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

Attached files

file	filename
8-K - FORM 8-K - KINDRED HEALTHCARE, INC	d437571d8k.htm

EXHIBIT 99.1

LOGO


Contact:		Todd Flowers
		Investor Relations
		(502) 596-6569

KINDRED HEALTHCARE REPORTS SECOND QUARTER 2017 RESULTS

Results Adjusted to Reflect Discontinued Operations Accounting Treatment for Skilled Nursing Facility Business

Consolidated Revenues of $1.53 Billion, GAAP Loss from Continuing Operations of $108 Million⁽¹⁾, GAAP Diluted Loss Per Share from Continuing Operations of $1.36⁽¹⁾ and EBITDAR of $36 Million⁽²⁾in the Second Quarter

Results Reflect After-Tax Costs of $136 Million Primarily Related to Non-Cash Impairments of $82 Million and a Non-Cash Deferred Tax Asset Valuation Allowance of $37 Million

Core EBITDAR of $198 Million⁽³⁾ and Core Diluted EPS from Continuing Operations of $0.19⁽³⁾ in the Second Quarter

Second Quarter GAAP Operating Cash Flows and Core Operating Cash Flows of $93 Million⁽³⁾

and Core Free Cash Flows of $62 Million⁽³⁾

Company Updates Outlook for 2017 and 2018

LOUISVILLE, Ky. (August 3, 2017) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the second quarter ended June 30, 2017.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “We are pleased to report strong second quarter operating results in line with expectations. We made solid progress growing our Kindred at Home and Kindred Rehabilitation Services divisions. Strong top line growth and another sequential decline in labor costs drove increased profitability in both businesses. The growth in these businesses, solid cash flow performance and our enterprise-wide cost realignment initiatives position Kindred for future success.”

Mr. Breier continued, “The second quarter was a historical one for Kindred, marked by the execution of the definitive agreement to sell our skilled nursing facility business. After more than two decades of nursing center operations, this announcement clears the way to closing that chapter of Kindred’s story, and turns the page to the future of integrated post-acute care. We expect these sales to be completed by the end of 2017, and believe they will significantly enhance shareholder value and increase our focus on higher margin, faster growing and less capital intensive businesses, all of which will increase the fundamental cash generating capacity of our enterprise.”

Mr. Breier added, “Our Hospital Division continued to advance its mitigation strategy, navigating through its third full quarter of long-term acute care (“LTAC”) patient criteria. Operating results were largely in line with our previously stated expectations. LTAC compliant revenue increased to 88% from 86% in the first quarter. Managed care and commercial volumes increased 8.2% for the second quarter of 2017 on a same-hospital basis as compared to the prior year period.”

Mr. Breier noted, “Kindred’s Hospital Division continues to advance its portfolio optimization initiative with the pending closure of five additional non-strategic LTAC hospitals. As announced earlier this week, Kindred is converting one of those LTAC hospitals in Indianapolis, Indiana into an inpatient rehabilitation facility (“IRF”) joint venture with Community Health Network. We expect to further optimize our LTAC portfolio with additional closures, consolidations and IRF conversions over the coming quarters.”

(1)	Results reflect after-tax costs of $136.4 million or $1.56 per diluted share related to impairment charges, deferred tax asset valuation allowance, RehabCare collection litigation, restructuring charges and business interruption settlements.

(2)

Results reflect pretax costs of $162.5 million related to impairment charges, RehabCare collection litigation, restructuring charges and business interruption settlements. As used herein, “EBITDAR” means earnings before interest, income taxes, depreciation, amortization and total rent. See reconciliation of generally accepted accounting principles (“GAAP”) results to non-GAAP results beginning on page 14.

(3)

See reconciliation of GAAP results to non-GAAP results beginning on page 14. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 have been revised to conform to the current year presentation.

– MORE –

680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

Kindred Healthcare Reports Second Quarter 2017 Results

Page 2

August 3, 2017

Mr. Breier concluded, “We are very proud of the progress our teammates made over the first half of the year. Advancing our exit from the skilled nursing facility business in its entirety, working through our LTAC patient criteria mitigation strategy, and growing our Kindred at Home and Kindred Rehabilitation Services divisions set the stage for additional progress in the coming quarters. As detailed in the 2017 and 2018 Outlook section below, we expect these efforts to result in financial performance next year of approximately $6.2 billion of revenue, $830 million of Core EBITDAR, $0.80 of Core diluted earnings per share (“EPS”) from continuing operations, and a midpoint expectation of $180 million of Core free cash flows and cash benefits from utilization of net operating losses (“NOLs”)⁽¹⁾. I would like to extend my deep appreciation and sincere thanks to the thousands of caregivers and teammates whose contribution is critical to improving the lives of the more than one million patients we care for each year.”

All financial and statistical information included in this earnings release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated. As a result of developments in the second quarter of 2017 related to the planned divestiture of the Company’s skilled nursing facility business, the operating results, direct overhead and losses associated with this business were classified, for accounting purposes, as discontinued operations for all periods presented. These changes include the transfer of profits from applicable RehabCare contracts servicing the Company’s skilled nursing facility business to discontinued operations, but do not include any allocations of indirect overhead related to the skilled nursing facility business. In addition, the Company has reclassified certain retained businesses and expenses previously reported in the Nursing Center Division to other business segments in continuing operations for all periods presented.

Second Quarter Consolidated Results⁽²⁾:

•

Consolidated revenues were $1.53 billion, a 4.6% year-over-year decrease, primarily attributable to the impact of the transition to LTAC patient criteria and the sale or closure of 16 LTAC hospitals primarily during the second half of 2016. GAAP loss from continuing operations was $108.2 million compared to income of $28.0 million in the same period a year ago, primarily due to a $129.7 million pretax increase in impairment charges, a deferred tax asset valuation allowance of $36.7 million, a $25.3 million pretax charge for certain RehabCare contract terminations for non-payment and related collection litigation (“RehabCare Collection Litigation”) and the impact of LTAC patient criteria. Core EBITDAR declined to $198.0 million compared to $228.2 million in the same period of 2016, primarily due to LTAC patient criteria and the sale or closure of the 16 LTAC hospitals noted above.

•

GAAP operating cash flows were $92.7 million compared to $135.2 million for the same period a year ago. Core operating cash flows were $92.3 million compared to $126.3 million for the same period a year ago. Core free cash flows were $62.4 million compared to $83.3 million in the same period a year ago. GAAP operating cash flows, Core operating cash flows and Core free cash flows declined compared to the prior year period primarily due to LTAC patient criteria and an increase in net working capital in the second quarter of 2017 compared to the prior year period.

•

GAAP diluted loss per share from continuing operations was $1.36 as compared to GAAP diluted EPS from continuing operations of $0.21 a year ago. This decrease was primarily due to an increase in impairment charges, a deferred tax asset valuation allowance of $36.7 million, a provision for the RehabCare Collection Litigation and LTAC patient criteria. Core diluted EPS from continuing operations was $0.19 as compared to $0.33 for the same period last year. The decline in Core diluted EPS was primarily attributable to LTAC patient criteria.

•

The Company recorded a pretax $134.6 million non-cash impairment charge in the second quarter to reflect the write-off of the full carrying value of RehabCare trade name and customer contract intangible assets based upon various factors, including the estimated reduction in earnings resulting from the previously announced definitive agreement to dispose of the Company’s skilled nursing facility business and the impact of the RehabCare Collection Litigation.

Second Quarter Segment Results⁽²⁾⁽³⁾:

Our Kindred at Home Division, which comprises the Company’s home health, hospice, community care and home-based primary care businesses, recorded second quarter revenues that increased 3.2% over the prior year period to $644.5 million. On a

(1)

See “2017 and 2018 Outlook” below for further details. All forward-looking non-GAAP financial measures are provided only on a non-GAAP basis 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 measures to GAAP financial measures is not available without unreasonable effort and the Company is unable to assess the probable significance of the unavailable information.

(2)

(3)	See full segment data on pages 9 through 13.

- MORE -

Kindred Healthcare Reports Second Quarter 2017 Results

Page 3

August 3, 2017

Second Quarter Segment Results^(1)(2)(3)(Continued):

same-store basis, home health admissions increased 2.8% and episodic admissions were flat while same-store hospice admissions declined 3.0% over the prior year period. Segment adjusted operating income and Core EBITDAR increased 1.9% and 1.3%, respectively, for the second quarter of 2017 as compared to the prior year period. Home health direct labor costs per visit declined 3.0% and hospice direct labor costs per patient day declined 1.8% in the second quarter of 2017 both as compared to the first quarter of 2017.

Kindred’s Hospital Division second quarter revenues declined to $540.8 million from $645.4 million in the prior year period primarily due to the elimination of approximately $70 million of revenue related to the sale or closure of the 16 LTAC hospitals primarily during the second half of 2016, the impact of LTAC patient criteria and a 2.0% decline in same-hospital admissions compared to last year. For the second quarter of 2017, approximately 88% (92% excluding Texas LTAC hospitals) of same-hospital revenue came from LTAC compliant patients, which include all patients except Medicare site neutral patients, an increase from approximately 86% (89% excluding Texas LTAC hospitals) in the first quarter of 2017. Same-hospital managed care and commercial volumes increased 8.2% in the second quarter of 2017 compared to the prior year period. Segment adjusted operating income and Core EBITDAR for the second quarter declined to $91.6 million and $90.6 million, respectively, compared to $127.5 million for both Segment adjusted operating income and Core EBITDAR a year ago. The declines were primarily due to the elimination of approximately $8 million of Segment adjusted operating income and Core EBITDAR related to the sale or closure of the 16 LTAC hospitals noted above, the impact of LTAC patient criteria, and increases in labor and other costs.

