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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, 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
incorporation or organization) Identification No.)
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 5, 2002 was 1,479,864.
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OCCUPATIONAL HEALTH + REHABILITATION INC
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 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.......................................... 6
Notes to Consolidated Financial Statements..................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk......................... 19
Item 4. Controls and Procedures............................................................ 20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................. 20
Signatures .................................................................................. 21
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents .................................................. $ 2,208 $ 1,607
Accounts receivable, less allowance for doubtful accounts .................. 11,044 11,211
Deferred tax assets ........................................................ 700 790
Prepaid expenses and other assets .......................................... 961 572
--------------- ---------------
Total current assets ................................................... 14,913 14,180
Property and equipment, net .................................................... 2,697 2,533
Goodwill, net .................................................................. 6,174 5,258
Other intangible assets, net ................................................... 112 160
Deferred tax assets ............................................................ 1,900 1,978
Other assets ................................................................... 107 89
--------------- ---------------
Total assets ........................................................... $ 25,903 $ 24,198
=============== ===============
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................... $ 727 $ 358
Accrued expenses ........................................................... 3,770 3,936
Accrued payroll ............................................................ 2,476 2,491
Current portion of long-term debt .......................................... 2,890 2,781
Current portion of obligations under capital leases ........................ 344 221
Restructuring liability .................................................... 28 48
--------------- ---------------
Total current liabilities .............................................. 10,235 9,835
Long-term debt, less current maturities ........................................ 1,235 938
Obligations under capital leases ............................................... 772 291
Deferred credit ................................................................ 538 562
Restructuring liability ........................................................ 2 24
--------------- ---------------
Total liabilities ...................................................... 12,782 11,650
--------------- ---------------
Minority interests ............................................................. 1,525 1,142
Redeemable, Series A convertible preferred stock, $.001 par value,
1,666,667 shares authorized; 1,416,667 shares issued and outstanding .......... 10,483 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 ..................................................... 8,560 9,070
Accumulated deficit ............................................................ (6,948) (7,138)
Less treasury stock, at cost, 100,502 shares ................................... (500) (500)
--------------- ---------------
Total stockholders' equity ............................................. 1,113 1,433
--------------- ---------------
Total liabilities, redeemable stock and stockholders' equity ........... $ 25,903 $ 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
SEPTEMBER 30,
----------------------------------
2002 2001
--------------- ----------------
Revenue ................................................... $ 14,770 $ 14,285
Expenses:
Operating ................................................. 12,792 12,217
General and administrative................................... 1,202 1,274
Depreciation and amortization................................ 236 310
--------------- ----------------
14,230 13,801
--------------- ----------------
540 484
Nonoperating gains (losses):
Interest income.............................................. 5 12
Interest expense............................................. (109) (100)
Minority interest and contractual settlements, net........... (240) (70)
--------------- ----------------
Income before income taxes .................................... 196 326
Income taxes................................................... 96 34
--------------- ----------------
Net income .................................................... $ 100 $ 292
=============== ================
Per share amounts:
Net income (loss) per common share - basic..................... $ (0.05) $ 0.08
=============== ================
Net income (loss) per common share - assuming dilution......... $ (0.05) $ 0.04
=============== ================
The accompanying notes are an integral part of these
consolidated financial statements.
