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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
--------------
Commission File Number 0-19294
-------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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 2300, 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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.) Yes X No
----- -----
Indicate the number of shares outstanding of the Registrant's common stock, as
of the latest practicable date.
Class Outstanding at May 4, 2005
- -------------------------------------- ---------------------------
Common Stock, par value $.01 per share 16,746,477
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REHABCARE GROUP, INC.
Index
Part I. - Financial Information
Item 1. - Condensed Consolidated Financial Statements
Condensed consolidated balance sheets,
March 31, 2005 (unaudited) and December 31, 2004 3
Condensed consolidated statements of earnings for the
three months ended March 31, 2005 and 2004 (unaudited) 4
Condensed consolidated statements of cash flows for the
three months ended March 31, 2005 and 2004 (unaudited) 5
Notes to condensed consolidated financial statements (unaudited) 6
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. - Quantitative and Qualitative Disclosures about Market Risks 19
Item 4. - Controls and Procedures 19
Part II. - Other Information 20
Item 1. - Legal Proceedings 20
Item 4. - Submission of Matters to Security Holders 21
Item 6. - Exhibits 22
Signatures 23
2 of 23
PART 1. - FINANCIAL INFORMATION
Item 1. - Condensed Consolidated Financial Statements
- -----------------------------------------------------
REHABCARE GROUP, INC.
Condensed Consolidated Balance Sheets
(dollars in thousands, except share and per share data)
March 31, December 31,
2005 2004
---- ----
Assets (unaudited)
------
Current assets:
Cash and cash equivalents $ 39,356 $ 50,405
Restricted cash 3,088 3,073
Accounts receivable, net of allowance for doubtful
accounts of $6,051 and $5,074, respectively 76,450 69,565
Deferred tax assets 10,816 10,252
Other current assets 2,383 1,690
--------- ---------
Total current assets 132,093 134,985
Marketable securities, trading 3,913 4,076
Equipment and leasehold improvements, net 15,206 15,149
Excess of cost over net assets acquired, net 68,681 68,340
Intangible assets, net 11,638 11,884
Investment in unconsolidated affiliates 42,465 39,269
Other 4,262 3,963
--------- ---------
Total assets $ 278,258 $ 277,666
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 5,003 $ 4,731
Accounts payable 815 3,521
Accrued salaries and wages 28,145 29,859
Income taxes payable 1,232 4,495
Accrued expenses 16,389 15,928
--------- ---------
Total current liabilities 51,584 58,534
Long-term debt, less current portion 1,941 2,142
Deferred compensation 3,792 4,088
Deferred tax liabilities 5,949 5,874
--------- ---------
Total liabilities 63,266 70,638
--------- ---------
Stockholders' equity:
Preferred stock, $.10 par value, authorized
10,000,000 shares, none issued and outstanding -- --
Common stock, $.01 par value; authorized 60,000,000
shares, issued 20,735,500 shares and 20,553,232
shares as of March 31, 2005 and December 31,
2004, respectively 207 206
Additional paid-in capital 123,653 120,592
Retained earnings 145,836 140,934
Less common stock held in treasury at cost,
4,002,898 shares as of March 31, 2005 and
December 31, 2004 (54,704) (54,704)
Accumulated other comprehensive earnings -- --
--------- ---------
Total stockholders' equity 214,992 207,028
--------- ---------
Total liabilities and stockholders' equity $ 278,258 $ 277,666
========= =========
See accompanying notes to condensed consolidated financial statements.
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REHABCARE GROUP, INC.
Condensed Consolidated Statements of Earnings
(amounts in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
2005 2004
---- ----
Operating revenues $102,431 $104,497
Costs and expenses:
Operating expenses 76,498 76,067
Selling, general & administrative:
Divisions 8,635 9,673
Corporate 5,999 6,317
Depreciation and amortization 2,293 1,768
Restructuring -- 1,666
Gain on sale of business -- (485)
-------- --------
Total costs and expenses 93,425 95,006
-------- --------
Operating earnings 9,006 9,491
Interest income 196 56
Interest expense (238) (217)
Other income (expense) 14 (7)
-------- --------
Earnings before income taxes and
equity in net loss of affiliates 8,978 9,323
Income taxes 3,635 3,864
Equity in net loss of affiliates (441) (353)
-------- --------
Net earnings $ 4,902 $ 5,106
======== ========
Net earnings per common share:
Basic $ 0.29 $ 0.32
======== ========
Diluted $ 0.29 $ 0.31
======== ========
Weighted-average number of
common shares outstanding:
Basic 16,631 16,166
======== ========
Diluted 17,145 16,728
======== ========
See accompanying notes to condensed consolidated financial statements.
4 of 23
REHABCARE GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
---- ----
Cash flows from operating activities:
Net earnings $ 4,902 $ 5,106
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,293 1,768
Provision for doubtful accounts 1,121 992
Equity in net loss of affiliates 441 353
Income tax benefit realized on employee
stock option exercises 1,320 225
Restructuring -- 1,666
Gain on sale of business -- (485)
Changes in assets and liabilities:
Accounts receivable, net (8,006) (5,353)
Prepaid expenses and other current assets (693) (248)
Other assets (267) (107)
Net assets held for sale -- 1,903
Accounts payable (2,706) 214
Accrued expenses 974 675
Accrued salaries and wages (1,714) 610
Deferred compensation (145) 114
Income taxes (3,752) 1,468
-------- --------
Net cash provided by (used in) operating
activities (6,232) 8,901
-------- --------
Cash flows from investing activities:
Additions to equipment and leasehold improvements, net (1,700) (1,211)
Purchase of marketable securities (10,612) (937)
Proceeds from sale/maturities of marketable securities 10,624 10,919
Investment in unconsolidated affiliate (3,637) --
Disposition of business (187) (3,864)
Purchase of businesses (299) (13,293)
Other, net (275) (293)
-------- --------
Net cash used in investing activities (6,086) (8,679)
-------- --------
Cash flows from financing activities:
Principal payments on long term debt (473) --
Exercise of stock options 1,742 395
-------- --------
Net cash provided by financing activities 1,269 395
-------- --------
Net increase (decrease) in cash and cash equivalents (11,049) 617
Cash and cash equivalents at beginning of period 50,405 28,320
-------- --------
Cash and cash equivalents at end of period $ 39,356 $ 28,937
======== ========
See accompanying notes to condensed consolidated financial statements.
