BEV Beverly Enterprises

Beverly Enterprises, Inc. (BEI) (NYSE: BEV) today announced that net income for the second quarter of 2005 totaled $46.1 million (37 cents per share diluted), compared to a loss of $25.9 million (24 cents per share diluted) in the same period of 2004. Net income for the two periods reflected the following: -- 2005 second-quarter expenses totaling $6.3 million (5 cents per share diluted) relating to the process of selling the company, -- 2005 second-quarter pre-tax income of $13.0 million (10 cents per share diluted) due to retroactive Medicaid rate increases in Indiana, and -- 2004 second-quarter expenses totaling $40.3 million (37 cents per share diluted) related to early extinguishment of debt. Excluding these items, net income from continuing operations totaled $34.9 million (28 cents per share diluted) in the 2005 second-quarter, a 34 percent increase from $25.9 million (24 cents per share diluted) in the year-earlier period. Discontinued operations income of $4.6 million (4 cents per share diluted) in the 2005 second-quarter included a $3.7 million gain on the sale of two facilities, compared to a loss of $11.6 million (11 cents per share diluted) in the comparable 2004 period. Revenues for the 2005 second-quarter totaled $564.1 million, up 17 percent from $483.6 million in the same period in 2004. Excluding retroactive Indiana Medicaid rate adjustments, 2005 second-quarter revenues were up 11 percent from the year-earlier period. For the first six months - and excluding sale process expenses and retroactive Medicaid rate adjustments - net income from continuing operations totaled $61.4 million (50 cents per share diluted) in 2005, a 29 percent increase from $47.5 million (44 cents per share diluted) from the comparable 2004 period (excluding early debt extinguishment costs in that year). Revenues for the 2005 first half were up 17 percent from the year-earlier period (11 percent excluding retroactive Medicaid adjustments). "We again achieved strong operating results in all of our major business units - with Nursing Facilities, Aegis Therapies and AseraCare Hospice each recording strong increases in revenues and pre-tax income, compared to the year-earlier period," said William R. Floyd, BEI Chairman and Chief Executive Officer. "Nursing Facility gains from the 2004 second quarter were particularly impressive. Our Medicare business as a percentage of total patient days was up nearly 140 basis points to 13.6 percent, occupancy rose 60 basis points to 89.1 percent and the EBITDA margin for Nursing Facilities increased 331 basis points to 11.6 percent (comparison excludes impact of retroactive Medicaid rate adjustments). "Our associates continue to achieve significant operating and financial gains, despite the potential distraction the sale process could have posed. I am extremely proud of the way they have responded throughout a challenging period. Our associates remain dedicated to providing quality care to our patients and clients, committed to achieving the aggressive objectives we set for ourselves in 2005 and determined to ensuring profitable growth in all our operations in the years ahead." Floyd continued: "Our EBITDA for the second quarter (excluding retroactive Medicaid rate adjustments and sale process costs) totaled $62.8 million and our overall EBITDA margin averaged 11.7 percent - the highest margin in at least a decade. Based on the strong operating and financial results we've achieved during the first half of 2005 - and our expectation that performance trends will continue to be very positive - we are raising our targeted EBITDA range from continuing operations for the full year to between $225 million and $230 million, up $15 million from the $210 million to $215 million range we communicated in January." * EBITDA is earnings from continuing operations before interest expense, interest income, taxes, depreciation and amortization; EBITDA for 2005 second quarter has been adjusted to exclude expenses relating to the sale of the company and earnings relating to retroactive Medicaid rate increases. EBITDA margin is EBITDA as a percentage of total adjusted revenues. FINANCIAL AND OPERATIONAL HIGHLIGHTS General -- Second-quarter 2005 net income up 34 percent (comparison excludes sale process costs and retroactive Medicaid rate increases in Indiana for current quarter, as