................. 2,503 1,262
Obligations under capital leases.......................... 2,079 2,281
Notes payable to a bank, interest at prime plus 1%,
payable in monthly installments through October 1996..... 230 328
------- -------
10,339 24,069
Less-Current maturities................................... (7,231) (3,297)
------- -------
$ 3,108 $20,772
======= =======
</TABLE>
On December 31, 1993, the Company entered into the Loan Agreement, which was
amended and restated on January 3, 1995. The Loan Agreement currently provides
for revolving loans of up to $60.0 million to be used by the Company for
acquisitions and general working capital needs. As of September 30, 1996,
$16.2 million was outstanding under the Loan Agreement. Loans under the Loan
Agreement are secured by substantially all the assets of the Company
(including the capital stock of the Company's subsidiaries) and
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
mature on December 31, 2000. The Loan Agreement provides for payments of
interest only until maturity, at which time a balloon payment of outstanding
principal is due. Loans under the Loan Agreement are denominated at the
Company's option as either Eurodollar Tranches (loans bearing interest at a
rate 0.75% above a Eurodollar rate quoted by Creditanstalt) or Base Rate
Tranches (loans bearing interest at Creditanstalt's prime rate for U.S.
commercial loans and the Federal Funds Rate, whichever is greater). An annual
fee of .25% exists on the unused portion of the commitment. Additionally, the
Loan Agreement prohibits the payment of dividends or other distributions on
the Company's common stock.
In December 1992, the Company completed a private placement of 1,568,333
shares of the Company's common stock at a price of $3.75 per share. In
conjunction with this private placement, the Company entered into an agreement
whereby it could elect to issue to the purchaser up to $6,000,000 in 10%
subordinated debentures, net of a discount of $881,250. In January 1993, the
Company elected to issue the debentures. These debentures were retired as part
of the Company's initial public offering in 1995 (see Note 10).
In February 1993, in conjunction with an acquisition, the Company assumed
guarantees of certain indebtedness of the selling party of approximately
$1,010,000. In connection with this assumption, the Company issued to the
selling party notes aggregating $1,010,000. These notes yielded interest at
prime plus 1% and required monthly interest payments through 1998. The Company
received a right of offset whereby any amounts due by the Company under its
guarantees resultant from the default of the selling party could be offset by
the notes issued to the selling party. Consequently, no amounts under the
guarantees were reflected as obligations of the Company. These notes were
fully paid during 1995.
In October 1993, in conjunction with an acquisition, the Company issued
$638,000 of its 6% convertible notes. The notes require semi-annual interest
payments and are payable in September 1998. The notes are convertible into
72,965 shares of the Company's common stock at the option of the holder at a
rate of $7.00 per share. In October 1995, one of these notes was converted
into 18,241 shares of stock.
In March 1994, in conjunction with an acquisition, the Company issued a
$500,000, 6% convertible note. The note requires semi-annual interest payments
and is payable in March 1997. The note is convertible into 59,524 shares of
the Company's common stock at the option of the holder at a rate of $8.40 per
share
In September 1994, in conjunction with an acquisition, the Company issued a
$600,000, 6% convertible note. The note requires semi-annual interest payments
and is payable in September 1999. The note is convertible into 68,571 shares
of the Company's common stock at the option of the holder at a rate of $8.75
per share.
The maturities of long-term debt at December 31, 1995, are as follows (in
thousands):
<TABLE>
<S> <C>
1996................................................................. $ 7,231
1997................................................................. 1,149
1998................................................................. 1,236
1999................................................................. 607
2000................................................................. 34
Thereafter........................................................... 82
-------
$10,339
=======
</TABLE>
8. INCOME TAXES:
The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and unused
tax operating loss carryforwards.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
Because of their corporate structure, OMS, Prizm, Ideal and BIMG (S
Corporations) and Concerned Care (a Limited Liability Corporation) are not
liable for taxes at the corporate level. Instead, the stockholders of the
companies are taxed on their proportionate share of the related company's
taxable income. As such, no provision or liability for federal income taxes
has been included in these financial statements. However, as a result of the
combination of these entities with the Company, the related operations will be
included in the taxable income of the Company beginning with the year ended
December 31, 1996. This will result in the recognition of additional deferred
tax expense or benefit related to the Pooled Entities for the year ended
December 31, 1996, because of existing temporary differences between the book
and tax bases of assets and liabilities of the companies as of the dates of
combination. The Company does not believe the recognition of these deferred
tax items will have a material adverse effect on the Company's financial
position or results of operations.
