-----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, JiZ9jK+ykgCuqOAxWfaY972Uf7ZvjoGGxs7TfjZRtL6ZcDJclzj4rQsLfkrvTwBG O6ANER+4LYS+96p5d7FSrw== 0000812191-98-000014.txt : 19981111 0000812191-98-000014.hdr.sgml : 19981111 ACCESSION NUMBER: 0000812191-98-000014 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981107 ITEM INFORMATION: FILED AS OF DATE: 19981110 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-19294 FILM NUMBER: 98741356 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 8-K/A 1 REHABCARE GROUP, INC. FORM 8-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- AMENDMENT NO. 1 ON FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 9, 1998 REHABCARE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 0-19294 51-0265872 (State or other (Commission File (I.R.S. Employer jurisdiction of Number) Identification organization) Number) 7733 Forsyth Boulevard 17th Floor St. Louis, Missouri 63105 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 863-7422 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits Historical and Pro Forma Financial Statements - The following sets forth the historical financial statements of Therapeutic Systems, Ltd., an Illinois corporation ("TSL"), and the unaudited pro forma financial information of RehabCare Group, Inc. ("RehabCare"), showing the effect of the consummation of the acquisition by RehabCare of 100% of the issued and outstanding shares of TSL. The consummation of the acquisition and details with regard thereto were reported by RehabCare in its Current Report on Form 8-K dated September 9, 1998, but the audited financial statements of TSL and the unaudited pro forma financial information were not available at such time. (a) Historical Financial Statements of Business Acquired - The following historical financial statements of TSL are filed herewith: Report of Independent Auditors Balance Sheet, December 31, 1997 Statement of Income, Year Ended December 31, 1997 Statement of Cash Flows, Year Ended December 31, 1997 Notes to Financial Statements Condensed Balance Sheet, June 30, 1998 (Unaudited) Condensed Statement of Earnings, Six Months Ended June 30, 1998 (Unaudited) Condensed Statement of Cash Flows, Six Months Ended June 30, 1998 (Unaudited) Notes to Condensed Financial Statements (Unaudited) (b) Pro Forma Financial Information - The following pro forma combined financial statements of RehabCare showing the effect of the acquisition are filed herewith: Pro Forma Condensed Combined Balance Sheet as of June 30, 1998 (Unaudited) Pro Forma Condensed Combined Statement of Earnings for the Year Ended December 31, 1997 (Unaudited) Pro Forma Condensed Combined Statement of Earnings for the Six Months Ended June 30, 1998 (Unaudited) Notes to Unaudited Pro Forma Condensed Combined Financial Statements (Unaudited) (c) Exhibits -The following exhibits are filed herewith: 23.1 Consent of Mowery & Schoenfeld LLC. 3 REPORT OF INDEPENDENT AUDITORS TO THE BOARD OF DIRECTORS OF THERAPEUTIC SYSTEMS, LTD. We have audited the accompanying balance sheet of THERAPEUTIC SYSTEMS, LTD. (an Illinois corporation), as of December 31, 1997 and the related statements of income and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of THERAPEUTIC SYSTEMS, LTD. as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Mowery & Schoenfeld LLC May 15, 1998 4 THERAPEUTIC SYSTEMS, LTD. BALANCE SHEET DECEMBER 31, 1997 - --------------------------------------------------------------------------------------------------------------------------
ASSETS CURRENT ASSETS Cash $ 119,697 Accounts receivable Trade $ 7,057,348 Allowance for doubtful accounts (230,000) 6,827,348 ----------- Prepaid expenses 4,443 ----------- Total assets $ 6,951,488 =========== LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Accrued payroll and payroll taxes $ 580,584 Accrued vacation 227,000 Accrued replacement taxes (Note 3) 83,000 Deferred replacement taxes (Note 3) 91,000 ----------- Total current liabilities 981,584 ----------- SHAREHOLDER'S EQUITY Common stock - no par value, 10,000 shares authorized, 1,000 shares issued and outstanding 1,000 Retained earnings, beginning of the year $ 5,839,309 Net income $ 6,296,714 Shareholder distributions (6,167,119) 129,595 5,968,904 ----------- ----------- ----------- Total shareholder's equity 5,969,904 ----------- Total liabilities and shareholder's equity $ 6,951,488 =========== See accompanying notes to financial statements.
