Skip to main content
Kindred Healthcare

Call us to talk to a Registered Nurse

1.866.KINDRED | 1.866.546.3733

Kindred Healthcare Reports Second Quarter Results

August 2, 2012
Click Here for PDF

Reported Results of $0.29 Per Diluted Share Include Charges of $0.12 Per Share Primarily Related to Litigation and Divestitures

Company Continues to Exceed Quality and Clinical Outcome Goals and Maintains Annual Earnings Guidance Range

LOUISVILLE, Ky.--(BUSINESS WIRE)--Aug. 2, 2012-- Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the second quarter ended June 30, 2012. The Company’s consolidated financial statements include the operating results of RehabCare Group, Inc. (“RehabCare”) since the closing of the acquisition on June 1, 2011.

Second Quarter Highlights:

  • Consolidated revenues rose 19% to $1.5 billion
    • RehabCare acquisition added $359 million to current quarter revenues and $114 million to last year’s second quarter
  • RehabCare synergy plan reaches $70 million annual goal
  • Hospital results were bolstered by the RehabCare acquisition, volume growth and cost efficiencies
    • Reported admissions grew 26% from last year; same-facility admissions grew 3%
    • Excluding disclosed charges, operating income grew 37% to $149 million (compared to reported amount of $141 million)
  • Nursing and rehabilitation center division operating income improved to $71 million from $66 million in the first quarter of 2012
  • RehabCare contract therapy division operating income rose to $41 million from $30 million in the first quarter of 2012 as operating margins rebounded to 12.4%
  • PeopleFirst home health and hospice division reported significant revenue and operating income growth
  • Corporate overhead declined as a percent of revenues to 2.9% from 3.4% in last year’s second quarter
  • Operating cash flows improved from first quarter levels to $53 million despite $14 million in Medicaid payments deferred by states until July

Second Quarter Results

Continuing Operations

Consolidated revenues for the second quarter ended June 30, 2012 rose 19% to $1.5 billion compared to $1.3 billion in the second quarter last year. Income from continuing operations for the second quarter of 2012 totaled $15.5 million or $0.29 per diluted share compared to a loss of $6.1 million or $0.14 per diluted share in the second quarter last year.

Second quarter 2012 operating results included pretax charges of approximately $10 million related to (1) employment-related lawsuits, (2) the closing of two long-term acute care (“LTAC”) hospitals and the cancellation of a sub-acute unit project, (3) costs incurred in connection with the planned divestiture of 54 leased nursing and rehabilitation centers, and (4) transaction-related costs. These items reduced income from continuing operations by approximately $6.1 million or $0.12 per diluted share.

Second quarter 2011 operating results included certain charges that reduced income from continuing operations by $29.5 million or $0.68 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 condensed consolidated statement of operations for all historical periods.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “Our second quarter reflects strong results in our hospital division, RehabCare contract therapy division and our PeopleFirst home health and hospice division as well as continued improvement in our nursing center division following the significant reimbursement and regulatory changes that became effective in the fourth quarter of 2011. In addition, we have now reached our $70 million annual synergy goal in connection with the RehabCare acquisition.”

Commenting on the Company’s ongoing efforts to improve the quality of its services, Mr. Diaz noted, “We recently announced that Barbara Baylis, Senior Vice President of Clinical and Residential Services for Kindred’s Nursing Center Division, was named the 2012 recipient of the prestigious Mary K. Ousley Champion of Quality Award by the American Health Care Association. Thanks to Barbara’s hard work and commitment to quality, our nursing and rehabilitation centers have shown improved patient outcomes, patient satisfaction, and have established a national reputation for quality care. Our nursing and rehabilitation centers continue to outperform national and peer benchmarks on key quality indicators, including performance on government quality inspections where Kindred ranks first on annual surveys compared with other large national providers.”

With respect to the Company’s ongoing development activities, Mr. Diaz noted, “During the first half of 2012, the Company opened a new 46-bed free-standing inpatient rehabilitation hospital in suburban Houston, relocated and expanded by 30 beds an existing free-standing inpatient rehabilitation hospital in Austin, Texas, and signed contracts to manage six additional acute rehabilitation units. We also acquired two previously leased hospitals for $68 million, further increasing the percentage of our owned facilities. In addition, projects to expand and upgrade LTAC hospitals in Dayton, Ohio and Charleston, South Carolina, including two co-located hospital based sub-acute units, are proceeding in line with our plans. Finally, we completed the acquisition of a home health company in Chicago earlier this week, expanding our home health operations in one of our key cluster markets.”

Recent Medicare Rules

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

Included in the 2012 CMS Rule is (1) a market basket increase to the standard federal payment rate of 2.6%; (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) 0.7% 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 0.999265 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 $15,408. Effective December 29, 2012, the 2012 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 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) allows 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 CMS Rule, the Company expects that LTAC Medicare payment rates will decline slightly in 2013 compared to current rates. The 2012 CMS Rule does not include the impact of a 2% sequestration payment reduction mandated by Congress that is expected to begin in February 2013.

Commenting on the 2012 CMS Rule, Mr. Diaz stated, “We appreciate CMS’s commitment to continuing to work with the American Hospital Association, the Federation of American Hospitals and the Acute Long Term Hospital Association on certification criteria and a permanent resolution of the 25 Percent Rule, but we are very disappointed that, in the face of compelling data to the contrary, the agency moved forward with the budget neutrality adjustment as proposed.”

On July 27, 2012, CMS issued final regulations updating Medicare payment rates for skilled nursing and rehabilitation centers effective October 1, 2012. These final regulations implement a net market basket increase of 1.8% consisting of (1) a 2.5% market basket inflation increase, less (2) a 0.7% adjustment to account for the effect of a productivity adjustment.

On July 25, 2012, CMS issued final regulations regarding Medicare reimbursement for inpatient rehabilitation facilities for the fiscal year beginning October 1, 2012. Included in these final regulations are (1) a market basket increase to the standard payment conversion factor of 2.7%; (2) offsets to the standard payment conversion factor mandated by the ACA of: (a) 0.7% to account for the effect of a productivity adjustment, and (b) 0.1% as required by statute; (3) adjustments to area wage indexes; and (4) a decrease in the high cost outlier threshold per discharge to $10,466. CMS has projected the impact of these changes will result in a 2.1% increase to average Medicare payments to inpatient rehabilitation facilities.

On July 24, 2012, CMS issued final regulations regarding Medicare payment rates for hospice providers effective October 1, 2012. These final regulations implement a net market basket increase of 1.6% consisting of: (1) a 2.6% market basket inflation increase, less (2) offsets to the standard payment conversion factor mandated by the ACA of: (a) a 0.7% adjustment to account for the effect of a productivity adjustment, and (b) 0.3% as required by statute. CMS has projected the impact of these changes will result in a 0.9% increase in payments to hospice providers.

