BEI Third-Quarter Net Income Totals $22 Million; Revenues, EBITDA and Operating Margins Show Strong Gains

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 third quarter of 2005 totaled $22 million (18 cents per share diluted), compared to $24.4 million (20 cents per share diluted) in the same period of 2004. Net income for the two periods reflected the following: -- 2005 third-quarter expenses totaling $11.5 million (9 cents per share diluted) relating to the process of selling the company, -- reclassification of 22 nursing facilities in California to Continuing Operations, with results restated to reflect increases in Continuing Operations pre-tax income of $1.2 million for the 2005 third quarter and $1.3 million for the comparable 2004 period, and -- 2005 third-quarter pre-tax income of $2.9 million (2 cents per share diluted) due to retroactive Medicaid rate increases in California. Excluding sale-related expenses and the retroactive Medicaid increases, net income from continuing operations totaled $30.1 million (24 cents per share diluted) in the 2005 third quarter, a 28 percent increase from $23.5 million (20 cents per share diluted) in the year-earlier period. Discontinued operations (which no longer includes on-going California nursing facility results) accounted for income of $520,000 in the 2005 third quarter and $1.1 million in the comparable 2004 period. Revenues for the 2005 third quarter totaled $583.9 million, up 11 percent from $524.8 million in the same period in 2004. Excluding retroactive California Medicaid rate adjustments, 2005 third-quarter revenues were up 10 percent from the year-earlier period. For the first nine months - and excluding sale process expenses ($36.6 million or 29 cents per share diluted) and retroactive Medicaid rate adjustments in California, Pennsylvania and Indiana ($19.9 million or 16 cents per share diluted) - net income from continuing operations totaled $95.8 million (77 cents per share diluted) in 2005, a 35 percent increase from $71.1 million (59 cents per share diluted) from the comparable 2004 period (excluding early debt extinguishment costs in that year). Revenues for the first nine months of 2005 were up 15 percent from the year-earlier period (10 percent excluding retroactive Medicaid adjustments). "We achieved strong operating and financial results in all our major business units, compared to the 2004 third quarter," said William R. Floyd, BEI Chairman and Chief Executive Officer. "Revenue, EBITDA and operating margins were up significantly in Nursing Facilities, Aegis Therapies and AseraCare Hospice/Home Health. As a result, our total EBITDA for the third quarter was up 15 percent to $57.1 million and our overall EBITDA margin averaged 9.9 percent (comparison excludes impact of retroactive Medicaid rate adjustments). "EBITDA in our Nursing Facilities increased 19 percent, and the EBITDA margin was up a full percentage point - reflecting revenue increases, continuing improvement in patient mix and higher census levels. Aegis Therapies also recorded another strong quarter, as continuing growth in its client base contributed to substantial increases in EBITDA and EBITDA margin. AseraCare Hospice/Home Health revenues were up more than 50 percent, and both its EBITDA and EBITDA margin showed significant increases." Floyd continued: "Our performance continues to reflect fundamental operating improvements we've been making during the past three years, as well as initiatives we've developed to generate on-going profitable growth in all our businesses. I'm particularly proud of the results our associates have achieved this year - despite the challenges posed by the on-going sale process. They remain sharply focused on providing quality care and on accomplishing our financial objectives." Note: EBITDA is earnings from continuing operations before interest expense, interest income, taxes, depreciation and amortization; EBITDA for 2005 third 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 -- Third-quarter 2005 net income from continuing operations up 28 percent (comparison excludes sale process costs and retroactive Medicaid rate increases in California). -- Net income increase primarily reflects revenue, EBITDA and margin improvements in all three principal businesses - Nursing