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Kindred Healthcare Reports Second Quarter 2015 Results

August 5, 2015

Core Diluted EPS from Continuing Operations of $0.39(1) in the Second Quarter

GAAP EPS from Continuing Operations of $0.25 in the Second Quarter Reflects Costs of $0.14 Per Share Related to Transaction, Integration, Litigation and Other Restructuring Initiatives

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Second Quarter Consolidated Revenue Growth of 45% and Core EBITDAR Growth of 49%(1)

Acquisition Integration and Synergy Realization Goals On Schedule

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Reaffirms 2015 Revenue, Core EBITDAR, and Adjusted Core EPS Guidance
Raises 2015 Core EPS Guidance to $1.25 to $1.45 Per Diluted Share

LOUISVILLE, Ky.--(BUSINESS WIRE)--Aug. 5, 2015-- Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the second quarter ended June 30, 2015.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “We are pleased to report a solid second quarter that represents our first full quarter of combined operations since completing the Gentiva Health Services, Inc. (“Gentiva”) and Centerre Healthcare Corporation (“Centerre”) acquisitions earlier this year. We made substantial progress on our integration and synergy initiatives for Gentiva and Centerre and expect to continue that positive momentum into the third quarter. The operating and financial performance of both of these businesses has exceeded our expectations and further strengthened our ability to deliver outstanding patient care across the Company.”

All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated. The acquisitions of Gentiva and Centerre have been included in the operating results presented since the date of acquisition.

Second Quarter Consolidated Highlights(1):

  • Consolidated revenues increased 45.4% to $1.83 billion and earnings before interest, income taxes, depreciation, amortization, rent and certain charges (“core EBITDAR”) increased 48.9% to $262 million, each as compared to the same period last year
  • Core diluted EPS from continuing operations was $0.39 and adjusted core diluted EPS from continuing operations was $0.51 based upon 86.4 million weighted average diluted shares, an improvement as compared to core diluted EPS of $0.35 and adjusted core diluted EPS of $0.50 for the same period a year ago based upon 53.8 million weighted average diluted shares
  • The Company generated significant core operating cash flows of $98 million compared to $1 million for the same period a year ago; core free cash flows were $73 million compared to a core free cash flow deficit of $23 million in the second quarter of 2014
  • The Kindred Board of Directors declared a regular quarterly cash dividend of $0.12 per share on the Company’s common stock payable on September 4, 2015

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(1) See reconciliation of core results to generally accepted accounting principles (“GAAP”) results beginning on page 11.

Second Quarter Segment Highlights(1):

Kindred’s Hospital Division (“HD”) revenues increased 2.4% over the prior year to $627 million in the second quarter of 2015 driven primarily by growth in revenue per admission of 5.5%. Admissions in the quarter declined 2.6% on a same-hospital basis over the prior year. HD’s core EBITDAR contribution remained unchanged at $132 million, due to effective cost controls that kept cost per patient day growth under 1.0%. HD continues to make solid progress in its preparations for the implementation of the new long-term acute care hospital criteria, which has an initial effective date for the Company of September 1, 2016.

Kindred at Home (“KAH”) revenues and core EBITDAR grew to $606 million and $101 million, respectively, for the quarter. The home health operations achieved solid growth during the second quarter of 2015, with episodic admissions increasing 6.5% and revenues increasing 7.6% to $360 million, both over the prior year on a combined basis. The hospice segment generated $178 million of revenues, continuing its growth trajectory with a 2% sequential growth in average daily census.

Kindred Rehabilitation Services (“KRS”) revenues grew 11.7% to $389 million and core EBITDAR contribution grew 29.8% to $59 million. The hospital-based rehabilitation services segment, which includes Kindred’s freestanding inpatient rehabilitation facilities (“IRF”), experienced strong revenue growth of $58 million or 60.6% over the prior year, due to the successful Centerre acquisition, and achieved core EBITDAR margin improvement from 27.1% to 29.2%. The skilled nursing rehabilitation services segment (“RHB”) experienced a 6.7% revenue reduction from the prior year primarily due to contract losses in the first quarter. RHB had additional contract losses in the second quarter, but these moderated compared to the levels in the first quarter of 2015.

Kindred’s Nursing Center Division (“NCD”) had an outstanding quarter, reporting revenue and admissions growth of 3.6% and 2.2%, respectively, over the prior year. NCD core EBITDAR increased 4.8% over the prior year to $41 million based upon improved revenue, rates and admissions compared to the prior year.

Mr. Breier commented, “While we are pleased with the operational and clinical performance of each of our business segments, we are even more encouraged by how these businesses are coming together to deliver a coordinated continuum of care that enables population-based delivery models in a value-based reimbursement system. With the integrated markets we serve, and the diversity of services we deploy today, we are able to deliver quality care in the right setting, at the right time and at the right cost. We believe that this network is one that will be increasingly valued by payors and patients alike.”

2015 Outlook

Kindred today reaffirmed its previously provided estimates for 2015 financial results and raised its core earnings per share guidance for 2015. (2) Kindred now expects:

  • 2015 annual revenues of approximately $7.2 billion
  • Core EBITDAR of approximately $1.0 billion to $1.05 billion (3)
  • Adjusted core earnings of $1.70 to $1.90 per diluted share(4)(5)
  • Kindred raised its core earnings expectations to $1.25 to $1.45 per diluted share (4) compared to its prior expectations of $1.20 to $1.40 per diluted share.

For the third quarter of 2015, the Company expects core diluted earnings per share from continuing operations to approximate $0.18 to $0.28 and adjusted core diluted earnings per share from continuing operations to approximate $0.30 to $0.40.

_____________

(1) See reconciliation of core results to GAAP results beginning on page 11.
(2) Guidance includes Gentiva for eleven months and Centerre for the full year.
(3) Includes $35 million from Gentiva synergies expected to be realized in 2015.
(4) The earnings per share estimate is based upon an estimated weighted average annual diluted share count for 2015 of 86 million shares. The estimated annual diluted share count for 2015 includes approximately 3.5 million shares of common stock issued in February and May to holders of 80,621 tangible equity units that elected early conversion settlements.
(5) Adjusted core earnings per diluted share is calculated by excluding non-cash expenses, net of the income tax benefit, related to amortization of intangible assets, stock-based compensation and deferred financing costs, from core income from continuing operations. The estimated non-cash expenses for 2015 total approximately $66 million ($40 million net of income taxes) or approximately $0.45 per diluted share.
 

Stephen D. Farber, Executive Vice President and Chief Financial Officer, commented, “We have significantly progressed our Gentiva and Centerre integration efforts over the quarter. We are on track both operationally and financially for the year, including our goal to realize $35 million of synergy contribution in 2015. Our cash flow performance in the quarter was markedly improved over the prior year, and we continue to make progress with our leverage profile while investing in our businesses and returning significant capital to shareholders through our quarterly cash dividends.”

The guidance excludes transaction costs, pre-closing financing costs and post-closing integration costs associated with the acquisitions of Gentiva and Centerre, the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, litigation and related contingency expense (including the $95 million loss contingency reserve accrued during the first quarter of 2015 related to the previously disclosed investigation into a therapy services company acquired by Kindred in 2011), other transaction costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock or any repurchases of common stock.

