News Column

Kindred Healthcare Announces Second Quarter 2014 Results

August 6, 2014

Core Diluted EPS from Continuing Operations Increased 26% to $0.34(1)

Strong Start to the Year Continues with 7% Growth in Both Consolidated Revenues and Core Operating Income

GAAP EPS Loss from Continuing Operations Totaled $0.48, Due to Pretax Charges of $0.83 per Diluted Share Related to Debt Refinancing, Restructuring, Litigation and Transaction Costs

Affirms 2014 Earnings Guidance and Adjusts Share Count to Reflect Recent Equity Offering

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the second quarter ended June 30, 2014.

The Company has classified as discontinued for all periods presented the operations of three transitional care (“TC”) hospitals and two nursing centers that were either closed or divested in the second quarter. 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.

Second Quarter Highlights:

  • Consolidated revenues and core operating income both increased 7% from the same period last year primarily resulting from improved hospital volumes, a strong rebound in the Company’s Care Management division operations, growth from acquisitions and solid cost controls throughout the Company
  • Strong hospital division results with 3.1% same-store admissions growth, 1.8% revenue growth per patient day and 1.3% growth in core operating costs per patient day
  • RehabCare division achieved sequential core operating income growth and margin improvement from 11.6% in the first quarter of 2014 to 12.3% in the second quarter of 2014
  • Nursing center division core operating income increased 11.3% primarily due to growth in revenues and operating margins were significantly improved due to ongoing repositioning and cost control initiatives
  • Care Management division delivered 66% revenue growth and core operating income that doubled compared to the same period last year
  • Recapitalization of the Company completed:
  • Divested 55 of 59 nursing centers leased from Ventas, Inc. (“Ventas”) (NYSE:VTR) as of August 1
  • $2.25 billion refinancing of the Company’s secured and unsecured debt on April 9 lowers borrowing costs, extends debt maturities and reduces interest rate risk
  • Recent common stock equity offering of 9.7 million shares generated $221 million in net proceeds used to repay the Company’s revolving credit facility
  • Board of Directors declared regular quarterly cash dividend of $0.12 per share payable on September 10, 2014

    (1) See reconciliation of core results to GAAP results on page 19.

    Second Quarter Results

    Continuing Operations

    Consolidated revenues for the second quarter ended June 30, 2014 increased 7% to $1.3 billion compared to $1.2 billion in the same period of 2013, primarily due to improved hospital volumes, a strong rebound in the Care Management division’s operations and growth from acquisitions. Kindred reported a loss from continuing operations for the second quarter of 2014 of $25.9 million or $0.48 per diluted share compared to income from continuing operations of $13.6 million or $0.25 per diluted share in the second quarter of 2013. Second quarter 2014 operating results included pretax charges of $70.9 million ($44.6 million net of income taxes) or $0.83 per diluted share related to debt refinancing, restructuring, litigation and transaction costs. Without these items, diluted earnings per share from continuing operations increased 26% to $0.34. Operating results for the second quarter of 2013 included pretax charges of $1.5 million ($0.9 million net of income taxes) or $0.02 per diluted share related to debt refinancing and transaction costs.

    Management Commentary

    Paul J. Diaz, Chief Executive Officer of the Company, commented, “We are very pleased with our operating and financial results for the second quarter of 2014, which reflects our progress delivering on our promise to provide hope, healing and recovery to the patients we serve. More specifically, in the first half of this year, we saw continued improvement in employee engagement and reduced turnover, and improving quality measures, clinical outcomes and patient satisfaction in all of our business segments. We are also pleased to reaffirm our earnings guidance for the year, which reflects the change in share count from our recent equity offering, as we achieved revenue and core operating income growth of 7% year-over-year, respectively. We made progress on a number of internal and external growth initiatives during the quarter enhancing our Integrated Care Market capabilities, particularly in home health and hospice services. We continue to evaluate a robust pipeline of external opportunities to deploy our financial resources, industry leading infrastructure and management capabilities as we move forward with the growth phase of our strategic plan. Overall, we remain committed to further improving our patient’s experience and the long-term growth, profitability and financial position of the Company.”

    Benjamin A. Breier, President and Chief Operating Officer of the Company, said, “Same-store hospital admissions increased 3.1% in the second quarter representing our first quarterly admissions increase since the third quarter of 2012 and our hospital core operating margin improved to 21.7% in the second quarter of 2014 from 21.3% in the same period a year ago. Our RehabCare division also continues to make great progress, as evidenced by our sequential operating income growth and margin improvement, despite Medicare reimbursement pricing pressures. In addition, we have added 57 net new skilled nursing rehabilitation sites of service during the year. Our efforts to reshape our nursing center division continue to pay off as we achieved a significant improvement in operating margins in the second quarter. We are developing three additional transitional care centers in Indianapolis, Phoenix and Las Vegas, which will add to the momentum in this division.”

    Mr. Breier added, “Our Care Management division continues to make improvements in our home health and hospice operations, including enhancing our team, processes and technology, and we expect to apply these capabilities across a larger platform over time. In addition, our recently announced acquisition of the Silver State Accountable Care Organization (“ACO”) in Las Vegas is a very exciting transaction for Kindred, and the partnership marks our first ownership and direct management of an ACO anywhere in the country.”

    Stephen D. Farber, Executive Vice President, Chief Financial Officer, commented, “We are pleased to have completed a major recapitalization of the Company with both a $2.25 billion debt refinancing in the second quarter and a 9.7 million share equity offering in the second and third quarters. The equity offering raised $221 million in proceeds that the Company has initially used to reduce its revolving credit facility, which helped to increase our available borrowing capacity under our revolver to approximately $652 million as of June 30, 2014. These transactions significantly improve our financial position, provide additional financial flexibility and reduce interest expense.

    Our current outstanding share count is 64.6 million shares and for generally accepted accounting principles (“GAAP”) purposes, on a weighted average basis, we expect our 2014 third and fourth quarters diluted shares used to compute earnings per share to approximate 63.0 million shares and on an annual basis for 2014, 58.3 million shares.”

    Earnings Guidance – Continuing Operations

    Kindred today affirmed its previous guidance for income from continuing operations for 2014 of between $58 million and $68 million. The Company noted that its earnings guidance for 2014 continues to be based on the same assumptions initially disclosed and there has been no change in its earnings guidance. The affirmed guidance for 2014 reflects an increased share count from the recent equity offering of 9.7 million shares of common stock. Under Kindred’s current diluted share count of 58.3 million outstanding shares following the recent equity offering, income from continuing operations for 2014 equates to $0.96 to $1.14 per diluted share. Under Kindred’s diluted share count of 53.2 million outstanding shares prior to the equity offering, the same assumptions for income from continuing operations for 2014 of $58 million to $68 million equated to $1.05 to $1.25 per diluted share.

    The Company revised its operating cash flow guidance range of $245 million to $275 million to a revised range of $200 million to $230 million. This update reflects growth in accounts receivable, increased cash settlements of certain previously-accrued balance sheet liabilities, and other cash flow items.

    The Company maintained its expectation of $100 million to $105 million for routine capital expenditures and for timing reasons reduced its anticipated 2014 cash outflows for development of new or replacement facilities by $5 million to approximately $15 million to $20 million. With these items, the Company expects its 2014 operating cash flows in excess of routine and development capital spending to approximate $85 million to $105 million, which will be available to fund acquisitions, repay debt and pay dividends. Estimated dividend payments for 2014 are expected to approximate $29 million, an increase of approximately $3 million from the previous guidance due to the issuance of 9.7 million additional common shares in the Company’s recently completed equity offering.

    While Kindred does not typically provide quarterly guidance, given the many new shareholders of Kindred the Company notes that from a seasonal trending perspective, the third quarter is historically the slowest volumes and earnings quarter, and is typically followed by a stronger fourth quarter. For the third quarter of 2014, the Company expects diluted earnings per share from continuing operations to approximate $0.05 to $0.15. This compares to diluted earnings per share from continuing operations of $0.10 for the third quarter of 2013, excluding certain disclosed items and adjusted on a pro forma basis to include the incremental 9.7 million shares from the Company’s recently completed equity offering.

    Please note the Company’s earnings and cash flow guidance for 2014 excludes the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, litigation costs, transaction costs, any further acquisitions or divestitures, 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 September 10, 2014 to shareholders of record as of the close of business on August 20, 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 second quarter 2014 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on August 7 at 10:00 a.m. (Eastern Time). The Conference call webcast will feature accompanying slides, which can be accessed through the Investor Relations section of the Company’s website.

    A telephone replay of the conference call will become available at approximately 1:00 p.m. on August 7 by dialing (719) 457-0820, access code: 7592071. The replay will be available through August 17.

