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, 2001
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Commission File Number 0-19294
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REHABCARE GROUP, INC.
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(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
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Indicate the number of shares outstanding of the Registrant's common stock, as
of the latest practicable date.
Class Outstanding at May 7, 2001
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Common Stock, par value $.01 per share 16,985,356
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REHABCARE GROUP, INC.
Index
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
March 31, 2001 (unaudited) and December 31, 2000 3
Condensed consolidated statements of earnings for the three
months ended March 31, 2001 and 2000 (unaudited) 4
Condensed consolidated statements of cash flows for the
three months ended March 31, 2001 and 2000 (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 12
Item 6. - Exhibits and Reports on Form 8-K 13
Signatures 14
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PART 1. - FINANCIAL INFORMATION
Item 1. - Condensed Consolidated Financial Statements
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REHABCARE GROUP, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share data)
March 31, December 31,
2001 2000
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Assets: (unaudited)
Current assets:
Cash and cash equivalents $ 8,758 7,942
Marketable securities, available-for-sale 3,025 3,025
Accounts receivable, net of allowance for doubtful
accounts of $5,433 and $5,347, respectively 89,005 84,033
Income taxes receivable -- 3,672
Deferred tax assets 6,464 4,872
Prepaid expenses and other current assets 1,354 1,158
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Total current assets 108,606 104,702
Marketable securities, trading 2,865 2,383
Equipment and leasehold improvements, net 14,161 12,427
Excess of cost over net assets acquired, net 103,945 104,782
Other 4,869 4,799
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$234,446 229,093
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Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $ 2,868 2,868
Accounts payable 2,400 2,790
Accrued salaries and wages 24,465 24,846
Accrued expenses 11,316 10,012
Income taxes payable 1,539 --
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Total current liabilities 42,588 40,516
Deferred compensation and other long-term
liabilities 3,170 2,679
Deferred tax liabilities 2,537 2,504
Long-term debt, less current portion 5,334 65,434
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Total liabilities 53,629 111,133
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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 19,277,757 and 17,409,584 shares,
respectively 193 174
Additional paid-in capital 105,163 49,503
Retained earnings 93,200 86,022
Less common stock held in treasury at cost,
2,302,898 shares (17,757) (17,757)
Accumulated other comprehensive earnings 18 18
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Total stockholders' equity 180,817 117,960
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$234,446 229,093
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See accompanying notes to condensed consolidated financial statements.
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REHABCARE GROUP, INC.
Condensed Consolidated Statements of Earnings
(dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
2001 2000
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Operating revenues $ 130,724 105,933
Costs and expenses:
Operating expenses 93,033 75,244
General and administrative 22,527 18,586
Depreciation and amortization 2,122 1,516
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Total costs and expenses 117,682 95,346
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Operating earnings 13,042 10,587
Interest income 62 49
Interest expense (1,186) (1,324)
Other income 9 8
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Earnings before income taxes 11,927 9,320
Income taxes 4,749 3,709
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Net earnings $ 7,178 5,611
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Net earnings per common share:
Basic $ .47 .41
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Diluted $ .42 .37
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Weighted average number of
common shares outstanding:
Basic $ 15,434 13,850
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Diluted $ 17,014 15,366
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See accompanying notes to condensed consolidated financial statements.
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REHABCARE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2001 2000
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Cash flows from operating activities:
Net earnings $ 7,178 5,611
Adjustments to reconcile net earnings to net
cash provided by (used in)operating activities:
Depreciation and amortization 2,122 1,516
Provision for losses on accounts receivable 929 992
Income tax benefit realized on employee
stock option exercises 4,001 250
Change in assets and liabilities:
Deferred compensation 491 (48)
Accounts receivable, net (5,901) (14,071)
Prepaid expenses and other current assets (196) 201
Other assets (1) (320)
Accounts payable and accrued expenses 914 (1,229)
Accrued salaries and wages (381) 774
Income taxes payable and deferred 3,652 891
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Net cash provided by (used in) 12,808 (5,433)
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operating activities
Cash flows from investing activities:
Additions to equipment and leasehold improvements, net (2,668) (1,516)
Purchase of marketable securities (591) (489)
Deferred contract costs (34) (334)
Proceeds from sale/maturities of investments 109 133
Other (386) (355)
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Net cash used in investing activities (3,570) (2,561)
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Cash flows from financing activities:
Proceeds from (repayments to) revolving
credit facility, net (60,100) 10,900
Proceeds from sale of common stock, net 49,581 --
Payments on long-term debt -- (2,909)
Exercise of stock options 2,097 228
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Net cash provided by (used in)
financing activities (8,422) 8,219
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Net increase in cash and
cash equivalents 816 225
Cash and cash equivalents at beginning of period 7,942 738
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Cash and cash equivalents at end of period $ 8,758 963
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See accompanying notes to condensed consolidated financial statements.
