Exhibit 99.1

 

Contact:		Richard A. Lechleiter
		Executive Vice President and
		Chief Financial Officer
		(502) 596-7734

KINDRED HEALTHCARE REPORTS STRONG SECOND QUARTER RESULTS

FOLLOWING REHABCARE ACQUISITION

 

 

Excluding Transaction-Related Charges, Company Reports Continuing Operations Diluted EPS of $0.53,

Up 26% from Last Year’s Adjusted EPS of $0.42

Company Reports GAAP Continuing Operations Loss of $0.14 per Diluted Share

 

 

RehabCare Integration Ahead of Expectations

Company Continues to Execute on Cluster Market Development Strategy

 

 

Company Resumes Earnings Guidance Following RehabCare Acquisition

(Continuing operations diluted EPS, excluding transaction-related charges)

Third quarter 2011 - $0.25 to $0.30

Fiscal 2011 - $1.80 to $1.90

Fiscal 2012 - $1.65 to $1.85

LOUISVILLE, Ky. (August 8, 2011) – Kindred Healthcare, Inc. (“Kindred” or “the Company”) (NYSE:KND) today announced its operating results for the second quarter ended June 30, 2011. As previously announced, the Company completed the acquisition of RehabCare Group, Inc. (“RehabCare”) (formerly NYSE:RHB) on June 1, 2011. The Company’s consolidated financial statements include the operating results of RehabCare since the closing of the transaction.

Second Quarter Highlights:

 

•

Consolidated revenues rose 20% to $1.3 billion

 

•

RehabCare added $114 million in second quarter revenues

 

•

Same-store revenues grew in each operating division

 

•

Excluding transaction-related charges, the Company reported improved operating margins

 

•

Adjusted operating income rose 22% to $181 million (14.0% of revenues) compared to $149 million (13.8% of revenues) in the second quarter last year

 

•

Adjusted income from continuing operations grew 40% to $23.4 million (1.8% of revenues) from $16.7 million (1.5% of revenues) in the second quarter last year

 

•

RehabCare acquisition was slightly accretive to second quarter earnings

 

•

Company reported solid operational growth in the second quarter compared to last year

 

•

Hospital admissions rose 22% in the quarter; same-store admissions were relatively unchanged

 

•

Nursing center admissions increased 6% compared to the second quarter last year

 

•

Expanding rehabilitation therapy business now reaches 2,200 sites

 

•

The Company continues to generate significant operating cash flows

 

•

Excluding transaction-related payments, year to date operating cash flows were up 42% from last year’s first half

- MORE -

680 South Fourth Street     Louisville, Kentucky 40202

502.596.7300    www.kindredhealthcare.com

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 2

August 8, 2011

 

 

Second Quarter Results

Continuing Operations

Consolidated revenues for the second quarter ended June 30, 2011 rose 20% to $1.3 billion. The Company reported a loss from continuing operations for the second quarter of 2011 totaling $6.1 million or $0.14 per diluted share compared to income of $16.1 million or $0.41 per diluted share in the second quarter last year.

Excluding transaction-related charges, the Company’s income from continuing operations grew 40% to $23.4 million or $0.53 per diluted share from $16.7 million or $0.42 per diluted share in the second quarter of 2010.

Management Commentary

Paul J. Diaz, President and Chief Executive Officer of the Company, remarked, “Our second quarter core operating results were outstanding, with our continued focus on quality, customer service and operating efficiencies leading the way to volume and earnings growth across the Company. We are pleased to report significant core earnings growth in the quarter while also completing the RehabCare acquisition and focusing on its transition.”

Commenting on the RehabCare acquisition, Mr. Diaz further noted, “Having closed the acquisition one month in advance of our expectations, our support center and operating teams successfully completed all of the initial integration activities with minimal disruption to the business units. We have now completed the financial information systems conversions and will begin the roll-out of our hospital clinical information systems in the former RehabCare hospitals. These critical infrastructure investments are the foundation for our operating synergies and the ongoing benefits of our expanded size and scale. Based upon our initial success in this area, we now believe that we will realize approximately $55 million of cost synergies in 2012 and $65 million in cost synergies in 2013, significantly ahead of our previous estimates.”

Mr. Diaz commented on the Company’s ongoing development activities, “As we recently announced, we continue to advance our cluster market strategy through the selective development of our different businesses to meet the needs of our patients, physicians, managed care plans and other healthcare partners in our key markets. The new projects in Charleston, Dayton, Indianapolis, Seattle and Dallas will provide ongoing growth in our long-term acute care hospital, sub-acute and skilled nursing and rehabilitation businesses. In addition, our two new inpatient rehabilitation hospital projects in Austin and Houston will complement our existing operations in both of these markets. These exciting new projects are expected to be accretive to earnings beginning in 2013.”

Finally, Mr. Diaz discussed the Company’s improved liquidity, “Our operating cash flows continue to be a source of financial strength for Kindred as we continue to pursue our cluster market development strategy and reduce our leverage. Excluding transaction-related payments, our operating cash flows in the first half of 2011 increased 42% to $120 million from last year’s adjusted $85 million.”

Recent Regulatory Changes

The Centers for Medicare and Medicaid Services (“CMS”) recently issued final rules that will impact the Company’s businesses effective October 1, 2011.

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 3

August 8, 2011

 

 

On July 29, 2011, CMS issued final rules which, among other things, will reduce Medicare payments to nursing centers by 11.1% and change the reimbursement for the provision of group rehabilitation therapy services to Medicare beneficiaries. While the Company had anticipated a negative annual impact of approximately $30 million to $40 million for the budget neutrality adjustments, management now estimates that these rules could reduce the Company’s annual revenues by approximately $85 million to $95 million in its nursing center business and approximately $10 million to $15 million in its rehabilitation therapy business. In addition, the Company believes that other technical changes required under the final rules may increase rehabilitation therapy costs by approximately $10 million to $15 million on an annual basis.

In addition, CMS also issued final rules that provided payment increases to inpatient rehabilitation facilities (“IRFs”) and
long-term acute care (“LTAC”) hospitals. Among other things, CMS indicated that Medicare payment rates for IRFs are expected to increase at an annual rate of 2.2% and LTAC hospital payment rates are expected to rise 2.5%. Based upon its review of the final rules, management believes that the Medicare rate increase for the Company’s LTAC hospitals will likely approximate 0.7% in 2012.

Mr. Diaz commented, “We recognize that CMS has a responsibility to achieve budget neutrality under the new RUGs IV reimbursement system. But the same rush to implementation that led to the current overpayments will now likely lead to an overcorrection that will negatively impact the interests of patients, residents, staff and job creation. We will continue to work with policymakers to re-consider a phase-in of the parity adjustment and the impact of the rehabilitation therapy and assessment process changes to maintain the stability of skilled nursing providers, the quality of their services and the accurate achievement of budget neutrality.”

