EXHIBIT 99.1

 

 

Contact:

Hank Robinson

Senior Vice President, Tax and Treasurer

(502) 596-7732

KINDRED HEALTHCARE ANNOUNCES FIRST QUARTER RESULTS

 

 

First Quarter Continuing Operations Diluted EPS Totaled $0.32, Excluding Certain Items

Solid Start to the Year with Sequential Margin Improvement in Each Operating Segment

First Quarter GAAP Continuing Operations Diluted EPS Totaled $0.31

 

 

Company Reaffirms Fiscal 2014 Guidance for Core Earnings of $1.05 to $1.25 and Free Cash Flow

Guidance of $125 Million to $145 Million before $26 Million of Estimated Full-Year Cash Dividends

LOUISVILLE, Ky. (May 7, 2014) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 2014. The Company has reclassified as discontinued for all periods presented the operations of a transitional care (“TC”) hospital that was divested through the expiration of a lease. All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.

Highlights:

 

•

Consolidated revenues, operating income and operating margin rose sequentially from last quarter on improvements in each operating segment

 

•

Hospital division performed well despite a challenging backdrop, as strong cost controls partially mitigated the impact of a 2% decline in net revenues from volume softness, sequestration and commercial rate pressures

 

•

RehabCare operating income increased 1% and operating margins improved to 11.4% from 11.1% in the first quarter last year despite regulatory headwinds that became effective April 1, 2013

 

•

Nursing center division revenue growth and solid cost controls drove a 13% increase in operating income, a solid improvement in operating margins and in March, the first profitable month of operations in two years

 

•

Investments in our Care Management division and Kindred at Home led to revenue growth over prior year of 70% and operating income growth of 30%; platform for future growth established

 

•

Kindred repositioning strategy almost complete

 

•

Divestiture of 59 nursing centers leased from Ventas, Inc. (“Ventas”) (NYSE:VTR) on schedule; 26 nursing centers transferred as of May 1 and all but one facility scheduled to transfer by end of Q3

 

•

The real estate of two previously leased nursing centers was acquired for $22 million reducing annual rents by approximately $2 million

 

•

The refinancing of the Company’s existing secured and unsecured debt on April 9 lowers borrowing costs, extends debt maturities and reduces interest rate risk

 

•

Kindred is well positioned operationally and financially to grow in 2014 and beyond

 

•

Available borrowing capacity under the Company’s revolving credit facility approximated $377 million after the April 9 refinancing

 

•

Board of Directors declared regular quarterly cash dividend of $0.12 per share payable on June 11, 2014

 

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680 South Fourth Street     Louisville, Kentucky 40202

502.596.7300     www.kindredhealthcare.com

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Kindred Healthcare Announces First Quarter Results

Page 2

May 7, 2014

 

First Quarter Results

Continuing Operations

Consolidated revenues for the first quarter ended March 31, 2014 increased 2% to $1.30 billion compared to $1.28 billion in the same period in 2013. The Company reported income from continuing operations for the first quarter of 2014 of $16.8 million or $0.31 per diluted share compared to $10.4 million or $0.20 per diluted share in the first quarter of 2013. First quarter 2014 operating results included pretax charges of $0.7 million ($0.4 million net of income taxes) or $0.01 per diluted share related to transaction-related costs. Operating results for the first quarter of 2013 included a one-time bonus paid to employees who did not participate in the Company’s incentive compensation program and transaction-related costs, which reduced income from continuing operations in aggregate by $12.6 million or $0.23 per diluted share.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, commented, “We are very pleased to report a solid start to 2014. As we expected, hospital volumes improved sequentially in the first quarter, which historically has been our seasonally strongest quarter. That said, we continued to experience the same volume and utilization challenges experienced recently by many healthcare providers and successfully managed costs to mitigate the impact.”

Mr. Diaz further noted, “Our RehabCare division continues to make great progress, as evidenced by our operating income increase and margin improvement, notwithstanding Medicare reimbursement reductions. In addition, we added 45 net new skilled nursing rehabilitation sites of service during the quarter. The efforts we have made to reshape our nursing center division are continuing to pay off as we saw a significant improvement in operating margins in the first quarter. We are developing three additional transitional care centers in Indianapolis, Phoenix and Las Vegas, which will add to the momentum in this division.”

“Our Care Management division continues to make operating improvements in our home health and hospice operations as we assimilate numerous acquisitions and execute on a more standardized operating model. Our recent acquisitions of Senior Home Care and Kindred Home Based Primary Care (formerly Western Reserve Senior Care) have performed well and strengthen our commitment to further expand our Care Management division. We have made significant improvements in our management, processes and technology and hope to apply those tools across a larger platform over time.”

Benjamin A. Breier, President and Chief Operating Officer of the Company, commented, “Our recently announced acquisition of the Silver State Accountable Care Organization (“ACO”) in Las Vegas, Nevada, is a very exciting transaction for Kindred, and the partnership marks our first ownership and direct management of an ACO anywhere in the country. We are always identifying opportunities to learn and grow, and Silver State, along with our home-based primary care physician strategy, and our care transitions programs in many of our integrated markets are all examples of our efforts to develop, test and deploy new care delivery and payment models across our platform. Our stated goal of advancing value-based care models in multiple markets over the next few years remains on track.”

Commenting on the Company’s strategic initiatives, Mr. Diaz commented, “We continue to make great strides in completing our efforts to reposition our business with the ongoing transfer of the 59 Ventas nursing centers. We also closed the previously announced acquisition of two leased nursing centers and terminated the lease of an unprofitable hospital.”

“Our recent $2.25 billion debt refinancing reinforces our capabilities to expand our continuum of post-acute care services in our Integrated Care Markets and provides the flexibility to return capital to our shareholders through a recurring quarterly dividend. We remain committed to improving our long-term growth, profitability and financial position and enhancing our Integrated Care Market capabilities, particularly in home health and hospice services. We also continue to evaluate various opportunities to redeploy our management capabilities, industry leading infrastructure and financial resources as we move forward with the growth phase of our strategic plan.”

