eightk3q08ex991.htm

Exhibit 99.1

CONTACT: RehabCare Group, Inc.

Financial: Jay W. Shreiner,

Chief Financial Officer

Press: Donna Lee, Office of the CEO

(314) 863-7422 or

FD, Gordon McCoun/Theresa Kelleher

(212) 850-5600

FOR IMMEDIATE RELEASE

Wednesday, October 29, 2008

REHABCARE REPORTS THIRD QUARTER 2008 RESULTS

·	Contract Therapy hits 6.2% operating margin and Hospital Rehabilitation Services achieves 15% operating margin despite impact of hurricanes and therapy caps; Company raises earnings expectations for both divisions

·	Hospital division reports $5.5 million operating loss, anticipates improvement in the fourth quarter

·	Debt is reduced by $19 million and balance sheet remains strong in a volatile financial market

ST. LOUIS, MO, October 29, 2008--RehabCare Group, Inc. (NYSE:RHB) today reported financial results for the quarter and nine months ended September 30, 2008. Comparative results for the quarter and nine months follow.

	Third			Second			Third			Nine Months Ended
	Quarter			Quarter			Quarter			September 30,
Amounts in millions, except per share data	2008			2008			2007				2008			2007

Consolidated Operating Revenues	$	182.6		$	183.9		$	170.7		$	548.9		$	532.8
Consolidated Operating Earnings (a)		7.0			7.7			8.2			23.3			19.5
Consolidated Earnings from Continuing Operations, Net of Tax		4.2			4.6			3.9			13.5			8.5
Loss from Discontinued Operations, Net of Tax		(0.2	)		(0.1	)		-			(0.5	)		(0.9	)
Consolidated Net Earnings		4.0			4.5			3.9			13.0			7.6
Consolidated Diluted Earnings per Share		0.22			0.25			0.22			0.73			0.43

Minority Interests in Net Losses of Consolidated Affiliates		0.6			0.6			0.1			1.3			0.2

Contract Therapy Operating Revenues		105.6			106.3			98.3			316.2			301.4
Contract Therapy Operating Earnings		6.6			5.6			3.2			16.0			2.1

HRS Inpatient Operating Revenues		30.8			29.9			29.5			90.4			92.2
HRS Outpatient Operating Revenues		10.8			10.3			10.8			31.6			33.1
HRS Operating Revenues		41.6			40.2			40.3			122.0			125.3
HRS Operating Earnings		6.2			5.3			6.3			16.2			16.9

Hospital Operating Revenues		27.5			27.2			22.2			82.2			72.2
Hospital Operating Loss (a)		(5.5	)		(3.5	)		(1.6	)		(9.1	)		(1.3	)

Other Operating Revenues		8.4			10.8			10.2			30.2			34.5
Other Operating Earnings (Loss)		(0.3	)		0.3			0.4			0.3			1.9

(a) Includes a pretax impairment charge on a Louisiana Specialty Hospital intangible asset of $4.9 million,

or $0.17 per diluted share after tax, in the nine months ended September 30, 2007.

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REHABCARE REPORTS THIRD QUARTER 2008 RESULTS Page 2

“Our two mature businesses performed very well in the third quarter despite the effects of two major hurricanes and the temporary imposition of Part B Therapy Caps,” said John H. Short, Ph.D., RehabCare President and Chief Executive Officer. “The hurricanes had an estimated $1 million impact on operating earnings, and the disruption of therapy caps during the first two weeks of July impacted productivity and revenue in our largest division, Contract Therapy (CT). The impact of these events was offset by reductions in our self-insurance costs, bad debt expense and management incentives. Both our CT and Hospital Rehabilitation Services (HRS) divisions posted another quarter of margin improvement, once again demonstrating our ability to effectively manage and quickly recover from external challenges to our operations.”

Dr. Short continued, “While not reflected in third quarter results, we are beginning to gain some traction towards our objectives for the Hospital division. In the third quarter, operating earnings were impeded by the temporary evacuation of two facilities during the recent hurricanes, continued start-up losses, and sluggish operating performance in several mature facilities. However, we continue to implement an action plan to turn around this business segment.”

He added, “While many companies struggle with the global credit crisis, our balance sheet remains strong. In the third quarter, cash flow from operations and the sale of our Midland, TX hospital funded a $19 million reduction in debt.”

Financial Overview of Third Quarter

Operating revenues for the third quarter of 2008 were $182.6 million compared to $183.9 million in the second quarter of 2008, a decrease of $1.3 million, or 0.7%.

Net earnings from continuing operations for the third quarter of 2008 were $4.2 million compared to $4.6 million in the second quarter of 2008. The Company incurred a loss from discontinued operations in Midland, TX, net of tax, of $0.2 million in the third quarter of 2008, inclusive of lease and other exit costs.

