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Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

February 28, 2018

Consolidated Revenues of $1.5 Billion, GAAP Loss from Continuing Operations of $135 Million(1), GAAP Diluted Loss Per Share from Continuing Operations of $1.65(1), and EBITDA Loss of $193 Million(2) in the Fourth Quarter

Core EBITDA of $119 Million(3) and Core Diluted Earnings Per Share from Continuing Operations of $0.20(3) in the Fourth Quarter

GAAP and Core Results in the Fourth Quarter include Negative Pretax Earnings Impact of $2 Million andDiluted EPS Impact of $0.02 from LTAC Hospital Closures

Consolidated Revenues of $6.0 Billion, GAAP Loss from Continuing Operations of $247 Million, GAAP Diluted Loss Per Share from Continuing Operations of $3.31, and EBITDA Loss of $62 Million(3) for the Year

Core EBITDA of $444 Million(3) and Core Diluted Earnings Per Share from Continuing Operations of $0.34(3) for the Year

GAAP and Core Results for the Year Include Negative Pretax Earnings Impact of $16 Million from Hurricanes and $6 Million from LTAC Hospital Closures and Diluted EPS Impact of $0.11 from Hurricanes and $0.04 from LTAC Hospital Closures

GAAP Operating Cash Flows of $67 Million in the Fourth Quarter
Core Operating Cash Flows of $87 Million(3) in the Fourth Quarter

GAAP Operating Cash Flows of $76 Millionfor the Year; Core Operating Cash Flows of $137 Million(3) for the Year

Core Free Cash Flows of $50 Million(3) in the Fourth Quarter; Core Free Cash Flows of $6 Million(3) for the Year

Company Reaffirms 2018 Outlook and Does Not Intend to Provide Future Guidance Updates Due to Pending Merger

LOUISVILLE, Ky.--(BUSINESS WIRE)--Feb. 28, 2018-- Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and full year ended December 31, 2017. The Company also today will file its Annual Report on Form 10-K with the Securities and Exchange Commission (“SEC”).

On December 19, 2017, the Company announced that its Board of Directors approved a definitive agreement under which it will be acquired by a consortium of three companies: TPG Capital (“TPG”), Welsh, Carson, Anderson & Stowe (“WCAS”) and Humana Inc. (“Humana”) (NYSE:HUM) (together, the “Consortium”) for approximately $4.1 billion in cash including the assumption or repayment of net debt (the “Merger”). Immediately following the Merger, the home health, hospice and community care businesses will be separated from the Company and operated as a standalone company owned 40 percent by Humana, with the remaining 60 percent owned by TPG and WCAS. The Company’s long-term acute care (“LTAC”) hospitals, inpatient rehabilitation facilities (“IRFs”) and contract rehabilitation services businesses will be operated as a separate specialty hospital company owned by TPG and WCAS.

Benjamin A. Breier, President and Chief Executive Officer of Kindred, commented, “Our fourth quarter results reflect continued execution of the Company’s strategy. We are pleased to be moving forward with the Consortium and look forward to completing the Merger to deliver immediate and certain value to Kindred stockholders at a substantial premium and eliminate the significant risks associated with continuing to operate as a standalone public company or pursuing other strategic alternatives. We are confident that the Merger will enhance innovation at both the home care and specialty hospital companies, further Kindred’s culture of a patient-first approach to care and create new opportunities for Kindred employees.”

_______________________________
(1) Results reflect after-tax costs of $163.7 million or $1.86 per diluted share related to impairment charges, insurance restructuring costs, other restructuring charges, litigation contingency expense, net change in deferred tax asset valuation allowance and an adjustment to reduce deferred tax liabilities based upon certain changes enacted by the Tax Cuts and Jobs Act of 2017 (“the Tax Reform Act”).
(2) Results reflect pretax costs of $312.0 million related to impairment charges, insurance restructuring costs, other restructuring charges and litigation contingency expense. As used herein, “EBITDA” means earnings before interest, income taxes, depreciation and amortization. See reconciliation of generally accepted accounting principles (“GAAP”) results to non-GAAP results beginning on page 14.
(3) See reconciliation of GAAP results to non-GAAP results beginning on page 14. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

The agreement is subject to certain conditions to closing, including, without limitation, the approval of the agreement by the stockholders of Kindred, the receipt of certain licensure and regulatory approvals, and other customary closing conditions. The waiting period for the Merger under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, expired on February 20, 2018. The Merger is expected to close during the summer of 2018.

All financial and statistical information included in this earnings release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated. As previously disclosed, while the operating results, direct overhead and losses associated with the skilled nursing facility business divestiture, and elimination of intercompany profits for certain applicable RehabCare contracts, are classified as discontinued operations, they do not include any allocations of indirect overhead related to the skilled nursing facility business. In the fourth quarter of 2017, the Company reclassified historical intercompany profits from certain RehabCare contracts that were retained with new operators of divested skilled nursing facilities from discontinued operations to continuing operations for all periods presented. The impact of the retained RehabCare contracts on fourth quarter 2017 revenues, loss from continuing operations before income taxes, EBITDA and Core EBITDA was immaterial.

Fourth Quarter Consolidated Results(1):

  • Consolidated revenues were $1.5 billion, a 2.3% year-over-year decrease, primarily attributable to the impact of the closure of seven LTAC hospitals and termination of over 100 RehabCare sites of service during 2017. GAAP loss from continuing operations was $135.4 million compared to a loss of $1.9 million in the same period a year ago. EBITDA decreased to a loss of $192.8 million compared to $88.7 million of income in the prior year. The increase in the loss from continuing operations and the adverse change in EBITDA was primarily due to a $241.3 million increase in impairment charges and a $41.4 million increase in restructuring charges. Core EBITDA increased to $119.2 million compared to $108.2 million in the same period of 2016, primarily due to growth in home health and IRF volumes, growth in home health and hospice revenue rates, and lower professional liability and workers compensation costs.
  • GAAP operating cash flows were $67.2 million compared to $147.0 million for the same period a year ago. Core operating cash flows were $86.5 million compared to $142.5 million for the same period a year ago. Core free cash flows were $49.7 million compared to $104.4 million in the same period a year ago. GAAP operating cash flows declined compared to the prior year period due to severance, retention and transaction costs associated with the skilled nursing facility business divestiture and other restructuring activities, and an increase in net working capital. Core operating cash flows and core free cash flows declined compared to the prior year period due to increases in net working capital.
  • GAAP diluted loss per share from continuing operations was $1.65 as compared to $0.12 a year ago. The increase in the GAAP diluted loss per share was primarily due to the increase in impairment charges and restructuring charges. Core diluted earnings per share (“EPS”) from continuing operations increased to $0.20, as compared to core diluted EPS of $0.07 for the same period last year, primarily due to growth in home health and IRF volumes, growth in home health and hospice revenue rates, and lower professional liability and workers compensation costs.
  • The Company recorded a $236.3 million non-cash goodwill impairment charge in the fourth quarter to reflect an adjustment to the carrying value of its Hospital division reporting unit in connection with its annual goodwill impairment test as of October 1, 2017. The Company also recorded non-cash impairment charges of $3.2 million for an intangible asset and $1.9 million for property and equipment, both related to the Hospital division, and a $3.5 million non-cash intangible asset impairment charge in the Kindred at Home division (“KAH”).

Full Year Consolidated Results(1):

  • Consolidated revenues were $6.0 billion, a 4.1% year-over-year decrease, primarily attributable to the impact of the transition to LTAC patient criteria, the sale or closure of 22 LTAC hospitals since the third quarter of 2016 and termination of over 100 RehabCare sites of service during 2017. GAAP loss from continuing operations was $247.2 million compared to a loss of $597.7 million in the same period a year ago. The decrease in the loss was primarily due to a $280.3 million decrease in the deferred tax asset valuation allowance provision as well as a $130.5 million tax benefit from the reduction of deferred tax liabilities for certain changes enacted by the Tax Reform Act. EBITDA declined to a loss of $61.6 million compared to income of $79.9 million in the prior year, primarily due to an increase in impairment charges, the impact of LTAC patient criteria, the sale or closure of LTAC hospitals noted above and operating losses associated with the one-time impact of Hurricanes Irma and Harvey (the “Hurricanes”) of $15.8 million in the third quarter of 2017, partially offset by lower professional liability and workers compensation costs. Core EBITDA declined to $443.5 million compared to $508.4 million in the same period of 2016, primarily due to LTAC patient criteria, the sale or closure of LTAC hospitals and the Hurricane losses, partially offset by lower professional liability and workers compensation costs.
    _______________________________
    (1) See reconciliation of GAAP results to non-GAAP results beginning on page 14. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
  • GAAP diluted loss per share from continuing operations was $3.31 as compared to $7.29 a year ago. The decrease in the GAAP diluted loss per share was primarily due to a decrease in the deferred tax asset valuation allowance provision as well as a tax benefit from the reduction of deferred tax liabilities for certain changes enacted by the Tax Reform Act. Core diluted EPS from continuing operations declined to $0.34, as compared to core diluted EPS of $0.73 for the same period last year, primarily due to LTAC patient criteria and the Hurricane losses in the third quarter of 2017, partially offset by lower professional liability and workers compensation costs.
  • GAAP operating cash flows were $75.7 million compared to $188.2 million for the same period a year ago. Core operating cash flows were $136.9 million compared to $299.3 million for the same period a year ago. Core free cash flows were $5.9 million compared to $157.2 million in the same period a year ago. GAAP and core operating cash flows and core free cash flows declined compared to the prior year period due to LTAC patient criteria and increases in net working capital.

Fourth Quarter Segment Results(1)(2)(3):

KAH recorded fourth quarter revenues that increased 3.0% to $649.0 million from $630.2 million in the prior year period. On a same-store basis, home health admissions increased 1.6%, but same-store hospice admissions decreased 2.0% over the prior year period. Home health revenue per episode increased 2.6% and hospice revenues per patient day increased 2.7%. GAAP segment adjusted operating income and core segment adjusted operating income for the fourth quarter of 2017 both increased to $103.6 million, an increase of 14.7% and 16.6%, respectively, as compared to the prior year period. The improvements are a result of increased home health volumes, home health and hospice revenue rates, and improved operating efficiencies compared to the prior year. Home health direct labor costs per visit declined 2.6% and hospice direct labor costs per patient day declined 2.1% in the fourth quarter of 2017 both as compared to the fourth quarter of 2016.

Kindred’s Hospital division fourth quarter revenues declined 7.3% to $505.8 million from $545.9 million in the prior year period, primarily due to the elimination of approximately $20 million of revenue related to the closure of seven LTAC hospitals during 2017 and an 8.2% decline in same-hospital admissions compared to last year. For the fourth quarter of 2017, approximately 92% of same-hospital revenue came from LTAC compliant patients, which include all patients except Medicare site neutral patients, an increase from approximately 89% in both the third quarter of 2017 and the prior year period. Same-hospital managed care and commercial volumes increased 6.0% in the fourth quarter of 2017 compared to the prior year period. GAAP segment adjusted operating income and core segment adjusted operating income both declined to $91.0 million, a decrease of 2.9% and 2.3%, respectively, as compared to a year ago. The declines were primarily due to the closure of seven LTAC hospitals, which contributed $1.0 million in both GAAP and core segment operating income during 2017 compared to $2.3 million in 2016, and declines in same-hospital admissions.

Kindred Rehabilitation Services division fourth quarter revenues declined 4.1% to $346.6 million as compared to $361.4 million in the prior year period, primarily due to operating fewer sites of service in RehabCare resulting from the sale of the Company’s affiliated skilled nursing facility business and termination of unprofitable contracts. GAAP segment adjusted operating income and core segment adjusted operating income both decreased to $52.4 million, or by 2.7% as compared to the prior year period, primarily due to the reduction in RehabCare sites of service and lower affiliated LTAC volumes and sites of service within the Kindred Hospital Rehabilitation Services (“KHRS”) contract services business. The KHRS segment achieved revenue growth of 1.4% to $173.7 million from $171.3 million a year ago. This growth is primarily due to IRF revenues increasing 7.5% to $97.8 million as compared to $91.0 million in the prior year as a result of IRF development and a 2.9%

_______________________________
(1) See reconciliation of GAAP results to non-GAAP results beginning on page 14. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
(2) See same-hospital and full segment data on pages 9 through 13.
(3) For each of the Company’s segments, Segment adjusted operating income (loss) is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 – Segment Reporting.” The Company defines Segment adjusted operating income (loss) as earnings before interest, income taxes, depreciation, amortization and total rent for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.

