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Exhibit 99.1 (EXTENDICARE LOGO) Shareholders Quarterly Report
For the Six Months Ended
June 30, 2004 (PICTURES)




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Managements Discussion and AnalysisAugust 3, 2004 Basis of Presentation The consolidated financial results include those of Extendicare Inc. and its
subsidiaries. Unless the context indicates otherwise, a reference to
Extendicare or the Company means Extendicare Inc. and its subsidiaries. The
Extendicare Inc. legal entity is not itself a provider of services or products. This managements discussion and analysis describes Extendicares business, the
business environment, the principal factors affecting the results of
operations, liquidity and capital resources, and the critical accounting
policies of the Company that will help the reader understand Extendicares
consolidated financial results. This discussion should be read in conjunction
with Extendicares unaudited interim consolidated financial statements for the
six months ended June 30, 2004, and notes thereto, together with managements
discussion and analysis and audited consolidated financial statements and notes
found in the Companys 2003 Annual Report. Extendicares accounting policies
are in accordance with Canadian generally accepted accounting principles (GAAP)
of The Canadian Institute of Chartered Accountants (CICA). All dollar amounts
are in Canadian dollars unless otherwise indicated. Executive Overview Extendicare, through its subsidiaries, is a major provider of long-term care
and related services in North America, with 35,600 employees. The Companys wholly owned U.S. subsidiary, Extendicare Health Services, Inc.
and its subsidiaries (EHSI), operates long-term care and assisted living
facilities in 13 states. EHSI offers a continuum of health care services,
including nursing care, assisted living and related medical specialty services,
such as subacute care and rehabilitative therapy on an inpatient and outpatient
basis. In Canada the Companys wholly owned subsidiary, Extendicare (Canada) Inc. and
its subsidiaries (ECI), operates nursing and retirement centres in five
provinces, and also manages a chronic care hospital unit in Ontario. ECI is a
major provider of home health care in Canada through its ParaMed Home Health
Care division. At June 30, 2004, Extendicare, through its subsidiaries, operated 273
facilities with capacity for 28,321 residents (December 31, 2003: 275
facilities with capacity for 28,930 residents; June 30, 2003: 278 facilities
with capacity for 29,473 residents). The number of facilities operated has been
reduced by two since year end, reflecting: the sale of two Ontario facilities;
the acquisition of four Indiana facilities; the opening of a new nursing home
in Ontario and an assisted living facility in Wisconsin; the transfer of
management responsibilities to another long-term care provider, while retaining
consulting services, for nine U.S. facilities; and the commencement of a
management contract for two U.S. nursing facilities and one Ontario nursing
facility. The Company has a significant presence (more than 10% of its
facilities) in each of the three States in the U.S.  Pennsylvania, Wisconsin
and Ohio  as well as in the Province of Ontario in Canada. Nursing and
assisted living facilities are located in groups within geographic proximity of
each other, thereby allowing for regional development of ancillary businesses,
cost-effective management control and reduced travel costs. The Companys
average occupancy for the six months ended June 30, 2004 was 92.7% compared to
92.4% in the same prior year period, and 92.9% for the year ended December 31,
2003. Critical Accounting Policies and Estimates For a full discussion of the Companys critical accounting policies, refer to
the managements discussion and analysis section of Extendicares 2003 Annual
Report. The disclosures in such report have not materially changed since that
report was filed; however, to the extent there have been changes, they are
discussed below under Significant Developments in 2004. Management considers
the Companys accounting policies to be critical to an understanding of the
Companys financial statements because their application requires significant
judgement and reliance on estimations of matters that are inherently uncertain.
There are risks relating to the accounting policies applied to revenue
recognition and the valuation of accounts receivable, the valuation of assets
and determination of asset impairment, the accrual for self-insured liabilities
and accounting for deferred income taxes. Extendicare Inc. June 2004 1




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Significant Developments in 2004 Update of U.S. Legislative Actions Medicare Funding In July 2004 the Centers for Medicare and Medicaid Services, or CMS, announced
a 2.8% inflationary increase in Medicare rates effective October 1, 2004. In April 2002 CMS announced that it would delay the refinement of the Resource
Utilization Groupings, or RUGs classifications, thereby extending related
funding enhancements until September 30, 2003. In May 2003 CMS released a rule
to maintain the current RUGs classification until October 1, 2004. Further to,
but independent of this, U.S. Congress enacted legislation directing CMS to
conduct a study on the RUGs classification system and report its
recommendations by January 2005. In July 2004 CMS announced that the
implementation of a RUGs refinement would be delayed until October 1, 2005.
Based on the Medicare case mix and average daily census of the first half of
2004, EHSI estimates that it received an average of US$25.28 per patient day in
the first half of 2004 related to the temporary funding enhancements, which on
an annualized basis amounts to revenue of $26.8 million (US$20.0 million). The
implementation of a RUGs refinement, whereby all or part of the enhancement is
discontinued, could have a significant adverse effect on the Company. In February 2003 CMS announced a plan to reduce its level of reimbursement for
uncollectible Part A co-insurance. CMS did not implement the rule change as
planned on October 1, 2003, and continues to review the proposed plan. Under
current law, skilled nursing facilities are reimbursed 100% for any bad debts
incurred and the proposed plan would reduce this to 70% over a three year
period as follows: 90% beginning on October 1, 2003; 80% beginning October
2004; and 70% beginning October 2005. This is consistent with the Part A
co-insurance reimbursement plan applicable to hospitals. EHSI estimates that
should this plan be implemented, the negative impact to net earnings would be
$1.7 million (US$1.3 million) in 2004, increasing to $4.4 million (US$3.3
million) in 2006. Medicaid Funding In June 2004 CMS approved the Medicaid state plan amendment and waiver
submitted by the State of Oregon pertaining to the fiscal year commencing July
1, 2003. The net favourable impact to EHSI of US$0.3 million was recorded in
the 2004 second quarter. In July 2004 the State of Kentucky received approval from CMS of a state plan
amendment and waiver, which will become effective July 1, 2004. The impact of
the plan amendment and waiver is estimated to increase EHSIs net earnings by
approximately US$3.0 million per year. Other states in which EHSI operates, namely Pennsylvania, Indiana, and
Washington, are still awaiting CMS approval of their proposed state plan
amendments and waivers pertaining to the fiscal year commencing July 1, 2003.
The retrospective plan amendments and waivers seek to increase the level of
federal funding for the Medicaid programs and, if approved, would result in
providing skilled nursing facilities with revenue rate increases to offset new
or increased provider taxes. Since the plan amendments and waivers have not
been approved, EHSI has recorded revenue based upon amounts actually received.
In Pennsylvania, should CMS approve the States plan amendment and waiver as
submitted, incremental earnings, net of the provider tax, of US$4.6 million
could be recorded in 2004 pertaining to the twelve-month period ended June 30,
2004. Without approval, a negative adjustment to earnings of up to US$5.0
million could be recorded in 2004 pertaining to the same twelve-month period.
In Indiana, approval of the original plan amendment and waiver submitted could
result in the recording of net incremental earnings of US$3.0 million in 2004
pertaining to the twelve-month period ended June 30, 2004, and there would be
no impact if the plan is not approved. In Washington, the State has proceeded
to implement the provider tax and fund the incremental Medicaid rates, while
seeking approval from CMS of their proposal. If the plan is not approved, a
retroactive negative adjustment of no greater than US$0.6 million to earnings
may be required. EHSI anticipates that amendments will be made to the original
plans submitted to CMS and cannot therefore predict the outcome of the plan
submissions or their impact on the Companys operations. Extendicare Inc. June 2004




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Update of Canadian Legislative Actions Ontario Property Tax Funding During the second quarter of 2004, the Ontario government reversed its decision
to reduce funding to long-term care providers for property taxes for the 2003
calendar year, which would have effectively resulted in a retroactive reduction
in funding to 73% from 90%. It also revised its estimate for funding for 2004
to 80% from the initial estimated reduction to 50%. During the first quarter of
2004, the Company had reported a $2.0 million reduction in revenue. As a result
of this recent announcement, the Company has increased revenue in the second
quarter of 2004 by $1.8 million representing a $1.3 million reversal of the
2003 property tax provision, along with a $0.5 million adjustment to the
assumed reduction in 2004 property tax funding. The issues surrounding property
tax funding resulted from the influx of 20,000 new long-term care beds in
Ontario, which has put a strain on the governments allocated pool of funds.
The impact of the reduced funding for 2004, from 90% to 80% has reduced ECIs
revenue for the first six months of 2004 by $0.4 million. Property tax funding
levels are still undecided for 2005. Extendicare is working with its partners
in the long-term care industry to ensure the government understands the serious
nature of this issue. Ontario Annual Inflationary Funding Increase Normally on July 1 of each year, Ontario long-term care providers receive an
inflationary funding increase, which must be approved by the government and
which is paid for by the residents. This increase has not yet been announced
for 2004 and the government has not indicated whether it plans to do so; and if
so, when and at what amount. Ontario Long-term Care and Home Care Funding  2004 Budget In May 2004 the Ontario government announced as part of its 2004 Budget, plans
to invest additional funding to improve Ontarios long-term care facilities and
home care program over the next four years. The 2004 Budget calls for an additional investment in long-term care of $191.0
million in 2004 and 2005 to improve care and services for seniors in long-term
care homes. This additional funding will be tied to increased operating costs
as the budget calls for the hiring of 2,000 new staff, 600 of which are to be
nurses, additional training of front-line staff to provide more personal care,
and the establishment of a new independent advocate for seniors in long-term
care homes who will oversee inspections and compliance. It is unclear at this
time when the additional funds will be made available to the long-term care
providers; however, the additional funding is not anticipated to improve
earnings due to the requirements to provide additional care and services. At
the end of June, ECI operated 4,981 owned or leased long-term care beds in
Ontario, and estimates that this represents 6.5% of the approximately 76,000
long-term care beds to be operating by the end of the year in the Province. The 2004 Budget calls for an additional investment in home care of $448.0
million over the next four years. The government indicated that as part of its
four-year commitment to improving home care services, 95,700 more Ontarians
will receive home care, and 6,000 more Ontarians will receive compassionate,
end-of-life care in their homes, by 2007/08. As part of that initiative, the
government announced on July 5 that it would be providing new funding of $73.2
million to Ontarios Community Care Access Centres (CCACs) this year, targeted
towards acute home care, end-of-life care, and chronic home care services. In
its announcement, the government indicated that 21,000 additional people would
benefit from home care and end-of-life services this year. The government also
remains committed to investing $10.0 million through a not-for-profit agency to
help patients and their families acquire medical equipment for home use. It is
unclear at this time how much of the funds will be spent on each program. As
such, it is not possible to predict to what extent Extendicare, through its
ParaMed Home Health Care operations, will benefit. ParaMed and other providers
are seeking more definitive answers from the government. U.S. Issuance and Retirement of Long-term Debt In April 2004 EHSI issued US$125.0 million aggregate principal amount of
6.875% Senior Subordinated Notes due May 1, 2014 (the 2014 Notes) at a price
of 97.5001% of par to yield 7.23%, and amended and restated its existing credit
facility, which included an increase in borrowing capacity from US$105.0
million to US$155.0 million. The net proceeds from the 2014 Notes were
approximately US$117.4 million (net of a US$3.1 million discount and fees and
expenses of US$4.5 million). The net proceeds were used, together with cash on
hand and new borrowing capacity, to purchase for cash approximately US$104.9
million aggregate principal amount of EHSIs outstanding US$200.0 million of
9.35% Senior Subordinated Notes due 2007 (the 2007 Notes), validly tendered,
and to redeem any 2007 Notes not tendered or cancelled prior to May 24, 2004.
In addition, EHSI terminated its existing interest rate swap and cap
arrangements on a notional US$150.0 million, and entered into new interest rate
swap and cap arrangements on a notional US$275.0 million. For further
information, refer to the discussion under the section Liquidity and Capital
Resources  Capital Structure  Long-term debt. Extendicare Inc. June 2004




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Valuation Adjustment on Interest Rate Caps The Company recorded a charge in the second quarter of 2004 of $5.9 million
related to the valuation of its U.S. interest rate caps. The interest rate cap
arrangements, which cap the projected six-month London Interbank Borrowing Rate
(LIBOR) at 7%, were put in place for a notional US$275 million in connection
with the debt refinancing. The interest rate cap arrangements do not qualify as
hedge instruments for accounting purposes and therefore are required to be
adjusted to market value each period, with any change reported in the earnings
statement. On an after-tax basis, the charge booked was $3.7 million, or a loss
of $0.05 per diluted share. Gain from Asset Disposals, Impairment and Other Items The Company reported an overall pre-tax gain of $8.3 million related to a
number of transactions during the first half of 2004. After applying the
benefit of net tax credits, the after-tax gain contributed $10.5 million to net
earnings, or $0.15 per diluted share. The items making up the net gain are
summarized below. Sale of two Ontario Facilities The sale of two Ontario homes (275 beds) in February 2004 for gross proceeds of
$19.6 million resulted in a pre-tax gain of $12.7 million, and contributed
$12.3 million to net earnings, or $0.18 per diluted share. This gain was
substantially sheltered by capital loss carryforwards that had been fully
offset with a valuation allowance. A portion of the proceeds were used to
retire long-term debt of $6.6 million associated with the homes. For the six
months ended June 2004, these facilities contributed $1.5 million to revenue,
$0.2 million to earnings before interest, tax, depreciation and amortization,
and $0.1 million to net earnings. For the six months ended June 2003, these
facilities contributed $6.8 million to revenue, $1.1 million to earnings before
interest, tax, depreciation and amortization, and $0.6 million to net earnings. Completion of Divestiture  Settlement of Greystone Transaction In April 2004 EHSI concluded negotiations with Greystone Tribeca Acquisition,
L.L.C. of the divestiture agreement for 15 Florida facilities previously owned
and operated by EHSI, which Greystone had been operating since September 2000.
The initial transaction in 2000 was treated as a deferred sale as a significant
portion of the final consideration was contingent on certain events, and
because EHSI held an option to repurchase the facilities. On April 29, 2004,
EHSI received US$2.7 million of interest, and in addition to the US$30.0
million of cash consideration initially received in 2000, EHSI received in June
2004, US$10.0 million as final payment of the contingent consideration. The
finalization of this transaction resulted in the recognition in the second
quarter of 2004 of a pre-tax gain from the sale of assets of $6.6 million
(US$4.9 million). U.S. Retirement of Long-term Debt During the second quarter of 2004, as a result of the tender and call of EHSIs
9.35% Senior Subordinated Notes the Company booked a pre-tax loss of $6.9
million representing the net of the following amounts: payment of tender and
call premiums of $7.8 million; write-off of deferred financing costs of $3.2
million; legal fees of $0.4 million; a gain on termination of the related swap
and cap arrangements of $3.7 million; and a gain from unamortized bond discount
and foreign exchange of $0.8 million. Prepayment of Notes Receivable During the second quarter of 2004, EHSI booked a pre-tax charge of $1.7 million
(US$1.3 million) to income related to the early settlement of long-term notes
receivable and related legal fees. EHSI agreed to settle for US$16.2 million in
cash, US$17.0 million of notes receivable from Tandem Health Care, Inc.
originally due in 2007, and after associated legal fees of US$0.5 million,
recognized a loss of US$1.3 million. Provision for Impairment of Assets In March 2004 EHSI concluded the evaluation of two nursing facilities that
operate adjacent to one another in Indiana, both of which require capital
renovations. After the evaluation management decided, subject to State
approval, to consolidate the two operations into one renovated facility that
upon completion, will accommodate all residents within both facilities after
decreasing the total available nursing beds by 46. The consolidation of the two
operations is expected to be completed by March 2005. As a result of the
decision to close the one facility, EHSI recorded a provision for impairment of
long-lived assets of $2.1 million. Other During the first quarter of 2004, EHSI prepaid in full US$13.0 million of
Industrial Development Revenue Bonds resulting in the write-off of $0.5 million
of deferred financing costs. This was partially offset by a $0.2 million gain
on the sale of miscellaneous assets. Extendicare Inc. June 2004




