-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ABwGCRDSy10zk5gW/d7N1HsgC936WIPIzUv4reX/Kqxg+2iQV9aH2kGFXAgSIKyR RJ5YCOYjj0rpspGHzioR/w== 0000927016-02-002826.txt : 20020514 0000927016-02-002826.hdr.sgml : 20020514 ACCESSION NUMBER: 0000927016-02-002826 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OCCUPATIONAL HEALTH & REHABILITATION INC CENTRAL INDEX KEY: 0000887757 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 133464527 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21428 FILM NUMBER: 02645642 BUSINESS ADDRESS: STREET 1: 175 DERBY STREET STREET 2: SUITE 36 CITY: HINGHAM STATE: MA ZIP: 02043-5048 BUSINESS PHONE: 7817415175 MAIL ADDRESS: STREET 1: 175 DERBY STREET STREET 2: SUITE 36 CITY: HINGHAM STATE: MA ZIP: 02043-5048 FORMER COMPANY: FORMER CONFORMED NAME: TELOR OPHTHALMIC PHARMACEUTICALS INC DATE OF NAME CHANGE: 19940218 10-Q 1 d10q.txt FORM 10-Q FOR 3/31/2002 ================================================================================ 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: March 31, 2002 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 May 6, 2002 was 1,479,864. ================================================================================ OCCUPATIONAL HEALTH + REHABILITATION INC Quarterly Report on Form 10-Q For the Quarter Ended March 31, 2002 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 ....................................... 5 Notes to Consolidated Financial Statements .................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk ...................... 13 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ................................................ 14 Signatures ...................................................................................... 15
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OCCUPATIONAL HEALTH + REHABILITATION INC Consolidated Balance Sheets (In thousands, except share amounts)
(Unaudited) March 31, December 31, 2002 2001 --------------- --------------- ASSETS Current assets: Cash and cash equivalents ..................................................... $ 1,777 $ 1,607 Accounts receivable, less allowance for doubtful accounts ..................... 11,088 11,211 Deferred tax assets ........................................................... 774 790 Prepaid expenses and other assets ............................................. 1,022 572 ------------- ------------- Total current assets ...................................................... 14,661 14,180 Property and equipment, net ....................................................... 2,625 2,533 Goodwill, net ..................................................................... 5,874 5,258 Other intangible assets, net ...................................................... 145 160 Deferred tax assets ............................................................... 1,979 1,978 Other assets ...................................................................... 103 89 ------------- ------------- Total assets .............................................................. $ 25,387 $ 24,198 ============= ============= LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .............................................................. $ 582 $ 358 Accrued expenses .............................................................. 3,870 3,936 Accrued payroll ............................................................... 2,512 2,491 Current portion of long-term debt ............................................. 3,408 2,781 Current portion of obligations under capital leases ........................... 184 221 Restructuring liability ....................................................... 45 48 ------------- ------------- Total current liabilities ................................................. 10,601 9,835 Long-term debt, less current maturities ........................................... 1,351 938 Obligations under capital leases .................................................. 254 291 Deferred credit ................................................................... 554 562 Restructuring liability ........................................................... 15 24 ------------- ------------- Total liabilities ......................................................... 12,775 11,650 ------------- ------------- Minority interests ................................................................ 1,201 1,142 Redeemable, Series A convertible preferred stock, $.001 par value, 1,666,667 shares authorized; 1,416,667 shares issued and outstanding ............ 10,143 9,973 Stockholders' equity: Preferred stock, $.001 par value, 3,333,333 shares authorized; none issued and outstanding ................................................. - - Common stock, $.001 par value, 10,000,000 shares authorized; 1,580,366 shares issued in 2002 and 2001; and 1,479,864 outstanding in 2002 and 2001 ............................................................... 1 1 Additional paid-in capital ........................................................ 8,900 9,070 Accumulated deficit ............................................................... (7,133) (7,138) Less treasury stock, at cost, 100,502 shares ...................................... (500) (500) ------------- ------------- Total stockholders' equity ................................................ 1,268 1,433 ------------- ------------- Total liabilities, redeemable stock and stockholders' equity .............. $ 25,387 $ 24,198 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 3 OCCUPATIONAL HEALTH + REHABILITATION INC Consolidated Statements of Operations (In thousands, except share amounts and per share data) (Unaudited)
