EXHIBIT 99.1

 

 

Contact:		Stephen Farber
		Executive Vice President, Chief Financial Officer
		(502) 596-2525

KINDRED HEALTHCARE ANNOUNCES THIRD QUARTER 2014 RESULTS

 

 

Core Diluted EPS from Continuing Operations of $0.11⁽¹⁾ Including Impact of New Share Count

Solid Year Continues with 6% Growth in Consolidated Revenues and 7% Growth in Core Operating Income

GAAP EPS from Continuing Operations Totaled $0.03 After Charges of $0.08 per Diluted Share Related

Primarily to Transaction, Customer Bankruptcy, Severance and Restructuring Costs

Reaffirms and Narrows 2014 Earnings Guidance; Reaffirms Free Cash Flows Guidance

LOUISVILLE, Ky. (November 5, 2014) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2014.

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.

Third Quarter Highlights:

 

•

Consolidated revenues increased 6% and core operating income increased 7% from the same period last year primarily resulting from improved hospital volumes, strong performance in the Care Management division’s Kindred at Home operations, growth from acquisitions and solid cost controls throughout the Company

 

•

Hospital division reported strong results with 3% same-facility admissions growth and less than 1% growth in core operating costs per patient day

 

•

RehabCare division continues to deliver strong results including core operating income growth of 9% and margin improvement to 11.7% from 11.0% compared to the same period a year ago

 

•

Care Management division, including Kindred at Home, delivered 60% revenue growth and core operating income tripled compared to the same period last year

 

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Nursing Center division core operating income increased 16.1% primarily due to growth in revenues and its operating margins were significantly improved due to ongoing repositioning and cost control initiatives

 

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Strong sequential cash flows with core operating cash flows of $95 million and core free cash flows of $72 million

 

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Board of Directors declared regular quarterly cash dividend of $0.12 per share payable on December 9, 2014

 

(1)	See reconciliation of core results to GAAP results on page 20.

 

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680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

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Kindred Healthcare Announces Third Quarter Results

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November 5, 2014

 

Third Quarter Results

Continuing Operations

Consolidated revenues for the third quarter ended September 30, 2014 increased 6% to $1.24 billion compared to $1.18 billion during the same period of 2013, primarily due to improved hospital volumes, strong performance in the Care Management division’s operations, growth from acquisitions and solid cost controls throughout the Company. Kindred reported income from continuing operations for the third quarter of 2014 of $1.7 million or $0.03 per diluted share compared to a loss from continuing operations of $16.6 million or $0.31 per diluted share in the third quarter of 2013. Third quarter 2014 operating results included pretax charges of $7.7 million ($5.3 million net of income taxes) or $0.08 per diluted share related to transaction, customer bankruptcy, severance and restructuring costs. Operating results for the third quarter of 2013 included pretax charges of $32.9 million ($23.2 million net of income taxes) or $0.44 per diluted share related to litigation costs, costs associated with the closure of a hospital and a home health location, costs associated with certain severance and retirement benefits, charges associated with the modification of certain of the Company’s senior debt, and transaction costs.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, commented, “We are very pleased with our operating and financial results for the third quarter of 2014, which were in line with our expectations and reflect further progress in delivering on our promise to provide hope, healing and recovery to the patients we serve. We continued to see improvement in employee engagement and reduced turnover, while improving quality measures, clinical outcomes and patient satisfaction in all of our business segments. We are also pleased to reaffirm and narrow our earnings guidance and reaffirm our free cash flows guidance for the year, which reflects the change in share count in our earnings guidance from our mid-year equity offering, as we achieved revenue and core operating income growth of 6% and 7% year-over-year, respectively.”

Mr. Diaz continued, “We also made progress on a number of internal and external growth initiatives during the quarter that will enhance our Integrated Care Market capabilities, particularly in home health and hospice services. In addition, we continue to evaluate a robust pipeline of external opportunities to deploy our financial resources, industry leading infrastructure and management capabilities. Overall, we remain committed to further improving our patients’ experiences and to the long-term growth, profitability and strengthened financial position of the Company.”

Benjamin A. Breier, President and Chief Operating Officer of the Company, said, “Our hospital division had another strong quarter. Same-facility hospital admissions increased 3% in the third quarter compared to the same period last year. RehabCare continues to make great progress, as evidenced by our 9% increase in operating income and margin improvement to 11.7% from 11.0% compared to the same period a year ago. In addition, we have added 90 net new skilled nursing rehabilitation contracts during 2014. Our efforts to reshape our nursing center division continue to pay off as we achieved a significant improvement in our core operating margins in the third quarter to 13.1% from 11.9%.”

Mr. Breier added, “Lastly, the positive results in our home health and hospice operations reflect continued execution improvement by our Care Management division, including Kindred at Home, which has been enabled through better processes, technology and team. We believe that the merger with Gentiva Health Services, Inc. (“Gentiva”) (NASDAQ:GTIV) will further accelerate these capabilities and our Continue the Care strategy, creating significant value for patients, employees and shareholders.”

Stephen D. Farber, Executive Vice President, Chief Financial Officer, commented, “Our balance sheet at September 30, 2014 is in great shape with no outstanding borrowings under our revolving credit facility, a cash balance of $82 million and borrowing capacity under our revolving credit facility of approximately $650 million. Our core operating cash flows for the third quarter were $95 million and core free cash flows were $72 million, a significant improvement over the first half of 2014. We expect that cash flow improvements will continue over the next several

 

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Kindred Healthcare Announces Third Quarter Results

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quarters through performance enhancements in our hospital division central business offices. Our core diluted earnings per share from continuing operations of $0.11 per share for the third quarter of 2014 compares to core diluted earnings per share from continuing operations of $0.12 per share for the third quarter of 2013 (or $0.10 per share on a pro forma basis assuming the incremental 9.7 million shares issued in the Company’s equity offering completed in June 2014).”

Acquisition of Gentiva

Kindred announced on October 9, 2014 that a definitive agreement was signed to acquire Gentiva:

 

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Transaction value is approximately $1.8 billion

 

•

Combined company is expected to have pro forma annual revenues of approximately $7.1 billion and operating income or earnings before interest, income taxes, depreciation, amortization and rent (“EBITDAR”) of approximately $1.0 billion

 

•

Transaction expected to be significantly accretive to Company earnings and cash flows, exclusive of transaction costs, with more than $70 million of expected synergies within two years of closing

Mr. Diaz commented, “The merger with Gentiva will create one of the nation’s premier healthcare service providers with diverse business and revenue mix. We are encouraged by Gentiva’s strong results in the third quarter, which were consistent with our expectations and underscore our confidence in the merits of the combination. We are impressed with the talented team at Gentiva and look forward to working closely together to complete our combination, which will advance our strategy, mission and shared values.”

“We are pleased by the news that after the close of the transaction with Gentiva, David Causby will join our team as President of the combined Kindred at Home business,” stated Mr. Breier. “David is a strong leader with a deep understanding of Gentiva’s operations, people and systems, which will be invaluable to ensuring a smooth transition. David’s appointment will allow for continued focus on our patients and operations, and ensure a successful integration and a higher level of certainty on achieving our cost and revenue synergy goals.”

Earnings Guidance – Continuing Operations

The Company today reaffirmed and narrowed its guidance for income from continuing operations for 2014 of between $59 million and $65 million. Using Kindred’s annual diluted share count of 58.3 million outstanding shares following the mid-year equity offering, income from continuing operations for 2014 equates to $0.98 to $1.08 per diluted share (previously $0.96 to $1.14 per diluted share). As denoted on page 24, based upon the completion of three quarters in 2014, the Company has conformed various line items underlying its earnings guidance, which in aggregate are fully offsetting and had no net impact on its expectations for income from continuing operations attributable to the Company.

The Company also reaffirmed its operating cash flows in excess of routine and development capital spending programs and before dividends (“free cash flows”) guidance range of $85 million to $105 million. Estimated dividend payments for 2014 are expected to approximate $29 million.

Please note the Company’s earnings and free cash flows guidance for 2014 excludes the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, customer bankruptcy costs, litigation costs, transaction costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock, debt or mandatory convertible equity securities in conjunction with the Gentiva transaction 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 of $0.12 per common share to be paid on December 9, 2014 to shareholders of record as of the close of business on November 18, 2014. Future declarations of quarterly dividends will be subject to the approval of Kindred’s Board of Directors.

 

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Conference Call

As previously announced, investors and the general public may access a live webcast of the third quarter 2014 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on November 6 at 10:00 a.m. (Eastern Time). The conference call webcast will feature accompanying slides, which will be posted prior to the conference call, and will be accessible through the Investor Relations section of the Company’s website.

A telephone replay of the conference call will become available at approximately 5:30 p.m. on November 6 by dialing (719) 457-0820, access code: 2187635. The replay will be available through November 16.

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. These forward-looking statements include, but are not limited to, statements regarding the Company’s proposed business combination transaction with Gentiva (including financing of the proposed transaction and the benefits, results, effects and timing of a transaction), all statements regarding the Company’s (and the Company’s and Gentiva’s combined) expected future financial position, results of operations, cash flows, dividends, 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,” “would,” “should,” “will,” “intend,” “may,” “potential,” “upside,” and other similar expressions. Statements in this press release concerning the business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends or other financial items, and product or services line growth of the Company (and the combined businesses of the Company and Gentiva), 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, performance or plans with respect to Gentiva to differ materially from any future results, performance or plans 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 (the “SEC”).

