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TMCNet:  Kindred Healthcare Announces Fourth Quarter Results

[February 25, 2013]

Kindred Healthcare Announces Fourth Quarter Results

LOUISVILLE, Ky. --(Business Wire)--

Kindred Healthcare, Inc. ("Kindred" or the "Company") (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2012. The Company's consolidated financial statements include the operating results of RehabCare Group, Inc. ("RehabCare") since the closing of the acquisition on June 1, 2011. 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.

Operating and Financial Highlights:

  • Fourth quarter consolidated revenues grew 2%
    • Hospital and home health combined for revenue gains of 6% compared to last year
  • Hospital division posted solid fourth quarter results
    • Fourth quarter revenues grew 3% and operating income rose 8%
    • While overall admissions were soft, same-store non-government admissions rose 2% compared to last year
  • RehabCare division fourth quarter revenues grew 1% while operating income climbed 53%
    • Operating results were bolstered by 27% growth in hospital-based rehabilitation services as well as strong cash collections and a related $8 million bad debt benefit
    • New Medicare Part B therapy caps reduced skilled rehabilitation therapy operating income by approximately $6 million in the quarter
  • Fourth quarter home health and hospice division revenues and operating income nearly doubled from last year
    • Annualized revenues reach $200 million
    • Home health and hospice operations now reside in 12 of 21 Kindred integrated care markets
  • Company posted strong full-year cash flows in 2012
    • Operating cash flows less routine and development capital spending totaled $97 million
  • Company maintains strong financial position entering 2013
    • Cash flows in excess of routine and development capital spending in 2013 should approximate $90 million
    • Available credit capacity approximated $420 million at December 31, 2012

Fourth Quarter Results

Continuing Operations

Consolidated revenues for the fourth quarter ended December 31, 2012 increased 2% to $1.55 billion compared to $1.52 billion in the same period in 2011. The Company reported a loss from continuing operations for the fourth quarter of 2012 of $80.7 million or $1.56 per diluted share compared to a loss of $65.5 million or $1.28 per diluted share in the fourth quarter of 2011. Operating results for the fourth quarter of 2012 included (a) an asset impairment charge, (b) severance and restructuring costs, (c) transaction-related costs and (d) employee retention costs associated with the upcoming disposal of 54 nursing centers leased from Ventas, Inc. ("Ventas") (NYSE:VTR) that reduced income from continuing operations by $105.3 million or $2.04 per diluted share. Operating results for the fourth quarter of 2011 included asset impairment charges, transaction-related costs and a loss on a hospital divestiture that reduced income from continuing operations by $79.9 million or $1.56 per diluted share.

During the fourth quarter of 2012, the Company recorded a $108 million goodwill impairment charge to reflect circumstances in which the carrying value of certain assets exceeded their fair value. The impairment charge resulted primarily from the expected decline in operating results in the Company's rehabilitation division related to previously announced Medicare reimbursement changes that were recently enacted by Congress in connection with the American Taxpayer Relief Act of 2012 (the "Taxpayer Relief Act").

Fiscal Year Results

Continuing Operations

Consolidated revenues for the year ended December 31, 2012 increased 12% to $6.2 billion compared to $5.5 billion in the previous year. The Company reported a loss from continuing operations of $33.4 million or $0.65 per diluted share in 2012 compared to a loss of $47.8 million or $1.04 per diluted share in 2011.

In addition to the charges noted above in the discussion of fourth quarter results, operating results in 2012 included (a) costs incurred in connection with the closing of a regional office, (b) lease cancellation charges and other costs incurred in connection with two hospital closings and the cancellation of a sub-acute unit project and (c) a charge in connection with an employment-related lawsuit, all of which reduced income from continuing operations by $114.1 million or $2.21 per diluted share. Operating results in 2011 included certain items that reduced income from continuing operations by $134.3 million or $2.90 per diluted share, most of which were related to asset impairment charges and the RehabCare acquisition.

Discontinued Operations

During 2012, the Company entered into transactions related to the divestiture of unprofitable businesses qualifying as discontinued operations. For accounting purposes, the historical operating results and losses on the disposal of these businesses have been classified as discontinued operations in the Company's consolidated statement of operations for all historical periods.

The Company will account for the divestiture of 54 nursing centers leased from Ventas as discontinued operations in 2013.

Management Commentary

Paul J. Diaz, Kindred's Chief Executive Officer, commented, "In 2012, Kindred continued to make progress in improving quality and patient satisfaction and delivering better clinical outcomes for patients in settings across the post-acute continuum. We want to thank our care givers and colleagues throughout our organization who delivered on Kindred's promise of hope, healing and recovery, as they worked to advance our mission in spite of a very challenging operating environment."

Commenting on the Company's recently issued 2012 Quality and Social Responsibility Report, Mr. Diaz noted, "Kindred is proud to issue its sixth annual Quality and Social Responsibility Report to fulfill our commitment to be transparent about our quality results and our ongoing efforts to improve the care and services for our patients and residents." Mr. Diaz also noted that the report links the Company's quality initiatives with its Continue the Care and integrated care market strategies. "Both policymakers and the marketplace are demanding that healthcare providers participate in coordinated care strategies to improve care transitions, reduce avoidable hospitalizations and lower costs. Kindred's integrated care market strategy is designed to leverage Kindred's national scale to build a continuum of post-acute services in local healthcare delivery markets to achieve these shared goals. Kindred is aggressively developing a post-acute continuum of service lines in local markets, including transitional care hospitals, inpatient rehabilitation facilities, sub-acute or transitional care, and home health and hospice services, in order to partner with physician groups, hospitals, health systems and payors to better manage episodes of care while at the same time improving quality and lowering costs."

Mr. Diaz remarked, "From an operational standpoint, we finished the year with a solid quarter. Excluding certain items, our continuing operations earnings per diluted share of $0.46 in the fourth quarter was a significant improvement from the comparable $0.28 per share reported last year following major Medicare cuts in both our nursing center and rehabilitation therapy divisions."

Mr. Diaz further noted, "For the full year, we are pleased to report that we met our core earnings objectives that we estimated at the beginning of the year. Our hospital results were solid, we maintained stability in our nursing center division, our rehabilitation therapy division made great progress in the midst of several Medicare reimbursement changes and we doubled the size of our home health and hospice business. I would characterize 2012 as solid year for Kindred as we met or exceeded most of our clinical and financial goals."

Commenting on the Company's strategic initiatives, Mr. Diaz noted, "In 2012, we continued to grow and enhance our integrated care market capabilities, particularly in home health and hospice services, while advancing a strategy to reposition our business mix with the goal of improving our long-term growth, profitability and financial position. Specifically, we completed three home health and hospice acquisitions that added $75 million of annualized revenues and we acquired three previously leased facilities for approximately $103 million that will benefit our balance sheet leverage over time. We also continued to move forward with the divestiture of 54 nursing centers leased from Ventas. In addition, our process to divest other non-strategic assets continues and will result in further changes to our business mix over the course of 2013 and beyond. We also continue to evaluate our active pipeline of acquisition opportunities in our integrated care markets in an effort to advance our strategy, strengthen the Company and enhance shareholder value going forward."

Mr. Diaz added, "Our significant operating cash flows in excess of routine and development capital spending, as well as our $420 million of available credit going into 2013, provide the financial strength to further reposition the Company's business mix and advance our Continue the Care strategy in our integrated care markets."

Looking forward to 2013, Mr. Diaz remarked, "The volume momentum that we saw in December has carried over nicely into our first quarter. Based on our January results, we believe that the new year is off to a strong start."