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Acquisitions In February 2004 EHSI acquired for cash of $1.9 million a skilled nursing
facility in Washington that it had been operating previously under lease
arrangements. On June 1, 2004, EHSI acquired four nursing facilities (321 beds)
in Indiana for $6.9 million in cash. Construction In March 2004 ECI opened the final of its 11 new Ontario nursing homes based on
the awards by the Government of Ontario initiated in 1998. Phase I of EHSIs construction program consists of seven projects to expand
four assisted living facilities (87 units) and two skilled nursing homes (38
beds), and add one new assisted living facility (40 units). The cost of these
projects is estimated at US$15.7 million, of which US$4.3 million was spent
during 2003 and US$6.0 million in the first half of 2004. Four of the projects
have been completed at a cost of US$10.0 million and the remaining three are
due to open in early 2005. Two of the projects were completed in the first
quarter of 2004, a 16-unit assisted living addition that opened in February
2004 and a 20-bed nursing addition that opened in March. In May 2004, EHSI
completed and opened a 40-unit free standing assisted living facility and a
30-unit assisted living addition. Equity Accounted Investments The Company equity accounts for its investments in Crown Life Insurance Company
and Salumatics Inc. (formerly THiiNC Information Management Inc.). Crown Life Insurance Company Extendicare has a 34.8% equity interest in Crown Life Insurance Company (Crown
Life) that is unencumbered by debt. At June 30, 2004, the Companys carrying
value of its investment in Crown Life was $127.5 million (December 31, 2003 
$139.3 million), which equated to Extendicares share of Crown Lifes book
value. Dividends from Crown Life are at the discretion of its board of directors. In
June 2004 the Company received a cash dividend of $15.6 million ($14.00 per
common share) from Crown Life. There were no dividends received in 2003. In 1999, substantially all of Crown Lifes insurance business was sold or
indemnity reinsured to The Canada Life Assurance Company (Canada Life). The
resulting comprehensive agreement between Crown Life and its principal
shareholders provides that at any time after January 1, 2004, Canada Life may
either acquire substantially all of the balance of Crown Lifes insurance
business or, at the election of Canada Life or Crown Lifes principal
shareholders, make an offer for all of the common shares of Crown Life. In July
2003 Great-West Lifeco Inc. acquired Canada Life, resulting in a delay in the
start of negotiations with Crown Life on the final settlement of the Canada
Life transaction. The negotiations are anticipated to begin within the next 12
months. Salumatics Inc. In the fourth quarter of 2003, the Company made a $2.5 million investment in
Salumatics Inc., a provider of electronic health information and record
management services. The Companys equity share of losses of Salumatics for the
first six months of 2004 was $0.8 million, bringing the carrying value of its
investment down to $1.7 million at the end of June 2004. Medicare and Medicaid Settlement Receivables EHSI is pursuing settlement of a number of outstanding Medicare and Medicaid
receivable balances. For Medicare revenue earned prior to the implementation of
the Medicare Prospective Payment System, or PPS, and Medicaid programs with a
retrospective reimbursement system, differences between revenue that is
ultimately expected to be realized and amounts received are reflected as
accounts receivable, or as accrued liabilities when payments have exceeded
revenue that is ultimately expected to be realized. For Medicare pre-PPS
claims, normally such issues are resolved during the audit process; however,
general provisions for disagreements that require settlement through a formal
appeal process are recorded. Due to the length of the settlement process, some of these receivables are not
expected to be collected within one year and, as a result, are classified as
long-term other assets. At June 30, 2004, the Company had gross Medicare and
Medicaid settlement receivables of $52.8 million (US$39.6 million), (December
31, 2003  $66.4 million or US$51.2 million), with a related general
contractual allowance of $17.1 million (US$12.8 million), (December 31, 2003 
$18.2 million or US$14.0 million). The net receivable of $35.7 million (US$26.8
million), (December 31, 2003  $48.2 million or US$37.2 million), represents
the Companys estimate of the amount collectible on Medicare and Medicaid prior
period cost reports, $20.5 million of which has been classified as long-term in
nature (December 31, 2003  $33.6 million). Extendicare Inc. June 2004




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For a specific staffing cost matter, a settlement for the first of seven
specific claim years was reached prior to the January 2003 Provider
Reimbursement Review Board, or PRRB, hearing, and during 2003 EHSI continued to
negotiate the remaining years in dispute. In January 2004 EHSI negotiated and
subsequently received a cash settlement of US$5.6 million. This settlement did
not result in any significant adjustment to the recorded receivable balance. For another specific Medicare receivable issue involving the allocation of
overhead costs, the first of three specific claim years was presented to the
PRRB at a hearing in January 2003. The hearing procedures were discontinued
after the parties negotiated a methodology for resolution of the claim. The
negotiated settlement for this and other issues relating to the 1996 cost
report year did not result in an adjustment to the recorded receivable balance,
and EHSI subsequently collected US$3.0 million from the fiscal intermediary.
For the remaining two specific claim years, in April 2004 EHSI reached a
negotiated settlement that will result in the payment to EHSI of approximately
US$7.7 million, of which US$6.6 million was received in May 2004, and the
balance will be received upon resolution of other matters concerning the cost
report years that were appealed. Upon final resolution of these matters, EHSI
will determine and record the financial impact of the settlement, if any. EHSI has hearings scheduled in August and September 2004 for other Medicare
settlement receivable issues in dispute with the fiscal intermediary. The
hearing in August involves various issues amounting to US$9.8 million for
facilities purchased in the 1997 Arbor Health Care Company transaction. The
hearing in September 2004 involves a director of nursing staff cost issue in
the amount of US$3.8 million. EHSI continues to work on the balance of other Medicare claims with the fiscal
intermediary and on an ongoing basis with each of the states in respect of
Medicaid settlement receivables. Regulatory Risks All long-term care providers are subject to surveys and inspections by
government authorities to ensure compliance with applicable laws and licensure
requirements of the federal, state and/or provincial funding programs. The
survey process is intended to review the actual provision of care and services.
Remedies for assessed deficiencies can be levied based upon the scope and
severity of the cited deficiencies. Remedies range from the assessment of fines
to the withdrawal of payments under the government funding programs. Should a
deficiency not be addressed through a plan of correction, a facility can be
decertified from the funding program. Government agencies have steadily increased their enforcement activity over the
past several years. As a result, the Company is continually allocating
increased resources to ensure compliance with applicable regulations and to
respond to inspections, investigations and/or enforcement actions. U.S. federal law requires each state to have a Medicaid Fraud Control Unit,
which is responsible for investigating provider fraud and resident abuse. EHSI
is aware of investigations by these units involving one facility each in
Kentucky and Wisconsin. The investigations have not been sufficiently developed
to enable EHSI to predict an outcome. In addition in June 2004, in response to facility citations for survey
deficiencies in a nursing facility in Chippewa Falls, Wisconsin, EHSI reached a
tentative agreement with the State of Wisconsin to transfer the operations to a
new licensee. In July 2004, EHSI entered into an agreement to transfer the
operations, effective August 1, 2004, to Lakeside Health L.L.C. (Lakeside
Health), a subsidiary of Benedictine Health Dimensions, Inc. (Benedictine) for
a term of three years. Under the terms of the agreement, Lakeside Health will
be responsible for all operating costs, including rent to EHSI, and Benedictine
will manage the nursing facility for a fee. EHSI will receive annual rental
income of US$0.5 million; however, EHSI will be responsible to fund Lakeside
Health for any and all net operating losses of the nursing facility, as defined
in the agreement, and to provide working capital advances of approximately
US$2.0 million. Based upon the terms of the agreement and future changes
imposed by the State of Wisconsin on the plan of correction and licensed bed
capacity of the facility, EHSI may be required to take a charge for asset
impairment. The Chippewa Falls facility generated a loss before interest, tax,
deprecation and amortization for the six months ended June 30, 2004, of US$0.5
million, and contributed earnings of US$0.5 million for the year ended December
31, 2003. Extendicare Inc. June 2004




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Other EHSI has a preferred provider agreement with Omnicare, Inc. to provide pharmacy
services to all of EHSIs nursing facilities. Omnicare and EHSI are currently
negotiating the pricing of drugs for Medicare residents for the years 2001 and
2002, and should this matter not be settled, it will be taken to arbitration.
In addition, Omnicare has requested arbitration for an alleged lost profits
claim related to EHSIs disposition of assets, primarily in Florida. Damage
amounts, if any, cannot be reasonably estimated based on information available
at this time. An arbitration hearing for this matter has not yet been
scheduled. Management believes it has interpreted correctly and complied with
the terms of the preferred provider agreement. However, there can be no
assurance that other claims will not be made with respect to the agreement. Summary of Quarterly Results The following is a summary of selected consolidated financial information
derived from the Companys unaudited interim period consolidated financial
statements for each of the eight most recently completed quarters. (thousands of dollars unless
    
    Second Quarter
    
    First Quarter
    
    Fourth Quarter
    
    Third Quarterotherwise noted)
    
    2004
    
    2003
    
    2004
    
    2003
    
    2003
    
    2002
    
    2003
    
    2002Revenue
    
    
    445,639
    
    
    
    420,714
    
    
    
    429,572
    
    
    
    439,303
    
    
    
    431,543
    
    
    
    452,086
    
    
    
    433,054
    
    
    
    443,954EBITDA(1)
    
    
    59,054
    
    
    
    46,075
    
    
    
    50,980
    
    
    
    39,501
    
    
    
    50,603
    
    
    
    35,927
    
    
    
    50,651
    
    
    
    42,980Earnings from health care
before undernoted
    
    
    21,688
    
    
    
    9,658
    
    
    
    15,165
    
    
    
    4,310
    
    
    
    14,348
    
    
    
    997
    
    
    
    12,569
    
    
    
    6,027Valuation adjustment on interest
rate caps, net of tax
    
    
    (3,661
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain (loss) from asset disposals,
impairment, and other items,
net of tax
    
    
    (269
    )
    
    
    (176
    )
    
    
    10,722
    
    
    
    1,081
    
    
    
    
    
    
    
    (68
    )
    
    
    
    
    
    
    Earnings from health care
    
    
    17,758
    
    
    
    9,482
    
    
    
    25,887
    
    
    
    5,391
    
    
    
    14,348
    
    
    
    929
    
    
    
    12,569
    
    
    
    6,027Share of equity
accounted earnings
    
    
    584
    
    
    
    2,643
    
    
    
    2,452
    
    
    
    12,485
    
    
    
    2,559
    
    
    
    2,068
    
    
    
    1,197
    
    
    
    1,893Net earnings
    
    
    18,342
    
    
    
    12,125
    
    
    
    28,339
    
    
    
    17,876
    
    
    
    16,907
    
    
    
    2,997
    
    
    
    13,766
    
    
    
    7,920Earnings (loss) per diluted share ($)Health care operations before
undernoted
    
    
    0.31
    
    
    
    0.14
    
    
    
    0.21
    
    
    
    0.06
    
    
    
    0.21
    
    
    
    0.02
    
    
    
    0.17
    
    
    
    0.08Valuation adjustment on
interest rate caps
    
    
    (0.05
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain (loss) from asset disposals,
impairment, and other items
    
    
    (0.01
    )
    
    
    
    
    
    
    0.16
    
    
    
    0.01
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share of equity
accounted earnings
    
    
    0.01
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.18
    
    
    
    0.03
    
    
    
    0.02
    
    
    
    0.02
    
    
    
    0.03Earnings per diluted share
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.40
    
    
    
    0.25
    
    
    
    0.24
    
    
    
    0.04
    
    
    
    0.19
    
    
    
    0.11
  (1)
    
    Earnings before interest, income taxes, depreciation and amortization (EBITDA)is a measure commonly used in the long-term care industry to
evaluate performance, primarily by lenders and investors in notes, and is generally defined as earnings before interest, income taxes, depreciation
and amortization. In this calculation, the Company has excluded the line items valuation adjustment on interest rate caps and loss (gain) from
asset disposal, impairment and other items. These line items are reported separately on the Companys income statement because they relate to the
change in fair value of interest rate caps associated with the Companys long-term debt, gains or losses on the disposal of assets, provisions for
ceased operations and the write-off of unamortized financing costs on early retirement of debt. EBITDA does not have a standardized meaning under
Canadian GAAP and is not necessarily comparable to similar measures disclosed by other issuers. Accordingly, EBITDA is not intended to replace
earnings (loss) from operations, net earnings (loss) for the period, cash flow, or other measures of financial performance and liquidity reported in
accordance with Canadian GAAP. Extendicare Inc. June 2004




---



##### 



The following is a reconciliation of earnings before income taxes and EBITDA
for each of the eight most recently completed quarters. Second Quarter
    
    First Quarter
    
    Fourth Quarter
    
    Third Quarter(thousands of dollars)
    
    2004
    
    2003
    
    2004
    
    2003
    
    2003
    
    2002
    
    2003
    
    2002Earnings before income taxes
    
    
    27,013
    
    
    
    15,502
    
    
    
    34,063
    
    
    
    8,568
    
    
    
    22,192
    
    
    
    2,480
    
    
    
    20,067
    
    
    
    10,083Add (deduct):Depreciation and amortization
    
    
    14,687
    
    
    
    15,451
    
    
    
    14,135
    
    
    
    16,405
    
    
    
    15,985
    
    
    
    17,596
    
    
    
    15,816
    
    
    
    17,021Interest, net
    
    
    9,677
    
    
    
    14,946
    
    
    
    12,850
    
    
    
    15,609
    
    
    
    12,426
    
    
    
    15,741
    
    
    
    14,768
    
    
    
    15,876Valuation adjustment on
interest rate caps
    
    
    5,865
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss (gain) from asset
disposals, impairment,
and other items
    
    
    1,812
    
    
    
    176
    
    
    
    (10,068
    )
    
    
    (1,081
    )
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    EBITDA
    
    
    59,054
    
    
    
    46,075
    
    
    
    50,980
    
    
    
    39,501
    
    
    
    50,603
    
    
    
    35,927
    
    
    
    50,651
    
    
    
    42,980
 2004 Second Quarter Results Net earnings Extendicares net earnings increased to $18.3 million ($0.26 per diluted share)
in the 2004 second quarter from $12.1 million ($0.18 per diluted share) in the
2003 second quarter. Earnings from health care operations rose to $17.8 million
from $9.5 million. Results for the 2004 quarter included a $5.9 million loss on
the valuation of interest rate caps ($0.05 loss per diluted share) and a loss
from asset disposals, impairment and other items of $1.8 million ($0.01 loss
per diluted share) compared to a loss of $0.2 million in the prior year period.
The after-tax impact of these items was a loss of $3.9 million in the second
quarter of 2004 and a loss of $0.2 million in the same 2003 quarter. Earnings
from health care operations prior to these items rose to $21.7 million ($0.31
per diluted share) compared to $9.7 million ($0.14 per diluted share) in the
2003 second quarter. For the first quarter of 2004, earnings from health care operations of $25.9
million included a pre-tax gain from asset disposal, impairment and other items
of $10.1 million, which after applying tax credits totalled $10.7 million or
$0.16 per diluted share. Earnings from health care operations prior to this
item were $15.2 million, or $0.21 per diluted share in the first quarter of
2004. Change
    
