<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, 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
November 6, 2000 was 1,479,510.
<PAGE>
OCCUPATIONAL HEALTH + REHABILITATION INC
Quarterly Report on Form 10-Q
FOR THE QUARTER ENDED SEPTEMBER 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.............................................................. 17
Exhibit Index........................................................... 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCUPATIONAL HEALTH + REHABILITATION INC
Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
(Unaudited)
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,075 $ 1,512
Accounts receivable, net.................................. 9,792 7,105
Prepaid expenses and other assets......................... 622 638
-------------------- --------------------
Total current assets.......................................... 12,489 9,255
Property and equipment, net................................... 2,415 2,383
Goodwill, net................................................. 5,248 5,346
Other assets.................................................. 173 176
-------------------- --------------------
Total assets.............................................. $ 20,325 $ 17,160
==================== ====================
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 698 $ 748
Accrued expenses.......................................... 2,608 2,755
Accrued payroll........................................... 2,366 1,559
Restructuring liability................................... 263 536
Current portion of long-term debt......................... 4,950 573
Current portion of obligations under capital leases....... 260 281
-------------------- --------------------
Total current liabilities................................. 11,145 6,452
Restructuring liability....................................... 249 358
Long-term debt, less current maturities....................... 556 2,586
Obligations under capital leases.............................. 197 320
-------------------- --------------------
Total liabilities............................................. 12,147 9,716
Minority interest............................................. 1,113 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.............................. 9,105 8,583
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....................................... (12,161) (12,551)
Less treasury stock, at cost, 100,502 shares.............. (500) (500)
-------------------- --------------------
Total stockholders' deficit............................... $ (2,040) $ (2,430)
-------------------- --------------------
Total liabilities, redeemable stock and stockholders'
deficit................................................... $ 20,325 $ 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
SEPTEMBER 30,
--------------------------------------
<S> <C> <C>
2000 1999
---------------- ----------------
Revenue................................................................. $ 11,141 $ 8,428
Expenses:
Operating............................................................. 9,003 6,948
General and administrative............................................ 1,128 900
Depreciation and amortization......................................... 301 269
---------------- ----------------
10,432 8,117
---------------- ----------------
709 311
Nonoperating gains (losses):
Interest income....................................................... 11 7
Interest expense...................................................... (136) (66)
Minority interest in net profits of subsidiaries...................... (77) (180)
---------------- ----------------
Income before income taxes.............................................. 507 72
Income taxes............................................................ -- --
---------------- ----------------
Net income.............................................................. $ 507 $ 72
================ ================
Net income available to common stockholders............................. $ 333 $ 68
================ ================
Per share amounts:
Net income per common share - basic................................... $ 0.23 $ 0.05
================ ================
Net income per common share - diluted................................. $ 0.11 $ 0.02
================ ================
Weighted average common shares - basic.................................. 1,479,510 1,479,444
================ ================
Weighted average common shares - diluted................................ 2,929,416 2,962,652
================ ================
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
<S> <C> <C>
2000 1999
----------------- -----------------
Revenue................................................................. $ 30,821 $ 23,260
Expenses:
Operating............................................................. 25,191 19,243
General and administrative............................................ 3,504 2,679
Depreciation and amortization......................................... 817 751
----------------- -----------------
29,512 22,673
----------------- -----------------
1,309 587
Nonoperating gains (losses):
Interest income....................................................... 23 45
Interest expense...................................................... (350) (172)
Minority interest in net profits of subsidiaries...................... (70) (467)
----------------- -----------------
Income (loss) before income taxes....................................... 912 (7)
Income taxes............................................................ -- --
----------------- -----------------
