Kindred Healthcare Announces Fourth Quarter Results

Excluding Certain Items, Continuing Operations Diluted EPS Totaled $0.15 in the Fourth Quarter and $0.94 for the Full Year, Ahead of the Company’s Annual Guidance

Company Reports Strong Free Cash Flows of $130 Million for the Year Excluding Certain Items and $13 Million of Cash Dividends Paid to Shareholders

Company Reports GAAP Continuing Operations Loss of $54 Million in the Fourth Quarter and a Loss of $48 Million for the Full Year, Primarily Attributable to an Asset Impairment Charge of $76 Million

GAAP Operating Cash Flows Totaled $199 Million for the Year Compared to $263 Million a Year Ago

Company Maintains Fiscal 2014 Guidance for Core Earnings of $1.05 to $1.25 and Free Cash Flow Guidance of $125 Million to $145 Million before $26 Million of Estimated Full-Year Cash Dividends

LOUISVILLE, Ky.--()--Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2013. The Company continues to benefit from its repositioning strategy through the planned exit from a nursing center and a transitional care (“TC”) hospital and the closure of another nursing center during the fourth quarter of 2013. The Company has reclassified the operations of these three facilities as discontinued for all periods presented. All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.

Highlights:

  • Volume softness in the hospital and nursing center divisions drove a 1% decline in fourth quarter consolidated revenues which were mitigated by cost controls throughout the Company
  • The closure or planned disposition of three additional non-strategic assets bolstered continuing operations diluted EPS by $0.05 in the quarter and $0.13 for the full year
  • Free cash flows for the full year were strong
    • Excluding certain items and dividend payments, fiscal 2013 free cash flows of $130 million were up 23% from last year
    • GAAP operating cash flows totaled $199 million compared to $263 million a year ago
  • Kindred continued to execute on its Integrated Care Market and redeployment strategy in the fourth quarter
    • Senior Home Care purchase added $143 million of annualized home health revenues to Kindred at Home and the Care Management Division
    • The real estate of seven previously leased nursing centers were acquired for $61 million reducing annual rents by approximately $7 million
  • Kindred is well positioned operationally and financially to grow moving into 2014
    • Available borrowing capacity under the Company’s revolving credit facility approximated $396 million at year-end
  • Board of Directors declared regular quarterly cash dividend of $0.12 per share payable on March 27, 2014

Fourth Quarter Results

Continuing Operations

Consolidated revenues for the fourth quarter ended December 31, 2013 declined 1% to $1.22 billion compared to $1.24 billion in the same period in 2012. The Company reported a loss from continuing operations for the fourth quarter of 2013 of $54.1 million or $1.04 per share compared to a loss of $84.0 million or $1.62 per share in the fourth quarter of 2012. Fourth quarter 2013 operating results included pretax charges of $87.7 million related to (1) an asset impairment charge, (2) changes in estimates related to pending litigation, (3) severance and retirement costs, (4) costs associated with the closing of a TC hospital, (5) transaction-related costs and (6) an increase in the estimated tax benefit associated with pending litigation, which in aggregate reduced income from continuing operations by $62.4 million or $1.19 per share. Operating results for the fourth quarter of 2012 included an asset impairment charge and severance, restructuring, lease termination and transaction-related costs that reduced income from continuing operations by $104.8 million or $2.03 per share.

During the fourth quarter of 2013, the Company recorded a $76 million goodwill impairment charge to reflect circumstances in which the carrying value of its home health reporting unit exceeded its fair value. The impairment charge resulted primarily from the expected decline in operating results in the Company’s home health business related to the Medicare reimbursement rate reductions for each of the next four years beginning January 1, 2014 announced by the Centers for Medicare and Medicaid Services (“CMS”) on November 22, 2013.

Fiscal Year Results

Continuing Operations

Consolidated revenues for the year ended December 31, 2013 declined 1% to $4.90 billion compared to $4.93 billion in the previous year. The Company reported a loss from continuing operations of $48.5 million or $0.93 per share in 2013 compared to a loss of $48.0 million or $0.93 per share in 2012.

In addition to the charges discussed in the fourth quarter results above, operating results in 2013 included (1) a one-time bonus to employees who do not participate in the Company’s incentive plans distributed in the first quarter of 2013, (2) changes in estimates related to pending litigation, (3) severance and retirement costs, (4) costs associated with the closure of a TC hospital and home health location and (5) charges associated with the modification of certain of the Company’s senior debt, which in aggregate reduced income from continuing operations by $99.1 million or $1.90 per share. Operating results in 2012 included certain items that reduced income from continuing operations by $112.8 million or $2.18 per share, most of which were related to asset impairment charges, litigation and severance and restructuring costs.

Discontinued Operations

In connection with the Company’s long-range plans to reposition its businesses and enhance its Integrated Care Market strategy, the Company has completed various transactions and entered into certain agreements to significantly change its business mix, operating profile and future business prospects. During 2013, the Company exited, sold or agreed to exit, 139 facilities (15 TC hospitals, one inpatient rehabilitation hospital (“IRF”) and 123 nursing centers) with annualized revenues approximating $1.3 billion. These transactions generated approximately $250 million in cash proceeds from asset sales and will reduce annual rents by approximately $125 million. For accounting purposes, the historical operating results and losses on the disposal of these businesses have been classified as discontinued operations in the Company’s consolidated statement of operations for all historical periods.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “Our fourth quarter results were in line with our expectations and reflected a continuation of the difficult volume and utilization trends experienced by many healthcare providers in the second half of 2013. We also continued to advance our repositioning strategy with the closure or planned disposition of three additional non-strategic assets. We were successful in managing costs in response to volume weakness in our hospitals and nursing centers, and we are seeing some volume momentum in January and February that we expect will help us get the year off to a strong start.”

Mr. Diaz further noted, “For the full year, we are pleased to report that we exceeded our core earnings objectives that were announced in our third quarter earnings release as we continued to mitigate the negative impact of approximately $40 million of Medicare sequestration cuts across our enterprise. This accomplishment reflects the commitment of our caregivers, and a relentless focus on cost management across the enterprise, all while working to maintain a culture of quality service and patient satisfaction under very difficult circumstances. Despite volume challenges during the last half of the year, and Medicare sequestration cuts, our hospital division results were solid. Our RehabCare division made great progress in the midst of Medicare reimbursement reductions and continues to perform well. For our nursing center division, 2013 was a significant year of transition as we worked through several divestitures. We expect 2014 to reflect more stabilized nursing center operations with better financial performance. Our Care Management Division experienced significant growth in 2013 and now has annualized revenues of over $350 million. We expect operating improvements in our home health and hospice operations in 2014 as we assimilate numerous acquisitions and execute on a more standardized operating model.”

Commenting on the Company’s strategic initiatives, Mr. Diaz noted, “In 2013, we continued advancing a strategy to reposition our business mix with the goal of improving our long-term growth, profitability and financial position and enhancing our Integrated Care Market capabilities, particularly in home health and hospice services. Specifically, we exited, sold or agreed to exit 139 facilities with annualized revenues of $1.3 billion, completed several home health and hospice acquisitions that added approximately $150 million of annualized revenues and we acquired the real estate of nine previously leased facilities for approximately $96 million that will benefit our balance sheet leverage over time. Having substantially completed the divestiture phase of our repositioning strategy, we are evaluating various opportunities to redeploy our management capabilities, industry leading infrastructure and financial resources as we move forward with the growth phase of our strategic plan.”

Mr. Diaz stated, “Our free cash flows, adjusted for certain items, were up 23% compared to last year before paying $13 million in quarterly dividends and absorbing significant reimbursement headwinds. Our significant free cash flows as well as our $396 million of available credit going into 2014, provide the financial strength to further reposition the Company’s business mix and advance our Continue the Care strategy in our Integrated Care Markets.”

Finally, Mr. Diaz added, “The new long-term acute care (“LTAC”) patient criteria enacted in 2013 provides significant clarity to our business and affirms the role of LTAC hospitals in the healthcare continuum. The new criteria will not be fully phased in for most of our hospitals until the summer of 2018, which provides us with significant time to develop clinical programs and services that better align with the clinical needs of this patient population and this new payment system. We believe that the new criteria will afford us the opportunity to grow organically our patient volumes and leverage our existing capacity of TC hospitals.”

