<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: June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
COMMISSION FILE NUMBER:
0-21428
OCCUPATIONAL HEALTH + REHABILITATION INC
(Exact name of registrant as specified in its charter)
DELAWARE 13-3464527
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
175 DERBY STREET, SUITE 36
HINGHAM, MASSACHUSETTS 02043
(Address of principal executive offices) (Zip code)
(781) 741-5175
(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 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
The number of shares outstanding of the registrant's Common Stock as of
August 3, 2000 was 1,479,510.
--------------------------------------------------------------------------------
OCCUPATIONAL HEALTH & REHABILITATION INC.
<PAGE>
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets................................... 3
Consolidated Statements of Operations......................... 4
Consolidated Statements of Cash Flows......................... 6
Notes to 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.... 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................. 17
Signatures............................................................... 18
Exhibit Index............................................................ 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
(Unaudited)
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,788 $ 1,512
Accounts receivable, net................................. 9,287 7,105
Prepaid expenses and other assets......................... 641 638
---------------- -----------------
Total current assets.......................................... 11,716 9,255
Property and equipment, net................................... 2,404 2,383
Goodwill, net................................................. 5,250 5,346
Other assets.................................................. 173 176
---------------- -----------------
Total assets.............................................. $ 19,543 $ 17,160
================ =================
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 984 $ 748
Accrued expenses.......................................... 2,545 2,755
Accrued payroll........................................... 1,987 1,559
Restructuring liability................................... 284 536
Current portion of long-term debt......................... 4,756 573
Current portion of obligations under capital leases....... 244 281
---------------- -----------------
Total current liabilities..................................... 10,800 6,452
Restructuring liability....................................... 281 358
Dividends payable............................................. 453 113
Long-term debt, less current maturities....................... 622 2,586
Obligations under capital leases.............................. 204 320
---------------- -----------------
Total liabilities............................................. 12,360 9,829
Minority interest............................................. 1,078 1,291
Redeemable stock:
Redeemable, convertible preferred stock, Series A, $.001
par value --- 1,666,667 shares authorized,
1,416,667 shares issued and outstanding.................... 8,478 8,470
Stockholders' deficit:
Preferred stock, $.001 par value - 3,333,333 shares
authorized; none issued and outstanding...................
Common stock, $.001 par value -- 10,000,000 shares
authorized; 1,580,012 shares issued in 2000 and 1999;
and 1,479,510 shares outstanding in 2000 and 1999......... 1 1
Additional paid-in capital.................................. 10,620 10,620
Accumulated deficit......................................... (12,494) (12,551)
Less treasury stock, at cost, 100,502 shares................ (500) (500)
---------------- -----------------
Total stockholders' deficit................................. $ (2,373) $ (2,430)
---------------- -----------------
Total liabilities, redeemable stock and stockholders'
deficit................................................... $ 19,543 $ 17,160
================ =================
</TABLE>
See Accompanying Notes
3
<PAGE>
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share amounts and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------------------
2000 1999
-------------- ----------------
<S> <C> <C>
Revenue..................................................... $ 10,639 $ 7,818
Expenses:
Operating................................................. 8,739 6,414
General and administrative................................ 1,223 913
Depreciation and amortization............................. 262 248
---------- ----------
10,224 7,575
---------- ----------
415 243
Nonoperating gains (losses):
Interest income........................................... 6 19
Interest expense.......................................... (123) (59)
Minority interest in net losses (profits) of subsidiaries. 99 (140)
---------- ----------
Income before income taxes.................................. 397 63
