KINDRED HEALTHCARE, INC - FORM 8-K - EX-99.1

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EX-99.2 - EX-99.2 - KINDRED HEALTHCARE, INC	d881773dex992.htm
8-K - FORM 8-K - KINDRED HEALTHCARE, INC	d881773d8k.htm

Exhibit 99.1

LOGO


Contact:		Stephen Farber
		Executive Vice President, Chief Financial Officer
		(502) 596-2525

KINDRED HEALTHCARE ANNOUNCES FOURTH QUARTER 2014 RESULTS

Core Diluted EPS from Continuing Operations of $0.26⁽¹⁾ in the Fourth Quarter and $1.06⁽¹⁾ for the Year

GAAP Loss Per Share from Continuing Operations of $0.15 for the Fourth Quarter and $0.24 for the Year

Concludes Solid Year with 6% Growth in Consolidated Revenues and 9% Growth in Core Operating Income for the Fourth Quarter and 5% Growth in both Consolidated Revenues and Core Operating Income for the Year

Successfully Completed Acquisitions of Gentiva Health Services and Centerre Healthcare in First Quarter 2015

Gentiva Reports Revenues of $509 million and Adjusted EBITDA of $52 million⁽¹⁾ for the Fourth Quarter and

Revenues of $2 billion and Adjusted EBITDA of $194 million⁽¹⁾ for the Year

Announces Preliminary 2015 Core EPS Estimates of $1.20 to $1.40 Per Diluted Share

LOUISVILLE, Ky. (February 26, 2015) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2014.

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.

Fourth Quarter Highlights:

•

Consolidated revenues increased 6% and core operating income increased 9% from the same period last year primarily resulting from improved volumes and solid cost controls across the organization and growth from acquisitions

•

Hospital division reported strong results with 3% same-store admissions growth and flat core operating costs per patient day

•

RehabCare division continues to deliver strong results including core operating income growth of 7% and core operating margin improvement to 10.9% from 10.5% compared to the fourth quarter last year

•

Care Management division (Kindred at Home) delivered 31% revenue growth compared to the same period last year and core operating margins increased to 9.1% from 3.3% in the fourth quarter of 2013

•

Nursing Center division core operating income increased 15% primarily due to growth in revenues and its core operating margins improved to 14.3% due to improved rates and ongoing repositioning initiatives

•

Core operating cash flows were $93 million compared to $24 million a year ago; core free cash flows were $67 million compared to a core free cash flow deficit of $15 million in the fourth quarter of 2013

•

On February 2, 2015, Kindred completed its acquisition of Gentiva Health Services, Inc. (“Gentiva”) and on January 1, 2015 Kindred completed its acquisition of Centerre Healthcare Corporation (“Centerre”)

•

Board of Directors declared regular quarterly cash dividend of $0.12 per share on its common stock payable on April 1, 2015

(1)	See reconciliation of core and adjusted results to generally accepted accounting principles (“GAAP”) results for Kindred beginning on page 16 and for Gentiva on page 21.

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680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 2

February 26, 2015

Kindred Fourth Quarter Results

Consolidated revenues for the fourth quarter ended December 31, 2014 increased 6% to $1.26 billion compared to $1.19 billion during the same period of 2013, primarily due to improved hospital volumes, strong performance in the Care Management division’s operations and growth from acquisitions. Kindred reported a loss from continuing operations for the fourth quarter of 2014 of $9.9 million or $0.15 per diluted share compared to a loss of $52.8 million or $1.01 per diluted share in the fourth quarter of 2013. Fourth quarter 2014 operating results included pretax charges of $40.1 million ($26.8 million net of income taxes) or $0.41 per diluted share related to pre-closing financing for the Gentiva acquisition, transaction, consulting, and severance and retirement costs. The fourth quarter of 2013 included an asset impairment charge, changes in estimate related to pending litigation, severance and retirement costs, costs associated with the closing of a transitional care hospital, transaction costs and an increase in the estimated income tax benefit associated with pending litigation, which the pretax charges totaled $87.7 million ($62.5 million net of income taxes) or $1.19 per diluted share.

During the fourth quarter of 2014, the Company announced that it entered into an agreement with Ventas, Inc. (“Ventas”) (NYSE:VTR) to transfer the operations under the leases for nine non-strategic nursing centers. Kindred has reclassified the operations of these nine nursing centers to discontinued operations for all periods presented.

Kindred Fiscal Year Results

Consolidated revenues for the year ended December 31, 2014 increased 5% to $5.03 billion compared to $4.78 billion in the previous year. The Company reported a loss from continuing operations of $14.0 million or $0.24 per share in 2014 compared to a loss of $44.5 million or $0.85 per share in 2013. In addition to the charges discussed in the fourth quarter results above, operating results for the year ended December 31, 2014 included pretax charges related to restructuring, litigation, debt refinancing and a customer bankruptcy that in aggregate reduced operating results by $119.4 million ($77.2 million net of income taxes) or $1.32 per diluted share. Operating results for the year ended December 31, 2013 included pretax charges of $142.6 million ($98.9 million net of income taxes) or $1.89 per diluted share.

Gentiva Fourth Quarter and Fiscal Year Results

Gentiva consolidated revenues for the fourth quarter of 2014 increased 5% to $509 million compared to $486 million during the same period in 2013. Earnings before interest, income taxes, depreciation, amortization and certain charges (“Adjusted EBITDA”) for the fourth quarter of 2014 increased to $52 million from $22 million a year ago. Gentiva consolidated revenues for the year ended December 31, 2014 increased 15% to $1.99 billion compared to $1.73 billion during the same period in 2013. Adjusted EBITDA for the year ended December 31, 2014 increased to $194 million from $135 million a year ago. The annual audit of Gentiva’s 2014 results is currently in progress. See page 21 for a reconciliation of Adjusted EBITDA results for Gentiva to GAAP results.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, commented, “After spending the past several years repositioning the Company through a difficult reimbursement environment, I am incredibly pleased with the strides we made in 2014 to strengthen our business and solidify Kindred’s position as a national leader in post-acute care. Looking forward, Kindred is well positioned to help shape the future of American healthcare and actively participate in the important shift to value-based payment systems and coordinated care. We began 2015 with the successful completion of the Gentiva and Centerre acquisitions, and advanced our Mission of making recovery and a return to home possible for more than a million patients per year. These acquisitions significantly improved the growth, margin and cash flow profile of the Company, and significantly expanded our capitalization and the liquidity of our stock.”

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Kindred Healthcare Announces Fourth Quarter 2014 Results

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February 26, 2015

Mr. Diaz continued, “We are also very pleased with Gentiva’s strong results in the fourth quarter and for the full year of 2014, which reaffirms our confidence in the combination. We are entering the year with significant momentum and believe that Kindred is poised for continued long-term success as the nation’s largest operator of long-term acute care hospitals, inpatient rehabilitation facilities, contract rehabilitation, home health and hospice services and one of the leading sub-acute and skilled nursing providers. Today, we are pleased to announce our preliminary financial estimates for 2015 for the combined Company, which underscores our commitment to continued growth and enhanced profitability.”

Benjamin A. Breier, President of the Company, said, “Our patient-centered approach to care and the successful steps we have taken to expand each of our divisions are driving significant growth and value creation for our Company. Kindred’s momentum is further supported by our unique ability to place patients appropriately, transfer patients effectively, and deliver on our promise of quality and value. We are executing on our strategy as we grow the core business, further develop our Integrated Care Markets and care management capabilities, and strengthen our balance sheet.”

Stephen D. Farber, Executive Vice President, Chief Financial Officer, commented, “We are very excited that Kindred, Gentiva and Centerre each completed 2014 with momentum, and that our integration of these acquisitions is ahead of schedule. We remain highly confident that we will meet our synergy goal to realize $35 million of contribution to 2015 performance, and that our improved cash flow and growth profile will support a strong balance sheet and allow us to simultaneously deleverage while continuing to invest in our business and provide meaningful dividends to shareholders.”

2015 Preliminary Financial Estimates

Kindred today announced preliminary financial estimates for 2015 that includes Gentiva for eleven months and Centerre for the full year. These estimates are prior to completion of transaction accounting for the acquisitions of Gentiva and Centerre and are subject to adjustment when, as previously announced, the Company provides 2015 guidance in conjunction with first quarter 2015 results.

Kindred preliminarily estimates 2015 annual revenues of approximately $7.2 billion to $7.3 billion, core operating income (or earnings before interest, income taxes, depreciation, amortization and rent, “EBITDAR”) of approximately $1.00 billion to $1.05 billion (including $35 million of contribution from Gentiva synergies assumed to be realized in the year), and core earnings of $1.20 to $1.40 per diluted share. The earnings per share estimate is based upon an estimated weighted average annual diluted share count for 2015 of roughly 86 million to 87 million shares. Please note that, given the mid-quarter timing of the Gentiva transaction, the estimated weighted average share count for the first quarter of 2015 approximates 84 million diluted shares.

