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

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8-K - FORM 8-K - KINDRED HEALTHCARE, INC	d56453d8k.htm
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Exhibit 99.1

LOGO


Contact:		Susan E. Moss
		Investor Relations
		(502) 596-6569

KINDRED HEALTHCARE REPORTS THIRD QUARTER 2015 RESULTS

Consolidated Revenues of $1,765 million, Core EBITDAR of $236 million⁽¹⁾

and Core Diluted EPS from Continuing Operations of $0.23⁽¹⁾ in the Third Quarter

GAAP Operating Income of $197 million⁽¹⁾ and Diluted Loss Per Share from Continuing Operations of $0.20

in the Third Quarter Reflect Costs of $39 million and $0.43 Per Share, Respectively,

Related to Litigation, Transaction, Integration and Other Restructuring Initiatives

Strong Performance from Kindred at Home with Meaningful Progress on Acquisition Integration and Synergy Realization

Significant Core Operating Cash Flows of $128 million⁽¹⁾ in the Third Quarter and $264 million⁽¹⁾ Year to Date;

GAAP Operating Cash Flows of $132 million in the Third Quarter and $93 million Year to Date

Due to Industry Headwinds Impacting the Hospital Division, Company Revises Full Year Outlook

LOUISVILLE, Ky. (November 4, 2015) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2015.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “During the third quarter our team continued to make great progress on our strategic plan despite industry-wide headwinds for healthcare services companies that created a challenging quarter for our Hospital Division (“HD”). Our Kindred at Home Division (“KAH”) was the highlight of the quarter as it continues to advance its integration efforts and benefit from the accelerating momentum of patient flow into the home care, hospice, and community care settings. Our freestanding inpatient rehabilitation facility (“IRF”) business also continues to grow and, with our new IRFs in Arlington, Texas and Madison, Wisconsin that opened during the third quarter, we now operate 18 freestanding IRFs, most of which are joint-ventures with prominent not-for-profit health systems. In addition, we continue to successfully build broad based hospital, payor and physician relationships across the country as we bring our unique integrated care model to more partners and patients.”

Mr. Breier added, “We are very pleased to report consolidated revenue growth of 43.6%, and consolidated core EBITDAR⁽¹⁾ growth of 50.4% compared to the same period last year. Our recent acquisitions and organic growth efforts have transformed Kindred’s business mix and free cash flow profile, and we continue to execute on our transition into higher growth, lower capital intensity and higher return businesses. We remain confident that Kindred is the best positioned company in the post-acute sector to meet the needs of the changing beneficiary landscape and emerge successfully in the movement to pay for value. As always, I thank the many stakeholders in Kindred, and in particular our 102,000 teammates, for the excellent care they deliver every day to patients in need.”

(1)	See reconciliation of core results to generally accepted accounting principles (“GAAP”) results beginning on page 12.

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680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

Kindred Healthcare Reports Third Quarter 2015 Results

Page 2

November 4, 2015

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. The acquisitions of Gentiva Health Services, Inc. (“Gentiva”) and Centerre Healthcare Corporation (“Centerre”) have been included in the operating results presented since the date of acquisition.

Third Quarter Consolidated Highlights⁽¹⁾:

•

Consolidated revenues increased 43.6% to $1.76 billion and earnings before interest, income taxes, depreciation, amortization, rent and certain charges (“core EBITDAR”) increased 50.4% to $236 million, each as compared to the same period last year

•

Core diluted earnings per share (“EPS”) from continuing operations was $0.23 and adjusted core diluted EPS from continuing operations was $0.33 based upon 86.9 million weighted average diluted shares, an improvement as compared to core diluted EPS of $0.13 and adjusted core diluted EPS of $0.20 for the same period a year ago based upon 62.9 million weighted average diluted shares

•

The Company generated significant core operating cash flows of $128 million compared to $88 million for the same period a year ago, and core free cash flows were $93 million compared to $66 million in the same period of 2014. Year to date core operating cash flows were $264 million compared to $102 million for the same period a year ago, and year to date core free cash flows were $183 million compared to $35 million in the same period of 2014

•

The Kindred Board of Directors declared a cash dividend of $0.12 per share on the Company’s common stock payable on December 11, 2015 to shareholders of record as of the close of business on November 18, 2015

Third Quarter Segment Highlights⁽¹⁾⁽²⁾:

Kindred’s Hospital Division third quarter same-hospital revenues declined 1.4% over the prior year period to $577 million, with a decline in same-hospital admissions of 3.8% compared to the same period last year. HD third quarter same-hospital patient days increased 0.3% and same-hospital revenues per patient day declined 1.7% compared to the same period last year as a result of shifts in payor mix and an increase in same-hospital average lengths of stay of 3.9%. HD’s core EBITDAR declined to $97 million from $117 million a year ago primarily as a result of these factors and certain increases in labor expense, bad debt and costs associated with longer average lengths of stay.

Kindred at Home Division revenues and core EBITDAR increased to $605 million and $102 million, respectively, for the quarter. The home health segment achieved solid growth during the third quarter of 2015, with episodic admissions increasing 2.6% and revenues increasing 7.3% to $357 million, both over the prior year period on a combined basis. The hospice segment generated $181 million of revenues, a 1% sequential growth in average daily census and an improved sequential operating margin from 15.7% to 18.8%.

Kindred Rehabilitation Services Division revenues increased 8.6% to $369 million and core EBITDAR contribution increased 35.1% to $57 million for the quarter. The Kindred Hospital Rehabilitation Services segment, which includes Kindred’s IRF business, experienced strong revenue growth of $56 million or 60.4% over the prior year period, due to the successful Centerre acquisition, and achieved core EBITDAR margin improvement from 26.7% to 28.2%. The RehabCare segment (“RHB”) experienced an 11.0% revenue reduction from the prior year period primarily due to contract losses. These contract losses occurred primarily in the first quarter of 2015 and began to moderate in the second quarter of 2015. In fact, RHB added 32 net new sites of service during the third quarter of 2015, its first positive net sites of service growth quarter in 2015.

Kindred’s Nursing Center Division (“NCD”) revenues grew 2.5% to $271 million due to an improvement of 4.3% in revenue per patient day. NCD core EBITDAR margins declined 2.2% due to a 1.9% decline in admissions. NCD continues to deliver stable performance despite continuing pressure on length of stay.

(1)	See reconciliation of core results to GAAP results beginning on page 12.

(2)	See same-hospital and full segment data on page 9.

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 3

November 4, 2015

Significantly Improved Cash Flow Profile⁽¹⁾

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, noted “Our acquisition of Gentiva early in 2015 and the recent disposition of more than 150 nursing centers and long-term acute care (“LTAC”) hospitals have dramatically changed our cash flow profile, as evidenced by our strong cash flow performance through the first nine months of the year. While we do not typically provide annual cash flow guidance, looking beyond 2015, Kindred is now positioned going forward to generate roughly $300 million per year in core operating cash flow when adjusted to reflect the current composition of our businesses and before net changes in working capital, with roughly half that amount in core free cash flow after funding routine capital expenditures and growth-related investment in working capital. In addition, the Company has significant tax loss carryforwards and carrybacks, which have resulted in net cash inflows from federal income taxes in 2015, and which we expect will offset more than half of Kindred’s expected book tax liability in 2016.”

Revised 2015 Outlook

Due to the third quarter challenges in its Hospital Division, and based on updated expectations for LTAC operations in the fourth quarter, Kindred is revising its previously provided financial estimates for 2015⁽²⁾as follows:

•

2015 annual revenues of approximately $7.1 billion (previously $7.2 billion)

•

Core EBITDAR of approximately $970 million to $990 million⁽³⁾ (previously $1.0 billion to $1.05 billion)

•

Core earnings of $1.15 to $1.30 per diluted share⁽⁴⁾ (previously $1.25 to $1.45)

•

Adjusted core earnings of $1.55 to $1.70 per diluted share⁽⁴⁾⁽⁵⁾ (previously $1.70 to $1.90)

Mr. Breier concluded, “As we methodically work our way through the macro and industry headwinds confronting our Hospital Division, including its forthcoming transition through LTAC criteria starting later next year, we expect some choppiness in that division’s performance and our consolidated results. We remain confident in the steps we are taking to address these challenges and in the strength of our cash flows, which enable us to continue to invest aggressively to evolve our platform to drive continued growth. The strength of our diversified service offerings, particularly the strong performance we are achieving at KAH, continues to produce growth and advances our strategy of delivering a coordinated continuum of care.”

