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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

           For the quarterly period ended: March 31, 2003

OR

           For the transition period from              to             

Commission file number:

0-21428

OCCUPATIONAL HEALTH + REHABILITATION INC

(Exact name of registrant as specified in its charter)

(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.  

YES  x     NO  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

YES  ¨     NO  x

The number of shares outstanding of the registrant’s Common Stock as of May 6, 2003 was 3,088,111.

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OCCUPATIONAL HEALTH + REHABILITATION INC

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2003

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

OCCUPATIONAL HEALTH + REHABILITATION INC

Consolidated Balance Sheets

(dollar amounts in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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OCCUPATIONAL HEALTH + REHABILITATION INC

Consolidated Statements of Operations

(amounts in thousands, except per share data)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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OCCUPATIONAL HEALTH + REHABILITATION INC

Consolidated Statements of Cash Flows

(dollar amounts in thousands)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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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, 2003 and results of operations for the three months ended March 31, 2003 and 2002. The results of operations for the three months ended March 31, 2003 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 Standard (“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.

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 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. On matters with possible application to the Company, SFAS 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishments of Debt, 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

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Notes to Consolidated Financial Statements (continued)

does not believe adoption of SFAS 146 will have a material impact on its financial statements.

The Company has a Stock Option Program. SFAS 123, Accounting for Stock Based Compensation, encourages entities to recognize as expense over the vesting period the fair market value of all stock-based awards on the date of grant. Alternatively, SFAS 123 allows entities to continue to apply the provisions of APB 25, Accounting for Stock Issued to Employees, and provide pro forma net income and pro forma earnings per share disclosures for employee stock grants as if the fair-value method defined in SFAS 123 had been applied.

The Company accounts for its Stock Option Program under the recognition and measurement principles of APB 25. Consequently, no compensation cost related to the Stock Option Program is reflected in net income since all options under this program had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to the Stock Option Program.

3.    Other Credit Arrangements

In December 2000, the Company entered into an agreement with an asset-based lender for a three-year revolving credit line of up to $7,250 (the “Credit Line”). In March 2003, the asset-based lender (the “Lender”) extended the term of the Credit Line to March 31, 2004. 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. Under the terms of the Credit Line, the Company pays a commitment fee of 0.5% of the unused portion of the Credit Line and certain additional fees. The interest rate under the Credit Line is the prime rate plus 1% (5.25% and 5.75% as of March 31, 2003 and 2002, respectively).

Effective March 18, 2003, the Credit Line’s covenants include a quarterly tangible net worth requirement (defined as shareholders’ equity plus subordinated debt, and minority interests less intangible assets, goodwill, deferred tax assets, leasehold improvements, deposits and certain prepayments) of $2,500 (the requirement being $3,000 prior to March 18, 2003), a leverage coverage ratio not greater than 5.0 to 1.0, and a fixed charge ratio not less than 1.25 to 1.0 as well as certain restrictions relating to the acquisition of new businesses without the prior approval of the Lender. The Company received a waiver from the Lender with respect to its fixed charge covenant as of June 30, 2002. The Company was in compliance with all covenants in the third and fourth quarters of 2002 but did not meet its tangible net worth covenant as of March 31, 2003 and was granted a waiver. As

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Notes to Consolidated Financial Statements (continued)

of and for the three months ended March 31, 2003, the Company’s tangible net worth, leverage coverage ratio, and fixed charge ratio were $2,462, 4.61, and 2.09, respectively, which were calculated under the terms of the agreement. The Company anticipates that it will meet the Credit Line’s financial covenants in the future. However, there can be no assurance that the Company will do so. In particular, minor deviations from achieving budgeted net income could result in the Company failing to meet the tangible net worth requirement. The Lender has waived minor deviations in the past, and it is management’s expectation that the Lender will provide any such waivers in the future should they become necessary.

4.     Net Income (Loss) per Common Share

The Company calculates earnings (loss) per share in accordance with SFAS No. 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.

