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Kindred Healthcare Announces Fourth Quarter 2014 Results

February 26, 2015

Core Diluted EPS from Continuing Operations of $0.26(1) in the Fourth Quarter and $1.06(1) for the Year

GAAP Loss Per Share from Continuing Operations of $0.15 for the Fourth Quarter and $0.24 for the Year

Concludes Solid Year with 6% Growth in Consolidated Revenues and 9% Growth in Core Operating Income for the Fourth Quarter and 5% Growth in both Consolidated Revenues and Core Operating Income for the Year

----------------------

Successfully Completed Acquisitions of Gentiva Health Services and Centerre Healthcare in First Quarter 2015

Gentiva Reports Revenues of $509 million and Adjusted EBITDA of $52 million(1) for the Fourth Quarter and Revenues of $2 billion and Adjusted EBITDA of $194 million(1) for the Year

----------------------

Announces Preliminary 2015 Core EPS Estimates of $1.20 to $1.40 Per Diluted Share

LOUISVILLE, Ky.--(BUSINESS WIRE)--Feb. 26, 2015-- Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 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.

Fourth Quarter Highlights:

  • Consolidated revenues increased 6% and core operating income increased 9% from the same period last year primarily resulting from improved volumes and solid cost controls across the organization and growth from acquisitions
  • Hospital division reported strong results with 3% same-store admissions growth and flat core operating costs per patient day
  • RehabCare division continues to deliver strong results including core operating income growth of 7% and core operating margin improvement to 10.9% from 10.5% compared to the fourth quarter last year
  • Care Management division (Kindred at Home) delivered 31% revenue growth compared to the same period last year and core operating margins increased to 9.1% from 3.3% in the fourth quarter of 2013
  • Nursing Center division core operating income increased 15% primarily due to growth in revenues and its core operating margins improved to 14.3% due to improved rates and ongoing repositioning initiatives
  • Core operating cash flows were $93 million compared to $24 million a year ago; core free cash flows were $67 million compared to a core free cash flow deficit of $15 million in the fourth quarter of 2013
  • On February 2, 2015, Kindred completed its acquisition of Gentiva Health Services, Inc. (“Gentiva”) and on January 1, 2015 Kindred completed its acquisition of Centerre Healthcare Corporation (“Centerre”)
  • Board of Directors declared regular quarterly cash dividend of $0.12 per share on its common stock payable on April 1, 2015

(1) See reconciliation of core and adjusted results to generally accepted accounting principles (“GAAP”) results for Kindred beginning on page 16 and for Gentiva on page 21.

Kindred Fourth Quarter Results

Consolidated revenues for the fourth quarter ended December 31, 2014 increased 6% to $1.26 billion compared to $1.19 billion during the same period of 2013, primarily due to improved hospital volumes, strong performance in the Care Management division’s operations and growth from acquisitions. Kindred reported a loss from continuing operations for the fourth quarter of 2014 of $9.9 million or $0.15 per diluted share compared to a loss of $52.8 million or $1.01 per diluted share in the fourth quarter of 2013. Fourth quarter 2014 operating results included pretax charges of $40.1 million ($26.8 million net of income taxes) or $0.41 per diluted share related to pre-closing financing for the Gentiva acquisition, transaction, consulting, and severance and retirement costs. The fourth quarter of 2013 included an asset impairment charge, changes in estimate related to pending litigation, severance and retirement costs, costs associated with the closing of a transitional care hospital, transaction costs and an increase in the estimated income tax benefit associated with pending litigation, which the pretax charges totaled $87.7 million ($62.5 million net of income taxes) or $1.19 per diluted share.

During the fourth quarter of 2014, the Company announced that it entered into an agreement with Ventas, Inc. (“Ventas”) (NYSE:VTR) to transfer the operations under the leases for nine non-strategic nursing centers. Kindred has reclassified the operations of these nine nursing centers to discontinued operations for all periods presented.

Kindred Fiscal Year Results

Consolidated revenues for the year ended December 31, 2014 increased 5% to $5.03 billion compared to $4.78 billion in the previous year. The Company reported a loss from continuing operations of $14.0 million or $0.24 per share in 2014 compared to a loss of $44.5 million or $0.85 per share in 2013. In addition to the charges discussed in the fourth quarter results above, operating results for the year ended December 31, 2014 included pretax charges related to restructuring, litigation, debt refinancing and a customer bankruptcy that in aggregate reduced operating results by $119.4 million ($77.2 million net of income taxes) or $1.32 per diluted share. Operating results for the year ended December 31, 2013 included pretax charges of $142.6 million ($98.9 million net of income taxes) or $1.89 per diluted share.

Gentiva Fourth Quarter and Fiscal Year Results

Gentiva consolidated revenues for the fourth quarter of 2014 increased 5% to $509 million compared to $486 million during the same period in 2013. Earnings before interest, income taxes, depreciation, amortization and certain charges (“Adjusted EBITDA”) for the fourth quarter of 2014 increased to $52 million from $22 million a year ago. Gentiva consolidated revenues for the year ended December 31, 2014 increased 15% to $1.99 billion compared to $1.73 billion during the same period in 2013. Adjusted EBITDA for the year ended December 31, 2014 increased to $194 million from $135 million a year ago. The annual audit of Gentiva’s 2014 results is currently in process. See page 21 for a reconciliation of Adjusted EBITDA results for Gentiva to GAAP results.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, commented, “After spending the past several years repositioning the Company through a difficult reimbursement environment, I am incredibly pleased with the strides we made in 2014 to strengthen our business and solidify Kindred’s position as a national leader in post-acute care. Looking forward, Kindred is well positioned to help shape the future of American healthcare and actively participate in the important shift to value-based payment systems and coordinated care. We began 2015 with the successful completion of the Gentiva and Centerre acquisitions, and advanced our Mission of making recovery and a return to home possible for more than a million patients per year. These acquisitions significantly improved the growth, margin and cash flow profile of the Company, and significantly expanded our capitalization and the liquidity of our stock.”

Mr. Diaz continued, “We are also very pleased with Gentiva’s strong results in the fourth quarter and for the full year of 2014, which reaffirms our confidence in the combination. We are entering the year with significant momentum and believe that Kindred is poised for continued long-term success as the nation’s largest operator of long-term acute care hospitals, inpatient rehabilitation facilities, contract rehabilitation, home health and hospice services and one of the leading sub-acute and skilled nursing providers. Today, we are pleased to announce our preliminary financial estimates for 2015 for the combined Company, which underscores our commitment to continued growth and enhanced profitability.”

Benjamin A. Breier, President of the Company, said, “Our patient-centered approach to care and the successful steps we have taken to expand each of our divisions are driving significant growth and value creation for our Company. Kindred’s momentum is further supported by our unique ability to place patients appropriately, transfer patients effectively, and deliver on our promise of quality and value. We are executing on our strategy as we grow the core business, further develop our Integrated Care Markets and care management capabilities, and strengthen our balance sheet.”

Stephen D. Farber, Executive Vice President, Chief Financial Officer, commented, “We are very excited that Kindred, Gentiva and Centerre each completed 2014 with momentum, and that our integration of these acquisitions is ahead of schedule. We remain highly confident that we will meet our synergy goal to realize $35 million of contribution to 2015 performance, and that our improved cash flow and growth profile will support a strong balance sheet and allow us to simultaneously deleverage while continuing to invest in our business and provide meaningful dividends to shareholders.”

2015 Preliminary Financial Estimates

Kindred today announced preliminary financial estimates for 2015 that includes Gentiva for eleven months and Centerre for the full year. These estimates are prior to completion of transaction accounting for the acquisitions of Gentiva and Centerre and are subject to adjustment when, as previously announced, the Company provides 2015 guidance in conjunction with first quarter 2015 results.

