exv99w1

Exhibit 99.1


Company Contact:		Investor Relations:
William R. Council, III		Cameron Associates
President and CEO		Rodney O’Connor
(615) 771-7575		(212) 554-5470

Advocat Announces 2011 Second Quarter and Six Months Results

BRENTWOOD, TN, (August 9, 2011) — Advocat Inc. (NASDAQ: AVCA) a premier provider of long term care services primarily in the Southeast and Southwest, today announced its results for the second quarter ended June 30, 2011. On August 9, 2011, the Company declared a third quarter dividend of 5.5 cents per common share. The dividend will be paid October 14, 2011 to shareholders of record on September 30, 2011.

For the second quarter of 2011 compared to the second quarter of 2010, key highlights include the following:

	•		Revenue increased 10.7%, to $79.2 million, compared to $71.5 million.

	•		Skilled census, representing total Medicare and managed care patients, increased 10.7% to an average of 685 patients per day, a record high for the Company. Skilled census was 16.5% of total census in the second quarter of 2011 compared to 14.8% in 2010.

	•		Medicare revenues increased 29% compared to the second quarter of 2010, as a result of increased patient census, changes in patient acuity levels, and the effects of the skilled nursing rate adjustments in October 2010.

	•		The Company is incurring expenses that are expected to benefit future periods. Results for the second quarter of 2011 included investments totaling approximately $1.7 million for expenses related to our strategic growth initiatives. While the Company is already experiencing an increase in skilled mix and operating results, we expect results from these investments will fully develop in future periods.

	•		Net income from continuing operations was $2.9 million compared to $987,000, or $0.48 per diluted common share compared to $0.15 per diluted common share in 2010.

	•		Funds provided by operations were $6.4 million versus $3.1 million or $1.08 compared to $0.53 per diluted common share in 2010.

Funds provided by operations is a non-GAAP performance measurement. A reconciliation of funds provided by operations to net income is included in the financial tables accompanying this press release.

CEO Remarks

William R. Council, President and Chief Executive Officer, remarked, “Our operating results for 2011 are off to a strong start with growth in skilled mix average daily census of over 10%. The sharp increase in this metric indicates that the strategic investments to improve skilled mix and occupancy are providing the benefits that we expect. Our investment in technology, personnel and training is not only improving our performance but also building the foundation to support higher census and skilled mix in future periods. Despite the upfront investment these initiatives

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required this period, we saw a strong second quarter, with funds provided by operations of $6.4 million or $1.08 per diluted common share.”

Commenting on the recently announced Medicare rate cut, Mr. Council continued, “We are very disappointed in the recent CMS decision to reduce Medicare rates by 11.1%. Our profession proposed a reasonable alternative that would have provided for a stabilized adjustment period. We are reviewing our operations to determine how we might potentially mitigate the negative impact of the CMS rate reductions. We will continue to analyze the rate changes and make appropriate operational changes.”

Other Highlights for the Quarter Ended 2011

The following table summarizes key revenue and census statistics for the quarter:


	Quarter Ended
	June 30,
	2011			2010
Total occupancy		77.3	%		78.2	%
As a percent of total census:
Medicare census		14.6	%		13.5	%
Managed care census		1.9	%		1.3	%
As a percent of total revenues:
Medicare revenues		35.9	%		30.8	%
Medicaid revenues		47.7	%		53.6	%
Managed care revenues		3.9	%		2.7	%
Average rate per day:
Medicare	$	464.71		$	389.13
Medicaid	$	150.66		$	145.32
Managed care	$	403.50		$	389.14

Patient Revenues

Medicare revenues increased $6.4 million in the second quarter of 2011 compared to the same period in 2010, as a result of serving a greater number of Medicare patients, changes in patient acuity levels, and rate adjustments implemented by CMS in October 2010. The increase in the total Medicare census and the acuity of our patient mix is primarily attributable to the investments we have made to improve our skilled care offerings. These investments and the costs of caring for these patients resulted in cost increases as discussed below.