This revised outlook excludes transaction costs, pre-closing financing costs and post-closing 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 and related contingency expense (including the $125 million loss contingency reserve accrued during the nine months ended September 30, 2015 related to the previously disclosed investigation into a therapy services company acquired by Kindred in 2011), other transaction costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock or any repurchases of common stock.

(1)	See reconciliation of core results to GAAP results beginning on page 12.

(2)	Guidance includes Gentiva for eleven months and Centerre for the full year.

(3)	Includes $45 million from Gentiva synergies expected to be realized in 2015.

(4)

The earnings per share estimate is based upon an estimated weighted average annual diluted share count for 2015 of 86 million shares. The estimated annual diluted share count for 2015 includes approximately 3.7 million shares of common stock issued in February, May and July to holders of 85,121 tangible equity units that elected early conversion settlements.

(5)

Adjusted core earnings per diluted share is calculated by excluding non-cash expenses, net of the income tax benefit, related to amortization of intangible assets, stock-based compensation and deferred financing costs, from core income from continuing operations. The estimated non-cash expenses for 2015 total approximately $58 million ($35 million net of income taxes) or approximately $0.40 per diluted share.

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 4

November 4, 2015

RehabCare Loss Contingency Reserve Adjustment

The Company is engaged in active discussions with the United States Department of Justice in an effort to find a mutually acceptable resolution to the investigation of RehabCare Group, Inc., a therapy services company acquired by the Company on June 1, 2011. Based on the progress of continuing settlement discussions through October 2015, the Company, in accordance with GAAP, recorded an additional $30 million loss provision in the third quarter of 2015 (for a total loss reserve of $125 million) related to this matter. The Company recorded a $95 million loss reserve for this matter in the first quarter of 2015 and disclosed an estimated settlement range of $95 million to $125 million. The Company accrued the estimated loss contingency in the first quarter of 2015 at the minimum of the estimated range in accordance with GAAP as no amount within that range was a better estimate than any other amount. These continuing settlement discussions also indicate that a corporate integrity agreement will likely be required as part of any final settlement related to this matter. The discussions are ongoing, and until they are concluded, there can be no certainty about the timing or likelihood of a definitive resolution, the scope of any potential restrictions that may be agreed upon in connection with a settlement or the cost of a final settlement.

Cash Dividend

The Company announced that its Board of Directors has approved the payment of a cash dividend of $0.12 per share of common stock to be paid on December 11, 2015 to shareholders of record as of the close of business on November 18, 2015.

Conference Call

As previously announced, investors and the general public may access a live webcast of the third quarter 2015 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on November 5 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on November 5 by dialing (719) 457-0820, access code: 8169570. The replay will be available through November 15.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 11 for important disclosures regarding our forward-looking statements and the non-GAAP financial reconciliations that follow.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-95 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $7.2 billion⁽¹⁾. At September 30, 2015, Kindred through its subsidiaries had approximately 102,200 employees providing healthcare services in 2,723 locations in 47 states, including 95 transitional care hospitals, 18 inpatient rehabilitation hospitals, 90 nursing centers, 20 sub-acute units, 626 Kindred at Home home health, hospice and non-medical home care sites of service, 101 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,773 non-affiliated sites of service. 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.

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

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 5

November 4, 2015

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)


	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014

Revenues	$	1,764,516		$	1,228,918		$	5,273,958		$	3,762,925


Salaries, wages and benefits		922,140			601,813			2,704,920			1,826,602
Supplies		96,551			70,719			288,059			215,269
Rent		96,244			77,643			284,786			233,872
Other operating expenses		207,837			169,582			617,681			511,786
General and administrative expenses		310,041			237,503			1,050,948			713,521
Other income		(650	)		(260	)		(1,699	)		(594	)
Litigation contingency expense		31,462			—			130,387			4,600
Impairment charges		—			—			6,726			—
Depreciation and amortization		39,329			38,748			116,889			117,012
Interest expense		56,440			22,515			176,128			128,844
Investment income		(432	)		(344	)		(2,203	)		(2,975	)

		1,758,962			1,217,919			5,372,622			3,747,937

Income (loss) from continuing operations before income taxes		5,554			10,999			(98,664	)		14,988
Provision for income taxes		12,523			3,777			9,183			5,289

Income (loss) from continuing operations		(6,969	)		7,222			(107,847	)		9,699
Discontinued operations, net of income taxes:
Income (loss) from operations		2,269			(8,677	)		(1,744	)		(24,887	)
Gain (loss) on divestiture of operations		—			1,387			983			(3,637	)

Income (loss) from discontinued operations		2,269			(7,290	)		(761	)		(28,524	)

Net loss		(4,700	)		(68	)		(108,608	)		(18,825	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations		(9,900	)		(4,372	)		(30,482	)		(13,729	)
Discontinued operations		1			78			32			401

		(9,899	)		(4,294	)		(30,450	)		(13,328	)

Loss attributable to Kindred	$	(14,599	)	$	(4,362	)	$	(139,058	)	$	(32,153	)


Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations	$	(16,869	)	$	2,850		$	(138,329	)	$	(4,030	)
Income (loss) from discontinued operations		2,270			(7,212	)		(729	)		(28,123	)

Net loss	$	(14,599	)	$	(4,362	)	$	(139,058	)	$	(32,153	)


Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations	$	(0.20	)	$	0.04		$	(1.65	)	$	(0.07	)
Discontinued operations:
Income (loss) from operations		0.03			(0.13	)		(0.02	)		(0.44	)
Gain (loss) on divestiture of operations		—			0.02			0.01			(0.06	)

Income (loss) from discontinued operations		0.03			(0.11	)		(0.01	)		(0.50	)

Net loss	$	(0.17	)	$	(0.07	)	$	(1.66	)	$	(0.57	)


Diluted:
Income (loss) from continuing operations	$	(0.20	)	$	0.04		$	(1.65	)	$	(0.07	)
Discontinued operations:
Income (loss) from operations		0.03			(0.13	)		(0.02	)		(0.44	)
Gain (loss) on divestiture of operations		—			0.02			0.01			(0.06	)

Income (loss) from discontinued operations		0.03			(0.11	)		(0.01	)		(0.50	)

Net loss	$	(0.17	)	$	(0.07	)	$	(1.66	)	$	(0.57	)


Shares used in computing earnings (loss) per common share:
Basic		86,184			62,863			83,960			56,443
Diluted		86,184			62,902			83,960			56,443
Cash dividends declared and paid per common share	$	0.12		$	0.12		$	0.36		$	0.36

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 6

November 4, 2015

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)


	September 30, 2015			December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	120,891		$	164,188
Insurance subsidiary investments		103,856			99,951
Accounts receivable less allowance for loss		1,216,214			944,219
Inventories		27,252			25,702
Deferred tax assets		74,221			82,391
Income taxes		10,571			8,575
Interest deposit on senior unsecured notes held in escrow		—			23,438
Other		66,891			41,598

		1,619,896			1,390,062

Property and equipment		2,120,809			1,978,153
Accumulated depreciation		(1,164,969	)		(1,076,049	)

		955,840			902,104

Goodwill		2,646,766			997,597
Intangible assets less accumulated amortization		783,774			400,700
Assets held for sale		1,526			3,475
Insurance subsidiary investments		201,026			166,045
Deferred tax assets		—			11,174
Proceeds from senior unsecured notes held in escrow		—			1,350,000
Acquisition deposit		—			195,000
Other		295,168			236,807

Total assets	$	6,503,996		$	5,652,964

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	182,154		$	175,725
Salaries, wages and other compensation		442,730			358,857
Due to third party payors		59,498			43,957
Professional liability risks		62,020			64,137
Other accrued liabilities		346,309			189,980
Long-term debt due within one year		32,527			24,607

		1,125,238			857,263

Long-term debt		3,126,359			2,852,531
Professional liability risks		273,874			243,614
Deferred tax liabilities		20,850			—
Deferred credits and other liabilities		307,164			213,584

Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 83,759 shares - September 30, 2015 and 69,977 shares - December 31, 2014		20,940			17,494
Capital in excess of par value		1,741,736			1,586,692
Accumulated other comprehensive loss		(4,328	)		(2,551	)
Accumulated deficit		(301,878	)		(159,768	)

		1,456,470			1,441,867
Noncontrolling interests		194,041			44,105

Total equity		1,650,511			1,485,972

Total liabilities and equity	$	6,503,996		$	5,652,964

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 7

November 4, 2015

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)


