Exhibit 99.1

 

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

KINDRED HEALTHCARE REPORTS STRONG RESULTS IN FIRST

FULL QUARTER FOLLOWING REHABCARE ACQUISITION

 

 

Excluding Certain Items, Company Reports Continuing Operations Diluted EPS of $0.41,

Exceeding the Company’s Guidance Range of $0.25 to $0.30

Company Reports GAAP Continuing Operations Income of $0.01 per Diluted Share

 

 

RehabCare Integration and Cost Synergies Ahead of Plan

 

 

Company Raises Fiscal 2011 Earnings Guidance to $1.87 to $1.92 from $1.80 to $1.90

(Continuing operations diluted EPS, excluding certain items)

Fourth Quarter EPS Expected at $0.35 to $0.40

Fiscal 2012 Earnings Guidance Reaffirmed at $1.65 to $1.85

LOUISVILLE, Ky. (November 2, 2011) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2011. Third quarter results reflect the first full interim period of combined operations since the Company completed the acquisition of RehabCare Group, Inc. (“RehabCare”) on June 1, 2011. The Company’s consolidated financial statements include the operating results of RehabCare since the closing of the transaction.

Third Quarter Highlights:

 

•

Consolidated revenues rose 44% to $1.5 billion

 

•

RehabCare added $343 million in third quarter revenues

 

•

Hospital admissions rose 54% in the quarter; same-store admissions rose 4%

 

•

Nursing and rehabilitation center admissions increased 4%

 

•

Expanding rehabilitation therapy business reported revenue growth of 172%

 

•

Excluding certain items, the Company reported improved margins in each operating division

 

•

Adjusted operating income rose 69% to $210 million (13.9% of revenues) compared to $124 million (11.8% of revenues) in the third quarter last year

 

•

Adjusted income from continuing operations nearly quadrupled to $21.5 million (1.4% of revenues) from $5.6 million (0.5% of revenues) in the third quarter last year

 

•

Company continues to generate significant operating cash flows

 

•

Excluding transaction-related payments, year to date operating cash flows were up 27% to $195 million from $153 million in the same period last year

 

•

Company’s cost synergy forecast shows continued improvement

 

•

Synergies from RehabCare acquisition to reach $55 million annual rate by year end 2011 and $62 million annual rate by the end of first quarter 2012

 

•

Additional $14 million of annualized overhead reductions in the Company’s nursing center division will be achieved by year end 2011

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680 South Fourth Street    Louisville, Kentucky 40202

502.596.7300        www.kindredhealthcare.com

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Kindred Healthcare Reports Strong Third Quarter Results

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November 2, 2011

 

 

Third Quarter Results (Continuing Operations)

Consolidated revenues for the third quarter ended September 30, 2011 rose 44% to $1.5 billion. The Company reported income from continuing operations for the third quarter of 2011 totaling $0.6 million or $0.01 per diluted share compared to income of $5.1 million or $0.13 per diluted share in the third quarter last year. As previously announced, third quarter 2011 results included a favorable income tax adjustment of $3.3 million or $0.06 per diluted share. Third quarter 2010 operating results included a $2.9 million or $0.07 per diluted share favorable income tax adjustment.

Excluding certain items discussed below, the Company’s income from continuing operations grew 287% to $21.5 million or $0.41 per diluted share from $5.6 million or $0.14 per diluted share in the third quarter last year.

During the third quarter of 2011, the Company incurred certain costs related to acquisitions that reduced pretax income by $6.5 million ($4.5 million net of income taxes or $0.09 per diluted share).

On July 29, 2011, the Centers for Medicare and Medicaid Services (“CMS”) issued final rules that, among other things, significantly reduced Medicare payments to nursing centers beginning October 1, 2011. As a result of these rules, the Company tested the recoverability of its assets and recorded a pretax asset impairment charge aggregating $26.7 million ($16.4 million net of income taxes or $0.31 per diluted share). This charge reflected the amount by which the carrying value of certain assets exceeded their estimated fair value.

Management Commentary

Paul J. Diaz, President and Chief Executive Officer of the Company, remarked, “We are very pleased to report an outstanding first full quarter of operations following the RehabCare acquisition. Our continued focus on the quality of our services and clinical outcomes drove solid volume growth and operating efficiencies that resulted in improved margins in each of our businesses and significant growth in our core earnings.”

“In light of continued reimbursement pressures, we are focused on the realization of cost synergies across the organization. The investments we have made in people and infrastructure in connection with the RehabCare acquisition are the foundation for achieving greater operating synergies and securing the benefits from our expanded size and scale. We are confident that we will reach annualized cost savings of $55 million by year end 2011 and $62 million by the end of the first quarter 2012 related to the RehabCare acquisition. In addition to the RehabCare synergies, we recently reorganized our nursing center division that will result in annualized cost savings of approximately $14 million by year end 2011.”

Mr. Diaz commented on the Company’s ongoing development activities, “We continue to advance our cluster market strategy through the selective development of our different businesses to meet the needs of patients, physicians, managed care plans and other healthcare partners in our key markets. Our recent acquisitions of home health operations in California, Arizona, Nevada, Utah and Massachusetts will further complement our existing operations and provide for future growth in these markets.”

Finally, Mr. Diaz discussed the Company’s improved liquidity, “Our operating cash flows continue to be a source of financial strength for Kindred as we continue to pursue our cluster market development strategy and reduce our leverage. Excluding transaction-related payments, our operating cash flows in the first nine months of 2011 increased 27% to $195 million from last year’s adjusted $153 million.”

 

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Recent Regulatory Changes

As previously discussed, CMS recently issued final rules that became effective on October 1, 2011.

On July 29, 2011, CMS issued final rules which, among other things, will reduce Medicare payments to nursing centers by 11.1% and change the reimbursement for the provision of group rehabilitation therapy services to Medicare beneficiaries. Based upon its review of the final rules, the Company believes that its nursing center Medicare rates could decline by as much as 15% in 2012. The Company believes that these rules could reduce the Company’s annual revenues by approximately $95 million to $105 million in its nursing center business and approximately $10 million to $15 million in its rehabilitation therapy business. In addition, the Company believes that other technical changes required under the final rules may increase rehabilitation therapy costs by approximately $20 million to $25 million on an annual basis.

