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 September 30, 2014
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
(Registrant’s 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 issuer’s classes of common stock, as of the latest practicable date.
|
Class of Common Stock |
|
Outstanding at October 31, 2014 |
|
Common stock, $0.25 par value |
|
64,623,953 shares |
1 of 88
KINDRED HEALTHCARE, INC.
FORM 10-Q
INDEX
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Page |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
|
Financial Statements (Unaudited): |
|
|
|
|
|
|
3 |
|
|
|
|
|
4 |
|
|
|
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Condensed Consolidated Balance Sheet – September 30, 2014 and December 31, 2013 |
|
5 |
|
|
|
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6 |
|
|
|
|
|
7 |
|
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
43 |
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Item 3. |
|
|
80 |
|
|
Item 4. |
|
|
81 |
|
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PART II. OTHER INFORMATION |
|
|
||
|
Item 1. |
|
|
82 |
|
|
Item 1A. |
|
|
82 |
|
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Item 2. |
|
|
86 |
|
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Item 6. |
|
|
87 |
|
2
KINDRED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Revenues |
|
$ |
1,243,313 |
|
|
$ |
1,175,445 |
|
|
$ |
3,806,019 |
|
|
$ |
3,625,909 |
|
|
Salaries, wages and benefits |
|
|
756,434 |
|
|
|
718,227 |
|
|
|
2,300,567 |
|
|
|
2,215,711 |
|
|
Supplies |
|
|
79,394 |
|
|
|
79,498 |
|
|
|
242,176 |
|
|
|
244,247 |
|
|
Rent |
|
|
80,192 |
|
|
|
76,762 |
|
|
|
241,449 |
|
|
|
230,605 |
|
|
Other operating expenses |
|
|
257,225 |
|
|
|
261,842 |
|
|
|
768,247 |
|
|
|
720,498 |
|
|
Other (income) expense |
|
|
(353 |
) |
|
|
51 |
|
|
|
(741 |
) |
|
|
(984 |
) |
|
Impairment charges |
|
|
− |
|
|
|
441 |
|
|
|
− |
|
|
|
1,066 |
|
|
Depreciation and amortization |
|
|
39,023 |
|
|
|
36,507 |
|
|
|
117,802 |
|
|
|
116,659 |
|
|
Interest expense |
|
|
22,516 |
|
|
|
25,624 |
|
|
|
128,845 |
|
|
|
82,857 |
|
|
Investment income |
|
|
(343 |
) |
|
|
(1,235 |
) |
|
|
(2,975 |
) |
|
|
(2,794 |
) |
|
|
|
|
1,234,088 |
|
|
|
1,197,717 |
|
|
|
3,795,370 |
|
|
|
3,607,865 |
|
|
Income (loss) from continuing operations before income taxes |
|
|
9,225 |
|
|
|
(22,272 |
) |
|
|
10,649 |
|
|
|
18,044 |
|
|
Provision (benefit) for income taxes |
|
|
3,079 |
|
|
|
(6,510 |
) |
|
|
3,582 |
|
|
|
9,203 |
|
|
Income (loss) from continuing operations |
|
|
6,146 |
|
|
|
(15,762 |
) |
|
|
7,067 |
|
|
|
8,841 |
|
|
Discontinued operations, net of income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(7,601 |
) |
|
|
(25,466 |
) |
|
|
(22,255 |
) |
|
|
(31,892 |
) |
|
Gain (loss) on divestiture of operations |
|
|
1,387 |
|
|
|
(65,016 |
) |
|
|
(3,637 |
) |
|
|
(77,893 |
) |
|
Loss from discontinued operations |
|
|
(6,214 |
) |
|
|
(90,482 |
) |
|
|
(25,892 |
) |
|
|
(109,785 |
) |
|
Net loss |
|
|
(68 |
) |
|
|
(106,244 |
) |
|
|
(18,825 |
) |
|
|
(100,944 |
) |
|
(Earnings) loss attributable to noncontrolling interests: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
(4,372 |
) |
|
|
(841 |
) |
|
|
(13,729 |
) |
|
|
(1,424 |
) |
|
Discontinued operations |
|
|
78 |
|
|
|
87 |
|
|
|
401 |
|
|
|
172 |
|
|
|
|
|
(4,294 |
) |
|
|
(754 |
) |
|
|
(13,328 |
) |
|
|
(1,252 |
) |
|
Loss attributable to Kindred |
|
$ |
(4,362 |
) |
|
$ |
(106,998 |
) |
|
$ |
(32,153 |
) |
|
$ |