    
    
    ChangeQ2
    
    Q2
    
    2004 over
    
    Q1
    
    Q2 over(millions of dollars unless otherwise noted)
    
    2004
    
    2003
    
    2003
    
    2004
    
    Q1/2004Earnings from health careUnited States
    
    
    10.6
    
    
    
    6.4
    
    
    
    4.2
    
    
    
    13.2
    
    
    
    (2.6
    )Canada
    
    
    7.1
    
    
    
    3.1
    
    
    
    4.0
    
    
    
    12.7
    
    
    
    (5.6
    )17.7
    
    
    
    9.5
    
    
    
    8.2
    
    
    
    25.9
    
    
    
    (8.2
    )Share of equity accounted earnings
    
    
    0.6
    
    
    
    2.6
    
    
    
    (2.0
    )
    
    
    2.4
    
    
    
    (1.8
    )Net earnings
    
    
    18.3
    
    
    
    12.1
    
    
    
    6.2
    
    
    
    28.3
    
    
    
    (10.0
    )US/Canadian dollar exchange (average rate
for the period)
    
    
    1.3588
    
    
    
    1.3990
    
    
    
    
    
    
    
    1.3180
 The stronger Canadian dollar had a $0.5 million negative impact on the 2004
second quarter net earnings in comparison to the exchange rate used in the
second quarter of 2003. In comparison to the first quarter of 2004, earnings
for the second quarter were positively affected by $0.3 million due to the
change in the foreign exchange rate. Extendicare Inc. June 2004




---



##### 



Revenue Revenue increased by $37.7 million, or 9.0% over the prior year period, before
the impact of the change in the foreign exchange rate of $9.5 million and the
impact of ceased operations of $3.3 million. Change
    
    
    
    
    
    ChangeQ2
    
    Q2
    
    2004 over
    
    Q1
    
    Q2 over(millions of dollars unless otherwise noted)
    
    2004
    
    2003
    
    2003
    
    2004
    
    Q1/2004RevenueUnited States (prior to impact of change in foreign
exchange rates)
    
    
    328.9
    
    
    
    300.9
    
    
    
    9.3
    %Impact of change in foreign exchange rates
    
    
    (9.5
    )
    
    
    
    
    
    
    United States as reported
    
    
    319.4
    
    
    
    300.9
    
    
    
    6.1
    %
    
    
    308.0
    
    
    
    3.7
    %Canada
    
    
    126.2
    
    
    
    119.8
    
    
    
    5.3
    %
    
    
    121.6
    
    
    
    3.8
    %445.6
    
    
    
    420.7
    
    
    
    5.9
    %
    
    
    429.6
    
    
    
    3.7
    %US/Canadian dollar exchange (average rate for the
period)
    
    
    1.3588
    
    
    
    1.3990
    
    
    
    
    
    
    
    1.3180
 Revenue from U.S. operations grew by $28.0 million over the 2003 second
quarter, prior to the impact of the stronger Canadian dollar. This was due to
several factors as summarized in the following table. ($ millions)17.0
    
    
    
    increase in average nursing home rates (Medicare $8.2 million, Medicaid $7.5 million, and
private/other $1.3 million);3.3
    
    
    
    increase in nursing home resident census (Medicare $3.9 million, Medicaid $(0.1) million and
private/other $(0.5) million);3.6
    
    
    
    contribution from nursing homes acquired;2.4
    
    
    
    increase in nursing home resident ancillary services, primarily therapy and rehabilitative services;0.7
    
    
    
    improvement in assisted living operations due to higher rates and resident census; and a1.0
    
    
    
    increase in other revenue.
 Key Medicare and Medicaid statistics for the U.S. nursing home operations are
summarized in the following table. Change
    
    
    
    
    
    ChangeQ2
    
    Q2
    
    2004 over
    
    Q1
    
    Q2 overU.S. Nursing Home Operating Statistics
    
    2004
    
    2003
    
    2003
    
    2004
    
    Q1/2004Average daily census (same-facility basis)Medicare
    
    
    2,104
    
    
    
    1,999
    
    
    
    5.3
    %
    
    
    2,206
    
    
    
    (4.6
    )%Private/other
    
    
    2,184
    
    
    
    2,205
    
    
    
    (1.0
    )%
    
    
    2,185
    
    
    
    Medicaid
    
    
    8,613
    
    
    
    8,623
    
    
    
    (0.1
    )%
    
    
    8,489
    
    
    
    1.5
    %Total
    
    
    12,901
    
    
    
    12,827
    
    
    
    0.6
    %
    
    
    12,880
    
    
    
    0.2
    %Medicare as a percent of total census
(same-facility basis)
    
    
    16.3
    %
    
    
    15.6
    %
    
    
    
    
    
    
    17.1
    %Medicaid as a percent of total census
(same-facility basis)
    
    
    66.8
    %
    
    
    67.2
    %
    
    
    
    
    
    
    65.9
    %Average occupancy (same-facility basis)
    
    
    91.4
    %
    
    
    91.2
    %
    
    
    
    
    
    
    91.2
    %Average revenue rate by payor source(1)Medicare Part A and B
    
    US$
    357.65
    
    
    US$
    322.14
    
    
    
    11.0
    %
    
    US$
    346.82
    
    
    
    3.1
    %Private/other
    
    US$
    189.68
    
    
    US$
    184.66
    
    
    
    2.7
    %
    
    US$
    192.77
    
    
    
    (1.6
    )%Medicaid
    
    US$
    136.31
    
    
    US$
    129.18
    
    
    
    5.5
    %
    
    US$
    134.37
    
    
    
    1.4
    %Medicare Part A
    
    US$
    324.50
    
    
    US$
    293.83
    
    
    
    10.4
    %
    
    US$
    317.99
    
    
    
    2.0
    %(1)excludes prior period settlement
adjustments
 U.S. Medicare patient census increased to 16.3% of total nursing home census
from 15.6% in the 2003 second quarter, but declined from 17.1% in the first
quarter of 2004. The improvement in Medicare patient census as part of
managements focus on that sector resulted in higher revenue in the second
quarter of 2004 of $3.9 million from Medicare payor sources in comparison to
the same 2003 quarter. Despite the decline in Medicare patients from the first
quarter of 2004, total nursing home average daily census on a same-facility
basis improved to 12,901 and average nursing home occupancy rose to 91.4%. Extendicare Inc. June 2004




---



##### 



Average U.S. Medicare rates increased 11.0% to US$357.65 in the second quarter
of 2004, in comparison to the same 2003 period. This was due to the 6.26%
increase implemented by CMS on October 1, 2003, with the remaining improvement
due to an increase in the acuity and level of rehabilitative patients admitted.
The change in acuity and level of rehabilitative patients also accounted for
the 3.1% improvement in average Medicare rates from the first quarter of 2004
to the second quarter. Excluding the impact of any prior period Medicaid revenue settlements, the
Company benefited from a 5.5% average rise in Medicaid revenue per day in
comparison to the 2003 second quarter. For a number of states, the increase in
funding was primarily attributable to higher acuity care levels and funding for
increased state assessment fees and taxes. The increase in provider taxes in
the second quarter of 2004, in comparison to the same period last year, was
$2.6 million (US$1.8 million). In comparison to the 2003 second quarter, revenue from Canadian operations
increased $9.7 million prior to the $3.3 million impact of ceased operations.
Revenue during the 2004 second quarter improved, with the new Ontario homes
contributing $4.6 million and as a result of the $1.8 million reversal of the
property tax funding provision recorded in the first quarter of 2004. Nursing
home funding increases to support greater care and staffing needs (flow-through
funding), as well as rate increases, contributed to the remaining overall
increase in nursing home revenue. Average occupancy of the Canadian operations on a same-facility basis was 97.3%
in the second quarter of 2004 compared to 98.2% in the same prior year period,
and 96.8% in the first quarter of 2004. The final 10,000 of the 20,000 new
Ontario long-term care beds are coming on stream in 2004, and as a result, this
influx of new beds is causing occupancy pressure in certain markets. Currently
the Ontario government provides 100% of accommodation funding to long-term care
facilities that maintain an average occupancy level for the year of 97% or
greater (the occupancy threshold). Funding to a long-term care facility is
reduced if its average occupancy level for the year is below 97.0%. During the
second quarter of 2004, four of Extendicares Ontario facilities were below the
occupancy threshold, in comparison to six during the first quarter of 2004. As
a result, $0.3 million of accommodation funding was deferred in the second
quarter in the event that average occupancy levels for these facilities do not
achieve the 97.0% average for the year. The Company is addressing this with an
increased emphasis on marketing and is also carefully managing costs. Canadian home health care operations experienced a $1.0 million decline in
revenue from the second quarter of 2004. Home health care hours of service from
continuing operations were 1,162,000 compared to 1,249,000 in the second
quarter of 2003. The reduction in service hours resulted from constraints
imposed by the Ontario Community Care Access Centres. However, a rise in
service rates partially offset the impact of the lower volumes. In comparison to the first quarter of 2004, Extendicares revenue increased
$16.1 million. Revenue from U.S. operations increased $11.4 million, of which
$9.6 million was due to the change in the foreign exchange rate. The remaining
$1.8 million improvement in U.S. operations was due to acquisitions, higher
average rates and an increase in occupancy, partially offset by a decline in
Medicare patient census. Revenue from Canadian operations rose $4.7 million in
the second quarter of 2004, of which $3.6 million of the positive comparison
was due to the $1.8 million reversal of the provision for property tax funding
recorded in the first quarter of 2004. The remaining $1.1 million increase in
Canadian revenue was primarily due to an improvement in home health care rates
and service hours provided. ParaMeds hours of service provided increased to
1,162,000 in the second quarter of 2004 from 1,152,000 in the first quarter of
2004. EBITDA The following presents EBITDA by country. Change
    
    
    
    
    
    ChangeQ2
    
    Q2
    
    2004 over
    
    Q1
    
    Q2 over(millions of dollars unless otherwise noted)
    
    2004
    
    2003
    
    2003
    
    2004
    
    Q1/2004EBITDAUnited States
    
    
    45.2
    
    
    
    34.5
    
    
    
    31.0
    %
    
    
    43.7
    
    
    
    3.4
    %Canada
    
    
    13.8
    
    
    
    11.6
    
    
    
    19.0
    %
    
    
    7.3
    
    
    
    89.0
    %59.0
    
    
    
    46.1
    
    
    
    28.0
    %
    
    
    51.0
    
    
    
    15.7
    %EBITDAas a percent of revenueUnited States
    
    
    14.1
    
    
    
    11.5
    
    
    
    
    
    
    
    14.2Canada
    
    
    11.0
    
    
    
    9.7
    
    
    
    
    
    
    
    6.0Total
    
    
    13.3
    
    
    
    11.0
    
    
    
    
    
    
    
    11.9
 Extendicare Inc. June 2004




---



##### 



EBITDA rose $12.9 million, or 28.0%, to $59.0 million in the 2004 second
quarter, and as a percent of revenue, increased to 13.3% from 11.0% in the 2003
second quarter. In comparison to the 2003 second quarter, U.S. EBITDA rose $12.2 million in the
2004 second quarter, prior to the $1.5 million negative impact of the stronger
Canadian dollar. As a percent of revenue, EBITDA improved to 14.1%. Revenue
improvements of $28.0 million discussed above were partially offset by a $15.8
million rise in operating, administrative and lease costs, prior to the
negative impact of the foreign exchange rate. Higher operating and
administrative costs primarily related to the rise in number and acuity of
residents served, in addition to inflationary increases. Items of note were: a
$7.3 million, or 3.8%, rise in labour related costs, which included an average
wage rate increase of 2.5% in nursing home operations; $2.6 million of higher
state assessment and bed taxes imposed in association with the Medicaid funding
changes; a $1.7 million rise in drug costs due to higher resident census and
prices; higher costs of $2.9 million associated with newly acquired homes; and
other cost increases of $1.3 million. EBITDA from Canadian operations improved $2.2 million to $13.8 million from the
2003 second quarter. After adjusting for non-recurring earnings of $0.4 million
associated with ceased operations, EBITDA from remaining operations rose $2.6
million. The $9.7 million improvement in revenue was offset by a $7.1 million
rise in operating, administrative and lease costs. Items of note were: a rise
in operating costs of approximately $3.7 million associated with the new
Ontario facilities; a $2.7 million, or 3.2%, increase in labour related costs
from remaining operations, which were primarily due to nursing home staffing
and wage rate changes in response to flow-through funding and other wage rate
increases; and other cost increases of $0.7 million. In comparison to the first quarter of 2004, EBITDA rose $8.0 million to $59.0
million in the 2004 second quarter. EBITDA as a percent of revenue increased to
13.3% from 11.9% in the 2004 first quarter. EBITDA from U.S. operations
improved to $45.2 million from $43.7 million in the 2004 first quarter
primarily due to the change in the foreign exchange rate. In comparison to the first quarter of 2004, Canadian EBITDA improved $6.5
million to $13.8 million from $7.3 million. The reversal of the provision for
property tax funding caused a $3.6 million positive variance in comparing
periods. Lower utility costs due to seasonality improved earnings by $1.5
million. The remaining $1.4 million improvement was due to improvements in home
health care operations and the contribution from new Ontario homes. Depreciation and amortization Depreciation and amortization was lower by $0.8 million, primarily due to asset
disposals, partially offset by higher depreciation associated with the new
facilities. Net interest costs Net interest costs declined to $9.7 million from $14.9 million in the prior
year period primarily due to lower average interest rates associated with the
2004 second quarter U.S. debt issue at lower rates together with lower debt
levels. In addition, the Company recorded interest income of $2.3 million on
the settlement of the Greystone transaction in June 2004. Extendicare Inc. June 2004




---



##### 



2004 Six Months ended June 30, 2004 Net earnings Extendicares net earnings for the six months ended June 30, 2004 rose $16.7
million to $46.7 million ($0.66 per diluted share) from net earnings of $30.0
million ($0.43 per diluted share) in the same 2003 period. Results included a
$5.9 million loss on the valuation of interest rate caps ($0.05 loss per
diluted share) and a gain from asset disposals, impairment and other items of
$8.3 million ($0.15 per diluted share) in the first half of the year compared
to a gain of $0.9 million ($0.01 per diluted share) in the prior year period.
The after-tax impact of these items was a gain of $6.8 million in 2004 and a
gain of $0.9 million in the first half of 2003. Earnings from health care
operations prior to these items rose to $36.8 million ($0.52 per diluted share)
compared to $14.0 million ($0.20 per diluted share) in the prior year period. YTD
    
    YTD
    
    ChangeJune
    
    June
    
    2004 over(millions of dollars unless otherwise noted)
    
    2004
    
    2003
    
    2003Earnings from health careUnited States
    
    
    23.8
    
    
    
    9.1
    
    
    
    14.7Canada
    
    
    19.8
    
    
    
    5.8
    
    
    
    14.043.6
    
    
    
    14.9
    
    
    
    28.7Share of equity accounted earnings
    
    
    3.0
    
    
    
    15.1Net earnings
    
    
    46.7
    (1)
    
    
    30.0US/Canadian dollar exchange (average rate
for the period)
    
    
    1.3384
    
    
    
    1.4543(1) does not add due to rounding
 The stronger Canadian dollar had a $2.1 million negative impact on net earnings
for the first half of 2004 in comparison to the exchange rate used in the same
2003 period. Revenue Revenue increased by $78.4 million, or 9.3% over the prior year period, before
the impact of the change in the foreign exchange rate of $54.3 million and the
impact of ceased operations of $8.9 million. YTD
    
