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Kindred Healthcare Reports Solid Second Quarter Core EPS of $0.32 Excluding Certain Items

August 5, 2013
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Board Initiates Quarterly Cash Dividend of $0.12 Per Share

Second Quarter GAAP Continuing Operations Diluted EPS Totaled $0.12 Compared to Last Year’s $0.29

Company Completes Initial Phase of Repositioning Strategy Through the Disposition of 54 Ventas Nursing Centers

Disposition Lifts Continuing Operations EPS by $0.06 in Second Quarter and $0.11 in First Half of 2013

Company Maintains Fiscal 2013 Core Earnings Guidance of $1.10 to $1.30 and Raises Annual Cash Flow Guidance to Fund New Dividend Payment

LOUISVILLE, Ky.--(BUSINESS WIRE)--Aug. 5, 2013-- Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the second quarter ended June 30, 2013. During the second quarter of 2013, the Company successfully completed the disposition of 54 nursing centers leased from Ventas, Inc. (“Ventas”) (NYSE:VTR) and reflected the related operations as discontinued for all periods presented. All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.

Second Quarter Highlights:

  • Consolidated revenues declined 1% to $1.41 billion
    • Federal sequestration cuts of 2% (effective April 1) reduced consolidated revenues by over $13 million in the quarter
  • Despite soft volumes, cost management drove solid core operating performance
    • Core aggregate operating expenses declined 0.8% compared to last year’s second quarter
  • Hospital division reported another successful quarter
    • Sequestration diminished top line growth, but core operating income declined only 4% from last year
  • RehabCare division reported 7% growth in operating income driven by better cost controls
  • Home Health and Hospice revenues climbed 84% compared to last year
    • Core operating income of $4.0 million improved 42% from a year ago
  • Operating cash flows net of routine capital spending totaled $37 million in the quarter, up 49% from last year’s $24 million

Second Quarter Results

Continuing Operations

Consolidated revenues for the second quarter ended June 30, 2013 declined 1% to $1.41 billion compared to $1.42 billion in the second quarter last year. Income from continuing operations for the second quarter of 2013 totaled $6.2 million or $0.12 per diluted share compared to $15.6 million or $0.29 per diluted share in the second quarter last year.

Second quarter 2013 operating results included pretax charges of approximately $18 million related to (1) a fixed asset impairment charge and certain other costs related to the planned sale of non-strategic facilities, (2) charges associated with the modification of certain of the Company’s senior debt, and (3) transaction related costs. These items reduced income from continuing operations by $10.9 million or $0.20 per diluted share.

Second quarter 2012 operating results included certain charges that reduced income from continuing operations by $5.4 million or $0.10 per diluted share.

Discontinued Operations

During the past several 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.

Other Information

As previously announced, the Company successfully completed an amendment and restatement of its $785.5 million Term Loan Credit Agreement (the “Term Loan”) to effectively reduce its annual interest cost by 100 basis points beginning June 1, 2013. The applicable interest rate on the Term Loan, which matures on June 1, 2018, was reduced by 50 basis points to LIBOR + 325 basis points (previously LIBOR + 375 basis points). In addition, the LIBOR floor was reduced to 1.00% from 1.50%. Kindred expects that the amended and restated Term Loan will result in annualized interest savings of approximately $8 million.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “Despite significant reimbursement pressures brought on by federal sequestration cuts of 2% beginning April 1, Kindred reported solid second quarter core results. This accomplishment reflects the commitment of our caregivers, and a relentless focus on cost management across the enterprise, all while maintaining our culture of quality service and patient satisfaction. In addition, we are continuing to see the benefits of the Ventas nursing center transition to our continuing operations. The disposition of these 54 nursing centers lifted our earnings from continuing operations by $0.11 per diluted share in the first half of 2013.”

Mr. Diaz continued, “The second quarter also provided tangible evidence that our asset repositioning strategy and related capital redeployment activities are accelerating. In addition to the Ventas nursing center disposition, we recently completed the sale of seven nursing centers for $47 million, and we have announced another transaction to sell non-strategic facilities that should provide net sales proceeds of approximately $180 million before the end of the year. Finally, our ongoing review of the 2015 Ventas lease renewals will provide additional opportunities for repositioning Kindred as a stronger, more market-focused and profitable post-acute services provider.”

Commenting on the Company’s financial strength, Mr. Diaz noted, “Our financial liquidity and available capital resources to invest further in our Integrated Care Markets and acquire additional home health and hospice businesses has never been stronger. Our free operating cash flows, after funding $13 million of planned cash dividends, are expected to remain at $90 million for 2013. These free cash flows, along with over $400 million of unused revolving credit capacity, and $227 million of expected net proceeds from the announced asset sales, provide us with significant financial resources to invest in our strategic growth plan.”

Commenting on the Company’s development and acquisition activities, Mr. Diaz noted, “We recently completed the acquisition of a 54-bed transitional care (“TC”) hospital in St. Louis, and we have plans to build new transitional care centers in Phoenix, Indianapolis, Las Vegas and Louisville as we continue to expand our continuum of services in these Integrated Care Markets. In addition, we also completed two home health acquisitions and one hospice acquisition that will further expand our service offerings in Houston and West Texas. These transactions are expected to be accretive to earnings beginning in 2014.”

Quarterly Cash Dividends

The Company also announced that its Board of Directors has approved the initiation of a quarterly cash dividend to its shareholders. An initial quarterly cash dividend of $0.12 per common share will be paid on September 9, 2013 to shareholders of record as of the close of business on August 19, 2013. Future declarations of quarterly dividends will be subject to the approval of Kindred’s Board of Directors.

“We are pleased to announce the first cash dividend paid to shareholders in the Company’s history,” Mr. Diaz noted. “This cash dividend reflects the strength of our operating cash flows, our confidence in our business outlook, and our commitment to growing shareholder value. The quality and strength of our balance sheet, along with a proven track record of generating strong operating cash flows, provides us with the financial flexibility to return capital to shareholders in the form of a dividend while also continuing our strategic development activities in our key Integrated Care Markets.”

Earnings Guidance – Continuing Operations

The Company maintained its earnings guidance for 2013. The earnings guidance excludes the effect of (1) a one-time employee bonus distributed in the first quarter of 2013, (2) employee retention costs incurred in connection with the planned divestiture of non-strategic facilities, (3) any transaction-related charges, (4) charges associated with the modification of certain of the Company’s senior debt, (5) any other reimbursement changes, (6) any further acquisitions or divestitures (including the previously announced sales of non-strategic hospitals and nursing centers), (7) any impairment charges, and (8) any repurchases of common stock.

The Company expects consolidated revenues for 2013 to approximate $5.8 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $797 million to $813 million. Rent expense is expected to approximate $392 million, while depreciation and amortization should approximate $192 million. Net interest expense is expected to approximate $109 million. The Company expects to report income from continuing operations for 2013 between $60 million to $70 million or $1.10 to $1.30 per diluted share (based upon diluted shares of 52.5 million).

The Company raised its operating cash flow guidance for 2013 to a range between $235 million to $255 million (prior range was $230 million to $250 million) and lowered its estimated routine capital expenditures in 2013 to a range of $112 million to $122 million (prior range was $120 million to $130 million). In addition to its routine capital expenditures, the Company re-affirmed that its development of new or replacement TC hospitals, transitional care centers, and inpatient rehabilitation hospitals (“IRFs”) will approximate $20 million to $30 million in 2013. The new planned cash dividend will require the use of approximately $13 million in fiscal 2013, and approximately $27 million on an annual basis. Operating cash flows in excess of the Company’s routine and development capital spending programs and cash dividend payments, which are expected to approximate $90 million for 2013, will be available to repay debt and fund acquisitions.

