Contact: George V. Hager, Jr.
Executive Vice President & Chief Financial Officer
(610) 444-6350
GENESIS HEALTH VENTURES REPORTS THIRD QUARTER FISCAL 2003 RESULTS
o NeighborCare Reports Strong Growth in Revenues and Expanding
Margins
o Continued Improvement in Nursing Labor Cost Containment
o ElderCare Spin-Off on Target for October
KENNETT SQUARE, PA -- (August 5, 2003) -- Genesis Health Ventures, Inc. (NASDAQ:
GHVI) today announced income from continuing operations and net income of $12.4
million ($0.31 per share) and $6.5 million ($0.16 per share), respectively for
the quarter ended June 30, 2003. These results include the effect of certain
strategic planning, severance and other related costs, as well as tax gains
which are described below. Excluding the effect of these costs and gains, income
from continuing operations and net income on an as adjusted basis were $15.3
million ($0.38 per share) and $9.4 million ($0.23 per share), respectively for
the quarter ended June 30, 2003.
For the nine months ended June 30, 2003, income from continuing operations and
net income were $38.6 million ($0.94 per share) and $23.1 million ($0.56 per
share), respectively. These results also include the effect of certain strategic
planning, severance and other related costs and the impact of certain tax and
transactional gains which are described below. Excluding the effect of these
costs and gains, income from continuing operations and net income on an as
adjusted basis were $41.0 million ($0.99 per share) and $25.5 million ($0.62 per
share), respectively.
In addition to the Company's strategic related costs and gains described below,
the overall decline in earnings is due to the impact of the "Medicare Cliff",
which had the effect of reducing income from continuing operations by $3.7
million ($0.09 per share) for the third quarter of 2003 and $11.0 million ($0.27
per share) for the year-to-date period in 2003.
"Growth this quarter was driven by NeighborCare's increasing operational
strength with double-digit revenue growth and expanding margins," said Robert H.
Fish, Chairman and Chief Executive Officer. "ElderCare's performance was
strengthened this quarter by a continued reduction in our use of nursing agency
labor."
During the current and prior year periods, Genesis recognized costs associated
with the spin-off of its eldercare operations and the transformation of Genesis
to a pharmacy-based business. During the quarter and nine months ended June 30,
2003, such costs before income taxes were $11.5 million and $21.3 million,
respectively, compared to $12.6 million in the comparable periods of the prior
year. The significant level of strategic costs in the current year quarter of
$11.5 million is principally due to $7.2 million of costs to tender employee
stock options and restricted stock grants prior to the spin-off and the
remaining $4.3 million includes severance costs for a reduction in force and
spin-off related legal, accounting and other professional fees. In the prior
year quarter and nine months ended June 30, 2002, Genesis recognized $2.6
million and $4.3 million, respectively of debt restructuring and reorganization
costs. Also during these periods, Genesis recognized several significant
one-time gains. During the nine months ended June 30, 2003, Genesis realized
$11.3 million of gains, principally from a break-up fee associated with an
attempted pharmacy acquisition. During the three and nine months ended June 30,
2002, Genesis realized gains of $0.2 million and $21.9 million, respectively,
associated with an arbitration award. During the three and nine months ended
June 30, 2003 and 2002, Genesis realized reductions of income tax expense of
$4.4 million and $10.3 million, respectively due to changes in the tax law.
Consolidated Financial Summary
Consolidated revenues for the third quarter ended June 30, 2003 grew 6.5% to
$668.7 million versus $628.1 million in the comparable period in the prior year.
For the nine months ended June 30, 2003, revenues grew 5.3% to $1,957.2 million
versus $1,857.9 million in the comparable period in the prior year. Increased
revenues were primarily driven by growth in NeighborCare.
Consolidated EBITDA, as adjusted for the costs and gains described above, for
the third quarter ended June 30, 2003, was $53.9 million compared to $54.2
million for the same period in the prior year. The decline in EBITDA as adjusted
was caused by the impact of the Medicare Cliff, as described above, but was
offset by the growth in EBITDA of the pharmacy business.
Excluding the previously described impact of strategic planning, severance and
other related costs; debt restructuring and reorganization costs; and the tax
and transactional gains, results for the quarter ended June 30, 2003 as compared
to the same quarter in the prior year are presented below and have been labeled
'as adjusted'.
