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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
ON
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
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 No.)
incorporation or organization)
7733 Forsyth Boulevard, 17th Floor, St. Louis, Missouri 63105
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (314) 863-7422
Securities registered pursuant to Name of exchange on which registered:
Section 12(b) of the Act: New York Stock Exchange
Common Stock, par value $.01 per share New York Stock Exchange
Preferred Stock Purchase Rights
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes X No
The aggregate market value of voting stock held by non-affiliates of
Registrant at June 30, 2002 was $414,189,202. At March 10, 2003, the Registrant
had 15,852,080 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Annual Report on Form 10-K incorporates by reference
information contained in the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 2002.
Part III of this Annual Report on Form 10-K incorporates by reference
information contained in the Registrant's definitive Proxy Statement for its
Annual Meeting of Stockholders to be held on April 30, 2003.
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1
EXPLANATORY NOTE
This Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December
31, 2002 is being filed by the Registrant solely for the purpose of correcting
one inadvertent typographical error in the Consolidated Statements of
Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000
included in "Item 8A. Financial Statements and Supplementary Data." The
correction changes the number under the Treasury Shares column in the line item
"Balance, December 31, 2002" from 14,003 to 4,003. The remainder of the
information in the Registrant's financial statements and the related notes
thereto included in Item 8A remains unchanged.
ITEM 8A. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report 33
Consolidated Balance Sheets as of December 31, 2002 and 2001 34
Consolidated Statements of Earnings for the years
ended December 31, 2002, 2001 and 2000 35
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2002, 2001 and 2000 36
Consolidated Statements of Cash Flows for the years
ended December 31, 2002, 2001 and 2000 37
Consolidated Statements of Comprehensive Earnings for the years
ended December 31, 2002, 2001 and 2000 38
Notes to the Consolidated Financial Statements 39
32
Independent Auditors' Report
The Board of Directors
RehabCare Group, Inc.:
We have audited the accompanying consolidated balance sheets of RehabCare
Group, Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of earnings, stockholders' equity, cash
flows and comprehensive earnings for each of the years in the three-year period
ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of RehabCare
Group, Inc. and subsidiaries as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in note 5 to the consolidated financial statements, effective
January 1, 2002 the Company adopted Statement of Financial Accounting Standards
No. 142 "Goodwill and Other Intangible Assets."
/s/ KPMG LLP
St. Louis, Missouri
February 1, 2003
33
REHABCARE GROUP, INC.
Consolidated Balance Sheets
(dollars in thousands, except per share data)
December 31,
----------------
2002 2001
---- ----
Assets
------
Current assets:
Cash and cash equivalents $ 9,580 $ 18,534
Marketable securities, available-for-sale 4 1,025
Accounts receivable, net of allowance for doubtful
accounts of $5,181 and $5,902 respectively 87,221 91,634
Income taxes receivable 2,497 2,055
Deferred tax assets 2,529 7,658
Other current assets 3,625 2,140
------- -------
Total current assets 105,456 123,046
Marketable securities, trading 4,252 2,870
Equipment and leasehold improvements, net 19,844 18,373
Goodwill, net 101,685 101,685
Other 4,293 4,687
------- -------
Total assets $235,530 $250,661
======== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,959 $ 3,567
Accrued salaries and wages 28,579 27,141
Accrued expenses 7,072 14,814
------ ------
Total current liabilities 37,610 45,522
Deferred compensation 4,266 3,043
Deferred tax liabilities 5,040 3,060
------ ------
Total liabilities 46,916 51,625
------ ------
Stockholders' equity:
Preferred stock, $.10 par value; authorized
10,000,000 shares, none issued and outstanding -- --
Common stock, $.01 par value; authorized
60,000,000 shares, issued 19,846,416 shares
and 19,631,789 shares as of December 31,
2002 and 2001, respectively 198 196
Additional paid-in capital 111,671 109,522
Retained earnings 131,452 107,057
Less common stock held in treasury at cost,
4,002,898 shares and 2,302,898 shares as of
December 31, 2002 and 2001, respectively (54,704) (17,757)
Accumulated other comprehensive earnings (3) 18
------- -------
Total stockholders' equity 188,614 199,036
------- -------
$235,530 $250,661
======== ========
See accompanying notes to consolidated financial statements.
34
REHABCARE GROUP, INC.
Consolidated Statements of Earnings
(in thousands, except per share data)
Year Ended December 31,
2002 2001 2000
---- ---- ----
Operating revenues $562,565 $542,265 $452,374
Costs and expenses:
Operating 413,081 394,651 321,192
General and administrative 101,453 101,085 80,120
Depreciation and amortization 8,334 9,562 6,873
------- ------- -------
Total costs and expenses 522,868 505,298 408,185
------- ------- -------
Operating earnings 39,697 36,967 44,189
Interest income 319 385 232
Interest expense (676) (1,859) (5,348)
Other income (expense), net 9 (542) 24
------- ------- -------
Earnings before income taxes 39,349 34,951 39,097
Income taxes 14,954 13,916 15,563
------- ------- -------
Net earnings $24,395 $21,035 $23,534
======= ======= =======
Net earnings per common share:
Basic $ 1.45 $ 1.25 $ 1.62
======= ======= =======
Diluted $ 1.38 $ 1.16 $ 1.45
======= ======= =======
See accompanying notes to consolidated financial statements.
35
REHABCARE GROUP, INC.