Beginning with 2015, in addition to GAAP earnings per diluted share and core earnings per diluted share, Kindred will report adjusted core earnings per diluted share, which is calculated by excluding non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs, net of income tax benefit, from core income from continuing operations. We believe this additional performance measure may be useful for investors and analysts, especially for comparability purposes as more public companies adopt similar measures. For 2014, these non-cash expenses, on a core basis, totaled $44.4 million ($26.9 million net of income taxes) or $0.45 per diluted share, resulting in $1.51 of adjusted core earnings per diluted share. The 2015 preliminary financial estimates provided above include an estimated $73 million of such non-cash expenses ($44 million net of income taxes), or roughly $0.50 per diluted share, and on such basis Kindred preliminarily estimates $1.70 to $1.90 of adjusted core earnings per diluted share for 2015.

These preliminary financial estimates exclude transaction costs, pre-closing financing and integration costs associated with the acquisitions of Gentiva and Centerre, the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, litigation costs, other transaction costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock or any repurchases of common stock.

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Kindred Healthcare Announces Fourth Quarter 2014 Results

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February 26, 2015

Quarterly Cash Dividend

The Company announced that its Board of Directors has approved the payment of the regular quarterly cash dividend of $0.12 per share of common stock to be paid on April 1, 2015 to shareholders of record as of the close of business on March 11, 2015.

Conference Call

As previously announced, investors and the general public may access a live webcast of the fourth quarter 2014 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on February 27 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on February 27 by dialing (719) 457-0820, access code: 5860683. The replay will be available through March 10.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, statements regarding the Company’s acquisitions of Gentiva and Centerre (including the benefits, results and effects of such acquisitions), all statements regarding the Company’s expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management, and statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “may,” “potential,” “upside,” and other similar expressions, are forward-looking statements. Statements in this press release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends or other financial items, and product or services line growth, 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.

Risks and uncertainties related to the Company’s acquisitions of Gentiva and Centerre include, but are not limited to, uncertainties as to whether the acquisitions will have the accretive effect on the Company’s earnings or cash flows that it expects, the inability to obtain, or delays in obtaining, cost savings and synergies from the acquisitions, costs and difficulties related to the integration of Gentiva’s and Centerre’s businesses and operations with the Company’s businesses and operations, unexpected costs, liabilities, charges or expenses resulting from the acquisitions, adverse effects on the Company’s stock price resulting from the acquisitions, the inability to retain key personnel, and potential adverse reactions, changes to business relationships or competitive responses resulting from the acquisitions.

In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price are set forth in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

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Kindred Healthcare Announces Fourth Quarter 2014 Results

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February 26, 2015

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 year ended December 31, 2014 and 2013 before certain charges or on a core and adjusted core basis. The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a useful performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures. The Company’s earnings release also includes financial measures referred to as operating income, or EBITDAR, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Company’s management uses EBITDAR or EBITDA as meaningful measures of operational performance in addition to other measures. The Company uses EBITDAR or EBITDA to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes these measurements are important because securities analysts and investors use these measurements to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating results presented on a core and adjusted core basis and EBITDAR or EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. Reconciliations of the non-GAAP measurements to the GAAP measurements are included in this press release.

The results for Gentiva for the three months and year ended December 31, 2014 and 2013 enclosed in this release include the non-GAAP measurement Adjusted EBITDA. Adjusted EBITDA is defined as income before interest expense and other (net of interest income), income taxes, depreciation and amortization and excluding charges relating to (i) cost savings initiatives and acquisition and integration activities, (ii) impact of closed and consolidated locations, (iii) goodwill, intangibles and other long-lived asset impairments and (iv) impact of merger related expenses. Gentiva used Adjusted EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. Adjusted EBITDA should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with GAAP. Because Adjusted EBITDA is not a measurement of financial performance under GAAP and is susceptible to varying calculations, it may not be comparable to similarly titled measures of other companies.

Also in this press release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items. The Company recognizes that operating cash flows and free cash flows excluding certain items are non-GAAP measurements and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses operating cash flows and free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses. The Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by operating activities as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating cash flows and 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. Reconciliations of net cash flows provided by operating activities to operating cash flows and free cash flows excluding certain items are included in this press release.

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Kindred Healthcare Announces Fourth Quarter 2014 Results

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February 26, 2015

About Kindred Healthcare

Kindred Healthcare, Inc., a top-85 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $7.2 billion². At December 31, 2014, on a pro forma basis to include Gentiva and Centerre, Kindred through its subsidiaries had approximately 103,000 employees providing healthcare services in 2,872 locations in 47 states, including 97 transitional care hospitals, 16 inpatient rehabilitation hospitals, 90 nursing centers, 22 sub-acute units, 634 Kindred at Home hospice, home health and non-medical home care locations, 100 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,913 non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for six years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

²	Revenues were computed by combining the twelve months ended December 31, 2014 data for Kindred, Gentiva and Centerre.

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Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 7

February 26, 2015

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(In thousands, except per share amounts)


	Three months ended December 31,						Year ended December 31,
	2014			2013			2014			2013

Revenues	$	1,264,674		$	1,194,890		$	5,027,599		$	4,775,235


Salaries, wages and benefits		616,277			594,340			2,442,879			2,364,138
Supplies		73,774			70,041			289,043			286,266
Rent		79,167			78,398			313,039			302,192
Other operating expenses		168,206			160,630			679,992			633,906
General and administrative expenses		259,702			225,210			977,823			906,620
Other income		(278	)		(487	)		(872	)		(861	)
Impairment charges		—			76,127			—			77,193
Depreciation and amortization		38,558			37,318			155,570			152,945
Interest expense		39,919			25,151			168,763			108,008
Investment income		(1,021	)		(1,253	)		(3,996	)		(4,046	)

		1,274,304			1,265,475			5,022,241			4,826,361

Income (loss) from continuing operations before income taxes		(9,630	)		(70,585	)		5,358			(51,126	)
Provision (benefit) for income taxes		(4,827	)		(20,251	)		462			(10,493	)

Income (loss) from continuing operations		(4,803	)		(50,334	)		4,896			(40,633	)
Discontinued operations, net of income taxes:
Loss from operations		(28,743	)		(7,563	)		(53,630	)		(40,315	)
Loss on divestiture of operations		(9,061	)		(5,994	)		(12,698	)		(83,887	)

Loss from discontinued operations		(37,804	)		(13,557	)		(66,328	)		(124,202	)

Net loss		(42,607	)		(63,891	)		(61,432	)		(164,835	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations		(5,143	)		(2,466	)		(18,872	)		(3,890	)
Discontinued operations		66			61			467			233

		(5,077	)		(2,405	)		(18,405	)		(3,657	)

Loss attributable to Kindred	$	(47,684	)	$	(66,296	)	$	(79,837	)	$	(168,492	)


Amounts attributable to Kindred stockholders:
Loss from continuing operations	$	(9,946	)	$	(52,800	)	$	(13,976	)	$	(44,523	)
Loss from discontinued operations		(37,738	)		(13,496	)		(65,861	)		(123,969	)

Net loss	$	(47,684	)	$	(66,296	)	$	(79,837	)	$	(168,492	)


Loss per common share:
Basic:
Loss from continuing operations	$	(0.15	)	$	(1.01	)	$	(0.24	)	$	(0.85	)
Discontinued operations:
Loss from operations		(0.44	)		(0.15	)		(0.91	)		(0.77	)
Loss on divestiture of operations		(0.14	)		(0.11	)		(0.21	)		(1.61	)

Loss from discontinued operations		(0.58	)		(0.26	)		(1.12	)		(2.38	)

Net loss	$	(0.73	)	$	(1.27	)	$	(1.36	)	$	(3.23	)


Diluted:
Loss from continuing operations	$	(0.15	)	$	(1.01	)	$	(0.24	)	$	(0.85	)
Discontinued operations:
Loss from operations		(0.44	)		(0.15	)		(0.91	)		(0.77	)
Loss on divestiture of operations		(0.14	)		(0.11	)		(0.21	)		(1.61	)

Loss from discontinued operations		(0.58	)		(0.26	)		(1.12	)		(2.38	)

Net loss	$	(0.73	)	$	(1.27	)	$	(1.36	)	$	(3.23	)


Shares used in computing loss per common share:
Basic		65,135			52,344			58,634			52,249
Diluted		65,135			52,344			58,634			52,249

Cash dividends declared and paid per common share	$	0.12		$	0.12		$	0.48		$	0.24

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 8

February 26, 2015

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(In thousands, except per share amounts)


	December 31, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	164,188		$	35,972
Cash - restricted		2,293			3,713
Insurance subsidiary investments		99,951			96,295
Accounts receivable less allowance for loss		944,219			916,529
Inventories		25,702			25,780
Deferred tax assets		82,391			37,920
Income taxes		8,575			36,846
Interest deposit on senior unsecured notes due 2020 and 2023 held in escrow		23,438			—
Other		39,305			43,673

		1,390,062			1,196,728

Property and equipment		1,978,153			1,906,366
Accumulated depreciation		(1,076,049	)		(979,791	)

		902,104			926,575

Goodwill		997,597			992,102
Intangible assets less accumulated amortization		400,700			423,303
Assets held for sale		3,475			20,978
Insurance subsidiary investments		166,045			149,094
Deferred tax assets		11,174			17,043
Proceeds from senior unsecured notes due 2020 and 2023 held in escrow		1,350,000			—
Acquisition deposit		195,000			—
Other		236,807			220,046

Total assets	$	5,652,964		$	3,945,869

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	175,725		$	181,772
Salaries, wages and other compensation		358,857			361,192
Due to third party payors		43,957			33,747
Professional liability risks		64,137			60,993
Other accrued liabilities		189,980			146,495
Long-term debt due within one year		24,607			8,222

