10-Q 1 0001.txt 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 Commission File Number 0-19294 REHABCARE GROUP, INC. --------------------- (Exact name of Registrant as specified in its charter) Delaware 51-0265872 ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 7733 Forsyth Boulevard, Suite 1700, St. Louis, MO 63105 ------------------------------------------------------- (Address of principal executive offices and zip code) 314-863-7422 ------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of the Registrant's common stock, as of the latest practicable date. Class Outstanding at August 9, 2000 -------------------------------------- ----------------------------- Common Stock, par value $.01 per share 14,764,742 ================================================================================ 1 of 13 2 REHABCARE GROUP, INC. Index Part I. - Financial Information Item 1. - Condensed Consolidated Financial Statements Condensed consolidated balance sheets, June 30, 2000 (unaudited) and December 31, 1999 3 Condensed consolidated statements of earnings for the three months and six months ended June 30, 2000 and 1999 (unaudited) 4 Condensed consolidated statements of cash flows for the three months and six months ended June 30, 2000 and 1999 (unaudited) 5 Notes to condensed consolidated financial statements (unaudited) 6 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. - Other Information Item 6. - Exhibits and Reports on Form 8-K 12 Signatures 13 2 of 13 3 PART 1. - FINANCIAL INFORMATION Item 1. - Condensed Consolidated Financial Statements ----------------------------------------------------- REHABCARE GROUP, INC. Condensed Consolidated Balance Sheets (dollars in thousands, except per share data)
June 30, December 31, 2000 1999 ---- ---- (unaudited) Assets: Current assets: Cash and cash equivalents $ 1,131 738 Marketable securities, available-for-sale 3,019 3,019 Accounts receivable, net of allowance for doubtful accounts of $5,357 and $4,577, respectively 74,758 65,777 Deferred tax assets 5,809 4,898 Prepaid expenses and other current assets 795 1,100 ------- ------- Total current assets 85,512 75,532 Marketable securities, trading 2,228 1,777 Equipment and leasehold improvements, net 8,931 7,269 Excess of cost over net assets acquired, net 97,827 99,020 Other 4,322 3,666 ------- ------- $198,820 187,264 ======= ======= Liabilities and Stockholders' Equity: Current liabilities: Current portion of long-term debt $ 13,278 13,345 Accounts payable 2,742 3,359 Accrued salaries and wages 20,000 16,884 Accrued expenses 11,200 11,592 Income taxes payable 181 3,283 ------- ------- Total current liabilities 47,401 48,463 Deferred compensation and other long-term liabilities 2,628 3,623 Deferred tax liabilities 1,558 1,345 Long-term debt, less current portion 48,049 56,050 ------- ------- Total liabilities 99,636 109,481 ------- ------- Stockholders' equity: Preferred stock, $.10 per value, 10,000,000 shares, none issued and outstanding -- -- Common stock, $.01 par value; authorized 20,000,000 shares, issued 17,065,274 and 15,700,566 shares, respectively 171 157 Additional paid-in capital 43,333 33,101 Retained earnings 73,643 62,488 Less common stock held in treasury at cost, 2,331,194 shares (17,975) (17,975) Accumulated other comprehensive earnings 12 12 ------- ------- Total stockholders' equity 99,184 77,783 ------- ------- $198,820 187,264 ======= =======
See notes to condensed consolidated financial statements. 3 of 13 4 REHABCARE GROUP, INC. Condensed Consolidated Statements of Earnings (dollars in thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Operating revenues $ 107,721 73,675 213,654 142,860 Costs and expenses: Operating expenses 76,621 52,969 151,865 102,447 General and administrative 19,040 12,342 37,626 24,153 Depreciation and amortization 1,622 1,260 3,138 2,468 ------ ------ ------- ------- Total costs and expenses 97,283 66,571 192,629 129,068 ------ ------ ------- ------- Operating earnings 10,438 7,104 21,025 13,792 Interest income 59 49 108 114 Interest expense (1,328) (997) (2,652) (2,062) Other income 20 32 28 30 ------ ------ ------ ------ Earnings before income taxes 9,189 6,188 18,509 11,874 Income taxes 3,645 2,463 7,354 4,719 ------ ------ ------ ------ Net earnings $ 5,544 3,725 11,155 7,155 ====== ====== ====== ====== Net earnings per common share: Basic $ .38 .28 .79 .55 ====== ====== ====== ====== Diluted $ .35 .26 .71 .50 ====== ====== ====== ====== Weighted average number of common shares outstanding: Basic 14,539 13,106 14,195 13,039 ====== ====== ====== ====== Diluted 15,994 14,742 15,650 14,678 ====== ====== ====== ======
