Exhibit 99.1

 

 

Contact:

Richard A. Lechleiter

Executive Vice President and

Chief Financial Officer

(502) 596-7734

KINDRED HEALTHCARE REPORTS THIRD QUARTER RESULTS

 

 

Reported Results of $0.15 Per Diluted Share Include Charges

of $0.06 Per Share Related Primarily to Dispositions

Third Quarter Operating Cash Flows Surged to Near-Record $141 Million from $67 Million Last Year

 

 

Company Tightens 2012 Annual EPS Guidance Range to $1.40 to $1.50 from $1.35 to $1.55,

Maintaining Annual Mid-Point at $1.45 and Fourth Quarter Mid-Point at $0.43

2013 Annual EPS Guidance Range of $1.20 to $1.40 Reaffirmed

LOUISVILLE, Ky. (October 29, 2012) – Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2012. The Company’s consolidated financial statements include the operating results of RehabCare Group, Inc. (“RehabCare”) since the closing of the acquisition on June 1, 2011.

Third Quarter Highlights:

 

•

Despite a seasonally weak period, consolidated revenues rose 1% to $1.5 billion and operating income was nearly $200 million

 

•

While hospital revenues grew 4%, adverse Medicare reimbursement changes hampered revenues in the nursing center and RehabCare contract therapy divisions

 

•

Operating cash flows surged to near-record $141 million in the quarter compared to $67 million last year

 

•

Results are on track to meet annual 2012 guidance range of $260 million to $280 million

 

•

Hospital division revenues rose 4% while operating income grew 10%

 

•

Same-store admissions rose 2% compared to last year

 

•

Cost per patient day rose only 1% from a year ago

 

•

Nursing center division reported stable operating income of $71 million in difficult reimbursement environment

 

•

RehabCare contract therapy division reported solid operating income of $37 million

 

•

Division reported brisk new contract sales in the first nine months this year

 

•

Recent Medicare rule changes adversely impacted results late in this year’s third quarter

 

•

PeopleFirst home health and hospice division reported significant revenue and operating income growth

 

•

Recent IntegraCare acquisition added approximately $71 million in annualized revenues

 

•

Corporate overhead declined as a percent of revenues to 3.0% from 3.2% in last year’s third quarter

 

•

RehabCare synergies and other cost reductions drove third quarter overhead lower by 6% compared to last year

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680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

Third Quarter Results

Continuing Operations

Consolidated revenues for the third quarter ended September 30, 2012 rose 1% to $1.5 billion compared to the third quarter last year. Income from continuing operations for the third quarter of 2012 totaled $7.9 million or $0.15 per diluted share compared to $0.6 million or $0.01 per diluted share in the third quarter last year.

Third quarter 2012 operating results included pretax charges of $4.9 million related to (1) an impairment charge in connection with the planned divestiture of a long-term acute care (“LTAC”) hospital, (2) employee retention costs incurred in connection with the decision to allow the leases to expire for 54 nursing and rehabilitation centers (the “54 Nursing Centers”) currently leased from Ventas, Inc. (“Ventas”) (NYSE:VTR), (3) a lease cancellation charge in connection with the closing of a LTAC hospital, and (4) transaction-related costs. These items reduced income from continuing operations in the third quarter by $3.3 million or $0.06 per diluted share.

Third quarter 2011 operating results included certain charges, most of which related to impairment charges and costs associated with the RehabCare acquisition, that reduced income from continuing operations by $20.9 million or $0.40 per diluted share.

Discontinued Operations

The Company periodically enters into transactions related to the divestiture of unprofitable businesses. For accounting purposes, the historical operating results of these businesses have been classified as discontinued operations in the Company’s condensed consolidated statement of operations for all historical periods.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “Our third quarter operating results were in line with our expectations and position us to achieve our full-year earnings guidance. While the third quarter is typically a seasonally weak period, our results reflected the same solid cost management and commitment to quality that we have reported all year.”

Mr. Diaz continued, “Our third quarter operating cash flows of $141 million were near-record levels. In addition, our demonstrated ability to generate significant cash flows in excess of our routine capital spending and required repayments of debt provides the financial flexibility to continue to invest in our Cluster Market Strategy and strategic acquisitions.”

With respect to the Company’s $200 million credit expansion completed in early October, Mr. Diaz noted, “Our financial strength and significant liquidity have enabled us to expand our credit capacity to finance future growth. Following the closing of the transaction, our unused credit capacity totaled approximately $450 million compared to $237 million at June 30, 2012.”

Mr. Diaz also discussed the significant reimbursement pressure in the long-term healthcare industry, “Over the past year, both Kindred and our industry peers have struggled in an environment of severe Medicare and Medicaid payment pressures as well as significant survey and enforcement activity. Most recently, we have been challenged by new Medicare Part B regulations regarding rehabilitation therapy which have created inefficiencies in our operations (as much as $1 million per month), and more importantly, potentially restrict access to therapy services that benefit our most frail residents. As we have in the past, we will continue our dialogue with policymakers to improve the current system to make it more patient-centered, predictable and efficient.”

 

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

Earnings Guidance – Continuing Operations

The Company tightened its earnings guidance range for 2012. The Company expects consolidated revenues for 2012 to approximate $6.2 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $867 million to $875 million. Rent expense is expected to approximate $430 million, while depreciation and amortization should approximate $201 million. Net interest expense is expected to approximate $107 million. The Company expects to report income from continuing operations for 2012 between $75 million and $80 million or $1.40 to $1.50 per diluted share (based upon diluted shares of 52 million).

The Company also maintained its operating cash flow guidance range for 2012 at $260 million to $280 million. Estimated routine capital expenditures for 2012 are expected to range from $135 million to $145 million, including approximately $17 million of expenditures to complete the information systems integration of RehabCare. The Company’s expected routine capital expenditures also include approximately $13 million to upgrade the clinical information systems in its hospital, nursing center and home health businesses.

In addition to its routine capital expenditures, the Company expects that its previously announced development projects related to new and replacement hospitals and new transitional care centers will approximate $40 million to $45 million in 2012.

Operating cash flows in excess of the Company’s routine and development capital spending programs, which are expected to approximate $85 million to $90 million for 2012, will be available to repay debt and fund acquisitions.

The earnings guidance provided by the Company for 2012 excludes the effect of (1) any costs associated with the closing of a regional office, the planned divestiture or closing of five LTAC hospitals and the cancellation of a sub-acute unit project, (2) costs associated with employment-related lawsuits, (3) employee retention costs incurred in connection with the decision to allow the leases to expire for 54 Nursing Centers, (4) any transaction-related charges, (5) any other reimbursement changes, (6) any future acquisitions or divestitures, (7) any impairment charges, and (8) any repurchases of common stock.

In addition, the Company reaffirmed its preliminary earnings guidance for fiscal 2013. The Company expects consolidated revenues for 2013 to approximate $5.9 billion. Operating income is expected to range from $806 million to $825 million. Rent expense is expected to approximate $387 million, while depreciation and amortization should approximate $189 million. Net interest expense is expected to approximate $113 million. The Company expects to report income from continuing operations for 2013 between $65 million to $76 million or $1.20 to $1.40 per diluted share (based upon diluted shares of 52.7 million).

The Company estimated its operating cash flows for 2013 to range between $230 million to $250 million. Estimated routine capital expenditures for 2013 are expected to range from $120 million to $130 million.