As reported As adjusted
Quarter ended Quarter ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Net Income (in millions) $6.5 $17.5 $9.4 $16.3
Net Income Per Share - Diluted $0.16 $0.42 $0.23 $0.39
Income from Continuing Operations
(in millions) $12.4 $18.1 $15.3 $17.0
Income from Continuing Operations
Per Share - Diluted $0.31 $0.43 $0.38 $0.41
EBITDA (in millions) $42.4 $39.3 $53.9 $54.2
See attached reconciliations on pages 8 - 9
NeighborCare
NeighborCare's revenues for the third quarter ended June 30, 2003 grew 11.7% to
$317.0 million versus $283.6 million in the comparable period in the prior year.
For the nine months ended June 30, 2003, revenues grew 9.5% to $914.9 million
versus $835.4 million in the comparable period in the prior year. NeighborCare's
revenue growth was driven not only by an increase in the number of beds served
this quarter versus the same period in the prior year, but also by an increase
in the revenue per bed. Growth in number of beds served is a result of a
reconfigured sales force, improved client retention and the addition of two new
pharmacy sites during the quarter. NeighborCare's increase in revenue per bed
was a result of further improvement in its quality mix, serving more skilled
nursing beds and fewer assisted living beds.
2
NeighborCare's EBITDA for the third quarter ended June 30, 2003 increased 22.3%
to $33.4 million compared to $27.3 million in the same period in the prior year.
For the nine months ended June 30, 2003, NeighborCare's EBITDA increased 15.2%
to $92.6 million compared to $80.4 million in the same period in the prior year.
Pharmacy EBITDA margins increased to 10.0% this quarter versus 8.8% in the
comparable quarter in the prior year and 9.6% last quarter. Margin increases in
the quarter are attributed to a previously announced margin expansion
initiative. This program is now operational in all seven pharmacy regions. John
J. Arlotta, Vice Chairman said, "We are very pleased with the progress we have
made thus far with our margin improvement program and feel we are well
positioned to continue to drive down our costs while maintaining our high
quality of service."
ElderCare
Inpatient revenues for the third quarter ended June 30, 2003 were consistent at
$303.6 million versus $302.7 million in the comparable period in the prior year.
For the nine months ended June 30, 2003, inpatient revenues were $905.2 million
compared to $899.3 million in the same period in the prior year. Despite the
Medicare Cliff, inpatient revenues increased as a result of improved rates from
private pay and Medicaid sources.
Inpatient EBITDA for the third quarter ended June 30, 2003 was $28.9 million
compared to $34.7 million in the same period in the prior year. For the nine
months ended June 30, 2003, inpatient EBITDA was $85.4 million compared to
$106.9 million in the same period in the prior year. The decline in EBITDA was
primarily driven by the impact of the Medicare Cliff, as previously discussed,
but was offset by moderating nursing labor costs, which grew 3.7% on a per
patient day basis in the current year quarter compared to the same period in the
prior year, and 5.6% in the current year-to-date period compared to the same
period last year. Agency labor costs also declined this quarter almost 40% over
the same period in the prior year. Overall nursing costs and the agency
component of those costs improved as a result of the Company's continued efforts
to efficiently manage overtime utilization and to reduce reliance on agency
staffing.
Quarter over quarter, overall nursing labor costs declined nearly 1% to $77.98
per patient day and agency labor costs declined 5.2% while maintaining the level
of nursing hours per patient day.
"The operating performance of the business that will form Genesis HealthCare
Corporation (GHC) continues to meet our expectations," stated George V. Hager
Jr., the appointed Chief Executive Officer of GHC. "Our occupancy levels
continue to exceed industry-averages, we have seen demonstrated success in our
labor staffing and scheduling cost-reduction initiatives, our rehabilitation
business continues to add new contracts and maintain productivity levels, and
overhead costs, both direct and indirect, have been consistent all year."
Reimbursement Update
On August 4, 2003, the Centers for Medicare & Medicaid Services (CMS) published
in the Federal Register the final fiscal year 2004 skilled nursing facility
prospective payment system rules effective October 1, 2003. The final rules make
two significant enhancements to the market basket adjusting the fiscal year 2004
base rates by 6.26% (3% increase in the annual update factor and a 3.26% upward
adjustment correcting for previous forecast errors). These two changes are
estimated to increase Medicare payment rates per patient day by $19. The final
rules also provide for the continuation through fiscal year 2004 of certain
payment add-ons which were authorized in the Balanced Budget Refinement Act of
1999 to compensate for non-therapy ancillaries.
