<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 March 31, 1997 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 Identification No.)
incorporation or organization)
3010 LBJ Freeway, Suite 400, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 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 April 30, 1997, the number of shares outstanding of each of the
issuer's classes of common stock was as follows:
Common stock ..........21,584,923 shares, par value $.01 per share
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<PAGE>
OCCUSYSTEMS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
Unaudited
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,577 $ 53,460
Short-term investments 31,097 12,045
Accounts receivable, net 41,606 38,699
Other current assets 6,631 7,013
------------ ------------
Total current assets 100,911 111,217
------------ ------------
Long-term investments 9,494 0
Property and equipment, net 37,650 35,674
Intangible assets, net 107,604 106,352
Other assets 7,969 7,376
------------ ------------
Total assets $ 263,628 $ 260,619
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 860 $ 884
Accounts payable 1,363 2,073
Accrued expenses 12,643 11,989
------------ ------------
Total current liabilities 14,866 14,946
Long-term debt, net of current portion 98,307 99,089
Other liabilities 14,336 14,043
------------ ------------
Total liabilities 127,509 128,078
------------ ------------
Stockholders' equity:
Common stock ($.01 par value, 50,000,000 shares authorized,
21,579,898 and 21,350,477 shares issued and outstanding
at March 31, 1997, and December 31, 1996, respectively) 216 214
Additional paid-in capital 143,803 143,043
Accumulated deficit (7,900) (10,716)
------------ ------------
Total stockholders' equity 136,119 132,541
------------ ------------
Total liabilities and stockholders' equity $ 263,628 $ 260,619
============ ============
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------
1997 1996
------------ -----------
<S> <C> <C>
Revenues:
Net revenues $ 46,383 $ 38,331
Costs and expenses:
Operating expenses 34,633 30,498
General and administrative 3,876 3,613
Depreciation and amortization 2,139 1,486
----------- -----------
Total costs and expenses 40,648 35,597
----------- -----------
Operating income 5,735 2,734
Other (income) expense:
Interest expense 1,598 560
Interest income (825) (47)
Minority interest 196 (13)
Other, net 131 78
----------- -----------
Total other expense 1,100 578
----------- -----------
Income from operations before taxes 4,635 2,156
Provision for income taxes 1,622 881
----------- -----------
Net income $ 3,013 $ 1,275
=========== ===========
Earnings per common and common equivalent share:
Net income $ 0.14 $ 0.07
=========== ===========
Shares used in earnings per common and common
equivalent share computation 22,316 21,662
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net cash provided by operating activities $ 1,845 $ 1,521
-------- -------
Cash flows from investing activities:
Purchases of property and equipment (3,315) (2,577)
Purchases of investments (28,546) 0
Cash paid for acquisitions, net of cash received (1,512) (4,913)
-------- -------
Net cash used in investing activities (33,373) (7,490)
-------- -------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants 145 988
Proceeds from issuance of long-term debt 0 4,247
Payments on long-term debt and capital leases (500) (975)
-------- -------
Net cash (used in) provided by
financing activities (355) 4,260
-------- -------
Net(decrease)in cash (31,883) (1,709)
Cash and cash equivalents at beginning of period 53,460 8,618
-------- -------
Cash and cash equivalents at end of period $ 21,577 $ 6,909
======== =======
</TABLE>
See accompanying notes.
<PAGE>
OCCUSYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. PRESENTATION
The balance sheet data at March 31, 1997, and the statement of operations
and statement of cash flows data for the three months ended March 31, 1997 and
March 31, 1996, have been derived from unaudited consolidated financial
statements which, in the opinion of the management of OccuSystems, Inc. (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.
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.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128") Earnings Per
Share. SFAS 128 establishes new standards for computing and presenting
earnings per share ("EPS"). Implementation of SFAS 128 is required for all
financial statements issued subsequent to December 15, 1997 but requires
proforma disclosure in financial statements issued prior to that date.