The two previously announced transactions to sell 16 hospitals and eight nursing centers are not reflected in the Company’s earnings guidance. As previously announced, these facilities generated combined revenues of approximately $352 million and earnings before interest, income taxes, depreciation and amortization of approximately $27 million (including the allocation of approximately $11 million of overhead cost) for the year ended December 31, 2012. Aggregate rents associated with these facilities approximated $16 million in 2012.

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the second quarter 2013 conference call through a link on the Company’s website at www.kindredhealthcare.com. The conference call will be held August 6, 2013 at 11:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately 1:00 p.m. on August 6 by dialing (719) 457-0820, access code: 6192358. The replay will be available through August 15.

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. Statements in this press release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses or other financial items, and product or services line growth, together with other statements that are not historical facts, are forward-looking statements that are estimates reflecting the best judgment of the Company based upon currently available information.

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, results or stock price include, without limitation, (a) the impact of healthcare reform, which will initiate significant changes to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, including reforms resulting from the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act (collectively, the “ACA”) or future deficit reduction measures adopted at the federal or state level. Healthcare reform is affecting each of the Company’s businesses in some manner. Potential future efforts in the U.S. Congress to repeal, amend, modify or retract funding for various aspects of the ACA create additional uncertainty about the ultimate impact of the ACA on the Company and the healthcare industry. Due to the substantial regulatory changes that will need to be implemented by the Centers for Medicare and Medicaid Services (“CMS”) and others, and the numerous processes required to implement these reforms, the Company cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on the Company’s business, financial position, results of operations and liquidity, (b) the impact of final rules issued by CMS on August 1, 2012 which, among other things, will reduce Medicare reimbursement to the Company’s TC 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 the Company’s 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 (as amended by the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”)) which will automatically reduce federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. An automatic 2% reduction on each claim submitted to Medicare began on April 1, 2013, (e) the impact of the Taxpayer Relief Act which, among other things, reduces Medicare payments by 50% for subsequent procedures when multiple therapy services are provided on the same day. At this time, the Company believes that the rules related to multiple therapy services will reduce the Company’s Medicare revenues by $25 million to $30 million on an annual basis, (f) 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 long-term acute care (“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 reimbursement for the Company’s TC hospitals, nursing centers, IRFs and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (g) 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, (h) the ability of the Company’s hospitals to adjust to potential LTAC certification and medical necessity reviews, (i) the impact of the Company’s significant level of indebtedness on the Company’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings, (j) 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, (k) the Company’s ability to pay a dividend as, when and if declared by the Board of Directors, in compliance with applicable laws and the Company’s debt and other contractual arrangements, (l) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (m) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (n) the Company’s ability to meet its rental and debt service obligations, (o) 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, (p) 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, (q) the Company’s ability to control costs, particularly labor and employee benefit costs, (r) the costs of defending and insuring against alleged professional liability and other claims (including those related to pending wage and hour class action lawsuits against the Company) 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, (s) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (t) the Company’s obligations under various laws to self-report suspected violations of law by the Company to various government agencies, including any associated obligation to refund overpayments to government payors, fines and other sanctions, (u) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (v) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (w) the Company’s ability to attract and retain key executives and other healthcare personnel, (x) the Company’s ability to successfully dispose of unprofitable facilities, (y) 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 2012 and 2011, (z) changes in generally accepted accounting principles (“GAAP”) or practices, and changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), and (aa) 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 and six months ended June 30, 2013 and 2012 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 (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) 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 (loss) 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 approximately $6 billion and approximately 72,000 employees in 46 states. At June 30, 2013, Kindred through its subsidiaries provided healthcare services in 2,167 locations, including 116 transitional care hospitals, six inpatient rehabilitation hospitals, 169 nursing centers, 24 sub-acute units, 105 Kindred at Home hospice, home health and non-medical home care locations, 103 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,644 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for five 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. You can also follow us on Twitter and Facebook.

 
KINDRED HEALTHCARE, INC.
Financial Summary
(Unaudited)
(In thousands, except per share amounts)
               
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
 
Revenues $ 1,410,360   $ 1,424,918   $ 2,896,678   $ 2,891,603  
 
Income from continuing operations $ 6,300 $ 15,341 $ 16,953 $ 35,711
Discontinued operations, net of income taxes:
Income (loss) from operations (3,533 ) 278 (9,469 ) (280 )
Loss on divestiture of operations   (940 )   (356 )   (2,184 )   (1,526 )
Loss from discontinued operations   (4,473 )   (78 )   (11,653 )   (1,806 )
Net income 1,827 15,263 5,300 33,905
(Earnings) loss attributable to noncontrolling interests   (82 )   239     (498 )   (212 )
Income attributable to Kindred $ 1,745   $ 15,502   $ 4,802   $ 33,693  
 
Amounts attributable to Kindred stockholders:
Income from continuing operations $ 6,218 $ 15,580 $ 16,455 $ 35,499
Loss from discontinued operations   (4,473 )   (78 )   (11,653 )   (1,806 )
Net income $ 1,745   $ 15,502   $ 4,802   $ 33,693  
 
Earnings per common share:
Basic:
Income from continuing operations $ 0.12 $ 0.29 $ 0.31 $ 0.67
Discontinued operations:
Income (loss) from operations (0.07 ) 0.01 (0.18 ) -
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.03 )
Loss from discontinued operations   (0.09 )   -     (0.22 )   (0.03 )
Net income $ 0.03   $ 0.29   $ 0.09   $ 0.64  
 
Diluted:
Income from continuing operations $ 0.12 $ 0.29 $ 0.31 $ 0.67
Discontinued operations:
Income (loss) from operations (0.07 ) 0.01 (0.18 ) -
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.03 )
Loss from discontinued operations   (0.09 )   -     (0.22 )   (0.03 )
Net income $ 0.03   $ 0.29   $ 0.09   $ 0.64  
 
Shares used in computing earnings per common share:
Basic 52,265 51,664 52,164 51,633
Diluted 52,284 51,675 52,184 51,657
 
 
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,
2013 2012 2013 2012
 
Revenues $ 1,410,360   $ 1,424,918   $ 2,896,678   $ 2,891,603  
 
Salaries, wages and benefits 829,407 848,342 1,735,413 1,732,580
Supplies 97,818 101,648 199,698 206,279
Rent 97,741 96,420 194,542 191,594
Other operating expenses 284,538 282,256 572,396 561,371
Other income (24 ) (3,154 ) (1,022 ) (6,292 )
Impairment charges 16,228 279 16,588 1,053
Depreciation and amortization 46,338 46,499 95,651 91,751
Interest expense 29,086 26,715 57,260 53,292
Investment income   (1,481 )   (265 )   (1,571 )   (550 )
  1,399,651     1,398,740     2,868,955     2,831,078  
Income from continuing operations before income taxes 10,709 26,178 27,723 60,525
Provision for income taxes   4,409     10,837     10,770     24,814  
Income from continuing operations 6,300 15,341 16,953 35,711
Discontinued operations, net of income taxes:
Income (loss) from operations (3,533 ) 278 (9,469 ) (280 )
Loss on divestiture of operations   (940 )   (356 )   (2,184 )   (1,526 )
Loss from discontinued operations   (4,473 )   (78 )   (11,653 )   (1,806 )
Net income 1,827 15,263 5,300 33,905
(Earnings) loss attributable to noncontrolling interests   (82 )   239     (498 )   (212 )
Income attributable to Kindred $ 1,745   $ 15,502   $ 4,802   $ 33,693  
 