Three months ended March 31, -------------------------------- 2002 2001 --------------- -------------- Revenue ............................................................ $ 13,708 $ 14,150 Expenses: Operating ..................................................... 12,087 11,950 General and administrative .................................... 1,175 1,226 Depreciation and amortization ................................. 253 306 ------------ ------------ 13,515 13,482 ------------ ------------ 193 668 Nonoperating gains (losses): Interest income ............................................... 8 14 Interest expense .............................................. (104) (176) Minority interest and contractual settlements ................. (89) (85) ------------ ------------ Income before income taxes ......................................... 8 421 Income taxes ....................................................... 3 15 ------------ ------------ Net income ......................................................... $ 5 $ 406 ============ ============ Per share amounts: Net income (loss) per common share - basic ......................... $ (0.11) $ 0.16 ============ ============ Net income (loss) per common share - assuming dilution ............. $ (0.11) $ 0.08 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 OCCUPATIONAL HEALTH + REHABILITATION INC Consolidated Statements of Cash Flows (Unaudited, in thousands)
Three months ended March 31, -------------------- 2002 2001 --------- --------- Operating activities: Net income ....................................................................... $ 5 $ 406 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation ................................................................. 240 212 Amortization ................................................................. 13 94 Minority interest ............................................................ 199 168 Imputed interest on non-interest bearing promissory note payable ............. 28 28 Changes in operating assets and liabilities: Accounts receivable ........................................................ 123 (1,622) Prepaid expenses and other current assets .................................. (511) (532) Deferred taxes ............................................................. 15 - Restructuring liability .................................................... (12) (19) Accounts payable and accrued expenses ...................................... 179 376 --------- --------- Net cash provided (used) by operating activities ......................... 279 (889) Investing activities: Property and equipment additions ............................................. (262) (135) Distributions to joint venture partnerships .................................. (141) (98) Cash paid for acquisitions and other intangibles, net of cash acquired ....... (104) 1,083 --------- --------- Net cash provided (used) by investing activities ......................... (507) 850 Financing activities: Net proceeds from lines of credit and loans payable .......................... 746 421 Payments of long-term debt and capital lease obligations ..................... (348) (167) Payments made for debt issuance costs ........................................ - (25) --------- --------- Net cash provided by financing activities ................................ 398 229 Net increase in cash and cash equivalents ........................................ 170 190 Cash and cash equivalents at beginning of period ................................. 1,607 1,443 --------- --------- Cash and cash equivalents at end of period ....................................... $ 1,777 $ 1,633 ========= ========= Noncash item: Accrual of dividends payable ................................................. $ 170 $ 170
The accompanying notes are an integral part of these consolidated financial statements. 5 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 March 31, 2002 and results of operations for the three months ended March 31, 2002 and 2001. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the full year or for any future period. 2. Significant Accounting Policies In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 141, Business Combinations. SFAS 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. The Company does not believe adoption of SFAS 141 will have a significant impact on its financial statements. In July 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets, which was effective January 1, 2002. SFAS 142 requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS 142 also requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. Adoption of SFAS 142 by the Company on January 1, 2002, resulted in an increase in net income of $81 for the three months ended March 31, 2002. For calendar year 2002, the Company expects that adoption of SFAS 142 will result in an increase in net income of approximately $310. In July 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations. Companies are required to adopt SFAS 143 in their fiscal year beginning after June 15, 2002. SFAS 143 requires that obligations associated with the retirement of a tangible long-lived asset be recorded as a liability when these obligations are incurred, with the amount of the liability initially measured at fair value. Upon recognizing a liability, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset, accrete the liability over time to its present value each period, and depreciate the capitalized cost over the useful life of the related asset. Upon settlement of the liability, the obligation is either settled for its recorded amount or a gain or loss is recognized. The Company does not believe adoption of SFAS 143 will have a significant impact on its financial statements. In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Companies are required to adopt SFAS 144 in their fiscal year beginning after December 15, 2001. SFAS 144 changes the criteria that would have to be met to classify an asset as held-for-sale, revises the rules regarding reporting the effects of a disposal of a segment of a business and requires expected future operating losses from discontinued operations to be displayed in discontinued operations in the periods in which the losses were incurred. The Company does not believe adoption of SFAS 144 will have a material impact on its financial statements. 