-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J8XbWhMHuLAKuzMF/unRERsI/dPgRAK/lLE/QC8YfDT5ZhF3pJmMIHCwVbiN8ztt 0DLqUKCT4UDB0Uo8A5eHlA== 0000812191-98-000004.txt : 19980325 0000812191-98-000004.hdr.sgml : 19980325 ACCESSION NUMBER: 0000812191-98-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980324 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REHABCARE GROUP INC CENTRAL INDEX KEY: 0000812191 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOSPITALS [8060] IRS NUMBER: 510265872 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19294 FILM NUMBER: 98571405 BUSINESS ADDRESS: STREET 1: 7733 FORSYTH BLVD 17TH FLR STREET 2: SUITE 1700 CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3148637422 FORMER COMPANY: FORMER CONFORMED NAME: REHABCARE CORP DATE OF NAME CHANGE: 19940218 10-K 1 FORM 10K - DECEMBER 31, 1997 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1997 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 Section 12(g) of the Act: Common Stock, par value $.01 per share 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. ( ) The aggregate market value of voting stock held by non-affiliates of Registrant at March 13, 1998, was $139,415,274. At March 13, 1998, the Registrant had 5,969,289 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III of this Annual Report on Form 10-K incorporates by reference information contained in the Registrant's Proxy Statement for its annual meeting of stockholders to be held May 5, 1998. 2 PART I ITEM 1. BUSINESS General RehabCare Group, Inc. (the "Company" or the "Registrant"), is a leading provider to healthcare facilities of comprehensive medical rehabilitation programs, subacute (skilled nursing) programs and outpatient therapy programs on a multi-year contract basis. The Company also is a leading provider of therapists to hospitals and long-term care and rehabilitation facilities on both an interim and permanent basis. Therapy professionals employed by the Company include licensed physical and occupational therapists and their licensed assistants, as well as speech language pathologists. The Company believes the locus of care in the communities where it has contracts will continue to be the acute-care hospital and, thus, it works primarily with acute-care hospitals to deliver these programs with the goal of enhancing the overall economic viability of the client facility. The Company's strategy is to use its expertise and experience to provide its clients with an efficient and cost-effective means to offer physical medicine and rehabilitation services in whatever setting is most economically feasible while establishing long-term relationships with its clients. Each of the product lines the Company offers is part of a post-acute continuum directed at restoring functional independence and returning patients to a residential setting. On January 28, 1997, the Company acquired TeamRehab, Inc. and Moore Rehabilitation Services, Inc. ("Team and Moore"), a provider of contract therapy to hospitals and nursing homes. On June 12, 1997, the Company acquired Rehab Unlimited, Inc., also a provider of contract therapy that was merged with Team and Moore. On August 15, 1997, the Company acquired a 40% interest in Allied Therapy Services, L.L.C., a joint venture with one of its hospital clients to provide outpatient therapy to school systems, home health agencies and nursing homes through the acquisition of local independent therapy providers. Historically, the Company has sought to broaden its service offerings, both through internal growth and acquisition. To its basic business of acute inpatient units, it has added the services of the subacute and outpatient product lines for its hospital clients as well as the addition of therapy staffing and contract management to hospitals and long-term care facilities. The Company believes that the acquisition of therapy-based contract management companies, established outpatient operators and other therapy providers within the rehabilitation industry is an appropriate strategy for growth. Additional related acquisition opportunities are regularly reviewed by the Company. Industry Overview Many healthcare providers are increasingly seeking to outsource a broad range of services through contracts with product line managers. Outsourcing allows healthcare providers to take advantage of the specialized expertise of contract managers, thereby enabling providers to concentrate on the businesses they know best, such as facility and nurse management. The trend to lower the cost of healthcare by reducing lengths of stay has left most healthcare providers with empty beds. As overhead and operating cost constraints have come into place and manpower has been reduced, outsourcing has become more important in order to increase patient volumes and provide services at a lower cost without sacrificing quality. By outsourcing post-acute services, healthcare providers use specialty contract managers such as the Company to: Utilize unused space - Post-acute services help hospitals utilize empty wings of their facilities that have resulted from the shortening of stays in the acute-care setting. Use of this space also allows the hospital to recover the cost of capital investment and overhead associated with the space. 2 3 Retain patients - Patients needing less intensive treatment who would have been referred to other venues for treatment can now remain in the hospital setting, allowing hospitals to capture revenues that would otherwise be realized by another provider. Sign agreements with managed care organizations - Managed care organizations find it more advantageous to sign a contract covering both acute and post-acute services with one entity rather than several separate, often unrelated entities. Contract managers may provide patient evaluation systems that collect data on patients in each of their units showing the degree of improvement and the related costs from the time the patient is admitted to the post-acute program through the time of discharge. This is an important feature to managed care organizations in controlling their costs while assuring appropriate outcomes. Contract managers may often also have the ability to capture and analyze this information from a large number of acute rehabilitation and subacute units, which an individual hospital could not otherwise do on its own without a substantial investment in specialized systems. Becoming part of a managed care network helps the hospital attract physicians, and in turn, bring more patients to the hospital. Increase cost control - Because of their extensive experience in post-acute product lines, contract managers can offer pricing structures that effectively control a healthcare provider's financial risk related to the service provided. Contract managers also frequently share in the financial risks with their hospital clients of any losses the hospital incurs in connection with starting the unit and reimbursement from payors. For hospitals using contract managers, the result is often lower average costs per discharge than those of self-managed programs. A hospital is able to increase its revenues without having to increase its administrative staff or incur other fixed costs. Recruit therapists - Therapists are frequently not readily available in sufficient number in many communities across the nation. Contract managers often operate tele-recruiting departments with recruiters whose job it is to match up candidates with therapist openings. They will typically maintain close connections with therapy schools and attend regional and national therapy association conferences several times a year. Obtain reimbursement advice - The contract managers may also employ reimbursement specialists who are available to assist client hospitals in interpreting complicated regulations. These specialists analyze current regulations and assist the hospital in complying with them, a highly valued service in the current changing healthcare environment. Services Acute Rehabilitation Units - Since its inception in 1982, the Company's core business has been the staffing and management of acute rehabilitation units within acute-care hospitals. The Company operates these units on a fee basis that is computed in most cases based on patient days in the unit. The unit typically consists of 20 beds and utilizes formerly idle space in the hospital. It treats patients having primarily one of the ten required diagnoses including stroke, head injury or hip replacement. The Company typically provides marketing and management of the unit including a program director, a physician, as well as the clinical staff which may include a psychologist, physical and occupational therapists, a speech pathologist, a social worker, a nurse manager, a case manager and other appropriate supporting personnel. The unit affords the hospital the ability to offer rehabilitation services to its patients thus retaining those patients who might otherwise be discharged to a setting outside the hospital. This product line represented approximately 53% of the Company's revenues in 1997. The Company plans to continue growing this part of its business both through the signing of new contracts as well as through retention of current clients. Re-signings of expiring acute rehabilitation contracts have historically been at the 80% level, however, in 1997, this rate increased to over 90% on contracts that had terms expiring in such year. Subacute Units - In 1994, the Company added the subacute service line. The subacute unit is located in the acute-care hospital and is separately licensed as a skilled nursing unit, utilizing formerly idle space in the hospital. This unit treats the patients who are at the low end of need for medical or rehabilitative care, with 3 4 greater need for nursing care. These patients' diagnoses cover approximately 60 clinical conditions including stroke, post-surgical conditions, pulmonary disease, burn, cancer, congestive heart failure and wound management. The subacute unit makes it possible for the patient to remain in a hospital setting where emergency needs can be quickly met as opposed to being sent to a freestanding skilled nursing facility. The Company provides administrative and nurse management. The hospital benefits, once again, by retaining patients who would be discharged to another setting, thereby capturing additional revenue and utilizing idle space. This service line represented approximately 7% of the Company's revenues in 1997. The Company plans to continue to grow this line of business by signing additional contracts. Outpatient Programs - In October 1994, RehabCare acquired RehabCare Outpatient Services, Inc. ("ROSI"), a contract manager of hospital-based outpatient programs. At its outpatient locations, ROSI furnishes primarily therapy, program development and administrative personnel. Pressure from payors to move patients to lower cost settings has helped fuel the growth in outpatient services. Outpatient programs help bring patients into the hospital through the referral development efforts of ROSI in the community. These programs serve a younger population reimbursed by commercial and managed care payors and treat mainly sports medicine and worker's compensation patients. The service line helps hospitals compete with freestanding clinics. ROSI's programs are always conducted on the client hospital's campus or in satellite locations controlled by the hospital. The Company signed a joint venture with one of its hospital clients in 1997 to purchase an outpatient facility enabling the client to expand its business. In 1997, this product line represented approximately 6% of the Company's revenues. The Company plans to increase this line of business by signing additional contracts with hospitals as well as purchasing existing outpatient facilities in partnership with its hospital clients. Therapy Staffing - In March 1996, RehabCare acquired Healthcare Staffing Solutions, Inc. ("HSSI"), located in Lowell, Massachusetts, thereby entering the therapy staffing business. Through its Health Tour division, HSSI recruits and relocates physical, occupational and speech therapists to hospitals and long-term care facilities for typically 13-week assignments (traveling therapists). HSSI started two new divisions in 1997: Health Star, which places therapists in permanent positions, and Quick Staff, now operating in Boston, Irvine, Orlando and Dallas, which provides therapists for short-term assignments ranging from 1 day to 13 weeks to fill vacancies typically resulting from turnover, vacation, maternity and sick leave. HSSI is the largest provider of traveling therapists to nursing homes, acute-care hospitals and contract therapy companies. Business