Net income (loss)....................................................... $ 912 $ (7)
================= =================
Net income (loss) available to common stockholders...................... $ 390 $ (19)
================= =================
Per share amounts:
Net income (loss) per common share - basic............................ $ 0.26 $ (0.01)
================= =================
Net income (loss) per common share - diluted.......................... $ 0.13 $ (0.01)
================= =================
Weighted average common shares - basic.................................. 1,479,510 1,479,444
================= =================
Weighted average common shares - diluted................................ 3,004,243 1,479,444
================= =================
</TABLE>
See Accompanying Notes
5
<PAGE>
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................................. $ 912 $ (7)
Adjustments to reconcile net income (loss) to net
cash (used) provided by operating activities net
of assets acquired through acquisitions or
business combinations:
Depreciation..................................................... 551 496
Amortization..................................................... 266 255
Minority interest in net profits of subsidiaries................. 70 467
Changes in operating assets and liabilities:
Accounts receivable........................................... (2,687) (1,971)
Prepaid expenses, other current assets and other assets....... (32) (31)
Notes receivable.............................................. -- 175
Restructuring liability....................................... (382) --
Accounts payable and accrued expenses......................... 757 1,081
-------- --------
Net cash (used) provided by operating activities................... (545) 465
INVESTING ACTIVITIES:
Cash paid to joint venture partners
relating to distributions......................................... (467) (468)
Property and equipment additions................................... (360) (298)
Cash received from joint venture partner........................... 194 --
Cash paid for acquisitions......................................... (145) (1,172)
-------- -------
Net cash used by investing activities.............................. (778) (1,938)
FINANCING ACTIVITIES:
Payments of long-term debt......................................... (396) (322)
Payments on capital lease obligations.............................. (218) (186)
Proceeds from lines of credit and loans payable.................... 2,500 1,410
-------- -------
Net cash provided by financing activities.......................... 1,886 902
-------- -------
Net increase (decrease) in cash and cash equivalents............... 563 (571)
Cash and cash equivalents at beginning of period................... 1,512 1,562
-------- -------
Cash and cash equivalents at end of period......................... $ 2,075 $ 991
======== =======
</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 September 30, 2000 and results of operations
for the three and nine months ended September 30, 2000 and 1999. The results of
operations for the nine months ended September 30, 2000 are not necessarily
indicative of the results that may be expected for a full year.
2. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
3. 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 exclude any dilutive effects of options,
warrants and convertible securities while diluted earnings per share include
such amounts.
4. 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ----------------------------
2000 1999 2000 1999
<S> ---- ---- ---- ----
EARNINGS <C> <C> <C> <C>
Net income (loss)......................................... $ 507 $ 72 912 $ (7)
Dividends accrued......................................... (170) -- (510) --
Accretion on preferred stock redemption value............. (4) (4) (12) (12)
---------- ---------- --------- -----------
Net income (loss) available to common stockholders........ $ 333 $ 68 $ 390 $ (19)
========== ========== ========= ===========
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.. $ 0.23 $ 0.05 $ 0.26 $ (0.01)
========== ========== ========= ===========
</TABLE>
7
<PAGE>
4. EARNINGS PER SHARE (continued)
Diluted Earnings Per Share
--------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
EARNINGS
Net income (loss)............................................ $ 507 $ 72 $ 912 $ (7)
Dividends accrued............................................ (170) -- (510) --
Interest expense on convertible subordinated debt............ 3 3 9 --
Accretion on preferred stock redemption value................ (4) (4) (12) (12)
---------- ---------- ---------- ---------
Net income (loss) available to common stockholders........... $ 336 $ 71 $ 399 $ (19)
========== ========== ========== =========
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...................................................... 8,239 41,541 83,066 --
Convertible subordinated debt................................ 25,000 25,000 25,000 --
---------- ---------- ---------- ---------
2,929,416 2,962,652 3,004,243 1,479,444
========= ========= ========= =========
Net income (loss) available to common
stockholders- assuming dilution.......................................$ 0.11 $ 0.02 $ 0.13 $ (0.01)
========= ========= ========= =========
</TABLE>
For the nine months ended September 30, 1999, 298,632 of stock options were not
included in the computation of diluted loss per common share because to do so
would have been antidilutive.
5. BUSINESS EXPANSION
On March 31, 2000, the Company entered into a joint venture with SSM Health
Care St. Louis ("SSM") to own and operate occupational health centers in St.
