KENNETT SQUARE, Pa., July 28 /PRNewswire-FirstCall/ -- Genesis HealthCare Corporation (“GHC”) today announced income from continuing operations of $7.8 million ($0.39 per diluted share) and net income of $6.7 million ($0.34 per diluted share) for the quarter ended June 30, 2004.
EBITDA for the quarter ended June 30, 2004 was $30.5 million, compared to EBITDA of $24.4 million for the comparable period in the prior year (see attached reconciliation on page 6). EBITDA was reduced in the quarter ended June 30, 2004 by $0.4 million ($0.01 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 $20.6 million or $1.03 per diluted share (see attached pro forma financial information on page 11).
For the year to date period, both EBITDA and Adjusted EBITDA were $88.9 million, compared to EBITDA and Adjusted EBITDA of $73.7 million and $72.6 million, respectively, for the comparable period in the prior year (see attached reconciliation on page 6). EBITDA and Adjusted EBITDA were reduced in the current year to date period by $1.3 million ($0.04 per diluted share) for non-cash charges related to the early extinguishment of debt.
GHC revenues for the quarter ended June 30, 2004 grew 10.2% to $378.3 million from $343.3 million in the comparable period in the prior year. For the year to date period, revenues grew 11.0% to $1,129.4 million from $1,017.3 million in the comparable period in the prior year.
“We are pleased with our performance for the quarter as we continued to make progress towards the operational and margin expansion goals we established at the time of the spin-off,” said George V. Hager, Jr., Chairman and Chief Executive Officer. “Most notably, we continued to reduce our agency labor costs, which were down significantly in the quarter, contributing to an exceptional year-to-date improvement in this area while maintaining overall nursing hours per patient day. Furthermore, we are generating significant operating cash flow, which has allowed us to continue to strengthen our balance sheet through the repayment of over $30 million of debt.”
Net revenue growth in the quarter was driven by an increase in Medicare and Medicaid revenues. Medicare revenues increased as a result of the October 1, 2003 Medicare rate increases, as well as higher Medicare patient acuity. GHC’s Medicare rate grew 12.1% to $352 per patient day for the quarter ended June 30, 2004 from $314 per patient day in the comparable period in the prior year. In addition, $18.1 million of revenue growth in the quarter ended June 30, 2004 was attributed to the consolidation of eight eldercare centers previously managed by GHC, which were consolidated earlier in the year, but are not included in the comparable periods in the prior year.
EBITDA growth in the quarter was enhanced by continued progress in reducing reliance on agency labor. Agency labor costs declined 29.4% on a per patient day basis without a significant change in overall nursing hours per patient day during the quarter ended June 30, 2004 versus the comparable period in the prior year. Professional (RN/LPN) agency utilization represented the majority of this decline. EBITDA growth in the quarter was offset by continued earnings pressure in the rehabilitation therapy business as a result of a significant shortage of qualified therapists. The high demand for therapists has resulted in increased labor costs in that business.
During the quarter, GHC generated operating cash flow of $23.8 million, enabling the repayment of $31.8 million of debt. Nearly $30 million of the debt repayment was made voluntarily. GHC ended the quarter with $115.1 million in cash and $429.9 million of indebtedness. As anticipated, operating cash flow in the quarter was impacted by the timing of the funding of insurance programs which were renewed during the quarter, retirement programs and interest payments, offset by strong receivable collections. Year to date, operating cash flow totaled $100.2 million.
“At the time of the spin-off, we established a commitment to reducing our leverage, estimating that it would take two years to reduce debt to our targeted level,” said James McKeon, Chief Financial Officer. “Our strong operating cash flow and working capital management during the year has allowed us to reduce our leverage ahead of schedule. Furthermore, our borrowing costs continue to decline as early debt repayments have resulted in reduced interest expense and effective June 25, 2004, we successfully renegotiated certain terms of our senior term loan, reducing the interest rate spread by 50 basis points.”