(102,196 |
) |
|
Amounts attributable to Kindred stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
1,774 |
|
|
$ |
(16,603 |
) |
|
$ |
(6,662 |
) |
|
$ |
7,417 |
|
|
Loss from discontinued operations |
|
|
(6,136 |
) |
|
|
(90,395 |
) |
|
|
(25,491 |
) |
|
|
(109,613 |
) |
|
Net loss |
|
$ |
(4,362 |
) |
|
$ |
(106,998 |
) |
|
$ |
(32,153 |
) |
|
$ |
(102,196 |
) |
|
Loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.03 |
|
|
$ |
(0.31 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.14 |
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(0.12 |
) |
|
|
(0.49 |
) |
|
|
(0.39 |
) |
|
|
(0.59 |
) |
|
Gain (loss) on divestiture of operations |
|
|
0.02 |
|
|
|
(1.24 |
) |
|
|
(0.06 |
) |
|
|
(1.44 |
) |
|
Loss from discontinued operations |
|
|
(0.10 |
) |
|
|
(1.73 |
) |
|
|
(0.45 |
) |
|
|
(2.03 |
) |
|
Net loss |
|
$ |
(0.07 |
) |
|
$ |
(2.04 |
) |
|
$ |
(0.57 |
) |
|
$ |
(1.89 |
) |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
0.03 |
|
|
$ |
(0.31 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.14 |
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(0.12 |
) |
|
|
(0.49 |
) |
|
|
(0.39 |
) |
|
|
(0.59 |
) |
|
Gain (loss) on divestiture of operations |
|
|
0.02 |
|
|
|
(1.24 |
) |
|
|
(0.06 |
) |
|
|
(1.44 |
) |
|
Loss from discontinued operations |
|
|
(0.10 |
) |
|
|
(1.73 |
) |
|
|
(0.45 |
) |
|
|
(2.03 |
) |
|
Net loss |
|
$ |
(0.07 |
) |
|
$ |
(2.04 |
) |
|
$ |
(0.57 |
) |
|
$ |
(1.89 |
) |
|
Shares used in computing loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
62,863 |
|
|
|
52,323 |
|
|
|
56,443 |
|
|
|
52,218 |
|
|
Diluted |
|
|
62,902 |
|
|
|
52,323 |
|
|
|
56,443 |
|
|
|
52,234 |
|
|
Cash dividends declared and paid per common share |
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
0.36 |
|
|
$ |
0.12 |
|
See accompanying notes.
3
KINDRED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
(Unaudited)
(In thousands)
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Net loss |
|
$ |
(68 |
) |
|
$ |
(106,244 |
) |
|
$ |
(18,825 |
) |
|
$ |
(100,944 |
) |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities (Note 8): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized investment gains |
|
|
93 |
|
|
|
416 |
|
|
|
577 |
|
|
|
2,044 |
|
|
Reclassification of gains realized in net loss |
|
|
(27 |
) |
|
|
(1,026 |
) |
|
|
(2,130 |
) |
|
|
(2,135 |
) |
|
Net change |
|
|
66 |
|
|
|
(610 |
) |
|
|
(1,553 |
) |
|
|
(91 |
) |
|
Interest rate swaps (Note 1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) |
|
|
2,162 |
|
|
|
(183 |
) |
|
|
(884 |
) |
|
|
1,133 |
|
|
Reclassification of ineffectiveness realized in net loss |
|
|
− |
|
|
|
(104 |
) |
|
|
84 |
|
|
|
(380 |
) |
|
Reclassification of losses realized in net loss, net of payments |
|
|
12 |
|
|
|
2 |
|
|
|
809 |
|
|
|
− |
|
|
Net change |
|
|
2,174 |
|
|
|
(285 |
) |
|
|
9 |
|
|
|
753 |
|
|
Income tax expense (benefit) related to items of other comprehensive income (loss) |
|
|
(846 |
) |
|
|
286 |
|
|
|
891 |
|
|
|
(412 |
) |
|
Other comprehensive income (loss) |
|
|
1,394 |
|
|
|
(609 |
) |
|
|
(653 |
) |
|
|
250 |
|
|
Comprehensive income (loss) |
|
|
1,326 |
|
|
|
(106,853 |
) |
|
|
(19,478 |
) |
|
|
(100,694 |
) |
|
Earnings attributable to noncontrolling interests |
|
|
(4,294 |
) |
|
|
(754 |
) |
|
|
(13,328 |
) |
|
|
(1,252 |
) |
|
Comprehensive loss attributable to Kindred |
|
$ |
(2,968 |
) |
|
$ |
(107,607 |
) |
|
$ |
(32,806 |
) |
|
$ |
(101,946 |
) |
See accompanying notes.