Consolidated net earnings were $4.0 million in the third quarter of 2008 compared to $4.5 million in the second quarter of 2008. Earnings per share on a fully diluted basis for the third quarter of 2008 were $0.22 compared to $0.25 in the previous quarter. Earnings from continuing operations were $0.24 and $0.26 respectively.

The Contract Therapy division’s operating revenues for the third quarter of 2008 decreased $0.7 million to $105.6 million, compared to $106.3 million in the second quarter of 2008 primarily due to the impact of the Part B Therapy Caps and hurricanes. Same store revenues fell by 0.4% while the average number of locations operated in the current quarter increased by 1.0%. The number of locations increased from 1,053 to 1,075 during the quarter. The Company signed contracts for 53 new client locations in the third quarter. The number of signed but unopened contracts stood at 19 at the end of the quarter.

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REHABCARE REPORTS THIRD QUARTER 2008 RESULTS Page 3

The division’s operating earnings were $6.6 million, or 6.2% of revenue, compared to $5.6 million, or 5.3% of revenue, in the second quarter of 2008.

The Hospital Rehabilitation Services division’s third quarter operating revenues increased 3.4% to $41.6 million, compared to $40.2 million in the second quarter of 2008. Sequentially, inpatient operating revenues improved 3.1% as the average number of programs operated in the current quarter increased by 1.8% and same store acute discharges increased 1.7%. Outpatient operating revenues increased 4.3%.

At September 30, 2008, HRS operated 156 programs compared to 154 programs at June 30, 2008. The division had two inpatient rehabilitation facility (IRF) signings in the third quarter and three IRF openings. At September 30, the number of signed but unopened IRF contracts stood at five, three of which are expected to open in the fourth quarter of 2008.

Division operating earnings increased by $0.9 million to $6.2 million, or 15.0% of revenue, in the third quarter of 2008 compared to $5.3 million, or 13.2% of revenue, in the second quarter of 2008.

Net revenues in the Hospital division for the third quarter of 2008 increased 1.2% to $27.5 million, compared to $27.2 million in the previous quarter. The division operated a total of ten hospitals at September 30, 2008, five of which were rehabilitation hospitals and five long-term acute care hospitals (LTACHs).

The division managed its rehab hospitals to an average 60% Rule compliance level of 59.4% at the end of the quarter.

The division incurred an operating loss of $5.5 million in the third quarter of 2008 compared to an operating loss of $3.5 million in the previous quarter. The $2.0 million sequential decline primarily resulted from $2.2 million lower earnings from same store hospitals, driven by an estimated $0.6 million decline due to the hurricanes and lower patient revenue in certain markets. This same store hospital decline was partially offset by a $0.7 million increase from a full quarter of operations for The Specialty Hospital in Rome, Georgia. In addition, the division was impacted by a $0.5 million increase in start-up losses, most of which relates to Northland LTAC Hospital, which opened in April. Northland is expected to end its Medicare mandated length-of-stay demonstration period on December 1.

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REHABCARE REPORTS THIRD QUARTER 2008 RESULTS Page 4

Balance Sheet

At September 30, 2008, the Company had approximately $12.4 million in cash and cash equivalents and $52.0 million in outstanding debt. The Company has fixed the interest rate on $25 million of this debt at 4% plus spread through December 2009. Days sales outstanding increased sequentially from 69.6 days at June 30, 2008 to 70.1 days at September 30, 2008. For the nine months ended September 30, 2008, the Company generated cash from operations of $32.0 million and expended approximately $12.7 million for capital expenditures, including $9.6 million in the Company’s Hospital division, primarily on developing joint ventures. The remaining $3.1 million of capital expenditures was principally related to information systems.

Legislative Update

The Company is actively pressing its trade groups toward finalizing an alternative to the therapy cap exception process set to expire in December of 2009. In addition, it is working collaboratively with industry colleagues on shared concerns, such as Recovery Audit Contractor (RAC) audits, which often adversely affect the post-acute industry. Other issues, such as the physician fee schedule, CMS-required studies on IRF and LTACH admission criteria and healthcare reform proposals also will be part of the Company’s 2009 initiatives.

Outlook

The Company will not be providing revenue and earnings per share guidance for the fourth quarter of 2008, but provides the following:

·	The CT division continues to expect a modest net increase in the number of units for the remainder of the year, and in light of its operating performance over the last two quarters, has raised its operating earnings margin expectations to a range of 5.5 to 6.5% for the fourth quarter.

The HRS division expects a modest increase in units as well and has raised its operating earnings margin target to 13 to 16% from 12 to 15% for the fourth quarter. Year-over-year growth in same store discharges for the fourth quarter 2008 is expected to remain within the 3 to 5% range, similar to the third quarter 2008 performance.

