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Kindred Healthcare Reports First Quarter Results

May 1, 2012

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Reported Results of $0.35 Per Diluted Share Include Charges of $0.05 Per Share Primarily Related to Cost Saving Activities

Company Maintains Annual Earnings Guidance Range

LOUISVILLE, Ky.--(BUSINESS WIRE)--May. 1, 2012-- Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 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.

First Quarter Highlights:

  • Consolidated revenues rose 33% to $1.6 billion
    -- RehabCare acquisition added $364 million in current period revenues
  • RehabCare synergy plan continues to track toward $70 million annual goal
  • Hospital results were bolstered by the RehabCare acquisition, volume growth and cost efficiencies
    -- Reported admissions grew 40% from last year; same-facility admissions grew 2%
    -- Operating income grew 48% to $161 million
  • Despite growth in nursing center admissions and improved cost management, reimbursement pressures and declining lengths of stay drove operating declines
    -- Nursing center revenues declined 4% from last year’s first quarter
    -- Operating income declined 25% to $66 million
  • While recent Medicare changes impaired rehabilitation division’s operating margins compared to last year, operating margins improved from the fourth quarter of 2011
    --Successful RehabCare integration activities continue
  • Home health and hospice division reported significant revenue and operating income growth

First Quarter Results

Continuing Operations

Consolidated revenues for the first quarter ended March 31, 2012 rose 33% to $1.6 billion compared to $1.2 billion in the first quarter last year. Income from continuing operations for the first quarter of 2012 totaled $18.1 million or $0.35 per diluted share compared to $22.3 million or $0.55 per diluted share in the first quarter last year.

First quarter 2012 operating results included certain pretax charges of $4.6 million related to costs incurred in connection with the closing of a regional office and a long-term acute care (“LTAC”) hospital and transaction-related costs, the effect of which reduced income from continuing operations by $2.8 million or $0.05 per diluted share.

First quarter 2011 operating results included certain charges that reduced income from continuing operations by $4.0 million or $0.10 per diluted share.

Discontinued Operations

During the past few years, the Company has entered 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 consolidated statement of operations for all historical periods.

Management Commentary

Paul J. Diaz, President and Chief Executive Officer of the Company, remarked, “We reported a good start to the year, having successfully stabilized our operations following the significant Medicare reimbursement cuts that took effect in the fourth quarter of 2011. Each of our four operating divisions is focused on the achievement of our clinical and financial goals for 2012 as we continue to execute on our strategic operating plan. Our first quarter results are consistent with our annual earnings expectations and reflect early success in our operating efficiency initiatives and continued realization of synergies in connection with the RehabCare acquisition.”

With respect to the Company’s ongoing development activities, Mr. Diaz noted, “During the first quarter, the Company opened a new 46-bed free-standing inpatient rehabilitation hospital in suburban Houston and signed contracts to manage two acute rehabilitation units. We also acquired a previously leased hospital in southern California for $50 million and deposited $17 million toward the purchase of another leased hospital in Cleveland. In addition, projects to expand and upgrade LTAC hospitals in Dayton, Ohio and Charleston, South Carolina, as well as the replacement of an inpatient rehabilitation hospital in Austin, Texas, are proceeding in line with our plans.”

Proposed Medicare Rule

On April 24, 2012, the Centers for Medicare and Medicaid Services (“CMS”) issued proposed regulations (the “2012 Proposed CMS Rule”) regarding Medicare reimbursement for LTAC hospitals for the fiscal year beginning October 1, 2012.

Included in the 2012 Proposed CMS Rule is (1) a market basket increase to the standard federal payment rate of 3.0%; (2) offsets to the standard federal payment rate mandated by the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act (collectively, the “ACA”) of: (a) 0.8% to account for the effect of a productivity adjustment, and (b) 0.1% as required by statute; (3) a wage level budget neutrality factor of 0.99903 applied to the adjusted standard federal payment rate; (4) adjustments to area wage indexes; and (5) a decrease in the high cost outlier threshold per discharge to $15,728. Effective December 29, 2012, the 2012 Proposed CMS Rule also would (1) begin a three-year phase-in of a 3.75% budget neutrality adjustment which would reduce LTAC hospital rates by 1.3% in 2013; and (2) restore a payment reduction that would limit payments for very short stay outliers that would reduce the Company’s LTAC hospital payments by approximately 0.5%. The 2012 Proposed CMS Rule also (1) provides for a one-year extension of the existing moratorium on the “25 Percent Rule” pending the results of an ongoing research initiative to re-define the role of LTAC hospitals in the Medicare program, and (2) would allow for the expiration of the current moratorium on the development or expansion of LTAC hospitals on December 29, 2012.

In aggregate, based upon its review of the 2012 Proposed CMS Rule, the Company expects that LTAC Medicare payment rates will be flat in 2013 compared to current rates. The 2012 Proposed CMS Rule does not include the impact of a 2% sequestration payment reduction mandated by Congress that is expected to begin in February 2013.