from therapy staffing accounted for approximately 29% of the Company's 1997 revenues. The benefit to the client is having the ability to obtain a therapist on short notice. Growth of this business is planned primarily by increasing the number of traveling therapists on assignment and the number of Quick Staff locations in operation. Contract Therapy - In January 1997, the Company acquired Team and Moore which added contract therapy to its product lines. Contract therapy is the management and delivery of services, including providing therapists, in long-term care settings. A follow-on acquisition was made in June 1997 of Rehab Unlimited, Inc. and Cimarron Health Care, Inc. also providing contract therapy services to long-term care facilities. These entities became a part of Team and Moore with a combined total of 44 facilities in Missouri. Since 1989, when the implementation of the Omnibus Budget Reconciliation Act of 1987 mandated the delivery of therapy services in long-term care facilities, these facilities have found it increasingly difficult to recruit and retain an appropriate complement of qualified therapists to deliver mandated services. Contract therapy revenues in 1997 accounted for approximately 5% of the Company's business. Contract therapy affords the client the opportunity to fulfill their need for therapists on a part-time basis without the need to add full-time staff. The Company plans to grow this service line both through additional contracts as well as acquisitions. Expansion Strategy The Company's expertise is in delivering quality acute, subacute and outpatient rehabilitation and therapy programs, services and professional personnel. Drawing on this expertise, the thrust of its expansion strategy will be to develop and expand contract relationships with host facilities to establish and manage acute, subacute and outpatient physical medicine and rehabilitation programs as well as provide therapy staffing and contract therapy services. Acute-care hospitals have traditionally been the focus of healthcare delivery in the community 4 5 and as such, have controlled a substantial amount of the expenditures for healthcare services. As healthcare reform evolves, the Company believes that hospitals will continue to play a central role in the delivery of healthcare services, providing that they can achieve cost efficiencies and provide a complete range of services required within their communities. To this end, the Company has positioned itself to assist hospitals in providing the full continuum of physical medicine and rehabilitation services within acute, subacute and outpatient settings controlled by the hospital. The economies of scale offered by the hospital's existing plant and equipment, coupled with the Company's expertise in delivering these services, offers the opportunity for a community hospital to be a full service provider in the area of physical medicine and rehabilitation on a cost-effective basis. Business Development The Company's sales force focuses on generating new accounts and making follow-on sales. It has seven regional development officers who are responsible for cultivating relationships with prospective clients. In addition, the Company's officers play an integral role in the Company's marketing efforts. With a broad range of services, the Company has significant opportunity to expand within its existing client base. Further, cross-selling more than one product line strengthens the Company's relationships with its clients. Competition The Company has no direct competitors offering all the same services although other companies may offer one or more of the same services. The Company competes with other contract management and therapy companies for agreements with acute-care hospitals and extended care facilities. The Company's programs in acute-care hospitals also compete for patients with the programs of other acute-care hospitals and freestanding rehabilitation and outpatient facilities. Among the principal competitive advantages the Company believes it has are reputation for quality, cost effectiveness, a proprietary outcomes management system, innovation and price. The Company also competes with hospitals, nursing homes, clinics, physicians' offices and contract therapy companies for the services of physical, occupational and speech therapists. Regulation The healthcare industry is regulated by Federal, state and local governmental agencies. These regulations attempt to control the growth of healthcare facilities through certificate of need laws, licensure or certification of healthcare facilities and the reimbursement for healthcare services. In many states, acute-care hospitals contracting with the Company generally are not required to obtain a certificate of need prior to opening an inpatient unit. If a certificate of need is required, the process may take up to 12 months depending upon the state involved. The application may be denied if contested by a competitor or the state agency. Certificates of need are usually issued for a specified maximum expenditure and require implementation of the proposed improvement within a specified period of time. Licensure is a state or local requirement, while Medicare certification is a Federal requirement. Generally, licensure and Medicare certification follow specific standards and requirements. Compliance is monitored by annual on-site inspections by representatives of relevant government agencies. Loss of licensure or Medicare certification by a hospital with which the Company has a management contract would likely result in the termination of that contract. Prior to 1983, Medicare provided for reimbursement of reasonable direct and indirect costs of the services furnished by hospitals to patients. As a result of the Social Security Amendments Act of 1983, Congress adopted the Prospective Payment System ("PPS") as a means to control costs of most Medicare inpatient hospital services. Under this system, the Secretary of the Department of Health and Human Services established fixed payment amounts per discharge based on Diagnosis-Related Groups ("DRG"). In general, a hospital's payment for Medicare inpatients is limited to the DRG rate, regardless of the amount of services provided to the patient or the length of the patient's hospital stay. Under PPS, a hospital may keep any difference between its DRG 5 6 payment and its operating costs incurred in furnishing inpatient services, but is at risk for any operating costs that exceed its payment rate. As a result, hospitals have an incentive to discharge Medicare patients as soon as is clinically appropriate. Inpatient rehabilitation and skilled nursing units and outpatient rehabilitation services are exempt from PPS. Acute rehabilitation units within acute-care hospitals are eligible to obtain an exemption from PPS, generally after the first year of operation, upon satisfaction of specified Federal criteria. Such criteria include the operation for a full 12 months under PPS and the completion of an initial exemption survey. The exemption survey measures compliance with certain criteria applicable to exempt units generally, including approval to participate as a Medicare provider, admission standards, record keeping, compliance with state licensure laws, segregation of beds, accounting standards and certain specific standards applicable to rehabilitation units, including staffing, medical care and patient mix. Skilled nursing units may be surveyed shortly after admitting their first patient. Upon successful completion of the survey, Medicare payments for rehabilitation and skilled nursing services provided in inpatient units are made under a cost-based reimbursement system. In 1997, Congress enacted the Balanced Budget Act of 1997, which includes numerous changes to the Medicare system. These changes include various reductions in payments under the current cost-based reimbursement system, the implementation of a prospective payment system for skilled nursing facilities and units to be phased in starting July 1998 and a prospective payment system for acute rehabilitation facilities and units to be phased in over two years starting in late 2000. Although specifics of these systems are not yet available, the changes will almost certainly favor low-cost, efficient providers. The Company believes that its strategy of administering programs on the premises of host facilities positions it well for the changing reimbursement environment. In addition, the aging population will continue to increase the demand for therapy staffing services. Various Federal and state laws regulate the relationship between providers of healthcare services and physicians. These laws include the "fraud and abuse" provisions of the Social Security Act, under which civil and criminal penalties can be imposed upon persons who pay or receive remuneration in return for referrals of patients who are eligible for reimbursement under the Medicare or Medicaid programs. The Company does not believe its business arrangements with physicians who admit patients to the Company's units are out of compliance with these provisions. The provisions are broadly written and the full extent of their application is not currently known. The Inspector General of the Department of Health and Human Services has issued "safe harbor" regulations specifying certain forms of relationships that will not be deemed violations of these provisions. The Company believes that its business arrangements with its medical directors are in compliance with any definitive regulations. In 1987, Congress enacted nursing home reform provisions in response to widespread concern that nursing homes were not providing patients with adequate care. These provisions were implemented in 1990 and included the requirement that the status of every resident be evaluated and appropriate services be provided, including rehabilitative services. As a result, the demand for physical, occupational and speech therapy services and professionals in nursing homes has risen sharply since 1990. Employees As of December 31, 1997, the Company had approximately 2,366 employees. The physicians who are the medical directors of the contract units and the psychologists serving on program treatment teams are independent contractors and not employees of the Company. None of the Company's employees are subject to a collective bargaining agreement. Management considers the relationship with its employees to be good. ITEM 2. PROPERTIES The Company currently leases 15,000 square feet of executive office space in Clayton, Missouri, with an additional 8,000 square feet commencing in July 1998 under a lease that expires in the year 2008, assuming all options to renew are exercised. In addition to the monthly rental cost, the Company is also responsible for 6 7 specified increases in operating costs. HSSI leases 31,000 square feet of executive office space in Lowell, Massachusetts, under a lease that expires in the year 2005, assuming all options to renew are exercised, plus leases various properties throughout the country used as temporary housing for therapists. Team and Moore leases 3,000 square feet of executive office space in Clayton, Missouri under a lease that expires in 1998. ITEM 3. LEGAL PROCEEDINGS The Company has undergone a Federal payroll tax audit for the years 1989 through 1993. The Internal Revenue Service ("IRS") asserted that certain medical professionals and others engaged as independent contractors should have been treated as employees for payroll tax purposes. The IRS, in May 1996, issued a proposed assessment against the Company of $1,935,455 for years 1989 through 1993. The Company subsequently received from the IRS separate proposed Closing Agreements for these same independent contractors under the IRS's new "Classification Settlement Program" with an alternate aggregate assessment of $253,426 covering the 1989 through 1993 audit, including any additional potential liability through December 31, 1996. The Company has accepted settlement offers under the program for two classes of medical professionals, paid $61,000 as settlements and agreed to prospectively treat these classes of professionals as employees. The IRS has accepted the Company's classification of the remaining classes as independent contractors and has closed the audit. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS Information concerning the Common Stock of the Registrant is included in Exhibit 13.1 in this Annual Report of the Registrant. ITEM 6. SELECTED FINANCIAL DATA Six-Year Financial Summary is included in Exhibit 13.1 in this Annual Report of the Registrant for the year ended December 31, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company changed its fiscal year end from the last day of February to December 31, effective as of December 31, 1996. The change resulted in a short period of ten months that began March 1, 1996, and ended December 31, 1996. Information for calendar 1996 refers to the ten months ended December 31, 1996, and fiscal 1996 refers to the twelve months ended February 29, 1996. The growth in the Company's operating revenues and net earnings during 1997 was the result of an increase in the number of acute and subacute units, and growth from acquisitions. The 1997 results reflect an increase in the average number of acute units as a result of fewer unit closures, an increase in the average number of subacute units managed by the Company from 11.5 to 22.0, increased weeks worked at HSSI and the acquisition of Team and Moore. Outpatient revenue decreased 9.8% in 1997, reflecting a two-unit reduction in average number of units. The growth for calendar 1996 was primarily attributable to the increase in the number of subacute units and results from HSSI. Calendar 1996 reflects an increase in the average number of subacute units 7 8 from 4.1 to 11.5. Outpatient revenue decreased 8.1% in calendar 1996, reflecting the closure of three locations. In the normal course of business, new units are opened and some existing units are closed each year. During the first year of operation, a new acute rehabilitation unit will typically be subject to limitations in reimbursement from Medicare considerably below the hospital's operating cost. As a consequence, during this period the Company agrees with the client hospital to bear certain start-up costs on the hospital's behalf and to waive a portion of its fees until the unit qualifies for an exemption from Medicare limitations. The Company assists the hospital in qualifying the unit for the exemption and in minimizing the unreimbursed costs during this non-exempt period. The Company's average operating losses during the qualifying period can range to as high as $150,000 to $200,000 per unit. If the Company does not obtain an exemption for the unit, the contract may be terminated and, in the event of termination, start-up losses would generally not be recoverable. Upon completion of the qualifying year and obtaining the exemption, the hospital is eligible to recover all of its costs related to the operation of the unit, including the Company's fees under the management contract. Once a unit becomes exempt, the unit experiences accelerated growth in operating revenues and profitability as the patient population is expanded in response to the more favorable reimbursement terms. Subacute units and outpatient programs are not subject to the same limitations in reimbursement from Medicare as acute rehabilitation units and, therefore, should result in significantly reduced start-up losses per unit. In 1997, Congress enacted changes to Medicare calling for the implementation of a prospective payment system for skilled nursing units and facilities commencing in July 1998. In March 1996 the Company acquired HSSI. The aggregate purchase price of $21,450,000 paid at closing included $13,258,000 in cash, a $6,000,000 ten-year convertible subordinated promissory note and 185,295 shares of the Company's common stock. Additional consideration will be paid to the HSSI stockholders contingent upon the attainment of certain target cumulative earnings before interest and income taxes up to a maximum of $8,800,000 in additional consideration over six years of which $1,000,000 was paid in 1997, and $2,104,000 was paid during March 1998. The transaction was accounted for as a purchase and, as such, the Company's consolidated financial statements reflect the results of operations of HSSI commencing with the consummation date of the acquisition. In January 1997, the Company acquired Team and Moore. The aggregate purchase price of $5,600,000 paid at closing included $3,600,000 in cash, a $1,500,000 subordinated promissory note and 38,047 shares of the Company's common stock. Additional consideration will be paid to the former Team and Moore stockholders contingent upon attainment of certain target cumulative earnings before interest and income taxes, up to a maximum of $2,400,000 in additional consideration over four years. In June 1997, the Company purchased 100% of the capital stock of Rehab Unlimited, Inc. and the assets of Cimarron Health Care, Inc. and merged them into Team and Moore. The aggregate purchase price of $1,350,000 paid at closing included $675,000 in cash, a $325,000 subordinated promissory note and 16,104 shares of the Company's common stock. The transactions were accounted for as purchases and, as such, the Company's consolidated financial statements reflect the financial condition and results of operations of Team and Moore and Rehab Unlimited commencing on the consummation date of each acquisition. In January 1997, the Company made a tender offer to purchase up to 1,387,500 shares of its common stock at a single purchase price, not less than $13.33 nor in excess of $15.00 per share, the purchase price to be selected by the Company based on prices specified by tendering stockholders at the lowest single purchase price sufficient to purchase 1,387,500 shares. As of February 28, 1997, the closing date, shares totaling greater than 1,387,500 were tendered, resulting in the Company's repurchase on March 12, 1997 of a total of 1,499,932 shares at the single per share price of $15.00 per share. To finance the repurchase and restructure its current debt, the Company obtained financing from a syndicate of financial institutions totaling $45 million in senior secured debt, comprised of a $25 million term loan and a $20 million revolving credit facility. On August 26, 1997, the Company's Board of Directors approved a three-for-two split of the Company's common stock in the form of a stock dividend, payable October 1, 1997, to shareholders of record as of 8 9 September 12, 1997. All share and per share amounts set forth in this Annual Report reflect the effect of the stock split. RESULTS OF OPERATIONS The following table sets forth for 1997, calendar 1996 and fiscal 1996, the percentage that certain items in the consolidated statements of earnings bear to operating revenues:
Year Ended Ten Months Ended Year Ended December 31, December 31, February 29, 1997 1996 1996 - ------------------------------------------------- ----------------------- ------------------ --------------------- Operating revenues 100.0% 100.0% 100.0% Costs and expenses: Operating expenses 68.9 71.1 73.3 General and administrative 17.0 16.1 12.5 Depreciation and amortization 2.3 2.6 2.7 Operating earnings 11.8 10.2 11.5 Gain on sale of marketable securities .9 -- -- Other expense, net (1.6) (1.0) (0.4) Earnings before income taxes 11.1 9.2 11.1 Income taxes 4.5 3.7 4.5 Net earnings 6.6% 5.5% 6.6% =========================================== ======================== ===================== =====================
Management believes that a comparison of the twelve months ended December 31, 1997 to the ten months ended December 31, 1996 and the comparison of the ten months ended December 31, 1996 to the twelve months ended February 29, 1996 are not meaningful because of the difference in length of reporting periods. Therefore, this discussion and analysis of results of operations compares the audited twelve-month period ended December 31, 1997, to the unaudited twelve-month period ended December 31, 1996, and the audited ten-month period ended December 31, 1996 to the unaudited ten-month period ended December 31, 1995. Twelve Months Ended December 31, 1997 Compared to Twelve Months Ended December 31, 1996 Operating revenues in 1997 increased by $40,924,000, or 34.1%, to $160,780,000 as compared to the same period in 1996. Acquisitions accounted for 35.0% of the net increase. A 20.8% increase in the average number of inpatient units from 91.3 to 110.3 units, and an increase in the average daily billable census per inpatient unit of 3.1% from 12.8 to 13.2, generated a 24.6% increase in billable patient days to 532,195. The increase in billable census per unit for inpatient units is primarily attributable to a 9.0% increase in admissions per unit, offset by a 5.4% decline in average billable length of stay. The decline in average length of stay reflects both the continued trend of reduced rehabilitation lengths of stay and the increase in subacute units operational in 1997, which carry a shorter length of stay than acute rehabilitation units. The increase in billable patient days was offset by a 3.7% decrease in average per diem billing rates, reflecting a greater mix of subacute units which carry lower average per diem rates than acute units. The $16,279,000 increase in inpatient unit revenue was offset by a 9.8% decrease in outpatient revenue to $9,429,000, primarily reflecting the loss of two units. Revenues of HSSI increased $11,505,000 primarily as a result of an increase in weeks worked plus revenue from HSSI's new temporary staffing division. Operating expenses for the twelve month periods compared increased by $25,305,000, or 29.6%, to $110,726,000. Acquisitions accounted for 34.2% of the net increase. The remaining increase was attributable 9 10 to the increase in patient days and increased placements at HSSI. The excess of operating expenses over operating revenues associated with non-exempt units decreased from $912,000 to $778,000, on an increase in the average number of non-exempt units from 5.4 to 7.7. The per unit average excess of operating expenses over operating revenues declined from $169,000 to $102,000 reflecting a 2.5% increase in billable patients per unit to 2.9 plus a greater percentage of units where the Company is not obligated to provide therapy staff. Average start-up losses for units for which the Company provides therapy staff during their non-exempt year can range to as high as $150,000 to $200,000. General and administrative expenses increased $8,725,000, or 47.0%, to $27,294,000, reflecting increases in professional services, business development, general office, marketing and operations compared to the previous year, plus the addition of general and administrative expenses of companies acquired. Depreciation and amortization increased $631,000 reflecting primarily the amortization of goodwill from the purchase of Team and Moore and Rehab Unlimited. Interest income decreased $83,000 as a result of reductions in investment balances, as cash was used to make acquisitions and make payments on the Company's debt. Interest expense increased $1,441,000 reflecting interest on additional debt arising from the repurchase of shares of the Company's common stock, and the acquisitions of HSSI, Team and Moore and Rehab Unlimited. Gain on sale of marketable securities reflects the sale of approximately 50% of the Company's investment in Intensiva HealthCare Corporation. Earnings before income taxes increased by $6,192,000, or 53.0%, to $17,882,000. The provision for income taxes for the twelve month periods compared was $7,267,000 compared to $4,698,000, reflecting effective income tax rates of 40.6% and 40.2% for the respective periods. Net earnings increased by $3,623,000, or 51.8%, to $10,615,000. Diluted earnings per share increased 58.1% to $1.47 from $.93 on a 4.4% decrease in the weighted-average shares outstanding. The decrease in shares outstanding is attributable to the repurchase of shares of the Company's common stock offset by an increase in the dilutive effect of outstanding stock options. Ten Months Ended December 31, 1996 Compared to Ten Months Ended December 31, 1995 Operating revenues during the ten months ended December 31, 1996 increased by $30,476,000, or 41.1%, to $104,611,000 as compared to the same period in 1995. The acquisition of HSSI accounted for 94.7% of the net increase. A 9.6% increase in the average number of inpatient units from 83.7 to 91.7, offset by a decrease in the average daily billable census per inpatient unit of 3.8% from 13.3 to 12.8, generated a 5.5% increase in billable patient days to 357,780. The decrease in billable census per unit for inpatient units is primarily attributable to a 9.7% decline in average billable length of stay on a 6.6% increase in admissions per unit. The decline in average length of stay reflects both the continued trend of reduced rehabilitation lengths of stay and the increase in subacute units operational for the ten months ended December 31, 1996, which carry a shorter length of stay than acute rehabilitation units. The increase in billable patient days was offset by a .9% decrease in average per diem billing rates, reflecting a greater mix of subacute units which carry lower average per diem rates than acute units. The $2,960,000 increase in inpatient unit revenue was offset by an 8.1% decrease in outpatient revenue to $8,495,000, reflecting the loss of one unit each in February, March and April 1996. Operating expenses for the ten-month periods compared increased by $19,933,000, or 36.6%, to $74,326,000. The acquisition of HSSI accounted for substantially all of this increase. The excess of operating expenses over operating revenues associated with non-exempt units increased from $193,000 to $749,000, attributable to the increase in the average number of non-exempt units from 1.5 to 5.5. Average start-up losses for units during their non-exempt year can range to as high as $150,000 to $200,000. 