·	The Hospital division expects an operating loss of $3.7 to $4.7 million, which includes start-up and ramp-up losses associated with Northland LTAC and St. Luke’s Rehabilitation Hospitals, in the fourth quarter.

·	The Company expects capital expenditures in the fourth quarter of 2008 of approximately $8.5 million (includes the purchase of the Rehabilitation Hospital of Rhode Island), of which approximately $6 million relates to hospital strategic and maintenance capital.

·	The Company continues to expect its effective tax rate to approximate 39% for 2008.

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REHABCARE REPORTS THIRD QUARTER 2008 RESULTS Page 5

Conclusion

Dr. Short concluded, “Given our continued improving performance in the face of recent challenges, we have raised our operating earnings margin targets for the fourth quarter in both our CT and HRS divisions.

“While the turmoil on Wall Street has had far-reaching effects, we are well positioned to persevere in the face of global economic issues and prolonged credit tightness. In our 26 years, we’ve built a flexible business model and strong financial platform to outlast uncertain times.”

About RehabCare Group

Established in 1982 and headquartered in St. Louis, MO, RehabCare (www.rehabcare.com) is a leading provider of rehabilitation program management services in partnership with over 1,200 hospitals and skilled nursing facilities in 43 states. The Company also operates freestanding rehabilitation hospitals and long-term acute care hospitals across the country. RehabCare is included in the Russell 2000 and Standard and Poor’s Small Cap 600 Indices.

A listen-only simulcast of RehabCare’s second quarter conference call will be available on the Company’s web site at www.rehabcare.com, under For Our Investors, Webcasts, and online at www.earnings.com, beginning at 10:00 A.M. Eastern time today. An online replay will be available until November 19, 2008. A telephonic replay of the call will be available beginning at approximately 1:00 p.m. Eastern Time today. The dial-in number for the replay is (630) 652-3041 and the access code is 22855235.

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on the Company’s current expectations and could be affected by numerous factors, risks and uncertainties discussed in the Company’s filings with the Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. Do not rely on forward looking statements as the Company cannot predict or control many of the factors that ultimately may affect the Company’s ability to achieve the results estimated. The Company makes no

promise to update any forward looking statements whether as a result of changes in underlying factors, new information, future events or otherwise.

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REHABCARE REPORTS THIRD QUARTER 2008 RESULTS Page 6

I. Condensed Consolidated Statements of Earnings
(Unaudited; amounts in thousands, except per share data)

	Three Months Ended									Nine Months Ended
	Sept. 30,			June 30,			Sept. 30,			Sept. 30,			Sept. 30,
		2008			2008			2007			2008			2007

Operating revenues	$	182,626		$	183,919		$	170,684		$	548,919		$	532,799
Costs & expenses
Operating		149,925			149,453			138,327			446,484			431,980
Selling, general & administrative:
Divisions		11,687			12,383			10,761			35,792			34,170
Corporate		10,430			10,744			9,334			32,432			29,894
Impairment of intangible asset		-			-			-			-			4,906
Depreciation & amortization		3,596			3,638			4,029			10,905			12,316
Total costs & expenses		175,638			176,218			162,451			525,613			513,266

Operating earnings, net		6,988			7,701			8,233			23,306			19,533

Interest income		29			38			38			104			780
Interest expense		(847	)		(1,006	)		(2,077	)		(3,152	)		(6,653	)
Other income (expense), net		(4	)		25			18			24			(43	)
Equity in net income of affiliates		143			140			79			441			168
Minority interests		612			647			131			1,339			157

Earnings from continuing operations before income taxes		6,921			7,545			6,422			22,062			13,942
Income tax expense		2,699			2,942			2,484			8,604			5,402
Earnings from continuing operations		4,222			4,603			3,938			13,458			8,540
Loss from discontinued operations		(224	)		(107	)		(28	)		(456	)		(982	)

Net earnings	$	3,998		$	4,496		$	3,910		$	13,002		$	7,558

Diluted earnings per share	$	0.22		$	0.25		$	0.22		$	0.73		$	0.43

Weighted average diluted shares		17,824			17,737			17,443			17,773			17,381

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REHABCARE REPORTS THIRD QUARTER 2008 RESULTS Page 7

II. Condensed Consolidated Balance Sheets
(Amounts in thousands)

	Unaudited
	September 30,		December 31,
	2008		2007
Assets
Cash and cash equivalents	$	12,405	$	10,265
Accounts receivable, net		139,320		135,194
Deferred tax assets		13,977		15,863
Other current assets		8,597		7,892
Total current assets		174,299		169,214

