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Kindred Healthcare Third Quarter Results Exceed Company's Guidance

November 2, 2009

Company Reports $0.14 per Diluted Share from Continuing Operations Compared to Earnings Guidance Range of Breakeven to $0.05

Company Raises 2009 EPS Range to $1.48 to $1.53 from $1.35 to $1.45

Company Provides Fourth Quarter 2009 EPS Guidance Range of $0.30 to $0.35

Company Provides Initial 2010 EPS Guidance Range of $1.20 to $1.35

Management Cites Weakness in 2010 Nursing Center Medicare and Medicaid Rates

LOUISVILLE, Ky.--(BUSINESS WIRE)--Nov. 2, 2009-- Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2009.

Third Quarter Highlights:

  • Consolidated revenues rose 6% to $1.1 billion

--Each operating division reported revenue growth compared to last year

  • Diluted earnings per share reported at $0.14 compared to last year’s $0.05
  • Hospital operating income grew 21% in the third quarter

-- Both reported and same-store admissions grew 4% compared to last year’s third quarter

  • Nursing center results were in line with expectations

-- Revenue quality mix improved to 58.1% from 56.6% in the third quarter of 2008

  • Peoplefirst rehabilitation services reported continued revenue growth and productivity gains

--Quarterly revenues were up 15% from last year’s third quarter; operating income grew 47%

  • Financial liquidity strengthened during the quarter

--Third quarter operating cash flows surged to $53 million from $7 million last year

-- Accounts receivable days outstanding declined to 56.8 from 63.0 at September 30, 2008

--Long-term debt, net of excess cash, declined to $220 million at September 30, 2009 compared to $329 million at September 30, 2008

Continuing Operations

Consolidated revenues for the third quarter ended September 30, 2009 totaled $1.1 billion, an increase of 6% from last year’s third quarter. Income from continuing operations for the third quarter of 2009 totaled $5.4 million or $0.14 per diluted share compared to $2.1 million or $0.05 per diluted share in the third quarter last year.

As expected, the Company recorded a $1.7 million or $0.04 per diluted share favorable income tax adjustment in the third quarter of 2009. This adjustment was included in the Company’s previously issued third quarter earnings guidance.

Operating results for the third quarter of 2008 included certain items that, in the aggregate, reduced net income by $2.3 million or $0.06 per diluted share.

For the nine months ended September 30, 2009, consolidated revenues increased 5% to $3.2 billion compared to the first nine months of 2008. Income from continuing operations totaled $46.3 million or $1.18 per diluted share for the first nine months of 2009 compared to $38.8 million or $0.98 per diluted share in the same period a year ago.

Consolidated operating results for the first nine months of 2008 included certain items that, in the aggregate, increased net income by approximately $1.7 million or $0.04 per diluted share.

Discontinued Operations

During the past several years, the Company has entered into transactions to divest unprofitable businesses. For accounting purposes, the historical operating results of these businesses and gains or losses associated with these operations have been classified as discontinued operations in the Company’s consolidated statement of operations for all historical periods.

In the third quarter of 2009, the Company reported breakeven results from discontinued operations compared to a loss of $1.3 million or $0.03 per diluted share in the third quarter of 2008.

For the first nine months of 2009, the Company reported a loss from discontinued operations of $1.5 million or $0.04 per diluted share compared to a loss of $4.4 million or $0.11 per diluted share in the first nine months of 2008.

In the third quarter of 2008, the Company recorded a net loss of $22.1 million or $0.56 per diluted share related to the closure of a hospital. Operating results for the first nine months of 2009 included a loss on the divestiture of discontinued operations totaling $24.0 million or $0.61 per diluted share compared to a net loss of $19.3 million or $0.49 per diluted share for the first nine months of 2008.

Management Commentary

Paul J. Diaz, President and Chief Executive Officer of the Company, remarked, “We are pleased to report solid third quarter performance in each of our three operating divisions. Our efforts to improve the quality of our services and better manage costs during the weakest seasonal period of the year led to better overall execution compared to both our expectations and the third quarter last year. Our improved operational focus also has resulted in more consistent overall operating results over the past four quarters.”

Commenting on the Company’s third quarter operations, Mr. Diaz noted, “Growth in hospital operating income was driven primarily by 11% growth in non-government admissions and favorable commercial pricing as we continued to demonstrate the value of our hospital services to commercial payors. Our nursing center revenues grew 3% and operating income was in line with our expectations for the quarter. Peoplefirst rehabilitation services continued to achieve solid revenue growth and strong productivity gains that drove operating income growth of 47% compared to the third quarter last year. Furthermore, our focus on cost management across the organization was a significant factor in our third quarter success.”

