Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-14057   61-1323993

(State or other jurisdiction of

incorporation or organization)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

680 South Fourth Street

Louisville, Kentucky

(Address of principal executive offices)

40202

(Zip Code)

Registrant’s telephone number, including area code: (502) 596-7300

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation to the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On November 6, 2017, Kindred Healthcare, Inc. (the “Company”) issued a press release announcing its financial results for the third quarter ended September 30, 2017. The press release, dated November 6, 2017, is attached as Exhibit 99.1 to this Form 8-K. On November 6, 2017, the Company also made the press release available on its website at www.kindredhealthcare.com.

The information contained herein is being furnished pursuant to Item 2.02 of Form 8-K, “Results of Operations and Financial Condition.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, nor shall this information be deemed incorporated by reference into any filing made by the Company under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 7.01. Regulation FD Disclosure.

Incorporated by reference is Exhibit 99.1 attached hereto, a press release issued by the Company on November 6, 2017 announcing its financial results for the third quarter ended September 30, 2017. This information is being furnished under Item 7.01 and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of such section nor shall this information be deemed incorporated by reference into any filing made by the Company under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit

  

Description

Exhibit 99.1    Press release dated November 6, 2017.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized.

 

    KINDRED HEALTHCARE, INC.
Date: November 7, 2017     By:  

/s/ Joseph L. Landenwich

      Joseph L. Landenwich
      General Counsel and Corporate Secretary
EX-99.1

EXHIBIT 99.1

 

LOGO
Contact:    Todd Flowers
  

Investor Relations

(502) 596-6569

KINDRED HEALTHCARE REPORTS THIRD QUARTER 2017 RESULTS

 

 

Consolidated Revenues of $1.48 Billion, GAAP Loss from Continuing Operations of $18 Million(1), GAAP Diluted Loss Per Share from Continuing Operations of $0.33(1), EBITDAR of $141 Million(2) and EBITDA of $66 Million(3) in the Third Quarter

Results Reflect After-Tax Costs of $19 Million Primarily Related to Restructuring Charges of $11 Million and a Non-Cash Deferred Tax Asset Valuation Allowance of $7 Million

GAAP and Core Results Include Negative Pretax Earnings Impact of $16 Million from Hurricanes and $3 Million from LTAC Hospital Closures and Diluted EPS Impact of $0.11 from Hurricanes and $0.02 from LTAC Closures

Core EBITDAR of $157 Million(4), Core EBITDA of $84 Million(4) and Core Diluted Loss Per Share from Continuing Operations of $0.11(4) in the Third Quarter

Third Quarter GAAP Operating Cash Flows of $8 Million(4), Core Operating Cash Flows of $30 Million(4) and Core Free Cash Flows of $3 Million(4)

Company Generated $281 Million of Cash Primarily from Restructuring Certain Funding Mechanisms for Insurance Programs; Proceeds Utilized to Reduce Financial Leverage(5)

Company Updates Outlook for 2018

LOUISVILLE, Ky. (November 6, 2017) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2017.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “We are pleased to report third quarter results ahead of expectations. We made good progress during the quarter on each of our ongoing key initiatives, including our plan to fully exit the skilled nursing facility business and our continuing efforts to mitigate the impact of long-term acute care (“LTAC”) patient criteria. The third quarter also presented unexpected challenges for our business, including two major hurricanes that impacted Florida and Houston, Texas. Thanks to the talented and dedicated teammates across our organization, Kindred delivered solid operating results, when adjusted for the one-time impact of Hurricanes Irma and Harvey (the “Hurricanes”) and LTAC closure costs incurred during the quarter. The GAAP and Core pretax earnings impact of the Hurricanes for the quarter was $16 million, which primarily affected both Segment adjusted operating income and Core EBITDAR of the Hospital and Kindred at Home Divisions by approximately $10 million and $5 million, respectively.”

In addressing recent Home Health regulatory activity, Mr. Breier commented, “We are pleased the Centers for Medicare and Medicaid Services (“CMS”) decided last week not to finalize the proposed Home Health Groupings Model in order to further engage stakeholders in developing a system that shifts the focus from volume of services to a more patient-centered model. We commend CMS for considering the unanimous voice of patient advocates, the home health provider community, and bipartisan Congressional leaders and for continuing an open dialogue with stakeholders regarding system design. Kindred looks forward to ongoing engagement and collaboration with CMS and Congress to develop a reformed model that strikes the right balance in promoting high quality home healthcare in a fiscally responsible manner.”

 

 

(1) Results reflect after-tax costs of $19.4 million or $0.22 per diluted share related to restructuring, deferred tax asset valuation allowance, litigation and the favorable settlement of a RehabCare collection litigation.
(2) Results reflect pretax costs of $16.1 million related to restructuring, litigation and the favorable settlement of a RehabCare collection litigation. As used herein, “EBITDAR” means earnings before interest, income taxes, depreciation, amortization and total rent. See reconciliation of generally accepted accounting principles (“GAAP”) results to non-GAAP results beginning on page 15. The Company will not provide consolidated EBITDAR in future earnings releases.
(3) Results reflect pretax costs of $18.3 million related to restructuring, litigation and the favorable settlement of a RehabCare collection litigation. As used herein, “EBITDA” means earnings before interest, income taxes, depreciation and amortization. See reconciliation of GAAP results to non-GAAP results beginning on page 15.
(4) See reconciliation of GAAP results to non-GAAP results beginning on page 15. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
(5) This amount includes a $30 million distribution the Company received from its wholly owned captive insurance subsidiary in the third quarter of 2017, with the majority of proceeds and corresponding leverage reduction completed in October 2017. For further information on this distribution and subsequent insurance restructuring, see page 4.

 

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680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com


Kindred Healthcare Reports Third Quarter 2017 Results

Page 2

November 6, 2017

 

 

Mr. Breier continued, “Regarding the skilled nursing facility business, we have completed the sale and transition of operations to new operators for 68 of the 89 skilled nursing facilities and four of the seven assisted living facilities. We expect that nearly all of the remaining facilities and operations will be divested by the end of 2017. Importantly, our RehabCare business has executed agreements with many of the new operators, resulting in the continuation of services to 45 sites of service; this is in line with expectations for our 2018 Outlook, and we anticipate signing additional contracts for a portion of the facilities yet to transition. We continue to believe that the sale of our skilled nursing facility business will significantly enhance shareholder value, enable us to sharpen our focus on higher margin and faster growing businesses, and further advance our efforts to transform Kindred.”

Mr. Breier added, “The success of our ongoing LTAC patient criteria mitigation strategy resulted in our Hospital Division delivering operating results that were largely in line with expectations. LTAC compliant revenue increased to 89% from 88% in the second quarter. Managed care and commercial volumes increased 5.1% for the third quarter of 2017 on a same-hospital basis as compared to the prior year period.”

Mr. Breier concluded, “Kindred’s Hospital Division continued to execute on its portfolio optimization initiative by closing five LTAC hospitals since the end of last quarter, including one that will be converted to an inpatient rehabilitation facility (“IRF”) joint venture. We expect to further optimize our LTAC portfolio with additional closures, consolidations and IRF conversions over the coming quarters.”

All financial and statistical information included in this earnings release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated. As previously disclosed, while the operating results, direct overhead, losses associated with the skilled nursing facility business divestiture and elimination of intercompany profits for certain applicable RehabCare contracts are classified as discontinued operations, they do not include any allocations of indirect overhead related to the skilled nursing facility business. In the third quarter of 2017, the Company reclassified from discontinued operations to continuing operations for all periods presented historical intercompany profits from certain RehabCare contracts that were retained with new operators of divested skilled nursing facilities. The impact of the retained contracts to third quarter 2017 loss from continuing operations before income taxes, Core EBITDAR and Core EBITDA was $2.0 million.

Based on recent discussions with the staff of the Securities and Exchange Commission (the “SEC”), and consistent with similar actions by other companies, the Company will discontinue the use of consolidated EBITDAR as a performance measure and replace it with consolidated EBITDA when reporting its historical results and 2018 Outlook beginning in the fourth quarter of 2017. In order to assist investors with the transition, the Company is presenting in this earnings release both historical consolidated EBITDAR and EBITDA as well as its 2018 Outlook for these measures. The Company will not provide consolidated EBITDAR in future earnings releases. The Company will continue to report Segment adjusted operating income (loss), which is the performance measure used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 – Segment Reporting,” and Core EBITDAR by segment.(1)

Third Quarter Consolidated Results(1):

 

    Consolidated revenues were $1.48 billion, a 5.5% year-over-year decrease, primarily attributable to the impact of the transition to LTAC patient criteria and the sale or closure of 21 LTAC hospitals since the third quarter of 2016. GAAP loss from continuing operations was $18.4 million compared to a loss of $649.2 million in the same period a year ago. The reduction in the loss was primarily due to a $359.1 million decrease in the deferred tax asset valuation allowance, a $243.8 million decrease in impairment charges and a $39.1 million decrease related to restructuring charges, all partially offset by the impact of the Hurricanes, LTAC patient criteria and the sale or closure of the 21 LTAC hospitals noted above. Core EBITDAR declined to $156.9 million compared to $185.6 million and Core EBITDA declined to $83.9 million compared to $109.0 million in the same period of 2016, both primarily due to the impact of the Hurricanes, LTAC patient criteria and the sale or closure of the 21 LTAC hospitals noted above.

