News Column

Kindred Healthcare Announces Fourth Quarter Results

February 20, 2014

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

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

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

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

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



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

Highlights:

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

    Fourth Quarter Results

    Continuing Operations

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

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

    Fiscal Year Results

    Continuing Operations

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

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

    Discontinued Operations

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

    Management Commentary

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

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

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

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

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

    Earnings Guidance – Continuing Operations

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

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

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

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

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

    Quarterly Cash Dividend

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

    Conference Call

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

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

    Forward-Looking Statements

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

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

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

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

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

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

    The Company’s earnings release includes a financial measure referred to as operating income, or earnings before interest, income taxes, depreciation, amortization and rent. The Company’s management uses operating income as a meaningful measure of operational performance in addition to other measures. The Company uses operating income to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes this measurement is important because securities analysts and investors use this measurement to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating income should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. A reconciliation of operating income to income (loss) from continuing operations provided in the Condensed Business Segment Data is included in this press release.

    About Kindred Healthcare

    Kindred Healthcare, Inc., a top-150 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $5 billion and approximately 63,000 employees in 47 states. At December 31, 2013, Kindred through its subsidiaries provided healthcare services in 2,280 locations, including 101 transitional care hospitals, five inpatient rehabilitation hospitals, 100 nursing centers, 22 sub-acute units, 159 Kindred at Home hospice, home health and non-medical home care locations, 104 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,789 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for five years in a row, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

     
     
    KINDRED HEALTHCARE, INC.
    Financial Summary
    (In thousands, except per share amounts)
                   
    Three months endedYear ended
    December 31,December 31,
    2013201220132012
     
    Revenues $1,224,374   $ 1,237,392   $4,900,510   $ 4,928,509  
     
    Loss from continuing operations $(51,737) $ (83,209 ) $(44,812) $ (46,927 )
    Discontinued operations, net of income taxes:
    Income (loss) from operations (6,160) 3,312 (36,136) 12,348
    Loss on divestiture of operations   (5,994)   (939 )   (83,887)   (4,745 )
    Income (loss) from discontinued operations   (12,154)   2,373     (120,023)   7,603  
    Net loss (63,891) (80,836 ) (164,835) (39,324 )
    Earnings attributable to noncontrolling interests   (2,405)   (790 )   (3,657)   (1,043 )
    Loss attributable to Kindred $(66,296) $ (81,626 ) $(168,492) $ (40,367 )
     
    Amounts attributable to Kindred stockholders:
    Loss from continuing operations $(54,142) $ (83,999 ) $(48,469) $ (47,970 )
    Income (loss) from discontinued operations   (12,154)   2,373     (120,023)   7,603  
    Net loss $(66,296) $ (81,626 ) $(168,492) $ (40,367 )
     
    Loss per common share:
    Basic:
    Loss from continuing operations $(1.04) $ (1.62 ) $(0.93) $ (0.93 )
    Discontinued operations:
    Income (loss) from operations (0.12) 0.06 (0.69) 0.24
    Loss on divestiture of operations   (0.11)   (0.02 )   (1.61)   (0.09 )
    Income (loss) from discontinued operations   (0.23)   0.04     (2.30)   0.15  
    Net loss $(1.27) $ (1.58 ) $(3.23) $ (0.78 )
     
    Diluted:
    Loss from continuing operations $(1.04) $ (1.62 ) $(0.93) $ (0.93 )
    Discontinued operations:
    Income (loss) from operations (0.12) 0.06 (0.69) 0.24
    Loss on divestiture of operations   (0.11)   (0.02 )   (1.61)   (0.09 )
    Income (loss) from discontinued operations   (0.23)   0.04     (2.30)   0.15  
    Net loss $(1.27) $ (1.58 ) $(3.23) $ (0.78 )
     
    Shares used in computing loss per common share:
    Basic 52,344 51,692 52,249 51,659
    Diluted 52,344 51,692 52,249 51,659
     
     
    KINDRED HEALTHCARE, INC.
    Condensed Consolidated Statement of Operations
    (In thousands, except per share amounts)
                       
    Three months endedYear ended
    December 31,December 31,
    2013201220132012
     
    Revenues $1,224,374   $ 1,237,392   $4,900,510   $ 4,928,509  
     
    Salaries, wages and benefits 746,399 754,530 2,988,487 3,012,321
    Supplies 80,167 84,613 328,999 343,102
    Rent 82,563 78,222 318,077 310,178
    Other operating expenses 250,137 224,543 985,883 914,272
    Other (income) expense (457) (3,181 ) (1,440) (12,660 )
    Impairment charges 76,127 108,113 77,193 108,953
    Depreciation and amortization 38,437 42,296 157,329 162,685
    Interest expense 25,161 27,929 108,049 107,875
    Investment income   (1,255)   (246 )   (4,051)   (997 )
      1,297,279     1,316,819     4,958,526     4,945,729  
    Loss from continuing operations before income taxes (72,905) (79,427 ) (58,016) (17,220 )
    Provision (benefit) for income taxes   (21,168)   3,782     (13,204)   29,707  
    Loss from continuing operations (51,737) (83,209 ) (44,812) (46,927 )
    Discontinued operations, net of income taxes:
    Income (loss) from operations (6,160) 3,312 (36,136) 12,348
    Loss on divestiture of operations   (5,994)   (939 )   (83,887)   (4,745 )
    Income (loss) from discontinued operations   (12,154)   2,373     (120,023)   7,603  
    Net loss (63,891) (80,836 ) (164,835) (39,324 )
    Earnings attributable to noncontrolling interests   (2,405)   (790 )   (3,657)   (1,043 )
    Loss attributable to Kindred $(66,296) $ (81,626 ) $(168,492) $ (40,367 )
     
    Amounts attributable to Kindred stockholders:
    Loss from continuing operations $(54,142) $ (83,999 ) $(48,469) $ (47,970 )
    Income (loss) from discontinued operations   (12,154)   2,373     (120,023)   7,603  
    Net loss $(66,296) $ (81,626 ) $(168,492) $ (40,367 )
     
