EXHIBIT 99.1

 

Contact:

Hank Robinson

Senior Vice President, Tax and Treasurer

(502) 596-7732

KINDRED HEALTHCARE ANNOUNCES FOURTH QUARTER RESULTS

 

 

Excluding Certain Items, Continuing Operations Diluted EPS Totaled $0.15 in the Fourth Quarter

and $0.94 for the Full Year, Ahead of the Company’s Annual Guidance

Company Reports Strong Free Cash Flows of $130 Million for the Year Excluding Certain Items and

$13 Million of Cash Dividends Paid to Shareholders

 

 

Company Reports GAAP Continuing Operations Loss of $54 Million in the Fourth Quarter

and a Loss of $48 Million for the Full Year, Primarily Attributable to an Asset Impairment Charge of $76 Million

GAAP Operating Cash Flows Totaled $199 Million for the Year Compared to $263 Million a Year Ago

 

 

Company Maintains Fiscal 2014 Guidance for Core Earnings of $1.05 to $1.25 and Free Cash Flow

Guidance of $125 Million to $145 Million before $26 Million of Estimated Full-Year Cash Dividends

LOUISVILLE, Ky. (February 20, 2014) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2013. The Company continues to benefit from its repositioning strategy through the planned exit from a nursing center and a transitional care (“TC”) hospital and the closure of another nursing center during the fourth quarter of 2013. The Company has reclassified the operations of these three facilities 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:

 

•

Volume softness in the hospital and nursing center divisions drove a 1% decline in fourth quarter consolidated revenues which were mitigated by cost controls throughout the Company

 

•

The closure or planned disposition of three additional non-strategic assets bolstered continuing operations diluted EPS by $0.05 in the quarter and $0.13 for the full year

 

•

Free cash flows for the full year were strong

 

•

Excluding certain items and dividend payments, fiscal 2013 free cash flows of $130 million were up 23% from last year

 

•

GAAP operating cash flows totaled $199 million compared to $263 million a year ago

 

•

Kindred continued to execute on its Integrated Care Market and redeployment strategy in the fourth quarter

 

•

Senior Home Care purchase added $143 million of annualized home health revenues to Kindred at Home and the Care Management Division

 

•

The real estate of seven previously leased nursing centers were acquired for $61 million reducing annual rents by approximately $7 million

 

•

Kindred is well positioned operationally and financially to grow moving into 2014

 

•

Available borrowing capacity under the Company’s revolving credit facility approximated $396 million at year-end

 

•

Board of Directors declared regular quarterly cash dividend of $0.12 per share payable on March 27, 2014

 

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680 South Fourth Street      Louisville, Kentucky 40202

502.596.7300      www.kindredhealthcare.com

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Kindred Healthcare Announces Fourth Quarter Results

Page 2

February 20, 2014

 

 

Fourth Quarter Results

Continuing Operations

Consolidated revenues for the fourth quarter ended December 31, 2013 declined 1% to $1.22 billion compared to $1.24 billion in the same period in 2012. The Company reported a loss from continuing operations for the fourth quarter of 2013 of $54.1 million or $1.04 per share compared to a loss of $84.0 million or $1.62 per share in the fourth quarter of 2012. Fourth quarter 2013 operating results included pretax charges of $87.7 million related to (1) an asset impairment charge, (2) changes in estimates related to pending litigation, (3) severance and retirement costs, (4) costs associated with the closing of a TC hospital, (5) transaction-related costs and (6) an increase in the estimated tax benefit associated with pending litigation, which in aggregate reduced income from continuing operations by $62.4 million or $1.19 per share. Operating results for the fourth quarter of 2012 included an asset impairment charge and severance, restructuring, lease termination and transaction-related costs that reduced income from continuing operations by $104.8 million or $2.03 per share.

During the fourth quarter of 2013, the Company recorded a $76 million goodwill impairment charge to reflect circumstances in which the carrying value of its home health reporting unit exceeded its fair value. The impairment charge resulted primarily from the expected decline in operating results in the Company’s home health business related to the Medicare reimbursement rate reductions for each of the next four years beginning January 1, 2014 announced by the Centers for Medicare and Medicaid Services (“CMS”) on November 22, 2013.

Fiscal Year Results

Continuing Operations

Consolidated revenues for the year ended December 31, 2013 declined 1% to $4.90 billion compared to $4.93 billion in the previous year. The Company reported a loss from continuing operations of $48.5 million or $0.93 per share in 2013 compared to a loss of $48.0 million or $0.93 per share in 2012.

In addition to the charges discussed in the fourth quarter results above, operating results in 2013 included (1) a one-time bonus to employees who do not participate in the Company’s incentive plans distributed in the first quarter of 2013, (2) changes in estimates related to pending litigation, (3) severance and retirement costs, (4) costs associated with the closure of a TC hospital and home health location and (5) charges associated with the modification of certain of the Company’s senior debt, which in aggregate reduced income from continuing operations by $99.1 million or $1.90 per share. Operating results in 2012 included certain items that reduced income from continuing operations by $112.8 million or $2.18 per share, most of which were related to asset impairment charges, litigation and severance and restructuring costs.

Discontinued Operations

In connection with the Company’s long-range plans to reposition its businesses and enhance its Integrated Care Market strategy, the Company has completed various transactions and entered into certain agreements to significantly change its business mix, operating profile and future business prospects. During 2013, the Company exited, sold or agreed to exit, 139 facilities (15 TC hospitals, one inpatient rehabilitation hospital (“IRF”) and 123 nursing centers) with annualized revenues approximating $1.3 billion. These transactions generated approximately $250 million in cash proceeds from asset sales and will reduce annual rents by approximately $125 million. For accounting purposes, the historical operating results and losses on the disposal of these businesses have been classified as discontinued operations in the Company’s consolidated statement of operations for all historical periods.

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 3

February 20, 2014

 

 

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “Our fourth quarter results were in line with our expectations and reflected a continuation of the difficult volume and utilization trends experienced by many healthcare providers in the second half of 2013. We also continued to advance our repositioning strategy with the closure or planned disposition of three additional non-strategic assets. We were successful in managing costs in response to volume weakness in our hospitals and nursing centers, and we are seeing some volume momentum in January and February that we expect will help us get the year off to a strong start.”

Mr. Diaz further noted, “For the full year, we are pleased to report that we exceeded our core earnings objectives that were announced in our third quarter earnings release as we continued to mitigate the negative impact of approximately $40 million of Medicare sequestration cuts across our enterprise. This accomplishment reflects the commitment of our caregivers, and a relentless focus on cost management across the enterprise, all while working to maintain a culture of quality service and patient satisfaction under very difficult circumstances. Despite volume challenges during the last half of the year, and Medicare sequestration cuts, our hospital division results were solid. Our RehabCare division made great progress in the midst of Medicare reimbursement reductions and continues to perform well. For our nursing center division, 2013 was a significant year of transition as we worked through several divestitures. We expect 2014 to reflect more stabilized nursing center operations with better financial performance. Our Care Management Division experienced significant growth in 2013 and now has annualized revenues of over $350 million. We expect operating improvements in our home health and hospice operations in 2014 as we assimilate numerous acquisitions and execute on a more standardized operating model.”

Commenting on the Company’s strategic initiatives, Mr. Diaz noted, “In 2013, we continued advancing a strategy to reposition our business mix with the goal of improving our long-term growth, profitability and financial position and enhancing our Integrated Care Market capabilities, particularly in home health and hospice services. Specifically, we exited, sold or agreed to exit 139 facilities with annualized revenues of $1.3 billion, completed several home health and hospice acquisitions that added approximately $150 million of annualized revenues and we acquired the real estate of nine previously leased facilities for approximately $96 million that will benefit our balance sheet leverage over time. Having substantially completed the divestiture phase of our repositioning strategy, we are evaluating various opportunities to redeploy our management capabilities, industry leading infrastructure and financial resources as we move forward with the growth phase of our strategic plan.”

Mr. Diaz stated, “Our free cash flows, adjusted for certain items, were up 23% compared to last year before paying $13 million in quarterly dividends and absorbing significant reimbursement headwinds. Our significant free cash flows as well as our $396 million of available credit going into 2014, provide the financial strength to further reposition the Company’s business mix and advance our Continue the Care strategy in our Integrated Care Markets.”

Finally, Mr. Diaz added, “The new long-term acute care (“LTAC”) patient criteria enacted in 2013 provides significant clarity to our business and affirms the role of LTAC hospitals in the healthcare continuum. The new criteria will not be fully phased in for most of our hospitals until the summer of 2018, which provides us with significant time to develop clinical programs and services that better align with the clinical needs of this patient population and this new payment system. We believe that the new criteria will afford us the opportunity to grow organically our patient volumes and leverage our existing capacity of TC hospitals.”

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 4

February 20, 2014

 

 

Earnings Guidance – Continuing Operations

The Company maintained its previous earnings guidance for 2014. The Company expects consolidated revenues for 2014 to approximate $5.2 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $725 million to $742 million. Rent expense is expected to approximate $338 million, while depreciation and amortization should approximate $165 million. Net interest expense is expected to approximate $106 million. The Company expects to report income from continuing operations for 2014 between $58 million and $68 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 $0.05 to $0.10 for the estimated impact of new acquisitions that the Company expects to complete in 2014.