4
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS AND PER SHARE DATA)
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
2002 2001
--------------- ---------------
Revenue .................................................... $ 42,859 $ 43,270
Expenses:
Operating ............................................. 37,351 36,443
General and administrative ............................ 3,727 3,863
Depreciation and amortization ......................... 732 917
--------------- ---------------
41,810 41,223
--------------- ---------------
1,049 2,047
Nonoperating gains (losses):
Interest income ....................................... 17 37
Interest expense ...................................... (321) (410)
Minority interest and contractual settlements, net .... (399) (310)
--------------- ---------------
Income before income taxes ................................. 346 1,364
Income taxes ............................................... 156 64
--------------- ---------------
Net income ................................................. $ 190 $ 1,300
=============== ===============
Per share amounts:
Net income (loss) per common share - basic ................. $ (0.22) $ 0.53
=============== ===============
Net income (loss) per common share - assuming dilution ..... $ (0.22) $ 0.25
=============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
5
OCCUPATIONAL HEALTH + REHABILITATION INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
2002 2001
--------------- ---------------
Operating activities:
Net income ..................................................................... $ 190 $ 1,300
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ............................................................... 694 653
Amortization ............................................................... 38 264
Minority interest .......................................................... 683 561
Imputed interest on non-interest bearing promissory note payable ........... 84 84
Loss on disposal of fixed assets ........................................... - 13
Changes in operating assets and liabilities:
Accounts receivable ...................................................... 167 (1,262)
Prepaid expenses and other assets ........................................ (467) 126
Deferred taxes ........................................................... 168 -
Restructuring liability .................................................. (42) (48)
Accounts payable and accrued expenses .................................... 188 1,084
--------------- ---------------
Net cash provided by operating activities .............................. 1,703 2,775
Investing activities:
Property and equipment additions ........................................... (752) (646)
Distributions to joint venture partnerships ................................ (577) (531)
Cash paid for acquisitions and other intangibles, net of cash acquired ..... (115) 797
--------------- ---------------
Net cash (used) by investing activities ................................ (1,444) (380)
Financing activities:
Proceeds (repayment) on lines of credit and loans payable .................. 253 (2,358)
Proceeds from lease lines .................................................. 766 182
Payments of long-term debt and capital lease obligations ................... (668) (416)
Payments made for debt issuance costs ...................................... (9) (32)
--------------- ---------------
Net cash provided (used) by financing activities ....................... 342 (2,624)
Net increase (decrease) in cash and cash equivalents ........................... 601 (229)
Cash and cash equivalents at beginning of period ............................... 1,607 1,443
--------------- ---------------
Cash and cash equivalents at end of period ..................................... $ 2,208 $ 1,214
=============== ===============
Noncash items:
Accrual of dividends payable ............................................... $ 510 $ 510
Capital leases, excluding proceeds received from lease lines ............... 36 -
The accompanying notes are an integral part of these
consolidated financial statements.
6
OCCUPATIONAL HEALTH + REHABILITATION INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLAR AMOUNTS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated 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, 2002
and results of operations for the three and nine months ended September 30, 2002
and 2001. The results of operations for the nine months ended September 30, 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 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 $48 and $138 for the three and nine months ended September 30,
2002, respectively, compared to the prior year periods. For calendar year 2002,
the Company expects that adoption of SFAS 142 will result in an increase in net
income of approximately $186 compared to 2001.
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. The Company adopted SFAS 144 for its fiscal year
2002. 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
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
impact on its financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
Companies are required to adopt SFAS 145 in their fiscal year beginning after
May 15, 2002. SFAS 145 rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishments of Debt," SFAS No. 44, "Accounting for Intangible Assets of
Motor Carriers," and SFAS No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." SFAS 145 amends SFAS No. 13, "Accounting for
Leases," to eliminate certain inconsistencies. It also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed circumstances. The
Company does not believe adoption of SFAS 145 will have a material impact on its
financial statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred, rather than recognizing a liability when an entity commits to an exit
plan. The statement also established that fair value is the objective for
initial measurement of the liability. The provisions of SFAS 146 will be
effective for exit or disposal activities initiated after December 31, 2002. The
Company does not believe adoption of SFAS 146 will have a material impact on its
financial statements.
In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions - an Amendment of FASB Statements No. 72 and 144 and FASB
Interpretation No.9. SFAS 147 provides interpretive guidance on the accounting
for transactions between mutual enterprises. The provisions of SFAS 147 became
effective October 1, 2002. Adoption of SFAS 147 did not have a material impact
on the Company's financial statements.
3. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the 2002
presentation. These 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 twelve 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 (LOSS) PER COMMON SHARE
The Company calculates earnings (loss) per share in accordance with SFAS
128, Earnings per Share, which requires disclosure of basic and diluted earnings
(loss) per share. Basic earnings (loss) per share excludes any dilutive effects
of options, warrants and convertible securities while diluted earnings (loss)
per share includes such amounts.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic earnings (loss) per
share (amounts in thousands, except share and per share data):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
BASIC EARNINGS (LOSS) PER SHARE
Net income ............................................ $ 100 $ 292 $ 190 $ 1,300
Accretion on preferred stock redemption value and
dividends accrued .................................... (170) (174) (510) (522)
-------------- -------------- -------------- --------------
Net income (loss) available to common stockholders .... $ (70) $ 118 $ (320) 778
============== ============== ============== ==============
SHARES
Total weighted average shares outstanding - basic ..... 1,479,864 1,479,510 1,479,864 1,479,510
============== ============== ============== ==============
Net income (loss) per common share - basic ............ $ (0.05) $ 0.08 $ (0.22) $ 0.53
============== ============== ============== ==============
For the three and nine months ended September 30, 2002, $(0.05) and
$(0.22), respectively, are 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.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2002 2002
-------------------- --------------------
Incremental shares from assumed conversion of Series A
preferred stock ............................................................... 1,416,667 1,416,667
Stock options .................................................................. 1,070,399 1,070,399
Convertible subordinated debt .................................................. -- 5,769
-------------------- --------------------
2,487,066 2,492,835
==================== ====================
The following table sets forth the computation of diluted earnings per
share for the three and nine months ended September 30, 2001 (amounts in
thousands, except share and per share data):
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2001 2001
-------------------- --------------------
DILUTED EARNINGS PER SHARE
Net income ................................................. $ 292 $ 1,300
Accretion on preferred stock and dividends accrued ......... (174) (522)
Interest expense on convertible subordinated debt .......... 3 9
-------------------- --------------------
Net income available to common stockholders ................ $ 121 $ 787
==================== ====================
SHARES
Total weighted average shares outstanding .................. 1,479,510 1,479,510
Incremental shares from assumed conversion of Series A
preferred stock ........................................... 1,416,667 1,416,667
Stock options ............................................... 253,299 222,070
Convertible subordinated debt .............................. 25,000 25,000
-------------------- --------------------
Total weighted average shares outstanding -
assuming dilution ......................................... 3,174,476 3,143,247
==================== ====================
Net income per common share - assuming dilution ............ $ 0.04 $ 0.25
==================== ====================
For the three and six months ended September 30, 2001, 710,686 and 741,915,
respectively, of stock options were not included in the computation of diluted
income per common share because the effect would have been antidilutive.
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 September 30,
2002, the Company's obligation for future lease payments relating to the closed
centers was $30. Details of the restructuring and other charges are as follows:
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2001 SEPTEMBER 30, 2002
----------------------- ------------------------
INITIAL
DESCRIPTION CHARGE PAYMENTS ACCRUALS PAYMENTS ACCRUALS
----------- ------------ -------- ----------- ---------- -----------
Accrued liabilities:
Severance costs........................ $ 151 $ - $ - $ - $ -
Lease abandonment costs................ 683 145 72 42 30
Miscellaneous.......................... 68 - - - -
------------ -------- ----------- ---------- -----------
902 $ 145 $ 72 $ 42 $ 30
======== =========== ========== ===========
Assets impairments:
Fixed asset writedowns and
disposals............................. 319
Goodwill impairment.................... 340
Receivable writedown................... 690
Miscellaneous.......................... 11
------------
$ 2,262
============
7. OWNERSHIP INTEREST CHANGES IN JOINT VENTURES
Effective July 1, 2002, the Company assumed the 40% ownership interest of
its joint venture partner in its Rochester, NY center. The Company recognized
$193 in goodwill on the transaction. Effective August 1, 2002, the Company
increased to 96% from 80% its ownership interest in its joint venture in the St.