3
The recent economic downturn has had a negative affect on most state revenues
and has put pressure on state budgets. Given that Medicaid outlays are a
significant component of state budgets, the Company expects continuing cost
containment pressures on Medicaid outlays in the states in which it operates.
State specific details are just emerging as state legislatures begin the task of
approving budgets. However, initial indication points to inflationary type
increases of 3 - 4% in most states as was previously anticipated.
Liability Insurance Update
During the quarter ended June 30, 2004, Genesis successfully renewed its
professional liability insurance coverage through May 31, 2004. Consistent with
the Company's previous program structure, Genesis retains self-insurance limits
of approximately $14.0 million with coverage in excess of the self-insured limit
of approximately $100.0 million through third-party carriers on both an
occurrence and aggregate basis. On a continuing operations basis, overall
pre-tax liability insurance expense increased approximately $3.0 million on an
annual basis in connection with the renewal.
Spin-Off Update
Genesis' spin-off of its ElderCare businesses is on track for October 2003.
Share Repurchase Program Update
On March 20, 2003, Genesis announced that its Board of Directors had authorized
the Company to repurchase up to $50.0 million of the Company's common stock. As
of June 30, 2003, Genesis had repurchased approximately $36.2 million of the
Company's common stock or 2.3 million shares of common stock, through privately
negotiated transactions and in the open market, representing 5.5% of the common
stock outstanding.
Discontinued Operations
On October 1, 2001, the Company adopted 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.
Outlook
The Company is reaffirming its guidance for fiscal year 2003. See earnings
guidance and related reconciliations on page 13.
Conference Call
Genesis Health Ventures will host a conference call and webcast at 9:30 a.m. EDT
on August 5, 2003 to discuss its financial results for the third quarter.
Investors can access the conference call by phone at (888) 276-0005 or live via
webcast through the home page of the Genesis web site at http://www.ghv.com. A
replay of the call will also be posted on the home page of the Genesis web site
at http://www.ghv.com.
4
About Genesis Health Ventures
Genesis Health Ventures (NASDAQ: GHVI) provides healthcare services to America's
elders through a network of NeighborCare pharmacies and Genesis ElderCare
skilled nursing and assisted living facilities. Other Genesis healthcare
services include rehabilitation and respiratory therapy, group purchasing, and
diagnostics.
Visit our website at http://www.ghv.com
------------------
# # #
Statements made in this release, 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" and
similar expressions. Such forward looking statements include, without
limitation, statements regarding expected changes in reimbursement rates,
inflationary increases in state Medicaid rates, self-insurance retention limits,
the effect and timing of the spin-off of our eldercare operation and guidance
for the fiscal year 2003. Factors that could cause actual results to differ
materially include, but are not limited to, the following: costs, delays and
other difficulties related to the spin-off, 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; changes in pharmacy
legislation and payment formulas; 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; an economic downturn or changes in the
laws affecting our business in those markets in which we operate; the terms of
any share repurchase; that there can be no assurance that any spin-off
transaction will be completed or completed in the expected timeframe and if
completed will increase shareholder value, and that there can be no assurance
that the proposed transaction with ElderTrust and the partnerships will be
completed, will be completed on the expected terms and in the expected timeframe
or will have the expected economic effect.
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.
