UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number: 001-14057
KINDRED HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware | 61-1323993 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
680 South Fourth Street Louisville, KY |
40202-2412 | |
(Address of principal executive offices) | (Zip Code) |
(502) 596-7300
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class of Common Stock |
Outstanding at April 30, 2013 | |
Common stock, $0.25 par value | 54,037,557 shares |
KINDRED HEALTHCARE, INC.
FORM 10-Q
Page | ||||||
PART I. | FINANCIAL INFORMATION | |||||
Item 1. | Financial Statements (Unaudited): | |||||
Condensed Consolidated Statement of Operations for the three months ended March 31, 2013 and 2012 |
3 | |||||
4 | ||||||
Condensed Consolidated Balance Sheet March 31, 2013 and December 31, 2012 |
5 | |||||
Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2013 and 2012 |
6 | |||||
7 | ||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
34 | ||||
Item 3. | 61 | |||||
Item 4. | 62 | |||||
PART II. | OTHER INFORMATION | |||||
Item 1. | Legal Proceedings | 63 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 63 | ||||
Item 6. | Exhibits | 63 |
2
KINDRED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Revenues |
$ | 1,554,908 | $ | 1,537,931 | ||||
|
|
|
|
|||||
Salaries, wages and benefits |
943,773 | 921,359 | ||||||
Supplies |
105,808 | 108,533 | ||||||
Rent |
105,978 | 104,313 | ||||||
Other operating expenses |
305,503 | 296,365 | ||||||
Other income |
(993 | ) | (3,143 | ) | ||||
Impairment charges |
436 | 848 | ||||||
Depreciation and amortization |
51,196 | 46,986 | ||||||
Interest expense |
28,174 | 26,578 | ||||||
Investment income |
(91 | ) | (288 | ) | ||||
|
|
|
|
|||||
1,539,784 | 1,501,551 | |||||||
|
|
|
|
|||||
Income from continuing operations before income taxes |
15,124 | 36,380 | ||||||
Provision for income taxes |
5,620 | 14,765 | ||||||
|
|
|
|
|||||
Income from continuing operations |
9,504 | 21,615 | ||||||
Discontinued operations, net of income taxes: |
||||||||
Loss from operations |
(4,787 | ) | (1,803 | ) | ||||
Loss on divestiture of operations |
(1,244 | ) | (1,170 | ) | ||||
|
|
|
|
|||||
Loss from discontinued operations |
(6,031 | ) | (2,973 | ) | ||||
|
|
|
|
|||||
Net income |
3,473 | 18,642 | ||||||
Earnings attributable to noncontrolling interests |
(416 | ) | (451 | ) | ||||
|
|
|
|
|||||
Income attributable to Kindred |
$ | 3,057 | $ | 18,191 | ||||
|
|
|
|
|||||
Amounts attributable to Kindred stockholders: |
||||||||
Income from continuing operations |
$ | 9,088 | $ | 21,164 | ||||
Loss from discontinued operations |
(6,031 | ) | (2,973 | ) | ||||
|
|
|
|
|||||
Net income |
$ | 3,057 | $ | 18,191 | ||||
|
|
|
|
|||||
Earnings per common share: |
||||||||
Basic: |
||||||||
Income from continuing operations |
$ | 0.17 | $ | 0.40 | ||||
Discontinued operations: |
||||||||
Loss from operations |
(0.09 | ) | (0.03 | ) | ||||
Loss on divestiture of operations |
(0.02 | ) | (0.02 | ) | ||||
|
|
|
|
|||||
Loss from discontinued operations |
(0.11 | ) | (0.05 | ) | ||||
|
|
|
|
|||||
Net income |
$ | 0.06 | $ | 0.35 | ||||
|
|
|
|
|||||
Diluted: |
||||||||
Income from continuing operations |
$ | 0.17 | $ | 0.40 | ||||
Discontinued operations: |
||||||||
Loss from operations |
(0.09 | ) | (0.03 | ) | ||||
Loss on divestiture of operations |
(0.02 | ) | (0.02 | ) | ||||
|
|
|
|
|||||
Loss from discontinued operations |
(0.11 | ) | (0.05 | ) | ||||
|
|
|
|
|||||
Net income |
$ | 0.06 | $ | 0.35 | ||||
|
|
|
|
|||||
Shares used in computing earnings per common share: |
||||||||
Basic |
52,062 | 51,603 | ||||||
Diluted |
52,083 | 51,638 |
See accompanying notes.
3
KINDRED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Net income |
$ | 3,473 | $ | 18,642 | ||||
Other comprehensive income: |
||||||||
Available-for-sale securities (Note 8): |
||||||||
Change in unrealized investment gains |
1,613 | 1,202 | ||||||
Reclassification of (gains) losses realized in net income |
119 | (77 | ) | |||||
|
|
|
|
|||||
Net change |
1,732 | 1,125 | ||||||
Interest rate swaps (Note 1): |
||||||||
Change in unrealized gains (losses) |
844 | (131 | ) | |||||
Reclassification of (gains) losses realized in net income, net of payments |
(5 | ) | 201 | |||||
|
|
|
|
|||||
Net change |
839 | 70 | ||||||
Income tax benefit related to items of other comprehensive income |
(937 | ) | (420 | ) | ||||
|
|
|
|
|||||
Other comprehensive income |
1,634 | 775 | ||||||
|
|
|
|
|||||
Comprehensive income |
5,107 | 19,417 | ||||||
Earnings attributable to noncontrolling interests |
(416 | ) | (451 | ) | ||||
|
|
|
|
|||||
Comprehensive income attributable to Kindred |
$ | 4,691 | $ | 18,966 | ||||
|
|
|
|
See accompanying notes.
4
KINDRED HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except per share amounts)
March 31, 2013 |
December 31, 2012 |
|||||||
ASSETS | ||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 42,664 | $ | 50,007 | ||||
Cashrestricted |
5,263 | 5,197 | ||||||
Insurance subsidiary investments |
91,057 | 86,168 | ||||||
Accounts receivable less allowance for loss of $32,656 March 31, 2013 and $23,959 December 31, 2012 |
1,094,750 | 1,038,605 | ||||||
Inventories |
32,057 | 32,021 | ||||||
Deferred tax assets |
11,366 | 12,663 | ||||||
Income taxes |
1,835 | 13,573 | ||||||
Other |
39,781 | 35,532 | ||||||
|
|
|
|
|||||
1,318,773 | 1,273,766 | |||||||
Property and equipment |
2,202,083 | 2,226,903 | ||||||
Accumulated depreciation |
(1,088,591 | ) | (1,083,777 | ) | ||||
|
|
|
|
|||||
1,113,492 | 1,143,126 | |||||||
Goodwill |
1,041,266 | 1,041,266 | ||||||
Intangible assets less accumulated amortization of $40,601 March 31, 2013 and $34,854 December 31, 2012 |
434,020 | 439,767 | ||||||
Assets held for sale |
2,793 | 4,131 | ||||||
Insurance subsidiary investments |
146,985 | 116,424 | ||||||
Other |
220,330 | 219,466 | ||||||
|
|
|
|
|||||
Total assets |
$ | 4,277,659 | $ | 4,237,946 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 193,263 | $ | 210,668 | ||||
Salaries, wages and other compensation |
390,701 | 389,009 | ||||||
Due to third party payors |
34,392 | 35,420 | ||||||
Professional liability risks |
67,859 | 54,088 | ||||||
Other accrued liabilities |
152,241 | 137,204 | ||||||
Long-term debt due within one year |
8,363 | 8,942 | ||||||
|
|
|
|
|||||
846,819 | 835,331 | |||||||
Long-term debt |
1,671,279 | 1,648,706 | ||||||
Professional liability risks |
240,070 | 236,630 | ||||||
Deferred tax liabilities |
10,588 | 9,764 | ||||||
Deferred credits and other liabilities |
213,570 | 214,671 | ||||||
Commitments and contingencies (Note 9) |
||||||||
Equity: |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.25 par value; authorized 175,000 shares; issued 54,047 shares March 31, 2013 and 53,280 shares December 31, 2012 |
13,512 | 13,320 | ||||||
Capital in excess of par value |
1,143,950 | 1,145,922 | ||||||
Accumulated other comprehensive loss |
(248 | ) | (1,882 | ) | ||||
Retained earnings |
101,509 | 98,799 | ||||||
|
|
|
|
|||||
1,258,723 | 1,256,159 | |||||||
Noncontrolling interests |
36,610 | 36,685 | ||||||
|
|
|
|
|||||
Total equity |
1,295,333 | 1,292,844 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 4,277,659 | $ | 4,237,946 | ||||
|
|
|
|
See accompanying notes.