Amounts attributable to Kindred stockholders:
Income from continuing operations $ 6,218 $ 15,580 $ 16,455 $ 35,499
Loss from discontinued operations   (4,473 )   (78 )   (11,653 )   (1,806 )
Net income $ 1,745   $ 15,502   $ 4,802   $ 33,693  
 
Earnings per common share:
Basic:
Income from continuing operations $ 0.12 $ 0.29 $ 0.31 $ 0.67
Discontinued operations:
Income (loss) from operations (0.07 ) 0.01 (0.18 ) -
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.03 )
Loss from discontinued operations   (0.09 )   -     (0.22 )   (0.03 )
Net income $ 0.03   $ 0.29   $ 0.09   $ 0.64  
 
Diluted:
Income from continuing operations $ 0.12 $ 0.29 $ 0.31 $ 0.67
Discontinued operations:
Income (loss) from operations (0.07 ) 0.01 (0.18 ) -
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.03 )
Loss from discontinued operations   (0.09 )   -     (0.22 )   (0.03 )
Net income $ 0.03   $ 0.29   $ 0.09   $ 0.64  
 
Shares used in computing earnings per common share:
Basic 52,265 51,664 52,164 51,633
Diluted 52,284 51,675 52,184 51,657
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
       
June 30, December 31,
2013 2012
ASSETS
Current assets:
Cash and cash equivalents $ 37,427 $ 50,007
Cash - restricted 5,046 5,197
Insurance subsidiary investments 93,952 86,168
Accounts receivable less allowance for loss 1,036,562 1,038,605
Inventories 30,723 32,021
Deferred tax assets 20,433 12,663
Income taxes 14,901 13,573
Other   32,725     35,532  
1,271,769 1,273,766
 
Property and equipment 2,168,640 2,226,903
Accumulated depreciation   (1,071,595 )   (1,083,777 )
1,097,045 1,143,126
 
Goodwill 1,041,796 1,041,266
Intangible assets less accumulated amortization 429,752 439,767
Assets held for sale 2,803 4,131
Insurance subsidiary investments 150,034 116,424
Other   221,452     219,466  
Total assets $ 4,214,651   $ 4,237,946  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 190,279 $ 210,668
Salaries, wages and other compensation 370,082 389,009
Due to third party payors 26,205 35,420
Professional liability risks 59,362 54,088
Other accrued liabilities 123,824 137,204
Long-term debt due within one year   8,356     8,942  
778,108 835,331
 
Long-term debt 1,662,286 1,648,706
Professional liability risks 246,386 236,630
Deferred tax liabilities 10,622 9,764
Deferred credits and other liabilities 218,072 214,671
 
Equity:

Stockholders’ equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 54,052 shares - June 30, 2013 and 53,280 shares - December 31, 2012

13,513 13,320
Capital in excess of par value 1,147,787 1,145,922
Accumulated other comprehensive loss (1,023 ) (1,882 )
Retained earnings   103,227     98,799  
1,263,504 1,256,159
Noncontrolling interests   35,673     36,685  
Total equity   1,299,177     1,292,844  
Total liabilities and equity $ 4,214,651   $ 4,237,946  
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
               
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
Cash flows from operating activities:
Net income $ 1,827 $ 15,263 $ 5,300 $ 33,905

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 46,960 49,802 99,914 98,492
Amortization of stock-based compensation costs 3,840 3,077 6,088 4,879
Amortization of deferred financing costs 4,407 2,359 7,020 4,716
Payment of lender fees related to debt issuance (1,600 ) - (1,600 ) -
Provision for doubtful accounts 10,071 6,041 21,337 13,537
Deferred income taxes (24,977 ) (13,243 ) (25,321 ) (16,905 )
Impairment charges 16,279 329 16,715 1,196
Loss on divestiture of discontinued operations 940 356 2,184 1,526
Other (1,284 ) 1,690 (864 ) 1,967
Change in operating assets and liabilities:
Accounts receivable 48,294 (23,891 ) (19,117 ) (81,088 )
Inventories and other assets 4,747 498 (3,400 ) (15,407 )
Accounts payable (3,288 ) (2,983 ) (19,078 ) (12,533 )
Income taxes 3,622 455 15,792 31,697
Due to third party payors (8,187 ) (1,963 ) (9,215 ) (10,939 )
Other accrued liabilities   (48,017 )   15,233     (17,288 )   (5,445 )
Net cash provided by operating activities   53,634     53,023     78,467     49,598  
 
Cash flows from investing activities:
Routine capital expenditures (17,430 ) (28,759 ) (39,800 ) (50,865 )
Development capital expenditures (5,086 ) (12,376 ) (7,474 ) (22,998 )
Acquisitions, net of cash acquired (26,933 ) (17,420 ) (26,933 ) (67,868 )
Acquisition deposit - 16,866 - -
Sale of assets 7,243 - 12,303 1,110
Purchase of insurance subsidiary investments (11,759 ) (7,425 ) (22,595 ) (21,198 )
Sale of insurance subsidiary investments 15,526 8,004 25,528 22,010
Net change in insurance subsidiary cash and cash equivalents (9,782 ) (1,363 ) (42,878 ) (14,486 )
Change in other investments 39 182 358 451
Other   (77 )   (255 )   (221 )   (1,004 )
Net cash used in investing activities   (48,259 )   (42,546 )   (101,712 )   (154,848 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 377,900 449,300 861,400 964,700
Repayment of borrowings under revolving credit (385,200 ) (457,500 ) (844,400 ) (854,500 )
Repayment of other long-term debt (2,060 ) (2,645 ) (4,726 ) (5,311 )
Payment of deferred financing costs (455 ) (270 ) (657 ) (313 )
Contribution made by noncontrolling interests - 200 - 200
Distribution made to noncontrolling interests (1,019 ) (2,133 ) (1,510 ) (3,521 )
Issuance of common stock 203 - 207 -
Other   19     -     351     -  
Net cash provided by (used in) financing activities   (10,612 )   (13,048 )   10,665     101,255  
Change in cash and cash equivalents (5,237 ) (2,571 ) (12,580 ) (3,995 )
Cash and cash equivalents at beginning of period   42,664     40,137     50,007     41,561  
Cash and cash equivalents at end of period $ 37,427   $ 37,566   $ 37,427   $ 37,566  
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
                       
2012 Quarters 2013 Quarters
First Second Third Fourth First Second
 
Revenues $ 1,466,685   $ 1,424,918   $ 1,417,789   $ 1,441,794   $ 1,486,318   $ 1,410,360  
 
Salaries, wages and benefits 884,238 848,342 855,652 859,282 906,006 829,407
Supplies 104,631 101,648 100,323 100,772 101,880 97,818
Rent 95,174 96,420 97,594 97,247 96,801 97,741
Other operating expenses 279,115 282,256 275,600 275,068 287,858 284,538
Other income (3,138 ) (3,154 ) (3,157 ) (3,187 ) (998 ) (24 )
Impairment charges 774 279 609 108,828 360 16,228
Depreciation and amortization 45,252 46,499 47,270 48,987 49,313 46,338
Interest expense 26,577 26,715 26,666 27,933 28,174 29,086
Investment income   (285 )   (265 )   (229 )   (252 )   (90 )   (1,481 )
  1,432,338     1,398,740     1,400,328     1,514,678     1,469,304     1,399,651  

