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

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8-K - FORM 8-K - KINDRED HEALTHCARE, INC	d489831d8k.htm

EXHIBIT 99.1



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

KINDRED HEALTHCARE REPORTS THIRD QUARTER 2017 RESULTS

Consolidated Revenues of $1.48 Billion, GAAP Loss from Continuing Operations of $18 Million⁽¹⁾, GAAP Diluted Loss Per Share from Continuing Operations of $0.33⁽¹⁾, EBITDAR of $141 Million⁽²⁾ and EBITDA of $66 Million⁽³⁾ in the Third Quarter

Results Reflect After-Tax Costs of $19 Million Primarily Related to Restructuring Charges of $11 Million and a Non-Cash Deferred Tax Asset Valuation Allowance of $7 Million

GAAP and Core Results Include Negative Pretax Earnings Impact of $16 Million from Hurricanes and $3 Million from LTAC Hospital Closures and Diluted EPS Impact of $0.11 from Hurricanes and $0.02 from LTAC Closures

Core EBITDAR of $157 Million⁽⁴⁾, Core EBITDA of $84 Million⁽⁴⁾ and Core Diluted Loss Per Share from Continuing Operations of $0.11⁽⁴⁾ in the Third Quarter

Third Quarter GAAP Operating Cash Flows of $8 Million⁽⁴⁾, Core Operating Cash Flows of $30 Million⁽⁴⁾ and Core Free Cash Flows of $3 Million⁽⁴⁾

Company Generated $281 Million of Cash Primarily from Restructuring Certain Funding Mechanisms for Insurance Programs; Proceeds Utilized to Reduce Financial Leverage⁽⁵⁾

Company Updates Outlook for 2018

LOUISVILLE, Ky. (November 6, 2017) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the third quarter ended September 30, 2017.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “We are pleased to report third quarter results ahead of expectations. We made good progress during the quarter on each of our ongoing key initiatives, including our plan to fully exit the skilled nursing facility business and our continuing efforts to mitigate the impact of long-term acute care (“LTAC”) patient criteria. The third quarter also presented unexpected challenges for our business, including two major hurricanes that impacted Florida and Houston, Texas. Thanks to the talented and dedicated teammates across our organization, Kindred delivered solid operating results, when adjusted for the one-time impact of Hurricanes Irma and Harvey (the “Hurricanes”) and LTAC closure costs incurred during the quarter. The GAAP and Core pretax earnings impact of the Hurricanes for the quarter was $16 million, which primarily affected both Segment adjusted operating income and Core EBITDAR of the Hospital and Kindred at Home Divisions by approximately $10 million and $5 million, respectively.”

In addressing recent Home Health regulatory activity, Mr. Breier commented, “We are pleased the Centers for Medicare and Medicaid Services (“CMS”) decided last week not to finalize the proposed Home Health Groupings Model in order to further engage stakeholders in developing a system that shifts the focus from volume of services to a more patient-centered model. We commend CMS for considering the unanimous voice of patient advocates, the home health provider community, and bipartisan Congressional leaders and for continuing an open dialogue with stakeholders regarding system design. Kindred looks forward to ongoing engagement and collaboration with CMS and Congress to develop a reformed model that strikes the right balance in promoting high quality home healthcare in a fiscally responsible manner.”

(1)	Results reflect after-tax costs of $19.4 million or $0.22 per diluted share related to restructuring, deferred tax asset valuation allowance, litigation and the favorable settlement of a RehabCare collection litigation.

(2)

Results reflect pretax costs of $16.1 million related to restructuring, litigation and the favorable settlement of a RehabCare collection litigation. 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 15. The Company will not provide consolidated EBITDAR in future earnings releases.

(3)

Results reflect pretax costs of $18.3 million related to restructuring, litigation and the favorable settlement of a RehabCare collection litigation. As used herein, “EBITDA” means earnings before interest, income taxes, depreciation and amortization. See reconciliation of GAAP results to non-GAAP results beginning on page 15.

(4)

See reconciliation of GAAP results to non-GAAP results beginning on page 15. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

(5)

This amount includes a $30 million distribution the Company received from its wholly owned captive insurance subsidiary in the third quarter of 2017, with the majority of proceeds and corresponding leverage reduction completed in October 2017. For further information on this distribution and subsequent insurance restructuring, see page 4.

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680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

Kindred Healthcare Reports Third Quarter 2017 Results

Page 2

November 6, 2017

Mr. Breier continued, “Regarding the skilled nursing facility business, we have completed the sale and transition of operations to new operators for 68 of the 89 skilled nursing facilities and four of the seven assisted living facilities. We expect that nearly all of the remaining facilities and operations will be divested by the end of 2017. Importantly, our RehabCare business has executed agreements with many of the new operators, resulting in the continuation of services to 45 sites of service; this is in line with expectations for our 2018 Outlook, and we anticipate signing additional contracts for a portion of the facilities yet to transition. We continue to believe that the sale of our skilled nursing facility business will significantly enhance shareholder value, enable us to sharpen our focus on higher margin and faster growing businesses, and further advance our efforts to transform Kindred.”

Mr. Breier added, “The success of our ongoing LTAC patient criteria mitigation strategy resulted in our Hospital Division delivering operating results that were largely in line with expectations. LTAC compliant revenue increased to 89% from 88% in the second quarter. Managed care and commercial volumes increased 5.1% for the third quarter of 2017 on a same-hospital basis as compared to the prior year period.”

Mr. Breier concluded, “Kindred’s Hospital Division continued to execute on its portfolio optimization initiative by closing five LTAC hospitals since the end of last quarter, including one that will be converted to an inpatient rehabilitation facility (“IRF”) joint venture. We expect to further optimize our LTAC portfolio with additional closures, consolidations and IRF conversions over the coming quarters.”

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 previously disclosed, while the operating results, direct overhead, losses associated with the skilled nursing facility business divestiture and elimination of intercompany profits for certain applicable RehabCare contracts are classified as discontinued operations, they do not include any allocations of indirect overhead related to the skilled nursing facility business. In the third quarter of 2017, the Company reclassified from discontinued operations to continuing operations for all periods presented historical intercompany profits from certain RehabCare contracts that were retained with new operators of divested skilled nursing facilities. The impact of the retained contracts to third quarter 2017 loss from continuing operations before income taxes, Core EBITDAR and Core EBITDA was $2.0 million.

Based on recent discussions with the staff of the Securities and Exchange Commission (the “SEC”), and consistent with similar actions by other companies, the Company will discontinue the use of consolidated EBITDAR as a performance measure and replace it with consolidated EBITDA when reporting its historical results and 2018 Outlook beginning in the fourth quarter of 2017. In order to assist investors with the transition, the Company is presenting in this earnings release both historical consolidated EBITDAR and EBITDA as well as its 2018 Outlook for these measures. The Company will not provide consolidated EBITDAR in future earnings releases. The Company will continue to report Segment adjusted operating income (loss), which is the performance measure used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 – Segment Reporting,” and Core EBITDAR by segment.⁽¹⁾

Third Quarter Consolidated Results⁽¹⁾:

•

Consolidated revenues were $1.48 billion, a 5.5% year-over-year decrease, primarily attributable to the impact of the transition to LTAC patient criteria and the sale or closure of 21 LTAC hospitals since the third quarter of 2016. GAAP loss from continuing operations was $18.4 million compared to a loss of $649.2 million in the same period a year ago. The reduction in the loss was primarily due to a $359.1 million decrease in the deferred tax asset valuation allowance, a $243.8 million decrease in impairment charges and a $39.1 million decrease related to restructuring charges, all partially offset by the impact of the Hurricanes, LTAC patient criteria and the sale or closure of the 21 LTAC hospitals noted above. Core EBITDAR declined to $156.9 million compared to $185.6 million and Core EBITDA declined to $83.9 million compared to $109.0 million in the same period of 2016, both primarily due to the impact of the Hurricanes, LTAC patient criteria and the sale or closure of the 21 LTAC hospitals noted above.

•

GAAP operating cash flows were $8.5 million compared to $36.4 million for the same period a year ago. Core operating cash flows were $29.8 million compared to $29.5 million for the same period a year ago. Core free cash flows were $3.3 million compared to $2.9 million in the same period a year ago. GAAP operating cash flows declined

(1)

See reconciliation of GAAP results to non-GAAP results beginning on page 15. The Company defines Segment adjusted operating income (loss) as EBITDAR for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs and the allocation of support center overhead. During the first quarter of 2017, the Company revised its definition of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 3

November 6, 2017

Third Quarter Consolidated Results⁽¹⁾(Continued):

compared to the prior year period due to severance, retention and transactions costs associated with the skilled nursing facility business divestiture, approximately $20 million from temporary billing delays and $16 million decline in operating results both associated with the Hurricanes. Core operating cash flows and Core free cash flows increased slightly compared to the prior year period despite the temporary billing delays and operating declines from the Hurricanes.

•

GAAP diluted loss per share from continuing operations was $0.33 as compared to GAAP diluted loss per share from continuing operations of $7.58 a year ago. Both GAAP and Core diluted loss per share include a $0.11 per diluted share negative impact from the Hurricanes. The reduction in the GAAP diluted loss per share was primarily due to a decrease in deferred tax asset valuation allowance, impairment charges and restructuring charges, partially offset by the impact of the Hurricanes, LTAC patient criteria and the sale or closure of the 21 LTAC hospitals noted above. Core diluted loss per share from continuing operations was $0.11, as compared to Core diluted earnings per share (“EPS”) of $0.05 for the same period last year. Besides the impact of the Hurricanes, the decline in Core diluted EPS was primarily attributable to LTAC patient criteria.

