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Kindred Healthcare Reports Strong First Quarter Core Results
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Excluding Certain Items, First Quarter Continued Operations Diluted EPS Rose 14% to $0.49 Compared to $0.43 in 2012

First Quarter GAAP Continuing Operations Diluted EPS Totaled $0.17 Compared to Last Year’s $0.40

Company Advances Repositioning Strategy as Reclassification of 19 Ventas Nursing Centers Exited in the Quarter Lifted Continuing Operations Diluted EPS by $0.05

Additional Integrated Care Market Development Plans and Home Health and Hospice Acquisitions Highlighted

Company Maintains Fiscal 2013 Core Earnings Guidance of $1.10 to $1.30

LOUISVILLE, Ky.--(BUSINESS WIRE)--May. 1, 2013-- Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 2013. 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.

Continuing Operations Highlights (excluding certain items unless otherwise indicated):

  • Consolidated revenues rose 1% to $1.55 billion
  • Solid cost management drove core operating income growth of 6% and EPS growth of 14%
    • Core aggregate operating expenses increased only 0.3% compared to last year’s first quarter
  • Hospital division reported another successful quarter
    • Stable occupancy combined with improved cost management drove 4% growth in operating income
  • RehabCare revenue growth and higher therapist productivity drove 30% growth in operating income
  • Home health and hospice division reports continued growth
    • Revenues climbed 82% while operating income rose 55%
  • Nursing center division continued to work through challenging reimbursement and regulatory changes while transitioning the operations of 54 nursing centers leased from Ventas
    • 19 nursing centers transitioned in the quarter, with another 23 transitioned on April 30, 2013
  • GAAP operating cash flows grew to $25 million compared to last year’s deficit of $3 million
    • Operating cash flows this year were reduced by $17 million (net of income taxes) for certain items in the quarter

First Quarter Results

Continuing Operations

Consolidated revenues for the first quarter ended March 31, 2013 rose 1% to $1.55 billion compared to $1.54 billion in the first quarter last year. Income from continuing operations for the first quarter of 2013 totaled $9.1 million or $0.17 per diluted share compared to $21.2 million or $0.40 per diluted share in the first quarter last year.

First quarter 2013 operating results included certain pretax charges aggregating $28.9 million related to (1) a one-time bonus paid to approximately 50,000 employees who do not participate in the Company’s incentive compensation program, (2) employee retention costs incurred in connection with the planned divestiture of 17 non-strategic facilities and the nonrenewal of 54 nursing centers leased from Ventas, Inc. (“Ventas”) (NYSE:VTR), and (3) transaction-related costs, the combined effect of which reduced income from continuing operations by $17.2 million or $0.32 per diluted share.

First quarter 2012 operating results included certain charges that reduced income from continuing operations by $1.6 million or $0.03 per diluted share.

Discontinued Operations

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

In connection with the nonrenewal of 54 nursing centers leased from Ventas, the Company exited 19 of these facilities in the first quarter of 2013 and reflected the related operations as discontinued. The Company expects that the remaining facilities will be classified as discontinued upon the completion of the transaction process in 2013. At April 30, 2013, the Company had exited 42 of the 54 Ventas facilities.

For the first quarter of 2013, the Company reported a loss from discontinued operations totaling $4.8 million or $0.09 per diluted share compared to $1.8 million or $0.03 per diluted share in the first quarter last year.

In the first quarter of both 2013 and 2012, the Company reported a loss of $1.2 million or $0.02 per diluted share related to the divestiture of discontinued operations.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “We are pleased to report a very strong start to our fiscal 2013. While we continue to work through significant reimbursement and regulatory pressures in each of our businesses, our team generated 6% growth in consolidated operating income and 14% growth in our continuing operations diluted EPS on a core basis. This accomplishment reflects the commitment of our caregivers, and a relentless focus on cost management across the enterprise, while maintaining our culture of quality service and patient satisfaction. In addition, we are now beginning to see the benefits of the Ventas lease transition to our continuing operations, with the exit from 19 of these facilities adding $0.05 of EPS in the quarter. Another 23 Ventas facilities were transferred on April 30.”

Mr. Diaz continued, “The first quarter also provided tangible evidence that our strategic growth plan, asset repositioning, and related capital redeployment activities are accelerating. With our exit from 54 Ventas nursing centers currently underway, last week’s announcement to dispose of 17 non-strategic facilities outside of our Integrated Care Markets and our ongoing review of the 2015 Ventas lease renewals and other properties, our path to reposition Kindred as a stronger, more market-focused and profitable post-acute services provider is taking shape. At the same time, 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, along with nearly $400 million of unused revolving credit capacity and $180 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 announced the acquisition of a 54-bed transitional care hospital in St. Louis, as well as plans to build three new transitional care centers in Phoenix, Indianapolis and Las Vegas, as we continue to expand the continuum of our services in these Integrated Care Markets. In addition, we also announced two home health acquisitions and one hospice acquisition that will further expand our service offerings in Houston and West Texas. These transactions demonstrate the strength of our development and capital redeployment strategy and are expected to be accretive to earnings beginning in 2014.”

Mr. Diaz concluded, “As we look out over the balance of the year, there are additional reimbursement challenges related primarily to the implementation of Medicare sequestration cuts. However, we are confident that the structural cost reductions we have put in place, along with our ability to increase volumes and grow our rehabilitation and home health and hospice businesses, will enable us to meet our earnings guidance expectations for the full fiscal year. In addition, we believe that the Company will generate significant levels of free cash flows in 2013 to further reduce our adjusted leverage and fund our strategic growth plans.”