Income (loss) from continuing operations before income taxes

34,347 26,178 17,461 (72,884 ) 17,014 10,709
Provision for income taxes   13,977     10,837     7,225     6,430     6,361     4,409  
Income (loss) from continuing operations 20,370 15,341 10,236 (79,314 ) 10,653 6,300
Discontinued operations, net of income taxes:
Income (loss) from operations (558 ) 278 (349 ) (583 ) (5,936 ) (3,533 )
Loss on divestiture of operations   (1,170 )   (356 )   (2,280 )   (939 )   (1,244 )   (940 )
Loss from discontinued operations   (1,728 )   (78 )   (2,629 )   (1,522 )   (7,180 )   (4,473 )
Net income (loss) 18,642 15,263 7,607 (80,836 ) 3,473 1,827
(Earnings) loss attributable to noncontrolling interests   (451 )   239     (41 )   (790 )   (416 )   (82 )
Income (loss) attributable to Kindred $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ 3,057   $ 1,745  
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 19,919 $ 15,580 $ 10,195 $ (80,104 ) $ 10,237 $ 6,218
Loss from discontinued operations   (1,728 )   (78 )   (2,629 )   (1,522 )   (7,180 )   (4,473 )
Net income (loss) $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ 3,057   $ 1,745  
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.38 $ 0.29 $ 0.19 $ (1.55 ) $ 0.19 $ 0.12
Discontinued operations:
Income (loss) from operations (0.01 ) 0.01 (0.01 ) (0.01 ) (0.11 ) (0.07 )
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.02 )   (0.02 )
Loss from discontinued operations   (0.03 )   -     (0.05 )   (0.03 )   (0.13 )   (0.09 )
Net income (loss) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ 0.06   $ 0.03  
 
Diluted:
Income (loss) from continuing operations $ 0.38 $ 0.29 $ 0.19 $ (1.55 ) $ 0.19 $ 0.12
Discontinued operations:
Income (loss) from operations (0.01 ) 0.01 (0.01 ) (0.01 ) (0.11 ) (0.07 )
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.02 )   (0.02 )
Loss from discontinued operations   (0.03 )   -     (0.05 )   (0.03 )   (0.13 )   (0.09 )
Net income (loss) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ 0.06   $ 0.03  
 

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

Basic 51,603 51,664 51,676 51,692 52,062 52,265
Diluted 51,638 51,675 51,709 51,692 52,083 52,284
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
                       
2012 Quarters 2013 Quarters
First Second Third Fourth First Second
Revenues:
Hospital division $ 749,383 $ 714,517 $ 699,175 $ 712,005 $ 748,214 $ 691,316
 
Nursing center division 433,408 425,812 428,207 429,862 427,194 419,497
 
Rehabilitation division:
Skilled nursing rehabilitation services 255,423 255,139 253,885 246,260 259,520 250,543
Hospital rehabilitation services   74,369     73,402     71,899     73,910     74,523     69,777  
  329,792     328,541     325,784     320,170     334,043     320,320  
 
Home health and hospice division   28,432     28,872     35,943     50,093     51,621     53,039  
1,541,015 1,497,742 1,489,109 1,512,130 1,561,072 1,484,172
 
Eliminations:
Skilled nursing rehabilitation services (44,527 ) (43,353 ) (42,506 ) (40,694 ) (44,701 ) (44,958 )
Hospital rehabilitation services (28,161 ) (27,646 ) (26,909 ) (27,620 ) (27,994 ) (27,308 )
Nursing centers   (1,642 )   (1,825 )   (1,905 )   (2,022 )   (2,059 )   (1,546 )
  (74,330 )   (72,824 )   (71,320 )   (70,336 )   (74,754 )   (73,812 )
$ 1,466,685   $ 1,424,918   $ 1,417,789   $ 1,441,794   $ 1,486,318   $ 1,410,360  
 
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 161,826 $ 142,668 $ 138,250 $ 156,924 $ 161,819 $ 142,907 (a)
 
Nursing center division 52,519 56,952 58,729 53,330 43,146 54,034
 
Rehabilitation division:
Skilled nursing rehabilitation services 12,732 21,477 18,680 22,776 14,009 22,519
Hospital rehabilitation services   16,116     17,860     16,977     18,792     18,132     19,573  
  28,848     39,337     35,657     41,568     32,141     42,092  
 
Home health and hospice division 2,341 2,789 3,645 4,933 2,786 3,961
 
Corporate:
Overhead (42,728 ) (44,723 ) (45,883 ) (45,729 ) (45,582 ) (43,199 )
Insurance subsidiary   (482 )   (600 )   (545 )   (500 )   (509 )   (384 )
(43,210 ) (45,323 ) (46,428 ) (46,229 ) (46,091 ) (43,583 )
 
Impairment charges (774 ) (279 ) (609 ) (108,828 ) (360 ) (16,228 ) (a)
Transaction costs   (485 )   (597 )   (482 )   (667 )   (2,229 )   (790 )
Operating income 201,065 195,547 188,762 101,031 191,212 182,393
Rent (95,174 ) (96,420 ) (97,594 ) (97,247 ) (96,801 ) (97,741 )
Depreciation and amortization (45,252 ) (46,499 ) (47,270 ) (48,987 ) (49,313 ) (46,338 )
Interest, net   (26,292 )   (26,450 )   (26,437 )   (27,681 )   (28,084 )   (27,605 ) (b)

Income (loss) from continuing operations before income taxes

34,347 26,178 17,461 (72,884 ) 17,014 10,709
Provision for income taxes   13,977     10,837     7,225     6,430     6,361     4,409  
$ 20,370   $ 15,341   $ 10,236   $ (79,314 ) $ 10,653   $ 6,300  

______

(a)   Includes employee retention costs of $0.2 million and impairment charges of $15.6 million incurred in connection with the planned divestiture of non-strategic facilities.
 
(b)

Includes $1.4 million of charges associated with the modification of certain of the Company’s senior debt.

 
                                       
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
 
Three months ended June 30, 2013
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (a) division services services Total hospice Corporate (b) costs Eliminations Consolidated
 
Revenues $ 691,316   $ 419,497   $ 250,543   $ 69,777 $ 320,320   $ 53,039 $ -   $ -   $ (73,812 ) $ 1,410,360  
 
Salaries, wages and benefits 300,399 198,044 219,874 46,236 266,110 39,730 25,191 - (67 ) 829,407
Supplies 73,523 20,983 785 30 815 2,325 172 - - 97,818
Rent 53,855 40,890 1,197 19 1,216 1,155 625 - - 97,741
Other operating expenses 174,305 146,691 7,326 3,930 11,256 7,023 18,218 790 (73,745 ) 284,538
Other (income) expense 182 (255 ) 39 8 47 - 2 - - (24 )
Impairment charges 15,476 752 - - - - - - - 16,228
Depreciation and amortization 21,752 10,371 2,878 2,319 5,197 1,615 7,403 - - 46,338
Interest expense 179 13 73 - 73 - 28,821 - - 29,086
Investment income   (4 )   (18 )   (74 )   -   (74 )   -   (1,385 )   -     -     (1,481 )
  639,667     417,471     232,098     52,542   284,640     51,848   79,047     790     (73,812 )   1,399,651  

Income from continuing operations before income taxes

$ 51,649   $ 2,026   $ 18,445   $ 17,235 $ 35,680   $ 1,191 $ (79,047 ) $ (790 ) $ -   10,709
Provision for income taxes   4,409  
Income from continuing operations $ 6,300  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 5,593 $ 4,259 $ 464 $ 45 $ 509 $ 339 $ 6,730 $ - $ - $ 17,430
Development   5,079     7     -     -   -     -   -     -     -     5,086  
$ 10,672   $ 4,266   $ 464   $ 45 $ 509   $ 339 $ 6,730   $ -   $ -   $ 22,516  
 
 
Three months ended June 30, 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (c) division (d) services services Total hospice Corporate costs Eliminations Consolidated
 
Revenues $ 714,517   $ 425,812   $ 255,139   $ 73,402 $ 328,541   $ 28,872 $ -   $ -   $ (72,824 ) $ 1,424,918  
 