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 three LTAC hospitals and the cancellation of a sub-acute unit project, (2) costs associated with employment-related lawsuits, (3) employee retention costs incurred in connection with the decision to allow leases to expire for 54 nursing and rehabilitation centers leased from Ventas, Inc. (“Ventas”) (NYSE:VTR), (4) any transaction-related charges, (5) any other reimbursement changes, (6) any acquisitions or divestitures, (7) any impairment charges, or (8) any repurchases of common stock.

The Company expects consolidated revenues for 2012 to approximate $6.2 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $868 million to $884 million. Rent expense is expected to approximate $432 million, while depreciation and amortization should approximate $201 million. Net interest expense is expected to approximate $107 million. The Company expects to report income from continuing operations for 2012 between $73 million and $83 million or $1.35 to $1.55 per diluted share (based upon diluted shares of 52 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 $125 million to $135 million, including approximately $15 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 to its routine capital expenditures, the Company expects that its previously announced development projects related to new and replacement hospitals and new transitional care centers will approximate $40 million to $45 million in 2012.

Operating cash flows in excess of the Company’s routine and development capital spending programs, which are expected to approximate $75 million to $80 million, will be available to repay debt or fund future acquisitions.

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the second quarter 2012 conference call through a link on the Company’s website at www.kindredhealthcare.com. The conference call will be held August 3, 2012 at 11:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately 2:00 p.m. on August 3 by dialing (719) 457-0820, access code: 4223767. The replay will be available through August 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 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 efforts to repeal or amend the law. The U.S. Supreme Court recently upheld the constitutionality of the ACA. Future 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 on the Company and the healthcare industry. 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, 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 CMS Rule which, among other things, will reduce Medicare reimbursement to the Company’s LTAC hospitals in 2013 and beyond by imposing a budget neutrality adjustment and modifying the short-stay outlier rules, (c) the impact of final rules issued by CMS on July 29, 2011 which significantly reduced Medicare reimbursement to nursing centers and changed payments for the provision of group therapy services effective October 1, 2011, (d) the impact of the Budget Control Act of 2011 which will automatically reduce federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. At this time, the Company believes this will result in an automatic 2% reduction on each claim submitted to Medicare beginning February 1, 2013, (e) changes in the reimbursement rates or the methods or timing of payment from third party payors, including commercial payors and the Medicare and Medicaid programs, changes arising from and related to the Medicare prospective payment system for LTAC hospitals, including potential changes in the Medicare payment rules, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and changes in Medicare and Medicaid reimbursements for the Company’s LTAC hospitals, nursing and rehabilitation centers, inpatient rehabilitation hospitals and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (f) the effects of additional legislative changes and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry, (g) the impact of the Medicare, Medicaid and SCHIP Extension Act of 2007, including the ability of the Company’s hospitals to adjust to potential LTAC certification, medical necessity reviews and the moratorium on future hospital development, (h) the impact of the Company’s significantly increased levels of indebtedness as a result of the RehabCare acquisition on the Company’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings, (i) the Company’s ability to successfully pursue its development activities, including through acquisitions, and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations, as and when planned, including the potential impact of unanticipated issues, expenses and liabilities associated with those activities, (j) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (k) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (l) the Company’s ability to meet its rental and debt service obligations, (m) the Company’s ability to operate pursuant to the terms of its debt obligations, and comply with its covenants thereunder, and its ability to operate pursuant to its master lease agreements with Ventas, (n) the condition of the financial markets, including volatility and weakness in the equity, capital and credit markets, which could limit the availability and terms of debt and equity financing sources to fund the requirements of the Company’s businesses, or which could negatively impact the Company’s investment portfolio, (o) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (p) the Company’s ability to control costs, particularly labor and employee benefit costs, (q) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (r) the Company’s ability to attract and retain key executives and other healthcare personnel, (s) the increase in the costs of defending and insuring against alleged professional liability and other claims and the Company’s ability to predict the estimated costs related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (t) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (u) the Company’s ability to successfully dispose of unprofitable facilities, (v) events or circumstances which could result in the impairment of an asset or other charges, such as the impact of the Medicare reimbursement regulations that resulted in the Company recording significant impairment charges in 2011, (w) changes in generally accepted accounting principles (“GAAP”) or practices, and changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), and (x) the Company’s ability to maintain an effective system of internal control over financial reporting. Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the second quarter and six months ended June 30, 2012 and 2011 before certain charges or on a core basis. A reconciliation of the non-GAAP measurements to the GAAP measurements is included in this press release.

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

About Kindred Healthcare

Kindred Healthcare, Inc., a top-125 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of $6 billion and approximately 76,000 employees in 46 states. At June 30, 2012, Kindred through its subsidiaries provided healthcare services in 2,154 locations, including 118 long-term acute care hospitals, six inpatient rehabilitation hospitals, 224 nursing and rehabilitation centers, 27 sub-acute units, 52 hospice and home care locations, 102 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,625 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 Six months ended
June 30, June 30,
2012 2011 2012 2011
 
Revenues $ 1,535,828   $ 1,292,592   $ 3,115,798   $ 2,485,013
 
Income (loss) from continuing operations $ 15,277 $ (6,540 ) $ 33,809 $ 15,736

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

  (14 )   587     96     408
Net income (loss) 15,263 (5,953 ) 33,905 16,144
(Earnings) loss attributable to noncontrolling interests   239     421     (212 )   421
Income (loss) attributable to Kindred $ 15,502   $ (5,532 ) $ 33,693   $ 16,565
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 15,516 $ (6,119 ) $ 33,597 $ 16,157
Income (loss) from discontinued operations   (14 )   587     96     408
Net income (loss) $ 15,502   $ (5,532 ) $ 33,693   $ 16,565
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.29 $ (0.14 ) $ 0.64 $ 0.39
Income (loss) from discontinued operations   -     0.01     -     0.01
Net income (loss) $ 0.29   $ (0.13 ) $ 0.64   $ 0.40
 
Diluted:
Income (loss) from continuing operations $ 0.29 $ (0.14 ) $ 0.64 $ 0.38
Income (loss) from discontinued operations   -     0.01     -     0.01
Net income (loss) $ 0.29   $ (0.13 ) $ 0.64   $ 0.39
 

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

Basic 51,664 43,231 51,633 41,145
Diluted 51,675 43,231 51,657 41,661
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
         
Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
 
Revenues $ 1,535,828   $ 1,292,592   $ 3,115,798   $ 2,485,013  
 
Salaries, wages and benefits 907,106 765,133 1,852,408 1,443,828
Supplies 108,238 96,718 219,533 186,740
Rent 107,541 95,677 215,509 187,130
Other operating expenses 312,995 287,132 623,959 546,501
Other income (2,698 ) (2,880 ) (5,446 ) (5,665 )
Impairment charges 329 - 1,196 -
Depreciation and amortization 49,802 37,871 98,492 70,420
Interest expense 26,716 23,157 53,294 28,885
Investment income   (275 )   (257 )   (567 )   (752 )
  1,509,754     1,302,551     3,058,378     2,457,087  
Income (loss) from continuing operations before income taxes 26,074 (9,959 ) 57,420 27,926
Provision (benefit) for income taxes   10,797     (3,419 )   23,611     12,190  
Income (loss) from continuing operations 15,277 (6,540 ) 33,809 15,736

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

  (14 )   587     96     408  
Net income (loss) 15,263 (5,953 ) 33,905 16,144
(Earnings) loss attributable to noncontrolling interests   239     421     (212 )   421  
Income (loss) attributable to Kindred $ 15,502   $ (5,532 ) $ 33,693   $ 16,565  
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 15,516 $ (6,119 ) $ 33,597 $ 16,157
Income (loss) from discontinued operations   (14 )   587     96     408  
Net income (loss) $ 15,502   $ (5,532 ) $ 33,693   $ 16,565  
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.29 $ (0.14 ) $ 0.64 $ 0.39
Income (loss) from discontinued operations   -     0.01     -     0.01  
Net income (loss) $ 0.29   $ (0.13 ) $ 0.64   $ 0.40  
 
Diluted:
Income (loss) from continuing operations $ 0.29 $ (0.14 ) $ 0.64 $ 0.38
Income (loss) from discontinued operations   -     0.01     -     0.01  
Net income (loss) $ 0.29   $ (0.13 ) $ 0.64   $ 0.39  
 

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

Basic 51,664 43,231 51,633 41,145
Diluted 51,675 43,231 51,657 41,661
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
     
June 30, December 31,
2012 2011
ASSETS
Current assets:
Cash and cash equivalents $ 37,566 $ 41,561
Cash - restricted 5,422 5,551
Insurance subsidiary investments 75,922 70,425
Accounts receivable less allowance for loss 1,060,462 994,700
Inventories 31,248 31,060
Deferred tax assets 24,101 17,785
Income taxes 6,361 39,513
Other   35,438     32,687  
1,276,520 1,233,282
 
Property and equipment 2,108,365 1,975,063
Accumulated depreciation   (998,198 )   (916,022 )
1,110,167 1,059,041
 
Goodwill 1,088,379 1,084,655
Intangible assets less accumulated amortization 436,123 447,207
Assets held for sale 4,662 5,612
Insurance subsidiary investments 119,208 110,227
Other   207,471     198,469  
Total assets $ 4,242,530   $ 4,138,493  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 204,293 $ 216,801
Salaries, wages and other compensation 382,150 407,493
Due to third party payors 26,367 37,306
Professional liability risks 46,458 46,010
Other accrued liabilities 134,037 130,693
Long-term debt due within one year   9,611     10,620  
802,916 848,923
 
Long-term debt 1,638,280 1,531,882
Professional liability risks 231,477 217,717
Deferred tax liabilities 7,557 17,955
Deferred credits and other liabilities 200,599 191,771
 
Noncontrolling interests-redeemable 9,373 9,704
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 52,965 shares - June 30, 2012 and 52,116 shares - December 31, 2011

13,241 13,029
Capital in excess of par value 1,138,825 1,138,189
Accumulated other comprehensive loss (1,445 ) (1,469 )
Retained earnings   172,865     139,172  
1,323,486 1,288,921
Noncontrolling interests-nonredeemable   28,842     31,620  
Total equity   1,352,328     1,320,541  
Total liabilities and equity $ 4,242,530   $ 4,138,493  
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
         
Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
Cash flows from operating activities:
Net income (loss) $ 15,263 $ (5,953 ) $ 33,905 $ 16,144

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

Depreciation and amortization 49,802 37,871 98,492 70,420
Amortization of stock-based compensation costs 3,077 3,462 4,879 6,106
Amortization of deferring financing costs 2,359 2,244 4,716 3,090
Payment of lender fees related to debt issuance - (46,232 ) - (46,232 )
Provision for doubtful accounts 6,041 8,426 13,537 14,256
Deferred income taxes (13,243 ) (1,959 ) (16,905 ) (2,689 )
Impairment charges 329 - 1,196 -
Other 1,919 (227 ) 2,345 (703 )
Change in operating assets and liabilities:
Accounts receivable (23,891 ) (43,935 ) (81,088 ) (80,575 )
Inventories and other assets 498 870 (15,407 ) (2,655 )
Accounts payable (2,983 ) 13,565 (12,533 ) 1,217
Income taxes 229 (12,950 ) 30,731 27,673
Due to third party payors (1,963 ) 6,577 (10,939 ) 3,555
Other accrued liabilities   15,586     43,093     (3,331 )   41,681  
Net cash provided by operating activities   53,023     4,852     49,598     51,288  
 
Cash flows from investing activities:
Routine capital expenditures (28,759 ) (33,950 ) (50,865 ) (58,668 )
Development capital expenditures (12,376 ) (14,309 ) (22,998 ) (25,418 )
Acquisitions, net of cash acquired (17,420 ) (651,952 ) (67,868 ) (659,979 )
Acquisition deposit 16,866 - - -
Sale of assets - - 1,110 1,714
Purchase of insurance subsidiary investments (7,425 ) (9,220 ) (21,198 ) (17,037 )
Sale of insurance subsidiary investments 8,004 8,533 22,010 27,189
Net change in insurance subsidiary cash and cash equivalents (1,363 ) (2,744 ) (14,486 ) (4,044 )
Change in other investments 182 - 451 1,000
Other   (255 )   (161 )   (1,004 )   (29 )
Net cash used in investing activities   (42,546 )   (703,803 )   (154,848 )   (735,272 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 449,300 654,900 964,700 1,100,100
Repayment of borrowings under revolving credit (457,500 ) (814,900 ) (854,500 ) (1,275,100 )
Proceeds from issuance of senior unsecured notes - 550,000 - 550,000
Proceeds from issuance of term loan, net of discount - 693,000 - 693,000
Repayment of other long-term debt (2,645 ) (345,666 ) (5,311 ) (345,688 )
Payment of deferred financing costs (270 ) (6,443 ) (313 ) (6,860 )
Contribution made by noncontrolling interest 200 - 200 -
Cash distributed to noncontrolling interests (2,133 ) - (3,521 ) -
Issuance of common stock - 1,604 - 3,019
Other   -     355     -     744  
Net cash provided by (used in) financing activities   (13,048 )   732,850     101,255     719,215  
Change in cash and cash equivalents (2,571 ) 33,899 (3,995 ) 35,231
Cash and cash equivalents at beginning of period   40,137     18,500     41,561     17,168  
Cash and cash equivalents at end of period $ 37,566   $ 52,399   $ 37,566   $ 52,399  
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
             