Earnings Guidance – Continuing Operations

The Company maintained its earnings guidance for 2013. The earnings guidance provided by the Company reflects the disposition of the 54 nursing centers leased from Ventas. The earnings guidance also excludes the effect of (1) a one-time employee bonus, (2) employee retention costs incurred in connection with the planned divestiture of 17 non-strategic facilities and the nonrenewal of 54 nursing centers leased from Ventas, (3) any transaction-related charges, (4) any other reimbursement changes, (5) any further acquisitions or divestitures, (6) any impairment charges, and (7) any repurchases of common stock. The recently announced transaction to sell 17 non-strategic facilities is not reflected in the Company’s earnings guidance. The Company had previously announced that this transaction, which is subject to certain conditions, is not expected to change its 2013 annual earnings guidance.

The Company expects consolidated revenues for 2013 to approximate $5.9 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $806 million to $822 million. Rent expense is expected to approximate $399 million, while depreciation and amortization should approximate $189 million. Net interest expense is expected to approximate $113 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 52.7 million).

The Company re-affirmed its operating cash flow guidance for 2013 at a range between $230 million to $250 million. Estimated routine capital expenditures in 2013 are expected to range from $120 million to $130 million. In addition to its routine capital expenditures, the Company re-affirmed that its development of new or replacement transitional care (“TC”) hospitals, transitional care centers, and inpatient rehabilitation hospitals (“IRFs”) will approximate $20 million to $30 million in 2013. Operating cash flows in excess of the Company’s routine and development capital spending programs, which are expected to approximate $90 million for 2013, will be available to repay debt and fund acquisitions.

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the first quarter 2013 conference call through a link on the Company’s website at www.kindredhealthcare.com. The conference call will be held May 2, 2013 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately 1:00 p.m. on May 2 by dialing (719) 457-0820, access code: 5104129. The replay will be available through May 12.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company’s expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “should,” “will,” “intend,” “may” and other similar expressions, are forward-looking statements. 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 and rehabilitation 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. The 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 new 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 and rehabilitation 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 significantly increased levels of indebtedness as a result of the RehabCare Group, Inc. acquisition on the Company’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings, (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 failure of the Company’s facilities to meet applicable licensure and certification requirements, (l) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (m) the Company’s ability to meet its rental and debt service obligations, (n) the Company’s ability to operate pursuant to the terms of its debt obligations, and comply with its covenants thereunder, and its ability to operate pursuant to its master lease agreements with Ventas, (o) the condition of the financial markets, including volatility and weakness in the equity, capital and credit markets, which could limit the availability and terms of debt and equity financing sources to fund the requirements of the Company’s businesses, or which could negatively impact the Company’s investment portfolio, (p) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (q) the Company’s ability to control costs, particularly labor and employee benefit costs, (r) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (s) the Company’s ability to attract and retain key executives and other healthcare personnel, (t) the increase in the costs of defending and insuring against alleged professional liability and other claims and the Company’s ability to predict the estimated costs related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (u) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (v) the Company’s ability to successfully dispose of unprofitable facilities, (w) events or circumstances which could result in the impairment of an asset or other charges, such as the impact of Medicare reimbursement regulations that resulted in the Company recording significant impairment charges in 2012 and 2011, (x) changes in generally accepted accounting principles (“GAAP”) or practices, and changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), and (y) the Company’s ability to maintain an effective system of internal control over financial reporting. Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months ended March 31, 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 $6 billion and approximately 76,000 employees in 46 states. At March 31, 2013, Kindred through its subsidiaries provided healthcare services in 2,169 locations, including 116 transitional care hospitals, six inpatient rehabilitation hospitals, 204 nursing centers, 24 sub-acute units, 101 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 1,615 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.

 
KINDRED HEALTHCARE, INC.
Financial Summary
(Unaudited)
(In thousands, except per share amounts)
 
    Three months ended
March 31,
2013     2012
 
Revenues $ 1,554,908   $ 1,537,931  
 
Income from continuing operations $ 9,504 $ 21,615
Discontinued operations, net of income taxes:
Loss from operations (4,787 ) (1,803 )
Loss on divestiture of operations   (1,244 )   (1,170 )
Loss from discontinued operations   (6,031 )   (2,973 )
Net income 3,473 18,642
Earnings attributable to noncontrolling interests   (416 )   (451 )
Income attributable to Kindred $ 3,057   $ 18,191  
 
Amounts attributable to Kindred stockholders:
Income from continuing operations $ 9,088 $ 21,164
Loss from discontinued operations   (6,031 )   (2,973 )
Net income $ 3,057   $ 18,191  
 
Earnings per common share:
Basic:
Income from continuing operations $ 0.17 $ 0.40
Discontinued operations:
Loss from operations (0.09 ) (0.03 )
Loss on divestiture of operations   (0.02 )   (0.02 )
Net income $ 0.06   $ 0.35  
 
Diluted:
Income from continuing operations $ 0.17 $ 0.40
Discontinued operations:
Loss from operations (0.09 ) (0.03 )
Loss on divestiture of operations   (0.02 )   (0.02 )
Net income $ 0.06   $ 0.35  
 
Shares used in computing earnings per common share:
Basic 52,062 51,603
Diluted 52,083 51,638
 