Earnings Guidance – Continuing Operations

The Company maintained its previous earnings guidance for 2014. The Company expects consolidated revenues for 2014 to approximate $5.2 billion. Operating income, or earnings before interest, income taxes, depreciation, amortization and rent, is expected to range from $725 million to $742 million. Rent expense is expected to approximate $338 million, while depreciation and amortization should approximate $165 million. Net interest expense is expected to approximate $106 million. The Company expects to report income from continuing operations for 2014 between $58 million and $68 million or $1.05 to $1.25 per diluted share (based upon diluted shares of 53.2 million).

The Company’s 2014 earnings per share guidance includes $0.05 to $0.10 for the estimated impact of new acquisitions that the Company expects to complete in 2014.

The Company updated its operating cash flow guidance for 2014 at a range between $245 million and $275 million. Estimated routine capital expenditures for 2014 are expected to range from $100 million to $105 million and estimated costs to develop new or replacement TC hospitals, transitional care nursing centers, and IRFs will approximate $20 million to $25 million in 2014. Operating cash flows in excess of the Company’s routine and development capital spending programs are expected to approximate $125 million to $145 million for 2014 and will be available to pay dividends, repay debt and fund acquisitions. Estimated dividend payments for 2014 are expected to approximate $26 million.

Benjamin A. Breier, President and Chief Operating Officer of the Company, commented, “As we head into 2014, our confidence in our earnings guidance range has increased as we are beginning to see traction in our sales and marketing efforts to drive patient admissions as well as greater awareness among managed care payors of our value proposition, particularly for our TC hospitals. We also expect additional cost savings by continuing to push for ongoing performance improvement with our efficiency initiatives inside the Company.”

The Company’s earnings and cash flow guidance for 2014 excludes the effect of reimbursement changes, severance and retirement costs, litigation costs, transaction-related costs, any further acquisitions or divestitures (except as otherwise noted), any impairment charges, and any repurchases of common stock.

Quarterly Cash Dividend

The Company also announced that its Board of Directors has approved the payment of the regular quarterly cash dividend to its shareholders of $0.12 per common share to be paid on March 27, 2014 to shareholders of record as of the close of business on March 6, 2014. Future declarations of quarterly dividends will be subject to the approval of Kindred’s Board of Directors.

Conference Call

As previously announced, investors and the general public may access a live webcast of the fourth quarter 2013 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on February 21 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on February 21 by dialing (719) 457-0820, access code: 1522310. The replay will be available through March 2.

Forward-Looking Statements

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

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results or performance to differ materially from any future results or performance expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price include, without limitation, (a) the impact of healthcare reform, which will initiate significant changes to the United States healthcare system, including potential material changes to the delivery of healthcare services and the reimbursement paid for such services by the government or other third party payors, including reforms resulting from the Patient Protection and Affordable Care Act and the Healthcare Education and Reconciliation Act (collectively, the “ACA”) or future deficit reduction measures adopted at the federal or state level. Healthcare reform is affecting each of the Company’s businesses in some manner. Potential future efforts in the U.S. Congress to repeal, amend, modify or retract funding for various aspects of the ACA create additional uncertainty about the ultimate impact of the ACA on the Company and the healthcare industry. Due to the substantial regulatory changes that will need to be implemented by CMS and others, and the numerous processes required to implement these reforms, the Company cannot predict which healthcare initiatives will be implemented at the federal or state level, the timing of any such reforms, or the effect such reforms or any other future legislation or regulation will have on the Company’s business, financial position, results of operations and liquidity, (b) the impact of the final rules issued by CMS on August 1, 2012 which, among other things, will reduce Medicare reimbursement to the Company’s TC hospitals in 2013 and beyond by imposing a budget neutrality adjustment and modifying the short-stay outlier rules, (c) the impact of the final rules issued by CMS on July 29, 2011 which significantly reduced Medicare reimbursement to the Company’s nursing centers and changed payments for the provision of group therapy services effective October 1, 2011, (d) the impact of the Budget Control Act of 2011 (as amended by the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”)) which instituted an automatic 2% reduction on each claim submitted to Medicare beginning April 1, 2013, (e) the Company’s ability to adjust to the new patient criteria for LTAC hospitals under the Pathway for SGR Reform Act of 2013, which will reduce the population of patients eligible for the Company’s hospital services and change the basis upon which the Company is paid, (f) the impact of the Taxpayer Relief Act which, among other things, reduces Medicare payments by an additional 25% for subsequent procedures when multiple therapy services are provided on the same day. At this time, the Company believes that the rules related to multiple therapy services will reduce the Company’s Medicare revenues by $25 million to $30 million on an annual basis, (g) changes in the reimbursement rates or the methods or timing of payment from third party payors, including commercial payors and the Medicare and Medicaid programs, changes arising from and related to the Medicare prospective payment system for LTAC hospitals, including potential changes in the Medicare payment rules, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and changes in Medicare and Medicaid reimbursement for the Company’s TC hospitals, nursing centers, IRFs and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (h) the effects of additional legislative changes and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry, (i) the ability of the Company’s hospitals and nursing centers to adjust to medical necessity reviews, (j) the costs of defending and insuring against alleged professional liability and other claims (including those related to pending whistleblower and wage and hour class action lawsuits against the Company) and the Company’s ability to predict the estimated costs and reserves related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (k) the impact of the Company’s significant level of indebtedness on the Company’s funding costs, operating flexibility and ability to fund ongoing operations, development capital expenditures or other strategic acquisitions with additional borrowings, (l) the Company’s ability to successfully redeploy its capital and proceeds of asset sales in pursuit of its business strategy and pursue its development activities, including through acquisitions, and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations, as and when planned, including the potential impact of unanticipated issues, expenses and liabilities associated with those activities, (m) the Company’s ability to pay a dividend as, when and if declared by the Board of Directors, in compliance with applicable laws and the Company’s debt and other contractual arrangements, (n) the failure of the Company’s facilities to meet applicable licensure and certification requirements, (o) the further consolidation and cost containment efforts of managed care organizations and other third party payors, (p) the Company’s ability to meet its rental and debt service obligations, (q) the Company’s ability to operate pursuant to the terms of its debt obligations, and comply with its covenants thereunder, and the Company’s ability to operate pursuant to its master lease agreements with Ventas, Inc. (NYSE:VTR), (r) the condition of the financial markets, including volatility and weakness in the equity, capital and credit markets, which could limit the availability and terms of debt and equity financing sources to fund the requirements of the Company’s businesses, or which could negatively impact the Company’s investment portfolio, (s) the Company’s ability to control costs, particularly labor and employee benefit costs, (t) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (u) the Company’s obligations under various laws to self-report suspected violations of law by the Company to various government agencies, including any associated obligation to refund overpayments to government payors, fines and other sanctions, (v) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (w) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (x) the Company’s ability to attract and retain key executives and other healthcare personnel, (y) the Company’s ability to successfully dispose of unprofitable facilities, (z) events or circumstances which could result in the impairment of an asset or other charges, such as the impact of the Medicare reimbursement regulations that resulted in the Company recording significant impairment charges in the last three fiscal years, (aa) changes in generally accepted accounting principles (“GAAP”) or practices, and changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), and (bb) the Company’s ability to maintain an effective system of internal control over financial reporting.

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.

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and years ended December 31, 2013 and 2012 before certain charges or on a core basis. A reconciliation of the non-GAAP measurements to the GAAP measurements is included in this press release.

As noted above, the Company discusses the financial measure of free cash flows excluding certain items. The Company recognizes that free cash flows excluding certain items is a non-GAAP measurement and is not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that this non-GAAP measurement provides important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses. The Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by operating activities as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Free cash flows excluding certain items should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. A reconciliation of net cash flows provided by operating activities to free cash flows excluding certain items is included in this press release.

