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LifeCare Holdings, Inc. Announces Second Quarter Results
Date:8/14/2009

PLANO, Texas, Aug. 14 /PRNewswire/ -- LifeCare Holdings, Inc. (the "Company") today announced its operating results for the first quarter ended June 30, 2009.

Three Months Ended June 30, 2009

Net Revenues

Our net patient service revenue increased by $5.0 million, or 5.8%, for the three months ended June 30, 2009, to $91.6 million from $86.6 million for the comparable period in 2008. Patient days and admissions decreased by 3.8% and 1.6%, respectively, during the three months ended June 30, 2009 as compared to the same period in 2008.

The $5.0 million increase in net patient service revenue was comprised of a $2.4 million increase in adjustments related to changes in estimates and settlements on cost reports previously filed with the Medicare program, offset by an unfavorable variance of $3.3 million attributable to the decrease in patient days, with a remaining increase of $5.9 million attributable to an increase in revenue per patient day. The net increase of $2.4 million for adjustments to previously filed cost reports was comprised of a favorable adjustment of $1.4 million recorded in the three months ended June 30, 2009 offset by an unfavorable adjustment of $1.0 million recorded in the three months ended June 30, 2008.

During the three months ended June 30, 2009 our net patient service revenue per patient day was $1,590, as compared to $1,447 for the 2008 period. However, exclusive of the cost report reimbursement adjustments discussed previously, net patient service revenue per patient day for the three months ended June 30, 2009 and 2008 was $1,565 and $1,463, respectively, or an increase of 7.0%. The increase in net patient service revenue on a per patient day basis during the 2009 period was primarily the result of annual inflationary increases in our standard charge rates and certain of our contracts with commercial payors, a higher acuity level of the patients treated in the 2009 period, and the marginal increases contained in recent annual regulatory updates implemented by CMS during 2008.

Expenses

Total expenses increased by $3.1 million to $93.6 million for the three months ended June 30, 2009 as compared to $90.5 million for the comparable period in 2008. The increase of $3.1 million was primarily the result of an increase of $2.8 million in other operating expenses and an increase of $1.1 million in the provision for doubtful accounts, offset by a decrease of $1.0 million in net interest expense.

The increase of $2.8 million in other operating expenses was primarily attributable to an increase in clinical purchased services as a result of the treatment of higher acuity patients during the 2009 period, and an increase in insurance expenses as a result of the agreement with the insurance carriers in the amount of $1.0 million related to Hurricane Katrina matters. The provision for doubtful accounts in the 2008 period included a benefit of $0.8 million for collections on accounts that were previously fully reserved, whereas collections on similar reserved accounts in the 2009 period were nominal. The decrease in interest expense was due to lower interest rates on our term debt offset by increased borrowings against our revolving credit facility.

Credit Agreement EBITDA

For the quarter ended June 30, 2009, adjusted EBITDA as defined in our senior credit facility, which we refer to as Credit Agreement EBITDA, was $12.0 million, an increase of $0.8 million, or 7.1% from the prior year period. Credit Agreement EBITDA reflects the elimination of start-up costs and certain other non-recurring/operational expenditures as defined in our credit agreement. This increase in Credit Agreement EBITDA is principally the result of the increase in net patient service revenue per patient day as previously discussed. As of June 30, 2009, we believe we were in compliance with all covenants contained in our senior secured credit facility, as amended.

Six Months Ended June 30, 2009

Net Revenues

Our net patient service revenue increased by $11.3 million, or 6.4%, for the six months ended June 30, 2009, to $186.7 million from $175.4 million for the comparable period in 2008. Patient days and admissions decreased by 4.0% and 3.1%, respectively, for the six months ended June 30, 2009 as compared to the same period in 2008.

The $11.3 million increase in net patient service revenue was comprised of a $2.8 million increase in adjustments related to changes in estimates and settlements on cost reports previously filed with the Medicare program, offset by an unfavorable variance of $7.0 million attributable to the decrease in patient days, with a remaining increase of $15.5 million attributable to an increase in revenue per patient day. The net increase of $2.8 million for adjustments to previously filed cost reports was comprised of a favorable adjustment of $1.3 million recorded in the six months ended June 30, 2009 offset by an unfavorable adjustment of $1.5 million recorded in the six months ended June 30, 2008.

During the six months ended June 30, 2009 and 2008, our net patient service revenue per patient day was $1,599 and $1,442, respectively. However, exclusive of the cost report reimbursement adjustments discussed previously, net patient service revenue per patient day for the six months ended June 30, 2009 and 2008 was $1,588 and $1,455, respectively, or an increase of 9.1%. The increase in net patient service revenue on a per patient day basis during the 2009 period was primarily the result of annual inflationary increases in our standard charge rates and certain of our contracts with commercial payors, an increase in the percentage of our revenues generated from commercial payors, a higher acuity level of the patients treated in the 2009 period, and the marginal increases contained in recent annual regulatory updates implemented by CMS during 2008.

