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Kindred Healthcare Fourth Quarter Results Exceed High End of Company's Guidance

February 19, 2009
Continuing Operations Income of $0.56 per Diluted Share Exceeds Guidance of $0.35 to $0.45

Fourth Quarter Outperformance Driven by Strong Hospital Operating Results

Full Year Continuing Operations Income of $1.51 per Diluted Share Includes $0.07 of Net Credits

Company Adjusts 2009 EPS Range to $1.35 to $1.45 from $1.30 to $1.45

Company Provides First Quarter 2009 EPS Guidance of $0.40 to $0.50

Louisville, KY (February 19, 2009) – Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2008. All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.

Fourth Quarter Highlights:

  • Consolidated revenues grew 5% to $1.1 billion compared to the fourth quarter of 2007
  • Diluted earnings per share from continuing operations were $0.56 compared to last year’s $0.51
  • Hospital operating results were better than expected
    - Favorable rates and improved revenue mix drove better than expected performance
    - Reported hospital admissions grew 2% compared to last year’s fourth quarter
    - Same-store aggregate admissions grew 1%; non-government admissions grew 12%
  • Nursing center and Peoplefirst Rehabilitation results were in line with the Company’s expectations
  • Company’s financial position strengthened significantly in the fourth quarter
    - Operating cash flows surged to $142 million, up from $63 million in the fourth quarter of 2007
    - Accounts receivable were reduced by $89 million from September 30, 2008 levels
    - Company built excess cash balances of $125 million in the quarter in light of difficult credit environment
    - Year-end revolving credit facility balance of $349 million was in line with expectations
    - Net of excess cash levels, the Company’s overall leverage profile improved at December 31, 2008 compared to a year ago
  • Fiscal year routine and hospital development capital spending fully funded through internal sources
    - Excluding acquisitions, capital spending totaled $149 million in 2008 compared to $186 million in 2007

Fourth Quarter Results

Continuing Operations

Consolidated revenues for the fourth quarter ended December 31, 2008 increased 5% to $1.1 billion compared to $1.0 billion in the same period last year. Income from continuing operations for the fourth quarter of 2008 totaled $21.8 million or $0.56 per diluted share compared to $19.6 million or $0.51 per diluted share in the fourth quarter last year.

Operating results for the fourth quarter of 2007 included certain items that, in the aggregate, reduced net income by approximately $2.0 million or $0.05 per diluted share.

Discontinued Operations

During 2007 and 2008, the Company entered into transactions related to the divestiture of unprofitable businesses. For accounting purposes, the historical operating results of these businesses and losses associated with these operations have been classified as discontinued operations in the Company’s consolidated statement of operations for all historical periods.

For the fourth quarter of 2008, the Company reported income from discontinued operations totaling $0.9 million or $0.02 per diluted share compared to a net loss of $3.3 million or $0.08 per diluted share in the fourth quarter of 2007.

In the fourth quarter of 2008, the Company recorded a loss of $1.5 million or $0.03 per diluted share related to the divestiture of discontinued operations.

Fiscal Year Results

Continuing Operations

Consolidated revenues for the year ended December 31, 2008 totaled $4.2 billion, a decline of 1% from fiscal 2007. Excluding the Company’s former institutional pharmacy business that was spun off in July 2007, revenues rose 8% in fiscal 2008 compared to the prior year. Income from continuing operations totaled $58.9 million or $1.51 per diluted share in 2008 compared to $39.6 million or $0.99 per diluted share in 2007.

Operating results in 2008 included certain items that, in the aggregate, increased net income by approximately $2.8 million or $0.07 per diluted share. These items related primarily to the favorable settlement of a prior year nursing center Medicaid cost report dispute, the negative impact of the third quarter Gulf hurricanes, a write-down of an investment, the negative impact of prior year rent escalator adjustments and certain favorable prior year income tax adjustments.

Operating results in 2007 included certain items that, in the aggregate, reduced net income by approximately $23.8 million or $0.59 per diluted share.

Discontinued Operations

In 2008, the Company reported a net loss from discontinued operations totaling $1.8 million or $0.05 per diluted share compared to a net loss of $9.5 million or $0.23 per diluted share in 2007.

Losses on the divestiture of discontinued operations totaled $20.8 million or $0.53 per diluted share for 2008 compared to $77.0 million or $1.93 per diluted share for 2007.

Management Commentary

“We are pleased to report solid fourth quarter operating results across each of our three divisions,” remarked Paul J. Diaz, President and Chief Executive Officer of the Company. “The quarter was highlighted by a strong rebound in our hospital business and the significant strengthening of our financial position as we move into 2009.”

Commenting on the Company’s fourth quarter results, Mr. Diaz noted, “In our hospital business, favorable rates and improved revenue mix resulted in better than expected operating margins in the period. Our nursing centers continued to report stable operating results despite some softness in our Medicare volumes as we again executed on our plan of improving employee retention, our quality indicators and customer satisfaction levels. Peoplefirst Rehabilitation reported its eighteenth quarter of sequentially higher revenues as we further expanded our external customer base and improved our cost metrics.”

Mr. Diaz continued, “Our financial position was significantly strengthened in the fourth quarter. We reduced our accounts receivable in both our hospitals and nursing centers through improved cash collections, resulting in an aggregate decline in accounts receivable of $89 million during the quarter. Fourth quarter operating cash flows surged to $142 million compared to $63 million in the fourth quarter of 2007, while our full-year 2008 operating cash flows grew 12% to $183 million from $163 million last year.”

Further commenting on the Company’s stronger financial position, Mr. Diaz noted, “As a result of our strong fourth quarter operating cash flows, we accumulated $125 million of excess cash at year-end to further enhance our financial strength in a generally difficult credit environment. We ended the year with $349 million in outstanding revolving credit borrowings, in line with our expectations. Net of our excess cash levels, our overall leverage profile improved at December 31, 2008 compared to a year ago.”

