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

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8-K - FORM 8-K - KINDRED HEALTHCARE, INC	d542727d8k.htm

Exhibit 99.1

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Contact:

Todd Flowers

Investor Relations

(502) 596-6569

KINDRED HEALTHCARE REPORTS FOURTH QUARTER AND FULL YEAR 2017 RESULTS

Consolidated Revenues of $1.5 Billion, GAAP Loss from Continuing Operations of $135 Million⁽¹⁾, GAAP Diluted Loss Per Share from Continuing Operations of $1.65⁽¹⁾, and EBITDA Loss of $193 Million⁽²⁾ in the Fourth Quarter

Core EBITDA of $119 Million⁽³⁾ and Core Diluted Earnings Per Share from Continuing Operations of $0.20⁽³⁾ in the Fourth Quarter

GAAP and Core Results in the Fourth Quarter include Negative Pretax Earnings Impact of $2 Million and Diluted EPS Impact of $0.02 from LTAC Hospital Closures

Consolidated Revenues of $6.0 Billion, GAAP Loss from Continuing Operations of $247 Million, GAAP Diluted Loss Per Share from Continuing Operations of $3.31, and EBITDA Loss of $62 Million⁽³⁾ for the Year

Core EBITDA of $444 Million⁽³⁾ and Core Diluted Earnings Per Share from Continuing Operations of $0.34⁽³⁾ for the Year

GAAP and Core Results for the Year Include Negative Pretax Earnings Impact of $16 Million from Hurricanes and $6 Million from LTAC Hospital Closures and Diluted EPS Impact of $0.11 from Hurricanes and $0.04 from LTAC Hospital Closures

GAAP Operating Cash Flows of $67 Million in the Fourth Quarter

Core Operating Cash Flows of $87 Million⁽³⁾ in the Fourth Quarter

GAAP Operating Cash Flows of $76 Millionfor the Year; Core Operating Cash Flows of $137 Million⁽³⁾ for the Year

Core Free Cash Flows of $50 Million⁽³⁾ in the Fourth Quarter; Core Free Cash Flows of $6 Million⁽³⁾ for the Year

Company Reaffirms 2018 Outlook and Does Not Intend to Provide Future Guidance Updates Due to Pending Merger

LOUISVILLE, Ky. (February 28, 2018) – Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and full year ended December 31, 2017. The Company also today will file its Annual Report on Form 10-K with the Securities and Exchange Commission (“SEC”).

On December 19, 2017, the Company announced that its Board of Directors approved a definitive agreement under which it will be acquired by a consortium of three companies: TPG Capital (“TPG”), Welsh, Carson, Anderson & Stowe (“WCAS”) and Humana Inc. (“Humana”) (NYSE:HUM) (together, the “Consortium”) for approximately $4.1 billion in cash including the assumption or repayment of net debt (the “Merger”). Immediately following the Merger, the home health, hospice and community care businesses will be separated from the Company and operated as a standalone company owned 40 percent by Humana, with the remaining 60 percent owned by TPG and WCAS. The Company’s long-term acute care (“LTAC”) hospitals, inpatient rehabilitation facilities (“IRFs”) and contract rehabilitation services businesses will be operated as a separate specialty hospital company owned by TPG and WCAS.

Benjamin A. Breier, President and Chief Executive Officer of Kindred, commented, “Our fourth quarter results reflect continued execution of the Company’s strategy. We are pleased to be moving forward with the Consortium and look forward to completing the Merger to deliver immediate and certain value to Kindred stockholders at a substantial premium and eliminate the significant risks associated with continuing to operate as a standalone public company or pursuing other strategic alternatives. We are confident that the Merger will enhance innovation at both the home care and specialty hospital companies, further Kindred’s culture of a patient-first approach to care and create new opportunities for Kindred employees.”

(1)

Results reflect after-tax costs of $163.7 million or $1.86 per diluted share related to impairment charges, insurance restructuring costs, other restructuring charges, litigation contingency expense, net change in deferred tax asset valuation allowance and an adjustment to reduce deferred tax liabilities based upon certain changes enacted by the Tax Cuts and Jobs Act of 2017 (“the Tax Reform Act”).

(2)

Results reflect pretax costs of $312.0 million related to impairment charges, insurance restructuring costs, other restructuring charges and litigation contingency expense. As used herein, “EBITDA” means earnings before interest, income taxes, depreciation and amortization. See reconciliation of generally accepted accounting principles (“GAAP”) results to non-GAAP results beginning on page 14.

(3)

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

– MORE –

680 South Fourth Street Louisville, Kentucky 40202

502.596.7300 www.kindredhealthcare.com

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 2

February 28, 2018

The agreement is subject to certain conditions to closing, including, without limitation, the approval of the agreement by the stockholders of Kindred, the receipt of certain licensure and regulatory approvals, and other customary closing conditions. The waiting period for the Merger under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, expired on February 20, 2018. The Merger is expected to close during the summer of 2018.

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 and 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 fourth quarter of 2017, the Company reclassified historical intercompany profits from certain RehabCare contracts that were retained with new operators of divested skilled nursing facilities from discontinued operations to continuing operations for all periods presented. The impact of the retained RehabCare contracts on fourth quarter 2017 revenues, loss from continuing operations before income taxes, EBITDA and Core EBITDA was immaterial.

Fourth Quarter Consolidated Results⁽¹⁾:

•

Consolidated revenues were $1.5 billion, a 2.3% year-over-year decrease, primarily attributable to the impact of the closure of seven LTAC hospitals and termination of over 100 RehabCare sites of service during 2017. GAAP loss from continuing operations was $135.4 million compared to a loss of $1.9 million in the same period a year ago. EBITDA decreased to a loss of $192.8 million compared to $88.7 million of income in the prior year. The increase in the loss from continuing operations and the adverse change in EBITDA was primarily due to a $241.3 million increase in impairment charges and a $41.4 million increase in restructuring charges. Core EBITDA increased to $119.2 million compared to $108.2 million in the same period of 2016, primarily due to growth in home health and IRF volumes, growth in home health and hospice revenue rates, and lower professional liability and workers compensation costs.

•

GAAP operating cash flows were $67.2 million compared to $147.0 million for the same period a year ago. Core operating cash flows were $86.5 million compared to $142.5 million for the same period a year ago. Core free cash flows were $49.7 million compared to $104.4 million in the same period a year ago. GAAP operating cash flows declined compared to the prior year period due to severance, retention and transaction costs associated with the skilled nursing facility business divestiture and other restructuring activities, and an increase in net working capital. Core operating cash flows and core free cash flows declined compared to the prior year period due to increases in net working capital.

•

GAAP diluted loss per share from continuing operations was $1.65 as compared to $0.12 a year ago. The increase in the GAAP diluted loss per share was primarily due to the increase in impairment charges and restructuring charges. Core diluted earnings per share (“EPS”) from continuing operations increased to $0.20, as compared to core diluted EPS of $0.07 for the same period last year, primarily due to growth in home health and IRF volumes, growth in home health and hospice revenue rates, and lower professional liability and workers compensation costs.

•

The Company recorded a $236.3 million non-cash goodwill impairment charge in the fourth quarter to reflect an adjustment to the carrying value of its Hospital division reporting unit in connection with its annual goodwill impairment test as of October 1, 2017. The Company also recorded non-cash impairment charges of $3.2 million for an intangible asset and $1.9 million for property and equipment, both related to the Hospital division, and a $3.5 million non-cash intangible asset impairment charge in the Kindred at Home division (“KAH”).

Full Year Consolidated Results⁽¹⁾:

•

Consolidated revenues were $6.0 billion, a 4.1% year-over-year decrease, primarily attributable to the impact of the transition to LTAC patient criteria, the sale or closure of 22 LTAC hospitals since the third quarter of 2016 and termination of over 100 RehabCare sites of service during 2017. GAAP loss from continuing operations was $247.2 million compared to a loss of $597.7 million in the same period a year ago. The decrease in the loss was primarily due to a $280.3 million decrease in the deferred tax asset valuation allowance provision as well as a $130.5 million tax benefit from the reduction of deferred tax liabilities for certain changes enacted by the Tax Reform Act. EBITDA declined to a loss of $61.6 million compared to income of $79.9 million in the prior year, primarily due

(1)

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Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

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February 28, 2018

Full Year Consolidated Results⁽¹⁾(Continued):

to an increase in impairment charges, the impact of LTAC patient criteria, the sale or closure of LTAC hospitals noted above and operating losses associated with the one-time impact of Hurricanes Irma and Harvey (the “Hurricanes”) of $15.8 million in the third quarter of 2017, partially offset by lower professional liability and workers compensation costs. Core EBITDA declined to $443.5 million compared to $508.4 million in the same period of 2016, primarily due to LTAC patient criteria, the sale or closure of LTAC hospitals and the Hurricane losses, partially offset by lower professional liability and workers compensation costs.

•

GAAP diluted loss per share from continuing operations was $3.31 as compared to $7.29 a year ago. The decrease in the GAAP diluted loss per share was primarily due to a decrease in the deferred tax asset valuation allowance provision as well as a tax benefit from the reduction of deferred tax liabilities for certain changes enacted by the Tax Reform Act. Core diluted EPS from continuing operations declined to $0.34, as compared to core diluted EPS of $0.73 for the same period last year, primarily due to LTAC patient criteria and the Hurricane losses in the third quarter of 2017, partially offset by lower professional liability and workers compensation costs.

•

GAAP operating cash flows were $75.7 million compared to $188.2 million for the same period a year ago. Core operating cash flows were $136.9 million compared to $299.3 million for the same period a year ago. Core free cash flows were $5.9 million compared to $157.2 million in the same period a year ago. GAAP and core operating cash flows and core free cash flows declined compared to the prior year period due to LTAC patient criteria and increases in net working capital.

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

KAH recorded fourth quarter revenues that increased 3.0% to $649.0 million from $630.2 million in the prior year period. On a same-store basis, home health admissions increased 1.6%, but same-store hospice admissions decreased 2.0% over the prior year period. Home health revenue per episode increased 2.6% and hospice revenues per patient day increased 2.7%. GAAP segment adjusted operating income and core segment adjusted operating income for the fourth quarter of 2017 both increased to $103.6 million, an increase of 14.7% and 16.6%, respectively, as compared to the prior year period. The improvements are a result of increased home health volumes, home health and hospice revenue rates, and improved operating efficiencies compared to the prior year. Home health direct labor costs per visit declined 2.6% and hospice direct labor costs per patient day declined 2.1% in the fourth quarter of 2017 both as compared to the fourth quarter of 2016.