# # #
5
GENESIS HEALTH VENTURES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Three Months Ended Three Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net revenues:
Inpatient services $ 303,645 $ 302,672
Pharmacy services 316,965 283,644
Other revenue 48,049 41,742
----------- -----------
Total net revenues 668,659 628,058
----------- -----------
Operating expenses:
Salaries, wages and benefits 279,202 262,234
Cost of sales 201,886 179,563
Other operating expenses 126,833 125,117
Strategic planning, severance and other related costs 11,474 12,568
Net gain from break-up fee and other settlements - (229)
Depreciation and amortization expense 16,622 15,077
Lease expense 6,879 6,971
Interest expense 9,848 9,459
----------- -----------
Income before debt restructuring and reorganization costs,
income tax expense, equity in net income of unconsolidated
affiliates and minority interests 15,915 17,298
Debt restructuring and reorganization costs - 2,570
----------- -----------
Income before income tax expense, equity in net income
of unconsolidated affiliates and minority interests 15,915 14,728
Income tax expense (benefit) 2,154 (4,567)
----------- -----------
Income before equity in net income of unconsolidated
affiliates and minority interests 13,761 19,295
Equity in net income of unconsolidated affiliates 569 99
Minority interests (1,272) (592)
----------- -----------
Income from continuing operations before preferred stock dividends 13,058 18,802
Preferred stock dividends 660 656
----------- -----------
Income from continuing operations 12,398 18,146
Loss from discontinued operations, net of taxes (5,926) (693)
----------- -----------
Net income attributed to common shareholders $ 6,472 $ 17,453
=========== ===========
Per Common Share Data:
Basic:
Income from continuing operations $ 0.31 $ 0.44
Loss from discontinued operations (0.15) (0.02)
Net income $ 0.16 $ 0.42
Weighted average shares 40,097,289 41,341,830
Diluted:
Income from continuing operations $ 0.31 $ 0.43
Loss from discontinued operations (0.15) (0.02)
Net income $ 0.16 $ 0.42
Weighted average shares - income from continuing operations 42,370,934 43,470,082
Weighted average shares - net income 40,097,289 43,470,082
6
GENESIS HEALTH VENTURES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Nine Months Ended Nine Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net revenues:
Inpatient services $ 905,178 $ 899,306
Pharmacy services 914,876 835,428
Other revenue 137,168 123,189
----------- -----------
Total net revenues 1,957,222 1,857,923
----------- -----------
Operating expenses:
Salaries, wages and benefits 832,670 775,141
Cost of sales 578,655 530,087
Other operating expenses 371,854 372,520
Strategic planning, severance and other related costs 21,312 12,568
Net gain from break-up fee and other settlements (11,337) (21,907)
Depreciation and amortization expense 48,817 44,387
Lease expense 20,782 20,055
Interest expense 30,657 31,386
----------- -----------
Income before debt restructuring and reorganization costs,
income tax expense, equity in net income of unconsolidated
affiliates and minority interests 63,812 93,686
Debt restructuring and reorganization costs - 4,270
----------- -----------
Income before income tax expense, equity in net income
of unconsolidated affiliates and minority interests 63,812 89,416
Income tax expense 20,834 24,562
----------- -----------
Income before equity in net income of unconsolidated
affiliates and minority interests 42,978 64,854
Equity in net income of unconsolidated affiliates 1,161 490
Minority interests (3,567) (1,344)
----------- -----------
Income from continuing operations before preferred stock dividends 40,572 64,000
Preferred stock dividends 2,009 1,916
----------- -----------
Income from continuing operations 38,563 62,084
Loss from discontinued operations, net of taxes (15,490) (4,089)
----------- -----------
Net income attributed to common shareholders $ 23,073 $ 57,995
=========== ===========
Per Common Share Data:
Basic:
Income from continuing operations $ 0.94 $ 1.51
Loss from discontinued operations (0.38) (0.10)
Net income $ 0.56 $ 1.41
Weighted average shares 41,135,170 41,211,603
Diluted:
Income from continuing operations $ 0.94 $ 1.48
Loss from discontinued operations (0.38) (0.09)
Net income $ 0.56 $ 1.38
Weighted average shares - income from continuing operations 43,378,463 43,339,666
Weighted average shares - net income 41,135,170 43,339,666
7
GENESIS HEALTH VENTURES, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
Reconciliation of net income, as reported to net income, as adjusted
(in thousands, except share and per share amounts) Three Months Ended Three Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net income available to common shareholders - as reported $ 6,472 $ 17,453
Add back:
Strategic planning, severance and other related costs 11,474 12,568