Earnings Guidance - Continuing Operations

The Company maintained its previous earnings guidance for 2013. 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 $794 million to $810 million. Rent expense is expected to approximate $387 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 and $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 and $250 million. Estimated routine capital expenditures for 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.

The Company's earnings guidance for 2013 assumes (a) reductions in Medicare payments for rehabilitation therapy services, including those contained in the Taxpayer Relief Act, expected to range from $25 million to $30 million on an annual basis, and (b) sequestration cuts of 2% related to all of its Medicare revenues that will begin on April 1, 2013. In addition, the guidance assumes that the previously announced exit in 2013 from 54 nursing centers leased from Ventas will be reflected as discontinued operations effective January 1, 2013. The earnings guidance also excludes the effect of any other reimbursement changes, any future acquisitions or dispositions, any impairment charges, and any repurchases of common stock.

In light of the significant reimbursement pressures in 2012, and the expected further reimbursement reductions that are projected to aggregate approximately $100 million in 2013, the Company has focused its efforts on reducing costs and streamlining its operations across the enterprise without impacting the quality of its services. These initiatives have been pursued under the direction of an internal project management team commonly referred to as Project Apollo. Among other things, Project Apollo is driving various structural changes in human resources, sales, marketing and finance under a shared service model that more efficiently meets the needs of the Company's four major operating divisions. Other areas of emphasis include a re-design of the Company's employee health plan (including the introduction of higher deductible plans complimented by Company-funded health savings accounts) as well as certain refinements to employee compensation using a market-based total rewards program.

Project Apollo is expected to result in $60 million to $70 million of cost savings in 2013, with a fully implemented annual impact of more than $90 million in 2014.

In the context of Project Apollo, the Company recently initiated a pay freeze across the enterprise and is pursuing certain other cost reductions in 2013. However, in an effort to remain competitive in the marketplace (without increasing its structural costs), the Company will pay a one-time bonus to approximately 47,000 employees who do not participate in the Company's incentive compensation program. The aggregate pretax cost of this one-time item is expected to approximate $25 million and is not included in the Company's annual 2013 earnings guidance.

While the Company does not provide quarterly earnings guidance, investors are advised that the Company's new employee health plan for 2013 requires that a larger portion of the Company's costs be funded in the first quarter of the year. While the Company expects its aggregate employee health costs for the full year to be flat with 2012 levels, first quarter 2013 costs will be approximately $8 million higher than the same period last year and the subsequent three fiscal quarters will, in aggregate, be lower in costs by the same amount.

Conference Call

As previously announced, investors and the general public may access a live webcast of the fourth quarter 2012 conference call through a link on the Company's website at http://investors.kindredhealthcare.com or at www.earnings.com. The conference call will be held February 26 at 9:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 12:00 p.m. on February 26 by dialing 888-203-1112, access code: 9258742. The replay will be available through March 8.

As previously announced, Mr. Diaz will make a presentation regarding the Company at the Citi Global Healthcare Conference in New York City on Tuesday, February 26, 2013, at 2:15 p.m. Eastern Time. He will also take part in a discussion with Frank G. Morgan, CFA, Managing Director, Equity Research: Healthcare Services, at the RBC Capital Markets Healthcare Conference in New York City on Wednesday, February 27, 2013, at 2:30 p.m. (Eastern Time).

In addition, Benjamin A. Breier, President and Chief Operating Officer, will make a presentation regarding the Company at the J.P. Morgan Global High Yield and Leveraged Finance Conference in Miami, Florida, on Wednesday, February 27, 2013, at 11:00 a.m. (Eastern Time).

An updated investor presentation will be available on the Company's website prior to these meetings.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company's expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing the words such as "anticipate," "approximate," "believe," "plan," "estimate," "expect," "project," "could," "should," "will," "intend," "may" and other similar expressions, are forward-looking statements.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company's expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company's actual results or performance to differ materially from any future results or performance expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time to time in the Company's filings with the Securities and Exchange Commission.

In addition to the factors set forth above, other factors that may affect the Company's plans, results or stock price include, without limitation, (a) the impact of healthcare reform, which will initiate significant changes to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, including reforms resulting from the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act (collectively, the "ACA") or future deficit reduction measures adopted at the federal or state level. Healthcare reform is affecting each of the Company's businesses in some manner. Potential future efforts in the U.S. Congress to repeal, amend, modify or retract funding for various aspects of the ACA create additional uncertainty about the ultimate impact of the ACA on the Company and the healthcare industry. Due to the substantial regulatory changes that will need to be implemented by the Centers for Medicare and Medicaid Services ("CMS") and others, and the numerous processes required to implement these reforms, the Company cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on the Company's business, financial position, results of operations and liquidity, (b) the impact of final rules issued by CMS on August 1, 2012 which, among other things, will reduce Medicare reimbursement to the Company's TC hospitals in 2013 and beyond by imposing a budget neutrality adjustment and modifying the short-stay outlier rules, (c) the impact of final rules issued by CMS on July 29, 2011 which significantly reduced Medicare reimbursement to the Company's nursing centers and changed payments for the provision of group therapy services effective October 1, 2011, (d) the impact of the Budget Control Act of 2011 (as amended by the Taxpayer Relief Act) which will automatically reduce federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. At this time, the Company believes that the automatic 2% reduction on each claim submitted to Medicare will begin 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 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 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 fourth quarter and years ended December 31, 2012 and 2011 before certain charges or on a core basis. A reconciliation of the non-GAAP measurements to the GAAP measurements is included in this press release.

As noted above, the Company's earnings release includes a financial measure referred to as operating income, or earnings before interest, income taxes, depreciation, amortization and rent. The Company's management uses operating income as a meaningful measure of operational performance in addition to other measures. The Company uses operating income to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes this measurement is important because securities analysts and investors use this measurement to compare the Company's performance to other companies in the healthcare industry. The Company believes that income (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 78,000 employees in 46 states. At December 31, 2012, Kindred through its subsidiaries provided healthcare services in 2,203 locations, including 116 transitional care hospitals, six inpatient rehabilitation hospitals, 223 nursing centers, 27 sub-acute units, 101 hospice, home care and private duty locations, 105 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,625 non-affiliated facilities. Ranked as one of Fortune magazine's Most Admired Healthcare Companies for four years in a row, Kindred's mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com.




         
KINDRED HEALTHCARE, INC.
Financial Summary
(In thousands, except per share amounts)
 
Three months ended Year ended
December 31, December 31,
2012 2011 2012 2011
 
Revenues $ 1,547,721   $ 1,517,435   $ 6,181,291   $ 5,503,928  
 
Loss from continuing operations $ (79,892 ) $ (65,534 ) $ (32,371 ) $ (48,053 )
Discontinued operations, net of income taxes:
Loss from operations (5 ) (6,355 ) (2,208 ) (5,666 )
Loss on divestiture of operations   (939 )   -     (4,745 )   -  
Loss from discontinued operations   (944 )   (6,355 )   (6,953 )   (5,666 )
Net loss (80,836 ) (71,889 ) (39,324 ) (53,719 )
(Earnings) loss attributable to noncontrolling interests   (790 )   58     (1,043 )   238  
Loss attributable to Kindred $ (81,626 ) $ (71,831 ) $ (40,367 ) $ (53,481 )
 
Amounts attributable to Kindred stockholders:
Loss from continuing operations $ (80,682 ) $ (65,476 ) $ (33,414 ) $ (47,815 )
Loss from discontinued operations   (944 )   (6,355 )   (6,953 )   (5,666 )
Net loss $ (81,626 ) $ (71,831 ) $ (40,367 ) $ (53,481 )
 