4
KINDRED HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except per share amounts)
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2014 |
|
|
2013 |
|
||
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
81,784 |
|
|
$ |
35,972 |
|
|
Cash – restricted |
|
|
2,390 |
|
|
|
3,713 |
|
|
Insurance subsidiary investments |
|
|
95,425 |
|
|
|
96,295 |
|
|
Accounts receivable less allowance for loss of $57,898 – September 30, 2014 and $41,025 – December 31, 2013 |
|
|
980,723 |
|
|
|
916,529 |
|
|
Inventories |
|
|
25,952 |
|
|
|
25,780 |
|
|
Deferred tax assets |
|
|
57,577 |
|
|
|
37,920 |
|
|
Income taxes |
|
|
35,779 |
|
|
|
36,846 |
|
|
Other |
|
|
42,727 |
|
|
|
43,673 |
|
|
|
|
|
1,322,357 |
|
|
|
1,196,728 |
|
|
Property and equipment |
|
|
1,962,492 |
|
|
|
1,906,366 |
|
|
Accumulated depreciation |
|
|
(1,056,524 |
) |
|
|
(979,791 |
) |
|
|
|
|
905,968 |
|
|
|
926,575 |
|
|
Goodwill |
|
|
995,240 |
|
|
|
992,102 |
|
|
Intangible assets less accumulated amortization of $67,941 – September 30, 2014 and $52,211 – December 31, 2013 |
|
|
405,900 |
|
|
|
423,303 |
|
|
Assets held for sale |
|
|
2,222 |
|
|
|
20,978 |
|
|
Insurance subsidiary investments |
|
|
158,394 |
|
|
|
149,094 |
|
|
Deferred tax assets |
|
|
− |
|
|
|
17,043 |
|
|
Other |
|
|
234,707 |
|
|
|
220,046 |
|
|
Total assets |
|
$ |
4,024,788 |
|
|
$ |
3,945,869 |
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
158,397 |
|
|
$ |
181,772 |
|
|
Salaries, wages and other compensation |
|
|
346,957 |
|
|
|
361,192 |
|
|
Due to third party payors |
|
|
47,320 |
|
|
|
33,747 |
|
|
Professional liability risks |
|
|
66,974 |
|
|
|
60,993 |
|
|
Other accrued liabilities |
|
|
138,620 |
|
|
|
146,495 |
|
|
Long-term debt due within one year |
|
|
10,233 |
|
|
|
8,222 |
|
|
|
|
|
768,501 |
|
|
|
792,421 |
|
|
Long-term debt |
|
|
1,484,436 |
|
|
|
1,579,391 |
|
|
Professional liability risks |
|
|
243,496 |
|
|
|
246,230 |
|
|
Deferred tax liabilities |
|
|
7,683 |
|
|
|
− |
|
|
Deferred credits and other liabilities |
|
|
217,218 |
|
|
|
206,611 |
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Common stock, $0.25 par value; authorized 175,000 shares; issued 64,612 shares – September 30, 2014 and 54,165 shares – December 31, 2013 |
|
|
16,153 |
|
|
|
13,541 |
|
|
Capital in excess of par value |
|
|
1,357,134 |
|
|
|
1,146,193 |
|
|
Accumulated other comprehensive loss |
|
|
(905 |
) |
|
|
(252 |
) |
|
Accumulated deficit |
|
|
(112,044 |
) |
|
|
(76,825 |
) |
|
|
|
|
1,260,338 |
|
|
|
1,082,657 |
|
|
Noncontrolling interests |
|
|
43,116 |
|
|
|
38,559 |
|
|
Total equity |
|
|
1,303,454 |
|
|
|
1,121,216 |
|
|
Total liabilities and equity |
|
$ |
4,024,788 |
|
|
$ |
3,945,869 |
|
See accompanying notes.
