Press Releases

Genesis HealthCare Corporation Reports Third Quarter Fiscal 2004 Results

Kennett Square, PA -- 07/28/2004 --

• $0.39 Earnings Per Diluted Share from Continuing Operations
• $31.8 Million of Debt Repaid in the Quarter
• Negotiated Reduction in Interest Rate Spread on Senior Term Loan

Genesis HealthCare Corporation (“GHC”) (NASDAQ:GHCI) today announced income from continuing operations of $7.8 million ($0.39 per diluted share) and net income of $6.7 million ($0.34 per diluted share) for the quarter ended June 30, 2004.

EBITDA for the quarter ended June 30, 2004 was $30.5 million, compared to EBITDA of $24.4 million for the comparable period in the prior year (see attached reconciliation on page 6). EBITDA was reduced in the quarter ended June 30, 2004 by $0.4 million ($0.01 per diluted share) for non-cash charges related to the early extinguishment of debt.

For the year to date period, on a pro forma basis, assuming the December 1, 2003 spin-off of GHC from NeighborCare, Inc. (“NCI”) occurred on October 1, 2003, income from continuing operations was $20.6 million or $1.03 per diluted share (see attached pro forma financial information on page 11).

For the year to date period, both EBITDA and Adjusted EBITDA were $88.9 million, compared to EBITDA and Adjusted EBITDA of $73.7 million and $72.6 million, respectively, for the comparable period in the prior year (see attached reconciliation on page 6). EBITDA and Adjusted EBITDA were reduced in the current year to date period by $1.3 million ($0.04 per diluted share) for non-cash charges related to the early extinguishment of debt.

GHC revenues for the quarter ended June 30, 2004 grew 10.2% to $378.3 million from $343.3 million in the comparable period in the prior year. For the year to date period, revenues grew 11.0% to $1,129.4 million from $1,017.3 million in the comparable period in the prior year.

“We are pleased with our performance for the quarter as we continued to make progress towards the operational and margin expansion goals we established at the time of the spin-off,” said George V. Hager, Jr., Chairman and Chief Executive Officer. “Most notably, we continued to reduce our agency labor costs, which were down significantly in the quarter, contributing to an exceptional year-to-date improvement in this area while maintaining overall nursing hours per patient day. Furthermore, we are generating significant operating cash flow, which has allowed us to continue to strengthen our balance sheet through the repayment of over $30 million of debt.”

Net revenue growth in the quarter was driven by an increase in Medicare and Medicaid revenues. Medicare revenues increased as a result of the October 1, 2003 Medicare rate increases, as well as higher Medicare patient acuity. GHC’s Medicare rate grew 12.1% to $352 per patient day for the quarter ended June 30, 2004 from $314 per patient day in the comparable period in the prior year. In addition, $18.1 million ofrevenue growth in the quarter ended June 30, 2004 was attributed to the consolidation of eight eldercare centers previously managed by GHC, which were consolidated earlier in the year, but are not included in the comparable periods in the prior year.

EBITDA growth in the quarter was enhanced by continued progress in reducing reliance on agency labor. Agency labor costs declined 29.4% on a per patient day basis without a significant change in overall nursing hours per patient day during the quarter ended June 30, 2004 versus the comparable period in the prior year. Professional (RN/LPN) agency utilization represented the majority of this decline. EBITDA growth in the quarter was offset by continued earnings pressure in the rehabilitation therapy business as a result of a significant shortage of qualified therapists. The high demand for therapists has resulted in increased labor costs in that business.

During the quarter, GHC generated operating cash flow of $23.8 million, enabling the repayment of $31.8 million of debt. Nearly $30 million of the debt repayment was made voluntarily. GHC ended the quarter with $115.1 million in cash and $429.9 million of indebtedness. As anticipated, operating cash flow in the quarter was impacted by the timing of the funding of insurance programs which were renewed during the quarter, retirement programs and interest payments, offset by strong receivable collections. Year to date, operating cash flow totaled $100.2 million.

“At the time of the spin-off, we established a commitment to reducing our leverage, estimating that it would take two years to reduce debt to our targeted level,” said James McKeon, Chief Financial Officer. “Our strong operating cash flow and working capital management during the year has allowed us to reduce our leverage ahead of schedule. Furthermore, our borrowing costs continue to decline as early debt repayments have resulted in reduced interest expense and effective June 25, 2004, we successfully renegotiated certain terms of our senior term loan, reducing the interest rate spread by 50 basis points.”

Basis of Presentation

The accompanying financial information through November 30, 2003 have been 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. The net revenues and loss per diluted share of GHC’s discontinued operations for the three months ended June 30, 2004 were $6.4 million and $(0.06), respectively. The net revenues and loss per diluted share for the year to date period ended June 30, 2004 were $26.1 million and $(0.17), respectively.

Conference Call

Genesis HealthCare Corporation will hold a conference call at 10:00 a.m. EDT on July 29, 2004 to discuss results for the quarter. Investors can access the conference call by phone at (800) 553-0288 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 (NASDAQ: GHCI) is one of the nation's largest long term care providers with over 200 skilled nursing centers and assisted living residences in 13 eastern states operating under the Genesis ElderCare banner. Genesis also supplies contract rehabilitation therapy to over 730 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, inflationary increases in state Medicaid rates and self-insurance retention limits. 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 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; 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.