Fourth Quarter Segment Results(1)(2)(Continued):

increase in same-hospital discharges. KHRS GAAP segment adjusted operating income and core segment adjusted operating income both declined to $49.0 million or by 1.3%, as compared to the same period a year ago, primarily as a result of lower affiliated LTAC volumes and sites of service. The IRFs contributed $33.2 million to KHRS GAAP segment adjusted operating income, a 19.7% increase over the prior year. RehabCare revenues declined 9.1% to $172.9 million from $190.1 million for the fourth quarter of 2016, primarily due to operating fewer sites of service. RehabCare GAAP segment adjusted operating income and core segment adjusted operating income both decreased to $3.4 million or 18.5%, as compared to the prior year period, primarily due to operating fewer sites of service.

Discontinued Operations

During the fourth quarter of 2017, the Company recorded $33.1 million of pretax charges related to the continued divestiture of its skilled nursing facility business, including $14.4 million of transaction, severance and retention costs, $13.2 million related to asset write downs, a $5.0 million lease guarantee provision and $0.5 million of lease termination costs.

2018 Outlook and Other Commentary(3)

All forward-looking non-GAAP financial measures used to provide the “2018 Outlook” are provided only on a non- GAAP basis. This is due to the inherent difficulty of forecasting the timing or amount of items that would be included in the most directly comparable forward-looking GAAP financial measures. As a result, reconciliation of the forward-looking non-GAAP financial measures to GAAP financial measures is not available without unreasonable effort and the Company is unable to assess the probable significance of the unavailable information.

For the 2018 Outlook, Kindred anticipates:

  • Annual revenues of $6.0 billion, with a range of $5.9 billion to $6.1 billion;
  • Core EBITDA of $515 million, with a range of $500 million to $530 million; and
  • Core diluted EPS from continuing operations of $0.75, with a range of $0.65 to $0.85.

These estimates are identical to the 2018 Outlook provided in the Company’s third quarter earnings release dated November 6, 2017, with the exception of the annual revenues estimate, which was adjusted primarily to reflect LTAC hospital closures, a reduction in RehabCare sites of service and certain adjustments related to the adoption of a new revenue recognition accounting standard on January 1, 2018.

The Company noted that its 2018 Outlook incorporates the estimated near-term impact of the federal budget passed on February 8, 2018. The Company further noted that the estimated future reimbursement impact on the Company’s LTAC, home health and rehabilitation businesses from the 2018 federal budget is consistent with the Company’s longer term expectations.

The Company reaffirmed its previously disclosed 2018 midpoint estimate of approximately $175 of core free cash flows from continuing operations and net operating loss (“NOLs”) utilization, comprising approximately $120 million of core free cash flows from continuing operations and an anticipated cash benefit of approximately $55 million from federal and state tax NOLs. In addition, the Company expects negative free cash flows from discontinued operations, at the midpoint, of approximately $80 million in 2018. Combining continuing and discontinuing operations, on a consolidated basis the Company anticipates 2018 core free cash flow from operations at the midpoint of approximately $95 million, which includes the $55 million of anticipated cash NOL benefits noted above. The Company expects to use approximately $20 million of these cash flows to fund its previously announced IRF development projects, some of which will contribute to 2018 results.

_______________________________
(1) See reconciliation of GAAP results to non-GAAP results beginning on page 14. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
(2) For each of the Company’s segments, Segment adjusted operating income (loss) is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 – Segment Reporting.” The Company defines Segment adjusted operating income (loss) as earnings before interest, income taxes, depreciation, amortization and total rent for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.
(3) See Forward-Looking Statements beginning on page 14.

2018 Outlook and Other Commentary(1) (Continued):

The Company indicated that its actuarially estimated aggregate insurance settlement cash outflows from discontinued operations for all future periods as of December 31, 2017 approximates $100 million, which comprises approximately $30 million of cash outflows in 2018 and $70 million of cash outflows for periods after 2018. The Company estimated $80 million at the midpoint of expected negative free cash flows from discontinued operations described above includes the estimated $30 million related to insurance settlements, with the remaining estimated $50 million related to the Company’s completion of its skilled nursing facility business divestiture.

The Company does not expect the Tax Reform Act to have a material impact on its book income tax provision for 2018, as the reduction in the federal statutory rate from 35% to 21% will be effectively offset for Kindred by the new limitation on interest expense deductibility and other changes.

The Company updated its preliminary midpoint estimate of available gross federal NOLs to roughly $775 million at December 31, 2017, up from a midpoint estimate of available gross federal NOLs of $575 million included in the Company’s earnings release on November 6, 2017(2).

The Company noted that while the estimated gross federal NOLs have increased, the net cash value of the Company’s federal NOLs has decreased by approximately $40 million. Using the new 21% federal statutory rate, the Company’s current gross federal NOLs are estimated to offset approximately $160 million of 2018 and future federal cash tax liabilities, down from approximately $200 million of expected cash value for the Company’s federal NOL estimate at November 6, 2017 using the 35% federal statutory rate prior to the Tax Reform Act. The Company expects the Tax Reform Act will result in the accelerated utilization of its NOLs, particularly given the new limitations on the tax deductibility of interest expense.

Due to the pending Merger, Kindred does not intend to provide future guidance updates.

Cancellation of Conference Calls

In light of the Merger, the Company has discontinued its practice of holding quarterly earnings conference calls.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 14 for important disclosures regarding the Company’s forward-looking statements and the non-GAAP financial reconciliations that follow.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-105 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $6.0 billion. At December 31, 2017, Kindred’s continuing operations, through its subsidiaries, had approximately 85,300 employees providing healthcare services in 2,471 locations in 45 states, including 75 LTAC hospitals, 19 inpatient rehabilitation hospitals, 13 sub-acute units, 608 Kindred at Home home health, hospice and non-medical home care sites of service, 99 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,657 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for nine years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

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(1) See Forward-Looking Statements beginning on page 14.
(2) The increase in gross NOLs is primarily due to certain fourth quarter 2017 changes in book-to-tax temporary differences, finalization of the Company’s 2017 taxable loss, the Company’s previously disclosed insurance program restructuring and additional clarity on the tax attributes of the Company’s skilled nursing facility business divestiture.

 
 
 
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
                                     
                  Three months ended     Year ended
                  December 31,     December 31,
                    2017         2016         2017         2016  
                                     
Revenues       $ 1,480,982       $ 1,515,086       $ 6,034,123       $ 6,292,529  
                                     
Salaries, wages and benefits         814,811         846,232         3,318,885         3,392,263  
Supplies         72,694         79,386         303,923         343,065  
Building rent         63,577         64,350         257,516         264,306  
Equipment rent         8,571         8,649         34,856         39,929  
Other operating expenses         143,830         156,005         640,764         656,792  
General and administrative expenses         269,271         258,703         1,069,764         1,107,648  
Other income         (565 )       (2,387 )       (3,460 )       (5,066 )
Litigation contingency expense         3,435         -         7,435         2,840  
Impairment charges         244,876         3,534         381,179         314,729  
Restructuring charges         53,305         11,913         84,861         96,126  
Depreciation and amortization         24,526         32,072         104,805         131,819  
Interest expense         60,136         59,214         241,411         234,612  
Investment income         (57 )       (589 )       (3,499 )       (3,108 )
                    1,758,410         1,517,082         6,438,440         6,575,955  
Loss from continuing operations before income taxes         (277,428 )       (1,996 )       (404,317 )       (283,426 )
Provision (benefit) for income taxes         (142,009 )       (116 )       (157,116 )       314,262  
  Loss from continuing operations         (135,419 )       (1,880 )       (247,201 )       (597,688 )
Discontinued operations, net of income taxes:                          
  Income (loss) from operations         (12,683 )       6,655         (16,854 )       (6,192 )
  Loss on divestiture of operations         (29,392 )       (6,923 )       (379,260 )       (6,744 )
    Loss from discontinued operations         (42,075 )       (268 )       (396,114 )       (12,936 )
      Net loss         (177,494 )       (2,148 )       (643,315 )       (610,624 )
Earnings attributable to noncontrolling interests:                          
  Continuing operations         (9,942 )       (8,575 )       (42,176 )       (34,847 )
  Discontinued operations         (264 )       (4,684 )       (12,861 )       (18,759 )
                    (10,206 )       (13,259 )       (55,037 )       (53,606 )
          Loss attributable to Kindred       $ (187,700 )     $ (15,407 )     $ (698,352 )     $ (664,230 )
                                     
Amounts attributable to Kindred stockholders:                          
  Loss from continuing operations       $ (145,361 )     $ (10,455 )     $ (289,377 )     $ (632,535 )
  Loss from discontinued operations         (42,339 )       (4,952 )       (408,975 )       (31,695 )
          Net loss       $ (187,700 )     $ (15,407 )     $ (698,352 )     $ (664,230 )
                                     
Loss per common share:                          
  Basic:                          
    Loss from continuing operations       $ (1.65 )     $ (0.12 )     $ (3.31 )     $ (7.29 )
    Discontinued operations:                          
      Loss from operations         (0.15 )       0.02         (0.34 )       (0.28 )
      Loss on divestiture of operations         (0.33 )       (0.08 )       (4.33 )       (0.08 )
        Loss from discontinued operations         (0.48 )       (0.06 )       (4.67 )       (0.36 )
          Net loss       $ (2.13 )     $ (0.18 )     $ (7.98 )     $ (7.65 )
                                     
  Diluted:                          
    Loss from continuing operations       $ (1.65 )     $ (0.12 )     $ (3.31 )     $ (7.29 )
    Discontinued operations:                          
      Loss from operations         (0.15 )       0.02         (0.34 )       (0.28 )
      Loss on divestiture of operations         (0.33 )       (0.08 )       (4.33 )       (0.08 )
        Loss from discontinued operations         (0.48 )       (0.06 )       (4.67 )       (0.36 )
          Net loss       $ (2.13 )     $ (0.18 )     $ (7.98 )     $ (7.65 )
                                     
Shares used in computing loss per common share:                          
  Basic         87,902         86,904         87,525         86,800  
  Diluted         87,902         86,904         87,525         86,800  
                                     
Cash dividends declared and paid per common share       $ -       $ 0.12       $ 0.12       $ 0.48  
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(In thousands, except per share amounts)
                       
                December 31,     December 31,
                  2017         2016  
ASSETS              
Current assets:              
  Cash and cash equivalents       $ 160,254       $ 137,061  
  Insurance subsidiary investments         22,546         108,966  
  Accounts receivable less allowance for loss         1,122,532         1,172,078  
  Inventories         21,716         22,438  
  Income taxes         4,546         10,067  
  Assets held for sale         17,335         289,450  
  Other         60,610         63,693  
                  1,409,539         1,803,753  
                       
Property and equipment         1,682,965         1,531,598  
Accumulated depreciation         (946,986 )       (912,978 )
                  735,979         618,620  
                       
Goodwill         2,188,566         2,427,074  
Intangible assets less accumulated amortization         604,338         770,108  
Insurance subsidiary investments         28,988         204,929  
Other           265,307         288,240  
      Total assets       $ 5,232,717       $ 6,112,724  
LIABILITIES AND EQUITY              
Current liabilities:              
  Accounts payable       $ 191,827       $ 203,925  
  Salaries, wages and other compensation         352,179         397,486  
  Due to third party payors         35,321         41,320  
  Professional liability risks         60,767         65,284  
  Accrued lease termination fees         7,610         5,224  
  Other accrued liabilities         263,977         264,512  
  Long-term debt due within one year         14,638         27,977  
                  926,319         1,005,728  
                       
Long-term debt         3,146,972         3,215,062  
Professional liability risks         276,829         295,311  
Deferred tax liabilities         36,881         201,808  
Deferred credits and other liabilities         497,954         353,294  
                       
Equity:                
  Stockholders' equity:              
     

Common stock, $0.25 par value; authorized 175,000 shares; issued 91,454 shares - December 31, 2017 and 85,166 shares - December 31, 2016

        22,864         21,291  
    Capital in excess of par value         1,713,179         1,710,231  
    Accumulated other comprehensive income         6,179         1,573  
    Accumulated deficit         (1,618,896 )       (920,544 )
                  123,326         812,551  
  Noncontrolling interests         224,436         228,970  
      Total equity         347,762         1,041,521  
      Total liabilities and equity       $ 5,232,717       $ 6,112,724  
   
   
   
   
   
   
 

KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)

   
                Three months ended     Year ended
                December 31,     December 31,
                  2017         2016         2017         2016  

Cash flows from operating activities:

                         
  Net loss       $ (177,494 )     $ (2,148 )     $ (643,315 )     $ (610,624 )
  Adjustments to reconcile net loss to net cash provided by                          
    operating activities:                          
    Depreciation expense         23,480         32,660         102,481         135,966  
    Amortization of intangible assets         2,728         5,422         14,637         23,673  
    Amortization of stock-based compensation costs         3,933         3,367         17,249         16,425  
    Amortization of deferred financing costs         4,342         4,005         17,189         15,267  
    Payment of capitalized lender fees related to debt amendments         -         -         (5,403 )       (7,375 )
    Provision for doubtful accounts         10,773         9,849         68,284         40,804  
    Deferred income taxes         (145,086 )       1,868         (164,694 )       310,338  
    Impairment charges         244,876         4,351         382,447         342,559  
    Loss on divestiture of discontinued operations         29,392         6,923         379,260         6,744  
    Other         1,823         5,152         17,935         12,414  
    Change in operating assets and liabilities:                          
      Accounts receivable         82,303         84,922         (20,896 )       (59,031 )
      Inventories and other assets         32,371         (20,704 )       22,854         (24,226 )
      Accounts payable         13,946         1,764         (12,267 )       26,215  
      Income taxes         3,524         1,882         10,242         4,350  
      Due to third party payors         (13,470 )       (16,625 )       (5,999 )       3,692  
      Other accrued liabilities         (50,258 )       24,313         (104,309 )       (48,955 )
        Net cash provided by operating activities         67,183         147,001         75,695         188,236  
                                   

Cash flows from investing activities:

                         
  Routine capital expenditures         (24,006 )       (27,349 )       (69,806 )       (96,052 )
  Development capital expenditures         (8,184 )       (7,713 )       (25,895 )       (34,825 )
  Acquisitions, net of cash acquired         (3,000 )       (1,800 )       (9,650 )       (78,840 )
  Acquisition deposits         -         -         -         18,489  
  Sale of assets         (77,049 )       21,025         (71,555 )       25,987  
  Purchase of insurance subsidiary investments         (5,006 )       (22,318 )       (113,661 )       (97,740 )
  Sale of insurance subsidiary investments         125,753         17,010         243,616         95,488  
  Net change in insurance subsidiary cash and cash equivalents         110,146         (7,602 )       133,618         877  
  Net change in other investments         19,793         577         24,637         (32,770 )
  Other         42         1,022         7         (255 )
        Net cash provided by (used in) investing activities         138,489         (27,148 )       111,311         (199,641 )
                                   

Cash flows from financing activities:

                         
  Proceeds from borrowings under revolving credit         155,400         376,100         1,369,700         1,643,300  
  Repayment of borrowings under revolving credit         (311,600 )       (473,600 )       (1,432,200 )       (1,689,400 )
  Proceeds from issuance of term loan, net of discount         -         -         -         198,100  
  Proceeds from other long-term debt         -         -         -         750  
  Repayment of term loan         (3,509 )       (3,508 )       (14,034 )       (13,527 )
  Repayment of other long-term debt         (205 )       (278 )       (1,045 )       (1,104 )
  Payment of deferred financing costs         (114 )       (180 )       (413 )       (522 )
  Issuance of common stock in connection with employee benefit plans         -         -         32         -  
  Payment of dividend for mandatory redeemable preferred stock         (3,177 )       (2,956 )       (12,372 )       (11,514 )
  Dividends paid         -         (10,221 )       (10,228 )       (40,738 )
  Contributions made by noncontrolling interests         392         3,253         505         14,514  
  Distributions to noncontrolling interests         (12,854 )       (10,745 )       (61,226 )       (45,985 )
  Purchase of noncontrolling interests         -         -         -         (1,000 )
  Payroll tax payments for equity awards issuance         (115 )       (87 )       (2,532 )       (3,166 )
        Net cash provided by (used in) financing activities         (175,782 )       (122,222 )       (163,813 )       49,708  

Change in cash and cash equivalents

        29,890         (2,369 )       23,193         38,303  

Cash and cash equivalents at beginning of period

        130,364         139,430         137,061         98,758  

Cash and cash equivalents at end of period

      $ 160,254       $ 137,061       $ 160,254       $ 137,061  
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data
(Unaudited)
(In thousands, except per share amounts)
                                                           
                                                          Fourth quarter
                  2016 Quarters       2017 Quarters       % change v.
                  First   Second   Third   Fourth   Year   First   Second   Third   Fourth   Year   prior year
Condensed consolidated statement of operations data:                                      
GAAP presentation:                                              
  Revenues     $ 1,604,214     $ 1,609,169     $ 1,564,060     $ 1,515,086     $ 6,292,529     $ 1,539,490     $ 1,535,831     $ 1,477,820     $ 1,480,982     $ 6,034,123     (2.3 )
  Operating expenses       1,403,467       1,390,562       1,760,982       1,353,386       5,908,397       1,364,751       1,498,396       1,338,547       1,601,657       5,803,351     18.3  
  Building rent       65,985       67,025       66,946       64,350       264,306       64,656       64,861       64,422       63,577       257,516     (1.2 )
  Equipment rent       10,158       11,211       9,911       8,649       39,929       8,887       8,861       8,537       8,571       34,856     (0.9 )
  Depreciation and amortization       33,554       33,198       32,995       32,072       131,819       29,820       25,651       24,808       24,526       104,805     (23.5 )
  Interest, net       57,253       57,567       58,059       58,625       231,504       58,819       58,573       60,441       60,079       237,912     2.5  
 

Income (loss) from continuing operations before income taxes

      33,797       49,606       (364,833 )     (1,996 )     (283,426 )     12,557       (120,511 )     (18,935 )     (277,428 )     (404,317 )   n/m  
  Provision (benefit) for income taxes       11,817       19,379       283,182       (116 )     314,262       2,234       (16,116 )     (1,225 )     (142,009 )     (157,116 )   n/m  
    Income (loss) from continuing operations       21,980       30,227       (648,015 )     (1,880 )     (597,688 )     10,323       (104,395 )     (17,710 )     (135,419 )     (247,201 )   n/m  
  Noncontrolling interests       (7,851 )     (8,847 )     (9,574 )     (8,575 )     (34,847 )     (10,483 )     (10,791 )     (10,960 )     (9,942 )     (42,176 )   15.9  
    Net income (loss) attributable to Kindred     $ 14,129     $ 21,380     $ (657,589 )   $ (10,455 )   $ (632,535 )   $ (160 )   $ (115,186 )   $ (28,670 )   $ (145,361 )   $ (289,377 )   n/m  
                                                           
  Diluted EPS     $ 0.16     $ 0.23     $ (7.57 )   $ (0.12 )   $ (7.29 )   $ -     $ (1.32 )   $ (0.32 )   $ (1.65 )   $ (3.31 )   n/m  
  Diluted shares       87,249       87,500       86,869       86,904       86,800       87,085       87,506       87,597       87,902       87,525     1.1  
                                                           
Core presentation (a):                                              
  Building rent     $ 65,985     $ 67,025     $ 66,674     $ 64,350     $ 264,034     $ 64,656     $ 64,861     $ 64,422     $ 63,577     $ 257,516     (1.2 )
  Equipment rent       10,158       11,211       9,911       8,649       39,929       8,887       8,861       8,537       8,571       34,856     (0.9 )
  EBITDA       136,697       153,732       109,770       108,151       508,350       111,676       128,093       84,571       119,199       443,539     10.2  
  Provision (benefit) for income taxes       16,099       21,253       4,262       2,230       43,844       9,407       13,333       (2,062 )     6,323       27,001     183.5  
  Noncontrolling interests       (7,851 )     (9,863 )     (9,862 )     (8,575 )     (36,151 )     (10,483 )     (11,111 )     (10,960 )     (9,942 )     (42,496 )   15.9  
  Net income (loss) attributable to Kindred       21,940       31,851       4,592       6,649       65,032       3,147       19,425       (9,576 )     18,329       31,325     175.7  
                                                           
  Core diluted EPS     $ 0.25     $ 0.35     $ 0.05     $ 0.07     $ 0.73     $ 0.03     $ 0.21     $ (0.11 )   $ 0.20     $ 0.34     185.7  
  Diluted shares       87,249       87,500       87,529       87,641       87,491       87,744       88,165       87,597       88,485       88,200     1.0  
                                                           
Revenues by segment:                                              
  Kindred at Home:                                              
    Home health     $ 430,035     $ 438,556     $ 449,958     $ 444,073     $ 1,762,622     $ 450,831     $ 459,176     $ 453,684     $ 458,666     $ 1,822,357     3.3  
    Hospice       176,426       185,641       188,575       186,161       736,803       179,378       185,281       188,414       190,370       743,443     2.3  
                    606,461       624,197       638,533       630,234       2,499,425       630,209       644,457       642,098       649,036       2,565,800     3.0  
  Hospital division       654,098       645,406       588,943       545,864       2,434,311       556,646       540,809       503,138       505,782       2,106,375     (7.3 )
  Kindred Rehabilitation Services:                                              
    Kindred Hospital Rehabilitation Services       167,045       171,095       170,308       171,352       679,800       178,115       178,439       173,638       173,723       703,915     1.4  
    RehabCare       202,023       193,964       190,756       190,053       776,796       198,126       194,715       179,774       172,852       745,467     (9.1 )
                    369,068       365,059       361,064       361,405       1,456,596       376,241       373,154       353,412       346,575       1,449,382     (4.1 )
                    1,629,627       1,634,662       1,588,540       1,537,503       6,390,332       1,563,096       1,558,420       1,498,648       1,501,393       6,121,557     (2.3 )
  Eliminations       (25,413 )     (25,493 )     (24,480 )     (22,417 )     (97,803 )     (23,606 )     (22,589 )     (20,828 )     (20,411 )     (87,434 )   (8.9 )
                  $ 1,604,214     $ 1,609,169     $ 1,564,060     $ 1,515,086     $ 6,292,529     $ 1,539,490     $ 1,535,831     $ 1,477,820     $ 1,480,982     $ 6,034,123     (2.3 )
                                                           
                                                           
(a) See reconciliation of GAAP results to non-GAAP results beginning on page 14. During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
   
   
 
n/m = not meaningful.
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data (Continued)
(Unaudited)
(In thousands, except statistics)
                                                           
                                                          Fourth quarter
                  2016 Quarters       2017 Quarters       % change v.
                  First   Second   Third   Fourth   Year   First   Second   Third   Fourth   Year   prior year
Segment adjusted operating income (loss):                                          
  Kindred at Home:                                              
    Home health     $ 66,941     $ 76,030     $ 75,073     $ 61,487     $ 279,531     $ 63,750     $ 76,592     $ 66,431     $ 69,445     $ 276,218     12.9  
    Hospice       24,866       31,329       31,326       28,805       116,326       27,581       32,784       34,761       34,147       129,273     18.5  
                    91,807       107,359       106,399       90,292       395,857       91,331       109,376       101,192       103,592       405,491     14.7  
  Hospital division       136,416       127,510       83,940       93,778       441,644       93,438       91,580       61,455       91,014       337,487     (2.9 )
  Kindred Rehabilitation Services:                                              
    Kindred Hospital Rehabilitation Services       48,119       50,729       49,759       49,728       198,335       51,760       53,422       49,151       49,059       203,392     (1.3 )
    RehabCare       9,762       11,158       7,524       4,142       32,586       8,704       (13,492 )     8,298       3,374       6,884     (18.5 )
                    57,881       61,887       57,283       53,870       230,921       60,464       39,930       57,449       52,433       210,276     (2.7 )
                                                           
Core segment adjusted operating income (a):                                      
  Kindred at Home:                                              
    Home health     $ 65,803     $ 75,859     $ 75,073     $ 61,185     $ 277,920     $ 63,750     $ 75,797     $ 66,431     $ 69,445     $ 275,423     13.5  
    Hospice       24,866       31,329       31,326       27,668       115,189       27,581       32,784       34,761       34,147       129,273     23.4  
                    90,669       107,188       106,399       88,853       393,109       91,331       108,581       101,192       103,592       404,696     16.6  
  Hospital division       136,416       127,510       83,940       93,148       441,014       93,438       90,572       61,455       91,014       336,479     (2.3 )
  Kindred Rehabilitation Services:                                              
    Kindred Hospital Rehabilitation Services       48,119       50,729       49,759       49,728       198,335       51,760       53,422       49,151       49,059       203,392     (1.3 )
    RehabCare       9,762       11,158       7,524       4,142       32,586       8,704       11,812       6,055       3,374       29,945     (18.5 )
                    57,881       61,887       57,283       53,870       230,921       60,464       65,234       55,206       52,433       233,337     (2.7 )
  Support center expenses       (71,159 )     (64,265 )     (59,535 )     (54,334 )     (249,293 )     (60,014 )     (62,572 )     (60,323 )     (55,692 )     (238,601 )   2.5  
  Litigation contingency expense       (885 )     (180 )     -       -       (1,065 )     -       -       -       -       -      
  Transaction costs       (82 )     (172 )     (1,732 )     (387 )     (2,373 )     -       -       -       -       -      
                  $ 212,840     $ 231,968     $ 186,355     $ 181,150     $ 812,313     $ 185,219     $ 201,815     $ 157,530     $ 191,347     $ 735,911     5.6  
                                                           
