EX-99.1 2 a5011786ex99-1.txt EXHIBIT 99.1 Exhibit 99.1 American Retirement Corporation Reports Third Quarter and Year-to-Date 2005 Results NASHVILLE, Tenn.--(BUSINESS WIRE)--Nov. 3, 2005--American Retirement Corporation: -- Reported diluted earnings per share of $.13 for the third quarter versus a First Call estimate of $.12. -- Free cash flow increased 123% for the third quarter to $5 million versus the prior year. -- Occupancy averaged 94%, up from 93% for last year's third quarter. -- Completed acquisition of eight Epoch communities. American Retirement Corporation (NYSE: ACR) today reported third quarter 2005 diluted earnings of $.13 per share, compared with a loss of $.27 per share for the prior year's third quarter. Bill Sheriff, Chairman, President and CEO of the company, commented, "The third quarter was another successful period for us. We announced a large acquisition (which we closed yesterday), signed a new management contract on a CCRC, continued to free up restricted cash and had solid operating results. As announced today in a separate release, we closed on the acquisition of the eight Epoch communities yesterday. The transaction fits well with our current portfolio and will be immediately accretive. We also completed transactions during the quarter that released $9 million of restricted cash and we used those funds, plus the company's positive cash flow, to improve our balance sheet and to fund development. We started the construction on a number of community expansions and will begin the construction of several new communities during the fourth quarter." "Again, our operations showed strong year over year increases in revenue and operating contribution with occupancies holding strong and ancillary services expanding nicely. We have been fortunate with Hurricanes Rita and Wilma. We had no harm to residents or associates and relatively little property damage. We did incur about $350,000 of increased operating expenses and lost revenue related to Hurricane Rita in our Texas communities in September. For both hurricanes, our teams performed with distinction - they put the residents' safety and care above all else. We are proud of their dedication, resourcefulness and self-sacrifice." (All references to growth rate percentage compare the results of the current period to the prior year comparable period.) Financial Highlights -- $125 million of total revenue for the third quarter of 2005, an 11% increase. -- Net income of $4 million ($.13 per diluted share) versus a loss of $7 million. -- Community operating contribution from the Company's three business segments of $41 million, an increase of 15%. -- Operating income of $9 million, a 202% increase. Operational Highlights -- Occupancy was 94%, with the company's large retirement communities ending the quarter at 95% and the free-standing assisted living communities ending at 91%. -- Retirement Centers produced an 8% increase in average monthly revenue per occupied unit, and a 10% increase in operating contribution per occupied unit. -- Free-standing assisted living communities produced a 10% increase in average monthly revenue per occupied unit, and a 21% increase in operating contribution per occupied unit. Operating Review The company operates in three business segments: -- The Retirement Centers ("Retirement Centers") include CCRCs (continuing care retirement centers), Entrance-Fee Communities ("EF Communities") and congregate living residences. -- Free-standing assisted living communities ("Free-standing AL's") are smaller than Retirement Centers and provide assisted living and specialized care such as Alzheimer's and memory enhancement programs. -- The Management Services segment includes fees from management agreements for communities owned by others, development fees and reimbursed expenses. The results for the Company's three operating segments for the third quarter of 2005 were as follows: Three months ended ($ in 000's) Sept. 30, ------------------------------------- ------------------- $ % 2005 2004 Change Change ---------------------------------------------------------------------- Resident & Healthcare revenue $123,439 $111,089 12,350 11% ---------------------------------------------------------------------- Community operating expense $ 82,956 $ 75,825 7,131 9% ---------------------------------------------------------------------- Community operating contribution(1) $ 40,483 $ 35,264 5,219 15% ---------------------------------------------------------------------- Community operating margin 32.8% 31.7% ---------------------------------------------------------------------- Management Services op. contribution $ 664 $ 500 164 33% ---------------------------------------------------------------------- (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. Retirement Centers Segment The company's 29 Retirement Centers exhibited strong increases in revenue and operating contribution for the third quarter of 2005 as follows: Retirement Centers ($ in 000's): Three Months -------------------------------------- Ended: Sept. 30, ------------------------------------------------------- $ % 