Gentiva® Health Services Reports Fourth Quarter and Full-Year 2011 Results
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ATLANTA, Feb. 7, 2012 /PRNewswire/ -- Gentiva Health Services, Inc. (NASDAQ: GTIV), the largest provider of home health and hospice services in the United States based on revenue, today reported fourth quarter and full-year 2011 results.
Full-year 2011 financial highlights include:
•Total net revenues of $1.8 billion.
•Adjusted income from continuing operations on a diluted share basis of $1.68, excluding the $0.08 impact from debt refinancing charges incurred in the first quarter of 2011.
•Adjusted EBITDA of $199 million.
As previously disclosed, the Company undertook a comprehensive review of its branch structure, support infrastructure and other significant spend areas in the third quarter of 2011 in response to the challenging Medicare reimbursement rate environment the Company is facing. As a result of this assessment, the Company closed 34 locations (25 home health and 9 hospice) and sold 9 home health locations in the fourth quarter of 2011. The financial results of the impacted locations were included in the Company's results from continuing operations. Related to the cost savings and branch reduction initiatives, the Company recorded a pre-tax charge of $12.4 million in the fourth quarter of 2011 for severance, lease terminations and other items. Subsequent to year-end, the Company entered into agreements to sell 8 additional home health branches and 2 hospice branches as part of its branch assessment.
Fourth quarter 2011 financial highlights include:
¦Total net revenues of $449.2 million, a decrease of 2% compared to $456.8 million for the quarter ended December 31, 2010. Net revenues included home health episodic revenues of $217.1 million, a decline of 3% compared to $224.6 million in the 2010 fourth quarter. Hospice revenues were $200.3 million in the fourth quarter of 2011, an increase of 3% compared to $195.2 million in the 2010 fourth quarter. Hospice represented 45% of total net revenues in the fourth quarter of 2011, compared to 43% in the 2010 fourth quarter.
¦Income from continuing operations attributable to Gentiva shareholders of $3.4 million, or $0.11 per diluted share, compared to $17.9 million, or $0.59 per diluted share, for the fourth quarter of 2010.
¦Adjusted income from continuing operations attributable to Gentiva shareholders of $11.3 million, compared with $20.9 million in the comparable 2010 period. On a diluted per share basis, adjusted income from continuing operations attributable to Gentiva shareholders was $0.37 for the fourth quarter of 2011 compared to income of $0.69 for the fourth quarter of 2010.
¦Adjusted earnings before interest, taxes, depreciation and amortization attributable to continuing operations (Adjusted EBITDA) decreased 26% to $47.1 million in the fourth quarter of 2011 as compared to $63.9 million in the fourth quarter of 2010. Adjusted EBITDA as a percentage of net revenues was 10.5% in the fourth quarter of 2011 versus 14.0% in the prior-year period.
Adjusted income from continuing operations attributable to Gentiva shareholders and Adjusted EBITDA for the fourth quarter of 2011 exclude special items relating to i) pre-tax charges for cost savings initiatives of $12.4 million, or $0.24 per diluted share, ii) pre-tax charges for restructuring, legal settlements and acquisition and integration costs of $1.9 million, or $0.03 per diluted share, iii) incremental tax expense on goodwill, intangibles and other long-lived asset impairment of $0.6 million, or $0.02 per diluted share, iv) tax adjustment charge to gain on sale of CareCentrix included in the net earnings of CareCentrix of $1.2 million, or $0.04 per diluted share, v) pre-tax gain on sale of assets of $1.1 million, or $0.02 per diluted share, and vi) tax benefit on legal settlements of $1.7 million, or $0.05 per diluted share. The fourth quarter of 2010 included pre-tax charges for legal settlement, restructuring, and acquisition and integration costs of $5.3 million, or $0.10 per diluted share. See table that follows.
Full-year 2011 financial highlights include:
¦Total net revenues of $1.80 billion, an increase of 27% compared to $1.41 billion for the prior year period. Net revenues included home health episodic revenues of $876.9 million, a decline of 4%, compared to $909.1 million in the comparable 2010 period. Hospice revenues were $786.2 million, compared to $351.5 million in the prior year period.
¦Loss from continuing operations attributable to Gentiva shareholders of $458.8 million, or $15.13 per diluted share, as compared to income from continuing operations of $55.3 million, or $1.81 per diluted share, for the 2010 period.