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

Earnings Guidance – Continuing Operations

The Company also updated its earnings guidance for fiscal 2011 and 2012. The Company indicated that the earnings guidance for continuing operations reflects the anticipated impact of the previously discussed final rules recently issued by CMS related to payment rates for nursing centers, LTAC hospitals, IRFs and the Company’s rehabilitation therapy business, all of which became effective on October 1, 2011. The earnings guidance provided by the Company excludes the effect of (i) any transaction-related charges that have been recorded in prior periods or that may be incurred in the future, (ii) any other reimbursement changes, (iii) any material acquisitions or divestitures, (iv) any impairment charges that have been recorded in prior periods or that may be incurred in the future, or (v) any repurchases of common stock.

The Company expects consolidated revenues for 2011 to approximate $5.6 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $777 million to $780 million. Rent expense is expected to approximate $400 million, while depreciation and amortization should approximate $164 million. Net interest expense is expected to approximate $67 million. The Company expects to report income from continuing operations for 2011 between $91 million to $93 million or $1.87 to $1.92 per diluted share (based upon diluted shares of 47 million), an increase from its prior guidance of $1.80 to $1.90 per diluted share.

Excluding transaction-related charges and impairment charges, the Company has reported diluted earnings per common share of $1.56 in the first nine months of 2011.

The Company also provided its earnings outlook for the fourth quarter of 2011, estimating diluted earnings per share between $0.35 and $0.40 (based upon diluted shares of 52 million).

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

 

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The Company also indicated that it expects cash flows from operations in 2012 to range from $270 million to $290 million.

Routine capital expenditures in 2012 are expected to range from $135 million to $145 million, including approximately $16 million of expenditures to complete the information systems integration of RehabCare. The Company’s expected routine capital expenditures also include approximately $11 million to upgrade the clinical information systems in its hospital, nursing center and home health businesses.

In addition, the Company continues its ongoing development of its previously announced projects. At September 30, 2011, projects related to the replacement, expansion and upgrade of its LTAC hospitals in Dayton, Ohio and Charleston, South Carolina, as well as the development of two new IRFs in Texas and a new LTAC hospital in Seattle, will be completed at an aggregate additional cost of approximately $32 million through 2013 (these expenditures are not included in the routine capital spending estimates discussed above).

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

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the third quarter 2011 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com or at www.earnings.com. The conference call will be held November 3, 2011 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately 1:00 p.m. on November 3 by dialing (719) 457-0820, access code: 2597040. The replay will be available through November 12.

Forward-Looking Statements

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

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

 

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

 

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

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

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

About Kindred Healthcare

Kindred Healthcare, Inc., a top-150 private employer in the United States, is a healthcare services company based in Louisville, Kentucky with annual revenues of $6 billion and approximately 76,900 employees in 46 states. At September 30, 2011, Kindred through its subsidiaries provided healthcare services in over 2,250 locations, including 120 long-term acute care hospitals, five inpatient rehabilitation hospitals, 224 nursing and rehabilitation centers, 23 sub-acute units, 47 hospice and home care locations, 102 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served approximately 1,740 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for three years in a row, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com.

 

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KINDRED HEALTHCARE, INC.

Financial Summary

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Revenues		$	1,514,062			$	1,053,012			$	3,999,075			$	3,224,213
Income from continuing operations		$	907			$	5,100			$	16,643			$	36,391
Discontinued operations, net of income taxes:
Income (loss) from operations			1,119				(260	)			1,527				(327	)
Gain on divestiture of operations			—				86				—				3
Income (loss) from discontinued operations			1,119				(174	)			1,527				(324	)
Net income			2,026				4,926				18,170				36,067
(Earnings) loss attributable to noncontrolling interests			(241	)			—				180				—
Income attributable to Kindred		$	1,785			$	4,926			$	18,350			$	36,067
Amounts attributable to Kindred stockholders:
Income from continuing operations		$	666			$	5,100			$	16,823			$	36,391
Income (loss) from discontinued operations			1,119				(174	)			1,527				(324	)
Net income		$	1,785			$	4,926			$	18,350			$	36,067
Earnings per common share:
Basic:
Income from continuing operations		$	0.01			$	0.13			$	0.37			$	0.92
Discontinued operations:
Income (loss) from operations			0.02				(0.01	)			0.03				(0.01	)
Gain on divestiture of operations			—				—				—				—
Net income		$	0.03			$	0.12			$	0.40			$	0.91
Diluted:
Income from continuing operations		$	0.01			$	0.13			$	0.37			$	0.92
Discontinued operations:
Income (loss) from operations			0.02				(0.01	)			0.03				(0.01	)
Gain on divestiture of operations			—				—				—				—
Net income		$	0.03			$	0.12			$	0.40			$	0.91
Shares used in computing earnings per common share:
Basic			51,329				38,778				44,577				38,720
Diluted			51,406				38,838				44,934				38,855

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KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Revenues		$	1,514,062			$	1,053,012			$	3,999,075			$	3,224,213
Salaries, wages and benefits			900,570				613,607				2,344,398				1,852,987
Supplies			107,514				83,753				294,254				255,094
Rent			105,511				89,295				292,641				266,595
Other operating expenses			332,017				234,968				878,518				707,859
Other income			(2,815	)			(2,794	)			(8,480	)			(8,735	)
Depreciation and amortization			46,947				29,167				117,367				90,140
Interest expense			25,790				1,642				54,675				4,247
Investment income			(37	)			(403	)			(789	)			(903	)
			1,515,497				1,049,235				3,972,584				3,167,284
Income (loss) from continuing operations before income taxes			(1,435	)			3,777				26,491				56,929
Provision (benefit) for income taxes			(2,342	)			(1,323	)			9,848				20,538
Income from continuing operations			907				5,100				16,643				36,391
Discontinued operations, net of income taxes:
Income (loss) from operations			1,119				(260	)			1,527				(327	)
Gain on divestiture of operations			—				86				—				3
Income (loss) from discontinued operations			1,119				(174	)			1,527				(324	)
Net income			2,026				4,926				18,170				36,067
(Earnings) loss attributable to noncontrolling interests			(241	)			—				180				—
Income attributable to Kindred		$	1,785			$	4,926			$	18,350			$	36,067
Amounts attributable to Kindred stockholders:
Income from continuing operations		$	666			$	5,100			$	16,823			$	36,391
Income (loss) from discontinued operations			1,119				(174	)			1,527				(324	)
Net income		$	1,785			$	4,926			$	18,350			$	36,067
Earnings per common share:
Basic:
Income from continuing operations		$	0.01			$	0.13			$	0.37			$	0.92
Discontinued operations:
Income (loss) from operations			0.02				(0.01	)			0.03				(0.01	)
Gain on divestiture of operations			—				—				—				—
Net income		$	0.03			$	0.12			$	0.40			$	0.91
Diluted:
Income from continuing operations		$	0.01			$	0.13			$	0.37			$	0.92
Discontinued operations:
Income (loss) from operations			0.02				(0.01	)			0.03				(0.01	)
Gain on divestiture of operations			—				—				—				—
Net income		$	0.03			$	0.12			$	0.40			$	0.91
Shares used in computing earnings per common share:
Basic			51,329				38,778				44,577				38,720
Diluted			51,406				38,838				44,934				38,855