5 THERAPEUTIC SYSTEMS, LTD. STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1997 - --------------------------------------------------------------------------------------------------------------------------
REVENUES $13,866,613 OPERATING EXPENSES Wages $ 6,599,283 Payroll taxes 529,292 Dues and subscriptions 3,911 Employee health 616 Licenses 1,642 Continuing education 7,280 Health insurance 148,141 Dental insurance 4,901 Professional liability insurance 20,991 Workers compensation insurance 27,107 Advertising 17,371 Client relations 4,851 Office supplies 12,263 Postage and delivery 7,241 Professional fees 6,829 Bad debt expense 50,000 Rent 29,520 Therapy materials 9,307 Travel and entertainment 1,398 Telephone 15,514 Gas and electric 3,221 Miscellaneous 1,434 7,502,113 ----------- ----------- Income from operations 6,364,500 OTHER INCOME Interest income 25,214 ----------- Income before taxes 6,389,714 PROVISION FOR ILLINOIS REPLACEMENT TAXES ( NOTE 3 ) 93,000 ----------- Net income $ 6,296,714 =========== See accompanying notes to financial statements.
6 THERAPEUTIC SYSTEMS, LTD. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1997 - --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,296,714 Adjustments to reconcile net income to net cash provided by operating activities; Deferred replacement taxes 10,000 Bad debts expense 50,000 Effect of changes in operating assets and liabilities; Accounts receivable (774,640) Prepaid expenses 29,172 Accrued payroll and payroll taxes 9,418 Accrued vacation 36,000 Accrued replacement taxes (12,000) ----------- Net cash provided by operating activities 5,644,664 ----------- CASH FLOWS FROM INVESTING ACTIVITIES - ----------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (6,167,119) ----------- Net cash used in financing activities (6,167,119) ----------- NET DECREASE IN CASH (522,455) Cash, beginning of year 642,152 ----------- Cash, end of year $ 119,697 =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for replacement taxes $ 95,000 =========== See accompanying notes to financial statements.
7 THERAPEUTIC SYSTEMS, LTD. Notes to Financial Statements NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business ------------------ Therapeutic Systems, Ltd. ("the Company") is an Illinois corporation operating within Chicago, Illinois and the surrounding suburbs. The Company contracts primarily with skilled nursing or long-term care facilities and school districts to provide comprehensive physical, occupational and speech therapy. Basis of Presentation and Revenue Recognition --------------------------------------------- The financial statements are presented on the accrual basis. Revenues are recognized as services are performed based on contracted billing rates. Expenses are recorded as incurred and as services are provided by therapists. Property and Equipment ---------------------- Property and equipment are recorded at cost and are depreciated using straight-line and accelerated methods over estimated useful lives. Expenditures for major repairs and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for normal maintenance and repairs are charged to expense as incurred. Property and equipment are written off the books when they are fully depreciated. Use of Estimates in Preparing Financial Statements -------------------------------------------------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures at the financial statement date. Accordingly, actual amounts could differ. NOTE 2 - LEASE COMMITMENTS The Company leases office facilities under an operating lease agreement that expires December 31, 1997. The lease agreement contains an option to renew the lease for four additional one year periods. The Company has exercised one of four one year renewal options contained in the original lease agreement extending the lease through December 31, 1998 with monthly rent payments of $2,546. Rent expense approximated $30,000 for the year ended December 31, 1997. 8 NOTE 3 - INCOME TAXES The Company has elected to be treated as an S Corporation under Section 1361 of the Internal Revenue Code. Accordingly, there is no provision for federal and state income taxes since such taxes are the liability of the individual shareholder. Instead, the Company is subject to an Illinois replacement tax of 1.5%. The provision for replacement taxes for the year ended December 31, 1997 is presented below: Replacement taxes currently payable $ 83,000 Deferred replacement taxes 10,000 ---------------- $ 93,000 ================ Gross deferred replacement tax assets $ (15,000) Gross deferred replacement tax liabilities 106,000 ---------------- Net deferred tax liability - current $ 91,000 ================ The Company files its federal and state income tax returns on the cash basis. Accordingly, deferred replacement tax assets and liabilities are recorded based on the expected future tax consequences due to the reversal of temporary differences between financial statement carrying amounts and the tax basis of primarily accounts receivable and certain accruals which currently exist. 9 THERAPEUTIC SYSTEMS, LTD. CONDENSED BALANCE SHEET June 30, 1998 (Unaudited) (dollar amounts in thousands)
Assets: Current assets: Cash and cash equivalents $ 1,611 Accounts receivable, net of allowance for doubtful accounts 6,786 Prepaid expenses and other current assets 20 ------------ Total current assets 8,417 ------------ $ 8,417 ============ Liabilities and Stockholders' Equity: Current liabilities: Accounts payable 107 Accrued salaries and wages 857 ------------ Total current liabilities 964 ------------ Stockholder's equity: Common stock 1 Additional paid-in capital -- Retained earnings 7,452 ------------ Total stockholder's equity 7,453 ------------ $ 8,417 ============ See accompanying notes.
