Five Star Quality Care, Inc. Reports Second Quarter 2013 Results And Announces Intention To Sell 11 Senior Living Communities With 753 Living Units That Receive The Majority Of Their Revenues From Medicaid/Medicare

Five Star Quality Care, Inc. (NYSE: FVE) today announced its financial results for the quarter and six months ended June 30, 2013.

Second Quarter 2013 Financial Highlights:
  • Total revenues for the second quarter of 2013 increased 9.0% to $351.9 million from $322.8 million for the same period in 2012.
  • Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the second quarter of 2013 were $12.3 million compared to $17.1 million for the same period in 2012. EBITDA for the second quarter of 2012 included a gain on settlement of our litigation with Sunrise Senior Living, Inc., or Sunrise, which increased EBITDA by $3.4 million. EBITDA excluding that gain and certain other items was $12.5 million and $13.7 million for the second quarters of 2013 and 2012, respectively. A reconciliation of income from continuing operations determined in accordance with U.S. generally accepted accounting principles, or GAAP, to EBITDA and EBITDA excluding certain items for the quarters ended June 30, 2013 and 2012 appears later in this press release.
  • Income from continuing operations for the second quarter of 2013 was $2.7 million, or $0.06 per basic and diluted share, compared to $5.3 million, or $0.10 per basic and diluted share for the same period in 2012. Income from continuing operations for the second quarter of 2012 included a gain on settlement of our litigation with Sunrise of $1.9 million (net of taxes), or $0.04 per basic and diluted share.
  • Net income for the second quarter of 2013 was $825,000, or $0.02 per basic and diluted share, compared to $4.6 million, or $0.09 per basic and diluted share for the same period in 2012. Net income in the 2013 period included a loss from discontinued operations of $1.8 million. Net income in the 2012 period included a gain on settlement of our litigation with Sunrise of $1.9 million (net of taxes) and a loss from discontinued operations of 674,000.

Second Quarter 2013 Operating Highlights:
  • Occupancy at our owned and leased senior living communities for the second quarter of 2013 was 85.5% compared to 86.0% for the same period in 2012.
  • The average monthly rate at our owned and leased senior living communities for the second quarter of 2013 increased by 0.8% to $4,443 from $4,406 for the same period in 2012.
  • The percentage of revenues derived from residents’ private resources for the second quarter of 2013 at our owned and leased senior living communities increased 90 basis points to 76.7% from 75.8% for the same period in 2012.
  • Our fee revenues from managed senior living communities in the second quarter of 2013 increased to $2.3 million compared to $1.3 million for the same period in 2012.

Year to Date Financial Highlights:
  • Total revenues for the six months ended June 30, 2013 increased 9.7% to $703.1 million from $640.8 million for the same period in 2012.
  • EBITDA for the six months ended June 30, 2013 was $22.5 million compared to $26.3 million for the same period in 2012. EBITDA for the six months ended June 30, 2012 included a gain on settlement of our litigation with Sunrise that increased EBITDA by $3.4 million. EBITDA excluding that gain and certain other items was $22.5 million and $22.9 million for the six months ended June 30, 2013 and 2012, respectively. A reconciliation of income from continuing operations determined in accordance with GAAP to EBITDA and EBITDA excluding certain items for the six months ended June 30, 2013 and 2012 appears later in this press release.
  • Income from continuing operations for the six months ended June 30, 2013 was $6.1 million, or $0.13 per basic and diluted share, compared to $6.5 million, or $0.14 per basic and diluted share for the same period in 2012. Income from continuing operations for the six months ended June 30, 2013 included an income tax benefit of $1.5 million, or $0.03 per basic and diluted share, relating to a work opportunity tax credit program that expired in 2012 and which was retroactively reinstated in January 2013. Income from continuing operations for the six months ended June 30, 2012 included a gain on settlement of our litigation with Sunrise of $1.9 million (net of taxes), or $0.04 per basic and diluted share.
  • Net income for the six months ended June 30, 2013 was $2.8 million, or $0.06 per basic and diluted share, compared to $5.0 million, or $0.11 per basic and diluted share for the same period in 2012. Net income in the 2013 period included a loss from discontinued operations of $3.4 million. Net income in the 2012 period included a gain on settlement of our litigation with Sunrise of $1.9 million (net of taxes) and a loss from discontinued operations of $1.5 million.

