Press Releases

GENESIS HEALTHCARE CORPORATION REPORTS FISCAL YEAR END 2004 RESULTS

Kennett Square, PA -- 11/22/2004 --

• $0.54 Earnings Per Diluted Share from Continuing Operations for the Quarter
• New Hampshire Provider Tax Benefit Recognized
• $148.4 Million of Operating Cash Flow Generated in Fiscal 2004
• $25.0 Million Share Repurchase Program Authorized

KENNETT SQUARE, PA -- ( November 22, 2004) – Genesis HealthCare Corporation (“GHC”) (NASDAQ:GHCI) today announced income from continuing operations of $10.8 million, or $0.54 per diluted share, and net income of $10.8 million, or $0.53 per diluted share, for the quarter ended September 30, 2004 . For the fiscal year ended September 30, 2004 , pro forma income from continuing operations was $31.4 million, or $1.57 per diluted share, which assumes the December 1, 2003 spin-off of GHC from NeighborCare, Inc. (“NCI”) occurred on October 1, 2003 . (See attached pro forma financial information on page 13).

Revenues for the quarter ended September 30, 2004 grew 8.5% to $400.5 million from $369.1 million in the comparable period in the prior year. For the fiscal year ended September 30, 2004 , revenues grew 10.3% to $1,529.9 million from $1,386.5 million in the prior fiscal year.

EBITDA for the quarter ended September 30, 2004 was $36.7 million, compared to EBITDA of $25.9 million for the comparable period in the prior year. (See attached reconciliation on page 8). Included in EBITDA for the quarter ended September 30, 2004 was the net benefit of the recognition of the New Hampshire provider tax assessment totaling $3.5 million, or $0.11 per diluted share. EBITDA in the quarter ended September 30, 2004 was reduced by $0.4 million, or $0.01 per diluted share, for non-cash charges related to the early extinguishment of debt.

EBITDA and Adjusted EBITDA for the fiscal year ended September 30, 2004 was $125.6 million, compared to EBITDA and Adjusted EBITDA of $99.6 million and $98.4 million, respectively, for the prior fiscal year. (See attached reconciliation on page 8). EBITDA for the fiscal year ended September 30, 2004 was also positively impacted by the net benefit of the New Hampshire provider tax assessment totaling $3.5 million, or $0.11 per diluted share. EBITDA in the fiscal year ended September 30, 2004 was reduced by $1.7 million, or $0.05 per diluted share, for non-cash charges related to the early extinguishment of debt.

While the New Hampshire provider tax assessment was recognized retroactive to May 1, 2003 through September 30, 2004 , the net benefit has been recorded in the quarter ended September 30, 2004 . Click here to view New Hampshire Provider Tax Assessment table.

The current quarter results were positively impacted by approximately $2.8 million of incremental pre-tax Pennsylvania Medicaid rate adjustments that were retroactive to July 1, 2003 . This benefit was partially offset by certain severance costs related to the rehabilitation services segment, an increase in the full year effective tax rate, and an increase in depreciation expense. The retroactive Pennsylvania Medicaid rate adjustments relate ratably to each of the prior five quarters.

“For the third consecutive quarter, overall results exceeded our expectations,” said George V. Hager, Jr., Chairman and Chief Executive Officer. “The first year of our operational improvement plan has produced strong growth in our profit margins, despite softness in our rehabilitation services segment. While the rehabilitation business continued to suffer from therapist shortages, which were amplified during this quarter’s summer vacation season, this decline was offset by the strong performance of our inpatient business.”

Inpatient Services

Inpatient services net revenue of $358.8 million in the quarter ended September 30, 2004 grew from $324.8 million in the comparable period in the prior year. The growth was primarily driven by an increase in Medicare and Medicaid revenues. Medicare rates grew 11.9% to $354 per patient day for the quarter ended September 30, 2004 from $316 per patient day in the comparable period in the prior year. This increase was a result of the October 1, 2003 Medicare rate increases, as well as higher Medicare patient acuity. Medicaid rates grew approximately $12 per patient day, or 7.7%, to $163 per patient day for the quarter ended September 30, 2004 versus the comparable period in the prior year due to approximately $1.60 per patient day from the current quarter impact of the New Hampshire provider tax assessment, a nd the remaining $10 per patient day principally from scheduled annual Medicaid rate increases and changes in acuity.

Lastly, $8.5 million ofrevenue growth in the quarter ended September 30, 2004 was attributed to the consolidation of four inpatient centers previously managed by GHC, which were consolidated in financial statements earlier in the year, but are not included in the comparable period in the prior year.