		857,263			792,421

Long-term debt - senior unsecured notes due 2020 and 2023		1,350,000			—
Long-term debt - other		1,502,531			1,579,391
Professional liability risks		243,614			246,230
Deferred credits and other liabilities		213,584			206,611

Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 69,977 shares - December 31, 2014 and 54,165 shares - December 31, 2013		17,494			13,541
Capital in excess of par value		1,586,692			1,146,193
Accumulated other comprehensive loss		(2,551	)		(252	)
Accumulated deficit		(159,768	)		(76,825	)

		1,441,867			1,082,657
Noncontrolling interests		44,105			38,559

Total equity		1,485,972			1,121,216

Total liabilities and equity	$	5,652,964		$	3,945,869

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 9

February 26, 2015

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(In thousands)


	Three months ended						Year ended
	December 31,						December 31,
	2014			2013			2014			2013
Cash flows from operating activities:
Net loss	$	(42,607	)	$	(63,891	)	$	(61,432	)	$	(164,835	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		39,145			39,644			160,950			182,389
Amortization of stock-based compensation costs		6,986			3,542			16,643			11,183
Amortization of deferred financing costs		2,077			2,376			23,288			11,905
Payment of capitalized lender fees related to debt issuance		(3,527	)		—			(22,652	)		(6,189	)
Provision for doubtful accounts		6,215			10,151			41,803			44,640
Deferred income taxes		(24,341	)		(13,665	)		(35,615	)		(36,650	)
Impairment charges		—			77,748			673			87,825
Loss on divestiture of discontinued operations		9,061			5,994			12,698			83,887
Other		47			(1,151	)		2,336			4,301
Change in operating assets and liabilities:
Accounts receivable		28,125			25,526			(74,378	)		52,271
Inventories and other assets		(13,074	)		4,195			(25,960	)		4,262
Accounts payable		13,070			9,884			(9,399	)		(22,095	)
Income taxes		12,959			(11,763	)		31,728			(17,032	)
Due to third party payors		(3,363	)		(18,387	)		11,177			(1,671	)
Other accrued liabilities		50,376			(60,008	)		33,611			(34,779	)

Net cash provided by operating activities		81,149			10,195			105,471			199,412


Cash flows from investing activities:
Routine capital expenditures		(23,656	)		(37,956	)		(91,081	)		(100,908	)
Development capital expenditures		(2,564	)		(1,115	)		(5,257	)		(11,824	)
Acquisitions, net of cash acquired		—			(185,213	)		(24,136	)		(224,319	)
Acquisition deposit		(195,000	)		14,675			(195,000	)		—
Sale of assets		952			1,906			23,861			250,606
Proceeds from senior unsecured notes offering held in escrow		(1,350,000	)		—			(1,350,000	)		—
Interest in escrow for senior unsecured notes due 2020 and 2023		(23,438	)		—			(23,438	)		—
Purchase of insurance subsidiary investments		(7,930	)		(15,767	)		(105,324	)		(46,127	)
Sale of insurance subsidiary investments		16,749			14,527			51,716			49,954
Net change in insurance subsidiary cash and cash equivalents		(20,689	)		217			33,683			(44,077	)
Change in other investments		379			(96	)		1,406			122
Other		1,216			518			679			376

Net cash used in investing activities		(1,603,981	)		(208,304	)		(1,682,891	)		(126,197	)


Cash flows from financing activities:
Proceeds from borrowings under revolving credit		83,000			575,500			1,551,515			1,675,800
Repayment of borrowings under revolving credit		(83,000	)		(376,800	)		(1,807,615	)		(1,740,400	)
Proceeds from issuance of senior unsecured notes due 2022		—			—			500,000			—
Proceeds from issuance of senior unsecured notes due 2020 and 2023		1,350,000			—			1,350,000			—
Proceeds from issuance of term loan, net of discount		—			—			997,500			—
Proceeds from issuance of debt component of tangible equity units		34,773			—			34,773			—
Repayment of senior unsecured notes		—			—			(550,000	)		—
Repayment of term loan		(2,500	)		(1,968	)		(788,563	)		(5,937	)
Repayment of other long-term debt		(58	)		(90	)		(273	)		(939	)
Payment of deferred financing costs		(279	)		(326	)		(3,431	)		(1,666	)
Equity offering, net of offering costs		101,615			—			321,968			—
Issuance of equity component of tangible equity units, net of issuance costs		133,336			—			133,336			—
Issuance of common stock in connection with employee benefit plans		26			32			6,243			461
Dividends paid		(7,754	)		(6,502	)		(28,594	)		(13,001	)
Distributions to noncontrolling interests		(4,088	)		(423	)		(13,692	)		(2,051	)
Other		165			79			2,469			483

Net cash provided by (used in) financing activities		1,605,236			189,502			1,705,636			(87,250	)

Change in cash and cash equivalents		82,404			(8,607	)		128,216			(14,035	)
Cash and cash equivalents at beginning of period		81,784			44,579			35,972			50,007

Cash and cash equivalents at end of period	$	164,188		$	35,972		$	164,188		$	35,972

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 10

February 26, 2015

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(In thousands, except per share amounts)


	2013 Quarters															2014 Quarters
	First			Second			Third			Fourth			Year			First			Second			Third			Fourth			Year

Revenues	$	1,243,740		$	1,175,915		$	1,160,690		$	1,194,890		$	4,775,235		$	1,272,610		$	1,261,397		$	1,228,918		$	1,264,674		$	5,027,599


Salaries, wages and benefits		618,091			575,368			576,339			594,340			2,364,138			618,694			606,095			601,813			616,277			2,442,879
Supplies		74,277			71,441			70,507			70,041			286,266			72,965			71,585			70,719			73,774			289,043
Rent		74,259			75,040			74,495			78,398			302,192			78,530			77,699			77,643			79,167			313,039
Other operating expenses		157,309			158,416			157,551			160,630			633,906			169,530			172,674			169,582			168,206			679,992
General and administrative expenses		232,928			206,306			242,176			225,210			906,620			231,272			249,346			237,503			259,702			977,823
Other (income) expense		(355	)		(120	)		101			(487	)		(861	)		(212	)		(122	)		(260	)		(278	)		(872	)
Impairment charges		187			438			441			76,127			77,193			—			—			—			—			—
Depreciation and amortization		41,089			38,241			36,297			37,318			152,945			39,092			39,172			38,748			38,558			155,570
Interest expense		28,159			29,074			25,624			25,151			108,008			25,799			80,530			22,515			39,919			168,763
Investment income		(85	)		(1,473	)		(1,235	)		(1,253	)		(4,046	)		(182	)		(2,449	)		(344	)		(1,021	)		(3,996	)

		1,225,859			1,152,731			1,182,296			1,265,475			4,826,361			1,235,488			1,294,530			1,217,919			1,274,304			5,022,241

Income (loss) from continuing operations before income taxes		17,881			23,184			(21,606	)		(70,585	)		(51,126	)		37,122			(33,133	)		10,999			(9,630	)		5,358
Provision (benefit) for income taxes		6,702			9,305			(6,249	)		(20,251	)		(10,493	)		14,195			(12,683	)		3,777			(4,827	)		462

Income (loss) from continuing operations		11,179			13,879			(15,357	)		(50,334	)		(40,633	)		22,927			(20,450	)		7,222			(4,803	)		4,896
Discontinued operations, net of income taxes:
Loss from operations		(5,681	)		(1,200	)		(25,871	)		(7,563	)		(40,315	)		(7,442	)		(8,768	)		(8,677	)		(28,743	)		(53,630	)
Gain (loss) on divestiture of operations		(2,025	)		(10,852	)		(65,016	)		(5,994	)		(83,887	)		(3,006	)		(2,018	)		1,387			(9,061	)		(12,698	)

Loss from discontinued operations		(7,706	)		(12,052	)		(90,887	)		(13,557	)		(124,202	)		(10,448	)		(10,786	)		(7,290	)		(37,804	)		(66,328	)

Net income (loss)		3,473			1,827			(106,244	)		(63,891	)		(164,835	)		12,479			(31,236	)		(68	)		(42,607	)		(61,432	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations		(467	)		(116	)		(841	)		(2,466	)		(3,890	)		(4,529	)		(4,828	)		(4,372	)		(5,143	)		(18,872	)
Discontinued operations		51			34			87			61			233			70			253			78			66			467

		(416	)		(82	)		(754	)		(2,405	)		(3,657	)		(4,459	)		(4,575	)		(4,294	)		(5,077	)		(18,405	)

Income (loss) attributable to Kindred	$	3,057		$	1,745		$	(106,998	)	$	(66,296	)	$	(168,492	)	$	8,020		$	(35,811	)	$	(4,362	)	$	(47,684	)	$	(79,837	)


Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations	$	10,712		$	13,763		$	(16,198	)	$	(52,800	)	$	(44,523	)	$	18,398		$	(25,278	)	$	2,850		$	(9,946	)	$	(13,976	)
Loss from discontinued operations		(7,655	)		(12,018	)		(90,800	)		(13,496	)		(123,969	)		(10,378	)		(10,533	)		(7,212	)		(37,738	)		(65,861	)

Net income (loss)	$	3,057		$	1,745		$	(106,998	)	$	(66,296	)	$	(168,492	)	$	8,020		$	(35,811	)	$	(4,362	)	$	(47,684	)	$	(79,837	)


Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations	$	0.20		$	0.25		$	(0.31	)	$	(1.01	)	$	(0.85	)	$	0.34		$	(0.47	)	$	0.04		$	(0.15	)	$	(0.24	)
Discontinued operations:
Loss from operations		(0.10	)		(0.02	)		(0.49	)		(0.15	)		(0.77	)		(0.13	)		(0.16	)		(0.13	)		(0.44	)		(0.91	)
Gain (loss) on divestiture of operations		(0.04	)		(0.20	)		(1.24	)		(0.11	)		(1.61	)		(0.06	)		(0.04	)		0.02			(0.14	)		(0.21	)

Loss from discontinued operations		(0.14	)		(0.22	)		(1.73	)		(0.26	)		(2.38	)		(0.19	)		(0.20	)		(0.11	)		(0.58	)		(1.12	)

Net income (loss)	$	0.06		$	0.03		$	(2.04	)	$	(1.27	)	$	(3.23	)	$	0.15		$	(0.67	)	$	(0.07	)	$	(0.73	)	$	(1.36	)


Diluted:
Income (loss) from continuing operations	$	0.20		$	0.25		$	(0.31	)	$	(1.01	)	$	(0.85	)	$	0.34		$	(0.47	)	$	0.04		$	(0.15	)	$	(0.24	)
Discontinued operations:
Loss from operations		(0.10	)		(0.02	)		(0.49	)		(0.15	)		(0.77	)		(0.13	)		(0.16	)		(0.13	)		(0.44	)		(0.91	)
Gain (loss) on divestiture of operations		(0.04	)		(0.20	)		(1.24	)		(0.11	)		(1.61	)		(0.06	)		(0.04	)		0.02			(0.14	)		(0.21	)

Loss from discontinued operations		(0.14	)		(0.22	)		(1.73	)		(0.26	)		(2.38	)		(0.19	)		(0.20	)		(0.11	)		(0.58	)		(1.12	)

Net income (loss)	$	0.06		$	0.03		$	(2.04	)	$	(1.27	)	$	(3.23	)	$	0.15		$	(0.67	)	$	(0.07	)	$	(0.73	)	$	(1.36	)


Shares used in computing earnings (loss) per common share:
Basic		52,062			52,265			52,323			52,344			52,249			52,641			53,714			62,863			65,135			58,634
Diluted		52,083			52,284			52,323			52,344			52,249			52,711			53,714			62,902			65,135			58,634

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 11

February 26, 2015

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(In thousands)


	2013 Quarters															2014 Quarters
	First			Second			Third			Fourth			Year			First			Second			Third			Fourth			Year
Revenues:
Hospital division	$	657,814		$	606,604		$	594,154		$	606,988		$	2,465,560		$	646,458		$	632,156		$	609,452		$	637,008		$	2,525,074

Nursing center division		253,209			248,444			249,702			254,028			1,005,383			262,590			264,437			263,897			271,625			1,062,549

Rehabilitation division:
Skilled nursing rehabilitation services		258,460			249,372			245,046			243,029			995,907			253,943			253,694			246,732			252,667			1,007,036
Hospital rehabilitation services		74,523			69,777			68,296			74,017			286,613			73,964			75,324			74,808			75,099			299,195

		332,983			319,149			313,342			317,046			1,282,520			327,907			329,018			321,540			327,766			1,306,231


Care management division		51,621			53,039			53,801			66,466			224,927			87,704			87,986			86,186			87,126			349,002

		1,295,627			1,227,236			1,210,999			1,244,528			4,978,390			1,324,659			1,313,597			1,281,075			1,323,525			5,242,856

Eliminations:
Skilled nursing rehabilitation services		(27,065	)		(27,097	)		(26,628	)		(26,640	)		(107,430	)		(28,154	)		(28,485	)		(29,209	)		(34,960	)		(120,808	)
Hospital rehabilitation services		(23,609	)		(23,223	)		(22,520	)		(22,123	)		(91,475	)		(23,233	)		(22,855	)		(22,172	)		(22,972	)		(91,232	)
Nursing centers		(1,213	)		(1,001	)		(1,161	)		(875	)		(4,250	)		(662	)		(860	)		(776	)		(919	)		(3,217	)

		(51,887	)		(51,321	)		(50,309	)		(49,638	)		(203,155	)		(52,049	)		(52,200	)		(52,157	)		(58,851	)		(215,257	)

	$	1,243,740		$	1,175,915		$	1,160,690		$	1,194,890		$	4,775,235		$	1,272,610		$	1,261,397		$	1,228,918		$	1,264,674		$	5,027,599


Income (loss) from continuing operations:
Operating income (loss):
Hospital division	$	147,493	(a)	$	129,366		$	112,483	(c)	$	126,788	(i)	$	516,130		$	145,395		$	132,878	(k)	$	121,744	(o)	$	138,823	(q)	$	538,840

Nursing center division		27,168	(a)		33,944			29,978			33,766			124,856			37,572			35,409	(l)		35,437	(o)		38,310	(q)		146,728

Rehabilitation division:
Skilled nursing rehabilitation services		12,949	(a)		21,348			(7,493	) (d)		14,009	(j)		40,813			18,016			19,687	(l)		17,242	(o)		16,029			70,974
Hospital rehabilitation services		18,132	(a)		19,573			18,215	(e)		18,005	(j)		73,925			19,820			20,084	(l)		18,273	(p)		19,534			77,711

		31,081			40,921			10,722			32,014			114,738			37,836			39,771			35,515			35,563			148,685


Care management division		2,786	(a)		3,961			1,085	(f)		2,131	(j)		9,963			4,697			7,065	(l)		6,789	(o)		6,988	(q,r)		25,539

Corporate:
Overhead		(45,585	) (a)		(43,196	)		(39,157	) (g)		(48,557	) (j)		(176,495	)		(44,050	)		(48,365	) (l)		(45,173	) (o)		(63,642	) (q,s)		(201,230	)
Insurance subsidiary		(509	)		(384	)		(482	)		(539	)		(1,914	)		(406	)		(443	)		(637	)		(359	)		(1,845	)

		(46,094	)		(43,580	)		(39,639	)		(49,096	)		(178,409	)		(44,456	)		(48,808	)		(45,810	)		(64,001	)		(203,075	)

Impairment charges		(187	)		(438	)		(441	)		(76,127	)		(77,193	)		—			—			—			—			—
Transaction costs		(944	)		(108	)		(613	)		(447	)		(2,112	)		(683	)		(4,496	)		(4,114	)		(8,690	)		(17,983	)

Operating income (EBITDAR)		161,303			164,066			113,575			69,029			507,973			180,361			161,819			149,561			146,993			638,734
Rent		(74,259	)		(75,040	)		(74,495	)		(78,398	)		(302,192	)		(78,530	)		(77,699	) (m)		(77,643	)		(79,167	)		(313,039	)

EBITDA		87,044			89,026			39,080			(9,369	)		205,781			101,831			84,120			71,918			67,826			325,695
Depreciation and amortization		(41,089	)		(38,241	)		(36,297	)		(37,318	)		(152,945	)		(39,092	)		(39,172	)		(38,748	)		(38,558	)		(155,570	)
Interest, net		(28,074	)		(27,601	) (b)		(24,389	) (h)		(23,898	)		(103,962	)		(25,617	)		(78,081	) (n)		(22,171	)		(38,898	) (t)		(164,767	)

Income (loss) from continuing operations before income taxes		17,881			23,184			(21,606	)		(70,585	)		(51,126	)		37,122			(33,133	)		10,999			(9,630	)		5,358
Provision (benefit) for income taxes		6,702			9,305			(6,249	)		(20,251	)		(10,493	)		14,195			(12,683	)		3,777			(4,827	)		462

	$	11,179		$	13,879		$	(15,357	)	$	(50,334	)	$	(40,633	)	$	22,927		$	(20,450	)	$	7,222		$	(4,803	)	$	4,896

(a)

Includes one-time bonus costs of $19.6 million (hospital division - $7.8 million, nursing center division - $4.4 million, rehabilitation division - $6.3 million (skilled nursing rehabilitation services - $5.0 million and hospital rehabilitation services - $1.3 million), care management division - $0.8 million and corporate - $0.3 million).

(b)	Includes $1.4 million of charges associated with the modification of certain of the Company’s senior debt.

(c)	Includes costs of $5.5 million in connection with the closing of a transitional care (“TC”) hospital and a litigation charge of $0.7 million.

(d)	Includes $23.1 million of litigation charges.

(e)	Includes $0.3 million of severance and retirement costs.

(f)	Includes $0.6 million of severance and retirement costs and $0.5 million of costs associated with closing a home health location.

(g)	Includes $1.0 million of severance and retirement costs and $0.5 million of fees associated with the modification of certain of the Company’s senior debt.

(h)	Includes $0.1 million of charges associated with the modification of certain of the Company’s senior debt.

(i)	Includes costs of $0.5 million in connection with the closing of a TC hospital and a litigation charge of $7.0 million.

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

(k)	Includes litigation costs of $4.6 million.

(l)

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).

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

(n)	Includes $56.6 million of charges associated with debt refinancing.

