Exhibit 99.1

 

 

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

KINDRED HEALTHCARE COMPLETES FIRST PHASE OF ITS REPOSITIONING PLAN AS

COMPANY MOVES 136 FACILITIES TO DISCONTINUED OPERATIONS IN 2013,

INCLUDING 59 IN RECENT AGREEMENT WITH VENTAS

 

 

COMPANY REPORTS THIRD QUARTER CONTINUING OPERATIONS DILUTED EPS OF $0.05

EXCLUDING CERTAIN ITEMS

REPORTED CONTINUING OPERATIONS LOSS TOTALED $0.39 PER DILUTED SHARE

 

 

New 2013 Core Continuing Operations EPS Expected to Range from

$0.78 to $0.88 Before Redeployment of Capital

Company Raises Estimated 2013 Free Cash Flows to $120 Million from $90 Million as Redeployment Strategy

Advances with Announcement of Home Health and Real Estate Acquisitions

 

 

2014 Continuing Operations EPS Expected to Range from $1.05 to $1.25

2014 EPS Estimate Includes $0.15 Incremental Rent Charge Related to Recent Ventas Agreement

Preliminary 2014 Free Cash Flows Estimated at $110 Million after Full-Year Cash Dividend

LOUISVILLE, Ky. (November 5, 2013) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2013. In connection with its previously announced repositioning plan, during the third quarter of 2013, the Company sold 15 hospitals and eight skilled nursing facilities for $227 million in cash and executed an agreement with Ventas, Inc. (“Ventas”) (NYSE:VTR) to exit 59 skilled nursing facilities and close another facility. In addition, during the first half of 2013, the Company successfully exited 54 skilled nursing facilities previously leased from Ventas. Except for the facility to be closed, the Company has reclassified the operations of these facilities (136 in number and approximately $1.3 billion in annualized revenues) as discontinued for all periods presented. 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.

Highlights:

 

•

Consolidated revenues declined 2% to $1.2 billion

— Federal sequestration cuts of 2% reduced revenues by approximately $13 million in the quarter

 

•

Volume softness in hospital and nursing center divisions dampened overall third quarter results

 

•

Free cash flows (operating cash flows in excess of routine and development capital spending and dividends) excluding certain items, surged to $85 million in the quarter, while year-to-date results totaled $135 million

 

•

Board of Directors declared quarterly cash dividend of $0.12 per share

 

•

Available borrowing capacity under the Company’s revolving credit facility grew to nearly $600 million at September 30, 2013

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680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

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Kindred Healthcare Reports Third Quarter Results

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November 5, 2013

 

Recent Ventas Agreement and Announced Home Health and Real Estate Acquisitions Accelerate Company’s Growth and Repositioning Plan

Ventas Agreement

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “Having successfully executed a favorable agreement with Ventas at the end of the third quarter, we have now established a level of certainty within the Ventas relationship that we have never before attained and we are pleased to be moving forward at an accelerated pace with our previously announced repositioning plan. Since the beginning of the year, we have essentially disposed of 136 non-strategic, and in many cases, unprofitable facilities and we are confident that our strategic disposition work will be completed in advance of our previous timeline. More importantly, as we look to the future, our divestiture activities will eliminate substantial rent obligations and provide a significant amount of capital which we intend to redeploy in home health and other strategic acquisitions in our Integrated Care Markets that will create a more valuable enterprise for our patients, employees and shareholders in 2014 and beyond.”

As previously announced, the Company entered into an agreement with Ventas on September 30, 2013, in which the Company renewed certain existing leases covering 22 transitional care (“TC”) hospitals and 26 skilled nursing facilities. In connection with the renewal of certain of these facilities, the Company agreed to pay additional annual rents aggregating $15 million beginning October 1, 2014. For accounting purposes, the Company is required to record the additional rents over the new lease term on a straight-line basis beginning on October 1, 2013, the effective date of the agreement. As a result, the Company will record incremental rent expense aggregating approximately $5 million ($0.05 per diluted share) in the fourth quarter of 2013 and approximately $13 million ($0.15 per diluted share) during the first nine months of fiscal 2014. Cash payments for the additional annual rent will not begin until October 1, 2014.

The agreement with Ventas also provided for the Company’s exit from 59 skilled nursing facilities and the closure of another facility. Under the terms of the agreement, the lease term for these facilities will expire on September 30, 2014. For accounting purposes, the Company classified the 59 skilled nursing facilities as assets held for sale and reflected the related operating results as discontinued operations in the accompanying condensed consolidated statement of operations for all historical periods. The facility scheduled for closure will be reflected as a discontinued operation upon completion of the closure process.

Under the terms of the agreement, the Company paid $20 million ($12 million net of income taxes) to Ventas on October 1, 2013 in exchange for the early termination of certain leases. In addition, the Company recorded an asset impairment charge of $8 million ($5 million net of income taxes) related to leasehold improvements in the early terminated leases. These charges were recorded in discontinued operations in the third quarter of 2013 in the accompanying condensed consolidated statement of operations.

Recent Acquisition Announcements

Earlier this week, the Company announced a definitive agreement to acquire Senior Home Care, Inc. (“Senior Home Care”), one of the largest home health providers in Florida and Louisiana with annualized revenues of approximately $143 million. The Company expects that the Senior Home Care acquisition will increase 2014 earnings by $0.07 to $0.09 per diluted share.

Mr. Diaz noted, “This transaction is another important example of how we are redeploying assets from our divestiture process and repositioning Kindred with a focus on our Integrated Care Markets and our Care Management Division, including Kindred at Home.”

In addition to the Senior Home Care acquisition, the Company also announced this week that it intends to acquire nine skilled nursing facilities that it currently leases from HCP, Inc. (NYSE:HCP) and its affiliates (“HCP”) for approximately $83 million. The annual lease payments for these facilities approximate $9 million. Kindred anticipates that the transaction with HCP will increase 2014 earnings by approximately $0.04 per diluted share.

 

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Mr. Diaz noted, “Purchasing the real estate of these skilled nursing facilities is an important step as we continue to reduce our lease obligations, our most expensive debt, and improve the Company’s capital structure and earnings going forward.”

Third Quarter Results

Continuing Operations

Consolidated revenues for the third quarter ended September 30, 2013 declined 2% to $1.2 billion compared to $1.23 billion in the third quarter last year. The Company reported a loss from continuing operations for the third quarter of 2013 of $20.4 million or $0.39 per diluted share compared to income of $6.8 million or $0.13 per diluted share in the third quarter last year.

Third quarter 2013 operating results included pretax charges of approximately $33 million related to (1) changes in estimates related to pending litigation, (2) costs associated with the closure of a hospital and a home health location, (3) costs associated with certain severance and retirement benefits, (4) charges associated with the modification of certain of the Company’s senior debt, and (5) transaction-related costs. These items reduced income from continuing operations by $23.2 million or $0.44 per diluted share.

Third quarter 2012 operating results included certain charges that reduced income from continuing operations by $1.0 million or $0.02 per diluted share.

Mr. Diaz noted, “Our adjusted third quarter results, while soft, should be viewed in the context of the seasonal volume weakness and this extraordinarily busy period of repositioning activities related to the disposition of non-strategic assets that we have previously discussed with investors. Importantly, we also believe that investors should note the very strong free cash flows being generated by the Company that will enable us to continue to invest in future growth and support our recurring cash dividend to shareholders.”

Mr. Diaz continued, “I have great confidence in our repositioning plan and our “Continue the Care” strategy and we are well on our way in the creation of a company focused on our Integrated Care Markets, our new Care Management Division and Kindred at Home and the many benefits associated with the new business profile of Kindred. In particular, we are moving toward a path to profitability in a smaller, higher acuity, and more market-focused skilled nursing facility business. Additionally, we will improve our home health and hospice operations by investing significant resources to bring together numerous acquisitions and execute on a more standardized operating model. And finally, our hospital and RehabCare divisions continue to perform in line with our expectations so far this year despite significant regulatory headwinds in each of these businesses.”

Discontinued Operations

As previously discussed, in connection with the Company’s long-range plans to reposition its businesses and enhance its Integrated Care Market strategy, the Company has effected various transactions and entered into certain agreements to significantly change its business mix, operating profile and future business prospects during fiscal 2013. During the first nine months of 2013, the Company has exited, sold or agreed to exit 136 facilities (14 TC hospitals, one inpatient rehabilitation hospital (“IRF”) and 121 skilled nursing facilities with annualized revenues approximating $1.3 billion). For accounting purposes, the historical operating results of these businesses have been classified as discontinued operations in the Company’s accompanying condensed consolidated statement of operations for all historical periods.

During the first half of 2013, in connection with a previously executed agreement, the Company exited 54 skilled nursing facilities previously leased from Ventas. No cash consideration was paid by the Company in connection with this divestiture.

 

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Kindred Healthcare Reports Third Quarter Results

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November 5, 2013

 

In addition to the previously discussed September agreement with Ventas, the Company sold 15 hospitals and eight skilled nursing facilities for $227 million in cash in the third quarter of 2013. Proceeds from these transactions were used to reduce the Company’s borrowings under its revolving credit facility. As previously announced, the Company recorded a significant loss from these sales primarily due to the write-off of a portion of the goodwill and intangible assets recorded in its hospital division. As a result, the loss on divestiture of discontinued operations included in the accompanying condensed consolidated statement of operations reflects a pretax loss of approximately $78 million ($64 million net of income taxes) in the third quarter of 2013 and $96 million ($75 million net of income taxes) for the nine months ended September 30, 2013 associated with these divestitures.

Earnings Guidance – Continuing Operations

The Company’s previously issued earnings guidance for continuing operations reflected the exit from 54 skilled nursing facilities previously leased from Ventas completed in the first half of 2013. However, the earnings guidance did not reflect the impact of (1) the sale of 15 hospitals and eight skilled nursing facilities or (2) the recent agreement with Ventas to exit 59 skilled nursing facilities and close another facility, both of which were completed in the third quarter of 2013.

