Form 425

Filing pursuant to Rule 425 under the

Securities Act of 1933, as amended

Deemed filed under Rule 14a-12 under the

Securities Exchange Act of 1934, as amended

Filer: Kindred Healthcare, Inc.

Subject Company: RehabCare Group, Inc.

Commission File Number: 333-173050

LOGO

 

Contact:   Richard A. Lechleiter
  Executive Vice President and
  Chief Financial Officer
  (502) 596-7734

KINDRED HEALTHCARE REPORTS STRONG FIRST QUARTER RESULTS

OF $0.55 PER DILUTED SHARE

 

 

REPORTED RESULTS INCLUDED CHARGES OF $0.10 PER DILUTED SHARE

PRIMARILY RELATED TO PENDING REHABCARE ACQUISITION

Last Year’s First Quarter Diluted EPS of $0.38 Included $0.06 of Certain Charges

LOUISVILLE, Ky. (April 25, 2011) – Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 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.

First Quarter Highlights:

 

   

Consolidated revenues rose 9% to $1.2 billion

— Each operating division reported revenue growth compared to last year

 

   

Excluding certain charges in both periods, diluted earnings per share rose 48% to $0.65 from $0.44 in the first quarter last year

 

   

Hospital results were bolstered by the recent southern California hospital acquisition and volume growth

— Reported admissions grew 10% from last year; same-facility admissions grew 3%

— First quarter operating income grew 14% to $108 million

 

   

Strong admissions growth and higher Medicare and managed care volumes drove nursing center growth

— Admissions grew 8% compared to the first quarter last year

— First quarter operating income rose 24% to $87 million

 

   

Peoplefirst Rehabilitation reported strong revenue growth and solid results

— Revenues grew 21% to $145 million primarily from new contract growth

— Division reported $15 million in operating income

 

   

Operating cash flows grew to $46 million, up $60 million from last year’s first quarter

 

   

Accounts receivable days declined to 49.8 at March 31, 2011 from 50.9 at December 31, 2010 and 54.4 at March 31, 2010

 

   

Long-term debt pay-down in the quarter totaled $15 million

680 South Fourth Street    Louisville, Kentucky 40202

502.596.7300        www.kindredhealthcare.com

 

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Kindred Healthcare Reports Strong First Quarter Results

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April 25, 2011

 

 

 

First Quarter Results

Continuing Operations

Consolidated revenues for the first quarter ended March 31, 2011 rose 9% to $1.2 billion compared to $1.1 billion in the first quarter last year. Income from continuing operations for the first quarter of 2011 totaled $22.3 million or $0.55 per diluted share compared to $15.2 million or $0.38 per diluted share in the first quarter last year.

First quarter 2011 operating results included certain pretax charges of $6.2 million primarily related to the pending acquisition of RehabCare Group, Inc. (“RehabCare”) (NYSE:RHB), the effect of which reduced income from continuing operations by $4.0 million or $0.10 per diluted share.

First quarter 2010 operating results included certain charges that reduced income from continuing operations by $2.3 million or $0.06 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.

Management Commentary

Paul J. Diaz, President and Chief Executive Officer of the Company, remarked, “We are pleased to report a good start to the year. Each of our three operating divisions reported continued improvements in their quality and clinical outcome measures which helped drive solid volume and revenue growth. The operating results of recently acquired businesses were in line with our expectations and contributed to our earnings growth as well. Our top-line growth was complemented by improved operating efficiencies across the organization, resulting in significant earnings per share growth compared to the first quarter last year.”

Commenting on the Company’s financial position, Mr. Diaz noted, “In addition to our strong earnings growth in the quarter, we reported a significant increase in operating cash flows. As in the past, these funds will be used to finance our routine and cluster market development capital spending and pay down our debt.”

Commenting on the pending RehabCare acquisition, Mr. Diaz noted, “We are looking forward to the completion of the RehabCare acquisition. The level of support and excitement about this strategic opportunity among employees, customers, hospitals and physician partners is growing and we are making progress on our integration and team-building plans. Our first quarter operating results are particularly impressive in light of all the work being done to complete this transaction and reflect the team’s continued focus on our core operations and the quality of our services.”

Company Suspends 2011 Earnings Guidance

As previously announced, the Company has suspended its fiscal 2011 earnings guidance in connection with the pending RehabCare acquisition.

 

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Kindred Healthcare Reports Strong First Quarter Results

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April 25, 2011

 

 

 

Pending RehabCare Acquisition

On February 8, 2011, Kindred and RehabCare announced that Kindred had agreed to acquire RehabCare pursuant to which each holder of RehabCare common stock will receive $26.00 per share in cash and 0.471 of a share of Kindred common stock. The transaction is expected to close by June 30, 2011. The acquisition is subject to certain conditions, including approvals by the stockholders of both companies, consummation of financing in accordance with the terms of the commitment letter obtained by Kindred, and the receipt of certain licensure and regulatory approvals.