The Company updated its operating cash flow guidance for 2014 at a range between $245 million and $275 million. Estimated routine capital expenditures for 2014 are expected to range from $100 million to $105 million and estimated costs to develop new or replacement TC hospitals, transitional care nursing centers, and IRFs will approximate $20 million to $25 million in 2014. Operating cash flows in excess of the Company’s routine and development capital spending programs are expected to approximate $125 million to $145 million for 2014 and will be available to pay dividends, repay debt and fund acquisitions. Estimated dividend payments for 2014 are expected to approximate $26 million.

Benjamin A. Breier, President and Chief Operating Officer of the Company, commented, “As we head into 2014, our confidence in our earnings guidance range has increased as we are beginning to see traction in our sales and marketing efforts to drive patient admissions as well as greater awareness among managed care payors of our value proposition, particularly for our TC hospitals. We also expect additional cost savings by continuing to push for ongoing performance improvement with our efficiency initiatives inside the Company.”

The Company’s earnings and cash flow guidance for 2014 excludes the effect of reimbursement changes, severance and retirement costs, litigation costs, transaction-related costs, any further acquisitions or divestitures (except as otherwise noted), any impairment charges, and any repurchases of common stock.

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 March 27, 2014 to shareholders of record as of the close of business on March 6, 2014. Future declarations of quarterly dividends will be subject to the approval of Kindred’s Board of Directors.

Conference Call

As previously announced, investors and the general public may access a live webcast of the fourth quarter 2013 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on February 21 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on February 21 by dialing (719) 457-0820, access code: 1522310. The replay will be available through March 2.

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 5

February 20, 2014

 

 

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.

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 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 the 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 the 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 instituted an automatic 2% reduction on each claim submitted to Medicare beginning April 1, 2013, (e) the Company’s ability to adjust to the new patient criteria for LTAC hospitals under the Pathway for SGR Reform Act of 2013, which will reduce the population of patients eligible for the Company’s hospital services and change the basis upon which the Company is paid, (f) the impact of the Taxpayer Relief Act which, among other things, reduces Medicare payments by an additional 25% 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, (g) 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 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

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 6

February 20, 2014

 

 

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, (h) 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, (i) the ability of the Company’s hospitals and nursing centers to adjust to medical necessity reviews, (j) 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, (k) 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, (l) 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, (m) 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, (n) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (o) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (p) the Company’s ability to meet its rental and debt service obligations, (q) the Company’s ability to operate pursuant to the terms of its debt obligations, and comply with its covenants thereunder, and the Company’s ability to operate pursuant to its master lease agreements with Ventas, Inc. (NYSE:VTR), (r) 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, (s) the Company’s ability to control costs, particularly labor and employee benefit costs, (t) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (u) 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, (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 the last three fiscal years, (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 years ended December 31, 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.

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 7

February 20, 2014

 

 

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, dividends, 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.

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. Readers of the Company’s financial information should consider income (loss) from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating income should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. A reconciliation of operating income to income (loss) from continuing operations provided in the Condensed Business Segment Data is included in this press release.

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 63,000 employees in 47 states. At December 31, 2013, Kindred through its subsidiaries provided healthcare services in 2,280 locations, including 101 transitional care hospitals, five inpatient rehabilitation hospitals, 100 nursing centers, 22 sub-acute units, 159 Kindred at Home hospice, home health and non-medical home care locations, 104 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,789 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 Announces Fourth Quarter Results

Page 8

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Financial Summary

(In thousands, except per share amounts)

 

		Three months ended December 31,								Year ended December 31,
		2013				2012				2013				2012
Revenues		$	1,224,374			$	1,237,392			$	4,900,510			$	4,928,509
Loss from continuing operations		$	(51,737	)		$	(83,209	)		$	(44,812	)		$	(46,927	)
Discontinued operations, net of income taxes:
Income (loss) from operations			(6,160	)			3,312				(36,136	)			12,348
Loss on divestiture of operations			(5,994	)			(939	)			(83,887	)			(4,745	)
Income (loss) from discontinued operations			(12,154	)			2,373				(120,023	)			7,603
Net loss			(63,891	)			(80,836	)			(164,835	)			(39,324	)
Earnings attributable to noncontrolling interests			(2,405	)			(790	)			(3,657	)			(1,043	)
Loss attributable to Kindred		$	(66,296	)		$	(81,626	)		$	(168,492	)		$	(40,367	)
Amounts attributable to Kindred stockholders:
Loss from continuing operations		$	(54,142	)		$	(83,999	)		$	(48,469	)		$	(47,970	)
Income (loss) from discontinued operations			(12,154	)			2,373				(120,023	)			7,603
Net loss		$	(66,296	)		$	(81,626	)		$	(168,492	)		$	(40,367	)
Loss per common share:
Basic:
Loss from continuing operations		$	(1.04	)		$	(1.62	)		$	(0.93	)		$	(0.93	)
Discontinued operations:
Income (loss) from operations			(0.12	)			0.06				(0.69	)			0.24
Loss on divestiture of operations			(0.11	)			(0.02	)			(1.61	)			(0.09	)
Income (loss) from discontinued operations			(0.23	)			0.04				(2.30	)			0.15
Net loss		$	(1.27	)		$	(1.58	)		$	(3.23	)		$	(0.78	)
Diluted:
Loss from continuing operations		$	(1.04	)		$	(1.62	)		$	(0.93	)		$	(0.93	)
Discontinued operations:
Income (loss) from operations			(0.12	)			0.06				(0.69	)			0.24
Loss on divestiture of operations			(0.11	)			(0.02	)			(1.61	)			(0.09	)
Income (loss) from discontinued operations			(0.23	)			0.04				(2.30	)			0.15
Net loss		$	(1.27	)		$	(1.58	)		$	(3.23	)		$	(0.78	)
Shares used in computing loss per common share:
Basic			52,344				51,692				52,249				51,659
Diluted			52,344				51,692				52,249				51,659

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 9

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(In thousands, except per share amounts)

 

		Three months ended December 31,								Year ended December 31,
		2013				2012				2013				2012
Revenues		$	1,224,374			$	1,237,392			$	4,900,510			$	4,928,509
Salaries, wages and benefits			746,399				754,530				2,988,487				3,012,321
Supplies			80,167				84,613				328,999				343,102
Rent			82,563				78,222				318,077				310,178
Other operating expenses			250,137				224,543				985,883				914,272
Other (income) expense			(457	)			(3,181	)			(1,440	)			(12,660	)
Impairment charges			76,127				108,113				77,193				108,953
Depreciation and amortization			38,437				42,296				157,329				162,685
Interest expense			25,161				27,929				108,049				107,875
Investment income			(1,255	)			(246	)			(4,051	)			(997	)
			1,297,279				1,316,819				4,958,526				4,945,729
Loss from continuing operations before income taxes			(72,905	)			(79,427	)			(58,016	)			(17,220	)
Provision (benefit) for income taxes			(21,168	)			3,782				(13,204	)			29,707
Loss from continuing operations			(51,737	)			(83,209	)			(44,812	)			(46,927	)
Discontinued operations, net of income taxes:
Income (loss) from operations			(6,160	)			3,312				(36,136	)			12,348
Loss on divestiture of operations			(5,994	)			(939	)			(83,887	)			(4,745	)
Income (loss) from discontinued operations			(12,154	)			2,373				(120,023	)			7,603
Net loss			(63,891	)			(80,836	)			(164,835	)			(39,324	)
Earnings attributable to noncontrolling interests			(2,405	)			(790	)			(3,657	)			(1,043	)
Loss attributable to Kindred		$	(66,296	)		$	(81,626	)		$	(168,492	)		$	(40,367	)
Amounts attributable to Kindred stockholders:
Loss from continuing operations		$	(54,142	)		$	(83,999	)		$	(48,469	)		$	(47,970	)
Income (loss) from discontinued operations			(12,154	)			2,373				(120,023	)			7,603
Net loss		$	(66,296	)		$	(81,626	)		$	(168,492	)		$	(40,367	)
Loss per common share:
Basic:
Loss from continuing operations		$	(1.04	)		$	(1.62	)		$	(0.93	)		$	(0.93	)
Discontinued operations:
Income (loss) from operations			(0.12	)			0.06				(0.69	)			0.24
Loss on divestiture of operations			(0.11	)			(0.02	)			(1.61	)			(0.09	)
Income (loss) from discontinued operations			(0.23	)			0.04				(2.30	)			0.15
Net loss		$	(1.27	)		$	(1.58	)		$	(3.23	)		$	(0.78	)
Diluted:
Loss from continuing operations		$	(1.04	)		$	(1.62	)		$	(0.93	)		$	(0.93	)
Discontinued operations:
Income (loss) from operations			(0.12	)			0.06				(0.69	)			0.24
Loss on divestiture of operations			(0.11	)			(0.02	)			(1.61	)			(0.09	)
Income (loss) from discontinued operations			(0.23	)			0.04				(2.30	)			0.15
Net loss		$	(1.27	)		$	(1.58	)		$	(3.23	)		$	(0.78	)
Shares used in computing loss per common share:
Basic			52,344				51,692				52,249				51,659
Diluted			52,344				51,692				52,249				51,659

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 10

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(In thousands, except per share amounts)

 