       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
 
Three months ended
March 31,
2013 2012
 
Revenues $ 1,554,908   $ 1,537,931  
 
Salaries, wages and benefits 943,773 921,359
Supplies 105,808 108,533
Rent 105,978 104,313
Other operating expenses 305,503 296,365
Other income (993 ) (3,143 )
Impairment charges 436 848
Depreciation and amortization 51,196 46,986
Interest expense 28,174 26,578
Investment income   (91 )   (288 )
  1,539,784     1,501,551  
Income from continuing operations before income taxes 15,124 36,380
Provision for income taxes   5,620     14,765  
Income from continuing operations 9,504 21,615
Discontinued operations, net of income taxes:
Loss from operations (4,787 ) (1,803 )
Loss on divestiture of operations   (1,244 )   (1,170 )
Loss from discontinued operations   (6,031 )   (2,973 )
Net income 3,473 18,642
Earnings attributable to noncontrolling interests   (416 )   (451 )
Income attributable to Kindred $ 3,057   $ 18,191  
 
Amounts attributable to Kindred stockholders:
Income from continuing operations $ 9,088 $ 21,164
Loss from discontinued operations   (6,031 )   (2,973 )
Net income $ 3,057   $ 18,191  
 
Earnings per common share:
Basic:
Income from continuing operations $ 0.17 $ 0.40
Discontinued operations:
Loss from operations (0.09 ) (0.03 )
Loss on divestiture of operations   (0.02 )   (0.02 )
Net income $ 0.06   $ 0.35  
 
Diluted:
Income from continuing operations $ 0.17 $ 0.40
Discontinued operations:
Loss from operations (0.09 ) (0.03 )
Loss on divestiture of operations   (0.02 )   (0.02 )
Net income $ 0.06   $ 0.35  
 
Shares used in computing earnings per common share:
Basic 52,062 51,603
Diluted 52,083 51,638
 
       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
 
March 31, December 31,
2013 2012
ASSETS
Current assets:
Cash and cash equivalents $ 42,664 $ 50,007
Cash - restricted 5,263 5,197
Insurance subsidiary investments 91,057 86,168
Accounts receivable less allowance for loss 1,094,750 1,038,605
Inventories 32,057 32,021
Deferred tax assets 11,366 12,663
Income taxes 1,835 13,573
Other   39,781     35,532  
1,318,773 1,273,766
 
Property and equipment 2,202,083 2,226,903
Accumulated depreciation   (1,088,591 )   (1,083,777 )
1,113,492 1,143,126
 
Goodwill 1,041,266 1,041,266
Intangible assets less accumulated amortization 434,020 439,767
Assets held for sale 2,793 4,131
Insurance subsidiary investments 146,985 116,424
Other   220,330     219,466  
Total assets $ 4,277,659   $ 4,237,946  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 193,263 $ 210,668
Salaries, wages and other compensation 390,701 389,009
Due to third party payors 34,392 35,420
Professional liability risks 67,859 54,088
Other accrued liabilities 152,241 137,204
Long-term debt due within one year   8,363     8,942  
846,819 835,331
 
Long-term debt 1,671,279 1,648,706
Professional liability risks 240,070 236,630
Deferred tax liabilities 10,588 9,764
Deferred credits and other liabilities 213,570 214,671
 
Equity:

Stockholders’ equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 54,047 shares - March 31, 2013 and 53,280 shares - December 31, 2012

13,512 13,320
Capital in excess of par value 1,143,950 1,145,922
Accumulated other comprehensive loss (248 ) (1,882 )
Retained earnings   101,509     98,799  
1,258,723 1,256,159
Noncontrolling interests   36,610     36,685  
Total equity   1,295,333     1,292,844  
Total liabilities and equity $ 4,277,659   $ 4,237,946  
 
       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
 
Three months ended
March 31,
2013 2012
Cash flows from operating activities:
Net income $ 3,473 $ 18,642

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

Depreciation and amortization 52,954 48,690
Amortization of stock-based compensation costs 2,248 1,802
Amortization of deferred financing costs 2,613 2,357
Provision for doubtful accounts 11,266 7,496
Deferred income taxes (344 ) (3,662 )
Impairment charges 436 867
Loss on divestiture of discontinued operations 1,244 1,170
Other 420 277
Change in operating assets and liabilities:
Accounts receivable (67,411 ) (57,197 )
Inventories and other assets (8,147 ) (15,905 )
Accounts payable (15,790 ) (9,550 )
Income taxes 12,170 31,242
Due to third party payors (1,028 ) (8,976 )
Other accrued liabilities   30,729     (20,678 )
Net cash provided by (used in) operating activities   24,833     (3,425 )
 
Cash flows from investing activities:
Routine capital expenditures (22,370 ) (22,106 )
Development capital expenditures (2,388 ) (10,622 )
Acquisitions, net of cash acquired - (50,448 )
Acquisition deposit - (16,866 )
Sale of assets 5,060 1,110
Purchase of insurance subsidiary investments (10,836 ) (13,773 )
Sale of insurance subsidiary investments 10,002 14,006
Net change in insurance subsidiary cash and cash equivalents (33,096 ) (13,123 )
Change in other investments 319 269
Other   (144 )   (749 )
Net cash used in investing activities   (53,453 )   (112,302 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 483,500 515,400
Repayment of borrowings under revolving credit (459,200 ) (397,000 )
Repayment of other long-term debt (2,666 ) (2,666 )
Payment of deferred financing costs (202 ) (43 )
Distribution made to noncontrolling interests (491 ) (1,388 )
Issuance of common stock 4 -
Other   332     -  
Net cash provided by financing activities   21,277     114,303  
Change in cash and cash equivalents (7,343 ) (1,424 )
Cash and cash equivalents at beginning of period   50,007     41,561  
Cash and cash equivalents at end of period $ 42,664   $ 40,137  
 