Kindred preliminarily estimates 2015 annual revenues of approximately $7.2 billion to $7.3 billion, core operating income (or earnings before interest, income taxes, depreciation, amortization and rent, “EBITDAR”) of approximately $1.00 billion to $1.05 billion (including $35 million of contribution from Gentiva synergies assumed to be realized in the year), and core earnings of $1.20 to $1.40 per diluted share. The earnings per share estimate is based upon an estimated weighted average annual diluted share count for 2015 of roughly 86 million to 87 million shares. Please note that, given the mid-quarter timing of the Gentiva transaction, the estimated weighted average share count for the first quarter of 2015 approximates 84 million diluted shares.

Beginning with 2015, in addition to GAAP earnings per diluted share and core earnings per diluted share, Kindred will report adjusted core earnings per diluted share, which is calculated by excluding non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs, net of income tax benefit, from core income from continuing operations. We believe this additional performance measure may be useful for investors and analysts, especially for comparability purposes as more public companies adopt similar measures. For 2014, these non-cash expenses, on a core basis, totaled $44.4 million ($26.9 million net of income taxes) or $0.45 per diluted share, resulting in $1.51 of adjusted core earnings per diluted share. The 2015 preliminary financial estimates provided above include an estimated $73 million of such non-cash expenses ($44 million net of income taxes), or roughly $0.50 per diluted share, and on such basis Kindred preliminarily estimates $1.70 to $1.90 of adjusted core earnings per diluted share for 2015.

These preliminary financial estimates exclude transaction costs, pre-closing financing and integration costs associated with the acquisitions of Gentiva and Centerre, the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, litigation costs, other transaction costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock or any repurchases of common stock.

Quarterly Cash Dividend

The Company announced that its Board of Directors has approved the payment of the regular quarterly cash dividend of $0.12 per share of common stock to be paid on April 1, 2015 to shareholders of record as of the close of business on March 11, 2015.

Conference Call

As previously announced, investors and the general public may access a live webcast of the fourth quarter 2014 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on February 27 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on February 27 by dialing (719) 457-0820, access code: 5860683. The replay will be available through March 10.

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 acquisitions of Gentiva and Centerre (including the benefits, results and effects of such acquisitions), all statements regarding the Company’s 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, are forward-looking statements. Statements in this press release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends or other financial items, and product or services line growth, together with other statements that are not historical facts, are forward-looking statements that are estimates reflecting the best judgment of the Company based upon currently available information.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance or plans 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.

Risks and uncertainties related to the Company’s acquisitions of Gentiva and Centerre include, but are not limited to, uncertainties as to whether the acquisitions will have the accretive effect on the Company’s earnings or cash flows that it expects, the inability to obtain, or delays in obtaining, cost savings and synergies from the acquisitions, costs and difficulties related to the integration of Gentiva’s and Centerre’s businesses and operations with the Company’s businesses and operations, unexpected costs, liabilities, charges or expenses resulting from the acquisitions, adverse effects on the Company’s stock price resulting from the acquisitions, the inability to retain key personnel, and potential adverse reactions, changes to business relationships or competitive responses resulting from the acquisitions.

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, Quarterly Reports on Form 10-Q and Current Reports on Form 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 release to compute certain non-GAAP measurements for the three months and year ended December 31, 2014 and 2013 before certain charges or on a core and adjusted core basis. The use of these non-GAAP measures 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 that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a useful performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures. 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. Operating results presented on a core and adjusted core basis and EBITDAR or EBITDA 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. Reconciliations of the non-GAAP measurements to the GAAP measurements are included in this press release.

The results for Gentiva for the three months and year ended December 31, 2014 and 2013 enclosed in this release include the non-GAAP measurement Adjusted EBITDA. Adjusted EBITDA is defined as income before interest expense and other (net of interest income), income taxes, depreciation and amortization and excluding charges relating to (i) cost savings initiatives and acquisition and integration activities, (ii) impact of closed and consolidated locations, (iii) goodwill, intangibles and other long-lived asset impairments and (iv) impact of merger related expenses. Gentiva used Adjusted EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. Adjusted EBITDA should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with GAAP. Because Adjusted EBITDA is not a measurement of financial performance under GAAP and is susceptible to varying calculations, it may not be comparable to similarly titled measures of other companies.

Also in this press release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items. The Company recognizes that operating cash flows and free cash flows excluding certain items are non-GAAP measurements and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide 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 operating cash flows and 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. Operating cash flows and 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. Reconciliations of net cash flows provided by operating activities to operating cash flows and free cash flows excluding certain items are included in this press release.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-85 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $7.2 billion2. At December 31, 2014, on a pro forma basis to include Gentiva and Centerre, Kindred through its subsidiaries had approximately 103,000 employees providing healthcare services in 2,872 locations in 47 states, including 97 transitional care hospitals, 16 inpatient rehabilitation hospitals, 90 nursing centers, 22 sub-acute units, 634 Kindred at Home hospice, home health and non-medical home care locations, 100 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,913 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for six years, 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.

2 Revenues were computed by combining the twelve months ended December 31, 2014 data for Kindred, Gentiva and Centerre.

 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
               
Three months ended Year ended
December 31, December 31,
2014 2013 2014 2013
 
Revenues $ 1,264,674   $ 1,194,890   $ 5,027,599   $ 4,775,235  
 
Salaries, wages and benefits 616,277 594,340 2,442,879 2,364,138
Supplies 73,774 70,041 289,043 286,266
Rent 79,167 78,398 313,039 302,192
Other operating expenses 168,206 160,630 679,992 633,906
General and administrative expenses 259,702 225,210 977,823 906,620
Other income (278 ) (487 ) (872 ) (861 )
Impairment charges - 76,127 - 77,193
Depreciation and amortization 38,558 37,318 155,570 152,945
Interest expense 39,919 25,151 168,763 108,008
Investment income   (1,021 )   (1,253 )   (3,996 )   (4,046 )
  1,274,304     1,265,475     5,022,241     4,826,361  
Income (loss) from continuing operations before income taxes (9,630 ) (70,585 ) 5,358 (51,126 )
Provision (benefit) for income taxes   (4,827 )   (20,251 )   462     (10,493 )
Income (loss) from continuing operations (4,803 ) (50,334 ) 4,896 (40,633 )
Discontinued operations, net of income taxes:
Loss from operations (28,743 ) (7,563 ) (53,630 ) (40,315 )
Loss on divestiture of operations   (9,061 )   (5,994 )   (12,698 )   (83,887 )
Loss from discontinued operations   (37,804 )   (13,557 )   (66,328 )   (124,202 )
Net loss (42,607 ) (63,891 ) (61,432 ) (164,835 )
(Earnings) loss attributable to noncontrolling interests:
Continuing operations (5,143 ) (2,466 ) (18,872 ) (3,890 )
Discontinued operations   66     61     467     233  
  (5,077 )   (2,405 )   (18,405 )   (3,657 )
Loss attributable to Kindred $ (47,684 ) $ (66,296 ) $ (79,837 ) $ (168,492 )
 
Amounts attributable to Kindred stockholders:
Loss from continuing operations $ (9,946 ) $ (52,800 ) $ (13,976 ) $ (44,523 )
Loss from discontinued operations   (37,738 )   (13,496 )   (65,861 )   (123,969 )
Net loss $ (47,684 ) $ (66,296 ) $ (79,837 ) $ (168,492 )
 
Loss per common share:
Basic:
Loss from continuing operations $ (0.15 ) $ (1.01 ) $ (0.24 ) $ (0.85 )
Discontinued operations:
Loss from operations (0.44 ) (0.15 ) (0.91 ) (0.77 )
Loss on divestiture of operations   (0.14 )   (0.11 )   (0.21 )   (1.61 )
Loss from discontinued operations   (0.58 )   (0.26 )   (1.12 )   (2.38 )
Net loss $ (0.73 ) $ (1.27 ) $ (1.36 ) $ (3.23 )
 