10 11 General and administrative expenses increased $7,369,000, or 77.8%, to $16,844,000, reflecting increases in professional services, business development, general office, outpatient services, and legal compared to the previous year, plus the addition of HSSI's corporate staff. Depreciation and amortization increased $737,000 reflecting the amortization of goodwill from the purchase of HSSI and depreciation of HSSI fixed assets. Interest income decreased $71,000 as a result of reductions in investment balances, as cash was used to acquire HSSI and make payments on the Company's debt. Interest expense increased $560,000 reflecting new debt issued in the acquisition of HSSI. Earnings before income taxes increased by $1,802,000, or 23.0%, to $9,654,000. The provision for income taxes for the ten-month periods compared was $3,886,000 compared to $3,197,000, reflecting effective income tax rates of 40.3% and 40.7% for the respective periods. Net earnings increased by $1,113,000, or 23.9%, to $5,768,000. Diluted earnings per share increased 13.4% to $.76 from $.67 on a 13.0% increase in the weighted-average shares outstanding. The increase in shares outstanding is attributable primarily to the shares issued in the acquisition of HSSI and an increase in the dilutive effect of outstanding stock options. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997, the Company had $6,639,000 in cash and current marketable securities and a current ratio of 1.6:1. Working capital as of December 31, 1997, increased from December 31, 1996, by $3,539,000 due to cash flows generated by operations offset by the cash paid and debt arising from the acquisitions of Team and Moore and Rehab Unlimited, Inc. and the increase in current portion of long-term debt issued in the repurchase of shares of the Company's common stock. Net accounts receivable were $24,147,000 at December 31, 1997 compared to $15,546,000 at December 31, 1996. The number of days average net revenues in net receivable was 52.0 days and 45.5 days as of December 31, 1997 and December 31, 1996, respectively. During the year ended December 31, 1997, the Company incurred capital expenditures of $1,343,000 as compared to $864,000 for the twelve months ended December 31, 1996. At December 31, 1997, the Company had no material commitments for capital expenditures. In connection with the development and implementation of additional units, the Company may incur capital expenditures for equipment and deferred costs arising from payments made to hospitals for a portion of capital improvements needed to begin a unit's operation. For the twelve months ended December 31, 1997, the Company made deferred cost payments to four client hospitals totaling $368,000 for capital improvements, while for the twelve months ended December 31, 1996, payments were made to five client hospitals totaling $400,000. At December 31, 1997, the Company had ten commitments totaling $1,565,000 to make additional capital improvement payments to client hospitals. The Company's operating cash flows constitute its primary source of liquidity and historically have been sufficient to fund its working capital requirements. The Company expects to meet its future working capital, capital expenditure, business expansion and debt service requirements from a combination of internal sources and outside financing. As of December 31, 1997, the Company had $10,845,000 of unused available bank line of credit. On January 10, 1997, the Company sold 165,000 shares of its investment in Intensiva HealthCare Corporation in a market transaction for $1,485,000. On March 12, 1997, the Company repurchased 1,499,932 shares of its common stock. To finance the repurchase and restructure its current debt, the Company issued $45 million in senior secured debt. 11 12 INFLATION Although inflation has abated during the last several years, the rate of inflation in healthcare related services continues to exceed the rate experienced by the economy as a whole. The Company's management contracts typically provide for an annual increase in the fees paid to the Company by its client hospitals based upon increases in various inflation indices. These increases generally offset increases in costs incurred by the Company. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 12 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year ended December 31, 1997, for the ten months ended December 31, 1996 and for the year ended February 29, 1996. 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 generally accepted auditing standards. 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, 1997 and 1996, and the results of their operations and their cash flows for the year ended December 31, 1997, for the ten months ended December 31, 1996 and for the year ended February 29, 1996, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick St. Louis, Missouri February 6, 1998 13 14 REHABCARE GROUP, INC. Consolidated Balance Sheets (dollars in thousands, except per share data)
December 31, December 31, Assets 1997 1996 ------ ---- ---- Current assets: Cash and cash equivalents $ 1,975 772 Marketable securities, available-for-sale 4,664 6,666 Accounts receivable, net of allowance for doubtful accounts of $1,338 and $1,386, respectively 24,147 15,546 Deferred tax assets 1,773 921 Prepaid expenses and other current assets 720 525 ------ ------ Total current assets 33,279 24,430 ------ ------ Marketable securities, available-for-sale, noncurrent 1,812 1,310 ------ ------ Equipment and leasehold improvements, net 3,342 2,935 ------ ------ Other assets: Excess of cost over net assets acquired, net 52,949 47,119 Deferred contract costs, net 1,138 1,302 Pre-opening costs, net 2,908 2,295 Deferred tax assets 181 424 Other 1,632 987 ------ ------ Total other assets 58,808 52,127 ------ ------ $ 97,241 80,802 ====== ====== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Revolving credit facility $ -- 500 Current portion of long-term debt 4,520 2,967 Accounts payable 1,700 1,083 Accrued salaries and wages 9,925 6,969 Accrued expenses 3,570 2,026 Income taxes payable 771 1,631 ------ ------ Total current liabilities 20,486 15,176 ------ ------ Deferred compensation 2,501 1,956 ------ ------ Long-term debt, less current portion 34,494 14,000 ------ ------ Stockholders' equity: Preferred stock, $.10 par value; authorized 10,000,000 shares, none issued and outstanding -- -- Common stock, $.01 par value; authorized 20,000,000 shares, issued 7,152,191 shares and 7,040,043 shares as of December 31, 1997 and 1996, respectively 72 70 Additional paid-in capital 23,972 22,793 Retained earnings 35,192 24,577 Less common stock held in treasury at cost, 1,311,307 shares as of December 31, 1997 (20,212) -- Unrealized gain on marketable securities, net of tax 736 2,230 ------ ------ Total stockholders' equity 39,760 49,670 ------ ------ $ 97,241 80,802 ====== ====== See accompanying notes to consolidated financial statements.
14 15 REHABCARE GROUP, INC. Consolidated Statements of Earnings (dollars in thousands, except per share data)
Year Ended Ten Months Ended Year Ended December 31, December 31, February 29, 1997 1996 1996 ---- ---- ---- Operating revenues $ 160,780 104,611 89,377 Costs and expenses: Operating expenses 110,726 74,326 65,487 General and administrative 27,294 16,844 11,202 Depreciation and amortization 3,780 2,743 2,412 ------- ------ ------- Total costs and expenses 141,800 93,913 79,101 ------- ------ ------ Operating earnings 18,980 10,698 10,276 Interest income 186 152 344 Interest expense (2,759) (1,211) (759) Gain on sale of marketable securities 1,448 -- -- Other income, net 27 15 26 ------- ------ ------- Earnings before income taxes 17,882 9,654 9,887 Income taxes 7,267 3,886 4,009 ------- ------ ------- Net earnings $ 10,615 5,768 5,878 ======= ====== ======= Net earnings per common share: Basic $ 1.77 .82 .87 ==== ===== ===== Diluted $ 1.47 .76 .84 ==== ===== ===== See accompanying notes to consolidated financial statements.
15 16 REHABCARE GROUP, INC. Consolidated Statements of Stockholders' Equity (amounts in thousands)
Common Stock ------------------------ Additional Total Issued Treasury paid-in Retained Treasury Unrealized stockholders' Shares Stock Amount capital earnings Stock gain equity ------ ------ ------- -------- -------- ---- ------ ----------- Balance, February 28, 1995 6,706 -- $ 67 19,433 12,931 -- -- 32,431 Net earnings -- -- -- -- 5,878 -- -- 5,878 Exercise of stock options (including tax benefit) 71 -- -- 588 -- -- -- 588 ----- ---- ---- ------ ------ ------ ------ ------ Balance, February 29, 1996 6,777 -- 67 20,021 18,809 -- -- 38,897 Net earnings -- -- -- -- 5,768 -- -- 5,768 Issuance of common stock in connection with acquisition 185 -- 2 2,190 -- -- -- 2,192 Exercise of stock options (including tax benefit) 78 -- 1 582 -- -- -- 583 Unrealized gain on marketable securities, net of tax -- -- -- -- -- -- 2,230 2,230 ----- ---- ---- ------ ------ ------ ----- ------ Balance, December 31, 1996 7,040 -- 70 22,793 24,577 -- 2,230 49,670 Net earnings -- -- -- -- 10,615 -- -- 10,615 Purchase of treasury stock -- 1,500 -- -- -- (23,131) -- (23,131) Issuance of common stock in connection with acquisitions 38 (41) 1 639 -- 644 -- 1,284 Exercise of stock options (including tax benefit) 74 (148) 1 540 -- 2,275 -- 2,816 Change in unrealized gain on marketable securities, net of tax -- -- -- -- -- -- (1,494) (1,494) ----- ---- ---- ------ ------ ------ ----- ------ Balance, December 31, 1997 7,152 1,311 $ 72 23,972 35,192 (20,212) 736 39,760 ===== ===== ===== ====== ====== ====== ====== ====== See accompanying notes to consolidated financial statements.
16 17 REHABCARE GROUP, INC. Consolidated Statements of Cash Flows (dollars in thousands)
Year Ended Ten Months Ended Year Ended December 31, December 31, February 29, 1997 1996 1996 ---- ---- ---- Cash flows from operating activities: Net earnings $ 10,615 5,768 5,878 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 3,780 2,743 2,412 Provision for losses on accounts receivable 717 549 348 Equity in earnings of affiliate (20) -- -- Gain on sale of marketable securities (1,448) -- -- Increase in deferred compensation 545 586 560 Decrease (increase) in accounts receivable, net (7,755) (4,586) 1,721 Decrease (increase) in prepaid expenses and other current assets (155) 259 31 Decrease in other assets 15 122 236 Increase (decrease) in accounts payable and accrued expenses 1,759 (1,915) 111 Increase in accrued salaries and wages 2,386 1,390 485 Decrease in income taxes payable and deferred (622) (498) (99) ------ ------ ------ Net cash provided by operating activities 9,817 4,418 11,683 ------ ------ ------ Cash flows from investing activities: Additions to equipment and leasehold improvements, net (1,343) (732) (402) Purchase of marketable securities (1,473) (1,128) (5,245) Proceeds from sale/maturities of marketable securities 2,080 1,815 510 Cash paid in acquisition of businesses, net of cash received (6,629) (19,258) (195) Investment in joint venture (630) -- -- Deferred contract costs, net (368) (160) (265) Pre-opening costs, net (1,483) (1,047) (651) Other, net -- (235) -- ------ ------ ------ Net cash used in investing activities (9,846) (20,745) (6,248) ------ ------ ------ Cash flows from financing activities: Proceeds from (payments on) revolving credit facility (500) 2,000 (1,000) Payments on long-term debt (3,603) (2,408) (2,075) Proceeds on issuance of long-term debt 23,500 4,750 -- Proceeds on issuance of notes payable 2,150 6,000 -- Purchase of treasury stock (23,131) -- -- Exercise of stock options (including tax benefit) 2,816 583 588 ------ ------ ------- Net cash provided by (used in) financing activities 1,232 10,925 (2,487) ------ ------ ------- Net increase (decrease) in cash and cash equivalents 1,203 (5,402) 2,948 Cash and cash equivalents at beginning of period 772 6,174 3,226 ------ ------- ------- Cash and cash equivalents at end of period $ 1,975 772 6,174 ====== ======= ======= See accompanying notes to consolidated financial statements.