 

    GAAP operating cash flows were $8.5 million compared to $36.4 million for the same period a year ago. Core operating cash flows were $29.8 million compared to $29.5 million for the same period a year ago. Core free cash flows were $3.3 million compared to $2.9 million in the same period a year ago. GAAP operating cash flows declined

 

(1) See reconciliation of GAAP results to non-GAAP results beginning on page 15. The Company defines Segment adjusted operating income (loss) as EBITDAR for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs and the allocation of support center overhead. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

 

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 3

November 6, 2017

 

 

Third Quarter Consolidated Results(1)(Continued):

compared to the prior year period due to severance, retention and transactions costs associated with the skilled nursing facility business divestiture, approximately $20 million from temporary billing delays and $16 million decline in operating results both associated with the Hurricanes. Core operating cash flows and Core free cash flows increased slightly compared to the prior year period despite the temporary billing delays and operating declines from the Hurricanes.

 

    GAAP diluted loss per share from continuing operations was $0.33 as compared to GAAP diluted loss per share from continuing operations of $7.58 a year ago. Both GAAP and Core diluted loss per share include a $0.11 per diluted share negative impact from the Hurricanes. The reduction in the GAAP diluted loss per share was primarily due to a decrease in deferred tax asset valuation allowance, impairment charges and restructuring charges, partially offset by the impact of the Hurricanes, LTAC patient criteria and the sale or closure of the 21 LTAC hospitals noted above. Core diluted loss per share from continuing operations was $0.11, as compared to Core diluted earnings per share (“EPS”) of $0.05 for the same period last year. Besides the impact of the Hurricanes, the decline in Core diluted EPS was primarily attributable to LTAC patient criteria.

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

Our Kindred at Home Division recorded third quarter revenues that increased 0.6% over the prior year period to $642.1 million. The Hurricanes negatively impacted division revenue by $4.7 million and Segment adjusted operating income by $4.8 million. On a same-store basis, home health admissions increased 0.9% while same-store hospice admissions declined 4.3% over the prior year period. Segment adjusted operating income and Core EBITDAR both decreased 4.9% to $101.2 million for the third quarter of 2017 as compared to the prior year period as a result of the Hurricanes and patient mix shift in home health from Medicare to managed care and commercial patients. Home health direct labor costs per visit declined 3.7% and hospice direct labor costs per patient day declined 0.6% in the third quarter of 2017 both as compared to the third quarter of 2016.

Kindred’s Hospital Division third quarter revenues declined 14.6% to $503.1 million from $588.9 million in the prior year period primarily due to the elimination of approximately $70 million of revenue related to the sale or closure of 21 LTAC hospitals since the third quarter of 2016, the impact of LTAC patient criteria and a 5.2% decline in same-hospital admissions compared to last year. The Hurricanes negatively impacted division revenue by $2.8 million and Segment adjusted operating income by $9.9 million. For the third quarter of 2017, approximately 89% (92% excluding Texas LTAC hospitals) of same- hospital revenue came from LTAC compliant patients, which include all patients except Medicare site neutral patients, an increase from approximately 88% (92% excluding Texas LTAC hospitals) in the second quarter of 2017. Same-hospital managed care and commercial volumes increased 5.1% in the third quarter of 2017 compared to the prior year period. Segment adjusted operating income and Core EBITDAR for the third quarter both declined to $61.5 million compared to $83.9 million for both Segment adjusted operating income and Core EBITDAR a year ago. The declines were primarily due to the impact of LTAC patient criteria, the Hurricanes, increases in labor and other costs and the elimination of approximately $4 million of Segment adjusted operating income and Core EBITDAR related to the sale or closure of the 21 LTAC hospitals noted above.

Kindred Rehabilitation Services third quarter revenues declined by 2.1% to $352.7 million as compared to $360.3 million in the prior year period, primarily due to operating fewer sites of service in RehabCare. The Hurricanes negatively impacted division revenue by $0.6 million and Segment adjusted operating income by $1.1 million. Segment adjusted operating income increased to $56.8 million as compared to $56.5 million in the prior year period. Core EBITDAR decreased to $54.5 million as compared to $56.5 million in the prior year period. The Kindred Hospital Rehabilitation Services (“KHRS”) segment achieved revenue growth of 2.0% to $173.6 million from $170.3 million a year ago due primarily to IRF revenues increasing 6.2% to $96.7 million as compared to $91.0 million in the prior year primarily due to IRF development and a 3.7% increase in revenue per discharge. KHRS Segment adjusted operating income and Core EBITDAR both declined to $49.2 million, a decrease of 1.2% compared to the same period a year ago, primarily as a result of contract losses from closed affiliated LTAC hospitals and the Hurricanes. The IRFs contributed $32.8 million to KHRS Segment adjusted operating income, a 3.6% increase over prior year, including a $0.4 million impact from the Hurricanes. RehabCare revenues declined 5.7% to $179.1 million for the third quarter of 2017, primarily due to operating fewer sites of service. RehabCare Segment adjusted operating income increased to $7.6 million

 

(1) See reconciliation of GAAP results to non-GAAP results beginning on page 15. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
(2) See same-hospital and full segment data on pages 10 through 14.
(3) For each of the Company’s segments, Segment adjusted operating income (loss) is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 – Segment Reporting.” The Company defines Segment adjusted operating income (loss) as EBITDAR for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.

 

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 4

November 6, 2017

 

 

Third Quarter Segment Results(1)(Continued):

compared to $6.7 million in the prior year period, primarily due to the favorable settlement of collection litigation. RehabCare Core EBITDAR declined 20.2% to $5.4 million, primarily due to operating fewer sites of service and wage rate pressure.

Discontinued Operations – Loss on Divestiture of Skilled Nursing Facility Business

During the third quarter of 2017, the Company recorded $51.3 million of pretax charges related to the planned divestiture of its skilled nursing facility business, including a loss of $17.9 million related to certain skilled nursing facilities subject to sale- leaseback accounting provisions, $2.7 million of lease termination costs, $23.8 million of transaction costs and $6.9 million of retention costs.

Insurance Program Distributions and Restructuring

In the third quarter of 2017, as a result of improved underwriting results from the Company’s wholly owned captive insurance subsidiary, Cornerstone Insurance Company (“Cornerstone”), the Company received a distribution of $30 million (the “September Distribution”). The September Distribution was used to repay a portion of the Company’s outstanding $900 million asset-based loan revolving credit facility (“ABL”), which had $156 million outstanding as of September 30, 2017, and did not have any impact on earnings or operating cash flows in the third quarter of 2017.

In October, in connection with the review of its insurance programs as part of the skilled nursing facility business exit, the Company restructured the funding mechanisms and certain other elements of its insurance programs. With respect to its workers compensation program, approximately $115 million of restricted cash collateral deposits were replaced with letters of credit and approximately $21 million of other cash deposits were released. In addition, certain funding mechanisms associated with the Company’s professional liability insurance and reinsurance agreements were modified such that approximately $106 million of cash deposits maintained at Cornerstone and $4 million of other cash deposits were released to the parent company. In both cases, no changes were made to the financial risk transfer aspects of the Company’s insurance arrangements with third parties. Also in October, as a result of further improvement in Cornerstone’s underwriting results, the Company received an additional distribution of $5 million from Cornerstone (the “October Distribution”). In aggregate, the approximately $281 million generated from the October insurance restructuring, the September Distribution and the October Distribution was used to repay in its entirety the Company’s ABL balance and to increase cash reserves. The Company expects that there will be additional cash savings from these activities over the duration of the fourth quarter that will offset approximately $11 million of estimated costs in the same period associated with the insurance restructuring.

Mr. Breier commented, “The successful restructuring of our insurance program allowed us to deliver in a significant and immediate way on our commitment to reduce our leverage. The $281 million of liberated funds represents more than half of our 2018 Outlook for EBITDA and nearly two years of projected core free cash flows. We intend to continue to explore other initiatives to delever by reducing our funded debt and growing EBITDA.”

2018 Outlook(2)

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

The Company’s 2018 Outlook does not take into account the effect of any reimbursement changes, any further acquisitions or divestitures, and any further issuances or repurchases of common stock.

 

(1) See reconciliation of GAAP results to non-GAAP results beginning on page 15. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.
(2) See Forward-Looking Statements beginning on page 15.

 

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 5

November 6, 2017

 

 

2018 Outlook(1)(Continued):

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, commented, “As we have previously discussed, given the complexity and uncertain timing of several items over the remainder of the year, the Company is not providing a 2017 outlook but is instead focusing investors on its 2018 Outlook, which reflects the Company’s successful restructuring and repositioning activities in 2017. We are also expanding our 2018 Outlook to incorporate ranges for key items with this release.”

For the 2018 Outlook, Kindred anticipates:

    Annual revenues of $6.2 billion, with a range of $6.1 billion to $6.3 billion;
    Core EBITDAR of $815 million, with a range of $800 million to $830 million(2);
    Core EBITDA of $515 million, with a range of $500 million to $530 million; and
    Core diluted EPS from continuing operations of $0.75, with a range of $0.65 to $0.85.

In determining these items, Kindred utilized the following 2018 estimates:

    Total rent expense of approximately $295 million to $300 million;
    Depreciation and amortization expense of approximately $100 million;
    Interest expense of approximately $235 million to $240 million, including $17 million of amortization of deferred financing fees;
    Noncontrolling interest expense of approximately $45 million to $50 million;
    An effective book tax rate of approximately 35%;
    Weighted average shares outstanding of approximately 90.0 million;
    Routine capital expenditures of approximately $60 million; and
    Available tax net operating loss (“NOLs”) as of January 1, 2018 of $550 million to $600 million.