    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 potential acquisition of Gentiva Health Services, Inc. (“Gentiva”) (NASDAQ:GTIV) (including financing of the proposed transaction and the benefits, results, effects and timing of such transaction), and 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,” “potential” 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, 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 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 the Centers for Medicare and Medicaid Services (“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 Company’s ability to adjust to the new patient criteria for long-term acute care (“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, (c) 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, (d) 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, (e) 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, (f) the costs of defending and insuring against alleged professional liability and other claims and investigations (including those related to pending investigations and 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 and investigations, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (g) 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 its Medicare revenues by $25 million to $30 million on an annual basis, (h) 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, inpatient rehabilitation hospitals and home health and hospice operations, and the expiration of the Medicare Part B therapy cap exception process, (i) 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, (j) the ability of the Company’s hospitals and nursing centers to adjust to medical necessity reviews, (k) the impact of the Company’s significant level of indebtedness on its 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, (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, regional and industry-specific 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 GAAP and changes in tax accounting or tax laws (or authoritative interpretations relating to any of these matters), (bb) the Company’s ability to maintain an effective system of internal control over financial reporting, (cc) the Company’s ability to realize the anticipated operating and financial synergies from the potential acquisition of Gentiva, (dd) the uncertainties as to whether Gentiva or any other companies that the Company may acquire will have the accretive effect on the Company’s earnings or cash flows that are expected, and (ee) the outcome of the potential acquisition of Gentiva, including the Company’s ability to realize the strategic rationale behind the Gentiva acquisition.

    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 six months ended June 30, 2014 and 2013 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.

    Also in this release, the Company provides 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 (used in) operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by (used in) 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 (used in) 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 $5 billion and approximately 63,000 employees in 47 states. At June 30, 2014, Kindred through its subsidiaries provided healthcare services in 2,353 locations, including 97 transitional care hospitals, five inpatient rehabilitation hospitals, 98 nursing centers, 21 sub-acute units, 153 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 1,875 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for six 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
    (Unaudited)
    (In thousands, except per share amounts)
                         
    Three months endedSix months ended
    June 30,   June 30,
    2014201320142013
     
    Revenues $1,275,964   $ 1,191,030   $2,562,706   $ 2,450,464  
     
    Income (loss) from continuing operations $(21,065) $ 13,729 $921 $ 24,603
    Discontinued operations, net of income taxes:
    Loss from operations (8,153) (1,050 ) (14,654) (6,426 )
    Loss on divestiture of operations   (2,018)   (10,852 )   (5,024)   (12,877 )
    Loss from discontinued operations   (10,171)   (11,902 )   (19,678)   (19,303 )
    Net income (loss) (31,236) 1,827 (18,757) 5,300
    (Earnings) loss attributable to noncontrolling interests:
    Continuing operations (4,828) (116 ) (9,357) (583 )
    Discontinued operations   253     34     323     85  
      (4,575)   (82 )   (9,034)   (498 )
    Income (loss) attributable to Kindred $(35,811) $ 1,745   $(27,791) $ 4,802  
     
    Amounts attributable to Kindred stockholders:
    Income (loss) from continuing operations $(25,893) $ 13,613 $(8,436) $ 24,020
    Loss from discontinued operations   (9,918)   (11,868 )   (19,355)   (19,218 )
    Net income (loss) $(35,811) $ 1,745   $(27,791) $ 4,802  
     
    Earnings (loss) per common share:
    Basic:
    Income (loss) from continuing operations $(0.48) $ 0.25 $(0.16) $ 0.45
    Discontinued operations:
    Loss from operations (0.15) (0.02 ) (0.27) (0.12 )
    Loss on divestiture of operations   (0.04)   (0.20 )   (0.09)   (0.24 )
    Loss from discontinued operations   (0.19)   (0.22 )   (0.36)   (0.36 )
    Net income (loss) $(0.67) $ 0.03   $(0.52) $ 0.09  
     
    Diluted:
    Income (loss) from continuing operations $(0.48) $ 0.25 $(0.16) $ 0.45
    Discontinued operations:
    Loss from operations (0.15) (0.02 ) (0.27) (0.12 )
    Loss on divestiture of operations   (0.04)   (0.20 )   (0.09)   (0.24 )
    Loss from discontinued operations   (0.19)   (0.22 )   (0.36)   (0.36 )
    Net income (loss) $(0.67) $ 0.03   $(0.52) $ 0.09  
     
    Shares used in computing earnings (loss) per common share:
    Basic 53,714 52,265 53,180 52,164
    Diluted 53,714 52,284 53,180 52,184
     
    Cash dividends declared and paid per common share $0.12 $ - $0.24 $ -
     
                           
    KINDRED HEALTHCARE, INC.
    Condensed Consolidated Statement of Operations
    (Unaudited)
    (In thousands, except per share amounts)
     
    Three months endedSix months ended
    June 30,June 30,
    2014201320142013
     
    Revenues $1,275,964   $ 1,191,030   $2,562,706   $ 2,450,464  
     
    Salaries, wages and benefits 770,321 715,619 1,544,133 1,497,484
    Supplies 80,794 80,603 162,782 164,749
    Rent 80,209 77,324 161,257 153,843
    Other operating expenses 261,418 227,981 511,022 458,656
    Other income (154) (26 ) (388) (1,035 )
    Impairment charges - 438 - 625
    Depreciation and amortization 39,442 38,554 78,779 80,152
    Interest expense 80,530 29,074 106,329 57,233
    Investment income   (2,449)   (1,474 )   (2,632)   (1,559 )
      1,310,111     1,168,093     2,561,282     2,410,148  
    Income (loss) from continuing operations before income taxes (34,147) 22,937 1,424 40,316
    Provision (benefit) for income taxes   (13,082)   9,208     503     15,713  
    Income (loss) from continuing operations (21,065) 13,729 921 24,603
    Discontinued operations, net of income taxes:
    Loss from operations (8,153) (1,050 ) (14,654) (6,426 )
    Loss on divestiture of operations   (2,018)   (10,852 )   (5,024)   (12,877 )
    Loss from discontinued operations   (10,171)   (11,902 )   (19,678)   (19,303 )
    Net income (loss) (31,236) 1,827 (18,757) 5,300
    (Earnings) loss attributable to noncontrolling interests:
    Continuing operations (4,828) (116 ) (9,357) (583 )
    Discontinued operations   253     34     323     85  
      (4,575)   (82 )   (9,034)   (498 )
    Income (loss) attributable to Kindred $(35,811) $ 1,745   $(27,791) $ 4,802  
     
    Amounts attributable to Kindred stockholders:
    Income (loss) from continuing operations $(25,893) $ 13,613 $(8,436) $ 24,020
    Loss from discontinued operations   (9,918)   (11,868 )   (19,355)   (19,218 )
    Net income (loss) $(35,811) $ 1,745   $(27,791) $ 4,802  
     
    Earnings (loss) per common share:
    Basic:
    Income (loss) from continuing operations $(0.48) $ 0.25 $(0.16) $ 0.45
    Discontinued operations:
    Loss from operations (0.15) (0.02 ) (0.27) (0.12 )
    Loss on divestiture of operations   (0.04)   (0.20 )   (0.09)   (0.24 )
    Loss from discontinued operations   (0.19)   (0.22 )   (0.36)   (0.36 )
    Net income (loss) $(0.67) $ 0.03   $(0.52) $ 0.09  
     
    Diluted:
    Income (loss) from continuing operations $(0.48) $ 0.25 $(0.16) $ 0.45
    Discontinued operations:
    Loss from operations (0.15) (0.02 ) (0.27) (0.12 )
    Loss on divestiture of operations   (0.04)   (0.20 )   (0.09)   (0.24 )
    Loss from discontinued operations   (0.19)   (0.22 )   (0.36)   (0.36 )
    Net income (loss) $(0.67) $ 0.03   $(0.52) $ 0.09  
     
    Shares used in computing earnings (loss) per common share:
    Basic 53,714 52,265 53,180 52,164
    Diluted 53,714 52,284 53,180 52,184
     
    Cash dividends declared and paid per common share $0.12 $ - $0.24 $ -
     
                   
    KINDRED HEALTHCARE, INC.
    Condensed Consolidated Balance Sheet
    (Unaudited)
    (In thousands, except per share amounts)
     
    June 30,December 31,
    20142013
    ASSETS
    Current assets:
    Cash and cash equivalents $45,416 $ 35,972
    Cash - restricted 3,490 3,713
    Insurance subsidiary investments 93,527 96,295
    Accounts receivable less allowance for loss 1,006,963 916,529
    Inventories 25,660 25,780
    Deferred tax assets 39,658 37,920
    Income taxes 50,812 36,846
    Other   38,651     43,673  
    1,304,177 1,196,728
     