	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Cash flows from operating activities:
Net loss	$	(4,700	)	$	(68	)	$	(108,608	)	$	(18,825	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		39,595			39,579			117,521			121,805
Amortization of stock-based compensation costs		3,194			694			15,764			9,657
Amortization of deferred financing costs		3,554			1,982			10,155			21,211
Payment of capitalized lender fees related to debt issuance		—			—			(28,012	)		(19,125	)
Provision for doubtful accounts		11,014			14,695			29,817			35,588
Deferred income taxes		3,556			(32,777	)		(894	)		(11,274	)
Impairment charges		—			9			6,726			673
(Gain) loss on divestiture of discontinued operations		—			(1,387	)		(983	)		3,637
Other		3,485			175			10,457			2,289
Change in operating assets and liabilities:
Accounts receivable		25,990			10,392			(13,399	)		(102,503	)
Inventories and other assets		8,767			(2,899	)		44,181			(12,886	)
Accounts payable		(353	)		(3,592	)		(12,788	)		(22,469	)
Income taxes		37,491			29,832			33,646			18,769
Due to third party payors		15,008			28,907			(3,965	)		14,540
Other accrued liabilities		(14,311	)		4,497			(6,551	)		(16,765	)

Net cash provided by operating activities		132,290			90,039			93,067			24,322

Cash flows from investing activities:
Routine capital expenditures		(35,422	)		(21,263	)		(80,691	)		(67,425	)
Development capital expenditures		(5,760	)		(1,570	)		(12,066	)		(2,693	)
Acquisitions, net of cash acquired		(2,002	)		(38	)		(663,757	)		(24,136	)
Acquisition deposit		—			—			195,000			—
Sale of assets		3,884			8,948			7,061			22,909
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		(16,357	)		(74,101	)		(59,186	)		(97,394	)
Sale of insurance subsidiary investments		15,987			8,447			50,780			34,967
Net change in insurance subsidiary cash and cash equivalents		(2,633	)		65,928			(8,396	)		54,372
Proceeds from note receivable		25,000			—			25,000			—
Change in other investments		176			317			375			1,027
Other		1,383			(3	)		590			(537	)

Net cash provided by (used in) investing activities		(15,744	)		(13,335	)		828,148			(78,910	)

Cash flows from financing activities:
Proceeds from borrowings under revolving credit		259,700			311,500			1,414,850			1,468,515
Repayment of borrowings under revolving credit		(349,700	)		(355,100	)		(1,319,850	)		(1,724,615	)
Proceeds from issuance of term loan, net of discount		—			—			199,000			997,500
Proceeds from issuance of senior unsecured notes		—			—			—			500,000
Repayment of Gentiva debt		—			—			(1,177,363	)		—
Repayment of senior unsecured notes		—			—			—			(550,000	)
Repayment of term loan		(3,003	)		(2,500	)		(9,008	)		(786,063	)
Repayment of other long-term debt		(500	)		(58	)		(1,400	)		(215	)
Payment of deferred financing costs		(301	)		(504	)		(3,284	)		(3,152	)
Equity offering, net of offering costs		—			16,376			—			220,353
Issuance of common stock in connection with employee benefit plans		329			1,530			534			6,217
Payment of costs associated with issuance of common stock and tangible equity units		—			—			(915	)		—
Payment of dividend for mandatory redeemable preferred stock		(2,703	)		—			(8,135	)		—
Dividends paid		(10,065	)		(7,754	)		(30,067	)		(20,840	)
Contributions made by noncontrolling interests		1,492			—			1,492			—
Distributions to noncontrolling interests		(10,685	)		(4,009	)		(31,823	)		(9,604	)
Other		245			183			1,457			2,304

Net cash provided by (used in) financing activities		(115,191	)		(40,336	)		(964,512	)		100,400

Change in cash and cash equivalents		1,355			36,368			(43,297	)		45,812
Cash and cash equivalents at beginning of period		119,536			45,416			164,188			35,972

Cash and cash equivalents at end of period	$	120,891		$	81,784		$	120,891		$	81,784

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 8

November 4, 2015

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data^(a)

(Unaudited)

(In thousands, except per share amounts)


																						Third quarter
	2014 Quarters												2015 Quarters									% change v.
	First			Second			Third			Fourth			First			Second			Third			prior year
Consolidated income statement data:
Revenues	$	1,272,610		$	1,261,397		$	1,228,918		$	1,264,674		$	1,675,967		$	1,833,475		$	1,764,516			43.6

Core EBITDAR	$	181,044		$	175,865		$	157,218		$	170,088		$	234,211		$	261,800		$	236,477			50.4
Rent		78,530			77,452			77,643			79,167			91,199			95,528			95,436			22.9

Core EBITDA		102,514			98,413			79,575			90,921			143,012			166,272			141,041			77.2
Depreciation and amortization		39,092			39,172			38,748			38,558			38,935			38,625			39,329			1.5
Interest, net		25,617			21,438			22,171			21,857			44,346			56,140			56,008			152.6

Income from continuing operations before income taxes		37,805			37,803			18,656			30,506			59,731			71,507			45,704			145.0
Provision for income taxes		14,445			13,612			6,168			8,471			22,466			25,721			15,298			148.0

Income from continuing operations		23,360			24,191			12,488			22,035			37,265			45,786			30,406			143.5
Noncontrolling interests		(4,529	)		(4,828	)		(4,372	)		(5,143	)		(8,847	)		(11,735	)		(9,900	)		126.4

Net income attributable to Kindred	$	18,831		$	19,363		$	8,116		$	16,892		$	28,418		$	34,051		$	20,506			152.7


Core EPS	$	0.35		$	0.35		$	0.13		$	0.26		$	0.34		$	0.39		$	0.23			76.9
Adjusted Core EPS	$	0.46		$	0.50		$	0.20		$	0.38		$	0.43		$	0.51		$	0.33			65.0
Diluted shares		52,711			53,792			62,902			63,163			82,422			86,402			86,892			38.1

Revenues by segment:
Hospital division	$	627,245		$	612,517		$	591,121		$	619,185		$	640,483		$	627,206		$	579,497			(2.0	)
Kindred at Home:
Home health		74,791			75,502			74,026			74,588			300,867			427,820			424,054			472.8
Hospice		12,913			12,484			12,160			12,538			119,057			178,005			181,140			1,389.6

		87,704			87,986			86,186			87,126			419,924			605,825			605,194			602.2

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		93,177			94,963			93,139			92,922			151,564			152,544			149,435			60.4
RehabCare		253,943			253,694			246,732			252,667			252,595			236,791			219,518			(11.0	)

		347,120			348,657			339,871			345,589			404,159			389,335			368,953			8.6
Nursing center division		262,590			264,437			263,897			271,625			274,308			273,870			270,510			2.5

		1,324,659			1,313,597			1,281,075			1,323,525			1,738,874			1,896,236			1,824,154			42.4
Eliminations		(52,049	)		(52,200	)		(52,157	)		(58,851	)		(62,907	)		(62,761	)		(59,638	)		14.3

	$	1,272,610		$	1,261,397		$	1,228,918		$	1,264,674		$	1,675,967		$	1,833,475		$	1,764,516			43.6


Core EBITDAR by segment:
Hospital division	$	139,505		$	131,990		$	117,604		$	134,791		$	134,786		$	131,532		$	97,128			(17.4	)
Kindred at Home:
Home health		2,845			5,769			5,961			7,398			46,798			72,917			68,155			1,043.3
Hospice		1,852			2,139			1,149			524			16,996			27,887			34,025			2,861.3

		4,697			7,908			7,110			7,922			63,794			100,804			102,180			1,337.1

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		25,710			25,742			24,887			23,884			44,564			44,531			42,141			69.3
RehabCare		18,016			19,863			17,080			16,029			16,493			14,681			14,544			(14.8	)

		43,726			45,605			41,967			39,913			61,057			59,212			56,685			35.1
Nursing center division		37,572			38,614			35,920			38,810			36,963			40,461			35,923			—
Support center		(44,456	)		(48,252	)		(45,383	)		(51,348	)		(62,389	)		(70,209	)		(55,439	)^(b)		22.2

	$	181,044		$	175,865		$	157,218		$	170,088		$	234,211		$	261,800		$	236,477			50.4


Core EBITDAR margin by segment:
Hospital division		22.2			21.5			19.9			21.8			21.0			21.0			16.8			(15.6	)
Kindred at Home:
Home health		3.8			7.6			8.1			9.9			15.6			17.0			16.1			98.8
Hospice		14.3			17.1			9.4			4.2			14.3			15.7			18.8			100.0
Kindred at Home		5.4			9.0			8.2			9.1			15.2			16.6			16.9			106.1
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		27.6			27.1			26.7			25.7			29.4			29.2			28.2			5.6
RehabCare		7.1			7.8			6.9			6.3			6.5			6.2			6.6			(4.3	)
Kindred Rehabilitation Services		12.6			13.1			12.3			11.5			15.1			15.2			15.4			25.2
Nursing center division		14.3			14.6			13.6			14.3			13.5			14.8			13.3			(2.2	)
Consolidated		14.2			13.9			12.8			13.4			14.0			14.3			13.4			4.7

(a)	See reconciliation of core and adjusted results to GAAP results beginning on page 12.