Mr. Diaz further noted, “The significant growth in operating cash flows in the first nine months of this year, driven primarily by strong accounts receivable collections, has allowed us to fund our ongoing capital spending programs, our hospital development projects and the development of our transitional care centers and units in selected nursing centers. At the same time, we have reduced our outstanding revolving credit borrowings, net of excess cash, by over $100 million in the last twelve months. Looking forward, we will continue to focus on maximizing cash flows to fund our growth initiatives and reduce our leverage.”

Earnings Guidance – Continuing Operations

The Company raised its 2009 earnings guidance for continuing operations. The Company expects consolidated revenues for 2009 to approximate $4.3 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $577 million to $581 million. Rent expense is expected to approximate $350 million, while depreciation, amortization and net interest expense are expected to approximate $131 million. Income from continuing operations for 2009 is expected to approximate $58 million to $60 million or $1.48 to $1.53 per diluted share (based upon diluted shares of 38.5 million).

The Company also provided its earnings outlook for the fourth quarter of 2009, estimating diluted earnings per share between $0.30 to $0.35 (based upon diluted shares of 38.5 million).

The Company anticipates that routine capital spending for 2009 will approximate $110 million to $115 million and hospital development capital spending should approximate $45 million to $50 million. Management expects that substantially all of these expenditures will be financed through internal sources.

The Company also provided its initial earnings guidance for 2010. Consolidated revenues are expected to approximate $4.5 billion. Operating income is expected to range from $575 million to $583 million. Rent expense is expected to approximate $364 million, while depreciation, amortization and net interest expense are expected to approximate $128 million. Income from continuing operations for 2010 is expected to approximate $48 million to $54 million or $1.20 to $1.35 per diluted share (based upon diluted shares of 39 million).

The Company anticipates that routine capital spending in 2010 will approximate $115 million to $120 million, hospital development capital spending should approximate $45 million to $50 million and nursing center development capital spending on transitional care centers and units should approximate $25 million to $30 million. Management expects that a substantial portion of these expenditures will be financed through internal sources.

The Company indicated that the earnings guidance for 2009 and 2010 reflects the estimated impact of the final rules issued by the Centers for Medicare and Medicaid Services (“CMS”) on July 31, 2009 related to payment rates for long-term acute care (“LTAC”) hospitals and nursing centers. The Company also indicated that the earnings guidance does not reflect any material acquisitions or divestitures and does not take into account any other changes in government reimbursements, repurchases of common stock or unusual items.

Mr. Diaz noted, “We remain focused on our strategic operating plan, improving our core operations and adding selectively to our asset base in targeted cluster markets. As we have in the past, we will continue to invest in our people, facilities, clinical programs and information systems to differentiate Kindred as a leading provider of post-acute services. However, we are concerned in the near term with weakness in both Medicare and Medicaid rates in our nursing center business. While we are reviewing a number of mitigation strategies for 2010, we do not believe that we can completely offset weaker government reimbursements in this division. We also would remind investors of the uncertainty associated with various federal healthcare reform proposals, ongoing state budget pressures as well as potential transition issues in the fourth quarter next year related to the new RUGs IV requirements for nursing centers.”

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the third quarter 2009 conference call through a link on the Company’s website at www.kindredhealthcare.com. The conference call will be held November 3, 2009 at 10:00 a.m. Eastern Time.

A telephone replay of the conference call will be available at approximately 1:00 p.m. on November 3 by dialing (719) 457-0820, access code: 5654091. The replay will be available through November 12.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 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) changes in the reimbursement rates or the methods or timing of payment from third party payors, including 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 nursing centers; (b) the effects of healthcare reform, legislative changes and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry; (c) 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 three-year moratorium on future hospital development; (d) failure of the Company’s facilities to meet applicable licensure and certification requirements; (e) the further consolidation of managed care organizations and other third party payors; (f) the Company’s ability to meet its rental and debt service obligations; (g) the Company’s ability to operate pursuant to the terms of its debt obligations and its master lease agreements with Ventas, Inc. (NYSE:VTR); (h) the condition of the financial markets, including volatility and deterioration 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; (i) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services; (j) the Company’s ability to control costs, particularly labor and employee benefit costs; (k) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel; (l) the Company’s ability to attract and retain key executives and other healthcare personnel; (m) the increase in the costs of defending and insuring against alleged professional liability 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; (n) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability claims; (o) the Company’s ability to successfully pursue its development activities and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations; (p) the Company’s ability to successfully dispose of unprofitable facilities; (q) events or circumstances which could result in impairment of an asset or other charges; (r) changes in generally accepted accounting principles or practices; and (s) 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.