 

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Kindred Healthcare Announces First Quarter Results

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May 7, 2014

 

Earnings Guidance – Continuing Operations

The Company reaffirmed its previous earnings guidance for 2014 and expects to report income from continuing operations for 2014 between $58 million and $68 million or $1.05 to $1.25 per diluted share (based upon diluted shares of 53.2 million).

The Company also reaffirmed its operating cash flow guidance for 2014 at a range between $245 million and $275 million. Estimated routine capital expenditures for 2014 are expected to range from $100 million to $105 million and estimated costs to develop new or replacement TC hospitals, transitional care nursing centers, and inpatient rehabilitation facilities (“IRFs”) will approximate $20 million to $25 million in 2014. Operating cash flows in excess of the Company’s routine and development capital spending programs are expected to approximate $125 million to $145 million for 2014 and will be available to pay dividends, repay debt and fund acquisitions. Estimated dividend payments for 2014 are expected to approximate $26 million.

Mr. Breier commented, “We have a higher level of confidence in our 2014 earnings and free cash flow guidance after a solid start to the year. We look forward to continued improvements in our hospital business and continuing the solid first quarter performance from our other divisions. We also expect additional cost savings from initiatives across the enterprise, and growth over time from a broad range of internal and external development efforts. Our strategy is continually focused on being the post-acute provider and partner of choice.”

The Company’s earnings and cash flow guidance for 2014 excludes the effect of reimbursement changes, severance, retirement and retention costs, litigation costs, transaction-related costs, any further acquisitions or divestitures, any impairment charges, and any repurchases of common stock.

Quarterly Cash Dividend

The Company also announced that its Board of Directors has approved the payment of the regular quarterly cash dividend to its shareholders of $0.12 per common share to be paid on June 11, 2014 to shareholders of record as of the close of business on May 21, 2014. Future declarations of quarterly dividends will be subject to the approval of Kindred’s Board of Directors.

Conference Call

As previously announced, investors and the general public may access a live webcast of the first quarter 2014 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on May 8 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on May 8 by dialing (719) 457-0820, access code: 5576523. The replay will be available through May 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 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

 

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Kindred Healthcare Announces First Quarter Results

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May 7, 2014

 

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. Statements in this press release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses or other financial items, and product or services line growth, together with other statements that are not historical facts, are forward-looking statements that are estimates reflecting the best judgment of the Company based upon currently available information.

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.

In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price include, without limitation, (a) the impact of healthcare reform, which will initiate significant changes 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”) or future deficit reduction measures adopted at the federal or state level. Healthcare reform is affecting each of the Company’s businesses in some manner. Potential future efforts in the U.S. Congress to repeal, amend, modify 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 final rules issued by CMS on August 1, 2012 which, among other things, will reduce Medicare reimbursement to the Company’s TC hospitals in 2013 and beyond by imposing a budget neutrality adjustment and modifying the short-stay outlier rules, (c) the impact of the final rules issued by CMS on July 29, 2011 which significantly reduced Medicare reimbursement to the Company’s 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 (as amended by the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”)) which instituted an automatic 2% reduction on each claim submitted to Medicare beginning April 1, 2013, (e) the Company’s ability to adjust to the new patient criteria for long-term acute care (“LTAC”) hospitals under the Pathway for SGR Reform Act of 2013, which will reduce the population of patients eligible for the Company’s hospital services and change the basis upon which the Company is paid, (f) the impact of the Taxpayer Relief Act which, among other things, reduces Medicare payments by an additional 25% for subsequent procedures when multiple therapy services are provided on the same day. At this time, the Company believes that the rules related to multiple therapy services will reduce its Medicare revenues by $25 million to $30 million on an annual basis, (g) 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 reimbursement for the Company’s TC hospitals, nursing centers, IRFs and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (h) 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, (i) the ability of the Company’s hospitals and nursing centers to adjust to medical necessity reviews, (j) the costs of defending and insuring against alleged

 

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Kindred Healthcare Announces First Quarter Results

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May 7, 2014

 

professional liability and other claims (including those related to pending whistleblower and wage and hour class action lawsuits against the Company) and the Company’s ability to predict the estimated costs and reserves related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (k) the impact of the Company’s significant level of indebtedness on the Company’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings, (l) the Company’s ability to successfully redeploy its capital and proceeds of asset sales in pursuit of its business strategy and 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, (m) the Company’s ability to pay a dividend as, when and if declared by the Board of Directors, in compliance with applicable laws and the Company’s debt and other contractual arrangements, (n) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (o) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (p) the Company’s ability to meet its rental and debt service obligations, (q) the Company’s ability to operate pursuant to the terms of its debt obligations, and comply with its covenants thereunder, and the Company’s ability to operate pursuant to its master lease agreements with Ventas, (r) 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 the Company’s businesses, or which could negatively impact the Company’s investment portfolio, (s) the Company’s ability to control costs, particularly labor and employee benefit costs, (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 obligations under various laws to self-report suspected violations of law by the Company to various government agencies, including any associated obligation to refund overpayments to government payors, fines and other sanctions, (v) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (w) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (x) the Company’s ability to attract and retain key executives and other healthcare personnel, (y) the Company’s ability to successfully dispose of unprofitable facilities, (z) 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 the last three fiscal years, (aa) 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 (bb) 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 three months ended March 31, 2014 and 2013 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.

Also in this release, the Company provides the financial measure of free cash flows excluding certain items. The Company recognizes that free cash flows excluding certain items is a non-GAAP measurement and is not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that this non-GAAP measurement provides important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses. The Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows

 

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Kindred Healthcare Announces First Quarter Results

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May 7, 2014

 

provided by operating activities as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Free cash flows excluding certain items 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 net cash flows provided by operating activities to free cash flows excluding certain items is included in this press release.

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 (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) 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 (loss) 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 FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of $5 billion and approximately 63,000 employees in 47 states. At March 31, 2014, Kindred through its subsidiaries provided healthcare services in 2,313 locations, including 100 transitional care hospitals, five inpatient rehabilitation hospitals, 99 nursing centers, 22 sub-acute units, 157 Kindred at Home hospice, home health and non-medical home care locations, 105 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,825 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for six 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. You can also follow us on Twitter and Facebook.

