<PAGE>
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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 September 30, 2000
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 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 the number of shares outstanding of the Registrant's common stock, as
of the latest practicable date.
Class Outstanding at November 10, 2000
-------------------------------------- --------------------------------
Common Stock, par value $.01 per share 15,016,721
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REHABCARE GROUP, INC.
Index
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
September 30, 2000 (unaudited) and December 31, 1999 3
Condensed consolidated statements of earnings for the
three months and nine months ended September 30, 2000
and 1999 (unaudited) 4
Condensed consolidated statements of cash flows for the
nine months ended September 30, 2000 and 1999
(unaudited) 5
Notes to condensed consolidated financial statements (unaudited) 6
Independent Auditors' Review Report 10
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. - Other Information
Item 6. - Exhibits and Reports on Form 8-K 15
Signatures 16
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PART 1. - FINANCIAL INFORMATION
Item 1. - Condensed Consolidated Financial Statements
-----------------------------------------------------
<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
<CAPTION>
September 30, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 2,038 738
Marketable securities, available-for-sale 3,019 3,019
Accounts receivable, net of allowance for doubtful
accounts of $5,669 and $4,577, respectively 78,659 65,777
Deferred tax assets 6,606 4,898
Prepaid expenses and other current assets 995 1,100
------- -------
Total current assets 91,317 75,532
Marketable securities, trading 2,307 1,777
Equipment and leasehold improvements, net 9,708 7,269
Excess of cost over net assets acquired, net 105,102 99,020
Other 5,251 3,666
------- -------
$213,685 187,264
======= =======
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $ 2,805 13,345
Accounts payable 3,403 3,359
Accrued salaries and wages 22,271 16,884
Accrued expenses 12,279 11,592
Income taxes payable 2,609 3,283
------- -------
Total current liabilities 43,367 48,463
Deferred compensation and other long-term
liabilities 2,711 3,623
Deferred tax liabilities 2,087 1,345
Long-term debt, less current portion 59,017 56,050
------- -------
Total liabilities 107,182 109,481
======= =======
Stockholders' equity:
Preferred stock, $.10 per value,
10,000,000 shares, none issued and outstanding -- --
Common stock, $.01 par value; authorized 20,000,000
shares, issued 17,300,389 and 15,700,566 shares,
respectively 173 157
Additional paid-in capital 44,643 33,101
Retained earnings 79,650 62,488
Less common stock held in treasury at cost,
2,331,194 shares (17,975) (17,975)
Accumulated other comprehensive earnings 12 12
------- -------
Total stockholders' equity 106,503 77,783
------- -------
$213,685 187,264
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3 of 16
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<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Earnings
(dollars in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $ 115,820 79,663 329,474 222,523
Costs and expenses:
Operating expenses 82,698 57,208 234,563 159,655
General and administrative 20,197 13,125 57,823 37,278
Depreciation and amortization 1,775 1,339 4,913 3,807
------- ------- ------- -------
Total costs and expenses 104,670 71,672 297,299 200,740
------- ------- ------- -------
Operating earnings 11,150 7,991 32,175 21,783
Interest income 28 71 136 185
Interest expense (1,206) (1,029) (3,858) (3,091)
Other income (expense) 30 (12) 58 18
------- ------- ------- -------
Earnings before income taxes 10,002 7,021 28,511 18,895
Income taxes 3,995 2,788 11,349 7,507
------- ------- ------- -------
Net earnings $ 6,007 4,233 17,162 11,388
======= ======= ======= =======
Net earnings per common share:
Basic $ .41 .32 1.20 .87
======= ======= ======= =======
Diluted $ .36 .29 1.08 .78
======= ======= ======= =======
Weighted average number of
common shares outstanding:
Basic 14,828 13,220 14,254 13,090
======= ======= ======= =======
Diluted 16,538 14,956 15,860 14,772
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4 of 16
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<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 17,162 11,388
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 4,913 3,807
Provision for losses on accounts receivable 2,581 1,972