Kindred Rehabilitation Services increased second quarter revenues by 2.2% to $369.3 million as compared to $361.3 million in the prior year period. Segment adjusted operating income decreased to $36.1 million as compared to $58.1 million in the prior year period, primarily as a result of the RehabCare Collection Litigation. Core EBITDAR increased to $61.4 million as compared to $58.1 million in the prior year period. The Kindred Hospital Rehabilitation Services segment achieved revenue growth of 4.3% to $178.4 million, and Segment adjusted operating income and Core EBITDAR both grew to $53.4 million, an increase of 5.3% compared to the same period a year ago, as a result of the development of new IRFs and a 6.7% increase in revenue per discharge while same-IRF discharges were flat compared to prior year. RehabCare revenues increased 0.4% to $190.9 million for the second quarter. RehabCare Segment adjusted operating income (loss) decreased to a loss of $17.3 million compared to income of $7.4 million in the prior year period, primarily due to the RehabCare Collection Litigation. RehabCare Core EBITDAR increased 8.7% to $8.0 million primarily due to cost reduction initiatives and efforts to terminate unprofitable contracts, partially offset by census decline and wage rate pressure.

Discontinued Operations – Loss on Divestiture of Skilled Nursing Facility Business

During the second quarter of 2017, the Company recorded $288.8 million of pretax charges related to the planned divestiture of its skilled nursing facility business, including a $262.3 million lease termination accrual, $18.0 million of transaction costs and $8.5 million of retention costs.

2017 and 2018 Outlook⁽⁴⁾

All forward-looking non-GAAP financial measures used to provide “2017 Outlook” and “2018 Outlook” (collectively, “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 assess the probable significance of the unavailable information.

The Company’s Outlook does not take into account the effect of any reimbursement changes, any further acquisitions or divestitures, and any further issuances or repurchases of common stock.

(1)

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

(3)

For each of the Company’s segments, Segment adjusted operating income (loss) is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 – Segment Reporting.” The Company defines Segment adjusted operating income (loss) as EBITDAR, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.

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

- MORE -

Kindred Healthcare Reports Second Quarter 2017 Results

Page 4

August 3, 2017

2017 and 2018 Outlook⁽¹⁾(Continued):

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, commented, “As a reminder, when the Company established its 2017 Outlook, it included a midpoint expectation for 2017 Core EBITDAR of $930 million, with a range of $910 million to $950 million. As discussed above, the Company is now reflecting its skilled nursing facility business in discontinued operations. For consistency, this change would require that the Company’s previous 2017 Core EBITDAR Outlook be adjusted by approximately $140 million⁽²⁾.”

Mr. Farber noted, “There are additional factors that should be considered with updating expectations for our 2017 performance. For example, we expect roughly $30 million of benefit, on a full-year basis, from various cost reduction efforts and anticipated new RehabCare contracts signed in connection with the sale of the skilled nursing facility business. We expect the full amount of these items to benefit 2018, but the impact on 2017 is completely dependent on the timing of multiple transaction closings, which are uncertain but expected to occur in phases over the remainder of 2017. Also as discussed above, we are closing five additional LTAC hospitals, including the conversion of an LTAC hospital to an IRF, each of which has uncertain timing, lease termination, wind-down and other costs. These and other items will have both positive and negative impacts on Kindred’s reported results for the balance of 2017.”

Mr. Farber continued, “For the second half of 2017, we expect our third quarter to follow normal seasonal trends, making it the softest quarter of the year. Due to ongoing and widely reported inpatient volume trends, as well as continued labor pressure in our Hospital Division, the Company is expecting to finish the year towards the lower end of its previous outlook range.”

Mr. Farber concluded, “Given the complexity and uncertain timing of these items over the next several months, it is not practical to update our 2017 Outlook and we are limiting our commentary for the balance of 2017 to the items discussed above. As such, we are focusing on updating and expanding our outlook for 2018. The items identified above should be largely complete and incorporated on a run-rate basis in Kindred’s results by the end of 2017, and estimates for these items are reflected in the Company’s 2018 Outlook below.”

For the 2018 Outlook, Kindred anticipates:

•

Annual revenues at the midpoint of approximately $6.2 billion;

•

Core EBITDAR at the midpoint of approximately $830 million; and

•

Core diluted EPS from continuing operations at the midpoint of approximately $0.80.

In determining these items, Kindred utilized the following 2018 estimates:

•

Total rent expense of approximately $300 million;

•

Depreciation and amortization expense of approximately $100 million;

•

Interest expense of approximately $245 million, including $17 million of amortization of deferred financing fees;

•

Noncontrolling interest expense of approximately $45 million to $50 million;

•

An effective book tax rate of approximately 34%;

•

Weighted average shares outstanding of approximately 90.0 million; and

•

Routine capital expenditures of approximately $60 million.

Please note:

•

Annual revenues have been adjusted from approximately $6.3 billion in the previous 2018 Outlook to $6.2 billion in the current 2018 Outlook primarily to reflect the impact of recent and anticipated LTAC hospital closures and consolidations;

•

Core EBITDAR has been adjusted from $840 million in the previous 2018 Outlook to $830 million in the current 2018 Outlook to reflect recent and anticipated LTAC hospital closures and consolidations. Since these hospitals have similar levels of Core EBITDAR and lease expense, the simultaneous elimination of Core EBITDAR and lease expense are expected to have an immaterial impact on Core earnings before income taxes, depreciation and amortization, and Core diluted EPS from continuing operations; and

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

(2)	Reflects the impact of Core EBITDAR of the skilled nursing facility business reclassified to discontinued operations, its direct overhead, as well as the profits from applicable RehabCare contracts servicing the skilled nursing facilities being sold.

- MORE -

Kindred Healthcare Reports Second Quarter 2017 Results

Page 5

August 3, 2017

2017 and 2018 Outlook⁽¹⁾(Continued):

•

Core EBITDAR includes an estimated $30 million contribution, as noted above, from forecasted cost savings and new RehabCare contract signings anticipated in connection with the sale of the Company’s skilled nursing facility business.

Cash Flow⁽¹⁾

Mr. Farber commented, “Cash flow is a primary focus for Kindred. We are very pleased with our strong second quarter cash flow performance that was in line with our expectations, and enabled us to reduce funded debt by $48 million during the quarter. We finished the quarter with excellent liquidity, with $157 million drawn on our $900 million revolving credit facility. After the sale of the skilled nursing facility business, we anticipate Kindred will have approximately $800 million of NOLs. As we have previously discussed, these NOLs should offset approximately 90% of book tax estimates for many years, and significantly augment cash generation. Combining Core free cash flows plus tax-related cash flows from utilizing Kindred’s NOLs, we expect cash results for 2018 on this basis at a midpoint expectation of $180 million.”

Conference Call

As previously announced, investors and the general public may access a live webcast of the second quarter 2017 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on August 4 at 9:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 12:00 p.m. on August 4 by dialing (719) 457-0820, access code: 4930738. The phone replay will be available through August 14 and the online replay will be available through September 4.

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-100 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $6.1 billion⁽²⁾. At June 30, 2017, Kindred’s continuing operations, through its subsidiaries, had approximately 88,100 employees providing healthcare services in 2,540 locations in 45 states, including 81 LTAC hospitals, 19 inpatient rehabilitation hospitals, 19 sub-acute units, 614 Kindred at Home home health, hospice and non-medical home care sites of service, 102 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,705 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for eight 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)	See Forward-Looking Statements beginning on page 14.

(2)	Revenues from continuing operations for the last twelve months ended June 30, 2017.