    YTD
    
    ChangeJune
    
    June
    
    2004 over(millions of dollars unless otherwise noted)
    
    2004
    
    2003
    
    2003RevenueUnited States (prior to impact of change in foreign
exchange rates)
    
    
    681.7
    
    
    
    622.4
    
    
    
    9.5
    %Impact of change in foreign exchange rates
    
    
    (54.3
    )
    
    
    
    
    
    
    United States as reported
    
    
    627.4
    
    
    
    622.4
    
    
    
    0.8
    %Canada
    
    
    247.8
    
    
    
    237.6
    
    
    
    4.3
    %875.2
    
    
    
    860.0
    
    
    
    1.8
    %US/Canadian dollar exchange (average rate for the
period)
    
    
    1.3384
    
    
    
    1.4543
 Revenue from U.S. operations contributed $59.3 million to the improvement over
the first half of 2003, prior to the impact of the stronger Canadian dollar.
This was due to several factors as summarized in the table below. ($ millions)35.5
    
    
    
    increase in average nursing home rates (Medicare $16.3 million, Medicaid $15.0 million, and
private/other $4.2 million);8.4
    
    
    
    increase in nursing home resident census (Medicare $13.2 million, Medicaid $(3.3) million and
private/other $(1.5) million);6.1
    
    
    
    contribution from nursing homes acquired;4.1
    
    
    
    increase in nursing home resident ancillary services, primarily therapy and rehabilitative services;3.0
    
    
    
    increase in nursing home revenue due to the additional day in the period;1.4
    
    
    
    improvement in assisted living operations due to higher rates and resident census;(1.7)
    
    
    
    unfavourable change in Medicare and Medicaid settlements; and a2.5
    
    
    
    favourable variance in other revenue.
 Extendicare Inc. June 2004




---



##### 



Key Medicare and Medicaid statistics for the U.S. nursing home operations are
summarized in the following table. YTD
    
    YTD
    
    ChangeJune
    
    June
    
    2004 overU.S. Nursing Home Operating Statistics
    
    2004
    
    2003
    
    2003Average daily census (same-facility basis)Medicare
    
    
    2,155
    
    
    
    1,983
    
    
    
    8.7
    %Private/other
    
    
    2,184
    
    
    
    2,219
    
    
    
    (1.6
    )%Medicaid
    
    
    8,551
    
    
    
    8,649
    
    
    
    (1.1
    )%Total
    
    
    12,890
    
    
    
    12,851
    
    
    

    0.3
    %Medicare as a percent of total census (same-facility basis)
    
    
    16.7
    %
    
    
    15.4
    %Medicaid as a percent of total census (same-facility basis)
    
    
    66.3
    %
    
    
    67.3
    %Average occupancy (same-facility basis)
    
    
    91.3
    %
    
    
    91.3
    %Average revenue rate by payor source (1)Medicare Part A and B
    
    US$
    352.12
    
    
    US$
    320.16
    
    
    
    10.0
    %Private/other
    
    US$
    191.20
    
    
    US$
    182.91
    
    
    
    4.5
    %Medicaid
    
    US$
    135.35
    
    
    US$
    128.67
    
    
    
    5.2
    %Medicare Part A
    
    US$
    321.17
    
    
    US$
    292.33
    
    
    
    9.9
    %(1) excludes prior period settlement
adjustments
 U.S. Medicare patient census increased to 16.7% of total nursing home census
from 15.4% in the first half of 2003. This improvement was due to managements
focus on that sector, which resulted in increased revenue of $13.2 million from
Medicare payor sources in comparison to the first half of 2003. Total nursing
home average daily census on a same-facility basis was 12,890 compared to
12,851 in the first half of 2003. Average U.S. nursing home occupancy was
stable between periods at 91.3%. Average U.S. Medicare rates increased 10.0% to US$352.12 in the first half of
2004, in comparison to the same 2003 period. This was due to the 6.26% increase
implemented by CMS on October 1, 2003, with the remaining improvement due to an
increase in the acuity and level of rehabilitative patients admitted. U.S. revenue is impacted by settlements for prior period adjustments.
Favourable Medicaid costs settlements of $2.0 million (US$1.4 million) were
realized in the first half of 2004 compared to $1.5 million (US$1.1 million) in
the prior year period. In addition, in the first half of 2003 a recovery of
$2.2 million (US$1.5 million) in Medicaid revenue resulted from the favourable
outcome of an Ohio court decision. Excluding the impact of the prior period Medicaid revenue settlements, the
Company benefited from a 5.2% average rise in Medicaid revenue per day from the
prior year period. For a number of states, the increase in funding was
primarily attributable to higher acuity care levels and funding for increased
state assessment fees and taxes. The increase in provider taxes in the first
half of 2004, in comparison to the same period last year, was $5.0 million
(US$3.4 million). In comparison to the first half of 2003, revenue from Canadian operations
increased $19.1 million, prior to the $8.9 million impact of ceased operations.
The new Ontario homes added $10.4 million, while nursing home funding increases
to support greater care and staffing needs (flow-through funding), as well as
rate increases contributed to the remaining improvements in nursing home
revenue. Average occupancy of the Canadian operations on a same-facility basis was 97.0%
in the first half of 2004 compared to 97.9% in the same prior year period.
During the first half of 2004, four of Extendicares Ontario facilities were
below the 97.0% occupancy threshold required to sustain 100% accommodation
funding, and therefore, $0.6 million of accommodation funding for the first
half of 2004 has been deferred in the event that occupancy levels for these
facilities do not achieve the 97.0% average for the year. Canadian home health care operations experienced a $0.7 million decline in
revenue after adjusting for the exit from the British Columbia home health care
market in March of 2003. Home health care hours of service from continuing
operations were 2,314,000 compared to 2,426,000 in the first half of 2003. The
reduction in service hours resulted from constraints imposed by the Ontario
Community Care Access Centres. However, a rise in service rates partially
offset the impact of the lower volumes. Extendicare Inc. June 2004




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##### 



EBITDA The following is a reconciliation of earnings before income taxes and EBITDA
for the six months ended June. YTD
    
    YTDJune
    
    June(millions of dollars)
    
    2004
    
    2003Earnings before income taxes
    
    
    61.1
    
    
    
    24.1Add (deduct):Depreciation and amortization
    
    
    28.8
    
    
    
    31.9Interest, net
    
    
    22.5
    
    
    
    30.5Valuation adjustment on interest rate caps
    
    
    5.9
    
    
    
    Loss (gain) from asset disposals, impairment and other items
    
    
    (8.3
    )
    
    
    (0.9
    )EBITDA
    
    
    110.0
    
    
    
    85.6
 The following presents EBITDA by country. YTD
    
    YTD
    
    ChangeJune
    
    June
    
    2004 over(millions of dollars unless otherwise noted)
    
    2004
    
    2003
    
    2003EBITDAUnited States
    
    
    88.9
    
    
    
    65.6
    
    
    
    35.5
    %Canada
    
    
    21.1
    
    
    
    20.0
    
    
    
    5.5
    %110.0
    
    
    
    85.6
    
    
    
    28.5
    %EBITDAas a percent of revenueUnited States
    
    
    14.2
    
    
    
    10.5Canada
    
    
    8.5
    
    
    
    8.4Total
    
    
    12.6
    
    
    
    10.0
 EBITDA rose $24.4 million, or 28.5% to $110.0 million in the first half of
2004, and as a percent of revenue, increased to 12.6% from 10.0% in the same
prior year period. In comparison to the first half of 2003, U.S. EBITDA rose $31.0 million, prior
to the $7.7 million negative impact of the stronger Canadian dollar, and as a
percent of revenue, EBITDA improved to 14.2%. Revenue improvements of $59.3
million discussed above were partially offset by a $28.3 million rise in
operating, administrative and lease costs, prior to the negative impact of the
foreign exchange rate. Higher operating and administrative costs were primarily
related to the rise in number and acuity of residents served, in addition to
inflationary increases. Items of note were: an $11.2 million, or 2.8%, rise in
labour related costs, which included an average wage rate increase of 2.0% in
nursing home operations; $5.0 million of higher state assessment and bed taxes
imposed in association with the Medicaid funding changes; a $3.8 million rise
in drug costs due to higher resident census and prices; higher costs of $4.7
million related to the acquisition of new homes; a $1.3 million increase in bad
debt expense; and other cost increases of $2.3 million. EBITDA from Canadian operations improved $1.1 million to $21.1 million from
$20.0 million in the prior year period. After adjusting for non-recurring
earnings of $0.5 million associated with ceased operations, EBITDA from
remaining operations rose $1.6 million. The $19.1 million improvement in
revenue was offset by a $17.5 million rise in operating, administrative and
lease costs. Items of note were: approximately $8.6 million of additional
operating costs associated with the new Ontario facilities; a $6.9 million, or
4.1%, rise in labour related costs, which were primarily due to nursing home
staffing and wage rate changes in response to flow-through funding and other
wage rate increases; and other cost increases of $2.0 million. Depreciation and amortization Depreciation and amortization was lower by $3.0 million, of which approximately
$2.1 million was due to the change in the foreign exchange rate. The remaining
decline was due to asset disposals, partially offset by higher depreciation
associated with new facilities. Net interest costs Net interest costs declined by $8.0 million. During the first half of 2004, the
Company recorded interest income of $3.5 million related to the June settlement
of the Greystone transaction. The remaining $4.5 million improvement was
primarily due to lower debt levels together with lower average interest rates. Extendicare Inc. June 2004




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##### 



Liquidity and Capital Resources Sources and Uses of Cash At June 30, 2004, the Company had cash and cash equivalents of $75.9 million,
compared with $74.8 million at December 31, 2003. Cash flow generated from operations before working capital changes improved to
$70.9 million in the first half of 2004 from $34.5 million in the same prior
year period. This increase was due to lower payments of $14.3 million for
settlement of resident care liability claims, the receipt of a cash dividend of
$15.6 million from Crown Life in 2004, and the remainder due to higher
earnings. Cash flow from the net change in operating working capital (excluding cash and
borrowings included in current liabilities) reflected a source of cash of $16.5
million, compared to a use of cash of $6.6 million in the prior year period.
The change period over period was due to an increase in accounts payable and
current taxes payable, and a decline in accounts receivable. Cash provided by investing activities totalled $17.3 million in the first half
of 2004. During the first half of the year, the Company received net cash
proceeds of $32.1 million, $18.5 million of which related to the disposal of
two Ontario facilities, and $13.6 million related to the final settlement of
the Greystone transaction. Proceeds from other assets of $27.6 million related
to the cash proceeds from notes receivable from Tandem during the first half of
2004. Acquisition costs of $8.8 million in 2004 related to the purchase of four
Indiana facilities in June, and a Washington facility that was previously
operated under lease arrangements in February. Property and equipment
expenditures, excluding acquisitions and net of capital lease financing,

totalled $33.7 million in the first half of 2004 compared to $27.9 million in
the prior year period. The portion of these expenditures related to business
growth  such as construction of facilities and bed additions  was
approximately $13.7 million and $12.4 million, respectively. In the first half
of 2004, the Company spent approximately $9.3 million on construction projects
in the U.S. and approximately $4.4 million on the construction of new Ontario
nursing homes. The remaining property and equipment expenditures represented
periodic capital improvements and routine replacement of capital items, which
totalled $20.0 million in the first half of 2004 compared to $15.5 million in
the prior year period. The Company used cash of $105.7 million in financing activities during the
first half of 2004. Long-term debt declined by $93.7 million primarily due to
the net impact of the U.S. debt issue and early retirement of long-term debt.
In addition, financing costs of $16.3 million were incurred in association with
the U.S. debt issue. Remaining changes were associated with the purchase of
shares for cancellation and a decrease in investments held for self-insured
liabilities. In the first half of 2003, cash provided by financing activities
of $13.7 million reflected the decline in investments held for self-insured
liabilities and net increase in long-term debt, in excess of amounts used to
acquire shares for cancellation. Capital Structure June 30
    
    Dec. 31
    
    Dec. 31(millions of dollars unless otherwise noted)
    
    2004
    
    2003
    
    2002Share capital (including contributed surplus)Multiple Voting and Subordinate Voting shares
    
    
    296.4
    
    
    
    294.6
    
    
    
    299.1Preferred shares
    
    
    17.7
    
    
    
    17.7
    
    
    
    18.2314.1
    
    
    
    312.3
    
    
    
    317.3Retained earnings (deficit)
    
    
    77.2
    
    
    
    32.0
    
    
    
    (26.5
    )Foreign currency translation adjustment account
    
    
    24.2
    
    
    
    12.1
    
    
    
    67.2Shareholders equity
    
    
    415.5
    
    
    
    356.4
    
    
    
    358.0Long-term debt, including current portion
    
    
    677.7
    
    
    
    757.5
    
    
    
    852.9Long-term debt to equity (ratio)
    
    
    1.63:1
    
    
    
    2.13:1
    
    
    
    2.38:1Multiple and Subordinate Voting shares (number at period end)
    
    
    68,806,328
    
    
    
    68,487,903
    
    
    
    69,664,103US/Canadian dollar exchange (rate at period end)
    
    
    1.3338
    
    
    
    1.2965
    
    
    
    1.5776
 Extendicare Inc. June 2004




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##### 



Number of
    
    ClosingShares
    
    MarketShare Information
    
    Stock Symbol
    
    Outstanding (1)
    
    Value (1)Subordinate Voting Shares
    
    EXE.A
    
    
    56,808,461
    
    
    $
    14.50Multiple Voting Shares
    
    EXE
    
    
    11,911,692
    
    
    
    15.00Class I Preferred SharesCumulative Redeemable, Series 2
    
    EXE.PR.B
    
    
    119,205
    
    
    
    24.75Adjustable Dividend, Series 3
    
    EXE.PR.C
    
    
    93,310
    
    
    
    19.25Adjustable Dividend, Series 4
    
    EXE.PR.D
    
    
    241,240
    
    
    
    23.50Class II Preferred Shares, Series 1
    
    EXE.PR.E
    
    
    382,979
    
    
    
