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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 

 
Form 10-Q
 
x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2002
 
OR
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file 001-15699
 

 
Concentra Operating Corporation
(Exact name of Registrant as specified in its charter)
 
Nevada
 
75-2822620
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
5080 Spectrum Drive, Suite 400W
Addison, Texas
 
75001
(address of principal executive offices)
 
(Zip Code)
 
(972) 364-8000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  x No  ¨
 
As of November 1, 2002, the Registrant had outstanding an aggregate of 1,054 shares of its common stock, $.01 par value. The Registrant is a wholly-owned subsidiary of Concentra Inc., a Delaware corporation, which, as of November 1, 2002, had 31,617,384 shares outstanding of its common stock, $.01 par value.
 


Table of Contents
CONCENTRA OPERATING CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
 
    
Page

PART I.    FINANCIAL INFORMATION
    
Item 1.    Financial Statements
    
  
3
  
4
  
5
  
6
  
13
  
21
  
21
PART II.    OTHER INFORMATION
    
  
22
  
22
  
23
  
24
  
26

2


Table of Contents
 
ITEM 1.    FINANCIAL STATEMENTS
 
CONCENTRA OPERATING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
    
September 30,
2002

    
December 31,
2001

 
    
(Unaudited)
 
ASSETS
                 
Current assets:
                 
Cash and cash equivalents
  
$
10,587
 
  
$
7,308
 
Accounts receivable, net
  
 
175,569
 
  
 
181,023
 
Prepaid expenses and other current assets
  
 
43,790
 
  
 
38,760
 
    


  


Total current assets
  
 
229,946
 
  
 
227,091
 
Property and equipment, net
  
 
129,111
 
  
 
132,302
 
Goodwill and other intangible assets, net
  
 
476,401
 
  
 
475,500
 
Other assets
  
 
54,454
 
  
 
32,072
 
    


  


Total assets
  
$
889,912
 
  
$
866,965
 
    


  


LIABILITIES AND STOCKHOLDER’S EQUITY
                 
Current liabilities:
                 
Revolving credit facility
  
$
6,000
 
  
$
6,000
 
Current portion of long-term debt
  
 
4,114
 
  
 
4,211
 
Accounts payable and accrued expenses
  
 
114,245
 
  
 
133,908
 
    


  


Total current liabilities
  
 
124,359
 
  
 
144,119
 
Long-term portion of debt
  
 
501,678
 
  
 
552,270
 
Deferred income taxes and other liabilities
  
 
83,745
 
  
 
67,094
 
Fair value of hedging arrangements
  
 
34,779
 
  
 
25,883
 
    


  


Total liabilities
  
 
744,561
 
  
 
789,366
 
Stockholder’s equity:
                 
Common stock
  
 
—  
 
  
 
—  
 
Paid-in capital
  
 
233,858
 
  
 
168,159
 
Retained deficit
  
 
(88,507
)
  
 
(90,560
)
    


  


Total stockholder’s equity
  
 
145,351
 
  
 
77,599
 
    


  


Total liabilities and stockholder’s equity
  
$
889,912
 
  
$
866,965
 
    


  


 
The accompanying notes are an integral part of these consolidated financial statements.

3


Table of Contents
CONCENTRA OPERATING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)
 
    
Three Months Ended
September 30,

    
Nine Months Ended
September 30,

 
    
2002

    
2001

    
2002

  
2001

 
Revenue:
                                 
Health Services
  
$
125,001
 
  
$
114,708
 
  
$
347,545
  
$
336,336
 
Network Services
  
 
55,164
 
  
 
45,169
 
  
 
168,653
  
 
132,845
 
Care Management Services
  
 
71,632
 
  
 
52,473
 
  
 
225,577
  
 
158,808
 
    


  


  

  


Total revenue
  
 
251,797
 
  
 
212,350
 
  
 
741,775
  
 
627,989
 
Cost of Services:
                                 
Health Services
  
 
98,861
 
  
 
91,284
 
  
 
287,307
  
 
269,026
 
Network Services
  
 
34,762
 
  
 