Diluted:
Loss from continuing operations $ (0.15 ) $ (1.01 ) $ (0.24 ) $ (0.85 )
Discontinued operations:
Loss from operations (0.44 ) (0.15 ) (0.91 ) (0.77 )
Loss on divestiture of operations   (0.14 )   (0.11 )   (0.21 )   (1.61 )
Loss from discontinued operations   (0.58 )   (0.26 )   (1.12 )   (2.38 )
Net loss $ (0.73 ) $ (1.27 ) $ (1.36 ) $ (3.23 )
 
Shares used in computing loss per common share:
Basic 65,135 52,344 58,634 52,249
Diluted 65,135 52,344 58,634 52,249
 
Cash dividends declared and paid per common share $ 0.12 $ 0.12 $ 0.48 $ 0.24
 
       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(In thousands, except per share amounts)
 
December 31, December 31,
2014 2013
ASSETS
Current assets:
Cash and cash equivalents $ 164,188 $ 35,972
Cash - restricted 2,293 3,713
Insurance subsidiary investments 99,951 96,295
Accounts receivable less allowance for loss 944,219 916,529
Inventories 25,702 25,780
Deferred tax assets 82,391 37,920
Income taxes 8,575 36,846
Interest deposit on senior unsecured notes due 2020 and 2023 held in escrow 23,438 -
Other   39,305     43,673  
1,390,062 1,196,728
 
Property and equipment 1,978,153 1,906,366
Accumulated depreciation   (1,076,049 )   (979,791 )
902,104 926,575
 
Goodwill 997,597 992,102
Intangible assets less accumulated amortization 400,700 423,303
Assets held for sale 3,475 20,978
Insurance subsidiary investments 166,045 149,094
Deferred tax assets 11,174 17,043
Proceeds from senior unsecured notes due 2020 and 2023 held in escrow 1,350,000 -
Acquisition deposit 195,000 -
Other   236,807     220,046  
Total assets $ 5,652,964   $ 3,945,869  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 175,725 $ 181,772
Salaries, wages and other compensation 358,857 361,192
Due to third party payors 43,957 33,747
Professional liability risks 64,137 60,993
Other accrued liabilities 189,980 146,495
Long-term debt due within one year   24,607     8,222  
857,263 792,421
 
Long-term debt - senior unsecured notes due 2020 and 2023 1,350,000 -
Long-term debt - other 1,502,531 1,579,391
Professional liability risks 243,614 246,230
Deferred credits and other liabilities 213,584 206,611
 
Equity:

Stockholders’ equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 69,977 shares - December 31, 2014 and 54,165 shares - December 31, 2013

17,494 13,541
Capital in excess of par value 1,586,692 1,146,193
Accumulated other comprehensive loss (2,551 ) (252 )
Accumulated deficit   (159,768 )   (76,825 )
1,441,867 1,082,657
Noncontrolling interests   44,105     38,559  
Total equity   1,485,972     1,121,216  
Total liabilities and equity $ 5,652,964   $ 3,945,869  
 
               
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
 
Three months ended Year ended
December 31, December 31,
2014 2013 2014 2013
Cash flows from operating activities:
Net loss $ (42,607 ) $ (63,891 ) $ (61,432 ) $ (164,835 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 39,145 39,644 160,950 182,389
Amortization of stock-based compensation costs 6,986 3,542 16,643 11,183
Amortization of deferred financing costs 2,077 2,376 23,288 11,905
Payment of capitalized lender fees related to debt issuance (3,527 ) - (22,652 ) (6,189 )
Provision for doubtful accounts 6,215 10,151 41,803 44,640
Deferred income taxes (24,341 ) (13,665 ) (35,615 ) (36,650 )
Impairment charges - 77,748 673 87,825
Loss on divestiture of discontinued operations 9,061 5,994 12,698 83,887
Other 47 (1,151 ) 2,336 4,301
Change in operating assets and liabilities:
Accounts receivable 28,125 25,526 (74,378 ) 52,271
Inventories and other assets (13,074 ) 4,195 (25,960 ) 4,262
Accounts payable 13,070 9,884 (9,399 ) (22,095 )
Income taxes 12,959 (11,763 ) 31,728 (17,032 )
Due to third party payors (3,363 ) (18,387 ) 11,177 (1,671 )
Other accrued liabilities   50,376     (60,008 )   33,611     (34,779 )
Net cash provided by operating activities   81,149     10,195     105,471     199,412  
 
Cash flows from investing activities:
Routine capital expenditures (23,656 ) (37,956 ) (91,081 ) (100,908 )
Development capital expenditures (2,564 ) (1,115 ) (5,257 ) (11,824 )
Acquisitions, net of cash acquired - (185,213 ) (24,136 ) (224,319 )
Acquisition deposit (195,000 ) 14,675 (195,000 ) -
Sale of assets 952 1,906 23,861 250,606
Proceeds from senior unsecured notes offering held in escrow (1,350,000 ) - (1,350,000 ) -
Interest in escrow for senior unsecured notes due 2020 and 2023 (23,438 ) - (23,438 ) -
Purchase of insurance subsidiary investments (7,930 ) (15,767 ) (105,324 ) (46,127 )
Sale of insurance subsidiary investments 16,749 14,527 51,716 49,954
Net change in insurance subsidiary cash and cash equivalents (20,689 ) 217 33,683 (44,077 )
Change in other investments 379 (96 ) 1,406 122
Other   1,216     518     679     376  
Net cash used in investing activities   (1,603,981 )   (208,304 )   (1,682,891 )   (126,197 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 83,000 575,500 1,551,515 1,675,800
Repayment of borrowings under revolving credit (83,000 ) (376,800 ) (1,807,615 ) (1,740,400 )
Proceeds from issuance of senior unsecured notes due 2022 - - 500,000 -
Proceeds from issuance of senior unsecured notes due 2020 and 2023 1,350,000 - 1,350,000 -
Proceeds from issuance of term loan, net of discount - - 997,500 -
Proceeds from issuance of debt component of tangible equity units 34,773 - 34,773 -
Repayment of senior unsecured notes - - (550,000 ) -
Repayment of term loan (2,500 ) (1,968 ) (788,563 ) (5,937 )
Repayment of other long-term debt (58 ) (90 ) (273 ) (939 )
Payment of deferred financing costs (279 ) (326 ) (3,431 ) (1,666 )
Equity offering, net of offering costs 101,615 - 321,968 -
Issuance of equity component of tangible equity units, net of issuance costs 133,336 - 133,336 -
Issuance of common stock in connection with employee benefit plans 26 32 6,243 461
Dividends paid (7,754 ) (6,502 ) (28,594 ) (13,001 )
Distributions to noncontrolling interests (4,088 ) (423 ) (13,692 ) (2,051 )
Other   165     79     2,469     483  
Net cash provided by (used in) financing activities   1,605,236     189,502     1,705,636     (87,250 )
Change in cash and cash equivalents 82,404 (8,607 ) 128,216 (14,035 )
Cash and cash equivalents at beginning of period   81,784     44,579     35,972     50,007  
Cash and cash equivalents at end of period $ 164,188   $ 35,972   $ 164,188   $ 35,972  
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
                                       
2013 Quarters 2014 Quarters
First Second Third Fourth Year First Second Third Fourth Year
 
Revenues $ 1,243,740   $ 1,175,915   $ 1,160,690   $ 1,194,890   $ 4,775,235   $ 1,272,610   $ 1,261,397   $ 1,228,918   $ 1,264,674   $ 5,027,599  
 
