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): February 28, 2018

 

 

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 February 28, 2018, Kindred Healthcare, Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter and fiscal year ended December 31, 2017. The press release, dated February 28, 2018, is attached as Exhibit 99.1 to this Form 8-K. On February 28, 2018, 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 February 28, 2018 announcing its financial results for the fourth quarter and fiscal year ended December 31, 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 February 28, 2018.


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: February 28, 2018     By:  

/s/ Joseph L. Landenwich

      Joseph L. Landenwich
      General Counsel and Corporate Secretary
Exhibit 99.1

Exhibit 99.1

 

LOGO     

 

Contact:   Todd Flowers
 

Investor Relations

(502) 596-6569

KINDRED HEALTHCARE REPORTS FOURTH QUARTER AND FULL YEAR 2017 RESULTS

 

 

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

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

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

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

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

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

GAAP Operating Cash Flows of $67 Million in the Fourth Quarter

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

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

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

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

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

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

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

 

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

– MORE –

680 South Fourth Street    Louisville, Kentucky 40202

502.596.7300         www.kindredhealthcare.com


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 2

February 28, 2018

 

 

 

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

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

Fourth Quarter Consolidated Results(1):

 

    Consolidated revenues were $1.5 billion, a 2.3% year-over-year decrease, primarily attributable to the impact of the closure of seven LTAC hospitals and termination of over 100 RehabCare sites of service during 2017. GAAP loss from continuing operations was $135.4 million compared to a loss of $1.9 million in the same period a year ago. EBITDA decreased to a loss of $192.8 million compared to $88.7 million of income in the prior year. The increase in the loss from continuing operations and the adverse change in EBITDA was primarily due to a $241.3 million increase in impairment charges and a $41.4 million increase in restructuring charges. Core EBITDA increased to $119.2 million compared to $108.2 million in the same period of 2016, primarily due to growth in home health and IRF volumes, growth in home health and hospice revenue rates, and lower professional liability and workers compensation costs.

 

    GAAP operating cash flows were $67.2 million compared to $147.0 million for the same period a year ago. Core operating cash flows were $86.5 million compared to $142.5 million for the same period a year ago. Core free cash flows were $49.7 million compared to $104.4 million in the same period a year ago. GAAP operating cash flows declined compared to the prior year period due to severance, retention and transaction costs associated with the skilled nursing facility business divestiture and other restructuring activities, and an increase in net working capital. Core operating cash flows and core free cash flows declined compared to the prior year period due to increases in net working capital.

 

    GAAP diluted loss per share from continuing operations was $1.65 as compared to $0.12 a year ago. The increase in the GAAP diluted loss per share was primarily due to the increase in impairment charges and restructuring charges. Core diluted earnings per share (“EPS”) from continuing operations increased to $0.20, as compared to core diluted EPS of $0.07 for the same period last year, primarily due to growth in home health and IRF volumes, growth in home health and hospice revenue rates, and lower professional liability and workers compensation costs.

 

    The Company recorded a $236.3 million non-cash goodwill impairment charge in the fourth quarter to reflect an adjustment to the carrying value of its Hospital division reporting unit in connection with its annual goodwill impairment test as of October 1, 2017. The Company also recorded non-cash impairment charges of $3.2 million for an intangible asset and $1.9 million for property and equipment, both related to the Hospital division, and a $3.5 million non-cash intangible asset impairment charge in the Kindred at Home division (“KAH”).

Full Year Consolidated Results(1):

 

    Consolidated revenues were $6.0 billion, a 4.1% year-over-year decrease, primarily attributable to the impact of the transition to LTAC patient criteria, the sale or closure of 22 LTAC hospitals since the third quarter of 2016 and termination of over 100 RehabCare sites of service during 2017. GAAP loss from continuing operations was $247.2 million compared to a loss of $597.7 million in the same period a year ago. The decrease in the loss was primarily due to a $280.3 million decrease in the deferred tax asset valuation allowance provision as well as a $130.5 million tax benefit from the reduction of deferred tax liabilities for certain changes enacted by the Tax Reform Act. EBITDA declined to a loss of $61.6 million compared to income of $79.9 million in the prior year, primarily due

 

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

 

- MORE -


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 3

February 28, 2018

 

 

 

Full Year Consolidated Results(1) (Continued):

 

  to an increase in impairment charges, the impact of LTAC patient criteria, the sale or closure of LTAC hospitals noted above and operating losses associated with the one-time impact of Hurricanes Irma and Harvey (the “Hurricanes”) of $15.8 million in the third quarter of 2017, partially offset by lower professional liability and workers compensation costs. Core EBITDA declined to $443.5 million compared to $508.4 million in the same period of 2016, primarily due to LTAC patient criteria, the sale or closure of LTAC hospitals and the Hurricane losses, partially offset by lower professional liability and workers compensation costs.

 

    GAAP diluted loss per share from continuing operations was $3.31 as compared to $7.29 a year ago. The decrease in the GAAP diluted loss per share was primarily due to a decrease in the deferred tax asset valuation allowance provision as well as a tax benefit from the reduction of deferred tax liabilities for certain changes enacted by the Tax Reform Act. Core diluted EPS from continuing operations declined to $0.34, as compared to core diluted EPS of $0.73 for the same period last year, primarily due to LTAC patient criteria and the Hurricane losses in the third quarter of 2017, partially offset by lower professional liability and workers compensation costs.

 

    GAAP operating cash flows were $75.7 million compared to $188.2 million for the same period a year ago. Core operating cash flows were $136.9 million compared to $299.3 million for the same period a year ago. Core free cash flows were $5.9 million compared to $157.2 million in the same period a year ago. GAAP and core operating cash flows and core free cash flows declined compared to the prior year period due to LTAC patient criteria and increases in net working capital.

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

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

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

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

 

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

 

- MORE -


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 4

February 28, 2018

 

 

 

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

 

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

Discontinued Operations

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

2018 Outlook and Other Commentary(3)

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

For the 2018 Outlook, Kindred anticipates:

 

    Annual revenues of $6.0 billion, with a range of $5.9 billion to $6.1 billion;

 

    Core EBITDA of $515 million, with a range of $500 million to $530 million; and

 

    Core diluted EPS from continuing operations of $0.75, with a range of $0.65 to $0.85.

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

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

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

 

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

 

- MORE -


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 5

February 28, 2018

 

 

 

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

 

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

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

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

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

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

Cancellation of Conference Calls

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

Forward-Looking Statements and Non-GAAP Reconciliations

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

About Kindred Healthcare

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

 

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

 

- MORE -


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 6

February 28, 2018

 

 

KINDRED HEALTHCARE, INC.    