Third Quarter Segment Results^(1)(2)(3):

Our Kindred at Home Division recorded third quarter revenues that increased 0.6% over the prior year period to $642.1 million. The Hurricanes negatively impacted division revenue by $4.7 million and Segment adjusted operating income by $4.8 million. On a same-store basis, home health admissions increased 0.9% while same-store hospice admissions declined 4.3% over the prior year period. Segment adjusted operating income and Core EBITDAR both decreased 4.9% to $101.2 million for the third quarter of 2017 as compared to the prior year period as a result of the Hurricanes and patient mix shift in home health from Medicare to managed care and commercial patients. Home health direct labor costs per visit declined 3.7% and hospice direct labor costs per patient day declined 0.6% in the third quarter of 2017 both as compared to the third quarter of 2016.

Kindred’s Hospital Division third quarter revenues declined 14.6% to $503.1 million from $588.9 million in the prior year period primarily due to the elimination of approximately $70 million of revenue related to the sale or closure of 21 LTAC hospitals since the third quarter of 2016, the impact of LTAC patient criteria and a 5.2% decline in same-hospital admissions compared to last year. The Hurricanes negatively impacted division revenue by $2.8 million and Segment adjusted operating income by $9.9 million. For the third quarter of 2017, approximately 89% (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 88% (92% excluding Texas LTAC hospitals) in the second quarter of 2017. Same-hospital managed care and commercial volumes increased 5.1% in the third quarter of 2017 compared to the prior year period. Segment adjusted operating income and Core EBITDAR for the third quarter both declined to $61.5 million compared to $83.9 million for both Segment adjusted operating income and Core EBITDAR a year ago. The declines were primarily due to the impact of LTAC patient criteria, the Hurricanes, increases in labor and other costs and the elimination of approximately $4 million of Segment adjusted operating income and Core EBITDAR related to the sale or closure of the 21 LTAC hospitals noted above.

Kindred Rehabilitation Services third quarter revenues declined by 2.1% to $352.7 million as compared to $360.3 million in the prior year period, primarily due to operating fewer sites of service in RehabCare. The Hurricanes negatively impacted division revenue by $0.6 million and Segment adjusted operating income by $1.1 million. Segment adjusted operating income increased to $56.8 million as compared to $56.5 million in the prior year period. Core EBITDAR decreased to $54.5 million as compared to $56.5 million in the prior year period. The Kindred Hospital Rehabilitation Services (“KHRS”) segment achieved revenue growth of 2.0% to $173.6 million from $170.3 million a year ago due primarily to IRF revenues increasing 6.2% to $96.7 million as compared to $91.0 million in the prior year primarily due to IRF development and a 3.7% increase in revenue per discharge. KHRS Segment adjusted operating income and Core EBITDAR both declined to $49.2 million, a decrease of 1.2% compared to the same period a year ago, primarily as a result of contract losses from closed affiliated LTAC hospitals and the Hurricanes. The IRFs contributed $32.8 million to KHRS Segment adjusted operating income, a 3.6% increase over prior year, including a $0.4 million impact from the Hurricanes. RehabCare revenues declined 5.7% to $179.1 million for the third quarter of 2017, primarily due to operating fewer sites of service. RehabCare Segment adjusted operating income increased to $7.6 million

(1)

(2)	See same-hospital and full segment data on pages 10 through 14.

(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 for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 4

November 6, 2017

Third Quarter Segment Results⁽¹⁾(Continued):

compared to $6.7 million in the prior year period, primarily due to the favorable settlement of collection litigation. RehabCare Core EBITDAR declined 20.2% to $5.4 million, primarily due to operating fewer sites of service and wage rate pressure.

Discontinued Operations – Loss on Divestiture of Skilled Nursing Facility Business

During the third quarter of 2017, the Company recorded $51.3 million of pretax charges related to the planned divestiture of its skilled nursing facility business, including a loss of $17.9 million related to certain skilled nursing facilities subject to sale- leaseback accounting provisions, $2.7 million of lease termination costs, $23.8 million of transaction costs and $6.9 million of retention costs.

Insurance Program Distributions and Restructuring

In the third quarter of 2017, as a result of improved underwriting results from the Company’s wholly owned captive insurance subsidiary, Cornerstone Insurance Company (“Cornerstone”), the Company received a distribution of $30 million (the “September Distribution”). The September Distribution was used to repay a portion of the Company’s outstanding $900 million asset-based loan revolving credit facility (“ABL”), which had $156 million outstanding as of September 30, 2017, and did not have any impact on earnings or operating cash flows in the third quarter of 2017.

In October, in connection with the review of its insurance programs as part of the skilled nursing facility business exit, the Company restructured the funding mechanisms and certain other elements of its insurance programs. With respect to its workers compensation program, approximately $115 million of restricted cash collateral deposits were replaced with letters of credit and approximately $21 million of other cash deposits were released. In addition, certain funding mechanisms associated with the Company’s professional liability insurance and reinsurance agreements were modified such that approximately $106 million of cash deposits maintained at Cornerstone and $4 million of other cash deposits were released to the parent company. In both cases, no changes were made to the financial risk transfer aspects of the Company’s insurance arrangements with third parties. Also in October, as a result of further improvement in Cornerstone’s underwriting results, the Company received an additional distribution of $5 million from Cornerstone (the “October Distribution”). In aggregate, the approximately $281 million generated from the October insurance restructuring, the September Distribution and the October Distribution was used to repay in its entirety the Company’s ABL balance and to increase cash reserves. The Company expects that there will be additional cash savings from these activities over the duration of the fourth quarter that will offset approximately $11 million of estimated costs in the same period associated with the insurance restructuring.

Mr. Breier commented, “The successful restructuring of our insurance program allowed us to deliver in a significant and immediate way on our commitment to reduce our leverage. The $281 million of liberated funds represents more than half of our 2018 Outlook for EBITDA and nearly two years of projected core free cash flows. We intend to continue to explore other initiatives to delever by reducing our funded debt and growing EBITDA.”

2018 Outlook⁽²⁾

All forward-looking non-GAAP financial measures used to provide the “2018 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 2018 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 Forward-Looking Statements beginning on page 15.

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 5

November 6, 2017

2018 Outlook⁽¹⁾(Continued):

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, commented, “As we have previously discussed, given the complexity and uncertain timing of several items over the remainder of the year, the Company is not providing a 2017 outlook but is instead focusing investors on its 2018 Outlook, which reflects the Company’s successful restructuring and repositioning activities in 2017. We are also expanding our 2018 Outlook to incorporate ranges for key items with this release.”

For the 2018 Outlook, Kindred anticipates:

•

Annual revenues of $6.2 billion, with a range of $6.1 billion to $6.3 billion;

•

Core EBITDAR of $815 million, with a range of $800 million to $830 million⁽²⁾;

•

Core EBITDA of $515 million, with a range of $500 million to $530 million; and

•

Core diluted EPS from continuing operations of $0.75, with a range of $0.65 to $0.85.

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

•

Total rent expense of approximately $295 million to $300 million;

•

Depreciation and amortization expense of approximately $100 million;

•

Interest expense of approximately $235 million to $240 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 35%;

•

Weighted average shares outstanding of approximately 90.0 million;

•

Routine capital expenditures of approximately $60 million; and

•

Available tax net operating loss (“NOLs”) as of January 1, 2018 of $550 million to $600 million.

Cash Flow⁽¹⁾

Mr. Farber commented, “We expect the fourth quarter of 2017 to be our strongest core operating cash flow quarter of the year, and expect to end the year with excellent liquidity, leaving no outstanding borrowings under our $900 million ABL and a large unrestricted cash balance. In addition to the previously discussed successful efforts this year to restructure the Company’s funding of its insurance programs, we expect 2018 Core free cash flows from continuing operations plus tax-related cash flows from utilizing Kindred’s NOL carry forwards to approximate $175 million at the midpoint of an estimated range. We intend to apply this cash flow primarily to repay debt and expect our adjusted debt⁽³⁾ to EBITDAR⁽⁴⁾ leverage to approximate 5.5x by the end of 2018.”

Conference Call

As previously announced, investors and the general public may access a live webcast of the third quarter 2017 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on November 7 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 7 by dialing (719) 457-0820, access code: 2677758. The phone replay will be available through November 17 and the online replay will be available through December 7.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 15 for important disclosures regarding the Company’s forward-looking statements and the non-GAAP financial reconciliations that follow.

(1)	See Forward-Looking Statements beginning on page 15.

(2)	As previously discussed, after this earnings release, the Company will not provide consolidated EBITDAR in future earnings releases, including a 2018 Outlook for Core EBITDAR.

(3)	Adjusted debt includes current and long-term debt plus annual total rent expense multiplied by six less cash.

(4)	The Company will not provide consolidated EBITDAR in future earnings releases and will replace adjusted debt to EBITDAR leverage with debt to EBITDA leverage which excludes total rent expense multiplied by six in the numerator and includes total rent expense in the denominator.