Medicaid average daily census was 4.4% lower in 2011, decreasing revenue by $1.7 million in the second quarter of 2011. The average Medicaid rate per patient day for 2011 increased 3.7% compared to 2010 resulting in a revenue increase of $1.3 million in 2011. This increase is the result of rate increases in certain states, partially funded by increased provider taxes, and increasing patient acuity levels. The decrease in Medicaid census reflects our focus on improving our skilled mix.

Managed care rates and census contributed approximately $1.0 million of the total revenue increase. The average managed care rate per patient day for 2011 increased 3.7% compared to 2010 and managed care average daily census increased 44.4%.

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Expenses

Expenses for 2011 include approximately $1.7 million for investment spending in operating initiatives to improve skilled mix and occupancy. The $1.7 million consists of approximately $0.7 million in nursing center staffing costs to improve our ability to market to and care for high acuity patients, $0.4 million for costs of additional wages that resulted from the transition to the new MDS 3.0 patient assessment tool, and additional administrative costs of $0.6 million for oversight and execution of these initiatives. In addition, we increased therapy staffing costs by $1.2 million to support the current skilled census and provide the support for additional increases in skilled census over the long term. While the Company is already experiencing an increase in skilled mix and operating results, there is typically a time delay between incurring such expenses and fully attaining the revenues and cash flows expected from these initiatives and developments.

Operating expense increased to $59.7 million in 2011 from $56.4 million in 2010, an increase of $3.3 million, or 5.9%. The increase in operating expense is primarily attributable to cost increases associated with our increased revenue as well as investment in operating initiatives focused on improving our skilled mix and occupancy. Operating expense decreased to 75.5% of revenue in 2011, compared to 78.9% of revenue in 2010.

The largest component of operating expense is wages, which increased to $37.4 million in 2011 from $34.5 million in 2010, an increase of $2.9 million, or 8.6%. The increase in wages was primarily due to labor costs associated with the 10.7% increase in Medicare and managed care patients, competitive labor markets in most of the areas in which we operate and regular merit and inflationary raises for personnel (increase of approximately 3.1% for the quarter). As discussed above, we also increased facility staffing as part of our initiatives to further improve occupancy and skilled mix.

General and administrative expenses were approximately $6.1 million in 2011, compared to $5.1 million in 2010, an increase of $1.0 million, or 21.0%. Costs of our strategic initiatives accounted for approximately $0.6 million, including compensation costs related to new positions of approximately $0.4 million, costs related to the implementation of electronic medical records of approximately $0.1 million, and travel expenses of $0.1 million. Performance-based incentive expense was $0.2 million higher in 2011.

Highlights for the Six Months Ended June 30, 2011:

	•		Revenue for the period increased to $156.3 million from $141.6 million or approximately 10.3%.

	•		Net income from continuing operations rose to $3.4 million from $1.7 million or approximately 100%.

	•		Net income from continuing operations per diluted share increased to $0.54 from $0.26 or approximately 108%.

	•		Funds provided by operations increased to $9.6 million from $6.4 million, an increase of approximately 50%.

Facility Renovations

As of June 30, 2011, the Company has completed renovations at fifteen facilities. The Company is developing plans for additional renovation projects. A total of $22.4 million has been spent on the renovation program to date, with $15.2 million financed through Omega, $6.1 million financed with internally generated cash, and $1.1 million financed with long-term debt. A table is included with this press release summarizing operating results at renovated nursing centers.

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As part of the Company’s plans to develop additional renovation projects, the Company entered into an amendment to the Master lease with Omega in April 2011 under which Omega agreed to provide an additional $5.0 million to fund renovations to four nursing centers located in Arkansas, Kentucky, Ohio and Texas that are leased from Omega. The Company has four projects under way at this time, with completion dates late this year or early next year.

Electronic Medical Records

During the second half of 2010, the Company developed a plan to introduce EMR to all its facilities. The Company expects to complete its EMR implementation plan during the remainder of 2011. It is anticipated that our investment in EMR will provide operational improvements through automation of record keeping and improvement in clinical records quality. During the six months ended June 30, 2011, we capitalized $0.6 million related to the EMR initiative and expensed $0.5 million in training costs. The Company expects to have total expenses during 2010 and 2011 related to implementing its electronic medical record system of between $1.8 million and $2.0 million and total capital expenditures during this period of approximately $3.6 million.