well as debt extinguishment costs for prior-year period). -- Net income increase primarily reflects revenue and margin improvements in Nursing Facilities and Aegis Therapies. -- Overall EBITDA margin averaged 11.7 percent for the 2005 second-quarter, up 78 basis points from the year-earlier period (comparison excludes retroactive Medicaid revenues, sale expenses and debt extinguishment costs). -- Capital investments, primarily to support business unit growth, totaled $24.7 million in the 2005 second-quarter, more than double the investment made in the year-earlier period. -- Interest expense down 11 percent from 2004 second-quarter, reflecting $21.4 million reduction in debt as well as lower average interest costs due to refinancings. Nursing Facilities -- Indiana Medicaid rate adjustment (retroactive to July 1, 2003) increased 2005 second-quarter revenue by $23.1 million and raised related provider tax expense by $11.9 million, for net benefit of $11.2 million. There also was a net adjustment to pre-tax income of $1.8 million, recorded in the second quarter, which related to the 2005 first-quarter Indiana increase. -- Excluding favorable impact of Indiana rate adjustment, 2005 second-quarter EBITDA increased 50 percent and EBITDA margin rose 331 basis points (compared to year-earlier period). -- EBITDA gains (excluding retroactive Indiana rate adjustment) primarily reflect 7.1 percent revenue increase and significantly improved patient mix. -- Medicare patient days as a percentage of total patient days averaged 13.6 percent for the 2005 second-quarter - the highest level ever. It was up nearly 140 basis points from the year-earlier period and up 33 basis points from the 2005 first-quarter, which was the previous high. -- Medicare revenues as a percentage of total revenues averaged 30.9 percent, up 297 basis points from the 2004 second-quarter (comparison excludes impact of retroactive Medicaid increases). -- Total Medicare revenues rose 16 percent, reflecting treatment of higher acuity patients, increased patient volume and a 2.8 percent increase in rates (effective October 1, 2004). -- Occupancy in the 323 facilities in continuing operations rose 60 basis points (compared to the 2004 second-quarter) to an average of 89.1 percent. Aegis Therapies / AseraCare -- Aegis Therapies third-party revenues increased 24 percent ($7.1 million) over 2004 second-quarter. This gain reflects continuing growth in its client base as well as 4 percent volume-based growth in revenue per nursing home contract during the past 12 months. Client-initiated turnover averaged less than 3 percent for the quarter. -- Aegis raised its EBITDA and EBITDA margin from 2004 second-quarter levels, primarily due to lower bad debt expense associated with improved collections. Operating margins remained in the mid-to-high teens. -- Aegis continued its aggressive hiring of therapists during the quarter, resulting in a 19 percent increase in full-time-equivalent staff, compared to the 2004 second-quarter. Retention of existing staff averaged 91 percent. -- AseraCare revenue again more than doubled (compared to the 2004 second-quarter), reflecting an increase of $9.6 million from the July 30, 2004 acquisition of Hospice USA and an increase of $4.5 million due to a gain in average daily census in other hospice and home health locations. -- Average daily hospice census was 2,425, more than double the 2004 second-quarter level - primarily reflecting the Hospice USA acquisition, as well as the opening of five new start-up hospice locations during the quarter. Excluding the acquisition, average daily census was 1,441, up 30 percent from the year-earlier period. -- AseraCare also opened 2 home health agencies during the quarter. BEI stockholders may listen to a discussion by senior management of the company's performance at 8:30 a.m. ET today by dialing 1-800-946-0713 or 1-719-457-2642 and entering reservation number 6375204. A recording of this conference call will be available from 11:30 a.m. ET today until midnight August 14. Stockholders may dial 1-888-203-1112 or 1-719-457-0820 and enter reservation number 6375204 to access the recording. The statements in this press release relating to matters that are not historical facts are forward-looking statements based on management's beliefs and assumptions using currently available information and