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Kindred Healthcare Completes First Phase of Its Repositioning Plan as Company Moves 136 Facilities to Discontinued Operations in 2013, Including 59 in Recent Agreement with Ventas

November 5, 2013

Company Reports Third Quarter Continuing Operations Diluted EPS of $0.05 Excluding Certain Items

Reported Continuing Operations Loss Totaled $0.39 Per Diluted Share

New 2013 Core Continuing Operations EPS Expected to Range from $0.78 to $0.88 Before Redeployment of Capital

Company Raises Estimated 2013 Free Cash Flows to $120 Million from $90 Million as Redeployment Strategy Advances with Announcement of Home Health and Real Estate Acquisitions

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

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

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

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

Highlights:

  • Consolidated revenues declined 2% to $1.2 billion

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

  • Volume softness in hospital and nursing center divisions dampened overall third quarter results
  • Free cash flows (operating cash flows in excess of routine and development capital spending and dividends) excluding certain items, surged to $85 million in the quarter, while year-to-date results totaled $135 million
  • Board of Directors declared quarterly cash dividend of $0.12 per share
  • Available borrowing capacity under the Company’s revolving credit facility grew to nearly $600 million at September 30, 2013

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

Ventas Agreement

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

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

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

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

Recent Acquisition Announcements

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

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

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

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

Third Quarter Results

Continuing Operations

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

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

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

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

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

Discontinued Operations

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

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

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

Earnings Guidance – Continuing Operations

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

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

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

Revised 2013 Continuing Operations Earnings Guidance

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

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

       
Low High
Continuing operations diluted earnings per share range as of August 5, 2013 $ 1.10   $ 1.30  
 
 
Estimated full-year impact of discontinued operations reclassification recorded in the third quarter of 2013 (including 23 facilities sold for cash and 59 Ventas facilities to be exited by September 30, 2014)

(0.25

)

(0.25

)

 
Incremental Ventas rent expense associated with renewal of certain leased facilities

(0.05

)

(0.05

)

 
Other changes in estimates related to ongoing operations  

(0.02

)

 

(0.12

)

 
 
Continuing operations diluted earnings per share range as of November 5, 2013 $ 0.78   $ 0.88  
 

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

Preliminary 2014 Continuing Operations Earnings Guidance

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

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

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

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

Earnings per diluted share

$

1.05

$

1.25

 

Shares used in computing earnings per diluted share

53.2

53.2

 

Cash Flow Guidance

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

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

Management Commentary

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

  • raised our 2013 free cash flow guidance to $120 million from $90 million
  • announced our estimated 2014 free cash flow guidance (including a full year of cash dividends) at $110 million; and
  • increased to nearly $600 million the availability under our revolving credit facility, the highest level in our history.

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

  • acquire Senior Home Care, a premier home health provider with $143 million of annualized revenues and 47 locations in Florida and Louisiana, for $95 million; and
  • acquire the real estate for nine of our leased skilled nursing facilities for approximately $83 million.

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

Quarterly Cash Dividend

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

Webcast of Conference Call and Additional Presentation Materials

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

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

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

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company’s expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “should,” “will,” “intend,” “may” and other similar expressions, are forward-looking statements. Statements in this press release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses or other financial items, and product or services line growth, together with other statements that are not historical facts, are forward-looking statements that are estimates reflecting the best judgment of the Company based upon currently available information.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results or performance to differ materially from any future results or performance expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price include, without limitation, (a) the impact of healthcare reform, which will initiate significant changes to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, including reforms resulting from the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act (collectively, the “ACA”) or future deficit reduction measures adopted at the federal or state level. Healthcare reform is affecting each of the Company’s businesses in some manner. Potential future efforts in the U.S. Congress to repeal, amend, modify or retract funding for various aspects of the ACA create additional uncertainty about the ultimate impact of the ACA on the Company and the healthcare industry. Due to the substantial regulatory changes that will need to be implemented by the Centers for Medicare and Medicaid Services (“CMS”) and others, and the numerous processes required to implement these reforms, the Company cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on the Company’s business, financial position, results of operations and liquidity, (b) the impact of final rules issued by CMS on August 1, 2012 which, among other things, will reduce Medicare reimbursement to the Company’s TC hospitals in 2013 and beyond by imposing a budget neutrality adjustment and modifying the short-stay outlier rules, (c) the impact of final rules issued by CMS on July 29, 2011 which significantly reduced Medicare reimbursement to the Company’s nursing centers and changed payments for the provision of group therapy services effective October 1, 2011, (d) the impact of the Budget Control Act of 2011 (as amended by the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”)) which will automatically reduce federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. An automatic 2% reduction on each claim submitted to Medicare began on April 1, 2013, (e) the impact of the Taxpayer Relief Act which, among other things, reduces Medicare payments by 50% for subsequent procedures when multiple therapy services are provided on the same day. At this time, the Company believes that the rules related to multiple therapy services will reduce the Company’s Medicare revenues by $25 million to $30 million on an annual basis, (f) changes in the reimbursement rates or the methods or timing of payment from third party payors, including commercial payors and the Medicare and Medicaid programs, changes arising from and related to the Medicare prospective payment system for long-term acute care (“LTAC”) hospitals, including potential changes in the Medicare payment rules, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and changes in Medicare and Medicaid reimbursement for the Company’s TC hospitals, nursing centers, IRFs and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (g) the effects of additional legislative changes and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry, (h) the ability of the Company’s hospitals to adjust to potential LTAC certification and medical necessity reviews, (i) the costs of defending and insuring against alleged professional liability and other claims (including those related to pending whistleblower and wage and hour class action lawsuits against the Company) and the Company’s ability to predict the estimated costs and reserves related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (j) the impact of the Company’s significant level of indebtedness on the Company’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings, (k) the Company’s ability to successfully redeploy its capital and proceeds of asset sales in pursuit of its business strategy and pursue its development activities, including through acquisitions, and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations, as and when planned, including the potential impact of unanticipated issues, expenses and liabilities associated with those activities, (l) the Company’s ability to pay a dividend as, when and if declared by the Board of Directors, in compliance with applicable laws and the Company’s debt and other contractual arrangements, (m) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (n) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (o) the Company’s ability to meet its rental and debt service obligations, (p) the Company’s ability to operate pursuant to the terms of its debt obligations, and comply with its covenants thereunder, and its ability to operate pursuant to its master lease agreements with Ventas, (q) the condition of the financial markets, including volatility and weakness in the equity, capital and credit markets, which could limit the availability and terms of debt and equity financing sources to fund the requirements of the Company’s businesses, or which could negatively impact the Company’s investment portfolio, (r) the Company’s ability to control costs, particularly labor and employee benefit costs, (s) the Company’s ability to successfully reduce or mitigate (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (t) the Company’s obligations under various laws to self-report suspected violations of law by the Company to various government agencies, including any associated obligation to refund overpayments to government payors, fines and other sanctions, (u) the potential for diversion of management time and resources in seeking to transfer the operations of 60 non-strategic nursing centers currently leased from Ventas (v) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (w) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (x) the Company’s ability to attract and retain key executives and other healthcare personnel, (y) the Company’s ability to successfully dispose of unprofitable facilities, (z) events or circumstances which could result in the impairment of an asset or other charges, such as the impact of the Medicare reimbursement regulations that resulted in the Company recording significant impairment charges in 2012 and 2011, (aa) changes in generally accepted accounting principles (“GAAP”) or practices, and changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), and (bb) the Company’s ability to maintain an effective system of internal control over financial reporting.

Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

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

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

As noted above, the Company’s earnings release includes a financial measure referred to as operating income, or earnings before interest, income taxes, depreciation, amortization and rent. The Company’s management uses operating income as a meaningful measure of operational performance in addition to other measures. The Company uses operating income to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes this measurement is important because securities analysts and investors use this measurement to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income (loss) from continuing operations is the most comparable GAAP measure.

About Kindred Healthcare

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

                     
 
KINDRED HEALTHCARE, INC.
Financial Summary
(Unaudited)
(In thousands, except per share amounts)
 
Three months ended

 

Nine months ended
September 30, September 30,
2013 2012 2013 2012
 
Revenues $ 1,198,473   $ 1,226,159   $ 3,705,456   $ 3,725,151  
 
Income (loss) from continuing operations $ (19,619 ) $ 6,828 $ 1,236 $ 31,541
Discontinued operations, net of income taxes:
Income (loss) from operations (21,609 ) 3,059 (24,287 ) 13,777
Loss on divestiture of operations   (65,016 )   (2,280 )   (77,893 )   (3,806 )
Income (loss) from discontinued operations   (86,625 )   779     (102,180 )   9,971  
Net income (loss) (106,244 ) 7,607 (100,944 ) 41,512
Earnings attributable to noncontrolling interests   (754 )   (41 )   (1,252 )   (253 )
Income (loss) attributable to Kindred $ (106,998 ) $ 7,566   $ (102,196 ) $ 41,259  
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ (20,373 ) $ 6,787 $ (16 ) $ 31,288
Income (loss) from discontinued operations   (86,625 )   779     (102,180 )   9,971  
Net income (loss) $ (106,998 ) $ 7,566   $ (102,196 ) $ 41,259  
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ (0.39 ) $ 0.13 $ - $ 0.59
Discontinued operations:
Income (loss) from operations (0.41 ) 0.05 (0.47 ) 0.26
Loss on divestiture of operations   (1.24 )   (0.04 )   (1.49 )   (0.07 )
Income (loss) from discontinued operations   (1.65 )   0.01     (1.96 )   0.19  
Net income (loss) $ (2.04 ) $ 0.14   $ (1.96 ) $ 0.78  
 
Diluted:
Income (loss) from continuing operations $ (0.39 ) $ 0.13 $ - $ 0.59
Discontinued operations:
Income (loss) from operations (0.41 ) 0.05 (0.47 ) 0.26
Loss on divestiture of operations   (1.24 )   (0.04 )   (1.49 )   (0.07 )
Income (loss) from discontinued operations   (1.65 )   0.01     (1.96 )   0.19  
Net income (loss) $ (2.04 ) $ 0.14   $ (1.96 ) $ 0.78  
 
Shares used in computing earnings (loss) per common share:
Basic 52,323 51,676 52,218 51,648
Diluted 52,323 51,709 52,218 51,675
                   
 
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,
2013 2012 2013 2012
 
Revenues $ 1,198,473   $ 1,226,159   $ 3,705,456   $ 3,725,151  
 
Salaries, wages and benefits 733,605 754,761 2,264,525 2,282,803
Supplies 81,812 85,129 251,672 261,586
Rent 79,269 79,312 238,115 234,445
Other operating expenses 269,927 230,076 745,556 699,692
Other (income) expense 52 (3,178 ) (983 ) (9,479 )
Impairment charges 441 406 1,085 1,015
Depreciation and amortization 37,591 41,304 119,872 121,429
Interest expense 25,633 26,663 82,888 79,946
Investment income   (1,235 )   (212 )   (2,798 )   (753 )
  1,227,095     1,214,261     3,699,932     3,670,684  
Income (loss) from continuing operations before income taxes (28,622 ) 11,898 5,524 54,467
Provision (benefit) for income taxes   (9,003 )   5,070     4,288     22,926  
Income (loss) from continuing operations (19,619 ) 6,828 1,236 31,541
Discontinued operations, net of income taxes:
Income (loss) from operations (21,609 ) 3,059 (24,287 ) 13,777
Loss on divestiture of operations   (65,016 )   (2,280 )   (77,893 )   (3,806 )
Income (loss) from discontinued operations   (86,625 )   779     (102,180 )   9,971  
Net income (loss) (106,244 ) 7,607 (100,944 ) 41,512
Earnings attributable to noncontrolling interests   (754 )   (41 )   (1,252 )   (253 )
Income (loss) attributable to Kindred $ (106,998 ) $ 7,566   $ (102,196 ) $ 41,259  
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ (20,373 ) $ 6,787 $ (16 ) $ 31,288
Income (loss) from discontinued operations   (86,625 )   779     (102,180 )   9,971  
Net income (loss) $ (106,998 ) $ 7,566   $ (102,196 ) $ 41,259  
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ (0.39 ) $ 0.13 $ - $ 0.59
Discontinued operations:
Income (loss) from operations (0.41 ) 0.05 (0.47 ) 0.26
Loss on divestiture of operations   (1.24 )   (0.04 )   (1.49 )   (0.07 )
Income (loss) from discontinued operations   (1.65 )   0.01     (1.96 )   0.19  
Net income (loss) $ (2.04 ) $ 0.14   $ (1.96 ) $ 0.78  
 
Diluted:
Income (loss) from continuing operations $ (0.39 ) $ 0.13 $ - $ 0.59
Discontinued operations:
Income (loss) from operations (0.41 ) 0.05 (0.47 ) 0.26
Loss on divestiture of operations   (1.24 )   (0.04 )   (1.49 )   (0.07 )
Income (loss) from discontinued operations   (1.65 )   0.01     (1.96 )   0.19  
Net income (loss) $ (2.04 ) $ 0.14   $ (1.96 ) $ 0.78  
 
Shares used in computing earnings (loss) per common share:
Basic 52,323 51,676 52,218 51,648
Diluted 52,323 51,709 52,218 51,675
           
