<PAGE>
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, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ___________ to ___________
COMMISSION FILE NUMBER: 0-23363
AMERICAN DENTAL PARTNERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3297858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
AMERICAN DENTAL PARTNERS, INC.
301 EDGEWATER PLACE, SUITE 320
WAKEFIELD, MASSACHUSETTS 01880
(Address of principal executive offices, including zip code)
(781) 224-0880
(781) 224-4216 (FAX)
(Registrant's telephone number, including area code)
N/A
(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.
X YES NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, $0.01 par value, outstanding as of November 9, 1999:
7,537,311 shares
================================================================================
Exhibit Index appears on Page 22
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1998
and September 30, 1999 (unaudited) ..................................................................... 3
Consolidated Statements of Earnings for the Three Months and
Nine Months Ended September 30, 1998 and 1999 (unaudited) .............................................. 4
Consolidated Statement of Stockholders' Equity for the
Nine Months Ended September 30, 1999 (unaudited) ....................................................... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1999 (unaudited) .......................................................... 6
Notes to Interim Consolidated Financial Statements ..................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ...................................................................................... 19
Item 2. Changes in Securities and Use of Proceeds............................................................... 19
Item 3. Defaults Upon Senior Securities ........................................................................ 19
Item 4. Submission of Matters to a Vote of Security Holders .................................................... 19
Item 5. Other Information ...................................................................................... 19
Item 6. Exhibits and Reports on Form 8-K ....................................................................... 20
Signature ........................................................................................................ 21
Exhibit Index ........................................................................................................ 22
</TABLE>
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, September 30,
1998 1999
---- ----
<S> <C> <C>
ASSETS (unaudited)
Current assets:
Cash and cash equivalents ........................................................ $ 2,091 $ 1,474
Accounts receivable .............................................................. 186 318
Receivables due from affiliated practices ........................................ 4,579 8,821
Inventories ...................................................................... 585 1,444
Prepaid expenses and other receivables ........................................... 1,466 1,961
Deferred income taxes.............................................................. 65 65
------- --------
Total current assets .......................................................... 8,972 14,083
------- --------
Property and equipment, net ........................................................ 12,943 21,483
------- --------
Non-current assets:
Intangible assets, net ........................................................... 47,152 69,848
Deferred income taxes.............................................................. 1,120 1,641
Other assets ..................................................................... 348 288
------- --------
Total non-current assets ...................................................... 48,620 71,777
------- --------
Total assets .................................................................. $70,535 $107,343
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................................. $ 3,010 $ 4,601
Accrued compensation, benefits and taxes ......................................... 3,426 4,536
Accrued expenses ................................................................. 3,377 4,623
Income taxes payable ............................................................. 805 33
Current maturities of debt ....................................................... 1,079 1,441
------- --------
Total current liabilities ..................................................... 11,697 15,234
------- --------
Non-current liabilities:
Long-term debt ................................................................... 9,980 37,916
Other liabilities ................................................................ 553 651
------- --------
Total non-current liabilities ................................................. 10,533 38,567
------- --------
Total liabilities ............................................................. 22,230 53,801
------- --------
Stockholders' equity:
Preferred stock, par value $0.01 per share, 1,000,000 shares authorized, no shares
issued or outstanding .................................................. - -
Common stock, par value $0.01 per share, 25,000,000 shares authorized, 7,436,066
and 7,537,311 shares issued and outstanding ............................ 74 75
Additional paid-in capital ....................................................... 45,742 46,584
Unearned compensation ............................................................ (24) (6)
Retained earnings ................................................................ 2,513 6,889
------- --------
Total stockholders' equity .................................................... 48,305 53,542
------- --------
Commitments and contingencies
Total liabilities and stockholders' equity .................................... $70,535 $107,343
======= ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -------------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net revenue ................................. $22,334 $30,512 $60,722 $84,885
------- ------- ------- -------
Operating expenses:
Salaries and benefits.................... 11,363 14,836 31,464 41,576
Lab fees and dental supplies............. 2,950 4,327 7,787 11,544
Office occupancy......................... 2,073 2,965 5,532 8,131
Other operating expenses................. 1,759 2,399 5,023 6,723
General corporate expenses............... 971 1,139 3,002 3,553
Depreciation............................. 641 975 1,803 2,635
Amortization of intangibles.............. 491 680 1,237 1,833
------- ------- ------- -------
Total operating expenses............. 20,248 27,321 55,848 75,995
------- ------- ------- -------
Earnings from operations..................... 2,086 3,191 4,874 8,890
Interest expense, net.................... 193 506 838 1,185
------- ------- ------- -------
Earnings before income taxes................. 1,893 2,685 4,036 7,705
Income taxes............................. 738 1,127 1,574 3,329
------- ------- ------- -------
Net earnings............................. $ 1,155 $ 1,558 $ 2,462 $ 4,376
======= ======= ======= =======
Net earnings per common share:
Basic.................................... $ 0.16 $ 0.21 $ 0.38 $ 0.58
Diluted.................................. $ 0.15 $ 0.20 $ 0.34 $ 0.57
Weighted average common shares outstanding:
Basic.................................... 7,428 7,535 5,392 7,508
Diluted.................................. 7,660 7,797 6,593 7,744
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------ Paid-in Unearned Retained Stockholders'
Shares Amount Capital Compensation Earnings Equity
------------------ ------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ............. 7,436 $74 $45,742 $(24) $2,513 $48,305
Common stock issued for
acquisitions and affiliations ........ 50 1 351 - - 352
Common stock issued for the employee
stock purchase plan .................. 51 - 491 - - 491
Amortization of unearned compensation .. - - - 18 - 18
Net earnings ........................... - - - - 4,376 4,376
----- --- ------- ---- ------ -------
Balance at September 30, 1999 ............ 7,537 $75 $46,584 $ (6) $6,889 $53,542
===== === ======= ==== ====== =======
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings ................................................................... $ 2,462 $ 4,376
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation ............................................................... 1,803 2,635
Amortization of intangibles ................................................ 1,237 1,833
Other amortization ......................................................... 80 80
Changes in assets and liabilities, net of acquisitions and affiliations:
Accounts receivable .................................................... 769 558
Receivables due from affiliated practices .............................. (679) (3,287)
Other current assets ................................................... (146) (1,025)
Accounts payable and accrued expenses .................................. 317 1,509
Accrued compensation, benefits and taxes ............................... 200 235
Income taxes payable ................................................... 1,332 (776)
-------- --------
Net cash provided by operating activities .......................... 7,375 6,138
-------- --------
Cash flows from investing activities:
Acquisitions and affiliations, net of cash acquired ............................ (18,138) (19,797)
Capital expenditures, net ...................................................... (3,142) (9,762)
Contingent and deferred payments ............................................... - (496)
Other............................................................................ (1,381) (2,195)
-------- --------
Net cash used for investing activities ............................. (22,661) (32,250)
-------- --------
Cash flows from financing activities:
Borrowings under (repayments of) revolving line of credit, net ................. (11,965) 26,197
Repayment of borrowings ........................................................ (1,608) (1,179)
Proceeds from issuance of common stock in initial public offering,
net of underwriting discounts and commissions.................................... 36,096 -
Common stock issued for the employee stock purchase plan......................... - 491
Redemption of Series B redeemable preferred stock................................ (7,851) -
Payment of initial public offering costs ....................................... (927) -
Payment of debt issuance costs ................................................. - (14)
-------- --------
Net cash provided by financing activities .......................... 13,745 25,495
-------- --------
Decrease in cash and cash equivalents .............................................. (1,541) (617)
Cash and cash equivalents at beginning of period ................................... 4,675 2,091
-------- --------
Cash and cash equivalents at end of period ......................................... $ 3,134 $ 1,474
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net .................................. $ 502 $ 796
======== ========
Cash paid during the period for income taxes, net .............................. $ 242 $ 4,101
======== ========
Supplemental disclosure of non-cash information:
Conversion of Series A convertible preferred stock to common stock ............. $ 8,841 $ -
======== ========
Acquisitions and affiliations:
Assets acquired ................................................................ $ 26,686 27,475
Liabilities assumed and issued ................................................. (7,821) (7,159)
Common stock issued ............................................................ (443) (352)
Cash paid ...................................................................... 18,422 19,964
Less cash acquired ............................................................. (284) (167)
-------- --------
Net cash paid for acquisitions and affiliations .................... $ 18,138 $ 19,797
======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
6
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of American
Dental Partners, Inc. and its wholly-owned subsidiaries (the "Company"). All
intercompany balances and transactions have been eliminated in consolidation.