6 3. Reclassification Certain prior year amounts have been reclassified to conform to the 2002 presentation. Such changes included the reclassification of a credit balance arising in connection with a long-term contract entered into by the Company in 2000 with a hospital system to manage its ambulatory care centers. The credit balance represents the net difference between payments made by the hospital system for working capital deficiencies during the first 12 months of operations and the discounted value of a non-interest bearing loan payable to the hospital system by the Company. The balance has been recorded as a deferred credit and is being amortized over the 20-year initial term of the contract. 4. Net Income per Common Share The Company calculates earnings per share in accordance with SFAS 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. 5. Earnings Per Share The following table sets forth the computation of basic earnings per share (amounts in thousands, except per share data):
Three months ended March 31, ----------------------- 2002 2001 ---------- ---------- Basic Earnings per Share Net income ....................................................................... $ 5 $ 406 Accretion on preferred stock redemption value and dividends accrued .............. (170) (174) ---------- ---------- Net income (loss) available to common shareholders ............................... $ (165) $ 232 ========== ========== Shares Total weighted average shares outstanding - basic ................................ 1,480 1,480 ---------- ---------- Net income (loss) per common share - basic ....................................... ((0.11) $ 0.16 ========== ==========
For the three months ended March 31, 2002, $(0.11) is both the basic and diluted net loss per common share. The weighted average shares outstanding for the following potentially dilutive securities were excluded from the computation of diluted loss per common share because the effect would have been antidilutive. Incremental shares from assumed conversion of Series A preferred stock ...... 1,417 Options ..................................................................... 164 Convertible subordinated debt ............................................... 17 -------- 1,598 ========
The following table sets forth the computation of diluted earnings per share for the three months ended March 31, 2001 (amounts in thousands, except per share data): 7 5. Earnings Per Share (continued)
Three months ended March 31, 2001 -------------------- Diluted Earnings per Share Net income .................................................................. $ 406 Accretion on preferred stock redemption value and dividends accrued ......... (174) Interest expense on convertible subordinated debt ........................... 3 ----------- Net income available to common shareholders ................................. $ 235 =========== Shares Total weighted average shares outstanding ................................... 1,480 Incremental shares from assumed conversion of Series A preferred stock ...... 1,417 Options ..................................................................... 64 Convertible subordinated debt ............................................... 25 ----------- Total weighted average shares outstanding- assuming dilution ................ 2,986 =========== Net income per common share - assuming dilution .......................... $ 0.08 ===========
6. Restructuring Charge During the fourth quarter of 1999, the Company 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. 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. During 2000 and 2001, the Company negotiated buyout terms for some or all of the space at certain of the closed centers. At March 31, 2002, the Company's obligation for future lease payments relating to the closed centers was $60. Details of the restructuring and other charges are as follows:
December 31, 2001 March 31, 2002 -------------------- -------------------- Initial Description charge Payments Accruals Payments Accruals ----------- --------- --------- --------- --------- --------- Accrued liabilities: Severance costs ......................... $ 151 $ - $ - $ - $ - Lease abandonment costs ................. 683 145 72 12 60 Miscellaneous ........................... 68 - - - - --------- --------- --------- --------- --------- 902 $ 145 $ 72 $ 12 $ 60 ========= ========= ========= ========= Assets impairments: Fixed asset writedowns and disposals..... 319 Goodwill impairment ..................... 340 Receivable writedown .................... 690 Miscellaneous ........................... 11 --------- $ 2,262 =========
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company is a leading national provider of occupational healthcare services to employers and their employees and specializes in the prevention, treatment and management of work-related injuries and illnesses. The Company develops and operates multidisciplinary, outpatient health and urgent care centers and contracts with other healthcare providers to develop integrated occupational healthcare 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 management agreements with health systems to provide management and related services to the centers and networks of providers established by the joint ventures or 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.