The Company’s earnings release includes a financial measure referred to as operating income, or earnings before interest, income taxes, depreciation, amortization and rent. The Company’s management uses operating income as a meaningful measure of operational performance in addition to other measures. The Company uses operating income to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes this measurement is important because securities analysts and investors use this measurement to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating income 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. A reconciliation of operating income to income (loss) from continuing operations provided in the Condensed Business Segment Data is included in this press release.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-150 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $5 billion and approximately 63,000 employees in 47 states. At December 31, 2013, Kindred through its subsidiaries provided healthcare services in 2,280 locations, including 101 transitional care hospitals, five inpatient rehabilitation hospitals, 100 nursing centers, 22 sub-acute units, 159 Kindred at Home hospice, home health and non-medical home care locations, 104 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,789 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for five years in a row, 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.

 
 
KINDRED HEALTHCARE, INC.
Financial Summary
(In thousands, except per share amounts)
               
Three months ended Year ended
December 31, December 31,
2013 2012 2013 2012
 
Revenues $ 1,224,374   $ 1,237,392   $ 4,900,510   $ 4,928,509  
 
Loss from continuing operations $ (51,737 ) $ (83,209 ) $ (44,812 ) $ (46,927 )
Discontinued operations, net of income taxes:
Income (loss) from operations (6,160 ) 3,312 (36,136 ) 12,348
Loss on divestiture of operations   (5,994 )   (939 )   (83,887 )   (4,745 )
Income (loss) from discontinued operations   (12,154 )   2,373     (120,023 )   7,603  
Net loss (63,891 ) (80,836 ) (164,835 ) (39,324 )
Earnings attributable to noncontrolling interests   (2,405 )   (790 )   (3,657 )   (1,043 )
Loss attributable to Kindred $ (66,296 ) $ (81,626 ) $ (168,492 ) $ (40,367 )
 
Amounts attributable to Kindred stockholders:
Loss from continuing operations $ (54,142 ) $ (83,999 ) $ (48,469 ) $ (47,970 )
Income (loss) from discontinued operations   (12,154 )   2,373     (120,023 )   7,603  
Net loss $ (66,296 ) $ (81,626 ) $ (168,492 ) $ (40,367 )
 
Loss per common share:
Basic:
Loss from continuing operations $ (1.04 ) $ (1.62 ) $ (0.93 ) $ (0.93 )
Discontinued operations:
Income (loss) from operations (0.12 ) 0.06 (0.69 ) 0.24
Loss on divestiture of operations   (0.11 )   (0.02 )   (1.61 )   (0.09 )
Income (loss) from discontinued operations   (0.23 )   0.04     (2.30 )   0.15  
Net loss $ (1.27 ) $ (1.58 ) $ (3.23 ) $ (0.78 )
 
Diluted:
Loss from continuing operations $ (1.04 ) $ (1.62 ) $ (0.93 ) $ (0.93 )
Discontinued operations:
Income (loss) from operations (0.12 ) 0.06 (0.69 ) 0.24
Loss on divestiture of operations   (0.11 )   (0.02 )   (1.61 )   (0.09 )
Income (loss) from discontinued operations   (0.23 )   0.04     (2.30 )   0.15  
Net loss $ (1.27 ) $ (1.58 ) $ (3.23 ) $ (0.78 )
 
Shares used in computing loss per common share:
Basic 52,344 51,692 52,249 51,659
Diluted 52,344 51,692 52,249 51,659
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
                   
Three months ended Year ended
December 31, December 31,
2013 2012 2013 2012
 
Revenues $ 1,224,374   $ 1,237,392   $ 4,900,510   $ 4,928,509  
 
Salaries, wages and benefits 746,399 754,530 2,988,487 3,012,321
Supplies 80,167 84,613 328,999 343,102
Rent 82,563 78,222 318,077 310,178
Other operating expenses 250,137 224,543 985,883 914,272
Other (income) expense (457 ) (3,181 ) (1,440 ) (12,660 )
Impairment charges 76,127 108,113 77,193 108,953
Depreciation and amortization 38,437 42,296 157,329 162,685
Interest expense 25,161 27,929 108,049 107,875
Investment income   (1,255 )   (246 )   (4,051 )   (997 )
  1,297,279     1,316,819     4,958,526     4,945,729  
Loss from continuing operations before income taxes (72,905 ) (79,427 ) (58,016 ) (17,220 )
Provision (benefit) for income taxes   (21,168 )   3,782     (13,204 )   29,707  
Loss from continuing operations (51,737 ) (83,209 ) (44,812 ) (46,927 )
Discontinued operations, net of income taxes:
Income (loss) from operations (6,160 ) 3,312 (36,136 ) 12,348
Loss on divestiture of operations   (5,994 )   (939 )   (83,887 )   (4,745 )
Income (loss) from discontinued operations   (12,154 )   2,373     (120,023 )   7,603  
Net loss (63,891 ) (80,836 ) (164,835 ) (39,324 )
Earnings attributable to noncontrolling interests   (2,405 )   (790 )   (3,657 )   (1,043 )
Loss attributable to Kindred $ (66,296 ) $ (81,626 ) $ (168,492 ) $ (40,367 )
 
Amounts attributable to Kindred stockholders:
Loss from continuing operations $ (54,142 ) $ (83,999 ) $ (48,469 ) $ (47,970 )
Income (loss) from discontinued operations   (12,154 )   2,373     (120,023 )   7,603  
Net loss $ (66,296 ) $ (81,626 ) $ (168,492 ) $ (40,367 )
 
Loss per common share:
Basic:
Loss from continuing operations $ (1.04 ) $ (1.62 ) $ (0.93 ) $ (0.93 )
Discontinued operations:
Income (loss) from operations (0.12 ) 0.06 (0.69 ) 0.24
Loss on divestiture of operations   (0.11 )   (0.02 )   (1.61 )   (0.09 )
Income (loss) from discontinued operations   (0.23 )   0.04     (2.30 )   0.15  
Net loss $ (1.27 ) $ (1.58 ) $ (3.23 ) $ (0.78 )
 
Diluted:
Loss from continuing operations $ (1.04 ) $ (1.62 ) $ (0.93 ) $ (0.93 )
Discontinued operations:
Income (loss) from operations (0.12 ) 0.06 (0.69 ) 0.24
Loss on divestiture of operations   (0.11 )   (0.02 )   (1.61 )   (0.09 )
Income (loss) from discontinued operations   (0.23 )   0.04     (2.30 )   0.15  
Net loss $ (1.27 ) $ (1.58 ) $ (3.23 ) $ (0.78 )
 
Shares used in computing loss per common share:
Basic 52,344 51,692 52,249 51,659
Diluted 52,344 51,692 52,249 51,659
           
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(In thousands, except per share amounts)
 
December 31, December 31,
2013 2012
ASSETS
Current assets:
Cash and cash equivalents $ 35,972 $ 50,007
Cash - restricted 3,713 5,197
Insurance subsidiary investments 96,295 86,168
Accounts receivable less allowance for loss 916,529 1,038,605
Inventories 25,780 32,021
Deferred tax assets 37,920 12,663
Income taxes 36,846 13,573
Other   43,673     35,532  
1,196,728 1,273,766
 
Property and equipment 1,906,366 2,226,903
Accumulated depreciation   (979,791 )   (1,083,777 )
926,575 1,143,126
 
Goodwill 992,102 1,041,266
Intangible assets less accumulated amortization 423,303 439,767
Assets held for sale 20,978 4,131
Insurance subsidiary investments 149,094 116,424
Deferred tax assets 17,043 -
Other   220,046     219,466  
Total assets $ 3,945,869   $ 4,237,946  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 181,772 $ 210,668
Salaries, wages and other compensation 361,192 389,009
Due to third party payors 33,747 35,420
Professional liability risks 60,993 54,088
Other accrued liabilities 146,495 137,204
Long-term debt due within one year   8,222     8,942  
792,421 835,331
 
Long-term debt 1,579,391 1,648,706
Professional liability risks 246,230 236,630
Deferred tax liabilities - 9,764
Deferred credits and other liabilities 206,611 214,671
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 54,165 shares - December 31, 2013 and 53,280 shares - December 31, 2012

13,541 13,320
Capital in excess of par value 1,146,193 1,145,922
Accumulated other comprehensive loss (252 ) (1,882 )
Retained earnings (deficit)   (76,825 )   98,799  
1,082,657 1,256,159
Noncontrolling interests   38,559     36,685  
Total equity   1,121,216     1,292,844  
Total liabilities and equity $ 3,945,869   $ 4,237,946  
                     
