RehabCare Reports Fourth Quarter and Year-End 2004 Results and Provide

RehabCare Reports Fourth Quarter and Year-End 2004 Results and Provides Guidance for 2005

    Business Editors/Healthcare Writers

    ST. LOUIS--(BUSINESS WIRE)--March 10, 2005--RehabCare Group, Inc. (NYSE:RHB) today reported financial results for the quarter and year ended December 31, 2004. Comparative results for the quarter and year follow.

Quarter Ended Full Year Ended Amounts in millions, Dec 31, Dec 31, except per share data 2004 2003 2004 2003 Consolidated Operating Revenues $ 95.1 $129.5 $383.8 $539.3 Consolidated Net Earnings (Loss) 6.3 (25.5)(a) 23.2 (13.7)(a) Consolidated Diluted Earnings (Loss)Per Share 0.37 (1.58)(a) 1.38 (0.86)(a)

HRS Inpatient Operating Revenues 35.9 34.8 145.6 136.9 HRS Outpatient Operating Revenues 10.8 12.1 45.1 49.0 HRS Operating Revenues 46.7 46.9 190.7 185.9 HRS Operating Earnings 7.9 9.9 33.1 33.6

Contract Therapy Operating Revenues 46.7 33.4 171.3 130.8 Contract Therapy Operating Earnings 3.5 1.4 10.2 5.9

Other Revenues 2.0 (b) - 5.4 (b) - Other Operating Earnings - - 0.2 -

Staffing Operating Revenues - 49.4 (c) 16.7 223.9 (c) Staffing Operating Earnings (Loss) - (45.8) (0.1) (52.5)

Equity in Net Loss of Affiliate (0.2) - (0.7) -

(a) Includes a loss on net assets held for sale of $30.6 million, or $1.90 per diluted share, after tax.

(b) Includes intercompany sales, at market rates, of $0.2 million for the three and twelve month periods ended December 31, 2004.

(c) Includes intercompany sales of $0.2 million for the three months ended December 31, 2003 and $0.1 and $1.3 million for the twelve months ended December 31, 2004 and 2003, respectively, that Staffing sold to Hospital Rehabilitation Services and Contract Therapy at market rates.

    John H. Short, Ph.D., president and chief executive officer, commented, "Both our fourth quarter and 2004 year-end results met our performance expectations. We saw stabilization in our HRS division, with increased signings and openings as well as decreased closures, and continued impressive growth in our Contract Therapy division, both organically and through targeted regional acquisitions."
    Dr. Short continued, "2004 should be viewed as a year in which we began executing strategies designed to fulfill our vision of a clinically integrated continuum of post-acute care. These strategies take advantage of markets where we hold significant presence, allowing us to concentrate both human and capital resources for maximum effect. We are encouraged that our tactics supporting these strategies have also begun to gain traction."

    Financial Overview of the Fourth Quarter 2004

    Net revenues for the 2004 fourth quarter were $95.1 million compared to $129.5 million from the year ago quarter, a decline of $34.4 million, or 26.5 percent. The decline was primarily due to the sale of the Company's staffing division to InteliStaf Holdings in February 2004, offset by internal growth in the Company's Contract Therapy division. The staffing division contributed $49.4 million of net revenues in the fourth quarter of 2003.
    Net earnings were $6.3 million compared to a loss of $25.5 million in last year's fourth quarter. Earnings per share on a fully diluted basis were $0.37 compared to a loss of $1.58 for the same period last year. The net earnings and earnings per share results for the fourth quarter of 2003 included an after tax charge of $30.6 million or $1.90 per diluted share. This charge reflected the write down of the carrying value of the Company's staffing division net assets to their estimated fair value, less cost to sell.

    -- The Contract Therapy division's net revenues for the fourth
    quarter of 2004 increased 39.7 percent to $46.7 million,
    compared to $33.4 million in the same quarter a year ago.
    Operating earnings for the quarter increased 154.4 percent to
    $3.5 million from $1.4 million in the prior year quarter. At
    the end of the quarter, the division had 690 programs compared
    to 468 programs at the same time last year.