Loss per common share:
Basic:
Loss from continuing operations $ (1.56 ) $ (1.28 ) $ (0.65 ) $ (1.04 )
Discontinued operations:
Loss from operations - (0.12 ) (0.04 ) (0.12 )
Loss on divestiture of operations   (0.02 )   -     (0.09 )   -  
Net loss $ (1.58 ) $ (1.40 ) $ (0.78 ) $ (1.16 )
 
Diluted:
Loss from continuing operations $ (1.56 ) $ (1.28 ) $ (0.65 ) $ (1.04 )
Discontinued operations:
Loss from operations - (0.12 ) (0.04 ) (0.12 )
Loss on divestiture of operations   (0.02 )   -     (0.09 )   -  
Net loss $ (1.58 ) $ (1.40 ) $ (0.78 ) $ (1.16 )
 
Shares used in computing loss per common share:
Basic 51,692 51,335 51,659 46,280
Diluted 51,692 51,335 51,659 46,280
         
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
 
Three months ended Year ended
December 31, December 31,
2012 2011 2012 2011
 
Revenues $ 1,547,721   $ 1,517,435   $ 6,181,291   $ 5,503,928  
 
Salaries, wages and benefits 914,171 907,853 3,672,475 3,243,603
Supplies 107,125 107,043 432,008 399,819
Rent 107,737 106,135 428,979 398,045
Other operating expenses 306,113 311,333 1,233,134 1,160,293
Other income (2,591 ) (2,711 ) (10,812 ) (11,191 )
Impairment charges 108,952 91,490 110,856 118,202
Depreciation and amortization 52,353 48,101 201,068 165,227
Interest expense 27,934 26,244 107,896 80,919
Investment income   (258 )   (242 )   (1,054 )   (1,031 )
  1,621,536     1,595,246     6,174,550     5,553,886  
Income (loss) from continuing operations before income taxes (73,815 ) (77,811 ) 6,741 (49,958 )
Provision (benefit) for income taxes   6,077     (12,277 )   39,112     (1,905 )
Loss from continuing operations (79,892 ) (65,534 ) (32,371 ) (48,053 )
Discontinued operations, net of income taxes:
Loss from operations (5 ) (6,355 ) (2,208 ) (5,666 )
Loss on divestiture of operations   (939 )   -     (4,745 )   -  
Loss from discontinued operations   (944 )   (6,355 )   (6,953 )   (5,666 )
Net loss (80,836 ) (71,889 ) (39,324 ) (53,719 )
(Earnings) loss attributable to noncontrolling interests   (790 )   58     (1,043 )   238  
Loss attributable to Kindred $ (81,626 ) $ (71,831 ) $ (40,367 ) $ (53,481 )
 
Amounts attributable to Kindred stockholders:
Loss from continuing operations $ (80,682 ) $ (65,476 ) $ (33,414 ) $ (47,815 )
Loss from discontinued operations   (944 )   (6,355 )   (6,953 )   (5,666 )
Net loss $ (81,626 ) $ (71,831 ) $ (40,367 ) $ (53,481 )
 
Loss per common share:
Basic:
Loss from continuing operations $ (1.56 ) $ (1.28 ) $ (0.65 ) $ (1.04 )
Discontinued operations:
Loss from operations - (0.12 ) (0.04 ) (0.12 )
Loss on divestiture of operations   (0.02 )   -     (0.09 )   -  
Net loss $ (1.58 ) $ (1.40 ) $ (0.78 ) $ (1.16 )
 
Diluted:
Loss from continuing operations $ (1.56 ) $ (1.28 ) $ (0.65 ) $ (1.04 )
Discontinued operations:
Loss from operations - (0.12 ) (0.04 ) (0.12 )
Loss on divestiture of operations   (0.02 )   -     (0.09 )   -  
Net loss $ (1.58 ) $ (1.40 ) $ (0.78 ) $ (1.16 )
 
Shares used in computing loss per common share:
Basic 51,692 51,335 51,659 46,280
Diluted 51,692 51,335 51,659 46,280
       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(In thousands, except per share amounts)
 
December 31, December 31,
2012 2011
ASSETS
Current assets:
Cash and cash equivalents $ 50,007 $ 41,561
Cash - restricted 5,197 5,551
Insurance subsidiary investments 86,168 70,425
Accounts receivable less allowance for loss 1,038,605 994,700
Inventories 32,021 31,060
Deferred tax assets 12,663 17,785
Income taxes 13,573 39,513
Other   35,532     32,687  
1,273,766 1,233,282
 
Property and equipment 2,226,903 1,975,063
Accumulated depreciation   (1,083,777 )   (916,022 )
1,143,126 1,059,041
 
Goodwill 1,041,266 1,084,655
Intangible assets less accumulated amortization 439,767 447,207
Assets held for sale 4,131 5,612
Insurance subsidiary investments 116,424 110,227
Other   219,466     198,469  
Total assets $ 4,237,946   $ 4,138,493  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 210,668 $ 216,801
Salaries, wages and other compensation 389,009 407,493
Due to third party payors 35,420 37,306
Professional liability risks 54,088 46,010
Other accrued liabilities 137,204 130,693
Long-term debt due within one year   8,942     10,620  
835,331 848,923
 
Long-term debt 1,648,706 1,531,882
Professional liability risks 236,630 217,717
Deferred tax liabilities 9,764 17,955
Deferred credits and other liabilities 214,671 191,771
 
Noncontrolling interests-redeemable - 9,704
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 53,280 shares - December 31, 2012 and 52,116 shares - December 31, 2011

13,320 13,029
Capital in excess of par value 1,145,922 1,138,189
Accumulated other comprehensive loss (1,882 ) (1,469 )
Retained earnings   98,799     139,172  
1,256,159 1,288,921
Noncontrolling interests-nonredeemable   36,685     31,620  
Total equity   1,292,844     1,320,541  
Total liabilities and equity $ 4,237,946   $ 4,138,493  
         
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
 
Three months ended Year ended
December 31, December 31,
2012 2011 2012 2011
Cash flows from operating activities:
Net loss $ (80,836 ) $ (71,889 ) $ (39,324 ) $ (53,719 )

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

Depreciation and amortization 52,392 48,227 201,484 165,594
Amortization of stock-based compensation costs 2,841 3,208 10,852 12,819
Amortization of deferred financing costs 2,592 2,350 9,683 7,581
Payment of lender fees related to debt issuance (2,940 ) - (2,940 ) (46,232 )
Provision for doubtful accounts 1,038 13,084 23,692 35,133
Deferred income taxes 6,616 5,170 (11,524 ) 195
Impairment charges 108,952 102,569 110,856 129,281
Loss on divestiture of discontinued operations 939 - 4,745 -
Other (981 ) 1,703 1,772 (2,063 )
Change in operating assets and liabilities:
Accounts receivable 9,208 (36,758 ) (58,705 ) (144,830 )
Inventories and other assets (8,485 ) (4,451 ) (29,382 ) (802 )
Accounts payable 737 299 (6,515 ) 685
Income taxes (9,294 ) (25,537 ) 29,991 (4,745 )
Due to third party payors (4,411 ) (4,130 ) (2,723 ) 568
Other accrued liabilities   (6,893 )   2,055     20,600     54,241  
Net cash provided by operating activities   71,475     35,900     262,562     153,706  
 