Mr. Diaz commented that, “The tone and content of the proposed rule is constructive and sets the stage for a continued policy dialogue about the vital role that LTAC hospitals play in the healthcare continuum for the nation’s most medically complex patients. We are particularly encouraged that CMS research supports a path toward certification criteria for LTAC hospitals and we look forward to working with CMS, Congress, MedPAC and our peers to advance a comprehensive solution to policy issues that paves the way for future reforms and also produces Medicare savings.”

Commenting specifically on the proposed rule, Mr. Diaz stated, “We appreciate CMS’s proposal to phase in the one-time budget neutrality adjustment over three years in recognition that a full one-time cut would be destabilizing, particularly in light of an effective zero percent payment update and pending sequestration cuts of 2%. At the same time, we look forward to providing CMS with data demonstrating that the proposed budget neutrality adjustment of 3.75% is too high and is neither necessary nor warranted at that level to achieve budget neutrality.”

Earnings Guidance – Continuing Operations

The Company maintained its earnings guidance for 2012. The earnings guidance provided by the Company excludes the effect of (1) any costs associated with the closing of a regional office and a LTAC hospital, (2) any transaction-related charges, (3) any other reimbursement changes, (4) any acquisitions or divestitures, (5) any impairment charges, or (6) any repurchases of common stock.

The Company expects consolidated revenues for 2012 to approximate $6.3 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $868 million to $884 million. Rent expense is expected to approximate $432 million, while depreciation and amortization should approximate $199 million. Net interest expense is expected to approximate $107 million. The Company expects to report income from continuing operations for 2012 between $73 million to $83 million or $1.35 to $1.55 per diluted share (based upon diluted shares of 52.5 million).

The Company also indicated that it expects cash flows from operations in 2012 to range from $240 million to $260 million. Routine capital expenditures in 2012 are expected to range from $130 million to $140 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 projects related to the replacement, expansion and upgrade of its hospitals in Dayton, Ohio, Charleston, South Carolina, and Austin, Texas, will be completed at an aggregate additional cost of approximately $23 million through 2013 (these expenditures are not included in the routine capital spending estimates discussed above).

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the first quarter 2012 conference call through a link on the Company’s website at www.kindredhealthcare.com. The conference call will be held May 2, 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 May 2 by dialing (719) 457-0820, access code: 3349972. The replay will be available through May 11.

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 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 court challenges and efforts to repeal or amend the law. The U.S. Supreme Court has heard oral argument on the constitutionality of the ACA and is expected to reach a decision in 2012. These court proceedings, the 2012 presidential election and pending 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, or any portions of the ACA that survive the constitutional challenge, on the Company and the healthcare industry. Due to the substantial regulatory changes that will need to be implemented by CMS and others, the numerous processes required to implement these reforms, and pending judicial review of the ACA, 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 2012 Proposed CMS Rule which, among other things, would 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 (which was extended by the ACA), 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 potential failure to retain key employees of RehabCare, (k) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (l) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (m) the Company’s ability to meet its rental and debt service obligations, (n) 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, Inc. (NYSE:VTR), (o) 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, (p) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (q) the Company’s ability to control costs, particularly labor and employee benefit costs, (r) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (s) the Company’s ability to attract and retain key executives and other healthcare personnel, (t) 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, (u) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (v) the Company’s ability to successfully dispose of unprofitable facilities, (w) 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, (x) 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 (y) the Company’s ability to maintain an effective system of internal control over financial reporting. Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months ended March 31, 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-150 private employer in the United States, is a healthcare services company based in Louisville, Kentucky with annual revenues of $6 billion and approximately 76,100 employees in 46 states. At March 31, 2012, Kindred through its subsidiaries provided healthcare services in 2,142 locations, including 120 long-term acute care hospitals, six inpatient rehabilitation hospitals, 224 nursing and rehabilitation centers, 26 sub-acute units, 52 hospice and home care locations, 100 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,614 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
March 31,
2012 2011
 
Revenues $ 1,579,970   $ 1,192,421  
 
Income from continuing operations $ 18,532 $ 22,276
Income (loss) from discontinued operations, net of income taxes   110     (179 )
Net income 18,642 22,097
Earnings attributable to noncontrolling interests   (451 )   -  
Income attributable to Kindred $ 18,191   $ 22,097  
 
Amounts attributable to Kindred stockholders:
Income from continuing operations $ 18,081 $ 22,276
Income (loss) from discontinued operations   110     (179 )
Net income $ 18,191   $ 22,097  
 
Earnings per common share:
Basic:
Income from continuing operations $ 0.35 $ 0.56
Income (loss) from discontinued operations   -     -  
Net income $ 0.35   $ 0.56  
 