    Property and equipment 1,942,214 1,906,366
    Accumulated depreciation   (1,024,411)   (979,791 )
    917,803 926,575
     
    Goodwill 994,854 992,102
    Intangible assets less accumulated amortization 411,260 423,303
    Assets held for sale 8,435 20,978
    Insurance subsidiary investments 160,565 149,094
    Deferred tax assets - 17,043
    Other   235,716     220,046  
    Total assets $4,032,810   $ 3,945,869  
    LIABILITIES AND EQUITY
    Current liabilities:
    Accounts payable $162,040 $ 181,772
    Salaries, wages and other compensation 346,318 361,192
    Due to third party payors 18,413 33,747
    Professional liability risks 69,657 60,993
    Other accrued liabilities 135,420 146,495
    Long-term debt due within one year   10,233     8,222  
    742,081 792,421
     
    Long-term debt 1,530,340 1,579,391
    Professional liability risks 243,536 246,230
    Deferred tax liabilities 5,286 -
    Deferred credits and other liabilities 215,855 206,611
     
    Equity:
    Stockholders' equity:

    Common stock, $0.25 par value; authorized 175,000 shares; issued 63,784 shares - June 30, 2014 and 54,165 shares - December 31, 2013

    15,946 13,541
    Capital in excess of par value 1,346,561 1,146,193
    Accumulated other comprehensive loss (2,299) (252 )
    Accumulated deficit   (107,327)   (76,825 )
    1,252,881 1,082,657
    Noncontrolling interests   42,831     38,559  
    Total equity   1,295,712     1,121,216  
    Total liabilities and equity $4,032,810   $ 3,945,869  
     
                           
    KINDRED HEALTHCARE, INC.
    Condensed Consolidated Statement of Cash Flows
    (Unaudited)
    (In thousands)
     
    Three months endedSix months ended
    June 30,June 30,
    2014201320142013
    Cash flows from operating activities:
    Net income (loss) $(31,236) $ 1,827 $(18,757) $ 5,300

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

    Depreciation and amortization 40,922 46,960 82,226 99,914
    Amortization of stock-based compensation costs 6,378 3,840 8,963 6,088
    Amortization of deferred financing costs 16,832 4,407 19,229 7,020
    Payment of capitalized lender fees related to debt issuance (19,125) (1,600 ) (19,125) (1,600 )
    Provision for doubtful accounts 12,133 10,071 20,893 21,337
    Deferred income taxes 17,528 (24,977 ) 21,503 (25,321 )
    Impairment charges 220 646 664 1,082
    Loss on divestiture of discontinued operations 2,018 10,852 5,024 12,877
    Other 70 (1,284 ) 2,114 (864 )
    Change in operating assets and liabilities:
    Accounts receivable (41,066) 48,294 (112,895) (19,117 )
    Inventories and other assets (3,769) 4,747 (9,987) (3,400 )
    Accounts payable (5,425) (3,288 ) (18,877) (19,078 )
    Income taxes (40,476) 10,025 (11,063) 22,700
    Due to third party payors (12,354) (8,187 ) (14,367) (9,215 )
    Other accrued liabilities   7,387     (48,699 )   (21,262)   (19,256 )
    Net cash provided by (used in) operating activities   (49,963)   53,634     (65,717)   78,467  
     
    Cash flows from investing activities:
    Routine capital expenditures (24,485) (17,430 ) (46,162) (39,800 )
    Development capital expenditures (372) (5,086 ) (1,123) (7,474 )
    Acquisitions, net of cash acquired (1,383) (26,933 ) (24,098) (26,933 )
    Sale of assets 8,927 7,243 13,961 12,303
    Purchase of insurance subsidiary investments (13,179) (11,759 ) (23,293) (22,595 )
    Sale of insurance subsidiary investments 17,758 15,526 26,520 25,528
    Net change in insurance subsidiary cash and cash equivalents (4,957) (9,782 ) (11,556) (42,878 )
    Change in other investments 70 39 710 358
    Other   17     (77 )   (534)   (221 )
    Net cash used in investing activities   (17,604)   (48,259 )   (65,575)   (101,712 )
     
    Cash flows from financing activities:
    Proceeds from borrowings under revolving credit 648,315 377,900 1,157,015 861,400
    Repayment of borrowings under revolving credit (943,715) (385,200 ) (1,369,515) (844,400 )
    Proceeds from issuance of senior unsecured notes 500,000 - 500,000 -
    Proceeds from issuance of term loan, net of discount 997,500 - 997,500 -
    Repayment of senior unsecured notes (550,000) - (550,000) -
    Repayment of term loan (781,594) (1,969 ) (783,563) (3,969 )
    Repayment of other long-term debt (67) (91 ) (157) (757 )
    Payment of deferred financing costs (2,378) (455 ) (2,648) (657 )
    Equity offering, net of offering costs 203,977 - 203,977 -
    Issuance of common stock in connection with employee benefit plans 883 203 4,687 207
    Dividends paid (6,572) - (13,086) -
    Distributions to noncontrolling interests (2,662) (1,019 ) (5,595) (1,510 )
    Other   248     19     2,121     351  
    Net cash provided by (used in) financing activities   63,935     (10,612 )   140,736     10,665  
    Change in cash and cash equivalents (3,632) (5,237 ) 9,444 (12,580 )
    Cash and cash equivalents at beginning of period   49,048     42,664     35,972     50,007  
    Cash and cash equivalents at end of period $45,416   $ 37,427   $45,416   $ 37,427  
     
                                   
    KINDRED HEALTHCARE, INC.
    Condensed Consolidated Statement of Operations
    (Unaudited)
    (In thousands, except per share amounts)
     
     
    2013 Quarters2014 Quarters
    FirstSecondThirdFourthFirstSecond
     
    Revenues $ 1,259,434   $ 1,191,030   $ 1,175,445   $ 1,209,676   $ 1,286,742   $ 1,275,964  
     
    Salaries, wages and benefits 781,865 715,619 718,227 738,952 773,812 770,321
    Supplies 84,146 80,603 79,498 78,694 81,988 80,794
    Rent 76,519 77,324 76,762 80,921 81,048 80,209
    Other operating expenses 230,675 227,981 261,842 245,262 249,604 261,418
    Other (income) expense (1,009 ) (26 ) 51 (458 ) (234 ) (154 )
    Impairment charges 187 438 441 76,127 - -
    Depreciation and amortization 41,598 38,554 36,507 37,547 39,337 39,442
    Interest expense 28,159 29,074 25,624 25,152 25,799 80,530
    Investment income   (85 )   (1,474 )   (1,235 )   (1,252 )   (183 )   (2,449 )
      1,242,055     1,168,093     1,197,717     1,280,945     1,251,171     1,310,111  

    Income (loss) from continuing operations before income taxes

    17,379 22,937 (22,272 ) (71,269 ) 35,571 (34,147 )
    Provision (benefit) for income taxes   6,505     9,208     (6,510 )   (20,522 )   13,585     (13,082 )
    Income (loss) from continuing operations 10,874 13,729 (15,762 ) (50,747 ) 21,986 (21,065 )
    Discontinued operations, net of income taxes:
    Loss from operations (5,376 ) (1,050 ) (25,466 ) (7,150 ) (6,501 ) (8,153 )
    Loss on divestiture of operations   (2,025 )   (10,852 )   (65,016 )   (5,994 )   (3,006 )   (2,018 )
    Loss from discontinued operations   (7,401 )   (11,902 )   (90,482 )   (13,144 )   (9,507 )   (10,171 )
    Net income (loss) 3,473 1,827 (106,244 ) (63,891 ) 12,479 (31,236 )
    (Earnings) loss attributable to noncontrolling interests:
    Continuing operations (467 ) (116 ) (841 ) (2,466 ) (4,529 ) (4,828 )
    Discontinued operations   51     34     87     61     70     253  
      (416 )   (82 )   (754 )   (2,405 )   (4,459 )   (4,575 )
    Income (loss) attributable to Kindred $ 3,057   $ 1,745   $ (106,998 ) $ (66,296 ) $ 8,020   $ (35,811 )
     
    Amounts attributable to Kindred stockholders:
    Income (loss) from continuing operations $ 10,407 $ 13,613 $ (16,603 ) $ (53,213 ) $ 17,457 $ (25,893 )
    Loss from discontinued operations   (7,350 )   (11,868 )   (90,395 )   (13,083 )   (9,437 )   (9,918 )
    Net income (loss) $ 3,057   $ 1,745   $ (106,998 ) $ (66,296 ) $ 8,020   $ (35,811 )
     
