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

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EX-99.2 - EX-99.2 - KINDRED HEALTHCARE, INC	d470345dex992.htm
8-K - FORM 8-K - KINDRED HEALTHCARE, INC	d470345d8k.htm

EXHIBIT 99.1

LOGO

Contact:

Todd Flowers

Investor Relations

(502) 596-6569

KINDRED HEALTHCARE UPDATES STRATEGY AND REPORTS THIRD QUARTER 2016 RESULTS

Announces Plan to Exit the Skilled Nursing Facility Business;

Announces Associated $70 Million to $100 Million Cost Realignment Initiative⁽¹⁾

Enterprise Strategy Focused on Stronger Cash Flow, Higher Margin, Lower Capital Intensity Businesses

Third Quarter Consolidated Revenues of $1.8 Billion, GAAP Loss from Continuing Operations of $671 Million, GAAP Diluted Loss Per Share from Continuing Operations of $7.89 and EBITDAR Loss of $134 Million⁽²⁾

Results Reflect After-Tax Costs of $690 Million Primarily Including Non-Cash Impairments of $266 Million⁽³⁾, Non-Cash Deferred Tax Asset Valuation Allowance of $366 Million, and Hospital Divestiture Costs of $47 Million⁽³⁾⁽⁴⁾

Core EBITDAR of $220 Million⁽²⁾ and Core Diluted EPS from Continuing Operations of $0.05⁽²⁾ in the Third Quarter

Third Quarter GAAP Operating Cash Flows of $36 million; Core Operating Cash Flows of $30 Million⁽²⁾

Updates Full Year 2016 Outlook

LOUISVILLE, Ky. (November 7, 2016) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2016.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “We are taking proactive strategic steps to position Kindred for long-term success against the backdrop of dynamic changes in the healthcare services industry. Our plan to exit the skilled nursing facility business, together with the significant cost realignment initiative we are undertaking in connection with the exit, are substantial steps forward in our continuing effort to transform Kindred’s strategy and growth profile to enhance shareholder value.”

Mr. Breier added, “Over the past few years we have dramatically transformed the composition of Kindred, and our drivers of profitability and growth. Following our exit of the skilled nursing facility business and the associated cost realignment initiative, Kindred’s earnings stream, cash flow generation and leverage profile will be substantially improved, including significant reductions of fixed costs such as rent and capital expenditures. Over time, when complete, we expect approximately half of Kindred’s earnings before interest and income taxes (“EBIT”) to come from Kindred at Home, the nation’s largest home health, hospice and community care provider, roughly one-quarter of Kindred’s EBIT to come from our Long-Term Acute Care (“LTAC”) Hospital Division, and the remaining approximately one-quarter of EBIT from Kindred’s Rehabilitation Services Division, which includes one of the fastest growing inpatient rehabilitation facilities (“IRF”) businesses in the country.”

Plan to Exit the Skilled Nursing Facility Business

Mr. Breier continued, “Our strategic decision to exit the skilled nursing facility business as an owner and operator is the final step in a process that began years ago when Kindred operated approximately 300 skilled nursing facilities. This decision will reduce annual rent obligations by approximately $90 million and annual capital expenditures by approximately $30 million. In addition, Kindred will optimize its overhead structure by eliminating approximately $70 million to $100 million⁽¹⁾ of divisional and corporate overhead above the facility level, much of which is associated with supporting our skilled nursing facilities.”

(1)	See Forward-Looking Statements beginning on page 14.

(2)	See reconciliation of generally accepted accounting principles (“GAAP”) results to non-GAAP results beginning on page 14. As used herein, “EBITDAR” means earnings before interest, income taxes, depreciation, amortization and rent.

(3)	The income tax benefit used to compute after-tax cost is before the deferred tax valuation allowance is applied.

(4)

In connection with the previously announced sale of twelve hospitals to a group of entities under the name “Curahealth”, which are affiliates of a private investment fund sponsored by Nautic Partners, LLC, on October 1, 2016 (the “Curahealth Disposal”), the Company recorded a lease termination fee of $51.8 million ($31.4 million net of income taxes) and loss on sale of $8.1 million ($4.9 million net of income taxes) in the third quarter of 2016. In addition, the Company closed three LTAC hospitals in the third quarter and incurred facility closing and other costs totaling $17.6 million ($10.7 million net of income taxes).

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680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 2

November 7, 2016

LTAC Criteria

Mr. Breier continued, “In preparation for LTAC patient criteria, during recent months we completed the strategic sale, swap or closure of 20 LTAC hospitals, executing a critical component of our multi-faceted criteria mitigation strategy. These actions leave Kindred with a meaningfully reshaped portfolio of 82 LTAC hospitals, with strategically reduced unused bed capacity in many of the markets we serve.

“Effective September 1, 2016, all of our ongoing LTAC hospitals were being reimbursed under the new criteria model. For the month of September, approximately 86% of our ongoing Hospital Division revenue came from Medicare compliant patients, managed care and commercial patients, and patients from other payors such as Medicaid. The remaining 14% of revenue was from Medicare site-neutral patients. The unmitigated revenue impact of LTAC criteria for the ongoing hospital portfolio in September was approximately $8 million.

“After two years of preparation, and based on early feedback, we are confident in our ability to successfully navigate through this transition. We continue to expect that by the end of 2017, on a run rate basis, we will mitigate roughly half of the impact of this reimbursement change. We expect to have many more insights on these trends and our experience with criteria once we complete our first full quarter,” remarked Mr. Breier.

Continued Growth in other Business Lines

Mr. Breier continued, “We remain optimistic about the growth opportunities in our home health, hospice, community care and IRF businesses. During the quarter, we acquired a large home health, hospice and community care business in Arkansas and continued to work through integration activities in our Kindred at Home (“KAH”) Division. We are pleased with the strong volume and revenue growth in KAH as well as our Kindred Hospital Rehabilitation Services (“KHRS”) business and will continue our efforts to expand these businesses through organic growth, acquisitions and joint venture arrangements.

“We also continue to make great progress in developing our post-acute benefits management capabilities. Our future will be driven by our ability to not only care for patients, but to manage populations through a unique bundle of technology-enabled care management capabilities. We believe these combined actions are setting the foundation for a stronger Kindred as we drive effective patient-centered care solutions and proactively address the changing healthcare marketplace,” remarked Mr. Breier.

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.

Third Quarter Consolidated Results⁽¹⁾:

•

Consolidated revenues were $1.8 billion, a 1.6% year-over-year increase, while the GAAP loss from continuing operations was $671.3 million compared to a loss of $7.0 million in the same period in 2015. The increase in the GAAP loss from continuing operations was primarily attributable to non-cash goodwill and property impairment charges totaling $324.3 million ($266.1 million⁽²⁾ net of income taxes), a non-cash deferred tax valuation allowance of $366.5 million and restructuring charges related to the sale or closure of 15 LTAC hospitals of $77.5 million ($47.0 million⁽²⁾ net of income taxes). Core EBITDAR declined 6.9% to $220.1 million compared to $236.5 million in the same period in 2015, primarily due to declines in average daily census in both the Nursing Center and RehabCare business segments, lower Medicare revenue rates under LTAC patient criteria, and Hospital Division closing costs and labor pressures.

•

GAAP operating cash flows were $36.0 million compared to $132.3 million for the same period a year ago. Core operating cash flows were $30.3 million compared to $128.4 million for the same period a year ago. Core free cash flows were $3.7 million compared to $82.3 million in the same period a year ago. The decline in both GAAP and core operating and free cash flows in the third quarter of 2016 was primarily attributable to certain timing differences and other items increasing cash required to fund working capital, much of which is expected to be transitional in nature and recouped over the balance of 2016 and into early 2017. Both GAAP and core operating and free cash flow were also impacted in the third quarter by lower earnings.

(1)	See reconciliation of GAAP results to non-GAAP results beginning on page 14.

(2)	The income tax benefit used to compute after-tax cost is before the deferred tax valuation allowance is applied.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 3

November 7, 2016

Third Quarter Consolidated Results⁽¹⁾(Continued):

•

GAAP diluted loss per share from continuing operations was $7.89 as compared to $0.20 a year ago. The increase in GAAP diluted loss per share from continuing operations was primarily attributable to an increase in certain charges in the third quarter of 2016. GAAP diluted loss per share in the third quarter of 2016 includes after-tax costs of $689.9 million or $7.94 per diluted share of charges related to impairments, deferred tax asset valuation allowance, restructuring, transaction, integration, and research and development costs. GAAP diluted loss per share in the third quarter of 2015 includes $40.2 million ($37.4 million net of income taxes) or $0.43 per diluted share of charges related to restructuring, transaction, integration and litigation costs. Core diluted earnings per share (“EPS”) from continuing operations was $0.05 as compared to $0.23 a year ago. The decline in core diluted EPS was attributable to the same factors discussed above that contributed to a decline in core EBITDAR, plus a 3% increase in aggregate rent, depreciation and amortization, and net interest expense.

•

The Company recorded a $261.1 million non-cash goodwill impairment charge in the third quarter to reflect an adjustment to the carrying value of its Hospital Division reporting unit. The Company also recorded a $24.9 million non-cash property and equipment impairment charge primarily related to the Nursing Center Division.

•

The Company recorded a $366.5 million non-cash deferred tax valuation allowance in the third quarter based upon current expectations of GAAP and taxable losses in 2016 combined with cumulative years of historical GAAP and taxable losses incurred primarily from restructuring and transactional activities, refinancing fees and litigation settlements. This non-cash charge is included in the third quarter income tax provision and will have no impact on the Company’s ability to utilize its net operating loss (“NOL”) carryforwards on a cash basis as Kindred earns taxable income in future periods.

Third Quarter Segment Results⁽¹⁾⁽²⁾:

KAH, which comprises our home health, hospice, community care and home-based primary care businesses, recorded third quarter revenues that increased 5.5% over the prior year period to $638.5 million with home health episodic admissions growing 3.7% and hospice average daily census growing 5.4% compared to the same period last year. Segment EBITDAR (GAAP) increased 4.6% to $106.4 million as compared to $101.7 million and core EBITDAR increased 4.1% to $106.4 million compared to $102.2 million, both compared to the prior year period. On a same-store basis, home health episodes grew 6.9% and hospice admissions grew 8.3% over the prior year period.