		December 31, 2013				December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents		$	35,972			$	50,007
Cash - restricted			3,713				5,197
Insurance subsidiary investments			96,295				86,168
Accounts receivable less allowance for loss			916,529				1,038,605
Inventories			25,780				32,021
Deferred tax assets			37,920				12,663
Income taxes			36,846				13,573
Other			43,673				35,532
			1,196,728				1,273,766
Property and equipment			1,906,366				2,226,903
Accumulated depreciation			(979,791	)			(1,083,777	)
			926,575				1,143,126
Goodwill			992,102				1,041,266
Intangible assets less accumulated amortization			423,303				439,767
Assets held for sale			20,978				4,131
Insurance subsidiary investments			149,094				116,424
Deferred tax assets			17,043				—
Other			220,046				219,466
Total assets		$	3,945,869			$	4,237,946
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	181,772			$	210,668
Salaries, wages and other compensation			361,192				389,009
Due to third party payors			33,747				35,420
Professional liability risks			60,993				54,088
Other accrued liabilities			146,495				137,204
Long-term debt due within one year			8,222				8,942
			792,421				835,331
Long-term debt			1,579,391				1,648,706
Professional liability risks			246,230				236,630
Deferred tax liabilities			—				9,764
Deferred credits and other liabilities			206,611				214,671
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued
54,165 shares - December 31, 2013 and 53,280 shares - December 31, 2012			13,541				13,320
Capital in excess of par value			1,146,193				1,145,922
Accumulated other comprehensive loss			(252	)			(1,882	)
Retained earnings (deficit)			(76,825	)			98,799
			1,082,657				1,256,159
Noncontrolling interests			38,559				36,685
Total equity			1,121,216				1,292,844
Total liabilities and equity		$	3,945,869			$	4,237,946

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 11

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(In thousands)

 

		Three months ended December 31,								Year ended December 31,
		2013				2012				2013				2012
Cash flows from operating activities:
Net loss		$	(63,891	)		$	(80,836	)		$	(164,835	)		$	(39,324	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			39,644				52,392				182,389				201,484
Amortization of stock-based compensation costs			3,542				2,841				11,183				10,852
Amortization of deferred financing costs			2,376				2,592				11,905				9,683
Payment of lender fees related to senior debt modifications			—				(2,940	)			(6,189	)			(2,940	)
Provision for doubtful accounts			10,151				1,038				44,640				23,692
Deferred income taxes			(13,665	)			6,616				(36,650	)			(11,524	)
Impairment charges			77,748				108,952				87,825				110,856
Loss on divestiture of discontinued operations			5,994				939				83,887				4,745
Other			(1,151	)			(981	)			4,301				1,772
Change in operating assets and liabilities:
Accounts receivable			25,526				9,208				52,271				(58,705	)
Inventories and other assets			4,195				(8,485	)			4,262				(29,382	)
Accounts payable			9,884				737				(22,095	)			(6,515	)
Income taxes			(11,763	)			(9,294	)			(17,032	)			29,991
Due to third party payors			(18,387	)			(4,411	)			(1,671	)			(2,723	)
Other accrued liabilities			(60,008	)			(6,893	)			(34,779	)			20,600
Net cash provided by operating activities			10,195				71,475				199,412				262,562
Cash flows from investing activities:
Routine capital expenditures			(37,956	)			(38,371	)			(100,908	)			(115,175	)
Development capital expenditures			(1,115	)			(12,147	)			(11,824	)			(50,322	)
Acquisitions, net of cash acquired			(185,213	)			(38,904	)			(224,319	)			(178,212	)
Acquisition deposit			14,675				—				—				—
Sale of assets			1,906				150				250,606				1,260
Purchase of insurance subsidiary investments			(15,767	)			(7,151	)			(46,127	)			(38,041	)
Sale of insurance subsidiary investments			14,527				8,290				49,954				38,363
Net change in insurance subsidiary cash and cash equivalents			217				(6,114	)			(44,077	)			(21,285	)
Change in other investments			(96	)			11				122				1,465
Other			518				490				376				(539	)
Net cash used in investing activities			(208,304	)			(93,746	)			(126,197	)			(362,486	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit			575,500				455,000				1,675,800				1,784,300
Repayment of borrowings under revolving credit			(376,800	)			(512,200	)			(1,740,400	)			(1,757,100	)
Proceeds from issuance of term loan, net of discount			—				97,500				—				97,500
Repayment of other long-term debt			(2,058	)			(2,688	)			(6,876	)			(10,664	)
Payment of deferred financing costs			(326	)			(864	)			(1,666	)			(1,465	)
Contribution made by noncontrolling interests			—				—				—				200
Distribution made to noncontrolling interests			(423	)			(308	)			(2,051	)			(3,829	)
Purchase of noncontrolling interests			—				(4	)			—				(719	)
Issuance of common stock			32				147				461				147
Dividends paid			(6,502	)			—				(13,001	)			—
Other			79				—				483				—
Net cash provided by (used in) financing activities			189,502				36,583				(87,250	)			108,370
Change in cash and cash equivalents			(8,607	)			14,312				(14,035	)			8,446
Cash and cash equivalents at beginning of period			44,579				35,695				50,007				41,561
Cash and cash equivalents at end of period		$	35,972			$	50,007			$	35,972			$	50,007

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 12

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(In thousands, except per share amounts)

 

		2012 Quarters																				2013 Quarters
		First				Second				Third				Fourth				Year				First				Second				Third				Fourth				Year
Revenues		$	1,257,132			$	1,218,336			$	1,215,649			$	1,237,392			$	4,928,509			$	1,278,327			$	1,207,979			$	1,189,830			$	1,224,374			$	4,900,510
Salaries, wages and benefits			770,602				740,041				747,148				754,530				3,012,321				791,728				724,067				726,293				746,399				2,988,487
Supplies			88,620				85,662				84,207				84,613				343,102				85,900				82,040				80,892				80,167				328,999
Rent			76,092				77,379				78,485				78,222				310,178				78,134				78,970				78,410				82,563				318,077
Other operating expenses			229,754				233,145				226,830				224,543				914,272				235,892				232,910				266,944				250,137				985,883
Other (income) expense			(3,136	)			(3,165	)			(3,178	)			(3,181	)			(12,660	)			(1,009	)			(26	)			52				(457	)			(1,440	)
Impairment charges			356				108				376				108,113				108,953				187				438				441				76,127				77,193
Depreciation and amortization			39,098				40,318				40,973				42,296				162,685				42,322				39,303				37,267				38,437				157,329
Interest expense			26,570				26,713				26,663				27,929				107,875				28,171				29,084				25,633				25,161				108,049
Investment income			(282	)			(258	)			(211	)			(246	)			(997	)			(87	)			(1,475	)			(1,234	)			(1,255	)			(4,051	)
			1,227,674				1,199,943				1,201,293				1,316,819				4,945,729				1,261,238				1,185,311				1,214,698				1,297,279				4,958,526
Income (loss) from continuing operations before income taxes			29,458				18,393				14,356				(79,427	)			(17,220	)			17,089				22,668				(24,868	)			(72,905	)			(58,016	)
Provision (benefit) for income taxes			12,083				7,820				6,022				3,782				29,707				6,391				9,103				(7,530	)			(21,168	)			(13,204	)
Income (loss) from continuing operations			17,375				10,573				8,334				(83,209	)			(46,927	)			10,698				13,565				(17,338	)			(51,737	)			(44,812	)
Discontinued operations, net of income taxes:
Income (loss) from operations			2,437				5,046				1,553				3,312				12,348				(5,200	)			(886	)			(23,890	)			(6,160	)			(36,136	)
Loss on divestiture of operations			(1,170	)			(356	)			(2,280	)			(939	)			(4,745	)			(2,025	)			(10,852	)			(65,016	)			(5,994	)			(83,887	)
Income (loss) from discontinued operations			1,267				4,690				(727	)			2,373				7,603				(7,225	)			(11,738	)			(88,906	)			(12,154	)			(120,023	)
Net income (loss)			18,642				15,263				7,607				(80,836	)			(39,324	)			3,473				1,827				(106,244	)			(63,891	)			(164,835	)
(Earnings) loss attributable to noncontrolling interests			(451	)			239				(41	)			(790	)			(1,043	)			(416	)			(82	)			(754	)			(2,405	)			(3,657	)
Income (loss) attributable to Kindred		$	18,191			$	15,502			$	7,566			$	(81,626	)		$	(40,367	)		$	3,057			$	1,745			$	(106,998	)		$	(66,296	)		$	(168,492	)
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	16,924			$	10,812			$	8,293			$	(83,999	)		$	(47,970	)		$	10,282			$	13,483			$	(18,092	)		$	(54,142	)		$	(48,469	)
Income (loss) from discontinued operations			1,267				4,690				(727	)			2,373				7,603				(7,225	)			(11,738	)			(88,906	)			(12,154	)			(120,023	)
Net income (loss)		$	18,191			$	15,502			$	7,566			$	(81,626	)		$	(40,367	)		$	3,057			$	1,745			$	(106,998	)		$	(66,296	)		$	(168,492	)
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	0.32			$	0.20			$	0.16			$	(1.62	)		$	(0.93	)		$	0.19			$	0.25			$	(0.34	)		$	(1.04	)		$	(0.93	)
Discontinued operations:
Income (loss) from operations			0.05				0.10				0.02				0.06				0.24				(0.09	)			(0.02	)			(0.46	)			(0.12	)			(0.69	)
Loss on divestiture of operations			(0.02	)			(0.01	)			(0.04	)			(0.02	)			(0.09	)			(0.04	)			(0.20	)			(1.24	)			(0.11	)			(1.61	)
Income (loss) from discontinued operations			0.03				0.09				(0.02	)			0.04				0.15				(0.13	)			(0.22	)			(1.70	)			(0.23	)			(2.30	)
Net income (loss)		$	0.35			$	0.29			$	0.14			$	(1.58	)		$	(0.78	)		$	0.06			$	0.03			$	(2.04	)		$	(1.27	)		$	(3.23	)
Diluted:
Income (loss) from continuing operations		$	0.32			$	0.20			$	0.16			$	(1.62	)		$	(0.93	)		$	0.19			$	0.25			$	(0.34	)		$	(1.04	)		$	(0.93	)
Discontinued operations:
Income (loss) from operations			0.05				0.10				0.02				0.06				0.24				(0.09	)			(0.02	)			(0.46	)			(0.12	)			(0.69	)
Loss on divestiture of operations			(0.02	)			(0.01	)			(0.04	)			(0.02	)			(0.09	)			(0.04	)			(0.20	)			(1.24	)			(0.11	)			(1.61	)
Income (loss) from discontinued operations			0.03				0.09				(0.02	)			0.04				0.15				(0.13	)			(0.22	)			(1.70	)			(0.23	)			(2.30	)
Net income (loss)		$	0.35			$	0.29			$	0.14			$	(1.58	)		$	(0.78	)		$	0.06			$	0.03			$	(2.04	)		$	(1.27	)		$	(3.23	)
Shares used in computing earnings (loss) per common share:
Basic			51,603				51,664				51,676				51,692				51,659				52,062				52,265				52,323				52,344				52,249
Diluted			51,638				51,675				51,709				51,692				51,659				52,083				52,284				52,323				52,344				52,249