Salaries, wages and benefits 618,091 575,368 576,339 594,340 2,364,138 618,694 606,095 601,813 616,277 2,442,879
Supplies 74,277 71,441 70,507 70,041 286,266 72,965 71,585 70,719 73,774 289,043
Rent 74,259 75,040 74,495 78,398 302,192 78,530 77,699 77,643 79,167 313,039
Other operating expenses 157,309 158,416 157,551 160,630 633,906 169,530 172,674 169,582 168,206 679,992
General and administrative expenses 232,928 206,306 242,176 225,210 906,620 231,272 249,346 237,503 259,702 977,823
Other (income) expense (355 ) (120 ) 101 (487 ) (861 ) (212 ) (122 ) (260 ) (278 ) (872 )
Impairment charges 187 438 441 76,127 77,193 - - - - -
Depreciation and amortization 41,089 38,241 36,297 37,318 152,945 39,092 39,172 38,748 38,558 155,570
Interest expense 28,159 29,074 25,624 25,151 108,008 25,799 80,530 22,515 39,919 168,763
Investment income   (85 )   (1,473 )   (1,235 )   (1,253 )   (4,046 )   (182 )   (2,449 )   (344 )   (1,021 )   (3,996 )
  1,225,859     1,152,731     1,182,296     1,265,475     4,826,361     1,235,488     1,294,530     1,217,919     1,274,304     5,022,241  

Income (loss) from continuing operations before income taxes

17,881 23,184 (21,606 ) (70,585 ) (51,126 ) 37,122 (33,133 ) 10,999 (9,630 ) 5,358
Provision (benefit) for income taxes   6,702     9,305     (6,249 )   (20,251 )   (10,493 )   14,195     (12,683 )   3,777     (4,827 )   462  
Income (loss) from continuing operations 11,179 13,879 (15,357 ) (50,334 ) (40,633 ) 22,927 (20,450 ) 7,222 (4,803 ) 4,896
Discontinued operations, net of income taxes:
Loss from operations (5,681 ) (1,200 ) (25,871 ) (7,563 ) (40,315 ) (7,442 ) (8,768 ) (8,677 ) (28,743 ) (53,630 )
Gain (loss) on divestiture of operations   (2,025 )   (10,852 )   (65,016 )   (5,994 )   (83,887 )   (3,006 )   (2,018 )   1,387     (9,061 )   (12,698 )
Loss from discontinued operations   (7,706 )   (12,052 )   (90,887 )   (13,557 )   (124,202 )   (10,448 )   (10,786 )   (7,290 )   (37,804 )   (66,328 )
Net income (loss) 3,473 1,827 (106,244 ) (63,891 ) (164,835 ) 12,479 (31,236 ) (68 ) (42,607 ) (61,432 )
(Earnings) loss attributable to noncontrolling interests:
Continuing operations (467 ) (116 ) (841 ) (2,466 ) (3,890 ) (4,529 ) (4,828 ) (4,372 ) (5,143 ) (18,872 )
Discontinued operations   51     34     87     61     233     70     253     78     66     467  
  (416 )   (82 )   (754 )   (2,405 )   (3,657 )   (4,459 )   (4,575 )   (4,294 )   (5,077 )   (18,405 )
Income (loss) attributable to Kindred $ 3,057   $ 1,745   $ (106,998 ) $ (66,296 ) $ (168,492 ) $ 8,020   $ (35,811 ) $ (4,362 ) $ (47,684 ) $ (79,837 )
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 10,712 $ 13,763 $ (16,198 ) $ (52,800 ) $ (44,523 ) $ 18,398 $ (25,278 ) $ 2,850 $ (9,946 ) $ (13,976 )
Loss from discontinued operations   (7,655 )   (12,018 )   (90,800 )   (13,496 )   (123,969 )   (10,378 )   (10,533 )   (7,212 )   (37,738 )   (65,861 )
Net income (loss) $ 3,057   $ 1,745   $ (106,998 ) $ (66,296 ) $ (168,492 ) $ 8,020   $ (35,811 ) $ (4,362 ) $ (47,684 ) $ (79,837 )
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.20 $ 0.25 $ (0.31 ) $ (1.01 ) $ (0.85 ) $ 0.34 $ (0.47 ) $ 0.04 $ (0.15 ) $ (0.24 )
Discontinued operations:
Loss from operations (0.10 ) (0.02 ) (0.49 ) (0.15 ) (0.77 ) (0.13 ) (0.16 ) (0.13 ) (0.44 ) (0.91 )
Gain (loss) on divestiture of operations   (0.04 )   (0.20 )   (1.24 )   (0.11 )   (1.61 )   (0.06 )   (0.04 )   0.02     (0.14 )   (0.21 )
Loss from discontinued operations   (0.14 )   (0.22 )   (1.73 )   (0.26 )   (2.38 )   (0.19 )   (0.20 )   (0.11 )   (0.58 )   (1.12 )
Net income (loss) $ 0.06   $ 0.03   $ (2.04 ) $ (1.27 ) $ (3.23 ) $ 0.15   $ (0.67 ) $ (0.07 ) $ (0.73 ) $ (1.36 )
 
Diluted:
Income (loss) from continuing operations $ 0.20 $ 0.25 $ (0.31 ) $ (1.01 ) $ (0.85 ) $ 0.34 $ (0.47 ) $ 0.04 $ (0.15 ) $ (0.24 )
Discontinued operations:
Loss from operations (0.10 ) (0.02 ) (0.49 ) (0.15 ) (0.77 ) (0.13 ) (0.16 ) (0.13 ) (0.44 ) (0.91 )
Gain (loss) on divestiture of operations   (0.04 )   (0.20 )   (1.24 )   (0.11 )   (1.61 )   (0.06 )   (0.04 )   0.02     (0.14 )   (0.21 )
Loss from discontinued operations   (0.14 )   (0.22 )   (1.73 )   (0.26 )   (2.38 )   (0.19 )   (0.20 )   (0.11 )   (0.58 )   (1.12 )
Net income (loss) $ 0.06   $ 0.03   $ (2.04 ) $ (1.27 ) $ (3.23 ) $ 0.15   $ (0.67 ) $ (0.07 ) $ (0.73 ) $ (1.36 )
 
Shares used in computing earnings (loss) per common share:
Basic 52,062 52,265 52,323 52,344 52,249 52,641 53,714 62,863 65,135 58,634
Diluted 52,083 52,284 52,323 52,344 52,249 52,711 53,714 62,902 65,135 58,634
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(In thousands)
                                       
2013 Quarters 2014 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Revenues:
Hospital division $ 657,814 $ 606,604 $ 594,154 $ 606,988 $ 2,465,560 $ 646,458 $ 632,156 $ 609,452 $ 637,008 $ 2,525,074
 
Nursing center division 253,209 248,444 249,702 254,028 1,005,383 262,590 264,437 263,897 271,625 1,062,549
 
Rehabilitation division:
Skilled nursing rehabilitation services 258,460 249,372 245,046 243,029 995,907 253,943 253,694 246,732 252,667 1,007,036
Hospital rehabilitation services   74,523     69,777     68,296     74,017     286,613     73,964     75,324     74,808     75,099     299,195  
  332,983     319,149     313,342     317,046     1,282,520     327,907     329,018     321,540     327,766     1,306,231  
 
Care management division   51,621     53,039     53,801     66,466     224,927     87,704     87,986     86,186     87,126     349,002  
1,295,627 1,227,236 1,210,999 1,244,528 4,978,390 1,324,659 1,313,597 1,281,075 1,323,525 5,242,856
 
Eliminations:
Skilled nursing rehabilitation services (27,065 ) (27,097 ) (26,628 ) (26,640 ) (107,430 ) (28,154 ) (28,485 ) (29,209 ) (34,960 ) (120,808 )
Hospital rehabilitation services (23,609 ) (23,223 ) (22,520 ) (22,123 ) (91,475 ) (23,233 ) (22,855 ) (22,172 ) (22,972 ) (91,232 )
Nursing centers   (1,213 )   (1,001 )   (1,161 )   (875 )   (4,250 )   (662 )   (860 )   (776 )   (919 )   (3,217 )
  (51,887 )   (51,321 )   (50,309 )   (49,638 )   (203,155 )   (52,049 )   (52,200 )   (52,157 )   (58,851 )   (215,257 )
$ 1,243,740   $ 1,175,915   $ 1,160,690   $ 1,194,890   $ 4,775,235   $ 1,272,610   $ 1,261,397   $ 1,228,918   $ 1,264,674   $ 5,027,599  
 