Facilities, Aegis Therapies and AseraCare Hospice/Home Health. -- Overall EBITDA margin averaged 9.9 percent for the 2005 third quarter, up more than 40 basis points from the year-earlier period (comparison excludes retroactive Medicaid revenues and sale expenses). -- Capital investments, primarily to support business unit growth, totaled $23 million in the 2005 third quarter, a 43 percent increase from the investments made in the year-earlier period. Nursing Facilities -- California Medicaid rate adjustment (retroactive to August 1, 2004) increased 2005 third-quarter revenue by $8 million and raised related provider tax expense by $3.1 million, for a net pre-tax income benefit of $4.9 million. This included a net adjustment to pre-tax income of $2.9 million related to prior periods. -- Excluding favorable impact of California rate adjustment, 2005 third-quarter EBITDA increased 19 percent and EBITDA margin rose 100 basis points (compared to year-earlier period). -- EBITDA gains (excluding retroactive California rate adjustment) primarily reflect 7.5 percent revenue increase, continuing improvements in patient mix and higher census. -- Occupancy in the 345 facilities in continuing operations rose 110 basis points (compared to the 2004 third quarter) to an average of 90.5 percent. Total nursing patient days also increased. -- Medicare patient days as a percentage of total patient days averaged 12.5 percent for the 2005 third quarter, up 130 basis points from the year-earlier period. -- Medicare revenues as a percentage of total revenues averaged 29.8 percent, up 240 basis points from the 2004 third 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). -- During the 2005 third quarter, Medicaid rate increases were approved for California that significantly improved the projected cash flows for Beverly's 22 remaining skilled nursing facilities in that state, which were being held for sale as part of Discontinued Operations. Primarily because the potential sales value is now expected to be less than the present value of expected future cash flows resulting from the higher rates, the Board of Directors approved termination of marketing efforts on these facilities, resulting in their reclassification as Continuing Operations. Results for both the 2005 and 2004 third quarter have been restated to reflect this change. Aegis Therapies / AseraCare -- Aegis Therapies third-party revenues increased 25 percent ($7.9 million) over 2004 third quarter. This gain reflects continuing growth in its client base as well as 4.4 percent volume-based growth in revenue per nursing home contract during the past 12 months. Client-initiated turnover averaged less than 2 percent for the quarter. -- Aegis raised its EBITDA significantly and also achieved a strong increase in its EBITDA margin from 2004 third-quarter levels, primarily due to lower bad debt expense associated with improved collections. Operating margins were in the high teens. -- Aegis continued to build a solid foundation for growth through aggressive hiring of therapists during the quarter, resulting in a 24 percent increase in full-time-equivalent staff (compared to the 2004 third quarter). Retention of existing staff averaged 88 percent. -- AseraCare Hospice/Home Health revenues increased 51 percent ($9.8 million) compared to the 2004 third quarter, including an increase of $3.6 million from the opening of 17 new hospice locations. -- AseraCare achieved substantial increases in both EBITDA and EBITDA margin. -- Average daily hospice census was 2,620, up 46 percent from the 2004 third-quarter level - reflecting a same-location increase in ADC of 25 percent and a 21 percent increase due to the opening of 17 new hospice locations during the past 12 months. -- AseraCare also opened three home health agencies during the quarter. BEI shareholders may listen to a discussion this morning by senior management of the company's performance at 8:30 a.m. ET by dialing 1-888-208-1812 or 1-719-457-2654 and entering reservation number 6347931. A recording of this conference call will be available from 11:30 a.m. ET today until midnight November 17. Shareholders may dial 1-888-203-1112 or 1-719-457-0820 and enter reservation number 6347931 to access the recording. FORWARD-LOOKING STATEMENTS 