Earnings Guidance – Continuing Operations

Following the completion of the RehabCare acquisition, the Company resumed its prior practice of providing earnings guidance. The Company indicated that the earnings guidance for continuing operations reflects the anticipated impact of the previously discussed final rules recently issued by CMS related to payment rates for nursing centers, LTAC hospitals, IRFs and the Company’s rehabilitation therapy business, all of which will be effective on October 1, 2011. The earnings guidance provided by the Company excludes the effect of (i) any transaction-related charges that have been recorded in prior periods or that may be incurred in the future, (ii) any other reimbursement changes, (iii) any material acquisitions or divestitures, or (iv) any repurchases of common stock.

The Company expects consolidated revenues for 2011 to approximate $5.6 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $775 million to $780 million. Rent expense is expected to approximate $400 million, while depreciation and amortization should approximate $164 million. Net interest expense is expected to approximate $69 million. The Company expects to report income from continuing operations for 2011 between $89 million to $93 million or $1.80 to $1.90 per diluted share (based upon diluted shares of 47 million).

Excluding transaction-related charges, the Company has reported diluted earnings per common share of $1.17 in the first half of 2011.

The Company also provided its earnings outlook for the third quarter of 2011, estimating diluted earnings per share between $0.25 and $0.30 (based upon diluted shares of 52 million). Management’s estimated third quarter earnings range includes the expected impact of a $3 million favorable income tax adjustment ($0.05 per diluted share).

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 4

August 8, 2011

 

 

In addition, the Company provided its initial preliminary earnings guidance for fiscal 2012. The Company expects consolidated revenues for 2012 to approximate $6.4 billion. Operating income is expected to range from $911 million to $928 million. Rent expense is expected to approximate $445 million, while depreciation and amortization should approximate $200 million. Net interest expense is expected to approximate $110 million. The Company expects to report income from continuing operations for 2012 between $93 million to $104 million or $1.65 to $1.85 per diluted share (based upon diluted shares of 53 million).

Mr. Diaz noted, “When we announced the RehabCare acquisition in February, we provided to investors a pro forma 2011 earnings per diluted share range of $1.95 to $2.15 assuming that the acquisition had occurred on January 1, 2011 and we realized $25 million in pretax operating synergies. While we will operate the combined company for only seven months this year, we are pleased to provide core 2011 earnings guidance at a level that is close to our assumed full-year pro forma estimate.”

Mr. Diaz continued, “Our 2012 preliminary earnings guidance reflects our significant outperformance in the first half of this year, our continuing efforts to grow the Company organically as well as our enhanced view of the operating synergies and lower than expected financing costs associated with the RehabCare acquisition. Despite the significant negative impact of the recently issued CMS rules for nursing centers and rehabilitation therapy, we will continue to find new growth opportunities that are available to us as a result of our diverse lines of business and larger size and scale as we look forward to 2012 and beyond.”

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the second quarter 2011 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com or at www.earnings.com. The conference call will be held August 9, 2011 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately 11:30 a.m. on August 9 by dialing (719) 457-0820, access code: 4145869. The replay will be available through August 18.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding Kindred’s expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “should,” “will,” “intend,” “may” and other similar expressions, are forward-looking statements.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from Kindred’s expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward‑looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which Kindred is unable to predict or control, that may cause Kindred’s actual results or performance to differ materially from any future results or performance expressed or implied by such forward‑looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time to time in Kindred’s filings with the Securities and Exchange Commission.

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 5

August 8, 2011

 

 

In addition to the factors set forth above, other factors that may affect Kindred’s plans or results include, without limitation, (a) the impact of a final rule issued by CMS on July 29, 2011 providing for a 11.1% reduction in Medicare reimbursement to nursing centers as well as changes in payments for the provision of group rehabilitation therapy services, (b) other potential reimbursement changes resulting from the Budget Control Act of 2011, (c) Kindred’s ability to integrate the operations of the acquired hospitals and rehabilitation services operations and realize the anticipated revenues, economies of scale, cost synergies and productivity gains in connection with the RehabCare acquisition and any other acquisitions that may be undertaken during 2011, as and when planned, including the potential for unanticipated issues, expenses and liabilities associated with those acquisitions, (d) the potential for diversion of management time and resources in seeking to integrate RehabCare’s operations, (e) the potential failure to retain key employees of RehabCare, (f) the impact of Kindred’s significantly increased levels of indebtedness as a result of the RehabCare acquisition on Kindred’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings, particularly in light of ongoing volatility in the credit and capital markets, (g) the impact of healthcare reform, which will initiate significant reforms to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors. Healthcare reform will impact each of Kindred’s businesses in some manner. Due to the substantial regulatory changes that will need to be implemented by CMS and others, and the numerous processes required to implement these reforms, Kindred cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on Kindred’s business, financial position, results of operations and liquidity, (h) changes in the reimbursement rates or the methods or timing of payment from third party payors, including commercial payors and the Medicare and Medicaid programs, changes arising from and related to the Medicare prospective payment system for LTAC hospitals, including potential changes in the Medicare payment rules, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and changes in Medicare and Medicaid reimbursements for nursing centers, and the expiration of the Medicare Part B therapy cap exception process, (i) the effects of additional legislative changes and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry, (j) Kindred’s ability to successfully pursue its development activities, including through acquisitions, and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations, (k) the impact of the Medicare, Medicaid and SCHIP Extension Act of 2007 (the “SCHIP Extension Act”), including the ability of Kindred’s hospitals to adjust to potential LTAC certification, medical necessity reviews and the moratorium on future hospital development, (l) the impact of the expiration of several moratoriums under the SCHIP Extension Act which could impact the short stay rules, the budget neutrality adjustment as well as implement the policy known as the “25 Percent Rule,” which would limit certain patient admissions, (m) failure of Kindred’s facilities to meet applicable licensure and certification requirements, (n) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (o) Kindred’s ability to meet its rental and debt service obligations, (p) Kindred’s ability to operate pursuant to the terms of its debt obligations and its master lease agreements with Ventas, Inc. (NYSE:VTR), (q) the condition of the financial markets, including volatility and weakness in the equity, capital and credit markets, which could limit the availability and terms of debt and equity financing sources to fund the requirements of Kindred’s businesses, or which could negatively impact Kindred’s investment portfolio, (r) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (s) Kindred’s ability to control costs, particularly labor and employee benefit costs, (t) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (u) Kindred’s ability to attract and retain key executives and other healthcare personnel, (v) the increase in the costs of defending and insuring against alleged professional liability and other claims and the ability to predict the estimated costs related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (w) Kindred’s ability

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 6

August 8, 2011

 

 

to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (x) Kindred’s ability to successfully dispose of unprofitable facilities, (y) events or circumstances which could result in the impairment of an asset or other charges, (z) changes in generally accepted accounting principles (“GAAP”) or practices, and changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), and (aa) Kindred’s ability to maintain an effective system of internal control over financial reporting. Many of these factors are beyond Kindred’s control. Kindred cautions investors that any forward-looking statements made by Kindred are not guarantees of future performance. Kindred disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to the results provided in accordance with GAAP, the Company has provided non-GAAP measurements which present operating results and cash flows from operations for the second quarter and six months ended June 30, 2011 and 2010 before certain charges or on a core basis. A reconciliation of the non-GAAP measurements to the GAAP measurements is included in this press release.

