Kindred Healthcare Updates Strategy and Reports Third Quarter 2016 Results

Announces Plan to Exit the Skilled Nursing Facility Business;
Announces Associated $70 Million to $100 Million Cost Realignment Initiative(1)

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

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

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

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

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

Updates Full Year 2016 Outlook

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

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

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

Plan to Exit the Skilled Nursing Facility Business

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

			____________
			(1)	See Forward-Looking Statements beginning on page 14.
			(2)	See reconciliation of generally accepted accounting principles (“GAAP”) results to non-GAAP results beginning on page 14. As used herein, “EBITDAR” means earnings before interest, income taxes, depreciation, amortization and rent.
			(3)	The income tax benefit used to compute after-tax cost is before the deferred tax valuation allowance is applied.
			(4)	In connection with the previously announced sale of twelve hospitals to a group of entities under the name “Curahealth”, which are affiliates of a private investment fund sponsored by Nautic Partners, LLC, on October 1, 2016 (the “Curahealth Disposal”), the Company recorded a lease termination fee of $51.8 million ($31.4 million net of income taxes) and loss on sale of $8.1 million ($4.9 million net of income taxes) in the third quarter of 2016. In addition, the Company closed three LTAC hospitals in the third quarter and incurred facility closing and other costs totaling $17.6 million ($10.7 million net of income taxes).

LTAC Criteria

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

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

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

Continued Growth in other Business Lines

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

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

All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.

Third Quarter Consolidated Results(1):

• Consolidated revenues were $1.8 billion, a 1.6% year-over-year increase, while the GAAP loss from continuing operations was $671.3 million compared to a loss of $7.0 million in the same period in 2015. The increase in the GAAP loss from continuing operations was primarily attributable to non-cash goodwill and property impairment charges totaling $324.3 million ($266.1 million(2) net of income taxes), a non-cash deferred tax valuation allowance of $366.5 million and restructuring charges related to the sale or closure of 15 LTAC hospitals of $77.5 million ($47.0 million(2) net of income taxes). Core EBITDAR declined 6.9% to $220.1 million compared to $236.5 million in the same period in 2015, primarily due to declines in average daily census in both the Nursing Center and RehabCare business segments, lower Medicare revenue rates under LTAC patient criteria, and Hospital Division closing costs and labor pressures.
• GAAP operating cash flows were $36.0 million compared to $132.3 million for the same period a year ago. Core operating cash flows were $30.3 million compared to $128.4 million for the same period a year ago. Core free cash flows were $3.7 million compared to $82.3 million in the same period a year ago. The decline in both GAAP and core operating and free cash flows in the third quarter of 2016 was primarily attributable to certain timing differences and other items increasing cash required to fund working capital, much of which is expected to be transitional in nature and recouped over the balance of 2016 and into early 2017. Both GAAP and core operating and free cash flow were also impacted in the third quarter by lower earnings.

			____________
			(1)	See reconciliation of GAAP results to non-GAAP results beginning on page 14.
			(2)	The income tax benefit used to compute after-tax cost is before the deferred tax valuation allowance is applied.

Third Quarter Consolidated Results(1)(Continued):

• GAAP diluted loss per share from continuing operations was $7.89 as compared to $0.20 a year ago. The increase in GAAP diluted loss per share from continuing operations was primarily attributable to an increase in certain charges in the third quarter of 2016. GAAP diluted loss per share in the third quarter of 2016 includes after-tax costs of $689.9 million or $7.94 per diluted share of charges related to impairments, deferred tax asset valuation allowance, restructuring, transaction, integration, and research and development costs. GAAP diluted loss per share in the third quarter of 2015 includes $40.2 million ($37.4 million net of income taxes) or $0.43 per diluted share of charges related to restructuring, transaction, integration and litigation costs. Core diluted earnings per share (“EPS”) from continuing operations was $0.05 as compared to $0.23 a year ago. The decline in core diluted EPS was attributable to the same factors discussed above that contributed to a decline in core EBITDAR, plus a 3% increase in aggregate rent, depreciation and amortization, and net interest expense.
• The Company recorded a $261.1 million non-cash goodwill impairment charge in the third quarter to reflect an adjustment to the carrying value of its Hospital Division reporting unit. The Company also recorded a $24.9 million non-cash property and equipment impairment charge primarily related to the Nursing Center Division.
• The Company recorded a $366.5 million non-cash deferred tax valuation allowance in the third quarter based upon current expectations of GAAP and taxable losses in 2016 combined with cumulative years of historical GAAP and taxable losses incurred primarily from restructuring and transactional activities, refinancing fees and litigation settlements. This non-cash charge is included in the third quarter income tax provision and will have no impact on the Company’s ability to utilize its net operating loss (“NOL”) carryforwards on a cash basis as Kindred earns taxable income in future periods.

Third Quarter Segment Results(1)(2):

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

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

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

			____________
			(1)	See reconciliation of GAAP results to non-GAAP results beginning on page 14.
			(2)	See same-hospital and full segment data on pages 9 through 13.

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

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

2016 Outlook

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

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

Kindred today updated its outlook for 2016. Kindred expects:

• Annual revenues of approximately $7.2 billion (previously $7.2 billion to $7.3 billion).
• Core EBITDAR of $950 million to $970 million (previously $970 million to $1.010 billion). Please note that approximately $10 million of this adjustment was due to items previously excluded from guidance.(3)
• Core diluted EPS from continuing operations of $0.70 to $0.80 per share (previously $0.80 to $1.00 per share). Please note that approximately $0.03 per share of this adjustment was due to items previously excluded from guidance.(3)(4)

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

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

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

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			(1)	See reconciliation of GAAP results to non-GAAP results beginning on page 14.
			(2)	See same-hospital and full segment data on pages 9 through 13.
			(3)	Contributing to the reduction of 2016 outlook are two events (a) the Curahealth Disposal and reduced hospital earnings, compared to the budget upon which previous guidance was based, and (b) reimbursement rate reductions announced by the Center for Medicare and Medicaid Services on August 2, 2016. Each of these required a $5 million reduction in core EBITDAR guidance and the latter required a $0.03 reduction in core diluted EPS guidance.
			(4)	The EPS estimate is based upon an estimated weighted average annual diluted share count for 2016 of 87.5 million shares.