Cash Flow(1)

Mr. Farber commented, “We expect the fourth quarter of 2017 to be our strongest core operating cash flow quarter of the year, and expect to end the year with excellent liquidity, leaving no outstanding borrowings under our $900 million ABL and a large unrestricted cash balance. In addition to the previously discussed successful efforts this year to restructure the Company’s funding of its insurance programs, we expect 2018 Core free cash flows from continuing operations plus tax-related cash flows from utilizing Kindred’s NOL carry forwards to approximate $175 million at the midpoint of an estimated range. We intend to apply this cash flow primarily to repay debt and expect our adjusted debt(3) to EBITDAR(4) leverage to approximate 5.5x by the end of 2018.”

Conference Call

As previously announced, investors and the general public may access a live webcast of the third quarter 2017 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on November 7 at 9:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 12:00 p.m. on November 7 by dialing (719) 457-0820, access code: 2677758. The phone replay will be available through November 17 and the online replay will be available through December 7.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 15 for important disclosures regarding the Company’s forward-looking statements and the non-GAAP financial reconciliations that follow.

 

(1) See Forward-Looking Statements beginning on page 15.
(2) As previously discussed, after this earnings release, the Company will not provide consolidated EBITDAR in future earnings releases, including a 2018 Outlook for Core EBITDAR.
(3) Adjusted debt includes current and long-term debt plus annual total rent expense multiplied by six less cash.
(4) The Company will not provide consolidated EBITDAR in future earnings releases and will replace adjusted debt to EBITDAR leverage with debt to EBITDA leverage which excludes total rent expense multiplied by six in the numerator and includes total rent expense in the denominator.

 

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 6

November 6, 2017

 

 

About Kindred Healthcare

Kindred Healthcare, Inc., a top-105 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $6.1 billion(1). At September 30, 2017, Kindred’s continuing operations, through its subsidiaries, had approximately 86,400 employees providing healthcare services in 2,475 locations in 45 states, including 77 LTAC hospitals, 19 inpatient rehabilitation hospitals, 16 sub-acute units, 609 Kindred at Home home health, hospice and non-medical home care sites of service, 101 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,653 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for eight 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.

 

(1) Revenues from continuing operations for the last twelve months ended September 30, 2017.

 

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 7

November 6, 2017

 

 

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,  
     2017     2016     2017     2016  

Revenues

   $ 1,477,141     $ 1,563,276     $ 4,550,841     $ 4,774,813  
  

 

 

   

 

 

   

 

 

   

 

 

 

Salaries, wages and benefits

     830,558       867,611       2,504,074       2,546,031  

Supplies

     73,344       85,469       231,229       263,679  

Building rent

     64,422       66,946       193,939       199,956  

Equipment rent

     8,537       9,911       26,285       31,280  

Other operating expenses

     155,949       167,453       496,934       500,787  

General and administrative expenses

     258,834       262,051       800,493       848,945  

Other income

     (638     (341     (2,895     (2,679

Litigation contingency expense

     4,000       —         4,000       2,840  

Impairment charges

     —         297,276       136,303       311,195  

Restructuring charges

     16,500       81,463       31,556       84,213  

Depreciation and amortization

     24,808       32,995       80,279       99,747  

Interest expense

     61,146       59,856       181,275       175,398  

Investment income

     (705     (1,797     (3,442     (2,519
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,496,755       1,928,893       4,680,030       5,058,873  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes

     (19,614     (365,617     (129,189     (284,060

Provision (benefit) for income taxes

     (1,225     283,630       (15,107     314,106  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (18,389     (649,247     (114,082     (598,166

Discontinued operations, net of income taxes:

        

Loss from operations

     (13,612     (22,060     (1,871     (10,489

Gain (loss) on divestiture of operations

     (49,663     —         (349,868     179  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     (63,275     (22,060     (351,739     (10,310
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (81,664     (671,307     (465,821     (608,476

Earnings attributable to noncontrolling interests:

        

Continuing operations

     (10,960     (9,574     (32,234     (26,272

Discontinued operations

     (3,162     (4,732     (12,597     (14,075
  

 

 

   

 

 

   

 

 

   

 

 

 
     (14,122     (14,306     (44,831     (40,347
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss attributable to Kindred

   $ (95,786   $ (685,613   $ (510,652   $ (648,823
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts attributable to Kindred stockholders:

        

Loss from continuing operations

   $ (29,349   $ (658,821   $ (146,316   $ (624,438

Loss from discontinued operations

     (66,437     (26,792     (364,336     (24,385
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (95,786   $ (685,613   $ (510,652   $ (648,823
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per common share:

        

Basic:

        

Loss from continuing operations

   $ (0.33   $ (7.58   $ (1.67   $ (7.20

Discontinued operations:

        

Loss from operations

     (0.19     (0.31     (0.17     (0.28

Gain (loss) on divestiture of operations

     (0.57     —         (4.00     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     (0.76     (0.31     (4.17     (0.28
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (1.09   $ (7.89   $ (5.84   $ (7.48
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

        

Loss from continuing operations

   $ (0.33   $ (7.58   $ (1.67   $ (7.20

Discontinued operations:

        

Loss from operations

     (0.19     (0.31     (0.17     (0.28

Gain (loss) on divestiture of operations

     (0.57     —         (4.00     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     (0.76     (0.31     (4.17     (0.28
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (1.09   $ (7.89   $ (5.84   $ (7.48
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing loss per common share:

        

Basic

     87,597       86,869       87,398       86,766  

Diluted

     87,597       86,869       87,398       86,766  

Cash dividends declared and paid per common share

   $ —       $ 0.12     $ 0.12     $ 0.36  


Kindred Healthcare Reports Third Quarter 2017 Results

Page 8

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)

 

     September 30,
2017
    December 31,
2016
 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 130,364     $ 137,061  

Insurance subsidiary investments

     98,079       108,966  

Accounts receivable less allowance for loss

     1,218,200       1,172,078  

Inventories

     21,491       22,438  

Income taxes

     4,983       10,067  

Assets held for sale

     79,051       289,450  

Other

     66,463       63,693  
  

 

 

   

 

 

 
     1,618,631       1,803,753  

Property and equipment

     1,686,504       1,531,598  

Accumulated depreciation

     (956,644     (912,978
  

 

 

   

 

 

 
     729,860       618,620  

Goodwill

     2,424,831       2,427,074  

Intangible assets less accumulated amortization

     612,277       770,108  

Insurance subsidiary investments

     184,417       204,929  

Other

     301,735       288,240  
  

 

 

   

 

 

 

Total assets

   $ 5,871,751     $ 6,112,724  
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

Accounts payable

   $ 176,353     $ 203,925  

Salaries, wages and other compensation

     370,213       397,486  

Due to third party payors

     48,791       41,320  

Professional liability risks

     55,668       65,284  

Accrued lease termination fees

     109,113       5,224  

Other accrued liabilities

     264,957       264,512  

Long-term debt due within one year

     18,247       27,977  
  

 

 

   

 

 

 
     1,043,342       1,005,728  

Long-term debt

     3,302,936       3,215,062  

Professional liability risks

     315,322       295,311  

Deferred tax liabilities

     182,065       201,808  

Deferred credits and other liabilities

     497,436       353,294  

Equity:

    

Stockholders’ equity:

    

Common stock, $0.25 par value; authorized 175,000 shares; issued 86,980 shares - September 30, 2017 and 85,166 shares - December 31, 2016

     21,745       21,291  

Capital in excess of par value

     1,710,480       1,710,231  

Accumulated other comprehensive income

     2,929       1,573  

Accumulated deficit

     (1,431,196     (920,544
  

 

 

   

 

 

 
     303,958       812,551  

Noncontrolling interests

     226,692       228,970  
  

 

 

   

 

 

 

Total equity

     530,650       1,041,521  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 5,871,751     $ 6,112,724  
  

 

 

   

 

 

 


Kindred Healthcare Reports Third Quarter 2017 Results

Page 9

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
     2017     2016     2017     2016  

Cash flows from operating activities:

        

Net loss

   $ (81,664   $ (671,307   $ (465,821   $ (608,476

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

        

Depreciation expense

     22,696       34,914       79,001       103,306  

Amortization of intangible assets

     2,889       5,468       11,909       18,251  

Amortization of stock-based compensation costs

     5,329       3,015       13,316       13,058  

Amortization of deferred financing costs

     4,363       3,987       12,847       11,262  

Payment of capitalized lender fees related to debt amendment

     —         (42     (5,403     (7,375

Provision for doubtful accounts

     10,327       10,009       57,511       30,955  

Deferred income taxes

     (3,788     279,172       (19,608     308,470  

Impairment charges

     —         324,289       137,572       338,208  

(Gain) loss on divestiture of discontinued operations

     49,663       —         349,868       (179

Other

     9,299       6,303       16,111       7,262  

Change in operating assets and liabilities:

        

Accounts receivable

     (3,976     (42,832     (103,199     (143,953

Inventories and other assets

     (6,999     11,871       (9,517     (3,522

Accounts payable

     (3,903     11,995       (26,213     24,451  

Income taxes

     2,369       1,615       6,718       2,468  

Due to third party payors

     20,614       24,809       7,471       20,317  

Other accrued liabilities

     (18,738     33,101       (54,051     (73,268
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     8,481       36,367       8,512       41,235  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Routine capital expenditures