(o)

Includes severance costs of $1.8 million and other operating (income) expenses of ($0.1) million related to restructuring activities (hospital division - $0.6 million, nursing center division - $0.5 million, skilled nursing rehabilitation services - ($0.2) million, care management division - $0.4 million and corporate - $0.4 million).

(p)	Includes $1.9 million allowance for doubtful account related to a customer bankruptcy.

(q)	Includes severance and retirement costs of $11.7 million (hospital division - $0.3 million, nursing center division - $0.5 million, care management division - $0.7 million and corporate - $10.2 million).

(r)	Includes $0.2 million of costs associated with closing a home health location.

(s)	Includes $2.5 million of consulting fees related to new long-term acute care (“LTAC”) criteria rule.

(t)	Includes $17.0 million of Gentiva pre-closing financing charges.

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 12

February 26, 2015

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)


	2013 Quarters										2014 Quarters
	First		Second		Third		Fourth		Year		First		Second		Third		Fourth		Year
Hospital division data:
End of period data:
Number of hospitals:
Transitional care		97		97		97		97				97		97		97		97
Inpatient rehabilitation		5		5		5		5				5		5		5		5

		102		102		102		102				102		102		102		102


Number of licensed beds:
Transitional care		7,059		7,059		7,073		7,105				7,145		7,145		7,145		7,147
Inpatient rehabilitation		215		215		215		215				215		215		215		215

		7,274		7,274		7,288		7,320				7,360		7,360		7,360		7,362


Revenue mix %:
Medicare		62.5		60.7		59.1		59.3		60.5		60.2		58.9		57.6		57.5		58.6
Medicaid		5.4		5.9		6.9		6.2		6.1		6.5		6.6		6.7		5.9		6.4
Medicare Advantage		10.2		11.1		11.1		11.7		11.0		11.2		11.0		10.4		10.4		10.8
Medicaid Managed		1.9		1.9		2.0		1.9		1.9		2.3		2.9		3.7		4.4		3.3
Commercial insurance and other		20.0		20.4		20.9		20.9		20.5		19.8		20.6		21.6		21.8		20.9

Admissions:
Medicare		10,274		9,432		9,010		9,255		37,971		9,858		9,410		9,221		9,268		37,757
Medicaid		685		744		788		712		2,929		835		914		831		762		3,342
Medicare Advantage		1,519		1,474		1,422		1,450		5,865		1,515		1,449		1,305		1,430		5,699
Medicaid Managed		209		208		225		252		894		317		381		511		573		1,782
Commercial insurance and other		1,951		1,869		1,874		1,818		7,512		2,107		2,055		1,873		1,893		7,928

		14,638		13,727		13,319		13,487		55,171		14,632		14,209		13,741		13,926		56,508


Admissions mix %:
Medicare		70.2		68.7		67.6		68.6		68.8		67.4		66.2		67.1		66.5		66.8
Medicaid		4.7		5.4		5.9		5.3		5.3		5.7		6.4		6.1		5.5		5.9
Medicare Advantage		10.4		10.8		10.7		10.7		10.7		10.3		10.2		9.5		10.3		10.1
Medicaid Managed		1.4		1.5		1.7		1.9		1.6		2.2		2.7		3.7		4.1		3.2
Commercial insurance and other		13.3		13.6		14.1		13.5		13.6		14.4		14.5		13.6		13.6		14.0

Patient days:
Medicare		252,195		234,490		223,639		226,662		936,986		239,759		230,122		222,704		229,475		922,060
Medicaid		28,765		30,425		31,569		29,799		120,558		32,909		32,821		30,786		30,669		127,185
Medicare Advantage		43,016		43,040		41,842		43,784		171,682		44,979		44,094		40,901		42,253		172,227
Medicaid Managed		8,808		8,342		8,264		8,238		33,652		10,733		13,247		16,595		20,023		60,598
Commercial insurance and other		63,227		57,091		59,575		57,334		237,227		62,858		61,892		60,187		62,899		247,836

		396,011		373,388		364,889		365,817		1,500,105		391,238		382,176		371,173		385,319		1,529,906


Average length of stay:
Medicare		24.5		24.9		24.8		24.5		24.7		24.3		24.5		24.2		24.8		24.4
Medicaid		42.0		40.9		40.1		41.9		41.2		39.4		35.9		37.0		40.2		38.1
Medicare Advantage		28.3		29.2		29.4		30.2		29.3		29.7		30.4		31.3		29.5		30.2
Medicaid Managed		42.1		40.1		36.7		32.7		37.6		33.9		34.8		32.5		34.9		34.0
Commercial insurance and other		32.4		30.5		31.8		31.5		31.6		29.8		30.1		32.1		33.2		31.3
Weighted average		27.1		27.2		27.4		27.1		27.2		26.7		26.9		27.0		27.7		27.1

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 13

February 26, 2015

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


	2013 Quarters										2014 Quarters
	First		Second		Third		Fourth		Year		First		Second		Third		Fourth		Year
Hospital division data (continued):
Revenues per admission:
Medicare	$	40,051	$	39,004	$	38,993	$	38,869	$	39,252	$	39,482	$	39,559	$	38,088	$	39,517	$	39,170
Medicaid		51,450		48,221		51,934		52,635		51,048		50,201		45,392		49,204		49,218		48,413
Medicare Advantage		44,326		45,709		46,429		49,051		46,352		47,739		48,067		48,586		46,235		47,639
Medicaid Managed		58,770		55,496		52,771		46,112		52,930		47,781		48,953		44,406		48,647		47,342
Commercial insurance and other		67,389		66,306		66,170		69,876		67,417		60,679		63,315		70,078		73,570		66,661
Weighted average		44,939		44,190		44,609		45,006		44,689		44,181		44,490		44,353		45,742		44,685

Revenues per patient day:
Medicare	$	1,632	$	1,569	$	1,571	$	1,587	$	1,591	$	1,623	$	1,618	$	1,577	$	1,596	$	1,604
Medicaid		1,225		1,179		1,296		1,258		1,240		1,274		1,264		1,328		1,223		1,272
Medicare Advantage		1,565		1,565		1,578		1,624		1,583		1,608		1,580		1,550		1,565		1,576
Medicaid Managed		1,395		1,384		1,437		1,411		1,406		1,411		1,408		1,367		1,392		1,392
Commercial insurance and other		2,079		2,171		2,081		2,216		2,135		2,034		2,102		2,181		2,214		2,132
Weighted average		1,661		1,625		1,628		1,659		1,644		1,652		1,654		1,642		1,653		1,650

Medicare case mix index (discharged patients only)		1.18		1.18		1.16		1.16		1.17		1.17		1.18		1.16		1.14		1.16

Average daily census		4,400		4,103		3,966		3,976		4,110		4,347		4,200		4,034		4,188		4,192
Occupancy %		68.3		63.5		61.1		61.4		63.5		67.4		64.9		62.3		64.7		64.8

Annualized employee turnover %		22.1		21.7		21.4		21.3				20.7		20.8		21.5		21.6

Nursing center division data:
End of period data:
Number of facilities:
Nursing centers:
Owned or leased		85		85		85		85				85		85		86		86
Managed		4		4		4		4				4		4		4		4
Assisted living facilities		6		6		6		6				6		6		6		7

		95		95		95		95				95		95		96		97

Number of licensed beds:
Nursing centers:
Owned or leased		11,018		11,018		11,018		11,018				11,018		11,006		11,090		11,050
Managed		485		485		485		485				485		485		485		485
Assisted living facilities		341		341		341		341				341		341		341		375

		11,844		11,844		11,844		11,844				11,844		11,832		11,916		11,910

Revenue mix %:
Medicare		35.5		34.5		33.7		32.5		34.1		32.6		32.2		31.4		32.0		32.0
Medicaid		35.1		35.7		38.1		39.3		37.0		39.9		39.4		39.7		39.7		39.6
Medicare Advantage		8.3		8.4		7.3		7.9		8.0		8.7		8.1		8.7		7.9		8.4
Medicaid Managed		3.5		3.6		3.7		3.6		3.6		3.2		3.7		4.7		4.7		4.1
Private and other		17.6		17.8		17.2		16.7		17.3		15.6		16.6		15.5		15.7		15.9

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 14

February 26, 2015

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


	2013 Quarters										2014 Quarters
	First		Second		Third		Fourth		Year		First		Second		Third		Fourth		Year
Nursing center division data (continued):
Patient days (a):
Medicare		158,941		151,538		147,864		141,116		599,459		143,228		142,670		138,158		144,357		568,413
Medicaid		466,432		466,044		474,196		481,742		1,888,414		477,823		469,800		468,832		467,796		1,884,251
Medicare Advantage		48,919		48,512		42,531		46,155		186,117		51,407		48,248		52,411		48,366		200,432
Medicaid Managed		50,692		51,038		52,420		51,893		206,043		48,422		54,396		69,156		69,243		241,217
Private and other		150,499		150,228		150,454		146,719		597,900		140,460		143,658		136,858		142,214		563,190

		875,483		867,360		867,465		867,625		3,477,933		861,340		858,772		865,415		871,976		3,457,503


Patient day mix % (a):
Medicare		18.1		17.5		17.1		16.3		17.2		16.6		16.6		16.0		16.6		16.4
Medicaid		53.3		53.7		54.7		55.5		54.3		55.5		54.7		54.2		53.7		54.5
Medicare Advantage		5.6		5.6		4.9		5.3		5.4		6.0		5.6		6.0		5.5		5.8
Medicaid Managed		5.8		5.9		6.0		6.0		5.9		5.6		6.4		8.0		7.9		7.0
Private and other		17.2		17.3		17.3		16.9		17.2		16.3		16.7		15.8		16.3		16.3