Income taxes................................................ -- --
---------- ----------
Net income.................................................. $ 397 $ 63
========== ==========
Net income available to common stockholders................. $ 223 $ 59
========== ==========
Per share amounts:
Net income per common share - basic....................... $0.15 $0.04
========== ==========
Net income per common share - assuming dilution........... $0.08 $0.02
========== ==========
Weighted average common shares.............................. 1,479,510 1,479,444
========== ==========
</TABLE>
See Accompanying Notes
4
<PAGE>
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share amounts and per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------------------
2000 1999
------------------ -----------------
<S> <C> <C>
Revenue..................................................... $ 19,680 $ 14,832
Expenses:
Operating................................................. 16,188 12,295
General and administrative................................ 2,376 1,779
Depreciation and amortization............................. 516 482
---------- ----------
19,080 14,556
---------- ----------
600 276
Nonoperating gains (losses):
Interest income........................................... 12 38
Interest expense.......................................... (214) (106)
Minority interest in net losses (profits) of subsidiaries. 7 (287)
---------- ----------
Income (loss) before income taxes........................... 405 (79)
Income taxes................................................ -- --
---------- ----------
Net income (loss)........................................... $ 405 $ (79)
========== ==========
Net income (loss) available to common stockholders.......... $ 57 $ (87)
========== ==========
Per share amounts:
Net income (loss) per common share - basic................ $0.04 $(0.06)
========== ==========
Net income (loss) per common share - assuming dilution.... $0.02 $(0.06)
========== ==========
Weighted average common shares.............................. 1,479,510 1,479,444
========== ==========
</TABLE>
See Accompanying Notes
5
<PAGE>
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------------------
2000 1999
------------------ -----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 405 $ (79)
Adjustments to reconcile net income (loss) to net
cash (used) provided by operating activities net
of assets acquired through acquisitions or
business combinations:
Depreciation............................................ 357 319
Amortization............................................ 159 163
Minority interest in net (losses) profits of
subsidiaries......................................... (7) 287
Changes in operating assets and liabilities:
Accounts receivable.................................. (2,182) (1,417)
Prepaid expenses, other current assets and other
assets............................................ (17) (62)
Notes receivable..................................... -- 116
Restructuring liability.............................. (329)
Accounts payable and accrued expenses
and other long-term liabilities................... 601 1,080
------- -------
Net cash (used) provided by operating activities............ (1,013) 407
INVESTING ACTIVITIES:
Cash paid to joint venture partners relating to
distributions.............................................. (231) (349)
Property and equipment additions............................ (230) (200)
Cash paid for acquisitions.................................. (73) (473)
------- -------
Net cash used by investing activities....................... (534) (1,022)
FINANCING ACTIVITIES:
Payments of long-term debt.................................. (174) (109)
Payments on capital lease obligations....................... (153) (118)
Proceeds from lines of credit and loans payable............. 2,150 729
------- -------
Net cash provided by financing activities................... 1,823 502
------- -------
Net increase (decrease) in cash and cash equivalents........ 276 (113)
Cash and cash equivalents at beginning of period............ 1,512 1,562
------- -------
Cash and cash equivalents at end of period.................. $ 1,788 $ 1,449
======= =======
</TABLE>
See Accompanying Notes
6
<PAGE>
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Occupational
Health + Rehabilitation Inc (the "Company") have been prepared in accordance
with the instructions to Form 10-Q and Rule 10.01 of Regulation S-X pertaining
to interim financial information and disclosures required by generally accepted
accounting principles. The interim financial statements presented herein
reflect all adjustments (consisting of normal recurring adjustments) which, in
the opinion of management, are considered necessary for a fair presentation of
the Company's financial condition as of June 30, 2000 and results of operations
for the three and six months ended June 30, 2000 and 1999. The results of
operations for the six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for a full year.