10 THERAPEUTIC SYSTEMS, LTD. CONDENSED STATEMENT OF EARNINGS Six months ended June 30, 1998 (Unaudited) (dollar amounts in thousands)
Operating Revenues: $ 6,571 Costs and expenses: Operating expenses 3,393 General and administrative 127 Depreciation and amortization -- ------------- Total costs and expenses 3,520 ------------- Operating earnings 3,051 Income taxes -- ------------- Net earnings $ 3,051 ============= See accompanying notes.
11 THERAPEUTIC SYSTEMS, LTD. CONDENSED STATEMENT OF CASH FLOWS Six months ended June 30, 1998 (Unaudited) (dollar amounts in thousands)
Operating activities Net earnings $ 3,051 Adjustments to reconcile net earnings to net cash provided by operating activities; Changes in operating assets and liabilities; Accounts receivable 41 Prepaid expenses and other assets (15) Accounts payable and accrued expenses (17) ---------- Net cash provided by operating activities 3,060 ---------- Financing activities Dividends paid (1,568) ---------- Net cash used in financing activities (1,568) ---------- Net increase in cash 1,492 Cash at beginning of period 119 ---------- Cash at end of period $ 1,611 ========== See accompanying notes.
12 THERAPEUTIC SYSTEMS, LTD. Notes to Condensed Financial Statements (Unaudited) 1. Basis of Presentation The condensed balance sheet as of June 30, 1998, and the related condensed statement of earnings for the six months ended June 30, 1998 and cash flows for the six months ended June 30, 1998, are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the respective full years. The condensed 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 audited financial statements and the related notes of Therapeutic Systems, Ltd. ("TSL") included in this Form 8-K which provide additional disclosures and a further description of accounting policies. 2. Acquisition On September 8, 1998, 100% of the common stock of TSL was sold to RehabCare Group, Inc. 13 Pro Forma Financial Data The unaudited pro forma condensed combined balance sheet as of June 30, 1998, and the pro forma condensed combined statements of earnings for the six months ended June 30, 1998, and for the year ended December 31, 1997, give effect to the acquisition based on the historical consolidated financial statements of RehabCare and the historical financial statements of TSL, under the assumptions and adjustments set forth below. The pro forma condensed combined financial statements have been prepared based upon the respective company's historical financial statements. These pro forma condensed combined financial statements, which include results of operations as if the acquisition had been effected on the first day of the periods presented, and had been accounted for under the purchase method of accounting, may not be indicative of the results that would be recognized if the acquisition had been in effect on the dates indicated or which may be obtained in the future, including the year ended December 31, 1998. The pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and notes thereto of RehabCare and TSL. 14 REHABCARE GROUP, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET June 30, 1998 (dollar amounts in thousands)