                       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
 
First
2012 Quarters Quarter
First Second Third Fourth Year 2013
 
Revenues $ 1,537,931   $ 1,495,146   $ 1,487,458   $ 1,512,115   $ 6,032,650   $ 1,554,908  
 
Salaries, wages and benefits 921,359 884,990 891,813 894,945 3,593,107 943,773
Supplies 108,533 105,646 104,237 104,946 423,362 105,808
Rent 104,313 105,629 106,796 106,492 423,230 105,978
Other operating expenses 296,365 298,971 292,682 292,325 1,180,343 305,503
Other income (3,143 ) (3,149 ) (3,154 ) (3,027 ) (12,473 ) (993 )
Impairment charges 848 317 693 108,909 110,767 436
Depreciation and amortization 46,986 48,279 49,059 50,885 195,209 51,196
Interest expense 26,578 26,715 26,667 27,933 107,893 28,174
Investment income   (288 )   (267 )   (231 )   (253 )   (1,039 )   (91 )
  1,501,551     1,467,131     1,468,562     1,583,155     6,020,399     1,539,784  

Income (loss) from continuing operations before income taxes

36,380 28,015 18,896 (71,040 ) 12,251 15,124
Provision for income taxes   14,765     11,549     7,781     7,180     41,275     5,620  
Income (loss) from continuing operations 21,615 16,466 11,115 (78,220 ) (29,024 ) 9,504
Discontinued operations, net of income taxes:
Loss from operations (1,803 ) (847 ) (1,228 ) (1,677 ) (5,555 ) (4,787 )
Loss on divestiture of operations   (1,170 )   (356 )   (2,280 )   (939 )   (4,745 )   (1,244 )
Loss from discontinued operations   (2,973 )   (1,203 )   (3,508 )   (2,616 )   (10,300 )   (6,031 )
Net income (loss) 18,642 15,263 7,607 (80,836 ) (39,324 ) 3,473
(Earnings) loss attributable to noncontrolling interests   (451 )   239     (41 )   (790 )   (1,043 )   (416 )
Income (loss) attributable to Kindred $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ (40,367 ) $ 3,057  
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 21,164 $ 16,705 $ 11,074 $ (79,010 ) $ (30,067 ) $ 9,088
Loss from discontinued operations   (2,973 )   (1,203 )   (3,508 )   (2,616 )   (10,300 )   (6,031 )
Net income (loss) $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ (40,367 ) $ 3,057  
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.40 $ 0.32 $ 0.21 $ (1.53 ) $ (0.58 ) $ 0.17
Discontinued operations:
Loss from operations (0.03 ) (0.02 ) (0.03 ) (0.03 ) (0.11 ) (0.09 )
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.09 )   (0.02 )
Net income (loss) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ (0.78 ) $ 0.06  
 
Diluted:
Income (loss) from continuing operations $ 0.40 $ 0.32 $ 0.21 $ (1.53 ) $ (0.58 ) $ 0.17
Discontinued operations:
Loss from operations (0.03 ) (0.02 ) (0.03 ) (0.03 ) (0.11 ) (0.09 )
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.09 )   (0.02 )
Net income (loss) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ (0.78 ) $ 0.06  
 

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

Basic 51,603 51,664 51,676 51,692 51,659 52,062
Diluted 51,638 51,675 51,709 51,692 51,659 52,083
 
                       
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
 
First
2012 Quarters Quarter
First Second Third Fourth Year 2013
Revenues:
Hospital division $ 749,383 $ 714,517 $ 699,175 $ 712,005 $ 2,875,080 $ 748,214
 
Nursing center division 512,148 503,325 505,192 506,891 2,027,556 502,703
 
Rehabilitation division:
Skilled nursing rehabilitation services 257,014 256,941 255,217 247,572 1,016,744 260,789
Hospital rehabilitation services   74,369     73,402     71,899     73,910     293,580     74,523  
  331,383     330,343     327,116     321,482     1,310,324     335,312  
 
Home health and hospice division   28,432     28,872     35,943     50,093     143,340     51,621  
1,621,346 1,577,057 1,567,426 1,590,471 6,356,300 1,637,850
 
Eliminations:
Skilled nursing rehabilitation services (53,612 ) (52,440 ) (51,154 ) (48,714 ) (205,920 ) (52,889 )
Hospital rehabilitation services (28,161 ) (27,646 ) (26,909 ) (27,620 ) (110,336 ) (27,994 )
Nursing and rehabilitation centers   (1,642 )   (1,825 )   (1,905 )   (2,022 )   (7,394 )   (2,059 )
  (83,415 )   (81,911 )   (79,968 )   (78,356 )   (323,650 )   (82,942 )
$ 1,537,931   $ 1,495,146   $ 1,487,458   $ 1,512,115   $ 6,032,650   $ 1,554,908  
 
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 161,826 $ 142,668 $ 138,250 $ 156,924 $ 599,668 $ 161,819 (a,b)
 
Nursing center division 63,906 68,012 69,906 65,085 266,909 51,178 (a,c)
 
Rehabilitation division:
Skilled nursing rehabilitation services 14,323 23,279 20,012 24,088 81,702 15,278 (a)
Hospital rehabilitation services   16,116     17,860     16,977     18,792     69,745     18,132   (a)
  30,439     41,139     36,989     42,880     151,447     33,410  
 
Home health and hospice division 2,341 2,789 3,645 4,933 13,708 2,786 (a)
 
Corporate:
Overhead (42,728 ) (44,723 ) (45,883 ) (45,729 ) (179,063 ) (45,582 ) (a)
Insurance subsidiary   (482 )   (600 )   (545 )   (500 )   (2,127 )   (509 )
(43,210 ) (45,323 ) (46,428 ) (46,229 ) (181,190 ) (46,091 )
 