- MORE -

Kindred Healthcare Reports Second Quarter 2017 Results

Page 6

August 3, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(Unaudited)

(In thousands, except per share amounts)


	Three months ended						Six months ended
	June 30,						June 30,
	2017			2016			2017			2016
Revenues	$	1,532,022		$	1,605,374		$	3,067,740		$	3,205,862

Salaries, wages and benefits		833,703			842,840			1,673,516			1,678,420
Supplies		77,784			89,151			157,885			178,210
Building rent		64,861			67,025			129,517			133,010
Equipment rent		8,861			11,211			17,748			21,369
Other operating expenses		182,161			167,607			340,985			333,334
General and administrative expenses		266,156			283,610			541,659			586,894
Other income		(2,287	)		(505	)		(2,257	)		(2,338	)
Litigation contingency expense		—			930			—			2,840
Impairment charges		135,829			6,131			136,303			13,919
Restructuring charges		5,050			798			15,056			2,750
Depreciation and amortization		25,651			33,198			55,471			66,752
Interest expense		60,801			58,053			120,129			115,542
Investment income		(2,228	)		(486	)		(2,737	)		(722	)

		1,656,342			1,559,563			3,183,275			3,129,980

Income (loss) from continuing operations before income taxes		(124,320	)		45,811			(115,535	)		75,882
Provision (benefit) for income taxes		(16,116	)		17,851			(13,882	)		28,261

Income (loss) from continuing operations		(108,204	)		27,960			(101,653	)		47,621
Discontinued operations, net of income taxes:
Income from operations		8,870			9,437			17,701			15,031
Gain (loss) on divestiture of operations		(294,039	)		(83	)		(300,205	)		179

Income (loss) from discontinued operations		(285,169	)		9,354			(282,504	)		15,210

Net income (loss)		(393,373	)		37,314			(384,157	)		62,831
Earnings attributable to noncontrolling interests:
Continuing operations		(10,791	)		(8,847	)		(21,274	)		(16,698	)
Discontinued operations		(4,954	)		(4,678	)		(9,435	)		(9,343	)

		(15,745	)		(13,525	)		(30,709	)		(26,041	)

Income (loss) attributable to Kindred	$	(409,118	)	$	23,789		$	(414,866	)	$	36,790

Amounts attributable to Kindred stockholders:
Income (loss) from continuing operations	$	(118,995	)	$	19,113		$	(122,927	)	$	30,923
Income (loss) from discontinued operations		(290,123	)		4,676			(291,939	)		5,867

Net income (loss)	$	(409,118	)	$	23,789		$	(414,866	)	$	36,790

Earnings (loss) per common share:
Basic:
Income (loss) from continuing operations	$	(1.36	)	$	0.22		$	(1.41	)	$	0.35
Discontinued operations:
Income from operations		0.04			0.05			0.10			0.07
Gain (loss) on divestiture of operations		(3.36	)		—			(3.44	)		—

Income (loss) from discontinued operations		(3.32	)		0.05			(3.34	)		0.07

Net income (loss)	$	(4.68	)	$	0.27		$	(4.75	)	$	0.42

Diluted:
Income (loss) from continuing operations	$	(1.36	)	$	0.21		$	(1.41	)	$	0.35
Discontinued operations:
Income from operations		0.04			0.05			0.10			0.06
Gain (loss) on divestiture of operations		(3.36	)		—			(3.44	)		—

Income (loss) from discontinued operations		(3.32	)		0.05			(3.34	)		0.06

Net income (loss)	$	(4.68	)	$	0.26		$	(4.75	)	$	0.41

Shares used in computing earnings (loss) per common share:
Basic		87,506			86,836			87,297			86,713
Diluted		87,506			87,500			87,297			87,374
Cash dividends declared and paid per common share	$	—		$	0.12		$	0.12		$	0.24

Kindred Healthcare Reports Second Quarter 2017 Results

Page 7

August 3, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)


	June 30,			December 31,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	130,047		$	137,061
Insurance subsidiary investments		97,076			108,966
Accounts receivable less allowance for loss		1,224,442			1,172,078
Inventories		21,951			22,438
Income taxes		5,718			10,067
Assets held for sale		282,341			289,450
Other		61,990			63,693

		1,823,565			1,803,753

Property and equipment		1,537,821			1,531,598
Accumulated depreciation		(938,054	)		(912,978	)

		599,767			618,620

Goodwill		2,427,668			2,427,074
Intangible assets less accumulated amortization		623,454			770,108
Insurance subsidiary investments		207,427			204,929
Other		296,088			288,240

Total assets	$	5,977,969		$	6,112,724

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	180,618		$	203,925
Salaries, wages and other compensation		372,090			397,486
Due to third party payors		28,177			41,320
Professional liability risks		55,330			65,284
Accrued lease termination fees		267,804			5,224
Other accrued liabilities		281,984			264,512
Long-term debt due within one year		21,539			27,977

		1,207,542			1,005,728

Long-term debt		3,303,539			3,215,062
Professional liability risks		310,516			295,311
Deferred tax liabilities		185,960			201,808
Deferred credits and other liabilities		354,361			353,294
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 87,025 shares—June 30, 2017 and 85,166 shares - December 31, 2016		21,756			21,291
Capital in excess of par value		1,705,228			1,710,231
Accumulated other comprehensive income		1,836			1,573
Accumulated deficit		(1,335,410	)		(920,544	)

		393,410			812,551
Noncontrolling interests		222,641			228,970

Total equity		616,051			1,041,521

Total liabilities and equity	$	5,977,969		$	6,112,724

Kindred Healthcare Reports Second Quarter 2017 Results

Page 8

August 3, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)


	Three months ended						Six months ended
	June 30,						June 30,
	2017			2016			2017			2016
Cash flows from operating activities:
Net income (loss)	$	(393,373	)	$	37,314		$	(384,157	)	$	62,831
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense		26,005			34,435			56,305			68,392
Amortization of intangible assets		4,360			5,957			9,020			12,783
Amortization of stock-based compensation costs		4,855			5,639			7,987			10,043
Amortization of deferred financing costs		4,352			3,708			8,484			7,275
Payment of capitalized lender fees related to debt amendment		—			(7,333	)		(5,403	)		(7,333	)
Provision for doubtful accounts		35,966			9,221			47,184			20,946
Deferred income taxes		(17,047	)		17,802			(15,820	)		29,298
Impairment charges		136,415			6,131			137,572			13,919
(Gain) loss on divestiture of discontinued operations		294,039			83			300,205			(179	)
Other		762			656			6,812			959
Change in operating assets and liabilities:
Accounts receivable		(13,390	)		(13,229	)		(99,223	)		(101,121	)
Inventories and other assets		1,939			(10,161	)		(2,518	)		(15,393	)
Accounts payable		2,187			23,077			(22,310	)		12,456
Income taxes		2,058			707			4,349			853
Due to third party payors		(6,304	)		351			(13,143	)		(4,492	)
Other accrued liabilities		9,845			20,850			(35,313	)		(106,369	)

Net cash provided by operating activities		92,669			135,208			31			4,868

Cash flows from investing activities:
Routine capital expenditures		(17,396	)		(28,724	)		(29,337	)		(46,830	)
Development capital expenditures		(5,857	)		(8,707	)		(11,296	)		(18,726	)
Acquisitions, net of cash acquired		(3,500	)		(1,372	)		(6,650	)		(27,711	)
Acquisition deposits		—			—			—			18,489
Sale of assets		—			142			—			1,223
Purchase of insurance subsidiary investments		(68,300	)		(20,154	)		(90,608	)		(52,995	)
Sale of insurance subsidiary investments		49,077			15,713			67,776			46,603
Net change in insurance subsidiary cash and cash equivalents		27,113			13,201			33,525			23,159
Net change in other investments		(273	)		583			(244	)		(33,398	)
Other		(108	)		792			46			(1,127	)

Net cash used in investing activities		(19,244	)		(28,526	)		(36,788	)		(91,313	)

Cash flows from financing activities:
Proceeds from borrowings under revolving credit		309,000			244,300			787,600			778,000
Repayment of borrowings under revolving credit		(349,900	)		(524,600	)		(693,300	)		(827,700	)
Proceeds from issuance of term loan, net of discount		—			198,100			—			198,100
Proceeds from other long-term debt		—			—			—			750
Repayment of term loan		(3,508	)		(3,508	)		(7,017	)		(6,511	)
Repayment of other long-term debt		(339	)		(270	)		(623	)		(550	)
Payment of deferred financing costs		(50	)		(141	)		(129	)		(292	)
Issuance of common stock in connection with employee benefit plans		32			—			32			—
Payment of dividend for mandatory redeemable preferred stock		(3,065	)		(2,853	)		(6,075	)		(5,654	)
Dividends paid		—			(10,225	)		(10,228	)		(20,293	)
Contributions made by noncontrolling interests		113			1,900			113			6,268
Distributions to noncontrolling interests		(12,500	)		(14,231	)		(38,301	)		(30,546	)
Purchase of noncontrolling interests		—			—			—			(1,000	)
Payroll tax payments for equity awards issuance		(74	)		(180	)		(2,329	)		(2,829	)

Net cash provided by (used in) financing activities		(60,291	)		(111,708	)		29,743			87,743

Change in cash and cash equivalents		13,134			(5,026	)		(7,014	)		1,298
Cash and cash equivalents at beginning of period		116,913			105,082			137,061			98,758

Cash and cash equivalents at end of period	$	130,047		$	100,056		$	130,047		$	100,056

Kindred Healthcare Reports Second Quarter 2017 Results

Page 9

August 3, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data

(Unaudited)

(In thousands, except per share amounts)


	2016 Quarters												2017 Quarters						Second quarter % change v.
	First			Second			Third			Fourth			First			Second			prior year
Condensed consolidated statement of operations data:
GAAP presentation:
Revenues	$	1,600,488		$	1,605,374		$	1,560,760		$	1,511,976		$	1,535,718		$	1,532,022			(4.6	)
Operating expenses		1,403,467			1,390,562			1,760,982			1,353,386			1,364,751			1,498,396			7.8
Building rent		65,985			67,025			66,946			64,350			64,656			64,861			(3.2	)
Equipment rent		10,158			11,211			9,911			8,649			8,887			8,861			(21.0	)
Depreciation and amortization		33,554			33,198			32,995			32,072			29,820			25,651			(22.7	)
Interest, net		57,253			57,567			58,059			58,625			58,819			58,573			1.7

Income (loss) from continuing operations before income taxes		30,071			45,811			(368,133	)		(5,106	)		8,785			(124,320	)		n/m
Provision (benefit) for income taxes		10,410			17,851			285,003			998			2,234			(16,116	)		n/m

