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, 2001
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Commission File Number 0-19294
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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
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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 November 7, 2001
- -------------------------------------- -------------------------------
Common Stock, par value $.01 per share 17,320,891
1 of 15
REHABCARE GROUP, INC.
Index
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
September 30, 2001 (unaudited) and December 31, 2000 3
Condensed consolidated statements of earnings for the three
months and nine months ended September 30, 2001 and 2000
(unaudited) 4
Condensed consolidated statements of cash flows for the
nine months ended September 30, 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 1. - Legal Proceedings 14
Item 6. - Exhibits and Reports on Form 8-K 14
Signatures 15
2 of 15
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,
2001 2000
---- ----
Assets: (unaudited)
Current assets:
Cash and cash equivalents $ 14,354 7,942
Short-term investments, available-for-sale 3,025 3,025
Accounts receivable, net of allowance for doubtful
accounts of $6,750 and $5,347, respectively 94,746 84,033
Income taxes receivable -- 3,672
Deferred tax assets 6,250 4,872
Prepaid expenses and other current assets 2,553 1,158
------- -------
Total current assets 120,928 104,702
Marketable securities, trading 2,832 2,383
Equipment and leasehold improvements, net 16,081 12,427
Excess of cost over net assets acquired, net 102,254 104,782
Other 4,913 4,799
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$ 247,008 229,093
======= =======
Liabilities and Stockholders' Equity:
Current liabilities:
Current portion of long-term debt $ 2,450 2,868
Accounts payable 2,174 2,790
Accrued salaries and wages 25,221 24,846
Accrued expenses 8,918 10,012
Income taxes payable 703 --
------- -------
Total current liabilities 39,466 40,516
Deferred compensation and other long-term
liabilities 2,930 2,679
Deferred tax liabilities 2,910 2,504
Long-term debt, less current portion 634 65,434
------- -------
Total liabilities 45,940 111,133
------- -------
Stockholders' equity:
Preferred stock, $.10 par value,
10,000,000 shares, none issued and outstanding -- --
Common stock, $.01 par value; authorized 60,000,000
shares, issued 19,615,381 and 17,409,584 shares,
respectively 196 174
Additional paid-in capital 109,537 49,503
Retained earnings 109,074 86,022
Less common stock held in treasury at cost,
2,302,898 shares (17,757) (17,757)
Accumulated other comprehensive earnings 18 18
------- -------
Total stockholders' equity 201,068 117,960
------- -------
$ 247,008 229,093
======= =======
See accompanying notes to condensed consolidated financial statements.
3 of 15
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,
2001 2000 2001 2000
---- ---- ---- ----
Operating revenues $ 140,434 115,820 408,029 329,474
Costs and expenses:
Operating expenses 100,624 82,698 290,882 234,563
General and administrative 23,898 20,197 70,552 57,823
Depreciation and amortization 2,393 1,775 6,841 4,913
------- ------- ------- -------
Total costs and expenses 126,915 104,670 368,275 297,299
------- ------- ------- -------
Operating earnings 13,519 11,150 39,754 32,175
Interest income 107 28 243 136
Interest expense (218) (1,206) (1,646) (3,858)
Other income (expense) (52) 30 (44) 58
------- ------- ------- -------
Earnings before income taxes 13,356 10,002 38,307 28,511
Income taxes 5,314 3,995 15,255 11,349
------- ------- ------- -------
Net earnings $ 8,042 6,007 23,052 17,162
======= ======= ======= =======
Net earnings per common share:
Basic $ .47 .41 1.39 1.20
======= ======= ======= =======
Diluted $ .44 .36 1.28 1.08
======= ======= ======= =======
Weighted average number of
common shares outstanding:
Basic 17,274 14,828 16,590 14,254
======= ======= ======= =======
Diluted 18,440 16,538 17,989 15,860
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
4 of 15
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Nine Months Ended
September 30,
2001 2000
---- ----
Cash flows from operating activities:
Net earnings $ 23,052 17,162
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 6,841 4,913