Condensed Consolidated Statement of Operations    

(In thousands, except per share amounts)    

 

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

Revenues

   $ 1,480,982     $ 1,515,086     $ 6,034,123     $ 6,292,529  
  

 

 

   

 

 

   

 

 

   

 

 

 

Salaries, wages and benefits

     814,811       846,232       3,318,885       3,392,263  

Supplies

     72,694       79,386       303,923       343,065  

Building rent

     63,577       64,350       257,516       264,306  

Equipment rent

     8,571       8,649       34,856       39,929  

Other operating expenses

     143,830       156,005       640,764       656,792  

General and administrative expenses

     269,271       258,703       1,069,764       1,107,648  

Other income

     (565     (2,387     (3,460     (5,066

Litigation contingency expense

     3,435       —         7,435       2,840  

Impairment charges

     244,876       3,534       381,179       314,729  

Restructuring charges

     53,305       11,913       84,861       96,126  

Depreciation and amortization

     24,526       32,072       104,805       131,819  

Interest expense

     60,136       59,214       241,411       234,612  

Investment income

     (57     (589     (3,499     (3,108
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,758,410       1,517,082       6,438,440       6,575,955  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes

     (277,428     (1,996     (404,317     (283,426

Provision (benefit) for income taxes

     (142,009     (116     (157,116     314,262  
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (135,419     (1,880     (247,201     (597,688

Discontinued operations, net of income taxes:

        

Income (loss) from operations

     (12,683     6,655       (16,854     (6,192

Loss on divestiture of operations

     (29,392     (6,923     (379,260     (6,744
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     (42,075     (268     (396,114     (12,936
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (177,494     (2,148     (643,315     (610,624

Earnings attributable to noncontrolling interests:

        

Continuing operations

     (9,942     (8,575     (42,176     (34,847

Discontinued operations

     (264     (4,684     (12,861     (18,759
  

 

 

   

 

 

   

 

 

   

 

 

 
     (10,206     (13,259     (55,037     (53,606
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss attributable to Kindred

   $ (187,700   $ (15,407   $ (698,352   $ (664,230
  

 

 

   

 

 

   

 

 

   

 

 

 

Amounts attributable to Kindred stockholders:

        

Loss from continuing operations

   $ (145,361   $ (10,455   $ (289,377   $ (632,535

Loss from discontinued operations

     (42,339     (4,952     (408,975     (31,695
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (187,700   $ (15,407   $ (698,352   $ (664,230
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per common share:

        

Basic:

        

Loss from continuing operations

   $ (1.65   $ (0.12   $ (3.31   $ (7.29

Discontinued operations:

        

Loss from operations

     (0.15     0.02       (0.34     (0.28

Loss on divestiture of operations

     (0.33     (0.08     (4.33     (0.08
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     (0.48     (0.06     (4.67     (0.36
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (2.13   $ (0.18   $ (7.98   $ (7.65
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted:

        

Loss from continuing operations

   $ (1.65   $ (0.12   $ (3.31   $ (7.29

Discontinued operations:

        

Loss from operations

     (0.15     0.02       (0.34     (0.28

Loss on divestiture of operations

     (0.33     (0.08     (4.33     (0.08
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from discontinued operations

     (0.48     (0.06     (4.67     (0.36
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (2.13   $ (0.18   $ (7.98   $ (7.65
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in computing loss per common share:

        

Basic

     87,902       86,904       87,525       86,800  

Diluted

     87,902       86,904       87,525       86,800  

Cash dividends declared and paid per common share

   $ —       $ 0.12     $ 0.12     $ 0.48  


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 7

February 28, 2018

 

 

KINDRED HEALTHCARE, INC.    

Condensed Consolidated Balance Sheet    

(In thousands, except per share amounts)    

 

     December 31,
2017
    December 31,
2016
 
      
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 160,254     $ 137,061  

Insurance subsidiary investments

     22,546       108,966  

Accounts receivable less allowance for loss

     1,122,532       1,172,078  

Inventories

     21,716       22,438  

Income taxes

     4,546       10,067  

Assets held for sale

     17,335       289,450  

Other

     60,610       63,693  
  

 

 

   

 

 

 
     1,409,539       1,803,753  

Property and equipment

     1,682,965       1,531,598  

Accumulated depreciation

     (946,986     (912,978
  

 

 

   

 

 

 
     735,979       618,620  

Goodwill

     2,188,566       2,427,074  

Intangible assets less accumulated amortization

     604,338       770,108  

Insurance subsidiary investments

     28,988       204,929  

Other

     265,307       288,240  
  

 

 

   

 

 

 

Total assets

   $ 5,232,717     $ 6,112,724  
  

 

 

   

 

 

 
LIABILITIES AND EQUITY     

Current liabilities:

    

Accounts payable

   $ 191,827     $ 203,925  

Salaries, wages and other compensation

     352,179       397,486  

Due to third party payors

     35,321       41,320  

Professional liability risks

     60,767       65,284  

Accrued lease termination fees

     7,610       5,224  

Other accrued liabilities

     263,977       264,512  

Long-term debt due within one year

     14,638       27,977  
  

 

 

   

 

 

 
     926,319       1,005,728  

Long-term debt

     3,146,972       3,215,062  

Professional liability risks

     276,829       295,311  

Deferred tax liabilities

     36,881       201,808  

Deferred credits and other liabilities

     497,954       353,294  

Equity:

    

Stockholders’ equity:

    

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

     22,864       21,291  

Capital in excess of par value

     1,713,179       1,710,231  

Accumulated other comprehensive income

     6,179       1,573  

Accumulated deficit

     (1,618,896     (920,544
  

 

 

   

 

 

 
     123,326       812,551  

Noncontrolling interests

     224,436       228,970  
  

 

 

   

 

 

 

Total equity

     347,762       1,041,521  
  

 

 

   

 

 

 

Total liabilities and equity

   $ 5,232,717     $ 6,112,724  
  

 

 

   

 

 

 


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 8

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.    

Condensed Consolidated Statement of Cash Flows    

(In thousands)    

 

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

Cash flows from operating activities:

        

Net loss

   $ (177,494   $ (2,148   $ (643,315   $ (610,624

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

        

Depreciation expense

     23,480       32,660       102,481       135,966  

Amortization of intangible assets

     2,728       5,422       14,637       23,673  

Amortization of stock-based compensation costs

     3,933       3,367       17,249       16,425  

Amortization of deferred financing costs

     4,342       4,005       17,189       15,267  

Payment of capitalized lender fees related to debt amendments

     —         —         (5,403     (7,375

Provision for doubtful accounts

     10,773       9,849       68,284       40,804  

Deferred income taxes

     (145,086     1,868       (164,694     310,338  

Impairment charges

     244,876       4,351       382,447       342,559  

Loss on divestiture of discontinued operations

     29,392       6,923       379,260       6,744  

Other

     1,823       5,152       17,935       12,414  

Change in operating assets and liabilities:

        

Accounts receivable

     82,303       84,922       (20,896     (59,031

Inventories and other assets

     32,371       (20,704     22,854       (24,226

Accounts payable

     13,946       1,764       (12,267     26,215  

Income taxes

     3,524       1,882       10,242       4,350  

Due to third party payors

     (13,470     (16,625     (5,999     3,692  

Other accrued liabilities

     (50,258     24,313       (104,309     (48,955
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     67,183       147,001       75,695       188,236  
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

        

