<PAGE> 1
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, 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 May 10, 2000
- -------------------------------------- ---------------------------
Common Stock, par value $.01 per share 7,269,480
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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REHABCARE GROUP, INC.
Index
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
March 31, 2000 (unaudited) and December 31, 1999 3
Condensed consolidated statements of earnings for the three
months ended March 31, 2000 and 1999 (unaudited) 4
Condensed consolidated statements of cash flows for the
three months ended March 31, 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 4. - Submission of Matters to Security Holders 11
Item 6. - Exhibits and Reports on Form 8-K 11
Signatures 12
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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>
March 31, December 31,
2000 1999
---- ----
(unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 963 738
Marketable securities, available-for-sale 3,019 3,019
Accounts receivable, net of allowance for doubtful
accounts of $4,761 and $4,577, respectively 78,856 65,777
Deferred tax assets 5,460 4,898
Prepaid expenses and other current assets 899 1,100
------- -------
Total current assets 89,197 75,532
Marketable securities, trading 2,133 1,777
Equipment and leasehold improvements, net 8,211 7,269
Excess of cost over net assets acquired, net 98,359 99,020
Other 4,394 3,666
------- -------
$202,294 187,264
======= =======
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $ 13,319 13,345
Accounts payable 4,379 3,359
Accrued salaries and wages 17,658 16,884
Accrued expenses 10,358 11,592
Income taxes payable 4,135 3,283
------- -------
Total current liabilities 49,849 48,463
Deferred compensation and other long-term
liabilities 2,560 3,623
Deferred tax liabilities 1,946 1,345
Long-term debt, less current portion 58,067 56,050
------- -------
Total liabilities 112,422 109,481
======= =======
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 8,325,212 and 7,850,283 shares,
respectively 83 79
Additional paid-in capital 39,653 33,179
Retained earnings 68,099 62,488
Less common stock held in treasury at cost,
1,165,597 shares (17,975) (17,975)
Accumulated other comprehensive earnings 12 12
------- -------
Total stockholders' equity 89,872 77,783
------- -------
$202,294 187,264
======= =======
</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
March 31,
2000 1999
---- ----
<S> <C> <C>
Operating revenues $ 105,933 69,185
Costs and expenses:
Operating expenses 75,244 49,478
General and administrative 18,586 11,811
Depreciation and amortization 1,516 1,208
------ ------
Total costs and expenses 95,346 62,497
------ ------
Operating earnings 10,587 6,688
Interest income 49 65
Interest expense (1,324) (1,065)
Other income (expense), net 8 (2)
------ ------
Earnings before income taxes 9,320 5,686
Income taxes 3,709 2,256
------ ------
Net earnings $ 5,611 3,430
====== ======
Net earnings per common share:
Basic $ .81 .53
====== ======
Diluted $ .73 .47
====== ======
Weighted average number of common shares outstanding:
Basic 6,925 6,508
====== ======
Diluted 7,683 7,358
====== ======
</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>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $5,611 3,430
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 1,516 1,208
Provision for losses on accounts receivable 992 351
Increase (decrease) in deferred compensation (48) 416
Increase in accounts receivable, net (14,071) (654)
Decrease (increase) in prepaid expenses and
other current assets 201 (505)
Increase in other assets (320) (52)
Increase (decrease) in accounts payable
and accrued expenses (1,229) 577
Increase (decrease) in accrued salaries and wages 774 (511)
Increase in income taxes payable and deferred 891 598
----- -----
Net cash provided by (used in)
operating activities (5,683) 4,858
----- -----
Cash flows from investing activities:
Additions to equipment and leasehold improvements, net (1,516) (453)
Purchase of marketable securities (489) (350)
Deferred contract costs (334) (200)
Proceeds from sale/maturities of investments 133 --
Other (355) (28)
----- -----
Net cash used in investing activities (2,561) (1,031)
----- -----
Cash flows from financing activities:
Proceeds from revolving credit facility, net 10,900 --
Payments on long-term debt (2,909) (2,962)
Exercise of stock options, including tax benefit 478 307
----- -----
Net cash provided by (used in)
financing activities 8,469 (2,655)
----- -----
Net increase in cash and cash equivalents 225 1,172
Cash and cash equivalents at beginning of period 738 5,666
----- -----
Cash and cash equivalents at end of period $ 963 6,838
===== =====
</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 ended March 31, 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. - Conversion of Note Payable
On February 14, 2000, the $6.0 million convertible subordinated notes payable to
the former Healthcare Staffing Solutions, Inc. shareholders were converted to
Company Common Stock. The conversion price was $14.17 per share, resulting in
the issuance of 423,526 shares of Company Common Stock. This transaction had no
effect on diluted earnings per share.