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
 
September 30, December 31,
2013 2012
ASSETS
Current assets:
Cash and cash equivalents $ 44,579 $ 50,007
Cash - restricted 3,953 5,197
Insurance subsidiary investments 93,686 86,168
Accounts receivable less allowance for loss 929,931 1,038,605
Inventories 26,291 32,021
Deferred tax assets 16,543 12,663
Income taxes 43,309 13,573
Other   40,032     35,532  
1,198,324 1,273,766
 
Property and equipment 1,862,049 2,226,903
Accumulated depreciation   (997,057 )   (1,083,777 )
864,992 1,143,126
 
Goodwill 976,611 1,041,266
Intangible assets less accumulated amortization 405,771 439,767
Assets held for sale 22,092 4,131
Insurance subsidiary investments 149,916 116,424
Deferred tax assets 6,250 -
Other   240,653     219,466  
Total assets $ 3,864,609   $ 4,237,946  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 169,217 $ 210,668
Salaries, wages and other compensation 354,016 389,009
Due to third party payors 52,134 35,420
Professional liability risks 59,439 54,088
Other accrued liabilities 184,781 137,204
Long-term debt due within one year   8,225     8,942  
827,812 835,331
 
Long-term debt 1,382,385 1,648,706
Professional liability risks 246,482 236,630
Deferred tax liabilities - 9,764
Deferred credits and other liabilities 220,202 214,671
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 54,149 shares - September 30, 2013 and 53,280 shares - December 31, 2012

13,537 13,320
Capital in excess of par value 1,149,521 1,145,922
Accumulated other comprehensive loss (1,632 ) (1,882 )
Retained earnings (deficit)   (10,275 )   98,799  
1,151,151 1,256,159
Noncontrolling interests   36,577     36,685  
Total equity   1,187,728     1,292,844  
Total liabilities and equity $ 3,864,609   $ 4,237,946  
                     
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
 
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
Cash flows from operating activities:
Net income (loss) $ (106,244 ) $ 7,607 $ (100,944 ) $ 41,512

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 42,831 50,600 142,745 149,092
Amortization of stock-based compensation costs 1,553 3,132 7,641 8,011
Amortization of deferred financing costs 2,509 2,375 9,529 7,091
Payment of lender fees related to senior debt modifications (4,589 ) - (6,189 ) -
Provision for doubtful accounts 13,152 9,117 34,489 22,654
Deferred income taxes 2,336 (1,235 ) (22,985 ) (18,140 )
Impairment charges 8,995 708 10,077 1,904
Loss on divestiture of discontinued operations 65,016 2,280 77,893 3,806
Other 6,316 786 5,452 2,753
Change in operating assets and liabilities:
Accounts receivable 45,862 13,175 26,745 (67,913 )
Inventories and other assets 3,467 (5,490 ) 67 (20,897 )
Accounts payable (12,901 ) 5,281 (31,979 ) (7,252 )
Income taxes (27,969 ) 7,588 (5,269 ) 39,285
Due to third party payors 25,931 12,627 16,716 1,688
Other accrued liabilities   44,485     32,938     25,229     27,493  
Net cash provided by operating activities   110,750     141,489     189,217     191,087  
 
Cash flows from investing activities:
Routine capital expenditures (23,152 ) (25,939 ) (62,952 ) (76,804 )
Development capital expenditures (3,235 ) (15,177 ) (10,709 ) (38,175 )
Acquisitions, net of cash acquired (12,173 ) (71,440 ) (39,106 ) (139,308 )
Acquisition deposit (14,675 ) - (14,675 ) -
Sale of assets 236,397 - 248,700 1,110
Purchase of insurance subsidiary investments (7,765 ) (9,692 ) (30,360 ) (30,890 )
Sale of insurance subsidiary investments 9,899 8,063 35,427 30,073
Net change in insurance subsidiary cash and cash equivalents (1,416 ) (685 ) (44,294 ) (15,171 )
Change in other investments (140 ) 1,003 218 1,454
Other   79     (25 )   (142 )   (1,029 )
Net cash provided by (used in) investing activities   183,819     (113,892 )   82,107     (268,740 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 238,900 364,600 1,100,300 1,329,300
Repayment of borrowings under revolving credit (519,200 ) (390,400 ) (1,363,600 ) (1,244,900 )
Repayment of other long-term debt (92 ) (2,665 ) (4,818 ) (7,976 )
Payment of deferred financing costs (683 ) (288 ) (1,340 ) (601 )
Contribution made by noncontrolling interests - - - 200
Distribution made to noncontrolling interests (118 ) - (1,628 ) (3,521 )
Purchase of noncontrolling interests - (715 ) - (715 )
Issuance of common stock 222 - 429 -
Dividends paid (6,499 ) - (6,499 ) -
Other   53     -     404     -  
Net cash provided by (used in) financing activities   (287,417 )   (29,468 )   (276,752 )   71,787  
Change in cash and cash equivalents 7,152 (1,871 ) (5,428 ) (5,866 )
Cash and cash equivalents at beginning of period   37,427     37,566     50,007     41,561  
Cash and cash equivalents at end of period $ 44,579   $ 35,695   $ 44,579   $ 35,695  
                       
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
 
 
2012 Quarters 2013 Quarters
First Second Third Fourth First Second Third
 
Revenues $ 1,269,884   $ 1,229,108   $ 1,226,159   $ 1,247,549   $ 1,288,867   $ 1,218,116   $ 1,198,473  
 
Salaries, wages and benefits 780,050 747,992 754,761 761,494 799,519 731,401 733,605
Supplies 89,805 86,652 85,129 85,535 86,835 83,025 81,812
Rent 76,947 78,186 79,312 79,047 78,982 79,864 79,269
Other operating expenses 233,198 236,418 230,076 227,873 239,402 236,227 269,927
Other (income) expense (3,136 ) (3,165 ) (3,178 ) (3,181 ) (1,009 ) (26 ) 52
Impairment charges 498 111 406 108,127 187 457 441
Depreciation and amortization 39,470 40,655 41,304 42,623 42,650 39,631 37,591
Interest expense 26,570 26,713 26,663 27,929 28,171 29,084 25,633
Investment income   (283 )   (258 )   (212 )   (246 )   (88 )   (1,475 )   (1,235 )
  1,243,119     1,213,304     1,214,261     1,329,201     1,274,649     1,198,188     1,227,095  