Revenues per patient day (a):
Medicare Part A	$	530	$	528	$	528	$	543	$	532	$	554	$	553	$	553	$	560	$	555
Total Medicare (including Part B)		566		566		569		586		571		597		598		599		602		599
Medicaid		190		190		201		207		197		219		222		223		230		224
Medicaid (net of provider taxes) (b)		168		168		179		185		175		197		200		205		211		203
Medicare Advantage		430		433		431		437		433		445		444		440		445		443
Medicaid Managed		174		174		174		177		175		176		179		179		184		180
Private and other		296		294		286		288		291		292		306		299		300		299
Weighted average		289		286		288		293		289		305		308		305		312		307

Average daily census (a)		9,728		9,531		9,429		9,431		9,529		9,570		9,437		9,407		9,478		9,473
Admissions (a)		10,202		9,579		9,273		9,352		38,406		9,789		9,621		9,746		9,616		38,772
Occupancy % (a)		83.5		81.7		80.7		80.5		81.6		81.7		80.7		80.1		80.5		80.7
Medicare average length of stay (a)		30.3		30.9		31.7		31.5		31.1		29.6		29.8		29.9		29.0		29.6

Annualized employee turnover %		41.4		44.2		44.1		42.5				39.0		42.1		42.9		42.4

Rehabilitation division data:
Skilled nursing rehabilitation services:
Revenue mix %:
Company-operated		10		11		11		11		11		11		11		12		14		12
Non-affiliated		90		89		89		89		89		89		89		88		86		88

Sites of service (at end of period)		1,729		1,713		1,768		1,806				1,851		1,863		1,896		1,935
Revenue per site	$	149,486	$	145,576	$	138,601	$	134,568	$	568,231	$	137,193	$	136,175	$	130,133	$	130,576	$	534,077

Therapist productivity %		81.1		80.4		79.8		79.5		80.2		80.0		79.8		79.6		79.0		79.6

Hospital rehabilitation services:
Revenue mix %:
Company-operated		32		33		33		30		32		31		30		30		31		30
Non-affiliated		68		67		67		70		68		69		70		70		69		70

Sites of service (at end of period):
Inpatient rehabilitation units		103		103		99		104				105		104		102		100
LTAC hospitals		123		123		122		121				121		118		117		117
Sub-acute units		8		8		7		10				10		9		10		10
Outpatient units		98		104		104		144				143		143		139		138

		332		338		332		379				379		374		368		365


Revenue per site	$	224,466	$	206,441	$	205,711	$	195,296	$	831,914	$	195,157	$	201,400	$	203,284	$	205,749	$	805,590

Annualized employee turnover %		10.4		13.2		14.0		13.7				12.5		14.7		15.7		15.7

(a)	Excludes managed facilities.

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

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 15

February 26, 2015

KINDRED HEALTHCARE, INC.

Loss Per Common Share Reconciliation (a)

(In thousands, except per share amounts)


	Three months ended December 31,												Year ended December 31,
	2014						2013						2014						2013
	Basic			Diluted			Basic			Diluted			Basic			Diluted			Basic			Diluted
Loss:
Amounts attributable to Kindred stockholders:
Loss from continuing operations:
As reported in Statement of Operations	$	(9,946	)	$	(9,946	)	$	(52,800	)	$	(52,800	)	$	(13,976	)	$	(13,976	)	$	(44,523	)	$	(44,523	)
Allocation to participating unvested restricted stockholders		—			—			—			—			—			—			—			—

Available to common stockholders	$	(9,946	)	$	(9,946	)	$	(52,800	)	$	(52,800	)	$	(13,976	)	$	(13,976	)	$	(44,523	)	$	(44,523	)


Discontinued operations, net of income taxes:
Loss from operations:
As reported in Statement of Operations	$	(28,677	)	$	(28,677	)	$	(7,502	)	$	(7,502	)	$	(53,163	)	$	(53,163	)	$	(40,082	)	$	(40,082	)
Allocation to participating unvested restricted stockholders		—			—			—			—			—			—			—			—

Available to common stockholders	$	(28,677	)	$	(28,677	)	$	(7,502	)	$	(7,502	)	$	(53,163	)	$	(53,163	)	$	(40,082	)	$	(40,082	)

Loss on divestiture of operations:
As reported in Statement of Operations	$	(9,061	)	$	(9,061	)	$	(5,994	)	$	(5,994	)	$	(12,698	)	$	(12,698	)	$	(83,887	)	$	(83,887	)
Allocation to participating unvested restricted stockholders		—			—			—			—			—			—			—			—

Available to common stockholders	$	(9,061	)	$	(9,061	)	$	(5,994	)	$	(5,994	)	$	(12,698	)	$	(12,698	)	$	(83,887	)	$	(83,887	)

Loss from discontinued operations:
As reported in Statement of Operations	$	(37,738	)	$	(37,738	)	$	(13,496	)	$	(13,496	)	$	(65,861	)	$	(65,861	)	$	(123,969	)	$	(123,969	)
Allocation to participating unvested restricted stockholders		—			—			—			—			—			—			—			—

Available to common stockholders	$	(37,738	)	$	(37,738	)	$	(13,496	)	$	(13,496	)	$	(65,861	)	$	(65,861	)	$	(123,969	)	$	(123,969	)

Net loss:
As reported in Statement of Operations	$	(47,684	)	$	(47,684	)	$	(66,296	)	$	(66,296	)	$	(79,837	)	$	(79,837	)	$	(168,492	)	$	(168,492	)
Allocation to participating unvested restricted stockholders		—			—			—			—			—			—			—			—

Available to common stockholders	$	(47,684	)	$	(47,684	)	$	(66,296	)	$	(66,296	)	$	(79,837	)	$	(79,837	)	$	(168,492	)	$	(168,492	)


Shares used in the computation:
Weighted average shares outstanding - basic computation		65,135			65,135			52,344			52,344			58,634			58,634			52,249			52,249

Dilutive effect of employee stock options					—						—						—						—
Dilutive effect of performance-based restricted shares					—						—						—						—
Dilutive effect of tangible equity units					—						—						—						—

Adjusted weighted average shares outstanding - diluted computation					65,135						52,344						58,634						52,249


Loss per common share:
Loss from continuing operations	$	(0.15	)	$	(0.15	)	$	(1.01	)	$	(1.01	)	$	(0.24	)	$	(0.24	)	$	(0.85	)	$	(0.85	)
Discontinued operations:
Loss from operations		(0.44	)		(0.44	)		(0.15	)		(0.15	)		(0.91	)		(0.91	)		(0.77	)		(0.77	)
Loss on divestiture of operations		(0.14	)		(0.14	)		(0.11	)		(0.11	)		(0.21	)		(0.21	)		(1.61	)		(1.61	)

Loss from discontinued operations		(0.58	)		(0.58	)		(0.26	)		(0.26	)		(1.12	)		(1.12	)		(2.38	)		(2.38	)

Net loss	$	(0.73	)	$	(0.73	)	$	(1.27	)	$	(1.27	)	$	(1.36	)	$	(1.36	)	$	(3.23	)	$	(3.23	)

(a)

Loss per common share is based upon the weighted average number of common shares outstanding during the respective periods. The Company follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method. However, because the Company reported a loss from continuing operations, there was no allocation to participating unvested restricted stockholders for all periods presented.

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 16

February 26, 2015

KINDRED HEALTHCARE, INC.

Reconciliation of Kindred Non-GAAP Measurements to GAAP Results

(Unaudited)

(In thousands, except per share amounts and statistics)

The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 33.1% and 28.7% for the three months ended December 31, 2014 and 2013, respectively, and 35.4% and 30.7% for the year ended December 31, 2014 and 2013, respectively. The difference in the effective income tax rate for the three months and year ended December 31, 2014 compared to the same prior year periods is attributable to the composition of charges that are non-deductible for income tax purposes.

The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges for the three months and year ended December 31, 2014 and 2013 that are not representative of its ongoing operations due to the materiality. The Company’s core operating results also represent a key performance measure for the purpose of evaluating performance internally. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures.