Quarterly Cash Dividend

The Company announced that its Board of Directors has approved the payment of the regular quarterly cash dividend of $0.12 per share of common stock to be paid on September 4, 2015 to shareholders of record as of the close of business on August 19, 2015.

Conference Call

As previously announced, investors and the general public may access a live webcast of the second quarter 2015 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on August 6 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on August 6 by dialing (719) 457-0820, access code: 5256358. The replay will be available through August 16.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 10 for important disclosures regarding our forward-looking statements and the non-GAAP financial reconciliations that follow.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-85 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $7.2 billion(1). At June 30, 2015, Kindred through its subsidiaries had approximately 103,700 employees providing healthcare services in 2,730 locations in 47 states, including 96 transitional care hospitals, 16 inpatient rehabilitation hospitals, 90 nursing centers, 21 sub-acute units, 656 Kindred at Home home health, hospice and non-medical home care sites of service, 99 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,752 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for six years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

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(1) Revenues were computed by combining the twelve months ended December 31, 2014 data for Kindred, Gentiva and Centerre.
 
                   
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
 
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
 
Revenues $ 1,833,475   $ 1,261,397   $ 3,509,442   $ 2,534,007  
 
Salaries, wages and benefits 935,687 606,095 1,782,780 1,224,789
Supplies 98,237 71,585 191,508 144,550
Rent 96,402 77,699 188,542 156,229
Other operating expenses 212,117 172,674 409,844 342,204
General and administrative expenses 334,805 244,746 740,907 476,018
Other income (569 ) (122 ) (1,049 ) (334 )
Litigation contingency expense 3,925 4,600 98,925 4,600
Impairment charges - - 6,726 -
Depreciation and amortization 38,625 39,172 77,560 78,264
Interest expense 57,170 80,530 119,688 106,329
Investment income   (1,030 )   (2,449 )   (1,771 )   (2,631 )
  1,775,369     1,294,530     3,613,660     2,530,018  
Income (loss) from continuing operations before income taxes 58,106 (33,133 ) (104,218 ) 3,989
Provision (benefit) for income taxes   24,396     (12,683 )   (3,340 )   1,512  
Income (loss) from continuing operations 33,710 (20,450 ) (100,878 ) 2,477
Discontinued operations, net of income taxes:
Loss from operations (589 ) (8,768 ) (4,013 ) (16,210 )
Gain (loss) on divestiture of operations   983     (2,018 )   983     (5,024 )
Income (loss) from discontinued operations   394     (10,786 )   (3,030 )   (21,234 )
Net income (loss) 34,104 (31,236 ) (103,908 ) (18,757 )
(Earnings) loss attributable to noncontrolling interests:
Continuing operations (11,735 ) (4,828 ) (20,582 ) (9,357 )
Discontinued operations   2     253     31     323  
  (11,733 )   (4,575 )   (20,551 )   (9,034 )
Income (loss) attributable to Kindred $ 22,371   $ (35,811 ) $ (124,459 ) $ (27,791 )
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 21,975 $ (25,278 ) $ (121,460 ) $ (6,880 )
Income (loss) from discontinued operations   396     (10,533 )   (2,999 )   (20,911 )
Net income (loss) $ 22,371   $ (35,811 ) $ (124,459 ) $ (27,791 )
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.25 $ (0.47 ) $ (1.47 ) $ (0.13 )
Discontinued operations:
Loss from operations (0.01 ) (0.16 ) (0.05 ) (0.30 )
Gain (loss) on divestiture of operations   0.01     (0.04 )   0.01     (0.09 )
Income (loss) from discontinued operations   -     (0.20 )   (0.04 )   (0.39 )
Net income (loss) $ 0.25   $ (0.67 ) $ (1.51 ) $ (0.52 )
 
Diluted:
Income (loss) from continuing operations $ 0.25 $ (0.47 ) $ (1.47 ) $ (0.13 )
Discontinued operations:
Loss from operations (0.01 ) (0.16 ) (0.05 ) (0.30 )
Gain (loss) on divestiture of operations   0.01     (0.04 )   0.01     (0.09 )
Income (loss) from discontinued operations   -     (0.20 )   (0.04 )   (0.39 )
Net income (loss) $ 0.25   $ (0.67 ) $ (1.51 ) $ (0.52 )
 
Shares used in computing earnings (loss) per common share:
Basic 86,045 53,714 82,828 53,180
Diluted 86,402 53,714 82,828 53,180
 
Cash dividends declared and paid per common share $ 0.12 $ 0.12 $ 0.24 $ 0.24
 
               
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
 
June 30, December 31,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $ 119,536 $ 164,188
Insurance subsidiary investments 104,534 99,951
Accounts receivable less allowance for loss 1,253,218 944,219
Inventories 27,120 25,702
Deferred tax assets 92,786 82,391
Income taxes 15,996 8,575
Interest deposit on senior unsecured notes held in escrow - 23,438
Other   78,172     41,598  
1,691,362 1,390,062
 
Property and equipment 2,084,349 1,978,153
Accumulated depreciation   (1,134,817 )   (1,076,049 )
949,532 902,104
 
Goodwill 2,643,328 997,597
Intangible assets less accumulated amortization 799,902 400,700
Assets held for sale 2,384 3,475
Insurance subsidiary investments 198,410 166,045
Deferred tax assets - 11,174
Proceeds from senior unsecured notes held in escrow - 1,350,000
Acquisition deposit - 195,000
Other   321,009     236,807  
Total assets $ 6,605,927   $ 5,652,964  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 183,843 $ 175,725
Salaries, wages and other compensation 467,693 358,857
Due to third party payors 44,490 43,957
Professional liability risks 61,550 64,137
Other accrued liabilities 347,230 189,980
Long-term debt due within one year   32,354     24,607  
1,137,160 857,263
 
Long-term debt 3,222,443 2,852,531
Professional liability risks 267,503 243,614
Deferred tax liabilities 8,422 -
Deferred credits and other liabilities 298,124 213,584
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 83,693 shares - June 30, 2015 and 69,977 shares - December 31, 2014

20,923 17,494
Capital in excess of par value 1,747,585 1,586,692
Accumulated other comprehensive loss (3,211 ) (2,551 )
Accumulated deficit   (286,357 )   (159,768 )
1,478,940 1,441,867
Noncontrolling interests   193,335     44,105  
Total equity   1,672,275     1,485,972  
Total liabilities and equity $ 6,605,927   $ 5,652,964  
 
                       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
 
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
Cash flows from operating activities:
Net income (loss) $ 34,104 $ (31,236 ) $ (103,908 ) $ (18,757 )

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

Depreciation and amortization 38,849 40,922 77,926 82,226
Amortization of stock-based compensation costs 6,746 6,378 12,570 8,963
Amortization of deferred financing costs 3,539 16,832 6,601 19,229
Payment of capitalized lender fees related to debt issuance - (19,125 ) (28,012 ) (19,125 )
Provision for doubtful accounts 10,511 12,133 18,803 20,893
Deferred income taxes 21,130 17,528 (4,450 ) 21,503
Impairment charges - 220 6,726 664
(Gain) loss on divestiture of discontinued operations (983 ) 2,018 (983 ) 5,024
Other 4,975 70 6,972 2,114
Change in operating assets and liabilities:
Accounts receivable (7,733 ) (41,066 ) (39,389 ) (112,895 )
Inventories and other assets (17,608 ) (3,769 ) 35,414 (9,987 )
Accounts payable (12,900 ) (5,425 ) (12,435 ) (18,877 )
Income taxes 1,923 (40,476 ) (3,845 ) (11,063 )
Due to third party payors (3,554 ) (12,354 ) (18,973 ) (14,367 )
Other accrued liabilities   21,380     7,387     7,760     (21,262 )
Net cash provided by (used in) operating activities   100,379     (49,963 )   (39,223 )   (65,717 )
 