Income tax benefit realized on employee
stock option exercises 1,416 630
Increase in deferred compensation 103 516
Increase in accounts receivable, net (13,664) (7,825)
Decrease (increase) in prepaid expenses and
other current assets 147 (78)
Increase in other assets (969) (87)
Increase (decrease) in accounts payable
and accrued expenses (459) 1,066
Increase in accrued salaries and wages 4,945 821
Decrease in income taxes payable
and deferred (2,067) (355)
------ ------
Net cash provided by operating activities 14,108 11,855
------ ------
Cash flows from investing activities:
Additions to equipment and leasehold improvements, net (4,257) (1,416)
Purchase of marketable securities (696) (584)
Deferred contract costs (923) (127)
Proceeds from sale/maturities of investments 166 133
Cash paid in acquisition of businesses,
net of cash received (7,874) (7,263)
Other (793) (806)
------ ------
Net cash used in investing activities (14,377) (10,063)
------ ------
Cash flows from financing activities:
Proceeds from revolving credit facility, net 43,700 2,150
Proceeds from issuance of note payable -- 1,250
Payments on long-term debt (46,273) (9,593)
Exercise of stock options 4,142 252
------ ------
Net cash provided by (used in)
financing activities 1,569 (5,941)
------ ------
Net increase (decrease) in cash
and cash equivalents 1,300 (4,149)
Cash and cash equivalents at beginning of period 738 5,666
------ ------
Cash and cash equivalents at end of period $ 2,038 1,517
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
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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 and 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 and nine months ended September 30, 2000, are
not necessarily indicative of the results to be expected for the fiscal year.
Certain prior years' amounts have been reclassified to conform with the current
year presentation.
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, 1999
and 1998 and for each of the years in the three year period ended December 31,
1999, 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. The report of KPMG LLP, independent auditors
accompanies the condensed consolidated financial statements included in Item 1
of Part I.
Note 2. - Bank Credit Facility
------------------------------
Effective August 29, 2000, the Company consummated a $125.0 million
five-year revolving credit facility, replacing its existing $90 million term and
revolving credit facility. The interest rates are set based on either a base
rate plus from 0.50% to 1.75% or a Eurodollar rate plus from 1.50% to 2.75%. The
base rate is the higher of the Federal Funds Rate plus .50% or the Prime Rate.
The Eurodollar rate is defined as (a) the Interbank Offered Rate divided by (b)
1 minus the Eurodollar Reserve Requirement. The Company pays a fee on the unused
portion of the commitment from 0.375% to 0.50%. The interest rates and
commitment fees vary depending on the ratio of the Company's indebtedness, net
of cash and marketable securities, to cash flow. Borrowings under the agreement
are secured primarily by the Company's assets and future income and profits. The
loan agreement requires the Company to meet certain financial covenants
including maintaining minimum net worth and fixed charge coverage ratios.
Note 3. - Acquisition
---------------------
On September 15, 2000, the Company acquired DiversiCare Rehab Services,
Inc. ("DiversiCare"), a provider of outpatient therapy to physician groups,
hospitals and school systems. The aggregate purchase price paid at closing was
$8.5 million consisting of $7.5 million in cash and $1.0 million in subordinated
notes. The cash component of the purchase price was funded by borrowings on the
Company's bank credit facility. Goodwill of approximately $7.7 million related
6 of 16
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to the acquisition is being amortized over 40 years. The acquisition has been
accounted for by the purchase method of accounting, whereby the operating
results of the acquired entity are included in the Company's results of
operations commencing on the date of acquisition.
Note 4. - Common Stock Split
----------------------------
On May 10, 2000, the Company's Board of Directors approved a two-for-one
split of the Company's Common Stock in the form of a stock dividend, which was
distributed on June 19, 2000, to stockholders of record as of May 31, 2000.
Share and per share amounts in the condensed consolidated financial statements
and accompanying notes have been restated to reflect the split.