Intention to Sell 11 Senior Living Communities with 753 Living Units that Receive the Majority of Their Revenues from Medicaid/Medicare:

In June 2013, we and Senior Housing Properties Trust, or SNH, agreed that SNH will offer for sale 10 senior living communities with 721 living units, which we lease from SNH. Seven of these 10 communities with 578 living units are skilled nursing facilities, or SNFs, and three of these communities with 143 living units are assisted living communities. Also in June 2013, we decided to offer for sale one assisted living community we own with 32 living units. In aggregate, these communities receive the majority of their revenues from Medicare/Medicaid reimbursements. We are in the process of offering these communities for sale, but we can provide no assurance that sales of these communities will occur. With regard to the 10 communities that we lease from SNH, our rent payable to SNH will be reduced if and as these sales may occur pursuant to our lease terms with SNH. The operating results of these 11 communities are included in our discontinued operations and they generated net losses of $1.8 million during the second quarter of 2013.

As of June 30, 2013, we and SNH had entered an agreement to sell one of the 10 communities that we lease from SNH and intend to sell, a SNF with 112 living units, for a sales price of $2.6 million. We expect the sale of this SNF to occur before the end of 2013, but completion of this sale is subject to customary closing conditions and we can provide no assurance that a sale of this SNF will occur before the end of 2013 or at all or that the terms of the sale will not change.

Other Highlights:

On April 30, 2013, we completed the sale of two SNFs we owned located in Michigan with a total of 271 living units for an aggregate sales price of $8.0 million, including the assumption by the buyer of $7.5 million of United States Department of Housing and Urban Development guaranteed mortgage debt. The operating results of these two SNFs are included in our discontinued operations.

On July 8, 2013, we redeemed all $24.9 million principal amount of our 3.75% convertible senior notes outstanding at a redemption price equal to the principal amount plus accrued and unpaid interest. We funded this redemption with cash on hand and borrowings under our revolving credit facility.

Conference Call:

Later today, July 29, 2013, at 5:00 p.m. Eastern Time, we will host a conference call to discuss the second quarter financial results. Following management’s presentation, there will be a question and answer period.

The conference call telephone number is (877) 777-1967. Participants calling from outside the United States and Canada should dial (612) 332-0637. No pass code is necessary to access the call from either number. Participants should dial in about 15 minutes prior to the scheduled start of the call. A replay of the conference call will be available through 11:59 p.m. Eastern Time, August 5, 2013. To hear the replay, dial (320) 365-3844. The replay pass code is 296748.

A live audio webcast of the conference call will also be available in a listen only mode on the Company’s website at www.fivestarseniorliving.com. Participants wanting to access the webcast should visit the Company’s website about five minutes before the call. The archived webcast will be available for replay on the Company’s website for about one week after the call. The transcription, recording and retransmission in any way of the Company’s second quarter 2013 conference call is strictly prohibited without the prior written consent of the Company. The Company’s website is not incorporated as part of this press release.

About Five Star Quality Care, Inc.:

Five Star Quality Care, Inc. is a senior living and healthcare services company. As of June 30, 2013, we operated 250 senior living communities (excluding those senior living communities we have classified as discontinued operations) with 29,698 living units located in 31 states, including 30 communities (2,946 living units) that we own and operate, 181 communities (20,074 living units) that we lease and operate, and 39 communities (6,678 living units) that we manage. These communities include independent living, assisted living, continuing care and skilled nursing communities. We also operate two rehabilitation hospitals. We are headquartered in Newton, Massachusetts.

WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS PRESS RELEASE CONTAINS STATEMENTS THAT CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER SECURITIES LAWS. ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS. THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THESE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. FOR EXAMPLE:
  • THIS PRESS RELEASE STATES THAT WE AND SNH HAVE DECIDED TO OFFER FOR SALE 10 SENIOR LIVING COMMUNITIES THAT WE LEASE FROM SNH AND WE HAVE DECIDED TO OFFER FOR SALE ONE SENIOR LIVING COMMUNITY THAT WE OWN. WE CAN PROVIDE NO ASSURANCE THAT WE WILL BE ABLE TO SELL THESE COMMUNITIES ON TERMS ACCEPTABLE TO US OR OTHERWISE.
  • THIS PRESS RELEASE STATES THAT WE AND SNH HAVE AGREED TO SELL ONE OF THE 10 SENIOR LIVING COMMUNITIES THAT WE LEASE FROM SNH AND THAT WE EXPECT THE SALE TO OCCUR PRIOR TO THE END OF 2013. THIS SALE IS SUBJECT TO VARIOUS TERMS AND CONDITIONS TYPICAL OF SUCH TRANSACTIONS. THESE TERMS AND CONDITIONS MAY NOT BE MET. AS A RESULT, THIS TRANSACTION MAY BE DELAYED OR MAY NOT OCCUR OR ITS TERMS MAY CHANGE.