5
KINDRED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(68 |
) |
|
$ |
(106,244 |
) |
|
$ |
(18,825 |
) |
|
$ |
(100,944 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
39,579 |
|
|
|
42,831 |
|
|
|
121,805 |
|
|
|
142,745 |
|
|
Amortization of stock-based compensation costs |
|
|
694 |
|
|
|
1,553 |
|
|
|
9,657 |
|
|
|
7,641 |
|
|
Amortization of deferred financing costs |
|
|
1,982 |
|
|
|
2,509 |
|
|
|
21,211 |
|
|
|
9,529 |
|
|
Payment of capitalized lender fees related to debt issuance |
|
|
− |
|
|
|
(4,589 |
) |
|
|
(19,125 |
) |
|
|
(6,189 |
) |
|
Provision for doubtful accounts |
|
|
14,695 |
|
|
|
13,152 |
|
|
|
35,588 |
|
|
|
34,489 |
|
|
Deferred income taxes |
|
|
(32,777 |
) |
|
|
2,336 |
|
|
|
(11,274 |
) |
|
|
(22,985 |
) |
|
Impairment charges |
|
|
9 |
|
|
|
8,995 |
|
|
|
673 |
|
|
|
10,077 |
|
|
Gain (loss) on divestiture of discontinued operations |
|
|
(1,387 |
) |
|
|
65,016 |
|
|
|
3,637 |
|
|
|
77,893 |
|
|
Other |
|
|
175 |
|
|
|
6,316 |
|
|
|
2,289 |
|
|
|
5,452 |
|
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
10,392 |
|
|
|
45,862 |
|
|
|
(102,503 |
) |
|
|
26,745 |
|
|
Inventories and other assets |
|
|
(2,899 |
) |
|
|
3,467 |
|
|
|
(12,886 |
) |
|
|
67 |
|
|
Accounts payable |
|
|
(3,592 |
) |
|
|
(12,901 |
) |
|
|
(22,469 |
) |
|
|
(31,979 |
) |
|
Income taxes |
|
|
29,832 |
|
|
|
(27,969 |
) |
|
|
18,769 |
|
|
|
(5,269 |
) |
|
Due to third party payors |
|
|
28,907 |
|
|
|
25,931 |
|
|
|
14,540 |
|
|
|
16,716 |
|
|
Other accrued liabilities |
|
|
4,497 |
|
|
|
44,485 |
|
|
|
(16,765 |
) |
|
|
25,229 |
|
|
Net cash provided by operating activities |
|
|
90,039 |
|
|
|
110,750 |
|
|
|
24,322 |
|
|
|
189,217 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Routine capital expenditures |
|
|
(21,263 |
) |
|
|
(23,152 |
) |
|
|
(67,425 |
) |
|
|
(62,952 |
) |
|
Development capital expenditures |
|
|
(1,570 |
) |
|
|
(3,235 |
) |
|
|
(2,693 |
) |
|
|
(10,709 |
) |
|
Acquisitions, net of cash acquired |
|
|
(38 |
) |
|
|
(12,173 |
) |
|
|
(24,136 |
) |
|
|
(39,106 |
) |
|
Acquisition deposit |
|
|
− |
|
|
|
(14,675 |
) |
|
|
− |
|
|
|
(14,675 |
) |
|
Sale of assets |
|
|
8,948 |
|
|
|
236,397 |
|
|
|
22,909 |
|
|
|
248,700 |
|
|
Purchase of insurance subsidiary investments |
|
|
(74,101 |
) |
|
|
(7,765 |
) |
|
|
(97,394 |
) |
|
|
(30,360 |
) |
|
Sale of insurance subsidiary investments |
|
|
8,447 |
|
|
|
9,899 |
|
|
|
34,967 |
|
|
|
35,427 |
|
|
Net change in insurance subsidiary cash and cash equivalents |
|
|
65,928 |
|
|
|
(1,416 |
) |
|
|
54,372 |
|
|
|
(44,294 |
) |
|
Change in other investments |
|
|
317 |
|
|
|
(140 |
) |
|
|
1,027 |
|
|
|
218 |
|
|
Other |
|
|
(3 |
) |
|
|
79 |
|
|
|
(537 |
) |
|
|
(142 |
) |
|
Net cash provided by (used in) investing activities |
|
|
(13,335 |
) |
|
|
183,819 |
|
|
|
(78,910 |
) |
|
|
82,107 |
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under revolving credit |
|
|
311,500 |
|
|
|
238,900 |
|
|
|
1,468,515 |
|
|
|
1,100,300 |
|
|
Repayment of borrowings under revolving credit |
|
|
(355,100 |
) |
|
|
(519,200 |
) |
|
|
(1,724,615 |
) |
|
|
(1,363,600 |
) |
|
Proceeds from issuance of senior unsecured notes |
|
|
– |
|
|
|
– |
|
|
|
500,000 |
|
|
|
– |
|
|
Proceeds from issuance of term loan, net of discount |
|
|
– |
|
|
|
– |
|
|
|
997,500 |
|
|
|
– |
|
|
Repayment of senior unsecured notes |
|
|
– |
|
|
|
– |
|
|
|
(550,000 |
) |
|
|
– |
|
|
Repayment of term loan |
|
|
(2,500 |
) |
|
|
– |
|
|
|
(786,063 |
) |
|
|
(3,969 |
) |
|
Repayment of other long-term debt |
|
|
(58 |
) |
|
|
(92 |
) |
|
|
(215 |
) |
|
|
(849 |
) |
|
Payment of deferred financing costs |
|
|
(504 |
) |
|
|
(683 |
) |
|
|
(3,152 |
) |
|
|
(1,340 |
) |
|
Equity offering, net of offering costs |
|
|
16,376 |
|
|
|
– |
|
|
|
220,353 |
|
|
|
– |
|
|
Issuance of common stock in connection with employee benefit plans |
|
|
1,530 |
|
|
|
222 |
|
|
|
6,217 |
|
|
|
429 |
|
|
Dividends paid |
|
|
(7,754 |
) |
|
|
(6,499 |
) |
|
|
(20,840 |
) |
|
|
(6,499 |
) |
|
Distributions to noncontrolling interests |
|
|
(4,009 |
) |
|
|
(118 |
) |
|
|
(9,604 |
) |
|
|
(1,628 |
) |
|
Other |
|
|
183 |
|
|
|
53 |
|
|
|
2,304 |
|
|
|
404 |
|
|
Net cash provided by (used in) financing activities |
|
|
(40,336 |
) |