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<TABLE>
Note 5. - Earnings per Share
----------------------------
The following table sets forth the computation of basic and diluted earnings per
share: (dollars in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings
per share - earnings available
to common stockholders
(net earnings) $ 6,007 4,233 17,162 11,388
Effect of dilutive securities -
after-tax interest on convertible
subordinated promissory notes -- 56 28 168
------ ------ ------ ------
Numerator for diluted earnings per
share - earnings available to
common stockholders after assumed
conversions $ 6,007 4,289 17,190 11,556
====== ====== ====== ======
Denominator:
Denominator for basic earnings per
share - weighted-average shares
outstanding 14,828 13,220 14,254 13,090
Effect of dilutive securities:
Stock options 1,710 890 1,606 836
Convertible subordinated
promissory notes -- 846 -- 846
------ ------ ------ ------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 16,538 14,956 15,860 14,772
====== ====== ====== ======
Basic earnings per share $.41 .32 1.20 .87
==== ==== ==== ====
Diluted earnings per share $.36 .29 1.08 .78
==== ==== ==== ====
</TABLE>
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Note 6. - Industry Segment Information
--------------------------------------
The Company operates in two product lines that are managed separately based
on fundamental differences in operations: temporary healthcare staffing and
physical rehabilitation program management. Program management includes
inpatient programs (including acute rehabilitation and skilled nursing units),
outpatient programs and contract therapy services. All of the Company's services
are provided in the United States. Summarized information about the Company's
operations for the three months and nine months ended September 30, 2000 and
1999 in each industry segment is as follows: (dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from Unaffiliated Customers
------------------------------------
Staffing $ 68,035 38,729 189,533 103,851
Program Management:
Inpatient 29,686 28,966 89,485 87,141
Outpatient 10,505 8,390 30,007 21,899
Contract Therapy 7,594 3,578 20,449 9,632
------- ------- ------- -------
Total $ 115,820 79,663 329,474 222,523
======= ======= ======= =======
Operating Earnings
------------------
Staffing $ 4,320 1,998 10,128 3,042
Program Management:
Inpatient 4,232 4,607 14,286 14,836
Outpatient 1,733 1,438 5,598 3,857
Contract Therapy 865 (52) 2,163 48
------- ------- ------- -------
Total $ 11,150 7,991 32,175 21,783
======= ======= ======= =======
Total Assets
------------
Staffing $ 102,992 75,865 102,992 75,865
Program Management:
Inpatient 57,840 54,765 57,840 54,765
Outpatient 31,176 19,222 31,176 19,222
Contract Therapy 21,677 18,294 21,677 18,294
------- ------- ------- -------
Total $ 213,685 168,146 213,685 168,146
======= ======= ======= =======
Depreciation and Amortization
-----------------------------
Staffing $ 729 468 2,027 1,329
Program Management:
Inpatient 756 629 2,069 1,849
Outpatient 191 145 530 349
Contract Therapy 99 97 287 280
------- ------- ------- -------
Total $ 1,775 1,339 4,913 3,807
======= ======= ======= =======
Capital Expenditures
--------------------
Staffing $ 559 164 1,915 480
Program Management:
Inpatient 778 133 2,211 1,109
Outpatient -- 18 46 40
Contract Therapy 95 13 152 18
------- ------- ------- -------
Total $ 1,432 328 4,324 1,647
======= ======= ======= =======
</TABLE>
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Independent Auditors' Review Report
-----------------------------------
The Board of Directors
RehabCare Group, Inc.:
We have reviewed the condensed consolidated balance sheet of RehabCare
Group, Inc. and subsidiaries (the "Company") as of September 30, 2000, and the
related condensed consolidated statements of earnings and cash flows for the
three-month and nine-month periods ended September 30, 2000 and 1999. These
condensed consolidated financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
RehabCare Group, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statements of earnings, stockholders' equity, cash flows, and
comprehensive earnings for the year then ended (not presented herein); and in
our report dated February 4, 2000, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1999,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ KPMG LLP
St. Louis, Missouri
October 27, 2000
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Item 2. - Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
---------------------