In addition to its routine capital expenditures, the Company expects that its development projects related to new and replacement LTAC hospitals, transitional care centers, and inpatient rehabilitation hospitals will approximate $20 million to $30 million in 2013.

Operating cash flows in excess of the Company’s routine and development capital spending programs, which are expected to approximate $90 million for 2013, will be available to repay debt and fund acquisitions.

 

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

In addition, the earnings guidance for 2013 (1) assumes the impact of Medicare reimbursement reductions that are expected to reduce the Company’s consolidated revenues between $90 million to $100 million, and further assumes that the operating results of the 54 Nursing Centers are classified as discontinued operations effective January 1, 2013, and (2) excludes the effect of any other reimbursement changes, any future acquisitions or other divestitures, any impairment charges, and any repurchases of common stock.

Mr. Diaz commented, “Our 2013 guidance reflects our best efforts to respond to a continued difficult reimbursement environment, including the anticipated Medicare reductions from sequestration and recently promulgated Medicare payment regulations negatively impacting our LTAC hospitals. Despite this environment, we remain committed to making the necessary investments to improve quality and clinical outcomes and demonstrate our value proposition to patients, families and payors. Moreover, we must support our dedicated caregivers by providing appropriate merit increases and affordable benefits. In this regard, we have continued our efforts to explore other cost saving initiatives and our 2013 guidance reflects our commitment to reduce enterprise costs an additional $20 million to $25 million in 2013 by expanding our shared services model across the Company and focusing on additional non-patient care expenses. Our confidence level in achieving these savings is high since we are following the same path we pursued in attaining the approximately $125 million of RehabCare synergies and other cost reductions in fiscal 2012.”

Finally, Mr. Diaz noted, “We also continue to look for ways to rationalize our portfolio, in addition to the expiration of the Ventas leases, to advance our cluster market strategy and improve our business and payor mix over time. The continued growth in our home health and hospice operations is another key to our integrated care model and our “Continue the Care” strategy. We believe that these actions in conjunction with our cost savings measures, position us well as healthcare reform accelerates over the next several years.”

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the third quarter 2012 conference call through a link on the Company’s website at www.kindredhealthcare.com. The conference call will be held October 30, 2012 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately 1:00 p.m. on October 30 by dialing (719) 457-0820, access code: 9543758. The replay will be available through November 8.

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 the Company’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 the Company’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 the Company is unable to predict or control, that may cause the Company’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 the Company’s filings with the Securities and Exchange Commission.

 

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

In addition to the factors set forth above, other factors that may affect the Company’s plans or results include, without limitation, (a) 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, including reforms resulting from the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act (collectively, the “ACA”). Healthcare reform is affecting certain of the Company’s businesses and the Company expects that it will impact all of them in some manner. There is also the possibility that implementation of the provisions expanding health insurance coverage or the entire ACA will be delayed, revised or eliminated as a result of efforts to repeal or amend the law. Although the U.S. Supreme Court has upheld the constitutionality of the ACA, the potential for future court proceedings, the outcome of the 2012 presidential election and potential efforts in the U.S. Congress to repeal, amend or retract funding for various aspects of the ACA create additional uncertainty about the ultimate impact of the ACA on the Company and the healthcare industry. Due to the substantial regulatory changes that will need to be implemented by the Centers for Medicare and Medicaid Services (“CMS”) and others, and the numerous processes required to implement these reforms, the Company 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 the Company’s business, financial position, results of operations and liquidity, (b) the impact of the rules issued by CMS on August 1, 2012 which, among other things, will reduce Medicare reimbursement to the Company’s LTAC hospitals in 2013 and beyond by imposing a budget neutrality adjustment and modifying the short-stay outlier rules, (c) the impact of final rules issued by CMS on July 29, 2011 which significantly reduced Medicare reimbursement to nursing centers and changed payments for the provision of group therapy services effective October 1, 2011, (d) the impact of the Budget Control Act of 2011 which will automatically reduce federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. At this time, the Company believes this will result in an automatic 2% reduction on each claim submitted to Medicare beginning February 1, 2013, (e) 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 the Company’s LTAC hospitals, nursing and rehabilitation centers, inpatient rehabilitation hospitals and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (f) 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, (g) the impact of the Medicare, Medicaid and SCHIP Extension Act of 2007, including the ability of the Company’s hospitals to adjust to potential LTAC certification, medical necessity reviews and the moratorium on future hospital development, (h) the impact of the Company’s significantly increased levels of indebtedness as a result of the RehabCare acquisition on the Company’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings, (i) the Company’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, as and when planned, including the potential impact of unanticipated issues, expenses and liabilities associated with those activities, (j) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (k) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (l) the Company’s ability to meet its rental and debt service obligations, (m) the Company’s ability to operate pursuant to the terms of its debt obligations, and comply with its covenants thereunder, and its ability to operate pursuant to its master lease agreements with Ventas, (n) 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

 

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

sources to fund the requirements of the Company’s businesses, or which could negatively impact the Company’s investment portfolio, (o) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (p) the Company’s ability to control costs, particularly labor and employee benefit costs, (q) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (r) the Company’s ability to attract and retain key executives and other healthcare personnel, (s) the increase in the costs of defending and insuring against alleged professional liability and other claims and the Company’s ability to predict the estimated costs related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (t) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (u) the Company’s ability to successfully dispose of unprofitable facilities, (v) events or circumstances which could result in the impairment of an asset or other charges, such as the impact of the Medicare reimbursement regulations that resulted in the Company recording significant impairment charges in 2011, (w) 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 (x) the Company’s ability to maintain an effective system of internal control over financial reporting. Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company 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 information in this release to compute certain non-GAAP measurements for the third quarter and nine months ended September 30, 2012 and 2011 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-125 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of $6 billion and approximately 78,000 employees in 46 states. At September 30, 2012, Kindred through its subsidiaries provided healthcare services in 2,212 locations, including 117 long-term acute care hospitals, six inpatient rehabilitation hospitals, 224 nursing and rehabilitation centers, 27 sub-acute units, 102 hospice, home care and private duty locations, 104 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,632 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for four 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.

 

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

KINDRED HEALTHCARE, INC.

Financial Summary

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2012				2011				2012				2011
Revenues		$	1,525,792			$	1,514,062			$	4,641,590			$	3,999,075
Income from continuing operations		$	7,909			$	907			$	41,718			$	16,643
Discontinued operations, net of income taxes:
Income from operations			47				1,119				143				1,527
Loss on divestiture of operations			(349	)			—				(349	)			—
Income (loss) from discontinued operations			(302	)			1,119				(206	)			1,527
Net income			7,607				2,026				41,512				18,170
(Earnings) loss attributable to noncontrolling interests			(41	)			(241	)			(253	)			180
Income attributable to Kindred		$	7,566			$	1,785			$	41,259			$	18,350
Amounts attributable to Kindred stockholders:
Income from continuing operations		$	7,868			$	666			$	41,465			$	16,823
Income (loss) from discontinued operations			(302	)			1,119				(206	)			1,527
Net income		$	7,566			$	1,785			$	41,259			$	18,350
Earnings per common share:
Basic:
Income from continuing operations		$	0.15			$	0.01			$	0.79			$	0.37
Discontinued operations:
Income from operations			—				0.02				—				0.03
Loss on divestiture of operations			(0.01	)			—				(0.01	)			—
Net income		$	0.14			$	0.03			$	0.78			$	0.40
Diluted:
Income from continuing operations		$	0.15			$	0.01			$	0.79			$	0.37
Discontinued operations:
Income from operations			—				0.02				—				0.03
Loss on divestiture of operations			(0.01	)			—				(0.01	)			—
Net income		$	0.14			$	0.03			$	0.78			$	0.40
Shares used in computing earnings per common share:
Basic			51,676				51,329				51,648				44,577
Diluted			51,709				51,406				51,675				44,934

