Kindred Healthcare Reports Third Quarter Results
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
Business Wire
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
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.”
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.
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.
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 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.
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 $ 7,909 $ 907 $ 41,718 $ 16,643
operations
Discontinued
operations, net of
income taxes:
Income from 47 1,119 143 1,527
operations
Loss on
divestiture of (349 ) - (349 ) -
operations
Income (loss)
from (302 ) 1,119 (206 ) 1,527
discontinued
operations
Net income 7,607 2,026 41,512 18,170
(Earnings) loss
attributable to (41 ) (241 ) (253 ) 180
noncontrolling
interests
Income
attributable $ 7,566 $ 1,785 $ 41,259 $ 18,350
to Kindred
Amounts attributable
to Kindred
stockholders:
Income from
continuing $ 7,868 $ 666 $ 41,465 $ 16,823
operations
Income (loss) from
discontinued (302 ) 1,119 (206 ) 1,527
operations
Net income $ 7,566 $ 1,785 $ 41,259 $ 18,350
Earnings per common
share:
Basic:
Income from
continuing $ 0.15 $ 0.01 $ 0.79 $ 0.37
operations
Discontinued
operations:
Income from - 0.02 - 0.03
operations
Loss on
divestiture of (0.01 ) - (0.01 ) -
operations
Net income $ 0.14 $ 0.03 $ 0.78 $ 0.40
Diluted:
Income from
continuing $ 0.15 $ 0.01 $ 0.79 $ 0.37
operations
Discontinued
operations:
Income from - 0.02 - 0.03
operations
Loss on
divestiture of (0.01 ) - (0.01 ) -
operations
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
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(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
Salaries, wages and 912,924 900,570 2,765,332 2,344,398
benefits
Supplies 106,594 107,514 326,127 294,254
Rent 108,449 105,511 323,958 292,641
Other operating 305,988 305,305 929,947 851,806
expenses
Other income (2,775 ) (2,815 ) (8,221 ) (8,480 )
Impairment charges 3,911 26,712 5,107 26,712
Depreciation and 50,600 46,947 149,092 117,367
amortization
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 13,662 (1,435 ) 71,082 26,491
operations before
income taxes
Provision (benefit) 5,753 (2,342 ) 29,364 9,848
for income taxes
Income from
continuing 7,909 907 41,718 16,643
operations
Discontinued
operations, net of
income taxes:
Income from 47 1,119 143 1,527
operations
Loss on
divestiture of (349 ) - (349 ) -
operations
Income (loss)
from (302 ) 1,119 (206 ) 1,527
discontinued
operations
Net income 7,607 2,026 41,512 18,170
(Earnings) loss
attributable to (41 ) (241 ) (253 ) 180
noncontrolling
interests
Income
attributable $ 7,566 $ 1,785 $ 41,259 $ 18,350
to Kindred
Amounts attributable
to Kindred
stockholders:
Income from
continuing $ 7,868 $ 666 $ 41,465 $ 16,823
operations
Income (loss) from
discontinued (302 ) 1,119 (206 ) 1,527
operations
Net income $ 7,566 $ 1,785 $ 41,259 $ 18,350
Earnings per common
share:
Basic:
Income from
continuing $ 0.15 $ 0.01 $ 0.79 $ 0.37
operations
Discontinued
operations:
Income from - 0.02 - 0.03
operations
Loss on
divestiture of (0.01 ) - (0.01 ) -
operations
Net income $ 0.14 $ 0.03 $ 0.78 $ 0.40
Diluted:
Income from
continuing $ 0.15 $ 0.01 $ 0.79 $ 0.37
operations
Discontinued
operations:
Income from - 0.02 - 0.03
operations
Loss on
divestiture of (0.01 ) - (0.01 ) -
operations
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
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
September 30, December 31,
2012 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 446,165 447,207
amortization
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 13,318 13,029
shares - September 30, 2012 and 52,116
shares - December 31, 2011
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
