Rehabcare — Merger or Acquisition (May 2011)
42 slides from Rehabcare's merger presentation, May 12, 2011
Slide 1: Investor Presentation
Filed pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Exchange Act of 1934 Filing Person: Kindred Healthcare, Inc. Commission File No.: 001-14057 Subject Company: RehabCare Group, Inc. Commission File No.: 001-14655 Investor Present
Slide 2: Forward-Looking Statements
Forward-Looking Statements Additional Information About this Transaction In connection with the pending transaction with RehabCare Group, Inc. (“RehabCare”), Kindred Healthcare, Inc. (“Kindred”) has filed with the Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-4 (c
Slide 3: Kindred Overview
Kindred Overview Kindred Healthcare
Slide 4: Largest Diversified Post-Acute Provider in the United States
Largest Diversified Post-Acute Provider in the United States(1) $4.5 billion (2) 706(3) 34,400(3) 56,700(3) consolidated sites of service, patients and dedicated revenues 313 facilities residents employees, in 40 states per day making Kindred a top-200 private employer in (1) Ranking based on revenu
Slide 5: Kindred's Market Leading Businesses
Kindred’s Market Leading Businesses HOSPITAL NURSING CENTER REHABILITATION Long-term Acute Care Hospitals Nursing and Rehabilitation Centers Peoplefirst Rehabilitation Services $2.0 billion revenues (1) $2.2 billion revenues (1) $530 million revenues (1) •Largest operator in U.S. (2) •Third largest
Slide 6: Kindred's Value Proposition and Our Continue The Care Campaign
Kindred’s Value Proposition and Our “Continue The Care” Campaign Provide superior clinical outcomes and quality care with an approach which is patient-centered, disciplined and transparent Lower cost by reducing lengths of stay in acute care hospitals and transition patients home at the highest poss
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} {0 of the Healthcare Companies in the World, Fortune Magazine 2009, 2010 and 2011 Kosei Wo 7 Healthcare
Slide 8: Investment Rationale
Investment Rationale Each year, nearly 9 million people – 23,000 a day – are discharged from short-term acute care hospitals that require some form of post-acute care As the largest diversified post-acute provider, Kindred is uniquely positioned to grow and succeed in what will be an increasingly in
Slide 9: RehabCare Transaction Overview
RehabCare Transaction Overview 9
Slide 10: RehabCare Group Acquisition Transaction Update
RehabCare Group Acquisition Transaction Update Transaction has received all material Federal government approvals th – Joint proxy statement was made effective April 26 Commitments have been obtained for $1.35 billion of senior secured financing – $550.0 million unsecured notes offering remaining Ki
Slide 11: Transaction Overview
Transaction Overview Kindred and RehabCare have announced a transaction whereby Kindred Transaction will acquire RehabCare for ~$35/share ~$35 / share total ($26 / share in cash; ~$9 / share in Kindred stock)(1) Consideration $1.3 billion total consideration, including assumption of net debt Accreti
Slide 12: Transaction Overview
Transaction Overview J.P. Morgan, Morgan Stanley and Citi have committed $1.9Bn in debt financing Sources and Uses (1) Pro-Forma Capitalization (1) ($MM) ($MM) Sources % of Total 2010PF (2) 2011E (2) $600MM ABL Revolving Credit Facility $264 15% New Borrowings 1,600 1,600 Term Loan B 700 39% Total D
Slide 13: Kindred and RehabCare will be the Premier Rehabilitation and Post-Acute Provider
Kindred and RehabCare will be the Premier Rehabilitation and Post-Acute Provider in the United States Metrics Kindred RehabCare Kindred + RehabCare Scale (1) 40 42 46 • States 322 34 356 • Facilities 34,792 1,788 36,580 • Beds $4,517MM (2) $1,349MM $5,866MM (2) • 2010 Revenue (Pro Forma) $254MM (2)
Slide 14: Kindred and RehabCare Combined Presence
Kindred and RehabCare Combined Presence Transaction enhances Kindred’s Cluster Market Strategy Kindred Hospitals Kindred Nursing and Rehabilitation Centers RehabCare Hospitals Acute Rehabilitation Units Existing Cluster Market Potential New Cluster Market 14