    Earnings (loss) per common share:
    Basic:
    Income (loss) from continuing operations $ 0.20 $ 0.25 $ (0.31 ) $ (1.02 ) $ 0.32 $ (0.48 )
    Discontinued operations:
    Loss from operations (0.10 ) (0.02 ) (0.49 ) (0.14 ) (0.11 ) (0.15 )
    Loss on divestiture of operations   (0.04 )   (0.20 )   (1.24 )   (0.11 )   (0.06 )   (0.04 )
    Loss from discontinued operations   (0.14 )   (0.22 )   (1.73 )   (0.25 )   (0.17 )   (0.19 )
    Net income (loss) $ 0.06   $ 0.03   $ (2.04 ) $ (1.27 ) $ 0.15   $ (0.67 )
     
    Diluted:
    Income (loss) from continuing operations $ 0.20 $ 0.25 $ (0.31 ) $ (1.02 ) $ 0.32 $ (0.48 )
    Discontinued operations:
    Loss from operations (0.10 ) (0.02 ) (0.49 ) (0.14 ) (0.11 ) (0.15 )
    Loss on divestiture of operations   (0.04 )   (0.20 )   (1.24 )   (0.11 )   (0.06 )   (0.04 )
    Loss from discontinued operations   (0.14 )   (0.22 )   (1.73 )   (0.25 )   (0.17 )   (0.19 )
    Net income (loss) $ 0.06   $ 0.03   $ (2.04 ) $ (1.27 ) $ 0.15   $ (0.67 )
     
    Shares used in computing earnings (loss)
    per common share:
    Basic 52,062 52,265 52,323 52,344 52,641 53,714
    Diluted 52,083 52,284 52,323 52,344 52,711 53,714
     
                                       
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data
    (Unaudited)
    (In thousands)
     
     
    2013 Quarters2014 Quarters
    FirstSecondThirdFourthFirstSecond
    Revenues:
    Hospital division $ 657,814 $ 606,604 $ 594,154 $ 606,988 $ 646,458 $ 632,156
     
    Nursing center division 270,205 264,847 265,696 270,080 277,902 280,255
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 258,750 249,647 245,330 243,280 254,255 253,989
    Hospital rehabilitation services   74,523     69,777     68,296     74,017     73,964     75,324  
      333,273     319,424     313,626     317,297     328,219     329,313  
     
    Care management division   51,621     53,039     53,801     66,466     87,704     87,986  
    1,312,913 1,243,914 1,227,277 1,260,831 1,340,283 1,329,710
     
    Eliminations:
    Skilled nursing rehabilitation services (28,657 ) (28,660 ) (28,151 ) (28,157 ) (29,646 ) (30,031 )
    Hospital rehabilitation services (23,609 ) (23,223 ) (22,520 ) (22,123 ) (23,233 ) (22,855 )
    Nursing centers   (1,213 )   (1,001 )   (1,161 )   (875 )   (662 )   (860 )
      (53,479 )   (52,884 )   (51,832 )   (51,155 )   (53,541 )   (53,746 )
    $ 1,259,434   $ 1,191,030   $ 1,175,445   $ 1,209,676   $ 1,286,742   $ 1,275,964  
     
    Income (loss) from continuing operations:
    Operating income (loss):
    Hospital division $ 147,493 $ 129,366 $ 112,483 $ 126,788 $ 145,395 $ 132,878 (a)
     
    Nursing center division 29,145 36,018 31,505 35,585 38,471 36,880 (b)
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 13,239 21,623 (7,209 ) 14,260 18,328 19,982 (b)
    Hospital rehabilitation services   18,132     19,573     18,215     18,005     19,820     20,084   (b)
      31,371     41,196     11,006     32,265     38,148     40,066  
     
    Care management division 2,786 3,961 1,085 2,131 4,697 7,065 (b)
     
    Corporate:
    Overhead (45,585 ) (43,196 ) (39,157 ) (48,557 ) (44,050 ) (48,365 ) (b)
    Insurance subsidiary   (509 )   (384 )   (482 )   (539 )   (406 )   (443 )
    (46,094 ) (43,580 ) (39,639 ) (49,096 ) (44,456 ) (48,808 )
     
    Impairment charges (187 ) (438 ) (441 ) (76,127 ) - -
    Transaction costs   (944 )   (108 )   (613 )   (447 )   (683 )   (4,496 )
    Operating income 163,570 166,415 115,386 71,099 181,572 163,585
    Rent (76,519 ) (77,324 ) (76,762 ) (80,921 ) (81,048 ) (80,209 ) (c)
    Depreciation and amortization (41,598 ) (38,554 ) (36,507 ) (37,547 ) (39,337 ) (39,442 )
    Interest, net   (28,074 )   (27,600 )   (24,389 )   (23,900 )   (25,616 )   (78,081 ) (d)

    Income (loss) from continuing operations before income taxes

    17,379 22,937 (22,272 ) (71,269 ) 35,571 (34,147 )
    Provision (benefit) for income taxes   6,505     9,208     (6,510 )   (20,522 )   13,585     (13,082 )
    $ 10,874   $ 13,729   $ (15,762 ) $ (50,747 ) $ 21,986   $ (21,065 )
     

    _____________________

    (a)

    Includes litigation costs of $4.6 million.

     

    (b)

    Includes severance and other costs related to restructuring activities of $4.9 million (nursing center division - $3.2 million, rehabilitation division - $0.3 million (skilled nursing rehabilitation services - $0.2 million and hospital rehabilitation services - $0.1 million), care management division - $0.8 million and corporate - $0.6 million).

     

    (c)

    Includes lease cancellation charges of $0.3 million incurred in connection with restructuring activities.

     

    (d)

    Includes $56.6 million of charges associated with debt refinancing.

     
                                                 
    KINDRED HEALTHCARE, INC.
    Condensed Consolidating Statement of Operations
    (Unaudited)
    (In thousands)
     
     
    Three months ended June 30, 2014
    NursingRehabilitation divisionCare
    HospitalcenterSkilled nursingHospitalmanagementCorporateTransaction
    division (a)   division (b,c)   services (b)   services (b)   Totaldivision (b)   (b,d)costsEliminations   Consolidated
     
    Revenues $ 632,156   $ 280,255   $ 253,989   $ 75,324 $ 329,313   $ 87,986   $ -   $ -   $ (53,746 ) $ 1,275,964  
     
    Salaries, wages and benefits 271,092 128,641 223,907 50,303 274,210 66,804 29,813 - (239 ) 770,321
    Supplies 66,509 10,559 680 32 712 2,833 181 - - 80,794
    Rent 52,526 23,856 1,067 22 1,089 2,177 561 - - 80,209
    Other operating expenses 161,722 104,317 9,406 4,899 14,305 11,281 18,804 4,496 (53,507 ) 261,418
    Other (income) expense (45 ) (142 ) 14 6 20 3 10 - - (154 )
    Depreciation and amortization 17,008 7,686 2,885 2,488 5,373 2,139 7,236 - - 39,442
    Interest expense 187 7 51 - 51 12 80,273 - - 80,530
    Investment income   (16 )   (10 )   (225 )   -   (225 )   (1 )   (2,197 )   -     -     (2,449 )
      568,983     274,914     237,785     57,750   295,535     85,248     134,681     4,496     (53,746 )   1,310,111  

    Income (loss) from continuing operations before income taxes

    $ 63,173   $ 5,341   $ 16,204   $ 17,574 $ 33,778   $ 2,738   $ (134,681 ) $ (4,496 ) $ -   (34,147 )
    Income tax benefit   (13,082 )
    Loss from continuing operations $ (21,065 )
     

    Capital expenditures, excluding acquisitions (including discontinued operations):

    Routine $ 8,225 $ 5,163 $ 593 $ 44 $ 637 $ 168 $ 10,292 $ - $ - $ 24,485
    Development   51     321     -     -   -     -     -     -     -     372  
    $ 8,276   $ 5,484   $ 593   $ 44 $ 637   $ 168   $ 10,292   $ -   $ -   $ 24,857  
     
     
    Three months ended June 30, 2013
    NursingRehabilitation divisionCare
    HospitalcenterSkilled nursingHospitalmanagementTransaction
    divisiondivisionservicesservicesTotaldivisionCorporate (e)   costsEliminations   Consolidated
     
    Revenues $ 606,604   $ 264,847   $ 249,647   $ 69,777 $ 319,424   $ 53,039   $ -   $ -   $ (52,884 ) $ 1,191,030  
     