 

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Kindred Healthcare Announces First Quarter Results

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May 7, 2014

 

KINDRED HEALTHCARE, INC.

Financial Summary

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended
		March 31,
		2014				2013
Revenues		$	1,299,557			$	1,275,659
Income from continuing operations		$	21,242			$	10,837
Discontinued operations, net of income taxes:
Loss from operations			(5,757	)			(5,339	)
Loss on divestiture of operations			(3,006	)			(2,025	)
Loss from discontinued operations			(8,763	)			(7,364	)
Net income			12,479				3,473
Earnings attributable to noncontrolling interests			(4,459	)			(416	)
Income attributable to Kindred		$	8,020			$	3,057
Amounts attributable to Kindred stockholders:
Income from continuing operations		$	16,783			$	10,421
Loss from discontinued operations			(8,763	)			(7,364	)
Net income		$	8,020			$	3,057
Earnings per common share:
Basic:
Income from continuing operations		$	0.31			$	0.20
Discontinued operations:
Loss from operations			(0.10	)			(0.10	)
Loss on divestiture of operations			(0.06	)			(0.04	)
Loss from discontinued operations			(0.16	)			(0.14	)
Net income		$	0.15			$	0.06
Diluted:
Income from continuing operations		$	0.31			$	0.20
Discontinued operations:
Loss from operations			(0.10	)			(0.10	)
Loss on divestiture of operations			(0.06	)			(0.04	)
Loss from discontinued operations			(0.16	)			(0.14	)
Net income		$	0.15			$	0.06
Shares used in computing earnings per common share:
Basic			52,641				52,062
Diluted			52,711				52,083
Cash dividends declared and paid per common share		$	0.12			$	—

 

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Kindred Healthcare Announces First Quarter Results

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May 7, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended
		March 31,
		2014				2013
Revenues		$	1,299,557			$	1,275,659
Salaries, wages and benefits			780,294				790,091
Supplies			83,294				85,682
Rent			82,474				77,957
Other operating expenses			253,480				235,100
Other income			(237	)			(1,009	)
Impairment charges			74				187
Depreciation and amortization			40,210				42,249
Interest expense			25,808				28,171
Investment income			(184	)			(87	)
			1,265,213				1,258,341
Income from continuing operations before income taxes			34,344				17,318
Provision for income taxes			13,102				6,481
Income from continuing operations			21,242				10,837
Discontinued operations, net of income taxes:
Loss from operations			(5,757	)			(5,339	)
Loss on divestiture of operations			(3,006	)			(2,025	)
Loss from discontinued operations			(8,763	)			(7,364	)
Net income			12,479				3,473
Earnings attributable to noncontrolling interests			(4,459	)			(416	)
Income attributable to Kindred		$	8,020			$	3,057
Amounts attributable to Kindred stockholders:
Income from continuing operations		$	16,783			$	10,421
Loss from discontinued operations			(8,763	)			(7,364	)
Net income		$	8,020			$	3,057
Earnings per common share:
Basic:
Income from continuing operations		$	0.31			$	0.20
Discontinued operations:
Loss from operations			(0.10	)			(0.10	)
Loss on divestiture of operations			(0.06	)			(0.04	)
Loss from discontinued operations			(0.16	)			(0.14	)
Net income		$	0.15			$	0.06
Diluted:
Income from continuing operations		$	0.31			$	0.20
Discontinued operations:
Loss from operations			(0.10	)			(0.10	)
Loss on divestiture of operations			(0.06	)			(0.04	)
Loss from discontinued operations			(0.16	)			(0.14	)
Net income		$	0.15			$	0.06
Shares used in computing earnings per common share:
Basic			52,641				52,062
Diluted			52,711				52,083
Cash dividends declared and paid per common share		$	0.12			$	—

 

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Kindred Healthcare Announces First Quarter Results

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May 7, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)

 

		March 31,				December 31,
		2014				2013
ASSETS
Current assets:
Cash and cash equivalents		$	49,048			$	35,972
Cash—restricted			3,689				3,713
Insurance subsidiary investments			95,855				96,295
Accounts receivable less allowance for loss			979,598				916,529
Inventories			25,633				25,780
Deferred tax assets			32,258				37,920
Income taxes			9,090				36,846
Other			46,554				43,673
			1,241,725				1,196,728
Property and equipment			1,937,826				1,906,366
Accumulated depreciation			(1,007,623	)			(979,791	)
			930,203				926,575
Goodwill			992,214				992,102
Intangible assets less accumulated amortization			417,182				423,303
Assets held for sale			17,555				20,978
Insurance subsidiary investments			157,567				149,094
Deferred tax assets			18,659				17,043
Other			221,201				220,046
Total assets		$	3,996,306			$	3,945,869
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	167,552			$	181,772
Salaries, wages and other compensation			351,581				361,192
Due to third party payors			31,734				33,747
Professional liability risks			65,439				60,993
Other accrued liabilities			129,478				146,495
Long-term debt due within one year			8,218				8,222
			754,002				792,421
Long-term debt			1,660,596				1,579,391
Professional liability risks			248,740				246,230
Deferred credits and other liabilities			207,067				206,611
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 54,777 shares—March 31, 2014 and 54,165 shares—December 31, 2013			13,694				13,541
Capital in excess of par value			1,144,204				1,146,193
Accumulated other comprehensive loss			(797	)			(252	)
Retained deficit			(71,285	)			(76,825	)
			1,085,816				1,082,657
Noncontrolling interests			40,085				38,559
Total equity			1,125,901				1,121,216
Total liabilities and equity		$	3,996,306			$	3,945,869

 

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Kindred Healthcare Announces First Quarter Results

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May 7, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