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
 
Three months ended Year ended
December 31,   December 31,
2013 2012 2013 2012
Cash flows from operating activities:
Net loss $ (63,891 ) $ (80,836 ) $ (164,835 ) $ (39,324 )

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

Depreciation and amortization 39,644 52,392 182,389 201,484
Amortization of stock-based compensation costs 3,542 2,841 11,183 10,852
Amortization of deferred financing costs 2,376 2,592 11,905 9,683
Payment of lender fees related to senior debt modifications - (2,940 )

(6,189

) (2,940 )
Provision for doubtful accounts 10,151 1,038 44,640 23,692
Deferred income taxes (13,665 ) 6,616 (36,650 ) (11,524 )
Impairment charges 77,748 108,952 87,825 110,856
Loss on divestiture of discontinued operations 5,994 939 83,887 4,745
Other (1,151 ) (981 ) 4,301 1,772
Change in operating assets and liabilities:
Accounts receivable 25,526 9,208 52,271 (58,705 )
Inventories and other assets 4,195 (8,485 ) 4,262 (29,382 )
Accounts payable 9,884 737 (22,095 ) (6,515 )
Income taxes (11,763 ) (9,294 ) (17,032 ) 29,991
Due to third party payors (18,387 ) (4,411 ) (1,671 ) (2,723 )
Other accrued liabilities   (60,008 )   (6,893 )   (34,779 )   20,600  
Net cash provided by operating activities   10,195     71,475     199,412     262,562  
 
Cash flows from investing activities:
Routine capital expenditures (37,956 ) (38,371 ) (100,908 ) (115,175 )
Development capital expenditures (1,115 ) (12,147 ) (11,824 ) (50,322 )
Acquisitions, net of cash acquired (185,213 ) (38,904 ) (224,319 ) (178,212 )
Acquisition deposit 14,675 - - -
Sale of assets 1,906 150 250,606 1,260
Purchase of insurance subsidiary investments (15,767 ) (7,151 ) (46,127 ) (38,041 )
Sale of insurance subsidiary investments 14,527 8,290 49,954 38,363
Net change in insurance subsidiary cash and cash equivalents 217 (6,114 ) (44,077 ) (21,285 )
Change in other investments (96 ) 11 122 1,465
Other   518     490     376     (539 )
Net cash used in investing activities   (208,304 )   (93,746 )   (126,197 )   (362,486 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 575,500 455,000 1,675,800 1,784,300
Repayment of borrowings under revolving credit (376,800 ) (512,200 ) (1,740,400 ) (1,757,100 )
Proceeds from issuance of term loan, net of discount - 97,500 - 97,500
Repayment of other long-term debt (2,058 ) (2,688 ) (6,876 ) (10,664 )
Payment of deferred financing costs (326 ) (864 ) (1,666 ) (1,465 )
Contribution made by noncontrolling interests - - - 200
Distribution made to noncontrolling interests (423 ) (308 ) (2,051 ) (3,829 )
Purchase of noncontrolling interests - (4 ) - (719 )
Issuance of common stock 32 147 461 147
Dividends paid (6,502 ) - (13,001 ) -
Other   79     -     483     -  
Net cash provided by (used in) financing activities   189,502     36,583     (87,250 )   108,370  
Change in cash and cash equivalents (8,607 ) 14,312 (14,035 ) 8,446
Cash and cash equivalents at beginning of period   44,579     35,695     50,007     41,561  
Cash and cash equivalents at end of period $ 35,972   $ 50,007   $ 35,972   $ 50,007  
                           
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
 
2012 Quarters 2013 Quarters
First Second Third Fourth Year First Second Third Fourth Year
 
Revenues $ 1,257,132   $ 1,218,336   $ 1,215,649   $ 1,237,392   $ 4,928,509   $ 1,278,327   $ 1,207,979   $ 1,189,830   $ 1,224,374   $ 4,900,510  
 
Salaries, wages and benefits 770,602 740,041 747,148 754,530 3,012,321 791,728 724,067 726,293 746,399 2,988,487
Supplies 88,620 85,662 84,207 84,613 343,102 85,900 82,040 80,892 80,167 328,999
Rent 76,092 77,379 78,485 78,222 310,178 78,134 78,970 78,410 82,563 318,077
Other operating expenses 229,754 233,145 226,830 224,543 914,272 235,892 232,910 266,944 250,137 985,883
Other (income) expense (3,136 ) (3,165 ) (3,178 ) (3,181 ) (12,660 ) (1,009 ) (26 ) 52 (457 ) (1,440 )
Impairment charges 356 108 376 108,113 108,953 187 438 441 76,127 77,193
Depreciation and amortization 39,098 40,318 40,973 42,296 162,685 42,322 39,303 37,267 38,437 157,329
Interest expense 26,570 26,713 26,663 27,929 107,875 28,171 29,084 25,633 25,161 108,049
Investment income   (282 )   (258 )   (211 )   (246 )   (997 )   (87 )   (1,475 )   (1,234 )   (1,255 )   (4,051 )
  1,227,674     1,199,943     1,201,293     1,316,819     4,945,729     1,261,238     1,185,311     1,214,698     1,297,279     4,958,526  

Income (loss) from continuing operations before income taxes

29,458 18,393 14,356 (79,427 ) (17,220 ) 17,089 22,668 (24,868 ) (72,905 ) (58,016 )
Provision (benefit) for income taxes   12,083     7,820     6,022     3,782     29,707     6,391     9,103     (7,530 )   (21,168 )   (13,204 )
Income (loss) from continuing operations 17,375 10,573 8,334 (83,209 ) (46,927 ) 10,698 13,565 (17,338 ) (51,737 ) (44,812 )
Discontinued operations, net of income taxes:
Income (loss) from operations 2,437 5,046 1,553 3,312 12,348 (5,200 ) (886 ) (23,890 ) (6,160 ) (36,136 )
Loss on divestiture of operations   (1,170 )   (356 )   (2,280 )   (939 )   (4,745 )   (2,025 )   (10,852 )   (65,016 )   (5,994 )   (83,887 )
Income (loss) from discontinued operations   1,267     4,690     (727 )   2,373     7,603     (7,225 )   (11,738 )   (88,906 )   (12,154 )   (120,023 )
Net income (loss) 18,642 15,263 7,607 (80,836 ) (39,324 ) 3,473 1,827 (106,244 ) (63,891 ) (164,835 )
(Earnings) loss attributable to noncontrolling interests   (451 )   239     (41 )   (790 )   (1,043 )   (416 )   (82 )   (754 )   (2,405 )   (3,657 )
Income (loss) attributable to Kindred $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ (40,367 ) $ 3,057   $ 1,745   $ (106,998 ) $ (66,296 ) $ (168,492 )
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 16,924 $ 10,812 $ 8,293 $ (83,999 ) $ (47,970 ) $ 10,282 $ 13,483 $ (18,092 ) $ (54,142 ) $ (48,469 )
Income (loss) from discontinued operations   1,267     4,690     (727 )   2,373     7,603     (7,225 )   (11,738 )   (88,906 )   (12,154 )   (120,023 )
Net income (loss) $ 18,191   $ 15,502   $ 7,566   $ (81,626 ) $ (40,367 ) $ 3,057   $ 1,745   $ (106,998 ) $ (66,296 ) $ (168,492 )
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.32 $ 0.20 $ 0.16 $ (1.62 ) $ (0.93 ) $ 0.19 $ 0.25 $ (0.34 ) $ (1.04 ) $ (0.93 )
Discontinued operations:
Income (loss) from operations 0.05 0.10 0.02 0.06 0.24 (0.09 ) (0.02 ) (0.46 ) (0.12 ) (0.69 )
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.09 )   (0.04 )   (0.20 )   (1.24 )   (0.11 )   (1.61 )
Income (loss) from discontinued operations   0.03     0.09     (0.02 )   0.04     0.15     (0.13 )   (0.22 )   (1.70 )   (0.23 )   (2.30 )
Net income (loss) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ (0.78 ) $ 0.06   $ 0.03   $ (2.04 ) $ (1.27 ) $ (3.23 )
 