    Loss per common share:
    Basic:
    Loss from continuing operations $(1.04) $ (1.62 ) $(0.93) $ (0.93 )
    Discontinued operations:
    Income (loss) from operations (0.12) 0.06 (0.69) 0.24
    Loss on divestiture of operations   (0.11)   (0.02 )   (1.61)   (0.09 )
    Income (loss) from discontinued operations   (0.23)   0.04     (2.30)   0.15  
    Net loss $(1.27) $ (1.58 ) $(3.23) $ (0.78 )
     
    Diluted:
    Loss from continuing operations $(1.04) $ (1.62 ) $(0.93) $ (0.93 )
    Discontinued operations:
    Income (loss) from operations (0.12) 0.06 (0.69) 0.24
    Loss on divestiture of operations   (0.11)   (0.02 )   (1.61)   (0.09 )
    Income (loss) from discontinued operations   (0.23)   0.04     (2.30)   0.15  
    Net loss $(1.27) $ (1.58 ) $(3.23) $ (0.78 )
     
    Shares used in computing loss per common share:
    Basic 52,344 51,692 52,249 51,659
    Diluted 52,344 51,692 52,249 51,659
               
     
    KINDRED HEALTHCARE, INC.
    Condensed Consolidated Balance Sheet
    (In thousands, except per share amounts)
     
    December 31,December 31,
    20132012
    ASSETS
    Current assets:
    Cash and cash equivalents $35,972 $ 50,007
    Cash - restricted 3,713 5,197
    Insurance subsidiary investments 96,295 86,168
    Accounts receivable less allowance for loss 916,529 1,038,605
    Inventories 25,780 32,021
    Deferred tax assets 37,920 12,663
    Income taxes 36,846 13,573
    Other   43,673     35,532  
    1,196,728 1,273,766
     
    Property and equipment 1,906,366 2,226,903
    Accumulated depreciation   (979,791)   (1,083,777 )
    926,575 1,143,126
     
    Goodwill 992,102 1,041,266
    Intangible assets less accumulated amortization 423,303 439,767
    Assets held for sale 20,978 4,131
    Insurance subsidiary investments 149,094 116,424
    Deferred tax assets 17,043 -
    Other   220,046     219,466  
    Total assets $3,945,869   $ 4,237,946  
    LIABILITIES AND EQUITY
    Current liabilities:
    Accounts payable $181,772 $ 210,668
    Salaries, wages and other compensation 361,192 389,009
    Due to third party payors 33,747 35,420
    Professional liability risks 60,993 54,088
    Other accrued liabilities 146,495 137,204
    Long-term debt due within one year   8,222     8,942  
    792,421 835,331
     
    Long-term debt 1,579,391 1,648,706
    Professional liability risks 246,230 236,630
    Deferred tax liabilities - 9,764
    Deferred credits and other liabilities 206,611 214,671
     
    Equity:
    Stockholders' equity:

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

    13,541 13,320
    Capital in excess of par value 1,146,193 1,145,922
    Accumulated other comprehensive loss (252) (1,882 )
    Retained earnings (deficit)   (76,825)   98,799  
    1,082,657 1,256,159
    Noncontrolling interests   38,559     36,685  
    Total equity   1,121,216     1,292,844  
    Total liabilities and equity $3,945,869   $ 4,237,946  
                         
     
    KINDRED HEALTHCARE, INC.
    Condensed Consolidated Statement of Cash Flows
    (In thousands)
     
    Three months endedYear ended
    December 31,   December 31,
    2013201220132012
    Cash flows from operating activities:
    Net loss $(63,891) $ (80,836 ) $(164,835) $ (39,324 )

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

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

    (6,189

    ) (2,940 )
    Provision for doubtful accounts 10,151 1,038 44,640 23,692
    Deferred income taxes (13,665) 6,616 (36,650) (11,524 )
    Impairment charges 77,748 108,952 87,825 110,856
    Loss on divestiture of discontinued operations 5,994 939 83,887 4,745
    Other (1,151) (981 ) 4,301 1,772
    Change in operating assets and liabilities:
    Accounts receivable 25,526 9,208 52,271 (58,705 )
    Inventories and other assets 4,195 (8,485 ) 4,262 (29,382 )
    Accounts payable 9,884 737 (22,095) (6,515 )
    Income taxes (11,763) (9,294 ) (17,032) 29,991
    Due to third party payors (18,387) (4,411 ) (1,671) (2,723 )
    Other accrued liabilities   (60,008)   (6,893 )   (34,779)   20,600  
    Net cash provided by operating activities   10,195     71,475     199,412     262,562  
     
    Cash flows from investing activities:
    Routine capital expenditures (37,956) (38,371 ) (100,908) (115,175 )
    Development capital expenditures (1,115) (12,147 ) (11,824) (50,322 )
    Acquisitions, net of cash acquired (185,213) (38,904 ) (224,319) (178,212 )
    Acquisition deposit 14,675 - - -
    Sale of assets 1,906 150 250,606 1,260
    Purchase of insurance subsidiary investments (15,767) (7,151 ) (46,127) (38,041 )
    Sale of insurance subsidiary investments 14,527 8,290 49,954 38,363
    Net change in insurance subsidiary cash and cash equivalents 217 (6,114 ) (44,077) (21,285 )
    Change in other investments (96) 11 122 1,465
    Other   518     490     376     (539 )
    Net cash used in investing activities   (208,304)   (93,746 )   (126,197)   (362,486 )
     
    Cash flows from financing activities:
    Proceeds from borrowings under revolving credit 575,500 455,000 1,675,800 1,784,300
    Repayment of borrowings under revolving credit (376,800) (512,200 ) (1,740,400) (1,757,100 )
    Proceeds from issuance of term loan, net of discount - 97,500 - 97,500
    Repayment of other long-term debt (2,058) (2,688 ) (6,876) (10,664 )
    Payment of deferred financing costs (326) (864 ) (1,666) (1,465 )
    Contribution made by noncontrolling interests - - - 200
    Distribution made to noncontrolling interests (423) (308 ) (2,051) (3,829 )
    Purchase of noncontrolling interests - (4 ) - (719 )
    Issuance of common stock 32 147 461 147
    Dividends paid (6,502) - (13,001) -
    Other   79     -     483     -  
    Net cash provided by (used in) financing activities   189,502     36,583     (87,250)   108,370  
    Change in cash and cash equivalents (8,607) 14,312 (14,035) 8,446
    Cash and cash equivalents at beginning of period   44,579     35,695     50,007     41,561  
    Cash and cash equivalents at end of period $35,972   $ 50,007   $35,972   $ 50,007  
                               