2. NET INCOME (LOSS) PER COMMON SHARE
The Company calculates earnings per share in accordance with SFAS No. 128,
Earnings per Share, which requires disclosure of basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities while diluted earnings per share includes
such amounts.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (amounts in thousands, except share and per share data):
BASIC EARNINGS PER SHARE
------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------------
2000 1999 2000 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
EARNINGS
Net income (loss)......................................... $ 397 $ 63 $ 405 $ (79)
Dividends accrued......................................... (170) -- (340) --
Accretion on preferred stock redemption value............. (4) (4) (8) (8)
------------------------------------------------------------------
Income (loss) available to common stockholders............ $ 223 $ 59 $ 57 $ (87)
==================================================================
SHARES
Total weighted average shares outstanding - basic......... 1,479,510 1,479,444 1,479,510 1,479,444
==================================================================
Net income (loss) available to common stockholders-basic.. $ 0.15 $ 0.04 $ 0.04 $ (0.06)
==================================================================
</TABLE>
7
<PAGE>
3. EARNINGS PER SHARE (continued)
DILUTED EARNINGS PER SHARE
--------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
-----------------------------------------------------------------
EARNINGS
Net income (loss)............................................ $ 397 $ 63 $ 405 $ (79)
Dividends accrued............................................ (170) -- (340) --
Interest expense on convertible subordinated debt............ 3 3 6 --
Accretion on preferred stock redemption value................ (4) (4) (8) (8)
-----------------------------------------------------------------
Income (loss) available to common stockholders............... $ 226 $ 62 $ 63 $ (87)
=================================================================
SHARES
Total weighted average shares outstanding.................. 1,479,510 1,479,444 1,479,510 1,479,444
Incremental shares from assumed conversion of Series A
preferred stock............................................. 1,416,667 1,416,667 1,416,667 --
Options...................................................... -- 59,986 -- --
Convertible subordinated debt................................ 25,000 25,000 25,000 --
-----------------------------------------------------------------
2,921,177 2,981,097 2,921,177 1,479,444
=================================================================
Net income (loss) available to common stockholders-assuming
dilution................................................... $0.08 $0.02 $0.02 $(0.06)
=================================================================
</TABLE>
For the six month periods ended June 30, 2000 and 1999 and for the three months
ended June 30, 2000, 404,498, 458,404, and 404,498, respectively, of stock
options were not included in the computation of diluted income (loss) per
common share because to do so would have been antidilutive.
4. JOINT VENTURES
During the first quarter of 2000, the Company entered into a joint venture
with SSM Health Care St. Louis ("SSM") to own and operate six occupational
health centers in St. Louis, Missouri. The Company holds an 80% interest in
the joint venture. The Company also has a management contract with the joint
venture for an initial term of twenty years with automatic renewals for
successive five-year terms.
5. SIGNIFICANT ACCOUNTING POLICIES
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of applying
APB Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequences of various modifications to
the terms of previously fixed stock options or awards; and the accounting for
an exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
In December 1999, the SEC released Staff Accounting Bulletin (SAB) 101,
Revenue Recognition in Financial Statements. SAB 101 clarifies the SEC's views
related to revenue recognition and disclosure. SAB 101A was subsequently issued
in March 2000, deferring the requirement to adopt the revised guidance until
the period ended June 30, 2000. In June 2000, the SEC issued SAB 101B which
further defers the effective date for calendar year companies to the fourth
quarter 2000. The Company is in the process of assessing the impact of this SAB
and does not anticipate this having a material effect on the consolidated
financial statements .
8
<PAGE>
6. LONG-TERM DEBT
The Company has a financing arrangement with a commercial lender under
which two separate credit facilities are available which amount to $7,000. The
credit facilities bear interest at the bank's base rate plus 0.75% (10.25% at
June 30, 2000). The credit facilities had a combined outstanding balance of
$4,143 as of June 30, 2000, and mature on June 30, 2001. Prior to June 30,
2000, the Company was permitted to borrow up to an aggregate of $7,000 under
these facilities subject to convenants and restrictions provided in each
facility. At June 30, 2000, in anticipation of not being in compliance with a
non-financial covenant, the lender extended the period of time available for
the Company to comply with the non-financial covenant of the facilities. The
lender also suspended further availability under both lines. The maturity date
of the credit facilities, June 30, 2001, is unchanged. The Company continues to
work with the lender to either further extend the period for achieving
compliance or to finally comply with the loan covenant. Should the Company fail
to comply with the covenant prior to the final lender deadline, alternative
financing will be required.
7. RESTRUCTURING
During the fourth quarter of 1999, the Company adopted, communicated and
implemented a restructuring plan to close certain centers that were either
outside of the Company's core occupational health focus or were deemed not
capable of achieving significant profitability due to specific market factors.
