knd-10q_20160331.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number: 001-14057

 

KINDRED HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

61-1323993

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

680 South Fourth Street Louisville, KY

 

 

40202

(Address of principal executive offices)

 

(Zip Code)

(502) 596-7300

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class of Common Stock

  

Outstanding at April 30, 2016

Common stock, $0.25 par value

  

     85,158,706 shares

 

 

 

1 of 76

 


 

KINDRED HEALTHCARE, INC.

FORM 10-Q

INDEX

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited):

 

 

Condensed Consolidated Statement of Operations – for the three months ended March 31, 2016 and 2015

3

 

Condensed Consolidated Statement of Comprehensive Income (Loss) – for the three months ended March 31, 2016 and 2015

4

 

Condensed Consolidated Balance Sheet – March 31, 2016 and December 31, 2015

5

 

Condensed Consolidated Statement of Cash Flows – for the three months ended March 31, 2016 and 2015

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

40

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

70

Item 4.

Controls and Procedures

71

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

72

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

73

Item 6.

Exhibits

74

 

 

 

2


 

KINDRED HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three months ended

March 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Revenues

$

1,837,971

 

 

$

1,675,967

 

Salaries, wages and benefits

 

926,214

 

 

 

847,093

 

Supplies

 

99,416

 

 

 

93,271

 

Rent

 

97,768

 

 

 

92,140

 

Other operating expenses

 

214,701

 

 

 

197,727

 

General and administrative expenses (exclusive of depreciation

      and amortization expense included below)

 

355,527

 

 

 

406,102

 

Other income

 

(952

)

 

 

(480

)

Litigation contingency expense

 

1,910

 

 

 

95,000

 

Impairment charges

 

7,788

 

 

 

6,726

 

Depreciation and amortization

 

40,681

 

 

 

38,935

 

Interest expense

 

57,499

 

 

 

62,518

 

Investment income

 

(254

)

 

 

(741

)

 

 

1,800,298

 

 

 

1,838,291

 

Income (loss) from continuing operations before income taxes

 

37,673

 

 

 

(162,324

)

Provision (benefit) for income taxes

 

11,836

 

 

 

(27,736

)

Income (loss) from continuing operations

 

25,837

 

 

 

(134,588

)

Discontinued operations, net of income taxes:

 

 

 

 

 

 

 

Loss from operations

 

(582

)

 

 

(3,424

)

Gain on divestiture of operations

 

262

 

 

 

 

Loss from discontinued operations

 

(320

)

 

 

(3,424

)

Net income (loss)

 

25,517

 

 

 

(138,012

)

(Earnings) loss attributable to noncontrolling interests:

 

 

 

 

 

 

 

Continuing operations

 

(12,514

)

 

 

(8,847

)

Discontinued operations

 

(2

)

 

 

29

 

 

 

(12,516

)

 

 

(8,818

)

Income (loss) attributable to Kindred

$

13,001

 

 

$

(146,830

)

Amounts attributable to Kindred stockholders:

 

 

 

 

 

 

 

Income (loss) from continuing operations

$

13,323

 

 

$

(143,435

)

Loss from discontinued operations

 

(322

)

 

 

(3,395

)

Net income (loss)

$

13,001

 

 

$

(146,830

)

Earnings (loss) per common share:

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

Income (loss) from continuing operations

$

0.15

 

 

$

(1.80

)

Discontinued operations:

 

 

 

 

 

 

 

Loss from operations

 

 

 

 

(0.04

)

Gain on divestiture of operations

 

 

 

 

 

Loss from discontinued operations

 

 

 

 

(0.04

)

Net income (loss)

$

0.15

 

 

$

(1.84

)

Diluted:

 

 

 

 

 

 

 

Income (loss) from continuing operations

$

0.15

 

 

$

(1.80

)

Discontinued operations:

 

 

 

 

 

 

 

Loss from operations

 

 

 

 

(0.04

)

Gain on divestiture of operations

 

 

 

 

 

Loss from discontinued operations

 

 

 

 

(0.04

)

Net income (loss)

$

0.15

 

 

$

(1.84

)

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

 

 

 

 

 

 

 

Basic

 

86,590

 

 

 

79,575

 

Diluted

 

87,249

 

 

 

79,575

 

Cash dividends declared and paid per common share

$

0.12

 

 

$

0.12

 

 

See accompanying notes.

3


 

KINDRED HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands)

 

 

 

Three months ended

March 31,

 

 

 

2016

 

 

 

2015

 

Net income (loss)

$

25,517

 

 

$

(138,012

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

Available-for-sale securities (Note 9):

 

 

 

 

 

 

 

Change in unrealized investment gains

 

610

 

 

 

281

 

Reclassification of (gains) losses realized in net income (loss)

 

135

 

 

 

(5

)

Net change

 

745

 

 

 

276

 

Interest rate swaps (Note 1):

 

 

 

 

 

 

 

Change in unrealized losses

 

(6,096

)

 

 

(1,992

)

Reclassification of ineffectiveness realized in net income (loss)

 

 

 

 

(3

)

Reclassification of (gains) losses realized in net income (loss), net of payments

 

391

 

 

 

(24

)

Net change

 

(5,705

)

 

 

(2,019

)

Income tax expense related to items of other comprehensive income (loss)

 

2,138

 

 

 

687

 

Other comprehensive loss

 

(2,822

)

 

 

(1,056

)

Comprehensive income (loss)

 

22,695

 

 

 

(139,068

)

Earnings attributable to noncontrolling interests

 

(12,516

)

 

 

(8,818

)

Comprehensive income (loss) attributable to Kindred

$

10,179

 