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November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)

 

		September 30, 2011				December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents		$	34,095			$	17,168
Cash - restricted			5,402				5,494
Insurance subsidiary investments			64,846				76,753
Accounts receivable less allowance for loss			972,340				631,877
Inventories			30,821				24,327
Deferred tax assets			28,799				13,439
Income taxes			18,039				42,118
Other			30,796				24,862
			1,185,138				836,038
Property and equipment			1,926,726				1,754,170
Accumulated depreciation			(875,885	)			(857,623	)
			1,050,841				896,547
Goodwill			1,123,699				242,420
Intangible assets less accumulated amortization			506,066				92,883
Assets held for sale			7,094				7,167
Insurance subsidiary investments			104,298				101,210
Deferred tax assets			—				88,816
Other			198,441				72,334
Total assets		$	4,175,577			$	2,337,415
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	218,523			$	174,495
Salaries, wages and other compensation			392,297				291,116
Due to third party payors			41,436				27,115
Professional liability risks			41,728				41,555
Other accrued liabilities			140,840				87,012
Long-term debt due within one year			10,539				91
			845,363				621,384
Long-term debt			1,489,359				365,556
Professional liability risks			224,903				207,669
Deferred tax liabilities			26,678				—
Deferred credits and other liabilities			189,814				111,047
Noncontrolling interests-redeemable			9,626				—
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 52,112 shares - September 30, 2011 and 39,495 shares - December 31, 2010			13,028				9,874
Capital in excess of par value			1,135,032				828,593
Accumulated other comprehensive income (loss)			(1,000	)			135
Retained earnings			211,003				193,157
			1,358,063				1,031,759
Noncontrolling interests-nonredeemable			31,771				—
Total equity			1,389,834				1,031,759
Total liabilities and equity		$	4,175,577			$	2,337,415

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KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Cash flows from operating activities:
Net income		$	2,026			$	4,926			$	18,170			$	36,067
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			46,947				29,167				117,367				90,140
Amortization of stock-based compensation costs			3,505				2,593				9,611				8,114
Payment of lender fees related to debt issuance			—				—				(46,232	)			—
Provision for doubtful accounts			7,793				6,110				22,049				18,387
Deferred income taxes			(2,286	)			(3,017	)			(4,975	)			(13,744	)
Impairment charges			26,712				—				26,712				—
Gain on divestiture of discontinued operations			—				(86	)			—				(3	)
Other			(922	)			(2,792	)			1,465				(1,866	)
Change in operating assets and liabilities:
Accounts receivable			(27,497	)			8,146				(108,072	)			(21,379	)
Inventories and other assets			6,304				(1,088	)			3,649				(7,574	)
Accounts payable			(831	)			(7,515	)			386				(15,693	)
Income taxes			(6,881	)			3,981				20,792				25,734
Due to third party payors			1,143				12,123				4,698				10,099
Other accrued liabilities			10,505				15,361				52,186				22,573
Net cash provided by operating activities			66,518				67,909				117,806				150,855
Cash flows from investing activities:
Routine capital expenditures			(36,595	)			(28,623	)			(95,263	)			(69,108	)
Development capital expenditures			(44,152	)			(20,364	)			(69,570	)			(40,219	)
Acquisitions, net of cash acquired			(50,928	)			(38,379	)			(710,907	)			(87,869	)
Sale of assets			—				—				1,714				—
Purchase of insurance subsidiary investments			(8,867	)			(10,566	)			(25,904	)			(34,684	)
Sale of insurance subsidiary investments			10,398				11,138				37,587				72,971
Net change in insurance subsidiary cash and cash equivalents			(826	)			(3,111	)			(4,870	)			(10,612	)
Change in other investments			—				—				1,000				2
Other			(663	)			698				(692	)			1,279
Net cash used in investing activities			(131,633	)			(89,207	)			(866,905	)			(168,240	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit			533,200				457,900				1,633,300				1,109,900
Repayment of borrowings under revolving credit			(474,700	)			(432,800	)			(1,749,800	)			(1,092,400	)
Proceeds from issuance of senior unsecured notes			—				—				550,000				—
Proceeds from issuance of term loan, net of discount			—				—				693,000				—
Repayment of other long-term debt			(2,545	)			(22	)			(348,233	)			(64	)
Payment of deferred financing costs			(1,855	)			(1,361	)			(8,715	)			(1,414	)
Issuance of common stock			—				—				3,019				35
Purchase of noncontrolling interests in subsidiaries			(7,292	)			—				(7,292	)			—
Other			3				—				747				346
Net cash provided by financing activities			46,811				23,717				766,026				16,403
Change in cash and cash equivalents			(18,304	)			2,419				16,927				(982	)
Cash and cash equivalents at beginning of period			52,399				12,902				17,168				16,303
Cash and cash equivalents at end of period		$	34,095			$	15,321			$	34,095			$	15,321

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Kindred Healthcare Reports Strong Third Quarter Results