Louis, MO market where it operates four centers. The Company recognized
approximately $86 in goodwill on the transaction.
11
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -------------------
2002 2001 2002 2001
---------- --------- -------- --------
Revenue.................................................. 100% 100% 100% 100%
Expenses:
Operating ............................................. (86) (86) (87) (84)
General and administrative ............................ (8) (9) (9) (9)
Depreciation and amortization.......................... (2) (2) (2) (2)
Interest expense ........................................ (1) (1) (1) (1)
Minority interest and contractual settlements, net....... (2) - (1) (1)
---------- --------- -------- --------
Net income .............................................. 1% 2% -% 3%
========== ========= ======== ========
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Revenue
Revenue increased by $485, or 3.4%, to $14,770 in the three months ended
September 30, 2002 from $14,285 in the three months ended September 30, 2001.
Revenue at centers open less than a year were $706 while revenue at centers in
operation for comparable periods in both years decreased by $221, or 1.5%. The
decrease in same center revenue was primarily due to the general economic
recession which has had an especially negative effect on urgent care services.
Urgent care revenue decreased $172, or 16.0%, versus the prior year. Excluding
urgent care services, which are offered only at the Company's centers in
Tennessee, same center revenue in the Company's core occupational medicine
business decreased only 0.3% versus the same period in the prior year compared
to a decrease of 1.1% during the three months ended June 30, 2002. This
improvement in
12
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
the Company's same center core business during the quarter is primarily an
indication of the gradually improving business climate for the Company's
services. The marked slowdown in traffic in many of the Company's centers in the
week immediately following the terrorist attacks of September 11, 2001 was also
a small contributing factor to the more favorable results.
Operating Expenses and General and Administrative Expenses
Operating expenses increased $575, or 4.7%, to $12,792 in the three months
ended September 30, 2002 from $12,217 in the three months ended September 30,
2001. This increase was primarily due to increases in medical related costs
associated with the increase in revenue, and investments in computer systems. As
a percentage of revenue, operating expenses increased to 86.6% in the three
months ended September 30, 2002 from 85.5% in the three months ended September
30, 2001, primarily due to the financial results at certain of the newer
operations which have negatively affected the Company's operating expense
ratios. Some of these newer operations are taking longer than initially expected
to achieve profitability, primarily due to the economic recession. Although
there can be no assurance that this will occur in the current economic climate,
full implementation of the Company's operating model generally reduces operating
expenses as a percentage of revenue resulting in the more profitable operations
seen in mature centers,.
General and administrative expenses decreased $72, or 5.7%, to $1,202 in
the three months ended September 30, 2002 from $1,274 in the three months ended
September 30, 2001. The decrease was primarily due to a reduction in field
management expenses. As a percentage of revenue, general and administrative
expenses decreased to 8.1% in the three months ended September 30, 2002 from
8.9% in the three months ended September 30, 2001.
Depreciation and Amortization
Depreciation and amortization expense decreased $74, or 23.9%, in the three
months ended September 30, 2002 to $236 from $310 in the three months ended
September 30, 2001. Amortization expense decreased by $74 to $13 from $87 in the
three months ended September 30, 2001 because the Company adopted SFAS 142 on
January 1, 2002 and no longer amortizes its goodwill. Depreciation expense was
flat at $223 in the three months ended September 30, 2002 and $222 in the three
months ended September 2001. As a percentage of revenue, depreciation and
amortization expense was 1.6% in the three months ended September 30, 2002
compared to 2.2% in the three months ended September 30, 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 September 30,
2002, the minority interest in net (profits) of the joint ventures was $(270)
compared to $(184) in the three months ended September 30, 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 joint
venture partners' share of operating (profits) or losses, respectively. In the
three months ended September 30, 2002, the Company recorded $30 of funded
operating losses and contractual settlements compared to $114 in the three
months ended September 30, 2001.