 

$

(147,886

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

4


 

KINDRED HEALTHCARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(Unaudited)

(In thousands, except per share amounts)

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

105,082

 

 

$

98,758

 

Insurance subsidiary investments

 

108,872

 

 

 

106,638

 

Accounts receivable less allowance for loss of $65,269 – March 31, 2016 and $62,896 – December 31, 2015

 

1,260,505

 

 

 

1,194,868

 

Inventories

 

28,056

 

 

 

27,791

 

Income taxes

 

11,283

 

 

 

11,790

 

Other

 

65,993

 

 

 

61,054

 

 

 

1,579,791

 

 

 

1,500,899

 

 

 

 

 

 

 

 

 

Property and equipment

 

2,181,989

 

 

 

2,162,398

 

Accumulated depreciation

 

(1,222,782

)

 

 

(1,190,402

)

 

 

959,207

 

 

 

971,996

 

 

 

 

 

 

 

 

 

Goodwill

 

2,683,352

 

 

 

2,669,810

 

Intangible assets less accumulated amortization of $101,373 – March 31, 2016 and $94,221 – December 31, 2015

 

773,237

 

 

 

755,655

 

Assets held for sale

 

298

 

 

 

613

 

Insurance subsidiary investments

 

194,778

 

 

 

204,498

 

Deferred tax assets

 

100,313

 

 

 

104,130

 

Acquisition deposit

 

 

 

 

18,489

 

Other

 

320,328

 

 

 

289,133

 

Total assets (a)

$

6,611,304

 

 

$

6,515,223

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

176,663

 

 

$

187,061

 

Salaries, wages and other compensation

 

424,058

 

 

 

404,925

 

Due to third party payors

 

32,785

 

 

 

36,251

 

Professional liability risks

 

65,418

 

 

 

64,099

 

Other accrued liabilities

 

242,162

 

 

 

394,246

 

Long-term debt due within one year

 

25,380

 

 

 

24,630

 

 

 

966,466

 

 

 

1,111,212

 

 

 

 

 

 

 

 

 

Long-term debt

 

3,358,297

 

 

 

3,133,312

 

Professional liability risks

 

271,974

 

 

 

263,273

 

Deferred credits and other liabilities

 

305,819

 

 

 

301,379

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.25 par value; authorized 175,000 shares; issued 85,171 shares – March 31, 2016 and 83,792 shares – December 31, 2015

 

21,293

 

 

 

20,948

 

Capital in excess of par value

 

1,728,784

 

 

 

1,737,747

 

Accumulated other comprehensive loss

 

(5,454

)

 

 

(2,632

)

Accumulated deficit

 

(243,279

)

 

 

(256,209

)

 

 

1,501,344

 

 

 

1,499,854

 

Noncontrolling interests

 

207,404

 

 

 

206,193

 

Total equity

 

1,708,748

 

 

 

1,706,047

 

Total liabilities (a) and equity

$

6,611,304

 

 

$

6,515,223

 

 

(a)

The Company’s consolidated assets as of March 31, 2016 and December 31, 2015 include total assets of variable interest entities of $400.7 million and $389.0 million, respectively, which can only be used to settle the obligations of the variable interest entities. The Company’s consolidated liabilities as of March 31, 2016 and December 31, 2015 include total liabilities of variable interest entities of $47.4 million and $39.7 million, respectively. See note 1 of the notes to unaudited condensed consolidated financial statements.

 

 

 

See accompanying notes.

5


 

KINDRED HEALTHCARE, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2016

 

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

25,517

)

 

$

(138,012

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

40,783

 

 

 

39,077

 

Amortization of stock-based compensation costs

 

4,404

 

 

 

5,824

 

Amortization of deferred financing costs

 

3,567

 

 

 

3,062

 

Payment of capitalized lender fees related to debt issuance

 

 

 

 

(28,012

)

Provision for doubtful accounts

 

11,725

 

 

 

8,292

 

Deferred income taxes

 

11,496

 

 

 

(25,580

)

Impairment charges

 

7,788

 

 

 

6,726

 

Gain on divestiture of discontinued operations

 

(262

)

 

 

 

Other

 

303

 

 

 

1,997

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(87,892

)

 

 

(31,656

)

Inventories and other assets

 

(5,232

)

 

 

53,022

 

Accounts payable

 

(10,621

)

 

 

465

 

Income taxes

 

73

 

 

 

(5,768

)

Due to third party payors

 

(4,843

)

 

 

(15,419

)

Other accrued liabilities

 

(129,868

)

 

 

(13,620

)

Net cash used in operating activities

 

(133,062

)

 

 

(139,602

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Routine capital expenditures

 

(18,106

)

 

 

(20,769

)

Development capital expenditures

 

(10,019

)

 

 

(5,788

)

Acquisitions, net of cash acquired

 

(26,339

)

 

 

(659,071

)

Acquisition deposits

 

18,489

 

 

 

195,000

 

Sale of assets

 

1,081

 

 

 

948

 

Proceeds from senior unsecured notes offering held in escrow

 

 

 

 

1,350,000

 

Interest in escrow for senior unsecured notes

 

 

 

 

23,438

 

Purchase of insurance subsidiary investments

 

(32,841

)

 

 

(25,918

)

Sale of insurance subsidiary investments

 

30,890

 

 

 

22,029

 

Net change in insurance subsidiary cash and cash equivalents

 

9,958

 

 

 

(558

)

Net change in other investments

 

(33,981

)

 

 

24

 

Other

 

(1,919

)

 

 

5

 

Net cash provided by (used in) investing activities

 

(62,787

)

 

 