As previously announced, the waiting period under the Hart-Scott-Rodino Improvement Act of 1976 for the RehabCare acquisition was terminated on April 8, 2011.

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the first quarter 2011 conference call through a link on the Company’s website at www.kindredhealthcare.com. The conference call will be held April 26, 2011 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately 1:00 p.m. on April 26 by dialing (719) 457-0820, access code: 8089971. The replay will be available through May 3.

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 (the “SEC”).

In addition to the factors set forth above, other factors that may affect the Company’s plans or results include, without limitation, (a) the Company’s ability to integrate the operations of the acquired hospitals and rehabilitation services operations and realize the anticipated revenues, economies of scale, cost synergies and productivity gains in connection with the RehabCare acquisition and any other acquisitions that may be undertaken during 2011, as and when planned, including the potential for unanticipated issues, expenses and liabilities associated with those acquisitions and the risk that RehabCare fails to meet its expected financial and operating targets, (b) the receipt of all required licensure and regulatory approvals and the satisfaction of the closing conditions to the RehabCare acquisition, including approval of the pending transaction by the stockholders of the respective companies, and the Company’s ability to complete the required financing as contemplated by the commitment letter, (c) the potential for diversion of management time and resources in seeking to

 

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Kindred Healthcare Reports Strong First Quarter Results

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April 25, 2011

 

 

 

complete the RehabCare acquisition and integrate its operations, (d) the potential failure to retain key employees of RehabCare, (e) 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, particularly in light of ongoing volatility in the credit and capital markets, (f) the potential for dilution to the Company’s stockholders as a result of the RehabCare acquisition, (g) the impact of pending or future litigation relating to the RehabCare acquisition, (h) the impact of healthcare reform, which will initiate significant reforms to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors. Healthcare reform will impact each of the Company’s businesses in some manner. Due to the substantial regulatory changes that will need to be implemented by the Centers for Medicare and Medicaid Services 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, (i) 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 reimbursements for nursing centers, and the expiration of the Medicare Part B therapy cap exception process, (j) 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, (k) 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, (l) the impact of the Medicare, Medicaid and SCHIP Extension Act of 2007 (the “SCHIP Extension Act”), including the ability of the Company’s hospitals to adjust to potential LTAC certification, medical necessity reviews and the moratorium on future hospital development, (m) the impact of the expiration of several moratoriums under the SCHIP Extension Act which could impact the short stay rules, the budget neutrality adjustment as well as implement the policy known as the “25 Percent Rule,” which would limit certain patient admissions, (n) failure of the Company’s facilities to meet applicable licensure and certification requirements, (o) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (p) the Company’s ability to meet its rental and debt service obligations, (q) the Company’s ability to operate pursuant to the terms of its debt obligations, including the Company’s obligations under financings undertaken to complete the RehabCare acquisition, and the Company’s ability to operate pursuant to its master lease agreements with Ventas, Inc. (NYSE:VTR), (r) 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, (s) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (t) the Company’s ability to control costs, particularly labor and employee benefit costs, (u) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (v) the Company’s ability to attract and retain key executives and other healthcare personnel, (w) the increase in the costs of defending and insuring against alleged professional liability and other claims and the ability to predict the estimated costs related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (x) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (y) the Company’s ability to successfully dispose of unprofitable facilities, (z) events or circumstances which could result in the impairment of an asset or other charges, (aa) changes in generally accepted accounting principles (“GAAP”) or practices, and changes in tax accounting or tax laws (or authoritative interpretations relating

 

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April 25, 2011

 

 

 

to any of these matters), and (ab) 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 a non-GAAP measurement which presents operating results for the three months ended March 31, 2011 and 2010 before certain charges or on a core basis. A reconciliation of the non-GAAP measurement to the GAAP operating results is included in this press release.

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

As noted in this earnings release, the Company presents the financial measure of free cash flows available for investment and other capital uses. The Company recognizes that free cash flows available for investment and other capital uses is a non-GAAP measurement and is not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that this non-GAAP measurement provides important information to investors related to the amount of discretionary cash flows that are available for other investing and other financing activities. In addition, management uses free cash flows available for investment and other capital uses in making decisions related to acquisitions, development capital expenditures, long-term debt repayments and other uses.