Routine capital expenditures

     (24,006     (27,349     (69,806     (96,052

Development capital expenditures

     (8,184     (7,713     (25,895     (34,825

Acquisitions, net of cash acquired

     (3,000     (1,800     (9,650     (78,840

Acquisition deposits

     —         —         —         18,489  

Sale of assets

     (77,049     21,025       (71,555     25,987  

Purchase of insurance subsidiary investments

     (5,006     (22,318     (113,661     (97,740

Sale of insurance subsidiary investments

     125,753       17,010       243,616       95,488  

Net change in insurance subsidiary cash and cash equivalents

     110,146       (7,602     133,618       877  

Net change in other investments

     19,793       577       24,637       (32,770

Other

     42       1,022       7       (255
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     138,489       (27,148     111,311       (199,641
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

        

Proceeds from borrowings under revolving credit

     155,400       376,100       1,369,700       1,643,300  

Repayment of borrowings under revolving credit

     (311,600     (473,600     (1,432,200     (1,689,400

Proceeds from issuance of term loan, net of discount

     —         —         —         198,100  

Proceeds from other long-term debt

     —         —         —         750  

Repayment of term loan

     (3,509     (3,508     (14,034     (13,527

Repayment of other long-term debt

     (205     (278     (1,045     (1,104

Payment of deferred financing costs

     (114     (180     (413     (522

Issuance of common stock in connection with employee benefit plans

     —         —         32       —    

Payment of dividend for mandatory redeemable preferred stock

     (3,177     (2,956     (12,372     (11,514

Dividends paid

     —         (10,221     (10,228     (40,738

Contributions made by noncontrolling interests

     392       3,253       505       14,514  

Distributions to noncontrolling interests

     (12,854     (10,745     (61,226     (45,985

Purchase of noncontrolling interests

     —         —         —         (1,000

Payroll tax payments for equity awards issuance

     (115     (87     (2,532     (3,166
  

 

 

   

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (175,782     (122,222     (163,813     49,708  
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in cash and cash equivalents

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

Cash and cash equivalents at beginning of period

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

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 160,254     $ 137,061     $ 160,254     $ 137,061  
  

 

 

   

 

 

   

 

 

   

 

 

 


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 9

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data

(Unaudited)

(In thousands, except per share amounts)

 

    2016 Quarters           2017 Quarters          

Fourth quarter

% change v.

 
    First     Second     Third     Fourth     Year     First     Second     Third     Fourth     Year     prior year  

Condensed consolidated statement of operations data:

                     

GAAP presentation:

                     

Revenues

  $ 1,604,214     $ 1,609,169     $ 1,564,060     $ 1,515,086     $ 6,292,529     $ 1,539,490     $ 1,535,831     $ 1,477,820     $ 1,480,982     $ 6,034,123       (2.3

Operating expenses

    1,403,467       1,390,562       1,760,982       1,353,386       5,908,397       1,364,751       1,498,396       1,338,547       1,601,657       5,803,351       18.3  

Building rent

    65,985       67,025       66,946       64,350       264,306       64,656       64,861       64,422       63,577       257,516       (1.2

Equipment rent

    10,158       11,211       9,911       8,649       39,929       8,887       8,861       8,537       8,571       34,856       (0.9

Depreciation and amortization

    33,554       33,198       32,995       32,072       131,819       29,820       25,651       24,808       24,526       104,805       (23.5

Interest, net

    57,253       57,567       58,059       58,625       231,504       58,819       58,573       60,441       60,079       237,912       2.5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) from continuing operations before income taxes

    33,797       49,606       (364,833     (1,996     (283,426     12,557       (120,511     (18,935     (277,428     (404,317     n/m  

Provision (benefit) for income taxes

    11,817       19,379       283,182       (116     314,262       2,234       (16,116     (1,225     (142,009     (157,116     n/m  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) from continuing operations

    21,980       30,227       (648,015     (1,880     (597,688     10,323       (104,395     (17,710     (135,419     (247,201     n/m  

Noncontrolling interests

    (7,851     (8,847     (9,574     (8,575     (34,847     (10,483     (10,791     (10,960     (9,942     (42,176     15.9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss) attributable to Kindred

  $ 14,129     $ 21,380     $ (657,589   $ (10,455   $ (632,535   $ (160   $ (115,186   $ (28,670   $ (145,361   $ (289,377     n/m  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Diluted EPS

  $ 0.16     $ 0.23     $ (7.57   $ (0.12   $ (7.29   $ —       $ (1.32   $ (0.32   $ (1.65   $ (3.31     n/m  

Diluted shares

    87,249       87,500       86,869       86,904       86,800       87,085       87,506       87,597       87,902       87,525       1.1  

Core presentation (a):

                     

Building rent

  $ 65,985     $ 67,025     $ 66,674     $ 64,350     $ 264,034     $ 64,656     $ 64,861     $ 64,422     $ 63,577     $ 257,516       (1.2

Equipment rent

    10,158       11,211       9,911       8,649       39,929       8,887       8,861       8,537       8,571       34,856       (0.9

EBITDA

    136,697       153,732       109,770       108,151       508,350       111,676       128,093       84,571       119,199       443,539       10.2  

Provision (benefit) for income taxes

    16,099       21,253       4,262       2,230       43,844       9,407       13,333       (2,062     6,323       27,001       183.5  

Noncontrolling interests

    (7,851     (9,863     (9,862     (8,575     (36,151     (10,483     (11,111     (10,960     (9,942     (42,496     15.9  

Net income (loss) attributable to Kindred

    21,940       31,851       4,592       6,649       65,032       3,147       19,425       (9,576     18,329       31,325       175.7  

Core diluted EPS

  $ 0.25     $ 0.35     $ 0.05     $ 0.07     $ 0.73     $ 0.03     $ 0.21     $ (0.11   $ 0.20     $ 0.34       185.7  

Diluted shares

    87,249       87,500       87,529       87,641       87,491       87,744       88,165       87,597       88,485       88,200       1.0  

Revenues by segment:

                     

Kindred at Home:

                     

Home health

  $ 430,035     $ 438,556     $ 449,958     $ 444,073     $ 1,762,622     $ 450,831     $ 459,176     $ 453,684     $ 458,666     $ 1,822,357       3.3  

Hospice

    176,426       185,641       188,575       186,161       736,803       179,378       185,281       188,414       190,370       743,443       2.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    606,461       624,197       638,533       630,234       2,499,425       630,209       644,457       642,098       649,036       2,565,800       3.0  

Hospital division

    654,098       645,406       588,943       545,864       2,434,311       556,646       540,809       503,138       505,782       2,106,375       (7.3

Kindred Rehabilitation Services:

                     

Kindred Hospital Rehabilitation Services

    167,045       171,095       170,308       171,352       679,800       178,115       178,439       173,638       173,723       703,915       1.4  

RehabCare

    202,023       193,964       190,756       190,053       776,796       198,126       194,715       179,774       172,852       745,467       (9.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    369,068       365,059       361,064       361,405       1,456,596       376,241       373,154       353,412       346,575       1,449,382       (4.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    1,629,627       1,634,662       1,588,540       1,537,503       6,390,332       1,563,096       1,558,420       1,498,648       1,501,393       6,121,557       (2.3

Eliminations

    (25,413     (25,493     (24,480     (22,417     (97,803     (23,606     (22,589     (20,828     (20,411     (87,434     (8.9
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  $ 1,604,214     $ 1,609,169     $ 1,564,060     $ 1,515,086     $ 6,292,529     $ 1,539,490     $ 1,535,831     $ 1,477,820     $ 1,480,982     $ 6,034,123       (2.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

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

n/m = not meaningful.