Risks and uncertainties related to the proposed merger include, but are not limited to, the risk that Gentiva’s stockholders do not approve the merger, potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger, uncertainties as to the timing of the merger, adverse effects on the Company’s stock price resulting from the announcement or completion of the merger, competitive responses to the announcement or completion of the merger, the risk that healthcare regulatory, licensure or other approvals and financing required for the consummation of the merger are not obtained or are obtained subject to terms and conditions that are not anticipated, costs and difficulties related to the integration of Gentiva’s businesses and operations with the Company’s businesses and operations, the inability to obtain, or delays in obtaining, cost savings and synergies from the merger, uncertainties as to whether the completion of the merger or any transaction will have the accretive effect on the Company’s earnings or cash flows that it expects, unexpected costs, liabilities, charges or expenses resulting from the merger, litigation relating to the merger, the inability to retain key personnel, and any changes in general economic and/or industry-specific conditions.

 

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In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price include, without limitation, (a) the impact of healthcare reform, which will initiate significant changes to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, including reforms resulting from the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act (collectively, the “ACA”) or future deficit reduction measures adopted at the federal or state level. Healthcare reform is affecting each of the Company’s businesses in some manner. Potential future efforts in the U.S. Congress to repeal, amend, modify or retract funding for various aspects of the ACA create additional uncertainty about the ultimate impact of the ACA on the Company and the healthcare industry. Due to the substantial regulatory changes that will need to be implemented by the Centers for Medicare and Medicaid Services (“CMS”) and others, and the numerous processes required to implement these reforms, the Company cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on the Company’s business, financial position, results of operations and liquidity, (b) the Company’s ability to adjust to the new patient criteria for long-term acute care (“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, (c) the impact of the final rules issued by CMS on August 1, 2012 which, among other things, reduced Medicare reimbursement to the Company’s transitional care (“TC”) hospitals in 2013 and beyond by imposing a budget neutrality adjustment and modifying the short-stay outlier rules, (d) 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, (e) 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, (f) the costs of defending and insuring against alleged professional liability and other claims and investigations (including those related to pending investigations and 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 and investigations, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (g) 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 its Medicare revenues by $25 million to $30 million on an annual basis, (h) 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 Company’s TC hospitals, nursing centers, inpatient rehabilitation hospitals and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (i) 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, (j) the ability of the Company’s hospitals and nursing centers to adjust to medical necessity reviews, (k) the impact of the Company’s significant level of indebtedness on its 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

 

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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, regional and industry-specific 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.

In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price are set forth in the Company’s Annual Report on Form 10-K and in its reports on Forms 10-Q and 8-K.

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 press release to compute certain non-GAAP measurements for the three months and nine months ended September 30, 2014 and 2013 before certain charges or on a core basis and on a pro forma basis. A reconciliation of the non-GAAP measurements to the GAAP measurements is included in this press release.

Also in this release, the Company provides 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 also includes financial measures referred to as operating income, or EBITDAR, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Company’s management uses EBITDAR or EBITDA as meaningful measures of operational performance in addition to other measures. The Company uses EBITDAR or EBITDA to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes these measurements are important because securities analysts and investors use these measurements 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. EBITDAR or EBITDA should be considered in addition to, not as a substitute

 

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for, or superior to, financial measures based upon GAAP as an indicator of operating performance. A reconciliation of EBITDAR or EBITDA to income (loss) from continuing operations provided in the Condensed Business Segment Data is included in this press release. The pro forma EBITDAR total of $1.0 billion included in this press release was computed by combining the mid-point of the Company’s 2014 earnings guidance and 2014 EBITDAR estimate of $232 million for Gentiva, which is based upon Gentiva’s 2014 current average analyst consensus estimates. In addition, pro forma EBITDAR includes full run rate expected cost synergies of $70 million from the transaction.

Additional Information

This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. This communication may be deemed to be solicitation material in respect of the proposed merger between the Company and Gentiva. In connection with the proposed merger, Gentiva and the Company intend to file a registration statement on Form S-4, containing a proxy statement/prospectus, with the SEC. SHAREHOLDERS OF GENTIVA ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. Investors and security holders will be able to obtain copies of the proxy statement/prospectus as well as other filings containing information about the Company and Gentiva, without charge, at the SEC’s website, www.sec.gov. Those documents, when filed, as well as the Company’s other public filings with the SEC, may be obtained without charge at the Company’s website at www.kindredhealthcare.com.

Participants in Solicitation

The Company and its directors and executive officers, and Gentiva and its directors and executive officers, may be deemed to be participants in the solicitation of proxies from the holders of Gentiva common stock in respect of the proposed merger. Information about the directors and executive officers of the Company is set forth in the proxy statement for the Company’s 2014 Annual Meeting of Shareholders, which was filed with the SEC on April 3, 2014. Information about the directors and executive officers of Gentiva is set forth in the proxy statement for Gentiva’s 2014 Annual Meeting of Shareholders, which was filed with the SEC on March 25, 2014. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement/prospectus regarding the proposed merger when it becomes available.

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 $5 billion and approximately 62,600 employees in 47 states. At September 30, 2014, Kindred through its subsidiaries provided healthcare services in 2,376 locations, including 97 transitional care hospitals, five inpatient rehabilitation hospitals, 99 nursing centers, 22 sub-acute units, 152 Kindred at Home hospice, home health and non-medical home care locations, 102 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,899 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for six 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 Third Quarter 2014 Results

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KINDRED HEALTHCARE, INC.

Financial Summary

(Unaudited)

(In thousands, except per share amounts)

		Three months ended September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Revenues		$	1,243,313			$	1,175,445			$	3,806,019			$	3,625,909
Income (loss) from continuing operations		$	6,146			$	(15,762	)		$	7,067			$	8,841
Discontinued operations, net of income taxes:
Loss from operations			(7,601	)			(25,466	)			(22,255	)			(31,892	)
Gain (loss) on divestiture of operations			1,387				(65,016	)			(3,637	)			(77,893	)
Loss from discontinued operations			(6,214	)			(90,482	)			(25,892	)			(109,785	)
Net loss			(68	)			(106,244	)			(18,825	)			(100,944	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations			(4,372	)			(841	)			(13,729	)			(1,424	)
Discontinued operations			78				87				401				172
			(4,294	)			(754	)			(13,328	)			(1,252	)
Loss attributable to Kindred		$	(4,362	)		$	(106,998	)		$	(32,153	)		$	(102,196	)
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	1,774			$	(16,603	)		$	(6,662	)		$	7,417
Loss from discontinued operations			(6,136	)			(90,395	)			(25,491	)			(109,613	)
Net loss		$	(4,362	)		$	(106,998	)		$	(32,153	)		$	(102,196	)
Loss per common share:
Basic:
Income (loss) from continuing operations		$	0.03			$	(0.31	)		$	(0.12	)		$	0.14
Discontinued operations:
Loss from operations			(0.12	)			(0.49	)			(0.39	)			(0.59	)
Gain (loss) on divestiture of operations			0.02				(1.24	)			(0.06	)			(1.44	)
Loss from discontinued operations			(0.10	)			(1.73	)			(0.45	)			(2.03	)
Net loss		$	(0.07	)		$	(2.04	)		$	(0.57	)		$	(1.89	)
Diluted:
Income (loss) from continuing operations		$	0.03			$	(0.31	)		$	(0.12	)		$	0.14
Discontinued operations:
Loss from operations			(0.12	)			(0.49	)			(0.39	)			(0.59	)
Gain (loss) on divestiture of operations			0.02				(1.24	)			(0.06	)			(1.44	)
Loss from discontinued operations			(0.10	)			(1.73	)			(0.45	)			(2.03	)
Net loss		$	(0.07	)		$	(2.04	)		$	(0.57	)		$	(1.89	)
Shares used in computing loss per common share:
Basic			62,863				52,323				56,443				52,218
Diluted			62,902				52,323				56,443				52,234
Cash dividends declared and paid per common share		$	0.12			$	0.12			$	0.36			$	0.12

 

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Kindred Healthcare Announces Third Quarter 2014 Results

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KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

		Three months ended September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Revenues		$	1,243,313			$	1,175,445			$	3,806,019			$	3,625,909
Salaries, wages and benefits			756,434				718,227				2,300,567				2,215,711
Supplies			79,394				79,498				242,176				244,247
Rent			80,192				76,762				241,449				230,605
Other operating expenses			257,225				261,842				768,247				720,498
Other (income) expense			(353	)			51				(741	)			(984	)
Impairment charges			—				441				—				1,066
Depreciation and amortization			39,023				36,507				117,802				116,659
Interest expense			22,516				25,624				128,845				82,857
Investment income			(343	)			(1,235	)			(2,975	)			(2,794	)
			1,234,088				1,197,717				3,795,370				3,607,865
Income (loss) from continuing operations before income taxes			9,225				(22,272	)			10,649				18,044
Provision (benefit) for income taxes			3,079				(6,510	)			3,582				9,203
Income (loss) from continuing operations			6,146				(15,762	)			7,067				8,841
Discontinued operations, net of income taxes:
Loss from operations			(7,601	)			(25,466	)			(22,255	)			(31,892	)
Gain (loss) on divestiture of operations			1,387				(65,016	)			(3,637	)			(77,893	)
Loss from discontinued operations			(6,214	)			(90,482	)			(25,892	)			(109,785	)
Net loss			(68	)			(106,244	)			(18,825	)			(100,944	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations			(4,372	)			(841	)			(13,729	)			(1,424	)
Discontinued operations			78				87				401				172
			(4,294	)			(754	)			(13,328	)			(1,252	)
Loss attributable to Kindred		$	(4,362	)		$	(106,998	)		$	(32,153	)		$	(102,196	)
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	1,774			$	(16,603	)		$	(6,662	)		$	7,417
Loss from discontinued operations			(6,136	)			(90,395	)			(25,491	)			(109,613	)
Net loss		$	(4,362	)		$	(106,998	)		$	(32,153	)		$	(102,196	)
Loss per common share:
Basic:
Income (loss) from continuing operations		$	0.03			$	(0.31	)		$	(0.12	)		$	0.14
Discontinued operations:
Loss from operations			(0.12	)			(0.49	)			(0.39	)			(0.59	)
Gain (loss) on divestiture of operations			0.02				(1.24	)			(0.06	)			(1.44	)
Loss from discontinued operations			(0.10	)			(1.73	)			(0.45	)			(2.03	)
Net loss		$	(0.07	)		$	(2.04	)		$	(0.57	)		$	(1.89	)
Diluted:
Income (loss) from continuing operations		$	0.03			$	(0.31	)		$	(0.12	)		$	0.14
Discontinued operations:
Loss from operations			(0.12	)			(0.49	)			(0.39	)			(0.59	)
Gain (loss) on divestiture of operations			0.02				(1.24	)			(0.06	)			(1.44	)
Loss from discontinued operations			(0.10	)			(1.73	)			(0.45	)			(2.03	)
Net loss		$	(0.07	)		$	(2.04	)		$	(0.57	)		$	(1.89	)
Shares used in computing loss per common share:
Basic			62,863				52,323				56,443				52,218
Diluted			62,902				52,323				56,443				52,234
Cash dividends declared and paid per common share		$	0.12			$	0.12			$	0.36			$	0.12

