Advocat Announces Third Quarter Results and Sale of Medical Supply Business.FRANKLIN, Tenn. -- Advocat Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on OTC OTC See: Over-the-counter. OTC See over-the-counter market (OTC). :AVCA AVCA American Volleyball Coaches Association AVCA American Veterinary Chiropractic Association AVCA African Venture Capital Association AVCA Almaden Valley Community Association AVCA Automobil Veteranen Club Austria AVCA Apoyo Vital Cardiopulmonar Avanzado ) today announced its results for the third quarter ended September September: see month. 30, 2004. For the third quarter of 2004, Advocat reported a net loss from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the of $291,000, or $0.06 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. common share, compared with a net loss from continuing operations of $3.4 million, or $0.62 per diluted common share, in 2003. Third Quarter Results Advocat's net revenues from continuing operations increased 8.1% to $55.1 million compared with $50.9 million in the third quarter of 2003. The increase in third quarter net revenues was primarily due to patient revenues that increased 7.3% to $51.5 million compared with $48.0 million in the third quarter of 2003. Higher patient revenues benefited from increased Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. utilization, Medicare rate increases that were effective October October: see month. 1, 2003, and increased Medicaid Medicaid, national health insurance program in the United States for low-income persons; established in 1965 with passage of the Social Security Amendments and now run by the Centers for Medicare and Medicaid Services. rates in certain states, partially offset by a 2.0% decline in census in 2004 compared with 2003. As a percentage of total census, Medicare days increased to 12.6% in 2004 from 10.9% in 2003. Resident revenues increased to $3.1 million in 2004 from $2.9 million in the third quarter of 2003. The increase in resident revenues is primarily attributable to increased rates. Ancillary Subordinate; aiding. A legal proceeding that is not the primary dispute but which aids the judgment rendered in or the outcome of the main action. A descriptive term that denotes a legal claim, the existence of which is dependent upon or reasonably linked to a main claim. service revenues, prior to contractual allowances, increased 6.2% to $9.3 million in 2004 from $8.8 million in 2003. The increase in ancillary revenues Ancillary Revenue Revenue generated from goods or services that differ from or enhance the main services or product lines of a company. By introducing new products and services or using existing products to branch into new markets, companies create additional opportunities for was primarily attributable to increased Medicare census. Total expenses of continuing operations increased to $55.3 million compared with $54.3 million in the third quarter of 2003. The increase in total expenses was primarily due to cost increases related to wages and benefits. Operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. increased to $43.2 million and represented 79.1% of patient and resident revenues for the third quarter of 2004 compared with $41.7 million, or 81.9% of such revenues in the third quarter of 2003. Expenses for professional liability were $2.9 million in the third quarter of 2004 compared to $3.7 million in the third quarter of 2003. Nine Months Results Net income from continuing operations for the first nine months of 2004 was $6.3 million, or $0.98 per diluted common share, compared with a net loss from continuing operations of $15.2 million, or $2.80 per share, in the first nine months of 2003. The results for the first nine months of 2004 include a non-cash expense Noun 1. non-cash expense - an expense (such as depreciation) that is not paid for in cash disbursal, disbursement, expense - amounts paid for goods and services that may be currently tax deductible (as opposed to capital expenditures) reduction of $14.8 million resulting from a downward adjustment in the Company's accrual accrual, n continually recurring short-term liabilities. Examples are accrued wages, taxes, and interest. for self-insured self-insured Self fund Health insurance adjective Referring to the practice of carrying an individual health insurance policy for oneself; self insurance is usually more expensive than group insurance risks associated with professional liability claims. Advocat's self-insurance self-insurance, n the setting aside of funds by an individual or organization to meet anticipated dental care expenses or dental care claims, and accumulation of a fund to absorb fluctuations in the amount of expenses and claims. reserves are assessed on a quarterly basis, with changes in estimated losses being recorded in the consolidated statements of operations in the period identified. Any increase in the accrual decreases income in the period, and any reduction in the accrual increases income during the period. Although the Company retains a third-party actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin firm to assist management in estimating the appropriate accrual for these claims, professional liability claims are inherently uncertain, and the liability associated with anticipated claims is very difficult to estimate. As a result, the Company's actual liabilities may vary significantly from the accrual, and the amount of the accrual may fluctuate by a material amount in any given quarter. Each change in the amount of this accrual will directly affect the Company's reported earnings for the period in which the change in accrual is made. In the first nine months of 2004, the Company made downward adjustments totaling $14.8 million in the self-insurance reserves that was primarily the result of settlements of claims for amounts less than previously estimated. This downward adjustment was partially offset by expenses of $13.7 million recorded for the estimated costs of claims incurred in the