Provision for losses on accounts receivable 3,378 2,581
Income tax benefit realized on employee
stock option exercises 6,213 1,416
Change in assets and liabilities:
Deferred compensation 251 103
Accounts receivable, net (14,091) (13,664)
Prepaid expenses and other current assets (1,395) 147
Other assets (165) (969)
Accounts payable and accrued expenses (1,710) (459)
Accrued salaries and wages 375 4,945
Income taxes payable and deferred 3,403 (2,067)
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Net cash provided by
operating activities 26,152 14,108
------- -------
Cash flows from investing activities:
Purchase of marketable securities (851) (696)
Proceeds from sale/maturities of marketable securties 402 166
Additions to equipment and leasehold improvements, net (6,916) (4,257)
Deferred contract costs (308) (923)
Cash paid in acquisition of businesses,
net of cash received -- (7,874)
Other (937) (793)
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Net cash used in investing activities (8,610) (14,377)
------- -------
Cash flows from financing activities:
Proceeds from long-term debt -- 43,700
Repayments on long-term debt (64,973) (46,273)
Proceeds from sale of common stock, net 49,447 --
Exercise of stock options 4,396 4,142
------- -------
Net cash (used in) provided by
financing activities (11,130) 1,569
------- -------
Net increase in cash and cash
equivalents 6,412 1,300
Cash and cash equivalents at beginning of period 7,942 738
------- -------
Cash and cash equivalents at end of period $ 14,354 2,038
======= =======
See accompanying notes to condensed consolidated financial statements.
5 of 15
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
Three and Nine Month Periods Ended September 30, 2001 and 2000
(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. There are no other components of comprehensive income other than
the Company's consolidated net income for the three months and nine months ended
September 30, 2001 and 2000. All significant intercompany accounts and activity
have been eliminated in consolidation. In the opinion of management, all entries
necessary for a fair presentation of such financial statements have been
included. These entries consisted only of normal recurring items. The results of
operations for the three months and nine months ended September 30, 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 accounting
principles generally accepted in the United States of America. 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.
6 of 15
Note 2. - Earnings per Share
- ----------------------------
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(in thousands, except per share data)
Numerator:
Numerator for basic earnings
per share - earnings available
to common stockholders
(net earnings) $ 8,042 6,007 23,052 17,162
Effect of dilutive securities -
after-tax interest on convertible
subordinated promissory notes -- -- -- 28
------ ------ ------ ------
Numerator for diluted earnings per
share - earnings available to
common stockholders after assumed
conversions $ 8,042 6,007 23,052 17,190
======= ======= ======= =======
Denominator:
Denominator for basic earnings per
share - weighted-average shares
outstanding 17,274 14,828 16,590 14,254
Dilutive effect of stock options 1,166 1,710 1,399 1,606
------ ------- ------- -------
Denominator for diluted earnings per
share - adjusted weighted-average
shares and assumed conversions 18,440 16,538 17,989 15,860
======= ======= ======= =======
Basic earnings per share $ .47 .41 1.39 1.20
======= ======= ======= =======
Diluted earnings per share $ .44 .36 1.28 1.08
======= ======= ======= =======
Note 3. - Industry Segment Information
- --------------------------------------
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), contract therapy programs and outpatient 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 and
nine months ended September 30, 2001 and 2000 in each industry segment is as
follows:
7 of 15
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
(dollars in thousands)
Revenues from Unaffiliated Customers
- ------------------------------------
Healthcare staffing $ 79,926 68,035 232,274 189,533
Program management:
Inpatient 30,846 29,686 92,662 89,485
Contract therapy 17,700 7,594 45,095 20,449
Outpatient 11,962 10,505 37,998 30,007
------- ------- ------- -------