(b)	Includes a $9 million change in estimate to lower incentive compensation costs recorded in prior periods.

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 9

November 4, 2015

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

(In thousands, except statistics)


															Third quarter
	2014 Quarters								2015 Quarters						% change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Hospital division:
End of period data:
Number of transitional care hospitals		97		97		97		97		97		96		95
Number of licensed beds		7,145		7,145		7,145		7,147		7,147		7,124		7,094
Revenue mix %:
Medicare		59.8		58.2		57.0		57.0		56.8		55.2		57.1
Medicaid		6.6		6.8		6.9		6.0		5.5		5.3		5.3
Medicare Advantage		11.4		11.2		10.5		10.5		11.9		11.6		10.8
Medicaid Managed		2.4		3.0		3.8		4.5		4.7		5.6		6.1
Commercial insurance and other		19.8		20.8		21.8		22.0		21.1		22.3		20.7
Admissions:
Medicare		9,038		8,555		8,460		8,525		8,775		8,267		7,976		(5.7	)
Medicaid		819		896		805		750		610		610		556		(30.9	)
Medicare Advantage		1,435		1,389		1,250		1,359		1,555		1,352		1,212		(3.0	)
Medicaid Managed		317		381		511		572		643		675		646		26.4
Commercial insurance and other		1,914		1,885		1,703		1,696		1,868		1,815		1,763		3.5

		13,523		13,106		12,729		12,902		13,451		12,719		12,153		(4.5	)

Patient days:
Medicare		230,350		220,035		213,170		220,548		228,483		218,577		210,870		(1.1	)
Medicaid		32,712		32,619		30,480		30,454		28,663		25,213		23,167		(24.0	)
Medicare Advantage		44,025		43,027		39,938		41,260		48,448		44,740		39,585		(0.9	)
Medicaid Managed		10,733		13,191		16,556		20,000		22,013		24,833		24,412		47.5
Commercial insurance and other		59,567		59,293		57,486		59,295		62,241		62,922		58,631		2.0

		377,387		368,165		357,630		371,557		389,848		376,285		356,665		(0.3	)

Average length of stay:
Medicare		25.5		25.7		25.2		25.9		26.0		26.4		26.4		4.8
Medicaid		39.9		36.4		37.9		40.6		47.0		41.3		41.7		10.0
Medicare Advantage		30.7		31.0		32.0		30.4		31.2		33.1		32.7		2.2
Medicaid Managed		33.9		34.6		32.4		35.0		34.2		36.8		37.8		16.7
Commercial insurance and other		31.1		31.5		33.8		35.0		33.3		34.7		33.3		(1.5	)
Weighted average		27.9		28.1		28.1		28.8		29.0		29.6		29.3		4.3
Revenues per admission:
Medicare	$	41,492	$	41,670	$	39,828	$	41,425	$	41,483	$	41,892	$	41,451		4.1
Medicaid		50,894		46,106		50,344		49,760		57,594		54,795		55,415		10.1
Medicare Advantage		49,666		49,352		49,814		47,756		48,908		53,578		51,495		3.4
Medicaid Managed		47,803		48,814		44,321		48,691		46,740		51,950		54,976		24.0
Commercial insurance and other		64,858		67,679		75,591		80,167		72,395		77,110		68,151		(9.8	)
Weighted average		46,384		46,736		46,439		47,991		47,616		49,312		47,683		2.7
Revenues per patient day:
Medicare	$	1,628	$	1,620	$	1,581	$	1,601	$	1,593	$	1,584	$	1,568		(0.8	)
Medicaid		1,274		1,266		1,330		1,225		1,226		1,326		1,330		—
Medicare Advantage		1,619		1,593		1,559		1,573		1,570		1,619		1,577		1.2
Medicaid Managed		1,412		1,410		1,368		1,393		1,365		1,412		1,455		6.4
Commercial insurance and other		2,084		2,152		2,239		2,293		2,173		2,224		2,049		(8.5	)
Weighted average		1,662		1,664		1,653		1,666		1,643		1,667		1,625		(1.7	)
Medicare case mix index (discharged patients only)		1.173		1.182		1.157		1.139		1.166		1.163		1.150		(0.6	)
Average daily census		4,193		4,046		3,887		4,039		4,332		4,135		3,877		(0.3	)
Occupancy %		67.3		64.6		62.1		64.5		69.2		66.1		62.2		0.2
Same-hospital data:
Revenues (a)	$	620,866	$	606,408	$	585,553	$	614,207	$	634,975	$	622,018	$	577,337		(1.4	)
Admissions:
Medicare		8,910		8,423		8,342		8,403		8,652		8,172		7,932		(4.9	)
Medicaid		812		885		794		739		602		608		556		(30.0	)
Medicare Advantage		1,429		1,376		1,244		1,351		1,546		1,348		1,212		(2.6	)
Medicaid Managed		315		377		511		568		640		670		644		26.0
Commercial insurance and other		1,895		1,863		1,688		1,669		1,840		1,797		1,762		4.4

		13,361		12,924		12,579		12,730		13,280		12,595		12,106		(3.8	)

Patient days:
Medicare		227,635		217,074		210,386		218,127		225,992		216,230		209,662		(0.3	)
Medicaid		32,303		32,260		30,254		30,207		28,458		25,060		23,141		(23.5	)
Medicare Advantage		43,906		42,802		39,859		41,153		48,276		44,548		39,585		(0.7	)
Medicaid Managed		10,714		13,143		16,515		19,906		21,933		24,673		24,280		47.0
Commercial insurance and other		59,059		58,968		57,185		58,833		61,715		62,462		58,625		2.5

		373,617		364,247		354,199		368,226		386,374		372,973		355,293		0.3


Total average length of stay		28.0		28.2		28.2		28.9		29.1		29.6		29.3		3.9
Total revenues per patient day	$	1,662	$	1,665	$	1,653	$	1,668	$	1,643	$	1,668	$	1,625		(1.7	)

(a)	See reconciliation of same-hospital revenues to reported revenues for the Hospital Division on page 14.

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 10

November 4, 2015

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)

(In thousands, except statistics)


															Third quarter
	2014 Quarters								2015 Quarters						% change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Kindred at Home (data combined to include Kindred and Gentiva for each historical period):
Home Health:
Sites of service (at end of period)		447		440		439		427		415		411		388
Revenue mix %:
Medicare		81.8		81.5		80.7		80.7		80.9		80.4		80.0
Medicaid		2.7		2.6		2.4		2.2		2.1		2.1		2.1
Commercial and other		9.1		9.0		8.9		6.7		7.3		7.9		8.2
Commercial paid at episodic rates		6.4		6.9		8.0		10.4		9.7		9.6		9.7
Episodic revenues ($ 000s)	$	281,226	$	294,208	$	292,675	$	305,668	$	308,317	$	324,027	$	319,820		9.3
Total episodic admissions		65,077		63,676		65,049		65,183		69,936		67,808		66,753		2.6
Medicare episodic admissions		59,248		58,140		57,921		57,372		61,186		59,394		58,479		1.0
Total episodes		103,758		103,689		105,906		106,708		110,980		109,599		108,519		2.5
Episodes per admission		1.59		1.63		1.63		1.64		1.59		1.62		1.63		—
Revenue per episode	$	2,710	$	2,837	$	2,764	$	2,865	$	2,778	$	2,956	$	2,947		6.6
Hospice:
Sites of service (at end of period)		216		200		199		193		190		185		181
Admissions		13,807		12,751		12,088		12,151		13,164		12,574		12,091		—
Average length of stay		103		106		103		103		95		93		101		(1.9	)
Patient days		1,252,787		1,251,301		1,236,792		1,215,209		1,150,841		1,190,604		1,211,291		(2.1	)
Revenue per patient day	$	150	$	148	$	149	$	154	$	151	$	150	$	150		0.7
Average daily census		13,920		13,751		13,443		13,209		12,787		13,084		13,166		(2.1	)
Community Care and other revenues (included in Home Health business segment)	$	66,732	$	66,372	$	67,390	$	67,621	$	65,530	$	67,647	$	67,338		(0.1	)