Cash flows from investing activities:
Routine capital expenditures (38,371 ) (37,640 ) (115,175 ) (132,903 )
Development capital expenditures (12,147 ) (18,085 ) (50,322 ) (87,655 )
Acquisitions, net of cash acquired (38,904 ) (4,551 ) (178,212 ) (715,458 )
Sale of assets 150 - 1,260 1,714
Purchase of insurance subsidiary investments (7,151 ) (9,719 ) (38,041 ) (35,623 )
Sale of insurance subsidiary investments 8,290 8,720 38,363 46,307
Net change in insurance subsidiary cash and cash equivalents (6,114 ) (9,343 ) (21,285 ) (14,213 )
Change in other investments 11 3 1,465 1,003
Other   490     180     (539 )   (512 )
Net cash used in investing activities   (93,746 )   (70,435 )   (362,486 )   (937,340 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 455,000 493,500 1,784,300 2,126,800
Repayment of borrowings under revolving credit (512,200 ) (448,500 ) (1,757,100 ) (2,198,300 )
Proceeds from issuance of senior unsecured notes - - - 550,000
Proceeds from issuance of term loan, net of discount 97,500 - 97,500 693,000
Repayment of other long-term debt (2,688 ) (2,645 ) (10,664 ) (350,878 )
Payment of deferred financing costs (864 ) (383 ) (1,465 ) (9,098 )
Contribution made by noncontrolling interest - - 200 -
Distribution made to noncontrolling interests (308 ) - (3,829 ) -
Purchase of noncontrolling interests (4 ) - (719 ) (7,292 )
Issuance of common stock 147 - 147 3,019
Other   -     29     -     776  
Net cash provided by financing activities   36,583     42,001     108,370     808,027  
Change in cash and cash equivalents 14,312 7,466 8,446 24,393
Cash and cash equivalents at beginning of period   35,695     34,095     41,561     17,168  
Cash and cash equivalents at end of period $ 50,007   $ 41,561   $ 50,007   $ 41,561  
                     
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
 
2011 Quarters 2012 Quarters
First Second Third Fourth Year First Second Third Fourth Year
 
Revenues $ 1,189,851   $ 1,288,478   $ 1,508,164   $ 1,517,435   $ 5,503,928   $ 1,576,359   $ 1,533,235   $ 1,523,976   $ 1,547,721   $ 6,181,291  
 
Salaries, wages and benefits 676,757 762,375 896,618 907,853 3,243,603 941,939 905,037 911,328 914,171 3,672,475
Supplies 89,753 96,274 106,749 107,043 399,819 110,729 107,783 106,371 107,125 432,008
Rent 91,216 95,489 105,205 106,135 398,045 105,872 107,053 108,317 107,737 428,979
Other operating expenses 258,641 286,142 304,177 311,333 1,160,293 309,678 311,940 305,403 306,113 1,233,134
Other income (2,785 ) (2,880 ) (2,815 ) (2,711 ) (11,191 ) (2,748 ) (2,698 ) (2,775 ) (2,591 ) (10,812 )
Impairment charges - - 26,712 91,490 118,202 867 329 708 108,952 110,856
Depreciation and amortization 32,496 37,816 46,814 48,101 165,227 48,434 49,742 50,539 52,353 201,068
Interest expense 5,728 23,157 25,790 26,244 80,919 26,578 26,716 26,668 27,934 107,896
Investment income   (495 )   (257 )   (37 )   (242 )   (1,031 )   (292 )   (275 )   (229 )   (258 )   (1,054 )
  1,151,311     1,298,116     1,509,213     1,595,246     5,553,886     1,541,057     1,505,627     1,506,330     1,621,536     6,174,550  

Income (loss) from continuing operations before income taxes

38,540 (9,638 ) (1,049 ) (77,811 ) (49,958 ) 35,302 27,608 17,646 (73,815 ) 6,741
Provision (benefit) for income taxes   15,861     (3,295 )   (2,194 )   (12,277 )   (1,905 )   14,347     11,392     7,296     6,077     39,112  
Income (loss) from continuing operations 22,679 (6,343 ) 1,145 (65,534 ) (48,053 ) 20,955 16,216 10,350 (79,892 ) (32,371 )
Discontinued operations, net of income taxes:
Income (loss) from operations (582 ) 390 881 (6,355 ) (5,666 ) (1,143 ) (597 ) (463 ) (5 ) (2,208 )
Loss on divestiture of operations   -     -     -     -     -     (1,170 )   (356 )   (2,280 )   (939 )   (4,745 )
Income (loss) from discontinued operations   (582 )   390     881     (6,355 )   (5,666 )   (2,313 )   (953 )   (2,743 )   (944 )   (6,953 )
Net income (loss) 22,097 (5,953 ) 2,026 (71,889 ) (53,719 ) 18,642 15,263 7,607 (80,836 ) (39,324 )
(Earnings) loss attributable to noncontrolling interests   -     421     (241 )   58     238     (451 )   239     (41 )   (790 )   (1,043 )
Income (loss) attributable to Kindred $ 22,097   $ (5,532 ) $ 1,785   $ (71,831 ) $ (53,481 ) $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ (40,367 )
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 22,679 $ (5,922 ) $ 904 $ (65,476 ) $ (47,815 ) $ 20,504 $ 16,455 $ 10,309 $ (80,682 ) $ (33,414 )
Income (loss) from discontinued operations   (582 )   390     881     (6,355 )   (5,666 )   (2,313 )   (953 )   (2,743 )   (944 )   (6,953 )
Net income (loss) $ 22,097   $ (5,532 ) $ 1,785   $ (71,831 ) $ (53,481 ) $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ (40,367 )
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.57 $ (0.14 ) $ 0.02 $ (1.28 ) $ (1.04 ) $ 0.39 $ 0.31 $ 0.19 $ (1.56 ) $ (0.65 )
Discontinued operations:
Income (loss) from operations (0.01 ) 0.01 0.01 (0.12 ) (0.12 ) (0.02 ) (0.01 ) (0.01 ) - (0.04 )
Loss on divestiture of operations   -     -     -     -     -     (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.09 )
Net income (loss) $ 0.56   $ (0.13 ) $ 0.03   $ (1.40 ) $ (1.16 ) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ (0.78 )
 
Diluted:
Income (loss) from continuing operations $ 0.56 $ (0.14 ) $ 0.02 $ (1.28 ) $ (1.04 ) $ 0.39 $ 0.31 $ 0.19 $ (1.56 ) $ (0.65 )
Discontinued operations:
Income (loss) from operations (0.01 ) 0.01 0.01 (0.12 ) (0.12 ) (0.02 ) (0.01 ) (0.01 ) - (0.04 )
Loss on divestiture of operations   -     -     -     -     -     (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.09 )
Net income (loss) $ 0.55   $ (0.13 ) $ 0.03   $ (1.40 ) $ (1.16 ) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ (0.78 )
 

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

Basic 39,035 43,231 51,329 51,335 46,280 51,603 51,664 51,676 51,692 51,659
Diluted 39,543 43,231 51,406 51,335 46,280 51,638 51,675 51,709 51,692 51,659
                   
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(In thousands)
 
2011 Quarters 2012 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Revenues:
Hospital division $ 556,244 $ 589,102 $ 678,714 $ 707,388 $ 2,531,448 $ 762,056 $ 726,717 $ 712,834 $ 725,888 $ 2,927,495
 
Nursing center division 567,472 568,199 571,226 547,202 2,254,099 544,319 535,644 534,188 533,989 2,148,140
 
Rehabilitation division:
Skilled nursing rehabilitation services 114,618 161,246 252,574 246,720 775,158 255,451 255,187 253,459 246,004 1,010,101
Hospital rehabilitation services   22,490     38,291     69,811     70,232     200,824     74,369     73,379     71,899     73,885     293,532  
  137,108     199,537     322,385     316,952     975,982     329,820     328,566     325,358     319,889     1,303,633  
 
Home health and hospice division   8,038     10,828     15,419     26,451     60,736     28,432     28,872     35,943     50,093     143,340  
1,268,862 1,367,666 1,587,744 1,597,993 5,822,265 1,664,627 1,619,799 1,608,323 1,629,859 6,522,608
 