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 particular, statements regarding the consummation of the merger with North American Senior Care are subject to risks that the conditions to the transaction will not be satisfied, including the risk that regulatory approvals will not be obtained. In addition, our results of operations, financial condition and cash flows may be adversely impacted by the recently concluded auction process and the announcement of the proposed transaction with North American Senior Care, which may impact our ability to attract and retain customers, management and employees. We have incurred and will continue to incur advisory fees and other expenses relating to the auction process and the transaction with North American Senior Care. 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 September 30, 2005, it operated 345 skilled nursing facilities, as well as 18 assisted living centers, and 66 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 Nine Months Ended September 30, September 30, --------------------- --------------------- 2005 2004 2005 2004 ---------- ---------- ---------- ---------- Number of Nursing Home Facilities: Owned 263 264 263 264 Leased 82 91 82 91 ---------- ---------- ---------- ---------- Total 345 355 345 355 ========== ========== ========== ========== Number of Beds: Owned 27,079 27,327 27,079 27,327 Leased 9,110 10,004 9,110 10,004 ---------- ---------- ---------- ---------- Total 36,189 37,331 36,189 37,331 ========== ========== ========== ========== Assisted Living Centers 18 18 18 18 Hospice/Home Care Centers 66 45 66 45 Outpatient Clinics - 10 - 10 Continuing Operations: Nursing Patient Days 2,947,000 2,944,000 8,715,000 8,770,000 Nursing Home Occupancy (based on operational beds) 90.49% 89.43% 89.78% 88.98% Operational beds 35,423 35,776 35,423 35,776 Patient Mix (based on patient days): Medicaid 71.15% 72.08% 70.66% 71.34% Medicare 12.52% 11.21% 12.97% 11.93% Private & Other 16.33% 16.71% 16.37% 16.73% Sources of Revenue (based on $):(1) Medicaid 49.26% 51.52% 48.92% 51.07% Medicare 29.77% 27.33% 30.18% 27.82% Private & Other 20.97% 21.15% 20.90% 21.11% Nursing Average per diem rate (including ancillaries) $172.27 $159.68 $172.24 $158.94 Hospice Average Daily Census 2,620 1,792 2,436 1,293 Aegis Outside Contracts 627 592 627 592 Wages and related expenses as a % of revenues 56.71% 59.42% 55.13% 57.86% (1) Excludes the retroactive Medicaid rate adjustments in Indiana, Pennsylvania and California. BEVERLY ENTERPRISES, INC. SUPPLEMENTARY INFORMATION ANALYSIS OF REVENUES Quarter Ended Nine Months Ended September 30, September 30, ------------------- ----------------------- 2005 2004 2005 2004 --------- --------- ----------- ----------- REVENUES (In thousands) -------- NURSING FACILITIES: MEDICAID $290,586 $270,632 $ 894,287 $ 786,532 MEDICARE 125,051 108,149 383,829 338,759 PRIVATE & OTHER 97,630 94,181 286,235 276,255 --------- --------- ----------- ----------- SUBTOTAL 513,267 472,962 1,564,351 1,401,546 AEGIS THERAPIES 39,864 31,975 113,068 89,023 ASERACARE 28,876 19,062 79,225 42,214 OTHER 1,935 843 4,911 4,013 --------- --------- ----------- ----------- TOTALS $583,942 $524,842 $1,761,555 $1,536,796 ========= ========= =========== =========== NURSING PATIENT DAYS (In thousands) -------------------- MEDICAID 2,097 2,122 6,158 6,257 MEDICARE 369 330 1,130 1,046 PRIVATE & OTHER 481 492 1,427 1,467 --------- --------- ----------- ----------- TOTALS 2,947 2,944 8,715 8,770 ========= ========= =========== =========== NURSING PER DIEM RATES (Including Ancillaries) ---------------------- MEDICAID(1) $ 136.14 $ 126.04 $ 135.01 $ 124.38 MEDICARE - PART A 339.00 327.58 339.64 323.82 PRIVATE & OTHER 162.51 156.82 162.73 155.48 --------- --------- ----------- ----------- TOTALS(2) $ 172.27 $ 159.68 $ 172.24 $ 158.94 ========= ========= =========== =========== (1) Excludes the retroactive Medicaid rate adjustments in Indiana, Pennsylvania and California. (2 ) Weighted average rates BEVERLY ENTERPRISES, INC. SUPPLEMENTARY INFORMATION ANALYSIS OF OTHER OPERATING AND ADMINISTRATIVE EXPENSES (In thousands) Quarter Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- SUPPLIES $31,635 $29,062 $93,663 $87,231 FOOD 10,226 10,014 30,161 30,332 UTILITIES 14,668 13,206 44,344 42,176 OTHER CONTROLLABLES 60,346 