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Kindred Healthcare Reports Third Quarter 2015 Results

November 4, 2015

Consolidated Revenues of $1,765 million, Core EBITDAR of $236 million(1) and Core Diluted EPS from Continuing Operations of $0.23(1) in the Third Quarter

GAAP Operating Income of $197 million(1) and Diluted Loss Per Share from Continuing Operations of $0.20 in the Third Quarter Reflect Costs of $39 million and $0.43 Per Share, Respectively, Related to Litigation, Transaction, Integration and Other Restructuring Initiatives

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

Strong Performance from Kindred at Home with Meaningful Progress on Acquisition Integration and Synergy Realization

Significant Core Operating Cash Flows of $128 million(1) in the Third Quarter and $264 million(1) Year to Date; GAAP Operating Cash Flows of $132 million in the Third Quarter and $93 million Year to Date

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Due to Industry Headwinds Impacting the Hospital Division, Company Revises Full Year Outlook

LOUISVILLE, Ky.--(BUSINESS WIRE)--Nov. 4, 2015-- Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2015.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “During the third quarter our team continued to make great progress on our strategic plan despite industry-wide headwinds for healthcare services companies that created a challenging quarter for our Hospital Division (“HD”). Our Kindred at Home Division (“KAH”) was the highlight of the quarter as it continues to advance its integration efforts and benefit from the accelerating momentum of patient flow into the home care, hospice, and community care settings. Our freestanding inpatient rehabilitation facility (“IRF”) business also continues to grow and, with our new IRFs in Arlington, Texas and Madison, Wisconsin that opened during the third quarter, we now operate 18 freestanding IRFs, most of which are joint-ventures with prominent not-for-profit health systems. In addition, we continue to successfully build broad based hospital, payor and physician relationships across the country as we bring our unique integrated care model to more partners and patients.”

Mr. Breier added, “We are very pleased to report consolidated revenue growth of 43.6%, and consolidated core EBITDAR(1) growth of 50.4% compared to the same period last year. Our recent acquisitions and organic growth efforts have transformed Kindred’s business mix and free cash flow profile, and we continue to execute on our transition into higher growth, lower capital intensity and higher return businesses. We remain confident that Kindred is the best positioned company in the post-acute sector to meet the needs of the changing beneficiary landscape and emerge successfully in the movement to pay for value. As always, I thank the many stakeholders in Kindred, and in particular our 102,000 teammates, for the excellent care they deliver every day to patients in need.”

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(1) See reconciliation of core results to generally accepted accounting principles (“GAAP”) results beginning on page 12.
 

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 Health Services, Inc. (“Gentiva”) and Centerre Healthcare Corporation (“Centerre”) have been included in the operating results presented since the date of acquisition.

Third Quarter Consolidated Highlights(1):

  • Consolidated revenues increased 43.6% to $1.76 billion and earnings before interest, income taxes, depreciation, amortization, rent and certain charges (“core EBITDAR”) increased 50.4% to $236 million, each as compared to the same period last year
  • Core diluted earnings per share (“EPS”) from continuing operations was $0.23 and adjusted core diluted EPS from continuing operations was $0.33 based upon 86.9 million weighted average diluted shares, an improvement as compared to core diluted EPS of $0.13 and adjusted core diluted EPS of $0.20 for the same period a year ago based upon 62.9 million weighted average diluted shares
  • The Company generated significant core operating cash flows of $128 million compared to $88 million for the same period a year ago, and core free cash flows were $93 million compared to $66 million in the same period of 2014. Year to date core operating cash flows were $264 million compared to $102 million for the same period a year ago, and year to date core free cash flows were $183 million compared to $35 million in the same period of 2014
  • The Kindred Board of Directors declared a cash dividend of $0.12 per share on the Company’s common stock payable on December 11, 2015 to shareholders of record as of the close of business on November 18, 2015

Third Quarter Segment Highlights(1)(2):

Kindred’s Hospital Division third quarter same-hospital revenues declined 1.4% over the prior year period to $577 million, with a decline in same-hospital admissions of 3.8% compared to the same period last year. HD third quarter same-hospital patient days increased 0.3% and same-hospital revenues per patient day declined 1.7% compared to the same period last year as a result of shifts in payor mix and an increase in same-hospital average lengths of stay of 3.9%. HD’s core EBITDAR declined to $97 million from $117 million a year ago primarily as a result of these factors and certain increases in labor expense, bad debt and costs associated with longer average lengths of stay.

Kindred at Home Division revenues and core EBITDAR increased to $605 million and $102 million, respectively, for the quarter. The home health segment achieved solid growth during the third quarter of 2015, with episodic admissions increasing 2.6% and revenues increasing 7.3% to $357 million, both over the prior year period on a combined basis. The hospice segment generated $181 million of revenues, a 1% sequential growth in average daily census and an improved sequential operating margin from 15.7% to 18.8%.

Kindred Rehabilitation Services Division revenues increased 8.6% to $369 million and core EBITDAR contribution increased 35.1% to $57 million for the quarter. The Kindred Hospital Rehabilitation Services segment, which includes Kindred’s IRF business, experienced strong revenue growth of $56 million or 60.4% over the prior year period, due to the successful Centerre acquisition, and achieved core EBITDAR margin improvement from 26.7% to 28.2%. The RehabCare segment (“RHB”) experienced an 11.0% revenue reduction from the prior year period primarily due to contract losses. These contract losses occurred primarily in the first quarter of 2015 and began to moderate in the second quarter of 2015. In fact, RHB added 32 net new sites of service during the third quarter of 2015, its first positive net sites of service growth quarter in 2015.

Kindred’s Nursing Center Division (“NCD”) revenues grew 2.5% to $271 million due to an improvement of 4.3% in revenue per patient day. NCD core EBITDAR margins declined 2.2% due to a 1.9% decline in admissions. NCD continues to deliver stable performance despite continuing pressure on length of stay.

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(1) See reconciliation of core results to GAAP results beginning on page 12.
(2) See same-hospital and full segment data on page 9.
 

