KINDRED HEALTHCARE FOURTH QUARTER RESULTS AT HIGH END OF COMPANY’S GUIDANCE
Continuing Operations Income of $0.46 per Diluted Share Includes
$0.05 of Net Charges
Full Year Continuing Operations Income of $0.87 per Diluted Share Includes
$0.59 of Net Charges
Company Reaffirms 2008 EPS Range of $1.25 to $1.35
Company Provides First Quarter 2008 EPS Guidance of $0.22 to $0.27
Louisville, KY (February 19, 2008) – Kindred Healthcare,
Inc. (the “Company”) (NYSE:KND) today announced its operating
results for the fourth quarter and year ended December 31, 2007. 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.
Fourth Quarter Highlights:
- Consolidated revenues exceed $1 billion
- Excluding the institutional pharmacy business that was spun off in July 2007, revenues grew 7% compared to the fourth quarter of 2006 Diluted earnings per share reported at $0.46
- Results included $0.05 of net charges
- Excluding the net charges, the Company’s fourth quarter EPS guidance range was $0.46 to $0.51 Significant improvement in professional liability cost trends
- As expected, the fourth quarter actuarial review indicated continued favorable claims metrics
- Program costs declined approximately $8 million compared to last year’s fourth quarter Strong hospital admissions growth
- Reported hospital admissions grew 6% compared to last year’s fourth quarter
- Same-store aggregate hospital admissions grew 2%
- Same-store non-government admissions grew 20% Continued improvement in nursing center results
- Fourth quarter operating income up 23% compared to last year’s fourth quarter
- Revenue quality mix improved to 56.4% from 54.3% in the fourth quarter of 2006 Continued revenue and contract growth in Peoplefirst Rehabilitation Overhead realignment resulting from institutional pharmacy spin-off completed Company acquired eight previously leased nursing centers for $110 million Proceeds from asset sales totaled $67 million
Fourth Quarter Results
Continuing Operations
Consolidated revenues for the fourth quarter ended December 31, 2007 totaled $1.0 billion compared to $1.1 billion in the same period last year. The decline was primarily attributable to the July 2007 spin-off of the Company’s institutional pharmacy business (the “Spin-off”). Excluding the institutional pharmacy business in both periods, revenues rose approximately 7% in the fourth quarter of 2007 compared to the same period in 2006. Net income from continuing operations for the fourth quarter of 2007 totaled $17.6 million or $0.46 per diluted share compared to $21.4 million or $0.54 per diluted share in the fourth quarter last year. For accounting purposes, the Spin-off was not treated as a discontinued operation. Accordingly, the Company’s historical consolidated results of operations have not been retroactively restated as a result of the Spin-off.
Operating results for the fourth quarter of 2007 included certain items that, in the aggregate, reduced net income by approximately $2.0 million or $0.05 per diluted share. These items included a pretax charge of approximately $1.1 million for costs incurred in connection with the Spin-off, a pretax charge of approximately $1.7 million for professional fees associated with the Company’s strategic planning process and a pretax charge of $0.4 million for employee severance costs. The Company also realized a pretax gain of approximately $0.6 million from an asset sale. In addition, the provision for income taxes included a net charge of $0.4 million related to income tax items associated with the Spin-off. The Company’s fourth quarter 2007 earnings guidance of $0.46 to $0.51 per diluted share from continuing operations excluded the impact of these items.
The Company also recorded certain adjustments in the fourth quarter of 2007, including a pretax charge of approximately $6.6 million related to accounts receivable for certain hospitals acquired in 2006, a pretax credit of approximately $2.6 million to reflect a change in estimate for hospital Medicare in-house accounts receivable and a pretax credit of approximately $3.7 million to adjust certain nursing center Medicaid revenues. The aggregate effect of these adjustments did not have a significant effect on the Company’s consolidated fourth quarter 2007 results of operations.
Operating results for the fourth quarter of 2006 included certain items that, in the aggregate, reduced net income by approximately $1.9 million or $0.05 per diluted share.
Discontinued Operations
During 2006 and 2007, the Company 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.
For the fourth quarter of 2007, the Company reported a net loss from discontinued operations totaling $1.3 million or $0.03 per diluted share compared to net income of $0.7 million or $0.02 per diluted share in the fourth quarter of 2006.