Expenses

Total expenses increased by $4.1 million to $186.1 million for the six months ended June 30, 2009 as compared to $182.0 million for the comparable period in 2008. The increase of $4.1 million in total expenses was primarily the result of an increase in salaries, wages and benefits of $2.7 million and an increase in other operating expenses of $3.8 million, offset by a decrease in net interest expense of $2.6 million.

The increase in salaries, wages and benefits was primarily attributable to the treatment of higher acuity patients during the 2009 period and annual inflationary increases. The increase in other operating expenses was primarily attributable to an increase in clinical purchased services as a result of the treatment of higher acuity patients, and an increase in insurance expenses as a result of the agreement with the insurance carriers in the amount of $1.0 million related to Hurricane Katrina matters. The decrease in interest expense was due to lower interest rates on our term debt offset by increased borrowings against our revolving credit facility.

Credit Agreement EBITDA

For the six months ended June 30, 2009, Credit Agreement EBITDA, was $28.6 million. an increase of $3.7 million, or 14.9% from the prior year period. This increase in Credit Agreement EBITDA is principally the result of the increase in net patient service revenue per patient day as previously discussed.

Liquidity and Capital Resources

At June 30, 2009, our outstanding indebtedness consisted of $130.4 million aggregate principal amount of senior subordinated notes due 2013, a $245.4 million term loan facility that matures in 2012, and $35.0 million outstanding on our revolving credit facility which matures in 2011. At June 30, 2009, the interest rate applicable to the $245.4 million under our term loan facility was 5.29%, and the weighted average rate on the $35.0 million outstanding balance of the revolving credit facility was 4.93%.

The senior secured credit facility requires us to comply on a quarterly basis with certain financial covenants, including an interest coverage ratio test and a maximum leverage ratio test, which will become more restrictive over time. In addition, the senior secured credit facility includes various negative covenants, including limitations on indebtedness, liens, investments, permitted businesses, restricted payments, transactions with affiliates and other matters, as well as certain customary representations and warranties, affirmative covenants and events of default including payment defaults.

We may not able to continue to satisfy the covenant requirements in subsequent periods. If we are unable to maintain compliance with the covenants contained in our senior secured credit facility, an event of default would occur. During the continuation of an event of default, the lenders under the senior secured credit facility are entitled to take various actions, including accelerating amounts due under the senior secured credit facility, terminating our access to our revolving credit facility and all other actions generally available to a secured creditor. An uncured event of default would have a material adverse effect on our financial position, results of operations and cash flow.

We believe that our cash on hand, expected cash flows from operations, and potential availability of borrowings under the revolving portion of our senior secured credit facilities will be sufficient to finance our operations, and meet our scheduled debt service requirements for at least the next twelve months.

Forward-Looking Statements

This press release includes forward-looking statements regarding, among other items, operations, proposed regulations and their possible effect on the Company's results. Such statements are subject to a number of uncertainties and risks that could significantly affect current plans. Furthermore, actual results may differ materially from those experienced or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, risks relating to operating in a regulated environment, implementing our business plan, maintaining relationships with physicians in our markets, availability of sufficient nurses and therapists, competition, retaining key management, ability to service our debt requirements, litigation matters and availability of insurance. Further information about factors that could affect the Company's financial and other results is included in our Form 10-K as filed on March 31, 2009, which can be viewed on the SEC's website. Many of the factors that will determine the Company's future results are beyond the ability of management to control or predict. As a result, you should not place undue reliance on forward-looking statements, which reflect management's views only as the date hereof. The Company undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

Credit Agreement EBITDA is used in the calculations of the interest coverage and leverage ratios that are included in the covenants contained in our existing senior secured credit agreement. Credit Agreement EBITDA is not a measure of financial performance computed in accordance with GAAP and should not be considered in isolation or as a substitute for operating income, net income, cash flows from operations or other statement of operations or cash flow data prepared in conformity with GAAP, or as measures of profitability or liquidity. In addition the calculation of Credit Agreement EBITDA is susceptible to varying interpretations and calculation, and the amounts presented may not be comparable to similarly titled measures of other companies. Credit Agreement EBITDA may not be indicative of historical operating results, and we do not mean for it to be predictive of future results of operations or cash flows. For the trailing 12-month period ended June 30, 2009, Credit Agreement EBITDA was $51.5 million.

LifeCare, based in Plano, Texas, operates 20 long-term acute care hospitals located in ten states. Long-term acute care hospitals specialize in the treatment of medically complex patients who typically require extended hospitalization. For more information on LifeCare, visit our website at www.lifecare-hospitals.com.