Kindred’s Hospital division fourth quarter revenues declined 7.3% to $505.8 million from $545.9 million in the prior year period, primarily due to the elimination of approximately $20 million of revenue related to the closure of seven LTAC hospitals during 2017 and an 8.2% decline in same-hospital admissions compared to last year. For the fourth quarter of 2017, approximately 92% of same-hospital revenue came from LTAC compliant patients, which include all patients except Medicare site neutral patients, an increase from approximately 89% in both the third quarter of 2017 and the prior year period. Same-hospital managed care and commercial volumes increased 6.0% in the fourth quarter of 2017 compared to the prior year period. GAAP segment adjusted operating income and core segment adjusted operating income both declined to $91.0 million, a decrease of 2.9% and 2.3%, respectively, as compared to a year ago. The declines were primarily due to the closure of seven LTAC hospitals, which contributed $1.0 million in both GAAP and core segment operating income during 2017 compared to $2.3 million in 2016, and declines in same-hospital admissions.

Kindred Rehabilitation Services division fourth quarter revenues declined 4.1% to $346.6 million as compared to $361.4 million in the prior year period, primarily due to operating fewer sites of service in RehabCare resulting from the sale of the Company’s affiliated skilled nursing facility business and termination of unprofitable contracts. GAAP segment adjusted operating income and core segment adjusted operating income both decreased to $52.4 million, or by 2.7% as compared to the prior year period, primarily due to the reduction in RehabCare sites of service and lower affiliated LTAC volumes and sites of service within the Kindred Hospital Rehabilitation Services (“KHRS”) contract services business. The KHRS segment achieved revenue growth of 1.4% to $173.7 million from $171.3 million a year ago. This growth is primarily due to IRF revenues increasing 7.5% to $97.8 million as compared to $91.0 million in the prior year as a result of IRF development and a 2.9%

(1)

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

(3)

For each of the Company’s segments, Segment adjusted operating income (loss) is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280 – Segment Reporting.” The Company defines Segment adjusted operating income (loss) as earnings before interest, income taxes, depreciation, amortization and total rent 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 Fourth Quarter and Full Year 2017 Results

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February 28, 2018

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

increase in same-hospital discharges. KHRS GAAP segment adjusted operating income and core segment adjusted operating income both declined to $49.0 million or by 1.3%, as compared to the same period a year ago, primarily as a result of lower affiliated LTAC volumes and sites of service. The IRFs contributed $33.2 million to KHRS GAAP segment adjusted operating income, a 19.7% increase over the prior year. RehabCare revenues declined 9.1% to $172.9 million from $190.1 million for the fourth quarter of 2016, primarily due to operating fewer sites of service. RehabCare GAAP segment adjusted operating income and core segment adjusted operating income both decreased to $3.4 million or 18.5%, as compared to the prior year period, primarily due to operating fewer sites of service.

Discontinued Operations

During the fourth quarter of 2017, the Company recorded $33.1 million of pretax charges related to the continued divestiture of its skilled nursing facility business, including $14.4 million of transaction, severance and retention costs, $13.2 million related to asset write downs, a $5.0 million lease guarantee provision and $0.5 million of lease termination costs.

2018 Outlook and Other Commentary⁽³⁾

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.

For the 2018 Outlook, Kindred anticipates:

•

Annual revenues of $6.0 billion, with a range of $5.9 billion to $6.1 billion;

•

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.

These estimates are identical to the 2018 Outlook provided in the Company’s third quarter earnings release dated November 6, 2017, with the exception of the annual revenues estimate, which was adjusted primarily to reflect LTAC hospital closures, a reduction in RehabCare sites of service and certain adjustments related to the adoption of a new revenue recognition accounting standard on January 1, 2018.

The Company noted that its 2018 Outlook incorporates the estimated near-term impact of the federal budget passed on February 8, 2018. The Company further noted that the estimated future reimbursement impact on the Company’s LTAC, home health and rehabilitation businesses from the 2018 federal budget is consistent with the Company’s longer term expectations.

The Company reaffirmed its previously disclosed 2018 midpoint estimate of approximately $175 of core free cash flows from continuing operations and net operating loss (“NOLs”) utilization, comprising approximately $120 million of core free cash flows from continuing operations and an anticipated cash benefit of approximately $55 million from federal and state tax NOLs. In addition, the Company expects negative free cash flows from discontinued operations, at the midpoint, of approximately $80 million in 2018. Combining continuing and discontinuing operations, on a consolidated basis the Company anticipates 2018 core free cash flow from operations at the midpoint of approximately $95 million, which includes the $55 million of anticipated cash NOL benefits noted above. The Company expects to use approximately $20 million of these cash flows to fund its previously announced IRF development projects, some of which will contribute to 2018 results.

(1)

(2)

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

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Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

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February 28, 2018

2018 Outlook and Other Commentary⁽¹⁾ (Continued):

The Company indicated that its actuarially estimated aggregate insurance settlement cash outflows from discontinued operations for all future periods as of December 31, 2017 approximates $100 million, which comprises approximately $30 million of cash outflows in 2018 and $70 million of cash outflows for periods after 2018. The Company estimated $80 million at the midpoint of expected negative free cash flows from discontinued operations described above includes the estimated $30 million related to insurance settlements, with the remaining estimated $50 million related to the Company’s completion of its skilled nursing facility business divestiture.

The Company does not expect the Tax Reform Act to have a material impact on its book income tax provision for 2018, as the reduction in the federal statutory rate from 35% to 21% will be effectively offset for Kindred by the new limitation on interest expense deductibility and other changes.

The Company updated its preliminary midpoint estimate of available gross federal NOLs to roughly $775 million at December 31, 2017, up from a midpoint estimate of available gross federal NOLs of $575 million included in the Company’s earnings release on November 6, 2017⁽²⁾.

The Company noted that while the estimated gross federal NOLs have increased, the net cash value of the Company’s federal NOLs has decreased by approximately $40 million. Using the new 21% federal statutory rate, the Company’s current gross federal NOLs are estimated to offset approximately $160 million of 2018 and future federal cash tax liabilities, down from approximately $200 million of expected cash value for the Company’s federal NOL estimate at November 6, 2017 using the 35% federal statutory rate prior to the Tax Reform Act. The Company expects the Tax Reform Act will result in the accelerated utilization of its NOLs, particularly given the new limitations on the tax deductibility of interest expense.

Due to the pending Merger, Kindred does not intend to provide future guidance updates.

Cancellation of Conference Calls

In light of the Merger, the Company has discontinued its practice of holding quarterly earnings conference calls.

Forward-Looking Statements and Non-GAAP Reconciliations

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

About Kindred Healthcare

Kindred Healthcare, Inc., a top-105 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $6.0 billion. At December 31, 2017, Kindred’s continuing operations, through its subsidiaries, had approximately 85,300 employees providing healthcare services in 2,471 locations in 45 states, including 75 LTAC hospitals, 19 inpatient rehabilitation hospitals, 13 sub-acute units, 608 Kindred at Home home health, hospice and non-medical home care sites of service, 99 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,657 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for nine years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

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

(2)

The increase in gross NOLs is primarily due to certain fourth quarter 2017 changes in book-to-tax temporary differences, finalization of the Company’s 2017 taxable loss, the Company’s previously disclosed insurance program restructuring and additional clarity on the tax attributes of the Company’s skilled nursing facility business divestiture.

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Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

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February 28, 2018

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(In thousands, except per share amounts)


	Three months ended						Year ended
	December 31,						December 31,
	2017			2016			2017			2016
Revenues	$	1,480,982		$	1,515,086		$	6,034,123		$	6,292,529

Salaries, wages and benefits		814,811			846,232			3,318,885			3,392,263
Supplies		72,694			79,386			303,923			343,065
Building rent		63,577			64,350			257,516			264,306
Equipment rent		8,571			8,649			34,856			39,929
Other operating expenses		143,830			156,005			640,764			656,792
General and administrative expenses		269,271			258,703			1,069,764			1,107,648
Other income		(565	)		(2,387	)		(3,460	)		(5,066	)
Litigation contingency expense		3,435			—			7,435			2,840
Impairment charges		244,876			3,534			381,179			314,729
Restructuring charges		53,305			11,913			84,861			96,126
Depreciation and amortization		24,526			32,072			104,805			131,819
Interest expense		60,136			59,214			241,411			234,612
Investment income		(57	)		(589	)		(3,499	)		(3,108	)

		1,758,410			1,517,082			6,438,440			6,575,955

Loss from continuing operations before income taxes		(277,428	)		(1,996	)		(404,317	)		(283,426	)
Provision (benefit) for income taxes		(142,009	)		(116	)		(157,116	)		314,262

Loss from continuing operations		(135,419	)		(1,880	)		(247,201	)		(597,688	)
Discontinued operations, net of income taxes:
Income (loss) from operations		(12,683	)		6,655			(16,854	)		(6,192	)
Loss on divestiture of operations		(29,392	)		(6,923	)		(379,260	)		(6,744	)

Loss from discontinued operations		(42,075	)		(268	)		(396,114	)		(12,936	)

Net loss		(177,494	)		(2,148	)		(643,315	)		(610,624	)
Earnings attributable to noncontrolling interests:
Continuing operations		(9,942	)		(8,575	)		(42,176	)		(34,847	)
Discontinued operations		(264	)		(4,684	)		(12,861	)		(18,759	)

		(10,206	)		(13,259	)		(55,037	)		(53,606	)

Loss attributable to Kindred	$	(187,700	)	$	(15,407	)	$	(698,352	)	$	(664,230	)

Amounts attributable to Kindred stockholders:
Loss from continuing operations	$	(145,361	)	$	(10,455	)	$	(289,377	)	$	(632,535	)
Loss from discontinued operations		(42,339	)		(4,952	)		(408,975	)		(31,695	)

Net loss	$	(187,700	)	$	(15,407	)	$	(698,352	)	$	(664,230	)