Cash flows from investing activities:
Routine capital expenditures (24,500 ) (24,485 ) (45,269 ) (46,162 )
Development capital expenditures (518 ) (372 ) (6,306 ) (1,123 )
Acquisitions, net of cash acquired (2,684 ) (1,383 ) (661,755 ) (24,098 )
Acquisition deposit - - 195,000 -
Sale of assets 2,229 8,927 3,177 13,961
Proceeds from senior unsecured notes offering held in escrow - - 1,350,000 -
Interest in escrow for senior unsecured notes - - 23,438 -
Purchase of insurance subsidiary investments (16,911 ) (13,179 ) (42,829 ) (23,293 )
Sale of insurance subsidiary investments 12,764 17,758 34,793 26,520
Net change in insurance subsidiary cash and cash equivalents (5,205 ) (4,957 ) (5,763 ) (11,556 )
Change in other investments 175 70 199 710
Other   (798 )   17     (793 )   (534 )
Net cash provided by (used in) investing activities   (35,448 )   (17,604 )   843,892     (65,575 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 347,700 648,315 1,155,150 1,157,015
Repayment of borrowings under revolving credit (360,100 ) (943,715 ) (970,150 ) (1,369,515 )
Proceeds from issuance of term loan, net of discount - 997,500 199,000 997,500
Proceeds from issuance of senior unsecured notes - 500,000 - 500,000
Repayment of Gentiva debt - - (1,177,363 ) -
Repayment of senior unsecured notes - (550,000 ) - (550,000 )
Repayment of term loan (6,005 ) (781,594 ) (6,005 ) (783,563 )
Repayment of other long-term debt (459 ) (67 ) (900 ) (157 )
Payment of deferred financing costs (445 ) (2,378 ) (2,983 ) (2,648 )
Equity offering, net of offering costs - 203,977 - 203,977
Issuance of common stock in connection with employee benefit plans 139 883 205 4,687

Payment of costs associated with issuance of common stock and tangible equity units

- - (915 ) -
Payment of dividend for mandatory redeemable preferred stock (2,654 ) - (5,432 ) -
Dividends paid (10,027 ) (6,572 ) (20,002 ) (13,086 )
Distributions to noncontrolling interests (10,119 ) (2,662 ) (21,138 ) (5,595 )
Other   50     248     1,212     2,121  
Net cash provided by (used in) financing activities   (41,920 )   63,935     (849,321 )   140,736  
Change in cash and cash equivalents 23,011 (3,632 ) (44,652 ) 9,444
Cash and cash equivalents at beginning of period   96,525     49,048     164,188     35,972  
Cash and cash equivalents at end of period $ 119,536   $ 45,416   $ 119,536   $ 45,416  
 
                       
KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data (a)

(Unaudited)
(In thousands, except per share amounts)
 
Second quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth First Second prior year
Consolidated income statement data:
Revenues $ 1,272,610 $ 1,261,397 $ 1,228,918 $ 1,264,674 $ 1,675,967 $ 1,833,475 45.4
 
Core EBITDAR $ 181,044 $ 175,865 $ 157,218 $ 170,088 $ 234,211 $ 261,800 48.9
Rent   78,530     77,452     77,643     79,167     91,199     95,528   23.3
Core EBITDA 102,514 98,413 79,575 90,921 143,012 166,272 69.0
Depreciation and amortization 39,092 39,172 38,748 38,558 38,935 38,625 (1.4 )
Interest, net   25,617     21,438     22,171     21,857     44,346     56,140   161.9

Income from continuing operations before income taxes

37,805 37,803 18,656 30,506 59,731 71,507 89.2
Provision for income taxes   14,445     13,612     6,168     8,471     22,466     25,721   89.0
Income from continuing operations 23,360 24,191 12,488 22,035 37,265 45,786 89.3
Noncontrolling interests   (4,529 )   (4,828 )   (4,372 )   (5,143 )   (8,847 )   (11,735 ) 143.1
Net income attributable to Kindred $ 18,831   $ 19,363   $ 8,116   $ 16,892   $ 28,418   $ 34,051   75.9
 
Core EPS $ 0.35 $ 0.35 $ 0.13 $ 0.26 $ 0.34 $ 0.39 11.4
Adjusted Core EPS $ 0.46 $ 0.50 $ 0.20 $ 0.38 $ 0.43 $ 0.51 2.0
Diluted shares 52,711 53,792 62,902 63,163 82,422 86,402 60.6
 
Revenues by segment:
Hospital division $ 627,245 $ 612,517 $ 591,121 $ 619,185 $ 640,483 $ 627,206 2.4
Kindred at Home:
Home health 74,791 75,502 74,026 74,588 300,867 427,820 466.6
Hospice   12,913     12,484     12,160     12,538     119,057     178,005   1,325.9
87,704 87,986 86,186 87,126 419,924 605,825 588.5
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 93,177 94,963 93,139 92,922 151,564 152,544 60.6
RehabCare   253,943     253,694     246,732     252,667     252,595     236,791   (6.7 )
347,120 348,657 339,871 345,589 404,159 389,335 11.7
Nursing center division   262,590     264,437     263,897     271,625     274,308     273,870   3.6
1,324,659 1,313,597 1,281,075 1,323,525 1,738,874 1,896,236 44.4
Eliminations   (52,049 )   (52,200 )   (52,157 )   (58,851 )   (62,907 )   (62,761 ) 20.2
$ 1,272,610   $ 1,261,397   $ 1,228,918   $ 1,264,674   $ 1,675,967   $ 1,833,475   45.4
 
Core EBITDAR by segment:
Hospital division $ 139,505 $ 131,990 $ 117,604 $ 134,791 $ 134,786 $ 131,532 (0.3 )
Kindred at Home:
Home health 2,845 5,769 5,961 7,398 46,798 72,917 1,163.9
Hospice   1,852     2,139     1,149     524     16,996     27,887   1,203.7
4,697 7,908 7,110 7,922 63,794 100,804 1,174.7
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 25,710 25,742 24,887 23,884 44,564 44,531 73.0
RehabCare   18,016     19,863     17,080     16,029     16,493     14,681   (26.1 )
43,726 45,605 41,967 39,913 61,057 59,212 29.8
Nursing center division 37,572 38,614 35,920 38,810 36,963 40,461 4.8
Support center   (44,456 )   (48,252 )   (45,383 )   (51,348 )   (62,389 )   (70,209 ) 45.5
$ 181,044   $ 175,865   $ 157,218   $ 170,088   $ 234,211   $ 261,800   48.9
 
Core EBITDAR margin by segment:
Hospital division 22.2 21.5 19.9 21.8 21.0 21.0 (2.3 )
Kindred at Home:
Home health 3.8 7.6 8.1 9.9 15.6 17.0 123.7
Hospice 14.3 17.1 9.4 4.2 14.3 15.7 (8.2 )
Kindred at Home 5.4 9.0 8.2 9.1 15.2 16.6 84.4
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 27.6 27.1 26.7 25.7 29.4 29.2 7.7
RehabCare 7.1 7.8 6.9 6.3 6.5 6.2 (20.5 )
Kindred Rehabilitation Services 12.6 13.1 12.3 11.5 15.1 15.2 16.0
Nursing center division 14.3 14.6 13.6 14.3 13.5 14.8 1.4
Consolidated 14.2 13.9 12.8 13.4 14.0 14.3 2.9

______________

(a) See reconciliation of core and adjusted results to GAAP results beginning on page 11.