Income (loss) from continuing operations		19,661			27,960			(653,136	)		(6,104	)		6,551			(108,204	)		n/m
Noncontrolling interests		(7,851	)		(8,847	)		(9,574	)		(8,575	)		(10,483	)		(10,791	)		n/m

Net income (loss) attributable to Kindred	$	11,810		$	19,113		$	(662,710	)	$	(14,679	)	$	(3,932	)	$	(118,995	)		n/m

Diluted EPS	$	0.13		$	0.21		$	(7.63	)	$	(0.17	)	$	(0.05	)	$	(1.36	)		n/m
Diluted shares		87,249			87,500			86,869			86,904			87,085			87,506			—
Core presentation (a):
EBITDAR	$	209,114		$	228,173		$	183,055		$	178,040		$	181,447		$	198,006			(13.2	)
Building rent		65,985			67,025			66,674			64,350			64,656			64,861			(3.2	)
Equipment rent		10,158			11,211			9,911			8,649			8,887			8,861			(21.0	)
Provision for income taxes		14,632			19,761			2,963			1,006			7,923			11,834			(40.1	)
Noncontrolling interests		(7,851	)		(9,863	)		(9,862	)		(8,575	)		(10,483	)		(11,111	)		12.7
Net income attributable to Kindred		19,681			29,548			2,591			4,763			859			17,115			(42.1	)
Core diluted EPS	$	0.22		$	0.33		$	0.03		$	0.05		$	0.01		$	0.19			(42.4	)
Diluted shares		87,249			87,500			87,529			87,641			87,744			88,165			0.8
Revenues by segment:
Kindred at Home:
Home health	$	430,035		$	438,556		$	449,958		$	444,073		$	450,831		$	459,176			4.7
Hospice		176,426			185,641			188,575			186,161			179,378			185,281			(0.2	)

		606,461			624,197			638,533			630,234			630,209			644,457			3.2
Hospital division		654,098			645,406			588,943			545,864			556,646			540,809			(16.2	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		167,045			171,095			170,308			171,352			178,115			178,439			4.3
RehabCare		198,297			190,169			187,456			186,943			194,354			190,906			0.4

		365,342			361,264			357,764			358,295			372,469			369,345			2.2

		1,625,901			1,630,867			1,585,240			1,534,393			1,559,324			1,554,611			(4.7	)
Eliminations		(25,413	)		(25,493	)		(24,480	)		(22,417	)		(23,606	)		(22,589	)		(11.4	)

	$	1,600,488		$	1,605,374		$	1,560,760		$	1,511,976		$	1,535,718		$	1,532,022			(4.6	)

(a)

See reconciliation of GAAP results to non-GAAP results beginning on page 14. During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 have been revised to conform to the current year presentation.

n/m = not meaningful.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 10

August 3, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data (Continued)

(Unaudited)

(In thousands, except statistics)


	2016 Quarters												2017 Quarters						Second quarter % change v.
	First			Second			Third			Fourth			First			Second			prior year
Segment adjusted operating income (loss):
Kindred at Home:
Home health	$	66,941		$	76,030		$	75,073		$	61,487		$	63,750		$	76,592			0.7
Hospice		24,866			31,329			31,326			28,805			27,581			32,784			4.6

		91,807			107,359			106,399			90,292			91,331			109,376			1.9
Hospital division		136,416			127,510			83,940			93,778			93,438			91,580			(28.2	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		48,119			50,729			49,759			49,728			51,760			53,422			5.3
RehabCare		6,036			7,363			4,224			1,032			4,932			(17,301	)		(335.0	)

		54,155			58,092			53,983			50,760			56,692			36,121			(37.8	)
Core EBITDAR by segment (a):
Kindred at Home:
Home health	$	65,803		$	75,859		$	75,073		$	61,185		$	63,750		$	75,797			(0.1	)
Hospice		24,866			31,329			31,326			27,668			27,581			32,784			4.6

		90,669			107,188			106,399			88,853			91,331			108,581			1.3
Hospital division		136,416			127,510			83,940			93,148			93,438			90,572			(29.0	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		48,119			50,729			49,759			49,728			51,760			53,422			5.3
RehabCare		6,036			7,363			4,224			1,032			4,932			8,003			8.7

		54,155			58,092			53,983			50,760			56,692			61,425			5.7
Support center expenses		(71,159	)		(64,265	)		(59,535	)		(54,334	)		(60,014	)		(62,572	)		(2.6	)
Litigation contingency expense		(885	)		(180	)		—			—			—			—
Transaction costs		(82	)		(172	)		(1,732	)		(387	)		—			—

	$	209,114		$	228,173		$	183,055		$	178,040		$	181,447		$	198,006			(13.2	)

Segment adjusted operating income (loss) margin:
Kindred at Home:
Home health		15.6			17.3			16.7			13.8			14.1			16.7			(0.6	)
Hospice		14.1			16.9			16.6			15.5			15.4			17.7			0.8
Kindred at Home		15.1			17.2			16.7			14.3			14.5			17.0			(0.2	)
Hospital division		20.9			19.8			14.3			17.2			16.8			16.9			(2.9	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		28.8			29.6			29.2			29.0			29.1			29.9			0.3
RehabCare		3.0			3.9			2.3			0.6			2.5			(9.1	)		(13.0	)
Kindred Rehabilitation Services		14.8			16.1			15.1			14.2			15.2			9.8			(6.3	)
Core EBITDAR margin by segment (a):
Kindred at Home:
Home health		15.3			17.3			16.7			13.8			14.1			16.5			(0.8	)
Hospice		14.1			16.9			16.6			14.9			15.4			17.7			0.8
Kindred at Home		15.0			17.2			16.7			14.1			14.5			16.8			(0.4	)
Hospital division		20.9			19.8			14.3			17.1			16.8			16.7			(3.1	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		28.8			29.6			29.2			29.0			29.1			29.9			0.3
RehabCare		3.0			3.9			2.3			0.6			2.5			4.2			0.3
Kindred Rehabilitation Services		14.8			16.1			15.1			14.2			15.2			16.6			0.5
Consolidated		13.1			14.2			11.7			11.8			11.8			12.9			(1.3	)

(a)

Kindred Healthcare Reports Second Quarter 2017 Results

Page 11

August 3, 2017

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)


	2016 Quarters								2017 Quarters				Second quarter % change v.
	First		Second		Third		Fourth		First		Second		prior year
Kindred at Home:
Home Health:
Sites of service (at end of period)		384		384		395		390		379		377
Revenue mix %:
Medicare		79.8		79.3		78.1		77.9		76.7		75.7
Medicaid		2.1		2.1		2.5		1.9		1.7		1.7
Commercial and other		8.4		8.2		8.6		10.6		11.5		11.4
Commercial paid at episodic rates		9.7		10.4		10.8		9.6		10.1		11.2
Episodic revenues ($ 000s)	$	325,821	$	332,193	$	332,562	$	323,398	$	326,881	$	334,420		0.7
Total admissions		88,696		87,084		86,761		87,148		94,510		89,018		2.2
Same-store total admissions		87,394		85,922		85,382		86,056		93,922		88,300		2.8
Total episodic admissions		71,426		70,212		69,219		67,501		73,270		69,657		(0.8	)
Same-store total episodic admissions		70,416		69,317		68,211		66,784		72,911		69,207		(0.2	)
Medicare episodic admissions		62,011		60,730		59,823		59,540		62,404		58,575		(3.5	)
Total episodes		113,887		113,278		113,256		111,164		114,964		113,579		0.3
Episodes per admission		1.59		1.61		1.64		1.65		1.57		1.63		1.2
Revenue per episode	$	2,861	$	2,933	$	2,936	$	2,909	$	2,843	$	2,944		0.4
Hospice:
Sites of service (at end of period)		177		177		185		183		180		177
Admissions		13,234		13,149		12,916		12,660		13,649		12,561		(4.5	)
Same-store admissions		12,761		12,743		12,541		12,362		13,332		12,363		(3.0	)
Average length of stay		92		91		98		100		96		94		3.3
Patient days		1,183,908		1,238,584		1,277,125		1,246,152		1,193,061		1,215,619		(1.9	)
Average daily census		13,010		13,611		13,882		13,545		13,256		13,358		(1.9	)
Revenue per patient day	$	149	$	150	$	148	$	149	$	150	$	152		1.3
Community Care and other revenues (included in Home Health business segment) ($ 000s)	$	66,305	$	68,229	$	75,978	$	74,875	$	74,095	$	74,222		8.8
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs		19		19		19		19		19		19
Number of licensed beds		969		969		969		995		995		995
Discharges (a)		4,448		4,646		4,644		4,671		4,775		4,766		2.6
Same-hospital discharges (a)		4,295		4,535		4,546		4,538		4,393		4,517		(0.4	)
Occupancy % (a)		70.6		70.6		68.8		66.5		71.4		70.0		(0.8	)
Average length of stay (a)		13.2		12.9		12.7		12.6		12.8		12.8		(0.8	)
Revenue per discharge (a)	$	19,731	$	19,318	$	19,599	$	19,486	$	20,097	$	20,620		6.7
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units		104		105		104		102		101		102
LTAC hospitals		119		121		120		119		119		116
Sub-acute units		7		7		7		5		7		6
Outpatient units		139		138		139		132		129		121