Additional Information About the RehabCare Transaction

In connection with the pending transaction with RehabCare, Kindred has filed with the SEC a Registration Statement on Form S-4 (commission file number 333-173050) that includes a joint proxy statement of Kindred and RehabCare that also constitutes a prospectus of Kindred. Kindred and RehabCare will mail the definitive joint proxy statement/prospectus to their respective stockholders after the Registration Statement has been declared effective by the SEC. WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PENDING TRANSACTION WHEN IT BECOMES AVAILABLE BECAUSE IT CONTAINS IMPORTANT INFORMATION. You may obtain a free copy of the joint proxy statement/prospectus (when available) and other related documents filed by Kindred and RehabCare with the SEC at the SEC’s website at www.sec.gov. The joint proxy statement/prospectus (when available) and the other documents filed by Kindred and RehabCare with the SEC may also be obtained for free by accessing Kindred’s website at www. kindredhealthcare.com and clicking on the “Investors” link and then clicking on the link for “SEC Filings” or by accessing RehabCare’s website at www.rehabcare.com and clicking on the “Investor Information” link and then clicking on the link for “SEC Filings”.

 

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April 25, 2011

 

 

 

Participants in the RehabCare Transaction

Kindred, RehabCare and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from their respective stockholders in favor of the pending transaction. You can find information about Kindred’s executive officers and directors in Kindred’s joint proxy statement/prospectus. You can find information about RehabCare’s executive officers and directors in its definitive proxy statement filed with the SEC on March 23, 2010. You can obtain a free copy of these documents from Kindred or RehabCare, respectively, using the contact information above.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-200 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of over $4.3 billion and approximately 56,700 employees in 40 states. At March 31, 2011, Kindred through its subsidiaries provided healthcare services in 706 locations, including 89 long-term acute care hospitals, 224 nursing and rehabilitation centers and a contract rehabilitation services business, Peoplefirst rehabilitation services, which served 393 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for three 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.

 

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Kindred Healthcare Reports Strong First Quarter Results

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April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Financial Summary

(Unaudited)

(In thousands, except per share amounts)

 

     Three months ended
March 31,
 
     2011     2010  

Revenues

   $ 1,192,421      $ 1,089,837   
                

Income from continuing operations

   $ 22,276      $ 15,155   

Discontinued operations, net of income taxes:

    

Loss from operations

     (179     (154

Loss on divestiture of operations

     —          (137
                

Net income

   $ 22,097      $ 14,864   
                

Earnings per common share:

    

Basic:

    

Income from continuing operations

   $ 0.56      $ 0.38   

Discontinued operations:

    

Loss from operations

     —          —     

Loss on divestiture of operations

     —          —     
                

Net income

   $ 0.56      $ 0.38   
                

Diluted:

    

Income from continuing operations

   $ 0.55      $ 0.38   

Discontinued operations:

    

Loss from operations

     —          —     

Loss on divestiture of operations

     —          —     
                

Net income

   $ 0.55      $ 0.38   
                

Shares used in computing earnings per common share:

    

Basic

     39,035        38,626   

Diluted

     39,543        38,859   


Kindred Healthcare Reports Strong First Quarter Results

Page 8

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

     Three months ended
March 31,
 
     2011     2010  

Revenues

   $ 1,192,421      $ 1,089,837   
                

Salaries, wages and benefits

     678,695        627,175   

Supplies

     90,022        85,886   

Rent

     91,453        88,319   

Other operating expenses

     259,369        234,204   

Other income

     (2,785     (3,084

Depreciation and amortization

     32,549        31,121   

Interest expense

     5,728        1,307   

Investment income

     (495     (877
                
     1,154,536        1,064,051   
                

Income from continuing operations before income taxes

     37,885        25,786   

Provision for income taxes

     15,609        10,631   
                

Income from continuing operations

     22,276        15,155   

Discontinued operations, net of income taxes:

    

Loss from operations

     (179     (154

Loss on divestiture of operations

     —          (137
                

Net income

   $ 22,097      $ 14,864   
                

Earnings per common share:

    

Basic:

    

Income from continuing operations

   $ 0.56      $ 0.38   

Discontinued operations:

    

Loss from operations

     —          —     

Loss on divestiture of operations

     —          —     
                

Net income

   $ 0.56      $ 0.38   
                

Diluted:

    

Income from continuing operations

   $ 0.55      $ 0.38   

Discontinued operations:

    

Loss from operations

     —          —     

Loss on divestiture of operations

     —          —     
                

Net income

   $ 0.55      $ 0.38   
                

Shares used in computing earnings per common share:

    

Basic

     39,035        38,626   

Diluted

     39,543        38,859   


Kindred Healthcare Reports Strong First Quarter Results

Page 9

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)

 

     March 31,
2011
    December 31,
2010
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 18,500      $ 17,168   

