Kindred Healthcare Reports Fourth Quarter 2015 Results

Consolidated Revenues of $1.8 billion, Core EBITDAR of $248 million(1),
Core Diluted EPS from Continuing Operations of $0.33(1)and
Adjusted Core Diluted EPS from Continuing Operations of $0.44(1) in the Fourth Quarter;

GAAP Diluted EPS from Continuing Operations of $0.50 and EBITDAR of $198 million(1) in the Fourth Quarter Includes Costs of $51 million and an Income Tax Benefit of $66 million Related to Litigation, Transaction, Integration, Impairment and Other Restructuring Costs

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

Consolidated Revenues of $7.1 billion, Core EBITDAR of $980 million(1), Core Diluted EPS from Continuing Operations of $1.28(1) and Adjusted Core Diluted EPS from Continuing Operations of $1.70(1) for the Year

GAAP Diluted Loss Per Share of $1.12 and EBITDAR of $675 million(1) for the Year

Significant Core Operating Cash Flows of $318 million(1)(2) for the Year
GAAP Operating Cash Flows of $163 million for the Year

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

Company Establishes Full Year Outlook for 2016

LOUISVILLE, Ky.--()--Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter ended December 31, 2015.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “Throughout 2015, our focus at Kindred has been growing and transforming our operations and clinical capabilities to expand our national leadership in post-acute care and I am proud of our team’s significant accomplishments. We successfully completed and integrated two highly strategic transactions, Gentiva Health Services, Inc. (“Gentiva”) and Centerre Healthcare Corporation (“Centerre”), which together added more than $2 billion in revenues, 40,000 employees and 500 sites of service to our platform.

Mr. Breier added, “These transactions have strengthened our ability to deliver a full continuum of post-acute care, while also contributing operating results and cost synergies that exceeded our expectations. Gentiva and Centerre also accelerated the transformation of Kindred’s financial profile, such that today the Company is more focused than ever on higher growth, lower capital intensity businesses that generate substantial free cash flows.”

Mr. Breier continued, “Solid execution in each of our businesses remains our top priority as we drive effective patient-centered care solutions and adapt to change. We are confident that Kindred’s full continuum of post-acute services, which enables us to deliver care and services where and when patients need them the most, and our innovations in care management uniquely position us to successfully transition to a value-based healthcare system. As always, I thank the many stakeholders in Kindred, and especially our 102,000 teammates, for the exceptional care they provide to more than a million patients each year.”

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

________

(1) See reconciliation of core results to generally accepted accounting principles (“GAAP”) results beginning on page 12, including a reconciliation of core EBITDAR and EBITDAR to the most comparable GAAP measure, income from continuing operations, of $56.0 million for the fourth quarter of 2015 and a loss from continuing operations of $51.9 million for the year ended December 31, 2015.
(2) Core operating cash flows, similar to the GAAP presentation, include net changes in working capital and exclude routine capital expenditures and distributions to noncontrolling interests.
 

Fourth Quarter and Year Consolidated Highlights(1):

  • Consolidated revenues for the fourth quarter increased 40.8% to $1.78 billion year-over-year and core earnings before interest, income taxes, depreciation, amortization, rent and certain charges (“core EBITDAR”) increased 45.7% to $248 million compared to the same period in 2014. For the year, consolidated revenues increased 40.3% to $7.1 billion and core EBITDAR increased 43.3% to $980 million, each as compared to the same period last year. A significant driver of the growth in both periods was the acquisition of Gentiva and Centerre.
  • Core diluted earnings per share (“EPS”) from continuing operations for the fourth quarter was $0.33 and adjusted core diluted EPS from continuing operations was $0.44 based upon 87.2 million weighted average diluted shares, an improvement compared to core diluted EPS of $0.26 and adjusted core diluted EPS of $0.38 for the same period a year ago based upon 63.2 million weighted average diluted shares. For the year, core diluted EPS from continuing operations was $1.28 and adjusted core diluted EPS from continuing operations was $1.70 based upon 86.1 million weighted average diluted shares, an improvement compared to core diluted EPS of $1.06 and adjusted core diluted EPS of $1.51 for the same period a year ago based upon 58.2 million weighted average diluted shares.
  • The Company generated core operating cash flows of $54 million(2) for the fourth quarter compared to $86 million(2) for the same period a year ago, and core free cash flows were $2 million(3) for the fourth quarter compared to $58 million(3) in the same period of 2014. The decline in both measures was attributable to the timing of certain year-end payroll expenditures in the fourth quarter of 2015 and a meaningful acceleration of accounts receivable collections in the fourth quarter of 2014 in the Hospital Division after the completion of central business office consolidations. Core free cash flows for the fourth quarter of 2015 were also negatively impacted by the timing of routine capital expenditures as compared to a year ago.

    For the year, core operating cash flows were $318 million(2) compared to $188 million(2) for the same period a year ago, and core free cash flows were $154 million(3) compared to $83 million(3) in the same period of 2014. These results reflect the Company’s changing business mix primarily driven by the addition of Gentiva and Centerre in 2015.
  • GAAP operating results:
       
Three months ended

December 31,

Year ended
December 31,
2015     2014 2015     2014
 
(In thousands, except per share amounts)
 
Diluted earnings (loss) per share from continuing operations $ 0.50 $ (0.15 ) $ (1.12 ) $ (0.24 )
Income (loss) from continuing operations 55,984 (4,803 ) (51,863 ) 4,896
Operating cash flows 70,195 81,149 163,262 105,471
 
  • The Kindred Board of Directors declared a cash dividend of $0.12 per share on the Company’s common stock payable on April 1, 2016 to shareholders of record as of the close of business on March 10, 2016.

Fourth Quarter Segment Highlights(1)(4):

Kindred’s Hospital Division fourth quarter same-hospital revenues declined 3.3% over the prior year period to $594 million, with a decline in same-hospital admissions of 3.3% compared to the same period last year. Sequentially, same-hospital admissions increased 1.7% and same-hospital revenues per patient day increased 2.8% compared to the third quarter of 2015. Core EBITDAR for the fourth quarter declined to $118 million from $135 million a year ago, and increased from $97 million in the third quarter of 2015.

________

(1) See reconciliation of core results to GAAP results beginning on page 12.
(2) Core operating cash flows, similar to the GAAP presentation, include net changes in working capital and exclude routine capital expenditures and distributions to noncontrolling interests.
(3) Core free cash flows include net changes in working capital, routine capital expenditures and distributions to noncontrolling interests.
(4) See same-hospital and full segment data on pages 8 and 9.
 

Kindred at Home Division fourth quarter revenues and core EBITDAR increased to $604 million and $99 million, respectively. The home health segment experienced another quarter of solid growth, with episodic admissions increasing 1.5% and revenues increasing 4.8% to $358 million, both over the prior year period on a combined basis, notwithstanding a 12.6% consolidation of home health branches during 2015 from 427 to 373 sites. Average home health revenue per branch grew 18.0% during the course of this consolidation. The hospice segment generated $178 million of revenues with stable admissions during a seasonally weak quarter. Average hospice revenue per branch increased 13.8% as the Company consolidated the hospice branch network from 193 sites at the end of 2014 to 175 sites at the end of 2015.

Kindred Rehabilitation Services Division revenues increased 4.8% to $362 million and core EBITDAR contribution increased 42.7% to $57 million for the quarter. The Kindred Hospital Rehabilitation Services segment experienced strong revenue growth of $63 million or 67.4% over the prior year period, due to the successful integration of Centerre, and achieved core EBITDAR margin improvement from 25.7% to 29.0%. The RehabCare segment (“RHB”) revenues declined to $207 million from $253 million a year ago primarily due to contract losses that occurred in the first half of 2015. Excluding one customer with 23 sites of service that RHB terminated in the fourth quarter of 2015 in connection with litigation to collect past due amounts, RHB added 32 net new sites of service over the last half of 2015.