Significantly Improved Cash Flow Profile(1)

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, noted “Our acquisition of Gentiva early in 2015 and the recent disposition of more than 150 nursing centers and long-term acute care (“LTAC”) hospitals have dramatically changed our cash flow profile, as evidenced by our strong cash flow performance through the first nine months of the year. While we do not typically provide annual cash flow guidance, looking beyond 2015, Kindred is now positioned going forward to generate roughly $300 million per year in core operating cash flow when adjusted to reflect the current composition of our businesses and before net changes in working capital, with roughly half that amount in core free cash flow after funding routine capital expenditures and growth-related investment in working capital. In addition, the Company has significant tax loss carryforwards and carrybacks, which have resulted in net cash inflows from federal income taxes in 2015, and which we expect will offset more than half of Kindred’s expected book tax liability in 2016.”

Revised 2015 Outlook

Due to the third quarter challenges in its Hospital Division, and based on updated expectations for LTAC operations in the fourth quarter, Kindred is revising its previously provided financial estimates for 2015(2) as follows:

  • 2015 annual revenues of approximately $7.1 billion (previously $7.2 billion)
  • Core EBITDAR of approximately $970 million to $990 million(3) (previously $1.0 billion to $1.05 billion)
  • Core earnings of $1.15 to $1.30 per diluted share(4) (previously $1.25 to $1.45)
  • Adjusted core earnings of $1.55 to $1.70 per diluted share(4)(5) (previously $1.70 to $1.90)

Mr. Breier concluded, “As we methodically work our way through the macro and industry headwinds confronting our Hospital Division, including its forthcoming transition through LTAC criteria starting later next year, we expect some choppiness in that division’s performance and our consolidated results. We remain confident in the steps we are taking to address these challenges and in the strength of our cash flows, which enable us to continue to invest aggressively to evolve our platform to drive continued growth. The strength of our diversified service offerings, particularly the strong performance we are achieving at KAH, continues to produce growth and advances our strategy of delivering a coordinated continuum of care.”

This revised outlook 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 $125 million loss contingency reserve accrued during the nine months ended September 30, 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.

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(1) See reconciliation of core results to GAAP results beginning on page 12.
(2) Guidance includes Gentiva for eleven months and Centerre for the full year.
(3) Includes $45 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 3.7 million shares of common stock issued in February, May and July to holders of 85,121 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 $58 million ($35 million net of income taxes) or approximately $0.40 per diluted share.
 

RehabCare Loss Contingency Reserve Adjustment

The Company is engaged in active discussions with the United States Department of Justice in an effort to find a mutually acceptable resolution to the investigation of RehabCare Group, Inc., a therapy services company acquired by the Company on June 1, 2011. Based on the progress of continuing settlement discussions through October 2015, the Company, in accordance with GAAP, recorded an additional $30 million loss provision in the third quarter of 2015 (for a total loss reserve of $125 million) related to this matter. The Company recorded a $95 million loss reserve for this matter in the first quarter of 2015 and disclosed an estimated settlement range of $95 million to $125 million. The Company accrued the estimated loss contingency in the first quarter of 2015 at the minimum of the estimated range in accordance with GAAP as no amount within that range was a better estimate than any other amount. These continuing settlement discussions also indicate that a corporate integrity agreement will likely be required as part of any final settlement related to this matter. The discussions are ongoing, and until they are concluded, there can be no certainty about the timing or likelihood of a definitive resolution, the scope of any potential restrictions that may be agreed upon in connection with a settlement or the cost of a final settlement.

Cash Dividend

The Company announced that its Board of Directors has approved the payment of a cash dividend of $0.12 per share of common stock to be paid on December 11, 2015 to shareholders of record as of the close of business on November 18, 2015.

Conference Call

As previously announced, investors and the general public may access a live webcast of the third quarter 2015 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on November 5 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on November 5 by dialing (719) 457-0820, access code: 8169570. The replay will be available through November 15.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 11 for important disclosures regarding our forward-looking statements and the non-GAAP financial reconciliations that follow.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-95 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 September 30, 2015, Kindred through its subsidiaries had approximately 102,200 employees providing healthcare services in 2,723 locations in 47 states, including 95 transitional care hospitals, 18 inpatient rehabilitation hospitals, 90 nursing centers, 20 sub-acute units, 626 Kindred at Home home health, hospice and non-medical home care sites of service, 101 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,773 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 Nine months ended
September 30, September 30,
2015 2014 2015 2014
 
Revenues $ 1,764,516   $ 1,228,918   $ 5,273,958   $ 3,762,925  
 
Salaries, wages and benefits 922,140 601,813 2,704,920 1,826,602
Supplies 96,551 70,719 288,059 215,269
Rent 96,244 77,643 284,786 233,872
Other operating expenses 207,837 169,582 617,681 511,786
General and administrative expenses 310,041 237,503 1,050,948 713,521
Other income (650 ) (260 ) (1,699 ) (594 )
Litigation contingency expense 31,462 - 130,387 4,600
Impairment charges - - 6,726 -
Depreciation and amortization 39,329 38,748 116,889 117,012
Interest expense 56,440 22,515 176,128 128,844
Investment income   (432 )   (344 )   (2,203 )   (2,975 )
  1,758,962     1,217,919     5,372,622     3,747,937  
Income (loss) from continuing operations before income taxes 5,554 10,999 (98,664 ) 14,988
Provision for income taxes   12,523     3,777     9,183     5,289  
Income (loss) from continuing operations (6,969 ) 7,222 (107,847 ) 9,699
Discontinued operations, net of income taxes:
Income (loss) from operations 2,269 (8,677 ) (1,744 ) (24,887 )
Gain (loss) on divestiture of operations   -     1,387     983     (3,637 )
Income (loss) from discontinued operations   2,269     (7,290 )   (761 )   (28,524 )
Net loss (4,700 ) (68 ) (108,608 ) (18,825 )
(Earnings) loss attributable to noncontrolling interests:
Continuing operations (9,900 ) (4,372 ) (30,482 ) (13,729 )
Discontinued operations   1     78     32     401  
  (9,899 )   (4,294 )   (30,450 )   (13,328 )
Loss attributable to Kindred $ (14,599 ) $ (4,362 ) $ (139,058 ) $ (32,153 )
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ (16,869 ) $ 2,850 $ (138,329 ) $ (4,030 )
Income (loss) from discontinued operations   2,270     (7,212 )   (729 )   (28,123 )
Net loss $ (14,599 ) $ (4,362 ) $ (139,058 ) $ (32,153 )
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ (0.20 ) $ 0.04 $ (1.65 ) $ (0.07 )
Discontinued operations:
Income (loss) from operations 0.03 (0.13 ) (0.02 ) (0.44 )
Gain (loss) on divestiture of operations   -     0.02     0.01     (0.06 )
Income (loss) from discontinued operations   0.03     (0.11 )   (0.01 )   (0.50 )
Net loss $ (0.17 ) $ (0.07 ) $ (1.66 ) $ (0.57 )
 