Cash - restricted

     5,456        5,494   

Insurance subsidiary investments

     62,414        76,753   

Accounts receivable less allowance for loss

     662,687        631,877   

Inventories

     24,662        24,327   

Deferred tax assets

     12,981        13,439   

Income taxes

     1,492        42,118   

Other

     29,935        24,862   
                
     818,127        836,038   

Property and equipment

     1,791,356        1,754,170   

Accumulated depreciation

     (885,254     (857,623
                
     906,102        896,547   

Goodwill

     242,420        242,420   

Intangible assets less accumulated amortization

     92,399        92,883   

Assets held for sale

     7,082        7,167   

Insurance subsidiary investments

     106,501        101,210   

Deferred tax assets

     89,713        88,816   

Other

     71,264        72,334   
                
   $ 2,333,608      $ 2,337,415   
                
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 161,258      $ 174,495   

Salaries, wages and other compensation

     289,550        291,116   

Due to third party payors

     24,093        27,115   

Professional liability risks

     40,145        41,555   

Other accrued liabilities

     85,841        87,012   

Long-term debt due within one year

     92        91   
                
     600,979        621,384   

Long-term debt

     350,533        365,556   

Professional liability risks

     214,791        207,669   

Deferred credits and other liabilities

     111,435        111,047   

Stockholders’ equity:

    

Common stock, $0.25 par value; authorized 175,000 shares; issued 39,979 shares - March 31, 2011 and 39,495 shares - December 31, 2010

     9,995        9,874   

Capital in excess of par value

     830,657        828,593   

Accumulated other comprehensive income

     393        135   

Retained earnings

     214,825        193,157   
                
     1,055,870        1,031,759   
                
   $ 2,333,608      $ 2,337,415   
                


Kindred Healthcare Reports Strong First Quarter Results

Page 10

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

     Three months ended
March 31,
 
     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 22,097      $ 14,864   

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

    

Depreciation and amortization

     32,549        31,121   

Amortization of stock-based compensation costs

     2,644        2,775   

Provision for doubtful accounts

     5,830        6,431   

Deferred income taxes

     (730     (7,463

Loss on divestiture of discontinued operations

     —          137   

Other

     370        (163

Change in operating assets and liabilities:

    

Accounts receivable

     (36,640     (59,126

Inventories and other assets

     (3,525     (11,245

Accounts payable

     (12,348     (7,582

Income taxes

     40,623        29,286   

Due to third party payors

     (3,022     (1,894

Other accrued liabilities

     (1,412     (11,137
                

Net cash provided by (used in) operating activities

     46,436        (13,996
                

Cash flows from investing activities:

    

Routine capital expenditures

     (24,718     (14,815

Development capital expenditures

     (11,109     (7,567

Acquisitions

     (8,027     (47,696

Sale of assets

     1,714        —     

Purchase of insurance subsidiary investments

     (7,817     (14,278

Sale of insurance subsidiary investments

     18,656        53,211   

Net change in insurance subsidiary cash and cash equivalents

     (1,300     (5,575

Change in other investments

     1,000        —     

Other

     132        (28
                

Net cash used in investing activities

     (31,469     (36,748
                

Cash flows from financing activities:

    

Proceeds from borrowings under revolving credit

     445,200        389,600   

Repayment of borrowings under revolving credit

     (460,200     (340,600

Payment of deferred financing costs

     (417     (22

Issuance of common stock

     1,415        35   

Other

     367        103   
                

Net cash provided by (used in) financing activities

     (13,635     49,116   
                

Change in cash and cash equivalents

     1,332        (1,628

Cash and cash equivalents at beginning of period

     17,168        16,303   
                

Cash and cash equivalents at end of period

   $ 18,500      $ 14,675   
                


Kindred Healthcare Reports Strong First Quarter Results

Page 11

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Supplemental Cash Flow Data

(Unaudited)

(In thousands)

 

     Three months ended
March 31,
 
     2011     2010  

Reconciliation of net cash flows provided by (used in) operating activities to free cash flows:

    

Net cash provided by (used in) operating activities

   $ 46,436      ($ 13,996

Less routine capital expenditures

     (24,718     (14,815
                

Free cash flows available for investment and other capital uses

   $ 21,718      ($ 28,811
                

Routine capital expenditures represent expenditures necessary to maintain existing facilities that generally do not increase capacity or add services. As disclosed in the accompanying Condensed Consolidated Statement of Cash Flows, the Company also expends discretionary capital for the development of new facilities or the expansion of services at existing facilities. Due to the discretionary nature of these capital expenditures, they are excluded from the computation of free cash flows available for investment and other capital uses.

The Company recognizes that free cash flows available for investment and other capital uses is a non-GAAP measurement and is not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that this non-GAAP measurement provides important information to investors related to the amount of discretionary cash flows that are available for other investing and other financing activities. In addition, management uses free cash flows available for investment and other capital uses in making decisions related to acquisitions, development capital expenditures, long-term debt repayments and other uses.