Kindred’s Nursing Center Division revenues grew 0.6% to $273 million in the fourth quarter. Core EBITDAR was $37 million, down $2 million from a year ago. Top line growth was driven by a 3.5% improvement in revenue per patient day, including a 4.9% increase in Medicaid revenue per patient day that was partially offset by a 3.9% admission decline. Operating costs per patient day increased 4.8% in the fourth quarter, primarily a result of the admissions decline, start-up costs for January 2016 new openings and continuing Medicare length of stay contraction.

2016 Outlook

Kindred today announced its outlook for 2016. Kindred expects:

  • Annual revenues of approximately $7.250 billion, with a range of $7.2 billion to $7.3 billion
  • Core EBITDAR of approximately $990 million, with a range of $970 million to $1.010 billion
  • Core diluted EPS from continuing operations of approximately $0.90, with a range of $0.80 to $1.00(1)
  • Adjusted core diluted EPS from continuing operations of approximately $1.25, with a range of $1.15 to $1.35(1)(2)

For the first quarter of 2016, the Company expects core EBITDAR to approximate $235 million to $250 million, core diluted EPS from continuing operations to approximate $0.17 to $0.27 and adjusted core diluted EPS from continuing operations to approximate $0.26 to $0.36.

Mr. Breier commented, “Our outlook reflects what we believe will be a transition period for our Hospital Division in 2016 and 2017 due to long-term acute care (“LTAC”) criteria implementation. We anticipate that over time, our LTAC criteria mitigation efforts, robust growth in other divisions, and strong cost management across the enterprise will offset the effects of these reimbursement changes. For the enterprise, we expect stable and consistent core EBITDAR of approximately $1 billion in 2016 and at least $1 billion in 2017. Throughout this transition period we expect to continue generating roughly $300 million(3) per year in core operating cash flows, and approximately half of that amount in core free cash flows(4).

Mr. Breier concluded, “Our extensive efforts to grow and diversify Kindred enable us to work through challenges within any individual business, while continuing to advance the enterprise. We will continue to invest in strategic growth, including a particular focus on investments that help to increase our capabilities as a post-acute benefits management company, preparing us for the ongoing transition from fee-for-service to fee-for-value. The substantial cash flows we expect from our diversified service offerings will allow us to continue investing aggressively in our platform, which will drive growth, reduce our leverage, and advance our Continue the Care strategy. The growth in our Kindred at Home division and Kindred Hospital Rehabilitation Services in 2015, our recent announcements regarding expansion in four integrated markets and our strategic partnership with Inovalon (NASDAQ:INOV) to create a unique set of post-acute benefits management tools and solutions are examples of these capabilities.”

________

(1) The EPS estimate is based upon an estimated weighted average annual diluted share count for 2016 of 88.5 million shares.
(2) Adjusted core diluted EPS is calculated by excluding non-cash expenses, net of the income tax benefit, related to amortization of intangible assets, stock-based compensation and deferred financing costs, from core income from continuing operations. The estimated non-cash expenses for 2016 total approximately $53 million ($32 million net of income taxes) or approximately $0.35 per diluted share.
(3) Core operating cash flows, similar to the GAAP presentation, include net changes in working capital and exclude routine capital expenditures and distributions to noncontrolling interests.
(4) Core free cash flows include net changes in working capital, routine capital expenditures and distributions to noncontrolling interests.
 

This outlook excludes transaction costs, the effect of any reimbursement changes, debt refinancing costs, severance, retirement, retention, consulting and restructuring costs, litigation and related contingency expense, integration costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock or any repurchases of common stock.

All forward-looking non-GAAP financial measures contained in this section “2016 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 address the probable significance of the unavailable information.

Cash Dividend

The Company announced that its Board of Directors has approved the payment of a cash dividend of $0.12 per share of common stock to be paid on April 1, 2016 to shareholders of record as of the close of business on March 10, 2016.

Conference Call

As previously announced, investors and the general public may access a live webcast of the fourth quarter 2015 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on February 26 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 26 by dialing (719) 457-0820, access code: 4866232. The replay will be available through March 7.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 11 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-90 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $7.2 billion(1). At December 31, 2015, Kindred through its subsidiaries had approximately 102,000 employees providing healthcare services in 2,692 locations in 46 states, including 95 transitional care hospitals, 18 inpatient rehabilitation hospitals, 90 nursing centers, 19 sub-acute units, 604 Kindred at Home home health, hospice and non-medical home care sites of service, 100 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,766 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for seven years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

________

(1) Revenues were computed by combining the twelve months ended December 31, 2015 data for Kindred and one month ended January 2015 data for Gentiva.
 
                   
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
 
Three months ended Year ended
December 31, December 31,
2015 2014 2015 2014
 
Revenues $ 1,780,949   $ 1,264,674   $ 7,054,907   $ 5,027,599  
 
Salaries, wages and benefits 909,171 616,277 3,614,091 2,442,879
Supplies 96,295 73,774 384,354 289,043
Rent 97,823 79,167 382,609 313,039
Other operating expenses 208,315 168,206 825,996 679,992
General and administrative expenses 344,340 259,702 1,395,288 973,223
Other income (1,317 ) (278 ) (3,016 ) (872 )
Litigation contingency expense 8,261 - 138,648 4,600
Impairment charges 18,031 - 24,757 -
Depreciation and amortization 40,362 38,558 157,251 155,570
Interest expense 56,267 39,919 232,395 168,763
Investment income   (603 )   (1,021 )   (2,806 )   (3,996 )
  1,776,945     1,274,304     7,149,567     5,022,241  
Income (loss) from continuing operations before income taxes 4,004 (9,630 ) (94,660 ) 5,358
Provision (benefit) for income taxes   (51,980 )   (4,827 )   (42,797 )   462  
Income (loss) from continuing operations 55,984 (4,803 ) (51,863 ) 4,896
Discontinued operations, net of income taxes:
Income (loss) from operations 1,509 (28,743 ) (235 ) (53,630 )
Gain (loss) on divestiture of operations   261     (9,061 )   1,244     (12,698 )
Income (loss) from discontinued operations   1,770     (37,804 )   1,009     (66,328 )
Net income (loss) 57,754 (42,607 ) (50,854 ) (61,432 )
(Earnings) loss attributable to noncontrolling interests:
Continuing operations (12,082 ) (5,143 ) (42,564 ) (18,872 )
Discontinued operations   2     66     34     467  
  (12,080 )   (5,077 )   (42,530 )   (18,405 )
Income (loss) attributable to Kindred $ 45,674   $ (47,684 ) $ (93,384 ) $ (79,837 )
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ 43,902 $ (9,946 ) $ (94,427 ) $ (13,976 )
Income (loss) from discontinued operations   1,772     (37,738 )   1,043     (65,861 )
Net income (loss) $ 45,674   $ (47,684 ) $ (93,384 ) $ (79,837 )
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ 0.50 $ (0.15 ) $ (1.12 ) $ (0.24 )
Discontinued operations:
Income (loss) from operations 0.02 (0.44 ) - (0.91 )
Gain (loss) on divestiture of operations   -     (0.14 )   0.01     (0.21 )
Income (loss) from discontinued operations   0.02     (0.58 )   0.01     (1.12 )
Net income (loss) $ 0.52   $ (0.73 ) $ (1.11 ) $ (1.36 )
 
Diluted:
Income (loss) from continuing operations $ 0.50 $ (0.15 ) $ (1.12 ) $ (0.24 )
Discontinued operations:
Income (loss) from operations 0.02 (0.44 ) - (0.91 )
Gain (loss) on divestiture of operations   -     (0.14 )   0.01     (0.21 )
Income (loss) from discontinued operations   0.02     (0.58 )   0.01     (1.12 )
Net income (loss) $ 0.52   $ (0.73 ) $ (1.11 ) $ (1.36 )
 
Shares used in computing earnings (loss) per common share:
Basic 86,336 65,135 84,558 58,634
Diluted 87,232 65,135 84,558 58,634
 