     
    KINDRED HEALTHCARE, INC.
    Condensed Consolidated Statement of Operations
    (In thousands, except per share amounts)
     
    2012 Quarters2013 Quarters
    FirstSecondThirdFourthYearFirstSecondThirdFourthYear
     
    Revenues $ 1,257,132   $ 1,218,336   $ 1,215,649   $ 1,237,392   $ 4,928,509   $ 1,278,327   $ 1,207,979   $ 1,189,830   $ 1,224,374   $ 4,900,510  
     
    Salaries, wages and benefits 770,602 740,041 747,148 754,530 3,012,321 791,728 724,067 726,293 746,399 2,988,487
    Supplies 88,620 85,662 84,207 84,613 343,102 85,900 82,040 80,892 80,167 328,999
    Rent 76,092 77,379 78,485 78,222 310,178 78,134 78,970 78,410 82,563 318,077
    Other operating expenses 229,754 233,145 226,830 224,543 914,272 235,892 232,910 266,944 250,137 985,883
    Other (income) expense (3,136 ) (3,165 ) (3,178 ) (3,181 ) (12,660 ) (1,009 ) (26 ) 52 (457 ) (1,440 )
    Impairment charges 356 108 376 108,113 108,953 187 438 441 76,127 77,193
    Depreciation and amortization 39,098 40,318 40,973 42,296 162,685 42,322 39,303 37,267 38,437 157,329
    Interest expense 26,570 26,713 26,663 27,929 107,875 28,171 29,084 25,633 25,161 108,049
    Investment income   (282 )   (258 )   (211 )   (246 )   (997 )   (87 )   (1,475 )   (1,234 )   (1,255 )   (4,051 )
      1,227,674     1,199,943     1,201,293     1,316,819     4,945,729     1,261,238     1,185,311     1,214,698     1,297,279     4,958,526  

    Income (loss) from continuing operations before income taxes

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

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

    Basic 51,603 51,664 51,676 51,692 51,659 52,062 52,265 52,323 52,344 52,249
    Diluted 51,638 51,675 51,709 51,692 51,659 52,083 52,284 52,323 52,344 52,249
                                 
     
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data
    (In thousands)
     
    2012 Quarters2013 Quarters
    FirstSecondThirdFourthYearFirstSecondThirdFourthYear
    Revenues:
    Hospital division $ 679,813 $ 645,714 $ 633,972 $ 645,426 $ 2,604,925 $ 674,363 $ 621,454 $ 606,488 $ 619,344 $ 2,521,649
     
    Nursing center division 274,358 269,986 273,265 274,807 1,092,416 275,141 269,501 270,210 274,908 1,089,760
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 253,370 253,013 252,134 244,485 1,003,002 257,557 248,321 243,974 241,938 991,790
    Hospital rehabilitation services   74,369     73,402     71,899     73,910     293,580     74,523     69,777     68,296     74,017     286,613  
      327,739     326,415     324,033     318,395     1,296,582     332,080     318,098     312,270     315,955     1,278,403  
     
    Care management division   28,432     28,872     35,943     50,093     143,340     51,621     53,039     53,801     66,466     224,927  
    1,310,342 1,270,987 1,267,213 1,288,721 5,137,263 1,333,205 1,262,092 1,242,769 1,276,673 5,114,739
     
    Eliminations:
    Skilled nursing rehabilitation services (27,888 ) (27,551 ) (27,037 ) (26,123 ) (108,599 ) (29,303 ) (29,257 ) (28,698 ) (28,728 ) (115,986 )
    Hospital rehabilitation services (24,686 ) (24,225 ) (23,666 ) (24,200 ) (96,777 ) (24,362 ) (23,855 ) (23,080 ) (22,696 ) (93,993 )
    Nursing centers   (636 )   (875 )   (861 )   (1,006 )   (3,378 )   (1,213 )   (1,001 )   (1,161 )   (875 )   (4,250 )
      (53,210 )   (52,651 )   (51,564 )   (51,329 )   (208,754 )   (54,878 )   (54,113 )   (52,939 )   (52,299 )   (214,229 )
    $ 1,257,132   $ 1,218,336   $ 1,215,649   $ 1,237,392   $ 4,928,509   $ 1,278,327   $ 1,207,979   $ 1,189,830   $ 1,224,374   $ 4,900,510  
     
    Income (loss) from continuing operations:
    Operating income (loss):
    Hospital division $ 151,784 $ 132,358 $ 131,041 $ 147,041 $ 562,224 $ 150,043 $ 132,170 $ 113,014 $ 127,929 (a) $ 523,156
     
    Nursing center division 34,067 36,215 38,960 32,016 141,258 29,844 36,678 32,146 36,694 135,362
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 10,679 19,351 16,929 21,001 67,960 12,046 20,297 (8,565 ) 12,918 (b) 36,696
    Hospital rehabilitation services   16,116     17,860     16,977     18,792     69,745     18,132     19,573     18,215     18,005   (c)   73,925  
      26,795     37,211     33,906     39,793     137,705     30,178     39,870     9,650     30,923     110,621  
     
    Care management division 2,341 2,789 3,645 4,933 13,708 2,786 3,961 1,085 2,131 (d) 9,963
     
    Corporate:
    Overhead (42,728 ) (44,723 ) (45,883 ) (45,729 ) (179,063 ) (45,582 ) (43,199 ) (39,151 ) (48,563 ) (e) (176,495 )
    Insurance subsidiary   (482 )   (600 )   (545 )   (500 )   (2,127 )   (509 )   (384 )   (482 )   (539 )   (1,914 )
    (43,210 ) (45,323 ) (46,428 ) (46,229 ) (181,190 ) (46,091 ) (43,583 ) (39,633 ) (49,102 ) (178,409 )
     