Net gain from break-up fee and other settlements - (229)
Debt restructuring and reorganization costs - 2,570
Tax impact of items added back above (4,085) (5,814)
Net tax benefit from change in tax law (4,443) (10,285)
----------- -----------
Net income - as adjusted $ 9,418 $ 16,263
Assumed conversion of preferred stock - 656
----------- -----------
Net income, as adjusted to calculate diluted per share results $ 9,418 $ 16,919
----------- -----------
Net income, as adjusted per share - diluted $ 0.23 $ 0.39
----------- -----------
Weighted average shares - diluted 40,097,289 43,470,082
=========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
Reconciliation of net income, as reported to income from
continuing operations, as reported and as adjusted (in Three Months Ended Three Months Ended
thousands, except share and per share amounts) June 30, 2003 June 30, 2002
------------- -----------
Net income available to common shareholders - as reported $ 6,472 $ 17,453
Add back:
Loss from discontinued operations, net of taxes 5,926 693
----------- -----------
Income from continuing operations - as reported $ 12,398 $ 18,146
Add back:
Strategic planning, severance and other related costs 11,474 12,568
Net gain from break-up fee and other settlements - (229)
Debt restructuring and reorganization costs - 2,570
Tax impact of items added back above (4,085) (5,814)
Net tax benefit from change in tax law (4,443) (10,285)
----------- -----------
Income from continuing operations - as adjusted $ 15,344 $ 16,956
Assumed conversion of preferred stock 660 656
----------- -----------
Income from continuing operations, as adjusted to calculate
diluted per share results $ 16,004 $ 17,612
----------- -----------
Income from continuing operations, as adjusted per share - diluted $ 0.38 $ 0.41
----------- -----------
Weighted average shares - diluted 42,370,934 43,470,082
=========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
Reconciliation of net income, as reported to net income, as adjusted
(in thousands, except share and per share amounts) Nine Months Ended Nine Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net income available to common shareholders - as reported $ 23,073 $ 57,995
Add back:
Strategic planning, severance and other related costs 21,312 12,568
Net gain from break-up fee and other settlements (11,337) (21,907)
NCS financing cost with pharmacy supplier (included in cost of sales) 601 -
Debt restructuring and reorganization costs - 4,270
Tax impact of items added back above (3,735) 1,977
Net tax benefit from change in tax law (4,443) (10,285)
----------- -----------
Net income - as adjusted $ 25,471 $ 44,618
Assumed conversion of preferred stock - 1,916
----------- -----------
Net income - as adjusted to calculate diluted per share results $ 25,471 $ 46,534
----------- -----------
Net income - as adjusted per share - diluted $ 0.62 $ 1.07
----------- -----------
Weighted average shares - diluted 41,135,170 43,339,666
=========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
Reconciliation of net income, as reported to income from
continuing operations, as reported and as adjusted (in Nine Months Ended Nine Months Ended
thousands, except share and per share amounts) June 30, 2003 June 30, 2002
------------- -------------
Net income available to common shareholders - as reported $ 23,073 $ 57,995
Add back:
Loss from discontinued operations, net of taxes 15,490 4,089
----------- -----------
Income from continuing operations - as reported $ 38,563 $ 62,084
Add back:
Strategic planning, severance and other related costs 21,312 12,568
Net gain from break-up fee and other settlements (11,337) (21,907)
NCS financing cost with pharmacy supplier (included in cost of sales) 601 -
Debt restructuring and reorganization costs - 4,270
Tax impact of items added back above (3,735) 1,977
Net tax benefit from change in tax law (4,443) (10,285)
----------- -----------
Income from continuing operations - as adjusted $ 40,961 $ 48,707
Assumed conversion of preferred stock 2,009 1,916
----------- -----------
Income from continuing operations - as adjusted to calculate
diluted per share results $ 42,970 $ 50,623
----------- -----------
Income from continuing operations - as adjusted per share - diluted $ 0.99 $ 1.17
----------- -----------
Weighted average shares - diluted 43,378,463 43,339,666
=========== ===========
- ------------------------------------------------------------------------------------------------------------------------------------
8
GENESIS HEALTH VENTURES, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
Reconciliation of net income to EBITDA as reported
and as adjusted (in thousands) Three Months Ended Three Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net income available to common shareholders - as reported $ 6,472 $ 17,453