 
2011 Quarters 2012 Quarters
First Second Third Fourth First Second
 
Revenues $ 1,192,421   $ 1,292,592   $ 1,514,062   $ 1,522,688   $ 1,579,970   $ 1,535,828  
 
Salaries, wages and benefits 678,695 765,133 900,570 911,417 945,302 907,106
Supplies 90,022 96,718 107,514 107,760 111,295 108,238
Rent 91,453 95,677 105,511 106,616 107,968 107,541
Other operating expenses 259,369 287,132 305,305 312,674 310,964 312,995
Other income (2,785 ) (2,880 ) (2,815 ) (2,711 ) (2,748 ) (2,698 )
Impairment charges - - 26,712 102,569 867 329
Depreciation and amortization 32,549 37,871 46,947 48,227 48,690 49,802
Interest expense 5,728 23,157 25,790 26,244 26,578 26,716
Investment income   (495 )   (257 )   (37 )   (242 )   (292 )   (275 )
  1,154,536     1,302,551     1,515,497     1,612,554     1,548,624     1,509,754  

Income (loss) from continuing operations before income taxes

37,885 (9,959 ) (1,435 ) (89,866 ) 31,346 26,074
Provision (benefit) for income taxes   15,609     (3,419 )   (2,342 )   (16,952 )   12,814     10,797  
Income (loss) from continuing operations 22,276 (6,540 ) 907 (72,914 ) 18,532 15,277

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

  (179 )   587     1,119     1,025     110     (14 )
Net income (loss) 22,097 (5,953 ) 2,026 (71,889 ) 18,642 15,263
(Earnings) loss attributable to noncontrolling interests   -     421     (241 )   58     (451 )   239  
Income (loss) attributable to Kindred $ 22,097   $ (5,532 ) $ 1,785   $ (71,831 ) $ 18,191   $ 15,502  
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 22,276 $ (6,119 ) $ 666 $ (72,856 ) $ 18,081 $ 15,516
Income (loss) from discontinued operations   (179 )   587     1,119     1,025     110     (14 )
Net income (loss) $ 22,097   $ (5,532 ) $ 1,785   $ (71,831 ) $ 18,191   $ 15,502  
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.56 $ (0.14 ) $ 0.01 $ (1.42 ) $ 0.35 $ 0.29
Income (loss) from discontinued operations   -     0.01     0.02     0.02     -     -  
Net income (loss) $ 0.56   $ (0.13 ) $ 0.03   $ (1.40 ) $ 0.35   $ 0.29  
 
Diluted:
Income (loss) from continuing operations $ 0.55 $ (0.14 ) $ 0.01 $ (1.42 ) $ 0.35 $ 0.29
Income (loss) from discontinued operations   -     0.01     0.02     0.02     -     -  
Net income (loss) $ 0.55   $ (0.13 ) $ 0.03   $ (1.40 ) $ 0.35   $ 0.29  
 

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

Basic 39,035 43,231 51,329 51,335 51,603 51,664
Diluted 39,543 43,231 51,406 51,335 51,638 51,675
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
           
 
2011 Quarters 2012 Quarters
First Second Third Fourth First Second
Revenues:
Hospital division $ 558,974 $ 593,425 $ 684,781 $ 712,812 $ 765,823 $ 729,419
 
Nursing center division 567,472 568,199 571,226 547,202 544,319 535,644
 
Rehabilitation division:
Skilled nursing rehabilitation services 114,618 161,246 252,574 246,720 255,451 255,187
Hospital rehabilitation services   22,490     38,291     69,811     70,232     74,369     73,379  
  137,108     199,537     322,385     316,952     329,820     328,566  
 
Home health and hospice division   8,038     10,828     15,419     26,451     28,432     28,872  
1,271,592 1,371,989 1,593,811 1,603,417 1,668,394 1,622,501
 
Eliminations:
Skilled nursing rehabilitation services (57,081 ) (57,587 ) (57,922 ) (57,087 ) (58,433 ) (57,056 )
Hospital rehabilitation services (21,225 ) (20,706 ) (20,528 ) (22,167 ) (28,317 ) (27,755 )
Nursing and rehabilitation centers   (865 )   (1,104 )   (1,299 )   (1,475 )   (1,674 )   (1,862 )
  (79,171 )   (79,397 )   (79,749 )   (80,729 )   (88,424 )   (86,673 )
$ 1,192,421   $ 1,292,592   $ 1,514,062   $ 1,522,688   $ 1,579,970   $ 1,535,828  
 
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 108,385 $ 108,465 $ 125,701 $ 144,891 $ 160,669 $ 141,511 (a)
 
Nursing center division 87,350 93,532 89,592 67,791 65,533 71,005 (b)
 
Rehabilitation division:
Skilled nursing rehabilitation services 9,159 15,978 27,575 13,204 14,193 22,942
Hospital rehabilitation services   5,332     8,033     15,606     14,760     16,116     17,860  
  14,491     24,011     43,181     27,964     30,309     40,802  
 
Home health and hospice division (10 ) (447 ) 1,107 2,453 2,341 2,789
 
Corporate:
Overhead (38,315 ) (43,801 ) (48,806 ) (43,878 ) (42,728 ) (44,723 )
Insurance subsidiary   (602 )   (420 )   (750 )   (534 )   (482 )   (600 )
(38,917 ) (44,221 ) (49,556 ) (44,412 ) (43,210 ) (45,323 )
 
Impairment charges - - (26,712 ) (102,569 ) (867 ) (329 )
Transaction costs   (4,179 )   (34,851 )   (6,537 )   (5,139 )   (485 )   (597 )
Operating income 167,120 146,489 176,776 90,979 214,290 209,858
Rent (91,453 ) (95,677 ) (105,511 ) (106,616 ) (107,968 ) (107,541 ) (c)
Depreciation and amortization (32,549 ) (37,871 ) (46,947 ) (48,227 ) (48,690 ) (49,802 )
Interest, net   (5,233 )   (22,900 )   (25,753 )   (26,002 )   (26,286 )   (26,441 )

Income (loss) from continuing operations before income taxes

37,885 (9,959 ) (1,435 ) (89,866 ) 31,346 26,074
Provision (benefit) for income taxes   15,609     (3,419 )   (2,342 )   (16,952 )   12,814     10,797  
$ 22,276   $ (6,540 ) $ 907   $ (72,914 ) $ 18,532   $ 15,277  
 

__________

(a)

Includes severance ($0.6 million) and other miscellaneous costs ($2.0 million) incurred in connection with the closing of two LTAC hospitals and the cancellation of a sub-acute unit project, and $5.0 million for employment-related lawsuits.