879,340

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from borrowings under revolving credit

 

533,700

 

 

 

807,450

 

Repayment of borrowings under revolving credit

 

(303,100

)

 

 

(610,050

)

Proceeds from issuance of term loan, net of discount

 

 

 

 

199,000

 

Proceeds from other long-term debt

 

750

 

 

 

 

Repayment of Gentiva debt

 

 

 

 

(1,177,363

)

Repayment of term loan

 

(3,003

)

 

 

 

Repayment of other long-term debt

 

(280

)

 

 

(441

)

Payment of deferred financing costs

 

(151

)

 

 

(2,538

)

Issuance of common stock in connection with employee benefit plans

 

 

 

 

66

 

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

 

 

 

 

(915

)

Payment of dividend for mandatory redeemable preferred stock

 

(2,801

)

 

 

(2,778

)

Dividends paid

 

(10,068

)

 

 

(9,975

)

Contributions made by noncontrolling interests

 

4,368

 

 

 

 

Distributions to noncontrolling interests

 

(16,315

)

 

 

(11,019

)

Purchase of noncontrolling interests

 

(1,000

)

 

 

 

Other

 

73

 

 

 

1,162

 

Net cash provided by (used in) financing activities

 

202,173

 

 

 

(807,401

)

Change in cash and cash equivalents

 

6,324

 

 

 

(67,663

)

Cash and cash equivalents at beginning of period

 

98,758

 

 

 

164,188

 

Cash and cash equivalents at end of period

$

105,082

 

 

$

96,525

 

Supplemental information:

 

 

 

 

 

 

 

Interest payments

$

73,676

 

 

$

34,810

 

Income tax payments (refunds)

 

(188

)

 

 

230

 

Issuance of common stock in Gentiva Merger (see Note 2)

 

 

 

 

175,088

 

Non-cash contribution made by noncontrolling interest

 

2,800

 

 

 

 

 

 

See accompanying notes.

 

 

6


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION

Business

Kindred Healthcare, Inc. is a healthcare services company that through its subsidiaries operates transitional care (“TC”) hospitals, a home health, hospice and community care business, inpatient rehabilitation hospitals (“IRFs”), a contract rehabilitation services business, nursing centers and assisted living facilities across the United States (collectively, the “Company” or “Kindred”). At March 31, 2016, the Company’s hospital division operated 95 TC hospitals (certified as long-term acute care (“LTAC”) hospitals under the Medicare program) in 22 states. The Company’s Kindred at Home division primarily provided home health, hospice, and community care services from 618 sites of service in 40 states. The Company’s Kindred Rehabilitation Services division operated 19 IRFs and 104 hospital-based acute rehabilitation units (“ARUs”) (certified as IRFs), and provided rehabilitation services primarily in hospitals and long-term care settings in 46 states. The Company’s nursing center division operated 92 nursing centers and seven assisted living facilities in 19 states.

Gentiva merger

On October 9, 2014, the Company entered into an Agreement and Plan of Merger (the “Gentiva Merger Agreement”) with Gentiva Health Services, Inc. (“Gentiva”), providing for the Company’s acquisition of Gentiva (the “Gentiva Merger”). On February 2, 2015, the Company consummated the Gentiva Merger, with Gentiva continuing as the surviving company and the Company’s wholly owned subsidiary.

Discontinued operations

The Company has completed several transactions related to the divestiture or planned divestiture of unprofitable hospitals and nursing centers to improve its future operating results. For accounting purposes, the operating results of these businesses and the gains associated with these transactions were classified as discontinued operations in the accompanying unaudited condensed consolidated statement of operations for all periods presented in accordance with the authoritative guidance in effect through December 31, 2014. Effective January 1, 2015, the authoritative guidance modified the requirements for reporting discontinued operations. A disposal is now required to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results.

Assets held for sale at March 31, 2016 have been measured at the lower of carrying value or estimated fair value less costs of disposal and have been classified as held for sale in the accompanying unaudited condensed consolidated balance sheet. See Note 4 for a summary of discontinued operations.

Recently issued accounting requirements

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued authoritative guidance that requires the tax effects related to share-based payments to be recorded through the income statement at settlement. Under the new guidance, tax benefits in excess of or less than the tax effect of compensation expenses will no longer be recorded in equity for purpose of simplification, which is expected to reduce administrative complexities but could increase the volatility of income tax expense. The new guidance is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. The Company is still assessing this guidance.

In March 2016, the FASB finalized its amendments to the guidance in the new revenue standard on assessing whether an entity is a principal or an agent in a revenue transaction. Under the new amendments, the FASB confirmed that a principal in an arrangement controls a good or service before it is transferred to a customer but revised the structure of indicators when an entity is the principal. The amendments have the same effective date and transition requirements as the new revenue standard, which is effective for annual and interim periods beginning on or after December 15, 2017 with early adoption permitted on or after December 15, 2016. The Company is still assessing this guidance.

In March 2016, the FASB issued authoritative guidance that eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. Under the new guidance, the equity method of accounting should be applied prospectively from the date significant influence is obtained. The new guidance is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s business, financial position, results of operations or liquidity.

7

 


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION (Continued)

Recently issued accounting requirements (Continued)

In March 2016, the FASB issued authoritative guidance clarifying that a change in the counterparty to a derivative contract, in and of itself, does not require the dedesignation of a hedging relationship. Under the new guidance, an entity will still need to evaluate whether it is possible that the counterparty will perform under the contract as part of the assessment for hedge accounting. The new guidance is effective for annual and interim periods beginning after December 15, 2016 and early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s business, financial position, results of operations or liquidity.