Income (loss) from continuing operations before income taxes

26,765 15,804 11,898 (81,652 ) 14,218 19,928 (28,622 )
Provision (benefit) for income taxes   11,039     6,817     5,070     2,870     5,264     8,027     (9,003 )
Income (loss) from continuing operations 15,726 8,987 6,828 (84,522 ) 8,954 11,901 (19,619 )
Discontinued operations, net of income taxes:
Income (loss) from operations 4,086 6,632 3,059 4,625 (3,456 ) 778 (21,609 )
Loss on divestiture of operations   (1,170 )   (356 )   (2,280 )   (939 )   (2,025 )   (10,852 )   (65,016 )
Income (loss) from discontinued operations   2,916     6,276     779     3,686     (5,481 )   (10,074 )   (86,625 )
Net income (loss) 18,642 15,263 7,607 (80,836 ) 3,473 1,827 (106,244 )
(Earnings) loss attributable to noncontrolling interests   (451 )   239     (41 )   (790 )   (416 )   (82 )   (754 )
Income (loss) attributable to Kindred $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ 3,057   $ 1,745   $ (106,998 )
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 15,275 $ 9,226 $ 6,787 $ (85,312 ) $ 8,538 $ 11,819 $ (20,373 )
Income (loss) from discontinued operations   2,916     6,276     779     3,686     (5,481 )   (10,074 )   (86,625 )
Net income (loss) $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ 3,057   $ 1,745   $ (106,998 )
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.29 $ 0.17 $ 0.13 $ (1.65 ) $ 0.16 $ 0.22 $ (0.39 )
Discontinued operations:
Income (loss) from operations 0.08 0.13 0.05 0.09 (0.06 ) 0.01 (0.41 )
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.04 )   (0.20 )   (1.24 )
Income (loss) from discontinued operations   0.06     0.12     0.01     0.07     (0.10 )   (0.19 )   (1.65 )
Net income (loss) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ 0.06   $ 0.03   $ (2.04 )
 
Diluted:
Income (loss) from continuing operations $ 0.29 $ 0.17 $ 0.13 $ (1.65 ) $ 0.16 $ 0.22 $ (0.39 )
Discontinued operations:
Income (loss) from operations 0.08 0.13 0.05 0.09 (0.06 ) 0.01 (0.41 )
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.04 )   (0.20 )   (1.24 )
Income (loss) from discontinued operations   0.06     0.12     0.01     0.07     (0.10 )   (0.19 )   (1.65 )
Net income (loss) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ 0.06   $ 0.03   $ (2.04 )
 

Shares used in computing earnings (loss) per common share:

Basic 51,603 51,664 51,676 51,692 52,062 52,265 52,323
Diluted 51,638 51,675 51,709 51,692 52,083 52,284 52,323
                       
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
 
 
2012 Quarters 2013 Quarters
First Second Third Fourth First Second Third
Revenues:
Hospital division $ 683,068 $ 648,152 $ 636,463 $ 647,794 $ 677,246 $ 623,877 $ 608,506
 
Nursing center division 285,032 279,353 282,223 283,451 283,771 278,191 277,668
 
Rehabilitation division:
Skilled nursing rehabilitation services 253,595 253,181 252,201 244,558 257,585 248,331 243,968
Hospital rehabilitation services   74,369     73,402     71,899     73,910     74,523     69,777     68,296  
  327,964     326,583     324,100     318,468     332,108     318,108     312,264  
 
Home health and hospice division   28,432     28,872     35,943     50,093     51,621     53,039     53,801  
1,324,496 1,282,960 1,278,729 1,299,806 1,344,746 1,273,215 1,252,239
 
Eliminations:
Skilled nursing rehabilitation services (28,953 ) (28,481 ) (27,805 ) (26,788 ) (30,161 ) (30,122 ) (29,414 )
Hospital rehabilitation services (25,023 ) (24,496 ) (23,904 ) (24,463 ) (24,505 ) (23,976 ) (23,191 )
Nursing centers   (636 )   (875 )   (861 )   (1,006 )   (1,213 )   (1,001 )   (1,161 )
  (54,612 )   (53,852 )   (52,570 )   (52,257 )   (55,879 )   (55,099 )   (53,766 )
$ 1,269,884   $ 1,229,108   $ 1,226,159   $ 1,247,549   $ 1,288,867   $ 1,218,116   $ 1,198,473  
 
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 151,491 $ 131,933 $ 130,798 $ 146,649 $ 149,644 $ 131,958 $ 112,290 (a)
 
Nursing center division 32,810 35,030 37,865 31,276 28,519 35,381 30,304
 
Rehabilitation division:
Skilled nursing rehabilitation services 10,904 19,519 16,996 21,074 12,074 20,307 (8,571 ) (b)
Hospital rehabilitation services   16,116     17,860     16,977     18,792     18,132     19,573     18,215   (c)
  27,020     37,379     33,973     39,866     30,206     39,880     9,644  
 
Home health and hospice division 2,341 2,789 3,645 4,933 2,786 3,961 1,085 (d)
 
Corporate:
Overhead (42,728 ) (44,723 ) (45,883 ) (45,729 ) (45,582 ) (43,199 ) (39,151 ) (e)
Insurance subsidiary   (482 )   (600 )   (545 )   (500 )   (509 )   (384 )   (482 )
(43,210 ) (45,323 ) (46,428 ) (46,229 ) (46,091 ) (43,583 ) (39,633 )
 
Impairment charges (498 ) (111 ) (406 ) (108,127 ) (187 ) (457 ) (441 )
Transaction costs   (485 )   (597 )   (482 )   (667 )   (944 )   (108 )   (613 )
Operating income 169,469 161,100 158,965 67,701 163,933 167,032 112,636
Rent (76,947 ) (78,186 ) (79,312 ) (79,047 ) (78,982 ) (79,864 ) (79,269 )
Depreciation and amortization (39,470 ) (40,655 ) (41,304 ) (42,623 ) (42,650 ) (39,631 ) (37,591 )
Interest, net   (26,287 )   (26,455 )   (26,451 )   (27,683 )   (28,083 )   (27,609 )   (24,398 ) (f)

Income (loss) from continuing operations before income taxes

26,765 15,804 11,898 (81,652 ) 14,218 19,928 (28,622 )
Provision (benefit) for income taxes   11,039     6,817     5,070     2,870     5,264     8,027     (9,003 )
$ 15,726   $ 8,987   $ 6,828   $ (84,522 ) $ 8,954   $ 11,901   $ (19,619 )
 
       
(a) Includes costs of $5.5 million in connection with the closing of a TC hospital and a litigation charge of $0.7 million.
 
(b) Includes $23.1 million of litigation charges.
 
(c) Includes $0.3 million of severance and retirement costs.
 
(d) Includes $0.6 million of severance and retirement costs and $0.5 million of costs associated with closing a home health location.
 
(e) Includes $1.0 million of severance and retirement costs and $0.5 million of fees associated with the modification of certain of the Company's senior debt.
 