Consolidated Statements of Stockholders' Equity
(in thousands)
Accumu-
lated
Common Stock Addi- other Total
------------ tional Treasury compre- stock
Issued paid-in Retained -------------- hensive holder's
shares Amount capital earnings Shares Amount earnings equity
------ ------ ------- -------- ------ ------ -------- -------
Balance,
December 31,
1999 15,700 $157 $33,101 $62,488 2,331 $(17,975) $ 12 $77,783
Net earnings -- -- -- 23,534 -- -- -- 23,534
Conversion
of debt 847 8 5,992 -- -- -- -- 6,000
Exercise of
stock options
(including
tax benefit) 862 9 10,410 -- (28) 218 -- 10,637
Change in
unrealized gain
on marketable
securities,
net of tax -- -- -- -- -- -- 6 6
------ ---- -------- -------- ------ -------- --- --------
Balance,
December 31,
2000 17,409 174 49,503 86,022 2,303 (17,757) 18 117,960
Net earnings -- -- -- 21,035 -- -- -- 21,035
Issuance of
common stock
in connection
with secondary
offering 1,455 14 49,429 -- -- -- -- 49,443
Exercise of
stock options
(including
tax benefit) 767 8 10,590 -- -- -- -- 10,598
------ ---- -------- -------- ------ -------- --- --------
Balance,
December 31,
2001 19,631 196 109,522 107,057 2,303 (17,757) 18 199,036
Net earnings -- -- -- 24,395 -- -- -- 24,395
Purchase of
treasury stock -- -- -- -- 1,700 (36,947) -- (36,947)
Exercise of
stock options
(including
tax benefit) 215 2 2,149 -- -- -- -- 2,151
Change in
unrealized loss
on marketable
securities,
net of tax -- -- -- -- -- -- (21) (21)
------ ---- -------- -------- ------ -------- --- --------
Balance,
December 31,
2002 19,846 $198 $111,671 $131,452 4,003 $(54,704) $(3) $188,614
====== ==== ======== ======== ====== ======== === ========
See accompanying notes to consolidated financial statements.
36
REHABCARE GROUP, INC.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net earnings $24,395 $21,035 $23,534
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 8,334 9,562 6,873
Provision for doubtful accounts 4,511 4,594 3,466
Write-down of investments -- 500 --
Income tax benefit realized on exercise
of employee stock options 770 6,386 5,505
Change in assets and liabilities:
Deferred compensation 407 364 178
Accounts receivable, net (98) (12,195) (20,249)
Prepaid expenses and other current assets (1,485) (982) (70)
Other assets 464 (235) (955)
Accounts payable and accrued expenses (9,350) 5,579 (3,458)
Accrued salaries and wages 1,438 2,295 7,511
Income taxes 6,667 (613) (6,197)
------- ------- -------
Net cash provided by operating
activities 36,053 36,290 16,138
------- ------- -------
Cash flows from investing activities:
Additions to equipment and leasehold
improvements, net (8,546) (10,613) (7,899)
Purchase of marketable securities (596) (922) (778)
Proceeds from sale/maturities of
marketable securities 1,030 2,435 166
Cash paid in acquisition of businesses,
net of cash received -- -- (8,949)
Other, net (1,329) (1,951) (1,513)
------- ------- -------
Net cash used in investing
activities (9,441) (11,051) (18,973)
------- ------- -------
Cash flows from financing activities:
Proceeds from (repayments on) revolving
credit facility, net -- (63,800) 51,800
Repayments on long-term debt -- (4,502) (47,893)
Proceeds from issuance of notes payable -- -- 1,000
Purchase of treasury stock (36,947) -- --
Proceeds from sale of common stock, net -- 49,443 --
Exercise of stock options 1,381 4,212 5,132
------- ------- -------
Net cash provided by (used in)
financing activities (35,566) (14,647) 10,039
------- ------- -------
Net increase (decrease) in
cash and cash equivalents (8,954) 10,592 7,204
Cash and cash equivalents at beginning of year 18,534 7,942 738
------- ------- -------
Cash and cash equivalents at end of year $ 9,580 $18,534 $ 7,942
======= ======= =======
See accompanying notes to consolidated financial statements.
37
REHABCARE GROUP, INC.
Consolidated Statements of Comprehensive Earnings
(in thousands)
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Net earnings $24,395 $21,035 $23,534
Other comprehensive earnings, net of tax -
Unrealized holding gains (losses) arising
during period (21) -- 6
------- ------- -------
Comprehensive earnings $24,374 $21,035 $23,540
======= ======= =======
See accompanying notes to consolidated financial statements.
38
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements
December 31, 2002, 2001 and 2000
(1) Overview of Company and Summary of Significant Accounting Policies
Overview of Company
RehabCare Group, Inc. (the Company) is a leading provider of healthcare
staffing and program management services of inpatient rehabilitation and skilled
nursing units, outpatient therapy programs and contract therapy services in
conjunction with over 7,000 hospitals and skilled nursing facilities throughout
the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant inter-company balances and
transactions have been eliminated in consolidation.
Common Stock Split
During May 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 consolidated financial statements and
accompanying notes have been restated to reflect the split.
Cash Equivalents and Marketable Securities
Cash in excess of daily requirements is invested in short-term investments
with original maturities of three months or less. Such investments are deemed to
be cash equivalents for purposes of the consolidated statements of cash flows.
The Company classifies its debt and equity securities into one of three
categories: held-to-maturity, trading, or available-for-sale. Management
determines the appropriate classification of its investments at the time of
purchase and reevaluates such determination at each balance sheet date.