5
KINDRED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 3,473 | $ | 18,642 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
Depreciation and amortization |
52,954 | 48,690 | ||||||
Amortization of stock-based compensation costs |
2,248 | 1,802 | ||||||
Amortization of deferred financing costs |
2,613 | 2,357 | ||||||
Provision for doubtful accounts |
11,266 | 7,496 | ||||||
Deferred income taxes |
(344 | ) | (3,662 | ) | ||||
Impairment charges |
436 | 867 | ||||||
Loss on divestiture of discontinued operations |
1,244 | 1,170 | ||||||
Other |
420 | 277 | ||||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
(67,411 | ) | (57,197 | ) | ||||
Inventories and other assets |
(8,147 | ) | (15,905 | ) | ||||
Accounts payable |
(15,790 | ) | (9,550 | ) | ||||
Income taxes |
12,170 | 31,242 | ||||||
Due to third party payors |
(1,028 | ) | (8,976 | ) | ||||
Other accrued liabilities |
30,729 | (20,678 | ) | |||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
24,833 | (3,425 | ) | |||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Routine capital expenditures |
(22,370 | ) | (22,106 | ) | ||||
Development capital expenditures |
(2,388 | ) | (10,622 | ) | ||||
Acquisitions, net of cash acquired |
| (50,448 | ) | |||||
Acquisition deposit |
| (16,866 | ) | |||||
Sale of assets |
5,060 | 1,110 | ||||||
Purchase of insurance subsidiary investments |
(10,836 | ) | (13,773 | ) | ||||
Sale of insurance subsidiary investments |
10,002 | 14,006 | ||||||
Net change in insurance subsidiary cash and cash equivalents |
(33,096 | ) | (13,123 | ) | ||||
Change in other investments |
319 | 269 | ||||||
Other |
(144 | ) | (749 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(53,453 | ) | (112,302 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from borrowings under revolving credit |
483,500 | 515,400 | ||||||
Repayment of borrowings under revolving credit |
(459,200 | ) | (397,000 | ) | ||||
Repayment of other long-term debt |
(2,666 | ) | (2,666 | ) | ||||
Payment of deferred financing costs |
(202 | ) | (43 | ) | ||||
Distribution made to noncontrolling interests |
(491 | ) | (1,388 | ) | ||||
Issuance of common stock |
4 | | ||||||
Other |
332 | | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
21,277 | 114,303 | ||||||
|
|
|
|
|||||
Change in cash and cash equivalents |
(7,343 | ) | (1,424 | ) | ||||
Cash and cash equivalents at beginning of period |
50,007 | 41,561 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 42,664 | $ | 40,137 | ||||
|
|
|
|
|||||
Supplemental information: |
||||||||
Interest payments |
$ | 13,092 | $ | 12,108 | ||||
Income tax refunds |
9,631 | 13,956 |
See accompanying notes.
6
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
Business
Kindred Healthcare, Inc. is a healthcare services company that through its subsidiaries operates transitional care (TC) hospitals, inpatient rehabilitation hospitals (IRFs), nursing centers, assisted living facilities, a contract rehabilitation services business and a home health and hospice business across the United States (collectively, the Company or Kindred). At March 31, 2013, the Companys hospital division operated 116 TC hospitals (licensed as long-term acute care (LTAC) hospitals under the Medicare program) and six IRFs in 26 states. The Companys nursing center division operated 204 nursing centers and six assisted living facilities in 26 states. The Companys rehabilitation division provided rehabilitation services primarily in hospitals and long-term care settings. The Companys home health and hospice division provided home health, hospice and private duty services from 101 locations in ten states.
In recent years, the Company has completed several transactions related to the divestiture of unprofitable hospitals and nursing centers to improve its future operating results. For accounting purposes, the operating results of these businesses and the losses associated with these transactions have been classified as discontinued operations in the accompanying unaudited condensed consolidated statement of operations for all periods presented. Assets held for sale at March 31, 2013 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 accompanying unaudited condensed consolidated balance sheet. See Note 3 for a summary of discontinued operations.
Recently issued accounting requirements
In February 2013, the Financial Accounting Standards Board (the FASB) amended its authoritative guidance issued in December 2011 related to the deferral of the requirement to present reclassification adjustments out of accumulated other comprehensive income in both the statement in which net income is presented and the statement in which other comprehensive income is presented. The amended provisions require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under United States generally accepted accounting principles to be reclassified to net income in its entirety in the same reporting period. For all other amounts, an entity is required to cross-reference to other disclosures that provide additional details about these amounts. All other requirements of the original June 2011 update were not impacted by the amendment which became effective for all interim and annual reporting periods beginning after December 15, 2012. The adoption of the guidance did not have a material impact on the Companys business, financial position, results of operations or liquidity.
7
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 1 BASIS OF PRESENTATION (Continued)
Equity
The following table sets forth the changes in equity attributable to noncontrolling interests and equity attributable to Kindred stockholders for the three months ended March 31, 2013 and 2012 (in thousands):
For the three months ended March 31, 2013: |
Redeemable noncontrolling interests |
Amounts attributable to Kindred stockholders |
Nonredeemable noncontrolling interests |
Total equity |
||||||||||||
Balance at December 31, 2012 |
$ | | $ | 1,256,159 | $ | 36,685 | $ | 1,292,844 | ||||||||
Comprehensive income: |
||||||||||||||||
Net income |
| 3,057 | 416 | 3,473 | ||||||||||||
Other comprehensive income |
| 1,634 | | 1,634 | ||||||||||||
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|
|
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|
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|
|||||||||
| 4,691 | 416 | 5,107 | |||||||||||||
Issuance of common stock in connection with employee benefit plans |
| 4 | | 4 | ||||||||||||
Shares tendered by employees for statutory tax withholdings upon issuance of common stock |
| (2,810 | ) | | (2,810 | ) | ||||||||||
Income tax provision in connection with the issuance of common stock under employee benefit plans |
| (1,569 | ) | | (1,569 | ) | ||||||||||
Stock-based compensation amortization |
| 2,248 | | 2,248 | ||||||||||||
Distribution made to noncontrolling interests |
| | (491 | ) | (491 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at March 31, 2013 |
$ | | $ | 1,258,723 | $ | 36,610 | $ | 1,295,333 | ||||||||
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|
|
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|
|||||||||
For the three months ended March 31, 2012: |
||||||||||||||||
Balance at December 31, 2011 |
$ | 9,704 | $ | 1,288,921 | $ | 31,620 | $ | 1,320,541 | ||||||||
Comprehensive income: |
||||||||||||||||
Net income |
155 | 18,191 | 296 | 18,487 | ||||||||||||
Other comprehensive income |
| 775 | | 775 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
155 | 18,966 | 296 | 19,262 | |||||||||||||
Shares tendered by employees for statutory tax withholdings upon issuance of common stock |
| (1,796 | ) | | (1,796 | ) | ||||||||||
Income tax provision in connection with the issuance of common stock under employee benefit plans |
| (2,082 | ) | | (2,082 | ) | ||||||||||
Stock-based compensation amortization |
| 1,802 | | 1,802 | ||||||||||||
Distribution made to noncontrolling interests |
(327 | ) | | (1,061 | ) | (1,061 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at March 31, 2012 |
$ | 9,532 | $ | 1,305,811 | $ | 30,855 | $ | 1,336,666 | ||||||||
|
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|
|
|
|
|
|
8
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 1 BASIS OF PRESENTATION (Continued)
Derivative financial instruments
In December 2011, the Company entered into two interest rate swap agreements to hedge its floating interest rate on an aggregate of $225 million of outstanding senior secured term loan facility debt (the Term Loan Facility) entered into in June 2011. The interest rate swaps have an effective date of January 9, 2012, and expire on January 11, 2016. The Company is required to make payments based upon a fixed interest rate of 1.8925% calculated on the notional amount of $225 million. In exchange, the Company will receive interest on $225 million at a variable interest rate that is based upon the three-month London Interbank Offered Rate (LIBOR), subject to a minimum rate of 1.5%. The Company determined the interest rate swaps continue to be effective cash flow hedges at March 31, 2013. The fair value of the interest rate swaps recorded in other accrued liabilities was $1.8 million and $2.6 million at March 31, 2013 and December 31, 2012, respectively.
Other information
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q of Regulation S-X and do not include all of the disclosures normally required by generally accepted accounting principles or those normally required in annual reports on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2012 filed with the Securities and Exchange Commission (the SEC) on Form 10-K. The accompanying condensed consolidated balance sheet at December 31, 2012 was derived from audited consolidated financial statements, but does not include all disclosures required by generally accepted accounting principles.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Companys customary accounting practices. Management believes that financial information included herein reflects all adjustments necessary for a fair presentation of interim results and, except as otherwise disclosed, all such adjustments are of a normal and recurring nature.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles and include amounts based upon the estimates and judgments of management. Actual amounts may differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current period presentation.