    Impairment charges (356 ) (108 ) (376 ) (108,113 ) (108,953 ) (187 ) (438 ) (441 ) (76,127 ) (77,193 )
    Transaction costs   (485 )   (597 )   (482 )   (667 )   (2,231 )   (944 )   (108 )   (613 )   (447 )   (2,112 )
    Operating income 170,936 162,545 160,266 68,774 562,521 165,629 168,550 115,208 72,001 521,388
    Rent (76,092 ) (77,379 ) (78,485 ) (78,222 ) (310,178 ) (78,134 ) (78,970 ) (78,410 ) (82,563 ) (318,077 )
    Depreciation and amortization (39,098 ) (40,318 ) (40,973 ) (42,296 ) (162,685 ) (42,322 ) (39,303 ) (37,267 ) (38,437 ) (157,329 )
    Interest, net   (26,288 )   (26,455 )   (26,452 )   (27,683 )   (106,878 )   (28,084 )   (27,609 )   (24,399 )   (23,906 )   (103,998 )

    Income (loss) from continuing operations before income taxes

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

    Income (loss) from continuing operations before income taxes

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

     

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

    Capital expenditures, excluding acquisitions (including discontinued operations):

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

    Income (loss) from continuing operations before income taxes

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

     

    Capital expenditures, excluding acquisitions (including discontinued operations):

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

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

     
    (c)

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

     
    (d) Includes a lease cancellation charge of $0.1 million incurred in connection with restructuring activities.
                             
     
    KINDRED HEALTHCARE, INC.
    Condensed Consolidating Statement of Operations
    (In thousands)
     
    Year ended December 31, 2013
    NursingRehabilitation divisionCareTransaction-
    HospitalcenterSkilled nursingHospitalmanagementCorporaterelated
    division (a,b)division (a)services (a,c,d)services (a,c)Totaldivision (a,c,e)

     

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

    224,927

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

    Income (loss) from continuing operations before income taxes

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

    Capital expenditures, excluding acquisitions (including discontinued operations):

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

    Income (loss) from continuing before income taxes

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

    Capital expenditures, excluding acquisitions (including discontinued operations):

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

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

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

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

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

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

     
    (h)

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

     
    (i) Includes $0.9 million incurred in connection with the cancellation of a sub-acute unit project.
                                                   
     
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data
    (Unaudited)
     
    2012 Quarters2013 Quarters
    FirstSecondThirdFourthYearFirstSecondThirdFourthYear
    Hospital division data:
    End of period data:
    Number of hospitals:
    Transitional care 103 102 101 101 101 101 101 101
    Inpatient rehabilitation 5 5 5 5 5 5 5 5
    108 107 106 106 106 106 106 106
     
    Number of licensed beds:
    Transitional care 7,358 7,308 7,269 7,269 7,269 7,269 7,283 7,315
    Inpatient rehabilitation 185 215 215 215 215 215 215 215
    7,543 7,523 7,484 7,484 7,484 7,484 7,498 7,530
     
    Revenue mix %:
    Medicare 63 62 61 63 62 63 61 59 59 61
    Medicaid 6 6 6 6 6 5 6 7 6 6
    Medicare Advantage 10 11 11 10 10 10 11 11 12 11
    Commercial insurance and other 21 21 22 21 22 22 22 23 23 22
     
    Admissions:
    Medicare 10,726 9,951 9,786 9,894 40,357 10,606 9,722 9,247 9,516 39,091
    Medicaid 924 919 915 838 3,596 685 744 788 712 2,929
    Medicare Advantage 1,508 1,630 1,483 1,438 6,059 1,552 1,518 1,448 1,478 5,996
    Commercial insurance and other 2,534 2,335 2,348 2,233 9,450 2,210 2,117 2,139 2,120 8,586
    15,692 14,835 14,532 14,403 59,462 15,053 14,101 13,622 13,826 56,602
    Admissions mix %:
    Medicare 68 67 68 69 68 70 69 68 69 69
    Medicaid 6 6 6 6 6 5 5 6 5 5
    Medicare Advantage 10 11 10 10 10 10 11 10 11 11
    Commercial insurance and other 16 16 16 15 16 15 15 16 15 15
     
    Patient days:
    Medicare 263,839 249,315 243,315 247,535 1,004,004 260,417 241,003 229,963 232,606 963,989
    Medicaid 32,834 30,564 33,671 31,686 128,755 28,776 30,447 31,569 29,799 120,591
    Medicare Advantage 42,638 45,451 43,679 42,067 173,835 44,136 44,021 42,745 44,565 175,467
    Commercial insurance and other 74,906 73,128 72,243 69,237 289,514 73,066 66,575 68,514 66,449 274,604
    414,217 398,458 392,908 390,525 1,596,108 406,395 382,046 372,791 373,419 1,534,651
    Average length of stay:
    Medicare 24.6 25.1 24.9 25.0 24.9 24.6 24.8 24.9 24.4 24.7
    Medicaid 35.5 33.3 36.8 37.8 35.8 42.0 40.9 40.1 41.9 41.2
    Medicare Advantage 28.3 27.9 29.5 29.3 28.7 28.4 29.0 29.5 30.2 29.3
    Commercial insurance and other 29.6 31.3 30.8 31.0 30.6 33.1 31.4 32.0 31.3 32.0
    Weighted average 26.4 26.9 27.0 27.1 26.8 27.0 27.1 27.4 27.0 27.1
                                                   
     
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data (Continued)
    (Unaudited)
     
    2012 Quarters2013 Quarters
    FirstSecondThirdFourthYearFirstSecondThirdFourthYear
    Hospital division data (continued):
    Revenues per admission:
    Medicare $ 39,819 $ 40,084 $ 39,479 $ 41,016 $ 40,096 $ 39,995 $ 38,919 $ 39,063 $ 38,723 $ 39,197
    Medicaid 42,962 42,150 41,591 43,539 42,540 51,441 48,142 51,890 52,599 51,005
    Medicare Advantage 44,259 42,577 46,352 45,832 44,692 44,698 45,269 46,604 48,917 46,343
    Commercial insurance and other 57,723 59,402 59,980 61,451 59,579 65,866 65,444 64,002 66,561 65,469
    Weighted average 43,322 43,526 43,626 44,812 43,808 44,799 44,072 44,523 44,796 44,551
     