17 18 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements (1)Summary of Significant Accounting Policies (a) Business and Principles of Consolidation RehabCare Group, Inc. and subsidiaries (the "Company") develop, market and manage programs for the delivery of comprehensive medical rehabilitation and therapy services in acute-care hospitals, skilled nursing units and outpatient facilities. The Company also is a contract provider of therapists to hospitals and long-term care and rehabilitation facilities. The consolidated financial statements include the accounts of the parent company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Change in Fiscal Year The Company changed its fiscal year end from the last day of February to December 31, effective as of December 31, 1996. The change resulted in a short period of ten months that began March 1, 1996, and ended December 31, 1996. Information included in the footnotes to the financial statements for calendar 1996 refers to the ten months ended December 31, 1996 and fiscal 1996 refers to the twelve months ended February 29, 1996. (c) Common Stock Split On August 26, 1997, the Company's Board of Directors approved a three-for-two split of the Company's common stock in the form of a stock dividend, payable October 1, 1997, to shareholders of record as of September 12, 1997. Share and per share amounts in the consolidated financial statements have been restated for all amounts presented to reflect the split. (d) 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, 1997 consist of marketable equity securities, variable rate municipal bonds and money market securities. All marketable securities are classified as available-for-sale and as such, the difference between cost and market, net of estimated taxes, is recorded as an adjustment to stockholders' equity. Gain (or loss) is not recognized in the consolidated statement of earnings until the securities are sold. (e) Credit Risk The Company primarily 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 potential credit losses. (f) Equipment and Leasehold Improvements Depreciation and amortization of equipment and leasehold improvements are computed on the straight-line method over the estimated useful lives of the related assets, principally: equipment - five to seven years and leasehold improvements life of lease or life of asset, whichever is less. 18 19 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements (g) Intangible Assets Substantially all the excess of cost over net assets acquired (goodwill) relates to acquisitions and is amortized on a straight-line basis over 40 years. Accumulated amortization of goodwill was $5,206,000 and $4,284,000 as of December 31, 1997 and 1996, respectively. The Company evaluates the realizability of goodwill based upon expectations of undiscounted cash flows and operating income. Based upon its most recent analysis, the Company believes that no impairment of goodwill exists at December 31, 1997. (h) Deferred Contract Costs and Pre-Opening Costs Deferred contract costs represent payments made to hospitals for a portion of capital improvements needed to begin a unit's operation and certain pre-opening costs. The Company is entitled to a pro rata refund of deferred capital improvement costs in the event that the hospital terminates the contract before its scheduled termination date. Pre-opening costs include payments made primarily for architectural, legal and consulting services expended to begin a unit's operations. These costs are capitalized until the unit begins operations. Deferred contract costs and pre-opening costs are charged to expense over the initial term of the contracts. Accumulated amortization of deferred contract costs was $1,138,000 and $1,336,000 as of December 31, 1997 and 1996, respectively. Accumulated amortization of pre-opening costs was $1,466,000 and $1,183,000 as of December 31, 1997 and 1996, respectively. (i) Disclosure About Fair Value of Financial Instruments The estimated fair-market value of the revolving credit facility and long-term debt (including current portions thereof), approximates carrying value due to the variable rate features of the instruments. The Company believes it is not practical to estimate a fair value different from the carrying value of its subordinated debt and the notes payable to related parties as the instruments have numerous unique features as discussed in note 6. (j) Revenues and Costs The Company recognizes revenues as services are provided or when the revenue is earned. The Company has adopted the accounting and reporting methods approved by the American Institute of Certified Public Accountants in its healthcare industry audit guide. Accordingly, the Company's provision for doubtful accounts is recorded as an expense of operations for all periods presented. Costs related to marketing and development of new contracts at the corporate level are expensed as incurred. (k) 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. (l) 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. 19 20 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements (m) Earnings Per Share The Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, on December 31, 1997, which replaced the previously reported primary and fully dilutive earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effect of options and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. Earnings per share amounts for all periods have been restated to conform with the requirements of SFAS No. 128. (n) Stock Option Plan Prior to March 1996, the Company accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On March 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. See note 7. (o) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements. Estimates also affect the reported amounts of revenues and expenses during the period. Actual results may differ from those estimates. (p) Reclassifications Certain prior years' amounts have been reclassified to conform with the current year presentation. (2) Acquisitions On August 15, 1997, the Company acquired a 40% interest in Allied Therapy Services, L.L.C. for $630,000 in cash and notes. The joint venture provides physical, occupational and speech therapy services to nursing homes, other long-term care facilities, outpatient clinics, school systems and home health agencies in southern Georgia and northern Florida. The Company accounts for its investment using the equity method. On January 28, 1997, the Company purchased 100% of the capital stock of TeamRehab, Inc. and Moore Rehabilitation Services, Inc. ("Team and Moore"). The aggregate purchase price of $5,600,000 paid at closing included $3,600,000 in cash, a $1,500,000 subordinated promissory note and 38,047 shares of the Company's common stock. Additional consideration will be paid to the former Team and Moore stockholders contingent upon the attainment of certain target cumulative earnings before interest and income taxes, up to a maximum of $2,400,000 in additional consideration over four years. On June 12, 1997, the Company purchased 100% of the capital stock of Rehab Unlimited, Inc. and the assets of 20 21 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements Cimarron Health Care, Inc. and merged them into Team and Moore. The aggregate purchase price of $1,350,000 paid at closing included $675,000 in cash, a $325,000 subordinated promissory note and 16,104 shares of the Company's common stock. Goodwill related to the acquisitions totaling $6,254,000 is being amortized over 40 years. On March 1, 1996, the Company purchased 100% of the capital stock of Healthcare Staffing Solutions, Inc. ("HSSI"). The aggregate purchase price of $21,450,000 paid at closing included $13,258,000 in cash, a $6,000,000 ten-year convertible subordinated promissory note and 185,295 shares of the Company's common stock. Of the $13,258,000 of cash paid, $8,750,000 was borrowed under the Company's term loan and revolving credit facility. Additional consideration will be paid to the former HSSI stockholders contingent upon the attainment of certain target cumulative earnings before interest and income taxes up to a maximum of $8,800,000 in additional consideration over six years. In 1997, $1,000,000 of contingent consideration was paid to the former owners of HSSI. The following unaudited pro forma financial information assumes the acquisition of HSSI occurred at the beginning of the fiscal year ended February 29, 1996. This information is not necessarily indicative of results of operations that would have occurred had the purchase been made at the beginning of the fiscal year. Year Ended February 29, 1996 ----------- Operating revenues $ 115,401,000 Net earnings 6,443,000 Net earning per common share: Basic .93 Diluted .88 The acquisitions of Team and Moore, Rehab Unlimited, Inc. and HSSI have been accounted for by the purchase method of accounting, whereby their operating results are included in the Company's results of operations commencing on the respective closing dates of acquisition. (3) Marketable Securities Current marketable securities at December 31, 1997 consist of $3,000,000 in variable rate municipal bonds, an equity investment of $1,246,000 representing 161,297 shares of common stock of Intensiva HealthCare Corporation and $418,000 in money market funds held in escrow. The Company classified its equity investments as "available-for-sale," and as such has recorded the investment at market value with a corresponding credit, net of taxes, to stockholders' equity. The market value of the investment in common stock at December 31, 1997 of $1,246,000 exceeded the cost basis by $1,209,000. Noncurrent marketable securities consist of marketable equity securities ($1,469,000 and $1,121,000 at December 31, 1997 and 1996, respectively) and money market securities ($343,000 and $189,000 at December 31, 1997 and 1996, respectively) held in trust under the Company's deferred compensation plan. 21 22 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements (4) Allowance for Doubtful Accounts Activity in the allowance for doubtful accounts is as follows:
Year Ended Ten Months Ended Year Ended December 31, December 31, February 29, 1997 1996 1996 ---- ---- ---- Balance at beginning of period $ 1,386,000 822,000 1,043,000 Provisions for doubtful accounts 717,000 549,000 348,000 Allowance related to acquisitions 30,000 387,000 -- Accounts written off (795,000) (375,000) (569,000) Recoveries -- 3,000 -- --------- --------- --------- Balance at end of period $ 1,338,000 1,386,000 822,000 ========= ========= =========
(5) Equipment and Leasehold Improvements Equipment and leasehold improvements, at cost, consist of the following:
December 31, December 31, 1997 1996 ---- ---- Equipment $ 5,752,000 4,615,000 Leasehold improvements 132,000 126,000 --------- --------- 5,884,000 4,741,000 Less accumulated depreciation and amortization 2,542,000 1,806,000 --------- --------- Equipment and leasehold improvements, net $ 3,342,000 2,935,000 ========= =========
22 23 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements (6) Long - Term Debt Long-term debt consists of the following:
December 31, December 31, Bank Debt: 1997 1996 --------- ---- ---- Term facility - LIBOR plus 1.25% to 2.00% or Corporate Base $ 22,750,000 8,500,000 Rate ("CBR"), rate dependent on the ratio of indebtedness, net of cash and marketable securities, to cash flow, maturing March 5, 2002 (weighted-average rates of 7.2% and 7.1% at December 31, 1997 and 1996, respectively). Revolving credit facility - LIBOR plus 1.25% to 2.00% or CBR, 8,000,000 2,000,000 rate dependent on the ratio of indebtedness, net of cash and marketable securities, to cash flow, maturing March 5, 2002 (weighted-average rates of 7.4% and 7.1% at December 31, 1997 and 1996, respectively). Subordinated Debt: ----------------- Note payable, 6.25% convertible, maturing March 1, 2006 6,000,000 6,000,000 Note payable, 8%, maturing October 15, 1997, held in escrow as of December 31, 1997 395,000 967,000 Note payable, 8%, payable $93,750 quarterly through February 1, 2001 1,219,000 -- Note payable, 8%, payable in quarterly installments of $40,625 commencing July 1, 1999, maturing July 1, 2001 325,000 -- Note payable, 8%, maturing August 15, 2001 325,000 -- ----------- ----------- 39,014,000 17,467,000 Less current portion 4,520,000 3,467,000 ----------- ----------- Total long-term debt $ 34,494,000 14,000,000 ========== ==========