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Three months ended Nine months ended
September 30, 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 50,600 46,947 149,092 117,367
amortization
Amortization
of stock-based 3,132 3,505 8,011 9,611
compensation
costs
Amortization
of deferring 2,375 2,141 7,091 5,231
financing
costs
Payment of
lender fees - - - (46,232 )
related to
debt issuance
Provision for
doubtful 9,117 7,793 22,654 22,049
accounts
Deferred (1,235 ) (2,286 ) (18,140 ) (4,975 )
income taxes
Impairment 3,911 26,712 5,107 26,712
charges
Loss on
divestiture of 349 - 349 -
discontinued
operations
Other 732 (3,063 ) 3,077 (3,766 )
Change in
operating
assets and
liabilities:
Accounts 13,175 (27,497 ) (67,913 ) (108,072 )
receivable
Inventories
and other (5,490 ) 6,304 (20,897 ) 3,649
assets
Accounts 5,281 (831 ) (7,252 ) 386
payable
Income taxes 6,366 (6,881 ) 37,097 20,792
Due to third 12,627 1,143 1,688 4,698
party payors
Other
accrued 32,942 10,505 29,611 52,186
liabilities
Net cash
provided
by 141,489 66,518 191,087 117,806
operating
activities
Cash flows from
investing
activities:
Routine capital (25,939 ) (36,595 ) (76,804 ) (95,263 )
expenditures
Development
capital (15,177 ) (44,152 ) (38,175 ) (69,570 )
expenditures
Acquisitions,
net of cash (71,440 ) (50,928 ) (139,308 ) (710,907 )
acquired
Sale of assets - - 1,110 1,714
Purchase of
insurance (9,692 ) (8,867 ) (30,890 ) (25,904 )
subsidiary
investments
Sale of
insurance 8,063 10,398 30,073 37,587
subsidiary
investments
Net change in
insurance
subsidiary cash (685 ) (826 ) (15,171 ) (4,870 )
and cash
equivalents
Change in other 1,003 - 1,454 1,000
investments
Other (25 ) (663 ) (1,029 ) (692 )
Net cash
used in (113,892 ) (131,633 ) (268,740 ) (866,905 )
investing
activities
Cash flows from
financing
activities:
Proceeds from
borrowings under 364,600 533,200 1,329,300 1,633,300
revolving credit
Repayment of
borrowings under (390,400 ) (474,700 ) (1,244,900 ) (1,749,800 )
revolving credit
Proceeds from
issuance of - - - 550,000
senior unsecured
notes
Proceeds from
issuance of term - - - 693,000
loan, net of
discount
Repayment of
other long-term (2,665 ) (2,545 ) (7,976 ) (348,233 )
debt
Payment of
deferred (288 ) (1,855 ) (601 ) (8,715 )
financing costs
Contribution
made by - - 200 -
noncontrolling
interest
Distribution
made to - - (3,521 ) -
noncontrolling
interests
Purchase of
noncontrolling (715 ) (7,292 ) (715 ) (7,292 )
interests
Issuance of - - - 3,019
common stock
Other - 3 - 747
Net cash
provided
by (used (29,468 ) 46,811 71,787 766,026
in)
financing
activities
Change in cash and (1,871 ) (18,304 ) (5,866 ) 16,927
cash equivalents
Cash and cash
equivalents at 37,566 52,399 41,561 17,168
beginning of
period
Cash and cash
equivalents at end $ 35,695 $ 34,095 $ 35,695 $ 34,095
of period
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 678,695 765,133 900,570 911,417 945,302 907,106 912,924
benefits
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 259,369 287,132 305,305 312,674 310,964 312,995 305,988
expenses
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 32,549 37,871 46,947 48,227 48,690 49,802 50,600
amortization
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 37,885 (9,959 ) (1,435 ) (89,866 ) 31,346 26,074 13,662
operations before
income taxes
Provision (benefit) 15,609 (3,419 ) (2,342 ) (16,952 ) 12,814 10,797 5,753
for income taxes
Income (loss) from
continuing 22,276 (6,540 ) 907 (72,914 ) 18,532 15,277 7,909
operations
Discontinued
operations, net of
income taxes:
Income (loss) from (179 ) 587 1,119 1,025 110 (14 ) 47
operations
Loss on
divestiture of - - - - - - (349 )
operations
Income (loss)
from (179 ) 587 1,119 1,025 110 (14 ) (302 )
discontinued
operations
Net income 22,097 (5,953 ) 2,026 (71,889 ) 18,642 15,263 7,607