    Revenues per patient day:
    Medicare $ 1,619 $ 1,600 $ 1,588 $ 1,639 $ 1,612 $ 1,629 $ 1,570 $ 1,571 $ 1,584 $ 1,590
    Medicaid 1,209 1,267 1,130 1,151 1,188 1,225 1,176 1,295 1,257 1,239
    Medicare Advantage 1,565 1,527 1,574 1,567 1,558 1,572 1,561 1,579 1,622 1,584
    Commercial insurance and other 1,953 1,897 1,949 1,982 1,945 1,992 2,081 1,998 2,124 2,047
    Weighted average 1,641 1,620 1,614 1,653 1,632 1,659 1,627 1,627 1,659 1,643
     
    Medicare case mix index (discharged patients only) 1.18 1.18 1.16 1.15 1.17 1.18 1.18 1.16 1.15 1.17
     
    Average daily census 4,552 4,379 4,271 4,245 4,361 4,516 4,198 4,052 4,059 4,205
    Occupancy % 68.5 65.4 64.4 64.0 65.6 67.9 62.9 60.4 60.8 63.0
     
    Annualized employee turnover % 21.9 21.4 20.1 19.7 22.0 21.5 21.1 20.8
     
    Nursing center division data:
    End of period data:
    Number of facilities:
    Nursing centers:
    Owned or leased 97 97 97 96 96 96 96 96
    Managed 4 4 4 4 4 4 4 4
    Assisted living facilities   6   6   6   6   6   6   6   6
      107   107   107   106   106   106   106   106
    Number of licensed beds:
    Nursing centers:
    Owned or leased 12,159 12,207 12,207 12,153 12,153 12,153 12,153 12,153
    Managed 485 485 485 485 485 485 485 485
    Assisted living facilities   413   341   341   341   341   341   341   341
      13,057   13,033   13,033   12,979   12,979   12,979   12,979   12,979
    Revenue mix %:
    Medicare 36 35 35 35 35 35 34 33 32 34
    Medicaid 36 37 37 37 36 36 37 39 40 37
    Medicare Advantage 8 8 7 7 8 8 8 7 8 8
    Private and other 20 20 21 21 21 21 21 21 20 21
                                                 
     
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data (Continued)
    (Unaudited)
     
    2012 Quarters2013 Quarters
    FirstSecondThirdFourthYearFirstSecondThirdFourthYear
    Nursing center division data (continued):
    Patient days (a):
    Medicare 179,394 174,134 169,121 166,307 688,956 171,881 162,488 158,458 152,185 645,012
    Medicaid 528,701 530,816 535,784 530,503 2,125,804 515,970 516,103 525,625 532,378 2,090,076
    Medicare Advantage 52,860 48,778 48,483 47,105 197,226 52,460 52,064 45,865 49,319 199,708
    Private and other   224,611   221,177   227,274   229,273   902,335   218,175   217,914   218,845   214,946   869,880
      985,566   974,905   980,662   973,188   3,914,321   958,486   948,569   948,793   948,828   3,804,676
     
    Patient day mix % (a):
    Medicare 18 18 17 17 18 18 17 17 16 17
    Medicaid 54 54 55 54 54 54 54 55 56 55
    Medicare Advantage 5 5 5 5 5 5 6 5 5 5
    Private and other 23 23 23 24 23 23 23 23 23 23
     
    Revenues per patient day (a):
    Medicare Part A $ 504 $ 506 $ 516 $ 538 $ 516 $ 527 $ 526 $ 526 $ 540 $ 530
    Total Medicare (including Part B) 545 550 562 576 558 564 566 568 584 570
    Medicaid 185 187 188 190 188 190 190 199 205 196
    Medicaid (net of provider taxes) (b) 163 165 166 167 165 167 167 177 183 174
    Medicare Advantage 427 421 423 430 425 427 430 427 437 431
    Private and other 249 246 250 254 250 264 262 256 258 260
    Weighted average 278 277 279 282 279 287 284 285 290 287
     
    Average daily census (a) 10,830 10,713 10,659 10,578 10,695 10,650 10,424 10,313 10,313 10,424
    Admissions (a) 11,092 10,298 10,128 10,399 41,917 11,044 10,305 10,045 10,048 41,442
    Occupancy % (a) 84.2 83.6 83.0 82.6 83.3 83.3 81.5 80.5 80.3 81.4
    Medicare average length of stay (a) 30.4 31.3 31.9 30.6 31.0 30.2 30.9 31.6 31.4 31.0
     
    Annualized employee turnover % 38.4 40.3 39.7 39.6 41.8 44.7 44.8 42.8
     
    Rehabilitation division data:
    Skilled nursing rehabilitation services:
    Revenue mix %:
    Company-operated 11 11 11 11 11 11 12 12 12 12
    Non-affiliated 89 89 89 89 89 89 88 88 88 88
     
    Sites of service (at end of period) 1,722 1,730 1,735 1,726 1,729 1,713 1,768 1,806
    Revenue per site $ 147,137 $ 146,250 $ 145,322 $ 141,648 $ 580,357 $ 148,963 $ 144,962 $ 137,995 $ 133,963 $ 565,883
     
    Therapist productivity % 80.3 80.4 80.5 80.5 80.4 81.1 80.4 79.8 79.5 80.2
     
    Hospital rehabilitation services:
    Revenue mix %:
    Company-operated 33 33 33 33 33 33 34 34 31 33
    Non-affiliated 67 67 67 67 67 67 66 66 69 67
     
    Sites of service (at end of period):
    Inpatient rehabilitation units 100 102 104 105 103 103 99 104
    LTAC hospitals 125 125 123 123 123 123 122 121
    Sub-acute units 19 20 20 21 8 8 7 10
    Outpatient units 111 115 117 119 98 104 104 144
    Other   5   5   5   5   -   -   -   -
      360   367   369   373   332   338   332   379
     
    Revenue per site $ 206,580 $ 200,006 $ 194,849 $ 198,150 $ 799,585 $ 224,466 $ 206,441 $ 205,711 $ 195,296 $ 831,914
     
    Annualized employee turnover % 19.6 16.9 17.3 16.9 10.4 13.2 14.0 13.7
       
    (a) Excludes managed facilities.
    (b) Provider taxes are recorded in other operating expenses for all periods presented.
                                         
     
    KINDRED HEALTHCARE, INC.
    Loss Per Common Share Reconciliation (a)
    (In thousands, except per share amounts)
     