 

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,								Nine months ended September 30,
		2012				2011				2012				2011
Revenues		$	1,525,792			$	1,514,062			$	4,641,590			$	3,999,075
Salaries, wages and benefits			912,924				900,570				2,765,332				2,344,398
Supplies			106,594				107,514				326,127				294,254
Rent			108,449				105,511				323,958				292,641
Other operating expenses			305,988				305,305				929,947				851,806
Other income			(2,775	)			(2,815	)			(8,221	)			(8,480	)
Impairment charges			3,911				26,712				5,107				26,712
Depreciation and amortization			50,600				46,947				149,092				117,367
Interest expense			26,668				25,790				79,962				54,675
Investment income			(229	)			(37	)			(796	)			(789	)
			1,512,130				1,515,497				4,570,508				3,972,584
Income (loss) from continuing operations before income taxes			13,662				(1,435	)			71,082				26,491
Provision (benefit) for income taxes			5,753				(2,342	)			29,364				9,848
Income from continuing operations			7,909				907				41,718				16,643
Discontinued operations, net of income taxes:
Income from operations			47				1,119				143				1,527
Loss on divestiture of operations			(349	)			—				(349	)			—
Income (loss) from discontinued operations			(302	)			1,119				(206	)			1,527
Net income			7,607				2,026				41,512				18,170
(Earnings) loss attributable to noncontrolling interests			(41	)			(241	)			(253	)			180
Income attributable to Kindred		$	7,566			$	1,785			$	41,259			$	18,350
Amounts attributable to Kindred stockholders:
Income from continuing operations		$	7,868			$	666			$	41,465			$	16,823
Income (loss) from discontinued operations			(302	)			1,119				(206	)			1,527
Net income		$	7,566			$	1,785			$	41,259			$	18,350
Earnings per common share:
Basic:
Income from continuing operations		$	0.15			$	0.01			$	0.79			$	0.37
Discontinued operations:
Income from operations			—				0.02				—				0.03
Loss on divestiture of operations			(0.01	)			—				(0.01	)			—
Net income		$	0.14			$	0.03			$	0.78			$	0.40
Diluted:
Income from continuing operations		$	0.15			$	0.01			$	0.79			$	0.37
Discontinued operations:
Income from operations			—				0.02				—				0.03
Loss on divestiture of operations			(0.01	)			—				(0.01	)			—
Net income		$	0.14			$	0.03			$	0.78			$	0.40
Shares used in computing earnings per common share:
Basic			51,676				51,329				51,648				44,577
Diluted			51,709				51,406				51,675				44,934

 

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)

 

		September 30, 2012				December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents		$	35,695			$	41,561
Cash—restricted			5,344				5,551
Insurance subsidiary investments			79,642				70,425
Accounts receivable less allowance for loss			1,050,077				994,700
Inventories			31,787				31,060
Deferred tax assets			24,641				17,785
Income taxes			6,424				39,513
Other			32,477				32,687
			1,266,087				1,233,282
Property and equipment			2,144,499				1,975,063
Accumulated depreciation			(1,041,036	)			(916,022	)
			1,103,463				1,059,041
Goodwill			1,146,801				1,084,655
Intangible assets less accumulated amortization			446,165				447,207
Assets held for sale			4,103				5,612
Insurance subsidiary investments			118,256				110,227
Other			212,952				198,469
Total assets		$	4,297,827			$	4,138,493
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	208,213			$	216,801
Salaries, wages and other compensation			392,564				407,493
Due to third party payors			39,820				37,306
Professional liability risks			48,931				46,010
Other accrued liabilities			148,882				130,693
Long-term debt due within one year			8,787				10,620
			847,197				848,923
Long-term debt			1,610,888				1,531,882
Professional liability risks			236,296				217,717
Deferred tax liabilities			20,537				17,955
Deferred credits and other liabilities			211,109				191,771
Noncontrolling interests-redeemable			—				9,704
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued
53,271 shares—September 30, 2012 and 52,116 shares—December 31, 2011			13,318				13,029
Capital in excess of par value			1,142,923				1,138,189
Accumulated other comprehensive loss			(1,092	)			(1,469	)
Retained earnings			180,426				139,172
			1,335,575				1,288,921
Noncontrolling interests-nonredeemable			36,225				31,620
Total equity			1,371,800				1,320,541
Total liabilities and equity		$	4,297,827			$	4,138,493

 

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Kindred Healthcare Reports Third Quarter Results

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October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

		Three months ended September 30,								Nine months ended September 30,
		2012				2011				2012				2011
Cash flows from operating activities:
Net income		$	7,607			$	2,026			$	41,512			$	18,170
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			50,600				46,947				149,092				117,367
Amortization of stock-based compensation costs			3,132				3,505				8,011				9,611
Amortization of deferring financing costs			2,375				2,141				7,091				5,231
Payment of lender fees related to debt issuance			—				—				—				(46,232	)
Provision for doubtful accounts			9,117				7,793				22,654				22,049
Deferred income taxes			(1,235	)			(2,286	)			(18,140	)			(4,975	)
Impairment charges			3,911				26,712				5,107				26,712
Loss on divestiture of discontinued operations			349				—				349				—
Other			732				(3,063	)			3,077				(3,766	)
Change in operating assets and liabilities:
Accounts receivable			13,175				(27,497	)			(67,913	)			(108,072	)
Inventories and other assets			(5,490	)			6,304				(20,897	)			3,649
Accounts payable			5,281				(831	)			(7,252	)			386
Income taxes			6,366				(6,881	)			37,097				20,792
Due to third party payors			12,627				1,143				1,688				4,698
Other accrued liabilities			32,942				10,505				29,611				52,186
Net cash provided by operating activities			141,489				66,518				191,087				117,806
Cash flows from investing activities:
Routine capital expenditures			(25,939	)			(36,595	)			(76,804	)			(95,263	)
Development capital expenditures			(15,177	)			(44,152	)			(38,175	)			(69,570	)
Acquisitions, net of cash acquired			(71,440	)			(50,928	)			(139,308	)			(710,907	)
Sale of assets			—				—				1,110				1,714
Purchase of insurance subsidiary investments			(9,692	)			(8,867	)			(30,890	)			(25,904	)
Sale of insurance subsidiary investments			8,063				10,398				30,073				37,587
Net change in insurance subsidiary cash and cash equivalents			(685	)			(826	)			(15,171	)			(4,870	)
Change in other investments			1,003				—				1,454				1,000
Other			(25	)			(663	)			(1,029	)			(692	)
Net cash used in investing activities			(113,892	)			(131,633	)			(268,740	)			(866,905	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit			364,600				533,200				1,329,300				1,633,300
Repayment of borrowings under revolving credit			(390,400	)			(474,700	)			(1,244,900	)			(1,749,800	)
Proceeds from issuance of senior unsecured notes			—				—				—				550,000
Proceeds from issuance of term loan, net of discount			—				—				—				693,000
Repayment of other long-term debt			(2,665	)			(2,545	)			(7,976	)			(348,233	)
Payment of deferred financing costs			(288	)			(1,855	)			(601	)			(8,715	)
Contribution made by noncontrolling interest			—				—				200				—
Distribution made to noncontrolling interests			—				—				(3,521	)			—
Purchase of noncontrolling interests			(715	)			(7,292	)			(715	)			(7,292	)
Issuance of common stock			—				—				—				3,019
Other			—				3				—				747
Net cash provided by (used in) financing activities			(29,468	)			46,811				71,787				766,026
Change in cash and cash equivalents			(1,871	)			(18,304	)			(5,866	)			16,927
Cash and cash equivalents at beginning of period			37,566				52,399				41,561				17,168
Cash and cash equivalents at end of period		$	35,695			$	34,095			$	35,695			$	34,095