On March 5, 1997 the Company restructured and increased its bank debt. Under the terms of the restructured loan agreement the Company entered into a five-year, $25,000,000 term loan and a revolving line of credit which allows the Company to borrow up to the lesser of $20,000,000 or 85% of eligible accounts receivable as defined by the agreement, reduced by amounts outstanding under any bank letter of credit. The Company pays a fee on the unused portion of the commitment from .30% to .50% per annum, with such rate being dependent on the ratio of the Company's indebtedness, net of cash and marketable securities, to cash flow. Borrowings under the agreement, including the revolving credit facility, are secured primarily by the Company's accounts receivable, equipment and leasehold improvements, and future income and profits. The loan agreement requires the Company to meet certain financial covenants including maintaining minimum net worth and fixed charge coverage ratios. The loan agreement also restricts the Company's ability to pay dividends to its stockholders. The average outstanding borrowings under the revolving credit facility for 1997, calendar 1996 and fiscal 1996 were $7,507,000, $3,000,000 and $301,000 at a weighted-average interest rate of 7.4%, 7.5% and 7.2% per annum, respectively. 23 24 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements The $6,000,000 convertible subordinated notes payable may be redeemed in whole or in part by the Company at any time after March 1, 2000 at from 100% to 104% of the principal balance. The notes are convertible into the Company's common stock prior to March 1, 2006, subject to earlier redemption by the Company, at the option of the former HSSI shareholders, at a conversion price of $14.17 per share. Of the $6,000,000 balance outstanding $4,500,000 is payable to a director of the Company who is president of HSSI. The scheduled principal payments of long-term debt at December 31, 1997 are as follows: $4,520,000, $5,206,000, $6,288,000, $7,250,000, $1,750,000 and $6,000,000, in years 1998, 1999, 2000, 2001, 2002 and thereafter, respectively. Interest paid for 1997, calendar 1996 and fiscal 1996 was $2,598,000, $1,053,000 and $763,000, respectively. (7) Stockholders' Equity On January 31, 1997, the Company made a tender offer to purchase up to 1,387,500 shares of its common stock at a single purchase price, not less than $13.33 nor in excess of $15.00 per share. The actual purchase price was determined based on the lowest single purchase price at which stockholders tendered shares that was sufficient to purchase at least 1,387,500 shares. As of February 28, 1997, the closing date, shares totaling greater than 1,387,500 were tendered, resulting in the Company's repurchase on March 12, 1997, of a total of 1,499,932 shares at the single purchase price of $15.00 per share. To finance the repurchase, on March 5, 1997, the Company's bank term loan and revolving credit facility were restructured and increased. On April 23, 1996 the Company adopted the 1996 Long-Term Performance Plan pursuant to which stock appreciation rights, restricted stock, performance awards, incentive stock options or nonqualified stock options, may be granted to employees. Under the plan, stock awards for 1,050,000 shares may be granted within 10 years of the date of adoption of the plan. The Company also has a 1987 Incentive Stock Option Plan, a 1987 Nonstatutory Stock Option Plan, and a Directors' Stock Option Plan (together with the 1996 Long-Term Performance Plan, the "Plans") pursuant to which incentive stock options may be granted to employees and nonstatutory stock options may be granted to employees or directors. Under the 1987 Incentive Stock Option and Nonstatutory Stock Option Plans, options to purchase 1,500,000 shares were available for grant, of which 825,000 shares were incentive stock options. Under the Directors' Stock Option Plan (the "Directors' Plan"), options to purchase 525,000 shares of stock may be granted. Stock options may be granted for a term not to exceed 10 years (five years with respect to a person receiving an incentive stock option who owns more than 10% of the capital stock of the Company) and must be granted within 10 years from the date of 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 granted. Under the Directors' Stock Option Plan, each director who is not otherwise an officer or employee of the Company, shall receive an option to acquire 15,000 shares of stock, or such lesser amount as provided in the Directors' Stock Option Plan, at the fair market value on the respective option grant date. All stock options become fully exercisable after four years from date of grant, except for options granted under the Directors' Stock Option Plan which become fully exercisable after six months. The per share weighted-average fair value of stock options granted during 1997, calendar 1996 and fiscal 1996 was $7.64, $6.89 and $6.91 on the dates of grant using the Black Scholes option-pricing model with the following weighted-average assumptions: 1997 - expected dividend yield 0%, volatility of 24 25 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements 33%, risk-free interest rate of 5.6% and an expected life of 4 to 7 years; calendar 1996 - expected dividend yield 0%, volatility of 30%, risk-free interest rate of 6.25% and an expected life of 4 to 7 years; fiscal 1996 - expected dividend yield 0%, volatility of 30%, risk-free interest rate of 6.25% and an expected life of 5 to 7 years. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its Plans. Accordingly, no compensation cost has been recognized for its long-term performance and stock option plans. 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 SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
Year Ended Ten Months Ended Year Ended December 31, December 31, February 29, 1997 1996 1996 ---- ---- ---- Net Income As reported $10,615,000 $5,768,000 $5,878,000 Pro forma 9,589,000 5,169,000 5,679,000 Basic earnings per share As reported 1.77 .82 .87 Pro forma 1.60 .74 .84 Diluted earnings per share As reported 1.47 .76 .84 Pro forma 1.33 .69 .81
In accordance with SFAS No. 123, the pro forma net income reflects only options granted subsequent to February 1995 and does not reflect the full impact of calculating compensation cost for stock options granted prior to March 1995, that vested in 1997, calendar 1996 and fiscal 1996. A summary of the status of the Company's stock option plans as of December 31, 1997 and 1996, and February 29, 1996, and changes during the periods ending on those dates is presented below:
Year Ended Ten Months Ended Year Ended December 31, 1997 December 31, 1996 February 29, 1996 ----------------- ----------------- ----------------- Weighted-Average Weighted-Average Weighted-Average Shares Exercise Price Shares Exercise Price Shares Exercise Price ------ -------------- ------ -------------- ------ -------------- Outstanding at beginning of period 1,863,671 $ 9.11 1,625,738 $ 8.64 1,491,750 $ 8.31 Granted 335,375 19.43 456,399 10.78 255,000 9.99 Exercised (221,558) 7.78 (78,028) 6.65 (71,250) 6.86 Forfeited (51,679) 11.45 (140,438) 10.43 (49,762) 8.31 --------- --------- ---------- Outstanding at end of period 1,925,809 11.00 1,863,671 9.11 1,625,738 8.64 ========= ========= ========= Options exercisable at end of period 1,247,265 1,159,959 1,047,510
25 26 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements The following table summarizes information about stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable ------------------------------------------------------- ------------------------------------ Number Weighted-Average Number Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices at Dec. 31, 1997 Contractual Life Exercise Price at Dec. 31, 1997 Exercise Price --------------- ---------------- ---------------- -------------- ---------------- -------------- $ 4.83 - 8.83 893,137 4.8 years $ 8.55 795,638 $ 8.56 9.00 - 16.42 807,172 7.7 10.62 451,627 10.38 20.08 - 26.88 225,500 9.5 22.01 -- -- --------- --------- 4.83 - 26.88 1,925,809 6.6 10.99 1,247,265 9.22 ========= =========
On September 21, 1992, the Board of Directors of the Company declared a dividend distribution of one preferred stock purchase right (the "Rights") for each share of the Company's common stock owned as of October 1, 1992, and for each share of the Company's common stock issued until the Rights become exercisable. Each Right, when exercisable, will entitle the registered holder to purchase from the Company one sixty-seventh of a share of the Company's Series A junior participating preferred stock, $.10 par value (the Series A preferred stock), at a price of $35 per one sixty-seventh of a share. The Rights are not exercisable and are transferable only with the Company's common stock until the earlier of 10 days following a public announcement that a person has acquired ownership of 15% or more of the Company's outstanding common stock, or the commencement or announcement of a tender offer or exchange offer, the consummation of which would result in the ownership by a person of 15% or more of the Company's outstanding common stock. The Series A preferred stock will be nonredeemable and junior to any other series of preferred stock that the Company may issue in the future. Each share of Series A preferred stock, upon issuance, will have a preferential dividend in an amount equal to the greater of $1.00 per share or 100 times the dividend declared per share of the Company's common stock. In the event of the liquidation of the Company, the Series A 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 sixty-seventh of a share of Series A preferred stock outstanding will have one vote on all matters submitted to the stockholders of the Company and will vote together as one class with the holders of the Company's common stock. In the event that a person acquires beneficial ownership of 15% or more of the Company's common stock, holders of Rights (other than the acquiring person or group) may purchase, at the Rights' then current purchase price, shares of the Company's common stock having a value at that time equal to twice such exercise price. In the event that the Company merges into or otherwise transfers 50% or more of its assets or earnings power to any person after the Rights become exercisable, holders of Rights (other than the acquiring person or group) may purchase, at the then current exercise price, common stock of the acquiring entity having a value at that time equal to twice such exercise price. 26 27 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements (8) Earnings per Share The following table sets forth the computation of basic and diluted earnings per share:
Year Ended Ten Months Ended Year Ended December 31, December 31, February 29, 1997 1996 1996 ---- ---- ---- Numerator: Numerator for basic earnings per share - earnings available to common stockholders (net earnings) $ 10,615,000 5,768,000 5,878,000 Effect of dilutive securities - after tax interest on convertible subordinated promissory notes 225,000 184,000 -- ---------- --------- --------- Numerator for diluted earnings per share - earnings available to common stockholders after assumed conversions $ 10,840,000 5,952,000 5,878,000 ========== ========= ========= Denominator: Denominator for basic earnings per share - weighted-average shares outstanding 5,999,000 7,001,000 6,725,000 Effect of dilutive securities: Stock options 809,000 388,000 250,000 Convertible subordinated promissory notes 423,000 423,000 -- Contingently issuable shares 144,000 -- -- ---------- --------- --------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 7,375,000 7,812,000 6,975,000 ========= ========= ========= Basic earnings per share $ 1.77 .82 .87 ==== === === Diluted earnings per share $ 1.47 .76 .84 ==== === ===