 

(b)

Includes employee retention costs of $0.7 million incurred in connection with the decision to allow leases to expire for 54 nursing and rehabilitation centers leased from Ventas.

 

(c)

Includes lease cancellation charges of $1.1 million incurred in connection with the closing of two LTAC hospitals.

 
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
                                       
 
Second Quarter 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (a,c)   division (b) services services Total hospice Corporate costs Eliminations   Consolidated
 
Revenues $ 729,419   $ 535,644   $ 255,187   $ 73,379 $ 328,566   $ 28,872   $ -   $ -   $ (86,673 ) $ 1,535,828  
 
Salaries, wages and benefits 321,088 258,633 224,472 50,949 275,421 21,206 30,796 - (38 ) 907,106
Supplies 79,431 26,616 729 40 769 1,236 186 - - 108,238
Rent 54,719 50,229 1,359 39 1,398 609 586 - - 107,541
Other operating expenses 187,389 179,390 7,044 4,530 11,574 3,641 17,039 597 (86,635 ) 312,995
Other income - - - - - - (2,698 ) - - (2,698 )
Impairment charges 47 282 - - - - - - - 329
Depreciation and amortization 22,866 13,229 2,724 2,323 5,047 925 7,735 - - 49,802
Interest expense 273 20 - - - - 26,423 - - 26,716
Investment income   (35 )   (28 )   -     -   -     -     (212 )   -     -     (275 )
  665,778     528,371     236,328     57,881   294,209     27,617     79,855     597     (86,673 )   1,509,754  

Income from continuing operations before income taxes

$ 63,641   $ 7,273   $ 18,859   $ 15,498 $ 34,357   $ 1,255   $ (79,855 ) $ (597 ) $ -   26,074
Provision for income taxes   10,797  
Income from continuing operations $ 15,277  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 9,095 $ 3,417 $ 569 $ 60 $ 629 $ 145 $ 15,473 $ - $ - $ 28,759
Development   11,289     1,087     -     -   -     -     -     -     -     12,376  
$ 20,384   $ 4,504   $ 569   $ 60 $ 629   $ 145   $ 15,473   $ -   $ -   $ 41,135  
 
 
 
Second 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 $ 593,425   $ 568,199   $ 161,246   $ 38,291 $ 199,537   $ 10,828   $ -   $ -   $ (79,397 ) $ 1,292,592  
 
Salaries, wages and benefits 273,260 270,347 139,998 28,062 168,060 8,262 30,354 14,866 (16 ) 765,133
Supplies 67,612 27,870 614 38 652 391 193 - - 96,718
Rent 43,997 49,562 1,540 33 1,573 251 294 - - 95,677
Other operating expenses 144,088 176,450 4,656 2,158 6,814 2,622 16,554 19,985 (79,381 ) 287,132
Other income - - - - - - (2,880 ) - - (2,880 )
Depreciation and amortization 16,572 13,038 1,221 819 2,040 118 6,103 - - 37,871
Interest expense 66 22 - - - - 11,266 11,803 - 23,157
Investment income   (2 )   (20 )   (1 )   -   (1 )   -     (234 )   -     -     (257 )
  545,593     537,269     148,028     31,110   179,138     11,644     61,650     46,654     (79,397 )   1,302,551  

Income (loss) from continuing operations before income taxes

$ 47,832   $ 30,930   $ 13,218   $ 7,181 $ 20,399   $ (816 ) $ (61,650 ) $ (46,654 ) $ -   (9,959 )
Income tax benefit   (3,419 )
Loss from continuing operations $ (6,540 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 11,809 $ 8,000 $ 179 $ 72 $ 251 $ 38 $ 13,852 $ - $ - $ 33,950
Development   6,423     7,705     -     -   -     181     -     -     -     14,309  
$ 18,232   $ 15,705   $ 179   $ 72 $ 251   $ 219   $ 13,852   $ -   $ -   $ 48,259  
 

_______

(a)

Includes severance ($0.6 million) and other miscellaneous costs ($2.0 million) incurred in connection with the closing of two LTAC hospitals and the cancellation of a sub-acute unit project, and $5.0 million for employment-related lawsuits.

 

(b)

Includes employee retention costs of $0.7 million incurred in connection with the decision to allow leases to expire for 54 nursing and rehabilitation centers leased from Ventas.

 

(c)

Includes lease cancellation charges of $1.1 million incurred in connection with the closing of two LTAC hospitals.

 
KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations (Continued)

(Unaudited)
(In thousands)
                                       
 
Six months ended June 30, 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (a,c)   division (b) services services Total hospice Corporate costs Eliminations   Consolidated
 
Revenues $ 1,495,242   $ 1,079,963   $ 510,638 $ 147,748 $ 658,386   $ 57,304   $ -   $ -   $ (175,097 ) $ 3,115,798  
 
Salaries, wages and benefits 660,244 527,671 456,610 104,680 561,290 42,497 60,775 - (69 ) 1,852,408
Supplies 161,907 53,340 1,528 94 1,622 2,269 395 - - 219,533
Rent 110,086 100,167 2,751 117 2,868 1,224 1,164 - - 215,509
Other operating expenses 370,911 362,414 15,365 8,998 24,363 7,408 32,809 1,082 (175,028 ) 623,959
Other income - - - - - - (5,446 ) - - (5,446 )
Impairment charges 351 845 - - - - - - - 1,196
Depreciation and amortization 45,469 25,970 5,352 4,647 9,999 1,823 15,231 - - 98,492
Interest expense 579 48 - - - - 52,667 - - 53,294
Investment income   (43 )   (46 )   (1 )   -   (1 )   -     (477 )   -     -     (567 )
  1,349,504     1,070,409     481,605   118,536   600,141     55,221     157,118     1,082     (175,097 )   3,058,378  

Income from continuing operations before income taxes

$ 145,738 $ 9,554 $ 29,033 $ 29,212 $ 58,245 $ 2,083 $ (157,118 ) $ (1,082 ) $ - 57,420
Provision for income taxes   23,611  
Income from continuing operations $ 33,809  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 19,440 $ 7,646 $ 895 $ 106 $ 1,001 $ 269 $ 22,509 $ - $ - $ 50,865
Development   21,238     1,760     -   -   -     -     -     -     -     22,998  
$ 40,678   $ 9,406   $ 895 $ 106 $ 1,001   $ 269   $ 22,509   $ -   $ -   $ 73,863  
 
 
 
Six months ended June 30, 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 $ 1,152,399   $ 1,135,671   $ 275,864 $ 60,781 $ 336,645   $ 18,866   $ -   $ -   $ (158,568 ) $ 2,485,013  
 