5 of 23
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three Month Periods Ended March 31, 2005 and 2004
(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. The Company accounts for its investments in less than 50% owned
affiliates using the equity method. 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. The results of operations for the three months ended March 31,
2005, are not necessarily indicative of the results to be expected for the
fiscal year. Certain prior year amounts have been reclassified to conform to
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 U.S. generally
accepted accounting principles. Reference is made to the Company's audited
consolidated financial statements and the related notes as of December 31, 2004
and 2003 and for each of the years in the three-year period ended December 31,
2004, 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 the Company's accounting policies.
Note 2. - Critical Accounting Policies and Estimates
- ----------------------------------------------------
The Company's condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. Preparation of these statements requires management to
make judgments and estimates. Some accounting policies have a significant impact
on amounts reported in these financial statements. A summary of significant
accounting policies and a description of accounting policies that are considered
critical may be found in our 2004 Annual Report on Form 10-K, filed on March 16,
2005.
Note 3. - Stock-Based Compensation
- ----------------------------------
The Company accounts for stock-based employee compensation plans using the
intrinsic value method under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations.
Accordingly, stock-based employee compensation cost is not reflected in net
earnings, as all stock options granted under the plans had an exercise price
equal to the market value of the underlying common stock on the date of grant.
Had compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the fair value method of Statement No. 123, "Accounting
for Stock-Based Compensation," the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share data):
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REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
Three Months Ended
March 31,
2005 2004
---- ----
Net earnings, as reported $4,902 $5,106
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects 533 836
------ ------
Pro forma net earnings $4,369 $4,270
====== ======
Basic net earnings per share: As reported $ 0.29 $ 0.32
====== ======
Pro forma $ 0.26 $ 0.26
====== ======
Diluted net earnings per share: As reported $ 0.29 $ 0.31
====== ======
Pro forma $ 0.25 $ 0.26
====== ======
Note 4. - Net earnings per share
- --------------------------------
Basic net earnings per share excludes dilution and is computed by dividing
income available to common stockholders by the weighted average common shares
outstanding for the period. Diluted net earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity (as
calculated utilizing the treasury stock method).
The following table sets forth the computation of basic and diluted net
earnings per share (in thousands, except per share data):
Three Months Ended
March 31,
2005 2004
---- ----
Numerator:
Numerator for basic/diluted net earnings
per share - net earnings available
to common stockholders $ 4,902 $ 5,106
======= =======
Denominator:
Denominator for basic net earnings per share -
weighted-average shares outstanding 16,631 16,166
Effect of dilutive securities:
Stock options 514 562
------- -------
Denominator for diluted net earnings per share -
adjusted weighted-average shares 17,145 16,728
======= =======
Basic net earnings per share $ 0.29 $ 0.32
======= =======
Diluted net earnings per share $ 0.29 $ 0.31
======= =======
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REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
Note 5. - Comprehensive Income
- ------------------------------
Comprehensive income consisted only of net income in the three months ended
March 31, 2005 and 2004.
Note 6. - Investment in Unconsolidated Affiliate
- ------------------------------------------------
The Company sold its StarMed staffing business to InteliStaf on February 2,
2004 in exchange for a 25% interest in InteliStaf on a fully diluted basis. The
Company uses the equity method to account for its investment in InteliStaf and
recorded its initial investment at its fair value of $40 million, as determined
by a third party valuation firm. A summary of InteliStaf's unaudited results of
operations for the three months ended March 31, 2005 and the period from
February 2, 2004 to March 31, 2004 and InteliStaf's unaudited financial position
as of March 31, 2005 and 2004 follows (dollars in thousands):
Three Months February 2
Ended to
March 31, March 31,
2005 2004
---- ----
Net operating revenues $ 69,159 $ 61,711
Operating loss (1,802) (1,588)
Net loss (1,666) (1,411)
March 31, March 31,
2005 2004
---- ----
Current assets $ 51,394 $ 71,629
Noncurrent assets 96,792 100,737
-------- --------
Total assets $148,186 $172,366
======== ========
Current liabilities $ 25,225 $ 38,851
Noncurrent liabilities 37,870 45,995
-------- --------
Total liabilities $ 63,095 $ 84,846
======== ========
The value of the Company's investment in InteliStaf at the transaction date
exceeded its share of the book value of InteliStaf's stockholders' equity by
approximately $17.8 million. This excess has been accounted for as goodwill
(although reported as a component of investment in unconsolidated affiliate) and
is reviewed for impairment in accordance with the terms of APB Opinion No. 18,
"The Equity Method of Accounting for Investments in Common Stock." The Company
continues to monitor the valuation of its investment in InteliStaf to determine
if an other than temporary decrease in the value of its investment has occurred.
The Company does not believe such a decline in value has occurred.
Note 7. - Restructuring Costs
- -----------------------------
As stated in note 6, the Company sold its StarMed staffing division to
InteliStaf on February 2, 2004. In connection with this sale, the Company
initiated a series of restructuring activities to reduce the cost of corporate
overhead that had previously been absorbed by the staffing division. As a result
of these actions, the Company recorded a pre-tax restructuring charge in the
first quarter of 2004 of approximately $1.7 million.
8 of 23
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
All restructuring activities were completed by December 31, 2004 except for
the payment of lease exit costs related to the 2004 restructuring charge
described above and lease exit costs related to a 2003 restructuring charge. The
following table summarizes activity within the remaining restructuring reserves
for the quarter ended March 31, 2005 (in thousands of dollars):
Balance at December 31, 2004 $ 501
Cash payments and
non-cash utilization (85)
-----
Balance at March 31, 2005 $ 416
=====
Note 8. - Business Combinations
- -------------------------------
On February 2, 2004, the Company purchased the assets of CPR Therapies,
LLC. ("CPR") for cash and $1.4 million of subordinated promissory notes. In
accordance with the terms of the purchase agreement, the seller was entitled to
additional earn-out consideration based upon the execution of new therapy
contracts as defined in the agreement. On July 31, 2004, the first of two
earn-out calculations was performed resulting in an increase to the purchase
price of approximately $159,000. On February 1, 2005, the second earn-out
calculation was performed resulting in an increase to the purchase price of
approximately $545,000 and a corresponding increase to the excess of cost over
net assets acquired.