For additional disclosures regarding stock options, convertible subordinated promissory notes and contingently issuable shares, see notes 6 and 7. (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 twelve 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 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 were at rates of up to 50% of the first 4% of employee contributions. Expense in connection with the Employee Savings Plan for 1997, calendar 1996 and fiscal 1996 totaled $439,000, $329,000 and $313,000, respectively. 27 28 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements The Company maintains a nonqualified deferred compensation plan for certain employees. Under the plan, participants may defer up to 100% of their yearly compensation. The amounts deferred are held in trust but remain the property of the Company. At December 31, 1997 and 1996, $1,267,000 and $778,000, respectively, was payable under the plan and approximated the value of the trust assets owned by the Company. See note 3. In October 1992, the Company entered into a supplemental bonus plan which, as of December 31, 1997 included six key members of management. Participants began vesting in the supplemental bonus on a pro rata basis beginning March 1, 1993 and became fully vested on February 1, 1997. The total cost of the supplemental bonus plan was charged to earnings as deferred compensation over the service period of the participants. Compensation expense related to the supplemental bonus plan for 1997, calendar 1996 and fiscal 1996 totaled $56,000, $309,000 and $321,000, respectively. In November 1996, the supplemental bonus plan was amended allowing participants to defer up to 50% of the balances under the supplemental bonus plan in the Company's common stock as part of the Company's nonqualified deferred compensation plan. As of December 31, 1997, 50,426 shares of the Company's stock are held in trust under the plan. (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, 1997, that have initial or remaining lease terms in excess of one year total approximately $767,000 for 1998, $824,000 for 1999, $784,000 for 2000, $592,000 for 2001 and $1,020,000 for 2002 and thereafter. Rent expense for 1997, calendar 1996 and fiscal 1996 was approximately $766,000, $605,000 and $393,000, respectively. (11) Income Taxes Income taxes consist of the following:
Year Ended Ten Months Ended Year Ended December 31, December 31, February 29, 1997 1996 1996 ---- ---- ---- Federal - current $ 6,298,000 3,787,000 3,156,000 Federal - deferred (122,000) (539,000) 213,000 State 1,091,000 638,000 640,000 --------- --------- --------- $ 7,267,000 3,886,000 4,009,000 ========= ========= ========= Deferred tax liability recorded in stockholders' equity $ 520,000 1,367,000 -- ========= ========= =========
28 29 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements A reconciliation between expected income taxes, computed by applying the statutory Federal income tax rates to earnings before income taxes, and actual income tax is as follows:
Year Ended Ten Months Ended Year Ended December 31, December 31, February 29, 1997 1996 1996 ---- ---- ---- Statutory U.S. Federal rate 35% 34% 34% === === === Expected income taxes $ 6,259,000 3,282,000 3,362,000 Tax effect of interest income from municipal bond obligations exempt from Federal taxation (54,000) (43,000) (74,000) State income taxes, net of Federal income tax benefit 709,000 421,000 422,000 Tax effect of amortization expense not deductible for tax purposes 261,000 211,000 254,000 Other, net 92,000 15,000 45,000 --------- --------- --------- $ 7,267,000 3,886,000 4,009,000 ========= ========= =========
The tax effects of temporary differences that give rise to the deferred tax assets and liabilities are as follows:
December 31, December 31, 1997 1996 ---- ---- Deferred tax assets: Net operating loss carryforwards $ 569,000 889,000 Provision for doubtful accounts 519,000 397,000 Accrued insurance, bonus and vacation expense 2,442,000 2,036,000 Other 351,000 289,000 ---------- ---------- 3,881,000 3,611,000 --------- --------- Deferred tax liabilities: Unrealized gain on marketable securities 520,000 1,367,000 Goodwill amortization 765,000 253,000 Pre-opening costs 504,000 393,000 Other 138,000 253,000 ---------- ---------- 1,927,000 2,266,000 --------- --------- Net deferred tax asset $ 1,954,000 1,345,000 ========= =========
29 30 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements 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 of 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. As a result of the acquisition of Advanced Rehabilitation Resources, Inc. in 1993, the Company, as of December 31, 1997, has approximately $1,423,000 of net operating loss carryforwards for income tax purposes, which will expire in years 2005 through 2008. The Tax Reform Act of 1986 imposes an annual limitation on the amount of any preacquisition loss carryforwards that can be used to offset Company Federal taxable income generated after the acquisition date. Generally, this annual limitation will approximate $1,200,000. Income taxes paid by the Company for 1997, calendar 1996 and fiscal 1996 were $6,400,000, $4,234,000 and $4,010,000, respectively. (12) Contingencies The Company has undergone a Federal payroll tax audit for the years 1989 through 1993. The Internal Revenue Service ("IRS") asserted that certain medical professionals and others engaged as independent contractors should have been treated as employees for payroll tax purposes. The IRS, in May 1996, issued a proposed assessment against the Company of $1,935,455 for years 1989 through 1993. The Company subsequently received from the IRS separate proposed Closing Agreements for these same independent contractors under the IRS's new "Classification Settlement Program" with an alternate aggregate assessment of $253,426 covering the 1989 through 1993 audit, including any additional potential liability through December 31, 1996. The Company has accepted settlement offers under the program for two classes of medical professionals, paid $61,000 as settlements and agreed to prospectively treat these classes of professionals as employees. The IRS has accepted the Company's classification of the remaining classes as independent contractors and has closed the audit. (13) Quarterly Financial Information (Unaudited) (In thousands, except per share data)
Quarter Ended 1997 Dec. 31 Sep. 30 June 30 Mar. 31 ---- -------- ------- ------- ------- Operating revenues $ 42,728 42,151 39,496 36,405 Operating earnings 5,352 4,854 4,464 4,310 Earnings before income taxes 4,659 4,139 3,741 5,343 Net earnings 2,744 2,439 2,165 3,267 Net earnings per common share: Basic .47 .43 .38 .48 Diluted .38 .35 .31 .42
30 31 REHABCARE GROUP, INC. Notes to Consolidated Financial Statements
One Month Ended Quarter Ended Calendar 1996 Dec. 31 Nov. 30 Aug. 31 May 31 ------------- ------- ------- ------- ------ Operating revenues $ 11,204 31,519 30,888 31,000 Operating earnings 1,244 3,422 3,096 2,936 Earnings before income taxes 1,153 3,108 2,770 2,623 Net earnings 689 1,864 1,653 1,562 Net earnings per common share: Basic .10 .27 .24 .22 Diluted .09 .24 .22 .21
The sum of the quarterly earnings per common share may not equal the full year earnings per common share due to rounding and computational differences. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information regarding directors and executive officers of the Company is contained under the caption "Election of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" included in the Proxy Statement for the 1998 Annual Meeting of Stockholders, which information is incorporated herein by reference. The following is a list as of March 13, 1998, of the names and ages of the executive officers of the Company and positions with the Company. The employment history of each of the executive officers for the past five years follows the list. There is no family relationship between any of the named persons. Name Age Position ---- --- -------- James M. Usdan 48 President and Chief Executive Officer Richard C. Stoddard 49 Executive Vice President, President, HSSI Tom E. Davis 48 President, Inpatient Division Keith L. Goding 47 Executive Vice President and Chief Development Officer Alan C. Henderson 52 Executive Vice President, Chief Financial Officer and Secretary Alfred J. Howard 45 President, Outpatient Division Hickley M. Waguespack 54 Executive Vice President, Customer Service and Retention JAMES M. USDAN has been President of the Company since April 1990 and Chief Executive Officer since June 1991. RICHARD C. STODDARD is a co-founder of HSSI, has been President since 1989, and is also a Board Member at the Company. TOM E. DAVIS has been President of the Inpatient Division since January 1998 and joined the Company 31 32 in January 1997 as Senior Vice President of Operations. Prior to joining the Company, Mr. Davis was Group Vice President for Quorum Health Resources from January 1990 to January 1997. KEITH L. GODING has been Executive Vice President and Chief Development Officer of the Company since February 1995. Prior to joining the Company, Mr. Goding was Vice President for Corporate Alliances and Vice President of Sales, Marketing and Product Development for Spectrum Healthcare Services, a division of ARAMARK, where he was employed since 1974. ALAN C. HENDERSON has been Executive Vice President and Chief Financial Officer of the Company since March 1991. In June 1991, Mr. Henderson was elected Secretary of the Company. ALFRED J. HOWARD has been President of the Outpatient Division since August 1996. Prior to joining the Company he was President of the Eastern Operations for Pacific Rehabilitation and Sports Medicine from October 1993 to August 1996. HICKLEY M. WAGUESPACK has been Executive Vice President, Customer Service and Retention since January 1998, was Chief Operating Officer of the Company from March 1995 through December 1997, was a Senior Vice President - Operations from June 1991 until February 1995. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is contained under the caption "Compensation of Executive Officers," included in the Proxy Statement for the 1998 Annual Meeting of Stockholders, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is contained under the captions "Voting Securities and Principal Holders Thereof" and "Security Ownership by Management," included in the Proxy Statement for the 1998 Annual Meeting of Stockholders, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: (1) Financial Statements Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1997 and 1996 Consolidated Statements of Earnings for the year ended December 31, 1997, for the ten months ended December 31, 1996 and for the year ended February 29, 1996 Consolidated Statements of Stockholders' Equity for the year ended December 31, 1997, for the ten months ended December 31, 1996 and for year ended February 29, 1996 Consolidated Statements of Cash Flows for the year ended December 31, 1997, for the ten months ended December 31, 1996 and for the year February 29, 1996 Notes to Consolidated Financial Statements 32 33 (2) Financial Statement Schedules: None (3) Exhibits: 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 Report on Form 10-Q for the quarter ended May 31, 1995 and incorporated herein by reference) 3.3 Bylaws (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, dated May 9, 1991 [Registration No. 33-40467] and incorporated herein by reference) 4.1 Rights Agreement, dated September 21, 1992, by and between the Company and Boatmen's Trust Company (filed as Exhibit 1 to the Company's Registration Statement on Form 8-A filed September 24, 1992 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 James M. Usdan, dated May 1, 1991 (filed as Exhibit 10.3 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 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) 10.5 Employment Agreement with Richard C. Stoddard, dated March 1, 1996 by and between Registrant, Healthcare Staffing Solutions, Inc. d/b/a Health Tour, and Richard C. Stoddard (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, dated March 1, 1996 and incorporated herein by reference) 10.6 Form of Termination Compensation Agreement for James M. Usdan and 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) 10.7 Form of Termination Compensation Agreement for other executive officers (filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, dated February 18, 1993 [Registration No. 33-58490] and incorporated herein by reference) 33 34 10.8 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) 10.9 Settlement Agreement and Release dated December 1996 and Settlement Agreement and Mutual Release dated September 17, 1996 with Comprehensive Care Corporation ("CompCare") regarding the Tax Sharing Agreement with CompCare dated May 8, 1991(filed as Exhibit 10.1 to the Registrant's Report on Form 10-Q dated January 14, 1997 and incorporated herein by reference) 10.10 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) 10.11 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) 10.12 RehabCare Directors' Stock Option Plan (filed as Appendix A to Registrant's Proxy Statement for the 1994 Annual Meeting of Stockholders and incorporated herein by reference) 10.13 RehabCare Group, Inc. 1996 Long-Term Performance Plan (filed as Appendix A to the Registrant's Proxy Statement for the 1996 Annual Meeting of Stockholders and incorporated herein by reference) 10.14 Form of Subordinated Convertible Promissory Note of Registrant issued to stockholders of Healthcare Staffing Solutions, Inc. d/b/a Health Tour (filed as Exhibit 2.4 to the Registrant's Current Report on Form 8-K, dated March 1, 1996 and incorporated herein by reference) 10.15 Stock Purchase Agreement, dated January 27, 1997 by and among Registrant and the stockholders of TeamRehab, Inc., Moore Rehabilitation Services, Incorporated and Moore Rehabilitation Services, PC. (filed as Exhibit 10.19 to the Registrant's Report on Form 10-K, dated March 12, 1997 and incorporated herein by reference) 10.16 Form of Subordinated Promissory Note of Registrant issued to the stockholders of TeamRehab, Inc., Moore Rehabilitation Services, Incorporated and Moore Rehabilitation Services, PC. (filed as Exhibit 10.20 to the Registrant's Report on Form 10-K, dated March 12, 1997 and incorporated herein by reference) 13.1 Those portions of the Annual Report for the year ended December 31, 1997 of the Registrant included in response to Items 5 and 6 of Form 10-K 21.1 Subsidiaries of the Registrant 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the three months ended December 31, 1997. 