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Kindred Healthcare Announces Third Quarter 2014 Results

November 5, 2014

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.--(BUSINESS WIRE)--Nov. 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
  • 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
  • Strong sequential cash flows with core operating cash flows of $95 million and core free cash flows of $72 million
  • 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.

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 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:

  • 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.

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.

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 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 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.

                     
KINDRED HEALTHCARE, INC.
Financial Summary
(Unaudited)
(In thousands, except per share amounts)
 
Three months ended Nine months ended
September 30, 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
                     
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
 
Three months ended Nine months ended
September 30,   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
 
           
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
 
September 30, December 31,
2014 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  
 
                     
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
 
Three months ended Nine months ended
September 30,     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  
 
                             
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
 
                     
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.
 
                         
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
 
 
Three months ended September 30, 2014
Nursing

Rehabilitation division

Care
Hospital center Skilled nursing Hospital management Corporate Transaction
division (a) division (a) services (a) services (b) Total division (a) (a) costs Eliminations Consolidated
 
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
Nursing Rehabilitation division Care
Hospital center Skilled nursing Hospital management Transaction
division (c) division services (d) services (e) Total division (f) Corporate (g) costs Eliminations Consolidated
 
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.

 
                       
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
 
 
Nine months ended September 30, 2014
Nursing Rehabilitation division Care
Hospital center Skilled nursing Hospital management Corporate Transaction
division (a,b) division (b,c) services (b) services (b,d) Total division (b) (b,e) costs Eliminations Consolidated
 
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
Nursing Rehabilitation division Care
Hospital center Skilled nursing Hospital management Corporate Transaction
division (f,g) division (f) services (f,h) services (f,i) Total division (f,j) (f,k) 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.

 
                                   
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
 
                                   
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
 
                                 
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.
                                     
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.
                 
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 Nine months ended
September 30, 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.
 
                                   
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 )