As a result, the Company has revised its earnings guidance for 2013 to reflect the discontinued operations reclassifications recorded during the third quarter of 2013.

The guidance for earnings and cash flows excludes the effect of (1) a one-time employee bonus distributed in the first quarter of 2013, (2) changes in estimates related to pending litigation, (3) the early lease termination payment to Ventas, (4) costs associated with the closure of a hospital and a home health location, (5) costs associated with certain severance and retirement benefits, (6) any transaction-related costs, (7) charges associated with the modification of certain of the Company’s senior debt, (8) any other reimbursement changes, (9) any further acquisitions or divestitures (unless otherwise noted), (10) any impairment charges, and (11) any repurchases of common stock. A schedule detailing the financial impact of certain of these items is included elsewhere in this press release.

Revised 2013 Continuing Operations Earnings Guidance

The Company expects consolidated revenues for 2013 to approximate $4.9 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $657 million to $665 million. Rent expense is expected to approximate $323 million, while depreciation and amortization should approximate $159 million. Net interest expense is expected to approximate $103 million. The Company expects to report income from continuing operations for 2013 between $42 million to $47 million or $0.78 to $0.88 per diluted share (based upon diluted shares of 52.3 million). The Company’s previously issued 2013 guidance for diluted earnings per share ranged from $1.10 to $1.30.

The following table highlights the significant factors impacting the revised 2013 continuing operations earnings guidance:

 

		Low				High
Continuing operations diluted earnings per share range as of August 5, 2013		$	1.10			$	1.30
Estimated full-year impact of discontinued operations reclassification recorded in the third quarter of 2013 (including 23 facilities sold for cash and 59 Ventas facilities to be exited by September 30, 2014)			(0.25	)			(0.25	)
Incremental Ventas rent expense associated with renewal of certain leased facilities			(0.05	)			(0.05	)
Other changes in estimates related to ongoing operations			(0.02	)			(0.12	)
Continuing operations diluted earnings per share range as of November 5, 2013		$	0.78			$	0.88

 

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The Company expects diluted earnings per share from continuing operations to range from $0.10 to $0.20 in the fourth quarter of 2013. Management’s estimate includes the previously discussed incremental rent charge in connection with the Ventas agreement that will reduce fourth quarter earnings by approximately $0.05 per diluted share.

Preliminary 2014 Coninuing Operations Earnings Guidance

The Company also announced its preliminary earnings guidance for 2014. Consolidated revenues are expected to approximate $5.1 billion. Operating income should range from $726 million to $744 million, while rent expense is expected to approximate $339 million. Depreciation and amortization should approximate $165 million and net interest expense is expected to approximate $106 million. The Company expects to report income from continuing operations for 2014 between $58 million to $69 million or $1.05 to $1.25 per diluted share (based upon diluted shares of 53.2 million).

The Company’s 2014 earnings per share guidance includes the estimated impact of the previously announced transactions with Senior Home Care and HCP as well as $0.05 to $0.10 for the estimated impact of other acquisitions that the Company expects to complete in 2014.

The following table summarizes the Company’s 2014 preliminary earnings guidance:

 

		As of November 5, 2013
		Low				High
Operating income		$	726			$	744
Rent			339				339
Depreciation and amortization			165				165
Interest, net			106				106
Income from continuing operations before income taxes			116				134
Provision for income taxes			46				53
Income from continuing operations			70				81
Earnings attributable to noncontrolling interests			(12	)			(12	)
Income from continuing operations attributable to the Company			58				69
Allocation to participating unvested restricted stockholders			(2	)			(2	)
Available to common stockholders		$	56			$	67
Earnings per diluted share		$	1.05			$	1.25
Shares used in computing earnings per diluted share			53.2				53.2

Cash Flow Guidance

The Company significantly raised its operating cash flow guidance for 2013 and also announced its preliminary cash flow guidance for fiscal 2014. The following table summarizes the Company’s cash flow estimates:

 

		As of November 5, 2013																As of August 5, 2013
		2013								2014								2013
		Low				High				Low				High				Low				High
Operating cash flows		$	250			$	260			$	255			$	265			$	235			$	255
Routine capital expenditures			105				115				100				110				112				122
Adjusted cash flows			145				145				155				155				123				133
Development capital expenditures			12				12				19				19				20				30
Payment of cash dividends			13				13				26				26				13				13
Free cash flows		$	120			$	120			$	110			$	110			$	90			$	90

 

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Management Commentary

Commenting further on the Company’s liquidity and strategic plan, Mr. Diaz noted, “Our revised 2013 guidance reflects the impact of the divestiture portion of our repositioning plan. While initially dilutive, we have created significant levels of free cash flows and enhanced our overall financial strength and liquidity, which will now fuel substantial growth as we look to 2014 and beyond. Notably during this phase, we have:

 

•

raised our 2013 free cash flow guidance to $120 million from $90 million

 

•

announced our estimated 2014 free cash flow guidance (including a full-year of cash dividends) at $110 million; and

 

•

increased to nearly $600 million the availability under our revolving credit facility, the highest level in our history.

We are excited to be moving into the growth and capital redeployment phase of our strategic plan. Earlier this week, we announced definitive agreements to:

 

•

acquire Senior Home Care, a premier home health provider with $143 million of annualized revenues and 47 locations in Florida and Louisiana, for $95 million; and

 

•

acquire the real estate for nine of our leased skilled nursing facilities for approximately $83 million.

We believe that these transactions will add meaningfully to our 2014 earnings and beyond. In addition, we plan to aggressively pursue other Integrated Care Market acquisition opportunities that should significantly increase our core earnings over time and provide for stronger earnings growth rates going forward.”

Quarterly Cash Dividend

The Company also announced that its Board of Directors has approved the payment of the regular quarterly cash dividend to its shareholders of $0.12 per common share to be paid on December 9, 2013 to shareholders of record as of the close of business on November 18, 2013. Future declarations of quarterly dividends will be subject to the approval of Kindred’s Board of Directors.

Webcast of Conference Call and Additional Presentation Materials

As previously announced, investors and the general public can access a live webcast of the third quarter 2013 conference call through a link on the Company’s website at www.kindredhealthcare.com or by clicking here. The conference call webcast will feature related presentation materials that will be discussed during the call to be held on November 6 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately 12:00 p.m. on November 6 by dialing (719) 457-0820, access code: 9286759. The replay will be available through November 16.

The additional presentation materials are available by clicking here. These materials are also available in the Investor Relations section on the Company’s website.

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. Statements in this press release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses or other financial items, and product or services line growth, together with other statements that are not historical facts, are forward-looking statements that are estimates reflecting the best judgment of the Company based upon currently available information.

 

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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, results or stock price include, without limitation, (a) the impact of healthcare reform, which will initiate significant changes to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, including reforms resulting from the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act (collectively, the “ACA”) or future deficit reduction measures adopted at the federal or state level. Healthcare reform is affecting each of the Company’s businesses in some manner. Potential future efforts in the U.S. Congress to repeal, amend, modify or retract funding for various aspects of the ACA create additional uncertainty about the ultimate impact of the ACA on the Company and the healthcare industry. Due to the substantial regulatory changes that will need to be implemented by the Centers for Medicare and Medicaid Services (“CMS”) and others, and the numerous processes required to implement these reforms, the Company cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on the Company’s business, financial position, results of operations and liquidity, (b) the impact of final rules issued by CMS on August 1, 2012 which, among other things, will reduce Medicare reimbursement to the Company’s TC hospitals in 2013 and beyond by imposing a budget neutrality adjustment and modifying the short-stay outlier rules, (c) the impact of final rules issued by CMS on July 29, 2011 which significantly reduced Medicare reimbursement to the Company’s nursing centers and changed payments for the provision of group therapy services effective October 1, 2011, (d) the impact of the Budget Control Act of 2011 (as amended by the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”)) which will automatically reduce federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. An automatic 2% reduction on each claim submitted to Medicare began on April 1, 2013, (e) the impact of the Taxpayer Relief Act which, among other things, reduces Medicare payments by 50% for subsequent procedures when multiple therapy services are provided on the same day. At this time, the Company believes that the rules related to multiple therapy services will reduce the Company’s Medicare revenues by $25 million to $30 million on an annual basis, (f) changes in the reimbursement rates or the methods or timing of payment from third party payors, including commercial payors and 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 reimbursement for the Company’s TC hospitals, nursing centers, IRFs and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (g) the effects of additional legislative changes and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry, (h) the ability of the Company’s hospitals to adjust to potential LTAC certification and medical necessity reviews, (i) the costs of defending and insuring against alleged professional liability and other claims (including those related to pending whistleblower and wage and hour class action lawsuits against the Company) and the Company’s ability to predict the estimated costs and reserves related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (j) the impact of the Company’s significant level of indebtedness on the Company’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings,

 

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(k) the Company’s ability to successfully redeploy its capital and proceeds of asset sales in pursuit of its business strategy and pursue its development activities, including through acquisitions, and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations, as and when planned, including the potential impact of unanticipated issues, expenses and liabilities associated with those activities, (l) the Company’s ability to pay a dividend as, when and if declared by the Board of Directors, in compliance with applicable laws and the Company’s debt and other contractual arrangements, (m) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (n) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (o) the Company’s ability to meet its rental and debt service obligations, (p) the Company’s ability to operate pursuant to the terms of its debt obligations, and comply with its covenants thereunder, and its ability to operate pursuant to its master lease agreements with Ventas, (q) the condition of the financial markets, including volatility and weakness 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, (r) the Company’s ability to control costs, particularly labor and employee benefit costs, (s) the Company’s ability to successfully reduce or mitigate (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (t) the Company’s obligations under various laws to self-report suspected violations of law by the Company to various government agencies, including any associated obligation to refund overpayments to government payors, fines and other sanctions, (u) the potential for diversion of management time and resources in seeking to transfer the operations of 60 non-strategic nursing centers currently leased from Ventas (v) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (w) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (x) the Company’s ability to attract and retain key executives and other healthcare personnel, (y) the Company’s ability to successfully dispose of unprofitable facilities, (z) events or circumstances which could result in the impairment of an asset or other charges, such as the impact of the Medicare reimbursement regulations that resulted in the Company recording significant impairment charges in 2012 and 2011, (aa) changes in generally accepted accounting principles (“GAAP”) or practices, and changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), and (bb) 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.

