10-Q 1 tenq82001.txt 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, 2001 ------------- 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 7, 2001 -------------------------------------- ------------------------------ Common Stock, par value $.01 per share 17,258,159 1 of 14 REHABCARE GROUP, INC. Index Part I. - Financial Information Item 1. - Condensed Consolidated Financial Statements Condensed consolidated balance sheets, June 30, 2001 (unaudited) and December 31, 2000 3 Condensed consolidated statements of earnings for the three months and six months ended June 30, 2001 and 2000 (unaudited) 4 Condensed consolidated statements of cash flows for the six months ended June 30, 2001 and 2000(unaudited) 5 Notes to condensed consolidated financial statements (unaudited) 6 Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II. - Other Information Item 6. - Exhibits and Reports on Form 8-K 13 Signatures 14 2 of 14 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, 2001 2000 ---- ---- Assets: (unaudited) Current assets: Cash and cash equivalents $ 5,402 7,942 Marketable securities, available-for-sale 3,025 3,025 Accounts receivable, net of allowance for doubtful accounts of $6,453 and $5,347, respectively 93,306 84,033 Income taxes receivable 2,939 3,672 Deferred tax assets 6,069 4,872 Prepaid expenses and other current assets 1,239 1,158 ------- ------- Total current assets 111,980 104,702 Marketable securities, trading 2,678 2,383 Equipment and leasehold improvements, net 14,955 12,427 Excess of cost over net assets acquired, net 103,094 104,782 Other 4,975 4,799 ------- ------- $237,682 229,093 ======= ======= Liabilities and Stockholders' Equity: Current liabilities: Current portion of long-term debt $ 2,618 2,868 Accounts payable 1,704 2,790 Accrued salaries and wages 26,536 24,846 Accrued expenses 8,031 10,012 ------- ------- Total current liabilities 38,889 40,516 Deferred compensation and other long-term liabilities 3,034 2,679 Deferred tax liabilities 2,654 2,504 Long-term debt, less current portion 1,634 65,434 ------- ------- Total liabilities 46,211 111,133 ------- ------- Stockholders' equity: Preferred stock, $.10 par value, 10,000,000 shares, none issued and outstanding -- -- Common stock, $.01 par value; authorized 60,000,000 shares, issued 19,526,319 and 17,409,584 shares, respectively 195 174 Additional paid-in capital 107,983 49,503 Retained earnings 101,032 86,022 Less common stock held in treasury at cost, 2,302,898 shares (17,757) (17,757) Accumulated other comprehensive earnings 18 18 ------- ------- Total stockholders' equity 191,471 117,960 ------- ------- $237,682 229,093 ======= =======
See accompanying notes to condensed consolidated financial statements. 3 of 14 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, 2001 2000 2001 2000 ---- ---- ---- ---- Operating revenues $ 136,871 107,721 267,595 213,654 Costs and expenses: Operating expenses 97,225 76,621 190,258 151,865 General and administrative 24,127 19,040 46,654 37,626 Depreciation and amortization 2,326 1,622 4,448 3,138 ------- ------- ------- ------- Total costs and expenses 123,678 97,283 241,360 192,629 ------- ------- ------- ------- Operating earnings 13,193 10,438 26,235 21,025 Interest income 75 59 137 108 Interest expense (243) (1,328) (1,429) (2,652) Other income (expense) (1) 20 8 28 ------- ------- ------- ------- Earnings before income taxes 13,024 9,189 24,951 18,509 Income taxes 5,192 3,645 9,941 7,354 ------- ------- ------- ------- Net earnings $ 7,832 5,544 15,010 11,155 ======= ======= ======= ======= Net earnings per common share: Basic $ .46 .38 .92 .79 ======= ======= ======= ======= Diluted $ .43 .35 .85 .71 ======= ======= ======= ======= Weighted average number of common shares outstanding: Basic 17,008 14,539 16,241 14,195 ======= ======= ======= ======= Diluted 18,358 15,994 17,748 15,650 ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements. 4 of 14 REHABCARE GROUP, INC. Condensed Consolidated Statements of Cash Flows (dollars in thousands) (Unaudited)
Six Months Ended June 30, 2001 2000 ---- ---- Cash flows from operating activities: Net earnings $ 15,010 11,155 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 4,448 3,138 Provision for losses on accounts receivable 2,129 1,752 Income tax benefit realized on employee stock option exercises 5,249 1,456 Change in assets and liabilities: Deferred compensation 355 20 Accounts receivable, net (11,402) (10,733) Prepaid expenses and other current assets (81) 305 Other assets (59) (243) Accounts payable and accrued expenses (3,067) (2,024) Accrued salaries and wages 1,690 3,116 Income taxes payable and deferred (314) (3,800) ------ ------ Net cash provided by operating activities 13,958 4,142 ------ ------ Cash flows from investing activities: Purchase of marketable