		Three months ended
		March 31,
		2014				2013
Cash flows from operating activities:
Net income		$	12,479			$	3,473
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			41,304				52,954
Amortization of stock-based compensation costs			2,585				2,248
Amortization of deferred financing costs			2,397				2,613
Provision for doubtful accounts			8,760				11,266
Deferred income taxes			3,975				(344	)
Impairment charges			518				436
Loss on divestiture of discontinued operations			3,006				2,025
Other			2,044				420
Change in operating assets and liabilities:
Accounts receivable			(71,829	)			(67,411	)
Inventories and other assets			(6,218	)			(8,147	)
Accounts payable			(13,526	)			(15,790	)
Income taxes			29,413				12,675
Due to third party payors			(2,013	)			(1,028	)
Other accrued liabilities			(28,649	)			29,443
Net cash provided by (used in) operating activities			(15,754	)			24,833
Cash flows from investing activities:
Routine capital expenditures			(21,677	)			(22,370	)
Development capital expenditures			(751	)			(2,388	)
Acquisitions, net of cash acquired			(22,715	)			—
Sale of assets			5,034				5,060
Purchase of insurance subsidiary investments			(10,114	)			(10,836	)
Sale of insurance subsidiary investments			8,762				10,002
Net change in insurance subsidiary cash and cash equivalents			(6,599	)			(33,096	)
Change in other investments			640				319
Other			(551	)			(144	)
Net cash used in investing activities			(47,971	)			(53,453	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit			508,700				483,500
Repayment of borrowings under revolving credit			(425,800	)			(459,200	)
Repayment of other long-term debt			(2,059	)			(2,666	)
Payment of deferred financing costs			(270	)			(202	)
Distribution made to noncontrolling interests			(2,933	)			(491	)
Issuance of common stock			3,804				4
Dividends paid			(6,514	)			—
Other			1,873				332
Net cash provided by financing activities			76,801				21,277
Change in cash and cash equivalents			13,076				(7,343	)
Cash and cash equivalents at beginning of period			35,972				50,007
Cash and cash equivalents at end of period		$	49,048			$	42,664

 

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Kindred Healthcare Announces First Quarter Results

Page 11

May 7, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

																						First
		2013 Quarters																				Quarter
		First				Second				Third				Fourth				Year				2014
Revenues		$	1,275,659			$	1,205,661			$	1,188,057			$	1,222,332			$	4,891,709			$	1,299,557
Salaries, wages and benefits			790,091				722,710				725,007				745,153				2,982,961				780,294
Supplies			85,682				81,862				80,714				79,954				328,212				83,294
Rent			77,957				78,796				78,228				82,381				317,362				82,474
Other operating expenses			235,100				232,229				266,098				249,141				982,568				253,480
Other (income) expense			(1,009	)			(26	)			52				(457	)			(1,440	)			(237	)
Impairment charges			187				438				441				76,127				77,193				74
Depreciation and amortization			42,249				39,228				37,190				38,361				157,028				40,210
Interest expense			28,171				29,084				25,633				25,161				108,049				25,808
Investment income			(87	)			(1,475	)			(1,234	)			(1,255	)			(4,051	)			(184	)
			1,258,341				1,182,846				1,212,129				1,294,566				4,947,882				1,265,213
Income (loss) from continuing operations before income taxes			17,318				22,815				(24,072	)			(72,234	)			(56,173	)			34,344
Provision (benefit) for income taxes			6,481				9,160				(7,217	)			(20,903	)			(12,479	)			13,102
Income (loss) from continuing operations			10,837				13,655				(16,855	)			(51,331	)			(43,694	)			21,242
Discontinued operations, net of income taxes:
Loss from operations			(5,339	)			(976	)			(24,373	)			(6,566	)			(37,254	)			(5,757	)
Loss on divestiture of operations			(2,025	)			(10,852	)			(65,016	)			(5,994	)			(83,887	)			(3,006	)
Loss from discontinued operations			(7,364	)			(11,828	)			(89,389	)			(12,560	)			(121,141	)			(8,763	)
Net income (loss)			3,473				1,827				(106,244	)			(63,891	)			(164,835	)			12,479
Earnings attributable to noncontrolling interests			(416	)			(82	)			(754	)			(2,405	)			(3,657	)			(4,459	)
Income (loss) attributable to Kindred		$	3,057			$	1,745			$	(106,998	)		$	(66,296	)		$	(168,492	)		$	8,020
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	10,421			$	13,573			$	(17,609	)		$	(53,736	)		$	(47,351	)		$	16,783
Loss from discontinued operations			(7,364	)			(11,828	)			(89,389	)			(12,560	)			(121,141	)			(8,763	)
Net income (loss)		$	3,057			$	1,745			$	(106,998	)		$	(66,296	)		$	(168,492	)		$	8,020
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	0.20			$	0.25			$	(0.33	)		$	(1.03	)		$	(0.91	)		$	0.31
Discontinued operations:
Loss from operations			(0.10	)			(0.02	)			(0.47	)			(0.13	)			(0.71	)			(0.10	)
Loss on divestiture of operations			(0.04	)			(0.20	)			(1.24	)			(0.11	)			(1.61	)			(0.06	)
Loss from discontinued operations			(0.14	)			(0.22	)			(1.71	)			(0.24	)			(2.32	)			(0.16	)
Net income (loss)		$	0.06			$	0.03			$	(2.04	)		$	(1.27	)		$	(3.23	)		$	0.15
Diluted:
Income (loss) from continuing operations		$	0.20			$	0.25			$	(0.33	)		$	(1.03	)		$	(0.91	)		$	0.31
Discontinued operations:
Loss from operations			(0.10	)			(0.02	)			(0.47	)			(0.13	)			(0.71	)			(0.10	)
Loss on divestiture of operations			(0.04	)			(0.20	)			(1.24	)			(0.11	)			(1.61	)			(0.06	)
Loss from discontinued operations			(0.14	)			(0.22	)			(1.71	)			(0.24	)			(2.32	)			(0.16	)
Net income (loss)		$	0.06			$	0.03			$	(2.04	)		$	(1.27	)		$	(3.23	)		$	0.15
Shares used in computing earnings (loss) per common share:
Basic			52,062				52,265				52,323				52,344				52,249				52,641
Diluted			52,083				52,284				52,323				52,344				52,249				52,711

 

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Kindred Healthcare Announces First Quarter Results

Page 12

May 7, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

(In thousands)

 