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and nine months ended September 30, 2013 and 2012 before certain charges or on a core basis. A reconciliation of the non-GAAP measurements to the GAAP measurements is included in this press release.

As noted above, the Company discusses the financial measure of free cash flows excluding certain items. The Company recognizes that free cash flows excluding certain items is a non-GAAP measurement and is not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that this non-GAAP measurement provides important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, long-term debt repayments and other uses. The Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by operating activities as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Free cash flows excluding certain items should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. A reconciliation of net cash flows provided by operating activities to free cash flows excluding certain items is included in this press release.

 

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Kindred Healthcare Reports Third Quarter Results

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As noted above, the Company’s earnings release includes a financial measure referred to as operating income, or earnings before interest, income taxes, depreciation, amortization and rent. 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 (loss) from continuing operations is the most comparable GAAP measure.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-150 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $5 billion and approximately 62,000 employees in 46 states. At September 30, 2013, Kindred through its subsidiaries provided healthcare services in 2,146 locations, including 102 transitional care hospitals, five inpatient rehabilitation hospitals, 102 nursing centers, 21 sub-acute units, 105 Kindred at Home hospice, home health and non-medical home care locations, 99 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,712 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for five years in a row, 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 www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

 

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KINDRED HEALTHCARE, INC.

Financial Summary

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,								Nine months ended September 30,
		2013				2012				2013				2012
Revenues		$	1,198,473			$	1,226,159			$	3,705,456			$	3,725,151
Income (loss) from continuing operations		$	(19,619	)		$	6,828			$	1,236			$	31,541
Discontinued operations, net of income taxes:
Income (loss) from operations			(21,609	)			3,059				(24,287	)			13,777
Loss on divestiture of operations			(65,016	)			(2,280	)			(77,893	)			(3,806	)
Income (loss) from discontinued operations			(86,625	)			779				(102,180	)			9,971
Net income (loss)			(106,244	)			7,607				(100,944	)			41,512
Earnings attributable to noncontrolling interests			(754	)			(41	)			(1,252	)			(253	)
Income (loss) attributable to Kindred		$	(106,998	)		$	7,566			$	(102,196	)		$	41,259
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	(20,373	)		$	6,787			$	(16	)		$	31,288
Income (loss) from discontinued operations			(86,625	)			779				(102,180	)			9,971
Net income (loss)		$	(106,998	)		$	7,566			$	(102,196	)		$	41,259
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	(0.39	)		$	0.13			$	—			$	0.59
Discontinued operations:
Income (loss) from operations			(0.41	)			0.05				(0.47	)			0.26
Loss on divestiture of operations			(1.24	)			(0.04	)			(1.49	)			(0.07	)
Income (loss) from discontinued operations			(1.65	)			0.01				(1.96	)			0.19
Net income (loss)		$	(2.04	)		$	0.14			$	(1.96	)		$	0.78
Diluted:
Income (loss) from continuing operations		$	(0.39	)		$	0.13			$	—			$	0.59
Discontinued operations:
Income (loss) from operations			(0.41	)			0.05				(0.47	)			0.26
Loss on divestiture of operations			(1.24	)			(0.04	)			(1.49	)			(0.07	)
Income (loss) from discontinued operations			(1.65	)			0.01				(1.96	)			0.19
Net income (loss)		$	(2.04	)		$	0.14			$	(1.96	)		$	0.78
Shares used in computing earnings (loss) per common share:
Basic			52,323				51,676				52,218				51,648
Diluted			52,323				51,709				52,218				51,675

 

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Kindred Healthcare Reports Third Quarter Results

Page 11

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,								Nine months ended September 30,
		2013				2012				2013				2012
Revenues		$	1,198,473			$	1,226,159			$	3,705,456			$	3,725,151
Salaries, wages and benefits			733,605				754,761				2,264,525				2,282,803
Supplies			81,812				85,129				251,672				261,586
Rent			79,269				79,312				238,115				234,445
Other operating expenses			269,927				230,076				745,556				699,692
Other (income) expense			52				(3,178	)			(983	)			(9,479	)
Impairment charges			441				406				1,085				1,015
Depreciation and amortization			37,591				41,304				119,872				121,429
Interest expense			25,633				26,663				82,888				79,946
Investment income			(1,235	)			(212	)			(2,798	)			(753	)
			1,227,095				1,214,261				3,699,932				3,670,684
Income (loss) from continuing operations before income taxes			(28,622	)			11,898				5,524				54,467
Provision (benefit) for income taxes			(9,003	)			5,070				4,288				22,926
Income (loss) from continuing operations			(19,619	)			6,828				1,236				31,541
Discontinued operations, net of income taxes:
Income (loss) from operations			(21,609	)			3,059				(24,287	)			13,777
Loss on divestiture of operations			(65,016	)			(2,280	)			(77,893	)			(3,806	)
Income (loss) from discontinued operations			(86,625	)			779				(102,180	)			9,971
Net income (loss)			(106,244	)			7,607				(100,944	)			41,512
Earnings attributable to noncontrolling interests			(754	)			(41	)			(1,252	)			(253	)
Income (loss) attributable to Kindred		$	(106,998	)		$	7,566			$	(102,196	)		$	41,259
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	(20,373	)		$	6,787			$	(16	)		$	31,288
Income (loss) from discontinued operations			(86,625	)			779				(102,180	)			9,971
Net income (loss)		$	(106,998	)		$	7,566			$	(102,196	)		$	41,259
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	(0.39	)		$	0.13			$	—			$	0.59
Discontinued operations:
Income (loss) from operations			(0.41	)			0.05				(0.47	)			0.26
Loss on divestiture of operations			(1.24	)			(0.04	)			(1.49	)			(0.07	)
Income (loss) from discontinued operations			(1.65	)			0.01				(1.96	)			0.19
Net income (loss)		$	(2.04	)		$	0.14			$	(1.96	)		$	0.78
Diluted:
Income (loss) from continuing operations		$	(0.39	)		$	0.13			$	—			$	0.59
Discontinued operations:
Income (loss) from operations			(0.41	)			0.05				(0.47	)			0.26
Loss on divestiture of operations			(1.24	)			(0.04	)			(1.49	)			(0.07	)
Income (loss) from discontinued operations			(1.65	)			0.01				(1.96	)			0.19
Net income (loss)		$	(2.04	)		$	0.14			$	(1.96	)		$	0.78
Shares used in computing earnings (loss) per common share:
Basic			52,323				51,676				52,218				51,648
Diluted			52,323				51,709				52,218				51,675

 

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Kindred Healthcare Reports Third Quarter Results

Page 12

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)

 

		September 30,				December 31,
		2013				2012
ASSETS
Current assets:
Cash and cash equivalents		$	44,579			$	50,007
Cash—restricted			3,953				5,197
Insurance subsidiary investments			93,686				86,168
Accounts receivable less allowance for loss			929,931				1,038,605
Inventories			26,291				32,021
Deferred tax assets			16,543				12,663
Income taxes			43,309				13,573
Other			40,032				35,532
			1,198,324				1,273,766
Property and equipment			1,862,049				2,226,903
Accumulated depreciation			(997,057	)			(1,083,777	)
			864,992				1,143,126
Goodwill			976,611				1,041,266
Intangible assets less accumulated amortization			405,771				439,767
Assets held for sale			22,092				4,131
Insurance subsidiary investments			149,916				116,424
Deferred tax assets			6,250				—
Other			240,653				219,466
Total assets		$	3,864,609			$	4,237,946
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	169,217			$	210,668
Salaries, wages and other compensation			354,016				389,009
Due to third party payors			52,134				35,420
Professional liability risks			59,439				54,088
Other accrued liabilities			184,781				137,204
Long-term debt due within one year			8,225				8,942
			827,812				835,331
Long-term debt			1,382,385				1,648,706
Professional liability risks			246,482				236,630
Deferred tax liabilities			—				9,764
Deferred credits and other liabilities			220,202				214,671
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 54,149 shares—September 30, 2013 and 53,280 shares—December 31, 2012			13,537				13,320
Capital in excess of par value			1,149,521				1,145,922
Accumulated other comprehensive loss			(1,632	)			(1,882	)
Retained earnings (deficit)			(10,275	)			98,799
			1,151,151				1,256,159
Noncontrolling interests			36,577				36,685
Total equity			1,187,728				1,292,844
Total liabilities and equity		$	3,864,609			$	4,237,946

 

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Kindred Healthcare Reports Third Quarter Results