Diluted:
Income (loss) from continuing operations $ (0.20 ) $ 0.04 $ (1.65 ) $ (0.07 )
Discontinued operations:
Income (loss) from operations 0.03 (0.13 ) (0.02 ) (0.44 )
Gain (loss) on divestiture of operations   -     0.02     0.01     (0.06 )
Income (loss) from discontinued operations   0.03     (0.11 )   (0.01 )   (0.50 )
Net loss $ (0.17 ) $ (0.07 ) $ (1.66 ) $ (0.57 )
 
Shares used in computing earnings (loss) per common share:
Basic 86,184 62,863 83,960 56,443
Diluted 86,184 62,902 83,960 56,443
 
Cash dividends declared and paid per common share $ 0.12 $ 0.12 $ 0.36 $ 0.36
 
           
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
 
September 30, December 31,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $ 120,891 $ 164,188
Insurance subsidiary investments 103,856 99,951
Accounts receivable less allowance for loss 1,216,214 944,219
Inventories 27,252 25,702
Deferred tax assets 74,221 82,391
Income taxes 10,571 8,575
Interest deposit on senior unsecured notes held in escrow - 23,438
Other   66,891     41,598  
1,619,896 1,390,062
 
Property and equipment 2,120,809 1,978,153
Accumulated depreciation   (1,164,969 )   (1,076,049 )
955,840 902,104
 
Goodwill 2,646,766 997,597
Intangible assets less accumulated amortization 783,774 400,700
Assets held for sale 1,526 3,475
Insurance subsidiary investments 201,026 166,045
Deferred tax assets - 11,174
Proceeds from senior unsecured notes held in escrow - 1,350,000
Acquisition deposit - 195,000
Other   295,168     236,807  
Total assets $ 6,503,996   $ 5,652,964  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 182,154 $ 175,725
Salaries, wages and other compensation 442,730 358,857
Due to third party payors 59,498 43,957
Professional liability risks 62,020 64,137
Other accrued liabilities 346,309 189,980
Long-term debt due within one year   32,527     24,607  
1,125,238 857,263
 
Long-term debt 3,126,359 2,852,531
Professional liability risks 273,874 243,614
Deferred tax liabilities 20,850 -
Deferred credits and other liabilities 307,164 213,584
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 83,759 shares - September 30, 2015 and 69,977 shares - December 31, 2014

20,940 17,494
Capital in excess of par value 1,741,736 1,586,692
Accumulated other comprehensive loss (4,328 ) (2,551 )
Accumulated deficit   (301,878 )   (159,768 )
1,456,470 1,441,867
Noncontrolling interests   194,041     44,105  
Total equity   1,650,511     1,485,972  
Total liabilities and equity $ 6,503,996   $ 5,652,964  
 
                       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
 
Three months ended Nine months ended
September 30, September 30,
2015 2014 2015 2014
Cash flows from operating activities:
Net loss $ (4,700 ) $ (68 ) $ (108,608 ) $ (18,825 )

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

Depreciation and amortization 39,595 39,579 117,521 121,805
Amortization of stock-based compensation costs 3,194 694 15,764 9,657
Amortization of deferred financing costs 3,554 1,982 10,155 21,211
Payment of capitalized lender fees related to debt issuance - - (28,012 ) (19,125 )
Provision for doubtful accounts 11,014 14,695 29,817 35,588
Deferred income taxes 3,556 (32,777 ) (894 ) (11,274 )
Impairment charges - 9 6,726 673
(Gain) loss on divestiture of discontinued operations - (1,387 ) (983 ) 3,637
Other 3,485 175 10,457 2,289
Change in operating assets and liabilities:
Accounts receivable 25,990 10,392 (13,399 ) (102,503 )
Inventories and other assets 8,767 (2,899 ) 44,181 (12,886 )
Accounts payable (353 ) (3,592 ) (12,788 ) (22,469 )
Income taxes 37,491 29,832 33,646 18,769
Due to third party payors 15,008 28,907 (3,965 ) 14,540
Other accrued liabilities   (14,311 )   4,497     (6,551 )   (16,765 )
Net cash provided by operating activities   132,290     90,039     93,067     24,322  
 
Cash flows from investing activities:
Routine capital expenditures (35,422 ) (21,263 ) (80,691 ) (67,425 )
Development capital expenditures (5,760 ) (1,570 ) (12,066 ) (2,693 )
Acquisitions, net of cash acquired (2,002 ) (38 ) (663,757 ) (24,136 )
Acquisition deposit - - 195,000 -
Sale of assets 3,884 8,948 7,061 22,909
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 (16,357 ) (74,101 ) (59,186 ) (97,394 )
Sale of insurance subsidiary investments 15,987 8,447 50,780 34,967
Net change in insurance subsidiary cash and cash equivalents (2,633 ) 65,928 (8,396 ) 54,372
Proceeds from note receivable 25,000 - 25,000 -
Change in other investments 176 317 375 1,027
Other   1,383     (3 )   590     (537 )
Net cash provided by (used in) investing activities   (15,744 )   (13,335 )   828,148     (78,910 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 259,700 311,500 1,414,850 1,468,515
Repayment of borrowings under revolving credit (349,700 ) (355,100 ) (1,319,850 ) (1,724,615 )
Proceeds from issuance of term loan, net of discount - - 199,000 997,500
Proceeds from issuance of senior unsecured notes - - - 500,000
Repayment of Gentiva debt - - (1,177,363 ) -
Repayment of senior unsecured notes - - - (550,000 )
Repayment of term loan (3,003 ) (2,500 ) (9,008 ) (786,063 )
Repayment of other long-term debt (500 ) (58 ) (1,400 ) (215 )
Payment of deferred financing costs (301 ) (504 ) (3,284 ) (3,152 )
Equity offering, net of offering costs - 16,376 - 220,353
Issuance of common stock in connection with employee benefit plans 329 1,530 534 6,217