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REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(Unaudited)
Note 1. - Basis of Presentation
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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, 2001, are not necessarily
indicative of the results to be expected for the fiscal year. Certain prior year
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, 2000 and 1999 and
for each of the years in the three year period ended December 31, 2000, 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
our accounting policies.
Note 2. - Publicly Underwritten Equity Offering
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On March 20, 2001, the Company issued and sold 1,455,000 shares of its common
stock in a publicly underwritten equity offering. The net proceeds from this
transaction of $49.6 million were used to reduce the Company's outstanding
balance on its revolving credit facility. As part of this transaction, certain
shareholders of the Company sold 270,000 shares of common stock.
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Note 3. - Earnings per Share
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The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended
March 31,
2001 2000
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(in thousands, except
per share data)
Numerator:
Numerator for basic earnings
per share - earnings available
to common stockholders
(net earnings) $ 7,178 5,611
Effect of dilutive securities -
after-tax interest on convertible
subordinated promissory notes -- 28
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Numerator for diluted earnings per
share - earnings available to
common stockholders after assumed
conversions $ 7,178 5,639
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Denominator:
Denominator for basic earnings per
share - weighted-average shares
outstanding 15,434 13,850
Effect of dilutive securities:
Stock options 1,580 1,098
Convertible subordinated
promissory notes -- 418
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Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 17,014 15,366
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Basic earnings per share $ .47 .41
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Diluted earnings per share $ .42 .37
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Note 4. - Industry Segment Information
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The Company operates in two product lines that are managed separately based on
fundamental differences in operations: temporary healthcare staffing services
and physical rehabilitation program management services. Physical rehabilitation
program management includes inpatient programs (including acute rehabilitation
and skilled nursing units), outpatient therapy programs, and contract therapy
programs. 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, 2001 and 2000 in each industry segment is as follows:
Three Months Ended
March 31,
2001 2000
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(dollars in thousands)
Revenues from Unaffiliated Customers
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Healthcare staffing $ 74,281 59,562
Inpatient 31,057 30,511
Outpatient 13,046 9,660
Contract therapy 12,340 6,200
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Total $ 130,724 105,933
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Operating Earnings
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Healthcare staffing $ 3,453 2,679
Inpatient 6,261 5,278
Outpatient 1,909 1,954
Contract therapy 1,419 676
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Total $ 13,042 10,587
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Total Assets
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Healthcare staffing $ 110,483 104,995
Inpatient 64,314 55,826
Outpatient 31,468 20,066
Contract therapy 28,181 21,407
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Total $ 234,446 202,294
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Depreciation and Amortization
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Healthcare staffing $ 769 624
Inpatient 907 631
Outpatient 280 165
Contract therapy 166 96
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Total $ 2,122 1,516
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Capital Expenditures
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Healthcare staffing $ 444 556
Inpatient 2,083 912
Outpatient 113 39
Contract therapy 28 9
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Total $ 2,668 1,516
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Item 2. - Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Results of Operations
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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 two product line segments:
temporary healthcare staffing services and physical rehabilitation program
management services. Our physical rehabilitation program management services
include inpatient programs (including acute rehabilitation and skilled nursing
units), outpatient therapy programs, and contract therapy programs.
Three Months Ended
March 31,
2001 2000
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Operating Statistics:
Healthcare staffing:
Average number of staffing offices 103 83
Weeks worked 59,370 52,864
Program management:
Inpatient (acute rehabilitation and skilled nursing):
Average number of programs 138.0 134.8
Average admissions per program 98.8 94.1
Average bed capacity 2,724 2,634
Average billable length of stay (days) 13.7 14.3
Billable patient days served 187,010 181,856
Admissions 13,634 12,681
Average daily billable census 2,078 1,998
Average billable occupied beds per program 15.1 14.8
Total programs in operation at end of period 138 132
Outpatient programs:
Average number of programs 64.5 46.0
Patient visits 375,008 259,409
Units of service 1,072,629 717,812
Average units of service per program 16,630 15,605
Total programs in operation at end of period 65 46
Contract therapy:
Average number of locations 215.0 134.8
Number of locations at end of period 219 141
Average revenue per location 57,394 45,993
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000
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Operating revenues during the first quarter 2001 increased by $24.8 million, or
23.4%, to $130.7 million as compared to the first quarter of 2000. The September
15, 2000 acquisition of DiversiCare Rehab Services, Inc. ("DiversiCare")
accounted for 7.8% of the net increase.
