BEI First-Quarter Results Reflect Strong Operating Trends

Share Name	Share Symbol	Market	Type
Beverly Enterprises	NYSE:BEV	NYSE	Ordinary Share

Beverly Enterprises (NYSE:BEV)
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Beverly Enterprises, Inc. (BEI) (NYSE: BEV) today announced that net income for the first quarter of 2005 totaled $14.7 million (12 cents per share diluted), compared to $23.4 million (20 cents per share diluted) in the same period of 2004. Net income for the 2005 quarter reflected: -- Expenses totaling $18.7 million (15 cents per share diluted) relating to the expression of interest in acquiring BEI and the resulting sales process, and -- Income of $7.4 million (6 cents per share diluted) due to retroactive Medicaid rate adjustments in Pennsylvania. Excluding these items, and on a continuing operations basis, net income totaled $24.6 million (20 cents per share diluted) in the 2005 first quarter, a 16 percent increase from $21.1 million during the year-earlier period. Revenues for the 2005 first quarter totaled $562.5 million, up 17 percent from $480.6 million in the same period in 2004. Excluding prior year Pennsylvania Medicaid adjustments, 2005 first-quarter revenues were up 9.6 percent from the year-earlier period. "We achieved double-digit percentage increases in both revenues and pre-tax income in all of our major business units -- Nursing Facilities, Aegis Therapies and AseraCare Hospice -- compared to the year-earlier period," said William R. Floyd, BEI Chairman and Chief Executive Officer. "These solid operating and financial improvements are particularly important considering the potential distraction posed by the expression of interest in acquiring our company and by the Board's decision to initiate a sales process. Our associates have been able, during this challenging period, to maintain a sharp focus on quality care and on implementing specific initiatives to profitably grow our businesses. Their dedication is reflected in strong results that exceeded our internal targets." Floyd continued: "Even excluding the favorable impact of retroactive increases in the Pennsylvania Medicaid rate, our overall EBITDA margin would have averaged 9.8 percent and EBITDA for the 2005 first quarter would have totaled $51.4 million. This strong start to the year reaffirms our 2005 EBITDA(a) guidance of $210 million to $215 million, even with the potential of a reduction in Medicare funding." (a) EBITDA is earnings from continuing operations before interest expense, interest income, taxes, depreciation and amortization; EBITDA for the 2005 first quarter has been adjusted to exclude expenses relating to the proxy contest and the sale of the company. EBITDA margin is EBITDA as a percentage of total revenues. FINANCIAL AND OPERATIONAL HIGHLIGHTS General -- 16 percent increase in 2005 first-quarter net income from continuing operations compared to prior-year period primarily reflects revenue and margin improvements in Nursing Facilities and Aegis Therapies (comparison excludes expenses related to sales process and the retroactive impact of Medicaid increases in Pennsylvania). -- EBITDA margin averaged 10.5 percent for the 2005 first quarter (excluding costs related to expression of interest / sales process). Also excluding prior-year Pennsylvania Medicaid adjustment, EBITDA margin averaged 9.8 percent. -- Interest expense down 10 percent from 2004 first quarter, reflecting refinancing of 9-5/8 percent Senior Notes in June 2004 and lower debt levels. First-quarter interest expense totaled $10.6 million in 2005, down from $11.8 million in 2004. -- Cash generated by operations in 2005 first quarter totaled $34.8 million, compared to a use of cash of $36.6 million in the 2004 period. (The 2004 first quarter included a use of funds totaling $56 million related to the Beverly Funding Corporation transaction.) -- Capital investments, primarily to support business unit growth initiatives, totaled $20.5 million in the 2005 first quarter, more than double the $9.8 million invested in the year-earlier period. Nursing Facilities -- The Pennsylvania Medicaid rate increase was retroactive to July 1, 2003 -- increasing 2005 first-quarter revenues by $35.7 million, and increasing related provider tax expenses by $28.3 million, for a net benefit of $7.4 million. -- Excluding the favorable impact of retroactive Pennsylvania Medicaid rate adjustments, 2005 first-quarter EBITDA increased 20.7 percent and EBITDA margin rose 114 basis points (compared to the year-earlier quarter). Including the Pennsylvania adjustment, EBITDA rose 42 percent and margins were up 196 basis points from the 2004 first quarter. -- EBITDA