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 10

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)

 

		September 30, 2014				December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents		$	81,784			$	35,972
Cash—restricted			2,390				3,713
Insurance subsidiary investments			95,425				96,295
Accounts receivable less allowance for loss			980,723				916,529
Inventories			25,952				25,780
Deferred tax assets			57,577				37,920
Income taxes			35,779				36,846
Other			42,727				43,673
			1,322,357				1,196,728
Property and equipment			1,962,492				1,906,366
Accumulated depreciation			(1,056,524	)			(979,791	)
			905,968				926,575
Goodwill			995,240				992,102
Intangible assets less accumulated amortization			405,900				423,303
Assets held for sale			2,222				20,978
Insurance subsidiary investments			158,394				149,094
Deferred tax assets			—				17,043
Other			234,707				220,046
Total assets		$	4,024,788			$	3,945,869
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	158,397			$	181,772
Salaries, wages and other compensation			346,957				361,192
Due to third party payors			47,320				33,747
Professional liability risks			66,974				60,993
Other accrued liabilities			138,620				146,495
Long-term debt due within one year			10,233				8,222
			768,501				792,421
Long-term debt			1,484,436				1,579,391
Professional liability risks			243,496				246,230
Deferred tax liabilities			7,683				—
Deferred credits and other liabilities			217,218				206,611
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 64,612 shares—September 30, 2014 and 54,165 shares—December 31, 2013			16,153				13,541
Capital in excess of par value			1,357,134				1,146,193
Accumulated other comprehensive loss			(905	)			(252	)
Accumulated deficit			(112,044	)			(76,825	)
			1,260,338				1,082,657
Noncontrolling interests			43,116				38,559
Total equity			1,303,454				1,121,216
Total liabilities and equity		$	4,024,788			$	3,945,869

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 11

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

		Three months ended September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Cash flows from operating activities:
Net loss		$	(68	)		$	(106,244	)		$	(18,825	)		$	(100,944	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			39,579				42,831				121,805				142,745
Amortization of stock-based compensation costs			694				1,553				9,657				7,641
Amortization of deferred financing costs			1,982				2,509				21,211				9,529
Payment of capitalized lender fees related to debt issuance			—				(4,589	)			(19,125	)			(6,189	)
Provision for doubtful accounts			14,695				13,152				35,588				34,489
Deferred income taxes			(32,777	)			2,336				(11,274	)			(22,985	)
Impairment charges			9				8,995				673				10,077
(Gain) loss on divestiture of discontinued operations			(1,387	)			65,016				3,637				77,893
Other			175				6,316				2,289				5,452
Change in operating assets and liabilities:
Accounts receivable			10,392				45,862				(102,503	)			26,745
Inventories and other assets			(2,899	)			3,467				(12,886	)			67
Accounts payable			(3,592	)			(12,901	)			(22,469	)			(31,979	)
Income taxes			29,832				(27,969	)			18,769				(5,269	)
Due to third party payors			28,907				25,931				14,540				16,716
Other accrued liabilities			4,497				44,485				(16,765	)			25,229
Net cash provided by operating activities			90,039				110,750				24,322				189,217
Cash flows from investing activities:
Routine capital expenditures			(21,263	)			(23,152	)			(67,425	)			(62,952	)
Development capital expenditures			(1,570	)			(3,235	)			(2,693	)			(10,709	)
Acquisitions, net of cash acquired			(38	)			(12,173	)			(24,136	)			(39,106	)
Acquisition deposit			—				(14,675	)			—				(14,675	)
Sale of assets			8,948				236,397				22,909				248,700
Purchase of insurance subsidiary investments			(74,101	)			(7,765	)			(97,394	)			(30,360	)
Sale of insurance subsidiary investments			8,447				9,899				34,967				35,427
Net change in insurance subsidiary cash and cash equivalents			65,928				(1,416	)			54,372				(44,294	)
Change in other investments			317				(140	)			1,027				218
Other			(3	)			79				(537	)			(142	)
Net cash provided by (used in) investing activities			(13,335	)			183,819				(78,910	)			82,107
Cash flows from financing activities:
Proceeds from borrowings under revolving credit			311,500				238,900				1,468,515				1,100,300
Repayment of borrowings under revolving credit			(355,100	)			(519,200	)			(1,724,615	)			(1,363,600	)
Proceeds from issuance of senior unsecured notes			—				—				500,000				—
Proceeds from issuance of term loan, net of discount			—				—				997,500				—
Repayment of senior unsecured notes			—				—				(550,000	)			—
Repayment of term loan			(2,500	)			—				(786,063	)			(3,969	)
Repayment of other long-term debt			(58	)			(92	)			(215	)			(849	)
Payment of deferred financing costs			(504	)			(683	)			(3,152	)			(1,340	)
Equity offering, net of offering costs			16,376				—				220,353				—
Issuance of common stock in connection with employee benefit plans			1,530				222				6,217				429
Dividends paid			(7,754	)			(6,499	)			(20,840	)			(6,499	)
Distributions to noncontrolling interests			(4,009	)			(118	)			(9,604	)			(1,628	)
Other			183				53				2,304				404
Net cash provided by (used in) financing activities			(40,336	)			(287,417	)			100,400				(276,752	)
Change in cash and cash equivalents			36,368				7,152				45,812				(5,428	)
Cash and cash equivalents at beginning of period			45,416				37,427				35,972				50,007
Cash and cash equivalents at end of period		$	81,784			$	44,579			$	81,784			$	44,579

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 12

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)

 

		2013 Quarters																2014 Quarters
		First				Second				Third				Fourth				First				Second				Third
Revenues		$	1,259,434			$	1,191,030			$	1,175,445			$	1,209,676			$	1,286,742			$	1,275,964			$	1,243,313
Salaries, wages and benefits			781,865				715,619				718,227				738,952				773,812				770,321				756,434
Supplies			84,146				80,603				79,498				78,694				81,988				80,794				79,394
Rent			76,519				77,324				76,762				80,921				81,048				80,209				80,192
Other operating expenses			230,675				227,981				261,842				245,262				249,604				261,418				257,225
Other (income) expense			(1,009	)			(26	)			51				(458	)			(234	)			(154	)			(353	)
Impairment charges			187				438				441				76,127				—				—				—
Depreciation and amortization			41,598				38,554				36,507				37,547				39,337				39,442				39,023
Interest expense			28,159				29,074				25,624				25,152				25,799				80,530				22,516
Investment income			(85	)			(1,474	)			(1,235	)			(1,252	)			(183	)			(2,449	)			(343	)
			1,242,055				1,168,093				1,197,717				1,280,945				1,251,171				1,310,111				1,234,088
Income (loss) from continuing operations before income taxes			17,379				22,937				(22,272	)			(71,269	)			35,571				(34,147	)			9,225
Provision (benefit) for income taxes			6,505				9,208				(6,510	)			(20,522	)			13,585				(13,082	)			3,079
Income (loss) from continuing operations			10,874				13,729				(15,762	)			(50,747	)			21,986				(21,065	)			6,146
Discontinued operations, net of income taxes:
Loss from operations			(5,376	)			(1,050	)			(25,466	)			(7,150	)			(6,501	)			(8,153	)			(7,601	)
Gain (loss) on divestiture of operations			(2,025	)			(10,852	)			(65,016	)			(5,994	)			(3,006	)			(2,018	)			1,387
Loss from discontinued operations			(7,401	)			(11,902	)			(90,482	)			(13,144	)			(9,507	)			(10,171	)			(6,214	)
Net income (loss)			3,473				1,827				(106,244	)			(63,891	)			12,479				(31,236	)			(68	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations			(467	)			(116	)			(841	)			(2,466	)			(4,529	)			(4,828	)			(4,372	)
Discontinued operations			51				34				87				61				70				253				78
			(416	)			(82	)			(754	)			(2,405	)			(4,459	)			(4,575	)			(4,294	)
Income (loss) attributable to Kindred		$	3,057			$	1,745			$	(106,998	)		$	(66,296	)		$	8,020			$	(35,811	)		$	(4,362	)
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations		$	10,407			$	13,613			$	(16,603	)		$	(53,213	)		$	17,457			$	(25,893	)		$	1,774
Loss from discontinued operations			(7,350	)			(11,868	)			(90,395	)			(13,083	)			(9,437	)			(9,918	)			(6,136	)
Net income (loss)		$	3,057			$	1,745			$	(106,998	)		$	(66,296	)		$	8,020			$	(35,811	)		$	(4,362	)
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations		$	0.20			$	0.25			$	(0.31	)		$	(1.02	)		$	0.32			$	(0.48	)		$	0.03
Discontinued operations:
Loss from operations			(0.10	)			(0.02	)			(0.49	)			(0.14	)			(0.11	)			(0.15	)			(0.12	)
Gain (loss) on divestiture of operations			(0.04	)			(0.20	)			(1.24	)			(0.11	)			(0.06	)			(0.04	)			0.02
Loss from discontinued operations			(0.14	)			(0.22	)			(1.73	)			(0.25	)			(0.17	)			(0.19	)			(0.10	)
Net income (loss)		$	0.06			$	0.03			$	(2.04	)		$	(1.27	)		$	0.15			$	(0.67	)		$	(0.07	)
Diluted:
Income (loss) from continuing operations		$	0.20			$	0.25			$	(0.31	)		$	(1.02	)		$	0.32			$	(0.48	)		$	0.03
Discontinued operations:
Loss from operations			(0.10	)			(0.02	)			(0.49	)			(0.14	)			(0.11	)			(0.15	)			(0.12	)
Gain (loss) on divestiture of operations			(0.04	)			(0.20	)			(1.24	)			(0.11	)			(0.06	)			(0.04	)			0.02
Loss from discontinued operations			(0.14	)			(0.22	)			(1.73	)			(0.25	)			(0.17	)			(0.19	)			(0.10	)
Net income (loss)		$	0.06			$	0.03			$	(2.04	)		$	(1.27	)		$	0.15			$	(0.67	)		$	(0.07	)
Shares used in computing earnings (loss) per common share:
Basic			52,062				52,265				52,323				52,344				52,641				53,714				62,863
Diluted			52,083				52,284				52,323				52,344				52,711				53,714				62,902