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

- - (915 ) -
Payment of dividend for mandatory redeemable preferred stock (2,703 ) - (8,135 ) -
Dividends paid (10,065 ) (7,754 ) (30,067 ) (20,840 )
Contributions made by noncontrolling interests 1,492 - 1,492 -
Distributions to noncontrolling interests (10,685 ) (4,009 ) (31,823 ) (9,604 )
Other   245     183     1,457     2,304  
Net cash provided by (used in) financing activities   (115,191 )   (40,336 )   (964,512 )   100,400  
Change in cash and cash equivalents 1,355 36,368 (43,297 ) 45,812
Cash and cash equivalents at beginning of period   119,536     45,416     164,188     35,972  
Cash and cash equivalents at end of period $ 120,891   $ 81,784   $ 120,891   $ 81,784  
 
                                     
KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data (a)
(Unaudited)
(In thousands, except per share amounts)
 
Third quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth First Second Third 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 $ 1,764,516 43.6
 
Core EBITDAR $ 181,044 $ 175,865 $ 157,218 $ 170,088 $ 234,211 $ 261,800 $ 236,477 50.4
Rent   78,530     77,452     77,643     79,167     91,199     95,528     95,436   22.9
Core EBITDA 102,514 98,413 79,575 90,921 143,012 166,272 141,041 77.2
Depreciation and amortization 39,092 39,172 38,748 38,558 38,935 38,625 39,329 1.5
Interest, net   25,617     21,438     22,171     21,857     44,346     56,140     56,008   152.6

Income from continuing operations before income taxes

37,805 37,803 18,656 30,506 59,731 71,507 45,704 145.0
Provision for income taxes   14,445     13,612     6,168     8,471     22,466     25,721     15,298   148.0
Income from continuing operations 23,360 24,191 12,488 22,035 37,265 45,786 30,406 143.5
Noncontrolling interests   (4,529 )   (4,828 )   (4,372 )   (5,143 )   (8,847 )   (11,735 )   (9,900 ) 126.4
Net income attributable to Kindred $ 18,831   $ 19,363   $ 8,116   $ 16,892   $ 28,418   $ 34,051   $ 20,506   152.7
 
Core EPS $ 0.35 $ 0.35 $ 0.13 $ 0.26 $ 0.34 $ 0.39 $ 0.23 76.9
Adjusted Core EPS $ 0.46 $ 0.50 $ 0.20 $ 0.38 $ 0.43 $ 0.51 $ 0.33 65.0
Diluted shares 52,711 53,792 62,902 63,163 82,422 86,402 86,892 38.1
 
Revenues by segment:
Hospital division $ 627,245 $ 612,517 $ 591,121 $ 619,185 $ 640,483 $ 627,206 $ 579,497 (2.0 )
Kindred at Home:
Home health 74,791 75,502 74,026 74,588 300,867 427,820 424,054 472.8
Hospice   12,913     12,484     12,160     12,538     119,057     178,005     181,140   1,389.6
87,704 87,986 86,186 87,126 419,924 605,825 605,194 602.2
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 93,177 94,963 93,139 92,922 151,564 152,544 149,435 60.4
RehabCare   253,943     253,694     246,732     252,667     252,595     236,791     219,518   (11.0 )
347,120 348,657 339,871 345,589 404,159 389,335 368,953 8.6
Nursing center division   262,590     264,437     263,897     271,625     274,308     273,870     270,510   2.5
1,324,659 1,313,597 1,281,075 1,323,525 1,738,874 1,896,236 1,824,154 42.4
Eliminations   (52,049 )   (52,200 )   (52,157 )   (58,851 )   (62,907 )   (62,761 )   (59,638 ) 14.3
$ 1,272,610   $ 1,261,397   $ 1,228,918   $ 1,264,674   $ 1,675,967   $ 1,833,475   $ 1,764,516   43.6
 
Core EBITDAR by segment:
Hospital division $ 139,505 $ 131,990 $ 117,604 $ 134,791 $ 134,786 $ 131,532 $ 97,128 (17.4 )
Kindred at Home:
Home health 2,845 5,769 5,961 7,398 46,798 72,917 68,155 1,043.3
Hospice   1,852     2,139     1,149     524     16,996     27,887     34,025   2,861.3
4,697 7,908 7,110 7,922 63,794 100,804 102,180 1,337.1
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 25,710 25,742 24,887 23,884 44,564 44,531 42,141 69.3
RehabCare   18,016     19,863     17,080     16,029     16,493     14,681     14,544   (14.8 )
43,726 45,605 41,967 39,913 61,057 59,212 56,685 35.1
Nursing center division 37,572 38,614 35,920 38,810 36,963 40,461 35,923 -
Support center   (44,456 )   (48,252 )   (45,383 )   (51,348 )   (62,389 )   (70,209 )   (55,439 ) (b) 22.2
$ 181,044   $ 175,865   $ 157,218   $ 170,088   $ 234,211   $ 261,800   $ 236,477   50.4
 
Core EBITDAR margin by segment:
Hospital division 22.2 21.5 19.9 21.8 21.0 21.0 16.8 (15.6 )
Kindred at Home:
Home health 3.8 7.6 8.1 9.9 15.6 17.0 16.1 98.8
Hospice 14.3 17.1 9.4 4.2 14.3 15.7 18.8 100.0
Kindred at Home 5.4 9.0 8.2 9.1 15.2 16.6 16.9 106.1
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 27.6 27.1 26.7 25.7 29.4 29.2 28.2 5.6
RehabCare 7.1 7.8 6.9 6.3 6.5 6.2 6.6 (4.3 )
Kindred Rehabilitation Services 12.6 13.1 12.3 11.5 15.1 15.2 15.4 25.2
Nursing center division 14.3 14.6 13.6 14.3 13.5 14.8 13.3 (2.2 )
Consolidated 14.2 13.9 12.8 13.4 14.0 14.3 13.4 4.7

__________

(a)

See reconciliation of core and adjusted results to GAAP results beginning on page 12.