Kindred Healthcare Reports Strong First Quarter Results

Page 12

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

     2010 Quarters           First
Quarter
 
     First     Second     Third     Fourth     Year     2011  

Revenues

   $ 1,089,837      $ 1,081,364      $ 1,053,012      $ 1,135,484      $ 4,359,697      $ 1,192,421   
                                                

Salaries, wages and benefits

     627,175        612,205        613,607        652,703        2,505,690        678,695   

Supplies

     85,886        85,455        83,753        87,103        342,197        90,022   

Rent

     88,319        88,981        89,295        90,777        357,372        91,453   

Other operating expenses

     234,204        238,687        234,968        240,750        948,609        259,369   

Other income

     (3,084     (2,857     (2,794     (2,687     (11,422     (2,785

Depreciation and amortization

     31,121        29,852        29,167        31,412        121,552        32,549   

Interest expense

     1,307        1,298        1,642        2,843        7,090        5,728   

Investment (income) loss

     (877     377        (403     (342     (1,245     (495
                                                
     1,064,051        1,053,998        1,049,235        1,102,559        4,269,843        1,154,536   
                                                

Income from continuing operations before income taxes

     25,786        27,366        3,777        32,925        89,854        37,885   

Provision (benefit) for income taxes

     10,631        11,230        (1,323     13,170        33,708        15,609   
                                                

Income from continuing operations

     15,155        16,136        5,100        19,755        56,146        22,276   

Discontinued operations, net of income taxes:

            

Income (loss) from operations

     (154     87        (260     1,125        798        (179

Gain (loss) on divestiture of operations

     (137     54        86        (456     (453     —     
                                                

Net income

   $ 14,864      $ 16,277      $ 4,926      $ 20,424      $ 56,491      $ 22,097   
                                                

Earnings per common share:

            

Basic:

            

Income from continuing operations

   $ 0.38      $ 0.41      $ 0.13      $ 0.50      $ 1.42      $ 0.56   

Discontinued operations:

            

Income (loss) from operations

     —          —          (0.01     0.03        0.02        —     

Gain (loss) on divestiture of operations

     —          —          —          (0.01     (0.01     —     
                                                

Net income

   $ 0.38      $ 0.41      $ 0.12      $ 0.52      $ 1.43      $ 0.56   
                                                

Diluted:

            

Income from continuing operations

   $ 0.38      $ 0.41      $ 0.13      $ 0.50      $ 1.42      $ 0.55   

Discontinued operations:

            

Income (loss) from operations

     —          —          (0.01     0.03        0.02        —     

Gain (loss) on divestiture of operations

     —          —          —          (0.01     (0.01     —     
                                                

Net income

   $ 0.38      $ 0.41      $ 0.12      $ 0.52      $ 1.43      $ 0.55   
                                                

Shares used in computing earnings per common share:

            

Basic

     38,626        38,756        38,778        38,790        38,738        39,035   

Diluted

     38,859        38,914        38,838        39,089        38,954        39,543   


Kindred Healthcare Reports Strong First Quarter Results

Page 13

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

(In thousands)

 

     2010 Quarters           First
Quarter
 
     First     Second     Third     Fourth     Year     2011  

Revenues:

            

Hospital division

   $ 507,062      $ 493,401      $ 465,198      $ 507,660      $ 1,973,321      $ 558,974   

Nursing center division

     539,321        542,215        539,914        566,435        2,187,885        567,472   

Rehabilitation division

     120,144        122,061        124,243        138,507        504,955        145,146   
                                                
     1,166,527        1,157,677        1,129,355        1,212,602        4,666,161        1,271,592   

Eliminations

     (76,690     (76,313     (76,343     (77,118     (306,464     (79,171
                                                
   $ 1,089,837      $ 1,081,364      $ 1,053,012      $ 1,135,484      $ 4,359,697      $ 1,192,421   
                                                

Income from continuing operations:

            

Operating income (loss):

            

Hospital division

   $ 95,440      $ 91,790      $ 75,784      $ 97,343      $ 360,357      $ 108,385   

Nursing center division

     70,614        76,529        69,363        86,912        303,418        87,350   

Rehabilitation division

     14,683        14,100        14,214        9,609        52,606        14,481   

Corporate:

            

Overhead

     (33,831     (32,799     (34,329     (33,002     (133,961     (38,315

Insurance subsidiary

     (480     (791     (783     (1,099     (3,153     (602
                                                
     (34,311     (33,590     (35,112     (34,101     (137,114     (38,917

Transaction costs (a)

     (770     (955     (771     (2,148     (4,644     (4,179
                                                

Operating income

     145,656        147,874        123,478        157,615        574,623        167,120   

Rent

     (88,319     (88,981     (89,295     (90,777     (357,372     (91,453

Depreciation and amortization

     (31,121     (29,852     (29,167     (31,412     (121,552     (32,549

Interest, net

     (430     (1,675     (1,239     (2,501     (5,845     (5,233 ) (b) 
                                                

Income from continuing operations before income taxes

     25,786        27,366        3,777        32,925        89,854        37,885   

Provision (benefit) for income taxes

     10,631        11,230        (1,323     13,170        33,708        15,609   
                                                
   $ 15,155      $ 16,136      $ 5,100      $ 19,755      $ 56,146      $ 22,276   
                                                

 

(a) Transaction costs for the 2010 periods have been reclassified to conform with the current period presentation.
(b) Includes $2.0 million of financing costs related to the pending transaction with RehabCare.