Page 11

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second				Third
Revenues		$	1,089,837			$	1,081,364			$	1,053,012			$	1,135,484			$	1,192,421			$	1,292,592			$	1,514,062
Salaries, wages and benefits			627,175				612,205				613,607				652,703				678,695				765,133				900,570
Supplies			85,886				85,455				83,753				87,103				90,022				96,718				107,514
Rent			88,319				88,981				89,295				90,777				91,453				95,677				105,511
Other operating expenses			234,204				238,687				234,968				240,750				259,369				287,132				332,017
Other income			(3,084	)			(2,857	)			(2,794	)			(2,687	)			(2,785	)			(2,880	)			(2,815	)
Depreciation and amortization			31,121				29,852				29,167				31,412				32,549				37,871				46,947
Interest expense			1,307				1,298				1,642				2,843				5,728				23,157				25,790
Investment (income) loss			(877	)			377				(403	)			(342	)			(495	)			(257	)			(37	)
			1,064,051				1,053,998				1,049,235				1,102,559				1,154,536				1,302,551				1,515,497
Income (loss) from continuing operations before income taxes			25,786				27,366				3,777				32,925				37,885				(9,959	)			(1,435	)
Provision (benefit) for income taxes			10,631				11,230				(1,323	)			13,170				15,609				(3,419	)			(2,342	)
Income (loss) from continuing operations			15,155				16,136				5,100				19,755				22,276				(6,540	)			907
Discontinued operations, net of income taxes:
Income (loss) from operations			(154	)			87				(260	)			1,125				(179	)			587				1,119
Gain (loss) on divestiture of operations			(137	)			54				86				(456	)			—				—				—
Income (loss) from discontinued operations			(291	)			141				(174	)			669				(179	)			587				1,119
Net income (loss)			14,864				16,277				4,926				20,424				22,097				(5,953	)			2,026
(Earnings ) loss attributable to noncontrolling interests			—				—				—				—				—				421				(241	)
Income (loss) attributable to Kindred		$	14,864			$	16,277			$	4,926			$	20,424			$	22,097			$	(5,532	)		$	1,785
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	15,155			$	16,136			$	5,100			$	19,755			$	22,276			$	(6,119	)		$	666
Income (loss) from discontinued operations			(291	)			141				(174	)			669				(179	)			587				1,119
Net income (loss)		$	14,864			$	16,277			$	4,926			$	20,424			$	22,097			$	(5,532	)		$	1,785
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	0.38			$	0.41			$	0.13			$	0.50			$	0.56			$	(0.14	)		$	0.01
Discontinued operations:
Income (loss) from operations			—				—				(0.01	)			0.03				—				0.01				0.02
Gain (loss) on divestiture of operations			—				—				—				(0.01	)			—				—				—
Net income (loss)		$	0.38			$	0.41			$	0.12			$	0.52			$	0.56			$	(0.13	)		$	0.03
Diluted:
Income (loss) from continuing operations		$	0.38			$	0.41			$	0.13			$	0.50			$	0.55			$	(0.14	)		$	0.01
Discontinued operations:
Income (loss) from operations			—				—				(0.01	)			0.03				—				0.01				0.02
Gain (loss) on divestiture of operations			—				—				—				(0.01	)			—				—				—
Net income (loss)		$	0.38			$	0.41			$	0.12			$	0.52			$	0.55			$	(0.13	)		$	0.03
Shares used in computing earnings (loss) per common share:
Basic			38,626				38,756				38,778				38,790				39,035				43,231				51,329
Diluted			38,859				38,914				38,838				39,089				39,543				43,231				51,406

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Kindred Healthcare Reports Strong Third Quarter Results

Page 12

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

(In thousands)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second				Third
Revenues:
Hospital division		$	507,062			$	493,401			$	465,198			$	507,660			$	558,974			$	593,425			$	684,781
Nursing center division			539,321				542,215				539,914				566,435				567,472				568,199				571,226
Rehabilitation division:
Skilled nursing rehabilitation services			98,997				101,148				103,807				117,325				122,656				172,074				267,993
Hospital rehabilitation services			21,147				20,913				20,436				21,182				22,490				38,291				69,811
			120,144				122,061				124,243				138,507				145,146				210,365				337,804
			1,166,527				1,157,677				1,129,355				1,212,602				1,271,592				1,371,989				1,593,811
Eliminations:
Skilled nursing rehabilitation services			(56,464	)			(56,279	)			(56,841	)			(57,084	)			(57,946	)			(58,691	)			(59,221	)
Hospital rehabilitation services			(20,226	)			(20,034	)			(19,502	)			(20,034	)			(21,225	)			(20,706	)			(20,528	)
			(76,690	)			(76,313	)			(76,343	)			(77,118	)			(79,171	)			(79,397	)			(79,749	)
		$	1,089,837			$	1,081,364			$	1,053,012			$	1,135,484			$	1,192,421			$	1,292,592			$	1,514,062
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	95,440			$	91,790			$	75,784			$	97,343			$	108,385			$	108,465			$	122,599	(a)
Nursing center division			70,614				76,529				69,363				86,912				87,350				93,532				65,982	(a)
Rehabilitation division:
Skilled nursing rehabilitation services			9,537				9,307				9,486				5,307				9,149				15,531				28,682
Hospital rehabilitation services			5,146				4,793				4,728				4,302				5,332				8,033				15,606
			14,683				14,100				14,214				9,609				14,481				23,564				44,288
Corporate:
Overhead			(33,831	)			(32,799	)			(34,329	)			(33,002	)			(38,315	)			(43,801	)			(48,806	)
Insurance subsidiary			(480	)			(791	)			(783	)			(1,099	)			(602	)			(420	)			(750	)
			(34,311	)			(33,590	)			(35,112	)			(34,101	)			(38,917	)			(44,221	)			(49,556	)
Transaction costs (b)			(770	)			(955	)			(771	)			(2,148	)			(4,179	)			(34,851	)			(6,537	)
Operating income			145,656				147,874				123,478				157,615				167,120				146,489				176,776
Rent			(88,319	)			(88,981	)			(89,295	)			(90,777	)			(91,453	)			(95,677	)			(105,511	)
Depreciation and amortization			(31,121	)			(29,852	)			(29,167	)			(31,412	)			(32,549	)			(37,871	)			(46,947	)
Interest, net			(430	)			(1,675	)			(1,239	)			(2,501	)			(5,233	)			(22,900	)			(25,753	)
Income (loss) from continuing operations before income taxes			25,786				27,366				3,777				32,925				37,885				(9,959	)			(1,435	)
Provision (benefit) for income taxes			10,631				11,230				(1,323	)			13,170				15,609				(3,419	)			(2,342	)
		$	15,155			$	16,136			$	5,100			$	19,755			$	22,276			$	(6,540	)		$	907

 

(a)	Includes impairment charges of $3.1 million for the hospital division and $23.6 million for the nursing center division.