Diluted:
Income from continuing operations $ 0.35 $ 0.55
Income (loss) from discontinued operations   -     -  
Net income $ 0.35   $ 0.55  
 

Shares used in computing earnings per common share:

Basic 51,603 39,035
Diluted 51,638 39,543
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
   
Three months ended
March 31,
2012 2011
 
Revenues $ 1,579,970   $ 1,192,421  
 
Salaries, wages and benefits 945,302 678,695
Supplies 111,295 90,022
Rent 107,968 91,453
Other operating expenses 310,964 259,369
Other income (2,748 ) (2,785 )
Impairment charges 867 -
Depreciation and amortization 48,690 32,549
Interest expense 26,578 5,728
Investment income   (292 )   (495 )
  1,548,624     1,154,536  
Income from continuing operations before income taxes 31,346 37,885
Provision for income taxes   12,814     15,609  
Income from continuing operations 18,532 22,276
Income (loss) from discontinued operations, net of income taxes   110     (179 )
Net income 18,642 22,097
Earnings attributable to noncontrolling interests   (451 )   -  
Income attributable to Kindred $ 18,191   $ 22,097  
 
Amounts attributable to Kindred stockholders:
Income from continuing operations $ 18,081 $ 22,276
Income (loss) from discontinued operations   110     (179 )
Net income $ 18,191   $ 22,097  
 
Earnings per common share:
Basic:
Income from continuing operations $ 0.35 $ 0.56
Income (loss) from discontinued operations   -     -  
Net income $ 0.35   $ 0.56  
 
Diluted:
Income from continuing operations $ 0.35 $ 0.55
Income (loss) from discontinued operations   -     -  
Net income $ 0.35   $ 0.55  
 

Shares used in computing earnings per common share:

Basic 51,603 39,035
Diluted 51,638 39,543
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
   
March 31, December 31,
2012 2011
ASSETS
Current assets:
Cash and cash equivalents $ 40,137 $ 41,561
Cash - restricted 5,327 5,551
Insurance subsidiary investments 74,462 70,425
Accounts receivable less allowance for loss 1,044,401 994,700
Inventories 31,155 31,060
Deferred tax assets 19,911 17,785
Income taxes 7,689 39,513
Other   40,186     32,687  
1,263,268 1,233,282
 
Property and equipment 2,053,326 1,975,063
Accumulated depreciation   (956,871 )   (916,022 )
1,096,455 1,059,041
 
Goodwill 1,084,716 1,084,655
Intangible assets less accumulated amortization 441,824 447,207
Assets held for sale 4,671 5,612
Insurance subsidiary investments 120,184 110,227
Other   222,054     198,469  
Total assets $ 4,233,172   $ 4,138,493  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 205,835 $ 216,801
Salaries, wages and other compensation 380,981 407,493
Due to third party payors 28,330 37,306
Professional liability risks 45,257 46,010
Other accrued liabilities 131,339 130,693
Long-term debt due within one year   10,415     10,620  
802,157 848,923
 
Long-term debt 1,648,071 1,531,882
Professional liability risks 223,344 217,717
Deferred tax liabilities 17,313 17,955
Deferred credits and other liabilities 196,089 191,771
 
Noncontrolling interests-redeemable 9,532 9,704
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 52,900 shares - March 31, 2012 and 52,116 shares - December 31, 2011

13,225 13,029
Capital in excess of par value 1,135,917 1,138,189
Accumulated other comprehensive loss (694 ) (1,469 )
Retained earnings   157,363     139,172  
1,305,811 1,288,921
Noncontrolling interests-nonredeemable   30,855     31,620  
Total equity   1,336,666     1,320,541  
Total liabilities and equity $ 4,233,172   $ 4,138,493  
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
   
Three months ended
March 31,
2012 2011
 
Cash flows from operating activities:
Net income $ 18,642 $ 22,097

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization 48,690 32,549
Amortization of stock-based compensation costs 1,802 2,644
Amortization of deferring financing costs 2,357 846
Provision for doubtful accounts 7,496 5,830
Deferred income taxes (3,662 ) (730 )
Impairment charges 867 -
Other 426 (476 )
Change in operating assets and liabilities:
Accounts receivable (57,197 ) (36,640 )
Inventories and other assets (15,905 ) (3,525 )
Accounts payable (9,550 ) (12,348 )
Income taxes 30,502 40,623
Due to third party payors (8,976 ) (3,022 )
Other accrued liabilities   (18,917 )   (1,412 )
Net cash provided by (used in) operating activities   (3,425 )   46,436  
 