 
                       
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
Second quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth First Second prior year
Hospital division:
End of period data:
Number of transitional care hospitals 97 97 97 97 97 96
Number of licensed beds 7,145 7,145 7,145 7,147 7,147 7,124
Revenue mix %:
Medicare 59.8 58.2 57.0 57.0 56.8 55.2
Medicaid 6.6 6.8 6.9 6.0 5.5 5.3
Medicare Advantage 11.4 11.2 10.5 10.5 11.9 11.6
Medicaid Managed 2.4 3.0 3.8 4.5 4.7 5.6
Commercial insurance and other 19.8 20.8 21.8 22.0 21.1 22.3
Admissions:
Medicare 9,038 8,555 8,460 8,525 8,775 8,267 (3.4 )
Medicaid 819 896 805 750 610 610 (31.9 )
Medicare Advantage 1,435 1,389 1,250 1,359 1,555 1,352 (2.7 )
Medicaid Managed 317 381 511 572 643 675 77.2
Commercial insurance and other 1,914 1,885 1,703 1,696 1,868 1,815 (3.7 )
13,523 13,106 12,729 12,902 13,451 12,719 (3.0 )
Patient days:
Medicare 230,350 220,035 213,170 220,548 228,483 218,577 (0.7 )
Medicaid 32,712 32,619 30,480 30,454 28,663 25,213 (22.7 )
Medicare Advantage 44,025 43,027 39,938 41,260 48,448 44,740 4.0
Medicaid Managed 10,733 13,191 16,556 20,000 22,013 24,833 88.3
Commercial insurance and other 59,567 59,293 57,486 59,295 62,241 62,922 6.1
377,387 368,165 357,630 371,557 389,848 376,285 2.2
Average length of stay:
Medicare 25.5 25.7 25.2 25.9 26.0 26.4 2.7
Medicaid 39.9 36.4 37.9 40.6 47.0 41.3 13.5
Medicare Advantage 30.7 31.0 32.0 30.4 31.2 33.1 6.8
Medicaid Managed 33.9 34.6 32.4 35.0 34.2 36.8 6.4
Commercial insurance and other 31.1 31.5 33.8 35.0 33.3 34.7 10.2
Weighted average 27.9 28.1 28.1 28.8 29.0 29.6 5.3
Revenues per admission:
Medicare $ 41,492 $ 41,670 $ 39,828 $ 41,425 $ 41,483 $ 41,892 0.5
Medicaid 50,894 46,106 50,344 49,760 57,594 54,795 18.8
Medicare Advantage 49,666 49,352 49,814 47,756 48,908 53,578 8.6
Medicaid Managed 47,803 48,814 44,321 48,691 46,740 51,950 6.4
Commercial insurance and other 64,858 67,679 75,591 80,167 72,395 77,110 13.9
Weighted average 46,384 46,736 46,439 47,991 47,616 49,312 5.5
Revenues per patient day:
Medicare $ 1,628 $ 1,620 $ 1,581 $ 1,601 $ 1,593 $ 1,584 (2.2 )
Medicaid 1,274 1,266 1,330 1,225 1,226 1,326 4.7
Medicare Advantage 1,619 1,593 1,559 1,573 1,570 1,619 1.6
Medicaid Managed 1,412 1,410 1,368 1,393 1,365 1,412 0.1
Commercial insurance and other 2,084 2,152 2,239 2,293 2,173 2,224 3.3
Weighted average 1,662 1,664 1,653 1,666 1,643 1,667 0.2

Medicare case mix index (discharged patients only)

1.173 1.182 1.157 1.139 1.166 1.163 (1.6 )
Average daily census 4,193 4,046 3,887 4,039 4,332 4,135 2.2
Occupancy % 67.3 64.6 62.1 64.5 69.2 66.1 2.3
 
                       
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
Second quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth First Second prior year
Kindred at Home (data combined to include
Kindred and Gentiva for each historical period):
Home Health:
Sites of service (at end of period) 447 440 439 427 415 411
Revenue mix %:
Medicare 81.8 81.5 80.7 80.7 80.9 80.4
Medicaid 2.7 2.6 2.4 2.2 2.1 2.1
Commercial and other 9.1 9.0 8.9 6.7 7.3 7.9
Commercial paid at episodic rates 6.4 6.9 8.0 10.4 9.7 9.6
Episodic revenues ($ 000s) $ 281,226 $ 294,208 $ 292,675 $ 305,668 $ 308,317 $ 324,027 10.1
Total episodic admissions 65,077 63,676 65,049 65,183 69,936 67,808 6.5
Medicare episodic admissions 59,248 58,140 57,921 57,372 61,186 59,394 2.2
Total episodes 103,758 103,689 105,906 106,708 110,980 109,599 5.7
Episodes per admission 1.59 1.63 1.63 1.64 1.59 1.62 (0.6 )
Revenue per episode $ 2,710 $ 2,837 $ 2,764 $ 2,865 $ 2,778 $ 2,956 4.2
Hospice:
Sites of service (at end of period) 216 200 199 193 190 185
Admissions 13,807 12,751 12,088 12,151 13,164 12,574 (1.4 )
Average length of stay 103 106 103 103 95 93 (12.3 )
Patient days 1,252,787 1,251,301 1,236,792 1,215,209 1,150,841 1,190,604 (4.9 )
Revenue per patient day $ 150 $ 148 $ 149 $ 154 $ 151 $ 150 1.4
Average daily census 13,920 13,751 13,443 13,209 12,787 13,084 (4.9 )

Community Care and other revenues (included in Home Health business segment)

$ 66,732 $ 66,372 $ 67,390 $ 67,621 $ 65,530 $ 67,647 1.9
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs 5 5 5 5 16 16
Number of licensed beds 215 215 215 215 829 829
Discharges (a) 1,053 1,121 1,004 1,046 3,806 3,927 250.3
Occupancy % (a) 71.6 71.6 68.5 69.6 73.2 71.5 (0.1 )
Average length of stay (a) 13.2 12.5 13.5 13.2 13.7 13.1 4.8
Revenue per discharge (a) $ 18,246 $ 17,519 $ 18,259 $ 17,039 $ 19,517 $ 19,325 10.3
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units 105 104 102 100 100 99
LTAC hospitals 121 118 117 117 120 120
Sub-acute units 10 9 10 10 8 8
Outpatient units   143   143   139   138   138   139
  379   374   368   365   366   366
 
