================================================================================ 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 ================================================================================ 1 of 16 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 2 of 16 PART 1. - FINANCIAL INFORMATION Item 1. - Condensed Consolidated Financial Statements - ----------------------------------------------------- REHABCARE GROUP, INC. Condensed Consolidated Balance Sheets (dollars in thousands, except per share data) September 30, December 31, 2000 1999 ---- ---- (unaudited) 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 ======= ======= See notes to condensed consolidated financial statements. 3 of 16 REHABCARE GROUP, INC. Condensed Consolidated Statements of Earnings (dollars in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- 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 ======= ======= ======= ======= See notes to condensed consolidated financial statements. 4 of 16 REHABCARE GROUP, INC. Condensed Consolidated Statements of Cash Flows (dollars in thousands) (Unaudited) Nine Months Ended September 30, 2000 1999 ---- ---- 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 ====== ====== See notes to condensed consolidated financial statements. 5 of 16 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 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. 7 of 16 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) Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- 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 ==== ==== ==== ==== 8 of 16 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) Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- 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 ======= ======= ======= ======= 9 of 16 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 10 of 16 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. Three Months Ended Nine Months Ended Operating Statistics September 30, September 30, - -------------------- 2000 1999 2000 1999 ---- ---- ---- ---- 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 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. 11 of 16 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. 12 of 16 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 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. 14 of 16 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 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 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