|
|
(287,417 |
) |
|
|
100,400 |
|
|
|
(276,752 |
) |
|
Change in cash and cash equivalents |
|
|
36,368 |
|
|
|
7,152 |
|
|
|
45,812 |
|
|
|
(5,428 |
) |
|
Cash and cash equivalents at beginning of period |
|
|
45,416 |
|
|
|
37,427 |
|
|
|
35,972 |
|
|
|
50,007 |
|
|
Cash and cash equivalents at end of period |
|
$ |
81,784 |
|
|
$ |
44,579 |
|
|
$ |
81,784 |
|
|
$ |
44,579 |
|
|
Supplemental information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments |
|
$ |
12,222 |
|
|
$ |
7,899 |
|
|
$ |
91,888 |
|
|
$ |
63,744 |
|
|
Income tax payments (refunds) |
|
|
909 |
|
|
|
2,886 |
|
|
|
(20,656 |
) |
|
|
16,716 |
|
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 September 30, 2014, the Company’s hospital division operated 97 TC hospitals (certified as long-term acute care (“LTAC”) hospitals under the Medicare program) and five IRFs in 22 states. The Company’s nursing center division operated 99 nursing centers and six assisted living facilities in 21 states. The Company’s rehabilitation division provided rehabilitation services primarily in hospitals and long-term care settings. The Company’s care management division (formerly known as the Company’s home health and hospice division) primarily provided home health, hospice and private duty services from 152 locations in 13 states.
The Company has completed several transactions related to the divestiture or planned divestiture of unprofitable hospitals and nursing centers to improve its future operating results. For accounting purposes, the operating results of these businesses and the gains, losses or impairments 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 September 30, 2014 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 2 for a summary of discontinued operations.
Recently issued accounting requirements
In June 2014, the Financial Accounting Standards Board (the “FASB”) issued authoritative guidance which changes the requirements for accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This guidance is effective for annual and interim periods beginning on or after December 15, 2015. The adoption of this standard is not expected to have a material impact on the Company’s business, financial position, net income or liquidity.
In May 2014, the FASB issued authoritative guidance which changes the requirements for recognizing revenue when entities enter into contracts with customers. Under the new provisions, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This guidance is effective for annual and interim periods beginning on or after December 15, 2016 and early adoption is not permitted. The Company is still assessing this guidance.
In April 2014, the FASB issued authoritative guidance which changes the requirements for reporting discontinued operations. A disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: (1) the component or group of components meets the criteria to be classified as held for sale, (2) the component or group of components is disposed of by sale, or (3) the component or group of components is disposed of other than by sale (for example, abandonment). The entity shall present separately, for each comparative period, the assets and liabilities of the discontinued operation in the statement of financial position. In addition to the required disclosures for discontinued operations, entities also will be required to provide disclosures about a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements. The guidance also states an entity shall expand disclosures about significant continuing involvement with a discontinued operation, until the results of operations of the discontinued operation are no longer presented in the statement of operations. The guidance is applicable prospectively for all disposals that occur within annual periods beginning on or after December 15, 2014 and early adoption is permitted. The adoption of the guidance is not expected to have a material impact on the Company’s business, financial position, net income or liquidity but may have a material impact on the Company’s income from continuing operations if planned or completed disposals of components of the Company’s business do not qualify for discontinued operations under the new guidance.