In February 2016, the FASB issued amended authoritative guidance on accounting for leases. The new provisions require that a lessee of operating leases recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The lease liability will be equal to the present value of lease payments, with the right-of-use asset based upon the lease liability. The classification criteria for distinguishing between finance (or capital) leases and operating leases are substantially similar to the previous lease guidance, but with no explicit bright lines. As such, operating leases will result in straight-line rent expense similar to current practice. For short-term leases (term of 12 months or less), a lessee is permitted to make an accounting election not to recognize lease assets and lease liabilities, which would generally result in lease expense being recognized on a straight-line basis over the lease term. The guidance is effective for annual and interim periods beginning after December 15, 2018, and will require application of the new guidance at the beginning of the earliest comparable period presented. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition. The adoption of this standard is expected to have a material impact on the Company’s financial position. The Company is still evaluating the impact on its results of operations and expects no material impact on liquidity.

In January 2016, the FASB issued amended authoritative guidance which makes targeted improvements for financial instruments. The new provisions impact certain aspects of recognition, measurement, presentation and disclosure requirements of financial instruments. Specifically, the guidance will (1) require equity investments to be measured at fair value with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose the method and assumptions used to estimate fair value for financial instruments measured at amortized cost, and (4) require separate presentation of financial assets and financial liabilities by measurement category. The guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is not permitted. The adoption of this standard is not expected to have a material impact on the Company’s business, financial position, results of operations or liquidity.

In August 2014, the FASB issued authoritative guidance requiring management to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern and to provide disclosures in certain circumstances. The guidance is effective for annual and interim periods ending after December 15, 2016. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In May 2014, the FASB issued authoritative guidance which changes the requirements for recognizing revenue when entities enter into contracts with customers. Under the new provisions, an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. It also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB finalized a one year deferral of the new revenue standard with an updated effective date for interim and annual periods beginning on or after December 15, 2017. Entities are not permitted to adopt the standard earlier than the original effective date, which was on or after December 15, 2016. The Company is still assessing this guidance.

 

8


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION (Continued)

Equity

The following table sets forth the changes in equity attributable to noncontrolling interests and equity attributable to Kindred stockholders for the three months ended March 31, 2016 and 2015 (in thousands):

 

For the three months ended March 31, 2016:

Amounts
attributable to
Kindred
stockholders

 

 

Noncontrolling
interests

 

 

Total
equity

 

Balance at December 31, 2015

$

1,499,854

 

 

$

206,193

 

 

$

1,706,047

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

13,001

 

 

 

12,516

 

 

 

25,517

 

Other comprehensive loss

 

(2,822

)

 

 

  

 

 

(2,822

)

 

 

10,179

 

 

 

12,516

  

 

 

22,695

 

Shares tendered by employees for statutory tax withholdings upon issuance of common stock

 

(2,649

)

 

 

 

 

 

(2,649

)

Income tax provision in connection with the issuance of common stock under employee benefit plans

 

(142

)

 

 

  

 

 

(142

)

Stock-based compensation amortization

 

4,404

 

 

 

  

 

 

4,404

 

Dividends paid

 

(10,068

)

 

 

 

 

 

(10,068

)

Contributions made by noncontrolling interests

 

 

 

 

7,168

 

 

 

7,168

 

Distributions to noncontrolling interests

 

 

 

 

(16,315

)

 

 

(16,315

)

Purchase of noncontrolling interests

 

(234

)

 

 

(2,158

)

 

 

(2,392

)

Balance at March 31, 2016

$

1,501,344

 

 

$

207,404

 

 

$

1,708,748

 

 

For the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

$

1,441,867

 

 

$

44,105

 

 

$

1,485,972

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(146,830

)

 

 

8,818

 

 

 

(138,012

)

Other comprehensive loss

 

(1,056

)

 

 

  

 

 

(1,056

)

 

 

(147,886

)

 

 

8,818

  

 

 

(139,068

)

Issuance of common stock in connection with employee benefit plans

 

66

 

 

 

 

 

 

66

 

Shares tendered by employees for statutory tax withholdings upon issuance of common stock

 

(7,058

)

 

 

 

 

 

(7,058

)

Income tax provision in connection with the issuance of common stock under employee benefit plans

 

(694

)

 

 

  

 

 

(694

)

Stock-based compensation amortization

 

5,824

 

 

 

  

 

 

5,824

 

Dividends paid

 

(9,975

)

 

 

 

 

 

(9,975

)

Distributions to noncontrolling interests

 

 

 

 

(11,019

)

 

 

(11,019

)

Purchase of noncontrolling interests

 

 

 

 

149,520

 

 

 

149,520

 

Issuance of common stock in Gentiva Merger

 

175,088

 

 

 

 

 

 

175,088

 

Balance at March 31, 2015

$

1,457,232

  

 

$

191,424

  

 

$

1,648,656

 

9


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

 NOTE 1 – BASIS OF PRESENTATION (Continued)

Derivative financial instruments

In December 2011, the Company entered into two interest rate swap agreements to hedge its floating interest rate on an aggregate of $225 million of debt outstanding under its senior secured term loan facility (the “Prior Term Loan Facility”) entered into in June 2011. The interest rate swaps had an effective date of January 9, 2012, and expired on January 11, 2016. The Company was required to make payments based upon a fixed interest rate of 1.8925% calculated on the notional amount of $225 million. In exchange, the Company received interest on $225 million at a variable interest rate that was based upon the three-month London Interbank Offered Rate (“LIBOR”), subject to a minimum rate of 1.5%. These interest rate swaps were replaced in January 2016 as set forth below.