See notes to condensed consolidated financial statements. 4 of 13 5 REHABCARE GROUP, INC. Condensed Consolidated Statements of Cash Flows (dollars in thousands) (Unaudited)
Six Months Ended June 30, 2000 1999 ---- ---- Cash flows from operating activities: Net earnings $ 11,155 7,155 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 3,138 2,468 Provision for losses on accounts receivable 1,752 1,120 Increase in deferred compensation 20 472 Increase in accounts receivable, net (10,733) (5,016) Decrease in prepaid expenses and other current assets 305 165 Increase in other assets (243) (64) Decrease in accounts payable and accrued expenses (2,024) (258) Increase in accrued salaries and wages 3,116 796 Decrease in income taxes payable and deferred (3,800) (232) ----- ----- Net cash provided by operating activities 2,686 6,606 ----- ----- Cash flows from investing activities: Additions to equipment and leasehold improvements, net (2,892) (1,317) Purchase of marketable securities (617) (495) Deferred contract costs (484) (325) Proceeds from sale/maturities of investments 166 89 Cash paid in acquisition of businesses, net of cash received -- (4,889) Other (644) (542) ----- ----- Net cash used in investing activities (4,471) (7,479) ----- ----- Cash flows from financing activities: Proceeds from revolving credit facility, net 4,000 2,000 Proceeds from issuance of note payable -- 750 Payments on long-term debt (6,068) (6,654) Exercise of stock options, including tax benefit 4,246 567 ----- ----- Net cash provided by (used in) financing activities 2,178 (3,337) ----- ----- Net increase (decrease) in cash and cash equivalents 393 (4,210) Cash and cash equivalents at beginning of period 738 5,666 ----- ----- Cash and cash equivalents at end of period $ 1,131 1,456 ===== =====
See notes to condensed consolidated financial statements. 5 of 13 6 REHABCARE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) Note 1. - Basis of Presentation ------------------------------- The condensed consolidated balance sheets and related condensed consolidated statements of earnings and cash flows contained in this Form 10-Q, which are unaudited, include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and activity have been eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Adjustments consisted only of normal recurring items. The results of operations for the three months and six months ended June 30, 2000, are not necessarily indicative of the results to be expected for the fiscal year. Certain prior years' amounts have been reclassified to conform with the current year presentation. The condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Reference is made to the Company's audited consolidated financial statements and the related notes as of December 31, 1999 and 1998 and for each of the years in the three year period ended December 31, 1999, included in the Annual Report on Form 10-K on file with the Securities and Exchange Commission, which provide additional disclosures and a further description of accounting policies. Note 2. - Expansion of Borrowing Capacity ----------------------------------------- Effective May 11, 2000, the Company amended its loan agreement and increased its borrowing capacity on its revolving line of credit from $30.0 million to $40.0 million. The increased revolving commitment will remain in effect until the close of business on August 14, 2000, at which time it will reduce to $30.0 million. The terms of the amended revolving commitment are identical to those of the original credit agreement. The Company has commitments to significantly expand its term loan and expects to close on a new loan agreement during the third quarter. See "Liquidity and Capital Resources". Note 3. - Common Stock Split ---------------------------- On May 10, 2000, the Company's Board of Directors approved a two-for-one split of the Company's Common Stock in the form of a stock dividend, which was distributed on June 19, 2000, to stockholders of record as of May 31, 2000. Share and per share amounts in the condensed consolidated financial statements and accompanying notes have been restated to reflect the split. 