<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition period from ___________________ to ______________
------------------------------
Commission file number 0-24440
------------------------------
OCCUSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2543036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3010 LBJ Freeway, Suite 400, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 484-2700
Not applicable (Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of July 31, 1996, the number of shares outstanding of each of the
issuer's classes of common stock was as follows:
Common stock ..........19,905,952 shares, par value $.01 per share
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<PAGE>
OCCUSYSTEMS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,886 $ 6,852
Accounts receivable, net 30,388 24,288
Other current assets 4,937 4,552
-------- --------
Total current assets 40,211 35,692
-------- --------
Property and equipment, net 23,772 17,656
Intangible assets, net 91,980 81,775
Other assets 3,731 2,735
-------- --------
Total assets $159,694 $137,858
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 503 $ 1,487
Accounts payable 1,476 2,881
Accrued expenses 14,246 14,187
-------- --------
Total current liabilities 16,225 18,555
Long term debt, net of current portion 13,930 1,983
Other liabilities 3,439 3,678
------- --------
Total liabilities 33,594 24,216
-------- --------
Convertible exchangeable preferred stock - 15,000
Stockholders' equity:
Common stock ($.01 par value, 50,000,000
shares authorized, 19,747,452 and 17,246,407
shares issued and outstanding at June 30, 1996,
and December 31, 1995, respectively) 197 173
Additional paid-in capital 135,422 113,076
Accumulated deficit (9,519) (14,607)
-------- --------
Total stockholders' equity 126,100 98,642
-------- --------
Total liabilities and stockholders' equity $159,694 $137,858
======== ========
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net revenues $ 37,489 $ 28,182 $ 70,990 $ 55,322
Costs and expenses:
Operating costs 27,021 20,932 53,477 41,900
General and administrative 3,290 3,123 6,131 6,255
Depreciation and amortization 1,443 989 2,756 1,910
Other nonrecurring charges - - - 559
-------- -------- -------- --------
Total costs and expenses 31,754 25,044 62,364 50,624
-------- -------- -------- --------
Operating income 5,735 3,138 8,626 4,698
Other (income) expense:
Interest expense 235 691 580 1,820
Interest income (42) (220) (78) (263)
Other, net 231 162 296 241
-------- -------- -------- --------
Total other expense 424 633 798 1,798
-------- -------- -------- --------
Income from continuing operations before extraordinary
charge and taxes 5,311 2,505 7,828 2,900
Provision for income taxes 1,859 1,133 2,740 1,291
-------- -------- -------- --------
Income from continuing operations before extraordinary charge 3,452 1,372 5,088 1,609
-------- -------- -------- --------
Extraordinary charge from early extinguishment of debt, net of
income tax benefit - (680) - (680)
-------- -------- -------- --------
Net income $ 3,452 $ 692 $ 5,088 $ 929
======== ======== ======== ========
Earnings per common and common equivalent share:
Income before extraordinary charge $ 0.17 $ 0.08 $ 0.25 $ 0.11
Extraordinary charge on extinguishment of debt 0.00 (0.04) 0.00 (0.04)
-------- -------- -------- --------
Net income $ 0.17 $ 0.04 $ 0.25 $ 0.07
======== ======== ======== ========
Shares used in earnings per common and common equivalent
share computation 20,821 17,406 20,611 15,327
======== ======== ======== ========
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the six months ended June 30,
------------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 1,263 $ 3,995
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (7,225) (2,407)
Cash paid for acquisitions, net of cash received (10,095) (27,316)
-------- --------
Net cash used in investing activities (17,320) (29,723)
-------- --------
Cash flows from financing activities:
Payments for equity issuance costs (168) -
Payment of dividends - (375)
Proceeds from issuance of long-term debt 12,700 25,677
Proceeds from initial public offering, net of issuance costs - 68,109
Proceeds from exercise of stock options and warrants 1,619 7
Payments on long-term debt (60) (41,920)
-------- --------
Net cash provided by financing activities 14,091 51,498
-------- --------
Net increase (decrease) in cash (1,966) 25,770
Cash and cash equivalents at beginning of period 6,852 3,924
-------- --------
Cash and cash equivalents at end of period $ 4,886 $ 29,694
======== ========
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. PRESENTATION
The balance sheet data at June 30, 1996, and the statement of
operations for the three and six months ended June 30, 1996 and June 30, 1995,
and the statement of cash flows data for the six months ended June 30, 1996 and
June 30, 1995, have been derived from unaudited consolidated financial
statements which, in the opinion of the Company, reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations of the Company for those
periods. The financial data for the three and six months ended June 30, 1995
has been restated to reflect the business combinations accounted for under the
pooling method of accounting. (See Note 3).