Cash dividends declared and paid per common share $ 0.12 $ 0.12 $ 0.48 $ 0.48
 
           
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(In thousands, except per share amounts)
 
December 31, December 31,
2015 2014
ASSETS
Current assets:
Cash and cash equivalents $ 98,758 $ 164,188
Insurance subsidiary investments 106,638 99,951
Accounts receivable less allowance for loss 1,194,868 944,219
Inventories 27,791 25,702
Income taxes 11,790 8,575
Interest deposit on senior unsecured notes held in escrow - 23,438
Other   61,054     41,598  
1,500,899 1,307,671
 
Property and equipment 2,162,398 1,978,153
Accumulated depreciation   (1,190,402 )   (1,076,049 )
971,996 902,104
 
Goodwill 2,669,810 997,597
Intangible assets less accumulated amortization 755,655 400,700
Assets held for sale 613 3,475
Insurance subsidiary investments 204,498 166,045
Deferred tax assets 104,130 93,565
Proceeds from senior unsecured notes held in escrow - 1,350,000
Acquisition deposit 18,489 195,000
Other   292,846     236,807  
Total assets $ 6,518,936   $ 5,652,964  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 187,061 $ 175,725
Salaries, wages and other compensation 404,925 358,857
Due to third party payors 36,251 43,957
Professional liability risks 64,099 64,137
Other accrued liabilities 394,246 189,980
Long-term debt due within one year   24,630     24,607  
1,111,212 857,263
 
Long-term debt 3,137,025 2,852,531
Professional liability risks 263,273 243,614
Deferred credits and other liabilities 301,379 213,584
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 83,792 shares - December 31, 2015 and 69,977 shares - December 31, 2014

20,948 17,494
Capital in excess of par value 1,737,747 1,586,692
Accumulated other comprehensive loss (2,632 ) (2,551 )
Accumulated deficit   (256,209 )   (159,768 )
1,499,854 1,441,867
Noncontrolling interests   206,193     44,105  
Total equity   1,706,047     1,485,972  
Total liabilities and equity $ 6,518,936   $ 5,652,964  
 
                       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
 
Three months ended Year ended
December 31, December 31,
2015 2014 2015 2014
Cash flows from operating activities:
Net income (loss) $ 57,754 $ (42,607 ) $ (50,854 ) $ (61,432 )

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

Depreciation and amortization 40,853 39,145 158,374 160,950
Amortization of stock-based compensation costs 4,872 6,986 20,636 16,643
Amortization of deferred financing costs 3,566 2,077 13,721 23,288
Payment of capitalized lender fees related to debt issuance - (3,527 ) (28,012 ) (22,652 )
Provision for doubtful accounts 22,643 6,215 52,460 41,803
Deferred income taxes (45,738 ) (24,341 ) (46,632 ) (35,615 )
Impairment charges 18,031 - 24,757 673
(Gain) loss on divestiture of discontinued operations (261 ) 9,061 (1,244 ) 12,698
Other 3,080 47 13,537 2,336
Change in operating assets and liabilities:
Accounts receivable

4,822

 

28,125

(8,577

) (74,378 )
Inventories and other assets 10,312 (13,074 ) 54,493 (25,960 )
Accounts payable 2,408 13,070 (10,380 ) (9,399 )
Income taxes (6,254 ) 12,959 27,392 31,728
Due to third party payors (26,917 ) (3,363 ) (30,882 ) 11,177
Other accrued liabilities  

(18,976

)   50,376    

(25,527

)   33,611  
Net cash provided by operating activities   70,195     81,149     163,262     105,471  
 
Cash flows from investing activities:
Routine capital expenditures (41,240 ) (23,656 ) (121,931 ) (91,081 )
Development capital expenditures (7,865 ) (2,564 ) (19,931 ) (5,257 )
Acquisitions, net of cash acquired - - (673,547 ) (24,136 )
Acquisition deposit (18,489 ) (195,000 ) 176,511 (195,000 )
Sale of assets 1,674 952 8,735 23,861
Proceeds from senior unsecured notes offering held in escrow - (1,350,000 ) 1,350,000 (1,350,000 )
Interest in escrow for senior unsecured notes - (23,438 ) 23,438 (23,438 )
Purchase of insurance subsidiary investments (26,036 ) (7,930 ) (85,222 ) (105,324 )
Sale of insurance subsidiary investments 24,295 16,749 75,075 51,716
Net change in insurance subsidiary cash and cash equivalents (3,875 ) (20,689 ) (12,271 ) 33,683
Proceeds from note receivable - - 25,000 -
Net change in other investments (4,995 ) 379 (4,620 ) 1,406
Other   592     1,216     10,972     679  
Net cash provided by (used in) investing activities   (75,939 )   (1,603,981 )   752,209     (1,682,891 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 325,600 83,000 1,740,450 1,551,515
Repayment of borrowings under revolving credit (312,000 ) (83,000 ) (1,631,850 ) (1,807,615 )
Proceeds from issuance of term loan, net of discount - - 199,000 997,500
Proceeds from issuance of senior unsecured notes due 2022 - - - 500,000
Proceeds from issuance of senior unsecured notes due 2020 and 2023 - 1,350,000 - 1,350,000
Proceeds from issuance of debt component of tangible equity units - 34,773 - 34,773
Repayment of Gentiva debt - - (1,177,363 ) -
Repayment of senior unsecured notes - - - (550,000 )
Repayment of term loan (3,002 ) (2,500 ) (12,010 ) (788,563 )
Repayment of other long-term debt (5,352 ) (58 ) (6,752 ) (273 )
Payment of deferred financing costs (162 ) (279 ) (3,446 ) (3,431 )
Equity offering, net of offering costs - 101,615 - 321,968
Issuance of equity component of tangible equity units, net of issuance costs - 133,336 - 133,336
Issuance of common stock in connection with employee benefit plans - 26 534 6,243

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

- - (915 ) -
Payment of dividend for mandatory redeemable preferred stock (2,752 ) - (10,887 ) -
Dividends paid (10,052 ) (7,754 ) (40,119 ) (28,594 )
Contributions made by noncontrolling interests 660 - 2,152 -
Distributions to noncontrolling interests (10,635 ) (4,088 ) (42,458 ) (13,692 )
Other   1,306     165     2,763     2,469  
Net cash provided by (used in) financing activities   (16,389 )   1,605,236     (980,901 )   1,705,636  
Change in cash and cash equivalents (22,133 ) 82,404 (65,430 ) 128,216
Cash and cash equivalents at beginning of period   120,891     81,784     164,188     35,972  
Cash and cash equivalents at end of period $ 98,758   $ 164,188   $ 98,758   $ 164,188  
 
                           
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data (a)
(Unaudited)
(In thousands, except per share amounts)
 
Fourth quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth Year First Second Third Fourth Year prior year
Consolidated income statement data:
Revenues $ 1,272,610 $ 1,261,397 $ 1,228,918 $ 1,264,674 $ 5,027,599 $ 1,675,967 $ 1,833,475 $ 1,764,516 $ 1,780,949 $ 7,054,907 40.8
 
Core EBITDAR $ 181,044 $ 175,865 $ 157,218 $ 170,088 $ 684,215 $ 234,211 $ 261,800 $ 236,477 $ 247,839 $ 980,327 45.7
Rent   78,530     77,452     77,643     79,167     312,792     91,199     95,528     95,436     96,934     379,097   22.4
Core EBITDA 102,514 98,413 79,575 90,921 371,423 143,012 166,272 141,041 150,905 601,230 66.0
Depreciation and amortization 39,092 39,172 38,748 38,558 155,570 38,935 38,625 39,329 40,362 157,251 4.7
Interest, net   25,617     21,438     22,171     21,857     91,083     44,346     56,140     56,008     55,664     212,158   154.7