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 6

November 6, 2017

About Kindred Healthcare

Kindred Healthcare, Inc., a top-105 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⁽¹⁾. At September 30, 2017, Kindred’s continuing operations, through its subsidiaries, had approximately 86,400 employees providing healthcare services in 2,475 locations in 45 states, including 77 LTAC hospitals, 19 inpatient rehabilitation hospitals, 16 sub-acute units, 609 Kindred at Home home health, hospice and non-medical home care sites of service, 101 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,653 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)	Revenues from continuing operations for the last twelve months ended September 30, 2017.

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Kindred Healthcare Reports Third Quarter 2017 Results

Page 7

November 6, 2017

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,
	2017			2016			2017			2016
Revenues	$	1,477,141		$	1,563,276		$	4,550,841		$	4,774,813

Salaries, wages and benefits		830,558			867,611			2,504,074			2,546,031
Supplies		73,344			85,469			231,229			263,679
Building rent		64,422			66,946			193,939			199,956
Equipment rent		8,537			9,911			26,285			31,280
Other operating expenses		155,949			167,453			496,934			500,787
General and administrative expenses		258,834			262,051			800,493			848,945
Other income		(638	)		(341	)		(2,895	)		(2,679	)
Litigation contingency expense		4,000			—			4,000			2,840
Impairment charges		—			297,276			136,303			311,195
Restructuring charges		16,500			81,463			31,556			84,213
Depreciation and amortization		24,808			32,995			80,279			99,747
Interest expense		61,146			59,856			181,275			175,398
Investment income		(705	)		(1,797	)		(3,442	)		(2,519	)

		1,496,755			1,928,893			4,680,030			5,058,873

Loss from continuing operations before income taxes		(19,614	)		(365,617	)		(129,189	)		(284,060	)
Provision (benefit) for income taxes		(1,225	)		283,630			(15,107	)		314,106

Loss from continuing operations		(18,389	)		(649,247	)		(114,082	)		(598,166	)
Discontinued operations, net of income taxes:
Loss from operations		(13,612	)		(22,060	)		(1,871	)		(10,489	)
Gain (loss) on divestiture of operations		(49,663	)		—			(349,868	)		179

Loss from discontinued operations		(63,275	)		(22,060	)		(351,739	)		(10,310	)

Net loss		(81,664	)		(671,307	)		(465,821	)		(608,476	)
Earnings attributable to noncontrolling interests:
Continuing operations		(10,960	)		(9,574	)		(32,234	)		(26,272	)
Discontinued operations		(3,162	)		(4,732	)		(12,597	)		(14,075	)

		(14,122	)		(14,306	)		(44,831	)		(40,347	)

Loss attributable to Kindred	$	(95,786	)	$	(685,613	)	$	(510,652	)	$	(648,823	)

Amounts attributable to Kindred stockholders:
Loss from continuing operations	$	(29,349	)	$	(658,821	)	$	(146,316	)	$	(624,438	)
Loss from discontinued operations		(66,437	)		(26,792	)		(364,336	)		(24,385	)

Net loss	$	(95,786	)	$	(685,613	)	$	(510,652	)	$	(648,823	)

Loss per common share:
Basic:
Loss from continuing operations	$	(0.33	)	$	(7.58	)	$	(1.67	)	$	(7.20	)
Discontinued operations:
Loss from operations		(0.19	)		(0.31	)		(0.17	)		(0.28	)
Gain (loss) on divestiture of operations		(0.57	)		—			(4.00	)		—

Loss from discontinued operations		(0.76	)		(0.31	)		(4.17	)		(0.28	)

Net loss	$	(1.09	)	$	(7.89	)	$	(5.84	)	$	(7.48	)

Diluted:
Loss from continuing operations	$	(0.33	)	$	(7.58	)	$	(1.67	)	$	(7.20	)
Discontinued operations:
Loss from operations		(0.19	)		(0.31	)		(0.17	)		(0.28	)
Gain (loss) on divestiture of operations		(0.57	)		—			(4.00	)		—

Loss from discontinued operations		(0.76	)		(0.31	)		(4.17	)		(0.28	)

Net loss	$	(1.09	)	$	(7.89	)	$	(5.84	)	$	(7.48	)

Shares used in computing loss per common share:
Basic		87,597			86,869			87,398			86,766
Diluted		87,597			86,869			87,398			86,766

Cash dividends declared and paid per common share	$	—		$	0.12		$	0.12		$	0.36

Kindred Healthcare Reports Third Quarter 2017 Results

Page 8

November 6, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(Unaudited)

(In thousands, except per share amounts)


	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	130,364		$	137,061
Insurance subsidiary investments		98,079			108,966
Accounts receivable less allowance for loss		1,218,200			1,172,078
Inventories		21,491			22,438
Income taxes		4,983			10,067
Assets held for sale		79,051			289,450
Other		66,463			63,693

		1,618,631			1,803,753

Property and equipment		1,686,504			1,531,598
Accumulated depreciation		(956,644	)		(912,978	)

		729,860			618,620

Goodwill		2,424,831			2,427,074
Intangible assets less accumulated amortization		612,277			770,108
Insurance subsidiary investments		184,417			204,929
Other		301,735			288,240

Total assets	$	5,871,751		$	6,112,724

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	176,353		$	203,925
Salaries, wages and other compensation		370,213			397,486
Due to third party payors		48,791			41,320
Professional liability risks		55,668			65,284
Accrued lease termination fees		109,113			5,224
Other accrued liabilities		264,957			264,512
Long-term debt due within one year		18,247			27,977

		1,043,342			1,005,728

Long-term debt		3,302,936			3,215,062
Professional liability risks		315,322			295,311
Deferred tax liabilities		182,065			201,808
Deferred credits and other liabilities		497,436			353,294

Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 86,980 shares - September 30, 2017 and 85,166 shares - December 31, 2016		21,745			21,291
Capital in excess of par value		1,710,480			1,710,231
Accumulated other comprehensive income		2,929			1,573
Accumulated deficit		(1,431,196	)		(920,544	)

		303,958			812,551
Noncontrolling interests		226,692			228,970

Total equity		530,650			1,041,521

Total liabilities and equity	$	5,871,751		$	6,112,724

Kindred Healthcare Reports Third Quarter 2017 Results

Page 9

November 6, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(In thousands)


	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Cash flows from operating activities:
Net loss	$	(81,664	)	$	(671,307	)	$	(465,821	)	$	(608,476	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense		22,696			34,914			79,001			103,306
Amortization of intangible assets		2,889			5,468			11,909			18,251
Amortization of stock-based compensation costs		5,329			3,015			13,316			13,058
Amortization of deferred financing costs		4,363			3,987			12,847			11,262
Payment of capitalized lender fees related to debt amendment		—			(42	)		(5,403	)		(7,375	)
Provision for doubtful accounts		10,327			10,009			57,511			30,955
Deferred income taxes		(3,788	)		279,172			(19,608	)		308,470
Impairment charges		—			324,289			137,572			338,208
(Gain) loss on divestiture of discontinued operations		49,663			—			349,868			(179	)
Other		9,299			6,303			16,111			7,262
Change in operating assets and liabilities:
Accounts receivable		(3,976	)		(42,832	)		(103,199	)		(143,953	)
Inventories and other assets		(6,999	)		11,871			(9,517	)		(3,522	)
Accounts payable		(3,903	)		11,995			(26,213	)		24,451
Income taxes		2,369			1,615			6,718			2,468
Due to third party payors		20,614			24,809			7,471			20,317
Other accrued liabilities		(18,738	)		33,101			(54,051	)		(73,268	)

Net cash provided by operating activities		8,481			36,367			8,512			41,235

Cash flows from investing activities:
Routine capital expenditures		(16,463	)		(21,873	)		(45,800	)		(68,703	)
Development capital expenditures		(6,415	)		(8,386	)		(17,711	)		(27,112	)
Acquisitions, net of cash acquired		—			(49,329	)		(6,650	)		(77,040	)
Acquisition deposits		—			—			—			18,489
Sale of assets		5,494			3,739			5,494			4,962
Purchase of insurance subsidiary investments		(18,047	)		(22,427	)		(108,655	)		(75,422	)
Sale of insurance subsidiary investments		50,087			31,875			117,863			78,478
Net change in insurance subsidiary cash and cash equivalents		(10,053	)		(14,680	)		23,472			8,479
Net change in other investments		5,088			51			4,844			(33,347	)
Other		(81	)		(150	)		(35	)		(1,277	)

Net cash provided by (used in) investing activities		9,610			(81,180	)		(27,178	)		(172,493	)

Cash flows from financing activities:
Proceeds from borrowings under revolving credit		426,700			489,200			1,214,300			1,267,200
Repayment of borrowings under revolving credit		(427,300	)		(388,100	)		(1,120,600	)		(1,215,800	)
Proceeds from issuance of term loan, net of discount		—			—			—			198,100
Proceeds from other long-term debt		—			—			—			750
Repayment of term loan		(3,508	)		(3,508	)		(10,525	)		(10,019	)
Repayment of other long-term debt		(217	)		(276	)		(840	)		(826	)
Payment of deferred financing costs		(170	)		(50	)		(299	)		(342	)
Issuance of common stock in connection with employee benefit plans		—			—			32			—
Payment of dividend for mandatory redeemable preferred stock		(3,120	)		(2,904	)		(9,195	)		(8,558	)
Dividends paid		—			(10,224	)		(10,228	)		(30,517	)
Contributions made by noncontrolling interests		—			4,993			113			11,261
Distributions to noncontrolling interests		(10,071	)		(4,694	)		(48,372	)		(35,240	)
Purchase of noncontrolling interests		—			—			—			(1,000	)
Payroll tax payments for equity awards issuance		(88	)		(250	)		(2,417	)		(3,079	)