Page 13

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2013				2012				2013				2012
Cash flows from operating activities:
Net income (loss)		$	(106,244	)		$	7,607			$	(100,944	)		$	41,512
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			42,831				50,600				142,745				149,092
Amortization of stock-based compensation costs			1,553				3,132				7,641				8,011
Amortization of deferred financing costs			2,509				2,375				9,529				7,091
Payment of lender fees related to senior debt modifications			(4,589	)			—				(6,189	)			—
Provision for doubtful accounts			13,152				9,117				34,489				22,654
Deferred income taxes			2,336				(1,235	)			(22,985	)			(18,140	)
Impairment charges			8,995				708				10,077				1,904
Loss on divestiture of discontinued operations			65,016				2,280				77,893				3,806
Other			6,316				786				5,452				2,753
Change in operating assets and liabilities:
Accounts receivable			45,862				13,175				26,745				(67,913	)
Inventories and other assets			3,467				(5,490	)			67				(20,897	)
Accounts payable			(12,901	)			5,281				(31,979	)			(7,252	)
Income taxes			(27,969	)			7,588				(5,269	)			39,285
Due to third party payors			25,931				12,627				16,716				1,688
Other accrued liabilities			44,485				32,938				25,229				27,493
Net cash provided by operating activities			110,750				141,489				189,217				191,087
Cash flows from investing activities:
Routine capital expenditures			(23,152	)			(25,939	)			(62,952	)			(76,804	)
Development capital expenditures			(3,235	)			(15,177	)			(10,709	)			(38,175	)
Acquisitions, net of cash acquired			(12,173	)			(71,440	)			(39,106	)			(139,308	)
Acquisition deposit			(14,675	)			—				(14,675	)			—
Sale of assets			236,397				—				248,700				1,110
Purchase of insurance subsidiary investments			(7,765	)			(9,692	)			(30,360	)			(30,890	)
Sale of insurance subsidiary investments			9,899				8,063				35,427				30,073
Net change in insurance subsidiary cash and cash equivalents			(1,416	)			(685	)			(44,294	)			(15,171	)
Change in other investments			(140	)			1,003				218				1,454
Other			79				(25	)			(142	)			(1,029	)
Net cash provided by (used in) investing activities			183,819				(113,892	)			82,107				(268,740	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit			238,900				364,600				1,100,300				1,329,300
Repayment of borrowings under revolving credit			(519,200	)			(390,400	)			(1,363,600	)			(1,244,900	)
Repayment of other long-term debt			(92	)			(2,665	)			(4,818	)			(7,976	)
Payment of deferred financing costs			(683	)			(288	)			(1,340	)			(601	)
Contribution made by noncontrolling interests			—				—				—				200
Distribution made to noncontrolling interests			(118	)			—				(1,628	)			(3,521	)
Purchase of noncontrolling interests			—				(715	)			—				(715	)
Issuance of common stock			222				—				429				—
Dividends paid			(6,499	)			—				(6,499	)			—
Other			53				—				404				—
Net cash provided by (used in) financing activities			(287,417	)			(29,468	)			(276,752	)			71,787
Change in cash and cash equivalents			7,152				(1,871	)			(5,428	)			(5,866	)
Cash and cash equivalents at beginning of period			37,427				37,566				50,007				41,561
Cash and cash equivalents at end of period		$	44,579			$	35,695			$	44,579			$	35,695

 

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Kindred Healthcare Reports Third Quarter Results

Page 14

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		2012 Quarters																2013 Quarters
		First				Second				Third				Fourth				First				Second				Third
Revenues		$	1,269,884			$	1,229,108			$	1,226,159			$	1,247,549			$	1,288,867			$	1,218,116			$	1,198,473
Salaries, wages and benefits			780,050				747,992				754,761				761,494				799,519				731,401				733,605
Supplies			89,805				86,652				85,129				85,535				86,835				83,025				81,812
Rent			76,947				78,186				79,312				79,047				78,982				79,864				79,269
Other operating expenses			233,198				236,418				230,076				227,873				239,402				236,227				269,927
Other (income) expense			(3,136	)			(3,165	)			(3,178	)			(3,181	)			(1,009	)			(26	)			52
Impairment charges			498				111				406				108,127				187				457				441
Depreciation and amortization			39,470				40,655				41,304				42,623				42,650				39,631				37,591
Interest expense			26,570				26,713				26,663				27,929				28,171				29,084				25,633
Investment income			(283	)			(258	)			(212	)			(246	)			(88	)			(1,475	)			(1,235	)
			1,243,119				1,213,304				1,214,261				1,329,201				1,274,649				1,198,188				1,227,095
Income (loss) from continuing operations before income taxes			26,765				15,804				11,898				(81,652	)			14,218				19,928				(28,622	)
Provision (benefit) for income taxes			11,039				6,817				5,070				2,870				5,264				8,027				(9,003	)
Income (loss) from continuing operations			15,726				8,987				6,828				(84,522	)			8,954				11,901				(19,619	)
Discontinued operations, net of income taxes:
Income (loss) from operations			4,086				6,632				3,059				4,625				(3,456	)			778				(21,609	)
Loss on divestiture of operations			(1,170	)			(356	)			(2,280	)			(939	)			(2,025	)			(10,852	)			(65,016	)
Income (loss) from discontinued operations			2,916				6,276				779				3,686				(5,481	)			(10,074	)			(86,625	)
Net income (loss)			18,642				15,263				7,607				(80,836	)			3,473				1,827				(106,244	)
(Earnings) loss attributable to noncontrolling interests			(451	)			239				(41	)			(790	)			(416	)			(82	)			(754	)
Income (loss) attributable to Kindred		$	18,191			$	15,502			$	7,566			$	(81,626	)		$	3,057			$	1,745			$	(106,998	)
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	15,275			$	9,226			$	6,787			$	(85,312	)		$	8,538			$	11,819			$	(20,373	)
Income (loss) from discontinued operations			2,916				6,276				779				3,686				(5,481	)			(10,074	)			(86,625	)
Net income (loss)		$	18,191			$	15,502			$	7,566			$	(81,626	)		$	3,057			$	1,745			$	(106,998	)
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	0.29			$	0.17			$	0.13			$	(1.65	)		$	0.16			$	0.22			$	(0.39	)
Discontinued operations:
Income (loss) from operations			0.08				0.13				0.05				0.09				(0.06	)			0.01				(0.41	)
Loss on divestiture of operations			(0.02	)			(0.01	)			(0.04	)			(0.02	)			(0.04	)			(0.20	)			(1.24	)
Income (loss) from discontinued operations			0.06				0.12				0.01				0.07				(0.10	)			(0.19	)			(1.65	)
Net income (loss)		$	0.35			$	0.29			$	0.14			$	(1.58	)		$	0.06			$	0.03			$	(2.04	)
Diluted:
Income (loss) from continuing operations		$	0.29			$	0.17			$	0.13			$	(1.65	)		$	0.16			$	0.22			$	(0.39	)
Discontinued operations:
Income (loss) from operations			0.08				0.13				0.05				0.09				(0.06	)			0.01				(0.41	)
Loss on divestiture of operations			(0.02	)			(0.01	)			(0.04	)			(0.02	)			(0.04	)			(0.20	)			(1.24	)
Income (loss) from discontinued operations			0.06				0.12				0.01				0.07				(0.10	)			(0.19	)			(1.65	)
Net income (loss)		$	0.35			$	0.29			$	0.14			$	(1.58	)		$	0.06			$	0.03			$	(2.04	)
Shares used in computing earnings (loss) per common share:
Basic			51,603				51,664				51,676				51,692				52,062				52,265				52,323
Diluted			51,638				51,675				51,709				51,692				52,083				52,284				52,323

 

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Kindred Healthcare Reports Third Quarter Results

Page 15

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

(In thousands)

 

		2012 Quarters																2013 Quarters
		First				Second				Third				Fourth				First				Second				Third
Revenues:
Hospital division		$	683,068			$	648,152			$	636,463			$	647,794			$	677,246			$	623,877			$	608,506
Nursing center division			285,032				279,353				282,223				283,451				283,771				278,191				277,668
Rehabilitation division:
Skilled nursing rehabilitation services			253,595				253,181				252,201				244,558				257,585				248,331				243,968
Hospital rehabilitation services			74,369				73,402				71,899				73,910				74,523				69,777				68,296
			327,964				326,583				324,100				318,468				332,108				318,108				312,264
Home health and hospice division			28,432				28,872				35,943				50,093				51,621				53,039				53,801
			1,324,496				1,282,960				1,278,729				1,299,806				1,344,746				1,273,215				1,252,239
Eliminations:
Skilled nursing rehabilitation services			(28,953	)			(28,481	)			(27,805	)			(26,788	)			(30,161	)			(30,122	)			(29,414	)
Hospital rehabilitation services			(25,023	)			(24,496	)			(23,904	)			(24,463	)			(24,505	)			(23,976	)			(23,191	)
Nursing centers			(636	)			(875	)			(861	)			(1,006	)			(1,213	)			(1,001	)			(1,161	)
			(54,612	)			(53,852	)			(52,570	)			(52,257	)			(55,879	)			(55,099	)			(53,766	)
		$	1,269,884			$	1,229,108			$	1,226,159			$	1,247,549			$	1,288,867			$	1,218,116			$	1,198,473
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	151,491			$	131,933			$	130,798			$	146,649			$	149,644			$	131,958			$	112,290	(a)
Nursing center division			32,810				35,030				37,865				31,276				28,519				35,381				30,304
Rehabilitation division:
Skilled nursing rehabilitation services			10,904				19,519				16,996				21,074				12,074				20,307				(8,571	)(b)
Hospital rehabilitation services			16,116				17,860				16,977				18,792				18,132				19,573				18,215	(c)
			27,020				37,379				33,973				39,866				30,206				39,880				9,644
Home health and hospice division			2,341				2,789				3,645				4,933				2,786				3,961				1,085	(d)
Corporate:
Overhead			(42,728	)			(44,723	)			(45,883	)			(45,729	)			(45,582	)			(43,199	)			(39,151	)(e)
Insurance subsidiary			(482	)			(600	)			(545	)			(500	)			(509	)			(384	)			(482	)
			(43,210	)			(45,323	)			(46,428	)			(46,229	)			(46,091	)			(43,583	)			(39,633	)
Impairment charges			(498	)			(111	)			(406	)			(108,127	)			(187	)			(457	)			(441	)
Transaction costs			(485	)			(597	)			(482	)			(667	)			(944	)			(108	)			(613	)
Operating income			169,469				161,100				158,965				67,701				163,933				167,032				112,636
Rent			(76,947	)			(78,186	)			(79,312	)			(79,047	)			(78,982	)			(79,864	)			(79,269	)
Depreciation and amortization			(39,470	)			(40,655	)			(41,304	)			(42,623	)			(42,650	)			(39,631	)			(37,591	)
Interest, net			(26,287	)			(26,455	)			(26,451	)			(27,683	)			(28,083	)			(27,609	)			(24,398	)(f)
Income (loss) from continuing operations before income taxes			26,765				15,804				11,898				(81,652	)			14,218				19,928				(28,622	)
Provision (benefit) for income taxes			11,039				6,817				5,070				2,870				5,264				8,027				(9,003	)
		$	15,726			$	8,987			$	6,828			$	(84,522	)		$	8,954			$	11,901			$	(19,619	)

 

(a)	Includes costs of $5.5 million in connection with the closing of a TC hospital and a litigation charge of $0.7 million.