 

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Kindred Healthcare Reports Third Quarter Results

Page 11

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		2011 Quarters																2012 Quarters
		First				Second				Third				Fourth				First				Second				Third
Revenues		$	1,192,421			$	1,292,592			$	1,514,062			$	1,522,688			$	1,579,970			$	1,535,828			$	1,525,792
Salaries, wages and benefits			678,695				765,133				900,570				911,417				945,302				907,106				912,924
Supplies			90,022				96,718				107,514				107,760				111,295				108,238				106,594
Rent			91,453				95,677				105,511				106,616				107,968				107,541				108,449
Other operating expenses			259,369				287,132				305,305				312,674				310,964				312,995				305,988
Other income			(2,785	)			(2,880	)			(2,815	)			(2,711	)			(2,748	)			(2,698	)			(2,775	)
Impairment charges			—				—				26,712				102,569				867				329				3,911
Depreciation and amortization			32,549				37,871				46,947				48,227				48,690				49,802				50,600
Interest expense			5,728				23,157				25,790				26,244				26,578				26,716				26,668
Investment income			(495	)			(257	)			(37	)			(242	)			(292	)			(275	)			(229	)
			1,154,536				1,302,551				1,515,497				1,612,554				1,548,624				1,509,754				1,512,130
Income (loss) from continuing operations before income taxes			37,885				(9,959	)			(1,435	)			(89,866	)			31,346				26,074				13,662
Provision (benefit) for income taxes			15,609				(3,419	)			(2,342	)			(16,952	)			12,814				10,797				5,753
Income (loss) from continuing operations			22,276				(6,540	)			907				(72,914	)			18,532				15,277				7,909
Discontinued operations, net of income taxes:
Income (loss) from operations			(179	)			587				1,119				1,025				110				(14	)			47
Loss on divestiture of operations			—				—				—				—				—				—				(349	)
Income (loss) from discontinued operations			(179	)			587				1,119				1,025				110				(14	)			(302	)
Net income (loss)			22,097				(5,953	)			2,026				(71,889	)			18,642				15,263				7,607
(Earnings) loss attributable to noncontrolling interests			—				421				(241	)			58				(451	)			239				(41	)
Income (loss) attributable to Kindred		$	22,097			$	(5,532	)		$	1,785			$	(71,831	)		$	18,191			$	15,502			$	7,566
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	22,276			$	(6,119	)		$	666			$	(72,856	)		$	18,081			$	15,516			$	7,868
Income (loss) from discontinued operations			(179	)			587				1,119				1,025				110				(14	)			(302	)
Net income (loss)		$	22,097			$	(5,532	)		$	1,785			$	(71,831	)		$	18,191			$	15,502			$	7,566
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	0.56			$	(0.14	)		$	0.01			$	(1.42	)		$	0.35			$	0.29			$	0.15
Discontinued operations:
Income (loss) from operations			—				0.01				0.02				0.02				—				—				—
Loss on divestiture of operations			—				—				—				—				—				—				(0.01	)
Net income (loss)		$	0.56			$	(0.13	)		$	0.03			$	(1.40	)		$	0.35			$	0.29			$	0.14
Diluted:
Income (loss) from continuing operations		$	0.55			$	(0.14	)		$	0.01			$	(1.42	)		$	0.35			$	0.29			$	0.15
Discontinued operations:
Income (loss) from operations			—				0.01				0.02				0.02				—				—				—
Loss on divestiture of operations			—				—				—				—				—				—				(0.01	)
Net income (loss)		$	0.55			$	(0.13	)		$	0.03			$	(1.40	)		$	0.35			$	0.29			$	0.14
Shares used in computing earnings (loss) per common share:
Basic			39,035				43,231				51,329				51,335				51,603				51,664				51,676
Diluted			39,543				43,231				51,406				51,335				51,638				51,675				51,709

 

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Kindred Healthcare Reports Third Quarter Results

Page 12

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

(In thousands)

 

		2011 Quarters																2012 Quarters
		First				Second				Third				Fourth				First				Second				Third
Revenues:
Hospital division		$	558,974			$	593,425			$	684,781			$	712,812			$	765,823			$	729,419			$	714,738
Nursing center division			567,472				568,199				571,226				547,202				544,319				535,644				534,188
Rehabilitation division:
Skilled nursing rehabilitation services			114,618				161,246				252,574				246,720				255,451				255,187				253,459
Hospital rehabilitation services			22,490				38,291				69,811				70,232				74,369				73,379				71,899
			137,108				199,537				322,385				316,952				329,820				328,566				325,358
Home health and hospice division			8,038				10,828				15,419				26,451				28,432				28,872				35,943
			1,271,592				1,371,989				1,593,811				1,603,417				1,668,394				1,622,501				1,610,227
Eliminations:
Skilled nursing rehabilitation services			(57,081	)			(57,587	)			(57,922	)			(57,087	)			(58,433	)			(57,056	)			(55,534	)
Hospital rehabilitation services			(21,225	)			(20,706	)			(20,528	)			(22,167	)			(28,317	)			(27,755	)			(27,097	)
Nursing and rehabilitation centers			(865	)			(1,104	)			(1,299	)			(1,475	)			(1,674	)			(1,862	)			(1,804	)
			(79,171	)			(79,397	)			(79,749	)			(80,729	)			(88,424	)			(86,673	)			(84,435	)
		$	1,192,421			$	1,292,592			$	1,514,062			$	1,522,688			$	1,579,970			$	1,535,828			$	1,525,792
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	108,385			$	108,465			$	125,701			$	144,891			$	160,669			$	141,511			$	138,762
Nursing center division			87,350				93,532				89,592				67,791				65,533				71,005				70,928	(a)
Rehabilitation division:
Skilled nursing rehabilitation services			9,159				15,978				27,575				13,204				14,193				22,942				19,659
Hospital rehabilitation services			5,332				8,033				15,606				14,760				16,116				17,860				16,977
			14,491				24,011				43,181				27,964				30,309				40,802				36,636
Home health and hospice division			(10	)			(447	)			1,107				2,453				2,341				2,789				3,645
Corporate:
Overhead			(38,315	)			(43,801	)			(48,806	)			(43,878	)			(42,728	)			(44,723	)			(45,883	)
Insurance subsidiary			(602	)			(420	)			(750	)			(534	)			(482	)			(600	)			(545	)
			(38,917	)			(44,221	)			(49,556	)			(44,412	)			(43,210	)			(45,323	)			(46,428	)
Impairment charges			—				—				(26,712	)			(102,569	)			(867	)			(329	)			(3,911	)(b)
Transaction costs			(4,179	)			(34,851	)			(6,537	)			(5,139	)			(485	)			(597	)			(482	)
Operating income			167,120				146,489				176,776				90,979				214,290				209,858				199,150
Rent			(91,453	)			(95,677	)			(105,511	)			(106,616	)			(107,968	)			(107,541	)			(108,449	)(c)
Depreciation and amortization			(32,549	)			(37,871	)			(46,947	)			(48,227	)			(48,690	)			(49,802	)			(50,600	)
Interest, net			(5,233	)			(22,900	)			(25,753	)			(26,002	)			(26,286	)			(26,441	)			(26,439	)
Income (loss) from continuing operations before income taxes			37,885				(9,959	)			(1,435	)			(89,866	)			31,346				26,074				13,662
Provision (benefit) for income taxes			15,609				(3,419	)			(2,342	)			(16,952	)			12,814				10,797				5,753
		$	22,276			$	(6,540	)		$	907			$	(72,914	)		$	18,532			$	15,277			$	7,909

