UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 14, 2003
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KINDRED HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 001-14057 61-1323993
(State or other jurisdiction (Commission File (IRS Employer
of incorporation or organization) Number) Identification No.)
680 South Fourth Street
Louisville, Kentucky
(Address of principal executive offices)
40202-2412
(Zip Code)
Registrant's telephone number, including area code: (502) 596-7300
Not Applicable
(Former name or former address, if changed since last report)
Item 9. Regulation FD Disclosure.
On May 14, 2003, the Company issued a press release announcing its
financial results for the first quarter ended March 31, 2003. The press release,
dated May 14, 2003, is attached as Annex A to this Item 9. On May 14, 2003, the
Company also included the press release on its website at
www.kindredhealthcare.com.
Annex A is incorporated herein by reference and has been furnished, not
filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
KINDRED HEALTHCARE, INC.
Date: May 14, 2003 By: /s/ Richard A. Lechleiter
-------------------------------------------
Richard A. Lechleiter
Senior Vice President, Chief Financial
Officer and Treasurer
Annex A
[Kindred Logo appears here]
Contact: Richard A. Lechleiter
Senior Vice President, Chief
Financial Officer and Treasurer
(502) 596-7734
KINDRED HEALTHCARE ANNOUNCES FIRST QUARTER RESULTS
----------
Company announces definitive agreement with Ventas
to purchase nursing centers in Florida and Texas
LOUISVILLE, Ky. (May 14, 2003) - Kindred Healthcare, Inc. (the "Company")
(NASDAQ: KIND) today announced its operating results for the first quarter ended
March 31, 2003. The Company also announced a definitive agreement with Ventas,
Inc. ("Ventas") (NYSE:VTR) to purchase 15 nursing centers in Florida and one
nursing center in Texas currently owned by Ventas and operated by the Company.
First Quarter Results
Revenues for the quarter rose 6% to $863 million compared to $811 million
in the year-earlier period. The Company reported a net loss for the current
quarter of $13 million or $0.76 per diluted share compared to net income of $18
million or $0.95 per diluted share in the first quarter last year. Operating
results for the first quarter of 2003 were adversely affected by reductions in
nursing center Medicare reimbursement and increases in professional liability
costs.
As previously disclosed, certain Medicare reimbursements to the Company's
nursing centers expired on October 1, 2002, reducing operating income by
approximately $15 million in the first quarter of 2003 compared to the first
quarter of 2002. Costs related to professional liability risks aggregated $54
million in the first quarter of 2003 compared to $16 million in the first
quarter last year, of which approximately $47 million and $13 million,
respectively, related to the Company's nursing center business. Professional
liability costs recorded in the fourth quarter of 2002 aggregated $37 million,
of which approximately $33 million were charged to the Company's nursing center
business. The results of the Company's regular quarterly independent actuarial
valuation indicated that the increase in nursing center professional liability
costs from fourth quarter 2002 levels primarily reflected an increase in claims
activity in the first quarter in certain states other than Florida.
Approximately $8 million of the first quarter 2003 nursing center provision for
loss related to changes in estimates of prior year costs.
Professional liability costs in the first quarter of 2003 related to the
Company's Florida nursing center operations approximated $22 million. Pretax
losses for these facilities totaled $19 million in the first quarter of 2003.
The Company believes that the increases in professional liability costs are
expected to continue in the foreseeable future. In addition, the expiration of
certain Medicare funding on October 1, 2002 will continue to reduce materially
the Company's nursing center operating income.
As previously disclosed in its 2002 Form 10-K, the Company designated its
pharmacy operations as a separate operating division effective January 1, 2003.
Business segment disclosures for prior periods have been reclassified to conform
with the new presentation.