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 13

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

(In thousands)

 

		2013 Quarters																2014 Quarters
		First				Second				Third				Fourth				First				Second				Third
Revenues:
Hospital division		$	657,814			$	606,604			$	594,154			$	606,988			$	646,458			$	632,156			$	609,452
Nursing center division			270,205				264,847				265,696				270,080				277,902				280,255				279,561
Rehabilitation division:
Skilled nursing rehabilitation services			258,750				249,647				245,330				243,280				254,255				253,989				247,042
Hospital rehabilitation services			74,523				69,777				68,296				74,017				73,964				75,324				74,808
			333,273				319,424				313,626				317,297				328,219				329,313				321,850
Care management division			51,621				53,039				53,801				66,466				87,704				87,986				86,186
			1,312,913				1,243,914				1,227,277				1,260,831				1,340,283				1,329,710				1,297,049
Eliminations:
Skilled nursing rehabilitation services			(28,657	)			(28,660	)			(28,151	)			(28,157	)			(29,646	)			(30,031	)			(30,788	)
Hospital rehabilitation services			(23,609	)			(23,223	)			(22,520	)			(22,123	)			(23,233	)			(22,855	)			(22,172	)
Nursing centers			(1,213	)			(1,001	)			(1,161	)			(875	)			(662	)			(860	)			(776	)
			(53,479	)			(52,884	)			(51,832	)			(51,155	)			(53,541	)			(53,746	)			(53,736	)
		$	1,259,434			$	1,191,030			$	1,175,445			$	1,209,676			$	1,286,742			$	1,275,964			$	1,243,313
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	147,493	(a)		$	129,366			$	112,483	(c)		$	126,788	(i)		$	145,395			$	132,878	(k)		$	121,744	(o)
Nursing center division			29,145	(a)			36,018				31,505				35,585				38,471				36,880	(l)			36,179	(o)
Rehabilitation division:
Skilled nursing rehabilitation services			13,239	(a)			21,623				(7,209	)(d)			14,260	(j)			18,328				19,982	(l)			17,552	(o)
Hospital rehabilitation services			18,132	(a)			19,573				18,215	(e)			18,005	(j)			19,820				20,084	(l)			18,273	(p)
			31,371				41,196				11,006				32,265				38,148				40,066				35,825
Care management division			2,786	(a)			3,961				1,085	(f)			2,131	(j)			4,697				7,065	(l)			6,789	(o)
Corporate:
Overhead			(45,585	)(a)			(43,196	)			(39,157	)(g)			(48,557	)(j)			(44,050	)			(48,365	)(l)			(45,173	)(o)
Insurance subsidiary			(509	)			(384	)			(482	)			(539	)			(406	)			(443	)			(637	)
			(46,094	)			(43,580	)			(39,639	)			(49,096	)			(44,456	)			(48,808	)			(45,810	)
Impairment charges			(187	)			(438	)			(441	)			(76,127	)			—				—				—
Transaction costs			(944	)			(108	)			(613	)			(447	)			(683	)			(4,496	)			(4,114	)
Operating income (EBITDAR)			163,570				166,415				115,386				71,099				181,572				163,585				150,613
Rent			(76,519	)			(77,324	)			(76,762	)			(80,921	)			(81,048	)			(80,209	)(m)			(80,192	)
EBITDA			87,051				89,091				38,624				(9,822	)			100,524				83,376				70,421
Depreciation and amortization			(41,598	)			(38,554	)			(36,507	)			(37,547	)			(39,337	)			(39,442	)			(39,023	)
Interest, net			(28,074	)			(27,600	)(b)			(24,389	)(h)			(23,900	)			(25,616	)			(78,081	)(n)			(22,173	)
Income (loss) from continuing operations before income taxes			17,379				22,937				(22,272	)			(71,269	)			35,571				(34,147	)			9,225
Provision (benefit) for income taxes			6,505				9,208				(6,510	)			(20,522	)			13,585				(13,082	)			3,079
		$	10,874			$	13,729			$	(15,762	)		$	(50,747	)		$	21,986			$	(21,065	)		$	6,146

 

(a)

Includes one-time bonus costs of $19.8 million (hospital division—$7.8 million, nursing center division—$4.6 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 $1.4 million of charges associated with the modification of certain of the Company’s senior debt.

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

(d)	Includes $23.1 million of litigation charges.

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

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

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

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

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

(j)	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).

(k)	Includes litigation costs of $4.6 million.

(l)

Includes severance and other costs related to restructuring activities of $4.9 million (nursing center division—$3.2 million, rehabilitation division—$0.3 million (skilled nursing rehabilitation services—$0.2 million and hospital rehabilitation services—$0.1 million), care management division—$0.8 million and corporate—$0.6 million).

(m)	Includes lease cancellation charges of $0.3 million incurred in connection with restructuring activities.

(n)	Includes $56.6 million of charges associated with debt refinancing.

(o)

Includes severance costs of $1.8 million and other operating (income) expenses of ($0.1) million related to restructuring activities (hospital division—$0.6 million, nursing center division—$0.5 million, skilling nursing rehabilitation services—($0.2) million, care management division—$0.4 million and corporate—$0.4 million).

(p)	Includes $1.9 million allowance for doubtful account related to a customer bankruptcy.

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 14

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

		Three months ended September 30, 2014
		Hospital division (a)				Nursing center division (a)				Rehabilitation division												Care management division (a)				Corporate (a)				Transaction costs				Eliminations				Consolidated
										Skilled nursing services (a)				Hospital services (b)				Total
Revenues		$	609,452			$	279,561			$	247,042			$	74,808			$	321,850			$	86,186			$	—			$	—			$	(53,736	)		$	1,243,313
Salaries, wages and benefits			269,119				127,954				220,913				50,097				271,010				64,883				24,705				—				(1,237	)			756,434
Supplies			64,618				10,855				680				24				704				3,034				183				—				—				79,394
Rent			52,509				23,865				1,041				22				1,063				2,155				600				—				—				80,192
Other operating expenses			153,909				104,846				8,046				6,408				14,454				11,479				20,922				4,114				(52,499	)			257,225
Other (income) expense			62				(273	)			(149	)			6				(143	)			1				—				—				—				(353	)
Depreciation and amortization			16,851				7,881				2,866				2,364				5,230				2,105				6,956				—				—				39,023
Interest expense			189				13				49				—				49				12				22,253				—				—				22,516
Investment income			(63	)			(6	)			(91	)			—				(91	)			—				(183	)			—				—				(343	)
			557,194				275,135				233,355				58,921				292,276				83,669				75,436				4,114				(53,736	)			1,234,088
Income from continuing operations before income taxes		$	52,258			$	4,426			$	13,687			$	15,887			$	29,574			$	2,517			$	(75,436	)		$	(4,114	)		$	—				9,225
Provision for income taxes																																							3,079
Income from continuing operations																																						$	6,146
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	6,470			$	5,024			$	489			$	62			$	551			$	228			$	8,990			$	—			$	—			$	21,263
Development			—				1,570				—				—				—				—				—				—				—				1,570
		$	6,470			$	6,594			$	489			$	62			$	551			$	228			$	8,990			$	—			$	—			$	22,833
		Three months ended September 30, 2013
		Hospital division (c)				Nursing center division				Rehabilitation division												Care management division (f)				Corporate (g)				Transaction costs				Eliminations				Consolidated
										Skilled nursing services (d)				Hospital services (e)				Total
Revenues		$	594,154			$	265,696			$	245,330			$	68,296			$	313,626			$	53,801			$	—			$	—			$	(51,832	)		$	1,175,445
Salaries, wages and benefits			261,743				126,245				220,267				45,872				266,139				43,184				21,019				—				(103	)			718,227
Supplies			63,877				12,343				750				28				778				2,277				223				—				—				79,498
Rent			49,761				24,111				1,123				19				1,142				1,193				555				—				—				76,762
Other operating expenses			156,049				95,784				31,342				4,150				35,492				7,237				18,396				613				(51,729	)			261,842
Other (income) expense			2				(181	)			180				31				211				18				1				—				—				51
Impairment charges			418				23				—				—				—				—				—				—				—				441
Depreciation and amortization			16,750				6,479				2,461				2,281				4,742				1,638				6,898				—				—				36,507
Interest expense			203				4				63				—				63				6				25,348				—				—				25,624
Investment income			(8	)			(19	)			(50	)			—				(50	)			—				(1,158	)			—				—				(1,235	)
			548,795				264,789				256,136				52,381				308,517				55,553				71,282				613				(51,832	)			1,197,717
Income (loss) from continuing operations before income taxes		$	45,359			$	907			$	(10,806	)		$	15,915			$	5,109			$	(1,752	)		$	(71,282	)		$	(613	)		$	—				(22,272	)
Income tax benefit																																							(6,510	)
Loss from continuing operations																																						$	(15,762	)
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	6,421			$	5,584			$	860			$	31			$	891			$	522			$	9,734			$	—			$	—			$	23,152
Development			3,235				—				—				—				—				—				—				—				—				3,235
		$	9,656			$	5,584			$	860			$	31			$	891			$	522			$	9,734			$	—			$	—			$	26,387