Net cash provided by (used in) financing activities		(17,774	)		84,187			11,969			171,930

Change in cash and cash equivalents		317			39,374			(6,697	)		40,672
Cash and cash equivalents at beginning of period		130,047			100,056			137,061			98,758

Cash and cash equivalents at end of period	$	130,364		$	139,430		$	130,364		$	139,430

Kindred Healthcare Reports Third Quarter 2017 Results

Page 10

November 6, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data

(Unaudited)

(In thousands, except per share amounts)


																						Third quarter
	2016 Quarters												2017 Quarters									% change v.
	First			Second			Third			Fourth			First			Second			Third			prior year
Condensed consolidated statement of operations data:
GAAP presentation:
Revenues	$	1,603,272		$	1,608,265		$	1,563,276		$	1,514,365		$	1,538,682		$	1,535,018		$	1,477,141			(5.5	)
Operating expenses		1,403,467			1,390,562			1,760,982			1,353,386			1,364,751			1,498,396			1,338,547			(24.0	)
Building rent		65,985			67,025			66,946			64,350			64,656			64,861			64,422			(3.8	)
Equipment rent		10,158			11,211			9,911			8,649			8,887			8,861			8,537			(13.9	)
Depreciation and amortization		33,554			33,198			32,995			32,072			29,820			25,651			24,808			(24.8	)
Interest, net		57,253			57,567			58,059			58,625			58,819			58,573			60,441			4.1

Income (loss) from continuing operations before income taxes		32,855			48,702			(365,617	)		(2,717	)		11,749			(121,324	)		(19,614	)		(94.6	)
Provision (benefit) for income taxes		11,462			19,014			283,630			156			2,234			(16,116	)		(1,225	)		(100.4	)

Income (loss) from continuing operations		21,393			29,688			(649,247	)		(2,873	)		9,515			(105,208	)		(18,389	)		(97.2	)
Noncontrolling interests		(7,851	)		(8,847	)		(9,574	)		(8,575	)		(10,483	)		(10,791	)		(10,960	)		14.5

Net income (loss) attributable to Kindred	$	13,542		$	20,841		$	(658,821	)	$	(11,448	)	$	(968	)	$	(115,999	)	$	(29,349	)		(95.5	)

Diluted EPS	$	0.15		$	0.23		$	(7.58	)	$	(0.13	)	$	(0.01	)	$	(1.33	)	$	(0.33	)		(95.6	)
Diluted shares		87,249			87,500			86,869			86,904			87,085			87,506			87,597			0.8

Core presentation (a):
EBITDAR	$	211,898		$	231,064		$	185,571		$	180,429		$	184,411		$	201,002		$	156,851			(15.5	)
Building rent		65,985			67,025			66,674			64,350			64,656			64,861			64,422			(3.4	)
Equipment rent		10,158			11,211			9,911			8,649			8,887			8,861			8,537			(13.9	)
EBITDA		135,755			152,828			108,986			107,430			110,868			127,280			83,892			(23.0	)
Provision (benefit) for income taxes		15,728			20,898			3,953			1,946			9,089			13,013			(2,329	)		n/m
Noncontrolling interests		(7,851	)		(9,863	)		(9,862	)		(8,575	)		(10,483	)		(11,111	)		(10,960	)		11.1
Net income (loss) attributable to Kindred		21,369			31,302			4,117			6,212			2,657			18,932			(9,988	)		n/m

Core diluted EPS	$	0.24		$	0.35		$	0.05		$	0.07		$	0.03		$	0.21		$	(0.11	)		n/m
Diluted shares		87,249			87,500			87,529			87,641			87,744			88,165			87,597			0.1

Revenues by segment:
Kindred at Home:
Home health	$	430,035		$	438,556		$	449,958		$	444,073		$	450,831		$	459,176		$	453,684			0.8
Hospice		176,426			185,641			188,575			186,161			179,378			185,281			188,414			(0.1	)

		606,461			624,197			638,533			630,234			630,209			644,457			642,098			0.6

Hospital division		654,098			645,406			588,943			545,864			556,646			540,809			503,138			(14.6	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		167,045			171,095			170,308			171,352			178,115			178,439			173,638			2.0
RehabCare		201,081			193,060			189,972			189,332			197,318			193,902			179,095			(5.7	)

		368,126			364,155			360,280			360,684			375,433			372,341			352,733			(2.1	)

		1,628,685			1,633,758			1,587,756			1,536,782			1,562,288			1,557,607			1,497,969			(5.7	)

Eliminations		(25,413	)		(25,493	)		(24,480	)		(22,417	)		(23,606	)		(22,589	)		(20,828	)		(14.9	)

	$	1,603,272		$	1,608,265		$	1,563,276		$	1,514,365		$	1,538,682		$	1,535,018		$	1,477,141			(5.5	)

(a)

See reconciliation of GAAP results to non-GAAP results beginning on page 15. During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

n/m = not meaningful.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 11

November 6, 2017

KINDRED HEALTHCARE, INC.

Condensed Consolidated abd Business Segment Data (Continued)

(Unaudited)

(In thousands, except statistics


																						Third quarter
	2016 Quarters												2017 Quarters									% change v.
	First			Second			Third			Fourth			First			Second			Third			prior year
Segment adjusted operating income (loss):
Kindred at Home:
Home health	$	66,941		$	76,030		$	75,073		$	61,487		$	63,750		$	76,592		$	66,431			(11.5	)
Hospice		24,866			31,329			31,326			28,805			27,581			32,784			34,761			11.0

		91,807			107,359			106,399			90,292			91,331			109,376			101,192			(4.9	)

Hospital division		136,416			127,510			83,940			93,778			93,438			91,580			61,455			(26.8	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		48,119			50,729			49,759			49,728			51,760			53,422			49,151			(1.2	)
RehabCare		8,820			10,254			6,740			3,421			7,896			(14,305	)		7,619			13.0

		56,939			60,983			56,499			53,149			59,656			39,117			56,770			0.5
Core EBITDAR by segment (a):
Kindred at Home:
Home health	$	65,803		$	75,859		$	75,073		$	61,185		$	63,750		$	75,797		$	66,431			(11.5	)
Hospice		24,866			31,329			31,326			27,668			27,581			32,784			34,761			11.0

		90,669			107,188			106,399			88,853			91,331			108,581			101,192			(4.9	)

Hospital division		136,416			127,510			83,940			93,148			93,438			90,572			61,455			(26.8	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		48,119			50,729			49,759			49,728			51,760			53,422			49,151			(1.2	)
RehabCare		8,820			10,254			6,740			3,421			7,896			10,999			5,376			(20.2	)

		56,939			60,983			56,499			53,149			59,656			64,421			54,527			(3.5	)

Support center expenses		(71,159	)		(64,265	)		(59,535	)		(54,334	)		(60,014	)		(62,572	)		(60,323	)		1.3
Litigation contingency expense		(885	)		(180	)		—			—			—			—			—
Transaction costs		(82	)		(172	)		(1,732	)		(387	)		—			—			—

	$	211,898		$	231,064		$	185,571		$	180,429		$	184,411		$	201,002		$	156,851			(15.5	)

Segment adjusted operating income (loss) margin:
Kindred at Home:
Home health		15.6			17.3			16.7			13.8			14.1			16.7			14.6			(2.1	)
Hospice		14.1			16.9			16.6			15.5			15.4			17.7			18.4			1.8
Kindred at Home		15.1			17.2			16.7			14.3			14.5			17.0			15.8			(0.9	)
Hospital division		20.9			19.8			14.3			17.2			16.8			16.9			12.2			(2.1	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		28.8			29.6			29.2			29.0			29.1			29.9			28.3			(0.9	)
RehabCare		4.4			5.3			3.5			1.8			4.0			(7.4	)		4.3			0.8
Kindred Rehabilitation Services		15.5			16.7			15.7			14.7			15.9			10.5			16.1			0.4

Core EBITDAR margin by segment (a):
Kindred at Home:
Home health		15.3			17.3			16.7			13.8			14.1			16.5			14.6			(2.1	)
Hospice		14.1			16.9			16.6			14.9			15.4			17.7			18.4			1.8
Kindred at Home		15.0			17.2			16.7			14.1			14.5			16.8			15.8			(0.9	)
Hospital division		20.9			19.8			14.3			17.1			16.8			16.7			12.2			(2.1	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		28.8			29.6			29.2			29.0			29.1			29.9			28.3			(0.9	)
RehabCare		4.4			5.3			3.5			1.8			4.0			5.7			3.0			(0.5	)
Kindred Rehabilitation Services		15.5			16.7			15.7			14.7			15.9			17.3			15.5			(0.2	)
Consolidated		13.2			14.4			11.9			11.9			12.0			13.1			10.6			(1.3	)

(a)

Kindred Healthcare Reports Third Quarter 2017 Results

Page 12

November 6, 2017

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)