6 of 13 7 Note 4. - Earnings per Share ---------------------------- The following table sets forth the computation of basic and diluted earnings per share: (dollars in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Numerator: Numerator for basic earnings per share - earnings available to common stockholders (net earnings) $ 5,544 3,725 11,155 7,155 Effect of dilutive securities - after-tax interest on convertible subordinated promissory notes -- 56 28 112 ------ ------ ------ ------ Numerator for diluted earnings per share - earnings available to common stockholders after assumed conversions $ 5,544 3,781 11,183 7,267 ====== ====== ====== ====== Denominator: Denominator for basic earnings per share - weighted-average shares outstanding 14,539 13,106 14,195 13,039 Effect of dilutive securities: Stock options 1,455 790 1,350 793 Convertible subordinated promissory notes -- 846 105 846 ------ ------ ------ ------ Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 15,994 14,742 15,650 14,678 ====== ====== ====== ====== Basic earnings per share $.38 .28 .79 .55 === === === === Diluted earnings per share $.35 .26 .71 .50 === === === ===
7 of 13 8 Note 5. - Industry Segment Information -------------------------------------- The Company operates in four business segments that are managed separately based on fundamental differences in operations: inpatient programs (including acute rehabilitation and skilled nursing units), outpatient programs, contract therapy services and staffing. All of the Company's services are provided in the United States. Summarized information about the Company's operations for the three months and six months ended June 30, 2000 and 1999 in each industry segment is as follows: (dollars in thousands)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- Revenues from Unaffiliated Customers ------------------------------------ Inpatient $ 29,288 29,188 59,799 58,175 Outpatient 9,842 7,153 19,502 13,509 Contract Therapy 6,655 3,276 12,855 6,054 Staffing 61,936 34,058 121,498 65,122 ------- ------- ------- ------- Total $ 107,721 73,675 213,654 142,860 ======= ======= ======= ======= Operating Earnings ------------------ Inpatient $ 4,776 5,260 10,054 10,229 Outpatient 1,911 1,293 3,865 2,419 Contract Therapy 622 297 1,298 100 Staffing 3,129 254 5,808 1,044 ------- ------- ------- ------- Total $ 10,438 7,104 21,025 13,792 ======= ======= ======= ======= Total Assets ------------ Inpatient $ 55,088 53,323 55,088 53,323 Outpatient 20,934 18,784 20,934 18,784 Contract Therapy 21,363 18,833 21,363 18,833 Staffing 101,435 70,584 101,435 70,584 ------- ------- ------- ------- Total $ 198,820 161,524 198,820 161,524 ======= ======= ======= ======= Depreciation and Amortization ----------------------------- Inpatient $ 682 621 1,313 1,220 Outpatient 174 111 339 204 Contract Therapy 92 96 188 183 Staffing 674 432 1,298 861 ------- ------- ------- ------- Total $ 1,622 1,260 3,138 2,468 ======= ======= ======= ======= Capital Expenditures -------------------- Inpatient $ 521 633 1,433 976 Outpatient 7 1 46 22 Contract Therapy 48 4 57 5 Staffing 800 228 1,356 316 ------- ------- ------- ------- Total $ 1,376 866 2,892 1,319 ======= ======= ======= =======
8 of 13 9 Note 6. - Current Developments in Accounting and Reporting ---------------------------------------------------------- In December 1999, the Securities and Exchange Commission ("SEC") released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." This bulletin summarizes certain views of the SEC staff on applying generally accepted accounting principles to revenue recognition in financial statements. Management is currently in the process of evaluating the impact of this bulletin, but does not expect a material effect on the consolidated financial statements. This bulletin is effective beginning the fourth quarter of fiscal 2000. Item 2. - Management's Discussion and Analysis of Financial Condition and -------------------------------------------------------------------------------- Results of Operations --------------------- Results of Operations --------------------- The Company provides outsourcing and management of comprehensive medical rehabilitation, subacute (skilled nursing) and outpatient therapy programs on a multi-year contract basis and contract therapy services to hospitals and nursing homes. The Company also is a provider of medical staffing to hospitals, long-term care and other healthcare facilities on both an interim and permanent basis.