¦Adjusted income from continuing operations attributable to Gentiva shareholders of $49.2 million, compared with $83.6 million in the 2010 period. On a diluted per share basis, adjusted income from continuing operations attributable to Gentiva shareholders was $1.60 for 2011 as compared with $2.74 in the corresponding period of 2010. Excluding the approximately $3.8 million write-off of prepaid financing fees and the costs of terminating the Company's interest rate swap contract associated with the Company's debt refinancing in the first quarter of 2011, adjusted income from continuing operations attributable to Gentiva shareholders was $1.68 on a diluted per share basis.
¦Adjusted earnings before interest, taxes, depreciation and amortization attributable to continuing operations (Adjusted EBITDA) increased 2% to $199.2 million as compared to $196.0 million in the 2010 period. Adjusted EBITDA as a percentage of net revenues was 11.1% versus 13.9% in the prior-year period.
Adjusted income from continuing operations attributable to Gentiva shareholders and Adjusted EBITDA for the full year 2011 exclude special items relating to i) pre-tax charges for cost savings initiatives of $13.2 million, or $0.26 per diluted share, ii) pre-tax charges for restructuring, legal settlements and acquisition and integration costs of $35.9 million, or $0.72 per diluted share, iii) pre-tax charges for goodwill, intangibles and other long-lived asset impairment of $643.3 million, or $18.06 per diluted share, iv) gain on sale of CareCentrix included in the net earnings of CareCentrix of $67.1 million, or $2.21 per diluted share, v) pre-tax gain on sale of assets of $1.1 million, or $0.02 per diluted share, and vi) dividend income of $8.6 million, or $0.18 per diluted share. The full year 2010 period included pre-tax legal settlement, restructuring, and acquisition and integration costs of $46.0 million, or $0.93 per diluted share. See table that follows.
For the fourth quarter of 2011, the Company reported net income attributable to Gentiva shareholders of $4.6 million, or $0.15 per diluted share, compared to net income of $15.8 million, or $0.52 per diluted share, in the fourth quarter of 2010. For the full-year 2011, net loss attributable to Gentiva shareholders was $450.5 million, or $14.85 per diluted share, versus net income of $52.2 million, or $1.71 per diluted share, for the full-year 2010. These results included special items discussed above as well as the results from discontinued operations.
Financial Covenants
Given the amount of potential fourth quarter charges related to the cost savings initiatives, on November 28, 2011, the Company entered into an amendment to its senior secured credit agreement to increase its fourth quarter financial covenant flexibility. The amendment modified the definition of Consolidated EBITDA in the fourth quarter of 2011 to provide for the add-back of the full costs associated with the Company's cost realignment and operating losses associated with branches scheduled to be closed or sold during the fourth quarter of 2011. Additionally, the amendment permitted the Company to maintain its consolidated leverage ratio at or less than 4.75 to 1.00 through December 31, 2011. As of December 31, 2011, the Company's consolidated leverage ratio was 4.41, below the 4.75 to 1.00 maximum permitted. On a net basis, excluding total cash and equivalents, the consolidated leverage ratio was 3.67 as of December 31, 2011.
Based on the impact of the Medicare reimbursement rate decreases and the reduction in its maximum allowed consolidated leverage ratio during 2012, the Company will likely be out of compliance with its financial covenant ratios in 2012. The Company is currently in discussions with its lead bank on an amendment to provide covenant flexibility to its credit agreement.
Cash Flow and Balance Sheet Highlights
At December 31, 2011, the Company reported cash and cash equivalents of $164.9 million and outstanding debt of $988.1 million. During the fourth quarter of 2011, the Company paid down $20 million on its term loans. Since closing the Odyssey transaction, the Company has repaid $116.9 million on its revolving credit facility and term loans. Total Company days sales outstanding, or DSO's, was 57 days at December 31, 2011, compared to 50 days at September 30, 2011.
Cash flow was impacted in the fourth quarter by tax payments on asset sales completed in the third quarter of 2011 and cash severance and lease termination payments associated with the Company's cost savings initiatives. For the fourth quarter of 2011, net cash provided by operating activities was a negative $9.2 million, compared to $51.0 million in the prior year period for 2010. Free cash flow was a negative $13.9 million for the fourth quarter of 2011, compared to $44.1 million in 2010. Free cash flow is calculated as net cash provided by operating activities less capital expenditures.