As a result of the restructuring plan and other actions, the Company recorded a
charge of $2,262 during the fourth quarter of 1999. The restructuring plan
also included the streamlining of certain other remaining operations and the
elimination or combining of various other personnel positions within the
Company. The initial charge recognized and the status of the related accrued
liabilities at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
------------------------------------ --------------------------
ENDING ENDING
INITIAL ACCRUAL ACCRUAL
DESCRIPTION CHARGE PAYMENT BALANCE PAYMENT BALANCE
------------------------------------------------ ----------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ACCRUED LIABILITIES
Severance Costs $ 151 $8 $143 $138 $ 5
Lease Abandonment Costs 683 -- 683 143 540
Miscellaneous 68 -- 68 48 20
-----------------------------------------------------------------
902 $8 $894 $329 $565
--------------------------------------------------------
ASSET IMPAIRMENTS
Fixed Asset Writedowns and Disposals 319
Goodwill Impairment 340
Receivable Writedown 690
Miscellaneous 11
---------
$2,262
=========
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is a leading provider of occupational health care services to
employers and their employees specializing in the prevention, treatment and
management of work related injuries and illnesses. The Company develops and
operates multidisciplinary, outpatient healthcare centers and contracts with
other health care providers to develop integrated occupational health care
delivery systems. The Company typically operates the centers under management
and submanagement agreements with professional corporations that practice
exclusively through such centers. Additionally, the Company has entered into
joint ventures with health systems to provide management and related services
to the centers and networks of providers established by the joint ventures.
The following table sets forth, for the periods indicated, the relative
percentages which certain items in the Company's consolidated statements of
operations bear to revenue. The following information should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this report. Historical results and percentage
relationships are not necessarily indicative of the results that may be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-----------------------------------------------------
2000 1999 2000 1999
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenue...................................................... 100% 100% 100% 100%
Operating expenses........................................... (82) (82) (82) (83)
General and administrative expenses.......................... (11) (12) (12) (12)
Depreciation and amortization expense........................ (3) (3) (3) (3)
Interest expense............................................. (1) (1) (1) (1)
Minority interest in net losses (profits) of subsidiaries.... 1 (1) -- (2)
-----------------------------------------------------
Net income (loss)............................................ 4% 1% 2% (1%)
=====================================================
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
---------------------
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
-----------------------------------------
Revenue
Revenue increased 36% to approximately $10,639 in the three months ended June
30, 2000 from approximately $7,818 in the three months ended June 30, 1999.
Of the approximately $2,821 increase in revenue in the three months ended June
30, 2000, approximately $3,229 related to centers acquired or joint ventures
initiated subsequent to June 30, 1999 and approximately $465 related to
additional volume at existing centers. These increases were partially offset
by the elimination of $873 of revenue generated in the prior year by centers
closed during the fourth quarter of 1999.
Operating, General, and Administrative Expenses
Operating expenses increased 36 % to approximately $ 8,739 in the three
months ended June 30, 2000 from approximately $6,414 in the three months ended
June 30, 1999. This increase was principally due to the addition and
management of acquired or joint venture centers. As a percentage of revenue,
operating expenses were unchanged at 82% for the three months ended June 30,
2000 and June 30, 1999. The Company's newest joint venture, SSM, had operating
expenses that exceeded revenue for the quarter. Full implementation of the
Company's operating model should reduce expenses in line with more mature
centers. Excluding the impact of SSM, operating expenses as a percentage of
revenue would decrease to 79%.
General and administrative expenses increased 34% to approximately $1,223 in
the three months ended June 30, 2000 from $913 in the three months ended June
30, 1999. The increase primarily resulted from adding resources in information
services, accounting, and medical oversight in line with expansion of the
Company's operations. As a percentage of revenue, general and administrative
expenses approximated 11% in the three months ended June 30, 2000 compared to
12% in the three months ended June 30, 1999.
Depreciation and Amortization
Depreciation and amortization expense increased 6% to approximately $262 in
the three months ended June 30, 2000 from approximately $ 248 in the three
months ended June 30, 1999. The increase occurred primarily as a result of
additional growth through acquisitions as well as capital expenditures
principally for information systems infrastructure. As a percentage of
revenue, depreciation and amortization was 3% for both the three months ended
June 30, 2000 and 1999.
Interest
Interest expense increased 108% to approximately $123 in the three months
ended June 30, 2000 from approximately $59 in the three months ended June 30,
1999. This increase resulted from the additional borrowings the Company made
under its working capital line of credit to support operations entered into by
the Company within the past year.