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 13

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(In thousands)

 

		2012 Quarters																				2013 Quarters
		First				Second				Third				Fourth				Year				First				Second				Third				Fourth				Year
Revenues:
Hospital division		$	679,813			$	645,714			$	633,972			$	645,426			$	2,604,925			$	674,363			$	621,454			$	606,488			$	619,344			$	2,521,649
Nursing center division			274,358				269,986				273,265				274,807				1,092,416				275,141				269,501				270,210				274,908				1,089,760
Rehabilitation division:
Skilled nursing rehabilitation services			253,370				253,013				252,134				244,485				1,003,002				257,557				248,321				243,974				241,938				991,790
Hospital rehabilitation services			74,369				73,402				71,899				73,910				293,580				74,523				69,777				68,296				74,017				286,613
			327,739				326,415				324,033				318,395				1,296,582				332,080				318,098				312,270				315,955				1,278,403
Care management division			28,432				28,872				35,943				50,093				143,340				51,621				53,039				53,801				66,466				224,927
			1,310,342				1,270,987				1,267,213				1,288,721				5,137,263				1,333,205				1,262,092				1,242,769				1,276,673				5,114,739
Eliminations:
Skilled nursing rehabilitation services			(27,888	)			(27,551	)			(27,037	)			(26,123	)			(108,599	)			(29,303	)			(29,257	)			(28,698	)			(28,728	)			(115,986	)
Hospital rehabilitation services			(24,686	)			(24,225	)			(23,666	)			(24,200	)			(96,777	)			(24,362	)			(23,855	)			(23,080	)			(22,696	)			(93,993	)
Nursing centers			(636	)			(875	)			(861	)			(1,006	)			(3,378	)			(1,213	)			(1,001	)			(1,161	)			(875	)			(4,250	)
			(53,210	)			(52,651	)			(51,564	)			(51,329	)			(208,754	)			(54,878	)			(54,113	)			(52,939	)			(52,299	)			(214,229	)
		$	1,257,132			$	1,218,336			$	1,215,649			$	1,237,392			$	4,928,509			$	1,278,327			$	1,207,979			$	1,189,830			$	1,224,374			$	4,900,510
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	151,784			$	132,358			$	131,041			$	147,041			$	562,224			$	150,043			$	132,170			$	113,014			$	127,929	(a)		$	523,156
Nursing center division			34,067				36,215				38,960				32,016				141,258				29,844				36,678				32,146				36,694				135,362
Rehabilitation division:
Skilled nursing rehabilitation services			10,679				19,351				16,929				21,001				67,960				12,046				20,297				(8,565	)			12,918	(b)			36,696
Hospital rehabilitation services			16,116				17,860				16,977				18,792				69,745				18,132				19,573				18,215				18,005	(c)			73,925
			26,795				37,211				33,906				39,793				137,705				30,178				39,870				9,650				30,923				110,621
Care management division			2,341				2,789				3,645				4,933				13,708				2,786				3,961				1,085				2,131	(d)			9,963
Corporate:
Overhead			(42,728	)			(44,723	)			(45,883	)			(45,729	)			(179,063	)			(45,582	)			(43,199	)			(39,151	)			(48,563	) (e)			(176,495	)
Insurance subsidiary			(482	)			(600	)			(545	)			(500	)			(2,127	)			(509	)			(384	)			(482	)			(539	)			(1,914	)
			(43,210	)			(45,323	)			(46,428	)			(46,229	)			(181,190	)			(46,091	)			(43,583	)			(39,633	)			(49,102	)			(178,409	)
Impairment charges			(356	)			(108	)			(376	)			(108,113	)			(108,953	)			(187	)			(438	)			(441	)			(76,127	)			(77,193	)
Transaction costs			(485	)			(597	)			(482	)			(667	)			(2,231	)			(944	)			(108	)			(613	)			(447	)			(2,112	)
Operating income			170,936				162,545				160,266				68,774				562,521				165,629				168,550				115,208				72,001				521,388
Rent			(76,092	)			(77,379	)			(78,485	)			(78,222	)			(310,178	)			(78,134	)			(78,970	)			(78,410	)			(82,563	)			(318,077	)
Depreciation and amortization			(39,098	)			(40,318	)			(40,973	)			(42,296	)			(162,685	)			(42,322	)			(39,303	)			(37,267	)			(38,437	)			(157,329	)
Interest, net			(26,288	)			(26,455	)			(26,452	)			(27,683	)			(106,878	)			(28,084	)			(27,609	)			(24,399	)			(23,906	)			(103,998	)
Income (loss) from continuing operations before income taxes			29,458				18,393				14,356				(79,427	)			(17,220	)			17,089				22,668				(24,868	)			(72,905	)			(58,016	)
Provision (benefit) for income taxes			12,083				7,820				6,022				3,782				29,707				6,391				9,103				(7,530	)			(21,168	)			(13,204	)
		$	17,375			$	10,573			$	8,334			$	(83,209	)		$	(46,927	)		$	10,698			$	13,565			$	(17,338	)		$	(51,737	)		$	(44,812	)

 

(a)	Includes costs of $0.5 million in connection with the closing of a TC hospital and a litigation charge of $7.0 million.

(b)	Includes $0.1 million of severance and retirement costs.

(c)	Includes $1.1 million of severance and retirement costs.

(d)	Includes $0.1 million of severance and retirement costs.

(e)	Includes $2.4 million of severance and retirement costs.

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 14

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(In thousands)

 

		Three months ended December 31, 2013
		Hospital division (a)				Nursing center division				Rehabilitation division												Care management division (b)				Corporate (b)				Transaction- related costs				Eliminations				Consolidated
										Skilled nursing services (b)				Hospital services (b)				Total
Revenues		$	619,344			$	274,908			$	241,938			$	74,017			$	315,955			$	66,466			$	—			$	—			$	(52,299	)		$	1,224,374
Salaries, wages and benefits			268,475				127,261				219,484				51,773				271,257				52,353				27,181				—				(128	)			746,399
Supplies			64,278				12,102				733				36				769				2,791				227				—				—				80,167
Rent			53,849				25,461				1,171				51				1,222				1,567				464				—				—				82,563
Other operating expenses			158,572				99,393				8,801				4,197				12,998				9,204				21,694				447				(52,171	)			250,137
Other (income) expense			90				(542	)			2				6				8				(13	)			—				—				—				(457	)
Impairment charges			—				45				—				—				—				76,082				—				—				—				76,127
Depreciation and amortization			17,092				7,213				2,559				2,498				5,057				1,829				7,246				—				—				38,437
Interest expense			199				12				60				—				60				9				24,881				—				—				25,161
Investment income			1				(10	)			(31	)			—				(31	)			(1	)			(1,214	)			—				—				(1,255	)
			562,556				270,935				232,779				58,561				291,340				143,821				80,479				447				(52,299	)			1,297,279
Income (loss) from continuing operations before income taxes		$	56,788			$	3,973			$	9,159			$	15,456			$	24,615			$	(77,355	)		$	(80,479	)		$	(447	)		$	—				(72,905	)
Income tax benefit																																							(21,168	)
Loss from continuing operations																																						$	(51,737	)
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	6,286			$	7,361			$	679			$	165			$	844			$	467			$	22,998			$	—			$	—			$	37,956
Development			1,115				—				—				—				—				—				—				—				—				1,115
		$	7,401			$	7,361			$	679			$	165			$	844			$	467			$	22,998			$	—			$	—			$	39,071

