Regency Health Services reports sequential growth in operating income

Regency Health Services reports sequential growth in operating income

TUSTIN, Calif.–(BUSINESS WIRE)–Nov. 10, 1994–Regency Health Services, Inc. (NYSE:RHS) today reported that third quarter after-tax income from operations increased 36.4% to $0.15 per share (fully diluted) from $0.11 per share (fully diluted) in the second quarter 1994. The results for both periods exclude merger and restructuring expenses and share appreciation rights (SARs) income. In April, the Company completed its merger with Care Enterprises, Inc. (Care) and, accordingly, financial results for the comparable periods of 1993 have been restated.

“Our improvement over disappointing second quarter operating income can be attributed to several factors,” stated Richard K. Matros, President and Chief Operating Officer. “The Company’s identification of and responsiveness to cost control issues yielded considerable progress during the period. Occupancy improved from 91.2% in the second quarter to 92.1% in the third quarter of 1994. Additionally, we have made progress in enhancing the quality and efficiency of our infrastructure,” Mr. Matros added.

Revenues for the third quarter were $93.6 million. Pre-tax income from operations before merger and restructuring expenses and revaluation of SARs was $4.1 million for the third quarter, an increase of 46.4% from operating income of $2.8 million for the second quarter of 1994. Net income totaled $561,000, or $0.03 per share, on a primary and fully diluted basis. Included in the 1994 results was a $2.4 million after-tax restructuring charge ($0.14 per share) related to the previously-announced retirement of Cecil Mays, former Chairman and CEO of the Company, and other restructuring charges. John W. Adams, former Chairman and CEO of Care, has assumed the positions of Chairman and CEO of Regency. Additionally, SARs were revalued, reducing administrative expenses during the quarter by $344,000 after-tax, or $0.02 per share. Average weighted shares outstanding for the third quarter were 16,524,000 versus 20,399,000 for the comparable period of 1993.

“Revenue for the third quarter declined from second quarter, primarily as a result of the elimination of operating revenue associated with facilities being disposed of and a decline in Medicare ancillary services revenue,” continued Mr. Matros. “This was partially offset by improved occupancy and the 3.6% California Medicaid rate increase, effective August 1st. Importantly, the decline in Medicare ancillary services revenue was partially offset by a decline in associated ancillary expenses.”

For the third quarter of 1993, revenues were $89.4 million. Income from operations before taxes was $5.5 million. Net income totaled $3.3 million, or $0.19 per share on a fully diluted basis.

For the nine month period ended September 30, 1994, revenues rose 14.7% to $284.7 million from $248.3 million for the same period in 1993. The Company reported a net loss for the period of $(3.9) million, or $(0.24) per share on a fully diluted basis, compared with net income of $8.5 million, or $0.51 per share, for the same period last year. Included in the 1994 results were merger and restructuring expenses of $10.6 million after-tax related to the April merger with Care and an extraordinary item of $975,000 after-tax related to the January 1994 California earthquake. Excluding these merger related charges and the extraordinary item, net income was $7.5 million, or $0.44 per share on a fully diluted basis, for the nine months ended September 30, 1994 compared with $8.9 million, or $0.52 per share, for the same period last year.

“Regency now has the majority of its restructuring activities behind it and does not expect additional merger related expenses. Our strategy is focused on continued cost controls, efficiency enhancement programs and development of subacute programs. These programs, combined with strong market presence in California, position Regency for growth opportunities as we look forward to 1995,” Mr. Matros concluded. -0-

Three Months Ended Nine Months Ended

Sept. 30, Sept. 30,

1994 1993 1994 1993

—————— —————–

(In thousands except (Unaudited) (Unaudited)

per share amounts)

Net operating revenue $93,567 $89,432 $284,742 $248,256

——- ——- ——– ——–

Costs and expenses other

than SARs and merger and

restructuring expenses 89,425 83,956 272,660 233,579

——- ——- ——- ——–

Income from operations

before SARs and merger

and restructuring

expenses 4,142 5,476 12,082 14,677

Provision for income taxes 1,573 2,153 4,582 5,807

——- ——- ——- ——–

Income from operations

after taxes before

SARs and merger and

restructuring expenses 2,569 3,323 7,500 8,870

SARs, after taxes 344 19 140 (280)

Merger and restructuring

expenses, after taxes (2,352) — (10,617) —

Extraordinary items

(after taxes) — — (975) (48)