Program management subtotal 60,508 47,785 175,755 139,941
------- ------- ------- -------
Total $ 140,434 115,820 408,029 329,474
======= ======= ======= =======
Operating Earnings*
- -------------------
Healthcare staffing $ 3,670 3,920 10,417 9,278
Program management:
Inpatient 6,575 4,929 19,233 15,790
Contract therapy 1,849 740 4,873 1,896
Outpatient 1,425 1,561 5,231 5,211
------- ------- ------- -------
Program management subtotal 9,849 7,230 29,337 22,897
------- ------- ------- -------
Total $ 13,519 11,150 39,754 32,175
======= ======= ======= =======
Total Assets
- ------------
Healthcare staffing $ 110,196 102,992 110,196 102,992
Program management:
Inpatient 75,750 57,840 75,750 57,840
Contract therapy 30,517 21,677 30,517 21,677
Outpatient 30,545 31,176 30,545 31,176
------- ------- ------- -------
Program management subtotal 136,812 110,693 136,812 110,693
------- ------- ------- -------
Total $ 247,008 213,685 247,008 213,685
======= ======= ======= =======
Depreciation and Amortization
- -----------------------------
Healthcare staffing $ 836 729 2,427 2,027
Program management:
Inpatient 898 756 2,680 2,069
Contract therapy 282 99 703 287
Outpatient 377 191 1,031 530
------- ------- ------- -------
Program management subtotal 1,557 1,046 4,414 2,886
------- ------- ------- -------
Total $ 2,393 1,775 6,841 4,913
======= ======= ======= =======
Capital Expenditures
- --------------------
Healthcare staffing $ 238 559 1,207 1,915
Program management:
Inpatient 1,625 778 4,744 2,211
Contract therapy 392 95 601 152
Outpatient 85 -- 364 46
------- ------- ------- -------
Program management subtotal 2,102 873 5,709 2,409
------- ------- ------- -------
Total $ 2,340 1,432 6,916 4,324
======= ======= ======= =======
* Operating earnings for the three months and nine months ended September 30,
2000 have been adjusted to reflect the corporate expense allocation methodology
utilized in the current year.
8 of 15
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 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), contract therapy programs and outpatient therapy
programs.
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
Operating Statistics:
Healthcare staffing:
Average number of staffing offices 110 90 107 86
Weeks worked 60,292 57,803 181,619 164,920
Average revenue per week worked $ 1,326 $1,177 $ 1,279 $ 1,149
Program management:
Inpatient (acute rehabilitation and
skilled nursing):
Average number of programs 135.6 137.4 136.8 135.1
Average admissions per program 99.1 92.7 296.9 279.7
Average bed capacity 2,696 2,683 2,710 2,644
Average billable length of stay (days) 13.7 13.9 13.7 14.1
Billable patient days served 183,355 176,801 555,257 533,057
Admissions 13,433 12,742 40,615 37,791
Average daily billable census 1,993 1,922 2,034 1,945
Average billable occupied beds per program 14.7 14.0 14.9 14.4
Total programs in operation at end of period 139 139 139 139
Contract therapy:
Average number of locations 259.7 160.5 235.0 146.6
Number of locations at end of period 270 163 270 163
Average revenue per location $68,163 $47,312 $190,918 $139,358
Outpatient programs:
Average number of programs 60.2 53.0 62.5 49.1
Patient visits 345,962 294,462 1,091,650 830,661
Units of service 991,643 812,084 3,129,469 2,296,624
Average units of service
per program 16,473 15,322 50,072 46,774
Total programs in operation at end of
period 59 64 59 64
Three Months Ended September 30, 2001 Compared to Three Months Ended September
- --------------------------------------------------------------------------------
30, 2000
- --------
Operating revenues during the third quarter 2001 increased by $24.6
million, or 21.3%, to $140.4 million as compared to the third quarter of 2000.
The September 15, 2000 acquisition of DiversiCare Rehab Services, Inc.
("DiversiCare") accounted for 5.7% of the net increase, or $1.4 million.
Staffing revenue increased by 17.5% from $68.0 million in the third quarter
of 2000 to $79.9 million in the third quarter of 2001, reflecting a 4.3%
increase in weeks worked from 57,803 to 60,292 and a 12.7% increase in average
revenue per week worked to $1,326. Operating earnings for the staffing division
were $3.7 million, a 6.4% decrease over the $3.9 million earned in the third
quarter of 2000 (prior period was adjusted for current year corporate expense
allocation methodology).