 

		Three months ended December 31, 2012
		Hospital division (c,d)				Nursing center division (c)				Rehabilitation division												Care management division (c)				Corporate (c)				Transaction- related costs				Eliminations				Consolidated
										Skilled nursing services (c)				Hospital services (c)				Total
Revenues		$	645,426			$	274,807			$	244,485			$	73,910			$	318,395			$	50,093			$	—			$	—			$	(51,329	)		$	1,237,392
Salaries, wages and benefits			280,682				136,868				220,331				51,210				271,541				36,474				29,065				(100	)			—				754,530
Supplies			66,391				14,959				876				36				912				2,127				224				—				—				84,613
Rent			51,611				23,628				1,238				21				1,259				1,111				613				—				—				78,222
Other operating expenses			151,289				91,601				2,277				3,847				6,124				6,559				19,532				767				(51,329	)			224,543
Other (income) expense			23				(637	)			—				25				25				—				(2,592	)			—				—				(3,181	)
Impairment charges			118				96				107,899				—				107,899				—				—				—				—				108,113
Depreciation and amortization			20,161				7,343				2,945				2,334				5,279				1,482				8,031				—				—				42,296
Interest expense			206				15				120				—				120				(4	)			27,592				—				—				27,929
Investment income			(18	)			(19	)			(1	)			—				(1	)			—				(208	)			—				—				(246	)
			570,463				273,854				335,685				57,473				393,158				47,749				82,257				667				(51,329	)			1,316,819
Income (loss) from continuing operations before income taxes		$	74,963			$	953			$	(91,200	)		$	16,437			$	(74,763	)		$	2,344			$	(82,257	)		$	(667	)		$	—				(79,427	)
Provision for income taxes																																							3,782
Loss from continuing operations																																						$	(83,209	)
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	9,817			$	8,153			$	672			$	117			$	789			$	1,187			$	18,425			$	—			$	—			$	38,371
Development			6,693				5,454				—				—				—				—				—				—				—				12,147
		$	16,510			$	13,607			$	672			$	117			$	789			$	1,187			$	18,425			$	—			$	—			$	50,518

 

(a)	Includes costs of $0.5 million in connection with the closing of a TC hospital and a litigation charge of $7.0 million.

(b)	Includes severance and retirement costs of $3.7 million (rehabilitation division - $1.2 million (skilled nursing rehabilitation services - $0.1 million and hospital rehabilitation services - $1.1 million), care management division - $0.1 million and corporate - $2.4 million).

(c)

Includes severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4 million (skilled nursing rehabilitation services - $0.3 million and hospital rehabilitation services - $0.1 million), care management division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred in connection with restructuring activities.

(d)	Includes a lease cancellation charge of $0.1 million incurred in connection with restructuring activities.

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 15

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(In thousands)

 

		Year ended December 31, 2013
		Hospital division (a,b)				Nursing center division (a)				Rehabilitation division												Care management division (a,c,e)				Corporate (a,c,f)				Transaction- related costs				Eliminations				Consolidated
										Skilled nursing services (a,c,d)				Hospital services (a,c)				Total
Revenues		$	2,521,649			$	1,089,760			$	991,790			$	286,613			$	1,278,403			$	224,927			$	—			$	—			$	(214,229	)		$	4,900,510
Salaries, wages and benefits			1,101,705				517,845				894,470				196,301				1,090,771				175,581				103,124				—				(539	)			2,988,487
Supplies			264,884				50,413				3,079				126				3,205				9,631				866				—				—				328,999
Rent			207,068				98,806				4,726				106				4,832				5,101				2,270				—				—				318,077
Other operating expenses			631,737				387,518				57,324				16,196				73,520				29,747				74,939				2,112				(213,690	)			985,883
Other (income) expense			167				(1,378	)			221				65				286				5				(520	)			—				—				(1,440	)
Impairment charges			1,002				109				—				—				—				76,082				—				—				—				77,193
Depreciation and amortization			72,665				28,504				11,010				9,429				20,439				6,608				29,113				—				—				157,329
Interest expense			763				53				292				—				292				15				106,926				—				—				108,049
Investment income			(16	)			(49	)			(183	)			—				(183	)			(1	)			(3,802	)			—				—				(4,051	)
			2,279,975				1,081,821				970,939				222,223				1,193,162				302,769				312,916				2,112				(214,229	)			4,958,526
Income (loss) from continuing operations before income taxes		$	241,674			$	7,939			$	20,851			$	64,390			$	85,241			$	(77,842	)		$	(312,916	)		$	(2,112	)		$	—				(58,016	)
Income tax benefit																																							(13,204	)
Loss from continuing operations																																						$	(44,812	)
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	28,571			$	23,023			$	2,608			$	273			$	2,881			$	1,523			$	44,910			$	—			$	—			$	100,908
Development			11,817				7				—				—				—				—				—				—				—				11,824
		$	40,388			$	23,030			$	2,608			$	273			$	2,881			$	1,523			$	44,910			$	—			$	—			$	112,732

 

		Year ended December 31, 2012
										Rehabilitation division
		Hospital division (g,h)				Nursing center division (g,i)				Skilled nursing services (g)				Hospital services (g)				Total				Care management division (g)				Corporate (g)				Transaction- related costs				Eliminations				Consolidated
Revenues		$	2,604,925			$	1,092,416			$	1,003,002			$	293,580			$	1,296,582			$	143,340			$	—			$	—			$	(208,754	)		$	4,928,509
Salaries, wages and benefits			1,140,647				535,157				903,271				206,614				1,109,885				105,303				121,848				(450	)			(69	)			3,012,321
Supplies			275,409				57,647				3,127				163				3,290				5,953				803				—				—				343,102
Rent			205,325				93,702				5,442				140				5,582				3,140				2,429				—				—				310,178
Other operating expenses			626,969				359,969				28,642				17,010				45,652				18,376				69,310				2,681				(208,685	)			914,272
Other (income) expense			(324	)			(1,615	)			2				48				50				—				(10,771	)			—				—				(12,660	)
Impairment charges			753				301				107,899				—				107,899				—				—				—				—				108,953
Depreciation and amortization			78,716				28,118				11,168				9,309				20,477				4,442				30,932				—				—				162,685
Interest expense			1,016				67				156				—				156				—				106,636				—				—				107,875
Investment income			(64	)			(56	)			(2	)			—				(2	)			—				(875	)			—				—				(997	)
			2,328,447				1,073,290				1,059,705				233,284				1,292,989				137,214				320,312				2,231				(208,754	)			4,945,729
Income (loss) from continuing before income taxes		$	276,478			$	19,126			$	(56,703	)		$	60,296			$	3,593			$	6,126			$	(320,312	)		$	(2,231	)		$	—				(17,220	)
Provision for income taxes																																							29,707
Loss from continuing operations																																						$	(46,927	)
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	38,272			$	20,764			$	2,274			$	348			$	2,622			$	1,616			$	51,901			$	—			$	—			$	115,175
Development			42,265				8,057				—				—				—				—				—				—				—				50,322
		$	80,537			$	28,821			$	2,274			$	348			$	2,622			$	1,616			$	51,901			$	—			$	—			$	165,497

 

(a)

Includes one-time bonus costs of $20.1 million (hospital division - $8.0 million, nursing center division - $4.7 million, rehabilitation division - $6.3 million (skilled nursing rehabilitation services - $5.0 million and hospital rehabilitation services - $1.3 million), care management division - $0.8 million and corporate - $0.3 million).

(b)	Includes costs of $6.0 million in connection with the closing of a TC hospital and litigation charges of $7.7 million.

(c)	Includes severance and retirement costs of $5.6 million (rehabilitation division - $1.5 million (skilled nursing rehabilitation services - $0.1 million and hospital rehabilitation services - $1.4 million), care management division - $0.7 million and corporate - $3.4 million).

(d)	Includes $23.1 million of litigation charges.

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

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

(g)

Includes severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4 million (skilled nursing rehabilitation services - $0.3 million and hospital rehabilitation services - $0.1 million), care management division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred in connection with restructuring activities.

(h)	Includes severance costs ($2.5 million), restructuring costs ($1.1 million) and lease cancellation charges ($1.6 million) incurred in connection with the closing of a regional office and two TC hospitals, and $5.0 million for employment-related lawsuits.