Add back:
Loss from discontinued operations, net of taxes 5,926 693
Preferred stock dividends 660 656
Equity in net income or loss of unconsolidated affiliates (569) (99)
Minority interests 1,272 592
Income tax expense (benefit) 2,154 (4,567)
Interest expense 9,848 9,459
Depreciation and amortization expense 16,622 15,077
-------- --------
EBITDA - as reported $ 42,385 $ 39,264
Net expense (gain) from break-up fee and other settlements - (229)
Strategic planning, severance and other related costs 11,474 12,568
Debt restructuring and reorganization costs - 2,570
-------- --------
EBITDA - as adjusted $ 53,859 $ 54,173
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Reconciliation of net income to EBITDA as reported
and as adjusted (in thousands) Nine Months Ended Nine Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net income available to common shareholders - as reported $ 23,073 $ 57,995
Add back:
Loss from discontinued operations, net of taxes 15,490 4,089
Preferred stock dividends 2,009 1,916
Equity in net income of unconsolidated affiliates (1,161) (490)
Minority interests 3,567 1,344
Income tax expense 20,834 24,562
Interest expense 30,657 31,386
Depreciation and amortization expense 48,817 44,387
-------- --------
EBITDA - as reported $143,286 $165,189
Net gain from break-up fee and other settlements (11,337) (21,907)
Strategic planning, severance and other related costs 21,312 12,568
NCS financing cost with pharmacy supplier (included in cost of sales) 601 -
Debt restructuring and reorganization costs - 4,270
-------- --------
EBITDA - as adjusted $153,862 $160,120
======== ========
- ------------------------------------------------------------------------------------------------------------------------------------
9
GENESIS HEALTH VENTURES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND SEPTEMBER 30, 2002
(IN THOUSANDS)
June 30, 2003 September 30, 2002
------------- ------------------
Assets:
Current assets:
Cash and equivalents $ 134,086 $ 148,030
Restricted investments in marketable securities 16,350 15,074
Accounts receivable, net 363,854 369,969
Inventory 68,092 64,734
Prepaid expenses and other current assets 57,225 47,850
Assets held for sale - 46,134
---------- ----------
Total current assets 639,607 691,791
---------- ----------
Property, plant and equipment, net 744,711 795,928
Assets held for sale 18,276 -
Restricted investments in marketable securities 77,381 71,073
Other long-term assets 50,593 51,042
Investments in unconsolidated affiliates 11,942 14,143
Identifiable intangible assets, net 22,821 25,795
Goodwill 342,304 339,723
---------- ----------
Total assets $1,907,635 $1,989,495
========== ==========
Liabilities and Shareholders' Equity:
Current liabilities:
Current installments of long-term debt $ 46,649 $ 40,744
Accounts payable and accrued expenses 174,331 202,041
---------- ----------
Total current liabilities 220,980 242,785
---------- ----------
Long-term debt 575,702 648,939
Deferred income taxes 48,896 37,191
Self-insurance liability reserves 49,862 42,019
Other long-term liabilities 46,862 48,989
Minority interests 11,708 10,684
Redeemable preferred stock, including accrued dividends 46,723 44,765
Shareholders' equity 906,902 914,123
---------- ----------
Total liabilities and shareholders' equity $1,907,635 $1,989,495
========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Rollforward of book value per share
(in thousands) (in thousands)
--------------------- -------------- ------------------------
Shareholders' equity Common shares Book value per share (1)
--------------------- ------------ ------------------------
Balance at September 30, 2002 $914,123 41,501 $ 22.03
Net income attributed to common shareholders 23,073 -
Accumulated other comprehensive loss (3,218) -
Issuance of common stock 9,131 534
Repurchase of common stock (36,207) (2,299)
-------- ---------- ----------
Balance at June 30, 2003 $906,902 39,736 $ 22.82
======== ========== ==========
(1) Excluding redeemable preferred stock.
10
GENESIS HEALTH VENTURES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED JUNE 30, 2003 AND 2002
(IN THOUSANDS)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- -------------
Cash flows from operating activities:
Net income attributed to common shareholders $ 6,472 $ 17,453 $ 23,073 $ 57,995
Net charges included in operations not requiring funds 33,237 58,309 96,256 118,204
Changes in assets and liabilities:
Accounts receivable (1,093) (4,887) (23,835) (21,134)
Accounts payable and accrued expenses (8,984) (486) (16,606) 24,099
Refinancing of pharmacy supplier credit terms - - - (42,000)
Receipt of break-up fee, net of costs - - 10,580 -
Other, net (11,434) (4,952) (6,673) (4,827)
-------- -------- --------- ---------
Net cash provided by operating activities before