		369		371		370		358		356		345

Revenue per site	$	211,417	$	215,798	$	210,810	$	220,733	$	227,100	$	228,534		5.9
RehabCare:
Sites of service (at end of period)		1,767		1,759		1,754		1,718		1,703		1,734
Revenue per site	$	112,222	$	108,113	$	106,873	$	108,814	$	114,125	$	110,095		1.8

(a)	Excludes non-consolidating IRF.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 12

August 3, 2017

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


	2016 Quarters									2017 Quarters						Second quarter % change v.
	First		Second		Third		Fourth			First			Second			prior year
Hospitals (excluding sub-acute units and skilled nursing facility):
End of period data:
Number of transitional care hospitals		95		97		94		82			82			81
Number of licensed beds		7,089		7,067		6,890		6,107			6,107			6,041
Revenues (000s)	$	643,299	$	633,695	$	575,323	$	530,746		$	540,280		$	525,458			(17.1	)
Revenue mix %:
Medicare		57.8		55.5		54.6		53.5			52.8			50.3
Medicaid		4.2		4.2		4.0		4.5			3.9			5.0
Medicare Advantage		11.5		12.0		12.1		11.0			12.2			12.3
Medicaid Managed		5.6		6.3		7.3		8.0			9.1			9.1
Commercial insurance and other		20.9		22.0		22.0		23.0			22.0			23.3
Patient criteria data:
Revenues:
Compliant patients								88.5	%		86.0	%		88.3	%
Site neutral								11.5	%		14.0	%		11.7	%
Revenues per patient day:
Compliant patients							$	1,853		$	1,816		$	1,806
Site neutral								926			1,041			1,053
Total								1,662			1,645			1,667
Admissions:
Medicare		8,919		8,253		7,861		7,351			7,529			6,743			(18.3	)
Medicaid		463		386		375		336			354			381			(1.3	)
Medicare Advantage		1,453		1,382		1,327		1,210			1,354			1,239			(10.3	)
Medicaid Managed		733		768		861		787			851			903			17.6
Commercial insurance and other		1,871		1,807		1,727		1,488			1,614			1,608			(11.0	)

		13,439		12,596		12,151		11,172			11,702			10,874			(13.7	)

Patient days:
Medicare		229,004		219,013		202,482		186,290			187,738			173,916			(20.6	)
Medicaid		21,134		19,409		16,781		12,181			13,334			13,333			(31.3	)
Medicare Advantage		45,760		47,697		43,241		37,526			41,020			40,555			(15.0	)
Medicaid Managed		25,341		27,267		28,534		29,275			32,713			32,635			19.7
Commercial insurance and other		62,769		63,009		59,856		54,148			53,695			54,809			(13.0	)

		384,008		376,395		350,894		319,420			328,500			315,248			(16.2	)

Average length of stay:
Medicare		25.7		26.5		25.8		25.3			24.9			25.8			(2.8	)
Medicaid		45.6		50.3		44.7		36.3			37.7			35.0			(30.4	)
Medicare Advantage		31.5		34.5		32.6		31.0			30.3			32.7			(5.2	)
Medicaid Managed		34.6		35.5		33.1		37.2			38.4			36.1			1.8
Commercial insurance and other		33.5		34.9		34.7		36.4			33.3			34.1			(2.2	)
Weighted average		28.6		29.9		28.9		28.6			28.1			29.0			(3.0	)
Revenues per admission:
Medicare	$	41,717	$	42,579	$	39,945	$	38,602		$	37,867		$	39,219			(7.9	)
Medicaid		57,928		69,797		61,338		70,333			60,091			69,304			(0.7	)
Medicare Advantage		51,080		55,105		52,363		48,387			48,555			51,958			(5.7	)
Medicaid Managed		49,287		51,696		48,631		54,238			57,736			53,159			2.8
Commercial insurance and other		71,651		77,193		73,515		82,066			73,750			76,007			(1.5	)
Weighted average		47,868		50,309		47,348		47,507			46,170			48,322			(3.9	)
Revenues per patient day:
Medicare	$	1,625	$	1,605	$	1,551	$	1,523		$	1,519		$	1,521			(5.2	)
Medicaid		1,269		1,388		1,371		1,940			1,595			1,980			42.7
Medicare Advantage		1,622		1,597		1,607		1,560			1,603			1,587			(0.6	)
Medicaid Managed		1,426		1,456		1,467		1,458			1,502			1,471			1.0
Commercial insurance and other		2,136		2,214		2,121		2,255			2,217			2,230			0.7
Weighted average		1,675		1,684		1,640		1,662			1,645			1,667			(1.0	)
Medicare case mix index (discharged patients only)		1.163		1.179		1.172		1.153			1.172			1.171			(0.7	)
Average daily census		4,220		4,136		3,814		3,472			3,650			3,464			(16.2	)
Occupancy %		68.0		67.5		61.6		64.1			67.6			64.3			(4.7	)

Kindred Healthcare Reports Second Quarter 2017 Results

Page 13

August 3, 2017

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


	2016 Quarters									2017 Quarters						Second quarter % change v.
	First		Second		Third		Fourth			First			Second			prior year
Same-hospital data (a):
End of period data:
Number of transitional care hospitals		77		77		77		77			77			77
Number of licensed beds		5,894		5,894		5,894		5,894			5,894			5,894
Revenues (000s)	$	557,237	$	552,040	$	503,652	$	516,917		$	523,704		$	510,763			(7.5	)
Revenue mix %:
Medicare		58.1		55.3		54.0		53.0			52.3			50.4
Medicaid		3.8		3.9		3.7		4.6			4.1			5.1
Medicare Advantage		11.2		11.7		12.2		11.0			12.1			12.0
Medicaid Managed		5.8		6.7		7.9		8.2			9.4			9.3
Commercial insurance and other		21.1		22.4		22.2		23.2			22.1			23.2
Patient criteria data:
Revenues:
Compliant patients								88.7	%		85.9	%		88.4	%
Site neutral								11.3	%		14.1	%		11.6	%
Revenues per patient day:
Compliant patients							$	1,860		$	1,821		$	1,809
Site neutral								924			1,049			1,058
Total								1,670			1,650			1,670
Admissions:
Medicare		7,722		7,100		6,787		7,046			7,225			6,568			(7.5	)
Medicaid		395		342		343		336			354			381			11.4
Medicare Advantage		1,203		1,128		1,151		1,166			1,307			1,184			5.0
Medicaid Managed		632		702		791		787			849			891			26.9
Commercial insurance and other		1,543		1,512		1,442		1,434			1,543			1,542			2.0

		11,495		10,784		10,514		10,769			11,278			10,566			(2.0	)

Patient days:
Medicare		198,076		188,342		174,752		178,964			179,933			168,583			(10.5	)
Medicaid		14,670		13,547		12,085		12,175			13,587			13,307			(1.8	)
Medicare Advantage		37,960		40,229		38,033		36,496			39,536			38,690			(3.8	)
Medicaid Managed		22,421		24,893		26,687		29,284			32,701			32,363			30.0
Commercial insurance and other		52,803		53,313		51,153		52,688			51,732			52,818			(0.9	)

		325,930		320,324		302,710		309,607			317,489			305,761			(4.5	)

Average length of stay:
Medicare		25.7		26.5		25.7		25.4			24.9			25.7			(3.2	)
Medicaid		37.1		39.6		35.2		36.2			38.4			34.9			(11.8	)
Medicare Advantage		31.6		35.7		33.0		31.3			30.2			32.7			(8.4	)
Medicaid Managed		35.5		35.5		33.7		37.2			38.5			36.3			2.4
Commercial insurance and other		34.2		35.3		35.5		36.7			33.5			34.3			(2.9	)
Weighted average		28.4		29.7		28.8		28.8			28.2			28.9			(2.6	)
Revenues per admission:
Medicare	$	41,951	$	42,976	$	40,050	$	38,855		$	37,886		$	39,155			(8.9	)
Medicaid		53,157		62,759		54,745		70,243			61,194			68,882			9.8
Medicare Advantage		51,858		57,332		53,664		48,813			48,567			51,814			(9.6	)
Medicaid Managed		51,511		52,424		50,079		54,280			57,873			53,413			1.9
Commercial insurance and other		76,054		81,993		77,444		83,620			74,989			76,792			(6.3	)
Weighted average		48,476		51,191		47,903		48,000			46,436			48,340			(5.6	)
Revenues per patient day:
Medicare	$	1,635	$	1,620	$	1,555	$	1,530		$	1,521		$	1,525			(5.9	)
Medicaid		1,431		1,584		1,554		1,939			1,594			1,972			24.5
Medicare Advantage		1,643		1,608		1,624		1,560			1,606			1,586			(1.4	)
Medicaid Managed		1,452		1,478		1,484		1,459			1,503			1,471			(0.5	)
Commercial insurance and other		2,222		2,325		2,183		2,276			2,237			2,242			(3.6	)
Weighted average		1,710		1,723		1,664		1,670			1,650			1,670			(3.1	)
Average daily census		3,582		3,520		3,290		3,365			3,528			3,360			(4.5	)

(a)	All historical statistics have been adjusted to present the ongoing hospital division portfolio excluding four hospitals acquired during the second quarter of 2016. See reconciliation of same-hospital revenues to reported hospital revenues on page 17.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 14

August 3, 2017

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 and the expected timing of such exit, including the receipt of all required regulatory approvals and the satisfaction of the closing conditions for the transaction, as well as the Company’s ability to realize the anticipated benefits, sale proceeds, cost savings and strategic gains from this transaction, 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 words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “hope,” “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, and 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 (the “SEC”).