NOTE 2 ACQUISITION
In March 2012, the Company acquired the real estate of a previously leased hospital for $50.4 million. Annual rent associated with the hospital aggregated $4.1 million. The fair value of the asset acquired was measured using discounted cash flow methodologies which are considered Level 3 inputs (as described in Note 10).
The purchase price of this hospital resulted from negotiations with the landlord that were based upon both the historical and expected future cash flows of the hospital and real estate values. This acquisition was financed through operating cash flows and borrowings under the Companys revolving credit facility.
9
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 DISCONTINUED OPERATIONS
In accordance with the authoritative guidance for the impairment or disposal of long-lived assets, the divestitures of unprofitable businesses discussed in Note 1 have been accounted for as discontinued operations. Accordingly, the results of operations of these businesses for all periods presented and the losses associated with these transactions have been classified as discontinued operations, net of income taxes, in the accompanying unaudited condensed consolidated statement of operations. At March 31, 2013, the Company held for sale one hospital.
On April 27, 2012, the Company announced that it would not renew seven renewal bundles containing 54 nursing centers (the Expiring Facilities) under operating leases with Ventas, Inc. (Ventas) that expire on April 30, 2013. The Expiring Facilities contain 6,140 licensed nursing center beds and generated revenues of approximately $475 million for the year ended December 31, 2012. The current annual rent for these facilities approximates $57 million. The Company has also entered into an agreement with Ventas to provide Ventas with more flexibility to accelerate the transfer of the Expiring Facilities, as well as to extend the term of the leases as necessary to facilitate these transfers. The Company may be required to pay for additional capital obligations for the Expiring Facilities under the master lease agreements with Ventas. The Company transferred the operations of 19 of the 54 nursing centers to new operators during the three months ended March 31, 2013. The Company reclassified the results of operations and losses associated with the 19 divestitures to discontinued operations, net of income taxes, for all periods presented. The Company will continue to operate the remaining 35 Expiring Facilities and include the Expiring Facilities in its results from continuing operations through the expiration of the lease term, and for such additional time period as required to transfer operations to new operators. When the Company terminates its operations of the remaining Expiring Facilities, these facilities will be reclassified to discontinued operations.
A summary of discontinued operations follows (in thousands):
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Revenues |
$ | 28,505 | $ | 46,733 | ||||
|
|
|
|
|||||
Salaries, wages and benefits |
15,612 | 23,845 | ||||||
Supplies |
1,713 | 2,762 | ||||||
Rent |
3,670 | 5,384 | ||||||
Other operating expenses |
13,530 | 15,966 | ||||||
Other expense |
108 | | ||||||
Impairment charges |
| 19 | ||||||
Depreciation |
1,758 | 1,704 | ||||||
Interest expense |
2 | | ||||||
Investment income |
(8 | ) | (4 | ) | ||||
|
|
|
|
|||||
36,385 | 49,676 | |||||||
|
|
|
|
|||||
Loss from operations before income taxes |
(7,880 | ) | (2,943 | ) | ||||
Income tax benefit |
(3,093 | ) | (1,140 | ) | ||||
|
|
|
|
|||||
Loss from operations |
(4,787 | ) | (1,803 | ) | ||||
Loss on divestiture operations |
(1,244 | ) | (1,170 | ) | ||||
|
|
|
|
|||||
Loss from discontinued operations |
$ | (6,031 | ) | $ | (2,973 | ) | ||
|
|
|
|
10
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 3 DISCONTINUED OPERATIONS (Continued)
The following table sets forth certain discontinued operating data by business segment (in thousands):
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Revenues: |
||||||||
Hospital division |
$ | (56 | ) | $ | 3,785 | |||
Nursing center division |
28,561 | 42,948 | ||||||
|
|
|
|
|||||
$ | 28,505 | $ | 46,733 | |||||
|
|
|
|
|||||
Operating income (loss): |
||||||||
Hospital division |
$ | (673 | ) | $ | (1,746 | ) | ||
Nursing center division |
(1,785 | ) | 5,887 | |||||
|
|
|
|
|||||
$ | (2,458 | ) | $ | 4,141 | ||||
|
|
|
|
|||||
Rent: |
||||||||
Hospital division |
$ | 16 | $ | 375 | ||||
Nursing center division |
3,654 | 5,009 | ||||||
|
|
|
|
|||||
$ | 3,670 | $ | 5,384 | |||||
|
|
|
|
|||||
Depreciation: |
||||||||
Hospital division |
$ | 4 | $ | 257 | ||||
Nursing center division |
1,754 | 1,447 | ||||||
|
|
|
|
|||||
$ | 1,758 | $ | 1,704 | |||||
|
|
|
|
A summary of the net assets held for sale follows (in thousands):
March 31, 2013 |
December 31, 2012 |
|||||||
Long-term assets: |
||||||||
Property and equipment, net |
$ | 2,793 | $ | 4,126 | ||||
Other |
| 5 | ||||||
|
|
|
|
|||||
2,793 | 4,131 | |||||||
Current liabilities (included in other accrued liabilities) |
(29 | ) | | |||||
|
|
|
|
|||||
$ | 2,764 | $ | 4,131 | |||||
|
|
|
|
11
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4 REVENUES
Revenues are recorded based upon estimated amounts due from patients and third party payors for healthcare services provided, including anticipated settlements under reimbursement agreements with Medicare, Medicaid, Medicare Advantage and other third party payors.
A summary of revenues by payor type follows (in thousands):
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Medicare |
$ | 675,050 | $ | 665,509 | ||||
Medicaid |
243,281 | 246,216 | ||||||
Medicare Advantage |
116,880 | 111,508 | ||||||
Other |
602,639 | 598,113 | ||||||
|
|
|
|
|||||
1,637,850 | 1,621,346 | |||||||
Eliminations |
(82,942 | ) | (83,415 | ) | ||||
|
|
|
|
|||||
$ | 1,554,908 | $ | 1,537,931 | |||||
|
|
|
|
NOTE 5 EARNINGS PER SHARE
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 unvested restricted stock that entitles the holder to receive nonforfeitable dividends before vesting be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method.
12
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 5 EARNINGS PER SHARE (Continued)
A computation of earnings per common share follows (in thousands, except per share amounts):
Three months ended March 31, | ||||||||||||||||
2013 | 2012 | |||||||||||||||
Basic | Diluted | Basic | Diluted | |||||||||||||
Earnings: |
||||||||||||||||
Amounts attributable to Kindred stockholders: |
||||||||||||||||
Income from continuing operations: |
||||||||||||||||
As reported in Statement of Operations |
$ | 9,088 | $ | 9,088 | $ | 21,164 | $ | 21,164 | ||||||||
Allocation to participating unvested restricted stockholders |
(256 | ) | (256 | ) | (289 | ) | (289 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Available to common stockholders |
$ | 8,832 | $ | 8,832 | $ | 20,875 | $ | 20,875 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Discontinued operations, net of income taxes: |
||||||||||||||||
Loss from operations: |
||||||||||||||||
As reported in Statement of Operations |
$ | (4,787 | ) | $ | (4,787 | ) | $ | (1,803 | ) | $ | (1,803 | ) | ||||
Allocation to participating unvested restricted stockholders |
135 | 135 | 25 | 25 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Available to common stockholders |
$ | (4,652 | ) | $ | (4,652 | ) | $ | (1,778 | ) | $ | (1,778 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Loss on divestiture of operations: |
||||||||||||||||
As reported in Statement of Operations |
$ | (1,244 | ) | $ | (1,244 | ) | $ | (1,170 | ) | $ | (1,170 | ) | ||||
Allocation to participating unvested restricted stockholders |
35 | 35 | 16 | 16 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Available to common stockholders |
$ | (1,209 | ) | $ | (1,209 | ) | $ | (1,154 | ) | $ | (1,154 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Loss from discontinued operations: |
||||||||||||||||
As reported in Statement of Operations |
$ | (6,031 | ) | $ | (6,031 | ) | $ | (2,973 | ) | $ | (2,973 | ) | ||||
Allocation to participating unvested restricted stockholders |
170 | 170 | 41 | 41 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Available to common stockholders |
$ | (5,861 | ) | $ | (5,861 | ) | $ | (2,932 | ) | $ | (2,932 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net income: |
||||||||||||||||
As reported in Statement of Operations |
$ | 3,057 | $ | 3,057 | $ | 18,191 | $ | 18,191 | ||||||||
Allocation to participating unvested restricted stockholders |
(86 | ) | (86 | ) | (248 | ) | (248 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Available to common stockholders |
$ | 2,971 | $ | 2,971 | $ | 17,943 | $ | 17,943 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Shares used in the computation: |
||||||||||||||||
Weighted average shares outstandingbasic computation |
52,062 | 52,062 | 51,603 | 51,603 | ||||||||||||
|
|
|
|
|||||||||||||
Dilutive effect of employee stock options |
21 | 35 | ||||||||||||||
|
|
|
|
|||||||||||||
Adjusted weighted average shares outstandingdiluted computation |
52,083 | 51,638 | ||||||||||||||
|
|
|
|
|||||||||||||
Earnings per common share: |
||||||||||||||||
Income from continuing operations |
$ | 0.17 | $ | 0.17 | $ | 0.40 | $ | 0.40 | ||||||||
Discontinued operations: |
||||||||||||||||
Loss from operations |
(0.09 | ) | (0.09 | ) | (0.03 | ) | (0.03 | ) | ||||||||
Loss on divestiture of operations |
(0.02 | ) | (0.02 | ) | (0.02 | ) | (0.02 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from discontinued operations |
(0.11 | ) | (0.11 | ) | (0.05 | ) | (0.05 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 0.06 | $ | 0.06 | $ | 0.35 | $ | 0.35 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Number of antidilutive stock options excluded from shares used in the diluted earnings per common share computation |
1,274 | 2,562 |
13
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 6 BUSINESS SEGMENT DATA
The Company is organized into four operating divisions: the hospital division, the nursing center division, the rehabilitation division and the home health and hospice division. Based upon the authoritative guidance for business segments, the operating divisions represent five reportable operating segments, including (1) hospitals, (2) nursing centers, (3) skilled nursing rehabilitation services, (4) hospital rehabilitation services and (5) home health and hospice services. These reportable operating segments are consistent with information used by the Companys President and Chief Operating Officer to assess performance and allocate resources. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. Prior period segment information has been reclassified to conform with the current period presentation.