Eliminations:
Skilled nursing rehabilitation services (57,081 ) (57,587 ) (57,922 ) (57,087 ) (229,677 ) (58,433 ) (57,056 ) (55,534 ) (52,496 ) (223,519 )
Hospital rehabilitation services (21,065 ) (20,497 ) (20,359 ) (21,996 ) (83,917 ) (28,161 ) (27,646 ) (27,009 ) (27,694 ) (110,510 )

Nursing centers

  (865 )   (1,104 )   (1,299 )   (1,475 )   (4,743 )   (1,674 )   (1,862 )   (1,804 )   (1,948 )   (7,288 )
  (79,011 )   (79,188 )   (79,580 )   (80,558 )   (318,337 )   (88,268 )   (86,564 )   (84,347 )   (82,138 )   (341,317 )
$ 1,189,851   $ 1,288,478   $ 1,508,164   $ 1,517,435   $ 5,503,928   $ 1,576,359   $ 1,533,235   $ 1,523,976   $ 1,547,721   $ 6,181,291  
 
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 108,750 $ 108,543 $ 125,648 $ 145,260 $ 488,201 $ 162,273 $ 142,497 $ 139,350 $ 156,529 (a) $ 600,649
 
Nursing center division 87,350 93,532 89,592 67,791 338,265 65,533 71,005 70,928 65,676 (a,b) 273,142
 
Rehabilitation division:
Skilled nursing rehabilitation services 9,159 15,978 27,575 13,204 65,916 14,193 22,942 19,659 23,869 (a) 80,663
Hospital rehabilitation services   5,332     8,033     15,606     14,760     43,731     16,116     17,860     16,977     18,792   (a)   69,745  
  14,491     24,011     43,181     27,964     109,647     30,309     40,802     36,636     42,661     150,408  
 
Home health and hospice division (10 ) (447 ) 1,107 2,453 3,103 2,341 2,789 3,645 4,933 (a) 13,708
 
Corporate:
Overhead (38,315 ) (43,801 ) (48,806 ) (43,878 ) (174,800 ) (42,728 ) (44,723 ) (45,883 ) (45,729 ) (a) (179,063 )
Insurance subsidiary   (602 )   (420 )   (750 )   (534 )   (2,306 )   (482 )   (600 )   (545 )   (500 )   (2,127 )
(38,917 ) (44,221 ) (49,556 ) (44,412 ) (177,106 ) (43,210 ) (45,323 ) (46,428 ) (46,229 ) (181,190 )
 
Impairment charges - - (26,712 ) (91,490 ) (118,202 ) (867 ) (329 ) (708 ) (108,952 ) (110,856 )
Transaction costs   (4,179 )   (34,851 )   (6,537 )   (5,139 )   (50,706 )   (485 )   (597 )   (482 )   (667 )   (2,231 )
Operating income 167,485 146,567 176,723 102,427 593,202 215,894 210,844 202,941 113,951 743,630
Rent (91,216 ) (95,489 ) (105,205 ) (106,135 ) (398,045 ) (105,872 ) (107,053 ) (108,317 ) (107,737 ) (c) (428,979 )
Depreciation and amortization (32,496 ) (37,816 ) (46,814 ) (48,101 ) (165,227 ) (48,434 ) (49,742 ) (50,539 ) (52,353 ) (201,068 )
Interest, net   (5,233 )   (22,900 )   (25,753 )   (26,002 )   (79,888 )   (26,286 )   (26,441 )   (26,439 )   (27,676 )   (106,842 )

Income (loss) from continuing operations before income taxes

38,540 (9,638 ) (1,049 ) (77,811 ) (49,958 ) 35,302 27,608 17,646 (73,815 ) 6,741
Provision (benefit) for income taxes   15,861     (3,295 )   (2,194 )   (12,277 )   (1,905 )   14,347     11,392     7,296     6,077     39,112  
$ 22,679   $ (6,343 ) $ 1,145   $ (65,534 ) $ (48,053 ) $ 20,955   $ 16,216   $ 10,350   $ (79,892 ) $ (32,371 )

____________

(a)

Includes employee severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4 million, home health and hospice division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred in connection with restructuring activities.

 

(b)

Includes employee retention costs of $0.9 million incurred in connection with the decision to allow the leases to expire for 54 nursing centers leased from Ventas.

 

(c)

Includes a lease cancellation charge of $0.1 million incurred in connection with restructuring activities.

                     
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(In thousands)
 
Fourth Quarter 2012
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 $ 725,888   $ 533,989   $ 246,004   $ 73,885 $ 319,889   $ 50,093   $ -   $ -   $ (82,138 ) $ 1,547,721  
 
Salaries, wages and benefits 316,809 261,313 219,400 51,210 270,610 36,474 29,065 (100 ) - 914,171
Supplies 76,031 27,839 868 36 904 2,127 224 - - 107,125
Rent 54,580 50,222 1,190 21 1,211 1,111 613 - - 107,737
Other operating expenses 176,519 179,161 1,867 3,847 5,714 6,559 19,531 767 (82,138 ) 306,113
Other income - - - - - - (2,591 ) - - (2,591 )
Impairment charges 118 935 107,899 - 107,899 - - - - 108,952
Depreciation and amortization 23,574 14,014 2,918 2,334 5,252 1,482 8,031 - - 52,353
Interest expense 206 20 120 - 120 (4 ) 27,592 - - 27,934
Investment income   (19 )   (30 )   (1 )   -   (1 )   -     (208 )   -     -     (258 )
  647,818     533,474     334,261     57,448   391,709     47,749     82,257     667     (82,138 )   1,621,536  

Income (loss) from continuing operations before income taxes

$ 78,070 $ 515 $ (88,257 ) $ 16,437 $ (71,820 ) $ 2,344 $ (82,257 ) $ (667 ) $ - (73,815 )
Provision for income taxes   6,077  
Loss from continuing operations $ (79,892 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 9,817 $ 8,153 $ 672 $ 117 $ 789 $ 1,187 $ 18,425 $ - $ - $ 38,371
Development   6,693     5,454     -     -   -     -     -     -     -     12,147  
$ 16,510   $ 13,607   $ 672   $ 117 $ 789   $ 1,187   $ 18,425   $ -   $ -   $ 50,518  
 
 
Fourth Quarter 2011
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 $ 707,388   $ 547,202   $ 246,720   $ 70,232 $ 316,952   $ 26,451   $ -   $ -   $ (80,558 ) $ 1,517,435  
 
Salaries, wages and benefits 318,093 269,454 221,404 50,151 271,555 19,155 28,976 647 (27 ) 907,853
Supplies 76,407 28,450 843 67 910 1,025 251 - - 107,043
Rent 51,818 49,748 1,415 72 1,487 568 695 1,819 - 106,135
Other operating expenses 167,628 181,507 11,269 5,254 16,523 3,818 17,896 4,492 (80,531 ) 311,333
Other income - - - - - - (2,711 ) - - (2,711 )
Impairment charges 43,246 2,245 45,999 - 45,999 - - - - 91,490
Depreciation and amortization 22,322 12,554 2,617 2,349 4,966 902 7,357 - - 48,101
Interest expense 228 26 - - - 1 25,989 - - 26,244
Investment income   (3 )   (28 )   -     -   -     (1 )   (210 )   -     -     (242 )
  679,739     543,956     283,547     57,893   341,440     25,468     78,243     6,958     (80,558 )   1,595,246  

Income (loss) from continuing operations before income taxes

$ 27,649   $ 3,246   $ (36,827 ) $ 12,339 $ (24,488 ) $ 983   $ (78,243 ) $ (6,958 ) $ -   (77,811 )
Income tax benefit   (12,277 )
Loss from continuing operations $ (65,534 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 9,521 $ 7,577 $ 1,031 $ 60 $ 1,091 $ 65 $ 19,386 $ - $ - $ 37,640
Development   13,157     4,027     -     -   -     901     -     -     -     18,085  
$ 22,678   $ 11,604   $ 1,031   $ 60 $ 1,091   $ 966   $ 19,386   $ -   $ -   $ 55,725  

____________

(a)

Includes employee severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4 million, home health and hospice division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred in connection with restructuring activities.