9 of 15
Inpatient program revenue increased by 3.9% from $29.7 million in the third
quarter of 2000 to $30.8 million in the third quarter of 2001. A 5.0% increase
in the average daily billable census per inpatient program from 14.0 to 14.7,
offset by a 1.3% decrease in the average number of inpatient programs managed
from 137.4 to 135.6, resulted in a 3.7% increase in billable patient days to
183,355. The increase in billable census per program for inpatient programs is
primarily attributable to a 6.9% increase in average admissions per program from
92.7 to 99.1, offset by a 1.4% decrease in the average length of stay to 13.7.
Operating earnings for the inpatient division increased by 33.4% to $6.6 million
in the third quarter of 2001, compared to $4.9 million in the third quarter of
2000 (prior period was adjusted for current year corporate expense allocation
methodology).
Contract therapy revenue increased by 133.1% from $7.6 million in the third
quarter of 2000 to $17.7 million in the third quarter of 2001, reflecting a
61.8% increase in the average number of contract therapy locations managed from
160.5 to 259.7, and a 44.1% increase in average revenue per location to $68,163.
Operating earnings for the contract therapy division were $1.8 million in the
third quarter of 2001, a $1.1 million increase from the $740,000 in operating
earnings for the third quarter of 2000 (prior period was adjusted for current
year corporate expense allocation methodology).
Outpatient revenue increased by 13.9% from $10.5 million in the third
quarter of 2000 to $12.0 million in the third quarter of 2001, reflecting $1.4
million from the September 15, 2000 acquisition of DiversiCare. A 7.5% increase
in units of service per program from 15,322 in the third quarter of 2000 to
16,473 in the third quarter of 2001 was offset by a decrease in the average
number of outpatient programs managed from 50.7 to 49.1 (excluding 2.3 and 11.1
from DiversiCare) and a 6.8% decrease in average revenue per unit of service.
Operating earnings from the outpatient division were $1.4 million in the third
quarter of 2001, an 8.7% decrease compared to the $1.6 million earned in the
third quarter of 2000 (prior period was adjusted for current year corporate
expense allocation methodology).
Operating expenses for the three months ended September 30, 2001 increased
by $17.9 million, or 21.7%, to $100.6 million as compared to the three months
ended September 30, 2000. The DiversiCare acquisition accounted for
approximately 6.2% of the net increase. The remaining increase in operating
expenses is attributable to a 4.3% increase in the number of weeks worked by
travel and per diem staffing and a 61.8% increase in the average number of
contract therapy locations. Inpatient operating expenses in the third quarter of
2001 were comparable to the operating expenses in the third quarter of 2000,
while patient days increased 3.7% to 183,355. Outpatient operating expenses
(excluding DiversiCare) for the three months ended September 30, 2001 were also
comparable to the three months ended September 30, 2000 as units of service
increased 11.0% from 793,907 to 881,388 (excluding DiversiCare units of service
of 18,177 and 110,255, respectively).
General and administrative expenses as a percentage of revenue decreased
from 17.4% in the third quarter of 2000 to 17.0% in the third quarter of 2001 as
a result of the consolidation of certain corporate office functions. General and
administrative expenses increased by $3.7 million, or 18.3% from $20.2 million
in the third quarter of 2000 to $23.9 million in the third 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.
10 of 15
Depreciation and amortization increased $618,000 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. See discussion of Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (Statement) No. 142,
"Goodwill and Other Intangible Assets" under "New Accounting Pronouncements".
Interest expense decreased $1.0 million, primarily reflecting the repayment
of $49.5 million of debt as a result of the March 20, 2001 publicly underwritten
equity offering and the repayment of $15.5 million of debt as a result of cash
generated from operations.
Earnings before income taxes increased by $3.4 million, or 33.5%, from
$10.0 million in the third quarter of 2000 to $13.4 million in the third quarter
of 2001. The provision for income taxes for 2001 was $5.3 million compared to
$4.0 million in 2000, reflecting effective income tax rates of 39.8% and 39.9%,
respectively. Net earnings increased by $2.0 million, or 33.9%, to $8.0 million
from $6.0 million in 2000. Diluted earnings per share increased by 22.2% to $.44
from $.36 on an 11.5% increase in the weighted-average shares outstanding. The
increase in weighted-average shares outstanding is attributable primarily to 1.5
million shares issued in the publicly underwritten 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.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
2000
- ----
Operating revenues during the first nine months 2001 increased by $78.6
million, or 23.8%, to $408.0 million as compared to the first nine months of
2000. The September 15, 2000 acquisition of DiversiCare accounted for 6.9% of
the net increase, or $5.5 million.