    21.05
  (1)At July 31, 2004, per the Toronto Stock Exchange. The closing rates used to translate assets and liabilities of the U.S.
operations were 1.3338 at June 30, 2004 and 1.2965 at December 31, 2003. As a
result of the weaker Canadian dollar, the Companys assets of its U.S.
operations increased by $38.7 million at the end of June 2004 and were
partially offset by an increase in liabilities of $26.6 million. The $12.1
million net change in these assets and liabilities resulted in an increase in
the foreign currency translation adjustment account to $24.2 million. Long-term Debt Long-term debt, including the portion due within one year, declined $79.8
million to $677.7 million at June 30, 2004. The change in the foreign exchange
rate on translation of U.S. dollars increased long-term debt by $13.9 million.
In addition, debt increased due to the issuance of the 2014 Notes for proceeds
of $163.1 million and the issuance of $7.4 million of notes payable in
association with the refinancing of existing notes payable. Long-term debt was
reduced during the first half of 2004 due to the redemption of the 2007 Notes
of $229.4 million, the early retirement of $17.1 million (US$13.0 million) of
Industrial Development Revenue Bonds, a $6.6 million mortgage associated with
the two Ontario facilities sold, and the refinancing of $7.4 million of notes
payable. The remaining decline in debt was due to $3.7 million of scheduled
regular repayments. After taking into account interest rate swap agreements, the weighted average
interest rate of all long-term debt at June 30, 2004 was approximately 6.8%,
compared to 7.8% at December 31, 2003. In addition, after considering swap
agreements in place to convert fixed-rate debt to floating rates, 42.8% of the
long-term debt was effectively at fixed rates at the end of June 2004. During the second quarter of 2004, EHSI issued US$125.0 million aggregate
principal amount of 6.875% Senior Subordinated Notes due May 2014, and retired
its 9.35% US$200.0 million Senior Subordinated Notes due 2007. The net proceeds
from the 2014 Notes were approximately US$117.4 million (net of a US$3.1
million discount and fees and expenses of US$4.5 million). In addition, EHSI
terminated its existing interest rate swap and cap arrangements on a notional
US$150.0 million, and entered into new interest rate swap and cap arrangements
on a notional US$275.0 million. In April 2004 EHSIs 9.5% Senior Notes due 2010 (the 2010 Senior Notes) were
upgraded by Moodys Investors Service from B2 to B1. The 2014 Notes issued
in April were assigned a B- rating by Standard & Poors Ratings Service, and
EHSIs amended and restated credit facility was assigned a BB- rating. 2014 Notes The 2014 Notes were issued pursuant to Rule 144A and Regulation S under the
U.S. Securities Act of 1933, as amended. In July EHSI commenced its offer to
exchange new 2014 Notes that have been registered under the Securities Act for
the 2014 Notes issued in April, which is anticipated to be completed in August
2004. The terms of the new 2014 Notes are identical to those issued in April,
and are fully and unconditionally guaranteed on a senior subordinated unsecured
basis, jointly and severally, by all of EHSIs existing and future U.S.
domestic significant subsidiaries, by all of its existing and future U.S.
domestic subsidiaries that guarantee or incur any indebtedness and by any other
existing and future significant subsidiaries or restricted subsidiaries of EHSI
that guarantee or otherwise provide direct credit support for indebtedness of
EHSI or any of its U.S. domestic subsidiaries. The 2014 Notes and guarantees
are general unsecured obligations of EHSI and its subsidiaries. Extendicare Inc. June 2004




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##### 



Amendment and Restatement of Credit Facility In connection with the April 2004 issuance of 2014 Notes, EHSI amended and
restated its credit facility. The terms of which include the following changes,
among other things:  
    
    a two year maturity extension, to June 28, 2009;
    
    an additional US$50.0 million of senior secured financing on a revolving basis, resulting in total borrowing capacity of
US$155.0 million;
    
    an interest rate spread ranging from LIBOR plus 2.50% per annum to 3.25% per annum or the base rate plus 1.50% per annum to
2.25% per annum, subject, in each case, to adjustments based on EHSIs senior leverage ratio;
    
    a commitment fee of 0.50% per annum on the undrawn capacity regardless of utilization; and
    
    changes to the collateral securing the facility to permit EHSI to substitute certain assets with other assets. The credit facility is used to back letters of credit and for general corporate
purposes. Borrowings under the credit facility bear interest, at EHSIs option,
at the Eurodollar rate or the prime rate, plus applicable margins. As of June
30, 2004 and December 31, 2003, the Company had no borrowings under the credit
facility. The unused portion of the credit facility that is available for
working capital and corporate purposes, after reduction for outstanding letters
of credit of US$33.7 million, was US$121.3 million as of June 30, 2004. The credit facility is secured by a perfected, first priority security interest
in certain tangible and intangible assets and all of EHSIs capital stock and
the capital stock of its subsidiary guarantors. The credit facility is also
secured by a pledge of 65% of EHSIs voting shares of the voting stock of its
subsidiary guarantors foreign subsidiaries, if any. The credit facility
contains customary covenants and events of default and is subject to various
mandatory prepayment and commitment reductions. EHSI is permitted to make
voluntary prepayments at any time under the credit facility. The credit facility requires that EHSI complies with various financial
covenants, including fixed charge coverage, debt leverage, and tangible net
worth ratios. EHSI is in compliance with all of the financial covenants as of
June 30, 2004. Interest Rate Swap and Cap Arrangements In April 2004, coterminous with the issuance of the 2014 Notes, EHSI terminated
its existing interest rate swap and cap agreements. To hedge its exposure to
fluctuations in the market value, EHSI entered into two new interest rate swap
and two new interest rate cap agreements relating to its 2010 Senior Notes and
the 2014 Notes, for a notional US$275.0 million. The interest rate swap
arrangements are designated as highly effective fair value hedges, and as a
result, changes in market value of the swaps are offset by changes in market
value of the hedged debt instruments. EHSI uses the interest rate cap
arrangements to offset possible increases in interest payments under the
respective swaps caused by increases in market interest rates over a certain
level. Under the terms of the cap arrangements, the counterparty can call the
cap if the respective swap is terminated. Neither of the cap arrangements
qualifies as a hedging instrument under generally accepted accounting
principles, and therefore, changes in market value are recorded in earnings. With respect to the 2010 Senior Notes, EHSI entered into an interest rate swap
agreement expiring July 1, 2010, with a notional amount of US$150.0 million
(the 2010 Swap). The 2010 Swap effectively converted up to US$150.0 million
of fixed interest rate indebtedness into variable interest rate indebtedness.
Under the terms of the 2010 Swap, the counterparty can call the swap at any
time on or after July 1, 2006, with payments as determined under the agreement.
This call option is a mirror image of the embedded call option in the debt
instrument. EHSI also entered into an interest rate cap agreement expiring July
1, 2010, with a notional amount of US$150.0 million (the 2010 Cap). Under the
terms of the 2010 Cap, EHSI paid an upfront fee of US$3.5 million to the
counterparty, and the change in fair value of this fee is reported to the
earnings statement. EHSI will receive a variable rate of interest equal to the
excess, if any, of the six-month LIBOR, adjusted semi-annually, over the cap
rate of 7%. With respect to the 2014 Notes, EHSI also entered into an interest rate swap
agreement expiring May 1, 2014, with a notional amount of US$125.0 million (the
2014 Swap). This agreement effectively converted up to US$125.0 million of
fixed interest rate indebtedness into variable interest rate indebtedness.
Under the terms of the 2014 Swap, the counterparty can call the swap at any
time on or after May 1, 2009, with payments as determined under the agreement.
This call option is a mirror image of the embedded call option in the debt
instrument. EHSI also entered into an interest rate cap agreement expiring May
1, 2014, with a notional amount of US$125.0 million (the 2014 Cap). Under the
2014 Cap, EHSI pays a fixed rate of interest equal to 0.75% to the counterparty
and receives a variable rate of interest equal to the excess, if any, of the
six-month LIBOR, adjusted semi-annually, over the cap rate of 7%. Extendicare Inc. June 2004




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##### 



As of June 30, 2004, the fair value of the 2010 Cap was an asset of $3.2
million (US$2.4 million), and the fair value of the 2014 Cap is a liability of
$4.5 million (US$3.4 million). The fair values of the interest rate caps are
dependent on the projected six-month LIBOR, which is influenced by long-term
rates, and the volatility of these rates. As a result of a decline in the
volatility of rates in the second quarter of 2004, the value of EHSIs interest
rate caps declined and resulted in a valuation adjustment expense of $5.9
million (US$4.3 million). Normal Course Issuer Bid The Company has been acquiring its common shares for cancellation since 1998
under the terms of its normal course issuer bids. Since 1998, the Company has
acquired 7,901,100 Multiple Voting and Subordinate Voting shares at a cost of
$36.0 million, or an average cost of $4.56 per share. During the first half of
2004 the Company acquired 129,000 Subordinate Voting and Multiple Voting shares
at a cost of $1.7 million, or an average cost of $12.99 per share. Subsequent
to the end of June, the Company acquired a further 94,800 Subordinate Voting
Shares at a cost of $1.3 million, or an average cost of $14.14 per share. Long-term Incentive Plan In May 2004 the Board of Directors of the Company approved an amendment to the
Companys Subordinate Voting Shares stock option plan, and has received
approval for the amendments from the Toronto Stock Exchange (TSX). The
amendments add the ability to grant tandem share appreciation rights (SARs)
with option grants. Tandem SARs give the grantee the option to surrender to the
Company, unexercised, the right to subscribe for the Subordinate Voting Shares
pursuant to his grant under the related stock option, and to receive from the
Company an amount equal to the excess of the fair market value of the
Subordinate Voting Shares on the effective date of exercise, over the aggregate
option price of such shares in respect of which the option is surrendered.
Awards pursuant to the Companys Amended and Restated Subordinate Voting Share
Option and Tandem SAR Plan (the Plan) shall be exercisable only to the extent
that the option has vested, such period not to exceed 10 years, as determined
by the Board at the time of granting. The Company has not increased the number
of Subordinate Voting Shares reserved for issuance under its Plan, and to the
extent that awards pursuant to the Plan result in the exercise of tandem SARs,
the equivalent number of Subordinate Voting Shares will be reduced from the
number reserved and available under the Plan for future grants. Awards that
include tandem SARs are accounted for on a fair value basis so that the change
in fair value of the underlying Subordinate Voting Shares is recognized in
earnings. On May 6, 2004, the Board granted 96,000 tandem SARs pursuant to the Plan at an
exercise price of $14.82 per share, being the closing price of the Subordinate
Voting Shares on the TSX on the trading day prior to the grant. The options
vest at a rate of 25% on the anniversary date of grant over a four-year period,
and expire on May 6, 2014. During the first half of 2004, 447,425 Subordinate Voting Shares were issued on
the exercise of stock options. As at June 30, 2004, 3,935,550 Subordinate
Voting Shares have been reserved under the Plan of which a total of 1,925,575
Subordinate Voting Shares had been granted. Of the options granted 1,016,200
were exercisable. Subsequent to June 30, a further 8,625 Subordinate Voting Shares were issued on
the exercise of stock options, and 344,000 options for Subordinate Voting
Shares at an exercise price of $14.50 per share were granted pursuant to the
Plan. The options vest at a rate of 25% on the anniversary date of grant over a
four-year period, and expire on August 3, 2014. Future Liquidity and Capital Resources Management believes that cash from operations together with available bank
credit facilities will be sufficient to support ongoing operations and capital
expenditures, service debt obligations and pay preferred share dividends. At
June 30, 2004, EHSI had cash and cash equivalents of US$29.5 million and
US$121.3 million available under its revolver loan, and Extendicares Canadian
operations had cash and available bank lines totalling $37.3 million. Capital Expenditures During 2004 capital expenditures, excluding acquisitions, of approximately
$90.0 million are planned, including an estimated $35.0 million for growth
construction projects. ECI is committed to spending $6.0 million to complete
the new Ontario homes in 2004. The remaining $29.0 million (US$23.0 million) is
planned for U.S. construction projects. As of June 30, 2004, EHSI had capital expenditure commitments outstanding of
approximately US$24.1 million. Phase I of EHSIs construction program consists
of seven projects to add 165 beds during 2004 and 2005. Four of the projects
were completed in the first half of 2004, representing a 20-bed addition to a
nursing facility, a 16-unit and 30-unit addition to assisted living centres,
and a 40-unit free-standing assisted living facility. The cost of the projects
is expected to be US$15.7 million, of which US$4.3 million was spent in 2003
and US$6.0 million in the first half of 2004. Furthermore, Extendicare Inc. June 2004




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##### 



Phase II of the development plans is a proposal for eight new projects that
will add 325 units in 2005 and 2006 for a cost of approximately US$36.3
million, of which US$0.9 million was spent in the first half of 2004. Accrual for Self-insured Liabilities At the end of June 2004, the Companys accrual for self-insured general and
professional liabilities was $97.1 million compared to $95.4 million at the
beginning of the year. Claims payments, net of the current period provision,
decreased the accrual by $1.0 million in the first half of 2004, with the
change in the foreign exchange rate accounting for the offsetting $2.7 million
increase. The accrual for self-insured liabilities includes estimates of the
costs of both reported claims and claims incurred but not yet reported.
Provisions recorded in the first half of 2004 and 2003 for potential general
and professional liability claims were $7.5 million and $6.7 million,
respectively. Payments for self-insured liabilities in the first half of 2004
and 2003 were $8.5 million and $22.9 million, respectively. The Company exited
the nursing home markets of the highly litigious States of Florida and Texas in
2000 and 2001, respectively. As a result, accruals for general and professional
liabilities declined significantly from the 2001 level, and in 2003 the Company
experienced a tapering off of payments made for resident care liability claims,
reflecting the wind-down of claims associated with discontinued operations. The
Company completed an independent actuarial review as part of the 2003 year-end,
which confirmed the adequacy of the balance sheet reserves for resident care
liability claims. The Company estimates that $33.3 million of the accrual for
self-insured general and professional liabilities will be paid within the next
year. The timing of payments is not directly in the Companys control and
therefore, estimates could change in the future. Management believes the
Company has provided sufficient reserves as of June 30, 2004 for estimated
costs of self-insured liabilities. The Company invests funds to support the accrual for self-insured liabilities.
These funds, reported as part of Other Assets, totalled $36.8 million at the
end of June 2004, compared to $40.6 million at the end of December 2003. Most
of the risks that the Company self-insures are long-term in nature and,
accordingly, claims payments for any particular policy year occur over a long
period of time. The Company believes that it has sufficient cash resources to
meet its estimated current claims payment obligations. Related Party Transaction Up until the end of June 2004, Extendicare paid rent to Crown Life for the
rental of certain office premises, which for the first six months of 2004 was
$0.7 million, compared to $0.6 million in the same 2003 period. Off-balance Sheet Arrangements The Company has two interest rate swap arrangements, as discussed under the
section Liquidity and Capital Resources  Capital Structure  Interest Rate
Swap and Cap Arrangements. As of June 30, 2004, the fair value of the interest
rate swaps designated as fair value hedges is a liability of US$8.3 million and
is offset by a corresponding change in the fair value of the hedged long-term
debt obligation, both of which are off-balance sheet amounts. Controls and Procedures Evaluation of disclosure controls and procedures The Companys management evaluated, with the participation of the Companys
Chief Executive Officer and Vice President, Finance and Chief Financial
Officer, the effectiveness of the design and operation of the Companys
disclosure controls and procedures (as defined in Multilateral Instrument
52-109 under the Ontario Securities Act, and Rules 13a-15(e) and 15d-15(e)
under the Securities and Exchange Act of 1934) as of the end of the 2004
quarter. Based upon their evaluation of these disclosure controls and
procedures, the Chief Executive Officer and Vice President, Finance and Chief
Financial Officer concluded that the disclosure controls and procedures were
effective, as of the end of the 2004 quarter, to ensure that material
information relating to the Company (including its consolidated subsidiaries)
was made known to them by others within those entities, particularly during the
period in which this quarterly report was being prepared. Changes in internal control There was no change in the Companys internal control over financial reporting
that occurred during the 2004 quarter that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting. Extendicare Inc. June 2004