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

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Kindred Healthcare Reports Strong Third Quarter Results

Page 13

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

		Three months ended September 30, 2011
						Nursing center division (a)				Rehabilitation division
		Hospital division (a)								Skilled nursing services				Hospital services				Total				Corporate				Transaction costs				Eliminations				Consolidated
Revenues		$	684,781			$	571,226			$	267,993			$	69,811			$	337,804			$	—			$	—			$	(79,749	)		$	1,514,062
Salaries, wages and benefits			316,507				272,505				227,577				49,262				276,839				33,482				1,256				(19	)			900,570
Supplies			77,045				28,650				1,506				62				1,568				251				—				—				107,514
Rent			52,737				49,862				2,169				95				2,264				648				—				—				105,511
Other operating expenses			168,630				204,089				10,228				4,881				15,109				18,638				5,281				(79,730	)			332,017
Other income			—				—				—				—				—				(2,815	)			—				—				(2,815	)
Depreciation and amortization			21,612				12,655				3,023				2,372				5,395				7,285				—				—				46,947
Interest expense			206				25				—				—				—				25,559				—				—				25,790
Investment income			(1	)			(18	)			(1	)			(1	)			(2	)			(16	)			—				—				(37	)
			636,736				567,768				244,502				56,671				301,173				83,032				6,537				(79,749	)			1,515,497
Income (loss) from continuing operations before income taxes		$	48,045			$	3,458			$	23,491			$	13,140			$	36,631			$	(83,032	)		$	(6,537	)		$	—				(1,435	)
Income tax benefit																																			(2,342	)
Income from continuing operations																																		$	907
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	12,919			$	10,572			$	296			$	81			$	377			$	12,727			$	—			$	—			$	36,595
Development			39,964				4,113				75				—				75				—				—				—				44,152
		$	52,883			$	14,685			$	371			$	81			$	452			$	12,727			$	—			$	—			$	80,747
		Three months ended September 30, 2010
						Nursing center division				Rehabilitation division
		Hospital division								Skilled nursing services				Hospital services				Total				Corporate				Transaction costs				Eliminations				Consolidated
Revenues		$	465,198			$	539,914			$	103,807			$	20,436			$	124,243			$	—			$	—			$	(76,343	)		$	1,053,012
Salaries, wages and benefits			215,590				267,665				89,923				15,040				104,963				25,403				—				(14	)			613,607
Supplies			55,189				27,559				836				24				860				145				—				—				83,753
Rent			38,122				49,627				1,474				28				1,502				44				—				—				89,295
Other operating expenses			118,635				175,327				3,562				644				4,206				12,358				771				(76,329	)			234,968
Other income			—				—				—				—				—				(2,794	)			—				—				(2,794	)
Depreciation and amortization			12,655				10,527				591				77				668				5,317				—				—				29,167
Interest expense			—				36				—				—				—				1,606				—				—				1,642
Investment income			—				(21	)			—				—				—				(382	)			—				—				(403	)
			440,191				530,720				96,386				15,813				112,199				41,697				771				(76,343	)			1,049,235
Income from continuing operations before income taxes		$	25,007			$	9,194			$	7,421			$	4,623			$	12,044			$	(41,697	)		$	(771	)		$	—				3,777
Income tax benefit																																			(1,323	)
Income from continuing operations																																		$	5,100
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	9,113			$	11,548			$	328			$	23			$	351			$	7,611			$	—			$	—			$	28,623
Development			12,900				7,464				—				—				—				—				—				—				20,364
		$	22,013			$	19,012			$	328			$	23			$	351			$	7,611			$	—			$	—			$	48,987

 

(a)	Includes $26.7 million in aggregate of impairment charges in other operating expenses (hospital division - $ 3.1 million and nursing center division - $23.6 million).

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Kindred Healthcare Reports Strong Third Quarter Results

Page 14

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations (Continued)

(Unaudited)

(In thousands)

 