2005 2004 Change Change ---------------------------------------------------------------------- Revenues $95,244 $86,526 $8,718 10% ---------------------------------------------------------------------- Community Operating Contribution $31,762 $28,358 $3,404 12% ---------------------------------------------------------------------- Operating contribution margin 33.3% 32.8% ---------------------------------------------------------------------- % Ending Occupancy 95% 95% ---------------------------------------------------------------------- The Retirement Center segment continued to produce strong revenue gains. -- Ending occupancy was 95%, level with the third 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, 95% in assisted living and 88% in skilled nursing. -- Average monthly revenue per occupied unit increased 8% during the quarter versus the prior year to $3,695 - 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 therapy, education and wellness programs. The operating contribution for Retirement Centers was $32 million for the third quarter of 2005, and $94 million for the nine months ended September 30, 2005. This represented a $3 million or 12% increase over the prior year's third quarter and an $8 million (10%) increase over the first nine months of 2004. The Retirement Centers continue to increase the monthly operating contribution per occupied unit, attaining $1,232 per unit in the third quarter of 2005, a 10% improvement from the prior year's third quarter. Free-standing AL's Segment The company's 32 Free-standing AL's exhibited strong increases in revenue and operating contribution for the third quarter of 2005 as follows: Free-standing AL's ($ in 000's) (1): Three Months --------------------------------------- Ended: Sept. 30, --------------------------------------------------------- $ % 2005 2004 Change Change ---------------------------------------------------------------------- Revenues $28,195 $24,563 3,632 15% ---------------------------------------------------------------------- Community Operating Contribution $ 8,721 $ 6,906 1,815 26% ---------------------------------------------------------------------- Operating contribution margin 30.9% 28.1% ---------------------------------------------------------------------- % Ending Occupancy 91% 88% ---------------------------------------------------------------------- (1) Includes results of 32 Free-standing AL's and excludes a non-consolidated Free-standing AL held in a joint venture. The revenue increase in the Free-standing AL segment of 15% to $28 million was driven by the following factors: -- Average occupancy for the Free-standing AL portfolio was 90% for the third quarter, up from 87% a year ago and up from 89% in the second quarter of 2005. -- The average monthly revenue per occupied unit increased 10% to $3,626, up from $3,304 per month in September 2004. The revenue per occupied unit increase was due to rate increases, reduced 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 therapy, education and wellness services, also contributed significantly to the revenue increase for this segment. The operating contribution for Free-standing AL's was almost $9 million for the third quarter of 2005 and $25 million for the first nine months of 2005. This represented a $2 million or 26% increase over the prior year's third quarter and a $7 million (37%) increase over the first nine months of 2004. The Free-standing AL's continue to increase the monthly operating contribution per occupied unit, hitting $1,122 per unit in the third quarter of 2005, a 21% improvement from the prior year's third quarter. For the nine months year-to-date, 65% 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 six Retirement Centers and one Free-standing AL, with an aggregate capacity of 1,539 units. The Management Services segment had an operating contribution of $.7 million in the third quarter of 2005, a 33% increase from the same prior-year period. This resulted from improved performance at the managed communities. Also, at the end of the quarter, the Company took over the management of a third-party owned community, Bradford Village in Oklahoma, which we expect to contribute in future quarters. Financial Review Revenues for the quarter increased 11% to $125 million versus the prior year quarter and 10% to $365 million for the full nine months, 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 over $20 million for the quarter, up from $17 million a year ago. Ancillary services revenue currently comprises 17% of total revenue. Community operating expenses increased 9% for the quarter versus the prior year period, while revenue increased 11%, evidencing good cost control and the low incremental cost of additional occupancy. General and administrative expenses increased 2% from the third quarter of 2004 (excluding transaction costs in 2004), reflecting the growth of the Company's business. Net income for the third quarter of 2005 was $4 million or $.13 per diluted share, compared with a loss of $7 million for the prior year's third quarter. Year-to-date net income was $66 million, which included the second quarter benefit of $56 million due to certain past tax benefits, and a $794,000 cost related to the second quarter payment of a debt. Free cash flow was $5 million for the third quarter, versus $2 million for the third quarter of 2004. For the nine months ended September 30, free cash flow was $14 million versus $7 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 $0.48 to $0.50 for 2005, excluding the $1.69 per share effect of the tax benefit and debt repayment costs reported in the second quarter. 