(b)	Includes $23.1 million of litigation charges.

(c)	Includes $0.3 million of severance and retirement costs.

(d)	Includes $0.6 million of severance and retirement costs and $0.5 million of costs associated with closing a home health location.

(e)	Includes $1.0 million of severance and retirement costs and $0.5 million of fees associated with the modification of certain of the Company’s senior debt.

(f)	Includes $0.1 million of charges associated with the modification of certain of the Company’s senior debt.

 

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Kindred Healthcare Reports Third Quarter Results

Page 16

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

		Three months ended September 30, 2013
										Rehabilitation division												Home
		Hospital				Nursing center				Skilled nursing				Hospital								health and								Transaction- related
		division (a)				division				services (b)				services (c)				Total				hospice (d)				Corporate (e)				costs				Eliminations				Consolidated
Revenues		$	608,506			$	277,668			$	243,968			$	68,296			$	312,264			$	53,801			$	—			$	—			$	(53,766	)		$	1,198,473
Salaries, wages and benefits			269,295				134,068				220,267				45,872				266,139				43,184				21,022				—				(103	)			733,605
Supplies			65,351				13,155				750				28				778				2,277				251				—				—				81,812
Rent			50,929				25,450				1,123				19				1,142				1,193				555				—				—				79,269
Other operating expenses			161,568				100,321				31,342				4,150				35,492				7,237				18,359				613				(53,663	)			269,927
Other (income) expense			2				(180	)			180				31				211				18				1				—				—				52
Impairment charges			418				23				—				—				—				—				—				—				—				441
Depreciation and amortization			17,483				6,830				2,461				2,281				4,742				1,638				6,898				—				—				37,591
Interest expense			203				13				63				—				63				6				25,348				—				—				25,633
Investment income			(8	)			(19	)			(50	)			—				(50	)			—				(1,158	)			—				—				(1,235	)
			565,241				279,661				256,136				52,381				308,517				55,553				71,276				613				(53,766	)			1,227,095
Income (loss) from continuing operations before income taxes		$	43,265			$	(1,993	)		$	(12,168	)		$	15,915			$	3,747			$	(1,752	)		$	(71,276	)		$	(613	)		$	—				(28,622	)
Income tax benefit																																							(9,003	)
Loss from continuing operations																																						$	(19,619	)
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	6,421			$	5,584			$	860			$	31			$	891			$	522			$	9,734			$	—			$	—			$	23,152
Development			3,235				—				—				—				—				—				—				—				—				3,235
		$	9,656			$	5,584			$	860			$	31			$	891			$	522			$	9,734			$	—			$	—			$	26,387
		Three months ended September 30, 2012
										Rehabilitation division												Home
		Hospital				Nursing center				Skilled nursing				Hospital								health and								Transaction- related
		division (f)				division				services				services				Total				hospice				Corporate				costs				Eliminations				Consolidated
Revenues		$	636,463			$	282,223			$	252,201			$	71,899			$	324,100			$	35,943			$	—			$	—			$	(52,570	)		$	1,226,159
Salaries, wages and benefits			283,611				138,153				224,283				50,724				275,007				26,332				32,008				(350	)			—				754,761
Supplies			67,820				14,831				704				33				737				1,557				184				—				—				85,129
Rent			52,197				24,300				1,356				2				1,358				805				652				—				—				79,312
Other operating expenses			154,286				91,769				10,216				4,165				14,381				4,409				16,969				832				(52,570	)			230,076
Other (income) expense			(52	)			(395	)			2				—				2				—				(2,733	)			—				—				(3,178	)
Impairment charges			284				122				—				—				—				—				—				—				—				406
Depreciation and amortization			20,060				7,298				2,811				2,328				5,139				1,137				7,670				—				—				41,304
Interest expense			231				15				36				—				36				4				26,377				—				—				26,663
Investment income			(5	)			(17	)			—				—				—				—				(190	)			—				—				(212	)
			578,432				276,076				239,408				57,252				296,660				34,244				80,937				482				(52,570	)			1,214,261
Income from continuing operations before income taxes		$	58,031			$	6,147			$	12,793			$	14,647			$	27,440			$	1,699			$	(80,937	)		$	(482	)		$	—				11,898
Provision for income taxes																																							5,070
Income from continuing operations																																						$	6,828
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	9,015			$	4,965			$	707			$	125			$	832			$	160			$	10,967			$	—			$	—			$	25,939
Development			14,334				843				—				—				—				—				—				—				—				15,177
		$	23,349			$	5,808			$	707			$	125			$	832			$	160			$	10,967			$	—			$	—			$	41,116

 

(a)	Includes costs of $5.5 million in connection with the closing of a TC hospital and a litigation charge of $0.7 million.

(b)	Includes $23.1 million of litigation charges.

(c)	Includes $0.3 million of severance and retirement costs.

(d)	Includes $0.6 million of severance and retirement costs and $0.5 million of costs associated with closing a home health location.

(e)	Includes $1.0 million of severance and retirement costs and $0.6 million of fees and charges associated with the modification of certain of the Company’s senior debt.

(f)	Includes a lease cancellation charge of $0.6 million incurred in connection with the closing of a TC hospital.

 

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Kindred Healthcare Reports Third Quarter Results

Page 17

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

		Nine months ended September 30, 2013
						Nursing center division (a)				Rehabilitation division												Home health and hospice (a,e)								Transaction- related costs
		Hospital division (a,b)								Skilled nursing services (a,c)				Hospital services (a,d)				Total								Corporate (a,f)								Eliminations				Consolidated
Revenues		$	1,909,629			$	839,630			$	749,884			$	212,596			$	962,480			$	158,461			$	—			$	—			$	(164,744	)		$	3,705,456
Salaries, wages and benefits			837,573				408,679				674,985				144,528				819,513				123,228				75,943				—				(411	)			2,264,525
Supplies			201,579				40,178				2,346				90				2,436				6,840				639				—				—				251,672
Rent			153,021				76,144				3,555				55				3,610				3,534				1,806				—				—				238,115
Other operating expenses			476,508				297,405				48,524				11,999				60,523				20,543				53,245				1,665				(164,333	)			745,556
Other (income) expense			77				(836	)			219				59				278				18				(520	)			—				—				(983	)
Impairment charges			1,002				83				—				—				—				—				—				—				—				1,085
Depreciation and amortization			56,202				21,642				8,451				6,931				15,382				4,779				21,867				—				—				119,872
Interest expense			564				41				232				—				232				6				82,045				—				—				82,888
Investment income			(16	)			(42	)			(152	)			—				(152	)			—				(2,588	)			—				—				(2,798	)
			1,726,510				843,294				738,160				163,662				901,822				158,948				232,437				1,665				(164,744	)			3,699,932
Income (loss) from continuing operations before income taxes		$	183,119			$	(3,664	)		$	11,724			$	48,934			$	60,658			$	(487	)		$	(232,437	)		$	(1,665	)		$	—				5,524
Provision for income taxes																																							4,288
Income from continuing operations																																						$	1,236
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	22,285			$	15,662			$	1,929			$	108			$	2,037			$	1,056			$	21,912			$	—			$	—			$	62,952
Development			10,702				7				—				—				—				—				—				—				—				10,709
		$	32,987			$	15,669			$	1,929			$	108			$	2,037			$	1,056			$	21,912			$	—			$	—			$	73,661
		Nine months ended September 30, 2012
						Nursing center division (h)				Rehabilitation division												Home health and hospice
		Hospital division (g)								Skilled nursing services				Hospital services				Total								Corporate				Transaction- related costs				Eliminations				Consolidated
Revenues		$	1,967,683			$	846,608			$	758,977			$	219,670			$	978,647			$	93,247			$	—			$	—			$	(161,034	)		$	3,725,151
Salaries, wages and benefits			864,779				418,487				682,940				155,404				838,344				68,829				92,783				(350	)			(69	)			2,282,803
Supplies			210,106				44,697				2,251				127				2,378				3,826				579				—				—				261,586
Rent			153,790				72,487				4,204				119				4,323				2,029				1,816				—				—				234,445
Other operating expenses			478,923				278,697				26,365				13,163				39,528				11,817				49,778				1,914				(160,965	)			699,692
Other (income) expense			(347	)			(978	)			2				23				25				—				(8,179	)			—				—				(9,479	)
Impairment charges			636				379				—				—				—				—				—				—				—				1,015
Depreciation and amortization			59,247				21,123				8,223				6,975				15,198				2,960				22,901				—				—				121,429
Interest expense			810				52				36				—				36				4				79,044				—				—				79,946
Investment income			(46	)			(39	)			(1	)			—				(1	)			—				(667	)			—				—				(753	)
			1,767,898				834,905				724,020				175,811				899,831				89,465				238,055				1,564				(161,034	)			3,670,684
Income from continuing operations before income taxes		$	199,785			$	11,703			$	34,957			$	43,859			$	78,816			$	3,782			$	(238,055	)		$	(1,564	)		$	—				54,467
Provision for income taxes																																							22,926
Income from continuing operations																																						$	31,541
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	28,455			$	12,611			$	1,602			$	231			$	1,833			$	429			$	33,476			$	—			$	—			$	76,804
Development			35,572				2,603				—				—				—				—				—				—				—				38,175
		$	64,027			$	15,214			$	1,602			$	231			$	1,833			$	429			$	33,476			$	—			$	—			$	114,979

 

(a)

Includes one-time bonus costs of $20.4 million (hospital division—$8.0 million, nursing center division—$5.0 million, rehabilitation division—$6.3 million (skilled nursing rehabilitation services—$5.0 million and hospital rehabilitation services—$1.3 million), home health and hospice division—$0.8 million and corporate—$0.3 million).