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<TABLE>
Note 3. - 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
March 31,
2000 1999
---- ----
<S> <C> <C>
Numerator:
Numerator for basic earnings per share - earnings available
to common stockholders (net earnings) $5,611 3,430
Effect of dilutive securities - after-tax interest on
convertible subordinated promissory notes 28 55
----- -----
Numerator for diluted earnings per share - earnings available
to common stockholders after assumed conversions $5,639 3,485
===== =====
Denominator:
Denominator for basic earnings per share - weighted-average
shares outstanding 6,925 6,508
Effect of dilutive securities:
Stock options 549 427
Convertible subordinated promissory notes 209 423
----- -----
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 7,683 7,358
===== =====
Basic earnings per share $ .81 .53
===== =====
Diluted earnings per share $ .73 .47
===== =====
</TABLE>
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Note 4. - Industry Segment Information
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 ended March 31, 2000 and 1999 in each industry segment is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
Revenues from Unaffiliated Customers
Inpatient $ 30,511 28,987
Outpatient 9,660 6,356
Contract Therapy 6,200 2,778
Staffing 59,562 31,064
------- -------
Total $105,933 69,185
======= =======
Operating Earnings
Inpatient $ 5,278 4,969
Outpatient 1,954 1,126
Contract Therapy 676 (197)
Staffing 2,679 790
------- -------
Total $ 10,587 6,688
======= =======
Total Assets
Inpatient $ 55,826 56,668
Outpatient 20,066 12,156
Contract Therapy 21,407 18,583
Staffing 104,995 71,276
------- -------
Total $202,294 158,683
======= =======
Depreciation and Amortization
Inpatient $ 631 599
Outpatient 165 93
Contract Therapy 96 87
Staffing 624 429
------- -------
Total $ 1,516 1,208
======= =======
Capital Expenditures
Inpatient $ 912 343
Outpatient 39 21
Contract Therapy 9 1
Staffing 556 88
------- -------
Total $ 1,516 453
======= =======
</TABLE>
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Note 5. - Current Developments in Accounting and Reporting
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 second quarter of fiscal
2000.
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 programs that may or may not be exempt from
the Medicare Prospective Payment System ("PPS"), depending on their stage of
development; subacute programs that are operated within licensed skilled nursing
units; outpatient clinics, both on and off campus of the host hospital, and
therapy services for long-term care facilities and school districts. The Company
also is a contract provider of nurse and other medical staffing on a continuing
and temporary basis to hospitals and long-term care facilities.
<TABLE>
<CAPTION>
Three Months Ended
Operating Statistics March 31,
2000 1999
---- ----
<S> <C> <C>
Program Management:
Inpatient Programs (Acute and Subacute)
Average bed capacity 2,634 2,590
Average billable length of stay (days) 14.3 14.3
Billable patient days served 181,856 174,583
Admissions 12,681 12,217
Average daily billable census 1,998 1,940
Average occupied beds per program 14.8 14.8
Total programs in operation at end of period 132 131
Outpatient Clinics
Patient visits 259,409 158,603
Units of service 717,812 427,339
Total clinics in operation at end of period 46 34
Contract Therapy
Number of locations at end of period 141 77
Staffing
Weeks worked 52,864 27,430
</TABLE>
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Operating revenues during the first quarter 2000 increased by $36.7 million, or
53.1%, to $105.9 million as compared to the first quarter of 1999. Acquisitions
accounted for 23.6% of the net increase. Inpatient program revenue increased by
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$1.5 million to $30.5 million. A 2.7% increase in the average number of
inpatient programs from 131.3 to 134.8 programs, combined with a 0.3% increase
in the average daily billable census per inpatient program to 14.8 resulted in a
4.2% increase in billable patient days to 181,856. The increase in billable
patient days, combined with a 1.0% increase in average per diem billing rates,
generated a 5.3% increase in revenue from inpatient programs. The increase in
billable census per program for inpatient programs is primarily attributable to
a 1.1% increase in admissions per program. Outpatient revenue increased 52.0% to
$9.7 million, reflecting $1.3 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 35.7 to 45.9, and an increase in units of
service per clinic. Contract therapy revenue increased 123.2% to $6.2 million,
reflecting an increase in the average number of contract therapy locations
managed from 75.5 to 134.8, and an increase in revenue per location.