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 10

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data (Continued)

(Unaudited)

(In thousands, except statistics)

 

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

Segment adjusted operating income (loss):

                     

Kindred at Home:

                     

Home health

  $ 66,941     $ 76,030     $ 75,073     $ 61,487     $ 279,531     $ 63,750     $ 76,592     $ 66,431     $ 69,445     $ 276,218       12.9  

Hospice

    24,866       31,329       31,326       28,805       116,326       27,581       32,784       34,761       34,147       129,273       18.5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    91,807       107,359       106,399       90,292       395,857       91,331       109,376       101,192       103,592       405,491       14.7  

Hospital division

    136,416       127,510       83,940       93,778       441,644       93,438       91,580       61,455       91,014       337,487       (2.9

Kindred Rehabilitation Services:

                     

Kindred Hospital Rehabilitation Services

    48,119       50,729       49,759       49,728       198,335       51,760       53,422       49,151       49,059       203,392       (1.3

RehabCare

    9,762       11,158       7,524       4,142       32,586       8,704       (13,492     8,298       3,374       6,884       (18.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    57,881       61,887       57,283       53,870       230,921       60,464       39,930       57,449       52,433       210,276       (2.7

Core segment adjusted operating income (a):

                     

Kindred at Home:

                     

Home health

  $ 65,803     $ 75,859     $ 75,073     $ 61,185     $ 277,920     $ 63,750     $ 75,797     $ 66,431     $ 69,445     $ 275,423       13.5  

Hospice

    24,866       31,329       31,326       27,668       115,189       27,581       32,784       34,761       34,147       129,273       23.4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    90,669       107,188       106,399       88,853       393,109       91,331       108,581       101,192       103,592       404,696       16.6  

Hospital division

    136,416       127,510       83,940       93,148       441,014       93,438       90,572       61,455       91,014       336,479       (2.3

Kindred Rehabilitation Services:

                     

Kindred Hospital Rehabilitation Services

    48,119       50,729       49,759       49,728       198,335       51,760       53,422       49,151       49,059       203,392       (1.3

RehabCare

    9,762       11,158       7,524       4,142       32,586       8,704       11,812       6,055       3,374       29,945       (18.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    57,881       61,887       57,283       53,870       230,921       60,464       65,234       55,206       52,433       233,337       (2.7

Support center expenses

    (71,159     (64,265     (59,535     (54,334     (249,293     (60,014     (62,572     (60,323     (55,692     (238,601     2.5  

Litigation contingency expense

    (885     (180     —         —         (1,065     —         —         —         —         —      

Transaction costs

    (82     (172     (1,732     (387     (2,373     —         —         —         —         —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
  $ 212,840     $ 231,968     $ 186,355     $ 181,150     $ 812,313     $ 185,219     $ 201,815     $ 157,530     $ 191,347     $ 735,911       5.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Segment adjusted operating income (loss) margin:

                     

Kindred at Home:

                     

Home health

    15.6       17.3       16.7       13.8       15.9       14.1       16.7       14.6       15.1       15.2       1.3  

Hospice

    14.1       16.9       16.6       15.5       15.8       15.4       17.7       18.4       17.9       17.4       2.4  

Kindred at Home

    15.1       17.2       16.7       14.3       15.8       14.5       17.0       15.8       16.0       15.8       1.7  

Hospital division

    20.9       19.8       14.3       17.2       18.1       16.8       16.9       12.2       18.0       16.0       0.8  

Kindred Rehabilitation Services:

                     

Kindred Hospital Rehabilitation Services

    28.8       29.6       29.2       29.0       29.2       29.1       29.9       28.3       28.2       28.9       (0.8

RehabCare

    4.8       5.8       3.9       2.2       4.2       4.4       (6.9     4.6       2.0       0.9       (0.2

Kindred Rehabilitation Services

    15.7       17.0       15.9       14.9       15.9       16.1       10.7       16.3       15.1       14.5       0.2  

Core segment adjusted operating income margin (a):

                     

Kindred at Home:

                     

Home health

    15.3       17.3       16.7       13.8       15.8       14.1       16.5       14.6       15.1       15.1       1.3  

Hospice

    14.1       16.9       16.6       14.9       15.6       15.4       17.7       18.4       17.9       17.4       3.0  

Kindred at Home

    15.0       17.2       16.7       14.1       15.7       14.5       16.8       15.8       16.0       15.8       1.9  

Hospital division

    20.9       19.8       14.3       17.1       18.1       16.8       16.7       12.2       18.0       16.0       0.9  

Kindred Rehabilitation Services:

                     

Kindred Hospital Rehabilitation Services

    28.8       29.6       29.2       29.0       29.2       29.1       29.9       28.3       28.2       28.9       (0.8

RehabCare

    4.8       5.8       3.9       2.2       4.2       4.4       6.1       3.4       2.0       4.0       (0.2

Kindred Rehabilitation Services

    15.7       17.0       15.9       14.9       15.9       16.1       17.5       15.6       15.1       16.1       0.2  

Consolidated

    13.3       14.4       11.9       12.0       12.9       12.0       13.1       10.7       12.9       12.2       0.9  

 

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


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 11

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.    

Condensed Business Segment Data    

(Unaudited)    

 

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

Kindred at Home:

                     

Home Health:

                     

Sites of service (at end of period)

    384       384       395       390         379       377       376       375      

Revenue mix %:

                     

Medicare

    79.8       79.3       78.1       77.9       78.8       76.7       75.7       74.0       73.8       75.0    

Medicaid

    2.1       2.1       2.5       1.9       2.1       1.7       1.7       1.7       1.6       1.7    

Commercial and other

    8.4       8.2       8.6       10.6       8.9       11.5       11.4       12.7       12.7       12.1    

Commercial paid at episodic rates

    9.7       10.4       10.8       9.6       10.2       10.1       11.2       11.6       11.9       11.2    

Episodic revenues ($ 000s)

  $ 325,821     $ 332,193     $ 332,562     $ 323,398     $ 1,313,974     $ 326,881     $ 334,420     $ 320,279     $ 332,595     $ 1,314,175       2.8  

Total admissions

    88,696       87,084       86,761       87,148       349,689       94,510       89,018       87,156       88,224       358,908       1.2  

Same-store total admissions

    87,394       85,922       85,511       86,619       345,446       93,922       88,300       86,312       88,004       356,538       1.6  

Total episodic admissions

    71,426       70,212       69,219       67,501       278,358       73,270       69,657       67,790       67,858       278,575       0.5  

Same-store total episodic admissions

    70,416       69,317       68,285       67,119       275,137       72,911       69,207       67,191       67,650       276,959       0.8  

Medicare episodic admissions

    62,011       60,730       59,823       59,540       242,104       62,404       58,575       56,772       56,829       234,580       (4.6

Total episodes

    113,887       113,278       113,256       111,164       451,585       114,964       113,579       111,488       111,411       451,442       0.2  

Episodes per admission

    1.59       1.61       1.64       1.65       1.62       1.57       1.63       1.64       1.64       1.62       (0.6

Revenue per episode

  $ 2,861     $ 2,933     $ 2,936     $ 2,909     $ 2,910     $ 2,843     $ 2,944     $ 2,873     $ 2,985     $ 2,911       2.6  

