KND Kindred Healthcare, Inc. (delisted)

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

GAAP Operating Cash Flows of $76 Million for 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

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.

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 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._______________________________(1) 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.

• 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) 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.(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.

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

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.

          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, INC. Condensed Consolidated Balance Sheet (In thousands, except per share amounts)                 December 31, December 31,   2017     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, INC.Condensed Consolidated Statement of Cash Flows(In thousands)

              Three months ended     Year ended December 31, 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, INC. Condensed Consolidated and Business Segment Data (Unaudited) (In thousands, except per share amounts)                                   Fourth quarter 2016 Quarters 2017 Quarters % 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, INC. Condensed Consolidated and Business Segment Data (Continued) (Unaudited) (In thousands, except statistics)                                   Fourth quarter 2016 Quarters 2017 Quarters % change v. First Second Third Fourth Year First Second Third Fourth Year 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)

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.

            KINDRED HEALTHCARE, INC. Condensed Business Segment Data (Unaudited)                                                   Fourth quarter 2016 Quarters 2017 Quarters % 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, INC. Condensed Business Segment Data (Continued) (Unaudited)                                 Fourth quarter 2016 Quarters 2017 Quarters % 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, INC. Condensed Business Segment Data (Continued) (Unaudited)                               Fourth quarter 2016 Quarters 2017 Quarters % 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. 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. 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, 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, 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, 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, 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 liability

tax asset Before As Insurance Litigation Impairment Restructuring Tax Reform Act valuation charges 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 Gentiva Deferred Business transaction tax asset Before As interruption Impairment Research and Restructuring and valuation charges reported settlements charges development charges integration allowance Total ("core") (a) Income (loss) from continuing operations: Segment adjusted operating income: Kindred at Home: Home health $ 61,487 $ (302 ) $ - $ - $ - $ - $ - $ (302 ) $ 61,185 Hospice   28,805     (1,137 )   -   -   -   -     -     (1,137 )   27,668     90,292     (1,439 )   -   -   -   -     -     (1,439 )   88,853     Hospital division 93,778 (630 ) - - - - - (630 ) 93,148   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 49,728 - - - - - - - 49,728 RehabCare   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, 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, INC. Reconciliation of GAAP Results to Non-GAAP Measures (Continued) (Unaudited) (In thousands, except per share amounts)                                 Three months ended March 31, 2017 Charges Deferred tax asset Before As Impairment Restructuring valuation charges reported charges charges allowance Total ("core") (a) Income from continuing operations: Segment adjusted operating income: Kindred at Home: Home health $ 63,750 $ - $ - $ - $ - $ 63,750 Hospice   27,581     -     -   -     -   27,581     91,331     -     -   -     -   91,331     Hospital division 93,438 - - - - 93,438   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 51,760 - - - - 51,760 RehabCare   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 Gentiva Business transaction Before As interruption Litigation Impairment Research and Restructuring and charges reported settlements contingency charges development charges integration Total ("core") (a) Income from continuing operations: Segment adjusted operating income: Kindred at Home: Home health $ 66,941 $ (1,138 ) $ - $ - $ - $ - $ - $ (1,138 ) $ 65,803 Hospice   24,866     -     -   -     -   -     -   -     24,866     91,807     (1,138 )   -   -     -   -     -   (1,138 )   90,669     Hospital division 136,416 - - - - - - - 136,416   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 48,119 - - - - - - - 48,119 RehabCare   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, INC. Reconciliation of GAAP Results to Non-GAAP Measures (Continued) (Unaudited) (In thousands, except per share amounts)                                   Three months ended June 30, 2017 Charges Deferred Business RehabCare tax asset Before As interruption collection Impairment Restructuring valuation charges reported settlements litigation charges charges allowance Total ("core") (a) Income (loss) from continuing operations: Segment adjusted operating income (loss): Kindred at Home: Home health $ 76,592 $ (795 ) $ - $ - $ - $ - $ (795 ) $ 75,797 Hospice   32,784     -     -     -     -   -     -     32,784     109,376     (795 )   -     -     -   -     (795 )   108,581     Hospital division 91,580 (1,008 ) - - - - (1,008 ) 90,572   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 53,422 - - - - - - 53,422 RehabCare   (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 Gentiva Business transaction Before As interruption Litigation Impairment Research and Debt Restructuring and charges reported settlements contingency charges development amendment charges integration Total ("core") (a) Income from continuing operations: Segment adjusted operating income: Kindred at Home: Home health $ 76,030 $ (171 ) $ - $ - $ - $ - $ - $ - $ (171 ) $ 75,859 Hospice   31,329     -     -     -     -   -     -     -     -     31,329     107,359     (171 )   -     -     -   -     -     -     (171 )   107,188     Hospital division 127,510 - - - - - - - - 127,510   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 50,729 - - - - - - - - 50,729 RehabCare   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, INC. Reconciliation of GAAP Results to Non-GAAP Measures (Continued) (Unaudited) (In thousands, except per share amounts)                               Three months ended September 30, 2017 Charges Deferred RehabCare tax asset Before As collection Litigation Restructuring valuation charges reported litigation contingency charges allowance Total ("core") (a) Income (loss) from continuing operations: Segment adjusted operating income: Kindred at Home: Home health $ 66,431 $ - $ - $ - $ - $ - $ 66,431 Hospice   34,761     -     -   -   -     -     34,761     101,192     -     -   -   -     -     101,192     Hospital division 61,455 - - - - - 61,455   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 49,151 - - - - - 49,151 RehabCare   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 Gentiva Deferred transaction tax Before As Impairment Research and Restructuring and valuation charges reported charges development charges integration allowance Total ("core") (a) Income (loss) from continuing operations: Segment adjusted operating income: Kindred at Home: Home health $ 75,073 $ - $ - $ - $ - $ - $ - $ 75,073 Hospice   31,326     -     -   -   -     -     -     31,326     106,399     -     -   -   -     -     -     106,399     Hospital division 83,940 - - - - - - 83,940   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 49,759 - - - - - - 49,759 RehabCare   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, INC. Reconciliation of GAAP Results to Non-GAAP Measures (Continued) (Unaudited) (In thousands)                 Three months ended Year ended December 31, 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.        

View source version on businesswire.com: http://www.businesswire.com/news/home/20180228005452/en/

Kindred Healthcare, Inc.Todd Flowers, 502-596-6569