Segment adjusted operating income (loss) margin:                                      
  Kindred at Home:                                              
    Home health       15.6       17.3       16.7       13.8       15.9       14.1       16.7       14.6       15.1       15.2     1.3  
    Hospice       14.1       16.9       16.6       15.5       15.8       15.4       17.7       18.4       17.9       17.4     2.4  
      Kindred at Home       15.1       17.2       16.7       14.3       15.8       14.5       17.0       15.8       16.0       15.8     1.7  
  Hospital division       20.9       19.8       14.3       17.2       18.1       16.8       16.9       12.2       18.0       16.0     0.8  
  Kindred Rehabilitation Services:                                              
    Kindred Hospital Rehabilitation Services       28.8       29.6       29.2       29.0       29.2       29.1       29.9       28.3       28.2       28.9     (0.8 )
    RehabCare       4.8       5.8       3.9       2.2       4.2       4.4       (6.9 )     4.6       2.0       0.9     (0.2 )
      Kindred Rehabilitation Services       15.7       17.0       15.9       14.9       15.9       16.1       10.7       16.3       15.1       14.5     0.2  
                                                           
Core segment adjusted operating income margin (a):                                    
  Kindred at Home:                                              
    Home health       15.3       17.3       16.7       13.8       15.8       14.1       16.5       14.6       15.1       15.1     1.3  
    Hospice       14.1       16.9       16.6       14.9       15.6       15.4       17.7       18.4       17.9       17.4     3.0  
      Kindred at Home       15.0       17.2       16.7       14.1       15.7       14.5       16.8       15.8       16.0       15.8     1.9  
  Hospital division       20.9       19.8       14.3       17.1       18.1       16.8       16.7       12.2       18.0       16.0     0.9  
  Kindred Rehabilitation Services:                                              
    Kindred Hospital Rehabilitation Services       28.8       29.6       29.2       29.0       29.2       29.1       29.9       28.3       28.2       28.9     (0.8 )
    RehabCare       4.8       5.8       3.9       2.2       4.2       4.4       6.1       3.4       2.0       4.0     (0.2 )
      Kindred Rehabilitation Services       15.7       17.0       15.9       14.9       15.9       16.1       17.5       15.6       15.1       16.1     0.2  
  Consolidated       13.3       14.4       11.9       12.0       12.9       12.0       13.1       10.7       12.9       12.2     0.9  
                                                           
                                                           
(a)

See reconciliation of GAAP results to non-GAAP results beginning on page 14. During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

   
   
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
                                                                           
                                                                          Fourth quarter
              2016 Quarters           2017 Quarters           % change v.
              First     Second     Third     Fourth     Year     First     Second     Third     Fourth     Year     prior year
Kindred at Home:                                                                  
  Home Health:                                                                  
    Sites of service (at end of period)       384       384       395       390             379       377       376       375            
    Revenue mix %:                                                                  
      Medicare       79.8       79.3       78.1       77.9       78.8       76.7       75.7       74.0       73.8       75.0      
      Medicaid       2.1       2.1       2.5       1.9       2.1       1.7       1.7       1.7       1.6       1.7      
      Commercial and other       8.4       8.2       8.6       10.6       8.9       11.5       11.4       12.7       12.7       12.1      
      Commercial paid at episodic rates       9.7       10.4       10.8       9.6       10.2       10.1       11.2       11.6       11.9       11.2      
    Episodic revenues ($ 000s)     $ 325,821     $ 332,193     $ 332,562     $ 323,398     $ 1,313,974     $ 326,881     $ 334,420     $ 320,279     $ 332,595     $ 1,314,175     2.8  
    Total admissions       88,696       87,084       86,761       87,148       349,689       94,510       89,018       87,156       88,224       358,908     1.2  
    Same-store total admissions       87,394       85,922       85,511       86,619       345,446       93,922       88,300       86,312       88,004       356,538     1.6  
    Total episodic admissions       71,426       70,212       69,219       67,501       278,358       73,270       69,657       67,790       67,858       278,575     0.5  
    Same-store total episodic admissions       70,416       69,317       68,285       67,119       275,137       72,911       69,207       67,191       67,650       276,959     0.8  
    Medicare episodic admissions       62,011       60,730       59,823       59,540       242,104       62,404       58,575       56,772       56,829       234,580     (4.6 )
    Total episodes       113,887       113,278       113,256       111,164       451,585       114,964       113,579       111,488       111,411       451,442     0.2  
    Episodes per admission       1.59       1.61       1.64       1.65       1.62       1.57       1.63       1.64       1.64       1.62     (0.6 )
    Revenue per episode     $ 2,861     $ 2,933     $ 2,936     $ 2,909     $ 2,910     $ 2,843     $ 2,944     $ 2,873     $ 2,985     $ 2,911     2.6  
  Hospice:                                                                  
    Sites of service (at end of period)       177       177       185       183             180       177       178       178            
    Admissions       13,234       13,149       12,916       12,660       51,959       13,649       12,561       12,236       12,274       50,720     (3.0 )
    Same-store admissions       12,761       12,743       12,541       12,413       50,458       13,332       12,363       11,997       12,162       49,854     (2.0 )
    Average length of stay       92       91       98       100       95       96       94       97       96       96     (4.0 )
    Patient days       1,183,908       1,238,584       1,277,125       1,246,152       4,945,769       1,193,061       1,215,619       1,239,094       1,243,574       4,891,348     (0.2 )
    Average daily census       13,010       13,611       13,882       13,545       13,513       13,256       13,358       13,468       13,517       13,401     (0.2 )
    Revenue per patient day     $ 149     $ 150     $ 148     $ 149     $ 149     $ 150     $ 152     $ 152     $ 153     $ 152     2.7  
 

Community care and other revenues (included in Home Health business segment) ($ 000s)

    $ 66,305     $ 68,229     $ 75,978     $ 74,875     $ 285,387     $ 74,095     $ 74,222     $ 79,720     $ 69,974     $ 298,011     (6.5 )
                                                                           
Kindred Rehabilitation Services:                                                                  
  Kindred Hospital Rehabilitation Services:                                                            
    Freestanding IRFs:                                                                  
      End of period data:                                                                  
        Number of IRFs       19       19       19       19             19       19       19       19            
        Number of licensed beds       969       969       969       995             995       995       995       995            
      Discharges (a)       4,448       4,646       4,644       4,671       18,409       4,775       4,766       4,755       5,011       19,307     7.3  
      Same-hospital discharges (a)       4,295       4,535       4,546       4,538       17,914       4,393       4,517       4,477       4,671       18,058     2.9  
      Occupancy % (a)       70.6       70.6       68.8       66.5       69.1       71.4       70.0       68.8       71.2       70.4     7.1  
      Average length of stay (a)       13.2       12.9       12.7       12.6       12.8       12.8       12.8       12.7       12.5       12.7     (0.8 )
      Revenue per discharge (a)     $ 19,731     $ 19,318     $ 19,599     $ 19,486     $ 19,531     $ 20,097     $ 20,620     $ 20,329     $ 19,523     $ 20,134     0.2  
    Contract services:                                                                  
      Sites of service (at end of period):                                                                
        Inpatient rehabilitation units       104       105       104       102             101       102       101       99            
        LTAC hospitals       119       121       120       119             119       116       110       104            
        Sub-acute units       7       7       7       5             7       6       6       4            
        Outpatient units       139       138       139       132             129       121       123       123            
                369       371       370       358             356       345       340       330            
                                                                           
      Revenue per site     $ 211,417     $ 215,798     $ 210,810     $ 220,733     $ 858,758     $ 227,100     $ 228,534     $ 222,504     $ 225,919     $ 904,057     2.3  
                                                                           
  RehabCare:                                                                  
    Sites of service (at end of period)       1,767       1,759       1,754       1,718             1,703       1,734       1,624       1,616            
    Revenue per site     $ 114,331     $ 110,270     $ 108,755     $ 110,624     $ 443,980     $ 116,340     $ 112,292     $ 110,699     $ 106,963     $ 446,294     (3.3 )
                                                                           
                                                                           
(a) Excludes non-consolidating IRF.
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                                                       
                                                      Fourth quarter
              2016 Quarters       2017 Quarters       % change v.
              First   Second   Third   Fourth   Year   First   Second   Third   Fourth   Year   prior year

Hospitals (excluding sub-acute units and skilled nursing facility):

                                         
  End of period data:                                              
    Number of transitional care hospitals       95     97     94     82           82       81       77       75          
    Number of licensed beds       7,089     7,067     6,890     6,107           6,107       6,041       5,797       5,553          
  Revenues (000s)     $ 643,299   $ 633,695   $ 575,323   $ 530,746     $ 2,383,063   $ 540,280     $ 525,458     $ 487,012     $ 489,621     $ 2,042,371     (7.7 )
  Revenue mix %:                                              
    Medicare       57.8     55.5     54.6     53.5       55.5     52.8       50.3       50.6       50.2       51.0      
    Medicaid       4.2     4.2     4.0     4.5       4.2     3.9       5.0       4.3       4.1       4.3      
    Medicare Advantage       11.5     12.0     12.1     11.0       11.7     12.2       12.3       12.3       13.5       12.6      
    Medicaid Managed       5.6     6.3     7.3     8.0       6.7     9.1       9.1       10.1       10.1       9.6      
    Commercial insurance and other       20.9     22.0     22.0     23.0       21.9     22.0       23.3       22.7       22.1       22.5      
                                                       
  Patient criteria data:                                              
    Revenues:                                              
      Compliant patients                   88.5 %         86.0 %     88.3 %     89.1 %     91.8 %     88.7 %    
      Site neutral                   11.5 %         14.0 %     11.7 %     10.9 %     8.2 %     11.3 %    
                                                       
    Revenues per patient day:                                              
      Compliant patients                 $ 1,853         $ 1,816     $ 1,806     $ 1,799     $ 1,835     $ 1,814      
      Site neutral                   926           1,041       1,053       1,067       1,047       1,051      
      Total                   1,662           1,645       1,667       1,674       1,729       1,677      
                                                       
