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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 June 30, 2000
Commission File Number 0-19294
REHABCARE GROUP, INC.
---------------------
(Exact name of Registrant as specified in its charter)
Delaware 51-0265872
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
7733 Forsyth Boulevard, Suite 1700, St. Louis, MO 63105
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(Address of principal executive offices and zip code)
314-863-7422
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(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 August 9, 2000
-------------------------------------- -----------------------------
Common Stock, par value $.01 per share 14,764,742
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REHABCARE GROUP, INC.
Index
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
June 30, 2000 (unaudited) and December 31, 1999 3
Condensed consolidated statements of earnings for the three
months and six months ended June 30, 2000 and 1999 (unaudited) 4
Condensed consolidated statements of cash flows for the
three months and six months ended June 30, 2000
and 1999 (unaudited) 5
Notes to condensed consolidated financial statements (unaudited) 6
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. - Other Information
Item 6. - Exhibits and Reports on Form 8-K 12
Signatures 13
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PART 1. - FINANCIAL INFORMATION
Item 1. - Condensed Consolidated Financial Statements
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<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 1,131 738
Marketable securities, available-for-sale 3,019 3,019
Accounts receivable, net of allowance for doubtful
accounts of $5,357 and $4,577, respectively 74,758 65,777
Deferred tax assets 5,809 4,898
Prepaid expenses and other current assets 795 1,100
------- -------
Total current assets 85,512 75,532
Marketable securities, trading 2,228 1,777
Equipment and leasehold improvements, net 8,931 7,269
Excess of cost over net assets acquired, net 97,827 99,020
Other 4,322 3,666
------- -------
$198,820 187,264
======= =======
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $ 13,278 13,345
Accounts payable 2,742 3,359
Accrued salaries and wages 20,000 16,884
Accrued expenses 11,200 11,592
Income taxes payable 181 3,283
------- -------
Total current liabilities 47,401 48,463
Deferred compensation and other long-term
liabilities 2,628 3,623
Deferred tax liabilities 1,558 1,345
Long-term debt, less current portion 48,049 56,050
------- -------
Total liabilities 99,636 109,481
------- -------
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 17,065,274 and 15,700,566 shares,
respectively 171 157
Additional paid-in capital 43,333 33,101
Retained earnings 73,643 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 99,184 77,783
------- -------
$198,820 187,264
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues $ 107,721 73,675 213,654 142,860
Costs and expenses:
Operating expenses 76,621 52,969 151,865 102,447
General and administrative 19,040 12,342 37,626 24,153
Depreciation and amortization 1,622 1,260 3,138 2,468
------ ------ ------- -------
Total costs and expenses 97,283 66,571 192,629 129,068
------ ------ ------- -------
Operating earnings 10,438 7,104 21,025 13,792
Interest income 59 49 108 114
Interest expense (1,328) (997) (2,652) (2,062)
Other income 20 32 28 30
------ ------ ------ ------
Earnings before income taxes 9,189 6,188 18,509 11,874
Income taxes 3,645 2,463 7,354 4,719
------ ------ ------ ------
Net earnings $ 5,544 3,725 11,155 7,155
====== ====== ====== ======
Net earnings per common share:
Basic $ .38 .28 .79 .55
====== ====== ====== ======
Diluted $ .35 .26 .71 .50
====== ====== ====== ======
Weighted average number of
common shares outstanding:
Basic 14,539 13,106 14,195 13,039
====== ====== ====== ======
Diluted 15,994 14,742 15,650 14,678
====== ====== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
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<TABLE>
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 11,155 7,155
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,138 2,468
Provision for losses on accounts receivable 1,752 1,120
Increase in deferred compensation 20 472
Increase in accounts receivable, net (10,733) (5,016)
Decrease in prepaid expenses and
other current assets 305 165
Increase in other assets (243) (64)
Decrease in accounts payable
and accrued expenses (2,024) (258)
Increase in accrued salaries and wages 3,116 796
Decrease in income taxes payable and deferred (3,800) (232)
----- -----
Net cash provided by operating activities 2,686 6,606
----- -----
Cash flows from investing activities:
Additions to equipment and leasehold improvements, net (2,892) (1,317)
Purchase of marketable securities (617) (495)
Deferred contract costs (484) (325)
Proceeds from sale/maturities of investments 166 89
Cash paid in acquisition of businesses,
net of cash received -- (4,889)
Other (644) (542)
----- -----
Net cash used in investing activities (4,471) (7,479)
----- -----
Cash flows from financing activities:
Proceeds from revolving credit facility, net 4,000 2,000
Proceeds from issuance of note payable -- 750
Payments on long-term debt (6,068) (6,654)
Exercise of stock options, including tax benefit 4,246 567
----- -----
Net cash provided by (used in)
financing activities 2,178 (3,337)
----- -----
Net increase (decrease) in cash
and cash equivalents 393 (4,210)
Cash and cash equivalents at beginning of period 738 5,666
----- -----
Cash and cash equivalents at end of period $ 1,131 1,456
===== =====
</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 six months ended June 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.
