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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number 0-19294
REHABCARE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 51-0265872
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7733 Forsyth Boulevard, Suite 1700, St. Louis, MO 63105
(Address of principal executive offices and Zip Code)
314-863-7422
(Registrant's telephone number, including area code)
Indicate by check mark 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 the number of shares outstanding of the Registrant's common stock, as
of the latest practicable date.
Class Outstanding at May 8, 1998
- -------------------------------------- --------------------------
Common Stock, par value $.01 per share 5,985,957
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REHABCARE GROUP, INC.
Index
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
March 31, 1998 (unaudited) and December 31, 1997 3
Condensed consolidated statements of earnings for the three
months ended March 31, 1998 and 1997 (unaudited) 4
Condensed consolidated statements of comprehensive earnings
for the three months ended March 31, 1998 and 1997 (unaudited) 5
Condensed consolidated statements of cash flows for the
three months ended March 31, 1998 and 1997 (unaudited) 6
Notes to condensed consolidated financial statements (unaudited) 7
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. - Other Information
Item 4. - Submission of Matters to Security Holders 9
Item 6. - Exhibits and Reports on Form 8-K 10
Signatures 11
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PART 1. - FINANCIAL INFORMATION
Item 1. - Condensed Consolidated Financial Statements
<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Balance Sheets
(Dollar amounts in thousands)
<CAPTION>
March 31, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Assets: (unaudited)
Current assets:
Cash and cash equivalents $ 4,184 $ 1,975
Marketable securities, available-for-sale 4,765 4,664
Accounts receivable, net of allowance for
doubtful accounts of $1,561 and $1,338,
respectively 23,595 24,147
Deferred tax assets 1,681 1,773
Prepaid expenses and other current assets 724 720
------- ------
Total current assets 34,949 33,279
------- ------
Marketable securities, available-for-sale,
non-current 1,527 1,812
------- ------
Equipment and leasehold improvements, net 3,226 3,342
------- ------
Other assets:
Excess of cost over net assets acquired, net 54,683 52,949
Deferred contract costs, net 1,168 1,138
Pre-opening costs, net 2,982 2,908
Deferred tax assets 41 181
Other 1,607 1,632
------- ------
Total other assets 60,481 58,808
------- ------
$100,183 $ 97,241
======= ======
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $ 4,770 $ 4,520
Accounts payable 2,335 1,700
Accrued salaries and wages 9,748 9,925
Accrued expenses 3,821 3,570
Income taxes payable 1,546 771
------- ------
Total current liabilities 22,220 20,486
------- ------
Deferred compensation 2,285 2,501
------- ------
Long-term debt, less current portion 31,900 34,494
------- ------
Stockholders' equity:
Common stock, $.01 par value; authorized 20,000,000
shares, issued 7,152,191 shares 72 72
Additional paid-in capital 23,092 23,972
Retained earnings 37,985 35,192
Less common stock held in treasury at cost,
1,178,309 and 1,311,307 shares, respectively (18,167) (20,212)
Accumulated other comprehensive earnings -
unrealized gain on marketable securities,
net of tax 796 736
------- ------
Total stockholders' equity 43,778 39,760
------- ------
$100,183 $ 97,241
======= ======
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Earnings
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------------------------
<S> <C> <C>
Operating revenues $43,564 $36,405
Costs and expenses:
Operating expenses 29,520 25,196
General and administrative 7,695 6,021
Depreciation and amortization 1,008 878
------ ------
Total costs and expenses 38,223 32,095
------ ------
Operating earnings 5,341 4,310
Interest income 54 35
Interest expense (693) (450)
Other income 42 --
Gain on sale of marketable securities -- 1,448
------ ------
Earnings before income taxes 4,744 5,343
Income taxes 1,951 2,076
------ ------
Net earnings $ 2,793 $ 3,267
====== ======
Net earnings per common share:
Basic $ .47 $ .48
====== ======
Diluted $ .40 $ .42
====== ======
Weighted average number of common shares outstanding:
Basic 5,920 6,779
====== ======
Diluted 7,172 7,861
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Comprehensive Earnings
(Amounts in thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------------------------
<S> <C> <C>
Net earnings $2,793 $3,267
Other comprehensive earnings, net of tax -
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period 60 (720)
Less: reclassification adjustment for
realized gains included in net earnings -- (869)
------ ------
Comprehensive earnings $ 2,853 $ 1,678
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
1998 1997
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,793 $ 3,267
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,008 878
Provision for losses on accounts receivable 255 105
Equity in earnings of affiliate (39) --
Gain on sale of marketable securities -- (1,448)
Increase (decrease) in deferred compensation (216) 95
Decrease (increase) in accounts receivable, net 297 (3,816)
Increase in prepaid expenses and other
current assets (4) (107)
Decrease in other assets 64 33
Increase in accounts payable and accrued expenses 886 1,725
Increase (decrease) in accrued salaries and wages (177) 2,322
Increase in income taxes payable and deferred 966 916
------ ------
Net cash provided by operating activities 5,833 3,970
------ ------
Cash flows from investing activities:
Additions to equipment and leasehold improvements, net (150) (246)
Deferred contract costs (150) --
Proceeds from sale/maturities of investments 285 1,491
Pre-opening costs (326) (275)
Acquisitions, net of cash received (2,104) (4,951)
------ ------
Net cash used in investing activities (2,445) (3,981)
------ ------
Cash flows from financing activities:
Proceeds from revolving credit facility, net -- 7,000
Payments on long-term debt (2,344) (786)
Issuance of note payable -- 1,500
Issuance of long-term debt -- 17,000
Purchase of treasury stock -- (23,131)
Exercise of stock options including tax benefit 1,165 483
------ ------
Net cash provided by (used in) financing
activities (1,179) 2,066
------- ------
Net increase in cash and cash equivalents 2,209 2,055
Cash and cash equivalents at beginning of period 1,975 772
------ ------
Cash and cash equivalents at end of period $ 4,184 $ 2,827
====== ======
See notes to condensed consolidated financial statements.