Diluted:
Income (loss) from continuing operations $ 0.32 $ 0.20 $ 0.16 $ (1.62 ) $ (0.93 ) $ 0.19 $ 0.25 $ (0.34 ) $ (1.04 ) $ (0.93 )
Discontinued operations:
Income (loss) from operations 0.05 0.10 0.02 0.06 0.24 (0.09 ) (0.02 ) (0.46 ) (0.12 ) (0.69 )
Loss on divestiture of operations   (0.02 )   (0.01 )   (0.04 )   (0.02 )   (0.09 )   (0.04 )   (0.20 )   (1.24 )   (0.11 )   (1.61 )
Income (loss) from discontinued operations   0.03     0.09     (0.02 )   0.04     0.15     (0.13 )   (0.22 )   (1.70 )   (0.23 )   (2.30 )
Net income (loss) $ 0.35   $ 0.29   $ 0.14   $ (1.58 ) $ (0.78 ) $ 0.06   $ 0.03   $ (2.04 ) $ (1.27 ) $ (3.23 )
 

Shares used in computing earnings (loss) per common share:

Basic 51,603 51,664 51,676 51,692 51,659 52,062 52,265 52,323 52,344 52,249
Diluted 51,638 51,675 51,709 51,692 51,659 52,083 52,284 52,323 52,344 52,249
                             
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(In thousands)
 
2012 Quarters 2013 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Revenues:
Hospital division $ 679,813 $ 645,714 $ 633,972 $ 645,426 $ 2,604,925 $ 674,363 $ 621,454 $ 606,488 $ 619,344 $ 2,521,649
 
Nursing center division 274,358 269,986 273,265 274,807 1,092,416 275,141 269,501 270,210 274,908 1,089,760
 
Rehabilitation division:
Skilled nursing rehabilitation services 253,370 253,013 252,134 244,485 1,003,002 257,557 248,321 243,974 241,938 991,790
Hospital rehabilitation services   74,369     73,402     71,899     73,910     293,580     74,523     69,777     68,296     74,017     286,613  
  327,739     326,415     324,033     318,395     1,296,582     332,080     318,098     312,270     315,955     1,278,403  
 
Care management division   28,432     28,872     35,943     50,093     143,340     51,621     53,039     53,801     66,466     224,927  
1,310,342 1,270,987 1,267,213 1,288,721 5,137,263 1,333,205 1,262,092 1,242,769 1,276,673 5,114,739
 
Eliminations:
Skilled nursing rehabilitation services (27,888 ) (27,551 ) (27,037 ) (26,123 ) (108,599 ) (29,303 ) (29,257 ) (28,698 ) (28,728 ) (115,986 )
Hospital rehabilitation services (24,686 ) (24,225 ) (23,666 ) (24,200 ) (96,777 ) (24,362 ) (23,855 ) (23,080 ) (22,696 ) (93,993 )
Nursing centers   (636 )   (875 )   (861 )   (1,006 )   (3,378 )   (1,213 )   (1,001 )   (1,161 )   (875 )   (4,250 )
  (53,210 )   (52,651 )   (51,564 )   (51,329 )   (208,754 )   (54,878 )   (54,113 )   (52,939 )   (52,299 )   (214,229 )
$ 1,257,132   $ 1,218,336   $ 1,215,649   $ 1,237,392   $ 4,928,509   $ 1,278,327   $ 1,207,979   $ 1,189,830   $ 1,224,374   $ 4,900,510  
 
Income (loss) from continuing operations:
Operating income (loss):
Hospital division $ 151,784 $ 132,358 $ 131,041 $ 147,041 $ 562,224 $ 150,043 $ 132,170 $ 113,014 $ 127,929 (a) $ 523,156
 
Nursing center division 34,067 36,215 38,960 32,016 141,258 29,844 36,678 32,146 36,694 135,362
 
Rehabilitation division:
Skilled nursing rehabilitation services 10,679 19,351 16,929 21,001 67,960 12,046 20,297 (8,565 ) 12,918 (b) 36,696
Hospital rehabilitation services   16,116     17,860     16,977     18,792     69,745     18,132     19,573     18,215     18,005   (c)   73,925  
  26,795     37,211     33,906     39,793     137,705     30,178     39,870     9,650     30,923     110,621  
 
Care management division 2,341 2,789 3,645 4,933 13,708 2,786 3,961 1,085 2,131 (d) 9,963
 
Corporate:
Overhead (42,728 ) (44,723 ) (45,883 ) (45,729 ) (179,063 ) (45,582 ) (43,199 ) (39,151 ) (48,563 ) (e) (176,495 )
Insurance subsidiary   (482 )   (600 )   (545 )   (500 )   (2,127 )   (509 )   (384 )   (482 )   (539 )   (1,914 )
(43,210 ) (45,323 ) (46,428 ) (46,229 ) (181,190 ) (46,091 ) (43,583 ) (39,633 ) (49,102 ) (178,409 )
 
Impairment charges (356 ) (108 ) (376 ) (108,113 ) (108,953 ) (187 ) (438 ) (441 ) (76,127 ) (77,193 )
Transaction costs   (485 )   (597 )   (482 )   (667 )   (2,231 )   (944 )   (108 )   (613 )   (447 )   (2,112 )
Operating income 170,936 162,545 160,266 68,774 562,521 165,629 168,550 115,208 72,001 521,388
Rent (76,092 ) (77,379 ) (78,485 ) (78,222 ) (310,178 ) (78,134 ) (78,970 ) (78,410 ) (82,563 ) (318,077 )
Depreciation and amortization (39,098 ) (40,318 ) (40,973 ) (42,296 ) (162,685 ) (42,322 ) (39,303 ) (37,267 ) (38,437 ) (157,329 )
Interest, net   (26,288 )   (26,455 )   (26,452 )   (27,683 )   (106,878 )   (28,084 )   (27,609 )   (24,399 )   (23,906 )   (103,998 )

Income (loss) from continuing operations before income taxes

29,458 18,393 14,356 (79,427 ) (17,220 ) 17,089 22,668 (24,868 ) (72,905 ) (58,016 )
Provision (benefit) for income taxes   12,083     7,820     6,022     3,782     29,707     6,391     9,103     (7,530 )   (21,168 )   (13,204 )
$ 17,375   $ 10,573   $ 8,334   $ (83,209 ) $ (46,927 ) $ 10,698   $ 13,565   $ (17,338 ) $ (51,737 ) $ (44,812 )
 
   
(a) Includes costs of $0.5 million in connection with the closing of a TC hospital and a litigation charge of $7.0 million.
 
(b) Includes $0.1 million of severance and retirement costs.
 
(c) Includes $1.1 million of severance and retirement costs.
 
(d) Includes $0.1 million of severance and retirement costs.
 
(e) Includes $2.4 million of severance and retirement costs.
                         
 
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(In thousands)
 
Three months ended December 31, 2013
Nursing Rehabilitation division Care Transaction-
Hospital center Skilled nursing Hospital management related
division (a)   division services (b)   services (b)   Total division (b)   Corporate (b)   costs Eliminations   Consolidated
 
Revenues $ 619,344   $ 274,908   $ 241,938   $ 74,017 $ 315,955   $ 66,466   $ -   $ -   $ (52,299 ) $ 1,224,374  
 
Salaries, wages and benefits 268,475 127,261 219,484 51,773 271,257 52,353 27,181 - (128 ) 746,399
Supplies 64,278 12,102 733 36 769 2,791 227 - - 80,167
Rent 53,849 25,461 1,171 51 1,222 1,567 464 - - 82,563
Other operating expenses 158,572 99,393 8,801 4,197 12,998 9,204 21,694 447 (52,171 ) 250,137
Other (income) expense 90 (542 ) 2 6 8 (13 ) - - - (457 )
Impairment charges - 45 - - - 76,082 - - - 76,127
Depreciation and amortization 17,092 7,213 2,559 2,498 5,057 1,829 7,246 - - 38,437
Interest expense 199 12 60 - 60 9 24,881 - - 25,161
Investment income   1     (10 )   (31 )   -   (31 )   (1 )   (1,214 )   -     -     (1,255 )
  562,556     270,935     232,779     58,561   291,340     143,821     80,479     447     (52,299 )   1,297,279  

Income (loss) from continuing operations before income taxes

$ 56,788   $ 3,973   $ 9,159   $ 15,456 $ 24,615   $ (77,355 ) $ (80,479 ) $ (447 ) $ -   (72,905 )
Income tax benefit