NOTE 2. EARNINGS PER SHARE
Earnings per common and common equivalent share are based upon the
weighted average number of common shares outstanding adjusted for the dilutive
effect of common stock equivalents consisting of stock options, warrants, and
convertible debt. Fully diluted earnings per common and common equivalent share
are not presented because such amounts approximate earnings per common and
common equivalent share.
NOTE 3. BUSINESS COMBINATIONS
Effective January 1, 1996, in a business combination accounted for as
a pooling of interests, the Company acquired all of the outstanding common stock
of Baltimore Industrial Medical Center and Maryland Industrial Medical Center,
in Baltimore, Maryland, and Washington Industrial Medical Center in Cheverly,
Maryland, in exchange for 225,000 shares of the Company's common stock.
Effective January 1, 1996, in a business combination accounted for as
a pooling of interests, the Company acquired all of the outstanding common stock
of Concerned Care L.L.C., a physician practice located in Columbia, Maryland, in
exchange for 66,414 shares of the Company's common stock.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Land $ 1,219 $ 1,218
Building and improvements 3,599 3,558
Furniture and equipment 18,661 14,402
Leasehold improvements 7,646 5,000
-------- --------
31,125 24,178
Accumulated depreciation ( 7,353) ( 6,522)
-------- --------
$ 23,772 $ 17,656
======== ========
</TABLE>
<PAGE>
OCCUSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
NOTE 5. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Convertible notes payable, interest 6%:
Payable in September 1998.......... $ 185 $ 510
Payable in September 1999.......... 600 600
Payable in March 1997.............. - 500
Note payable to an individual, interest
at 8.5%, due March 1998................ - 50
Note payable to an individual, interest
at 8.75%, payable in quarterly
installments through February 1999..... 100 -
Note payable to an individual, interest
9%, payable in annual installments
through November 1996.................. 435 435
Note payable to an individual, interest
at 10%, payable in monthly installments
through March 2005..................... 138 143
Obligations under capital leases........ 259 291
Note payable to stockholder, interest
9%, payable in monthly installments
through October 1996................... 16 36
Various lines of credit and notes
payable, interest at prime plus 1/2%
to 1%, payable on demand............... - 675
Notes payable to a bank, interest at
prime plus 1%, payable in monthly
installments through October 1996...... - 230
Note payable to a bank, interest at
6.25%.................................. 12,700 -
------- --------
14,433 3,470
Less: Current maturities.......... ( 503) ( 1,487)
------- --------
$13,930 $ 1,983
======= ========
</TABLE>
The maturities of long-term debt at June 30, 1996, are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 503
1997 99
1998 290
1999 685
2000 12,759
Thereafter 97
-------
$14,433
=======
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
- --------
The Company derives its net patient service revenues primarily from the
diagnosis, treatment and management of work-related injuries and illnesses and
from other occupational healthcare services such as employment-related physical
examinations, drug and alcohol testing, functional capacity testing and other
related programs. For the six month period ended June 30, 1996, the Company
derived 64% of its net revenues from the treatment of work-related injuries and
illnesses and 36% 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 41 acquisition transactions involving 84 physician
practices and has developed another 16 physician practices. As of June 30,
1996, the Company operated 83 centers located in 13 states and served 22
markets.
The following table provides certain information concerning the Company's
acquisition and development of practices during the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31 JUNE 30, 1996
---------------------------------- ----------------
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Practices acquired during the period (1) . 3 16 9 17 24 15
Practices developed during the period....... 0 2 3 6 3 2
Number of centers at end of period (2)...... 7 24 36 54 71 83
Number of affiliated physicians at end of
period...................................... 14 45 72 95 129 150
Same market revenue growth (3).............. 9.8% 16.5% 33.8% 13.4% 12.2% 10.9%
- --------------------------------------------------------------------------
</TABLE>
(1) Represents practices the assets of which were acquired during each period
presented and not subsequently divested.
(2) Does not include practices the assets of which were acquired and
subsequently divested or consolidated into existing centers within a market.
(3) Same market revenue growth sets forth the aggregate net change from the
prior period for all markets in which the Company has operated for longer
than one year (excluding revenue growth due to acquisitions of additional
centers).