		Nine months ended September 30, 2011
						Nursing center division				Rehabilitation division
		Hospital division								Skilled nursing services				Hospital services				Total				Corporate				Transaction costs				Eliminations				Consolidated
Revenues		$	1,837,180			$	1,706,897			$	562,723			$	130,592			$	693,315			$	—			$	—			$	(238,317	)		$	3,999,075
Salaries, wages and benefits			842,829				816,022				483,996				93,996				577,992				91,502				16,122				(69	)			2,344,398
Supplies			206,504				83,645				3,396				122				3,518				587				—				—				294,254
Rent			137,033				148,808				5,658				156				5,814				986				—				—				292,641
Other operating expenses			448,398				560,366				21,969				7,503				29,472				49,085				29,445				(238,248	)			878,518
Other income			—				—				—				—				—				(8,480	)			—				—				(8,480	)
Depreciation and amortization			52,462				37,486				5,121				3,288				8,409				19,010				—				—				117,367
Interest expense			272				76				—				—				—				40,525				13,802				—				54,675
Investment income			(4	)			(58	)			(3	)			(1	)			(4	)			(723	)			—				—				(789	)
			1,687,494				1,646,345				520,137				105,064				625,201				192,492				59,369				(238,317	)			3,972,584
Income from continuing operations before income taxes		$	149,686			$	60,552			$	42,586			$	25,528			$	68,114			$	(192,492	)		$	(59,369	)		$	—				26,491
Provision for income taxes																																			9,848
Income from continuing operations																																		$	16,643
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	36,872			$	26,727			$	768			$	178			$	946			$	30,718			$	—			$	—			$	95,263
Development			54,164				15,140				266				—				266				—				—				—				69,570
		$	91,036			$	41,867			$	1,034			$	178			$	1,212			$	30,718			$	—			$	—			$	164,833
		Nine months ended September 30, 2010
						Nursing center division (a)				Rehabilitation division
		Hospital division (a)								Skilled nursing services				Hospital services				Total				Corporate (a)				Transaction costs				Eliminations				Consolidated
Revenues		$	1,465,661			$	1,621,450			$	303,952			$	62,496			$	366,448			$	—			$	—			$	(229,346	)		$	3,224,213
Salaries, wages and benefits			664,317				805,560				261,497				45,960				307,457				75,667				—				(14	)			1,852,987
Supplies			170,273				82,135				2,206				67				2,273				413				—				—				255,094
Rent			113,580				148,458				4,368				79				4,447				110				—				—				266,595
Other operating expenses			368,057				517,249				11,919				1,802				13,721				35,668				2,496				(229,332	)			707,859
Other income			—				—				—				—				—				(8,735	)			—				—				(8,735	)
Depreciation and amortization			38,218				33,825				1,672				207				1,879				16,218				—				—				90,140
Interest expense			3				96				—				—				—				4,148				—				—				4,247
Investment income			(1	)			(56	)			(3	)			(1	)			(4	)			(842	)			—				—				(903	)
			1,354,447				1,587,267				281,659				48,114				329,773				122,647				2,496				(229,346	)			3,167,284
Income from continuing operations before income taxes		$	111,214			$	34,183			$	22,293			$	14,382			$	36,675			$	(122,647	)		$	(2,496	)		$	—				56,929
Provision for income taxes																																			20,538
Income from continuing operations																																		$	36,391
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	23,132			$	24,732			$	814			$	85			$	899			$	20,345			$	—			$	—			$	69,108
Development			28,883				11,336				—				—				—				—				—				—				40,219
		$	52,015			$	36,068			$	814			$	85			$	899			$	20,345			$	—			$	—			$	109,327

 

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

 

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Kindred Healthcare Reports Strong Third Quarter Results

Page 15

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second				Third
Hospital data:
End of period data:
Number of hospitals:
Long-term acute care			83				83				83				89				89				120				120
Inpatient rehabilitation			—				—				—				—				—				5				5
			83				83				83				89				89				125				125
Number of licensed beds:
Long-term acute care			6,580				6,576				6,563				6,887				6,889				8,609				8,597
Inpatient rehabilitation			—				—				—				—				—				183				183
			6,580				6,576				6,563				6,887				6,889				8,792				8,780
Revenue mix %:
Medicare			56				56				55				58				60				60				60
Medicaid			9				9				9				9				8				8				8
Medicare Advantage			10				10				10				9				10				10				10
Commercial insurance and other			25				25				26				24				22				22				22
Admissions:
Medicare			7,432				7,125				6,769				7,640				8,504				8,913				11,002
Medicaid			997				990				1,022				1,034				1,085				1,163				1,236
Medicare Advantage			1,129				1,106				936				1,071				1,172				1,348				1,609
Commercial insurance and other			2,262				2,048				1,978				2,020				2,282				2,290				2,669
			11,820				11,269				10,705				11,765				13,043				13,714				16,516
Admissions mix %:
Medicare			63				63				63				65				65				65				67
Medicaid			8				9				10				9				8				8				7
Medicare Advantage			10				10				9				9				9				10				10
Commercial insurance and other			19				18				18				17				18				17				16
Patient days:
Medicare			202,882				195,964				179,324				198,129				219,213				237,257				275,561
Medicaid			47,813				45,952				48,514				46,596				45,650				45,746				48,911
Medicare Advantage			34,524				36,000				31,186				32,868				35,639				39,503				47,819
Commercial insurance and other			75,483				70,651				70,198				69,585				70,522				72,759				83,375
			360,702				348,567				329,222				347,178				371,024				395,265				455,666
Average length of stay:
Medicare			27.3				27.5				26.5				25.9				25.8				26.6				25.0
Medicaid			48.0				46.4				47.5				45.1				42.1				39.3				39.6
Medicare Advantage			30.6				32.5				33.3				30.7				30.4				29.3				29.7
Commercial insurance and other			33.4				34.5				35.5				34.4				30.9				31.8				31.2
Weighted average			30.5				30.9				30.8				29.5				28.4				28.8				27.6

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Kindred Healthcare Reports Strong Third Quarter Results

Page 16

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second				Third
Hospital data (continued):
Revenues per admission:
Medicare		$	38,078			$	38,938			$	37,675			$	38,368			$	39,439			$	40,089			$	37,408
Medicaid			45,738				42,774				42,910				41,704				42,432				41,576				40,720
Medicare Advantage			45,187				46,169				48,122				44,744				46,217				42,708				43,616
Commercial insurance and other			56,344				59,842				61,314				61,131				54,065				56,850				57,216
Weighted average			42,899				43,784				43,456				43,150				42,856				43,271				41,462
Revenues per patient day:
Medicare		$	1,395			$	1,416			$	1,422			$	1,479			$	1,530			$	1,506			$	1,494
Medicaid			954				922				904				925				1,009				1,057				1,029
Medicare Advantage			1,478				1,418				1,444				1,458				1,520				1,457				1,468
Commercial insurance and other			1,688				1,735				1,728				1,775				1,749				1,789				1,832
Weighted average			1,406				1,416				1,413				1,462				1,507				1,501				1,503
Medicare case mix index (discharged patients only)			1.21				1.21				1.19				1.17				1.21				1.22				1.17
Average daily census			4,008				3,830				3,579				3,774				4,122				4,344				4,953
Occupancy %			68.2				66.1				62.0				64.0				68.7				65.5				62.6
Annualized employee turnover %			21.8				22.6				22.3				22.0				21.2				22.1				21.4
Nursing and rehabilitation center data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased			218				219				222				222				220				220				220
Managed			4				4				4				4				4				4				4
Assisted living facilities			6				7				7				7				6				6				6
			228				230				233				233				230				230				230
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased			26,711				26,760				27,030				26,957				26,767				26,687				26,687
Managed			485				485				485				485				485				485				485
Assisted living facilities			327				463				463				463				413				413				413
			27,523				27,708				27,978				27,905				27,665				27,585				27,585
Revenue mix %:
Medicare			35				34				33				36				38				37				36
Medicaid			41				41				41				39				37				38				38
Medicare Advantage			6				7				7				7				7				7				7
Private and other			18				18				19				18				18				18				19