2016 Outlook (Continued)

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

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

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

Conference Call

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

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

Forward-Looking Statements and Non-GAAP Reconciliations

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

About Kindred Healthcare

Kindred Healthcare, Inc., a top-90 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of approximately $7.2 billion(1). As of October 1, 2016, Kindred through its subsidiaries had approximately 102,200 employees providing healthcare services in 2,702 locations in 46 states, including 82 LTAC hospitals, 19 inpatient rehabilitation hospitals, 91 nursing centers, 19 sub-acute units, 647 Kindred at Home home health, hospice and non-medical home care sites of service, 104 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,740 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for seven years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

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			(1)	Revenues based upon Kindred consolidated revenues for the twelve months ended September 30, 2016.

KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
			Three months ended										Nine months ended
			September 30,										September 30,
			2016					2015					2016					2015
Revenues			$	1,793,527				$	1,764,516				$	5,473,568				$	5,273,958
Salaries, wages and benefits				957,644					922,140					2,812,812					2,704,920
Supplies				95,500					96,551					294,326					288,059
Rent				98,415					95,436					296,025					282,955
Other operating expenses				217,364					207,837					649,915					617,681
General and administrative expenses				310,407					307,500					998,559					1,043,986
Other income				(446	)				(650	)				(1,909	)				(1,699	)
Litigation contingency expense				-					31,462					2,840					130,387
Impairment charges				324,289					-					338,208					6,726
Restructuring charges				81,463					3,349					88,223					8,793
Depreciation and amortization				40,382					39,329					121,320					116,889
Interest expense				59,862					56,440					175,417					176,128
Investment income				(1,810	)				(432	)				(2,561	)				(2,203	)
				2,183,070					1,758,962					5,773,175					5,372,622
Income (loss) from continuing operations before income taxes				(389,543	)				5,554					(299,607	)				(98,664	)
Provision for income taxes				281,752					12,523					311,470					9,183
Loss from continuing operations				(671,295	)				(6,969	)				(611,077	)				(107,847	)
Discontinued operations, net of income taxes:
Income (loss) from operations				(12	)				2,269					2,422					(1,744	)
Gain on divestiture of operations				-					-					179					983
Income (loss) from discontinued operations				(12	)				2,269					2,601					(761	)
Net loss				(671,307	)				(4,700	)				(608,476	)				(108,608	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations				(14,305	)				(9,900	)				(40,341	)				(30,482	)
Discontinued operations				(1	)				1					(6	)				32
				(14,306	)				(9,899	)				(40,347	)				(30,450	)
Loss attributable to Kindred			$	(685,613	)			$	(14,599	)			$	(648,823	)			$	(139,058	)
Amounts attributable to Kindred stockholders:
Loss from continuing operations			$	(685,600	)			$	(16,869	)			$	(651,418	)			$	(138,329	)
Income (loss) from discontinued operations				(13	)				2,270					2,595					(729	)
Net loss			$	(685,613	)			$	(14,599	)			$	(648,823	)			$	(139,058	)
Loss per common share:
Basic:
Loss from continuing operations			$	(7.89	)			$	(0.20	)			$	(7.51	)			$	(1.65	)
Discontinued operations:
Income (loss) from operations				-					0.03					0.03					(0.02	)
Gain on divestiture of operations				-					-					-					0.01
Income (loss) from discontinued operations				-					0.03					0.03					(0.01	)
Net loss			$	(7.89	)			$	(0.17	)			$	(7.48	)			$	(1.66	)
Diluted:
Loss from continuing operations			$	(7.89	)			$	(0.20	)			$	(7.51	)			$	(1.65	)
Discontinued operations:
Income (loss) from operations				-					0.03					0.03					(0.02	)
Gain on divestiture of operations				-					-					-					0.01
Income (loss) from discontinued operations				-					0.03					0.03					(0.01	)
Net loss			$	(7.89	)			$	(0.17	)			$	(7.48	)			$	(1.66	)
Shares used in computing loss per common share:
Basic				86,869					86,184					86,766					83,960
Diluted				86,869					86,184					86,766					83,960
Cash dividends declared and paid per common share			$	0.12				$	0.12				$	0.36				$	0.36

KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
			September 30,					December 31,
			2016					2015
ASSETS
Current assets:
Cash and cash equivalents			$	139,430				$	98,758
Insurance subsidiary investments				105,346					106,638
Accounts receivable less allowance for loss				1,266,545					1,194,868
Inventories				25,262					27,791
Income taxes				12,416					11,790
Other				94,876					61,054
				1,643,875					1,500,899
Property and equipment				2,070,421					2,162,398
Accumulated depreciation				(1,192,870	)				(1,190,402	)
				877,551					971,996
Goodwill				2,422,473					2,669,810
Intangible assets less accumulated amortization				804,602					755,655
Insurance subsidiary investments				195,517					204,498
Deferred tax assets				-					104,130
Acquisition deposit				-					18,489
Other				283,322					242,782
Total assets			$	6,227,340				$	6,468,259
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable			$	203,426				$	187,061
Salaries, wages and other compensation				390,743					404,925
Due to third party payors				57,945					36,251
Professional liability risks				61,036					64,099
Other accrued liabilities				280,305					394,246
Long-term debt due within one year				27,889					24,630
				1,021,344					1,111,212
Long-term debt				3,316,174					3,086,348
Professional liability risks				283,048					263,273
Deferred tax liabilities				200,334					-
Deferred credits and other liabilities				354,246					301,379
Equity:
Stockholders' equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 85,187 shares - September 30, 2016 and 83,792 shares - December 31, 2015				21,297					20,948
Capital in excess of par value				1,717,165					1,737,747
Accumulated other comprehensive loss				(4,334	)				(2,632	)
Accumulated deficit				(905,137	)				(256,209	)
				828,991					1,499,854
Noncontrolling interests				223,203					206,193
Total equity				1,052,194					1,706,047
Total liabilities and equity			$	6,227,340				$	6,468,259

KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
			Three months ended										Nine months ended
			September 30,										September 30,
			2016					2015					2016					2015
Cash flows from operating activities:
Net loss			$	(671,307	)			$	(4,700	)			$	(608,476	)			$	(108,608	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense				34,914					31,867					103,306					95,325
Amortization of intangible assets				5,468					7,728					18,251					22,196
Amortization of stock-based compensation costs				3,015					3,194					13,058					15,764
Amortization of deferred financing costs				3,987					3,554					11,262					10,155
Payment of capitalized lender fees related to debt issuance				(42	)				-					(7,375	)				(28,012	)
Provision for doubtful accounts				10,009					11,014					30,955					29,817
Deferred income taxes				(84,173	)				3,556					(54,875	)				(894	)
Impairment charges				324,289					-					338,208					6,726
Gain on divestiture of discontinued operations				-					-					(179	)				(983	)
Other				6,303					3,485					7,262					10,457
Change in operating assets and liabilities:
Accounts receivable				(42,832	)				25,990					(143,953	)				(13,399	)
Inventories and other assets				11,871					8,767					(3,522	)				44,181
Accounts payable				11,995					(353	)				24,451					(12,788	)
Income taxes				364,925					37,491					365,705					33,646
Due to third party payors				24,809					15,008					20,317					(3,965	)
Other accrued liabilities				32,851					(14,311	)				(76,347	)				(6,551	)
Net cash provided by operating activities				36,082					132,290					38,048					93,067
Cash flows from investing activities:
Routine capital expenditures				(21,873	)				(35,422	)				(68,703	)				(80,691	)
Development capital expenditures				(8,386	)				(5,760	)				(27,112	)				(12,066	)
Acquisitions, net of cash acquired				(49,329	)				(2,002	)				(77,040	)				(663,757	)
Acquisition deposits				-					-					18,489					195,000
Sale of assets				3,739					3,884					4,962					7,061
Proceeds from senior unsecured notes offering held in escrow				-					-					-					1,350,000
Interest in escrow for senior unsecured notes				-					-					-					23,438
Purchase of insurance subsidiary investments				(22,427	)				(16,357	)				(75,422	)				(59,186	)
Sale of insurance subsidiary investments				31,875					15,987					78,478					50,780
Net change in insurance subsidiary cash and cash equivalents				(14,680	)				(2,633	)				8,479					(8,396	)
Proceeds from note receivable				-					25,000					-					25,000
Net change in other investments				51					176					(33,347	)				375
Other				(150	)				1,383					(1,277	)				590
Net cash provided by (used in) investing activities				(81,180	)				(15,744	)				(172,493	)				828,148
Cash flows from financing activities:
Proceeds from borrowings under revolving credit				489,200					259,700					1,267,200					1,414,850
Repayment of borrowings under revolving credit				(388,100	)				(349,700	)				(1,215,800	)				(1,319,850	)
Proceeds from issuance of term loan, net of discount				-					-					198,100					199,000
Proceeds from other long-term debt				-					-					750					-
Repayment of Gentiva debt				-					-					-					(1,177,363	)
Repayment of term loan				(3,508	)				(3,003	)				(10,019	)				(9,008	)
Repayment of other long-term debt				(276	)				(500	)				(826	)				(1,400	)
Payment of deferred financing costs				(50	)				(301	)				(342	)				(3,284	)
Issuance of common stock in connection with employee benefit plans				-					329					-					534
Payment of costs associated with issuance of common stock and tangible equity units				-					-					-					(915	)
Payment of dividend for mandatory redeemable preferred stock				(2,904	)				(2,703	)				(8,558	)				(8,135	)
Dividends paid				(10,224	)				(10,065	)				(30,517	)				(30,067	)
Contributions made by noncontrolling interests				4,993					1,492					11,261					1,492
Distributions to noncontrolling interests				(4,694	)				(10,685	)				(35,240	)				(31,823	)
Purchase of noncontrolling interests				-					-					(1,000	)				-
Other				35					245					108					1,457
Net cash provided by (used in) financing activities				84,472					(115,191	)				175,117					(964,512	)
Change in cash and cash equivalents				39,374					1,355					40,672					(43,297	)
Cash and cash equivalents at beginning of period				100,056					119,536					98,758					164,188
Cash and cash equivalents at end of period			$	139,430				$	120,891				$	139,430				$	120,891

KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data
(Unaudited)
(In thousands, except per share amounts)
																																						Third quarter
			2015 Quarters																				2016 Quarters															% change v.
			First					Second					Third					Fourth					First					Second					Third					prior year
Condensed consolidated income statement data:
GAAP presentation:
Revenues			$	1,675,967				$	1,833,475				$	1,764,516				$	1,780,949				$	1,837,971				$	1,842,070				$	1,793,527				1.6
Operating expenses				1,645,791					1,584,873					1,568,189					1,583,985					1,604,855					1,591,898					1,986,221				26.7
Rent				91,788					95,731					95,436					96,934					97,517					100,093					98,415				3.1
Depreciation and amortization				38,935					38,625					39,329					40,362					40,681					40,257					40,382				2.7
Interest, net				61,777					56,140					56,008					55,664					57,245					57,559					58,052				3.6
Income (loss) from continuing operations before income taxes				(162,324	)				58,106					5,554					4,004					37,673					52,263					(389,543	)			NM
Provision (benefit) for income taxes				(27,736	)				24,396					12,523					(51,980	)				11,836					17,882					281,752				NM
Income (loss) from continuing operations				(134,588	)				33,710					(6,969	)				55,984					25,837					34,381					(671,295	)			NM
Noncontrolling interests				(8,847	)				(11,735	)				(9,900	)				(12,082	)				(12,514	)				(13,522	)				(14,305	)			44.5
Net income (loss) attributable to Kindred			$	(143,435	)			$	21,975				$	(16,869	)			$	43,902				$	13,323				$	20,859				$	(685,600	)			NM
Diluted EPS			$	(1.80	)			$	0.25				$	(0.20	)			$	0.50				$	0.15				$	0.23				$	(7.89	)			NM
Diluted shares				79,575					86,402					86,184					87,232					87,249					87,500					86,869				0.8
Core presentation (a):
EBITDAR			$	234,211				$	261,800				$	236,477				$	247,839				$	246,834				$	267,895				$	220,075				(6.9	)
Rent				91,199					95,528					95,436					96,934					97,517					100,093					98,069				2.8
Interest, net				44,346					56,140					56,008					55,664					57,245					57,559					58,052				3.6
Provision for income taxes				22,466					25,721					15,298					13,758					16,546					21,417					4,639				(69.7	)
Net income attributable to Kindred				28,418					34,051					20,506					29,039					22,331					34,031					4,340				(78.8	)
Core diluted EPS			$	0.34				$	0.39				$	0.23				$	0.33				$	0.25				$	0.38				$	0.05				(78.3	)
Diluted shares				82,422					86,402					86,892					87,232					87,249					87,500					87,529				0.7
Revenues by segment:
Hospital division			$	640,483				$	627,206				$	579,497				$	593,593				$	643,299				$	633,695				$	575,323				(0.7	)
Kindred at Home:
Home health				300,867					427,820					424,054					425,759					430,035					438,556					449,958				6.1
Hospice				119,057					178,005					181,140					178,325					176,426					185,641					188,575				4.1
				419,924					605,825					605,194					604,084					606,461					624,197					638,533				5.5
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				151,564					152,544					149,435					155,579					165,774					169,815					169,018				13.1
RehabCare				252,595					236,791					219,518					206,582					204,248					196,075					192,480				(12.3	)
				404,159					389,335					368,953					362,161					370,022					365,890					361,498				(2.0	)
Nursing center division				274,308					273,870					270,510					273,387					272,227					272,395					270,259				(0.1	)
				1,738,874					1,896,236					1,824,154					1,833,225					1,892,009					1,896,177					1,845,613				1.2
Eliminations				(62,907	)				(62,761	)				(59,638	)				(52,276	)				(54,038	)				(54,107	)				(52,086	)			(12.7	)
			$	1,675,967				$	1,833,475				$	1,764,516				$	1,780,949				$	1,837,971				$	1,842,070				$	1,793,527				1.6
__________
NM = not meaningful
(a) See reconciliation of GAAP results to non-GAAP results beginning on page 14.

KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data (Continued)
(Unaudited)
(In thousands, except statistics)
																																								Third quarter
			2015 Quarters																					2016 Quarters																% change v.
			First					Second					Third						Fourth					First					Second					Third						prior year
Segment EBITDAR (GAAP) (a):
Hospital division			$	134,111				$	131,532				$	96,108					$	116,454				$	135,495				$	125,932				$	82,752					(13.9	)
Kindred at Home:
Home health				46,798					72,917					67,682						68,776					66,941					76,030					75,073					10.9
Hospice				16,996					27,887					34,025						30,212					24,866					31,329					31,326					(7.9	)
				63,794					100,804					101,707						98,988					91,807					107,359					106,399					4.6
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				44,564					44,531					42,141						44,891					47,870					50,469					49,470					17.4
RehabCare				15,708					14,681					14,544						(1,118	)				11,987					13,269					9,248					(36.4	)
				60,272					59,212					56,685						43,773					59,857					63,738					58,718					3.6
Nursing center division				36,963					39,877					35,923						36,601					30,100					33,662					29,922					(16.7	)
Core EBITDAR by segment (b):
Hospital division			$	134,786				$	131,532				$	97,128					$	117,675				$	135,495				$	125,932				$	82,752					(14.8	)
Kindred at Home:
Home health				46,798					72,917					68,155						68,826					65,803					75,859					75,073					10.2
Hospice				16,996					27,887					34,025						30,212					24,866					31,329					31,326					(7.9	)
				63,794					100,804					102,180						99,038					90,669					107,188					106,399					4.1
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				44,564					44,531					42,141						45,098					47,870					50,469					50,217					19.2
RehabCare				16,493					14,681					14,544						11,858					11,987					13,269					9,248					(36.4	)
				61,057					59,212					56,685						56,956					59,857					63,738					59,465					4.9
Nursing center division				36,963					40,461					35,923						36,601					30,100					33,662					29,922					(16.7	)
Support center				(62,389	)				(70,209	)				(55,439	)	(c)				(62,431	)				(69,287	)				(62,625	)				(58,463	)	(c)			5.5
			$	234,211				$	261,800				$	236,477					$	247,839				$	246,834				$	267,895				$	220,075					(6.9	)
EBITDAR margin by segment:
Hospital division				20.9					21.0					16.6						19.6					21.1					19.9					14.4					(2.2	)
Kindred at Home:
Home health				15.6					17.0					16.0						16.2					15.6					17.3					16.7					0.7
Hospice				14.3					15.7					18.8						16.9					14.1					16.9					16.6					(2.2	)
Kindred at Home				15.2					16.6					16.8						16.4					15.1					17.2					16.7					(0.1	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				29.4					29.2					28.2						28.9					28.9					29.7					29.3					1.1
RehabCare				6.2					6.2					6.6						(0.5	)				5.9					6.8					4.8					(1.8	)
Kindred Rehabilitation Services				14.9					15.2					15.4						12.1					16.2					17.4					16.2					0.8
Nursing center division				13.5					14.6					13.3						13.4					11.1					12.4					11.1					(2.2	)
Core EBITDAR margin by segment:
Hospital division				21.0					21.0					16.8						19.8					21.1					19.9					14.4					(2.4	)
Kindred at Home:
Home health				15.6					17.0					16.1						16.2					15.3					17.3					16.7					0.6
Hospice				14.3					15.7					18.8						16.9					14.1					16.9					16.6					(2.2	)
Kindred at Home				15.2					16.6					16.9						16.4					15.0					17.2					16.7					(0.2	)
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				29.4					29.2					28.2						29.0					28.9					29.7					29.7					1.5
RehabCare				6.5					6.2					6.6						5.7					5.9					6.8					4.8					(1.8	)
Kindred Rehabilitation Services				15.1					15.2					15.4						15.7					16.2					17.4					16.4					1.0
Nursing center division				13.5					14.8					13.3						13.4					11.1					12.4					11.1					(2.2	)
Consolidated				14.0					14.3					13.4						13.9					13.4					14.5					12.3					(1.1	)
__________
(a) Segment EBITDAR includes reclassification of restructuring charges from segment EBITDAR to the new consolidated statement of operations caption, Restructuring charges, for all historical periods.
(b) See reconciliation of GAAP results to non-GAAP results beginning on page 14.
(c) Includes changes in estimate of $9 million and $4 million for the third quarters of 2015 and 2016, respectively, to lower incentive compensation costs recorded in prior periods.

KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
																															Third quarter
			2015 Quarters																2016 Quarters												% change v.
			First				Second				Third				Fourth				First				Second				Third				prior year
Hospital division:
End of period data:
Number of transitional care hospitals				97				96				95				95				95				97				94
Number of licensed beds				7,147				7,124				7,094				7,094				7,089				7,067				6,890
Revenue mix %:
Medicare				56.8				55.2				57.1				57.3				57.8				55.5				54.6
Medicaid				5.5				5.3				5.3				5.1				4.2				4.2				4.0
Medicare Advantage				11.9				11.6				10.8				11.1				11.5				12.0				12.1
Medicaid Managed				4.7				5.6				6.1				6.2				5.6				6.3				7.3
Commercial insurance and other				21.1				22.3				20.7				20.3				20.9				22.0				22.0
Admissions:
Medicare				8,775				8,267				7,976				8,169				8,919				8,253				7,861			(1.4	)
Medicaid				610				610				556				520				463				386				375			(32.6	)
Medicare Advantage				1,555				1,352				1,212				1,304				1,453				1,382				1,327			9.5
Medicaid Managed				643				675				646				612				733				768				861			33.3
Commercial insurance and other				1,868				1,815				1,763				1,701				1,871				1,807				1,727			(2.0	)
				13,451				12,719				12,153				12,306				13,439				12,596				12,151			-
Patient days:
Medicare				228,483				218,577				210,870				210,409				229,004				219,013				202,482			(4.0	)
Medicaid				28,663				25,213				23,167				21,795				21,134				19,409				16,781			(27.6	)
Medicare Advantage				48,448				44,740				39,585				41,079				45,760				47,697				43,241			9.2
Medicaid Managed				22,013				24,833				24,412				24,802				25,341				27,267				28,534			16.9
Commercial insurance and other				62,241				62,922				58,631				57,321				62,769				63,009				59,856			2.1
				389,848				376,285				356,665				355,406				384,008				376,395				350,894			(1.6	)
Average length of stay:
Medicare				26.0				26.4				26.4				25.8				25.7				26.5				25.8			(2.3	)
Medicaid				47.0				41.3				41.7				41.9				45.6				50.3				44.7			7.2
Medicare Advantage				31.2				33.1				32.7				31.5				31.5				34.5				32.6			(0.3	)
Medicaid Managed				34.2				36.8				37.8				40.5				34.6				35.5				33.1			(12.4	)
Commercial insurance and other				33.3				34.7				33.3				33.7				33.5				34.9				34.7			4.2
Weighted average				29.0				29.6				29.3				28.9				28.6				29.9				28.9			(1.4	)
Revenues per admission:
Medicare			$	41,483			$	41,892			$	41,451			$	41,656			$	41,717			$	42,579			$	39,945			(3.6	)
Medicaid				57,594				54,795				55,415				57,724				57,928				69,797				61,338			10.7
Medicare Advantage				48,908				53,578				51,495				50,680				51,080				55,105				52,363			1.7
Medicaid Managed				46,740				51,950				54,976				60,263				49,287				51,696				48,631			(11.5	)
Commercial insurance and other				72,395				77,110				68,151				70,735				71,651				77,193				73,515			7.9
Weighted average				47,616				49,312				47,683				48,236				47,868				50,309				47,348			(0.7	)
Revenues per patient day:
Medicare			$	1,593			$	1,584			$	1,568			$	1,617			$	1,625			$	1,605			$	1,551			(1.1	)
Medicaid				1,226				1,326				1,330				1,377				1,269				1,388				1,371			3.1
Medicare Advantage				1,570				1,619				1,577				1,609				1,622				1,597				1,607			1.9
Medicaid Managed				1,365				1,412				1,455				1,487				1,426				1,456				1,467			0.8
Commercial insurance and other				2,173				2,224				2,049				2,099				2,136				2,214				2,121			3.5
Weighted average				1,643				1,667				1,625				1,670				1,675				1,684				1,640			0.9
Medicare case mix index (discharged patients only)				1.166				1.163				1.150				1.164				1.163				1.179				1.172			1.9
Average daily census				4,332				4,135				3,877				3,863				4,220				4,136				3,814			(1.6	)
Occupancy %				69.2				66.1				62.2				62.2				68.0				67.5				61.6			(1.0	)
Same-hospital data:
Revenues ($ 000s) (a)			$	634,975			$	605,410			$	555,282			$	571,925			$	643,413			$	619,427			$	556,091			0.1
Admissions:
Medicare				8,652				8,031				7,659				7,933				8,919				8,083				7,571			(1.1	)
Medicaid				602				557				508				454				463				371				371			(27.0	)
Medicare Advantage				1,546				1,299				1,166				1,238				1,453				1,339				1,292			10.8
Medicaid Managed				640				640				619				590				733				761				861			39.1
Commercial insurance and other				1,840				1,746				1,680				1,624				1,871				1,751				1,658			(1.3	)
				13,280				12,273				11,632				11,839				13,439				12,305				11,753			1.0
Patient days:
Medicare				225,992				212,221				202,690				204,128				229,004				214,629				194,857			(3.9	)
Medicaid				28,458				22,999				21,203				19,481				21,134				18,340				16,467			(22.3	)
Medicare Advantage				48,276				42,863				37,272				39,122				45,760				46,522				41,955			12.6
Medicaid Managed				21,933				23,722				23,329				24,136				25,341				26,795				28,526			22.3
Commercial insurance and other				61,715				60,559				56,377				54,899				62,769				60,984				57,168			1.4
				386,374				362,364				340,871				341,766				384,008				367,270				338,973			(0.6	)
Total average length of stay				29.1				29.5				29.3				28.9				28.6				29.8				28.8			(1.7	)
Total revenues per patient day			$	1,643			$	1,671			$	1,629			$	1,673			$	1,676			$	1,687			$	1,641			0.7
__________
(a) See reconciliation of same-hospital revenues to reported revenues for the Hospital Division on page 17.

KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
																															Third quarter
			2015 Quarters																2016 Quarters												% change v.
			First				Second				Third				Fourth				First				Second				Third				prior year
Pro forma hospital data (a):
End of period data:
Number of transitional care hospitals				82				82				82				82				82				82				82
Number of licensed beds				6,112				6,112				6,112				6,112				6,107				6,107				6,107
Revenue mix %:
Medicare				57.3				55.5				57.7				57.7				57.9				55.3				54.2
Medicaid				4.9				4.7				4.8				4.5				3.9				3.9				3.6
Medicare Advantage				11.6				11.4				10.4				11.1				11.4				11.9				12.4
Medicaid Managed				4.7				5.6				6.1				6.2				5.6				6.4				7.6
Commercial insurance and other				21.5				22.8				21.0				20.5				21.2				22.5				22.2
Admissions:
Medicare				7,813				7,382				7,192				7,385				7,989				7,372				7,084			(1.5	)
Medicaid				530				548				511				447				430				358				343			(32.9	)
Medicare Advantage				1,330				1,143				1,065				1,123				1,261				1,198				1,188			11.5
Medicaid Managed				562				609				572				547				632				702				792			38.5
Commercial insurance and other				1,625				1,576				1,524				1,474				1,642				1,604				1,504			(1.3	)
				11,860				11,258				10,864				10,976				11,954				11,234				10,911			0.4
Patient days:
Medicare				204,423				195,427				190,223				190,718				204,796				194,955				181,518			(4.6	)
Medicaid				21,489				18,559				17,272				15,357				15,470				14,053				12,085			(30.0	)
Medicare Advantage				41,908				38,440				33,795				36,305				39,995				42,045				39,646			17.3
Medicaid Managed				19,537				22,351				21,700				22,063				22,421				24,893				26,698			23.0
Commercial insurance and other				54,988				54,697				51,485				50,779				55,455				55,653				53,015			3.0
				342,345				329,474				314,475				315,222				338,137				331,599				312,962			(0.5	)
Average length of stay:
Medicare				26.2				26.5				26.4				25.8				25.6				26.4				25.6			(3.0	)
Medicaid				40.5				33.9				33.8				34.4				36.0				39.3				35.2			4.1
Medicare Advantage				31.5				33.6				31.7				32.3				31.7				35.1				33.4			5.4
Medicaid Managed				34.8				36.7				37.9				40.3				35.5				35.5				33.7			(11.1	)
Commercial insurance and other				33.8				34.7				33.8				34.4				33.8				34.7				35.2			4.1
Weighted average				28.9				29.3				28.9				28.7				28.3				29.5				28.7			(0.7	)
Revenues per admission:
Medicare			$	41,885			$	42,228			$	41,877			$	41,948			$	41,912			$	42,845			$	39,694			(5.2	)
Medicaid				52,950				48,186				49,075				53,935				51,710				62,187				54,801			11.7
Medicare Advantage				49,940				56,232				51,048				53,235				52,084				56,517				54,072			5.9
Medicaid Managed				48,002				52,017				55,653				61,296				51,511				52,419				50,027			(10.1	)
Commercial insurance and other				75,632				81,332				71,996				74,530				74,752				80,026				76,737			6.6
Weighted average				48,197				49,944				48,065				48,931				48,356				50,827				47,591			(1.0	)
Revenues per patient day:
Medicare			$	1,601			$	1,595			$	1,583			$	1,624			$	1,635			$	1,620			$	1,549			(2.1	)
Medicaid				1,306				1,423				1,452				1,570				1,437				1,584				1,555			7.1
Medicare Advantage				1,585				1,672				1,609				1,647				1,642				1,610				1,620			0.7
Medicaid Managed				1,381				1,417				1,467				1,520				1,452				1,478				1,484			1.2
Commercial insurance and other				2,235				2,343				2,131				2,163				2,213				2,306				2,177			2.2
Weighted average				1,670				1,707				1,660				1,704				1,709				1,722				1,659			(0.1	)
Average daily census				3,804				3,621				3,418				3,426				3,716				3,644				3,402			(0.5	)
__________
(a) All historical statistics have been adjusted to present the ongoing hospital division portfolio.

KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
																															Third quarter
			2015 Quarters																2016 Quarters												% change v.
			First				Second				Third				Fourth				First				Second				Third				prior year
Kindred at Home (data combined to include Kindred and Gentiva for each historical period):
Home Health:
Sites of service (at end of period)				415				411				388				373				384				384				395
Revenue mix %:
Medicare				80.9				80.4				80.0				80.0				79.8				79.3				78.1
Medicaid				2.1				2.1				2.1				2.1				2.1				2.1				2.5
Commercial and other				7.3				7.9				8.2				8.5				8.4				8.2				8.6
Commercial paid at episodic rates				9.7				9.6				9.7				9.4				9.7				10.4				10.8
Episodic revenues ($ 000s)			$	308,317			$	324,027			$	319,820			$	320,698			$	325,821			$	332,193			$	332,562			4.0
Total episodic admissions				69,936				67,808				66,753				66,157				71,426				70,212				69,219			3.7
Medicare episodic admissions				61,186				59,394				58,479				57,804				62,011				60,730				59,823			2.3
Total episodes				110,980				109,599				108,519				108,300				113,887				113,278				113,256			4.4
Episodes per admission				1.59				1.62				1.63				1.64				1.59				1.61				1.64			0.6
Revenue per episode			$	2,778			$	2,956			$	2,947			$	2,961			$	2,861			$	2,933			$	2,936			(0.4	)
Hospice:
Sites of service (at end of period)				190				185				181				175				177				177				185
Admissions				13,164				12,574				12,091				12,129				13,234				13,149				12,916			6.8
Average length of stay				95				93				101				100				92				91				98			(3.0	)
Patient days				1,150,841				1,190,604				1,211,291				1,185,330				1,183,908				1,238,584				1,277,125			5.4
Revenue per patient day			$	151			$	150			$	150			$	150			$	149			$	150			$	148			(1.3	)
Average daily census				12,787				13,084				13,166				12,884				13,010				13,611				13,882			5.4
Community Care and other revenues (included in Home Health business segment) ($ 000s)			$	65,530			$	67,647			$	67,338			$	67,684			$	66,305			$	68,229			$	75,978			12.8
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services:
Freestanding IRFs:
End of period data:
Number of IRFs				16				16				18				18				19				19				19
Number of licensed beds				829				829				919				919				969				969				969
Discharges (a)				3,806				3,927				3,941				4,317				4,448				4,646				4,644			17.8
Same-hospital discharges (a)				3,806				3,927				3,842				4,040				4,016				4,089				4,069			5.9
Occupancy % (a)				73.2				71.5				68.7				68.0				70.6				70.6				68.8			0.1
Average length of stay (a)				13.7				13.1				13.2				12.7				13.2				12.9				12.7			(3.8	)
Revenue per discharge (a)			$	19,517			$	19,325			$	18,992			$	18,640			$	19,731			$	19,318			$	19,599			3.2
Contract services:
Sites of service (at end of period):
Inpatient rehabilitation units				100				99				101				100				104				105				104
LTAC hospitals				120				120				119				119				119				121				120
Sub-acute units				8				8				7				7				7				7				7
Outpatient units				138				139				135				130				139				138				139
				366				366				362				356				369				371				370
Revenue per site			$	211,151			$	209,436			$	206,041			$	210,978			$	211,417			$	215,798			$	210,810			2.3
RehabCare:
Sites of service (at end of period)				1,829				1,789				1,821				1,798				1,767				1,759				1,754
Revenue per site			$	138,106			$	132,359			$	120,548			$	114,896			$	115,590			$	111,470			$	109,738			(9.0	)
Nursing center division:
End of period data:
Number of nursing centers				90				90				90				90				92				92				91
Number of licensed beds				11,535				11,535				11,535				11,535				11,815				11,815				11,568
Admissions (b)				10,376				9,831				9,558				9,237				9,815				9,480				9,698			1.5
Medicare average length of stay (b)				28.9				28.9				28.5				28.4				28.2				28.4				27.4			(3.9	)
Patient days (b)				861,278				852,691				851,332				845,924				846,578				842,681				845,037			(0.7	)
Revenues per patient day (b)			$	319			$	321			$	318			$	323			$	322			$	323			$	320			0.6
Average daily census (b)				9,570				9,370				9,254				9,195				9,303				9,260				9,185			(0.7	)
Occupancy % (b)				81.3				79.6				78.6				78.1				77.3				76.7				77.5			(1.4	)
__________
(a) Excludes non-consolidating IRF.
(b) Excludes managed facilities.

