Exhibit 99.1
American Retirement Corporation Reports Second
Quarter and Year-to-Date 2005 Results
NASHVILLE, Tenn.--(BUSINESS WIRE)--Aug. 4, 2005--American
Retirement Corporation (NYSE:ACR):
-- Reported diluted earnings per share of $1.82 for the second
quarter and $1.96 year-to-date.
-- Items impacting comparability provided a net benefit of $1.69
per share in the second quarter, yielding $.13 per share
without the items.
-- Free cash flow was $6 million for the second quarter.
-- Occupancy averaged 94%, up from 92% for last year's second
quarter.
American Retirement Corporation (NYSE:ACR) today reported second
quarter 2005 diluted earnings of $1.82 per share, compared with a $.09
per share loss for the prior year second quarter. Second quarter 2005
results included a benefit of $1.71 per share due to the recognition
of certain tax benefits and a debt extinguishment cost of $.02 per
share related to the early repayment of a note.
Bill Sheriff, Chairman, President and CEO of the company,
commented, "During the second quarter, we had solid operating results
and completed transactions consistent with our strategic initiatives
of freeing restricted cash, expanding our unit capacity, increasing
the mix of owned units versus leased, and improving our balance sheet.
Again, our operations showed strong increases in revenue and operating
contribution per unit. With occupancies holding strong, and by
expanding ancillary services and maintaining good cost control,
revenues increased by 10% over the second quarter of 2004 and the
operating contribution increased 16%."
"We completed three transactions during the quarter that released
$13 million of restricted cash and created the opportunity for
additional releases in the future. We used those funds plus the
company's positive cash flow to pay down debt, to buyout a lessor's
and a joint venture partner's interest in two communities, and to fund
development. The buyouts were both accretive and facilitated the
planned expansion of those communities. We also announced the start of
construction of a number of community expansions and we made good
progress on a number of development projects. Finally, with our
improved financial results and our future prospects, we were able to
recognize certain tax benefits through the income statement into
shareholders' equity and end the quarter with shareholders' equity of
$120 million."
(All references to growth rate percentage compare the results of
the current period to the prior year comparable period.)
Financial Highlights
-- $122 million of total revenue for the second quarter of 2005,
a 10% increase.
-- Net income of $59 million ($1.82 per diluted share) versus a
loss of $2.3 million.
-- Free cash flow for the second quarter of $6 million.
-- An operating contribution from the company's three business
segments of $41 million, an increase of 16%.
Operational Highlights
-- Occupancy was 94% with the company's large retirement
communities ending the quarter at 95% and the free-standing
assisted living communities ending at 90%.
-- Retirement Centers produced a 7% increase in average monthly
revenue per occupied unit, and a 7% increase in operating
contribution per occupied unit.
-- Free-standing assisted living communities produced an 8%
increase in average monthly revenue per occupied unit, and a
39% increase in operating contribution per occupied unit.
Operating Review
The company operates in three business segments:
-- The Retirement Centers ("Retirement Centers") include CCRCs
(continuing care retirement centers), Entrance-Fee Communities
("EF Communities") and congregate living residences.
-- Free-standing assisted living communities ("Free-standing
AL's") are smaller than Retirement Centers and provide
assisted living and specialized care such as Alzheimer's and
memory enhancement programs.
-- The Management Services segment includes fees from management
agreements for communities owned by others and reimbursed
expenses.
The results for the company's three operating segments for the
second quarter of 2005 were as follows:
Three months ended
($ in 000's) June 30,
- ---------------------------------- ------------------- $ %
2005 2004 Change Change
- ---------------------------------- ---------- -------- ------- -------
Resident & Healthcare revenue $120,641 $109,110 11,531 10.6%
- ---------------------------------- ---------- -------- ------- -------
Community operating expense $ 79,896 $ 74,065 5,831 7.9%
- ---------------------------------- ---------- -------- ------- -------
Community operating contribution $ 40,745 $ 35,045 5,700 16.3%
- ---------------------------------- ---------- -------- ------- -------
Community operating margin 33.8% 32.1%
- ---------------------------------- ---------- -------- ------- -------
Management Services op.
contribution $ 516 $ 515 1 0.2%
- ---------------------------------- ---------- -------- ------- -------
Retirement Centers Segment
The company's 29 Retirement Centers exhibited strong increases in
revenue and operating contribution for the second quarter of 2005 as
follows:
Retirement Centers ($ in 000's): Three Months Ended:
June 30,
- ------------------------------------------------------- $ %
2005 2004 Change Change
- --------------------------------------- ------- ------- ------ -------
Revenues $93,794 $85,578 8,216 9.6%
- --------------------------------------- ------- ------- ------ -------
Community Operating Contribution(1) $31,925 $29,032 2,893 10.0%
- --------------------------------------- ------- ------- ------ -------
Operating contribution margin 34.0% 33.9%
- --------------------------------------- ------- ------- ------ -------
% Ending Occupancy 95% 95%
- --------------------------------------- ------- ------- ------ -------
(1) The company evaluates the performance of its business segments,
primarily, based upon their operating contributions, which the
company defines as revenue from the segment less operating
expenses associated with that segment.