Loss per common share:
Basic:
Loss from continuing operations	$	(1.65	)	$	(0.12	)	$	(3.31	)	$	(7.29	)
Discontinued operations:
Loss from operations		(0.15	)		0.02			(0.34	)		(0.28	)
Loss on divestiture of operations		(0.33	)		(0.08	)		(4.33	)		(0.08	)

Loss from discontinued operations		(0.48	)		(0.06	)		(4.67	)		(0.36	)

Net loss	$	(2.13	)	$	(0.18	)	$	(7.98	)	$	(7.65	)

Diluted:
Loss from continuing operations	$	(1.65	)	$	(0.12	)	$	(3.31	)	$	(7.29	)
Discontinued operations:
Loss from operations		(0.15	)		0.02			(0.34	)		(0.28	)
Loss on divestiture of operations		(0.33	)		(0.08	)		(4.33	)		(0.08	)

Loss from discontinued operations		(0.48	)		(0.06	)		(4.67	)		(0.36	)

Net loss	$	(2.13	)	$	(0.18	)	$	(7.98	)	$	(7.65	)

Shares used in computing loss per common share:
Basic		87,902			86,904			87,525			86,800
Diluted		87,902			86,904			87,525			86,800
Cash dividends declared and paid per common share	$	—		$	0.12		$	0.12		$	0.48

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 7

February 28, 2018

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(In thousands, except per share amounts)


	December 31, 2017			December 31, 2016
	December 31, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	160,254		$	137,061
Insurance subsidiary investments		22,546			108,966
Accounts receivable less allowance for loss		1,122,532			1,172,078
Inventories		21,716			22,438
Income taxes		4,546			10,067
Assets held for sale		17,335			289,450
Other		60,610			63,693

		1,409,539			1,803,753
Property and equipment		1,682,965			1,531,598
Accumulated depreciation		(946,986	)		(912,978	)

		735,979			618,620
Goodwill		2,188,566			2,427,074
Intangible assets less accumulated amortization		604,338			770,108
Insurance subsidiary investments		28,988			204,929
Other		265,307			288,240

Total assets	$	5,232,717		$	6,112,724

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	191,827		$	203,925
Salaries, wages and other compensation		352,179			397,486
Due to third party payors		35,321			41,320
Professional liability risks		60,767			65,284
Accrued lease termination fees		7,610			5,224
Other accrued liabilities		263,977			264,512
Long-term debt due within one year		14,638			27,977

		926,319			1,005,728
Long-term debt		3,146,972			3,215,062
Professional liability risks		276,829			295,311
Deferred tax liabilities		36,881			201,808
Deferred credits and other liabilities		497,954			353,294
Equity:
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 91,454 shares - December 31, 2017 and 85,166 shares - December 31, 2016		22,864			21,291
Capital in excess of par value		1,713,179			1,710,231
Accumulated other comprehensive income		6,179			1,573
Accumulated deficit		(1,618,896	)		(920,544	)

		123,326			812,551
Noncontrolling interests		224,436			228,970

Total equity		347,762			1,041,521

Total liabilities and equity	$	5,232,717		$	6,112,724

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 8

February 28, 2018

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(In thousands)


	Three months ended December 31,						Year ended December 31,
	2017			2016			2017			2016
Cash flows from operating activities:
Net loss	$	(177,494	)	$	(2,148	)	$	(643,315	)	$	(610,624	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense		23,480			32,660			102,481			135,966
Amortization of intangible assets		2,728			5,422			14,637			23,673
Amortization of stock-based compensation costs		3,933			3,367			17,249			16,425
Amortization of deferred financing costs		4,342			4,005			17,189			15,267
Payment of capitalized lender fees related to debt amendments		—			—			(5,403	)		(7,375	)
Provision for doubtful accounts		10,773			9,849			68,284			40,804
Deferred income taxes		(145,086	)		1,868			(164,694	)		310,338
Impairment charges		244,876			4,351			382,447			342,559
Loss on divestiture of discontinued operations		29,392			6,923			379,260			6,744
Other		1,823			5,152			17,935			12,414
Change in operating assets and liabilities:
Accounts receivable		82,303			84,922			(20,896	)		(59,031	)
Inventories and other assets		32,371			(20,704	)		22,854			(24,226	)
Accounts payable		13,946			1,764			(12,267	)		26,215
Income taxes		3,524			1,882			10,242			4,350
Due to third party payors		(13,470	)		(16,625	)		(5,999	)		3,692
Other accrued liabilities		(50,258	)		24,313			(104,309	)		(48,955	)

Net cash provided by operating activities		67,183			147,001			75,695			188,236

Cash flows from investing activities:
Routine capital expenditures		(24,006	)		(27,349	)		(69,806	)		(96,052	)
Development capital expenditures		(8,184	)		(7,713	)		(25,895	)		(34,825	)
Acquisitions, net of cash acquired		(3,000	)		(1,800	)		(9,650	)		(78,840	)
Acquisition deposits		—			—			—			18,489
Sale of assets		(77,049	)		21,025			(71,555	)		25,987
Purchase of insurance subsidiary investments		(5,006	)		(22,318	)		(113,661	)		(97,740	)
Sale of insurance subsidiary investments		125,753			17,010			243,616			95,488
Net change in insurance subsidiary cash and cash equivalents		110,146			(7,602	)		133,618			877
Net change in other investments		19,793			577			24,637			(32,770	)
Other		42			1,022			7			(255	)

Net cash provided by (used in) investing activities		138,489			(27,148	)		111,311			(199,641	)

Cash flows from financing activities:
Proceeds from borrowings under revolving credit		155,400			376,100			1,369,700			1,643,300
Repayment of borrowings under revolving credit		(311,600	)		(473,600	)		(1,432,200	)		(1,689,400	)
Proceeds from issuance of term loan, net of discount		—			—			—			198,100
Proceeds from other long-term debt		—			—			—			750
Repayment of term loan		(3,509	)		(3,508	)		(14,034	)		(13,527	)
Repayment of other long-term debt		(205	)		(278	)		(1,045	)		(1,104	)
Payment of deferred financing costs		(114	)		(180	)		(413	)		(522	)
Issuance of common stock in connection with employee benefit plans		—			—			32			—
Payment of dividend for mandatory redeemable preferred stock		(3,177	)		(2,956	)		(12,372	)		(11,514	)
Dividends paid		—			(10,221	)		(10,228	)		(40,738	)
Contributions made by noncontrolling interests		392			3,253			505			14,514
Distributions to noncontrolling interests		(12,854	)		(10,745	)		(61,226	)		(45,985	)
Purchase of noncontrolling interests		—			—			—			(1,000	)
Payroll tax payments for equity awards issuance		(115	)		(87	)		(2,532	)		(3,166	)

Net cash provided by (used in) financing activities		(175,782	)		(122,222	)		(163,813	)		49,708

Change in cash and cash equivalents		29,890			(2,369	)		23,193			38,303
Cash and cash equivalents at beginning of period		130,364			139,430			137,061			98,758

Cash and cash equivalents at end of period	$	160,254		$	137,061		$	160,254		$	137,061

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 9

February 28, 2018

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data

(Unaudited)

(In thousands, except per share amounts)


	2016 Quarters															2017 Quarters															Fourth quarter % change v.
	First			Second			Third			Fourth			Year			First			Second			Third			Fourth			Year			prior year
Condensed consolidated statement of operations data:
GAAP presentation:
Revenues	$	1,604,214		$	1,609,169		$	1,564,060		$	1,515,086		$	6,292,529		$	1,539,490		$	1,535,831		$	1,477,820		$	1,480,982		$	6,034,123			(2.3	)
Operating expenses		1,403,467			1,390,562			1,760,982			1,353,386			5,908,397			1,364,751			1,498,396			1,338,547			1,601,657			5,803,351			18.3
Building rent		65,985			67,025			66,946			64,350			264,306			64,656			64,861			64,422			63,577			257,516			(1.2	)
Equipment rent		10,158			11,211			9,911			8,649			39,929			8,887			8,861			8,537			8,571			34,856			(0.9	)
Depreciation and amortization		33,554			33,198			32,995			32,072			131,819			29,820			25,651			24,808			24,526			104,805			(23.5	)
Interest, net		57,253			57,567			58,059			58,625			231,504			58,819			58,573			60,441			60,079			237,912			2.5

Income (loss) from continuing operations before income taxes		33,797			49,606			(364,833	)		(1,996	)		(283,426	)		12,557			(120,511	)		(18,935	)		(277,428	)		(404,317	)		n/m
Provision (benefit) for income taxes		11,817			19,379			283,182			(116	)		314,262			2,234			(16,116	)		(1,225	)		(142,009	)		(157,116	)		n/m

Income (loss) from continuing operations		21,980			30,227			(648,015	)		(1,880	)		(597,688	)		10,323			(104,395	)		(17,710	)		(135,419	)		(247,201	)		n/m
Noncontrolling interests		(7,851	)		(8,847	)		(9,574	)		(8,575	)		(34,847	)		(10,483	)		(10,791	)		(10,960	)		(9,942	)		(42,176	)		15.9

Net income (loss) attributable to Kindred	$	14,129		$	21,380		$	(657,589	)	$	(10,455	)	$	(632,535	)	$	(160	)	$	(115,186	)	$	(28,670	)	$	(145,361	)	$	(289,377	)		n/m

Diluted EPS	$	0.16		$	0.23		$	(7.57	)	$	(0.12	)	$	(7.29	)	$	—		$	(1.32	)	$	(0.32	)	$	(1.65	)	$	(3.31	)		n/m
Diluted shares		87,249			87,500			86,869			86,904			86,800			87,085			87,506			87,597			87,902			87,525			1.1
Core presentation (a):
Building rent	$	65,985		$	67,025		$	66,674		$	64,350		$	264,034		$	64,656		$	64,861		$	64,422		$	63,577		$	257,516			(1.2	)
Equipment rent		10,158			11,211			9,911			8,649			39,929			8,887			8,861			8,537			8,571			34,856			(0.9	)
EBITDA		136,697			153,732			109,770			108,151			508,350			111,676			128,093			84,571			119,199			443,539			10.2
Provision (benefit) for income taxes		16,099			21,253			4,262			2,230			43,844			9,407			13,333			(2,062	)		6,323			27,001			183.5
Noncontrolling interests		(7,851	)		(9,863	)		(9,862	)		(8,575	)		(36,151	)		(10,483	)		(11,111	)		(10,960	)		(9,942	)		(42,496	)		15.9
Net income (loss) attributable to Kindred		21,940			31,851			4,592			6,649			65,032			3,147			19,425			(9,576	)		18,329			31,325			175.7
Core diluted EPS	$	0.25		$	0.35		$	0.05		$	0.07		$	0.73		$	0.03		$	0.21		$	(0.11	)	$	0.20		$	0.34			185.7
Diluted shares		87,249			87,500			87,529			87,641			87,491			87,744			88,165			87,597			88,485			88,200			1.0
Revenues by segment:
Kindred at Home:
Home health	$	430,035		$	438,556		$	449,958		$	444,073		$	1,762,622		$	450,831		$	459,176		$	453,684		$	458,666		$	1,822,357			3.3
Hospice		176,426			185,641			188,575			186,161			736,803			179,378			185,281			188,414			190,370			743,443			2.3