The Company provides temporary healthcare staffing and physical
rehabilitation program management services for hospitals, nursing homes and
other long-term care facilities. The Company derives its revenue from the
following four segments: temporary healthcare staffing; inpatient programs,
including acute rehabilitation and skilled nursing units; outpatient therapy
programs; and contract therapy.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Operating Statistics September 30, September 30,
-------------------- 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Healthcare staffing:
--------------------
Weeks worked 57,803 34,395 164,920 92,147
Average number of offices 90 57 87 52
Program management:
-------------------
Inpatient (acute rehabilitation
and skilled nursing):
-------------------------------
Average bed capacity 2,683 2,574 2,644 2,591
Average billable length of stay (days) 13.9 14.3 14.1 14.3
Billable patient days served 176,801 171,479 533,057 520,521
Admissions 12,742 12,035 37,791 36,335
Average daily billable census 1,922 1,864 1,945 1,907
Average billable occupied beds per program 14.0 14.2 14.4 14.5
Total programs in operation at end of period 139 133 139 133
Outpatient therapy:
-------------------
Patient visits 294,462 210,904 830,661 547,895
Units of service 812,084 587,363 2,296,624 1,507,209
Total programs in operation at end of period 64 42 64 42
Contract therapy:
-----------------
Number of locations at end of period 163 100 163 100
</TABLE>
Three Months Ended September 30, 2000 Compared to Three Months Ended September
--------------------------------------------------------------------------------
30, 1999
--------
Operating revenues during the third quarter 2000 increased by $36.2
million, or 45.4%, to $115.8 million as compared to the third quarter of 1999.
Acquisitions accounted for 15.5% of the net increase.
Staffing revenue increased 75.7% to $68.0 million, reflecting $5.3 million
from the December 20, 1999 acquisition of eai Healthcare Staffing Solutions,
Inc. ("eai Healthcare Staffing") and a 46.9% increase in weeks worked at
existing travel and per diem offices from 34,395 to 50,513. The balance of weeks
worked to 57,803 is due to the acquisition of eai Healthcare Staffing.
Inpatient program revenue increased by $719,000, or 2.5%, to $29.7 million,
primarily reflecting a 4.5% increase in the average number of inpatient programs
managed from 131.5 to 137.4, offset by a 0.6% decrease in the average per diem
billing rates and a 1.4% decrease in the average daily billable census per
inpatient program to 14.0. The decrease in billable census per program for
inpatient programs is primarily attributable to a 2.8% decrease in average
length of stay to 13.9 offset by a 1.4% increase in admissions per program.
Outpatient revenue increased 25.2% to $10.5 million, reflecting $327,000
from the September 15, 2000 acquisition of DiversiCare plus an increase in the
average number of outpatient programs managed from 41.5 to 53.0 (including 2.3
from DiversiCare) and an increase in units of service per program.
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Contract therapy revenue increased 112.2% to $7.6 million, reflecting an
increase in the average number of contract therapy locations managed from 94.2
to 160.5 and an increase in revenue per location.
Operating expenses for the three months ended September 30, 2000 increased
by $25.5 million, or 44.6%, to $82.7 million as compared to the three months
ended September 30, 1999. Acquisitions accounted for approximately 14.1% of the
net increase. The remaining increase in operating expenses is attributable to
the increase in outpatient units of service, an increase in the number of
contract therapy locations, an increase in the number of weeks worked from
travel and per diem staffing offices, offset by decreased costs in inpatient
programs.
General and administrative expenses increased $7.1 million, or 53.9%, to
$20.2 million, reflecting increases in corporate office expenses as well as
marketing, business development, operations and professional services in support
of the increase in outpatient programs; and contract therapy locations managed
and per diem staffing offices operated, plus the addition of general and
administrative expenses of companies acquired.
Depreciation and amortization increased $436,000 reflecting an increase in
goodwill from acquisitions and depreciation on equipment purchased.
Interest expense increased $177,000 reflecting interest on additional
borrowings under the revolving line of credit for acquisitions and an increase
in interest rates.