13
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
Income Taxes
Income tax expense was $96 and $34 and the effective tax rates 49.0% and
10.4% in the three months ended September 30, 2002 and 2001, respectively. For
the six months ended June 30, 2002, the Company recognized tax expense equal to
40% of its pre-tax income. However, the Company is now projecting lower pre-tax
earnings for the year than it had previously anticipated. As a result, certain
permanent tax differences have had a disproportionately greater negative impact
on the effective tax rate than had been anticipated earlier in the year. The
Company now projects its effective tax rate for the year ending December 31,
2002 will approximate 45% and has increased its tax expense in the three months
ended September 30, 2002 to reflect this revised annual estimate.
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
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 which previously offset its deferred tax provision. As of December 31,
2001, the Company fully released its valuation allowance and recorded a deferred
tax benefit of $2,768.
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Revenue
Revenue decreased by $411, or 0.9%, to $42,859 in the nine months ended
September 30, 2002 from $43,270 in the nine months ended September 30, 2001. A
revenue decrease of $1,619, or 3.8%, at centers in operation for comparable
periods in both years was partially offset by revenue of $1,569 at centers open
less than a year. In addition, revenue for the nine months ended September 30,
2001 included $361, primarily in respect of non-core businesses which were
closed during 2001. The decrease in revenue for the nine months ended September
30, 2002 was primarily due to the general economic recession which has had an
especially negative effect on urgent care services. Revenue for urgent care
services, which are offered only at the Company's centers in Tennessee,
decreased $644, or 18.0%, versus the prior year. Same center revenue in the
Company's core business of occupational medicine decreased 2.1% in the nine
months ended September 30, 2002 versus the comparable period in the prior year.
Inclusive of centers open less than a year, revenue in the Company's core
business increased $565, or 1.4%, primarily due to gains in rehabilitation
services. Prevention services is the only major category with lower revenue than
in the comparable period in 2001. During periods of economic recession,
prevention services generally decline in line with the magnitude of the slow
down in economic activity. Although there can be no assurance that this will
occur in the future, such a decline has historically reversed as the level of
economic activity increases in the markets served by the Company.
Operating Expenses and General and Administrative Expenses
Operating expenses increased $908, or 2.5%, to $37,351 in the nine months
ended September 30, 2002 from $36,443 in the nine months ended September 30,
2001. This increase was primarily due to larger contract services payments
associated with the increase in rehabilitation revenue, and investments in
computer systems. These increases were partially offset by a reduction of 2.3%
in salary costs. As a percentage of revenue, operating expenses increased to
87.1% in the nine months ended September 30, 2002 from 84.2% in the nine months
ended September 30, 2001, primarily due
14
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
to the financial results at certain of the newer operations which have
negatively affected the Company's operating expense ratios. Some of these newer
operations are taking longer than initially expected to achieve profitability,
primarily due to the economic recession. Although there can be no assurance that
this will occur in the current economic climate, full implementation of the
Company's operating model generally reduces operating expenses as a percentage
of revenue resulting in the more profitable operations seen in mature centers.
General and administrative expenses decreased by $136, or 3.5%, to $3,727
in the nine months ended September 30, 2002 from $3,863 in the nine months ended
September 30, 2001. The decrease was primarily due to a reduction in field
management expenses. As a percentage of revenue, general and administrative
expenses were 8.7% for the nine months ended September 30, 2002 compared to 8.9%
for the nine months ended September 30, 2001.
Depreciation and Amortization
Depreciation and amortization expense decreased $185, or 20.2%, to $732 in
the nine months ended September 30, 2002 from $917 in the nine months ended
September 30, 2001. Amortization expense decreased $226 to $38 from $264 in the
nine months ended September 30, 2001 because the Company adopted SFAS 142 on
January 1, 2002 and no longer amortizes its goodwill. Depreciation expense
increased $41 to $694 primarily due to continued investment in information
services-related equipment. As a percentage of revenue, depreciation and
amortization expense was 1.7% in the nine months ended September 30, 2002 and
2.1% in the nine months ended September 30, 2001.
