UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2004
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number: 001-14057
KINDRED HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 61-1323993 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 680 South Fourth Street Louisville, KY |
40202-2412 | |
| (Address of principal executive offices) | (Zip Code) | |
(502) 596-7300
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes x No ¨
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class of Common Stock |
Outstanding at October 31, 2004 | |
| Common stock, $0.25 par value | 37,115,384 shares |
1 of 46
FORM 10-Q
INDEX
| Page | ||||
| PART I. |
FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements: |
|||
| 3 | ||||
| Condensed Consolidated Balance Sheet — September 30, 2004 and December 31, 2003 |
4 | |||
| 5 | ||||
| 6 | ||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
24 | ||
| Item 3. | 41 | |||
| Item 4. | 42 | |||
| PART II. |
OTHER INFORMATION | |||
| Item 1. | 43 | |||
| Item 6. | 45 | |||
2
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Revenues |
$ | 889,435 | $ | 828,831 | $ | 2,643,783 | $ | 2,429,429 | ||||||||
| Salaries, wages and benefits |
499,436 | 463,027 | 1,476,003 | 1,374,216 | ||||||||||||
| Supplies |
122,151 | 107,152 | 358,516 | 314,688 | ||||||||||||
| Rent |
66,805 | 64,248 | 196,262 | 190,495 | ||||||||||||
| Other operating expenses |
146,452 | 142,381 | 438,442 | 426,021 | ||||||||||||
| Depreciation |
23,176 | 20,065 | 67,401 | 58,616 | ||||||||||||
| Interest expense |
2,535 | 1,054 | 10,905 | 6,934 | ||||||||||||
| Investment income |
(1,605 | ) | (1,333 | ) | (4,649 | ) | (4,644 | ) | ||||||||
| 858,950 | 796,594 | 2,542,880 | 2,366,326 | |||||||||||||
| Income from continuing operations before reorganization items and income taxes |
30,485 | 32,237 | 100,903 | 63,103 | ||||||||||||
| Reorganization items |
– | – | (304 | ) | – | |||||||||||
| Income from continuing operations before income taxes |
30,485 | 32,237 | 101,207 | 63,103 | ||||||||||||
| Provision for income taxes |
12,063 | 13,127 | 41,441 | 26,399 | ||||||||||||
| Income from continuing operations |
18,422 | 19,110 | 59,766 | 36,704 | ||||||||||||
| Discontinued operations, net of income taxes: |
||||||||||||||||
| Income (loss) from operations |
4,703 | (6,576 | ) | 31 | (44,705 | ) | ||||||||||
| Loss on divestiture of operations |
(7,557 | ) | (827 | ) | (8,620 | ) | (36,846 | ) | ||||||||
| Net income (loss) |
$ | 15,568 | $ | 11,707 | $ | 51,177 | $ | (44,847 | ) | |||||||
| Earnings (loss) per common share: |
||||||||||||||||
| Basic: |
||||||||||||||||
| Income from continuing operations |
$ | 0.51 | $ | 0.55 | $ | 1.68 | $ | 1.05 | ||||||||
| Discontinued operations: |
||||||||||||||||
| Income (loss) from operations |
0.13 | (0.19 | ) | – | (1.28 | ) | ||||||||||
| Loss on divestiture of operations |
(0.21 | ) | (0.02 | ) | (0.24 | ) | (1.06 | ) | ||||||||
| Net income (loss) |
$ | 0.43 | $ | 0.34 | $ | 1.44 | $ | (1.29 | ) | |||||||
| Diluted: |
||||||||||||||||
| Income from continuing operations |
$ | 0.44 | $ | 0.54 | $ | 1.41 | $ | 1.05 | ||||||||
| Discontinued operations: |
||||||||||||||||
| Income (loss) from operations |
0.11 | (0.19 | ) | – | (1.28 | ) | ||||||||||
| Loss on divestiture of operations |
(0.18 | ) | (0.02 | ) | (0.20 | ) | (1.06 | ) | ||||||||
| Net income (loss) |
$ | 0.37 | $ | 0.33 | $ | 1.21 | $ | (1.29 | ) | |||||||
| Shares used in computing earnings (loss) per common share: |
||||||||||||||||
| Basic |
35,939 | 34,885 | 35,631 | 34,818 | ||||||||||||
| Diluted |
42,293 | 35,143 | 42,322 | 34,853 | ||||||||||||
See accompanying notes.
3
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except per share amounts)
| September 30, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 29,739 | $ | 66,524 | ||||
| Cash – restricted |
6,055 | 7,339 | ||||||
| Insurance subsidiary investments |
222,989 | 146,325 | ||||||
| Accounts receivable less allowance for loss of $67,500 – September 30 and $93,403 – December 31 |
434,279 | 429,304 | ||||||
| Inventories |
33,068 | 29,984 | ||||||
| Deferred tax assets |
88,764 | 89,836 | ||||||
| Assets held for sale |
9,637 | 27,400 | ||||||
| Other |
38,040 | 46,375 | ||||||
| 862,571 | 843,087 | |||||||
| Property and equipment |
730,166 | 671,850 | ||||||
| Accumulated depreciation |
(256,821 | ) | (193,310 | ) | ||||
| 473,345 | 478,540 | |||||||
| Goodwill |
30,928 | 31,417 | ||||||
| Insurance subsidiary investments |
47,497 | 74,618 | ||||||
| Deferred tax assets |
109,123 | 92,093 | ||||||
| Other |
58,099 | 65,659 | ||||||
| $ | 1,581,563 | $ | 1,585,414 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 107,510 | $ | 119,087 | ||||
| Salaries, wages and other compensation |
232,854 | 214,113 | ||||||
| Due to third party payors |
20,869 | 31,406 | ||||||
| Professional liability risks |
78,176 | 83,725 | ||||||
| Other accrued liabilities |
79,266 | 88,333 | ||||||
| Income taxes |
62,531 | 36,684 | ||||||
| Long-term debt due within one year |
5,159 | 4,532 | ||||||
| 586,365 | 577,880 | |||||||
| Long-term debt |
34,596 | 139,397 | ||||||
| Professional liability risks |
215,573 | 212,013 | ||||||
| Deferred credits and other liabilities |
61,426 | 58,559 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.25 par value; authorized 175,000 shares; issued 37,096 shares – September 30 and 36,340 shares – December 31 |
9,274 | 9,085 | ||||||
| Capital in excess of par value |
621,606 | 585,394 | ||||||
| Deferred compensation |
(9,379 | ) | (8,040 | ) | ||||
| Accumulated other comprehensive income |
147 | 348 | ||||||
| Retained earnings |
61,955 | 10,778 | ||||||
| 683,603 | 597,565 | |||||||
| $ | 1,581,563 | $ | 1,585,414 | |||||
See accompanying notes.
4
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
| Three months ended September 30, |
Nine months ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Cash flows from operating activities: |
||||||||||||||||
| Net income (loss) |
$ | 15,568 | $ | 11,707 | $ | 51,177 | $ | (44,847 | ) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||||||
| Depreciation |
23,192 | 20,947 | 67,851 | 61,556 | ||||||||||||
| Amortization of deferred compensation costs |
1,919 | 1,643 | 5,197 | 3,880 | ||||||||||||
| Provision for doubtful accounts |
4,554 | 6,265 | 17,804 | 19,231 | ||||||||||||
| Loss on divestiture of discontinued operations |
7,557 | 827 | ||||||||||||||