Staffing revenue increased 91.7% to $59.6 million, reflecting $1.5 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 58.4% increase in weeks worked at existing travel and
supplemental offices from 27,420 to 43,459.
Operating expenses for the three months ended March 31, 2000 increased by $25.8
million, or 52.1%, to $75.2 million as compared to the three months ended March
31, 1999. Acquisitions accounted for approximately 22.3% of the net increase.
The remaining increase in operating expenses is attributable to the increase in
patient days, units of services, increased contract therapy locations, and
increased weeks worked from travel and supplemental staffing offices.
General and administrative expenses increased $6.8 million, or 57.4%, to $18.6
million, reflecting increases in corporate office expenses as well as marketing,
business development, operations and professional services in support of the
increase in inpatient programs, outpatient clinics, contract therapy locations
and staffing offices, plus the addition of general and administrative expenses
of companies acquired.
Depreciation and amortization increased $308,000 reflecting an increase in
goodwill from acquisitions.
Interest expense increased $259,000 reflecting interest on additional debt
funding the acquisitions, borrowings under the revolving loan for working
capital purposes and an increase in interest rates.
Earnings before income taxes increased by $3.6 million, or 63.9%, to $9.3
million. The provision for income taxes for 2000 was $3.7 million compared to
$2.3 million in 1999, reflecting effective income tax rates of 39.8% and 39.7%,
respectively. Net earnings increased by $2.2 million, or 63.6%, to $5.6 million.
Diluted earnings per share increased 55.3% to $.73 from $.47 on a 4.4% increase
in the weighted-average shares and assumed conversions outstanding. The increase
in diluted shares outstanding is attributable primarily to stock option
exercises and shares issued in acquisitions, and an increase in the dilutive
effect of stock options resulting from 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 March 31, 2000, the Company had $4.0 million in cash and current
marketable securities and a current ratio of 1.8:1. Working capital increased by
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<PAGE> 11
$12.3 million as of March 31, 2000, compared to December 31, 1999, primarily
reflecting working capital from the acquisition of eai Healthcare Staffing and
working capital generated from operations.
Net accounts receivable were $78.9 million at March 31, 2000, compared to $65.8
million at December 31, 1999. The number of day's average net revenue in net
receivables was 67.7 at March 31, 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 $30.0 million revolving line of credit
with a balance outstanding as of March 31, 2000 of $22.9 million. The Company
made additional borrowings in the first quarter of 2000 under its revolving line
of credit to fund its $2.0 million letter of credit and to finance its rapid
growth in revenues and accounts receivable. The Company believes it has the
ability to expand its borrowing capacity, if necessary, to meet working capital
and acquisition requirements.
Part II. - OTHER INFORMATION
Item 4. - Submission of Matters to Security Holders
The Annual Meeting of Stockholders of the Company was held on Wednesday, May 10,
2000, at which time the stockholders voted to elect the six 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 and the
votes cast "FOR" or for which authority to vote was "WITHHELD" is as follows:
<TABLE>
<CAPTION>
Name For Withheld Authority
<S> <C> <C>
William G. Anderson 6,189,973 39,871
Alan C. Henderson 5,175,754 1,054,090
Richard E. Ragsdale 6,189,973 39,871
John H Short 6,189,973 39,871
H. Edwin Trusheim 6,188,727 41,117
Theodore M. Wight 6,188,727 41,117
</TABLE>
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.
May 10, 2000
By /s/ John R. Finkenkeller
John R. Finkenkeller
Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 963,000
<SECURITIES> 3,019,000
<RECEIVABLES> 83,617,000
<ALLOWANCES> 4,761,000
<INVENTORY> 0
<CURRENT-ASSETS> 89,197,000
<PP&E> 8,211,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 202,294,000
<CURRENT-LIABILITIES> 49,849,000
<BONDS> 58,067,000
0
0
<COMMON> 83,000
<OTHER-SE> 89,789,000
<TOTAL-LIABILITY-AND-EQUITY> 202,294,000
<SALES> 105,933,000
<TOTAL-REVENUES> 105,933,000
<CGS> 75,244,000
<TOTAL-COSTS> 95,346,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,324,000
<INCOME-PRETAX> 9,320,000
<INCOME-TAX> 3,709,000
<INCOME-CONTINUING> 5,611,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,611,000
<EPS-BASIC> .81
<EPS-DILUTED> .73
</TABLE>