As noted above, the Company’s earnings guidance includes the financial measure referred to as operating income. 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 measure, in relation to generally accepted accounting principles, to operating income. 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 generally accepted accounting principles as an indicator of operating performance. A reconciliation of the estimated operating income to income from continuing operations provided in the Company’s earnings guidance is included in this press release.

About Kindred Healthcare

Kindred Healthcare, Inc. is a healthcare services company, based in Louisville, Kentucky, with annual revenues of over $4 billion and approximately 54,800 employees in 41 states. At September 30, 2009, Kindred through its subsidiaries provided healthcare services in 654 locations, including 82 long-term acute care hospitals, 222 skilled nursing centers and a contract rehabilitation services business, Peoplefirst rehabilitation services, which served 350 non-affiliated facilities. Ranked first in Fortune magazine’s 2009 Most Admired Companies “Health Care: Medical Facilities” category, 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 Nine months ended
September 30, September 30,
2009 2008 2009 2008
 
Revenues $ 1,057,488 $ 997,129   $ 3,200,016   $ 3,057,645  
 
Income from continuing operations $ 5,388 $ 2,119 $ 46,267 $ 38,806
Discontinued operations, net of income taxes:
Income (loss) from operations 13 (1,321 ) (1,465 ) (4,369 )
Gain (loss) on divestiture of operations   52   (22,058 )   (23,999 )   (19,346 )
Net income (loss) $ 5,453 $ (21,260 ) $ 20,803   $ 15,091  
 
Earnings (loss) per common share:
Basic:
Income from continuing operations $ 0.14 $ 0.05 $ 1.19 $ 1.00
Discontinued operations:
Income (loss) from operations - (0.03 ) (0.04 ) (0.11 )
Gain (loss) on divestiture of operations   -   (0.57 )   (0.62 )   (0.50 )
Net income (loss) $ 0.14 $ (0.55 ) $ 0.53   $ 0.39  
 
Diluted:
Income from continuing operations $ 0.14 $ 0.05 $ 1.18 $ 0.98
Discontinued operations:
Income (loss) from operations - (0.03 ) (0.04 ) (0.11 )
Gain (loss) on divestiture of operations   -   (0.56 )   (0.61 )   (0.49 )
Net income (loss) $ 0.14 $ (0.54 ) $ 0.53   $ 0.38  
 

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

Basic 38,398 38,034 38,297 37,732
Diluted 38,524 38,894 38,419 38,485
           
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
 
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
 
Revenues $ 1,057,488   $ 997,129   $ 3,200,016   $ 3,057,645  
 
Salaries, wages and benefits 629,077 597,216 1,865,125 1,776,872
Supplies 82,400 77,766 246,648 236,369
Rent 88,081 84,865 260,164 254,348
Other operating expenses 221,524 207,773 663,684 645,290
Other income (2,870 ) (4,313 ) (8,565 ) (14,197 )
Depreciation and amortization 31,992 29,174 93,837 90,277
Interest expense 1,741 3,710 6,448 11,538
Investment income   (746 )   (671 )   (3,254 )   (6,253 )
  1,051,199     995,520     3,124,087     2,994,244  
Income from continuing operations before income taxes 6,289 1,609 75,929 63,401
Provision (benefit) for income taxes   901     (510 )   29,662     24,595  
Income from continuing operations 5,388 2,119 46,267 38,806
Discontinued operations, net of income taxes:
Income (loss) from operations 13 (1,321 ) (1,465 ) (4,369 )
Gain (loss) on divestiture of operations   52     (22,058 )   (23,999 )   (19,346 )
Net income (loss) $ 5,453   $ (21,260 ) $ 20,803   $ 15,091  
 
Earnings (loss) per common share:
Basic:
Income from continuing operations $ 0.14 $ 0.05 $ 1.19 $ 1.00
Discontinued operations:
Income (loss) from operations - (0.03 ) (0.04 ) (0.11 )
Gain (loss) on divestiture of operations   -     (0.57 )   (0.62 )   (0.50 )
Net income (loss) $ 0.14   $ (0.55 ) $ 0.53   $ 0.39  
 
Diluted:
Income from continuing operations $ 0.14 $ 0.05 $ 1.18 $ 0.98
Discontinued operations:
Income (loss) from operations - (0.03 ) (0.04 ) (0.11 )
Gain (loss) on divestiture of operations   -     (0.56 )   (0.61 )   (0.49 )
Net income (loss) $ 0.14   $ (0.54 ) $ 0.53   $ 0.38  
 