		606,461			624,197			638,533			630,234			2,499,425			630,209			644,457			642,098			649,036			2,565,800			3.0
Hospital division		654,098			645,406			588,943			545,864			2,434,311			556,646			540,809			503,138			505,782			2,106,375			(7.3	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		167,045			171,095			170,308			171,352			679,800			178,115			178,439			173,638			173,723			703,915			1.4
RehabCare		202,023			193,964			190,756			190,053			776,796			198,126			194,715			179,774			172,852			745,467			(9.1	)

		369,068			365,059			361,064			361,405			1,456,596			376,241			373,154			353,412			346,575			1,449,382			(4.1	)

		1,629,627			1,634,662			1,588,540			1,537,503			6,390,332			1,563,096			1,558,420			1,498,648			1,501,393			6,121,557			(2.3	)
Eliminations		(25,413	)		(25,493	)		(24,480	)		(22,417	)		(97,803	)		(23,606	)		(22,589	)		(20,828	)		(20,411	)		(87,434	)		(8.9	)

	$	1,604,214		$	1,609,169		$	1,564,060		$	1,515,086		$	6,292,529		$	1,539,490		$	1,535,831		$	1,477,820		$	1,480,982		$	6,034,123			(2.3	)

(a)

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

n/m = not meaningful.

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 10

February 28, 2018

KINDRED HEALTHCARE, INC.

Condensed Consolidated and Business Segment Data (Continued)

(Unaudited)

(In thousands, except statistics)


	2016 Quarters															2017 Quarters															Fourth quarter
	First			Second			Third			Fourth			Year			First			Second			Third			Fourth			Year			% change v. prior year
Segment adjusted operating income (loss):
Kindred at Home:
Home health	$	66,941		$	76,030		$	75,073		$	61,487		$	279,531		$	63,750		$	76,592		$	66,431		$	69,445		$	276,218			12.9
Hospice		24,866			31,329			31,326			28,805			116,326			27,581			32,784			34,761			34,147			129,273			18.5

		91,807			107,359			106,399			90,292			395,857			91,331			109,376			101,192			103,592			405,491			14.7
Hospital division		136,416			127,510			83,940			93,778			441,644			93,438			91,580			61,455			91,014			337,487			(2.9	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		48,119			50,729			49,759			49,728			198,335			51,760			53,422			49,151			49,059			203,392			(1.3	)
RehabCare		9,762			11,158			7,524			4,142			32,586			8,704			(13,492	)		8,298			3,374			6,884			(18.5	)

		57,881			61,887			57,283			53,870			230,921			60,464			39,930			57,449			52,433			210,276			(2.7	)
Core segment adjusted operating income (a):
Kindred at Home:
Home health	$	65,803		$	75,859		$	75,073		$	61,185		$	277,920		$	63,750		$	75,797		$	66,431		$	69,445		$	275,423			13.5
Hospice		24,866			31,329			31,326			27,668			115,189			27,581			32,784			34,761			34,147			129,273			23.4

		90,669			107,188			106,399			88,853			393,109			91,331			108,581			101,192			103,592			404,696			16.6
Hospital division		136,416			127,510			83,940			93,148			441,014			93,438			90,572			61,455			91,014			336,479			(2.3	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		48,119			50,729			49,759			49,728			198,335			51,760			53,422			49,151			49,059			203,392			(1.3	)
RehabCare		9,762			11,158			7,524			4,142			32,586			8,704			11,812			6,055			3,374			29,945			(18.5	)

		57,881			61,887			57,283			53,870			230,921			60,464			65,234			55,206			52,433			233,337			(2.7	)
Support center expenses		(71,159	)		(64,265	)		(59,535	)		(54,334	)		(249,293	)		(60,014	)		(62,572	)		(60,323	)		(55,692	)		(238,601	)		2.5
Litigation contingency expense		(885	)		(180	)		—			—			(1,065	)		—			—			—			—			—
Transaction costs		(82	)		(172	)		(1,732	)		(387	)		(2,373	)		—			—			—			—			—

	$	212,840		$	231,968		$	186,355		$	181,150		$	812,313		$	185,219		$	201,815		$	157,530		$	191,347		$	735,911			5.6

Segment adjusted operating income (loss) margin:
Kindred at Home:
Home health		15.6			17.3			16.7			13.8			15.9			14.1			16.7			14.6			15.1			15.2			1.3
Hospice		14.1			16.9			16.6			15.5			15.8			15.4			17.7			18.4			17.9			17.4			2.4
Kindred at Home		15.1			17.2			16.7			14.3			15.8			14.5			17.0			15.8			16.0			15.8			1.7
Hospital division		20.9			19.8			14.3			17.2			18.1			16.8			16.9			12.2			18.0			16.0			0.8
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		28.8			29.6			29.2			29.0			29.2			29.1			29.9			28.3			28.2			28.9			(0.8	)
RehabCare		4.8			5.8			3.9			2.2			4.2			4.4			(6.9	)		4.6			2.0			0.9			(0.2	)
Kindred Rehabilitation Services		15.7			17.0			15.9			14.9			15.9			16.1			10.7			16.3			15.1			14.5			0.2
Core segment adjusted operating income margin (a):
Kindred at Home:
Home health		15.3			17.3			16.7			13.8			15.8			14.1			16.5			14.6			15.1			15.1			1.3
Hospice		14.1			16.9			16.6			14.9			15.6			15.4			17.7			18.4			17.9			17.4			3.0
Kindred at Home		15.0			17.2			16.7			14.1			15.7			14.5			16.8			15.8			16.0			15.8			1.9
Hospital division		20.9			19.8			14.3			17.1			18.1			16.8			16.7			12.2			18.0			16.0			0.9
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		28.8			29.6			29.2			29.0			29.2			29.1			29.9			28.3			28.2			28.9			(0.8	)
RehabCare		4.8			5.8			3.9			2.2			4.2			4.4			6.1			3.4			2.0			4.0			(0.2	)
Kindred Rehabilitation Services		15.7			17.0			15.9			14.9			15.9			16.1			17.5			15.6			15.1			16.1			0.2
Consolidated		13.3			14.4			11.9			12.0			12.9			12.0			13.1			10.7			12.9			12.2			0.9

(a)

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 11

February 28, 2018

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data

(Unaudited)


	2016 Quarters										2017 Quarters										Fourth quarter % change v.
	First		Second		Third		Fourth		Year		First		Second		Third		Fourth		Year		prior year
Kindred at Home:
Home Health:
Sites of service (at end of period)		384		384		395		390				379		377		376		375
Revenue mix %:
Medicare		79.8		79.3		78.1		77.9		78.8		76.7		75.7		74.0		73.8		75.0
Medicaid		2.1		2.1		2.5		1.9		2.1		1.7		1.7		1.7		1.6		1.7
Commercial and other		8.4		8.2		8.6		10.6		8.9		11.5		11.4		12.7		12.7		12.1
Commercial paid at episodic rates		9.7		10.4		10.8		9.6		10.2		10.1		11.2		11.6		11.9		11.2
Episodic revenues ($ 000s)	$	325,821	$	332,193	$	332,562	$	323,398	$	1,313,974	$	326,881	$	334,420	$	320,279	$	332,595	$	1,314,175		2.8
Total admissions		88,696		87,084		86,761		87,148		349,689		94,510		89,018		87,156		88,224		358,908		1.2
Same-store total admissions		87,394		85,922		85,511		86,619		345,446		93,922		88,300		86,312		88,004		356,538		1.6
Total episodic admissions		71,426		70,212		69,219		67,501		278,358		73,270		69,657		67,790		67,858		278,575		0.5
Same-store total episodic admissions		70,416		69,317		68,285		67,119		275,137		72,911		69,207		67,191		67,650		276,959		0.8
Medicare episodic admissions		62,011		60,730		59,823		59,540		242,104		62,404		58,575		56,772		56,829		234,580		(4.6	)
Total episodes		113,887		113,278		113,256		111,164		451,585		114,964		113,579		111,488		111,411		451,442		0.2
Episodes per admission		1.59		1.61		1.64		1.65		1.62		1.57		1.63		1.64		1.64		1.62		(0.6	)
Revenue per episode	$	2,861	$	2,933	$	2,936	$	2,909	$	2,910	$	2,843	$	2,944	$	2,873	$	2,985	$	2,911		2.6
Hospice:
Sites of service (at end of period)		177		177		185		183				180		177		178		178
Admissions		13,234		13,149		12,916		12,660		51,959		13,649		12,561		12,236		12,274		50,720		(3.0	)
Same-store admissions		12,761		12,743		12,541		12,413		50,458		13,332		12,363		11,997		12,162		49,854		(2.0	)
Average length of stay		92		91		98		100		95		96		94		97		96		96		(4.0	)
Patient days		1,183,908		1,238,584		1,277,125		1,246,152		4,945,769		1,193,061		1,215,619		1,239,094		1,243,574		4,891,348		(0.2	)
Average daily census		13,010		13,611		13,882		13,545		13,513		13,256		13,358		13,468		13,517		13,401		(0.2	)
Revenue per patient day	$	149	$	150	$	148	$	149	$	149	$	150	$	152	$	152	$	153	$	152		2.7
Community care and other revenues (included in Home Health business segment) ($ 000s)	$	66,305	$	68,229	$	75,978	$	74,875	$	285,387	$	74,095	$	74,222	$	79,720	$	69,974	$	298,011		(6.5	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs		19		19		19		19				19		19		19		19
Number of licensed beds		969		969		969		995				995		995		995		995
Discharges (a)		4,448		4,646		4,644		4,671		18,409		4,775		4,766		4,755		5,011		19,307		7.3
Same-hospital discharges (a)		4,295		4,535		4,546		4,538		17,914		4,393		4,517		4,477		4,671		18,058		2.9
Occupancy % (a)		70.6		70.6		68.8		66.5		69.1		71.4		70.0		68.8		71.2		70.4		7.1
Average length of stay (a)		13.2		12.9		12.7		12.6		12.8		12.8		12.8		12.7		12.5		12.7		(0.8	)
Revenue per discharge (a)	$	19,731	$	19,318	$	19,599	$	19,486	$	19,531	$	20,097	$	20,620	$	20,329	$	19,523	$	20,134		0.2
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units		104		105		104		102				101		102		101		99
LTAC hospitals		119		121		120		119				119		116		110		104
Sub-acute units		7		7		7		5				7		6		6		4
Outpatient units		139		138		139		132				129		121		123		123