As noted above, the Company’s earnings release includes a financial measure referred to as operating income, or earnings before interest, income taxes, depreciation, amortization and rent. The Company’s management uses operating income as a meaningful measure of operational performance in addition to other measures. The Company uses operating income to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes this measurement is important because securities analysts and investors use this measurement to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating income should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. A reconciliation of operating income to income from continuing operations provided in the Condensed Business Segment Data is included in this press release.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-150 private employer in the United States, is a healthcare services company based in Louisville, Kentucky with annual revenues of $6 billion and approximately 76,300 employees in 46 states. At June 30, 2011, Kindred through its subsidiaries provided healthcare services in over 2,200 locations, including 120 long-term acute care hospitals, five inpatient rehabilitation hospitals, 224 nursing and rehabilitation centers, 22 sub-acute units, 20 hospice and home care locations, 104 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served approximately 1,760 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for three years in a row, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com.

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 7

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Financial Summary

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
Revenues		$	1,292,592			$	1,081,364			$	2,485,013			$	2,171,201
Income (loss) from continuing operations		$	(6,540	)		$	16,136			$	15,736			$	31,291
Discontinued operations, net of income taxes:
Income (loss) from operations			587				87				408				(67	)
Gain (loss) on divestiture of operations			—				54				—				(83	)
Income (loss) from discontinued operations			587				141				408				(150	)
Net income (loss)			(5,953	)			16,277				16,144				31,141
Loss attributable to noncontrolling interests			421				—				421				—
Income (loss) attributable to Kindred		$	(5,532	)		$	16,277			$	16,565			$	31,141
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	(6,119	)		$	16,136			$	16,157			$	31,291
Income (loss) from discontinued operations			587				141				408				(150	)
Net income (loss)		$	(5,532	)		$	16,277			$	16,565			$	31,141
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	(0.14	)		$	0.41			$	0.39			$	0.79
Discontinued operations:
Income (loss) from operations			0.01				—				0.01				—
Gain (loss) on divestiture of operations			—				—				—				—
Net income (loss)		$	(0.13	)		$	0.41			$	0.40			$	0.79
Diluted:
Income (loss) from continuing operations		$	(0.14	)		$	0.41			$	0.38			$	0.79
Discontinued operations:
Income (loss) from operations			0.01				—				0.01				—
Gain (loss) on divestiture of operations			—				—				—				—
Net income (loss)		$	(0.13	)		$	0.41			$	0.39			$	0.79
Shares used in computing earnings (loss) per common share:
Basic			43,231				38,756				41,145				38,691
Diluted			43,231				38,914				41,661				38,881

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 8

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
Revenues		$	1,292,592			$	1,081,364			$	2,485,013			$	2,171,201
Salaries, wages and benefits			765,133				612,205				1,443,828				1,239,380
Supplies			96,718				85,455				186,740				171,341
Rent			95,677				88,981				187,130				177,300
Other operating expenses			287,132				238,687				546,501				472,891
Other income			(2,880	)			(2,857	)			(5,665	)			(5,941	)
Depreciation and amortization			37,871				29,852				70,420				60,973
Interest expense			23,157				1,298				28,885				2,605
Investment (income) loss			(257	)			377				(752	)			(500	)
			1,302,551				1,053,998				2,457,087				2,118,049
Income (loss) from continuing operations before income taxes			(9,959	)			27,366				27,926				53,152
Provision (benefit) for income taxes			(3,419	)			11,230				12,190				21,861
Income (loss) from continuing operations			(6,540	)			16,136				15,736				31,291
Discontinued operations, net of income taxes:
Income (loss) from operations			587				87				408				(67	)
Gain (loss) on divestiture of operations			—				54				—				(83	)
Income (loss) from discontinued operations			587				141				408				(150	)
Net income (loss)			(5,953	)			16,277				16,144				31,141
Loss attributable to noncontrolling interests			421				—				421				—
Income (loss) attributable to Kindred		$	(5,532	)		$	16,277			$	16,565			$	31,141
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	(6,119	)		$	16,136			$	16,157			$	31,291
Income (loss) from discontinued operations			587				141				408				(150	)
Net income (loss)		$	(5,532	)		$	16,277			$	16,565			$	31,141
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	(0.14	)		$	0.41			$	0.39			$	0.79
Discontinued operations:
Income (loss) from operations			0.01				—				0.01				—
Gain (loss) on divestiture of operations			—				—				—				—
Net income (loss)		$	(0.13	)		$	0.41			$	0.40			$	0.79
Diluted:
Income (loss) from continuing operations		$	(0.14	)		$	0.41			$	0.38			$	0.79
Discontinued operations:
Income (loss) from operations			0.01				—				0.01				—
Gain (loss) on divestiture of operations			—				—				—				—
Net income (loss)		$	(0.13	)		$	0.41			$	0.39			$	0.79
Shares used in computing earnings (loss) per common share:
Basic			43,231				38,756				41,145				38,691
Diluted			43,231				38,914				41,661				38,881

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 9

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)

 

		June 30, 2011				December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents		$	52,399			$	17,168
Cash - restricted			5,457				5,494
Insurance subsidiary investments			61,519				76,753
Accounts receivable less allowance for loss			944,742				631,877
Inventories			30,762				24,327
Deferred tax assets			29,705				13,439
Income taxes			15,770				42,118
Other			35,266				24,862
			1,175,620				836,038
Property and equipment			1,939,698				1,754,170
Accumulated depreciation			(907,710	)			(857,623	)
			1,031,988				896,547
Goodwill			1,097,997				242,420
Intangible assets less accumulated amortization			499,920				92,883
Assets held for sale			7,073				7,167
Insurance subsidiary investments			110,633				101,210
Deferred tax assets			—				88,816
Other			133,365				72,334
Total assets		$	4,056,596			$	2,337,415
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	217,034			$	174,495
Salaries, wages and other compensation			401,014				291,116
Due to third party payors			40,293				27,115
Professional liability risks			40,583				41,555
Other accrued liabilities			119,270				87,012
Long-term debt due within one year			10,435				91
			828,629				621,384
Long-term debt			1,433,257				365,556
Professional liability risks			227,986				207,669
Deferred tax liabilities			36,670				—
Deferred credits and other liabilities			127,304				111,047
Noncontrolling interests-redeemable			23,841				—
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 52,116 shares - June 30, 2011 and 39,495 shares - December 31, 2010			13,029				9,874
Capital in excess of par value			1,132,748				828,593
Accumulated other comprehensive income			317				135
Retained earnings			209,218				193,157
			1,355,312				1,031,759
Noncontrolling interests-nonredeemable			23,597				—
Total equity			1,378,909				1,031,759
Total liabilities and equity		$	4,056,596			$	2,337,415