Basis of Presentation
The accompanying financial information through November 30, 2003 have been prepared on a basis which reflects the historical financial information 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 information has 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 information 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 June 30, 2004 were $6.4 million and $(0.06), respectively. The net revenues and loss per diluted share for the year to date period ended June 30, 2004 were $26.1 million and $(0.17), respectively.
Conference Call
Genesis HealthCare Corporation will hold a conference call at 10:00 a.m. EDT on July 29, 2004 to discuss results for the quarter. Investors can access the conference call by phone at (800) 553-0288 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 JUNE 30, 2004 AND 2003 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Three months ended June 30, 2004 June 30, 2003 Net revenues $378,251 $343,254 Operating expenses: Salaries, wages and benefits 237,268 211,620 Other operating expenses 103,090 100,482 Loss on early extinguishment of debt 425 - Lease expense 7,010 6,718 Depreciation and amortization expense 11,356 9,787 Interest expense 6,854 4,422 Income before income tax expense (benefit), equity in net income of unconsolidated affiliates and minority interests 12,248 10,225 Income tax expense (benefit) 4,998 (455) Income before equity in net income of unconsolidated affiliates and minority interests 7,250 10,680 Equity in net income of unconsolidated affiliates 746 448 Minority interests (170) - Income from continuing operations 7,826 11,128 Loss from discontinued operations, net of taxes (1,104) (5,852) Net income $6,722 $5,276 Per common share data: Basic: Income from continuing operations $0.39 Loss from discontinued operations (0.06) Net income $0.34 Weighted average shares 19,963,778 Diluted: Income from continuing operations $0.39 Loss from discontinued operations (0.06) Net income $0.34 Weighted average shares 20,031,427 GENESIS HEALTHCARE CORPORATION UNAUDITED CONDENSED STATEMENTS OF OPERATIONS NINE MONTHS ENDED JUNE 30, 2004 AND 2003 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Nine months ended June 30, 2004 June 30, 2003 Net revenues $1,129,434 $1,017,341 Operating expenses: Salaries, wages and benefits 701,842 630,181 Other operating expenses 316,125 294,282 Loss (gain) on early extinguishment of debt 1,253 (1,123) Lease expense 21,309 20,294 Depreciation and amortization expense 34,433 28,893 Interest expense 20,203 12,487 Income before income tax expense, equity in net income of unconsolidated affiliates and minority interests 34,269 32,327 Income tax expense 13,925 8,164 Income before equity in net income of unconsolidated affiliates and minority interests 20,344 24,163 Equity in net income of unconsolidated affiliates 1,770 875 Minority interests (329) - Income from continuing operations 21,785 25,038 Loss from discontinued operations, net of taxes (3,483) (15,065) Net income $18,302 $9,973 Pro forma per common share data (1): Basic: Income from continuing operations $1.09 Loss from discontinued operations (0.17) Net income $0.92 Weighted average shares 19,928,517 Diluted: Income from continuing operations $1.09 Loss from discontinued operations (0.17) Net income $0.92 Weighted average shares 19,966,961 (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 Nine months ended June 30, June 30, 2004 2003 2004 2003 Net income $6,722 $5,276 $18,302 $9,973 Add back: Loss from discontinued operations, net of taxes 1,104 5,852 3,483 15,065 Equity in net income of unconsolidated affiliates (746) (448) (1,770) (875) Minority interests 170 - 329 - Income tax expense (benefit) 4,998 (455) 13,925 8,164 Interest expense 6,854 4,422 20,203 12,487 Depreciation and amortization expense 11,356 9,787 34,433 28,893 EBITDA $30,458 $24,434 $88,905 $73,707 Gain on early extinguishment of debt (1) - - - (1,123) Adjusted EBITDA $30,458 $24,434 $88,905 $72,584 (1) - The gain on early extinguishment