gains (excluding the Pennsylvania adjustment) reflect a 5.7 percent increase in revenues and improved patient mix. -- Occupancy in the 324 facilities in continuing operations increased 61 basis points (compared to the year-earlier period) to an average of 89.1 percent for the 2005 first quarter. -- Medicare patients as a percentage of patient days averaged 13.2 percent for the 2005 first quarter - the highest level ever. It was up 36 basis points from the 2004 first quarter and up 176 basis points from the 2004 fourth quarter. -- Medicare revenues as a percentage of total revenues averaged 30.8 percent for the 2005 first quarter -- the highest level in at least eight years. (Note: Revenue mix has been adjusted to exclude the prior-year impact of the Pennsylvania Medicaid increase.) This represents an increase of 187 basis points from the 2004 first quarter and a sequential increase of 176 basis points. -- Medicare revenues rose 7.5 percent, reflecting a 2.8 percent increase in rates (effective October 1, 2004) and treatment of higher acuity patients. Aegis Therapies / AseraCare Hospice -- Increase of 33 percent ($9 million) in Aegis Therapies third-party revenue over 2004 first quarter. This gain reflects a larger client base as well as a 5 percent growth in revenue per nursing home contract during the past 12 months. Client-initiated turnover averaged less than 2 percent for the quarter. -- EBITDA margin for Aegis increased slightly from the 2004 first quarter, primarily reflecting improved collections. Operating margins remained in the mid-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 first quarter. Retention of existing staff averaged 93 percent. -- AseraCare revenue more than doubled (compared to the 2004 first quarter), reflecting an increase of $8.8 million from the July 30 acquisition of Hospice USA and an increase of $4.1 million due to a gain in average daily census in other hospice locations. -- Average daily hospice census was 2,263, more than double the 2004 first quarter level -- reflecting the Hospice USA acquisition, as well as the opening of 15 additional hospice locations. Excluding the acquisition, average daily census was 1,332, up 35 percent from the year-earlier period. -- AseraCare currently has an additional six hospice locations under development. BEI stockholders may listen to a discussion by senior management of the company's performance at 8:30 a.m. ET today by dialing 1-800-946-0786 or 1-719-457-2662 and entering reservation number 7484812. A recording of this conference call will be available from 11:30 a.m. ET today until midnight May 14. Stockholders may dial 1-888-203-1112 or 1-719-457-0820 and enter reservation number 7484812 to access the recording. The statements in this document 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. Forward-looking statements 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. In addition, BEI's results of operations, financial condition and cash flows may be adversely impacted by the ongoing sales process. The sales process may impact BEI's ability to attract and retain customers, management and employees and will result in the incurrence of significant advisory fees, legal costs and other expenses. 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 March 31, 2005, it operated 346 skilled nursing facilities, as well as 18 assisted living centers, and 56 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. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Quarter Ended March 31, ------------------- 2005 2004 --------- --------- Revenues $562,480 $480,618 Costs and expenses: Wages and related 304,599 274,303 Provision for insurance and related items 29,920 28,356 Other operating and administrative 169,325 127,409 Depreciation and amortization 16,784 14,907 Asset impairments, workforce reductions and other unusual items (116) 2,824 --------- --------- Total costs and expenses 520,512 447,799 --------- --------- Income before other income (expenses) 41,968 32,819 Other income (expenses): Interest expense (10,597) (11,804) Interest income 2,063 1,523 Costs related to the sales process of the Company (18,721) - Net gains on dispositions 84 37 --------- --------- Total other expenses, net (27,171) (10,244) --------- --------- Income before provision for income taxes and discontinued operations 14,797 22,575 Provision for income taxes 1,547 1,442 --------- --------- Income before discontinued operations 13,250 21,133 Discontinued operations, net of taxes: 2005 - $(1,495) and 2004 - $423 1,406 2,306 --------- --------- Net income $14,656 $23,439 ========= ========= Net income per share of common stock: Basic: Before discontinued operations $0.12 $0.20 Discontinued operations 0.01 0.02 --------- --------- Net income per share of common stock $0.13 $0.22 ========= ========= Shares used to compute basic net income per share 108,738 107,331 ========= ========= Diluted: Before discontinued operations $0.11 $0.18 Discontinued operations 0.01 0.02 --------- --------- Net income per share of common stock $0.12 $0.20 ========= ========= Shares used to compute diluted net income per share 126,327 123,888 ========= ========= BEVERLY ENTERPRISES, INC. SUPPLEMENTARY INFORMATION Quarter Ended March 31, ----------------------- 2005 2004 ---------- ---------- Number of Nursing Home Facilities: Owned 264 272 Leased 82 96 ---------- ---------- Total 346 (1) 368 ========== ========== Number of Beds: Owned 27,423 28,325 Leased 9,118 10,566 ---------- ---------- Total 36,541 (1) 38,891 ========== ========== Assisted Living Centers 18 20 Hospice/Home Care Centers 56 24 Outpatient Clinics - 10 Patient Days 2,727,000 2,776,000 Nursing Home Occupancy - Continuing Ops (based on operational beds) 89.14% 88.53% Operational Beds 34,016 34,432 Patient Mix (based on patient days): Medicaid 69.98% 70.06% Medicare 13.21% 12.85% Private & Other 16.81% 17.09% Sources of Revenue (based on $): Medicaid 51.07% 49.61% Medicare 28.80% 28.88% Private & Other 20.13% 21.51% Nursing Average per diem rate (including ancillaries) $170.45 $158.07 Hospice Average Daily Census 2,263 984 Aegis Outside Contracts 598 547 Wages and related expenses as a % of revenues 54.15% 57.07% (1) 22 Nursing Home Facilities are held for sale as of March 31, 2005. BEVERLY ENTERPRISES, INC. SUPPLEMENTARY INFORMATION ANALYSIS OF REVENUES Quarter Ended March 31, --------------------------- 2005 2004 ------------- ------------- REVENUES (In thousands) ----------- NURSING FACILITIES: MEDICAID $ 287,346 $ 239,360 MEDICARE 122,217 113,742 PRIVATE & OTHER 91,309 86,886 ------------- ------------- SUBTOTAL 500,872 439,988 AEGIS THERAPIES 36,204 27,180 ASERACARE 24,043 10,970 OTHER 1,361 2,480 ------------- ------------- TOTALS $ 562,480 $ 480,618 ============= ============= NURSING PATIENT DAYS (In thousands) ------------------------ MEDICAID 1,908 1,945 MEDICARE 360 357 PRIVATE & OTHER 459 474 ------------- ------------- TOTALS 2,727 2,776 ============= ============= NURSING PER DIEM RATES (Including Ancillaries) ----------------------------- MEDICAID $ 131.47 $ 122.13 MEDICARE - PART A 339.29 318.84 PRIVATE & OTHER 161.97 153.37 ------------- ------------- TOTALS(1) $ 170.45 $ 158.07 ============= ============= (1) Weighted Average Rates BEVERLY ENTERPRISES, INC. SUPPLEMENTARY INFORMATION ANALYSIS OF OTHER OPERATING AND ADMINISTRATIVE EXPENSES (In thousands) Quarter Ended March 31, ------------------- 2005 2004 --------- --------- SUPPLIES $29,407 $28,228 FOOD 9,280 9,521 UTILITIES 15,113 16,075 OTHER CONTROLLABLES 54,767 49,438 REAL ESTATE RENTAL 7,839 7,350 EQUIPMENT RENTAL 5,236 4,132 OTHER NONCONTROLLABLES 47,683 12,665 --------- --------- TOTALS $169,325 $127,409 ========= ========= BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) March 31, December 31, 2005 2004 ----------- ------------ (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $233,810 $215,665 Accounts receivable - less allowance for doubtful accounts: 2005 - $25,715; 2004 - $26,320 276,269 235,477 Notes receivable, less allowance for doubtful notes: 2005 - $1,999 ; 2004 - $1,686 5,012 2,786 Operating supplies 9,145 9,181 Assets held for sale 11,443 14,898 Prepaid expenses and other 31,511 37,266 ----------- ------------ Total current assets 567,190 515,273 Property and equipment, net 657,368 653,656 Other assets: Goodwill, net 122,863 124,066 Other, less allowance for doubtful accounts and notes: 2005 - $1,654; 2004 - $1,538 69,746 68,390 ----------- ------------ Total other assets 192,609 192,456 ----------- ------------ $1,417,167 $1,361,385 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $75,440 $67,778 Accrued wages and related liabilities 84,623 104,037 Accrued interest 8,865 3,602 General and professional liabilities 57,099 54,216 Federal government settlement obligations 14,711 14,359 Liabilities held for sale - 676 Other accrued liabilities 126,310 83,097 Current portion of long-term debt 12,167 12,240 ----------- ------------ Total current liabilities 379,215 340,005 Long-term debt 543,931 545,943 Other liabilities and deferred items 200,692 203,024 Commitments and contingencies Stockholders' equity: Preferred stock, shares authorized: 25,000,000 - - Common stock, shares issued: 2005 - 117,956,353; 2004 - 116,621,715 11,796 11,662 Additional paid-in capital 908,179 902,053 Accumulated deficit (518,148) (532,804) Treasury