KENNETT SQUARE, Pa., May 3 /PRNewswire-FirstCall/ -- Genesis HealthCare Corporation (“GHC”) today announced income from continuing operations of $6.1 million ($0.31 per diluted share) and net income of $5.6 million ($0.28 per diluted share) for the quarter ended March 31, 2004.
EBITDA for the quarter ended March 31, 2004 was $28.8 million, compared to EBITDA of $20.4 million for the comparable period in the prior year (see attached reconciliation on page 6). EBITDA was reduced in the quarter ended March 31, 2004 by $0.7 million ($0.02 per diluted share) for non-cash charges related to the early extinguishment of debt.
For the year to date period, on a pro forma basis, assuming the December 1, 2003 spin-off of GHC from NeighborCare, Inc. (“NCI”) occurred on October 1, 2003, income from continuing operations was $12.5 million or $0.63 per diluted share (see attached pro forma financial information on page 11).
For the year to date period, both EBITDA and Adjusted EBITDA were $58.3 million, compared to EBITDA and Adjusted EBITDA of $49.2 million and $48.0 million, respectively, for the comparable period in the prior year (see attached reconciliation on page 6). EBITDA and Adjusted EBITDA were reduced in the year to date period by $0.8 million ($0.03 per diluted share) for non- cash charges related to the early extinguishment of debt.
GHC revenues for the quarter ended March 31, 2004 grew 13.3% to $383.3 million from $338.4 million in the comparable period in the prior year. For the year to date period, revenues grew 11.4% to $754.5 million from $677.5 million in the comparable period in the prior year.
“Fundamentally, this was a very strong quarter for GHC and our results exceeded our expectations,” said George V. Hager Jr., Chairman and Chief Executive Officer. “The second quarter is typically one of our most challenging due to the January 1 reset of payroll taxes, the cost of inclement weather and seasonal census variability. However, as a result of our continued focus, we enjoyed stable occupancy, attracted higher acuity patients, and more efficiently utilized our nursing resources to reduce reliance on nursing agency services.”
Net revenue and EBITDA growth was principally driven by an increase in Medicare and Medicaid rates per patient day. GHC’s Medicare rate grew 10.8% to $347 for the quarter ended March 31, 2004 from $313 in the comparable period in the prior year. Medicare revenues increased as a result of the October 1, 2003 Medicare rate increases, as well as higher Medicare patient acuity and census. In addition, revenue and EBITDA growth in the quarter ended March 31, 2004 of $18.2 million and $0.7 million, respectively, were attributed to the consolidation of eight eldercare centers that were not included in the comparable period in the prior year.
The rehabilitation therapy business, which represents approximately 9% of revenues, showed improved results from the first quarter given the postponement of the therapy caps beginning in December 2003 and a 1.5% increase in the Medicare Part B therapy fee schedule beginning January 1, 2004.
GHC continued to make progress in reducing its reliance on temporary staffing. While aggregate nursing labor costs grew 4.9% per patient day in the quarter ended March 31, 2004 versus the comparable period in the prior year, agency labor costs declined by 27.1% on a per patient day basis from the comparable period in the prior year.
From a liquidity and capital resources perspective, GHC ended the quarter with $126.0 million of cash, $192.1 million of working capital, $72.9 million of available borrowings under its revolving credit facility, and $461.8 million of indebtedness. During the quarter, GHC repaid $19.9 million of fixed rate mortgage debt, $12.5 million of which was assumed during the quarter in connection with the acquisition of two skilled nursing facilities previously under joint ownership. Subsequent to quarter end, GHC repaid an additional $4.7 million of fixed rate mortgage debt.
“Our cash balance of $126.0 million and our strong operating cash flow of $44.2 million reflects the quality of our earnings and will allow us to implement our debt repayment and other strategic priorities over the next two years,” concluded Hager.
Basis of Presentation
The accompanying financial statements through November 30, 2003 have been prepared on a basis which reflects the historical financial statements of GHC assuming the operations of NCI contributed in the spin-off were organized as a separate legal entity, owning certain net assets of NCI. Beginning December 1, 2003, the accompanying financial statements have been prepared on a basis which reflects the net operations of GHC as a stand alone entity. The allocation methodologies followed in preparing the accompanying financial statements prior to the December 1, 2003 spin-off may not necessarily reflect the results of operations, cash flows, or financial position of GHC in the future, or what the results of operations, cash flows or financial position would have been had GHC been a separate stand-alone entity for all periods presented.
