KINDRED HEALTHCARE ANNOUNCES FOURTH QUARTER RESULTS
Fourth Quarter Net Income from Continuing Operations Increased 63%
to $25.8 million or $0.61 per Diluted Share
Fiscal Year Net Income from Continuing Operations Increased 63% to $85.9
million or $2.03 per Diluted Share
LOUISVILLE, KY (February 28, 2005) – Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2004. Share and per share data for all periods presented have been adjusted retroactively to reflect the 2-for-1 stock split that took effect in May 2004.
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 Results
Continuing Operations
Consolidated revenues for the fourth quarter ended December 31, 2004 increased 11% to $903 million from $817 million for the same period in 2003. Net income from continuing operations for the fourth quarter of 2004 rose 63% to $25.8 million or $0.61 per diluted share compared to $15.9 million or $0.39 per diluted share in the fourth quarter of 2003.
Operating results for the fourth quarter of 2004 included a favorable pretax adjustment of approximately $6 million for professional liability costs and a pretax charge of $3.3 million related to the write-off of a clinical information system project that was cancelled in the fourth quarter. The aggregate effect of these items increased fourth quarter 2004 net income from continuing operations by approximately $1.6 million or $0.04 per diluted share.
Operating results for the fourth quarter of 2003 included a favorable pretax adjustment of approximately $3.6 million for professional liability costs, a $3 million pretax charge related to special incentive compensation awards and a $1 million pretax credit to adjust accrued reorganization costs. The aggregate effect of these items increased fourth quarter 2003 net income from continuing operations by approximately $1 million or $0.02 per diluted share.
Discontinued Operations
During 2003 and 2004, the Company completed several transactions related to the divestiture of unprofitable hospitals, nursing centers and other healthcare businesses. For accounting purposes, the operating results of these businesses and losses associated with these transactions have been classified as discontinued operations in the condensed consolidated statement of operations for all historical periods.
As previously disclosed, the Company acquired for resale two unprofitable hospitals from Ventas, Inc. (“Ventas”) (NYSE:VTR) in December 2004. The Company intends to dispose of these properties as soon as practicable. During the fourth quarter of 2003, the Company acquired for resale ten unprofitable facilities from Ventas. In addition, during the fourth quarter of 2003, the Company allowed two nursing center operating leases to expire, disposed of an ancillary services business in its hospital division, cancelled two hospital pulmonary management agreements, and terminated two pharmacy infusion therapy partnerships.
In the fourth quarter of 2004, the Company reported net income from discontinued operations totaling $0.8 million or $0.02 per diluted share compared to a net loss of $3.8 million or $0.09 per diluted share in the fourth quarter of 2003. Operating results for the discontinued operations in the fourth quarter of 2004 included the effect of a favorable pretax adjustment of approximately $7 million ($4.3 million net of income taxes or $0.10 per diluted share) resulting from a change in estimate for professional liability reserves related primarily to the Company’s former nursing centers in Florida and Texas that were substantially divested in 2003.
Net losses related to the divestiture of discontinued operations aggregated $7.2 million or $0.17 per diluted share in the fourth quarter of 2004 compared to net losses of $42.6 million or $1.05 per diluted share in the same period a year ago.
At December 31, 2004, the Company held for sale three hospitals and three nursing centers. Assets not sold at December 31, 2004 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 condensed consolidated balance sheet. The Company expects sales proceeds from these divestitures to approximate $21 million in 2005.
Fiscal Year Results
Continuing Operations
Consolidated revenues for the year ended December 31, 2004 increased 9% to $3.5 billion from $3.2 billion in 2003. Net income from continuing operations rose 63% to $85.9 million or $2.03 per diluted share in 2004 compared to $52.6 million or $1.50 per diluted share in 2003.
Operating results for 2004 included pretax income of approximately $7.7 million related to the resolution of certain prior year hospital Medicare cost reports and income of $3 million related to prior year retroactive Medicaid reimbursements in the Company’s nursing center business. These results also included pretax charges of approximately $3.4 million related to a terminated pension plan, a $1.2 million loss associated with a debt refinancing, the previously discussed $3.3 million write-off of a clinical information systems project and certain other items. The aggregate effect of these items increased fiscal 2004 net income from continuing operations by approximately $2.3 million or $0.06 per diluted share.
Operating results for 2003 included pretax income of $13.8 million related to the resolution of certain prior year hospital Medicare cost reports and other hospital reimbursement issues, a $2.4 million gain realized in connection with the prepayment of long-term debt, and the previously discussed $3 million charge for special incentive compensation awards and $1 million credit to adjust accrued reorganization costs. The aggregate effect of these items increased fiscal 2003 net income from continuing operations by approximately $8.7 million or $0.25 per diluted share.
Discontinued Operations
In 2004, the Company reported net income from discontinued operations totaling $0.5 million or $0.01 per diluted share compared to a net loss of $48.5 million or $1.38 per diluted share in 2003. Operating results for discontinued operations in 2004 included the effect of a favorable pretax adjustment of approximately $18 million ($11.1 million net of income taxes or $0.26 per diluted share) resulting from a change in estimate for professional liability reserves related primarily to the Company’s former nursing centers in Florida and Texas that were substantially divested in 2003.