(b)	Includes costs of $5.5 million in connection with the closing of a TC hospital and a litigation charge of $0.7 million.

(c)	Includes $23.1 million of litigation charges.

(d)	Includes $0.3 million of severance and retirement costs.

(e)	Includes $0.6 million of severance and retirement costs and $0.5 million of costs associated with closing a home health location.

(f)	Includes $1.0 million of severance and retirement costs and $2.0 million of fees and charges associated with the modification of certain of the Company’s senior debt.

(g)	Includes severance ($2.5 million), other miscellaneous costs ($1.1 million) and lease cancellation charges ($1.5 million) incurred in connection with the closing of a regional office and two TC hospitals and $5.0 million for employment-related lawsuits.

(h)	Includes $0.9 million incurred in connection with the cancellation of a sub-acute unit project.

 

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Kindred Healthcare Reports Third Quarter Results

Page 18

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

 

		2012 Quarters																2013 Quarters
		First				Second				Third				Fourth				First				Second				Third
Hospital division data:
End of period data:
Number of hospitals:
Transitional care			104				103				102				102				102				102				102
Inpatient rehabilitation			5				5				5				5				5				5				5
			109				108				107				107				107				107				107
Number of licensed beds:
Transitional care			7,469				7,419				7,380				7,380				7,380				7,380				7,394
Inpatient rehabilitation			185				215				215				215				215				215				215
			7,654				7,634				7,595				7,595				7,595				7,595				7,609
Revenue mix %:
Medicare			63				62				61				63				63				61				59
Medicaid			6				6				6				6				5				6				7
Medicare Advantage			10				11				11				10				10				11				11
Commercial insurance and other			21				21				22				21				22				22				23
Admissions:
Medicare			10,767				9,989				9,831				9,936				10,649				9,756				9,266
Medicaid			925				919				915				839				685				744				789
Medicare Advantage			1,532				1,649				1,494				1,453				1,583				1,537				1,461
Commercial insurance and other			2,546				2,342				2,357				2,247				2,226				2,121				2,144
			15,770				14,899				14,597				14,475				15,143				14,158				13,660
Admissions mix %:
Medicare			68				67				68				69				70				69				68
Medicaid			6				6				6				6				5				5				6
Medicare Advantage			10				11				10				10				10				11				11
Commercial insurance and other			16				16				16				15				15				15				15
Patient days:
Medicare			264,930				250,081				244,189				248,315				261,311				241,790				230,780
Medicaid			32,848				30,568				33,671				31,697				28,776				30,447				31,608
Medicare Advantage			43,392				46,071				44,138				42,458				44,639				44,695				43,391
Commercial insurance and other			75,351				73,331				72,394				69,552				73,512				66,706				68,583
			416,521				400,051				394,392				392,022				408,238				383,638				374,362
Average length of stay:
Medicare			24.6				25.0				24.8				25.0				24.5				24.8				24.9
Medicaid			35.5				33.3				36.8				37.8				42.0				40.9				40.1
Medicare Advantage			28.3				27.9				29.5				29.2				28.2				29.1				29.7
Commercial insurance and other			29.6				31.3				30.7				31.0				33.0				31.5				32.0
Weighted average			26.4				26.9				27.0				27.1				27.0				27.1				27.4

 

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Kindred Healthcare Reports Third Quarter Results

Page 19

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2012 Quarters																2013 Quarters
		First				Second				Third				Fourth				First				Second				Third
Hospital division data (continued):
Revenues per admission:
Medicare		$	39,802			$	40,043			$	39,423			$	40,963			$	39,956			$	38,884			$	39,078
Medicaid			42,937				42,150				41,591				43,487				51,441				48,141				51,891
Medicare Advantage			44,297				42,661				46,465				45,790				44,397				45,348				46,793
Commercial insurance and other			57,715				59,384				60,002				61,313				65,694				65,537				63,947
Weighted average			43,314				43,503				43,602				44,752				44,723				44,065				44,546
Revenues per patient day:
Medicare		$	1,618			$	1,599			$	1,587			$	1,639			$	1,628			$	1,569			$	1,569
Medicaid			1,209				1,267				1,130				1,151				1,225				1,176				1,295
Medicare Advantage			1,564				1,527				1,573				1,567				1,574				1,559				1,576
Commercial insurance and other			1,950				1,897				1,954				1,981				1,989				2,084				1,999
Weighted average			1,640				1,620				1,614				1,652				1,659				1,626				1,625
Medicare case mix index (discharged patients only)			1.18				1.18				1.16				1.15				1.18				1.18				1.16
Average daily census			4,577				4,396				4,287				4,261				4,536				4,216				4,069
Occupancy %			68.3				64.9				63.9				63.6				67.5				62.5				60.0
Annualized employee turnover %			22.0				21.5				20.2				19.8				22.2				21.6				21.1
Nursing center division data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased			99				99				99				98				98				98				98
Managed			4				4				4				4				4				4				4
Assisted living facilities			6				6				6				6				6				6				6
			109				109				109				108				108				108				108
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased			12,747				12,795				12,795				12,741				12,741				12,741				12,741
Managed			485				485				485				485				485				485				485
Assisted living facilities			413				341				341				341				341				341				341
			13,645				13,621				13,621				13,567				13,567				13,567				13,567
Revenue mix %:
Medicare			35				35				34				35				35				34				33
Medicaid			36				37				37				37				36				36				39
Medicare Advantage			8				8				8				7				8				8				7
Private and other			21				20				21				21				21				22				21

 

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Kindred Healthcare Reports Third Quarter Results

Page 20

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2012 Quarters																2013 Quarters
		First				Second				Third				Fourth				First				Second				Third
Nursing center division data (continued):
Patient days (a):
Medicare			184,273				178,799				173,627				170,509				175,642				166,291				161,181
Medicaid			548,718				549,131				554,260				549,053				533,317				533,032				542,265
Medicare Advantage			55,238				50,688				50,355				48,687				55,478				54,593				47,565
Private and other			238,158				232,488				238,386				239,446				228,210				228,875				228,698
			1,026,387				1,011,106				1,016,628				1,007,695				992,647				982,791				979,709
Patient day mix % (a):
Medicare			18				18				17				17				18				17				17
Medicaid			54				54				55				54				54				54				55
Medicare Advantage			5				5				5				5				5				6				5
Private and other			23				23				23				24				23				23				23
Revenues per patient day (a):
Medicare Part A		$	504			$	505			$	515			$	536			$	525			$	525			$	524
Total Medicare (including Part B)			546				550				560				574				562				564				566
Medicaid			185				187				188				190				190				190				199
Medicaid (net of provider taxes) (b)			163				165				166				167				168				167				177
Medicare Advantage			427				421				422				429				427				431				427
Private and other			248				244				249				253				262				261				255
Weighted average			278				276				277				281				286				283				283
Average daily census (a)			11,279				11,111				11,050				10,953				11,029				10,800				10,649
Admissions (a)			11,538				10,646				10,482				10,814				11,475				10,708				10,387
Occupancy % (a)			83.7				82.6				82.0				81.5				82.2				80.5				79.4
Medicare average length of stay (a)			30.4				31.3				31.9				30.7				30.2				31.0				31.6
Annualized employee turnover %			38.4				40.4				39.8				39.6				41.0				43.8				43.5
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated			11				11				11				11				12				12				12
Non-affiliated			89				89				89				89				88				88				88
Sites of service (at end of period)			1,722				1,730				1,735				1,726				1,729				1,713				1,768
Revenue per site		$	147,268			$	146,347			$	145,361			$	141,690			$	148,979			$	144,968			$	137,991
Therapist productivity %			80.3				80.4				80.5				80.5				81.1				80.4				80.4
Hospital rehabilitation services:
Revenue mix %:
Company-operated			34				33				33				33				33				34				34
Non-affiliated			66				67				67				67				67				66				66
Sites of service (at end of period):
Inpatient rehabilitation units			100				102				104				105				103				103				99
LTAC hospitals			125				125				123				123				123				123				122
Sub-acute units			19				20				20				21				8				8				7
Outpatient units			111				115				117				119				98				104				104
Other			5				5				5				5				—				—				—
			360				367				369				373				332				338				332
Revenue per site		$	206,580			$	200,006			$	194,849			$	198,150			$	224,466			$	206,441			$	205,711
Annualized employee turnover %			19.6				16.9				17.3				16.9				10.4				13.2				14.0

 

(a)	Excludes managed facilities.

(b)	Provider taxes are recorded in other operating expenses for all periods presented.