securities (696) (617) Proceeds from sale/maturities of investments 401 166 Additions to equipment and leasehold improvements, net (4,576) (2,892) Deferred contract costs (309) (484) Other (520) (644) ------ ------ Net cash used in investing activities (5,700) (4,471) ------ ------ Cash flows from financing activities: Proceeds from long-term debt -- 4,000 Repayments on long-term debt (64,050) (6,068) Proceeds from sale of common stock, net 49,468 -- Exercise of stock options 3,784 2,790 ------ ------ Net cash (used in)provided by financing activities (10,798) 722 ------ ------ Net (decrease) increase in cash and cash equivalents (2,540) 393 Cash and cash equivalents at beginning of period 7,942 738 ------ ------ Cash and cash equivalents at end of period $ 5,402 1,131 ====== ======
See accompanying notes to condensed consolidated financial statements. 5 of 14 REHABCARE GROUP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- Six Month Periods Ended June 30, 2001 and 2000 (Unaudited) Note 1. - Basis of Presentation ------------------------------- The condensed consolidated balance sheets and related condensed consolidated statements of earnings and cash flows contained in this Form 10-Q, which are unaudited, include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and activity have been eliminated in consolidation. In the opinion of management, all entries necessary for a fair presentation of such financial statements have been included. These entries consisted only of normal recurring items. The results of operations for the three months and six months ended June 30, 2001, are not necessarily indicative of the results to be expected for the fiscal year. Certain prior year amounts have been reclassified to conform with the current year presentation. The condensed consolidated financial statements do not include all information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. Reference is made to the Company's audited consolidated financial statements and the related notes as of December 31, 2000 and 1999 and for each of the years in the three year period ended December 31, 2000, included in the Annual Report on Form 10-K on file with the Securities and Exchange Commission, which provide additional disclosures and a further description of our accounting policies. 6 of 14 Note 2. - Earnings per Share ---------------------------- The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- (in thousands, except per share data) Numerator: Numerator for basic earnings per share - earnings available to common stockholders (net earnings) $ 7,832 5,544 15,010 11,155 Effect of dilutive securities - after-tax interest on convertible subordinated promissory notes -- -- -- 28 ------ ------ ------ ------ Numerator for diluted earnings per share - earnings available to common stockholders after assumed conversions $ 7,832 5,544 15,010 11,183 ====== ====== ====== ====== Denominator: Denominator for basic earnings per share - weighted-average shares outstanding 17,008 14,539 16,241 14,195 Effect of dilutive securities: Stock options 1,350 1,455 1,507 1,350 Convertible subordinated promissory notes -- -- -- 105 ------ ------ ------ ------ Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 18,358 15,994 17,748 15,650 ====== ====== ====== ====== Basic earnings per share $ .46 .38 .92 .79 ======= ====== ====== ====== Diluted earnings per share $ .43 .35 .85 .71 ======= ====== ====== ======
Note 3. - Industry Segment Information -------------------------------------- The Company operates in two product lines that are managed separately based on fundamental differences in operations: temporary healthcare staffing services and physical rehabilitation program management services. Physical rehabilitation program management includes inpatient programs (including acute rehabilitation and skilled nursing units), outpatient therapy programs, and contract therapy programs. All of the Company's services are provided in the United States. 7 of 14 Summarized information about the Company's operations for the three months and six months ended June 30, 2001 and 2000 in each industry segment is as follows:
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- (dollars in thousands) Revenues from Unaffiliated Customers ------------------------------------ Healthcare staffing $ 78,067 61,936 152,348 121,498 Program management: Inpatient 30,759 29,288 61,816 59,799 Contract therapy 15,055 6,655 27,395 12,855 Outpatient 12,990 9,842 26,036 19,502 ------- ------- ------- ------- Program management subtotal 58,804 45,785 115,247 92,156 ------- ------- ------- ------- Total $ 136,871 107,721 267,595 213,654 ======= ======= ======= ======= Operating Earnings * ------------------ Healthcare staffing $ 3,294 2,891 6,747 5,358 Program management: Inpatient 6,397 5,207 12,658 10,861 Contract therapy 1,605 544 3,024 1,156 Outpatient 1,897 1,796 3,806 3,650 ------- ------- ------- ------- Program management subtotal 9,899 7,547 19,488 15,667 ------- ------- ------- ------- Total $ 13,193 10,438 26,235 21,025 ======= ======= ======= ======= Total Assets ------------ Healthcare staffing $ 110,746 101,435 110,746 101,435 Program management: Inpatient 71,469 55,088 71,469 55,088 Contract therapy 26,823 21,363 26,823 21,363 Outpatient 28,644 20,934 28,644 20,934 ------- ------- ------- ------- Program management subtotal 126,936 97,385 126,936 97,385 ------- ------- ------- ------- Total $ 237,682 198,820 237,682 198,820 ======= ======= ======= ======= Depreciation and Amortization ----------------------------- Healthcare staffing $ 822 674 1,591 1,298 Program management: Inpatient 875 682 1,782 1,313 Contract therapy 255 92 421 188 Outpatient 374 174 654 339 ------- ------- ------- ------- Program management subtotal 1,504 948 2,857 1,840 ------- ------- ------- ------- Total $ 2,326 1,622 4,448 3,138 ======= ======= ======= ======= Capital Expenditures -------------------- Healthcare staffing $ 525 800 969 1,356 Program management: Inpatient 1,036 521 3,119 1,433 Contract therapy 181 48 209 57 Outpatient 166 7 279 46 ------- ------- ------- ------- Program management subtotal 1,383 576 3,607 1,536 ------- ------- ------- ------- Total $ 1,908 1,376 4,576 2,892 ======= ======= ======= ======= * Operating earnings for the three months and six months ended June 30, 2000 have been adjusted to reflect the corporate expense allocation methodology utilized in the current year.
8 of 14 Item 2. - Management's Discussion and Analysis of Financial Condition and -------------------------------------------------------------------------------- Results of Operations --------------------- Results of Operations --------------------- The Company provides temporary healthcare staffing and physical rehabilitation program management services for hospitals, nursing homes and other long-term care facilities. The Company derives its revenue from two product line segments: temporary healthcare staffing services and physical rehabilitation program management services. Our physical rehabilitation program management services include inpatient programs (including acute rehabilitation and skilled nursing units), outpatient therapy programs, and contract therapy programs.
Three Months Ended Six Months Ended June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- Operating Statistics: Healthcare staffing: Average number of staffing offices 109 86 106 84 Weeks worked 61,957 54,253 121,327 107,117 Average revenue per week worked $1,260 $1,142 $1,256 $1,134 Program management: Inpatient (acute rehabilitation and skilled nursing): Average number of programs 136.7 133.1 137.4 133.9 Average admissions per program 99.1 93.0 197.9 187.0 Average bed capacity 2,712 2,615 2,718 2,625 Average billable length of stay (days) 13.7 14.1 13.7 14.2 Billable patient days served 184,892 174,400 371,902 356,256 Admissions 13,548 12,368 27,182 25,049 Average daily billable census 2,032 1,917 2,055 1,957 Average billable occupied beds per program 14.9 14.4 15.0 14.6 Total programs in operation at end of period 136 138 136 138 Contract therapy: Average number of locations 230.3 144.5 222.7 139.7 Number of locations at end of period 240 149 240 149 Average revenue per location $65,361 $46,053 $122,755 $92,046 Outpatient programs: Average number of programs 62.7 48.3 63.6 47.2 Patient visits 370,680 276,790 745,688 536,199 Units of service 1,065,197 766,728 2,137,826 1,484,540 Average units of service per program 16,989 15,874 33,614 31,452 Total programs in operation at end of period 60 49 60 49
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000 ----------------------------------------------------------------------------- Operating revenues during the second quarter 2001 increased by $29.2 million, or 27.1%, to $136.9 million as compared to the second quarter of 2000. The September 15, 2000 acquisition of DiversiCare Rehab Services, Inc. ("DiversiCare") accounted for 7.0% of the net increase, or $2.1 million. Staffing revenue increased by 26.0% from $61.9 million in the second quarter of 2000 to $78.1 million in the second quarter of 2001, reflecting a 14.2% increase in weeks worked from 54,253 to 61,957 and a 10.3% increase in average revenue per week worked to $1,260. Operating earnings for the staffing division were $3.3 million, a 13.9% increase over the $2.9 million (as adjusted for current year corporate expense allocation methodology) earned in the second quarter of 2000. 