With respect to the Company’s capital spending activities, Mr. Diaz noted, “Our strategy of selective acquisition and development activities continued in 2008. We opened one new hospital and continued to develop five additional hospitals which are expected to open in 2009 and 2010. More importantly, we financed all of our routine and development projects through internal sources in fiscal 2008.”

Mr. Diaz concluded, “We are pleased with our overall performance in 2008. Despite a weak third quarter, our outperformance in the fourth quarter drove our full-year earnings per diluted share to $1.51, within the highest earnings guidance range provided during the course of the year. Looking forward, we will continue to focus on more consistent operational execution at each of our sites of service that will enable us to enhance shareholder value.”

2009 Earnings Guidance – Continuing Operations

The Company adjusted its 2009 earnings guidance for continuing operations. The Company expects consolidated revenues for 2009 to approximate $4.4 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $587 million to $593 million. Rent expense is expected to approximate $360 million, while depreciation, amortization and net interest expense are expected to approximate $134 million. Income from continuing operations for 2009 is expected to approximate $54 million to $57 million or $1.35 to $1.45 per diluted share (based upon diluted shares of 39.5 million).

The Company also provided its earnings outlook for the first quarter of 2009, estimating income from continuing operations to range from $16 million to $19 million or $0.40 to $0.50 per diluted share (based upon diluted shares of 39.5 million).

The Company indicated that the earnings guidance does not reflect any significant changes in reimbursement, any material acquisitions or divestitures or any repurchases of common stock.

With respect to the Company’s 2009 earnings guidance, Mr. Diaz noted, “We think that the quarterly allocation of our expected annual 2009 earnings per share should generally be similar to our 2008 quarterly results excluding disclosed items. In particular, we think that the typical seasonal weakness in the third quarter will likely result in earnings per share between break-even and $0.10 for the period.”

Webcast of Conference Call

As previously announced, investors and the general public can access a live webcast of the fourth quarter 2008 conference call through a link on Kindred’s website at The conference call will be held February 20, 2009 at 10:00 a.m. Eastern Time.

A telephone replay of the conference call will be available at approximately 1:00 p.m. on February 20 by dialing (719) 457-0820, access code: 5524475. The replay will be available through February 28.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements regarding the Company’s expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “should,” “will,” “intend,” “may” and other similar expressions, are forward-looking statements.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results or performance to differ materially from any future results or performance expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

In addition to the factors set forth above, other factors that may affect the Company’s plans or results include, without limitation, (a) changes in the reimbursement rates or the methods or timing of payment from third party payors, including the Medicare and Medicaid programs, changes arising from and related to the Medicare prospective payment system for long-term acute care (“LTAC”) hospitals, including potential changes in the Medicare payment rules, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and changes in Medicare and Medicaid reimbursements for the Company’s nursing centers; (b) the impact of the Medicare, Medicaid and SCHIP Extension Act, including the ability of the Company’s hospitals to adjust to potential LTAC certification, medical necessity reviews and the three-year moratorium on future hospital development; (c) the effects of healthcare reform and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry; (d) the failure of the Company’s facilities to meet applicable licensure and certification requirements; (e) the further consolidation of managed care organizations and other third party payors; (f) the Company’s ability to meet its rental and debt service obligations; (g) the Company’s ability to operate pursuant to the terms of its debt obligations and its master leases with Ventas, Inc. (NYSE:VTR); (h) adverse developments with respect to the Company’s results of operations or liquidity; (i) the condition of the financial markets, including volatility and deterioration in the equity, capital and credit markets, which could limit the availability and terms of debt and equity financing sources to fund the requirements of the Company’s businesses, or which could negatively impact the Company’s investment portfolio; (j) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services; (k) the Company’s ability to control costs, particularly labor and employee benefit costs; (l) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel; (m) the Company’s ability to attract and retain key executives and other healthcare personnel; (n) the increase in the costs of defending and insuring against alleged professional liability claims and the Company’s ability to predict the estimated costs related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes; (o) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability claims; (p) the Company’s ability to successfully pursue its development activities and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations; (q) the Company’s ability to successfully dispose of unprofitable facilities; (r) events or circumstances which could result in impairment of an asset or other charges; (s) changes in generally accepted accounting principles or practices; and (t) the Company’s ability to maintain an effective system of internal control over financial reporting. Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

As noted above, the Company’s earnings guidance includes the financial measure referred to as operating income. The Company’s management uses operating income as a meaningful measure of operational performance in addition to other measures. The Company uses operating income to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes this measurement is important because securities analysts and investors use this measurement to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income from continuing operations is the most comparable measure, in relation to generally accepted accounting principles, to operating income. Readers of the Company’s financial information should consider income from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating income should be considered in addition to, not as a substitute for, or superior to, financial measures based upon generally accepted accounting principles as an indicator of operating performance. A reconciliation of the estimated operating income to income from continuing operations provided in the Company’s earnings guidance is included in this press release.

About Kindred Healthcare

Kindred Healthcare, Inc. is a healthcare services company, based in Louisville, Kentucky, with annual revenues of over $4 billion and approximately 53,700 employees in 40 states. At December 31, 2008, Kindred through its subsidiaries provided healthcare services in 655 locations, including 82 long-term acute care hospitals, 228 skilled nursing centers and a contract rehabilitation services business, Peoplefirst rehabilitation services, which served 345 non-affiliated facilities. Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to

Click here to view the 4th Quarter Results.

Richard A. Lechleiter
Executive Vice President and Chief Financial Officer
(502) 596-7734