THE INFORMATION CONTAINED IN OUR FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, OR SEC, INCLUDING UNDER THE CAPTION “RISK FACTORS” IN OUR PERIODIC REPORTS, OR INCORPORATED THEREIN, IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES FROM OUR FORWARD LOOKING STATEMENTS. OUR FILINGS WITH THE SEC ARE AVAILABLE ON THE SEC’S WEBSITE AT WWW.SEC.GOV.

FOR THESE REASONS, AMONG OTHERS, INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS IN THIS PRESS RELEASE.

FIVE STAR QUALITY CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
                   
Three months ended

June 30,
Six months ended

June 30,
2013 2012 2013 2012
Revenues:
Senior living revenue $ 269,081 $ 269,040 $ 538,471 $ 535,776
Rehabilitation hospital revenue 28,343 26,386 55,824 53,173
Management fee revenue 2,281 1,302 4,583 2,390

Reimbursed costs incurred on behalf of managed communities
  52,153     26,098     104,211     49,503  
Total revenues   351,858     322,826     703,089     640,842  
 
Operating expenses:
Senior living wages and benefits 130,466 130,240 263,086 262,026
Other senior living operating expenses 65,751 63,797 132,090 128,058

Costs incurred on behalf of managed communities
52,153 26,098 104,211 49,503
Rehabilitation hospital expenses 24,710 23,872 49,604 47,991
Rent expense 50,936 49,849 101,129 99,628
General and administrative 15,452 15,389 30,583 30,844
Depreciation and amortization   6,651     6,276     13,089     12,165  
Total operating expenses   346,119     315,521     693,792     630,215  
 
Operating income 5,739 7,305 9,297 10,627
 
Interest, dividend and other income 211 234 408 439
Interest and other expense (1,355 ) (1,605 ) (2,811 ) (3,031 )
Acquisition related costs (41 ) - (41 ) -
Equity in earnings of Affiliates Insurance

Company
79 76 155 121
Gain on settlement - 3,365 - 3,365
Gain on early extinguishment of debt - 45 - 45

Loss on sale of available for sale securities reclassified from other comprehensive income
  (117 )   -     (30 )   (1 )
 

Income from continuing operations before income taxes
4,516 9,420 6,978 11,565
Provision for income taxes   (1,854 )   (4,108 )   (850 )   (5,063 )
Income from continuing operations 2,662 5,312 6,128 6,502
Loss from discontinued operations   (1,837 )   (674 )   (3,368 )   (1,495 )
 
Net income $ 825   $ 4,638   $ 2,760   $ 5,007  
 
 
Weighted average shares outstanding - basic   48,253     47,914     48,244     47,906  
 
Weighted average shares outstanding - diluted   48,253     49,953     48,244     50,360  
 
Basic income per share from:
Continuing operations $ 0.06 $ 0.10 $ 0.13 $ 0.14
Discontinued operations   (0.04 )   (0.01 )   (0.07 )   (0.03 )
Net income per share - basic $ 0.02   $ 0.09   $ 0.06   $ 0.11  
 
Diluted income per share from:
Continuing operations $ 0.06 $ 0.10 $ 0.13 $ 0.14
Discontinued operations   (0.04 )   (0.01 )   (0.07 )   (0.03 )
Net income per share - diluted $ 0.02   $ 0.09   $ 0.06   $ 0.11  
 
 
FIVE STAR QUALITY CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS DATA
(in thousands)
(unaudited)
             
June 30,

2013
December 31,

2012
Assets
Current assets:
Cash and cash equivalents $ 19,311 $ 24,638
Accounts receivable, net of allowance 56,763 49,886
Due from related persons 5,810 6,881
Investments in available for sale securities 16,352 12,920
Restricted cash 11,202 6,548
Prepaid expenses and other current assets 19,382 29,394
Assets of discontinued operations     4,978   16,285
Total current assets     133,798   146,552
 