 

(a)

Includes severance costs (included in salaries, wages and benefits) of $1.8 million, other operating expenses of $0.1 million and other income of $0.2 million related to restructuring activities (hospital division—$0.6 million, nursing center division—$0.5 million, skilled nursing rehabilitation services—$0.2 million income, care management division—$0.4 million and corporate—$0.4 million).

(b)	Includes $1.9 million allowance for doubtful account (included in other operating expenses) related to a customer bankruptcy.

(c)	Includes costs of $5.5 million ($0.2 million included in salaries, wages and benefits and $5.3 million included in other operating expenses) in connection with the closing of a TC hospital and a litigation charge (included in other operating expenses) of $0.7 million.

(d)	Includes $23.1 million of litigation charges (included in other operating expenses).

(e)	Includes $0.3 million of severance and retirement costs (included in salaries, wages and benefits).

(f)	Includes $0.6 million of severance and retirement costs (included in salaries, wages and benefits) and $0.5 million of costs (included in other operating expenses) associated with closing a home health location .

(g)	Includes $1.0 million of severance and retirement costs (included in salaries, wages and benefits) and $0.6 million of fees and charges ($0.5 million included in other operating expenses and $0.1 million included in interest expense) associated with refinancing certain of the Company’s senior debt.

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 15

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Consolidating Statement of Operations

(Unaudited)

(In thousands)

 

		Nine months ended September 30, 2014
		Hospital division (a,b)				Nursing center division (b,c)				Rehabilitation division												Care management division (b)				Corporate (b,e)				Transaction costs				Eliminations				Consolidated
										Skilled nursing services (b)				Hospital services (b,d)				Total
Revenues		$	1,888,066			$	837,718			$	755,286			$	224,096			$	979,382			$	261,876			$	—			$	—			$	(161,023	)		$	3,806,019
Salaries, wages and benefits			815,047				384,349				669,427				150,399				819,826				200,376				82,356				339				(1,726	)			2,300,567
Supplies			198,295				32,183				2,096				91				2,187				8,966				545				—				—				242,176
Rent			158,170				71,673				3,197				95				3,292				6,588				1,726				—				—				241,449
Other operating expenses			474,723				310,272				28,041				15,412				43,453				33,979				56,163				8,954				(159,297	)			768,247
Other (income) expense			(16	)			(616	)			(140	)			17				(123	)			4				10				—				—				(741	)
Depreciation and amortization			50,844				23,109				8,446				7,416				15,862				6,369				21,618				—				—				117,802
Interest expense			561				25				158				—				158				34				128,067				—				—				128,845
Investment income			(81	)			(27	)			(375	)			—				(375	)			(1	)			(2,491	)			—				—				(2,975	)
			1,697,543				820,968				710,850				173,430				884,280				256,315				287,994				9,293				(161,023	)			3,795,370
Income from continuing operations before income taxes		$	190,523			$	16,750			$	44,436			$	50,666			$	95,102			$	5,561			$	(287,994	)		$	(9,293	)		$	—				10,649
Provision for income taxes																																							3,582
Income from continuing operations																																						$	7,067
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	23,097			$	15,242			$	1,931			$	162			$	2,093			$	704			$	26,289			$	—			$	—			$	67,425
Development			562				2,131				—				—				—				—				—				—				—				2,693
		$	23,659			$	17,373			$	1,931			$	162			$	2,093			$	704			$	26,289			$	—			$	—			$	70,118
		Nine months ended September 30, 2013
		Hospital division (f,g)				Nursing center division (f)				Rehabilitation division												Care management division (f,j)
										Skilled nursing services (f,h)				Hospital services (f,i)				Total								Corporate (f,k)				Transaction costs				Eliminations				Consolidated
Revenues		$	1,858,572			$	800,748			$	753,727			$	212,596			$	966,323			$	158,461			$	—			$	—			$	(158,195	)		$	3,625,909
Salaries, wages and benefits			812,762				384,670				674,985				144,528				819,513				123,228				75,949				—				(411	)			2,215,711
Supplies			196,760				37,625				2,346				90				2,436				6,840				586				—				—				244,247
Rent			149,564				72,091				3,555				55				3,610				3,534				1,806				—				—				230,605
Other operating expenses			459,631				282,622				48,524				11,999				60,523				20,543				53,298				1,665				(157,784	)			720,498
Other (income) expense			77				(837	)			219				59				278				18				(520	)			—				—				(984	)
Impairment charges			1,002				64				—				—				—				—				—				—				—				1,066
Depreciation and amortization			53,997				20,634				8,451				6,931				15,382				4,779				21,867				—				—				116,659
Interest expense			564				10				232				—				232				6				82,045				—				—				82,857
Investment income			(14	)			(40	)			(152	)			—				(152	)			—				(2,588	)			—				—				(2,794	)
			1,674,343				796,839				738,160				163,662				901,822				158,948				232,443				1,665				(158,195	)			3,607,865
Income (loss) from continuing operations before income taxes		$	184,229			$	3,909			$	15,567			$	48,934			$	64,501			$	(487	)		$	(232,443	)		$	(1,665	)		$	—				18,044
Provision for income taxes																																							9,203
Income from continuing operations																																						$	8,841
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine		$	22,285			$	15,662			$	1,929			$	108			$	2,037			$	1,056			$	21,912			$	—			$	—			$	62,952
Development			10,702				7				—				—				—				—				—				—				—				10,709
		$	32,987			$	15,669			$	1,929			$	108			$	2,037			$	1,056			$	21,912			$	—			$	—			$	73,661

 

(a)	Includes litigation costs (included in other operating expenses) of $4.6 million.

(b)

Includes severance costs (included in salaries, wages and benefits) of $6.6 million, other operating expenses of $0.2 million and other income of $0.2 million related to restructuring activities (hospital division—$0.6 million, nursing center division—$3.7 million, rehabilitation division—$0.1 million (skilled nursing rehabilitation services—$0.2 million expense as well as $0.2 million income and hospital rehabilitation services—$0.1 million), care management division—$1.2 million and corporate—$1.0 million).

(c)	Includes lease cancellation charges (included in rent) of $0.3 million incurred in connection with restructuring activities.

(d)	Includes $1.9 million allowance for doubtful account (included in other operating expenses) related to a customer bankruptcy.

(e)	Includes $56.6 million of charges (included in interest expense) associated with debt refinancing.

(f)

Includes one-time bonus costs (included in salaries, wages and benefits) of $19.8 million (hospital division—$7.8 million, nursing center division—$4.6 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).

(g)	Includes costs of $5.5 million ($0.2 million included in salaries, wages and benefits and $5.3 million included in other operating expenses) in connection with the closing of a TC hospital and a litigation charge (included in other operating expenses) of $0.7 million.

(h)	Includes $23.1 million of litigation charges (included in other operating expenses).

(i)	Includes $0.3 million of severance and retirement costs (included in salaries, wages and benefits).

(j)	Includes $0.6 million of severance and retirement costs (included in salaries, wages and benefits) and $0.5 million of costs (included in other operating expenses) associated with closing a home health location.

(k)	Includes $1.0 million of severance and retirement costs (included in salaries, wages and benefits) and $2.0 million of fees and charges ($0.5 million included in other operating expenses and $1.5 million included in interest expense) associated with refinancing certain of the Company’s senior debt.