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 Measures

In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release using certain non-GAAP measures. The use of these non-GAAP measures is 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.

During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. As revised, the Company’s core non-GAAP measures, including core net income attributable to Kindred, core EBITDAR, core diluted EPS, core operating cash flows and core free cash flows, no longer exclude (1) transaction, integration, research and development, and litigation contingency expenses that are not individually material, (2) non-restructuring related facility closing charges, and (3) non-executive or non-restructuring related severance, retirement and retention costs. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

EBITDAR: The Company defines EBITDAR as earnings before interest, income taxes, depreciation, amortization and total rent, and believes that the presentation of EBITDAR is useful to investors because creditors, securities analysts and investors use EBITDAR 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, Segment adjusted operating income (loss) 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 adjusted operating income (loss) as EBITDAR, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 15

August 3, 2017

Non-GAAP Measures (Continued)

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 impairments, business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs. 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 measures of operational performance that are meaningful to investors, and for the measurement 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.

Same-Hospital Revenues: The same-hospital revenues are calculated by excluding from the Company’s Hospital Division revenues the results from one hospital that closed during the second quarter of 2017, four hospitals acquired in 2016, 15 hospitals sold in 2016, and three hospitals that closed during 2016. 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 business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, 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 business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, 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.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 16

August 3, 2017

KINDRED HEALTHCARE, INC.

Reconciliation of GAAP Results to Non-GAAP Measures

(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 measures for the three months ended June 30, 2017 and 2016, and for the six months ended June 30, 2017 and 2016, 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, including the deferred tax valuation allowance for the three months and six months ended June 30, 2017, was calculated using an effective income tax rate of 17.0% and 14.3% for the three months ended June 30, 2017 and 2016, respectively, and 19.2% and 24.1% for the six months ended June 30, 2017 and 2016, respectively. The difference in the effective income tax rate compared to the same prior year period is primarily attributable to the deferred tax valuation allowance and, for 2016, the composition of charges that are non-deductible for income tax purposes, including the impairment charges and litigation contingency expense.


	Three months ended						Six months ended
	June 30,						June 30,
	2017			2016			2017			2016
Reconciliation of income from continuing operations before charges:
As reported:
Income (loss) from continuing operations attributable to Kindred	($	118,995	)	$	19,113		($	122,927	)	$	30,923
Diluted income (loss) per common share from continuing operations	($	1.36	)	$	0.21		($	1.41	)	$	0.35
Weighted average diluted shares outstanding		87,506			87,500			87,297			87,374
Detail of charges:
Restructuring charges:
Facility/branch divestitures and closings	($	2,842	)	$	759		($	8,202	)	$	418
Retention and severance costs		(274	)		(446	)		(3,015	)		(1,370	)
Transaction costs		—			(649	)		—			(1,085	)

		(3,116	)		(336	)		(11,217	)		(2,037	)
Lease termination costs (charged to rent restructuring charges)		(1,934	)		(462	)		(3,839	)		(713	)
Impairment charges		(135,829	)		(6,131	)		(136,303	)		(13,919	)
RehabCare Collection Litigation		(25,304	)		—			(25,304	)		—
Research and development		—			(3,076	)		—			(3,939	)
Litigation contingency expense		—			(750	)		—			(1,775	)
Business interruption settlements		1,803			171			1,803			1,309
Debt amendment fees not capitalized		—			(1,103	)		—			(1,103	)
Gentiva transaction costs:
Professional and consulting fees		—			(1,319	)		—			(2,367	)
Severance and retention		—			(355	)		—			(910	)

		(164,380	)		(13,361	)		(174,860	)		(25,454	)
Income tax benefit		64,684			1,910			68,808			6,132
Deferred tax valuation allowance		(36,734	)		—			(35,169	)		—

Charges net of income taxes		(136,430	)		(11,451	)		(141,221	)		(19,322	)
Noncontrolling interests		320			1,016			320			1,016

		(136,110	)		(10,435	)		(140,901	)		(18,306	)
Allocation to participating unvested restricted stockholders		—			248			—			353

Available to common stockholders	($	136,110	)	($	10,187	)	($	140,901	)	($	17,953	)

Diluted loss per common share related to charges	($	1.56	)	($	0.12	)	($	1.61	)	($	0.20	)
Weighted average diluted shares outstanding		87,506			87,500			87,297			87,374
Core:
Income from continuing operations attributable to Kindred before charges	$	17,115		$	29,548		$	17,974		$	49,229
Diluted earnings per common share from continuing operations before charges (a)	$	0.19		$	0.33		$	0.20		$	0.55
Weighted average diluted shares outstanding used to compute earnings per common share from continuing operations before charges		88,165			87,500			87,956			87,374
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges		29.5	%		33.4	%		33.3	%		33.9	%
Impact of charges on effective income tax rate		-16.5	%		5.6	%		-21.3	%		3.3	%

Reported effective income tax rate		13.0	%		39.0	%		12.0	%		37.2	%

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.5 million and $0.7 million for the three months ended June 30, 2017 and 2016, respectively, and by $0.4 million and $1.0 million for the six months ended June 30, 2017 and 2016, respectively, for the allocation of income to participating unvested restricted stockholders.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 17

August 3, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

A reconciliation of revenues for home health for each historical period follows:


	2016 Quarters												2017 Quarters						Second quarter % change v.
	First			Second			Third			Fourth			First			Second			prior year
Home health	$	363,730		$	370,327		$	373,980		$	369,198		$	376,736		$	384,954			3.9
Community care and other		66,305			68,229			75,978			74,875			74,095			74,222

Reported home health revenues	$	430,035		$	438,556		$	449,958		$	444,073		$	450,831		$	459,176			4.7


A reconciliation of revenues for the Hospital Division for each historical period follows:

	2016 Quarters												2017 Quarters						Second quarter % change v.
	First			Second			Third			Fourth			First			Second			prior year
Transitional care hospitals	$	643,299		$	633,695		$	575,323		$	530,746		$	540,280		$	525,458			(17.1	)
Sub-acute units and one skilled nursing facility		10,799			11,711			13,620			15,118			16,366			15,351

Reported hospital division revenues	$	654,098		$	645,406		$	588,943		$	545,864		$	556,646		$	540,809			(16.2	)


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

	2016 Quarters												2017 Quarters						Second quarter % change v.
	First			Second			Third			Fourth			First			Second			prior year
Transitional care hospitals	$	643,299		$	633,695		$	575,323		$	530,746		$	540,280		$	525,458			(17.1	)
Hospitals acquired during 2016 (a)		—			(2,836	)		(10,655	)		(9,958	)		(11,717	)		(12,470	)
Hospitals sold during 2016 (b)		(71,941	)		(64,084	)		(47,098	)		732			449			(623	)
Hospital closed during 2017 (c)		(5,850	)		(5,871	)		(5,010	)		(4,420	)		(5,276	)		(2,159	)
Hospitals closed during 2016 (d)		(8,271	)		(8,864	)		(8,908	)		(183	)		(32	)		557

Same-hospital revenues	$	557,237		$	552,040		$	503,652		$	516,917		$	523,704		$	510,763			(7.5	)

(a)	Four hospitals acquired during the second quarter of 2016.

(b)	Three hospitals sold during the second quarter of 2016 and 12 hospitals sold during the fourth quarter of 2016.

(c)	One hospital closed during the second quarter of 2017.

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

Kindred Healthcare Reports Second Quarter 2017 Results

Page 18

August 3, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended June 30, 2017
				Charges
	As reported			Business interruption settlements			RehabCare Collection Litigation			Impairment charges		Restructuring charges		Deferred tax valuation allowance			Total			Before charges (“core”) (a)
Income (loss) from continuing operations:
Segment adjusted operating income (loss):
Kindred at Home:
Home health	$	76,592		$	(795	)	$	—		$	—	$	—	$	—		$	(795	)	$	75,797
Hospice		32,784			—			—			—		—		—			—			32,784

		109,376			(795	)		—			—		—		—			(795	)		108,581

Hospital division		91,580			(1,008	)		—			—		—		—			(1,008	)		90,572
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		53,422			—			—			—		—		—			—			53,422
RehabCare		(17,301	)		—			25,304			—		—		—			25,304			8,003

		36,121			—			25,304			—		—		—			25,304			61,425

Support center expenses		(62,572	)		—			—			—		—		—			—			(62,572	)
Impairment charges		(135,829	)		—			—			135,829		—		—			135,829			—
Restructuring charges		(3,116	)		—			—			—		3,116		—			3,116			—
Building rent		(64,861	)		—			—			—		—		—			—			(64,861	)
Equipment rent		(8,861	)		—			—			—		—		—			—			(8,861	)
Restructuring charges - rent		(1,934	)		—			—			—		1,934		—			1,934			—
Depreciation and amortization		(25,651	)		—			—			—		—		—			—			(25,651	)
Interest, net		(58,573	)		—			—			—		—		—			—			(58,573	)