     (16,463     (21,873     (45,800     (68,703

Development capital expenditures

     (6,415     (8,386     (17,711     (27,112

Acquisitions, net of cash acquired

     —         (49,329     (6,650     (77,040

Acquisition deposits

     —         —         —         18,489  

Sale of assets

     5,494       3,739       5,494       4,962  

Purchase of insurance subsidiary investments

     (18,047     (22,427     (108,655     (75,422

Sale of insurance subsidiary investments

     50,087       31,875       117,863       78,478  

Net change in insurance subsidiary cash and cash equivalents

     (10,053     (14,680     23,472       8,479  

Net change in other investments

     5,088       51       4,844       (33,347

Other

     (81     (150     (35     (1,277
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     9,610       (81,180     (27,178     (172,493
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from borrowings under revolving credit

     426,700       489,200       1,214,300       1,267,200  

Repayment of borrowings under revolving credit

     (427,300     (388,100     (1,120,600     (1,215,800

Proceeds from issuance of term loan, net of discount

     —         —         —         198,100  

Proceeds from other long-term debt

     —         —         —         750  

Repayment of term loan

     (3,508     (3,508     (10,525     (10,019

Repayment of other long-term debt

     (217     (276     (840     (826

Payment of deferred financing costs

     (170     (50     (299     (342

Issuance of common stock in connection with employee benefit plans

     —         —         32       —    

Payment of dividend for mandatory redeemable preferred stock

     (3,120     (2,904     (9,195     (8,558

Dividends paid

     —         (10,224     (10,228     (30,517

Contributions made by noncontrolling interests

     —         4,993       113       11,261  

Distributions to noncontrolling interests

     (10,071     (4,694     (48,372     (35,240

Purchase of noncontrolling interests

     —         —         —         (1,000

Payroll tax payments for equity awards issuance

     (88     (250     (2,417     (3,079
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (17,774     84,187       11,969       171,930  
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

     317       39,374       (6,697     40,672  

Cash and cash equivalents at beginning of period

     130,047       100,056       137,061       98,758  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 130,364     $ 139,430     $ 130,364     $ 139,430  
  

 

 

   

 

 

   

 

 

   

 

 

 


Kindred Healthcare Reports Third Quarter 2017 Results

Page 10

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data

(Unaudited)

(In thousands, except per share amounts)

 

                                               Third quarter  
     2016 Quarters     2017 Quarters     % change v.  
     First     Second     Third     Fourth     First     Second     Third     prior year  

Condensed consolidated statement of operations data:

 

             

GAAP presentation:

                

Revenues

   $ 1,603,272     $ 1,608,265     $ 1,563,276     $ 1,514,365     $ 1,538,682     $ 1,535,018     $ 1,477,141       (5.5

Operating expenses

     1,403,467       1,390,562       1,760,982       1,353,386       1,364,751       1,498,396       1,338,547       (24.0

Building rent

     65,985       67,025       66,946       64,350       64,656       64,861       64,422       (3.8

Equipment rent

     10,158       11,211       9,911       8,649       8,887       8,861       8,537       (13.9

Depreciation and amortization

     33,554       33,198       32,995       32,072       29,820       25,651       24,808       (24.8

Interest, net

     57,253       57,567       58,059       58,625       58,819       58,573       60,441       4.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) from continuing operations before income taxes

     32,855       48,702       (365,617     (2,717     11,749       (121,324     (19,614     (94.6

Provision (benefit) for income taxes

     11,462       19,014       283,630       156       2,234       (16,116     (1,225     (100.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) from continuing operations

     21,393       29,688       (649,247     (2,873     9,515       (105,208     (18,389     (97.2

Noncontrolling interests

     (7,851     (8,847     (9,574     (8,575     (10,483     (10,791     (10,960     14.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss) attributable to Kindred

   $ 13,542     $ 20,841     $ (658,821   $ (11,448   $ (968   $ (115,999   $ (29,349     (95.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Diluted EPS

   $ 0.15     $ 0.23     $ (7.58   $ (0.13   $ (0.01   $ (1.33   $ (0.33     (95.6

Diluted shares

     87,249       87,500       86,869       86,904       87,085       87,506       87,597       0.8  

Core presentation (a):

                

EBITDAR

   $ 211,898     $ 231,064     $ 185,571     $ 180,429     $ 184,411     $ 201,002     $ 156,851       (15.5

Building rent

     65,985       67,025       66,674       64,350       64,656       64,861       64,422       (3.4

Equipment rent

     10,158       11,211       9,911       8,649       8,887       8,861       8,537       (13.9

EBITDA

     135,755       152,828       108,986       107,430       110,868       127,280       83,892       (23.0

Provision (benefit) for income taxes

     15,728       20,898       3,953       1,946       9,089       13,013       (2,329     n/m  

Noncontrolling interests

     (7,851     (9,863     (9,862     (8,575     (10,483     (11,111     (10,960     11.1  

Net income (loss) attributable to Kindred

     21,369       31,302       4,117       6,212       2,657       18,932       (9,988     n/m  

Core diluted EPS

   $ 0.24     $ 0.35     $ 0.05     $ 0.07     $ 0.03     $ 0.21     $ (0.11     n/m  

Diluted shares

     87,249       87,500       87,529       87,641       87,744       88,165       87,597       0.1  

Revenues by segment:

                

Kindred at Home:

                

Home health

   $ 430,035     $ 438,556     $ 449,958     $ 444,073     $ 450,831     $ 459,176     $ 453,684       0.8  

Hospice

     176,426       185,641       188,575       186,161       179,378       185,281       188,414       (0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
     606,461       624,197       638,533       630,234       630,209       644,457       642,098       0.6  

Hospital division

     654,098       645,406       588,943       545,864       556,646       540,809       503,138       (14.6

Kindred Rehabilitation Services:

                

Kindred Hospital Rehabilitation Services

     167,045       171,095       170,308       171,352       178,115       178,439       173,638       2.0  

RehabCare

     201,081       193,060       189,972       189,332       197,318       193,902       179,095       (5.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
     368,126       364,155       360,280       360,684       375,433       372,341       352,733       (2.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
     1,628,685       1,633,758       1,587,756       1,536,782       1,562,288       1,557,607       1,497,969       (5.7

Eliminations

     (25,413     (25,493     (24,480     (22,417     (23,606     (22,589     (20,828     (14.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
   $ 1,603,272     $ 1,608,265     $ 1,563,276     $ 1,514,365     $ 1,538,682     $ 1,535,018     $ 1,477,141       (5.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

(a) See reconciliation of GAAP results to non-GAAP results beginning on page 15. During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

n/m = not meaningful.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 11

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated abd Business Segment Data (Continued)

(Unaudited)

(In thousands, except statistics

 

                                               Third quarter  
     2016 Quarters     2017 Quarters     % change v.  
     First     Second     Third     Fourth     First     Second     Third     prior year  

Segment adjusted operating income (loss):

                

Kindred at Home:

                

Home health

   $ 66,941     $ 76,030     $ 75,073     $ 61,487     $ 63,750     $ 76,592     $ 66,431       (11.5

Hospice

     24,866       31,329       31,326       28,805       27,581       32,784       34,761       11.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
     91,807       107,359       106,399       90,292       91,331       109,376       101,192       (4.9

Hospital division

     136,416       127,510       83,940       93,778       93,438       91,580       61,455       (26.8

Kindred Rehabilitation Services:

                

Kindred Hospital Rehabilitation Services

     48,119       50,729       49,759       49,728       51,760       53,422       49,151       (1.2

RehabCare

     8,820       10,254       6,740       3,421       7,896       (14,305     7,619       13.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
     56,939       60,983       56,499       53,149       59,656       39,117       56,770       0.5  

Core EBITDAR by segment (a):

                

Kindred at Home:

                

Home health

   $ 65,803     $ 75,859     $ 75,073     $ 61,185     $ 63,750     $ 75,797     $ 66,431       (11.5

Hospice

     24,866       31,329       31,326       27,668       27,581       32,784       34,761       11.0  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
     90,669       107,188       106,399       88,853       91,331       108,581       101,192       (4.9

Hospital division

     136,416       127,510       83,940       93,148       93,438       90,572       61,455       (26.8

Kindred Rehabilitation Services:

                

Kindred Hospital Rehabilitation Services

     48,119       50,729       49,759       49,728       51,760       53,422       49,151       (1.2

RehabCare

     8,820       10,254       6,740       3,421       7,896       10,999       5,376       (20.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
     56,939       60,983       56,499       53,149       59,656       64,421       54,527       (3.5

Support center expenses

     (71,159     (64,265     (59,535     (54,334     (60,014     (62,572     (60,323     1.3  

Litigation contingency expense

     (885     (180     —         —         —         —         —      

Transaction costs

     (82     (172     (1,732     (387     —         —         —      
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
   $ 211,898     $ 231,064     $ 185,571     $ 180,429     $ 184,411     $ 201,002     $ 156,851       (15.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Segment adjusted operating income (loss) margin:

 

             

Kindred at Home:

                

Home health

     15.6       17.3       16.7       13.8       14.1       16.7       14.6       (2.1

Hospice

     14.1       16.9       16.6       15.5       15.4       17.7       18.4       1.8  

Kindred at Home

     15.1       17.2       16.7       14.3       14.5       17.0       15.8       (0.9