The Company does not own any interests in or control the activities of the
affiliated dental practices. Accordingly, the financial statements of the
affiliated dental practices are not consolidated with those of the Company.
The interim consolidated financial statements are unaudited, but in the
opinion of management include all adjustments, which consist only of normal and
recurring adjustments, necessary for a fair presentation of its financial
position and results of operations. Results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full year. These financial statements should be read in conjunction with the
Company's consolidated financial statements as of and for the year ended
December 31, 1998.
(2) ACQUISITIONS AND AFFILIATIONS
During calendar 1998, the Company acquired substantially all the assets of ten
dental practices and simultaneously entered into 40-year service agreements with
four of the affiliated dental groups (six practices joined existing affiliates).
The aggregate purchase price paid in connection with these transactions
consisted of approximately $18.4 million in cash, $2.2 million in subordinated
promissory notes, $1.0 million in deferred payments, 54,354 shares of Common
Stock and future contingent payments for one affiliation based on a multiple of
service fees received in excess of a predetermined threshold for each of the
three years ending May 31, 1999, 2000 and 2001. For the year ended May 31,
1999, this contingent payment amounted to approximately $0.3 million. All
transactions completed in 1998 are referred to as the "1998 Transactions."
From January 1, 1999 to September 30, 1999, the Company acquired substantially
all the assets of 15 dental practices (12 transactions) and simultaneously
entered into 40-year service agreements with eight of the affiliated dental
groups (seven practices joined existing affiliates). The aggregate purchase
price paid in connection with these transactions consisted of approximately
$20.0 million in cash, $2.5 million in subordinated promissory notes, $0.6
million in deferred payments and 50,568 shares of Common Stock. All
transactions completed in the first nine months of 1999 are referred to as the
"1999 Transactions."
7
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 1998 and 1999 Transactions completed through September 30, 1999 are as
follows:
<TABLE>
<CAPTION>
DATE AFFILIATED DENTAL PRACTICE LOCATION(S)
---- -------------------------- -----------
<S> <C> <C>
January 1998........................ Associated Dental Care Providers Phoenix and Tucson, AZ
April 1998.......................... Family Care Dental Centers Janesville, Kenosha and Racine, WI
April 1998.......................... John E. Carey, D.D.S. and Madison, WI
James J. Peterman, D.D.S.
April 1998.......................... Leroy S. Crapanzano, D.D.S. Hammond, LA
June 1998........................... Reston Dental Group Reston, VA
June 1998........................... TSC Dental Centers Houston, TX
July 1998........................... Indiana Dental Group Indiana, PA
September 1998...................... Mintz & Pincus Dental Group Oxon Hill and Waldorf, MD
September 1998...................... Westmore Dental Group Mt. Pleasant, PA
November 1998....................... St. Croix Valley Orthodontics Hudson, WI
February 1999....................... Dental Care of Alabama Birmingham and Tuscaloosa, AL
February 1999....................... CIGNA HealthCare of Arizona Phoenix, AZ
March 1999.......................... OK Dental Oklahoma City and Tulsa, OK
March 1999.......................... Kenneth W. Van Sickle, Jr., D.M.D. Mt. Pleasant, PA
March 1999.......................... Jack G. Stacker, D.D.S. Wausau, WI
June 1999........................... Kevin M. Strezo, D.D.S. Homer City, PA
June 1999........................... Hill Dental Group Columbia, MD
June 1999........................... University Dental Associates Winston-Salem, NC
June 1999........................... Karen L. Wedde, D.D.S. Appleton and Green Bay, WI
July 1999........................... Kenneth P. Dick, D.M.D. Johnstown, PA
July 1999........................... Gary R. Christman, D.D.S. Humble and Kingwood, TX
September 1999...................... Dental Associates of Corona, Dental Corona, Moreno Valley and
Associates of Moreno Valley, Riverside, CA
Dental Associates of Riverside
and Riverside Dental Group
</TABLE>
The accompanying interim consolidated financial statements include the results
of operations under the service agreements from the date of acquisition. The
excess of the purchase price of all the 1998 and 1999 Transactions over the
estimated fair value of the net assets acquired has been recorded as intangible
assets.
(3) EARNINGS PER SHARE
Earnings per share are computed based on Statement of Financial Accounting
Standard No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS") by all entities that have publicly traded common stock or
potential common stock (options, warrants, convertible securities or contingent
stock arrangements). Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period. The computation of Diluted EPS does not
assume conversion, exercise or contingent exercise of securities that would have
an antidilutive effect on earnings.
8
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations for the
three months and nine months ended September 30:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------
1998 1999 1998 1999
-----------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net earnings....................................................... $1,155 $1,558 $2,462 $4,376
Less: Dividends on Series A Convertible Preferred Stock........ - - (200) -
Dividends on Series B Redeemable Preferred Stock......... - - (195) -
------------ ---------- ------ ----------
Net earnings available to common stockholders...................... $1,155 $1,558 $2,067 $4,376
============ ========== ====== ==========
Weighted average common shares outstanding......................... 7,428 7,535 5,392 7,508
============ ========== ====== ==========
Net earnings per share............................................ $ 0.16 $ 0.21 $ 0.38 $ 0.58
============ ========== ====== ==========
DILUTED EARNINGS PER SHARE
Net earnings....................................................... $1,155 $1,558 $2,462 $4,376
Less: Dividends on Series A Convertible Preferred Stock (1).... - - - -
Dividends on Series B Redeemable Preferred Stock......... - - (195) -
------------ ---------- ------ ----------
Net earnings available to common stockholders...................... $1,155 $1,558 $2,267 $4,376
============ ========== ====== ==========
Weighted average common shares outstanding......................... 7,428 7,535 5,392 7,508
Add: Dilutive effect of options............................... 232 262 234 236
Assumed conversion of Series A Convertible Preferred
Stock (1)............................................... - - 967 -
------------ ---------- ------ ----------
Weighted average common shares as adjusted......................... 7,660 7,797 6,593 7,744
============ ========== ====== ==========
Net earnings per share............................................. $ 0.15 $ 0.20 $ 0.34 $ 0.57
============ ========== ====== ==========
</TABLE>
(1) In connection with the initial public offering, all 400,000 shares of
Series A Convertible Preferred Stock were converted into 2,399,995 shares
of Common Stock on April 21, 1998. The Diluted EPS calculation for the nine
months ended September 30, 1998 assumes conversion of the Series A
Convertible Preferred Stock to Common Stock as of January 1, 1998.
9
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this Report on Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," "project," "estimate,"
"forecast," and similar expressions, among others, identify forward-looking
statements. Forward-looking statements speak only as of the date the statements
were made. Such forward-looking statements are subject to uncertainties and
other factors that could cause actual results to differ materially from those
projected, anticipated or implied. Certain factors that might cause such a
difference include, among others, the risks associated with our acquisition and
affiliation strategy, management of rapid growth, dependence upon affiliated
dental groups, dependence upon service agreements, government regulation of the
dental industry and year 2000 compliance issues. Additional risks,
uncertainties and other factors are set forth in the "Risk Factors" section of
our Registration Statement on Form S-4 (File No. 333-56941).
OVERVIEW
American Dental Partners, Inc. is a leading provider of dental practice
management services to multi-disciplinary dental group practices in selected
markets throughout the United States. We were formed in December 1995. We began
our dental practice management operations in November 1996 when we completed the
affiliation with our first dental group practice. Our rapid growth has resulted
primarily from our affiliations with dental practices. From November 1996 to
September 30, 1999, we completed affiliations with 34 dental practices (31
transactions) and, at September 30, 1999, we operated 132 dental facilities with
1,173 operatories in 12 states.
AFFILIATION SUMMARY
When affiliating with a dental practice, we acquire substantially all its
assets, except those required by law to be owned or maintained by dentists (such
as third party contracts, certain governmental receivables and patient records),
and enter into a long-term service agreement with the affiliated dental practice
or professional corporation (the "PC"). Under our service agreements, we are
responsible for providing all services necessary for the administration of the
non-clinical aspects of the dental operations. The PC is responsible for the
provision of dental care. Each of our service agreements is for an initial term
of 40 years. We do not own or control the affiliated dental practices and,
accordingly, do not consolidate the financial statements of the PCs with ours.