Cash flows from investing activities:
Routine capital expenditures (22,106 ) (24,718 )
Development capital expenditures (10,622 ) (11,109 )
Acquisitions (50,448 ) (8,027 )
Acquisition deposit (16,866 ) -
Sale of assets 1,110 1,714
Purchase of insurance subsidiary investments (13,773 ) (7,817 )
Sale of insurance subsidiary investments 14,006 18,656
Net change in insurance subsidiary cash and cash equivalents (13,123 ) (1,300 )
Change in other investments 269 1,000
Other   (749 )   132  
Net cash used in investing activities   (112,302 )   (31,469 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 515,400 445,200
Repayment of borrowings under revolving credit (397,000 ) (460,200 )
Repayment of other long-term debt (2,666 ) (22 )
Payment of deferred financing costs (43 ) (417 )
Cash distributed to noncontrolling interests (1,388 ) -
Issuance of common stock - 1,415
Other   -     389  
Net cash provided by (used in) financing activities   114,303     (13,635 )
Change in cash and cash equivalents (1,424 ) 1,332
Cash and cash equivalents at beginning of period   41,561     17,168  
Cash and cash equivalents at end of period $ 40,137   $ 18,500  
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
           
First
2011 Quarters Quarter
First Second Third Fourth Year 2012
 
Revenues $ 1,192,421   $ 1,292,592   $ 1,514,062   $ 1,522,688   $ 5,521,763   $ 1,579,970  
 
Salaries, wages and benefits 678,695 765,133 900,570 911,417 3,255,815 945,302
Supplies 90,022 96,718 107,514 107,760 402,014 111,295
Rent 91,453 95,677 105,511 106,616 399,257 107,968
Other operating expenses 259,369 287,132 305,305 312,674 1,164,480 310,964
Other income (2,785 ) (2,880 ) (2,815 ) (2,711 ) (11,191 ) (2,748 )
Impairment charges - - 26,712 102,569 129,281 867
Depreciation and amortization 32,549 37,871 46,947 48,227 165,594 48,690
Interest expense 5,728 23,157 25,790 26,244 80,919 26,578
Investment income   (495 )   (257 )   (37 )   (242 )   (1,031 )   (292 )
  1,154,536     1,302,551     1,515,497     1,612,554     5,585,138     1,548,624  

Income (loss) from continuing operations before income taxes

37,885 (9,959 ) (1,435 ) (89,866 ) (63,375 ) 31,346
Provision (benefit) for income taxes   15,609     (3,419 )   (2,342 )   (16,952 )   (7,104 )   12,814  
Income (loss) from continuing operations 22,276 (6,540 ) 907 (72,914 ) (56,271 ) 18,532

Income (loss) from discontinued operations, net of income taxes

  (179 )   587     1,119     1,025     2,552     110  
Net income (loss) 22,097 (5,953 ) 2,026 (71,889 ) (53,719 ) 18,642
(Earnings) loss attributable to noncontrolling interests   -     421     (241 )   58     238     (451 )
Income (loss) attributable to Kindred $ 22,097   $ (5,532 ) $ 1,785   $ (71,831 ) $ (53,481 ) $ 18,191  
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 22,276 $ (6,119 ) $ 666 $ (72,856 ) $ (56,033 ) $ 18,081
Income (loss) from discontinued operations   (179 )   587     1,119     1,025     2,552     110  
Net income (loss) $ 22,097   $ (5,532 ) $ 1,785   $ (71,831 ) $ (53,481 ) $ 18,191  
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.56 $ (0.14 ) $ 0.01 $ (1.42 ) $ (1.21 ) $ 0.35
Income (loss) from discontinued operations   -     0.01     0.02     0.02     0.05     -  
Net income (loss) $ 0.56   $ (0.13 ) $ 0.03   $ (1.40 ) $ (1.16 ) $ 0.35  
 
Diluted:
Income (loss) from continuing operations $ 0.55 $ (0.14 ) $ 0.01 $ (1.42 ) $ (1.21 ) $ 0.35
Income (loss) from discontinued operations   -     0.01     0.02     0.02     0.05     -  
Net income (loss) $ 0.55   $ (0.13 ) $ 0.03   $ (1.40 ) $ (1.16 ) $ 0.35  
 

Shares used in computing earnings (loss) per common share:

Basic 39,035 43,231 51,329 51,335 46,280 51,603
Diluted 39,543 43,231 51,406 51,335 46,280 51,638
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
           
First
2011 Quarters Quarter
First Second Third Fourth Year 2012
Revenues:
Hospital division $ 558,974 $ 593,425 $ 684,781 $ 712,812 $ 2,549,992 $ 765,823
 
Nursing center division 567,472 568,199 571,226 547,202 2,254,099 544,319
 
Rehabilitation division:
Skilled nursing rehabilitation services 114,618 161,246 252,574 246,720 775,158 255,451
Hospital rehabilitation services   22,490     38,291     69,811     70,232     200,824     74,369  
  137,108     199,537     322,385     316,952     975,982     329,820  
 
Home health and hospice division   8,038     10,828     15,419     26,451     60,736     28,432  
1,271,592 1,371,989 1,593,811 1,603,417 5,840,809 1,668,394
 