    Salaries, wages and benefits 261,362 123,242 219,874 46,236 266,110 39,730 25,242 - (67 ) 715,619
    Supplies 64,737 12,568 785 30 815 2,325 158 - - 80,603
    Rent 50,221 24,104 1,197 19 1,216 1,155 628 - - 77,324
    Other operating expenses 150,959 93,274 7,326 3,930 11,256 7,023 18,178 108 (52,817 ) 227,981
    Other (income) expense 180 (255 ) 39 8 47 - 2 - - (26 )
    Impairment charges 408 30 - - - - - - - 438
    Depreciation and amortization 17,525 6,814 2,878 2,319 5,197 1,615 7,403 - - 38,554
    Interest expense 179 1 73 - 73 - 28,821 - - 29,074
    Investment income   (2 )   (13 )   (74 )   -   (74 )   -     (1,385 )   -     -     (1,474 )
      545,569     259,765     232,098     52,542   284,640     51,848     79,047     108     (52,884 )   1,168,093  

    Income from continuing operations before income taxes

    $ 61,035   $ 5,082   $ 17,549   $ 17,235 $ 34,784   $ 1,191   $ (79,047 ) $ (108 ) $ -   22,937
    Provision for income taxes   9,208  
    Income from continuing operations $ 13,729  
     

    Capital expenditures, excluding acquisitions (including discontinued operations):

    Routine $ 5,593 $ 4,259 $ 464 $ 45 $ 509 $ 339 $ 6,730 $ - $ - $ 17,430
    Development   5,079     7     -     -   -     -     -     -     -     5,086  
    $ 10,672   $ 4,266   $ 464   $ 45 $ 509   $ 339   $ 6,730   $ -   $ -   $ 22,516  

    _____________________

    (a)

    Includes litigation costs of $4.6 million.

     

    (b)

    Includes severance and other costs related to restructuring activities of $4.9 million (nursing center division - $3.2 million, rehabilitation division - $0.3 million (skilled nursing rehabilitation services - $0.2 million and hospital rehabilitation services - $0.1 million), care management division - $0.8 million and corporate - $0.6 million).

     

    (c)

    Includes lease cancellation charges of $0.3 million incurred in connection with restructuring activities.

     

    (d)

    Includes $56.6 million of charges associated with debt refinancing.

     

    (e)

    Includes $1.4 million of charges associated with debt refinancing.

     
                                 
    KINDRED HEALTHCARE, INC.
    Condensed Consolidating Statement of Operations
    (Unaudited)
    (In thousands)
     
     
    Six months ended June 30, 2014
    NursingRehabilitation divisionCare
    HospitalcenterSkilled nursingHospitalmanagementCorporateTransaction
    division (a)division (b,c)services (b)services (b)Totaldivision (b)(b,d)costsEliminationsConsolidated
     
    Revenues $ 1,278,614   $ 558,157   $ 508,244   $ 149,288 $ 657,532   $ 175,690   $ -   $ -   $ (107,287 ) $ 2,562,706  
     
    Salaries, wages and benefits 545,928 256,395 448,514 100,302 548,816 135,493 57,651 339 (489 ) 1,544,133
    Supplies 133,677 21,328 1,416 67 1,483 5,932 362 - - 162,782
    Rent 105,661 47,808 2,156 73 2,229 4,433 1,126 - - 161,257
    Other operating expenses 320,814 205,426 19,995 9,004 28,999 22,500 35,241 4,840 (106,798 ) 511,022
    Other (income) expense (78 ) (343 ) 9 11 20 3 10 - - (388 )
    Depreciation and amortization 33,993 15,228 5,580 5,052 10,632 4,264 14,662 - - 78,779
    Interest expense 372 12 109 - 109 22 105,814 - - 106,329
    Investment income   (18 )   (21 )   (284 )   -   (284 )   (1 )   (2,308 )   -     -     (2,632 )
      1,140,349     545,833     477,495     114,509   592,004     172,646     212,558     5,179     (107,287 )   2,561,282  

    Income from continuing operations before income taxes

    $ 138,265   $ 12,324   $ 30,749   $ 34,779 $ 65,528   $ 3,044   $ (212,558 ) $ (5,179 ) $ -   1,424
    Provision for income taxes   503  
    Income from continuing operations $ 921  
     

    Capital expenditures, excluding acquisitions (including discontinued operations):

    Routine $ 16,627 $ 10,218 $ 1,442 $ 100 $ 1,542 $ 476 $ 17,299 $ - $ - $ 46,162
    Development   562     561     -     -   -     -     -     -     -     1,123  
    $ 17,189   $ 10,779   $ 1,442   $ 100 $ 1,542   $ 476   $ 17,299   $ -   $ -   $ 47,285  
     
     
    Six months ended June 30, 2013
    NursingRehabilitation divisionCare
    HospitalcenterSkilled nursingHospitalmanagementCorporateTransaction
    division (e)division (e)services (e)services (e)Totaldivision (e)(e,f)costsEliminationsConsolidated
     
    Revenues $ 1,264,418   $ 535,052   $ 508,397   $ 144,300 $ 652,697   $ 104,660   $ -   $ -   $ (106,363 ) $ 2,450,464  
     
    Salaries, wages and benefits 551,019 258,425 454,718 98,656 553,374 80,044 54,930 - (308 ) 1,497,484
    Supplies 132,883 25,282 1,596 62 1,658 4,563 363 - - 164,749
    Rent 99,803 47,980 2,432 36 2,468 2,341 1,251 - - 153,843
    Other operating expenses 303,582 186,838 17,182 7,849 25,031 13,306 34,902 1,052 (106,055 ) 458,656
    Other (income) expense 75 (656 ) 39 28 67 - (521 ) - - (1,035 )
    Impairment charges 584 41 - - - - - - - 625
    Depreciation and amortization 37,247 14,155 5,990 4,650 10,640 3,141 14,969 - - 80,152
    Interest expense 361 6 169 - 169 - 56,697 - - 57,233
    Investment income   (6 )   (21 )   (102 )   -   (102 )   -     (1,430 )   -     -     (1,559 )
      1,125,548     532,050     482,024     111,281   593,305     103,395     161,161     1,052     (106,363 )   2,410,148  

    Income from continuing operations before income taxes

    $ 138,870   $ 3,002   $ 26,373   $ 33,019 $ 59,392   $ 1,265   $ (161,161 ) $ (1,052 ) $ -   40,316
    Provision for income taxes   15,713  
    Income from continuing operations $ 24,603  
     

    Capital expenditures, excluding acquisitions (including discontinued operations):

    Routine $ 15,864 $ 10,078 $ 1,069 $ 77 $ 1,146 $ 534 $ 12,178 $ - $ - $ 39,800
    Development   7,467     7     -     -   -     -     -     -     -     7,474  
    $ 23,331   $ 10,085   $ 1,069   $ 77 $ 1,146   $ 534   $ 12,178   $ -   $ -   $ 47,274  

    _____________________

    (a)

    Includes litigation costs of $4.6 million.

     

    (b)

    Includes severance and other costs related to restructuring activities of $4.9 million (nursing center division - $3.2 million, rehabilitation division - $0.3 million (skilled nursing rehabilitation services - $0.2 million and hospital rehabilitation services - $0.1 million), care management division - $0.8 million and corporate - $0.6 million).

     

    (c)

    Includes lease cancellation charges of $0.3 million incurred in connection with restructuring activities.

     

    (d)

    Includes $56.6 million of charges associated with debt refinancing.

     

    (e)

    Includes one-time bonus costs of $19.8 million (hospital division - $7.8 million, nursing center division - $4.6 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).

     

    (f)

    Includes $1.4 million of charges associated with debt refinancing.