  Admissions:                                              
    Medicare       8,919     8,253     7,861     7,351       32,384     7,529       6,743       6,073       5,862       26,207     (20.3 )
    Medicaid       463     386     375     336       1,560     354       381       362       287       1,384     (14.6 )
    Medicare Advantage       1,453     1,382     1,327     1,210       5,372     1,354       1,239       1,197       1,225       5,015     1.2  
    Medicaid Managed       733     768     861     787       3,149     851       903       861       875       3,490     11.2  
    Commercial insurance and other       1,871     1,807     1,727     1,488       6,893     1,614       1,608       1,483       1,401       6,106     (5.8 )
                13,439     12,596     12,151     11,172       49,358     11,702       10,874       9,976       9,650       42,202     (13.6 )
  Patient days:                                              
    Medicare       229,004     219,013     202,482     186,290       836,789     187,738       173,916       158,083       149,892       669,629     (19.5 )
    Medicaid       21,134     19,409     16,781     12,181       69,505     13,334       13,333       13,429       12,048       52,144     (1.1 )
    Medicare Advantage       45,760     47,697     43,241     37,526       174,224     41,020       40,555       38,338       41,488       161,401     10.6  
    Medicaid Managed       25,341     27,267     28,534     29,275       110,417     32,713       32,635       31,249       32,389       128,986     10.6  
    Commercial insurance and other       62,769     63,009     59,856     54,148       239,782     53,695       54,809       49,895       47,355       205,754     (12.5 )
                384,008     376,395     350,894     319,420       1,430,717     328,500       315,248       290,994       283,172       1,217,914     (11.3 )
  Average length of stay:                                              
    Medicare       25.7     26.5     25.8     25.3       25.8     24.9       25.8       26.0       25.6       25.6     1.2  
    Medicaid       45.6     50.3     44.7     36.3       44.6     37.7       35.0       37.1       42.0       37.7     15.7  
    Medicare Advantage       31.5     34.5     32.6     31.0       32.4     30.3       32.7       32.0       33.9       32.2     9.4  
    Medicaid Managed       34.6     35.5     33.1     37.2       35.1     38.4       36.1       36.3       37.0       37.0     (0.5 )
    Commercial insurance and other       33.5     34.9     34.7     36.4       34.8     33.3       34.1       33.6       33.8       33.7     (7.1 )
    Weighted average       28.6     29.9     28.9     28.6       29.0     28.1       29.0       29.2       29.3       28.9     2.4  
  Revenues per admission:                                              
    Medicare     $ 41,717   $ 42,579   $ 39,945   $ 38,602     $ 40,800   $ 37,867     $ 39,219     $ 40,577     $ 41,904     $ 39,746     8.6  
    Medicaid       57,928     69,797     61,338     70,333       64,356     60,091       69,304       57,365       70,352       64,042     -  
    Medicare Advantage       51,080     55,105     52,363     48,387       51,826     48,555       51,958       50,301       53,834       51,102     11.3  
    Medicaid Managed       49,287     51,696     48,631     54,238       50,932     57,736       53,159       57,172       56,881       56,198     4.9  
    Commercial insurance and other       71,651     77,193     73,515     82,066       75,819     73,750       76,007       74,435       77,140       75,289     (6.0 )
    Weighted average       47,868     50,309     47,348     47,507       48,281     46,170       48,322       48,818       50,738       48,395     6.8  
  Revenues per patient day:                                              
    Medicare     $ 1,625   $ 1,605   $ 1,551   $ 1,523     $ 1,579   $ 1,519     $ 1,521     $ 1,559     $ 1,639     $ 1,556     7.6  
    Medicaid       1,269     1,388     1,371     1,940       1,444     1,595       1,980       1,546       1,676       1,700     (13.6 )
    Medicare Advantage       1,622     1,597     1,607     1,560       1,598     1,603       1,587       1,571       1,590       1,588     1.9  
    Medicaid Managed       1,426     1,456     1,467     1,458       1,453     1,502       1,471       1,575       1,537       1,521     5.4  
    Commercial insurance and other       2,136     2,214     2,121     2,255       2,180     2,217       2,230       2,212       2,282       2,234     1.2  
    Weighted average       1,675     1,684     1,640     1,662       1,666     1,645       1,667       1,674       1,729       1,677     4.0  
                                                       
 

Medicare case mix index (discharged patients only)

      1.163     1.179     1.172     1.153       1.169     1.172       1.171       1.180       1.177       1.178     2.1  
  Average daily census       4,220     4,136     3,814     3,472       3,909     3,650       3,464       3,163       3,078       3,337     (11.3 )
  Occupancy %       68.0     67.5     61.6     64.1       65.1     67.6       64.3       59.9       61.1       63.3     (4.7 )
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                                                       
                                                      Fourth quarter
              2016 Quarters       2017 Quarters       % change v.
              First   Second   Third   Fourth   Year   First   Second   Third   Fourth   Year   prior year
Same-hospital data (a):                                              
  End of period data:                                              
    Number of transitional care hospitals       72     72     75     75           72       72       75       75          
    Number of licensed beds       5,436     5,436     5,553     5,553           5,436       5,436       5,553       5,553          
  Revenues (000s)     $ 531,815   $ 527,578   $ 493,480   $ 504,871     $ 2,057,744   $ 504,135     $ 492,002     $ 476,356     $ 482,677     $ 1,955,170     (4.4 )
  Revenue mix %:                                              
    Medicare       58.1     55.2     53.8     53.3       55.2     52.2       50.2       50.6       50.6       50.9      
    Medicaid       3.6     3.6     3.5     4.4       3.8     3.9       4.9       4.2       3.4       4.1      
    Medicare Advantage       11.2     11.7     12.3     11.0       11.5     12.0       12.0       12.4       13.6       12.5      
    Medicaid Managed       6.0     6.9     8.0     8.4       7.3     9.6       9.5       10.2       10.3       9.9      
    Commercial insurance and other       21.1     22.6     22.4     22.9       22.2     22.3       23.4       22.6       22.1       22.6      
                                                       
  Patient criteria data:                                              
    Revenues:                                              
      Compliant patients                   88.7 %         86.2 %     88.7 %     89.2 %     91.8 %     89.0 %    
      Site neutral                   11.3 %         13.8 %     11.3 %     10.8 %     8.2 %     11.0 %    
                                                       
    Revenues per patient day:                                              
      Compliant patients                 $ 1,860         $ 1,821     $ 1,811     $ 1,798     $ 1,815     $ 1,811      
      Site neutral                   931           1,057       1,049       1,064       1,047       1,055      
      Total                   1,671           1,656       1,674       1,674       1,711       1,678      
                                                       
  Admissions:                                              
    Medicare       7,322     6,770     6,620     6,879       27,591     6,884       6,260       5,942       5,848       24,934     (15.0 )
    Medicaid       376     327     329     315       1,347     325       346       342       284       1,297     (9.8 )
    Medicare Advantage       1,148     1,073     1,118     1,131       4,470     1,239       1,137       1,181       1,222       4,779     8.0  
    Medicaid Managed       625     688     778     780       2,871     827       852       843       875       3,397     12.2  
    Commercial insurance and other       1,477     1,450     1,385     1,386       5,698     1,484       1,489       1,450       1,397       5,820     0.8  
                10,948     10,308     10,230     10,491       41,977     10,759       10,084       9,758       9,626       40,227     (8.2 )
  Patient days:                                              
    Medicare       188,238     179,196     170,060     175,336       712,830     172,186       161,435       154,553       149,524       637,698     (14.7 )
    Medicaid       13,731     12,381     11,211     11,396       48,719     12,610       12,378       12,985       11,777       49,750     3.3  
    Medicare Advantage       36,058     38,555     37,240     35,436       147,289     37,573       37,073       37,678       41,375       153,699     16.8  
    Medicaid Managed       22,124     24,571     26,384     29,047       102,126     31,970       31,606       30,759       32,355       126,690     11.4  
    Commercial insurance and other       50,711     51,293     49,622     50,861       202,487     50,116       51,465       48,591       46,990       197,162     (7.6 )
                310,862     305,996     294,517     302,076       1,213,451     304,455       293,957       284,566       282,021       1,164,999     (6.6 )
  Average length of stay:                                              
    Medicare       25.7     26.5     25.7     25.5       25.8     25.0       25.8       26.0       25.6       25.6     0.4  
    Medicaid       36.5     37.9     34.1     36.2       36.2     38.8       35.8       38.0       41.5       38.4     14.6  
    Medicare Advantage       31.4     35.9     33.3     31.3       33.0     30.3       32.6       31.9       33.9       32.2     8.3  
    Medicaid Managed       35.4     35.7     33.9     37.2       35.6     38.7       37.1       36.5       37.0       37.3     (0.5 )
    Commercial insurance and other       34.3     35.4     35.8     36.7       35.5     33.8       34.6       33.5       33.6       33.9     (8.4 )
    Weighted average       28.4     29.7     28.8     28.8       28.9     28.3       29.2       29.2       29.3       29.0     1.7  
  Revenues per admission:                                              
    Medicare     $ 42,215   $ 43,048   $ 40,145   $ 39,130     $ 41,154   $ 38,242     $ 39,482     $ 40,587     $ 41,750     $ 39,935     6.7  
    Medicaid       50,166     58,447     52,583     69,628       57,318     60,805       70,237       57,650       57,482       61,762     (17.4 )
    Medicare Advantage       51,653     57,562     54,276     49,232       53,115     49,018       51,807       50,163       53,894       51,211     9.5  
    Medicaid Managed       51,395     52,601     50,491     54,389       52,252     58,227       54,789       57,538       56,854       56,840     4.5  
    Commercial insurance and other       76,121     82,125     79,752     83,445       80,313     75,623       77,205       74,292       76,301       75,859     (8.6 )
    Weighted average       48,576     51,181     48,239     48,124       49,021     46,857       48,790       48,817       50,143       48,603     4.2  
  Revenues per patient day:                                              
    Medicare     $ 1,642   $ 1,626   $ 1,563   $ 1,535     $ 1,593   $ 1,529     $ 1,531     $ 1,560     $ 1,633     $ 1,561     6.4  
    Medicaid       1,374     1,544     1,543     1,925       1,585     1,567       1,963       1,518       1,386       1,610     (28.0 )
    Medicare Advantage       1,645     1,602     1,629     1,571       1,612     1,616       1,589       1,572       1,592       1,592     1.3  
    Medicaid Managed       1,452     1,473     1,489     1,460       1,469     1,506       1,477       1,577       1,538       1,524     5.3  
    Commercial insurance and other       2,217     2,322     2,226     2,274       2,260     2,239       2,234       2,217       2,268       2,239     (0.3 )
    Weighted average       1,711     1,724     1,676     1,671       1,696     1,656       1,674       1,674       1,711       1,678     2.4  
                                                       
  Average daily census       3,416     3,363     3,201     3,283       3,315     3,383       3,230       3,093       3,065       3,192     (6.6 )
                                                       
(a) All historical statistics have been adjusted to present the ongoing hospital division portfolio excluding three hospitals acquired during the second quarter of 2016. See reconciliation of same-hospital revenues to reported hospital revenues on page 18.
   
Forward-Looking Statements
 
This earnings 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 are often identified by words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “hope,” “may,” “potential,” “upside,” “seek,” “continue,” and other similar expressions.
 
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. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance, or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. Risks and uncertainties related to the Merger include, but are not limited to, the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the failure of the parties to satisfy conditions to completion of the Merger, including the failure of the Company’s stockholders to approve the Merger or the failure of the parties to obtain required regulatory approvals; the risk that regulatory or other approvals are delayed or are subject to terms and conditions that are not anticipated; changes in the business or operating prospects of the Company or its businesses; changes in healthcare and other laws and regulations; the impact of the announcement of, or failure to complete, the Merger on the Company’s relationships with employees, customers, vendors and other business partners; and litigation related to the Merger. In addition, these statements involve risks, uncertainties, and other factors detailed from time to time in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC.
 
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.
 
Non-GAAP Measures
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release using certain non-GAAP measures. The use of these non-GAAP measures is not intended to replace the presentation of the Company’s financial results in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the following pages of this earnings release.
 
During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. As revised, the Company’s core non-GAAP measures, including core net income (loss) attributable to Kindred, core EBITDA, core diluted EPS, core operating cash flows and core free cash flows, no longer exclude (1) transaction, integration, research and development, and litigation contingency expenses that are not individually material, (2) non-restructuring related facility closing charges, and (3) non-executive or non-restructuring related severance, retirement and retention costs. For comparability, “core” results for 2016 were revised to conform to the current year presentation.
 
For each of the Company’s segments, Segment adjusted operating income (loss) is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 − Segment Reporting.” In this context, the Company defines Segment adjusted operating income (loss) as earnings before interest, income taxes, depreciation, amortization and total rent for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.
 
EBITDA: The Company defines EBITDA as earnings before interest, income taxes, depreciation, and amortization, and believes that the presentation of EBITDA is useful to investors because creditors, securities analysts and investors use EBITDA to compare the performance and valuation of companies in the healthcare industry before consideration of non-cash depreciation and amortization expense, and financing costs, which can vary significantly among companies.
Non-GAAP Measures (Continued)
 
Core Operating Results: The Company calculates core operating results, including core net income (loss) attributable to Kindred, core EBITDA, and core diluted EPS, by excluding charges related to impairments, business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, deferred tax asset valuation allowance, deferred tax liability adjustment associated with the Tax Reform Act, and material transaction, integration, litigation, and research and development costs. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company’s management uses core net income (loss) attributable to Kindred, core EBITDA, and core diluted EPS as measures of operational performance that are meaningful to investors. The Company uses these measures to assess the relative performance of its operating divisions, as well as the employees that operate these businesses. In addition, the Company believes these measures are important, because securities analysts and investors use these measures to compare the Company’s performance to other companies in the healthcare industry.
 
Same-Hospital Revenues: The same-hospital revenues are calculated by excluding from the Company’s Hospital division revenues the results from two hospitals that closed during the fourth quarter of 2017, four hospitals that closed during the third quarter of 2017, one hospital that closed during the second quarter of 2017, three hospitals acquired in 2016, 15 hospitals sold in 2016, and three hospitals that closed during 2016. The Company believes the presentation of same-hospital revenues provides investors, equity analysts and others with useful information regarding the performance of the Company’s hospital operations that are comparable for the periods presented.
 