Kindred’s Hospital Division third quarter revenues declined 0.7% from the prior year period to $575.3 million due to its full entrance into LTAC patient criteria, and the closure of three LTAC hospitals within the period. These declines were offset partially by a 1% increase in same-hospital admissions and a 3.3% increase in same-hospital commercial revenue rates. Segment EBITDAR (GAAP) in the Hospital Division for the third quarter declined 13.9% to $82.8 million from $96.1 million a year ago, and core EBITDAR for the third quarter declined 14.8% to $82.8 million from $97.1 million a year ago, both due primarily to LTAC patient criteria and increases in labor costs. These results also reflect an unbudgeted EBITDAR decline compared to expectations in the third quarter of 2016 of $3.2 million related to the operations of LTAC hospitals acquired in a facility swap transaction in the second quarter of 2016, and $3.9 million related to the operations of three LTAC hospitals closed in the third quarter of 2016.

Kindred Rehabilitation Services (“KRS”) Division, which comprises our hospital-based rehabilitation segment, recorded third quarter revenues that declined 2.0% from the prior year period to $361.5 million. Segment EBITDAR (GAAP) for KRS increased 3.6% to $58.7 million as compared to $56.7 million in the prior year period and core EBITDAR increased 4.9% to $59.5 million compared to $56.7 million a year ago. Strong performance in the third quarter from KHRS IRFs was offset by the continuing impact of previously reported contract losses in RehabCare, which occurred primarily in 2015. The KHRS segment achieved strong revenue growth of 13.1%, and segment EBITDAR (GAAP) and core EBITDAR grew 17.4% and 19.2%, respectively, compared to the same period a year ago, with IRF same-hospital discharges growing 5.9% during the quarter. RehabCare revenues declined 12.3% to $192.5 million. RehabCare third quarter segment EBITDAR (GAAP) and core EBITDAR both declined 36.4% to $9.3 million from $14.5 million a year ago.

(1)	See reconciliation of GAAP results to non-GAAP results beginning on page 14.

(2)	See same-hospital and full segment data on pages 9 through 13.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 4

November 7, 2016

Third Quarter Segment Results⁽¹⁾⁽²⁾(Continued):

Kindred’s Nursing Center Division third quarter revenues declined 0.1% to $270.3 million compared to the same period last year. Segment EBITDAR (GAAP) and core EBITDAR both declined 16.7% to $29.9 million compared to $35.9 million a year ago, as a result of a 0.7% decline in average daily census, patient mix deterioration and higher labor costs.

2016 Outlook

All forward-looking non-GAAP financial measures contained in this section “2016 Outlook” are provided only on a non-GAAP basis. This is due to the inherent difficulty of forecasting the timing or amount of items that would be included in the most directly comparable forward-looking GAAP financial measures. As a result, reconciliation of the forward-looking non-GAAP financial measures to GAAP financial measures is not available without unreasonable effort and the Company is unable to address the probable significance of the unavailable information.

The Company’s outlook excludes transaction costs, the effect of any reimbursement changes, debt refinancing costs, severance, retirement, retention, restructuring costs, litigation and related contingency expense, integration costs, business interruption settlements, research and development, any further acquisitions or divestitures, any impairment charges, deferred tax asset valuation allowance, any further issuances of common stock or any repurchases of common stock.

Kindred today updated its outlook for 2016. Kindred expects:

•

Annual revenues of approximately $7.2 billion (previously $7.2 billion to $7.3 billion).

•

Core EBITDAR of $950 million to $970 million (previously $970 million to $1.010 billion). Please note that approximately $10 million of this adjustment was due to items previously excluded from guidance.⁽³⁾

•

Core diluted EPS from continuing operations of $0.70 to $0.80 per share (previously $0.80 to $1.00 per share). Please note that approximately $0.03 per share of this adjustment was due to items previously excluded from guidance.⁽³⁾⁽⁴⁾

Mr. Breier concluded, “While our results for the third quarter were within our guidance range, we are reducing our financial outlook for the balance of 2016. Our change in expectations is primarily impacted by significant headwinds facing the skilled nursing facility business and labor cost challenges impacting both the Company and the healthcare industry in general. Our exposure to the challenges facing the nursing center industry is expected to amount to between $40 million to $50 million of EBITDAR compared to our operating plan for the year upon which our guidance was based. Our decision to reduce guidance for the balance of 2016, exit the skilled nursing facility business and substantially reduce our overhead is directly related to these challenges.”

The Company will update its outlook for 2017 with its fourth quarter earnings release in February 2017, which will reflect the planned exit from the skilled nursing facility business and associated cost realignment initiative.

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, noted, “We expect our full exit from the skilled nursing facility business, upon completion, to be positive for future cash flows. In the near term, we have previously discussed our expectation that Kindred will generate roughly $300 million per year in core operating cash flows and approximately half of that amount in core free cash flows. With our revised earnings outlook for 2016, we would expect a relatively proportionate adjustment to cash flows. We also expect a number of timing-related working capital items to modestly impact Kindred’s cash flows over the balance of the year and into early 2017. ”

(1)	See reconciliation of GAAP results to non-GAAP results beginning on page 14.

(2)	See same-hospital and full segment data on pages 9 through 13.

(3)

Contributing to the reduction of 2016 outlook are two events (a) the Curahealth Disposal and reduced hospital earnings, compared to the budget upon which previous guidance was based, and (b) reimbursement rate reductions announced by the Center for Medicare and Medicaid Services on August 2, 2016. Each of these required a $5 million reduction in core EBITDAR guidance and the latter required a $0.03 reduction in core diluted EPS guidance.

(4)	The EPS estimate is based upon an estimated weighted average annual diluted share count for 2016 of 87.5 million shares.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 5

November 7, 2016

2016 Outlook (Continued)

Mr. Farber continued, “Every quarter we experience routine working capital and initiative-related timing differences with cash flows that should be expected as a matter of course by those that follow and model the Company. In the third quarter these items accounted for much of the difference in year-over-year cash flow performance. For example, during the third quarter licensure transfers related to recent acquisitions had a $16 million temporary negative impact. These transfers are now complete and we expect to process the billing backlog before the end of the year. There are also frequent calendar-driven timing issues, such as an extra payroll cycle in the third quarter compared to prior year, which had a negative $30 million impact on cash flows this period, and one less Medicare payment cycle during the third quarter compared to the prior year, which had a negative impact on reported LTAC collections of approximately $35 million. Additionally, during the quarter two of our payors, one large commercial payor and one state Medicaid payor, both had systems problems that slowed down payment processing and increased accounts receivable in the third quarter by approximately $13 million.”

Mr. Farber concluded, “Cash flow remains a core focus for Kindred, and the non-cash deferred tax asset valuation allowance charge this quarter will have no impact on our ability to utilize our NOLs going forward as Kindred earns taxable income. Finally, we ended the quarter with excellent liquidity, with approximately $160 million drawn on our $900 million asset-based revolving credit facility.”

The Kindred Board of Directors declared a cash dividend of $0.12 per share on the Company’s common stock payable on December 9, 2016 to shareholders of record as of the close of business on November 21, 2016.

Conference Call

As previously announced, investors and the general public may access a live webcast of the third quarter 2016 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on November 8 at 9:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 12:00 p.m. on November 8 by dialing (719) 457-0820, access code: 6877746. The replay will be available through November 18.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 14 for important disclosures regarding the Company’s forward-looking statements and the non-GAAP financial reconciliations that follow.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-90 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⁾. As of October 1, 2016, Kindred through its subsidiaries had approximately 102,200 employees providing healthcare services in 2,702 locations in 46 states, including 82 LTAC hospitals, 19 inpatient rehabilitation hospitals, 91 nursing centers, 19 sub-acute units, 647 Kindred at Home home health, hospice and non-medical home care sites of service, 104 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,740 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for seven 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 based upon Kindred consolidated revenues for the twelve months ended September 30, 2016.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 6

November 7, 2016

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)


	Three months ended						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenues	$	1,793,527		$	1,764,516		$	5,473,568		$	5,273,958

Salaries, wages and benefits		957,644			922,140			2,812,812			2,704,920
Supplies		95,500			96,551			294,326			288,059
Rent		98,415			95,436			296,025			282,955
Other operating expenses		217,364			207,837			649,915			617,681
General and administrative expenses		310,407			307,500			998,559			1,043,986
Other income		(446	)		(650	)		(1,909	)		(1,699	)
Litigation contingency expense		—			31,462			2,840			130,387
Impairment charges		324,289			—			338,208			6,726
Restructuring charges		81,463			3,349			88,223			8,793
Depreciation and amortization		40,382			39,329			121,320			116,889
Interest expense		59,862			56,440			175,417			176,128
Investment income		(1,810	)		(432	)		(2,561	)		(2,203	)

		2,183,070			1,758,962			5,773,175			5,372,622

Income (loss) from continuing operations before income taxes		(389,543	)		5,554			(299,607	)		(98,664	)
Provision for income taxes		281,752			12,523			311,470			9,183

Loss from continuing operations		(671,295	)		(6,969	)		(611,077	)		(107,847	)
Discontinued operations, net of income taxes:
Income (loss) from operations		(12	)		2,269			2,422			(1,744	)
Gain on divestiture of operations		—			—			179			983

Income (loss) from discontinued operations		(12	)		2,269			2,601			(761	)

Net loss		(671,307	)		(4,700	)		(608,476	)		(108,608	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations		(14,305	)		(9,900	)		(40,341	)		(30,482	)
Discontinued operations		(1	)		1			(6	)		32

		(14,306	)		(9,899	)		(40,347	)		(30,450	)

Loss attributable to Kindred	$	(685,613	)	$	(14,599	)	$	(648,823	)	$	(139,058	)

Amounts attributable to Kindred stockholders:
Loss from continuing operations	$	(685,600	)	$	(16,869	)	$	(651,418	)	$	(138,329	)
Income (loss) from discontinued operations		(13	)		2,270			2,595			(729	)

Net loss	$	(685,613	)	$	(14,599	)	$	(648,823	)	$	(139,058	)