Discontinued Operations
GHC accounts for discontinued operations, including assets held for sale, under the provisions of Statement of Financial Accounting Standards, No. 144 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of” (“SFAS 144"). Under SFAS 144, discontinued businesses including assets held for sale are removed from the results of continuing operations and presented as a separate line on the statement of operations. The net revenues and loss per diluted share of GHC’s discontinued operations for the three months ended March 31, 2004 were $7.1 million and $(0.03), respectively. The net revenues and loss per diluted share for the year to date period ended March 31, 2004 were $16.3 million and $(0.11), respectively.
Conference Call
Genesis HealthCare Corporation will hold a conference call at 10:00 a.m. EDT on May 4, 2004 to discuss results for the quarter. Investors can access the conference call by phone at (888) 428-4480 or live via webcast through the GHC web site at http://www.genesishcc.com/, where a replay of the call will also be posted for one year.
About Genesis HealthCare Corporation
Genesis HealthCare is one of the nation’s largest long term care providers with over 200 skilled nursing centers and assisted living residences in 13 eastern states operating under the Genesis ElderCare banner. Genesis also supplies contract rehabilitation therapy to over 730 healthcare providers in 21 states and the District of Columbia.
Visit our website at http://www.genesishcc.com/.
Statements made in this release, our website and in our other public filings and releases, which are not historical facts contain “forward-looking” statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “target,” “appears” and similar expressions. Such forward-looking statements include, without limitation, the effect of the spin-off on our operations, expected reimbursement rates, including RUGs changes, agency labor utilization, inflationary increases in state Medicaid rates and self-insurance retention limits. Factors that could cause actual results to differ materially include, but are not limited to, the following: costs, changes in the reimbursement rates or methods of payment from Medicare or Medicaid, or the implementation of other measures to reduce reimbursement for our services; the expiration of enactments providing for additional government funding; efforts of third party payors to control costs; the impact of federal and state regulations; changes in payor mix and payment methodologies; further consolidation of managed care organizations and other third party payors; competition in our business; an increase in insurance costs and potential liability for losses not covered by, or in excess of, our insurance; competition for qualified staff in the healthcare industry; our ability to control operating costs, and generate sufficient cash flow to meet operational and financial requirements; changes in interest expense; and an economic downturn or changes in the laws affecting our business in those markets in which we operate.
The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by us are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
GENESIS HEALTHCARE CORPORATION UNAUDITED CONDENSED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Three months ended March 31, 2004 March 31, 2003 Net revenues $383,308 $338,425 Operating expenses: Salaries, wages and benefits 239,046 213,184 Other operating expenses 107,915 98,011 Loss on early extinguishment of debt 655 - Lease expense 6,888 6,792 Depreciation and amortization expense 11,537 9,636 Interest expense 7,599 3,844 Income before income tax expense, equity in net income of unconsolidated affiliates and minority interests 9,668 6,958 Income tax expense 3,922 2,714 Income before equity in net income of unconsolidated affiliates and minority interests 5,746 4,244 Equity in net income of unconsolidated affiliates 466 357 Minority interests (84) - Income from continuing operations 6,128 4,601 Loss from discontinued operations, net of taxes (554) (4,593) Net income $5,574 $8 Per common share data: Basic: Income from continuing operations $0.31 Loss from discontinued operations (0.03) Net income $0.28 Weighted average shares 19,923,669 Diluted: Income from continuing operations $0.31 Loss from discontinued operations (0.03) Net income $0.28 Weighted average shares 19,968,492 GENESIS HEALTHCARE CORPORATION UNAUDITED CONDENSED STATEMENTS OF OPERATIONS SIX MONTHS ENDED MARCH 31, 2004 AND 2003 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Six months ended March 31, 2004 March 31, 2003 Net revenues $754,520 $677,489 Operating expenses: Salaries, wages and benefits 467,233 421,239 Other operating expenses 213,828 194,642 Loss (gain) on