Minority Interest and Contractual Settlements
Minority interest represents the share of profits and losses of joint
venture investors with the Company. In the nine months ended September 30, 2002,
the minority interest in net (profits) of the joint ventures was $(683) compared
to $(561) in the nine months ended September 30, 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 joint venture partners'
share of operating profits or losses, respectively. In the nine months ended
September 30, 2002, the Company recorded $284 of funded operating losses and
contractual settlements compared to $251 in the nine months ended September 30,
2001.
Income Taxes
Income tax expense was $156 and $64 and the effective tax rates 45.1% and
4.7% in the nine months ended September 30, 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 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 which previously
offset its deferred tax 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 reports its effective tax rate based on its
projected level of profitability and applying its blended federal and state
income tax rates, adjusted for certain expenses which are not tax deductible.
These permanent tax differences have had a disproportionately greater negative
impact on the effective tax rate which the Company had previously projected to
be 40%, and now estimates will be 45% at the lower pre-tax earnings currently
anticipated.
15
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
SIGNIFICANT ACCOUNTING CONTRACTUAL OBLIGATIONS
The following summarizes the Company's contractual obligations at September
30, 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) ................ $ 4,125 $ 2,890 $ 947 $ 288 $ -
Capital lease obligations.......... 1,116 344 692 80 -
Operating leases................... 5,785 2,251 2,664 870 -
------------- ------------- ------------- ------------- -------------
Total contractual obligations...... $ 11,026 $ 5,485 $ 4,303 $ 1,238 $ -
============= ============= ============= ============= =============
(1) Includes $2,347 drawn on the Company's revolving line of credit. As of
September 30, 2002, the maximum amount available under the lender's borrowing
base formula was $7,235.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, the Company had $4,678 in working capital, an
increase of $333 from December 31, 2001. The Company's principal sources of
liquidity as of September 30, 2002 consisted of (i) cash and cash equivalents
aggregating $2,208, and (ii) accounts receivable of $11,044.
Net cash provided by operating activities during the nine months ended
September 30, 2002 was $1,703 compared to $2,775 for the nine months ended
September 30, 2001. The lower liquidity for the most recent period was due to a
decrease in profitability of $1,186 (after adding back non-cash charges)
partially offset by a positive net change in operating assets and liabilities of
$114.
Net cash used by investing activities for the nine months ended September
30, 2002 was $1,444 compared to $380 for the nine months ended September 30,
2001. The Company's investing activities included fixed asset additions of $752
and $646 for the nine months ended September 30, 2002 and 2001, respectively.
Fixed asset additions in the nine months ended September 30, 2002 consisted
primarily of leasehold improvements, office furniture, and computer equipment
associated with the Company's new data center. Fixed asset additions in the nine
months ended September 30, 2001 were primarily related to information services.
In the nine months ended September 30, 2002 and 2001, the Company paid cash of
$577 and $531, 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 accumulated
by the joint venture 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 used by investing activities for the nine months
ended September 30, 2002 was $115, primarily relating to the purchase of two
occupational health centers in New Jersey. In the nine months ended September
30, 2001, investing activities included net receipts by the Company of $872
under an agreement whereby a hospital system provided cash necessary to fund the
working capital deficiencies (as defined) during the first twelve months of
operations, and payments by the Company of $75 relating to earnouts in
connection with previously acquired businesses.