Louis, Missouri. The Company holds an 80% interest in the joint venture.
Effective October 1, 2000, the Company entered into a long-term contract with
subsidiaries of Baptist Hospital System, Inc. to operate the Baptist Care
Centers and Convenient Care Centers, seven ambulatory care centers in Nashville,
Tennessee. The Company has management contracts with both operations for initial
twenty-year terms with automatic renewals for successive five-year terms.
6. 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 was
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 adoption
of FIN 44 did not have a material impact on the Company's financial position or
results of operations.
8
<PAGE>
6. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 SAB 101 and does
not anticipate it will have a material effect on the consolidated financial
statements.
7. LONG-TERM DEBT
The Company has a financing arrangement with Fleet National Bank f/k/a/
BankBoston, N.A. ("Fleet") for two credit lines totaling $5,000 which mature
November 30, 2000. The borrowing base is 80% of certain accounts receivable
balances less than 90 days old. The credit facilities bear interest at the
bank's base rate plus 1.00% (10.50% at September 30, 2000) with scheduled
incremental increases of .25% to a maximum increase of .75%. As of September 30,
2000, the credit facilities had a combined outstanding balance of $4,493. The
Company has signed a commitment letter with another lender to replace its
existing financing arrangement at maturity. If consummated, proceeds from the
new credit line will be utilized initially to repay the current credit lines
with Fleet. The new financing arrangement would permit the Company to borrow the
lesser of $7,250 or 85% of certain accounts receivable up to 170 days old.
8. 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 at December 31, 1999 and the status of
the related accrued liabilities at September 30, 2000 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
Description ENDING ENDING
----------- INITIAL ACCRUAL ACCRUAL
CHARGE PAYMENT BALANCE PAYMENT BALANCE
------- ------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
ACCRUED LIABILITIES
Severance Costs $ 151 $ 8 $ 143 $ 143 $ --
Lease Abandonment Costs 683 -- 683 190 493
Miscellaneous 68 -- 68 49 19
------- ------ -------- ------- ------
902 $ 8 $ 894 $ 382 $ 512
------ -------- ------- ------
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 and long-term management contracts with health systems to provide
management and related services to the centers and networks of providers
established by the joint ventures or currently in existence within the health
systems.
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue...................................................... 100% 100% 100% 100%
Operating expenses........................................... (81) (82) (82) (83)
General and administrative expenses.......................... (10) (11) (11) (11)
Depreciation and amortization expense........................ ( 3) (3) (3) (3)
Interest expense............................................. (1) (1) (1) (1)
Minority interest in net profits of subsidiaries............. -- (2) -- (2)
------- ------- ------ ------
Net income (loss)............................................ 5% 1% 3% --
======= ======= ====== ======
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
---------------------
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
----------------------------------------------
Revenue
Revenue increased 32% to approximately $11,141 in the three months ended
September 30, 2000 from approximately $8,428 in the three months ended September
30, 1999. Of the approximately $2,713 increase in revenue in the three months
ended September 30, 2000, approximately $2,497 related to centers acquired or
joint ventures initiated subsequent to September 30, 1999 and approximately $986
related to additional volume at existing centers. These increases were partially
offset by the elimination of $770 of revenue generated in the prior year by
centers closed during the fourth quarter of 1999.
Operating, General, and Administrative Expenses
Operating expenses increased 30% to approximately $9,003 in the three months
ended September 30, 2000 from approximately $6,948 in the three months ended
September 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 81% for the three months ended September 30, 2000 and
82% for the three months ended September 30, 1999. For a period of months
subsequent to the Company assuming management control of an enterprise, a
center's operating expenses may exceed its revenue. Due to recent business
expansion operating expenses for certain newly acquired centers have exceeded
their revenue. Generally, full implementation of the Company's operating model
reduces operating expenses to the profitable levels seen in mature centers.
Excluding the impact of centers acquired during the current year, operating
expenses as a percentage of revenue decreased to 78%.