In March 2014, the Company entered into an additional interest rate swap agreement to hedge its floating interest rate on an aggregate of $400 million of debt outstanding under its Third Amended and Restated Term Loan Facility (as defined below). On April 8, 2014, the Company completed a novation of a portion of its $400 million swap agreement to two new counterparties, each in the amount of $125 million. The original swap contract was not amended, terminated or otherwise modified. The interest rate swap had an effective date of April 9, 2014, will expire on April 9, 2018 and continues to apply to the Term Loan Facility (as defined below). The Company is required to make payments based upon a fixed interest rate of 1.867% calculated on the notional amount of $400 million. In exchange, the Company will receive interest on $400 million at a variable interest rate that is based upon the three-month LIBOR, subject to a minimum rate of 1.0%. The Company determined these interest rate swaps continue to qualify for cash flow hedge accounting treatment at March 31, 2016.

In January 2016, the Company entered into three interest rate swap agreements to hedge its floating interest rate on an aggregate of $325 million of debt outstanding under its Term Loan Facility, which replaced the previous $225 million aggregate swap that expired on January 11, 2016. The interest rate swaps have an effective date of January 11, 2016, and expire on January 9, 2021. The Company is required to make payments based upon a fixed interest rate of 1.862% and 1.855% calculated on the notional amount of $175 million and $150 million, respectively. In exchange, the Company will receive interest on $325 million at a variable interest rate that is based upon the three-month LIBOR rate, subject to a minimum rate of 1.0%. The Company determined these interest rate swaps qualify for cash flow hedge accounting treatment at March 31, 2016.

The Company records the effective portion of the gain or loss on these derivative financial instruments in accumulated other comprehensive income (loss) as a component of stockholders’ equity and records the ineffective portion of the gain or loss on these derivative financial instruments as interest expense. For the three months ended March 31, 2016 and 2015, the ineffectiveness related to the interest rate swaps was immaterial.

The aggregate fair value of the interest rate swaps recorded in other accrued liabilities was $10.6 million and $4.5 million at March 31, 2016 and December 31, 2015, respectively. See Note 12.

As used herein, the “Third Amended and Restated Term Loan Facility” refers to the Prior Term Loan Facility, as amended as of October 4, 2012, and as further amended and restated as of May 30, 2013, August 21, 2013, and April 9, 2014.

As used herein, the “Term Loan Facility” refers to the Third Amended and Restated Term Loan Facility, as amended and restated as of November 25, 2014, and as further amended on March 10, 2015.


10


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION (Continued)

Variable interest entities

The Company follows the provisions of the authoritative guidance for determining whether an entity is a variable interest entity (“VIE”). In order to determine if the Company is a primary beneficiary of a VIE for financial reporting purposes, it must consider whether it has the power to direct activities of the VIE that most significantly impact the performance of the VIE and whether the Company has the obligation to absorb losses or the right to receive returns that would be significant to the VIE. The Company consolidates a VIE when it is the primary beneficiary.    

In January 2015, the Company completed the acquisition of Centerre Healthcare Corporation (“Centerre”), which operated 11 IRFs. The Company opened two IRFs during 2015 and one additional IRF during the first quarter of 2016. Each entity operating an IRF is subject to a partnership and a management services agreement with the Company. Under United States generally accepted accounting principles (“GAAP”), the Company determined that all of the entities acquired or opened qualify as VIEs and that the Company is the primary beneficiary in all but one arrangement. The Company holds an equity interest and acts as manager in each of the entities. Through the management services agreement, the Company is delegated necessary responsibilities to provide management services, administrative services and direction of the day-to-day operations. Based on the Company’s assessment of the most significant activities of the IRFs, the manager has the ability to direct the majority of those activities in 13 of the entities.

The analysis upon which the consolidation determination rests is complex, involves uncertainties, and requires significant judgment on various matters, some of which could be subject to different interpretations.

The carrying amounts and classifications of the assets and liabilities of the consolidated VIEs are as follows (in thousands):

 

 

 

March 31,

 

 

 

December 31,

 

 

 

2016

 

 

 

2015

 

Assets:

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

46,872

 

 

$

36,798

 

Accounts receivable, net

 

33,957

 

 

 

36,085

 

Inventories

 

1,667

 

 

 

1,576

 

Other

 

2,387

 

 

 

3,001

 

 

 

84,883

 

 

 

77,460

 

Property and equipment, net

 

17,900

 

 

 

17,100

 

Goodwill

 

275,375

 

 

 

271,717

 

Intangible assets, net

 

22,466

 

 

 

22,675

 

Other

 

44

 

 

 

54

 

Total assets

$

400,668

 

 

$

389,006

 

Liabilities:

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

33,965

 

 

$

26,291

 

Salaries, wages and other compensation

 

2,470

 

 

 

3,261

 

Other accrued liabilities

 

2,602

 

 

 

2,784

 

Long-term debt due within one year

 

1,855

 

 

 

1,106

 

 

 

40,892

 

 

 

33,442

 

Long-term debt

 

994

 

 

 

1,274

 

Deferred credits and other liabilities

 

5,563

 

 

 

4,971

 

Total liabilities

$

47,449

 

 

$

39,687

 

 

Other information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for quarterly reports on Form 10-Q of Regulation S-X and do not include all of the disclosures normally required by GAAP or those normally required in annual reports on Form 10-K. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on Form 10-K. The accompanying condensed consolidated balance sheet at December 31, 2015 was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP.

11


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION (Continued)

Other information (Continued)

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Company’s customary accounting practices. Management believes that financial information included herein reflects all adjustments necessary for a fair statement of interim results and, except as otherwise disclosed, all such adjustments are of a normal and recurring nature.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and include amounts based upon the estimates and judgments of management. Actual amounts may differ from those estimates.