	Three months ended						Year ended
	December 31,						December 31,
	2014			2013			2014			2013
Detail of charges:
One-time bonus costs	$	—		$	—		$	—		($	19,585	)
Severance, retirement and other restructuring costs		(11,745	)		(3,663	)		(18,381	)		(5,557	)
Customer bankruptcy		—			—			(1,857	)		—
Facility closing costs		(200	)		(499	)		(200	)		(6,542	)
Litigation costs		—			(7,000	)		(4,600	)		(30,850	)
Debt refinancing charges (other operating expenses)		—			—			—			(459	)
Consulting fees related to new LTAC criteria rule		(2,460	)		—			(2,460	)		—
Impairment charges		—			(76,082	)		—			(76,082	)
Transaction costs		(8,690	)		(447	)		(17,983	)		(2,112	)
Lease cancellation charges (rent expense)		—			—			(247	)		—
Gentiva pre-closing financing charges (interest expense)		(17,041	)		—			(17,041	)		—
Debt refinancing charges (interest expense)		—			—			(56,643	)		(1,461	)

		(40,136	)		(87,691	)		(119,412	)		(142,648	)
Income tax benefit		13,298			25,165			42,234			43,792

Charges net of income taxes		(26,838	)		(62,526	)		(77,178	)		(98,856	)
Allocation to participating unvested restricted stockholders		—			—			—			—

Available to common stockholders	($	26,838	)	($	62,526	)	($	77,178	)	($	98,856	)


Weighted average diluted shares outstanding		65,135			52,344			58,634			52,249


Diluted loss per common share related to charges	($	0.41	)	($	1.19	)	($	1.32	)	($	1.89	)


Reconciliation of operating income (EBITDAR) before charges:
Operating income (EBITDAR) before charges	$	170,088		$	156,720		$	684,215		$	649,160
Detail of charges excluded from core operating results:
One-time bonus costs		—			—			—			(19,585	)
Severance, retirement and other restructuring costs		(11,745	)		(3,663	)		(18,381	)		(5,557	)
Customer bankruptcy		—			—			(1,857	)		—
Facility closing costs		(200	)		(499	)		(200	)		(6,542	)
Litigation costs		—			(7,000	)		(4,600	)		(30,850	)
Debt refinancing charges (other operating expenses)		—			—			—			(459	)
Consulting fees related to LTAC criteria		(2,460	)		—			(2,460	)		—
Impairment charges		—			(76,082	)		—			(76,082	)
Transaction costs		(8,690	)		(447	)		(17,983	)		(2,112	)

		(23,095	)		(87,691	)		(45,481	)		(141,187	)

Reported operating income (EBITDAR)	$	146,993		$	69,029		$	638,734		$	507,973


Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges	$	16,892		$	9,726		$	63,202		$	54,333
Charges net of income taxes		(26,838	)		(62,526	)		(77,178	)		(98,856	)

Reported loss from continuing operations	($	9,946	)	($	52,800	)	($	13,976	)	($	44,523	)

Reconciliation of diluted earnings per common share from continuing operations before charges:
Diluted earnings per common share before charges (a)	$	0.26		$	0.18		$	1.06		$	1.00
Charges net of income taxes		(0.41	)		(1.19	)		(1.32	)		(1.89	)
Other		—			—			0.02			0.04

Reported diluted loss per common share from continuing operations	($	0.15	)	($	1.01	)	($	0.24	)	($	0.85	)

Weighted average diluted shares used to compute earnings per common share from continuing operations before charges (b)		63,163			52,461			58,210			52,315


Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges		27.8	%		28.7	%		34.2	%		36.4	%
Impact of charges on effective income tax rate		22.3	%		0.0	%		-25.6	%		-15.9	%

Reported effective income tax rate		50.1	%		28.7	%		8.6	%		20.5	%

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.4 million and $0.3 million for the three months ended December 31, 2014 and 2013, respectively, and $1.7 million for each of the years ended December 31, 2014 and 2013 for the allocation of income to participating unvested restricted stockholders.

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

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 17

February 26, 2015

KINDRED HEALTHCARE, INC.

Reconciliation of Kindred Non-GAAP Measurements to GAAP Results (Continued)

(Unaudited)

(In thousands, except per share amounts and statistics)

A reconciliation of adjusted core earnings follows.


	Year ended December 31, 2014
Reconciliation of adjusted core earnings:
Income from continuing operations before charges (as calculated and reconciled to GAAP measurement on previous page)	$	63,202
Add back non-cash expenses:
Amortization of intangible assets		21,666
Amortization of stock-based compensation costs		14,330
Amortization of deferred financing costs		8,373

		44,369
Income tax benefit related to non-cash expenses		17,459

Non-cash expenses, net of income taxes		26,910

Adjusted core earnings	$	90,112

Reconciliation of diluted adjusted core earnings from continuing operations:
Diluted income per common share before charges (as calculated on previous page)	$	1.06
Non-cash expenses, net of income taxes		0.45

Diluted adjusted core earnings per common share from continuing operations	$	1.51


Weighted average diluted shares used to compute adjusted core earnings per common share		58,210

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 18

February 26, 2015

KINDRED HEALTHCARE, INC.

Reconciliation of Kindred Non-GAAP Measurements to GAAP Results (Continued)

(Unaudited)

(In thousands)


	Three months ended December 31, 2014
				Charges
				Severance			LTAC			Gentiva
	Before			and other			criteria			pre-closing			Transaction						As
	charges			restructuring			consulting			financing			costs			Total			reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division	$	139,141		$	(318	)	$	—		$	—		$	—		$	(318	)	$	138,823

Nursing center division		38,810			(500	)		—			—			—			(500	)		38,310

Rehabilitation division:
Skilled nursing rehabilitation services		16,029			—			—			—			—			—			16,029
Hospital rehabilitation services		19,534			—			—			—			—			—			19,534

		35,563			—			—			—			—			—			35,563


Care management division		7,922			(934	)		—			—			—			(934	)		6,988

Corporate:
Overhead		(50,989	)		(10,193	)		(2,460	)		—			—			(12,653	)		(63,642	)
Insurance subsidiary		(359	)		—			—			—			—			—			(359	)

		(51,348	)		(10,193	)		(2,460	)		—			—			(12,653	)		(64,001	)

Transaction costs		—			—			—			—			(8,690	)		(8,690	)		(8,690	)

Operating income (EBITDAR)		170,088			(11,945	)		(2,460	)		—			(8,690	)		(23,095	)		146,993
Rent		(79,167	)		—			—			—			—			—			(79,167	)

EBITDA		90,921			(11,945	)		(2,460	)		—			(8,690	)		(23,095	)		67,826
Depreciation and amortization		(38,558	)		—			—			—			—			—			(38,558	)
Interest, net		(21,857	)		—			—			(17,041	)		—			(17,041	)		(38,898	)

Income (loss) from continuing operations before income taxes		30,506			(11,945	)		(2,460	)		(17,041	)		(8,690	)		(40,136	)		(9,630	)
Provision (benefit) for income taxes		8,471			(4,251	)		(875	)		(5,975	)		(2,197	)		(13,298	)		(4,827	)

	$	22,035		$	(7,694	)	$	(1,585	)	$	(11,066	)	$	(6,493	)	$	(26,838	)	$	(4,803	)


	Three months ended December 31, 2013
				Charges
				Severance
	Before			and			Facility						Impairment			Transaction						As
	charges			retirement			closing			Litigation			charges			costs			Total			reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division	$	134,287		$	—		$	(499	)	$	(7,000	)	$	—		$	—		$	(7,499	)	$	126,788

Nursing center division		33,766			—			—			—			—			—			—			33,766

Rehabilitation division:
Skilled nursing rehabilitation services		14,148			(139	)		—			—			—			—			(139	)		14,009
Hospital rehabilitation services		19,093			(1,088	)		—			—			—			—			(1,088	)		18,005

		33,241			(1,227	)		—			—			—			—			(1,227	)		32,014


Care management division		2,206			(75	)		—			—			—			—			(75	)		2,131

Corporate:
Overhead		(46,196	)		(2,361	)		—			—			—			—			(2,361	)		(48,557	)
Insurance subsidiary		(539	)		—			—			—			—			—			—			(539	)

		(46,735	)		(2,361	)		—			—			—			—			(2,361	)		(49,096	)

Impairment charges		(45	)		—			—			—			(76,082	)		—			(76,082	)		(76,127	)
Transaction costs		—			—			—			—			—			(447	)		(447	)		(447	)

Operating income (EBITDAR)		156,720			(3,663	)		(499	)		(7,000	)		(76,082	)		(447	)		(87,691	)		69,029
Rent		(78,398	)		—			—			—			—			—			—			(78,398	)

EBITDA		78,322			(3,663	)		(499	)		(7,000	)		(76,082	)		(447	)		(87,691	)		(9,369	)
Depreciation and amortization		(37,318	)		—			—			—			—			—			—			(37,318	)
Interest, net		(23,898	)		—			—			—			—			—			—			(23,898	)

Income (loss) from continuing operations before income taxes		17,106			(3,663	)		(499	)		(7,000	)		(76,082	)		(447	)		(87,691	)		(70,585	)
Provision (benefit) for income taxes		4,914			(1,147	)		(156	)		(9,438	)		(14,163	)		(261	)		(25,165	)		(20,251	)

	$	12,192		$	(2,516	)	$	(343	)	$	2,438		$	(61,919	)	$	(186	)	$	(62,526	)	$	(50,334	)

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 19

February 26, 2015

KINDRED HEALTHCARE, INC.