11
<PAGE>
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
---------------------
Minority Interest
Minority interest represents the share of losses (profits) of minority
investors in certain joint ventures with the Company. In the three months
ended June 30, 2000, the minority interest in net losses (profits) of
subsidiaries was $99 compared to ($140) in the three months ended June 30,
1999. The minority interest in net losses of subsidiaries includes $300 of
losses relating to joint ventures whereby losses are directly allocated to
their minority interest accounts.
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
---------------------------------------
Revenue
Revenue increased 33% to approximately $19,680 in the six months ended June
30, 2000 from approximately $14,832 in the six months ended June 30, 1999. Of
the approximately $4,848 increase in revenue in the six months ended June 30,
2000, approximately $5,198 related to centers acquired or joint ventures
initiated subsequent to June 30, 1999 and approximately $1,256 related to
additional volume at existing centers. These increases were partially offset
by the elimination of $1,606 of revenue generated in the prior year by centers
closed during the fourth quarter of 1999.
Operating, General, and Administrative Expenses
Operating expenses increased 32% to approximately $16,188 in the six months
ended June 30, 2000 from approximately $12,295 in the six months ended June 30,
1999. This increase was principally due to the addition and management of
acquired or joint venture centers. As a percentage of revenue, operating
expenses declined to 82% in the six months ended June 30, 2000 from 83% in the
six months ended June 30, 1999. The decrease primarily related to the closure
of several underperforming centers in the fourth quarter of 1999. The Company's
newest joint venture, SSM, had operating expenses that exceeded revenue for the
six months. Full implementation of the Company's operating model should reduce
expenses in line with more mature centers. Excluding the impact of SSM,
operating expenses as a percentage of revenue, would decrease to 80%.
General and administrative expenses increased 34% to approximately $2,376 in
the six months ended June 30, 2000 from $1,779 in the six months ended June
30, 1999. The increase primarily resulted from adding resources in information
services, accounting, and medical oversight in line with expansion of the
Company's operations. As a percentage of revenue, general and administrative
expenses approximated 12 % for both the six months ended June 30, 2000 and
1999.
Depreciation and Amortization
Depreciation and amortization expense increased 7 % to approximately $516 in
the six months ended June 30, 2000 from approximately $482 in the six months
ended June 30, 1999. The increase occurred primarily as a result of additional
growth through acquisitions as well as capital expenditures principally for
information systems infrastructure. As a percentage of revenue, depreciation
and amortization expense was 3 % for both the six months ended June 30, 2000
and 1999.
12
<PAGE>
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
---------------------
Interest
Interest expense increased 102% to approximately $214 in the six months
ended June 30, 2000 from approximately $106 in the six months ended June 30,
1999. This increase resulted from the additional borrowings the Company made
under its working capital line of credit to support operations entered into by
the Company within the past year.
Minority Interest
Minority interest represents the share of losses (profits) of minority
investors in certain joint ventures with the Company. In the six months ended
June 30, 2000, the minority interest in net losses (profits) of subsidiaries
was $7 compared to ($287) in the six months ended June 30, 1999. The minority
interest in net losses of subsidiaries includes $300 of losses relating to
joint ventures whereby losses are directly allocated to their minority interest
partners.
Restructuring Charge
During the fourth quarter of 1999, the Company adopted, communicated and
implemented a restructuring plan to close certain centers that were either
outside of the Company's core occupational health focus or were deemed not
capable of achieving significant profitability due to specific market factors.