     
                                   
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data
    (Unaudited)
     
     
    2013 Quarters2014 Quarters
    FirstSecondThirdFourthFirstSecond
    Hospital division data:
    End of period data:
    Number of hospitals:
    Transitional care 97 97 97 97 97 97
    Inpatient rehabilitation 5 5 5 5 5 5
    102 102 102 102 102 102
     
    Number of licensed beds:
    Transitional care 7,059 7,059 7,073 7,105 7,145 7,145
    Inpatient rehabilitation 215 215 215 215 215 215
    7,274 7,274 7,288 7,320 7,360 7,360
     
    Revenue mix %:
    Medicare 62.5 60.7 59.1 59.3 60.2 58.9
    Medicaid 5.4 5.9 6.9 6.2 6.5 6.6
    Medicare Advantage 10.2 11.1 11.1 11.7 11.2 11.0
    Medicaid Managed 1.9 1.9 2.0 1.9 2.3 2.9
    Commercial insurance and other 20.0 20.4 20.9 20.9 19.8 20.6
     
    Admissions:
    Medicare 10,274 9,432 9,010 9,255 9,858 9,410
    Medicaid 685 744 788 712 835 914
    Medicare Advantage 1,519 1,474 1,422 1,450 1,515 1,449
    Medicaid Managed 209 208 225 252 317 381
    Commercial insurance and other 1,951 1,869 1,874 1,818 2,107 2,055
    14,638 13,727 13,319 13,487 14,632 14,209
    Admissions mix %:
    Medicare 70.2 68.7 67.6 68.6 67.4 66.2
    Medicaid 4.7 5.4 5.9 5.3 5.7 6.4
    Medicare Advantage 10.4 10.8 10.7 10.7 10.3 10.2
    Medicaid Managed 1.4 1.5 1.7 1.9 2.2 2.7
    Commercial insurance and other 13.3 13.6 14.1 13.5 14.4 14.5
     
    Patient days:
    Medicare 252,195 234,490 223,639 226,662 239,759 230,122
    Medicaid 28,765 30,425 31,569 29,799 32,909 32,821
    Medicare Advantage 43,016 43,040 41,842 43,784 44,979 44,094
    Medicaid Managed 8,808 8,342 8,264 8,238 10,733 13,247
    Commercial insurance and other 63,227 57,091 59,575 57,334 62,858 61,892
    396,011 373,388 364,889 365,817 391,238 382,176
    Average length of stay:
    Medicare 24.5 24.9 24.8 24.5 24.3 24.5
    Medicaid 42.0 40.9 40.1 41.9 39.4 35.9
    Medicare Advantage 28.3 29.2 29.4 30.2 29.7 30.4
    Medicaid Managed 42.1 40.1 36.7 32.7 33.9 34.8
    Commercial insurance and other 32.4 30.5 31.8 31.5 29.8 30.1
    Weighted average 27.1 27.2 27.4 27.1 26.7 26.9
     
                                   
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data (Continued)
    (Unaudited)
     
     
    2013 Quarters2014 Quarters
    FirstSecondThirdFourthFirstSecond
    Hospital division data (continued):
    Revenues per admission:
    Medicare $ 40,051 $ 39,004 $ 38,993 $ 38,869 $ 39,482 $ 39,559
    Medicaid 51,450 48,221 51,934 52,635 50,201 45,392
    Medicare Advantage 44,326 45,709 46,429 49,051 47,739 48,067
    Medicaid Managed 58,770 55,496 52,771 46,112 47,781 48,953
    Commercial insurance and other 67,389 66,306 66,170 69,876 60,679 63,315
    Weighted average 44,939 44,190 44,609 45,006 44,181 44,490
     
    Revenues per patient day:
    Medicare $ 1,632 $ 1,569 $ 1,571 $ 1,587 $ 1,623 $ 1,618
    Medicaid 1,225 1,179 1,296 1,258 1,274 1,264
    Medicare Advantage 1,565 1,565 1,578 1,624 1,608 1,580
    Medicaid Managed 1,395 1,384 1,437 1,411 1,411 1,408
    Commercial insurance and other 2,079 2,171 2,081 2,216 2,034 2,102
    Weighted average 1,661 1,625 1,628 1,659 1,652 1,654
     
    Medicare case mix index (discharged patients only) 1.18 1.18 1.16 1.16 1.17 1.18
     
    Average daily census 4,400 4,103 3,966 3,976 4,347 4,200
    Occupancy % 68.3 63.5 61.1 61.4 67.4 64.9
     
    Annualized employee turnover % 22.1 21.7 21.4 21.3 20.7 20.8
     
    Nursing center division data:
    End of period data:
    Number of facilities:
    Nursing centers:
    Owned or leased 94 94 94 94 94 94
    Managed 4 4 4 4 4 4
    Assisted living facilities   6   6   6   6   6   6
      104   104   104   104   104   104
    Number of licensed beds:
    Nursing centers:
    Owned or leased 11,921 11,921 11,921 11,921 11,921 11,909
    Managed 485 485 485 485 485 485
    Assisted living facilities   341   341   341   341   341   341
      12,747   12,747   12,747   12,747   12,747   12,735
    Revenue mix %:
    Medicare 35.0 34.0 33.1 32.1 32.0 31.8
    Medicaid 35.7 36.4 38.8 39.8 40.4 39.7
    Medicare Advantage 8.2 8.3 7.3 7.8 8.6 8.1
    Medicaid Managed 3.4 3.5 3.5 3.5 3.2 3.6
    Private and other 17.7 17.8 17.3 16.8 15.8 16.8
     
                                   
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data (Continued)
    (Unaudited)
     
     
    2013 Quarters2014 Quarters
    FirstSecondThirdFourthFirstSecond
    Nursing center division data (continued):
    Patient days (a):
    Medicare 167,391 158,780 154,562 148,179 148,957 149,385
    Medicaid 505,962 506,025 515,789 522,071 516,487 506,917
    Medicare Advantage 51,695 51,337 45,338 48,537 54,404 51,355
    Medicaid Managed 52,500 52,532 53,740 53,100 49,857 55,997
    Private and other   163,641   163,167   162,506   159,518   152,807   155,530
      941,189   931,841   931,935   931,405   922,512   919,184
     
    Patient day mix % (a):
    Medicare 17.8 17.0 16.6 15.9 16.1 16.3
    Medicaid 53.7 54.3 55.3 56.1 56.0 55.1
    Medicare Advantage 5.5 5.5 4.9 5.2 5.9 5.6
    Medicaid Managed 5.6 5.7 5.8 5.7 5.4 6.1
    Private and other 17.4 17.5 17.4 17.1 16.6 16.9
     
    Revenues per patient day (a):
    Medicare Part A $ 528 $ 527 $ 527 $ 542 $ 552 $ 551
    Total Medicare (including Part B) 565 567 569 586 597 597
    Medicaid 191 190 200 206 217 220
    Medicaid (net of provider taxes) (b) 168 168 178 184 195 197
    Medicare Advantage 427 430 428 435 441 442
    Medicaid Managed 177 177 175 177 178 180
    Private and other 292 289 283 284 288 302
    Weighted average 287 284 285 290 301 305
     
    Average daily census (a) 10,458 10,240 10,130 10,124 10,250 10,101
    Admissions (a) 10,806 10,066 9,824 9,842 10,252 10,170
    Occupancy % (a) 83.3 81.5 80.5 80.2 81.2 80.2
    Medicare average length of stay (a) 30.4 31.1 31.8 31.5 29.8 29.7
     
    Annualized employee turnover % 41.3 44.0 44.3 42.8 39.4 40.7
     
    Rehabilitation division data:
    Skilled nursing rehabilitation services:
    Revenue mix %:
    Company-operated 11 11 11 12 12 12
    Non-affiliated 89 89 89 88 88 88
     
    Sites of service (at end of period) 1,729 1,713 1,768 1,806 1,851 1,863
    Revenue per site $ 149,653 $ 145,736 $ 138,762 $ 134,707 $ 137,361 $ 136,333
     
    Therapist productivity % 81.1 80.4 79.8 79.5 80.0 79.8
     
    Hospital rehabilitation services:
    Revenue mix %:
    Company-operated 32 33 33 30 31 30
    Non-affiliated 68 67 67 70 69 70
     
    Sites of service (at end of period):
    Inpatient rehabilitation units 103 103 99 104 105 104
    LTAC hospitals 123 123 122 121 121 118
    Sub-acute units 8 8 7 10 10 9
    Outpatient units   98   104   104   144   143   143
      332   338   332   379   379   374
     
    Revenue per site $ 224,466 $ 206,441 $ 205,711 $ 195,296 $ 195,157 $ 201,400
     
    Annualized employee turnover % 10.4 13.2 14.0 13.7 12.5 14.7

    _____________________

    (a)

    Excludes managed facilities.

    (b)

    Provider taxes are recorded in other operating expenses for all periods presented.