The Retirement Center segment continued to produce strong revenue
gains.
-- Ending occupancy was 95%, level with the second quarter of
2004, though the number of occupied units increased 2% due to
the acquisition of Galleria Woods in the first quarter.
-- The Retirement Centers ended the quarter with 97% occupancy in
independent living, 93% in assisted living and 87% in skilled
nursing.
-- Average monthly revenue per occupied unit increased 7% during
the quarter to $3,647 versus prior year - due to increases in
monthly service fees and per diem rates in skilled nursing,
turnover of residents (the "Mark to Market" effect of
reselling or reletting units at higher current rates) and
increased ancillary services, primarily driven by the
company's Innovative Senior Care education and wellness
programs.
The operating contribution for Retirement Centers for the second
quarter of 2005 was almost $32 million, a 34% margin. This represented
a $2.9 million increase or 10% increase over the prior year's second
quarter. The Retirement Centers continue to increase the monthly
operating contribution per occupied unit, hitting $1,241 per unit in
the second quarter of 2005, a 7% improvement from the prior year's
second quarter.
Free-standing AL's Segment
The company's 31 Free-standing AL's exhibited strong increases in
revenue and operating contribution for the second quarter of 2005 as
follows:
Free-standing AL ($ in 000's): Three Months Ended:
June 30,
- ------------------------------------------------------ $ %
2005 2004 Change Change
- -------------------------------------- ------- ------- ------- -------
Revenues $26,847 $23,532 3,315 14.1%
- -------------------------------------- ------- ------- ------- -------
Community Operating Contribution(1) $ 8,820 $ 6,013 2,807 46.7%
- -------------------------------------- ------- ------- ------- -------
Operating contribution margin 32.9% 25.6%
- -------------------------------------- ------- ------- ------- -------
% Ending Occupancy 90% 86%
- -------------------------------------- ------- ------- ------- -------
Note (1): Includes results of 31 Free-standing AL's and excludes
two non-consolidated Free-standing AL's held in joint
ventures
Revenue from the Free-standing AL segment increased 14% to $27
million.
-- Average occupancy for the Free-standing AL portfolio was 90%
for the second quarter, up from 86% a year ago and up from 89%
in the first quarter of 2005.
-- The average monthly revenue per occupied unit increased 8% to
$3,500, up from $3,228 per month in June 2004. The revenue per
occupied unit increase was due to rate increases, reduced
discounts and promotional allowances, increased care services
and turnover of residents (the "Mark to Market" effect of
reletting units at higher current rates).
-- The increased use of ancillary services, particularly
Innovative Senior Care education and wellness services, also
contributed significantly to the revenue increase for this
segment.
The operating contribution for Free-standing AL's for the second
quarter of 2005 was almost $9 million, a 33% margin. This represented
a $2.8 million or 47% increase over the prior year's second quarter.
The Free-standing AL's continue to increase the monthly operating
contribution per occupied unit, hitting $1,150 per unit in the second
quarter of 2005, a 39% improvement from the prior year's second
quarter. For six months year-to-date, over 72% of the incremental
revenue from the Free-standing AL segment fell to operating
contribution.
Management Services Segment
The company's Management Services business segment includes
management contracts on five Retirement Centers and two Free-standing
AL's, with an aggregate capacity of 1,351 units. The Management
Services segment had an operating contribution of $.5 million in the
second quarter of 2005, level with the same prior-year period.
Financial Review
Revenues for the quarter increased 10% to $122 million versus the
prior year quarter, reflecting the increased average occupied units,
the incremental rate increase from new residents, rate increases to
existing residents and increased ancillary services. Ancillary
services revenue was almost $20 million for the quarter, up from $16
million a year ago. Ancillary services revenue currently comprises 16%
of total revenue.
Community operating expenses increased 8% for the quarter versus
the prior year period, while revenue increased 10%, evidencing good
cost control and the low incremental cost of additional occupancy.
General and administrative expenses increased 11%, reflecting the
growth of the Company's business as well as almost $300,000 of
unexpected costs related to accounting restatement activities.