——- ——- ——- ——–

Net income (loss) $ 561 $ 3,342 $(3,952) $ 8,542

======= ======= ======= ========

Income per share

(assuming full dilution)

from operations after

taxes before SARs and

merger and restructuring

expenses $ .15 $ .19 $ .44 $ .52

======= ======= ======= ========

Regency operates 95 specialty healthcare facilities in California, Ohio, New Mexico and West Virginia with 9,370 licensed beds. In addition, Regency operates home health care and pharmacy subsidiaries. Consistent with the Company’s strategy to continue moving further into the subacute and other more medically intensive treatment programs, 35 of Regency’s facilities contain dedicated subacute units. These units provide care for medically stable patients who need acute nursing or rehabilitative care, but do not require intensive physician or diagnostic services Regency also provides rehabilitation therapies, Alzheimer’s care, institutional pharmacy services, home health care, skilled nursing, residential care, long-term nursing care, and care for mentally disordered and developmentally disabled individuals. -0-

Regency Health Services Inc.

Consolidated Statements of Operations

Three Months Ended Nine Months Ended

Sept. 30, Sept. 30,

(in thousands, except 1994 1993 1994 1993

per share amounts) (Unaudited) (Unaudited)

NET OPERATING REVENUE $93,567 $89,432 $284,742 $248,256

COSTS AND EXPENSES: ——- —— ——- ——-

Nursing services 25,031 23,807 75,780 66,276

Dietary services 5,999 5,926 18,487 16,361

Other patient services 11,284 11,041 33,614 30,369

Ancillary services 18,625 17,988 59,483 50,099

Administrative & general 17,853 16,396 55,332 47,290

Merger and restructuring

expenses 3,500 — 14,650 —

Rent, property taxes and

insurance 5,604 5,092 16,838 13,536

Depreciation and

amortization 2,345 1,946 7,031 5,647

Interest expense 2,129 1,731 5,868 4,464

——- ——- ——- ——-

Total costs & expenses 92,370 83,927 287,083 234,042

——- ——- ——- ——-

INCOME (LOSS) BEFORE PROVISION FOR

INCOME TAXES AND EXTRAORDINARY

ITEMS 1,197 5,505 (2,341) 14,214

PROVISION FOR INCOME TAXES 636 2,163 636 5,624

—— ——- ——- ——

INCOME (LOSS) BEFORE EXTRAORDINARY

ITEMS: 561 3,342 (2,977) 8,590

Loss on extinguishment of

debt — — — (48)

Loss from earthquake damage — — (975) —

—— —— ——- ——

NET INCOME (LOSS) $ 561(a) $ 3,342 $(3,952)(b) $8,542

PRIMARY INCOME (LOSS) PER SHARE:

Income (loss) before

extraordinary items $ .03(a) $ .20 $ (.18)(b) $ .52

Extraordinary items — — (.06) —

——- ——- ——– ——

NET INCOME (LOSS) PER SHARE $ .03(a) $ .20 $ (.24)(b) $ .52

======== ======== ========= =======

FULLY DILUTED INCOME (LOSS)

PER SHARE:

Income (loss) before

extraordinary items $ .03(a) $ .19 $ (.18)(b) $ .51

Extraordinary items — — (.06) —

——— ——– ———– ——-

NET INCOME (LOSS) PER SHARE $ .03(a) $ .19 $ (.24)(b) $ .51

========= ======== =========== =======

WEIGHTED AVERAGE SHARES:

Primary 16,524 16,359 16,527 16,378

Fully Diluted 16,524 20,399 16,527 19,082

Revenue Mix: Medicaid 43.3% 43.9% 42.0% 44.0%

Medicare 30.6% 28.9% 31.3% 30.3%

Private/Other 26.1% 27.2% 26.7% 25.7%

-0- (a) Includes non-recurring restructuring expenses of $3.5 million pre-tax ($2.4 million after-tax, or $0.14 per share) and a reduction of share appreciation rights expense of $556,000 pre-tax ($344,000 after-tax, or $0.02 per share). (b) Includes non-recurring merger and restructuring expenses of $14.6 million pre-tax ($10.6 million after-tax, or $0.64 per share) and a reduction of share appreciation rights expense of $225,000 pre-tax ($140,000 after-tax, or $0.01 per share). -0-

CONTACT: Regency Health Services inc., Tustin

Richard K. Matros, President and Chief Operating

Officer, 714/544-4443

Morgen-Walke Associates Inc., San Francisco

Doug Sherk, Jenifer Kirtland, Kevin Mirise,

415/296-7383

Sue Rodney, Dave Faupel, 212/850-5600

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