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 16

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

 

		2013 Quarters																2014 Quarters
		First				Second				Third				Fourth				First				Second				Third
Hospital division data:
End of period data:
Number of hospitals:
Transitional care			97				97				97				97				97				97				97
Inpatient rehabilitation			5				5				5				5				5				5				5
			102				102				102				102				102				102				102
Number of licensed beds:
Transitional care			7,059				7,059				7,073				7,105				7,145				7,145				7,145
Inpatient rehabilitation			215				215				215				215				215				215				215
			7,274				7,274				7,288				7,320				7,360				7,360				7,360
Revenue mix %:
Medicare			62.5				60.7				59.1				59.3				60.2				58.9				57.6
Medicaid			5.4				5.9				6.9				6.2				6.5				6.6				6.7
Medicare Advantage			10.2				11.1				11.1				11.7				11.2				11.0				10.4
Medicaid Managed			1.9				1.9				2.0				1.9				2.3				2.9				3.7
Commercial insurance and other			20.0				20.4				20.9				20.9				19.8				20.6				21.6
Admissions:
Medicare			10,274				9,432				9,010				9,255				9,858				9,410				9,221
Medicaid			685				744				788				712				835				914				831
Medicare Advantage			1,519				1,474				1,422				1,450				1,515				1,449				1,305
Medicaid Managed			209				208				225				252				317				381				511
Commercial insurance and other			1,951				1,869				1,874				1,818				2,107				2,055				1,873
			14,638				13,727				13,319				13,487				14,632				14,209				13,741
Admissions mix %:
Medicare			70.2				68.7				67.6				68.6				67.4				66.2				67.1
Medicaid			4.7				5.4				5.9				5.3				5.7				6.4				6.1
Medicare Advantage			10.4				10.8				10.7				10.7				10.3				10.2				9.5
Medicaid Managed			1.4				1.5				1.7				1.9				2.2				2.7				3.7
Commercial insurance and other			13.3				13.6				14.1				13.5				14.4				14.5				13.6
Patient days:
Medicare			252,195				234,490				223,639				226,662				239,759				230,122				222,704
Medicaid			28,765				30,425				31,569				29,799				32,909				32,821				30,786
Medicare Advantage			43,016				43,040				41,842				43,784				44,979				44,094				40,901
Medicaid Managed			8,808				8,342				8,264				8,238				10,733				13,247				16,595
Commercial insurance and other			63,227				57,091				59,575				57,334				62,858				61,892				60,187
			396,011				373,388				364,889				365,817				391,238				382,176				371,173
Average length of stay:
Medicare			24.5				24.9				24.8				24.5				24.3				24.5				24.2
Medicaid			42.0				40.9				40.1				41.9				39.4				35.9				37.0
Medicare Advantage			28.3				29.2				29.4				30.2				29.7				30.4				31.3
Medicaid Managed			42.1				40.1				36.7				32.7				33.9				34.8				32.5
Commercial insurance and other			32.4				30.5				31.8				31.5				29.8				30.1				32.1
Weighted average			27.1				27.2				27.4				27.1				26.7				26.9				27.0

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 17

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2013 Quarters																2014 Quarters
		First				Second				Third				Fourth				First				Second				Third
Hospital division data (continued):
Revenues per admission:
Medicare		$	40,051			$	39,004			$	38,993			$	38,869			$	39,482			$	39,559			$	38,088
Medicaid			51,450				48,221				51,934				52,635				50,201				45,392				49,204
Medicare Advantage			44,326				45,709				46,429				49,051				47,739				48,067				48,586
Medicaid Managed			58,770				55,496				52,771				46,112				47,781				48,953				44,406
Commercial insurance and other			67,389				66,306				66,170				69,876				60,679				63,315				70,078
Weighted average			44,939				44,190				44,609				45,006				44,181				44,490				44,353
Revenues per patient day:
Medicare		$	1,632			$	1,569			$	1,571			$	1,587			$	1,623			$	1,618			$	1,577
Medicaid			1,225				1,179				1,296				1,258				1,274				1,264				1,328
Medicare Advantage			1,565				1,565				1,578				1,624				1,608				1,580				1,550
Medicaid Managed			1,395				1,384				1,437				1,411				1,411				1,408				1,367
Commercial insurance and other			2,079				2,171				2,081				2,216				2,034				2,102				2,181
Weighted average			1,661				1,625				1,628				1,659				1,652				1,654				1,642
Medicare case mix index (discharged patients only)			1.18				1.18				1.16				1.16				1.17				1.18				1.16
Average daily census			4,400				4,103				3,966				3,976				4,347				4,200				4,034
Occupancy %			68.3				63.5				61.1				61.4				67.4				64.9				62.3
Annualized employee turnover %			22.1				21.7				21.4				21.3				20.7				20.8				21.5
Nursing center division data:
End of period data:
Number of facilities:
Nursing centers:
Owned or leased			94				94				94				94				94				94				95
Managed			4				4				4				4				4				4				4
Assisted living facilities			6				6				6				6				6				6				6
			104				104				104				104				104				104				105
Number of licensed beds:
Nursing centers:
Owned or leased			11,921				11,921				11,921				11,921				11,921				11,909				11,993
Managed			485				485				485				485				485				485				485
Assisted living facilities			341				341				341				341				341				341				341
			12,747				12,747				12,747				12,747				12,747				12,735				12,819
Revenue mix %:
Medicare			35.0				34.0				33.1				32.1				32.0				31.8				31.1
Medicaid			35.7				36.4				38.8				39.8				40.4				39.7				40.2
Medicare Advantage			8.2				8.3				7.3				7.8				8.6				8.1				8.6
Medicaid Managed			3.4				3.5				3.5				3.5				3.2				3.6				4.5
Private and other			17.7				17.8				17.3				16.8				15.8				16.8				15.6

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 18

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

		2013 Quarters																2014 Quarters
		First				Second				Third				Fourth				First				Second				Third
Nursing center division data (continued):
Patient days (a):
Medicare			167,391				158,780				154,562				148,179				148,957				149,385				144,903
Medicaid			505,962				506,025				515,789				522,071				516,487				506,917				508,368
Medicare Advantage			51,695				51,337				45,338				48,537				54,404				51,355				55,188
Medicaid Managed			52,500				52,532				53,740				53,100				49,857				55,997				70,634
Private and other			163,641				163,167				162,506				159,518				152,807				155,530				147,326
			941,189				931,841				931,935				931,405				922,512				919,184				926,419
Patient day mix % (a):
Medicare			17.8				17.0				16.6				15.9				16.1				16.3				15.6
Medicaid			53.7				54.3				55.3				56.1				56.0				55.1				54.9
Medicare Advantage			5.5				5.5				4.9				5.2				5.9				5.6				6.0
Medicaid Managed			5.6				5.7				5.8				5.7				5.4				6.1				7.6
Private and other			17.4				17.5				17.4				17.1				16.6				16.9				15.9
Revenues per patient day (a):
Medicare Part A		$	528			$	527			$	527			$	542			$	552			$	551			$	551
Total Medicare (including Part B)			565				567				569				586				597				597				599
Medicaid			191				190				200				206				217				220				221
Medicaid (net of provider taxes) (b)			168				168				178				184				195				197				202
Medicare Advantage			427				430				428				435				441				442				436
Medicaid Managed			177				177				175				177				178				180				180
Private and other			292				289				283				284				288				302				296
Weighted average			287				284				285				290				301				305				302
Average daily census (a)			10,458				10,240				10,130				10,124				10,250				10,101				10,070
Admissions (a)			10,806				10,066				9,824				9,842				10,252				10,170				10,221
Occupancy % (a)			83.3				81.5				80.5				80.2				81.2				80.2				79.6
Medicare average length of stay (a)			30.4				31.1				31.8				31.5				29.8				29.7				30.2
Annualized employee turnover %			41.3				44.0				44.3				42.8				39.4				40.7				42.9
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated			11				11				11				12				12				12				12
Non-affiliated			89				89				89				88				88				88				88
Sites of service (at end of period)			1,729				1,713				1,768				1,806				1,851				1,863				1,896
Revenue per site		$	149,653			$	145,736			$	138,762			$	134,707			$	137,361			$	136,333			$	130,296
Therapist productivity %			81.1				80.4				79.8				79.5				80.0				79.8				79.6
Hospital rehabilitation services:
Revenue mix %:
Company-operated			32				33				33				30				31				30				30
Non-affiliated			68				67				67				70				69				70				70
Sites of service (at end of period):
Inpatient rehabilitation units			103				103				99				104				105				104				102
LTAC hospitals			123				123				122				121				121				118				117
Sub-acute units			8				8				7				10				10				9				10
Outpatient units			98				104				104				144				143				143				139
			332				338				332				379				379				374				368
Revenue per site		$	224,466			$	206,441			$	205,711			$	195,296			$	195,157			$	201,400			$	203,284
Annualized employee turnover %			10.4				13.2				14.0				13.7				12.5				14.7				15.7

 

(a)	Excludes managed facilities.

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

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 19

November 5, 2014

 

KINDRED HEALTHCARE, INC.