    Schedule 1
    Condensed Consolidated Statements of Operations
    For the Three Months Ended June 30, 2008 and 2009
    (In thousands)
    (Unaudited)


                                                                        %
                                                    2008     2009     Change
                                                    ----     ----     ------
    Net patient service revenue                   $86,632  $91,645      5.8%
                                                  -------  -------      ---

    Expenses:
     Salaries, wages and benefits                  41,803   42,412      1.5%
     Supplies                                       8,804    8,708     -1.1%
     Rent                                           6,558    6,378     -2.7%
     Other operating expense                       20,842   23,624     13.3%
     Provision for doubtful accounts                  601    1,749    191.0%
     Depreciation and amortization                  2,834    2,745     -3.1%
     Interest expense, net                          9,092    8,025    -11.7%
                                                    -----    -----    -----
                                                   90,534   93,641      3.4%
                                                   ------   ------      ---
     Operating loss before income taxes            (3,902)  (1,996)   -48.8%
     Provision for income taxes                       225      175    -22.2%
                                                      ---      ---    -----
     Net loss                                     $(4,127) $(2,171)   -47.4%
                                                  =======  =======    =====



    Reconciliation to Credit Agreement EBITDA:
     Operating loss before income taxes-per above $(3,902) $(1,996)
     Adjusted for:
       Depreciation and amortization                2,834    2,745
       Interest expense, net                        9,092    8,025
       Loss attributable to unrestricted subsidiary 1,620      889
       Hospital closure/relocation/start-up losses    972      134
       New Orleans operations                         (49)   1,094
       Stock compensation expense                      49       80
       Cost saving initiatives                        271       70
       Sarbanes Oxley implementation                   53        -
       Other credit agreement add-back items          264      997
                                                      ---      ---

       Credit Agreement EBITDA                    $11,204  $12,038
                                                  =======  =======



    Schedule 2
    Condensed Consolidated Statements of Operations
    For the Six Months Ended June 30, 2008 and 2009
    (In thousands)
    (Unaudited)


                                                                         %
                                                   2008     2009      Change
                                                   ----     ----      ------
    Net patient service revenue                 $175,393  $186,669      6.4%
                                                --------  --------      ---

    Expenses:
     Salaries, wages and benefits                 82,891    85,595      3.3%
     Supplies                                     17,856    17,463     -2.2%
     Rent                                         12,728    12,881      1.2%
     Other operating expense                      41,576    45,386      9.2%
     Provision for doubtful accounts               2,448     3,107     26.9%
     Gain on early extinguishment of debt              -       (84)      NM
     Depreciation and amortization                 5,587     5,380     -3.7%
     Interest expense, net                        18,926    16,352    -13.6%
                                                  ------    ------    -----
                                                 182,012   186,080      2.2%
                                                 -------   -------      ---
     Operating income (loss)                      (6,619)      589   -108.9%
     Equity in loss of joint venture                   -      (537)      NM
                                                       -      ----       --
     Loss before income taxes                     (6,619)       52   -100.8%
     Provision for income taxes                      425       400     -5.9%
                                                     ---       ---     ----
     Net loss                                    $(7,044)    $(348)   -95.1%
                                                 =======     =====    =====



    Reconciliation to Credit Agreement EBITDA:
     Operating income (loss) - per above         $(6,619)     $589
     Adjusted for:
       Depreciation and amortization               5,587     5,380
       Interest expense, net                      18,926    16,352
       Gain on early extinguishment of debt            -       (84)
        Loss attributable to unrestricted
         subsidiary                                2,287     1,920
       Hospital closure/relocation/start-up losses 2,429     1,218
       New Orleans operations                        (30)    1,120
       Stock compensation expense                    151       165
       Severance                                     451         -
       Cost saving initiatives                       732       254
       Sarbanes Oxley implementation                 459         -
       Other credit agreement add-back items         487     1,668
                                                     ---     -----

       Credit Agreement EBITDA                   $24,860   $28,582
                                                 =======   =======



    Schedule 3
    Condensed Consolidated Balance Sheets
    (In thousands)
    (Unaudited)


                                                   December 31,  June 30,
                        Assets                        2008         2009
                                                      ----         ----
     Current assets:
        Cash and cash equivalents                   $25,262     $38,118
        Accounts receivable, net                     66,803      69,106
        Estimated third-party payor
         settlements                                      -       2,542
        Income taxes receivable                       1,279       1,462
        Other current assets                          7,735       7,744
                                                      -----       -----
          Total current assets                      101,079     118,972
      Property and equipment, net                    86,479      84,275
      Goodwill and other identifiable
       intangibles, net                             262,675     262,105
      Other assets                                   12,597      10,675
                                                     ------      ------
                                                   $462,830    $476,027
                                                   ========    ========