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 nine months ended September 30, 2014 and 2013 (in thousands):
|
For the nine months ended September 30, 2014: |
|
Amounts |
|
|
|
|
|
|
|
|||
|
Balance at December 31, 2013 |
|
$ |
1,082,657 |
|
|
$ |
38,559 |
|
|
$ |
1,121,216 |
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(32,153 |
) |
|
|
13,328 |
|
|
|
(18,825 |
) |
|
Other comprehensive loss |
|
|
(653 |
) |
|
|
– |
|
|
|
(653 |
) |
|
|
|
|
(32,806 |
) |
|
|
13,328 |
|
|
|
(19,478 |
) |
|
Issuance of common stock in connection with employee benefit plans |
|
|
6,217 |
|
|
|
– |
|
|
|
6,217 |
|
|
Shares tendered by employees for statutory tax withholdings upon issuance of common stock |
|
|
(6,129 |
) |
|
|
– |
|
|
|
(6,129 |
) |
|
Income tax benefit in connection with the issuance of common stock under employee benefit plans |
|
|
1,229 |
|
|
|
– |
|
|
|
1,229 |
|
|
Stock-based compensation amortization |
|
|
9,657 |
|
|
|
– |
|
|
|
9,657 |
|
|
Equity offering, net of offering costs |
|
|
220,353 |
|
|
|
– |
|
|
|
220,353 |
|
|
Dividends paid |
|
|
(20,840 |
) |
|
|
– |
|
|
|
(20,840 |
) |
|
Contribution made by noncontrolling interests |
|
|
– |
|
|
|
833 |
|
|
|
833 |
|
|
Distributions to noncontrolling interests |
|
|
– |
|
|
|
(9,604 |
) |
|
|
(9,604 |
) |
|
Balance at September 30, 2014 |
|
$ |
1,260,338 |
|
|
$ |
43,116 |
|
|
$ |
1,303,454 |
|
|
For the nine months ended September 30, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
|
$ |
1,256,159 |
|
|
$ |
36,685 |
|
|
$ |
1,292,844 |
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(102,196 |
) |
|
|
1,252 |
|
|
|
(100,944 |
) |
|
Other comprehensive income |
|
|
250 |
|
|
|
– |
|
|
|
250 |
|
|
|
|
|
(101,946 |
) |
|
|
1,252 |
|
|
|
(100,694 |
) |
|
Issuance of common stock in connection with employee benefit plans |
|
|
429 |
|
|
|
– |
|
|
|
429 |
|
|
Shares tendered by employees for statutory tax withholdings upon issuance of common stock |
|
|
(2,987 |
) |
|
|
– |
|
|
|
(2,987 |
) |
|
Income tax provision in connection with the issuance of common stock under employee benefit plans |
|
|
(1,646 |
) |
|
|
– |
|
|
|
(1,646 |
) |
|
Stock-based compensation amortization |
|
|
7,641 |
|
|
|
– |
|
|
|
7,641 |
|
|
Distributions to noncontrolling interests |
|
|
– |
|
|
|
(1,628 |
) |
|
|
(1,628 |
) |
|
Purchase of noncontrolling interests |
|
|
– |
|
|
|
268 |
|
|
|
268 |
|
|
Dividends paid |
|
|
(6,499 |
) |
|
|
− |
|
|
|
(6,499 |
) |
|
Balance at September 30, 2013 |
|
$ |
1,151,151 |
|
|
$ |
36,577 |
|
|
$ |
1,187,728 |
|
On July 1, 2013, the Company entered into an agreement to manage seven nursing centers under an inter-governmental payment program partnership with county-owned hospitals in the state of Indiana. The Company began managing another eight nursing centers on January 1, 2014. The 15 nursing centers were consolidated by the Company for all periods presented and the income attributable to noncontrolling interest related to this program was $4.7 million in the third quarter of 2014 and $12.7 million for the nine months ended September 30, 2014. These nursing centers were wholly owned subsidiaries of the Company prior to entering into the new payment program.
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 debt outstanding under its senior secured term loan facility entered into in June 2011 (the “Prior Term Loan Facility”). The interest rate swaps had an effective date of January 9, 2012, and will expire on January 11, 2016 and continue to apply to the Amended Term Loan Facility (as defined). 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 these interest rate swaps qualify for cash flow hedge accounting treatment at September 30, 2014. However, an amendment to the Prior Term Loan Facility completed in May 2013 reduced the LIBOR floor from 1.5% to 1.0%, therefore some partial ineffectiveness will result through the expiration of the interest rate swap agreement.