1998 Transactions
During calendar 1998, we acquired substantially all the assets of ten dental
practices and simultaneously entered into 40-year service agreements with four
of them (six practices joined existing affiliates).
1999 Transactions (completed through September 30, 1999)
During the first nine months of 1999, we acquired substantially all the assets
of 15 dental practices (12 transactions) and simultaneously entered into 40-year
service agreements with eight of them (seven practices joined existing
affiliates).
COMPONENTS OF REVENUE AND EXPENSES
Affiliate Adjusted Gross Revenue and Payor Mix. Our affiliated dental group
practices generate revenue from patients and third party payors under fee-for-
service, preferred provider organization plans and capitated managed care plans.
The affiliated dental group practices record revenue at established rates
reduced by contractual adjustments and allowances for doubtful accounts to
arrive at adjusted gross revenue. Contractual adjustments represent the
difference between gross billable charges at established rates and the portion
of those charges reimbursed pursuant to certain third party payor contracts.
While payor mix varies from market to market, the aggregate payor mix percentage
of our affiliated practices was approximately 39% fee-for-service, 11% preferred
provider organization plans and 50% capitated managed care plans for the nine
months ended September 30, 1998. This compares with approximately 44% fee-for-
service, 14% preferred provider organization plans and 42% capitated managed
care plans for the nine months ended September 30, 1999.
10
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
The PC reimburses us for expenses incurred on its behalf in connection with
the operation and administration of the dental facilities and pays fees to us
for management services. Expenses incurred for the operation and administration
of the dental facilities include salaries and benefits for non-dentist personnel
working at the dental facilities (the administrative staff and, where permitted
by law, the dental hygienists and dental assistants), lab fees, dental supplies,
office occupancy costs of the dental facilities (rent, utilities, etc.) and
depreciation related to the fixed assets at the dental facilities. The PC is
also responsible for provider expenses, which generally consist of the salaries,
benefits and certain other expenses of the dentists.
Net Revenue. Our net revenue represents reimbursement of expenses and fees
charged to the affiliated dental practices pursuant to the terms of the long-
term service agreements under which we agree to manage the non-clinical aspects
of the dental practice. Under such agreements, the affiliated dental group
practices reimburse us for actual expenses incurred in connection with the
operation and administration of the dental facilities and pay fees to us for our
management services. Our service fees typically consist of a fixed monthly fee
and an additional variable fee. The fixed monthly fee is determined prior to
each affiliation and annually thereafter by agreement of us and the affiliated
dental group in a formal budgeting process. To the extent that there is
operating income after payment of the fixed monthly fee, reimbursement of
expenses incurred in connection with the operation and administration of the
dental facilities and payment of provider expenses, an additional variable fee
is paid to us in the amount of such excess up to budgeted operating income and
50% of such excess over budgeted operating income. Under certain service
agreements, our service fees consist of a variable monthly fee which is based
upon a specified percentage of the amount by which the PC's adjusted gross
revenue exceeds expenses incurred in connection with the operation and
administration of the dental facilities. In those situations, no additional
variable fee is applicable. Under certain of our service agreements, our
service fee consists entirely of a fixed monthly fee. Additionally, our net
revenue includes amounts from third party payors related to the arrangement of
the provision of care to patients.
Operating Expenses. Operating expenses (excluding general corporate expenses,
depreciation and amortization of intangibles) consist of the expenses incurred
by us in fulfilling our obligations under the service agreements. These
expenses are operating costs and expenses that would have been incurred by the
affiliated dental groups had they not affiliated with us and include non-dentist
salaries and benefits, lab fees and dental supplies, office occupancy costs and
other expenses related to operations. Salaries and benefits expense are for
personnel working for us at the dental facilities, as well as the local
operating management. At the facility level, we generally employ the
administrative staff and, where permitted by law, the dental hygienists and
dental assistants. The local operating management team supervises and supports
the staff at the dental facilities. Office occupancy includes rent expense and
certain other operating costs such as utilities associated with dental
facilities and the local administrative offices. Such costs vary based on the
size of each facility and the market rental rate for dental office space in the
particular geographic market. Other expenses consist of professional fees,
marketing costs and other general and administrative expenses.
General Corporate Expenses. General corporate expenses consist of
compensation expenses for our corporate personnel and administrative staff, as
well as facility and other administrative costs of our corporate office. We
provide management, administrative, third party contracting and other services
to the affiliated groups.
Depreciation. Depreciation expense includes depreciation charges related to
leasehold improvements and furniture, fixtures and equipment used to operate the
dental facilities, local management offices and our corporate office.
Amortization of Intangibles. Amortization of intangibles relates to
intangible assets acquired in connection with completed acquisition and
affiliation transactions.
11
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Overview
Our net earnings amounted to $1,155,000 or diluted earnings per share of $0.15
for the three months ended September 30, 1998, as compared with net earnings of
$1,558,000 or diluted earnings per share of $0.20 for the three months ended
September 30, 1999. The increase in net earnings resulted from incremental
earnings provided from completed acquisitions and affiliations and from internal
growth.
Net Revenue. Net revenue increased from $22,334,000 for 1998 to $30,512,000
for 1999, an increase of approximately 36.6%. The increase in net revenue in
1999 is due primarily to the inclusion of revenue derived from service
agreements entered into in connection with the 1998 Transactions for the entire
period and from the 1999 Transactions. In addition, same market growth from our
affiliates in Austin, Houston, Milwaukee, Minneapolis, New Orleans, Phoenix,
Pittsburgh, Reston and Tucson resulted from the addition of new facilities and
expansion of existing facilities, the addition of dentists to our affiliated
dental group network and increases in certain affiliates' fees. Net revenue
included expense reimbursements ($14,954,000 for 1998 as compared with
$20,978,000 for 1999), management service fees ($5,156,000 for 1998 as compared
with $6,955,000 for 1999) and revenue related to the arrangement of the
provision of care to patients and other revenue ($2,224,000 for 1998 as compared
with $2,579,000 for 1999). Expense reimbursements included rent expense
($1,511,000 for 1998 as compared with $2,125,000 for 1999) and other operating
expenses ($13,443,000 for 1998 as compared with $18,853,000 for 1999).
Management service fees included monthly fees ($4,658,000 for 1998 as compared
with $6,717,000 for 1999) and additional variable fees ($498,000 for 1998 as
compared with $238,000 for 1999). Net revenue derived from our service agreement
with Park Dental represented approximately 39% and 33% of our consolidated net
revenue for 1998 and 1999, respectively.
Salaries and Benefits Expense. Salaries and benefits amounted to $11,363,000
or 50.9% of net revenue for 1998, as compared with $14,836,000 or 48.6% of net
revenue for 1999. The decrease in salaries and benefits as a percentage of net
revenue resulted from more efficient utilization of staff in existing
facilities, the regionalization of finance, operations and administrative staff
in certain markets and the acquisition of facilities with a generally lower
ratio of staffing costs to net revenue in their respective markets compared to
the existing base of facilities. These savings were partially offset by an
increase in the amount of expense related to the arrangement of the provision of
care to patients, which is at a higher percentage of net revenue. In addition,
due to tight labor markets, these savings were partially offset by wage
inflation. We anticipate wage inflation pressures will continue for the
foreseeable future.
Lab Fees and Dental Supplies Expense. Lab fees and dental supplies expense
increased from $2,950,000 or 13.2% of net revenue for 1998 to $4,327,000 or
14.2% of net revenue for 1999. Lab fees and dental supplies expense varies from
affiliate to affiliate and is affected by the volume and type of procedures
performed. The increase in lab fees and dental supplies as a percentage of net
revenue is attributable to a combination of the acquisition of facilities with a
generally higher ratio of lab fees and dental supplies expense to net revenue in
their respective markets compared to the existing base of facilities and rate
increases from certain lab providers and dental supply manufacturers. We
believe such price inflation will continue for the foreseeable future.
Office Occupancy Expense. Office occupancy expense amounted to $2,073,000 or
9.3% of net revenue for 1998, as compared with $2,965,000 or 9.7% of net revenue
for 1999. Office occupancy expense increased as a percentage of net revenue due
to investment in the relocation, expansion and addition of new dental facilities
and local management offices in Arizona, Minnesota, Texas, Virginia and
Wisconsin. This investment in facilities increased our capacity in these
markets to allow for future growth. However, the increase in office occupancy
expense has not yet been fully offset by incremental net revenue. These
increased costs were partially offset by better utilization of capacity in
existing facilities.
