Kindred Healthcare Reports First Quarter 2017 Results

Consolidated Revenues of $1.77 Billion, GAAP Income from Continuing Operations of $9 Million(1), GAAP Diluted Loss Per Share from Continuing Operations of $0.07(1) and EBITDAR of $202 Million(2) in the First Quarter

Core EBITDAR of $218 Million(3) and Core Diluted EPS from Continuing Operations of $0.04(3) in the First Quarter, including $0.03 EPS negative impact from 2017 Change in GAAP(4)

Solid Start to Year - Company Reaffirms Full Year Outlook for 2017 and 2018

LOUISVILLE, Ky.--()--Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 2017.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “We are pleased to report progress in the first quarter of 2017, as evidenced by strong growth in our home health, hospice and inpatient rehabilitation businesses and continued advancement by our Hospital Division in its second full quarter under long-term acute care (“LTAC”) patient criteria. Furthermore, we are reaffirming our expectations for 2017 and 2018.”

Mr. Breier continued, “In the first quarter, we delivered very encouraging sequential and year-over-year improvement in our Kindred at Home Division, with strong same-store volume growth in both our home health and hospice businesses. Combined with a sequential reduction of labor costs in the first quarter, we returned to historic growth levels and delivered results in line with our 2017 expectations.”

“Our Hospital Division continued to advance our multi-pronged LTAC patient criteria mitigation strategy in the first quarter. Our successful execution is reflected in the exceptional growth of the Hospital Division’s same-hospital non-government admissions, a key element of our LTAC mitigation strategy that helped offset light Medicare volumes. We also continue to make progress in reducing patients’ length of stay through our efforts to eliminate avoidable clinical delays. We remain confident that our mitigation strategies will offset at least half of the expected run-rate impact of LTAC patient criteria by year-end,” remarked Mr. Breier.

Mr. Breier added, “Since announcing our transformative initiative to divest our skilled nursing center business, our Nursing Center Division has maintained high standards of care while delivering stable operating results. We continue to make progress on our nursing center divestiture and remain focused on completing an accretive, value-enhancing transaction by year end.”

Mr. Breier concluded, “On behalf of Kindred’s entire leadership team, I am proud to share that our recently completed 2017 Quality, Innovation and Social Responsibility Report demonstrates another year of outperforming quality benchmarks and success in sending more patients home with better outcomes. We continue to deliver innovative post-acute solutions while building and deepening our relationships with key partners. Our clinical excellence, national reach, and innovative use of technology and data enable the development of new products that create value for all of our stakeholders, including our shareholders, payors and partners.”

____________

(1) Results reflect after-tax costs of $9.8 million or $0.11 per diluted share related to restructuring costs and impairment charges.
(2) Results reflect pre-tax costs of $15.4 million related to restructuring costs and impairment charges. As used herein, “EBITDAR” means earnings before interest, income taxes, depreciation, amortization and rent. See reconciliation of generally accepted accounting principles (“GAAP”) results to non-GAAP results beginning on page 13.
(3) See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.
(4) Effective January 1, 2017, GAAP requires book to tax differences associated with stock-based compensation to be recorded to the provision for income taxes in the statement of operations rather than the statement of stockholders’ equity, which resulted in a $2.3 million or $0.03 per diluted share negative Core impact for the first quarter of 2017. There is no income tax provision impact (on a net provision basis) under GAAP reporting due to the deferred tax valuation allowance.
 

All financial and statistical information included in this earnings release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.

First Quarter Consolidated Results(1):

  • Consolidated revenues were $1.77 billion, a 3.8% year-over-year decrease, primarily attributable to the impact of the transition to LTAC patient criteria and the sale or closure of 15 LTAC hospitals in the second half of 2016. GAAP income from continuing operations was $8.8 million compared to $25.8 million in the same period a year ago, primarily due to the impact of LTAC patient criteria and an increase in restructuring costs. Core EBITDAR declined to $217.8 million compared to $245.2 million in the same period of 2016, primarily due to LTAC patient criteria and the sale or closure of 15 LTAC hospitals noted above.
  • GAAP operating cash flows were a deficit of $92.6 million compared to a deficit of $130.4 million for the same period a year ago. Core operating cash flows were a deficit of $71.7 million compared to $1.0 million for the same period a year ago. Core free cash flows were a deficit of $109.4 million compared to a deficit of $33.4 million in the same period a year ago. GAAP operating cash flows improved in the first quarter of 2017 primarily due to a reduction in litigation settlements, including a $126 million litigation payment made in the first quarter of 2016. The decrease in core operating and core free cash flows was primarily attributable to an additional payroll of approximately $40 million, LTAC patient criteria and an increase in net working capital in the first quarter of 2017 compared to the prior year period.
  • GAAP diluted loss per share from continuing operations was $0.07 as compared to GAAP diluted earnings per share (“EPS”) from continuing operations of $0.15 a year ago. This decrease was primarily attributable to LTAC patient criteria and an increase in restructuring charges in the first quarter of 2017. Core diluted EPS from continuing operations was $0.04 as compared to $0.24 a year ago. The decline in core diluted EPS was primarily attributable to LTAC patient criteria and a $2.3 million, or $0.03 per diluted share, increase in the provision for income taxes due to an accounting rule change effective January 1, 2017 that requires book to tax differences associated with stock-based compensation to be recorded to the provision for income taxes in the statement of operations rather than the statement of stockholders’ equity.

First Quarter Segment Results(1)(2):

Our Kindred at Home Division, which comprises the Company’s home health, hospice, community care and home-based primary care businesses, recorded first quarter revenues that increased 3.9% over the prior year period to $630.2 million. On a same-store basis, home health episodic admissions grew 4.3% (5.4% increase excluding the impact of the extra leap year day in the first quarter of 2016 (“leap year adjusted”)) and hospice admissions grew 3.9% (5.1% increase leap year adjusted) over the prior year period. Both Segment EBITDAR and Core EBITDAR were relatively flat in the first quarter of 2017 compared to the prior year period. On a sequential basis for both Segment EBITDAR and Core EBITDAR, home health direct labor costs per visit declined 3.7% and hospice direct labor costs per patient day were relatively flat in the first quarter of 2017 compared to the fourth quarter of 2016.

Kindred’s Hospital Division first quarter revenues declined to $540.3 million from $643.3 million in the prior year period primarily due to the impact of LTAC patient criteria, a 1.8% decline in same-hospital admissions (0.7% decline leap year adjusted) compared to last year and the sale or closure of 15 LTAC hospitals in the second half of 2016, which contributed approximately $63 million of revenue in the first quarter of 2016. Same-hospital non-government admissions increased 9.1% (10.3% increase leap year adjusted) in the first quarter of 2017 compared to the prior year period. Sequentially, same-hospital admissions increased 4.6%, non-government admissions increased 8.7% and same-hospital census improved 5.0% as compared to the fourth quarter of 2016. For the first quarter of 2017, approximately 86% (90% excluding Texas LTAC hospitals) of same-hospital revenue came from compliant patients, which include all patients except Medicare site neutral patients, down from approximately 89% (92% excluding Texas LTAC hospitals) in the fourth quarter of 2016. Importantly, same-hospital compliant admissions grew 3.9% to 8,401 in the first quarter of 2017 from 8,087 compliant admissions in the fourth quarter of 2016. Segment EBITDAR and Core EBITDAR in the Hospital Division for the first quarter both declined to $91.2 million from $135.5 million a year ago, primarily due to the impact of LTAC patient criteria, increases in labor and other costs, and the sale or closure of 15 LTAC hospitals noted above, which contributed approximately $8 million of EBITDAR in the first quarter of 2016.

____________

(1) See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.
(2) See same-hospital and full segment data on pages 8 through 12.
 