5.     Earnings (Loss) Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share (amounts in thousands, except per share data):

6.     Restructuring Charge

During the fourth quarter of 1999, the Company began to implement a restructuring plan to close certain centers that were either outside of the Company’s core occupational health focus or were deemed not capable

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Notes to Consolidated Financial Statements (continued)

of achieving significant profitability due to specific market factors. As a result of the restructuring plan and other actions, the Company recorded restructuring and other charges of $2,262 during the fourth quarter of 1999. The restructuring plan also included the streamlining of certain other remaining operations and the elimination or combining of various other personnel positions within the Company. 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, 2003, the Company’s obligation for future lease payments relating to the closed centers was $15. Details of the restructuring and other charges are as follows:

Effective January 31, 2003, the Company terminated its long-term management contract with Eastern Rehabilitation Network (“ERN”), an affiliate of Hartford Hospital, Hartford, Connecticut, in exchange for transfer of title to the Company of ERN’s four occupational health centers in Connecticut which the Company had previously managed for ERN. In addition, ERN agreed to terminate its network provider agreement with Hartford Medical Group (“HMG”), also an affiliate of Hartford Hospital, under which the Company had managed seven occupational health centers owned by HMG. The Company agreed to pay ERN $25 for its share of the network’s assets. There will be a final settlement between the parties as of June 30, 2003 after the Company has collected all amounts owed to, and paid all amounts owed by, the network as of the termination date.

In 2002, the Company recognized revenue of $2,286 for the seven occupational health centers owned by HMG which it will no longer manage in 2003. Because a significant proportion of the revenue was paid to providers for services rendered, the Company does not expect the loss of revenue will have a material negative effect on its operating profit.

8.     Subsequent Events

On April 1, 2003, the Company purchased an occupational health practice in Murfreesboro, TN and consolidated the operations into its existing center. The Company recognized $493 in goodwill and other intangible assets on the transaction.

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Notes to Consolidated Financial Statements (continued)

Effective April 30, 2003, the Company terminated its long-term management contract with a hospital system in Nashville, TN and concurrently purchased five centers which it had previously managed for $1,700, payable in cash of $300 at closing, and $400, $500, and $500 on October 1, 2003, 2004, and 2005, respectively. In connection with the purchase, the seller forgave the balance of $1,200 (before discount) due under the long-term management contract. The Company offset against its purchase cost a net credit balance of $550, being the balance on the intangible asset arising out of the long-term management contract which was being amortized over the initial term of the contract at the rate of $32 per year. This net intangible balance represented the net difference between payments made by the hospital system for working capital deficiencies and the discounted value of the non-interest bearing loan payable to the hospital system. Accounting for the purchase transaction will have no impact on the Company’s income statement.

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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 

OF OPERATIONS

The Company is a leading provider of occupational healthcare services to employers and their employees and specializes in the prevention, treatment and management of work-related injuries and illnesses as well as regulatory compliance services. The Company develops and operates occupational health 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 discussion and analysis of the financial condition and results of operations of the Company are based on the Company’s consolidated financial statements, included elsewhere within this report, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates and judgments that affect the reported amounts and related disclosures of commitments and contingencies. The Company relies on historical experience and on various other assumptions that it believes to be reasonable under the circumstances to make judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Critical Accounting Policies

Revenue Recognition

Revenue is recorded at estimated net amounts to be received from employers, third-party payers, and others for services rendered. The Company operates in certain states that regulate the amounts which the Company can charge for its services associated with work-related injuries and illnesses.

Provision for Doubtful Accounts

Accounts receivable consist primarily of amounts due from third-party payers (principally, managed care companies and commercial insurance companies) as well as amounts due from private individuals. Estimated provisions for doubtful accounts are recorded to the extent that it is probable that a portion or all of a particular account receivable will not be collected. The Company estimates the provision for doubtful accounts based on various factors including payer type, historical collection patterns, and the age of the receivable. Changes in estimates for particular accounts receivable are recorded in the period in which the change occurs.

Impairment of Property and Equipment, Goodwill, and Intangible Assets

The Company reviews the carrying value of its property and equipment, goodwill, and intangible assets on a quarterly basis. The Company’s review is undertaken to determine if current facts and circumstances suggest that the assets have been impaired or that the life of the asset needs to be changed. As part of its review, the Company considers various factors including local market developments, changes in the regulatory environment, historical financial performance, recent operating results, and projected future cash flows. Any impairment would be recognized in operating results if a diminution in value considered to be other than temporary were to occur. During the years ended December 31, 2002 and 2001, the Company did not recognize any adjustments to the carrying value of its property and equipment, goodwill, and intangible assets.

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Critical Accounting Policies (continued)

Reserves for Employee Health Benefits

The Company retains a significant amount of self-insurance risk for its employee health benefits. The Company maintains stop-loss insurance which limits the Company’s liability for health insurance payments on both an individual and total group basis. At the end of each quarter, the Company records an accrued expense for estimated health benefit claims incurred but not reported at the end of such period. The Company estimates this accrual based on various factors including historical experience, industry trends, and recent claims history. This accrual is by necessity based on estimates and is subject to ongoing revision as conditions change and as new data present themselves. Adjustments to estimated liabilities are recorded in the accounting period in which the change in estimate occurs.