Fiscal Year Results
Continuing Operations
Consolidated revenues for the year ended December 31, 2007 increased 2% to $4.2 billion from $4.1 billion in 2006. Excluding the institutional pharmacy business in both periods, revenues rose 8% in fiscal 2007 compared to the prior year. Net income from continuing operations totaled $34.7 million or $0.87 per diluted share in 2007 compared to $76.7 million or $1.87 per diluted share in 2006.
Operating results in 2007 included certain items that, in the aggregate, reduced net income by approximately $23.8 million or $0.59 per diluted share. In addition to the items reported in the fourth quarter of 2007, these items included additional costs incurred in connection with the Spin-off, additional employee severance costs, the favorable settlement of a rehabilitation therapy contract dispute from prior years, an unfavorable judgment rendered in connection with a civil dispute with a hospital vendor, additional income tax items associated with the Spin-off and the favorable resolution of certain income tax contingencies for prior years.
Operating results for 2006 included certain items that, in the aggregate, reduced net income by approximately $0.2 million or $0.01 per diluted share.
Discontinued Operations
In 2007, the Company reported a net loss from discontinued operations totaling $4.6 million or $0.11 per diluted share compared to net income of $2.0 million or $0.05 per diluted share in 2006.
Management Commentary
“We are pleased to report solid overall fourth quarter results across
each of our three divisions,” remarked Paul J. Diaz, President and
Chief Executive Officer of the Company. “In our first full quarter
of operations following the Spin-off, successful execution of our key
business drivers and significant improvement in professional liability
costs resulted in financial performance at the high end of our earnings
guidance.”
Commenting further on the Company’s fourth quarter results, Mr. Diaz noted, “In our hospital business, we continued to achieve same-store admissions growth compared to last year’s fourth quarter. In particular, our same-store non-government admissions grew 20% in the period, reflecting continued execution of our sales and marketing strategy. Despite some softness in non-government pricing, higher patient volumes and related operating efficiencies produced solid hospital operating margins in the quarter. Our nursing centers continued to report stronger results consistent with better employee retention, significant reductions in contract labor, improvements in our quality indicators and higher levels of customer service. Peoplefirst Rehabilitation reported its fourteenth quarter of sequentially higher revenues as we further expanded our external customer base. We also have achieved our goal of realigning our overhead costs following the Spin-off. Finally, as we expected, our professional liability cost trends continued to improve across all of our business lines, resulting in program costs that were $8 million less than those recorded in the fourth quarter of 2006.”
With respect to the Company’s full-year results, Mr. Diaz said, “Fiscal 2007 was a year in which we repositioned the Company for future growth and created more value for our patients and their families, our employees and our shareholders. Despite continued reimbursement pressures, particularly in our hospital business, we delivered solid operating results that were in line with the earnings guidance that we provided to investors in the early part of the year. We also completed the Spin-off, a tax-free transaction for our shareholders that created the new PharMerica Corporation (NYSE:PMC), a leading institutional pharmacy company. In addition, we consummated a major transaction with Ventas, Inc. (“Ventas”) (NYSE:VTR) which allowed us to dispose of 22 under-performing assets that comprised approximately 10% of this leased portfolio. The Ventas transaction also eliminated the out-of-market lease provisions related to insurance requirements and facility bed management restrictions, providing the Company with more operational flexibility going forward. In an effort to further enhance shareholder value, we also repurchased $50 million of our common stock in 2007, reducing our diluted share count by over 3% compared to last year’s fourth quarter.”
Commenting on the Company’s acquisition and development activities, Mr. Diaz remarked, “During 2007, we added four hospitals (286 licensed beds), nine nursing centers (1,152 licensed beds) and a rehabilitative services company serving 22 nursing center customers. We also opened a new replacement hospital in Indianapolis that increased our capacity in that market. In addition, we acquired eight previously leased nursing centers for approximately $110 million in the fourth quarter. Our acquisition and development program both strengthened our existing market position and expanded our services in new markets. Looking forward, our ongoing development activities will focus on the completion of seven new hospital projects already underway, as well as selective opportunities to broaden our nursing center and Peoplefirst Rehabilitation businesses.”