25,735
 
  
 
103,750
  
 
79,283
 
Care Management Services
  
 
67,494
 
  
 
46,751
 
  
 
201,525
  
 
139,310
 
    


  


  

  


Total cost of services
  
 
201,117
 
  
 
163,770
 
  
 
592,582
  
 
487,619
 
    


  


  

  


Total gross profit
  
 
50,680
 
  
 
48,580
 
  
 
149,193
  
 
140,370
 
General and administrative expenses
  
 
27,795
 
  
 
18,557
 
  
 
77,103
  
 
57,152
 
Amortization of intangibles
  
 
851
 
  
 
3,825
 
  
 
2,709
  
 
11,315
 
    


  


  

  


Operating income
  
 
22,034
 
  
 
26,198
 
  
 
69,381
  
 
71,903
 
Interest expense, net
  
 
15,394
 
  
 
16,564
 
  
 
48,335
  
 
50,227
 
Loss on change in fair value of hedging arrangements
  
 
7,712
 
  
 
13,473
 
  
 
8,896
  
 
16,553
 
Loss on early retirement of debt
  
 
7,381
 
  
 
—  
 
  
 
7,381
  
 
—  
 
Loss of acquired affiliate, net of tax
  
 
—  
 
  
 
1,065
 
  
 
—  
  
 
2,607
 
Other, net
  
 
677
 
  
 
307
 
  
 
1,301
  
 
612
 
    


  


  

  


Income (loss) before income taxes
  
 
(9,130
)
  
 
(5,211
)
  
 
3,468
  
 
1,904
 
Provision (benefit) for income taxes
  
 
(3,544
)
  
 
(309
)
  
 
1,443
  
 
4,939
 
    


  


  

  


Net income (loss)
  
$
(5,586
)
  
$
(4,902
)
  
$
2,025
  
$
(3,035
)
    


  


  

  


 
The accompanying notes are an integral part of these consolidated financial statements.

4


Table of Contents
CONCENTRA OPERATING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
    
Nine Months Ended
September 30,

 
    
2002

    
2001

 
Operating Activities:
                 
Net income (loss)
  
$
2,025
 
  
$
(3,035
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                 
Depreciation of property and equipment
  
 
28,643
 
  
 
20,593
 
Amortization of intangibles
  
 
2,709
 
  
 
11,315
 
Write-off of fixed assets
  
 
246
 
  
 
13
 
Loss on change in fair value of hedging arrangements
  
 
8,896
 
  
 
16,553
 
Changes in assets and liabilities, net of acquired assets and liabilities:
                 
Accounts receivable, net
  
 
4,376
 
  
 
(6,920
)
Prepaid expenses and other assets
  
 
(25,768
)
  
 
(1,005
)
Accounts payable and accrued expenses
  
 
8,616
 
  
 
11,192
 
    


  


Net cash provided by operating activities
  
 
29,743
 
  
 
48,706
 
    


  


Investing Activities:
                 
Acquisitions, net of cash acquired
  
 
(1,829
)
  
 
(18,206
)
Proceeds from the licensing of internally-developed software
  
 
515
 
  
 
590
 
Purchases of property and equipment
  
 
(26,626
)
  
 
(20,095
)
    


  


Net cash used in investing activities
  
 
(27,940
)
  
 
(37,711
)
    


  


Financing Activities:
                 
Payment of deferred financing costs
  
 
(1,135
)
  
 
—  
 
Issuance of common stock to parent
  
 
52,970
 
  
 
—  
 
Contribution from issuance of common stock by parent
  
 
355
 
  
 
276
 
Repurchase of common stock by parent
  
 
(25
)
  
 
—  
 
Repayments of long-term debt
  
 
(50,689
)
  
 
(3,111
)
    


  


Net cash provided by (used in) financing activities
  
 
1,476
 
  
 
(2,835
)
    


  


Net Increase in Cash and Cash Equivalents
  
 
3,279
 
  
 
8,160
 
Cash and Cash Equivalents, beginning of period
  
 
7,308
 
  
 
6,549