KINDRED HEALTHCARE ANNOUNCES FIRST QUARTER RESULTS
Net Income from Continuing Operations Increased 95% to $32.3 million
or $0.73 per Diluted Share
Fiscal 2005 Earnings Guidance Increased
Operating Income Range Increased to $560-$570 million from $535-$545 million
Diluted Earnings per Share Range Increased to $2.37 - $2.50 from $2.10
- $2.25
Louisville, KY (April 27, 2005) – Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 2005. All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.
Continuing Operations
Consolidated revenues for the first quarter ended March 31, 2005 increased 10% to $940 million from $858 million for the same period in 2004. Net income from continuing operations for the first quarter of 2005 rose 95% to $32.3 million or $0.73 per diluted share compared to $16.5 million or $0.38 per diluted share in the first quarter of 2004.
Operating results for the first quarter of 2005 included favorable pretax adjustments of $2.9 million related to the settlement of prior year hospital Medicare cost reports and $1.4 million of accrued reorganization items in connection with the completion of legal proceedings related to the Company’s reorganization. The aggregate effect of these items increased first quarter 2005 net income from continuing operations by $2.6 million or $0.06 per diluted share.
Operating results for the first quarter of 2004 included a favorable pretax adjustment of $2.2 million related to the settlement of prior year hospital Medicare cost reports. This item increased first quarter 2004 net income from continuing operations by $1.3 million or $0.03 per diluted share.
Discontinued Operations
In the first quarter of 2005, the Company reported net income from discontinued operations totaling $4.6 million or $0.10 per diluted share compared to a net loss of $2.7 million or $0.06 per diluted share in the first quarter of 2004. Operating results for discontinued operations in the first quarter of 2005 included a favorable pretax adjustment of $9.6 million ($5.9 million net of income taxes or $0.13 per diluted share) resulting from a change in estimate for professional liability reserves related primarily to the Company’s Florida and Texas nursing centers that were substantially divested in 2003.
At March 31, 2005, the Company held for sale three hospitals and one nursing center. Assets not sold at March 31, 2005 have been measured at the lower of carrying value or estimated fair value less costs of disposal and have been classified as held for sale in the Company’s unaudited condensed consolidated balance sheet. The Company expects sales proceeds from these divestitures to approximate $16 million in 2005.
Management Commentary
“Kindred is off to a great start in 2005,” remarked Paul J. Diaz, President and Chief Executive Officer. “All four of our operating divisions reported higher revenues and operating income in the first quarter of 2005 compared to the first quarter last year. Our hospital division performance was particularly impressive, with overall admissions increasing 11%, same-store admissions growing 5%, and total non-government admissions growing 26% over the same period a year ago. Likewise, our KPS pharmacy division reported strong growth in revenues and operating income as we expanded our external institutional customer base and successfully executed on our development plans. Our nursing centers continued to show more predictable and consistent operating results in the quarter as we maintained our focus on improvements in clinical quality and customer service. Our newest division, Peoplefirst Rehabilitation, also reported good results while continuing to build the infrastructure to support future growth.”
Commenting on the Company’s growth plans, Mr. Diaz stated, “Our continued focus on our operations, particularly our clinical outcomes and new sales and marketing programs had a significant impact on our first quarter operating results. At the same time, we also continued to successfully execute our strategic development plans. In the first quarter of 2005, we added a 34-bed hospital-in-hospital in Oklahoma City and announced an agreement to open a 38-bed hospital-in-hospital in Wayne, New Jersey. We are excited about the other development opportunities in our hospital business that could result in the announcement of three to five additional facilities over the balance of 2005. Our KPS pharmacy division accelerated its development activities by opening a new site in Orlando, Florida and acquiring a 7,877-bed institutional pharmacy in Pennsylvania on March 2. KPS also acquired a 7,300-bed institutional pharmacy in southern California on April 1, 2005. In addition, we plan to open two to three institutional pharmacies in new markets during the remainder of the year.”