Cash and cash equivalents totaled $100 million at March 31, 2003 compared
to $244 million at December 31, 2002. As previously announced, the Company
funded approximately $63 million into its limited purpose insurance subsidiary
on March 31, 2003 in satisfaction of its 2002 professional liability funding
requirements. Operating cash flows in the first quarter of 2003 reflected a $53
million increase in accounts receivable. Medicare and private receivables in the
Company's hospitals increased by approximately $27 million and $12 million,
respectively, in the first quarter, while slower Medicaid payments to the
Company's nursing centers accounted for approximately $9 million of the
increase.
Collections of accounts receivable are expected to improve in the second
quarter of 2003, primarily through normal Medicare settlements and lump-sum
payments based on recently filed annual hospital cost reports.
The Company was in compliance with the covenants related to its revolving
credit facility and senior secured notes at March 31, 2003. Long-term debt at
March 31, 2003 aggregated $162 million, relatively unchanged from December 31,
2002. There were no outstanding borrowings under the Company's revolving credit
facility at March 31, 2003.
Due to uncertainties associated with professional liability costs and
government reimbursement, the Company does not intend to issue any earnings
guidance for fiscal 2003 at this time.
Transaction with Ventas
The Company also announced that it has entered into an agreement to
purchase 15 Florida nursing centers and one Texas nursing center (the
"Facilities") that it leases from Ventas. In the proposed transaction, the
Company will pay approximately $60 million to purchase the Facilities and $4
million in lease termination fees. In addition, the Company has agreed to
certain amendments to its master leases with Ventas to: (1) pay incremental rent
in varying amounts generally over seven years, the net present value of which
will approximate $44 million using a discount rate of 11%, (2) provide that all
annual rent escalators under the master leases will be in cash at all times, and
(3) expand certain cooperation and information sharing provisions of the master
leases. The current annual rent of approximately $9 million on the Facilities to
be purchased will terminate on the closing of the proposed transaction.
For accounting purposes, the $44 million present value rent obligation to
Ventas will be recorded by the Company as long-term debt upon consummation of
the proposed transaction. The Company expects to record a loss on the proposed
transaction equal to the difference between the present value of the total
consideration paid to Ventas and the estimated fair value of the assets
acquired. The estimation of the fair value of the assets acquired and related
loss will be determined in conjunction with the Company's ongoing divestiture
negotiations with third parties. The Company expects to finance its obligations
at closing through the use of existing cash.
The consummation of the proposed transaction is subject to several material
conditions, including, but not limited to, the receipt of required approvals
from the Company's lenders. The Company has agreed to provide a $5 million
deposit to Ventas that is subject to forfeiture if, among other things, the
Company cannot obtain lender approval by June 25, 2003 or close the transaction
by June 30, 2003. The deposit would be refundable to the Company in the event of
a breach by Ventas.
Florida Nursing Center Divestiture
As previously announced, the Company intends to divest its 18 Florida
nursing centers. The Company is currently engaged in discussions with interested
third parties to divest the 15 facilities to be purchased from Ventas, two owned
facilities and one facility currently leased from another landlord.
Texas Nursing Center Divestiture
The Company currently operates two leased nursing centers in Texas, one of
which is leased from Ventas. Upon completion of the proposed purchase of the
Ventas nursing center, the Company intends to divest the facility. The Company
has recently entered into an agreement with the landlord of the other Texas
nursing center to terminate the lease effective June 30, 2003. As a result of
increased professional liability costs in Texas, these two nursing centers
reported pretax losses of approximately $4 million for the year ended December
31, 2002 and $2 million in the first quarter of 2003.
Ongoing Efforts to Enhance Shareholder Value
Edward L. Kuntz, Chairman and Chief Executive Officer of Kindred, noted the
Company's continuing efforts to restructure its nursing center operations. "The
successful completion of our Florida and Texas nursing center divestiture plans
will have a significant positive impact on our operating results going forward.
We are proceeding expeditiously to complete these transactions as soon as
possible. While there are other nursing center operational and professional
liability issues in other states, I am encouraged that the recent agreement with
Ventas will lead to our continued discussions of these issues. In addition, the
Company plans to consider various other strategic alternatives for each of its
businesses that may lead to enhanced shareholder value."