Hospice:

                     

Sites of service (at end of period)

    177       177       185       183         180       177       178       178      

Admissions

    13,234       13,149       12,916       12,660       51,959       13,649       12,561       12,236       12,274       50,720       (3.0

Same-store admissions

    12,761       12,743       12,541       12,413       50,458       13,332       12,363       11,997       12,162       49,854       (2.0

Average length of stay

    92       91       98       100       95       96       94       97       96       96       (4.0

Patient days

    1,183,908       1,238,584       1,277,125       1,246,152       4,945,769       1,193,061       1,215,619       1,239,094       1,243,574       4,891,348       (0.2

Average daily census

    13,010       13,611       13,882       13,545       13,513       13,256       13,358       13,468       13,517       13,401       (0.2

Revenue per patient day

  $ 149     $ 150     $ 148     $ 149     $ 149     $ 150     $ 152     $ 152     $ 153     $ 152       2.7  

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

  $ 66,305     $ 68,229     $ 75,978     $ 74,875     $ 285,387     $ 74,095     $ 74,222     $ 79,720     $ 69,974     $ 298,011       (6.5

Kindred Rehabilitation Services:

                     

Kindred Hospital Rehabilitation Services:

                     

Freestanding IRFs:

                     

End of period data:

                     

Number of IRFs

    19       19       19       19         19       19       19       19      

Number of licensed beds

    969       969       969       995         995       995       995       995      

Discharges (a)

    4,448       4,646       4,644       4,671       18,409       4,775       4,766       4,755       5,011       19,307       7.3  

Same-hospital discharges (a)

    4,295       4,535       4,546       4,538       17,914       4,393       4,517       4,477       4,671       18,058       2.9  

Occupancy % (a)

    70.6       70.6       68.8       66.5       69.1       71.4       70.0       68.8       71.2       70.4       7.1  

Average length of stay (a)

    13.2       12.9       12.7       12.6       12.8       12.8       12.8       12.7       12.5       12.7       (0.8

Revenue per discharge (a)

  $ 19,731     $ 19,318     $ 19,599     $ 19,486     $ 19,531     $ 20,097     $ 20,620     $ 20,329     $ 19,523     $ 20,134       0.2  

Contract services:

                     

Sites of service (at end of period):

                     

Inpatient rehabilitation units

    104       105       104       102         101       102       101       99      

LTAC hospitals

    119       121       120       119         119       116       110       104      

Sub-acute units

    7       7       7       5         7       6       6       4      

Outpatient units

    139       138       139       132         129       121       123       123      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

     
    369       371       370       358         356       345       340       330      
 

 

 

   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

   

 

 

     

Revenue per site

  $ 211,417     $ 215,798     $ 210,810     $ 220,733     $ 858,758     $ 227,100     $ 228,534     $ 222,504     $ 225,919     $ 904,057       2.3  

RehabCare:

                     

Sites of service (at end of period)

    1,767       1,759       1,754       1,718         1,703       1,734       1,624       1,616      

Revenue per site

  $ 114,331     $ 110,270     $ 108,755     $ 110,624     $ 443,980     $ 116,340     $ 112,292     $ 110,699     $ 106,963     $ 446,294       (3.3

 

(a) Excludes non-consolidating IRF.


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 12

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.    

Condensed Business Segment Data (Continued)    

(Unaudited)    

 

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

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

                     

End of period data:

                     

Number of transitional care hospitals

    95       97       94       82         82       81       77       75      

Number of licensed beds

    7,089       7,067       6,890       6,107         6,107       6,041       5,797       5,553      

Revenues (000s)

  $ 643,299     $ 633,695     $ 575,323     $ 530,746     $ 2,383,063     $ 540,280     $ 525,458     $ 487,012     $ 489,621     $ 2,042,371       (7.7

Revenue mix %:

                     

Medicare

    57.8       55.5       54.6       53.5       55.5       52.8       50.3       50.6       50.2       51.0    

Medicaid

    4.2       4.2       4.0       4.5       4.2       3.9       5.0       4.3       4.1       4.3    

Medicare Advantage

    11.5       12.0       12.1       11.0       11.7       12.2       12.3       12.3       13.5       12.6    

Medicaid Managed

    5.6       6.3       7.3       8.0       6.7       9.1       9.1       10.1       10.1       9.6    

Commercial insurance and other

    20.9       22.0       22.0       23.0       21.9       22.0       23.3       22.7       22.1       22.5    

Patient criteria data:

                     

Revenues:

                     

Compliant patients

          88.5       86.0     88.3     89.1     91.8     88.7  

Site neutral

          11.5       14.0     11.7     10.9     8.2     11.3  

Revenues per patient day:

                     

Compliant patients

        $ 1,853       $ 1,816     $ 1,806     $ 1,799     $ 1,835     $ 1,814    

Site neutral

          926         1,041       1,053       1,067       1,047       1,051    

Total

          1,662         1,645       1,667       1,674       1,729       1,677    

Admissions:

                     

Medicare

    8,919       8,253       7,861       7,351       32,384       7,529       6,743       6,073       5,862       26,207       (20.3

Medicaid

    463       386       375       336       1,560       354       381       362       287       1,384       (14.6

Medicare Advantage

    1,453       1,382       1,327       1,210       5,372       1,354       1,239       1,197       1,225       5,015       1.2  

Medicaid Managed

    733       768       861       787       3,149       851       903       861       875       3,490       11.2  

Commercial insurance and other

    1,871       1,807       1,727       1,488       6,893       1,614       1,608       1,483       1,401       6,106       (5.8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    13,439       12,596       12,151       11,172       49,358       11,702       10,874       9,976       9,650       42,202       (13.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Patient days:

                     

Medicare

    229,004       219,013       202,482       186,290       836,789       187,738       173,916       158,083       149,892       669,629       (19.5

Medicaid

    21,134       19,409       16,781       12,181       69,505       13,334       13,333       13,429       12,048       52,144       (1.1

Medicare Advantage

    45,760       47,697       43,241       37,526       174,224       41,020       40,555       38,338       41,488       161,401       10.6  

Medicaid Managed

    25,341       27,267       28,534       29,275       110,417       32,713       32,635       31,249       32,389       128,986       10.6  

Commercial insurance and other

    62,769       63,009       59,856       54,148       239,782       53,695       54,809       49,895       47,355       205,754       (12.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    384,008       376,395       350,894       319,420       1,430,717       328,500       315,248       290,994       283,172       1,217,914       (11.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Average length of stay:

                     

Medicare

    25.7       26.5       25.8       25.3       25.8       24.9       25.8       26.0       25.6       25.6       1.2  

Medicaid

    45.6       50.3       44.7       36.3       44.6       37.7       35.0       37.1       42.0       37.7       15.7  

Medicare Advantage

    31.5       34.5       32.6       31.0       32.4       30.3       32.7       32.0       33.9       32.2       9.4  

Medicaid Managed

    34.6       35.5       33.1       37.2       35.1       38.4       36.1       36.3       37.0       37.0       (0.5

Commercial insurance and other

    33.5       34.9       34.7       36.4       34.8       33.3       34.1       33.6       33.8       33.7       (7.1