55,356 175,010 162,014 REAL ESTATE RENTAL 8,958 8,457 26,408 25,150 EQUIPMENT RENTAL 5,516 4,801 15,872 13,524 OTHER NONCONTROLLABLES (1) 25,178 14,066 110,048 41,609 --------- --------- --------- --------- TOTALS $156,527 $134,962 $495,506 $402,036 ========= ========= ========= ========= (1) 2005 increases primarily relate to additional provider tax expense. BEVERLY ENTERPRISES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) September 30, December 31, 2005 2004 ------------- ------------- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $217,843 $215,665 Accounts receivable - less allowance for doubtful accounts: 2005 - $24,119; 2004 - $26,320 270,396 235,477 Notes receivable, less allowance for doubtful notes: 2005 - $2,717; 2004 - $1,686 4,729 2,786 Operating supplies 9,308 9,660 Assets held for sale - 3,542 Prepaid expenses and other 44,984 37,266 ------------- ------------- Total current assets 547,260 504,396 Property and equipment, net 672,583 664,311 Other assets: Goodwill, net 122,090 124,066 Other, less allowance for doubtful accounts and notes: 2005 - $1,027; 2004 - $1,538 69,614 68,612 ------------- ------------- Total other assets 191,704 192,678 ------------- ------------- $1,411,547 $1,361,385 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $66,541 $67,778 Accrued wages and related liabilities 93,617 104,037 Accrued interest 8,787 3,602 General and professional liabilities 58,187 54,216 Federal government settlement obligations 15,386 14,359 Liabilities held for sale - 676 Other accrued liabilities 105,341 83,097 Current portion of long-term debt 8,158 12,240 ------------- ------------- Total current liabilities 356,017 340,005 Long-term debt 536,544 545,943 Other liabilities and deferred items 153,366 203,024 Commitments and contingencies Stockholders' equity: Preferred stock, shares authorized: 25,000,000 - - Common stock, shares issued: 2005 - 117,812,924; 2004 - 116,621,715 11,781 11,662 Additional paid-in capital 912,400 902,053 Accumulated deficit (450,063) (532,804) Treasury stock, at cost: 8,283,316 (108,498) (108,498) ------------- ------------- Total stockholders' equity 365,620 272,413 ------------- ------------- $1,411,547 $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) Nine Months Ended September 30, --------------------- 2005 2004 ---------- ---------- Cash flows from operating activities: Net income $82,741 $21,916 Adjustments to reconcile net income to net cash provided by (used for) operating activities, including discontinued operations: Depreciation and amortization 53,973 47,656 Provision for reserves on accounts, notes and other receivables, net 6,530 10,772 Amortization of deferred financing costs 2,072 2,107 Asset impairments, workforce reductions and other unusual items 479 3,799 Costs related to early extinguishments of debt - 40,430 Costs related to the sales process of the Company 36,566 - Gains on dispositions of facilities and other assets, net (2,493) (455) Insurance related accounts (49,455) (12,833) Changes in operating assets and liabilities, net of acquisitions and dispositions: Accounts receivable (45,161) (53,955) Prepaid expenses and other receivables 933 8,139 Accounts payable and other accrued expenses (20,034) (23,140) Income taxes payable 3,081 (2,497) Other, net 1,872 (4,219) ---------- ---------- Total adjustments (11,637) 15,804 ---------- ---------- Net cash provided by operating activities 71,104 37,720 Cash flows from investing activities: Capital expenditures (68,194) (37,964) Payments for acquisitions, net of cash acquired - (71,479) Proceeds from dispositions of facilities and other assets, net 14,158 22,346 Collections on notes receivable 63 32,268 Payments for designated funds, net (185) (958) Proceeds from Beverly Funding Corporation investment - 28,956 Other, net (6,409) (24,316) ---------- ---------- Net cash used for investing activities (60,567) (51,147) Cash flows from financing activities: Proceeds from issuance of new debt 5,200 211,384 Repayments of long-term debt (18,681) (207,479) Proceeds from exercise of stock options 5,428 1,399 Deferred financing costs paid (306) (43,332) ---------- ---------- Net cash used for financing activities (8,359) (38,028) ---------- ---------- Net increase (decrease) in cash and cash equivalents 2,178 (51,455) Cash and cash equivalents at beginning of period 215,665 258,815 ---------- ---------- Cash and cash equivalents at end of period $217,843 $207,360 ========== ========== Supplemental schedule of cash flow information: Cash paid (received) during the year for: Interest, net of amounts capitalized $24,834 $30,969 Income tax payments (refunds), net (1,831) 5,821 Beverly Enterprises, Inc. 2005 and 2004 Continuing Operations EBITDA (as adjusted) Reconciliation (In millions) Quarter Ended September 30, ------------------- 2005 2004 ---------- -------- Revenues $583.9 $524.8 Less: Retroactive California revenue adjustment 5.0 - ---------- -------- Revenues, as adjusted $578.9 $524.8 EBITDA, as adjusted $57.1 $49.5 Less: Depreciation and amortization (19.4) (15.6) Interest expense, net (8.3) (9.8) Costs related to early extinguishment of debt - (0.2) Costs related to the sales process of the Company (11.5) - Add back: Retroactive California adjustment, net 2.9 - ---------- -------- Pre-tax income $20.8 $23.9 ========== ======== Beverly Enterprises, Inc. 2005 and 2004 Nursing EBITDA (as adjusted) Reconciliation (In millions) Quarter Ended September 30, ------------------- 2005 2004 --------- --------- Revenues $513.3 $473.0 Less: Retroactive California revenue adjustment 5.0 - --------- --------- Revenues, as adjusted $508.3 $473.0 EBITDA, as adjusted $51.4 $43.1 Less: Depreciation and amortization (16.9) (13.2) Interest expense, net (1.2) (1.3) Add back: Retroactive California adjustment, net 2.9 - --------- --------- Pre-tax income $36.2 $28.6 ========= ========= BEVERLY ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Quarter Ended Nine Months Ended September 30, September 30, ------------------- ----------------------- 2005 2004 2005 2004 --------- --------- ----------- ----------- Revenues $583,942 $524,842 $1,761,555 $1,536,796 Costs and expenses: Wages and related 331,126 311,850 971,216 889,193 Provision for insurance and related items 35,807 29,590 97,416 94,225 Other operating and administrative 156,527 134,962 495,506 402,036 Depreciation and amortization 19,355 15,624 53,621 45,863 Asset impairments, workforce reductions and other unusual items 504 (473) 479 1,122 --------- --------- ----------- ----------- Total costs and expenses 543,319 491,553 1,618,238 1,432,439 --------- --------- ----------- ----------- Income before other income (expenses) 40,623 33,289 143,317 104,357 Other income (expenses): Interest expense (10,704) (11,089) (32,051) (34,965) Costs related to early extinguishment of debt - (176) - (40,430) Costs related to the sales process of the Company (11,514) - (36,566) - Interest income 2,407 1,246 6,434 4,090 Net gains on dispositions 44 582 667 614 --------- --------- ----------- ----------- Total other expenses, net (19,767) (9,437) (61,516) (70,691) --------- --------- ----------- ----------- Income before provision for (benefit from) income taxes and discontinued operations 20,856 23,852 81,801 33,666 Provision for (benefit from) income taxes (590) 536 2,688 3,038 --------- --------- ----------- ----------- Income before discontinued operations 21,446 23,316 79,113 30,628 Discontinued operations, net of taxes: for the quarters 2005 - $(80) and 2004 - $(59); for the nine months 2005 - $(1,438) and 2004 - $286 520 1,084 3,628 (8,712) Net income $21,966 $24,400 $82,741 $21,916 ========= ========= =========== =========== Net income (loss) per share of common stock: Basic: Before discontinued operations $0.20 $0.22 $0.72 $0.28 Discontinued operations - 0.01 0.04 (0.08) --------- --------- ----------- ----------- Net income per share of common stock $0.20 $0.23 $0.76 $0.20 ========= ========= =========== =========== Shares used to compute basic net income (loss) per share 109,506 108,039 109,246 107,613 ========= ========= =========== =========== Diluted: Before discontinued operations $0.18 $0.19 $0.64 $0.27 Discontinued operations - 0.01 0.03 (0.07) --------- --------- ----------- ----------- Net income per share of common stock $0.18 $0.20 $0.67 $0.20 ========= ========= =========== =========== Shares used to compute diluted net income (loss) per share 127,184 124,493 126,862 124,105 ========= ========= =========== =========== *T

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BEV Beverly Enterprises