Note 9. - Excess of Cost Over Net Assets Acquired and Other Intangible Assets
- -----------------------------------------------------------------------------
At March 31, 2005 and 2004, the Company had the following intangible asset
balances (in thousands of dollars):
March 31, 2005 March 31, 2004
-------------- --------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------ ------------ ------ ------------
Amortized Intangible Assets:
Noncompete agreements $ 455 $ (115) $ 320 $ (40)
Trade names 550 (37) -- --
Contractual customer
relationships 10,300 (1,875) 8,800 (189)
------- -------- ------ ------
Total $11,305 $ (2,027) $9,120 $ (229)
======= ======== ====== ======
Unamortized Intangible Assets:
Trade names $ 2,360 $1,360
======= ======
Amortization expense on intangible assets was $476,000 and $176,000 for the
quarters ended March 31, 2005 and 2004, respectively. Estimated annual
amortization expense for the next 5 years is: 2005 - $2.0 million; 2006 - $2.1
million; 2007 - $1.4 million; 2008 - $1.2 million and 2009 - $1.1 million.
9 of 23
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
The changes in the carrying amount of excess of cost over net assets
acquired for the quarter ended March 31, 2005 are as follows (in thousands of
dollars):
Hospital Healthcare
Contract Rehabilitation Management
Therapy Services Consulting Total
------- -------- ---------- -------
Balance at December 31, 2004 $21,321 $42,875 $ 4,144 $68,340
Purchase price
allocation adjustments 488 (147) -- 341
------- ------- ------- -------
Balance at March 31, 2005 $21,809 $42,728 $ 4,144 $68,681
======= ======= ======= =======
Note 10. - Long-term Debt
- -------------------------
In connection with the purchase of businesses in 2004, the Company issued
long-term subordinated promissory notes to the respective selling parties.
During the first quarter of 2005, the Company issued an additional note in the
amount of $545,000 in accordance with the earn-out provisions of the agreement
to purchase CPR (see note 8). The interest rate on the new earn-out note is 8%
per annum. On March 31, 2005, the remaining aggregate principal balance on all
subordinated promissory notes was approximately $6.9 million.
Note 11. - Industry Segment Information
- ---------------------------------------
Prior to February 2, 2004, when the Company sold its healthcare staffing
division, the Company operated in two business segments that were managed
separately based on fundamental differences in operations: program management
services and healthcare staffing services. Program management includes hospital
rehabilitation services (including inpatient acute rehabilitation and skilled
nursing units and outpatient therapy programs) and contract therapy programs. On
May 3, 2004, with the acquisition of Phase 2 Consulting, the Company added a new
segment: healthcare management consulting. Virtually all of the Company's
services are provided in the United States. Summarized information about the
Company's operations for the three months ended March 31, 2005 and 2004 in each
industry segment is as follows (in thousands of dollars):
Operating Revenues from
Unaffiliated Customers Operating Earnings
------------------------ ------------------
Three months ended Three months ended
March 31, March 31,
2005 2004 2005 2004
---- ---- ---- ----
Program management:
Contract therapy $ 52,459 $ 40,754 $ 2,393 $ 2,438
Hospital rehabilitation
services 47,813 47,087 6,676 8,797
-------- -------- ------- -------
Program management
total 100,272 87,841 9,069 11,235
Healthcare staffing -- 16,727 -- (78)
Healthcare management
consulting 2,310 -- (63) --
-------- -------- ------- -------
Subtotal 102,582 104,568 9,006 11,157
Less Intercompany
revenues* (151) (71) N/A N/A
Restructuring charge N/A N/A -- (1,666)
-------- -------- ------- -------
Total $102,431 $104,497 $ 9,006 $ 9,491
======== ======== ======= =======
*Intercompany revenues represent sales of services, at market rates, between the
Company's operating segments.
10 of 23
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
Depreciation and
Amortization Capital Expenditures
------------------------ ----------------------
Three months ended Three months ended
March 31, March 31,
2005 2004 2005 2004
---- ---- ---- ----
Program management:
Contract therapy $ 959 $ 742 $ 627 $ 551
Hospital rehabilitation
services 1,327 1,026 1,056 660
-------- -------- -------- --------
Program management
total 2,286 1,768 1,683 1,211
Healthcare management
consulting 7 -- 17 --
-------- -------- -------- --------
Total $ 2,293 $ 1,768 $ 1,700 $ 1,211
======== ======== ======== ========
Total Assets Unamortized Goodwill
------------------------ ----------------------
as of March 31, as of March 31,
2005 2004 2005 2004
---- ---- ---- ----
Program management:
Contract therapy $ 72,846 $ 51,308 $ 21,809 $ 15,404
Hospital rehabilitation
services 160,252 152,291 42,728 42,837
-------- -------- -------- --------
Program management
total 233,098 203,599 64,537 58,241
Healthcare management
consulting 6,308 -- 4,144 --
Corporate - investment in
unconsolidated
affiliate 38,852 39,647 N/A N/A
-------- -------- -------- --------
Total $278,258 $243,246 $ 68,681 $ 58,241
======== ======== ======== ========
Note 12. - Related Party Transactions
- -------------------------------------
The Company has retained a software vendor for various computer related
activities. John H. Short, President and Chief Executive Officer and a director
of the Company, is also a director of the software company and Theodore M.
Wight, a director of the Company, was also a director of the software company
until his resignation from the software company's board on April 27, 2005. Dr.
Short owns 5.5% of the fully diluted capitalization of the software company.
Until June 2004, when the United States Small Business Administration was
appointed as a receiver for Pacific Northwest Partners SBIC, L.P., Mr. Wight was
deemed to control through his affiliation with Pacific Northwest Partners SBIC,
L.P., 27.3% of the fully diluted capitalization of the software company.