 

Reclassifications

Certain prior period amounts have been reclassified to conform with the current period presentation.

 


12


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 2 – GENTIVA MERGER

On October 9, 2014, the Company entered into the Gentiva Merger Agreement, providing for the Company’s acquisition of Gentiva. On February 2, 2015, the Company consummated the Gentiva Merger, with Gentiva continuing as the surviving company and the Company’s wholly owned subsidiary.

At the effective time of the Gentiva Merger, each share of common stock, par value $0.10 per share, of Gentiva (“Gentiva Common Stock”) issued and outstanding immediately prior to the effective time of the Gentiva Merger (other than shares held by Kindred, Gentiva and any wholly owned subsidiaries (which were cancelled) and shares owned by stockholders who properly exercised and perfected a demand for appraisal rights under Delaware law), including each deferred share unit, were converted into the right to receive (1) $14.50 in cash (the “Cash Consideration”), without interest, and (2) 0.257 of a validly issued, fully paid and nonassessable share of Kindred common stock, par value $0.25 per share (the “Stock Consideration”). The purchase price totaled $722.3 million and was comprised of $544.8 million of Cash Consideration and $177.5 million of Stock Consideration. The Company also assumed $1.2 billion of long-term debt, which was paid off upon consummation of the Gentiva Merger.

The following transactions (collectively, the “Financing Transactions”) occurred in connection with the Gentiva Merger:

• the Company issued $1.35 billion aggregate principal amount of senior notes;

• the Company issued approximately 15 million shares of its common stock through two common stock offerings and issued 9.7 million shares of its common stock as the Stock Consideration;

• the Company issued 172,500 tangible equity units (the “Units”); and

• the Company amended its credit facilities.

The Company used the net proceeds from the Financing Transactions to fund the Cash Consideration for the Gentiva Merger, repay Gentiva’s existing debt and pay related transaction fees and expenses.

Operating results in the first quarter of 2016 included transaction and integration costs totaling $1.0 million, and retention and severance costs totaling $0.6 million related to the Gentiva Merger. Operating results in the first quarter of 2015 included transaction and integration costs totaling $32.1 million, retention and severance costs totaling $54.5 million, a lease termination charge of $0.6 million and financing costs totaling $23.4 million related to the Gentiva Merger. Transaction, integration, retention and severance costs were recorded as general and administrative expenses, the lease termination charge was recorded as rent expense and financing costs were recorded as general and administrative expenses ($6.0 million) and as interest expense ($17.4 million).  

Purchase price allocation

The Gentiva Merger purchase price of $722.3 million was allocated based upon the estimated fair value of the tangible and intangible assets, and goodwill.


13


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 2 – GENTIVA MERGER (Continued)

Purchase price allocation (Continued)

The following is the Gentiva Merger purchase price allocation (in thousands):

 

Cash and cash equivalents

$

64,695

 

Accounts receivable

 

265,034

 

Other current assets

 

123,428

 

Property and equipment

 

46,732

 

Identifiable intangible assets:

 

 

 

Certificates of need (indefinite life)

 

256,921

 

Medicare certifications (indefinite life)

 

94,500

 

Trade names (indefinite life)

 

22,200

 

Trade name

 

15,600

 

Non-compete agreements

 

1,820

 

Leasehold interests

 

1,439

 

Total identifiable intangible assets

 

392,480

 

Deferred tax assets

 

37,429

 

Other assets

 

74,407

 

Current portion of long-term debt

 

(53,075

)

Accounts payable and other current liabilities

 

(319,004

)

Long-term debt, less current portion

 

(1,124,288

)

Deferred tax liabilities

 

(47,748

)

Other liabilities

 

(126,088

)

Noncontrolling interests

 

(3,992

)

Total identifiable net assets

 

(669,990

)

Goodwill

 

1,392,271

 

Net assets

$

722,281

 

The fair value allocation was measured primarily using a discounted cash flows methodology, which is considered a Level 3 input (as described in Note 12).

The value of gross contractual accounts receivable before determining uncollectable amounts totaled $278.9 million. Accounts estimated to be uncollectable totaled $13.9 million.

The weighted average life of the definite lived intangible assets consisting primarily of a trade name is three years.

The aggregate goodwill arising from the Gentiva Merger is based upon the expected future cash flows of the Gentiva operations, which reflect both growth expectations and cost savings from combining the operations of the Company and Gentiva. Goodwill is not amortized and is not deductible for income tax purposes. Goodwill was assigned to the Company’s home health reporting unit ($612.2 million), hospice reporting unit ($614.0 million) and community care reporting unit ($166.1 million).


14


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 2 – GENTIVA MERGER (Continued)

Purchase price allocation (Continued)

The unaudited pro forma net effect of the Gentiva Merger assuming the acquisition occurred as of January 1, 2014 is as follows (in thousands, except per share amounts):

 

 

 

Three months ended March 31,

2015

 

Revenues

$

1,837,666

 

Loss from continuing operations attributable to Kindred

 

(34,779

)

Loss attributable to Kindred

 

(38,174

)

Loss per common share:

 

 

 

Basic:

 

 

 

Loss from continuing operations

 

(0.42

)

Net loss

 

(0.46

)

Diluted:

 

 

 

Loss from continuing operations

 

(0.42

)

Net loss

 

(0.46

)

The unaudited pro forma financial data have been derived by combining the historical financial results of the Company and the operations acquired in the Gentiva Merger for the period presented. The unaudited pro forma financial data presented excludes transaction, integration, retention and severance costs, a lease termination charge and financing costs totaling $127.6 million incurred by both the Company and Gentiva in connection with the Gentiva Merger. These costs have been eliminated from the results of operations for 2015 and have been reflected as expenses incurred as of January 1, 2014 for purposes of the pro forma financial presentation. Revenues and earnings before interest, income taxes, transaction, integration, retention and severance costs associated with Gentiva aggregated $535.1 million and $61.3 million, respectively, in the first quarter of 2016 and $334.9 million and $36.5 million, respectively, in the first quarter of 2015 since the date of the Gentiva Merger.