Three Months Ended Six Months Ended June 30, June 30, -------- -------- Operating Statistics 2000 1999 2000 1999 -------------------- ---- ---- ---- ---- Program Management: ------------------- Inpatient Programs (Acute and Subacute) --------------------------------------- Average bed capacity 2,615 2,609 2,625 2,599 Average billable length of stay (days) 14.1 14.4 14.2 14.4 Billable patient days served 174,400 174,459 356,256 349,042 Admissions 12,368 12,083 25,049 24,300 Average daily billable census 1,917 1,917 1,957 1,928 Average occupied beds per program 14.4 14.7 14.6 14.7 Total programs in operation at end of period 138 132 138 132 Outpatient Clinics ------------------ Patient visits 276,790 182,625 536,199 341,228 Units of service 766,728 500,024 1,484,540 927,363 Total clinics in operation at end of period 49 40 49 40 Contract Therapy ---------------- Number of locations at end of period 149 89 149 89 Staffing: --------- Weeks worked 54,253 30,322 107,117 57,752
9 of 13 10 Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 ----------------------------------------------------------------------------- Operating revenues during the second quarter 2000 increased by $34.0 million, or 46.2%, to $107.7 million as compared to the second quarter of 1999. Acquisitions accounted for 22.7% of the net increase. Inpatient program revenue increased by $101,000 to $29.3 million, primarily reflecting a 1.7% increase in the average number of inpatient programs from 130.9 to 133.1 and a 0.3% increase in average per diem billing rates, offset by a 1.6% decrease in the average daily billable census per inpatient program to 14.4. The decrease in billable census per program for inpatient programs is primarily attributable to a 2.4% decrease in average length of stay to 14.1 offset by a 0.7% increase in admissions per program. Outpatient revenue increased 37.6% to $9.8 million, reflecting an increase in the average number of outpatient clinics managed from 37.1 to 48.3 and an increase in units of service per clinic. Contract therapy revenue increased 103.2% to $6.7 million, reflecting an increase in the average number of contract therapy locations managed from 84.3 to 144.5, and an increase in revenue per location. Staffing revenue increased 81.8% to $61.9 million, reflecting $1.7 million from the July 1, 1999 acquisition of AllStaff, Inc., $5.9 million from the December 20, 1999 acquisition of eai Healthcare Staffing Solutions, Inc. ("eai Healthcare Staffing"), and a 46.6% increase in weeks worked at existing travel and supplemental offices from 30,322 to 44,452. Operating expenses for the three months ended June 30, 2000 increased by $23.7 million, or 44.7%, to $76.6 million as compared to the three months ended June 30, 1999. Acquisitions accounted for approximately 28.5% of the net increase. The remaining increase in operating expenses is attributable to the increase in outpatient units of services, increased contract therapy locations, and increased weeks worked from travel and supplemental staffing offices, offset by decreased costs in inpatient programs. General and administrative expenses increased $6.7 million, or 54.3%, to $19.0 million, reflecting increases in corporate office expenses as well as marketing, business development, operations and professional services in support of the increase in outpatient clinics, contract therapy locations and staffing offices, plus the addition of general and administrative expenses of companies acquired. Depreciation and amortization increased $362,000 reflecting an increase in goodwill from acquisitions and depreciation on equipment purchased. Interest expense increased $331,000 reflecting interest on additional debt funding the acquisitions, borrowings under the revolving line of credit for working capital purposes and an increase in interest rates. Earnings before income taxes increased by $3.0 million, or 48.5%, to $9.2 million. The provision for income taxes for 2000 was $3.6 million compared to $2.5 million in 1999, reflecting effective income tax rates of 39.7% and 39.8%, respectively. Net earnings increased by $1.8 million, or 48.8%, to $5.5 million. Diluted earnings per share increased 34.6% to $.35 from $.26 on an 8.5% increase in the weighted-average shares and assumed conversions outstanding. The increase in weighted average shares outstanding is attributable primarily to stock option exercises and the increase in the dilutive effect of stock options as a result of an increase in the average market price of the Company's stock relative to the underlying exercise prices of outstanding options. 