Impairment charges (848 ) (317 ) (693 ) (108,909 ) (110,767 ) (436 )
Transaction costs   (485 )   (597 )   (482 )   (667 )   (2,231 )   (2,285 )
Operating income 213,969 208,371 201,187 114,017 737,544 200,381
Rent (104,313 ) (105,629 ) (106,796 ) (106,492 ) (423,230 ) (105,978 )
Depreciation and amortization (46,986 ) (48,279 ) (49,059 ) (50,885 ) (195,209 ) (51,196 )
Interest, net   (26,290 )   (26,448 )   (26,436 )   (27,680 )   (106,854 )   (28,083 )

Income (loss) from continuing operations before income taxes

36,380 28,015 18,896 (71,040 ) 12,251 15,124
Provision for income taxes   14,765     11,549     7,781     7,180     41,275     5,620  
$ 21,615   $ 16,466   $ 11,115   $ (78,220 ) $ (29,024 ) $ 9,504  

____________

(a)  

Includes one-time bonus costs of $25.9 million (hospital division - $8.8 million, nursing center division - $9.7 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 $0.3 million incurred in connection with the planned divestiture of 17 non-strategic facilities.
 
(c) Includes employee retention costs of $0.4 million incurred in connection with the nonrenewal of 54 nursing centers leased from Ventas.
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
 
    First Quarter 2013
    Nursing     Rehabilitation division     Home         Transaction-        
Hospital center Skilled nursing     Hospital     health and related
division (a,b) division (a,c) services (a) services (a) Total hospice (a) Corporate (a) costs Eliminations Consolidated
 
Revenues $ 748,214   $ 502,703   $ 260,789   $ 74,523 $ 335,312   $ 51,621 $ -   $ -   $ (82,942 ) $ 1,554,908  
 
Salaries, wages and benefits 332,256 254,450 234,844 52,420 287,264 40,314 29,730 - (241 ) 943,773
Supplies 77,637 24,874 811 32 843 2,238 216 - - 105,808
Rent 53,148 49,766 1,235 17 1,252 1,186 626 - - 105,978
Other operating expenses 176,603 172,590 9,856 3,919 13,775 6,283 16,668 2,285 (82,701 ) 305,503
Other (income) expense (101 ) (389 ) - 20 20 - (523 ) - - (993 )
Impairment charges 176 260 - - - - - - - 436
Depreciation and amortization 23,941 12,720 3,112 2,331 5,443 1,526 7,566 - - 51,196
Interest expense 182 20 96 - 96 - 27,876 - - 28,174
Investment income   (5 )   (13 )   (28 )   -   (28 )   -   (45 )   -     -     (91 )
  663,837     514,278     249,926     58,739   308,665     51,547   82,114     2,285     (82,942 )   1,539,784  

Income (loss) from continuing operations before income taxes

$ 84,377   $ (11,575 ) $ 10,863   $ 15,784 $ 26,647   $ 74 $ (82,114 ) $ (2,285 ) $ -   15,124
Provision for income taxes   5,620  
Income from continuing operations $ 9,504  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 10,271 $ 5,819 $ 605 $ 32 $ 637 $ 195 $ 5,448 $ - $ - $ 22,370
Development   2,388     -     -     -   -     -   -     -     -     2,388  
$ 12,659   $ 5,819   $ 605   $ 32 $ 637   $ 195 $ 5,448   $ -   $ -   $ 24,758  
 
 
First Quarter 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (d) division services services Total hospice Corporate costs Eliminations Consolidated
 
Revenues $ 749,383   $ 512,148   $ 257,014   $ 74,369 $ 331,383   $ 28,432 $ -   $ -   $ (83,415 ) $ 1,537,931  
 
Salaries, wages and benefits 330,309 252,877 233,204 53,731 286,935 21,291 29,979 - (32 ) 921,359
Supplies 80,047 26,382 808 54 862 1,033 209 - - 108,533
Rent 53,151 48,451 1,440 78 1,518 615 578 - - 104,313
Other operating expenses 177,292 169,287 8,679 4,468 13,147 3,767 15,770 485 (83,383 ) 296,365
Other income (91 ) (304 ) - - - - (2,748 ) - - (3,143 )
Impairment charges 304 544 - - - - - - - 848
Depreciation and amortization 22,346 11,262 2,660 2,324 4,984 898 7,496 - - 46,986
Interest expense 306 28 - - - - 26,244 - - 26,578
Investment income   (8 )   (14 )   (1 )   -   (1 )   -   (265 )   -     -     (288 )
  663,656     508,513     246,790     60,655   307,445     27,604   77,263     485     (83,415 )   1,501,551  

Income from continuing operations before income taxes

$ 85,727   $ 3,635   $ 10,224   $ 13,714 $ 23,938   $ 828 $ (77,263 ) $ (485 ) $ -   36,380
Provision for income taxes   14,765  
Income from continuing operations $ 21,615  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 10,345 $ 4,229 $ 326 $ 46 $ 372 $ 124 $ 7,036 $ - $ - $ 22,106
Development   9,949     673     -     -   -     -   -     -     -     10,622  
$ 20,294   $ 4,902   $ 326   $ 46 $ 372   $ 124 $ 7,036   $ -   $ -   $ 32,728  

____________

(a)  

Includes one-time bonus costs of $25.9 million (hospital division - $8.8 million, nursing center division - $9.7 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 $0.3 million incurred in connection with the planned divestiture of 17 non-strategic facilities.
 