Therapeutic Pro Forma Pro Forma RehabCare Systems Adjustments Combined Assets: Current assets: Cash and cash equivalents $ 4,406 $ 1,611 $ (1,753)(1) $ 4,264 Marketable securities, available-for-sale 4,314 -- 4,314 Accounts receivable, net of allowance for doubtful accounts 24,872 6,786 (4,400)(6) 27,258 Deferred tax assets 1,633 -- 1,633 Prepaid expenses and other current assets 963 20 983 ------------ --------- ----------- ----------- Total current assets 36,188 8,417 (6,153) 38,452 ------------ --------- ----------- ----------- Marketable securities available-for-sale, noncurrent 1,217 -- 1,217 ------------ --------- ----------- ----------- Equipment and leasehold improvements, net 3,302 -- 3,302 ------------ --------- ----------- ----------- Other assets: Excess of cost over net assets acquired, net 54,605 -- $ 7,300 (3) 61,905 Deferred contract costs, net 1,071 -- 1,071 Pre-opening costs, net 3,164 -- 3,164 Other 1,672 -- 1,672 ------------ --------- ----------- ----------- Total other assets 60,512 -- 7,300 67,812 ------------ --------- ----------- ----------- $ 101,219 $ 8,417 $ 1,147 $ 110,783 ============ ========= =========== =========== Liabilities and Stockholders' Equity: Current liabilities: Current portion of long-term debt $ 4,660 $ -- $ -- $ 4,660 Accounts payable 1,851 107 -- 1,958 Accrued salaries and wages 12,793 857 13,650 Accrued expenses 4,069 -- 300 (1) 4,369 ------------ --------- ----------- ----------- Total current liabilities 23,373 964 300 24,637 ------------ --------- ----------- ----------- Deferred tax liabilities 257 -- 257 ------------ --------- ----------- ----------- Deferred compensation 1,715 -- 1,715 ------------ --------- ----------- ----------- Long-term debt, less current portion 26,351 -- 6,400 (1) 32,751 ------------ --------- ----------- ----------- Stockholders' equity: Preferred stock -- -- -- Common stock 73 1 (1)(2) 73 Additional paid-in capital 25,748 -- 1,900 (1) 27,648 Retained earnings 40,911 7,452 (7,452)(2) 40,911 Less common stock held in treasury at cost, 1,166,234 shares (17,975) -- (17,975) Accumulated other comprehensive earnings - unrealized gain on marketable securities, net of tax 766 -- 766 ------------ --------- ----------- ----------- Total stockholders' equity 49,523 7,453 (5,553) 51,423 ------------ --------- ----------- ----------- $ 101,219 $ 8,417 $ 1,147 $ 110,783 ============ ========= =========== =========== See accompanying notes to unaudited pro forma condensed combined financial statements.
15 REHABCARE GROUP, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS Year ended December 31, 1997 (dollar amounts in thousands, except per share data)
Therapeutic Pro Forma Pro Forma RehabCare Systems Adjustments Combined Operating Revenues: $ 160,780 $ 13,866 $ (6,366)(6) $ 168,280 Costs and expenses: Operating expenses 110,726 7,247 (3,327)(6) 114,851 205 (7) General and administrative 27,294 254 88 (7) 27,636 Depreciation and amortization 3,780 -- 183 (3) 3,963 ------------- ---------- ----------- ------------ Total costs and expenses 141,800 7,501 (2,851) 146,450 ------------- ---------- ----------- ------------ Operating earnings 18,980 6,365 (3,515) 21,830 Interest income 186 25 211 Interest expense (2,759) -- (480)(4) (3,239) Gain on sale of marketable securities 1,448 -- 1,448 Other income, net 27 -- 27 ------------- ---------- ----------- ------------ Earnings before income taxes 17,882 6,390 (3,995) 20,277 Income taxes 7,267 93 751 8,111 (5) ------------- ---------- ----------- ------------ Net earnings $ 10,615 $ 6,297 $ (4,746) $ 12,166 ============= ========== =========== ============ Net earnings per common share: Basic $ 1.77 $ 2.03 ============= ============ Diluted $ 1.47 $ 1.65 ============= ============ See accompanying notes to unaudited pro forma condensed combined financial statements.