Loss per common share:
Basic:
Loss from continuing operations	$	(7.89	)	$	(0.20	)	$	(7.51	)	$	(1.65	)
Discontinued operations:
Income (loss) from operations		—			0.03			0.03			(0.02	)
Gain on divestiture of operations		—			—			—			0.01

Income (loss) from discontinued operations		—			0.03			0.03			(0.01	)

Net loss	$	(7.89	)	$	(0.17	)	$	(7.48	)	$	(1.66	)

Diluted:
Loss from continuing operations	$	(7.89	)	$	(0.20	)	$	(7.51	)	$	(1.65	)
Discontinued operations:
Income (loss) from operations		—			0.03			0.03			(0.02	)
Gain on divestiture of operations		—			—			—			0.01

Income (loss) from discontinued operations		—			0.03			0.03			(0.01	)

Net loss	$	(7.89	)	$	(0.17	)	$	(7.48	)	$	(1.66	)

Shares used in computing loss per common share:
Basic		86,869			86,184			86,766			83,960
Diluted		86,869			86,184			86,766			83,960
Cash dividends declared and paid per common share	$	0.12		$	0.12		$	0.36		$	0.36

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 7

November 7, 2016

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)


	September 30,			December 31,
	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	139,430		$	98,758
Insurance subsidiary investments		105,346			106,638
Accounts receivable less allowance for loss		1,266,545			1,194,868
Inventories		25,262			27,791
Income taxes		12,416			11,790
Other		94,876			61,054

		1,643,875			1,500,899
Property and equipment		2,070,421			2,162,398
Accumulated depreciation		(1,192,870	)		(1,190,402	)

		877,551			971,996
Goodwill		2,422,473			2,669,810
Intangible assets less accumulated amortization		804,602			755,655
Insurance subsidiary investments		195,517			204,498
Deferred tax assets		—			104,130
Acquisition deposit		—			18,489
Other		283,322			242,782

Total assets	$	6,227,340		$	6,468,259

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	203,426		$	187,061
Salaries, wages and other compensation		390,743			404,925
Due to third party payors		57,945			36,251
Professional liability risks		61,036			64,099
Other accrued liabilities		280,305			394,246
Long-term debt due within one year		27,889			24,630

		1,021,344			1,111,212
Long-term debt		3,316,174			3,086,348
Professional liability risks		283,048			263,273
Deferred tax liabilities		200,334			—
Deferred credits and other liabilities		354,246			301,379
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 85,187 shares - September 30, 2016 and 83,792 shares - December 31, 2015		21,297			20,948
Capital in excess of par value		1,717,165			1,737,747
Accumulated other comprehensive loss		(4,334	)		(2,632	)
Accumulated deficit		(905,137	)		(256,209	)

		828,991			1,499,854
Noncontrolling interests		223,203			206,193

Total equity		1,052,194			1,706,047

Total liabilities and equity	$	6,227,340		$	6,468,259

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

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November 7, 2016

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)


	Three months ended						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015
Cash flows from operating activities:
Net loss		$ (671,307	)	$	(4,700	)	$	(608,476	)	$	(108,608	)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation expense		34,914			31,867			103,306			95,325
Amortization of intangible assets		5,468			7,728			18,251			22,196
Amortization of stock-based compensation costs		3,015			3,194			13,058			15,764
Amortization of deferred financing costs		3,987			3,554			11,262			10,155
Payment of capitalized lender fees related to debt issuance		(42	)		—			(7,375	)		(28,012	)
Provision for doubtful accounts		10,009			11,014			30,955			29,817
Deferred income taxes		(84,173	)		3,556			(54,875	)		(894	)
Impairment charges		324,289			—			338,208			6,726
Gain on divestiture of discontinued operations		—			—			(179	)		(983	)
Other		6,303			3,485			7,262			10,457
Change in operating assets and liabilities:
Accounts receivable		(42,832	)		25,990			(143,953	)		(13,399	)
Inventories and other assets		11,871			8,767			(3,522	)		44,181
Accounts payable		11,995			(353	)		24,451			(12,788	)
Income taxes		364,925			37,491			365,705			33,646
Due to third party payors		24,809			15,008			20,317			(3,965	)
Other accrued liabilities		32,851			(14,311	)		(76,347	)		(6,551	)

Net cash provided by operating activities		36,082			132,290			38,048			93,067

Cash flows from investing activities:
Routine capital expenditures		(21,873	)		(35,422	)		(68,703	)		(80,691	)
Development capital expenditures		(8,386	)		(5,760	)		(27,112	)		(12,066	)
Acquisitions, net of cash acquired		(49,329	)		(2,002	)		(77,040	)		(663,757	)
Acquisition deposits		—			—			18,489			195,000
Sale of assets		3,739			3,884			4,962			7,061
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		(22,427	)		(16,357	)		(75,422	)		(59,186	)
Sale of insurance subsidiary investments		31,875			15,987			78,478			50,780
Net change in insurance subsidiary cash and cash equivalents		(14,680	)		(2,633	)		8,479			(8,396	)
Proceeds from note receivable		—			25,000			—			25,000
Net change in other investments		51			176			(33,347	)		375
Other		(150	)		1,383			(1,277	)		590

Net cash provided by (used in) investing activities		(81,180	)		(15,744	)		(172,493	)		828,148

Cash flows from financing activities:
Proceeds from borrowings under revolving credit		489,200			259,700			1,267,200			1,414,850
Repayment of borrowings under revolving credit		(388,100	)		(349,700	)		(1,215,800	)		(1,319,850	)
Proceeds from issuance of term loan, net of discount		—			—			198,100			199,000
Proceeds from other long-term debt		—			—			750			—
Repayment of Gentiva debt		—			—			—			(1,177,363	)
Repayment of term loan		(3,508	)		(3,003	)		(10,019	)		(9,008	)
Repayment of other long-term debt		(276	)		(500	)		(826	)		(1,400	)
Payment of deferred financing costs		(50	)		(301	)		(342	)		(3,284	)
Issuance of common stock in connection with employee benefit plans		—			329			—			534
Payment of costs associated with issuance of common stock and tangible equity units		—			—			—			(915	)
Payment of dividend for mandatory redeemable preferred stock		(2,904	)		(2,703	)		(8,558	)		(8,135	)
Dividends paid		(10,224	)		(10,065	)		(30,517	)		(30,067	)
Contributions made by noncontrolling interests		4,993			1,492			11,261			1,492
Distributions to noncontrolling interests		(4,694	)		(10,685	)		(35,240	)		(31,823	)
Purchase of noncontrolling interests		—			—			(1,000	)		—
Other		35			245			108			1,457

Net cash provided by (used in) financing activities		84,472			(115,191	)		175,117			(964,512	)

Change in cash and cash equivalents		39,374			1,355			40,672			(43,297	)
Cash and cash equivalents at beginning of period		100,056			119,536			98,758			164,188

Cash and cash equivalents at end of period	$	139,430		$	120,891		$	139,430		$	120,891

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 9

November 7, 2016

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data

(Unaudited)

(In thousands, except per share amounts)


																						Third quarter
	2015 Quarters												2016 Quarters									% change v.
	First			Second			Third			Fourth			First			Second			Third			prior year
Condensed consolidated income statement data:
GAAP presentation:
Revenues	$	1,675,967		$	1,833,475		$	1,764,516		$	1,780,949		$	1,837,971		$	1,842,070		$	1,793,527			1.6
Operating expenses		1,645,791			1,584,873			1,568,189			1,583,985			1,604,855			1,591,898			1,986,221			26.7
Rent		91,788			95,731			95,436			96,934			97,517			100,093			98,415			3.1
Depreciation and amortization		38,935			38,625			39,329			40,362			40,681			40,257			40,382			2.7
Interest, net		61,777			56,140			56,008			55,664			57,245			57,559			58,052			3.6

Income (loss) from continuing operations before income taxes		(162,324	)		58,106			5,554			4,004			37,673			52,263			(389,543	)		NM
Provision (benefit) for income taxes		(27,736	)		24,396			12,523			(51,980	)		11,836			17,882			281,752			NM

Income (loss) from continuing operations		(134,588	)		33,710			(6,969	)		55,984			25,837			34,381			(671,295	)		NM
Noncontrolling interests		(8,847	)		(11,735	)		(9,900	)		(12,082	)		(12,514	)		(13,522	)		(14,305	)		44.5

Net income (loss) attributable to Kindred	$	(143,435	)	$	21,975		$	(16,869	)	$	43,902		$	13,323		$	20,859		$	(685,600	)		NM

Diluted EPS	$	(1.80	)	$	0.25		$	(0.20	)	$	0.50		$	0.15		$	0.23		$	(7.89	)		NM
Diluted shares		79,575			86,402			86,184			87,232			87,249			87,500			86,869			0.8

Core presentation (a):
EBITDAR	$	234,211		$	261,800		$	236,477		$	247,839		$	246,834		$	267,895		$	220,075			(6.9	)
Rent		91,199			95,528			95,436			96,934			97,517			100,093			98,069			2.8
Interest, net		44,346			56,140			56,008			55,664			57,245			57,559			58,052			3.6
Provision for income taxes		22,466			25,721			15,298			13,758			16,546			21,417			4,639			(69.7	)
Net income attributable to Kindred		28,418			34,051			20,506			29,039			22,331			34,031			4,340			(78.8	)
Core diluted EPS	$	0.34		$	0.39		$	0.23		$	0.33		$	0.25		$	0.38		$	0.05			(78.3	)
Diluted shares		82,422			86,402			86,892			87,232			87,249			87,500			87,529			0.7

Revenues by segment:
Hospital division	$	640,483		$	627,206		$	579,497		$	593,593		$	643,299		$	633,695		$	575,323			(0.7	)
Kindred at Home:
Home health		300,867			427,820			424,054			425,759			430,035			438,556			449,958			6.1
Hospice		119,057			178,005			181,140			178,325			176,426			185,641			188,575			4.1

		419,924			605,825			605,194			604,084			606,461			624,197			638,533			5.5
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		151,564			152,544			149,435			155,579			165,774			169,815			169,018			13.1
RehabCare		252,595			236,791			219,518			206,582			204,248			196,075			192,480			(12.3	)

		404,159			389,335			368,953			362,161			370,022			365,890			361,498			(2.0	)
Nursing center division		274,308			273,870			270,510			273,387			272,227			272,395			270,259			(0.1	)