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
NET REVENUES
- ------------
Net revenues increased 33.0% from $28,182,000 in the second quarter of 1995 to
$37,489,000 in the second quarter of 1996. Of this increase, $2,783,000
resulted from practices acquired during 1996, $3,622,000 resulted from practices
acquired in 1995 and developed in new markets during 1995 and 1996, $2,819,000
resulted from increased business in same markets (13.4% same market increase),
and $83,000 resulted from consulting and other ancillary services.
<PAGE>
OPERATING EXPENSES
- ------------------
Operating expenses increased 29.1% from $20,932,000 in the second quarter of
1995 to $27,021,000 in the second quarter of 1996. This increase was
principally related to the practices acquired in 1996 and to practices acquired
and developed during 1995. Operating expenses as a percentage of net revenues
decreased from 74.3% in the second quarter of 1995 to 72.1% in the second
quarter of 1996. For centers owned during the second quarter of 1995 and 1996,
operating expenses as a percentage of net revenues decreased 5.7%, to 70.0%.
The practices acquired and developed during 1996 contributed operating margins
of 21.6% in the second quarter of 1996, as compared to the practices owned prior
to 1996, which produced operating margins of 26.9%. As certain functions are
consolidated and other staff-related changes occur, the operating margins of
acquired practices have tended to improve over time.
GENERAL AND ADMINISTRATIVE
- --------------------------
General and administrative expenses increased 5.3% from $3,123,000 in the
second quarter of 1995 to $3,290,000 in the second quarter of 1996. As a
percentage of net revenues, these costs decreased from 11.1% in the second
quarter of 1995 to 8.8% in the second quarter of 1996. This decrease resulted
primarily from economies of scale gained through continued expansion in existing
markets.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expense increased 45.9% from $989,000 in the
second quarter of 1995 to $1,443,000 in the second quarter of 1996. This
increase resulted primarily from centers acquired in 1995 and 1996. As a
percentage of net revenues, this expense increased from 3.5% in the second
quarter of 1995 to 3.8% in the second quarter of 1996.
INTEREST EXPENSE
- ----------------
Interest expense decreased from $691,000 in the second quarter of 1995 to
$235,000 in the second quarter of 1996. This decrease is primarily the result of
the retirement of debt with proceeds from the Company's initial public offering
on May 8, 1995. As a percentage of net revenues, this expense decreased from
2.4% during the second quarter of 1995 to 0.6% in the second quarter of 1996.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NET REVENUES
- ------------
Net revenues increased 28.3% from $55,322,000 in the first six months of 1995 to
$70,990,000 in the first six months of 1996. Of this increase, $4,309,000
resulted from practices acquired during 1996, $6,585,000 resulted from practices
acquired in 1995 and developed in new markets during 1995 and 1996, $4,549,000
resulted from increased business in same markets (10.9% same market increase),
and $225,000 resulted from consulting and other ancillary services.
<PAGE>
OPERATING EXPENSES
- ------------------
Operating expenses increased 27.6% from $41,900,000 in the first six months of
1995 to $53,477,000 in the first six 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 75.7% in the first six months of 1995 to 75.3% in the first six
months of 1996. For centers owned during the first six months of 1995 and 1996,
operating expenses as a percentage of net revenues decreased 3.2%, to 72.8%.
The practices acquired and developed during 1996 contributed operating margins
of 17.1% in the first six months of 1996, as compared to the practices owned
prior to 1996, which produced operating margins of 24.0%.
GENERAL AND ADMINISTRATIVE
- --------------------------
General and administrative expenses decreased 2.0% from $6,255,000 in the first
six months of 1995 to $6,131,000 in the first six months of 1996. As a
percentage of net revenues, these costs decreased from 11.3% in the first six
months of 1995 to 8.6% in the first six months of 1996. This decrease resulted
primarily from economies of scale gained through continued expansion in existing
markets.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expense increased 44.3% from $1,910,000 in the
first six months of 1995 to $2,756,000 in the first six months of 1996. This
increase resulted primarily from centers acquired in 1995 and 1996. As a
percentage of net revenues, this expense increased from 3.5% in the first six
months of 1995 to 3.9% in the first six months of 1996.
OTHER NONRECURRING CHARGES
- --------------------------
A nonrecurring charge of $559,000 in the first quarter of 1995 resulted from the
write-down of certain assets that were acquired in the business combinations
which were accounted for under the pooling method of accounting (see Notes 1 and
3).
INTEREST EXPENSE
- ----------------
Interest expense decreased from $1,820,000 in the first six months of 1995 to
$580,000 in the first quarter six months of 1996. This decrease is primarily the
result of the retirement of debt with proceeds from the Company's initial public
offering on May 8, 1995. As a percentage of net revenues, this expense decreased
from 3.3% during the first six months of 1995 to 0.8% in the first six months of
1996.