 

(b)

Includes a lease cancellation charge of $0.1 million incurred in connection with restructuring activities.

 

(c)

Includes employee retention costs of $0.9 million incurred in connection with the decision to allow the leases to expire for 54 nursing centers leased from Ventas.

 

(d)

Includes loss on divestiture of a hospital of $1.5 million.

                     
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations (Continued)
(In thousands)
 
Year ended December 31, 2012
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 $ 2,927,495   $ 2,148,140   $ 1,010,101   $ 293,532   $ 1,303,633   $ 143,340   $ -   $ -   $ (341,317 ) $ 6,181,291  
 
Salaries, wages and benefits 1,291,835 1,048,079 899,315 206,614 1,105,929 105,303 121,848 (450 ) (69 ) 3,672,475
Supplies 314,230 107,766 3,093 163 3,256 5,953 803 - - 432,008
Rent 217,341 200,679 5,250 140 5,390 3,140 2,429 - - 428,979
Other operating expenses 720,781 719,153 27,030 17,010 44,040 18,376 69,351 2,681 (341,248 ) 1,233,134
Other income - - - - - - (10,812 ) - - (10,812 )
Impairment charges 753 2,204 107,899 - 107,899 - - - - 110,856
Depreciation and amortization 91,776 53,548 11,061 9,309 20,370 4,442 30,932 - - 201,068
Interest expense 1,016 88 156 - 156 - 106,636 - - 107,896
Investment income   (79 )   (98 )   (2 )   -     (2 )   -     (875 )   -     -     (1,054 )
  2,637,653     2,131,419     1,053,802     233,236     1,287,038     137,214     320,312     2,231     (341,317 )   6,174,550  

Income (loss) from continuing operations before income taxes

$ 289,842   $ 16,721   $ (43,701 ) $ 60,296   $ 16,595   $ 6,126   $ (320,312 ) $ (2,231 ) $ -   6,741
Provision for income taxes   39,112  
Loss from continuing operations $ (32,371 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 38,272 $ 20,764 $ 2,274 $ 348 $ 2,622 $ 1,616 $ 51,901 $ - $ - $ 115,175
Development   42,265     8,057     -     -     -     -     -     -     -     50,322  
$ 80,537   $ 28,821   $ 2,274   $ 348   $ 2,622   $ 1,616   $ 51,901   $ -   $ -   $ 165,497  
 
 
Year ended December 31, 2011
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 $ 2,531,448   $ 2,254,099   $ 775,158   $ 200,824   $ 975,982   $ 60,736   $ -   $ -   $ (318,337 ) $ 5,503,928  
 
Salaries, wages and benefits 1,152,274 1,085,476 679,177 144,147 823,324 45,378 120,478 16,769 (96 ) 3,243,603
Supplies 281,433 112,095 2,826 189 3,015 2,438 838 - - 399,819
Rent 188,120 198,556 6,275 228 6,503 1,366 1,681 1,819 - 398,045
Other operating expenses 609,540 718,263 27,239 12,757 39,996 9,817 66,981 33,937 (318,241 ) 1,160,293
Other income - - - - - - (11,191 ) - - (11,191 )
Impairment charges 46,348 25,855 45,999 - 45,999 - - - - 118,202
Depreciation and amortization 74,543 50,040 7,191 5,637 12,828 1,449 26,367 - - 165,227
Interest expense 500 102 - - - 1 66,514 13,802 - 80,919
Investment income   (7 )   (86 )   (3 )   (1 )   (4 )   (1 )   (933 )   -     -     (1,031 )
  2,352,751     2,190,301     768,704     162,957     931,661     60,448     270,735     66,327     (318,337 )   5,553,886  

Income (loss) from continuing operations before income taxes

$ 178,697   $ 63,798   $ 6,454   $ 37,867   $ 44,321   $ 288   $ (270,735 ) $ (66,327 ) $ -   (49,958 )
Income tax benefit   (1,905 )
Loss from continuing operations $ (48,053 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 46,393 $ 34,304 $ 1,700 $ 238 $ 1,938 $ 164 $ 50,104 $ - $ - $ 132,903
Development   67,321     19,167     -     -     -     1,167     -     -     -     87,655  
$ 113,714   $ 53,471   $ 1,700   $ 238   $ 1,938   $ 1,331   $ 50,104   $ -   $ -   $ 220,558  

____________

(a)

Includes employee severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4 million, home health and hospice division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred in connection with restructuring activities.

 

(b)

Includes severance costs ($2.5 million), restructuring costs ($2.0 million) and lease cancellation charges ($1.6 million) incurred in connection with the closing of a regional office, the closing of two TC hospitals and the cancellation of a sub-acute unit project, and $5.0 million for employment-related lawsuits.

 

(c)

Includes employee retention costs of $2.2 million incurred in connection with the decision to allow the leases to expire for 54 nursing centers leased from Ventas.

 

(d)

Includes loss on divestiture of a hospital of $1.5 million.

                     
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
 
2011 Quarters 2012 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Hospital division data:
End of period data:
Number of hospitals:
Transitional care 88 117 117 118 118 117 116 116
Inpatient rehabilitation - 5 5 5 6 6 6 6
88 122 122 123 124 123 122 122
 
Number of licensed beds:
Transitional care 6,779 8,443 8,431 8,431 8,454 8,404 8,347 8,382
Inpatient rehabilitation - 183 183 183 229 259 259 259
6,779 8,626 8,614 8,614 8,683 8,663 8,606 8,641
 
Revenue mix %:
Medicare 60 60 60 62 60 62 61 61 62 62
Medicaid 8 8 7 7 8 6 6 6 6 6
Medicare Advantage 10 10 10 10 10 10 11 11 10 10
Commercial insurance and other 22 22 23 21 22 22 22 22 22 22
 
Admissions:
Medicare 8,451 8,829 10,884 11,560 39,724 12,312 11,485 11,244 11,372 46,413
Medicaid 1,073 1,130 1,205 1,127 4,535 1,010 1,032 1,025 957 4,024
Medicare Advantage 1,172 1,326 1,598 1,529 5,625 1,770 1,955 1,794 1,744 7,263
Commercial insurance and other 2,266 2,250 2,648 2,821 9,985 3,058 2,762 2,792 2,704 11,316
12,962 13,535 16,335 17,037 59,869 18,150 17,234 16,855 16,777 69,016
Admissions mix %:
Medicare 65 65 67 68 66 68 67 67 68 67
Medicaid 8 8 7 7 8 5 6 6 6 6
Medicare Advantage 9 10 10 9 9 10 11 11 10 11
Commercial insurance and other 18 17 16 16 17 17 16 16 16 16
 