Earnings (Loss) Per Common Share Reconciliation (a)

(Unaudited)

(In thousands, except per share amounts)

 

		Three months ended September 30,																Nine months ended September 30,
		2014								2013								2014								2013
		Basic				Diluted				Basic				Diluted				Basic				Diluted				Basic				Diluted
Earnings (loss):
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations:
As reported in Statement of Operations		$	1,774			$	1,774			$	(16,603	)		$	(16,603	)		$	(6,662	)		$	(6,662	)		$	7,417			$	7,417
Allocation to participating unvested restricted stockholders			(45	)			(45	)			—				—				—				—				(234	)			(234	)
Available to common stockholders		$	1,729			$	1,729			$	(16,603	)		$	(16,603	)		$	(6,662	)		$	(6,662	)		$	7,183			$	7,183
Discontinued operations, net of income taxes:
Loss from operations:
As reported in Statement of Operations		$	(7,523	)		$	(7,523	)		$	(25,379	)		$	(25,379	)		$	(21,854	)		$	(21,854	)		$	(31,720	)		$	(31,720	)
Allocation to participating unvested restricted stockholders			191				191				—				—				—				—				1,000				1,000
Available to common stockholders		$	(7,332	)		$	(7,332	)		$	(25,379	)		$	(25,379	)		$	(21,854	)		$	(21,854	)		$	(30,720	)		$	(30,720	)
Gain (loss) on divestiture of operations:
As reported in Statement of Operations		$	1,387			$	1,387			$	(65,016	)		$	(65,016	)		$	(3,637	)		$	(3,637	)		$	(77,893	)		$	(77,893	)
Allocation to participating unvested restricted stockholders			(35	)			(35	)			—				—				—				—				2,456				2,455
Available to common stockholders		$	1,352			$	1,352			$	(65,016	)		$	(65,016	)		$	(3,637	)		$	(3,637	)		$	(75,437	)		$	(75,438	)
Loss from discontinued operations:
As reported in Statement of Operations		$	(6,136	)		$	(6,136	)		$	(90,395	)		$	(90,395	)		$	(25,491	)		$	(25,491	)		$	(109,613	)		$	(109,613	)
Allocation to participating unvested restricted stockholders			156				156				—				—				—				—				3,456				3,455
Available to common stockholders		$	(5,980	)		$	(5,980	)		$	(90,395	)		$	(90,395	)		$	(25,491	)		$	(25,491	)		$	(106,157	)		$	(106,158	)
Net loss:
As reported in Statement of Operations		$	(4,362	)		$	(4,362	)		$	(106,998	)		$	(106,998	)		$	(32,153	)		$	(32,153	)		$	(102,196	)		$	(102,196	)
Allocation to participating unvested restricted stockholders			111				111				—				—				—				—				3,222				3,221
Available to common stockholders		$	(4,251	)		$	(4,251	)		$	(106,998	)		$	(106,998	)		$	(32,153	)		$	(32,153	)		$	(98,974	)		$	(98,975	)
Shares used in the computation:
Weighted average shares outstanding -basic computation			62,863				62,863				52,323				52,323				56,443				56,443				52,218				52,218
Dilutive effect of employee stock options							39								—								—								16
Adjusted weighted average shares outstanding -diluted computation							62,902								52,323								56,443								52,234
Earnings (loss) per common share:
Income (loss) from continuing operations		$	0.03			$	0.03			$	(0.31	)		$	(0.31	)		$	(0.12	)		$	(0.12	)		$	0.14			$	0.14
Discontinued operations:
Loss from operations			(0.12	)			(0.12	)			(0.49	)			(0.49	)			(0.39	)			(0.39	)			(0.59	)			(0.59	)
Gain (loss) on divestiture of operations			0.02				0.02				(1.24	)			(1.24	)			(0.06	)			(0.06	)			(1.44	)			(1.44	)
Loss from discontinued operations			(0.10	)			(0.10	)			(1.73	)			(1.73	)			(0.45	)			(0.45	)			(2.03	)			(2.03	)
Net loss		$	(0.07	)		$	(0.07	)		$	(2.04	)		$	(2.04	)		$	(0.57	)		$	(0.57	)		$	(1.89	)		$	(1.89	)

 

(a)

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

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 20

November 5, 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 nine months ended September 30, 2014 and 2013 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 31.2% and 29.6% for the three months ended September 30, 2014 and 2013, respectively, and 36.5% and 33.9% for the nine months ended September 30, 2014 and 2013, respectively. The difference in the effective income tax rate for the three months and nine months ended September 30, 2014 compared to the same prior year periods is attributable to the composition 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 nine months ended September 30, 2014 and 2013 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 September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Detail of charges:
One-time bonus costs		$	—			$	—			$	—			($	19,842	)
Severance, retirement and other restructuring costs			(1,686	)			(1,894	)			(6,636	)			(1,894	)
Customer bankruptcy			(1,857	)			—				(1,857	)			—
Facility closing costs			—				(6,043	)			—				(6,043	)
Litigation costs			—				(23,850	)			(4,600	)			(23,850	)
Debt refinancing charges (other operating expenses)			—				(459	)			—				(459	)
Transaction costs			(4,114	)			(613	)			(9,293	)			(1,665	)
Lease cancellation charges (rent expense)			—				—				(247	)			—
Debt refinancing charges (interest expense)			—				(96	)			(56,643	)			(1,461	)
			(7,657	)			(32,955	)			(79,276	)			(55,214	)
Income tax benefit			2,391				9,767				28,936				18,728
Charges net of income taxes			(5,266	)			(23,188	)			(50,340	)			(36,486	)
Allocation to participating unvested restricted stockholders			133				—				—				1,150
Available to common stockholders		($	5,133	)		($	23,188	)		($	50,340	)		($	35,336	)
Weighted average diluted shares outstanding			62,902				52,323				56,443				52,234
Diluted loss per common share related to charges		($	0.08	)		($	0.44	)		($	0.89	)		($	0.67	)
Reconciliation of operating income (EBITDAR) before charges:
Operating income (EBITDAR) before charges		$	158,270			$	148,245			$	518,156			$	499,124
Detail of charges excluded from core operating results:
One-time bonus costs			—				—				—				(19,842	)
Severance, retirement and other restructuring costs			(1,686	)			(1,894	)			(6,636	)			(1,894	)
Customer bankruptcy			(1,857	)			—				(1,857	)			—
Facility closing costs			—				(6,043	)			—				(6,043	)
Litigation costs			—				(23,850	)			(4,600	)			(23,850	)
Debt refinancing charges (other operating expenses)			—				(459	)			—				(459	)
Transaction costs			(4,114	)			(613	)			(9,293	)			(1,665	)
			(7,657	)			(32,859	)			(22,386	)			(53,753	)
Reported operating income (EBITDAR)		$	150,613			$	115,386			$	495,770			$	445,371
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges		$	7,040			$	6,585			$	43,678			$	43,903
Charges net of income taxes			(5,266	)			(23,188	)			(50,340	)			(36,486	)
Reported income (loss) from continuing operations		$	1,774			($	16,603	)		($	6,662	)		$	7,417
Reconciliation of diluted income per common share from continuing operations before charges:
Diluted income per common share before charges (a)		$	0.11			$	0.12			$	0.75			$	0.81
Charges net of income taxes			(0.08	)			(0.44	)			(0.89	)			(0.67	)
Other			—				0.01				0.02				—
Reported diluted income (loss) per common share from continuing operations		$	0.03			($	0.31	)		($	0.12	)		$	0.14
Weighted average diluted shares used to compute income per common share from continuing operations before charges			62,902				52,333				56,506				52,234
Pro forma diluted income per common share before charges						$	0.10							$	0.77
Weighted average diluted shares used to compute pro forma income per common share from continuing operations before charges (b)							61,954								55,674
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges			32.4	%			30.5	%			36.2	%			38.1	%
Impact of charges on effective income tax rate			1.0	%			-1.3	%			-2.6	%			12.9	%
Reported effective income tax rate			33.4	%			29.2	%			33.6	%			51.0	%

 

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.2 million for both the three months ended September 30, 2014 and 2013, and $1.2 million and $1.4 million for the nine months ended September 30, 2014 and 2013, respectively, for the allocation of income to participating unvested restricted stockholders.

(b)	Includes the incremental 9.7 million shares, on a weighted average basis, issued in connection with the Company’s equity offering completed in June 2014.

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 21

November 5, 2014

 

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

 

		Three months ended September 30, 2014
						Charges
						Severance
		Before				and other				Customer				Transaction								As
		charges				restructuring				bankruptcy				costs				Total				reported
Income from continuing operations:
Operating income (loss):
Hospital division		$	122,361			$	(617	)		$	—			$	—			$	(617	)		$	121,744
Nursing center division			36,662				(483	)			—				—				(483	)			36,179
Rehabilitation division:
Skilled nursing rehabilitation services			17,390				162				—				—				162				17,552
Hospital rehabilitation services			20,130				—				(1,857	)			—				(1,857	)			18,273
			37,520				162				(1,857	)			—				(1,695	)			35,825
Care management division			7,110				(321	)			—				—				(321	)			6,789
Corporate:
Overhead			(44,746	)			(427	)			—				—				(427	)			(45,173	)
Insurance subsidiary			(637	)			—				—				—				—				(637	)
			(45,383	)			(427	)			—				—				(427	)			(45,810	)
Transaction costs			—				—				—				(4,114	)			(4,114	)			(4,114	)
Operating income (EBITDAR)			158,270				(1,686	)			(1,857	)			(4,114	)			(7,657	)			150,613
Rent			(80,192	)			—				—				—				—				(80,192	)
EBITDA			78,078				(1,686	)			(1,857	)			(4,114	)			(7,657	)			70,421
Depreciation and amortization			(39,023	)			—				—				—				—				(39,023	)
Interest, net			(22,173	)			—				—				—				—				(22,173	)
Income from continuing operations before income taxes			16,882				(1,686	)			(1,857	)			(4,114	)			(7,657	)			9,225
Provision for income taxes			5,470				(923	)			(1,017	)			(451	)			(2,391	)			3,079
		$	11,412			$	(763	)		$	(840	)		$	(3,663	)		$	(5,266	)		$	6,146

 