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

Basic 38,398 38,034 38,297 37,732
Diluted 38,524 38,894 38,419 38,485
     
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
 
September 30, December 31,
2009 2008
ASSETS
Current assets:
Cash and cash equivalents $ 45,303 $ 140,795
Cash - restricted 6,165 5,104
Insurance subsidiary investments 159,830 196,983
Accounts receivable less allowance for loss 665,360 611,032
Inventories 21,863 22,325
Deferred tax assets 52,796 58,296
Income taxes 22,407 47,257
Other   19,303     20,843  
993,027 1,102,635
 
Property and equipment 1,491,683 1,392,636
Accumulated depreciation   (742,135 )   (656,676 )
749,548 735,960
 
Goodwill 81,223 72,244
Intangible assets less accumulated amortization 64,712 64,367
Assets held for sale 20,733 7,786
Insurance subsidiary investments 50,890 48,610
Deferred tax assets 110,249 100,751
Other   58,527     49,408  
$ 2,128,909   $ 2,181,761  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 161,505 $ 178,246
Salaries, wages and other compensation 296,611 281,542
Due to third party payors 30,827 33,122
Professional liability risks 47,128 55,447
Other accrued liabilities 85,368 76,832
Long-term debt due within one year   84     81  
621,523 625,270
 
Long-term debt 251,070 349,433
Professional liability risks 208,451 187,804
Deferred credits and other liabilities 104,843 104,279
 
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 39,074 shares - September 30, 2009 and 38,909 shares - December 31, 2008

9,769 9,727
Capital in excess of par value 817,947 812,141
Accumulated other comprehensive loss (2,223 ) (3,619 )
Retained earnings   117,529     96,726  
  943,022     914,975  
$ 2,128,909   $ 2,181,761  
               
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
 
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
 
Cash flows from operating activities:
Net income (loss) $ 5,453 $ (21,260 ) $ 20,803 $ 15,091

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

Depreciation and amortization 31,992 29,595 94,511 92,269
Amortization of stock-based compensation costs 2,449 2,411 7,548 9,806
Provision for doubtful accounts 7,100 6,877 21,747 22,037
Deferred income taxes 4,286 8,226 (5,221 ) (4,921 )
(Gain) loss on divestiture of discontinued operations (52 ) 22,058 23,999 19,346
Other (1,428 ) (853 ) (1,192 ) (1,946 )
Change in operating assets and liabilities:
Accounts receivable (11,934 ) (41,141 ) (76,075 ) (125,287 )
Inventories and other assets (2,194 ) (422 ) (11,755 ) (4,880 )
Accounts payable 3,876 (2,726 ) (6,392 ) (13,756 )
Income taxes (7,727 ) (17,796 ) 38,374 21,188
Due to third party payors 5,413 14,998 (4,340 ) 191
Other accrued liabilities   15,580     7,262     37,841     12,251  
Net cash provided by operating activities   52,814     7,229     139,848     41,389  
 
Cash flows from investing activities:
Purchase of property and equipment (33,975 ) (47,293 ) (112,857 ) (112,153 )
Acquisitions (8,035 ) (22,419 ) (83,432 ) (48,824 )
Sale of assets 14,019 745 14,019 27,984
Purchase of insurance subsidiary investments (18,808 ) (25,908 ) (77,480 ) (94,976 )
Sale of insurance subsidiary investments 17,658 22,568 97,677 89,501

Net change in insurance subsidiary cash and cash equivalents

1,177 1,671 16,852 40,099
Change in other investments 2 2 2,002 7,002
Other   (517 )   1,340     3,877     2,628  
Net cash used in investing activities   (28,479 )   (69,294 )   (139,342 )   (88,739 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 295,600 391,700 952,500 1,119,800
Repayment of borrowings under revolving credit (319,300 ) (328,800 ) (1,050,800 ) (1,066,500 )
Repayment of long-term debt (20 ) (19 ) (60 ) (57 )
Repayment of capital lease obligation - - - (16,268 )
Payment of deferred financing costs (177 ) (211 ) (604 ) (390 )
Issuance of common stock 568 3,087 568 8,865
Other   4,570     (3,213 )   2,398     (11,682 )
Net cash provided by (used in) financing activities   (18,759 )   62,544     (95,998 )   33,768  
Change in cash and cash equivalents 5,576 479 (95,492 ) (13,582 )
Cash and cash equivalents at beginning of period   39,727     18,816     140,795     32,877  
Cash and cash equivalents at end of period $ 45,303   $ 19,295   $ 45,303   $ 19,295  
                 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
 
 
2008 Quarters 2009 Quarters
First Second Third Fourth First Second Third
 
Revenues $ 1,034,475   $ 1,026,041   $ 997,129   $ 1,036,219   $ 1,069,474   $ 1,073,054   $ 1,057,488  
 