		1,738,874			1,896,236			1,824,154			1,833,225			1,892,009			1,896,177			1,845,613			1.2
Eliminations		(62,907	)		(62,761	)		(59,638	)		(52,276	)		(54,038	)		(54,107	)		(52,086	)		(12.7	)

	$	1,675,967		$	1,833,475		$	1,764,516		$	1,780,949		$	1,837,971		$	1,842,070		$	1,793,527			1.6

NM = not meaningful

(a)	See reconciliation of GAAP results to non-GAAP results beginning on page 14.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 10

November 7, 2016

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data (Continued)

(Unaudited)

(In thousands, except statistics)


	2015 Quarters												2016 Quarters									Third quarter % change v.
	First			Second			Third			Fourth			First			Second			Third			prior year
Segment EBITDAR (GAAP) (a):
Hospital division	$	134,111		$	131,532		$	96,108		$	116,454		$	135,495		$	125,932		$	82,752			(13.9	)
Kindred at Home:
Home health		46,798			72,917			67,682			68,776			66,941			76,030			75,073			10.9
Hospice		16,996			27,887			34,025			30,212			24,866			31,329			31,326			(7.9	)

		63,794			100,804			101,707			98,988			91,807			107,359			106,399			4.6
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		44,564			44,531			42,141			44,891			47,870			50,469			49,470			17.4
RehabCare		15,708			14,681			14,544			(1,118	)		11,987			13,269			9,248			(36.4	)

		60,272			59,212			56,685			43,773			59,857			63,738			58,718			3.6
Nursing center division		36,963			39,877			35,923			36,601			30,100			33,662			29,922			(16.7	)

Core EBITDAR by segment (b):
Hospital division	$	134,786		$	131,532		$	97,128		$	117,675		$	135,495		$	125,932		$	82,752			(14.8	)
Kindred at Home:
Home health		46,798			72,917			68,155			68,826			65,803			75,859			75,073			10.2
Hospice		16,996			27,887			34,025			30,212			24,866			31,329			31,326			(7.9	)

		63,794			100,804			102,180			99,038			90,669			107,188			106,399			4.1
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		44,564			44,531			42,141			45,098			47,870			50,469			50,217			19.2
RehabCare		16,493			14,681			14,544			11,858			11,987			13,269			9,248			(36.4	)

		61,057			59,212			56,685			56,956			59,857			63,738			59,465			4.9
Nursing center division		36,963			40,461			35,923			36,601			30,100			33,662			29,922			(16.7	)
Support center		(62,389	)		(70,209	)		(55,439	) (c)		(62,431	)		(69,287	)		(62,625	)		(58,463	) (c)		5.5

	$	234,211		$	261,800		$	236,477		$	247,839		$	246,834		$	267,895		$	220,075			(6.9	)


EBITDAR margin by segment:
Hospital division		20.9			21.0			16.6			19.6			21.1			19.9			14.4			(2.2	)
Kindred at Home:
Home health		15.6			17.0			16.0			16.2			15.6			17.3			16.7			0.7
Hospice		14.3			15.7			18.8			16.9			14.1			16.9			16.6			(2.2	)
Kindred at Home		15.2			16.6			16.8			16.4			15.1			17.2			16.7			(0.1	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		29.4			29.2			28.2			28.9			28.9			29.7			29.3			1.1
RehabCare		6.2			6.2			6.6			(0.5	)		5.9			6.8			4.8			(1.8	)
Kindred Rehabilitation Services		14.9			15.2			15.4			12.1			16.2			17.4			16.2			0.8
Nursing center division		13.5			14.6			13.3			13.4			11.1			12.4			11.1			(2.2	)

Core EBITDAR margin by segment:
Hospital division		21.0			21.0			16.8			19.8			21.1			19.9			14.4			(2.4	)
Kindred at Home:
Home health		15.6			17.0			16.1			16.2			15.3			17.3			16.7			0.6
Hospice		14.3			15.7			18.8			16.9			14.1			16.9			16.6			(2.2	)
Kindred at Home		15.2			16.6			16.9			16.4			15.0			17.2			16.7			(0.2	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		29.4			29.2			28.2			29.0			28.9			29.7			29.7			1.5
RehabCare		6.5			6.2			6.6			5.7			5.9			6.8			4.8			(1.8	)
Kindred Rehabilitation Services		15.1			15.2			15.4			15.7			16.2			17.4			16.4			1.0
Nursing center division		13.5			14.8			13.3			13.4			11.1			12.4			11.1			(2.2	)
Consolidated		14.0			14.3			13.4			13.9			13.4			14.5			12.3			(1.1	)

(a)	Segment EBITDAR includes reclassification of restructuring charges from segment EBITDAR to the new consolidated statement of operations caption, Restructuring charges, for all historical periods.

(b)	See reconciliation of GAAP results to non-GAAP results beginning on page 14.

(c)	Includes changes in estimate of $9 million and $4 million for the third quarters of 2015 and 2016, respectively, to lower incentive compensation costs recorded in prior periods.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 11

November 7, 2016

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


															Third quarter
	2015 Quarters								2016 Quarters						% change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Hospital division:
End of period data:
Number of transitional care hospitals		97		96		95		95		95		97		94
Number of licensed beds		7,147		7,124		7,094		7,094		7,089		7,067		6,890
Revenue mix %:
Medicare		56.8		55.2		57.1		57.3		57.8		55.5		54.6
Medicaid		5.5		5.3		5.3		5.1		4.2		4.2		4.0
Medicare Advantage		11.9		11.6		10.8		11.1		11.5		12.0		12.1
Medicaid Managed		4.7		5.6		6.1		6.2		5.6		6.3		7.3
Commercial insurance and other		21.1		22.3		20.7		20.3		20.9		22.0		22.0
Admissions:
Medicare		8,775		8,267		7,976		8,169		8,919		8,253		7,861		(1.4	)
Medicaid		610		610		556		520		463		386		375		(32.6	)
Medicare Advantage		1,555		1,352		1,212		1,304		1,453		1,382		1,327		9.5
Medicaid Managed		643		675		646		612		733		768		861		33.3
Commercial insurance and other		1,868		1,815		1,763		1,701		1,871		1,807		1,727		(2.0	)

		13,451		12,719		12,153		12,306		13,439		12,596		12,151		—

Patient days:
Medicare		228,483		218,577		210,870		210,409		229,004		219,013		202,482		(4.0	)
Medicaid		28,663		25,213		23,167		21,795		21,134		19,409		16,781		(27.6	)
Medicare Advantage		48,448		44,740		39,585		41,079		45,760		47,697		43,241		9.2
Medicaid Managed		22,013		24,833		24,412		24,802		25,341		27,267		28,534		16.9
Commercial insurance and other		62,241		62,922		58,631		57,321		62,769		63,009		59,856		2.1

		389,848		376,285		356,665		355,406		384,008		376,395		350,894		(1.6	)

Average length of stay:
Medicare		26.0		26.4		26.4		25.8		25.7		26.5		25.8		(2.3	)
Medicaid		47.0		41.3		41.7		41.9		45.6		50.3		44.7		7.2
Medicare Advantage		31.2		33.1		32.7		31.5		31.5		34.5		32.6		(0.3	)
Medicaid Managed		34.2		36.8		37.8		40.5		34.6		35.5		33.1		(12.4	)
Commercial insurance and other		33.3		34.7		33.3		33.7		33.5		34.9		34.7		4.2
Weighted average		29.0		29.6		29.3		28.9		28.6		29.9		28.9		(1.4	)
Revenues per admission:
Medicare	$	41,483	$	41,892	$	41,451	$	41,656	$	41,717	$	42,579	$	39,945		(3.6	)
Medicaid		57,594		54,795		55,415		57,724		57,928		69,797		61,338		10.7
Medicare Advantage		48,908		53,578		51,495		50,680		51,080		55,105		52,363		1.7
Medicaid Managed		46,740		51,950		54,976		60,263		49,287		51,696		48,631		(11.5	)
Commercial insurance and other		72,395		77,110		68,151		70,735		71,651		77,193		73,515		7.9
Weighted average		47,616		49,312		47,683		48,236		47,868		50,309		47,348		(0.7	)
Revenues per patient day:
Medicare	$	1,593	$	1,584	$	1,568	$	1,617	$	1,625	$	1,605	$	1,551		(1.1	)
Medicaid		1,226		1,326		1,330		1,377		1,269		1,388		1,371		3.1
Medicare Advantage		1,570		1,619		1,577		1,609		1,622		1,597		1,607		1.9
Medicaid Managed		1,365		1,412		1,455		1,487		1,426		1,456		1,467		0.8
Commercial insurance and other		2,173		2,224		2,049		2,099		2,136		2,214		2,121		3.5
Weighted average		1,643		1,667		1,625		1,670		1,675		1,684		1,640		0.9
Medicare case mix index (discharged patients only)		1.166		1.163		1.150		1.164		1.163		1.179		1.172		1.9
Average daily census		4,332		4,135		3,877		3,863		4,220		4,136		3,814		(1.6	)
Occupancy %		69.2		66.1		62.2		62.2		68.0		67.5		61.6		(1.0	)
Same-hospital data:
Revenues ($ 000s) (a)	$	634,975	$	605,410	$	555,282	$	571,925	$	643,413	$	619,427	$	556,091		0.1
Admissions:
Medicare		8,652		8,031		7,659		7,933		8,919		8,083		7,571		(1.1	)
Medicaid		602		557		508		454		463		371		371		(27.0	)
Medicare Advantage		1,546		1,299		1,166		1,238		1,453		1,339		1,292		10.8
Medicaid Managed		640		640		619		590		733		761		861		39.1
Commercial insurance and other		1,840		1,746		1,680		1,624		1,871		1,751		1,658		(1.3	)

		13,280		12,273		11,632		11,839		13,439		12,305		11,753		1.0

Patient days:
Medicare		225,992		212,221		202,690		204,128		229,004		214,629		194,857		(3.9	)
Medicaid		28,458		22,999		21,203		19,481		21,134		18,340		16,467		(22.3	)
Medicare Advantage		48,276		42,863		37,272		39,122		45,760		46,522		41,955		12.6
Medicaid Managed		21,933		23,722		23,329		24,136		25,341		26,795		28,526		22.3
Commercial insurance and other		61,715		60,559		56,377		54,899		62,769		60,984		57,168		1.4