As a result of the restructuring plan and other actions, the Company recorded a
charge of $2,262 during the fourth quarter of 1999. The restructuring plan
also included the streamlining of certain other remaining operations and the
elimination or combining of various other personnel positions within the
Company. The initial charge recognized and the status of the related accrued
liabilities at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
------------------------------------ --------------------------
ENDING ENDING
INITIAL ACCRUAL ACCRUAL
DESCRIPTION CHARGE PAYMENT BALANCE PAYMENT BALANCE
------------------------------------------------ ----------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ACCRUED LIABILITIES
Severance Costs $ 151 $8 $143 $138 $ 5
Lease Abandonment Costs 683 -- 683 143 540
Miscellaneous 68 -- 68 48 20
-----------------------------------------------------------------
902 $8 $894 $329 $565
--------------------------------------------------------
ASSET IMPAIRMENTS
Fixed Asset Writedowns and Disposals 319
Goodwill Impairment 340
Receivable Writedown 690
Miscellaneous 11
---------
$2,262
=========
</TABLE>
13
<PAGE>
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
---------------------
Seasonality
The Company is subject to the natural seasonal cycle that impacts the various
employers and employees it serves. Although the Company hopes that as it
continues its growth and development efforts it may be able to anticipate the
seasonal swings and provide services intended to ameliorate this impact, there
can be no assurance that it can completely alleviate the effects of
seasonality. Historically, the Company has noticed these impacts in portions
of the first and fourth quarters. Traditionally, revenues are lower during
these periods since patient visits decrease due to the occurrence of plant
closings, vacations, holidays, a reduction in new employee hiring in the fourth
quarter, and inclement weather conditions. These activities also cause a
decrease in drug and alcohol testing, medical monitoring services and pre-
employment examinations. The Company has also noticed similar impacts during
the summer months, but typically to a lesser degree than during the first and
fourth quarters.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's funding requirements have been met through a
combination of issuances of capital stock, long-term debt and other
commitments, and the utilization of capital lease borrowings and loans to
finance equipment purchases. The Company has utilized its funds in its
expansion effort and for working capital. At June 30, 2000, the Company had
$916 in working capital, a decrease of $1,887 from December 31, 1999. The
decrease is due the Company's credit facilities being due on June 30, 2001 and
as such, all outstanding borrowings under the line are classified as current
liabilities. The Company's principal sources of liquidity as of June 30, 2000
consisted of (i) cash and cash equivalents aggregating approximately $1,788,
and (ii) current accounts receivable of approximately $9,287.
Net cash used by operating activities of the Company during the six months
ended June 30, 2000 was approximately $1,013 as compared to cash provided by
operating activities of approximately $407 for the six months ended June 30,
1999. During these periods, the primary uses of cash were the funding of
working capital in centers in early stages of development or centers that were
recently acquired and the payment of restructuring liabilities. The Company's
accounts receivable balance increased by $2,182 as of June 30, 2000 compared
December 31, 1999. The increase was due to receivables associated with new
centers acquired or joint ventures initiated over the last year.
Net cash used by investing activities for the six months ended June 30, 2000
and 1999 was approximately $534 and $1,022, respectively. Amounts involved in
investing activities included the use of $230 and $200 for fixed asset
additions in the six months ended June 30, 2000 and 1999, respectively. Fixed
asset additions for the six months ended June 30, 2000 related primarily to
computer hardware and software.
For the six months ended June 30, 2000, the Company paid $39 relating to
earnouts on previously acquired businesses. Additionally, effective March 31,
2000, the Company entered into a joint venture with SSM Health Care St. Louis
to own and operate six occupational health centers in St. Louis, Missouri. The
first installment payment on this purchase was paid during the second quarter
of 2000.
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LIQUIDITY AND CAPITAL RESOURCES (continued)
During the six months ended June 30, 2000, the Company made cash
distributions of $231 to its joint venture partners as compared to $349 for the
prior year's period. Distributions of joint venture subsidiary cash to the
Company and its joint venture partners allowed the Company access to its share
of the cash for general corporate purposes. The Company expects to continue to
make distributions depending upon the cash balances in the joint venture cash
accounts.
Net cash provided by financing activities was $1,823 and $502 for the six
months ended June 30, 2000 and 1999, respectively. The Company used funds of
approximately $327 and $227 for the six months ended June 30, 2000 and 1999,
respectively, for the payment of long-term debt and other current obligations.
For the six months ended June 30, 2000, the Company received proceeds from its
line of credit of $2,150 which were utilized to fund working capital. For the
quarter ended June 30, 1999, the Company received proceeds of $729 from its
line of credit and a Master Lease Agreement in effect at the time.
The Company expects that its principal use of funds in the near future will
be in connection with working capital requirements, debt repayments and
purchases of property and equipment. The Company is currently accruing
preferred stock dividends relating to its redeemable, convertible Series A
preferred stock. However, it does not expect to make any dividend payments
within the next twelve months.