    The year-over-year fourth quarter revenue and operating earnings performance reflects continued same-store growth, a significant addition of programs through internal sales initiatives as well as the acquisition of CPR Therapies in February 2004 and the recent acquisition of Cornerstone Rehabilitation in December 2004. The increase in operating earnings for the current quarter is the result of increased productivity over the prior year quarter, additional leverage of selling, general and administrative expenses, and an improved reimbursement environment, as the prior year quarter was impacted by the Part B caps for two months.

    -- The Hospital Rehabilitation Services division's (HRS) fourth
    quarter net revenues remained relatively flat at $46.7 million
    compared to $46.9 million in last year's fourth quarter.
    Operating earnings for the quarter were $7.9 million compared
    to $9.9 million in the prior year quarter. At the end of the
    quarter, HRS had 181 programs compared to 166 programs at the
    same time last year.

    HRS operating revenues declined only slightly from the prior year quarter, with operating revenues from VitalCare offsetting declines in operating revenue from unit closures in the fourth quarter of 2003.
    The year-over-year decline in operating earnings is the result of lower contribution from the outpatient business unit in the 2004 period compared to 2003 and from the change in the mix of business due to the substitution of the VitalCare subacute units in this year's fourth quarter for the acute rehabilitation programs closed since last year.

    -- Our investment in InteliStaf Holdings for the quarter
    generated a loss of $0.2 million compared to our expectation
    of break even as InteliStaf continued to experience soft
    demand for its services.

    The Company's balance sheet at year-end remains strong with $53.5 million in cash, cash equivalents and restricted cash, minimal long-term debt and an unused credit facility in excess of $115 million to support strategic initiatives. Day's sales outstanding at year-end decreased to 66.5 days from 72.0 days at the prior year-end (adjusted for receivables related to the staffing division). This improvement was an important factor in the Company generating cash flow from operations of $14.6 million in the fourth quarter. For the quarter, the Company spent $3.1 million on capital expenditures and an aggregate of $4.9 million in cash on acquisitions.
    Dr. Short concluded, "2004 was a year of transition. Our results show that we are making real progress with our strategic plans. Our achievements this past year lead us to believe that our product and service offerings are aligned with the needs of our customers, and that we are well-positioned for sustainable growth in the years ahead."

    2005 Guidance

    In 2005, management expects revenues from operations, exclusive of any unannounced acquisitions or joint ventures, to be between $418 million and $438 million for the year and earnings before interest, depreciation and amortization (EBITDA) of $51.3 million to $55.6 million. Expectations are for diluted earnings per share in the range of $1.43 to $1.58. The EBITDA and earnings per share ranges include an impact of $4.2 million pretax effect, or $0.15 per diluted share after tax, as the result of adopting FAS 123R for the entire year.
    Guidance relating to earnings per share assumes a 40.5 percent effective tax rate and an estimated 17.1 million diluted shares. Capital requirements are estimated at $15.2 million composed of $8.6 million for routine capital expenditures and $6.6 million for previously announced joint ventures.

    Included in the Company's guidance are the following assumptions:

--	For the Contract Therapy division, revenues are expected to increase between 22 percent and 26 percent over 2004 levels due to continued growth in contracts, same store operating revenues and the addition of the Cornerstone Rehabilitation business for the full year. Higher labor costs associated with the therapist shortages offset by reductions in division selling, general and administrative expenses are expected to keep pretax operating earnings as a percent of operating revenues in the 5 percent to 7 percent range in 2005.
--	For the Hospital Rehabilitation Services division, operating revenues are expected to increase between 5 percent and 9 percent from 2004 levels as the effects of the 75% Rule transition reduce our historical same store growth rates, partially offset by expected reductions in closures and increased openings in 2005. Pretax operating earnings for the division are expected to be between 15 percent to 18 percent also due to short-term declines in same store growth in discharges resulting from the 75% Rule transition.
--	Overall selling, general and administrative expenses are expected to decline to approximately 14.0 percent of operating revenue in 2005 from about 14.9 percent of operating revenue in 2004 and 17 percent in 2003.
--	The results of InteliStaf Holdings are expected to be breakeven in 2005. However, the Company expects to recognize a $0.4 million equity share loss during the first quarter due to InteliStaf's completion of a debt re-financing and operational restructuring. Our equity share of earnings during the remaining three quarters should offset this first quarter loss.

