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Kindred Healthcare Announces Fourth Quarter Results

Stocks in this article: KND

In light of the significant reimbursement pressures in 2012, and the expected further reimbursement reductions that are projected to aggregate approximately $100 million in 2013, the Company has focused its efforts on reducing costs and streamlining its operations across the enterprise without impacting the quality of its services. These initiatives have been pursued under the direction of an internal project management team commonly referred to as Project Apollo. Among other things, Project Apollo is driving various structural changes in human resources, sales, marketing and finance under a shared service model that more efficiently meets the needs of the Company’s four major operating divisions. Other areas of emphasis include a re-design of the Company’s employee health plan (including the introduction of higher deductible plans complimented by Company-funded health savings accounts) as well as certain refinements to employee compensation using a market-based total rewards program.

Project Apollo is expected to result in $60 million to $70 million of cost savings in 2013, with a fully implemented annual impact of more than $90 million in 2014.

In the context of Project Apollo, the Company recently initiated a pay freeze across the enterprise and is pursuing certain other cost reductions in 2013. However, in an effort to remain competitive in the marketplace (without increasing its structural costs), the Company will pay a one-time bonus to approximately 47,000 employees who do not participate in the Company’s incentive compensation program. The aggregate pretax cost of this one-time item is expected to approximate $25 million and is not included in the Company’s annual 2013 earnings guidance.

While the Company does not provide quarterly earnings guidance, investors are advised that the Company’s new employee health plan for 2013 requires that a larger portion of the Company’s costs be funded in the first quarter of the year. While the Company expects its aggregate employee health costs for the full year to be flat with 2012 levels, first quarter 2013 costs will be approximately $8 million higher than the same period last year and the subsequent three fiscal quarters will, in aggregate, be lower in costs by the same amount.

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