Three Months Ended March 31, 2002 2001 -------- -------- Revenue .......................................................... 100% 100% Expenses: Operating ..................................................... (88) (84) General and administrative .................................... (8) (9) Depreciation and amortization ................................. (2) (2) Interest expense ................................................. (1) (1) Minority interest and contractual settlements, net ............... (1) (1) -------- -------- Net income ....................................................... -% 3% ======== ========
RESULTS OF OPERATIONS (dollar amounts in thousands) - --------------------- Three Months Ended March 31, 2002 and 2001 - ------------------------------------------ Revenue Revenue decreased by $442 or 3.1% to $13,708 in the three months ended March 31, 2002 from $14,150 in the three months ended March 31, 2001. A revenue decrease of $867, or 6.2%, at centers in operation for comparable periods in both years was partially offset by revenue of $529 at centers open less than a year. In addition, revenue for the three months ended March 31, 2001 included $104 in respect of two centers closed during the first half of 2001. The decrease in revenue for the three months ended March 31, 2002 was primarily due to the general economic recession which particularly impacted urgent care services. Revenue for these services, which are offered only at the Company's centers in Tennessee, decreased 15.4%, or $202, versus the prior year. An additional $123 of the revenue shortfall related to two non-core businesses closed during the first half of 2001. Inclusive of centers open less than a year, revenue in the Company's core business of occupational medicine was down $117, or 0.9%, with substantial increases in rehabilitation services being offset by lower treatment and prevention revenue. During periods of economic recession, utilization of pre-employment services and the volume of prevention and treatment services decline in line with the magnitude of the slow down in economic activity. Historically, such declines have reversed as the level of economic activity increases in the markets served by the Company. 9 RESULTS OF OPERATIONS (dollar amounts in thousands) (continued) --------------------- Operating, General and Administrative Expenses Operating expenses increased 1.1% to $12,087 in the three months ended March 31, 2002 from $11,950 in the three months ended March 31, 2001. This increase was due primarily to larger contract services payments associated with the increase in rehabilitation revenue, partially offset by a reduction in salary costs of 2.6%. As a percentage of revenue, operating expenses increased to 88.2% in the three months ended March 31, 2002 from 84.4% in the three months ended March 31, 2001, primarily due to the financial results at certain early stage operations which have negatively affected the Company's operating expense ratios. Some of these early stage operations are taking longer than initially expected to achieve profitability, primarily due to the economic recession. Generally, full implementation of the Company's operating model reduces operating expenses as a percentage of revenue resulting in the more profitable operations seen in mature centers, although there can be no assurance that this will occur in the current economic climate. General and administrative expenses decreased 4.2% to $1,175 in the three months ended March 31, 2002 from $1,226 in the three months ended March 31, 2001. The decrease reflected primarily the cost containment measures implemented by the Company in response to the effects of the economic recession on the volume of certain services and related revenue. As a percentage of revenue, general and administrative expenses decreased to 8.6% in the three months ended March 31, 2002 from 8.7% in the three months ended March 31, 2001. Depreciation and Amortization Expense Depreciation and amortization expense decreased $53, or 17.3%, to $253 in the three months ended March 31, 2002 from $306 in the three months ended March 31, 2001. Amortization expense decreased $81 because the Company adopted SFAS 142 on January 1, 2002 and no longer amortizes its goodwill. Depreciation increased $28 due primarily to continued investment in information services-related capital equipment. As a percentage of revenue, depreciation and amortization expense was 1.8% in the three months ended March 31, 2002 compared to 2.2% in the three months ended March 31, 2001. Minority Interest and Contractual Settlements Minority interest represents the share of profits and losses of joint venture investors with the Company. In the three months ended March 31, 2002, the minority interest in net profits of the joint ventures was $199 compared to $168 in the three months ended March 31, 2001. Contractual settlements represent the net of payments to, or receipts from, the Company's partners under the Company's management contracts in respect of the partners' share of operating (profits) or losses, respectively. In the three months ended March 31, 2002, the Company recorded $110 of funded operating losses and contractual settlements compared to $83 in the three months ended March 31, 2001. Income Taxes Taxation expense was $3 and $15 and the effective tax rates 40.2% and 3.6% in the three months ended March 31, 2002 and 2001, respectively. Prior to December 31, 2001, the Company maintained a 100% valuation allowance against its deferred tax assets, principally net operating losses, and recorded as tax expense only its required minimum tax payments, resulting in a very low effective tax rate. During 2001, the Company utilized net operating losses against its current taxable income and recorded a change in its valuation allowance that offset its deferred provision. As of December 31, 2001, the Company fully released its valuation allowance and recorded a deferred tax benefit of $2,768. As a result, the Company now expects its effective tax rate will approximate 40%, its blended federal and state income tax rates. 10 RESULTS OF OPERATIONS (dollar amounts in thousands) (continued) - --------------------- Significant Accounting Contractual Obligations The following summarizes the Company's contractual obligations at March 31, 2002, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.