Income (loss) from continuing operations before income taxes		(124,320	)		(1,803	)		25,304			135,829		5,050		—			164,380			40,060
Provision (benefit) for income taxes		(16,116	)		(709	)		9,957			53,449		1,987		(36,734	)		27,950			11,834

		(108,204	)		(1,094	)		15,347			82,380		3,063		36,734			136,430			28,226
Noncontrolling interests		(10,791	)		—			(320	)		—		—		—			(320	)		(11,111	)

Income (loss) attributable to Kindred	$	(118,995	)	$	(1,094	)	$	15,027		$	82,380	$	3,063	$	36,734		$	136,110		$	17,115

Diluted earnings (loss) per common share	$	(1.36	)																	$	0.19
Diluted shares used in computing earnings (loss) per common share		87,506																			88,165



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

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

Hospital division		127,510			—			—			—			—		—		—			—		—			127,510
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		50,729			—			—			—			—		—		—			—		—			50,729
RehabCare		7,363			—			—			—			—		—		—			—		—			7,363

		58,092			—			—			—			—		—		—			—		—			58,092

Support center expenses		(68,444	)		—			—			—			3,076		1,103		—			—		4,179			(64,265	)
Litigation contingency expense		(930	)		—			750			—			—		—		—			—		750			(180	)
Impairment charges		(6,131	)		—			—			6,131			—		—		—			—		6,131			—
Restructuring charges		(336	)		—			—			—			—		—		336			—		336			—
Transaction costs		(1,846	)		—			—			—			—		—		—			1,674		1,674			(172	)
Building rent		(67,025	)		—			—			—			—		—		—			—		—			(67,025	)
Equipment rent		(11,211	)		—			—			—			—		—		—			—		—			(11,211	)
Restructuring charges - rent		(462	)		—			—			—			—		—		462			—		462			—
Depreciation and amortization		(33,198	)		—			—			—			—		—		—			—		—			(33,198	)
Interest, net		(57,567	)		—			—			—			—		—		—			—		—			(57,567	)

Income from continuing operations before income taxes		45,811			(171	)		750			6,131			3,076		1,103		798			1,674		13,361			59,172
Provision for income taxes		17,851			(129	)		(1,511	)		4,633			2,324		833		(5,505	)		1,265		1,910			19,761

		27,960			(42	)		2,261			1,498			752		270		6,303			409		11,451			39,411
Noncontrolling interests		(8,847	)		—			—			(1,016	)		—		—		—			—		(1,016	)		(9,863	)

Income attributable to Kindred	$	19,113		$	(42	)	$	2,261		$	482		$	752	$	270	$	6,303		$	409	$	10,435		$	29,548

Diluted earnings per common share	$	0.21																							$	0.33
Diluted shares used in computing earnings per common share		87,500																								87,500

(a)	During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 have been revised to conform to the current year presentation.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 19

August 3, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Six months ended June 30, 2017
				Charges
	As reported			Business interruption settlements			RehabCare Collection Litigation			Impairment charges		Restructuring charges		Deferred tax valuation allowance			Total			Before charges (“core”) (a)
Income (loss) from continuing operations:
Segment adjusted operating income (loss):
Kindred at Home:
Home health	$	140,342		$	(795	)	$	—		$	—	$	—	$	—		$	(795	)	$	139,547
Hospice		60,365			—			—			—		—		—			—			60,365

		200,707			(795	)		—			—		—		—			(795	)		199,912

Hospital division		185,018			(1,008	)		—			—		—		—			(1,008	)		184,010
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		105,182			—			—			—		—		—			—			105,182
RehabCare		(12,369	)		—			25,304			—		—		—			25,304			12,935

		92,813			—			25,304			—		—		—			25,304			118,117

Support center expenses		(122,586	)		—			—			—		—		—			—			(122,586	)
Impairment charges		(136,303	)		—			—			136,303		—		—			136,303			—
Restructuring charges		(11,217	)		—			—			—		11,217		—			11,217			—
Building rent		(129,517	)		—			—			—		—		—			—			(129,517	)
Equipment rent		(17,748	)		—			—			—		—		—			—			(17,748	)
Restructuring charges—rent		(3,839	)		—			—			—		3,839		—			3,839			—
Depreciation and amortization		(55,471	)		—			—			—		—		—			—			(55,471	)
Interest, net		(117,392	)		—			—			—		—		—			—			(117,392	)

Income (loss) from continuing operations before income taxes		(115,535	)		(1,803	)		25,304			136,303		15,056		—			174,860			59,325
Provision (benefit) for income taxes		(13,882	)		(709	)		9,957			53,635		5,925		(35,169	)		33,639			19,757

		(101,653	)		(1,094	)		15,347			82,668		9,131		35,169			141,221			39,568
Noncontrolling interests		(21,274	)		—			(320	)		—		—		—			(320	)		(21,594	)

Income (loss) attributable to Kindred	$	(122,927	)	$	(1,094	)	$	15,027		$	82,668	$	9,131	$	35,169		$	140,901		$	17,974

Diluted earnings (loss) per common share	$	(1.41	)																	$	0.20
Diluted shares used in computing earnings (loss) per common share		87,297																			87,956



	Six months ended June 30, 2016
				Charges
	As reported			Business interruption settlements			Litigation contingency			Impairment charges			Research and development		Debt amendment		Restructuring charges			Gentiva transaction and integration		Total			Before charges (“core”) (a)
Income from continuing operations:
Segment adjusted operating income:
Kindred at Home:
Home health	$	142,971		$	(1,309	)	$	—		$	—		$	—	$	—	$	—		$	—	$	(1,309	)	$	141,662
Hospice		56,195			—			—			—			—		—		—			—		—			56,195

		199,166			(1,309	)		—			—			—		—		—			—		(1,309	)		197,857

Hospital division		263,926			—			—			—			—		—		—			—		—			263,926
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		98,848			—			—			—			—		—		—			—		—			98,848
RehabCare		13,399			—			—			—			—		—		—			—		—			13,399

		112,247			—			—			—			—		—		—			—		—			112,247

Support center expenses		(140,466	)		—			—			—			3,939		1,103		—			—		5,042			(135,424	)
Litigation contingency expense		(2,840	)		—			1,775			—			—		—		—			—		1,775			(1,065	)
Impairment charges		(13,919	)		—			—			13,919			—		—		—			—		13,919			—
Restructuring charges		(2,037	)		—			—			—			—		—		2,037			—		2,037			—
Transaction costs		(3,531	)		—			—			—			—		—		—			3,277		3,277			(254	)
Building rent		(133,010	)		—			—			—			—		—		—			—		—			(133,010	)
Equipment rent		(21,369	)		—			—			—			—		—		—			—		—			(21,369	)
Restructuring charges—rent		(713	)		—			—			—			—		—		713			—		713			—
Depreciation and amortization		(66,752	)		—			—			—			—		—		—			—		—			(66,752	)
Interest, net		(114,820	)		—			—			—			—		—		—			—		—			(114,820	)

Income from continuing operations before income taxes		75,882			(1,309	)		1,775			13,919			3,939		1,103		2,750			3,277		25,454			101,336
Provision for income taxes		28,261			(634	)		(473	)		6,746			1,909		534		(3,538	)		1,588		6,132			34,393

		47,621			(675	)		2,248			7,173			2,030		569		6,288			1,689		19,322			66,943
Noncontrolling interests		(16,698	)		—			—			(1,016	)		—		—		—			—		(1,016	)		(17,714	)

Income attributable to Kindred	$	30,923		$	(675	)	$	2,248		$	6,157		$	2,030	$	569	$	6,288		$	1,689	$	18,306		$	49,229

Diluted earnings per common share	$	0.35																							$	0.55
Diluted shares used in computing earnings per common share		87,374																								87,374

(a)	During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 have been revised to conform to the current year presentation.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 20

August 3, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended March 31, 2017
				Charges
	As reported			Impairment charges		Restructuring charges		Deferred tax valuation allowance			Total		Before charges (“core”) (a)
Income from continuing operations:
Segment adjusted operating income:
Kindred at Home:
Home health	$	63,750		$	—	$	—	$	—		$	—	$	63,750
Hospice		27,581			—		—		—			—		27,581

		91,331			—		—		—			—		91,331

Hospital division		93,438			—		—		—			—		93,438
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		51,760			—		—		—			—		51,760
RehabCare		4,932			—		—		—			—		4,932

		56,692			—		—		—			—		56,692

Support center expenses		(60,014	)		—		—		—			—		(60,014	)
Impairment charges		(474	)		474		—		—			474		—
Restructuring charges		(8,101	)		—		8,101		—			8,101		—
Building rent		(64,656	)		—		—		—			—		(64,656	)
Equipment rent		(8,887	)		—		—		—			—		(8,887	)
Restructuring charges - rent		(1,905	)		—		1,905		—			1,905		—
Depreciation and amortization		(29,820	)		—		—		—			—		(29,820	)
Interest, net		(58,819	)		—		—		—			—		(58,819	)

Income from continuing operations before income taxes		8,785			474		10,006		—			10,480		19,265
Provision for income taxes		2,234			187		3,937		1,565			5,689		7,923