(f) Includes $0.1 million of charges associated with the modification of certain of the Company's senior debt.
                         
 
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
 
 
Three months ended September 30, 2013
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (a) division services (b) services (c) Total hospice (d) Corporate (e) costs Eliminations Consolidated
 
Revenues $ 608,506   $ 277,668   $ 243,968   $ 68,296 $ 312,264   $ 53,801   $ -   $ -   $ (53,766 ) $ 1,198,473  
 
Salaries, wages and benefits 269,295 134,068 220,267 45,872 266,139 43,184 21,022 - (103 ) 733,605
Supplies 65,351 13,155 750 28 778 2,277 251 - - 81,812
Rent 50,929 25,450 1,123 19 1,142 1,193 555 - - 79,269
Other operating expenses 161,568 100,321 31,342 4,150 35,492 7,237 18,359 613 (53,663 ) 269,927
Other (income) expense 2 (180 ) 180 31 211 18 1 - - 52
Impairment charges 418 23 - - - - - - - 441
Depreciation and amortization 17,483 6,830 2,461 2,281 4,742 1,638 6,898 - - 37,591
Interest expense 203 13 63 - 63 6 25,348 - - 25,633
Investment income   (8 )   (19 )   (50 )   -   (50 )   -     (1,158 )   -     -     (1,235 )
  565,241     279,661     256,136     52,381   308,517     55,553     71,276     613     (53,766 )   1,227,095  

Income (loss) from continuing operations before income taxes

$ 43,265   $ (1,993 ) $ (12,168 ) $ 15,915 $ 3,747   $ (1,752 ) $ (71,276 ) $ (613 ) $ -   (28,622 )
Income tax benefit   (9,003 )
Loss from continuing operations $ (19,619 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 6,421 $ 5,584 $ 860 $ 31 $ 891 $ 522 $ 9,734 $ - $ - $ 23,152
Development   3,235     -     -     -   -     -     -     -     -     3,235  
$ 9,656   $ 5,584   $ 860   $ 31 $ 891   $ 522   $ 9,734   $ -   $ -   $ 26,387  
 
 
Three months ended September 30, 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (f) division services services Total hospice Corporate costs Eliminations Consolidated
 
Revenues $ 636,463   $ 282,223   $ 252,201   $ 71,899 $ 324,100   $ 35,943   $ -   $ -   $ (52,570 ) $ 1,226,159  
 
Salaries, wages and benefits 283,611 138,153 224,283 50,724 275,007 26,332 32,008 (350 ) - 754,761
Supplies 67,820 14,831 704 33 737 1,557 184 - - 85,129
Rent 52,197 24,300 1,356 2 1,358 805 652 - - 79,312
Other operating expenses 154,286 91,769 10,216 4,165 14,381 4,409 16,969 832 (52,570 ) 230,076
Other (income) expense (52 ) (395 ) 2 - 2 - (2,733 ) - - (3,178 )
Impairment charges 284 122 - - - - - - - 406
Depreciation and amortization 20,060 7,298 2,811 2,328 5,139 1,137 7,670 - - 41,304
Interest expense 231 15 36 - 36 4 26,377 - - 26,663
Investment income   (5 )   (17 )   -     -   -     -     (190 )   -     -     (212 )
  578,432     276,076     239,408     57,252   296,660     34,244     80,937     482     (52,570 )   1,214,261  

Income from continuing operations before income taxes

$ 58,031   $ 6,147   $ 12,793   $ 14,647 $ 27,440   $ 1,699   $ (80,937 ) $ (482 ) $ -   11,898
Provision for income taxes   5,070  
Income from continuing operations $ 6,828  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 9,015 $ 4,965 $ 707 $ 125 $ 832 $ 160 $ 10,967 $ - $ - $ 25,939
Development   14,334     843     -     -   -     -     -     -     -     15,177  
$ 23,349   $ 5,808   $ 707   $ 125 $ 832   $ 160   $ 10,967   $ -   $ -   $ 41,116  
       
(a) Includes costs of $5.5 million in connection with the closing of a TC hospital and a litigation charge of $0.7 million.
 
(b) Includes $23.1 million of litigation charges.
 
(c) Includes $0.3 million of severance and retirement costs.
 
(d) Includes $0.6 million of severance and retirement costs and $0.5 million of costs associated with closing a home health location.
 
(e) Includes $1.0 million of severance and retirement costs and $0.6 million of fees and charges associated with the modification of certain of the Company’s senior debt.
 
(f) Includes a lease cancellation charge of $0.6 million incurred in connection with the closing of a TC hospital.
                         
 
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
 
 
Nine months ended September 30, 2013
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and Corporate related
division (a,b) division (a) services (a,c) services (a,d) Total hospice (a,e) (a,f) costs Eliminations Consolidated
 
Revenues $ 1,909,629   $ 839,630   $ 749,884   $ 212,596 $ 962,480   $ 158,461   $ -   $ -   $ (164,744 ) $ 3,705,456  
 
Salaries, wages and benefits 837,573 408,679 674,985 144,528 819,513 123,228 75,943 - (411 ) 2,264,525
Supplies 201,579 40,178 2,346 90 2,436 6,840 639 - - 251,672
Rent 153,021 76,144 3,555 55 3,610 3,534 1,806 - - 238,115
Other operating expenses 476,508 297,405 48,524 11,999 60,523 20,543 53,245 1,665 (164,333 ) 745,556
Other (income) expense 77 (836 ) 219 59 278 18 (520 ) - - (983 )
Impairment charges 1,002 83 - - - - - - - 1,085
Depreciation and amortization 56,202 21,642 8,451 6,931 15,382 4,779 21,867 - - 119,872
Interest expense 564 41 232 - 232 6 82,045 - - 82,888
Investment income   (16 )   (42 )   (152 )   -   (152 )   -     (2,588 )   -     -     (2,798 )
  1,726,510     843,294     738,160     163,662   901,822     158,948     232,437     1,665     (164,744 )   3,699,932  

Income (loss) from continuing operations before income taxes

$ 183,119   $ (3,664 ) $ 11,724   $ 48,934 $ 60,658   $ (487 ) $ (232,437 ) $ (1,665 ) $ -   5,524
Provision for income taxes   4,288  
Income from continuing operations $ 1,236  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 22,285 $ 15,662 $ 1,929 $ 108 $ 2,037 $ 1,056 $ 21,912 $ - $ - $ 62,952
Development   10,702     7     -     -   -     -     -     -     -     10,709  
$ 32,987   $ 15,669   $ 1,929   $ 108 $ 2,037   $ 1,056   $ 21,912   $ -   $ -   $ 73,661  
 