During November 1997, the Company entered into a financing arrangement with
Fleet National Bank ("Fleet", f/k/a BankBoston, N.A.) providing two separate
credit facilities. The first credit facility provides the Company the ability
to borrow $5,000 for working capital and acquisitions. The second facility
provides the ability to borrow up to $2,000 to be utilized by the Company's
existing and future joint ventures (the "JV Line"). The borrowing base for
the JV Line is eighty-five percent (85%) of the joint ventures' accounts
receivable less than 120 days old. The credit facilities expire on June 30,
2001 and are subject to financial and non-financial loan covenants. The credit
facilities had a combined outstanding balance of $4,143 as of June 30, 2000. As
noted previously in Note 6, Fleet has suspended further availability under the
line until the Company complies with a non-financial covenant of the
facilities. The Company continues to work with the lender to either further
extend the period for achieving compliance or to finally comply with the loan
covenant.
The Company believes that is has sufficient capital to fund current
operations. The Company is also continuing its business development activities
but with less capital intensive relationships so that it may conserve cash for
operations. To address its future cash needs and the repayment of its Fleet
credit facilities at maturity, the Company will need to extend and restructure
or refinance its Fleet credit facilities prior to June 30, 2001. If the Company
is unable to restructure or replace the existing credit facilities prior to
their maturity, the Company's financial position may be adversely affected.
While the Company believes that it will be able to do so, there can be no
assurance that it will be successful in restructuring or refinancing its
current credit facilities on acceptable terms. The Company believes that the
level of financial resources available to it is an important competitive factor
and will also consider raising additional equity capital on an on-going basis
as market factors and its needs suggest, since additional resources may be
necessary to fund acquisitions by the Company.
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INFLATION
The Company does not believe that inflation had a significant impact on its
results of operations during the last three years. Further, inflation is not
expected to adversely affect the Company in the future unless it increases
substantially, and the Company is unable to pass through the increases in its
billings and collections.
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q, including in
Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934, which statements are intended to be subject to the "safe-harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements are based on management's current expectations and
are subject to many risks and uncertainties, which could cause actual results
to differ materially from such statements. Such statements include statements
regarding the Company's objective to develop a comprehensive regional network
of occupational healthcare centers providing integrated services through multi-
disciplinary teams. In addition, when used in this report, the words
"anticipate," "plan," "believe," "estimate," "expect" and similar expressions
as they relate to the Company or its management are intended to identify
forward-looking statements. Among the risks and uncertainties that may affect
the Company's actual results are locating and identifying suitable acquisition
candidates, the ability to consummate acquisitions on favorable terms, the
success of such acquisitions, if completed, the cost and delays inherent in
managing growth, the ability to attract and retain qualified professionals and
other employees to expand and complement the Company's services, the
availability of sufficient financing and the attractiveness of the Company's
capital stock to finance acquisitions and working capital needs, strategies
pursued by competitors, the restrictions imposed by government regulation,
changes in the industry resulting from changes in workers' compensation laws,
regulations and in the healthcare environment generally, and other risks
described in this Quarterly Report on Form 10-Q and the Company's other filings
with the Securities and Exchange Commission.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.01 Financial Data Schedule*
*Filed herewith
b. Reports on Form 8-K
On July 21, 2000, the Company filed a Current Report on Form 8-K
dated July 14, 2000 reporting in Item 4 the resignation of its
auditors, Ernst & Young, LLP, as a result of a business decision
made by the office serving the Company.
On August 11, 2000, the Company filed a Current Report on Form 8-K
dated August 9, 2000 reporting in Item 4 the engagement of
PricewaterhouseCoopers LLP as its auditors.
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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.
OCCUPATIONAL HEALTH + REHABILITATION INC
By: /s/ John C. Garbarino
------------------------------------------------------
John C. Garbarino
President, Chief Executive Officer and Chief Financial Officer
By: /s/ Janice M. Goguen
---------------------------------------------------
Janice M. Goguen
Vice President, Finance and Controller
Date: August 14, 2000
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------ -----------
27.01 Financial Data Schedule.
19