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 10

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
Cash flows from operating activities:
Net income (loss)		$	(5,953	)		$	16,277			$	16,144			$	31,141
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			37,871				29,852				70,420				60,973
Amortization of stock-based compensation costs			3,462				2,746				6,106				5,521
Payment of lender fees related to debt issuance			(46,232	)			—				(46,232	)			—
Provision for doubtful accounts			8,426				5,846				14,256				12,277
Deferred income taxes			(1,959	)			(3,264	)			(2,689	)			(10,727	)
(Gain) loss on divestiture of discontinued operations			—				(54	)			—				83
Other			2,017				1,089				2,387				926
Change in operating assets and liabilities:
Accounts receivable			(43,935	)			29,601				(80,575	)			(29,525	)
Inventories and other assets			870				4,759				(2,655	)			(6,486	)
Accounts payable			13,565				(596	)			1,217				(8,178	)
Income taxes			(12,950	)			(7,533	)			27,673				21,753
Due to third party payors			6,577				(130	)			3,555				(2,024	)
Other accrued liabilities			43,093				18,349				41,681				7,212
Net cash provided by operating activities			4,852				96,942				51,288				82,946
Cash flows from investing activities:
Routine capital expenditures			(33,950	)			(25,670	)			(58,668	)			(40,485	)
Development capital expenditures			(14,309	)			(12,288	)			(25,418	)			(19,855	)
Acquisitions, net of cash acquired			(651,952	)			(1,794	)			(659,979	)			(49,490	)
Sale of assets			—				—				1,714				—
Purchase of insurance subsidiary investments			(9,220	)			(9,840	)			(17,037	)			(24,118	)
Sale of insurance subsidiary investments			8,533				8,622				27,189				61,833
Net change in insurance subsidiary cash and cash equivalents			(2,744	)			(1,926	)			(4,044	)			(7,501	)
Change in other investments			—				2				1,000				2
Other			(161	)			609				(29	)			581
Net cash used in investing activities			(703,803	)			(42,285	)			(735,272	)			(79,033	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit			654,900				262,400				1,100,100				652,000
Repayment of borrowings under revolving credit			(814,900	)			(319,000	)			(1,275,100	)			(659,600	)
Proceeds from issuance of senior unsecured notes			550,000				—				550,000				—
Proceeds from issuance of term loan, net of discount			693,000				—				693,000				—
Repayment of other long-term debt			(345,666	)			(21	)			(345,688	)			(42	)
Payment of deferred financing costs			(6,443	)			(31	)			(6,860	)			(53	)
Issuance of common stock			1,604				—				3,019				35
Other			355				222				744				346
Net cash provided by (used in) financing activities			732,850				(56,430	)			719,215				(7,314	)
Change in cash and cash equivalents			33,899				(1,773	)			35,231				(3,401	)
Cash and cash equivalents at beginning of period			18,500				14,675				17,168				16,303
Cash and cash equivalents at end of period		$	52,399			$	12,902			$	52,399			$	12,902

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 11

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second
Revenues		$	1,089,837			$	1,081,364			$	1,053,012			$	1,135,484			$	1,192,421			$	1,292,592
Salaries, wages and benefits			627,175				612,205				613,607				652,703				678,695				765,133
Supplies			85,886				85,455				83,753				87,103				90,022				96,718
Rent			88,319				88,981				89,295				90,777				91,453				95,677
Other operating expenses			234,204				238,687				234,968				240,750				259,369				287,132
Other income			(3,084	)			(2,857	)			(2,794	)			(2,687	)			(2,785	)			(2,880	)
Depreciation and amortization			31,121				29,852				29,167				31,412				32,549				37,871
Interest expense			1,307				1,298				1,642				2,843				5,728				23,157
Investment (income) loss			(877	)			377				(403	)			(342	)			(495	)			(257	)
			1,064,051				1,053,998				1,049,235				1,102,559				1,154,536				1,302,551
Income (loss) from continuing operations before income taxes			25,786				27,366				3,777				32,925				37,885				(9,959	)
Provision (benefit) for income taxes			10,631				11,230				(1,323	)			13,170				15,609				(3,419	)
Income (loss) from continuing operations			15,155				16,136				5,100				19,755				22,276				(6,540	)
Discontinued operations, net of income taxes:
Income (loss) from operations			(154	)			87				(260	)			1,125				(179	)			587
Gain (loss) on divestiture of operations			(137	)			54				86				(456	)			—				—
Income (loss) from discontinued operations			(291	)			141				(174	)			669				(179	)			587
Net income (loss)			14,864				16,277				4,926				20,424				22,097				(5,953	)
Loss attributable to noncontrolling interests			—				—				—				—				—				421
Income (loss) attributable to Kindred		$	14,864			$	16,277			$	4,926			$	20,424			$	22,097			$	(5,532	)
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	15,155			$	16,136			$	5,100			$	19,755			$	22,276			$	(6,119	)
Income (loss) from discontinued operations			(291	)			141				(174	)			669				(179	)			587
Net income (loss)		$	14,864			$	16,277			$	4,926			$	20,424			$	22,097			$	(5,532	)
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	0.38			$	0.41			$	0.13			$	0.50			$	0.56			$	(0.14	)
Discontinued operations:
Income (loss) from operations			—				—				(0.01	)			0.03				—				0.01
Gain (loss) on divestiture of operations			—				—				—				(0.01	)			—				—
Net income (loss)		$	0.38			$	0.41			$	0.12			$	0.52			$	0.56			$	(0.13	)
Diluted:
Income (loss) from continuing operations		$	0.38			$	0.41			$	0.13			$	0.50			$	0.55			$	(0.14	)
Discontinued operations:
Income (loss) from operations			—				—				(0.01	)			0.03				—				0.01
Gain (loss) on divestiture of operations			—				—				—				(0.01	)			—				—
Net income (loss)		$	0.38			$	0.41			$	0.12			$	0.52			$	0.55			$	(0.13	)
Shares used in computing earnings (loss) per common share:
Basic			38,626				38,756				38,778				38,790				39,035				43,231
Diluted			38,859				38,914				38,838				39,089				39,543				43,231