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs		5		5		5		5		16		16		18
Number of licensed beds		215		215		215		215		829		829		919
Discharges (a)		1,053		1,121		1,004		1,046		3,806		3,927		3,941		292.5
Occupancy % (a)		71.6		71.6		68.5		69.6		73.2		71.5		68.7		0.3
Average length of stay (a)		13.2		12.5		13.5		13.2		13.7		13.1		13.2		(2.2	)
Revenue per discharge (a)	$	18,246	$	17,519	$	18,259	$	17,039	$	19,517	$	19,325	$	18,992		4.0
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units		105		104		102		100		100		99		101
LTAC hospitals		121		118		117		117		120		120		119
Sub-acute units		10		9		10		10		8		8		7
Outpatient units		143		143		139		138		138		139		135

		379		374		368		365		366		366		362


Revenue per site	$	195,157	$	201,400	$	203,284	$	205,749	$	211,151	$	209,436	$	206,041		1.4

RehabCare:
Sites of service (at end of period)		1,851		1,863		1,896		1,935		1,829		1,789		1,821
Revenue per site	$	137,193	$	136,175	$	130,133	$	130,576	$	138,106	$	132,359	$	120,548		(7.4	)

Nursing center division:
End of period data:
Number of nursing centers		89		89		90		90		90		90		90
Number of licensed beds		11,503		11,491		11,575		11,535		11,535		11,535		11,535
Admissions (b)		9,789		9,621		9,746		9,616		10,376		9,831		9,558		(1.9	)
Medicare average length of stay (b)		29.6		29.8		29.9		29.0		28.9		28.9		28.5		(4.7	)
Patient days (b)		861,340		858,772		865,415		871,976		861,278		852,691		851,332		(1.6	)
Revenues per patient day (b)	$	305	$	308	$	305	$	312	$	319	$	321	$	318		4.3
Average daily census (b)		9,570		9,437		9,407		9,478		9,570		9,370		9,254		(1.6	)
Occupancy % (b)		81.7		80.7		80.1		80.5		81.3		79.6		78.6		(1.9	)

(a)	Excludes non-consolidating IRF.

(b)	Excludes managed facilities.

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 11

November 4, 2015

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. 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.

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.

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 12

November 4, 2015

Non-GAAP Measurements

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 quarters in 2015, four quarters in 2014 and nine months ended September 30, 2015 and 2014 before certain charges or on a core and adjusted core basis, and on a same-hospital 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 believes the presentation of same-hospital revenues, which excludes the results from two hospitals that closed during 2015, provides investors, equity analysts and others with useful information regarding the performance of the Company’s hospital operations that are comparable for the periods presented. The Company believes that reported hospital segment revenues is the most comparable GAAP measure. Readers of the Company’s financial information should consider reported hospital segment revenues as an important measure of the Company’s Hospital Division financial performance because it provides the most complete measure of its revenues. The Company’s earnings release also includes financial measures referred to as operating income, or EBITDAR or core EBITDAR, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Company’s management uses core EBITDAR or core EBITDA as meaningful measures of operational performance in addition to other measures. The Company uses core EBITDAR or core 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 core EBITDAR or core EBITDA, as well as a same-hospital basis, should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. Reconciliations of the non-GAAP measurements to the GAAP measurements are included in the following pages of this press release.

Also in this press release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items, which the Company refers to as core operating cash flows and core free cash flows. 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 for comparability to other companies that use similar measures. 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 Reports Third Quarter 2015 Results

Page 13

November 4, 2015

KINDRED HEALTHCARE, INC.

Reconciliation of Non-GAAP Measurements to GAAP Results

(Unaudited)

(In thousands, except per share amounts and statistics)

In addition to the results provided in accordance with GAAP, the Company has provided information in this release to compute certain non-GAAP measurements for the three months and nine months ended September 30, 2015 and 2014 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.

The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 6.9% and 31.2% for the three months ended September 30, 2015 and 2014, respectively, and 19.7% and 36.5% for the nine months ended September 30, 2015 and 2014, respectively. The difference in the effective income tax rate for both periods compared to the same prior year periods is attributable to the composition of charges that are non-deductible or the deductibility is uncertain for income tax purposes, including the litigation contingency expense.

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 nine months ended September 30, 2015 and 2014 that are not representative of its ongoing operations due to the materiality and the nature of the charges. 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						Nine months ended
	September 30,						September 30,
	2015			2014			2015			2014
Detail of charges:
Litigation contingency expense	($	31,462	)	$	—		($	130,387	)	($	4,600	)
Retirement and severance costs		(666	)		(1,686	)		(5,627	)		(6,636	)
Hospital and home health/hospice closings		(3,368	)		—			(7,789	)		—
Development project cancellation and other restructuring costs		—			—			(1,259	)		—
Customer bankruptcy		—			(1,857	)		—			(1,857	)
Gentiva transaction and integration costs:
Professional and consulting fees		(1,113	)		(3,200	)		(35,178	)		(5,279	)
Severance and retention		(1,956	)		—			(58,831	)		—
Lease termination (charged to rent expense)		—			—			(792	)		—
Pre-closing financing charges (charged to general and administrative expenses)		—			—			(6,005	)		—
Pre-closing financing charges (charged to interest expense)		—			—			(17,431	)		—
Trade name impairment charges		—			—			(6,726	)		—
Lease termination (charged to rent expense)		(808	)		—			(1,831	)		(247	)
Debt refinancing costs (charged to interest expense)		—			—			—			(56,643	)
Other transaction costs		(777	)		(914	)		(3,750	)		(4,014	)

		(40,150	)		(7,657	)		(275,606	)		(79,276	)
Income tax benefit		2,775			2,391			54,302			28,936

Charges net of income taxes		(37,375	)		(5,266	)		(221,304	)		(50,340	)
Allocation to participating unvested restricted stockholders		—			133			—			—

Available to common stockholders	($	37,375	)	($	5,133	)	($	221,304	)	($	50,340	)

Weighted average diluted shares outstanding		86,184			62,902			83,960			56,443

Diluted loss per common share related to charges	($	0.43	)	($	0.08	)	($	2.64	)	($	0.89	)

Reconciliation of income from continuing operations before charges:
Amounts attributable to Kindred stockholders:
Income from continuing operations before charges	$	20,506		$	8,116		$	82,975		$	46,310
Charges net of income taxes		(37,375	)		(5,266	)		(221,304	)		(50,340	)

Reported income (loss) from continuing operations	($	16,869	)	$	2,850		($	138,329	)	($	4,030	)

Reconciliation of diluted earnings per common share from continuing operations before charges:
Diluted earnings per common share before charges (a)	$	0.23		$	0.13		$	0.95		$	0.80
Charges net of income taxes		(0.43	)		(0.08	)		(2.64	)		(0.89	)
Other		—			(0.01	)		0.04			0.02

Reported diluted earnings (loss) per common share from continuing operations	($	0.20	)	$	0.04		($	1.65	)	($	0.07	)

Weighted average diluted shares used to compute earnings per common share from continuing operations before charges		86,892			62,902			85,691			56,506

Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges		33.5	%		33.1	%		35.9	%		36.3	%
Impact of charges on effective income tax rate		192.0	%		1.2	%		-26.6	%		-1.0	%

Reported effective income tax rate		225.5	%		34.3	%		9.3	%		35.3	%

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.3 million and $0.2 million for the three months ended September 30, 2015 and 2014, respectively, and by $1.5 million and $1.3 million for the nine months ended September 30, 2015 and 2014, respectively, for the allocation of income to participating unvested restricted stockholders.