Conference Call Information

A conference call has been scheduled for Wednesday, August 10, 2011 at 9:00 A.M. Central time (10:00 A.M. Eastern time) to discuss second quarter 2011 results.

The conference call information is as follows:


Date:		Wednesday, August 10, 2011
Time:		9:00 A.M. Central, 10:00 A.M. Eastern
Webcast Links:		www.advocat-inc.com

Dial in numbers:		(877) 674-2413 (domestic) or (708) 290-1366 (International) The Operator will connect you to Advocat Inc.’s Conference Call

The call will consist of remarks from management as well as a question and answer session. In addition to the questions posed during the live call, management will also be addressing questions submitted by email. If you would like to submit a question please email it to InvestorRelations@advocat-inc.com before the start of the call.

A replay of the conference call will be accessible two hours after its completion through August 17, 2011 by dialing 955-859-2056 (domestic) or 404-537-3406 (International) and entering passcode 83718509.

FORWARD-LOOKING STATEMENTS

The “forward-looking statements” contained in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are predictive in nature and are frequently identified by the use of terms such as “may,” “will,” “should,” “expect,” “believe,” “estimate,” “intend,” and similar words indicating possible future expectations, events or actions. These forward-looking statements reflect our current views with respect to future events and present our estimates and assumptions only as of the date of this release. Actual results could differ materially from those contemplated by the forward-looking statements made in this release. In addition to any assumptions and other factors referred to specifically in connection with such statements, other factors, many of which are beyond our ability to control or predict, could cause our actual results to differ materially from the results

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expressed or implied in any forward looking statements, including but not limited to, our ability to successfully construct and operate the new nursing center in West Virginia, our ability to increase census at our renovated facilities, changes in governmental reimbursement, including the impact of a recently announced final rule that is expected to result in a 11.1% reduction in Medicare reimbursement as of October 2011,, government regulation, the impact of federal health care reform or any future health care reform, any increases in the cost of borrowing under our credit agreements, our ability to comply with covenants contained in those credit agreements, the outcome of professional liability lawsuits and claims, our ability to control ultimate professional liability costs, the accuracy of our estimate of our anticipated professional liability expense, the impact of future licensing surveys, the outcome of proceedings alleging violations of laws and regulations governing quality of care or violations of other laws and regulations applicable to our business, costs and impacts associated with the implementation of our electronic medical records plan, the costs of investing in our business initiatives and development, our ability to control costs, changes to our valuation of deferred tax assets, changes in occupancy rates in our facilities, changing economic and competitive conditions, changes in anticipated revenue and cost growth, changes in the anticipated results of operations, the effect of changes in accounting policies, as well as other risk factors detailed in the Company’s Securities and Exchange Commission filings. The Company has provided additional information in its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as well as in its Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission, which readers are encouraged to review for further disclosure of other factors. These assumptions may not materialize to the extent assumed, and risks and uncertainties may cause actual results to be different from anticipated results. These risks and uncertainties also may result in changes to the Company’s business plans and prospects. 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 services.

Advocat provides long term care services to patients in 46 skilled nursing centers containing 5,364 licensed nursing beds, primarily in the Southeast and Southwest. For additional information about the Company, visit Advocat’s web site: www.advocat-inc.com.

-Financial Tables to Follow-

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ADVOCAT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)


	June 30,		December 31,
	2011		2010
	(Unaudited)
ASSETS:
Current Assets
Cash and cash equivalents	$	8,786	$	8,862
Receivables, net		27,584		23,801
Deferred income taxes		4,723		4,207
Other current assets		6,152		5,965

Total current assets		47,245		42,835

Property and equipment, net		42,326		38,180
Deferred income taxes		11,131		12,408
Acquired leasehold interest, net		9,188		9,380
Other assets, net		5,675		3,153

TOTAL ASSETS	$	115,565	$	105,956


LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current Liabilities
Current portion of long-term debt and capitalized lease obligations	$	527	$	582
Trade accounts payable		5,103		3,120
Accrued expenses:
Payroll and employee benefits		11,696		11,047
Current portion of self-insurance reserves		8,278		7,379
Other current liabilities		3,860		4,479