Staffing revenue increased by 22.6% from $189.5 million in the first nine
months of 2000 to $232.3 million in the first nine months of 2001, reflecting a
10.1% increase in weeks worked from 164,920 to 181,619 and an 11.3% increase in
average revenue per week worked to $1,279. Operating earnings for the staffing
division were $10.4 million, a 12.3% increase over the $9.3 million earned in
the first nine months of 2000 (prior period was adjusted for current year
corporate expense allocation methodology).
Inpatient program revenue increased by 3.6% from $89.5 million in the first
nine months of 2000 to $92.7 million in the first nine months of 2001. A 1.3%
increase in the average number of inpatient programs managed from 135.1 to
136.8, and a 3.2% increase in the average daily billable census per inpatient
program from 14.4 to 14.9 resulted in a 4.2% increase in billable patient days
to 555,257. The increase in billable census per program for inpatient programs
is primarily attributable to a 6.1% increase in average admissions per program
from 279.7 to 296.9 offset by a 3.1% decrease in the average length of stay to
13.7. The increase in patient days was offset by a 0.6% decrease in the average
per diem billing rates. Operating earnings for the inpatient division increased
by 21.8% to $19.2 million in the first nine months of 2001, compared to $15.8
million in the first nine months of 2000 (prior period was adjusted for current
year corporate expense allocation methodology).
11 of 15
Contract therapy revenue increased by 120.5% from $20.4 million in the
first nine months of 2000 to $45.1 million in the first nine months of 2001,
reflecting a 60.3% increase in the average number of contract therapy locations
managed from 146.6 to 235.0, and a 37.0% increase in average revenue per
location. Operating earnings for the contract therapy division were $4.9 million
in the first nine months of 2001, a $3.0 million increase from the $1.9 million
in operating earnings for the first nine months of 2000 (prior period was
adjusted for current year corporate expense allocation methodology).
Outpatient revenue increased by 26.6% from $30.0 million in the first nine
months of 2000 to $38.0 million in the first nine months of 2001, reflecting
$5.5 million from the September 15, 2000 acquisition of DiversiCare, an increase
in the average number of outpatient programs managed from 49.1 to 62.5
(including a net increase of 11.9 from DiversiCare) and a 7.0% increase in units
of service per program. Operating earnings from the outpatient division were
$5.2 million in the first nine months of 2001, a 0.4% increase compared to the
operating earnings earned in the first nine months of 2000 (prior period was
adjusted for current year corporate expense allocation methodology).
Operating expenses for the nine months ended September 30, 2001 increased
by $56.3 million, or 24.0%, to $290.9 million as compared to the nine months
ended September 30, 2000. The DiversiCare acquisition accounted for
approximately 7.0% of the net increase. The remaining increase in operating
expenses is attributable to a 10.1% increase in the number of weeks worked by
travel and per diem staffing, a 60.3% increase in the average number of contract
therapy locations, a 21.2% increase in outpatient units of service (excluding
349,336 units of service from DiversiCare), and a 1.3% increase in the average
number of inpatient programs.
General and administrative expenses as a percentage of revenue decreased
from 17.6% in the first nine months of 2000 to 17.3% in the first nine months of
2001 as a result of the consolidation of certain corporate office functions.
General and administrative expenses increased by $12.7 million, or 22.0% from
$57.8 million in the first nine months of 2000 to $70.6 million in the first
nine months 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.
Depreciation and amortization increased by $1.9 million 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 certain acquisitions as previously
disclosed in the three month operating results. See discussion of Statement No.
142, "Goodwill and Other Intangible Assets" under "New Accounting
Pronouncements".
Interest expense decreased $2.2 million primarily reflecting the repayment
of $49.5 million in debt as a result of the March 20, 2001 publicly underwritten
equity offering and the repayment of $15.5 million of debt as a result of cash
generated from operations.