Kindred Healthcare Reports Strong First Quarter Results

Page 14

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

    First Quarter 2010     First Quarter 2011  
    Hospital
division
    Nursing
center
division
    Rehab-
ilitation
division
    Corporate     Transaction
costs
    Eliminations     Consolidated     Hospital
division
    Nursing
center
division
    Rehab-
ilitation
division
    Corporate     Transaction
costs
    Eliminations     Consolidated  

Revenues

  $ 507,062      $ 539,321      $ 120,144      $ —        $ —        $ (76,690   $ 1,089,837      $ 558,974      $ 567,472      $ 145,146      $ —        $ —        $ (79,171   $ 1,192,421   
                                                                                                               

Salaries, wages and benefits

    227,641        273,242        100,512        25,780        —          —          627,175        253,062        273,170        124,831        27,666        —          (34     678,695   

Supplies

    57,934        27,128        687        137        —          —          85,886        61,847        27,125        907        143        —          —          90,022   

Rent

    37,415        49,392        1,475        37        —          —          88,319        40,299        49,384        1,726        44        —          —          91,453   

Other operating expenses

    126,047        168,337        4,262        11,478        770        (76,690     234,204        135,680        179,827        4,927        13,893        4,179        (79,137     259,369   

Other income

    —          —          —          (3,084     —          —          (3,084     —          —          —          (2,785     —          —          (2,785

Depreciation and amortization

    13,014        12,113        585        5,409        —          —          31,121        14,278        11,793        856        5,622        —          —          32,549   

Interest expense

    2        31        —          1,274        —          —          1,307        —          29        —          3,700        1,999        —          5,728   

Investment income

    (1     (18     (1     (857     —          —          (877     (1     (20     (1     (473     —          —          (495
                                                                                                               
    462,052        530,225        107,520        40,174        770        (76,690     1,064,051        505,165        541,308        133,246        47,810        6,178        (79,171     1,154,536   
                                                                                                               

Income from continuing operations before income taxes

  $ 45,010      $ 9,096      $ 12,624      $ (40,174   $ (770   $ —          25,786      $ 53,809      $ 26,164      $ 11,900      $ (47,810   $ (6,178   $ —          37,885   
                                                                                                   

Provision for income taxes

                10,631                    15,609   
                                       

Income from continuing operations

              $ 15,155                  $ 22,276   
                                       

Capital expenditures, excluding acquisitions (including discontinued operations):

                           

Routine

  $ 6,065      $ 4,049      $ 267      $ 4,434      $ —        $ —        $ 14,815      $ 12,144      $ 8,155      $ 280      $ 4,139      $ —        $ —        $ 24,718   

Development

    5,774        1,793        —          —          —          —          7,567        7,777        3,322        10        —          —          —          11,109   
                                                                                                               
  $ 11,839      $ 5,842      $ 267      $ 4,434      $ —        $ —        $ 22,382      $ 19,921      $ 11,477      $ 290      $ 4,139      $ —        $ —        $ 35,827   
                                                                                                               


Kindred Healthcare Reports Strong First Quarter Results

Page 15

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

     2010 Quarters             First
Quarter
 
     First      Second      Third      Fourth      Year      2011  

Hospital data:

                 

End of period data:

                 

Number of hospitals

     83         83         83         89            89   

Number of licensed beds

     6,580         6,576         6,563         6,887            6,889   

Revenue mix %:

                 

Medicare

     56         56         55         58         56         60   

Medicaid

     9         9         9         9         9         8   

Medicare Advantage

     10         10         10         9         10         10   

Commercial insurance and other

     25         25         26         24         25         22   

Admissions:

                 

Medicare

     7,432         7,125         6,769         7,640         28,966         8,504   

Medicaid

     997         990         1,022         1,034         4,043         1,085   

Medicare Advantage

     1,129         1,106         936         1,071         4,242         1,172   

Commercial insurance and other

     2,262         2,048         1,978         2,020         8,308         2,282   
                                                     
     11,820         11,269         10,705         11,765         45,559         13,043   
                                                     

Admissions mix %:

                 

Medicare

     63         63         63         65         64         65   

Medicaid

     8         9         10         9         9         8   

Medicare Advantage

     10         10         9         9         9         9   

Commercial insurance and other

     19         18         18         17         18         18   

Patient days:

                 

Medicare

     202,882         195,964         179,324         198,129         776,299         219,213   

Medicaid

     47,813         45,952         48,514         46,596         188,875         45,650   