General and administrative expenses increased 25% to approximately $1,128 in
the three months ended September 30, 2000 from $900 in the three months ended
September 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. Additionally, due to the growth of the Company,
there were increases in most line item expenses. As a percentage of revenue,
general and administrative expenses approximated 10% in the three months ended
September 30, 2000 compared to 11% in the three months ended September 30, 1999.
Depreciation and Amortization
Depreciation and amortization expense increased 12% to approximately $301 in
the three months ended September 30, 2000 from approximately $269 in the three
months ended September 30, 1999. The increase occurred primarily as a result of
capital expenditures, principally for information systems infrastructure. As a
percentage of revenue, depreciation and amortization was 3% for both the three
months ended September 30, 2000 and 1999.
Interest
Interest expense increased 106% to approximately $136 in the three months
ended September 30, 2000 from approximately $66 in the three months ended
September 30, 1999. This increase resulted principally from the additional
borrowings the Company made under its working capital line of credit to support
the business expansion of the Company within the past year.
11
<PAGE>
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
---------------------
Minority Interest
Minority interest represents the share of profits of minority investors in
certain joint ventures with the Company. In the three months ended September 30,
2000, the minority interest in net profits of subsidiaries was $77 compared to
$180 in the three months ended September 30, 1999. The minority interest in net
profits of subsidiaries for the three months ended September 30, 2000 includes
$72 of losses relating to joint ventures where losses are directly allocated to
the minority interest accounts.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
---------------------------------------------
Revenue
Revenue increased 33% to approximately $30,821 in the nine months ended
September 30, 2000 from approximately $23,260 in the nine months ended September
30, 1999. Of the approximately $7,561 increase in revenue in the nine months
ended September 30, 2000, approximately $5,464 related to centers acquired or
joint ventures initiated subsequent to September 30, 1999 and approximately
$4,473 related to additional volume at existing centers. These increases were
partially offset by the elimination of $2,376 of revenue generated in the prior
year by centers closed during the fourth quarter of 1999.
Operating, General, and Administrative Expenses
Operating expenses increased 31% to approximately $25,191 in the nine months
ended September 30, 2000 from approximately $19,243 in the nine months ended
September 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 nine months ended September 30, 2000
from 83% in the nine months ended September 30, 1999. The decrease primarily
related to the closure of several underperforming centers in the fourth quarter
of 1999. For a period of months subsequent to the Company assuming management
control of an enterprise, a center's operating expenses may exceed its revenue.
Due to business expansion during the nine months ended September 30, 2000,
operating expenses for certain newly acquired centers have exceeded their
revenue. Generally, full implementation of the Company's operating model reduces
operating expenses to the profitable levels seen in mature centers. Excluding
the impact of centers acquired during the current year, operating expenses as a
percentage of revenue decreased to 80%.
General and administrative expenses increased 31% to approximately $3,504 in
the nine months ended September 30, 2000 from $2,679 in the nine months ended
September 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. Additionally, due to the growth of the Company,
there were increases in most line item expenses. As a percentage of revenue,
general and administrative expenses approximated 11% for both the nine months
ended September 30, 2000 and 1999.
Depreciation and Amortization
Depreciation and amortization expense increased 9% to approximately $817 in
the nine months ended September 30, 2000 from approximately $751 in the nine
months ended September 30, 1999. The increase occurred primarily as a result of
capital expenditures, principally for information systems infrastructure. As a
percentage of revenue, depreciation and amortization expense was 3% for both the
nine months ended September 30, 2000 and 1999.
12
<PAGE>
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
---------------------
Interest
Interest expense increased 103% to approximately $350 in the nine months
ended September 30, 2000 from approximately $172 in the nine months ended
September 30, 1999. This increase resulted principally from the additional
borrowings the Company made under its working capital lines of credit to support
the business expansion of the Company within the past year.