Salaries, wages and benefits 526,322 543,517 241,884 44,699 286,583 14,570 58,020 14,866 (50 ) 1,443,828
Supplies 129,459 54,995 1,125 64 1,189 761 336 - - 186,740
Rent 84,296 98,946 3,049 61 3,110 440 338 - - 187,130
Other operating expenses 279,768 356,277 7,718 2,653 10,371 3,992 30,447 24,164 (158,518 ) 546,501
Other income - - - - - - (5,665 ) - - (5,665 )
Depreciation and amortization 30,850 24,831 1,875 916 2,791 223 11,725 - - 70,420
Interest expense 66 51 - - - - 14,966 13,802 - 28,885
Investment income   (3 )   (40 )   (2 )   -   (2 )   -     (707 )   -     -     (752 )
  1,050,758     1,078,577     255,649   48,393   304,042     19,986     109,460     52,832     (158,568 )   2,457,087  

Income (loss) from continuing operations before income taxes

$ 101,641 $ 57,094 $ 20,215 $ 12,388 $ 32,603 $ (1,120 ) $ (109,460 ) $ (52,832 ) $ - 27,926
Provision for income taxes   12,190  
Income from continuing operations $ 15,736  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 23,953 $ 16,155 $ 414 $ 97 $ 511 $ 58 $ 17,991 $ - $ - $ 58,668
Development   14,200     11,027     -   -   -     191     -     -     -     25,418  
$ 38,153   $ 27,182   $ 414 $ 97 $ 511   $ 249   $ 17,991   $ -   $ -   $ 84,086  
 

__________

(a)

Includes severance ($2.6 million) and other miscellaneous costs ($2.3 million) incurred in connection with the closing of a regional office and three LTAC hospitals and the cancellation of a sub-acute unit project, and $5.0 million for employment-related lawsuits.

 

(b)

Includes employee retention costs of $0.7 million incurred in connection with the decision to allow leases to expire for 54 nursing and rehabilitation centers leased from Ventas.

 

(c)

Includes lease cancellation charges of $2.9 million incurred in connection with the closing of three LTAC hospitals.

 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
             
2011 Quarters 2012 Quarters
First Second Third Fourth First Second
Hospital division data:
End of period data:
Number of hospitals:
Long-term acute care 89 120 120 121 120 118
Inpatient rehabilitation - 5 5 5 6 6
89 125 125 126 126 124
 
Number of licensed beds:
Long-term acute care 6,889 8,609 8,597 8,597 8,510 8,448
Inpatient rehabilitation - 183 183 183 229 259
6,889 8,792 8,780 8,780 8,739 8,707
 
Revenue mix %:
Medicare 60 60 60 62 62 61
Medicaid 8 8 8 7 6 6
Medicare Advantage 10 10 10 10 10 11
Commercial insurance and other 22 22 22 21 22 22
 
Admissions:
Medicare 8,504 8,913 11,002 11,682 12,400 11,544
Medicaid 1,085 1,163 1,236 1,163 1,025 1,038
Medicare Advantage 1,172 1,348 1,609 1,549 1,782 1,970
Commercial insurance and other 2,282 2,290 2,669 2,853 3,081 2,770
13,043 13,714 16,516 17,247 18,288 17,322
Admissions mix %:
Medicare 65 65 67 68 68 67
Medicaid 8 8 7 7 5 6
Medicare Advantage 9 10 10 9 10 11
Commercial insurance and other 18 17 16 16 17 16
 
Patient days:
Medicare 219,213 237,257 275,561 285,358 304,795 290,273
Medicaid 45,650 45,746 48,911 48,648 45,058 43,174
Medicare Advantage 35,639 39,503 47,819 47,738 51,129 53,822
Commercial insurance and other 70,522 72,759 83,375 84,677 89,305 85,645
371,024 395,265 455,666 466,421 490,287 472,914
Average length of stay:
Medicare 25.8 26.6 25.0 24.4 24.6 25.1
Medicaid 42.1 39.3 39.6 41.8 44.0 41.6
Medicare Advantage 30.4 29.3 29.7 30.8 28.7 27.3
Commercial insurance and other 30.9 31.8 31.2 29.7 29.0 30.9
Weighted average 28.4 28.8 27.6 27.0 26.8 27.3
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
             
2011 Quarters 2012 Quarters
First Second Third Fourth First Second
Hospital division data (continued):
Revenues per admission:
Medicare $ 39,439 $ 40,089 $ 37,408 $ 37,643 $ 38,491 $ 38,716
Medicaid 42,432 41,576 40,720 44,618 45,868 44,470
Medicare Advantage 46,217 42,708 43,616 46,154 42,632 39,541
Commercial insurance and other 54,065 56,850 57,216 52,465 53,733 57,194
Weighted average 42,856 43,271 41,462 41,330 41,876 42,109
 
Revenues per patient day:
Medicare $ 1,530 $ 1,506 $ 1,494 $ 1,541 $ 1,566 $ 1,540
Medicaid 1,009 1,057 1,029 1,067 1,043 1,069
Medicare Advantage 1,520 1,457 1,468 1,498 1,486 1,447
Commercial insurance and other 1,749 1,789 1,832 1,768 1,854 1,850
Weighted average 1,507 1,501 1,503 1,528 1,562 1,542
 
Medicare case mix index (discharged patients only) 1.21 1.22 1.17 1.14 1.17 1.17
 
Average daily census 4,122 4,344 4,953 5,070 5,388 5,197
Occupancy % 68.7 65.5 62.6 63.5 67.4 64.8
 
Annualized employee turnover % 21.2 22.1 21.4 20.3 21.8 22.2
 
Nursing center division data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased 220 220 220 220 220 220
Managed 4 4 4 4 4 4
Assisted living facilities   6   6   6   6   6   6
  230   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 26,711
Managed 485 485 485 485 485 485
Assisted living facilities   413   413   413   413   413   341
  27,665   27,585   27,585   27,561   27,561   27,537
Revenue mix %:
Medicare 38 37 36 33 34 33
Medicaid 37 38 38 40 39 41
Medicare Advantage 7 7 7 7 8 7
Private and other 18 18 19 20 19 19
 
Patient days (a):
Medicare 370,395 358,760 345,362 334,156 342,567 328,011
Medicaid 1,232,620 1,229,517 1,255,418 1,248,442 1,218,903 1,215,623
Medicare Advantage 97,460 94,483 95,751 95,730 101,312 97,583
Private and other   425,414   435,667   436,074   441,362   422,983   412,403
  2,125,889   2,118,427   2,132,605   2,119,690   2,085,765   2,053,620

________

(a)

Excludes managed facilities.