Salaries, wages and benefits 313,579 206,396 225,453 50,949 276,402 21,206 30,796 - (37 ) 848,342
Supplies 76,942 22,505 739 40 779 1,236 186 - - 101,648
Rent 54,079 39,699 1,408 39 1,447 609 586 - - 96,420
Other operating expenses 181,531 140,235 7,470 4,530 12,000 3,641 17,039 597 (72,787 ) 282,256
Other income (203 ) (276 ) - 23 23 - (2,698 ) - - (3,154 )
Impairment charges 47 232 - - - - - - - 279
Depreciation and amortization 22,807 9,957 2,752 2,323 5,075 925 7,735 - - 46,499
Interest expense 273 19 - - - - 26,423 - - 26,715
Investment income   (35 )   (18 )   -     -   -     -   (212 )   -     -     (265 )
  649,020     418,749     237,822     57,904   295,726     27,617   79,855     597     (72,824 )   1,398,740  

Income from continuing operations before income taxes

$ 65,497   $ 7,063   $ 17,317   $ 15,498 $ 32,815   $ 1,255 $ (79,855 ) $ (597 ) $ -   26,178
Provision for income taxes   10,837  
Income from continuing operations $ 15,341  
 

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  

______

(a)   Includes employee retention costs of $0.2 million incurred in connection with the planned divestiture of non-strategic facilities.
 
(b)

Includes $1.4 million of charges associated with the modification of certain of the Company’s senior debt.

 
(c)

Includes severance ($0.5 million), other miscellaneous costs ($0.9 million) and lease cancellation charges ($0.9 million) incurred in connection with the closing of two TC hospitals and $5.0 million for employment-related lawsuits.

 
(d) Includes $0.9 million incurred in connection with the cancellation of a sub-acute unit project.
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
                                       
Six months ended June 30, 2013
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and Corporate related
division (a,b) division (a) services (a) services (a) Total hospice (a) (a,c) costs Eliminations Consolidated
 
Revenues $ 1,439,530   $ 846,691   $ 510,063   $ 144,300 $ 654,363   $ 104,660 $ -   $ -   $ (148,566 ) $ 2,896,678  
 
Salaries, wages and benefits 632,655 414,727 454,718 98,656 553,374 80,044 54,921 - (308 ) 1,735,413
Supplies 151,160 41,929 1,596 62 1,658 4,563 388 - - 199,698
Rent 107,003 81,479 2,432 36 2,468 2,341 1,251 - - 194,542
Other operating expenses 350,908 293,504 17,182 7,849 25,031 13,306 34,886 3,019 (148,258 ) 572,396
Other (income) expense 81 (649 ) 39 28 67 - (521 ) - - (1,022 )
Impairment charges 15,652 936 - - - - - - - 16,588
Depreciation and amortization 45,693 21,208 5,990 4,650 10,640 3,141 14,969 - - 95,651
Interest expense 361 33 169 - 169 - 56,697 - - 57,260
Investment income   (9 )   (30 )   (102 )   -   (102 )   -   (1,430 )   -     -     (1,571 )
  1,303,504     853,137     482,024     111,281   593,305     103,395   161,161     3,019     (148,566 )   2,868,955  

Income (loss) from continuing operations before income taxes

$ 136,026   $ (6,446 ) $ 28,039   $ 33,019 $ 61,058   $ 1,265 $ (161,161 ) $ (3,019 ) $ -   27,723
Provision for income taxes   10,770  
Income from continuing operations $ 16,953  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 15,864 $ 10,078 $ 1,069 $ 77 $ 1,146 $ 534 $ 12,178 $ - $ - $ 39,800
Development   7,467     7     -     -   -     -   -     -     -     7,474  
$ 23,331   $ 10,085   $ 1,069   $ 77 $ 1,146   $ 534 $ 12,178   $ -   $ -   $ 47,274  
 
 
Six months ended June 30, 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (d) division (e) services services Total hospice Corporate costs Eliminations Consolidated
 
Revenues $ 1,463,900   $ 859,220   $ 510,562   $ 147,771 $ 658,333   $ 57,304 $ -   $ -   $ (147,154 ) $ 2,891,603  
 
Salaries, wages and benefits 643,888 422,152 458,657 104,680 563,337 42,497 60,775 - (69 ) 1,732,580
Supplies 156,989 44,985 1,547 94 1,641 2,269 395 - - 206,279
Rent 107,230 79,011 2,848 117 2,965 1,224 1,164 - - 191,594
Other operating expenses 358,823 283,187 16,149 8,998 25,147 7,408 32,809 1,082 (147,085 ) 561,371
Other income (294 ) (575 ) - 23 23 - (5,446 ) - - (6,292 )
Impairment charges 351 702 - - - - - - - 1,053
Depreciation and amortization 45,153 19,485 5,412 4,647 10,059 1,823 15,231 - - 91,751
Interest expense 579 46 - - - - 52,667 - - 53,292
Investment income   (43 )   (29 )   (1 )   -   (1 )   -   (477 )   -     -     (550 )
  1,312,676     848,964     484,612     118,559   603,171     55,221   157,118     1,082     (147,154 )   2,831,078  

Income from continuing operations before income taxes

$ 151,224   $ 10,256   $ 25,950   $ 29,212 $ 55,162   $ 2,083 $ (157,118 ) $ (1,082 ) $ -   60,525
Provision for income taxes   24,814  
Income from continuing operations $ 35,711  
 

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  

______

(a)  

Includes one-time bonus costs of $24.5 million (hospital division - $8.8 million, nursing center division - $8.3 million, rehabilitation division - $6.3 million (skilled nursing rehabilitation services - $5.0 million and hospital rehabilitation services - $1.3 million), home health and hospice division - $0.8 million and corporate - $0.3 million).

 
(b) Includes employee retention costs of $0.5 million incurred in connection with the planned divestiture of non-strategic facilities.
 
(c)

Includes $1.4 million of charges associated with the modification of certain of the Company’s senior debt.

 
(d)

Includes severance ($2.5 million), other miscellaneous costs ($1.0 million) and lease cancellation charges ($0.9 million) incurred in connection with the closing of a regional office and two TC hospitals and $5.0 million for employment-related lawsuits.

 
(e) Includes $0.9 million incurred in connection with the cancellation of a sub-acute unit project.
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
                       
2012 Quarters 2013 Quarters
First Second Third Fourth First Second
Hospital division data:
End of period data:
Number of hospitals:
Transitional care 118 117 116 116 116 116
Inpatient rehabilitation 6 6 6 6 6 6
124 123 122 122 122 122
 
Number of licensed beds:
Transitional care 8,454 8,404 8,347 8,382 8,382 8,382
Inpatient rehabilitation 229 259 259 259 259 259
8,683 8,663 8,606 8,641 8,641 8,641
 
Revenue mix %:
Medicare 63 62 61 63 63 61
Medicaid 6 6 6 6 5 6
Medicare Advantage 10 10 11 10 10 11
Commercial insurance and other 21 22 22 21 22 22
 
Admissions:
Medicare 11,989 11,152 10,891 11,023 11,867 10,940
Medicaid 984 1,009 1,006 941 778 850
Medicare Advantage 1,658 1,757 1,616 1,579 1,734 1,638
Commercial insurance and other 2,868 2,630 2,661 2,509 2,512 2,392
17,499 16,548 16,174 16,052 16,891 15,820
Admissions mix %:
Medicare 69 67 67 69 70 69
Medicaid 6 6 6 6 5 6
Medicare Advantage 9 11 10 10 10 10
Commercial insurance and other 16 16 17 15 15 15
 