For core net income (loss) attributable to Kindred and core EBITDA, the Company believes that income (loss) from continuing operations is the most comparable GAAP measure. For core diluted EPS, the Company believes that GAAP diluted earnings (loss) per share from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations and diluted earnings (loss) per share from continuing operations as important measures of the Company’s financial performance, because they provide the most complete measures of its performance. For same-hospital revenues, the Company believes that reported hospital segment revenues is the most comparable GAAP measure. Readers of the Company’s financial information should consider reported hospital segment revenues as an important measure of the Company’s Hospital division financial performance because it provides the most complete measure of its revenue performance. Operating results presented on a core basis, as well as a same-hospital basis, 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.
 
Also in this earnings release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items, which the Company refers to as core operating cash flows and core free cash flows, respectively.
 
Core Operating Cash Flows: The Company defines core operating cash flows as operating cash flows excluding payments related to business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, net of income tax benefits. The Company believes that core operating cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core operating cash flows to evaluate consolidated operating performance and in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.
 
Core Free Cash Flows: The Company defines core free cash flows as operating cash flows excluding payments related to business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, net of income tax benefits but including routine capital expenditures and distributions to noncontrolling interests. The Company believes that core free cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core free cash flows in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.
 
The Company recognizes that core operating cash flows and core free cash flows are non-GAAP measures and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. For core operating cash flows and core free cash flows, 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 because it provides the most complete measure of cash provided by operating activities. Core operating cash flows and core free cash flows should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of the Company’s cash flows provided by operating activities.
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures
(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 earnings release to compute certain non-GAAP measures for the three months ended December 31, 2017 and 2016, and for the year ended December 31, 2017 and 2016, 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, including the deferred tax liability adjustment associated with the Tax Reform Act and the deferred tax asset valuation allowance for the three months and for the year ended December 31, 2017, and the deferred tax asset valuation allowance for the three months and for the year ended December 31, 2016 was calculated using an effective income tax rate of 47.5% and 12.1% for the three months ended December 31, 2017 and 2016, respectively, and 36.4% and 63.1% for the year ended December 31, 2017 and 2016, respectively. The difference in the effective income tax rate compared to the same prior year period is primarily attributable to the change in the amount of deferred tax valuation allowance, the deferred tax liability adjustment associated with the Tax Reform Act and the composition of charges that are non-deductible for income tax purposes, including the impairment charges.
                           
              Three months ended   Year ended
              December 31,   December 31,
                2017       2016       2017       2016  
Reconciliation of income from continuing operations before charges:                  
                           
As reported:                  
  Loss from continuing operations attributable to Kindred       ($145,361 )     ($10,455 )     ($289,377 )     ($632,535 )
  Diluted loss per common share from continuing operations       ($1.65 )     ($0.12 )     ($3.31 )     ($7.29 )
  Weighted average diluted shares outstanding       87,902       86,904       87,525       86,800  
                           
Detail of charges:                  
  Restructuring charges:                  
    Facility/branch divestitures and closings       ($1,806 )     ($3,745 )     ($18,731 )     ($23,539 )
    Retention, severance and other costs       (2,956 )     (5,302 )     (11,623 )     (8,781 )
    Merger/transaction costs       (9,989 )     (837 )     (9,989 )     (2,414 )
                (14,751 )     (9,884 )     (40,343 )     (34,734 )
    Lease termination and lease amendment costs (charged to rent restructuring charges)       (38,554 )     (2,029 )     (44,518 )     (61,392 )
                           
  Impairment charges       (244,876 )     (3,534 )     (381,179 )     (314,729 )
  RehabCare collection litigation       -       -       (23,061 )     -  
  Insurance restructuring costs       (10,406 )     -       (10,406 )     -  
  Research and development       -       (4,293 )     -       (11,520 )
  Litigation contingency expense       (3,435 )     -       (7,435 )     (1,775 )
  Business interruption settlements       -       2,069       1,803       3,378  
  Debt amendment fees not capitalized       -       -       -       (1,103 )
  Gentiva transaction costs:                  
    Professional and consulting fees       -       (1,779 )     -       (5,610 )
    Severance and retention       -       -       -       (696 )
    Lease termination (charged to building rent)       -       -       -       (272 )
                (312,022 )     (19,450 )     (505,139 )     (428,453 )
  Income tax benefit       66,951       7,878       142,062       98,246  
  Deferred tax liability adjustment associated with the Tax Reform Act       130,453       -       130,453       -  
  Deferred tax asset valuation allowance       (49,072 )     (5,532 )     (88,398 )     (368,664 )
  Charges net of income taxes       (163,690 )     (17,104 )     (321,022 )     (698,871 )
  Noncontrolling interests       -       -       320       1,304  
                (163,690 )     (17,104 )     (320,702 )     (697,567 )
  Allocation to participating unvested restricted stockholders       -       -       -       -  
  Available to common stockholders       ($163,690 )     ($17,104 )     ($320,702 )     ($697,567 )
                           
  Diluted loss per common share related to charges       ($1.86 )     ($0.20 )     ($3.66 )     ($8.04 )
                           
  Weighted average diluted shares outstanding       87,902       86,904       87,525       86,800  
                           
Core:                  
  Income from continuing operations attributable to Kindred before charges     $ 18,329     $ 6,649     $ 31,325     $ 65,032  
  Diluted earnings per common share from continuing operations before charges (a)     $ 0.20     $ 0.07     $ 0.34     $ 0.73  
 

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

      88,485       87,641       88,200       87,491  
                           
Reconciliation of effective income tax rate before charges:                  
  Effective income tax rate before charges       18.3 %     12.8 %     26.8 %     30.2 %
  Impact of charges on effective income tax rate       32.9 %     -7.0 %     12.1 %     80.7 %
  Reported effective income tax rate       51.2 %     5.8 %     38.9 %     110.9 %
                           
(a) For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.6 million and $0.1 million for the three months ended December 31, 2017 and 2016, respectively, and by $0.9 million and $1.4 million for the year ended December 31, 2017 and 2016, respectively, for the allocation of income to participating unvested restricted stockholders.
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands)
                                                   
In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures for the quarters of 2016 and 2017, before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the table below.
                                                   
                                                   
                                                   
              2016 Quarters       2017 Quarters    
              First   Second   Third   Fourth   Year   First   Second   Third   Fourth   Year

Reconciliation of income (loss) from continuing operations before charges:

                                     
                                                   
As reported:                                          
 

Income (loss) from continuing operations attributable to Kindred

    $ 14,129     $ 21,380       ($657,589 )     ($10,455 )     ($632,535 )     ($160 )     ($115,186 )     ($28,670 )     ($145,361 )     ($289,377 )
  Depreciation and amortization       33,554       33,198       32,995       32,072       131,819       29,820       25,651       24,808       24,526       104,805  
  Interest, net       57,253       57,567       58,059       58,625       231,504       58,819       58,573       60,441       60,079       237,912  
  Provision (benefit) for income taxes       11,817       19,379       283,182       (116 )     314,262       2,234       (16,116 )     (1,225 )     (142,009 )     (157,116 )
  Noncontrolling interest       7,851       8,847       9,574       8,575       34,847       10,483       10,791       10,960       9,942       42,176  
    EBITDA       124,604       140,371       (273,779 )     88,701       79,897       101,196       (36,287 )     66,314       (192,823 )     (61,600 )
                                                   
Detail of charges:                                          
  Restructuring charges:                                          
    Facility/branch divestitures and closings       341       (759 )     20,212       3,745       23,539       5,360       2,842       8,723       1,806       18,731  
    Retention, severance and other costs       924       446       2,109       5,302       8,781       2,741       274       5,652       2,956       11,623  
    Merger/transaction costs       436       649       492       837       2,414       -       -       -       9,989       9,989  
                1,701       336       22,813       9,884       34,734       8,101       3,116       14,375       14,751       40,343  
   

Lease termination and lease amendment costs (charged to rent restructuring charges)

      251       462       58,650       2,029       61,392       1,905       1,934       2,125       38,554       44,518  
  Impairment charges       7,788       6,131       297,276       3,534       314,729       474       135,829       -       244,876       381,179  
  RehabCare collection litigation       -       -       -       -       -       -       25,304       (2,243 )     -       23,061  
  Insurance restructuring costs       -       -       -       -       -       -       -       -       10,406       10,406  
  Research and development       863       3,076       3,288       4,293       11,520       -       -       -       -       -  
  Litigation contingency expense       1,025       750       -       -       1,775       -       -       4,000       3,435       7,435  
  Business interruption settlements       (1,138 )     (171 )     -       (2,069 )     (3,378 )     -       (1,803 )     -       -       (1,803 )
  Debt amendment fees not capitalized       -       1,103       -       -       1,103       -       -       -       -       -  
  Gentiva transaction costs:                                          
    Professional and consulting fees       1,048       1,319       1,464       1,779       5,610       -       -       -       -       -  
    Severance and retention       555       355       (214 )     -       696       -       -       -       -       -  
    Lease termination (charged to building rent)       -       -       272       -       272       -       -       -       -       -  
                12,093       13,361       383,549       19,450       428,453       10,480       164,380       18,257       312,022       505,139  
    Core EBITDA     $ 136,697     $ 153,732     $ 109,770     $ 108,151     $ 508,350     $ 111,676     $ 128,093     $ 84,571     $ 119,199     $ 443,539  
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands)
                                                       
                                                       
  A reconciliation of revenues for home health for each historical period follows:
                                                      Fourth quarter
              2016 Quarters       2017 Quarters       % change v.
              First   Second Third   Fourth   Year   First   Second Third   Fourth   Year   prior year
  Home health     $ 363,730     $ 370,327     $ 373,980     $ 369,198     $ 1,477,235     $ 376,736     $ 384,954     $ 373,964     $ 388,692     $ 1,524,346     5.3  
  Community care and other       66,305       68,229       75,978       74,875       285,387       74,095       74,222       79,720       69,974       298,011     (6.5 )
  Reported home health revenues     $ 430,035     $ 438,556     $ 449,958     $ 444,073     $ 1,762,622     $ 450,831     $ 459,176     $ 453,684     $ 458,666     $ 1,822,357     3.3  
                                                       
                                                       
                                                       
                                                       
  A reconciliation of revenues for the Hospital Division for each historical period follows:
                                                      Fourth quarter
              2016 Quarters       2017 Quarters       % change v.
              First   Second Third   Fourth   Year   First   Second Third   Fourth   Year   prior year
  Transitional care hospitals     $ 643,299     $ 633,695     $ 575,323     $ 530,746     $ 2,383,063     $ 540,280     $ 525,458     $ 487,012     $ 489,621     $ 2,042,371     (7.7 )
 

Sub-acute units and one skilled nursing facility

      10,799       11,711       13,620       15,118       51,248       16,366       15,351       16,126       16,161       64,004      
  Reported hospital division revenues     $ 654,098     $ 645,406     $ 588,943     $ 545,864     $ 2,434,311     $ 556,646     $ 540,809     $ 503,138     $ 505,782     $ 2,106,375     (7.3 )
                                                       
                                                       
                                                       
                                                       
  A reconciliation of reported hospital revenues to same-hospital revenues for each historical period follows:
                                                      Fourth quarter
              2016 Quarters       2017 Quarters       % change v.
              First   Second Third   Fourth   Year   First   Second Third   Fourth   Year   prior year
  Transitional care hospitals     $ 643,299     $ 633,695     $ 575,323     $ 530,746     $ 2,383,063     $ 540,280     $ 525,458     $ 487,012     $ 489,621     $ 2,042,371     (7.7 )
  Hospitals acquired during 2016 (a)       -       (2,217 )     -       -       (2,217 )     (9,724 )     (10,164 )     -       -       (19,888 )    
  Hospitals sold during 2016 (b)       (71,941 )     (64,084 )     (47,098 )     732       (182,391 )     449       (623 )     (168 )     (746 )     (1,088 )    
  Hospitals closed during 2017 (c)       (31,272 )     (30,952 )     (25,837 )     (26,424 )     (114,485 )     (26,838 )     (23,226 )     (10,400 )     (6,041 )     (66,505 )    
  Hospitals closed during 2016 (d)       (8,271 )     (8,864 )     (8,908 )     (183 )     (26,226 )     (32 )     557       (88 )     (157 )     280      
  Same-hospital revenues     $ 531,815     $ 527,578     $ 493,480     $ 504,871     $ 2,057,744     $ 504,135     $ 492,002     $ 476,356     $ 482,677     $ 1,955,170     (4.4 )
                                                       