		386,374		362,364		340,871		341,766		384,008		367,270		338,973		(0.6	)

Total average length of stay		29.1		29.5		29.3		28.9		28.6		29.8		28.8		(1.7	)
Total revenues per patient day	$	1,643	$	1,671	$	1,629	$	1,673	$	1,676	$	1,687	$	1,641		0.7

(a)	See reconciliation of same-hospital revenues to reported revenues for the Hospital Division on page 17.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 12

November 7, 2016

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


															Third quarter
	2015 Quarters								2016 Quarters						% change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Pro forma hospital data (a):
End of period data:
Number of transitional care hospitals		82		82		82		82		82		82		82
Number of licensed beds		6,112		6,112		6,112		6,112		6,107		6,107		6,107
Revenue mix %:
Medicare		57.3		55.5		57.7		57.7		57.9		55.3		54.2
Medicaid		4.9		4.7		4.8		4.5		3.9		3.9		3.6
Medicare Advantage		11.6		11.4		10.4		11.1		11.4		11.9		12.4
Medicaid Managed		4.7		5.6		6.1		6.2		5.6		6.4		7.6
Commercial insurance and other		21.5		22.8		21.0		20.5		21.2		22.5		22.2
Admissions:
Medicare		7,813		7,382		7,192		7,385		7,989		7,372		7,084		(1.5	)
Medicaid		530		548		511		447		430		358		343		(32.9	)
Medicare Advantage		1,330		1,143		1,065		1,123		1,261		1,198		1,188		11.5
Medicaid Managed		562		609		572		547		632		702		792		38.5
Commercial insurance and other		1,625		1,576		1,524		1,474		1,642		1,604		1,504		(1.3	)

		11,860		11,258		10,864		10,976		11,954		11,234		10,911		0.4

Patient days:
Medicare		204,423		195,427		190,223		190,718		204,796		194,955		181,518		(4.6	)
Medicaid		21,489		18,559		17,272		15,357		15,470		14,053		12,085		(30.0	)
Medicare Advantage		41,908		38,440		33,795		36,305		39,995		42,045		39,646		17.3
Medicaid Managed		19,537		22,351		21,700		22,063		22,421		24,893		26,698		23.0
Commercial insurance and other		54,988		54,697		51,485		50,779		55,455		55,653		53,015		3.0

		342,345		329,474		314,475		315,222		338,137		331,599		312,962		(0.5	)

Average length of stay:
Medicare		26.2		26.5		26.4		25.8		25.6		26.4		25.6		(3.0	)
Medicaid		40.5		33.9		33.8		34.4		36.0		39.3		35.2		4.1
Medicare Advantage		31.5		33.6		31.7		32.3		31.7		35.1		33.4		5.4
Medicaid Managed		34.8		36.7		37.9		40.3		35.5		35.5		33.7		(11.1	)
Commercial insurance and other		33.8		34.7		33.8		34.4		33.8		34.7		35.2		4.1
Weighted average		28.9		29.3		28.9		28.7		28.3		29.5		28.7		(0.7	)
Revenues per admission:
Medicare	$	41,885	$	42,228	$	41,877	$	41,948	$	41,912	$	42,845	$	39,694		(5.2	)
Medicaid		52,950		48,186		49,075		53,935		51,710		62,187		54,801		11.7
Medicare Advantage		49,940		56,232		51,048		53,235		52,084		56,517		54,072		5.9
Medicaid Managed		48,002		52,017		55,653		61,296		51,511		52,419		50,027		(10.1	)
Commercial insurance and other		75,632		81,332		71,996		74,530		74,752		80,026		76,737		6.6
Weighted average		48,197		49,944		48,065		48,931		48,356		50,827		47,591		(1.0	)
Revenues per patient day:
Medicare	$	1,601	$	1,595	$	1,583	$	1,624	$	1,635	$	1,620	$	1,549		(2.1	)
Medicaid		1,306		1,423		1,452		1,570		1,437		1,584		1,555		7.1
Medicare Advantage		1,585		1,672		1,609		1,647		1,642		1,610		1,620		0.7
Medicaid Managed		1,381		1,417		1,467		1,520		1,452		1,478		1,484		1.2
Commercial insurance and other		2,235		2,343		2,131		2,163		2,213		2,306		2,177		2.2
Weighted average		1,670		1,707		1,660		1,704		1,709		1,722		1,659		(0.1	)
Average daily census		3,804		3,621		3,418		3,426		3,716		3,644		3,402		(0.5	)

(a)	All historical statistics have been adjusted to present the ongoing hospital division portfolio.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 13

November 7, 2016

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


															Third quarter
	2015 Quarters								2016 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)		415		411		388		373		384		384		395
Revenue mix %:
Medicare		80.9		80.4		80.0		80.0		79.8		79.3		78.1
Medicaid		2.1		2.1		2.1		2.1		2.1		2.1		2.5
Commercial and other		7.3		7.9		8.2		8.5		8.4		8.2		8.6
Commercial paid at episodic rates		9.7		9.6		9.7		9.4		9.7		10.4		10.8
Episodic revenues ($ 000s)	$	308,317	$	324,027	$	319,820	$	320,698	$	325,821	$	332,193	$	332,562		4.0
Total episodic admissions		69,936		67,808		66,753		66,157		71,426		70,212		69,219		3.7
Medicare episodic admissions		61,186		59,394		58,479		57,804		62,011		60,730		59,823		2.3
Total episodes		110,980		109,599		108,519		108,300		113,887		113,278		113,256		4.4
Episodes per admission		1.59		1.62		1.63		1.64		1.59		1.61		1.64		0.6
Revenue per episode	$	2,778	$	2,956	$	2,947	$	2,961	$	2,861	$	2,933	$	2,936		(0.4	)
Hospice:
Sites of service (at end of period)		190		185		181		175		177		177		185
Admissions		13,164		12,574		12,091		12,129		13,234		13,149		12,916		6.8
Average length of stay		95		93		101		100		92		91		98		(3.0	)
Patient days		1,150,841		1,190,604		1,211,291		1,185,330		1,183,908		1,238,584		1,277,125		5.4
Revenue per patient day	$	151	$	150	$	150	$	150	$	149	$	150	$	148		(1.3	)
Average daily census		12,787		13,084		13,166		12,884		13,010		13,611		13,882		5.4
Community Care and other revenues (included in Home Health business segment) ($ 000s)	$	65,530	$	67,647	$	67,338	$	67,684	$	66,305	$	68,229	$	75,978		12.8
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs		16		16		18		18		19		19		19
Number of licensed beds		829		829		919		919		969		969		969
Discharges (a)		3,806		3,927		3,941		4,317		4,448		4,646		4,644		17.8
Same-hospital discharges (a)		3,806		3,927		3,842		4,040		4,016		4,089		4,069		5.9
Occupancy % (a)		73.2		71.5		68.7		68.0		70.6		70.6		68.8		0.1
Average length of stay (a)		13.7		13.1		13.2		12.7		13.2		12.9		12.7		(3.8	)
Revenue per discharge (a)	$	19,517	$	19,325	$	18,992	$	18,640	$	19,731	$	19,318	$	19,599		3.2
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units		100		99		101		100		104		105		104
LTAC hospitals		120		120		119		119		119		121		120
Sub-acute units		8		8		7		7		7		7		7
Outpatient units		138		139		135		130		139		138		139

		366		366		362		356		369		371		370

Revenue per site	$	211,151	$	209,436	$	206,041	$	210,978	$	211,417	$	215,798	$	210,810		2.3
RehabCare:
Sites of service (at end of period)		1,829		1,789		1,821		1,798		1,767		1,759		1,754
Revenue per site	$	138,106	$	132,359	$	120,548	$	114,896	$	115,590	$	111,470	$	109,738		(9.0	)
Nursing center division:
End of period data:
Number of nursing centers		90		90		90		90		92		92		91
Number of licensed beds		11,535		11,535		11,535		11,535		11,815		11,815		11,568
Admissions (b)		10,376		9,831		9,558		9,237		9,815		9,480		9,698		1.5
Medicare average length of stay (b)		28.9		28.9		28.5		28.4		28.2		28.4		27.4		(3.9	)
Patient days (b)		861,278		852,691		851,332		845,924		846,578		842,681		845,037		(0.7	)
Revenues per patient day (b)	$	319	$	321	$	318	$	323	$	322	$	323	$	320		0.6
Average daily census (b)		9,570		9,370		9,254		9,195		9,303		9,260		9,185		(0.7	)
Occupancy % (b)		81.3		79.6		78.6		78.1		77.3		76.7		77.5		(1.4	)

(a)	Excludes non-consolidating IRF.

(b)	Excludes managed facilities.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 14

November 7, 2016

Forward-Looking Statements

This earnings 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, all statements regarding the Company’s ability to exit the skilled nursing facility business discussed herein, as well as the Company’s ability to realize the anticipated benefits, cost savings and strategic gains from this initiative, 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, government investigations, regulatory matters, 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 earnings release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends or other financial items, product or services line growth, and expected outcome of government investigations and other regulatory matters, 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. 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 detailed from time to time in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission.

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.

Non-GAAP Measurements

In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures. The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the following pages of this earnings release.

EBITDAR: The Company defines EBITDAR as earnings before interest, income taxes, depreciation, amortization and rent, and believes that the presentation of EBITDAR is useful to the investors because creditors, securities analysts and investors use EBITDAR as a measure of earnings used to compare the performance of companies in the healthcare industry before consideration of the capital structure of fixed assets and financing costs, which can vary significantly among companies.

For each of the Company’s segments, EBITDAR is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280—Segment Reporting.” In this context, the Company defines segment EBITDAR as earnings before interest, income taxes, depreciation, amortization, and rent, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.