Medicare Advantage

     34,524         36,000         31,186         32,868         134,578         35,639   

Commercial insurance and other

     75,483         70,651         70,198         69,585         285,917         70,522   
                                                     
     360,702         348,567         329,222         347,178         1,385,669         371,024   
                                                     

Average length of stay:

                 

Medicare

     27.3         27.5         26.5         25.9         26.8         25.8   

Medicaid

     48.0         46.4         47.5         45.1         46.7         42.1   

Medicare Advantage

     30.6         32.5         33.3         30.7         31.7         30.4   

Commercial insurance and other

     33.4         34.5         35.5         34.4         34.4         30.9   

Weighted average

     30.5         30.9         30.8         29.5         30.4         28.4   


Kindred Healthcare Reports Strong First Quarter Results

Page 16

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

     2010 Quarters             First
Quarter
 
     First      Second      Third      Fourth      Year      2011  

Hospital data (continued):

                 

Revenues per admission:

                 

Medicare

   $ 38,078       $ 38,938       $ 37,675       $ 38,368       $ 38,272       $ 39,439   

Medicaid

     45,738         42,774         42,910         41,704         43,266         42,432   

Medicare Advantage

     45,187         46,169         48,122         44,744         45,979         46,217   

Commercial insurance and other

     56,344         59,842         61,314         61,131         59,553         54,065   

Weighted average

     42,899         43,784         43,456         43,150         43,313         42,856   

Revenues per patient day:

                 

Medicare

   $ 1,395       $ 1,416       $ 1,422       $ 1,479       $ 1,428       $ 1,530   

Medicaid

     954         922         904         925         926         1,009   

Medicare Advantage

     1,478         1,418         1,444         1,458         1,449         1,520   

Commercial insurance and other

     1,688         1,735         1,728         1,775         1,730         1,749   

Weighted average

     1,406         1,416         1,413         1,462         1,424         1,507   

Medicare case mix index (discharged patients only)

     1.21         1.21         1.19         1.17         1.19         1.21   

Average daily census

     4,008         3,830         3,579         3,774         3,796         4,122   

Occupancy %

     68.2         66.1         62.0         64.0         65.1         68.7   

Annualized employee turnover %

     21.8         22.6         22.3         22.0            21.2   

Nursing and rehabilitation center data:

                 

End of period data:

                 

Number of facilities:

                 

Nursing and rehabilitation centers:

                 

Owned or leased

     218         219         222         222            220   

Managed

     4         4         4         4            4   

Assisted living facilities

     6         7         7         7            6   
                                               
     228         230         233         233            230   
                                               

Number of licensed beds:

                 

Nursing and rehabilitation centers:

                 

Owned or leased

     26,711         26,760         27,030         26,957            26,767   

Managed

     485         485         485         485            485   

Assisted living facilities

     327         463         463         463            413   
                                               
     27,523         27,708         27,978         27,905            27,665   
                                               

Revenue mix %:

                 

Medicare

     35         34         33         36         35         38   

Medicaid

     41         41         41         39         40         37   

Medicare Advantage

     6         7         7         7         7         7   

Private and other

     18         18         19         18         18         18   


Kindred Healthcare Reports Strong First Quarter Results

Page 17

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

     2010 Quarters             First
Quarter
 
     First      Second      Third      Fourth      Year      2011  

Nursing and rehabilitation center data (continued):

  

              

Patient days (excludes managed facilities):

                 

Medicare

     369,102         363,149         346,837         344,018         1,423,106         370,395   

Medicaid

     1,312,517         1,292,246         1,289,643         1,287,739         5,182,145         1,232,620   

Medicare Advantage

     87,692         92,051         91,643         94,336         365,722         97,460   

Private and other

     397,550         415,921         437,413         453,357         1,704,241         425,414   
                                                     
     2,166,861         2,163,367         2,165,536         2,179,450         8,675,214         2,125,889   
                                                     

Patient day mix %:

                 

Medicare

     17         17         16         16         16         17   

Medicaid

     61         60         60         59         60         58   

Medicare Advantage

     4         4         4         4         4         5   

Private and other

     18         19         20         21         20         20   

Revenues per patient day:

                 

Medicare Part A

   $ 470       $ 469       $ 468       $ 534       $ 485       $ 537   

Total Medicare (including Part B)

     513         515         519         587         533         579   

Medicaid

     168         171         171         171         170         172   

Medicare Advantage

     398         400         405         432         409         416   

Private and other

     238         234         232         228         233         235   

Weighted average

     249         250         249         260         252         267   

Average daily census

     24,076         23,773         23,538         23,690         23,768         23,621   

Admissions (excludes managed facilities)

     19,026         18,924         19,383         19,118         76,451         20,619   