 

(a)	Includes employee retention costs of $0.6 million incurred in connection with the decision to allow the leases to expire for 54 nursing and rehabilitation centers leased from Ventas.

(b)	Includes an impairment charge of $3.2 million incurred in connection with the planned divestiture of a LTAC hospital.

(c)	Includes a lease cancellation charge of $0.6 million incurred in connection with the closing of a LTAC hospital.

 

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Kindred Healthcare Reports Third Quarter Results

Page 13

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

		Third Quarter 2012
						Nursing				Rehabilitation division												Home								Transaction-
		Hospital				center				Skilled nursing				Hospital								health and								related
		division (a)				division (b)				services				services				Total				hospice				Corporate				costs				Eliminations				Consolidated
Revenues		$	714,738			$	534,188			$	253,459			$	71,899			$	325,358			$	35,943			$	—			$	—			$	(84,435	)		$	1,525,792
Salaries, wages and benefits			321,810				259,095				223,305				50,724				274,029				26,332				32,008				(350	)			—				912,924
Supplies			77,536				26,587				697				33				730				1,557				184				—				—				106,594
Rent			55,391				50,290				1,309				2				1,311				805				652				—				—				108,449
Other operating expenses			176,630				177,578				9,798				4,165				13,963				4,409				17,011				832				(84,435	)			305,988
Other income			—				—				—				—				—				—				(2,775	)			—				—				(2,775	)
Impairment charges			3,487				424				—				—				—				—				—				—				—				3,911
Depreciation and amortization			23,110				13,564				2,791				2,328				5,119				1,137				7,670				—				—				50,600
Interest expense			231				20				36				—				36				4				26,377				—				—				26,668
Investment income			(17	)			(22	)			—				—				—				—				(190	)			—				—				(229	)
			658,178				527,536				237,936				57,252				295,188				34,244				80,937				482				(84,435	)			1,512,130
Income from continuing operations before income taxes		$	56,560			$	6,652			$	15,523			$	14,647			$	30,170			$	1,699			$	(80,937	)		$	(482	)		$	—				13,662
Provision for income taxes																																							5,753
Income from continuing operations																																						$	7,909
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	9,015			$	4,965			$	707			$	125			$	832			$	160			$	10,967			$	—			$	—			$	25,939
Development			14,334				843				—				—				—				—				—				—				—				15,177
		$	23,349			$	5,808			$	707			$	125			$	832			$	160			$	10,967			$	—			$	—			$	41,116
		Third Quarter 2011
						Nursing				Rehabilitation division												Home								Transaction-
		Hospital				center				Skilled nursing				Hospital								health and								related
		division				division				services				services				Total				hospice				Corporate				costs				Eliminations				Consolidated
Revenues		$	684,781			$	571,226			$	252,574			$	69,811			$	322,385			$	15,419			$	—			$	—			$	(79,749	)		$	1,514,062
Salaries, wages and benefits			316,507				272,505				215,889				49,297				265,186				11,653				33,482				1,256				(19	)			900,570
Supplies			77,045				28,650				858				58				916				652				251				—				—				107,514
Rent			52,737				49,862				1,811				95				1,906				358				648				—				—				105,511
Other operating expenses			165,528				180,479				8,252				4,850				13,102				2,007				18,638				5,281				(79,730	)			305,305
Other income			—				—				—				—				—				—				(2,815	)			—				—				(2,815	)
Impairment charges			3,102				23,610				—				—				—				—				—				—				—				26,712
Depreciation and amortization			21,612				12,655				2,699				2,372				5,071				324				7,285				—				—				46,947
Interest expense			206				25				—				—				—				—				25,559				—				—				25,790
Investment income			(1	)			(18	)			(1	)			(1	)			(2	)			—				(16	)			—				—				(37	)
			636,736				567,768				229,508				56,671				286,179				14,994				83,032				6,537				(79,749	)			1,515,497
Income (loss) from continuing operations before income taxes		$	48,045			$	3,458			$	23,066			$	13,140			$	36,206			$	425			$	(83,032	)		$	(6,537	)		$	—				(1,435	)
Income tax benefit																																							(2,342	)
Income from continuing operations																																						$	907
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	12,919			$	10,572			$	255			$	81			$	336			$	41			$	12,727			$	—			$	—			$	36,595
Development			39,964				4,113				—				—				—				75				—				—				—				44,152
		$	52,883			$	14,685			$	255			$	81			$	336			$	116			$	12,727			$	—			$	—			$	80,747

 

(a)	Includes an impairment charge of $3.2 million and a lease cancellation charge of $0.6 million incurred in connection with the planned divestiture of a LTAC hospital and the closing of a LTAC hospital, respectively.

(b)	Includes employee retention costs of $0.6 million incurred in connection with the decision to allow the leases to expire for 54 nursing and rehabilitation centers leased from Ventas.

 

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Kindred Healthcare Reports Third Quarter Results

Page 14

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations (Continued)

(Unaudited)

(In thousands)

 