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

Kindred Rehabilitation Services (“KRS”) Division, which comprises the Company’s hospital-based rehabilitation segment, increased first quarter revenues by 1.8% to $376.8 million as compared to $370.0 million in the prior year period. Segment EBITDAR and Core EBITDAR for KRS both increased 3.6% to $62.0 million as compared to $59.9 million in the prior year period. The Kindred Hospital Rehabilitation Services segment achieved strong revenue growth of 6.7% to $176.8 million, and Segment EBITDAR and Core EBITDAR both grew to $51.4 million, an increase of 7.4% compared to the same period a year ago, as a result of the development of new inpatient rehabilitation facilities (“IRFs”) and a 2.3% increase (3.4% increase leap year adjusted) in same-IRF discharges. RehabCare revenues declined 2.1% to $200.0 million for the first quarter, while first quarter Segment EBITDAR and Core EBITDAR both decreased to $10.6 million as compared to $12.0 million, all relative to the prior year period, primarily due to the reduction in sites of service, declines in customer census and average wage rate pressure. Sequentially, RehabCare Segment EBITDAR and Core EBITDAR grew from $5.6 million in the fourth quarter of 2016 to $10.6 million in the first quarter of 2017.

Kindred’s Nursing Center Division first quarter revenues were up slightly to $272.8 million, due to a 2.2% increase in revenue per patient day partially offset by an overall average daily census decline of 0.9% and Medicare length of stay contraction of 5.3%, both as compared to the prior year period. Segment EBITDAR and Core EBITDAR in the first quarter both increased 5.4% to $31.7 million from $30.1 million a year ago, as a result of an increase in revenue per patient day and improved cost efficiencies.

2017 Outlook(3)

All forward-looking non-GAAP financial measures used to provide “2017 Outlook” and “2018 Outlook” (collectively “Outlook”) are provided only on a non-GAAP basis. This is due to the inherent difficulty of forecasting the timing or amount of items that would be included in the most directly comparable forward-looking GAAP financial measures. As a result, reconciliation of the forward-looking non-GAAP financial measures to GAAP financial measures is not available without unreasonable effort and the Company is unable to assess the probable significance of the unavailable information.

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

For the 2017 Outlook, Kindred reaffirms:

  • Annual revenues of $7.2 billion, with a range of $7.1 billion to $7.3 billion.
  • Core EBITDAR of $930 million, with a range of $910 million to $950 million.
  • Core diluted EPS from continuing operations of $0.55, with a range of $0.40 to $0.70 per share(4).

For the second quarter of 2017, Kindred expects Core EBITDAR of approximately $225 million to $240 million, and Core diluted EPS from continuing operations of approximately $0.10 to $0.20.

The 2017 Outlook assumes the Company’s skilled nursing facility business is operated for the entire year. For accounting purposes, this business may qualify as a discontinued operation prior to the completion of the divestiture. At the time the skilled nursing facility business qualifies as a discontinued operation, the Company will be required to recast its historical operating results from continuing operations to exclude the business for all periods presented. Kindred will also update its 2017 Outlook during the quarter in which the recasting occurs.

____________

(1) See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.
(2) See same-hospital and full segment data on pages 8 through 12.
(3) See Forward-Looking Statements beginning on page 13.
(4) The EPS estimate is based upon an estimated weighted average annual diluted share count for 2017 of 88.5 million shares.
 

2018 Outlook(1)

Kindred’s planned divestiture of its skilled nursing facilities will significantly impact the Company’s reported results, reducing revenues and expenses, and is expected to increase profitability.

For the 2018 Outlook, Kindred reaffirms:

  • Annual revenues of approximately $6.3 billion.
  • Core EBITDAR of approximately $840 million.
  • Core diluted EPS from continuing operations of approximately $0.80(2).

Please note that all of these items represent midpoint estimates that the Company expects to update over time, and these estimates assume that Kindred completes its skilled nursing facilities exit prior to the start of 2018.

Cash Flow

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, noted, “Operating cash flows for the first quarter, which are typically lower than in other quarters of the year, were in line with our expectations, and, as noted above, included the impact of an extra payroll of approximately $40 million compared to the prior year quarter, LTAC patient criteria and typical fluctuations in working capital. As previously discussed, once we complete the sale of our skilled nursing facility business and with our continued progress in 2017 mitigating LTAC patient criteria, we expect Kindred’s cash flow in 2018 to return to historical levels of roughly $300 million per year in core operating cash flows. Core free cash flows, which have been approximately half of core operating cash flows, will benefit from reductions in capital expenditures and noncontrolling interests that will result from our exit from the skilled nursing facility business.”

Conference Call

As previously announced, investors and the general public may access a live webcast of the first quarter 2017 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on May 4 at 9:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 12:00 p.m. on May 4 by dialing (719) 457-0820, access code: 8925579. The replay will be available through May 14.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 13 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(3). At March 31, 2017, Kindred through its subsidiaries had approximately 100,100 employees providing healthcare services in 2,624 locations in 46 states, including 82 LTAC hospitals, 19 inpatient rehabilitation hospitals, 91 nursing centers, 19 sub-acute units, 619 Kindred at Home home health, hospice and non-medical home care sites of service, 101 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,693 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for eight years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

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(1) See Forward-Looking Statements beginning on page 13.
(2) The EPS estimate is based upon an estimated weighted average annual diluted share count for 2018 of 90.0 million shares.
(3) Revenues for the last twelve months ended March 31, 2017.
 
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
           
Three months ended
March 31,
2017 2016
 
Revenues $ 1,768,396   $ 1,837,971  
 
Salaries, wages and benefits 931,880 926,214
Supplies 90,186 99,416
Rent 95,612 97,517
Other operating expenses 205,483 214,701
General and administrative expenses 323,236 353,826
Other income (228 ) (952 )
Litigation contingency expense - 1,910
Impairment charges 1,157 7,788
Restructuring charges 16,172 1,952
Depreciation and amortization 34,960 40,681
Interest expense 59,334 57,499
Investment income   (527 )   (254 )
  1,757,265     1,800,298  
Income from continuing operations before income taxes 11,131 37,673
Provision for income taxes   2,302     11,836  
Income from continuing operations 8,829 25,837
Discontinued operations, net of income taxes:
Income (loss) from operations 387 (582 )
Gain on divestiture of operations   -     262  
Income (loss) from discontinued operations   387     (320 )
Net income 9,216 25,517
(Earnings) loss attributable to noncontrolling interests:
Continuing operations (14,965 ) (12,514 )
Discontinued operations   1     (2 )
  (14,964 )   (12,516 )
Income (loss) attributable to Kindred $ (5,748 ) $ 13,001  
 
Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations $ (6,136 ) $ 13,323
Income (loss) from discontinued operations   388     (322 )
Net income (loss) $ (5,748 ) $ 13,001  
 
Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations $ (0.07 ) $ 0.15
Discontinued operations:
Income (loss) from operations - -
Gain on divestiture of operations   -     -  
Income (loss) from discontinued operations   -     -  
Net income (loss) $ (0.07 ) $ 0.15  
 
Diluted:
Income (loss) from continuing operations $ (0.07 ) $ 0.15
Discontinued operations:
Income (loss) from operations - -
Gain on divestiture of operations   -     -  
Income (loss) from discontinued operations   -     -  
Net income (loss) $ (0.07 ) $ 0.15  
 
Shares used in computing earnings (loss) per common share:
Basic 87,085 86,590
Diluted 87,085 87,249
 
Cash dividends declared and paid per common share $ 0.12 $ 0.12
 
             
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
 
March 31, December 31,
2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 116,913 $ 137,061
Insurance subsidiary investments 110,872 108,966
Accounts receivable less allowance for loss 1,246,855 1,172,078
Inventories 24,701 24,673
Income taxes 7,776 10,067
Other   66,899     63,693  
1,574,016 1,516,538
 