Occupancy %

     89.0         87.3         86.8         86.4         87.4         86.9   

Medicare average length of stay

     33.7         35.2         34.3         33.0         34.0         32.9   

Annualized employee turnover %

     36.7         38.8         39.8         39.6            37.8   

Rehabilitation data:

                 

Revenue mix %:

                 

Company-operated

     64         63         61         56         61         55   

Non-affiliated

     36         37         39         44         39         45   

Sites of service (at end of period)

     619         633         650         696            705   

Revenue per site

   $ 194,094       $ 192,829       $ 191,142       $ 199,004       $ 777,069       $ 205,881   

Therapist productivity %

     83.8         84.2         82.1         78.6         82.0         80.6   

Annualized employee turnover %

     12.6         14.2         15.4         14.4            14.5   


Kindred Healthcare Reports Strong First Quarter Results

Page 18

April 25, 2011

 

 

 

KINDRED HEALTHCARE, INC.

Earnings Per Common Share Reconciliation (a)

(Unaudited)

(In thousands, except per share amounts)

 

     Three months ended March 31,  
     2011     2010  
     Basic     Diluted     Basic     Diluted  

Earnings:

        

Income from continuing operations:

        

As reported in Statement of Operations

   $ 22,276      $ 22,276      $ 15,155      $ 15,155   

Allocation to participating unvested restricted stockholders

     (428     (423     (277     (275
                                

Available to common stockholders

   $ 21,848      $ 21,853      $ 14,878      $ 14,880   
                                

Discontinued operations, net of income taxes:

        

Loss from operations:

        

As reported in Statement of Operations

   $ (179   $ (179   $ (154   $ (154

Allocation to participating unvested restricted stockholders

     3        3        3        3   
                                

Available to common stockholders

   $ (176   $ (176   $ (151   $ (151
                                

Loss on divestiture of operations:

        

As reported in Statement of Operations

   $ —        $ —        $ (137   $ (137

Allocation to participating unvested restricted stockholders

     —          —          2        2   
                                

Available to common stockholders

   $ —        $ —        $ (135   $ (135
                                

Net income:

        

As reported in Statement of Operations

   $ 22,097      $ 22,097      $ 14,864      $ 14,864   

Allocation to participating unvested restricted stockholders

     (425     (420     (272     (270
                                

Available to common stockholders

   $ 21,672      $ 21,677      $ 14,592      $ 14,594   
                                

Shares used in the computation:

        

Weighted average shares outstanding-basic computation

     39,035        39,035        38,626        38,626   
                    

Dilutive effect of employee stock options

       508          233   
                    

Adjusted weighted average shares outstanding - diluted computation

       39,543          38,859   
                    

Earnings per common share:

        

Income from continuing operations

   $ 0.56      $ 0.55      $ 0.38      $ 0.38   

Discontinued operations:

        

Loss from operations

     —          —          —          —     

Loss on divestiture of operations

     —          —          —          —     
                                

Net income

   $ 0.56      $ 0.55      $ 0.38      $ 0.38   
                                

 

(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 Reports Strong First Quarter Results

Page 19

April 25, 2011

 

 

 

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 a non-GAAP measurement which presents operating results for the three months ended March 31, 2011 and 2010 before certain charges or on a core basis. The charges that were excluded from core operating results for the three months ended March 31, 2011 relate to transaction and financing costs. The charges that were excluded from core operating results for the three months ended March 31, 2010 relate to transaction, severance and retirement costs.

This non-GAAP measurement is 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, 2011 and 2010 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 purposes of evaluating performance internally.

 

     Three months ended
March 31,
 
     2011     2010  

Detail of charges excluded from core operating results:

    

Transaction costs

   ($ 4,179   ($ 770

Financing costs (in connection with pending RehabCare acquisition)

     (1,999     —     

Severance and retirement costs

     —          (2,906
                
     (6,178     (3,676

Income tax benefit

     2,223        1,415   
                

Charges net of income taxes

     (3,955     (2,261

Allocation to participating unvested restricted stockholders

     75        42   
                

Available to common stockholders

   ($ 3,880   ($ 2,219
                

Weighted average diluted shares outstanding

     39,543        38,859   
                

Diluted loss per common share related to charges

   ($ 0.10   ($ 0.06
                

Reconciliation of income from continuing operations before charges:

    

Income from continuing operations before charges

   $ 26,231      $ 17,416   

Charges

     (3,955     (2,261
                

Reported income from continuing operations

   $ 22,276      $ 15,155   
                

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

    

Diluted earnings per common share before charges

   $ 0.65      $ 0.44   

Charges

     (0.10     (0.06
                

Reported diluted earnings per common share

   $ 0.55      $ 0.38   
                

Reconciliation of effective income tax rate before charges:

    

Effective income tax rate before charges

     40.5     40.9

Impact on effective income tax rate as a result of charges

     0.7     0.3
                

Reported effective income tax rate

     41.2     41.2