debt restructuring and reorganization costs 18,198 65,437 82,795 132,337
-------- -------- --------- ---------
Cash paid for debt restructuring and reorganization costs (684) (12,117) (1,677) (44,299)
-------- -------- --------- ---------
Net cash provided by operating activities 17,514 53,320 81,118 88,038
-------- -------- --------- ---------
Cash flows from investing activities:
Capital expenditures (15,544) (12,981) (42,496) (32,954)
Net sales (purchases) of restricted marketable securities (6,463) 317 (7,372) (12,722)
Acquisition of rehabilitation services business (482) - (5,918) -
Sale (purchase) of eldercare assets 25,567 - 55,123 (10,453)
Other 2,403 152 8,425 5,397
-------- -------- --------- ---------
Net cash provided by (used in) investing activities 5,481 (12,512) 7,762 (50,732)
-------- -------- --------- ---------
Cash flows from financing activities:
Repayment of long-term debt and payment of sinking
fund requirements (3,121) (11,619) (66,617) (45,968)
Proceeds from issuance of long-term debt - - - 80,000
Repurchase of common stock (19,269) - (36,207) -
-------- -------- --------- ---------
Net cash (used in) provided by financing activities (22,390) (11,619) (102,824) 34,032
-------- -------- --------- ---------
Net increase (decrease) in cash and equivalents $ 605 $ 29,189 $ (13,944) $ 71,338
Cash and equivalents:
Beginning of period 133,481 $ 74,288 148,030 32,139
-------- -------- --------- ---------
End of period $134,086 $103,477 $ 134,086 $ 103,477
======== ======== ========= =========
11
GENESIS HEALTH VENTURES, INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Segment Data (dollars in thousands) June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------- ------------- ------------- -------------
Inpatient services
Revenue $ 303,645 $ 302,672 $ 905,178 $ 899,306
EBITDA - $ 28,869 34,708 85,433 106,888
EBITDA - % 9.5% 11.5% 9.4% 11.9%
Pharmacy services (including intersegment amounts)
Revenue $ 336,077 $ 310,321 $ 973,650 $ 914,981
EBITDA - $ 33,446 27,276 92,649 80,407
EBITDA - % 10.0% 8.8% 9.5% 8.8%
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Selected Operating Statistics June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
------------ ------------- ------------- -------------
Occupancy 91.0% 91.7% 91.1% 92.0%
Patient Days:
Private and other 319,698 340,639 972,977 1,042,510
Medicare 260,218 258,331 766,974 734,327
Medicaid 1,040,373 1,033,389 3,129,320 3,140,564
---------- ---------- ---------- ----------
Total Days 1,620,289 1,632,359 4,869,271 4,917,401
========== ========== ========== ==========
Per Diems:
Private and other $ 202.64 $ 197.30 $ 202.17 $ 196.47
Medicare 313.87 336.58 312.13 340.79
Medicaid 145.85 138.20 144.91 136.07
Nursing labor costs per patient day:
Employed labor $ 72.33 $ 65.98 $ 71.62 $ 64.46
Agency labor 5.65 9.20 6.21 9.22
---------- ---------- ---------- ----------
Total $ 77.98 $ 75.18 $ 77.83 $ 73.68
========== ========== ========== ==========
Pharmacy beds served 253,416 248,746 250,961 250,314
Institutional pharmacy revenue per bed $ 1,158 $ 1,099 $ 3,392 $ 3,207
12
GENESIS HEALTH VENTURES, INC.
EARNINGS GUIDANCE (UNAUDITED)
FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2003
Reconciliation of GAAP to non-GAAP Low end High end
projected earnings guidance of range of range
------------------------ -----------------------------
$ $ per share * $ $ per share *
------------------------ -----------------------------
Projected net income (GAAP) $ 32,924 $0.83 $ 35,081 $ 0.88
Add back:
Strategic planning, severance and other related costs 28,312 28,312
Net gain from break-up fee and other settlements (11,337) (11,337)
NCS financing cost with pharmacy supplier (included in cost of sales) 601 601
Tax impact of items added back above (4,905) (4,905)
Net tax benefit from change in tax law (4,443) (4,443)
--------------------- -------------------
Projected net income - as adjusted (non-GAAP) $ 41,152 $1.02 $ 43,309 $ 1.07
===================== ====================
Projected net income (GAAP) $ 32,924 $0.83 $ 35,081 $ 0.88
Add back:
Loss from discontinued operations 15,677 15,677
--------------------- --------------------
Projected income from continuing operations (GAAP) $ 48,601 $1.19 $ 50,758 $ 1.24
Add back:
Strategic planning, severance and other related costs 28,312 28,312
Net gain from break-up fee and other settlements (11,337) (11,337)
NCS financing cost with pharmacy supplier (included in cost of sales) 601 601
Tax impact of items added back above (4,905) (4,905)
Net tax benefit from change in tax law (4,443) (4,443)
--------------------- --------------------
Projected income from continuing operations - as adjusted (non-GAAP) $ 56,830 $1.38 $ 58,986 $ 1.43
===================== ====================
* - $ per common share on a diluted basis, assuming the conversion of redeemable
preferred stock to common stock.
13