Property and equipment 2,014,453 2,026,430
Accumulated depreciation   (1,158,911 )   (1,147,844 )
855,542 878,586
 
Goodwill 2,427,074 2,427,074
Intangible assets less accumulated amortization 783,020 790,235
Insurance subsidiary investments 201,115 204,929
Other   303,842     295,362  
Total assets $ 6,144,609   $ 6,112,724  
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 179,151 $ 203,925
Salaries, wages and other compensation 378,805 397,486
Due to third party payors 34,481 41,320
Professional liability risks 66,073 65,284
Other accrued liabilities 241,387 269,736
Long-term debt due within one year   24,828     27,977  
924,725 1,005,728
 
Long-term debt 3,344,511 3,215,062
Professional liability risks 300,773 295,311
Deferred tax liabilities 202,867 201,808
Deferred credits and other liabilities 354,277 353,294
 
Equity:
Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 85,691 shares - March 31, 2017 and 85,166 shares - December 31, 2016

21,423 21,291
Capital in excess of par value 1,700,748 1,710,231
Accumulated other comprehensive income 3,444 1,573
Accumulated deficit   (926,292 )   (920,544 )
799,323 812,551
Noncontrolling interests   218,133     228,970  
Total equity   1,017,456     1,041,521  
Total liabilities and equity $ 6,144,609   $ 6,112,724  
 
               
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
 
Three months ended
March 31,
2017 2016
Cash flows from operating activities:
Net income $ 9,216 $ 25,517
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation expense 30,300 33,957
Amortization of intangible assets 4,660 6,826
Amortization of stock-based compensation costs 3,132 4,404
Amortization of deferred financing costs 4,132 3,567

Payment of lender fees related to debt amendment

(5,403 ) -
Provision for doubtful accounts 11,218 11,725
Deferred income taxes 1,227 11,496
Impairment charges 1,157 7,788
Gain on divestiture of discontinued operations - (262 )
Other 6,050 303
Change in operating assets and liabilities:
Accounts receivable (85,833 ) (87,892 )
Inventories and other assets (4,457 ) (5,232 )
Accounts payable (24,497 ) (10,621 )
Income taxes 2,291 146
Due to third party payors (6,839 ) (4,843 )
Other accrued liabilities   (38,992 )   (127,219 )
Net cash used in operating activities   (92,638 )   (130,340 )
 
Cash flows from investing activities:
Routine capital expenditures (11,941 ) (18,106 )
Development capital expenditures (5,439 ) (10,019 )
Acquisitions, net of cash acquired (3,150 ) (26,339 )
Acquisition deposits - 18,489
Sale of assets - 1,081
Purchase of insurance subsidiary investments (22,308 ) (32,841 )
Sale of insurance subsidiary investments 18,699 30,890
Net change in insurance subsidiary cash and cash equivalents 6,412 9,958
Net change in other investments 29 (33,981 )
Other   154     (1,919 )
Net cash used in investing activities   (17,544 )   (62,787 )
 
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 478,600 533,700
Repayment of borrowings under revolving credit (343,400 ) (303,100 )
Proceeds from other long-term debt - 750
Repayment of term loan (3,509 ) (3,003 )
Repayment of other long-term debt (284 ) (280 )
Payment of deferred financing costs (79 ) (151 )
Payment of dividend for mandatory redeemable preferred stock (3,010 ) (2,801 )
Dividends paid (10,228 ) (10,068 )
Contributions made by noncontrolling interests - 4,368
Distributions to noncontrolling interests (25,801 ) (16,315 )
Purchase of noncontrolling interests - (1,000 )
Payroll tax payments for equity awards issuance   (2,255 )   (2,649 )
Net cash provided by financing activities   90,034     199,451  
Change in cash and cash equivalents (20,148 ) 6,324
Cash and cash equivalents at beginning of period   137,061     98,758  
Cash and cash equivalents at end of period $ 116,913   $ 105,082  
 
                     
KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data
(Unaudited)
(In thousands, except per share amounts)
 
First First quarter
2016 Quarters Quarter % change v.
First Second Third Fourth Year 2017 prior year
Condensed consolidated income statement data:
GAAP presentation:
Revenues $ 1,837,971 $ 1,842,070 $ 1,793,527 $ 1,745,951 $ 7,219,519 $ 1,768,396 (3.8 )
Operating expenses 1,604,855 1,591,898 1,986,221 1,558,329 6,741,303 1,567,886 (2.3 )
Rent 97,517 100,093 98,415 94,509 390,534 95,612 (2.0 )
Depreciation and amortization 40,681 40,257 40,382 38,082 159,402 34,960 (14.1 )
Interest, net   57,245     57,559     58,052     58,629     231,485     58,807   2.7

Income (loss) from continuing operations before income taxes

37,673 52,263 (389,543 ) (3,598 ) (303,205 ) 11,131 (70.5 )
Provision (benefit) for income taxes   11,836     17,882     281,752     2,860     314,330     2,302   (80.6 )
Income (loss) from continuing operations 25,837 34,381 (671,295 ) (6,458 ) (617,535 ) 8,829 (65.8 )
Noncontrolling interests   (12,514 )   (13,522 )   (14,305 )   (13,261 )   (53,602 )   (14,965 ) 19.6
Net income (loss) attributable to Kindred $ 13,323   $ 20,859   $ (685,600 ) $ (19,719 ) $ (671,137 ) $ (6,136 ) (146.1 )
 
Diluted EPS $ 0.15 $ 0.23 $ (7.89 ) $ (0.23 ) $ (7.73 ) $ (0.07 ) (146.7 )
Diluted shares 87,249 87,500 86,869 86,904 86,800 87,085 (0.2 )
 
Core presentation (a):
EBITDAR $ 245,209 $ 267,543 $ 217,596 $ 214,928 $ 945,276 $ 217,839 (11.2 )
Rent 97,517 100,093 98,143 94,509 390,262 95,612 (2.0 )
Provision for income taxes 16,013 21,335 3,901 3,262 44,511 9,837 (38.6 )
Net income attributable to Kindred 21,239 33,761 2,525 7,185 64,710 3,658 (82.8 )
 
Core diluted EPS $ 0.24 $ 0.38 $ 0.03 $ 0.08 $ 0.72 $ 0.04 (83.3 )
Diluted shares 87,249 87,500 87,529 87,641 87,491 87,744 0.6
 
Revenues by segment:
Kindred at Home:
Home health $ 430,035 $ 438,556 $ 449,958 $ 444,073 $ 1,762,622 $ 450,831 4.8
Hospice   176,426     185,641     188,575     186,161     736,803     179,378   1.7
606,461 624,197 638,533 630,234 2,499,425 630,209 3.9
Hospital division 643,299 633,695 575,323 530,746 2,383,063 540,280 (16.0 )
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 165,774 169,815 169,018 170,041 674,648 176,812 6.7
RehabCare   204,248     196,075     192,480     191,489     784,292     200,031   (2.1 )
370,022 365,890 361,498 361,530 1,458,940 376,843 1.8
Nursing center division   272,227     272,395     270,259     273,055     1,087,936     272,845   0.2
1,892,009 1,896,177 1,845,613 1,795,565 7,429,364 1,820,177 (3.8 )
Eliminations   (54,038 )   (54,107 )   (52,086 )   (49,614 )   (209,845 )   (51,781 ) (4.2 )
$ 1,837,971   $ 1,842,070   $ 1,793,527   $ 1,745,951   $ 7,219,519   $ 1,768,396   (3.8 )
 

____________

(a)

See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

                       
KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data (Continued)
(Unaudited)
(In thousands, except statistics)
 