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 14

November 4, 2015

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts and statistics)

A reconciliation of adjusted core earnings follows:


	2014 Quarters								2015 Quarters
	First		Second		Third		Fourth		First		Second		Third
Reconciliation of adjusted core earnings:
Income from continuing operations before charges (as calculated and reconciled to GAAP measurement on the following pages)	$	18,831	$	19,363	$	8,116	$	16,892	$	28,418	$	34,051	$	20,506
Add back non-cash expenses:
Amortization of intangible assets		5,560		5,513		5,378		5,215		6,932		7,536		7,728
Amortization of stock-based compensation costs		2,585		5,924		748		5,073		3,141		6,687		3,194
Amortization of deferred financing costs		2,397		1,950		1,982		2,044		3,062		3,539		3,554

		10,542		13,387		8,108		12,332		13,135		17,762		14,476
Income tax benefit related to non-cash expenses		4,148		5,268		3,190		4,853		5,169		6,989		5,696

Non-cash expenses, net of income taxes		6,394		8,119		4,918		7,479		7,966		10,773		8,780

Adjusted core earnings	$	25,225	$	27,482	$	13,034	$	24,371	$	36,384	$	44,824	$	29,286


Reconciliation of diluted adjusted core earnings from continuing operations:
Diluted income per common share before charges (as calculated on the following pages)	$	0.35	$	0.35	$	0.13	$	0.26	$	0.34	$	0.39	$	0.23
Non-cash expenses, net of income taxes		0.11		0.15		0.07		0.12		0.09		0.12		0.10

Diluted adjusted core earnings per common share from continuing operations	$	0.46	$	0.50	$	0.20	$	0.38	$	0.43	$	0.51	$	0.33

Weighted average diluted shares used to compute adjusted core earnings per common share		52,711		53,792		62,902		63,163		82,422		86,402		86,892

A reconciliation of combined Kindred and Gentiva home health revenues (excluding community care) for each historical period follows:


															Third quarter
	2014 Quarters								2015 Quarters						% change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Kindred	$	67,266	$	67,830	$	65,954	$	66,491	$	254,965	$	360,173	$	356,716
Gentiva		253,895		267,018		266,340		275,342		87,520		—		—

	$	321,161	$	334,848	$	332,294	$	341,833	$	342,485	$	360,173	$	356,716		7.3

A reconciliation of same-hospital revenues to reported revenues for the Hospital Division for each historical period follows:


															Third quarter
	2014 Quarters								2015 Quarters						% change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Same-hospital revenues	$	620,866	$	606,408	$	585,553	$	614,207	$	634,975	$	622,018	$	577,337		(1.4	)
Two hospitals that closed during 2015 (a)		6,379		6,109		5,568		4,978		5,508		5,188		2,160

Reported revenues	$	627,245	$	612,517	$	591,121	$	619,185	$	640,483	$	627,206	$	579,497		(2.0	)

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

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 15

November 4, 2015

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended September 30, 2015
				Charges
							Hospital						Gentiva
				Retirement			and home						transaction
	Before			and			health/hospice			Litigation			and			Other						As
	charges			severance			closings			contingency			integration			transaction			Total			reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	97,128		$	(666	)	$	(479	)	$	—		$	—		$	—		$	(1,145	)	$	95,983

Kindred at Home:
Home health		68,155			—			(2,571	)		—			—			—			(2,571	)		65,584
Hospice		34,025			—			(318	)		—			—			—			(318	)		33,707

		102,180			—			(2,889	)		—			—			—			(2,889	)		99,291


Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		42,141			—			—			—			—			—			—			42,141
RehabCare		14,544			—			—			—			—			—			—			14,544

		56,685			—			—			—			—			—			—			56,685


Nursing center division		35,923			—			—			—			—			—			—			35,923

Support center		(55,439	)		—			—			—			—			—			—			(55,439	)
Litigation contingency expense		—			—			—			(31,462	)		—			—			(31,462	)		(31,462	)
Transaction costs		—			—			—			—			(3,069	)		(777	)		(3,846	)		(3,846	)

Operating income (EBITDAR)		236,477			(666	)		(3,368	)		(31,462	)		(3,069	)		(777	)		(39,342	)		197,135
Rent		(95,436	)		—			(808	)		—			—			—			(808	)		(96,244	)

EBITDA		141,041			(666	)		(4,176	)		(31,462	)		(3,069	)		(777	)		(40,150	)		100,891
Depreciation and amortization		(39,329	)		—			—			—			—			—			—			(39,329	)
Interest, net		(56,008	)		—			—			—			—			—			—			(56,008	)

Income from continuing operations before income taxes		45,704			(666	)		(4,176	)		(31,462	)		(3,069	)		(777	)		(40,150	)		5,554
Provision for income taxes		15,298			(196	)		(1,225	)		(429	)		(697	)		(228	)		(2,775	)		12,523

		30,406		$	(470	)	$	(2,951	)	$	(31,033	)	$	(2,372	)	$	(549	)	$	(37,375	)		(6,969	)

Noncontrolling interests		(9,900	)																				(9,900	)

Income (loss) attributable to Kindred	$	20,506																				$	(16,869	)


Diluted earnings (loss) per common share	$	0.23																				$	(0.20	)
Diluted shares used in computing earnings (loss) per common share		86,892																					86,184


	Three months ended September 30, 2014
				Charges
				Severance
	Before			and other			Customer			Gentiva			Other						As
	charges			restructuring			bankruptcy			transaction			transaction			Total			reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	117,604		$	(617	)	$	—		$	—		$	—		$	(617	)	$	116,987

Kindred at Home:
Home health		5,961			(275	)		—			—			—			(275	)		5,686
Hospice		1,149			(46	)		—			—			—			(46	)		1,103

		7,110			(321	)		—			—			—			(321	)		6,789

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		24,887			—			(1,857	)		—			—			(1,857	)		23,030
RehabCare		17,080			162			—			—			—			162			17,242

		41,967			162			(1,857	)		—			—			(1,695	)		40,272

Nursing center division		35,920			(483	)		—			—			—			(483	)		35,437

Support center		(45,383	)		(427	)		—			—			—			(427	)		(45,810	)
Transaction costs		—			—			—			(3,200	)		(914	)		(4,114	)		(4,114	)

Operating income (EBITDAR)		157,218			(1,686	)		(1,857	)		(3,200	)		(914	)		(7,657	)		149,561
Rent		(77,643	)		—			—			—			—			—			(77,643	)

EBITDA		79,575			(1,686	)		(1,857	)		(3,200	)		(914	)		(7,657	)		71,918
Depreciation and amortization		(38,748	)		—			—			—			—			—			(38,748	)
Interest, net		(22,171	)		—			—			—			—			—			(22,171	)

Income from continuing operations before income taxes		18,656			(1,686	)		(1,857	)		(3,200	)		(914	)		(7,657	)		10,999
Provision for income taxes		6,168			(923	)		(1,017	)		(69	)		(382	)		(2,391	)		3,777

		12,488		$	(763	)	$	(840	)	$	(3,131	)	$	(532	)	$	(5,266	)		7,222

Noncontrolling interests		(4,372	)																	(4,372	)

Income attributable to Kindred	$	8,116																	$	2,850


Diluted earnings per common share	$	0.13																	$	0.04
Diluted shares used in computing earnings per common share		62,902																		62,902

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 16

November 4, 2015

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Nine months ended September 30, 2015
				Charges
							Hospital			Development									Gentiva			Gentiva
				Retirement			and home			project									pre-closing			transaction
	Before			and			health/hospice			cancellation			Litigation			Impairment			financing			and			Other						As
	charges			severance			closings			and other			contingency			charges			costs			integration			transaction			Total			reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	363,446		$	(666	)	$	(1,044	)	$	(675	)	$	—		$	—		$	—		$	—		$	—		$	(2,385	)	$	361,061

Kindred at Home:
Home health		187,870			—			(4,261	)		—			—			—			—			—			—			(4,261	)		183,609
Hospice		78,908			—			(2,484	)		—			—			—			—			—			—			(2,484	)		76,424

		266,778			—			(6,745	)		—			—			—			—			—			—			(6,745	)		260,033


Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		131,236			—			—			—			—			—			—			—			—			—			131,236
RehabCare		45,718			(785	)		—			—			—			—			—			—			—			(785	)		44,933

		176,954			(785	)		—			—			—			—			—			—			—			(785	)		176,169


Nursing center division		113,347			—			—			(584	)		—			—			—			—			—			(584	)		112,763

Support center		(188,037	)		(4,176	)		—			—			—			—			—			—			—			(4,176	)		(192,213	)
Litigation contingency expense		—			—			—			—			(130,387	)		—			—			—			—			(130,387	)		(130,387	)
Transaction costs		—			—			—			—			—			—			(6,005	)		(94,009	)		(3,750	)		(103,764	)		(103,764	)
Impairment charges		—			—			—			—			—			(6,726	)		—			—			—			(6,726	)		(6,726	)

Operating income (EBITDAR)		732,488			(5,627	)		(7,789	)		(1,259	)		(130,387	)		(6,726	)		(6,005	)		(94,009	)		(3,750	)		(255,552	)		476,936
Rent		(282,163	)		—			(1,479	)		(352	)		—			—			—			(792	)		—			(2,623	)		(284,786	)