Investments at December 31, 2002 and 2001 consist of marketable equity
securities. All marketable securities included in current assets are classified
as available-for-sale and as such, the difference between cost and market, net
of taxes, is recorded as other accumulated comprehensive earnings. Unrealized
gains or losses on such securities are not recognized in the consolidated
statements of earnings until the securities are sold. All marketable securities
in non-current assets are classified as trading, with all investment income,
including unrealized gains or losses recognized in the consolidated statements
of earnings.
Credit Risk
The Company provides services to a geographically diverse clientele of
healthcare providers throughout the United States. The Company performs ongoing
credit evaluations of its clientele and does not require collateral. An
allowance for doubtful accounts is maintained at a level which management
believes is sufficient to cover anticipated credit losses.
39
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
Equipment and Leasehold Improvements
Depreciation and amortization of equipment and leasehold improvements are
computed using the straight-line method over the estimated useful lives of the
related assets, principally: equipment - three to seven years and leasehold
improvements - life of lease or life of asset, whichever is less. Upon
retirement or disposition, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in the results of
operation. Repairs and maintenance are expensed as incurred.
Acquisitions
On July 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("Statement") No. 141, "Business Combinations". Statement No. 141
eliminates the pooling-of-interests method of accounting for business
combinations completed after June 30, 2001. All of the Company's acquisitions,
including those prior to the adoption of Statement No. 141, were accounted for
using the purchase method of accounting, and as such the assets and liabilities
acquired were recorded at their estimated fair values on the dates of
acquisition. Operating results of the acquired companies were included in the
Company's consolidated financial statements from the dates of acquisition.
Goodwill and Other Identifiable Intangible Assets
Goodwill, which represents the excess of cost over net assets acquired,
relates to acquisitions. Prior to January 1, 2002, goodwill was amortized on a
straight-line basis over 25 to 40 years. Effective January 1, 2002, the Company
adopted Statement No. 142, "Goodwill and Other Intangible Assets". Under
Statement No. 142, goodwill and intangible assets with indefinite lives are no
longer amortized to expense, but instead tested for impairment at least annually
and any related losses recognized in earnings when identified. There were no
such impairments of goodwill and intangible assets during the periods presented.
See note 5 "Goodwill and Other Identifiable Intangible Assets."
Long-Lived Assets
The Company has adopted Statement No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" effective January 1, 2002. Statement No. 144
addresses financial accounting and reporting for the impairment of long-lived
assets to be disposed of, and supersedes Statement No. 121 and APB Opinion No.
30. The Company reviews identified intangible and other long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of the asset may not be recoverable. If such events or changes in
circumstances are present, an impairment loss would be recognized if the sum of
the expected future net cash flows was less than the carrying amount of the
asset. There were no such impairment losses of long-lived assets during the
periods presented.
Disclosure About Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables, prepaid
expenses and other current assets, accounts payable, accrued salaries and wages
and accrued expenses approximate fair value because of the short maturity of
these items.
40
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
Revenues and Costs
The Company recognizes revenues and related costs from temporary healthcare
staffing assignments and therapy program management services in the period in
which services are performed. Costs related to marketing and development are
expensed as incurred.
Stock-Based Compensation
The Company accounts for stock options using the intrinsic value method of
Accounting Principles Board Option No. 25 "Accounting for Stock Issued to
Employees" as permitted by Statement No. 123 "Accounting for Stock-Based
Compensation." The intrinsic value method recognizes compensation expense equal
to the excess, if any, of the fair market value of the Company's stock on the
grant date over the exercise price. Statement No. 123 requires pro forma
disclosure of net earnings (loss) and earnings (loss) per share as if the fair
value method of Statement No. 123 had been applied. The Black-Scholes stock
option pricing model was used to estimate the fair value of options granted for
the pro forma disclosure.
Income Taxes
Deferred tax assets and liabilities are recognized for temporary
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the year in which those differences are expected to be
recovered or settled.
Treasury Stock
The purchase of the Company's common stock is recorded at cost. Upon
subsequent reissuance, the treasury stock account is reduced by the average cost
basis of such stock.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements. Estimates also affect the
reported amounts of revenues and expenses during the period. Actual results may
differ from those estimates.
Reclassifications
Certain prior years' amounts have been reclassified to conform with the
current year presentation.
41
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
(2) Marketable Securities
Current marketable securities at December 31, 2002 consist primarily of
marketable equity and debt securities. Noncurrent marketable securities consist
primarily of marketable equity securities ($2.2 million and $1.1 million at
December 31, 2002 and 2001, respectively) and money market securities ($2.1
million and $1.8 million at December 31, 2002 and 2001, respectively) held in
trust under the Company's deferred compensation plan.