Hospital division

     20.9       19.8       14.3       17.2       16.8       16.9       12.2       (2.1

Kindred Rehabilitation Services:

                

Kindred Hospital Rehabilitation Services

     28.8       29.6       29.2       29.0       29.1       29.9       28.3       (0.9

RehabCare

     4.4       5.3       3.5       1.8       4.0       (7.4     4.3       0.8  

Kindred Rehabilitation Services

     15.5       16.7       15.7       14.7       15.9       10.5       16.1       0.4  

Core EBITDAR margin by segment (a):

                

Kindred at Home:

                

Home health

     15.3       17.3       16.7       13.8       14.1       16.5       14.6       (2.1

Hospice

     14.1       16.9       16.6       14.9       15.4       17.7       18.4       1.8  

Kindred at Home

     15.0       17.2       16.7       14.1       14.5       16.8       15.8       (0.9

Hospital division

     20.9       19.8       14.3       17.1       16.8       16.7       12.2       (2.1

Kindred Rehabilitation Services:

                

Kindred Hospital Rehabilitation Services

     28.8       29.6       29.2       29.0       29.1       29.9       28.3       (0.9

RehabCare

     4.4       5.3       3.5       1.8       4.0       5.7       3.0       (0.5

Kindred Rehabilitation Services

     15.5       16.7       15.7       14.7       15.9       17.3       15.5       (0.2

Consolidated

     13.2       14.4       11.9       11.9       12.0       13.1       10.6       (1.3

 

(a) See reconciliation of GAAP results to non-GAAP results beginning on page 15. During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 12

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)

 

                                                      Third quarter  
     2016 Quarters      2017 Quarters      % change v.  
     First      Second      Third      Fourth      First      Second      Third      prior year  

Kindred at Home:

                       

Home Health:

                       

Sites of service (at end of period)

     384        384        395        390        379        377        376     

Revenue mix %:

                       

Medicare

     79.8        79.3        78.1        77.9        76.7        75.7        74.0     

Medicaid

     2.1        2.1        2.5        1.9        1.7        1.7        1.7     

Commercial and other

     8.4        8.2        8.6        10.6        11.5        11.4        12.7     

Commercial paid at episodic rates

     9.7        10.4        10.8        9.6        10.1        11.2        11.6     

Episodic revenues ($ 000s)

   $ 325,821      $ 332,193      $ 332,562      $ 323,398      $ 326,881      $ 334,420      $ 320,279        (3.7

Total admissions

     88,696        87,084        86,761        87,148        94,510        89,018        87,156        0.5  

Same-store total admissions

     87,394        85,922        85,511        86,056        93,922        88,300        86,312        0.9  

Total episodic admissions

     71,426        70,212        69,219        67,501        73,270        69,657        67,790        (2.1

Same-store total episodic admissions

     70,416        69,317        68,285        66,784        72,911        69,207        67,191        (1.6

Medicare episodic admissions

     62,011        60,730        59,823        59,540        62,404        58,575        56,772        (5.1

Total episodes

     113,887        113,278        113,256        111,164        114,964        113,579        111,488        (1.6

Episodes per admission

     1.59        1.61        1.64        1.65        1.57        1.63        1.64        —    

Revenue per episode

   $ 2,861      $ 2,933      $ 2,936      $ 2,909      $ 2,843      $ 2,944      $ 2,873        (2.1

Hospice:

                       

Sites of service (at end of period)

     177        177        185        183        180        177        178     

Admissions

     13,234        13,149        12,916        12,660        13,649        12,561        12,236        (5.3

Same-store admissions

     12,761        12,743        12,541        12,362        13,332        12,363        11,997        (4.3

Average length of stay

     92        91        98        100        96        94        97        (1.0

Patient days

     1,183,908        1,238,584        1,277,125        1,246,152        1,193,061        1,215,619        1,239,094        (3.0

Average daily census

     13,010        13,611        13,882        13,545        13,256        13,358        13,468        (3.0

Revenue per patient day

   $ 149      $ 150      $ 148      $ 149      $ 150      $ 152      $ 152        2.7  

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

   $ 66,305      $ 68,229      $ 75,978      $ 74,875      $ 74,095      $ 74,222      $ 79,720        4.9  

Kindred Rehabilitation Services:

                       

Kindred Hospital Rehabilitation Services:

                       

Freestanding IRFs:

                       

End of period data:

                       

Number of IRFs

     19        19        19        19        19        19        19     

Number of licensed beds

     969        969        969        995        995        995        995     

Discharges (a)

     4,448        4,646        4,644        4,671        4,775        4,766        4,755        2.4  

Same-hospital discharges (a)

     4,295        4,535        4,546        4,538        4,393        4,517        4,477        (1.5

Occupancy % (a)

     70.6        70.6        68.8        66.5        71.4        70.0        68.8        —    

Average length of stay (a)

     13.2        12.9        12.7        12.6        12.8        12.8        12.7        —    

Revenue per discharge (a)

   $ 19,731      $ 19,318      $ 19,599      $ 19,486      $ 20,097      $ 20,620      $ 20,329        3.7  

Contract services:

                       

Sites of service (at end of period):

                       

Inpatient rehabilitation units

     104        105        104        102        101        102        101     

LTAC hospitals

     119        121        120        119        119        116        110     

Sub-acute units

     7        7        7        5        7        6        6     

Outpatient units

     139        138        139        132        129        121        123     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    
     369        371        370        358        356        345        340     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Revenue per site

   $ 211,417      $ 215,798      $ 210,810      $ 220,733      $ 227,100      $ 228,534      $ 222,504        5.5  

RehabCare:

                       

Sites of service (at end of period)

     1,767        1,759        1,754        1,718        1,703        1,734        1,624     

Revenue per site

   $ 113,798      $ 109,756      $ 108,308      $ 110,204      $ 115,865      $ 111,823      $ 110,281        1.8  

 

(a) Excludes non-consolidating IRF.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 13

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Data (Continued)

(Unaudited)

 

                                                  Third quarter  
     2016 Quarters     2017 Quarters     % change v.  
     First      Second      Third      Fourth     First     Second     Third     prior year  

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

                   

End of period data:

                   

Number of transitional care hospitals

     95        97        94        82       82       81       77    

Number of licensed beds

     7,089        7,067        6,890        6,107       6,107       6,041       5,797    

Revenues (000s)

   $ 643,299      $ 633,695      $ 575,323      $ 530,746     $ 540,280     $ 525,458     $ 487,012       (15.3

Revenue mix %:

                   

Medicare

     57.8        55.5        54.6        53.5       52.8       50.3       50.6    

Medicaid

     4.2        4.2        4.0        4.5       3.9       5.0       4.3    

Medicare Advantage

     11.5        12.0        12.1        11.0       12.2       12.3       12.3    

Medicaid Managed

     5.6        6.3        7.3        8.0       9.1       9.1       10.1    

Commercial insurance and other

     20.9        22.0        22.0        23.0       22.0       23.3       22.7    

Patient criteria data:

                   

Revenues:

                   

Compliant patients

              88.5     86.0     88.3     89.1  

Site neutral

              11.5     14.0     11.7     10.9  

Revenues per patient day:

                   

Compliant patients

            $ 1,853     $ 1,816     $ 1,806     $ 1,799    

Site neutral

              926       1,041       1,053       1,067    

Total

              1,662       1,645       1,667       1,674    

Admissions:

                   

Medicare

     8,919        8,253        7,861        7,351       7,529       6,743       6,073       (22.7

Medicaid

     463        386        375        336       354       381       362       (3.5

Medicare Advantage

     1,453        1,382        1,327        1,210       1,354       1,239       1,197       (9.8

Medicaid Managed

     733        768        861        787       851       903       861       —    

Commercial insurance and other

     1,871        1,807        1,727        1,488       1,614       1,608       1,483       (14.1
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   
     13,439        12,596        12,151        11,172       11,702       10,874       9,976       (17.9
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

Patient days:

                   

Medicare

     229,004        219,013        202,482        186,290       187,738       173,916       158,083       (21.9

Medicaid

     21,134        19,409        16,781        12,181       13,334       13,333       13,429       (20.0

Medicare Advantage

     45,760        47,697        43,241        37,526       41,020       40,555       38,338       (11.3

Medicaid Managed

     25,341        27,267        28,534        29,275       32,713       32,635       31,249       9.5  

Commercial insurance and other

     62,769        63,009        59,856        54,148       53,695       54,809       49,895       (16.6
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   
     384,008        376,395        350,894        319,420       328,500       315,248       290,994       (17.1
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

Average length of stay:

                   

Medicare

     25.7        26.5        25.8        25.3       24.9       25.8       26.0       0.8  

Medicaid

     45.6        50.3        44.7        36.3       37.7       35.0       37.1       (17.0

Medicare Advantage

     31.5        34.5        32.6        31.0       30.3       32.7       32.0       (1.8

Medicaid Managed

     34.6        35.5        33.1        37.2       38.4       36.1       36.3       9.7  

Commercial insurance and other

     33.5        34.9        34.7        36.4       33.3       34.1       33.6       (3.2

Weighted average

     28.6        29.9        28.9        28.6       28.1       29.0       29.2       1.0  

Revenues per admission:

                   

Medicare

   $ 41,717      $ 42,579      $ 39,945      $ 38,602     $ 37,867     $ 39,219     $ 40,577       1.6  

Medicaid

     57,928        69,797        61,338        70,333       60,091       69,304       57,365       (6.5