 

  (21,168 )
Loss from continuing operations $ (51,737 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 6,286 $ 7,361 $ 679 $ 165 $ 844 $ 467 $ 22,998 $ - $ - $ 37,956
Development   1,115     -     -     -   -     -     -     -     -     1,115  
$ 7,401   $ 7,361   $ 679   $ 165 $ 844   $ 467   $ 22,998   $ -   $ -   $ 39,071  
 
 
Three months ended December 31, 2012
Nursing Rehabilitation division Care Transaction-
Hospital center Skilled nursing Hospital management related
division (c,d)   division (c)   services (c)   services (c)   Total division (c)   Corporate (c)   costs Eliminations   Consolidated
 
Revenues $ 645,426   $ 274,807   $ 244,485   $ 73,910 $ 318,395   $ 50,093   $ -   $ -   $ (51,329 ) $ 1,237,392  
 
Salaries, wages and benefits 280,682 136,868 220,331 51,210 271,541 36,474 29,065 (100 ) - 754,530
Supplies 66,391 14,959 876 36 912 2,127 224 - - 84,613
Rent 51,611 23,628 1,238 21 1,259 1,111 613 - - 78,222
Other operating expenses 151,289 91,601 2,277 3,847 6,124 6,559 19,532 767 (51,329 ) 224,543
Other (income) expense 23 (637 ) - 25 25 - (2,592 ) - - (3,181 )
Impairment charges 118 96 107,899 - 107,899 - - - - 108,113
Depreciation and amortization 20,161 7,343 2,945 2,334 5,279 1,482 8,031 - - 42,296
Interest expense 206 15 120 - 120 (4 ) 27,592 - - 27,929
Investment income   (18 )   (19 )   (1 )   -   (1 )   -     (208 )   -     -     (246 )
  570,463     273,854     335,685     57,473   393,158     47,749     82,257     667     (51,329 )   1,316,819  

Income (loss) from continuing operations before income taxes

$ 74,963   $ 953   $ (91,200 ) $ 16,437 $ (74,763 ) $ 2,344   $ (82,257 ) $ (667 ) $ -   (79,427 )
Provision for income taxes   3,782  
Loss from continuing operations $ (83,209 )
 

 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 9,817 $ 8,153 $ 672 $ 117 $ 789 $ 1,187 $ 18,425 $ - $ - $ 38,371
Development   6,693     5,454     -     -   -     -     -     -     -     12,147  
$ 16,510   $ 13,607   $ 672   $ 117 $ 789   $ 1,187   $ 18,425   $ -   $ -   $ 50,518  
 
   
(a) Includes costs of $0.5 million in connection with the closing of a TC hospital and a litigation charge of $7.0 million.
 
(b)

Includes severance and retirement costs of $3.7 million (rehabilitation division - $1.2 million (skilled nursing rehabilitation services - $0.1 million and hospital rehabilitation services - $1.1 million), care management division - $0.1 million and corporate - $2.4 million).

 
(c)

Includes severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4 million (skilled nursing rehabilitation services - $0.3 million and hospital rehabilitation services - $0.1 million), care management division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred in connection with restructuring activities.

 
(d) Includes a lease cancellation charge of $0.1 million incurred in connection with restructuring activities.
                         
 
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(In thousands)
 
Year ended December 31, 2013
Nursing Rehabilitation division Care Transaction-
Hospital center Skilled nursing Hospital management Corporate related
division (a,b) division (a) services (a,c,d) services (a,c) Total division (a,c,e)

 

(a,c,f) costs Eliminations   Consolidated
 
Revenues $ 2,521,649   $ 1,089,760   $ 991,790   $ 286,613 $ 1,278,403   $

224,927

  $ -   $ -   $ (214,229 ) $ 4,900,510  
 
Salaries, wages and benefits 1,101,705 517,845 894,470 196,301 1,090,771 175,581 103,124 - (539 ) 2,988,487
Supplies 264,884 50,413 3,079 126 3,205 9,631 866 - - 328,999
Rent 207,068 98,806 4,726 106 4,832 5,101 2,270 - - 318,077
Other operating expenses 631,737 387,518 57,324 16,196 73,520 29,747 74,939 2,112 (213,690 ) 985,883
Other (income) expense 167 (1,378 ) 221 65 286 5 (520 ) - - (1,440 )
Impairment charges 1,002 109 - - - 76,082 - - - 77,193
Depreciation and amortization 72,665 28,504 11,010 9,429 20,439 6,608 29,113 - - 157,329
Interest expense 763 53 292 - 292 15 106,926 - - 108,049
Investment income   (16 )   (49 )   (183 )   -   (183 )   (1 )   (3,802 )   -     -     (4,051 )
  2,279,975     1,081,821     970,939     222,223   1,193,162     302,769     312,916     2,112     (214,229 )   4,958,526  

Income (loss) from continuing operations before income taxes

$ 241,674   $ 7,939   $ 20,851   $ 64,390 $ 85,241   $ (77,842 ) $ (312,916 ) $ (2,112 ) $ -   (58,016 )
Income tax benefit   (13,204 )
Loss from continuing operations $ (44,812 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 28,571 $ 23,023 $ 2,608 $ 273 $ 2,881 $ 1,523 $ 44,910 $ - $ - $ 100,908
Development   11,817     7     -     -   -     -     -     -     -     11,824  
$ 40,388   $ 23,030   $ 2,608   $ 273 $ 2,881   $ 1,523   $ 44,910   $ -   $ -   $ 112,732  
 
 
Year ended December 31, 2012
Nursing Rehabilitation division Care Transaction-
Hospital center Skilled nursing Hospital management related
division (g,h) division (g,i) services (g) services (g) Total division (g) Corporate (g) costs Eliminations   Consolidated
 
Revenues $ 2,604,925   $ 1,092,416   $ 1,003,002   $ 293,580 $ 1,296,582   $ 143,340   $ -   $ -   $ (208,754 ) $ 4,928,509  
 
Salaries, wages and benefits 1,140,647 535,157 903,271 206,614 1,109,885 105,303 121,848 (450 ) (69 ) 3,012,321
Supplies 275,409 57,647 3,127 163 3,290 5,953 803 - - 343,102
Rent 205,325 93,702 5,442 140 5,582 3,140 2,429 - - 310,178
Other operating expenses 626,969 359,969 28,642 17,010 45,652 18,376 69,310 2,681 (208,685 ) 914,272
Other (income) expense (324 ) (1,615 ) 2 48 50 - (10,771 ) - - (12,660 )
Impairment charges 753 301 107,899 - 107,899 - - - - 108,953
Depreciation and amortization 78,716 28,118 11,168 9,309 20,477 4,442 30,932 - - 162,685
Interest expense 1,016 67 156 - 156 - 106,636 - - 107,875
Investment income   (64 )   (56 )   (2 )   -   (2 )   -     (875 )   -     -     (997 )
  2,328,447     1,073,290     1,059,705     233,284   1,292,989     137,214     320,312     2,231     (208,754 )   4,945,729  

Income (loss) from continuing before income taxes

$ 276,478   $ 19,126   $ (56,703 ) $ 60,296 $ 3,593   $ 6,126   $ (320,312 ) $ (2,231 ) $ -   (17,220 )
Provision for income taxes   29,707  
Loss from continuing operations $ (46,927 )
 

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 38,272 $ 20,764 $ 2,274 $ 348 $ 2,622 $ 1,616 $ 51,901 $ - $ - $ 115,175
Development   42,265     8,057     -     -   -     -     -     -     -     50,322  
$ 80,537   $ 28,821   $ 2,274   $ 348 $ 2,622   $ 1,616   $ 51,901   $ -   $ -   $ 165,497  
 
   
(a)

Includes one-time bonus costs of $20.1 million (hospital division - $8.0 million, nursing center division - $4.7 million, rehabilitation division - $6.3 million (skilled nursing rehabilitation services - $5.0 million and hospital rehabilitation services - $1.3 million), care management division - $0.8 million and corporate - $0.3 million).

 
(b) Includes costs of $6.0 million in connection with the closing of a TC hospital and litigation charges of $7.7 million.
 