Core Operating Results: The Company calculates core operating results, including core net income attributable to Kindred, core EBITDAR and core diluted EPS, by excluding charges related to transaction, integration, severance, retirement, retention, impairments, business interruption settlements, research and development, restructuring, debt amendment costs, and litigation. 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’s management uses core net income attributable to Kindred, core EBITDAR and core diluted EPS as meaningful measures of operational performance, and for the attainment of internal incentive compensation goals, in addition to other measures. The Company uses these measures to assess the relative performance and attainment of internal incentive compensation goals of its operating divisions, as well as the employees that operate these businesses. In addition, the Company believes these measures are important, because securities analysts and investors use these measures to compare the Company’s performance to other companies in the healthcare industry.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 15

November 7, 2016

Non-GAAP Measurements (Continued)

Same-Hospital Revenues: The same-hospital revenues are calculated by excluding from the Company’s Hospital Division revenues the results from five hospitals acquired in 2016, three hospitals sold in 2016, three hospitals that closed during 2016, and two hospitals that closed during 2015. The Company believes the presentation of same-hospital revenues 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.

For EBITDAR, core net income attributable to Kindred, and core EBITDAR, the Company believes that income (loss) from continuing operations is the most comparable GAAP measure. For core diluted EPS, the Company believes that GAAP diluted earnings (loss) per share from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations and diluted earnings (loss) per share from continuing operations as important measures of the Company’s financial performance, because they provide the most complete measures of its performance. For same-hospital revenues, 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 performance. Operating results presented on a core basis, 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.

Also in this earnings 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, respectively.

Core Operating Cash Flows: The Company defines core operating cash flows as operating cash flows excluding payments related to transaction, severance, retirement, retention, business interruption settlements, research and development, restructuring charges, debt amendment costs, and litigation, net of income tax benefits. The Company believes that core operating cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core operating cash flows to evaluate consolidated operating performance and in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.

Core Free Cash Flows: The Company defines core free cash flows as operating cash flows excluding payments related to transaction, severance, retirement, retention, business interruption settlements, research and development, restructuring charges, debt amendment costs, and litigation, net of income tax benefits but including routine capital expenditures and distributions to noncontrolling interests. The Company believes that core free cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core free cash flows in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.

The Company recognizes that core operating cash flows and core free cash flows are non-GAAP measures and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. For core operating cash flows and core free cash flows, 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 because it provides the most complete measure of cash provided by operating activities. Core operating cash flows and core free cash flows should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of the Company’s cash flows provided by operating activities.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 16

November 7, 2016

KINDRED HEALTHCARE, INC.

Reconciliation of GAAP Results to Non-GAAP Measurements

(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 earnings release to compute certain non-GAAP measurements for the three months and nine months ended September 30, 2016 and 2015 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 67.1% and 6.9% for the three months ended September 30, 2016 and 2015, respectively, and 60.5% and 19.7% for the nine months ended September 30, 2016 and 2015, respectively. The difference in the effective income tax rate for both periods compared to the same prior year periods is attributable to the deferred tax valuation allowance and the composition of charges that are non-deductible for income tax purposes, including the impairment charges and litigation contingency expense.


	Three months ended						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015
Reconciliation of income from continuing operations before charges:
As reported:
Loss from continuing operations attributable to Kindred	($	685,600	)	($	16,869	)	($	651,418	)	($	138,329	)
Diluted loss per common share from continuing operations	($	7.89	)	($	0.20	)	($	7.51	)	($	1.65	)
Weighted average diluted shares outstanding		86,869			86,184			86,766			83,960
Detail of charges:
Restructuring charges:
Facility/branch divestitures and closings	($	20,212	)	($	2,416	)	($	22,234	)	($	6,439	)
Severance costs		(2,109	)		(125	)		(5,049	)		(523	)
Transaction costs		(492	)		—			(1,577	)		—

		(22,813	)		(2,541	)		(28,860	)		(6,962	)
Lease termination costs (charged to rent expense)		(58,650	)		(808	)		(59,363	)		(1,831	)
Impairment charges		(324,289	)		—			(338,208	)		—
Research and development		(3,288	)		—			(7,227	)		—
Litigation contingency expense		—			(31,462	)		(2,840	)		(130,387	)
Other retirement and severance costs		—			(666	)		(658	)		(5,627	)
Other facility/branch sales/closings/consolidations		(821	)		(827	)		(821	)		(2,086	)
Business interruption settlements		—			—			1,309			—
Debt amendment fees not capitalized		—			—			(1,103	)		—
Gentiva transaction costs:
Professional and consulting fees		(1,464	)		(1,113	)		(3,831	)		(35,178	)
Severance and retention		214			(1,956	)		(696	)		(58,831	)
Lease termination (charged to rent expense)		(272	)		—			(272	)		(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	)
Other transaction costs		(1,732	)		(777	)		(1,986	)		(3,750	)

		(413,115	)		(40,150	)		(444,556	)		(275,606	)
Income tax benefit		(277,113	)		2,775			(268,868	)		54,302

Charges net of income taxes		(690,228	)		(37,375	)		(713,424	)		(221,304	)
Noncontrolling interest adjustment related to impairment charges		288			—			1,304			—

		(689,940	)		(37,375	)		(712,120	)		(221,304	)
Allocation to participating unvested restricted stockholders		—			—			—			—

Available to common stockholders	($	689,940	)	($	37,375	)	($	712,120	)	($	221,304	)

Diluted loss per common share related to charges	($	7.94	)	($	0.43	)	($	8.21	)	($	2.64	)
Weighted average diluted shares outstanding		86,869			86,184			86,766			83,960
Core:
Income from continuing operations before charges	$	4,340		$	20,506		$	60,702		$	82,975
Diluted earnings per common share from continuing operations before charges (a)	$	0.05		$	0.23		$	0.68		$	0.95
Weighted average diluted shares outstanding used to compute earnings per common share from continuing operations before charges		87,529			86,892			87,426			85,691
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges		19.7	%		33.5	%		29.4	%		35.9	%
Impact of charges on effective income tax rate		52.6	%		192.0	%		74.6	%		-26.6	%

Reported effective income tax rate		72.3	%		225.5	%		104.0	%		9.3	%

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.1 million and $0.3 million for the three months ended September 30, 2016 and 2015, respectively, and by $1.3 million and $1.5 million for the nine months ended September 30, 2016 and 2015, respectively, for the allocation of income to participating unvested restricted stockholders.

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 17

November 7, 2016

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

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


	2015 Quarters								2016 Quarters						Third quarter % change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Kindred	$	254,965	$	360,173	$	356,716	$	358,075	$	363,730	$	370,327	$	373,980
Gentiva		87,520		—		—		—		—		—		—

	$	342,485	$	360,173	$	356,716	$	358,075	$	363,730	$	370,327	$	373,980		4.8

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


																					Third quarter
	2015 Quarters												2016 Quarters								% change v.
	First			Second			Third			Fourth			First		Second			Third			prior year
Reported revenues	$	640,483		$	627,206		$	579,497		$	593,593		$	643,299	$	633,695		$	575,323			(0.7	)
Hospitals acquired and sold during 2016 (a)		—			(16,608	)		(14,679	)		(14,695	)		—		(14,346	)		(13,731	)
Hospitals closed during 2016 (b)		—			—			(7,376	)		(7,471	)		—		—			(5,447	)
Hospitals closed during 2015 (c)		(5,508	)		(5,188	)		(2,160	)		498			114		78			(54	)

Same-hospital revenues	$	634,975		$	605,410		$	555,282		$	571,925		$	643,413	$	619,427		$	556,091			0.1

(a)	Five hospitals acquired and three hospitals sold during the second quarter of 2016.

(b)	Three hospitals closed during the third quarter of 2016.

(c)	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 Updates Strategy and Reports Third Quarter 2016 Results

Page 18

November 7, 2016

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended September 30, 2016
				Charges
													Gentiva				Deferred
				Facility/									transaction				tax						Before
	As			branch		Impairment			Research and		Restructuring		and		Other		valuation						charges
	reported			closings		charges			development		charges		integration		transaction		allowance			Total			(“core”)
Income (loss) from continuing operations:
Segment EBITDAR:
Hospital division	$	82,752		$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	82,752
Kindred at Home:
Home health		75,073			—		—			—		—		—		—		—			—			75,073
Hospice		31,326			—		—			—		—		—		—		—			—			31,326

		106,399			—		—			—		—		—		—		—			—			106,399

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		49,470			747		—			—		—		—		—		—			747			50,217
RehabCare		9,248			—		—			—		—		—		—		—			—			9,248

		58,718			747		—			—		—		—		—		—			747			59,465

Nursing center division		29,922			—		—			—		—		—		—		—			—			29,922
Support center		(61,751	)		—		—			3,288		—		—		—		—			3,288			(58,463	)
Impairment charges		(324,289	)		—		324,289			—		—		—		—		—			324,289			—
Restructuring charges		(22,813	)		—		—			—		22,813		—		—		—			22,813			—
Transaction costs		(2,982	)		—		—			—		—		1,250		1,732		—			2,982			—

EBITDAR		(134,044	)		747		324,289			3,288		22,813		1,250		1,732		—			354,119			220,075
Rent		(98,415	)		74		—			—		—		272		—		—			346			(98,069	)
Restructuring charges - rent		(58,650	)		—		—			—		58,650		—		—		—			58,650			—
Depreciation and amortization		(40,382	)		—		—			—		—		—		—		—			—			(40,382	)
Interest, net		(58,052	)		—		—			—		—		—		—		—			—			(58,052	)

Income (loss) from continuing operations before income taxes		(389,543	)		821		324,289			3,288		81,463		1,522		1,732		—			413,115			23,572
Provision (benefit) for income taxes		281,752			288		58,173			1,154		28,599		535		608		(366,470	)		(277,113	)		4,639

		(671,295	)		533		266,116			2,134		52,864		987		1,124		366,470			690,228			18,933
Noncontrolling interests		(14,305	)		—		(288	)		—		—		—		—		—			(288	)		(14,593	)

Income (loss) attributable to Kindred	$	(685,600	)	$	533	$	265,828		$	2,134	$	52,864	$	987	$	1,124	$	366,470		$	689,940		$	4,340

Diluted earnings (loss) per common share	$	(7.89	)																				$	0.05
Diluted shares used in computing earnings (loss) per common share		86,869																						87,529