 
Nine months ended September 30, 2012
Nursing Rehabilitation division Home Transaction-
Hospital center Skilled nursing Hospital health and related
division (g) division (h) services services Total hospice Corporate costs Eliminations Consolidated
 
Revenues $ 1,967,683   $ 846,608   $ 758,977   $ 219,670 $ 978,647   $ 93,247   $ -   $ -   $ (161,034 ) $ 3,725,151  
 
Salaries, wages and benefits 864,779 418,487 682,940 155,404 838,344 68,829 92,783 (350 ) (69 ) 2,282,803
Supplies 210,106 44,697 2,251 127 2,378 3,826 579 - - 261,586
Rent 153,790 72,487 4,204 119 4,323 2,029 1,816 - - 234,445
Other operating expenses 478,923 278,697 26,365 13,163 39,528 11,817 49,778 1,914 (160,965 ) 699,692
Other (income) expense (347 ) (978 ) 2 23 25 - (8,179 ) - - (9,479 )
Impairment charges 636 379 - - - - - - - 1,015
Depreciation and amortization 59,247 21,123 8,223 6,975 15,198 2,960 22,901 - - 121,429
Interest expense 810 52 36 - 36 4 79,044 - - 79,946
Investment income   (46 )   (39 )   (1 )   -   (1 )   -     (667 )   -     -     (753 )
  1,767,898     834,905     724,020     175,811   899,831     89,465     238,055     1,564     (161,034 )   3,670,684  

Income from continuing operations before income taxes

$ 199,785   $ 11,703   $ 34,957   $ 43,859 $ 78,816   $ 3,782   $ (238,055 ) $ (1,564 ) $ -   54,467
Provision for income taxes   22,926  
Income from continuing operations $ 31,541  
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 28,455 $ 12,611 $ 1,602 $ 231 $ 1,833 $ 429 $ 33,476 $ - $ - $ 76,804
Development   35,572     2,603     -     -   -     -     -     -     -     38,175  
$ 64,027   $ 15,214   $ 1,602   $ 231 $ 1,833   $ 429   $ 33,476   $ -   $ -   $ 114,979  
       
(a)

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

 
(b) Includes costs of $5.5 million in connection with the closing of a TC hospital and a litigation charge of $0.7 million.
 
(c) Includes $23.1 million of litigation charges.
 
(d) Includes $0.3 million of severance and retirement costs.
 
(e) Includes $0.6 million of severance and retirement costs and $0.5 million of costs associated with closing a home health location.
 
(f) Includes $1.0 million of severance and retirement costs and $2.0 million of fees and charges associated with the modification of certain of the Company’s senior debt.
 
(g)

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

 
(h) Includes $0.9 million incurred in connection with the cancellation of a sub-acute unit project.
                                     
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
 
 
2012 Quarters 2013 Quarters
First Second Third Fourth First Second Third
Hospital division data:
End of period data:
Number of hospitals:
Transitional care 104 103 102 102 102 102 102
Inpatient rehabilitation 5 5 5 5 5 5 5
109 108 107 107 107 107 107
 
Number of licensed beds:
Transitional care 7,469 7,419 7,380 7,380 7,380 7,380 7,394
Inpatient rehabilitation 185 215 215 215 215 215 215
7,654 7,634 7,595 7,595 7,595 7,595 7,609
 
Revenue mix %:
Medicare 63 62 61 63 63 61 59
Medicaid 6 6 6 6 5 6 7
Medicare Advantage 10 11 11 10 10 11 11
Commercial insurance and other 21 21 22 21 22 22 23
 
Admissions:
Medicare 10,767 9,989 9,831 9,936 10,649 9,756 9,266
Medicaid 925 919 915 839 685 744 789
Medicare Advantage 1,532 1,649 1,494 1,453 1,583 1,537 1,461
Commercial insurance and other 2,546 2,342 2,357 2,247 2,226 2,121 2,144
15,770 14,899 14,597 14,475 15,143 14,158 13,660
Admissions mix %:
Medicare 68 67 68 69 70 69 68
Medicaid 6 6 6 6 5 5 6
Medicare Advantage 10 11 10 10 10 11 11
Commercial insurance and other 16 16 16 15 15 15 15
 
Patient days:
Medicare 264,930 250,081 244,189 248,315 261,311 241,790 230,780
Medicaid 32,848 30,568 33,671 31,697 28,776 30,447 31,608
Medicare Advantage 43,392 46,071 44,138 42,458 44,639 44,695 43,391
Commercial insurance and other 75,351 73,331 72,394 69,552 73,512 66,706 68,583
416,521 400,051 394,392 392,022 408,238 383,638 374,362
Average length of stay:
Medicare 24.6 25.0 24.8 25.0 24.5 24.8 24.9
Medicaid 35.5 33.3 36.8 37.8 42.0 40.9 40.1
Medicare Advantage 28.3 27.9 29.5 29.2 28.2 29.1 29.7
Commercial insurance and other 29.6 31.3 30.7 31.0 33.0 31.5 32.0
Weighted average 26.4 26.9 27.0 27.1 27.0 27.1 27.4
                                     
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
 
2012 Quarters 2013 Quarters
First Second Third Fourth First Second Third
Hospital division data (continued):
Revenues per admission:
Medicare $ 39,802 $ 40,043 $ 39,423 $ 40,963 $ 39,956 $ 38,884 $ 39,078
Medicaid 42,937 42,150 41,591 43,487 51,441 48,141 51,891
Medicare Advantage 44,297 42,661 46,465 45,790 44,397 45,348 46,793
Commercial insurance and other 57,715 59,384 60,002 61,313 65,694 65,537 63,947
Weighted average 43,314 43,503 43,602 44,752 44,723 44,065 44,546
 
Revenues per patient day:
Medicare $ 1,618 $ 1,599 $ 1,587 $ 1,639 $ 1,628 $ 1,569 $ 1,569
Medicaid 1,209 1,267 1,130 1,151 1,225 1,176 1,295
Medicare Advantage 1,564 1,527 1,573 1,567 1,574 1,559 1,576
Commercial insurance and other 1,950 1,897 1,954 1,981 1,989 2,084 1,999
Weighted average 1,640 1,620 1,614 1,652 1,659 1,626 1,625
 

Medicare case mix index (discharged patients only)

1.18 1.18 1.16 1.15 1.18 1.18 1.16
 
Average daily census 4,577 4,396 4,287 4,261 4,536 4,216 4,069
Occupancy % 68.3 64.9 63.9 63.6 67.5 62.5 60.0
 