		6,551		$	287	$	6,069	$	(1,565	)	$	4,791		11,342

Noncontrolling interests		(10,483	)											(10,483	)

Income (loss) attributable to Kindred	$	(3,932	)										$	859

Diluted earnings (loss) per common share	$	(0.05	)										$	0.01
Diluted shares used in computing earnings (loss) per common share		87,085												87,744



	Three months ended March 31, 2016
				Charges
	As reported			Business interruption settlements			Litigation contingency		Impairment charges		Research and development		Restructuring charges		Gentiva transaction and integration		Total			Before charges (“core”) (a)
Income from continuing operations:
Segment adjusted operating income:
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

Hospital division		136,416			—			—		—		—		—		—		—			136,416
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		48,119			—			—		—		—		—		—		—			48,119
RehabCare		6,036			—			—		—		—		—		—		—			6,036

		54,155			—			—		—		—		—		—		—			54,155

Support center expenses		(72,022	)		—			—		—		863		—		—		863			(71,159	)
Litigation contingency expense		(1,910	)		—			1,025		—		—		—		—		1,025			(885	)
Impairment charges		(7,788	)		—			—		7,788		—		—		—		7,788			—
Restructuring charges		(1,701	)		—			—		—		—		1,701		—		1,701			—
Transaction costs		(1,685	)		—			—		—		—		—		1,603		1,603			(82	)
Building rent		(65,985	)		—			—		—		—		—		—		—			(65,985	)
Equipment rent		(10,158	)		—			—		—		—		—		—		—			(10,158	)
Restructuring charges - rent		(251	)		—			—		—		—		251		—		251			—
Depreciation and amortization		(33,554	)		—			—		—		—		—		—		—			(33,554	)
Interest, net		(57,253	)		—			—		—		—		—		—		—			(57,253	)

Income from continuing operations before income taxes		30,071			(1,138	)		1,025		7,788		863		1,952		1,603		12,093			42,164
Provision for income taxes		10,410			(397	)		358		2,719		301		681		560		4,222			14,632

		19,661		$	(741	)	$	667	$	5,069	$	562	$	1,271	$	1,043	$	7,871			27,532

Noncontrolling interests		(7,851	)																		(7,851	)

Income attributable to Kindred	$	11,810																		$	19,681

Diluted earnings per common share	$	0.13																		$	0.22
Diluted shares used in computing earnings per common share		87,249																			87,249

(a)	During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 have been revised to conform to the current year presentation.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 21

August 3, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended September 30, 2016
				Charges
	As reported			Impairment charges			Research and development		Restructuring charges		Gentiva transaction and integration		Deferred tax valuation allowance			Total			Before charges (“core”) (a)
Income (loss) from continuing operations:
Segment adjusted operating income:
Kindred at Home:
Home health	$	75,073		$	—		$	—	$	—	$	—	$	—		$	—		$	75,073
Hospice		31,326			—			—		—		—		—			—			31,326

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

Hospital division		83,940			—			—		—		—		—			—			83,940
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		49,759			—			—		—		—		—			—			49,759
RehabCare		4,224			—			—		—		—		—			—			4,224

		53,983			—			—		—		—		—			—			53,983

Support center expenses		(62,823	)		—			3,288		—		—		—			3,288			(59,535	)
Impairment charges		(297,276	)		297,276			—		—		—		—			297,276			—
Restructuring charges		(22,813	)		—			—		22,813		—		—			22,813			—
Transaction costs		(2,982	)		—			—		—		1,250		—			1,250			(1,732	)
Building rent		(66,946	)		—			—		—		272		—			272			(66,674	)
Equipment rent		(9,911	)		—			—		—		—		—			—			(9,911	)
Restructuring charges - rent		(58,650	)		—			—		58,650		—		—			58,650			—
Depreciation and amortization		(32,995	)		—			—		—		—		—			—			(32,995	)
Interest, net		(58,059	)		—			—		—		—		—			—			(58,059	)

Income (loss) from continuing operations before income taxes		(368,133	)		297,276			3,288		81,463		1,522		—			383,549			15,416
Provision for income taxes		285,003			52,052			1,234		30,573		571		(366,470	)		(282,040	)		2,963

		(653,136	)		245,224			2,054		50,890		951		366,470			665,589			12,453
Noncontrolling interests		(9,574	)		(288	)		—		—		—		—			(288	)		(9,862	)

Income (loss) attributable to Kindred	$	(662,710	)	$	244,936		$	2,054	$	50,890	$	951	$	366,470		$	665,301		$	2,591

Diluted earnings (loss) per common share	$	(7.63	)																$	0.03
Diluted shares used in computing earnings (loss) per common share		86,869																		87,529



	Three months ended December 31, 2016
				Charges
	As reported			Business interruption settlements			Impairment charges			Research and development			Restructuring charges			Gentiva transaction and integration		Deferred tax valuation allowance			Total			Before charges (“core”) (a)
Income (loss) from continuing operations:
Segment adjusted operating income:
Kindred at Home:
Home health	$	61,487		$	(302	)	$	—		$	—		$	—		$	—	$	—		$	(302	)	$	61,185
Hospice		28,805			(1,137	)		—			—			—			—		—			(1,137	)		27,668

		90,292			(1,439	)		—			—			—			—		—			(1,439	)		88,853

Hospital division		93,778			(630	)		—			—			—			—		—			(630	)		93,148
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		49,728			—			—			—			—			—		—			—			49,728
RehabCare		1,032			—			—			—			—			—		—			—			1,032

		50,760			—			—			—			—			—		—			—			50,760

Support center expenses		(58,627	)		—			—			4,293			—			—		—			4,293			(54,334	)
Impairment charges		(3,534	)		—			3,534			—			—			—		—			3,534			—
Restructuring charges		(9,884	)		—			—			—			9,884			—		—			9,884			—
Transaction costs		(2,166	)		—			—			—			—			1,779		—			1,779			(387	)
Building rent		(64,350	)		—			—			—			—			—		—			—			(64,350	)
Equipment rent		(8,649	)		—			—			—			—			—		—			—			(8,649	)
Restructuring charges - rent		(2,029	)		—			—			—			2,029			—		—			2,029			—
Depreciation and amortization		(32,072	)		—			—			—			—			—		—			—			(32,072	)
Interest, net		(58,625	)		—			—			—			—			—		—			—			(58,625	)

Income (loss) from continuing operations before income taxes		(5,106	)		(2,069	)		3,534			4,293			11,913			1,779		—			19,450			14,344
Provision for income taxes		998			(2,381	)		4,067			4,940			13,710			1,674		(22,002	)		8			1,006

		(6,104	)	$	312		$	(533	)	$	(647	)	$	(1,797	)	$	105	$	22,002		$	19,442			13,338

Noncontrolling interests		(8,575	)																						(8,575	)

Income (loss) attributable to Kindred	$	(14,679	)																					$	4,763

Diluted earnings (loss) per common share	$	(0.17	)																					$	0.05
Diluted shares used in computing earnings (loss) per common share		86,904																							87,641

(a)	During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 14 for a discussion regarding the revised definitions. For comparability, core results for 2016 have been revised to conform to the current year presentation.

Kindred Healthcare Reports Second Quarter 2017 Results

Page 22

August 3, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)


	Three months ended						Six months ended
	June 30,						June 30,
	2017			2016			2017			2016
Reconciliation of net cash flows provided by operating activities to core operating cash flows and core free cash flows:
Net cash flows provided by operating activities	$	92,669		$	135,208		$	31		$	4,868
Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows provided by operating activities:
Transaction, severance, research and development, and retention		2,231			6,092			9,217			10,933
Business interruption settlements		(1,803	)		(171	)		(3,796	)		(1,309	)
Lease termination fees—restructuring		2,035			3,500			4,033			3,500
Capitalized lender fees related to debt amendment		—			7,333			5,403			7,333
Other debt refinancing costs (expensed)		—			626			—			626
Litigation		750			1,900			9,286			129,569

		3,213			19,280			24,143			150,652

Net cash flows provided by operating activities excluding certain items before income tax benefit of certain payments		95,882			154,488			24,174			155,520
Benefit of reduced income tax payments resulting from certain payments (a)		(3,596	)		(28,224	)		(3,596	)		(28,224	)

Net cash flows provided by operating activities excluding certain items (core operating cash flows)		92,286			126,264			20,578			127,296
Less routine capital expenditures		(17,396	)		(28,724	)		(29,337	)		(46,830	)
Less distributions to noncontrolling interests		(12,500	)		(14,231	)		(38,301	)		(30,546	)

Free cash flows excluding certain items (core free cash flows)	$	62,390		$	83,309		($	47,060	)	$	49,920

(a)

The Company has estimated that it will not pay federal and state income taxes (where state unitary or consolidated tax returns are allowed) in 2017 due to anticipated loss associated with the sale of the Company’s skilled nursing facility business. In 2016, the Company did not pay these taxes as a result of a consolidated taxable loss. These cash savings in both years are recognized in GAAP cash flows and offer additional sources of cash when evaluating the Company’s cash flow generating capability before certain payments. After the sale of the skilled nursing facility business, the Company anticipates it will have approximately $800 million of net operating losses that should offset approximately 90% of core book tax estimates until exhausted.

Attached files

Stock widget

Investing forum

KINDRED HEALTHCARE, INC Reports