	Three months ended September 30, 2015
				Charges
													Gentiva
				Retirement		Facility/							transaction							Before
	As			and		branch			Litigation		Restructuring		and		Other					charges
	reported			severance		closings			contingency		charges		integration		transaction		Total			(“core”)
Income from continuing operations:
Segment EBITDAR:
Hospital division	$	96,108		$	666	$	354		$	—	$	—	$	—	$	—	$	1,020		$	97,128
Kindred at Home:
Home health		67,682			—		473			—		—		—		—		473			68,155
Hospice		34,025			—		—			—		—		—		—		—			34,025

		101,707			—		473			—		—		—		—		473			102,180

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			—
Restructuring charges		(2,541	)		—		—			—		2,541		—		—		2,541			—
Transaction costs		(3,846	)		—		—			—		—		3,069		777		3,846			—

EBITDAR		197,135			666		827			31,462		2,541		3,069		777		39,342			236,477
Rent		(95,436	)		—		—			—		—		—		—		—			(95,436	)
Restructuring charges - rent		(808	)		—		—			—		808		—		—		808			—
Depreciation and amortization		(39,329	)		—		—			—		—		—		—		—			(39,329	)
Interest, net		(56,008	)		—		—			—		—		—		—		—			(56,008	)

Income from continuing operations before income taxes		5,554			666		827			31,462		3,349		3,069		777		40,150			45,704
Provision for income taxes		12,523			196		243			429		982		697		228		2,775			15,298

		(6,969	)	$	470	$	584		$	31,033	$	2,367	$	2,372	$	549	$	37,375			30,406

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

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

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

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 19

November 7, 2016

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Nine months ended September 30, 2016
				Charges
																						Gentiva					Deferred
				Retirement		Facility/		Business														transaction					tax						Before
	As			and		branch		interruption			Litigation		Impairment			Research and		Debt		Restructuring		and		Other			valuation						charges
	reported			severance		closings		settlements			contingency		charges			development		amendment		charges		integration		transaction			allowance			Total			(“core”)
Income (loss) from continuing operations:
Segment EBITDAR:
Hospital division	$	344,179		$	—	$	—	$	—		$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—		$	344,179
Kindred at Home:
Home health		218,044			—		—		(1,309	)		—		—			—		—		—		—		—			—			(1,309	)		216,735
Hospice		87,521			—		—		—			—		—			—		—		—		—		—			—			—			87,521

		305,565			—		—		(1,309	)		—		—			—		—		—		—		—			—			(1,309	)		304,256

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		147,809			—		747		—			—		—			—		—		—		—		—			—			747			148,556
RehabCare		34,504			—		—		—			—		—			—		—		—		—		—			—			—			34,504

		182,313			—		747		—			—		—			—		—		—		—		—			—			747			183,060

Nursing center division		93,684			—		—		—			—		—			—		—		—		—		—			—			—			93,684
Support center		(199,363	)		658		—		—			—		—			7,227		1,103		—		—		—			—			8,988			(190,375	)
Litigation contingency expense		(2,840	)		—		—		—			2,840		—			—		—		—		—		—			—			2,840			—
Impairment charges		(338,208	)		—		—		—			—		338,208			—		—		—		—		—			—			338,208			—
Restructuring charges		(28,860	)		—		—		—			—		—			—		—		28,860		—		—			—			28,860			—
Transaction costs		(6,513	)		—		—		—			—		—			—		—		—		4,527		1,986			—			6,513			—

EBITDAR		349,957			658		747		(1,309	)		2,840		338,208			7,227		1,103		28,860		4,527		1,986			—			384,847			734,804
Rent		(296,025	)		—		74		—			—		—			—		—		—		272		—			—			346			(295,679	)
Restructuring charges - rent		(59,363	)		—		—		—			—		—			—		—		59,363		—		—			—			59,363			—
Depreciation and amortization		(121,320	)		—		—		—			—		—			—		—		—		—		—			—			—			(121,320	)
Interest, net		(172,856	)		—		—		—			—		—			—		—		—		—		—			—			—			(172,856	)

Income (loss) from continuing operations before income taxes		(299,607	)		658		821		(1,309	)		2,840		338,208			7,227		1,103		88,223		4,799		1,986			—			444,556			144,949
Provision (benefit) for income taxes		311,470			235		293		(468	)		32		64,179			2,582		394		27,930		1,715		710			(366,470	)		(268,868	)		42,602

		(611,077	)		423		528		(841	)		2,808		274,029			4,645		709		60,293		3,084		1,276			366,470			713,424			102,347
Noncontrolling interests		(40,341	)		—		—		—			—		(1,304	)		—		—		—		—		—			—			(1,304	)		(41,645	)

Income (loss) attributable to Kindred	$	(651,418	)	$	423	$	528	$	(841	)	$	2,808	$	272,725		$	4,645	$	709	$	60,293	$	3,084	$	1,276		$	366,470		$	712,120		$	60,702

Diluted earnings (loss) per common share	$	(7.51	)																														$	0.68
Diluted shares used in computing earnings (loss) per common share		86,766																																87,426

	Nine months ended September 30, 2015
				Charges
																Gentiva		Gentiva
				Retirement		Facility/										pre-closing		transaction						Before
	As			and		branch		Litigation			Impairment		Restructuring			financing		and		Other				charges
	reported			severance		closings		contingency			charges		charges			costs		integration		transaction		Total		(“core”)
Income (loss) from continuing operations:
Segment EBITDAR:
Hospital division	$	361,751		$	666	$	1,029	$	—		$	—	$	—		$	—	$	—	$	—	$	1,695	$	363,446
Kindred at Home:
Home health		187,397			—		473		—			—		—			—		—		—		473		187,870
Hospice		78,908			—		—		—			—		—			—		—		—		—		78,908

		266,305			—		473		—			—		—			—		—		—		473		266,778

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

		176,169			785		—		—			—		—			—		—		—		785		176,954

Nursing center division		112,763			—		584		—			—		—			—		—		—		584		113,347
Support center		(192,213	)		4,176		—		—			—		—			—		—		—		4,176		(188,037	)
Litigation contingency expense		(130,387	)		—		—		130,387			—		—			—		—		—		130,387		—
Impairment charges		(6,726	)		—		—		—			6,726		—			—		—		—		6,726		—
Restructuring charges		(6,962	)		—		—		—			—		6,962			—		—		—		6,962		—
Transaction costs		(103,764	)		—		—		—			—		—			6,005		94,009		3,750		103,764		—

EBITDAR		476,936			5,627		2,086		130,387			6,726		6,962			6,005		94,009		3,750		255,552		732,488
Rent		(282,955	)		—		—		—			—		—			—		792		—		792		(282,163	)
Restructuring charges - rent		(1,831	)		—		—		—			—		1,831			—		—		—		1,831		—
Depreciation and amortization		(116,889	)		—		—		—			—		—			—		—		—		—		(116,889	)
Interest, net		(173,925	)		—		—		—			—		—			17,431		—		—		17,431		(156,494	)

Income (loss) from continuing operations before income taxes		(98,664	)		5,627		2,086		130,387			6,726		8,793			23,436		94,801		3,750		275,606		176,942
Provision (benefit) for income taxes		9,183			2,202		816		2,108			2,633		3,442			9,173		32,460		1,468		54,302		63,485

		(107,847	)	$	3,425	$	1,270	$	128,279		$	4,093	$	5,351		$	14,263	$	62,341	$	2,282	$	221,304		113,457

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

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

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

- MORE -

Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 20

November 7, 2016

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended March 31, 2016
				Charges
																	Gentiva
				Retirement		Business											transaction							Before
	As			and		interruption			Litigation		Impairment		Research and		Restructuring		and		Other					charges
	reported			severance		settlements			contingency		charges		development		charges		integration		transaction		Total			(“core”)
Income from continuing operations:
Segment EBITDAR:
Hospital division	$	135,495		$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	135,495
Kindred at Home:
Home health		66,941			—		(1,138	)		—		—		—		—		—		—		(1,138	)		65,803
Hospice		24,866			—		—			—		—		—		—		—		—		—			24,866

		91,807			—		(1,138	)		—		—		—		—		—		—		(1,138	)		90,669

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		47,870			—		—			—		—		—		—		—		—		—			47,870
RehabCare		11,987			—		—			—		—		—		—		—		—		—			11,987

		59,857			—		—			—		—		—		—		—		—		—			59,857

Nursing center division		30,100			—		—			—		—		—		—		—		—		—			30,100
Support center		(70,808	)		658		—			—		—		863		—		—		—		1,521			(69,287	)
Litigation contingency expense		(1,910	)		—		—			1,910		—		—		—		—		—		1,910			—
Impairment charges		(7,788	)		—		—			—		7,788		—		—		—		—		7,788			—
Restructuring charges		(1,701	)		—		—			—		—		—		1,701		—		—		1,701			—
Transaction costs		(1,685	)		—		—			—		—		—		—		1,603		82		1,685			—

EBITDAR		233,367			658		(1,138	)		1,910		7,788		863		1,701		1,603		82		13,467			246,834
Rent		(97,517	)		—		—			—		—		—		—		—		—		—			(97,517	)
Restructuring charges - rent		(251	)		—		—			—		—		—		251		—		—		251			—
Depreciation and amortization		(40,681	)		—		—			—		—		—		—		—		—		—			(40,681	)
Interest, net		(57,245	)		—		—			—		—		—		—		—		—		—			(57,245	)

Income from continuing operations before income taxes		37,673			658		(1,138	)		1,910		7,788		863		1,952		1,603		82		13,718			51,391
Provision for income taxes		11,836			226		(391	)		656		2,674		296		670		551		28		4,710			16,546

		25,837		$	432	$	(747	)	$	1,254	$	5,114	$	567	$	1,282	$	1,052	$	54	$	9,008			34,845

Noncontrolling interests		(12,514	)																						(12,514	)

Income attributable to Kindred	$	13,323																						$	22,331

Diluted earnings per common share	$	0.15																						$	0.25
Diluted shares used in computing earnings per common share		87,249																							87,249

	Three months ended March 31, 2015
				Charges
															Gentiva		Gentiva
				Retirement		Facility/									pre-closing		transaction							Before
	As			and		branch			Litigation		Impairment		Restructuring		financing		and		Other					charges
	reported			severance		closings			contingency		charges		charges		costs		integration		transaction		Total			(“core”)
Income (loss) from continuing operations:
Segment EBITDAR:
Hospital division	$	134,111		$	—	$	675		$	—	$	—	$	—	$	—	$	—	$	—	$	675		$	134,786
Kindred at Home:
Home health		46,798			—		—			—		—		—		—		—		—		—			46,798
Hospice		16,996			—		—			—		—		—		—		—		—		—			16,996