(3) Allowance for Doubtful Accounts
Activity in the allowance for doubtful accounts is as follows:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
(in thousands)
Balance at beginning of year $5,902 $5,347 $4,577
Provisions for doubtful accounts 4,511 4,594 3,466
Allowance related to acquisitions -- -- 471
Accounts written off (5,232) (4,039) (3,167)
------ ------ ------
Balance at end of year $5,181 $5,902 $5,347
====== ====== ======
(4) Equipment and Leasehold Improvements
Equipment and leasehold improvements, at cost, consist of the following:
December 31,
------------
2002 2001
---- ----
(in thousands)
Equipment $35,064 $29,687
Leasehold improvements 3,881 2,374
------- -------
38,945 32,061
Less accumulated depreciation and amortization 19,101 13,688
------- -------
$19,844 $18,373
======= =======
(5) Goodwill and Other Identifiable Intangible Assets
Under Statement No. 142, the Company completed the transitional impairment
tests of goodwill during the first quarter of 2002 and subsequently tested for
impairment during the fourth quarter of 2002. The results of these tests
indicated that there was no impairment of goodwill as of the date of adoption of
Statement No. 142 on January 1, 2002 and subsequently on December 31, 2002. As
of the date of adoption of Statement No. 142, the Company had unamortized
goodwill in the amount of $101.7 million and unamortized intangible assets in
the amount of $0.1 million, all of which are subject to the transition
provisions of Statement No. 142.
42
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
The following table indicates the effect on net earnings and diluted net
earnings per share if Statement No. 142 had been in effect for each of the
periods presented in the consolidated statements of earnings:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
(in thousands, except per share data)
Reported net earnings $24,395 $21,035 $23,534
Add back: goodwill amortization,
net of taxes -- 2,844 2,151
------- ------- -------
Adjusted net earnings $24,395 $23,879 $25,685
======= ======= =======
Basic net earnings per share:
As reported $ 1.45 $ 1.25 $ 1.62
Add back: goodwill amortization,
net of taxes -- 0.17 0.14
------- ------- -------
Adjusted basic net earnings per share $ 1.45 $ 1.42 $ 1.76
======= ======= =======
Diluted net earnings per share:
As reported $ 1.38 $ 1.16 $ 1.45
Add back: goodwill amortization,
net of taxes -- 0.16 0.13
------- ------- -------
Adjusted diluted net earnings per share $ 1.38 $ 1.32 $ 1.58
======= ======= =======
(6) Long-Term Debt
Effective August 29, 2000, the Company consummated a $125.0 million
five-year revolving credit facility, replacing its then existing $90.0 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 credit facility are secured primarily by the Company's assets and
future income and profits. The credit facility requires the Company to meet
certain financial covenants including maintaining minimum net worth and fixed
charge coverage ratios. The average outstanding borrowings under the revolving
credit facilities for 2002, 2001 and 2000 were $0.2 million, $12.4 million and
$20.0 million at weighted-average interest rates of 5.4%, 8.1% and 8.6% per
annum, respectively. As of December 31, 2002 there was no balance outstanding on
the revolving credit facility. Interest paid for 2002, 2001 and 2000 was $0.8
million, $2.2 million and $5.3 million, respectively. Included in the interest
paid amounts are commitment fees on the unused portion of the commitment of $0.6
million, $0.3 million and $0.1 million for 2002, 2001 and 2000, respectively.
43
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
The Company also has a $1.5 million letter of credit and a $3.1 million
promissory note issued to our worker's compensation carrier as collateral for
reimbursement of claims. This letter of credit reduces the amount the Company
may borrow under the line of credit. The promissory note would become payable
only upon an event of default as described in the security agreement with the
worker's compensation carrier.
(7) Stockholders' Equity
During the third quarter of 2002, the Company repurchased 1,700,000 shares
of its common stock at a cost of $36.9 million. These shares are presented as
treasury stock in the Company's consolidated balance sheet.
During March 2001, the Company issued and sold 1,455,000 shares of its
common stock in an underwritten public equity offering. The net proceeds from
this transaction of $49.4 million were used to reduce the Company's then
outstanding balance on its revolving credit facility.
The Company has various long-term performance plans for the benefit of
employees and nonemployee directors. Under the plans, employees may be granted
incentive stock options or nonqualified stock options and nonemployee directors
may be granted nonqualified stock options. Certain of the plans also provide for
the granting of stock appreciation rights, restricted stock, performance awards,
or stock units. Stock options may be granted for a term not to exceed 10 years
(five years with respect to a person receiving incentive stock options who owns
more than 10% of the capital stock of the Company) and must be granted within 10
years from the adoption of the respective plan. The exercise price of all stock
options must be at least equal to the fair market value (110% of fair market
value for a person receiving an incentive stock option who owns more than 10% of
the capital stock of the Company) of the shares on the date of grant. Except for
options granted to nonemployee directors that become fully exercisable after six
months, substantially all remaining stock options become fully exercisable after
four years from date of grant. At December 31, 2002, 2001 and 2000, a total of
1,058,270, 1,549,594 and 1,841,116 shares, respectively, were available for
future issuance under the plans.
The per share weighted-average fair value of stock options granted during
2002, 2001 and 2000 was $13.49, $24.78 and $15.20 on the dates of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: 2002 - expected dividend yield 0%, volatility of 55%, risk free
interest rate of 3.8% and an expected life of 6 to 8 years; 2001 - expected
dividend yield 0%, volatility of 56%, risk free interest rate of 4.5% and an
expected life of 7 to 9 years; 2000 - expected dividend yield 0%, volatility of
55%, risk free interest rate of 5.0% and an expected life of 4 to 6 years.