Forward-Looking Statements
This press release includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements regarding the
Company's expected future financial position, results of operations, cash flows,
financing plans, business strategy, budgets, capital expenditures, competitive
positions, growth opportunities, plans and objectives of management and
statements containing the words such as "anticipate," "approximate," "believe,"
"plan," "estimate," "expect," "project," "could," "should," "will," "intend,"
"may" and other similar expressions, are forward-looking statements.
Such forward-looking statements are inherently uncertain, and stockholders
and other potential investors must recognize that actual results may differ
materially from the Company's expectations as a result of a variety of factors,
including, without limitation, those discussed below. Such forward-looking
statements are based on management's current expectations and include known and
unknown risks, uncertainties and other factors, many of which the Company is
unable to predict or control, that may cause the Company's actual results or
performance to differ materially from any future results or performance
expressed or implied by such forward-looking statements. These statements
involve risks, uncertainties and other factors discussed below and detailed from
time to time in the Company's filings with the Securities and Exchange
Commission.
Factors that may affect the Company's plans or results include, without
limitation, (a) the Company's ability to operate pursuant to the terms of its
debt obligations and its master lease agreements with Ventas; (b) the Company's
ability to meet its rental and debt service obligations; (c) adverse
developments with respect to the Company's results of operations or liquidity;
(d) the Company's ability to attract and retain key executives and other
healthcare personnel; (e) increased operating costs due to shortages in
qualified nurses and other healthcare personnel; (f) the effects of healthcare
reform and government regulations, interpretation of regulations and changes in
the nature and enforcement of regulations governing the healthcare industry; (g)
changes in the reimbursement rates or methods of payment from third party
payors, including the Medicare and Medicaid programs and the new prospective
payment system for long-term acute care hospitals; (h) national and regional
economic conditions, including their effect on the availability and cost of
labor, materials and other services; (i) the Company's ability to control costs,
particularly labor and employee benefit costs; (j) the Company's ability to
comply with the terms of its Corporate Integrity Agreement; (k) the Company's
ability to integrate operations of acquired facilities; (l) the increase in the
costs of defending and insuring against professional liability claims and the
Company's ability to predict the estimated costs related to such claims; and (m)
the Company's ability to successfully reduce (by divestiture or otherwise) its
exposure to professional liability claims in the state of Florida and other
states. Many of these factors are beyond the Company's control. The Company
cautions investors that any forward-looking statements made by the Company are
not guarantees of future performance. The Company disclaims any obligation to
update any such factors or to announce publicly the results of any revisions to
any of the forward-looking statements to reflect future events or developments.
Kindred Healthcare, Inc. is a national provider of long-term healthcare
services primarily operating nursing centers, hospitals and institutional
pharmacies.
KINDRED HEALTHCARE, INC.