(b)

Includes a $9 million change in estimate to lower incentive compensation costs recorded in prior periods.

 
                                       
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
(In thousands, except statistics)
Third quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth First Second Third prior year
Hospital division:
End of period data:
Number of transitional care hospitals 97 97 97 97 97 96 95
Number of licensed beds 7,145 7,145 7,145 7,147 7,147 7,124 7,094
Revenue mix %:
Medicare 59.8 58.2 57.0 57.0 56.8 55.2 57.1
Medicaid 6.6 6.8 6.9 6.0 5.5 5.3 5.3
Medicare Advantage 11.4 11.2 10.5 10.5 11.9 11.6 10.8
Medicaid Managed 2.4 3.0 3.8 4.5 4.7 5.6 6.1
Commercial insurance and other 19.8 20.8 21.8 22.0 21.1 22.3 20.7
Admissions:
Medicare 9,038 8,555 8,460 8,525 8,775 8,267 7,976 (5.7)
Medicaid 819 896 805 750 610 610 556 (30.9)
Medicare Advantage 1,435 1,389 1,250 1,359 1,555 1,352 1,212 (3.0)
Medicaid Managed 317 381 511 572 643 675 646 26.4
Commercial insurance and other 1,914 1,885 1,703 1,696 1,868 1,815 1,763 3.5
13,523 13,106 12,729 12,902 13,451 12,719 12,153 (4.5)
Patient days:
Medicare 230,350 220,035 213,170 220,548 228,483 218,577 210,870 (1.1)
Medicaid 32,712 32,619 30,480 30,454 28,663 25,213 23,167 (24.0)
Medicare Advantage 44,025 43,027 39,938 41,260 48,448 44,740 39,585 (0.9)
Medicaid Managed 10,733 13,191 16,556 20,000 22,013 24,833 24,412 47.5
Commercial insurance and other 59,567 59,293 57,486 59,295 62,241 62,922 58,631 2.0
377,387 368,165 357,630 371,557 389,848 376,285 356,665 (0.3)
Average length of stay:
Medicare 25.5 25.7 25.2 25.9 26.0 26.4 26.4 4.8
Medicaid 39.9 36.4 37.9 40.6 47.0 41.3 41.7 10.0
Medicare Advantage 30.7 31.0 32.0 30.4 31.2 33.1 32.7 2.2
Medicaid Managed 33.9 34.6 32.4 35.0 34.2 36.8 37.8 16.7
Commercial insurance and other 31.1 31.5 33.8 35.0 33.3 34.7 33.3 (1.5)
Weighted average 27.9 28.1 28.1 28.8 29.0 29.6 29.3 4.3
Revenues per admission:
Medicare $ 41,492 $ 41,670 $ 39,828 $ 41,425 $ 41,483 $ 41,892 $ 41,451 4.1
Medicaid 50,894 46,106 50,344 49,760 57,594 54,795 55,415 10.1
Medicare Advantage 49,666 49,352 49,814 47,756 48,908 53,578 51,495 3.4
Medicaid Managed 47,803 48,814 44,321 48,691 46,740 51,950 54,976 24.0
Commercial insurance and other 64,858 67,679 75,591 80,167 72,395 77,110 68,151 (9.8)
Weighted average 46,384 46,736 46,439 47,991 47,616 49,312 47,683 2.7
Revenues per patient day:
Medicare $ 1,628 $ 1,620 $ 1,581 $ 1,601 $ 1,593 $ 1,584 $ 1,568 (0.8)
Medicaid 1,274 1,266 1,330 1,225 1,226 1,326 1,330 -
Medicare Advantage 1,619 1,593 1,559 1,573 1,570 1,619 1,577 1.2
Medicaid Managed 1,412 1,410 1,368 1,393 1,365 1,412 1,455 6.4
Commercial insurance and other 2,084 2,152 2,239 2,293 2,173 2,224 2,049 (8.5)
Weighted average 1,662 1,664 1,653 1,666 1,643 1,667 1,625 (1.7)

Medicare case mix index (discharged patients only)

1.173 1.182 1.157 1.139 1.166 1.163 1.150 (0.6)
Average daily census 4,193 4,046 3,887 4,039 4,332 4,135 3,877 (0.3)
Occupancy % 67.3 64.6 62.1 64.5 69.2 66.1 62.2 0.2
Same-hospital data:
Revenues (a) $ 620,866 $ 606,408 $ 585,553 $ 614,207 $ 634,975 $ 622,018 $ 577,337 (1.4)
Admissions:
Medicare 8,910 8,423 8,342 8,403 8,652 8,172 7,932 (4.9)
Medicaid 812 885 794 739 602 608 556 (30.0)
Medicare Advantage 1,429 1,376 1,244 1,351 1,546 1,348 1,212 (2.6)
Medicaid Managed 315 377 511 568 640 670 644 26.0
Commercial insurance and other 1,895 1,863 1,688 1,669 1,840 1,797 1,762 4.4
13,361 12,924 12,579 12,730 13,280 12,595 12,106 (3.8)
Patient days:
Medicare 227,635 217,074 210,386 218,127 225,992 216,230 209,662 (0.3)
Medicaid 32,303 32,260 30,254 30,207 28,458 25,060 23,141 (23.5)
Medicare Advantage 43,906 42,802 39,859 41,153 48,276 44,548 39,585 (0.7)
Medicaid Managed 10,714 13,143 16,515 19,906 21,933 24,673 24,280 47.0
Commercial insurance and other 59,059 58,968 57,185 58,833 61,715 62,462 58,625 2.5
373,617 364,247 354,199 368,226 386,374 372,973 355,293 0.3
Total average length of stay 28.0 28.2 28.2 28.9 29.1 29.6 29.3 3.9
Total revenues per patient day $ 1,662 $ 1,665 $ 1,653 $ 1,668 $ 1,643 $ 1,668 $ 1,625 (1.7)

__________

(a)

See reconciliation of same-hospital revenues to reported revenues for the Hospital Division on page 14.