12
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Other Operating Expenses. Other expenses amounted to $1,759,000 or 7.9% of net
revenue for 1998, as compared with $2,399,000 or 7.9% of net revenue for 1999.
Cost savings due to the regionalization of administrative functions in certain
markets and the reduction of certain discretionary spending were offset by
certain costs such as printing, professional fees and marketing associated with
the opening of new facilities in 1999.
General Corporate Expenses. General corporate expenses were $971,000 or 4.3%
of net revenue for 1998, as compared with $1,139,000 or 3.7% of net revenue for
1999. In 1999, we continued to expand our management infrastructure in the
areas of finance, employee benefit administration, professional recruiting and
purchasing. Despite these additions, we continued to leverage these costs,
resulting in a reduction of general corporate expenses as a percentage of net
revenue. The level of general corporate expenses will likely continue to
increase in the future as we continue to expand our management infrastructure.
However, it is anticipated that these expenses will continue to decline as a
percentage of net revenue.
Depreciation. Depreciation expense was $641,000 or 2.9% of net revenue for
1998, as compared with $975,000 or 3.2% of net revenue for 1999. The increase in
depreciation expense related primarily to the depreciation of assets acquired
and capital expenditures associated with the addition of seven new facilities in
Arizona, Minnesota and Virginia and the relocation and/or expansion of 29
facilities in Arizona, Minnesota, Texas and Wisconsin since July 1, 1998. These
capital expenditures increased our capacity in these markets to allow for future
growth. Depreciation expense increased as a percentage of net revenue as this
initial investment was not fully offset by incremental net revenue. We expect
to continue to invest in the relocation and expansion of our physical capacity
and depending on the amount and timing of such future capital expenditures,
depreciation expense will likely increase.
Amortization of Intangibles. Amortization of intangibles was $491,000 or 2.2%
of net revenue for 1998, as compared with $680,000 or 2.2% of net revenue for
1999. The increase in amortization resulted from intangible assets recorded in
connection with our ten affiliations completed during 1998 and 15 affiliations
(12 transactions) completed during 1999. We expect that amortization of
intangibles will increase in the future as a result of intangibles recorded in
connection with future acquisitions and affiliations.
Interest Expense, net. Net interest expense was $193,000 or 0.9% of net
revenue for 1998, as compared with $506,000 or 1.7% of net revenue for 1999.
The increase in interest expense resulted primarily from increased average
borrowings under our revolving credit facility in 1999 as compared with 1998.
In addition, the issuance of subordinated notes in connection with the 1998 and
1999 Transactions contributed to higher interest expense in 1999.
Income Taxes. We incurred income tax expense of $738,000 for 1998, as
compared with $1,127,000 for 1999. Our effective tax rate was approximately
39.0% for 1998 as compared with 42.0% for 1999. The increase in the effective
tax rate is primarily attributable to the fact that the remaining net operating
loss carryforwards from 1996 were fully utilized to offset a portion of our
taxable income in 1998. In addition, an increase in the amount of amortization
of intangible assets which are not deductible for tax purposes also led to an
increase in the effective tax rate in 1999. The effective tax rate for the nine
months ended September 30 1999 is 43.2%. A revision of our anticipated
effective tax rate for the year ended December 31, 1999 resulted in a year to
date adjustment, reflecting the lower rate of 42.0% for the third quarter of
1999. This revision resulted from a higher amount of amortization of intangible
assets which is deductible for tax purposes as compared with the amount
originally anticipated to be deductible for tax purposes.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Overview
Our net earnings amounted to $2,462,000 or diluted earnings per share of $0.34
for the nine months ended September 30, 1998, as compared with net earnings of
$4,376,000 or diluted earnings per share of $0.57 for the nine months ended
September 30, 1999. The increase in net earnings resulted from incremental
earnings provided from completed acquisitions and affiliations and from internal
growth.
13
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Net Revenue. Net revenue increased from $60,722,000 for 1998 to $84,885,000
for 1999, an increase of approximately 39.8%. The increase in net revenue in
1999 is due primarily to the inclusion of revenue derived from service
agreements entered into in connection with the 1998 Transactions for the entire
period and from the 1999 Transactions. In addition, same market growth from our
affiliates in Austin, Milwaukee, Minneapolis, New Orleans, Phoenix, Pittsburgh
and Tucson resulted from the addition of new facilities and expansion of
existing facilities, the addition of dentists to our affiliated dental group
network and increases in certain affiliates' fees. Net revenue included expense
reimbursements ($40,599,000 for 1998 as compared with $57,346,000 for 1999),
management service fees ($13,811,000 for 1998 as compared with $20,100,000 for
1999) and revenue related to the arrangement of the provision of care to
patients and other revenue ($6,312,000 for 1998 as compared with $7,439,000 for
1999). Expense reimbursements included rent expense ($4,047,000 for 1998 as
compared with $5,876,000 for 1999) and other operating expenses ($36,552,000 for
1998 as compared with $51,470,000 for 1999). Management service fees included
monthly fees ($12,639,000 for 1998 as compared with $19,118,000 for 1999) and
additional variable fees ($1,172,000 for 1998 as compared with $982,000 for
1999). Net revenue derived from our service agreement with Park Dental
represented approximately 42% and 35% of our consolidated net revenue for 1998
and 1999, respectively.
Salaries and Benefits Expense. Salaries and benefits amounted to $31,464,000
or 51.8% of net revenue for 1998, as compared with $41,576,000 or 49.0% of net
revenue for 1999. The decrease in salaries and benefits as a percentage of net
revenue resulted primarily from more efficient utilization of staff in existing
facilities, the regionalization of finance, operations and administrative staff
in certain markets and the acquisition of facilities with a generally lower
ratio of staffing costs to net revenue in their respective markets compared to
the existing base of facilities. These cost savings were partially offset by an
increase in the amount of expense related to the arrangement of the provision of
care to patients, which is at a higher percentage of net revenue. In addition,
due to tight labor markets, these savings were partially offset by wage
inflation. We anticipate such wage inflation pressures will continue for the
foreseeable future.
Lab Fees and Dental Supplies Expense. Lab fees and dental supplies expense
increased from $7,787,000 or 12.8% of net revenue for 1998 to $11,544,000 or
13.6% of net revenue for 1999. Lab fees and dental supplies expense varies from
affiliate to affiliate and is affected by the volume and type of procedures
performed. The increase in lab fees and dental supplies as a percentage of net
revenue is attributable to a combination of the acquisition of facilities with a
generally higher ratio of lab fees and dental supplies expense to net revenue in
their respective markets compared to the existing base of facilities and rate
increases from certain lab providers and dental supply manufacturers. We
believe such price inflation will continue for the foreseeable future.
Office Occupancy Expense. Office occupancy expense amounted to $5,532,000 or
9.1% for 1998, as compared with $8,131,000 or 9.6% of net revenue for 1999.
Office occupancy expense increased as a percentage of net revenue due to
investment in the relocation, expansion and addition of new dental facilities
and local management offices in Arizona, Minnesota, Texas, Virginia and
Wisconsin. This investment in facilities increased our capacity in these
markets to allow for future growth. However, the increase in office occupancy
expense has not yet been fully offset by incremental net revenue. These
increased costs were partially offset by better utilization of capacity in
existing facilities.
Other Operating Expenses. Other expenses amounted to $5,023,000 or 8.3% of net
revenue for 1998, as compared with $6,723,000 or 7.9% of net revenue for 1999.
Other costs decreased as a percentage of net revenue due to the regionalization
of administrative functions in certain markets and the reduction of certain
discretionary spending. These cost savings were partially offset by certain
costs such as printing, professional fees and marketing associated with the
opening of new facilities in 1999.
General Corporate Expenses. General corporate expenses were $3,002,000 or 4.9%
of net revenue for 1998, as compared with $3,553,000 or 4.2% of net revenue for
1999. In 1999, we continued to expand our management infrastructure in the areas
of finance, employee benefit administration, professional recruiting and
purchasing. Despite these additions, we continued to leverage these costs,
resulting in a reduction of general corporate expenses as a percentage of net
revenue. The level of general corporate expenses will likely continue to
increase in the future as we continue to expand our management infrastructure.
However, it is anticipated that these expenses will continue to decline as a
percentage of net revenue.