Subsequent to June 2004, Mr. Wight retained personal ownership of 1.34% of the
total capitalization of the software company. The Company paid the software
vendor approximately $6,000 during the first quarter of 2005. The Company
continues to utilize the software vendor for website hosting services at an
approximate annual cost of $73,000. This contract is cancelable upon 60 days
notice.
In accordance with the terms of the Transition Services Agreement between
the Company and InteliStaf, the Company agreed to provide certain accounting and
back-office services to InteliStaf until such time as those activities were
fully integrated by InteliStaf. These services are being billed at cost. During
the first quarter of 2005, the Company performed services under this agreement
with an aggregate cost of approximately $64,000.
11 of 23
REHABCARE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
----------------------------------------------------------------
During the first quarter of 2005, the Company purchased air transportation
services from 55JS Limited, Co. in the amount of approximately $170,000. 55JS
Limited, Co. is owned by the Company's President and Chief Executive Officer,
John Short. The air transportation services are billed to the Company, at cost,
for hourly usage of 55JS's plane for Company business.
Note 13. - Recently Issued Pronouncements
- -----------------------------------------
In December 2004, the Financial Accounting Standards Board enacted
Statement of Financial Accounting Standards No. 123 - revised 2004, "Share-Based
Payment" ("Statement 123R"), requiring the recognition of compensation expense
for all share-based payments to employees. Adoption of the standard was required
for fiscal periods beginning after June 15, 2005, which would have been the
Company's third fiscal quarter of 2005. On April 14, 2005, the Securities and
Exchange Commission ("SEC") amended the compliance dates for Statement 123R
allowing registrants to implement the standard at the beginning of the first
fiscal year beginning after June 15, 2005, or January 1, 2006 for the Company.
In light of the SEC's new rule, the Company has elected to defer the
adoption on Statement 123R to January 1, 2006. The Company has not yet completed
its analysis of the impact adopting Statement 123R will have on its fiscal year
2006 financial statements although the Company expects the impact will be
significant, resulting in increased compensation expense.
12 of 23
REHABCARE GROUP, INC.
Item 2. - Management's Discussion and Analysis of Financial Condition and
- --------------------------------------------------------------------------------
Results of Operations
- ---------------------
This Quarterly Report on Form 10-Q contains forward-looking statements that
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve known and
unknown risks and uncertainties that may cause our actual results in future
periods to differ materially from forecasted results. These risks and
uncertainties may include, but are not limited to, our ability to integrate
acquisitions and to implement client partnering relationships within the
expected timeframes and to achieve the revenue and earnings levels from such
acquisitions and relationships at or above the levels projected; changes in and
compliance with governmental reimbursement rates and other regulations or
policies affecting our businesses; our ability to attract new client
relationships or to retain and grow existing client relationships through
expansion of our hospital rehabilitation and contract therapy service offerings
and the development of alternative product offerings; the future financial
results of InteliStaf Holdings, Inc. and our other unconsolidated affiliates,
and the effect of those results on our financial condition and results of
operations; the adequacy and effectiveness of our operating and administrative
systems; our ability and the additional costs of attracting administrative,
operational and professional employees; significant increases in health, workers
compensation and professional and general liability costs; litigation risks of
our past and future business, including our ability to predict the ultimate
costs and liabilities or the disruption of its operations; competitive and
regulatory effects on pricing and margins; and general and economic conditions,
including efforts by governmental reimbursement programs, insurers, healthcare
providers and others to contain healthcare costs.
Results of Operations
Prior to the divestiture of our StarMed Staffing division to InteliStaf
Holdings, Inc. on February 2, 2004, we derived our revenue from two business
segments: program management services (for hospitals and skilled nursing
facilities) and healthcare staffing services. The program management segment
includes hospital rehabilitation services (including inpatient acute
rehabilitation, skilled nursing units and outpatient therapy programs) and
contract therapy programs. On May 3, 2004, with the acquisition of Phase 2
Consulting, we added a new segment: healthcare management consulting.
Selected Operating Statistics:
Three Months Ended
March 31,
2005 2004 % Change
---- ---- --------
Program Management:
Contract Therapy:
Operating Revenues (in thousands) $52,459 $40,754 28.7%
Average Number of Locations 715 536 33.4%
Average Revenue per Location $73,347 $75,984 (3.5)%
13 of 23
REHABCARE GROUP, INC.
Selected Operating Statistics (Continued):
Three Months Ended
March 31,
2005 2004 % Change
---- ---- --------
Hospital Rehabilitation Services:
Operating Revenues (in thousands)
Inpatient $35,632 $35,343 0.8%
Outpatient 12,181 11,744 3.7%
------- -------
Total $47,813 $47,087 1.5%
Average Number of Programs
Inpatient 143 130 10.0%
Outpatient 41 43 (4.7)%
--- ---
Total 184 173 6.4%
Healthcare Management Consulting:
Operating Revenues (in thousands) $ 2,310 $ -- N/A
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
- -------------------------------------------------------------------------------
Operating Revenues
Operating revenues during the first quarter of 2005 decreased by $2.1
million, or 2.0%, to $102.4 million compared to $104.5 million in the first
quarter of 2004. The revenue decline was primarily due to the inclusion in the
2004 quarterly results of $16.7 million of healthcare staffing revenues prior to
the sale of our healthcare staffing division to InteliStaf Holdings in February
2004. This decline was partially offset by growth in our contract therapy
business resulting both from organic growth and targeted acquisitions. Revenues
for contract therapy and hospital rehabilitation services increased 28.7% and
1.5%, respectively.
Contract therapy experienced strong revenue growth in the first quarter of
2005 versus the first quarter of 2004. A portion of this revenue increase, $5.1
million, is attributable to the inclusion of revenues for a full quarter in 2005
for CPR Therapies and Cornerstone Rehabilitation, which were acquired in
February and December 2004, respectively. In addition to the revenues from the
acquisitions, continued success of the division's sales efforts and healthy same
store growth were driving forces behind the revenue increase. However, much of
the same store growth was attributable to overall increases in the division's
Medicare Part A patient services, which generate lower than average contribution
margins. The average revenue per location decreased year-over-year due primarily
to the smaller average size of the 110 program locations purchased in the
acquisitions mentioned above.