 
                                       
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
(In thousands, except statistics)
 
Third quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth First Second Third 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) 447 440 439 427 415 411 388
Revenue mix %:
Medicare 81.8 81.5 80.7 80.7 80.9 80.4 80.0
Medicaid 2.7 2.6 2.4 2.2 2.1 2.1 2.1
Commercial and other 9.1 9.0 8.9 6.7 7.3 7.9 8.2
Commercial paid at episodic rates 6.4 6.9 8.0 10.4 9.7 9.6 9.7
Episodic revenues ($ 000s) $ 281,226 $ 294,208 $ 292,675 $ 305,668 $ 308,317 $ 324,027 $ 319,820 9.3
Total episodic admissions 65,077 63,676 65,049 65,183 69,936 67,808 66,753 2.6
Medicare episodic admissions 59,248 58,140 57,921 57,372 61,186 59,394 58,479 1.0
Total episodes 103,758 103,689 105,906 106,708 110,980 109,599 108,519 2.5
Episodes per admission 1.59 1.63 1.63 1.64 1.59 1.62 1.63 -
Revenue per episode $ 2,710 $ 2,837 $ 2,764 $ 2,865 $ 2,778 $ 2,956 $ 2,947 6.6
Hospice:
Sites of service (at end of period) 216 200 199 193 190 185 181
Admissions 13,807 12,751 12,088 12,151 13,164 12,574 12,091 -
Average length of stay 103 106 103 103 95 93 101 (1.9 )
Patient days 1,252,787 1,251,301 1,236,792 1,215,209 1,150,841 1,190,604 1,211,291 (2.1 )
Revenue per patient day $ 150 $ 148 $ 149 $ 154 $ 151 $ 150 $ 150 0.7
Average daily census 13,920 13,751 13,443 13,209 12,787 13,084 13,166 (2.1 )

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

$ 66,732 $ 66,372 $ 67,390 $ 67,621 $ 65,530 $ 67,647 $ 67,338 (0.1 )
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs 5 5 5 5 16 16 18
Number of licensed beds 215 215 215 215 829 829 919
Discharges (a) 1,053 1,121 1,004 1,046 3,806 3,927 3,941 292.5
Occupancy % (a) 71.6 71.6 68.5 69.6 73.2 71.5 68.7 0.3
Average length of stay (a) 13.2 12.5 13.5 13.2 13.7 13.1 13.2 (2.2 )
Revenue per discharge (a) $ 18,246 $ 17,519 $ 18,259 $ 17,039 $ 19,517 $ 19,325 $ 18,992 4.0
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units 105 104 102 100 100 99 101
LTAC hospitals 121 118 117 117 120 120 119
Sub-acute units 10 9 10 10 8 8 7
Outpatient units   143   143   139   138   138   139   135
  379   374   368   365   366   366   362
 
Revenue per site $ 195,157 $ 201,400 $ 203,284 $ 205,749 $ 211,151 $ 209,436 $ 206,041 1.4
 
RehabCare:
Sites of service (at end of period) 1,851 1,863 1,896 1,935 1,829 1,789 1,821
Revenue per site $ 137,193 $ 136,175 $ 130,133 $ 130,576 $ 138,106 $ 132,359 $ 120,548 (7.4 )
 
Nursing center division:
End of period data:
Number of nursing centers 89 89 90 90 90 90 90
Number of licensed beds 11,503 11,491 11,575 11,535 11,535 11,535 11,535
Admissions (b) 9,789 9,621 9,746 9,616 10,376 9,831 9,558 (1.9 )
Medicare average length of stay (b) 29.6 29.8 29.9 29.0 28.9 28.9 28.5 (4.7 )
Patient days (b) 861,340 858,772 865,415 871,976 861,278 852,691 851,332 (1.6 )
Revenues per patient day (b) $ 305 $ 308 $ 305 $ 312 $ 319 $ 321 $ 318 4.3
Average daily census (b) 9,570 9,437 9,407 9,478 9,570 9,370 9,254 (1.6 )
Occupancy % (b) 81.7 80.7 80.1 80.5 81.3 79.6 78.6 (1.9 )

__________

(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 three quarters in 2015, four quarters in 2014 and nine months ended September 30, 2015 and 2014 before certain charges or on a core and adjusted core basis, and on a same-hospital 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 believes the presentation of same-hospital revenues, which excludes the results from two hospitals that closed during 2015, 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. 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 revenues. 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, 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. 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 nine months ended September 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 6.9% and 31.2% for the three months ended September 30, 2015 and 2014, respectively, and 19.7% and 36.5% for the nine months ended September 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 nine months ended September 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 Nine months ended
September 30, September 30,
Detail of charges: 2015 2014 2015 2014
Litigation contingency expense ($31,462 ) $ - ($130,387 ) ($4,600 )
Retirement and severance costs (666 ) (1,686 ) (5,627 ) (6,636 )
Hospital and home health/hospice closings (3,368 ) - (7,789 ) -
Development project cancellation and other restructuring costs - - (1,259 ) -
Customer bankruptcy - (1,857 ) - (1,857 )
Gentiva transaction and integration costs:
Professional and consulting fees (1,113 ) (3,200 ) (35,178 ) (5,279 )
Severance and retention (1,956 ) - (58,831 ) -
Lease termination (charged to rent expense) - - (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) (808 ) - (1,831 ) (247 )
Debt refinancing costs (charged to interest expense) - - - (56,643 )
Other transaction costs   (777 )   (914 )   (3,750 )   (4,014 )
(40,150 ) (7,657 ) (275,606 ) (79,276 )
Income tax benefit   2,775     2,391     54,302     28,936  
Charges net of income taxes (37,375 ) (5,266 ) (221,304 ) (50,340 )
Allocation to participating unvested restricted stockholders   -     133     -     -  
Available to common stockholders   ($37,375 )   ($5,133 )   ($221,304 )   ($50,340 )
 