Patient days:
Medicare 218,164 235,567 272,091 282,293 1,008,115 302,761 288,696 280,855 284,824 1,157,136
Medicaid 44,528 44,351 47,768 47,568 184,215 44,748 43,088 46,307 44,504 178,647
Medicare Advantage 35,623 39,152 46,945 47,163 168,883 50,551 53,293 51,738 49,660 205,242
Commercial insurance and other 70,129 72,034 83,013 84,162 309,338 88,693 85,424 85,513 83,087 342,717
368,444 391,104 449,817 461,186 1,670,551 486,753 470,501 464,413 462,075 1,883,742
Average length of stay:
Medicare 25.8 26.7 25.0 24.4 25.4 24.6 25.1 25.0 25.0 24.9
Medicaid 41.5 39.2 39.6 42.2 40.6 44.3 41.8 45.2 46.5 44.4
Medicare Advantage 30.4 29.5 29.4 30.8 30.0 28.6 27.3 28.8 28.5 28.3
Commercial insurance and other 30.9 32.0 31.3 29.8 31.0 29.0 30.9 30.6 30.7 30.3
Weighted average 28.4 28.9 27.5 27.1 27.9 26.8 27.3 27.6 27.5 27.3
                     
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
2011 Quarters 2012 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Hospital division data (continued):
Revenues per admission:
Medicare $ 39,505 $ 40,246 $ 37,449 $ 37,739 $ 38,592 $ 38,597 $ 38,761 $ 38,434 $ 39,689 $ 38,866
Medicaid 42,342 41,699 41,087 45,382 42,604 46,380 44,774 45,536 46,241 45,720
Medicare Advantage 46,180 43,108 43,263 46,278 44,654 42,478 39,449 42,671 42,625 41,746
Commercial insurance and other 54,207 57,551 57,582 52,896 55,485 53,899 57,283 56,395 57,674 56,243
Weighted average 42,913 43,524 41,550 41,521 42,283 41,987 42,168 42,292 43,267 42,418
 
Revenues per patient day:
Medicare $ 1,530 $ 1,508 $ 1,498 $ 1,545 $ 1,521 $ 1,570 $ 1,542 $ 1,539 $ 1,585 $ 1,559
Medicaid 1,020 1,062 1,036 1,075 1,049 1,047 1,072 1,008 994 1,030
Medicare Advantage 1,519 1,460 1,473 1,500 1,487 1,487 1,447 1,480 1,497 1,477
Commercial insurance and other 1,752 1,798 1,837 1,773 1,791 1,858 1,852 1,841 1,877 1,857
Weighted average 1,510 1,506 1,509 1,534 1,515 1,565 1,545 1,535 1,571 1,554
 

Medicare case mix index (discharged patients only)

1.21 1.22 1.17 1.14 1.18 1.18 1.17 1.15 1.14 1.16
 
Average daily census 4,094 4,298 4,889 5,013 4,577 5,349 5,170 5,048 5,023 5,147
Occupancy % 68.9 65.6 62.7 63.7 65.0 67.7 64.9 64.0 63.6 65.0
 
Annualized employee turnover % 21.2 22.1 21.4 20.3 21.8 22.2 21.1 20.1
 
Nursing center division data:
End of period data:
Number of facilities:

Nursing centers:

Owned or leased 220 220 220 220 220 220 220 219
Managed 4 4 4 4 4 4 4 4
Assisted living facilities   6   6   6   6   6   6   6   6
  230   230   230   230   230   230   230   229
Number of licensed beds:

Nursing centers:

Owned or leased 26,767 26,687 26,687 26,663 26,663 26,711 26,711 26,657
Managed 485 485 485 485 485 485 485 485
Assisted living facilities   413   413   413   413   413   341   341   341
  27,665   27,585   27,585   27,561   27,561   27,537   27,537   27,483
Revenue mix %:
Medicare 38 37 36 33 36 34 33 32 32 33
Medicaid 37 38 38 40 38 39 41 41 41 41
Medicare Advantage 7 7 7 7 7 8 7 7 7 7
Private and other 18 18 19 20 19 19 19 20 20 19
                     
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
2011 Quarters 2012 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Nursing center division data (continued):
Patient days (a):
Medicare 370,395 358,760 345,362 334,156 1,408,673 342,567 328,011 313,642 312,728 1,296,948
Medicaid 1,232,620 1,229,517 1,255,418 1,248,442 4,965,997 1,218,903 1,215,623 1,226,855 1,218,616 4,879,997
Medicare Advantage 97,460 94,483 95,751 95,730 383,424 101,312 97,583 93,287 90,187 382,369
Private and other   425,414   435,667   436,074   441,362   1,738,517   422,983   412,403   423,070   419,346   1,677,802
  2,125,889   2,118,427   2,132,605   2,119,690   8,496,611   2,085,765   2,053,620   2,056,854   2,040,877   8,237,116
 
Patient day mix % (a):
Medicare 17 17 16 16 17 16 16 15 15 16
Medicaid 58 58 59 59 58 59 59 60 60 59
Medicare Advantage 5 4 5 4 5 5 5 4 4 5
Private and other 20 21 20 21 20 20 20 21 21 20
 
Revenues per patient day (a):
Medicare Part A $ 537 $ 544 $ 550 $ 491 $ 531 $ 484 $ 483 $ 490 $ 504 $ 490
Total Medicare (including Part B) 579 589 599 544 578 536 538 546 548 542
Medicaid 172 173 174 176 174 176 178 179 181 179
Medicaid (net of provider taxes) (b) 155 156 155 156 156 156 158 158 160 158
Medicare Advantage 416 420 421 405 415 407 405 409 409 407
Private and other 235 240 243 241 240 248 250 250 251 249
Weighted average 267 268 268 258 265 261 261 260 262 261
 
Average daily census (a) 23,621 23,279 23,180 23,040 23,278 22,920 22,567 22,357 22,183 22,506
Admissions (a) 20,619 20,143 20,118 19,914 80,794 20,863 19,593 19,064 19,412 78,932
Occupancy % (a) 86.9 85.9 85.5 85.1 85.9 84.7 83.5 82.6 82.1 83.2
Medicare average length of stay (a) 32.9 33.4 33.0 32.1 32.8 31.8 32.2 32.8 31.3 32.0
 
Annualized employee turnover % 37.8 39.8 40.2 39.2 36.9 39.2 39.9 39.6
 
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated 50 36 23 23 30 23 22 22 21 22
Non-affiliated 50 64 77 77 70 77 78 78 79 78
 
Sites of service (at end of period) 641 1,848 1,835 1,774 1,722 1,730 1,735 1,726
Revenue per site $ 178,812 $ 137,316 $ 137,643 $ 139,077 $ 592,848 $ 148,346 $ 147,507 $ 146,086 $ 142,529 $ 584,468
 
Therapist productivity % 80.6 81.6 80.5 80.1 80.4 80.3 80.4 80.5 80.5 80.4
 
Hospital rehabilitation services:
Revenue mix %:
Company-operated 94 54 29 31 42 38 38 38 37 38
Non-affiliated 6 46 71 69 58 62 62 62 63 62
 
Sites of service (at end of period):
Inpatient rehabilitation units 1 104 102 102 100 102 104 105
LTAC hospitals 93 97 99 115 125 125 123 123
Sub-acute units 8 22 23 25 19 20 20 21
Outpatient units 12 119 114 115 111 115 117 119
Other   5   8   7   8   5   5   5   5
  119   350   345   365   360   367   369   373
 
Revenue per site $ 188,989 $ 199,661 $ 202,352 $ 192,410 $ 783,412 $ 206,580 $ 199,943 $ 194,848 $ 198,083 $ 799,454
 
Annualized employee turnover % 14.5 17.1 16.5 16.5 19.6 16.9 17.3 16.9

____________

(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)
(In thousands, except per share amounts)
 