		Nine months ended September 30, 2012
						Nursing				Rehabilitation division												Home								Transaction-
		Hospital				center				Skilled nursing				Hospital								health and								related
		division (a,b)				division (c)				services				services				Total				hospice				Corporate				costs				Eliminations				Consolidated
Revenues		$	2,209,980			$	1,614,151			$	764,097			$	219,647			$	983,744			$	93,247			$	—			$	—			$	(259,532	)		$	4,641,590
Salaries, wages and benefits			982,054				786,766				679,915				155,404				835,319				68,829				92,783				(350	)			(69	)			2,765,332
Supplies			239,443				79,927				2,225				127				2,352				3,826				579				—				—				326,127
Rent			165,477				150,457				4,060				119				4,179				2,029				1,816				—				—				323,958
Other operating expenses			547,541				539,992				25,163				13,163				38,326				11,817				49,820				1,914				(259,463	)			929,947
Other income			—				—				—				—				—				—				(8,221	)			—				—				(8,221	)
Impairment charges			3,838				1,269				—				—				—				—				—				—				—				5,107
Depreciation and amortization			68,579				39,534				8,143				6,975				15,118				2,960				22,901				—				—				149,092
Interest expense			810				68				36				—				36				4				79,044				—				—				79,962
Investment income			(60	)			(68	)			(1	)			—				(1	)			—				(667	)			—				—				(796	)
			2,007,682				1,597,945				719,541				175,788				895,329				89,465				238,055				1,564				(259,532	)			4,570,508
Income from continuing operations before income taxes		$	202,298			$	16,206			$	44,556			$	43,859			$	88,415			$	3,782			$	(238,055	)		$	(1,564	)		$	—				71,082
Provision for income taxes																																							29,364
Income from continuing operations																																						$	41,718
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	28,455			$	12,611			$	1,602			$	231			$	1,833			$	429			$	33,476			$	—			$	—			$	76,804
Development			35,572				2,603				—				—				—				—				—				—				—				38,175
		$	64,027			$	15,214			$	1,602			$	231			$	1,833			$	429			$	33,476			$	—			$	—			$	114,979
		Nine months ended September 30, 2011
						Nursing				Rehabilitation division												Home								Transaction-
		Hospital				center				Skilled nursing				Hospital								health and								related
		division				division				services				services				Total				hospice				Corporate				costs				Eliminations				Consolidated
Revenues		$	1,837,180			$	1,706,897			$	528,438			$	130,592			$	659,030			$	34,285			$	—			$	—			$	(238,317	)		$	3,999,075
Salaries, wages and benefits			842,829				816,022				457,773				93,996				551,769				26,223				91,502				16,122				(69	)			2,344,398
Supplies			206,504				83,645				1,983				122				2,105				1,413				587				—				—				294,254
Rent			137,033				148,808				4,860				156				5,016				798				986				—				—				292,641
Other operating expenses			445,296				536,756				15,970				7,503				23,473				5,999				49,085				29,445				(238,248	)			851,806
Other income			—				—				—				—				—				—				(8,480	)			—				—				(8,480	)
Impairment charges			3,102				23,610				—				—				—				—				—				—				—				26,712
Depreciation and amortization			52,462				37,486				4,574				3,288				7,862				547				19,010				—				—				117,367
Interest expense			272				76				—				—				—				—				40,525				13,802				—				54,675
Investment income			(4	)			(58	)			(3	)			(1	)			(4	)			—				(723	)			—				—				(789	)
			1,687,494				1,646,345				485,157				105,064				590,221				34,980				192,492				59,369				(238,317	)			3,972,584
Income (loss) from continuing operations before income taxes		$	149,686			$	60,552			$	43,281			$	25,528			$	68,809			$	(695	)		$	(192,492	)		$	(59,369	)		$	—				26,491
Provision for income taxes																																							9,848
Income from continuing operations																																						$	16,643
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	36,872			$	26,727			$	669			$	178			$	847			$	99			$	30,718			$	—			$	—			$	95,263
Development			54,164				15,140				—				—				—				266				—				—				—				69,570
		$	91,036			$	41,867			$	669			$	178			$	847			$	365			$	30,718			$	—			$	—			$	164,833

 

(a)

Includes severance costs ($2.6 million), an impairment charge ($3.2 million) and other miscellaneous costs ($2.3 million) incurred in connection with the closing of a regional office, the planned divestiture or closing of five LTAC hospitals and the cancellation of a sub-acute unit project, and $5.0 million for employment-related lawsuits.

(b)	Includes lease cancellation charges of $3.5 million incurred in connection with the closing of four LTAC hospitals.

(c)	Includes employee retention costs of $1.3 million incurred in connection with the decision to allow the leases to expire for 54 nursing and rehabilitation centers leased from Ventas.

 

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Kindred Healthcare Reports Third Quarter Results

Page 15

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

 

		2011 Quarters																2012 Quarters
		First				Second				Third				Fourth				First				Second				Third
Hospital division data:
End of period data:
Number of hospitals:
Long-term acute care			89				120				120				121				120				118				117
Inpatient rehabilitation			—				5				5				5				6				6				6
			89				125				125				126				126				124				123
Number of licensed beds:
Long-term acute care			6,889				8,609				8,597				8,597				8,510				8,448				8,391
Inpatient rehabilitation			—				183				183				183				229				259				259
			6,889				8,792				8,780				8,780				8,739				8,707				8,650
Revenue mix  %:
Medicare			60				60				60				62				62				61				61
Medicaid			8				8				8				7				6				6				6
Medicare Advantage			10				10				10				10				10				11				11
Commercial insurance and other			22				22				22				21				22				22				22
Admissions:
Medicare			8,504				8,913				11,002				11,682				12,400				11,544				11,277
Medicaid			1,085				1,163				1,236				1,163				1,025				1,038				1,025
Medicare Advantage			1,172				1,348				1,609				1,549				1,782				1,970				1,804
Commercial insurance and other			2,282				2,290				2,669				2,853				3,081				2,770				2,797
			13,043				13,714				16,516				17,247				18,288				17,322				16,903
Admissions mix %:
Medicare			65				65				67				68				68				67				67
Medicaid			8				8				7				7				5				6				6
Medicare Advantage			9				10				10				9				10				11				11
Commercial insurance and other			18				17				16				16				17				16				16
Patient days:
Medicare			219,213				237,257				275,561				285,358				304,795				290,273				281,757
Medicaid			45,650				45,746				48,911				48,648				45,058				43,174				46,295
Medicare Advantage			35,639				39,503				47,819				47,738				51,129				53,822				52,100
Commercial insurance and other			70,522				72,759				83,375				84,677				89,305				85,645				85,647
			371,024				395,265				455,666				466,421				490,287				472,914				465,799
Average length of stay:
Medicare			25.8				26.6				25.0				24.4				24.6				25.1				25.0
Medicaid			42.1				39.3				39.6				41.8				44.0				41.6				45.2
Medicare Advantage			30.4				29.3				29.7				30.8				28.7				27.3				28.9
Commercial insurance and other			30.9				31.8				31.2				29.7				29.0				30.9				30.6
Weighted average			28.4				28.8				27.6				27.0				26.8				27.3				27.6

 

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Kindred Healthcare Reports Third Quarter Results