Medicare Advantage

     51,080        55,105        52,363        48,387       48,555       51,958       50,301       (3.9

Medicaid Managed

     49,287        51,696        48,631        54,238       57,736       53,159       57,172       17.6  

Commercial insurance and other

     71,651        77,193        73,515        82,066       73,750       76,007       74,435       1.3  

Weighted average

     47,868        50,309        47,348        47,507       46,170       48,322       48,818       3.1  

Revenues per patient day:

                   

Medicare

   $ 1,625      $ 1,605      $ 1,551      $ 1,523     $ 1,519     $ 1,521     $ 1,559       0.5  

Medicaid

     1,269        1,388        1,371        1,940       1,595       1,980       1,546       12.8  

Medicare Advantage

     1,622        1,597        1,607        1,560       1,603       1,587       1,571       (2.2

Medicaid Managed

     1,426        1,456        1,467        1,458       1,502       1,471       1,575       7.4  

Commercial insurance and other

     2,136        2,214        2,121        2,255       2,217       2,230       2,212       4.3  

Weighted average

     1,675        1,684        1,640        1,662       1,645       1,667       1,674       2.1  

Medicare case mix index (discharged patients only)

     1.163        1.179        1.172        1.153       1.172       1.171       1.180       0.7  

Average daily census

     4,220        4,136        3,814        3,472       3,650       3,464       3,163       (17.1

Occupancy %

     68.0        67.5        61.6        64.1       67.6       64.3       59.9       (2.8


Kindred Healthcare Reports Third Quarter 2017 Results

Page 14

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

 

                                              Third quarter  
    2016 Quarters     2017 Quarters     % change v.  
    First     Second     Third     Fourth     First     Second     Third     prior year  

Same-hospital data (a):

               

End of period data:

               

Number of transitional care hospitals

    74       74       77       77       74       74       77    

Number of licensed beds

    5,680       5,680       5,797       5,797       5,680       5,680       5,797    

Revenues (000s)

  $ 545,731     $ 540,907     $ 502,208     $ 514,762     $ 515,148     $ 502,007     $ 482,149       (4.0

Revenue mix %:

               

Medicare

    58.0       55.2       53.9       53.1       52.0       50.2       50.6    

Medicaid

    3.8       3.9       3.6       4.5       4.2       5.2       4.3    

Medicare Advantage

    11.2       11.7       12.3       11.0       12.1       11.9       12.4    

Medicaid Managed

    5.9       6.8       7.9       8.3       9.4       9.4       10.1    

Commercial insurance and other

    21.1       22.4       22.3       23.1       22.3       23.3       22.6    

Patient criteria data:

               

Revenues:

               

Compliant patients

          88.7     86.0     88.5     89.1  

Site neutral

          11.3     14.0     11.5     10.9  

Revenues per patient day:

               

Compliant patients

        $ 1,860     $ 1,827     $ 1,811     $ 1,799    

Site neutral

          924       1,049       1,060       1,067    

Total

          1,669       1,656       1,674       1,673    

Admissions:

               

Medicare

    7,524       6,946       6,758       7,023       7,045       6,408       6,018       (10.9

Medicaid

    391       334       333       328       351       377       361       8.4  

Medicare Advantage

    1,178       1,101       1,140       1,160       1,274       1,150       1,190       4.4  

Medicaid Managed

    629       694       783       784       830       865       851       8.7  

Commercial insurance and other

    1,500       1,467       1,415       1,416       1,507       1,507       1,468       3.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    11,222       10,542       10,429       10,711       11,007       10,307       9,888       (5.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Patient days:

               

Medicare

    193,263       184,241       173,863       178,719       175,712       165,065       156,412       (10.0

Medicaid

    14,382       13,304       11,631       11,923       13,580       13,180       13,433       15.5  

Medicare Advantage

    37,161       39,474       38,245       36,329       38,640       37,685       38,098       (0.4

Medicaid Managed

    22,332       24,736       26,552       29,216       32,097       31,858       30,816       16.1  

Commercial insurance and other

    51,709       52,030       51,043       52,162       51,097       52,033       49,402       (3.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    318,847       313,785       301,334       308,349       311,126       299,821       288,161       (4.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Average length of stay:

               

Medicare

    25.7       26.5       25.7       25.4       24.9       25.8       26.0       1.2  

Medicaid

    36.8       39.8       34.9       36.4       38.7       35.0       37.2       6.6  

Medicare Advantage

    31.5       35.9       33.5       31.3       30.3       32.8       32.0       (4.5

Medicaid Managed

    35.5       35.6       33.9       37.3       38.7       36.8       36.2       6.8  

Commercial insurance and other

    34.5       35.5       36.1       36.8       33.9       34.5       33.7       (6.6

Weighted average

    28.4       29.8       28.9       28.8       28.3       29.1       29.1       0.7  

Revenues per admission:

               

Medicare

  $ 42,061     $ 43,021     $ 40,020     $ 38,946     $ 38,018     $ 39,353     $ 40,513       1.2  

Medicaid

    52,717       63,223       54,880       70,959       61,618       68,915       57,689       5.1  

Medicare Advantage

    51,952       57,600       54,398       48,889       48,906       52,111       50,241       (7.6

Medicaid Managed

    51,560       52,725       50,360       54,345       58,187       54,199       57,158       13.5  

Commercial insurance and other

    76,679       82,451       79,176       83,792       76,366       77,666       74,312       (6.1

Weighted average

    48,630       51,310       48,155       48,059       46,802       48,705       48,761       1.3  

Revenues per patient day:

               

Medicare

  $ 1,638     $ 1,622     $ 1,556     $ 1,530     $ 1,524     $ 1,528     $ 1,559       0.2  

Medicaid

    1,433       1,587       1,571       1,952       1,593       1,971       1,550       (1.3

Medicare Advantage

    1,647       1,607       1,621       1,561       1,612       1,590       1,569       (3.2

Medicaid Managed

    1,452       1,479       1,485       1,458       1,505       1,472       1,578       6.3  

Commercial insurance and other

    2,224       2,325       2,195       2,275       2,252       2,249       2,208       0.6  

Weighted average

    1,712       1,724       1,667       1,669       1,656       1,674       1,673       0.4  

Average daily census

    3,504       3,448       3,275       3,352       3,457       3,295       3,132       (4.4

 

(a) All historical statistics have been adjusted to present the ongoing hospital division portfolio excluding three hospitals acquired during the second quarter of 2016. See reconciliation of same-hospital revenues to reported hospital revenues on page 19.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 15

November 6, 2017

 

 

Forward-Looking Statements

This earnings release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, all statements regarding the Company’s ability to exit the skilled nursing facility business and the expected timing of such exit, including the receipt of all required regulatory approvals and the satisfaction of the closing conditions for the transaction, as well as the Company’s ability to realize the anticipated benefits, sale proceeds, cost savings and strategic gains from this transaction, 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, government investigations, regulatory matters, and statements containing words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “hope,” “may,” “potential,” “upside,” and other similar expressions. Statements in this earnings 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, and expected outcome of government investigations and other regulatory matters, 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. 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 detailed from time to time in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC.

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

Non-GAAP Measures

In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release using certain non-GAAP measures. The use of these non-GAAP measures is not intended to replace the presentation of the Company’s financial results in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the following pages of this earnings release.

During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. As revised, the Company’s core non-GAAP measures, including core net income (loss) attributable to Kindred, core EBITDAR, core EBITDA, core diluted EPS, core operating cash flows and core free cash flows, no longer exclude (1) transaction, integration, research and development, and litigation contingency expenses that are not individually material, (2) non-restructuring related facility closing charges, and (3) non-executive or non-restructuring related severance, retirement and retention costs. For comparability, “core” results for 2016 were revised to conform to the current year presentation.

EBITDAR: The Company defines EBITDAR as earnings before interest, income taxes, depreciation, amortization and total rent, and believes that the presentation of EBITDAR is useful to investors because creditors, securities analysts and investors use EBITDAR to compare the performance of companies in the healthcare industry before consideration of the capital structure of fixed assets and financing costs, which can vary significantly among companies.

For each of the Company’s segments, Segment adjusted operating income (loss) is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 – Segment Reporting.” In this context, the Company defines Segment adjusted operating income (loss) as EBITDAR for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.

EBITDA: The Company defines EBITDA as earnings before interest, income taxes, depreciation, and amortization, and believes that the presentation of EBITDA is useful to investors because creditors, securities analysts and investors use EBITDA to compare the performance and valuation of companies in the healthcare industry before consideration of non-cash depreciation and amortization expense, and financing costs, which can vary significantly among companies.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 16

November 6, 2017

 

 

Non-GAAP Measures (Continued)

 

Core Operating Results: The Company calculates core operating results, including core net income (loss) attributable to Kindred, core EBITDAR, core EBITDA, and core diluted EPS, by excluding charges related to impairments, business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, deferred tax asset valuation allowance, and material transaction, integration, litigation, and research and development costs. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company’s management uses core net income (loss) attributable to Kindred, core EBITDAR, core EBITDA, and core diluted EPS as measures of operational performance that are meaningful to investors, and for the measurement of internal incentive compensation goals, in addition to other measures. The Company uses these measures to assess the relative performance and attainment of internal incentive compensation goals of its operating divisions, as well as the employees that operate these businesses. In addition, the Company believes these measures are important, because securities analysts and investors use these measures to compare the Company’s performance to other companies in the healthcare industry.