(c)

Includes severance and retirement costs of $5.6 million (rehabilitation division - $1.5 million (skilled nursing rehabilitation services - $0.1 million and hospital rehabilitation services - $1.4 million), care management division - $0.7 million and corporate - $3.4 million).

 
(d) Includes $23.1 million of litigation charges.
 
(e) Includes $0.5 million of costs associated with closing a home health location.
 
(f) Includes $2.0 million of fees and charges associated with the modification of certain of the Company’s senior debt.
 
(g)

Includes severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4 million (skilled nursing rehabilitation services - $0.3 million and hospital rehabilitation services - $0.1 million), care management division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred in connection with restructuring activities.

 
(h)

Includes severance costs ($2.5 million), restructuring costs ($1.1 million) and lease cancellation charges ($1.6 million) incurred in connection with the closing of a regional office and two TC hospitals, and $5.0 million for employment-related lawsuits.

 
(i) Includes $0.9 million incurred in connection with the cancellation of a sub-acute unit project.
                                               
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
 
2012 Quarters 2013 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Hospital division data:
End of period data:
Number of hospitals:
Transitional care 103 102 101 101 101 101 101 101
Inpatient rehabilitation 5 5 5 5 5 5 5 5
108 107 106 106 106 106 106 106
 
Number of licensed beds:
Transitional care 7,358 7,308 7,269 7,269 7,269 7,269 7,283 7,315
Inpatient rehabilitation 185 215 215 215 215 215 215 215
7,543 7,523 7,484 7,484 7,484 7,484 7,498 7,530
 
Revenue mix %:
Medicare 63 62 61 63 62 63 61 59 59 61
Medicaid 6 6 6 6 6 5 6 7 6 6
Medicare Advantage 10 11 11 10 10 10 11 11 12 11
Commercial insurance and other 21 21 22 21 22 22 22 23 23 22
 
Admissions:
Medicare 10,726 9,951 9,786 9,894 40,357 10,606 9,722 9,247 9,516 39,091
Medicaid 924 919 915 838 3,596 685 744 788 712 2,929
Medicare Advantage 1,508 1,630 1,483 1,438 6,059 1,552 1,518 1,448 1,478 5,996
Commercial insurance and other 2,534 2,335 2,348 2,233 9,450 2,210 2,117 2,139 2,120 8,586
15,692 14,835 14,532 14,403 59,462 15,053 14,101 13,622 13,826 56,602
Admissions mix %:
Medicare 68 67 68 69 68 70 69 68 69 69
Medicaid 6 6 6 6 6 5 5 6 5 5
Medicare Advantage 10 11 10 10 10 10 11 10 11 11
Commercial insurance and other 16 16 16 15 16 15 15 16 15 15
 
Patient days:
Medicare 263,839 249,315 243,315 247,535 1,004,004 260,417 241,003 229,963 232,606 963,989
Medicaid 32,834 30,564 33,671 31,686 128,755 28,776 30,447 31,569 29,799 120,591
Medicare Advantage 42,638 45,451 43,679 42,067 173,835 44,136 44,021 42,745 44,565 175,467
Commercial insurance and other 74,906 73,128 72,243 69,237 289,514 73,066 66,575 68,514 66,449 274,604
414,217 398,458 392,908 390,525 1,596,108 406,395 382,046 372,791 373,419 1,534,651
Average length of stay:
Medicare 24.6 25.1 24.9 25.0 24.9 24.6 24.8 24.9 24.4 24.7
Medicaid 35.5 33.3 36.8 37.8 35.8 42.0 40.9 40.1 41.9 41.2
Medicare Advantage 28.3 27.9 29.5 29.3 28.7 28.4 29.0 29.5 30.2 29.3
Commercial insurance and other 29.6 31.3 30.8 31.0 30.6 33.1 31.4 32.0 31.3 32.0
Weighted average 26.4 26.9 27.0 27.1 26.8 27.0 27.1 27.4 27.0 27.1
                                               
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
2012 Quarters 2013 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Hospital division data (continued):
Revenues per admission:
Medicare $ 39,819 $ 40,084 $ 39,479 $ 41,016 $ 40,096 $ 39,995 $ 38,919 $ 39,063 $ 38,723 $ 39,197
Medicaid 42,962 42,150 41,591 43,539 42,540 51,441 48,142 51,890 52,599 51,005
Medicare Advantage 44,259 42,577 46,352 45,832 44,692 44,698 45,269 46,604 48,917 46,343
Commercial insurance and other 57,723 59,402 59,980 61,451 59,579 65,866 65,444 64,002 66,561 65,469
Weighted average 43,322 43,526 43,626 44,812 43,808 44,799 44,072 44,523 44,796 44,551
 
Revenues per patient day:
Medicare $ 1,619 $ 1,600 $ 1,588 $ 1,639 $ 1,612 $ 1,629 $ 1,570 $ 1,571 $ 1,584 $ 1,590
Medicaid 1,209 1,267 1,130 1,151 1,188 1,225 1,176 1,295 1,257 1,239
Medicare Advantage 1,565 1,527 1,574 1,567 1,558 1,572 1,561 1,579 1,622 1,584
Commercial insurance and other 1,953 1,897 1,949 1,982 1,945 1,992 2,081 1,998 2,124 2,047
Weighted average 1,641 1,620 1,614 1,653 1,632 1,659 1,627 1,627 1,659 1,643
 
Medicare case mix index (discharged patients only) 1.18 1.18 1.16 1.15 1.17 1.18 1.18 1.16 1.15 1.17
 
Average daily census 4,552 4,379 4,271 4,245 4,361 4,516 4,198 4,052 4,059 4,205
Occupancy % 68.5 65.4 64.4 64.0 65.6 67.9 62.9 60.4 60.8 63.0
 
Annualized employee turnover % 21.9 21.4 20.1 19.7 22.0 21.5 21.1 20.8
 
Nursing center division data:
End of period data:
Number of facilities:
Nursing centers:
Owned or leased 97 97 97 96 96 96 96 96
Managed 4 4 4 4 4 4 4 4
Assisted living facilities   6   6   6   6   6   6   6   6
  107   107   107   106   106   106   106   106
Number of licensed beds:
Nursing centers:
Owned or leased 12,159 12,207 12,207 12,153 12,153 12,153 12,153 12,153
Managed 485 485 485 485 485 485 485 485
Assisted living facilities   413   341   341   341   341   341   341   341
  13,057   13,033   13,033   12,979   12,979   12,979   12,979   12,979
Revenue mix %:
Medicare 36 35 35 35 35 35 34 33 32 34
Medicaid 36 37 37 37 36 36 37 39 40 37
Medicare Advantage 8 8 7 7 8 8 8 7 8 8
Private and other 20 20 21 21 21 21 21 21 20 21
                                             
 
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
2012 Quarters 2013 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Nursing center division data (continued):
Patient days (a):
Medicare 179,394 174,134 169,121 166,307 688,956 171,881 162,488 158,458 152,185 645,012
Medicaid 528,701 530,816 535,784 530,503 2,125,804 515,970 516,103 525,625 532,378 2,090,076
Medicare Advantage 52,860 48,778 48,483 47,105 197,226 52,460 52,064 45,865 49,319 199,708
Private and other   224,611   221,177   227,274   229,273   902,335   218,175   217,914   218,845   214,946   869,880
  985,566   974,905   980,662   973,188   3,914,321   958,486   948,569   948,793   948,828   3,804,676
 
Patient day mix % (a):
Medicare 18 18 17 17 18 18 17 17 16 17
Medicaid 54 54 55 54 54 54 54 55 56 55
Medicare Advantage 5 5 5 5 5 5 6 5 5 5
Private and other 23 23 23 24 23 23 23 23 23 23
 
Revenues per patient day (a):
Medicare Part A $ 504 $ 506 $ 516 $ 538 $ 516 $ 527 $ 526 $ 526 $ 540 $ 530
Total Medicare (including Part B) 545 550 562 576 558 564 566 568 584 570
Medicaid 185 187 188 190 188 190 190 199 205 196
Medicaid (net of provider taxes) (b) 163 165 166 167 165 167 167 177 183 174
Medicare Advantage 427 421 423 430 425 427 430 427 437 431
Private and other 249 246 250 254 250 264 262 256 258 260
Weighted average 278 277 279 282 279 287 284 285 290 287
 