early extinguishment of debt 828 (1,123) Lease expense 14,299 13,576 Depreciation and amortization expense 23,173 19,203 Interest expense 13,502 8,215 Income before income tax expense, equity in net income of unconsolidated affiliates and minority interests 21,657 21,737 Income tax expense 8,785 8,477 Income before equity in net income of unconsolidated affiliates and minority interests 12,872 13,260 Equity in net income of unconsolidated affiliates 1,024 428 Minority interests (159) - Income from continuing operations 13,737 13,688 Loss from discontinued operations, net of taxes (2,157) (8,991) Net income $11,580 $4,697 Pro forma per common share data (1): Basic: Income from continuing operations $0.70 Loss from discontinued operations (0.11) Net income $0.59 Weighted average shares 19,754,074 Diluted: Income from continuing operations $0.69 Loss from discontinued operations (0.11) Net income $0.59 Weighted average shares 19,777,459 (1) - The computation of pro forma common share data assumes that the common shares of GHC distributed on December 1, 2003 in connection with the spin-off were outstanding since October 1, 2003. GENESIS HEALTHCARE CORPORATION FINANCIAL HIGHLIGHTS (UNAUDITED) Reconciliation of net income to EBITDA and Adjusted EBITDA (in thousands) Three months ended Six months ended March 31, March 31, 2004 2003 2004 2003 Net income $5,574 $8 $11,580 $4,697 Add back: Loss from discontinued operations, net of taxes 554 4,593 2,157 8,991 Equity in net income of unconsolidated affiliates (466) (357) (1,024) (428) Minority interests 84 - 159 - Income tax expense 3,922 2,714 8,785 8,477 Interest expense 7,599 3,844 13,502 8,215 Depreciation and amortization expense 11,537 9,636 23,173 19,203 EBITDA $28,804 $20,438 $58,332 $49,155 Gain on early extinguishment of debt (1) - - - (1,123) Adjusted EBITDA $28,804 $20,438 $58,332 $48,032 (1) - The gain on early extinguishment of debt recognized in the six months ended March 31, 2003 is the result of a negotiated discount on a mortgage loan liquidated by us at the request of the mortgage lender. We excluded this gain from the calculation of Adjusted EBITDA because management does not view such a gain as likely to occur in the foreseeable future, nor have we encountered a similar transaction in recent years. While we often may be interested in extinguishing certain of our mortgage loans by refinancing such loans with senior credit facility borrowings at more favorable rates of interest, because most of these mortgage loans require expensive prepayment penalties, it is often not economically feasible for us to do so. To have a mortgage lender approach GHC to extinguish mortgage debt so that we are able to negotiate favorable extinguishment terms is deemed by management to be an unusual event that is reasonably unlikely to occur within the next two years. The loss on early extinguishment of debt recognized in the three and six month periods ended March 31, 2004 are the result of the early extinguishment of mortgage loans and principally consists of the write- off of unamortized deferred financing fees. We did not exclude these aggregate losses from the calculation of Adjusted EBITDA because GHC has recognized similar losses in recent years and believes it is likely that similar losses will be recognized within the next two years. GENESIS HEALTHCARE CORPORATION UNAUDITED CONDENSED BALANCE SHEETS MARCH 31, 2004 AND DECEMBER 31, 2003 (IN THOUSANDS) March 31, 2004 December 31, 2003 Assets: Current assets: Cash and equivalents $125,958 $114,347 Restricted investments in marketable securities 30,320 29,820 Accounts receivable, net 188,779 187,789 Prepaid expenses and other current assets 24,855 35,806 Assets held for sale 3,952 - Total current assets 373,864 367,762 Property and equipment, net 706,189 688,924 Assets held for sale 8,717 12,757 Restricted investments in marketable securities 60,284 63,226 Other long-term assets 86,189 88,260 Identifiable intangible assets, net 1,679 1,952 Goodwill 6,875 2,990 Total assets $1,243,797 $1,225,871 Liabilities and Shareholders’ Equity: Current liabilities: Current installments of long-term debt $4,664 $4,495 Accounts payable and accrued expenses 146,814 137,435 Current portion of self-insurance liability reserves 30,320 29,820 Total current liabilities 181,798 171,750 Long-term debt 457,097 457,354 Deferred income taxes 11,665 9,539 Self-insurance liability reserves 40,126 40,646 Other long-term liabilities 25,240 25,193 Total shareholders’ equity 527,871 521,389 Total liabilities and shareholders’ equity $1,243,797 $1,225,871 GENESIS HEALTHCARE CORPORATION UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2004 AND 2003 (IN THOUSANDS) Three months ended March 31, 2004 March 31, 2003 Cash