															Third quarter
	2016 Quarters								2017 Quarters						% change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Kindred at Home:
Home Health:
Sites of service (at end of period)		384		384		395		390		379		377		376
Revenue mix %:
Medicare		79.8		79.3		78.1		77.9		76.7		75.7		74.0
Medicaid		2.1		2.1		2.5		1.9		1.7		1.7		1.7
Commercial and other		8.4		8.2		8.6		10.6		11.5		11.4		12.7
Commercial paid at episodic rates		9.7		10.4		10.8		9.6		10.1		11.2		11.6
Episodic revenues ($ 000s)	$	325,821	$	332,193	$	332,562	$	323,398	$	326,881	$	334,420	$	320,279		(3.7	)
Total admissions		88,696		87,084		86,761		87,148		94,510		89,018		87,156		0.5
Same-store total admissions		87,394		85,922		85,511		86,056		93,922		88,300		86,312		0.9
Total episodic admissions		71,426		70,212		69,219		67,501		73,270		69,657		67,790		(2.1	)
Same-store total episodic admissions		70,416		69,317		68,285		66,784		72,911		69,207		67,191		(1.6	)
Medicare episodic admissions		62,011		60,730		59,823		59,540		62,404		58,575		56,772		(5.1	)
Total episodes		113,887		113,278		113,256		111,164		114,964		113,579		111,488		(1.6	)
Episodes per admission		1.59		1.61		1.64		1.65		1.57		1.63		1.64		—
Revenue per episode	$	2,861	$	2,933	$	2,936	$	2,909	$	2,843	$	2,944	$	2,873		(2.1	)
Hospice:
Sites of service (at end of period)		177		177		185		183		180		177		178
Admissions		13,234		13,149		12,916		12,660		13,649		12,561		12,236		(5.3	)
Same-store admissions		12,761		12,743		12,541		12,362		13,332		12,363		11,997		(4.3	)
Average length of stay		92		91		98		100		96		94		97		(1.0	)
Patient days		1,183,908		1,238,584		1,277,125		1,246,152		1,193,061		1,215,619		1,239,094		(3.0	)
Average daily census		13,010		13,611		13,882		13,545		13,256		13,358		13,468		(3.0	)
Revenue per patient day	$	149	$	150	$	148	$	149	$	150	$	152	$	152		2.7
Community Care and other revenues (included in Home Health business segment) ($ 000s)	$	66,305	$	68,229	$	75,978	$	74,875	$	74,095	$	74,222	$	79,720		4.9
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs		19		19		19		19		19		19		19
Number of licensed beds		969		969		969		995		995		995		995
Discharges (a)		4,448		4,646		4,644		4,671		4,775		4,766		4,755		2.4
Same-hospital discharges (a)		4,295		4,535		4,546		4,538		4,393		4,517		4,477		(1.5	)
Occupancy % (a)		70.6		70.6		68.8		66.5		71.4		70.0		68.8		—
Average length of stay (a)		13.2		12.9		12.7		12.6		12.8		12.8		12.7		—
Revenue per discharge (a)	$	19,731	$	19,318	$	19,599	$	19,486	$	20,097	$	20,620	$	20,329		3.7
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units		104		105		104		102		101		102		101
LTAC hospitals		119		121		120		119		119		116		110
Sub-acute units		7		7		7		5		7		6		6
Outpatient units		139		138		139		132		129		121		123

		369		371		370		358		356		345		340

Revenue per site	$	211,417	$	215,798	$	210,810	$	220,733	$	227,100	$	228,534	$	222,504		5.5
RehabCare:
Sites of service (at end of period)		1,767		1,759		1,754		1,718		1,703		1,734		1,624
Revenue per site	$	113,798	$	109,756	$	108,308	$	110,204	$	115,865	$	111,823	$	110,281		1.8

(a)	Excludes non-consolidating IRF.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 13

November 6, 2017

KINDRED HEALTHCARE, INC.

Condensed Business Data (Continued)

(Unaudited)


																			Third quarter
	2016 Quarters									2017 Quarters									% change v.
	First		Second		Third		Fourth			First			Second			Third			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			77
Number of licensed beds		7,089		7,067		6,890		6,107			6,107			6,041			5,797
Revenues (000s)	$	643,299	$	633,695	$	575,323	$	530,746		$	540,280		$	525,458		$	487,012			(15.3	)
Revenue mix %:
Medicare		57.8		55.5		54.6		53.5			52.8			50.3			50.6
Medicaid		4.2		4.2		4.0		4.5			3.9			5.0			4.3
Medicare Advantage		11.5		12.0		12.1		11.0			12.2			12.3			12.3
Medicaid Managed		5.6		6.3		7.3		8.0			9.1			9.1			10.1
Commercial insurance and other		20.9		22.0		22.0		23.0			22.0			23.3			22.7

Patient criteria data:
Revenues:
Compliant patients								88.5	%		86.0	%		88.3	%		89.1	%
Site neutral								11.5	%		14.0	%		11.7	%		10.9	%
Revenues per patient day:
Compliant patients							$	1,853		$	1,816		$	1,806		$	1,799
Site neutral								926			1,041			1,053			1,067
Total								1,662			1,645			1,667			1,674

Admissions:
Medicare		8,919		8,253		7,861		7,351			7,529			6,743			6,073			(22.7	)
Medicaid		463		386		375		336			354			381			362			(3.5	)
Medicare Advantage		1,453		1,382		1,327		1,210			1,354			1,239			1,197			(9.8	)
Medicaid Managed		733		768		861		787			851			903			861			—
Commercial insurance and other		1,871		1,807		1,727		1,488			1,614			1,608			1,483			(14.1	)

		13,439		12,596		12,151		11,172			11,702			10,874			9,976			(17.9	)

Patient days:
Medicare		229,004		219,013		202,482		186,290			187,738			173,916			158,083			(21.9	)
Medicaid		21,134		19,409		16,781		12,181			13,334			13,333			13,429			(20.0	)
Medicare Advantage		45,760		47,697		43,241		37,526			41,020			40,555			38,338			(11.3	)
Medicaid Managed		25,341		27,267		28,534		29,275			32,713			32,635			31,249			9.5
Commercial insurance and other		62,769		63,009		59,856		54,148			53,695			54,809			49,895			(16.6	)

		384,008		376,395		350,894		319,420			328,500			315,248			290,994			(17.1	)

Average length of stay:
Medicare		25.7		26.5		25.8		25.3			24.9			25.8			26.0			0.8
Medicaid		45.6		50.3		44.7		36.3			37.7			35.0			37.1			(17.0	)
Medicare Advantage		31.5		34.5		32.6		31.0			30.3			32.7			32.0			(1.8	)
Medicaid Managed		34.6		35.5		33.1		37.2			38.4			36.1			36.3			9.7
Commercial insurance and other		33.5		34.9		34.7		36.4			33.3			34.1			33.6			(3.2	)
Weighted average		28.6		29.9		28.9		28.6			28.1			29.0			29.2			1.0
Revenues per admission:
Medicare	$	41,717	$	42,579	$	39,945	$	38,602		$	37,867		$	39,219		$	40,577			1.6
Medicaid		57,928		69,797		61,338		70,333			60,091			69,304			57,365			(6.5	)
Medicare Advantage		51,080		55,105		52,363		48,387			48,555			51,958			50,301			(3.9	)
Medicaid Managed		49,287		51,696		48,631		54,238			57,736			53,159			57,172			17.6
Commercial insurance and other		71,651		77,193		73,515		82,066			73,750			76,007			74,435			1.3
Weighted average		47,868		50,309		47,348		47,507			46,170			48,322			48,818			3.1
Revenues per patient day:
Medicare	$	1,625	$	1,605	$	1,551	$	1,523		$	1,519		$	1,521		$	1,559			0.5
Medicaid		1,269		1,388		1,371		1,940			1,595			1,980			1,546			12.8
Medicare Advantage		1,622		1,597		1,607		1,560			1,603			1,587			1,571			(2.2	)
Medicaid Managed		1,426		1,456		1,467		1,458			1,502			1,471			1,575			7.4
Commercial insurance and other		2,136		2,214		2,121		2,255			2,217			2,230			2,212			4.3
Weighted average		1,675		1,684		1,640		1,662			1,645			1,667			1,674			2.1

Medicare case mix index (discharged patients only)		1.163		1.179		1.172		1.153			1.172			1.171			1.180			0.7
Average daily census		4,220		4,136		3,814		3,472			3,650			3,464			3,163			(17.1	)
Occupancy %		68.0		67.5		61.6		64.1			67.6			64.3			59.9			(2.8	)

Kindred Healthcare Reports Third Quarter 2017 Results

Page 14

November 6, 2017

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


																			Third quarter
	2016 Quarters									2017 Quarters									% change v.
	First		Second		Third		Fourth			First			Second			Third			prior year
Same-hospital data (a):
End of period data:
Number of transitional care hospitals		74		74		77		77			74			74			77
Number of licensed beds		5,680		5,680		5,797		5,797			5,680			5,680			5,797
Revenues (000s)	$	545,731	$	540,907	$	502,208	$	514,762		$	515,148		$	502,007		$	482,149			(4.0	)
Revenue mix %:
Medicare		58.0		55.2		53.9		53.1			52.0			50.2			50.6
Medicaid		3.8		3.9		3.6		4.5			4.2			5.2			4.3
Medicare Advantage		11.2		11.7		12.3		11.0			12.1			11.9			12.4
Medicaid Managed		5.9		6.8		7.9		8.3			9.4			9.4			10.1
Commercial insurance and other		21.1		22.4		22.3		23.1			22.3			23.3			22.6