14
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Depreciation. Depreciation expense was $1,803,000 or 3.0% of net revenue for
1998, as compared with $2,635,000 or 3.1% of net revenue for 1999. The increase
in depreciation expense related primarily to the depreciation of assets acquired
and capital expenditures associated with the addition of seven new facilities in
Arizona, Minnesota and Virginia and the relocation and/or expansion of 29
facilities in Arizona, Minnesota, Texas and Wisconsin since July 1, 1998. These
capital expenditures increased our capacity in these markets to allow for future
growth. Depreciation expense increased as a percentage of net revenue as this
initial investment was not fully offset by incremental net revenue. We expect
to continue to invest in the relocation and expansion of our physical capacity
and depending on the amount and timing of such future capital expenditures,
depreciation expense will likely increase.
Amortization of Intangibles. Amortization of intangibles was $1,237,000 or
2.0% of net revenue for 1998, as compared with $1,833,000 or 2.2% of net revenue
for 1999. The increase in amortization resulted from intangible assets recorded
in connection with our ten affiliations completed during 1998 and 15
affiliations (12 transactions) completed during 1999. We expect amortization of
intangibles to increase in the future as a result of intangibles recorded in
connection with future acquisitions and affiliations.
Interest Expense, net. Net interest expense was $838,000 or 1.4% of net
revenue for 1998, as compared with $1,185,000 or 1.4% of net revenue for 1999.
The increase in interest expense resulted primarily from increased average
borrowings under our revolving credit facility in 1999 as compared to 1998. In
addition, the issuance of subordinated notes in connection with the 1998 and
1999 Transactions contributed to higher expense in 1999.
Income Taxes. We incurred income tax expense of $1,574,000 for 1998, as
compared with $3,329,0900 for 1999. Our effective tax rate was approximately
39.0% for 1998 as compared with 43.2% for 1999. The increase in the effective
tax rate is primarily attributable to the fact that the remaining net operating
loss carryforwards from 1996 were fully utilized to offset a portion of our
taxable income in 1998. In addition, an increase in the amount of amortization
of intangible assets which are not deductible for tax purposes also led to an
increase in the effective tax rate in 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operating and capital needs, including cash used for
acquisitions, capital expenditures and working capital, from our sales of equity
securities, borrowings under our revolving line of credit and cash generated
from operations.
From January 1, 1998 through September 30, 1999, we completed 25 dental group
practice affiliations (22 transactions) for aggregate consideration of $38.4
million in cash, $4.7 million in subordinated promissory notes, $1.6 million in
deferred payments, 104,922 shares of Common Stock and future contingent payments
for one affiliation based on a multiple of service fees received in excess of a
predetermined threshold for each of the three years ending May 31, 1999, 2000
and 2001. For the year ended May 31, 1999, this contingent payment amounted to
approximately $0.3 million.
For the nine months ended September 30, 1998 and 1999, cash provided by
operating activities amounted to $7,375,000 and $6,138,000, respectively. The
decrease in cash from operations resulted primarily from an increase in the
amount of cash paid for income taxes and interest in 1999 compared to 1998.
This was partially offset by an increase in cash from operations due to
incremental earnings generated from acquisitions and affiliations, same market
growth and expanded profit margins.
For the nine months ended September 30, 1998 and 1999, cash used in investing
activities amounted to $22,661,000 and $32,250,000, respectively. Cash used for
investing activities included cash used for acquisitions and affiliations and
for capital expenditures. Cash used for acquisitions, net of cash acquired, was
$18,138,000 for 1998 and $19,797,000 for 1999. Cash used for capital
expenditures was $3,142,000 and $9,762,000 for 1998 and 1999, respectively.
Capital expenditures for 1998 included costs associated with the addition of two
new dental facilities in Minnesota and the relocation and/or expansion of six
dental facilities in Minnesota, Texas and Wisconsin. Capital expenditures for
1999 included costs associated with the addition of five new dental facilities
in Arizona, Minnesota and Virginia and the relocation and/or expansion of 24
dental facilities in Arizona, Minnesota,
15
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
Texas and Wisconsin. The establishment of new dental facilities and the
expansion of existing dental facilities in the future will require ongoing
capital expenditures. Although we expect to continue making meaningful capital
expenditures, we do not expect capital expenditures to continue at the same
level as the first nine months of 1999.
For the nine months ended September 30, 1998 and 1999, cash provided by
financing activities amounted to $13,745,000 and $25,495,000, respectively.
Cash provided by financing activities during 1998 resulted primarily from net
proceeds received from our initial public offering. During the second quarter of
1998, we sold 2,587,500 shares of Common Stock in our initial public offering at
$15.00 per share. Net proceeds to us after deducting underwriting discounts and
commissions and offering costs were approximately $34,596,000. Such proceeds
were used to (i) redeem all the Series B Redeemable Preferred Stock, including
unpaid dividends, in the amount of $7,851,000, (ii) repay outstanding
indebtedness under our revolving credit facility, including accrued interest, in
the amount of $20,651,000 and (iii) complete additional affiliation
transactions. Cash provided by financing activities in 1999 resulted from
borrowings under our revolving line of credit of $26,197,000 and proceeds from
the issuance of common stock for the employee stock purchase plan of $491,000,
offset by the repayment of certain indebtedness of $1,179,000.
In April 1997, we entered into a $30 million revolving line of credit
agreement with a bank. In December 1998, we amended our line of credit to (i)
increase the amount available under the line to $50 million, (ii) add two
additional banks, (iii) extend the maturity date and (iv) modify certain other
terms, including pricing. The credit facility is being used for general
corporate purposes including acquisitions and affiliations. Borrowings under
this line of credit bear interest at either prime or LIBOR plus a margin, at our
option. The margin for LIBOR loans is based upon our debt coverage ratio and
ranges up to 1.625%. In addition, we pay a commitment fee of 0.25% of the
average daily balance of the unused line. Borrowings are limited to an
availability formula based on adjusted EBITDA. The credit facility is secured by
a first lien on substantially all of our assets, including a pledge of the stock
of our subsidiaries. We are also required to comply with certain financial and
other covenants. The line of credit matures in December 2001. The outstanding
balance under this line as of September 30, 1999 was $30,497,000.
We have a Shelf Registration Statement on file with the Securities and
Exchange Commission (Registration No. 333-56941) covering a total of 750,000
shares of Common Stock and $25,000,000 aggregate principal amount of
subordinated promissory notes to be issued in connection with future dental
group practice affiliations. As of September 30, 1999, 679,878 shares and
$22,015,000 of notes remain available for issuance under this Shelf Registration
Statement.
Our growth strategy depends in large measure on our ability to affiliate with
additional dental group practices. Although we have affiliated with many dental
group practices since our initial affiliation in November 1996, there can be no
assurance that additional affiliation candidates can be identified, consummated
or successfully integrated into our operations. We have used a combination of
cash, common stock and subordinated debt as consideration for past acquisitions
and affiliations and plan to continue to use these sources in the future. In
the event that our common stock does not maintain sufficient valuation or if
potential affiliation candidates are unwilling to accept our securities as
consideration, we will be required to use more cash resources to continue our
affiliation program. In addition, if sufficient financing is not available as
needed on terms acceptable to us, our affiliation strategy will be modified.
We believe that cash generated from operations and amounts available under our
revolving credit facility will be sufficient to fund our anticipated cash needs
for working capital, capital expenditures and acquisitions and affiliations
(although at a reduced rate compared to the nine months ended September 30,
1999) for at least the next 12 months.
16
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
YEAR 2000 ISSUE
The Year 2000 issue is the result of certain computer programs being written
using two digits rather than four digits to define the year. Accordingly,
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than 2000. This could result in system failures
or miscalculations causing disruptions in operations, including the temporary
inability to process transactions, send invoices or statements, or engage in
similar normal business activities. We utilize software and related computer
technologies essential to our operations.
All significant operating systems, the general ledger system and network
communication software system utilized by us are either already Year 2000
compliant or are expected to be Year 2000 compliant upon installation of
available patches or upgrades at minimal to no cost. The general ledger system
has already been satisfactorily tested for compliance by the software vendor.
We expect that all necessary upgrades for significant operating systems and
network communication software will be completed as soon as practicable.