Full-Year 2012 Outlook
On January 10, 2012, the Company provided 2012 net revenue and Adjusted EBITDA guidance to facilitate discussions with its bank group regarding an amendment to its credit agreement. For 2012, Gentiva expects full-year net revenues to be in the range of $1.70 billion to $1.76 billion and Adjusted EBITDA to be $170 million to $190 million. Adjusted EBITDA excludes charges related to cost savings initiatives, restructuring, acquisition, integration activities, the cost of legal settlements, goodwill, intangible asset and other long-lived asset impairment and dividend income.
The Company intends to provide its 2012 outlook for adjusted income from continuing operations attributable to Gentiva shareholders once it completes the amendment of its credit agreement.
Non-GAAP Financial Measures
The information provided in this press release includes certain non-GAAP financial measures as defined under Securities and Exchange Commission (SEC) rules. In accordance with SEC rules, the Company has provided, in the supplemental information and the footnotes to the tables, a reconciliation of those historical measures to the most directly comparable GAAP measures.
A reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, is not accessible on a forward-looking basis without unreasonable effort due to the inherent difficulties in predicting the costs of restructuring, legal settlements and merger and acquisition activities, the results of discontinued operations and the impact of any future acquisitions or divestitures, which can fluctuate significantly and may have a significant impact on net income.
Conference Call and Webcast Details
The Company will comment further on its fourth quarter and full-year 2011 results during its conference call and live webcast to be held Tuesday, February 7, 2012 at 9:00 a.m. Eastern Time. To participate in the call from the United States, Canada or an international location, dial (973) 935-2408 and reference call #46346894. The webcast is an audio-only, one-way event. Webcast listeners who wish to ask questions must participate in the conference call. Log onto http://investors.gentiva.com/events.cfm to hear the webcast. A replay of the call will be available on February 7 and will remain available continuously through February 14. To listen to a replay of the call from the United States, Canada or international locations dial (800) 585-8367 or (404) 537-3406 and enter the following PIN at the prompt: 46346894. Visit http://investors.gentiva.com/events.cfm to access the webcast archive. This press release is accessible at http://investors.gentiva.com/releases.cfm and a transcript of the conference call will be posted on the Company's website.
About Gentiva Health Services, Inc.
Gentiva Health Services, Inc. is the nation's largest provider of home health and hospice services based on revenue, delivering innovative, high quality care to patients across the United States. Gentiva is a single source for skilled nursing; physical, occupational, speech and neurorehabilitation services; hospice services; social work; nutrition; disease management education; help with daily living activities; and other therapies and services. In August 2010, Gentiva acquired Odyssey HealthCare, Inc., one of the largest providers of hospice care in the United States. GTIV-E
(unaudited tables and notes follow)
Gentiva Health Services, Inc. and Subsidiaries
Condensed Consolidated Financial Statements and Supplemental Information
(Unaudited)
(in 000's, except per share data)
4th Quarter
Fiscal Year
2011
2010
2011
2010
Statements of Operations
Net revenues
$ 449,209
$ 456,817
$ 1,798,778
$ 1,414,459
Cost of services sold
240,605
228,314
948,455
680,074
Gross profit
208,604
228,503
850,323
734,385
Selling, general and administrative expenses
(183,402)
(177,676)
(730,407)
(606,864)
Goodwill, intangibles and other long-lived asset impairment
-
-
(643,305)
-
Gain on sale of assets
1,061
-
1,061
103
