Kindred Healthcare reports Q3 earnings of 15 cents per share after charges

LOUISVILLE, Ky. (Oct. 31, 2012) — Kindred Healthcare Inc. announced its operating results for the third quarter that ended Sept. 30. The company’s consolidated financial statements include the operating results of RehabCare Group, Inc. since the closing of the acquisition on June 1, 2011.

Third-quarter operating cash flows surged to a near-record $141 million from $67 million last year. Kindred tightened its 2012 annual EPS guidance range to $1.40 to $1.50 from a previous $1.35 to $1.55; it reaffirmed its 2013 guidance range of $1.20 to $1.40.

Third quarter highlights:

– Despite a seasonally weak period, consolidated revenues rose 1 percent to $1.5 billion and operating income was nearly $200 million

– While hospital revenues grew 4 percent, adverse Medicare reimbursement changes hampered revenues in the nursing center and RehabCare contract therapy divisions

– Operating cash flows surged to near-record $141 million in the quarter compared to $67 million last year

– Results are on track to meet annual 2012 guidance range of $260 million to $280 million

– Hospital division revenues rose 4 percent while operating income grew 10 percent

– Same-store admissions rose 2 percent compared to last year

– Cost per patient day rose only 1 percent from a year ago

– Nursing center division reported stable operating income of $71 million in difficult reimbursement environment

– RehabCare contract therapy division reported solid operating income of $37 million

– Division reported brisk new contract sales in the first nine months this year

– Recent Medicare rule changes adversely impacted results late in this year’s third quarter

– PeopleFirst home health and hospice division reported significant revenue and operating income growth

– Recent IntegraCare acquisition added approximately $71 million in annualized revenues

– Corporate overhead declined as a percent of revenues to 3.0 percent from 3.2 percent in last year’s third quarter

– RehabCare synergies and other cost reductions drove third quarter overhead lower by 6 percent compared to last year

Third-quarter results

Consolidated revenues for the third quarter ended Sept. 30 rose 1 percent to $1.5 billion compared to the third quarter last year. Income from continuing operations for the third quarter of 2012 totaled$7.9 million or $0.15 per diluted share compared to $0.6 million or $0.01 per diluted share in the third quarter last year.

Third quarter 2012 operating results included pretax charges of $4.9 million related to (1) an impairment charge in connection with the planned divestiture of a long-term acute care hospital, (2) employee retention costs incurred in connection with the decision to allow the leases to expire for 54 nursing and rehabilitation centers currently leased from Ventas, Inc., (3) a lease cancellation charge in connection with the closing of a LTAC hospital, and (4) transaction-related costs. These items reduced income from continuing operations in the third quarter by $3.3 million or $0.06 per diluted share.

Third quarter 2011 operating results included certain charges, most of which related to impairment charges and costs associated with the RehabCare acquisition, that reduced income from continuing operations by $20.9 million or $0.40 per diluted share.

Outlook

The company tightened its earnings guidance range for 2012. The company expects consolidated revenues for 2012 to approximate $6.2 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $867 million to $875 million. Rent expense is expected to approximate $430 million, while depreciation and amortization should approximate $201 million. Net interest expense is expected to approximate $107 million. Kindred expects to report income from continuing operations for 2012 between $75 million and $80 million or$1.40 to $1.50 per diluted share (based upon diluted shares of 52 million).

Kindred also maintained its operating cash flow guidance range for 2012 at $260 million to $280 million. Estimated routine capital expenditures for 2012 are expected to range from $135 million to $145 million, including approximately $17 million of expenditures to complete the information systems integration of RehabCare. The Company’s expected routine capital expenditures also include approximately $13 million to upgrade the clinical information systems in its hospital, nursing center and home health businesses.

In addition to its routine capital expenditures, the company expects that its previously announced development projects related to new and replacement hospitals and new transitional care centers will approximate $40 million to $45 million in 2012.

Operating cash flows in excess of Kindred’s routine and development capital spending programs, which are expected to approximate $85 million to $90 million for 2012, will be available to repay debt and fund acquisitions.

In addition, Kindred reaffirmed its preliminary earnings guidance for fiscal 2013. The company expects consolidated revenues for 2013 to approximate $5.9 billion. Operating income is expected to range from $806 million to $825 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. Kindred expects to report income from continuing operations for 2013 between $65 million to $76 million or $1.20 to $1.40 per diluted share (based upon diluted shares of 52.7 million).

The company estimated its operating cash flows for 2013 to range between $230 million to $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, Kindred expects that its development projects related to new and replacement LTAC hospitals, transitional care centers, and inpatient rehabilitation hospitals 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.

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