Patient criteria data:
Revenues:
Compliant patients								88.7	%		86.0	%		88.5	%		89.1	%
Site neutral								11.3	%		14.0	%		11.5	%		10.9	%

Revenues per patient day:
Compliant patients							$	1,860		$	1,827		$	1,811		$	1,799
Site neutral								924			1,049			1,060			1,067
Total								1,669			1,656			1,674			1,673

Admissions:
Medicare		7,524		6,946		6,758		7,023			7,045			6,408			6,018			(10.9	)
Medicaid		391		334		333		328			351			377			361			8.4
Medicare Advantage		1,178		1,101		1,140		1,160			1,274			1,150			1,190			4.4
Medicaid Managed		629		694		783		784			830			865			851			8.7
Commercial insurance and other		1,500		1,467		1,415		1,416			1,507			1,507			1,468			3.7

		11,222		10,542		10,429		10,711			11,007			10,307			9,888			(5.2	)

Patient days:
Medicare		193,263		184,241		173,863		178,719			175,712			165,065			156,412			(10.0	)
Medicaid		14,382		13,304		11,631		11,923			13,580			13,180			13,433			15.5
Medicare Advantage		37,161		39,474		38,245		36,329			38,640			37,685			38,098			(0.4	)
Medicaid Managed		22,332		24,736		26,552		29,216			32,097			31,858			30,816			16.1
Commercial insurance and other		51,709		52,030		51,043		52,162			51,097			52,033			49,402			(3.2	)

		318,847		313,785		301,334		308,349			311,126			299,821			288,161			(4.4	)

Average length of stay:
Medicare		25.7		26.5		25.7		25.4			24.9			25.8			26.0			1.2
Medicaid		36.8		39.8		34.9		36.4			38.7			35.0			37.2			6.6
Medicare Advantage		31.5		35.9		33.5		31.3			30.3			32.8			32.0			(4.5	)
Medicaid Managed		35.5		35.6		33.9		37.3			38.7			36.8			36.2			6.8
Commercial insurance and other		34.5		35.5		36.1		36.8			33.9			34.5			33.7			(6.6	)
Weighted average		28.4		29.8		28.9		28.8			28.3			29.1			29.1			0.7
Revenues per admission:
Medicare	$	42,061	$	43,021	$	40,020	$	38,946		$	38,018		$	39,353		$	40,513			1.2
Medicaid		52,717		63,223		54,880		70,959			61,618			68,915			57,689			5.1
Medicare Advantage		51,952		57,600		54,398		48,889			48,906			52,111			50,241			(7.6	)
Medicaid Managed		51,560		52,725		50,360		54,345			58,187			54,199			57,158			13.5
Commercial insurance and other		76,679		82,451		79,176		83,792			76,366			77,666			74,312			(6.1	)
Weighted average		48,630		51,310		48,155		48,059			46,802			48,705			48,761			1.3
Revenues per patient day:
Medicare	$	1,638	$	1,622	$	1,556	$	1,530		$	1,524		$	1,528		$	1,559			0.2
Medicaid		1,433		1,587		1,571		1,952			1,593			1,971			1,550			(1.3	)
Medicare Advantage		1,647		1,607		1,621		1,561			1,612			1,590			1,569			(3.2	)
Medicaid Managed		1,452		1,479		1,485		1,458			1,505			1,472			1,578			6.3
Commercial insurance and other		2,224		2,325		2,195		2,275			2,252			2,249			2,208			0.6
Weighted average		1,712		1,724		1,667		1,669			1,656			1,674			1,673			0.4

Average daily census		3,504		3,448		3,275		3,352			3,457			3,295			3,132			(4.4	)

(a)	All historical statistics have been adjusted to present the ongoing hospital division portfolio excluding three hospitals acquired during the second quarter of 2016. See reconciliation of same-hospital revenues to reported hospital revenues on page 19.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 15

November 6, 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 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 (loss) attributable to Kindred, core EBITDAR, core EBITDA, 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 were 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 for each of the Company’s operating segments, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.

EBITDA: The Company defines EBITDA as earnings before interest, income taxes, depreciation, and amortization, and believes that the presentation of EBITDA is useful to investors because creditors, securities analysts and investors use EBITDA to compare the performance and valuation of companies in the healthcare industry before consideration of non-cash depreciation and amortization expense, and financing costs, which can vary significantly among companies.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 16

November 6, 2017

Non-GAAP Measures (Continued)

Core Operating Results: The Company calculates core operating results, including core net income (loss) attributable to Kindred, core EBITDAR, core EBITDA, 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, deferred tax asset valuation allowance, 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 (loss) attributable to Kindred, core EBITDAR, core EBITDA, 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 four hospitals that closed during the third quarter of 2017, one hospital that closed during the second quarter of 2017, three 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 (loss) attributable to Kindred, core EBITDAR, and core EBITDA, 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 revenue 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 Third Quarter 2017 Results

Page 17

November 6, 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 September 30, 2017 and 2016, and for the nine months ended September 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 nine months ended September 30, 2017, was calculated using an effective income tax rate of 6.0% and 72.9% for the three months ended September 30, 2017 and 2016, respectively, and 18.1% and 66.9% for the nine months ended September 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 change in the amount of deferred tax valuation allowance and, for 2016, the composition of charges that are non-deductible for income tax purposes, including the impairment charges.


	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Reconciliation of income (loss) from continuing operations before charges:

As reported:
Loss from continuing operations attributable to Kindred	($	29,349	)	($	658,821	)	($	146,316	)	($	624,438	)
Diluted loss per common share from continuing operations	($	0.33	)	($	7.58	)	($	1.67	)	($	7.20	)
Weighted average diluted shares outstanding		87,597			86,869			87,398			86,766

Detail of charges:
Restructuring charges:
Facility/branch divestitures and closings	($	8,723	)	($	20,212	)	($	16,925	)	($	19,794	)
Retention and severance costs		(5,652	)		(2,109	)		(8,667	)		(3,479	)
Transaction costs		—			(492	)		—			(1,577	)

		(14,375	)		(22,813	)		(25,592	)		(24,850	)
Lease termination costs (charged to rent restructuring charges)		(2,125	)		(58,650	)		(5,964	)		(59,363	)

Impairment charges		—			(297,276	)		(136,303	)		(311,195	)
RehabCare collection litigation		2,243			—			(23,061	)		—
Research and development		—			(3,288	)		—			(7,227	)
Litigation contingency expense		(4,000	)		—			(4,000	)		(1,775	)
Business interruption settlements		—			—			1,803			1,309
Debt amendment fees not capitalized		—			—			—			(1,103	)
Gentiva transaction costs:
Professional and consulting fees		—			(1,464	)		—			(3,831	)
Severance and retention		—			214			—			(696	)
Lease termination (charged to building rent expense)		—			(272	)		—			(272	)

		(18,257	)		(383,549	)		(193,117	)		(409,003	)
Income tax benefit		6,303			86,793			75,111			92,943
Deferred tax valuation allowance		(7,407	)		(366,470	)		(40,231	)		(366,470	)

Charges net of income taxes		(19,361	)		(663,226	)		(158,237	)		(682,530	)
Noncontrolling interests		—			288			320			1,304

		(19,361	)		(662,938	)		(157,917	)		(681,226	)
Allocation to participating unvested restricted stockholders		—			—			—			—

Available to common stockholders	($	19,361	)	($	662,938	)	($	157,917	)	($	681,226	)

Diluted loss per common share related to charges	($	0.22	)	($	7.63	)	($	1.81	)	($	7.85	)
Weighted average diluted shares outstanding		87,597			86,869			87,398			86,766

Core:

Income (loss) from continuing operations attributable to Kindred before charges	($	9,988	)	$	4,117		$	11,601		$	56,788
Diluted earnings (loss) per common share from continuing operations before charges (a)	($	0.11	)	$	0.05		$	0.13		$	0.64
Weighted average diluted shares outstanding used to compute earnings (loss) per common share from continuing operations before charges		87,597			87,529			88,057			87,426

Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges		171.6	%		22.0	%		30.9	%		32.5	%
Impact of charges on effective income tax rate		-165.4	%		55.6	%		-19.2	%		78.1	%

Reported effective income tax rate		6.2	%		77.6	%		11.7	%		110.6	%

(a)

For purposes of computing diluted earnings (loss) per common share before charges, income (loss) from continuing operations before charges was reduced by $0.1 million for the three months ended September 30, 2016, and by $0.3 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively, for the allocation of income to participating unvested restricted stockholders.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 18

November 6, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

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 quarters of 2016 and 2017, before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the table below.