Revenue per site $ 195,157 $ 201,400 $ 203,284 $ 205,749 $ 211,151 $ 209,436 4.0
 
RehabCare:
Sites of service (at end of period) 1,851 1,863 1,896 1,935 1,829 1,789
Revenue per site $ 137,193 $ 136,175 $ 130,133 $ 130,576 $ 138,106 $ 132,359 (2.8 )
 
Nursing center division:
End of period data:
Number of nursing centers 89 89 90 90 90 90
Number of licensed beds 11,503 11,491 11,575 11,535 11,535 11,535
Admissions (b) 9,789 9,621 9,746 9,616 10,376 9,831 2.2
Medicare average length of stay (b) 29.6 29.8 29.9 29.0 28.9 28.9 (3.0 )
Patient days (b) 861,340 858,772 865,415 871,976 861,278 852,691 (0.7 )
Revenues per patient day (b) $ 305 $ 308 $ 305 $ 312 $ 319 $ 321 4.2
Average daily census (b) 9,570 9,437 9,407 9,478 9,570 9,370 (0.7 )
Occupancy % (b) 81.7 80.7 80.1 80.5 81.3 79.6 (1.4 )

______________

(a) Excludes non-consolidating IRF.

(b) Excludes managed facilities.

 
 
 
Forward-Looking Statements
 

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

 
Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time to time in the Company’s filings with the Securities and Exchange Commission.
 
Risks and uncertainties related to the Company’s acquisitions of Gentiva and Centerre include, but are not limited to, uncertainties as to whether the acquisitions will have the accretive effect on the Company’s earnings or cash flows that it expects, the inability to obtain, or delays in obtaining, cost savings and synergies from the acquisitions, costs and difficulties related to the integration of Gentiva’s and Centerre’s businesses and operations with the Company’s businesses and operations, unexpected costs, liabilities, charges or expenses resulting from the acquisitions, adverse effects on the Company’s stock price resulting from the acquisitions, the inability to retain key personnel, and potential adverse reactions, changes to business relationships or competitive responses resulting from the acquisitions.
 
In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price are set forth in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
 
Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
 
 
Non-GAAP Measurements
 

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the two quarters in 2015, four quarters in 2014 and six months ended June 30, 2015 and 2014 before certain charges or on a core and adjusted core basis. The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a useful performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures. The Company’s earnings release also includes financial measures referred to as operating income, or EBITDAR or core EBITDAR, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Company’s management uses core EBITDAR or core EBITDA as meaningful measures of operational performance in addition to other measures. The Company uses core EBITDAR or core EBITDA to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes these measurements are important because securities analysts and investors use these measurements to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating results presented on a core and adjusted core basis and core EBITDAR or core EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. Reconciliations of the non-GAAP measurements to the GAAP measurements are included in the following pages of this press release.

 
Also in this press 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. The Company recognizes that operating cash flows and free cash flows excluding certain items are non-GAAP measurements and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide important information to investors for comparability to other companies that use similar measures. In addition, management uses operating cash flows and free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses. The Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by operating activities as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating cash flows and free cash flows excluding certain items should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. Reconciliations of net cash flows provided by operating activities to operating cash flows and free cash flows excluding certain items are included in this press release.
 
               
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results
(Unaudited)
(In thousands, except per share amounts and statistics)
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and six months ended June 30, 2015 and 2014 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
 
The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 9.9% and 37.1% for the three months ended June 30, 2015 and 2014, respectively, and 21.9% and 37.1% for the six months ended June 30, 2015 and 2014, respectively. The difference in the effective income tax rate for both periods compared to the same prior year periods is attributable to the composition of charges that are non-deductible or the deductibility is uncertain for income tax purposes, including the litigation contingency expense.
 

The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the three months and six months ended June 30, 2015 and 2014 that are not representative of its ongoing operations due to the materiality and the nature of the charges. The Company's core operating results also represent a key performance measure for the purpose of evaluating performance internally. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures.

 
 
Three months ended Six months ended
June 30, June 30,
Detail of charges: 2015 2014 2015 2014
Litigation contingency expense ($3,925 ) ($4,600 ) ($98,925 ) ($4,600 )
Retirement and severance costs - (4,950 ) (4,961 ) (4,950 )
Hospital and home health/hospice closings (2,802 ) - (4,421 ) -
Development project cancellation and other restructuring costs (584 ) - (1,259 ) -
Gentiva transaction and integration costs:
Professional and consulting fees (1,931 ) (2,079 ) (34,065 ) (2,079 )
Severance and retention (2,411 ) - (56,875 ) -
Lease termination (charged to rent expense) (203 ) - (792 ) -
Pre-closing financing charges (charged to general and administrative expenses) - - (6,005 ) -
Pre-closing financing charges (charged to interest expense) - - (17,431 ) -
Trade name impairment charges - - (6,726 ) -
Lease termination (charged to rent expense) (671 ) (247 ) (1,023 ) (247 )
Debt refinancing costs (charged to interest expense) - (56,643 ) - (56,643 )
Other transaction costs   (874 )   (2,417 )   (2,973 )   (3,100 )
(13,401 ) (70,936 ) (235,456 ) (71,619 )
Income tax benefit   1,325     26,295     51,527     26,545  
Charges net of income taxes (12,076 ) (44,641 ) (183,929 ) (45,074 )
Allocation to participating unvested restricted stockholders   211     -     -     -  
Available to common stockholders   ($11,865 )   ($44,641 )   ($183,929 )   ($45,074 )
 
Weighted average diluted shares outstanding   86,402     53,714     82,828     53,180  
 
Diluted loss per common share related to charges   ($0.14 )   ($0.83 )   ($2.22 )   ($0.85 )
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $ 34,051 $ 19,363 $ 62,469 $ 38,194
Charges net of income taxes   (12,076 )   (44,641 )   (183,929 )   (45,074 )
Reported income (loss) from continuing operations $ 21,975     ($25,278 )   ($121,460 )   ($6,880 )
 
Reconciliation of diluted earnings per common share from continuing operations before charges:
Diluted earnings per common share before charges (a) $ 0.39 $ 0.35 $ 0.73 $ 0.70
Charges net of income taxes (0.14 ) (0.83 ) (2.22 ) (0.85 )
Other   -     0.01     0.02     0.02  
Reported diluted earnings (loss) per common share from continuing operations $ 0.25     ($0.47 )   ($1.47 )   ($0.13 )
 

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

  86,402     53,792     84,560     53,255  
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 36.0 % 36.0 % 36.7 % 37.1 %
Impact of charges on effective income tax rate   6.0 %   2.3 %   -33.5 %   0.8 %
Reported effective income tax rate   42.0 %   38.3 %   3.2 %   37.9 %

______________

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.6 million for both the three months ended June 30, 2015 and 2014, and by $1.1 million and $1.2 million for the six months ended June 30, 2015 and 2014, respectively, for the allocation of income to participating unvested restricted stockholders.