flows from operating activities: Net income $5,574 $8 Net charges included in operations not requiring funds 21,980 14,118 Changes in assets and liabilities: Accounts receivable (5,800) 281 Accounts payable and accrued expenses 9,732 (11,228) Other, net 12,674 1,892 Net cash provided by operating activities 44,160 5,071 Cash flows from investing activities: Capital expenditures (7,040) (11,521) Net purchases of restricted marketable securities 2,129 8,184 Purchase of eldercare centers and lease amendments (8,184) - Sale of eldercare assets 677 28,198 Other (257) (3,597) Net cash (used in) provided by investing activities (12,675) 21,264 Cash flows from financing activities: Repayment of long-term debt and payment of sinking fund requirements (19,874) (17,346) Net transactions with NCI, prior to the spin-off - (6,712) Net cash used in financing activities (19,874) (24,058) Net increase in cash and equivalents $11,611 $2,277 Cash and equivalents: Beginning of period 114,347 5,084 End of period $125,958 $7,361 GENESIS HEALTHCARE CORPORATION UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2004 AND 2003 (IN THOUSANDS) Six months ended March 31, 2004 March 31, 2003 Cash flows from operating activities: Net income $11,580 $4,697 Net charges included in operations not requiring funds 39,701 32,878 Changes in assets and liabilities: Accounts receivable (8,325) (9,219) Accounts payable and accrued expenses 24,031 (5,163) Other, net 9,376 2,615 Net cash provided by operating activities 76,363 25,808 Cash flows from investing activities: Capital expenditures (14,846) (19,150) Net purchases of restricted marketable securities (325) (909) Acquisition of rehabilitation services business - (5,436) Purchase of eldercare centers and lease amendments (48,773) - Sale of eldercare assets 7,806 29,556 Other 311 - Net cash (used in) provided by investing activities (55,827) 4,061 Cash flows from financing activities (1): Repayment of long-term debt and payment of sinking fund requirements (248,484) (47,426) Proceeds from issuance of long-term debt 410,000 - Debt issuance costs (9,337) - Net transactions with NCI, prior to the spin-off (55,548) 17,498 Net cash provided by (used in) financing activities 96,631 (29,928) Net increase (decrease) in cash and equivalents $117,167 $(59) Cash and equivalents: Beginning of period 8,791 7,420 End of period $125,958 $7,361 (1) - Net cash provided by financing activities includes approximately $400 million of net proceeds received in connection with the issuance of GHC’s new financing arrangements, offset by the use of $218.5 million to repay indebtedness of NCI allocated to GHC, $30.0 million of other debt repayments and $55.5 million of cash transferred to NCI in connection with the spin-off. FINANCIAL HIGHLIGHTS (UNAUDITED) Three months ended Six months ended Segment Data (dollars in March 31, March 31, March 31, March 31, thousands) 2004 2003 2004 2003 Inpatient services Revenue (1) $340,871 $295,881 $673,579 $596,088 EBITDA - $ (1) 38,916 26,733 81,081 56,922 EBITDA - % 11.4% 9.0% 12.0% 9.5% Rehabilitation therapy services (including intersegment amounts) Revenue (1) $50,921 $51,011 $96,530 $98,667 EBITDA - $ (1) 6,055 8,407 8,648 16,254 EBITDA - % 11.9% 16.5% 9.0% 16.5% Three months ended Six months ended Selected Operating Statistics March 31, March 31, March 31, March 31, 2004 2003 2004 2003 Occupancy - Licensed Beds 91.0% 90.6% 91.1% 90.9% Patient Days: Private and other 326,984 313,864 667,964 650,246 Medicare 281,626 258,809 538,855 501,944 Medicaid 1,092,576 1,012,759 2,191,042 2,059,789 Total Days 1,701,186 1,585,432 3,397,861 3,211,979 Per Diems: Private and other $200.08 $201.98 $202.17 $201.87 Medicare 346.95 313.15 346.91 311.71 Medicaid 157.34 144.63 155.76 144.84 Nursing labor costs per patient day: Employed labor $78.20 $72.73 $76.63 $71.39 Agency labor 4.28 5.87 4.78 6.40 Total $82.48 $78.60 $81.41 $77.79 Inpatient Licensed Beds (end of period) Owned - Skilled Nursing 15,548 - Assisted Living 944 Total Owned 16,492 Leased - Skilled Nursing 4,035 - Assisted Living 490 Total Leased 4,525 Total Owned and Leased (Consolidated) 21,017 Jointly Owned - Skilled Nursing 2,117 - Assisted Living 656 Managed - Skilled Nursing 2,033 - Assisted Living 578 Total - (Unconsolidated) 5,384 (1) - The revenue and EBITDA of our operating segments was impacted in the three and six months ended March 31, 2004 by a $1.9 million and $3.9 million reduction, respectively, in the pricing extended by our rehabilitation therapy services segment to our inpatient services segment. GENESIS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statement presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in GHC’s annual report on Form 10-K filed on February 4, 2004.