The Company continues to account for stock-based employee compensation
plans using the intrinsic value method under Accounting Principles Board Opinion
No. 25 and related Interpretations. Accordingly, stock-based employee
compensation cost is not reflected in net earnings, as all stock options granted
under the plans had an exercise price equal to the market value of the
underlying common stock on the date of grant. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
Statement No. 123, "Accounting for Stock Based Compensation", the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below:
44
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
(in thousands, except per share data)
Net earnings, as reported $24,395 $21,035 $23,534
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (5,130) (4,390) (2,155)
------- ------- -------
Proforma net earnings $19,265 $16,645 $21,379
======= ======= =======
Basic earnings per share: As reported $1.45 $1.25 $1.62
===== ===== =====
Pro forma $1.15 $0.99 $1.47
===== ===== =====
Diluted earnings per share: As reported $1.38 $1.16 $1.45
===== ===== =====
Pro forma $1.09 $0.92 $1.32
===== ===== =====
A summary of the status of the Company's stock option plans as of December
31, 2002, 2001 and 2000, and changes during the years then ended is presented
below:
2002 2001 2000
---- ---- ----
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ --------- ------ --------- ------ ---------
Outstanding at
beginning
of year 2,935,575 $16.99 3,262,975 $10.62 3,890,698 $ 7.30
Granted 664,700 22.66 539,373 39.97 457,600 28.76
Exercised (214,565) 6.49 (766,753) 6.12 (869,019) 5.70
Forfeited (217,876) 25.66 (100,020) 15.08 (216,304) 8.81
--------- --------- ---------
Outstanding at
end of year 3,167,834 $18.31 2,935,575 $16.99 3,262,975 $10.62
========= ========= =========
Options exercis-
able at
end of year 2,011,184 1,873,702 2,199,037
========= ========= =========
45
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
The following table summarizes information about stock options outstanding
at December 31, 2002:
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted-Average
Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
$ 0.00 - 4.70 143,543 1.7 years $ 4.24 143,543 $ 4.24
4.70 - 9.40 1,196,318 5.2 8.07 1,104,418 7.98
9.40 - 14.10 476,800 5.7 11.55 466,800 11.54
18.80 - 23.50 532,950 9.6 22.23 3,200 21.86
23.50 - 28.20 105,000 9.0 25.66 53,250 25.36
28.20 - 32.90 12,500 7.3 30.18 2,500 32.38
32.90 - 37.60 209,600 7.7 34.00 108,600 34.00
37.60 - 42.30 318,916 8.5 39.65 97,916 39.71
42.30 - 47.00 172,207 8.2 43.77 30,957 43.84
--------- ---------
3,167,834 6.6 $18.31 2,011,184 $12.55
========= =========
On October 1, 2002, the Company's stockholder rights plan that was
originally adopted in 1992 expired in accordance with its terms. The board of
directors of the Company adopted a new stockholder rights plan pursuant to which
preferred stock purchase rights were distributed as a dividend on each share of
the Company's outstanding common stock as of the close of business on October 1,
2002. Each right, when exercisable, will entitle the holders to purchase one
one-hundredth of a share of a newly designated series B junior participating
preferred stock of the Company at an initial exercise price of $150.00 per one
one-hundredth of a share.
The rights are not exercisable or transferable until a person or affiliated
group acquires beneficial ownership of 20% or more of the Company's common stock
or commences a tender or exchange offer for 20% or more of the stock, without
the approval of the board of directors. In the event that a person or group
acquires 20% or more of the Company's stock or if the Company or a substantial
portion of the Company's assets or earning power is acquired by another entity,
each right will covert into the right to purchase shares of the Company's or the
acquiring entity's stock, at the then-current exercise price of the right,
having a value at the time equal to twice the exercise price.
The series B preferred stock is non-redeemable and junior of any other
series of preferred stock that the Company may issue in the future. Each share
of series B preferred stock, upon issuance, will have a preferential dividend in
the amount equal to the greater of $1.00 per share or 100 times the dividend
declared per share on the Company's common stock. In the event of a liquidation
of the Company, the series B preferred stock will receive a preferred
liquidation payment equal to the greater of $100 or 100 times the payment made
on each share of the Company's common stock. Each one one-hundredth of a share
of series B preferred stock will have one vote on all matters submitted to the
stockholders and will vote together as a single class with the Company's common
stock.
46
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
(8) Earnings per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Year Ended December 31,
-----------------------
Numerator: 2002 2001 2000
---------- ---- ---- ----
(in thousands,
except per share data)
Numerator for basic earnings per share -
earnings available to common
stockholders (net earnings) $24,395 $21,035 $23,534
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 $24,395 $21,035 $23,562
======= ======= =======
Denominator:
Denominator for basic earnings per share -
weighted-average shares outstanding 16,833 16,775 14,563
Effect of dilutive securities:
Stock options 809 1,302 1,705
------- ------- -------
Denominator for diluted earnings per share -
adjusted weighted-average shares and
assumed conversions 17,642 18,077 16,268
======= ======= =======
Basic earnings per share $ 1.45 $ 1.25 $ 1.62
======= ======= =======
Diluted earnings per share $ 1.38 $ 1.16 $ 1.45
======= ======= =======
(9) Employee Benefits
The Company has an Employee Savings Plan, which is a defined contribution
plan qualified under Section 401(k) of the Internal Revenue Code, for the
benefit of its eligible employees. Employees who attain the age of 21 and
complete 12 consecutive months of employment with a minimum of 1,000 hours
worked are eligible to participate in the plan. Each participant may contribute
from 2% to 20% of his or her annual compensation to the plan subject to
limitations on the highly compensated employees to ensure the plan is
nondiscriminatory. Contributions made by the Company to the Employee Savings
Plan are at rates of up to 50% of the first 4% of employee contributions.
Expense in connection with the Employee Savings Plan for 2002, 2001 and 2000
totaled $1.9 million, $1.7 million and $1.1 million, respectively.