First First quarter
2016 Quarters Quarter % change v.
First Second Third Fourth Year 2017 prior year
Segment EBITDAR:
Kindred at Home:
Home health $ 66,941 $ 76,030 $ 75,073 $ 61,487 $ 279,531 $ 63,750 (4.8 )
Hospice   24,866     31,329     31,326     28,805     116,326     27,581   10.9
91,807 107,359 106,399 90,292 395,857 91,331 (0.5 )
Hospital division 135,495 125,932 82,752 91,892 436,071 91,169 (32.7 )
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 47,870 50,469 49,470 49,314 197,123 51,403 7.4
RehabCare   11,987     13,269     9,248     5,578     40,082     10,609   (11.5 )
59,857 63,738 58,718 54,892 237,205 62,012 3.6
Nursing center division 30,100 33,662 29,922 33,658 127,342 31,718 5.4
 
Core EBITDAR by segment (a):
Kindred at Home:
Home health $ 65,803 $ 75,859 $ 75,073 $ 61,185 $ 277,920 $ 63,750 (3.1 )
Hospice   24,866     31,329     31,326     27,668     115,189     27,581   10.9
90,669 107,188 106,399 88,853 393,109 91,331 0.7
Hospital division 135,495 125,932 82,752 91,262 435,441 91,169 (32.7 )
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 47,870 50,469 49,470 49,314 197,123 51,403 7.4
RehabCare   11,987     13,269     9,248     5,578     40,082     10,609   (11.5 )
59,857 63,738 58,718 54,892 237,205 62,012 3.6
Nursing center division 30,100 33,662 29,922 33,658 127,342 31,718 5.4
Support center (69,945 ) (62,625 ) (58,463 ) (53,350 ) (244,383 ) (58,391 ) (16.5 )
Litigation contingency expense (885 ) (180 ) - - (1,065 ) -
Transaction costs   (82 )   (172 )   (1,732 )   (387 )   (2,373 )   -  
$ 245,209   $ 267,543   $ 217,596   $ 214,928   $ 945,276   $ 217,839   (11.2 )
 
EBITDAR margin by segment:
Kindred at Home:
Home health 15.6 17.3 16.7 13.8 15.9 14.1 (1.5 )
Hospice 14.1 16.9 16.6 15.5 15.8 15.4 1.3
Kindred at Home 15.1 17.2 16.7 14.3 15.8 14.5 (0.6 )
Hospital division 21.1 19.9 14.4 17.3 18.3 16.9 (4.2 )
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 28.9 29.7 29.3 29.0 29.2 29.1 0.2
RehabCare 5.9 6.8 4.8 2.9 5.1 5.3 (0.6 )
Kindred Rehabilitation Services 16.2 17.4 16.2 15.2 16.3 16.5 0.3
Nursing center division 11.1 12.4 11.1 12.3 11.7 11.6 0.5
 
Core EBITDAR margin by segment (a):
Kindred at Home:
Home health 15.3 17.3 16.7 13.8 15.8 14.1 (1.2 )
Hospice 14.1 16.9 16.6 14.9 15.6 15.4 1.3
Kindred at Home 15.0 17.2 16.7 14.1 15.7 14.5 (0.5 )
Hospital division 21.1 19.9 14.4 17.2 18.3 16.9 (4.2 )
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 28.9 29.7 29.3 29.0 29.2 29.1 0.2
RehabCare 5.9 6.8 4.8 2.9 5.1 5.3 (0.6 )
Kindred Rehabilitation Services 16.2 17.4 16.2 15.2 16.3 16.5 0.3
Nursing center division 11.1 12.4 11.1 12.3 11.7 11.6 0.5
Consolidated 13.3 14.5 12.1 12.3 13.1 12.3 (1.0 )
 

____________

(a)

See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

                   
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
 
First First quarter
2016 Quarters Quarter % change v.
First Second Third Fourth Year 2017 prior year
Kindred at Home:
Home Health:
Sites of service (at end of period) 384 384 395 390 379
Revenue mix %:
Medicare 79.8 79.3 78.1 77.9 78.8 76.7
Medicaid 2.1 2.1 2.5 1.9 2.1 1.7
Commercial and other 8.4 8.2 8.6 10.6 8.9 11.5
Commercial paid at episodic rates 9.7 10.4 10.8 9.6 10.2 10.1
Episodic revenues ($ 000s) $ 325,821 $ 332,193 $ 332,562 $ 323,398 $ 1,313,974 $ 326,881 0.3
Total episodic admissions 71,426 70,212 69,219 67,501 278,358 73,270 2.6
Same-store total episodic admissions 65,485 64,326 63,529 62,132 255,472 68,278 4.3
Medicare episodic admissions 62,011 60,730 59,823 59,540 242,104 62,404 0.6
Total episodes 113,887 113,278 113,256 111,164 451,585 114,964 0.9
Episodes per admission 1.59 1.61 1.64 1.65 1.62 1.57 (1.3 )
Revenue per episode $ 2,861 $ 2,933 $ 2,936 $ 2,909 $ 2,910 $ 2,843 (0.6 )
Hospice:
Sites of service (at end of period) 177 177 185 183 180
Admissions 13,234 13,149 12,916 12,660 51,959 13,649 3.1
Same-store admissions 12,387 12,365 12,104 11,946 48,802 12,870 3.9
Average length of stay 92 91 98 100 95 96 4.3
Patient days 1,183,908 1,238,584 1,277,125 1,246,152 4,945,769 1,193,061 0.8
Average daily census 13,010 13,611 13,882 13,545 13,513 13,256 1.9
Revenue per patient day $ 149 $ 150 $ 148 $ 149 $ 149 $ 150 0.7
Community Care and other revenues (included
in Home Health business segment) ($ 000s) $ 66,305 $ 68,229 $ 75,978 $ 74,875 $ 285,387 $ 74,095 11.7
 
Hospital division:
End of period data:
Number of transitional care hospitals 95 97 94 82 82
Number of licensed beds 7,089 7,067 6,890 6,107 6,107
Revenue mix %:
Medicare 57.8 55.5 54.6 53.5 55.5 52.8
Medicaid 4.2 4.2 4.0 4.5 4.2 3.9
Medicare Advantage 11.5 12.0 12.1 11.0 11.7 12.2
Medicaid Managed 5.6 6.3 7.3 8.0 6.7 9.1
Commercial insurance and other 20.9 22.0 22.0 23.0 21.9 22.0
Admissions:
Medicare 8,919 8,253 7,861 7,351 32,384 7,529 (15.6 )
Medicaid 463 386 375 336 1,560 354 (23.5 )
Medicare Advantage 1,453 1,382 1,327 1,210 5,372 1,354 (6.8 )
Medicaid Managed 733 768 861 787 3,149 851 16.1
Commercial insurance and other   1,871   1,807   1,727   1,488   6,893   1,614 (13.7 )
  13,439   12,596   12,151   11,172   49,358   11,702 (12.9 )
Patient days:
Medicare 229,004 219,013 202,482 186,290 836,789 187,738 (18.0 )
Medicaid 21,134 19,409 16,781 12,181 69,505 13,334 (36.9 )
Medicare Advantage 45,760 47,697 43,241 37,526 174,224 41,020 (10.4 )
Medicaid Managed 25,341 27,267 28,534 29,275 110,417 32,713 29.1
Commercial insurance and other   62,769   63,009   59,856   54,148   239,782   53,695 (14.5 )
  384,008   376,395   350,894   319,420   1,430,717   328,500 (14.5 )
Average length of stay:
Medicare 25.7 26.5 25.8 25.3 25.8 24.9 (3.1 )
Medicaid 45.6 50.3 44.7 36.3 44.6 37.7 (17.3 )
Medicare Advantage 31.5 34.5 32.6 31.0 32.4 30.3 (3.8 )
Medicaid Managed 34.6 35.5 33.1 37.2 35.1 38.4 11.0
Commercial insurance and other 33.5 34.9 34.7 36.4 34.8 33.3 (0.6 )
Weighted average 28.6 29.9 28.9 28.6 29.0 28.1 (1.7 )
Revenues per admission:
Medicare $ 41,717 $ 42,579 $ 39,945 $ 38,602 $ 40,800 $ 37,867 (9.2 )
Medicaid 57,928 69,797 61,338 70,333 64,356 60,091 3.7
Medicare Advantage 51,080 55,105 52,363 48,387 51,826 48,555 (4.9 )
Medicaid Managed 49,287 51,696 48,631 54,238 50,932 57,736 17.1
Commercial insurance and other 71,651 77,193 73,515 82,066 75,819 73,750 2.9
Weighted average 47,868 50,309 47,348 47,507 48,281 46,170 (3.5 )
Revenues per patient day:
Medicare $ 1,625 $ 1,605 $ 1,551 $ 1,523 $ 1,579 $ 1,519 (6.5 )
Medicaid 1,269 1,388 1,371 1,940 1,444 1,595 25.7
Medicare Advantage 1,622 1,597 1,607 1,560 1,598 1,603 (1.2 )
Medicaid Managed 1,426 1,456 1,467 1,458 1,453 1,502 5.3
Commercial insurance and other 2,136 2,214 2,121 2,255 2,180 2,217 3.8
Weighted average 1,675 1,684 1,640 1,662 1,666 1,645 (1.8 )
 