Dividend income
-
-
8,590
-
Interest income
723
679
2,686
2,656
Interest expense and other
(20,991)
(24,729)
(91,296)
(41,686)
Income (loss) from continuing operations before income taxes and equity in net earnings of CareCentrix
5,995
26,777
(602,348)
88,594
Income tax (expense) benefit
(1,239)
(8,542)
75,768
(34,076)
Equity in net earnings of CareCentrix, including gain on sale
(1,201)
17
68,381
1,298
Income (loss) from continuing operations
3,555
18,252
(458,199)
55,816
Discontinued operations, net of tax
1,219
(2,040)
8,315
(3,135)
Net income (loss)
4,774
16,212
(449,884)
52,681
Less: Net income attributable to noncontrolling interests
(189)
(393)
(641)
(526)
Net income (loss) attributable to Gentiva shareholders
$ 4,585
$ 15,819
$ (450,525)
$ 52,155
Earnings per Share
Basic earnings per share:
Income (loss) from continuing operations attributable to Gentiva shareholders
$ 0.11
$ 0.60
$ (15.13)
$ 1.86
Discontinued operations, net of tax
0.04
(0.07)
0.28
(0.11)
Net income (loss) attributable to Gentiva shareholders
$ 0.15
$ 0.53
$ (14.85)
$ 1.75
Weighted average shares outstanding
30,402
29,819
30,336
29,724
Diluted earnings per share:
Income (loss) from continuing operations attributable to Gentiva shareholders
$ 0.11
$ 0.59
$ (15.13)
$ 1.81
Discontinued operations, net of tax
0.04
(0.07)
0.28
(0.10)
Net income (loss) attributable to Gentiva shareholders
$ 0.15
$ 0.52
$ (14.85)
$ 1.71
Weighted average shares outstanding
30,541
30,525
30,336
30,468
Amounts attributable to Gentiva shareholders:
Income (loss) from continuing operations
$ 3,366
$ 17,859
$ (458,840)
$ 55,290
Discontinued operations, net of tax
1,219
(2,040)
8,315
(3,135)
Net income (loss)
$ 4,585
$ 15,819
$ (450,525)
$ 52,155
Condensed Balance Sheets
ASSETS
Dec 31, 2011
Dec 31, 2010
Cash and cash equivalents
$ 164,912
$ 104,752
Accounts receivable, net (A)
290,589
259,588
Deferred tax assets
26,451
28,155
Prepaid expenses and other current assets
38,379
48,910
Total current assets
520,331
441,405
Note receivable from CareCentrix
25,000
25,000
Investment in CareCentrix
-
25,635
Fixed assets, net
46,246
85,707
Intangible assets, net
214,874
374,057
Goodwill
641,669
1,085,066
Other assets
82,208
83,258
Total assets
$ 1,530,328
$ 2,120,128
LIABILITIES AND EQUITY
Current portion of long-term debt
$ 14,903
$ 25,000
Accounts payable
12,613
15,562
Payroll and related taxes
42,027
44,163
Deferred revenue
34,114
36,387
Medicare liabilities
23,066
31,236
Obligations under insurance programs
54,976
61,899
Accrued nursing home costs
24,223
24,241
Other accrued expenses
89,270
78,153
Total current liabilities
295,192
316,641
Long-term debt
973,222
1,026,563
Deferred tax liabilities, net
32,498
111,199
Other liabilities
26,885
27,493
Total equity
202,531
638,232
Total liabilities and equity
$ 1,530,328
$ 2,120,128
Common shares outstanding
30,779
30,158
(A) Accounts receivable, net included an allowance for doubtful accounts of $11.6 million and $7.7 million at December 31, 2011 and December 31, 2010, respectively.
Fiscal Year
Condensed Statements of Cash Flows
2011
2010
OPERATING ACTIVITIES:
Net (loss) income
$ (449,884)
$ 52,681
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization
30,140
22,576
Amortization and write-off of debt issuance costs
16,263
5,016
Provision for doubtful accounts
8,399
10,285
Equity-based compensation expense
7,548
6,279
Windfall tax benefits associated with equity-based compensation
(192)
(948)
Goodwill, intangibles and other long-lived asset impairment
643,305
-
(Gain) loss on sale of assets and businesses
(12,536)
2,031
Equity in net earnings of CareCentrix, including gain on sale, net of tax
(68,381)
(1,298)
Deferred income tax benefit
(86,012)
(1,220)
Changes in assets and liabilities, net of effects from acquisitions and dispositions:
Accounts receivable
(39,400)
35,600
Prepaid expenses and other current assets
10,467
(16,000)
Current liabilities
(54,111)
25,552
Other, net
(465)
2,067
Net cash provided by operating activities