Income from continuing operations before income taxes

37,805 37,803 18,656 30,506 124,770 59,731 71,507 45,704 54,879 231,821 79.9
Provision for income taxes   14,445     13,612     6,168     8,471     42,696     22,466     25,721     15,298     13,758     77,243   62.4
Income from continuing operations 23,360 24,191 12,488 22,035 82,074 37,265 45,786 30,406 41,121 154,578 86.6
Noncontrolling interests   (4,529 )   (4,828 )   (4,372 )   (5,143 )   (18,872 )   (8,847 )   (11,735 )   (9,900 )   (12,082 )   (42,564 ) 134.9
Net income attributable to Kindred $ 18,831   $ 19,363   $ 8,116   $ 16,892   $ 63,202   $ 28,418   $ 34,051   $ 20,506   $ 29,039   $ 112,014   71.9
 
Core diluted EPS $ 0.35 $ 0.35 $ 0.13 $ 0.26 $ 1.06 $ 0.34 $ 0.39 $ 0.23 $ 0.33 $ 1.28 26.9
Adjusted Core EPS $ 0.46 $ 0.50 $ 0.20 $ 0.38 $ 1.51 $ 0.43 $ 0.51 $ 0.33 $ 0.44 $ 1.70 15.8
Diluted shares 52,711 53,792 62,902 63,163 (b) 58,210 (b) 82,422 86,402 86,892 87,232 86,098 38.1
 
Revenues by segment:
Hospital division $ 627,245 $ 612,517 $ 591,121 $ 619,185 $ 2,450,068 $ 640,483 $ 627,206 $ 579,497 $ 593,593 $ 2,440,779 (4.1 )
Kindred at Home:
Home health 74,791 75,502 74,026 74,588 298,907 300,867 427,820 424,054 425,759 1,578,500 470.8
Hospice   12,913     12,484     12,160     12,538     50,095     119,057     178,005     181,140     178,325     656,527   1,322.3
87,704 87,986 86,186 87,126 349,002 419,924 605,825 605,194 604,084 2,235,027 593.3
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 93,177 94,963 93,139 92,922 374,201 151,564 152,544 149,435 155,579 609,122 67.4
RehabCare   253,943     253,694     246,732     252,667     1,007,036     252,595     236,791     219,518     206,582     915,486   (18.2 )
347,120 348,657 339,871 345,589 1,381,237 404,159 389,335 368,953 362,161 1,524,608 4.8
Nursing center division   262,590     264,437     263,897     271,625     1,062,549     274,308     273,870     270,510     273,387     1,092,075   0.6
1,324,659 1,313,597 1,281,075 1,323,525 5,242,856 1,738,874 1,896,236 1,824,154 1,833,225 7,292,489 38.5
Eliminations   (52,049 )   (52,200 )   (52,157 )   (58,851 )   (215,257 )   (62,907 )   (62,761 )   (59,638 )   (52,276 )   (237,582 ) (11.2 )
$ 1,272,610   $ 1,261,397   $ 1,228,918   $ 1,264,674   $ 5,027,599   $ 1,675,967   $ 1,833,475   $ 1,764,516   $ 1,780,949   $ 7,054,907   40.8
 
Core EBITDAR by segment:
Hospital division $ 139,505 $ 131,990 $ 117,604 $ 134,791 $ 523,890 $ 134,786 $ 131,532 $ 97,128 $ 117,675 $ 481,121 (12.7 )
Kindred at Home:
Home health 2,845 5,769 5,961 7,398 21,973 46,798 72,917 68,155 68,826 256,696 830.3
Hospice   1,852     2,139     1,149     524     5,664     16,996     27,887     34,025     30,212     109,120   5,665.6
4,697 7,908 7,110 7,922 27,637 63,794 100,804 102,180 99,038 365,816 1,150.2
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 25,710 25,742 24,887 23,884 100,223 44,564 44,531 42,141 45,098 176,334 88.8
RehabCare   18,016     19,863     17,080     16,029     70,988     16,493     14,681     14,544     11,858     57,576   (26.0 )
43,726 45,605 41,967 39,913 171,211 61,057 59,212 56,685 56,956 233,910 42.7
Nursing center division 37,572 38,614 35,920 38,810 150,916 36,963 40,461 35,923 36,601 149,948 (5.7 )
Support center   (44,456 )   (48,252 )   (45,383 )   (51,348 )   (189,439 )   (62,389 )   (70,209 )   (55,439 )   (62,431 )   (250,468 ) 21.6
$ 181,044   $ 175,865   $ 157,218   $ 170,088   $ 684,215   $ 234,211   $ 261,800   $ 236,477   $ 247,839   $ 980,327   45.7
 
Core EBITDAR margin by segment:
Hospital division 22.2 21.5 19.9 21.8 21.4 21.0 21.0 16.8 19.8 19.7 (9.2 )
Kindred at Home:
Home health 3.8 7.6 8.1 9.9 7.4 15.6 17.0 16.1 16.2 16.3 63.6
Hospice 14.3 17.1 9.4 4.2 11.3 14.3 15.7 18.8 16.9 16.6 302.4
Kindred at Home 5.4 9.0 8.2 9.1 7.9 15.2 16.6 16.9 16.4 16.4 80.2
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 27.6 27.1 26.7 25.7 26.8 29.4 29.2 28.2 29.0 28.9 12.8
RehabCare 7.1 7.8 6.9 6.3 7.0 6.5 6.2 6.6 5.7 6.3 (9.5 )
Kindred Rehabilitation Services 12.6 13.1 12.3 11.5 12.4 15.1 15.2 15.4 15.7 15.3 36.5
Nursing center division 14.3 14.6 13.6 14.3 14.2 13.5 14.8 13.3 13.4 13.7 (6.3 )
Consolidated 14.2 13.9 12.8 13.4 13.6 14.0 14.3 13.4 13.9 13.9 3.7

________

(a)

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

(b)

Excludes share dilution from the fourth quarter 2014 common equity and tangible equity units offerings, both pre-closing financing activities of the Gentiva acquisition.

 
                             
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
(In thousands, except statistics)
 