For segment purposes, the Company defines operating income as earnings before interest, income taxes, depreciation, amortization and rent. Segment operating income reported for each of the Companys operating segments excludes impairment charges, transaction costs and the allocation of corporate overhead.
On January 1, 2013, the Company transferred the operations of its hospital-based sub-acute unit business from the hospital division to the nursing center division. Historical amounts have been reclassified to conform with the current period presentation.
Segment operating income for the three months ended March 31, 2013 included one-time bonus costs paid to approximately 50,000 employees who do not participate in the Companys incentive compensation program of $25.9 million (hospital division $8.8 million, nursing center division $9.7 million, rehabilitation division $6.3 million (skilled nursing rehabilitation services $5.0 million and hospital rehabilitation services $1.3 million), home health and hospice division $0.8 million and corporate $0.3 million).
Segment operating income for the hospital division for the three months ended March 31, 2013 also included employee retention costs of $0.3 million incurred in connection with the planned divestiture of 17 non-strategic facilities.
Segment operating income for the nursing center division for the three months ended March 31, 2013 also included employee retention costs of $0.4 million incurred in connection with the nonrenewal of 54 nursing centers leased from Ventas.
Segment operating income for the hospital division for the three months ended March 31, 2012 included severance costs of $2.0 million and other costs of $0.1 million incurred in connection with the closing of a regional office.
14
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 6 BUSINESS SEGMENT DATA (Continued)
The following table sets forth certain data by business segment (in thousands):
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Revenues: |
||||||||
Hospital division |
$ | 748,214 | $ | 749,383 | ||||
Nursing center division |
502,703 | 512,148 | ||||||
Rehabilitation division: |
||||||||
Skilled nursing rehabilitation services |
260,789 | 257,014 | ||||||
Hospital rehabilitation services |
74,523 | 74,369 | ||||||
|
|
|
|
|||||
335,312 | 331,383 | |||||||
Home health and hospice division |
51,621 | 28,432 | ||||||
|
|
|
|
|||||
1,637,850 | 1,621,346 | |||||||
Eliminations: |
||||||||
Skilled nursing rehabilitation services |
(52,889 | ) | (53,612 | ) | ||||
Hospital rehabilitation services |
(27,994 | ) | (28,161 | ) | ||||
Nursing centers |
(2,059 | ) | (1,642 | ) | ||||
|
|
|
|
|||||
(82,942 | ) | (83,415 | ) | |||||
|
|
|
|
|||||
$ | 1,554,908 | $ | 1,537,931 | |||||
|
|
|
|
|||||
Income from continuing operations: |
||||||||
Operating income (loss): |
||||||||
Hospital division |
$ | 161,819 | $ | 161,826 | ||||
Nursing center division |
51,178 | 63,906 | ||||||
Rehabilitation division: |
||||||||
Skilled nursing rehabilitation services |
15,278 | 14,323 | ||||||
Hospital rehabilitation services |
18,132 | 16,116 | ||||||
|
|
|
|
|||||
33,410 | 30,439 | |||||||
Home health and hospice division |
2,786 | 2,341 | ||||||
Corporate: |
||||||||
Overhead |
(45,582 | ) | (42,728 | ) | ||||
Insurance subsidiary |
(509 | ) | (482 | ) | ||||
|
|
|
|
|||||
(46,091 | ) | (43,210 | ) | |||||
Impairment charges |
(436 | ) | (848 | ) | ||||
Transaction costs |
(2,285 | ) | (485 | ) | ||||
|
|
|
|
|||||
Operating income |
200,381 | 213,969 | ||||||
Rent |
(105,978 | ) | (104,313 | ) | ||||
Depreciation and amortization |
(51,196 | ) | (46,986 | ) | ||||
Interest, net |
(28,083 | ) | (26,290 | ) | ||||
|
|
|
|
|||||
Income from continuing operations before income taxes |
15,124 | 36,380 | ||||||
Provision for income taxes |
5,620 | 14,765 | ||||||
|
|
|
|
|||||
$ | 9,504 | $ | 21,615 | |||||
|
|
|
|
15
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 6 BUSINESS SEGMENT DATA (Continued)
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Rent: |
||||||||
Hospital division |
$ | 53,148 | $ | 53,151 | ||||
Nursing center division |
49,766 | 48,451 | ||||||
Rehabilitation division: |
||||||||
Skilled nursing rehabilitation services |
1,235 | 1,440 | ||||||
Hospital rehabilitation services |
17 | 78 | ||||||
|
|
|
|
|||||
1,252 | 1,518 | |||||||
Home health and hospice division |
1,186 | 615 | ||||||
Corporate |
626 | 578 | ||||||
|
|
|
|
|||||
$ | 105,978 | $ | 104,313 | |||||
|
|
|
|
|||||
Depreciation and amortization: |
||||||||
Hospital division |
$ | 23,941 | $ | 22,346 | ||||
Nursing center division |
12,720 | 11,262 | ||||||
Rehabilitation division: |
||||||||
Skilled nursing rehabilitation services |
3,112 | 2,660 | ||||||
Hospital rehabilitation services |
2,331 | 2,324 | ||||||
|
|
|
|
|||||
5,443 | 4,984 | |||||||
Home health and hospice division |
1,526 | 898 | ||||||
Corporate |
7,566 | 7,496 | ||||||
|
|
|
|
|||||
$ | 51,196 | $ | 46,986 | |||||
|
|
|
|
|||||
Capital expenditures, excluding acquisitions (including discontinued operations): |
||||||||
Hospital division: |
||||||||
Routine |
$ | 10,271 | $ | 10,345 | ||||
Development |
2,388 | 9,949 | ||||||
|
|
|
|
|||||
12,659 | 20,294 | |||||||
Nursing center division: |
||||||||
Routine |
5,819 | 4,229 | ||||||
Development |
| 673 | ||||||
|
|
|
|
|||||
5,819 | 4,902 | |||||||
Rehabilitation division: |
||||||||
Skilled nursing rehabilitation services: |
||||||||
Routine |
605 | 326 | ||||||
Development |
| | ||||||
|
|
|
|
|||||
605 | 326 | |||||||
Hospital rehabilitation services: |
||||||||
Routine |
32 | 46 | ||||||
Development |
| | ||||||
|
|
|
|
|||||
32 | 46 | |||||||
Home health and hospice division: |
||||||||
Routine |
195 | 124 | ||||||
Development |
| | ||||||
|
|
|
|
|||||
195 | 124 | |||||||
Corporate: |
||||||||
Routine: |
||||||||
Information systems |
5,289 | 6,864 | ||||||
Other |
159 | 172 | ||||||
|
|
|
|
|||||
$ | 24,758 | $ | 32,728 | |||||
|
|
|
|
16
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 6 BUSINESS SEGMENT DATA (Continued)
March 31, 2013 |
December 31, 2012 |
|||||||
Assets at end of period: |
||||||||
Hospital division |
$ | 2,148,491 | $ | 2,129,303 | ||||
Nursing center division |
619,505 | 626,016 | ||||||
Rehabilitation division: |
||||||||
Skilled nursing rehabilitation services |
354,590 | 336,445 | ||||||
Hospital rehabilitation services |
338,874 | 340,668 | ||||||
|
|
|
|
|||||
693,464 | 677,113 | |||||||
Home health and hospice division |
204,457 | 202,156 | ||||||
Corporate |
611,742 | 603,358 | ||||||
|
|
|
|
|||||
$ | 4,277,659 | $ | 4,237,946 | |||||
|
|
|
|
|||||
Goodwill: |
||||||||
Hospital division |
$ | 747,065 | $ | 747,065 | ||||
Rehabilitation division: |
||||||||
Skilled nursing rehabilitation services |
| | ||||||
Hospital rehabilitation services |
168,019 | 168,019 | ||||||
|
|
|
|
|||||
168,019 | 168,019 | |||||||
Home health and hospice division |
126,182 | 126,182 | ||||||
|
|
|
|
|||||
$ | 1,041,266 | $ | 1,041,266 | |||||
|
|
|
|
NOTE 7 INSURANCE RISKS
The Company insures a substantial portion of its professional liability risks and workers compensation risks through its wholly owned limited purpose insurance subsidiary. Provisions for loss for these risks are based upon managements best available information including actuarially determined estimates.