</TABLE>
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REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. - Basis of Presentation
The condensed consolidated balance sheets and related condensed
consolidated statements of earnings, comprehensive earnings and statements of
cash flows contained in this Form 10-Q, which are unaudited, include the
accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts and activity have been eliminated in consolidation. In the
opinion of management, all adjustments necessary for a fair presentation of such
financial statements have been included. Adjustments consisted only of normal
recurring items. The results of operations for the three months ended March 31,
1998, are not necessarily indicative of the results to be expected for the
fiscal year.
The condensed consolidated financial statements do not include all
information and footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. Reference is made to the Company's audited
consolidated financial statements and the related notes as of December 31, 1997
and 1996 and for the year ended December 31, 1997, for the ten months ended
December 31, 1996 and for the year ended February 29, 1996, included in the
Annual Report on Form 10-K on file with the Securities and Exchange Commission,
which provide additional disclosures and a further description of accounting
policies.
Note 2. - Comprehensive Earnings
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 130, reporting comprehensive income, on January 1, 1998,
which requires reporting of comprehensive income (earnings) and its components,
in the statement of operations and statement of equity, including net income as
a component. Comprehensive income is the change in equity of a business from
transactions and other events and circumstances from non-owner sources.
Item 2.- Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The Company provides physical medicine, rehabilitation and chronic care
services in a variety of settings under multi-year contracts. These settings
include distinct-part acute rehabilitation units that may or may not be exempt
from the Medicare Prospective Payment System (PPS), depending on their stage of
development; subacute units that are operated within licensed skilled nursing
units; and outpatient clinics, both on and off campus of the host hospital. The
Company also is a contract provider of therapists on a continuing and temporary
basis to hospitals and long-term care and rehabilitation facilities.
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<TABLE>
<CAPTION>
Three Months Ended
Operating Statistics March 31,
1998 1997
------------------
<S> <C> <C>
Inpatient Units (Acute and Subacute)
Average bed capacity 2,292 2,003
Average billable length of stay (days) 14.6 15.3
Billable patient days served 153,353 125,716
Admissions 10,539 8,199
Average daily billable census 1,704 1,397
Average occupied beds per unit 14.4 13.6
Total units in operation at end of period 120 106
Outpatient Clinics
Patient visits 62,872 60,710
Units of service 196,184 191,450
Total clinics in operation at end of period 20 19
Therapy Staffing
Weeks worked 7,195 6,792
Contract Therapy
Number of locations at end of period 42 29
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Operating revenues during the first quarter of 1998 increased by
$7,159,000, or 19.7%, to $43,564,000. Acquisitions accounted for 24.1% of the
net increase. A 14.4% increase in the average number of inpatient units from
103.8 to 118.7 units and an increase in the average daily billable census per
inpatient unit of 5.9% from 13.6 to 14.4, generated a 22.0% increase in billable
patient days to 153,353 and a 14.5% increase in revenue from inpatient units.
The increase in billable census per unit for inpatient units is primarily
attributable to an 11.4% increase in admissions per unit offset by a 4.6%
decline in average billable length of stay. The decline in average length of
stay reflects both the continued trend of reduced rehabilitation lengths of stay
and the increase in subacute units operational in 1998, which carry a shorter
length of stay than acute rehabilitation units. The increase in billable patient
days was offset by a 6.1% decrease in average per diem billing rates, reflecting
a greater mix of subacute units which carry lower average per diem rates than
acute units. Inpatient unit revenue increased by $3,396,000 while outpatient
revenue increased 1.8% to $2,684,000. Therapy staffing revenue increased
$2,167,000 as a result of a 5.9% increase in weeks worked to 7,195 weeks.
Operating expenses for the three-month periods compared increased by
$4,324,000, or 17.2% to $29,520,000. Acquisitions accounted for 22.3% of the net
increase. The remaining increase was attributable to the increase in patient
days and therapy staffing placements.