Staffing revenue increased by 24.7% from $59.6 million in the first quarter of
2000 to $74.3 million in the first quarter of 2001, reflecting a 12.3% increase
in weeks worked from 52,864 to 59,370. Operating earnings for the staffing
division were $3.5 million, a 28.9% increase over the $2.7 million earned in the
first quarter of 2000.
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Inpatient program revenue increased by 1.8% from $30.5 million in the first
quarter of 2000 to $31.1 million in the first quarter of 2001. A 2.4% increase
in the average number of inpatient programs managed from 134.8 to 138.0, and a
2.0% increase in the average daily billable census per inpatient program from
14.8 to 15.1 resulted in a 2.8% increase in billable patient days to 187,010.
The increase in billable census per program for inpatient programs is primarily
attributable to a 5.0% increase in average admissions per program from 94.1 to
98.8 offset by a 4.2% decrease in the average length of stay to 13.7. The
increase in patient days was offset by a 0.5% decrease in the average per diem
billing rates. Operating earnings for the inpatient division increased by 18.6%
to $6.3 million in the first quarter of 2001, compared to $5.3 million in the
first quarter of 2000.
Outpatient revenue increased by 35.1% from $9.7 million in the first quarter of
2000 to $13.0 million in the first quarter of 2001, reflecting $1.9 million from
the September 15, 2000 acquisition of DiversiCare, an increase in the average
number of outpatient programs managed from 46.0 to 64.5 (including 14.0 from
DiversiCare) and a 6.6% increase in units of service per program. Operating
earnings from the outpatient division were $1.9 million in the first quarter of
2001, a 2.3% decrease compared to the $2.0 million earned in the first quarter
of 2000.
Contract therapy revenue increased by 99.0% from $6.2 million in the first
quarter of 2000 to $12.3 million in the first quarter of 2001, reflecting a
59.5% increase in the average number of contract therapy locations managed from
134.8 to 215.0, and a 24.8% increase in average revenue per location. Operating
earnings for the contract therapy division were $1.4 million in the first
quarter of 2001, a $743,000 increase from the $676,000 in operating earnings for
the first quarter of 2000.
Operating expenses for the three months ended March 31, 2001 increased by $17.8
million, or 23.6%, to $93.0 million as compared to the three months ended March
31, 2000. The DiversiCare acquisition accounted for approximately 7.8% of the
net increase. The remaining increase in operating expenses is attributable to a
12.3% increase in the number of weeks worked from travel and per diem staffing,
a 59.5% increase in the average number of contract therapy locations, a 31.4%
increase in outpatient units of service (excluding 129,564 units of service from
DiversiCare), and a 2.4% increase in the average number of inpatient programs.
The aggregate excess of direct operating expenses over operating revenues
associated with non-exempt inpatient acute rehabilitation programs increased
from $81,000 to $173,000, on a decrease in the average number of non-exempt
units managed from 7.0 to 3.0. The per program average excess of operating
expenses over operating revenues increased from $12,000 to $58,000 reflecting a
decrease in the average revenue per unit from $68,000 to $34,000 and a 36.7%
decrease in admissions per average unit to 28.2. The average excess of operating
expenses over operating revenues for an inpatient acute rehabilitation program
during its non-exempt year can range to as high as $150,000 to $200,000.
General and administrative expenses increased by $3.9 million, or 21.2% from
$18.6 million in the first quarter of 2000 to $22.5 million in the first quarter
of 2001, reflecting increases in corporate office expenses as well as marketing,
business development, operations and professional services in support of the
increase in outpatient programs, contract therapy locations managed and per diem
staffing offices operated, plus the addition of general and administrative
expenses from the DiversiCare acquisition. General and administrative expenses
as a percentage of revenue decreased from 17.5% in the first quarter of 2000 to
17.2% in the first quarter of 2001 as a result of the consolidation of certain
corporate office functions.