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

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 16

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

 

		2012 Quarters																				2013 Quarters
		First				Second				Third				Fourth				Year				First				Second				Third				Fourth				Year
Hospital division data:
End of period data:
Number of hospitals:
Transitional care			103				102				101				101								101				101				101				101
Inpatient rehabilitation			5				5				5				5								5				5				5				5
			108				107				106				106								106				106				106				106
Number of licensed beds:
Transitional care			7,358				7,308				7,269				7,269								7,269				7,269				7,283				7,315
Inpatient rehabilitation			185				215				215				215								215				215				215				215
			7,543				7,523				7,484				7,484								7,484				7,484				7,498				7,530
Revenue mix %:
Medicare			63				62				61				63				62				63				61				59				59				61
Medicaid			6				6				6				6				6				5				6				7				6				6
Medicare Advantage			10				11				11				10				10				10				11				11				12				11
Commercial insurance and other			21				21				22				21				22				22				22				23				23				22
Admissions:
Medicare			10,726				9,951				9,786				9,894				40,357				10,606				9,722				9,247				9,516				39,091
Medicaid			924				919				915				838				3,596				685				744				788				712				2,929
Medicare Advantage			1,508				1,630				1,483				1,438				6,059				1,552				1,518				1,448				1,478				5,996
Commercial insurance and other			2,534				2,335				2,348				2,233				9,450				2,210				2,117				2,139				2,120				8,586
			15,692				14,835				14,532				14,403				59,462				15,053				14,101				13,622				13,826				56,602
Admissions mix %:
Medicare			68				67				68				69				68				70				69				68				69				69
Medicaid			6				6				6				6				6				5				5				6				5				5
Medicare Advantage			10				11				10				10				10				10				11				10				11				11
Commercial insurance and other			16				16				16				15				16				15				15				16				15				15
Patient days:
Medicare			263,839				249,315				243,315				247,535				1,004,004				260,417				241,003				229,963				232,606				963,989
Medicaid			32,834				30,564				33,671				31,686				128,755				28,776				30,447				31,569				29,799				120,591
Medicare Advantage			42,638				45,451				43,679				42,067				173,835				44,136				44,021				42,745				44,565				175,467
Commercial insurance and other			74,906				73,128				72,243				69,237				289,514				73,066				66,575				68,514				66,449				274,604
			414,217				398,458				392,908				390,525				1,596,108				406,395				382,046				372,791				373,419				1,534,651
Average length of stay:
Medicare			24.6				25.1				24.9				25.0				24.9				24.6				24.8				24.9				24.4				24.7
Medicaid			35.5				33.3				36.8				37.8				35.8				42.0				40.9				40.1				41.9				41.2
Medicare Advantage			28.3				27.9				29.5				29.3				28.7				28.4				29.0				29.5				30.2				29.3
Commercial insurance and other			29.6				31.3				30.8				31.0				30.6				33.1				31.4				32.0				31.3				32.0
Weighted average			26.4				26.9				27.0				27.1				26.8				27.0				27.1				27.4				27.0				27.1

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 17

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2012 Quarters																				2013 Quarters
		First				Second				Third				Fourth				Year				First				Second				Third				Fourth				Year
Hospital division data (continued):
Revenues per admission:
Medicare		$	39,819			$	40,084			$	39,479			$	41,016			$	40,096			$	39,995			$	38,919			$	39,063			$	38,723			$	39,197
Medicaid			42,962				42,150				41,591				43,539				42,540				51,441				48,142				51,890				52,599				51,005
Medicare Advantage			44,259				42,577				46,352				45,832				44,692				44,698				45,269				46,604				48,917				46,343
Commercial insurance and other			57,723				59,402				59,980				61,451				59,579				65,866				65,444				64,002				66,561				65,469
Weighted average			43,322				43,526				43,626				44,812				43,808				44,799				44,072				44,523				44,796				44,551
Revenues per patient day:
Medicare		$	1,619			$	1,600			$	1,588			$	1,639			$	1,612			$	1,629			$	1,570			$	1,571			$	1,584			$	1,590
Medicaid			1,209				1,267				1,130				1,151				1,188				1,225				1,176				1,295				1,257				1,239
Medicare Advantage			1,565				1,527				1,574				1,567				1,558				1,572				1,561				1,579				1,622				1,584
Commercial insurance and other			1,953				1,897				1,949				1,982				1,945				1,992				2,081				1,998				2,124				2,047
Weighted average			1,641				1,620				1,614				1,653				1,632				1,659				1,627				1,627				1,659				1,643
Medicare case mix index (discharged patients only)			1.18				1.18				1.16				1.15				1.17				1.18				1.18				1.16				1.15				1.17
Average daily census			4,552				4,379				4,271				4,245				4,361				4,516				4,198				4,052				4,059				4,205
Occupancy %			68.5				65.4				64.4				64.0				65.6				67.9				62.9				60.4				60.8				63.0
Annualized employee turnover %			21.9				21.4				20.1				19.7								22.0				21.5				21.1				20.8
Nursing center division data:
End of period data:
Number of facilities:
Nursing centers:
Owned or leased			97				97				97				96								96				96				96				96
Managed			4				4				4				4								4				4				4				4
Assisted living facilities			6				6				6				6								6				6				6				6
			107				107				107				106								106				106				106				106
Number of licensed beds:
Nursing centers:
Owned or leased			12,159				12,207				12,207				12,153								12,153				12,153				12,153				12,153
Managed			485				485				485				485								485				485				485				485
Assisted living facilities			413				341				341				341								341				341				341				341
			13,057				13,033				13,033				12,979								12,979				12,979				12,979				12,979
Revenue mix %:
Medicare			36				35				35				35				35				35				34				33				32				34
Medicaid			36				37				37				37				36				36				37				39				40				37
Medicare Advantage			8				8				7				7				8				8				8				7				8				8
Private and other			20				20				21				21				21				21				21				21				20				21

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 18

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2012 Quarters																				2013 Quarters
		First				Second				Third				Fourth				Year				First				Second				Third				Fourth				Year
Nursing center division data (continued):
Patient days (a):
Medicare			179,394				174,134				169,121				166,307				688,956				171,881				162,488				158,458				152,185				645,012
Medicaid			528,701				530,816				535,784				530,503				2,125,804				515,970				516,103				525,625				532,378				2,090,076
Medicare Advantage			52,860				48,778				48,483				47,105				197,226				52,460				52,064				45,865				49,319				199,708
Private and other			224,611				221,177				227,274				229,273				902,335				218,175				217,914				218,845				214,946				869,880
			985,566				974,905				980,662				973,188				3,914,321				958,486				948,569				948,793				948,828				3,804,676
Patient day mix % (a):
Medicare			18				18				17				17				18				18				17				17				16				17
Medicaid			54				54				55				54				54				54				54				55				56				55
Medicare Advantage			5				5				5				5				5				5				6				5				5				5
Private and other			23				23				23				24				23				23				23				23				23				23
Revenues per patient day (a):
Medicare Part A		$	504			$	506			$	516			$	538			$	516			$	527			$	526			$	526			$	540			$	530
Total Medicare (including Part B)			545				550				562				576				558				564				566				568				584				570
Medicaid			185				187				188				190				188				190				190				199				205				196
Medicaid (net of provider taxes) (b)			163				165				166				167				165				167				167				177				183				174
Medicare Advantage			427				421				423				430				425				427				430				427				437				431
Private and other			249				246				250				254				250				264				262				256				258				260
Weighted average			278				277				279				282				279				287				284				285				290				287
Average daily census (a)			10,830				10,713				10,659				10,578				10,695				10,650				10,424				10,313				10,313				10,424
Admissions (a)			11,092				10,298				10,128				10,399				41,917				11,044				10,305				10,045				10,048				41,442
Occupancy % (a)			84.2				83.6				83.0				82.6				83.3				83.3				81.5				80.5				80.3				81.4
Medicare average length of stay (a)			30.4				31.3				31.9				30.6				31.0				30.2				30.9				31.6				31.4				31.0
Annualized employee turnover %			38.4				40.3				39.7				39.6								41.8				44.7				44.8				42.8
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated			11				11				11				11				11				11				12				12				12				12
Non-affiliated			89				89				89				89				89				89				88				88				88				88
Sites of service (at end of period)			1,722				1,730				1,735				1,726								1,729				1,713				1,768				1,806
Revenue per site		$	147,137			$	146,250			$	145,322			$	141,648			$	580,357			$	148,963			$	144,962			$	137,995			$	133,963			$	565,883
Therapist productivity %			80.3				80.4				80.5				80.5				80.4				81.1				80.4				79.8				79.5				80.2
Hospital rehabilitation services:
Revenue mix %:
Company-operated			33				33				33				33				33				33				34				34				31				33
Non-affiliated			67				67				67				67				67				67				66				66				69				67
Sites of service (at end of period):
Inpatient rehabilitation units			100				102				104				105								103				103				99				104
LTAC hospitals			125				125				123				123								123				123				122				121
Sub-acute units			19				20				20				21								8				8				7				10
Outpatient units			111				115				117				119								98				104				104				144
Other			5				5				5				5								—				—				—				—
			360				367				369				373								332				338				332				379
Revenue per site		$	206,580			$	200,006			$	194,849			$	198,150			$	799,585			$	224,466			$	206,441			$	205,711			$	195,296			$	831,914
Annualized employee turnover %			19.6				16.9				17.3				16.9								10.4				13.2				14.0				13.7

 

(a)	Excludes managed facilities.