                     
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts and statistics)
 
 
A reconciliation of adjusted core earnings follows:
 
 
2014 Quarters 2015 Quarters
Reconciliation of adjusted core earnings: First Second Third Fourth First Second

Income from continuing operations before charges (as calculated and reconciled to GAAP measurement on the following pages)

$18,831 $19,363 $8,116 $16,892 $28,418 $34,051
Add back non-cash expenses:
Amortization of intangible assets 5,560 5,513 5,378 5,215 6,932 7,536
Amortization of stock-based compensation costs 2,585 5,924 748 5,073 3,141 6,687
Amortization of deferred financing costs 2,397 1,950 1,982 2,044 3,062 3,539
10,542 13,387 8,108 12,332 13,135 17,762
Income tax benefit related to non-cash expenses 4,148 5,268 3,190 4,853 5,169 6,989
Non-cash expenses, net of income taxes 6,394 8,119 4,918 7,479 7,966 10,773
Adjusted core earnings $25,225 $27,482 $13,034 $24,371 $36,384 $44,824
 
Reconciliation of diluted adjusted core earnings from continuing operations:

Diluted income per common share before charges (as calculated on the following pages)

$0.35 $0.35 $0.13 $0.26 $0.34 $0.39
Non-cash expenses, net of income taxes 0.11 0.15 0.07 0.12 0.09 0.12

Diluted adjusted core earnings per common share from continuing operations

$0.46 $0.50 $0.20 $0.38 $0.43 $0.51
 

Weighted average diluted shares used to compute adjusted core earnings per common share

52,711 53,792 62,902 63,163 82,422 86,402
 
 
A reconciliation of combined Kindred and Gentiva home health revenues (excluding community care) for each historical period follows:
 

Second
quarter

2014 Quarters 2015 Quarters

% change v.

First Second Third Fourth First Second prior year
Kindred $67,266 $67,830 $65,954 $66,491 $254,965 $360,173
Gentiva 253,895 267,018 266,340 275,342 87,520 -
$321,161 $334,848 $332,294 $341,833 $342,485 $360,173 7.6
 
                       
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended June 30, 2015
Charges
Hospital Development Gentiva
and home project transaction
Before health/hospice cancellation Litigation and Other As
charges closings and other contingency integration transaction Total reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 131,532 $ (565 ) $ - $ - $ - $ - $ (565 ) $ 130,967
 
Kindred at Home:
Home health 72,917 (588 ) - - - - (588 ) 72,329
Hospice   27,887     (1,649 )   -     -     -     -     (1,649 )   26,238  
  100,804     (2,237 )   -     -     -     -     (2,237 )   98,567  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 44,531 - - - - - - 44,531
RehabCare   14,681     -     -     -     -     -     -     14,681  
  59,212     -     -     -     -     -     -     59,212  
 
Nursing center division 40,461 - (584 ) - - - (584 ) 39,877
 
Support center (70,209 ) - - - - - - (70,209 )
Litigation contingency expense - - - (3,925 ) - - (3,925 ) (3,925 )
Transaction costs   -     -     -     -     (4,342 )   (874 )   (5,216 )   (5,216 )
Operating income (EBITDAR) 261,800 (2,802 ) (584 ) (3,925 ) (4,342 ) (874 ) (12,527 ) 249,273
Rent   (95,528 )   (671 )   -     -     (203 )   -     (874 )   (96,402 )
EBITDA 166,272 (3,473 ) (584 ) (3,925 ) (4,545 ) (874 ) (13,401 ) 152,871
Depreciation and amortization (38,625 ) - - - - - - (38,625 )
Interest, net   (56,140 )   -     -     -     -     -     -     (56,140 )

Income from continuing operations before income taxes

71,507 (3,473 ) (584 ) (3,925 ) (4,545 ) (874 ) (13,401 ) 58,106
Provision for income taxes   25,721     (368 )   (62 )   (416 )   (386 )   (93 )   (1,325 )   24,396  
45,786 $ (3,105 ) $ (522 ) $ (3,509 ) $ (4,159 ) $ (781 ) $ (12,076 ) 33,710
Noncontrolling interests   (11,735 )   (11,735 )
Net income attributable to Kindred $ 34,051   $ 21,975  
 
Diluted earnings per common share $ 0.39 $ 0.25

Diluted shares used in computing earnings per common share

86,402 86,402
 
Three months ended June 30, 2014
Charges
Severance
Before and other Litigation Debt Gentiva Other As
charges restructuring contingency refinancing transaction transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 131,990 $ - $ - $ - $ - $ - $ - $ 131,990
 
Kindred at Home:
Home health 5,769 (721 ) - - - - (721 ) 5,048
Hospice   2,139     (122 )   -     -     -     -     (122 )   2,017  
  7,908     (843 )   -     -     -     -     (843 )   7,065  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 25,742 (170 ) - - - - (170 ) 25,572
RehabCare   19,863     (176 )   -     -     -     -     (176 )   19,687  
  45,605     (346 )   -     -     -     -     (346 )   45,259  
 
Nursing center division 38,614 (3,205 ) - - - - (3,205 ) 35,409
 
Support center (48,252 ) (556 ) - - - - (556 ) (48,808 )
Litigation contingency expense - - (4,600 ) - - - (4,600 ) (4,600 )
Transaction costs   -     -     -     -     (2,079 )   (2,417 )   (4,496 )   (4,496 )
Operating income (EBITDAR) 175,865 (4,950 ) (4,600 ) - (2,079 ) (2,417 ) (14,046 ) 161,819
Rent   (77,452 )   (247 )   -     -     -     -     (247 )   (77,699 )
EBITDA 98,413 (5,197 ) (4,600 ) - (2,079 ) (2,417 ) (14,293 ) 84,120
Depreciation and amortization (39,172 ) - - - - - - (39,172 )
Interest, net   (21,438 )   -     -     (56,643 )   -     -     (56,643 )   (78,081 )

Income (loss) from continuing operations before income taxes

37,803 (5,197 ) (4,600 ) (56,643 ) (2,079 ) (2,417 ) (70,936 ) (33,133 )
Provision (benefit) for income taxes   13,612     (1,985 )   (1,757 )   (21,639 )   -     (914 )   (26,295 )   (12,683 )
24,191 $ (3,212 ) $ (2,843 ) $ (35,004 ) $ (2,079 ) $ (1,503 ) $ (44,641 ) (20,450 )
Noncontrolling interests   (4,828 )   (4,828 )
Net income (loss) attributable to Kindred $ 19,363   $ (25,278 )
 
Diluted earnings (loss) per common share $ 0.35 $ (0.47 )

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

53,792 53,714
 
                             
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Six months ended June 30, 2015
Charges
Hospital Development Gentiva Gentiva
Retirement and home project pre-closing transaction
Before and health/hospice cancellation Litigation Impairment financing and Other As
charges severance closings and other contingency charges costs integration transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 266,318 $ - $ (565 ) $ (675 ) $ - $ - $ - $ - $ - $ (1,240 ) $ 265,078
 
Kindred at Home:
Home health 119,715 - (1,690 ) - - - - - - (1,690 ) 118,025
Hospice   44,883     -     (2,166 )   -     -     -     -     -     -     (2,166 )   42,717  
  164,598     -     (3,856 )   -     -     -     -     -     -     (3,856 )   160,742  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 89,095 - - - - - - - - - 89,095
RehabCare   31,174     (785 )   -     -     -     -     -     -     -     (785 )   30,389  
  120,269     (785 )   -     -     -     -     -     -     -     (785 )   119,484  
 