Annualized employee turnover % 22.0 21.5 20.2 19.8 22.2 21.6 21.1
 
Nursing center division data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased 99 99 99 98 98 98 98
Managed 4 4 4 4 4 4 4
Assisted living facilities   6   6   6   6   6   6   6
  109   109   109   108   108   108   108
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased 12,747 12,795 12,795 12,741 12,741 12,741 12,741
Managed 485 485 485 485 485 485 485
Assisted living facilities   413   341   341   341   341   341   341
  13,645   13,621   13,621   13,567   13,567   13,567   13,567
Revenue mix %:
Medicare 35 35 34 35 35 34 33
Medicaid 36 37 37 37 36 36 39
Medicare Advantage 8 8 8 7 8 8 7
Private and other 21 20 21 21 21 22 21
                                   
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
 
2012 Quarters 2013 Quarters
First Second Third Fourth First Second Third
Nursing center division data (continued):
Patient days (a):
Medicare 184,273 178,799 173,627 170,509 175,642 166,291 161,181
Medicaid 548,718 549,131 554,260 549,053 533,317 533,032 542,265
Medicare Advantage 55,238 50,688 50,355 48,687 55,478 54,593 47,565
Private and other   238,158   232,488   238,386   239,446   228,210   228,875   228,698
  1,026,387   1,011,106   1,016,628   1,007,695   992,647   982,791   979,709
 
Patient day mix % (a):
Medicare 18 18 17 17 18 17 17
Medicaid 54 54 55 54 54 54 55
Medicare Advantage 5 5 5 5 5 6 5
Private and other 23 23 23 24 23 23 23
 
Revenues per patient day (a):
Medicare Part A $ 504 $ 505 $ 515 $ 536 $ 525 $ 525 $ 524
Total Medicare (including Part B) 546 550 560 574 562 564 566
Medicaid 185 187 188 190 190 190 199
Medicaid (net of provider taxes) (b) 163 165 166 167 168 167 177
Medicare Advantage 427 421 422 429 427 431 427
Private and other 248 244 249 253 262 261 255
Weighted average 278 276 277 281 286 283 283
 
Average daily census (a) 11,279 11,111 11,050 10,953 11,029 10,800 10,649
Admissions (a) 11,538 10,646 10,482 10,814 11,475 10,708 10,387
Occupancy % (a) 83.7 82.6 82.0 81.5 82.2 80.5 79.4
Medicare average length of stay (a) 30.4 31.3 31.9 30.7 30.2 31.0 31.6
 
Annualized employee turnover % 38.4 40.4 39.8 39.6 41.0 43.8 43.5
 
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated 11 11 11 11 12 12 12
Non-affiliated 89 89 89 89 88 88 88
 
Sites of service (at end of period) 1,722 1,730 1,735 1,726 1,729 1,713 1,768
Revenue per site $ 147,268 $ 146,347 $ 145,361 $ 141,690 $ 148,979 $ 144,968 $ 137,991
 
Therapist productivity % 80.3 80.4 80.5 80.5 81.1 80.4 80.4
 
Hospital rehabilitation services:
Revenue mix %:
Company-operated 34 33 33 33 33 34 34
Non-affiliated 66 67 67 67 67 66 66
 
Sites of service (at end of period):
Inpatient rehabilitation units 100 102 104 105 103 103 99
LTAC hospitals 125 125 123 123 123 123 122
Sub-acute units 19 20 20 21 8 8 7
Outpatient units 111 115 117 119 98 104 104
Other   5   5   5   5   -   -   -
  360   367   369   373   332   338   332
 
Revenue per site $ 206,580 $ 200,006 $ 194,849 $ 198,150 $ 224,466 $ 206,441 $ 205,711
 
Annualized employee turnover % 19.6 16.9 17.3 16.9 10.4 13.2 14.0
       
(a) Excludes managed facilities.
(b) Provider taxes are recorded in other operating expenses for all periods presented.
                           
 
KINDRED HEALTHCARE, INC.
Earnings (Loss) Per Common Share Reconciliation (a)
(Unaudited)
(In thousands, except per share amounts)
 
Three months ended September 30, Nine months ended September 30,
2013 2012 2013 2012
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings (loss):
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations:
As reported in Statement of Operations $ (20,373 ) $ (20,373 ) $ 6,787 $ 6,787 $ (16 ) $ (16 ) $ 31,288 $ 31,288

Allocation to participating unvested restricted stockholders

  -     -     (173 )   (172 )   -     -     (660 )   (659 )
Available to common stockholders $ (20,373 ) $ (20,373 ) $ 6,614   $ 6,615   $ (16 ) $ (16 ) $ 30,628   $ 30,629  
 
Discontinued operations, net of income taxes:
Income (loss) from operations:
As reported in Statement of Operations $ (21,609 ) $ (21,609 ) $ 3,059 $ 3,059 $ (24,287 ) $ (24,287 ) $ 13,777 $ 13,777

Allocation to participating unvested restricted stockholders

  -     -     (78 )   (78 )   -     -     (290 )   (290 )
Available to common stockholders $ (21,609 ) $ (21,609 ) $ 2,981   $ 2,981   $ (24,287 ) $ (24,287 ) $ 13,487   $ 13,487  
 
Loss on divestiture of operations:
As reported in Statement of Operations $ (65,016 ) $ (65,016 ) $ (2,280 ) $ (2,280 ) $ (77,893 ) $ (77,893 ) $ (3,806 ) $ (3,806 )

Allocation to participating unvested restricted stockholders

  -     -     58     58     -     -     80     80  
Available to common stockholders $ (65,016 ) $ (65,016 ) $ (2,222 ) $ (2,222 ) $ (77,893 ) $ (77,893 ) $ (3,726 ) $ (3,726 )
 
Income (loss) from discontinued operations:
As reported in Statement of Operations $ (86,625 ) $ (86,625 ) $ 779 $ 779 $ (102,180 ) $ (102,180 ) $ 9,971 $ 9,971

Allocation to participating unvested restricted stockholders

  -     -     (20 )   (20 )   -     -     (210 )   (210 )
Available to common stockholders $ (86,625 ) $ (86,625 ) $ 759   $ 759   $ (102,180 ) $ (102,180 ) $ 9,761   $ 9,761  
 
Net income (loss):
As reported in Statement of Operations $ (106,998 ) $ (106,998 ) $ 7,566 $ 7,566 $ (102,196 ) $ (102,196 ) $ 41,259 $ 41,259

Allocation to participating unvested restricted stockholders

  -     -     (193 )   (192 )   -     -     (870 )   (869 )
Available to common stockholders $ (106,998 ) $ (106,998 ) $ 7,373   $ 7,374   $ (102,196 ) $ (102,196 ) $ 40,389   $ 40,390  
 
Shares used in the computation:

Weighted average shares outstanding - basic computation

  52,323   52,323   51,676   51,676   52,218   52,218   51,648   51,648
Dilutive effect of employee stock options - 33 - 27
       

Adjusted weighted average shares outstanding - diluted computation

 

  52,323  

 

  51,709  

 

  52,218  

 

  51,675  
 
Earnings (loss) per common share:
Income (loss) from continuing operations $ (0.39 ) $ (0.39 ) $ 0.13 $ 0.13 $ - $ - $ 0.59 $ 0.59
Discontinued operations:
Income (loss) from operations (0.41 ) (0.41 ) 0.05 0.05 (0.47 ) (0.47 ) 0.26 0.26
Loss on divestiture of operations   (1.24 )   (1.24 )   (0.04 )   (0.04 )   (1.49 )   (1.49 )   (0.07 )   (0.07 )
Income (loss) from discontinued operations   (1.65 )   (1.65 )   0.01     0.01     (1.96 )   (1.96 )   0.19     0.19  
Net income (loss) $ (2.04 ) $ (2.04 ) $ 0.14   $ 0.14   $ (1.96 ) $ (1.96 ) $ 0.78   $ 0.78  
 
       
(a) Earnings (loss) per common share are based upon the weighted average number of common shares outstanding during the respective periods. The diluted calculation of earnings per common share includes the dilutive effect of stock options. The Company follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method.
                     
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results
(Unaudited)
(In thousands, except per share amounts and statistics)
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and nine months ended September 30, 2013 and 2012 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
 
The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 29.6% and 15.5% for the three months ended September 30, 2013 and 2012, respectively, and 33.8% and 36.7% for the nine months ended September 30, 2013 and 2012, respectively. The change in the effective income tax rates between periods is attributable to certain charges that are non-deductible for income tax purposes.
 
The use of these non-GAAP measurements are not intended to replace the presentation of the Company's financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the three months and nine months ended September 30, 2013 and 2012 that the Company believes are not representative of its ongoing operations due to the materiality and nature of the charges. The Company's core operating results also represent a key performance measure for the purpose of evaluating performance internally.
 
 
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
Detail of charges:
One-time bonus costs $ - $ - ($20,458 ) $ -
Severance, retirement and other costs (2,353 ) (51 ) (2,353 ) (4,527 )
Costs associated with the closing of a TC hospital and a home health location (6,043 ) - (6,043 ) -
Litigation (23,850 ) - (23,850 ) (5,000 )
Transaction costs (613 ) (482 ) (1,665 ) (1,564 )
Lease cancellation charges (rent expense) - (596 ) - (1,515 )
Senior debt modification charges (interest expense)   (96 )   -     (1,461 )   -  
(32,955 ) (1,129 ) (55,830 ) (12,606 )
Income tax benefit   9,747     175     18,885     4,622  
Charges net of income taxes (23,208 ) (954 ) (36,945 ) (7,984 )
Allocation to participating unvested restricted stockholders   -     24     -     168  
Available to common stockholders   ($23,208 )   ($930 )   ($36,945 )   ($7,816 )
 
Weighted average diluted shares outstanding   52,323     51,709     52,218     51,675  
 
Diluted loss per common share related to charges   ($0.44 )   ($0.02 )   ($0.71 )   ($0.15 )
 
Reconciliation of operating income before charges:
Operating income before charges $ 145,495 $ 159,498 $ 497,970 $ 500,625
Detail of charges excluded from core operating results:
One-time bonus costs - - (20,458 ) -
Severance, retirement and other costs (2,353 ) (51 ) (2,353 ) (4,527 )
Costs associated with the closing of a TC hospital and a home health location (6,043 ) - (6,043 ) -
Litigation (23,850 ) - (23,850 ) (5,000 )
Transaction costs   (613 )   (482 )   (1,665 )   (1,564 )
  (32,859 )   (533 )   (54,369 )   (11,091 )
Reported operating income $ 112,636   $ 158,965   $ 443,601   $ 489,534  
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $ 2,835 $ 7,741 $ 36,929 $ 39,272
Charges net of income taxes   (23,208 )   (954 )   (36,945 )   (7,984 )
Reported income (loss) from continuing operations   ($20,373 ) $ 6,787     ($16 ) $ 31,288  
 

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

Diluted income per common share before charges (a) $ 0.05 $ 0.15 $ 0.68 $ 0.74
Charges net of income taxes (0.44 ) (0.02 ) (0.71 ) (0.15 )
Other   -     -     0.03     -  
Reported diluted income (loss) per common share from continuing operations   ($0.39 ) $ 0.13   $ -   $ 0.59  
 

Weighted average diluted shares used to compute diluted income per common share from continuing operations before charges

  52,333     51,709     52,234     51,675  
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 17.2 % 40.3 % 37.8 % 41.1 %
Impact of charges on effective income tax rate   14.3 %   2.3 %   39.8 %   1.0 %
Reported effective income tax rate   31.5 %   42.6 %   77.6 %   42.1 %
 
   
(a) For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.1 million and $0.2 million for the three months ended September 30, 2013 and 2012, respectively, and $1.2 million and $0.8 million for the nine months ended September 30, 2013 and 2012, respectively, for the allocation of income to participating unvested restricted stockholders.
                           
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
 
Three months ended September 30, 2013
Charges
Severance Facility Senior debt
Before and retirement closing Transaction modification As
charges costs costs Litigation costs charges Total reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 118,517 $ - $ (5,527 ) $ (700 ) $ - $ - $ (6,227 ) $ 112,290
 
Nursing center division 30,368 - (64 ) - - - (64 ) 30,304
 
Rehabilitation division:
Skilled nursing rehabilitation services 14,579 - - (23,150 ) - - (23,150 ) (8,571 )
Hospital rehabilitation services   18,503     (288 )   -     -     -     -     (288 )   18,215  
  33,082     (288 )   -     (23,150 )   -     -     (23,438 )   9,644  
 
Home health and hospice division 2,138 (601 ) (452 ) - - - (1,053 ) 1,085
 
Corporate:
Overhead (37,687 ) (1,005 ) - - - (459 ) (1,464 ) (39,151 )
Insurance subsidiary   (482 )   -     -     -     -     -     -     (482 )
(38,169 ) (1,005 ) - - - (459 ) (1,464 ) (39,633 )
 
Impairment charges (441 ) - - - - - - (441 )
Transaction costs   -     -     -     -     (613 )   -     (613 )   (613 )
Operating income 145,495 (1,894 ) (6,043 ) (23,850 ) (613 ) (459 ) (32,859 ) 112,636
Rent (79,269 ) - - - - - - (79,269 )
Depreciation and amortization (37,591 ) - - - - - - (37,591 )
Interest, net   (24,302 )   -     -     -     -     (96 )