<TABLE>
<CAPTION>
Per Share
Three Months Ended March 31 Income Shares Amounts
1997 ------ ------ -------
<S> <C> <C> <C>
Net Income $3,013
------
BASIC EARNINGS PER SHARE
Income available to common
shareholders 3,013 21,575 $.14
----
EFFECT OF DILUTIVE SECURITIES
Options and warrants 741
Convertible debt 2 26
------ ------
DILUTED EARNINGS PER SHARE
Income available to common
shareholders plus assumed
conversions $3,015 22,342 $.13
------ ------ ----
1996
Net Income $1,275
------
BASIC EARNINGS PER SHARE
Income available to common
shareholders 1,275 19,451 $.07
----
EFFECT OF DILUTIVE SECURITIES
Options and warrants 967
Convertible debt 162 194
------ ------
DILUTED EARNINGS PER SHARE
Income available to common
shareholders plus assumed
conversions $1,437 20,612 $.07
------ ------ ----
</TABLE>
Recalculation of the 1996 EPS in conformity with FASB 128 does not change the
primary or fully diluted per share amounts previously reported.
The Company has convertible subordinated notes outstanding at March 31, 1997 see
Note 5, which could be converted into 3,291,246 shares. These shares were not
included in the computation of earnings per share as the option exercise price
was greater than the average market price of the common shares.
<PAGE>
NOTE 3. BUSINESS COMBINATIONS
Effective February 1, 1997, in a business combination accounted for as a
pooling of interests, the Company acquired all of the outstanding common stock
of Occupational Medicine of Columbus, P.C. in Columbus, Georgia, in exchange for
128,425 shares of the Company's common stock.
On April 21, 1997, the Company entered into an Agreement and Plan of
Reorganization with CRA Managed Care, Inc. ("CRA") and Concentra Managed Care,
Inc. ("Concentra"), pursuant to which (i) the Company will be merged with and
into Concentra and a wholly-owned subsidiary of Concentra will be merged with
and into CRA, (ii) each share of the Company's common stock will be converted
into one share of Concentra common stock and (iii) each share of CRA's common
stock will be converted into 1.786 shares of Concentra common stock.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Land $ 1,815 $ 1,815
Building and improvements 4,143 4,038
Furniture and equipment 32,306 30,674
Leasehold improvements 15,013 13,099
--------- ---------
53,277 49,626
Accumulated depreciation (15,627) (13,952)
--------- ---------
$ 37,650 $ 35,674
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</TABLE>
NOTE 5. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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<S> <C> <C>
Convertible subordinated notes,
interest at 6%, due December 2001....... $97,750 $97,750
Convertible notes payable, interest at
6%; payable through September 1999...... 185 785
Note payable to various holders,
interest ranging from 5.5% to 10%,
payable in installments through 2005.... 301 304
Obligations under capital leases......... 931 1,134
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99,167 99,973
Less: Current maturities............. (860) (884)
------- -------
$98,307 $99,089
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</TABLE>
The maturities of long-term debt at March 31, 1997, are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $ 860
1998 243
1999 196
2000 38
2001 97,750
Thereafter 80
-------
$99,167
=======
</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 three month period ended March 31, 1997, 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 53 acquisition transactions involving 112 physician
practices and has developed another 30 physician practices. As of April 15,
1997, the Company operated 117 centers located in 16 states and served 32
markets.
The following table provides certain information concerning the Company's
acquisition and development of practices during the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31,1997
-------------------------------- ------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Practices acquired during the period (1)........... 16 9 17 24 32 3
Practices developed during the period.............. 2 3 6 3 10 3
Number of centers at end of period (2)............. 24 36 54 71 109 115
Number of affiliated physicians at end of period... 45 72 95 129 196 201
Same market revenue growth (3)..................... 16.5% 33.8% 13.4% 12.2% 10.7% 9.9%
- -------------------------------------------------
</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 MARCH 31, 1997 AND 1996
NET REVENUES
- ------------
Net revenues increased 21.0% from $38,331,000 in the first quarter of 1996 to
$46,383,000 in the first quarter of 1997. Of this increase, $1,277,000 resulted
from practices acquired during 1997, $3,705,000 resulted from practices acquired
in 1996 and developed in new markets during 1996 and 1997, $2,675,000 resulted
<PAGE>
from increased business in same markets (9.9% same market increase), and
$395,000 resulted from consulting and other ancillary services.
OPERATING EXPENSES
- ------------------
Operating expenses increased 13.6% from $30,498,000 in the first quarter of 1996
to $34,633,000 in the first quarter of 1997. This increase was principally
related to the practices acquired in 1997 and to practices acquired and
developed during 1996. Operating expenses as a percentage of net revenues
decreased from 79.6% in the first quarter of 1996 to 74.7% in the first quarter
of 1997. For centers owned during the first quarter of 1997 and 1996, operating
expenses decreased 3.8% from 78.4% in the first quarter of 1996 to 74.6% in the
first quarter of 1997.
