UNITED STATES
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, 2003 |
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 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 12 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 ¨
Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The registrant is a wholly-owned subsidiary of Concentra Inc., a Delaware corporation. As of July 15, 2003, there were 35,550,873 shares outstanding of Concentra Inc. common stock, none of which were publicly traded. Currently there is no established trading market for these shares.
CONCENTRA OPERATING CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
| Page | ||||
| PART I. FINANCIAL INFORMATION |
||||
| Item 1. |
3 | |||
| Condensed Consolidated Balance Sheets at June 30, 2003 (Unaudited) and December 31, 2002 |
3 | |||
| 4 | ||||
| Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2003 and 2002 |
5 | |||
| 6 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | ||
| Item 3. |
26 | |||
| Item 4. |
26 | |||
| PART II. OTHER INFORMATION |
||||
| Item 6. |
27 | |||
| 28 | ||||
| 29 | ||||
2
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
CONCENTRA OPERATING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
| June 30, 2003 |
December 31, 2002 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 35,979 | $ | 19,002 | ||||
| Accounts receivable, net |
175,173 | 167,561 | ||||||
| Prepaid expenses and other current assets |
44,669 | 39,407 | ||||||
| Total current assets |
255,821 | 225,970 | ||||||
| Property and equipment, net |
128,585 | 134,981 | ||||||
| Goodwill and other intangible assets, net |
487,518 | 486,231 | ||||||
| Other assets |
44,032 | 41,456 | ||||||
| Total assets |
$ | 915,956 | $ | 888,638 | ||||
| LIABILITIES AND STOCKHOLDER’S EQUITY | ||||||||
| Current liabilities: |
||||||||
| Revolving credit facility |
$ | — | $ | — | ||||
| Current portion of long-term debt |
5,065 | 3,825 | ||||||
| Accounts payable and accrued expenses |
111,025 | 108,513 | ||||||
| Total current liabilities |
116,090 | 112,338 | ||||||
| Long-term debt, net |
474,202 | 476,001 | ||||||
| Deferred income taxes and other liabilities |
95,267 | 90,056 | ||||||
| Fair value of hedging arrangements |
29,059 | 33,472 | ||||||
| Total liabilities |
714,618 | 711,867 | ||||||
| Stockholder’s equity: |
||||||||
| Common stock |
— | — | ||||||
| Paid-in capital |
315,345 | 311,077 | ||||||
| Retained deficit |
(114,007 | ) | (134,306 | ) | ||||
| Total stockholder’s equity |
201,338 | 176,771 | ||||||
| Total liabilities and stockholder’s equity |
$ | 915,956 | $ | 888,638 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONCENTRA OPERATING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Revenue: |
||||||||||||||||
| Health Services |
$ | 126,435 | $ | 123,429 | $ | 244,956 | $ | 226,726 | ||||||||
| Network Services |
61,781 | 56,260 | 123,511 | 113,489 | ||||||||||||
| Care Management Services |
72,061 | 74,470 | 143,961 | 153,945 | ||||||||||||
| Total revenue |
260,277 | 254,159 | 512,428 | 494,160 | ||||||||||||
| Cost of Services: |
||||||||||||||||
| Health Services |
100,977 | 99,545 | 202,350 | 198,112 | ||||||||||||
| Network Services |
36,264 | 35,437 | 71,031 | 68,988 | ||||||||||||
| Care Management Services |
63,572 | 66,659 | 127,238 | 134,031 | ||||||||||||
| Total cost of services |
200,813 | 201,641 | 400,619 | 401,131 | ||||||||||||
| Total gross profit |
59,464 | 52,518 | 111,809 | 93,029 | ||||||||||||
| General and administrative expenses |
29,516 | 27,127 | 58,054 | 49,625 | ||||||||||||
| Amortization of intangibles |
967 | 931 | 2,002 | 1,863 | ||||||||||||
| Operating income |
28,981 | 24,460 | 51,753 | 41,541 | ||||||||||||
| Interest expense, net |
14,610 | 16,614 | 29,154 | 33,048 | ||||||||||||
| (Gain) loss on change in fair value of hedging arrangements |
(2,226 | ) | 6,374 | (4,413 | ) | 1,184 | ||||||||||
| Other, net |
736 | (623 | ) | 1,383 | (1,311 | ) | ||||||||||
| Income before income taxes |
15,861 | 2,095 | 25,629 | 8,620 | ||||||||||||
| Provision for income taxes |
3,210 | 1,418 | 5,545 | 4,987 | ||||||||||||
| Net income |
$ | 12,651 | $ | 677 | $ | 20,084 | $ | 3,633 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CONCENTRA OPERATING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| Six Months Ended June 30, |
||||||||
| 2003 |
2002 |
|||||||
| Operating Activities: |
||||||||
| Net income |
$ | 20,084 | $ | 3,633 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation of property and equipment |
22,895 | 20,678 | ||||||
| Amortization of intangibles |
2,002 | 1,863 | ||||||
| (Gain) loss on change in fair value of hedging arrangements |
(4,413 | ) | 1,184 | |||||
| Write-off of fixed assets |
(33 | ) | 83 | |||||
| Changes in assets and liabilities, net of acquired assets and liabilities: |
||||||||
| Accounts receivable, net |
(7,290 | ) | 1,781 | |||||
| Prepaid expenses and other assets |
(7,799 | ) | (6,013 | ) | ||||
| Accounts payable and accrued expenses |
11,461 | (15,229 | ) | |||||
| Net cash provided by operating activities |
36,907 | 7,980 | ||||||
| Investing Activities: |
||||||||
| Purchases of property, equipment and other assets |
(14,379 | ) | (17,098 | ) | ||||
| Acquisitions, net of cash acquired |
(3,735 | ) | (2,810 | ) | ||||
| Proceeds from the licensing of internally-developed software |
— | 515 | ||||||
| Net cash used in investing activities |
(18,114 | ) | (19,393 | ) | ||||
| Financing Activities: |
||||||||
| Borrowings (payments) under the revolving credit facility, net |
— | (6,000 | ) | |||||
| Payment of deferred financing costs |
— | (1,135 | ) | |||||
| Repayments of debt |
(3,458 | ) | (1,190 | ) | ||||
| Proceeds from the issuance of debt |
1,500 | 2,500 | ||||||
| Contribution from issuance of common stock by parent |
242 | 162 | ||||||
| Proceeds from the issuance of common stock to parent |
— | 53,274 | ||||||
| Other |
(100 | ) | (43 | ) | ||||
| Net cash provided by (used in) financing activities |
(1,816 | ) | 47,568 | |||||
| Net Increase in Cash and Cash Equivalents |
16,977 | 36,155 | ||||||
| Cash and Cash Equivalents, beginning of period |
19,002 | 8,950 | ||||||
| Cash and Cash Equivalents, end of period |
$ | 35,979 | $ | 45,105 | ||||
| Supplemental Disclosure of Cash Flow Information: |
||||||||
| Interest paid, net |
$ | 27,452 | $ | 31,408 | ||||
| Income taxes paid, net |
$ | 1,885 | $ | 1,427 | ||||
| Liabilities and debt assumed in acquisitions |
$ | 435 | $ | 400 | ||||
| Noncash Investing and Financing Activities: |
||||||||
| Capital lease obligations |
$ | 1,355 | ||||||