Patient days:
Medicare 293,746 278,614 270,555 275,008 290,942 271,363
Medicaid 38,487 36,654 40,169 38,045 35,447 36,525
Medicare Advantage 46,824 49,672 47,659 46,193 48,784 47,971
Commercial insurance and other 84,372 81,957 81,445 77,562 82,466 74,937
463,429 446,897 439,828 436,808 457,639 430,796
Average length of stay:
Medicare 24.5 25.0 24.8 24.9 24.5 24.8
Medicaid 39.1 36.3 39.9 40.4 45.6 43.0
Medicare Advantage 28.2 28.3 29.5 29.3 28.1 29.3
Commercial insurance and other 29.4 31.2 30.6 30.9 32.8 31.3
Weighted average 26.5 27.0 27.2 27.2 27.1 27.2
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                       
2012 Quarters 2013 Quarters
First Second Third Fourth First Second
Hospital division data (continued):
Revenues per admission:
Medicare $ 39,256 $ 39,467 $ 39,188 $ 40,479 $ 39,697 $ 38,542
Medicaid 44,447 42,787 43,272 43,492 51,806 47,225
Medicare Advantage 43,923 42,639 45,885 45,646 43,949 45,550
Commercial insurance and other 56,549 59,427 58,134 60,903 63,940 64,764
Weighted average 42,824 43,178 43,228 44,356 44,297 43,699
 
Revenues per patient day:
Medicare $ 1,602 $ 1,580 $ 1,577 $ 1,622 $ 1,619 $ 1,554
Medicaid 1,136 1,178 1,084 1,076 1,137 1,099
Medicare Advantage 1,555 1,508 1,556 1,560 1,562 1,555
Commercial insurance and other 1,922 1,907 1,899 1,970 1,948 2,067
Weighted average 1,617 1,599 1,590 1,630 1,635 1,605
 
Medicare case mix index (discharged patients only) 1.18 1.17 1.15 1.14 1.18 1.17
 
Average daily census 5,093 4,911 4,781 4,748 5,085 4,734
Occupancy % 67.4 64.6 63.5 63.1 67.4 62.6
 
Annualized employee turnover % 21.8 22.2 21.1 20.1 21.1 21.4
 
Nursing center division data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased 166 166 166 165 165 165
Managed 4 4 4 4 4 4
Assisted living facilities   6   6   6   6   6   6
  176   176   176   175   175   175
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased 20,523 20,571 20,571 20,517 20,517 20,517
Managed 485 485 485 485 485 485
Assisted living facilities   413   341   341   341   341   341
  21,421   21,397   21,397   21,343   21,343   21,343
Revenue mix %:
Medicare 34 34 33 33 33 32
Medicaid 38 40 40 40 39 39
Medicare Advantage 8 7 7 7 8 8
Private and other 20 19 20 20 20 21
 
                       
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
2012 Quarters 2013 Quarters
First Second Third Fourth First Second
Nursing center division data (continued):
Patient days (a):
Medicare 275,658 266,529 258,383 256,537 260,756 248,224
Medicaid 932,973 932,785 940,491 932,062 898,951 898,741
Medicare Advantage 80,355 74,899 74,495 72,684 81,955 79,481
Private and other   349,822   339,711   348,935   348,758   335,779   334,965
  1,638,808   1,613,924   1,622,304   1,610,041   1,577,441   1,561,411
 
Patient day mix % (a):
Medicare 17 16 16 16 17 16
Medicaid 57 58 58 58 57 58
Medicare Advantage 5 5 5 4 5 5
Private and other 21 21 21 22 21 21
 
Revenues per patient day (a):
Medicare Part A $ 487 $ 487 $ 495 $ 512 $ 504 $ 503
Total Medicare (including Part B) 535 537 546 553 546 546
Medicaid 179 181 181 183 183 183
Medicaid (net of provider taxes) (b) 158 160 160 162 162 161
Medicare Advantage 412 410 412 415 412 417
Private and other 245 245 248 250 257 259
Weighted average 264 264 264 267 271 269
 
Average daily census (a) 18,009 17,735 17,634 17,500 17,527 17,158
Admissions (a) 16,598 15,514 15,312 15,630 16,600 15,518
Occupancy % (a) 84.6 83.5 82.9 82.4 82.5 80.7
Medicare average length of stay (a) 31.6 32.1 32.6 31.4 30.6 31.6
 
Annualized employee turnover % 37.8 40.6 40.1 39.6 40.6 41.7
 
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated 17 17 17 17 17 18
Non-affiliated 83 83 83 83 83 82
 
Sites of service (at end of period) 1,722 1,730 1,735 1,726 1,729 1,713
Revenue per site $ 148,329 $ 147,479 $ 146,331 $ 142,678 $ 150,099 $ 146,260
 
Therapist productivity % 80.3 80.4 80.5 80.5 81.1 80.4
 
Hospital rehabilitation services:
Revenue mix %:
Company-operated 38 38 37 37 38 39
Non-affiliated 62 62 63 63 62 61
 
Sites of service (at end of period):
Inpatient rehabilitation units 100 102 104 105 103 103
LTAC hospitals 125 125 123 123 123 123
Sub-acute units 19 20 20 21 8 8
Outpatient units 111 115 117 119 98 104
Other   5   5   5   5   -   -
  360   367   369   373   332   338
 
Revenue per site $ 206,580 $ 200,006 $ 194,849 $ 198,150 $ 224,466 $ 206,441
 
Annualized employee turnover % 19.6 16.9 17.3 16.9 10.4 13.2

______

(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 June 30, Six months ended June 30,
2013 2012 2013 2012
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings:
Amounts attributable to Kindred stockholders:
Income from continuing operations:
As reported in Statement of Operations $ 6,218 $ 6,218 $ 15,580 $ 15,580 $ 16,455 $ 16,455 $ 35,499 $ 35,499

Allocation to participating unvested restricted stockholders

  (205 )   (205 )   (374 )   (373 )   (504 )   (504 )   (669 )   (669 )
Available to common stockholders $ 6,013   $ 6,013   $ 15,206   $ 15,207   $ 15,951   $ 15,951   $ 34,830   $ 34,830  
 
Discontinued operations, net of income taxes:
Income (loss) from operations:
As reported in Statement of Operations $ (3,533 ) $ (3,533 ) $ 278 $ 278 $ (9,469 ) $ (9,469 ) $ (280 ) $ (280 )

Allocation to participating unvested restricted stockholders

  117     117     (7 )   (7 )   290     290     5     5  
Available to common stockholders $ (3,416 ) $ (3,416 ) $ 271   $ 271   $ (9,179 ) $ (9,179 ) $ (275 ) $ (275 )
 
Loss on divestiture of operations:
As reported in Statement of Operations $ (940 ) $ (940 ) $ (356 ) $ (356 ) $ (2,184 ) $ (2,184 ) $ (1,526 ) $ (1,526 )

Allocation to participating unvested restricted stockholders

  31     31     9     9     67     67     29     29  
Available to common stockholders $ (909 ) $ (909 ) $ (347 ) $ (347 ) $ (2,117 ) $ (2,117 ) $ (1,497 ) $ (1,497 )
 
Loss from discontinued operations:
As reported in Statement of Operations $ (4,473 ) $ (4,473 ) $ (78 ) $ (78 ) $ (11,653 ) $ (11,653 ) $ (1,806 ) $ (1,806 )

Allocation to participating unvested restricted stockholders

  148     148     2     2     357     357     34     34  
Available to common stockholders $ (4,325 ) $ (4,325 ) $ (76 ) $ (76 ) $ (11,296 ) $ (11,296 ) $ (1,772 ) $ (1,772 )
 