Note 2. - Expansion of Borrowing Capacity
-----------------------------------------
Effective May 11, 2000, the Company amended its loan agreement and
increased its borrowing capacity on its revolving line of credit from $30.0
million to $40.0 million. The increased revolving commitment will remain in
effect until the close of business on August 14, 2000, at which time it will
reduce to $30.0 million. The terms of the amended revolving commitment are
identical to those of the original credit agreement. The Company has commitments
to significantly expand its term loan and expects to close on a new loan
agreement during the third quarter. See "Liquidity and Capital Resources".
Note 3. - 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 4. - 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings
per share - earnings available
to common stockholders
(net earnings) $ 5,544 3,725 11,155 7,155
Effect of dilutive securities -
after-tax interest on convertible
subordinated promissory notes -- 56 28 112
------ ------ ------ ------
Numerator for diluted earnings per
share - earnings available to
common stockholders after assumed
conversions $ 5,544 3,781 11,183 7,267
====== ====== ====== ======
Denominator:
Denominator for basic earnings per
share - weighted-average shares
outstanding 14,539 13,106 14,195 13,039
Effect of dilutive securities:
Stock options 1,455 790 1,350 793
Convertible subordinated
promissory notes -- 846 105 846
------ ------ ------ ------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 15,994 14,742 15,650 14,678
====== ====== ====== ======
Basic earnings per share $.38 .28 .79 .55
=== === === ===
Diluted earnings per share $.35 .26 .71 .50
=== === === ===
</TABLE>
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Note 5. - Industry Segment Information
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The Company operates in four business segments that are managed separately
based on fundamental differences in operations: inpatient programs (including
acute rehabilitation and skilled nursing units), outpatient programs, contract
therapy services and staffing. All of the Company's services are provided in the
United States. Summarized information about the Company's operations for the
three months and six months ended June 30, 2000 and 1999 in each industry
segment is as follows: (dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues from Unaffiliated Customers
------------------------------------
Inpatient $ 29,288 29,188 59,799 58,175
Outpatient 9,842 7,153 19,502 13,509
Contract Therapy 6,655 3,276 12,855 6,054
Staffing 61,936 34,058 121,498 65,122
------- ------- ------- -------
Total $ 107,721 73,675 213,654 142,860
======= ======= ======= =======
Operating Earnings
------------------
Inpatient $ 4,776 5,260 10,054 10,229
Outpatient 1,911 1,293 3,865 2,419
Contract Therapy 622 297 1,298 100
Staffing 3,129 254 5,808 1,044
------- ------- ------- -------
Total $ 10,438 7,104 21,025 13,792
======= ======= ======= =======
Total Assets
------------
Inpatient $ 55,088 53,323 55,088 53,323
Outpatient 20,934 18,784 20,934 18,784
Contract Therapy 21,363 18,833 21,363 18,833
Staffing 101,435 70,584 101,435 70,584
------- ------- ------- -------
Total $ 198,820 161,524 198,820 161,524
======= ======= ======= =======
Depreciation and Amortization
-----------------------------
Inpatient $ 682 621 1,313 1,220
Outpatient 174 111 339 204
Contract Therapy 92 96 188 183
Staffing 674 432 1,298 861
------- ------- ------- -------
Total $ 1,622 1,260 3,138 2,468
======= ======= ======= =======
Capital Expenditures
--------------------
Inpatient $ 521 633 1,433 976
Outpatient 7 1 46 22
Contract Therapy 48 4 57 5
Staffing 800 228 1,356 316
------- ------- ------- -------
Total $ 1,376 866 2,892 1,319
======= ======= ======= =======
</TABLE>
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Note 6. - Current Developments in Accounting and Reporting
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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 a material effect on the consolidated
financial statements. This bulletin is effective beginning the fourth quarter of
fiscal 2000.