Fourth quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth Year First Second Third Fourth Year prior year
Hospital division:
End of period data:
Number of transitional care hospitals 97 97 97 97 97 96 95 95
Number of licensed beds 7,145 7,145 7,145 7,147 7,147 7,124 7,094 7,094
Revenue mix %:
Medicare 59.8 58.2 57.0 57.0 58.0 56.8 55.2 57.1 57.3 56.6
Medicaid 6.6 6.8 6.9 6.0 6.6 5.5 5.3 5.3 5.1 5.3
Medicare Advantage 11.4 11.2 10.5 10.5 10.9 11.9 11.6 10.8 11.1 11.4
Medicaid Managed 2.4 3.0 3.8 4.5 3.4 4.7 5.6 6.1 6.2 5.6
Commercial insurance and other 19.8 20.8 21.8 22.0 21.1 21.1 22.3 20.7 20.3 21.1
Admissions:
Medicare 9,038 8,555 8,460 8,525 34,578 8,775 8,267 7,976 8,169 33,187 (4.2 )
Medicaid 819 896 805 750 3,270 610 610 556 520 2,296 (30.7 )
Medicare Advantage 1,435 1,389 1,250 1,359 5,433 1,555 1,352 1,212 1,304 5,423 (4.0 )
Medicaid Managed 317 381 511 572 1,781 643 675 646 612 2,576 7.0
Commercial insurance and other   1,914   1,885   1,703   1,696   7,198   1,868   1,815   1,763   1,701   7,147 0.3
  13,523   13,106   12,729   12,902   52,260   13,451   12,719   12,153   12,306   50,629 (4.6 )
Patient days:
Medicare 230,350 220,035 213,170 220,548 884,103 228,483 218,577 210,870 210,409 868,339 (4.6 )
Medicaid 32,712 32,619 30,480 30,454 126,265 28,663 25,213 23,167 21,795 98,838 (28.4 )
Medicare Advantage 44,025 43,027 39,938 41,260 168,250 48,448 44,740 39,585 41,079 173,852 (0.4 )
Medicaid Managed 10,733 13,191 16,556 20,000 60,480 22,013 24,833 24,412 24,802 96,060 24.0
Commercial insurance and other   59,567   59,293   57,486   59,295   235,641   62,241   62,922   58,631   57,321   241,115 (3.3 )
  377,387   368,165   357,630   371,557   1,474,739   389,848   376,285   356,665   355,406   1,478,204 (4.3 )
Average length of stay:
Medicare 25.5 25.7 25.2 25.9 25.6 26.0 26.4 26.4 25.8 26.2 (0.4 )
Medicaid 39.9 36.4 37.9 40.6 38.6 47.0 41.3 41.7 41.9 43.0 3.2
Medicare Advantage 30.7 31.0 32.0 30.4 31.0 31.2 33.1 32.7 31.5 32.1 3.6
Medicaid Managed 33.9 34.6 32.4 35.0 34.0 34.2 36.8 37.8 40.5 37.3 15.7
Commercial insurance and other 31.1 31.5 33.8 35.0 32.7 33.3 34.7 33.3 33.7 33.7 (3.7 )
Weighted average 27.9 28.1 28.1 28.8 28.2 29.0 29.6 29.3 28.9 29.2 0.3
Revenues per admission:
Medicare $ 41,492 $ 41,670 $ 39,828 $ 41,425 $ 41,112 $ 41,483 $ 41,892 $ 41,451 $ 41,656 $ 41,620 0.6
Medicaid 50,894 46,106 50,344 49,760 49,186 57,594 54,795 55,415 57,724 56,352 16.0
Medicare Advantage 49,666 49,352 49,814 47,756 49,142 48,908 53,578 51,495 50,680 51,077 6.1
Medicaid Managed 47,803 48,814 44,321 48,691 47,305 46,740 51,950 54,976 60,263 53,383 23.8
Commercial insurance and other 64,858 67,679 75,591 80,167 71,743 72,395 77,110 68,151 70,735 72,150 (11.8 )
Weighted average 46,384 46,736 46,439 47,991 46,882 47,616 49,312 47,683 48,236 48,209 0.5
Revenues per patient day:
Medicare $ 1,628 $ 1,620 $ 1,581 $ 1,601 $ 1,608 $ 1,593 $ 1,584 $ 1,568 $ 1,617 $ 1,591 1.0
Medicaid 1,274 1,266 1,330 1,225 1,274 1,226 1,326 1,330 1,377 1,309 12.4
Medicare Advantage 1,619 1,593 1,559 1,573 1,587 1,570 1,619 1,577 1,609 1,593 2.3
Medicaid Managed 1,412 1,410 1,368 1,393 1,393 1,365 1,412 1,455 1,487 1,432 6.7
Commercial insurance and other 2,084 2,152 2,239 2,293 2,192 2,173 2,224 2,049 2,099 2,139 (8.5 )
Weighted average 1,662 1,664 1,653 1,666 1,661 1,643 1,667 1,625 1,670 1,651 0.2

Medicare case mix index (discharged patients only)

1.173 1.182 1.157 1.139 1.163 1.166 1.163 1.150 1.164 1.162 2.2
Average daily census 4,193 4,046 3,887 4,039 4,040 4,332 4,135 3,877 3,863 4,050 (4.4 )
Occupancy % 67.3 64.6 62.1 64.5 64.6 69.2 66.1 62.2 62.2 64.9 (3.6 )
Same-hospital data:
Revenues (a) $ 620,866 $ 606,408 $ 585,553 $ 614,207 $ 2,427,034 $ 634,975 $ 622,018 $ 577,337 $ 594,091 $ 2,428,421 (3.3 )
Admissions:
Medicare 8,910 8,423 8,342 8,403 34,078 8,652 8,172 7,932 8,169 32,925 (2.8 )
Medicaid 812 885 794 739 3,230 602 608 556 520 2,286 (29.6 )
Medicare Advantage 1,429 1,376 1,244 1,351 5,400 1,546 1,348 1,212 1,304 5,410 (3.5 )
Medicaid Managed 315 377 511 568 1,771 640 670 644 612 2,566 7.7
Commercial insurance and other   1,895   1,863   1,688   1,669   7,115   1,840   1,797   1,762   1,701   7,100 1.9
  13,361   12,924   12,579   12,730   51,594   13,280   12,595   12,106   12,306   50,287 (3.3 )
Patient days:
Medicare 227,635 217,074 210,386 218,127 873,222 225,992 216,230 209,662 210,466 862,350 (3.5 )
Medicaid 32,303 32,260 30,254 30,207 125,024 28,458 25,060 23,141 21,795 98,454 (27.8 )
Medicare Advantage 43,906 42,802 39,859 41,153 167,720 48,276 44,548 39,585 41,079 173,488 (0.2 )
Medicaid Managed 10,714 13,143 16,515 19,906 60,278 21,933 24,673 24,280 24,783 95,669 24.5
Commercial insurance and other   59,059   58,968   57,185   58,833   234,045   61,715   62,462   58,625   57,325   240,127 (2.6 )
  373,617   364,247   354,199   368,226   1,460,289   386,374   372,973   355,293   355,448   1,470,088 (3.5 )
Total average length of stay 28.0 28.2 28.2 28.9 28.3 29.1 29.6 29.3 28.9 29.2 -
Total revenues per patient day $ 1,662 $ 1,665 $ 1,653 $ 1,668 $ 1,662 $ 1,643 $ 1,668 $ 1,625 $ 1,671 $ 1,652 0.2

________

(a)

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

 
                             
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
(In thousands, except statistics)
 
Fourth quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth Year First Second Third Fourth Year prior year

Kindred at Home (data combined to include Kindred and Gentiva for each historical period):

Home Health:
Sites of service (at end of period) 447 440 439 427 415 411 388 373
Revenue mix %:
Medicare 81.8 81.5 80.7 80.7 81.2 80.9 80.4 80.0 80.0 80.3
Medicaid 2.7 2.6 2.4 2.2 2.5 2.1 2.1 2.1 2.1 2.1
Commercial and other 9.1 9.0 8.9 6.7 8.4 7.3 7.9 8.2 8.5 8.1
Commercial paid at episodic rates 6.4 6.9 8.0 10.4 7.9 9.7 9.6 9.7 9.4 9.5
Episodic revenues ($ 000s) $ 281,226 $ 294,208 $ 292,675 $ 305,668 $ 1,173,777 $ 308,317 $ 324,027 $ 319,820 $ 320,698 $ 1,272,862 4.9
Total episodic admissions 65,077 63,676 65,049 65,183 258,985 69,936 67,808 66,753 66,157 270,654 1.5
Medicare episodic admissions 59,248 58,140 57,921 57,372 232,681 61,186 59,394 58,479 57,804 236,863 0.8
Total episodes 103,758 103,689 105,906 106,708 420,061 110,980 109,599 108,519 108,300 437,398 1.5
Episodes per admission 1.59 1.63 1.63 1.64 1.62 1.59 1.62 1.63 1.64 1.62 -
Revenue per episode $ 2,710 $ 2,837 $ 2,764 $ 2,865 $ 2,794 $ 2,778 $ 2,956 $ 2,947 $ 2,961 $ 2,910 3.4
Hospice:
Sites of service (at end of period) 216 200 199 193 190 185 181 175
Admissions 13,807 12,751 12,088 12,151 50,797 13,164 12,574 12,091 12,129 49,958 (0.2 )
Average length of stay 103 106 103 103 104 95 93 101 100 97 (2.9 )
Patient days 1,252,787 1,251,301 1,236,792 1,215,209 4,956,089 1,150,841 1,190,604 1,211,291 1,185,330 4,738,066 (2.5 )
Revenue per patient day $ 150 $ 148 $ 149 $ 154 $ 150 $ 151 $ 150 $ 150 $ 150 $ 150 (2.6 )
Average daily census 13,920 13,751 13,443 13,209 13,578 12,787 13,084 13,166 12,884 12,981 (2.5 )