	2016 Quarters												2017 Quarters
	First			Second			Third			Fourth			First			Second			Third
Reconciliation of income (loss) from continuing operations before charges:

As reported:
Income (loss) from continuing operations attributable to Kindred	$	13,542		$	20,841		($	658,821	)	($	11,448	)	($	968	)	($	115,999	)	($	29,349	)
Depreciation and amortization		33,554			33,198			32,995			32,072			29,820			25,651			24,808
Interest, net		57,253			57,567			58,059			58,625			58,819			58,573			60,441
Provision (benefit) for income taxes		11,462			19,014			283,630			156			2,234			(16,116	)		(1,225	)
Noncontrolling interest		7,851			8,847			9,574			8,575			10,483			10,791			10,960

EBITDA		123,662			139,467			(274,563	)		87,980			100,388			(37,100	)		65,635
Building rent		65,985			67,025			66,946			64,350			64,656			64,861			64,422
Equipment rent		10,158			11,211			9,911			8,649			8,887			8,861			8,537
Restructuring charges - rent		251			462			58,650			2,029			1,905			1,934			2,125

EBITDAR		200,056			218,165			(139,056	)		163,008			175,836			38,556			140,719

Detail of charges:
Restructuring charges:
Facility/branch divestitures and closings		341			(759	)		20,212			3,745			5,360			2,842			8,723
Retention and severance costs		924			446			2,109			5,302			2,741			274			5,652
Transaction costs		436			649			492			837			—			—			—

		1,701			336			22,813			9,884			8,101			3,116			14,375
Impairment charges		7,788			6,131			297,276			3,534			474			135,829			—
RehabCare collection litigation		—			—			—			—			—			25,304			(2,243	)
Research and development		863			3,076			3,288			4,293			—			—			—
Litigation contingency expense		1,025			750			—			—			—			—			4,000
Business interruption settlements		(1,138	)		(171	)		—			(2,069	)		—			(1,803	)		—
Debt amendment fees not capitalized		—			1,103			—			—			—			—			—
Gentiva transaction costs:
Professional and consulting fees		1,048			1,319			1,464			1,779			—			—			—
Severance and retention		555			355			(214	)		—			—			—			—

		11,842			12,899			324,627			17,421			8,575			162,446			16,132

Core EBITDAR		211,898			231,064			185,571			180,429			184,411			201,002			156,851
Less:
Building rent		(65,985	)		(67,025	)		(66,946	)		(64,350	)		(64,656	)		(64,861	)		(64,422	)
Equipment rent		(10,158	)		(11,211	)		(9,911	)		(8,649	)		(8,887	)		(8,861	)		(8,537	)
Lease termination (charged to building rent)		—			—			272			—			—			—			—

Core EBITDA	$	135,755		$	152,828		$	108,986		$	107,430		$	110,868		$	127,280		$	83,892

Kindred Healthcare Reports Third Quarter 2017 Results

Page 19

November 6, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

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


	2016 Quarters								2017 Quarters						Third quarter % change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Home health	$	363,730	$	370,327	$	373,980	$	369,198	$	376,736	$	384,954	$	373,964		—
Community care and other		66,305		68,229		75,978		74,875		74,095		74,222		79,720		4.9

Reported home health revenues	$	430,035	$	438,556	$	449,958	$	444,073	$	450,831	$	459,176	$	453,684		0.8

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


															Third quarter
	2016 Quarters								2017 Quarters						% change v.
	First		Second		Third		Fourth		First		Second		Third		prior year
Transitional care hospitals	$	643,299	$	633,695	$	575,323	$	530,746	$	540,280	$	525,458	$	487,012		(15.3	)
Sub-acute units and one skilled nursing facility		10,799		11,711		13,620		15,118		16,366		15,351		16,126

Reported hospital division revenues	$	654,098	$	645,406	$	588,943	$	545,864	$	556,646	$	540,809	$	503,138		(14.6	)

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


																						Third quarter
	2016 Quarters												2017 Quarters									% change v.
	First			Second			Third			Fourth			First			Second			Third			prior year
Transitional care hospitals	$	643,299		$	633,695		$	575,323		$	530,746		$	540,280		$	525,458		$	487,012			(15.3	)
Hospitals acquired during 2016 (a)		—			(2,217	)		—			—			(9,724	)		(10,164	)		—
Hospitals sold during 2016 (b)		(71,941	)		(64,084	)		(47,098	)		732			449			(623	)		(168	)
Hospitals closed during 2017 (c)		(17,356	)		(17,623	)		(17,109	)		(16,533	)		(15,825	)		(13,221	)		(4,607	)
Hospitals closed during 2016 (d)		(8,271	)		(8,864	)		(8,908	)		(183	)		(32	)		557			(88	)

Same-hospital revenues	$	545,731		$	540,907		$	502,208		$	514,762		$	515,148		$	502,007		$	482,149			(4.0	)

(a)	Three 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 and four hospitals closed during the third quarter of 2017.

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

Kindred Healthcare Reports Third Quarter 2017 Results

Page 20

November 6, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended September 30, 2017
				Charges
											Deferred
				RehabCare							tax						Before
	As			collection			Litigation		Restructuring		valuation						charges
	reported			litigation			contingency		charges		allowance			Total			(“core”) (a)
Income (loss) from continuing operations:
Segment adjusted operating income:
Kindred at Home:
Home health	$	66,431		$	—		$	—	$	—	$	—		$	—		$	66,431
Hospice		34,761			—			—		—		—			—			34,761

		101,192			—			—		—		—			—			101,192

Hospital division		61,455			—			—		—		—			—			61,455

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		49,151			—			—		—		—			—			49,151
RehabCare		7,619			(2,243	)		—		—		—			(2,243	)		5,376

		56,770			(2,243	)		—		—		—			(2,243	)		54,527

Support center expenses		(60,323	)		—			—		—		—			—			(60,323	)
Litigation contingency expense		(4,000	)		—			4,000		—		—			4,000			—
Restructuring charges		(14,375	)		—			—		14,375		—			14,375			—
Building rent		(64,422	)		—			—		—		—			—			(64,422	)
Equipment rent		(8,537	)		—			—		—		—			—			(8,537	)
Restructuring charges - rent		(2,125	)		—			—		2,125		—			2,125			—
Depreciation and amortization		(24,808	)		—			—		—		—			—			(24,808	)
Interest, net		(60,441	)		—			—		—		—			—			(60,441	)

Loss from continuing operations before income taxes		(19,614	)		(2,243	)		4,000		16,500		—			18,257			(1,357	)
Income tax benefit		(1,225	)		(883	)		1,574		5,612		(7,407	)		(1,104	)		(2,329	)

		(18,389	)	$	(1,360	)	$	2,426	$	10,888	$	7,407		$	19,361			972

Noncontrolling interests		(10,960	)															(10,960	)

Loss attributable to Kindred	$	(29,349	)														$	(9,988	)

Diluted loss per common share	$	(0.33	)														$	(0.11	)
Diluted shares used in computing loss per common share		87,597																87,597


	Three months ended September 30, 2016
				Charges
											Gentiva		Deferred
											transaction		tax						Before
	As			Impairment			Research and		Restructuring		and		valuation						charges
	reported			charges			development		charges		integration		allowance			Total			(“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		6,740			—			—		—		—		—			—			6,740

		56,499			—			—		—		—		—			—			56,499

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		(365,617	)		297,276			3,288		81,463		1,522		—			383,549			17,932
Provision for income taxes		283,630			53,509			1,268		31,429		587		(366,470	)		(279,677	)		3,953

		(649,247	)		243,767			2,020		50,034		935		366,470			663,226			13,979
Noncontrolling interests		(9,574	)		(288	)		—		—		—		—			(288	)		(9,862	)

Income (loss) attributable to Kindred	$	(658,821	)	$	243,479		$	2,020	$	50,034	$	935	$	366,470		$	662,938		$	4,117

Diluted earnings (loss) per common share	$	(7.58	)																$	0.05
Diluted shares used in computing earnings (loss) per common share		86,869																		87,529

(a)	During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 21

November 6, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Nine months ended September 30, 2017
				Charges
																Deferred
				Business			RehabCare									tax						Before
	As			interruption			collection			Litigation		Impairment		Restructuring		valuation						charges
	reported			settlements			litigation			contingency		charges		charges		allowance			Total			(“core”) (a)
Income (loss) from continuing operations:
Segment adjusted operating income (loss):

Kindred at Home:
Home health	$	206,773		$	(795	)	$	—		$	—	$	—	$	—	$	—		$	(795	)	$	205,978
Hospice		95,126			—			—			—		—		—		—			—			95,126

		301,899			(795	)		—			—		—		—		—			(795	)		301,104

Hospital division		246,473			(1,008	)		—			—		—		—		—			(1,008	)		245,465

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		154,333			—			—			—		—		—		—			—			154,333
RehabCare		1,210			—			23,061			—		—		—		—			23,061			24,271

		155,543			—			23,061			—		—		—		—			23,061			178,604

Support center expenses		(182,909	)		—			—			—		—		—		—			—			(182,909	)
Litigation contingency expense		(4,000	)								4,000									4,000			—
Impairment charges		(136,303	)		—			—			—		136,303		—		—			136,303			—
Restructuring charges		(25,592	)		—			—			—		—		25,592		—			25,592			—
Building rent		(193,939	)		—			—			—		—		—		—			—			(193,939	)
Equipment rent		(26,285	)		—			—			—		—		—		—			—			(26,285	)
Restructuring charges - rent		(5,964	)		—			—			—		—		5,964		—			5,964			—
Depreciation and amortization		(80,279	)		—			—			—		—		—		—			—			(80,279	)
Interest, net		(177,833	)		—			—			—		—		—		—			—			(177,833	)

Income (loss) from continuing operations before income taxes		(129,189	)		(1,803	)		23,061			4,000		136,303		31,556		—			193,117			63,928
Provision (benefit) for income taxes		(15,107	)		(709	)		9,074			1,574		53,635		11,537		(40,231	)		34,880			19,773

		(114,082	)		(1,094	)		13,987			2,426		82,668		20,019		40,231			158,237			44,155
Noncontrolling interests		(32,234	)		—			(320	)		—		—		—		—			(320	)		(32,554	)