     
                                             
    KINDRED HEALTHCARE, INC.
    Earnings (Loss) Per Common Share Reconciliation (a)
    (Unaudited)
    (In thousands, except per share amounts)
     
    Three months ended June 30,Six months ended June 30,
    2014201320142013
    BasicDilutedBasicDilutedBasicDilutedBasicDiluted
    Earnings (loss):
    Amounts attributable to Kindred stockholders:
    Income (loss) from continuing operations:
    As reported in Statement of Operations $ (25,893 ) $ (25,893 ) $ 13,613 $ 13,613 $ (8,436 ) $ (8,436 ) $ 24,020 $ 24,020

    Allocation to participating unvested restricted stockholders

      -     -     (449 )   (449 )   -     -     (736 )   (736 )
    Available to common stockholders $ (25,893 ) $ (25,893 ) $ 13,164   $ 13,164   $ (8,436 ) $ (8,436 ) $ 23,284   $ 23,284  
     
    Discontinued operations, net of income taxes:
    Loss from operations:
    As reported in Statement of Operations $ (7,900 ) $ (7,900 ) $ (1,016 ) $ (1,016 ) $ (14,331 ) $ (14,331 ) $ (6,341 ) $ (6,341 )

    Allocation to participating unvested restricted stockholders

      -     -     34     34     -     -     194     194  
    Available to common stockholders $ (7,900 ) $ (7,900 ) $ (982 ) $ (982 ) $ (14,331 ) $ (14,331 ) $ (6,147 ) $ (6,147 )
     
    Loss on divestiture of operations:
    As reported in Statement of Operations $ (2,018 ) $ (2,018 ) $ (10,852 ) $ (10,852 ) $ (5,024 ) $ (5,024 ) $ (12,877 ) $ (12,877 )

    Allocation to participating unvested restricted stockholders

     

      -     -     358     358     -     -     395     395  
    Available to common stockholders $ (2,018 ) $ (2,018 ) $ (10,494 ) $ (10,494 ) $ (5,024 ) $ (5,024 ) $ (12,482 ) $ (12,482 )
     
    Loss from discontinued operations:
    As reported in Statement of Operations $ (9,918 ) $ (9,918 ) $ (11,868 ) $ (11,868 ) $ (19,355 ) $ (19,355 ) $ (19,218 ) $ (19,218 )

    Allocation to participating unvested restricted stockholders

      -     -     392     392     -     -     589     589  
    Available to common stockholders $ (9,918 ) $ (9,918 ) $ (11,476 ) $ (11,476 ) $ (19,355 ) $ (19,355 ) $ (18,629 ) $ (18,629 )
     
    Net income (loss):
    As reported in Statement of Operations $ (35,811 ) $ (35,811 ) $ 1,745 $ 1,745 $ (27,791 ) $ (27,791 ) $ 4,802 $ 4,802

    Allocation to participating unvested restricted stockholders

      -     -     (57 )   (57 )   -     -     (147 )   (147 )
    Available to common stockholders $ (35,811 ) $ (35,811 ) $ 1,688   $ 1,688   $ (27,791 ) $ (27,791 ) $ 4,655   $ 4,655  
     
    Shares used in the computation:
    Weighted average shares outstanding -
    basic computation   53,714   53,714   52,265   52,265   53,180   53,180   52,164   52,164
    Dilutive effect of employee stock options - 19 - 20
    Adjusted weighted average shares outstanding -        
    diluted computation

     

      53,714  

     

      52,284  

     

      53,180  

     

      52,184  
     
    Earnings (loss) per common share:
    Income (loss) from continuing operations $ (0.48 ) $ (0.48 ) $ 0.25 $ 0.25 $ (0.16 ) $ (0.16 ) $ 0.45 $ 0.45
    Discontinued operations:
    Loss from operations (0.15 ) (0.15 ) (0.02 ) (0.02 ) (0.27 ) (0.27 ) (0.12 ) (0.12 )
    Loss on divestiture of operations   (0.04 )   (0.04 )   (0.20 )   (0.20 )   (0.09 )   (0.09 )   (0.24 )   (0.24 )
    Loss from discontinued operations   (0.19 )   (0.19 )   (0.22 )   (0.22 )   (0.36 )   (0.36 )   (0.36 )   (0.36 )
    Net income (loss) $ (0.67 ) $ (0.67 ) $ 0.03   $ 0.03   $ (0.52 ) $ (0.52 ) $ 0.09   $ 0.09  
     

    _____________________

    (a)

    Earnings (loss) per common share are based upon the weighted average number of common shares outstanding during the respective periods. The diluted calculation of earnings per common share includes the dilutive effect of stock options. 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 for the three months and six months ended June 30, 2014, there was no allocation to participating unvested restricted stockholders for these periods.

     
                           
    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 six months ended June 30, 2014 and 2013 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 37.1% and 36.9% for the three months ended June 30, 2014 and 2013, respectively, and 37.1% and 40.3% for the six months ended June 30, 2014 and 2013, respectively.
     
    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 six months ended June 30, 2014 and 2013 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 endedSix months ended
    June 30,June 30,
    2014201320142013
    Detail of charges:
    One-time bonus costs $ - $ - $ - ($19,842 )
    Severance and other restructuring costs (4,950 ) - (4,950 ) -
    Litigation costs (4,600 ) - (4,600 ) -
    Transaction costs (4,496 ) (108 ) (5,179 ) (1,052 )
    Lease cancellation charges (rent expense) (247 ) - (247 ) -
    Debt refinancing charges (interest expense)   (56,643 )   (1,365 )   (56,643 )   (1,365 )
    (70,936 ) (1,473 ) (71,619 ) (22,259 )
    Income tax benefit   26,295     544     26,545     8,961  
    Charges net of income taxes (44,641 ) (929 ) (45,074 ) (13,298 )
    Allocation to participating unvested restricted stockholders   -     31     -     407  
    Available to common stockholders   ($44,641 )   ($898 )   ($45,074 )   ($12,891 )
     
    Weighted average diluted shares outstanding   53,714     52,284     53,180     52,184  
     
    Diluted loss per common share related to charges   ($0.83 )   ($0.02 )   ($0.85 )   ($0.25 )
     
    Reconciliation of operating income before charges:
    Operating income before charges $ 177,631 $ 166,523 $ 359,886 $ 350,879
    Detail of charges excluded from core operating results:
    One-time bonus costs - - - (19,842 )
    Severance and other restructuring costs (4,950 ) - (4,950 ) -
    Litigation costs (4,600 ) - (4,600 ) -
    Transaction costs   (4,496 )   (108 )   (5,179 )   (1,052 )
      (14,046 )   (108 )   (14,729 )   (20,894 )
    Reported operating income $ 163,585   $ 166,415   $ 345,157   $ 329,985  
     
    Reconciliation of income from continuing operations before charges:
    Amounts attributable to Kindred stockholders:
    Income from continuing operations before charges $ 18,748 $ 14,542 $ 36,638 $ 37,318
    Charges net of income taxes   (44,641 )   (929 )   (45,074 )   (13,298 )
    Reported income (loss) from continuing operations   ($25,893 ) $ 13,613     ($8,436 ) $ 24,020  
     

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

    Diluted income per common share before charges (a) $ 0.34 $ 0.27 $ 0.67 $ 0.70
    Charges net of income taxes (0.83 ) (0.02 ) (0.85 ) (0.25 )
    Other   0.01     -     0.02     -  
    Reported diluted income (loss) per common share from continuing operations   ($0.48 ) $ 0.25     ($0.16 ) $ 0.45  
     

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

      53,792     52,284     53,255     52,184  
    Reconciliation of effective income tax rate before charges:
    Effective income tax rate before charges 35.9 % 40.0 % 37.0 % 39.4 %
    Impact of charges on effective income tax rate   2.4 %   0.1 %   -1.7 %   -0.4 %
    Reported effective income tax rate   38.3 %   40.1 %   35.3 %   39.0 %
     

    _____________________

    (a)

    For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.6 million and $0.5 million for the three months ended June 30, 2014 and 2013, respectively, and $1.1 million for both the six months ended June 30, 2014 and 2013, 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 June 30, 2014
    Charges
    Severance
    Beforeand otherDebtTransactionAs
    chargesrestructuring   Litigationrefinancing   costsTotalreported
    Income (loss) from continuing operations:
    Operating income (loss):
    Hospital division $ 137,478 $ - $ (4,600 ) $ - $ - $ (4,600 ) $ 132,878
     
    Nursing center division 40,085 (3,205 ) - - - (3,205 ) 36,880
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 20,158 (176 ) - - - (176 ) 19,982
    Hospital rehabilitation services   20,254     (170 )   -     -     -     (170 )   20,084  
      40,412     (346 )   -     -     -     (346 )   40,066  
     
    Care management division 7,908 (843 ) - - - (843 ) 7,065
     
    Corporate:
    Overhead (47,809 ) (556 ) - - - (556 ) (48,365 )
    Insurance subsidiary   (443 )   -     -     -     -     -     (443 )
    (48,252 ) (556 ) - - - (556 ) (48,808 )
     
    Transaction costs   -     -     -     -     (4,496 )   (4,496 )   (4,496 )
    Operating income 177,631 (4,950 ) (4,600 ) - (4,496 ) (14,046 ) 163,585
    Rent (79,962 ) (247 ) - - - (247 ) (80,209 )
    Depreciation and amortization (39,442 ) - - - - - (39,442 )
    Interest, net   (21,438 )   -     -     (56,643 )   -     (56,643 )   (78,081 )