		369		371		370		358				356		345		340		330

Revenue per site	$	211,417	$	215,798	$	210,810	$	220,733	$	858,758	$	227,100	$	228,534	$	222,504	$	225,919	$	904,057		2.3
RehabCare:
Sites of service (at end of period)		1,767		1,759		1,754		1,718				1,703		1,734		1,624		1,616
Revenue per site	$	114,331	$	110,270	$	108,755	$	110,624	$	443,980	$	116,340	$	112,292	$	110,699	$	106,963	$	446,294		(3.3	)

(a)	Excludes non-consolidating IRF.

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 12

February 28, 2018

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


	2016 Quarters											2017 Quarters															Fourth quarter % change v.
	First		Second		Third		Fourth			Year		First			Second			Third			Fourth			Year			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			75
Number of licensed beds		7,089		7,067		6,890		6,107					6,107			6,041			5,797			5,553
Revenues (000s)	$	643,299	$	633,695	$	575,323	$	530,746		$	2,383,063	$	540,280		$	525,458		$	487,012		$	489,621		$	2,042,371			(7.7	)
Revenue mix %:
Medicare		57.8		55.5		54.6		53.5			55.5		52.8			50.3			50.6			50.2			51.0
Medicaid		4.2		4.2		4.0		4.5			4.2		3.9			5.0			4.3			4.1			4.3
Medicare Advantage		11.5		12.0		12.1		11.0			11.7		12.2			12.3			12.3			13.5			12.6
Medicaid Managed		5.6		6.3		7.3		8.0			6.7		9.1			9.1			10.1			10.1			9.6
Commercial insurance and other		20.9		22.0		22.0		23.0			21.9		22.0			23.3			22.7			22.1			22.5
Patient criteria data:
Revenues:
Compliant patients								88.5	%				86.0	%		88.3	%		89.1	%		91.8	%		88.7	%
Site neutral								11.5	%				14.0	%		11.7	%		10.9	%		8.2	%		11.3	%
Revenues per patient day:
Compliant patients							$	1,853				$	1,816		$	1,806		$	1,799		$	1,835		$	1,814
Site neutral								926					1,041			1,053			1,067			1,047			1,051
Total								1,662					1,645			1,667			1,674			1,729			1,677
Admissions:
Medicare		8,919		8,253		7,861		7,351			32,384		7,529			6,743			6,073			5,862			26,207			(20.3	)
Medicaid		463		386		375		336			1,560		354			381			362			287			1,384			(14.6	)
Medicare Advantage		1,453		1,382		1,327		1,210			5,372		1,354			1,239			1,197			1,225			5,015			1.2
Medicaid Managed		733		768		861		787			3,149		851			903			861			875			3,490			11.2
Commercial insurance and other		1,871		1,807		1,727		1,488			6,893		1,614			1,608			1,483			1,401			6,106			(5.8	)

		13,439		12,596		12,151		11,172			49,358		11,702			10,874			9,976			9,650			42,202			(13.6	)

Patient days:
Medicare		229,004		219,013		202,482		186,290			836,789		187,738			173,916			158,083			149,892			669,629			(19.5	)
Medicaid		21,134		19,409		16,781		12,181			69,505		13,334			13,333			13,429			12,048			52,144			(1.1	)
Medicare Advantage		45,760		47,697		43,241		37,526			174,224		41,020			40,555			38,338			41,488			161,401			10.6
Medicaid Managed		25,341		27,267		28,534		29,275			110,417		32,713			32,635			31,249			32,389			128,986			10.6
Commercial insurance and other		62,769		63,009		59,856		54,148			239,782		53,695			54,809			49,895			47,355			205,754			(12.5	)

		384,008		376,395		350,894		319,420			1,430,717		328,500			315,248			290,994			283,172			1,217,914			(11.3	)

Average length of stay:
Medicare		25.7		26.5		25.8		25.3			25.8		24.9			25.8			26.0			25.6			25.6			1.2
Medicaid		45.6		50.3		44.7		36.3			44.6		37.7			35.0			37.1			42.0			37.7			15.7
Medicare Advantage		31.5		34.5		32.6		31.0			32.4		30.3			32.7			32.0			33.9			32.2			9.4
Medicaid Managed		34.6		35.5		33.1		37.2			35.1		38.4			36.1			36.3			37.0			37.0			(0.5	)
Commercial insurance and other		33.5		34.9		34.7		36.4			34.8		33.3			34.1			33.6			33.8			33.7			(7.1	)
Weighted average		28.6		29.9		28.9		28.6			29.0		28.1			29.0			29.2			29.3			28.9			2.4
Revenues per admission:
Medicare	$	41,717	$	42,579	$	39,945	$	38,602		$	40,800	$	37,867		$	39,219		$	40,577		$	41,904		$	39,746			8.6
Medicaid		57,928		69,797		61,338		70,333			64,356		60,091			69,304			57,365			70,352			64,042			—
Medicare Advantage		51,080		55,105		52,363		48,387			51,826		48,555			51,958			50,301			53,834			51,102			11.3
Medicaid Managed		49,287		51,696		48,631		54,238			50,932		57,736			53,159			57,172			56,881			56,198			4.9
Commercial insurance and other		71,651		77,193		73,515		82,066			75,819		73,750			76,007			74,435			77,140			75,289			(6.0	)
Weighted average		47,868		50,309		47,348		47,507			48,281		46,170			48,322			48,818			50,738			48,395			6.8
Revenues per patient day:
Medicare	$	1,625	$	1,605	$	1,551	$	1,523		$	1,579	$	1,519		$	1,521		$	1,559		$	1,639		$	1,556			7.6
Medicaid		1,269		1,388		1,371		1,940			1,444		1,595			1,980			1,546			1,676			1,700			(13.6	)
Medicare Advantage		1,622		1,597		1,607		1,560			1,598		1,603			1,587			1,571			1,590			1,588			1.9
Medicaid Managed		1,426		1,456		1,467		1,458			1,453		1,502			1,471			1,575			1,537			1,521			5.4
Commercial insurance and other		2,136		2,214		2,121		2,255			2,180		2,217			2,230			2,212			2,282			2,234			1.2
Weighted average		1,675		1,684		1,640		1,662			1,666		1,645			1,667			1,674			1,729			1,677			4.0
Medicare case mix index (discharged patients only)		1.163		1.179		1.172		1.153			1.169		1.172			1.171			1.180			1.177			1.178			2.1
Average daily census		4,220		4,136		3,814		3,472			3,909		3,650			3,464			3,163			3,078			3,337			(11.3	)
Occupancy%		68.0		67.5		61.6		64.1			65.1		67.6			64.3			59.9			61.1			63.3			(4.7	)

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 13

February 28, 2018

KINDRED HEALTHCARE, INC.

Condensed Business Segment Data (Continued)

(Unaudited)


	2016 Quarters											2017 Quarters															Fourth quarter % change v.
	First		Second		Third		Fourth			Year		First			Second			Third			Fourth			Year			prior year
Same-hospital data (a):
End of period data:
Number of transitional care hospitals		72		72		75		75					72			72			75			75
Number of licensed beds		5,436		5,436		5,553		5,553					5,436			5,436			5,553			5,553
Revenues (000s)	$	531,815	$	527,578	$	493,480	$	504,871		$	2,057,744	$	504,135		$	492,002		$	476,356		$	482,677		$	1,955,170			(4.4	)
Revenue mix %:
Medicare		58.1		55.2		53.8		53.3			55.2		52.2			50.2			50.6			50.6			50.9
Medicaid		3.6		3.6		3.5		4.4			3.8		3.9			4.9			4.2			3.4			4.1
Medicare Advantage		11.2		11.7		12.3		11.0			11.5		12.0			12.0			12.4			13.6			12.5
Medicaid Managed		6.0		6.9		8.0		8.4			7.3		9.6			9.5			10.2			10.3			9.9
Commercial insurance and other		21.1		22.6		22.4		22.9			22.2		22.3			23.4			22.6			22.1			22.6
Patient criteria data:
Revenues:
Compliant patients								88.7	%				86.2	%		88.7	%		89.2	%		91.8	%		89.0	%
Site neutral								11.3	%				13.8	%		11.3	%		10.8	%		8.2	%		11.0	%
Revenues per patient day:
Compliant patients							$	1,860				$	1,821		$	1,811		$	1,798		$	1,815		$	1,811
Site neutral								931					1,057			1,049			1,064			1,047			1,055
Total								1,671					1,656			1,674			1,674			1,711			1,678
Admissions:
Medicare		7,322		6,770		6,620		6,879			27,591		6,884			6,260			5,942			5,848			24,934			(15.0	)
Medicaid		376		327		329		315			1,347		325			346			342			284			1,297			(9.8	)
Medicare Advantage		1,148		1,073		1,118		1,131			4,470		1,239			1,137			1,181			1,222			4,779			8.0
Medicaid Managed		625		688		778		780			2,871		827			852			843			875			3,397			12.2
Commercial insurance and other		1,477		1,450		1,385		1,386			5,698		1,484			1,489			1,450			1,397			5,820			0.8