Medicare case mix index (discharged patients only) 1.163 1.179 1.172 1.153 1.169 1.172 0.8
Average daily census 4,220 4,136 3,814 3,472 3,909 3,650 (13.5 )
Occupancy % 68.0 67.5 61.6 64.1 65.1 67.6 (0.6 )
 
                     
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
First First quarter
2016 Quarters Quarter % change v.
First Second Third Fourth Year 2017 prior year
Same-hospital data (a):
End of period data:
Number of transitional care hospitals 78 78 78 78 78
Number of licensed beds 5,960 5,960 5,960 5,960 5,960
Revenues $ 563,201 $ 557,989 $ 508,608 $ 521,244 $ 2,151,042 $ 528,994 (6.1 )
Revenue mix %:
Medicare 58.0 55.4 54.1 53.0 55.2 52.3
Medicaid 3.7 3.9 3.7 4.5 3.9 4.1
Medicare Advantage 11.3 11.7 12.3 11.0 11.6 12.1
Medicaid Managed 5.8 6.6 7.8 8.2 7.1 9.3
Commercial insurance and other 21.2 22.4 22.1 23.3 22.2 22.2
Admissions:
Medicare 7,802 7,209 6,882 7,132 29,025 7,319 (6.2 )
Medicaid 395 342 343 336 1,416 354 (10.4 )
Medicare Advantage 1,219 1,148 1,165 1,187 4,719 1,315 7.9
Medicaid Managed 632 702 792 787 2,913 849 34.3
Commercial insurance and other   1,567   1,528   1,462   1,456   6,013   1,566 (0.1 )
  11,615   10,929   10,644   10,898   44,086   11,403 (1.8 )
Patient days:
Medicare 200,004 190,955 177,079 180,794 748,832 182,442 (8.8 )
Medicaid 14,670 13,547 12,085 12,175 52,477 13,587 (7.4 )
Medicare Advantage 38,617 40,835 38,462 36,900 154,814 39,924 3.4
Medicaid Managed 22,421 24,893 26,698 29,284 103,296 32,701 45.8
Commercial insurance and other   53,613   53,821   51,772   53,391   212,597   52,473 (2.1 )
  329,325   324,051   306,096   312,544   1,272,016   321,127 (2.5 )
Average length of stay:
Medicare 25.6 26.5 25.7 25.3 25.8 24.9 (2.7 )
Medicaid 37.1 39.6 35.2 36.2 37.1 38.4 3.5
Medicare Advantage 31.7 35.6 33.0 31.1 32.8 30.4 (4.1 )
Medicaid Managed 35.5 35.5 33.7 37.2 35.5 38.5 8.5
Commercial insurance and other 34.2 35.2 35.4 36.7 35.4 33.5 (2.0 )
Weighted average 28.4 29.7 28.8 28.7 28.9 28.2 (0.7 )
Revenues per admission:
Medicare $ 41,876 $ 42,883 $ 39,959 $ 38,720 $ 40,896 $ 37,829 (9.7 )
Medicaid 53,232 62,945 54,765 70,288 59,996 61,194 15.0
Medicare Advantage 51,955 57,112 53,701 48,440 52,757 48,690 (6.3 )
Medicaid Managed 51,511 52,419 50,027 54,286 52,076 57,871 12.3
Commercial insurance and other 76,305 81,779 77,047 83,278 79,565 74,905 (1.8 )
Weighted average 48,489 51,056 47,784 47,829 48,792 46,391 (4.3 )
Revenues per patient day:
Medicare $ 1,634 $ 1,619 $ 1,553 $ 1,527 $ 1,585 $ 1,518 (7.1 )
Medicaid 1,433 1,589 1,554 1,940 1,619 1,594 11.2
Medicare Advantage 1,640 1,606 1,627 1,558 1,608 1,604 (2.2 )
Medicaid Managed 1,452 1,478 1,484 1,459 1,469 1,502 3.4
Commercial insurance and other 2,230 2,322 2,176 2,271 2,250 2,235 0.2
Weighted average 1,710 1,722 1,662 1,668 1,691 1,647 (3.7 )
 
Average daily census 3,619 3,561 3,327 3,397 3,475 3,568 (1.4 )

____________

(a)

All historical statistics have been adjusted to present the ongoing hospital division portfolio excluding four hospitals acquired during the second quarter of 2016. See reconciliation of same-hospital revenues to reported revenues for the Hospital Division on page 16.

 
                     
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
 
First First quarter
2016 Quarters Quarter % change v.
First Second Third Fourth Year 2017 prior year
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs 19 19 19 19 19
Number of licensed beds 969 969 969 995 995
Discharges (a) 4,448 4,646 4,644 4,671 18,409 4,775 7.4
Same-hospital discharges (a) 4,295 4,535 4,546 4,538 17,914 4,393 2.3
Occupancy % (a) 70.6 70.6 68.8 66.5 69.1 71.4 1.1
Average length of stay (a) 13.2 12.9 12.7 12.6 12.8 12.8 (3.0 )
Revenue per discharge (a) $ 19,731 $ 19,318 $ 19,599 $ 19,486 $ 19,531 $ 20,097 1.9
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units 104 105 104 102 101
LTAC hospitals 119 121 120 119 119
Sub-acute units 7 7 7 5 7
Outpatient units   139   138   139   132   129
  369   371   370   358   356
 
Revenue per site $ 211,417 $ 215,798 $ 210,810 $ 220,733 $ 858,758 $ 227,100 7.4
 
RehabCare:
Sites of service (at end of period) 1,767 1,759 1,754 1,718 1,703
Revenue per site $ 115,590 $ 111,470 $ 109,738 $ 111,460 $ 448,258 $ 117,458 1.6
 
Nursing center division:
End of period data:
Number of nursing centers 92 92 91 91 91
Number of licensed beds 11,815 11,815 11,568 11,568 11,568
Admissions (b) 9,815 9,480 9,698 9,409 38,402 9,787 (0.3 )
Medicare average length of stay (b) 28.2 28.4 27.4 26.7 27.7 26.7 (5.3 )
Patient days (b) 846,578 842,681 845,037 846,361 3,380,657 829,970 (2.0 )
Revenues per patient day (b) $ 322 $ 323 $ 320 $ 323 $ 322 $ 329 2.2
Average daily census (b) 9,303 9,260 9,185 9,200 9,237 9,222 (0.9 )
Occupancy % (b) 77.3 76.7 77.5 77.9 77.4 78.1 1.0

____________

(a)

Excludes non-consolidating IRF.