Forward-Looking Statements

This earnings release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, but are not limited to, all statements regarding the Company's ability to exit the skilled nursing facility business discussed herein, as well as the Company's ability to realize the anticipated benefits, cost savings and strategic gains from this initiative, all statements regarding the Company’s expected future financial position, results of operations, cash flows, dividends, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management, government investigations, regulatory matters, and statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “would,” “should,” “will,” “intend,” “may,” “potential,” “upside,” and other similar expressions. Statements in this earnings release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends or other financial items, product or services line growth, and expected outcome of government investigations and other regulatory matters, together with other statements that are not historical facts, are forward-looking statements that are estimates reflecting the best judgment of the Company based upon currently available information.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors detailed from time to time in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission.

Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

Non-GAAP Measurements

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

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

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

Core Operating Results: The Company calculates core operating results, including core net income attributable to Kindred, core EBITDAR and core diluted EPS, by excluding charges related to transaction, integration, severance, retirement, retention, impairments, business interruption settlements, research and development, restructuring, debt amendment costs, and litigation. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company’s management uses core net income attributable to Kindred, core EBITDAR and core diluted EPS as meaningful measures of operational performance, and for the attainment of internal incentive compensation goals, in addition to other measures. The Company uses these measures to assess the relative performance and attainment of internal incentive compensation goals of its operating divisions, as well as the employees that operate these businesses. In addition, the Company believes these measures are important, because securities analysts and investors use these measures to compare the Company’s performance to other companies in the healthcare industry.

Non-GAAP Measurements (Continued)

Same-Hospital Revenues: The same-hospital revenues are calculated by excluding from the Company's Hospital Division revenues the results from five hospitals acquired in 2016, three hospitals sold in 2016, three hospitals that closed during 2016, and two hospitals that closed during 2015. The Company believes the presentation of same-hospital revenues provides investors, equity analysts and others with useful information regarding the performance of the Company's hospital operations that are comparable for the periods presented.

For EBITDAR, core net income attributable to Kindred, and core EBITDAR, the Company believes that income (loss) from continuing operations is the most comparable GAAP measure. For core diluted EPS, the Company believes that GAAP diluted earnings (loss) per share from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations and diluted earnings (loss) per share from continuing operations as important measures of the Company’s financial performance, because they provide the most complete measures of its performance. For same-hospital revenues, the Company believes that reported hospital segment revenues is the most comparable GAAP measure. Readers of the Company’s financial information should consider reported hospital segment revenues as an important measure of the Company’s Hospital Division financial performance because it provides the most complete measure of its performance. Operating results presented on a core basis, as well as a same-hospital basis, should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance.

Also in this earnings release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items, which the Company refers to as core operating cash flows and core free cash flows, respectively.

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

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

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

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measurements
(Unaudited)
(In thousands, except per share amounts and statistics)
In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measurements for the three months and nine months ended September 30, 2016 and 2015 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
The income tax benefit associated with the excluded charges was calculated using an effective income tax rate of 67.1% and 6.9% for the three months ended September 30, 2016 and 2015, respectively, and 60.5% and 19.7% for the nine months ended September 30, 2016 and 2015, respectively. The difference in the effective income tax rate for both periods compared to the same prior year periods is attributable to the deferred tax valuation allowance and the composition of charges that are non-deductible for income tax purposes, including the impairment charges and litigation contingency expense.
			Three months ended										Nine months ended
			September 30,										September 30,
			2016					2015					2016					2015
Reconciliation of income from continuing operations before charges:
As reported:
Loss from continuing operations attributable to Kindred				($685,600	)				($16,869	)				($651,418	)				($138,329	)
Diluted loss per common share from continuing operations				($7.89	)				($0.20	)				($7.51	)				($1.65	)
Weighted average diluted shares outstanding				86,869					86,184					86,766					83,960
Detail of charges:
Restructuring charges:
Facility/branch divestitures and closings				($20,212	)				($2,416	)				($22,234	)				($6,439	)
Severance costs				(2,109	)				(125	)				(5,049	)				(523	)
Transaction costs				(492	)				-					(1,577	)				-
				(22,813	)				(2,541	)				(28,860	)				(6,962	)
Lease termination costs (charged to rent expense)				(58,650	)				(808	)				(59,363	)				(1,831	)
Impairment charges				(324,289	)				-					(338,208	)				-
Research and development				(3,288	)				-					(7,227	)				-
Litigation contingency expense				-					(31,462	)				(2,840	)				(130,387	)
Other retirement and severance costs				-					(666	)				(658	)				(5,627	)
Other facility/branch sales/closings/consolidations				(821	)				(827	)				(821	)				(2,086	)
Business interruption settlements				-					-					1,309					-
Debt amendment fees not capitalized				-					-					(1,103	)				-
Gentiva transaction costs:
Professional and consulting fees				(1,464	)				(1,113	)				(3,831	)				(35,178	)
Severance and retention				214					(1,956	)				(696	)				(58,831	)
Lease termination (charged to rent expense)				(272	)				-					(272	)				(792	)
Pre-closing financing charges (charged to general and administrative expenses)				-					-					-					(6,005	)
Pre-closing financing charges (charged to interest expense)				-					-					-					(17,431	)
Trade name impairment charges				-					-					-					(6,726	)
Other transaction costs				(1,732	)				(777	)				(1,986	)				(3,750	)
				(413,115	)				(40,150	)				(444,556	)				(275,606	)
Income tax benefit				(277,113	)				2,775					(268,868	)				54,302
Charges net of income taxes				(690,228	)				(37,375	)				(713,424	)				(221,304	)
Noncontrolling interest adjustment related to impairment charges				288					-					1,304					-
				(689,940	)				(37,375	)				(712,120	)				(221,304	)
Allocation to participating unvested restricted stockholders				-					-					-					-
Available to common stockholders				($689,940	)				($37,375	)				($712,120	)				($221,304	)
Diluted loss per common share related to charges				($7.94	)				($0.43	)				($8.21	)				($2.64	)
Weighted average diluted shares outstanding				86,869					86,184					86,766					83,960
Core:
Income from continuing operations before charges			$	4,340				$	20,506				$	60,702				$	82,975
Diluted earnings per common share from continuing operations before charges (a)			$	0.05				$	0.23				$	0.68				$	0.95
Weighted average diluted shares outstanding used to compute earnings per common share from continuing operations before charges				87,529					86,892					87,426					85,691
Reconciliation of effective income tax rate before charges:
Effective income tax rate before charges				19.7	%				33.5	%				29.4	%				35.9	%
Impact of charges on effective income tax rate				52.6	%				192.0	%				74.6	%				-26.6	%
Reported effective income tax rate				72.3	%				225.5	%				104.0	%				9.3	%
__________
(a) For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.1 million and $0.3 million for the three months ended September 30, 2016 and 2015, respectively, and by $1.3 million and $1.5 million for the nine months ended September 30, 2016 and 2015, respectively, for the allocation of income to participating unvested restricted stockholders.