of debt recognized in the nine months ended June 30, 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 nine month periods ended June 30, 2004 are the result of the early extinguishment of mortgage loans and senior credit facility debt, 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 JUNE 30, 2004, MARCH 31, 2004 AND DECEMBER 31, 2003 (IN THOUSANDS) June 30, March 31, December 31, 2004 2004 2003 Assets: Current assets: Cash and equivalents $115,144 $125,958 $114,347 Restricted investments in marketable securities 30,820 30,320 29,820 Accounts receivable, net 175,732 188,779 187,789 Prepaid expenses and other current assets 31,193 24,855 35,806 Assets held for sale 2,988 3,952 - Total current assets 355,877 373,864 367,762 Property and equipment, net 697,943 706,189 688,924 Assets held for sale 8,724 8,717 12,757 Restricted investments in marketable securities 65,345 60,284 63,226 Other long-term assets 106,316 109,675 110,037 Identifiable intangible assets, net 1,928 1,679 1,952 Goodwill 7,116 6,875 2,990 Total assets $1,243,249 $1,267,283 $1,247,648 Liabilities and Shareholders’ Equity: Current liabilities: Current installments of long-term debt $4,361 $4,664 $4,495 Accounts payable and accrued expenses 140,135 146,814 137,435 Current portion of self-insurance liability reserves 30,820 30,320 29,820 Total current liabilities 175,316 181,798 171,750 Long-term debt 425,581 457,097 457,354 Deferred income taxes 13,496 11,665 9,539 Self-insurance liability reserves 64,800 63,612 62,423 Other long-term liabilities 28,598 25,240 25,193 Total shareholders’ equity 535,458 527,871 521,389 Total liabilities and shareholders’ equity $1,243,249 $1,267,283 $1,247,648 Note: Certain prior period balances have been reclassified to conform with the current period presentation. GENESIS HEALTHCARE CORPORATION UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 30, 2004 AND 2003 (IN THOUSANDS) Three months ended June 30, 2004 June 30, 2003 Cash flows from operating activities: Net income $6,722 $5,276 Net charges included in operations not requiring funds 18,528 21,548 Changes in assets and liabilities: Accounts receivable 6,963 8,073 Accounts payable and accrued expenses (2,060) (8,753) Other, net (6,352) (2,215) Net cash provided by operating activities 23,801 23,929 Cash flows from investing activities: Capital expenditures (6,184) (5,865) Net purchases of restricted marketable securities (5,936) (6,464) Acquisition of rehabilitation services business - (482) Purchase of eldercare centers and lease amendments (203) - Sale of eldercare assets 7,267 26,421 Other 2,260 10,605 Net cash (used in) provided by investing activities (2,796) 24,215 Cash flows from financing activities: Repayment of long-term debt and payment of sinking fund requirements (31,819) (3,842) Net transactions with NCI, prior to the spin-off - (46,788) Net cash used in financing activities (31,819) (50,630) Net decrease in cash and equivalents $(10,814) $(2,486) Cash and equivalents: Beginning of period 125,958 7,360 End of period $115,144 $4,874 GENESIS HEALTHCARE CORPORATION UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 2004 AND 2003 (IN THOUSANDS) Nine months ended June 30, 2004 June 30, 2003 Cash flows from operating activities: Net income $18,302 $9,973 Net charges included in operations not requiring funds 58,229 54,426 Changes in assets and liabilities: Accounts receivable (1,362) (1,146) Accounts payable and accrued expenses 21,971 (13,915) Other, net 3,024 398 Net cash provided by operating activities 100,164 49,736 Cash flows from investing activities: Capital expenditures (21,030) (25,015) Net purchases of restricted marketable securities (6,261) (7,373) Acquisition of rehabilitation services business - (5,918) Purchase of eldercare centers and lease amendments (48,976) - Sale of eldercare assets 15,074 55,977 Other 2,571 10,605 Net cash (used in) provided by investing activities (58,622) 28,276 Cash flows from financing activities (1): Repayment of long-term debt and payment