Depreciation and amortization increased $606,000 reflecting an increase in
goodwill from acquisitions and depreciation on equipment purchased, plus the
change in goodwill amortization period from 40 years to 25 years, effective
prospectively on January 1, 2001 on the acquisitions of Physical Therapy
Resources, Inc., Team Rehab, Inc./Moore Rehabilitation Services, Inc.;
RehabUnlimited, Inc/Cimarron Health Care, Inc. Rehabilitative Care Systems of
America, Inc.; Therapeutic Systems, Inc.; Salt Lake Physical Therapy Associates,
Inc.; AllStaff, Inc.; and DiversiCare Rehab Services, Inc. The amortization
periods for the acquisitions of Advanced Rehabilitation Resources, Inc,;
Healthcare Staffing Solutions, Inc,; StarMed Staffing, Inc.; and eai Healthcare
Staffing Solutions, Inc., which had businesses that were more national in scope,
remain at 40 years.
Interest expense decreased $138,000 reflecting the repayment of principal as a
result of the March 20, 2001 publicly underwritten equity offering and cash
generated from operations. See further discussion of the publicly underwritten
equity offering under "Note 2. - Publicly Underwritten Equity Offering".
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Earnings before income taxes increased by $2.6 million, or 28.0%, from $9.3
million in the first quarter of 2000 to $11.9 million in the first quarter of
2001. The provision for income taxes for 2001 was $4.7 million compared to $3.7
million in 2000, reflecting effective income tax rates of 39.8% for these
periods. Net earnings increased by $1.6 million, or 27.9%, to $7.2 million from
$5.6 million in 2000. Diluted earnings per share increased by 15.0% to $.42 from
$.37 on a 10.7% increase in the weighted-average shares and assumed conversions
outstanding. The increase in weighted average shares outstanding is attributable
primarily to the secondary equity offering, stock option grants and 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
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As of March 31, 2001, the Company had $11.8 million in cash and current
marketable securities and a current ratio, the amount of current assets divided
by current liabilities, of 2.6:1. Working capital increased by $1.8 million to
$66.0 million as of March 31, 2001, compared to $64.2 million as of December 31,
2000. The increase in working capital is primarily due to working capital
generated from operations and the exercise of stock options.
Net accounts receivable were $89.0 million at March 31, 2001, compared to $84.0
million at December 31, 2000. The number of day's average net revenue in net
receivables was 59.9 at March 31, 2001 compared to 63.8 at December 31, 2000.
This decrease was the result of the consolidation of our financial back office
during the fourth quarter of 2000, the implementation of new financial software
enabling improved tracking of receivables and payables, and the vigilance of our
billing and collections team.
The Company's operating cash flows constitute its primary source of liquidity
and historically have been sufficient to fund its working capital, capital
expenditures, internal business expansion and debt service requirements. The
Company expects to meet its future working capital, capital expenditures,
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 March 31, 2001
of $3.7 million.
Part II. - OTHER INFORMATION
Item 4 - Submission of Matters to Security Holders
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The annual Meeting of Stockholders of the Company was held on Thursday, May 3,
2001, at which time the stockholders voted to elect the seven incumbent
directors to hold office until the next annual meeting of stockholders of the
Company or until their successors have been duly elected and qualified. The
names of each of the directors of the Company who were reelected at the Annual
Meeting and the votes cast "FOR" or for which authority to vote was "WITHHELD"
is as follows:
Name For Withheld Authority
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William G. Anderson 11,850,914 992,886
Colleen Conway-Welch 12,487,964 355,836
Alan C. Henderson 10,134,984 2,708,816
Richard E. Ragsdale 12,488,024 355,776
John H. Short 12,488,664 355,136
H. Edwin Trusheim 12,486,514 357,286
Theodore M. Wight 12,488,664 355,136
The stockholders also considered and voted upon an amendment of Article Four of
the Restated Certificate of Incorporation, as amended, of RehabCare to increase
the total number of authorized shares of stock from 30,000,000 to 70,000,000
shares and to increase the number of authorized shares of common stock, $01 par
value per share, from 20,000,000 to 60,000,000 shares. This amendment was
approved by the stockholders by a vote of 11,295,873 "for", 1,525,678 "against"
and 22,249 "abstain".
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Item 6 - Exhibits and Reports on Form 8-K
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(a) Exhibits
None
(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 9, 2001
By /s/ Gregory J. Eisenhauer
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Gregory J. Eisenhauer
Senior Vice President and
Chief Financial Officer
By /s/ James M. Douthitt
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James M. Douthitt
Senior Vice President and
Chief Accounting Officer
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