		10,948		10,308		10,230		10,491			41,977		10,759			10,084			9,758			9,626			40,227			(8.2	)

Patient days:
Medicare		188,238		179,196		170,060		175,336			712,830		172,186			161,435			154,553			149,524			637,698			(14.7	)
Medicaid		13,731		12,381		11,211		11,396			48,719		12,610			12,378			12,985			11,777			49,750			3.3
Medicare Advantage		36,058		38,555		37,240		35,436			147,289		37,573			37,073			37,678			41,375			153,699			16.8
Medicaid Managed		22,124		24,571		26,384		29,047			102,126		31,970			31,606			30,759			32,355			126,690			11.4
Commercial insurance and other		50,711		51,293		49,622		50,861			202,487		50,116			51,465			48,591			46,990			197,162			(7.6	)

		310,862		305,996		294,517		302,076			1,213,451		304,455			293,957			284,566			282,021			1,164,999			(6.6	)

Average length of stay:
Medicare		25.7		26.5		25.7		25.5			25.8		25.0			25.8			26.0			25.6			25.6			0.4
Medicaid		36.5		37.9		34.1		36.2			36.2		38.8			35.8			38.0			41.5			38.4			14.6
Medicare Advantage		31.4		35.9		33.3		31.3			33.0		30.3			32.6			31.9			33.9			32.2			8.3
Medicaid Managed		35.4		35.7		33.9		37.2			35.6		38.7			37.1			36.5			37.0			37.3			(0.5	)
Commercial insurance and other		34.3		35.4		35.8		36.7			35.5		33.8			34.6			33.5			33.6			33.9			(8.4	)
Weighted average		28.4		29.7		28.8		28.8			28.9		28.3			29.2			29.2			29.3			29.0			1.7
Revenues per admission:
Medicare	$	42,215	$	43,048	$	40,145	$	39,130		$	41,154	$	38,242		$	39,482		$	40,587		$	41,750		$	39,935			6.7
Medicaid		50,166		58,447		52,583		69,628			57,318		60,805			70,237			57,650			57,482			61,762			(17.4	)
Medicare Advantage		51,653		57,562		54,276		49,232			53,115		49,018			51,807			50,163			53,894			51,211			9.5
Medicaid Managed		51,395		52,601		50,491		54,389			52,252		58,227			54,789			57,538			56,854			56,840			4.5
Commercial insurance and other		76,121		82,125		79,752		83,445			80,313		75,623			77,205			74,292			76,301			75,859			(8.6	)
Weighted average		48,576		51,181		48,239		48,124			49,021		46,857			48,790			48,817			50,143			48,603			4.2
Revenues per patient day:
Medicare	$	1,642	$	1,626	$	1,563	$	1,535		$	1,593	$	1,529		$	1,531		$	1,560		$	1,633		$	1,561			6.4
Medicaid		1,374		1,544		1,543		1,925			1,585		1,567			1,963			1,518			1,386			1,610			(28.0	)
Medicare Advantage		1,645		1,602		1,629		1,571			1,612		1,616			1,589			1,572			1,592			1,592			1.3
Medicaid Managed		1,452		1,473		1,489		1,460			1,469		1,506			1,477			1,577			1,538			1,524			5.3
Commercial insurance and other		2,217		2,322		2,226		2,274			2,260		2,239			2,234			2,217			2,268			2,239			(0.3	)
Weighted average		1,711		1,724		1,676		1,671			1,696		1,656			1,674			1,674			1,711			1,678			2.4
Average daily census		3,416		3,363		3,201		3,283			3,315		3,383			3,230			3,093			3,065			3,192			(6.6	)

(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 18.

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 14

February 28, 2018

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 are often identified by words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “hope,” “may,” “potential,” “upside,” “seek,” “continue,” and other similar expressions.

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. Risks and uncertainties related to the Merger include, but are not limited to, the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement; the failure of the parties to satisfy conditions to completion of the Merger, including the failure of the Company’s stockholders to approve the Merger or the failure of the parties to obtain required regulatory approvals; the risk that regulatory or other approvals are delayed or are subject to terms and conditions that are not anticipated; changes in the business or operating prospects of the Company or its businesses; changes in healthcare and other laws and regulations; the impact of the announcement of, or failure to complete, the Merger on the Company’s relationships with employees, customers, vendors and other business partners; and litigation related to the Merger. In addition, 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 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.

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 earnings before interest, income taxes, depreciation, amortization and total rent 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 Fourth Quarter and Full Year 2017 Results

Page 15

February 28, 2018

Non-GAAP Measures (Continued)

Core Operating Results: The Company calculates core operating results, including core net income (loss) attributable to Kindred, 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, deferred tax liability adjustment associated with the Tax Reform Act, 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 EBITDA, and core diluted EPS as measures of operational performance that are meaningful to investors. The Company uses these measures to assess the relative performance 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 two hospitals that closed during the fourth quarter of 2017, 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 core net income (loss) attributable to Kindred 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 Fourth Quarter and Full Year 2017 Results

Page 16

February 28, 2018

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 December 31, 2017 and 2016, and for the year ended December 31, 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 liability adjustment associated with the Tax Reform Act and the deferred tax asset valuation allowance for the three months and for the year ended December 31, 2017, and the deferred tax asset valuation allowance for the three months and for the year ended December 31, 2016 was calculated using an effective income tax rate of 47.5% and 12.1% for the three months ended December 31, 2017 and 2016, respectively, and 36.4% and 63.1% for the year ended December 31, 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, the deferred tax liability adjustment associated with the Tax Reform Act and the composition of charges that are non-deductible for income tax purposes, including the impairment charges.


	Three months ended						Year ended
	December 31,						December 31,
	2017			2016			2017			2016
Reconciliation of income from continuing operations before charges:
As reported:
Loss from continuing operations attributable to Kindred	($	145,361	)	($	10,455	)	($	289,377	)	($	632,535	)
Diluted loss per common share from continuing operations	($	1.65	)	($	0.12	)	($	3.31	)	($	7.29	)
Weighted average diluted shares outstanding		87,902			86,904			87,525			86,800
Detail of charges:
Restructuring charges:
Facility/branch divestitures and closings	($	1,806	)	($	3,745	)	($	18,731	)	($	23,539	)
Retention, severance and other costs		(2,956	)		(5,302	)		(11,623	)		(8,781	)
Merger/transaction costs		(9,989	)		(837	)		(9,989	)		(2,414	)

		(14,751	)		(9,884	)		(40,343	)		(34,734	)
Lease termination and lease amendment costs (charged to rent restructuring charges)		(38,554	)		(2,029	)		(44,518	)		(61,392	)
Impairment charges		(244,876	)		(3,534	)		(381,179	)		(314,729	)
RehabCare collection litigation		—			—			(23,061	)		—
Insurance restructuring costs		(10,406	)		—			(10,406	)		—
Research and development		—			(4,293	)		—			(11,520	)
Litigation contingency expense		(3,435	)		—			(7,435	)		(1,775	)
Business interruption settlements		—			2,069			1,803			3,378
Debt amendment fees not capitalized		—			—			—			(1,103	)
Gentiva transaction costs:
Professional and consulting fees		—			(1,779	)		—			(5,610	)
Severance and retention		—			—			—			(696	)
Lease termination (charged to building rent)		—			—			—			(272	)

		(312,022	)		(19,450	)		(505,139	)		(428,453	)
Income tax benefit		66,951			7,878			142,062			98,246
Deferred tax liability adjustment associated with the Tax Reform Act		130,453			—			130,453			—
Deferred tax asset valuation allowance		(49,072	)		(5,532	)		(88,398	)		(368,664	)

Charges net of income taxes		(163,690	)		(17,104	)		(321,022	)		(698,871	)
Noncontrolling interests		—			—			320			1,304

		(163,690	)		(17,104	)		(320,702	)		(697,567	)
Allocation to participating unvested restricted stockholders		—			—			—			—

Available to common stockholders	($	163,690	)	($	17,104	)	($	320,702	)	($	697,567	)

Diluted loss per common share related to charges	($	1.86	)	($	0.20	)	($	3.66	)	($	8.04	)
Weighted average diluted shares outstanding		87,902			86,904			87,525			86,800
Core:
Income from continuing operations attributable to Kindred before charges	$	18,329		$	6,649		$	31,325		$	65,032
Diluted earnings per common share from continuing operations before charges (a)	$	0.20		$	0.07		$	0.34		$	0.73
Weighted average diluted shares outstanding used to compute earnings per common share from continuing operations before charges		88,485			87,641			88,200			87,491
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges		18.3	%		12.8	%		26.8	%		30.2	%
Impact of charges on effective income tax rate		32.9	%		-7.0	%		12.1	%		80.7	%

Reported effective income tax rate		51.2	%		5.8	%		38.9	%		110.9	%

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.6 million and $0.1 million for the three months ended December 31, 2017 and 2016, respectively, and by $0.9 million and $1.4 million for the year ended December 31, 2017 and 2016, respectively, for the allocation of income to participating unvested restricted stockholders.

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 17

February 28, 2018

KINDRED HEALTHCARE, INC.