Weighted average

    28.6       29.9       28.9       28.6       29.0       28.1       29.0       29.2       29.3       28.9       2.4  

Revenues per admission:

                     

Medicare

  $ 41,717     $ 42,579     $ 39,945     $ 38,602     $ 40,800     $ 37,867     $ 39,219     $ 40,577     $ 41,904     $ 39,746       8.6  

Medicaid

    57,928       69,797       61,338       70,333       64,356       60,091       69,304       57,365       70,352       64,042       —    

Medicare Advantage

    51,080       55,105       52,363       48,387       51,826       48,555       51,958       50,301       53,834       51,102       11.3  

Medicaid Managed

    49,287       51,696       48,631       54,238       50,932       57,736       53,159       57,172       56,881       56,198       4.9  

Commercial insurance and other

    71,651       77,193       73,515       82,066       75,819       73,750       76,007       74,435       77,140       75,289       (6.0

Weighted average

    47,868       50,309       47,348       47,507       48,281       46,170       48,322       48,818       50,738       48,395       6.8  

Revenues per patient day:

                     

Medicare

  $ 1,625     $ 1,605     $ 1,551     $ 1,523     $ 1,579     $ 1,519     $ 1,521     $ 1,559     $ 1,639     $ 1,556       7.6  

Medicaid

    1,269       1,388       1,371       1,940       1,444       1,595       1,980       1,546       1,676       1,700       (13.6

Medicare Advantage

    1,622       1,597       1,607       1,560       1,598       1,603       1,587       1,571       1,590       1,588       1.9  

Medicaid Managed

    1,426       1,456       1,467       1,458       1,453       1,502       1,471       1,575       1,537       1,521       5.4  

Commercial insurance and other

    2,136       2,214       2,121       2,255       2,180       2,217       2,230       2,212       2,282       2,234       1.2  

Weighted average

    1,675       1,684       1,640       1,662       1,666       1,645       1,667       1,674       1,729       1,677       4.0  

Medicare case mix index (discharged patients only)

    1.163       1.179       1.172       1.153       1.169       1.172       1.171       1.180       1.177       1.178       2.1  

Average daily census

    4,220       4,136       3,814       3,472       3,909       3,650       3,464       3,163       3,078       3,337       (11.3

Occupancy%

    68.0       67.5       61.6       64.1       65.1       67.6       64.3       59.9       61.1       63.3       (4.7


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 13

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.    

Condensed Business Segment Data (Continued)    

(Unaudited)    

 

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

Same-hospital data (a):

                     

End of period data:

                     

Number of transitional care hospitals

    72       72       75       75         72       72       75       75      

Number of licensed beds

    5,436       5,436       5,553       5,553         5,436       5,436       5,553       5,553      

Revenues (000s)

  $ 531,815     $ 527,578     $ 493,480     $ 504,871     $ 2,057,744     $ 504,135     $ 492,002     $ 476,356     $ 482,677     $ 1,955,170       (4.4

Revenue mix %:

                     

Medicare

    58.1       55.2       53.8       53.3       55.2       52.2       50.2       50.6       50.6       50.9    

Medicaid

    3.6       3.6       3.5       4.4       3.8       3.9       4.9       4.2       3.4       4.1    

Medicare Advantage

    11.2       11.7       12.3       11.0       11.5       12.0       12.0       12.4       13.6       12.5    

Medicaid Managed

    6.0       6.9       8.0       8.4       7.3       9.6       9.5       10.2       10.3       9.9    

Commercial insurance and other

    21.1       22.6       22.4       22.9       22.2       22.3       23.4       22.6       22.1       22.6    

Patient criteria data:

                     

Revenues:

                     

Compliant patients

          88.7       86.2     88.7     89.2     91.8     89.0  

Site neutral

          11.3       13.8     11.3     10.8     8.2     11.0  

Revenues per patient day:

                     

Compliant patients

        $ 1,860       $ 1,821     $ 1,811     $ 1,798     $ 1,815     $ 1,811    

Site neutral

          931         1,057       1,049       1,064       1,047       1,055    

Total

          1,671         1,656       1,674       1,674       1,711       1,678    

Admissions:

                     

Medicare

    7,322       6,770       6,620       6,879       27,591       6,884       6,260       5,942       5,848       24,934       (15.0

Medicaid

    376       327       329       315       1,347       325       346       342       284       1,297       (9.8

Medicare Advantage

    1,148       1,073       1,118       1,131       4,470       1,239       1,137       1,181       1,222       4,779       8.0  

Medicaid Managed

    625       688       778       780       2,871       827       852       843       875       3,397       12.2  

Commercial insurance and other

    1,477       1,450       1,385       1,386       5,698       1,484       1,489       1,450       1,397       5,820       0.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    10,948       10,308       10,230       10,491       41,977       10,759       10,084       9,758       9,626       40,227       (8.2
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Patient days:

                     

Medicare

    188,238       179,196       170,060       175,336       712,830       172,186       161,435       154,553       149,524       637,698       (14.7

Medicaid

    13,731       12,381       11,211       11,396       48,719       12,610       12,378       12,985       11,777       49,750       3.3  

Medicare Advantage

    36,058       38,555       37,240       35,436       147,289       37,573       37,073       37,678       41,375       153,699       16.8  

Medicaid Managed

    22,124       24,571       26,384       29,047       102,126       31,970       31,606       30,759       32,355       126,690       11.4  

Commercial insurance and other

    50,711       51,293       49,622       50,861       202,487       50,116       51,465       48,591       46,990       197,162       (7.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
    310,862       305,996       294,517       302,076       1,213,451       304,455       293,957       284,566       282,021       1,164,999       (6.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Average length of stay:

                     

Medicare

    25.7       26.5       25.7       25.5       25.8       25.0       25.8       26.0       25.6       25.6       0.4  

Medicaid

    36.5       37.9       34.1       36.2       36.2       38.8       35.8       38.0       41.5       38.4       14.6  

Medicare Advantage

    31.4       35.9       33.3       31.3       33.0       30.3       32.6       31.9       33.9       32.2       8.3  

Medicaid Managed

    35.4       35.7       33.9       37.2       35.6       38.7       37.1       36.5       37.0       37.3       (0.5

Commercial insurance and other

    34.3       35.4       35.8       36.7       35.5       33.8       34.6       33.5       33.6       33.9       (8.4

Weighted average

    28.4       29.7       28.8       28.8       28.9       28.3       29.2       29.2       29.3       29.0       1.7  

Revenues per admission:

                     

Medicare

  $ 42,215     $ 43,048     $ 40,145     $ 39,130     $ 41,154     $ 38,242     $ 39,482     $ 40,587     $ 41,750     $ 39,935       6.7  

Medicaid

    50,166       58,447       52,583       69,628       57,318       60,805       70,237       57,650       57,482       61,762       (17.4

Medicare Advantage

    51,653       57,562       54,276       49,232       53,115       49,018       51,807       50,163       53,894       51,211       9.5  

Medicaid Managed

    51,395       52,601       50,491       54,389       52,252       58,227       54,789       57,538       56,854       56,840       4.5  

Commercial insurance and other

    76,121       82,125       79,752       83,445       80,313       75,623       77,205       74,292       76,301       75,859       (8.6