      Liabilities and Stockholder's Equity Deficit
     Current liabilities:
        Payables and accruals                       $52,868     $50,982
        Estimated third-party payor
         settlements                                  6,231           -
        Current installments of long-term debt        2,550       2,550
        Current installments of obligations under
         capital leases                               1,252       1,115
        Current installment of lease financing
         obligation                                     292         421
                                                        ---         ---
           Total current liabilities                 63,193      55,068
     Long-term debt, excluding current
      installments                                  384,694     408,269
     Obligations under capital leases, excluding
      current installments                            1,836       1,366
     Lease financing obligation                      20,645      20,269
     Accrued insurance                                3,592       4,359
     Other noncurrent liabilities                     9,419       7,433
         Total liabilities                          483,379     496,764
                                                    -------     -------

      Stockholder's equity deficit                  (20,549)    (20,737)
                                                   $462,830    $476,027
                                                   ========    ========



    Schedule 4
    Condensed Consolidated Statements of Cash Flows
    For the six months ended June 30, 2008 and 2009
    (In thousands)
    (Unaudited)


                                                   2008          2009
                                                   ----          ----
    Cash flows from operating activities:
         Net loss                                 $(7,044)        $(348)
         Adjustments to reconcile net loss
          to net cash used in operating
          activities:
            Depreciation and amortization           6,634         6,474
            Provision for doubtful accounts         2,448         3,107
            Equity compensation amortization          147           160
            Gain on early extinguishment of debt        -           (84)
            Gain on the disposal of assets              -            (2)
            Equity in loss of joint venture             -           537
            Changes in operating assets and
             liabilities:
               Patient accounts receivable          3,603        (5,411)
               Other current assets                  (857)         (192)
               Other assets                           472           288
               Estimated third-party payor
                settlements                       (10,348)       (8,773)
               Accounts payable and accrued
                expenses                            1,902        (1,885)
               Other liabilities                    1,091        (1,218)
                                                    -----        ------
                    Net cash used in operating
                     activities                    (1,952)       (7,347)
                                                   ------        ------
    Cash flows from investing activities:
         Purchases of property and equipment      (10,558)       (2,605)
         Sale leaseback proceeds                    3,714             -
                    Net cash used in investing
                     activities                    (6,844)       (2,605)
                                                   ------        ------
    Cash flows from financing activities:
         Net change in borrowings under the
          line of credit                           10,000        25,000
         Payments of notes payable and
          long-term debt                           (1,275)       (1,338)
         Proceeds from lease financing obligation   2,366             -
         Payments on lease financing obligation      (100)         (247)
         Proceeds from capital lease financing      1,802             -
         Payments on obligations under capital
          leases                                   (1,565)         (607)
                    Net cash provided by financing
                     activities                    11,228        22,808
                                                   ------        ------
                    Net increase in cash and cash
                     equivalents                    2,432        12,856
    Cash and cash equivalents, beginning of period 17,816        25,262
                                                   ------        ------
    Cash and cash equivalents, end of period      $20,248       $38,118
                                                  =======       =======



    Schedule 5
    Selected Operating Statistics

                                               Three months    Three months
                                               ended June 30,  ended June 30,
                                                    2008            2009
                                                    ----            ----
    Number of hospitals within hospitals
     (end of period)                                  9              9
    Number of freestanding hospitals
     (end of period)                                 11             11
    Number of total hospitals (end of period)        20             20
    Licensed beds (end of period)                 1,079          1,079
    Average licensed beds (1)                     1,079          1,079
    Admissions                                    2,075          2,042
    Patient days                                 59,879         57,627
    Occupancy rate                                 61.0%          58.7%
    Percent net patient service revenue from
     Medicare                                      60.0%          60.4%
    Percent net patient service revenue from
     commercial payors and Medicaid (2)            40.0%          39.6%
    Net patient service revenue per patient day  $1,447         $1,590



                                                 Six months      Six months
                                               ended June 30,  ended June 30,
                                                    2008            2009
                                                    ----            ----
    Number of hospitals within hospitals
     (end of period)                                  9              9
    Number of freestanding hospitals
     (end of period)                                 11             11
    Number of total hospitals (end of period)        20             20
    Licensed beds (end of period)                 1,079          1,079
    Average licensed beds (1)                     1,044          1,079
    Admissions                                    4,341          4,207
    Patient days                                121,598        116,772
    Occupancy rate                                 64.0%          59.8%
    Percent net patient service revenue from
     Medicare                                      61.2%          60.9%
    Percent net patient service revenue from
     commercial payors and Medicaid (2)            38.8%          39.1%
    Net patient service revenue per patient day  $1,442         $1,599

    (1)  The licensed beds are only calculated on the beds at locations that
    were open for operations during the applicable periods.

    (2)  The percentage of net patient service revenue from Medicaid is less
    than one percent for each of the periods presented.


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SOURCE LifeCare Holdings, Inc.
Copyright©2009 PR Newswire.
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