Hospital rehabilitation services operating revenues increased from the
prior year quarter as the result of modest growth in our outpatient business and
a full quarter of VitalCare revenues in 2005 as this business was acquired on
March 1, 2004. These increases were partially offset by a decline in inpatient
acute rehabilitation revenues resulting from the impact of the 75% rule during
the first quarter of 2005. The implementation of the 75% rule has negatively
impacted our unit level census and subsequently has lowered the number of
discharges for the 2005 quarter as certain patients that may not qualify for
services in an acute rehabilitation unit are now being treated at other patient
care settings.
14 of 23
REHABCARE GROUP, INC.
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
- --------------------------------------------------------------------------------
(Continued)
- -----------
Costs and Expenses
Three Months Three Months
Ended % of Ended % of
March 31, Unit March 31, Unit
2005 Revenue 2004 Revenue
---- ------- ---- -------
(dollars in thousands)
Operating expenses $76,498 74.7% $76,067 72.8%
Division selling, general and administrative 8,635 8.4 9,673 9.3
Corporate selling, general and administrative 5,999 5.9 6,317 6.0
Depreciation and amortization 2,293 2.2 1,768 1.7
Restructuring charge -- -- 1,666 1.6
Gain on sale of business -- -- (485) (0.5)
------- ---- ------- ----
Total costs and expenses $93,425 91.2% $95,006 90.9%
======= ==== ======= ====
The ratios of operating expenses and selling, general and administrative
expenses as a percentage of revenues have been significantly affected by the mix
of our business resulting primarily from the sale of our healthcare staffing
division in the first quarter of 2004, the growth in our contract therapy
business through acquisitions and organic growth and a mix shift in the hospital
rehabilitation services to more subacute business as a result of the acquisition
of VitalCare. Historically, the healthcare staffing division's operating,
selling, general and administrative expenses as a percentage of revenues were
higher than our other divisions. The corresponding improvement in the ratio of
operating expenses to revenues was more than offset by increased operating costs
in hospital rehabilitation services and contract therapy as discussed in more
detail below. Corporate selling, general and administrative costs were
restructured to better align with the business and declined slightly as a
percentage of revenues. Depreciation and amortization as a percentage of
revenues has increased primarily as a result of amortization of certain
intangible assets related to the series of acquisitions completed during 2004.
Three Months Three Months
Ended % of Ended % of
March 31, Unit March 31, Unit
2005 Revenue 2004 Revenue
---- ------- ---- -------
(dollars in thousands)
Program Management:
- -------------------
Contract Therapy:
Operating expenses $41,872 79.8% $31,412 77.1%
Division selling, general and administrative 3,955 7.5 3,258 8.0
Corporate selling, general and administrative 3,280 6.3 2,904 7.1
Depreciation and amortization 959 1.8 742 1.8
------- ---- ------- ----
Total costs and expenses $50,066 95.4% $38,316 94.0%
======= ==== ======= ====
Hospital Rehabilitation Services:
Operating expenses $32,968 68.9% $31,128 66.1%
Division selling, general and administrative 4,185 8.7 3,658 7.8
Corporate selling, general and administrative 2,657 5.6 2,478 5.2
Depreciation and amortization 1,327 2.8 1,026 2.2
------- ---- ------- ----
Total costs and expenses $41,137 86.0% $38,290 81.3%
======= ==== ======= ====
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REHABCARE GROUP, INC.
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
- --------------------------------------------------------------------------------
(Continued)
- -----------
Three Months Three Months
Ended % of Ended % of
March 31, Unit March 31, Unit
2005 Revenue 2004 Revenue
---- ------- ---- -------
(dollars in thousands)
Healthcare Staffing:
- --------------------
Operating expenses $ -- --% $13,598(a) 81.3%
Division selling, general and administrative -- -- 2,757 16.5
Corporate selling, general and administrative -- -- 935 5.6
Gain on sale of business -- -- (485) (2.9)
------ ----- ------- -----
Total costs and expenses $ -- --% $16,805 100.5%
====== ===== ======= =====
Healthcare Management Consulting:
- ---------------------------------
Operating expenses $1,809(b) 78.3% $ -- --%
Division selling, general and administrative 495 21.4 -- --
Corporate selling, general and administrative 62 2.7 -- --
Depreciation and amortization 7 0.3 -- --
------ ----- ------- -----
Total costs and expenses $2,373 102.7% $ -- --%
====== ===== ======= =====
(a) includes expenses of approximately $71 related to intercompany sales.
(b) includes expenses of approximately $151 related to intercompany sales.
Total contract therapy costs and expenses increased in the three months
ended March 31, 2005 compared to the three months ended March 31, 2004 primarily
due to the increase in direct operating expenses associated with the increased
number of contract therapy locations being managed by the division. In addition,
the division's direct operating expenses increased as a percentage of unit
revenue from the first quarter of 2004 to the first quarter of 2005 primarily as
a result of the increase in lower-priced Medicare Part A revenues mentioned
above and substantial increases in the cost of direct labor, fueled by a
tightening therapist labor market. Contract therapy continued to leverage its
division selling, general and administrative costs, which increased on an
absolute basis primarily due to the addition of costs associated with the
acquisition of Cornerstone Rehabilitation, but decreased as a percentage of
revenues from the first quarter of 2004 to the first quarter of 2005. While
remaining flat as a percentage of operating revenues, contract therapy's
absolute depreciation and amortization expense increased from the first quarter
of 2004 to the first quarter of 2005 primarily due to the amortization of
certain intangible assets associated with the acquisitions of CPR and
Cornerstone and the amortization of the division's proprietary information
system. The solid revenue growth, increased direct labor costs and cost control
improvements at the selling, general and administrative level produced operating
earnings of $2.4 million, flat with the first quarter of 2004.