---



##### 



Recent Accounting Changes Hedging Effective January 1, 2004, the Company adopted CICA Accounting Guideline 13 (AG
13), Hedging Relationships along with subsequent amendments. AG 13
establishes guidance for the identification, designation and documentation of
the hedging relationship, and an assessment of the effectiveness of the hedging
relationship. Hedge accounting is discontinued for any hedging relationships
that do not meet the requirements of the guideline. Currently, the only hedging
relationships the Company has are its interest rate swaps, which effectively
converts fixed-rate debt to floating rates. At the beginning of the year, the
Company had an interest rate cap for a notional US$150.0 million, which under
the new criteria, only US$32.0 million qualified as an effective cash flow
hedge to limit increases in interest payments under variable-rate debt
obligations. The remainder of the interest rate cap, with a notional amount of
US$118.0 million, did not qualify as an effective hedge, and as such, the
Company on transition of the new rules, recognized an associated unrealized
loss of $0.8 million (US$0.6 million), which amount was deferred in other
assets to be recognized in earnings over the remaining term of the interest
rate cap to December 2007. In the second quarter of 2004, the Company
terminated this interest rate cap arrangement, and as a result wrote off the
balance of the deferred unrealized loss of $0.8 million. Two new interest rate
cap arrangements were entered into during the second quarter, which also do not
qualify as effective hedges. At the end of June, the interest rate caps were
fair valued, and a charge of $5.9 million was reported in income during the
second quarter of 2004. Forward-looking Statements Statements contained in this report other than statements of historical fact,
including statements regarding anticipated financial performance, business
strategy and managements plans and objectives for future operations, are
forward-looking statements. These forward-looking statements can be identified
as such because the statements generally include words such as expect,
intend, anticipate, believe, estimate, plan or objective or other
similar expressions. These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those expressed in, or
implied by, these statements. In addition to the risks and uncertainties
related to these statements, other risks and uncertainties are identified in
Extendicare Inc.s or Extendicare Health Services, Inc.s filings with Canadian
and United States securities regulators and include, but are not limited to,
the following: changes in the health care industry in general and the long-term
care industry in particular because of political and economic influences;
changes in regulations governing the industry and the Companys compliance with
such regulations; changes in government funding levels for health care
services; resident care litigation, including exposure for punitive damage
claims and increased insurance costs, and other claims asserted against the
Company; the Companys ability to attract and retain qualified personnel; the
availability and terms of capital to fund the Companys capital expenditures;
changes in competition; and demographic changes. Given these risks and uncertainties, readers are cautioned not to place undue
reliance on the Companys forward-looking statements. All forward-looking
statements contained in this report are necessarily estimates reflecting the
best judgement of the party making such statements based upon current
information, and the Company assumes no obligation to update any
forward-looking statement. Extendicare Inc. June 2004




---



##### 



EXTENDICARE INC.
Consolidated Statements of Earnings
(unaudited) Three months ended
    
    Six months ended(thousands of dollars except per share amounts)
    
    June 30
    
    June 302004
    
    2003
    
    2004
    
    2003RevenueNursing and assisted living centresUnited States
    
    
    306,602
    
    
    
    288,432
    
    
    
    602,397
    
    
    
    597,730Canada
    
    
    92,072
    
    
    
    84,570
    
    
    
    180,366
    
    
    
    166,308Outpatient therapy  U.S.
    
    
    4,082
    
    
    
    4,337
    
    
    
    7,594
    
    
    
    8,330Home health  Canada
    
    
    32,512
    
    
    
    33,509
    
    
    
    63,953
    
    
    
    67,778Other
    
    
    10,371
    
    
    
    9,866
    
    
    
    20,901
    
    
    
    19,871445,639
    
    
    
    420,714
    
    
    
    875,211
    
    
    
    860,017Operating and administrative costs
    
    
    382,384
    
    
    
    370,215
    
    
    
    756,844
    
    
    
    765,273Earnings before undernoted
    
    
    63,255
    
    
    
    50,499
    
    
    
    118,367
    
    
    
    94,744Lease costs
    
    
    4,201
    
    
    
    4,424
    
    
    
    8,333
    
    
    
    9,168Depreciation and amortization
    
    
    14,687
    
    
    
    15,451
    
    
    
    28,822
    
    
    
    31,856Interest, net
    
    
    9,677
    
    
    
    14,946
    
    
    
    22,527
    
    
    
    30,555Valuation adjustment on interest rate caps
    
    
    5,865
    
    
    
    
    
    
    
    5,865
    
    
    
    Loss (gain) from asset disposals, impairment
and other items
    
    
    1,812
    
    
    
    176
    
    
    
    (8,256
    )
    
    
    (905
    )Earnings before income taxes
    
    
    27,013
    
    
    
    15,502
    
    
    
    61,076
    
    
    
    24,070Income taxesCurrent
    
    
    17,190
    
    
    
    3,393
    
    
    
    32,255
    
    
    
    5,581Future (reduction)
    
    
    (7,935
    )
    
    
    2,627
    
    
    
    (14,824
    )
    
    
    3,6169,255
    
    
    
    6,020
    
    
    
    17,431
    
    
    
    9,197Earnings from health care
    
    
    17,758
    
    
    
    9,482
    
    
    
    43,645
    
    
    
    14,873Share of equity accounted earnings
    
    
    584
    
    
    
    2,643
    
    
    
    3,036
    
    
    
    15,128Net earnings
    
    
    18,342
    
    
    
    12,125
    
    
    
    46,681
    
    
    
    30,001Earnings per shareBasic
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.67
    
    
    
    0.43Diluted
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.66
    
    
    
    0.43
 Extendicare Inc. June 2004 21




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##### 



EXTENDICARE INC.
Consolidated Statements of Cash Flows
(unaudited) Three months ended
    
    Six months ended(thousands of dollars)
    
    June 30
    
    June 302004
    
    2003
    
    2004
    
    2003Cash provided by (used in) operationsNet earnings
    
    
    18,342
    
    
    
    12,125
    
    
    
    46,681
    
    
    
    30,001Adjustments for:Depreciation and amortization
    
    
    14,687
    
    
    
    15,451
    
    
    
    28,822
    
    
    
    31,856Provision for self-insured liabilities
    
    
    3,840
    
    
    
    3,288
    
    
    
    7,512
    
    
    
    6,675Payments for self-insured liabilities
    
    
    (3,302
    )
    
    
    (9,683
    )
    
    
    (8,538
    )
    
    
    (22,866
    )Future income taxes
    
    
    (7,935
    )
    
    
    2,627
    
    
    
    (14,824
    )
    
    
    3,616Valuation adjustment on interest rate caps
    
    
    5,865
    
    
    
    
    
    
    
    5,865
    
    
    
    Loss (gain) from asset disposals, impairment
and other items
    
    
    1,812
    
    
    
    176
    
    
    
    (8,256
    )
    
    
    (905
    )Dividends received from equity investments,
net of undistributed share of earnings
    
    
    15,008
    
    
    
    (2,643
    )
    
    
    12,556
    
    
    
    (15,128
    )Other
    
    
    736
    
    
    
    94
    
    
    
    1,061
    
    
    
    1,26249,053
    
    
    
    21,435
    
    
    
    70,879
    
    
    
    34,511Net change in operating working capital, excluding cashAccounts receivable
    
    
    7,949
    
    
    
    (380
    )
    
    
    10,071
    
    
    
    5,512Inventories, supplies and prepaid expenses
    
    
    (167
    )
    
    
    3,710
    
    
    
    (5,601
    )
    
    
    (3,950
    )Accounts payable and accrued liabilities
    
    
    10,994
    
    
    
    7,657
    
    
    
    (318
    )
    
    
    (7,732
    )Income taxes
    
    
    4,289
    
    
    
    (437
    )
    
    
    12,394
    
    
    
    (424
    )72,118
    
    
    
    31,985
    
    
    
    87,425
    
    
    
    27,917Cash provided by (used in) investment activitiesProperty and equipment
    
    
    (17,223
    )
    
    
    (14,093
    )
    
    
    (33,660
    )
    
    
    (27,870
    )Acquisitions
    
    
    (6,859
    )
    
    
    
    
    
    
    (8,750
    )
    
    
    Net proceeds from dispositions
    
    
    13,577
    
    
    
    2,047
    
    
    
    32,103
    
    
    
    2,047Other assets
    
    
    22,779
    
    
    
    258
    
    
    
    27,633
    
    
    
    61912,274
    
    
    
    (11,788
    )
    
    
    17,326
    
    
    
    (25,204
    )Cash provided by (used in) financing activitiesIssue of long-term debt
    
    
    170,480
    
    
    
    11,021
    
    
    
    170,480
    
    
    
    11,021Repayment of long-term debt
    
    
    (238,509
    )
    
    
    (3,216
    )
    
    
    (264,163
    )
    
    
    (4,632
    )Decrease (increase) in investments held for
self-insured liabilities
    
    
    (665
    )
    
    
    1,129
    
    
    
    5,047
    
    
    
    10,366Financing costs
    
    
    (16,256
    )
    
    
    (3
    )
    
    
    (16,297
    )
    
    
    (35
    )Purchase of shares for cancellation
    
    
    (568
    )
    
    
    (1,031
    )
    
    
    (1,752
    )
    
    
    (2,782
    )Other
    
    
    47
    
    
    
    90
    
    
    
    1,023
    
    
    
    (224
    )(85,471
    )
    
    
    7,990
    
    
    
    (105,662
    )
    
    
    13,714Foreign exchange gain (loss) on cash held in foreign
currency
    
    
    1,213
    
    
    
    (4,528
    )
    
    
    1,968
    
    
    
    (7,355
    )Increase in cash and cash equivalents
    
    
    134
    
    
    
    23,659
    
    
    
    1,057
    
    
    
    9,072Cash and cash equivalents at beginning of period
    
    
    75,769
    
    
    
    38,037
    
    
    
    74,846
    
    
    
    52,624Cash and cash equivalents at end of period
    
    
    75,903
    
    
    
    61,696
    
    
    
    75,903
    
    
    
    61,696
 Cash and cash equivalents represent cash and short-term investments less bank
overdraft. Cash interest paid in the determination of the earnings for each of
the periods ended June 30, 2004 and 2003 was $29.3 million and $34.7 million,
respectively. Cash taxes paid for each of the periods ended June 30, 2004 and
2003 were $19.9 million and $6.0 million, respectively. Extendicare Inc. June 2004 22




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##### 



EXTENDICARE INC.
Consolidated Balance Sheets
(unaudited) June 30
    
    December 31(thousands of dollars)
    
    2004
    
    2003AssetsCurrent assetsCash and short-term investments
    
    
    75,903
    
    
    
    74,846Accounts receivable
    
    
    157,542
    
    
    
    150,048Assets under divestiture agreement
    
    
    
    
    
    
    43,722Income taxes recoverable
    
    
    
    
    
    
    9,654Future income taxes
    
    
    43,215
    
    
    
    34,571Inventories, supplies and prepaid expenses
    
    
    19,272
    
    
    
    13,928295,932
    
    
    
    326,769Property and equipment
    
    
    839,302
    
    
    
    821,682Goodwill and other intangible assets
    
    
    100,268
    
    
    
    97,558Other assets
    
    
    174,019
    
    
    
    205,6291,409,521
    
    
    
    1,451,638Equity accounted investments
    
    
    129,186
    
    
    
    141,7791,538,707
    
    
    
    1,593,417Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable and accrued liabilities
    
    
    274,457
    
    
    
    268,206Income taxes payable
    
    
    2,401
    
    
    
    Accrual for self-insured liabilities
    
    
    33,345
    
    
    
    32,413Current maturities of long-term debt
    
    
    7,156
    
    
    
    7,409Deposits under divestiture agreement
    
    
    
    
    
    
    38,895317,359
    
    
    
    346,923Accrual for self-insured liabilities
    
    
    63,781
    
    
    
    62,990Long-term debt
    
    
    670,547
    
    
    
    750,094Future income taxes
    
    
    71,541
    
    
    
    76,9771,123,228
    
    
    
    1,236,984Share capital and contributed surplus
    
    
    314,098
    
    
    
    312,328Retained earnings
    
    
    77,229
    
    
    
    31,959Foreign currency translation adjustment account
    
    
    24,152
    
    
    
    12,1461,538,707
    
    
    
    1,593,417Closing US/Cdn. dollar exchange rate
    
    
    1.3338
    
    
    
    1.2965
 EXTENDICARE INC.
Consolidated Statements of Retained Earnings (Deficit)
(unaudited) Six months ended(thousands of dollars)
    
    June 302004
    
    2003Retained Earnings (Deficit)Balance at beginning of period
    
    
    31,959
    
    
    
    (26,545
    )Earnings for the period
    
    
    46,681
    
    
    
    30,001Purchase of shares below/(in excess of) book value
    
    
    (1,078
    )
    
    
    472Preferred share dividends
    
    
    (333
    )
    
    
    (387
    )Balance at end of period
    
    
    77,229
    
    
    
    3,541
 Extendicare Inc. June 2004 23




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##### 



Extendicare Inc.  Notes to the Unaudited Consolidated Financial Statements 1. Basis of Presentation The unaudited interim period consolidated financial statements of Extendicare
Inc. have been prepared in accordance with Canadian generally accepted
accounting principles. The consolidated financial statements include those of
Extendicare Inc. and its subsidiaries (Extendicare or the Company). Health
care operations are conducted through wholly owned subsidiaries, Extendicare
Health Services, Inc. and its subsidiaries (EHSI) in the United States, and
Extendicare (Canada) Inc. and its subsidiaries (ECI) in Canada. The preparation
of financial data is based on accounting policies and practices consistent with
those used in the preparation of the annual audited consolidated financial
statements. All dollar amounts are in Canadian dollars unless otherwise
indicated. These unaudited interim period consolidated financial statements
should be read together with the annual audited consolidated financial
statements and the accompanying notes included in the Companys 2003 Annual
Report. Certain reclassifications have been made to the prior period results to conform
to the 2004 presentation. 2. Change in Accounting Policies Effective January 1, 2004, the Company adopted the following accounting
pronouncements, none of which, other than the new rules for hedging relations
as indicated below, had a material impact on the financial results: hedging
relations; impairment of long-lived assets; asset retirement obligations;
revenue recognition; and revenue arrangements with multiple deliverables. Hedging Effective January 1, 2004, the Company adopted CICA Accounting Guideline 13 (AG
13), Hedging Relationships along with subsequent amendments. AG 13
establishes guidance for the identification, designation and documentation of
the hedging relationship, and an assessment of the effectiveness of the hedging
relationship. Hedge accounting is discontinued for any hedging relationships
that do not meet the requirements of the guideline. Currently, the only hedging
relationships the Company has are its interest rate swaps, which effectively
converts fixed-rate debt to floating rates. At the beginning of the year, the
Company had an interest rate cap for a notional US$150.0 million, which under
the new criteria, only US$32.0 million qualified as an effective cash flow
hedge to limit increases in interest payments under variable-rate debt
obligations. The remainder of the interest rate cap, with a notional amount of
US$118.0 million, did not qualify as an effective hedge, and as such, the
Company on transition of the new rules, recognized an associated unrealized
loss of $0.8 million (US$0.6 million), which amount was deferred in other
assets to be recognized in earnings over the remaining term of the interest
rate cap to December 2007. In the second quarter of 2004, the Company
terminated this interest rate cap arrangement, and as a result wrote off the
balance of the deferred unrealized loss of $0.8 million. Two new interest rate
cap arrangements were entered into during the second quarter, which also do not
qualify as effective hedges. At the end of June, the interest rate caps were
fair valued, and a charge of $5.9 million was reported in income during the
second quarter of 2004. Impairment of Long-lived Assets Effective January 1, 2004, the Company adopted CICA Handbook Section 3063,
which establishes new standards for the recognition, measurement, and
disclosure of the impairment of long-lived assets. Changes to existing practice
include, among others, the determination of an impairment of assets held for
use under a two-step process and the measurement of an impairment loss as the
amount by which the long-lived assets carrying amount exceeds its fair value.
There has been no significant impact on the Companys financial statements as a
result of adopting this policy. Asset Retirement Obligations Effective January 1, 2004, the Company adopted CICA Handbook Section 3110,
which establishes new standards for the recognition, measurement and disclosure
of liabilities for asset retirement obligations and the associated asset
retirement costs. The standards apply to legal obligations associated with the
retirement of a tangible long-lived asset that results from acquisition,
construction, development or normal operations, and require the Company to
record the fair value of a liability for an asset retirement obligation. There
has been no impact on the Companys financial statements as a result of
adopting this policy. Employee Future Benefits In March 2004, the CICA amended Handbook Sections 1751, Interim Financial
Statements and 3461, Employee Future Benefits to require additional interim
and annual disclosures. Section 1751 was amended to require disclosure of total
future benefit cost in interim financial statements for interim periods ending
on or after June 30, 2004. The Company has adopted this accounting
pronouncement and has reported the future benefit expense in note 14. Extendicare Inc. June 2004 24