Reconciliation of GAAP Results 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			Year			First			Second			Third			Fourth			Year
Reconciliation of income (loss) from continuing operations before charges:
As reported:
Income (loss) from continuing operations attributable to Kindred	$	14,129		$	21,380		($	657,589	)	($	10,455	)	($	632,535	)	($	160	)	($	115,186	)	($	28,670	)	($	145,361	)	($	289,377	)
Depreciation and amortization		33,554			33,198			32,995			32,072			131,819			29,820			25,651			24,808			24,526			104,805
Interest, net		57,253			57,567			58,059			58,625			231,504			58,819			58,573			60,441			60,079			237,912
Provision (benefit) for income taxes		11,817			19,379			283,182			(116	)		314,262			2,234			(16,116	)		(1,225	)		(142,009	)		(157,116	)
Noncontrolling interest		7,851			8,847			9,574			8,575			34,847			10,483			10,791			10,960			9,942			42,176

EBITDA		124,604			140,371			(273,779	)		88,701			79,897			101,196			(36,287	)		66,314			(192,823	)		(61,600	)
Detail of charges:
Restructuring charges:
Facility/branch divestitures and closings		341			(759	)		20,212			3,745			23,539			5,360			2,842			8,723			1,806			18,731
Retention, severance and other costs		924			446			2,109			5,302			8,781			2,741			274			5,652			2,956			11,623
Merger/transaction costs		436			649			492			837			2,414			—			—			—			9,989			9,989

		1,701			336			22,813			9,884			34,734			8,101			3,116			14,375			14,751			40,343
Lease termination and lease amendment costs (charged to rent restructuring charges)		251			462			58,650			2,029			61,392			1,905			1,934			2,125			38,554			44,518
Impairment charges		7,788			6,131			297,276			3,534			314,729			474			135,829			—			244,876			381,179
RehabCare collection litigation		—			—			—			—			—			—			25,304			(2,243	)		—			23,061
Insurance restructuring costs		—			—			—			—			—			—			—			—			10,406			10,406
Research and development		863			3,076			3,288			4,293			11,520			—			—			—			—			—
Litigation contingency expense		1,025			750			—			—			1,775			—			—			4,000			3,435			7,435
Business interruption settlements		(1,138	)		(171	)		—			(2,069	)		(3,378	)		—			(1,803	)		—			—			(1,803	)
Debt amendment fees not capitalized		—			1,103			—			—			1,103			—			—			—			—			—
Gentiva transaction costs:
Professional and consulting fees		1,048			1,319			1,464			1,779			5,610			—			—			—			—			—
Severance and retention		555			355			(214	)		—			696			—			—			—			—			—
Lease termination (charged to building rent)		—			—			272			—			272			—			—			—			—			—

		12,093			13,361			383,549			19,450			428,453			10,480			164,380			18,257			312,022			505,139

Core EBITDA	$	136,697		$	153,732		$	109,770		$	108,151		$	508,350		$	111,676		$	128,093		$	84,571		$	119,199		$	443,539

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 18

February 28, 2018

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)

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


																					Fourth quarter
	2016 Quarters										2017 Quarters										% change v.
	First		Second		Third		Fourth		Year		First		Second		Third		Fourth		Year		prior year
Home health	$	363,730	$	370,327	$	373,980	$	369,198	$	1,477,235	$	376,736	$	384,954	$	373,964	$	388,692	$	1,524,346		5.3
Community care and other		66,305		68,229		75,978		74,875		285,387		74,095		74,222		79,720		69,974		298,011		(6.5	)

Reported home health revenues	$	430,035	$	438,556	$	449,958	$	444,073	$	1,762,622	$	450,831	$	459,176	$	453,684	$	458,666	$	1,822,357		3.3

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


																					Fourth quarter
	2016 Quarters										2017 Quarters										% change v.
	First		Second		Third		Fourth		Year		First		Second		Third		Fourth		Year		prior year
Transitional care hospitals	$	643,299	$	633,695	$	575,323	$	530,746	$	2,383,063	$	540,280	$	525,458	$	487,012	$	489,621	$	2,042,371		(7.7	)
Sub-acute units and one skilled nursing facility		10,799		11,711		13,620		15,118		51,248		16,366		15,351		16,126		16,161		64,004

Reported hospital division revenues	$	654,098	$	645,406	$	588,943	$	545,864	$	2,434,311	$	556,646	$	540,809	$	503,138	$	505,782	$	2,106,375		(7.3	)

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


																															Fourth quarter
	2016 Quarters															2017 Quarters															% change v.
	First			Second			Third			Fourth			Year			First			Second			Third			Fourth			Year			prior year
Transitional care hospitals	$	643,299		$	633,695		$	575,323		$	530,746		$	2,383,063		$	540,280		$	525,458		$	487,012		$	489,621		$	2,042,371			(7.7	)
Hospitals acquired during 2016 (a)		—			(2,217	)		—			—			(2,217	)		(9,724	)		(10,164	)		—			—			(19,888	)
Hospitals sold during 2016 (b)		(71,941	)		(64,084	)		(47,098	)		732			(182,391	)		449			(623	)		(168	)		(746	)		(1,088	)
Hospitals closed during 2017 (c)		(31,272	)		(30,952	)		(25,837	)		(26,424	)		(114,485	)		(26,838	)		(23,226	)		(10,400	)		(6,041	)		(66,505	)
Hospitals closed during 2016 (d)		(8,271	)		(8,864	)		(8,908	)		(183	)		(26,226	)		(32	)		557			(88	)		(157	)		280

Same-hospital revenues	$	531,815		$	527,578		$	493,480		$	504,871		$	2,057,744		$	504,135		$	492,002		$	476,356		$	482,677		$	1,955,170			(4.4	)

(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, four hospitals closed during the third quarter of 2017 and two hospitals closed during the fourth quarter of 2017.

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

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 19

February 28, 2018

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended December 31, 2017
				Charges
													Deferred			Deferred tax asset valuation						Before charges
													tax liaiblity
	As			Insurance			Litigation		Impairment		Restructuring		Tax Reform Act
	reported			restructuring			contingency		charges		charges		adjustment			allowance			Total			(“core”) (a)
Income (loss) from continuing operations:
Segment adjusted operating income:
Kindred at Home:
Home health	$	69,445		$	—		$	—	$	—	$	—	$	—		$	—		$	—		$	69,445
Hospice		34,147			—			—		—		—		—			—			—			34,147

		103,592			—			—		—		—		—			—			—			103,592

Hospital division		91,014			—			—		—		—		—			—			—			91,014
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		49,059			—			—		—		—		—			—			—			49,059
RehabCare		3,374			—			—		—		—		—			—			—			3,374

		52,433			—			—		—		—		—			—			—			52,433

Support center expenses		(66,098	)		10,406			—		—		—		—			—			10,406			(55,692	)
Litigation contingency expense		(3,435	)					3,435												3,435			—
Impairment charges		(244,876	)		—			—		244,876		—		—			—			244,876			—
Restructuring charges		(14,751	)		—			—		—		14,751		—			—			14,751			—
Building rent		(63,577	)		—			—		—		—		—			—			—			(63,577	)
Equipment rent		(8,571	)		—			—		—		—		—			—			—			(8,571	)
Restructuring charges - rent		(38,554	)		—			—		—		38,554		—			—			38,554			—
Depreciation and amortization		(24,526	)		—			—		—		—		—			—			—			(24,526	)
Interest, net		(60,079	)		—			—		—		—		—			—			—			(60,079	)

Income (loss) from continuing operations before income taxes		(277,428	)		10,406			3,435		244,876		53,305		—			—			312,022			34,594
Provision (benefit) for income taxes		(142,009	)		4,095			1,351		43,909		17,596		130,453			(49,072	)		148,332			6,323

		(135,419	)	$	6,311		$	2,084	$	200,967	$	35,709	$	(130,453	)	$	49,072		$	163,690			28,271

Noncontrolling interests		(9,942	)																				(9,942	)

Income (loss) attributable to Kindred	$	(145,361	)																			$	18,329

Diluted earnings (loss) per common share	$	(1.65	)																			$	0.20
Diluted shares used in computing earnings (loss) per common share		87,902																					88,485

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

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

Hospital division		93,778			(630	)		—		—		—		—			—			(630	)		93,148
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		49,728			—			—		—		—		—			—			—			49,728
RehabCare		4,142			—			—		—		—		—			—			—			4,142

		53,870			—			—		—		—		—			—			—			53,870

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		(1,996	)		(2,069	)		3,534		4,293		11,913		1,779			—			19,450			17,454
Provision (benefit) for income taxes		(116	)		(817	)		1,391		1,706		4,887		711			(5,532	)		2,346			2,230

		(1,880	)	$	(1,252	)	$	2,143	$	2,587	$	7,026	$	1,068		$	5,532		$	17,104			15,224

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

Income (loss) attributable to Kindred	$	(10,455	)																			$	6,649

Diluted earnings (loss) per common share	$	(0.12	)																			$	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 14 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 Fourth Quarter and Full Year 2017 Results

Page 20

February 28, 2018

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Year ended December 31, 2017
				Charges
																			Deferred			Deferred
				Business			RehabCare												tax liaiblity			tax asset						Before
	As			interruption			collection			Insurance			Litigation		Impairment		Restructuring		Tax Reform Act			valuation						charges
	reported			settlements			litigation			restructuring			contingency		charges		charges		adjustment			allowance			Total			(“core”) (a)
Income (loss) from continuing operations:
Segment adjusted operating income:
Kindred at Home:
Home health	$	276,218		$	(795	)	$	—		$	—		$	—	$	—	$	—	$	—		$	—		$	(795	)	$	275,423
Hospice		129,273			—			—			—			—		—		—		—			—			—			129,273

		405,491			(795	)		—			—			—		—		—		—			—			(795	)		404,696

Hospital division		337,487			(1,008	)		—			—			—		—		—		—			—			(1,008	)		336,479
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		203,392			—			—			—			—		—		—		—			—			—			203,392
RehabCare		6,884			—			23,061			—			—		—		—		—			—			23,061			29,945

		210,276			—			23,061			—			—		—		—		—			—			23,061			233,337

Support center expenses		(249,007	)		—			—			10,406			—		—		—		—			—			10,406			(238,601	)
Litigation contingency expense		(7,435	)		—			—			—			7,435		—		—		—			—			7,435			—
Impairment charges		(381,179	)		—			—			—			—		381,179		—		—			—			381,179			—
Restructuring charges		(40,343	)		—			—			—			—		—		40,343		—			—			40,343			—
Building rent		(257,516	)		—			—			—			—		—		—		—			—			—			(257,516	)
Equipment rent		(34,856	)		—			—			—			—		—		—		—			—			—			(34,856	)
Restructuring charges—rent		(44,518	)		—			—			—			—		—		44,518		—			—			44,518			—
Depreciation and amortization		(104,805	)		—			—			—			—		—		—		—			—			—			(104,805	)
Interest, net		(237,912	)		—			—			—			—		—		—		—			—			—			(237,912	)

Income (loss) from continuing operations before income taxes		(404,317	)		(1,803	)		23,061			10,406			7,435		381,179		84,861		—			—			505,139			100,822
Provision (benefit) for income taxes		(157,116	)		(709	)		9,074			4,095			2,925		97,544		29,133		130,453			(88,398	)		184,117			27,001