Property and equipment, net 331,172 333,335
Restricted cash 11,196 12,166
Restricted investments in available for sale securities 6,979 10,580
Goodwill, equity investment and other long term assets     75,741   75,604
Total assets $   558,886 $ 578,237
 
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility, secured, principally by real estate $ - $ -
Revolving credit facility, secured, principally by accounts receivable - -
Convertible senior notes 24,872 24,872
Other current liabilities     148,010   165,969
Total current liabilities     172,882   190,841
 
Mortgage notes payable 37,050 37,621
Other long term liabilities 39,141 42,970
Shareholders’ equity     309,813   306,805
Total liabilities and shareholders' equity $   558,886 $ 578,237
 
 
FIVE STAR QUALITY CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                   
Three months ended June 30, Six months ended June 30,
2013 2012 2013 2012
 
Cash flows from operating activities:
Net income $ 825 $ 4,638 $ 2,760 $ 5,007

Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 6,651 6,276 13,089 12,165
Gain on early extinguishment of debt - (45 ) - (45 )
Loss from discontinued operations 1,837 674 3,368 1,495

Loss on sale of available for sale securities
117 - 30 1
Equity in earnings of Affiliates Insurance Company (79 ) (76 ) (155 ) (121 )
Stock-based compensation 383 273 588 490
Provision for losses on receivables 1,606 1,074 2,842 2,153
Changes in assets and liabilities:
Accounts receivable (5,145 ) 256 (9,719 ) (1,722 )
Prepaid expenses and other assets 2,283 4,003 9,377 3,515
Accounts payable and accrued expenses (2,795 ) 1,783 (15,623 ) 2,140
Accrued compensation and benefits (357 ) 611 3,088 5,101
Due from (to) related persons, net 201 2,489 1,315 (2,703 )
Other current and long term liabilities   1,095     (10 )   (1,473 )   984  
Cash provided by operating activities   6,622     21,946     9,487     28,460  
 
Net cash provided by (used in) discontinued operations   2,955     747     (81 )   1,390  
 
Cash flows from investing activities:
Acquisition of property and equipment (13,717 ) (15,235 ) (26,255 ) (27,770 )
Payments from restricted cash and investment accounts, net (1,518 ) (754 ) (3,684 ) (3,890 )
Purchase of available for sale securities (451 ) (4,554 ) (5,333 ) (4,554 )

Proceeds from disposition of property and equipment held for sale
7,731 7,668 15,901 13,967
Proceeds from sale of available for sale securities   2,804     -     5,213     772  
Cash used in investing activities   (5,151 )   (12,875 )   (14,158 )   (21,475 )
 
Cash flows from financing activities:
Proceeds from borrowings on credit facilities - 47,500 20,000 47,500
Repayments of borrowings on credit facilities - (10,000 ) (20,000 ) (10,000 )

Repayments of borrowing on the bridge loan from Senior Housing Properties Trust
- (38,000 ) - (38,000 )
Purchase and retirement of convertible senior notes - (12,038 ) - (12,038 )
Repayments of mortgage notes payable   (271 )   (290 )   (575 )   (576 )
Cash used in financing activities   (271 )   (12,828 )   (575 )   (13,114 )
 
Change in cash and cash equivalents during the period 4,155 (3,010 ) (5,327 ) (4,739 )
Cash and cash equivalents at beginning of period   15,156     26,645     24,638     28,374  
Cash and cash equivalents at end of period $ 19,311   $ 23,635   $ 19,311   $ 23,635  
 
Supplemental cash flow information:
Cash paid for interest $ 1,079 $ 1,749 $ 1,788 $ 2,751
Cash paid for income taxes $ 1,098 $ 1,113 $ 1,394 $ 1,235
 
Non-cash activities:
Issuance of common stock $ 182 $ 114 $ 182 $ 114
 
 
FIVE STAR QUALITY CARE, INC.
SENIOR LIVING COMMUNITY FINANCIAL DATA (1)
(dollars in thousands, except average monthly rate)
                   
 
Three months ended Six months ended
  June 30, (2)   June 30, (2)
2013 2012 2013 2012
Senior living communities:
Number of communities (end of period) 211 211 211 211
Number of units (end of period) 23,020 23,020 23,020 23,020
Occupancy 85.5 % 86.0 % 85.8 % 86.2 %
Avg. monthly rate (3) $ 4,443 $ 4,406 $ 4,458 $ 4,383
 
Senior living revenue:

Independent and assisted living community revenue
$ 124,242 $ 121,975 $ 247,443 $ 243,184
Continuing care retirement community revenue 97,020 96,954 194,456 194,387
Skilled nursing facility revenue 44,671 46,745 90,050 91,632
Other (4) 3,148 3,366 6,522 6,573
               
Total senior living revenue $ 269,081   $ 269,040   $ 538,471   $ 535,776  
 
Senior living wages and benefits:

Independent and assisted living community wages and benefits
$ 52,753 $ 52,650 $ 106,432 $ 105,962

Continuing care retirement community wages and benefits
48,029 47,702 97,006 96,220
Skilled nursing facility wages and benefits 28,404 28,540 57,256 57,203
Other (4) 1,280 1,348 2,392 2,641
               
Total senior living wages and benefits $ 130,466   $ 130,240   $ 263,086   $ 262,026  
 
Senior living other operating expenses:

Independent and assisted living community other operating expenses
$ 29,879 $ 28,620 $ 59,364 $ 57,943

Continuing care retirement community other operating expenses
24,528 23,403 49,623 47,271
Skilled nursing facility other operating expenses 11,220 11,131 22,493 21,652
Other (4) 124 643 610 1,192
               
Total senior living other operating expenses $ 65,751   $ 63,797   $ 132,090   $ 128,058  
 

(1) Excludes data for managed communities, rehabilitation hospitals and discontinued senior living operations.

(2) The number of communities operated continuously from January 1, 2012, through June 30, 2013, did not change; as such, there is no separate comparable senior living community financial data presented.

(3) Average monthly rate is calculated by taking the average daily rate, which is defined as total operating revenue divided by occupied units, during the period and multiplying it by 30 days.

(4) Other senior living relates primarily to rehabilitation and other specialty service revenues and expenses provided at our residential facilities and does not include revenue and expenses from our rehabilitation hospital operations.
 
 
FIVE STAR QUALITY CARE, INC.
PERCENT BREAKDOWN OF SENIOR LIVING COMMUNITY REVENUES (1)
         
         
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
Independent and assisted living communities:
Private and other sources 99.1% 99.0% 99.1% 99.0%
Medicaid 0.9% 1.0% 0.9% 1.0%
Total 100% 100% 100% 100%
 
Continuing care retirement communities:
Private and other sources 71.7% 70.6% 70.9% 70.6%
Medicare 22.4% 22.7% 23.0% 22.7%
Medicaid 5.9% 6.7% 6.1% 6.7%
Total 100% 100% 100% 100%
 
Skilled nursing facilities:
Private and other sources 26.0% 26.3% 26.0% 26.4%
Medicare 26.1% 25.4% 26.5% 26.0%
Medicaid 47.9% 48.3% 47.5% 47.6%
Total 100% 100% 100% 100%
 
Total senior living communities:
Private and other sources 76.7% 75.8% 76.3% 75.9%
Medicare 12.6% 12.8% 12.9% 12.9%
Medicaid 10.7% 11.4% 10.8% 11.2%
Total 100% 100% 100% 100%
 

(1) Excludes data for managed communities, rehabilitation hospitals and discontinued senior living operations.
 
 
FIVE STAR QUALITY CARE, INC.
SENIOR LIVING OTHER OPERATING DATA (1)
(dollars in thousands, except average monthly rate)
                     
  Three months ended
June 30, March 31, December 31, September 30, June 30,
2013     2013     2012     2012     2012
Independent and assisted living communities (owned):
Number of communities (end of period) 30 30 30 30 30
Number of units (end of period) 2,946 2,946 2,946 2,946 2,946
Occupancy 87.6 % 87.5 % 87.8 % 86.1 % 85.2 %
Avg. monthly rate (2) $ 3,379 $ 3,374 $ 3,292 $ 3,306 $ 3,333
                                   
Independent and assisted living communities (leased):
Number of communities (end of period) 119 119 119 119 119
Number of units (end of period) 9,906 9,906 9,906 9,906 9,906
Occupancy 88.0 % 88.5 % 89.1 % 88.8 % 88.5 %
Avg. monthly rate (2) $ 3,669 $ 3,662 $ 3,590 $ 3,586 $ 3,604
                                   