(b)

Excludes managed facilities.

 
 
Forward-Looking Statements
 

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

 
Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance, or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. These statements involve risks, uncertainties, and other factors detailed from time to time in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission (the "SEC").
 
Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
 
Non-GAAP Measures
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures. The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the following pages of this earnings release.
 
During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures as a result of the Company’s continued review of its presentation of non-GAAP measures in response to the guidance issued by the SEC in May 2016. As updated, the Company’s core non-GAAP measures, including core net income attributable to Kindred, core EBITDAR, core diluted EPS, core operating cash flows and core free cash flows, no longer exclude (1) transaction, integration, research and development, and litigation contingency expenses that are not individually material, (2) non-restructuring related facility closing charges, and (3) non-executive or non-restructuring related severance, retirement and retention costs. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.
 
EBITDAR: The Company defines EBITDAR as earnings before interest, income taxes, depreciation, amortization and rent, and believes that the presentation of EBITDAR is useful to the investors because creditors, securities analysts and investors use EBITDAR as a measure of earnings used to compare the performance of companies in the healthcare industry before consideration of the capital structure of fixed assets and financing costs, which can vary significantly among companies.
 
For each of the Company’s segments, EBITDAR is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280—Segment Reporting.” In this context, the Company defines segment EBITDAR as earnings before interest, income taxes, depreciation, amortization, and rent, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.
 
Non-GAAP Measures (Continued)
 
Core Operating Results: The Company calculates core operating results, including core net income attributable to Kindred, core EBITDAR and core diluted EPS, by excluding charges related to impairments, business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company’s management uses core net income attributable to Kindred, core EBITDAR and core diluted EPS as measures of operational performance that are meaningful to investors, and for the measurement of internal incentive compensation goals, in addition to other measures. The Company uses these measures to assess the relative performance and attainment of internal incentive compensation goals of its operating divisions, as well as the employees that operate these businesses. In addition, the Company believes these measures are important, because securities analysts and investors use these measures to compare the Company’s performance to other companies in the healthcare industry.
 
Same-Hospital Revenues: The same-hospital revenues are calculated by excluding from the Company's Hospital Division revenues the results from four hospitals acquired in 2016, 15 hospitals sold in 2016, three hospitals that closed during 2016, and two hospitals that closed during 2015. The Company believes the presentation of same-hospital revenues provides investors, equity analysts and others with useful information regarding the performance of the Company's hospital operations that are comparable for the periods presented.
 
For EBITDAR, core net income attributable to Kindred, and core EBITDAR, the Company believes that income (loss) from continuing operations is the most comparable GAAP measure. For core diluted EPS, the Company believes that GAAP diluted earnings (loss) per share from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations and diluted earnings (loss) per share from continuing operations as important measures of the Company’s financial performance, because they provide the most complete measures of its performance. For same-hospital revenues, the Company believes that reported hospital segment revenues is the most comparable GAAP measure. Readers of the Company’s financial information should consider reported hospital segment revenues as an important measure of the Company’s Hospital Division financial performance because it provides the most complete measure of its performance. Operating results presented on a core basis, as well as a same-hospital basis, should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance.
 
Also in this earnings release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items, which the Company refers to as core operating cash flows and core free cash flows, respectively.
 
Core Operating Cash Flows: The Company defines core operating cash flows as operating cash flows excluding payments related to business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, net of income tax benefits. The Company believes that core operating cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core operating cash flows to evaluate consolidated operating performance and in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.
 
Core Free Cash Flows: The Company defines core free cash flows as operating cash flows excluding payments related to business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, net of income tax benefits but including routine capital expenditures and distributions to noncontrolling interests. The Company believes that core free cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core free cash flows in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.
 
The Company recognizes that core operating cash flows and core free cash flows are non-GAAP measures and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. For core operating cash flows and core free cash flows, the Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by operating activities as an important measure because it provides the most complete measure of cash provided by operating activities. Core operating cash flows and core free cash flows should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of the Company’s cash flows provided by operating activities.
 
         
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures
(Unaudited)
(In thousands, except per share amounts and statistics)
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures for the three months ended March 31, 2017 and 2016 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
 

The income tax benefit associated with the excluded charges, including the deferred tax valuation allowance for the three months ended March 31, 2017, was calculated using an effective income tax rate of 43.5% and 34.5% for the three months ended March 31, 2017 and 2016, respectively. The difference in the effective income tax rate compared to the same prior year period is primarily attributable to the deferred tax valuation allowance.

 
 
Three months ended
March 31,
2017 2016
Reconciliation of income from continuing operations before charges:
 
As reported:
Income (loss) from continuing operations attributable to Kindred ($6,136 ) $ 13,323
Diluted income (loss) per common share from continuing operations ($0.07 ) $ 0.15
Weighted average diluted shares outstanding 87,085 87,249
 
Detail of charges:
Restructuring charges:
Facility/branch divestitures and closings ($5,487 ) ($341 )
Retention and severance costs (8,548 ) (924 )
Transaction costs   (232 )   (436 )
(14,267 ) (1,701 )
Lease termination costs (charged to rent restructuring charges) (1,905 ) (251 )
 
Impairment charges (1,157 ) (7,788 )
Research and development - (863 )
Litigation contingency expense - (1,025 )
Business interruption settlements - 1,138
Gentiva transaction costs:
Professional and consulting fees - (1,048 )
Severance and retention   -     (555 )
(17,329 ) (12,093 )
Income tax benefit 6,819 4,177
Deferred tax valuation allowance   716     -  
Charges net of income taxes (9,794 ) (7,916 )
Allocation to participating unvested restricted stockholders   -     117  
Available to common stockholders   ($9,794 )   ($7,799 )
 
Diluted loss per common share related to charges ($0.11 ) ($0.09 )
 
Weighted average diluted shares outstanding 87,744 87,249
 
Core:
Income from continuing operations attributable to Kindred before charges $ 3,658 $ 21,239
Diluted earnings per common share from continuing operations before charges (a) $ 0.04 $ 0.24

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

87,744 87,249
 
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges 34.6 % 32.2 %
Impact of charges on effective income tax rate   -13.9 %   -0.8 %
Reported effective income tax rate   20.7 %   31.4 %

____________

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.1 million and $0.3 million for the three months ended March 31, 2017 and 2016, respectively, for the allocation of income to participating unvested restricted stockholders.

                   
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands)
 
 
Home health revenues (excluding community care) for each historical period follows:
 
First First quarter
2016 Quarters Quarter % change v.
First Second Third Fourth Year 2017 prior year
Kindred $ 363,730 $ 370,327 $ 373,980 $ 369,198 $ 1,477,235 $ 376,736 3.6
 
 
 
A reconciliation of reported revenues to same-hospital revenues for the Hospital Division for each historical period follows:
 
First First quarter
2016 Quarters Quarter % change v.
First Second Third Fourth Year 2017 prior year
Reported revenues $ 643,299 $ 633,695 $ 575,323 $ 530,746 $ 2,383,063 $ 540,280 (16.0 )
Hospitals acquired during 2016 (a) - (2,836 ) (10,655 ) (9,958 ) (23,449 ) (11,717 )
Hospitals sold during 2016 (b) (71,941 ) (64,084 ) (47,098 ) 732 (182,391 ) 449
Hospitals closed during 2016 (c) (8,271 ) (8,864 ) (8,908 ) (183 ) (26,226 ) (32 )
Hospitals closed during 2015 (d)   114     78     (54 )   (93 )   45     14  
Same-hospital revenues $ 563,201   $ 557,989   $ 508,608   $ 521,244   $ 2,151,042   $ 528,994   (6.1 )

____________

(a)

Four hospitals acquired during the second quarter of 2016.