Total income tax expense for the years ended December 31, 1995, 1994, and
1993, was allocated as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ----
<S> <C> <C> <C>
Income from continuing operations........................ $3,659 $1,226 $113
Discontinued operations.................................. -- 228 78
------ ------ ----
$3,659 $1,454 $191
====== ====== ====
</TABLE>
The provision for income taxes for the years ended December 31, 1995, 1994,
and 1993, is comprised of the following amounts (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ----
<S> <C> <C> <C>
Current tax expense--
Federal............................................... $3,487 $1,100 $156
State and local....................................... 458 243 75
------ ------ ----
3,945 1,343 231
Deferred tax expense (benefit)--
Federal............................................... (286) 111 (40)
------ ------ ----
Total tax provision................................. $3,659 $1,454 $191
====== ====== ====
</TABLE>
A reconciliation between reported income tax expense and the amount computed
by applying the statutory federal income tax rate of 34% for 1995, 1994, and
1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Computed expected tax expense (benefit)............ $2,570 $ 152 $(6,795)
Pooled Entities' tax (expense) benefit attributed
to individual stockholders of respective company.. 984 1,016 469
Nondeductible goodwill............................. 129 59 2,502
Valuation allowance................................ (638) (126) 4,037
Reduction in NOL from sale of assets............... -- 167 --
Adjustment to deferred tax assets and liabilities
for enacted changes in tax laws................... -- -- (102)
Prior year tax return/accrual difference........... 133 -- --
Partnership income................................. (91) -- --
Cash to accrual adjustment......................... 272 -- --
State and local income taxes, net of federal tax
benefit........................................... 302 160 50
Other, net......................................... (2) 26 30
------ ------ -------
$3,659 $1,454 $ 191
====== ====== =======
</TABLE>
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
The components of deferred income tax expense (benefit) for the years ended
December 31, 1995, 1994, and 1993, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Excess tax over financial statement amortization...... $ 980 $ 488 $ 326
Difference between tax and financial statement
depreciation......................................... (190) 85 167
Adjustment for enacted changes in tax laws............ -- -- 102
Utilization of net operating loss carryforwards....... -- 167 --
Allowance for doubtful accounts....................... (654) (112) (326)
Restructuring charges................................. 2 (326) (297)
Change in valuation allowance......................... (638) (371) --
Other, net............................................ 214 180 (12)
----- ----- -----
$(286) $ 111 $ (40)
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1995 and 1994, are presented below (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets--
Impairment of goodwill................................. $ 3,499 $ 3,749
Allowance for doubtful accounts........................ 1,204 550
Purchase price settlement.............................. 125 --
Restructuring reserves................................. 63 623
Self insurance......................................... 199 135
Extraordinary charge................................... 154 --
Other.................................................. 52 29
------- -------
Total gross deferred tax assets...................... 5,296 5,086
Valuation allowance.................................... (3,111) (3,749)
------- -------
Net deferred tax assets.............................. 2,185 1,337
Deferred tax liabilities--
Deferred tax liabilities of acquired companies......... (381) (353)
Goodwill, principally due to differences in
amortization periods.................................. (1,337) (608)
Property and equipment, principally due to differences
in depreciation....................................... (157) (347)
Preopening costs....................................... (144) (150)
------- -------
Total gross deferred tax liabilities................. (2,019) (1,458)
------- -------
Total net deferred tax assets (liabilities).......... $ 166 $ (121)
======= =======
</TABLE>
During 1993, Congress enacted the Omnibus Budget Reconciliation Act of 1993
(the "1993 Act") which provides for 15-year amortization of purchased
intangible assets, including goodwill. Accordingly, the $19,030,000 write-down
of goodwill, as described in Note 6, gives rise to $3,499,000 and $3,749,000
deferred tax asset at December 31, 1995 and 1994, respectively, associated
with the deductible portion of goodwill under the 1993 Act. Due to the limited
operating history of the Company and lack of historical taxable earnings, a
valuation allowance of $3,749,000 had been provided for at December 31, 1994,
by the Company. Due to continued favorable operating results and other
positive evidence with respect to the ultimate realization of the deferred tax
asset, the Company reduced the valuation allowance to $3,111,000 at December
31, 1995.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
9. STOCKHOLDERS' EQUITY:
In May 1995, the Company issued 5,366,667 shares of its common stock at
$14.00 per share in an initial public common stock offering. Proceeds from the
offering, net of commissions and other related expenses totaling $5,272,000,
were $68,943,000. In connection with the offering, the mandatorily redeemable
convertible preferred stock was converted into 2,835,000 shares of common
stock.