    Three months ended December 31,Year ended December 31,
    2013201220132012
    BasicDilutedBasicDilutedBasicDilutedBasicDiluted
    Loss:
    Amounts attributable to Kindred stockholders:
    Loss from continuing operations:
    As reported in Statement of Operations $ (54,142 ) $ (54,142 ) $ (83,999 ) $ (83,999 ) $ (48,469 ) $ (48,469 ) $ (47,970 ) $ (47,970 )

    Allocation to participating unvested restricted stockholders

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

    Allocation to participating unvested restricted stockholders

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

    Allocation to participating unvested restricted stockholders

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

    Allocation to participating unvested restricted stockholders

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

    Allocation to participating unvested restricted stockholders

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

    Weighted average shares outstanding - basic computation

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

     

           

    Adjusted weighted average shares outstanding - diluted computation

      52,344     51,692     52,249     51,659  
     
    Loss per common share:
    Loss from continuing operations $ (1.04 ) $ (1.04 ) $ (1.62 ) $ (1.62 ) $ (0.93 ) $ (0.93 ) $ (0.93 ) $ (0.93 )
    Discontinued operations:
    Income (loss) from operations (0.12 ) (0.12 ) 0.06 0.06 (0.69 ) (0.69 ) 0.24 0.24
    Loss on divestiture of operations   (0.11 )   (0.11 )   (0.02 )   (0.02 )   (1.61 )   (1.61 )   (0.09 )   (0.09 )
    Income (loss) from discontinued operations   (0.23 )   (0.23 )   0.04     0.04     (2.30 )   (2.30 )   0.15     0.15  
    Net loss $ (1.27 ) $ (1.27 ) $ (1.58 ) $ (1.58 ) $ (3.23 ) $ (3.23 ) $ (0.78 ) $ (0.78 )
     
         
    (a) Loss per common share is based upon the weighted average number of common shares outstanding during the respective periods. The Company follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method. However, because the Company reported a loss from continuing operations, there was no allocation to participating unvested restricted stockholders for all periods presented.
                         
     
    KINDRED HEALTHCARE, INC.
    Reconciliation of Non-GAAP Measurements to GAAP Results
    (Unaudited)
    (In thousands, except per share amounts and statistics)
     
    In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and year ended December 31, 2013 and 2012 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
     
    The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 28.8% and 7.2% for the three months ended December 31, 2013 and 2012, respectively, and 30.8% and 10.2% for the year ended December 31, 2013 and 2012, respectively. The change in the effective income tax rates between periods is attributable to the variation between periods of charges that are non-deductible for income tax purposes.
     
    The use of these non-GAAP measurements are not intended to replace the presentation of the Company's financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the three months and year ended December 31, 2013 and 2012 that the Company believes are not representative of its ongoing operations due to the materiality and nature of the charges. The Company's core operating results also represent a key performance measure for the purpose of evaluating performance internally.
     
     
    Three months endedYear ended
    December 31,December 31,
    2013201220132012
    Detail of charges:
    One-time bonus costs $ - $ - ($20,158 ) $ -
    Severance, retirement and other costs (3,663 ) (4,203 ) (6,016 ) (8,730 )
    Costs associated with the closing of a TC hospital and a home health location (499 ) - (6,542 ) -
    Litigation (7,000 ) - (30,850 ) (5,000 )
    Transaction costs (447 ) (667 ) (2,112 ) (2,231 )
    Impairment charges (76,082 ) (107,899 ) (76,082 ) (107,899 )
    Lease cancellation charges (rent expense) - (176 ) - (1,691 )
    Senior debt modification charges (interest expense)   -     -     (1,461 )   -  
    (87,691 ) (112,945 ) (143,221 ) (125,551 )
    Income tax benefit   25,232     8,173     44,074     12,795  
    Charges net of income taxes (62,459 ) (104,772 ) (99,147 ) (112,756 )
    Allocation to participating unvested restricted stockholders   -     -     -     -  
    Available to common stockholders   ($62,459 )   ($104,772 )   ($99,147 )   ($112,756 )
     
    Weighted average diluted shares outstanding   52,344     51,692     52,249     51,659  
     
    Diluted loss per common share related to charges   ($1.19 )   ($2.03 )   ($1.90 )   ($2.18 )
     
    Reconciliation of operating income before charges:
    Operating income before charges $ 159,692 $ 181,543 $ 663,148 $ 686,381
    Detail of charges excluded from core operating results:
    One-time bonus costs - - (20,158 ) -
    Severance, retirement and other costs (3,663 ) (4,203 ) (6,016 ) (8,730 )
    Costs associated with the closing of a TC hospital and a home health location (499 ) - (6,542 ) -
    Litigation (7,000 ) - (30,850 ) (5,000 )
    Transaction costs (447 ) (667 ) (2,112 ) (2,231 )
    Impairment charges   (76,082 )   (107,899 )   (76,082 )   (107,899 )
      (87,691 )   (112,769 )   (141,760 )   (123,860 )
    Reported operating income $ 72,001   $ 68,774   $ 521,388   $ 562,521  
     
    Reconciliation of income from continuing operations before charges:
    Amounts attributable to Kindred stockholders:
    Income from continuing operations before charges $ 8,317 $ 20,773 $ 50,678 $ 64,786
    Charges net of income taxes   (62,459 )   (104,772 )   (99,147 )   (112,756 )
    Reported loss from continuing operations   ($54,142 )   ($83,999 )   ($48,469 )   ($47,970 )
     

    Reconciliation of diluted income per common share from continuing operations before charges:

    Diluted income per common share before charges (a) $ 0.15 $ 0.39 $ 0.94 $ 1.22
    Charges net of income taxes (1.19 ) (2.03 ) (1.90 ) (2.18 )
    Other   -     0.02     0.03     0.03  
    Reported diluted loss per common share from continuing operations   ($1.04 )   ($1.62 )   ($0.93 )   ($0.93 )
     

     

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

      52,461     51,984     52,315     51,815  
     
    Reconciliation of effective income tax rate before charges:
    Effective income tax rate before charges 27.5 % 35.7 % 36.2 % 39.2 %
    Impact of charges on effective income tax rate   1.5 %   -30.9 %   -13.4 %   133.3 %
    Reported effective income tax rate   29.0 %   4.8 %   22.8 %   172.5 %
     