																						First
		2013 Quarters																				Quarter
		First				Second				Third				Fourth				Year				2014
Revenues:
Hospital division		$	671,206			$	618,598			$	604,169			$	616,721			$	2,510,694			$	657,453
Nursing center division			275,141				269,501				270,210				274,908				1,089,760				281,572
Rehabilitation division:
Skilled nursing rehabilitation services			257,884				248,710				244,384				242,376				993,354				253,285
Hospital rehabilitation services			74,523				69,777				68,296				74,017				286,613				73,964
			332,407				318,487				312,680				316,393				1,279,967				327,249
Care management division			51,621				53,039				53,801				66,466				224,927				87,704
			1,330,375				1,259,625				1,240,860				1,274,488				5,105,348				1,353,978
Eliminations:
Skilled nursing rehabilitation services			(29,303	)			(29,257	)			(28,698	)			(28,728	)			(115,986	)			(30,070	)
Hospital rehabilitation services			(24,200	)			(23,706	)			(22,944	)			(22,553	)			(93,403	)			(23,689	)
Nursing centers			(1,213	)			(1,001	)			(1,161	)			(875	)			(4,250	)			(662	)
			(54,716	)			(53,964	)			(52,803	)			(52,156	)			(213,639	)			(54,421	)
		$	1,275,659			$	1,205,661			$	1,188,057			$	1,222,332			$	4,891,709			$	1,299,557
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	149,698			$	131,676			$	113,147			$	127,898			$	522,419			$	146,895
Nursing center division			29,844				36,678				32,146				36,694				135,362				39,095
Rehabilitation division:
Skilled nursing rehabilitation services			12,373				20,686				(8,155	)			13,356				38,260				17,358
Hospital rehabilitation services			18,132				19,573				18,215				18,005				73,925				19,820
			30,505				40,259				10,060				31,361				112,185				37,178
Care management division			2,786				3,961				1,085				2,131				9,963				4,697
Corporate:
Overhead			(45,585	)			(43,196	)			(39,157	)			(48,557	)			(176,495	)			(44,050	)
Insurance subsidiary			(509	)			(384	)			(482	)			(539	)			(1,914	)			(406	)
			(46,094	)			(43,580	)			(39,639	)			(49,096	)			(178,409	)			(44,456	)
Impairment charges			(187	)			(438	)			(441	)			(76,127	)			(77,193	)			(74	)
Transaction costs			(944	)			(108	)			(613	)			(447	)			(2,112	)			(683	)
Operating income			165,608				168,448				115,745				72,414				522,215				182,652
Rent			(77,957	)			(78,796	)			(78,228	)			(82,381	)			(317,362	)			(82,474	)
Depreciation and amortization			(42,249	)			(39,228	)			(37,190	)			(38,361	)			(157,028	)			(40,210	)
Interest, net			(28,084	)			(27,609	)			(24,399	)			(23,906	)			(103,998	)			(25,624	)
Income (loss) from continuing operations before income taxes			17,318				22,815				(24,072	)			(72,234	)			(56,173	)			34,344
Provision (benefit) for income taxes			6,481				9,160				(7,217	)			(20,903	)			(12,479	)			13,102
		$	10,837			$	13,655			$	(16,855	)		$	(51,331	)		$	(43,694	)		$	21,242

 

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Kindred Healthcare Announces First Quarter Results

Page 13

May 7, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

		First Quarter 2014
						Nursing				Rehabilitation division												Care								Transaction-
		Hospital				center				Skilled nursing				Hospital								management								related
		division				division				services				services				Total				division				Corporate				costs				Eliminations				Consolidated
Revenues		$	657,453			$	281,572			$	253,285			$	73,964			$	327,249			$	87,704			$	—			$	—			$	(54,421	)		$	1,299,557
Salaries, wages and benefits			279,782				129,290				224,607				49,999				274,606				68,689				27,838				339				(250	)			780,294
Supplies			68,282				10,961				736				35				771				3,099				181				—				—				83,294
Rent			54,233				24,280				1,089				51				1,140				2,256				565				—				—				82,474
Other operating expenses			162,527				102,430				10,589				4,105				14,694				11,219				16,437				344				(54,171	)			253,480
Other (income) expense			(33	)			(204	)			(5	)			5				—				—				—				—				—				(237	)
Impairment charges			—				74				—				—				—				—				—				—				—				74
Depreciation and amortization			17,453				7,947				2,695				2,564				5,259				2,125				7,426				—				—				40,210
Interest expense			185				14				58				—				58				10				25,541				—				—				25,808
Investment income			(3	)			(11	)			(59	)			—				(59	)			—				(111	)			—				—				(184	)
			582,426				274,781				239,710				56,759				296,469				87,398				77,877				683				(54,421	)			1,265,213
Income from continuing operations before income taxes		$	75,027			$	6,791			$	13,575			$	17,205			$	30,780			$	306			$	(77,877	)		$	(683	)		$	—				34,344
Provision for income taxes																																							13,102
Income from continuing operations																																						$	21,242
Capital expenditures, excluding acquisitions
(including discontinued operations):
Routine		$	8,402			$	5,055			$	849			$	56			$	905			$	308			$	7,007			$	—			$	—			$	21,677
Development			511				240				—				—				—				—				—				—				—				751
		$	8,913			$	5,295			$	849			$	56			$	905			$	308			$	7,007			$	—			$	—			$	22,428
		First Quarter 2013
						Nursing				Rehabilitation division												Care								Transaction-
		Hospital				center				Skilled nursing				Hospital								management								related
		division (a)				division (a)				services (a)				services (a)				Total				division (a)				Corporate (a)				costs				Eliminations				Consolidated
Revenues		$	671,206			$	275,141			$	257,884			$	74,523			$	332,407			$	51,621			$	—			$	—			$	(54,716	)		$	1,275,659
Salaries, wages and benefits			295,761				137,305				234,844				52,420				287,264				40,314				29,688				—				(241	)			790,091
Supplies			69,449				12,947				811				32				843				2,238				205				—				—				85,682
Rent			50,609				24,287				1,235				17				1,252				1,186				623				—				—				77,957
Other operating expenses			156,403				95,446				9,856				3,919				13,775				6,283				16,724				944				(54,475	)			235,100
Other (income) expense			(105	)			(401	)			—				20				20				—				(523	)			—				—				(1,009	)
Impairment charges			176				11				—				—				—				—				—				—				—				187
Depreciation and amortization			20,168				7,546				3,112				2,331				5,443				1,526				7,566				—				—				42,249
Interest expense			182				17				96				—				96				—				27,876				—				—				28,171
Investment income			(5	)			(9	)			(28	)			—				(28	)			—				(45	)			—				—				(87	)
			592,638				277,149				249,926				58,739				308,665				51,547				82,114				944				(54,716	)			1,258,341
Income (loss) from continuing operations before income taxes		$	78,568			$	(2,008	)		$	7,958			$	15,784			$	23,742			$	74			$	(82,114	)		$	(944	)		$	—				17,318
Provision for income taxes																																							6,481
Income from continuing operations																																						$	10,837
Capital expenditures, excluding acquisitions
(including discontinued operations):
Routine		$	10,271			$	5,819			$	605			$	32			$	637			$	195			$	5,448			$	—			$	—			$	22,370
Development			2,388				—				—				—				—				—				—				—				—				2,388
		$	12,659			$	5,819			$	605			$	32			$	637			$	195			$	5,448			$	—			$	—			$	24,758