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 147,493 (a) $ 129,366 $ 112,483 (c) $ 126,788 (i) $ 516,130 $ 145,395 $ 132,878 (k) $ 121,744 (o) $ 138,823 (q) $ 538,840
 
Nursing center division 27,168 (a) 33,944 29,978 33,766 124,856 37,572 35,409 (l) 35,437 (o) 38,310 (q) 146,728
 
Rehabilitation division:
Skilled nursing rehabilitation services 12,949 (a) 21,348 (7,493 ) (d) 14,009 (j) 40,813 18,016 19,687 (l) 17,242 (o) 16,029 70,974
Hospital rehabilitation services   18,132   (a)   19,573     18,215   (e)   18,005   (j)   73,925     19,820     20,084   (l)   18,273   (p)   19,534     77,711  
  31,081     40,921     10,722     32,014     114,738     37,836     39,771     35,515     35,563     148,685  
 
Care management division 2,786 (a) 3,961 1,085 (f) 2,131 (j) 9,963 4,697 7,065 (l) 6,789 (o) 6,988 (q,r) 25,539
 
Corporate:
Overhead (45,585 ) (a) (43,196 ) (39,157 ) (g) (48,557 ) (j) (176,495 ) (44,050 ) (48,365 ) (l) (45,173 ) (o) (63,642 ) (q,s) (201,230 )
Insurance subsidiary   (509 )   (384 )   (482 )   (539 )   (1,914 )   (406 )   (443 )   (637 )   (359 )   (1,845 )
(46,094 ) (43,580 ) (39,639 ) (49,096 ) (178,409 ) (44,456 ) (48,808 ) (45,810 ) (64,001 ) (203,075 )
 
Impairment charges (187 ) (438 ) (441 ) (76,127 ) (77,193 ) - - - - -
Transaction costs   (944 )   (108 )   (613 )   (447 )   (2,112 )   (683 )   (4,496 )   (4,114 )   (8,690 )   (17,983 )
Operating income (EBITDAR) 161,303 164,066 113,575 69,029 507,973 180,361 161,819 149,561 146,993 638,734
Rent   (74,259 )   (75,040 )   (74,495 )   (78,398 )   (302,192 )   (78,530 )   (77,699 ) (m)   (77,643 )   (79,167 )   (313,039 )
EBITDA 87,044 89,026 39,080 (9,369 ) 205,781 101,831 84,120 71,918 67,826 325,695
Depreciation and amortization (41,089 ) (38,241 ) (36,297 ) (37,318 ) (152,945 ) (39,092 ) (39,172 ) (38,748 ) (38,558 ) (155,570 )
Interest, net   (28,074 )   (27,601 ) (b)   (24,389 ) (h)   (23,898 )   (103,962 )   (25,617 )   (78,081 ) (n)   (22,171 )   (38,898 ) (t)   (164,767 )

Income (loss) from continuing operations before income taxes

17,881 23,184 (21,606 ) (70,585 ) (51,126 ) 37,122 (33,133 ) 10,999 (9,630 ) 5,358
Provision (benefit) for income taxes   6,702     9,305     (6,249 )   (20,251 )   (10,493 )   14,195     (12,683 )   3,777     (4,827 )   462  
$ 11,179   $ 13,879   $ (15,357 ) $ (50,334 ) $ (40,633 ) $ 22,927   $ (20,450 ) $ 7,222   $ (4,803 ) $ 4,896  

__________

(a)  

Includes one-time bonus costs of $19.6 million (hospital division - $7.8 million, nursing center division - $4.4 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 transitional care (“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, skilled 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.
(q)

Includes severance and retirement costs of $11.7 million (hospital division - $0.3 million, nursing center division - $0.5 million, care management division - $0.7 million and corporate - $10.2 million).

(r) Includes $0.2 million of costs associated with closing a home health location.
(s)

Includes $2.5 million of consulting fees related to new long-term acute care (“LTAC”) criteria rule.

(t) Includes $17.0 million of Gentiva pre-closing financing charges.
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
                                       
2013 Quarters 2014 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Hospital division data:
End of period data:
Number of hospitals:
Transitional care 97 97 97 97 97 97 97 97
Inpatient rehabilitation 5 5 5 5 5 5 5 5
102 102 102 102 102 102 102 102
 
Number of licensed beds:
Transitional care 7,059 7,059 7,073 7,105 7,145 7,145 7,145 7,147
Inpatient rehabilitation 215 215 215 215 215 215 215 215
7,274 7,274 7,288 7,320 7,360 7,360 7,360 7,362
 
Revenue mix %:
Medicare 62.5 60.7 59.1 59.3 60.5 60.2 58.9 57.6 57.5 58.6
Medicaid 5.4 5.9 6.9 6.2 6.1 6.5 6.6 6.7 5.9 6.4
Medicare Advantage 10.2 11.1 11.1 11.7 11.0 11.2 11.0 10.4 10.4 10.8
Medicaid Managed 1.9 1.9 2.0 1.9 1.9 2.3 2.9 3.7 4.4 3.3
Commercial insurance and other 20.0 20.4 20.9 20.9 20.5 19.8 20.6 21.6 21.8 20.9
 
Admissions:
Medicare 10,274 9,432 9,010 9,255 37,971 9,858 9,410 9,221 9,268 37,757
Medicaid 685 744 788 712 2,929 835 914 831 762 3,342
Medicare Advantage 1,519 1,474 1,422 1,450 5,865 1,515 1,449 1,305 1,430 5,699
Medicaid Managed 209 208 225 252 894 317 381 511 573 1,782
Commercial insurance and other 1,951 1,869 1,874 1,818 7,512 2,107 2,055 1,873 1,893 7,928
14,638 13,727 13,319 13,487 55,171 14,632 14,209 13,741 13,926 56,508
Admissions mix %:
Medicare 70.2 68.7 67.6 68.6 68.8 67.4 66.2 67.1 66.5 66.8
Medicaid 4.7 5.4 5.9 5.3 5.3 5.7 6.4 6.1 5.5 5.9
Medicare Advantage 10.4 10.8 10.7 10.7 10.7 10.3 10.2 9.5 10.3 10.1
Medicaid Managed 1.4 1.5 1.7 1.9 1.6 2.2 2.7 3.7 4.1 3.2
Commercial insurance and other 13.3 13.6 14.1 13.5 13.6 14.4 14.5 13.6 13.6 14.0
 
Patient days:
Medicare 252,195 234,490 223,639 226,662 936,986 239,759 230,122 222,704 229,475 922,060
Medicaid 28,765 30,425 31,569 29,799 120,558 32,909 32,821 30,786 30,669 127,185
Medicare Advantage 43,016 43,040 41,842 43,784 171,682 44,979 44,094 40,901 42,253 172,227
Medicaid Managed 8,808 8,342 8,264 8,238 33,652 10,733 13,247 16,595 20,023 60,598
Commercial insurance and other 63,227 57,091 59,575 57,334 237,227 62,858 61,892 60,187 62,899 247,836
396,011 373,388 364,889 365,817 1,500,105 391,238 382,176 371,173 385,319 1,529,906
Average length of stay:
Medicare 24.5 24.9 24.8 24.5 24.7 24.3 24.5 24.2 24.8 24.4
Medicaid 42.0 40.9 40.1 41.9 41.2 39.4 35.9 37.0 40.2 38.1
Medicare Advantage 28.3 29.2 29.4 30.2 29.3 29.7 30.4 31.3 29.5 30.2
Medicaid Managed 42.1 40.1 36.7 32.7 37.6 33.9 34.8 32.5 34.9 34.0
Commercial insurance and other 32.4 30.5 31.8 31.5 31.6 29.8 30.1 32.1 33.2 31.3
Weighted average 27.1 27.2 27.4 27.1 27.2 26.7 26.9 27.0 27.7 27.1
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                                       
2013 Quarters 2014 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Hospital division data (continued):
Revenues per admission:
Medicare $ 40,051 $ 39,004 $ 38,993 $ 38,869 $ 39,252 $ 39,482 $ 39,559 $ 38,088 $ 39,517 $ 39,170
Medicaid 51,450 48,221 51,934 52,635 51,048 50,201 45,392 49,204 49,218 48,413
Medicare Advantage 44,326 45,709 46,429 49,051 46,352 47,739 48,067 48,586 46,235 47,639
Medicaid Managed 58,770 55,496 52,771 46,112 52,930 47,781 48,953 44,406 48,647 47,342
Commercial insurance and other 67,389 66,306 66,170 69,876 67,417 60,679 63,315 70,078 73,570 66,661
Weighted average 44,939 44,190 44,609 45,006 44,689 44,181 44,490 44,353 45,742 44,685
 