The Company maintains a nonqualified deferred compensation plan for certain
employees. Under the plan, participants may defer up to 100% of their base cash
compensation. The amounts are held by a trust in designated investments and
remain the property of the Company until distribution. At December 31, 2002 and
2001, $4.3 million and $2.6 million, respectively, were payable under the
nonqualified deferred compensation plan and approximated the value of the trust
assets owned by the Company.
47
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
(10) Lease Commitments
The Company leases office space and certain office equipment under
noncancellable operating leases. Future minimum lease payments under
noncancellable operating leases, as of December 31, 2002, that have initial or
remaining lease terms in excess of one year total approximately $4.8 million for
2003, $4.5 million for 2004, $4.1 million for 2005, $3.3 million for 2006 and
$2.5 million for 2007. Rent expense for 2002, 2001 and 2000 was approximately
$5.5 million, $4.8 million and $3.7 million, respectively.
(11) Income Taxes
Income taxes consist of the following:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
(in thousands)
Federal - current $6,918 $14,232 $12,675
Federal - deferred 6,265 (1,964) 1,045
State 1,771 1,648 1,843
------- ------- -------
$14,954 $13,916 $15,563
======= ======= =======
A reconciliation between expected income taxes, computed by applying the
statutory Federal income tax rate of 35% to earnings before income taxes, and
actual income tax is as follows:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
(in thousands)
Expected income taxes $13,773 $12,233 $13,684
Tax effect of interest income from
municipal bond obligations exempt
from Federal taxation (29) (56) (47)
State income taxes, net of Federal
income tax benefit 790 1,071 1,198
Tax effect of goodwill amortization
expense not deductible for
tax purposes -- 599 398
Other, net 420 69 330
------- ------- -------
$14,954 $13,916 $15,563
======= ======= =======
48
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
The tax effects of temporary differences that give rise to the deferred
tax assets and liabilities are as follows:
December 31,
------------
2002 2001
---- ----
(in thousands)
Deferred tax assets:
Provision for doubtful accounts $1,476 $1,698
Accrued insurance, bonus and
vacation expense 3,311 4,465
Other 1,069 3,645
------ ------
5,856 9,808
------ ------
Deferred tax liabilities:
Goodwill amortization 5,596 4,120
Other 2,771 1,090
------ ------
8,367 5,210
------ ------
Net deferred tax asset (liability) $(2,511) $4,598
====== ======
The Company is required to establish a valuation allowance for deferred tax
assets if, based on the weight of available evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income in the periods which the deferred tax
assets are deductible, management believes that a valuation allowance is not
required, as it is more likely than not that the results of future operations
will generate sufficient taxable income to realize the deferred tax assets.
Income taxes paid by the Company for 2002, 2001 and 2000 were $7.5 million,
$8.5 million and $13.0 million, respectively.
(12) Industry Segment Information
The Company operates in two business segments that are managed separately
based on fundamental differences in operations: healthcare staffing and program
management services. 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 in each
industry segment is as follows:
49
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
Revenues from
Unaffiliated Customers Operating Earnings
--------------------------- --------------------------
(in thousands) (in thousands)
2002 2001 2000 2002 2001(1) 2000(1)
---- ---- ---- ---- ---- ----
Healthcare staffing $277,543 $304,574 $260,100 $ (1,683) $ 1,496 $12,298
Program management:
Inpatient 130,743 123,276 119,963 28,941 28,606 28,350
Outpatient 49,003 49,754 42,332 3,315 3,895 4,372
Contract therapy 105,276 64,661 29,979 9,124 2,970 (831)
-------- -------- -------- -------- -------- -------
Program
management total 285,022 237,691 192,274 41,380 35,471 31,891
-------- -------- -------- -------- -------- -------
Total $562,565 $542,265 $452,374 $ 39,697 $ 36,967 $44,189
======== ======== ======== ======== ======== =======
Depreciation and Amortization Capital Expenditures
----------------------------- ------------------------
(in thousands) (in thousands)
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
Healthcare staffing $ 1,808 $ 3,280 $ 2,813 $ 567 $ 1,424 $ 3,703
Program management:
Inpatient 4,636 3,674 2,861 3,478 3,864 2,575
Outpatient 800 1,520 809 1,306 1,695 849
Contract therapy 1,090 1,088 390 3,195 3,630 772
-------- -------- -------- -------- -------- -------
Program
management total 6,526 6,282 4,060 7,979 9,189 4,196
-------- -------- -------- -------- -------- -------
Total $ 8,334 $ 9,562 $ 6,873 $ 8,546 $ 10,613 $ 7,899
======== ======== ======== ======== ======== =======
Total Assets Unamortized Goodwill
------------------------- ---------------------------
(in thousands) (in thousands)
as of December 31, as of December 31,
2002 2001 2000 2002 2001 2000
---- ---- ---- ---- ---- ----
Healthcare staffing $ 92,551 $102,880 $109,911 $ 52,956 $ 52,956 $ 54,021
Program management:
Inpatient 80,921 91,135 66,194 17,162 17,162 17,750
Outpatient 29,433 30,297 30,064 18,577 18,577 19,745
Contract therapy 32,625 26,349 22,924 12,990 12,990 13,266
-------- -------- -------- -------- -------- --------
Program
management total 142,979 147,781 119,182 48,729 48,729 50,761
-------- -------- -------- -------- -------- --------
Total $235,530 $250,661 $229,093 $101,685 $101,685 $104,782
======== ======== ======== ======== ======== ========
(1) Operating earnings for 2001 and 2000 have been adjusted to reflect the
corporate expense allocation methodology utilized in 2002.