 

(a)

Includes one-time bonus costs of $20.1 million (hospital division—$8.0 million, nursing center division—$4.7 million, rehabilitation division—$6.3 million (skilled nursing rehabilitation services - $5.0 million and hospital rehabilitation services—$1.3 million), care management division—$0.8 million and corporate—$0.3 million).

 

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Kindred Healthcare Announces First Quarter Results

Page 14

May 7, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

 

																						First
		2013 Quarters																				Quarter
		First				Second				Third				Fourth				Year				2014
Hospital division data:
End of period data:
Number of hospitals:
Transitional care			100				100				100				100								100
Inpatient rehabilitation			5				5				5				5								5
			105				105				105				105								105
Number of licensed beds:
Transitional care			7,238				7,238				7,252				7,284								7,324
Inpatient rehabilitation			215				215				215				215								215
			7,453				7,453				7,467				7,499								7,539
Revenue mix %:
Medicare			63				61				59				59				61				61
Medicaid			5				6				7				6				6				6
Medicare Advantage			10				11				11				12				11				11
Commercial insurance and other			22				22				23				23				22				22
Admissions:
Medicare			10,541				9,652				9,197				9,467				38,857				10,044
Medicaid			685				744				788				712				2,929				835
Medicare Advantage			1,543				1,512				1,446				1,472				5,973				1,542
Commercial insurance and other			2,203				2,106				2,132				2,113				8,554				2,459
			14,972				14,014				13,563				13,764				56,313				14,880
Admissions mix %:
Medicare			70				69				68				69				69				67
Medicaid			5				5				6				5				5				6
Medicare Advantage			10				11				10				11				11				10
Commercial insurance and other			15				15				16				15				15				17
Patient days:
Medicare			258,870				239,574				228,589				231,462				958,495				244,814
Medicaid			28,776				30,447				31,569				29,799				120,591				32,909
Medicare Advantage			43,805				44,122				42,616				44,381				174,924				45,651
Commercial insurance and other			72,926				66,197				68,410				66,257				273,790				74,493
			404,377				380,340				371,184				371,899				1,527,800				397,867
Average length of stay:
Medicare			24.6				24.8				24.9				24.4				24.7				24.4
Medicaid			42.0				40.9				40.1				41.9				41.2				39.4
Medicare Advantage			28.4				29.2				29.5				30.2				29.3				29.6
Commercial insurance and other			33.1				31.4				32.1				31.4				32.0				30.3
Weighted average			27.0				27.1				27.4				27.0				27.1				26.7
Revenues per admission:
Medicare		$	40,020			$	38,957			$	39,039			$	38,729			$	39,209			$	39,528
Medicaid			51,441				48,142				51,890				52,599				51,005				50,215
Medicare Advantage			44,576				45,647				46,537				48,899				46,387				47,639
Commercial insurance and other			65,971				65,408				64,232				66,561				65,545				58,987
Weighted average			44,831				44,141				44,545				44,807				44,585				44,184
Revenues per patient day:
Medicare		$	1,630			$	1,570			$	1,571			$	1,584			$	1,590			$	1,622
Medicaid			1,225				1,176				1,295				1,257				1,239				1,274
Medicare Advantage			1,570				1,564				1,579				1,622				1,584				1,609
Commercial insurance and other			1,993				2,081				2,002				2,123				2,048				1,947
Weighted average			1,660				1,626				1,628				1,658				1,643				1,652
Medicare case mix index (discharged patients only)			1.18				1.18				1.16				1.15				1.17				1.17
Average daily census			4,493				4,180				4,035				4,042				4,186				4,421
Occupancy %			67.9				62.9				60.4				60.8				63.0				66.7
Annualized employee turnover %			22.1				21.6				21.3				21.2								20.6

 

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Kindred Healthcare Announces First Quarter Results