NOTE 3 – OTHER ACQUISITIONS

The following is a summary of the Company’s other acquisition activities. The operating results of the acquired businesses have been included in the accompanying unaudited condensed consolidated financial statements of the Company from the respective acquisition dates. The purchase price of acquired businesses resulted from negotiations with each of the sellers that were based upon both the historical and expected future cash flows of the respective businesses. Each of these acquisitions was financed through operating cash flows and borrowings under the Company’s senior secured asset-based revolving credit facility (the “ABL Facility”). Unaudited pro forma financial data related to the acquired businesses have not been presented because the acquisitions are not material, either individually or in the aggregate, to the Company’s consolidated financial statements.

During the first quarter of 2016, the Company acquired four home health and hospice businesses for $26.3 million in cash. The Company also acquired a hospice business in exchange for $9.0 million of outstanding accounts receivable owed to the Company.

In February 2016, the Company announced it signed a definitive agreement to acquire five LTAC hospitals (233 licensed beds) currently operated by Select Medical Holdings Corporation (“Select”) and sell four of its LTAC hospitals (287 licensed beds) to Select. The Company expects to complete these transactions during the second or third quarter of 2016.

On January 1, 2015, the Company completed the acquisition of Centerre for a purchase price of approximately $195 million in cash (the “Centerre Acquisition”). Centerre operated 11 IRFs with 614 beds through partnerships.

During the first quarter of 2015, the Company also acquired a home-based primary care practice for $4.1 million.


15


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 4 – DISCONTINUED OPERATIONS

In accordance with the authoritative guidance for the impairment or disposal of long-lived assets, the divestitures or planned divestiture of unprofitable businesses discussed in Note 1 has been accounted for as discontinued operations. Accordingly, the results of operations of these businesses for all periods presented and the gains associated with these transactions have been classified as discontinued operations, net of income taxes, in the accompanying unaudited condensed consolidated statement of operations based upon the authoritative guidance which was in effect through December 31, 2014. Effective January 1, 2015, the authoritative guidance modified the requirements for reporting discontinued operations. A disposal is now required to be reported in discontinued operations only if the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. At March 31, 2016, the Company held for sale one nursing center reported as discontinued operations.

On December 27, 2014, the Company entered into an agreement with Ventas, Inc. (“Ventas”) to transition the operations under the leases for nine non-strategic nursing centers (the “2014 Expiring Facilities”). Each lease terminates when the operation of such nursing center is transferred to a new operator. Through March 31, 2016, the Company transferred the operations of eight of the 2014 Expiring Facilities. The lease term for eight of the 2014 Expiring Facilities was scheduled to expire on April 30, 2018. The lease term for the ninth of the 2014 Expiring Facilities was scheduled to expire on April 30, 2020. At March 31, 2016, the Company continued to operate the remaining facility and transferred operations on April 1, 2016. For accounting purposes, the 2014 Expiring Facilities qualified as assets held for sale, and the Company reflected the operating results as discontinued operations in the accompanying unaudited condensed consolidated statement of operations for all historical periods. Under the terms of the agreement to transition the operations of the 2014 Expiring Facilities, the Company incurred a $40 million termination fee in exchange for the early termination of the leases, which was paid to Ventas in January 2015.

A summary of discontinued operations follows (in thousands):

 

Three months ended
March 31,

 

 

2016

 

2015

 

Revenues

$

3,514

 

 

$

11,717

 

Salaries, wages and benefits

 

1,722

 

 

 

6,592

 

Supplies

 

134

 

 

 

700

 

Rent

 

766

 

 

 

2,654

 

Other operating expenses

 

529

 

 

 

2,391

 

General and administrative expenses

 

1,222

 

 

 

4,885

 

Depreciation

 

102

 

 

 

142

 

Investment income

 

(1

)

 

 

(2

)

 

 

4,474

 

 

 

17,362

 

Loss from operations before income taxes

 

(960

)

 

 

(5,645

)

Income tax benefit

 

(378

)

 

 

(2,221

)

Loss from operations

 

(582

)

 

 

(3,424

)

Gain on divestiture of operations

 

262

 

 

 

 

          Loss from discontinued operations

 

(320

)

 

 

(3,424

)

(Earnings) loss attributable to noncontrolling interests

 

(2

)

 

 

29

 

Loss attributable to Kindred

$

(322

)

 

$

(3,395

)


16


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 4 – DISCONTINUED OPERATIONS (Continued)

The following table sets forth certain discontinued operating data by business segment (in thousands):

 

 

Three months ended
March 31,

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

Hospital division

$

460

 

 

$

508

 

Nursing center division

 

3,054

 

 

 

11,209

 

 

$

3,514

 

 

$

11,717

 

Operating income (loss):

 

 

 

 

 

 

 

Hospital division

$

497

 

 

$

(78

)

Nursing center division

 

(590

 

 

(2,773

)

 

$

(93

 

$

(2,851

)

Rent:

 

 

 

 

 

 

 

Hospital division

$

462

 

 

$

563

 

Nursing center division

 

304

 