The practices acquired and developed during 1997 contributed operating margins
of 15.5%, as compared to the practices owned prior to 1997, which produced
operating margins of 27.6%. 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 7.3% from $3,613,000 in the first
quarter of 1996 to $3,876,000 in the first quarter of 1997. As a percentage of
net revenues, these costs decreased from 9.4% in the first quarter of 1996 to
8.4% in the first quarter of 1997.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expense increased 43.9% from $1,486,000 in the
first quarter of 1996 to $2,139,000 in the first quarter of 1996. This increase
resulted primarily from centers acquired in 1996 and 1997, as well as the
depreciation expense attributable to the rollout of the Company's new
proprietary information system. As a percentage of net revenues, this expense
increased from 3.9% in 1996 to 4.6% in 1997.
INTEREST EXPENSE
- ----------------
Interest expense increased from $560,000 in the first quarter of 1996 to
$1,598,000 in the first quarter of 1997. This increase is primarily due to the
issuance of $97.8 million of 6% convertible subordinated notes in December,
1996. As a percentage of net revenues, this expense increased from 1.5% during
the first quarter of 1996 to 3.4% in the first quarter of 1997.
<PAGE>
INTEREST INCOME
- ---------------
Interest income increased from $47,000 in the first quarter of 1996 to $825,000
in the first quarter of 1997. This increase is primarily due to the investment
of the net proceeds, after retirement of $23.7 million in bank debt, from the
issuance of $97.8 million of 6% convertible subordinated notes in December,
1996.
INCOME TAXES
- ------------
The Company's effective tax rate decreased from 40% for the three months ended
March 31, 1996 to 35% for the three months ended March 31, 1997. This decrease
was 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1997, the Company had $86.0 million in working capital, a decrease
of $10.2 million from December 31, 1996. The Company's principal sources of
liquidity consisted of (i) cash and cash equivalents aggregating $21.6 million,
(ii) short-term investments of $31.1 million, (iii) net accounts receivable of
$41.6 million, and (iv) $60.0 million in borrowing capacity under a revolving
loan agreement with Creditanstalt-Bankverein ("the Loan Agreement").
Cash and cash equivalents decreased $31.9 million from $53.5 million as of
December 31, 1996 to $21.6 million as of March 31, 1997. This decrease is
primarily the result of the addition of short-term investments of $19.1 million
and long-term investments of $9.5 million in the first quarter of 1997.
The Company anticipates that funds generated from operations, cash and cash
equivalents, and funds available under the Loan Agreement, will be sufficient to
meet working capital requirements, debt obligations, and finance any necessary
capital expenditures for the foreseeable future. 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, investments 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 10-Q is being filed. On April 23, 1997, the Company filed a report on
Form 8-K announcing the Company's agreement to a merger with CRA Managed Care,
Inc. (See Note 3).
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: May 6, 1996 /s/ JOHN K. CARLYLE
------------------------------
John K. Carlyle
Chairman and Chief
Executive Officer
/s/ 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 1997 and 1996
Numbers, except per share amounts, in thousands
<TABLE>
<CAPTION>
Quarter Ended
-------------------
3/31/97 3/31/96
------- -------
<S> <C> <C>
Net Income $3,013 $1,275
Interest on Common Stock Equivalents, net of
tax 2 162
------ ------
Primary Earnings $3,015 $1,437
====== ======
Wtd. Average Shares 22,316 21,662
Net Income per share $0.14 $0.07
Weighted Common Shares Outstanding 21,575 19,451
Weighted Common Share Equivalents Outstanding 741 2,211
------ ------
Weighted Average Shares Outstanding 22,316 21,662
====== ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,577
<SECURITIES> 40,591
<RECEIVABLES> 41,606
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 100,911
<PP&E> 53,277
<DEPRECIATION> 15,627
<TOTAL-ASSETS> 263,628
<CURRENT-LIABILITIES> 14,866
<BONDS> 0
0
0
<COMMON> 216
<OTHER-SE> 135,903
<TOTAL-LIABILITY-AND-EQUITY> 263,628
<SALES> 46,383
<TOTAL-REVENUES> 46,383
<CGS> 0
<TOTAL-COSTS> 40,648
<OTHER-EXPENSES> (498)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,598
<INCOME-PRETAX> 4,635
<INCOME-TAX> 1,622
<INCOME-CONTINUING> 3,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,013
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