Net income for the second quarter of 2005 was $59 million or $1.82
per diluted share, compared with a loss of $2 million for the prior
year's second quarter. The second quarter included a benefit of $56
million, $1.71 per share, due to certain tax benefits that had not
previously been recognized as a result of the Company's losses during
the relevant time periods. As a result of the Company's improved
financial results and its expectations for continued financial
improvement, the Company believes that it is more likely than not that
it will recognize the benefits of its deferred tax assets. As such,
the Company recognized the income tax benefit on its second quarter
income statement. The benefit is a non-cash GAAP accounting item that
increased the Company's shareholders' equity to $120 million as of
June 30, 2005. The tax benefit was partially offset by a $794,000
non-cash charge related to the second quarter repayment of a debt.
Free cash flow was $6 million for the second quarter, versus $4
million for the second quarter of 2004. For the six months ended June
30, free cash flow was $9 million versus $5 million for the same prior
year period. The primary drivers of the increased cash flow were
increased operating income and entrance fee sale proceeds, net of
refunds.
2005 Earnings Outlook
The company expects to report net earnings per diluted share of
$0.46 to $0.49 for 2005, excluding the effect of the second quarter
tax benefit.
Conference Call Information
American Retirement Corporation will hold a conference call with
Bill Sheriff, Chairman, President and Chief Executive Officer, and
Bryan Richardson, Chief Financial Officer, to discuss the company's
2005 second-quarter financial results and the other matters described
above. The call will be held on Thursday, August 4, 2005 at 11:00 a.m.
ET and parties may participate by either calling (877) 252-6354 or
through the company's website at www.arclp.com. Click on the broadcast
icon to listen to the earnings call - Windows Media Player(TM) is
required to listen to this webcast. In addition, the call will be
archived on the company's website until the next regularly scheduled
earnings conference call. If any material information is disclosed on
the conference call that has not been previously disclosed publicly,
that information will also be available at the Investors Welcome
portion of the company's website.
Additional Filings
The company will file on or about August 4, 2005 a Form 8-K with
the SEC which includes supplemental information relating to the
company's second quarter 2005 results. These filings will also be
available through the Investors Welcome section of the company's
website - www.arclp.com.
Company Profile
American Retirement Corporation is a national senior living and
health care services provider offering a broad range of care and
services to seniors, including independent living, assisted living,
skilled nursing and Alzheimer's care. Established in 1978, the company
believes that it is a leader in the operation and management of senior
living communities, including independent living communities,
continuing care retirement communities, Free-standing AL's, and the
development of specialized care programs for residents with
Alzheimer's and other forms of dementia. The company's operating
philosophy is to enhance the lives of seniors by striving to provide
the highest quality of care and services in well-operated communities
designed to improve and protect the quality of life, independence,
personal freedom, privacy, spirit, and dignity of its residents. The
company currently operates 67 senior living communities in 14 states,
with an aggregate unit capacity of approximately 13,200 units and
resident capacity of approximately 14,900. The company owns 18
communities, leases 43 communities, and manages six communities
pursuant to management agreements. Approximately 84% of the company's
revenues come from private pay sources.
Risks of Forward Looking Statements
Statements contained in this press release and statements made by
or on behalf of American Retirement Corporation relating hereto may be
deemed to constitute forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Those forward-looking statements include all statements that
are not historical statements of fact and those regarding the intent,
belief or expectations of the company or its management, including,
without limitation, all statements regarding the company's future
operating and financial expectations. These forward-looking statements
may be affected by certain risks and uncertainties, including without
limitation the following: (i) the risk associated with the company's
significant leverage, (ii) the company's ability to sell its entrance
fee units and to increase occupancy at the company's communities
(especially its Free-standing AL's), (iii) the risk that the company
will be unable to improve the company's results of operations,
increase cash flow and reduce expenses, (iv) the risks associated with
adverse market conditions of the senior housing industry and the
United States economy in general, (v) the risk that the company is
unable to obtain liability insurance in the future or that the costs
thereof (including deductibles) will be prohibitive, (vi) the
company's ability to obtain new financing or extend and/or modify
existing debt and (vii) the risk factors described in the company's
Annual Report on Form 10-K/A for the year ended December 31, 2004
under the caption "Risk Factors" and in the company's other filings
with the SEC. In light of the significant uncertainties inherent in
the forward-looking statements included herein, the company's actual
results could differ materially from such forward-looking statements.
The company does not undertake any obligation to publicly release any
revisions to any forward-looking statements contained herein to
reflect events and circumstances occurring after the date hereof or to
reflect the occurrence of unanticipated events.