50
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
(13) Quarterly Financial Information (Unaudited)
Quarter Ended
------------------------------------------------
2002 December 31 September 30 June 30 March 31
---- ----------- ------------ ------- --------
(in thousands, except per share data)
Operating revenues $140,810 $142,690 $140,836 $138,229
Operating earnings 12,024 11,595 9,526 6,552
Earnings before income taxes 11,870 11,511 9,472 6,496
Net earnings 7,358 7,137 5,872 4,028
Net earnings per common share:
Basic .46 .43 .34 .23
Diluted .45 .41 .32 .22
Quarter Ended
------------------------------------------------
2001 December 31 September 30 June 30 March 31
---- ----------- ------------ ------- --------
(in thousands, except per share data)
Operating revenues $134,236 $140,434 $136,871 $130,724
Operating earnings (loss) (2,787) 13,519 13,193 13,042
Earnings (loss) before
income taxes (3,356) 13,356 13,024 11,927
Net earnings (loss) (2,017) 8,042 7,832 7,178
Net earnings (loss) per
common share:
Basic (.12) .47 .46 .47
Diluted (.12) .44 .43 .42
(14) Recently Issued Accounting Pronouncements
In June 2002, the FASB issued Statement No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." This statement nullifies Emerging
Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." This statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred rather than the date of an entity's commitment to
an exit plan. The Company implemented Statement No. 146 on January 1, 2003.
Management does not expect that this statement will have an impact on its
consolidated financial position or results of operations.
In December 2002, the FASB issued Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." Statement No. 148 amends Statement No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, Statement No. 148 amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect on the methods used on reported
results. The disclosure requirements apply to all companies for fiscal years
ending after December 15, 2002. See note 7 "Stockholders Equity" for the
required disclosures of Statement No. 148 at December 31, 2002.
51
REHABCARE GROUP, INC.
Notes to Consolidated Financial Statements (Continued)
December 31, 2002, 2001 and 2000
(15) Contingencies
In May 2002, a lawsuit was filed in the United States District Court for
the Eastern District of Missouri against the Company and certain of its current
directors and officers. The plaintiffs allege violations of the federal
securities laws and are seeking to certify the suit as a class action. The
proposed class consists of persons that purchased shares of the Company's common
stock between August 10, 2000 and January 21, 2002. The case alleges weaknesses
in the software systems selected by the Company's healthcare staffing services
business, StarMed Staffing Group, and the purported negative effects of such
systems on the healthcare staffing services business operations. The Company
recently filed a motion to dismiss with the court. No discovery has been
commenced in the case pending the court's ruling on the motion to dismiss.
In August 2002, a derivative lawsuit was filed in the Circuit Court of St.
Louis County, Missouri against the Company and certain of its directors. The
complaint, which is based upon substantially the same facts as are alleged in
the federal securities class action, was filed on behalf of the derivative
plaintiff by a law firm that had earlier filed suit against the Company in the
federal case. The Company has filed a motion to dismiss based primarily on the
derivative plaintiff's failure to make a pre-suit demand. The Company has also
filed a motion to stay the derivative suit until the final resolution of the
federal securities law class action. The federal court hearing the securities
law class action recently stayed discovery in the derivative proceeding until
discovery commences in the class action.
In February 2003, a complaint was filed in the United States District Court
for the Northern District of Illinois against the Company and the former owner
of eai Healthcare Staffing Solutions ("eai"). The complaint seeks investment
banking fees under a retainer agreement executed by the former owner of eai in
February 1997, a company that RehabCare acquired in December 1999. The complaint
asserts fees in connection with three separate financing transactions and two
acquisition transactions which the Company understands were consummated by eai
prior to its acquisition by the Company. At the time of the acquisition, the
Company had identified potential fees under this retainer agreement as a
possible contingent liability of eai and had negotiated indemnification from the
former owner of eai in the stock purchase agreement for any fees and costs,
including attorneys' fees and expenses, arising from such retainer agreement.
The Company has given notice to the former owner of eai of the demand for
indemnification in this suit. No definitive response has been received from the
former owner of eai with respect to the Company's indemnification demand.
In addition to above matters, the Company and its subsidiaries are parties
to a number of other claims and lawsuits. While these actions are being
contested, the outcome of individual matters is not predictable with assurance.
The Company does not believe that any liability resulting from any of the above
matters, after taking into consideration its insurance coverage and amounts
already provided for, will have a material adverse effect on its consolidated
financial position, cash flows or liquidity. However, such matters could have a
material effect on results of operations in a particular quarter or fiscal year
as they develop or as new issues are identified.
52
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, therunto duly authorized.
Dated: March 25, 2003
REHABCARE GROUP, INC.