(b)

Three hospitals sold during the second quarter of 2016 and 12 hospitals sold during the fourth quarter of 2016.

(c)

Three hospitals closed during the third quarter of 2016.

(d)

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

 
                           
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended March 31, 2017
Charges
Deferred
tax Before
As Impairment Restructuring valuation charges
reported charges charges allowance Total ("core") (a)
Income (loss) from continuing operations:
Segment EBITDAR:
Kindred at Home:
Home health $ 63,750 $ - $ - $ - $ - $ 63,750
Hospice   27,581     -     -   -     -   27,581  
  91,331     -     -   -     -   91,331  
 
Hospital division 91,169 - - - - 91,169
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 51,403 - - - - 51,403
RehabCare   10,609     -     -   -     -   10,609  
  62,012     -     -   -     -   62,012  
 
Nursing center division 31,718 - - - - 31,718
 
Support center (58,391 ) - - - - (58,391 )
Impairment charges (1,157 ) 1,157 - - 1,157 -
Restructuring charges   (14,267 )   -     14,267   -     14,267   -  
EBITDAR 202,415 1,157 14,267 - 15,424 217,839
Rent (95,612 ) - - - - (95,612 )
Restructuring charges - rent (1,905 ) - 1,905 - 1,905 -
Depreciation and amortization (34,960 ) - - - - (34,960 )
Interest, net   (58,807 )   -     -   -     -   (58,807 )

Income from continuing operations before income taxes

11,131 1,157 16,172 - 17,329 28,460
Provision for income taxes   2,302     455     6,364   716     7,535   9,837  
8,829 $ 702   $ 9,808 $ (716 ) $ 9,794 18,623
Noncontrolling interests   (14,965 )   (14,965 )
Income (loss) attributable to Kindred $ (6,136 ) $ 3,658  
 
Diluted earnings (loss) per common share $ (0.07 ) $ 0.04

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

87,085 87,744
 
Three months ended March 31, 2016
Charges
Gentiva
Business transaction Before
As interruption Litigation Impairment Research and Restructuring and charges
reported settlements   contingency   charges development charges integration Total ("core") (a)
Income from continuing operations:
Segment EBITDAR:
Kindred at Home:
Home health $ 66,941 $ (1,138 ) $ - $ - $ - $ - $ - $ (1,138 ) $ 65,803
Hospice   24,866     -     -   -     -   -     -   -     24,866  
  91,807     (1,138 )   -   -     -   -     -   (1,138 )   90,669  
 
Hospital division 135,495 - - - - - - - 135,495
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 47,870 - - - - - - - 47,870
RehabCare   11,987     -     -   -     -   -     -   -     11,987  
  59,857     -     -   -     -   -     -   -     59,857  
 
Nursing center division 30,100 - - - - - - - 30,100
 
Support center (70,808 ) - - - 863 - - 863 (69,945 )
Litigation contingency expense (1,910 ) - 1,025 - - - - 1,025 (885 )
Impairment charges (7,788 ) - - 7,788 - - - 7,788 -
Restructuring charges (1,701 ) - - - - 1,701 - 1,701 -
Transaction costs   (1,685 )   -     -   -     -   -     1,603   1,603     (82 )
EBITDAR 233,367 (1,138 ) 1,025 7,788 863 1,701 1,603 11,842 245,209
Rent (97,517 ) - - - - - - - (97,517 )
Restructuring charges - rent (251 ) - - - - 251 - 251 -
Depreciation and amortization (40,681 ) - - - - - - - (40,681 )
Interest, net   (57,245 )   -     -   -     -   -     -   -     (57,245 )

Income from continuing operations before income taxes

37,673 (1,138 ) 1,025 7,788 863 1,952 1,603 12,093 49,766
Provision for income taxes   11,836     (393 )   354   2,690     298   674     554   4,177     16,013  
25,837 $ (745 ) $ 671 $ 5,098   $ 565 $ 1,278   $ 1,049 $ 7,916   33,753
Noncontrolling interests   (12,514 )   (12,514 )
Income attributable to Kindred $ 13,323   $ 21,239  
 
Diluted earnings per common share $ 0.15 $ 0.24

Diluted shares used in computing earnings per common share

87,249 87,249

____________

(a)

During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

 
                             
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended June 30, 2016
Charges
Gentiva
Business transaction Before
As interruption Litigation Impairment Research and Debt Restructuring and charges
reported settlements contingency charges development amendment charges integration Total ("core") (a)
Income from continuing operations:
Segment EBITDAR:
Kindred at Home:
Home health $ 76,030 $ (171 ) $ - $ - $ - $ - $ - $ - $ (171 ) $ 75,859
Hospice   31,329     -     -     -     -   -     -     -     -     31,329  
  107,359     (171 )   -     -     -   -     -     -     (171 )   107,188  
 
Hospital division 125,932 - - - - - - - - 125,932
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 50,469 - - - - - - - - 50,469
RehabCare   13,269     -     -     -     -   -     -     -     -     13,269  
  63,738     -     -     -     -   -     -     -     -     63,738  
 
Nursing center division 33,662 - - - - - - - - 33,662
 
Support center (66,804 ) - - - 3,076 1,103 - - 4,179 (62,625 )
Litigation contingency expense (930 ) - 750 - - - - - 750 (180 )
Impairment charges (6,131 ) - - 6,131 - - - - 6,131 -
Restructuring charges (4,346 ) - - - - - 4,346 - 4,346 -
Transaction costs   (1,846 )   -     -     -     -   -     -     1,674     1,674     (172 )
EBITDAR 250,634 (171 ) 750 6,131 3,076 1,103 4,346 1,674 16,909 267,543
Rent (100,093 ) - - - - - - - - (100,093 )
Restructuring charges - rent (462 ) - - - - - 462 - 462 -
Depreciation and amortization (40,257 ) - - - - - - - - (40,257 )
Interest, net   (57,559 )   -     -     -     -   -     -     -     -     (57,559 )

Income from continuing operations before income taxes

52,263 (171 ) 750 6,131 3,076 1,103 4,808 1,674 17,371 69,634
Provision for income taxes   17,882     (129 )     (1,511 )     4,633       2,324   833       (3,962 )     1,265     3,453     21,335  
34,381 (42 ) 2,261 1,498 752 270 8,770 409 13,918 48,299
Noncontrolling interests   (13,522 )   -     -     (1,016 )   -   -     -     -     (1,016 )   (14,538 )
Income attributable to Kindred $ 20,859   $ (42 ) $ 2,261   $ 482   $ 752 $ 270   $ 8,770   $ 409   $ 12,902   $ 33,761  
 
Diluted earnings per common share $ 0.23 $ 0.38

Diluted shares used in computing earnings per common share

87,500 87,500
 
Three months ended September 30, 2016
Charges
Gentiva Deferred
transaction tax Before
As Impairment Research and Restructuring and valuation charges
reported charges development charges integration allowance Total ("core") (a)
Income (loss) from continuing operations:
Segment EBITDAR:
Kindred at Home:
Home health $ 75,073 $ - $ - $ - $ - $ - $ - $ 75,073
Hospice   31,326     -     -     -     -   -     -     31,326  
  106,399     -     -     -     -   -     -     106,399  
 
Hospital division 82,752 - - - - - - 82,752
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 49,470 - - - - - - 49,470
RehabCare   9,248     -     -     -     -   -     -     9,248  
  58,718     -     -     -     -   -     -     58,718  
 