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Kindred Healthcare Reports Strong Third Quarter Results

Page 17

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2010 Quarters																2011 Quarters
		First				Second				Third				Fourth				First				Second				Third
Nursing and rehabilitation center data (continued):
Patient days (excludes managed facilities):
Medicare			369,102				363,149				346,837				344,018				370,395				358,760				345,362
Medicaid			1,312,517				1,292,246				1,289,643				1,287,739				1,232,620				1,229,517				1,255,418
Medicare Advantage			87,692				92,051				91,643				94,336				97,460				94,483				95,751
Private and other			397,550				415,921				437,413				453,357				425,414				435,667				436,074
			2,166,861				2,163,367				2,165,536				2,179,450				2,125,889				2,118,427				2,132,605
Patient day mix %:
Medicare			17				17				16				16				17				17				16
Medicaid			61				60				60				59				58				58				59
Medicare Advantage			4				4				4				4				5				4				5
Private and other			18				19				20				21				20				21				20
Revenues per patient day:
Medicare Part A		$	470			$	469			$	468			$	534			$	537			$	544			$	550
Total Medicare (including Part B)			513				515				519				587				579				589				599
Medicaid			168				171				171				171				172				173				174
Medicare Advantage			398				400				405				432				416				420				421
Private and other			238				234				232				228				235				240				243
Weighted average			249				250				249				260				267				268				268
Average daily census			24,076				23,773				23,538				23,690				23,621				23,279				23,180
Admissions (excludes managed facilities)			19,026				18,924				19,383				19,118				20,619				20,143				20,118
Occupancy %			89.0				87.3				86.8				86.4				86.9				85.9				85.5
Medicare average length of stay			33.7				35.2				34.3				33.0				32.9				33.4				33.0
Annualized employee turnover %			36.7				38.8				39.8				39.6				37.8				39.8				40.2
Rehabilitation data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated			57				56				55				49				47				34				22
Non-affiliated			43				44				45				51				53				66				78
Sites of service (at end of period)			554				568				595				635				641				1,848				1,835
Revenue per site		$	172,498			$	171,254			$	167,832			$	174,896			$	178,812			$	137,316			$	137,643
Therapist productivity %			83.8				84.2				82.1				78.6				80.6				81.6				80.5
Home health and hospice revenues		$	3,434			$	3,875			$	3,947			$	6,266			$	8,038			$	10,828			$	15,419
Hospital rehabilitation services:
Revenue mix %:
Company-operated			96				96				95				95				94				54				29
Non-affiliated			4				4				5				5				6				46				71
Sites of service (at end of period):
Inpatient rehabilitation units			—				—				—				1				1				104				102
LTAC hospitals			85				85				85				91				93				97				99
Sub-acute units			7				7				7				7				8				22				23
Outpatient units			10				11				11				12				12				119				114
Other			2				2				4				4				5				8				7
			104				105				107				115				119				350				345
Revenue per site		$	203,337			$	199,174			$	190,986			$	184,193			$	188,989			$	199,661			$	202,352
Annualized employee turnover %			12.6				14.2				15.4				14.4				14.5				17.1				16.5

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Kindred Healthcare Reports Strong Third Quarter Results

Page 18

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Earnings Per Common Share Reconciliation (a)

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,																Nine months ended September 30,
		2011								2010								2011								2010
		Basic				Diluted				Basic				Diluted				Basic				Diluted				Basic				Diluted
Earnings:
Amounts attributable to Kindred stockholders:
Income from continuing operations:
As reported in Statement of Operations		$	666			$	666			$	5,100			$	5,100			$	16,823			$	16,823			$	36,391			$	36,391
Allocation to participating unvested restricted stockholders			(10	)			(10	)			(91	)			(91	)			(287	)			(284	)			(664	)			(662	)
Available to common stockholders		$	656			$	656			$	5,009			$	5,009			$	16,536			$	16,539			$	35,727			$	35,729
Discontinued operations, net of income taxes:
Income (loss) from operations:
As reported in Statement of Operations		$	1,119			$	1,119			$	(260	)		$	(260	)		$	1,527			$	1,527			$	(327	)		$	(327	)
Allocation to participating unvested restricted stockholders			(17	)			(17	)			5				5				(26	)			(26	)			6				6
Available to common stockholders		$	1,102			$	1,102			$	(255	)		$	(255	)		$	1,501			$	1,501			$	(321	)		$	(321	)
Gain on divestiture of operations:
As reported in Statement of Operations		$	—			$	—			$	86			$	86			$	—			$	—			$	3			$	3
Allocation to participating unvested restricted stockholders			—				—				(2	)			(2	)			—				—				—				—
Available to common stockholders		$	—			$	—			$	84			$	84			$	—			$	—			$	3			$	3
Net income:
As reported in Statement of Operations		$	1,785			$	1,785			$	4,926			$	4,926			$	18,350			$	18,350			$	36,067			$	36,067
Allocation to participating unvested restricted stockholders			(27	)			(27	)			(88	)			(88	)			(313	)			(310	)			(658	)			(656	)
Available to common stockholders		$	1,758			$	1,758			$	4,838			$	4,838			$	18,037			$	18,040			$	35,409			$	35,411
Shares used in the computation:
Weighted average shares outstanding -basic computation			51,329				51,329				38,778				38,778				44,577				44,577				38,720				38,720
Dilutive effect of employee stock options							77								60								357								135
Adjusted weighted average shares outstanding - diluted computation							51,406								38,838								44,934								38,855
Earnings per common share:
Income from continuing operations		$	0.01			$	0.01			$	0.13			$	0.13			$	0.37			$	0.37			$	0.92			$	0.92
Discontinued operations:
Income (loss) from operations			0.02				0.02				(0.01	)			(0.01	)			0.03				0.03				(0.01	)			(0.01	)
Gain on divestiture of operations			—				—				—				—				—				—				—				—
Net income		$	0.03			$	0.03			$	0.12			$	0.12			$	0.40			$	0.40			$	0.91			$	0.91

 

(a)

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

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Kindred Healthcare Reports Strong Third Quarter Results

Page 19

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of Non-GAAP Measurements to GAAP Results

(Unaudited)

(In thousands, except per share amounts and statistics)

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

The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 37.2% and 36.8% for the third quarter and nine months ended September 30, 2011, respectively, and an effective income tax rate of 38.5% for the third quarter and nine months ended September 30, 2010. Certain of the excluded charges for the third quarter and nine months ended September 30, 2011 are not deductible for income tax purposes thus resulting in a lower effective income tax rate than the comparable prior year periods.