We also use various dental practice management software systems in our
affiliated dental group practices. In particular, our proprietary practice
management system, Comdent, which is currently used at 45 of our dental
facilities, is Year 2000 compliant. We intend, when appropriate, to convert our
current and future affiliated dental group practices to Comdent or other
preferred systems. In general, the other practice management systems utilized by
us are commercially available systems that are either already Year 2000
compliant or scheduled for Year 2000 compliance by the end of 1999. We have
satisfactorily tested Comdent for Year 2000 compliance and preliminary
compliance testing has been done by us or the software vendor on other
significant practice management systems. All such testing should be completed by
the end of 1999. As part of our due diligence in connection with future
affiliations, we will perform a review of the dental practice management
software systems being used by those dental practices for Year 2000 compliance.
Any systems deemed to be non-compliant at such time are expected to be converted
to Year 2000 compliant systems as soon as practicable. Continual system
upgrades and conversion of dental practice management systems to our preferred
systems is an integral part of our overall information systems strategy. We
believe that costs specifically associated with Year 2000 compliance issues, if
any, will not be material to our financial position or results of operations.
We have not identified any compliance issues with respect to non-information
technology ("non-IT") systems such as phone systems and certain other
equipment. We do not believe the failure of such systems would have a material
adverse effect on our operations. Non-IT systems that are not compliant, if any,
are expected to be upgraded or replaced as soon as practicable. The costs of
such upgrades are not expected to be material to our financial position or
results of operations.
Year 2000 issues also relate to third parties with which we have significant
relationships. In particular, our affiliated dental groups have contracts with
third party payors to provide dental services in exchange for capitation, fee-
for-service and preferred provider organization plan claims payments. These
third party payors have systems that may be vulnerable to Year 2000 issues. We
have communicated with all significant third party payors to determine their
compliance status and develop appropriate contingency plans. We have not been
notified of any Year 2000 compliance issues by these third party payors. There
can be no assurance, however, that the systems of these significant third party
payors will be Year 2000 compliant on a timely basis. We believe Year 2000
problems experienced by such third party payors is the most reasonably likely
worst case scenario and that such problems could result in late payments
received under the payor contracts and related cash flow problems. Potential
contingency plans may include temporary advancing of funds to our affiliates by
third party payors unable to process claims on a timely basis and the direct
billing of patients in lieu of reimbursements under the payor contracts. In
addition, we could, if necessary, use borrowings under our revolving credit
facility to support working capital obligations in the event of payment problems
from third party payors. Due to the dependence of our affiliated dental groups
on third party payor relationships, Year 2000 system failures of such payors
could have a material adverse effect on our cash flows and financial condition.
We also have relationships with benefit plan vendors relating to the employee
benefit plans we sponsor. We have communicated with the primary benefit plan
vendors to determine their Year 2000 compliance status. We have not been
notified of any Year 2000 compliance issues by these vendors. Year 2000 system
failures of such vendors could have a material adverse effect on our financial
condition and employee relations.
17
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(Continued)
RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as "derivatives") and for
hedging activities. This statement requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The statement also sets forth the criteria for
determining whether a derivative may be specifically designated as a hedge of a
particular exposure with the intent of measuring the effectiveness of the hedge
in the statement of operations.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities, which amended the
effective date of SFAS No. 133. SFAS No. 137 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. We do not believe that
SFAS No. 133 will have a material impact on our consolidated financial
statements.
18
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
PART I. FINANCIAL INFORMATION--(Continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest our cash in money market instruments. These instruments are
denominated in U.S. dollars. Due to the conservative nature of these
instruments, we do not believe that we have a material exposure to interest
rate or market risk. We do not own any derivative financial instruments.
In the ordinary course of business, we are exposed to interest rate risk.
With regard to our revolving credit facility, we are also exposed to variable
rate interest for the banks' applicable margins ranging from 1.000% to 1.625%
based upon our debt coverage ratio. For fixed rate debt, interest rate changes
affect the fair value but do not impact earnings or cash flow. Conversely, for
floating rate debt, interest rate changes generally do not affect the fair
market value but do impact future earnings and cash flow. We do not believe a
one percentage point change in interest rates would have a material impact on
the fair market value of our fixed rate debt. The pre-tax earnings and cash
flow impact for one year based upon the amounts outstanding at September 30,
1999 under our variable rate revolving credit facility for a one percentage
point change in interest rates would be approximately $305,000. We do not
presently undertake any specific actions to cover our exposure to interest rate
risk and we are not party to any interest rate risk management transactions.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be subject to litigation incidental to our
business. We are not presently a party to any material litigation. The dentists
employed by, or independent contractors of, our affiliated dental group
practices are from time to time subject to malpractice claims. Such claims, if
successful, could result in damage awards exceeding applicable insurance
coverage which could have a material adverse effect on our business, financial
condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
19
<PAGE>
PART II. OTHER INFORMATION--(CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10(a) Asset Purchase Agreement dated September 21, 1999 among
American Dental Partners, Inc., American Dental Partners of
California, Inc., Rouhe, Harris, Douglass, Elias & McEwen, A
Professional Dental Corporation, Dental Associates of
Riverside, Dental Associates of Moreno Valley, Dental
Associates of Corona (collectively "Sellers"), and the
shareholders and partners of Sellers.
10(b) American Dental Partners, Inc. 1999 Restricted Stock Plan.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
We filed a Current Report on Form 8-K dated as of September 22,
1999 related to the acquisition of certain non-clinical assets of
four dental practices located in California Rouhe, Harris,
Douglass, Elias & McEwen, A Professional Dental Corporation
(dba Riverside Dental Group), Dental Associates of Riverside,
Dental Associates of Moreno Valley, and Dental Associates of
Corona.
20
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
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.
AMERICAN DENTAL PARTNERS, INC.
November 10, 1999 /s/ Gregory A. Serrao
-----------------------------------------------
Gregory A. Serrao
Chairman, President and Chief Executive Officer
November 10, 1999 /s/ Ronald M. Levenson
-----------------------------------------------
Ronald M. Levenson
Senior Vice President,
Chief Financial Officer and Treasurer
(principal financial officer)
21
<PAGE>
AMERICAN DENTAL PARTNERS, INC.
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
+10(a) Asset Purchase Agreement dated September 21, 1999 among American
Dental Partners, Inc., American Dental Partners of California, Inc.,
Rouhe, Harris, Douglass, Elias & McEwen, A Professional Dental
Corporation, Dental Associates of Riverside, Dental Associates of
Moreno Valley, Dental Associates of Corona (collectively "Sellers"),
and the shareholders and partners of Sellers.
*#10(b) American Dental Partners, Inc. 1999 Restricted Stock Plan.
*27 Financial Data Schedule.
__________________________
* Filed herewith.
+ Previously filed as Exhibit 2 to our Current Report on Form 8-K filed with
the Securities and Exchange Commission on September 24, 1999 and incorporated
herein by reference.
# Management contracts or compensatory plans or arrangements.
<PAGE>
EXHIBIT 10(b)
AMERICAN DENTAL PARTNERS, INC.
1999 RESTRICTED STOCK PLAN
--------------------------
(S)1. Purpose of Plan.
---------------
The purpose of this 1999 Restricted Stock Plan (the "Plan") of American
Dental Partners, Inc., a Delaware corporation (the "Company"), is to advance the
interests of the Company and its stockholders by providing key employees of the
Company and its subsidiaries with an opportunity to participate in the Company's
future prosperity and growth and an incentive to increase the value of the
Company based on the Company's performance, development, and financial success.
This objective will be promoted by awarding to such employees shares of the
Company's common stock, $.01 par value (the "Shares"), which are issued subject
to restrictions pursuant to the Plan (the "Restricted Shares").
(S)2. Administration of Plan.
----------------------
The Plan shall be administered by the Company's board of directors (the
"Board"). The Board shall have the power and authority to: (a) select the
employees of the Company or its subsidiaries who will be awarded Restricted
Shares (such employees "Participants"); (b) make such awards; (c) determine the
terms and conditions, not inconsistent with the terms of the Plan, of any
Restricted Share award, including without limitation time and performance
restrictions, and approve the form of Restricted Share Agreement (as defined in
(S)5, below); (d) adopt, alter, and repeal such administrative rules,
guidelines, and practices governing the Plan as it shall, from time to time,
deem advisable; (e) interpret the terms and provisions of the Plan and the
Restricted Share Agreements; and (f) take any other actions the Board considers
appropriate in connection with, and otherwise supervise the administration of,
the Plan, all in a manner consistent with the other provisions of the Plan. All
decisions made by the Board pursuant to the provisions of the Plan shall be made
in the Board's sole discretion and shall be final and binding on all persons.