(c) Includes employee retention costs of $0.4 million incurred in connection with the nonrenewal of 54 nursing centers leased from Ventas.
 
(d)

Includes severance costs of $2.0 million and other costs of $0.1 million incurred in connection with the closing of a regional office.

 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
                       
First
2012 Quarters Quarter
First Second Third Fourth Year

2013

Hospital division data:
End of period data:
Number of hospitals:
Transitional care 118 117 116 116 116
Inpatient rehabilitation 6 6 6 6 6
124 123 122 122 122
 
Number of licensed beds:
Transitional care 8,454 8,404 8,347 8,382 8,382
Inpatient rehabilitation 229 259 259 259 259
8,683 8,663 8,606 8,641 8,641
 
Revenue mix %:
Medicare 63 62 61 63 62 63
Medicaid 6 6 6 6 6 5
Medicare Advantage 10 10 11 10 10 10
Commercial insurance and other 21 22 22 21 22 22
 
Admissions:
Medicare 11,989 11,152 10,891 11,023 45,055 11,867
Medicaid 984 1,009 1,006 941 3,940 778
Medicare Advantage 1,658 1,757 1,616 1,579 6,610 1,734
Commercial insurance and other 2,868 2,630 2,661 2,509 10,668 2,512
17,499 16,548 16,174 16,052 66,273 16,891
Admissions mix %:
Medicare 69 67 67 69 68 70
Medicaid 6 6 6 6 6 5
Medicare Advantage 9 11 10 10 10 10
Commercial insurance and other 16 16 17 15 16 15
 
Patient days:
Medicare 293,746 278,614 270,555 275,008 1,117,923 290,942
Medicaid 38,487 36,654 40,169 38,045 153,355 35,447
Medicare Advantage 46,824 49,672 47,659 46,193 190,348 48,784
Commercial insurance and other 84,372 81,957 81,445 77,562 325,336 82,466
463,429 446,897 439,828 436,808 1,786,962 457,639
Average length of stay:
Medicare 24.5 25.0 24.8 24.9 24.8 24.5
Medicaid 39.1 36.3 39.9 40.4 38.9 45.6
Medicare Advantage 28.2 28.3 29.5 29.3 28.8 28.1
Commercial insurance and other 29.4 31.2 30.6 30.9 30.5 32.8
Weighted average 26.5 27.0 27.2 27.2 27.0 27.1
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                       
First
2012 Quarters Quarter
First Second Third Fourth Year 2013
Hospital division data (continued):
Revenues per admission:
Medicare $ 39,256 $ 39,467 $ 39,188 $ 40,479 $ 39,591 $ 39,697
Medicaid 44,447 42,787 43,272 43,492 43,494 51,806
Medicare Advantage 43,923 42,639 45,885 45,646 44,473 43,949
Commercial insurance and other 56,549 59,427 58,134 60,903 58,678 63,940
Weighted average 42,824 43,178 43,228 44,356 43,382 44,297
 
Revenues per patient day:
Medicare $ 1,602 $ 1,580 $ 1,577 $ 1,622 $ 1,596 $ 1,619
Medicaid 1,136 1,178 1,084 1,076 1,117 1,137
Medicare Advantage 1,555 1,508 1,556 1,560 1,544 1,562
Commercial insurance and other 1,922 1,907 1,899 1,970 1,924 1,948
Weighted average 1,617 1,599 1,590 1,630 1,609 1,635
 
Medicare case mix index (discharged patients only) 1.18 1.17 1.15 1.14 1.16 1.18
 
Average daily census 5,093 4,911 4,781 4,748 4,882 5,085
Occupancy % 67.4 64.6 63.5 63.1 64.6 67.4
 
Annualized employee turnover % 21.8 22.2 21.1 20.1 21.1
 
Nursing center division data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased 201 201 201 200 200
Managed 4 4 4 4 4
Assisted living facilities   6   6   6   6   6
  211   211   211   210   210
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased 24,431 24,479 24,479 24,425 24,425
Managed 485 485 485 485 485
Assisted living facilities   413   341   341   341   341
  25,329   25,305   25,305   25,251   25,251
Revenue mix %:
Medicare 35 34 33 33 34 33
Medicaid 39 40 40 40 40 39
Medicare Advantage 7 7 7 7 7 8
Private and other 19 19 20 20 19 20
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                       
First
2012 Quarters Quarter
First Second Third Fourth Year 2013
Nursing center division data (continued):
Patient days (a):
Medicare 331,857 319,333 308,218 305,987 1,265,395 310,180
Medicaid 1,129,717 1,129,200 1,139,559 1,130,949 4,529,425 1,094,229
Medicare Advantage 91,477 86,441 84,245 82,879 345,042 93,117
Private and other   398,634   388,137   400,106   398,918   1,585,795   382,837
  1,951,685   1,923,111   1,932,128   1,918,733   7,725,657   1,880,363
 
Patient day mix % (a):
Medicare 17 17 16 16 16 17
Medicaid 58 59 59 59 59 58
Medicare Advantage 5 4 4 4 4 5
Private and other 20 20 21 21 21 20
 
Revenues per patient day (a):
Medicare Part A $ 483 $ 483 $ 490 $ 505 $ 490 $ 497
Total Medicare (including Part B) 533 535 543 548 539 540
Medicaid 177 179 179 182 179 181
Medicaid (net of provider taxes) (b) 157 158 159 161 159 160
Medicare Advantage 410 406 410 414 410 409
Private and other 245 246 248 249 247 257
Weighted average 263 262 261 264 262 267
 