Average daily census (a) 10,830 10,713 10,659 10,578 10,695 10,650 10,424 10,313 10,313 10,424
Admissions (a) 11,092 10,298 10,128 10,399 41,917 11,044 10,305 10,045 10,048 41,442
Occupancy % (a) 84.2 83.6 83.0 82.6 83.3 83.3 81.5 80.5 80.3 81.4
Medicare average length of stay (a) 30.4 31.3 31.9 30.6 31.0 30.2 30.9 31.6 31.4 31.0
 
Annualized employee turnover % 38.4 40.3 39.7 39.6 41.8 44.7 44.8 42.8
 
Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated 11 11 11 11 11 11 12 12 12 12
Non-affiliated 89 89 89 89 89 89 88 88 88 88
 
Sites of service (at end of period) 1,722 1,730 1,735 1,726 1,729 1,713 1,768 1,806
Revenue per site $ 147,137 $ 146,250 $ 145,322 $ 141,648 $ 580,357 $ 148,963 $ 144,962 $ 137,995 $ 133,963 $ 565,883
 
Therapist productivity % 80.3 80.4 80.5 80.5 80.4 81.1 80.4 79.8 79.5 80.2
 
Hospital rehabilitation services:
Revenue mix %:
Company-operated 33 33 33 33 33 33 34 34 31 33
Non-affiliated 67 67 67 67 67 67 66 66 69 67
 
Sites of service (at end of period):
Inpatient rehabilitation units 100 102 104 105 103 103 99 104
LTAC hospitals 125 125 123 123 123 123 122 121
Sub-acute units 19 20 20 21 8 8 7 10
Outpatient units 111 115 117 119 98 104 104 144
Other   5   5   5   5   -   -   -   -
  360   367   369   373   332   338   332   379
 
Revenue per site $ 206,580 $ 200,006 $ 194,849 $ 198,150 $ 799,585 $ 224,466 $ 206,441 $ 205,711 $ 195,296 $ 831,914
 
Annualized employee turnover % 19.6 16.9 17.3 16.9 10.4 13.2 14.0 13.7
   
(a) Excludes managed facilities.
(b) Provider taxes are recorded in other operating expenses for all periods presented.
                                     
 
KINDRED HEALTHCARE, INC.
Loss Per Common Share Reconciliation (a)
(In thousands, except per share amounts)
 
Three months ended December 31, Year ended December 31,
2013 2012 2013 2012
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Loss:
Amounts attributable to Kindred stockholders:
Loss from continuing operations:
As reported in Statement of Operations $ (54,142 ) $ (54,142 ) $ (83,999 ) $ (83,999 ) $ (48,469 ) $ (48,469 ) $ (47,970 ) $ (47,970 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (54,142 ) $ (54,142 ) $ (83,999 ) $ (83,999 ) $ (48,469 ) $ (48,469 ) $ (47,970 ) $ (47,970 )
 
Discontinued operations, net of income taxes:
Income (loss) from operations:
As reported in Statement of Operations $ (6,160 ) $ (6,160 ) $ 3,312 $ 3,312 $ (36,136 ) $ (36,136 ) $ 12,348 $ 12,348

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (6,160 ) $ (6,160 ) $ 3,312   $ 3,312   $ (36,136 ) $ (36,136 ) $ 12,348   $ 12,348  
 
Loss on divestiture of operations:
As reported in Statement of Operations $ (5,994 ) $ (5,994 ) $ (939 ) $ (939 ) $ (83,887 ) $ (83,887 ) $ (4,745 ) $ (4,745 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (5,994 ) $ (5,994 ) $ (939 ) $ (939 ) $ (83,887 ) $ (83,887 ) $ (4,745 ) $ (4,745 )
 
Income (loss) from discontinued operations:
As reported in Statement of Operations $ (12,154 ) $ (12,154 ) $ 2,373 $ 2,373 $ (120,023 ) $ (120,023 ) $ 7,603 $ 7,603

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (12,154 ) $ (12,154 ) $ 2,373   $ 2,373   $ (120,023 ) $ (120,023 ) $ 7,603   $ 7,603  
 
Net loss:
As reported in Statement of Operations $ (66,296 ) $ (66,296 ) $ (81,626 ) $ (81,626 ) $ (168,492 ) $ (168,492 ) $ (40,367 ) $ (40,367 )

Allocation to participating unvested restricted stockholders

  -     -     -     -     -     -     -     -  
Available to common stockholders $ (66,296 ) $ (66,296 ) $ (81,626 ) $ (81,626 ) $ (168,492 ) $ (168,492 ) $ (40,367 ) $ (40,367 )
 
Shares used in the computation:

Weighted average shares outstanding - basic computation

  52,344   52,344   51,692   51,692   52,249   52,249   51,659   51,659
Dilutive effect of employee stock options - - - -
Dilutive effect of performance-based restricted shares - - - -

 

       

Adjusted weighted average shares outstanding - diluted computation

  52,344     51,692     52,249     51,659  
 
Loss per common share:
Loss from continuing operations $ (1.04 ) $ (1.04 ) $ (1.62 ) $ (1.62 ) $ (0.93 ) $ (0.93 ) $ (0.93 ) $ (0.93 )
Discontinued operations:
Income (loss) from operations (0.12 ) (0.12 ) 0.06 0.06 (0.69 ) (0.69 ) 0.24 0.24
Loss on divestiture of operations   (0.11 )   (0.11 )   (0.02 )   (0.02 )   (1.61 )   (1.61 )   (0.09 )   (0.09 )
Income (loss) from discontinued operations   (0.23 )   (0.23 )   0.04     0.04     (2.30 )   (2.30 )   0.15     0.15  
Net loss $ (1.27 ) $ (1.27 ) $ (1.58 ) $ (1.58 ) $ (3.23 ) $ (3.23 ) $ (0.78 ) $ (0.78 )
 
     
(a) Loss per common share is based upon the weighted average number of common shares outstanding during the respective periods. The Company follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method. However, because the Company reported a loss from continuing operations, there was no allocation to participating unvested restricted stockholders for all periods presented.
                     
 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results
(Unaudited)
(In thousands, except per share amounts and statistics)
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and year ended December 31, 2013 and 2012 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
 
The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 28.8% and 7.2% for the three months ended December 31, 2013 and 2012, respectively, and 30.8% and 10.2% for the year ended December 31, 2013 and 2012, respectively. The change in the effective income tax rates between periods is attributable to the variation between periods of charges that are non-deductible for income tax purposes.
 
The use of these non-GAAP measurements are not intended to replace the presentation of the Company's financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the three months and year ended December 31, 2013 and 2012 that the Company believes are not representative of its ongoing operations due to the materiality and nature of the charges. The Company's core operating results also represent a key performance measure for the purpose of evaluating performance internally.
 
 
Three months ended Year ended
December 31, December 31,
2013 2012 2013 2012
Detail of charges:
One-time bonus costs $ - $ - ($20,158 ) $ -
Severance, retirement and other costs (3,663 ) (4,203 ) (6,016 ) (8,730 )
Costs associated with the closing of a TC hospital and a home health location (499 ) - (6,542 ) -
Litigation (7,000 ) - (30,850 ) (5,000 )
Transaction costs (447 ) (667 ) (2,112 ) (2,231 )
Impairment charges (76,082 ) (107,899 ) (76,082 ) (107,899 )
Lease cancellation charges (rent expense) - (176 ) - (1,691 )
Senior debt modification charges (interest expense)   -     -     (1,461 )   -  
(87,691 ) (112,945 ) (143,221 ) (125,551 )
Income tax benefit   25,232     8,173     44,074     12,795  
Charges net of income taxes (62,459 ) (104,772 ) (99,147 ) (112,756 )
Allocation to participating unvested restricted stockholders   -     -     -     -  
Available to common stockholders   ($62,459 )   ($104,772 )   ($99,147 )   ($112,756 )
 
Weighted average diluted shares outstanding   52,344     51,692     52,249     51,659  
 
Diluted loss per common share related to charges   ($1.19 )   ($2.03 )   ($1.90 )   ($2.18 )
 
Reconciliation of operating income before charges:
Operating income before charges $