Item 2. - Management's Discussion and Analysis of Financial Condition and
--------------------------------------------------------------------------------
Results of Operations
---------------------
Results of Operations
---------------------
The Company provides outsourcing and management of comprehensive medical
rehabilitation, subacute (skilled nursing) and outpatient therapy programs on a
multi-year contract basis and contract therapy services to hospitals and nursing
homes. The Company also is a provider of medical staffing to hospitals,
long-term care and other healthcare facilities on both an interim and permanent
basis.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
Operating Statistics 2000 1999 2000 1999
-------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Program Management:
-------------------
Inpatient Programs (Acute and Subacute)
---------------------------------------
Average bed capacity 2,615 2,609 2,625 2,599
Average billable length of stay (days) 14.1 14.4 14.2 14.4
Billable patient days served 174,400 174,459 356,256 349,042
Admissions 12,368 12,083 25,049 24,300
Average daily billable census 1,917 1,917 1,957 1,928
Average occupied beds per program 14.4 14.7 14.6 14.7
Total programs in operation at end of period 138 132 138 132
Outpatient Clinics
------------------
Patient visits 276,790 182,625 536,199 341,228
Units of service 766,728 500,024 1,484,540 927,363
Total clinics in operation at end of period 49 40 49 40
Contract Therapy
----------------
Number of locations at end of period 149 89 149 89
Staffing:
---------
Weeks worked 54,253 30,322 107,117 57,752
</TABLE>
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Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
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Operating revenues during the second quarter 2000 increased by $34.0
million, or 46.2%, to $107.7 million as compared to the second quarter of 1999.
Acquisitions accounted for 22.7% of the net increase. Inpatient program revenue
increased by $101,000 to $29.3 million, primarily reflecting a 1.7% increase in
the average number of inpatient programs from 130.9 to 133.1 and a 0.3% increase
in average per diem billing rates, offset by a 1.6% decrease in the average
daily billable census per inpatient program to 14.4. The decrease in billable
census per program for inpatient programs is primarily attributable to a 2.4%
decrease in average length of stay to 14.1 offset by a 0.7% increase in
admissions per program. Outpatient revenue increased 37.6% to $9.8 million,
reflecting an increase in the average number of outpatient clinics managed from
37.1 to 48.3 and an increase in units of service per clinic. Contract therapy
revenue increased 103.2% to $6.7 million, reflecting an increase in the average
number of contract therapy locations managed from 84.3 to 144.5, and an increase
in revenue per location.
Staffing revenue increased 81.8% to $61.9 million, reflecting $1.7 million
from the July 1, 1999 acquisition of AllStaff, Inc., $5.9 million from the
December 20, 1999 acquisition of eai Healthcare Staffing Solutions, Inc. ("eai
Healthcare Staffing"), and a 46.6% increase in weeks worked at existing travel
and supplemental offices from 30,322 to 44,452.
Operating expenses for the three months ended June 30, 2000 increased by
$23.7 million, or 44.7%, to $76.6 million as compared to the three months ended
June 30, 1999. Acquisitions accounted for approximately 28.5% of the net
increase. The remaining increase in operating expenses is attributable to the
increase in outpatient units of services, increased contract therapy locations,
and increased weeks worked from travel and supplemental staffing offices, offset
by decreased costs in inpatient programs.
General and administrative expenses increased $6.7 million, or 54.3%, to
$19.0 million, reflecting increases in corporate office expenses as well as
marketing, business development, operations and professional services in support
of the increase in outpatient clinics, contract therapy locations and staffing
offices, plus the addition of general and administrative expenses of companies
acquired.
Depreciation and amortization increased $362,000 reflecting an increase in
goodwill from acquisitions and depreciation on equipment purchased.
Interest expense increased $331,000 reflecting interest on additional debt
funding the acquisitions, borrowings under the revolving line of credit for
working capital purposes and an increase in interest rates.