Salaries, wages and benefits 592,240 587,416 597,216 597,291 615,218 620,830 629,077
Supplies 77,834 80,769 77,766 80,780 80,336 83,912 82,400
Rent 83,623 85,860 84,865 84,325 85,201 86,882 88,081
Other operating expenses 223,973 213,544 207,773 209,093 220,405 221,755 221,524
Other income (4,717 ) (5,167 ) (4,313 ) (3,210 ) (2,872 ) (2,823 ) (2,870 )
Depreciation and amortization 30,558 30,545 29,174 29,745 30,490 31,355 31,992
Interest expense 4,921 2,907 3,710 3,835 2,478 2,229 1,741
Investment income   (3,247 )   (2,335 )   (671 )   (843 )   (1,475 )   (1,033 )   (746 )
  1,005,185     993,539     995,520     1,001,016     1,029,781     1,043,107     1,051,199  

Income from continuing operations before income taxes

29,290 32,502 1,609 35,203 39,693 29,947 6,289
Provision (benefit) for income taxes   12,080     13,025     (510 )   13,549     16,352     12,409     901  
Income from continuing operations 17,210 19,477 2,119 21,654 23,341 17,538 5,388
Discontinued operations, net of income taxes:
Income (loss) from operations (2,520 ) (528 ) (1,321 ) 970 (581 ) (897 ) 13
Gain (loss) on divestiture of operations   -     2,712     (22,058 )   (1,430 )   -     (24,051 )   52  
Net income (loss) $ 14,690   $ 21,661   $ (21,260 ) $ 21,194   $ 22,760   $ (7,410 ) $ 5,453  
 
Earnings (loss) per common share:
Basic:
Income from continuing operations $ 0.45 $ 0.50 $ 0.05 $ 0.56 $ 0.60 $ 0.45 $ 0.14
Discontinued operations:
Income (loss) from operations (0.07 ) (0.01 ) (0.03 ) 0.02 (0.02 ) (0.02 ) -
Gain (loss) on divestiture of operations   -     0.07     (0.57 )   (0.04 )   -     (0.62 )   -  
Net income (loss) $ 0.38   $ 0.56   $ (0.55 ) $ 0.54   $ 0.58   $ (0.19 ) $ 0.14  
 
Diluted:
Income from continuing operations $ 0.44 $ 0.49 $ 0.05 $ 0.55 $ 0.60 $ 0.45 $ 0.14
Discontinued operations:
Income (loss) from operations (0.06 ) (0.01 ) (0.03 ) 0.03 (0.02 ) (0.02 ) -
Gain (loss) on divestiture of operations   -     0.07     (0.56 )   (0.04 )   -     (0.62 )   -  
Net income (loss) $ 0.38   $ 0.55   $ (0.54 ) $ 0.54   $ 0.58   $ (0.19 ) $ 0.14  
 
Shares used in computing earnings (loss)
per common share:
Basic 37,444 37,714 38,034 38,123 38,184 38,307 38,398
Diluted 38,061 38,474 38,894 38,265 38,315 38,415 38,524
                         
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
 
 
2008 Quarters 2009 Quarters
First Second Third Fourth First Second Third
Revenues:
Hospital division $ 476,167 $ 461,064 $ 434,774 $ 465,317 $ 492,509 $ 487,145 $ 468,069
 
Health services division 519,543 525,162 521,074 527,518 529,942 537,545 539,217
 
Rehabilitation division   104,499     106,318     106,796     109,707     117,647     120,450     122,625  
1,100,209 1,092,544 1,062,644 1,102,542 1,140,098 1,145,140 1,129,911
 
Eliminations   (65,734 )   (66,503 )   (65,515 )   (66,323 )   (70,624 )   (72,086 )   (72,423 )
$ 1,034,475   $ 1,026,041   $ 997,129   $ 1,036,219   $ 1,069,474   $ 1,073,054   $ 1,057,488  
 
Income from continuing operations:
Operating income (loss):
Hospital division $ 96,802 $ 85,886 $ 64,818 $ 97,861 $ 100,899 $ 91,027 $ 78,674
 
Health services division 73,291 87,962 79,133 81,428 75,574 79,522 73,383
 
Rehabilitation division 11,486 10,178 7,448 8,959 15,453 13,599 10,912
 
Corporate:
Overhead (34,931 ) (33,200 ) (30,937 ) (33,951 ) (34,087 ) (33,586 ) (33,843 )
Insurance subsidiary   (1,503 )   (1,347 )   (1,775 )   (2,032 )   (1,452 )   (1,182 )   (1,769 )
  (36,434 )   (34,547 )   (32,712 )   (35,983 )   (35,539 )   (34,768 )   (35,612 )
Operating income 145,145 149,479 118,687 152,265 156,387 149,380 127,357
Rent (83,623 ) (85,860 ) (84,865 ) (84,325 ) (85,201 ) (86,882 ) (88,081 )
Depreciation and amortization (30,558 ) (30,545 ) (29,174 ) (29,745 ) (30,490 ) (31,355 ) (31,992 )
Interest, net   (1,674 )   (572 )   (3,039 )   (2,992 )   (1,003 )   (1,196 )   (995 )