EBITDA		450,325			(5,627	)		(9,268	)		(1,611	)		(130,387	)		(6,726	)		(6,005	)		(94,801	)		(3,750	)		(258,175	)		192,150
Depreciation and amortization		(116,889	)		—			—			—			—			—			—			—			—			—			(116,889	)
Interest, net		(156,494	)		—			—			—			—			—			(17,431	)		—			—			(17,431	)		(173,925	)

Income (loss) from continuing operations before income taxes		176,942			(5,627	)		(9,268	)		(1,611	)		(130,387	)		(6,726	)		(23,436	)		(94,801	)		(3,750	)		(275,606	)		(98,664	)
Provision for income taxes		63,485			(2,202	)		(3,627	)		(631	)		(2,108	)		(2,633	)		(9,173	)		(32,460	)		(1,468	)		(54,302	)		9,183

		113,457		$	(3,425	)	$	(5,641	)	$	(980	)	$	(128,279	)	$	(4,093	)	$	(14,263	)	$	(62,341	)	$	(2,282	)	$	(221,304	)		(107,847	)

Noncontrolling interests		(30,482	)																													(30,482	)

Income (loss) attributable to Kindred	$	82,975																													$	(138,329	)


Diluted earnings (loss) per common share	$	0.95																													$	(1.65	)
Diluted shares used in computing earnings (loss) per common share		85,691																														83,960


	Nine months ended September 30, 2014
				Charges
				Severance
	Before			and other			Customer			Litigation			Debt			Gentiva			Other						As
	charges			restructuring			bankruptcy			contingency			refinancing			transaction			transaction			Total			reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	389,099		$	(617	)	$	—		$	—		$	—		$	—		$	—		$	(617	)	$	388,482

Kindred at Home:
Home health		14,575			(996	)		—			—			—			—			—			(996	)		13,579
Hospice		5,140			(168	)		—			—			—			—			—			(168	)		4,972

		19,715			(1,164	)		—			—			—			—			—			(1,164	)		18,551


Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		76,339			(170	)		(1,857	)		—			—			—			—			(2,027	)		74,312
RehabCare		54,959			(14	)		—			—			—			—			—			(14	)		54,945

		131,298			(184	)		(1,857	)		—			—			—			—			(2,041	)		129,257


Nursing center division		112,106			(3,688	)		—			—			—			—			—			(3,688	)		108,418

Support center		(138,091	)		(983	)		—			—			—			—			—			(983	)		(139,074	)
Litigation contingency expense		—			—			—			(4,600	)											(4,600	)		(4,600	)
Transaction costs		—			—			—			—			—			(5,279	)		(4,014	)		(9,293	)		(9,293	)

Operating income (EBITDAR)		514,127			(6,636	)		(1,857	)		(4,600	)		—			(5,279	)		(4,014	)		(22,386	)		491,741
Rent		(233,625	)		(247	)		—			—			—			—			—			(247	)		(233,872	)

EBITDA		280,502			(6,883	)		(1,857	)		(4,600	)		—			(5,279	)		(4,014	)		(22,633	)		257,869
Depreciation and amortization		(117,012	)		—			—			—			—			—			—			—			(117,012	)
Interest, net		(69,226	)		—			—			—			(56,643	)		—			—			(56,643	)		(125,869	)

Income from continuing operations before income taxes		94,264			(6,883	)		(1,857	)		(4,600	)		(56,643	)		(5,279	)		(4,014	)		(79,276	)		14,988
Provision for income taxes		34,225			(2,700	)		(729	)		(1,805	)		(22,223	)		(49	)		(1,430	)		(28,936	)		5,289

		60,039		$	(4,183	)	$	(1,128	)	$	(2,795	)	$	(34,420	)	$	(5,230	)	$	(2,584	)	$	(50,340	)		9,699

Noncontrolling interests		(13,729	)																							(13,729	)

Income (loss) attributable to Kindred	$	46,310																							$	(4,030	)


Diluted earnings (loss) per common share	$	0.80																							$	(0.07	)
Diluted shares used in computing earnings (loss) per common share		56,506																								56,443

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 17

November 4, 2015

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended March 31, 2015
				Charges
							Home health			Development									Gentiva			Gentiva
				Retirement			and			project									pre-closing			transaction
	Before			and			hospice			cancellation			Litigation			Impairment			financing			and			Other						As
	charges			severance			closings			and other			contingency			charges			costs			integration			transaction			Total			reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	134,786		$	—		$	—		$	(675	)	$	—		$	—		$	—		$	—		$	—		$	(675	)	$	134,111

Kindred at Home:
Home health		46,798			—			(1,102	)		—			—			—			—			—			—			(1,102	)		45,696
Hospice		16,996			—			(517	)		—			—			—			—			—			—			(517	)		16,479

		63,794			—			(1,619	)		—			—			—			—			—			—			(1,619	)		62,175


Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		44,564			—			—			—			—			—			—			—			—			—			44,564
RehabCare		16,493			(785	)		—			—			—			—			—			—			—			(785	)		15,708

		61,057			(785	)		—			—			—			—			—			—			—			(785	)		60,272


Nursing center division		36,963			—			—			—			—			—			—			—			—			—			36,963

Support center		(62,389	)		(4,176	)		—			—			—			—			—			—			—			(4,176	)		(66,565	)
Litigation contingency expense		—			—			—			—			(95,000	)		—			—			—			—			(95,000	)		(95,000	)
Transaction costs		—			—			—			—			—			—			(6,005	)		(86,598	)		(2,099	)		(94,702	)		(94,702	)
Impairment charges		—			—			—			—			—			(6,726	)		—			—			—			(6,726	)		(6,726	)

Operating income (EBITDAR)		234,211			(4,961	)		(1,619	)		(675	)		(95,000	)		(6,726	)		(6,005	)		(86,598	)		(2,099	)		(203,683	)		30,528
Rent		(91,199	)		—			—			(352	)		—			—			—			(589	)		—			(941	)		(92,140	)

EBITDA		143,012			(4,961	)		(1,619	)		(1,027	)		(95,000	)		(6,726	)		(6,005	)		(87,187	)		(2,099	)		(204,624	)		(61,612	)
Depreciation and amortization		(38,935	)		—			—			—			—			—			—			—			—			—			(38,935	)
Interest, net		(44,346	)		—			—			—			—			—			(17,431	)		—			—			(17,431	)		(61,777	)

Income (loss) from continuing operations before income taxes		59,731			(4,961	)		(1,619	)		(1,027	)		(95,000	)		(6,726	)		(23,436	)		(87,187	)		(2,099	)		(222,055	)		(162,324	)
Provision (benefit) for income taxes		22,466			(2,133	)		(696	)		(442	)		—			(2,891	)		(10,075	)		(33,063	)		(902	)		(50,202	)		(27,736	)

		37,265		$	(2,828	)	$	(923	)	$	(585	)	$	(95,000	)	$	(3,835	)	$	(13,361	)	$	(54,124	)	$	(1,197	)	$	(171,853	)		(134,588	)

Noncontrolling interests		(8,847	)																													(8,847	)

Income (loss) attributable to Kindred	$	28,418																													$	(143,435	)


Diluted earnings (loss) per common share	$	0.34																													$	(1.80	)
Diluted shares used in computing earnings (loss) per common share		82,422																														79,575


	Three months ended March 31, 2014
				Charges
	Before			Transaction			As
	charges			costs			reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	139,505		$	—		$	139,505

Kindred at Home:
Home health		2,845			—			2,845
Hospice		1,852			—			1,852

		4,697			—			4,697


Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		25,710			—			25,710
RehabCare		18,016			—			18,016

		43,726			—			43,726


Nursing center division		37,572			—			37,572

Support center		(44,456	)		—			(44,456	)
Transaction costs		—			(683	)		(683	)

Operating income (EBITDAR)		181,044			(683	)		180,361
Rent		(78,530	)		—			(78,530	)

EBITDA		102,514			(683	)		101,831
Depreciation and amortization		(39,092	)		—			(39,092	)
Interest, net		(25,617	)		—			(25,617	)

Income from continuing operations before income taxes		37,805			(683	)		37,122
Provision for income taxes		14,445			(250	)		14,195

		23,360		$	(433	)		22,927

Noncontrolling interests		(4,529	)					(4,529	)

Income attributable to Kindred	$	18,831					$	18,398


Diluted earnings per common share	$	0.35					$	0.34
Diluted shares used in computing earnings per common share		52,711						52,711