 

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Kindred Healthcare Reports Third Quarter Results

Page 21

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Earnings (Loss) Per Common Share Reconciliation (a)

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,																Nine months ended September 30,
		2013								2012								2013								2012
		Basic				Diluted				Basic				Diluted				Basic				Diluted				Basic				Diluted
Earnings (loss):
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations:
As reported in Statement of Operations		$	(20,373	)		$	(20,373	)		$	6,787			$	6,787			$	(16	)		$	(16	)		$	31,288			$	31,288
Allocation to participating unvested restricted stockholders			—				—				(173	)			(172	)			—				—				(660	)			(659	)
Available to common stockholders		$	(20,373	)		$	(20,373	)		$	6,614			$	6,615			$	(16	)		$	(16	)		$	30,628			$	30,629
Discontinued operations, net of income taxes:
Income (loss) from operations:
As reported in Statement of Operations		$	(21,609	)		$	(21,609	)		$	3,059			$	3,059			$	(24,287	)		$	(24,287	)		$	13,777			$	13,777
Allocation to participating unvested restricted stockholders			—				—				(78	)			(78	)			—				—				(290	)			(290	)
Available to common stockholders		$	(21,609	)		$	(21,609	)		$	2,981			$	2,981			$	(24,287	)		$	(24,287	)		$	13,487			$	13,487
Loss on divestiture of operations:
As reported in Statement of Operations		$	(65,016	)		$	(65,016	)		$	(2,280	)		$	(2,280	)		$	(77,893	)		$	(77,893	)		$	(3,806	)		$	(3,806	)
Allocation to participating unvested restricted stockholders			—				—				58				58				—				—				80				80
Available to common stockholders		$	(65,016	)		$	(65,016	)		$	(2,222	)		$	(2,222	)		$	(77,893	)		$	(77,893	)		$	(3,726	)		$	(3,726	)
Income (loss) from discontinued operations:
As reported in Statement of Operations		$	(86,625	)		$	(86,625	)		$	779			$	779			$	(102,180	)		$	(102,180	)		$	9,971			$	9,971
Allocation to participating unvested restricted stockholders			—				—				(20	)			(20	)			—				—				(210	)			(210	)
Available to common stockholders		$	(86,625	)		$	(86,625	)		$	759			$	759			$	(102,180	)		$	(102,180	)		$	9,761			$	9,761
Net income (loss):
As reported in Statement of Operations		$	(106,998	)		$	(106,998	)		$	7,566			$	7,566			$	(102,196	)		$	(102,196	)		$	41,259			$	41,259
Allocation to participating unvested restricted stockholders			—				—				(193	)			(192	)			—				—				(870	)			(869	)
Available to common stockholders		$	(106,998	)		$	(106,998	)		$	7,373			$	7,374			$	(102,196	)		$	(102,196	)		$	40,389			$	40,390
Shares used in the computation:
Weighted average shares outstanding - basic computation			52,323				52,323				51,676				51,676				52,218				52,218				51,648				51,648
Dilutive effect of employee stock options							—								33								—								27
Adjusted weighted average shares outstanding - diluted computation							52,323								51,709								52,218								51,675
Earnings (loss) per common share:
Income (loss) from continuing operations		$	(0.39	)		$	(0.39	)		$	0.13			$	0.13			$	—			$	—			$	0.59			$	0.59
Discontinued operations:
Income (loss) from operations			(0.41	)			(0.41	)			0.05				0.05				(0.47	)			(0.47	)			0.26				0.26
Loss on divestiture of operations			(1.24	)			(1.24	)			(0.04	)			(0.04	)			(1.49	)			(1.49	)			(0.07	)			(0.07	)
Income (loss) from discontinued operations			(1.65	)			(1.65	)			0.01				0.01				(1.96	)			(1.96	)			0.19				0.19
Net income (loss)		$	(2.04	)		$	(2.04	)		$	0.14			$	0.14			$	(1.96	)		$	(1.96	)		$	0.78			$	0.78

 

(a)

Earnings (loss) per common share are based upon the weighted average number of common shares outstanding during the respective periods. The diluted calculation of earnings per common share includes the dilutive effect of stock options. The Company follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method.

 

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Kindred Healthcare Reports Third Quarter Results

Page 22

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Reconciliation of Non-GAAP Measurements to GAAP Results

(Unaudited)

(In thousands, except per share amounts and statistics)

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and nine months ended September 30, 2013 and 2012 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.

The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 29.6% and 15.5% for the three months ended September 30, 2013 and 2012, respectively, and 33.8% and 36.7% for the nine months ended September 30, 2013 and 2012, respectively. The change in the effective income tax rates between periods is attributable to certain charges that are non-deductible for income tax purposes.

The use of these non-GAAP measurements are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the three months and nine months ended September 30, 2013 and 2012 that the Company believes are not representative of its ongoing operations due to the materiality and nature of the charges. The Company’s core operating results also represent a key performance measure for the purpose of evaluating performance internally.

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2013				2012				2013				2012
Detail of charges:
One-time bonus costs		$	—			$	—				($20,458	)		$	—
Severance, retirement and other costs			(2,353	)			(51	)			(2,353	)			(4,527	)
Costs associated with the closing of a TC hospital and a home health location			(6,043	)			—				(6,043	)			—
Litigation			(23,850	)			—				(23,850	)			(5,000	)
Transaction costs			(613	)			(482	)			(1,665	)			(1,564	)
Lease cancellation charges (rent expense)			—				(596	)			—				(1,515	)
Senior debt modification charges (interest expense)			(96	)			—				(1,461	)			—
			(32,955	)			(1,129	)			(55,830	)			(12,606	)
Income tax benefit			9,747				175				18,885				4,622
Charges net of income taxes			(23,208	)			(954	)			(36,945	)			(7,984	)
Allocation to participating unvested restricted stockholders			—				24				—				168
Available to common stockholders			($23,208	)			($930	)			($36,945	)			($7,816	)
Weighted average diluted shares outstanding			52,323				51,709				52,218				51,675
Diluted loss per common share related to charges			($0.44	)			($0.02	)			($0.71	)			($0.15	)
Reconciliation of operating income before charges:
Operating income before charges		$	145,495			$	159,498			$	497,970			$	500,625
Detail of charges excluded from core operating results:
One-time bonus costs			—				—				(20,458	)			—
Severance, retirement and other costs			(2,353	)			(51	)			(2,353	)			(4,527	)
Costs associated with the closing of a TC hospital and a home health location			(6,043	)			—				(6,043	)			—
Litigation			(23,850	)			—				(23,850	)			(5,000	)
Transaction costs			(613	)			(482	)			(1,665	)			(1,564	)
			(32,859	)			(533	)			(54,369	)			(11,091	)
Reported operating income		$	112,636			$	158,965			$	443,601			$	489,534
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges		$	2,835			$	7,741			$	36,929			$	39,272
Charges net of income taxes			(23,208	)			(954	)			(36,945	)			(7,984	)
Reported income (loss) from continuing operations			($20,373	)		$	6,787				($16	)		$	31,288
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a)		$	0.05			$	0.15			$	0.68			$	0.74
Charges net of income taxes			(0.44	)			(0.02	)			(0.71	)			(0.15	)
Other			—				—				0.03				—
Reported diluted income (loss) per common share from continuing operations			($0.39	)		$	0.13			$	—			$	0.59
Weighted average diluted shares used to compute diluted income per common share from continuing operations before charges			52,333				51,709				52,234				51,675
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges			17.2	%			40.3	%			37.8	%			41.1	%
Impact of charges on effective income tax rate			14.3	%			2.3	%			39.8	%			1.0	%
Reported effective income tax rate			31.5	%			42.6	%			77.6	%			42.1	%

 

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.1 million and $0.2 million for the three months ended September 30, 2013 and 2012, respectively, and $1.2 million and $0.8 million for the nine months ended September 30, 2013 and 2012, respectively, for the allocation of income to participating unvested restricted stockholders.

 

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Kindred Healthcare Reports Third Quarter Results

Page 23

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)

(Unaudited)

(In thousands)

 

		Three months ended September 30, 2013
						Charges
		Before charges				Severance and retirement costs				Facility closing costs				Litigation				Transaction costs				Senior debt modification charges				Total				As reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	118,517			$	—			$	(5,527	)		$	(700	)		$	—			$	—			$	(6,227	)		$	112,290
Nursing center division			30,368				—				(64	)			—				—				—				(64	)			30,304
Rehabilitation division:
Skilled nursing rehabilitation services			14,579				—				—				(23,150	)			—				—				(23,150	)			(8,571	)
Hospital rehabilitation services			18,503				(288	)			—				—				—				—				(288	)			18,215
			33,082				(288	)			—				(23,150	)			—				—				(23,438	)			9,644
Home health and hospice division			2,138				(601	)			(452	)			—				—				—				(1,053	)			1,085
Corporate:
Overhead			(37,687	)			(1,005	)			—				—				—				(459	)			(1,464	)			(39,151	)
Insurance subsidiary			(482	)			—				—				—				—				—				—				(482	)
			(38,169	)			(1,005	)			—				—				—				(459	)			(1,464	)			(39,633	)
Impairment charges			(441	)			—				—				—				—				—				—				(441	)
Transaction costs			—				—				—				—				(613	)			—				(613	)			(613	)
Operating income			145,495				(1,894	)			(6,043	)			(23,850	)			(613	)			(459	)			(32,859	)			112,636
Rent			(79,269	)			—				—				—				—				—				—				(79,269	)
Depreciation and amortization			(37,591	)			—				—				—				—				—				—				(37,591	)
Interest, net			(24,302	)			—				—				—				—				(96	)			(96	)			(24,398	)
Income (loss) from continuing operations before income taxes			4,333				(1,894	)			(6,043	)			(23,850	)			(613	)			(555	)			(32,955	)			(28,622	)
Provision (benefit) for income taxes			744				(743	)			(2,111	)			(6,470	)			(205	)			(218	)			(9,747	)			(9,003	)
		$	3,589			$	(1,151	)		$	(3,932	)		$	(17,380	)		$	(408	)		$	(337	)		$	(23,208	)		$	(19,619	)

 