Eliminations:
Skilled nursing rehabilitation services (57,081 ) (57,587 ) (57,922 ) (57,087 ) (229,677 ) (58,433 )
Hospital rehabilitation services (21,225 ) (20,706 ) (20,528 ) (22,167 ) (84,626 ) (28,317 )
Nursing and rehabilitation centers   (865 )   (1,104 )   (1,299 )   (1,475 )   (4,743 )   (1,674 )
  (79,171 )   (79,397 )   (79,749 )   (80,729 )   (319,046 )   (88,424 )
$ 1,192,421   $ 1,292,592   $ 1,514,062   $ 1,522,688   $ 5,521,763   $ 1,579,970  
 
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 108,385 $ 108,465 $ 125,701 $ 144,891 $ 487,442 $ 160,669

(a)

 
Nursing center division 87,350 93,532 89,592 67,791 338,265 65,533
 
Rehabilitation division:
Skilled nursing rehabilitation services 9,159 15,978 27,575 13,204 65,916 14,193
Hospital rehabilitation services   5,332     8,033     15,606     14,760     43,731     16,116  
  14,491     24,011     43,181     27,964     109,647     30,309  
 
Home health and hospice division (10 ) (447 ) 1,107 2,453 3,103 2,341
 
Corporate:
Overhead (38,315 ) (43,801 ) (48,806 ) (43,878 ) (174,800 ) (42,728 )
Insurance subsidiary   (602 )   (420 )   (750 )   (534 )   (2,306 )   (482 )
(38,917 ) (44,221 ) (49,556 ) (44,412 ) (177,106 ) (43,210 )
 
Impairment charges - - (26,712 ) (102,569 ) (129,281 ) (867 )
Transaction costs   (4,179 )   (34,851 )   (6,537 )   (5,139 )   (50,706 )   (485 )
Operating income 167,120 146,489 176,776 90,979 581,364 214,290
Rent (91,453 ) (95,677 ) (105,511 ) (106,616 ) (399,257 ) (107,968 )

(b)

Depreciation and amortization (32,549 ) (37,871 ) (46,947 ) (48,227 ) (165,594 ) (48,690 )
Interest, net   (5,233 )   (22,900 )   (25,753 )   (26,002 )   (79,888 )   (26,286 )

Income (loss) from continuing operations before income taxes

37,885 (9,959 ) (1,435 ) (89,866 ) (63,375 ) 31,346
Provision (benefit) for income taxes   15,609     (3,419 )   (2,342 )   (16,952 )   (7,104 )   12,814  
$ 22,276   $ (6,540 ) $ 907   $ (72,914 ) $ (56,271 ) $ 18,532  
 
   

(a)

Includes severance ($2.0 million) and other miscellaneous costs ($0.3 million) incurred in connection with the closing of a regional office and a LTAC hospital.

 

(b)

Includes a lease cancellation charge of $1.8 million incurred in connection with the closing of a LTAC hospital.

 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
                     
First Quarter 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (a,b) division services services Total hospice Corporate costs Eliminations Consolidated
 
Revenues $ 765,823   $ 544,319   $ 255,451   $ 74,369 $ 329,820   $ 28,432   $ -   $ -   $ (88,424 ) $ 1,579,970  
 
Salaries, wages and benefits 339,156 269,038 232,138 53,731 285,869 21,291 29,979 - (31 ) 945,302
Supplies 82,476 26,724 799 54 853 1,033 209 - - 111,295
Rent 55,367 49,938 1,392 78 1,470 615 578 - - 107,968
Other operating expenses 183,522 183,024 8,321 4,468 12,789 3,767 15,770 485 (88,393 ) 310,964
Other income - - - - - - (2,748 ) - - (2,748 )
Impairment charges 304 563 - - - - - - - 867
Depreciation and amortization 22,603 12,741 2,628 2,324 4,952 898 7,496 - - 48,690
Interest expense 306 28 - - - - 26,244 - - 26,578
Investment income   (8 )   (18 )   (1 )   -   (1 )   -     (265 )   -     -     (292 )
  683,726     542,038     245,277     60,655   305,932     27,604     77,263     485     (88,424 )   1,548,624  

Income from continuing operations before income taxes

$ 82,097   $ 2,281   $ 10,174   $ 13,714 $ 23,888   $ 828   $ (77,263 ) $ (485 ) $ -   31,346
Provision for income taxes   12,814  
Income from continuing operations $ 18,532  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 10,345 $ 4,229 $ 326 $ 46 $ 372 $ 751 $ 6,409 $ - $ - $ 22,106
Development   9,949     673     -     -   -     -     -     -     -     10,622  
$ 20,294   $ 4,902   $ 326   $ 46 $ 372   $ 751   $ 6,409   $ -   $ -   $ 32,728  
 
 
 