Mr. Diaz continued, “Our ability to finance future growth opportunities was significantly enhanced upon the successful amendment of our revolving credit agreement in July 2007. These amendments increased the aggregate amount of the credit to $500 million, provided for further increases in the amount of the credit under certain conditions, allowed for higher levels of capital investment and restricted payments such as share repurchases and dividends and reduced borrowing costs by approximately 75 basis points.”
With regard to the Company’s efforts to divest unprofitable facilities, Mr. Diaz stated, “In 2007, we sold 14 facilities that we acquired from Ventas for approximately $67 million and we expect to sell the remaining eight facilities for $13 million to $23 million in 2008. The aggregate proceeds from these transactions of $80 million to $90 million are consistent with our prior expectations.”
Mr. Diaz concluded, “We are pleased with our overall performance in 2007. It was a year in which we built a stronger, more strategic operating portfolio that will better meet the needs of our patients, employees and shareholders. We are looking forward to making further progress in clinical quality, human resource development and customer service as we continue to differentiate Kindred in each of our local healthcare markets.”
2008 Earnings Guidance – Continuing Operations
The Company reaffirmed its 2008 earnings guidance for continuing operations. The Company expects consolidated revenues for 2008 to approximate $4.2 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rents, is expected to range from $565 million to $571 million. Rent expense is expected to approximate $345 million, while depreciation, amortization and net interest expense are expected to approximate $134 million. Net income from continuing operations for 2008 is expected to approximate $49 million to $53 million or $1.25 to $1.35 per diluted share (based upon diluted shares of 39 million).
The Company also provided its earnings outlook for the first quarter of 2008, estimating net income from continuing operations to range from $8 million to $11 million or $0.22 to $0.27 per diluted share (based upon diluted shares of 39 million).
The Company indicated that the earnings guidance reflects the estimated
impact of the Medicare, Medicaid and SCHIP Extension Act and the proposed
rules issued by the Centers for Medicare and Medicaid Services on January
22, 2008 related to long-term acute care (“LTAC”) hospitals.
The guidance does not reflect any repurchases of common stock or other
significant changes in reimbursement and does not take into account the
impact of any material acquisitions or divestitures.
Webcast of Conference Call
As previously announced, investors and the general public can access a live webcast of the fourth quarter and year end 2007 conference call through a link on Kindred’s website at www.kindredhealthcare.com. The conference call will be held February 20, 2008 at 10:00 a.m. Eastern Time.
A telephone replay of the conference call will be available at approximately 12:00 p.m. on February 20 by dialing (719) 457-0820, access code: 5759644. The replay will be available through February 27.
Forward Looking Statements
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. 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 or results include, without limitation, (a) the Company’s ability to operate pursuant to the terms of its debt obligations and its master leases with Ventas; (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, therapists 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 and related to the Medicare prospective payment system for 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 the Company’s nursing centers; (h) the impact of the Medicare, Medicaid and SCHIP Extension Act, including the ability of the Company’s hospitals to adjust to potential LTAC certification and the three-year moratorium on future hospital development; (i) national and regional economic conditions, including their effect on the availability and cost of labor, materials and other services; (j) the Company’s ability to control costs, particularly labor and employee benefit costs; (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, including those recently acquired from Ventas; and (o) the Company’s ability to ensure and maintain an effective system of internal controls 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 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 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 its performance. Operating income should be considered in addition to, not as a substitute for, or superior to, financial measures based upon 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.
About Kindred Healthcare
Kindred Healthcare, Inc. (NYSE:KND) is a Fortune 500 healthcare services company, based in Louisville, Kentucky, with annual revenues of over $4 billion. Kindred through its subsidiaries operates long-term acute care hospitals, skilled nursing centers and a contract rehabilitation services business, Peoplefirst Rehabilitation Services, in approximately 630 locations in 40 states across the United States. Kindred’s 52,500 employees are committed to providing high quality patient care and outstanding customer service to become the most trusted and respected provider of healthcare services in every community we serve. For more information, go to www.kindredhealthcare.com.
Click here to view the 4th Quarter Results.
CONTACT:
Richard A. Lechleiter
Executive Vice President and Chief Financial Officer
(502) 596-7734