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

$ 66,732 $ 66,372 $ 67,390 $ 67,621 $ 268,115 $ 65,530 $ 67,647 $ 67,338 $ 67,684 $ 268,199 0.1
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs 5 5 5 5 16 16 18 18
Number of licensed beds 215 215 215 215 829 829 919 919
Discharges (a) 1,053 1,121 1,004 1,046 4,224 3,806 3,927 3,941 4,317 15,991 312.7
Occupancy % (a) 71.6 71.6 68.5 69.6 70.3 73.2 71.5 68.7 68.0 70.2 (2.3 )
Average length of stay (a) 13.2 12.5 13.5 13.2 13.1 13.7 13.1 13.2 12.7 13.2 (3.8 )
Revenue per discharge (a) $ 18,246 $ 17,519 $ 18,259 $ 17,039 $ 17,757 $ 19,517 $ 19,325 $ 18,992 $ 18,640 $ 19,104 9.4
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units 105 104 102 100 100 99 101 100
LTAC hospitals 121 118 117 117 120 120 119 119
Sub-acute units 10 9 10 10 8 8 7 7
Outpatient units   143   143   139   138   138   139   135   130
  379   374   368   365   366   366   362   356
 
Revenue per site $ 195,157 $ 201,400 $ 203,284 $ 205,749 $ 805,590 $ 211,151 $ 209,436 $ 206,041 $ 210,978 $ 837,606 2.5
 
RehabCare:
Sites of service (at end of period) 1,851 1,863 1,896 1,935 1,829 1,789 1,821 1,798
Revenue per site $ 137,193 $ 136,175 $ 130,133 $ 130,576 $ 534,077 $ 138,106 $ 132,359 $ 120,548 $ 114,896 $ 505,909 (12.0 )
 
Nursing center division:
End of period data:
Number of nursing centers 89 89 90 90 90 90 90 90
Number of licensed beds 11,503 11,491 11,575 11,535 11,535 11,535 11,535 11,535
Admissions (b) 9,789 9,621 9,746 9,616 38,772 10,376 9,831 9,558 9,237 39,002 (3.9 )
Medicare average length of stay (b) 29.6 29.8 29.9 29.0 29.6 28.9 28.9 28.5 28.4 28.7 (2.1 )
Patient days (b) 861,340 858,772 865,415 871,976 3,457,503 861,278 852,691 851,332 845,924 3,411,225 (3.0 )
Revenues per patient day (b) $ 305 $ 308 $ 305 $ 312 $ 307 $ 319 $ 321 $ 318 $ 323 $ 320 3.5
Average daily census (b) 9,570 9,437 9,407 9,478 9,473 9,570 9,370 9,254 9,195 9,346 (3.0 )
Occupancy % (b) 81.7 80.7 80.1 80.5 80.7 81.3 79.6 78.6 78.1 79.4 (3.0 )

________

(a)

Excludes non-consolidating IRF.

(b)

Excludes managed facilities.

 

Forward-Looking Statements

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

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors detailed from time to time in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K with the Securities and Exchange Commission.

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

Non-GAAP Measurements

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the four quarters in 2015 and 2014 and for the years ended December 31, 2015 and 2014 before certain charges or on a core and adjusted core basis, and on a same-hospital basis. The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a useful performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures. The Company believes the presentation of same-hospital revenues, which excludes the results from two hospitals that closed during 2015, provides investors, equity analysts and others with useful information regarding the performance of the Company's hospital operations that are comparable for the periods presented. The Company believes that reported hospital segment revenues is the most comparable GAAP measure. Readers of the Company’s financial information should consider reported hospital segment revenues as an important measure of the Company’s Hospital Division financial performance because it provides the most complete measure of its revenues. The Company’s earnings release also includes financial measures referred to as operating income, or EBITDAR or core EBITDAR, and core earnings before interest, income taxes, depreciation and amortization (“core EBITDA”). The Company’s management uses core EBITDAR or core EBITDA as meaningful measures of operational performance in addition to other measures. The Company uses core EBITDAR or core EBITDA to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes these measurements are important because securities analysts and investors use these measurements to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating results presented on a core and adjusted core basis and core EBITDAR or core EBITDA, as well as a same-hospital basis, should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. Reconciliations of the non-GAAP measurements to the GAAP measurements are included in the following pages of this press release.

Also in this press release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items, which the Company refers to as core operating cash flows and core free cash flows. The Company recognizes that core operating cash flows and core free cash flows are non-GAAP measurements and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide important information to investors for comparability to other companies that use similar measures. In addition, management uses core operating cash flows and core free cash flows 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. 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 operating performance. Reconciliations of net cash flows provided by operating activities to core operating cash flows and core free cash flows are included in this press release.

                 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results
(Unaudited)
(In thousands, except per share amounts and statistics)
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and years ended December 31, 2015 and 2014 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
 
The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 129.2% and 33.1% for the three months ended December 31, 2015 and 2014, respectively, and 36.8% and 35.4% for the years ended December 31, 2015 and 2014, respectively. The difference in the effective income tax rate for both periods compared to the same prior year periods is attributable to the composition of charges that are non-deductible for income tax purposes. For the three months ended December 31, 2015, the Company recorded an income tax benefit of $47.1 million based upon the final settlement terms of an investigation of RehabCare Group, Inc. by the United States Department of Justice, which was completed in January 2016. The investigation was settled for $126.3 million, including interest, and $125 million of the settlement cost was recorded during the nine months ended September 30, 2015.
 
 
Three months ended Year ended
December 31, December 31,
Detail of charges: 2015 2014 2015 2014
Litigation contingency expense ($8,261 ) $ - ($138,648 ) ($4,600 )
Retirement and severance costs (2,125 ) (11,745 ) (7,752 ) (18,381 )
Hospital and home health/hospice closings (3,338 ) (200 ) (11,127 ) (200 )
RehabCare customer contract litigation (12,864 ) - (12,864 ) -
Development project cancellation and other restructuring costs - - (1,259 ) -
RehabCare trade name impairment (18,031 ) - (18,031 ) -
Customer bankruptcy - - - (1,857 )
Consulting fees related to new LTAC criteria rule - (2,460 ) - (2,460 )
Gentiva transaction and integration costs:
Professional and consulting fees (2,662 ) (5,545 ) (37,840 ) (10,824 )
Severance and retention (1,527 ) - (60,358 ) -
Lease termination (charged to rent expense) - - (792 ) -
Pre-closing financing charges (charged to general and administrative expenses) - - (6,005 ) -
Pre-closing financing charges (charged to interest expense) - (17,041 ) (17,431 ) (17,041 )
Trade name impairment charges - - (6,726 ) -
Lease termination (charged to rent expense) (889 ) - (2,720 ) (247 )
Debt refinancing costs (charged to interest expense) - - - (56,643 )
Other transaction costs   (1,178 )   (3,145 )   (4,928 )   (7,159 )
(50,875 ) (40,136 ) (326,481 ) (119,412 )
Income tax benefit   65,738     13,298     120,040     42,234  
Charges net of income taxes 14,863 (26,838 ) (206,441 ) (77,178 )
Allocation to participating unvested restricted stockholders   (204 )   -     -     -  
Available to common stockholders $ 14,659     ($26,838 )   ($206,441 )   ($77,178 )
 
Weighted average diluted shares outstanding   87,232     65,135     84,558     58,634  
 
Diluted earnings (loss) per common share related to charges $ 0.17     ($0.41 )   ($2.44 )   ($1.32 )
 
Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges $ 29,039 $ 16,892 $ 112,014 $ 63,202
Charges net of income taxes   14,863     (26,838 )   (206,441 )   (77,178 )
Reported income (loss) from continuing operations $ 43,902     ($9,946 )   ($94,427 )   ($13,976 )
 
Reconciliation of core diluted EPS from continuing operations:
Diluted core EPS (a) $ 0.33 $ 0.26 $ 1.28 $ 1.06
Charges net of income taxes 0.17 (0.41 ) (2.44 ) (1.32 )
Other   -     -     0.04     0.02  
Reported diluted earnings (loss) per common share from continuing operations $ 0.50     ($0.15 )   ($1.12 )   ($0.24 )
 

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

  87,232     63,163     86,098     58,210  
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 25.1 % 27.8 % 33.3 % 34.2 %
Impact of charges on effective income tax rate   1273.1 %   22.3 %   11.9 %   -25.6 %
Reported effective income tax rate   1298.2 %   50.1 %   45.2 %   8.6 %

________

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.4 million for both the three months ended December 31, 2015 and 2014, and by $1.8 million and $1.7 million for the years ended December 31, 2015 and 2014, respectively, for the allocation of income to participating unvested restricted stockholders.