9 of 14 Inpatient program revenue increased by 5.0% from $29.3 million in the second quarter of 2000 to $30.8 million in the second quarter of 2001. A 2.7% increase in the average number of inpatient programs managed from 133.1 to 136.7, and a 3.5% increase in the average daily billable census per inpatient program from 14.4 to 14.9 resulted in a 6.0% increase in billable patient days to 184,892. The increase in billable census per program for inpatient programs is primarily attributable to a 6.6% increase in average admissions per program from 93.0 to 99.1 offset by a 2.8% decrease in the average length of stay to 13.7. The increase in patient days was offset by a 0.9% decrease in the average per diem billing rates. Operating earnings for the inpatient division increased by 22.9% to $6.4 million in the second quarter of 2001, compared to $5.2 million (as adjusted for current year corporate expense allocation methodology) in the second quarter of 2000. Contract therapy revenue increased by 126.2% from $6.7 million in the second quarter of 2000 to $15.1 million in the second quarter of 2001, reflecting a 59.4% increase in the average number of contract therapy locations managed from 144.5 to 230.3, and a 41.9% increase in average revenue per location. Operating earnings for the contract therapy division were $1.6 million in the second quarter of 2001, a $1.1 million increase from the $544,000 (as adjusted for current year corporate expense allocation methodology) in operating earnings for the second quarter of 2000. Outpatient revenue increased by 32.0% from $9.8 million in the second quarter of 2000 to $13.0 million in the second quarter of 2001, reflecting $2.1 million from the September 15, 2000 acquisition of DiversiCare, an increase in the average number of outpatient programs managed from 48.3 to 62.7 (including 13.0 from DiversiCare) and a 7.0% increase in units of service per program. Operating earnings from the outpatient division were $1.9 million in the second quarter of 2001, a 5.6% increase compared to the $1.8 million (as adjusted for current year corporate expense allocation methodology) earned in the second quarter of 2000. Operating expenses for the three months ended June 30, 2001 increased by $20.6 million, or 26.9%, to $97.2 million as compared to the three months ended June 30, 2000. The DiversiCare acquisition accounted for approximately 6.9% of the net increase. The remaining increase in operating expenses is attributable to a 14.2% increase in the number of weeks worked by travel and per diem staffing, a 59.4% increase in the average number of contract therapy locations, a 22.3% increase in outpatient units of service (excluding 127,684 units of service from DiversiCare), and a 2.7% increase in the average number of inpatient programs. General and administrative expenses as a percentage of revenue decreased from 17.7% in the second quarter of 2000 to 17.6% in the second quarter of 2001 as a result of the consolidation of certain corporate office functions. General and administrative expenses increased by $5.1 million, or 26.7% from $19.0 million in the second quarter of 2000 to $24.1 million in the second quarter of 2001, reflecting increases in corporate office expenses as well as marketing, business development, operations and professional services in support of the increase in outpatient programs, contract therapy locations managed and per diem staffing offices operated, plus the addition of general and administrative expenses from the DiversiCare acquisition. Depreciation and amortization increased $704,000 reflecting an increase in goodwill from acquisitions and depreciation on equipment purchased, plus the change in goodwill amortization period from 40 years to 25 years, effective prospectively on January 1, 2001 on the acquisitions of Physical Therapy Resources, Inc., Team Rehab, Inc./Moore Rehabilitation Services, Inc.; RehabUnlimited, Inc/Cimarron Health Care, Inc. Rehabilitative Care Systems of America, Inc.; Therapeutic Systems, Inc.; Salt Lake Physical Therapy Associates, Inc.; AllStaff, Inc.; and DiversiCare Rehab Services, Inc. The amortization periods for the acquisitions of Advanced Rehabilitation Resources, Inc,; Healthcare Staffing Solutions, Inc,; StarMed Staffing, Inc.; and eai Healthcare Staffing Solutions, Inc., which had businesses that were more national in scope, 10 of 14 remain at 40 years. See discussion of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" under "New Accounting Pronouncements". Interest expense decreased $1.1 million, primarily reflecting the repayment of $49.5 million in principal as a result of the March 20, 2001 publicly underwritten equity offering and cash generated from operations. Earnings before income taxes increased by $3.8 million, or 41.7%, from $9.2 million in the second quarter of 2000 to $13.0 million in the second quarter of 2001. The provision for income taxes for 2001 was $5.2 million compared to $3.6 million in 2000, reflecting effective income tax rates of 39.9% and 39.7%, respectively. Net earnings increased by $2.3 million, or 41.3%, to $7.8 million from $5.5 million in 2000. Diluted earnings per share increased by 23.1% to $.43 from $.35 on a 14.8% increase in the weighted-average shares and assumed conversions outstanding. The increase in weighted average shares outstanding is attributable primarily to 1.5 million shares issued in the publicly underwritten equity offering, stock option grants and exercises and the increase in the dilutive effect of stock options as a result of an increase in the average market price of the Company's stock relative to the underlying exercise prices of outstanding options. Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 ------------------------------------------------------------------------- Operating revenues during the first six months 2001 increased by $53.9 million, or 25.2%, to $267.6 million as compared to the first six months of 2000. The September 15, 2000 acquisition of DiversiCare accounted for 7.5% of the net increase, or $4.1 million. Staffing revenue increased by 25.4% from $121.5 million in the first six months of 2000 to $152.3 million in the first six months of 2001, reflecting a 13.3% increase in weeks worked from 107,117 to 121,327 and a 10.8% increase in average revenue per week worked to $1,256. Operating earnings for the staffing division were $6.7 million, a 25.9% increase over the $5.4 million (as adjusted for current year corporate expense allocation methodology) earned in the first six months of 2000. Inpatient program revenue increased by 3.4% from $59.8 million in the first six months of 2000 to $61.8 million in the first six months of 2001. A 2.6% increase in the average number of inpatient programs managed from 133.9 to 137.4, and a 2.7% increase in the average daily billable census per inpatient program from 14.6 to 15.0 resulted in a 4.4% increase in billable patient days to 371,902. The increase in billable census per program for inpatient programs is primarily attributable to a 5.8% increase in average admissions per program from 187.0 to 197.9 offset by a 3.5% decrease in the average length of stay to 13.7. The increase in patient days was offset by a 1.0% decrease in the average per diem billing rates. Operating earnings for the inpatient division increased by 16.5% to $12.7 million in the first six months of 2001, compared to $10.9 million (as adjusted for current year corporate expense allocation methodology) in the first six months of 2000. Contract therapy revenue increased by 113.1% from $12.9 million in the first six months of 2000 to $27.4 million in the first six months of 2001, reflecting a 59.4% increase in the average number of contract therapy locations managed from 139.7 to 222.7, and a 33.4% increase in average revenue per location. Operating earnings for the contract therapy division were $3.0 million in the first six months of 2001, a $1.9 million increase from the $1.2 million (as adjusted for current year corporate expense allocation methodology) in operating earnings for the first six months of 2000. Outpatient revenue increased by 33.5% from $19.5 million in the first half of 2000 to $26.0 million in the first half of 2001, reflecting $4.1 million from the September 15, 2000 acquisition of DiversiCare, an increase in the average number of outpatient programs managed from 47.2 to 63.6 (including 13.5 from DiversiCare) and a 6.9% increase in units of service per program. Operating earnings from the outpatient division were $3.8 million in the first six months 11 of 14 of 2001, a 4.3% increase compared to the $3.7 million (as adjusted for current year corporate expense allocation methodology) earned in the first six months of 2000. Operating expenses for the six months ended June 30, 2001 increased by $38.4 million, or 25.3%, to $190.3 million as compared to the six months ended June 30, 2000. The DiversiCare acquisition accounted for approximately 7.3% of the net increase. The remaining increase in operating expenses is attributable to a 13.3% increase in the number of weeks worked by travel and per diem staffing, a 59.4% increase in the average number of contract therapy locations, a 26.7% increase in outpatient units of service (excluding 257,258 units of service from DiversiCare), and a 2.6% increase in the average number of inpatient programs. General and administrative expenses as a percentage of revenue decreased from 17.6% in the first six months of 2000 to 17.4% in the first six months of 2001 as a result of the consolidation of certain corporate office functions. General and administrative expenses increased by $9.0 million, or 24.0% from $37.6 million in the first six months of 2000 to $46.7 million in the first six months of 2001, reflecting increases in corporate office expenses as well as