		Three months ended September 30, 2012
						Charges
		Before charges				Severance and other				Transaction costs				Lease cancellation charges				Total				As reported
Income from continuing operations:
Operating income (loss):
Hospital division		$	130,848			$	(50	)		$	—			$	—			$	(50	)		$	130,798
Nursing center division			37,866				(1	)			—				—				(1	)			37,865
Rehabilitation division:
Skilled nursing rehabilitation services			16,996				—				—				—				—				16,996
Hospital rehabilitation services			16,977				—				—				—				—				16,977
			33,973				—				—				—				—				33,973
Home health and hospice division			3,645				—				—				—				—				3,645
Corporate:
Overhead			(45,883	)			—				—				—				—				(45,883	)
Insurance subsidiary			(545	)			—				—				—				—				(545	)
			(46,428	)			—				—				—				—				(46,428	)
Impairment charges			(406	)			—				—				—				—				(406	)
Transaction costs			—				—				(482	)			—				(482	)			(482	)
Operating income			159,498				(51	)			(482	)			—				(533	)			158,965
Rent			(78,716	)			—				—				(596	)			(596	)			(79,312	)
Depreciation and amortization			(41,304	)			—				—				—				—				(41,304	)
Interest, net			(26,451	)			—				—				—				—				(26,451	)
Income from continuing operations before income taxes			13,027				(51	)			(482	)			(596	)			(1,129	)			11,898
Provision for income taxes			5,245				(20	)			76				(231	)			(175	)			5,070
		$	7,782			$	(31	)		$	(558	)		$	(365	)		$	(954	)		$	6,828

 

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Kindred Healthcare Reports Third Quarter Results

Page 24

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)

(Unaudited)

(In thousands)

 

		Nine months ended September 30, 2013
						Charges
		Before charges				One-time bonus				Severance and retirement costs				Facility closing costs				Litigation				Transaction costs				Senior debt modification charges				Total				As reported
Income from continuing operations:
Operating income (loss):
Hospital division		$	408,156			$	(8,037	)		$	—			$	(5,527	)		$	(700	)		$	—			$	—			$	(14,264	)		$	393,892
Nursing center division			99,234				(4,966	)			—				(64	)			—				—				—				(5,030	)			94,204
Rehabilitation division:
Skilled nursing rehabilitation services			52,012				(5,052	)			—				—				(23,150	)			—				—				(28,202	)			23,810
Hospital rehabilitation services			57,463				(1,255	)			(288	)			—				—				—				—				(1,543	)			55,920
			109,475				(6,307	)			(288	)			—				(23,150	)			—				—				(29,745	)			79,730
Home health and hospice division			9,718				(833	)			(601	)			(452	)			—				—				—				(1,886	)			7,832
Corporate:
Overhead			(126,153	)			(315	)			(1,005	)			—				—				—				(459	)			(1,779	)			(127,932	)
Insurance subsidiary			(1,375	)			—				—				—				—				—				—				—				(1,375	)
			(127,528	)			(315	)			(1,005	)			—				—				—				(459	)			(1,779	)			(129,307	)
Impairment charges			(1,085	)			—				—				—				—				—				—				—				(1,085	)
Transaction costs			—				—				—				—				—				(1,665	)			—				(1,665	)			(1,665	)
Operating income			497,970				(20,458	)			(1,894	)			(6,043	)			(23,850	)			(1,665	)			(459	)			(54,369	)			443,601
Rent			(238,115	)			—				—				—				—				—				—				—				(238,115	)
Depreciation and amortization			(119,872	)			—				—				—				—				—				—				—				(119,872	)
Interest, net			(78,629	)			—				—				—				—				—				(1,461	)			(1,461	)			(80,090	)
Income from continuing operations before income taxes			61,354				(20,458	)			(1,894	)			(6,043	)			(23,850	)			(1,665	)			(1,920	)			(55,830	)			5,524
Provision for income taxes			23,173				(8,030	)			(743	)			(2,111	)			(6,629	)			(618	)			(754	)			(18,885	)			4,288
		$	38,181			$	(12,428	)		$	(1,151	)		$	(3,932	)		$	(17,221	)		$	(1,047	)		$	(1,166	)		$	(36,945	)		$	1,236

 

		Nine months ended September 30, 2012
						Charges
																		Lease
		Before				Severance								Transaction				cancellation								As
		charges				and other				Litigation				costs				charges				Total				reported
Income from continuing operations:
Operating income (loss):
Hospital division		$	422,757			$	(3,535	)		$	(5,000	)		$	—			$	—			$	(8,535	)		$	414,222
Nursing center division			106,615				(910	)			—				—				—				(910	)			105,705
Rehabilitation division:
Skilled nursing rehabilitation services			47,455				(36	)			—				—				—				(36	)			47,419
Hospital rehabilitation services			50,964				(11	)			—				—				—				(11	)			50,953
			98,419				(47	)			—				—				—				(47	)			98,372
Home health and hospice division			8,775				—				—				—				—				—				8,775
Corporate:
Overhead			(133,299	)			(35	)			—				—				—				(35	)			(133,334	)
Insurance subsidiary			(1,627	)			—				—				—				—				—				(1,627	)
			(134,926	)			(35	)			—				—				—				(35	)			(134,961	)
Impairment charges			(1,015	)			—				—				—				—				—				(1,015	)
Transaction costs			—				—				—				(1,564	)			—				(1,564	)			(1,564	)
Operating income			500,625				(4,527	)			(5,000	)			(1,564	)			—				(11,091	)			489,534
Rent			(232,930	)			—				—								(1,515	)			(1,515	)			(234,445	)
Depreciation and amortization			(121,429	)			—				—				—				—				—				(121,429	)
Interest, net			(79,193	)			—				—				—				—				—				(79,193	)
Income from continuing operations before income taxes			67,073				(4,527	)			(5,000	)			(1,564	)			(1,515	)			(12,606	)			54,467
Provision for income taxes			27,548				(1,660	)			(1,833	)			(574	)			(555	)			(4,622	)			22,926
		$	39,525			$	(2,867	)		$	(3,167	)		$	(990	)		$	(960	)		$	(7,984	)		$	31,541

 

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Kindred Healthcare Reports Third Quarter Results

Page 25

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)

(Unaudited)

(In thousands)

The Company recognizes that free cash flows excluding certain items is a non-GAAP measurement and is not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that this non-GAAP measurement provides important information to investors related to the amount of discretionary cash flows that are available for other investing and other financing activities. In addition, management uses free cash flows in making decisions related to acquisitions, development capital expenditures, long-term debt repayments and other uses.

The income tax benefit associated with the excluded payments was calculated using an effective income tax rate of 39.3% for the three months and nine months ended September 30, 2013 and 38.8% for the three months and nine months ended September 30, 2012 .

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2013				2012				2013				2012
Reconciliation of net cash flows provided by operating activities to free cash flows:
Net cash flows provided by operating activities		$	110,750			$	141,489			$	189,217			$	191,087
Less routine capital expenditures			(23,152	)			(25,939	)			(62,952	)			(76,804	)
Adjusted net cash flows provided by operating activities			87,598				115,550				126,265				114,283
Less:
Development capital expenditures			(3,235	)			(15,177	)			(10,709	)			(38,175	)
Payment of cash dividends			(6,499	)			—				(6,499	)			—
			(9,734	)			(15,177	)			(17,208	)			(38,175	)
Free cash flows including certain items			77,864				100,373				109,057				76,108
Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows provided by operating activities:
One-time employee bonus			—				—				26,345				—
Lenders fees related to senior debt modifications			4,589				—				6,189				—
Transaction costs			6,362				1,366				8,550				2,472
Severance and retention			686				245				1,655				2,115
Lease cancellation			—				1,515				—				3,265
Benefit of reduced income tax payments resulting from certain payments			(4,567	)			(1,212	)			(16,775	)			(3,043	)
			7,070				1,914				25,964				4,809
Free cash flows excluding certain items		$	84,934			$	102,287			$	135,021			$	80,917

 

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Kindred Healthcare Reports Third Quarter Results

Page 26

November 5, 2013

 

KINDRED HEALTHCARE, INC.

Reconciliation of Earnings Guidance for 2013 and 2014—Continuing Operations

(Unaudited)

(In millions, except per share amounts)

 

		As of November 5, 2013																As of August 5, 2013
		2013 (a)								2014 (a)								2013 (a)
		Low				High				Low				High				Low				High
Operating income		$	657			$	665			$	726			$	744			$	797			$	813
Rent			323				323				339				339				392				392
Depreciation and amortization			159				159				165				165				192				192
Interest, net			103				103				106				106				109				109
Income from continuing operations before income taxes			72				80				116				134				104				120
Provision for income taxes			28				31				46				53				43				49
Income from continuing operations			44				49				70				81				61				71
Earnings attributable to noncontrolling interests			(2	)			(2	)			(12	)			(12	)			(1	)			(1	)
Income from continuing operations attributable to the Company			42				47				58				69				60				70
Allocation to participating unvested restricted stockholders			(1	)			(1	)			(2	)			(2	)			(2	)			(2	)
Available to common stockholders		$	41			$	46			$	56			$	67			$	58			$	68
Earnings per diluted share		$	0.78			$	0.88			$	1.05			$	1.25			$	1.10			$	1.30
Shares used in computing earnings per diluted share			52.3				52.3				53.2				53.2				52.5				52.5

 

(a)

The earnings guidance excludes the effect of (1) a one-time employee bonus distributed in the first quarter of 2013, (2) changes in estimates related to pending litigation, (3) the early lease termination payment to Ventas, (4) costs associated with the closure of a hospital and a home health location, (5) costs associated with certain severance and retirement benefits, (6) any transaction-related costs, (7) charges associated with the modification of certain of the Company’s senior debt, (8) any other reimbursement changes, (9) any further acquisitions or divestitures (unless otherwise noted), (10) any impairment charges, and (11) any repurchases of common stock.

 

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