Page 16

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2011 Quarters																2012 Quarters
		First				Second				Third				Fourth				First				Second				Third
Hospital division data (continued):
Revenues per admission:
Medicare		$	39,439			$	40,089			$	37,408			$	37,643			$	38,491			$	38,716			$	38,429
Medicaid			42,432				41,576				40,720				44,618				45,868				44,470				45,561
Medicare Advantage			46,217				42,708				43,616				46,154				42,632				39,541				42,784
Commercial insurance and other			54,065				56,850				57,216				52,465				53,733				57,194				56,308
Weighted average			42,856				43,271				41,462				41,330				41,876				42,109				42,285
Revenues per patient day:
Medicare		$	1,530			$	1,506			$	1,494			$	1,541			$	1,566			$	1,540			$	1,538
Medicaid			1,009				1,057				1,029				1,067				1,043				1,069				1,009
Medicare Advantage			1,520				1,457				1,468				1,498				1,486				1,447				1,481
Commercial insurance and other			1,749				1,789				1,832				1,768				1,854				1,850				1,839
Weighted average			1,507				1,501				1,503				1,528				1,562				1,542				1,534
Medicare case mix index (discharged patients only)			1.21				1.22				1.17				1.14				1.17				1.17				1.15
Average daily census			4,122				4,344				4,953				5,070				5,388				5,197				5,063
Occupancy %			68.7				65.5				62.6				63.5				67.4				64.8				63.8
Annualized employee turnover %			21.2				22.1				21.4				20.3				21.8				22.2				21.1
Nursing center division data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased			220				220				220				220				220				220				220
Managed			4				4				4				4				4				4				4
Assisted living facilities			6				6				6				6				6				6				6
			230				230				230				230				230				230				230
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased			26,767				26,687				26,687				26,663				26,663				26,711				26,711
Managed			485				485				485				485				485				485				485
Assisted living facilities			413				413				413				413				413				341				341
			27,665				27,585				27,585				27,561				27,561				27,537				27,537
Revenue mix %:
Medicare			38				37				36				33				34				33				32
Medicaid			37				38				38				40				39				41				41
Medicare Advantage			7				7				7				7				8				7				7
Private and other			18				18				19				20				19				19				20
Patient days (a):
Medicare			370,395				358,760				345,362				334,156				342,567				328,011				313,642
Medicaid			1,232,620				1,229,517				1,255,418				1,248,442				1,218,903				1,215,623				1,226,855
Medicare Advantage			97,460				94,483				95,751				95,730				101,312				97,583				93,287
Private and other			425,414				435,667				436,074				441,362				422,983				412,403				423,070
			2,125,889				2,118,427				2,132,605				2,119,690				2,085,765				2,053,620				2,056,854

 

(a)	Excludes managed facilities.

 

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Kindred Healthcare Reports Third Quarter Results

Page 17

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2011 Quarters																2012 Quarters
		First				Second				Third				Fourth				First				Second				Third
Nursing center division data (continued):
Patient day mix % (a):
Medicare			17				17				16				16				16				16				15
Medicaid			58				58				59				59				59				59				60
Medicare Advantage			5				4				5				4				5				5				4
Private and other			20				21				20				21				20				20				21
Revenues per patient day (a):
Medicare Part A		$	537			$	544			$	550			$	491			$	484			$	483			$	490
Total Medicare (including Part B)			579				589				599				544				536				538				546
Medicaid			172				173				174				176				176				178				179
Medicaid (net of provider taxes) (b)			155				156				155				156				156				158				158
Medicare Advantage			416				420				421				405				407				405				409
Private and other			235				240				243				241				248				250				250
Weighted average			267				268				268				258				261				261				260
Average daily census (a)			23,621				23,279				23,180				23,040				22,920				22,567				22,357
Admissions (a)			20,619				20,143				20,118				19,914				20,863				19,593				19,064
Occupancy % (a)			86.9				85.9				85.5				85.1				84.7				83.5				82.6
Medicare average length of stay (a)			32.9				33.4				33.0				32.1				31.8				32.2				32.8
Annualized employee turnover %			37.8				39.8				40.2				39.2				36.9				39.2				39.9
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated			50				36				23				23				23				22				22
Non-affiliated			50				64				77				77				77				78				78
Sites of service (at end of period)			641				1,848				1,835				1,774				1,722				1,730				1,735
Revenue per site		$	178,812			$	137,316			$	137,643			$	139,077			$	148,346			$	147,507			$	146,086
Therapist productivity %			80.6				81.6				80.5				80.1				80.3				80.4				80.5
Hospital rehabilitation services:
Revenue mix %:
Company-operated			94				54				29				32				38				38				38
Non-affiliated			6				46				71				68				62				62				62
Sites of service (at end of period):
Inpatient rehabilitation units			1				104				102				102				100				102				104
LTAC hospitals			93				97				99				115				125				125				123
Sub-acute units			8				22				23				25				19				20				20
Outpatient units			12				119				114				115				111				115				117
Other			5				8				7				8				5				5				5
			119				350				345				365				360				367				369
Revenue per site		$	188,989			$	199,661			$	202,352			$	192,410			$	206,580			$	199,943			$	194,848
Annualized employee turnover %			14.5				17.1				16.5				16.5				19.6				16.9				17.3

 

(a)	Excludes managed facilities.

(b)	Provider taxes are recorded in other operating expenses for all periods presented.

 

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Kindred Healthcare Reports Third Quarter Results

Page 18

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Earnings Per Common Share Reconciliation (a)

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,																Nine months ended September 30,
		2012								2011								2012								2011
		Basic				Diluted				Basic				Diluted				Basic				Diluted				Basic				Diluted
Earnings:
Amounts attributable to Kindred stockholders:
Income from continuing operations:
As reported in Statement of Operations		$	7,868			$	7,868			$	666			$	666			$	41,465			$	41,465			$	16,823			$	16,823
Allocation to participating unvested restricted stockholders			(200	)			(200	)			(10	)			(10	)			(874	)			(873	)			(287	)			(284	)
Available to common stockholders		$	7,668			$	7,668			$	656			$	656			$	40,591			$	40,592			$	16,536			$	16,539
Discontinued operations, net of income taxes:
Income from operations:
As reported in Statement of Operations		$	47			$	47			$	1,119			$	1,119			$	143			$	143			$	1,527			$	1,527
Allocation to participating unvested restricted stockholders			(1	)			(1	)			(17	)			(17	)			(3	)			(3	)			(26	)			(26	)
Available to common stockholders		$	46			$	46			$	1,102			$	1,102			$	140			$	140			$	1,501			$	1,501
Loss on divestiture of operations:
As reported in Statement of Operations		$	(349	)		$	(349	)		$	—			$	—			$	(349	)		$	(349	)		$	—			$	—
Allocation to participating unvested restricted stockholders			9				9				—				—				7				7				—				—
Available to common stockholders		$	(340	)		$	(340	)		$	—			$	—			$	(342	)		$	(342	)		$	—			$	—
Net income:
As reported in Statement of Operations		$	7,566			$	7,566			$	1,785			$	1,785			$	41,259			$	41,259			$	18,350			$	18,350
Allocation to participating unvested restricted stockholders			(192	)			(192	)			(27	)			(27	)			(870	)			(869	)			(313	)			(310	)
Available to common stockholders		$	7,374			$	7,374			$	1,758			$	1,758			$	40,389			$	40,390			$	18,037			$	18,040
Shares used in the computation:
Weighted average shares outstanding—basic computation			51,676				51,676				51,329				51,329				51,648				51,648				44,577				44,577
Dilutive effect of employee stock options							33								77								27								357
Adjusted weighted average shares outstanding—diluted computation							51,709								51,406								51,675								44,934
Earnings per common share:
Income from continuing operations		$	0.15			$	0.15			$	0.01			$	0.01			$	0.79			$	0.79			$	0.37			$	0.37
Discontinued operations:
Income from operations			—				—				0.02				0.02				—				—				0.03				0.03
Loss on divestiture of operations			(0.01	)			(0.01	)			—				—				(0.01	)			(0.01	)			—				—
Net income		$	0.14			$	0.14			$	0.03			$	0.03			$	0.78			$	0.78			$	0.40			$	0.40

 

(a)

Earnings per common share are based upon the weighted average number of common shares outstanding during the respective periods. The diluted calculation of earnings 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 per common share calculation pursuant to the two-class method.