		(247,201	)		(1,094	)		13,987			6,311			4,510		283,635		55,728		(130,453	)		88,398			321,022			73,821
Noncontrolling interests		(42,176	)		—			(320	)		—			—		—		—		—			—			(320	)		(42,496	)

Income (loss) attributable to Kindred	$	(289,377	)	$	(1,094	)	$	13,667		$	6,311		$	4,510	$	283,635	$	55,728	$	(130,453	)	$	88,398		$	320,702		$	31,325

Diluted earnings (loss) per common share	$	(3.31	)																									$	0.34
Diluted shares used in computing earnings (loss) per common share		87,525																											88,200

	Year ended December 31, 2016
				Charges
																			Gentiva			Deferred
				Business															transaction			tax asset						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 (loss) from continuing operations:
Segment adjusted operating income:
Kindred at Home:
Home health	$	279,531		$	(1,611	)	$	—		$	—		$	—	$	—	$	—	$	—		$	—		$	(1,611	)	$	277,920
Hospice		116,326			(1,137	)		—			—			—		—		—		—			—			(1,137	)		115,189

		395,857			(2,748	)		—			—			—		—		—		—			—			(2,748	)		393,109

Hospital division		441,644			(630	)		—			—			—		—		—		—			—			(630	)		441,014
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		198,335			—			—			—			—		—		—		—			—			—			198,335
RehabCare		32,586			—			—			—			—		—		—		—			—			—			32,586

		230,921			—			—			—			—		—		—		—			—			—			230,921

Support center expenses		(261,916	)		—			—			—			11,520		1,103		—		—			—			12,623			(249,293	)
Litigation contingency expense		(2,840	)		—			1,775			—			—		—		—		—			—			1,775			(1,065	)
Impairment charges		(314,729	)		—			—			314,729			—		—		—		—			—			314,729			—
Restructuring charges		(34,734	)		—			—			—			—		—		34,734		—			—			34,734			—
Transaction costs		(8,679	)		—			—			—			—		—		—		6,306			—			6,306			(2,373	)
Building rent		(264,306	)		—			—			—			—		—		—		272			—			272			(264,034	)
Equipment rent		(39,929	)		—			—			—			—		—		—		—			—			—			(39,929	)
Restructuring charges—rent		(61,392	)		—			—			—			—		—		61,392		—			—			61,392			—
Depreciation and amortization		(131,819	)		—			—			—			—		—		—		—			—			—			(131,819	)
Interest, net		(231,504	)		—			—			—			—		—		—		—			—			—			(231,504	)

Income (loss) from continuing operations before income taxes		(283,426	)		(3,378	)		1,775			314,729			11,520		1,103		96,126		6,578			—			428,453			145,027
Provision for income taxes		314,262			(1,329	)		(381	)		54,578			4,533		431		37,826		2,588			(368,664	)		(270,418	)		43,844

		(597,688	)		(2,049	)		2,156			260,151			6,987		672		58,300		3,990			368,664			698,871			101,183
Noncontrolling interests		(34,847	)		—			—			(1,304	)		—		—		—		—			—			(1,304	)		(36,151	)

Income (loss) attributable to Kindred	$	(632,535	)	$	(2,049	)	$	2,156		$	258,847		$	6,987	$	672	$	58,300	$	3,990		$	368,664		$	697,567		$	65,032

Diluted earnings (loss) per common share	$	(7.29	)																									$	0.73
Diluted shares used in computing earnings (loss) per common share		86,800																											87,491

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

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 21

February 28, 2018

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


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

		91,331			—		—		—			—		91,331

Hospital division		93,438			—		—		—			—		93,438
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		51,760			—		—		—			—		51,760
RehabCare		8,704			—		—		—			—		8,704

		60,464			—		—		—			—		60,464

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		12,557			474		10,006		—			10,480		23,037
Provision for income taxes		2,234			187		3,937		3,049			7,173		9,407

		10,323		$	287	$	6,069	$	(3,049	)	$	3,307		13,630

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

Income (loss) attributable to Kindred	$	(160	)										$	3,147

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


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

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

Hospital division		136,416			—			—		—		—		—		—		—			136,416
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		48,119			—			—		—		—		—		—		—			48,119
RehabCare		9,762			—			—		—		—		—		—		—			9,762

		57,881			—			—		—		—		—		—		—			57,881

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		33,797			(1,138	)		1,025		7,788		863		1,952		1,603		12,093			45,890
Provision for income taxes		11,817			(403	)		363		2,758		305		691		568		4,282			16,099

		21,980		$	(735	)	$	662	$	5,030	$	558	$	1,261	$	1,035	$	7,811			29,791

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

Income attributable to Kindred	$	14,129																		$	21,940

Diluted earnings per common share	$	0.16																		$	0.25
Diluted shares used in computing earnings per common share		87,249																			87,249

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

Kindred Healthcare Reports Fourth Quarter and Full Year 2017 Results

Page 22

February 28, 2018

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


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

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

Hospital division		91,580			(1,008	)		—			—		—		—			(1,008	)		90,572
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		53,422			—			—			—		—		—			—			53,422
RehabCare		(13,492	)		—			25,304			—		—		—			25,304			11,812

		39,930			—			25,304			—		—		—			25,304			65,234

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		(120,511	)		(1,803	)		25,304			135,829		5,050		—			164,380			43,869
Provision (benefit) for income taxes		(16,116	)		(709	)		9,957			53,449		1,987		(35,235	)		29,449			13,333

	(104,395)			(1,094)			15,347			82,380		3,063		35,235			134,931			30,536
Noncontrolling interests		(10,791	)		—			(320	)		—		—		—			(320	)		(11,111	)

Income (loss) attributable to Kindred	$	(115,186	)	$	(1,094	)	$	15,027		$	82,380	$	3,063	$	35,235		$	134,611		$	19,425

Diluted earnings (loss) per common share	$	(1.32	)																	$	0.21
Diluted shares used in computing earnings (loss) per common share		87,506																			88,165


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

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

Hospital division		127,510			—			—			—			—		—		—			—		—			127,510
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		50,729			—			—			—			—		—		—			—		—			50,729
RehabCare		11,158			—			—			—			—		—		—			—		—			11,158

		61,887			—			—			—			—		—		—			—		—			61,887

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		49,606			(171	)		750			6,131			3,076		1,103		798			1,674		13,361			62,967
Provision for income taxes		19,379			(129	)		(1,511	)		(2,962	)		2,324		833		2,054			1,265		1,874			21,253

	30,227			(42)			2,261			9,093			752		270		(1,256)			409		11,487			41,714
Noncontrolling interests		(8,847	)		—			—			(1,016	)		—		—		—			—		(1,016	)		(9,863	)

Income attributable to Kindred	$	21,380		$	(42	)	$	2,261		$	8,077		$	752	$	270	$	(1,256	)	$	409	$	10,471		$	31,851

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 14 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 Fourth Quarter and Full Year 2017 Results

Page 23

February 28, 2018

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands, except per share amounts)


	Three months ended September 30, 2017
				Charges
	As reported			RehabCare collection litigation			Litigation contingency		Restructuring charges		Deferred tax asset valuation allowance			Total			Before charges (“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		8,298			(2,243	)		—		—		—			(2,243	)		6,055

		57,449			(2,243	)		—		—		—			(2,243	)		55,206

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		(18,935	)		(2,243	)		4,000		16,500		—			18,257			(678	)
Income tax benefit		(1,225	)		(883	)		1,574		5,612		(7,140	)		(837	)		(2,062	)

		(17,710	)	$	(1,360	)	$	2,426	$	10,888	$	7,140		$	19,094			1,384

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

Loss attributable to Kindred	$	(28,670	)														$	(9,576	)

Diluted loss per common share	$	(0.32	)														$	(0.11	)
Diluted shares used in computing loss per common share		87,597																87,597

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

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

Hospital division		83,940			—			—		—		—			—			—			83,940
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services		49,759			—			—		—		—			—			—			49,759
RehabCare		7,524			—			—		—		—			—			—			7,524

		57,283			—			—		—		—			—			—			57,283

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		(364,833	)		297,276			3,288		81,463		1,522			—			383,549			18,716
Provision for income taxes		283,182			50,637			1,280		31,703		592			(363,132	)		(278,920	)		4,262

		(648,015	)		246,639			2,008		49,760		930			363,132			662,469			14,454
Noncontrolling interests		(9,574	)		(288	)		—		—		—			—			(288	)		(9,862	)

Income (loss) attributable to Kindred	$	(657,589	)	$	246,351		$	2,008	$	49,760	$	930		$	363,132		$	662,181		$	4,592

Diluted earnings (loss) per common share	$	(7.57	)																	$	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 14 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 Fourth Quarter and Full Year 2017 Results

Page 24

February 28, 2018

KINDRED HEALTHCARE, INC.

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

(Unaudited)

(In thousands)


	Three months ended December 31,						Year ended December 31,
	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	$	67,183		$	147,001		$	75,695		$	188,236
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		20,160			12,822			56,479			30,780
Insurance restructuring costs		10,406			—			10,406			—
Business interruption settlements		—			—			(3,796	)		(1,309	)
Lease termination fees—restructuring		7,458			4,998			13,389			8,498
Capitalized lender fees related to debt amendment		—			—			5,403			7,375
Other debt refinancing costs (expensed)		—			—			—			917
Litigation		—			—			12,593			132,643

		38,024			17,820			94,474			178,904

Net cash flows provided by operating activities excluding certain items before income tax benefit of certain payments		105,207			164,821			170,169			367,140
Benefit of reduced income tax payments resulting from certain payments (a)		(18,676	)		(22,343	)		(33,250	)		(67,862	)
Net cash flows provided by operating activities excluding certain items (core operating cash flows)		86,531			142,478			136,919			299,278
Less routine capital expenditures		(24,006	)		(27,349	)		(69,806	)		(96,052	)
Less distributions to noncontrolling interests		(12,854	)		(10,745	)		(61,226	)		(45,985	)

Free cash flows excluding certain items (core free cash flows)	$	49,671		$	104,384		$	5,887		$	157,241

(a)

The Company did not pay federal and state income taxes (where state unitary or consolidated tax returns are allowed) in 2017 due primarily to the 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. The Company anticipates it will have approximately $775 million of federal NOLs that, on a tax effected basis of approximately $160 million, should offset approximately 90% of core book tax estimates until exhausted.

- END -

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