Total hospital rehabilitation services costs and expenses increased from
the prior year due to the increase in operating and division selling, general
and administrative expenses resulting from the inclusion of VitalCare's
operations for the full quarter in 2005. In addition, the HRS business unit
experienced increased therapist labor costs associated with both new hires as
well as contract labor as there continues to be a high demand for therapists in
the market. Because of our 75% rule mitigation strategies, the business unit is
seeing more clinically complex patients that tend to require more therapist
treatment time than patients have historically. In addition to the selling,
general and administrative expenses from VitalCare's operations, the division
added additional business development personnel to support our growth
objectives. The division's depreciation and amortization expense increased from
the first quarter of 2004 to the first quarter of 2005 primarily due to the
amortization of certain intangible assets associated with the acquisition of
VitalCare and the amortization of the division's proprietary information system.
16 of 23
REHABCARE GROUP, INC.
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
- --------------------------------------------------------------------------------
(Continued)
- -----------
Total hospital rehabilitation services operating earnings decreased by $2.1
million from $8.8 million in the first quarter of 2004 to $6.7 million in the
first quarter of 2005 reflecting the negative impact of the 75% rule on revenues
and the increasing costs of labor.
During the first quarter of 2004, in connection with the sale of the
staffing division, we initiated a series of restructuring activities to reduce
the cost of corporate overhead that had previously been absorbed by the staffing
division. These activities included the elimination of approximately 40
positions, the exiting a portion of leased office space at our corporate
headquarters and the write-off of certain leasehold improvements associated with
the office space consolidation. As a result of these actions, we recorded a
pre-tax restructuring charge in the first quarter of 2004 in the amount of
approximately $1.7 million. This charge has been recorded as a separate
component of operating expenses.
Non-operating Items
Interest income increased in the first quarter of 2005 compared to the
first quarter of 2004 primarily due to the impact of higher average cash and
investment balances and the effect of slightly higher interest rates.
Interest expense primarily represents interest on subordinated promissory
notes issued as partial consideration for the acquisitions of CPR Therapies,
VitalCare and Cornerstone Rehabilitation during 2004 and commitment fees paid on
the unused portion of our line of credit. We had no outstanding balance on the
line of credit as of March 31, 2005 or March 31, 2004.
Earnings before income taxes and equity in net loss of affiliates decreased
by 3.7% to $9.0 million in the first quarter of 2005 from $9.3 million in the
first quarter of 2004. The provision for income taxes was $3.6 million in the
first quarter of 2005 compared to $3.9 million in the first quarter of 2004,
reflecting effective income tax rates of 40.5% and 41.4%, respectively. The
effective tax rate decrease is primarily the result of the impact of
non-deductible goodwill associated with the sale of the staffing division on the
2004 effective rate.
Equity in net loss of affiliates represents our share of the losses of less
than majority owned equity investments, primarily our investment in InteliStaf
Holdings. During the first quarter of 2005, our share of InteliStaf losses was
approximately $0.4 million. InteliStaf's first quarter 2005 results were
negatively impacted by costs related to an operational restructuring and a debt
re-financing completed during the quarter.
Net earnings in the first quarter of 2005 decreased 4.0% as compared to the
first quarter of 2004. Diluted net earnings per share decreased from $0.31 in
the first quarter of 2004 to $0.29 in the first quarter of 2005.
Liquidity and Capital Resources
As of March 31, 2005, we had $39.4 million in cash and cash equivalents and
$3.1 million of restricted cash, and a current ratio, the amount of current
assets divided by current liabilities, of 2.56 to 1. Working capital increased
by $4.0 million to $80.5 million as of March 31, 2005 as compared to $76.5
million as of December 31, 2004 primarily due to increased accounts receivable
and decreases in accounts payable and income taxes payable. Net accounts
receivable were $76.5 million at March 31, 2005, compared to $69.6 million at
December 31, 2004. The number of days' average net revenue in net receivables
was 65.6 and 66.5 at March 31, 2005 and December 31, 2004, respectively.
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REHABCARE GROUP, INC.
Operating cash flows constitute our primary source of liquidity and
historically have been sufficient to fund working capital, capital expenditures,
internal business expansion and debt service requirements. We expect to meet our
future working capital, capital expenditures, internal and external business
expansion and debt service requirements from a combination of internal sources
and outside financing. We have a $90 million, five-year revolving credit
facility with no balance outstanding as of March 31, 2005. The credit facility
is expandable to $125 million upon our notice to the lending group, subject to
our continued compliance with the terms of the credit agreement. We have
approximately $11.3 million in letters of credit issued to insurance carriers as
collateral for reimbursement of claims. The letters of credit reduce the amount
we may borrow under the revolving credit facility. We also have a $4.2 million
promissory note issued to our workers compensation carrier as additional
collateral. The promissory note is not recorded as a liability on the balance
sheet as it only becomes payable upon an event of default as defined in the
security agreement with the workers compensation carrier. Finally, as additional
collateral, we have a trust agreement with our professional and general
liability insurance carrier under which we have deposited $3.1 million for their
benefit in an escrow account. Our access to this cash is restricted and the
insurance carrier may only draw on these funds in the event of a default as
defined in the trust agreement.
As part of the purchases of CPR Therapies, VitalCare and Cornerstone
Rehabilitation in 2004, we issued long-term subordinated promissory notes to the
respective selling parties. These notes bear interest at rates ranging from
6%-8%. As of March 31, 2005, approximately $6.9 million of these notes remained
outstanding. In addition, as part of our arrangement with Signature Healthcare
Foundation, we extended a $2.0 million line of credit to Signature. At March 31,
2005, Signature had drawn approximately $1.2 million against this line of
credit.
Regulatory Update
On April 22, 2005, the General Accounting Office released their report on
the 75% Rule. As anticipated, the report calls for clarification in the
regulations, increased scrutiny of the medical necessity by fiscal
intermediaries and further research efforts to document the efficacy of
treatment in inpatient rehabilitation facilities. However, our initial reviews
of the report do not support that there will be any substantive relief from the
final rule previously released by the Centers for Medicare and Medicaid Services
on July 1, 2004, which includes a three year transition period. At this time it
is unknown how aggressive the Centers will be in enforcing the rule given their
historical practice.