Financial Summary
(Unaudited)
(In thousands, except per share amounts)
Three months ended
March 31,
-------------------
2003 2002
-------- --------
Revenues $863,078 $811,244
Net income (loss) $(13,124) $ 18,178
Earnings (loss) per common share:
Basic $ (0.76) $ 1.05
Diluted $ (0.76) $ 0.95
Shares used in computing earnings (loss)
per common share:
Basic 17,377 17,308
Diluted 17,377 19,074
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
Three months ended
March 31,
-------------------
2003 2002
-------- --------
Revenues $863,078 $811,244
-------- --------
Salaries, wages and benefits 501,312 467,401
Supplies 110,095 101,314
Rent 68,392 65,611
Other operating expenses 180,509 127,297
Depreciation 20,083 16,696
Interest expense 2,888 3,732
Investment income (1,638) (1,880)
-------- --------
881,641 780,171
-------- --------
Income (loss) before income taxes (18,563) 31,073
Provision (benefit) for income taxes (5,439) 12,895
-------- --------
Net income (loss) $(13,124) $ 18,178
======== ========
Earnings (loss) per common share:
Basic $ (0.76) $ 1.05
Diluted $ (0.76) $ 0.95
Shares used in computing earnings (loss)
per common share:
Basic 17,377 17,308
Diluted 17,377 19,074
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
March 31, December 31,
2003 2002
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 100,173 $ 244,070
Cash-restricted 8,000 7,908
Insurance subsidiary investments 209,379 130,415
Accounts receivable less allowance for loss 467,240 420,611
Inventories 30,491 30,460
Other 91,425 86,852
---------- ----------
906,708 920,316
Property and equipment 622,830 611,944
Accumulated depreciation (135,479) (115,373)
---------- ----------
487,351 496,571
Goodwill 88,658 88,259
Other 168,162 139,032
---------- ----------
$1,650,879 $1,644,178
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 120,700 $ 124,466
Salaries, wages and other compensation 206,470 220,124
Due to third party payors 28,728 25,177
Other accrued liabilities 164,378 150,020
Income taxes 56,613 62,111
Long-term debt due within one year 162 258
---------- ----------
577,051 582,156
Long-term debt 161,992 162,008
Professional liability risks 234,073 211,771
Deferred credits and other liabilities 58,153 56,615
Stockholders' equity:
Common stock, $0.25 par value; authorized 175,000
shares - March 31 and December 31; issued
17,649 shares - March 31 and December 31 4,412 4,412
Capital in excess of par value 547,569 547,609
Deferred compensation (5,674) (6,967)
Accumulated other comprehensive income 313 460
Retained earnings 72,990 86,114
---------- ----------
619,610 631,628
---------- ----------
$1,650,879 $1,644,178
========== ==========
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Three months ended
March 31,
--------------------
2003 2002
--------- --------
Cash flows from operating activities:
Net income (loss) $ (13,124) $ 18,178
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 20,083 16,696
Amortization of deferred compensation costs 1,253 2,586
Provision for doubtful accounts 6,288 4,284
Other 506 55
Change in operating assets and liabilities:
Accounts receivable (53,316) 599
Inventories and other assets (6,387) (16,991)
Accounts payable (2,998) 15,527
Income taxes (5,457) 4,307
Due to third party payors 3,551 (7,404)
Other accrued liabilities 28,330 (2,678)
--------- --------
Net cash provided by (used in) operating
activities before reorganization items (21,271) 35,159
Payment of reorganization items (395) (2,462)
--------- --------
Net cash provided by (used in) operating
activities (21,666) 32,697
--------- --------
Cash flows from investing activities:
Purchase of property and equipment (10,565) (9,868)
Net change in insurance subsidiary investments (99,973) 908
Net change in other investments (4,685) 756
Other (333) 159
--------- --------
Net cash used in investing activities (115,556) (8,045)
--------- --------
Cash flows from financing activities:
Repayment of long-term debt (112) (101)
Payment of deferred financing costs (1,596) --
Other (4,967) (4,494)
--------- --------
Net cash used in financing activities (6,675) (4,595)
--------- --------
Change in cash and cash equivalents (143,897) 20,057
Cash and cash equivalents at beginning of period 244,070 190,799
--------- --------
Cash and cash equivalents at end of period $ 100,173 $210,856
========= ========
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
Three months ended
March 31,
--------------------
2003 2002(a)
-------- ---------
Revenues:
Health services division:
Nursing centers $460,559 $461,887
Rehabilitation services 8,502 7,830
-------- --------
469,061 469,717
Hospital division:
Hospitals 340,855 296,442
Ancillary services 1,759 1,870
-------- ---------
342,614 298,312
Pharmacy division 68,828 59,178
-------- ---------
880,503 827,207
Elimination of pharmacy charges to
Company nursing centers (b) (17,425) (15,963)
-------- ---------
$863,078 $811,244
======== ========
Net income (loss):
Operating income (loss):
Health services division:
Nursing centers $ 24,055 $ 82,727
Rehabilitation services (959) (66)
-------- ---------
23,096 82,661
Hospital division:
Hospitals 70,304 59,574(c)
Ancillary services 180 135
-------- ---------
70,484 59,709
Pharmacy division 6,902 5,537
Corporate overhead (29,320) (32,675)(d)
-------- ---------
Operating income 71,162 115,232
Rent (68,392) (65,611)
Depreciation (20,083) (16,696)
Interest, net (1,250) (1,852)
-------- ---------
Income (loss) before income taxes (18,563) 31,073
Provision (benefit) for income taxes (5,439) 12,895
-------- ---------
$(13,124) $ 18,178
======== =========
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(a) Certain prior year amounts have been reclassified to conform with the
current year presentation.