Net losses related to the divestiture of discontinued operations aggregated $15.8 million or $0.37 per diluted share in 2004 compared to net losses of $79.4 million or $2.27 per diluted share in 2003.
Management Commentary
“Fiscal 2004 was an outstanding year for our employees, patients
and shareholders,” remarked Paul J. Diaz, President and Chief Executive
Officer. “It was a year in which we reported improved operating
results in all four of our operating divisions. Our hospital performance
was impressive, reflecting continued improvements in our clinical, customer
service and other quality measures and the continuing successful transition
to the new Medicare prospective payment system. Likewise, our KPS pharmacy
business reported strong growth in revenues and operating income as we
expanded our external institutional customer base by over 13% for the
year and began providing services to our hospital division in the second
half of 2004. We also are optimistic about the prospects in our nursing
center business, which reported a solid year that included continued positive
trends in quality and customer service, professional liability costs and
Medicare patient mix. We also successfully launched our Peoplefirst
rehabilitation business as a separate operating division in 2004.”
Commenting on the Company’s growth outlook, Mr. Diaz remarked, “Our strong fourth quarter results support our outlook for continuing operational improvement in 2005. While we focused heavily on human resource initiatives, new sales and marketing programs, and the improvement and expansion of our quality and clinical initiatives in 2004, we also continued to execute our development strategy. In our hospital division, we added eight new facilities with 422 beds, of which three were free-standing facilities and five were hospital-in-hospital operations. These new facilities in Louisville, Kentucky (30 beds), Corpus Christi, Texas (74 beds), Modesto, California (100 beds), Dover, New Jersey (45 beds), Dayton, Ohio (67 beds), St. Louis, Missouri (38 beds), Las Vegas, Nevada (40 beds) and Rahway, New Jersey (28 beds) should provide significant growth opportunities in these markets. We also expect to add five to seven new hospitals in selected markets during 2005. In KPS, we continue to gain market share with non-affiliated institutional customers comprising approximately 57% of our customer base at the end of the year. We acquired a pharmacy in Iowa in the fourth quarter of 2004 and we opened new pharmacies in New Hampshire and Georgia during the year. We also expect to close on the acquisition of a 7,800-bed institutional pharmacy in Pennsylvania in the first quarter of 2005. In addition, we expect to add two to four institutional pharmacies in new markets during 2005 that should provide further growth opportunities in this business.”
Mr. Diaz also commented on the Company’s overall financial position and cash flows. “We significantly strengthened our financial position during 2004 to provide the flexibility necessary to finance future growth. Cash flows from operations for 2004 totaled $268 million, more than double last year’s reported operating cash flows of $119 million. Our cash balances at the end of the year totaled $69 million while our average accounts receivable days at December 31, 2004 stood at their lowest level in years. In addition, we refinanced our revolving credit facility during 2004 to provide increased financial flexibility, better terms and lower pricing. There were no borrowings under our $300 million revolving credit facility at the end of 2004, and we have $112 million of capacity to finance acquisitions.”
Fiscal 2005 Earnings Guidance – Continuing Operations
The Company also reaffirmed its 2005 earnings guidance that was previously announced on February 10, 2005. The Company expects consolidated revenues for 2005 to approximate $3.8 billion. Operating income, or earnings before interest, income taxes, depreciation and rents, is expected to range from $535 million to $545 million. Professional liability costs are expected to range from $90 million to $100 million, while depreciation and net interest costs for 2005 are expected to approximate $100 million. Net income from continuing operations for 2005 is expected to approximate $95 million to $101 million or $2.10 to $2.25 per diluted share (based upon diluted shares of 45 million). The 2005 guidance includes a cost of approximately $5 million net of income taxes or $0.12 per diluted share to reflect the expensing of stock options on a prospective basis beginning July 1, 2005. The Company indicated that the guidance does not include any significant changes in government reimbursements and does not take into account the effects of any material acquisitions or divestitures. The Company’s earnings guidance for 2005 also excludes the impact of any settlements of prior year Medicare cost reports or retroactive Medicaid reimbursements.
Mr. Diaz commented, “Our strong fourth quarter results have provided great operational momentum as we enter 2005. While there will always be internal and external challenges in each of our four operating divisions, we are excited about our opportunities for success in 2005 and beyond. As in the past, higher satisfaction levels for our employees, patients, customers and physicians will continue to be the key drivers of our business success.”
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 on 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 lease agreements 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 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, and changes arising from the Medicare prospective payment system
for long-term acute care hospitals and the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, and potential changes in nursing
center Medicare reimbursement resulting from revised resource utilization
grouping 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 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.
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 4th Quarter Results.
CONTACT:
Richard A. Lechleiter
Executive Vice President and Chief Financial Officer
(502) 596-7734