34 35 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, thereunto duly authorized. Dated: March 13, 1998 REHABCARE GROUP, INC. (Registrant) By: /s/ JAMES M. USDAN (James M. Usdan) President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. Signature Title Dated /s/ JAMES M. USDAN President, Chief Executive March 13, 1998 - ---------------------------- Officer and Director (James M. Usdan) Principal Executive Officer /s/ ALAN C. HENDERSON Executive Vice President March 13, 1998 - ---------------------------- and Chief Financial Officer (Alan C. Henderson) Principal Financial Officer /s/ JOHN R. FINKENKELLER Senior Vice President March 13, 1998 - ---------------------------- and Treasurer (John R. Finkenkeller) Principal Accounting Officer /s/ WILLIAM G. ANDERSON Director March 13, 1998 - ---------------------------- (William G. Anderson) /s/ RICHARD E. RAGSDALE Director March 13, 1998 - ---------------------------- (Richard E. Ragsdale) /s/ JOHN H. SHORT Director March 13, 1998 - ---------------------------- (John H. Short) /s/ RICHARD C. STODDARD Director March 13, 1998 - ---------------------------- (Richard C. Stoddard) /s/ H. EDWIN TRUSHEIM Director March 13, 1998 - ---------------------------- (H. Edwin Trusheim) /s/ THEODORE M. WIGHT Director March 13, 1998 - ---------------------------- (Theodore M. Wight) 35 36 EXHIBIT INDEX Exhibit Page Number Description Number - ------ ----------- ------ 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 Report on Form 10-Q for the quarter ended May 31, 1995 and incorporated herein by reference) 3.3 Bylaws (filed as Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, dated May 9, 1991 [Registration No. 33-40467] and incorporated herein by reference) 4.1 Rights Agreement, dated September 21, 1992, by and between the Company and Boatmen's Trust Company (filed as Exhibit 1 to the Company's Registration Statement on Form 8-A filed September 24, 1992 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 James M. Usdan, dated May 1, 1991 (filed as Exhibit 10.3 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 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) 10.5 Employment Agreement with Richard C. Stoddard, dated March 1, 1996 by and between Registrant, Healthcare Staffing Solutions, Inc. d/b/a Health Tour, and Richard C. Stoddard (filed as Exhibit 10.1 to the Registrant's Current Report on Form 8-K, dated March 1, 1996 and incorporated herein by reference) 10.6 Form of Termination Compensation Agreement for James M. Usdan and 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) 10.7 Form of Termination Compensation Agreement for other executive officers (filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1, dated February 18, 1993 [Registration No. 33-58490] and incorporated herein by reference) 36 37 Exhibit Page Number Description Number - ------ ----------- ------ 10.8 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) 10.9 Settlement Agreement and Release dated December 1996 and Settlement Agreement and Mutual Release dated September 17, 1996 with Comprehensive Care Corporation ("CompCare") regarding the Tax Sharing Agreement with CompCare dated May 8, 1991(filed as Exhibit 10.1 to the Registrant's Report on Form 10-Q dated January 14, 1997 and incorporated herein by reference) 10.10 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) 10.11 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) 10.12 RehabCare Directors' Stock Option Plan (filed as Appendix A to Registrant's Proxy Statement for the 1994 Annual Meeting of Stockholders and incorporated herein by reference) 10.13 RehabCare Group, Inc. 1996 Long-Term Performance Plan (filed as Appendix A to the Registrant's Proxy Statement for the 1996 Annual Meeting of Stockholders and incorporated herein by reference) 10.14 Form of Subordinated Convertible Promissory Note of Registrant issued to stockholders of Healthcare Staffing Solutions, Inc. d/b/a Health Tour (filed as Exhibit 2.4 to the Registrant's Current Report on Form 8-K, dated March 1, 1996 and incorporated herein by reference) 10.15 Stock Purchase Agreement, dated January 27, 1997 by and among Registrant and the stockholders of TeamRehab, Inc., Moore Rehabilitation Services, Incorporated and Moore Rehabilitation Services, PC. (filed as Exhibit 10.19 to the Registrant's Report on Form 10-K, dated March 12, 1997 and incorporated herein by reference) 10.16 Form of Subordinated Promissory Note of Registrant issued to the stockholders of TeamRehab, Inc., Moore Rehabilitation Services, Incorporated and Moore Rehabilitation Services, PC. (filed as Exhibit 10.20 to the Registrant's Report on Form 10-K, dated March 12, 1997 and incorporated herein by reference) 13.1 Those portions of the Annual Report for the year ended December 31, 1997 of the Registrant included in response to Items 5 and 6 of Form 10-K 38 21.1 Subsidiaries of the Registrant 39 23 Consent of KPMG Peat Marwick LLP 40 27 Financial Data Schedule 41 37 38 Exhibit 13.1
- ------------------------------------------------------------------------------------------------------------------------------------ Six-Year Financial Summary Dollars in thousands, except per share data (Year ended December 31, unless noted) 1997 1996 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ Statement of earnings data: Operating revenues $ 160,780 $ 119,856 $ 89,377 $ 83,210 $ 61,740 $ 48,419 Operating earnings 18,980 12,717 10,276 8,531 5,533 5,026 Net earnings 10,615 6,992 5,878 4,735 3,070 2,948 Net earnings per share (EPS): Basic $ 1.77 $ 1.01 $ .87 $ .71 $ .59 $ .49 Diluted $ 1.47 $ .93 $ .84 $ .70 $ .59 $ .48 Weighted average shares outstanding (000s): Basic 5,999 6,955 6,725 6,614 4,514 5,837 Diluted 7,375 7,711 6,975 6,783 5,214 6,088 - ------------------------------------------------------------------------------------------------------------------------------------ Balance sheet data: Working capital $ 12,793 $ 9,254 $ 11,818 $ 5,460 $ 6,271 $ 7,798 Total assets 97,241 80,802 57,066 52,833 45,445 20,124 Long-term debt 34,494 14,000 5,032 7,122 7,500 9,500 Redeemable preferred stock -- -- -- -- 3,568 3,499 Stockholders' equity 39,760 49,670 38,897 32,431 24,132 (291) - ------------------------------------------------------------------------------------------------------------------------------------ Financial statistics: Operating margin 11.8% 10.6% 11.5% 10.2% 9.0% 10.4% Net margin 6.6% 5.8% 6.6% 5.7% 5.0% 6.1% Current ratio 1.6:1 1.6:1 2.0:1 1.4:1 1.6:1 2.1:1 Diluted EPS growth rate 58.1% 14.8% 20.0% 18.6% 22.9% 20.0% Return on equity 23.7% 16.1% 16.5% 16.7% 25.8% 36.9% - ------------------------------------------------------------------------------------------------------------------------------------ Operating statistics: Inpatient (acute rehab and subacute) Average number of units 110.3 91.3 84.7 84.1 64.4 49.3 Average occupied beds per unit 13.2 12.8 13.2 13.2 13.8 14.5 Average admissions per unit 321 294 279 261 264 266 Average length of stay (billable) 15.0 15.9 17.3 18.4 19.0 19.8 Patient days (billable) 532,195 426,995 408,385 403,784 323,040 260,134 Outpatient: Average number of locations 17.9 19.6 21.2 13.6 7.6 5.1 Patient visits 231,256 223,904 278,970 135,064 N/A N/A Therapy staffing - Number of weeks worked 29,652 21,908 -- -- -- -- Contract therapy - Average number of locations 35.8 -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ For comparability purposes, reflects the twelve months ended December 31, 1996. Statement of earnings data for the ten month accounting period ended December 31, 1996, reflecting the change to a calendar fiscal year-end as of December 31, 1996 from the last day of February previously, is included in the consolidated financial statements. Twelve month period ended last day of February. All share data adjusted for 3-for-2 stock split in October 1997. Average of beginning and ending equity. N/A - Not available - --------------------------------------------------------------------------------
Stock Data The Company's common stock is listed and traded on the NASDAQ National Market System under the symbol "RHBC". The stock prices below are the high and low sale prices as reported on NASDAQ. Calendar Quarter 1st 2nd 3rd 4th - -------------------------------------------------------------------------------- 1997: High $17.58 $24.83 $25.25 $31.13 Low 12.50 15.75 17.67 23.50 - -------------------------------------------------------------------------------- 1996: High 13.17 12.25 13.08 13.75 Low 10.00 9.83 9.83 11.17 The Company effected a 3-for-2 stock split to shareholders on October 1, 1997. The Company has not paid dividends on its common stock during the two most recently completed fiscal periods and has not declared any dividends during the current fiscal year. The Company does not anticipate paying cash dividends in the foreseeable future. The number of holders of the Company's common stock as of March 13, 1998 was approximately 3,358 including 157 shareholders of record and an estimated 3,201 persons or entities holding common stock in nominee name. In our ongoing efforts to control costs, we have eliminated production of our quarterly reports, an action taken by many other publicly held companies. Instead, shareholders may receive earnings news releases, which provide timely financial information, by notifying our investor relations department or by visiting our website at http://www.rehabcare.com 38 39 Exhibit 21.1 REHABCARE GROUP, INC. Subsidiaries of Registrant RehabCare Outpatient Services, Inc. Incorporated in the State of Florida Healthcare Staffing Solutions, Inc. Incorporated in the Commonwealth d/b/a Health Tour of Massachusetts Health Tour Management, Inc. Incorporated in the Commonwealth of Massachusetts TeamRehab, Inc. Incorporated in the State of Missouri Moore Rehabilitation Services, Inc. Incorporated in the State of Missouri RehabCare Group East, Inc. Incorporated in the State of Delaware RehabCare Group Management Services, Inc. Incorporated in the State of Delaware RehabCare Group of California, Inc. Incorporated in the State of Delaware RehabCare Group Texas Holdings, Inc. Incorporated in the State of Delaware 39 40 Exhibit 23 Independent Auditors' Consent The Board of Directors RehabCare Group, Inc.: We consent to the incorporation by reference in the registration statement No. 33-82106 on Form S-8, registration statement No. 33-82048 on Form S-8, and registration statement No. 333-11311 on Form S-8 of RehabCare Group, Inc. of our report dated February 6, 1998, with respect to the consolidated balance sheets of RehabCare Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year ended December 31, 1997, for the ten months ended December 31, 1996, and for the year ended February 29, 1996, which report is included in the December 31, 1997 annual report on Form 10-K of RehabCare Group, Inc. /S/ KPMG PEAT MARWICK LLP St. Louis, Missouri March 20, 1998 40 EX-27 2 FDS --
5 12-MOS DEC-31-1997 JAN-31-1997 DEC-31-1997 1,975,000 4,664,000 25,485,000 1,338,000 0 33,279,000 5,884,000 2,542,000 97,241,000 20,486,000 34,494,000 0 0 24,044,000 15,716,000 97,241,000 160,780,000 160,780,000 110,726,000 141,800,000 0 0 2,759,000 17,882,000 7,267,000 10,615,000 0 0 0 10,615,000 1.77 1.47
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