    The Company's guidance may be updated during 2005 as it announces additional acquisitions and joint ownership transactions.

    RehabCare Group, Inc., headquartered in St. Louis, MO, is a leading provider of program management services for hospital inpatient rehabilitation and skilled nursing units, outpatient therapy programs and contract therapy services in conjunction with more than 800 hospitals and skilled nursing facilities in 37 states, the District of Columbia and Puerto Rico. RehabCare is pleased to be included in the Russell 2000 and Standard and Poor's Small Cap 600 indices.

    A listen-only simulcast of RehabCare's fourth quarter and year end conference call will be available on the Company's web site at www.rehabcare.com and online at www.companyboardroom.com, beginning at 10:00 Eastern time. An online replay will be available for at least 21 days after the call. A telephonic replay of the call will be available beginning at 1:00 P.M. Eastern time today and ending at midnight on April 1, 2005. The dial-in number for the replay is (630) 652-3041 and the access code is 10858899.

    This release 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 RehabCare's actual results in future periods to differ materially from forecasted results. These risks and uncertainties may include, but are not limited to, the ability of RehabCare 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 RehabCare's continuing businesses; RehabCare's ability to attract new client relationships or to retain and grow existing client relationships through expansion of RehabCare's hospital rehabilitation and contract therapy service offerings and the development of alternative product offerings; the future financial results of InteliStaf Holdings, Inc., RehabCare's unconsolidated affiliate, and the effect of those results on the financial condition and results of operations of RehabCare; the adequacy and effectiveness of RehabCare's operating and administrative systems; RehabCare's ability to attract and the additional costs of administrative, operational and professional employees; significant increases in health, workers' compensation and professional and general liability costs; litigation risks of RehabCare's past and future business, including RehabCare's ability to predict the ultimate costs and liabilities or the disruption of its operations; competitive and regulatory effects on pricing and margins; and general economic conditions, including efforts by governmental reimbursement programs, insurers, healthcare providers and others to contain healthcare costs.

    NOTE: More information on RehabCare can be found on the World Wide Web at http://www.rehabcare.com.

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

Three Months Ended Dec 31, 2004 2003 % Change --------- --------- --------- Operating revenues $95,128 $129,475 (26.5)

Costs & expenses

Operating 67,894 98,073 (30.8) Selling, general & administrative Divisions 7,367 13,842 (46.8) Corporate 5,829 6,392 (8.8) Restructuring charge - - N/M Gain on sale of business - - N/M Loss on assets held for sale - 43,579 N/M Depreciation & amortization 2,653 2,130 24.6 --------- --------- Total costs & expenses 83,743 164,016 (48.9) --------- --------- Operating earnings, (loss) net 11,385 (34,541) 133.0

Other expense, net (1) (275) (99.6) Interest expense, net (244) (125) 95.2 --------- --------- Earnings (loss) before income taxes and equity in net loss of affiliate 11,140 (34,941) 131.9

Income taxes 4,671 (9,418) 149.6 Equity in net loss of affiliate (172) - N/M --------- --------- Net earnings (loss) $6,297 $(25,523) 124.7 ========= ========= Diluted earnings (loss) per share $ 0.37 $ (1.58) 123.4 Weighted average shares outstanding 17,004 16,124 5.5

Full Year Ended Dec 31, 2004 2003 % Change --------- --------- --------- Operating revenues $383,846 $539,322 (28.8)