The Company’s progress in its margin expansion initiatives continues to benefit the inpatient services segment. Drug and medical supply costs declined by 15.3% on a per patient day basis in the quarter ended September 30, 2004 versus the comparable period in the prior year. This decrease was driven by the company’s post spin-off pricing contract with NCI and improved utilization and drug management. GHC decreased agency labor costs by 30.4% on a per patient day basis. Professional (RN/LPN) agency utilization represented substantially all of this decline. This improvement was achieved while continuing a commitment to high quality care and without a significant change in overall nursing hours per patient day.

Rehabilitation Services

Rehabilitation services revenues were down slightly to $50.2 million in the quarter ended September 30, 2004 versus $51.3 million in the comparable period in the prior year. EBITDA declined to $0.9 million in the quarter ended September 30, 2004 versus $5.8 million in the comparable period in the prior year. The high demand for therapists in the quarter ended September 30, 2004 , amplified by the summer vacation season, led to increased therapist rates, which continued to increase labor costs in the Company’s rehabilitation services segment. The decline in EBITDA was further driven by reduced therapist efficiency in certain markets where the Company does not have significant density of external contract rehabilitation customers. The remainder of the change, approximately $2.0 million in EBITDA, was a result of modifications in pricing to the GHC inpatient services segment that became effective October 1, 2003 .

Balance Sheet

GHC generated operating cash flow of $48.2 million in the quarter and $148.4 million in the fiscal year ended September 30, 2004 . As a result, the Company repaid $26.2 million of debt in the quarter and has voluntarily repaid nearly $77.7 million of debt since the spin-off, including $15.0 million of debt assumed and repaid subsequent to the date of the spin-off. GHC ended the quarter with $126.1 million in cash and $403.1 million of indebtedness.

Net Days Sales Outstanding (DSO) for the fiscal year 2004 was 40 days, down from 47 days in the comparable period in the prior year.

“Our strong financial and operating performance in fiscal 2004 provides a solid foundation for continued organic growth in 2005,” said James V. McKeon, Chief Financial Officer. “We will continue the focus on our operational improvement plan next year and we expect to continue to use our free cash flow to repay debt to achieve our leverage targets while investing in our facilities and information systems to promote efficiencies.”

Share Repurchase Program

The Board of Directors authorized the repurchase of up to $25.0 million of the Company’s common stock commencing in December 2004. Share repurchases, if any, may take place at management’s discretion and/or under pre-established, non-discretionary programs from time to time, depending on market conditions, in the open market, and in privately negotiated transactions.

“At today’s values, we find that buying back stock is a very attractive use of our cash and is accretive to earnings per share,” said Hager. “Given our solid financial performance and positive cash flow from operations, we have sufficient cash reserves to fund our capital expenditures and the share repurchase program without impacting our leverage, financial flexibility, or our strong liquidity position.”

Basis of Presentation

The accompanying financial information through November 30, 2003 was prepared on a basis which reflects the historical financial information of GHC assuming the operations of NCI contributed in the spin-off were organized as a separate legal entity, owning certain net assets of NCI. Beginning December 1, 2003 , the accompanying financial information has been prepared on a basis which reflects the net operations of GHC as a stand alone entity. The allocation methodologies followed in preparing the accompanying financial information prior to the December 1, 2003 spin-off may not necessarily reflect the results of operations, cash flows, or financial position of GHC in the future, or what the results of operations, cash flows or financial position would have been had GHC been a separate stand-alone entity for all periods presented.

Discontinued Operations

GHC accounts for discontinued operations, including assets held for sale, under 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.

Conference Call

Genesis HealthCare Corporation will hold a conference call at 10:00 a.m. EST on Tuesday, November 23, 2004 to discuss the results. Investors can access the conference call by phone at (888) 798-1823 or live via webcast through the GHC web site at http://www.genesishcc.com, where a replay of the call will also be posted for one year.

Genesis HealthCare Corporation Financial Statements

About Genesis HealthCare Corporation

Genesis HealthCare Corporation (NASDAQ: GHCI) is one of the nation's largest long term care providers with over 200 skilled nursing centers and assisted living residences in 12 eastern states. Genesis also supplies contract rehabilitation therapy to over 650 healthcare providers in 21 states and the District of Columbia .

Visit our website at www.genesishcc.com.

Statements made in this release, our website 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," “target,” “appears” and similar expressions. Such forward looking statements include, without limitation, the effect of the spin-off on our operations, expected reimbursement rates, including RUGs changes, agency labor utilization, voluntary debt repayments, share repurchases, provider tax assessments and increases in state Medicaid rates. Factors that could cause actual results to differ materially include, but are not limited to, the following: costs, 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; the nature, timing and amount of provider tax assessments; 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 and availability of qualified staff in the healthcare industry; our ability to control operating costs, and generate sufficient cash flow to meet operational and financial requirements; changes in interest expense; and an economic downturn or changes in the laws affecting our business in those markets in which we operate.

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.