First Quarter 2011
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division division services services Total hospice Corporate costs Eliminations Consolidated
 
Revenues $ 558,974   $ 567,472   $ 114,618   $ 22,490 $ 137,108   $ 8,038   $ -   $ -   $ (79,171 ) $ 1,192,421  
 
Salaries, wages and benefits 253,062 273,170 101,886 16,637 118,523 6,308 27,666 - (34 ) 678,695
Supplies 61,847 27,125 511 26 537 370 143 - - 90,022
Rent 40,299 49,384 1,509 28 1,537 189 44 - - 91,453
Other operating expenses 135,680 179,827 3,062 495 3,557 1,370 13,893 4,179 (79,137 ) 259,369
Other income - - - - - - (2,785 ) - - (2,785 )
Depreciation and amortization 14,278 11,793 654 97 751 105 5,622 - - 32,549
Interest expense - 29 - - - - 3,700 1,999 - 5,728
Investment income   (1 )   (20 )   (1 )   -   (1 )   -     (473 )   -     -     (495 )
  505,165     541,308     107,621     17,283   124,904     8,342     47,810     6,178     (79,171 )   1,154,536  

Income (loss) from continuing operations before income taxes

$ 53,809   $ 26,164   $ 6,997   $ 5,207 $ 12,204   $ (304 ) $ (47,810 ) $ (6,178 ) $ -   37,885
Provision for income taxes   15,609  
Income from continuing operations $ 22,276  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 12,144 $ 8,155 $ 235 $ 25 $ 260 $ 20 $ 4,139 $ - $ - $ 24,718
Development   7,777     3,322     -     -   -     10     -     -     -     11,109  
$ 19,921   $ 11,477   $ 235   $ 25 $ 260   $ 30   $ 4,139   $ -   $ -   $ 35,827  
 
     

(a)

Includes severance ($2.0 million) in salaries, wages and benefits and other miscellaneous costs ($0.3 million) in other operating expenses incurred in connection with the closing of a regional office and a LTAC hospital.

 

(b)

Includes a lease cancellation charge of $1.8 million in rent expense incurred in connection with the closing of a LTAC hospital.

 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
            First
2011 Quarters Quarter
First Second Third Fourth Year 2012
Hospital division data:
End of period data:
Number of hospitals:
Long-term acute care 89 120 120 121 120
Inpatient rehabilitation - 5 5 5 6
89 125 125 126 126
 
Number of licensed beds:
Long-term acute care 6,889 8,609 8,597 8,597 8,510
Inpatient rehabilitation - 183 183 183 229
6,889 8,792 8,780 8,780 8,739
 
Revenue mix %:
Medicare 60 60 60 62 60 62
Medicaid 8 8 8 7 8 6
Medicare Advantage 10 10 10 10 10 10
Commercial insurance and other 22 22 22 21 22 22
 
Admissions:
Medicare 8,504 8,913 11,002 11,682 40,101 12,400
Medicaid 1,085 1,163 1,236 1,163 4,647 1,025
Medicare Advantage 1,172 1,348 1,609 1,549 5,678 1,782
Commercial insurance and other 2,282 2,290 2,669 2,853 10,094 3,081
13,043 13,714 16,516 17,247 60,520 18,288
Admissions mix %:
Medicare 65 65 67 68 66 68
Medicaid 8 8 7 7 8 5
Medicare Advantage 9 10 10 9 9 10
Commercial insurance and other 18 17 16 16 17 17
 
Patient days:
Medicare 219,213 237,257 275,561 285,358 1,017,389 304,795
Medicaid 45,650 45,746 48,911 48,648 188,955 45,058
Medicare Advantage 35,639 39,503 47,819 47,738 170,699 51,129
Commercial insurance and other 70,522 72,759 83,375 84,677 311,333 89,305
371,024 395,265 455,666 466,421 1,688,376 490,287
Average length of stay:
Medicare 25.8 26.6 25.0 24.4 25.4 24.6
Medicaid 42.1 39.3 39.6 41.8 40.7 44.0
Medicare Advantage 30.4 29.3 29.7 30.8 30.1 28.7
Commercial insurance and other 30.9 31.8 31.2 29.7 30.8 29.0
Weighted average 28.4 28.8 27.6 27.0 27.9 26.8
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
              First
2011 Quarters Quarter
First Second Third Fourth Year 2012
Hospital division data (continued):
Revenues per admission:
Medicare $ 39,439 $ 40,089 $ 37,408 $ 37,643 $ 38,503 $ 38,491
Medicaid 42,432 41,576 40,720 44,618 42,309 45,868
Medicare Advantage 46,217 42,708 43,616 46,154 44,630 42,632
Commercial insurance and other 54,065 56,850 57,216 52,465 55,078 53,733
Weighted average 42,856 43,271 41,462 41,330 42,135 41,876
 