expectations as of the date hereof, are not guarantees of future performance and involve certain risks and uncertainties including the risks and uncertainties detailed from time to time in BEI's filings with the Securities and Exchange Commission. Although BEI believes that the expectations reflected in such forward-looking statements are reasonable, it cannot give any assurances that these expectations will prove to be correct. BEI assumes no duty to publicly update or revise such statements, whether as a result of new information, future events or otherwise. Beverly Enterprises, Inc. and its operating subsidiaries are leading providers of healthcare services to the elderly in the United States. At June 30, 2005, it operated 345 skilled nursing facilities, as well as 18 assisted living centers, and 63 hospice/home care centers. Through Aegis Therapies, the company offers rehabilitative services on a contract basis to nursing facilities operated by other care providers. -0- *T BEVERLY ENTERPRISES, INC. SUPPLEMENTARY INFORMATION Quarter Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Number of Nursing Home Facilities: Owned 263 265 263 265 Leased 82 91 82 91 ---------- ---------- ---------- ---------- Total 345 (1) 356 345 (1) 356 ========== ========== ========== ========== Number of Beds: Owned 27,049 27,410 27,049 27,410 Leased 9,113 10,023 9,113 10,023 ---------- ---------- ---------- ---------- Total 36,162 (1) 37,433 36,162 (1) 37,433 ========== ========== ========== ========== Assisted Living Centers 18 18 18 18 Hospice/Home Care Centers 63 26 63 26 Outpatient Clinics - 10 - 10 Continuing Operations: Nursing Patient Days 2,718,000 2,733,000 5,420,000 5,482,000 Nursing Home Occupancy (based on operational beds) 89.07% 88.47% 89.19% 88.55% Operational beds 33,295 33,931 33,295 33,931 Patient Mix (based on patient days): Medicaid 69.76% 70.69% 69.80% 70.34% Medicare 13.58% 12.22% 13.41% 12.53% Private & Other 16.66% 17.09% 16.79% 17.13% Sources of Revenue (based on $):(2) Medicaid 47.81% 50.51% 47.92% 50.01% Medicare 30.90% 27.93% 30.74% 28.41% Private & Other 21.29% 21.56% 21.34% 21.58% Nursing Average per diem rate (including ancillaries) $174.74 $159.97 $172.59 $158.96 Hospice Average Daily Census 2,425 1,105 2,344 1,044 Aegis Outside Contracts 618 575 618 575 Wages and related expenses as a % of revenues 54.16% 56.72% 54.16% 56.91% (1) 22 Nursing Home Facilities are held for sale as of June 30, 2005. (2) Excludes the retroactive Medicaid rate adjustments in Indiana and Pennsylvania. BEVERLY ENTERPRISES, INC. SUPPLEMENTARY INFORMATION ANALYSIS OF REVENUES Quarter Ended Six Months Ended June 30, June 30, ------------------- --------------------- 2005 2004 2005 2004 --------- --------- ----------- --------- REVENUES (In thousands) -------- NURSING FACILITIES: MEDICAID $284,507 $244,772 $ 569,197 $481,360 MEDICARE 124,719 107,693 246,215 220,484 PRIVATE & OTHER 89,948 88,423 180,325 174,394 --------- --------- ----------- --------- SUBTOTAL 499,174 440,888 995,737 876,238 AEGIS THERAPIES 37,000 29,868 73,204 57,048 ASERACARE 26,306 12,183 50,349 23,153 OTHER 1,618 690 2,976 3,170 --------- --------- ----------- --------- TOTALS $564,098 $483,629 $1,122,266 $959,609 ========= ========= =========== ========= NURSING PATIENT DAYS (In thousands) -------------------- MEDICAID 1,896 1,932 3,783 3,856 MEDICARE 369 334 727 687 PRIVATE & OTHER 453 467 910 939 --------- --------- ----------- --------- TOTALS 2,718 2,733 5,420 5,482 ========= ========= =========== ========= NURSING PER DIEM RATES (Including Ancillaries) ---------------------- MEDICAID(1) $ 137.45 $ 124.98 $ 134.47 $ 123.51 MEDICARE - PART A 337.99 322.61 338.68 320.70 PRIVATE & OTHER 162.13 155.03 161.73 154.03 --------- --------- ----------- --------- TOTALS(2) $ 174.74 $ 159.97 $ 172.59 $ 158.96 ========= ========= =========== ========= (1) Excludes the retroactive Medicaid rate adjustments in Indiana and Pennsylvania. (2) Weighted Average Rates BEVERLY ENTERPRISES, INC. SUPPLEMENTARY INFORMATION ANALYSIS OF OTHER OPERATING AND ADMINISTRATIVE EXPENSES (In thousands) Quarter Ended Six Months Ended June 30, June 30, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- SUPPLIES $30,084 $27,674 59,255 55,610 FOOD 9,335 9,546 18,511 18,954 UTILITIES 13,354 11,745 28,311 27,656 OTHER CONTROLLABLES 52,976 51,194 107,093 99,861 REAL ESTATE RENTAL 7,851 7,608 