The allowance for professional liability risks includes an estimate of the expected cost to settle reported claims and an amount, based upon past experiences, for losses incurred but not reported. These liabilities are necessarily based upon estimates and, while management believes that the provision for loss is adequate, the ultimate liability may be in excess of, or less than, the amounts recorded. To the extent that expected ultimate claims costs vary from historical provisions for loss, future earnings will be charged or credited.
The provision for loss for insurance risks, including the cost of coverage maintained with unaffiliated commercial insurance carriers, follows (in thousands):
Three months ended March 31, |
||||||||
2013 | 2012 | |||||||
Professional liability: |
||||||||
Continuing operations |
$ | 21,605 | $ | 17,951 | ||||
Discontinued operations |
3,860 | 798 | ||||||
Workers compensation: |
||||||||
Continuing operations |
$ | 14,894 | $ | 14,319 | ||||
Discontinued operations |
578 | 652 |
17
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 7 INSURANCE RISKS (Continued)
A summary of the assets and liabilities related to insurance risks included in the accompanying unaudited condensed consolidated balance sheet follows (in thousands):
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
Professional liability |
Workers compensation |
Total | Professional liability |
Workers compensation |
Total | |||||||||||||||||||
Assets: |
||||||||||||||||||||||||
Current: |
||||||||||||||||||||||||
Insurance subsidiary investments |
$ | 55,196 | $ | 35,861 | $ | 91,057 | $ | 53,133 | $ | 33,035 | $ | 86,168 | ||||||||||||
Reinsurance recoverables |
4,116 | | 4,116 | 5,382 | | 5,382 | ||||||||||||||||||
Other |
| 150 | 150 | | 150 | 150 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
59,312 | 36,011 | 95,323 | 58,515 | 33,185 | 91,700 | |||||||||||||||||||
Non-current: |
||||||||||||||||||||||||
Insurance subsidiary investments |
71,685 | 75,300 | 146,985 | 46,546 | 69,878 | 116,424 | ||||||||||||||||||
Reinsurance and other recoverables |
63,741 | 73,965 | 137,706 | 58,025 | 76,794 | 134,819 | ||||||||||||||||||
Deposits |
4,238 | 1,574 | 5,812 | 3,977 | 1,574 | 5,551 | ||||||||||||||||||
Other |
| 40 | 40 | | 40 | 40 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
139,664 | 150,879 | 290,543 | 108,548 | 148,286 | 256,834 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 198,976 | $ | 186,890 | $ | 385,866 | $ | 167,063 | $ | 181,471 | $ | 348,534 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities: |
||||||||||||||||||||||||
Allowance for insurance risks: |
||||||||||||||||||||||||
Current |
$ | 67,859 | $ | 39,978 | $ | 107,837 | $ | 54,088 | $ | 37,096 | $ | 91,184 | ||||||||||||
Non-current |
240,070 | 154,742 | 394,812 | 236,630 | 156,265 | 392,895 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 307,929 | $ | 194,720 | $ | 502,649 | $ | 290,718 | $ | 193,361 | $ | 484,079 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for loss for professional liability risks retained by the Companys limited purpose insurance subsidiary have been discounted based upon actuarial estimates of claim payment patterns using a discount rate of 1% to 5% depending upon the policy year. The discount rate was 1% for the 2013 and 2012 policy years. The discount rates are based upon the risk free interest rate for the respective year. Amounts equal to the discounted loss provision are funded annually. The Company does not fund the portion of professional liability risks related to estimated claims that have been incurred but not reported. Accordingly, these liabilities are not discounted. If the Company did not discount any of the allowances for professional liability risks, these balances would have approximated $310.6 million at March 31, 2013 and $293.3 million at December 31, 2012.
Provisions for loss for workers compensation risks retained by the Companys limited purpose insurance subsidiary are not discounted and amounts equal to the loss provision are funded annually.
NOTE 8 INSURANCE SUBSIDIARY INVESTMENTS
The Company maintains investments, consisting principally of cash and cash equivalents, debt securities, equities and certificates of deposit for the payment of claims and expenses related to professional liability and workers compensation risks. These investments have been categorized as available-for-sale and are reported at fair value.
18
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 8 INSURANCE SUBSIDIARY INVESTMENTS (Continued)
The cost for equities, amortized cost for debt securities and estimated fair value of the Companys insurance subsidiary investments follows (in thousands):
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||||||||||
Cost |
Unrealized gains |
Unrealized losses |
Fair value |
Cost |
Unrealized gains |
Unrealized losses |
Fair value |
|||||||||||||||||||||||||
Cash and cash equivalents (a) |
$ | 173,258 | $ | | $ | | $ | 173,258 | $ | 140,162 | $ | | $ | | $ | 140,162 | ||||||||||||||||
Debt securities: |
||||||||||||||||||||||||||||||||
Debt securities issued by U.S. government agencies |
19,919 | 74 | (1 | ) | 19,992 | 16,624 | 89 | | 16,713 | |||||||||||||||||||||||
Corporate bonds |
19,538 | 85 | (20 | ) | 19,603 | 21,352 | 118 | (16 | ) | 21,454 | ||||||||||||||||||||||
U.S. Treasury notes |
5,666 | 3 | | 5,669 | 6,131 | 3 | | 6,134 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
45,123 | 162 | (21 | ) | 45,264 | 44,107 | 210 | (16 | ) | 44,301 | |||||||||||||||||||||||
Equities by industry: |
||||||||||||||||||||||||||||||||
Consumer |
2,171 | 986 | | 3,157 | 2,171 | 599 | (15 | ) | 2,755 | |||||||||||||||||||||||
Industrials |
2,039 | 532 | (27 | ) | 2,544 | 2,039 | 331 | (53 | ) | 2,317 | ||||||||||||||||||||||
Healthcare |
1,474 | 429 | | 1,903 | 1,474 | 179 | (14 | ) | 1,639 | |||||||||||||||||||||||
Technology |
1,482 | 374 | | 1,856 | 1,482 | 268 | (70 | ) | 1,680 | |||||||||||||||||||||||
Financial services |
1,419 | 466 | (61 | ) | 1,824 | 1,419 | 284 | (86 | ) | 1,617 | ||||||||||||||||||||||
Other |
2,411 | 1,041 | (70 | ) | 3,382 | 2,554 | 706 | (243 | ) | 3,017 | ||||||||||||||||||||||
|
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|
|
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|
|
|
|||||||||||||||||
10,996 | 3,828 | (158 | ) | 14,666 | 11,139 | 2,367 | (481 | ) | 13,025 | |||||||||||||||||||||||
Certificates of deposit |
4,850 | 4 | | 4,854 | 5,101 | 3 | | 5,104 | ||||||||||||||||||||||||
|
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|
|
|
|
|
|
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|
|
|||||||||||||||||
$ | 234,227 | $ | 3,994 | $ | (179 | ) | $ | 238,042 | $ | 200,509 | $ | 2,580 | $ | (497 | ) | $ | 202,592 | |||||||||||||||
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(a) | Includes $3.1 million and $3.7 million of money market funds at March 31, 2013 and December 31, 2012, respectively. |
The Companys investment policy governing insurance subsidiary investments precludes the investment portfolio managers from selling any security at a loss without prior authorization from the Company. The investment managers also limit the exposure to any one issue, issuer or type of investment. The Company intends, and has the ability, to hold insurance subsidiary investments for a long duration without the necessity of selling securities to fund the underwriting needs of its insurance subsidiary. This ability to hold securities allows sufficient time for recovery of temporary declines in the market value of equity securities and the par value of debt securities as of their stated maturity date.