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

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 19

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Loss Per Common Share Reconciliation (a)

(In thousands, except per share amounts)

 

		Three months ended December 31,																Year ended December 31,
		2013								2012								2013								2012
		Basic				Diluted				Basic				Diluted				Basic				Diluted				Basic				Diluted
Loss:
Amounts attributable to Kindred stockholders:
Loss from continuing operations:
As reported in Statement of Operations		$	(54,142	)		$	(54,142	)		$	(83,999	)		$	(83,999	)		$	(48,469	)		$	(48,469	)		$	(47,970	)		$	(47,970	)
Allocation to participating unvested restricted stockholders			—				—				—				—				—				—				—				—
Available to common stockholders		$	(54,142	)		$	(54,142	)		$	(83,999	)		$	(83,999	)		$	(48,469	)		$	(48,469	)		$	(47,970	)		$	(47,970	)
Discontinued operations, net of income taxes:
Income (loss) from operations:
As reported in Statement of Operations		$	(6,160	)		$	(6,160	)		$	3,312			$	3,312			$	(36,136	)		$	(36,136	)		$	12,348			$	12,348
Allocation to participating unvested restricted stockholders			—				—				—				—				—				—				—				—
Available to common stockholders		$	(6,160	)		$	(6,160	)		$	3,312			$	3,312			$	(36,136	)		$	(36,136	)		$	12,348			$	12,348
Loss on divestiture of operations:
As reported in Statement of Operations		$	(5,994	)		$	(5,994	)		$	(939	)		$	(939	)		$	(83,887	)		$	(83,887	)		$	(4,745	)		$	(4,745	)
Allocation to participating unvested restricted stockholders			—				—				—				—				—				—				—				—
Available to common stockholders		$	(5,994	)		$	(5,994	)		$	(939	)		$	(939	)		$	(83,887	)		$	(83,887	)		$	(4,745	)		$	(4,745	)
Income (loss) from discontinued operations:
As reported in Statement of Operations		$	(12,154	)		$	(12,154	)		$	2,373			$	2,373			$	(120,023	)		$	(120,023	)		$	7,603			$	7,603
Allocation to participating unvested restricted stockholders			—				—				—				—				—				—				—				—
Available to common stockholders		$	(12,154	)		$	(12,154	)		$	2,373			$	2,373			$	(120,023	)		$	(120,023	)		$	7,603			$	7,603
Net loss:
As reported in Statement of Operations		$	(66,296	)		$	(66,296	)		$	(81,626	)		$	(81,626	)		$	(168,492	)		$	(168,492	)		$	(40,367	)		$	(40,367	)
Allocation to participating unvested restricted stockholders			—				—				—				—				—				—				—				—
Available to common stockholders		$	(66,296	)		$	(66,296	)		$	(81,626	)		$	(81,626	)		$	(168,492	)		$	(168,492	)		$	(40,367	)		$	(40,367	)
Shares used in the computation:
Weighted average shares outstanding - basic computation			52,344				52,344				51,692				51,692				52,249				52,249				51,659				51,659
Dilutive effect of employee stock options							—								—								—								—
Dilutive effect of performance-based restricted shares							—								—								—								—
Adjusted weighted average shares outstanding - diluted computation							52,344								51,692								52,249								51,659
Loss per common share:
Loss from continuing operations		$	(1.04	)		$	(1.04	)		$	(1.62	)		$	(1.62	)		$	(0.93	)		$	(0.93	)		$	(0.93	)		$	(0.93	)
Discontinued operations:
Income (loss) from operations			(0.12	)			(0.12	)			0.06				0.06				(0.69	)			(0.69	)			0.24				0.24
Loss on divestiture of operations			(0.11	)			(0.11	)			(0.02	)			(0.02	)			(1.61	)			(1.61	)			(0.09	)			(0.09	)
Income (loss) from discontinued operations			(0.23	)			(0.23	)			0.04				0.04				(2.30	)			(2.30	)			0.15				0.15
Net loss		$	(1.27	)		$	(1.27	)		$	(1.58	)		$	(1.58	)		$	(3.23	)		$	(3.23	)		$	(0.78	)		$	(0.78	)

 

(a)

Loss per common share is based upon the weighted average number of common shares outstanding during the respective periods. 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. However, because the Company reported a loss from continuing operations, there was no allocation to participating unvested restricted stockholders for all periods presented.

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 20

February 20, 2014

 

 

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 year ended December 31, 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 28.8% and 7.2% for the three months ended December 31, 2013 and 2012, respectively, and 30.8% and 10.2% for the year ended December 31, 2013 and 2012, respectively. The change in the effective income tax rates between periods is attributable to the variation between periods of 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 year ended December 31, 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 December 31,								Year ended December 31,
		2013				2012				2013				2012
Detail of charges:
One-time bonus costs		$	—			$	—			($	20,158	)		$	—
Severance, retirement and other costs			(3,663	)			(4,203	)			(6,016	)			(8,730	)
Costs associated with the closing of a TC hospital and a home health location			(499	)			—				(6,542	)			—
Litigation			(7,000	)			—				(30,850	)			(5,000	)
Transaction costs			(447	)			(667	)			(2,112	)			(2,231	)
Impairment charges			(76,082	)			(107,899	)			(76,082	)			(107,899	)
Lease cancellation charges (rent expense)			—				(176	)			—				(1,691	)
Senior debt modification charges (interest expense)			—				—				(1,461	)			—
			(87,691	)			(112,945	)			(143,221	)			(125,551	)
Income tax benefit			25,232				8,173				44,074				12,795
Charges net of income taxes			(62,459	)			(104,772	)			(99,147	)			(112,756	)
Allocation to participating unvested restricted stockholders			—				—				—				—
Available to common stockholders		($	62,459	)		($	104,772	)		($	99,147	)		($	112,756	)
Weighted average diluted shares outstanding			52,344				51,692				52,249				51,659
Diluted loss per common share related to charges		($	1.19	)		($	2.03	)		($	1.90	)		($	2.18	)
Reconciliation of operating income before charges:
Operating income before charges		$	159,692			$	181,543			$	663,148			$	686,381
Detail of charges excluded from core operating results:
One-time bonus costs			—				—				(20,158	)			—
Severance, retirement and other costs			(3,663	)			(4,203	)			(6,016	)			(8,730	)
Costs associated with the closing of a TC hospital and a home health location			(499	)			—				(6,542	)			—
Litigation			(7,000	)			—				(30,850	)			(5,000	)
Transaction costs			(447	)			(667	)			(2,112	)			(2,231	)
Impairment charges			(76,082	)			(107,899	)			(76,082	)			(107,899	)
			(87,691	)			(112,769	)			(141,760	)			(123,860	)
Reported operating income		$	72,001			$	68,774			$	521,388			$	562,521
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges		$	8,317			$	20,773			$	50,678			$	64,786
Charges net of income taxes			(62,459	)			(104,772	)			(99,147	)			(112,756	)
Reported loss from continuing operations		($	54,142	)		($	83,999	)		($	48,469	)		($	47,970	)
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a)		$	0.15			$	0.39			$	0.94			$	1.22
Charges net of income taxes			(1.19	)			(2.03	)			(1.90	)			(2.18	)
Other			—				0.02				0.03				0.03
Reported diluted loss per common share from continuing operations		($	1.04	)		($	1.62	)		($	0.93	)		($	0.93	)
Weighted average diluted shares used to compute diluted income per common share from continuing operations before charges			52,461				51,984				52,315				51,815
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges			27.5	%			35.7	%			36.2	%			39.2	%
Impact of charges on effective income tax rate			1.5	%			-30.9	%			-13.4	%			133.3	%
Reported effective income tax rate			29.0	%			4.8	%			22.8	%			172.5	%

 

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.3 million and $0.6 million for the three months ended December 31, 2013 and 2012, respectively, and $1.6 million and $1.5 million for the year ended December 31, 2013 and 2012, respectively, for the allocation of income to participating unvested restricted stockholders.

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 21

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

 

		Three months ended December 31, 2013
						Charges
		Before charges				Severance and retirement costs				Facility closing costs				Litigation				Impairment charges				Transaction costs				Total				As reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	135,428			$	—			$	(499	)		$	(7,000	)		$	—			$	—			$	(7,499	)		$	127,929
Nursing center division			36,694				—				—				—				—				—				—				36,694
Rehabilitation division:
Skilled nursing rehabilitation services			13,057				(139	)			—				—				—				—				(139	)			12,918
Hospital rehabilitation services			19,093				(1,088	)			—				—				—				—				(1,088	)			18,005
			32,150				(1,227	)			—				—				—				—				(1,227	)			30,923
Care management division			2,206				(75	)			—				—				—				—				(75	)			2,131
Corporate:
Overhead			(46,202	)			(2,361	)			—				—				—				—				(2,361	)			(48,563	)
Insurance subsidiary			(539	)			—				—				—				—				—				—				(539	)
			(46,741	)			(2,361	)			—				—				—				—				(2,361	)			(49,102	)
Impairment charges			(45	)			—				—				—				(76,082	)			—				(76,082	)			(76,127	)
Transaction costs			—				—				—				—				—				(447	)			(447	)			(447	)
Operating income			159,692				(3,663	)			(499	)			(7,000	)			(76,082	)			(447	)			(87,691	)			72,001
Rent			(82,563	)			—				—				—				—				—				—				(82,563	)
Depreciation and amortization			(38,437	)			—				—				—				—				—				—				(38,437	)
Interest, net			(23,906	)			—				—				—				—				—				—				(23,906	)
Income (loss) from continuing operations before income taxes			14,786				(3,663	)			(499	)			(7,000	)			(76,082	)			(447	)			(87,691	)			(72,905	)
Provision (benefit) for income taxes			4,064				(1,443	)			(202	)			(5,455	)			(17,803	)			(329	)			(25,232	)			(21,168	)
		$	10,722			$	(2,220	)		$	(297	)		$	(1,545	)		$	(58,279	)		$	(118	)		$	(62,459	)		$	(51,737	)

 