INCOME TAXES
- ------------
The Company's effective tax rate decreased from 44.5% for the six months ended
June 30, 1995 to 35% for the six months ended June 30, 1996. This decrease was
due to the restatement of the statement of operations for the six month period
ended June 30, 1995 for the business combinations treated as poolings (See Notes
1 and 3). Without this restatement, the Company's effective tax rate would have
remained constant for the periods ended June 30, 1995 and June 30, 1996.
<PAGE>
EXTRAORDINARY CHARGE
- --------------------
The Company recorded a $680,000 extraordinary loss, net of income tax benefit,
in the second quarter of 1995 as a result of the early extinguishment of
$6,000,000 of indebtedness outstanding under the Company's 10% Senior
Subordinated Note due December 1, 2000, which resulted in a charge of $427,000
(net of tax) in unaccreted original issue discount associated with such debt.
The Company also recognized a charge of $253,000 (net of tax) for the unaccreted
original issue discount on certain warrants issued in January 1995, to secure a
revolving credit facility.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1996, the Company had $23.9 million in working capital, an increase
of $6.8 million from December 31, 1995. The Company's principal sources of
liquidity consisted of (i) cash and cash equivalents aggregating $4.9 million,
(ii) net accounts receivable of $30.4 million, and (iii) $47.3 million in
borrowing capacity under a revolving loan agreement with Creditanstalt-
Bankverein ("Loan Agreement").
Cash and cash equivalents decreased $2.0 million from $6.9 million as of
December 31, 1995 to $4.9 million as of June 30, 1996. This decrease is
primarily the result of payments of $10.1 million pertaining to practices
acquired in 1996 and purchases of property and equipment related to new and
existing centers in 1996 of $7.2 million, offset by proceeds from loan
borrowings of $12.7 million.
The Company anticipates that funds generated from operations, cash and cash
equivalents, and funds available under the loan agreement, will be sufficient to
meet its working capital requirements and debt obligations and to finance any
necessary capital expenditures for the foreseeable future. On April 10, 1996,
the Company amended its loan agreement to provide for revolving loans of up to
$60 million at more favorable interest rates than the previous agreement.
Expansion of the Company's business through acquisitions, development centers,
and joint ventures may require additional funds, which, to the extent not
provided by internally generated sources, cash and cash equivalents and the
amended loan agreement, would require the Company to seek additional debt or
equity financing.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 - Statement re Computation of Earnings Per Common and
Common Equivalent Share.
(b) Reports on Form 8-K:
There have been no reports on Form 8-K for the quarter for which this
form on Form 10-Q is being filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OccuSystems, Inc.
Date: August 15, 1996 JOHN K. CARLYLE
-------------------------
John K. Carlyle
President and Chief Executive Officer
JAMES M. GREENWOOD
-------------------------
James M. Greenwood
Senior Vice President and
Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
Exhibit 11
Occusystems, Inc.
Net Income by Quarter for 1996 and 1995
Numbers, except per share amounts, in thousands
<TABLE>
<CAPTION>
Quarter Ended
-----------------------
6/30/96 6/30/95
---------- ----------
<S> <C> <C>
Net Income $ 3,452 $ 692
Interest on Common Stock Equivalents, net of tax - 73
------- -------
Primary Earnings $ 3,452 765
======= =======
Wtd. Average Shares 20,821 17,406
Net Income per share $ 0.17 $ 0.04
Weighted Common Shares Outstanding 19,702 12,812
Weighted Common Share Equivalents Outstanding 1,119 4,594
------- -------
Weighted Average Shares Outstanding 20,821 17,406
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,886
<SECURITIES> 0
<RECEIVABLES> 30,388
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 40,211
<PP&E> 31,125
<DEPRECIATION> (7,353)
<TOTAL-ASSETS> 159,694
<CURRENT-LIABILITIES> 16,225
<BONDS> 0
0
0
<COMMON> 197
<OTHER-SE> 125,903
<TOTAL-LIABILITY-AND-EQUITY> 159,694
<SALES> 37,489
<TOTAL-REVENUES> 37,489
<CGS> 0
<TOTAL-COSTS> 31,754
<OTHER-EXPENSES> 424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235
<INCOME-PRETAX> 5,311
<INCOME-TAX> 1,859
<INCOME-CONTINUING> 3,452
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,452
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