Weighted average diluted shares outstanding   86,184     62,902     83,960     56,443  
 
Diluted loss per common share related to charges   ($0.43 )   ($0.08 )   ($2.64 )   ($0.89 )
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $ 20,506 $ 8,116 $ 82,975 $ 46,310
Charges net of income taxes   (37,375 )   (5,266 )   (221,304 )   (50,340 )
Reported income (loss) from continuing operations   ($16,869 ) $ 2,850     ($138,329 )   ($4,030 )
 
Reconciliation of diluted earnings per common share from continuing operations before charges:
Diluted earnings per common share before charges (a) $ 0.23 $ 0.13 $ 0.95 $ 0.80
Charges net of income taxes (0.43 ) (0.08 ) (2.64 ) (0.89 )
Other   -     (0.01 )   0.04     0.02  
Reported diluted earnings (loss) per common share from continuing operations   ($0.20 ) $ 0.04     ($1.65 )   ($0.07 )

 

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

  86,892     62,902     85,691     56,506  
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 33.5 % 33.1 % 35.9 % 36.3 %
Impact of charges on effective income tax rate   192.0 %   1.2 %   -26.6 %   -1.0 %
Reported effective income tax rate   225.5 %   34.3 %   9.3 %   35.3 %

__________

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.3 million and $0.2 million for the three months ended September 30, 2015 and 2014, respectively, and by $1.5 million and $1.3 million for the nine months ended September 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 Third

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 $ 20,506
Add back non-cash expenses:
Amortization of intangible assets 5,560 5,513 5,378 5,215 6,932 7,536 7,728
Amortization of stock-based compensation costs 2,585 5,924 748 5,073 3,141 6,687 3,194
Amortization of deferred financing costs   2,397   1,950   1,982   2,044   3,062   3,539   3,554  
10,542 13,387 8,108 12,332 13,135 17,762 14,476
Income tax benefit related to non-cash expenses   4,148   5,268   3,190   4,853   5,169   6,989   5,696  
Non-cash expenses, net of income taxes   6,394   8,119   4,918   7,479   7,966   10,773   8,780  
Adjusted core earnings $ 25,225 $ 27,482 $ 13,034 $ 24,371 $ 36,384 $ 44,824 $ 29,286  
 
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 $ 0.23
Non-cash expenses, net of income taxes 0.11 0.15 0.07 0.12 0.09 0.12 0.10

 

             

Diluted adjusted core earnings per common share from continuing operations

$ 0.46 $ 0.50 $ 0.20 $ 0.38 $ 0.43 $ 0.51 $ 0.33  
 

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   86,892  
 
 
A reconciliation of combined Kindred and Gentiva home health revenues (excluding community care) for each historical period follows:
 
Third quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth First Second Third prior year
Kindred $ 67,266 $ 67,830 $ 65,954 $ 66,491 $ 254,965 $ 360,173 $ 356,716
Gentiva   253,895   267,018   266,340   275,342   87,520   -   -
$ 321,161 $ 334,848 $ 332,294 $ 341,833 $ 342,485 $ 360,173 $ 356,716 7.3
 
 
 
 
A reconciliation of same-hospital revenues to reported revenues for the Hospital Division for each historical period follows:
 
 
Third quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth First Second Third prior year
Same-hospital revenues $ 620,866 $ 606,408 $ 585,553 $ 614,207 $ 634,975 $ 622,018 $ 577,337 (1.4 )
Two hospitals that closed during 2015 (a)   6,379   6,109   5,568   4,978   5,508   5,188   2,160
Reported revenues $ 627,245 $ 612,517 $ 591,121 $ 619,185 $ 640,483 $ 627,206 $ 579,497 (2.0 )
 

__________

(a)

One hospital closed during the second quarter of 2015 and one hospital closed during the third quarter of 2015.

 
                       
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended September 30, 2015
Charges
Hospital Gentiva
Retirement and home transaction
Before and health/hospice Litigation and Other As
charges severance closings contingency integration transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 97,128 $ (666 ) $ (479 ) $ - $ - $ - $ (1,145 ) $ 95,983
 
Kindred at Home:
Home health 68,155 - (2,571 ) - - - (2,571 ) 65,584
Hospice   34,025     -     (318 )   -     -     -     (318 )   33,707  
  102,180     -     (2,889 )   -     -     -     (2,889 )   99,291  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 42,141 - - - - - - 42,141
RehabCare   14,544     -     -     -     -     -     -     14,544  
  56,685     -     -     -     -     -     -     56,685  
 
Nursing center division 35,923 - - - - - - 35,923
 
Support center (55,439 ) - - - - - - (55,439 )
Litigation contingency expense - - - (31,462 ) - - (31,462 ) (31,462 )
Transaction costs   -     -     -     -     (3,069 )   (777 )   (3,846 )   (3,846 )
Operating income (EBITDAR) 236,477 (666 ) (3,368 ) (31,462 ) (3,069 ) (777 ) (39,342 ) 197,135
Rent   (95,436 )   -     (808 )   -     -     -     (808 )   (96,244 )
EBITDA 141,041 (666 ) (4,176 ) (31,462 ) (3,069 ) (777 ) (40,150 ) 100,891
Depreciation and amortization (39,329 ) - - - - - - (39,329 )
Interest, net   (56,008 )   -     -     -     -     -     -     (56,008 )