Payments Due by Period ---------------------------------------------------------------------- Less Than 1-3 4-5 More Than Total 1 Year Years Years 5 Years ----------- ----------- ----------- ----------- ------------ Long-term debt (1) ................. $ 4,759 $ 3,436 $ 1,007 $ 316 $ - Capital lease obligations .......... 438 184 236 18 - Operating leases ................... 6,746 2,378 3,146 1,136 86 ----------- ----------- ----------- ----------- ------------ Total contractual obligations ...... $11,943 $ 5,998 $ 4,389 $ 1,470 $ 86 =========== =========== =========== =========== ============
(1) Includes $2,841 drawn on revolving line of credit. As of March 31, 2002, the maximum amount available under the lender's borrowing base formula was $6,210. Liquidity and Capital Resources At March 31, 2002, the Company had $4,060 in working capital, a decrease of $285 from December 31, 2001. The Company's principal sources of liquidity as of March 31, 2002 consisted of (i) cash and cash equivalents aggregating $1,777 and (ii) accounts receivable of $11,088. Net cash provided (used) by operating activities during the three months ended March 31, 2002 was $279 compared to ($889) for the three months ended March 31, 2001. This improved liquidity was due primarily to changes in the levels of accounts receivable balances. In the three months ended March 31, 2002, accounts receivable decreased $123 primarily because revenue decreased 3.1%, whereas net accounts receivable increased by $1,622 in the three months ended March 31, 2001, principally as a result of the growth of receivables to normal operating levels at centers brought under management in late 2000. Net cash provided (used) by investing activities for the three months ended March 31, 2002 was ($507) compared $850 for the three months ended March 31, 2001. The Company's investing activities included fixed asset additions of $262 and $135 for the three months ended March 31, 2002 and 2001, respectively. Fixed asset additions in both years were primarily information services-related. In the three months ended March 31, 2002 and 2001, the Company paid cash of $141 and $98, respectively, relating to distributions to its joint venture partners. Distributions of cash in joint ventures to the Company and its joint venture partners allow the Company access to its share of the cash for general corporate purposes. The Company expects to continue to make distributions when the cash balances in the joint ventures permit. Also included in net cash provided (used) by investing activities for the three months ended March 31, 2002, was ($104), primarily relating to the purchase of two occupational health centers located in New Jersey. In the three months ended March 31, 2001, investing activities included net receipts by the Company of $1,085 under an agreement whereby a hospital system provided working capital necessary to fund the working capital deficiencies (as defined) during the first twelve months of operations. Net cash provided by financing activities was $398 and $229 for the three months ended March 31, 2002 and 2001, respectively. The Company received net advances under its line of credit of $746 and $421 for the three months ended March 31, 2002 and 2001, respectively. For the three months ended March 31, 2002, the cash 11 RESULTS OF OPERATIONS (dollar amounts in thousands) (continued) - --------------------- Liquidity and Capital Resources (continued) drawn down was used primarily to finance equipment purchases and the payment of long-term debt obligations. In the three months ended March 31, 2001, the primary uses of the cash were to fund working capital needs and equipment purchases. The Company used funds of $348 and $167 for the three months ended March 31, 2002 and 2001, respectively, for the payment of long-term debt and capital lease obligations. In the three months ended March 31, 2001, the Company incurred costs of $25 relating to the establishment of a new line of credit which became effective in December 2000. The Company expects that its principal use of funds in the foreseeable future will be in connection with acquisitions and the formation of joint ventures, working capital requirements, debt repayments, purchases of property and equipment and, possibly, the payment of accrued dividends on the Company's Series A Convertible Preferred Stock (the "Preferred Stock"), if declared by the Company's board of directors. Such dividends accrue at an annual cumulative rate of $0.48 per share, subject to certain adjustments. At March 31, 2002, $1,643, of dividends have been accrued and included in the carrying value of the Preferred Stock. Holders of the Preferred Stock constituting a majority of the then outstanding shares of the Preferred Stock may, by giving notice to the Company, require the Company to redeem all of the outstanding shares of the Preferred Stock at $6.00 per share plus an amount equal to all dividends accrued or declared but unpaid thereon, payable in four equal annual installments. Had the holders of the Preferred Stock put their shares for redemption at March 31, 2002, the Company would have been obligated to pay the Preferred Stockholders $2,535, $2,705, $2,875 and $3,045 on April 30, 2002, 2003, 2004 and 2005, respectively. In December 2000, the Company