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 12

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

(In thousands)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second
Revenues:
Hospital division		$	507,062			$	493,401			$	465,198			$	507,660			$	558,974			$	593,425
Nursing center division			539,321				542,215				539,914				566,435				567,472				568,199
Rehabilitation division:
Skilled nursing rehabilitation services			98,997				101,148				103,807				117,325				122,656				172,074
Hospital rehabilitation services			21,147				20,913				20,436				21,182				22,490				38,291
			120,144				122,061				124,243				138,507				145,146				210,365
			1,166,527				1,157,677				1,129,355				1,212,602				1,271,592				1,371,989
Eliminations			(76,690	)			(76,313	)			(76,343	)			(77,118	)			(79,171	)			(79,397	)
		$	1,089,837			$	1,081,364			$	1,053,012			$	1,135,484			$	1,192,421			$	1,292,592
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	95,440			$	91,790			$	75,784			$	97,343			$	108,385			$	108,465
Nursing center division			70,614				76,529				69,363				86,912				87,350				93,532
Rehabilitation division:
Skilled nursing rehabilitation services			9,537				9,307				9,486				5,307				9,149				15,531
Hospital rehabilitation services			5,146				4,793				4,728				4,302				5,332				8,033
			14,683				14,100				14,214				9,609				14,481				23,564
Corporate:
Overhead			(33,831	)			(32,799	)			(34,329	)			(33,002	)			(38,315	)			(43,801	)
Insurance subsidiary			(480	)			(791	)			(783	)			(1,099	)			(602	)			(420	)
			(34,311	)			(33,590	)			(35,112	)			(34,101	)			(38,917	)			(44,221	)
Transaction costs (a)			(770	)			(955	)			(771	)			(2,148	)			(4,179	)			(34,851	)
Operating income			145,656				147,874				123,478				157,615				167,120				146,489
Rent			(88,319	)			(88,981	)			(89,295	)			(90,777	)			(91,453	)			(95,677	)
Depreciation and amortization			(31,121	)			(29,852	)			(29,167	)			(31,412	)			(32,549	)			(37,871	)
Interest, net			(430	)			(1,675	)			(1,239	)			(2,501	)			(5,233	)			(22,900	)(b)
Income (loss) from continuing operations before income taxes			25,786				27,366				3,777				32,925				37,885				(9,959	)
Provision (benefit) for income taxes			10,631				11,230				(1,323	)			13,170				15,609				(3,419	)
		$	15,155			$	16,136			$	5,100			$	19,755			$	22,276			$	(6,540	)

 

(a)	Transaction-related charges for the 2010 periods have been reclassified to conform with the current period presentation.

(b)	Includes $11.8 million of financing costs associated with the acquisition of RehabCare.

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 13

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

		Second Quarter 2011
						Nursing				Rehabilitation division
		Hospital division				center division				Skilled nursing services				Hospital services				Total				Corporate				Transaction costs				Eliminations				Consolidated
Revenues		$	593,425			$	568,199			$	172,074			$	38,291			$	210,365			$	—			$	—			$	(79,397	)		$	1,292,592
Salaries, wages and benefits			273,260				270,347				148,236				28,086				176,322				30,354				14,866				(16	)			765,133
Supplies			67,612				27,870				1,006				37				1,043				193				—				—				96,718
Rent			43,997				49,562				1,791				33				1,824				294				—				—				95,677
Other operating expenses			144,088				176,450				7,301				2,135				9,436				16,554				19,985				(79,381	)			287,132
Other income			—				—				—				—				—				(2,880	)			—				—				(2,880	)
Depreciation and amortization			16,572				13,038				1,339				819				2,158				6,103				—				—				37,871
Interest expense			66				22				—				—				—				11,266				11,803				—				23,157
Investment income			(2	)			(20	)			(1	)			—				(1	)			(234	)			—				—				(257	)
			545,593				537,269				159,672				31,110				190,782				61,650				46,654				(79,397	)			1,302,551
Income (loss) from continuing operations before income taxes		$	47,832			$	30,930			$	12,402			$	7,181			$	19,583			$	(61,650	)		$	(46,654	)		$	—				(9,959	)
Provision (benefit) for income taxes																																			(3,419	)
Income (loss) from continuing operations																																		$	(6,540	)
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	11,809			$	8,000			$	217			$	72			$	289			$	13,852			$	—			$	—			$	33,950
Development			6,423				7,705				181				—				181				—				—				—				14,309
		$	18,232			$	15,705			$	398			$	72			$	470			$	13,852			$	—			$	—			$	48,259
		Second Quarter 2010
						Nursing				Rehabilitation division
		Hospital division				center division				Skilled nursing services				Hospital services				Total				Corporate				Transaction costs				Eliminations				Consolidated
Revenues		$	493,401			$	542,215			$	101,148			$	20,913			$	122,061			$	—			$	—			$	(76,313	)		$	1,081,364
Salaries, wages and benefits			221,086				264,653				86,551				15,431				101,982				24,484				—				—				612,205
Supplies			57,150				27,448				704				22				726				131				—				—				85,455
Rent			38,043				49,439				1,445				25				1,470				29				—				—				88,981
Other operating expenses			123,375				173,585				4,586				667				5,253				11,832				955				(76,313	)			238,687
Other income			—				—				—				—				—				(2,857	)			—				—				(2,857	)
Depreciation and amortization			12,549				11,185				558				68				626				5,492				—				—				29,852
Interest expense			1				29				—				—				—				1,268				—				—				1,298
Investment (income) loss			—				(17	)			(2	)			(1	)			(3	)			397				—				—				377
			452,204				526,322				93,842				16,212				110,054				40,776				955				(76,313	)			1,053,998
Income (loss) from continuing operations before income taxes		$	41,197			$	15,893			$	7,306			$	4,701			$	12,007			$	(40,776	)		$	(955	)		$	—				27,366
Provision (benefit) for income taxes																																			11,230
Income (loss) from continuing operations																																		$	16,136
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	7,954			$	9,135			$	258			$	23			$	281			$	8,300			$	—			$	—			$	25,670
Development			10,209				2,079				—				—				—				—				—				—				12,288
		$	18,163			$	11,214			$	258			$	23			$	281			$	8,300			$	—			$	—			$	37,958

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 14

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations (Continued)

(Unaudited)

(In thousands)

 