Reconciliation of Kindred Non-GAAP Measurements to GAAP Results (Continued)

(Unaudited)

(In thousands)


	Year ended December 31, 2014
				Charges
				Severance									LTAC			Gentiva
	Before			and other			Customer						criteria			pre-closing			Debt			Transaction						As
	charges			restructuring			bankruptcy			Litigation			consulting			financing			refinancing			costs			Total			reported
Income from continuing operations:
Operating income (loss):
Hospital division	$	544,375		$	(935	)	$	—		$	(4,600	)	$	—		$	—		$	—		$	—		$	(5,535	)	$	538,840

Nursing center division		150,916			(4,188	)		—			—			—			—			—			—			(4,188	)		146,728

Rehabilitation division:
Skilled nursing rehabilitation services		70,988			(14	)		—			—			—			—			—			—			(14	)		70,974
Hospital rehabilitation services		79,738			(170	)		(1,857	)		—			—			—			—			—			(2,027	)		77,711

		150,726			(184	)		(1,857	)		—			—			—			—			—			(2,041	)		148,685


Care management division		27,637			(2,098	)		—			—			—			—			—			—			(2,098	)		25,539

Corporate:
Overhead		(187,594	)		(11,176	)		—			—			(2,460	)		—			—			—			(13,636	)		(201,230	)
Insurance subsidiary		(1,845	)		—			—			—			—			—			—			—			—			(1,845	)

		(189,439	)		(11,176	)		—			—			(2,460	)		—			—			—			(13,636	)		(203,075	)

Transaction costs		—			—			—			—			—			—			—			(17,983	)		(17,983	)		(17,983	)

Operating income (EBITDAR)		684,215			(18,581	)		(1,857	)		(4,600	)		(2,460	)		—			—			(17,983	)		(45,481	)		638,734
Rent		(312,792	)		(247	)		—			—			—			—			—			—			(247	)		(313,039	)

EBITDA		371,423			(18,828	)		(1,857	)		(4,600	)		(2,460	)		—			—			(17,983	)		(45,728	)		325,695
Depreciation and amortization		(155,570	)		—			—			—			—			—			—			—			—			(155,570	)
Interest, net		(91,083	)		—			—			—			—			(17,041	)		(56,643	)		—			(73,684	)		(164,767	)

Income from continuing operations before income taxes		124,770			(18,828	)		(1,857	)		(4,600	)		(2,460	)		(17,041	)		(56,643	)		(17,983	)		(119,412	)		5,358
Provision for income taxes		42,696			(7,156	)		(706	)		(1,748	)		(935	)		(6,381	)		(21,528	)		(3,780	)		(42,234	)		462

	$	82,074		$	(11,672	)	$	(1,151	)	$	(2,852	)	$	(1,525	)	$	(10,660	)	$	(35,115	)	$	(14,203	)	$	(77,178	)	$	4,896


	Year ended December 31, 2013
				Charges
							Severance
	Before			One-time			and			Facility						Debt			Impairment			Transaction						As
	charges			bonus			retirement			closing			Litigation			refinancing			charges			costs			Total			reported
Income (loss) from continuing operations:
Operating income (loss):
Hospital division	$	537,619		$	(7,763	)	$	—		$	(6,026	)	$	(7,700	)	$	—		$	—		$	—		$	(21,489	)	$	516,130

Nursing center division		129,287			(4,367	)		—			(64	)		—			—			—			—			(4,431	)		124,856

Rehabilitation division:
Skilled nursing rehabilitation services		69,154			(5,052	)		(139	)		—			(23,150	)		—			—			—			(28,341	)		40,813
Hospital rehabilitation services		76,556			(1,255	)		(1,376	)		—			—			—			—			—			(2,631	)		73,925

		145,710			(6,307	)		(1,515	)		—			(23,150	)		—			—			—			(30,972	)		114,738


Care management division		11,924			(833	)		(676	)		(452	)		—			—			—			—			(1,961	)		9,963

Corporate:
Overhead		(172,355	)		(315	)		(3,366	)		—			—			(459	)		—			—			(4,140	)		(176,495	)
Insurance subsidiary		(1,914	)		—			—			—			—			—			—			—			—			(1,914	)

		(174,269	)		(315	)		(3,366	)		—			—			(459	)		—			—			(4,140	)		(178,409	)

Impairment charges		(1,111	)		—			—			—			—			—			(76,082	)		—			(76,082	)		(77,193	)
Transaction costs		—			—			—			—			—			—			—			(2,112	)		(2,112	)		(2,112	)

Operating income (EBITDAR)		649,160			(19,585	)		(5,557	)		(6,542	)		(30,850	)		(459	)		(76,082	)		(2,112	)		(141,187	)		507,973
Rent		(302,192	)		—			—			—			—			—			—						—			(302,192	)

EBITDA		346,968			(19,585	)		(5,557	)		(6,542	)		(30,850	)		(459	)		(76,082	)		(2,112	)		(141,187	)		205,781
Depreciation and amortization		(152,945	)		—			—			—			—			—			—			—			—			(152,945	)
Interest, net		(102,501	)		—			—			—			—			(1,461	)		—			—			(1,461	)		(103,962	)

Income (loss) from continuing operations before income taxes		91,522			(19,585	)		(5,557	)		(6,542	)		(30,850	)		(1,920	)		(76,082	)		(2,112	)		(142,648	)		(51,126	)
Provision (benefit) for income taxes		33,299			(7,696	)		(2,184	)		(2,310	)		(12,123	)		(754	)		(17,779	)		(946	)		(43,792	)		(10,493	)

	$	58,223		$	(11,889	)	$	(3,373	)	$	(4,232	)	$	(18,727	)	$	(1,166	)	$	(58,303	)	$	(1,166	)	$	(98,856	)	$	(40,633	)

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 20

February 26, 2015

KINDRED HEALTHCARE, INC.

Reconciliation of Kindred Non-GAAP Measurements to GAAP Results (Continued)

(Unaudited)

(In thousands)

The Company recognizes that operating cash flows and free cash flows excluding certain items are non-GAAP measurements and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses operating cash flows and 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 26.8% and 40.1% for the three months ended December 31, 2014 and 2013, respectively, and 29.8% and 36.1% for the year ended December 31, 2014 and 2013, respectively. The difference in the effective income tax rate for the three months and year ended December 31, 2014 compared to the same prior year periods is attributable to the composition of excludable payments that are non-deductible for income tax purposes.


	Three months ended						Year ended
	December 31,						December 31,
	2014			2013			2014			2013

Reconciliation of net cash flows provided by operating activities to free cash flows:
Net cash flows provided by operating activities	$	81,149		$	10,195		$	105,471		$	199,412
Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows provided by operating activities:
Litigation		—			—			25,850			—
One-time employee bonus		—			—			—			26,345
Ventas lease maintenance payment		2,500			—			2,500			—
Ventas lease cancellation fee		—			20,000			—			20,000
Capitalized lender fees related to debt refinancing		3,527			—			22,652			6,189
Other debt refinancing costs (expensed)		—			—			40,373			—
Severance, retirement and retention		1,217			617			7,866			5,406
Transaction costs		9,299			1,877			18,040			10,427

		16,543			22,494			117,281			68,367
Benefit of reduced income tax payments resulting from certain payments		(4,435	)		(9,018	)		(34,912	)		(24,667	)

		12,108			13,476			82,369			43,700

Net cash flows provided by operating activities excluding certain items (core operating cash flows)		93,257			23,671			187,840			243,112
Less:
Routine capital expenditures		(23,656	)		(37,956	)		(91,081	)		(100,908	)
Development capital expenditures		(2,564	)		(1,115	)		(5,257	)		(11,824	)

		(26,220	)		(39,071	)		(96,338	)		(112,732	)

Free cash flows excluding certain items (core free cash flows)	$	67,037		($	15,400	)	$	91,502		$	130,380

Kindred Healthcare Announces Fourth Quarter 2014 Results

Page 21

February 26, 2015

KINDRED HEALTHCARE, INC.

Reconciliation of Gentiva Non-GAAP Measurements to GAAP Results

(Unaudited)

(In thousands)

The results for Gentiva for the three months and year ended December 31, 2014 and 2013 include the non-GAAP measurement Adjusted EBITDA. Gentiva used Adjusted EBITDA to evaluate overall performance and compare current operating results with other companies in the healthcare industry. Adjusted EBITDA should not be considered in isolation or as a substitute for income from continuing operations, net income, operating income or cash flow statement data determined in accordance with GAAP. Because Adjusted EBITDA is not a measurement of financial performance under GAAP and is susceptible to varying calculations, it may not be comparable to similarly titled measures of other companies.

A reconciliation of Adjusted EBITDA to Net income (loss) attributable to Gentiva follows:


	Three months ended						Year ended
	December 31,						December 31,
	2014			2013 (Restated)			2014			2013 (Restated)

Adjusted EBITDA	$	52,269		$	21,571		$	194,045		$	134,962
Cost savings initiatives and acquisition and integration activities		(1,112	)		(24,955	)		(11,591	)		(27,539	)
Impact of closed and consolidated locations		(354	)		(4,565	)		(3,389	)		(4,565	)
Goodwill, intangibles and other long-lived asset impairments		—			(401,708	)		—			(612,380	)
Impact of merger related expenses		(9,393	)		—			(11,696	)		—

EBITDA		41,410			(409,657	)		167,369			(509,522	)
Depreciation and amortization		(6,277	)		(10,080	)		(27,484	)		(24,621	)
Interest expense and other, net		(24,637	)		(43,601	)		(98,543	)		(110,384	)

Income (loss) before income taxes and equity in net loss of CareCentrix		10,496			(463,338	)		41,342			(644,527	)
Income tax (expense) benefit		(4,795	)		42,780			(17,294	)		39,953
Equity in net loss of CareCentrix		—			—			(490	)		—

Net income (loss)		5,701			(420,558	)		23,558			(604,574	)
Less: Net income attributable to noncontrolling interests		(66	)		(62	)		(236	)		(487	)

Net income (loss) attributable to Gentiva	$	5,635		($	420,620	)	$	23,322		($	605,061	)

-END-

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