Property and equipment, net		34,623		29,705
Goodwill		171,313		168,517
Intangible assets		23,388		28,027
Investment in unconsolidated affiliate		4,742		4,701
Other assets		7,588		8,396
	$	415,953	$	408,560
Liabilities & Stockholders’ Equity
Current portion of long-term debt	$	7,000	$	9,500
Payables & accruals		88,564		79,429
Total current liabilities		95,564		88,929

Long-term debt, less current portion		45,000		65,000
Other non-current liabilities		10,627		9,342
Minority interest		3,391		1,267
Stockholders’ equity		261,371		244,022
	$	415,953	$	408,560

III. Condensed Consolidated Statements of Cash Flows
(Unaudited; amounts in thousands)
	Nine Months Ended
	September 30,
	2008			2007

Net cash provided by operating activities	$	32,000		$	30,854
Net cash used in investing activities		(12,528	)		(7,904	)
Net cash provided used in financing activities		(17,332	)		(18,177	)

Net increase in cash and cash equivalents		2,140			4,773
Cash and cash equivalents at beginning of period		10,265			9,430
Cash and cash equivalents at end of period	$	12,405		$	14,203


Supplemental information:
Additions to property and equipment	$	(12,689	)	$	(6,463	)

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REHABCARE REPORTS THIRD QUARTER 2008 RESULTS Page 8

IV. Operating Statistics
(Unaudited; dollars in thousands)

		Third			Second			Third		Nine Months Ended
		Quarter			Quarter			Quarter		September 30,
		2008			2008			2007			2008			2007
Contract Therapy
Operating revenues	$	105,572		$	106,304		$	98,274		$	316,156		$	301,381
Operating expenses		86,535			87,624			81,713			260,752			256,151
Division SG&A		5,304			6,112			5,575			17,275			17,630
Corporate SG&A		5,632			5,359			5,796			17,326			19,271
Depreciation and amortization		1,534			1,604			2,035			4,808			6,276
Operating earnings	$	6,567		$	5,605		$	3,155		$	15,995		$	2,053
Operating earnings margin		6.2	%		5.3	%		3.2	%		5.1	%		0.7	%

Average number of locations		1,071			1,061			1,106			1,062			1,140
End of period number of locations		1,075			1,053			1,085			1,075			1,085

Hospital Rehabilitation Services
Operating revenues
Acute	$	28,405		$	27,482		$	26,899		$	83,207		$	84,484
Subacute		2,395			2,398			2,613			7,232			7,709
Total Inpatient	$	30,800		$	29,880		$	29,512		$	90,439		$	92,193
Outpatient		10,791			10,344			10,774			31,557			33,150
Total HRS	$	41,591		$	40,224		$	40,286		$	121,996		$	125,343
Operating expenses		29,302			28,306			27,980			86,797			88,812
Division SG&A		3,419			3,657			3,028			10,445			10,443
Corporate SG&A		2,029			2,274			2,038			6,568			6,032
Depreciation and amortization		612			676			931			2,008			3,155
Operating earnings	$	6,229		$	5,311		$	6,309		$	16,178		$	16,901
Operating earnings margin		15.0	%		13.2	%		15.7	%		13.3	%		13.5	%

Average number of programs
Acute		109			107			109			107			112
Subacute		14			13			15			14			16
Total Inpatient		123			120			124			121			128
Outpatient		33			33			35			33			35
Total HRS		156			153			159			154			163

End of period number of programs
Acute		110			107			108			110			108
Subacute		13			14			14			13			14
Total Inpatient		123			121			122			123			122
Outpatient		33			33			32			33			32
Total HRS		156			154			154			156			154

Acute patient days		129,783			126,043			126,608			383,812			393,855
Subacute patient days		35,071			32,945			34,672			102,012			101,085
Total patient days		164,854			158,988			161,280			485,824			494,940

Acute discharges		10,569			10,309			10,173			31,154			32,052
Subacute discharges		870			734			754			2,399			2,429
Total discharges		11,439			11,043			10,927			33,553			34,481

Outpatient visits		238,624			241,478			250,933			720,012			777,439

Hospitals
Operating revenues	$	27,513		$	27,197		$	22,163		$	82,183		$	72,209
Operating expenses		28,095			25,701			20,965			77,032			60,828
Division SG&A		1,284			1,195			747			3,467			1,946
Corporate SG&A		2,334			2,601			1,112			7,120			3,336
Impairment of intangible asset		-			-			-			-			4,906
Depreciation and amortization		1,317			1,227			937			3,694			2,512
Operating earnings (loss)	$	(5,517	)	$	(3,527	)	$	(1,598	)	$	(9,130	)	$	(1,319	)
Operating earnings margin		-20.1	%		-13.0	%		-7.2	%		-11.1	%		-1.8	%

End of period number of facilities		10			10			8			10			8
Patient days		24,393			23,766			21,765			71,790			64,560
Discharges		1,492			1,467			1,241			4,451			3,701

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