16 REHABCARE GROUP, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS Six months ended June 30, 1998 (dollar amounts in thousands, except per share data)
Therapeutic Pro Forma Pro Forma RehabCare Systems Adjustments Combined Operating Revenues: $ 86,531 $ 6,571 $ (3,113)(6) $ 89,989 Costs and expenses: Operating expenses 58,621 3,393 (1,607)(6) 60,509 102 (7) General and administrative 15,131 127 44 (7) 15,302 Depreciation and amortization 2,021 -- 91 (3) 2,112 ------------- ---------- ----------- ------------ Total costs and expenses 75,773 3,520 (1,370) 77,923 ------------- ---------- ----------- ------------ Operating earnings 10,758 3,051 (1,743)(7) 12,066 Interest income 124 -- 124 Interest expense (1,352) -- (229)(4) (1,581) Gain on sale of marketable securities 94 -- 94 ------------- ---------- ----------- ------------ Earnings before income taxes 9,624 3,051 (1,972) 10,703 Income taxes 3,905 -- 376 4,281 (5) ------------- ---------- ----------- ------------ Net earnings $ 5,719 $ 3,051 $ (2,348) $ 6,422 ============= ========== =========== ============ Net earnings per common share: Basic $ 0.96 $ 1.07 ============= =========== Diluted $ 0.81 $ 0.89 ============= =========== See accompanying notes to unaudited pro forma condensed combined financial statements.
17 Notes to Unaudited Pro Forma Condensed Combined Financial Statements On September 9, 1998, RehabCare acquired TSL, a provider of contract therapy services to long-term care facilities and school districts. The aggregate cash purchase cost, excluding acquisition costs, totaled $8.3 million, consisting of $5.4 million in cash, a subordinated promissory note in the original principal amount of $1 million and an aggregate of 117,895 shares of common stock equal in value to $1.9 million. Goodwill recognized as a result of the acquisition totaled approximately $7.3 million. The unaudited pro forma condensed combined balance sheet as of June 30, 1998 has been prepared assuming that the acquisition had occurred as of that date. Unaudited pro forma condensed combined statements of earnings for the six months ended June 30, 1998, and the year ended December 31, 1997 have been prepared as if the acquisition had been effected on the first day of the periods presented. The unaudited pro forma condensed combined statements of earnings are not necessarily indicative of results that would have occurred had the acquisition been consummated as of the beginning of the periods presented or that might be attained in the future. Pro forma adjustments reflected in the unaudited pro forma condensed combined financial statements are as follows: 1. To record the cash consideration of $5.4 million, to record cash paid for working capital in excess of the target minimum of $1.3 million, to record the issuance of subordinated promissory note in the principal amount of $1 million, to record an aggregate of 117,895 shares of common stock equal in value to $1.9 million, and accrue for estimated acquisition costs totaling $300,000. 2. To eliminate the historical amounts of stockholder's equity of TSL. 3. To reflect the goodwill associated with allocation of the purchase price. Goodwill will be amortized using the straight-line method over 40 years. 4. To reflect the interest expense related to incremental borrowings necessary to fund the cash purchase price and the issuance of a subordinated promissory note. The interest rate on bank borrowings is assumed to be 7.00% and 7.40% for the six month period ended June 30, 1998 and the year ended December 31, 1997, respectively. The interest rate on the subordinated promissory note is 8%. 5. To reflect income taxes at an estimated combined effective tax rate of 40%. 6. To reflect reductions associated with receipt by TSL of notice of cancellation of contracts from a customer representing approximately 46% of TSL's 1998 revenues. 7. To reflect post-acquisition salary adjustments and additional costs associated with conforming benefit plans. 18 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 hereunto duly authorized. Dated: November 6, 1998 REHABCARE GROUP, INC. By:/s/ John R. Finkenkeller ------------------------------------------------- John R. Finkenkeller Senior Vice President and Chief Financial Officer 19 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements (Form S-8, No. 333-11311; Form S-8, No. 33-82106; and, Form S-8, No. 33-82048)of RehabCare Group, Inc. of our report dated May 15, 1998, with respect to the audited financial statements of Therapeutic Systems, Ltd. included in the Current Report on Form 8-K/A of RehabCare Group, Inc. dated September 9, 1998 /s/ Mowery & Schoenfeld, LLC November 6, 1998 -----END PRIVACY-ENHANCED MESSAGE-----