(loss)
(Earnings) loss
attributable to - 421 (241 ) 58 (451 ) 239 (41 )
noncontrolling
interests
Income
(loss) $ 22,097 $ (5,532 ) $ 1,785 $ (71,831 ) $ 18,191 $ 15,502 $ 7,566
attributable
to Kindred
Amounts attributable
to Kindred
stockholders:
Income (loss) from
continuing $ 22,276 $ (6,119 ) $ 666 $ (72,856 ) $ 18,081 $ 15,516 $ 7,868
operations
Income (loss) from
discontinued (179 ) 587 1,119 1,025 110 (14 ) (302 )
operations
Net income $ 22,097 $ (5,532 ) $ 1,785 $ (71,831 ) $ 18,191 $ 15,502 $ 7,566
(loss)
Earnings (loss) per
common share:
Basic:
Income (loss)
from continuing $ 0.56 $ (0.14 ) $ 0.01 $ (1.42 ) $ 0.35 $ 0.29 $ 0.15
operations
Discontinued
operations:
Income (loss)
from - 0.01 0.02 0.02 - - -
operations
Loss on
divestiture of - - - - - - (0.01 )
operations
Net income $ 0.56 $ (0.13 ) $ 0.03 $ (1.40 ) $ 0.35 $ 0.29 $ 0.14
(loss)
Diluted:
Income (loss)
from continuing $ 0.55 $ (0.14 ) $ 0.01 $ (1.42 ) $ 0.35 $ 0.29 $ 0.15
operations
Discontinued
operations:
Income (loss)
from - 0.01 0.02 0.02 - - -
operations
Loss on
divestiture of - - - - - - (0.01 )
operations
Net income $ 0.55 $ (0.13 ) $ 0.03 $ (1.40 ) $ 0.35 $ 0.29 $ 0.14
(loss)
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
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
2011 Quarters 2012 Quarters
First Second Third Fourth First Second Third
Revenues:
Hospital $ 558,974 $ 593,425 $ 684,781 $ 712,812 $ 765,823 $ 729,419 $ 714,738
division
Nursing center 567,472 568,199 571,226 547,202 544,319 535,644 534,188
division
Rehabilitation
division:
Skilled
nursing 114,618 161,246 252,574 246,720 255,451 255,187 253,459
rehabilitation
services
Hospital
rehabilitation 22,490 38,291 69,811 70,232 74,369 73,379 71,899
services
137,108 199,537 322,385 316,952 329,820 328,566 325,358
Home health and
hospice 8,038 10,828 15,419 26,451 28,432 28,872 35,943
division
1,271,592 1,371,989 1,593,811 1,603,417 1,668,394 1,622,501 1,610,227
Eliminations:
Skilled
nursing (57,081 ) (57,587 ) (57,922 ) (57,087 ) (58,433 ) (57,056 ) (55,534 )
rehabilitation
services
Hospital
rehabilitation (21,225 ) (20,706 ) (20,528 ) (22,167 ) (28,317 ) (27,755 ) (27,097 )
services
Nursing and
rehabilitation (865 ) (1,104 ) (1,299 ) (1,475 ) (1,674 ) (1,862 ) (1,804 )
centers
(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 $ 108,385 $ 108,465 $ 125,701 $ 144,891 $ 160,669 $ 141,511 $ 138,762
division
Nursing center 87,350 93,532 89,592 67,791 65,533 71,005 70,928 (a)
division
Rehabilitation
division:
Skilled
nursing 9,159 15,978 27,575 13,204 14,193 22,942 19,659
rehabilitation
services
Hospital
rehabilitation 5,332 8,033 15,606 14,760 16,116 17,860 16,977
services
14,491 24,011 43,181 27,964 30,309 40,802 36,636
Home health and
hospice (10 ) (447 ) 1,107 2,453 2,341 2,789 3,645
division
Corporate:
Overhead (38,315 ) (43,801 ) (48,806 ) (43,878 ) (42,728 ) (44,723 ) (45,883 )
Insurance (602 ) (420 ) (750 ) (534 ) (482 ) (600 ) (545 )
subsidiary
(38,917 ) (44,221 ) (49,556 ) (44,412 ) (43,210 ) (45,323 ) (46,428 )
Impairment - - (26,712 ) (102,569 ) (867 ) (329 ) (3,911 )(b)
charges
Transaction (4,179 ) (34,851 ) (6,537 ) (5,139 ) (485 ) (597 ) (482 )
costs
Operating 167,120 146,489 176,776 90,979 214,290 209,858 199,150
income
Rent (91,453 ) (95,677 ) (105,511 ) (106,616 ) (107,968 ) (107,541 ) (108,449 )(c)
Depreciation and (32,549 ) (37,871 ) (46,947 ) (48,227 ) (48,690 ) (49,802 ) (50,600 )
amortization
Interest, net (5,233 ) (22,900 ) (25,753 ) (26,002 ) (26,286 ) (26,441 ) (26,439 )
Income (loss) from
continuing 37,885 (9,959 ) (1,435 ) (89,866 ) 31,346 26,074 13,662
operations before
income taxes
Provision
(benefit) for 15,609 (3,419 ) (2,342 ) (16,952 ) 12,814 10,797 5,753
income taxes
$ 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.