5,141
142,621
INVESTING ACTIVITIES:
Purchase of fixed assets
(19,231)
(16,184)
Proceeds from sale of assets and businesses
146,315
9,796
Acquisition of businesses, net of cash acquired
(320)
(834,919)
Net cash provided by (used in) investing activities
126,764
(841,307)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock
7,901
8,618
Windfall tax benefits associated with equity-based compensation
192
948
Proceeds from issuance of debt
-
1,075,000
Borrowings under revolving credit facility
-
30,000
Repayment of borrowings under revolving credit facility
-
(30,000)
Repayment of long-term debt
(63,438)
(260,437)
Repayment of Odyssey long-term debt
-
(108,822)
Debt issuance costs
(15,460)
(58,577)
Repurchase of common stock
-
(4,985)
Repayment of capital lease obligations
(267)
(645)
Other
(673)
(72)
Net cash (used in) provided by financing activities
(71,745)
651,028
Net change in cash and cash equivalents
60,160
(47,658)
Cash and cash equivalents at beginning of period
104,752
152,410
Cash and cash equivalents at end of period
$ 164,912
$ 104,752
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid
$ 78,639
$ 24,052
Income taxes paid
$ 38,067
$ 47,446
A reconciliation of Free cash flow to Net cash provided by operating activities follows:
Fiscal Year
2011
2010
Net cash provided by operating activities
$ 5,141
$ 142,621
Less: Purchase of fixed assets
(19,231)
(16,184)
Free cash flow
$ (14,090)
$ 126,437
(in 000's)
Supplemental Information
4th Quarter
Fiscal Year
2011
2010
2011
2010
Segment Information (2)
Net revenues
Home Health
$ 248,944
$ 261,572
$ 1,012,566
$ 1,062,944
Hospice
200,265
195,245
786,212
351,515
Total net revenues
$ 449,209
$ 456,817
$ 1,798,778
$ 1,414,459
Operating contribution (5)
Home Health
$ 20,767
$ 49,481
$ 126,194
$ 205,469
Hospice
35,422
40,760
139,723
72,276
Total operating contribution
56,189
90,241
265,917
277,745
Corporate administrative expenses
(23,381)
(31,634)
(115,861)
(127,745)
Goodwill, intangibles and other long-lived asset impairment (7)
-
-
(643,305)
-
Dividend income (8)
-
-
8,590
-
Depreciation and amortization
(7,606)
(7,780)
(30,140)
(22,479)
Gain on sale of assets
1,061
-
1,061
103
Interest expense and other, net (6)
(20,268)
(24,050)
(88,610)
(39,030)
Income (loss) from continuing operations before income taxes and equity in net earnings of CareCentrix
$ 5,995
$ 26,777
$ (602,348)
$ 88,594
Home Health operating contribution margin %
8.3%
18.9%
12.5%
19.3%
Hospice operating contribution margin %
17.7%
20.9%
17.8%
20.6%
4th Quarter
Fiscal Year
2011
2010
2011
2010
Net Revenues by Major Payer Source:
Medicare
Home Health
$ 197,574
$ 202,270
$ 799,240
$ 822,690
Hospice
186,047
181,030
729,032
326,166
Total Medicare
383,621
383,300
1,528,272
1,148,856
Medicaid and local government
19,943
22,084
83,103
73,973
Commercial insurance and other:
Paid at episodic rates
19,568
22,285
77,638
86,457
Other
26,077
29,148
109,765
105,173
Total commercial insurance and other
45,645
51,433
187,403
191,630
Total net revenues
$ 449,209
$ 456,817
$ 1,798,778
$ 1,414,459
A reconciliation of Adjusted EBITDA to Net income (loss) attributable to Gentiva shareholders follows:
4th Quarter
Fiscal Year
2011
2010
2011
2010
Adjusted EBITDA (3)
$ 47,090
$ 63,879
$ 199,194
$ 196,003
Goodwill, intangibles and other long-lived asset impairment (7)
-
-
(643,305)
-
Dividend income (8)
-
-
8,590
-
Gain on sale of assets, net
1,061
-
1,061
103
Cost saving initiatives
(12,386)
-
(13,210)
-
Restructuring, legal settlement and acquisition and integration costs (5)
(1,896)
(5,272)
(35,928)
(46,003)
EBITDA (5)
33,869
58,607
(483,598)
150,103
Depreciation and amortization
(7,606)
(7,780)
(30,140)
(22,479)
Interest expense and other, net (6)
(20,268)
(24,050)
(88,610)
(39,030)
Income (loss) from continuing operations before income taxes and equity in net earnings of CareCentrix
5,995
26,777
(602,348)
88,594
Income tax (expense) benefit (9)
(1,239)
(8,542)
75,768
(34,076)