Revenues per patient day:
Medicare $ 1,530 $ 1,506 $ 1,494 $ 1,541 $ 1,518 $ 1,566
Medicaid 1,009 1,057 1,029 1,067 1,041 1,043
Medicare Advantage 1,520 1,457 1,468 1,498 1,485 1,486
Commercial insurance and other 1,749 1,789 1,832 1,768 1,786 1,854
Weighted average 1,507 1,501 1,503 1,528 1,510 1,562
 
Medicare case mix index (discharged patients only) 1.21 1.22 1.17 1.14 1.18 1.17
 
Average daily census 4,122 4,344 4,953 5,070 4,626 5,388
Occupancy % 68.7 65.5 62.6 63.5 64.8 67.4
 
Annualized employee turnover % 21.2 22.1 21.4 20.3 21.8
 
Nursing center division data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased 220 220 220 220 220
Managed 4 4 4 4 4
Assisted living facilities   6   6   6   6   6
  230   230   230   230   230
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased 26,767 26,687 26,687 26,663 26,663
Managed 485 485 485 485 485
Assisted living facilities   413   413   413   413   413
  27,665   27,585   27,585   27,561   27,561
Revenue mix %:
Medicare 38 37 36 33 36 34
Medicaid 37 38 38 40 38 39
Medicare Advantage 7 7 7 7 7 8
Private and other 18 18 19 20 19 19
 
Patient days (a):
Medicare 370,395 358,760 345,362 334,156 1,408,673 342,567
Medicaid 1,232,620 1,229,517 1,255,418 1,248,442 4,965,997 1,218,903
Medicare Advantage 97,460 94,483 95,751 95,730 383,424 101,312
Private and other   425,414   435,667   436,074   441,362   1,738,517   422,983
  2,125,889   2,118,427   2,132,605   2,119,690   8,496,611   2,085,765
   

(a)

Excludes managed facilities.

 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
              First
2011 Quarters Quarter
First Second Third Fourth Year 2012
Nursing center division data (continued):
Patient day mix % (a):
Medicare 17 17 16 16 17 16
Medicaid 58 58 59 59 58 59
Medicare Advantage 5 4 5 4 5 5
Private and other 20 21 20 21 20 20
 
Revenues per patient day (a):
Medicare Part A $ 537 $ 544 $ 550 $ 491 $ 531 $ 484
Total Medicare (including Part B) 579 589 599 544 578 536
Medicaid 172 173 174 176 174 176
Medicaid (net of provider taxes) (b) 155 156 155 156 156 156
Medicare Advantage 416 420 421 405 415 407
Private and other 235 240 243 241 240 248
Weighted average 267 268 268 258 265 261
 
Average daily census (a) 23,621 23,279 23,180 23,040 23,278 22,920
Admissions (a) 20,619 20,143 20,118 19,914 80,794 20,863
Occupancy % (a) 86.9 85.9 85.5 85.1 85.9 84.7
Medicare average length of stay (a) 32.9 33.4 33.0 32.1 32.8 31.8
 
Annualized employee turnover % 37.8 39.8 40.2 39.2 36.9
 
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated 50 36 23 23 30 23
Non-affiliated 50 64 77 77 70 77
 
Sites of service (at end of period) 641 1,848 1,835 1,774 1,722
Revenue per site $ 178,812 $ 137,316 $ 137,643 $ 139,077 $ 592,848 $ 148,346
 
Therapist productivity % 80.6 81.6 80.5 80.1 80.4 80.3
 
Hospital rehabilitation services:
Revenue mix %:
Company-operated 94 54 29 32 42 38
Non-affiliated 6 46 71 68 58 62
 
Sites of service (at end of period):
Inpatient rehabilitation units 1 104 102 102 100
LTAC hospitals 93 97 99 115 125
Sub-acute units 8 22 23 25 19
Outpatient units 12 119 114 115 111
Other   5   8   7   8   5
  119   350   345   365   360
 
Revenue per site $ 188,989 $ 199,661 $ 202,352 $ 192,410 $ 783,412 $ 206,580
 
Annualized employee turnover % 14.5 17.1 16.5 16.5 19.6
   

(a)

Excludes managed facilities.