Nursing center division 77,424 - - (584 ) - - - - - (584 ) 76,840
 
Support center (132,598 ) (4,176 ) - - - - - - - (4,176 ) (136,774 )
Litigation contingency expense - - - - (98,925 ) - - - - (98,925 ) (98,925 )
Transaction costs - - - - - - (6,005 ) (90,940 ) (2,973 ) (99,918 ) (99,918 )
Impairment charges   -     -     -     -     -     (6,726 )   -     -     -     (6,726 )   (6,726 )
Operating income (EBITDAR) 496,011 (4,961 ) (4,421 ) (1,259 ) (98,925 ) (6,726 ) (6,005 ) (90,940 ) (2,973 ) (216,210 ) 279,801
Rent   (186,727 )   -     (671 )   (352 )   -     -     -     (792 )   -     (1,815 )   (188,542 )
EBITDA 309,284 (4,961 ) (5,092 ) (1,611 ) (98,925 ) (6,726 ) (6,005 ) (91,732 ) (2,973 ) (218,025 ) 91,259
Depreciation and amortization (77,560 ) - - - - - - - - - (77,560 )
Interest, net   (100,486 )   -     -     -     -     -     (17,431 )   -     -     (17,431 )   (117,917 )

Income (loss) from continuing operations before income taxes

131,238 (4,961 ) (5,092 ) (1,611 ) (98,925 ) (6,726 ) (23,436 ) (91,732 ) (2,973 ) (235,456 ) (104,218 )
Provision (benefit) for income taxes   48,187     (1,977 )   (2,030 )   (642 )   (1,564 )   (2,681 )   (9,341 )   (32,107 )   (1,185 )   (51,527 )   (3,340 )
83,051 $ (2,984 ) $ (3,062 ) $ (969 ) $ (97,361 ) $ (4,045 ) $ (14,095 ) $ (59,625 ) $ (1,788 ) $ (183,929 ) (100,878 )
Noncontrolling interests   (20,582 )   (20,582 )
Net income (loss) attributable to Kindred $ 62,469   $ (121,460 )
 
Diluted earnings (loss) per common share $ 0.73 $ (1.47 )

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

84,560 82,828
 
Six months ended June 30, 2014
Charges
Severance
Before and other Litigation Debt Gentiva Other As
charges restructuring contingency refinancing transaction transaction Total reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 271,495 $ - $ - $ - $ - $ - $ - $ 271,495
 
Kindred at Home:
Home health 8,614 (721 ) - - - - (721 ) 7,893
Hospice   3,991     (122 )   -     -     -     -     (122 )   3,869  
  12,605     (843 )   -     -     -     -     (843 )   11,762  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 51,452 (170 ) - - - - (170 ) 51,282
RehabCare   37,879     (176 )   -     -     -     -     (176 )   37,703  
  89,331     (346 )   -     -     -     -     (346 )   88,985  
 
Nursing center division 76,186 (3,205 ) - - - - (3,205 ) 72,981
 
Support center (92,708 ) (556 ) - - - - (556 ) (93,264 )
Litigation contingency expense - - (4,600 ) (4,600 ) (4,600 )
Transaction costs   -     -     -     -     (2,079 )   (3,100 )   (5,179 )   (5,179 )
Operating income (EBITDAR) 356,909 (4,950 ) (4,600 ) - (2,079 ) (3,100 ) (14,729 ) 342,180
Rent   (155,982 )   (247 )   -     -     -     -     (247 )   (156,229 )
EBITDA 200,927 (5,197 ) (4,600 ) - (2,079 ) (3,100 ) (14,976 ) 185,951
Depreciation and amortization (78,264 ) - - - - - - (78,264 )
Interest, net   (47,055 )   -     -     (56,643 )   -     -     (56,643 )   (103,698 )

Income from continuing operations before income taxes

75,608 (5,197 ) (4,600 ) (56,643 ) (2,079 ) (3,100 ) (71,619 ) 3,989
Provision for income taxes   28,057     (1,988 )   (1,760 )   (21,669 )   -     (1,128 )   (26,545 )   1,512  
47,551 $ (3,209 ) $ (2,840 ) $ (34,974 ) $ (2,079 ) $ (1,972 ) $ (45,074 ) 2,477
Noncontrolling interests   (9,357 )   (9,357 )
Net income (loss) attributable to Kindred $ 38,194   $ (6,880 )
 
Diluted earnings (loss) per common share $ 0.70 $ (0.13 )

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

53,255 53,180
 
                           
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended March 31, 2015
Charges
Home health Development Gentiva Gentiva
Retirement and project pre-closing transaction
Before and hospice cancellation Litigation Impairment financing and Other As
charges severance closings and other contingency charges costs integration transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 134,786 $ - $ - $ (675 ) $ - $ - $ - $ - $ - $ (675 ) $ 134,111
 
Kindred at Home:
Home health 46,798 - (1,102 ) - - - - - - (1,102 ) 45,696
Hospice   16,996     -     (517 )   -     -     -     -     -     -     (517 )   16,479  
  63,794     -     (1,619 )   -     -     -     -     -     -     (1,619 )   62,175  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 44,564 - - - - - - - - - 44,564
RehabCare   16,493     (785 )   -     -     -     -     -     -     -     (785 )   15,708  
  61,057     (785 )   -     -     -     -     -     -     -     (785 )   60,272  
 
Nursing center division 36,963 - - - - - - - - - 36,963
 
Support center (62,389 ) (4,176 ) - - - - - - - (4,176 ) (66,565 )
Litigation contingency expense - - - - (95,000 ) - - - - (95,000 ) (95,000 )
Transaction costs - - - - - - (6,005 ) (86,598 ) (2,099 ) (94,702 ) (94,702 )
Impairment charges   -     -     -     -     -     (6,726 )   -     -     -     (6,726 )   (6,726 )
Operating income (EBITDAR) 234,211 (4,961 ) (1,619 ) (675 ) (95,000 ) (6,726 ) (6,005 ) (86,598 ) (2,099 ) (203,683 ) 30,528
Rent   (91,199 )   -     -     (352 )   -     -     -     (589 )   -     (941 )   (92,140 )
EBITDA 143,012 (4,961 ) (1,619 ) (1,027 ) (95,000 ) (6,726 ) (6,005 ) (87,187 ) (2,099 ) (204,624 ) (61,612 )
Depreciation and amortization (38,935 ) - - - - - - - - - (38,935 )
Interest, net   (44,346 )   -     -     -     -     -     (17,431 )   -     -     (17,431 )   (61,777 )

Income (loss) from continuing operations before income taxes

59,731 (4,961 ) (1,619 ) (1,027 ) (95,000 ) (6,726 ) (23,436 ) (87,187 ) (2,099 ) (222,055 ) (162,324 )
Provision (benefit) for income taxes   22,466     (2,133 )   (696 )   (442 )   -     (2,891 )   (10,075 )   (33,063 )   (902 )   (50,202 )   (27,736 )
37,265 $ (2,828 ) $ (923 ) $ (585 ) $ (95,000 ) $ (3,835 ) $ (13,361 ) $ (54,124 ) $ (1,197 ) $ (171,853 ) (134,588 )
Noncontrolling interests   (8,847 )   (8,847 )
Net income (loss) attributable to Kindred $ 28,418   $ (143,435 )
 