Income from continuing operations before income taxes

29,290 32,502 1,609 35,203 39,693 29,947 6,289
Provision (benefit) for income taxes   12,080     13,025     (510 )   13,549     16,352     12,409     901  
$ 17,210   $ 19,477   $ 2,119   $ 21,654   $ 23,341   $ 17,538   $ 5,388  
                     
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
(In thousands)
 
 
2008 Quarters 2009 Quarters
First Second Third Fourth First Second Third
Rent:
Hospital division $ 35,907 $ 37,750 $ 36,461 $ 36,198 $ 36,445 $ 36,834 $ 37,062
 
Health services division 46,326 46,611 46,972 46,703 47,274 48,565 49,471
 
Rehabilitation division 1,358 1,393 1,405 1,399 1,451 1,459 1,495
 
Corporate   32   106   27   25   31   24   53
$ 83,623 $ 85,860 $ 84,865 $ 84,325 $ 85,201 $ 86,882 $ 88,081
 
Depreciation and amortization:
Hospital division $ 11,303 $ 11,455 $ 11,719 $ 13,673 $ 12,512 $ 13,018 $ 13,275
 
Health services division 13,892 13,292 11,536 9,925 11,685 12,038 12,408
 
Rehabilitation division 387 485 547 546 547 549 584
 
Corporate   4,976   5,313   5,372   5,601   5,746   5,750   5,725
$ 30,558 $ 30,545 $ 29,174 $ 29,745 $ 30,490 $ 31,355 $ 31,992
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Hospital division $ 13,556 $ 20,022 $ 19,736 $ 15,903 $ 14,330 $ 17,730 $ 21,110
 
Health services division 7,135 10,744 19,746 12,468 21,840 11,946 6,371
 
Rehabilitation division 282 280 271 329 190 172 269
 
Corporate:
Information systems 3,832 8,616 7,051 6,864 3,453 8,838 6,152
Other   135   258   489   960   173   210   73
$ 24,940 $ 39,920 $ 47,293 $ 36,524 $ 39,986 $ 38,896 $ 33,975
                                             
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
 
2008 Quarters 2009 Quarters
First Second Third Fourth First Second Third
Hospital data:
End of period data:
Number of hospitals 81 81 82 82 82 82 82
Number of licensed beds 6,358 6,358 6,428 6,482 6,520 6,520 6,520
 
Revenue mix %:
Medicare 57 56 54 55 56 55 55
Medicaid 9 9 11 11 10 10 11
Medicare Advantage 8 9 9 10 10 11 9
Commercial insurance and other 26 26 26 24 24 24 25
 
Admissions:
Medicare 7,920 7,268 6,786 7,054 7,421 7,117 6,875
Medicaid 1,034 1,008 1,148 1,043 1,052 1,053 1,165
Medicare Advantage 901 849 869 968 1,094 1,091 926
Commercial insurance and other   1,814   1,799   1,748   1,727   1,921   1,869   1,969
  11,669   10,924   10,551   10,792   11,488   11,130   10,935
Admissions mix %:
Medicare 68 67 64 65 65 64 63
Medicaid 9 9 11 10 9 9 11
Medicare Advantage 8 8 8 9 9 10 8
Commercial insurance and other 15 16 17 16 17 17 18
 
Patient days:
Medicare 216,737 210,064 188,832 190,794 197,377 197,203 188,712
Medicaid 50,335 50,676 54,108 53,304 50,868 50,485 53,585
Medicare Advantage 28,453 29,219 28,529 31,744 35,229 36,806 29,912
Commercial insurance and other   66,270   67,847   64,449   63,688   65,509   61,960   65,717
  361,795   357,806   335,918   339,530   348,983   346,454   337,926
Average length of stay:
Medicare 27.4 28.9 27.8 27.0 26.6 27.7 27.4
Medicaid 48.7 50.3 47.1 51.1 48.4 47.9 46.0
Medicare Advantage 31.6 34.4 32.8 32.8 32.2 33.7 32.3
Commercial insurance and other 36.5 37.7 36.9 36.9 34.1 33.2 33.4
Weighted average 31.0 32.8 31.8 31.5 30.4 31.1 30.9
 