 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
             
2011 Quarters 2012 Quarters
First Second Third Fourth First Second
Nursing center division data (continued):
Patient day mix % (a):
Medicare 17 17 16 16 16 16
Medicaid 58 58 59 59 59 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 $ 484 $ 483
Total Medicare (including Part B) 579 589 599 544 536 538
Medicaid 172 173 174 176 176 178
Medicaid (net of provider taxes) (b) 155 156 155 156 156 158
Medicare Advantage 416 420 421 405 407 405
Private and other 235 240 243 241 248 250
Weighted average 267 268 268 258 261 261
 
Average daily census (a) 23,621 23,279 23,180 23,040 22,920 22,567
Admissions (a) 20,619 20,143 20,118 19,914 20,863 19,593
Occupancy % (a) 86.9 85.9 85.5 85.1 84.7 83.5
Medicare average length of stay (a) 32.9 33.4 33.0 32.1 31.8 32.2
 
Annualized employee turnover % 37.8 39.8 40.2 39.2 36.9 39.2
 
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated 50 36 23 23 23 22
Non-affiliated 50 64 77 77 77 78
 
Sites of service (at end of period) 641 1,848 1,835 1,774 1,722 1,730
Revenue per site $ 178,812 $ 137,316 $ 137,643 $ 139,077 $ 148,346 $ 147,507
 
Therapist productivity % 80.6 81.6 80.5 80.1 80.3 80.4
 
Hospital rehabilitation services:
Revenue mix %:
Company-operated 94 54 29 32 38 38
Non-affiliated 6 46 71 68 62 62
 
Sites of service (at end of period):
Inpatient rehabilitation units 1 104 102 102 100 102
LTAC hospitals 93 97 99 115 125 125
Sub-acute units 8 22 23 25 19 20
Outpatient units 12 119 114 115 111 115
Other   5   8   7   8   5   5
  119   350   345   365   360   367
 
Revenue per site $ 188,989 $ 199,661 $ 202,352 $ 192,410 $ 206,580 $ 199,943
 
Annualized employee turnover % 14.5 17.1 16.5 16.5 19.6 16.9

_______

(a)

Excludes managed facilities.

(b)

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

 
KINDRED HEALTHCARE, INC.
Earnings (Loss) Per Common Share Reconciliation (a)
(Unaudited)
(In thousands, except per share amounts)
                   
Three months ended June 30, Six months ended June 30,
2012 2011 2012 2011
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings (loss):
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations:
As reported in Statement of Operations $ 15,516 $ 15,516 $ (6,119 ) $ (6,119 ) $ 33,597 $ 33,597 $ 16,157 $ 16,157

Allocation to participating unvested restricted stockholders

  (372 )   (371 )   -     -     (633 )   (633 )   (296 )   (292 )
Available to common stockholders $ 15,144   $ 15,145   $ (6,119 ) $ (6,119 ) $ 32,964   $ 32,964   $ 15,861   $ 15,865  
 
Income (loss) from discontinued operations
As reported in Statement of Operations $ (14 ) $ (14 ) $ 587 $ 587 $ 96 $ 96 $ 408 $ 408

Allocation to participating unvested restricted stockholders

  -     -     -     -     (2 )   (2 )   (7 )   (7 )
Available to common stockholders $ (14 ) $ (14 ) $ 587   $ 587   $ 94   $ 94   $ 401   $ 401  
 
Net income (loss):
As reported in Statement of Operations $ 15,502 $ 15,502 $ (5,532 ) $ (5,532 ) $ 33,693 $ 33,693 $ 16,565 $ 16,565

Allocation to participating unvested restricted stockholders

  (372 )   (371 )   -     -     (635 )   (635 )   (303 )   (299 )
Available to common stockholders $ 15,130   $ 15,131   $ (5,532 ) $ (5,532 ) $ 33,058   $ 33,058   $ 16,262   $ 16,266  
 
Shares used in the computation:

Weighted average shares outstanding - basic computation

  51,664   51,664   43,231   43,231   51,633   51,633   41,145   41,145
Dilutive effect of employee stock options   11     -     24     516  

Adjusted weighted average shares outstanding - diluted computation

 

  51,675  

 

  43,231  

 

  51,657  

 

  41,661  
 
Earnings (loss) per common share:
Income (loss) from continuing operations $ 0.29 $ 0.29 $ (0.14 ) $ (0.14 ) $ 0.64 $ 0.64 $ 0.39 $ 0.38
Income (loss) from discontinued operations   -     -     0.01     0.01     -     -     0.01     0.01  
Net income (loss) $ 0.29   $ 0.29   $ (0.13 ) $ (0.13 ) $ 0.64   $ 0.64   $ 0.40   $ 0.39  
 

_______

(a)

Earnings (loss) 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 second quarter and six months ended June 30, 2012 and 2011 before certain charges or on a core basis. The charges that were excluded from core operating results for the second quarter ended June 30, 2012 relate to severance and employee retention costs, lease cancellation charges and other miscellaneous costs in connection with the closing of two LTAC hospitals, the cancellation of a sub-acute unit project, the decision to allow leases to expire for 54 nursing and rehabilitation centers leased from Ventas, employment-related lawsuits and transaction costs. The charges that were excluded from core operating results for the six months ended June 30, 2012 relate to severance and employee retention costs, lease cancellation charges and other miscellaneous costs in connection with the closing of a regional office and three LTAC hospitals, the cancellation of a sub-acute unit project, the decision to allow leases to expire for 54 nursing and rehabilitation centers leased from Ventas, employment-related lawsuits and transaction costs. The charges that were excluded from core operating results for the second quarter and six months ended June 30, 2011 relate to severance, 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 second quarter and six months ended June 30, 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 purpose of evaluating performance internally.

 
Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
Detail of charges:
Severance, employee retention and other miscellaneous costs ($3,263 ) ($14,866 ) ($5,607 ) ($14,866 )
Lease cancellation charges (1,172 ) - (2,922 ) -
Employment-related lawsuits (5,000 ) - (5,000 ) -
Transaction costs (597 ) (19,985 ) (1,082 ) (24,164 )
Financing costs (in connection with RehabCare acquisition) -   (11,803 ) -   (13,802 )
(10,032 ) (46,654 ) (14,611 ) (52,832 )
Income tax benefit 3,888   17,114   5,662   19,337  
Charges net of income taxes (6,144 ) (29,540 ) (8,949 ) (33,495 )
Allocation to participating unvested restricted stockholders 147   -   169   606  
Available to common stockholders ($5,997 ) ($29,540 ) ($8,780 ) ($32,889 )
 
Weighted average diluted shares outstanding 51,675   43,231   51,657   41,661  
 
Diluted loss per common share related to charges ($0.12 ) ($0.68 ) ($0.17 ) ($0.79 )
 