In March 2014, the Company entered into an additional interest rate swap agreement to hedge its floating interest rate on an aggregate of $400 million of debt outstanding under the Amended Term Loan Facility (as defined). On April 8, 2014, the Company completed a novation of a portion of its $400 million swap agreement to two new counterparties, each in the amount of $125 million. The original swap contract was not amended, terminated or otherwise modified. The interest rate swap had an effective date of April 9, 2014 and will expire on April 9, 2018. The Company is required to make payments based upon a fixed interest rate of 1.867% calculated on the notional amount of $400 million. In exchange, the Company will receive interest on $400 million at a variable interest rate that is based upon the three-month LIBOR, subject to a minimum rate of 1.0%. The Company determined these interest rate swaps qualify for cash flow hedge accounting treatment at September 30, 2014.
The Company records the effective portion of the gain or loss on these derivative financial instruments in accumulated other comprehensive income (loss) as a component of stockholders equity and records the ineffective portion of the gain or loss on these derivative financial instruments as interest expense. For the three months and nine months ended September 30, 2014, the ineffectiveness related to the interest rate swaps was immaterial.
The aggregate fair value of the interest rate swaps recorded in other accrued liabilities was $2.3 million and $1.4 million at September 30, 2014 and December 31, 2013, respectively. See Note 9.
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, 2013 filed with the Securities and Exchange Commission (the “SEC”) on Form 10-K. The accompanying condensed consolidated balance sheet at December 31, 2013 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 Company’s customary accounting practices. Management believes that financial information included herein reflects all adjustments necessary for a fair statement 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.
9
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 2 – DISCONTINUED OPERATIONS
In accordance with the authoritative guidance for the impairment or disposal of long-lived assets, the divestitures or planned divestiture of unprofitable businesses discussed in Note 1 has been accounted for as discontinued operations. Accordingly, the results of operations of these businesses for all periods presented and the gains, losses or impairments associated with these transactions have been classified as discontinued operations, net of income taxes, in the accompanying unaudited condensed consolidated statement of operations. At September 30, 2014, the Company held for sale one hospital and four nursing centers reported as discontinued operations.
In April 2014, the Company acquired for resale the real estate of a previously leased nursing center for $1.2 million.
During the nine months ended September 30, 2014, the Company reclassified as discontinued for all periods presented the operations of three TC hospitals and two nursing centers that were either closed or divested through a planned sale of such facility or the expiration of a lease. The Company recorded a loss on divestiture of $2.9 million ($1.7 million net of income taxes) for the nine months ended September 30, 2014 related to these divestitures.
The Company allowed the lease to expire on a TC hospital during the nine months ended September 30, 2014 resulting in a loss on divestiture primarily related to a write-off of an indefinite-lived intangible asset of $3.4 million ($2.1 million net of income taxes) for the nine months ended September 30, 2014. The Company reflected the operating results of this TC hospital as discontinued operations in the accompanying unaudited condensed consolidated statement of operations for all historical periods.
On September 30, 2013, the Company entered into agreements with Ventas, Inc. (“Ventas”) to exit 60 nursing centers (collectively, the “2013 Expiring Facilities”). The lease term for the 2013 Expiring Facilities was initially scheduled to expire in April 2015. Under the terms of the agreements, the lease term for the 2013 Expiring Facilities was scheduled to expire on September 30, 2014 unless the Company and Ventas were able to transfer the operations earlier; provided, however, that the Company is obligated to continue to operate any 2013 Expiring Facility not transferred by September 30, 2014 for a limited amount of time and under certain reduced rent obligations provided for in the agreements. Through September 30, 2014, the Company has transferred the operations of 55 of the 2013 Expiring Facilities to new operators. Another facility was closed and its operating license and equipment were sold during the nine months ended September 30, 2014. Proceeds from the sale of equipment and inventory for the 2013 Expiring Facilities totaled $2.6 million and $14.1 million for the three months and nine months ended September 30, 2014, respectively. For accounting purposes, the 2013 Expiring Facilities qualified as assets held for sale at September 30, 2013 and the Company reflected the operating results as discontinued operations in the accompanying unaudited condensed consolidated statement of operations for all historical periods.
During the third quarter of 2013, the Company completed the sale of 16 non-strategic facilities (the “Vibra Facilities”) for
$187 million to an affiliate of Vibra Healthcare, LLC (“Vibra”). The net proceeds of $180 million from this transaction were used to reduce the Company’s borrowings under its prior $750 million senior secured asset-based revolving credit facility.
The Vibra Facilities consist of 14 TC hospitals containing 1,002 licensed beds, one IRF containing 44 licensed beds and one nursing center containing 135 licensed beds. Six of the TC hospitals and the one nursing center were owned facilities. The remaining Vibra Facilities were leased.