Slide 15: Leading Position in Attractive Growing Businesses
Leading Position in Attractive Growing Businesses Multiple earnings streams, multiple avenues for growth #1 Operator of Long-Term Acute Care Hospitals #1 Operator of Hospital Based and Freestanding IRFs Number of Facilities 140 118 140 121 111 120 120 97 100 100 3 80 80 94 60 60 116 40 19 40 13 10 1
Slide 16: Strategic Rationale
Strategic Rationale Kindred Healthcare
Slide 17: Strategic and Financial Rationale
Strategic and Financial Rationale Pro Forma Kindred will be the post-acute leader with an enhanced financial profile Unparalleled combined service offering Leading position in No. 1 IRFs, LTACs and SNF Rehab management contracts; No. 4 standalone SNFs attractive growing Expands relationships with ac
Slide 18: Rapidly Changing Post-Acute Market
Rapidly Changing Post-Acute Market Multiple Patient Discharge Destinations SOURCE: RTI, 2009: Examining Post-Acute Care Relationships in an Integrated Hospital System 18
Slide 19: Positioned to Take Advantage of Changing Healthcare Landscape
Positioned to Take Advantage of Changing Healthcare Landscape Uniquely Positioned For Bundled Or Episodic Payment Environment “Continue The Care” ACUTE CARE HOSPITALS TRANS LTACs FREESTANDING/ HIH CARE ICU IN-PATIENT REHAB SAU SKILLED TCC & OUTPATIENT NURSING TCU REHAB FACILITIES ASSISTED HOME LIVIN
Slide 20: Transaction Enhances Financial Profile
Transaction Enhances Financial Profile Enhances Kindred’s growth and operating margin profiles EBITDAR Growth (1) EBITDA Growth (1) 2010 – 2011 2010 – 2011 (%) (%) 6.0 9.0 7.9 5.1 7.0 6.1 4.0 3.5 5.0 2.0 3.0 Standalone Kindred Pro Forma Kindred Standalone Kindred Pro Forma Kindred EBITDA Margin (1)
Slide 21: Transaction Reduces Rent and Fixed Charge Burden
Transaction Reduces Rent and Fixed Charge Burden RehabCare operates a less capital-intensive business model, driving higher pro forma returns on assets 2011 Operating Leverage ($MM) Kindred (1) Pro Forma (2) Revenue $4,800 $6,200 EBITDAR 640 899 % Margin 13.3% 14.5% Rent 370 423 % Margin 7.7% 6.8% D
Slide 22: Growing Portfolio of Owned Real Estate
Growing Portfolio of Owned Real Estate Kindred has been focused on adding high quality real estate to balance sheet 50 44 Facilities – Acquisitions – Development of state-of-the-art LTACHs 40 and TCCs – Exercise of in-the-money purchase 30 options Own 17 hospitals; 25 nursing centers and 2 16 20 Fac
Slide 23: Transaction Provides Significant EPS and Cash Flow Accretion
Transaction Provides Significant EPS and Cash Flow Accretion 2011 EPS Pro-Forma 2011 EPS Impact Prev (1) Pro-Forma (2) $ % Low End of $1.45 $1.95 $0.50 34% Guidance Pro-Forma $1.53 $2.05 $0.52 34% Mid Point Impact High End of $1.60 $2.15 $0.55 34% Guidance (1) Previous guidance shown is Kindred stan
Slide 24: Strong Free Cash Flows
Strong Free Cash Flows Kindred has operated comfortably with a levered balance sheet Routine CapEx declines as a % of revenue, improving free cash flow profile (x) Historical Adjusted Debt / EBITDAR (1) Cash Flow Profile 6.0 2011 Kindred Guidance 4.4 (2) (3) 4.3 Stand Alone Pro Forma 4.2 ($MM) Low H
Slide 25: Kindred Has a History of Successfully Integrating Acquisitions
Kindred Has a History of Successfully Integrating Acquisitions February 2006: July 2007: (Spin-off) November 2010: Commonwealth Communities Kindred and AmerisourceBergen Five LTACHs Holdings (6 Hospitals, 11 NCs combine their institutional pharmacy from Vista and 4 ALFs) businesses to form Pharmeric
Slide 26: Reimbursement Update
Reimbursement Update Kindred Healthcare
Slide 27: Kindred Medicare Reimbursement Update
Kindred Medicare Reimbursement Update On April 19, CMS proposed FY 2012 LTAC PPS rates that CMS projected would increase payment rates to LTACs by 1.9%. The increase would take effect October 1, 2011. Kindred estimates that the impact of these proposed changes would result in an approximate 0.5% inc
Slide 28: Kindred Medicare Reimbursement Update (cont.)