Revised Earnings Guidance for 2005 – Continuing Operations
The Company also increased its fiscal 2005 earnings guidance for its
continuing operations. Revenues for 2005 are expected to approximate $3.9
billion. Operating income, or earnings before interest, income taxes,
depreciation, amortization and rents, is expected to range from $560 million
to $570 million. Professional liability costs for 2005 are expected to
range from $85 million to $95 million, while depreciation, amortization
and net interest costs are expected to approximate $100 million. Net income
from continuing operations is expected between $109 million and $115 million,
or $2.37 to $2.50 per diluted share (based upon diluted shares of 46 million).
Diluted earnings per share guidance for 2005 includes $0.04 to $0.06 of
additional earnings associated with two recently completed institutional
pharmacy acquisitions in Pennsylvania and California. The Company indicated
that the guidance does not include any significant changes in government
reimbursements, including potential reductions in nursing center Medicare
reimbursements as well as a recently proposed 4.7% reduction in Medicare
payments to the Company’s hospitals, both of which could be effective
on October 1, 2005.
In April 2005, the Securities and Exchange Commission (the “SEC”)
announced a six-month delay of the effective date requiring the expensing
of stock options in reporting results of operations. As a result of this
change, the Company has elected to begin expensing the cost of stock options
on a prospective basis beginning January 1, 2006. Prior to the SEC announcement,
the Company had anticipated expensing the cost of stock options on a prospective
basis beginning July 1, 2005. Accordingly, the Company’s revised
earnings guidance for 2005 does not include any costs related to expensing
stock options.
The Company’s previous 2005 earnings guidance for continuing operations indicated revenues approximating $3.8 billion, operating income between $535 million and $545 million, and net income ranging from $95 million to $101 million or $2.10 to $2.25 per diluted share (based upon diluted shares of 45 million). The previous 2005 earnings guidance also included a range of professional liability costs of $90 million to $100 million and a depreciation and net interest cost estimate of $100 million. In addition, the previous 2005 earnings guidance included a cost of approximately $5 million net of income taxes or $0.12 per diluted share to reflect the expensing of stock options. The recently completed institutional pharmacy acquisitions in Pennsylvania and California were not included in the Company’s previous 2005 earnings guidance.
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 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 operate pursuant to the terms of its debt obligations and its master lease agreements with Ventas, Inc. (NYSE:VTR); (b) the Company’s ability to meet its rental and debt service obligations; (c) adverse developments with respect to the Company’s results of operations or liquidity; (d) the Company’s ability to attract and retain key executives and other healthcare personnel; (e) increased operating costs due to shortages in qualified nurses and other healthcare personnel; (f) the effects of healthcare reform and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry; (g) changes in the reimbursement rates or methods of payment from third party payors, including the Medicare and Medicaid programs, changes arising from the Medicare prospective payment system for long-term acute care hospitals, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and potential changes in nursing center Medicare reimbursement resulting from revised resource utilization groupings payments; (h) national and regional economic conditions, including their effect on the availability and cost of labor, materials and other services; (i) the Company’s ability to control costs, including labor and employee benefit costs; (j) the Company’s ability to comply with the terms of its Corporate Integrity Agreement; (k) the Company’s ability to successfully pursue its development activities and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations; (l) the increase in the costs of defending and insuring against alleged professional liability claims and the Company’s ability to predict the estimated costs related to such claims; (m) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability claims; (n) the Company’s ability to successfully dispose of unprofitable facilities; and (o) the Company’s ability to ensure and maintain an effective system of internal control over financial reporting. Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
As noted above, the Company’s earnings guidance includes the financial measure referred to as operating income. The Company’s management uses operating income as a meaningful measure of operational performance in addition to other measures. The Company uses operating income to assess the relative performance of the Company’s 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 net income from continuing operations is the most comparable measure, in relation to generally accepted accounting principles, to operating income. Readers of the Company’s financial information should consider net income from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of the Company’s performance. Operating income should be considered in addition to, not as a substitute for, or superior to, financial measures based on generally accepted accounting principles as an indicator of operating performance. A reconciliation of the estimated operating income to net income from continuing operations provided in the Company’s earnings guidance is included in this press release.
Kindred Healthcare, Inc. through its subsidiaries operates hospitals,
nursing centers, institutional pharmacies and a contract rehabilitation
services business across the United States.
Click here
to view the 1st Quarter Results.
CONTACT:
Richard A. Lechleiter
Executive Vice President and Chief Financial Officer
(502) 596-7734