The Company recorded a loss on divestiture of $76 million ($63 million net of income taxes) and $94 million ($74 million net of income taxes) during the third quarter of 2013 and for the nine months ended September 30, 2013, respectively, related to the Vibra Facilities. The loss on divestiture included a $68.7 million write-off of goodwill, which was allocated based upon the relative fair value of the Vibra Facilities, and a $21.0 million write-off of intangible assets.
During the third quarter of 2013, the Company completed the sale of seven non-strategic nursing centers (the “Signature Facilities”) for $47 million to affiliates of Signature Healthcare, LLC (“Signature”). The proceeds from this transaction were used to reduce the Company’s borrowings under its prior $750 million senior secured asset-based revolving credit facility.
The Signature Facilities contain 900 licensed beds. Five of the Signature Facilities were owned facilities and the remaining Signature Facilities were leased.
10
KINDRED HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 2 – DISCONTINUED OPERATIONS (Continued)
The Company recorded a loss on divestiture of $2 million ($1 million net of income taxes) during the third quarter of 2013 related to the Signature Facilities.
The results of operations and losses on divestiture of operations, net of income taxes, for the Signature Facilities and the Vibra Facilities were reclassified to discontinued operations in the third quarter of 2013.
A summary of discontinued operations follows (in thousands):
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Revenues |
|
$ |
9,518 |
|
|
$ |
197,514 |
|
|
$ |
231,566 |
|
|
$ |
822,696 |
|
|
Salaries, wages and benefits |
|
|
8,542 |
|
|
|
96,375 |
|
|
|
123,088 |
|
|
|
405,426 |
|
|
Supplies |
|
|
579 |
|
|
|
14,712 |
|
|
|
13,718 |
|
|
|
57,259 |
|
|
Rent |
|
|
3,164 |
|
|
|
39,404 |
|
|
|
31,980 |
|
|
|
96,601 |
|
|
Other operating expenses |
|
|
9,206 |
|
|
|
74,066 |
|
|
|
94,893 |
|
|
|
280,659 |
|
|
Other (income) expense |
|
|
− |
|
|
|
(10 |
) |
|
|
363 |
|
|
|
145 |
|
|
Impairment charges |
|
|
9 |
|
|
|
8,554 |
|
|
|
673 |
|
|
|
9,011 |
|
|
Depreciation |
|
|
556 |
|
|
|
6,324 |
|
|
|
4,003 |
|
|
|
26,086 |
|
|
Interest expense |
|
|
1 |
|
|
|
11 |
|
|
|
16 |
|
|
|
41 |
|
|
Investment income |
|
|
(6 |
) |
|
|
(2 |
) |
|
|
(474 |
) |
|
|
(33 |
) |
|
|
|
|
22,051 |
|
|
|
239,434 |
|
|
|
268,260 |
|
|
|
875,195 |
|
|
Loss from operations before income taxes |
|
|
(12,533 |
) |
|
|
(41,920 |
) |
|
|
(36,694 |
) |
|
|
(52,499 |
) |
|
Income tax benefit |
|
|
(4,932 |
) |
|
|
(16,454 |
) |
|
|
(14,439 |
) |
|
|
(20,607 |
) |
|
Loss from operations |
|
|
(7,601 |
) |
|
|
(25,466 |
) |
|
|
(22,255 |
) |
|
|
(31,892 |
) |
|
Gain (loss) on divestiture of operations |
|
|
1,387 |
|
|
|
(65,016 |
) |
|
|
(3,637 |
) |
|
|
(77,893 |
) |
|
Loss from discontinued operations |
|
|
(6,214 |
) |
|
|
(90,482 |
) |
|
|
(25,892 |
) |
|
|
(109,785 |
) |
|
Loss attributable to noncontrolling interests |
|
|
78 |
|
|
|
87 |
|
|
|
401 |
|
|
|
172 |
|
|
Loss from discontinued operations |
|
$ |
(6,136 |
) |
|
$ |
(90,395 |
) |
|
$ |
(25,491 |
) |
|
$ |
(109,613 |
) |
The following table sets forth certain discontinued operating data by business segment (in thousands):
|
|
|
Three months ended |
|
|
Nine months ended |
|
||||||||||
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
||||
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital division |
|
$ |
242 |
|
|
$ |
57,349 |
|
|
$ |
25,936 |
|
|
$ |
232,344 |
|
|
Nursing center division |
|
|
9,276 |
|
|
|
140,165 |
|
|
|
205,630 |
|
|
|
590,352 |
|
|
|
|
$ |
9,518 |
|
|
$ |
197,514 |
|
|
$ |
231,566 |
|
|
$ |
822,696 |
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospital division |
|
$ |
(3,399 |
) |
|
|||||||||||