Revenues per patient day:
Medicare $ 1,632 $ 1,569 $ 1,571 $ 1,587 $ 1,591 $ 1,623 $ 1,618 $ 1,577 $ 1,596 $ 1,604
Medicaid 1,225 1,179 1,296 1,258 1,240 1,274 1,264 1,328 1,223 1,272
Medicare Advantage 1,565 1,565 1,578 1,624 1,583 1,608 1,580 1,550 1,565 1,576
Medicaid Managed 1,395 1,384 1,437 1,411 1,406 1,411 1,408 1,367 1,392 1,392
Commercial insurance and other 2,079 2,171 2,081 2,216 2,135 2,034 2,102 2,181 2,214 2,132
Weighted average 1,661 1,625 1,628 1,659 1,644 1,652 1,654 1,642 1,653 1,650
 

Medicare case mix index (discharged patients only)

1.18 1.18 1.16 1.16 1.17 1.17 1.18 1.16 1.14 1.16
 
Average daily census 4,400 4,103 3,966 3,976 4,110 4,347 4,200 4,034 4,188 4,192
Occupancy % 68.3 63.5 61.1 61.4 63.5 67.4 64.9 62.3 64.7 64.8
 
Annualized employee turnover % 22.1 21.7 21.4 21.3 20.7 20.8 21.5 21.6
 
Nursing center division data:
End of period data:
Number of facilities:
Nursing centers:
Owned or leased 85 85 85 85 85 85 86 86
Managed 4 4 4 4 4 4 4 4
Assisted living facilities   6   6   6   6   6   6   6   7
  95   95   95   95   95   95   96   97
Number of licensed beds:
Nursing centers:
Owned or leased 11,018 11,018 11,018 11,018 11,018 11,006 11,090 11,050
Managed 485 485 485 485 485 485 485 485
Assisted living facilities   341   341   341   341   341   341   341   375
  11,844   11,844   11,844   11,844   11,844   11,832   11,916   11,910
Revenue mix %:
Medicare 35.5 34.5 33.7 32.5 34.1 32.6 32.2 31.4 32.0 32.0
Medicaid 35.1 35.7 38.1 39.3 37.0 39.9 39.4 39.7 39.7 39.6
Medicare Advantage 8.3 8.4 7.3 7.9 8.0 8.7 8.1 8.7 7.9 8.4
Medicaid Managed 3.5 3.6 3.7 3.6 3.6 3.2 3.7 4.7 4.7 4.1
Private and other 17.6 17.8 17.2 16.7 17.3 15.6 16.6 15.5 15.7 15.9
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                                       
2013 Quarters 2014 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Nursing center division data (continued):
Patient days (a):
Medicare 158,941 151,538 147,864 141,116 599,459 143,228 142,670 138,158 144,357 568,413
Medicaid 466,432 466,044 474,196 481,742 1,888,414 477,823 469,800 468,832 467,796 1,884,251
Medicare Advantage 48,919 48,512 42,531 46,155 186,117 51,407 48,248 52,411 48,366 200,432
Medicaid Managed 50,692 51,038 52,420 51,893 206,043 48,422 54,396 69,156 69,243 241,217
Private and other   150,499   150,228   150,454   146,719   597,900   140,460   143,658   136,858   142,214   563,190
  875,483   867,360   867,465   867,625   3,477,933   861,340   858,772   865,415   871,976   3,457,503
 
Patient day mix % (a):
Medicare 18.1 17.5 17.1 16.3 17.2 16.6 16.6 16.0 16.6 16.4
Medicaid 53.3 53.7 54.7 55.5 54.3 55.5 54.7 54.2 53.7 54.5
Medicare Advantage 5.6 5.6 4.9 5.3 5.4 6.0 5.6 6.0 5.5 5.8
Medicaid Managed 5.8 5.9 6.0 6.0 5.9 5.6 6.4 8.0 7.9 7.0
Private and other 17.2 17.3 17.3 16.9 17.2 16.3 16.7 15.8 16.3 16.3
 
Revenues per patient day (a):
Medicare Part A $ 530 $ 528 $ 528 $ 543 $ 532 $ 554 $ 553 $ 553 $ 560 $ 555
Total Medicare (including Part B) 566 566 569 586 571 597 598 599 602 599
Medicaid 190 190 201 207 197 219 222 223 230 224
Medicaid (net of provider taxes) (b) 168 168 179 185 175 197 200 205 211 203
Medicare Advantage 430 433 431 437 433 445 444 440 445 443
Medicaid Managed 174 174 174 177 175 176 179 179 184 180
Private and other 296 294 286 288 291 292 306 299 300 299
Weighted average 289 286 288 293 289 305 308 305 312 307
 
Average daily census (a) 9,728 9,531 9,429 9,431 9,529 9,570 9,437 9,407 9,478 9,473
Admissions (a) 10,202 9,579 9,273 9,352 38,406 9,789 9,621 9,746 9,616 38,772
Occupancy % (a) 83.5 81.7 80.7 80.5 81.6 81.7 80.7 80.1 80.5 80.7
Medicare average length of stay (a) 30.3 30.9 31.7 31.5 31.1 29.6 29.8 29.9 29.0 29.6
 
Annualized employee turnover % 41.4 44.2 44.1 42.5 39.0 42.1 42.9 42.4
 
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated 10 11 11 11 11 11 11 12 14 12
Non-affiliated 90 89 89 89 89 89 89 88 86 88
 
Sites of service (at end of period) 1,729 1,713 1,768 1,806 1,851 1,863 1,896 1,935
Revenue per site $ 149,486 $ 145,576 $ 138,601 $ 134,568 $ 568,231 $ 137,193 $ 136,175 $ 130,133 $ 130,576 $ 534,077
 
Therapist productivity % 81.1 80.4 79.8 79.5 80.2 80.0 79.8 79.6 79.0 79.6
 
Hospital rehabilitation services:
Revenue mix %:
Company-operated 32 33 33 30 32 31 30 30 31 30
Non-affiliated 68 67 67 70 68 69 70 70 69 70
 
Sites of service (at end of period):
Inpatient rehabilitation units 103 103 99 104 105 104 102 100
LTAC hospitals 123 123 122 121 121 118 117 117
Sub-acute units 8 8 7 10 10 9 10 10
Outpatient units   98   104   104   144   143   143   139   138
  332   338   332   379   379   374   368   365
 
Revenue per site $ 224,466 $ 206,441 $ 205,711 $ 195,296 $ 831,914 $ 195,157 $ 201,400 $ 203,284 $ 205,749 $ 805,590
 
Annualized employee turnover % 10.4 13.2 14.0 13.7 12.5 14.7 15.7 15.7

__________

(a) Excludes managed facilities.