Earnings before income taxes increased by $3.0 million, or 42.5%, to $10.0
million. The provision for income taxes for 2000 was $4.0 million compared to
$2.8 million in 1999, reflecting effective income tax rates of 39.9% and 39.7%
for these periods. Net earnings increased by $1.8 million, or 41.9%, to $6.0
million. Diluted earnings per share increased 26.7% to $.36 from $.29 on a 10.6%
increase in the weighted-average shares and assumed conversions outstanding. The
increase in weighted average shares outstanding is attributable primarily to
stock option exercises and the increase in the dilutive effect of stock options
as a result of an increase in the average market price of the Company's stock
relative to the underlying exercise prices of outstanding options.
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Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
--------------------------------------------------------------------------------
1999
----
Operating revenues during the first nine months of 2000 increased by $107.0
million, or 48.1%, to $329.5 million as compared to the first nine months of
1999. Acquisitions accounted for 20.6% of the net increase.
Staffing revenue increased 82.4% to $189.5 million, reflecting $3.2 million
from the July 1, 1999 acquisition of AllStaff, Inc., $17.0 million from the
December 20, 1999 acquisition of eai Healthcare Staffing, and a 50.2% increase
in weeks worked at existing travel and per diem offices from 92,147 to 138,424.
The balance of the increase in weeks worked to 164,920 is due to the
acquisitions of Allstaff and eai Healthcare Staffing.
Inpatient program revenue increased by 2.7% to $89.5 million. A 2.9%
increase in the average number of inpatient programs managed from 131.3 to
135.1, plus the additional revenue from one additional day in February 2000,
offset by a 0.7% decrease in the average daily billable census per inpatient
program to 14.4, resulted in a 2.4% increase in billable patient days to
533,057. The increase in billable patient days, combined with a 0.3% increase in
average per diem billing rates, generated a 2.7% increase in revenue from
inpatient programs. The decrease in billable census per program for inpatient
programs is primarily attributable to a 1.4% decrease in average billable length
of stay to 14.1, offset by a 1.1% increase in admissions per program.
Outpatient revenue increased 37.0% to $30.0 million reflecting $1.4 million
from the May 20, 1999 acquisition of Salt Lake Physical Therapy Associates,
Inc., $327,000 from the September 15, 2000 acquisition of DiversiCare, an
increase in the average number of outpatient programs managed from 38.1 to 49.1
(which includes an increase of 1.8 in the average number of programs managed as
a result of acquisitions), and an increase in units of service per program.
Contract therapy revenue increased 112.3% to $20.4 million, reflecting an
increase in the average number of contract therapy locations managed from 84.7
to 146.6 and an increase in revenue per location.
Operating expenses for the first nine months of 2000 increased by $74.9
million, or 46.9%, to $234.6 million as compared to the first nine months of
1999. The 1999 and 2000 acquisitions accounted for approximately 19.6% of the
net increase. The remaining increase in operating expenses is attributable to
the increase in outpatient units of service, an increase in the number of
contract therapy locations and an increase in the number of weeks worked from
travel and per diem staffing offices, offset by decreased costs in inpatient
programs.
General and administrative expenses increased $20.5 million, or 55.1%, to
$57.8 million, reflecting increases in corporate office expenses as well as
marketing, business development, operations and professional services in support
of the increase in outpatient programs; and contract therapy locations managed
and per diem staffing offices operated, plus the addition of general and
administrative expenses of companies acquired.
Depreciation and amortization increased $1.1 million reflecting an increase
in goodwill from acquisitions and depreciation on equipment purchased.
Interest expense increased $767,000 reflecting interest on additional debt
funding acquisitions, borrowings under the revolving line of credit for working
capital purposes and an increase in interest rates.
Earnings before income taxes increased by $9.6 million, or 50.9%, to $28.5
million. The provision for income taxes for 2000 was $11.3 million compared to
$7.5 million in 1999, reflecting effective income tax rates of 39.8% and 39.7%
for these periods. Net earnings increased by $5.8 million, or 50.7%, to $17.2
million. Diluted earnings per share increased 38.6% to $1.08 from $.78 on a 7.4%
13 of 16
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increase in weighted-average shares and assumed conversions outstanding. The
increase in weighted average shares outstanding is attributable primarily to
stock option exercises and the increase in the dilutive effect of stock options
as a result of an increase in the average market price of the Company's stock
relative to the underlying exercise prices of outstanding options.