Three months ended December 31, Year ended December 31,
2012 2011 2012 2011
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Loss:
Amounts attributable to Kindred stockholders:
Loss from continuing operations:
As reported in Statement of Operations $ (80,682 ) $ (80,682 ) $ (65,476 ) $ (65,476 ) $ (33,414 ) $ (33,414 ) $ (47,815 ) $ (47,815 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (80,682 ) $ (80,682 ) $ (65,476 ) $ (65,476 ) $ (33,414 ) $ (33,414 ) $ (47,815 ) $ (47,815 )
 
Discontinued operations, net of income taxes:
Loss from operations:
As reported in Statement of Operations $ (5 ) $ (5 ) $ (6,355 ) $ (6,355 ) $ (2,208 ) $ (2,208 ) $ (5,666 ) $ (5,666 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (5 ) $ (5 ) $ (6,355 ) $ (6,355 ) $ (2,208 ) $ (2,208 ) $ (5,666 ) $ (5,666 )
 
Loss on divestiture of operations:
As reported in Statement of Operations $ (939 ) $ (939 ) $ - $ - $ (4,745 ) $ (4,745 ) $ - $ -

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (939 ) $ (939 ) $ -   $ -   $ (4,745 ) $ (4,745 ) $ -   $ -  
 
Net loss:
As reported in Statement of Operations $ (81,626 ) $ (81,626 ) $ (71,831 ) $ (71,831 ) $ (40,367 ) $ (40,367 ) $ (53,481 ) $ (53,481 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (81,626 ) $ (81,626 ) $ (71,831 ) $ (71,831 ) $ (40,367 ) $ (40,367 ) $ (53,481 ) $ (53,481 )
 
Shares used in the computation:

Weighted average shares outstanding - basic computation

  51,692   51,692   51,335   51,335   51,659   51,659   46,280   46,280
Dilutive effect of employee stock options - - - -
Dilutive effect of performance-based restricted shares   -     -     -     -  

Adjusted weighted average shares outstanding - diluted computation

 

  51,692  

 

  51,335  

 

  51,659  

 

  46,280  
 
Loss per common share:
Loss from continuing operations $ (1.56 ) $ (1.56 ) $ (1.28 ) $ (1.28 ) $ (0.65 ) $ (0.65 ) $ (1.04 ) $ (1.04 )
Discontinued operations:
Loss from operations - - (0.12 ) (0.12 ) (0.04 ) (0.04 ) (0.12 ) (0.12 )
Loss on divestiture of operations   (0.02 )   (0.02 )   -     -     (0.09 )   (0.09 )   -     -  
Net loss $ (1.58 ) $ (1.58 ) $ (1.40 ) $ (1.40 ) $ (0.78 ) $ (0.78 ) $ (1.16 ) $ (1.16 )
 

____________

(a)

Loss per common share is based upon the weighted average number of common shares outstanding during the respective periods. 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. However, because the Company reported a loss from continuing operations, there was no allocation to participating unvested restricted stockholders for all periods presented.

         
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 fourth quarters and years ended December 31, 2012 and 2011 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the table below.
 
The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 7.5% and 10.7% for the fourth quarter and year ended December 31, 2012, respectively, and an effective income tax rate of 20.0% and 27.8% for the fourth quarter and year ended December 31, 2011, respectively. Certain of the excluded charges for the fourth quarter and year ended December 31, 2012 are not deductible for income tax purposes thus resulting in a lower effective income tax rate than the comparable prior year periods.
 
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 fourth quarters and years ended December 31, 2012 and 2011 that the Company believes are not representative of its ongoing operations due to the materiality and nature of the charges. The Company's core operating results also represent a key performance measure for the purpose of evaluating performance internally.
 
 
 
 
Three months ended Year ended
December 31,   December 31,
2012 2011 2012 2011
Detail of charges:
Severance, employee retention and restructuring costs ($4,938 ) ($647 ) ($10,424 ) ($16,769 )
Lease cancellation charges (included in rent expense) (176 ) (1,819 ) (1,691 ) (1,819 )
Employment-related lawsuits - - (5,000 ) -
Transaction costs (767 ) (4,492 ) (2,681 ) (33,937 )
Impairment charges (107,899 ) (91,490 ) (107,899 ) (118,202 )
Loss on hospital divestiture - (1,490 ) - (1,490 )
Financing costs (in connection with RehabCare acquisition)   -     -     -     (13,802 )
(113,780 ) (99,938 ) (127,695 ) (186,019 )
Income tax benefit   8,507     20,020     13,636     51,728  
Charges net of income taxes (105,273 ) (79,918 ) (114,059 ) (134,291 )
Allocation to participating unvested restricted stockholders   -     -     -     -  
Available to common stockholders   ($105,273 )   ($79,918 )   ($114,059 )   ($134,291 )
 
Weighted average diluted shares outstanding   51,692     51,335     51,659     46,280  
 
Diluted loss per common share related to charges   ($2.04 )   ($1.56 )   ($2.21 )   ($2.90 )
 
Reconciliation of operating income before charges:
Operating income before charges $ 227,555 $ 200,546 $ 869,634 $ 763,600
Detail of charges excluded from core operating results:
Severance, employee retention and restructuring costs (4,938 ) (647 ) (10,424 ) (16,769 )
Employment-related lawsuits - - (5,000 ) -
Transaction costs (767 ) (4,492 ) (2,681 ) (33,937 )
Impairment charges (107,899 ) (91,490 ) (107,899 ) (118,202 )
Loss on hospital divestiture   -     (1,490 )   -     (1,490 )
  (113,604 )   (98,119 )   (126,004 )   (170,398 )
Reported operating income $ 113,951   $ 102,427   $ 743,630   $ 593,202  
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $ 24,591 $ 14,442 $ 80,645 $ 86,476
Charges net of income taxes   (105,273 )   (79,918 )   (114,059 )   (134,291 )
Reported loss from continuing operations   ($80,682 )   ($65,476 )   ($33,414 )   ($47,815 )
 
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a) $ 0.46 $ 0.28 $ 1.52 $ 1.83
Charges net of income taxes (2.04 ) (1.56 ) (2.21 ) (2.90 )
Other   0.02     -     0.04     0.03  
Reported diluted loss per common share from continuing operations   ($1.56 )   ($1.28 )   ($0.65 )   ($1.04 )
 

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

51,984 51,371 51,815 46,587
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 36.5 % 35.0 % 39.2 % 36.6 %
Impact of charges on effective income tax rate   -28.3 %   -19.2 %   541.0 %   -32.8 %
Reported effective income tax rate   8.2 %   15.8 %   580.2 %   3.8 %
 

____________

(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 $0.2 million for the fourth quarters ended December 31, 2012 and 2011, respectively, and $1.9 million and $1.4 million for the years ended December 31, 2012 and 2011, respectively, for the allocation of income to participating unvested restricted stockholders.

               
 
KINDRED HEALTHCARE, INC.
Reconciliation of Earnings Guidance for 2013 - Continuing Operations (a)
(Unaudited)
(In millions, except per share amounts)
 
 
As of February 25, 2013 As of January 7, 2013
Low High Low High
 
Operating income $ 794   $ 810   $ 794   $ 810  
 
Rent 387 387 387 387
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 Company's earnings guidance assumes (a) reductions in Medicare payments for rehabilitation therapy services, including those contained in the Taxpayer Relief Act, expected to range from $25 million to $30 million on an annual basis, and (b) sequestration cuts of 2% related to all of its Medicare revenues that will begin on April 1, 2013. In addition, the earnings guidance assumes that the previously announced exit in 2013 from 54 nursing centers leased from Ventas will be reflected as discontinued operations effective January 1, 2013. The earnings guidance also excludes the effect of any other reimbursement changes, any future acquisitions or dispositions, any impairment charges, any repurchases of common stock and an expected $25 million one-time bonus to be paid to approximately 47,000 employees who do not participate in the Company's incentive compensation program.


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