		Six months ended June 30, 2011
						Nursing				Rehabilitation division
		Hospital division				center division				Skilled nursing services				Hospital services				Total				Corporate				Transaction costs				Eliminations				Consolidated
Revenues		$	1,152,399			$	1,135,671			$	294,730			$	60,781			$	355,511			$	—			$	—			$	(158,568	)		$	2,485,013
Salaries, wages and benefits			526,322				543,517				256,419				44,734				301,153				58,020				14,866				(50	)			1,443,828
Supplies			129,459				54,995				1,890				60				1,950				336				—				—				186,740
Rent			84,296				98,946				3,489				61				3,550				338				—				—				187,130
Other operating expenses			279,768				356,277				11,741				2,622				14,363				30,447				24,164				(158,518	)			546,501
Other income			—				—				—				—				—				(5,665	)			—				—				(5,665	)
Depreciation and amortization			30,850				24,831				2,098				916				3,014				11,725				—				—				70,420
Interest expense			66				51				—				—				—				14,966				13,802				—				28,885
Investment income			(3	)			(40	)			(2	)			—				(2	)			(707	)			—				—				(752	)
			1,050,758				1,078,577				275,635				48,393				324,028				109,460				52,832				(158,568	)			2,457,087
Income from continuing operations before income taxes		$	101,641			$	57,094			$	19,095			$	12,388			$	31,483			$	(109,460	)		$	(52,832	)		$	—				27,926
Provision for income taxes																																			12,190
Income from continuing operations																																		$	15,736
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	23,953			$	16,155			$	472			$	97			$	569			$	17,991			$	—			$	—			$	58,668
Development			14,200				11,027				191				—				191				—				—				—				25,418
		$	38,153			$	27,182			$	663			$	97			$	760			$	17,991			$	—			$	—			$	84,086
		Six months ended June 30, 2010
						Nursing				Rehabilitation division
		Hospital division (a)				center division (a)				Skilled nursing services				Hospital services				Total				Corporate (a)				Transaction costs				Eliminations				Consolidated
Revenues		$	1,000,463			$	1,081,536			$	200,145			$	42,060			$	242,205			$	—			$	—			$	(153,003	)		$	2,171,201
Salaries, wages and benefits			448,727				537,895				171,574				30,920				202,494				50,264				—				—				1,239,380
Supplies			115,084				54,576				1,370				43				1,413				268				—				—				171,341
Rent			75,458				98,831				2,894				51				2,945				66				—				—				177,300
Other operating expenses			249,422				341,922				8,357				1,158				9,515				23,310				1,725				(153,003	)			472,891
Other income			—				—				—				—				—				(5,941	)			—				—				(5,941	)
Depreciation and amortization			25,563				23,298				1,081				130				1,211				10,901				—				—				60,973
Interest expense			3				60				—				—				—				2,542				—				—				2,605
Investment income			(1	)			(35	)			(3	)			(1	)			(4	)			(460	)			—				—				(500	)
			914,256				1,056,547				185,273				32,301				217,574				80,950				1,725				(153,003	)			2,118,049
Income from continuing operations before income taxes		$	86,207			$	24,989			$	14,872			$	9,759			$	24,631			$	(80,950	)		$	(1,725	)		$	—				53,152
Provision for income taxes																																			21,861
Income from continuing operations																																		$	31,291
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	14,019			$	13,184			$	486			$	62			$	548			$	12,734			$	—			$	—			$	40,485
Development			15,983				3,872				—				—				—				—				—				—				19,855
		$	30,002			$	17,056			$	486			$	62			$	548			$	12,734			$	—			$	—			$	60,340

 

(a)	Includes $2.9 million in aggregate of severance and retirement costs in salaries, wages and benefits (Hospital division - $ 1.1 million, Nursing center division - $0.5 million and Corporate - $1.3 million).

 

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 15

August 8, 2011

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second
Hospital data:
End of period data:
Number of hospitals:
Long-term acute care			83				83				83				89				89				120
Inpatient rehabilitation			—				—				—				—				—				5
			83				83				83				89				89				125
Number of licensed beds:
Long-term acute care			6,580				6,576				6,563				6,887				6,889				8,609
Inpatient rehabilitation			—				—				—				—				—				183
			6,580				6,576				6,563				6,887				6,889				8,792
Revenue mix %:
Medicare			56				56				55				58				60				60
Medicaid			9				9				9				9				8				8
Medicare Advantage			10				10				10				9				10				10
Commercial insurance and other			25				25				26				24				22				22
Admissions:
Medicare			7,432				7,125				6,769				7,640				8,504				8,913
Medicaid			997				990				1,022				1,034				1,085				1,163
Medicare Advantage			1,129				1,106				936				1,071				1,172				1,348
Commercial insurance and other			2,262				2,048				1,978				2,020				2,282				2,290
			11,820				11,269				10,705				11,765				13,043				13,714
Admissions mix %:
Medicare			63				63				63				65				65				65
Medicaid			8				9				10				9				8				8
Medicare Advantage			10				10				9				9				9				10
Commercial insurance and other			19				18				18				17				18				17
Patient days:
Medicare			202,882				195,964				179,324				198,129				219,213				237,257
Medicaid			47,813				45,952				48,514				46,596				45,650				45,746
Medicare Advantage			34,524				36,000				31,186				32,868				35,639				39,503
Commercial insurance and other			75,483				70,651				70,198				69,585				70,522				72,759
			360,702				348,567				329,222				347,178				371,024				395,265
Average length of stay:
Medicare			27.3				27.5				26.5				25.9				25.8				26.6
Medicaid			48.0				46.4				47.5				45.1				42.1				39.3
Medicare Advantage			30.6				32.5				33.3				30.7				30.4				29.3
Commercial insurance and other			33.4				34.5				35.5				34.4				30.9				31.8
Weighted average			30.5				30.9				30.8				29.5				28.4				28.8

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 16

August 8, 2011

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second
Hospital data (continued):
Revenues per admission:
Medicare		$	38,078			$	38,938			$	37,675			$	38,368			$	39,439			$	40,089
Medicaid			45,738				42,774				42,910				41,704				42,432				41,576
Medicare Advantage			45,187				46,169				48,122				44,744				46,217				42,708
Commercial insurance and other			56,344				59,842				61,314				61,131				54,065				56,850
Weighted average			42,899				43,784				43,456				43,150				42,856				43,271
Revenues per patient day:
Medicare		$	1,395			$	1,416			$	1,422			$	1,479			$	1,530			$	1,506
Medicaid			954				922				904				925				1,009				1,057
Medicare Advantage			1,478				1,418				1,444				1,458				1,520				1,457
Commercial insurance and other			1,688				1,735				1,728				1,775				1,749				1,789
Weighted average			1,406				1,416				1,413				1,462				1,507				1,501
Medicare case mix index (discharged patients only)			1.21				1.21				1.19				1.17				1.21				1.22
Average daily census			4,008				3,830				3,579				3,774				4,122				4,344
Occupancy %			68.2				66.1				62.0				64.0				68.7				65.5
Annualized employee turnover %			21.8				22.6				22.3				22.0				21.2				22.1
Nursing and rehabilitation center data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased			218				219				222				222				220				220
Managed			4				4				4				4				4				4
Assisted living facilities			6				7				7				7				6				6
			228				230				233				233				230				230
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased			26,711				26,760				27,030				26,957				26,767				26,687
Managed			485				485				485				485				485				485
Assisted living facilities			327				463				463				463				413				413
			27,523				27,708				27,978				27,905				27,665				27,585
Revenue mix %:
Medicare			35				34				33				36				38				37
Medicaid			41				41				41				39				37				38
Medicare Advantage			6				7				7				7				7				7
Private and other			18				18				19				18				18				18