stock, at cost: 8,283,316 (108,498) (108,498) ----------- ------------ Total stockholders' equity 293,329 272,413 ----------- ------------ $1,417,167 $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. See accompanying notes. BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Three Months Ended March 31, ------------------- 2005 2004 --------- --------- Cash flows from operating activities: Net income $14,656 $23,439 Adjustments to reconcile net income to net cash provided by (used for) operating activities, including discontinued operations: Depreciation and amortization 17,061 15,766 Provision for reserves on accounts, notes and other receivables, net 1,711 6,194 Amortization of deferred financing costs 653 624 Asset impairments, workforce reductions and other unusual items (323) 4,082 Costs related to the sales process of the Company 18,721 - Losses (gains) on dispositions of facilities and other assets, net 795 (4,508) Insurance related accounts 704 (572) Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable (43,227) (59,324) Operating supplies 62 104 Prepaid expenses and other receivables 3,141 3,923 Accounts payable and other accrued expenses 20,277 (21,602) Income taxes payable 2,178 (585) Other, net (1,639) (4,113) --------- --------- Total adjustments 20,114 (60,011) --------- --------- Net cash provided by (used for) operating activities 34,770 (36,572) Cash flows from investing activities: Capital expenditures (20,479) (9,777) Proceeds from dispositions of facilities and other assets, net 994 19,198 Collections on notes receivable 29 6,765 Proceeds from (payments for) designated funds, net 533 (714) Other, net 703 (3,746) --------- --------- Net cash provided by (used for) investing activities (18,220) 11,726 Cash flows from financing activities: Repayments of long-term debt (2,085) (3,629) Proceeds from exercise of stock options 3,884 293 Deferred financing costs paid (204) (406) --------- --------- Net cash provided by (used for) financing activities 1,595 (3,742) --------- --------- Net increase (decrease) in cash and cash equivalents 18,145 (28,588) Cash and cash equivalents at beginning of period 215,665 258,815 --------- --------- Cash and cash equivalents at end of period $233,810 $230,227 ========= ========= Supplemental schedule of cash flow information: Cash paid (received) during the year for: Interest, net of amounts capitalized $4,681 $5,218 Income tax payments (refunds), net (2,126) 2,450 See accompanying notes. Beverly Enterprises, Inc. 2005 and 2004 Continuing Operations EBITDA (as adjusted) Reconciliation (In millions) March 31, --------------- 2005 2004 ------- ------- Revenues $562.5 $480.6 Less: Retroactive Pennsylvania rate adjustment 35.7 - ------- ------- Revenues, as adjusted $526.8 $480.6 EBITDA, as adjusted $51.4 $47.8 Less: Depreciation and amortization 16.8 14.9 Interest expense, net 8.5 10.3 Costs related to the sales process of the Company 18.7 - Retroactive Pennsylvania rate adjustment (7.4) - ------- ------- Pre-tax income $14.8 $22.6 ======= ======= Excluding the costs related to the sales process of the Company only, our EBITDA was as follows: March 31, --------------- 2005 2004 ------- ------- Revenues $562.5 $480.6 EBITDA, as adjusted $58.8 $47.8 Less: Depreciation and amortization 16.8 14.9 Interest expense, net 8.5 10.3 Costs related to the sales process of the Company 18.7 - ------- ------- Pre-tax income $14.8 $22.6 ======= ======= Beverly Enterprises, Inc. Projected 2005 Continuing Operations EBITDA Range Reconciliation (In millions) Projected EBITDA $210.0 $215.0 Depreciation and amortization 73.0 73.0 Interest expense 43.0 43.0 Interest income (1.0) (1.0) ---------- ------- Pre-tax income $95.0 $100.0 ========== ======= Beverly Enterprises, Inc. 2005 and 2004 Nursing EBITDA (as adjusted) Reconciliation (In millions) March 31, -------------------- 2005 2004 ---------- --------- Revenues $500.9 $440.0 Less: Retroactive Pennsylvania rate adjustment 35.7 - ---------- --------- Revenues, as adjusted $465.2 $440.0 EBITDA, as adjusted $42.7 $35.4 Depreciation and amortization 14.4 12.7 Interest expense, net 1.4 1.4 Retroactive Pennsylvania rate adjustment (7.4) - ---------- --------- Pre-tax income $34.3 $21.3 ========== ========= Including the impact of the Pennsylvania retroactive rate increase, Nursing facilities EBITDA was: March 31, -------------------- 2005 2004 ---------- --------- Revenues $500.9 $440.0 EBITDA, as adjusted $50.1 $35.4 Depreciation and amortization 14.4 12.7 Interest expense, net 1.4 1.4 ---------- --------- Pre-tax income $34.3 $21.3 ========== ========= *T

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BEV Beverly Enterprises