Total current liabilities		29,464		26,607
Noncurrent Liabilities
Long-term debt and capitalized lease obligations, less current portion		25,946		23,819
Self-insurance reserves, less current portion		11,418		11,659
Other noncurrent liabilities		17,531		16,748

Total noncurrent liabilities		54,895		52,226

PREFERRED STOCK		4,918		4,918

SHAREHOLDERS’ EQUITY		26,288		22,205

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	115,565	$	105,956

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ADVOCAT INC.
CONSOLIDATED INCOME STATEMENTS
(In thousands, except per share data)


	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2011			2010			2011			2010
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
PATIENT REVENUES, NET	$	79,172		$	71,492		$	156,302		$	141,644

EXPENSES:
Operating		59,742			56,388			120,599			111,790
Lease		5,727			5,636			11,441			11,238
Professional liability		1,081			997			2,772			2,411
General and administrative		6,124			5,063			12,178			9,765
Depreciation and amortization		1,565			1,432			3,121			2,848

		74,239			69,516			150,111			138,052

OPERATING INCOME		4,933			1,976			6,191			3,592

OTHER INCOME (EXPENSE):
Interest expense, net		(582	)		(415	)		(1,033	)		(811	)
Debt retirement costs		—			—			(112	)		(127	)

		(582	)		(415	)		(1,145	)		(938	)

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		4,351			1,561			5,046			2,654
PROVISION FOR INCOME TAXES		(1,412	)		(574	)		(1,661	)		(960	)

NET INCOME FROM CONTINUING OPERATIONS		2,939			987			3,385			1,694
DISCONTINUED OPERATIONS		(2	)		(10	)		(10	)		191

NET INCOME		2,937			977			3,375			1,885
PREFERRED STOCK DIVIDENDS		(86	)		(86	)		(172	)		(172	)


NET INCOME FOR COMMON STOCK	$	2,851		$	891		$	3,203		$	1,713


NET INCOME PER COMMON SHARE:
Per common share — basic
Income from continuing operations	$	0.49		$	0.16		$	0.56		$	0.27
Income from discontinued operations		—			—			—			0.03

	$	0.49		$	0.16		$	0.56		$	0.30


Per common share — diluted
Income from continuing operations	$	0.48		$	0.15		$	0.54		$	0.26
Income from discontinued operations		—			—			—			0.03

	$	0.48		$	0.15		$	0.54		$	0.29


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		5,778			5,726			5,765			5,722

Diluted		5,934			5,874			5,906			5,894

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ADVOCAT INC.
FUNDS PROVIDED BY OPERATIONS
(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
NET INCOME	$	2,937		$	977		$	3,375		$	1,885
Income (loss) from discontinued operations		(2	)		(10	)		(10	)		191

Net income from continuing operations		2,939			987			3,385			1,694
Adjustments to reconcile net income from continuing operations to funds provided by operations:
Depreciation and amortization		1,565			1,432			3,121			2,848
Provision for doubtful accounts		625			452			1,194			940
Deferred income tax provision		964			118			1,073			64
Provision for self-insured professional liability, net of cash payments		(60	)		(264	)		6			(193	)
Stock-based compensation		202			137			403			333
Amortization of deferred balances		38			45			84			121
Provision for leases in excess of cash payments		112			222			225			447
Other		—			—			79			127

FUNDS PROVIDED BY OPERATIONS	$	6,385		$	3,129		$	9,570		$	6,381


FUNDS PROVIDED BY OPERATIONS PER SHARE:
Basic	$	1.11		$	0.55		$	1.66		$	1.12

Diluted	$	1.08		$	0.53		$	1.62		$	1.08


WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		5,778			5,726			5,765			5,722

Diluted		5,934			5,874			5,906			5,894

Advocat provides financial measures using accounting principles generally accepted in the United States (GAAP) and using adjustments to GAAP (non-GAAP). These non-GAAP measures are not measurements under GAAP. These measurements should be considered in addition to, but not as a substitute for, the information contained in our financial statements prepared in accordance with GAAP. Funds Provided by Operations is defined as net income from continuing operations adjusted for the cash effect of professional liability and other non-cash charges and is measured before the effects of capital additions, debt payments or dividends to preferred or common shareholders. Funds Provided by Operations per share is defined as Funds Provided by Operations divided by the weighted average common shares outstanding. Management believes that Funds Provided by Operations is an important performance measurement because it eliminates the effect of actuarial assumptions on our professional liability reserves, includes the cash effect of professional liability payments, and does not include the effects of other non-cash charges. Since the definition of Funds Provided by Operations may vary among companies and industries, it should not be used as a measure of performance among companies.