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

 
                               
KINDRED HEALTHCARE, INC.
Loss Per Common Share Reconciliation (a)
(In thousands, except per share amounts)
 
Three months ended December 31, Year ended December 31,
2014 2013 2014 2013
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Loss:
Amounts attributable to Kindred stockholders:
Loss from continuing operations:
As reported in Statement of Operations $ (9,946 ) $ (9,946 ) $ (52,800 ) $ (52,800 ) $ (13,976 ) $ (13,976 ) $ (44,523 ) $ (44,523 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (9,946 ) $ (9,946 ) $ (52,800 ) $ (52,800 ) $ (13,976 ) $ (13,976 ) $ (44,523 ) $ (44,523 )
 
Discontinued operations, net of income taxes:
Loss from operations:
As reported in Statement of Operations $ (28,677 ) $ (28,677 ) $ (7,502 ) $ (7,502 ) $ (53,163 ) $ (53,163 ) $ (40,082 ) $ (40,082 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (28,677 ) $ (28,677 ) $ (7,502 ) $ (7,502 ) $ (53,163 ) $ (53,163 ) $ (40,082 ) $ (40,082 )
 
Loss on divestiture of operations:
As reported in Statement of Operations $ (9,061 ) $ (9,061 ) $ (5,994 ) $ (5,994 ) $ (12,698 ) $ (12,698 ) $ (83,887 ) $ (83,887 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (9,061 ) $ (9,061 ) $ (5,994 ) $ (5,994 ) $ (12,698 ) $ (12,698 ) $ (83,887 ) $ (83,887 )
 
Loss from discontinued operations:
As reported in Statement of Operations $ (37,738 ) $ (37,738 ) $ (13,496 ) $ (13,496 ) $ (65,861 ) $ (65,861 ) $ (123,969 ) $ (123,969 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (37,738 ) $ (37,738 ) $ (13,496 ) $ (13,496 ) $ (65,861 ) $ (65,861 ) $ (123,969 ) $ (123,969 )
 
Net loss:
As reported in Statement of Operations $ (47,684 ) $ (47,684 ) $ (66,296 ) $ (66,296 ) $ (79,837 ) $ (79,837 ) $ (168,492 ) $ (168,492 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (47,684 ) $ (47,684 ) $ (66,296 ) $ (66,296 ) $ (79,837 ) $ (79,837 ) $ (168,492 ) $ (168,492 )
 
Shares used in the computation:

Weighted average shares outstanding - basic computation

  65,135   65,135   52,344   52,344   58,634   58,634   52,249   52,249
Dilutive effect of employee stock options - - - -
Dilutive effect of performance-based restricted shares - - - -
Dilutive effect of tangible equity units   -     -     -     -  

Adjusted weighted average shares outstanding - diluted computation

  65,135     52,344     58,634     52,249  
 
Loss per common share:
Loss from continuing operations $ (0.15 ) $ (0.15 ) $ (1.01 ) $ (1.01 ) $ (0.24 ) $ (0.24 ) $ (0.85 ) $ (0.85 )
Discontinued operations:
Loss from operations (0.44 ) (0.44 ) (0.15 ) (0.15 ) (0.91 ) (0.91 ) (0.77 ) (0.77 )
Loss on divestiture of operations   (0.14 )   (0.14 )   (0.11 )   (0.11 )   (0.21 )   (0.21 )   (1.61 )   (1.61 )
Loss from discontinued operations   (0.58 )   (0.58 )   (0.26 )   (0.26 )   (1.12 )   (1.12 )   (2.38 )   (2.38 )
Net loss $ (0.73 ) $ (0.73 ) $ (1.27 ) $ (1.27 ) $ (1.36 ) $ (1.36 ) $ (3.23 ) $ (3.23 )

__________

(a)   Loss per common share is based upon the weighted average number of common shares outstanding during the respective periods. The Company follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method. However, because the Company reported a loss from continuing operations, there was no allocation to participating unvested restricted stockholders for all periods presented.
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Kindred Non-GAAP Measurements to GAAP Results
(Unaudited)
(In thousands, except per share amounts and statistics)
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and year ended December 31, 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 diluted shares exclude the effect of the Gentiva financing.
 
The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 33.1% and 28.7% for the three months ended December 31, 2014 and 2013, respectively, and 35.4% and 30.7% for the year ended December 31, 2014 and 2013, respectively. The difference in the effective income tax rate for the three months and year ended December 31, 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 measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the three months and year ended December 31, 2014 and 2013 that are not representative of its ongoing operations due to the materiality. The Company’s core operating results also represent a key performance measure for the purpose of evaluating performance internally. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures.

       
Three months ended Year ended
December 31, December 31,
Detail of charges: 2014     2013 2014     2013
One-time bonus costs $ - $ - $ - ($19,585 )
Severance, retirement and other restructuring costs (11,745 ) (3,663 ) (18,381 ) (5,557 )
Customer bankruptcy - - (1,857 ) -
Facility closing costs (200 ) (499 ) (200 ) (6,542 )
Litigation costs - (7,000 ) (4,600 ) (30,850 )
Debt refinancing charges (other operating expenses) - - - (459 )
Consulting fees related to new LTAC criteria rule (2,460 ) - (2,460 ) -
Impairment charges - (76,082 ) - (76,082 )
Transaction costs (8,690 ) (447 ) (17,983 ) (2,112 )
Lease cancellation charges (rent expense) - - (247 ) -
Gentiva pre-closing financing charges (interest expense) (17,041 ) - (17,041 ) -
Debt refinancing charges (interest expense)   -     -     (56,643 )   (1,461 )
(40,136 ) (87,691 ) (119,412 ) (142,648 )
Income tax benefit   13,298     25,165     42,234     43,792  
Charges net of income taxes (26,838 ) (62,526 ) (77,178 ) (98,856 )
Allocation to participating unvested restricted stockholders   -     -     -     -  
Available to common stockholders   ($26,838 )   ($62,526 )   ($77,178 )   ($98,856 )
 
Weighted average diluted shares outstanding   65,135     52,344     58,634     52,249  
 
Diluted loss per common share related to charges   ($0.41 )   ($1.19 )   ($1.32 )   ($1.89 )
 
Reconciliation of operating income (EBITDAR) before charges:
Operating income (EBITDAR) before charges $ 170,088 $ 156,720 $ 684,215 $ 649,160
Detail of charges excluded from core operating results:
One-time bonus costs - - - (19,585 )
Severance, retirement and other restructuring costs (11,745 ) (3,663 ) (18,381 ) (5,557 )
Customer bankruptcy - - (1,857 ) -
Facility closing costs (200 ) (499 ) (200 ) (6,542 )
Litigation costs - (7,000 ) (4,600 ) (30,850 )
Debt refinancing charges (other operating expenses) - - - (459 )
Consulting fees related to LTAC criteria (2,460 ) - (2,460 ) -
Impairment charges - (76,082 ) - (76,082 )
Transaction costs   (8,690 )   (447 )   (17,983 )   (2,112 )
  (23,095 )   (87,691 )   (45,481 )   (141,187 )
Reported operating income (EBITDAR) $ 146,993   $ 69,029   $ 638,734   $ 507,973  
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $ 16,892 $ 9,726 $ 63,202 $ 54,333
Charges net of income taxes   (26,838 )   (62,526 )   (77,178 )   (98,856 )
Reported loss from continuing operations   ($9,946 )   ($52,800 )   ($13,976 )   ($44,523 )
 

Reconciliation of diluted earnings per common share from continuing operations before charges:

Diluted earnings per common share before charges (a) $ 0.26 $ 0.18 $ 1.06 $ 1.00
Charges net of income taxes (0.41 ) (1.19 ) (1.32 ) (1.89 )
Other   -     -     0.02     0.04  
Reported diluted loss per common share from continuing operations   ($0.15 )   ($1.01 )   ($0.24 )   ($0.85 )
 

Weighted average diluted shares used to compute earnings per common share from continuing operations before charges (b)

  63,163     52,461     58,210     52,315  
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 27.8 % 28.7 % 34.2 % 36.4 %
Impact of charges on effective income tax rate   22.3 %   0.0 %   -25.6 %   -15.9 %
Reported effective income tax rate   50.1 %   28.7 %   8.6 %   20.5 %

__________

(a)   For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.4 million and $0.3 million for the three months ended December 31, 2014 and 2013, respectively, and $1.7 million for each of the years ended December 31, 2014 and 2013 for the allocation of income to participating unvested restricted stockholders.
 