Net cash provided (used) by financing activities was $342 and $(2,624) for
the nine months
16
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
ended September 30, 2002 and 2001, respectively. The Company received net
advances under its line of credit of $253 in the nine months ended September 30,
2002. These funds were used for general corporate purposes. During the nine
months ended September 30, 2001, the Company paid down $(2,358) on its line of
credit due to its strong operating performance and the net receipt of $872 as
described in the preceding paragraph. Under its lease arrangements with certain
leasing companies, the Company has accumulated its fixed asset purchases until
the value of those purchases reach a certain minimum amount before requesting a
draw down from its lease lines. In the nine months ended September 30, 2002 and
2001, cash proceeds of $766 and $182, respectively, were received under its
lease lines. The Company used funds of $(668) and $(416) during the nine months
ended September 30, 2002 and 2001, respectively, for the payment of long-term
debt and capital lease obligations. The Company incurred costs of $(9) in the
nine months ended September 30, 2002 in connection with a new lease line, and
$(32) in the nine months ended September 30, 2001 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 and 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 September
30, 2002, $1,983 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 out of
legally available funds. If, on any redemption date, the legally available funds
are insufficient to redeem the total number of shares then redeemable, the
Preferred Stockholders will share ratably in any funds that are legally
available. At any time thereafter when additional funds become legally
available, such funds will be used, at the end of the next succeeding calendar
quarter, to redeem that portion of the balance of such shares for which funds
are then legally available. Had the holders of the Preferred Stock put their
shares for redemption at September 30, 2002, the Company would have been
obligated to pay the Preferred Stockholders $2,621, $2,791, $2,961 and $3,131 on
October 31, 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") with an
expiration date of December 14, 2003. 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. The Company did not meet its fixed charge covenant as of
June 30, 2002 and was granted a waiver by the lender. At September 30, 2002, the
Company was in compliance with all covenants. At September 30, 2002, the maximum
amount available under the borrowing base formula was $7,235 and the interest
rate was 5.75%. The amount outstanding on the Credit Line at September 30, 2002
was $2,347.
17
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
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 for each
draw down. At September 30, 2002, the Company had utilized $678 of its Lease
Line.
In August 2002, the Company entered into an agreement for secured equipment
lease financing in the approximate amount of $1,600 with Somerset Capital Group,
Ltd. (the "Somerset Line"). Borrowings under the facility are repayable over 36
months. The lease-rate factors are based upon the 36-month Treasury Note yield
ten days prior to payment commencement for each draw down. At the end of the
lease term, the Company may either purchase the equipment for its fair market
value, renew the lease on a year-to-year basis at its then fair market value, or
return the equipment with no further obligation. The Company intends to utilize
this lease line primarily to fund its equipment needs relating to the upgrade of
its practice management system. At September 30, 2002, the Company had utilized
$486 of its Somerset Line.
The Company expects that, for the foreseeable future, the cash available to
it under the Credit Line, the Lease Line , and the Somerset 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 Stockholders out of legally available funds if their shares
are redeemed. 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.
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 conditions. These activities also cause a
decrease in drug and alcohol testing, 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
18
RESULTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS) (continued)
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
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. 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 September 30, 2002. As described in the following paragraph, the
Company believes that it 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 lease
lines, each of which is 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 September 30, 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.
19
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days of the filing of this report, an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures was conducted under the supervision and with the participation of
the Chief Executive Officer and Chief Financial Officer. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures were adequate
and designed to ensure that information required to be disclosed by the Company
in this report is recorded, processed, summarized and reported in a timely
manner, including that such information is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
There were no significant changes in internal controls or in other factors
that could significantly affect internal controls, including any corrective
actions with regard to significant deficiencies and material weaknesses in
internal controls, subsequent to the evaluation described above.
Reference is made to the Certifications of the Chief Executive Officer and
Chief Financial Officer about these and other matters following the signature
page of this report.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.07 (a) Lease Agreement dated August 30, 2002 by and between the Company and
Somerset Capital Group, Ltd. ("Somerset").
(b) Letter dated August 29, 2002 to the Company from Somerset.
99.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
20
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: November 13, 2002
CERTIFICATIONS
I, John C. Garbarino, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Occupational Health +
Rehabilitation Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
21
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/ John C. Garbarino
- -------------------------------------
John C. Garbarino
President and Chief Executive Officer
I, Keith G. Frey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Occupational Health +
Rehabilitation Inc;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date
22
within 90 days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
/s/Keith G. Frey
- -----------------------
Keith G. Frey
Chief Financial Officer
23