Earnings before income taxes increased by $3.0 million, or 48.5%, to $9.2
million. The provision for income taxes for 2000 was $3.6 million compared to
$2.5 million in 1999, reflecting effective income tax rates of 39.7% and 39.8%,
respectively. Net earnings increased by $1.8 million, or 48.8%, to $5.5 million.
Diluted earnings per share increased 34.6% to $.35 from $.26 on an 8.5% 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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Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
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Operating revenues during the first six months of 2000 increased by $70.8
million, or 49.6%, to $213.7 million as compared to the first six months of
1999. Acquisitions accounted for 23.2% of the net increase. Inpatient program
revenue increased by $1.6 million to $59.8 million. A 2.1% increase in the
average number of inpatient programs from 131.1 to 133.9 programs plus one
additional day in February 2000 offset by a 0.7% decrease in the average daily
billable census per inpatient program to 14.6 resulted in a 2.1% increase in
billable patient days to 356,256. The increase in billable patient days,
combined with a 0.7% increase in average per diem billing rates, generated a
2.8% increase in revenue from inpatient programs. The increase in billable
census per program for inpatient programs is primarily attributable to a 0.9%
increase in admissions per program. Outpatient revenue increased 44.4% to $19.5
million, reflecting $1.4 million from the May 20, 1999 acquisition of Salt Lake
Physical Therapy Associates, Inc., an increase in the average number of
outpatient clinics managed from 36.4 to 47.2, and an increase in units of
service per clinic. Contract therapy revenue increased 112.4% to $12.9 million,
reflecting an increase in the average number of contract therapy locations
managed from 79.9 to 139.8, and an increase in revenue per location.
Staffing revenue increased 86.4% to $121.5 million, reflecting $3.2 million
from the July 1, 1999 acquisition of AllStaff, Inc., $11.7 million from the
December 20, 1999 acquisition of eai Healthcare Staffing, and a 52.2% increase
in weeks worked at existing travel and supplemental offices from 57,752 to
87,911.
Operating expenses for the first six months of 2000 increased by $49.4
million, or 48.2%, to $151.9 million as compared to the first six months of
1999. Acquisitions accounted for approximately 25.2% of the net increase. The
remaining increase in operating expenses is attributable to the increase in
outpatient units of services, increased contract therapy locations, and
increased weeks worked from travel and supplemental staffing offices.
General and administrative expenses increased $13.5 million, or 55.8%, to
$37.6 million, reflecting increases in corporate office expenses as well as
marketing, business development, operations and professional services in support
of the increase in outpatient clinics, contract therapy locations and staffing
offices, plus the addition of general and administrative expenses of companies
acquired.
Depreciation and amortization increased $670,000 reflecting an increase in
goodwill from acquisitions and depreciation on equipment purchased.
Interest expense increased $590,000 reflecting interest on additional debt
funding the acquisitions, borrowings under the revolving line of credit for
working capital purposes and an increase in interest rates.
Earnings before income taxes increased by $6.6 million, or 55.9%, to $18.5
million. The provision for income taxes for 2000 was $7.4 million compared to
$4.7 million in 1999, reflecting effective income tax rates of 39.7% for each
period. Net earnings increased by $4.0 million, or 55.9%, to $11.2 million.
Diluted earnings per share increased 42.0% to $.71 from $.50 on a 6.6% 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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Liquidity and Capital Resources
-------------------------------
As of June 30, 2000, the Company had $4.2 million in cash and current
marketable securities and a current ratio of 1.8:1. Working capital increased by
$11.0 million to $38.1 million as of June 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 eai Healthcare Staffing, working capital
generated from operations and exercise of stock options.
Net accounts receivable were $74.8 million at June 30, 2000, compared to
$65.8 million at December 31, 1999. The number of day's average net revenue in
net receivables was 63.2 at June 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, business expansion and debt service 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 $40.0 million revolving line of
credit with a balance outstanding as of June 30, 2000 of $16.0 million. The
Company has commitments to significantly expand its borrowing capacity under its
bank loans and expects to close on a new loan agreement during the third
quarter.
Part II. - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
27 Financial Data Schedule
(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.
REHABCARE GROUP, INC.
August 11, 2000
By /s/ John R. Finkenkeller
-----------------------------
John R. Finkenkeller
Senior Vice President and
Chief Financial Officer
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