The Company considered the severity and duration of its unrealized losses at March 31, 2013 and recognized a $0.1 million pretax-other-than-temporary impairment in the first quarter of 2013 for various investments held in its insurance subsidiary investment portfolio. The Company considered the severity and duration of its unrealized losses at March 31, 2012 for various investments held in its insurance subsidiary investment portfolio and determined that these unrealized losses were temporary and did not record any impairment losses related to these investments.
As a result of deterioration in professional liability and workers compensation underwriting results of the Companys limited purpose insurance subsidiary in 2012 and 2011, the Company made capital contributions of $14.2 million and $8.6 million during the three months ended March 31, 2013 and 2012, respectively, to its limited purpose insurance subsidiary. These transactions were completed in accordance with applicable regulations. Neither capital contribution had any impact on earnings.
19
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 9 CONTINGENCIES
Management continually evaluates contingencies based upon the best available information. In addition, allowances for losses are provided currently for disputed items that have continuing significance, such as certain third party reimbursements and deductions that continue to be claimed in current cost reports and tax returns.
Management believes that allowances for losses have been provided to the extent necessary and that its assessment of contingencies is reasonable.
Principal contingencies are described below:
RevenuesCertain third party payments are subject to examination by agencies administering the various reimbursement programs. The Company is contesting certain issues raised in audits of prior year cost reports.
Professional liability risksThe Company has provided for losses for professional liability risks based upon managements best available information including actuarially determined estimates. Ultimate claims costs may differ from the provisions for loss. See Note 7.
Income taxesThe Company is subject to various federal and state income tax audits in the ordinary course of business. Such audits could result in increased tax payments, interest and penalties.
LitigationThe Company is a party to various legal actions (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of business. The Company cannot predict the ultimate outcome of pending litigation and regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines and other penalties. The U.S. Department of Justice (the DOJ), the Centers for Medicare and Medicaid Services (CMS) or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Companys businesses in the future which may, either individually or in the aggregate, have a material adverse effect on the Companys business, financial position, results of operations and liquidity. See Note 12.
Other indemnificationsIn the ordinary course of business, the Company enters into contracts containing standard indemnification provisions and indemnifications specific to a transaction, such as a disposal of an operating facility. These indemnifications may cover claims related to employment-related matters, governmental regulations, environmental issues and tax matters, as well as patient, third party payor, supplier and contractual relationships. Obligations under these indemnities generally are initiated by a breach of the terms of a contract or by a third party claim or event.
20
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 10 FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The Company follows the provisions of the authoritative guidance for fair value measurements, which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance related to fair value measures establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain U.S. Treasury, other U.S. Government and agency asset backed debt securities that are highly liquid and are actively traded in over-the-counter markets. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
21
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 10 FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
The Companys assets and liabilities measured at fair value on a recurring and non-recurring basis and any associated losses are summarized below (in thousands):
Fair value measurements | Assets/liabilities at fair value |
Total losses |
||||||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||||||
March 31, 2013: |
||||||||||||||||||||
Recurring: |
||||||||||||||||||||
Assets: |
||||||||||||||||||||
Available-for-sale debt securities: |
||||||||||||||||||||
Debt securities issued by U.S. government agencies |
$ | | $ | 19,992 | $ | | $ | 19,992 | $ | | ||||||||||
Corporate bonds |
| 19,603 | | 19,603 | | |||||||||||||||
U.S. Treasury notes |
5,669 | | | 5,669 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
5,669 | 39,595 | | 45,264 | | ||||||||||||||||
Available-for-sale equity securities |
14,666 | | | 14,666 | | |||||||||||||||
Money market funds |
6,527 | | | 6,527 | | |||||||||||||||
Certificates of deposit |
| 4,854 | | 4,854 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total available-for-sale investments |
26,862 | 44,449 | | 71,311 | | |||||||||||||||
Deposits held in money market funds |
347 | 4,238 | | 4,585 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 27,209 | $ | 48,687 | $ | | $ | 75,896 | $ | | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities: |
||||||||||||||||||||
Interest rate swaps |
$ | | $ | (1,804 | ) | $ | | $ | (1,804 | ) | $ | | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-recurring: |
||||||||||||||||||||
Assets: |
||||||||||||||||||||
Hospital available for sale |
$ | | $ | | $ | 3,250 | $ | 3,250 | $ | (1,250 | ) | |||||||||
Property and equipment |
| | 29 | 29 | (436 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | | $ | | $ | 3,279 | $ | 3,279 | $ | (1,686 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities |
$ | | $ | | $ | | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2012: |
||||||||||||||||||||
Recurring: |
||||||||||||||||||||
Assets: |
||||||||||||||||||||
Available-for-sale debt securities: |
||||||||||||||||||||
Debt securities issued by U.S. government agencies |
$ | | $ | 16,713 | $ | | $ | 16,713 | $ | | ||||||||||
Corporate bonds |
| 21,454 | | 21,454 | | |||||||||||||||
U.S. Treasury notes |
6,134 | | | 6,134 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
6,134 | 38,167 | | 44,301 | | ||||||||||||||||
Available-for-sale equity securities |
13,025 | | | 13,025 | | |||||||||||||||
Money market funds |
7,438 | | | 7,438 | | |||||||||||||||
Certificates of deposit |
| 5,104 | | 5,104 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total available-for-sale investments |
26,597 | 43,271 | | 69,868 | | |||||||||||||||
Deposits held in money market funds |
347 | 3,978 | | 4,325 | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 26,944 | $ | 47,249 | $ | | $ | 74,193 | $ | | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities: |
||||||||||||||||||||
Interest rate swaps |
$ | | $ | (2,649 | ) | $ | | $ | (2,649 | ) | $ | | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Non-recurring: |
||||||||||||||||||||
Assets: |
||||||||||||||||||||
Hospital available for sale |
$ | | $ | | $ | 105 | $ | 105 | $ | (569 | ) | |||||||||
Property and equipment |
| | 286 | 286 | (3,630 | ) | ||||||||||||||
Goodwillskilled nursing rehabilitation services |
| | | | (107,899 | ) | ||||||||||||||
Intangible assetsMedicare license |
| | | | (2,530 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | | $ | | $ | 391 | $ | 391 | $ | (114,628 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities |
$ | | $ | | $ | | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|
|
22
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 10 FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Recurring measurements
The Companys available-for-sale investments held by its limited purpose insurance subsidiary consist of debt securities, equities, money market funds and certificates of deposit. These available-for-sale investments and the insurance subsidiarys cash and cash equivalents of $170.2 million as of March 31, 2013 and $136.5 million as of December 31, 2012, classified as insurance subsidiary investments, are maintained for the payment of claims and expenses related to professional liability and workers compensation risks.
The Company also has available-for-sale investments totaling $3.4 million as of March 31, 2013 and $3.7 million as of December 31, 2012 related to a deferred compensation plan that is maintained for certain of the Companys current and former employees.
The fair value of actively traded debt and equity securities and money market funds are based upon quoted market prices and are generally classified as Level 1. The fair value of inactively traded debt securities and certificates of deposit are based upon either quoted market prices of similar securities or observable inputs such as interest rates using either a market or income valuation approach and are generally classified as Level 2. The Companys investment advisors obtain and review pricing for each security. The Company is responsible for the determination of fair value and as such the Company reviews the pricing information from its advisors in determining reasonable estimates of fair value. Based upon the Companys internal review procedures, there were no adjustments to the prices during the three months ended March 31, 2013 or March 31, 2012.
The Companys deposits held in money market funds consist primarily of cash and cash equivalents held for general corporate purposes.
The fair value of the derivative liability associated with the interest rate swaps is estimated using industry-standard valuation models, which are Level 2 measurements. Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs, including interest rate curves.
The following table presents the carrying amounts and estimated fair values of the Companys financial instruments. The carrying value is equal to fair value for financial instruments that are based upon quoted market prices or current market rates. The Companys long-term debt is based upon Level 2 inputs.
March 31, 2013 | December 31, 2012 | |||||||||||||||
(In thousands) |
Carrying value |
Fair value |
Carrying value |
Fair value |
||||||||||||
Cash and cash equivalents |
$ | 42,664 | $ | 42,664 | $ | 50,007 | $ | 50,007 | ||||||||
Cashrestricted |
5,263 | 5,263 | 5,197 | 5,197 | ||||||||||||
Insurance subsidiary investments |
238,042 | 238,042 | 202,592 | 202,592 | ||||||||||||
Tax refund escrow investments |
207 | 207 | 207 | 207 | ||||||||||||
Long-term debt, including amounts due within one year (excluding capital lease obligations totaling $26,000 and $0.6 million at March 31, 2013 and December 31, 2012, respectively) |
1,679,616 | 1,687,614 | 1,657,039 | 1,630,649 |
23
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 10 FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)
Non-recurring measurements
In the first quarter of 2013, the Company reduced the fair value of a hospital held for sale based upon a pending offer, which resulted in a pretax loss of $1.3 million recorded in discontinued operations. The primary reason for the reduction was to compensate for certain real estate restrictions associated with the property. The fair value of the asset was measured using a Level 3 input of the pending offer.