Net income:
As reported in Statement of Operations $ 1,745 $ 1,745 $ 15,502 $ 15,502 $ 4,802 $ 4,802 $ 33,693 $ 33,693

Allocation to participating unvested restricted stockholders

  (57 )   (57 )   (372 )   (371 )   (147 )   (147 )   (635 )   (635 )
Available to common stockholders $ 1,688   $ 1,688   $ 15,130   $ 15,131   $ 4,655   $ 4,655   $ 33,058   $ 33,058  
 
Shares used in the computation:

Weighted average shares outstanding - basic computation

  52,265   52,265   51,664   51,664   52,164   52,164   51,633   51,633
Dilutive effect of employee stock options 19 11 20 24
Adjusted weighted average shares outstanding -        
diluted computation   52,284     51,675     52,184     51,657  
 
Earnings per common share:
Income from continuing operations $ 0.12 $ 0.12 $ 0.29 $ 0.29 $ 0.31 $ 0.31 $ 0.67 $ 0.67
Discontinued operations:
Income (loss) from operations (0.07 ) (0.07 ) 0.01 0.01 (0.18 ) (0.18 ) - -
Loss on divestiture of operations   (0.02 )   (0.02 )   (0.01 )   (0.01 )   (0.04 )   (0.04 )   (0.03 )   (0.03 )
Loss from discontinued operations   (0.09 )   (0.09 )   -     -     (0.22 )   (0.22 )   (0.03 )   (0.03 )
Net income $ 0.03   $ 0.03   $ 0.29   $ 0.29   $ 0.09   $ 0.09   $ 0.64   $ 0.64  

______

(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 and six months ended June 30, 2013 and 2012 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
 
The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 39.2% and 38.7% for the three months ended June 30, 2013 and 2012, respectively, and 40.0% and 38.7% for the six months ended June 30, 2013 and 2012, respectively.
 

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 and six months ended June 30, 2013 and 2012 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,
2013     2012 2013     2012
Detail of charges:
One-time bonus costs $ - $ - ($24,445 ) $ -
Severance, employee retention and other costs (165 ) (2,292 ) (495 ) (4,476 )
Employment-related lawsuits - (5,000 ) - (5,000 )
Transaction costs (790 ) (597 ) (3,019 ) (1,082 )
Impairment charges (15,633 ) - (15,633 ) -
Lease cancellation charges (rent expense) - (919 ) - (919 )
Senior debt modification charges (interest expense)   (1,365 )   -     (1,365 )   -  
(17,953 ) (8,808 ) (44,957 ) (11,477 )
Income tax benefit   7,046     3,413     17,982     4,447  
Charges net of income taxes (10,907 ) (5,395 ) (26,975 ) (7,030 )
Allocation to participating unvested restricted stockholders   360     129     826     132  
Available to common stockholders   ($10,547 )   ($5,266 )   ($26,149 )   ($6,898 )
 
Weighted average diluted shares outstanding   52,284     51,675     52,184     51,657  
 
Diluted loss per common share related to charges   ($0.20 )   ($0.10 )   ($0.50 )   ($0.13 )
 
Reconciliation of operating income before charges:
Operating income before charges $ 198,981 $ 203,436 $ 417,197 $ 407,170
Detail of charges excluded from core operating results:
One-time bonus costs - - (24,445 ) -
Severance, employee retention and other costs (165 ) (2,292 ) (495 ) (4,476 )
Employment-related lawsuits - (5,000 ) - (5,000 )
Transaction costs (790 ) (597 ) (3,019 ) (1,082 )
Impairment charges   (15,633 )   -     (15,633 )   -  
  (16,588 )   (7,889 )   (43,592 )   (10,558 )
Reported operating income $ 182,393   $ 195,547   $ 373,605   $ 396,612  
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $ 17,125 $ 20,975 $ 43,430 $ 42,529
Charges net of income taxes   (10,907 )   (5,395 )   (26,975 )   (7,030 )
Reported income from continuing operations $ 6,218   $ 15,580   $ 16,455   $ 35,499  
 

Reconciliation of diluted income per common share from continuing operations before charges:

Diluted income per common share before charges (a) $ 0.32 $ 0.39 $ 0.81 $ 0.80
Charges net of income taxes   (0.20 )   (0.10 )   (0.50 )   (0.13 )
Reported diluted income per common share from continuing operations $ 0.12   $ 0.29   $ 0.31   $ 0.67  
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 40.0 % 40.7 % 39.6 % 40.6 %
Impact of charges on effective income tax rate   1.2 %   0.7 %   -0.8 %   0.4 %
Reported effective income tax rate   41.2 %   41.4 %   38.8 %   41.0 %

______

(a)   For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.6 million and $0.5 million for the three months ended June 30, 2013 and 2012, respectively, and $1.3 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively, for the allocation of income to participating unvested restricted stockholders.
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
                           
Three months ended June 30, 2013
Charges
Senior debt
Before Employee Impairment Transaction modification As
charges retention charges costs charges Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 143,072 $ (165 ) $ - $ - $ - $ (165 ) $ 142,907
 
Nursing center division 54,034 - - - - - 54,034
 
Rehabilitation division:
Skilled nursing rehabilitation services 22,519 - - - - - 22,519
Hospital rehabilitation services   19,573     -     -     -     -     -     19,573  
  42,092     -     -     -     -     -     42,092  
 
Home health and hospice division 3,961 - - - - - 3,961
 
Corporate:
Overhead (43,199 ) - - - - - (43,199 )
Insurance subsidiary   (384 )   -     -     -     -     -     (384 )
(43,583 ) - - - - - (43,583 )
 
Impairment charges (595 ) - (15,633 ) - - (15,633 ) (16,228 )
Transaction costs   -     -     -     (790 )   -     (790 )   (790 )
Operating income 198,981 (165 ) (15,633 ) (790 ) - (16,588 ) 182,393
Rent (97,741 ) - - - - - (97,741 )
Depreciation and amortization (46,338 ) - - - - - (46,338 )
Interest, net   (26,240 )   -     -     -     (1,365 )   (1,365 )   (27,605 )

Income from continuing operations before income taxes

28,662 (165 ) (15,633 ) (790 ) (1,365 ) (17,953 ) 10,709
Provision for income taxes   11,455     (64 )   (6,136 )   (310 )   (536 )   (7,046 )   4,409  
$ 17,207   $ (101 ) $ (9,497 ) $ (480 ) $ (829 ) $ (10,907 ) $ 6,300  
 
 
Three months ended June 30, 2012
Charges
Employment- Lease
Before Severance related Transaction cancellation As
charges and other lawsuits costs charges Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 149,051 $ (1,383 ) $ (5,000 ) $ - $ - $ (6,383 ) $ 142,668
 
Nursing center division 57,861 (909 ) - - - (909 ) 56,952
 
Rehabilitation division:
Skilled nursing rehabilitation services 21,477 - - - - - 21,477
Hospital rehabilitation services   17,860     -     -     -     -     -     17,860  
  39,337     -     -     -     -     -     39,337  
 
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 (279 ) - - - - - (279 )
Transaction costs   -     -     -     (597 )   -     (597 )   (597 )
Operating income 203,436 (2,292 ) (5,000 ) (597 ) - (7,889 ) 195,547
Rent (95,501 ) - - (919 ) (919 ) (96,420 )
Depreciation and amortization (46,499 ) - - - - - (46,499 )
Interest, net   (26,450 )   -     -     -     -     -     (26,450 )

Income from continuing operations before income taxes

34,986 (2,292 ) (5,000 ) (597 ) (919 ) (8,808 ) 26,178
Provision for income taxes   14,250     (888 )   (1,938 )   (231 )   (356 )   (3,413 )   10,837  
$ 20,736   $ (1,404 ) $ (3,062 ) $ (366 ) $ (563 ) $ (5,395 ) $ 15,341  
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
                               