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
Third Quarter 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled Hospital health related
nursing and
division division services services Total hospice Corporate costs Eliminations Consolidated
(a) (b)
Revenues $ 714,738 $ 534,188 $ 253,459 $ 71,899 $ 325,358 $ 35,943 $ - $ - $ (84,435 ) $ 1,525,792
Salaries, wages 321,810 259,095 223,305 50,724 274,029 26,332 32,008 (350 ) - 912,924
and benefits
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 176,630 177,578 9,798 4,165 13,963 4,409 17,011 832 (84,435 ) 305,988
expenses
Other income - - - - - - (2,775 ) - - (2,775 )
Impairment 3,487 424 - - - - - - - 3,911
charges
Depreciation
and 23,110 13,564 2,791 2,328 5,119 1,137 7,670 - - 50,600
amortization
Interest 231 20 36 - 36 4 26,377 - - 26,668
expense
Investment (17 ) (22 ) - - - - (190 ) - - (229 )
income
658,178 527,536 237,936 57,252 295,188 34,244 80,937 482 (84,435 ) 1,512,130
Income from
continuing
operations $ 56,560 $ 6,652 $ 15,523 $ 14,647 $ 30,170 $ 1,699 $ (80,937 ) $ (482 ) $ - 13,662
before income
taxes
Provision for 5,753
income taxes
Income from
continuing $ 7,909
operations
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 Hospital health related
nursing and
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 316,507 272,505 215,889 49,297 265,186 11,653 33,482 1,256 (19 ) 900,570
and benefits
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 165,528 180,479 8,252 4,850 13,102 2,007 18,638 5,281 (79,730 ) 305,305
expenses
Other income - - - - - - (2,815 ) - - (2,815 )
Impairment 3,102 23,610 - - - - - - - 26,712
charges
Depreciation
and 21,612 12,655 2,699 2,372 5,071 324 7,285 - - 46,947
amortization
Interest 206 25 - - - - 25,559 - - 25,790
expense
Investment (1 ) (18 ) (1 ) (1 ) (2 ) - (16 ) - - (37 )
income
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 $ 48,045 $ 3,458 $ 23,066 $ 13,140 $ 36,206 $ 425 $ (83,032 ) $ (6,537 ) $ - (1,435 )
before income
taxes
Income tax (2,342 )
benefit
Income from
continuing $ 907
operations
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.
<td clas*Story too large*
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 Hospital health and related
nursing
division division (c) services services Total hospice Corporate costs Eliminations Consolidated
(a,b)
Revenues $ 2,209,980 $ 1,614,151 $ 764,097 $ 219,647 $ 983,744 $ 93,247 $ - $ - $ (259,532 ) $ 4,641,590
Salaries,
wages and 982,054 786,766 679,915 155,404 835,319 68,829 92,783 (350 ) (69 ) 2,765,332
benefits
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 547,541 539,992 25,163 13,163 38,326 11,817 49,820 1,914 (259,463 ) 929,947
expenses
Other income - - - - - - (8,221 ) - - (8,221 )
Impairment 3,838 1,269 - - - - - - - 5,107
charges
Depreciation
and 68,579 39,534 8,143 6,975 15,118 2,960 22,901 - - 149,092
amortization
Interest 810 68 36 - 36 4 79,044 - - 79,962
expense
Investment (60 ) (68 ) (1 ) - (1 ) - (667 ) - - (796 )
income
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 $ 202,298 $ 16,206 $ 44,556 $ 43,859 $ 88,415 $ 3,782 $ (238,055 ) $ (1,564 ) $ - 71,082
before income
taxes
Provision for 29,364
income taxes
Income from
continuing $ 41,718
operations
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 Hospital health and related
nursing
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 842,829 816,022 457,773 93,996 551,769 26,223 91,502 16,122 (69 ) 2,344,398
benefits
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 445,296 536,756 15,970 7,503 23,473 5,999 49,085 29,445 (238,248 ) 851,806
expenses
Other income - - - - - - (8,480 ) - - (8,480 )
Impairment 3,102 23,610 - - - - - - - 26,712
charges
Depreciation
and 52,462 37,486 4,574 3,288 7,862 547 19,010 - - 117,367
amortization
Interest 272 76 - - - - 40,525 13,802 - 54,675
expense
Investment (4 ) (58 ) (3 ) (1 ) (4 ) - (723 ) - - (789 )
income
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 $ 149,686 $ 60,552 $ 43,281 $ 25,528 $ 68,809 $ (695 ) $ (192,492 ) $ (59,369 ) $ - 26,491
operations
before income
taxes
Provision for 9,848
income taxes
Income from
continuing $ 16,643
operations
Capital
expenditures,
excluding
acquisitions
(including
discontinued
operations):
Routine $ 36,872 $
[TRUNCATED]
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