Income (loss) attributable to Kindred	$	(146,316	)	$	(1,094	)	$	13,667		$	2,426	$	82,668	$	20,019	$	40,231		$	157,917		$	11,601

Diluted earnings (loss) per common share	$	(1.67	)																			$	0.13
Diluted shares used in computing earnings (loss) per common share		87,398																					88,057



	Nine months ended September 30, 2016
				Charges
																			Gentiva		Deferred
				Business															transaction		tax						Before
	As			interruption			Litigation			Impairment			Research and		Debt		Restructuring		and		valuation						charges
	reported			settlements			contingency			charges			development		amendment		charges		integration		allowance			Total			(“core”) (a)
Income from continuing operations:
Segment adjusted operating income:
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

Hospital division		347,866			—			—			—			—		—		—		—		—			—			347,866

Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		148,607			—			—			—			—		—		—		—		—			—			148,607
RehabCare		25,814			—			—			—			—		—		—		—		—			—			25,814

		174,421			—			—			—			—		—		—		—		—			—			174,421

Support center expenses		(203,289	)		—			—			—			7,227		1,103		—		—		—			8,330			(194,959	)
Litigation contingency expense		(2,840	)		—			1,775			—			—		—		—		—		—			1,775			(1,065	)
Impairment charges		(311,195	)		—			—			311,195			—		—		—		—		—			311,195			—
Restructuring charges		(24,850	)		—			—			—			—		—		24,850		—		—			24,850			—
Transaction costs		(6,513	)		—			—			—			—		—		—		4,527		—			4,527			(1,986	)
Building rent		(199,956	)		—			—			—			—		—		—		272		—			272			(199,684	)
Equipment rent		(31,280	)		—			—			—			—		—		—		—		—			—			(31,280	)
Restructuring charges - rent		(59,363	)		—			—			—			—		—		59,363		—		—			59,363			—
Depreciation and amortization		(99,747	)		—			—			—			—		—		—		—		—			—			(99,747	)
Interest, net		(172,879	)		—			—			—			—		—		—		—		—			—			(172,879	)

Income from continuing operations before income taxes		(284,060	)		(1,309	)		1,775			311,195			7,227		1,103		84,213		4,799		—			409,003			124,943
Provision for income taxes		314,106			(512	)		(381	)		55,762			2,827		431		32,939		1,877		(366,470	)		(273,527	)		40,579

		(598,166	)		(797	)		2,156			255,433			4,400		672		51,274		2,922		366,470			682,530			84,364
Noncontrolling interests		(26,272	)		—			—			(1,304	)		—		—		—		—		—			(1,304	)		(27,576	)

Income attributable to Kindred	$	(624,438	)	$	(797	)	$	2,156		$	254,129		$	4,400	$	672	$	51,274	$	2,922	$	366,470		$	681,226		$	56,788

Diluted earnings per common share	$	(7.20	)																								$	0.64
Diluted shares used in computing earnings per common share		86,766																										87,426

(a)	During the first quarter of 2017, the Company revised its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 22

November 6, 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
								Deferred
								tax					Before
	As			Impairment		Restructuring		valuation					charges
	reported			charges		charges		allowance			Total		(“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		7,896			—		—		—			—		7,896

		59,656			—		—		—			—		59,656

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		11,749			474		10,006		—			10,480		22,229
Provision for income taxes		2,234			187		3,937		2,731			6,855		9,089

		9,515		$	287	$	6,069	$	(2,731	)	$	3,625		13,140

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

Income (loss) attributable to Kindred	$	(968	)										$	2,657

Diluted earnings (loss) per common share	$	(0.01	)										$	0.03
Diluted shares used in computing earnings (loss) per common share		87,085												87,744



	Three months ended March 31, 2016
				Charges
															Gentiva
				Business											transaction					Before
	As			interruption			Litigation		Impairment		Research and		Restructuring		and					charges
	reported			settlements			contingency		charges		development		charges		integration		Total			(“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		8,820			—			—		—		—		—		—		—			8,820

		56,939			—			—		—		—		—		—		—			56,939

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		32,855			(1,138	)		1,025		7,788		863		1,952		1,603		12,093			44,948
Provision for income taxes		11,462			(401	)		362		2,747		304		689		565		4,266			15,728

		21,393		$	(737	)	$	663	$	5,041	$	559	$	1,263	$	1,038	$	7,827			29,220

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

Income attributable to Kindred	$	13,542																		$	21,369

Diluted earnings per common share	$	0.15																		$	0.24
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 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 23

November 6, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended June 30, 2017
				Charges
														Deferred
				Business			RehabCare							tax						Before
	As			interruption			collection			Impairment		Restructuring		valuation						charges
	reported			settlements			litigation			charges		charges		allowance			Total			(“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		(14,305	)		—			25,304			—		—		—			25,304			10,999

		39,117			—			25,304			—		—		—			25,304			64,421

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		(121,324	)		(1,803	)		25,304			135,829		5,050		—			164,380			43,056
Provision (benefit) for income taxes		(16,116	)		(709	)		9,957			53,449		1,987		(35,555	)		29,129			13,013

		(105,208	)		(1,094	)		15,347			82,380		3,063		35,555			135,251			30,043
Noncontrolling interests		(10,791	)		—			(320	)		—		—		—			(320	)		(11,111	)

Income (loss) attributable to Kindred	$	(115,999	)	$	(1,094	)	$	15,027		$	82,380	$	3,063	$	35,555		$	134,931		$	18,932

Diluted earnings (loss) per common share	$	(1.33	)																	$	0.21
Diluted shares used in computing earnings (loss) per common share		87,506																			88,165



	Three months ended June 30, 2016
				Charges
																				Gentiva
				Business																transaction					Before
	As			interruption			Litigation			Impairment			Research and		Debt		Restructuring			and					charges
	reported			settlements			contingency			charges			development		amendment		charges			integration		Total			(“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		10,254			—			—			—			—		—		—			—		—			10,254

		60,983			—			—			—			—		—		—			—		—			60,983

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		48,702			(171	)		750			6,131			3,076		1,103		798			1,674		13,361			62,063
Provision for income taxes		19,014			(129	)		(1,511	)		(2,962	)		2,324		833		2,064			1,265		1,884			20,898

		29,688			(42	)		2,261			9,093			752		270		(1,266	)		409		11,477			41,165
Noncontrolling interests		(8,847	)		—			—			(1,016	)		—		—		—			—		(1,016	)		(9,863	)

Income attributable to Kindred	$	20,841		$	(42	)	$	2,261		$	8,077		$	752	$	270	$	(1,266	)	$	409	$	10,461		$	31,302

Diluted earnings per common share	$	0.23																							$	0.35
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 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 24

November 6, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended December 31, 2016
				Charges
																Gentiva			Deferred
				Business												transaction			tax						Before
	As			interruption			Impairment			Research and			Restructuring			and			valuation						charges
	reported			settlements			charges			development			charges			integration			allowance			Total			(“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		3,421			—			—			—			—			—			—			—			3,421

		53,149			—			—			—			—			—			—			—			53,149

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		(2,717	)		(2,069	)		3,534			4,293			11,913			1,779			—			19,450			16,733
Provision for income taxes		156			(2,574	)		4,396			5,341			14,819			1,810			(22,002	)		1,790			1,946

		(2,873	)	$	505		$	(862	)	$	(1,048	)	$	(2,906	)	$	(31	)	$	22,002		$	17,660			14,787

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

Income (loss) attributable to Kindred	$	(11,448	)																						$	6,212

Diluted earnings (loss) per common share	$	(0.13	)																						$	0.07
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 15 for a discussion regarding the revised definitions. For comparability, core results for 2016 were revised to conform to the current year presentation.

Kindred Healthcare Reports Third Quarter 2017 Results

Page 25

November 6, 2017

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)


	Three months ended						Nine months ended
	September 30,						September 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	$	8,481		$	36,367		$	8,512		$	41,235
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		27,102			7,025			36,319			17,958
Business interruption settlements		—			—			(3,796	)		(1,309	)
Lease termination fees - restructuring		1,898			—			5,931			3,500
Capitalized lender fees related to debt amendment		—			42			5,403			7,375
Other debt refinancing costs (expensed)		—			291			—			917
Litigation		3,307			3,074			12,593			132,643

		32,307			10,432			56,450			161,084

Net cash flows provided by operating activities excluding certain items before income tax benefit of certain payments		40,788			46,799			64,962			202,319
Benefit of reduced income tax payments resulting from certain payments (a)		(10,978	)		(17,295	)		(14,574	)		(45,519	)

Net cash flows provided by operating activities excluding certain items (core operating cash flows)		29,810			29,504			50,388			156,800

Less routine capital expenditures		(16,463	)		(21,873	)		(45,800	)		(68,703	)
Less distributions to noncontrolling interests		(10,071	)		(4,694	)		(48,372	)		(35,240	)

Free cash flows excluding certain items (core free cash flows)	$	3,276		$	2,937		($	43,784	)	$	52,857

(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. Combining the Company’s October 2017 insurance restructuring activities with the completion of the sale of the skilled nursing facility business, the Company anticipates it will have approximately $550 million to $600 million of net operating losses that should offset approximately 90% of core book tax estimates until exhausted.

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KINDRED HEALTHCARE, INC Reports