Six months ended June 30, 2013
Charges
Senior debt
Before One-time Employee Impairment Transaction modification As
charges bonus retention charges costs charges Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 313,998 $ (8,777 ) $ (495 ) $ - $ - $ - $ (9,272 ) $ 304,726
 
Nursing center division 105,393 (8,213 ) - - - - (8,213 ) 97,180
 
Rehabilitation division:
Skilled nursing rehabilitation services 41,580 (5,052 ) - - - - (5,052 ) 36,528
Hospital rehabilitation services   38,960     (1,255 )   -     -     -     -     (1,255 )   37,705  
  80,540     (6,307 )   -     -     -     -     (6,307 )   74,233  
 
Home health and hospice division 7,580 (833 ) - - - - (833 ) 6,747
 
Corporate:
Overhead (88,466 ) (315 ) - - - - (315 ) (88,781 )
Insurance subsidiary   (893 )   -     -     -     -     -     -     (893 )
(89,359 ) (315 ) - - - - (315 ) (89,674 )
 
Impairment charges (955 ) - - (15,633 ) - - (15,633 ) (16,588 )
Transaction costs   -     -     -     -     (3,019 )   -     (3,019 )   (3,019 )
Operating income 417,197 (24,445 ) (495 ) (15,633 ) (3,019 ) - (43,592 ) 373,605
Rent (194,542 ) - - - - - - (194,542 )
Depreciation and amortization (95,651 ) - - - - - - (95,651 )
Interest, net   (54,324 )   -     -     -     -     (1,365 )   (1,365 )   (55,689 )

Income from continuing operations before income taxes

72,680 (24,445 ) (495 ) (15,633 ) (3,019 ) (1,365 ) (44,957 ) 27,723
Provision for income taxes   28,752     (9,778 )   (198 )   (6,253 )   (1,207 )   (546 )   (17,982 )   10,770  
$ 43,928   $ (14,667 ) $ (297 ) $ (9,380 ) $ (1,812 ) $ (819 ) $ (26,975 ) $ 16,953  
 
 
Six months ended June 30, 2012
Charges
Employment- Lease
Before Severance related Transaction cancellation As
charges and other lawsuits costs charges Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 312,979 $ (3,485 ) $ (5,000 ) $ - $ - $ (8,485 ) $ 304,494
 
Nursing center division 110,380 (909 ) - - - (909 ) 109,471
 
Rehabilitation division:
Skilled nursing rehabilitation services 34,245 (36 ) - - - (36 ) 34,209
Hospital rehabilitation services   33,987     (11 )   -     -     -     (11 )   33,976  
  68,232     (47 )   -     -     -     (47 )   68,185  
 
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 (1,053 ) - - - - - (1,053 )
Transaction costs   -     -     -     (1,082 )   -     (1,082 )   (1,082 )
Operating income 407,170 (4,476 ) (5,000 ) (1,082 ) - (10,558 ) 396,612
Rent (190,675 ) - - (919 ) (919 ) (191,594 )
Depreciation and amortization (91,751 ) - - - - - (91,751 )
Interest, net   (52,742 )   -     -     -     -     -     (52,742 )

Income from continuing operations before income taxes

72,002 (4,476 ) (5,000 ) (1,082 ) (919 ) (11,477 ) 60,525
Provision for income taxes   29,261     (1,734 )   (1,938 )   (419 )   (356 )   (4,447 )   24,814  
$ 42,741   $ (2,742 ) $ (3,062 ) $ (663 ) $ (563 ) $ (7,030 ) $ 35,711  
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
                       
Operating expenses (a): Three months ended June 30, 2013
Charges
Before Employee Impairment Transaction As
charges retention charges costs Total reported
Salaries, wages and benefits $ 829,242 $ 165 $ - $ - $ 165 $ 829,407
Supplies 97,818 - - - - 97,818
Other operating expenses 283,748 - - 790 790 284,538
Other income (24 ) - - - (24 )
Impairment charges   595     -   15,633   -   15,633   16,228  
$ 1,211,379   $ 165 $ 15,633 $ 790 $ 16,588 $ 1,227,967  
 
 
Three months ended June 30, 2012
Charges
Employment-
Before Severance related Transaction As
charges and other lawsuits costs Total reported
Salaries, wages and benefits $ 847,821 $ 521 $ - $ - $ 521 $ 848,342
Supplies 101,648 - - - - 101,648
Other operating expenses 274,888 1,771 5,000 597 7,368 282,256
Other income (3,154 ) - - - (3,154 )
Impairment charges   279     -   -   -   -   279  
$ 1,221,482   $ 2,292 $ 5,000 $ 597 $ 7,889 $ 1,229,371  

______

(a) As used in the derivation of operating income.

 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
                           
Operating expenses (a): Six months ended June 30, 2013
Charges
Before One-time Employee Impairment Transaction As
charges bonus retention charges costs Total reported
Salaries, wages and benefits $ 1,710,473 $ 24,445 $ 495 $ - $ - $ 24,940 $ 1,735,413
Supplies 199,698 - - - - - 199,698
Other operating expenses 569,377 - - - 3,019 3,019 572,396
Other income (1,022 ) - - - - (1,022 )
Impairment charges   955     -   -   15,633   -   15,633     16,588  
$ 2,479,481   $ 24,445 $ 495 $ 15,633 $ 3,019 $ 43,592   $ 2,523,073  
 
 
Six months ended June 30, 2012
Charges
Employment-
Before Severance related Transaction As
charges and other lawsuits costs Total reported
Salaries, wages and benefits $ 1,729,969 $ 2,611 $ - $ - $ 2,611 $ 1,732,580
Supplies 206,279 - - - - 206,279
Other operating expenses 553,424 1,865 5,000 1,082 7,947 561,371
Other income (6,292 ) - - - - (6,292 )
Impairment charges   1,053     -   -   -   -   1,053  
$ 2,484,433   $ 4,476 $ 5,000 $ 1,082 $ 10,558 $ 2,494,991  

______

(a) As used in the derivation of operating income.

 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Earnings Guidance for 2013 - Continuing Operations (a)
(Unaudited)
(In millions, except per share amounts)
               
As of August 5, 2013 As of May 1, 2013
Low High Low High
 
Operating income $

797

  $

813

 

$

806

  $ 822  
 
Rent

392

392

399 399
Depreciation and amortization

192

192

189 189
Interest, net   109     109     113     113  
Income from continuing operations before income taxes 104 120 105 121
Provision for income taxes   43     49     44     50  
Income from continuing operations 61 71 61 71
Earnings attributable to noncontrolling interests   (1 )   (1 )   (1 )   (1 )
Income from continuing operations attributable to the Company 60 70 60 70
Allocation to participating unvested restricted stockholders   (2 )   (2 )   (2 )   (2 )
Available to common stockholders $ 58   $ 68   $ 58   $ 68  
 
 
Earnings per diluted share $ 1.10 $ 1.30 $ 1.10 $ 1.30
 

Shares used in computing earnings per diluted share

52.5 52.5 52.7 52.7

______

(a)  

The earnings guidance excludes the effect of (1) a one-time employee bonus distributed in the first quarter of 2013, (2) employee retention costs incurred in connection with the planned divestiture of non-strategic facilities, (3) any transaction-related charges, (4) charges associated with the modification of certain of the Company’s senior debt, (5) any other reimbursement changes, (6) any further acquisitions or divestitures (including the previously announced sales of non-strategic hospitals and nursing centers), (7) any impairment charges, and (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