Nursing center division 29,922 - - - - - - 29,922
 
Support center (61,751 ) - 3,288 - - - 3,288 (58,463 )
Impairment charges (324,289 ) 324,289 - - - - 324,289 -
Restructuring charges (22,813 ) - - 22,813 - - 22,813 -
Transaction costs   (2,982 )   -     -     -     1,250   -     1,250     (1,732 )
EBITDAR (134,044 ) 324,289 3,288 22,813 1,250 - 351,640 217,596
Rent (98,415 ) - - - 272 - 272 (98,143 )
Restructuring charges - rent (58,650 ) - - 58,650 - - 58,650 -
Depreciation and amortization (40,382 ) - - - - - - (40,382 )
Interest, net   (58,052 )   -     -     -     -   -     -     (58,052 )

Income (loss) from continuing operations before income taxes

(389,543 ) 324,289 3,288 81,463 1,522 - 410,562 21,019
Provision for income taxes   281,752     58,278     1,156     28,650     535   (366,470 )   (277,851 )   3,901  
(671,295 ) 266,011 2,132 52,813 987 366,470 688,413 17,118
Noncontrolling interests   (14,305 )   (288 )   -     -     -   -     (288 )   (14,593 )
Income (loss) attributable to Kindred $ (685,600 ) $ 265,723   $ 2,132   $ 52,813   $ 987 $ 366,470   $ 688,125   $ 2,525  
 
Diluted earnings (loss) per common share $ (7.89 ) $ 0.03

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

86,869 87,529

____________

(a)

During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

 
                               
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
 
 
Three months ended December 31, 2016

Charges

Gentiva Deferred
Business transaction tax Before
As interruption Impairment Research and Restructuring and valuation charges
reported settlements   charges development   charges integration allowance Total ("core") (a)
Income (loss) from continuing operations:
Segment EBITDAR:
Kindred at Home:
Home health $ 61,487 $ (302 ) $ - $ - $ - $ - $ - $ (302 ) $ 61,185
Hospice   28,805     (1,137 )   -     -     -   -   -     (1,137 )   27,668  
  90,292     (1,439 )   -     -     -   -   -     (1,439 )   88,853  
 
Hospital division 91,892 (630 ) - - - - - (630 ) 91,262
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 49,314 - - - - - - - 49,314
RehabCare   5,578     -     -     -     -   -   -     -   5,578  
  54,892     -     -     -     -   -   -     -   54,892  
 
Nursing center division 33,658 - - - - - - - 33,658
 
Support center (57,643 ) - - 4,293 - - - 4,293 (53,350 )
Impairment charges (4,351 ) - 4,351 - - - - 4,351 -
Restructuring charges (16,923 ) - - - 16,923 - - 16,923 -
Transaction costs   (2,166 )   -     -     -     -   1,779   -     1,779   (387 )
EBITDAR 189,651 (2,069 ) 4,351 4,293 16,923 1,779 - 25,277 214,928
Rent (94,509 ) - - - - - - - (94,509 )
Restructuring charges - rent (2,029 ) - - - 2,029 - - 2,029 -
Depreciation and amortization (38,082 ) - - - - - - - (38,082 )
Interest, net   (58,629 )   -     -     -     -   -   -     -   (58,629 )

Income (loss) from continuing operations before income taxes

(3,598 ) (2,069 ) 4,351 4,293 18,952 1,779 - 27,306 23,708
Provision for income taxes   2,860     (1,718 )   3,613     3,565     15,736   1,208   (22,002 )   402   3,262  
(6,458 ) $ (351 ) $ 738   $ 728   $ 3,216 $ 571 $ 22,002   $ 26,904 20,446
Noncontrolling interests   (13,261 )   (13,261 )
Income (loss) attributable to Kindred $ (19,719 ) $ 7,185  
 
Diluted earnings (loss) per common share $ (0.23 ) $ 0.08

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

86,904 87,641
 
Year ended December 31, 2016

Charges

Gentiva Deferred
Business transaction tax Before
As interruption Litigation Impairment Research and Debt Restructuring and valuation charges
reported settlements contingency charges development amendment charges integration allowance Total ("core") (a)
Income (loss) from continuing operations:
Segment EBITDAR:
Kindred at Home:
Home health $ 279,531 $ (1,611 ) $ - $ - $ - $ - $ - $ - $ - $ (1,611 ) $ 277,920
Hospice   116,326     (1,137 )   -     -     -   -   -     -   -     (1,137 )   115,189  
  395,857     (2,748 )   -     -     -   -   -     -   -     (2,748 )   393,109  
 
Hospital division 436,071 (630 ) - - - - - - - (630 ) 435,441
 
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services 197,123 - - - - - - - - - 197,123
RehabCare   40,082     -     -     -     -   -   -     -   -     -     40,082  
  237,205     -     -     -     -   -   -     -   -     -     237,205  
 
Nursing center division 127,342 - - - - - - - - - 127,342
 
Support center (257,006 ) - - - 11,520 1,103 - - - 12,623 (244,383 )
Litigation contingency expense (2,840 ) - 1,775 - - - - - - 1,775 (1,065 )
Impairment charges (342,559 ) - - 342,559 - - - - - 342,559 -
Restructuring charges (45,783 ) - - - - - 45,783 - - 45,783 -
Transaction costs   (8,679 )   -     -     -     -   -   -     6,306   -     6,306     (2,373 )
EBITDAR 539,608 (3,378 ) 1,775 342,559 11,520 1,103 45,783 6,306 - 405,668 945,276
Rent (390,534 ) - - - - - - 272 - 272 (390,262 )
Restructuring charges - rent (61,392 ) - - - - - 61,392 - - 61,392 -
Depreciation and amortization (159,402 ) - - - - - - - - - (159,402 )
Interest, net   (231,485 )   -     -     -     -   -   -     -   -     -     (231,485 )

Income (loss) from continuing operations before income taxes

(303,205 ) (3,378 ) 1,775 342,559 11,520 1,103 107,175 6,578 - 467,332 164,127
Provision for income taxes   314,330     (1,356 )     (391 )     69,806       4,624     443     43,017       2,510     (388,472 )     (269,819 )   44,511  
(617,535 ) (2,022 ) 2,166 272,753 6,896 660 64,158 4,068 388,472 737,151 119,616
Noncontrolling interests   (53,602 )   -     -     (1,304 )   -   -   -     -   -     (1,304 )   (54,906 )
Income (loss) attributable to Kindred $ (671,137 ) $ (2,022 ) $ 2,166   $ 271,449   $ 6,896 $ 660 $ 64,158   $ 4,068 $ 388,472   $ 735,847   $ 64,710  
 
Diluted earnings (loss) per common share $ (7.73 ) $ 0.72

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

86,800 87,491

____________

(a)

During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

 
           
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands)
 
 
Three months ended
March 31,
2017 2016
 
Reconciliation of net cash flows used in operating activities to core operating cash flows and core free cash flows:
Net cash flows used in operating activities ($92,638 ) ($130,340 )

Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows used in operating activities:

Transaction, severance, research and development, and retention 6,986 4,841
Business interruption settlements (1,993 ) (1,138 )
Lease termination fees - restructuring 1,998 -

Capitalized lender fees related to debt amendment

5,403 -
Litigation 8,536   127,669  
20,930   131,372  

Net cash flows provided by (used in) operating activities excluding certain items before income tax benefit of certain payments

(71,708 ) 1,032
Benefit of reduced income tax payments resulting from certain payments (a) -   -  
Net cash flows provided by (used in) operating activities excluding certain items (core operating cash flows) (71,708 ) 1,032
 
Less routine capital expenditures (11,941 ) (18,106 )
Less distributions to noncontrolling interests (25,801 ) (16,315 )
Free cash flows excluding certain items (core free cash flows) ($109,450 ) ($33,389 )
 
 

_____________

(a)

No tax deposits were due in first quarter of 2017 or 2016.

Contacts

Kindred Healthcare, Inc.
Todd Flowers, 502-596-6569
Investor Relations

Contacts

Kindred Healthcare, Inc.
Todd Flowers, 502-596-6569
Investor Relations