    Income (loss) from continuing operations before income taxes

    36,789 (5,197 ) (4,600 ) (56,643 ) (4,496 ) (70,936 ) (34,147 )
    Provision (benefit) for income taxes   13,213     (1,985 )   (1,757 )   (21,639 )   (914 )   (26,295 )   (13,082 )
    $ 23,576   $ (3,212 ) $ (2,843 ) $ (35,004 ) $ (3,582 ) $ (44,641 ) $ (21,065 )
     
     
    Three months ended June 30, 2013
    Charges
    BeforeDebtTransactionAs
    chargesrefinancingcostsTotalreported
    Income from continuing operations:
    Operating income (loss):
    Hospital division $ 129,366 $ - $ - $ - $ 129,366
     
    Nursing center division 36,018 - - - 36,018
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 21,623 - - - 21,623
    Hospital rehabilitation services   19,573     -     -     -     19,573  
      41,196     -     -     -     41,196  
     
    Care management division 3,961 - - - 3,961
     
    Corporate:
    Overhead (43,196 ) - - - (43,196 )
    Insurance subsidiary   (384 )   -     -     -     (384 )
    (43,580 ) - - - (43,580 )
     
    Impairment charges (438 ) - - - (438 )
    Transaction costs   -     -     (108 )   (108 )   (108 )
    Operating income 166,523 - (108 ) (108 ) 166,415
    Rent (77,324 ) - - - (77,324 )
    Depreciation and amortization (38,554 ) - - - (38,554 )
    Interest, net   (26,235 )   (1,365 )   -     (1,365 )   (27,600 )

    Income from continuing operations before income taxes

    24,410 (1,365 ) (108 ) (1,473 ) 22,937
    Provision for income taxes   9,752     (504 )   (40 )   (544 )   9,208  
    $ 14,658   $ (861 ) $ (68 ) $ (929 ) $ 13,729  
     
                           
    KINDRED HEALTHCARE, INC.
    Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
    (Unaudited)
    (In thousands)
     
    Six months ended June 30, 2014
    Charges
    Severance
    Beforeand otherDebtTransactionAs
    chargesrestructuring   Litigationrefinancing   costsTotalreported
    Income from continuing operations:
    Operating income (loss):
    Hospital division $ 282,873 $ - $ (4,600 ) $ - $ - $ (4,600 ) $ 278,273
     
    Nursing center division 78,556 (3,205 ) - - - (3,205 ) 75,351
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 38,486 (176 ) - - - (176 ) 38,310
    Hospital rehabilitation services   40,074     (170 )   -     -     -     (170 )   39,904  
      78,560     (346 )   -     -     -     (346 )   78,214  
     
    Care management division 12,605 (843 ) - - - (843 ) 11,762
     
    Corporate:
    Overhead (91,859 ) (556 ) - - - (556 ) (92,415 )
    Insurance subsidiary   (849 )   -     -     -     -     -     (849 )
    (92,708 ) (556 ) - - - (556 ) (93,264 )
     
    Transaction costs   -     -     -     -     (5,179 )   (5,179 )   (5,179 )
    Operating income 359,886 (4,950 ) (4,600 ) - (5,179 ) (14,729 ) 345,157
    Rent (161,010 ) (247 ) - - - (247 ) (161,257 )
    Depreciation and amortization (78,779 ) - - - - - (78,779 )
    Interest, net   (47,054 )   -     -     (56,643 )   -     (56,643 )   (103,697 )

    Income from continuing operations before income taxes

    73,043 (5,197 ) (4,600 ) (56,643 ) (5,179 ) (71,619 ) 1,424
    Provision for income taxes   27,048     (1,988 )   (1,760 )   (21,669 )   (1,128 )   (26,545 )   503  
    $ 45,995   $ (3,209 ) $ (2,840 ) $ (34,974 ) $ (4,051 ) $ (45,074 ) $ 921  
     
     
    Six months ended June 30, 2013
    Charges
    BeforeOne-timeDebtTransactionAs
    chargesbonusrefinancingcostsTotalreported
    Income from continuing operations:
    Operating income (loss):
    Hospital division $ 284,622 $ (7,763 ) $ - $ - $ (7,763 ) $ 276,859
     
    Nursing center division 69,787 (4,624 ) - - (4,624 ) 65,163
     
    Rehabilitation division:
    Skilled nursing rehabilitation services 39,914 (5,052 ) - - (5,052 ) 34,862
    Hospital rehabilitation services   38,960     (1,255 )   -     -     (1,255 )   37,705  
      78,874     (6,307 )   -     -     (6,307 )   72,567  
     
    Care management division 7,580 (833 ) - - (833 ) 6,747
     
    Corporate:
    Overhead (88,466 ) (315 ) - - (315 ) (88,781 )
    Insurance subsidiary   (893 )   -     -     -     -     (893 )
    (89,359 ) (315 ) - - (315 ) (89,674 )
     
    Impairment charges (625 ) - - - - (625 )
    Transaction costs   -     -     -     (1,052 )   (1,052 )   (1,052 )
    Operating income 350,879 (19,842 ) - (1,052 ) (20,894 ) 329,985
    Rent (153,843 ) - - - (153,843 )
    Depreciation and amortization (80,152 ) - - - - (80,152 )
    Interest, net   (54,309 )   -     (1,365 )   -     (1,365 )   (55,674 )

    Income from continuing operations before income taxes

    62,575 (19,842 ) (1,365 ) (1,052 ) (22,259 ) 40,316
    Provision for income taxes   24,674     (7,988 )   (550 )   (423 )   (8,961 )   15,713  
    $ 37,901   $ (11,854 ) $ (815 ) $ (629 ) $ (13,298 ) $ 24,603  
     
                         
    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 26.9% and 27.6% for the three months ended June 30, 2014 and 2013, respectively, and 30.8% and 37.4% for the six months ended June 30, 2014 and 2013, respectively.
     
     
    Three months endedSix months ended
    June 30,June 30,
    2014201320142013
     

    Reconciliation of net cash flows provided by (used in) operating activities to free cash flows:

    Net cash flows provided by (used in) operating activities ($49,963) $ 53,634 ($65,717) $ 78,467
    Less:
    Routine capital expenditures (24,485) (17,430 ) (46,162) (39,800 )
    Development capital expenditures (372)   (5,086 ) (1,123)   (7,474 )
    (24,857)   (22,516 ) (47,285)   (47,274 )
    Free cash flows including certain items (74,820) 31,118 (113,002) 31,193
     

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

    Litigation 700 - 25,850 -
    One-time employee bonus - - - 26,345
    Capitalized lender fees related to debt refinancing 19,125 1,600 19,125 1,600
    Other debt refinancing costs (expensed) 40,373 - 40,373 -
    Severance, retirement and retention 2,929 2,545 5,378 3,608
    Transaction costs 2,438     1,074   4,176     2,188  
    65,565 5,219 94,902 33,741

    Benefit of reduced income tax payments resulting from certain payments

    (17,664)   (1,441 ) (29,208)   (12,636 )
    47,901     3,778   65,694     21,105  
    Free cash flows excluding certain items ($26,919) $ 34,896   ($47,308) $ 52,298  
                 
    KINDRED HEALTHCARE, INC.
    Reconciliation of Earnings Guidance for 2014 - Continuing Operations (a)
    (Unaudited)
    (In millions, except per share amounts)
     
     
    As of August 6, 2014As of June 16, 2014
    LowHighLowHigh
     
    Operating income $ 707   $ 724   $ 715   $ 732  
     
    Rent 330 330 335 335
    Depreciation and amortization 161 161 163 163
    Interest, net   98     98     98     98  
    Income from continuing operations before income taxes 118 135 119 136
    Provision for income taxes   45     52     46     53  
    Income from continuing operations 73 83 73 83
    Earnings attributable to noncontrolling interests   (15 )   (15 )   (15 )   (15 )
    Income from continuing operations attributable to the Company 58 68 58 68
    Allocation to participating unvested restricted stockholders   (2 )   (2 )   (2 )   (2 )
    Available to common stockholders $ 56   $ 66   $ 56   $ 66  
     
     
    Earnings per diluted share $ 0.96 $ 1.14 $ 1.05 $ 1.25
     

    Shares used in computing earnings per diluted share

    58.3 58.3 53.2 53.2

    _____________________

    (a)

    The earnings guidance excludes the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, litigation costs, transaction costs, any further acquisitions or divestitures, any impairment charges, and any repurchases of common stock.

     

     






    Kindred Healthcare, Inc.

    Stephen Farber, 502-596-2525

    Executive Vice President, Chief Financial Officer

    Source: Kindred Healthcare, Inc.


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