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.

RESULTS OF OPERATIONS (dollar amounts in thousands)

Three Months Ended March 31, 2003 and 2002

Revenue

Revenue decreased by $236 or 1.7% to $13,472 in the three months ended March 31, 2003 from $13,708 in the three months ended March 31, 2002. The decrease reflects a reduction in the number of centers under management, primarily in Connecticut where the Company terminated a long-term management contract, effective January 31, 2003, in exchange for the assumption of title to four of the eleven centers it previously managed. As a result of this transaction, net revenue in Connecticut decreased by $448 as compared to the first quarter of 2002, of which $369 related to the seven centers the Company did not acquire and $79 to the four centers it acquired. Revenue at centers open for comparable periods in both years increased by $333, or 2.6%.

Revenue for urgent care services, which have been available only in Tennessee, decreased $268, or 27.8%, on a same center basis. Because of the declining revenue, a high incidence of bad debts, and other economic reasons, the Company ceased offering urgent care services after March 31, 2003. For the three months ended March 31, 2003, urgent care services were $736. Management does not believe the loss of this revenue will

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RESULTS OF OPERATIONS (dollar amounts in thousands) (continued)

have a material adverse effect on its operating income because of the marginal profitability of the business.

Same center revenue in the Company’s core business of occupational medicine increased $601, or 5.0%, during the quarter, primarily due to growth in treatment volume and treatment revenue per visit. Prevention services were flat, reflecting the soft employment market.

Operating, General, and Administrative Expenses

Operating expenses decreased $468, or 3.9%, to $11,619 in the three months ended March 31, 2003 from $12,087 in the three months ended March 31, 2002. The decrease was primarily due to the reduction in the number of centers under management in Connecticut where most of the revenue was paid to third party providers for services rendered, partially offset by an increase in physician-related professional liability insurance costs. Effective March 1, 2003, the Company’s annual premium for professional liability and umbrella insurance doubled, despite the Company assuming more of the risk. As a percentage of revenue, operating expenses decreased to 86.2% in the three months ended March 31, 2003 from 88.2% in the three months ended March 31, 2002.

Depreciation and Amortization Expense

Depreciation and amortization expense was $253 in the three months ended March 31, 2003 and in the three months ended 2002. As a percentage of revenue, depreciation and amortization expense was 1.9% in the three months ended March 31, 2003 compared to 1.8% in the three months ended March 31, 2002.

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, 2003, the minority interest in pre-tax profits of the joint ventures was $244 compared to $199 in the three months ended March 31, 2002. Contractual settlements represent 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, 2003, the Company recorded $25 of funded operating losses and contractual settlements compared to $110 in the three months ended March 31, 2002.

Tax Provision

The tax provision was $52 and $3 and the effective tax rates were 43.0% and 40.2% for the three months ended March 31, 2003 and 2002, respectively. The increase in the effective tax rate was primarily attributable to a change in the Company’s state income tax profile.

Significant Accounting Contractual Obligations

The following summarizes the Company’s contractual obligations at March 31, 2003, and the effect such obligations are expected to have on its liquidity and cash flows in future periods.

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RESULTS OF OPERATIONS (dollar amounts in thousands) (continued)

Liquidity and Capital Resources

At March 31, 2003, the Company had $220 in working capital, a decrease of $3,829 from December 31, 2002. The Company’s principal sources of liquidity as of March 31, 2003 consisted of (i) cash and cash equivalents aggregating $1,418 and (ii) accounts receivable of $9,251.

Net cash provided by operating activities during the three months ended March 31, 2003 was $1,788 compared to $279 for the three months ended March 31, 2002. The improved liquidity was primarily due to a positive net change in operating assets and liabilities. Days sales outstanding in accounts receivable improved to 60 at March 31, 2003 from 72 at March 31, 2002.

Net cash used in investing activities for the three months ended March 31, 2003 was $511 compared to $507 for the three months ended March 31, 2002. The Company’s investing activities included fixed asset additions of $169 and $262 for the three months ended March 31, 2003 and 2002, respectively. Fixed asset additions in both years primarily related to information systems equipment. In the three months ended March 31, 2003 and 2002, the Company paid cash of $319 and $141, 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 cash accumulated by the joint ventures which it can then use for general corporate purposes. The Company expects to continue to make distributions when the cash balances in the joint ventures permit.