entered into an agreement with DVI Business Credit Corporation, a specialty finance company for healthcare providers, for a three-year revolving credit line of up to $7,250 (the "Credit Line"). The facility is collateralized by present and future assets of certain operations of the Company. The borrowing base consists of a certain percentage of eligible accounts receivable. The interest rate under the Credit Line is prime rate plus 1%. The Credit Line contains quarterly net worth, leverage and fixed charge covenants as well as certain restrictions relating to the acquisition of new businesses without the prior approval of the lender. At March 31, 2002, the maximum amount available under the borrowing base formula was $6,210 and the interest rate was 5.75%. The amount outstanding on the Credit Line at March 31, 2002 was $2,841. In March 2001, the Company entered into an agreement for an Equipment Facility (the "Lease Line") of $750 to provide secured financing. Borrowings under the facility are repayable over 42 months. The interest rate is based upon the 31-month Treasury Note ("T-Note") plus a spread and fluctuates with any change in the T-Note rate up until the time of payment commencement. At March 31, 2002, $348 was outstanding under the Lease Line. The Company expects that the cash available to it under the Credit Line and the Lease Line together with cash generated from operations will be adequate to fund working capital requirements and debt repayments, to finance projected capital expenditures, and to pay the Preferred Stock dividends, if any, for the foreseeable future. However, the Company believes that the level of financial resources available to it is an important competitive factor and it will consider additional financing sources as appropriate, including raising additional equity capital as market factors and its needs suggest since additional resources may be necessary to fund its expansion plans. 12 Inflation The Company does not believe that inflation had a significant impact on its results of operations during the last two years. Nor is inflation 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. Seasonality The Company is subject to the seasonal fluctuations that impact the various employers and their employees it serves. 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 hirings, and inclement weather. These activities also cause a decrease in drug and alcohol testings, medical monitoring services and pre-employment examinations. Similar fluctuations occur during the summer months, but typically to a lesser degree than during the first and fourth quarters. The Company attempts to ameliorate the impact of these fluctuations through adjusting staff levels and ongoing efforts to add service lines with less seasonality. 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 national 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 will affect the Company's actual results are locating and identifying suitable partnership candidates, the ability to consummate operating agreements on favorable terms, the success of such ventures, if completed, the costs 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, the attractiveness of the Company's capital stock to finance its ventures, strategies pursued by competitors, the restrictions imposed by government regulation, changes in the industry resulting from changes in workers' compensation laws and regulations 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. The forward-looking statements speak only as of the date on which such statements are made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has considered the provisions of Financial Reporting Release No. 48, Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information About Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments. The Company has no holdings of derivative financial or commodity-based instruments or other market risk sensitive instruments entered into for trading purposes at March 31, 2002. As described in the following paragraph, the Company believes that it 13 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued) currently has no material exposure to interest rate risks in its instruments entered into for other than trading purposes. Interest Rates The Company's balance sheet includes a revolving credit facility and a lease line, both of which are subject to interest rate risk. The loans are priced at floating rates of interest. As a result, at any given time a change in interest rates could result in either an increase or a decrease in the Company's interest expense. The Company performed sensitivity analysis as of March 31, 2002 to assess the potential effect of a 100 basis point increase or decrease in interest rates and concluded that near-term changes in interest rates should not materially affect the Company's consolidated financial position, results of operations or cash flows. PART II - OTHER INFORMATION --------------------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits None. b. Reports on Form 8-K None. 14 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 By: /s/ Janice M. Goguen ---------------------------------------------------- Janice M. Goguen Vice President, Finance and Controller Date: May 14, 2002 15 -----END PRIVACY-ENHANCED MESSAGE-----