Notwithstanding the preceding paragraph or any other provisions of the
Plan to the contrary, the Board may, in its discretion at any time or from time
to time, appoint a committee (the "Committee") of not less than one director to
administer the Plan, in which event the Committee shall have all or such of the
powers and duties of the Board under the Plan as the Board shall delegate to the
Committee. The member or members of the Committee shall serve at the pleasure of
the Board, which may remove members from the Committee or appoint new members to
the Committee from time to time, and members of the Committee may resign by
written notice to the Chairman of the Board or the Secretary of the Company.
Notwithstanding the foregoing to the contrary, for so long as the Shares
are registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), any award of Restricted Shares to a person who,
because of his relationship with the Company, is subject to the reporting
requirements of Section 16(a) of the 1934 Act, shall not be effective
<PAGE>
unless (a) the award is approved by either the Board or a committee consisting
solely of two or more "Non-Employee Directors" (as defined in Rule 16b-3(b)(3)
promulgated under the 1934 Act), (b) the award is approved or ratified by the
stockholders of the Company, in compliance with Section 14 of the 1934 Act, not
later than the date of the annual meeting of the Company's stockholders next
following the date of such award, or (c) the award, by its terms, provides that
Restricted Shares so awarded may not be disposed of before at least six months
have elapsed from the date of the award.
(S)3. Participants in Plan.
--------------------
The persons eligible to receive awards of Restricted Shares under the
Plan shall be those employees of the Company or any subsidiary of the Company
who are determined by the Board, in its sole discretion, to be key contributors
to the financial success of, or the successful operation, administration, or
management of, the Company or any subsidiary of the Company.
(S)4. Shares Subject to Plan.
----------------------
The maximum aggregate number of Shares which may be issued under the Plan
shall be 25,000 Shares. The Shares which may be issued under the Plan may be
authorized but unissued Shares or issued Shares reacquired by the Company and
held as Treasury Shares.
If any Shares that have previously been awarded as Restricted Shares
under the Plan are forfeited under the Plan or any Restricted Share Agreement or
otherwise returned to the Company (including without limitation in payment of
the purchase price or tax withholding), such Shares shall again be available for
issuance in connection with future awards of Restricted Shares under the Plan.
(S)5. Awards of Restricted Shares.
---------------------------
Restricted Shares may be awarded alone or in tandem with awards of cash
or other incentive compensation outside the Plan. Each award of Restricted
Shares under the Plan shall be authorized by the Board and shall be evidenced by
a written agreement (the "Restricted Share Agreement") in form approved by the
Board from time to time, which shall be dated as of the date on which the
Restricted Shares are awarded, signed by an officer of the Company authorized by
the Board, and signed by the Participant. The Restricted Share Agreement shall
describe the Restricted Shares and state that the Restricted Shares are subject
to all the terms and conditions of the Plan and shall include such other terms
and conditions, not inconsistent with the Plan, as the Board may approve. The
terms and conditions of Restricted Share awards need not be the same with
respect to each Participant. The date on which the Board approves the award of
Restricted Shares shall be deemed to be the date on which the Restricted Shares
are awarded for all purposes, unless the Board otherwise specifies in its
approval. However, the award of Restricted Shares under the Plan shall be
effective only if a Restricted Share Agreement is duly executed and delivered by
or on behalf of the Company and the Participant, and the Participant of such
award shall not have any rights with respect to the Restricted Shares awarded
until such Restricted Share Agreement is so executed and delivered. The Board
may condition any award of Restricted Shares upon the attainment of specified
performance goals or such other factors as the Board may determine, in its sole
discretion.
-2-
<PAGE>
In addition to the foregoing, all awards of Restricted Shares shall be
subject to the following provisions:
(a) Price.
-----
The purchase price for Restricted Shares shall be their par value.
Payment in full of the purchase price shall be made in cash or such
other manner as may be permitted by the Board. If approved by the
Board, payment in full or part may be made: (i) by delivering Shares
already owned by the Participant having a total fair market value on
the date of such delivery equal to the Restricted Share price; (ii) by
the delivery of cash on the extension of credit by a broker-dealer or
an irrevocable election to effect such extension of credit; or (iii)
by any combination of the foregoing.
(b) Restrictions.
------------
Subject to the provisions of the Plan and the applicable
Restricted Share Agreement, during a period set by the Board
commencing with the date of such award and ending on such date as
determined by the Board at the time of the award (the "Restriction
Period"), the Participant shall not be permitted to sell, transfer,
pledge, assign or otherwise encumber Restricted Shares awarded under
the Plan. The Board may, in its sole discretion, provide for the lapse
of restrictions in installments and may accelerate or waive such
restrictions, in whole or in part, based on service, performance, or
such other factors or criteria as the Board may determine from time to
time, in its sole discretion. Without limiting the foregoing, the
Board shall have the authority, in its sole discretion, to accelerate
the time at which any or all of the restrictions shall lapse with
respect to any Restricted Shares or to remove any or all restrictions
after the award of such Restricted Shares.
(c) Stock Certificate.
-----------------
Each Participant receiving a Restricted Share award shall be
issued a stock certificate evidencing such Restricted Shares. Such
certificate shall be registered in the name of such Participant. All
stock certificates evidencing Restricted Shares shall be held in
custody by the Company until the restrictions thereon shall have
lapsed, and, as a condition of any Restricted Share award, the
Participant shall deliver a stock power, endorsed in blank, relating
to the Restricted Shares covered by such award.
(d) Shareholder Rights.
------------------
Except as provided in this (S)5, each Participant shall have, with
respect to the Restricted Shares covered by any award to that
Participant, all of the rights of a shareholder of the Company,
including the right to vote the Restricted Shares, and the right to
receive any dividends or other distributions with respect to the
Restricted Shares, but subject, however, to those restrictions placed
on such
-3-
<PAGE>
Restricted Shares pursuant to this Plan and as specified in the
applicable Restricted Share Agreement.
(e) Transferability.
---------------
Unless otherwise approved by the Board, no Restricted Shares shall
be transferable by a Participant other than by will or the laws of
descent and distribution.
(f) Termination of Employment.
-------------------------
Unless otherwise determined by the Board at or after the time of
awarding any Restricted Shares, if a Participant's employment with the
Company and its subsidiaries terminates for any reason, the Restricted
Shares held by such Participant which are unvested or subject to
restriction at the time of termination shall thereupon be forfeited.
(S)6. Withholding Tax.
----------------
The Company, at its option, shall have the right to require the
Participant or any other person receiving Shares under the Plan to pay the
Company the amount of any taxes which the Company is required to withhold with
respect to such Shares or, in lieu of such payment, to retain or sell without
notice a number of such Shares sufficient to cover the amount required to be so
withheld. The Company, at its option, shall have the right to deduct from all
dividends paid with respect to Shares the amount of any taxes which the Company
is required to withhold with respect to such dividend payments. The obligations
of the Company under the Plan shall be conditional on such payment or other
arrangements acceptable to the Company.
(S)7. Securities Law Restrictions.
---------------------------
No right under the Plan shall be exercisable and no Share shall be
delivered under the Plan except in compliance with all applicable federal and
state securities laws and regulations. The Company shall not be required to
deliver any Shares or other securities under the Plan prior to such registration
or other qualification of such Shares or other securities under any state or
federal law, rule, or regulation as the Board shall determine to be necessary or
advisable, in its sole discretion.
The Board may require each person acquiring Shares under the Plan (a) to
represent and warrant to and agree with the Company in writing that such person
is acquiring the Shares without a view to the distribution thereof, and (b) to
make such additional representations, warranties, and agreements with respect to
the investment intent of such person or persons as the Board may reasonably
request. Any certificates for such Shares may include any legend which the
Board deems appropriate to reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall be subject
to such stop-transfer orders and other restrictions as the Board may deem
advisable under the rules,
-4-
<PAGE>
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Shares are then listed, and any applicable
federal or state securities law, and the Board may cause a legend or legends to
be put on any certificates evidencing such Shares to make appropriate reference
to such restrictions.
(S)8. Change in Capital Structure.
---------------------------
In the event the Company changes its outstanding Shares by reason of
stock splits, stock dividends, or any other increase or reduction of the number
of outstanding Shares without receiving consideration in the form of money,
services, or property deemed appropriate by the Board, in its sole discretion,
the aggregate number of Shares subject to the Plan shall be proportionately
adjusted and the number of Shares then subject to a Restricted Share Agreement
shall be proportionately adjusted with the objective that the Participant's
proportionate interest in the Company shall remain the same as before the change
without any change as determined by the Board in its sole discretion.