Liquidity and Capital Resources
-------------------------------
As of September 30, 2000, the Company had $5.1 million in cash and current
marketable securities and a current ratio, the amount of current assets divided
by current liabilities, of 2.1:1. Working capital increased by $20.9 million to
$48.0 million as of September 30, 2000, compared to $27.1 million as of December
31, 1999. The increase in working capital is primarily due to working capital
from the acquisition of DiversiCare, working capital generated from operations,
new long-term debt and exercise of stock options.
Net accounts receivable were $78.7 million at September 30, 2000, compared
to $65.8 million at December 31, 1999. The number of day's average net revenue
in net receivables was 61.3 at September 30, 2000 compared to 65.6 at December
31, 1999.
The Company's operating cash flows constitute its primary source of
liquidity and historically have been sufficient to fund its working capital,
capital expenditure, internal and external business expansion and debt service
requirements. The Company expects to meet its future working capital, capital
expenditure, internal and external business expansion and debt service
requirements from a combination of internal sources and outside financing. The
Company has a $125.0 million revolving line of credit with a balance outstanding
as of September 30, 2000 of $55.7 million. See Note 2 to the "Notes to Condensed
Consolidated Financial Statements (unaudited)."
Changes in Accounting
---------------------
In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes certain views of the SEC staff on applying
generally accepted accounting principles to revenue recognition in financial
statements. Management is currently in the process of evaluating the impact of
this bulletin, but does not expect it to have a material effect on the
consolidated financial statements. This bulletin became effective on October 1,
2000.
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Part II. - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
10.1 Credit Agreement dated as of August 29, 2000 by and among
RehabCare Group, Inc., as borrower, certain subsidiaries and
affiliates of the borrower, as guarantors and First National
Bank, Firstar Bank, N.A., Bank of America, N.A., First Union
Securities, Inc., and Banc of America Securities, LLC.
10.2 Pledge Agreement dated as of August 29, 2000 by and among
RehabCare Group, Inc. and Subsidiaries as pledgors and Bank of
America, N.A. as collateral agent for the holders of the Secured
Obligations.
10.3 Security Agreement dated as of August 29, 2000 by and among
RehabCare Group, Inc. and Subsidiaries as grantors and Bank of
America, N.A., as collateral agent for the holders of the Secured
Obligations.
15 Acknowledgment of Independent Certified Public Accountants
regarding Independent Auditors' Review Report.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
15 of 16
<PAGE>
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.
November 14, 2000
By /s/ Gregory J. Eisenhauer
----------------------
Gregory J. Eisenhauer
Senior Vice President and
Chief Financial Officer
By /s/ James M. Douthitt
----------------------
James M. Douthitt
Senior Vice President and
Chief Accounting Officer
16 of 16
<PAGE>
EXHIBIT INDEX
10.1 Credit Agreement dated as of August 29, 2000 by and among
RehabCare Group, Inc., as borrower, certain subsidiaries and
affiliates of the borrower, as guarantors and First National
Bank, Firstar Bank, N.A., Bank of America, N.A., First Union
Securities, Inc., and Banc of America Securities, LLC.
10.2 Pledge Agreement dated as of August 29, 2000 by and among
RehabCare Group, Inc. and Subsidiaries as pledgors and Bank of
America, N.A. as collateral agent for the holders of the Secured
Obligations.
10.3 Security Agreement dated as of August 29, 2000 by and among
RehabCare Group, Inc. and Subsidiaries as grantors and Bank of
America, N.A., as collateral agent for the holders of the Secured
Obligations.
15 Acknowledgment of Independent Certified Public Accountants
regarding Independent Auditors' Review Report.
27 Financial Data Schedule
Not included in
paper filing