       
    (a) For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.3 million and $0.6 million for the three months ended December 31, 2013 and 2012, respectively, and $1.6 million and $1.5 million for the year ended December 31, 2013 and 2012, respectively, for the allocation of income to participating unvested restricted stockholders.
                                             
     
    KINDRED HEALTHCARE, INC.
    Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
    (Unaudited)
    (In thousands)
     
    Three months ended December 31, 2013
    Charges
    SeveranceFacility
    Beforeand retirementclosingImpairmentTransactionAs
    chargescostscostsLitigationchargescostsTotalreported
    Income (loss) from continuing operations:
    Operating income (loss):
    Hospital division $ 135,428 $ - $ (499 ) $ (7,000 ) $ - $ - $ (7,499 ) $ 127,929
     
    Nursing center division 36,694 - - - - - - 36,694
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 13,057 (139 ) - - - - (139 ) 12,918
    Hospital rehabilitation services   19,093     (1,088 )   -   -     -     -     (1,088 )   18,005  
      32,150     (1,227 )   -   -     -     -     (1,227 )   30,923  
     
    Care management division 2,206 (75 ) - - - - (75 ) 2,131
     
    Corporate:
    Overhead (46,202 ) (2,361 ) - - - - (2,361 ) (48,563 )
    Insurance subsidiary   (539 )   -     -   -     -     -     -     (539 )
    (46,741 ) (2,361 ) - - - - (2,361 ) (49,102 )
     
    Impairment charges (45 ) - - - (76,082 ) - (76,082 ) (76,127 )
    Transaction costs   -     -     -   -     -     (447 )   (447 )   (447 )
    Operating income 159,692 (3,663 ) (499 ) (7,000 ) (76,082 ) (447 ) (87,691 ) 72,001
    Rent (82,563 ) - - - - - - (82,563 )
    Depreciation and amortization (38,437 ) - - - - - - (38,437 )
    Interest, net   (23,906 )   -     -   -     -     -     -     (23,906 )

    Income (loss) from continuing operations before income taxes

    14,786 (3,663 ) (499 ) (7,000 ) (76,082 ) (447 ) (87,691 ) (72,905 )
    Provision (benefit) for income taxes   4,064     (1,443 )   (202 )   (5,455 )   (17,803 )   (329 )   (25,232 )   (21,168 )
    $ 10,722   $ (2,220 ) $ (297 ) $ (1,545 ) $ (58,279 ) $ (118 ) $ (62,459 ) $ (51,737 )
     
     
    Three months ended December 31, 2012
    Charges
    Lease
    BeforeSeveranceImpairmentTransactioncancellationAs
    chargesand otherchargescostschargesTotalreported
    Income (loss) from continuing operations:
    Operating income (loss):
    Hospital division $ 147,730 $ (689 ) $ - $ - $ - $ (689 ) $ 147,041
     
    Nursing center division 33,917 (1,901 ) - - - (1,901 ) 32,016
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 21,318 (317 ) - - - (317 ) 21,001
    Hospital rehabilitation services   18,889     (97 )   -   -     -     (97 )   18,792  
      40,207     (414 )   -   -     -     (414 )   39,793  
     
    Care management division 5,083 (150 ) - - - (150 ) 4,933
     
    Corporate:
    Overhead (44,680 ) (1,049 ) - - - (1,049 ) (45,729 )
    Insurance subsidiary   (500 )   -     -   -     -     -     (500 )
    (45,180 ) (1,049 ) - - - (1,049 ) (46,229 )
     
    Impairment charges (214 ) - (107,899 ) - - (107,899 ) (108,113 )
    Transaction costs   -     -     -   (667 )   -     (667 )   (667 )
    Operating income 181,543 (4,203 ) (107,899 ) (667 ) - (112,769 ) 68,774
    Rent (78,046 ) - - - (176 ) (176 ) (78,222 )
    Depreciation and amortization (42,296 ) - - - - - (42,296 )
    Interest, net   (27,683 )   -     -   -     -     -     (27,683 )

    Income (loss) from continuing operations before income taxes

    33,518 (4,203 ) (107,899 ) (667 ) (176 ) (112,945 ) (79,427 )
    Provision for income taxes   11,955     (1,673 )   (6,150 )   (273 )   (77 )   (8,173 )   3,782  
    $ 21,563   $ (2,530 ) $ (101,749 ) $ (394 ) $ (99 ) $ (104,772 ) $ (83,209 )
                                                   
     
    KINDRED HEALTHCARE, INC.
    Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
    (Unaudited)
    (In thousands)
     
    Year ended December 31, 2013
    Charges
    SeveranceFacilitySenior debt
    BeforeOne-timeand retirementclosingImpairmentTransactionmodificationAs
    chargesbonuscostscostsLitigation   chargescostschargesTotalreported
    Income (loss) from continuing operations:
    Operating income (loss):
    Hospital division $ 544,879 $ (7,997 ) $ - $ (6,026 ) $ (7,700 ) $ - $ - $ - $ (21,723 ) $ 523,156
     
    Nursing center division 140,132 (4,706 ) - (64 ) - - - - (4,770 ) 135,362
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 65,037 (5,052 ) (139 ) - (23,150 ) - - - (28,341 ) 36,696
    Hospital rehabilitation services   76,556     (1,255 )   (1,376 )   -     -     -     -     -     (2,631 )   73,925  
      141,593     (6,307 )   (1,515 )   -     (23,150 )   -     -     -     (30,972 )   110,621  
     
    Care management division 11,924 (833 ) (676 ) (452 ) - - - - (1,961 ) 9,963
     
    Corporate:
    Overhead (172,355 ) (315 ) (3,366 ) - - - - (459 ) (4,140 ) (176,495 )
    Insurance subsidiary   (1,914 )   -     -     -     -     -     -     -     -     (1,914 )
    (174,269 ) (315 ) (3,366 ) - - - - (459 ) (4,140 ) (178,409 )
     
    Impairment charges (1,111 ) - - - - (76,082 ) - - (76,082 ) (77,193 )
    Transaction costs   -     -     -     -     -     -     (2,112 )   -     (2,112 )   (2,112 )
    Operating income 663,148 (20,158 ) (5,557 ) (6,542 ) (30,850 ) (76,082 ) (2,112 ) (459 ) (141,760 ) 521,388
    Rent (318,077 ) - - - - - - - - (318,077 )
    Depreciation and amortization (157,329 ) - - - - - - - - (157,329 )
    Interest, net   (102,537 )   -     -     -     -     -     -     (1,461 )   (1,461 )   (103,998 )