The excess of operating expenses over operating revenues associated
with non-exempt units decreased from $151,000 to $129,000, on a decrease in the
average number of non-exempt units from 7.0 to 3.0. The per unit average excess
of operating expenses over operating revenues increased from $22,000 to $43,000
reflecting a 5% decrease in billable patients per unit to 2.8. The first quarter
of 1997 also had a greater percentage of units where the Company was not
obligated to provide therapy staff. The average excess of operating expenses
over operating
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revenues for units during their non-exempt year can range to as high as $150,000
to $200,000.
General and administrative expenses increased $1,674,000, or 27.8%, to
$7,695,000, reflecting increases in business development, operations in support
of the increase in units, and general office, compared to the previous year,
plus the addition of corporate staff from acquisitions.
Interest expense increased $243,000 reflecting interest on net new debt
issued in acquisitions and the repurchase of Company Common Stock during 1997.
Gain on sale of marketable securities in the first quarter of 1997 reflects the
sale of approximately 50% of the Company's investment in Intensiva Healthcare
Corporation.
Earnings before income taxes decreased by $599,000, or 11.2%, to
$4,744,000. Excluding the gain on sale of marketable securities, earnings before
income taxes would have increased $849,000 or 21.8%. The provision for income
taxes for the first quarter of 1998 was $1,951,000, compared to $2,076,000 for
1997, reflecting effective income tax rates of 41.1% and 38.9% for the
respective quarters. Net earnings decreased by $474,000, or 14.5% to $2,793,000.
Diluted earnings per share decreased 4.8% to 40 cents from 42 cents on an 8.8%
decrease in the weighted average shares outstanding. The gain on sale of
marketable securities represented 11 cents of the earnings per share in 1997.
Excluding this gain, diluted earnings per share increased 29% from 31 cents in
the first quarter of 1997. The decrease in shares outstanding is attributable
primarily to shares repurchased offset by an increase in the dilutive effect of
outstanding stock options.
Liquidity and Capital Resources
As of March 31, 1998, the Company had $8,949,000 in cash and current
marketable securities and a current ratio of 1.6:1. Working capital decreased by
$64,000 as of March 31, 1998, compared to December 31, 1997, due to the annual
payment of contingent consideration on acquisitions.
Net accounts receivable were $23,595,000 at March 31, 1998, compared to
$24,147,000 at December 31, 1997. The number of days average net revenue in net
receivables was 48.7 at March 31, 1998 compared to 52.0 at December 31, 1997.
The Company's operating cash flows constitute its primary source of
liquidity and historically have been sufficient to fund its working capital and
capital expansion requirements. The Company expects to meet its future working
capital, capital expenditure, business expansion and debt service requirements
from a combination of internal sources and outside financing. The Company has a
$20,000,000 revolving line of credit and a balance outstanding as of March 31,
1998, of $6,500,000.
Part II. - OTHER INFORMATION
Item 4. - Submission of Matters to Security Holders
The Annual Meeting of Stockholders of the Company was held on Tuesday,
May 5, 1998, at which time the stockholders voted to elect the seven incumbent
directors to hold office until the next annual meeting of stockholders of the
Company or until their successors have been duly elected and qualified. The
names of each of the directors of the Company who were reelected at the Annual
Meeting
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and the votes cast "FOR" or for which authority to vote was "WITHHELD" is as
follows:
Name For Withheld Authority
William G. Anderson 5,097,298 154,812
Richard E. Ragsdale 5,097,448 154,662
John H. Short 5,097,448 154,662
Richard C. Stoddard 5,097,223 154,887
H. Edwin Trusheim 5,096,398 155,712
James M. Usdan 5,097,223 154,887
Theodore M. Wight 5,084,529 167,581
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Report 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.
REHABCARE GROUP, INC.
May 8, 1998
By /s/ John R. Finkenkeller
------------------------
John R. Finkenkeller
Senior Vice President
and Treasurer
(Chief Accounting Officer)
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EXHIBIT INDEX
Page Number
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27 Financial Data Schedule 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,184,000
<SECURITIES> 4,765,000
<RECEIVABLES> 25,165,000
<ALLOWANCES> 1,561,000
<INVENTORY> 0
<CURRENT-ASSETS> 34,949,000
<PP&E> 3,226,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,103,000
<CURRENT-LIABILITIES> 22,220,000
<BONDS> 31,900,000
0
0
<COMMON> 72,000
<OTHER-SE> 43,706,000
<TOTAL-LIABILITY-AND-EQUITY> 100,103,000
<SALES> 43,564,000
<TOTAL-REVENUES> 43,564,000
<CGS> 29,520,000
<TOTAL-COSTS> 38,223,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 639,000
<INCOME-PRETAX> 4,744,000
<INCOME-TAX> 1,951,000
<INCOME-CONTINUING> 2,793,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,793,000
<EPS-PRIMARY> .47
<EPS-DILUTED> .40
</TABLE>