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 third-quarter financial results and the other matters described above. The call will be held on Thursday, November 3, 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 November 3, 2005 a Form 8-K with the SEC which includes supplemental information relating to the company's third quarter 2005 results. This filing 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 76 senior living communities in 19 states, with an aggregate unit capacity of approximately 14,300 units and resident capacity of approximately 16,000. The Company owns 27 communities (including nine communities in joint ventures), leases 43 communities, and manages six communities pursuant to management agreements. Approximately 83% 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, all statements regarding the financial effects of the Epoch acquisition and Bradford Village management agreement, and all statements regarding planned expansions and development. 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 debt and lease obligations, (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, (vii) the risk that the company will not be able to successfully integrate the Epoch and Bradford Village communities into the company's operations, (viii) the risk of changes in government reimbursement programs including caps on therapy reimbursements, and (ix) 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 September 30, (Decrease) ------------------- ---------------- 2005 2004 $ % -------- -------- ------- ------- Revenues: Resident and health care $123,439 $111,089 $12,350 11.1% Management services 664 500 164 32.8% Reimbursed expenses 646 460 186 40.4% -------- -------- ------- ------- Total revenues 124,749 112,049 12,700 11.3% Operating expenses: Community operating expenses 82,956 75,825 7,131 9.4% General and administrative 7,360 8,400 (1,040) -12.4% Lease expense 15,014 15,100 (86) -0.6% Depreciation and amortization 9,019 8,488 531 6.3% Amortization of leasehold acquisition costs 588 735 (147) -20.0% Loss on sale of assets 121 48 73 152.1% Reimbursed expenses 646 460 186 40.4% -------- -------- ------- ------- Total operating expenses 115,704 109,056 6,648 6.1% -------- -------- ------- ------- Operating income 9,045 2,993 6,052 202.2% Other income (expense): Interest expense (4,228) (8,400) 4,172 49.7% Interest income 1,567 718 849 118.2% Other 340 257 83 32.3% -------- -------- ------- ------- Other expense, net (2,321) (7,425) 5,104 68.7% -------- -------- ------- ------- Income (loss) before income taxes and minority interest 6,724 (4,432) 11,156 251.7% Income tax expense 2,151 2,501 (350) -14.0% -------- -------- ------- ------- Income (loss) from continuing operations before minority interest 4,573 (6,933) 11,506 166.0% Minority interest in (earnings) losses of consolidated subsidiaries, net of tax (483) 270 (753) -278.9% -------- -------- ------- ------- Net income (loss) $ 4,090 $ (6,663) $10,753 161.4% ======== ======== ======= ======= Basic income (loss) per share $ 0.13 $ (0.27) ======== ======== Diluted income (loss) per share $ 0.13 $ (0.27) ======== ======== Weighted average shares used for basic earnings (loss) per share data 30,918 24,665 Effect of dilutive common stock options 1,595 - -------- -------- Weighted average shares used for diluted earnings (loss) per share data 32,513 24,665 ======== ======== ---------------------------------------------------- September December 30, 31, 2005 2004 -------- -------- Selected Balance Sheet Data: Cash and cash equivalents $ 33,952 $ 28,454 Restricted cash 30,022 50,134 Working capital deficit (95,832) (98,995) Land, buildings and equipment, net 552,242 496,297 Total assets 858,353 749,250 Long-term debt, including current portion 135,671 135,956 Capital lease and lease financing obligations, including current portion 187,090 199,126 Refundable portion of entrance fees 83,676 79,148 Current portion of deferred entrance fee income 35,848 33,800 Long-term deferred entrance fee income 122,222 111,386 Deferred gain on sale lease- back transactions 90,009 98,876 Shareholders' equity 124,796 5,701 AMERICAN RETIREMENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) Nine months ended Increase September 30, (Decrease) ------------------- ----------------- 2005 2004 $ % -------- -------- ----------------- Revenues: Resident and health care $361,769 $328,150 $ 33,619 10.2% Management services 1,680 1,439 241 16.7% Reimbursed expenses 1,990 1,752 238 13.6% -------- -------- ----------------- Total revenues 365,439 331,341 34,098 10.3% Operating expenses: Community