		Three months ended December 31, 2012
						Charges
		Before charges				Severance and other				Impairment charges				Transaction costs				Lease cancellation charges				Total				As reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	147,730			$	(689	)		$	—			$	—			$	—			$	(689	)		$	147,041
Nursing center division			33,917				(1,901	)			—				—				—				(1,901	)			32,016
Rehabilitation division:
Skilled nursing rehabilitation services			21,318				(317	)			—				—				—				(317	)			21,001
Hospital rehabilitation services			18,889				(97	)			—				—				—				(97	)			18,792
			40,207				(414	)			—				—				—				(414	)			39,793
Care management division			5,083				(150	)			—				—				—				(150	)			4,933
Corporate:
Overhead			(44,680	)			(1,049	)			—				—				—				(1,049	)			(45,729	)
Insurance subsidiary			(500	)			—				—				—				—				—				(500	)
			(45,180	)			(1,049	)			—				—				—				(1,049	)			(46,229	)
Impairment charges			(214	)			—				(107,899	)			—				—				(107,899	)			(108,113	)
Transaction costs			—				—				—				(667	)			—				(667	)			(667	)
Operating income			181,543				(4,203	)			(107,899	)			(667	)			—				(112,769	)			68,774
Rent			(78,046	)			—				—				—				(176	)			(176	)			(78,222	)
Depreciation and amortization			(42,296	)			—				—				—				—				—				(42,296	)
Interest, net			(27,683	)			—				—				—				—				—				(27,683	)
Income (loss) from continuing operations before income taxes			33,518				(4,203	)			(107,899	)			(667	)			(176	)			(112,945	)			(79,427	)
Provision for income taxes			11,955				(1,673	)			(6,150	)			(273	)			(77	)			(8,173	)			3,782
		$	21,563			$	(2,530	)		$	(101,749	)		$	(394	)		$	(99	)		$	(104,772	)		$	(83,209	)

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 22

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

 

		Year ended December 31, 2013
						Charges
		Before charges				One-time bonus				Severance and retirement costs				Facility closing costs				Litigation				Impairment charges				Transaction costs				Senior debt modification charges				Total				As reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	544,879			$	(7,997	)		$	—			$	(6,026	)		$	(7,700	)		$	—			$	—			$	—			$	(21,723	)		$	523,156
Nursing center division			140,132				(4,706	)			—				(64	)			—				—				—				—				(4,770	)			135,362
Rehabilitation division:
Skilled nursing rehabilitation services			65,037				(5,052	)			(139	)			—				(23,150	)			—				—				—				(28,341	)			36,696
Hospital rehabilitation services			76,556				(1,255	)			(1,376	)			—				—				—				—				—				(2,631	)			73,925
			141,593				(6,307	)			(1,515	)			—				(23,150	)			—				—				—				(30,972	)			110,621
Care management division			11,924				(833	)			(676	)			(452	)			—				—				—				—				(1,961	)			9,963
Corporate:
Overhead			(172,355	)			(315	)			(3,366	)			—				—				—				—				(459	)			(4,140	)			(176,495	)
Insurance subsidiary			(1,914	)			—				—				—				—				—				—				—				—				(1,914	)
			(174,269	)			(315	)			(3,366	)			—				—				—				—				(459	)			(4,140	)			(178,409	)
Impairment charges			(1,111	)			—				—				—				—				(76,082	)			—				—				(76,082	)			(77,193	)
Transaction costs			—				—				—				—				—				—				(2,112	)			—				(2,112	)			(2,112	)
Operating income			663,148				(20,158	)			(5,557	)			(6,542	)			(30,850	)			(76,082	)			(2,112	)			(459	)			(141,760	)			521,388
Rent			(318,077	)			—				—				—				—				—				—				—				—				(318,077	)
Depreciation and amortization			(157,329	)			—				—				—				—				—				—				—				—				(157,329	)
Interest, net			(102,537	)			—				—				—				—				—				—				(1,461	)			(1,461	)			(103,998	)
Income (loss) from continuing operations before income taxes			85,205				(20,158	)			(5,557	)			(6,542	)			(30,850	)			(76,082	)			(2,112	)			(1,920	)			(143,221	)			(58,016	)
Provision (benefit) for income taxes			30,870				(7,932	)			(2,186	)			(2,312	)			(12,139	)			(17,803	)			(947	)			(755	)			(44,074	)			(13,204	)
		$	54,335			$	(12,226	)		$	(3,371	)		$	(4,230	)		$	(18,711	)		$	(58,279	)		$	(1,165	)		$	(1,165	)		$	(99,147	)		$	(44,812	)
		Year ended December 31, 2012
						Charges
		Before charges				Severance and other				Litigation				Impairment charges				Transaction costs				Lease cancellation charges				Total				As reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	571,448			$	(4,224	)		$	(5,000	)		$	—			$	—			$	—			$	(9,224	)		$	562,224
Nursing center division			144,069				(2,811	)			—				—				—				—				(2,811	)			141,258
Rehabilitation division:
Skilled nursing rehabilitation services			68,313				(353	)			—				—				—				—				(353	)			67,960
Hospital rehabilitation services			69,853				(108	)			—				—				—				—				(108	)			69,745
			138,166				(461	)			—				—				—				—				(461	)			137,705
Care management division			13,858				(150	)			—				—				—				—				(150	)			13,708
Corporate:
Overhead			(177,979	)			(1,084	)			—				—				—				—				(1,084	)			(179,063	)
Insurance subsidiary			(2,127	)			—				—				—				—				—				—				(2,127	)
			(180,106	)			(1,084	)			—				—				—				—				(1,084	)			(181,190	)
Impairment charges			(1,054	)			—				—				(107,899	)			—				—				(107,899	)			(108,953	)
Transaction costs			—				—				—				—				(2,231	)			—				(2,231	)			(2,231	)
Operating income			686,381				(8,730	)			(5,000	)			(107,899	)			(2,231	)			—				(123,860	)			562,521
Rent			(308,487	)			—				—												(1,691	)			(1,691	)			(310,178	)
Depreciation and amortization			(162,685	)			—				—				—				—				—				—				(162,685	)
Interest, net			(106,878	)			—				—				—				—				—				—				(106,878	)
Income (loss) from continuing operations before income taxes			108,331				(8,730	)			(5,000	)			(107,899	)			(2,231	)			(1,691	)			(125,551	)			(17,220	)
Provision for income taxes			42,502				(3,427	)			(1,962	)			(6,150	)			(592	)			(664	)			(12,795	)			29,707
		$	65,829			$	(5,303	)		$	(3,038	)		$	(101,749	)		$	(1,639	)		$	(1,027	)		$	(112,756	)		$	(46,927	)

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 23

February 20, 2014

 

 

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 financing activities. In addition, management uses free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, 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 40.1% and 16.0% for the three months ended December 31, 2013 and 2012, respectively, and 36.1% and 27.6% for the year ended December 31, 2013 and 2012, respectively. The change in the effective income tax rates between periods is attributable to the variation between periods of payments that are non-deductible in each respective period for income tax purposes.

 

		Three months ended December 31,								Year ended December 31,
		2013				2012				2013				2012
Reconciliation of net cash flows provided by operating activities to free cash flows:
Net cash flows provided by operating activities		$	10,195			$	71,475			$	199,412			$	262,562
Less:
Routine capital expenditures			(37,956	)			(38,371	)			(100,908	)			(115,175	)
Development capital expenditures			(1,115	)			(12,147	)			(11,824	)			(50,322	)
			(39,071	)			(50,518	)			(112,732	)			(165,497	)
Free cash flows including certain items			(28,876	)			20,957				86,680				97,065
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				—
Ventas lease termination fee			20,000				—				20,000				—
Transaction costs			1,877				932				10,427				3,404
Severance and retention			617				1,715				5,406				3,719
Lease cancellation			—				176				—				1,691
Financing costs capitalized as deferred financing			—				2,940				6,189				2,940
Benefit of reduced income tax payments resulting from certain payments			(9,018	)			(922	)			(24,667	)			(3,244	)
			13,476				4,841				43,700				8,510
Free cash flows excluding certain items		($	15,400	)		$	25,798			$	130,380			$	105,575

 

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Kindred Healthcare Announces Fourth Quarter Results

Page 24

February 20, 2014

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of Earnings Guidance for 2014 - Continuing Operations (a)

(Unaudited)

(In millions, except per share amounts)

 

		As of February 20, 2014								As of November 5, 2013
		Low				High				Low				High
Operating income		$	725			$	742			$	726			$	744
Rent			338				338				339				339
Depreciation and amortization			165				165				165				165
Interest, net			106				106				106				106
Income from continuing operations before income taxes			116				133				116				134
Provision for income taxes			45				52				46				53
Income from continuing operations			71				81				70				81
Earnings attributable to noncontrolling interests			(13	)			(13	)			(12	)			(12	)
Income from continuing operations attributable to the Company			58				68				58				69
Allocation to participating unvested restricted stockholders			(2	)			(2	)			(2	)			(2	)
Available to common stockholders		$	56			$	66			$	56			$	67
Earnings per diluted share		$	1.05			$	1.25			$	1.05			$	1.25
Shares used in computing earnings per diluted share			53.2				53.2				53.2				53.2

 

(a)	The earnings guidance excludes the effect of reimbursement changes, severance and retirement costs, litigation costs, transaction-related costs, any further acquisitions or divestitures (except as otherwise noted), any impairment charges, and any repurchases of common stock.

 

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