Earnings before income taxes increased by $9.8 million, or 34.4%, from
$28.5 million in the first nine months of 2000 to $38.3 million in the first
nine months of 2001. The provision for income taxes for 2001 was $15.3 million
compared to $11.3 million in 2000, reflecting effective income tax rates of
39.8% for each period. Net earnings increased by $5.9 million, or 34.3%, to
$23.1 million from $17.2 million in 2000. Diluted earnings per share increased
by 18.5% to $1.28 from $1.08 on a 13.4% increase in the weighted-average shares
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.
12 of 15
Liquidity and Capital Resources
- -------------------------------
As of September 30, 2001, the Company had $17.4 million in cash and
short-term investments and a current ratio, the amount of current assets divided
by current liabilities, of 3.1 to 1. Working capital increased by $17.3 million
to $81.5 million as of September 30, 2001, compared to $64.2 million as of
December 31, 2000. The increase in working capital is primarily due to capital
generated from operations and the exercise of stock options.
Net accounts receivable were $94.7 million at September 30, 2001, compared
to $84.0 million at December 31, 2000. The number of days' average net revenue
in net receivables was 61.5 at September 30, 2001 compared to 63.8 at December
31, 2000. This decrease was the result of the consolidation of our financial
back office that commenced 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 no balance outstanding as of September 30,
2001.
New Accounting Pronouncements
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In July 2001, the FASB issued Statement No. 141, "Business Combinations",
and Statement No. 142, "Goodwill and Other Intangible Assets". Statement No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase method
business combinations completed after June 30, 2001. Statement No. 142 will
require that goodwill with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement No. 142.
The Company is required to adopt the provisions of Statement No. 141
immediately and Statement No. 142 effective January 1, 2002. Furthermore, any
goodwill and any intangible assets determined to have an indefinite useful live
that are acquired in a purchase business combination completed after June 30,
2001 will not be amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-Statement No. 142 accounting literature.
Goodwill acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement No. 142.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of approximately $101.0 million which will be subject to
the transition provisions of Statements No. 141 and No. 142. Amortization
expense related to goodwill was approximately $2.9 million and $2.5 million for
the year ended December 31, 2000 and the nine months ended September 30, 2001,
respectively. Because of the extensive effort needed to comply with adopting
Statements No. 141 and No. 142, it is not practicable to reasonably estimate
whether any transitional impairment losses will be required to be recognized as
the cumulative effect of a change in accounting principle. Management does not
expect Statement No. 141 to have a material effect on the consolidated financial
statements. Management does expect Statement No. 142 to result in the
elimination of amortization of goodwill from previous acquisitions in the amount
of $3.6 million pre-tax in 2002.
In October 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", which supersedes Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". Statement No. 144 also supercedes the accounting and reporting
provisions of APB Opinion No. 30 "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." Statement No. 144 is
intended to establish one accounting model for long-lived assets to be disposed
of by sale and to address significant implementation issues. The Company will
adopt Statement No. 144 on January 1, 2002. Management does not expect Statement
No. 144 to have a material effect on the consolidated financial statements.
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Part II. - Other Information
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Item 1 - Legal Proceedings
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The Company has recently reached an agreement with the United States
Department of Labor under which the Company will conduct a self-audit of the
overtime practices for temporary employees of its staffing division for the
period from January 1, 1998 to October 26, 2001. In order to implement the
agreement, the Department of Labor recently filed suit against the Company and
certain of its subsidiaries in federal court in St. Louis, Missouri and a
pre-negotiated order was approved by the court on November 2, 2001. Pursuant to
the order, the Company has commenced the process of determining whether any
present or former temporary employee is owed any additional overtime wages that
had not previously been paid. The agreement arose out of an earlier audit on
selected staffing branch offices by the Department of Labor. The suit serves to
bar multiple future suits on the overtime wage issue by the persons covered by
the order. Management cannot predict with any certainty at this time the total
amount of unpaid overtime that the Company will be required to pay to employees
and former employees pursuant to the self-audit.
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.
November 9, 2001
By Gregory J. Eisenhauer
---------------------------------
Gregory J. Eisenhauer
Senior Vice President and
Chief Financial Officer
By James M. Douthitt
--------------------------------
James M. Douthitt
Senior Vice President and
Chief Accounting Officer
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