of sinking fund requirements (280,304) (51,268) 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) (29,290) Net cash provided by (used in) financing activities 64,811 (80,558) Net increase (decrease) in cash and equivalents $106,353 $(2,546) Cash and equivalents: Beginning of period 8,791 7,420 End of period $115,144 $4,874 (1) - Net cash provided by financing activities includes approximately $400.7 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, $61.8 million of other debt repayments and $55.5 million of cash transferred to NCI in connection with the spin-off. GENESIS HEALTHCARE CORPORATION FINANCIAL HIGHLIGHTS (UNAUDITED) Three months ended Nine months ended Segment Data (dollars in June 30, June 30, June 30, June 30, thousands) 2004 2003 2004 2003 Inpatient services Revenue (1) $336,477 $299,030 $1,006,719 $891,716 EBITDA - $ (1) 41,763 28,867 122,959 85,907 EBITDA - % 12.4% 9.7% 12.2% 9.6% Rehabilitation therapy services (including intersegment amounts) Revenue (1) $50,379 $52,546 $146,909 $151,213 EBITDA - $ (1) 4,637 8,900 13,285 25,154 EBITDA - % 9.2% 16.9% 9.0% 16.6% Three months ended Nine months ended June 30, June 30, June 30, June 30, Selected Operating Statistics 2004 2003 2004 2003 Occupancy - Licensed Beds 90.3% 90.5% 90.9% 90.8% Patient Days: Private and other 329,116 316,649 993,483 962,651 Medicare 262,600 256,669 800,816 757,703 Medicaid 1,084,610 1,014,062 3,252,388 3,050,750 Total Days 1,676,326 1,587,380 5,046,687 4,771,104 Per Diems: Private and other $202.66 $202.48 $202.35 $202.12 Medicare 352.40 314.47 348.72 312.71 Medicaid 157.75 146.79 156.81 145.82 Nursing labor costs per patient day: Employed labor $78.18 $72.50 $77.19 $71.78 Agency labor 3.97 5.62 4.52 6.16 Total $82.15 $78.12 $81.71 $77.94 Inpatient Licensed Beds (end of period) Owned - Skilled Nursing 15,226 - Assisted Living 944 Total Owned 16,170 Leased - Skilled Nursing 4,065 - Assisted Living 490 Total Leased 4,555 Total Owned and Leased (Consolidated) 20,725 Jointly Owned - Skilled Nursing 2,117 - Assisted Living 656 Managed - Skilled Nursing 1,684 - Assisted Living 578 Total - (Unconsolidated) 5,035 (1) - The revenue and EBITDA of our operating segments was impacted in the three and nine months ended June 30, 2004 by a $2.0 million and $5.9 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 statement of operations for the nine months ended June 30, 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 NINE MONTHS ENDED JUNE 30, 2004 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Historical Pro Forma GHC Adjustments GHC Net revenues $1,129,434 $- $1,129,434 Expenses: Operating expenses 1,019,220 - 1,019,220 Lease expense 21,309 - 21,309 Depreciation and amortization expense 34,433 88 (1) 34,521 Interest expense 20,203 1,864 (2) 22,067 Income before income tax expense equity in net income of unconsolidated affiliates and minority interests 34,269 (1,952) 32,317 Income tax expense 13,925 (761)(3) 13,164 Income before equity in net income of unconsolidated affiliates and minority interests 20,344 (1,191) 19,153 Equity in net income of unconsolidated affiliates 1,770 - 1,770 Minority interests (329) - (329) Income from continuing operations $21,785 $(1,191) $20,594 Per common share data: Basic: Income from continuing operations $1.09 $1.03 Weighted average shares 19,928,517 19,928,517 Diluted: Income from continuing operations $1.09 $1.03 Weighted average shares 19,966,961 19,966,961 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 nine months ended June 30, 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. Nine months ended June 30, 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 $165 thousand for the nine months ended June 30, 2004. (3)Income tax expense is reported at an estimated effective tax rate of 39%. Genesis HealthCare Contact: Lori Zimmerman Mayer Investor Relations 610-925-2000
Genesis HealthCare Corporation
CONTACT: Lori Zimmerman Mayer, Investor Relations, Genesis HealthCare,+1-610-925-2000
Web site: http://www.genesishcc.com/