Continuing care retirement communities (leased):
Number of communities (end of period) 31 31 31 31 31
Number of units (end of period) (3) 7,346 7,346 7,346 7,346 7,346
Occupancy 83.3 % 83.7 % 83.4 % 84.0 % 83.9 %
Avg. monthly rate (2) $ 5,230 $ 5,280 $ 5,204 $ 5,117 $ 5,185
                                   
Skilled nursing facilities (leased):
Number of communities (end of period) 31 31 31 31 31
Number of units (end of period) (4) 2,822 2,822 2,822 2,822 2,822
Occupancy 80.7 % 81.5 % 82.2 % 83.0 % 83.9 %
Avg. monthly rate (2) $ 6,496 $ 6,644 $ 6,460 $ 6,219 $ 6,484
                                           
Total senior living communities (owned and leased):
Number of communities (end of period) 211 211 211 211 211
Number of units (end of period) 23,020 23,020 23,020 23,020 23,020
Occupancy 85.5 % 86.0 % 86.3 % 86.2 % 86.0 %
Avg. monthly rate (2)       $ 4,443       $ 4,474       $ 4,385       $ 4,337       $ 4,406  
 
Managed communities:
Number of communities (end of period) 39 39 39 30 25
Number of units (end of period) (5) 6,678 6,678 6,678 4,488 3,735
Occupancy 87.4 % 87.2 % 87.7 % 87.6 % 87.6 %
Avg. monthly rate (2) $ 4,215 $ 4,296 $ 4,144 $ 3,962 $ 4,000
 
Rehabilitation hospitals (leased):
Number of hospitals (end of period) 2 2 2 2 2
Number of units (end of period) 321 321 321 321 321
Occupancy 61.9 % 63.7 % 60.2 % 60.7 % 59.8 %
 
Other ancillary services:
Rehabilitation and wellness inpatient clinics (end of period) 51 53 50 50 48
Rehabilitation and wellness outpatient clinics (end of period) 51 49 49 46 44
Home health communities served (end of period) 6 6 6 6 6
 

(1) Excludes data for discontinued operations.

(2) Average monthly rate is calculated by taking the average daily rate, which is defined as total operating revenue divided by occupied units, during the period and multiplying it by 30 days.

(3) Includes 2,024 skilled nursing units in communities where assisted living and independent living services are the predominant services provided.

(4) Includes 69 assisted living and independent living units in communities where skilled nursing services are the predominant services provided.

(5) Includes 412 skilled nursing units in communities where assisted living and independent living services are the predominant services provided.

FIVE STAR QUALITY CARE, INC.RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (in thousands)

Earnings before interest, taxes, depreciation and amortization, or EBITDA, and EBITDA excluding certain items, or collectively, Non-GAAP Financial Measures, are not financial measures determined according to U.S. generally accepted accounting principles, or GAAP. We consider these Non-GAAP Financial Measures to be meaningful disclosures because we believe that the presentation of these Non-GAAP Financial Measures may help investors to gain a better understanding of changes in our operating results, and may also help investors who wish to make comparisons between us and other companies on both a GAAP and a non-GAAP basis. These Non-GAAP Financial Measures are used by management to evaluate our financial performance and for comparing our performance over time and to the performance of our competitors. These Non-GAAP Financial Measures as presented may not, however, be comparable to amounts calculated by other companies. This information should not be considered as an alternative to income from continuing operations, net income, cash flows from operating activities or any other financial operating or performance or liquidity measure established by GAAP. The following table includes the reconciliation of these Non-GAAP Financial Measures to income from continuing operations, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements, for the three and six months ended June 30, 2013 and 2012.
      Three months ended       Six months ended
June 30, June 30,
2013     2012 2013     2012
Income from continuing operations $ 2,662 $ 5,312 $ 6,128 $ 6,502
Add: interest and other expense 1,355 1,605 2,811 3,031
Add: income tax expense 1,854 4,108 2,318 5,063
Add: depreciation and amortization 6,651 6,276 13,089 12,165
Less: interest, dividend and other income (211 ) (234 ) (408 ) (439 )
Less: income tax benefit   -     -     (1,468 )   -  
EBITDA 12,311 17,067 22,470 26,322
Add (less):
Acquisition related costs 41 - 41 -

Loss on sale of investments in available for sale securities
117 - 30 1
Gain on settlement - (3,365 ) - (3,365 )
Gain on early extinguishment of debt   -     (45 )   -     (45 )
EBITDA excluding certain items $ 12,469   $ 13,657   $ 22,541   $ 22,913  

Copyright Business Wire 2010

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