                                                       
(a) Three hospitals acquired during the second quarter of 2016.
(b) Three hospitals sold during the second quarter of 2016 and 12 hospitals sold during the fourth quarter of 2016.
(c) One hospital closed during the second quarter of 2017, four hospitals closed during the third quarter of 2017 and two hospitals closed during the fourth quarter of 2017.
(d) Three hospitals closed during the third quarter of 2016.
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
                                                   
                                                   
                  Three months ended December 31, 2017
                      Charges    
                                      Deferred   Deferred        
                                     

tax liability

  tax asset       Before
                  As   Insurance   Litigation   Impairment   Restructuring   Tax Reform Act   valuation       charges
                  reported   restructuring   contingency   charges   charges   adjustment   allowance   Total   ("core") (a)
Income (loss) from continuing operations:                                      
Segment adjusted operating income:                                      
  Kindred at Home:                                      
    Home health     $ 69,445     $ -     $ -   $ -   $ -   $ -     $ -     $ -     $ 69,445  
    Hospice       34,147       -       -     -     -     -       -       -       34,147  
                    103,592       -       -     -     -     -       -       -       103,592  
                                                   
  Hospital division       91,014       -       -     -     -     -       -       -       91,014  
                                                   
  Kindred Rehabilitation Services:                                      
    Kindred Hospital Rehabilitation Services       49,059       -       -     -     -     -       -       -       49,059  
    RehabCare       3,374       -       -     -     -     -       -       -       3,374  
                    52,433       -       -     -     -     -       -       -       52,433  
                                                   
Support center expenses       (66,098 )     10,406       -     -     -     -       -       10,406       (55,692 )
Litigation contingency expense       (3,435 )         3,435                     3,435       -  
Impairment charges       (244,876 )     -       -     244,876     -     -       -       244,876       -  
Restructuring charges       (14,751 )     -       -     -     14,751     -       -       14,751       -  
Building rent       (63,577 )     -       -     -     -     -       -       -       (63,577 )
Equipment rent       (8,571 )     -       -     -     -     -       -       -       (8,571 )
Restructuring charges - rent       (38,554 )     -       -     -     38,554     -       -       38,554       -  
Depreciation and amortization       (24,526 )     -       -     -     -     -       -       -       (24,526 )
Interest, net       (60,079 )     -       -     -     -     -       -       -       (60,079 )

Income (loss) from continuing operations before income taxes

      (277,428 )     10,406       3,435     244,876     53,305     -       -       312,022       34,594  
Provision (benefit) for income taxes       (142,009 )     4,095       1,351     43,909     17,596     130,453       (49,072 )     148,332       6,323  
                    (135,419 )   $ 6,311     $ 2,084   $ 200,967   $ 35,709   $ (130,453 )   $ 49,072     $ 163,690       28,271  
Noncontrolling interests       (9,942 )                                 (9,942 )
  Income (loss) attributable to Kindred     $ (145,361 )                               $ 18,329  
                                                   
Diluted earnings (loss) per common share     $ (1.65 )                               $ 0.20  

 

                                 

Diluted shares used in computing earnings (loss) per common share

      87,902                                   88,485  
                                                   
                                                   
                  Three months ended December 31, 2016
                      Charges    
                                      Gentiva   Deferred        
                      Business               transaction   tax asset       Before
                  As   interruption   Impairment   Research and   Restructuring   and   valuation       charges
                  reported   settlements   charges   development   charges   integration   allowance   Total   ("core") (a)
Income (loss) from continuing operations:                                      
Segment adjusted operating income:                                      
  Kindred at Home:                                      
    Home health     $ 61,487     $ (302 )   $ -   $ -   $ -   $ -     $ -     $ (302 )   $ 61,185  
    Hospice       28,805       (1,137 )     -     -     -     -       -       (1,137 )     27,668  
                    90,292       (1,439 )     -     -     -     -       -       (1,439 )     88,853  
                                                   
  Hospital division       93,778       (630 )     -     -     -     -       -       (630 )     93,148  
                                                   
  Kindred Rehabilitation Services:                                      
    Kindred Hospital Rehabilitation Services       49,728       -       -     -     -     -       -       -       49,728  
    RehabCare       4,142       -       -     -     -     -       -       -       4,142  
                    53,870       -       -     -     -     -       -       -       53,870  
                                                   
Support center expenses       (58,627 )     -       -     4,293     -     -       -       4,293       (54,334 )
Impairment charges       (3,534 )     -       3,534     -     -     -       -       3,534       -  
Restructuring charges       (9,884 )     -       -     -     9,884     -       -       9,884       -  
Transaction costs       (2,166 )     -       -     -     -     1,779       -       1,779       (387 )
Building rent       (64,350 )     -       -     -     -     -       -       -       (64,350 )
Equipment rent       (8,649 )     -       -     -     -     -       -       -       (8,649 )
Restructuring charges - rent       (2,029 )     -       -     -     2,029     -       -       2,029       -  
Depreciation and amortization       (32,072 )     -       -     -     -     -       -       -       (32,072 )
Interest, net       (58,625 )     -       -     -     -     -       -       -       (58,625 )

Income (loss) from continuing operations before income taxes

      (1,996 )     (2,069 )     3,534     4,293     11,913     1,779       -       19,450       17,454  
Provision (benefit) for income taxes       (116 )     (817 )     1,391     1,706     4,887     711       (5,532 )     2,346       2,230  
                    (1,880 )   $ (1,252 )   $ 2,143   $ 2,587   $ 7,026   $ 1,068     $ 5,532     $ 17,104       15,224  
Noncontrolling interests       (8,575 )                                 (8,575 )
  Income (loss) attributable to Kindred     $ (10,455 )                               $ 6,649  
                                                   
Diluted earnings (loss) per common share     $ (0.12 )                               $ 0.07  

 

                                 

Diluted shares used in computing earnings (loss) per common share

      86,904                                   87,641  
                                                   
(a) During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
   
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
                                                           
                                                           
                  Year ended December 31, 2017
                      Charges    
                                              Deferred   Deferred        
                      Business   RehabCare                   tax liaiblity   tax asset       Before
                  As   interruption   collection   Insurance   Litigation   Impairment   Restructuring   Tax Reform Act   valuation       charges
                  reported   settlements   litigation   restructuring   contingency   charges   charges   adjustment   allowance   Total   ("core") (a)
Income (loss) from continuing operations:                                              
Segment adjusted operating income:                                              
  Kindred at Home:                                              
    Home health     $ 276,218     $ (795 )   $ -     $ -     $ -   $ -   $ -   $ -     $ -     $ (795 )   $ 275,423  
    Hospice       129,273       -       -       -       -     -     -     -       -       -       129,273  
                    405,491       (795 )     -       -       -     -     -     -       -       (795 )     404,696  
                                                           
  Hospital division       337,487       (1,008 )     -       -       -     -     -     -       -       (1,008 )     336,479  
                                                           
  Kindred Rehabilitation Services:                                              
    Kindred Hospital Rehabilitation Services       203,392       -       -       -       -     -     -     -       -       -       203,392  
    RehabCare       6,884       -       23,061       -       -     -     -     -       -       23,061       29,945  
                    210,276       -       23,061       -       -     -     -     -       -       23,061       233,337  
                                                           
Support center expenses       (249,007 )     -       -       10,406       -     -     -     -       -       10,406       (238,601 )
Litigation contingency expense       (7,435 )     -       -       -       7,435     -     -     -       -       7,435       -  
Impairment charges       (381,179 )     -       -       -       -     381,179     -     -       -       381,179       -  
Restructuring charges       (40,343 )     -       -       -       -     -     40,343     -       -       40,343       -  
Building rent       (257,516 )     -       -       -       -     -     -     -       -       -       (257,516 )
Equipment rent       (34,856 )     -       -       -       -     -     -     -       -       -       (34,856 )
Restructuring charges - rent       (44,518 )     -       -       -       -     -     44,518     -       -       44,518       -  
Depreciation and amortization       (104,805 )     -       -       -       -     -     -     -       -       -       (104,805 )
Interest, net       (237,912 )     -       -       -       -     -     -     -       -       -       (237,912 )
Income (loss) from continuing operations                                              
  before income taxes       (404,317 )     (1,803 )     23,061       10,406       7,435     381,179     84,861     -       -       505,139       100,822  
Provision (benefit) for income taxes       (157,116 )     (709 )     9,074       4,095       2,925     97,544     29,133     130,453       (88,398 )     184,117       27,001  
                    (247,201 )     (1,094 )     13,987       6,311       4,510     283,635     55,728     (130,453 )     88,398       321,022       73,821  
Noncontrolling interests       (42,176 )     -       (320 )     -       -     -     -     -       -       (320 )     (42,496 )
  Income (loss) attributable to Kindred     $ (289,377 )   $ (1,094 )   $ 13,667     $ 6,311     $ 4,510   $ 283,635   $ 55,728   $ (130,453 )   $ 88,398     $ 320,702     $ 31,325  
                                                           
Diluted earnings (loss) per common share     $ (3.31 )                                       $ 0.34  

Diluted shares used in computing earnings (loss) per common share

      87,525                                           88,200  
                                                           
                                                           
                  Year ended December 31, 2016
                      Charges    
                                              Gentiva   Deferred        
                      Business                       transaction   tax asset       Before
                  As   interruption   Litigation   Impairment   Research and   Debt   Restructuring   and   valuation       charges
                  reported   settlements   contingency   charges   development   amendment   charges   integration   allowance   Total   ("core") (a)
Income (loss) from continuing operations:                                              
Segment adjusted operating income:                                              
  Kindred at Home:                                              
    Home health     $ 279,531     $ (1,611 )   $ -     $ -     $ -   $ -   $ -   $ -     $ -     $ (1,611 )   $ 277,920  
    Hospice       116,326       (1,137 )     -       -       -     -     -     -       -       (1,137 )     115,189  
                    395,857       (2,748 )     -       -       -     -     -     -       -       (2,748 )     393,109  
                                                           
  Hospital division       441,644       (630 )     -       -       -     -     -     -       -       (630 )     441,014  
                                                           
  Kindred Rehabilitation Services:                                              
    Kindred Hospital Rehabilitation Services       198,335       -       -       -       -     -     -     -       -       -       198,335  
    RehabCare       32,586       -       -       -       -     -     -     -       -       -       32,586  
                    230,921       -       -       -       -     -     -     -       -       -       230,921  
                                                           
Support center expenses       (261,916 )     -       -       -       11,520     1,103     -     -       -       12,623       (249,293 )
Litigation contingency expense       (2,840 )     -       1,775       -       -     -     -     -       -       1,775       (1,065 )
Impairment charges       (314,729 )     -       -       314,729       -     -     -     -       -       314,729       -  
Restructuring charges       (34,734 )     -       -       -       -     -     34,734     -       -       34,734       -  
Transaction costs       (8,679 )     -       -       -       -     -     -     6,306       -       6,306       (2,373 )
Building rent       (264,306 )     -       -       -       -     -     -     272       -       272       (264,034 )
Equipment rent       (39,929 )     -       -       -       -     -     -     -       -       -       (39,929 )
Restructuring charges - rent       (61,392 )     -       -       -       -     -     61,392     -       -       61,392       -  
Depreciation and amortization       (131,819 )     -       -       -       -     -     -     -       -       -       (131,819 )
Interest, net       (231,504 )     -       -       -       -     -     -     -       -       -       (231,504 )

Income (loss) from continuing operations before income taxes

      (283,426 )     (3,378 )     1,775       314,729       11,520     1,103     96,126     6,578       -       428,453       145,027  
Provision for income taxes       314,262       (1,329 )     (381 )     54,578       4,533     431     37,826     2,588       (368,664 )     (270,418 )     43,844  
                    (597,688 )     (2,049 )     2,156       260,151       6,987     672     58,300     3,990       368,664       698,871       101,183  
Noncontrolling interests       (34,847 )     -       -       (1,304 )     -     -     -     -       -       (1,304 )     (36,151 )
  Income (loss) attributable to Kindred     $ (632,535 )   $ (2,049 )   $ 2,156     $ 258,847     $ 6,987   $ 672   $ 58,300   $ 3,990     $ 368,664     $ 697,567     $ 65,032  
                                                           
Diluted earnings (loss) per common share     $ (7.29 )                                       $ 0.73  