Minority Interest
Minority interest represents the share of profits of minority investors in
certain joint ventures with the Company. In the nine months ended September 30,
2000, the minority interest in net profits of subsidiaries was $70 compared to
$467 in the nine months ended September 30, 1999. The minority interest in net
profits of subsidiaries for the nine months ended September 30, 2000 includes
$345 of losses relating to joint ventures where losses are directly allocated to
the 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 at December 31, 1999 and the status of
the related accrued liabilities at September 30, 2000 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
Description ENDING ENDING
----------- INITIAL ACCRUAL ACCRUAL
CHARGE PAYMENT BALANCE PAYMENT BALANCE
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
ACCRUED LIABILITIES
Severance Costs $ 151 $ 8 $ 143 $ 143 $ --
Lease Abandonment Costs 683 -- 683 190 493
Miscellaneous 68 -- 68 49 19
-------- ------ ------ ------ ------
902 $ 8 $ 894 $ 382 $ 512
------ ------ ------ ------
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 September 30, 2000, the Company had $1,344 in working
capital, a decrease of $1,459 from December 31, 1999. The decrease resulted from
the acceleration of the due date of the Company's existing credit facilities to
November 30, 2000, as part of the renegotiation of its borrowing relationship.
Consequently, outstanding borrowings under the existing credit facilities have
been reclassified as current liabilities at September 30, 2000. The Company's
principal sources of liquidity as of September 30, 2000 consisted of (i) cash
and cash equivalents aggregating approximately $2,075, and (ii) current accounts
receivable of approximately $9,792.
Net cash used by operating activities of the Company during the nine months
ended September 30, 2000 was approximately $545 as compared to cash provided by
operating activities of approximately $465 for the nine months ended September
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 $2,687 as of September 30, 2000
compared to 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 nine months ended September 30,
2000 and 1999 was approximately $778 and $1,938, respectively. Amounts involved
in investing activities included the use of $360 and $298 for fixed asset
additions in the nine months ended September 30, 2000 and 1999, respectively.
Fixed asset additions for the nine months ended September 30, 2000 related
primarily to computer hardware and software. In addition, for the nine months
ended September 30, 2000, the Company paid $145 relating to earnouts on
previously acquired businesses and for an interest in a joint venture that was
entered into effective March 31, 2000. During the nine months ended September
30, 1999, the Company paid $1,172 for the purchase of three occupational
medicine centers, a physical therapy practice and related intangibles, and a 60%
interest in a joint venture with a hospital system in New York.
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LIQUIDITY AND CAPITAL RESOURCES (continued)
During the nine months ended September 30, 2000, the Company made cash
distributions of $467 to its joint venture partners as compared to $468 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 $1,886 and $902 for the nine
months ended September 30, 2000 and 1999, respectively. The Company used funds
of approximately $614 and $508 for the nine months ended September 30, 2000 and
1999, respectively, for the payment of long-term debt and other obligations. For
the nine months ended September 30, 2000, the Company received proceeds from its
line of credit of $2,500 which were utilized to fund business expansion. For the
nine months ended September 30, 1999, the Company received proceeds of $1,410
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 immediate future
will be in connection with working capital requirements and purchases of
property and equipment relating to business expansion.
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.
As of September 30, 2000, the amount outstanding under the Company's credit
lines with Fleet was $4,493. These lines expire November 30, 2000. The Company
has signed a commitment letter with another lender to replace its existing
financing arrangement at maturity. If consummated, proceeds from the new
financing will be utilized initially to repay the Company's current credit lines
with Fleet. The new financing arrangement would permit the Company to borrow the
lesser of $7,250 or 85% of certain accounts receivable up to 170 days old. If
the Company is unable to consummate this refinancing, 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
completing the refinancing on acceptable terms.
Subject to the foregoing, the Company believes that it 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. 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 LLC as its auditors.
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 and Chief Executive Officer
By: /s/ Keith G. Frey
---------------------------
Keith G. Frey
Chief Financial Officer
Date: November 13, 2000
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EXHIBIT INDEX
Exhibit
No. DESCRIPTION
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27.01 Financial Data Schedule.
18