first nine months of 2004, resulting in a net benefit of $1.1 million for the nine months ended September 30, 2004. This compares with a professional liability expense of $16.5 million for the same period in 2003. As of September 30, 2004, the Company reported a liability of $43.4 million, including reported professional liability claims and estimates for incurred but unreported claims. The Company does not have cash or available resources to pay these accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. professional liability claims or any significant portion thereof. Net revenues increased 10.9% to $158.8 million for the first nine months of 2004 compared with $143.2 million in 2003. Patient revenues were up 11.5% to $148.9 million in 2004 compared with $133.5 million in the first nine months of 2003. Resident revenues were $9.2 million in 2004 compared with $9.5 million in 2003. Ancillary service revenues, prior to contractual allowances, increased 16.5% to $28.7 million in 2004 from $24.7 million in 2003. Total expenses of continuing operations were $152.3 million in 2004 compared with $158.4 million in 2003. The decrease in total expenses was primarily attributable to a decrease in professional liability expenses of $17.6 million in 2004, partially offset by an increase in operating expenses. Operating expenses represented 79.4% of patient and resident revenues for 2004 compared with 80.8% of such revenues in 2003. Sale of Medical Supply Business On November November: see month. 4, 2004, Advocat completed the sale of certain assets of its medical supply business, Advocat Distribution Services. The initial purchase price was $225,000, with additional consideration based on the results of operations of the business over the two years following the sale. The sale of Advocat Distribution Services will allow management to focus its attention on the Company's core business. No material gain or loss is expected from the initial proceeds. Any additional consideration received in the future under the terms of the agreement will be recorded when determined. Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. made in this release involve a number of risks and uncertainties, including but not limited to, uncertainty regarding the Company's ability to restructure or refinance Refinance 1. When a business or person revises their payment schedule for repaying debt. 2. Replacing an older loan with a new loan offering better terms. Notes: When a business refinances they typically extend the maturity date. its debt, the impact of under-insured professional liability claims, factors affecting the long-term care long-term care (LTC), n the provision of medical, social, and personal care services on a recurring or continuing basis to persons with chronic physical or mental disorders. industry in general, governmental reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. , government regulation, health care reforms, the impact of future licensing surveys, changing economic and market conditions and other risk factors detailed in the Company's Securities and Exchange Commission filings. Advocat Inc. is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the services. Advocat Inc. provides long-term care services to nursing home patients and residents of assisted living as·sist·ed living n. A living arrangement in which people with special needs, especially older people with disabilities, reside in a facility that provides help with everyday tasks such as bathing, dressing, and taking medication. facilities in nine states, primarily in the Southeast. For additional information about the Company, visit Advocat's web site: http://www.irinfo.com/avc
ADVOCAT INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
-------- -------- -------- --------
REVENUES:
Patient revenues, net $51,524 $48,034 $148,938 $133,545
Resident revenues 3,115 2,899 9,162 9,534
Other income 303 -- 496 82
Interest 111 10 155 40
-------- -------- -------- --------
55,053 50,943 158,751 143,201
-------- -------- -------- --------
EXPENSES:
Operating 43,212 41,695 125,455 115,626
Lease 3,902 3,863 11,638 11,294
Professional liability 2,862 3,656 (1,101) 16,461
General and administrative 3,396 3,095 9,316 8,676
Interest 758 755 2,280 2,273
Depreciation and
amortization 1,182 1,232 3,688 3,671
Asset impairment and other
charges -- -- 984 364
-------- -------- -------- --------
55,312 54,296 152,260 158,365
-------- -------- -------- --------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (259) (3,353) 6,491 (15,164)
PROVISION FOR INCOME TAXES 32 -- 186 15
-------- -------- -------- --------
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
(291) (3,353) 6,305 (15,179)
INCOME FROM DISCONTINUED
OPERATIONS:
Operating income, net of
taxes of $0, $150, $150
and $410, respectively -- 572 482 1,488
Gain on sale, net of taxes
of $30, $0, $424 and $0,
respectively
77 -- 159 --
-------- -------- -------- --------
Net income from
discontinued operations 77 572 641 1,488
-------- -------- -------- --------
NET INCOME (LOSS) (214) (2,781) 6,946 (13,691)
PREFERRED STOCK DIVIDENDS,
ACCRUED BUT NOT PAID
75 70 221 206
-------- -------- -------- --------
NET INCOME (LOSS) FOR COMMON
STOCK $(289) $(2,851) $6,725 $(13,897)
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON
SHARE:
Per common share - basic
Income (loss) from
continuing operations $(0.06) $(0.62) $1.08 $(2.80)
Income from discontinued
operations 0.01 0.10 0.11 0.27
-------- -------- -------- --------
$(0.05) $(0.52) $1.19 $(2.53)
======== ======== ======== ========
Per common share - diluted
Income (loss) from
continuing operations $(0.06) $(0.62) $0.98 $(2.80)
Income from discontinued
operations 0.01 0.10 0.10 0.27
-------- -------- -------- --------
$(0.05) $(0.52) $1.08 $(2.53)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES:
Basic 5,695 5,493 5,647 5,493
======== ======== ======== ========
Diluted 5,695 5,493 6,407 5,493
======== ======== ======== ========
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