Net cash used in investing activities also included $23 in the three months ended March 31, 2003 relating to the purchase of four centers in Connecticut and $104 in the three months ended March 31, 2002, primarily relating to the purchase of two occupational health centers in New Jersey.

Net cash (used) provided by financing activities was $(1,533) and $398 for the three months ended March 31, 2003 and 2002, respectively. The Company received net advances under its line of credit of $1,406 and $746 for the three months ended March 31, 2003 and 2002, respectively. For the three months ended March 31, 2003, the cash drawn down was used to fund a portion of the initial payment of $2,802 in connection with the repurchase of the Company’s convertible preferred stock. The Company used funds of $210 and $348 in the three months ended March 31, 2003 and 2002, respectively, to pay long-term debt and capital lease obligations.

Under lease arrangements with certain leasing companies, the Company accumulates 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 three months ended March 31, 2003, the Company received cash proceeds of $73 under one of its lease lines, primarily to fund information systems equipment purchases.

In December 2000, the Company entered into an agreement with DVI Business Credit Corporation (DVI),

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RESULTS OF OPERATIONS (dollar amounts in thousands) (continued)

a specialty finance company for healthcare providers, for a three-year revolving credit line of up to $7,250 (the “Credit Line”). In March 2003, DVI extended the term of the Credit Line to March 31, 2004. 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 the prime rate plus 1%.

Effective March 18, 2003, the Credit Line’s covenants include a quarterly tangible net worth requirement of $2,500 (defined as shareholders’ equity plus subordinated debt, and minority interests less intangible assets, goodwill, deferred tax assets, leasehold improvements, deposits and certain prepayments), a leverage coverage ratio not greater than 5.0 to 1.0, and a fixed charge ratio not less than 1.25 to 1.0 as well as certain restrictions relating to the acquisition of new businesses without the prior approval of the lender. The Company received a waiver from DVI with respect to its fixed charge covenant as of June 30, 2002. The Company was in compliance with all covenants in the third and fourth quarters of 2002 but did not meet its tangible net worth covenant as of March 31, 2003 and was granted a waiver by DVI. As of and for the three months ended March 31, 2003, the Company’s tangible net worth, leverage coverage ratio, and fixed charge ratio were $2,462, 4.61, and 2.09, respectively, which were calculated under the terms of the agreement. The Company anticipates that it will meet the Credit Line’s financial covenants in the future. However, there can be no assurance that the Company will do so. In particular, minor deviations from achieving budgeted net income could result in the Company failing to meet the tangible net worth requirement. DVI has waived minor deviations in the past, and it is management’s expectation that DVI will provide any such waivers in the future should they become necessary. At March 31, 2003, the maximum amount available under the borrowing base formula was $6,576 and the interest rate was 5.25%. The amount outstanding on the Credit Line at March 31, 2003 and 2002 was $3,032 and $1,896, respectively.

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, 2003, the full amount of the Lease Line had been utilized.

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 March 31, 2003, the Company had utilized $1,195 of its Somerset Line.

On March 24, 2003, the Company repurchased all of its outstanding Series A Convertible Preferred Stock, namely 1,416,667 shares, for (i) $2,700 in cash at closing, (ii) subordinated promissory notes (the “Notes”) in the aggregate principal amount of $2,700, and (iii) 1,608,247 shares of the Company’s Common Stock. The Notes bear interest at 8% and are payable in three equal principal installments, together with interest accrued thereon, 12, 15 and 18 months after the date of issuance. In the event of a default, the interest rate will increase to 15% until the default is cured.

The Company expects that its principal use of funds in the foreseeable future will be for the repayment of the Notes, acquisitions and the formation of joint ventures, working capital requirements, other debt repayments, and purchases of property and equipment. The Company believes that the funds available to it under the Credit

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RESULTS OF OPERATIONS (dollar amounts in thousands) (continued)

Line and the Somerset Line, together with cash generated from operations, and other sources of funds it anticipates will be available to it will be adequate to meet these projected needs. However, the Company recognizes 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 on an on-going basis as market factors and its needs suggest, since additional resources may be necessary to fund its expansion efforts.

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.

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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, 2003. 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 which are subject to interest rate risk. The revolving credit facility is priced at a floating rate of interest while the interest rates on the lease lines are subject to market fluctuations until a drawdown is effected. 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, 2003 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.

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.

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PART II - OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

a.     Exhibits

b.     Reports on Form 8-K

None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 14, 2003

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 we 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;

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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: May 14, 2003

/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 we 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 within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

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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: May 14, 2003

/s/  Keith G. Frey

Keith G. Frey

Chief Financial Officer

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EXHIBIT INDEX

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