Reconciliation of operating income before charges:
Operating income before charges $218,718 $181,340 $435,837 $352,639
Detail of charges excluded from core operating results:
Severance, employee retention and other miscellaneous costs (3,263 ) (14,866 ) (5,607 ) (14,866 )
Employment-related lawsuits (5,000 ) - (5,000 ) -
Transaction costs (597 ) (19,985 ) (1,082 ) (24,164 )
(8,860 ) (34,851 ) (11,689 ) (39,030 )
Reported operating income $209,858   $146,489   $424,148   $313,609  
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $21,660 $23,421 $42,546 $49,652
Charges net of income taxes (6,144 ) (29,540 ) (8,949 ) (33,495 )
Reported income (loss) from continuing operations $15,516   ($6,119 ) $33,597   $16,157  
 
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a) $0.41 $0.53 $0.81 $1.17
Charges net of income taxes (0.12 ) (0.68 ) (0.17 ) (0.79 )
Other -   0.01   -   -  
Reported diluted income (loss) per common share from continuing operations $0.29   ($0.14 ) $0.64   $0.38  
 

Weighted average diluted shares used to compute diluted income per common share from continuing operations before charges

51,675 43,756 51,657 41,661
Weighted average diluted shares outstanding 51,675 43,231 51,657 41,661
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 40.7 % 37.3 % 40.6 % 39.0 %
Impact of charges on effective income tax rate 0.7 % (3.0 )% 0.5 % 4.6 %
Reported effective income tax rate 41.4 % 34.3 % 41.1 % 43.6 %
 

______

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.5 million and $0.4 million for the second quarters ended June 30, 2012 and 2011, respectively, and $0.8 million and $0.9 million for the six months ended June 30, 2012 and 2011, respectively, for the allocation of income to participating unvested restricted stockholders.

   
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (a) (Continued)
(Unaudited)
(In thousands)
                           
Second quarter 2012
Charges
Severance Employment- Other Lease
Before and employee related miscellaneous Transaction cancellation As
charges retention lawsuits costs costs charges Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 149,132 $ (621 ) $ (5,000 ) $ (2,000 ) $ - $ - $ (7,621 ) $ 141,511
 
Nursing center division 71,647 (642 ) - - - - (642 ) 71,005
 
Rehabilitation division:
Skilled nursing rehabilitation services 22,942 - - - - - - 22,942
Hospital rehabilitation services   17,860     -     -     -     -     -     -     17,860  
  40,802     -     -     -     -     -     -     40,802  
 
Home health and hospice division 2,789 - - - - - - 2,789
 
Corporate:
Overhead (44,723 ) - - - - - - (44,723 )
Insurance subsidiary   (600 )   -     -     -     -     -     -     (600 )
(45,323 ) - - - - - - (45,323 )
 
Impairment charges (329 ) - - - - - - (329 )
Transaction costs   -     -     -     -     (597 )   -     (597 )   (597 )
Operating income 218,718 (1,263 ) (5,000 ) (2,000 ) (597 ) - (8,860 ) 209,858
Rent (106,369 ) - - - - (1,172 ) (1,172 ) (107,541 )
Depreciation and amortization (49,802 ) - - - - - - (49,802 )
Interest, net   (26,441 )   -     -     -     -     -     -     (26,441 )

Income from continuing operations before income taxes

36,106 (1,263 ) (5,000 ) (2,000 ) (597 ) (1,172 ) (10,032 ) 26,074
Provision for income taxes   14,685     (490 )   (1,938 )   (775 )   (231 )   (454 )   (3,888 )   10,797  
$ 21,421   $ (773 ) $ (3,062 ) $ (1,225 ) $ (366 ) $ (718 ) $ (6,144 ) $ 15,277  
 
 
Six months ended June 30, 2012
Charges
Severance Employment- Other Lease
Before and employee related miscellaneous Transaction cancellation As
charges retention lawsuits costs costs charges Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 312,063 $ (2,629 ) $ (5,000 ) $ (2,254 ) $ - $ - $ (9,883 ) $ 302,180
 
Nursing center division 137,180 (642 ) - - - - (642 ) 136,538
 
Rehabilitation division:
Skilled nursing rehabilitation services 37,171 (36 ) - - - - (36 ) 37,135
Hospital rehabilitation services   33,987     (11 )   -     -     -     -     (11 )   33,976  
  71,158     (47 )   -     -     -     -     (47 )   71,111  
 
Home health and hospice division 5,130 - - - - - - 5,130
 
Corporate:
Overhead (87,416 ) (35 ) - - - - (35 ) (87,451 )
Insurance subsidiary   (1,082 )   -     -     -     -     -     -     (1,082 )
(88,498 ) (35 ) - - - - (35 ) (88,533 )
 
Impairment charges (1,196 ) - - - - - - (1,196 )
Transaction costs   -     -     -     -     (1,082 )   -     (1,082 )   (1,082 )
Operating income 435,837 (3,353 ) (5,000 ) (2,254 ) (1,082 ) - (11,689 ) 424,148
Rent (212,587 ) - - - - (2,922 ) (2,922 ) (215,509 )
Depreciation and amortization (98,492 ) - - - - - - (98,492 )
Interest, net   (52,727 )   -     -     -     -     -     -     (52,727 )

Income from continuing operations before income taxes

72,031 (3,353 ) (5,000 ) (2,254 ) (1,082 ) (2,922 ) (14,611 ) 57,420
Provision for income taxes   29,273     (1,299 )   (1,938 )   (874 )   (419 )   (1,132 )   (5,662 )   23,611  
$ 42,758   $ (2,054 ) $ (3,062 ) $ (1,380 ) $ (663 ) $ (1,790 ) $ (8,949 ) $ 33,809  
 

______

(a)

No reconciliation is necessary for the second quarter of 2011 and the six months ended June 30, 2011 as no charges impacted the business segment results in these periods.

 
KINDRED HEALTHCARE, INC.
Reconciliation of Earnings Guidance for 2012 - Continuing Operations (a)
(Unaudited)
(In millions, except per share amounts)
       
 

As of August 2, 2012

As of May 1, 2012
Low High Low High
 
Operating income $ 868   $ 884   $ 868   $ 884  
 
Rent 432 432 432 432
Depreciation and amortization 201 201 199 199
Interest, net   107     107     107     107  
Income from continuing operations before income taxes 128 144 130 146
Provision for income taxes   53     59     54     60  
Income from continuing operations 75 85 76 86
Earnings attributable to noncontrolling interests   (2 )   (2 )   (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 52.0 52.0 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 three LTAC hospitals and the cancellation of a sub-acute unit project, (2) costs associated with employment-related lawsuits, (3) employee retention costs incurred in connection with the decision to allow leases to expire for 54 nursing and rehabilitation centers leased from Ventas, (4) any transaction-related charges, (5) any other reimbursement changes, (6) any acquisitions or divestitures, (7) any impairment charges, or (8) 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