(b)

Excludes share dilution from the fourth quarter 2014 common equity and tangible equity units offerings, both pre-closing financing activities of the Gentiva acquisition.

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

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

$ 18,831 $ 19,363 $ 8,116 $ 16,892 $ 63,202 $ 28,418 $ 34,051 $ 20,506 $ 29,039 $ 112,014
Add back non-cash expenses:
Amortization of intangible assets 5,560 5,513 5,378 5,215 21,666 6,932 7,536 7,728 7,645 29,841
Amortization of stock-based compensation costs 2,585 5,924 748 5,073 14,330 3,141 6,687 3,194 4,778 17,800
Amortization of deferred financing costs   2,397   1,950   1,982   2,044   8,373   3,062   3,539   3,554     3,566   13,721  
10,542 13,387 8,108 12,332 44,369 13,135 17,762 14,476 15,989 61,362
Income tax benefit related to non-cash expenses   4,148   5,268   3,190   4,853   17,459   5,169   6,989   5,696     6,292   24,146  
Non-cash expenses, net of income taxes   6,394   8,119   4,918   7,479   26,910   7,966   10,773   8,780     9,697   37,216  
Adjusted core earnings $ 25,225 $ 27,482 $ 13,034 $ 24,371 $ 90,112 $ 36,384 $ 44,824 $ 29,286   $ 38,736 $ 149,230  
 
Reconciliation of diluted adjusted core earnings from continuing operations:

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

$ 0.35 $ 0.35 $ 0.13 $ 0.26 $ 1.06 $ 0.34 $ 0.39 $ 0.23 $ 0.33 $ 1.28
Non-cash expenses, net of income taxes   0.11   0.15   0.07   0.12   0.45   0.09   0.12   0.10     0.11   0.42  
Adjusted diluted core EPS from continuing operations $ 0.46 $ 0.50 $ 0.20 $ 0.38 $ 1.51 $ 0.43 $ 0.51 $ 0.33   $ 0.44 $ 1.70  
 

Weighted average diluted shares used to compute adjusted core EPS

  52,711   53,792   62,902   63,163   58,210   82,422   86,402   86,892     87,232   86,098  
 
 
A reconciliation of combined Kindred and Gentiva home health revenues (excluding community care) for each historical period follows:
 
Fourth quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth Year First Second Third Fourth Year prior year
Kindred $ 67,266 $ 67,830 $ 65,954 $ 66,491 $ 267,541 $ 254,965 $ 360,173 $ 356,716 $ 358,075 $ 1,329,929
Gentiva   253,895   267,018   266,340   275,342   1,062,595   87,520   -   -   -     87,520
$ 321,161 $ 334,848 $ 332,294 $ 341,833 $ 1,330,136 $ 342,485 $ 360,173 $ 356,716 $ 358,075   $ 1,417,449 4.8
 
 
A reconciliation of same-hospital revenues to reported revenues for the Hospital Division for each historical period follows:
 
Fourth quarter
2014 Quarters 2015 Quarters % change v.
First Second Third Fourth Year First Second Third Fourth Year prior year
Same-hospital revenues $ 620,866 $ 606,408 $ 585,553 $ 614,207 $ 2,427,034 $ 634,975 $ 622,018 $ 577,337 $ 594,091 $ 2,428,421 (3.3 )
Two hospitals that closed during 2015 (a)   6,379   6,109   5,568   4,978   23,034   5,508   5,188   2,160   (498 )   12,358
Reported revenues $ 627,245 $ 612,517 $ 591,121 $ 619,185 $ 2,450,068 $ 640,483 $ 627,206 $ 579,497 $ 593,593   $ 2,440,779 (4.1 )

________

(a)

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

 
                           
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended December 31, 2015
Charges
Hospital RehabCare Gentiva
Before Retirement and home customer transaction
charges and health/hospice contract Litigation Impairment and Other As
("core") severance closings litigation contingency charges integration transaction Total reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 117,675 $ (1,221 ) $ - $ - $ - $ - $ - $ - $ (1,221 ) $ 116,454
 
Kindred at Home:
Home health 68,826 - (1,794 ) - - - - - (1,794 ) 67,032
Hospice   30,212     -     (1,544 )   -     -     -     -     -     (1,544 )   28,668  
  99,038     -     (3,338 )   -     -     -     -     -     (3,338 )   95,700  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 45,098 (207 ) - - - - - - (207 ) 44,891
RehabCare   11,858     (112 )   -     (12,864 )   -     -     -     -     (12,976 )   (1,118 )
  56,956     (319 )   -     (12,864 )   -     -     -     -     (13,183 )   43,773  
 
Nursing center division 36,601 - - - - - - - - 36,601
 
Support center (62,431 ) (585 ) - - - - - - (585 ) (63,016 )
Litigation contingency expense - - - - (8,261 ) - - (8,261 ) (8,261 )
Impairment charges - - - - - (18,031 ) - - (18,031 ) (18,031 )
Transaction costs   -     -     -     -     -     -     (4,189 )   (1,178 )   (5,367 )   (5,367 )
Operating income (EBITDAR) 247,839 (2,125 ) (3,338 ) (12,864 ) (8,261 ) (18,031 ) (4,189 ) (1,178 ) (49,986 ) 197,853
Rent   (96,934 )   -     (889 )   -     -     -     -     -     (889 )   (97,823 )
EBITDA 150,905 (2,125 ) (4,227 ) (12,864 ) (8,261 ) (18,031 ) (4,189 ) (1,178 ) (50,875 ) 100,030
Depreciation and amortization (40,362 ) - - - - - - - - (40,362 )
Interest, net   (55,664 )   -     -     -     -     -     -     -     -     (55,664 )

Income from continuing operations before income taxes

54,879 (2,125 ) (4,227 ) (12,864 ) (8,261 ) (18,031 ) (4,189 ) (1,178 ) (50,875 ) 4,004
Provision (benefit) for income taxes   13,758     (836 )   (1,663 )   (5,062 )   (50,329 )   (6,205 )   (1,487 )   (156 )   (65,738 )   (51,980 )
41,121 $ (1,289 ) $ (2,564 ) $ (7,802 ) $ 42,068   $ (11,826 ) $ (2,702 ) $ (1,022 ) $ 14,863   55,984
Noncontrolling interests   (12,082 )   (12,082 )
Income attributable to Kindred $ 29,039   $ 43,902  
 
Diluted earnings per common share $ 0.33 $ 0.50

Diluted shares used in computing earnings per common share

87,232 87,232
 
Three months ended December 31, 2014
Charges
Before Severance LTAC Gentiva
charges and other criteria pre-closing Gentiva Other As
("core") restructuring consulting financing transaction transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 134,791 $ (318 ) $ - $ - $ - $ - $ (318 ) $ 134,473
 
Kindred at Home:
Home health 7,398 (828 ) - - - - (828 ) 6,570
Hospice   524     (106 )   -     -     -     -     (106 )   418  
  7,922     (934 )   -     -     -     -     (934 )   6,988  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 23,884 - - - - - - 23,884
RehabCare   16,029     -     -     -     -     -     -     16,029  
  39,913     -     -     -     -     -     -     39,913  
 