		63,794			—		—			—		—		—		—		—		—		—			63,794

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

		60,272			785		—			—		—		—		—		—		—		785			61,057

Nursing center division		36,963			—		—			—		—		—		—		—		—		—			36,963
Support center		(66,565	)		4,176		—			—		—		—		—		—		—		4,176			(62,389	)
Litigation contingency expense		(95,000	)		—		—			95,000		—		—		—		—		—		95,000			—
Impairment charges		(6,726	)		—		—			—		6,726		—		—		—		—		6,726			—
Restructuring charges		(1,619	)		—		—			—		—		1,619		—		—		—		1,619			—
Transaction costs		(94,702	)		—		—			—		—		—		6,005		86,598		2,099		94,702			—

EBITDAR		30,528			4,961		675			95,000		6,726		1,619		6,005		86,598		2,099		203,683			234,211
Rent		(91,788	)		—		—			—		—		—		—		589		—		589			(91,199	)
Restructuring charges - rent		(352	)		—		—			—		—		352		—		—		—		352			—
Depreciation and amortization		(38,935	)		—		—			—		—		—		—		—		—		—			(38,935	)
Interest, net		(61,777	)		—		—			—		—		—		17,431		—		—		17,431			(44,346	)

Income (loss) from continuing operations before income taxes		(162,324	)		4,961		675			95,000		6,726		1,971		23,436		87,187		2,099		222,055			59,731
Provision (benefit) for income taxes		(27,736	)		2,133		290			—		2,891		848		10,075		33,063		902		50,202			22,466

		(134,588	)	$	2,828	$	385		$	95,000	$	3,835	$	1,123	$	13,361	$	54,124	$	1,197	$	171,853			37,265

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

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

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

- MORE -

Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 21

November 7, 2016

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended June 30, 2016
				Charges
																				Gentiva
				Business																transaction								Before
	As			interruption			Litigation			Impairment			Research and		Debt		Restructuring			and			Other					charges
	reported			settlements			contingency			charges			development		amendment		charges			integration			transaction		Total			(“core”)
Income from continuing operations:
Segment EBITDAR:
Hospital division	$	125,932		$	—		$	—		$	—		$	—	$	—	$	—		$	—		$	—	$	—		$	125,932
Kindred at Home:
Home health		76,030			(171	)		—			—			—		—		—			—			—		(171	)		75,859
Hospice		31,329			—			—			—			—		—		—			—			—		—			31,329

		107,359			(171	)		—			—			—		—		—			—			—		(171	)		107,188

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		50,469			—			—			—			—		—		—			—			—		—			50,469
RehabCare		13,269			—			—			—			—		—		—			—			—		—			13,269

		63,738			—			—			—			—		—		—			—			—		—			63,738

Nursing center division		33,662			—			—			—			—		—		—			—			—		—			33,662
Support center		(66,804	)		—			—			—			3,076		1,103		—			—			—		4,179			(62,625	)
Litigation contingency expense		(930	)		—			930			—			—		—		—			—			—		930			—
Impairment charges		(6,131	)		—			—			6,131			—		—		—			—			—		6,131			—
Restructuring charges		(4,346	)		—			—			—			—		—		4,346			—			—		4,346			—
Transaction costs		(1,846	)		—			—			—			—		—		—			1,674			172		1,846			—

EBITDAR		250,634			(171	)		930			6,131			3,076		1,103		4,346			1,674			172		17,261			267,895
Rent		(100,093	)		—			—			—			—		—		—			—			—		—			(100,093	)
Restructuring charges - rent		(462	)		—			—			—			—		—		462			—			—		462			—
Depreciation and amortization		(40,257	)		—			—			—			—		—		—			—			—		—			(40,257	)
Interest, net		(57,559	)		—			—			—			—		—		—			—			—		—			(57,559	)

Income from continuing operations before income taxes		52,263			(171	)		930			6,131			3,076		1,103		4,808			1,674			172		17,723			69,986
Provision for income taxes		17,882			(123	)		(1,307	)		4,403			2,209		792		(3,765	)		1,202			124		3,535			21,417

		34,381			(48	)		2,237			1,728			867		311		8,573			472			48		14,188			48,569
Noncontrolling interests		(13,522	)		—			—			(1,016	)		—		—		—			—			—		(1,016	)		(14,538	)

Income attributable to Kindred	$	20,859		$	(48	)	$	2,237		$	712		$	867	$	311	$	8,573		$	472		$	48	$	13,172		$	34,031

Diluted earnings per common share	$	0.23																										$	0.38
Diluted shares used in computing earnings per common share		87,500																											87,500
	Three months ended June 30, 2015
				Charges
													Gentiva
				Facility/									transaction							Before
	As			branch			Litigation			Restructuring			and		Other					charges
	reported			closings			contingency			charges			integration		transaction		Total			(“core”)
Income from continuing operations:
Segment EBITDAR:
Hospital division	$	131,532		$	—		$	—		$	—		$	—	$	—	$	—		$	131,532
Kindred at Home:
Home health		72,917			—			—			—			—		—		—			72,917
Hospice		27,887			—			—			—			—		—		—			27,887

		100,804			—			—			—			—		—		—			100,804

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

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

Nursing center division		39,877			584			—			—			—		—		584			40,461
Support center		(70,209	)		—			—			—			—		—		—			(70,209	)
Litigation contingency expense		(3,925	)		—			3,925			—			—		—		3,925			—
Restructuring charges		(2,802	)		—			—			2,802			—		—		2,802			—
Transaction costs		(5,216	)		—			—			—			4,342		874		5,216			—

EBITDAR		249,273			584			3,925			2,802			4,342		874		12,527			261,800
Rent		(95,731	)		—			—			—			203		—		203			(95,528	)
Restructuring charges - rent		(671	)		—			—			671			—		—		671			—
Depreciation and amortization		(38,625	)		—			—			—			—		—		—			(38,625	)
Interest, net		(56,140	)		—			—			—			—		—		—			(56,140	)

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

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

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

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

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

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 22

November 7, 2016

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended December 31, 2015
				Charges
								RehabCare									Gentiva
				Retirement		Facility/		customer									transaction							Before
	As			and		branch		contract		Litigation			Impairment		Restructuring		and		Other					charges
	reported			severance		closings		litigation		contingency			charges		charges		integration		transaction		Total			(“core”)
Income from continuing operations:
Segment EBITDAR:
Hospital division	$	116,454		$	1,221	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	1,221		$	117,675
Kindred at Home:
Home health		68,776			—		50		—		—			—		—		—		—		50			68,826
Hospice		30,212			—		—		—		—			—		—		—		—		—			30,212

		98,988			—		50		—		—			—		—		—		—		50			99,038

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		44,891			207		—		—		—			—		—		—		—		207			45,098
RehabCare		(1,118	)		112		—		12,864		—			—		—		—		—		12,976			11,858

		43,773			319		—		12,864		—			—		—		—		—		13,183			56,956

Nursing center division		36,601			—		—		—		—			—		—		—		—		—			36,601
Support center		(63,016	)		585		—		—		—			—		—		—		—		585			(62,431	)
Litigation contingency expense		(8,261	)		—		—		—		8,261							—		—		8,261			—
Impairment charges		(18,031	)		—		—		—		—			18,031		—		—		—		18,031			—
Restructuring charges		(3,288	)		—		—		—		—			—		3,288		—		—		3,288			—
Transaction costs		(5,367	)		—		—		—		—			—		—		4,189		1,178		5,367			—

EBITDAR		197,853			2,125		50		12,864		8,261			18,031		3,288		4,189		1,178		49,986			247,839
Rent		(96,934	)		—		—		—		—			—		—		—		—		—			(96,934	)
Restructuring charges - rent		(889	)		—		—		—		—			—		889		—		—		889			—
Depreciation and amortization		(40,362	)		—		—		—		—			—		—		—		—		—			(40,362	)
Interest, net		(55,664	)		—		—		—		—			—		—		—		—		—			(55,664	)

Income from continuing operations before income taxes		4,004			2,125		50		12,864		8,261			18,031		4,177		4,189		1,178		50,875			54,879
Provision (benefit) for income taxes		(51,980	)		836		20		5,062		50,329			6,205		1,643		1,487		156		65,738			13,758

		55,984		$	1,289	$	30	$	7,802	$	(42,068	)	$	11,826	$	2,534	$	2,702	$	1,022	$	(14,863	)		41,121

Noncontrolling interests		(12,082	)																						(12,082	)

Income attributable to Kindred	$	43,902																						$	29,039

Diluted earnings per common share	$	0.50																						$	0.33
Diluted shares used in computing earnings per common share		87,232																							87,232

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Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Page 23

November 7, 2016

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)


	Three months ended						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015
Reconciliation of net cash flows provided by operating activities to free cash flows:
Net cash flows provided by operating activities	$	36,082		$	132,290		$	38,048		$	93,067
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		8,898			5,251			20,989			102,100
Business interruption settlements		—			—			(1,309	)		—
Ventas, Inc. lease termination fee		—			—			3,500			40,000
Capitalized lender fees related to debt refinancing		42			—			7,375			28,012
Other debt refinancing costs (expensed)		291			13,438			917			40,439
Other lease termination fees		—			—			—			353
Litigation		3,074			—			133,523			16,575

		12,305			18,689			164,995			227,479

Net cash flows provided by operating activities excluding certain items before income tax benefit of certain payments		48,387			150,979			203,043			320,546
Benefit of reduced income tax payments resulting from certain payments		(18,048	)		(22,541	)		(46,674	)		(56,295	)

Net cash flows provided by operating activities excluding certain items (core operating cash flows)		30,339			128,438			156,369			264,251
Less routine capital expenditures		(21,873	)		(35,422	)		(68,703	)		(80,691	)
Less distributions to noncontrolling interests		(4,694	)		(10,685	)		(35,240	)		(31,823	)

Free cash flows excluding certain items (core free cash flows)	$	3,772		$	82,331		$	52,426		$	151,737

- END -

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