CMS issued final rules which, among other things, significantly reduced Medicare payments to nursing centers and changed the reimbursement for the provision for group rehabilitation therapy services to Medicare beneficiaries beginning October 1, 2011 (the 2011 CMS Rules). The Company recorded pretax impairment charges aggregating $0.4 million in the first quarter of 2013 for property and equipment expenditures in the nursing center asset groups that were determined to be impaired by the 2011 CMS Rules. These charges reflected the amount by which the carrying value of certain assets exceeded their estimated fair value. The fair value of property and equipment was measured using Level 3 inputs such as replacement costs factoring in depreciation, economic obsolesce and inflation trends.
NOTE 11 CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The accompanying unaudited condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The Companys private placement of $550 million of senior notes due 2019 (the Notes) issued on June 1, 2011 are fully and unconditionally guaranteed, subject to certain customary release provisions, by substantially all of the Companys domestic 100% owned subsidiaries. The equity method has been used with respect to the parent companys investment in subsidiaries.
24
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 11 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
The following unaudited condensed consolidating financial data present the financial position of the parent company/issuer, the guarantor subsidiaries and the non-guarantor subsidiaries as of March 31, 2013 and December 31, 2012, and the respective results of operations and cash flows for the three months ended March 31, 2013 and March 31, 2012.
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three months ended March 31, 2013 | ||||||||||||||||||||
(In thousands) |
Parent company/ issuer |
Guarantor subsidiaries |
Non-guarantor subsidiaries |
Consolidating and eliminating adjustments |
Consolidated | |||||||||||||||
Revenues |
$ | | $ | 1,455,428 | $ | 128,501 | $ | (29,021 | ) | $ | 1,554,908 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Salaries, wages and benefits |
3 | 898,450 | 45,320 | | 943,773 | |||||||||||||||
Supplies |
| 96,965 | 8,843 | | 105,808 | |||||||||||||||
Rent |
| 97,950 | 8,028 | | 105,978 | |||||||||||||||
Other operating expenses |
| 282,144 | 52,380 | (29,021 | ) | 305,503 | ||||||||||||||
Other income |
| (993 | ) | | | (993 | ) | |||||||||||||
Impairment charges |
| 436 | | | 436 | |||||||||||||||
Depreciation and amortization |
| 48,082 | 3,114 | | 51,196 | |||||||||||||||
Management fees |
| (3,059 | ) | 3,059 | | | ||||||||||||||
Intercompany interest (income) expense from affiliates |
(26,874 | ) | 23,218 | 3,656 | | | ||||||||||||||
Interest expense (income) |
27,033 | (3,955 | ) | 5,096 | | 28,174 | ||||||||||||||
Investment income |
| (42 | ) | (49 | ) | | (91 | ) | ||||||||||||
Equity in net income of consolidating affiliates |
(3,126 | ) | | | 3,126 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
(2,964 | ) | 1,439,196 | 129,447 | (25,895 | ) | 1,539,784 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations before income taxes |
2,964 | 16,232 | (946 | ) | (3,126 | ) | 15,124 | |||||||||||||
Provision (benefit) for income taxes |
(93 | ) | 5,587 | 126 | | 5,620 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
3,057 | 10,645 | (1,072 | ) | (3,126 | ) | 9,504 | |||||||||||||
Discontinued operations, net of income taxes: |
||||||||||||||||||||
Loss from operations |
| (4,787 | ) | | | (4,787 | ) | |||||||||||||
Loss on divestiture of operations |
| (1,244 | ) | | | (1,244 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss from discontinued operations |
| (6,031 | ) | | | (6,031 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
3,057 | 4,614 | (1,072 | ) | (3,126 | ) | 3,473 | |||||||||||||
Earnings attributable to noncontrolling interests |
| | (416 | ) | | (416 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) attributable to Kindred |
$ | 3,057 | $ | 4,614 | $ | (1,488 | ) | $ | (3,126 | ) | $ | 3,057 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 4,691 | $ | 4,614 | $ | 54 | $ | (4,252 | ) | $ | 5,107 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income (loss) attributable to Kindred |
$ | 4,691 | $ | 4,614 | $ | (362 | ) | $ | (4,252 | ) | $ | 4,691 | ||||||||
|
|
|
|
|
|
|
|
|
|
25
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 11 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss) (Continued)
Three months ended March 31, 2012 | ||||||||||||||||||||
(In thousands) |
Parent company/ issuer |
Guarantor subsidiaries |
Non-guarantor subsidiaries |
Consolidating and eliminating adjustments |
Consolidated | |||||||||||||||
Revenues |
$ | | $ | 1,436,195 | $ | 126,848 | $ | (25,112 | ) | $ | 1,537,931 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Salaries, wages and benefits |
69 | 877,470 | 43,820 | | 921,359 | |||||||||||||||
Supplies |
| 98,536 | 9,997 | | 108,533 | |||||||||||||||
Rent |
| 96,400 | 7,913 | | 104,313 | |||||||||||||||
Other operating expenses |
3 | 271,560 | 49,914 | (25,112 | ) | 296,365 | ||||||||||||||
Other income |
| (3,143 | ) | | | (3,143 | ) | |||||||||||||
Impairment charges |
| 848 | | | 848 | |||||||||||||||
Depreciation and amortization |
| 43,605 | 3,381 | | 46,986 | |||||||||||||||
Management fees |
| (3,348 | ) | 3,348 | | | ||||||||||||||
Intercompany interest (income) expense from affiliates |
(27,907 | ) | 24,277 | 3,630 | | | ||||||||||||||
Interest expense (income) |
26,293 | (4,762 | ) | 5,047 | | 26,578 | ||||||||||||||
Investment income |
| (23 | ) | (265 | ) | | (288 | ) | ||||||||||||
Equity in net income of consolidating affiliates |
(17,218 | ) | | | 17,218 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
(18,760 | ) | 1,401,420 | 126,785 | (7,894 | ) | 1,501,551 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income from continuing operations before income taxes |
18,760 | 34,775 | 63 | (17,218 | ) | 36,380 | ||||||||||||||
Provision for income taxes |
569 | 14,089 | 107 | | 14,765 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) from continuing operations |
18,191 | 20,686 | (44 | ) | (17,218 | ) | 21,615 | |||||||||||||
Discontinued operations, net of income taxes: |
||||||||||||||||||||
Loss from operations |
| (1,803 | ) | | | (1,803 | ) | |||||||||||||
Loss on divestiture of operations |
| (1,170 | ) | | | (1,170 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss from discontinued operations |
| (2,973 | ) | | | (2,973 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
18,191 | 17,713 | (44 | ) | (17,218 | ) | 18,642 | |||||||||||||
Earnings attributable to noncontrolling interests |
| | (451 | ) | | (451 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) attributable to Kindred |
$ | 18,191 | $ | 17,713 | $ | (495 | ) | $ | (17,218 | ) | $ | 18,191 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 18,966 | $ | 17,713 | $ | 688 | $ | (17,950 | ) | $ | 19,417 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to Kindred |
$ | 18,966 | $ | 17,713 | $ | 237 | $ | (17,950 | ) | $ | 18,966 | |||||||||
|
|
|
|
|
|
|
|
|
|
26
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 11 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
Condensed Consolidating Balance Sheet
As of March 31, 2013 | ||||||||||||||||||||
(In thousands) |
Parent company/ issuer |
Guarantor subsidiaries |
Non-guarantor subsidiaries |
Consolidating and eliminating adjustments |
Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 31,989 | $ | 10,675 | $ | | $ | 42,664 | ||||||||||
Cashrestricted |
| 5,263 | | | 5,263 | |||||||||||||||
Insurance subsidiary investments |
| | 91,057 | | 91,057 | |||||||||||||||
Accounts receivable, net |
| 991,184 | 103,566 | | 1,094,750 | |||||||||||||||
Inventories |
| 29,035 | 3,022 | | 32,057 | |||||||||||||||
Deferred tax assets |
| 11,366 | | | 11,366 | |||||||||||||||
Income taxes |
| 1,425 | 410 | | 1,835 | |||||||||||||||