 

 

2,091

 

 

$

766

 

 

$

2,654

 

Depreciation:

 

 

 

 

 

 

 

Hospital division

$

 

 

$

 

Nursing center division

 

102

 

 

 

142

 

 

$

102

 

 

$

142

 

A summary of the net assets held for sale follows (in thousands):

 

 

March 31,
2016

 

 

December 31,
2015

 

Long-term assets:

 

 

 

 

 

 

 

Property and equipment, net

$

277

 

 

$

571

  

Other

 

21

 

 

 

42

  

 

$

298

 

 

$

613

  

 

 

NOTE 5 – REVENUES

Revenues are recorded based upon estimated amounts due from patients and third party payors for healthcare services provided, including anticipated settlements under reimbursement agreements with Medicare, Medicaid, Medicare Advantage, Medicaid Managed and other third party payors. Revenues under third party agreements are subject to examination and retroactive adjustment. Provisions for estimated third party adjustments are provided in the period the related services are rendered. Differences between the amounts accrued and subsequent settlements are recorded in the periods the interim or final settlements are determined.

A summary of revenues by payor type follows (in thousands):

 

 

Three months ended
March 31,

 

 

2016

 

2015

 

Medicare

$

973,680

 

 

$

820,591

 

Medicaid

 

198,596

 

 

 

187,414

 

Medicare Advantage

 

136,774

 

 

 

133,419

 

Medicaid Managed

 

60,575

 

 

 

43,637

 

Other

 

522,384

 

 

 

553,813

 

 

 

1,892,009

 

 

 

1,738,874

 

Eliminations

 

(54,038

)

 

 

(62,907

)

 

$

1,837,971

 

 

$

1,675,967

 

 

17


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 6 – EARNINGS (LOSS) PER SHARE AND DIVIDENDS

Earnings (loss) per common share are based upon the weighted average number of common shares outstanding during the respective periods. Because the Company has reported a loss from continuing operations attributable to the Company for the three months ended March 31, 2015, the diluted calculation of earnings per common share excludes the dilutive impact of stock options and tangible equity units. 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 unvested restricted stock that entitles the holder to receive nonforfeitable dividends before vesting be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method.

A computation of earnings (loss) per common share follows (in thousands, except per share amounts):

 

 

Three months ended March 31,

 

 

2016

 

 

2015

 

 

Basic

 

 

Diluted

 

 

Basic

 

 

Diluted

 

Earnings (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Kindred stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported in Statement of Operations

$

13,323

 

 

$

13,323

 

 

$

(143,435

)

 

$

(143,435

)

Allocation to participating unvested restricted stockholders

 

(198

)

 

 

(196

)

 

 

 

 

 

 

Available to common stockholders

$

13,125

 

 

$

13,127

 

 

$

(143,435

)

 

$

(143,435

)

Discontinued operations, net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported in Statement of Operations

$

(584

)

 

$

(584

)

 

$

(3,395

)

 

$

(3,395

)

Allocation to participating unvested restricted stockholders

 

9

 

 

 

9

 

 

 

 

 

 

 

Available to common stockholders

$

(575

)

 

$

(575

)

 

$

(3,395

)

 

$

(3,395

)

Gain on divestiture of operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported in Statement of Operations

$

262

 

 

$

262

 

 

$

 

 

$

 

Allocation to participating unvested restricted stockholders

 

(4

)

 

 

(4

)

 

 

 

 

 

 

Available to common stockholders

$

258

 

 

$

258

 

 

$

 

 

$

 

Loss from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported in Statement of Operations

$

(322

)

 

$

(322

)

 

$

(3,395

)

 

$

(3,395

)

Allocation to participating unvested restricted stockholders

 

5

 

 

 

5

 

 

 

 

 

 

 

Available to common stockholders

$

(317

)

 

$

(317

)

 

$

(3,395

)

 

$

(3,395

)

Net income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported in Statement of Operations

$

13,001

 

 

$

13,001

 

 

$

(146,830

)

 

$

(146,830

)

Allocation to participating unvested restricted stockholders

 

(193

)

 

 

(191

)

 

 

 

 

 

 

Available to common stockholders

$

12,808

 

 

$

12,810

 

 

$

(146,830

)

 

$

(146,830

)

Shares used in the computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding – basic computation

 

86,590

 

 

 

86,590

 

 

 

79,575

 

 

 

79,575

 

Dilutive effect of employee stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive effect of tangible equity units

 

 

 

 

 

659

 

 

 

 

 

 

 

 

Adjusted weighted average shares outstanding – diluted computation

 

 

 

 

 

87,249

 

 

 

 

 

 

 

79,575

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

$

0.15

 

 

$

0.15

 

 

$

(1.80

)

 

$

(1.80

)

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

 

 

 

 

 

(0.04

)

 

 

(0.04

)

Gain on divestiture of operations

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

 

 

 

 

 

(0.04

)

 

 

(0.04

)

Net income (loss)

$

0.15

 

 

$

0.15

 

 

$

(1.84

)

 

$

(1.84

)

Number of antidilutive stock options and tangible equity units excluded from shares used in the diluted earnings (loss) per common share computation

 

 

 

 

 

1,126

 

 

 

 

 

 

 

3,701

 


18


KINDRED HEALTHCARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

NOTE 6 – EARNINGS (LOSS) PER SHARE AND DIVIDENDS (Continued)

The Company paid a cash dividend of $0.12 per common share on April 1, 2016 to shareholders of record as of the close of business on March 10, 2016. The Company also paid a cash dividend of $0.12 per common share on April 1, 2015 to shareholders of record as of th