The first year of the transition period resulted in an overall reduction in
patient census and in turn lower discharges in our inpatient business unit
during the first quarter of 2005. Additionally, the rule drives a shift in case
mix to a more complex neurological patient base. These patients often incur
greater lengths of stay due to their medical complexity, therefore reducing
incremental discharges. We also saw an impact of the 75% rule in our contract
therapy business, as we experienced significant growth in the number of higher
acuity Part A patients treated during the first quarter of 2005.
In order to manage the impact of the 75% rule, we are continuing to
implement a number of mitigation strategies. These include:
o Implementing a comprehensive nursing education program to assist our
client's nursing staff in managing more complicated medical issues
associated with the neurological patients;
18 of 23
REHABCARE GROUP, INC.
o Modifying our unit based social worker's job description to include more
case management functions, which we believe will be critical to the success
of our units as the complexity and length of stay of patients served
continues to increase; and
o Establishing a managed care function within our marketing department to
assist our hospital clients in negotiating the most competitive rates
possible for commercial payors and reduce the overall reliance on
government funding.
We estimate the 75% rule had a negative impact of approximately $2.1
million on revenues in the first quarter of 2005. We took a conservative
approach in our response to recent transmittals from the Centers of Medicare and
Medicaid Services, which negatively impacted our inpatient census and discharges
in January and February. We are implementing our mitigation strategies and have
seen some improvements, which we expect to continue into the second quarter of
2005.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Our significant accounting policies,
including the use of estimates, were presented in the notes to consolidated
financial statements included in our 2004 Annual Report on Form 10-K, filed on
March 16, 2005.
Critical accounting policies are those that are considered most important
to the presentation of our financial condition and results of operations,
require management's most difficult, subjective and complex judgments, and
involve uncertainties. Our most critical accounting policies pertain to
allowance for doubtful accounts, goodwill and other intangible assets, health,
workers compensation and professional liability insurance accruals and
accounting for investments in unconsolidated affiliates. Each of these critical
accounting policies was discussed in our 2004 Annual Report on Form 10-K in the
Critical Accounting Policies and Estimates section of "Item 7. - Management's
Discussion and Analysis of Financial Condition and Results of Operations." There
were no significant changes in the application of critical accounting policies
during the first quarter of 2005.
Item 3. - Quantitative and Qualitative Disclosures About Market Risks
- ---------------------------------------------------------------------
There have been no material changes in the reported market risks since the
filing of the Company's Annual Report on Form 10-K for the year ended December
31, 2004.
Item 4. - Controls and Procedures
- ---------------------------------
As of March 31, 2005, the Company's management, with the participation of
the Chief Executive Officer and Chief Financial Officer, have conducted an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures (as defined in Rule 13a-14 (c) and 15d-14 (c)
under the Securities Exchange Act of 1934, as amended). Based on that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures are
effective in making known in a timely fashion material information required to
be filed in this report. There have been no changes in the Company's internal
controls over financial reporting during the quarter ended March 31, 2005 that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
19 of 23
REHABCARE GROUP, INC.
Part II. - Other Information
- ----------------------------
Item 1. - Legal Proceedings
- --------------------------
On April 12, 2005, the Office of Inspector General, U.S. Department of
Health and Human Services issued a subpoena duces tecum which requires us to
produce certain documents to the Office of Inspector General. Many of the
documents requested relate to our provision of therapy services in our clients'
skilled nursing and long-term care facilities within the state of New Jersey. We
intend to fully cooperate with the government and are in the process of
gathering the required information in response to the subpoena.
A derivative lawsuit was filed in 2002 in the Circuit Court of St. Louis
County, Missouri against us and certain of our former and current directors
based upon alleged actions and omissions by such directors which purportedly
lead to the filing of a federal securities class action against the Company. A
final judgment dismissing the federal suit was entered on January 28, 2005. The
plaintiff in the derivative suit dismissed the action without prejudice in
April, 2005.
In July 2003, a former independent contractor of ours and a former Baxter
County Regional Hospital physical therapist filed a civil action, under the qui
tam and whistleblower provisions of the False Claims Act, in the United States
District Court for the Eastern District of Arkansas. The plaintiffs seek back
pay, civil penalties, treble damages, and special damages from us and Baxter.
The allegations contained in the suit relate to the proper clinical diagnoses,
for Medicare reimbursement purposes, of patients treated at the hospital's acute
rehabilitation unit for which Baxter received reimbursement in excess of
$5,000,000. The plaintiffs filed the original action on August 21, 2000, under
seal. After an investigation by the United States Department of Justice, on June
3, 2003, the government declined to intervene and the seal was lifted. The
plaintiffs filed an amended complaint, and we and Baxter were served and
notified of the civil action on July 15, 2003. We and Baxter also initiated an
internal and external audit that concluded the allegations were unfounded and
that we and Baxter were in compliance with Medicare regulations. We have agreed
to indemnify Baxter for all fees and expenses on all counts arising out of the
action except for the whistleblower count brought by Baxter's therapist. We and
Baxter both filed separate motions to dismiss the action. The Court denied
Baxter's motion to dismiss, but granted our motion to dismiss with respect to
the individual claim under the whistleblower provisions of the False Claims Act
but not the other claims against us under the False Claims Act. The parties are
currently engaged in discovery with respect to the remaining claims.
On May 6, 2004 we filed a civil action against The Queen's Medical Center,
in the United States District Court for the District of Hawaii, for breach of
contract, including past due service fees plus interest in the amount of
approximately $300,000. On May 26, 2004, Queens filed an answer to our complaint
and a counterclaim against us, alleging breach of contract and seeking
indemnification for amounts of alleged incorrect billings submitted by the
skilled nursing unit we managed, additional management fees already paid to us,
and an estimate of their attorney's fees, with respect to the counterclaim.
Subsequently, legal counsel for Queens advised the court and us that the Queen's
demand for indemnification and counterclaims against us were based on fabricated
documents. On April 1, 2005 the U.S. District Court dismissed the action and
counterclaim, pursuant to a Settlement, Mutual Release and Indemnity Agreement,
we executed with Queens.