Other |
| 36,484 | 3,297 | | 39,781 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 1,106,746 | 212,027 | | 1,318,773 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Property and equipment, net |
| 1,062,014 | 51,478 | | 1,113,492 | |||||||||||||||
Goodwill |
| 771,533 | 269,733 | | 1,041,266 | |||||||||||||||
Intangible assets, net |
| 411,345 | 22,675 | | 434,020 | |||||||||||||||
Assets held for sale |
| 2,793 | | | 2,793 | |||||||||||||||
Insurance subsidiary investments |
| | 146,985 | | 146,985 | |||||||||||||||
Investment in subsidiaries |
225,800 | | | (225,800 | ) | | ||||||||||||||
Intercompany |
2,691,072 | | | (2,691,072 | ) | | ||||||||||||||
Deferred tax assets |
| | 13,326 | (13,326 | ) | | ||||||||||||||
Other |
44,958 | 103,310 | 72,062 | | 220,330 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 2,961,830 | $ | 3,457,741 | $ | 788,286 | $ | (2,930,198 | ) | $ | 4,277,659 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 49 | $ | 179,025 | $ | 14,189 | $ | | $ | 193,263 | ||||||||||
Salaries, wages and other compensation |
| 344,850 | 45,851 | | 390,701 | |||||||||||||||
Due to third party payors |
| 34,392 | | | 34,392 | |||||||||||||||
Professional liability risks |
| 15,289 | 52,570 | | 67,859 | |||||||||||||||
Other accrued liabilities |
28,004 | 116,081 | 8,156 | | 152,241 | |||||||||||||||
Long-term debt due within one year |
8,000 | 105 | 258 | | 8,363 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
36,053 | 689,742 | 121,024 | | 846,819 | ||||||||||||||||
Long-term debt |
1,667,054 | 330 | 3,895 | | 1,671,279 | |||||||||||||||
Intercompany |
| 2,348,784 | 342,288 | (2,691,072 | ) | | ||||||||||||||
Professional liability risks |
| 62,376 | 177,694 | | 240,070 | |||||||||||||||
Deferred tax liabilities |
| 23,914 | | (13,326 | ) | 10,588 | ||||||||||||||
Deferred credits and other liabilities |
| 140,014 | 73,556 | | 213,570 | |||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity: |
||||||||||||||||||||
Stockholders equity |
1,258,723 | 192,581 | 33,219 | (225,800 | ) | 1,258,723 | ||||||||||||||
Noncontrolling interests |
| | 36,610 | | 36,610 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
1,258,723 | 192,581 | 69,829 | (225,800 | ) | 1,295,333 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 2,961,830 | $ | 3,457,741 | $ | 788,286 | $ | (2,930,198 | ) | $ | 4,277,659 | ||||||||||
|
|
|
|
|
|
|
|
|
|
27
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 11 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
Condensed Consolidating Balance Sheet (Continued)
As of December 31, 2012 | ||||||||||||||||||||
(In thousands) |
Parent company/ issuer |
Guarantor subsidiaries |
Non-guarantor subsidiaries |
Consolidating and eliminating adjustments |
Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 37,370 | $ | 12,637 | $ | | $ | 50,007 | ||||||||||
Cashrestricted |
| 5,197 | | | 5,197 | |||||||||||||||
Insurance subsidiary investments |
| | 86,168 | | 86,168 | |||||||||||||||
Accounts receivable, net |
| 940,524 | 98,081 | | 1,038,605 | |||||||||||||||
Inventories |
| 29,023 | 2,998 | | 32,021 | |||||||||||||||
Deferred tax assets |
| 12,663 | | | 12,663 | |||||||||||||||
Income taxes |
| 13,187 | 386 | | 13,573 | |||||||||||||||
Other |
| 15,118 | 20,414 | | 35,532 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
| 1,053,082 | 220,684 | | 1,273,766 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Property and equipment, net |
| 1,090,523 | 52,603 | | 1,143,126 | |||||||||||||||
Goodwill |
| 771,533 | 269,733 | | 1,041,266 | |||||||||||||||
Intangible assets, net |
| 417,092 | 22,675 | | 439,767 | |||||||||||||||
Assets held for sale |
| 4,131 | | | 4,131 | |||||||||||||||
Insurance subsidiary investments |
| | 116,424 | | 116,424 | |||||||||||||||
Investment in subsidiaries |
221,799 | | | (221,799 | ) | | ||||||||||||||
Intercompany |
2,655,242 | | | (2,655,242 | ) | | ||||||||||||||
Deferred tax assets |
1,040 | | 13,932 | (14,972 | ) | | ||||||||||||||
Other |
47,364 | 108,143 | 63,959 | | 219,466 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 2,925,445 | $ | 3,444,504 | $ | 760,010 | $ | (2,892,013 | ) | $ | 4,237,946 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | 168 | $ | 195,268 | $ | 15,232 | $ | | $ | 210,668 | ||||||||||
Salaries, wages and other compensation |
| 345,223 | 43,786 | | 389,009 | |||||||||||||||
Due to third party payors |
| 35,420 | | | 35,420 | |||||||||||||||
Professional liability risks |
| 3,623 | 50,465 | | 54,088 | |||||||||||||||
Other accrued liabilities |
16,724 | 111,113 | 9,367 | | 137,204 | |||||||||||||||
Long-term debt due within one year |
8,000 | 102 | 840 | | 8,942 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
24,892 | 690,749 | 119,690 | | 835,331 | ||||||||||||||||
Long-term debt |
1,644,394 | 358 | 3,954 | | 1,648,706 | |||||||||||||||
Intercompany |
| 2,328,711 | 326,531 | (2,655,242 | ) | | ||||||||||||||
Professional liability risks |
| 68,116 | 168,514 | | 236,630 | |||||||||||||||
Deferred tax liabilities |
| 24,736 | | (14,972 | ) | 9,764 | ||||||||||||||
Deferred credits and other liabilities |
| 143,722 | 70,949 | | 214,671 | |||||||||||||||
Commitments and contingencies |
||||||||||||||||||||
Equity: |
||||||||||||||||||||
Stockholders equity |
1,256,159 | 188,112 | 33,687 | (221,799 | ) | 1,256,159 | ||||||||||||||
Noncontrolling interests |
| | 36,685 | | 36,685 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
1,256,159 | 188,112 | 70,372 | (221,799 | ) | 1,292,844 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ | 2,925,445 | $ | 3,444,504 | $ | 760,010 | $ | (2,892,013 | ) | $ | 4,237,946 | ||||||||||
|
|
|
|
|
|
|
|
|
|
28
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 11 CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)
Condensed Consolidating Statement of Cash Flows
Three months ended March 31, 2013 | ||||||||||||||||||||
(In thousands) |
Parent company/ issuer |
Guarantor subsidiaries |
Non-guarantor subsidiaries |
Consolidating and eliminating adjustments |
Consolidated | |||||||||||||||
Net cash provided by operating activities |
$ | 11,229 | $ | 7,981 | $ | 5,623 | $ | | $ | 24,833 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Routine capital expenditures |
| (20,142 | ) | (2,228 | ) | | (22,370 | ) | ||||||||||||
Development capital expenditures |
| (2,222 | ) | (166 | ) | | (2,388 | ) | ||||||||||||
Sale of assets |
| 5,060 | | | 5,060 | |||||||||||||||
Purchase of insurance subsidiary investments |
| | (10,836 | ) | | (10,836 | ) | |||||||||||||
Sale of insurance subsidiary investments |
| | 10,002 | | 10,002 | |||||||||||||||
Net change in insurance subsidiary cash and cash equivalents |
| | (33,096 | ) | | (33,096 | ) | |||||||||||||
Change in other investments |
| 319 | | | 319 | |||||||||||||||
Capital contribution to insurance subsidiary |
| (14,220 | ) | | 14,220 | | ||||||||||||||
Other |
| (144 | ) | | | (144 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (31,349 | ) | (36,324 | ) | 14,220 | (53,453 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Proceeds from borrowings under revolving credit |
483,500 | | | | 483,500 | |||||||||||||||
Repayment of borrowings under revolving credit |
(459,200 | ) | | | | (459,200 | ) | |||||||||||||
Repayment of other long-term debt |
(2,000 | ) | (25 | ) | (641 | ) | | (2,666 | ) | |||||||||||
Payment of deferred financing costs |
(202 | ) | | | | (202 | ) | |||||||||||||
Distribution made to noncontrolling interests |
| | (491 | ) | | (491 | ) | |||||||||||||
Issuance of common stock |
4 | | | | 4 | |||||||||||||||
Capital contribution to insurance subsidiary |
| | 14,220 | (14,220 | ) | |||||||||||||||
Other |
| 332 | | | 332 | |||||||||||||||
Change in intercompany accounts |
(33,331 | ) | 17,680 | 15,651 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
(11,229 | ) | 17,987 | 28,739 | (14,220 | ) | 21,277 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Change in cash and cash equivalents |
| (5,381 | ) | (1,962 | ) | | (7,343 |