Income from continuing operations before income taxes

45,704 (666 ) (4,176 ) (31,462 ) (3,069 ) (777 ) (40,150 ) 5,554
Provision for income taxes   15,298     (196 )   (1,225 )   (429 )   (697 )   (228 )   (2,775 )   12,523  
30,406 $ (470 ) $ (2,951 ) $ (31,033 ) $ (2,372 ) $ (549 ) $ (37,375 ) (6,969 )
Noncontrolling interests   (9,900 )   (9,900 )
Income (loss) attributable to Kindred $ 20,506   $ (16,869 )
 
Diluted earnings (loss) per common share $ 0.23 $ (0.20 )

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

86,892 86,184
 
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 )
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
 
                               
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Nine months ended September 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 $ 363,446 $ (666 ) $ (1,044 ) $ (675 ) $ - $ - $ - $ - $ - $ (2,385 ) $ 361,061
 
Kindred at Home:
Home health 187,870 - (4,261 ) - - - - - - (4,261 ) 183,609
Hospice   78,908     -     (2,484 )   -     -     -     -     -     -     (2,484 )   76,424  
  266,778     -     (6,745 )   -     -     -     -     -     -     (6,745 )   260,033  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 131,236 - - - - - - - - - 131,236
RehabCare   45,718     (785 )   -     -     -     -     -     -     -     (785 )   44,933  
  176,954     (785 )   -     -     -     -     -     -     -     (785 )   176,169  
 
Nursing center division 113,347 - - (584 ) - - - - - (584 ) 112,763
 
Support center (188,037 ) (4,176 ) - - - - - - - (4,176 ) (192,213 )
Litigation contingency expense - - - - (130,387 ) - - - - (130,387 ) (130,387 )
Transaction costs - - - - - - (6,005 ) (94,009 ) (3,750 ) (103,764 ) (103,764 )
Impairment charges   -     -     -     -     -     (6,726 )   -     -     -     (6,726 )   (6,726 )
Operating income (EBITDAR) 732,488 (5,627 ) (7,789 ) (1,259 ) (130,387 ) (6,726 ) (6,005 ) (94,009 ) (3,750 ) (255,552 ) 476,936
Rent   (282,163 )   -     (1,479 )   (352 )   -     -     -     (792 )   -     (2,623 )   (284,786 )
EBITDA 450,325 (5,627 ) (9,268 ) (1,611 ) (130,387 ) (6,726 ) (6,005 ) (94,801 ) (3,750 ) (258,175 ) 192,150
Depreciation and amortization (116,889 ) - - - - - - - - - (116,889 )
Interest, net   (156,494 )   -     -     -     -     -     (17,431 )   -     -     (17,431 )   (173,925 )

Income (loss) from continuing operations before income taxes

176,942 (5,627 ) (9,268 ) (1,611 ) (130,387 ) (6,726 ) (23,436 ) (94,801 ) (3,750 ) (275,606 ) (98,664 )
Provision for income taxes   63,485     (2,202 )   (3,627 )   (631 )   (2,108 )   (2,633 )   (9,173 )   (32,460 )   (1,468 )   (54,302 )   9,183  
113,457 $ (3,425 ) $ (5,641 ) $ (980 ) $ (128,279 ) $ (4,093 ) $ (14,263 ) $ (62,341 ) $ (2,282 ) $ (221,304 ) (107,847 )
Noncontrolling interests   (30,482 )   (30,482 )
Income (loss) attributable to Kindred $ 82,975   $ (138,329 )
 
Diluted earnings (loss) per common share $ 0.95 $ (1.65 )

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

85,691 83,960
 
Nine months ended September 30, 2014
Charges
Severance
Before and other Customer Litigation Debt Gentiva Other As
charges restructuring bankruptcy contingency refinancing transaction transaction Total reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 389,099 $ (617 ) $ - $ - $ - $ - $ - $ (617 ) $ 388,482
 
Kindred at Home:
Home health 14,575 (996 ) - - - - - (996 ) 13,579
Hospice   5,140     (168 )   -     -     -     -     -     (168 )   4,972  
  19,715     (1,164 )   -     -     -     -     -     (1,164 )   18,551  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 76,339 (170 ) (1,857 ) - - - - (2,027 ) 74,312
RehabCare   54,959     (14 )   -     -     -     -     -     (14 )   54,945  
  131,298     (184 )   (1,857 )   -     -     -     -     (2,041 )   129,257  
 
Nursing center division 112,106 (3,688 ) - - - - - (3,688 ) 108,418
 
Support center (138,091 ) (983 ) - - - - - (983 ) (139,074 )
Litigation contingency expense - - - (4,600 ) (4,600 ) (4,600 )
Transaction costs   -     -     -     -     -     (5,279 )   (4,014 )   (9,293 )   (9,293 )
Operating income (EBITDAR) 514,127 (6,636 ) (1,857 ) (4,600 ) - (5,279 ) (4,014 ) (22,386 ) 491,741
Rent   (233,625 )   (247 )   -     -     -     -     -     (247 )   (233,872 )
EBITDA 280,502 (6,883 ) (1,857 ) (4,600 ) - (5,279 ) (4,014 ) (22,633 ) 257,869
Depreciation and amortization (117,012 ) - - - - - - - (117,012 )
Interest, net   (69,226 )   -     -     -     (56,643 )   -     -     (56,643 )   (125,869 )

Income from continuing operations before income taxes

94,264 (6,883 ) (1,857 ) (4,600 ) (56,643 ) (5,279 ) (4,014 ) (79,276 ) 14,988
Provision for income taxes   34,225     (2,700 )   (729 )   (1,805 )   (22,223 )   (49 )   (1,430 )   (28,936 )   5,289  
60,039 $ (4,183 ) $ (1,128 ) $ (2,795 ) $ (34,420 ) $ (5,230 ) $ (2,584 ) $ (50,340 ) 9,699
Noncontrolling interests   (13,729 )   (13,729 )
Income (loss) attributable to Kindred $ 46,310   $ (4,030 )
 
Diluted earnings (loss) per common share $ 0.80 $ (0.07 )

 

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

56,506 56,443
 
                           
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 )
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 )
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 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 )   -     -     -     -