Same-Hospital Revenues: The same-hospital revenues are calculated by excluding from the Company’s Hospital Division revenues the results from four hospitals that closed during the third quarter of 2017, one hospital that closed during the second quarter of 2017, three hospitals acquired in 2016, 15 hospitals sold in 2016, and three hospitals that closed during 2016. The Company believes the presentation of same-hospital revenues provides investors, equity analysts and others with useful information regarding the performance of the Company’s hospital operations that are comparable for the periods presented.

For EBITDAR, core net income (loss) attributable to Kindred, core EBITDAR, and core EBITDA, the Company believes that income (loss) from continuing operations is the most comparable GAAP measure. For core diluted EPS, the Company believes that GAAP diluted earnings (loss) per share from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations and diluted earnings (loss) per share from continuing operations as important measures of the Company’s financial performance, because they provide the most complete measures of its performance. For same-hospital revenues, the Company believes that reported hospital segment revenues is the most comparable GAAP measure. Readers of the Company’s financial information should consider reported hospital segment revenues as an important measure of the Company’s Hospital Division financial performance because it provides the most complete measure of its revenue performance. Operating results presented on a core basis, as well as a same-hospital basis, should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance.

Also in this earnings release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items, which the Company refers to as core operating cash flows and core free cash flows, respectively.

Core Operating Cash Flows: The Company defines core operating cash flows as operating cash flows excluding payments related to business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, net of income tax benefits. The Company believes that core operating cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core operating cash flows to evaluate consolidated operating performance and in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.

Core Free Cash Flows: The Company defines core free cash flows as operating cash flows excluding payments related to business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, net of income tax benefits but including routine capital expenditures and distributions to noncontrolling interests. The Company believes that core free cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core free cash flows in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.

The Company recognizes that core operating cash flows and core free cash flows are non-GAAP measures and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. For core operating cash flows and core free cash flows, the Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by operating activities as an important measure because it provides the most complete measure of cash provided by operating activities. Core operating cash flows and core free cash flows should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of the Company’s cash flows provided by operating activities.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 17

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of GAAP Results to Non-GAAP Measures

(Unaudited)

(In thousands, except per share amounts and statistics)

In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures for the three months ended September 30, 2017 and 2016, and for the nine months ended September 30, 2017 and 2016, before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.

The income tax benefit associated with the excluded charges, including the deferred tax valuation allowance for the three months and nine months ended September 30, 2017, was calculated using an effective income tax rate of 6.0% and 72.9% for the three months ended September 30, 2017 and 2016, respectively, and 18.1% and 66.9% for the nine months ended September 30, 2017 and 2016, respectively. The difference in the effective income tax rate compared to the same prior year period is primarily attributable to the change in the amount of deferred tax valuation allowance and, for 2016, the composition of charges that are non-deductible for income tax purposes, including the impairment charges.

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2017     2016     2017     2016  

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

       

As reported:

       

Loss from continuing operations attributable to Kindred

  ($ 29,349   ($ 658,821   ($ 146,316   ($ 624,438

Diluted loss per common share from continuing operations

  ($ 0.33   ($ 7.58   ($ 1.67   ($ 7.20

Weighted average diluted shares outstanding

    87,597       86,869       87,398       86,766  

Detail of charges:

       

Restructuring charges:

       

Facility/branch divestitures and closings

  ($ 8,723   ($ 20,212   ($ 16,925   ($ 19,794

Retention and severance costs

    (5,652     (2,109     (8,667     (3,479

Transaction costs

    —         (492     —         (1,577
 

 

 

   

 

 

   

 

 

   

 

 

 
    (14,375     (22,813     (25,592     (24,850

Lease termination costs (charged to rent restructuring charges)

    (2,125     (58,650     (5,964     (59,363

Impairment charges

    —         (297,276     (136,303     (311,195

RehabCare collection litigation

    2,243       —         (23,061     —    

Research and development

    —         (3,288     —         (7,227

Litigation contingency expense

    (4,000     —         (4,000     (1,775

Business interruption settlements

    —         —         1,803       1,309  

Debt amendment fees not capitalized

    —         —         —         (1,103

Gentiva transaction costs:

       

Professional and consulting fees

    —         (1,464     —         (3,831

Severance and retention

    —         214       —         (696

Lease termination (charged to building rent expense)

    —         (272     —         (272
 

 

 

   

 

 

   

 

 

   

 

 

 
    (18,257     (383,549     (193,117     (409,003

Income tax benefit

    6,303       86,793       75,111       92,943  

Deferred tax valuation allowance

    (7,407     (366,470     (40,231     (366,470
 

 

 

   

 

 

   

 

 

   

 

 

 

Charges net of income taxes

    (19,361     (663,226     (158,237     (682,530

Noncontrolling interests

    —         288       320       1,304  
 

 

 

   

 

 

   

 

 

   

 

 

 
    (19,361     (662,938     (157,917     (681,226

Allocation to participating unvested restricted stockholders

    —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

 

Available to common stockholders

  ($ 19,361   ($ 662,938   ($ 157,917   ($ 681,226
 

 

 

   

 

 

   

 

 

   

 

 

 

Diluted loss per common share related to charges

  ($ 0.22   ($ 7.63   ($ 1.81   ($ 7.85

Weighted average diluted shares outstanding

    87,597       86,869       87,398       86,766  

Core:

       

Income (loss) from continuing operations attributable to Kindred before charges

  ($ 9,988   $ 4,117     $ 11,601     $ 56,788  

Diluted earnings (loss) per common share from continuing operations before charges (a)

  ($ 0.11   $ 0.05     $ 0.13     $ 0.64  

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

    87,597       87,529       88,057       87,426  

Reconciliation of effective income tax rate before charges:

       

Effective income tax rate before charges

    171.6     22.0     30.9     32.5

Impact of charges on effective income tax rate

    -165.4     55.6     -19.2     78.1
 

 

 

   

 

 

   

 

 

   

 

 

 

Reported effective income tax rate

    6.2     77.6     11.7     110.6
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) For purposes of computing diluted earnings (loss) per common share before charges, income (loss) from continuing operations before charges was reduced by $0.1 million for the three months ended September 30, 2016, and by $0.3 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively, for the allocation of income to participating unvested restricted stockholders.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 18

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of GAAP Result to Non-GAAP Measures (Continued)

(Unaudited)

(In thousands)

 

In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures for the quarters of 2016 and 2017, before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the table below.

 

    2016 Quarters     2017 Quarters  
    First     Second     Third     Fourth     First     Second     Third  

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

             

As reported:

             

Income (loss) from continuing operations attributable to Kindred

  $ 13,542     $ 20,841     ($ 658,821   ($ 11,448   ($ 968   ($ 115,999   ($ 29,349

Depreciation and amortization

    33,554       33,198       32,995       32,072       29,820       25,651       24,808  

Interest, net

    57,253       57,567       58,059       58,625       58,819       58,573       60,441  

Provision (benefit) for income taxes

    11,462       19,014       283,630       156       2,234       (16,116     (1,225

Noncontrolling interest

    7,851       8,847       9,574       8,575       10,483       10,791       10,960  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    123,662       139,467       (274,563     87,980       100,388       (37,100     65,635  

Building rent

    65,985       67,025       66,946       64,350       64,656       64,861       64,422  

Equipment rent

    10,158       11,211       9,911       8,649       8,887       8,861       8,537  

Restructuring charges - rent

    251       462       58,650       2,029       1,905       1,934       2,125  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDAR

    200,056       218,165       (139,056     163,008       175,836       38,556       140,719  

Detail of charges:

             

Restructuring charges:

             

Facility/branch divestitures and closings

    341       (759     20,212       3,745       5,360       2,842       8,723  

Retention and severance costs

    924       446       2,109       5,302       2,741       274       5,652  

Transaction costs

    436       649       492       837       —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,701       336       22,813       9,884       8,101       3,116       14,375  

Impairment charges

    7,788       6,131       297,276       3,534       474       135,829       —    

RehabCare collection litigation

    —         —         —         —         —         25,304       (2,243

Research and development

    863       3,076       3,288       4,293       —         —         —    

Litigation contingency expense

    1,025       750       —         —         —         —         4,000  

Business interruption settlements

    (1,138     (171     —         (2,069     —         (1,803     —    

Debt amendment fees not capitalized

    —         1,103       —         —         —         —         —    

Gentiva transaction costs:

             

Professional and consulting fees

    1,048       1,319       1,464       1,779       —         —         —    

Severance and retention

    555       355       (214     —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    11,842       12,899       324,627       17,421       8,575       162,446       16,132  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDAR

    211,898       231,064       185,571       180,429       184,411       201,002       156,851  

Less:

             

Building rent

    (65,985     (67,025     (66,946     (64,350     (64,656     (64,861     (64,422

Equipment rent

    (10,158     (11,211     (9,911     (8,649     (8,887     (8,861     (8,537

Lease termination (charged to building rent)

    —         —         272       —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDA

  $ 135,755     $ 152,828     $ 108,986     $ 107,430     $ 110,868     $ 127,280     $ 83,892  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


Kindred Healthcare Reports Third Quarter 2017 Results

Page 19

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of GAAP Result to Non-GAAP Measures (Continued)

(Unaudited)

(In thousands)

 

A reconciliation of revenues for home health for each historical period follows:

 

     2016 Quarters      2017 Quarters     

Third quarter

% change v.