Costs & expenses

Operating 275,242 408,559 (32.6) Selling, general & administrative Divisions 32,499 65,055 (50.0) Corporate 24,615 26,680 (7.7) Restructuring charge 1,615 1,286 25.6 Gain on sale of business (485) - N/M Loss on assets held for sale - 43,579 N/M Depreciation & amortization 8,556 8,559 - --------- --------- Total costs & expenses 342,042 553,718 (38.2) --------- --------- Operating earnings, (loss) net 41,804 (14,396) 390.4 Other expense, net (55) (338) (83.7) Interest expense, net (788) (574) 37.3 --------- --------- Earnings (loss) before income taxes and equity in net loss of affiliate 40,961 (15,308) 367.6 Income taxes 17,049 (1,609) 1,159.6 Equity in net loss of affiliate (731) - N/M --------- --------- Net earnings (loss) $ 23,181 $(13,699) 269.2 ========= ========= Diluted earnings (loss) per share $ 1.38 $ (0.86) 260.5 Weighted average shares outstanding 16,835 16,000 5.2

II. Condensed Consolidated Balance Sheets (Amounts in thousands) December 31, December 31, 2004 2003 ------------ ------------ Assets Cash and restricted cash $ 53,478 $ 38,385 Accounts receivable, net 69,565 62,744 Deferred tax assets 10,252 14,706 Other current assets 1,690 1,912 ------------ ------------ Total current assets 134,985 117,747

Equipment, net 15,149 14,063 Excess cost of net assets acquired, net 68,340 48,729 Intangible assets 11,884 48 Investment in unconsolidated affiliate 39,269 - Assets held for sale - 46,171 Other assets 8,039 6,868 ------------ ------------ $277,666 $233,626 ============ ============

Liabilities & Stockholders' Equity Current portion of long-term debt $ 4,731 $ - Payables & accruals 53,803 40,795 ------------ ------------ Total current liabilities 58,534 $ 40,795

Liabilities held for sale - 9,771 Long-term debt, less current portion 2,142 - Other non-current liabilities 9,962 5,105 Stockholders' equity 207,028 177,955 ------------ ------------ $277,666 $233,626 ============ ============

III. Operating Statistics (Revenues and Operating Earnings in 000's)

Three Months Ended Full Year Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2004 2003 2004 2003 --------- --------- --------- --------- Contract Therapy

Operating Revenues $46,662 $33,401 $171,339 $130,847

Division Operating Earnings (a)(b) $ 3,490 $ 1,372 $ 10,208 $ 5,836 Average Number of Locations 651 480 588 460

End of Period Number of Programs 690 468 690 468

Hospital Rehabilitation Services

Revenues Inpatient $ 35,876 $34,776 $145,593 $136,852 Outpatient 10,823 12,081 45,138 48,979 --------- --------- --------- --------- Total $ 46,699 $46,857 $190,731 $185,831

Division Operating Earnings (a)(b) $ 7,864 $ 9,906 $ 33,065 $ 33,557

Average Number of Programs Inpatient 146 128 142 133 Outpatient 40 46 42 48 --------- --------- --------- --------- Total 186 174 184 181 End of Period Number of Programs 181 166 181 166

Other

Revenues (c) $ 2,014 - $ 5,367 -

Operating Earnings (a)(b) 31 - 224 -

(a) Division Operating Earnings are earnings attributable to the division before interest, income taxes and other income (expense).

(b) The third quarter 2003 and first quarter 2004 restructuring charges were not allocated to the operating segments.

(c) Includes intercompany revenues, at market rates, of $0.2 million for the three and twelve month periods ended December 31, 2004.

WE INVITE YOU TO VISIT OUR WEB SITE AFTER NOON TODAY TO VIEW KEY STATISTICS IN GREATER DETAIL @ www.rehabcare.com

--30--AWG/na*

CONTACT: RehabCare Group, Inc. Investor Relations Vincent L. Germanese or Betty Cammarata, 314-863-7422 or Media Relations David Totaro, 314-863-7422 www.rehabcare.com or Financial Dynamics Gordon McCoun, Lanie Marcus or Sean Leous, 212-850-5600

KEYWORD: MISSOURI INDUSTRY KEYWORD: MEDICAL EARNINGS CONFERENCE CALLS SOURCE: RehabCare Group, Inc.

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