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 18

November 4, 2015

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended June 30, 2015
				Charges
				Hospital			Development						Gentiva
				and home			project						transaction
	Before			health/hospice			cancellation			Litigation			and			Other						As
	charges			closings			and other			contingency			integration			transaction			Total			reported
Income from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	131,532		$	(565	)	$	—		$	—		$	—		$	—		$	(565	)	$	130,967

Kindred at Home:
Home health		72,917			(588	)		—			—			—			—			(588	)		72,329
Hospice		27,887			(1,649	)		—			—			—			—			(1,649	)		26,238

		100,804			(2,237	)		—			—			—			—			(2,237	)		98,567


Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		44,531			—			—			—			—			—			—			44,531
RehabCare		14,681			—			—			—			—			—			—			14,681

		59,212			—			—			—			—			—			—			59,212


Nursing center division		40,461			—			(584	)		—			—			—			(584	)		39,877

Support center		(70,209	)		—			—			—			—			—			—			(70,209	)
Litigation contingency expense		—			—			—			(3,925	)		—			—			(3,925	)		(3,925	)
Transaction costs		—			—			—			—			(4,342	)		(874	)		(5,216	)		(5,216	)

Operating income (EBITDAR)		261,800			(2,802	)		(584	)		(3,925	)		(4,342	)		(874	)		(12,527	)		249,273
Rent		(95,528	)		(671	)		—			—			(203	)		—			(874	)		(96,402	)

EBITDA		166,272			(3,473	)		(584	)		(3,925	)		(4,545	)		(874	)		(13,401	)		152,871
Depreciation and amortization		(38,625	)		—			—			—			—			—			—			(38,625	)
Interest, net		(56,140	)		—			—			—			—			—			—			(56,140	)

Income from continuing operations before income taxes		71,507			(3,473	)		(584	)		(3,925	)		(4,545	)		(874	)		(13,401	)		58,106
Provision for income taxes		25,721			(368	)		(62	)		(416	)		(386	)		(93	)		(1,325	)		24,396

		45,786		$	(3,105	)	$	(522	)	$	(3,509	)	$	(4,159	)	$	(781	)	$	(12,076	)		33,710

Noncontrolling interests		(11,735	)																				(11,735	)

Income attributable to Kindred	$	34,051																				$	21,975


Diluted earnings per common share	$	0.39																				$	0.25
Diluted shares used in computing earnings per common share		86,402																					86,402

	Three months ended June 30, 2014
				Charges
				Severance
	Before			and other			Litigation			Debt			Gentiva			Other						As
	charges			restructuring			contingency			refinancing			transaction			transaction			Total			reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	131,990		$	—		$	—		$	—		$	—		$	—		$	—		$	131,990

Kindred at Home:
Home health		5,769			(721	)		—			—			—			—			(721	)		5,048
Hospice		2,139			(122	)		—			—			—			—			(122	)		2,017

		7,908			(843	)		—			—			—			—			(843	)		7,065


Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		25,742			(170	)		—			—			—			—			(170	)		25,572
RehabCare		19,863			(176	)		—			—			—			—			(176	)		19,687

		45,605			(346	)		—			—			—			—			(346	)		45,259


Nursing center division		38,614			(3,205	)		—			—			—			—			(3,205	)		35,409

Support center		(48,252	)		(556	)		—			—			—			—			(556	)		(48,808	)
Litigation contingency expense		—			—			(4,600	)		—			—			—			(4,600	)		(4,600	)
Transaction costs		—			—			—			—			(2,079	)		(2,417	)		(4,496	)		(4,496	)

Operating income (EBITDAR)		175,865			(4,950	)		(4,600	)		—			(2,079	)		(2,417	)		(14,046	)		161,819
Rent		(77,452	)		(247	)		—			—			—			—			(247	)		(77,699	)

EBITDA		98,413			(5,197	)		(4,600	)		—			(2,079	)		(2,417	)		(14,293	)		84,120
Depreciation and amortization		(39,172	)		—			—			—			—			—			—			(39,172	)
Interest, net		(21,438	)		—			—			(56,643	)		—			—			(56,643	)		(78,081	)

Income (loss) from continuing operations before income taxes		37,803			(5,197	)		(4,600	)		(56,643	)		(2,079	)		(2,417	)		(70,936	)		(33,133	)
Provision (benefit) for income taxes		13,612			(1,985	)		(1,757	)		(21,639	)		—			(914	)		(26,295	)		(12,683	)

		24,191		$	(3,212	)	$	(2,843	)	$	(35,004	)	$	(2,079	)	$	(1,503	)	$	(44,641	)		(20,450	)

Noncontrolling interests		(4,828	)																				(4,828	)

Income (loss) attributable to Kindred	$	19,363																				$	(25,278	)


Diluted earnings (loss) per common share	$	0.35																				$	(0.47	)
Diluted shares used in computing earnings (loss) per common share		53,792																					53,714

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Kindred Healthcare Reports Third Quarter 2015 Results

Page 19

November 4, 2015

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended December 31, 2014
				Charges
	Before charges			Severance and other restructuring			LTAC criteria consulting			Gentiva pre-closing financing			Gentiva transaction			Other transaction			Total			As reported
Income (loss) from continuing operations:
Operating income (loss) (EBITDAR):
Hospital division	$	134,791		$	(318	)	$	—		$	—		$	—		$	—		$	(318	)	$	134,473

Kindred at Home:
Home health		7,398			(828	)		—			—			—			—			(828	)		6,570
Hospice		524			(106	)		—			—			—			—			(106	)		418

		7,922			(934	)		—			—			—			—			(934	)		6,988


Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		23,884			—			—			—			—			—			—			23,884
RehabCare		16,029			—			—			—			—			—			—			16,029

		39,913			—			—			—			—			—			—			39,913


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

Support center		(51,348	)		(10,193	)		(2,460	)		—			—			—			(12,653	)		(64,001	)
Transaction costs		—			—			—			—			(5,545	)		(3,145	)		(8,690	)		(8,690	)

Operating income (EBITDAR)		170,088			(11,945	)		(2,460	)		—			(5,545	)		(3,145	)		(23,095	)		146,993
Rent		(79,167	)		—			—			—			—			—			—			(79,167	)

EBITDA		90,921			(11,945	)		(2,460	)		—			(5,545	)		(3,145	)		(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	)		(5,545	)		(3,145	)		(40,136	)		(9,630	)
Provision (benefit) for income taxes		8,471			(4,251	)		(875	)		(5,975	)		(1,514	)		(683	)		(13,298	)		(4,827	)

		22,035		$	(7,694	)	$	(1,585	)	$	(11,066	)	$	(4,031	)	$	(2,462	)	$	(26,838	)		(4,803	)

Noncontrolling interests		(5,143	)																				(5,143	)

Income (loss) attributable to Kindred	$	16,892																				$	(9,946	)


Diluted earnings (loss) per common share	$	0.26																				$	(0.15	)
Diluted shares used in computing earnings (loss) per common share		63,163																					65,135

- MORE -

Kindred Healthcare Reports Third Quarter 2015 Results

Page 20

November 4, 2015

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

The Company recognizes that operating cash flows and free cash flows excluding certain items, which the Company refers to as core operating cash flows and core free cash flows, 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.


	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014

Reconciliation of net cash flows provided by operating activities to free cash flows:
Net cash flows provided by operating activities	$	132,290		$	90,039		$	93,067		$	24,322
Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows provided by operating activities:
Transaction, severance, retirement and retention		5,251			5,836			102,100			15,390
Ventas, Inc. lease termination fee		—			—			40,000			—
Capitalized lender fees related to debt refinancing		—			—			28,012			19,125
Other debt refinancing costs (expensed)		13,438			—			40,439			40,373
Other lease termination fees		—			—			353			—
Litigation		—			—			16,575			25,850

		18,689			5,836			227,479			100,738

Net cash flows provided by operating activities excluding certain items before income tax benefit of certain payments		150,979			95,875			320,546			125,060
Benefit of reduced income tax payments resulting from certain payments		(22,541	)		(8,253	)		(56,295	)		(22,857	)

Net cash flows provided by operating activities excluding certain items (core operating cash flows) (a)		128,438			87,622			264,251			102,203

Less routine capital expenditures		(35,422	)		(21,263	)		(80,691	)		(67,425	)

Free cash flows excluding certain items (core free cash flows)	$	93,016		$	66,359		$	183,560		$	34,778

(a)	Includes $29 million of federal income tax refunds received in the third quarter of 2015 and $26 million of federal income tax refunds for the nine months ended September 30, 2014. The Company made no federal income tax payments for the nine months ended September 30, 2015 or 2014.

- END -

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