(b)

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

 
 
KINDRED HEALTHCARE, INC.
Earnings Per Common Share Reconciliation (a)
(Unaudited)
(In thousands, except per share amounts)
         
Three months ended March 31,
2012 2011
Basic Diluted Basic Diluted
Earnings:
Income from continuing operations:
As reported in Statement of Operations $ 18,081 $ 18,081 $ 22,276 $ 22,276

Allocation to participating unvested restricted stockholders

  (247 )   (247 )   (428 )   (423 )
Available to common stockholders $ 17,834   $ 17,834   $ 21,848   $ 21,853  
 
Income (loss) from discontinued operations, net of income taxes:
As reported in Statement of Operations $ 110 $ 110 $ (179 ) $ (179 )

Allocation to participating unvested restricted stockholders

  (1 )   (1 )   3     3  
Available to common stockholders $ 109   $ 109   $ (176 ) $ (176 )
 
Net income:
As reported in Statement of Operations $ 18,191 $ 18,191 $ 22,097 $ 22,097

Allocation to participating unvested restricted stockholders

  (248 )   (248 )   (425 )   (420 )
Available to common stockholders $ 17,943   $ 17,943   $ 21,672   $ 21,677  
 
Shares used in the computation:

Weighted average shares outstanding - basic computation

  51,603   51,603   39,035   39,035
Dilutive effect of employee stock options   35     508  

Adjusted weighted average shares outstanding - diluted computation

 

  51,638  

 

  39,543  
 
Earnings per common share:
Income from continuing operations $ 0.35 $ 0.35 $ 0.56 $ 0.55
Income (loss) from discontinued operations   -     -     -     -  
Net income $ 0.35   $ 0.35   $ 0.56   $ 0.55  
 
   

(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.

 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results
(Unaudited)
(In thousands, except per share amounts and statistics)
 
 

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months ended March 31, 2012 and 2011 before certain charges or on a core basis. The charges that were excluded from core operating results for the three months ended March 31, 2012 relate to severance costs, a lease cancellation charge and other miscellaneous costs in connection with the closing of a regional office and a LTAC hospital, and transaction costs. The charges that were excluded from core operating results for the three months ended March 31, 2011 relate to transaction and financing costs.

 

The use of these non-GAAP measurements are not intended to replace the presentation of the Company's financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the three months ended March 31, 2012 and 2011 that the Company believes are not representative of its ongoing operations due to the materiality and nature of the charges. The Company's core operating results also represent a key performance measure for the purposes of evaluating performance internally.

 
  Three months ended
March 31,
2012   2011
Detail of charges:
Severance and other miscellaneous costs ($2,344 )

$ -

Lease cancellation charge (1,750 ) -
Transaction costs (485 ) (4,179 )
Financing costs (in connection with RehabCare acquisition) -   (1,999 )
(4,579 ) (6,178 )
Income tax benefit 1,774   2,223  
Charges net of income taxes (2,805 ) (3,955 )
Allocation to participating unvested restricted stockholders 38   75  
Available to common stockholders ($2,767 ) ($3,880 )
 
Weighted average diluted shares outstanding 51,638   39,543  
 
Diluted loss per common share related to charges ($0.05 ) ($0.10 )
 
Reconciliation of income from continuing operations before charges:
Income from continuing operations before charges $20,886 $26,231
Charges (2,805 ) (3,955 )
Reported income from continuing operations $18,081   $22,276  
 
Reconciliation of diluted earnings per common share from continuing operations before charges:
Diluted earnings per common share before charges (a) $0.40 $0.65
Charges (0.05 ) (0.10 )
Reported diluted earnings per common share $0.35   $0.55  
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 40.6 % 40.5 %
Impact on effective income tax rate as a result of charges 0.3 % 0.7 %
Reported effective income tax rate 40.9 % 41.2 %
 

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.3 million and $0.5 million for the three months ended March 31, 2012 and 2011, respectively, for the allocation of income to participating unvested restricted stockholders.

 
 

KINDRED HEALTHCARE, INC.

Reconciliation of Earnings Guidance for 2012 - Continuing Operations (a)
(Unaudited)
(In millions, except per share amounts)
       
 
As of May 1, 2012 As of February 23, 2012
Low High Low High
 
Operating income $ 868   $ 884   $ 868   $ 884  
 
Rent 432 432 434 434
Depreciation and amortization 199 199 197 197
Interest, net   107     107     107     107  
Income from continuing operations before income taxes 130 146 130 146
Provision for income taxes   54     60     54     60  
Income from continuing operations 76 86 76 86
Earnings attributable to noncontrolling interests   (3 )   (3 )   (3 )   (3 )
Income from continuing operations attributable to the Company 73 83 73 83
Allocation to participating unvested restricted stockholders   (2 )   (2 )   (2 )   (2 )
Available to common stockholders $ 71   $ 81   $ 71   $ 81  
 
 
Earnings per diluted share $ 1.35 $ 1.55 $ 1.35 $ 1.55
 
Shares used in computing earnings per diluted share 52.5 52.5 52.5 52.5
 
   

(a)

The Company's earnings guidance excludes the effect of (1) any costs associated with the closing of a regional office and a LTAC hospital, (2) any transaction-related charges, (3) any other reimbursement changes, (4) any acquisitions or divestitures, (5) any impairment charges, or (6) any repurchases of common stock.

Source: Kindred Healthcare, Inc.

Kindred Healthcare, Inc.
Richard A. Lechleiter, 502-596-7734
Executive Vice President and
Chief Financial Officer