Average daily census (a) 21,447 21,133 21,001 20,856 21,108 20,893
Admissions (a) 19,386 18,188 17,878 18,292 73,744 19,439
Occupancy % (a) 85.1 84.0 83.4 82.9 83.9 83.0
Medicare average length of stay (a) 31.9 32.3 32.7 31.4 32.1 30.6
 
Annualized employee turnover % 37.9 40.0 39.8 39.5 38.9
 
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated 21 20 20 20 20 20
Non-affiliated 79 80 80 80 80 80
 
Sites of service (at end of period) 1,722 1,730 1,735 1,726 1,729
Revenue per site $ 149,253 $ 148,521 $ 147,098 $ 143,437 $ 588,309 $ 150,832
 
Therapist productivity % 80.3 80.4 80.5 80.5 80.4 81.1
 
Hospital rehabilitation services:
Revenue mix %:
Company-operated 38 38 37 37 38 38
Non-affiliated 62 62 63 63 62 62
 
Sites of service (at end of period):
Inpatient rehabilitation units 100 102 104 105 103
LTAC hospitals 125 125 123 123 123
Sub-acute units 19 20 20 21 8
Outpatient units 111 115 117 119 98
Other   5   5   5   5   -
  360   367   369   373   332
 
Revenue per site $ 206,580 $ 200,006 $ 194,849 $ 198,150 $ 799,585 $ 224,466
 
Annualized employee turnover % 19.6 16.9 17.3 16.9 10.4

____________

(a) Excludes managed facilities.

 

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

 
 
KINDRED HEALTHCARE, INC.
Earnings Per Common Share Reconciliation (a)
(Unaudited)
(In thousands, except per share amounts)
               
Three months ended March 31,
2013 2012
Basic Diluted Basic Diluted
Earnings:
Amounts attributable to Kindred stockholders:
Income from continuing operations:
As reported in Statement of Operations $ 9,088 $ 9,088 $ 21,164 $ 21,164
Allocation to participating unvested restricted stockholders   (256 )   (256 )   (289 )   (289 )
Available to common stockholders $ 8,832   $ 8,832   $ 20,875   $ 20,875  
 
Discontinued operations, net of income taxes:
Loss from operations:
As reported in Statement of Operations $ (4,787 ) $ (4,787 ) $ (1,803 ) $ (1,803 )
Allocation to participating unvested restricted stockholders   135     135     25     25  
Available to common stockholders $ (4,652 ) $ (4,652 ) $ (1,778 ) $ (1,778 )
 
Loss on divestiture of operations:
As reported in Statement of Operations $ (1,244 ) $ (1,244 ) $ (1,170 ) $ (1,170 )
Allocation to participating unvested restricted stockholders   35     35     16     16  
Available to common stockholders $ (1,209 ) $ (1,209 ) $ (1,154 ) $ (1,154 )
 
Net income:
As reported in Statement of Operations $ 3,057 $ 3,057 $ 18,191 $ 18,191
Allocation to participating unvested restricted stockholders   (86 )   (86 )   (248 )   (248 )
Available to common stockholders $ 2,971   $ 2,971   $ 17,943   $ 17,943  
 
Shares used in the computation:
Weighted average shares outstanding - basic computation   52,062   52,062   51,603   51,603
Dilutive effect of employee stock options   21     35  
Adjusted weighted average shares outstanding - diluted computation   52,083     51,638  
 
Earnings per common share:
Income from continuing operations $ 0.17 $ 0.17 $ 0.40 $ 0.40
Discontinued operations:
Loss from operations (0.09 ) (0.09 ) (0.03 ) (0.03 )
Loss on divestiture of operations   (0.02 )   (0.02 )   (0.02 )   (0.02 )
Net income $ 0.06   $ 0.06   $ 0.35   $ 0.35  

____________

(a)   Earnings per common share are based upon the weighted average number of common shares outstanding during the respective periods. The diluted calculation of earnings per common share includes the dilutive effect of stock options. The Company follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method.
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results
(Unaudited)
(In thousands, except per share amounts and statistics)
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months ended March 31, 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 40.4% and 38.7% for the three months ended March 31, 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 ended March 31, 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
March 31,
2013     2012
Detail of charges:
One-time bonus costs ($25,932 ) $ -

Severance, employee retention and other costs

(705 ) (2,184 )
Transaction costs   (2,285 )   (485 )
(28,922 ) (2,669 )
Income tax benefit   11,689     1,034  
Charges net of income taxes (17,233 ) (1,635 )
Allocation to participating unvested restricted stockholders   486     22  
Available to common stockholders   ($16,747 )   ($1,613 )
 
Weighted average diluted shares outstanding   52,083     51,638  
 
Diluted loss per common share related to charges   ($0.32 )   ($0.03 )
 
Reconciliation of operating income before charges:
Operating income before charges $ 229,303 $ 216,638
Detail of charges excluded from core operating results:
One-time bonus costs (25,932 ) -

Severance, employee retention and other costs

(705 ) (2,184 )
Transaction costs   (2,285 )   (485 )
  (28,922 )   (2,669 )
Reported operating income $ 200,381   $ 213,969  
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $ 26,321 $ 22,799
Charges net of income taxes   (17,233 )   (1,635 )
Reported income from continuing operations $ 9,088   $ 21,164  
 
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a) $ 0.49 $ 0.43
Charges net of income taxes   (0.32 )   (0.03 )
Reported diluted income per common share from continuing operations $ 0.17   $ 0.40  
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 39.3 % 40.5 %
Impact of charges on effective income tax rate   -2.1 %   0.1 %
Reported effective income tax rate   37.2 %   40.6 %