(Registrant)
By: /s/ Vincent L. Germanese
-------------------------------
Vincent L. Germanese
Senior Vice President,
Chief Financial Officer and Secretary
By: /s/ James M. Douthitt
-------------------------------
James M. Douthitt
Senior Vice President and
Chief Accounting Officer
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
I, Alan C. Henderson, certify that:
1. I have reviewed this Amendment No. 1 to Annual Report on Form 10-K/A of
RehabCare Group, Inc. (the "Registrant"):
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 25, 2003 By: /s/ Alan C. Henderson
-------------------------
Alan C. Henderson
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Vincent L. Germanese, certify that:
1. I have reviewed this Amendment No. 1 to Annual Report on Form 10-K/A of
RehabCare Group, Inc. (the "Registrant"):
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this annual report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 25, 2003 By: /s/ Vincent L. Germanese
-------------------------------
Vincent L. Germanese
Senior Vice President,
Chief Financial Officer and Secretary
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, dated May 9, 1991
[Registration No. 33-40467], and incorporated herein by reference)
3.2 Certificate of Amendment of Certificate of Incorporation (filed as Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended
May 31, 1995 and incorporated herein by reference)
3.3 Amended and Restated Bylaws (filed as Exhibit 3.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 and
incorporated herein by reference)
4.1 Rights Agreement, dated August 28, 2002, by and between the Registrant and
Computershare Trust Company, Inc. (filed as Exhibit 1 to the Registrant's
Registration Statement on Form 8-A filed September 5, 2002 and incorporated
herein by reference)
10.1 1987 Incentive Stock Option and 1987 Nonstatutory Stock Option Plans (filed
as Exhibit 10.1 to the Registrant's Registration Statement on Form S-1,
dated May 9, 1991 [Registration No. 33-40467], and incorporated herein by
reference) *
10.2 Form of Stock Option Agreement (filed as Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1, dated May 9, 1991 [Registration No.
33-40467], and incorporated herein by reference) *
10.3 Employment Agreement with Alan C. Henderson, dated May 1, 1991 (filed as
Exhibit 10.4 to Amendment No. 1 to the Registrant's Registration Statement
on Form S-1, dated June 19, 1991 [Registration No. 33-40467], and
incorporated herein by reference) *
10.4 Form of Termination Compensation Agreement for Alan C. Henderson (filed as
Exhibit 10.6 to the Registrant's Registration Statement on Form S-1, dated
February 18, 1993 [Registration No. 33-58490], and incorporated herein by
reference) *
10.5 Form of Termination Compensation Agreement for other executive officers
(filed as Exhibit 10.5 to the Registrant's Report on Form 10-K, dated March
15, 2002, and incorporated herein by reference) *
10.6 Supplemental Bonus Plan (filed as Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1, dated February 18, 1993 [Registration
No. 33-58490], and incorporated herein by reference) *
10.7 Deferred Profit Sharing Plan (filed as Exhibit 10.15 to the Registrant's
Registration Statement on Form S-1, dated February 18, 1993 [Registration
No. 33-58490], and incorporated herein by reference) *
EXHIBIT INDEX (CONT'D)
10.8 RehabCare Executive Deferred Compensation Plan (filed as Exhibit 10.12 to
the Registrant's Report on Form 10-K, dated May 27, 1994, and incorporated
herein by reference) *
10.9 RehabCare Directors' Stock Option Plan (filed as Appendix A to Registrant's
definitive Proxy Statement for the 1994 Annual Meeting of Stockholders and
incorporated herein by reference) *
10.10Amended and Restated 1996 Long-Term Performance Plan (filed as Appendix A
to Registrant's definitive Proxy Statement for the 1999 Annual Meeting of
Stockholders and incorporated herein by reference) *
10.11RehabCare Group, Inc. 1999 Non-Employee Director Stock Plan (filed as
Appendix B to Registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders and incorporated herein by reference) *
10.12Credit 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 (filed as Exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 and incorporated herein
by reference)
10.13Pledge 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 (filed as
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 and incorporated herein by reference)
10.14Security 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 (filed as
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 and incorporated herein by reference)
13.1 Those portions of the Registrant's Annual Report to Stockholders for the
year ended December 31, 2002 included in response to Items 5 and 6 of this
Annual Report on Form 10-K**
21.1 Subsidiaries of the Registrant**
23.1 Consent of KPMG LLP
99.1 Certification of the Chief Executive Officer
99.2 Certification of the Chief Financial Officer
- -------------------------
* Management contract or compensatory plan or arrangement.
**Previously filed on March 14, 2003
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
RehabCare Group, Inc.:
We consent to the incorporation by reference in the registration statement No.
33-43236 on Form S-8, registration statement No. 33-67944 on Form S-8,
registration statement No. 33-82106 on Form S-8, registration statement No.
33-82048 on Form S-8, registration statement No. 333-11311 on Form S-8, and
registration statement No. 333-86679 on Form S-8 of RehabCare Group, Inc. of our
report dated February 1, 2003, with respect to the consolidated balance sheets
of RehabCare Group, Inc. and subsidiaries as of December 31, 2002 and 2001, and
the related consolidated statements of earnings, stockholders' equity, cash
flows, and comprehensive earnings for the three-year period ended December 31,
2002, which report appears in the December 31, 2002 annual report on Form 10-K/A
of RehabCare Group, Inc. Our report refers to the adoption of Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets."
/s/ KPMG LLP
St. Louis, Missouri
March 25, 2003
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of RehabCare Group, Inc. (the "Company") on
Form 10-K/A for the period ending December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Alan C. Henderson,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Alan C. Henderson
--------------------------
Alan C. Henderson
Chief Executive Officer of
RehabCare Group, Inc.
March 25, 2003
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of RehabCare Group, Inc. (the "Company") on
Form 10-K/A for the period ending December 31, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Vincent L.
Germanese, Senior Vice President and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Vincent L. Germanese
--------------------------
Vincent L. Germanese
Senior Vice President and
Chief Financial Officer of
RehabCare Group, Inc.
March 25, 2003