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ADVOCAT INC.
SELECTED OPERATING STATISTICS
JUNE 30, 2011
(Unaudited)


					For the Three Months Ended June 30, 2011
					Skilled													Medicare		Medicaid
	As of				Nursing		Occupancy											Room and		Room and
	June 30, 2011				Weighted		(Note 1)									2011		Board		Board
	Licensed		Available		Average		Licensed			Available						Q2		Revenue		Revenue
	Nursing		Nursing		Daily		Nursing			Nursing			Medicare			Revenue		PPD		PPD
Region	Beds		Beds		Census		Beds			Beds			Utilization			($ in millions)		(Note 2)		(Note 2)
Alabama (Note 3)		790		783		705		89.3	%		90.1	%		16.6	%	$	15.5	$	493.84	$	170.59
Arkansas		1,311		1,183		929		70.8	%		78.5	%		18.0	%		17.5		423.87		149.43
Kentucky (Note 4)		778		757		683		87.8	%		90.3	%		13.5	%		14.1		464.78		173.04
Tennessee		617		586		512		83.0	%		87.4	%		17.0	%		10.3		449.07		147.54
Texas		1,868		1,676		1,318		70.6	%		78.6	%		10.9	%		21.8		497.92		128.95

Total		5,364		4,985		4,147		77.3	%		83.2	%		14.6	%	$	79.2	$	464.71	$	150.66


Note 1:		The number of Licensed Nursing Beds is based on the licensed capacity of the facility. The Company has historically reported its occupancy based on licensed nursing beds. The number of Available Nursing Beds represents licensed nursing beds less beds removed from service. Available nursing beds is subject to change based upon the needs of the facilities, including configuration of patient rooms, common usage areas and offices, status of beds (private, semi-private, ward, etc.) and renovations. Occupancy is measured on a weighted average basis.

Note 2:		These Medicare and Medicaid revenue rates include room and board revenues but do not include any ancillary revenues related to these patients.

Note 3:		The Alabama region includes nursing centers in Alabama and Florida.

Note 4:		The Kentucky region includes nursing centers in Kentucky, West Virginia and Ohio.

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ADVOCAT INC.
SELECTED OPERATING STATISTICS OF RENOVATED FACILITIES
JUNE 30, 2011
(Unaudited)


							Medicare Average Daily
	Occupancy⁽¹⁾						Census
	Q2			LTM⁽²⁾			Q2		LTM⁽²⁾
Renovation — Completion Date	2011			Prior			2011		Prior
1^st renovation — January 2006		84.3	%		64.9	%		16		8
2^nd renovation — July 2006		60.1	%		71.2	%		10		12
3^rd renovation — August 2006		78.3	%		45.1	%		9		5
4^th renovation — October 2006		81.6	%		71.9	%		11		9
5^th renovation — February 2007		66.5	%		56.2	%		11		8
6^th renovation — April 2007		57.0	%		47.5	%		15		13
7^th renovation — July 2007		73.3	%		85.0	%		11		17
8^th renovation — January 2008		70.5	%		50.9	%		13		9
9^th renovation — October 2008		86.7	%		83.0	%		15		17
10^th renovation — November 2008		87.9	%		80.8	%		15		12
11^th renovation — March 2009		76.2	%		62.5	%		12		7
12^th renovation — November 2009		92.0	%		86.7	%		24		24
13^th renovation — January 2010		96.6	%		95.6	%		8		5
14^th renovation — July 2010		95.5	%		77.6	%		32		12
15^th renovation — August 2010		73.3	%		68.8	%		25		19

Total		77.9	%		69.8	%		227		177


⁽¹⁾		Occupancy based on licensed beds.

⁽²⁾		Last Twelve Months prior to commencement of construction.

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