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three months ended Increase
June 30, (Decrease)
-------------------- -----------------
2005 2004 $ %
-------- -------- ------- --------
Revenues: (restated)
Resident and health care $120,641 $109,110 $11,531 10.6%
Management services 516 515 1 0.2%
Reimbursed expenses 542 524 18 3.4%
-------- -------- ------- --------
Total revenues 121,699 110,149 11,550 10.5%
Operating expenses:
Community operating expenses 79,896 74,065 5,831 7.9%
General and administrative 6,765 6,114 651 10.6%
Lease expense 15,445 14,872 573 3.9%
Depreciation and amortization 8,773 6,547 2,226 34.0%
Amortization of leasehold
acquisition costs 689 728 (39) -5.4%
Loss (gain) on sale of assets 344 (6) 350 5833.3%
Reimbursed expenses 542 524 18 3.4%
-------- -------- ------- --------
Total operating expenses 112,454 102,844 9,610 9.3%
-------- -------- ------- --------
Operating income 9,245 7,305 1,940 26.6%
Other income (expense):
Interest expense (3,916) (8,932) 5,016 56.2%
Interest income 874 669 205 30.6%
Other 5 (364) 369 101.4%
-------- -------- ------- --------
Other expense, net (3,037) (8,627) 5,590 64.8%
-------- -------- ------- --------
Income (loss) before income
taxes and minority interest 6,208 (1,322) 7,530 569.6%
Income tax (benefit) expense (53,392) 75 53,467 71289.3%
-------- -------- ------- --------
Income (loss) from
continuing operations
before minority interest 59,600 (1,397) 60,997 4366.3%
Minority interest in earnings
of consolidated subsidiaries,
net of tax (600) (863) 263 30.5%
-------- -------- ------- --------
Net income (loss) $ 59,000 $ (2,260) $61,260 2710.6%
======== ======== ======= ========
Basic income (loss) per share $ 1.90 $ (0.09)
======== ========
Diluted income (loss) per
share $ 1.82 $ (0.09)
======== ========
Weighted average shares used
for basic earnings (loss) per
share data 31,053 24,290
Effect of dilutive common stock
options 1,278 -
-------- --------
Weighted average shares used
for diluted earnings (loss)
per share data 32,331 24,290
======== ========
- ------------------------------- -------------------
June 30, December 31,
2005 2004
--------- ----------
Selected Balance Sheet Data:
Cash and cash equivalents $ 46,472 $ 28,454
Restricted cash 39,054 50,134
Working capital deficit (87,180) (98,995)
Land, buildings and
equipment, net 516,786 496,297
Total assets 829,437 749,250
Long-term debt and lease
financing obligations,
including current portion 296,658 335,082
Refundable portion of
entrance fees 83,556 79,148
Current portion of deferred
entrance fee income 35,732 33,800
Long-term deferred entrance
fee income 121,258 111,386
Deferred gain on sale lease-
back transactions 92,965 98,876
Shareholders' equity 120,278 5,701
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Six months ended Increase
June 30, (Decrease)
-------------------- -----------------
2005 2004 $ %
-------- -------- ------- --------
Revenues: (restated)
Resident and health care $238,330 $217,061 $21,269 9.8%
Management services 1,016 939 77 8.2%
Reimbursed expenses 1,344 1,292 52 4.0%
-------- -------- ------- --------
Total revenues 240,690 219,292 21,398 9.8%
Operating expenses:
Community operating expenses 159,233 147,917 11,316 7.7%
General and administrative 13,356 12,702 654 5.1%
Lease expense 30,955 29,693 1,262 4.3%
Depreciation and amortization 18,044 13,460 4,584 34.1%
Amortization of leasehold
acquisition costs 1,388 1,446 (58) -4.0%
Loss (gain) on sale of assets 356 (111) 467 420.7%
Reimbursed expenses 1,344 1,292 52 4.0%
-------- -------- ------- --------
Total operating expenses 224,676 206,399 18,277 8.9%
-------- -------- ------- --------
Operating income 16,014 12,893 3,121 24.2%
Other income (expense):
Interest expense (7,473) (18,633) 11,160 59.9%
Interest income 1,594 1,271 323 25.4%
Other 144 (253) 397 156.9%
-------- -------- ------- --------
Other expense, net (5,735) (17,615) 11,880 67.4%
-------- -------- ------- --------
Income (loss) before income
taxes and minority interest 10,279 (4,722) 15,001 317.7%
Income tax expense (52,357) 220 52,577 23898.6%
-------- -------- ------- --------
Income (loss) from continuing
operations before minority
interest 62,636 (4,942) 67,578 1367.4%
Minority interest in earnings of
consolidated subsidiaries, net
of tax (1,011) (1,825) 814 44.6%
-------- -------- ------- --------
Net income (loss) $ 61,625 $ (6,767) $68,392 1010.7%
======== ======== ======= ========
Basic income (loss) per share $ 2.06 $ (0.30)
======== ========
Diluted income (loss) per share$ 1.96 $ (0.30)
======== ========
Weighted average shares used for
basic earnings (loss) per share
data 29,976 22,770
Effect of dilutive common stock
options 1,540 -
-------- --------
Weighted average shares used for
dilutive earnings (loss) per
share data 31,516 22,770
======== ========
AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES
GAAP RECONCILIATION
FREE CASH FLOW
($'s in thousands)
Free cash flow is presented to provide additional information
concerning cash flow available to meet future debt service
obligations and working capital requirements. Free cash flow should
not be considered as a measure of financial performance or liquidity
under U.S. generally accepted accounting principles. Free cash flow
should not be considered in isolation or as alternative to financial
statement data presented in the company's consolidated financial
statements as an indicator of financial performance or liquidity.