operating expenses 242,189 223,742 18,447 8.2% General and administrative 20,716 21,102 (386) -1.8% Lease expense 45,969 44,793 1,176 2.6% Depreciation and amortization 27,063 21,948 5,115 23.3% Amortization of leasehold acquisition costs 1,976 2,181 (205) -9.4% Loss (gain) on sale of assets 477 (63) 540 857.1% Reimbursed expenses 1,990 1,752 238 13.6% -------- -------- ----------------- Total operating expenses 340,380 315,455 24,925 7.9% -------- -------- ----------------- Operating income 25,059 15,886 9,173 57.7% Other income (expense): Interest expense (11,701) (27,033) 15,332 56.7% Interest income 3,161 1,989 1,172 58.9% Other 484 4 480 -12000.0% -------- -------- ----------------- Other expense, net (8,056) (25,040) 16,984 67.8% -------- -------- ----------------- Income (loss) before income taxes and minority interest 17,003 (9,154) 26,157 285.7% Income tax (benefit) expense (49,866) 2,721 52,587 1932.6% -------- -------- ----------------- Income (loss) from continuing operations before minority interest 66,869 (11,875) 78,744 663.1% Minority interest in earnings of consolidated subsidiaries, net of tax (1,154) (1,555) 401 25.8% -------- -------- ----------------- Net income (loss) $ 65,715 $(13,430) $ 79,145 589.3% ======== ======== ================= Basic income (loss) per share $ 2.18 $ (0.57) ======== ======== Diluted income (loss) per share $ 2.06 $ (0.57) ======== ======== Weighted average shares used for basic earnings (loss) per share data 30,147 23,404 Effect of dilutive common stock options 1,701 - -------- -------- Weighted average shares used for dilutive earnings (loss) per share data 31,848 23,404 ======== ======== 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 Nine months ended months ended ended March 31, June 30, Sept. 30, 2005 2005 2005 Net income $ 2,625 $ 61,625 $ 65,715 Adjustments to reconcile net income to cash and cash equivalents provided by operating activities: Tax benefit from release of tax valuation allowance - (55,697) (55,697) Depreciation and amortization 10,066 19,685 29,572 Loss on extinguishment of debt - 794 794 Amortization of deferred entrance fee revenue (4,064) (8,894) (13,418) Proceeds from entrance fee sales, net of refunds 7,805 18,211 26,463 Deferred income tax benefit (765) - - Amortization of deferred gain on sale-leaseback transactions (2,956) (5,911) (8,867) Amortization of deferred compensation 218 412 695 Minority interest in earnings of consolidated subsidiaries 71 671 1,154 Tax benefit from exercise of stock options 395 558 847 (Gains) losses from unconsolidated joint ventures (66) (160) (260) Loss (gain) on sale of assets 12 356 477 --------- --------- --------- 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 47,475 Proceeds from refundable entrance fee sales, net of refunds (1,521) (2,737) (4,611) Adjustments for lease escalators and other accruals 1,004 2,220 3,502 Additions to land, building and equipment (19,629) (27,533) (44,303) Plus: Development expenditures (funded separately) 693 2,266 5,929 Distributions to minority interest holders (984) (2,378) (3,222) Principal reductions in master trust liability (285) (553) (817) Other adjustments for transactions / refinancings 15,015 15,764 24,319 --------- --------- --------- Free cash flow 7,634 18,699 28,272 Principal payments on long-term debt (4,897) (9,869) (14,527) --------- --------- --------- Free cash flow after principal payments $ 2,737 $ 8,830 $ 13,745 ========= ========= ========= Quarter Ended -------------------------------- March 31, June 30, Sept. 30, 2005 2005 2005 Net income $ 2,625 $ 59,000 4,090 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 9,887 Loss on extinguishment of debt - 794 - Amortization of deferred entrance fee revenue (4,064) (4,830) (4,524) Proceeds from entrance fee sales, net of refunds 7,805 10,406 8,252 Deferred income tax benefit (765) 765 - Amortization of deferred gain on sale-leaseback transactions (2,956) (2,955) (2,956) Amortization of deferred compensation 218 194 283 Minority interest in earnings of consolidated subsidiaries 71 600 483 Tax benefit from exercise of stock options 395 163 289 (Gains) losses from unconsolidated joint ventures (66) (94) (100) Loss (gain) on sale of assets 12 344 121 --------- --------- --------- 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 15,825 Proceeds from refundable entrance fee sales, net of refunds (1,521) (1,216) (1,874) Adjustments for lease escalators and other accruals 1,004 1,216 1,282 Additions to land, building and equipment (19,629) (7,904) (16,770) Plus: Development expenditures (funded separately) 693 1,573 3,663 Distributions to minority interest holders (984) (1,394) (844) Principal reductions in master trust liability (285) (268) (264) Other adjustments for transactions / refinancings 15,015 749 8,555 --------- --------- --------- Free cash flow 7,634 11,065 9,573 Principal payments on long-term debt (4,897) (4,972) (4,658) --------- --------- --------- Free cash flow after principal payments $ 2,737 $ 6,093 $ 4,915 ========= ========= ========= CONTACT: American Retirement Corporation Ross C. Roadman, 615-376-2412