Revenues per admission:
Medicare $ 34,128 $ 35,717 $ 34,721 $ 36,029 $ 37,262 $ 37,748 $ 37,105
Medicaid 41,853 42,271 40,798 50,577 45,160 45,759 43,640
Medicare Advantage 42,167 46,448 45,679 46,305 46,387 46,950 47,597
Commercial insurance and other 68,691 66,385 64,431 65,774 61,286 63,716 59,957
Weighted average 40,806 42,206 41,207 43,117 42,872 43,769 42,805
 
Revenues per patient day:
Medicare $ 1,247 $ 1,236 $ 1,248 $ 1,332 $ 1,401 $ 1,362 $ 1,352
Medicaid 860 841 866 990 934 954 949
Medicare Advantage 1,335 1,350 1,391 1,412 1,440 1,392 1,473
Commercial insurance and other 1,880 1,760 1,748 1,784 1,797 1,922 1,796
Weighted average 1,316 1,289 1,294 1,370 1,411 1,406 1,385
 
Medicare case mix index (discharged patients only) 1.12 1.16 1.14 1.17 1.22 1.23 1.19
 
Average daily census 3,976 3,932 3,651 3,691 3,878 3,807 3,673
Occupancy % 67.9 67.1 62.2 62.1 66.0 64.7 63.6
 
Annualized employee turnover % 25.0 25.9 25.7 25.2 21.3 22.1 22.8
                     
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
 
2008 Quarters 2009 Quarters
First Second Third Fourth First Second Third
Nursing center data:
End of period data:
Number of nursing centers:
Owned or leased 218 218 218 218 218 218 218
Managed   4   4   4   4   4   4   4
  222   222   222   222   222   222   222
Number of licensed beds:
Owned or leased 27,569 27,449 27,422 27,252 27,138 27,138 27,086
Managed   485   485   485   485   485   485   485
  28,054   27,934   27,907   27,737   27,623   27,623   27,571
 
Revenue mix %:
Medicare 35 35 33 34 35 35 34
Medicaid 42 43 43 43 41 41 42
Medicare Advantage 5 5 5 5 6 6 6
Private and other 18 17 19 18 18 18 18
 
Patient days (excludes managed facilities):
Medicare 401,468 394,520 365,125 361,977 374,853 375,140 360,009
Medicaid 1,356,401 1,347,763 1,387,819 1,374,670 1,326,654 1,323,157 1,357,596
Medicare Advantage 64,929 68,850 69,655 69,083 80,352 82,652 84,322
Private and other   413,510   406,564   419,071   420,193   403,320   415,510   415,467
  2,236,308   2,217,697   2,241,670   2,225,923   2,185,179   2,196,459   2,217,394
Patient day mix %:
Medicare 18 18 16 16 17 17 16
Medicaid 61 61 62 62 61 60 61
Medicare Advantage 3 3 3 3 4 4 4
Private and other 18 18 19 19 18 19 19
 
Revenues per patient day:
Medicare Part A $ 428 $ 430 $ 433 $ 455 $ 457 $ 459 $ 464
Total Medicare (including Part B) 461 465 474 497 497 500 508
Medicaid 159 166 163 163 165 167 166
Medicare Advantage 369 373 370 381 380 392 398
Private and other 229 227 230 231 235 232 234
Weighted average 232 237 232 237 243 245 243
 
Average daily census 24,575 24,370 24,366 24,195 24,280 24,137 24,102
Admissions 18,215 17,634 16,903 17,234 18,166 18,456 17,803
Occupancy % 89.3 89.1 89.2 88.9 89.3 88.9 88.9
Medicare average length of stay 35.2 35.7 36.5 34.8 34.8 35.5 36.3
 
Annualized employee turnover % 48.2 50.2 51.0 48.9 37.9 39.9 40.2
 
Rehabilitation data:
Revenue mix %:
Company-operated 65 64 62 61 61 60 59
Non-affiliated 35 36 38 39 39 40 41
 
Sites of service (at end of period) 650 658 659 655 661 659 660
Revenue per site $ 160,767 $ 161,578 $ 162,058 $ 167,492 $ 177,984 $ 182,775 $ 185,797
 
Therapist productivity % 81.9 81.3 80.1 82.3 84.8 84.8 83.5
 
Annualized employee turnover % 13.1 13.5 13.2 13.3 10.9 11.6 13.1
                   
KINDRED HEALTHCARE, INC.
Earnings (Loss) Per Common Share Reconciliation (a)
(Unaudited)
(In thousands, except per share amounts)
 
Three months ended September 30, Nine months ended September 30,
2009 2008 2009 2008
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings (loss):
Income from continuing operations:
As reported in Statement of Operations $ 5,388 $ 5,388 $ 2,119 $ 2,119 $ 46,267 $ 46,267 $ 38,806 $ 38,806