Free cash flow, as presented, may not be comparable to similarly
titled measures of other companies.
The following table reconciles Free cash flow, as described above, to
net income (loss) as reflected in the company's consolidated
statements of earnings.
Three Six
months months
ended ended
March 31, June 30,
2005 2005
Net income $ 2,625 $ 61,625
Adjustments to reconcile net income to cash and
cash equivalents provided by operating
activities:
Tax benefit from release of tax valuation
allowance - (55,697)
Depreciation and amortization 10,066 19,685
Loss on extinguishment of debt - 794
Amortization of deferred entrance fee revenue (4,064) (8,894)
Proceeds from entrance fee sales, net of
refunds 7,805 18,211
Deferred income tax benefit (765) -
Amortization of deferred gain on sale-
leaseback transactions (2,956) (5,911)
Amortization of deferred compensation 218 412
Minority interest in earnings of consolidated
subsidiaries 71 671
Tax benefit from exercise of stock options 395 558
(Gains) losses from unconsolidated joint
ventures (66) (160)
Loss (gain) on sale of assets 12 356
-------- --------
Net cash and cash equivalents provided by
operating activities (before changes in
assets and liabilities, exclusive of
acquisitions and sale leaseback transactions) 13,341 31,650
Proceeds from refundable entrance fee sales,
net of refunds (1,521) (2,737)
Adjustments for lease escalators and other
accruals 1,004 2,220
Additions to land, building and equipment (19,629) (27,533)
Plus: Development expenditures (funded
separately) 693 2,266
Distributions to minority interest holders (984) (2,378)
Principal reductions in master trust
liability (285) (553)
Other adjustments for transactions /
refinancings 15,015 15,764
-------- --------
Free cash flow before principal payments 7,634 18,699
Principal payments on long-term debt (4,897) (9,869)
-------- --------
Free cash flow $ 2,737 $ 8,830
======== ========
Quarter Ended
------------------
March 31, June 30,
2005 2005
Net income $ 2,625 $ 59,000
Adjustments to reconcile net income to cash and
cash equivalents provided by operating
activities:
Tax benefit from release of tax valuation
allowance (55,697)
Depreciation and amortization 10,066 9,619
Loss on extinguishment of debt 794
Amortization of deferred entrance fee revenue (4,064) (4,830)
Proceeds from entrance fee sales, net of
refunds 7,805 10,406
Deferred income tax benefit (765) 765
Amortization of deferred gain on sale-
leaseback transactions (2,956) (2,955)
Amortization of deferred compensation 218 194
Minority interest in earnings of consolidated
subsidiaries 71 600
Tax benefit from exercise of stock options 395 163
(Gains) losses from unconsolidated joint
ventures (66) (94)
Loss (gain) on sale of assets 12 344
-------- --------
Net cash and cash equivalents provided by
operating activities (before changes in
assets and liabilities, exclusive
of acquisitions and sale leaseback
transactions) 13,341 18,309
Proceeds from refundable entrance fee sales,
net of refunds (1,521) (1,216)
Adjustments for lease escalators and other
accruals 1,004 1,216
Additions to land, building and equipment (19,629) (7,904)
Plus: Development expenditures (funded
separately) 693 1,573
Distributions to minority interest holders (984) (1,394)
Principal reductions in master trust
liability (285) (268)
Other adjustments for transactions /
refinancings 15,015 749
-------- --------
Free cash flow before principal payments 7,634 11,065
Principal payments on long-term debt (4,897) (4,972)
-------- --------
Free cash flow $ 2,737 $ 6,093
======== ========
CONTACT: American Retirement Corporation
Ross C. Roadman, 615-376-2412
www.arclp.com