On June 29, 1994, The Travelers, Inc. ("Travelers") purchased $15,000,000 in
aggregate liquidation preference of Series B preferred stock from the Company
and 1,177,100 shares of the Company's common stock from certain of its
stockholders. Concurrently with that investment, Travelers and the Company
entered into a five-year operating agreement to pursue joint business
opportunities in the occupational healthcare industry. The Series B preferred
stock had a dividend rate of 4% per annum. Upon a conversion of the Company's
Series A preferred stock into common stock in 1995, the Series B preferred
stock was exchanged for a $15,000,000 principal amount debenture. The
debenture was converted into 1,854,141 shares of common stock on March 28,
1996.
In June 1993, the Company completed an offering of 3,200,000 shares of
convertible Series A preferred stock at a price of $5.00 per share. In
conjunction with the Travelers transaction of June 1994, 365,000 shares were
converted to common stock and sold to Travelers. During 1995, the remaining
2,835,000 shares of Series A preferred stock were converted into common stock.
In May 1992, the Company established an employee stock option and a
restricted stock purchase plan (the "1992 Plan") whereby the Company may issue
to officers and key employees options to purchase up to 1,000,000 shares of
the Company's common stock. In May 1994, the Board of Directors amended the
Plan increasing the number of shares available for grant to 1,500,000. As of
December 31, 1995 and 1994, respectively, 1,382,076 and 1,294,825 shares were
outstanding under the 1992 Plan. Additionally, prior to the adoption of the
1992 Plan, the Board of Directors of the Company granted options to purchase
an additional 176,500 shares of the Company's common stock. Since the 1992
Plan's inception, the Board of Directors has granted options outside the 1992
Plan to purchase 92,000 shares of the Company's common stock. As of December
31, 1995 and 1994, respectively, 158,500 and 268,000 shares were outstanding
outside of a formal plan. In April 1995, the Company adopted the OccuSystems,
Inc. 1995 Long-Term Incentive Plan (the "Incentive Plan") whereby the Company
may issue up to 1,000,000 shares of the Company's common stock. As of December
31, 1995, 462,500 shares were outstanding under the Incentive Plan. The
following table summarizes the combined activity under the Incentive Plan, the
1992 Plan, and the options granted outside the Incentive Plan or the 1992
Plan.
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
Outstanding at beginning
of year................. 1,560,825 1,140,450 481,000
Granted.................. 678,675 460,000 664,450
Exercised................ (168,748) (1,000) --
Canceled................. (67,676) (38,625) (5,000)
--------------- -------------- --------------
Outstanding at end of
year.................... 2,003,076 1,560,825 1,140,450
=============== ============== ==============
Exercisable at end of
year.................... 640,324 427,303 159,250
=============== ============== ==============
Price range.............. $1.00 to $20.38 $1.00 to $8.13 $1.00 to $6.00
=============== ============== ==============
</TABLE>
The options have been issued at exercise prices that approximate fair market
value at date of grant and the majority vest equally over a four-year period.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
10. EXTRAORDINARY CHARGE:
During May 1995, the Company utilized $6.0 million of the proceeds from the
sale of common stock to retire subordinated debt. As a result of the early
retirement of the subordinated debt, the Company incurred an extraordinary
charge of $680,000, net of taxes. The extraordinary charge, before taxes, is
comprised of approximately $708,000 of unamortized original issue discount and
$425,000 of unamortized discount for warrants issued in connection with the
loan agreement.