		Three months ended September 30, 2013
						Charges
						Severance
		Before				and				Facility								Debt				Transaction								As
		charges				retirement				closing				Litigation				refinancing				costs				Total				reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division		$	118,710			$	—			$	(5,527	)		$	(700	)		$	—			$	—			$	(6,227	)		$	112,483
Nursing center division			31,569				—				(64	)			—				—				—				(64	)			31,505
Rehabilitation division:
Skilled nursing rehabilitation services			15,941				—				—				(23,150	)			—				—				(23,150	)			(7,209	)
Hospital rehabilitation services			18,503				(288	)			—				—				—				—				(288	)			18,215
			34,444				(288	)			—				(23,150	)			—				—				(23,438	)			11,006
Care management division			2,138				(601	)			(452	)			—				—				—				(1,053	)			1,085
Corporate:
Overhead			(37,693	)			(1,005	)			—				—				(459	)			—				(1,464	)			(39,157	)
Insurance subsidiary			(482	)			—				—				—				—				—				—				(482	)
			(38,175	)			(1,005	)			—				—				(459	)			—				(1,464	)			(39,639	)
Impairment charges			(441	)			—				—				—				—				—				—				(441	)
Transaction costs			—				—				—				—				—				(613	)			(613	)			(613	)
Operating income (EBITDAR)			148,245				(1,894	)			(6,043	)			(23,850	)			(459	)			(613	)			(32,859	)			115,386
Rent			(76,762	)			—				—				—				—				—				—				(76,762	)
EBITDA			71,483				(1,894	)			(6,043	)			(23,850	)			(459	)			(613	)			(32,859	)			38,624
Depreciation and amortization			(36,507	)			—				—				—				—				—				—				(36,507	)
Interest, net			(24,293	)			—				—				—				(96	)			—				(96	)			(24,389	)
Income (loss) from continuing operations before income taxes			10,683				(1,894	)			(6,043	)			(23,850	)			(555	)			(613	)			(32,955	)			(22,272	)
Provision (benefit) for income taxes			3,257				(2,044	)			(5,805	)			(756	)			(599	)			(563	)			(9,767	)			(6,510	)
		$	7,426			$	150			$	(238	)		$	(23,094	)		$	44			$	(50	)		$	(23,188	)		$	(15,762	)

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 22

November 5, 2014

 

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

 

		Nine months ended September 30, 2014
						Charges
						Severance
		Before				and other				Customer								Debt				Transaction								As
		charges				restructuring				bankruptcy				Litigation				refinancing				costs				Total				reported
Income from continuing operations:
Operating income (loss):
Hospital division		$	405,234			$	(617	)		$	—			$	(4,600	)		$	—			$	—			$	(5,217	)		$	400,017
Nursing center division			115,218				(3,688	)			—				—				—				—				(3,688	)			111,530
Rehabilitation division:
Skilled nursing rehabilitation services			55,876				(14	)			—				—				—				—				(14	)			55,862
Hospital rehabilitation services			60,204				(170	)			(1,857	)			—				—				—				(2,027	)			58,177
			116,080				(184	)			(1,857	)			—				—				—				(2,041	)			114,039
Care management division			19,715				(1,164	)			—				—				—				—				(1,164	)			18,551
Corporate:
Overhead			(136,605	)			(983	)			—				—				—				—				(983	)			(137,588	)
Insurance subsidiary			(1,486	)			—				—				—				—				—				—				(1,486	)
			(138,091	)			(983	)			—				—				—				—				(983	)			(139,074	)
Transaction costs			—				—				—				—				—				(9,293	)			(9,293	)			(9,293	)
Operating income (EBITDAR)			518,156				(6,636	)			(1,857	)			(4,600	)			—				(9,293	)			(22,386	)			495,770
Rent			(241,202	)			(247	)			—				—				—				—				(247	)			(241,449	)
EBITDA			276,954				(6,883	)			(1,857	)			(4,600	)			—				(9,293	)			(22,633	)			254,321
Depreciation and amortization			(117,802	)			—				—				—				—				—				—				(117,802	)
Interest, net			(69,227	)			—				—				—				(56,643	)			—				(56,643	)			(125,870	)
Income from continuing operations before income taxes			89,925				(6,883	)			(1,857	)			(4,600	)			(56,643	)			(9,293	)			(79,276	)			10,649
Provision for income taxes			32,518				(2,700	)			(729	)			(1,805	)			(22,222	)			(1,480	)			(28,936	)			3,582
		$	57,407			$	(4,183	)		$	(1,128	)		$	(2,795	)		$	(34,421	)		$	(7,813	)		$	(50,340	)		$	7,067

 

		Nine months ended September 30, 2013
						Charges
										Severance
		Before				One-time				and				Facility								Debt				Transaction								As
		charges				bonus				retirement				closing				Litigation				refinancing				costs				Total				reported
Income from continuing operations:
Operating income (loss):
Hospital division		$	403,332			$	(7,763	)		$	—			$	(5,527	)		$	(700	)		$	—			$	—			$	(13,990	)		$	389,342
Nursing center division			101,356				(4,624	)			—				(64	)			—				—				—				(4,688	)			96,668
Rehabilitation division:
Skilled nursing rehabilitation services			55,855				(5,052	)			—				—				(23,150	)			—				—				(28,202	)			27,653
Hospital rehabilitation services			57,463				(1,255	)			(288	)			—				—				—				—				(1,543	)			55,920
			113,318				(6,307	)			(288	)			—				(23,150	)			—				—				(29,745	)			83,573
Care management division			9,718				(833	)			(601	)			(452	)			—				—				—				(1,886	)			7,832
Corporate:
Overhead			(126,159	)			(315	)			(1,005	)			—				—				(459	)			—				(1,779	)			(127,938	)
Insurance subsidiary			(1,375	)			—				—				—				—				—				—				—				(1,375	)
			(127,534	)			(315	)			(1,005	)			—				—				(459	)			—				(1,779	)			(129,313	)
Impairment charges			(1,066	)			—				—				—				—				—				—				—				(1,066	)
Transaction costs			—				—				—				—				—				—				(1,665	)			(1,665	)			(1,665	)
Operating income (EBITDAR)			499,124				(19,842	)			(1,894	)			(6,043	)			(23,850	)			(459	)			(1,665	)			(53,753	)			445,371
Rent			(230,605	)			—				—				—				—				—								—				(230,605	)
EBITDA			268,519				(19,842	)			(1,894	)			(6,043	)			(23,850	)			(459	)			(1,665	)			(53,753	)			214,766
Depreciation and amortization			(116,659	)			—				—				—				—				—				—				—				(116,659	)
Interest, net			(78,602	)			—				—				—				—				(1,461	)			—				(1,461	)			(80,063	)
Income from continuing operations before income taxes			73,258				(19,842	)			(1,894	)			(6,043	)			(23,850	)			(1,920	)			(1,665	)			(55,214	)			18,044
Provision for income taxes			27,931				(11,869	)			(1,133	)			(3,218	)			(419	)			(1,148	)			(941	)			(18,728	)			9,203
		$	45,327			$	(7,973	)		$	(761	)		$	(2,825	)		$	(23,431	)		$	(772	)		$	(724	)		$	(36,486	)		$	8,841

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 23

November 5, 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 21.7% and 24.8% for the three months ended September 30, 2014 and 2013, respectively, and 30.3% and 34.1% for the nine months ended September 30, 2014 and 2013, respectively. The difference in the effective income tax rate for the three months and nine months ended September 30, 2014 compared to the same prior periods is attributable to the composition of excludable payments that are non-deductible for income tax purposes.

 

		Three months ended September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Reconciliation of net cash flows provided by operating activities to free cash flows:
Net cash flows provided by operating activities		$	90,039			$	110,750			$	24,322			$	189,217
Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows provided by operating activities:
Litigation			—				—				25,850				—
One-time employee bonus			—				—				—				26,345
Capitalized lender fees related to debt refinancing			—				4,589				19,125				6,189
Other debt refinancing costs (expensed)			—				—				40,373				—
Severance, retirement and retention			1,271				1,181				6,649				4,789
Transaction costs			4,565				6,362				8,741				8,550
			5,836				12,132				100,738				45,873
Benefit of reduced income tax payments resulting from certain payments			(1,269	)			(3,013	)			(30,477	)			(15,649	)
			4,567				9,119				70,261				30,224
Net cash flows provided by operating activities excluding certain items			94,606				119,869				94,583				219,441
Less:
Routine capital expenditures			(21,263	)			(23,152	)			(67,425	)			(62,952	)
Development capital expenditures			(1,570	)			(3,235	)			(2,693	)			(10,709	)
			(22,833	)			(26,387	)			(70,118	)			(73,661	)
Free cash flows excluding certain items		$	71,773			$	93,482			$	24,465			$	145,780

 

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Kindred Healthcare Announces Third Quarter 2014 Results

Page 24

November 5, 2014

 

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In millions, except per share amounts)

 

		As of November 5, 2014								As of August 6, 2014
		Low				High				Low				High
Revenues		$	5,100			$	5,100			$	5,100			$	5,100
Operating income (EBITDAR)		$	692			$	702			$	707			$	724
Rent			322				322				330				330
EBITDA			370				380				377				394
Depreciation and amortization			157				157				161				161
Interest, net			92				92				98				98
Income from continuing operations before income taxes			121				131				118				135
Provision for income taxes			44				48				45				52
Income from continuing operations			77				83				73				83
Earnings attributable to noncontrolling interests			(18	)			(18	)			(15	)			(15	)
Income from continuing operations attributable to the Company			59				65				58				68
Allocation to participating unvested restricted stockholders			(2	)			(2	)			(2	)			(2	)
Available to common stockholders		$	57			$	63			$	56			$	66
Earnings per diluted share		$	0.98			$	1.08			$	0.96			$	1.14
Shares used in computing earnings per diluted share			58.3				58.3				58.3				58.3

 

		As of November 5, 2014
		Low				High
Various non-cash expenses included in earnings guidance above:
Amortization of stock-based compensation		$	13			$	13
Amortization of deferred financing fees			8				8
Straight-line rent expense			9				9

 

(a)

The earnings guidance excludes the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, customer bankruptcy costs, litigation costs, transaction costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock, debt or mandatory convertible equity securities in conjunction with the Gentiva transaction and any repurchases of common stock.

 

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