In the event of any other recapitalization or any merger, consolidation,
or other reorganization of the Company, the Board shall make such adjustment, if
any, as it may deem appropriate to accurately reflect the number and kind of
Shares deliverable upon future awards under the Plan, all as determined by the
Board in its sole discretion.
The Board's determination of the adjustments appropriate to be made under
this (S)8 shall be conclusive and binding on all Participants under the Plan.
(S)9. Change in Control.
-----------------
(a) Accelerated Vesting. Notwithstanding any provision of the Plan
-------------------
or any Restricted Share Agreement to the contrary (unless such Restricted
Share Agreement contains a provision referring specifically to this (S)9
and stating that this (S)9 shall not be applicable to the Restricted
Shares subject to such Agreement), if a Change in Control (as defined
below) occurs, then the vesting restrictions applicable to all
outstanding Restricted Shares shall lapse and such Restricted Shares
shall be deemed fully vested.
(b) Definition of Change in Control. For purposes of the Plan, a
-------------------------------
"Change in Control" shall mean the happening of any of the following:
(i) The direct or indirect acquisition by any "person" as
defined in (S)3(a)(9) of the 1934 Act and as used in (S)(S)13(d) and
14(d) thereof, including a "group" within the meaning of (S)13(d) of
the 1934 Act (hereinafter, simply a "Person"), of "beneficial
ownership" (within the meaning of Rule 13d-3 under the 1934 Act) of
securities of the Company representing more than 50% of the combined
voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors of the Company
(the "Company Voting Securities"); provided that: (A) for purposes of
this subsection (i), the term "Person" shall not include the Company,
any subsidiary of the Company, any employee benefit plan sponsored or
maintained by the Company or
-5-
<PAGE>
any subsidiary of the Company (including any trustee of such plan
acting as trustee), any person who was a stockholder of the Company on
the effective date of the Plan (an "Existing Stockholder"), and any
affiliate of an Existing Stockholder; and (B) the provisions of this
subsection (i) shall not apply to (1) any acquisition of securities
from the Company or any of its subsidiaries, or (2) any acquisition of
securities pursuant to a Business Combination (as defined below) which
satisfies clauses (A), (B), and (C) of subsection (iii) of this
Section 9(b);
(ii) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning of such
period constitute the Board (the "Incumbent Directors") cease for any
reason other than death to constitute at least at least a majority of
the Board; provided, however, that a director who was not a director
at the beginning of such 24-month period shall be deemed to have
satisfied such 24-month requirement (and be an Incumbent Director) if
such director was elected by, or on the recommendation of or with the
approval of, at least two-thirds of the directors who then qualified
as Incumbent Directors either actually (because they were directors at
the beginning of such 24-month period) or by prior operation of this
Section 9 (b)(ii); or
(iii) Approval by the stockholders of the Company of a
reorganization, merger, consolidation, or recapitalization of the
Company, or a sale or other disposition of all or substantially all of
the assets of the Company, or the acquisition of the assets of another
corporation (any such transaction, a "Business Combination"), or the
consummation of a Business Combination for which stockholder approval
is not obtained, unless, in any such case, following such Business
Combination: (A) all or substantially all of the individuals and
entities who were the beneficial owners of the Company Voting
Securities outstanding immediately prior to such Business Combination
beneficially own, directly or indirectly, immediately following such
Business Combination, more than 50% of the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors of the corporation resulting from such
Business Combination in substantially the same proportions as their
ownership of the Company Voting Securities immediately prior to such
Business Combination, and (B) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were Incumbent Directors at the time of the execution of
the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(S)10. No Enlargement of Rights.
------------------------
Neither the adoption of this Plan nor the award of Restricted Shares
shall confer any right to any employee of the Company or any of its subsidiaries
to continue such employment, nor shall they restrict or interfere in any way
with the right of the Company to terminate such employee's employment at any
time, with or without cause.
-6-
<PAGE>
(S)11. Interpretation, Amendment or Termination of Plan.
------------------------------------------------
The interpretation by the Board of any provision of the Plan or of any
Restricted Stock Agreement shall be final and conclusive upon all Participants
or transferees under the Plan. The Board, without further action on the part of
the stockholders of the Company, may from time to time alter, amend, or suspend
the Plan or may at any time terminate the Plan; provided that no such action
shall adversely affect any Participant's rights with respect to outstanding
Restricted Shares then held by such Participant without such Participant's
consent.
(S)12. Protection of Board and Committee.
---------------------------------
No member of the Board or the Committee shall have any liability for any
determination or other action made or taken in good faith with respect to the
Plan or any Restricted Shares awarded under the Plan.
(S)13. Regulations.
-----------
Notwithstanding any provision of the Plan or any Restricted Share
Agreement executed pursuant to the Plan, the Company's obligations under the
Plan and such Restricted Share Agreement shall be subject to all applicable
laws, rules, and regulations and to such approvals as may be required by any
governmental or regulatory agencies, including without limitation any stock
exchange on which the Shares may then be listed.
(S)14. Governing Law.
-------------
The Plan is construed and governed by the laws of the State of Delaware.
(S)15. Genders and Numbers.
-------------------
When permitted by the context, each pronoun used in the Plan shall
include the same pronoun in other genders and numbers.
(S)16. Captions.
--------
The captions of the various sections of the Plan are not part of the
context of the Plan, but are only labels to assist in locating those sections,
and shall be ignored in construing the Plan.
(S)17. Definition of Subsidiary.
------------------------
The term "subsidiary" when used in the Plan or any Restricted Share
Agreement made pursuant to the Plan means a subsidiary corporation as defined in
(S)424(f) of the Internal Revenue Code of 1986, as amended.
(S)18. Effective Date.
--------------
The Plan is effective August 6, 1999 (the "Effective Date").
-7-
<PAGE>
(S)19. Term of Plan.
------------
No Restricted Shares shall be awarded pursuant to the Plan on or after
the tenth anniversary of the Effective Date, but restrictions relating to
Restricted Shares awarded prior to such date may extend beyond that date.
(S)20. Stockholder Approval.
--------------------
Notwithstanding any provisions of the Plan to the contrary, not more
than 25,000 Shares, in the aggregate, shall be issued under the Plan until the
Plan has been approved by the stockholders of the Company.
(S)21. Savings Clause.
--------------
In case any one or more of the provisions of this Plan shall be held
invalid, illegal, or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby, and the invalid, illegal, or unenforceable provision shall be
deemed null and void; however, to the extent permissible by law, any provision
which could be deemed null and void shall first be construed, interpreted, or
revised retroactively to permit this Plan to be construed so as to foster the
intent of this Plan. This Plan and all transactions pursuant to this Plan are
intended to comply in all respects with applicable law and regulation,
including, with respect to persons subject to Section 16 of the 1934 Act, Rule
16b-3 under the 1934 Act. In case any one or more of the provisions of this
Plan or any transaction pursuant to this Plan shall be held to violate or be
unenforceable in any respect under Rule 16b-3, then, to the extent permissible
by law, any provision which could be deemed to violate or be unenforceable under
Rule 16b-3 shall first be construed, interpreted, or revised retroactively to
permit the Plan or transaction to be in compliance with Rule 16b-3.
-8-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH INTERIM FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 0 1,474
<SECURITIES> 0 0
<RECEIVABLES> 0 9,425
<ALLOWANCES> 0 0
<INVENTORY> 0 1,444
<CURRENT-ASSETS> 0 14,369
<PP&E> 0 21,483
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 0 107,343
<CURRENT-LIABILITIES> 0 15,234
<BONDS> 0 0
0 0
0 0
<COMMON> 0 75
<OTHER-SE> 0 53,467
<TOTAL-LIABILITY-AND-EQUITY> 0 107,343
<SALES> 30,512 84,885
<TOTAL-REVENUES> 30,512 84,885
<CGS> 0 0
<TOTAL-COSTS> 27,321 75,995
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 506 1,185
<INCOME-PRETAX> 2,685 7,705
<INCOME-TAX> 1,127 3,329
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,558 4,376
<EPS-BASIC> 0.21 0.58
<EPS-DILUTED> 0.20 0.57
</TABLE>