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##### 



Extendicare Inc.  Notes to the Unaudited Consolidated Financial Statements 3. Acquisitions In June 2004 EHSI acquired four nursing homes (321 beds) located in Indiana for
cash of $6.9 million (US$5.0 million). In February 2004 EHSI acquired for cash
of $1.9 million (US$1.4 million) a skilled nursing facility in Washington that
it had operated previously under lease arrangements. 4. Loss (Gain) from Asset Disposals, Impairment and Other Items Three months ended
    
    Six months ended(thousands of dollars)
    
    June 30
    
    June 302004
    
    2003
    
    2004
    
    2003Loss (gain) from dispositionsUnited States completion of divestiture
    
    
    (6,616
    )
    
    
    
    
    
    
    (6,616
    )
    
    
    Canada sale of nursing and retirement homes
    
    
    
    
    
    
    176
    
    
    
    (12,657
    )
    
    
    176Issuance and retirement of debtTender and call premiums
    
    
    7,805
    
    
    
    
    
    
    
    7,805
    
    
    
    Legal expenses incurred
    
    
    390
    
    
    
    
    
    
    
    390
    
    
    
    Write-off of deferred financing costs
    
    
    3,167
    
    
    
    
    
    
    
    3,167
    
    
    
    Bond discount and foreign exchange recognized
    
    
    (771
    )
    
    
    
    
    
    
    (771
    )
    
    
    Termination of interest rate swap and cap
    
    
    (3,661
    )
    
    
    
    
    
    
    (3,661
    )
    
    
    Loss on repayment of notes due from Tandem
    
    
    1,720
    
    
    
    
    
    
    
    1,720
    
    
    
    Provision for impairment of nursing home facility
    
    
    
    
    
    
    
    
    
    
    2,125
    
    
    
    Canada sale of assets and other
    
    
    (222
    )
    
    
    
    
    
    
    242
    
    
    
    (1,081
    )1,812
    
    
    
    176
    
    
    
    (8,256
    )
    
    
    905
 In the second quarter of 2004, EHSI concluded the sale with Greystone Tribeca
Acquisition, L.L.C. (Greystone) of the divestiture agreement for 15 Florida
nursing and assisted living facilities previously owned and operated by EHSI,
which Greystone had been operating since September 2000. The initial
transaction in 2000 was treated as a deferred sale since a significant portion
of the final consideration was contingent on certain events, and because EHSI
held an option to repurchase the facilities. In June 2004 EHSI received US$10.0
million as final payment of the contingent consideration resulting in a pre-tax
gain of $6.6 million (US$4.9 million). In the second quarter of 2004, as a result of the tender and call of EHSIs
9.35% Senior Subordinated Notes due 2007 (the 2007 Notes), the Company booked
the following amounts: the consolidated net premiums paid for the early
redemption of the 2007 Notes of $7.8 million (US$5.8 million); legal fees of
$0.4 million (US$0.3 million); the write-off of deferred financing charges of
$3.2 million (US$2.4 million); and a gain from unamortized bond discount and
foreign exchange of $0.8 million. In addition, pursuant to the termination of
the existing interest rate swap and cap arrangements, a consolidated net gain
of $3.7 million (US$2.7 million) was recorded. Also, in the second quarter EHSI accepted a cash pre-payment of US$16.2 million
for US$17.0 million of notes receivable due 2007 from Tandem Health Care, Inc.
from a previous divestiture. After payment of associated selling expenses of
US$0.5 million, EHSI recorded a pre-tax loss of $1.7 million (US$1.3 million).
In Canada, ECI sold non-core assets for a pre-tax gain of $0.2 million. In February 2004, the Company reported a gain on sale of two Ontario homes (275
beds) for gross proceeds of $19.6 million resulting in a pre-tax gain of $12.7
million. A portion of the proceeds were used to retire long-term debt of $6.6
million associated with the homes. In addition, during the first quarter of
2004, EHSI prepaid in full US$13.0 million of Industrial Development Revenue
Bonds that resulted in the write-off of $0.5 million of deferred financing
costs, and based on a formal decision to close an 86-bed nursing facility in
Indiana, EHSI recorded a loss on impairment of assets of $2.1 million. Extendicare Inc. June 2004 25




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##### 



Extendicare Inc.  Notes to the Unaudited Consolidated Financial Statements 5. Property and Equipment As of June 30, 2004, EHSI had capital expenditure commitments outstanding of
approximately US$24.1 million. EHSI is in the process of completing seven new
developments (Phase I) to add 165 beds during 2004 and 2005. Four of the
projects were completed in the first half of 2004, representing a 20-bed
addition to a nursing facility, 16-unit and 30-unit additions to two assisted
living centres and a new 40-unit assisted living centre. The total cost of this
new development is expected to be US$15.7 million, of which US$4.3 million was
spent in 2003 and US$6.0 million in the first half of 2004. Furthermore, Phase
II of the development plans is a proposal for eight new developments that will
add 325 units in 2005 and 2006 for a cost of approximately US$36.3 million, of
which US$0.9 million was spent in the first half of 2004. 6. Goodwill and Other Intangible Assets Included in goodwill and other intangible assets is intangible assets related
to leasehold rights, which are amortized over the term of the lease including
renewal options. As at June 30, 2004, these assets had a gross carrying value
of $13.3 million and accumulative amortization of $10.0 million, for a net book
value of $3.3 million. The aggregate amortization expense for the six months
ended June 30, 2004 was $0.8 million. 7. Equity Accounted Investments Extendicares share of Crown Life Insurance Companys (Crown Life) earnings for
the first six months of 2004 was $3.8 million and its share of losses of
Salumatics Inc. (formerly THiiNC Information Management Inc.) was $0.8 million.
For the first six months of 2003, Extendicares share of Crown Lifes earnings
was $15.1 million. In June 2004 Extendicare received a cash dividend from Crown
Life of $15.6 million, or $14.00 per share. Crown Life did not pay any
dividends in 2003. 8. Long-term Debt Issuance of 2014 Notes and Repayment of 2007 Notes In April 2004 EHSI issued US$125.0 million aggregate principal amount of 6.875%
Senior Subordinated Notes due May 1, 2014 (the 2014 Notes) at a price of
97.5001% of par to yield 7.23%, and amended and restated its existing credit
facility, which included an increase in borrowing capacity from US$105.0
million to US$155.0 million. The net proceeds from the 2014 Notes were
approximately US$117.4 million, and were used, together with cash on hand and
new borrowing capacity, to purchase for cash all of EHSIs outstanding US$200.0
million aggregate principal amount of the 2007 Notes. On April 5, 2004, EHSI
commenced a tender offer for the 2007 Notes, for which 61%, excluding those
held by Extendicare Inc., were tendered and US$104.9 million aggregate
principal was repaid on April 22, 2004. The remaining US$95.1 million of 2007
Notes not tendered were redeemed and paid for on May 24, 2004. The 2014 Notes are fully and unconditionally guaranteed on a senior
subordinated unsecured basis, jointly and severely, by all of EHSIs existing
and future U.S. domestic significant subsidiaries, by all of its existing and
future U.S. domestic subsidiaries that guarantee or incur any indebtedness and
by any other existing and future significant subsidiaries or restricted
subsidiaries that guarantee or otherwise provide direct credit support for
indebtedness of EHSI or any of its U.S. domestic subsidiaries. The 2014 Notes
and guarantees are general unsecured obligations of EHSI and its subsidiaries. On or after May 1, 2009, EHSI may redeem all or part of the 2014 Notes, at the
redemption prices (expressed as percentages of principal amount) listed below,
plus accrued and unpaid interest, if any, to the date of redemption, if
redeemed during the twelve-month period commencing on May 1 of the years set
forth below: RedemptionYear
    
    Price2009
    
    
    103.438
    %2010
    
    
    102.292
    %2011
    
    
    101.146
    %2012 and thereafter
    
    
    100.000
    %
 In July 2004 EHSI commenced its offer to exchange new 6.875% Senior
Subordinated Notes due 2014 that have been registered under the Securities Act
of 1933 for the 2014 Notes issued in April 2004 pursuant to Rule 144A and
Regulation S under the Securities Act of 1933, as amended. The terms of the new
2014 Senior Subordinated Notes are identical to the terms of the 2014 Notes
issued in April 2004. EHSI anticipates the offer to exchange the 2014 Notes to
be completed in August 2004. Extendicare Inc. June 2004 26




---



##### 



Extendicare Inc.  Notes to the Unaudited Consolidated Financial Statements Credit Facility In connection with the offering of the 2014 Notes, EHSI amended and restated
its credit facility to, among other things, extend the maturity date from June
28, 2007 to June 28, 2009 and increase the total borrowing capacity by US$50.0
million from US$105.0 million to US$155.0 million. The credit facility is used to back letters of credit and for general corporate
purposes. Borrowings under the credit facility bear interest, at EHSIs option,
at the Eurodollar rate or the prime rate, plus applicable margins. Depending
upon EHSIs senior leverage ratio, the interest rate is equal to the Eurodollar
rate plus a margin of 2.50% to 3.25% per annum or the base rate plus a margin
of 1.50% to 2.25% per annum. The commitment fee is 0.50% per annum on the
undrawn capacity regardless of utilization. The credit facility is secured by a perfected, first priority security interest
in certain tangible and intangible assets and all of EHSIs capital stock and
the capital stock of EHSIs subsidiary guarantors. The credit facility is also
secured by a pledge of 65% of the voting shares of the voting stock of EHSI and
EHSIs subsidiary guarantors foreign subsidiaries, if any. The credit facility
contains customary covenants and events of default and is subject to various
mandatory prepayment and commitment reductions. EHSI is permitted to make
voluntary prepayments at any time under the credit facility. As of June 30, 2004 and December 31, 2003, EHSI had no borrowings under the
credit facility. The unused portion of the credit facility that is available
for working capital and corporate purposes, after reduction for outstanding
letters of credit of US$33.7 million, was US$121.3 million as of June 30, 2004. The credit facility requires that EHSI comply with various financial covenants,
including fixed charge coverage, debt leverage, and tangible net worth ratios.
EHSI is in compliance with all of the financial covenants as of June 30, 2004. Interest Rate Swap and Cap Agreements On April 19, 2004, coterminous with the issuance of the 2014 Notes, EHSI
terminated its existing interest rate swap and cap agreements for an aggregate
gain of US$3.3 million which was recognized in the second quarter of 2004. This
swap was a hedge against the 2007 Notes. In addition, to hedge its exposure to
fluctuations in market value, on April 22, 2004, EHSI entered into two new
interest rate swap agreements and two new interest rate cap agreements relating
to EHSIs 9.5% Senior Notes due 2010 (the 2010 Senior Notes), and the 2014
Notes. With respect to the 2010 Senior Notes, EHSI entered into an interest rate swap
agreement expiring July 1, 2010, with a notional amount of US$150.0 million.
This agreement effectively converted up to US$150.0 million of fixed interest
rate indebtedness into variable interest rate indebtedness. Under the terms of
this interest rate swap agreement, the counterparty can call the swap at any
time on or after July 1, 2006 with payments as determined under the agreement.
This call option is a mirror image of the embedded call option in the debt
instrument. EHSI also entered into an interest rate cap agreement expiring July
1, 2010 with a notional amount of US$150.0 million (the 2010 Cap). Under the
terms of the 2010 Cap, EHSI paid on April 22, 2004, an upfront fee of US$3.5
million to the counterparty, and the change in fair value of this fee is
reported to the earnings statement. EHSI will receive a variable rate of
interest equal to the excess, if any, of the six-month London Interbank
Borrowing Rate (LIBOR), adjusted semi-annually, over the cap rate of 7%. EHSI
uses the interest rate cap to offset possible increases in interest payments
under the interest rate swap agreement expiring July 1, 2010, caused by
increases in market interest rates over a certain level. Under the terms of the
2010 Cap, the counterparty can call the cap if the interest rate swap agreement
expiring July 1, 2010, is terminated. With respect to the 2014 Notes, on April 22, 2004 EHSI entered into an interest
rate swap agreement expiring May 1, 2014, with a notional amount of US$125.0
million. This agreement effectively converted up to US$125.0 million of fixed
interest rate indebtedness into variable interest rate indebtedness. Under the
terms of this interest rate swap agreement, the counterparty can call the swap
at any time on or after May 1, 2009, with payments as determined under the
agreement. This call option is a mirror image of the embedded call option in
the debt instrument. EHSI also entered into an interest rate cap agreement
expiring May 1, 2014, with a notional amount of US$125.0 million (the 2014
Cap). Under the terms of the 2014 Cap, EHSI pays a fixed rate of interest
equal to 0.75% to the counterparty and receives a variable rate of interest
equal to the excess, if any, of the six-month LIBOR rate, adjusted
semi-annually, over the cap rate of 7%. EHSI uses the interest rate cap to
offset possible increases in interest payments under the interest rate swap
agreement expiring May 1, 2014, caused by increases in market interest rates
over a certain level. Under the terms of the interest rate cap agreement, the
counterparty can call the cap if the interest rate swap agreement expiring May
1, 2014, is terminated. Extendicare Inc. June 2004 27