Weighted average

    48,576       51,181       48,239       48,124       49,021       46,857       48,790       48,817       50,143       48,603       4.2  

Revenues per patient day:

                     

Medicare

  $ 1,642     $ 1,626     $ 1,563     $ 1,535     $ 1,593     $ 1,529     $ 1,531     $ 1,560     $ 1,633     $ 1,561       6.4  

Medicaid

    1,374       1,544       1,543       1,925       1,585       1,567       1,963       1,518       1,386       1,610       (28.0

Medicare Advantage

    1,645       1,602       1,629       1,571       1,612       1,616       1,589       1,572       1,592       1,592       1.3  

Medicaid Managed

    1,452       1,473       1,489       1,460       1,469       1,506       1,477       1,577       1,538       1,524       5.3  

Commercial insurance and other

    2,217       2,322       2,226       2,274       2,260       2,239       2,234       2,217       2,268       2,239       (0.3

Weighted average

    1,711       1,724       1,676       1,671       1,696       1,656       1,674       1,674       1,711       1,678       2.4  

Average daily census

    3,416       3,363       3,201       3,283       3,315       3,383       3,230       3,093       3,065       3,192       (6.6

 

(a) All historical statistics have been adjusted to present the ongoing hospital division portfolio excluding three hospitals acquired during the second quarter of 2016. See reconciliation of same-hospital revenues to reported hospital revenues on page 18.


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 14

February 28, 2018

 

 

 

Forward-Looking Statements    

This earnings release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are often identified by words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “hope,” “may,” “potential,” “upside,” “seek,” “continue,” and other similar expressions.    

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance, or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. Risks and uncertainties related to the Merger include, but are not limited to, the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the failure of the parties to satisfy conditions to completion of the Merger, including the failure of the Company’s stockholders to approve the Merger or the failure of the parties to obtain required regulatory approvals; the risk that regulatory or other approvals are delayed or are subject to terms and conditions that are not anticipated; changes in the business or operating prospects of the Company or its businesses; changes in healthcare and other laws and regulations; the impact of the announcement of, or failure to complete, the Merger on the Company’s relationships with employees, customers, vendors and other business partners; and litigation related to the Merger. In addition, these statements involve risks, uncertainties, and other factors detailed from time to time in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC.     

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

Non-GAAP Measures    

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

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

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

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


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 15

February 28, 2018

 

 

 

Non-GAAP Measures (Continued)

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

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

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

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

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

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

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


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 16

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.    

Reconciliation of GAAP Results to Non-GAAP Measures    

(Unaudited)    

(In thousands, except per share amounts and statistics)    

In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures for the three months ended December 31, 2017 and 2016, and for the year ended December 31, 2017 and 2016, before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.    

The income tax benefit associated with the excluded charges, including the deferred tax liability adjustment associated with the Tax Reform Act and the deferred tax asset valuation allowance for the three months and for the year ended December 31, 2017, and the deferred tax asset valuation allowance for the three months and for the year ended December 31, 2016 was calculated using an effective income tax rate of 47.5% and 12.1% for the three months ended December 31, 2017 and 2016, respectively, and 36.4% and 63.1% for the year ended December 31, 2017 and 2016, respectively. The difference in the effective income tax rate compared to the same prior year period is primarily attributable to the change in the amount of deferred tax valuation allowance, the deferred tax liability adjustment associated with the Tax Reform Act and the composition of charges that are non-deductible for income tax purposes, including the impairment charges.    

 

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

Reconciliation of income from continuing operations before charges:

        

As reported:

        

Loss from continuing operations attributable to Kindred

   ($ 145,361   ($ 10,455   ($ 289,377   ($ 632,535

Diluted loss per common share from continuing operations

   ($ 1.65   ($ 0.12   ($ 3.31   ($ 7.29

Weighted average diluted shares outstanding

     87,902       86,904       87,525       86,800  

Detail of charges:

        

Restructuring charges:

        

Facility/branch divestitures and closings

   ($ 1,806   ($ 3,745   ($ 18,731   ($ 23,539

Retention, severance and other costs

     (2,956     (5,302     (11,623     (8,781

Merger/transaction costs

     (9,989     (837     (9,989     (2,414
  

 

 

   

 

 

   

 

 

   

 

 

 
     (14,751     (9,884     (40,343     (34,734

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

     (38,554     (2,029     (44,518     (61,392

Impairment charges

     (244,876     (3,534     (381,179     (314,729

RehabCare collection litigation

     —         —         (23,061     —    

Insurance restructuring costs

     (10,406     —         (10,406     —    

Research and development

     —         (4,293     —         (11,520

Litigation contingency expense

     (3,435     —         (7,435     (1,775

Business interruption settlements

     —         2,069       1,803       3,378  

Debt amendment fees not capitalized

     —         —         —         (1,103

Gentiva transaction costs:

        

Professional and consulting fees

     —         (1,779     —         (5,610

Severance and retention

     —         —         —         (696

Lease termination (charged to building rent)

     —         —         —         (272
  

 

 

   

 

 

   

 

 

   

 

 

 
     (312,022     (19,450     (505,139     (428,453

Income tax benefit

     66,951       7,878       142,062       98,246  

Deferred tax liability adjustment associated with the Tax Reform Act

     130,453       —         130,453       —    

Deferred tax asset valuation allowance

     (49,072     (5,532     (88,398     (368,664
  

 

 

   

 

 

   

 

 

   

 

 

 

Charges net of income taxes

     (163,690     (17,104     (321,022     (698,871

Noncontrolling interests

     —         —         320       1,304  
  

 

 

   

 

 

   

 

 

   

 

 

 
     (163,690     (17,104     (320,702     (697,567

Allocation to participating unvested restricted stockholders

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Available to common stockholders

   ($ 163,690   ($ 17,104   ($ 320,702   ($ 697,567
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted loss per common share related to charges

   ($ 1.86   ($ 0.20   ($ 3.66   ($ 8.04

Weighted average diluted shares outstanding

     87,902       86,904       87,525       86,800  

Core:

        

Income from continuing operations attributable to Kindred before charges

   $ 18,329     $ 6,649     $ 31,325     $ 65,032  

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

   $ 0.20     $ 0.07     $ 0.34     $ 0.73  

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

     88,485       87,641       88,200       87,491  

Reconciliation of effective income tax rate before charges:

        

Effective income tax rate before charges

     18.3     12.8     26.8     30.2

Impact of charges on effective income tax rate

     32.9     -7.0     12.1     80.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Reported effective income tax rate

     51.2     5.8     38.9     110.9
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.6 million and $0.1 million for the three months ended December 31, 2017 and 2016, respectively, and by $0.9 million and $1.4 million for the year ended December 31, 2017 and 2016, respectively, for the allocation of income to participating unvested restricted stockholders.


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 17

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.    