Equity in net earnings of CareCentrix, including gain on sale, net of tax
(1,201)
17
68,381
1,298
Income (loss) from continuing operations
3,555
18,252
(458,199)
55,816
Discontinued operations, net of tax (4)
1,219
(2,040)
8,315
(3,135)
Net income (loss)
4,774
16,212
(449,884)
52,681
Less: Net income attributable to noncontrolling interests
(189)
(393)
(641)
(526)
Net income (loss) attributable to Gentiva shareholders
$ 4,585
$ 15,819
$ (450,525)
$ 52,155
A reconciliation of Adjusted income from continuing operations attributable to Gentiva shareholders to Income (loss) from continuing operations follows: (3)
4th Quarter
Fiscal Year
2011
2010
2011
2010
Adjusted income from continuing operations attributable to Gentiva shareholders
$ 11,259
$ 20,887
$ 49,212
$ 83,585
Goodwill, intangibles and other long-lived asset impairment, net of tax (7)
(635)
-
(547,753)
-
Gain on sale of assets, net
631
-
631
103
Gain on sale of CareCentrix included in equity in net earnings of CareCentrix, net of tax
(1,201)
-
67,127
-
Dividend income (8)
-
-
5,435
-
Cost saving initiatives
(7,266)
-
(7,773)
-
Restructuring, legal settlement and acquisition and integration costs (5)
(1,112)
(3,028)
(21,906)
(28,398)
Fin-48 Reserve on OIG legal settlement
1,690
-
(3,813)
-
Income (loss) from continuing operations attributable to Gentiva shareholders
3,366
17,859
(458,840)
55,290
Add back: Net income attributable to noncontrolling interests
189
393
641
526
Income (loss) from continuing operations
$ 3,555
$ 18,252
$ (458,199)
$ 55,816
Adjusted income from continuing operations attributable to Gentiva shareholders per diluted share
$ 0.37
$ 0.69
$ 1.60
$ 2.74
Goodwill, intangibles and other long-lived asset impairment, net of tax (7)
(0.02)
-
(18.06)
-
Gain on sale of assets, net
0.02
-
0.02
-
Gain on sale of CareCentrix included in equity in net earnings of CareCentrix, net of tax
(0.04)
-
2.21
-
Dividend income (8)
-
-
0.18
-
Cost saving initiatives
(0.24)
-
(0.26)
-
Restructuring, legal settlement and acquisition and integration costs (5)
(0.03)
(0.10)
(0.72)
(0.93)
Fin-48 Reserve on OIG legal settlement
0.05
-
(0.12)
-
Impact of exclusion of dilutive shares due to the anti-dilutive effect of the shares
-
-
0.02
-
Income (loss) from continuing operations attributable to Gentiva shareholders per diluted share
0.11
0.59
(15.13)
1.81
Add back: Net income attributable to noncontrolling interests
0.01
0.01
0.02
0.02
Income (loss) from continuing operations per diluted share
$ 0.12
$ 0.60
$ (15.11)
$ 1.83
Operating Metrics
4th Quarter
Fiscal Year
2011
2010
2011
2010
Home Health
Episodic admissions
48,900
47,300
199,600
195,200
Total episodes
71,200
69,300
287,600
280,900
Episodes per admission
1.46
1.47
1.44
1.44
Revenue per episode
$ 3,050
$ 3,240
$ 3,050
$ 3,240
Hospice
Admissions
13,000
13,300
55,100
21,700
Average daily census
14,100
14,400
14,000
8,100
Patient days (in thousands)
1,288
1,283
5,092
2,357
Revenue per patient day
$ 155
$ 152
$ 154
$ 150
Length of stay at discharge (in days)
94
88
89
88
Revenue by patient type
Routine
98%
98%
97%
98%
General Inpatient & Other
2%
2%
3%
2%
Notes:
1. The comparability between reporting periods has been affected by the following items:
a. Effective August 17, 2010, the Company completed the acquisition of 100 percent of the equity interest of Odyssey HealthCare, Inc. ("Odyssey"), one of the largest providers of hospice care in the United States, operating approximately 100 Medicare-certified providers serving terminally ill patients and their families in 30 states. In connection with the acquisition, the Company entered into a new $875 million Credit Agreement and issued $325 million of senior unsecured notes.
b. The fourth quarter and fiscal year 2011 included 92 and 365 days of activity, respectively, as compared to 89 and 362 days for the fourth quarter and fiscal year 2010. This difference stems from the Company's adopting a change to a calendar quarter reporting period in 2011 from its prior 13 week reporting periods in 2010.