Allocation to participating unvested restricted stockholders

  (90 )   (90 )   (46 )   (45 )   (833 )   (830 )   (915 )   (897 )
Available to common stockholders $ 5,298   $ 5,298   $ 2,073   $ 2,074   $ 45,434   $ 45,437   $ 37,891   $ 37,909  
 
Discontinued operations, net of income taxes:
Income (loss) from operations:
As reported in Statement of Operations $ 13 $ 13 $ (1,321 ) $ (1,321 ) $ (1,465 ) $ (1,465 ) $ (4,369 ) $ (4,369 )

Allocation to participating unvested restricted stockholders

  -     -     29     28     26     26     103     101  
Available to common stockholders $ 13   $ 13   $ (1,292 ) $ (1,293 ) $ (1,439 ) $ (1,439 ) $ (4,266 ) $ (4,268 )
 
Gain (loss) on divestiture of operations:
As reported in Statement of Operations $ 52 $ 52 $ (22,058 ) $ (22,058 ) $ (23,999 ) $ (23,999 ) $ (19,346 ) $ (19,346 )

Allocation to participating unvested restricted stockholders

  (1 )   (1 )   475     465     432     431     456     447  
Available to common stockholders $ 51   $ 51   $ (21,583 ) $ (21,593 ) $ (23,567 ) $ (23,568 ) $ (18,890 ) $ (18,899 )
 
Net income (loss):
As reported in Statement of Operations $ 5,453 $ 5,453 $ (21,260 ) $ (21,260 ) $ 20,803 $ 20,803 $ 15,091 $ 15,091

Allocation to participating unvested restricted stockholders

  (91 )   (91 )   458     448     (375 )   (373 )   (356 )   (349 )
Available to common stockholders $ 5,362   $ 5,362   $ (20,802 ) $ (20,812 ) $ 20,428   $ 20,430   $ 14,735   $ 14,742  
 
Shares used in the computation:

Weighted average shares outstanding - basic computation

  38,398   38,398   38,034   38,034   38,297   38,297   37,732   37,732
Dilutive effect of employee stock options   126     860     122     753  

Adjusted weighted average shares outstanding - diluted computation

  38,524     38,894     38,419     38,485  
 
 
Earnings (loss) per common share:
Income from continuing operations $ 0.14 $ 0.14 $ 0.05 $ 0.05 $ 1.19 $ 1.18 $ 1.00 $ 0.98
Discontinued operations:
Income (loss) from operations - - (0.03 ) (0.03 ) (0.04 ) (0.04 ) (0.11 ) (0.11 )
Gain (loss) on divestiture of operations   -     -     (0.57 )   (0.56 )   (0.62 )   (0.61 )   (0.50 )   (0.49 )
Net income (loss) $ 0.14   $ 0.14   $ (0.55 ) $ (0.54 ) $ 0.53   $ 0.53   $ 0.39   $ 0.38  
 
 
(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 (loss) per common share includes the dilutive effect of stock options. On January 1, 2009, the Company adopted 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 (loss) per common share calculation pursuant to the two-class method.

                 
KINDRED HEALTHCARE, INC.
Reconciliation of Earnings Guidance for 2009 and 2010 - Continuing Operations
(Unaudited)
(In millions, except per share amounts)
 
Earnings Guidance Ranges (a)
2009 2010
As of November 2, 2009 As of August 4, 2009 As of November 2, 2009
Low High Low High Low High
 
Operating income $ 577 $ 581 $ 578 $ 584 $ 575 $ 583
 
Rent 350 350 353 353 364 364
Depreciation and amortization 126 126 126 126 123 123
Interest, net   5   5   8   8   5   5
Income from continuing operations before income taxes 96 100 91 97 83 91
Provision for income taxes   38   40   37   40   35   37
Income from continuing operations 58 60 54 57 48 54
Allocation to participating unvested restricted stockholders   1   1   1   1   1   1
Available to common stockholders $ 57 $ 59 $ 53 $ 56 $ 47 $ 53
 
 
Earnings per diluted share $

1.48

$

1.53

$ 1.35 $ 1.45 $ 1.20 $ 1.35
 
Shares used in computing earnings per diluted share 38.5 38.5 39.0 39.0 39.0 39.0
 
 
       

(a)

The Company indicated that the earnings guidance for continuing operations reflects the estimated impact of the final rules issued by CMS on July 31, 2009 related to payment rates for LTAC hospitals and nursing centers. The Company also indicated that the earnings guidance does not reflect any material acquisitions or divestitures and does not take into account any other changes in government reimbursements, repurchases of common stock or unusual items.

Source: Kindred Healthcare, Inc.

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