The Wage and Hour Division of the United States Department of Labor has
been conducting an investigation of our former staffing division. The
investigation is focused on minimum wage and overtime compensation of employees
who worked as on-call coordinators. After a review by us of the staffing
division's wage and overtime practices with respect to office and field staff
employees who also worked on-call shifts, we and the Department of Labor reached
an agreement with respect to the payment by us of approximately $160,000 in the
aggregate to these employees. Each employee has been sent a check, which if
cashed, will release his or her claim under the Fair Labor Standards Act (but
not any state law claims) for the period reviewed. These employees can also
elect not to cash the check and file suit individually.
20 of 23
REHABCARE GROUP, INC.
Several federal lawsuits have been filed by certain on-call, recruiting and
staffing coordinators and other employee classifications seeking overtime
compensation and related damages under both federal and state law. These
individuals were employed by our former staffing division. Three of these cases
have been consolidated in the United States District Court for the Central
District of California. The individuals sought to bring a collective or class
action on behalf of all similarly situated persons. On January 3, 2005, the
court granted plaintiffs' motion to send notice of collective action to present
and former staffing division employees although the court did not specify the
exact group of employees to which the notice should be directed. At the same
time, the court denied the plaintiffs' request to proceed as class action under
the California state law claims. Upon entry of the order allowing notices of
collective action to be sent and the actual mailing of the notices, the
employees to which the notices are directed will have the opportunity to opt
into the case for claims dating back two years (three years if a willful
violation is proven) from the date the employee files a consent to join the
case. Plaintiffs' counsel has filed a separate California state court class
action reasserting the state law claims.
In addition to the above matters, we are a party to a number of other
claims and lawsuits. While these actions are being contested, the outcome of
individual matters is not predictable with assurance. From time to time, and
depending upon the particular facts and circumstances, we may be subject to
indemnification obligations under our contracts with our hospital and healthcare
facility clients relating to these matters. We do not believe that any liability
resulting from any of the above matters, after taking into consideration our
insurance coverage and amounts already provided for, will have a material
adverse effect on our consolidated financial position, cash flows or liquidity.
However, such matters could have a material effect on results of operations in a
particular quarter or fiscal year as they develop or as new issues are
identified.
Item 4. - Submission of Matters to Security Holders
- ---------------------------------------------------
At our Annual Meeting of Stockholders held on Tuesday, May 3, 2005, the
following matters were voted upon:
1. Election of William G. Anderson, Colleen Conway-Welch, C. Ray Holman, John
H. Short, H. Edwin Trusheim and Theodore M. Wight to serve as Directors of
the Company for terms expiring in 2005:
Name For Withheld Authority
- ---- --- ------------------
William G. Anderson 14,981,104 701,579
Colleen Conway-Welch 15,180,833 501,850
C. Ray Holman 15,186,578 496,105
John H. Short 14,979,879 702,804
H. Edwin Trusheim 14,877,787 804,896
Theodore M. Wight 13,263,535 2,419,148
2. Approval of the 2005 Equity Incentive Plan:
For 6,162,032
Against 6,992,971
Abstain 22,430
Non-Votes 2,505,250
21 of 23
REHABCARE GROUP, INC.
3. Ratification of the appointment of KPMG LLP as independent registered
public accounting firm for the fiscal year ending December 31, 2005:
For 15,534,318
Against 136,037
Abstain 12,328
Item 6. - Exhibits
- ------------------
See exhibit index
22 of 23
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.
May 9, 2005
By: /s/ Vincent L. Germanese
----------------------
Vincent L. Germanese
Senior Vice President,
Chief Financial Officer
and Secretary
23 of 23
EXHIBIT INDEX
3.1 Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, dated May 9, 1991
[Registration No.
33-40467], and incorporated herein by reference)
3.2 Certificate of Amendment of Certificate of Incorporation (filed as Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended May 31, 1995 and incorporated herein by reference)
3.3 Amended and Restated Bylaws (filed as Exhibit 3.3 to the Registrant;
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 and
incorporated herein by reference)
4.1 Rights Agreement, dated August 28, 2002, by and between the Registrant and
Computershare Trust Company, Inc. (filed as Exhibit 1 to the Registrant's
Registration Statement on Form 8-A filed September 5, 2002 and
incorporated herein by reference)
31.1 Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended
31.2 Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under
the Securities Exchange Act of 1934, as amended
32.1 Certification of periodic financial report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, U.S.C. Section 1350
32.2 Certification of periodic financial report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, U.S.C. Section 1350
- -------------------------
EXHIBIT 31.1
CERTIFICATION
I, John H. Short, certify that:
1. I have reviewed this quarterly report on Form 10-Q of RehabCare Group, Inc.
(the "Registrant"):
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the
Registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles.
c) evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter (the Registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal
control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
control over financial reporting.
Date: May 9, 2005
By: /s/ John H. Short
--------------------
John H. Short
President and
Chief Executive Officer
RehabCare Group, Inc.
EXHIBIT 31.2
CERTIFICATION
I, Vincent L. Germanese, certify that:
1. I have reviewed this quarterly report on Form 10-Q of RehabCare Group, Inc.
(the "Registrant"):
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Registrant as of, and for, the periods presented in this report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the
Registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) designed such internal control over financial reporting or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles.
c) evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the Registrant's internal
control over financial reporting that occurred during the Registrant's
most recent fiscal quarter (the Registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Registrant's internal
control over financial reporting; and
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the Registrant's auditors and the audit committee of Registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
control over financial reporting.
Date: May 9, 2005
By: /s/ Vincent L. Germanese
------------------------
Vincent L. Germanese
Senior Vice President,
Chief Financial Officer
and Secretary
RehabCare Group, Inc.
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RehabCare Group, Inc. (the "Company")
on Form 10-Q for the period ending March 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, John H. Short,
Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
By: /s/ John H. Short
-------------------
John H. Short
President and
Chief Executive Officer
RehabCare Group, Inc.
May 9, 2005
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of RehabCare Group, Inc. (the "Company")
on Form 10-Q for the period ending March 31, 2005 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), I, Vincent L.
Germanese, Senior Vice President Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
By: /s/ Vincent L. Germanese
-----------------------
Vincent L. Germanese
Senior Vice President,
Chief Financial Officer
and Secretary
RehabCare Group, Inc.
May 9, 2005