Diluted earnings (loss) per common share $ 0.34 $ (1.80 )

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

82,422 79,575
 
Three months ended March 31, 2014
Charges
Before Transaction As
charges costs reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 139,505 $ - $ 139,505
 
Kindred at Home:
Home health 2,845 - 2,845
Hospice   1,852     -     1,852  
  4,697     -     4,697  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 25,710 - 25,710
RehabCare   18,016     -     18,016  
  43,726     -     43,726  
 
Nursing center division 37,572 - 37,572
 
Support center (44,456 ) - (44,456 )
Transaction costs   -     (683 )   (683 )
Operating income (EBITDAR) 181,044 (683 ) 180,361
Rent   (78,530 )   -     (78,530 )
EBITDA 102,514 (683 ) 101,831
Depreciation and amortization (39,092 ) - (39,092 )
Interest, net   (25,617 )   -     (25,617 )

Income from continuing operations before income taxes

37,805 (683 ) 37,122
Provision for income taxes   14,445     (250 )   14,195  
23,360 $ (433 ) 22,927
Noncontrolling interests   (4,529 )   (4,529 )
Net income attributable to Kindred $ 18,831   $ 18,398  
 
Diluted earnings per common share $ 0.35 $ 0.34

Diluted shares used in computing earnings per common share

52,711 52,711
 
                     
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended September 30, 2014
Charges
Severance
Before and other Customer Gentiva Other As
charges restructuring bankruptcy transaction transaction Total reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 117,604 $ (617 ) $ - $ - $ - $ (617 ) $ 116,987
 
Kindred at Home:
Home health 5,961 (275 ) - - - (275 ) 5,686
Hospice   1,149     (46 )   -     -     -     (46 )   1,103  
  7,110     (321 )   -     -     -     (321 )   6,789  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 24,887 - (1,857 ) - - (1,857 ) 23,030
RehabCare   17,080     162     -     -     -     162     17,242  
  41,967     162     (1,857 )   -     -     (1,695 )   40,272  
 
Nursing center division 35,920 (483 ) - - - (483 ) 35,437
 
Support center (45,383 ) (427 ) - - - (427 ) (45,810 )
Transaction costs   -     -     -     (3,200 )   (914 )   (4,114 )   (4,114 )
Operating income (EBITDAR) 157,218 (1,686 ) (1,857 ) (3,200 ) (914 ) (7,657 ) 149,561
Rent   (77,643 )   -     -     -     -     -     (77,643 )
EBITDA 79,575 (1,686 ) (1,857 ) (3,200 ) (914 ) (7,657 ) 71,918
Depreciation and amortization (38,748 ) - - - - - (38,748 )
Interest, net   (22,171 )   -     -     -     -     -     (22,171 )

Income from continuing operations before income taxes

18,656 (1,686 ) (1,857 ) (3,200 ) (914 ) (7,657 ) 10,999
Provision for income taxes   6,168     (923 )   (1,017 )   (69 )   (382 )   (2,391 )   3,777  
12,488 $ (763 ) $ (840 ) $ (3,131 ) $ (532 ) $ (5,266 ) 7,222
Noncontrolling interests   (4,372 )   (4,372 )
Net income attributable to Kindred $ 8,116   $ 2,850  
 
Diluted earnings per common share $ 0.13 $ 0.04

Diluted shares used in computing earnings per common share

62,902 62,902
 
Three months ended December 31, 2014
Charges
Severance LTAC Gentiva
Before and other criteria pre-closing Gentiva Other As
charges restructuring consulting financing transaction transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 134,791 $ (318 ) $ - $ - $ - $ - $ (318 ) $ 134,473
 
Kindred at Home:
Home health 7,398 (828 ) - - - - (828 ) 6,570
Hospice   524     (106 )   -     -     -     -     (106 )   418  
  7,922     (934 )   -     -     -     -     (934 )   6,988  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 23,884 - - - - - - 23,884
RehabCare   16,029     -     -     -     -     -     -     16,029  
  39,913     -     -     -     -     -     -     39,913  
 
Nursing center division 38,810 (500 ) - - - - (500 ) 38,310
 
Support center (51,348 ) (10,193 ) (2,460 ) - - - (12,653 ) (64,001 )
Transaction costs   -     -     -     -     (5,545 )   (3,145 )   (8,690 )   (8,690 )
Operating income (EBITDAR) 170,088 (11,945 ) (2,460 ) - (5,545 ) (3,145 ) (23,095 ) 146,993
Rent   (79,167 )   -     -     -     -     -     -     (79,167 )
EBITDA 90,921 (11,945 ) (2,460 ) - (5,545 ) (3,145 ) (23,095 ) 67,826
Depreciation and amortization (38,558 ) - - - - - - (38,558 )
Interest, net   (21,857 )   -     -     (17,041 )   -     -     (17,041 )   (38,898 )

Income (loss) from continuing operations before income taxes

30,506 (11,945 ) (2,460 ) (17,041 ) (5,545 ) (3,145 ) (40,136 ) (9,630 )
Provision (benefit) for income taxes   8,471     (4,251 )   (875 )   (5,975 )   (1,514 )   (683 )   (13,298 )   (4,827 )
22,035 $ (7,694 ) $ (1,585 ) $ (11,066 ) $ (4,031 ) $ (2,462 ) $ (26,838 ) (4,803 )
Noncontrolling interests   (5,143 )   (5,143 )
Net income (loss) attributable to Kindred $ 16,892   $ (9,946 )
 
Diluted earnings (loss) per common share $ 0.26 $ (0.15 )

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

63,163 65,135
 
               
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands)
 
The Company recognizes that 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, are non-GAAP measurements and are not intended to replace the presentation of the Company's cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses operating cash flows and free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.
 
 
Three months ended Six months ended
June 30, June 30,
2015 2014 2015 2014
 
Reconciliation of net cash flows provided by (used in) operating activities to free cash flows:
Net cash flows provided by (used in) operating activities $ 100,379 ($49,963 ) ($39,223 ) ($65,717 )

Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows provided by (used in) operating activities:

Transaction, severance, retirement and retention 14,509 5,367 96,849 9,554
Ventas, Inc. lease termination fee - - 40,000 -
Capitalized lender fees related to debt refinancing - 19,125 28,012 19,125
Other debt refinancing costs (expensed) - 40,373 27,001 40,373
Lease cancellation charges - - 353 -
Litigation   16,575   700     16,575   25,850  
  31,084   65,565     208,790   94,902  

Net cash flows provided by operating activities excluding certain items before income tax benefit of certain payments

131,463 15,602 169,567 29,185
Benefit of reduced income tax payments resulting from certain payments   (33,754 ) (14,604 )   (33,754 ) (14,604 )

Net cash flows provided by operating activities excluding certain items (core operating cash flows)

97,709 998 135,813 14,581
 
Less routine capital expenditures   (24,500 ) (24,485 )   (45,269 ) (46,162 )
Free cash flows excluding certain items (core free cash flows) $ 73,209   ($23,487 ) $ 90,544   ($31,581 )
 

Source: Kindred Healthcare, Inc.

Kindred Healthcare, Inc.
Susan E. Moss, 502-596-6569
Investor Relations