____________

(a)   For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.7 million and $0.3 million for the three months ended March 31, 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 March 31, 2013
Charges
Employee
Before One-time retention and Transaction As
charges bonus

other

costs Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 170,926 $ (8,777 ) $ (330 ) $ - $ (9,107 ) $ 161,819
 
Nursing center division 61,253 (9,700 ) (375 ) - (10,075 ) 51,178
 
Rehabilitation division:
Skilled nursing rehabilitation services 20,330 (5,052 ) - - (5,052 ) 15,278
Hospital rehabilitation services   19,387     (1,255 )   -     -     (1,255 )   18,132  
  39,717     (6,307 )   -     -     (6,307 )   33,410  
 
Home health and hospice division 3,619 (833 ) - - (833 ) 2,786
 
Corporate:
Overhead (45,267 ) (315 ) - - (315 ) (45,582 )
Insurance subsidiary   (509 )   -     -     -     -     (509 )
(45,776 ) (315 ) - - (315 ) (46,091 )
 
Impairment charges (436 ) - - - - (436 )
Transaction costs   -     -     -     (2,285 )   (2,285 )   (2,285 )
Operating income 229,303 (25,932 ) (705 ) (2,285 ) (28,922 ) 200,381
Rent (105,978 ) - - - - (105,978 )
Depreciation and amortization (51,196 ) - - - - (51,196 )
Interest, net   (28,083 )   -     -     -     -     (28,083 )

Income from continuing operations before income taxes

44,046 (25,932 ) (705 ) (2,285 ) (28,922 ) 15,124
Provision for income taxes   17,309     (10,481 )   (285 )   (923 )   (11,689 )   5,620  
$ 26,737   $ (15,451 ) $ (420 ) $ (1,362 ) $ (17,233 ) $ 9,504  
 
 
Three months ended March 31, 2012
Charges
Before

Severance

Transaction As
charges

and other

costs Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 163,928 $ (2,102 ) $ - $ (2,102 ) $ 161,826
 
Nursing center division 63,906 - - - 63,906
 
Rehabilitation division:
Skilled nursing rehabilitation services 14,359 (36 ) - (36 ) 14,323
Hospital rehabilitation services   16,127     (11 )   -     (11 )   16,116  
  30,486     (47 )   -     (47 )   30,439  
 
Home health and hospice division 2,341 - - - 2,341
 
Corporate:
Overhead (42,693 ) (35 ) - (35 ) (42,728 )
Insurance subsidiary   (482 )   -     -     -     (482 )
(43,175 ) (35 ) - (35 ) (43,210 )
 
Impairment charges (848 ) - - - (848 )
Transaction costs   -     -     (485 )   (485 )   (485 )
Operating income 216,638 (2,184 ) (485 ) (2,669 ) 213,969
Rent (104,313 ) - - - (104,313 )
Depreciation and amortization (46,986 ) - - - (46,986 )
Interest, net   (26,290 )   -     -     -     (26,290 )

Income from continuing operations before income taxes

39,049 (2,184 ) (485 ) (2,669 ) 36,380
Provision for income taxes   15,799     (846 )   (188 )   (1,034 )   14,765  
$ 23,250   $ (1,338 ) $ (297 ) $ (1,635 ) $ 21,615  
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
                       
 

Operating expenses (a):

Three months ended March 31, 2013
Charges
Employee
Before One-time retention and Transaction As
charges bonus

other

costs Total reported
Salaries, wages and benefits $ 917,164 $ 25,932 $ 677 $ - $ 26,609 $ 943,773
Supplies 105,808 - - - - 105,808
Other operating expenses 303,190 - 28 2,285 2,313 305,503
Other income (993 ) - - - (993 )
Impairment charges   436     -   -   -   -     436  
$ 1,325,605   $ 25,932 $ 705 $ 2,285 $ 28,922   $ 1,354,527  
 
 
Three months ended March 31, 2012
Charges
Before

Severance

Transaction As
charges

and other

costs Total reported
Salaries, wages and benefits $ 919,269 $ 2,090 $ - $ 2,090 $ 921,359
Supplies 108,533 - - - 108,533
Other operating expenses 295,786 94 485 579 296,365
Other income (3,143 ) - - - (3,143 )
Impairment charges   848     -   -   -   848  
$ 1,321,293   $ 2,184 $ 485 $ 2,669 $ 1,323,962  

____________

(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 May 1, 2013 (b) As of February 25, 2013
Low High Low High
 
Operating income $ 806   $ 822   $ 794   $ 810  
 
Rent 399 399 387 387
Depreciation and amortization 189 189 189 189
Interest, net   113     113     113     113  
Income from continuing operations before income taxes 105 121 105 121
Provision for income taxes   44     50     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

52.7 52.7 52.7 52.7

____________

(a)  

The earnings guidance provided by the Company reflects the disposition of the 54 nursing centers leased from Ventas. The earnings guidance also excludes the effect of (1) a one-time employee bonus, (2) employee retention costs incurred in connection with the planned divestiture of 17 non-strategic facilities and the nonrenewal of 54 nursing centers leased from Ventas, (3) any transaction-related charges, (4) any other reimbursement changes, (5) any further acquisitions or divestitures, (6) any impairment charges, and (7) any repurchases of common stock. The recently announced transaction to sell 17 non-strategic facilities is not reflected in the Company’s earnings guidance. The Company had previously announced that this transaction, which is subject to certain conditions, is not expected to change its 2013 annual earnings guidance.

 
(b) Reflects the reclassification of certain outside service costs from other operating expenses to rent expense.
 

Source: Kindred Healthcare, Inc.

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