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 17

August 8, 2011

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second
Nursing and rehabilitation center data (continued):
Patient days (excludes managed facilities):
Medicare			369,102				363,149				346,837				344,018				370,395				358,760
Medicaid			1,312,517				1,292,246				1,289,643				1,287,739				1,232,620				1,229,517
Medicare Advantage			87,692				92,051				91,643				94,336				97,460				94,483
Private and other			397,550				415,921				437,413				453,357				425,414				435,667
			2,166,861				2,163,367				2,165,536				2,179,450				2,125,889				2,118,427
Patient day mix %:
Medicare			17				17				16				16				17				17
Medicaid			61				60				60				59				58				58
Medicare Advantage			4				4				4				4				5				4
Private and other			18				19				20				21				20				21
Revenues per patient day:
Medicare Part A		$	470			$	469			$	468			$	534			$	537			$	544
Total Medicare (including Part B)			513				515				519				587				579				589
Medicaid			168				171				171				171				172				173
Medicare Advantage			398				400				405				432				416				420
Private and other			238				234				232				228				235				240
Weighted average			249				250				249				260				267				268
Average daily census			24,076				23,773				23,538				23,690				23,621				23,279
Admissions (excludes managed facilities)			19,026				18,924				19,383				19,118				20,619				20,143
Occupancy %			89.0				87.3				86.8				86.4				86.9				85.9
Medicare average length of stay			33.7				35.2				34.3				33.0				32.9				33.4
Annualized employee turnover %			36.7				38.8				39.8				39.6				37.8				39.8
Rehabilitation data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated			57				56				55				49				47				34
Non-affiliated			43				44				45				51				53				66
Sites of service (at end of period)			554				568				595				635				641				1,848
Revenue per site		$	172,498			$	171,254			$	167,832			$	174,896			$	178,812			$	137,316
Therapist productivity %			83.8				84.2				82.1				78.6				80.6				81.6
Hospice and home care revenues		$	3,434			$	3,875			$	3,947			$	6,266			$	8,038			$	10,828
Hospital rehabilitation services:
Revenue mix %:
Company-operated			96				96				95				95				94				54
Non-affiliated			4				4				5				5				6				46
Sites of service (at end of period):
Inpatient rehabilitation units			—				—				—				1				1				104
LTAC hospitals			85				85				85				91				93				97
Sub-acute units			7				7				7				7				8				22
Outpatient units			10				11				11				12				12				119
Other			2				2				4				4				5				8
			104				105				107				115				119				350
Revenue per site		$	203,337			$	199,174			$	190,986			$	184,193			$	188,989			$	199,661
Annualized employee turnover %			12.6				14.2				15.4				14.4				14.5				17.1

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 18

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Earnings (Loss) Per Common Share Reconciliation (a)

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended June 30,																Six months ended June 30,
		2011								2010								2011								2010
		Basic				Diluted				Basic				Diluted				Basic				Diluted				Basic				Diluted
Earnings (loss):
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations:
As reported in Statement of Operations		$	(6,119	)		$	(6,119	)		$	16,136			$	16,136			$	16,157			$	16,157			$	31,291			$	31,291
Allocation to participating unvested restricted stockholders			—				—				(300	)			(299	)			(296	)			(292	)			(578	)			(575	)
Available to common stockholders		$	(6,119	)		$	(6,119	)		$	15,836			$	15,837			$	15,861			$	15,865			$	30,713			$	30,716
Discontinued operations, net of income taxes:
Income (loss) from operations:
As reported in Statement of Operations		$	587			$	587			$	87			$	87			$	408			$	408			$	(67	)		$	(67	)
Allocation to participating unvested restricted stockholders			—				—				(2	)			(2	)			(7	)			(7	)			1				1
Available to common stockholders		$	587			$	587			$	85			$	85			$	401			$	401			$	(66	)		$	(66	)
Gain (loss) on divestiture of operations:
As reported in Statement of Operations		$	—			$	—			$	54			$	54			$	—			$	—			$	(83	)		$	(83	)
Allocation to participating unvested restricted stockholders			—				—				(1	)			(1	)			—				—				2				2
Available to common stockholders		$	—			$	—			$	53			$	53			$	—			$	—			$	(81	)		$	(81	)
Net income (loss):
As reported in Statement of Operations		$	(5,532	)		$	(5,532	)		$	16,277			$	16,277			$	16,565			$	16,565			$	31,141			$	31,141
Allocation to participating unvested restricted stockholders			—				—				(303	)			(302	)			(303	)			(299	)			(575	)			(572	)
Available to common stockholders		$	(5,532	)		$	(5,532	)		$	15,974			$	15,975			$	16,262			$	16,266			$	30,566			$	30,569
Shares used in the computation:
Weighted average shares outstanding - basic computation			43,231				43,231				38,756				38,756				41,145				41,145				38,691				38,691
Dilutive effect of employee stock options							—								158								516								190
Adjusted weighted average shares outstanding - diluted computation							43,231								38,914								41,661								38,881
Earnings (loss) per common share:
Income (loss) from continuing operations		$	(0.14	)		$	(0.14	)		$	0.41			$	0.41			$	0.39			$	0.38			$	0.79			$	0.79
Discontinued operations:
Income (loss) from operations			0.01				0.01				—				—				0.01				0.01				—				—
Gain (loss) on divestiture of operations			—				—				—				—				—				—				—				—
Net income (loss)		$	(0.13	)		$	(0.13	)		$	0.41			$	0.41			$	0.40			$	0.39			$	0.79			$	0.79

 

(a)

Earnings (loss) per common share are based upon the weighted average number of common shares outstanding during the respective periods. The diluted calculation of earnings (loss) per common share includes the dilutive effect of stock options. The Company follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings (loss) per common share calculation pursuant to the two-class method.

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 19

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of Non-GAAP Measurements to GAAP Results

(Unaudited)

(In thousands, except per share amounts and statistics)

In addition to the results provided in accordance with GAAP, the Company has provided a non-GAAP measurement which presents operating results for the second quarter and six months ended June 30, 2011 and 2010 before certain transaction-related charges or on a core basis. The charges that were excluded from core operating results for the second quarter and six months ended June 30, 2011 relate to transaction, financing and severance costs. The charges that were excluded from core operating results for the second quarter ended June 30, 2010 relate to transaction costs. The charges that are excluded from core operating results for the six months ended June 30, 2010 relate to transaction, severance and retirement costs.

The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 36.7% for the second quarter and six months ended June 30, 2011 and an effective income tax rate of 38.5% for the second quarter and six months ended June 30, 2010. Certain of the excluded charges for the second quarter and six months ended June 30, 2011 are not deductible for income tax purposes thus resulting in a lower effective income tax rate than the comparable prior year periods.

This non-GAAP measurement is not intended to replace the presentation of the Company's financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the second quarter and six months ended June 30, 2011 and 2010 that the Company believes are not representative of its ongoing operations due to the materiality and nature of the charges. The Company's core operating results also represent a key performance measure for the purposes of evaluating performance internally.