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Effective December 31, 1995, the Company adopted SFAS No. 107, Disclosures
About Fair Value of Financial Instruments. This statement requires entities to
disclose the fair value of their financial instruments, both assets and
liabilities, on and off balance sheet, for which it is practicable to estimate
fair value. The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable
to estimate that value.
The carrying amounts of cash and cash equivalents, accounts receivable,
other current assets, accounts payable, and accrued expenses approximate fair
value because of the short maturity of those instruments.
The fair value of the Company's outstanding debt was estimated based on
similar issues or on the current rates offered to the Company for debt of the
same remaining maturities. The carrying value and estimated fair value of the
Company's outstanding debt at December 31, 1995, were approximately
$10,500,000.
The fair value of the Company's convertible debenture was estimated based on
the current price of the Company's common stock. The carrying value and
estimated fair value of the Company's convertible debenture at December 31,
1995, were $15,000,000 and $37,082,840, respectively.
12. COMMITMENTS AND CONTINGENCIES:
The Company leases corporate office space, operating facilities, and
equipment under various operating and capital lease agreements. Future minimum
lease payments under capitalized leases and noncancelable operating leases as
of December 31, 1995, are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31 LEASES LEASES
----------------------- ------- ---------
<S> <C> <C>
1996.................................................... $ 267 $ 7,523
1997.................................................... 726 8,380
1998.................................................... 555 6,538
1999.................................................... 251 5,136
2000.................................................... 19 4,332
Thereafter.............................................. -- 7,002
------ -------
1,818 $38,911
=======
Amounts representing interest............................. (473)
------
$1,345
======
</TABLE>
Rent expense on operating leases for the years ended December 31, 1995,
1994, and 1993, was $7,849,000, $5,017,000, and $4,825,000, respectively.
The Company is involved in certain legal actions and claims on a variety of
matters. It is the opinion of management that such legal actions will not have
a material effect on the results of operations or the financial position of
the Company.
<PAGE>
OCCUSYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1994, AND 1993
13. RELATED PARTIES:
During 1995 and 1994, the Company leased certain facilities and office space
from selling parties who remained employees or directors of the Company. Lease
payments to these individuals aggregated $622,000 and $509,000 in 1995 and
1994, respectively.
14. SALES TO MAJOR CUSTOMERS:
During 1995, 1994, and 1993, no individual customers accounted for more than
10% of revenues.
15. SUBSEQUENT EVENTS:
Effective January 1, 1996, the Company acquired certain assets of
Occupational Health Resources, Inc., a company with centers located in
Baltimore, Maryland, and Newark, Delaware, in exchange for 201,431 shares of
the Company's common stock. This acquisition will be accounted for under the
purchase method of accounting.
On January 2, 1996, the Company paid $650,000 in cash and issued 5,219
shares of stock in exchange for an additional 15% interest in the Managed
Prescription Program joint venture. After the transaction, the Company owns
90% of the joint venture.
On January 1, 1996, the Company entered into a partnership agreement whereby
the partnership provides practice management to two centers in the Tucson,
Arizona market. The initial investment for the Company's 51% interest in this
joint venture was $1,078,000.
On March 28, 1996, the Company's $15,000,000 convertible debenture was
converted, in accordance with the terms of the debenture agreement, into
1,854,141 shares of OccuSystems' common stock.
Effective May 1, 1996, the Company acquired certain assets of Deer Park
Family Clinic, located in Houston, Texas, for $2,050,000 in cash and 26,000
shares of OccuSystems' common stock. This acquisition will be accounted for
using the purchase method of accounting.
Effective July 1, 1996, the Company acquired certain assets of Austin
Regional Clinic, located in Austin, Texas, for $1,170,000 in cash and 6,000
shares of OccuSystems' common stock. This acquisition will be accounted for
using the purchase method of accounting.