The following unaudited pro forma condensed consolidated statement of operations for the six months ended March 31, 2004 is presented as if the spin-off of GHC occurred on October 1, 2003.
The unaudited pro forma condensed financial statement is presented for informational purposes only and is not necessarily indicative of what our financial position and results of operations actually would have been for the period presented if the spin-off occurred on October 1, 2003, nor does such financial statement purport to represent the results of future periods. The pro forma adjustments are based upon available information and certain assumptions that we consider reasonable and are described in the notes accompanying the unaudited pro forma condensed financial statement. No changes in operating revenues and expenses have been made to reflect the results of any modifications to operations that might have been made had the spin-off of GHC been completed on the aforesaid effective date for purposes of the pro forma results.
GENESIS HEALTHCARE CORPORATION UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS SIX MONTHS ENDED MARCH 31, 2004 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Historical Pro Forma GHC Adjustments GHC Net revenues $754,520 $- $754,520 Expenses: Operating expenses 681,889 - 681,889 Lease expense 14,299 - 14,299 Depreciation and amortization expense 23,173 88 (1) 23,261 Interest expense 13,502 1,864 (2) 15,366 Income before income tax expense equity in net income of unconsolidated affiliates and minority interests 21,657 (1,952) 19,705 Income tax expense 8,785 (761)(3) 8,024 Income before equity in net income of unconsolidated affiliates and minority interests 12,872 (1,191) 11,681 Equity in net income of unconsolidated affiliates 1,024 - 1,024 Minority interests (159) - (159) Income from continuing operations $13,737 $(1,191) $12,546 Per common share data: Basic: Income from continuing operations $0.70 $0.64 Weighted average shares 19,754,074 19,754,074 Diluted: Income from continuing operations $0.69 $0.63 Weighted average shares 19,777,459 19,777,459 See accompanying Notes to Unaudited Pro Forma Condensed Statement of Operations. GENESIS HEALTHCARE CORPORATION NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS General note: The unaudited pro forma condensed statement of operations reflects all adjustments that, in the opinion of management, are necessary to present fairly the pro forma results of operations for the six months ended March 31, 2004, assuming the spin-off occurred on October 1, 2003. (1) Represents the amortization of estimated deferred financing fees and expenses related to our new financing arrangements offset by reduced historical amortization of deferred financing fees written-off following the repayment of the existing indebtedness. Six months ended March 31, 2004 (in thousands) Historical financing fee amortization $(54) New financing fee amortization 142 $88 (2) Reflects the increase in estimated interest expense for the months of October and November 2003 based upon the incurrence of incremental debt following the spin-off and an estimated weighted borrowing average rate of 6.8% following the spin-off. Debt service under our new senior credit facility is based upon a variable interest rate that may fluctuate due to market conditions and / or our operating performance. A variance of 1/8% in variable rates of interest would change interest expense by approximately $116 thousand for the six months ended March 31, 2004. (3) Income tax expense is reported at an estimated effective tax rate of 39%.
CONTACT: Lori Zimmerman, Investor Relations, Genesis HealthCare, +1-610-925-2000.
Genesis HealthCare Corporation
CONTACT: Lori Zimmerman, Investor Relations, Genesis HealthCare,+1-610-925-2000
Web site: http://www.genesishcc.com/