2. The Company's senior management evaluates performance and allocates resources based on operating contributions of the operating segments, which exclude corporate expenses, depreciation, amortization, and interest expense and other (net), but include revenues and all other costs directly attributable to the specific segment.
3. Adjusted EBITDA, a non-GAAP financial measure, is defined as income from continuing operations before interest expense and other (net of interest income), income taxes, depreciation and amortization and excluding charges relating primarily to cost savings initiatives, restructuring, legal settlements and acquisition and integration activities, dividend income and gain on sale of assets, net of taxes, and goodwill, intangibles and other long-lived asset impairment. Management uses Adjusted EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. Adjusted EBITDA should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with accounting principles generally accepted in the United States. Because Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States and is susceptible to varying calculations, it may not be comparable to similarly titled measures in other companies. Adjusted EBITDA presented in the Supplemental Information relates to the Company's continuing operations.
Adjusted income from continuing operations attributable to Gentiva shareholders is defined as income from continuing operations attributable to Gentiva shareholders, excluding tax reserves relating to the OIG settlement, charges relating to cost savings initiatives, restructuring, legal settlements and acquisition and integration activities, dividend income and gain on sale of assets, net of taxes, goodwill, intangibles and other long-lived asset impairment.
4. During the fourth quarter of 2011, the Company sold 9 home health branches and other assets for cash proceeds of approximately $1.9 million.
On October 14, 2011, the Company completed the sale of its homemaker services business in Illinois ("IDOA") pursuant to an asset purchase agreement. Total consideration of approximately $2.4 million consisted of (i) cash proceeds of approximately $2.0 million and (ii) an escrow of $0.4 million to generally satisfy certain post closing obligations.
On September 10, 2011, the Company completed the sale of its Rehab Without Walls® business pursuant to an asset purchase agreement. Total consideration of approximately $9.8 million consisted of (i) cash proceeds of approximately $9.2 million and (ii) an escrow of $0.6 million to generally satisfy certain post closing obligations.
On February 1, 2010, the Company consummated the sale of its respiratory therapy and home medical equipment ("HME") and infusion therapy ("IV") businesses pursuant to an asset purchase agreement.
The financial results of Rehab Without Walls, IDOA and the Company's HME and IV businesses are reported as discontinued operations in the accompanying 2011 and 2010 condensed consolidated financial statements. Net revenues, operating results and the gain on sale of business associated with these operating units for the fourth quarter and fiscal years 2011 and 2010 were as follows (dollars in thousands):
4th Quarter
Fiscal Year
2011
2010
2011
2010
Net revenues
$ 183
$ 8,149
$ 22,819
$ 36,526
Operating (loss) income before income taxes
$ (256)
$ 613
$ 2,430
$ (2,991)
Gain (loss) on sale of business
2,387
(2,200)
11,475
(2,134)
Income tax (expense) benefit
(912)
(453)
(5,590)
1,990
Discontinued operations, net of tax
$ 1,219
$ (2,040)
$ 8,315
$ (3,135)
5. Operating contribution and EBITDA included charges relating to cost savings initiatives, restructuring, legal settlements and acquisition and integration activities of $14.3 million and $49.1 million for the fourth quarter and full year 2011, respectively, as compared to $5.3 million and $46.0 million for the corresponding periods of 2010.
For the fourth quarter and full year 2011, the Company recorded (i) charges for cost savings initiatives of $12.4 million and $13.2 million, respectively, (ii) restructuring costs of $0.3 million and $2.0 million, respectively, (iii) legal settlement reserves of $1.0 million and $26.0 million, respectively, associated with a government investigation assumed in the Odyssey acquisition, and (iv) acquisition and integration costs of $0.6 million and $7.9 million, respectively, primarily relating to the acquisition of Odyssey HealthCare, Inc.
For the fourth quarter of 2010, the Company recorded (i) restructuring costs of $2.7 million and (ii) acquisition and integration costs of $2.6 million, primarily relating to the acquisition of Odyssey HealthCare, Inc.