10 of 13 11 Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 ------------------------------------------------------------------------- Operating revenues during the first six months of 2000 increased by $70.8 million, or 49.6%, to $213.7 million as compared to the first six months of 1999. Acquisitions accounted for 23.2% of the net increase. Inpatient program revenue increased by $1.6 million to $59.8 million. A 2.1% increase in the average number of inpatient programs from 131.1 to 133.9 programs plus one additional day in February 2000 offset by a 0.7% decrease in the average daily billable census per inpatient program to 14.6 resulted in a 2.1% increase in billable patient days to 356,256. The increase in billable patient days, combined with a 0.7% increase in average per diem billing rates, generated a 2.8% increase in revenue from inpatient programs. The increase in billable census per program for inpatient programs is primarily attributable to a 0.9% increase in admissions per program. Outpatient revenue increased 44.4% to $19.5 million, reflecting $1.4 million from the May 20, 1999 acquisition of Salt Lake Physical Therapy Associates, Inc., an increase in the average number of outpatient clinics managed from 36.4 to 47.2, and an increase in units of service per clinic. Contract therapy revenue increased 112.4% to $12.9 million, reflecting an increase in the average number of contract therapy locations managed from 79.9 to 139.8, and an increase in revenue per location. Staffing revenue increased 86.4% to $121.5 million, reflecting $3.2 million from the July 1, 1999 acquisition of AllStaff, Inc., $11.7 million from the December 20, 1999 acquisition of eai Healthcare Staffing, and a 52.2% increase in weeks worked at existing travel and supplemental offices from 57,752 to 87,911. Operating expenses for the first six months of 2000 increased by $49.4 million, or 48.2%, to $151.9 million as compared to the first six months of 1999. Acquisitions accounted for approximately 25.2% of the net increase. The remaining increase in operating expenses is attributable to the increase in outpatient units of services, increased contract therapy locations, and increased weeks worked from travel and supplemental staffing offices. General and administrative expenses increased $13.5 million, or 55.8%, to $37.6 million, reflecting increases in corporate office expenses as well as marketing, business development, operations and professional services in support of the increase in outpatient clinics, contract therapy locations and staffing offices, plus the addition of general and administrative expenses of companies acquired. Depreciation and amortization increased $670,000 reflecting an increase in goodwill from acquisitions and depreciation on equipment purchased. Interest expense increased $590,000 reflecting interest on additional debt funding the acquisitions, borrowings under the revolving line of credit for working capital purposes and an increase in interest rates. Earnings before income taxes increased by $6.6 million, or 55.9%, to $18.5 million. The provision for income taxes for 2000 was $7.4 million compared to $4.7 million in 1999, reflecting effective income tax rates of 39.7% for each period. Net earnings increased by $4.0 million, or 55.9%, to $11.2 million. Diluted earnings per share increased 42.0% to $.71 from $.50 on a 6.6% increase in the weighted-average shares and assumed conversions outstanding. The increase in weighted average shares outstanding is attributable primarily to stock option exercises and the increase in the dilutive effect of stock options as a result of an increase in the average market price of the Company's stock relative to the underlying exercise prices of outstanding options. 11 of 13 12 Liquidity and Capital Resources ------------------------------- As of June 30, 2000, the Company had $4.2 million in cash and current marketable securities and a current ratio of 1.8:1. Working capital increased by $11.0 million to $38.1 million as of June 30, 2000, compared to $27.1 million as of December 31, 1999. The increase in working capital is primarily due to working capital from the acquisition of eai Healthcare Staffing, working capital generated from operations and exercise of stock options. Net accounts receivable were $74.8 million at June 30, 2000, compared to $65.8 million at December 31, 1999. The number of day's average net revenue in net receivables was 63.2 at June 30, 2000 compared to 65.6 at December 31, 1999. The Company's operating cash flows constitute its primary source of liquidity and historically have been sufficient to fund its working capital, capital expenditure, business expansion and debt service 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. The Company has a $40.0 million revolving line of credit with a balance outstanding as of June 30, 2000 of $16.0 million. The Company has commitments to significantly expand its borrowing capacity under its bank loans and expects to close on a new loan agreement during the third quarter. Part II. - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibits 27 Financial Data Schedule (b) Reports on Form 8-K None 12 of 13 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. REHABCARE GROUP, INC. August 11, 2000 By /s/ John R. Finkenkeller ----------------------------- John R. Finkenkeller Senior Vice President and Chief Financial Officer 13 of 13