Nursing center division 38,810 (500 ) - - - - (500 ) 38,310
 
Support center (51,348 ) (10,193 ) (2,460 ) - - - (12,653 ) (64,001 )
Transaction costs   -     -     -     -     (5,545 )   (3,145 )   (8,690 )   (8,690 )
Operating income (EBITDAR) 170,088 (11,945 ) (2,460 ) - (5,545 ) (3,145 ) (23,095 ) 146,993
Rent   (79,167 )   -     -     -     -     -     -     (79,167 )
EBITDA 90,921 (11,945 ) (2,460 ) - (5,545 ) (3,145 ) (23,095 ) 67,826
Depreciation and amortization (38,558 ) - - - - - - (38,558 )
Interest, net   (21,857 )   -     -     (17,041 )   -     -     (17,041 )   (38,898 )

Income (loss) from continuing operations before income taxes

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

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

63,163 65,135
 
                                 
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Year ended December 31, 2015
Charges
Hospital Development RehabCare Gentiva Gentiva
Before Retirement and home project customer pre-closing transaction
charges and health/hospice cancellation contract Litigation Impairment financing and Other As
("core") severance closings and other litigation contingency charges costs integration transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 481,121 $ (1,887 ) $ (1,044 ) $ (675 ) $ - $ - $ - $ - $ - $ - $ (3,606 ) $ 477,515
 
Kindred at Home:
Home health 256,696 - (6,055 ) - - - - - - - (6,055 ) 250,641
Hospice   109,120     -     (4,028 )   -     -     -     -     -     -     -     (4,028 )   105,092  
  365,816     -     (10,083 )   -     -     -     -     -     -     -     (10,083 )   355,733  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 176,334 (207 ) - - - - - - - - (207 ) 176,127
RehabCare   57,576     (897 )   -     -     (12,864 )   -     -     -     -     -     (13,761 )   43,815  
  233,910     (1,104 )   -     -     (12,864 )   -     -     -     -     -     (13,968 )   219,942  
 
Nursing center division 149,948 - - (584 ) - - - - - - (584 ) 149,364
 
Support center (250,468 ) (4,761 ) - - - - - - - - (4,761 ) (255,229 )
Litigation contingency expense - - - - - (138,648 ) - - - - (138,648 ) (138,648 )
Impairment charges - - - - - - (24,757 ) - - - (24,757 ) (24,757 )
Transaction costs   -     -     -     -     -     -     -     (6,005 )   (98,198 )   (4,928 )   (109,131 )   (109,131 )
Operating income (EBITDAR) 980,327 (7,752 ) (11,127 ) (1,259 ) (12,864 ) (138,648 ) (24,757 ) (6,005 ) (98,198 ) (4,928 ) (305,538 ) 674,789
Rent   (379,097 )   -     (2,368 )   (352 )   -     -     -     -     (792 )   -     (3,512 )   (382,609 )
EBITDA 601,230 (7,752 ) (13,495 ) (1,611 ) (12,864 ) (138,648 ) (24,757 ) (6,005 ) (98,990 ) (4,928 ) (309,050 ) 292,180
Depreciation and amortization (157,251 ) - - - - - - - - - - (157,251 )
Interest, net   (212,158 )   -     -     -     -     -     -     (17,431 )   -     -     (17,431 )   (229,589 )

Income (loss) from continuing operations before income taxes

231,821 (7,752 ) (13,495 ) (1,611 ) (12,864 ) (138,648 ) (24,757 ) (23,436 ) (98,990 ) (4,928 ) (326,481 ) (94,660 )
Provision for income taxes   77,243     (3,063 )   (5,333 )   (637 )   (5,084 )   (51,965 )   (8,890 )   (9,261 )   (34,266 )   (1,541 )   (120,040 )   (42,797 )
154,578 $ (4,689 ) $ (8,162 ) $ (974 ) $ (7,780 ) $ (86,683 ) $ (15,867 ) $ (14,175 ) $ (64,724 ) $ (3,387 ) $ (206,441 ) (51,863 )
Noncontrolling interests   (42,564 )   (42,564 )
Income (loss) attributable to Kindred $ 112,014   $ (94,427 )
 
Diluted earnings (loss) per common share $ 1.28 $ (1.12 )

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

86,098 84,558
 
Year ended December 31, 2014
Charges
Before Severance LTAC Gentiva
charges and other criteria Customer Litigation Debt pre-closing Gentiva Other As
("core") restructuring consulting bankruptcy contingency refinancing financing transaction transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 523,890 $ (935 ) $ - $ - $ - $ - $ - $ - $ - $ (935 ) $ 522,955
 
Kindred at Home:
Home health 21,973 (1,824 ) - - - - - - - (1,824 ) 20,149
Hospice   5,664     (274 )   -     -     -     -     -     -     -     (274 )   5,390  
  27,637     (2,098 )   -     -     -     -     -     -     -     (2,098 )   25,539  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 100,223 (170 ) - (1,857 ) - - - - - (2,027 ) 98,196
RehabCare   70,988     (14 )   -     -     -     -     -     -     -     (14 )   70,974  
  171,211     (184 )   -     (1,857 )   -     -     -     -     -     (2,041 )   169,170  
 
Nursing center division 150,916 (4,188 ) - - - - - - - (4,188 ) 146,728
 
Support center (189,439 ) (11,176 ) (2,460 ) - - - - - - (13,636 ) (203,075 )
Litigation contingency expense - - - (4,600 ) (4,600 ) (4,600 )
Transaction costs   -     -     -     -     -     -     -     (10,824 )   (7,159 )   (17,983 )   (17,983 )
Operating income (EBITDAR) 684,215 (18,581 ) (2,460 ) (1,857 ) (4,600 ) - - (10,824 ) (7,159 ) (45,481 ) 638,734
Rent   (312,792 )   (247 )   -     -     -     -     -     -     -     (247 )   (313,039 )
EBITDA 371,423 (18,828 ) (2,460 ) (1,857 ) (4,600 ) - - (10,824 ) (7,159 ) (45,728 ) 325,695
Depreciation and amortization (155,570 ) - - - - - - - - - (155,570 )
Interest, net   (91,083 )   -     -     -     -     (56,643 )   (17,041 )   -     -     (73,684 )   (164,767 )

Income from continuing operations before income taxes

124,770 (18,828 ) (2,460 ) (1,857 ) (4,600 ) (56,643 ) (17,041 ) (10,824 ) (7,159 ) (119,412 ) 5,358
Provision for income taxes   42,696     (7,156 )   (935 )   (706 )   (1,748 )   (21,528 )   (6,381 )   (1,665 )   (2,115 )   (42,234 )   462  
82,074 $ (11,672 ) $ (1,525 ) $ (1,151 ) $ (2,852 ) $ (35,115 ) $ (10,660 ) $ (9,159 ) $ (5,044 ) $ (77,178 ) 4,896
Noncontrolling interests   (18,872 )   (18,872 )
Income (loss) attributable to Kindred $ 63,202   $ (13,976 )
 
Diluted earnings (loss) per common share $ 1.06 $ (0.24 )

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

58,210 58,634
 
                           
KINDRED HEALTHCARE, INC.
Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended March 31, 2015
Charges
Home health Development Gentiva Gentiva
Before Retirement and project pre-closing transaction
charges and hospice cancellation Litigation Impairment financing and Other As
("core") severance closings and other contingency charges costs integration transaction Total reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division $ 134,786 $ - $ - $ (675 ) $ - $ - $ - $ - $ - $ (675 ) $ 134,111
 
Kindred at Home:
Home health 46,798 - (1,102 ) - - - - - - (1,102 ) 45,696
Hospice   16,996     -     (517 )   -     -     -     -     -     -     (517 )   16,479  
  63,794     -     (1,619 )   -     -     -     -     -     -     (1,619 )   62,175  
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 44,564 - - - - - - - - - 44,564
RehabCare   16,493     (785 )   -     -     -     -     -     -     -     (785 )   15,708