(b) Excludes share dilution from the fourth quarter 2014 common equity and tangible equity units offerings, both pre-closing financing activities of the Gentiva acquisition.
 
   
KINDRED HEALTHCARE, INC.
Reconciliation of Kindred Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts and statistics)
 
A reconciliation of adjusted core earnings follows.
 
Year ended
December 31,
2014
Reconciliation of adjusted core earnings:

Income from continuing operations before charges (as calculated and reconciled to GAAP measurement on previous page)

$ 63,202
Add back non-cash expenses:
Amortization of intangible assets 21,666
Amortization of stock-based compensation costs 14,330
Amortization of deferred financing costs   8,373
44,369
Income tax benefit related to non-cash expenses   17,459
Non-cash expenses, net of income taxes   26,910
Adjusted core earnings $ 90,112
 
Reconciliation of diluted adjusted core earnings from continuing operations:
Diluted income per common share before charges (as calculated on previous page) $ 1.06
Non-cash expenses, net of income taxes   0.45
Diluted adjusted core earnings per common share from continuing operations $ 1.51
 
 
Weighted average diluted shares used to compute adjusted core earnings per common share   58,210
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Kindred Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
                               
Three months ended December 31, 2014
Charges
Severance LTAC Gentiva
Before and other criteria pre-closing Transaction As
charges restructuring consulting financing costs Total reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 139,141 $ (318 ) $ - $ - $ - $ (318 ) $ 138,823
 
Nursing center division 38,810 (500 ) - - - (500 ) 38,310
 
Rehabilitation division:
Skilled nursing rehabilitation services 16,029 - - - - - 16,029
Hospital rehabilitation services   19,534     -     -     -     -     -     19,534  
  35,563     -     -     -     -     -     35,563  
 
Care management division 7,922 (934 ) - - - (934 ) 6,988
 
Corporate:
Overhead (50,989 ) (10,193 ) (2,460 ) - - (12,653 ) (63,642 )
Insurance subsidiary   (359 )   -     -     -     -     -     (359 )
(51,348 ) (10,193 ) (2,460 ) - - (12,653 ) (64,001 )
 
Transaction costs   -     -     -     -     (8,690 )   (8,690 )   (8,690 )
Operating income (EBITDAR) 170,088 (11,945 ) (2,460 ) - (8,690 ) (23,095 ) 146,993
Rent   (79,167 )   -     -     -     -     -     (79,167 )
EBITDA 90,921 (11,945 ) (2,460 ) - (8,690 ) (23,095 ) 67,826
Depreciation and amortization (38,558 ) - - - - - (38,558 )
Interest, net   (21,857 )   -     -     (17,041 )   -     (17,041 )   (38,898 )

Income (loss) from continuing operations before income taxes

30,506 (11,945 ) (2,460 ) (17,041 ) (8,690 ) (40,136 ) (9,630 )
Provision (benefit) for income taxes   8,471     (4,251 )   (875 )   (5,975 )   (2,197 )   (13,298 )   (4,827 )
$ 22,035   $ (7,694 ) $ (1,585 ) $ (11,066 ) $ (6,493 ) $ (26,838 ) $ (4,803 )
 
 
Three months ended December 31, 2013
Charges
Severance
Before and Facility Impairment Transaction As
charges retirement closing Litigation charges costs Total reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 134,287 $ - $ (499 ) $ (7,000 ) $ - $ - $ (7,499 ) $ 126,788
 
Nursing center division 33,766 - - - - - - 33,766
 
Rehabilitation division:
Skilled nursing rehabilitation services 14,148 (139 ) - - - - (139 ) 14,009
Hospital rehabilitation services   19,093     (1,088 )   -     -     -     -     (1,088 )   18,005  
  33,241     (1,227 )   -     -     -     -     (1,227 )   32,014  
 
Care management division 2,206 (75 ) - - - - (75 ) 2,131
 
Corporate:
Overhead (46,196 ) (2,361 ) - - - - (2,361 ) (48,557 )
Insurance subsidiary   (539 )   -     -     -     -     -     -     (539 )
(46,735 ) (2,361 ) - - - - (2,361 ) (49,096 )
 
Impairment charges (45 ) - - - (76,082 ) - (76,082 ) (76,127 )
Transaction costs   -     -     -     -     -     (447 )   (447 )   (447 )
Operating income (EBITDAR) 156,720 (3,663 ) (499 ) (7,000 ) (76,082 ) (447 ) (87,691 ) 69,029
Rent   (78,398 )   -     -     -     -     -     -     (78,398 )
EBITDA 78,322 (3,663 ) (499 ) (7,000 ) (76,082 ) (447 ) (87,691 ) (9,369 )
Depreciation and amortization (37,318 ) - - - - - - (37,318 )
Interest, net   (23,898 )   -     -     -     -     -     -     (23,898 )

Income (loss) from continuing operations before income taxes

17,106 (3,663 ) (499 ) (7,000 ) (76,082 ) (447 ) (87,691 ) (70,585 )
Provision (benefit) for income taxes   4,914     (1,147 )   (156 )   (9,438 )   (14,163 )   (261 )   (25,165 )   (20,251 )
$ 12,192   $ (2,516 ) $ (343 ) $ 2,438   $ (61,919 ) $ (186 ) $ (62,526 ) $ (50,334 )
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of Kindred Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
                                       
Year ended December 31, 2014
Charges
Severance LTAC Gentiva
Before and other Customer criteria pre-closing Debt Transaction As
charges restructuring bankruptcy Litigation consulting financing refinancing costs Total reported
Income from continuing operations:
Operating income (loss):
Hospital division $ 544,375 $ (935 ) $ - $ (4,600 ) $ - $ - $ - $ - $ (5,535 ) $ 538,840
 
Nursing center division 150,916 (4,188 ) - - - - - - (4,188 ) 146,728
 
Rehabilitation division:
Skilled nursing rehabilitation services 70,988 (14 ) - - - - - - (14 ) 70,974
Hospital rehabilitation services   79,738     (170 )   (1,857 )   -     -     -     -     -     (2,027 )   77,711  
  150,726     (184 )   (1,857 )   -     -     -     -     -     (2,041 )   148,685  
 
Care management division 27,637 (2,098 ) - - - - - - (2,098 ) 25,539
 
Corporate:
Overhead (187,594 ) (11,176 ) - - (2,460 ) - - - (13,636 ) (201,230 )
Insurance subsidiary   (1,845 )   -     -     -     -     -     -     -     -     (1,845 )
(189,439 ) (11,176 ) - - (2,460 ) - - - (13,636 ) (203,075 )
 
Transaction costs   -     -     -     -     -     -     -     (17,983 )   (17,983 )   (17,983 )
Operating income (EBITDAR) 684,215 (18,581 ) (1,857 ) (4,600 ) (2,460 ) - - (17,983 ) (45,481 ) 638,734
Rent   (312,792 )   (247 )   -     -     -     -     -     -     (247 )   (313,039 )
EBITDA 371,423 (18,828 ) (1,857 ) (4,600 ) (2,460 ) - - (17,983 ) (45,728 ) 325,695
Depreciation and amortization (155,570 ) - - - - - - - - (155,570 )
Interest, net   (91,083 )   -     -     -     -     (17,041 )   (56,643 )   -     (73,684 )   (164,767 )

Income from continuing operations before income taxes

124,770 (18,828 ) (1,857 ) (4,600 ) (2,460 ) (17,041 ) (56,643 ) (17,983 ) (119,412 ) 5,358
Provision for income taxes   42,696     (7,156 )   (706 )   (1,748 )   (935 )   (6,381 )   (21,528 )   (3,780 )   (42,234 )   462  
$ 82,074   $ (11,672 ) $ (1,151 ) $ (2,852 ) $ (1,525 ) $ (10,660 ) $ (35,115 ) $ (14,203 ) $ (77,178 ) $ 4,896