 

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Kindred Healthcare Reports Third Quarter Results

Page 19

October 29, 2012

 

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 information in this release to compute certain non-GAAP measurements for the third quarter and nine months ended September 30, 2012 and 2011 before certain charges or on a core basis. The charges that were excluded from core operating results for the third quarter ended September 30, 2012 relate to severance costs, an impairment charge in connection with the planned divestiture of a LTAC hospital, a lease cancellation charge in connection with the closing of a LTAC hospital, employee retention costs incurred in connection with the decision to allow the leases to expire for 54 nursing and rehabilitation centers leased from Ventas and transaction costs. The charges that were excluded from core operating results for the nine months ended September 30, 2012 relate to severance and employee retention costs, an impairment charge, lease cancellation charges and other miscellaneous costs in connection with the closing of a regional office, the planned divestiture or closing of five LTAC hospitals, the cancellation of a sub-acute unit project, the decision to allow the leases to expire for 54 nursing and rehabilitation centers leased from Ventas, employment-related lawsuits and transaction costs. The charges that were excluded from core operating results for the third quarter ended September 30, 2011 relate to severance costs, transaction costs and impairment charges. The charges that were excluded from core operating results for the nine months ended September 30, 2011 relate to severance, transaction and financing costs and impairment charges.

The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 33.4% and 37.4% for the third quarter and nine months ended September 30, 2012, respectively, and an effective income tax rate of 37.2% and 36.8% for the third quarter and nine months ended September 30, 2011, respectively. Certain of the excluded charges for the third quarter of 2012 are not deductible for income tax purposes thus resulting in a lower effective income tax rate than the comparable prior year period.

The use of these non-GAAP measurements are 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 third quarter and nine months ended September 30, 2012 and 2011 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 purpose of evaluating performance internally.

 

		Three months ended September 30,								Nine months ended September 30,
		2012				2011				2012				2011
Detail of charges:
Severance, employee retention and other miscellaneous costs			($318	)			($1,256	)			($5,925	)			($16,122	)
Lease cancellation charges			(596	)			—				(3,518	)			—
Employment-related lawsuits			—				—				(5,000	)			—
Transaction costs			(832	)			(5,281	)			(1,914	)			(29,445	)
Impairment charges			(3,203	)			(26,712	)			(3,203	)			(26,712	)
Financing costs (in connection with RehabCare acquisition)			—				—				—				(13,802	)
			(4,949	)			(33,249	)			(19,560	)			(86,081	)
Income tax benefit			1,654				12,371				7,316				31,708
Charges net of income taxes			(3,295	)			(20,878	)			(12,244	)			(54,373	)
Allocation to participating unvested restricted stockholders			84				314				258				920
Available to common stockholders			($3,211	)			($20,564	)			($11,986	)			($53,453	)
Weighted average diluted shares outstanding			51,709				51,406				51,675				44,934
Diluted loss per common share related to charges			($0.06	)			($0.40	)			($0.23	)			($1.19	)
Reconciliation of operating income before charges:
Operating income before charges		$	203,503			$	210,025			$	639,340			$	562,664
Detail of charges excluded from core operating results:
Severance, employee retention and other miscellaneous costs			(318	)			(1,256	)			(5,925	)			(16,122	)
Employment-related lawsuits			—				—				(5,000	)			—
Transaction costs			(832	)			(5,281	)			(1,914	)			(29,445	)
Impairment charges			(3,203	)			(26,712	)			(3,203	)			(26,712	)
			(4,353	)			(33,249	)			(16,042	)			(72,279	)
Reported operating income		$	199,150			$	176,776			$	623,298			$	490,385
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges		$	11,163			$	21,544			$	53,709			$	71,196
Charges net of income taxes			(3,295	)			(20,878	)			(12,244	)			(54,373	)
Reported income from continuing operations		$	7,868			$	666			$	41,465			$	16,823
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a)		$	0.21			$	0.41			$	1.02			$	1.56
Charges net of income taxes			(0.06	)			(0.40	)			(0.23	)			(1.19	)
Reported diluted income per common share from continuing operations		$	0.15			$	0.01			$	0.79			$	0.37
Weighted average diluted shares outstanding			51,709				51,406				51,675				44,934
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges			39.8	%			31.5	%			40.5	%			36.9	%
Impact of charges on effective income tax rate			2.3	%			131.7	%			0.8	%			0.3	%
Reported effective income tax rate			42.1	%			163.2	%			41.3	%			37.2	%

 

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.3 million for each of the third quarters ended September 30, 2012 and 2011, and $1.1 million and $1.2 million for the nine months ended September 30, 2012 and 2011, respectively, for the allocation of income to participating unvested restricted stockholders.

 

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Kindred Healthcare Reports Third Quarter Results

Page 20

October 29, 2012

 

KINDRED HEALTHCARE, INC.

Reconciliation of Earnings Guidance for 2012 and 2013—Continuing Operations

(Unaudited)

(In millions, except per share amounts)

 

		As of October 29, 2012																As of September 14, 2012
		2012 (a)								2013 (b)								2012 (a)								2013 (b)
		Low				High				Low				High				Low				High				Low				High
Operating income		$	867			$	875			$	806			$	825			$	868			$	884			$	806			$	825
Rent			430				430				387				387				432				432				389				389
Depreciation and amortization			201				201				189				189				201				201				190				190
Interest, net			107				107				113				113				107				107				110				110
Income from continuing operations before income taxes			129				137				117				136				128				144				117				136
Provision for income taxes			53				56				50				58				53				59				50				58
Income from continuing operations			76				81				67				78				75				85				67				78
Earnings attributable to noncontrolling interests			(1	)			(1	)			(2	)			(2	)			(2	)			(2	)			(2	)			(2	)
Income from continuing operations attributable to the Company			75				80				65				76				73				83				65				76
Allocation to participating unvested restricted stockholders			(2	)			(2	)			(2	)			(2	)			(2	)			(2	)			(2	)			(2	)
Available to common stockholders		$	73			$	78			$	63			$	74			$	71			$	81			$	63			$	74
Earnings per diluted share		$	1.40			$	1.50			$	1.20			$	1.40			$	1.35			$	1.55			$	1.20			$	1.40
Shares used in computing earnings per diluted share			52.0				52.0				52.7				52.7				52.0				52.0				52.7				52.7

 

(a)

The Company’s earnings guidance for 2012 excludes the effect of (1) any costs associated with the closing of a regional office, the planned divestiture or closing of five LTAC hospitals and the cancellation of a sub-acute unit project, (2) costs associated with employment-related lawsuits, (3) employee retention costs incurred in connection with the decision to allow the leases to expire for 54 nursing and rehabilitation centers leased from Ventas, (4) any transaction-related charges, (5) any other reimbursement changes, (6) any future acquisitions or divestitures, (7) any impairment charges, and (8) any repurchases of common stock.

(b)

The Company’s earnings guidance for 2013 (1) assumes the impact of Medicare reimbursement reductions that are expected to reduce the Company’s consolidated revenues between $90 million to $100 million, and further assumes that the operating results of the 54 nursing and rehabilitation centers leased from Ventas are classified as discontinued operations effective January 1, 2013, and (2) excludes the effect of any other reimbursement changes, any future acquisitions or other divestitures, any impairment charges, and any repurchases of common stock.

 

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