    Income (loss) from continuing operations before income taxes

    85,205 (20,158 ) (5,557 ) (6,542 ) (30,850 ) (76,082 ) (2,112 ) (1,920 ) (143,221 ) (58,016 )
    Provision (benefit) for income taxes   30,870     (7,932 )   (2,186 )   (2,312 )   (12,139 )   (17,803 )   (947 )   (755 )   (44,074 )   (13,204 )
    $ 54,335   $ (12,226 ) $ (3,371 ) $ (4,230 ) $ (18,711 ) $ (58,279 ) $ (1,165 ) $ (1,165 ) $ (99,147 ) $ (44,812 )
     
     
    Year ended December 31, 2012
    Charges
    Lease
    BeforeSeveranceImpairmentTransactioncancellationAs
    chargesand otherLitigationchargescostschargesTotalreported
    Income (loss) from continuing operations:
    Operating income (loss):
    Hospital division $ 571,448 $ (4,224 ) $ (5,000 ) $ - $ - $ - $ (9,224 ) $ 562,224
     
    Nursing center division 144,069 (2,811 ) - - - - (2,811 ) 141,258
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 68,313 (353 ) - - - - (353 ) 67,960
    Hospital rehabilitation services   69,853     (108 )   -     -     -     -     (108 )   69,745  
      138,166     (461 )   -     -     -     -     (461 )   137,705  
     
    Care management division 13,858 (150 ) - - - - (150 ) 13,708
     
    Corporate:
    Overhead (177,979 ) (1,084 ) - - - - (1,084 ) (179,063 )
    Insurance subsidiary   (2,127 )   -     -     -     -     -     -     (2,127 )
    (180,106 ) (1,084 ) - - - - (1,084 ) (181,190 )
     
    Impairment charges (1,054 ) - - (107,899 ) - - (107,899 ) (108,953 )
    Transaction costs   -     -     -     -     (2,231 )   -     (2,231 )   (2,231 )
    Operating income 686,381 (8,730 ) (5,000 ) (107,899 ) (2,231 ) - (123,860 ) 562,521
    Rent (308,487 ) - - (1,691 ) (1,691 ) (310,178 )
    Depreciation and amortization (162,685 ) - - - - - - (162,685 )
    Interest, net   (106,878 )   -     -     -     -     -     -     (106,878 )

    Income (loss) from continuing operations before income taxes

    108,331 (8,730 ) (5,000 ) (107,899 ) (2,231 ) (1,691 ) (125,551 ) (17,220 )
    Provision for income taxes   42,502     (3,427 )   (1,962 )   (6,150 )   (592 )   (664 )   (12,795 )   29,707  
    $ 65,829   $ (5,303 ) $ (3,038 ) $ (101,749 ) $ (1,639 ) $ (1,027 ) $ (112,756 ) $ (46,927 )
           
    KINDRED HEALTHCARE, INC.
    Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
    (Unaudited)
    (In thousands)
     
    The Company recognizes that free cash flows excluding certain items is a non-GAAP measurement and is not intended to replace the presentation of the Company's cash flows in accordance with GAAP. The Company believes that this non-GAAP measurement provides important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.
     
    The income tax benefit associated with the excluded payments was calculated using an effective income tax rate of 40.1% and 16.0% for the three months ended December 31, 2013 and 2012, respectively, and 36.1% and 27.6% for the year ended December 31, 2013 and 2012, respectively. The change in the effective income tax rates between periods is attributable to the variation between periods of payments that are non-deductible in each respective period for income tax purposes.
     
    Three months endedYear ended
    December 31,December 31,
      2013     2012     2013     2012  
     

    Reconciliation of net cash flows provided by operating activities to free cash flows:

    Net cash flows provided by operating activities $10,195 $ 71,475 $199,412 $ 262,562
    Less:
    Routine capital expenditures (37,956) (38,371 ) (100,908) (115,175 )
    Development capital expenditures   (1,115)   (12,147 )   (11,824)   (50,322 )
      (39,071)   (50,518 )   (112,732)   (165,497 )
    Free cash flows including certain items (28,876) 20,957 86,680 97,065
     

     

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

    One-time employee bonus - - 26,345 -
    Ventas lease termination fee 20,000 - 20,000 -
    Transaction costs 1,877 932 10,427 3,404
    Severance and retention 617 1,715 5,406 3,719
    Lease cancellation - 176 - 1,691
    Financing costs capitalized as deferred financing - 2,940 6,189 2,940

    Benefit of reduced income tax payments resulting from certain payments

      (9,018)   (922 )   (24,667)   (3,244 )
      13,476     4,841     43,700     8,510  
    Free cash flows excluding certain items   ($15,400) $ 25,798   $130,380   $ 105,575  
                   
     
    KINDRED HEALTHCARE, INC.
    Reconciliation of Earnings Guidance for 2014 - Continuing Operations (a)
    (Unaudited)
    (In millions, except per share amounts)
     
     
    As of February 20, 2014As of November 5, 2013
    LowHighLowHigh
     
    Operating income $ 725   $ 742   $ 726   $ 744  
     
    Rent 338 338 339 339
    Depreciation and amortization 165 165 165 165
    Interest, net   106     106     106     106  
    Income from continuing operations before income taxes 116 133 116 134
    Provision for income taxes   45     52     46     53  
    Income from continuing operations 71 81 70 81
    Earnings attributable to noncontrolling interests   (13 )   (13 )   (12 )   (12 )
    Income from continuing operations attributable to the Company 58 68 58 69
    Allocation to participating unvested restricted stockholders   (2 )   (2 )   (2 )   (2 )
    Available to common stockholders $ 56   $ 66   $ 56   $ 67  
     
     
    Earnings per diluted share $ 1.05 $ 1.25 $ 1.05 $ 1.25
     
    Shares used in computing earnings per diluted share 53.2 53.2 53.2 53.2
       
    (a)

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






    Kindred Healthcare, Inc.

    Hank Robinson, 502-596-7732

    Senior Vice President, Tax and Treasurer


    Source: Kindred Healthcare, Inc.


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