(b) As previously disclosed in the Company's 2002 Form 10-K, new intercompany
pharmacy pricing arrangements with Company-operated nursing centers became
effective on January 1, 2003.
(c) Includes $1.5 million of insurance proceeds.
(d) Includes $1.5 million of severance costs.
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
(In thousands)
Three months ended
March 31,
------------------
2003 2002(a)
------- -------
Rent:
Health services division:
Nursing centers $43,129 $41,276
Rehabilitation services 69 24
------- -------
43,198 41,300
Hospital division:
Hospitals 24,204 23,336
Ancillary services 201 225
------- -------
24,405 23,561
Pharmacy division 725 717
Corporate 64 33
------- -------
$68,392 $65,611
======= =======
Depreciation:
Health services division:
Nursing centers $ 6,927 $ 6,076
Rehabilitation services 16 9
------- -------
6,943 6,085
Hospital division:
Hospitals 7,255 6,361
Ancillary services 119 146
------- -------
7,374 6,507
Pharmacy division 531 397
Corporate 5,235 3,707
------- -------
$20,083 $16,696
======= =======
Capital expenditures, excluding acquisitions:
Health services division $ 3,273 $ 2,116
Hospital division 2,822 3,316
Pharmacy division 616 396
Corporate:
Information systems 3,207 3,330
Other 647 710
------- -------
$10,565 $ 9,868
======= =======
----------
(a) Certain prior year amounts have been reclassified to conform with the
current year presentation.
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
Three months ended
March 31,
-----------------------
2003 2002
---------- ----------
Nursing Center Data:
End of period data:
Number of nursing centers:
Owned or leased 278 280
Managed 7 14
---------- ----------
285 294
========== ==========
Number of licensed beds:
Owned or leased 36,549 36,615
Managed 803 1,417
---------- ----------
37,352 38,032
========== ==========
Revenue mix %:
Medicare 33 34
Medicaid 48 46
Private and other 19 20
Patient days (excludes managed facilities):
Medicare 448,291 439,715
Medicaid 1,875,858 1,883,679
Private and other 462,782 502,996
---------- ----------
2,786,931 2,826,390
========== ==========
Revenues per patient day:
Medicare $ 337 $ 358
Medicaid 119 114
Private and other 187 179
Weighted average 165 163
Average daily census 30,966 31,404
Occupancy % 84.4 85.0
Hospital Data:
End of period data:
Number of hospitals 65 57
Number of licensed beds 5,408 4,961
Revenue mix %:
Medicare 60 58
Medicaid 8 10
Private and other 32 32
Patient days:
Medicare 222,919 196,057
Medicaid 32,266 33,864
Private and other 58,369 58,437
---------- ----------
313,554 288,358
========== ==========
Revenues per patient day:
Medicare $ 918 $ 880
Medicaid 825 880
Private and other 1,877 1,609
Weighted average 1,087 1,028
Average daily census 3,484 3,204
Occupancy % 67.3 67.6
Pharmacy Data:
Number of customer licensed beds at end of period:
Company-operated 29,804 30,471
Non-affiliated 28,365 25,695
---------- ----------
58,169 56,166
========== ==========