Page 15

May 7, 2014

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

																						First
		2013 Quarters																				Quarter
		First				Second				Third				Fourth				Year				2014
Nursing center division data:
End of period data:
Number of facilities:
Nursing centers:
Owned or leased			96				96				96				96								95
Managed			4				4				4				4								4
Assisted living facilities			6				6				6				6								6
			106				106				106				106								105
Number of licensed beds:
Nursing centers:
Owned or leased			12,153				12,153				12,153				12,153								12,018
Managed			485				485				485				485								485
Assisted living facilities			341				341				341				341								341
			12,979				12,979				12,979				12,979								12,844
Revenue mix %:
Medicare			35				34				33				32				34				32
Medicaid			36				37				39				40				37				40
Medicare Advantage			8				8				7				8				8				9
Private and other			21				21				21				20				21				19
Patient days (a):
Medicare			171,881				162,488				158,458				152,185				645,012				152,037
Medicaid			515,970				516,103				525,625				532,378				2,090,076				524,417
Medicare Advantage			52,460				52,064				45,865				49,319				199,708				54,821
Private and other			218,175				217,914				218,845				214,946				869,880				204,848
			958,486				948,569				948,793				948,828				3,804,676				936,123
Patient day mix % (a):
Medicare			18				17				17				16				17				16
Medicaid			54				54				55				56				55				56
Medicare Advantage			5				6				5				5				5				6
Private and other			23				23				23				23				23				22
Revenues per patient day (a):
Medicare Part A		$	527			$	526			$	526			$	540			$	530			$	551
Total Medicare (including Part B)			564				566				568				584				570				595
Medicaid			190				190				199				205				196				216
Medicaid (net of provider taxes) (b)			167				167				177				183				174				194
Medicare Advantage			427				430				427				437				431				442
Private and other			264				262				256				258				260				261
Weighted average			287				284				285				290				287				301
Average daily census (a)			10,650				10,424				10,313				10,313				10,424				10,401
Admissions (a)			11,044				10,305				10,045				10,048				41,442				10,424
Occupancy % (a)			83.3				81.5				80.5				80.3				81.4				81.2
Medicare average length of stay (a)			30.2				30.9				31.6				31.4				31.0				29.8
Annualized employee turnover %			41.8				44.7				44.8				42.8								38.5
(a)    Excludes managed facilities.
(b)    Provider taxes are recorded in other operating expenses for all periods presented.

 

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Kindred Healthcare Announces First Quarter Results

Page 16

May 7, 2014

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

																						First
		2013 Quarters																				Quarter
		First				Second				Third				Fourth				Year				2014
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated			11				12				12				12				12				12
Non-affiliated			89				88				88				88				88				88
Sites of service (at end of period)			1,729				1,713				1,768				1,806								1,851
Revenue per site		$	149,152			$	145,189			$	138,227			$	134,206			$	566,774			$	136,837
Therapist productivity %			81.1				80.4				79.8				79.5				80.2				80.0
Hospital rehabilitation services:
Revenue mix %:
Company-operated			32				34				34				30				33				32
Non-affiliated			68				66				66				70				67				68
Sites of service (at end of period):
Inpatient rehabilitation units			103				103				99				104								105
LTAC hospitals			123				123				122				121								121
Sub-acute units			8				8				7				10								10
Outpatient units			98				104				104				144								143
			332				338				332				379								379
Revenue per site		$	224,466			$	206,441			$	205,711			$	195,296			$	831,914			$	195,157
Annualized employee turnover %			10.4				13.2				14.0				13.7								12.5

 

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Kindred Healthcare Announces First Quarter Results

Page 17

May 7, 2014

 

KINDRED HEALTHCARE, INC.

Earnings Per Common Share Reconciliation (a)

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended March 31,
		2014								2013
		Basic				Diluted				Basic				Diluted
Earnings:
Amounts attributable to Kindred stockholders:
Income from continuing operations:
As reported in Statement of Operations		$	16,783			$	16,783			$	10,421			$	10,421
Allocation to participating unvested restricted stockholders			(521	)			(521	)			(294	)			(294	)
Available to common stockholders		$	16,262			$	16,262			$	10,127			$	10,127
Discontinued operations, net of income taxes:
Loss from operations:
As reported in Statement of Operations		$	(5,757	)		$	(5,757	)		$	(5,339	)		$	(5,339	)
Allocation to participating unvested restricted stockholders			179				179				151				151
Available to common stockholders		$	(5,578	)		$	(5,578	)		$	(5,188	)		$	(5,188	)
Loss on divestiture of operations:
As reported in Statement of Operations		$	(3,006	)		$	(3,006	)		$	(2,025	)		$	(2,025	)
Allocation to participating unvested restricted stockholders			93				93				57				57
Available to common stockholders		$	(2,913	)		$	(2,913	)		$	(1,968	)		$	(1,968	)
Loss from discontinued operations:
As reported in Statement of Operations		$	(8,763	)		$	(8,763	)		$	(7,364	)		$	(7,364	)
Allocation to participating unvested restricted stockholders			272				272				208				208
Available to common stockholders		$	(8,491	)		$	(8,491	)		$	(7,156	)		$	(7,156	)
Net income:
As reported in Statement of Operations		$	8,020			$	8,020			$	3,057			$	3,057
Allocation to participating unvested restricted stockholders			(249	)			(249	)			(86	)			(86	)
Available to common stockholders		$	7,771			$	7,771			$	2,971			$	2,971
Shares used in the computation:
Weighted average shares outstanding—basic computation			52,641				52,641				52,062				52,062
Dilutive effect of employee stock options							70								21
Adjusted weighted average shares outstanding—diluted computation							52,711								52,083
Earnings per common share:
Income from continuing operations		$	0.31			$	0.31			$	0.20			$	0.20
Discontinued operations:
Loss from operations			(0.10	)			(0.10	)			(0.10	)			(0.10	)
Loss on divestiture of operations			(0.06	)			(0.06	)			(0.04	)			(0.04	)
Loss from discontinued operations			(0.16	)			(0.16	)			(0.14	)			(0.14	)
Net income		$	0.15			$	0.15			$	0.06			$	0.06

 

 

(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 Announces First Quarter Results

Page 18

May 7, 2014

 

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 three months ended March 31, 2014 and 2013 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.

The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 36.6% and 40.5% for the three months ended March 31, 2014 and 2013, respectively.

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 three months ended March 31, 2014 and 2013 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
		March 31,
		2014				2013
Detail of charges:
Severance costs		($	339	)		$	—
One-time bonus costs			—				(20,124	)
Transaction costs			(344	)			(944	)
			(683	)			(21,068	)
Income tax benefit			250				8,527
Charges net of income taxes			(433	)			(12,541	)
Allocation to participating unvested restricted stockholders			13				354
Available to common stockholders		($	420	)		($	12,187	)
Weighted average diluted shares outstanding			52,711				52,083
Diluted loss per common share related to charges		($	0.01	)		($	0.23	)
Reconciliation of operating income before charges:
Operating income before charges		$	183,335			$	186,676
Detail of charges excluded from core operating results:
Severance costs			(339	)			—
One-time bonus costs			—				(20,124	)
Transaction costs			(344	)			(944	)
			(683	)			(21,068	)
Reported operating income		$	182,652			$	165,608
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges		$	17,216			$	22,962
Charges net of income taxes			(433	)			(12,541	)
Reported income from continuing operations		$	16,783			$	10,421
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a)		$	0.32			$	0.43
Charges net of income taxes			(0.01	)			(0.23	)
Reported diluted income per common share from continuing operations		$	0.31			$	0.20
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges			38.1	%			39.1	%
Impact of charges on effective income tax rate			—				-1.7	%
Reported effective income tax rate			38.1	%			37.4	%

 

 

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.5 million and $0.6 million for the three months ended March 31, 2014 and 2013, respectively, for the allocation of income to participating unvested restricted stockholders.