15,690 14,958 EQUIPMENT RENTAL 4,862 4,355 10,062 8,432 OTHER NONCONTROLLABLES (1) 37,144 14,821 84,590 27,260 --------- --------- --------- --------- TOTALS $155,606 $126,943 $323,512 $252,731 ========= ========= ========= ========= (1) 2005 increases primarily relate to additional provider tax expense. BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) June 30, December 31, 2005 2004 ----------- ------------- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $212,588 $215,665 Accounts receivable - less allowance for doubtful accounts: 2005 - $24,819; 2004 - $26,320 293,860 235,477 Notes receivable, less allowance for doubtful notes: 2005 - $2,210 ; 2004 - $1,686 4,730 2,786 Operating supplies 8,919 9,181 Assets held for sale 11,665 14,898 Prepaid expenses and other 39,961 37,266 ----------- ------------- Total current assets 571,723 515,273 Property and equipment, net 656,807 653,656 Other assets: Goodwill, net 122,087 124,066 Other, less allowance for doubtful accounts and notes: 2005 - $1,472; 2004 - $1,538 71,133 68,390 ----------- ------------- Total other assets 193,220 192,456 ----------- ------------- $1,421,750 $1,361,385 =========== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $62,685 $67,778 Accrued wages and related liabilities 89,959 104,037 Accrued interest 3,339 3,602 General and professional liabilities 58,187 54,216 Federal government settlement obligations 15,019 14,359 Liabilities held for sale - 676 Other accrued liabilities 101,969 83,097 Current portion of long-term debt 10,735 12,240 ----------- ------------- Total current liabilities 341,893 340,005 Long-term debt 541,023 545,943 Other liabilities and deferred items 198,683 203,024 Commitments and contingencies Stockholders' equity: Preferred stock, shares authorized: 25,000,000 - - Common stock, shares issued: 2005 - 117,778,518; 2004 - 116,621,715 11,778 11,662 Additional paid-in capital 908,900 902,053 Accumulated deficit (472,029) (532,804) Treasury stock, at cost: 8,283,316 (108,498) (108,498) ----------- ------------- Total stockholders' equity 340,151 272,413 ----------- ------------- $1,421,750 $1,361,385 =========== ============= Note: The balance sheet at December 31, 2004 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Six Months Ended June 30, ------------------- 2005 2004 --------- --------- Cash flows from operating activities: Net income (loss) $60,775 $(2,484) Adjustments to reconcile net income to net cash provided by (used for) operating activities, including discontinued operations: Depreciation and amortization 34,612 31,709 Provision for reserves on accounts, notes and other receivables, net 4,214 8,704 Amortization of deferred financing costs 1,411 1,519 Asset impairments, workforce reductions and other unusual items (25) 4,707 Costs related to early extinguishments of debt - 40,254 Costs related to the sales process of the Company 25,052 - Losses (gains) on dispositions of facilities and other assets, net (2,759) 1,072 Insurance related accounts (6,361) 3,225 Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable (69,664) (80,220) Prepaid expenses and other receivables (3,636) 5,255 Accounts payable and other accrued expenses (15,278) (30,344) Income taxes payable 6,187 (1,525) Other, net 839 (3,848) --------- --------- Total adjustments (25,408) (19,492) --------- --------- Net cash provided by (used for) operating activities 35,367 (21,976) Cash flows from investing activities: Capital expenditures (45,180) (21,913) Proceeds from dispositions of facilities and other assets, net 14,158 21,341 Collections on notes receivable 53 6,871 Proceeds from (payments for) designated funds, net 153 (827) Proceeds from Beverly Funding Corporation investment - 28,956 Other, net (5,740) (20,269) --------- --------- Net cash provided by (used for) investing activities (36,556) 14,159 Cash flows from financing activities: Proceeds from issuance of new debt 5,200 211,384 Repayments of long-term debt (11,625) (204,423) Proceeds from exercise of stock options 4,842 636 Deferred financing costs paid (305) (42,132) --------- --------- Net cash used for financing activities (1,888) (34,535) --------- --------- Net decrease in cash and cash equivalents (3,077) (42,352) Cash and cash equivalents at beginning of period 215,665 258,815 --------- --------- Cash and cash equivalents at end of period $212,588 $216,463 ========= ========= Supplemental schedule of cash flow information: Cash paid (received) during the year for: Interest, net of amounts capitalized $20,239 $26,105 Income tax payments (refunds), net (4,267) 4,372 Beverly Enterprises, Inc. 2005 and 2004 Continuing Operations EBITDA (as adjusted) Reconciliation (In millions) Quarter Ended June 30, --------------- 2005 2004 ------- ------- Revenues $564.1 $483.6 Less: Retroactive Indiana revenue adjustment 26.9 - ------- ------- Revenues, as adjusted $537.2 $483.6 EBITDA, as adjusted $62.8 $52.8 Less: Depreciation and amortization (17.4) (15.0) Interest expense, net (8.8) (10.8) Costs related to early extinguishment of debt - (40.3) Costs related to the sales process of the Company (6.3) - Add back: Retroactive Indiana adjustment, net 13.0 - ------- ------- Pre-tax income $43.3 $(13.3) ======= ======= Beverly Enterprises, Inc. Projected 2005 Continuing Operations EBITDA Range Reconciliation (In millions) Projected EBITDA $225.0 $230.0 Less: Depreciation and amortization (72.0) (72.0) Interest expense (43.0) (43.0) Add back: Interest income 6.0 6.0 ------- ------- Pre-tax income $116.0 $121.0 ======= ======= Beverly Enterprises, Inc. 2005 and 2004 Nursing EBITDA (as adjusted) Reconciliation (In millions) Quarter Ended June 30, --------------- 2005 2004 ------- ------- Revenues $499.2 $440.9 Less: Retroactive Indiana revenue adjustment 26.9 - ------- ------- Revenues, as adjusted $472.3 $440.9 EBITDA, as adjusted $54.6 $36.4 Less: Depreciation and amortization (15.0) (12.5) Interest expense, net (1.3) (1.6) Add back: Retroactive Indiana adjustment, net 13.0 - ------- ------- Pre-tax income $51.3 $22.3 ======= ======= BEVERLY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Quarter Ended Six Months Ended June 30, June 30, ------------------- --------------------- 2005 2004 2005 2004 --------- --------- ----------- --------- Revenues $564,098 $483,629 $1,122,266 $959,609 Costs and expenses: Wages and related 305,519 274,308 607,779 546,118 Provision for insurance and related items 27,547 30,584 57,032 58,176 Other operating and administrative 155,606 126,943 323,512 252,731 Depreciation and amortization 17,446 15,034 34,052 29,762 Asset impairments, workforce reductions and other unusual items 93 (1,023) (23) 1,801 --------- --------- ----------- --------- Total costs and expenses 506,211 445,846 1,022,352 888,588 --------- --------- ----------- --------- Income before other income (expenses) 57,887 37,783 99,914 71,021 Other income (expenses): Interest expense (10,779) (12,108) (21,347) (23,876) Costs related to early extinguishment of debt - (40,254) - (40,254) Interest income 1,964 1,320 4,027 2,843 Costs related to the sales process of the Company (6,331) - (25,052) - Net gains (losses) on dispositions 539 (5) 623 32 --------- --------- ----------- --------- Total other expenses, net (14,607) (51,047) (41,749) (61,255) --------- --------- ----------- --------- Income (loss) before provision for income taxes and discontinued operations 43,280 (13,264) 58,165 9,766 Provision for income taxes 1,731 1,060 3,278 2,502 --------- --------- ----------- --------- Income (loss) before discontinued operations 41,549 (14,324) 54,887 7,264 Discontinued operations, net of taxes: for the quarters 2005 - $137 and 2004 - $(78); for the six months 2005 - $(1,358) and 2004 - $345 4,570 (11,599) 5,888 (9,748) --------- --------- ----------- --------- Net income (loss) $46,119 $(25,923) $60,775 $(2,484) ========= ========= =========== ========= Net income (loss) per share of common stock: Basic: Before discontinued operations $0.38 $(0.13) $0.50 $0.07 Discontinued operations 0.04 (0.11) 0.06 (0.09) --------- --------- ----------- --------- Net income (loss) per share of common stock $0.42 $(0.24) $0.56 $(0.02) ========= ========= =========== ========= Shares used to compute basic net income (loss) per share 109,484 107,464 109,113 107,398 ========= ========= =========== ========= Diluted: Before discontinued operations $0.33 $(0.13) $0.45 $0.07 Discontinued operations 0.04 (0.11) 0.04 (0.09) --------- --------- ----------- --------- Net income (loss) per share of common stock $0.37 $(0.24) $0.49 $(0.02) ========= ========= =========== ========= Shares used to compute diluted net income (loss) per share 127,140 107,464 126,735 108,476 ========= ========= =========== ========= *T