marketing, business development, operations and professional services in support of the increase in outpatient programs, contract therapy locations managed and per diem staffing offices operated, plus the addition of general and administrative expenses from the DiversiCare acquisition. Depreciation and amortization increased $1.3 million reflecting an increase in goodwill from acquisitions and depreciation on equipment purchased, plus the change in goodwill amortization period from 40 years to 25 years, effective prospectively on January 1, 2001 on certain acquisitions as previously disclosed in the three month operating results. See discussion of SFAS No. 142, "Goodwill and Other Intangible Assets" under "New Accounting Pronouncements". Interest expense decreased $1.2 million primarily reflecting the repayment of $49.5 million in principal as a result of the March 20, 2001 publicly underwritten equity offering and cash generated from operations. Earnings before income taxes increased by $6.4 million, or 34.8%, from $18.5 million in the first six months of 2000 to $25.0 million in the first six months of 2001. The provision for income taxes for 2001 was $9.9 million compared to $7.4 million in 2000, reflecting effective income tax rates of 39.8% and 39.7%, respectively. Net earnings increased by $3.9 million, or 34.6%, to $15.0 million from $11.2 million in 2000. Diluted earnings per share increased by 18.7% to $.85 from $.71 on a 13.4% increase in the weighted-average shares and assumed conversions outstanding. The increase in weighted average shares outstanding is attributable primarily to the secondary equity offering, stock option grants and exercises and the increase in the dilutive effect of stock options as a result of an increase in the average market price of the Company's stock relative to the underlying exercise prices of outstanding options. Liquidity and Capital Resources ------------------------------- As of June 30, 2001, the Company had $8.4 million in cash and current marketable securities and a current ratio, the amount of current assets divided by current liabilities, of 2.9:1. Working capital increased by $8.9 million to $73.1 million as of June 30, 2001, compared to $64.2 million as of December 31, 2000. The increase in working capital is primarily due to working capital generated from operations and the exercise of stock options. Net accounts receivable were $93.3 million at June 30, 2001, compared to $84.0 million at December 31, 2000. The number of day's average net revenue in 12 of 14 net receivables was 62.0 at June 30, 2001 compared to 63.8 at December 31, 2000. This decrease was the result of the consolidation of our financial back office during the fourth quarter of 2000, the implementation of new financial software enabling improved tracking of receivables and payables, and the vigilance of our billing and collections team. The Company's operating cash flows constitute its primary source of liquidity and historically have been sufficient to fund its working capital, capital expenditures, internal business expansion and debt service requirements. The Company expects to meet its future working capital, capital expenditures, internal and external business expansion and debt service requirements from a combination of internal sources and outside financing. The Company has a $125.0 million revolving line of credit with no balance outstanding as of June 30, 2001. New Accounting Pronouncements ------------------------------- In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method be used for all business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. SFAS No. 142 requires that goodwill no longer be amortized regularly as a charge to earnings. As a result, the amortization of goodwill is eliminated upon adoption of SFAS No. 142, which will be January 1, 2002. In addition, SFAS No. 142 requires an initial (and annually thereafter) test of the goodwill's impairment. Management does not expect SFAS No. 141 to have a material effect on the consolidated financial statements. Management does expect SFAS No. 142 to result in the elimination of amortization of goodwill from previous acquisitions in the amount of $3.6 million pre-tax in 2002. Management will test for impairment of goodwill from previous acquisitions at least annually. Part II. - Other Information Item 6 - Exhibits and Reports on Form 8-K ----------------------------------------- (a) Exhibits None (b) Reports on Form 8-K None 13 of 14 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 8, 2001 By /s/ Gregory J. Eisenhauer --------------------------------- Gregory J. Eisenhauer Senior Vice President and Chief Financial Officer By /s/ James M. Douthitt --------------------------------- James M. Douthitt Senior Vice President and Chief Accounting Officer 14 of 14