 

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Kindred Healthcare Announces First Quarter Results

Page 19

May 7, 2014

 

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

 

		Three months ended March 31, 2014
						Charges
		Before				Transaction				As
		charges				costs				reported
Income from continuing operations:
Operating income (loss):
Hospital division		$	146,895			$	—			$	146,895
Nursing center division			39,095				—				39,095
Rehabilitation division:
Skilled nursing rehabilitation services			17,358				—				17,358
Hospital rehabilitation services			19,820				—				19,820
			37,178				—				37,178
Care management division			4,697				—				4,697
Corporate:
Overhead			(44,050	)			—				(44,050	)
Insurance subsidiary			(406	)			—				(406	)
			(44,456	)			—				(44,456	)
Impairment charges			(74	)			—				(74	)
Transaction costs			—				(683	)			(683	)
Operating income			183,335				(683	)			182,652
Rent			(82,474	)			—				(82,474	)
Depreciation and amortization			(40,210	)			—				(40,210	)
Interest, net			(25,624	)			—				(25,624	)
Income from continuing operations before income taxes			35,027				(683	)			34,344
Provision for income taxes			13,352				(250	)			13,102
		$	21,675			$	(433	)		$	21,242

 

		Three months ended March 31, 2013
						Charges
		Before				One-time				Transaction								As
		charges				bonus				costs				Total				reported
Income from continuing operations:
Operating income (loss):
Hospital division		$	157,661			$	(7,963	)		$	—			$	(7,963	)		$	149,698
Nursing center division			34,550				(4,706	)			—				(4,706	)			29,844
Rehabilitation division:
Skilled nursing rehabilitation services			17,425				(5,052	)			—				(5,052	)			12,373
Hospital rehabilitation services			19,387				(1,255	)			—				(1,255	)			18,132
			36,812				(6,307	)			—				(6,307	)			30,505
Care management division			3,619				(833	)			—				(833	)			2,786
Corporate:
Overhead			(45,270	)			(315	)			—				(315	)			(45,585	)
Insurance subsidiary			(509	)			—				—				—				(509	)
			(45,779	)			(315	)			—				(315	)			(46,094	)
Impairment charges			(187	)			—				—				—				(187	)
Transaction costs			—				—				(944	)			(944	)			(944	)
Operating income			186,676				(20,124	)			(944	)			(21,068	)			165,608
Rent			(77,957	)			—				—				—				(77,957	)
Depreciation and amortization			(42,249	)			—				—				—				(42,249	)
Interest, net			(28,084	)			—				—				—				(28,084	)
Income from continuing operations before income taxes			38,386				(20,124	)			(944	)			(21,068	)			17,318
Provision for income taxes			15,008				(8,145	)			(382	)			(8,527	)			6,481
		$	23,378			$	(11,979	)		$	(562	)		$	(12,541	)		$	10,837

 

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Kindred Healthcare Announces First Quarter Results

Page 20

May 7, 2014

 

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

The Company recognizes that free cash flows excluding certain items is a non-GAAP measurement and is not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that this non-GAAP measurement provides important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.

The income tax benefit associated with the excluded payments was calculated using an effective income tax rate of 39.4% and 39.3% for the three months ended March 31, 2014 and 2013.

 

		Three months ended
		March 31,
		2014				2013
Reconciliation of net cash flows provided by (used in) operating activities to free cash flows:
Net cash flows provided by (used in) operating activities		($	15,754	)		$	24,833
Less:
Routine capital expenditures			(21,677	)			(22,370	)
Development capital expenditures			(751	)			(2,388	)
			(22,428	)			(24,758	)
Free cash flows including certain items			(38,182	)			75
Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows provided by (used in) operating activities:
Litigation			25,150				—
One-time employee bonus			—				26,345
Transaction costs			1,738				1,114
Severance, retirement and retention			2,449				1,063
Benefit of reduced income tax payments resulting from certain payments			(11,544	)			(11,195	)
			17,793				17,327
Free cash flows excluding certain items		($	20,389	)		$	17,402

 

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Kindred Healthcare Announces First Quarter Results

Page 21

May 7, 2014

 

KINDRED HEALTHCARE, INC.

Reconciliation of Earnings Guidance for 2014—Continuing Operations (a)

(Unaudited)

(In millions, except per share amounts)

 

		As of May 7, 2014								As of February 20, 2014
		Low				High				Low				High
Operating income		$	715			$	732			$	725			$	742
Rent			335				335				338				338
Depreciation and amortization			163				163				165				165
Interest, net			98				98				106				106
Income from continuing operations before income taxes			119				136				116				133
Provision for income taxes			46				53				45				52
Income from continuing operations			73				83				71				81
Earnings attributable to noncontrolling interests			(15	)			(15	)			(13	)			(13	)
Income from continuing operations attributable to the Company			58				68				58				68
Allocation to participating unvested restricted stockholders			(2	)			(2	)			(2	)			(2	)
Available to common stockholders		$	56			$	66			$	56			$	66
Earnings per diluted share		$	1.05			$	1.25			$	1.05			$	1.25
Shares used in computing earnings per diluted share			53.2				53.2				53.2				53.2

 

 

(a)	The earnings guidance excludes the effect of reimbursement changes, severance, retirement and retention costs, litigation costs, transaction-related costs, any further acquisitions or divestitures, any impairment charges, and any repurchases of common stock.

 

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