The charges for the full year 2010 included (i) settlement costs and legal fees of $4.2 million related to a three-year old commercial contractual dispute involving the Company's former subsidiary, CareCentrix, (ii) incremental charges of $9.5 million in connection with an agreement in principle, subject to final approvals, between the Company and the Department of Health and Human Services, Office of the Inspector General to resolve the matters which were subject to a 2003 OIG subpoena relating to the Company's cost reports for the 1998 to 2000 periods, (iii) restructuring costs of $6.3 million and (iv) acquisition and integration costs of $26.0 million.
These charges were reflected as follows for segment reporting purposes (dollars in millions):
4th Quarter
Fiscal Year
2011
2010
2011
2010
Home Health
$ 7.4
$ 2.1
$ 7.7
$ 11.8
Hospice
2.2
0.1
3.7
0.3
Corporate expenses
4.7
3.1
37.7
33.9
Total
$ 14.3
$ 5.3
$ 49.1
$ 46.0
6. Interest expense and other, net for fiscal 2011 included charges of approximately $3.8 million relating to the write-off of deferred debt issuance costs and costs of terminating the Company's interest rate swaps in connection with the refinancing of the indebtedness outstanding under its senior secured credit agreement.
7. During the third quarter of 2011, the Company performed an impairment test of its goodwill, intangibles and other long-lived assets in response to changes in our business climate, uncertainties around Medicare reimbursement as the federal government works to reduce the federal deficit as well as a significant decline in the price of the Company's common stock during the quarter. The Company's impairment test indicated that goodwill and certain identifiable intangibles assets had carrying values that exceed the estimated fair values of those assets. In addition, the Company finalized its review of alternatives to replacing various field operating systems. As such, the Company recorded non-cash impairment charges of approximately $643.3 million for 2011.
8. Dividend income for fiscal 2011 represents a 12% cumulative preferred dividend received in connection with the sale of the Company's preferred investment in CareCentrix in 2011.
9. The Company's effective tax rate relating to its continuing operations was a tax provision of 40.5% and 39.7% for the fourth quarter and full year 2011, respectively, as compared to a tax provision of 32.2% and 38.5% for the fourth quarter and full year 2010, respectively.
During year 2010, the Company recorded certain non-deductible transaction costs related to the Odyssey acquisition and changes in Odyssey tax reserves subsequent to the acquisition closing date. In addition, the Company recorded additional capital loss and valuation allowance associated with a CareCentrix legal settlement. Excluding the impact of these items, the Company's effective tax rate relating to its continuing operations for the fourth quarter and full year 2010 would have been 32.6% and 38.9%, respectively.
Forward-Looking Statement
Certain statements contained in this news release, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects," "assumes," "trends" and similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon the Company's current plans, expectations and projections about future events. However, such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors include, among others, the following: economic and business conditions, including the ability to access capital markets; demographic changes; changes in, or failure to comply with, existing governmental regulations; the impact on our Company of recently passed healthcare reform legislation and its subsequent implementation through governmental regulations; changes in Medicare, Medicaid and commercial payer reimbursement levels; the outcome of any inquiries into the Company's operations and business practices by governmental authorities; the Company's ability to effectively integrate Odyssey's operations; effects of competition in the markets in which the Company operates; liability and other claims asserted against the Company; ability to attract and retain qualified personnel; availability and terms of capital; loss of significant contracts or reduction in revenues associated with major payer sources; ability of customers to pay for services; business disruption due to natural disasters, pandemic outbreaks, or terrorist acts; ability to successfully integrate the operations of acquisitions the Company may make and achieve expected synergies and operational efficiencies within expected time-frames; ability to maintain compliance with its financial covenants under the Company's credit agreement; effect on liquidity of the Company's debt service requirements; and changes in estimates and judgments associated with critical accounting policies and estimates. For a detailed discussion of certain of these and other factors that could cause actual results to differ from those contained in this news release, please refer to the Company's various filings with the Securities and Exchange Commission, including the "Risk Factors" section contained in the Company's annual report on Form 10-K for the year ended December 31, 2010 and the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2011.
Financial and Investor Contact:
Eric Slusser
770-951-6101
eric.slusser@gentiva.com
or
John Mongelli
770-951-6496
john.mongelli@gentiva.com
Media Contact:
Scott Cianciulli
Brainerd Communicators
212-986-6667
cianciulli@braincomm.com
SOURCE Gentiva Health Services, Inc.
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