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

 

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Detail of charges excluded from core operating results:
Transaction costs		$	(5,281	)		$	(771	)		$	(29,445	)		$	(2,496	)
Financing costs (in connection with the RehabCare acquisition)			—				—				(13,802	)			—
Severance and retirement costs			(1,256	)			—				(16,122	)			(2,906	)
Impairment charges			(26,712	)			—				(26,712	)			—
			(33,249	)			(771	)			(86,081	)			(5,402	)
Income tax benefit			12,371				297				31,708				2,080
Charges net of income taxes			(20,878	)			(474	)			(54,373	)			(3,322	)
Allocation to participating unvested restricted stockholders			314				8				920				60
Available to common stockholders		$	(20,564	)		$	(466	)		$	(53,453	)		$	(3,262	)
Weighted average diluted shares outstanding			51,406				38,838				44,934				38,855
Diluted loss per common share related to charges		$	(0.40	)		$	(0.01	)		$	(1.19	)		$	(0.08	)
Reconciliation of adjusted operating income before charges:
Operating income before charges		$	210,025			$	124,249			$	562,664			$	422,410
Detail of charges excluded from core operating results:
Transaction costs			(5,281	)			(771	)			(29,445	)			(2,496	)
Severance and retirement costs			(1,256	)			—				(16,122	)			(2,906	)
Impairment charges			(26,712	)			—				(26,712	)			—
			(33,249	)			(771	)			(72,279	)			(5,402	)
Reported operating income		$	176,776			$	123,478			$	490,385			$	417,008
Reconciliation of adjusted income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges		$	21,544			$	5,574			$	71,196			$	39,713
Charges net of income taxes			(20,878	)			(474	)			(54,373	)			(3,322	)
Reported income from continuing operations		$	666			$	5,100			$	16,823			$	36,391
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a)		$	0.41			$	0.14			$	1.56			$	1.00
Charges net of income taxes as computed above			(0.40	)			(0.01	)			(1.19	)			(0.08	)
Reported diluted income per common share from continuing operations		$	0.01			$	0.13			$	0.37			$	0.92
Weighted average diluted shares outstanding			51,406				38,838				44,934				38,855
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges			31.5	%			22.6	%			36.9	%			36.3	%
Impact of charges on effective income tax rate			131.7	%			12.4	%			0.3	%			(0.2	)%
Reported effective income tax rate			163.2	%			35.0	%			37.2	%			36.1	%

 

(a)

For purposes of computing diluted earnings per common share, income from continuing operations before charges was reduced by $0.3 million and $0.1 million for the three months ended September 30, 2011 and 2010, respectively, and $1.2 million and $0.7 million for the nine months ended September 30, 2011 and 2010, respectively, for the allocation of income to participating unvested restricted stockholders.

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Kindred Healthcare Reports Strong Third Quarter Results

Page 20

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

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

The income tax benefit associated with the excluded payments was calculated using an effective income tax rate of 33.3% and 36.2% for the third quarter and nine months ended September 30, 2011, respectively, and an effective income tax rate of 38.5% for the third quarter and nine months ended September 30, 2010. Certain of the excluded payments for the third quarter and nine months ended September 30, 2011 are not deductible for income tax purposes thus resulting in a lower effective income tax rate than the comparable prior year periods.

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

 

		Three months ended September 30,								Nine months ended September 30,
		2011				2010				2011				2010
Reconciliation of net cash flows provided by operating activities to adjusted operating cash flows:
Net cash provided by operating activities		$	66,518			$	67,909			$	117,806			$	150,855
Adjustments to remove certain payments:
Financing costs:
Capitalized as deferred financing costs			—				—				46,232				—
Charged to interest expense			—				—				13,074				—
Transaction costs			7,395				955				29,458				1,710
Severance and retirement costs			3,295				—				10,265				2,689
Benefit of reduced income tax payments resulting from financing, transaction, severance and retirement costs			(2,781	)			(297	)			(22,118	)			(2,080	)
			7,909				658				76,911				2,319
Adjusted operating cash flows		$	74,427			$	68,567			$	194,717			$	153,174

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Kindred Healthcare Reports Strong Third Quarter Results

Page 21

November 2, 2011

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of Earnings Guidance for 2011 and 2012 - Continuing Operations

(Unaudited)

(In millions, except per share amounts)

 

		Earnings Guidance Ranges (a)
		As of November 2, 2011																As of August 8, 2011
		2011								2012								2011								2012
		Low				High				Low				High				Low				High				Low				High
Operating income		$	777			$	780			$	911			$	928			$	775			$	780			$	911			$	928
Rent			400				400				445				445				400				400				445				445
Depreciation and amortization			164				164				200				200				164				164				200				200
Interest, net			67				67				110				110				69				69				110				110
Income from continuing operations before income taxes			146				149				156				173				142				147				156				173
Provision for income taxes			55				56				63				69				53				54				63				69
Income from continuing operations			91				93				93				104				89				93				93				104
Earnings attributable to noncontrolling interests			(1	)			(1	)			(4	)			(4	)			(2	)			(2	)			(4	)			(4	)
Income attributable to the Company			90				92				89				100				87				91				89				100
Allocation to participating unvested restricted stockholders			(2	)			(2	)			(2	)			(2	)			(2	)			(2	)			(2	)			(2	)
Available to common stockholders		$	88			$	90			$	87			$	98			$	85			$	89			$	87			$	98
Earnings per diluted share		$	1.87			$	1.92			$	1.65			$	1.85			$	1.80			$	1.90			$	1.65			$	1.85
Shares used in computing earnings per diluted share			47.0				47.0				53.0				53.0				47.0				47.0				53.0				53.0

 

(a)

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