Diluted shares used in computing earnings (loss) per common share

      86,800                                           87,491  
                                                           
(a) During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
   
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
                                                   
                                                   
                  Three months ended March 31, 2017            
                      Charges                
                              Deferred                    
                              tax asset       Before            
                  As   Impairment   Restructuring   valuation       charges            
                  reported   charges   charges   allowance   Total   ("core") (a)            
Income from continuing operations:                                      
Segment adjusted operating income:                                      
  Kindred at Home:                                      
    Home health     $ 63,750     $ -     $ -   $ -     $ -   $ 63,750              
    Hospice       27,581       -       -     -       -     27,581              
                    91,331       -       -     -       -     91,331              
                                                   
  Hospital division       93,438       -       -     -       -     93,438              
                                                   
  Kindred Rehabilitation Services:                                      
    Kindred Hospital Rehabilitation Services       51,760       -       -     -       -     51,760              
    RehabCare       8,704       -       -     -       -     8,704              
                    60,464       -       -     -       -     60,464              
                                                   
Support center expenses       (60,014 )     -       -     -       -     (60,014 )            
Impairment charges       (474 )     474       -     -       474     -              
Restructuring charges       (8,101 )     -       8,101     -       8,101     -              
Building rent       (64,656 )     -       -     -       -     (64,656 )            
Equipment rent       (8,887 )     -       -     -       -     (8,887 )            
Restructuring charges - rent       (1,905 )     -       1,905     -       1,905     -              
Depreciation and amortization       (29,820 )     -       -     -       -     (29,820 )            
Interest, net       (58,819 )     -       -     -       -     (58,819 )            

Income from continuing operations before income taxes

      12,557       474       10,006     -       10,480     23,037              
Provision for income taxes       2,234       187       3,937     3,049       7,173     9,407              
                    10,323     $ 287     $ 6,069   $ (3,049 )   $ 3,307     13,630              
Noncontrolling interests       (10,483 )                     (10,483 )            
  Income (loss) attributable to Kindred     $ (160 )                   $ 3,147              
                                                   
Diluted earnings (loss) per common share     $ -                     $ 0.03              

 

                                 

Diluted shares used in computing earnings (loss) per common share

      87,085                       87,744              
                                                   
                                                   
                  Three months ended March 31, 2016
                      Charges    
                                          Gentiva        
                      Business                   transaction       Before
                  As   interruption   Litigation   Impairment   Research and   Restructuring   and       charges
                  reported   settlements   contingency   charges   development   charges   integration   Total   ("core") (a)
Income from continuing operations:                                      
Segment adjusted operating income:                                      
  Kindred at Home:                                      
    Home health     $ 66,941     $ (1,138 )   $ -   $ -     $ -   $ -     $ -   $ (1,138 )   $ 65,803  
    Hospice       24,866       -       -     -       -     -       -     -       24,866  
                    91,807       (1,138 )     -     -       -     -       -     (1,138 )     90,669  
                                                   
  Hospital division       136,416       -       -     -       -     -       -     -       136,416  
                                                   
  Kindred Rehabilitation Services:                                      
    Kindred Hospital Rehabilitation Services       48,119       -       -     -       -     -       -     -       48,119  
    RehabCare       9,762       -       -     -       -     -       -     -       9,762  
                    57,881       -       -     -       -     -       -     -       57,881  
                                                   
Support center expenses       (72,022 )     -       -     -       863     -       -     863       (71,159 )
Litigation contingency expense       (1,910 )     -       1,025     -       -     -       -     1,025       (885 )
Impairment charges       (7,788 )     -       -     7,788       -     -       -     7,788       -  
Restructuring charges       (1,701 )     -       -     -       -     1,701       -     1,701       -  
Transaction costs       (1,685 )     -       -     -       -     -       1,603     1,603       (82 )
Building rent       (65,985 )     -       -     -       -     -       -     -       (65,985 )
Equipment rent       (10,158 )     -       -     -       -     -       -     -       (10,158 )
Restructuring charges - rent       (251 )     -       -     -       -     251       -     251       -  
Depreciation and amortization       (33,554 )     -       -     -       -     -       -     -       (33,554 )
Interest, net       (57,253 )     -       -     -       -     -       -     -       (57,253 )

Income from continuing operations before income taxes

      33,797       (1,138 )     1,025     7,788       863     1,952       1,603     12,093       45,890  
Provision for income taxes       11,817       (403 )     363     2,758       305     691       568     4,282       16,099  
                    21,980     $ (735 )   $ 662   $ 5,030     $ 558   $ 1,261     $ 1,035   $ 7,811       29,791  
Noncontrolling interests       (7,851 )                                 (7,851 )
  Income attributable to Kindred     $ 14,129                                 $ 21,940  
                                                   
Diluted earnings per common share     $ 0.16                                 $ 0.25  

Diluted shares used in computing earnings per common share

      87,249                                   87,249  
                                                   
(a) During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
   
 
 
 
 
 
 
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
                                                       
                                                       
                  Three months ended June 30, 2017        
                      Charges            
                                      Deferred                
                      Business   RehabCare           tax asset       Before        
                  As   interruption   collection   Impairment   Restructuring   valuation       charges        
                  reported   settlements   litigation   charges   charges   allowance   Total   ("core") (a)        
Income (loss) from continuing operations:                                          
Segment adjusted operating income (loss):                                          
  Kindred at Home:                                          
    Home health     $ 76,592     $ (795 )   $ -     $ -     $ -   $ -     $ (795 )   $ 75,797          
    Hospice       32,784       -       -       -       -     -       -       32,784          
                    109,376       (795 )     -       -       -     -       (795 )     108,581          
                                                       
  Hospital division       91,580       (1,008 )     -       -       -     -       (1,008 )     90,572          
                                                       
  Kindred Rehabilitation Services:                                          
    Kindred Hospital Rehabilitation Services       53,422       -       -       -       -     -       -       53,422          
    RehabCare       (13,492 )     -       25,304       -       -     -       25,304       11,812          
                    39,930       -       25,304       -       -     -       25,304       65,234          
                                                       
Support center expenses       (62,572 )     -       -       -       -     -       -       (62,572 )        
Impairment charges       (135,829 )     -       -       135,829       -     -       135,829       -          
Restructuring charges       (3,116 )     -       -       -       3,116     -       3,116       -          
Building rent       (64,861 )     -       -       -       -     -       -       (64,861 )        
Equipment rent       (8,861 )     -       -       -       -     -       -       (8,861 )        
Restructuring charges - rent       (1,934 )     -       -       -       1,934     -       1,934       -          
Depreciation and amortization       (25,651 )     -       -       -       -     -       -       (25,651 )        
Interest, net       (58,573 )     -       -       -       -     -       -       (58,573 )        

Income (loss) from continuing operations before income taxes

      (120,511 )     (1,803 )     25,304       135,829       5,050     -       164,380       43,869          
Provision (benefit) for income taxes       (16,116 )     (709 )     9,957       53,449       1,987     (35,235 )     29,449       13,333          
                    (104,395 )     (1,094 )     15,347       82,380       3,063     35,235       134,931       30,536          
Noncontrolling interests       (10,791 )     -       (320 )     -       -     -       (320 )     (11,111 )        
  Income (loss) attributable to Kindred     $ (115,186 )   $ (1,094 )   $ 15,027     $ 82,380     $ 3,063   $ 35,235     $ 134,611     $ 19,425          
                                                       
Diluted earnings (loss) per common share     $ (1.32 )                           $ 0.21          

Diluted shares used in computing earnings (loss) per common share

      87,506                               88,165          
                                                       
                                                       
                  Three months ended June 30, 2016
                      Charges    
                                              Gentiva        
                      Business                       transaction     Before
                  As   interruption   Litigation   Impairment   Research and   Debt   Restructuring   and       charges
                  reported   settlements   contingency   charges   development   amendment   charges   integration   Total   ("core") (a)
Income from continuing operations:                                          
Segment adjusted operating income:                                          
  Kindred at Home:                                          
    Home health     $ 76,030     $ (171 )   $ -     $ -     $ -   $ -     $ -     $ -     $ (171 )   $ 75,859  
    Hospice       31,329       -       -       -       -     -       -       -       -       31,329  
                    107,359       (171 )     -       -       -     -       -       -       (171 )     107,188  
                                                       
  Hospital division       127,510       -       -       -       -     -       -       -       -       127,510  
                                                       
  Kindred Rehabilitation Services:                                          
    Kindred Hospital Rehabilitation Services       50,729       -       -       -       -     -       -       -       -       50,729  
    RehabCare       11,158       -       -       -       -     -       -       -       -       11,158  
                    61,887       -       -       -       -     -       -       -       -       61,887  
                                                       
Support center expenses       (68,444 )     -       -       -       3,076     1,103       -       -       4,179       (64,265 )
Litigation contingency expense       (930 )     -       750       -       -     -       -       -       750       (180 )
Impairment charges       (6,131 )     -       -       6,131       -     -       -       -       6,131       -  
Restructuring charges       (336 )     -       -       -       -     -       336       -       336       -  
Transaction costs       (1,846 )     -       -       -       -     -       -       1,674       1,674       (172 )
Building rent       (67,025 )     -       -       -       -     -       -       -       -       (67,025 )
Equipment rent       (11,211 )     -       -       -       -     -       -       -       -       (11,211 )
Restructuring charges - rent       (462 )     -       -       -       -     -       462       -       462       -  
Depreciation and amortization       (33,198 )     -       -       -       -     -       -       -       -       (33,198 )
Interest, net       (57,567 )     -       -       -       -     -       -       -       -       (57,567 )

Income from continuing operations before income taxes

      49,606       (171 )     750       6,131       3,076     1,103       798       1,674       13,361       62,967  
Provision for income taxes       19,379       (129 )     (1,511 )     (2,962 )     2,324     833       2,054       1,265       1,874       21,253  
                    30,227       (42 )     2,261       9,093       752     270       (1,256 )     409       11,487       41,714  
Noncontrolling interests       (8,847 )     -       -       (1,016 )     -     -       -       -       (1,016 )     (9,863 )
  Income attributable to Kindred     $ 21,380     $ (42 )   $ 2,261     $ 8,077     $ 752   $ 270     $ (1,256 )   $ 409     $ 10,471     $ 31,851  
                                                       
Diluted earnings per common share     $ 0.23                                     $ 0.35  

Diluted shares used in computing earnings per common share

      87,500                                       87,500  
                                                       
(a) During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
   
 
 
 

 

 

 

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
                                               
                                               
                  Three months ended September 30, 2017    
                      Charges        
                                  Deferred            
                      RehabCare           tax asset       Before    
                  As   collection   Litigation   Restructuring   valuation       charges    
                  reported   litigation   contingency   charges   allowance   Total   ("core") (a)    
Income (loss) from continuing operations:                                  
Segment adjusted operating income:                                  
  Kindred at Home:                                  
    Home health     $ 66,431     $ -     $ -   $ -   $ -     $ -     $ 66,431      
    Hospice       34,761       -       -     -     -       -       34,761      
                    101,192       -       -     -     -       -       101,192      
                                               
  Hospital division       61,455       -       -     -     -       -       61,455      
                                               
  Kindred Rehabilitation Services:                                  
    Kindred Hospital Rehabilitation Services       49,151       -       -     -     -       -       49,151      
    RehabCare       8,298       (2,243 )     -     -     -       (2,243 )     6,055      
                    57,449       (2,243 )     -     -     -       (2,243 )     55,206      
                                               
Support center expenses       (60,323 )     -       -     -     -       -       (60,323 )    
Litigation contingency expense       (4,000 )     -       4,000     -     -       4,000       -      
Restructuring charges       (14,375 )     -       -     14,375     -       14,375       -      
Building rent       (64,422 )     -       -     -     -       -       (64,422 )    
Equipment rent       (8,537 )     -       -     -     -       -       (8,537 )    
Restructuring charges - rent       (2,125 )     -       -     2,125     -       2,125       -      
Depreciation and amortization       (24,808 )     -       -     -     -       -       (24,808 )    
Interest, net       (60,441 )     -       -     -     -       -       (60,441 )    

Loss from continuing operations before income taxes

      (18,935 )     (2,243 )     4,000     16,500     -       18,257       (678 )    
Income tax benefit       (1,225 )     (883 )     1,574     5,612     (7,140 )     (837 )     (2,062 )    
                    (17,710 )   $ (1,360 )   $ 2,426   $ 10,888   $ 7,140     $ 19,094       1,384      
Noncontrolling interests       (10,960 )                         (10,960 )    
  Loss attributable to Kindred     $ (28,670 )                       $ (9,576 )    
                                               
Diluted loss per common share     $ (0.32 )                       $ (0.11 )    

Diluted shares used in computing loss per common share

      87,597