 
     First      Second      Third      Fourth      First      Second      Third      prior year  

Home health

   $ 363,730      $ 370,327      $ 373,980      $ 369,198      $ 376,736      $ 384,954      $ 373,964        —    

Community care and other

     66,305        68,229        75,978        74,875        74,095        74,222        79,720        4.9  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Reported home health revenues

   $ 430,035      $ 438,556      $ 449,958      $ 444,073      $ 450,831      $ 459,176      $ 453,684        0.8  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

A reconciliation of revenues for the Hospital Division for each historical period follows:

 

            Third quarter  
     2016 Quarters      2017 Quarters      % change v.  
     First      Second      Third      Fourth      First      Second      Third      prior year  

Transitional care hospitals

   $ 643,299      $ 633,695      $ 575,323      $ 530,746      $ 540,280      $ 525,458      $ 487,012        (15.3

Sub-acute units and one skilled nursing facility

     10,799        11,711        13,620        15,118        16,366        15,351        16,126     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

Reported hospital division revenues

   $ 654,098      $ 645,406      $ 588,943      $ 545,864      $ 556,646      $ 540,809      $ 503,138        (14.6
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

A reconciliation of reported hospital revenues to same-hospital revenues for each historical period follows:

 

           Third quarter  
     2016 Quarters     2017 Quarters     % change v.  
     First     Second     Third     Fourth     First     Second     Third     prior year  

Transitional care hospitals

   $ 643,299     $ 633,695     $ 575,323     $ 530,746     $ 540,280     $ 525,458     $ 487,012       (15.3

Hospitals acquired during 2016 (a)

     —         (2,217     —         —         (9,724     (10,164     —      

Hospitals sold during 2016 (b)

     (71,941     (64,084     (47,098     732       449       (623     (168  

Hospitals closed during 2017 (c)

     (17,356     (17,623     (17,109     (16,533     (15,825     (13,221     (4,607  

Hospitals closed during 2016 (d)

     (8,271     (8,864     (8,908     (183     (32     557       (88  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Same-hospital revenues

   $ 545,731     $ 540,907     $ 502,208     $ 514,762     $ 515,148     $ 502,007     $ 482,149       (4.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

(a) Three hospitals acquired during the second quarter of 2016.
(b) Three hospitals sold during the second quarter of 2016 and 12 hospitals sold during the fourth quarter of 2016.
(c) One hospital closed during the second quarter of 2017 and four hospitals closed during the third quarter of 2017.
(d) Three hospitals closed during the third quarter of 2016.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 20

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of GAAP Result to Non-GAAP Measures (Continued)

(Unaudited)

(In thousands, except per share amounts)

 

 

     Three months ended September 30, 2017  
           Charges        
                               Deferred              
           RehabCare                   tax           Before  
     As     collection     Litigation      Restructuring      valuation           charges  
     reported     litigation     contingency      charges      allowance     Total     (“core”) (a)  

Income (loss) from continuing operations:

                

Segment adjusted operating income:

                

Kindred at Home:

                

Home health

   $ 66,431     $ —       $ —        $ —        $ —       $ —       $ 66,431  

Hospice

     34,761       —         —          —          —         —         34,761  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     101,192       —         —          —          —         —         101,192  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Hospital division

     61,455       —         —          —          —         —         61,455  

Kindred Rehabilitation Services:

                

Kindred Hospital Rehabilitation Services

     49,151       —         —          —          —         —         49,151  

RehabCare

     7,619       (2,243     —          —          —         (2,243     5,376  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     56,770       (2,243     —          —          —         (2,243     54,527  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Support center expenses

     (60,323     —         —          —          —         —         (60,323

Litigation contingency expense

     (4,000     —         4,000        —          —         4,000       —    

Restructuring charges

     (14,375     —         —          14,375        —         14,375       —    

Building rent

     (64,422     —         —          —          —         —         (64,422

Equipment rent

     (8,537     —         —          —          —         —         (8,537

Restructuring charges - rent

     (2,125     —         —          2,125        —         2,125       —    

Depreciation and amortization

     (24,808     —         —          —          —         —         (24,808

Interest, net

     (60,441     —         —          —          —         —         (60,441
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes

     (19,614     (2,243     4,000        16,500        —         18,257       (1,357

Income tax benefit

     (1,225     (883     1,574        5,612        (7,407     (1,104     (2,329
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     (18,389   $ (1,360   $ 2,426      $ 10,888      $ 7,407     $ 19,361       972  
    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

Noncontrolling interests

     (10,960                 (10,960
  

 

 

               

 

 

 

Loss attributable to Kindred

   $ (29,349               $ (9,988
  

 

 

               

 

 

 

Diluted loss per common share

   $ (0.33               $ (0.11

Diluted shares used in computing loss per common share

     87,597                   87,597  

 

     Three months ended September 30, 2016  
           Charges        
                               Gentiva      Deferred              
                               transaction      tax           Before  
     As     Impairment     Research and      Restructuring      and      valuation           charges  
     reported     charges     development      charges      integration      allowance     Total     (“core”) (a)  

Income (loss) from continuing operations:

                   

Segment adjusted operating income:

                   

Kindred at Home:

                   

Home health

   $ 75,073     $ —       $ —        $ —        $ —        $ —       $ —       $ 75,073  

Hospice

     31,326       —         —          —          —          —         —         31,326  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     106,399       —         —          —          —          —         —         106,399  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Hospital division

     83,940       —         —          —          —          —         —         83,940  

Kindred Rehabilitation Services:

                   

Kindred Hospital Rehabilitation Services

     49,759       —         —          —          —          —         —         49,759  

RehabCare

     6,740       —         —          —          —          —         —         6,740  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     56,499       —         —          —          —          —         —         56,499  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Support center expenses

     (62,823     —         3,288        —          —          —         3,288       (59,535

Impairment charges

     (297,276     297,276       —          —          —          —         297,276       —    

Restructuring charges

     (22,813     —         —          22,813        —          —         22,813       —    

Transaction costs

     (2,982     —         —          —          1,250        —         1,250       (1,732

Building rent

     (66,946     —         —          —          272        —         272       (66,674

Equipment rent

     (9,911     —         —          —          —          —         —         (9,911

Restructuring charges - rent

     (58,650     —         —          58,650        —          —         58,650       —    

Depreciation and amortization

     (32,995     —         —          —          —          —         —         (32,995

Interest, net

     (58,059     —         —          —          —          —         —         (58,059
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (365,617     297,276       3,288        81,463        1,522        —         383,549       17,932  

Provision for income taxes

     283,630       53,509       1,268        31,429        587        (366,470     (279,677     3,953  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     (649,247     243,767       2,020        50,034        935        366,470       663,226       13,979  

Noncontrolling interests

     (9,574     (288     —          —          —          —         (288     (9,862
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) attributable to Kindred

   $ (658,821   $ 243,479     $ 2,020      $ 50,034      $ 935      $ 366,470     $ 662,938     $ 4,117  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Diluted earnings (loss) per common share

   $ (7.58                  $ 0.05  

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

     86,869                      87,529  

 

(a) During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.


Kindred Healthcare Reports Third Quarter 2017 Results

Page 21

November 6, 2017

 

 

KINDRED HEALTHCARE, INC.

Reconciliation of GAAP Results to Non-GAAP Measures (Continued)

(Unaudited)

(In thousands, except per share amounts)

 

    Nine months ended September 30, 2017  
          Charges        
                                        Deferred              
          Business     RehabCare                       tax           Before  
    As     interruption     collection     Litigation     Impairment     Restructuring     valuation           charges  
    reported     settlements     litigation     contingency     charges     charges     allowance     Total     (“core”) (a)  

Income (loss) from continuing operations:

                 

Segment adjusted operating income (loss):

                 

Kindred at Home:

                 

Home health

  $ 206,773     $ (795   $ —       $ —       $ —       $ —       $ —       $ (795   $ 205,978  

Hospice

    95,126       —         —         —         —         —         —         —         95,126  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    301,899       (795     —         —         —         —         —         (795     301,104  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Hospital division

    246,473       (1,008     —         —         —         —         —         (1,008     245,465  

Kindred Rehabilitation Services:

                 

Kindred Hospital Rehabilitation Services

    154,333       —         —         —         —         —         —         —         154,333  

RehabCare

    1,210       —         23,061       —         —         —         —         23,061       24,271  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    155,543       —         23,061       —         —         —         —         23,061       178,604  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Support center expenses

    (182,909     —         —         —         —         —         —         —         (182,909

Litigation contingency expense

    (4,000         4,000             4,000       —    

Impairment charges

    (136,303     —         —         —         136,303       —         —         136,303       —    

Restructuring charges

    (25,592     —         —         —         —         25,592       —         25,592       —    

Building rent

    (193,939     —         —         —         —         —         —         —         (193,939

Equipment rent

    (26,285     —         —         —         —         —         —         —         (26,285

Restructuring charges - rent

    (5,964     —         —         —         —         5,964       —         5,964       —    

Depreciation and amortization

    (80,279     —         —         —         —         —         —         —         (80,279

Interest, net

    (177,833     —         —         —         —         —         —         —         (177,833
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    (129,189     (1,803     23,061       4,000       136,303       31,556       —         193,117       63,928  

Provision (benefit) for income taxes

    (15,107     (709     9,074       1,574       53,635       11,537       (40,231     34,880       19,773  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (114,082     (1,094     13,987       2,426       82,668       20,019       40,231       158,237       44,155  

Noncontrolling interests

    (32,234     —         (320     —         —         —         —