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

(Unaudited)    

(In thousands)    

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

 

    2016 Quarters           2017 Quarters        
    First     Second     Third     Fourth     Year     First     Second     Third     Fourth     Year  

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

                   

As reported:

                   

Income (loss) from continuing operations attributable to Kindred

  $ 14,129     $ 21,380     ($ 657,589   ($ 10,455   ($ 632,535   ($ 160   ($ 115,186   ($ 28,670   ($ 145,361   ($ 289,377

Depreciation and amortization

    33,554       33,198       32,995       32,072       131,819       29,820       25,651       24,808       24,526       104,805  

Interest, net

    57,253       57,567       58,059       58,625       231,504       58,819       58,573       60,441       60,079       237,912  

Provision (benefit) for income taxes

    11,817       19,379       283,182       (116     314,262       2,234       (16,116     (1,225     (142,009     (157,116

Noncontrolling interest

    7,851       8,847       9,574       8,575       34,847       10,483       10,791       10,960       9,942       42,176  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

    124,604       140,371       (273,779     88,701       79,897       101,196       (36,287     66,314       (192,823     (61,600

Detail of charges:

                   

Restructuring charges:

                   

Facility/branch divestitures and closings

    341       (759     20,212       3,745       23,539       5,360       2,842       8,723       1,806       18,731  

Retention, severance and other costs

    924       446       2,109       5,302       8,781       2,741       274       5,652       2,956       11,623  

Merger/transaction costs

    436       649       492       837       2,414       —         —         —         9,989       9,989  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,701       336       22,813       9,884       34,734       8,101       3,116       14,375       14,751       40,343  

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

    251       462       58,650       2,029       61,392       1,905       1,934       2,125       38,554       44,518  

Impairment charges

    7,788       6,131       297,276       3,534       314,729       474       135,829       —         244,876       381,179  

RehabCare collection litigation

    —         —         —         —         —         —         25,304       (2,243     —         23,061  

Insurance restructuring costs

    —         —         —         —         —         —         —         —         10,406       10,406  

Research and development

    863       3,076       3,288       4,293       11,520       —         —         —         —         —    

Litigation contingency expense

    1,025       750       —         —         1,775       —         —         4,000       3,435       7,435  

Business interruption settlements

    (1,138     (171     —         (2,069     (3,378     —         (1,803     —         —         (1,803

Debt amendment fees not capitalized

    —         1,103       —         —         1,103       —         —         —         —         —    

Gentiva transaction costs:

                   

Professional and consulting fees

    1,048       1,319       1,464       1,779       5,610       —         —         —         —         —    

Severance and retention

    555       355       (214     —         696       —         —         —         —         —    

Lease termination (charged to building rent)

    —         —         272       —         272       —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    12,093       13,361       383,549       19,450       428,453       10,480       164,380       18,257       312,022       505,139  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Core EBITDA

  $ 136,697     $ 153,732     $ 109,770     $ 108,151     $ 508,350     $ 111,676     $ 128,093     $ 84,571     $ 119,199     $ 443,539  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 18

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.    

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

(Unaudited)    

(In thousands)    

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

 

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

Home health

  $ 363,730     $ 370,327     $ 373,980     $ 369,198     $ 1,477,235     $ 376,736     $ 384,954     $ 373,964     $ 388,692     $ 1,524,346       5.3  

Community care and other

    66,305       68,229       75,978       74,875       285,387       74,095       74,222       79,720       69,974       298,011       (6.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Reported home health revenues

  $ 430,035     $ 438,556     $ 449,958     $ 444,073     $ 1,762,622     $ 450,831     $ 459,176     $ 453,684     $ 458,666     $ 1,822,357       3.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

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

 

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

Transitional care hospitals

  $ 643,299     $ 633,695     $ 575,323     $ 530,746     $ 2,383,063     $ 540,280     $ 525,458     $ 487,012     $ 489,621     $ 2,042,371       (7.7

Sub-acute units and one skilled nursing facility

    10,799       11,711       13,620       15,118       51,248       16,366       15,351       16,126       16,161       64,004    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Reported hospital division revenues

  $ 654,098     $ 645,406     $ 588,943     $ 545,864     $ 2,434,311     $ 556,646     $ 540,809     $ 503,138     $ 505,782     $ 2,106,375       (7.3
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

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

 

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

Transitional care hospitals

  $ 643,299     $ 633,695     $ 575,323     $ 530,746     $ 2,383,063     $ 540,280     $ 525,458     $ 487,012     $ 489,621     $ 2,042,371       (7.7

Hospitals acquired during 2016 (a)

    —         (2,217     —         —         (2,217     (9,724     (10,164     —         —         (19,888  

Hospitals sold during 2016 (b)

    (71,941     (64,084     (47,098     732       (182,391     449       (623     (168     (746     (1,088  

Hospitals closed during 2017 (c)

    (31,272     (30,952     (25,837     (26,424     (114,485     (26,838     (23,226     (10,400     (6,041     (66,505  

Hospitals closed during 2016 (d)

    (8,271     (8,864     (8,908     (183     (26,226     (32     557       (88     (157     280    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Same-hospital revenues

  $ 531,815     $ 527,578     $ 493,480     $ 504,871     $ 2,057,744     $ 504,135     $ 492,002     $ 476,356     $ 482,677     $ 1,955,170       (4.4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

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


Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 19

February 28, 2018

 

 

 

KINDRED HEALTHCARE, INC.    

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

(Unaudited)    

(In thousands, except per share amounts)    

 

 

 

     Three months ended December 31, 2017  
           Charges        
                                      Deferred    

Deferred

tax asset

valuation

         

Before

charges

 
                                      tax liaiblity            
     As     Insurance     Litigation      Impairment      Restructuring      Tax
Reform Act
           
     reported     restructuring     contingency      charges      charges      adjustment     allowance     Total     (“core”) (a)  

Income (loss) from continuing operations:

                     

Segment adjusted operating income:

                     

Kindred at Home:

                     

Home health

   $ 69,445     $ —       $ —        $ —        $ —        $ —       $ —       $ —       $ 69,445  

Hospice

     34,147       —         —          —          —          —         —         —         34,147  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     103,592       —         —          —          —          —         —         —         103,592  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Hospital division

     91,014       —         —          —          —          —         —         —         91,014  

Kindred Rehabilitation Services:

                     

Kindred Hospital Rehabilitation Services

     49,059       —         —          —          —          —         —         —         49,059  

RehabCare

     3,374       —         —          —          —          —         —         —         3,374  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     52,433       —         —          —          —          —         —         —         52,433  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Support center expenses

     (66,098     10,406       —          —          —          —         —         10,406       (55,692

Litigation contingency expense

     (3,435       3,435                  3,435       —    

Impairment charges

     (244,876     —         —          244,876        —          —         —         244,876       —    

Restructuring charges

     (14,751     —         —          —          14,751        —         —         14,751       —    

Building rent

     (63,577     —         —          —          —          —         —         —         (63,577

Equipment rent

     (8,571     —         —          —          —          —         —         —         (8,571

Restructuring charges - rent

     (38,554     —         —          —          38,554        —         —         38,554       —    

Depreciation and amortization

     (24,526     —         —          —          —          —         —         —         (24,526

Interest, net

     (60,079     —         —          —          —          —         —         —         (60,079
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (277,428     10,406       3,435        244,876        53,305        —         —         312,022       34,594  

Provision (benefit) for income taxes

     (142,009     4,095       1,351        43,909        17,596        130,453       (49,072     148,332       6,323  
  

 

 

   

 

 

   

 

&