Kindred Medicare Reimbursement Update (cont.) The proposed skilled nursing rule offers two alternatives for a potential parity adjustment, one of which recognizes that three months of data may be insufficient to arrive at an accurate calculation Kindred strongly supports an approach that ensures ade
Slide 29: Nursing and Rehabilitation Centers
Nursing and Rehabilitation Centers % Change in Key Measures, 2008 2010- Kindred SNF cost and 2008 2010 case mix severity 15% increases have kept pace 11% with Medicare rate 10% 9% increases. Significant 7% declines in Length of 5% Stay restrain both margin expansion and Medicare 0% spending under th
Slide 30: Nursing and Rehabilitation Centers (cont.)
Nursing and Rehabilitation Centers (cont.) Kindred SNF Medicare Case Mix Severity has increased significantly and Length of Stay has declined. (2008 – 2010 & 4th Quarter 2010) 2008 2010 Sep-10 Dec-10 38.0 2.95 34.0 3.15 33.5 3.05 36.0 2.85 33.0 2.95 34.0 2.75 32.5 2.85 32.0 2.65 32.0 2.75 Length of
Slide 31: Nursing and Rehabilitation Centers (cont.)
Nursing and Rehabilitation Centers (cont.) 2010 Medicare Part A Q1 Q2 Q3 Q4 Therapy Minutes / RUG Day 69 70 71 71 100% Kindred maintained the same level and intensity of Rehab Services for 67% 68% 75% 88% patients pre and post RUG IV, primarily through providing more individual therapy (at a higher
Slide 32: Financial Update
Financial Update Kindred Healthcare
Slide 33: Kindred Financial Update Q1 2011
Kindred Financial Update Q1 2011 Company reported strong results of $0.55 per diluted share Reported results included charges of $0.10 per diluted share, primarily related to pending RehabCare transaction Excluding certain charges in both periods, diluted earnings per share rose 48% from Q1 of 2010
Slide 34: Kindred Financial Update Q1 2011 (cont.)
Kindred Financial Update Q1 2011 (cont.) Peoplefirst Rehabilitation revenues grew by 21% to $145 million Division reported $15 million in operating income Operating cash flows grew to $46 million for the quarter, up $60 million from last year's first quarter Accounts receivables days outstanding dec
Slide 35: RehabCare Group Financial Update Q1 2011
RehabCare Group Financial Update Q1 2011 RehabCare net earnings per diluted share increased 20.3% year over year to $0.71 $0.12 per diluted share of transaction related expenses were included in the Q1 2011 results Hospital division EBITDA margin improved to 17.6% from 12.9% a year ago Skilled Nursi
Slide 36: Investment Considerations
Investment Considerations 36
Slide 37: Investment Considerations
Investment Considerations Track record for operational success based on commitment to quality, service excellence and a disciplined approach to the business Experienced management team, robust technology platform, processes and systems, and a demonstrated ability to adapt to change Growing businesse
Slide 38: Investor Presentation
Investor Presentation Kindred Healthcare, Inc. (NYSE: KND) May 12, 2011 38
Slide 39: Appendix
Appendix Kindred | Dectenl te, Hales wd Ponta lal
Slide 40: Agency Ratings
Agency Ratings Corporate Family Term Loan B Moody’s Investors B1 Ba3 Service (1) Standard and B+ B+ Poor’s (2) (1) Release dated March 14, 2011 (2)Release dated March 11, 2011 40
Slide 41: Reconciliation of Non-GAAP Measures
Reconciliation of Non-GAAP Measures Year ended December 31, First First Quarter Quarter 2006 2007 2008 2009 2010 2010 2011 Operating income (loss): Hospital division $383 $365 $346 $364 $360 $96 $108 Nursing center division 239 295 322 305 304 70 87 Rehabilitation division 30 34 38 51 53 15 15 Pharm
Slide 42: Investor Presentation
Investor Presentation Kindred Healthcare, Inc. (NYSE: KND) May 12, 2011 42