 

		Three months ended June 30,								Six months ended June 30,
		2011				2010				2011				2010
Detail of transaction-related charges excluded from core operating results:
Transaction costs		($	19,985	)		($	955	)		($	24,164	)		($	1,725	)
Financing costs (in connection with the RehabCare acquisition)			(11,803	)			—				(13,802	)			—
Severance and retirement costs			(14,866	)			—				(14,866	)			(2,906	)
			(46,654	)			(955	)			(52,832	)			(4,631	)
Income tax benefit			17,114				368				19,337				1,783
Charges net of income taxes			(29,540	)			(587	)			(33,495	)			(2,848	)
Allocation to participating unvested restricted stockholders			—				11				606				52
Available to common stockholders		($	29,540	)		($	576	)		($	32,889	)		($	2,796	)
Weighted average diluted shares outstanding			43,231				38,914				41,661				38,881
Diluted loss per common share related to charges		($	0.68	)		($	0.01	)		($	0.79	)		($	0.07	)
Reconciliation of adjusted operating income before transaction-related charges:
Operating income before transaction-related charges		$	181,340			$	148,829			$	352,639			$	298,161
Detail of transaction-related charges excluded from core operating results:
Transaction costs			(19,985	)			(955	)			(24,164	)			(1,725	)
Severance and retirement costs			(14,866	)			—				(14,866	)			(2,906	)
			(34,851	)			(955	)			(39,030	)			(4,631	)
Reported operating income		$	146,489			$	147,874			$	313,609			$	293,530
Reconciliation of adjusted income (loss) from continuing operations before transaction-related charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before transaction-related charges		$	23,421			$	16,723			$	49,652			$	34,139
Charges net of income taxes			(29,540	)			(587	)			(33,495	)			(2,848	)
Reported income (loss) from continuing operations		($	6,119	)		$	16,136			$	16,157			$	31,291
Reconciliation of diluted income (loss) per common share from continuing operations before transaction-related charges:
Diluted income per common share before transaction-related charges		$	0.53			$	0.42			$	1.17			$	0.86
Charges net of income taxes			(0.68	)			(0.01	)			(0.79	)			(0.07	)
Other			0.01				—				—				—
Reported diluted income (loss) per common share from continuing operations		($	0.14	)		$	0.41			$	0.38			$	0.79
Weighted average diluted shares used to compute diluted income (loss) per common share from continuing operations before transaction-related charges			43,756				38,914				41,661				38,881
Weighted average diluted shares outstanding			43,231				38,914				41,661				38,881
Reconciliation of effective income tax rate before transaction-related charges:
Effective income tax rate before transaction-related charges			37.3	%			40.9	%			39.0	%			40.9	%
Impact of transaction-related charges on effective income tax rate			(3.0	)%			0.1	%			4.6	%			0.2	%
Reported effective income tax rate			34.3	%			41.0	%			43.6	%			41.1	%

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 20

August 8, 2011

 

KINDRED HEALTHCARE, INC.

Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)

(Unaudited)

(In thousands)

 

In addition to the results provided in accordance with GAAP, the Company has provided a non-GAAP measurement which presents operating cash flows for the second quarter and six months ended June 30, 2011 and 2010 excluding certain payments, net of income tax benefit, or on an adjusted basis. The payments that were excluded from adjusted operating cash flows for the second quarter and six months ended June 30, 2011 relate to financing, transaction and severance costs, net of income tax benefit. The payments that were excluded from adjusted operating cash flows for the second quarter ended June 30, 2010 relate to transaction costs, net of income tax benefit. The payments that are excluded from adjusted operating cash flows for the six months ended June 30, 2010 relate to transaction, severance and retirement costs, net of income tax benefit.

The income tax benefit associated with the excluded payments was calculated using an effective income tax rate of 36.7% for the second quarter and six months ended June 30, 2011 and an effective income tax rate of 38.5% for the second quarter and six months ended June 30, 2010. Certain of the excluded payments for the second quarter and six months ended June 30, 2011 are not deductible for income tax purposes thus resulting in a lower effective income tax rate than the comparable prior year periods.

This non-GAAP measurement is not intended to replace the presentation of the Company's operating cash flows in accordance with GAAP. The Company believes that the presentation of adjusted operating cash flows provides additional information to investors to facilitate the comparison between periods by excluding certain payments for the second quarter and six months ended June 30, 2011 and 2010 that the Company believes are not representative of its ongoing operations due to the materiality and nature of the payments. The Company's adjusted operating cash flows also represent a key cash flow measure for the purposes of evaluating cash flows internally.

 

		Three months ended								Six months ended
		June 30,								June 30,
		2011				2010				2011				2010
Reconciliation of net cash flows provided by operating activities to adjusted cash flows:
Net cash provided by operating activities		$	4,852			$	96,942			$	51,288			$	82,946
Adjustments to remove certain payments:
Financing costs:
Capitalized as deferred financing costs			46,232				—				46,232				—
Charged to interest expense			13,074				—				13,074				—
Transaction costs			19,601				616				22,063				755
Severance and retirement costs			6,970				—				6,970				2,689
Benefit of reduced income tax payments resulting from financing, transaction and severance costs			(17,114	)			(368	)			(19,337	)			(1,783	)
			68,763				248				69,002				1,661
Adjusted operating cash flows		$	73,615			$	97,190			$	120,290			$	84,607

 

- MORE -

---

Kindred Healthcare Reports Strong Second Quarter Results

Page 21

August 8, 2011

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of Earnings Guidance for 2011 and 2012 - Continuing Operations

(Unaudited)

(In millions, except per share amounts)

 

		Earnings Guidance Ranges as of August 8, 2011 (a)
		2011								2012
		Low				High				Low				High
Operating income		$	775			$	780			$	911			$	928
Rent			400				400				445				445
Depreciation and amortization			164				164				200				200
Interest, net			69				69				110				110
Income from continuing operations before income taxes			142				147				156				173
Provision for income taxes			53				54				63				69
Income from continuing operations			89				93				93				104
Earnings attributable to noncontrolling interests			2				2				4				4
Income attributable to the Company			87				91				89				100
Allocation to participating unvested restricted stockholders			2				2				2				2
Available to common stockholders		$	85			$	89			$	87			$	98
Earnings per diluted share		$	1.80			$	1.90			$	1.65			$	1.85
Shares used in computing earnings per diluted share			47.0				47.0				53.0				53.0

 

(a)

The Company’s earnings guidance reflects the anticipated impact of the final rules recently issued by CMS related to payment rates for nursing centers, LTAC hospitals, IRFs and the Company’s rehabilitation therapy business, all of which will be effective on October 1, 2011. The Company’s earnings guidance excludes the effect of (i) any transaction-related charges that have been recorded in prior periods or that may be incurred in the future, (ii) any other reimbursement changes, (iii) any material acquisitions or divestitures, or (iv) any repurchases of common stock.

 

- END -