---



##### 



Extendicare Inc.  Notes to the Unaudited Consolidated Financial Statements The interest rate swaps maturing in 2010 and 2014 are designated as highly
effective fair value hedges, and as a result, changes in market value of the
swaps are offset by changes in market value of the hedged debt instruments. As
of June 30, 2004, the fair value of the interest rate swaps designated as fair
value hedges is a liability of US$8.3 million and is offset by a corresponding
change in the fair value of the hedged long-term debt obligation, both of which
are off-balance sheet amounts. The interest rate caps maturing in 2010 and 2014 are not designated as hedges
and the change in fair value of these caps are reported in the earnings
statement. As of June 30, 2004, the fair value of the 2010 Cap is an asset of
US$2.4 million and the fair value of the 2014 Cap is a liability of US$3.4
million, both of which are recorded in the financial statements. The fair
values of EHSIs interest rate caps are dependent on projected six-month LIBOR
interest rates that are influenced by long-term rates, and the volatility of
these rates. As a result of a decline in the volatility of rates in the second
quarter of 2004, the value of EHSIs interest rate caps declined and resulted
in a valuation adjustment loss of $5.9 million (US$4.3 million) in the second
quarter. 9. Share Capital During the six months ended June 30, 2004, the Company purchased 3,000 Class I
Preferred Shares at a cost of $74,000 pursuant to the purchase obligation.
Under the terms of a Normal Course Issuer Bid, the Company purchased and
cancelled 128,000 Subordinate Voting Shares and 1,000 Multiple Voting Shares at
a cost of $1,676,000. In addition, during the six months, 447,425 Subordinate
Voting Shares were issued on exercise of stock options for proceeds, including
the tax effect, of $2,351,000. As a result of these transactions, the carrying
value of capital stock increased by $1,678,000 and retained earnings was
charged with $1,078,000 attributable to the cost of purchases in excess of
their carrying value. Long-term Incentive Plan In May 2004 the Board of Directors of the Company approved an amendment to the
Companys Subordinate Voting Shares stock option plan, and has received
approval for the amendments from the Toronto Stock Exchange (TSX). The
amendments add the ability to grant tandem share appreciation rights (SARs)
with option grants. Tandem SARs give the grantee the option to surrender to the
Company, unexercised, the right to subscribe for the Subordinate Voting Shares
pursuant to his grant under the related stock option, and to receive from the
Company an amount equal to the excess of the fair market value of the
Subordinate Voting Shares on the effective date of exercise, over the aggregate
option price of such shares in respect of which the option is surrendered.
Awards pursuant to the Companys Amended and Restated Subordinate Voting Share
Option and Tandem SAR Plan (the Plan) shall be exercisable only to the extent
that the option has vested, such period not to exceed 10 years, as determined
by the Board at the time of granting. The Company has not increased the number
of Subordinate Voting Shares reserved for issuance under its Plan, and to the
extent that awards pursuant to the Plan result in the exercise of tandem SARs,
the equivalent number of Subordinate Voting Shares will be reduced from the
number reserved and available under the Plan for future grants. On May 6, 2004, the Board granted 96,000 tandem SARs pursuant to the Plan at an
exercise price of $14.82 per share, being the closing price of the Subordinate
Voting Shares on the TSX on the trading day prior to the grant. The options
vest at a rate of 25% on the anniversary date of grant, over a four-year
period, and expire on May 6, 2014. As at June 30, 2004, 3,935,550 Subordinate Voting Shares have been reserved
under the Plan of which a total of 1,925,575 Subordinate Voting Shares have
been granted. These options have exercise prices ranging from $2.37 to $14.82,
and expire between February 22, 2005 and May 6, 2014. During the six months
ended June 30, 2004, 20,250 options expired and/or were cancelled. The Company elected in 2003 to adopt the fair value based method of accounting
for stock-based compensation on a prospective basis, applied to awards granted
under its stock option plan beginning January 1, 2003. For awards granted under
the stock option plan prior to January 1, 2003, the Company applies the
intrinsic value based method. During the first half of 2004, the Company
recorded compensation cost associated with stock options granted since January
1, 2003 of $96,000 thereby increasing the related balance of contributed
surplus to $236,000 at the end of June 2004 after $4,000 of adjustments for a
portion of these options that were exercised. Extendicare Inc. June 2004 28




---



##### 



Extendicare Inc.  Notes to the Unaudited Consolidated Financial Statements Had awards granted under the stock option plan prior to January 1, 2003 been
accounted for using the fair value based method of accounting for stock-based
compensation, the Companys consolidated net earnings and related per share
amounts would have been reduced to the pro forma amounts indicated in the
following table. Three months ended
    
    Six months ended(thousands of dollars except per share amounts)
    
    June 30
    
    June 302004
    
    2003
    
    2004
    
    2003Net earnings for the period
    
    
    18,342
    
    
    
    12,125
    
    
    
    46,681
    
    
    
    30,001Compensation expense related to fair value of stock
options, after taxes of $nil
    
    
    (92
    )
    
    
    (228
    )
    
    
    (186
    )
    
    
    (457
    )Pro forma net income for the period
    
    
    18,250
    
    
    
    11,897
    
    
    
    46,495
    
    
    
    29,544Basic earnings per share (dollars)Reported
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.67
    
    
    
    0.43Adjusted
    
    
    0.26
    
    
    
    0.17
    
    
    
    0.67
    
    
    
    0.42Diluted earnings per share (dollars)Reported
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.66
    
    
    
    0.43Adjusted
    
    
    0.26
    
    
    
    0.17
    
    
    
    0.66
    
    
    
    0.42
 The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model. 10. Earnings per Share Earnings per share is calculated by dividing net earnings after preferred share
dividends for the period by the weighted average number of combined Subordinate
Voting Shares and Multiple Voting Shares outstanding during the period. Diluted
earnings per share, using the treasury stock method, assumes outstanding stock
options are exercised at the beginning of the year and common shares are
purchased at the average market price during the period from the funds derived
on the exercise of these outstanding options. Stock options with a strike price
above the average market price for the period are excluded from the calculation
of diluted earnings per share as to include them would increase earnings per
share. The following table reconciles the numerator and denominator of the basic and
diluted earnings per share computation. Three months ended
    
    Six months ended(thousands of dollars except per share amounts)
    
    June 30
    
    June 302004
    
    2003
    
    2004
    
    2003Numerator for basic and diluted earnings per shareNet earnings for the period
    
    
    18,342
    
    
    
    12,125
    
    
    
    46,681
    
    
    
    30,001Dividends on preferred shares
    
    
    (162
    )
    
    
    (197
    )
    
    
    (339
    )
    
    
    (383
    )18,180
    
    
    
    11,928
    
    
    
    46,342
    
    
    
    29,618Denominator for basic and diluted earnings per
share (thousands)Basic weighted average number of shares
    
    
    68,770
    
    
    
    68,989
    
    
    
    68,684
    
    
    
    69,236Dilutive stock options (1)
    
    
    1,377
    
    
    
    154
    
    
    
    1,426
    
    
    
    161Diluted weighted average number of shares
    
    
    70,147
    
    
    
    69,143
    
    
    
    70,110
    
    
    
    69,397Earnings per share (dollars)Basic
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.67
    
    
    
    0.43Diluted
    
    
    0.26
    
    
    
    0.18
    
    
    
    0.66
    
    
    
    0.43
  (1)
    
    For the six months ended June 30, 2003, 1,819,231 stock options were excluded from the calculation of
dilutive stock options as their strike prices ranged from $3.70 to $7.01, which was above the average
market price for the period. There were no stock options excluded from this calculation for the six months
ended June 30, 2004. 11. Contingent Liabilities The Company and its consolidated subsidiaries are defendants in actions brought
against them from time to time in connection with their operations. It is not
possible to predict the ultimate outcome of the various proceedings at this
time or to estimate additional costs that may result. The U.S. Department of Justice and other federal agencies are increasing
resources dedicated to regulatory investigations and compliance audits of
health care providers. The Company is diligent to address these regulatory
efforts. U.S. federal Extendicare Inc. June 2004 29




---



##### 



Extendicare Inc.  Notes to the Unaudited Consolidated Financial Statements law requires each state to have a Medicaid Fraud Control Unit, which is
responsible for investigating provider fraud and resident abuse in Medicaid
funded facilities. EHSI is aware of investigations by these units involving one
facility each in Kentucky and Wisconsin. The investigations have not been
sufficiently developed to enable the Company to predict an outcome. In
addition, as of June 30, 2004 EHSI was under a plan of correction as a result
of facility citations for survey deficiencies in a nursing facility in Chippewa
Falls, Wisconsin, see note 15 for further details. In connection with its agreement to provide pharmacy services to EHSI,
Omnicare, Inc. (Omnicare) has requested arbitration for an alleged lost profits
claim related to EHSIs disposition of assets, primarily in Florida. Damage
amounts, if any, cannot be reasonably estimated based on information available
at this time. An arbitration hearing has not yet been scheduled. Management
believes it has interpreted correctly and complied with the terms of the
preferred provider agreement. However, there can be no assurance that this
claim will not be successful or that other claims will not be made with respect
to the agreement. Also, EHSI and Omnicare are currently negotiating the pricing of drugs for
Medicare residents and should this matter not be settled, it will be taken to
arbitration. The financial statements include provisions for settlement of this
claim. 12. Segmented Information Three months ended
    
    Six months ended(millions of dollars)
    
    June 30
    
    June 302004
    
    2003
    
    2004
    
    2003RevenueUnited States
    
    
    319.4
    
    
    
    300.9
    
    
    
    627.4
    
    
    
    622.4Canada
    
    
    126.2
    
    
    
    119.8
    
    
    
    247.8
    
    
    
    237.6445.6
    
    
    
    420.7
    
    
    
    875.2
    
    
    
    860.0EBITDA(1)United States
    
    
    45.2
    
    
    
    34.5
    
    
    
    88.9
    
    
    
    65.6Canada
    
    
    13.8
    
    
    
    11.6
    
    
    
    21.1
    
    
    
    20.059.0
    
    
    
    46.1
    
    
    
    110.0
    
    
    
    85.6Health Care Net EarningsUnited States
    
    
    10.6
    
    
    
    6.4
    
    
    
    23.8
    
    
    
    9.1Canada
    
    
    7.1
    
    
    
    3.1
    
    
    
    19.8
    
    
    
    5.817.7
    
    
    
    9.5
    
    
    
    43.6
    
    
    
    14.9
 June 30
    
    Dec. 31(millions of dollars)
    
    2004
    
    2003GoodwillUnited States (2)
    
    
    96.8
    
    
    
    93.5Canada
    
    
    0.1
    
    
    
    0.196.9
    
    
    
    93.6Health Care AssetsUnited States
    
    
    1,047.9
    
    
    
    1,119.1Canada
    
    
    361.6
    
    
    
    332.51,409.5
    
    
    
    1,451.6Equity accounted investments
    
    
    129.2
    
    
    
    141.8Total Consolidated Assets
    
    
    1,538.7
    
    
    
    1,593.4
  (1)
    
    EBITDA refers to earnings before interest, taxes, depreciation, amortization,
valuation adjustment on interest rate caps, and loss (gain) from asset disposals,
impairment and other items.(2)
    
    The change in United States goodwill is primarily due to foreign currency
translation of U.S. operations. Extendicare Inc. June 2004 30




---



##### 



Extendicare Inc.  Notes to the Unaudited Consolidated Financial Statements 13. Related Party Transaction Up until the end of June 2004, Extendicare paid rent to Crown Life for the
rental of certain office premises, which for the six months of 2004 was $0.7
million and for the six months of 2003 was $0.6 million. 14. Employee Future Benefits The future benefit expense of the Companys defined benefit pension plans for
the three months and six months ending June 30, 2004 was $0.8 million and $1.6
million, respectively. 15. Subsequent Events Transfer of Operations of Skilled Nursing Facility in Chippewa Falls, Wisconsin In June 2004, in response to facility citations for survey deficiencies of its
nursing facility in Chippewa Falls, Wisconsin, EHSI reached a tentative
agreement with the State of Wisconsin to transfer the operations to a new
licensee. In July EHSI finalized an agreement to transfer operations of its
nursing facility, effective August 1, 2004, to Lakeside Health L.L.C. (Lakeside
Health), a subsidiary of Benedictine Health Dimensions, Inc. (Benedictine) for
a term of three years. Under the terms of the agreement, Lakeside Health will
be responsible for all operating costs, including rent to EHSI, and Benedictine
will manage the nursing facility for a fee. EHSI will receive rental income of
US$0.5 million per annum; however, EHSI will be responsible to fund Lakeside
Health for any and all net operating losses from the nursing facility, as
defined in the agreement, and to provide working capital advances of
approximately US$2.0 million. Based upon the terms of the agreement and future
changes imposed by the State of Wisconsin on the plan of correction and
licensed bed capacity of the facility, EHSI may be required to take a charge
for asset impairment. Extendicare Inc. June 2004 31




---



##### 



(EXTENDICARE LOGO) Facility Location and Resident Capacity Assisted Living andat June 30, 2004
    
    Nursing Centres
    
    Retirement Centres
    
    Chronic Care Units
    
    TotalNumber of
    
    Resident
    
    Number of
    
    Resident
    
    Number of
    
    Resident
    
    Number of
    
    ResidentFacilities
    
    Capacity
    
    Facilities
    
    Capacity
    
    Facilities
    
    Capacity
    
    Facilities
    
    CapacityBy State/ProvinceUnited StatesOhio
    
    
    29
    
    
    
    3,059
    
    
    
    2
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    3,195West Virginia
    
    
    1
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    120Pennsylvania
    
    
    25
    
    
    
    2,895
    
    
    
    8
    
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    3,193Delaware
    
    
    1
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    120Wisconsin
    
    
    25
    
    
    
    2,360
    
    
    
    11
    
    
    
    512
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    2,872Minnesota
    
    
    10
    
    
    
    1,276
    
    
    
    1
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    1,336Indiana
    
    
    21
    
    
    
    1,931
    
    
    
    2
    
    
    
    109
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    2,040Kentucky
    
    
    18
    
    
    
    1,506
    
    
    
    1
    
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    1,561Washington
    
    
    15
    
    
    
    1,530
    
    
    
    8
    
    
    
    379
    
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    1,909Oregon
    
    
    3
    
    
    
    195
    
    
    
    2
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    296Idaho
    
    
    2
    
    
    
    191
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    191Arkansas
    
    
    1
    
    
    
    96
    
    
    
    3
    
    
    
    181
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    277Texas
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    110Total United States
    
    
    151
    
    
    
    15,279
    
    
    
    40
    
    
    
    1,941
    
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    17,220CanadaOntario
    
    
    52
    
    
    
    7,639
    
    
    
    4
    
    
    
    668
    
    
    
    1
    
    
    
    120
    
    
    
    57
    
    
    
    8,427Alberta
    
    
    14
    
    
    
    1,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    1,183Saskatchewan
    
    
    5
    
    
    
    654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    654Manitoba
    
    
    5
    
    
    
    762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    762British Columbia
    
    
    1
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    75Total Canada
    
    
    77
    
    
    
    10,313
    
    
    
    4
    
    
    
    668
    
    
    
    1
    
    
    
    120
    
    
    
    82
    
    
    
    11,101TOTAL
    
    
    228
    
    
    
    25,592
    
    
    
    44
    
    
    
    2,609
    
    
    
    1
    
    
    
    120
    
    
    
    273
    
    
    
    28,321By Type of OwnershipUnited StatesOwned
    
    
    135
    
    
    
    13,436
    
    
    
    34
    
    
    
    1,722
    
    
    
    
    
    
    
    
    
    
    
    169
    
    
    
    15,158Leased
    
    
    9
    
    
    
    1,030
    
    
    
    1
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    1,093Managed
    
    
    7
    
    
    
    813
    
    
    
    5
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    969Total United States
    
    
    151
    
    
    
    15,279
    
    
    
    40
    
    
    
    1,941
    
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    17,220CanadaOwned
    
    
    46
    
    
    
    6,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    6,154Leased
    
    
    9
    
    
    
    1,155
    
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    1,231Managed
    
    
    22
    
    
    
    3,004
    
    
    
    4
    
    
    
    592
    
    
    
    1
    
    
    
    120
    
    
    
    27
    
    
    
    3,716Total Canada
    
    
    77
    
    
    
    10,313
    
    
    
    4
    
    
    
    668
    
    
    
    1
    
    
    
    120
    
    
    
    82
    
    
    
    11,101TOTAL
    
    
    228
    
    
    
    25,592
    
    
    
    44
    
    
    
    2,609
    
    
    
    1
    
    
    
    120
    
    
    
    273
    
    
    
    28,321
 Extendicare Inc. June 2004 32




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##### 



Investor Information Stock Exchange Listings
    
    Transfer AgentsToronto Stock Exchange
    
    Computershare Investor Services, Inc.New York Stock Exchange (EXE.A only)
    
    Tel: (800) 564-6253Fax: (866) 249-7775email: service@computershare.comwww.computershare.comShareholder Inquiries
    
    Investor RelationsJillian Fountain, Corporate Secretary
    
    Christopher Barnes, Manager, Investor RelationsTel: (905) 470-5534
    
    Tel: (905) 470-5483Fax: (905) 470-4003
    
    Fax: (905) 470-4003email: jfountain@extendicare.com
    
    email: cbarnes@extendicare.com
 Corporate Information  Visit Extendicares Website @www.extendicare.com (EXTENDICARE LOGO) 33