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measurements (Continued)
(Unaudited)
(In thousands)
A reconciliation of combined Kindred and Gentiva home health revenues (excluding community care) for each historical period follows:
																																					Third quarter
			2015 Quarters																				2016 Quarters														% change v.
			First					Second					Third					Fourth					First				Second					Third					prior year
Kindred			$	254,965				$	360,173				$	356,716				$	358,075				$	363,730			$	370,327				$	373,980
Gentiva				87,520					-					-					-					-				-					-
			$	342,485				$	360,173				$	356,716				$	358,075				$	363,730			$	370,327				$	373,980				4.8
A reconciliation of reported revenues to same-hospital revenues for the Hospital Division for each historical period follows:
																																					Third quarter
			2015 Quarters																				2016 Quarters														% change v.
			First					Second					Third					Fourth					First				Second					Third					prior year
Reported revenues			$	640,483				$	627,206				$	579,497				$	593,593				$	643,299			$	633,695				$	575,323				(0.7	)
Hospitals acquired and sold during 2016 (a)				-					(16,608	)				(14,679	)				(14,695	)				-				(14,346	)				(13,731	)
Hospitals closed during 2016 (b)				-					-					(7,376	)				(7,471	)				-				-					(5,447	)
Hospitals closed during 2015 (c)				(5,508	)				(5,188	)				(2,160	)				498					114				78					(54	)
Same-hospital revenues			$	634,975				$	605,410				$	555,282				$	571,925				$	643,413			$	619,427				$	556,091				0.1
__________
(a) Five hospitals acquired and three hospitals sold during the second quarter of 2016.
(b) Three hospitals closed during the third quarter of 2016.
(c) One hospital closed during the second quarter of 2015 and one hospital closed during the third quarter of 2015.

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measurements (Continued)
(Unaudited)
(In thousands, except per share amounts)
			Three months ended September 30, 2016
								Charges
																									Gentiva								Deferred
								Facility/																	transaction								tax										Before
			As					branch				Impairment					Research and				Restructuring				and				Other				valuation										charges
			reported					closings				charges					development				charges				integration				transaction				allowance					Total					("core")
Income (loss) from continuing operations:
Segment EBITDAR:
Hospital division			$	82,752				$	-			$	-				$	-			$	-			$	-			$	-			$	-				$	-				$	82,752
Kindred at Home:
Home health				75,073					-				-					-				-				-				-				-					-					75,073
Hospice				31,326					-				-					-				-				-				-				-					-					31,326
				106,399					-				-					-				-				-				-				-					-					106,399
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				49,470					747				-					-				-				-				-				-					747					50,217
RehabCare				9,248					-				-					-				-				-				-				-					-					9,248
				58,718					747				-					-				-				-				-				-					747					59,465
Nursing center division				29,922					-				-					-				-				-				-				-					-					29,922
Support center				(61,751	)				-				-					3,288				-				-				-				-					3,288					(58,463	)
Impairment charges				(324,289	)				-				324,289					-				-				-				-				-					324,289					-
Restructuring charges				(22,813	)				-				-					-				22,813				-				-				-					22,813					-
Transaction costs				(2,982	)				-				-					-				-				1,250				1,732				-					2,982					-
EBITDAR				(134,044	)				747				324,289					3,288				22,813				1,250				1,732				-					354,119					220,075
Rent				(98,415	)				74				-					-				-				272				-				-					346					(98,069	)
Restructuring charges - rent				(58,650	)				-				-					-				58,650				-				-				-					58,650					-
Depreciation and amortization				(40,382	)				-				-					-				-				-				-				-					-					(40,382	)
Interest, net				(58,052	)				-				-					-				-				-				-				-					-					(58,052	)
Income (loss) from continuing operations before income taxes				(389,543	)				821				324,289					3,288				81,463				1,522				1,732				-					413,115					23,572
Provision (benefit) for income taxes				281,752					288				58,173					1,154				28,599				535				608				(366,470	)				(277,113	)				4,639
				(671,295	)				533				266,116					2,134				52,864				987				1,124				366,470					690,228					18,933
Noncontrolling interests				(14,305	)				-				(288	)				-				-				-				-				-					(288	)				(14,593	)
Income (loss) attributable to Kindred			$	(685,600	)			$	533			$	265,828				$	2,134			$	52,864			$	987			$	1,124			$	366,470				$	689,940				$	4,340
Diluted earnings (loss) per common share			$	(7.89	)																																						$	0.05
Diluted shares used in computing earnings (loss) per common share				86,869																																								87,529
			Three months ended September 30, 2015
								Charges
																									Gentiva
								Retirement				Facility/													transaction													Before
			As					and				branch					Litigation				Restructuring				and				Other									charges
			reported					severance				closings					contingency				charges				integration				transaction				Total					("core")
Income from continuing operations:
Segment EBITDAR:
Hospital division			$	96,108				$	666			$	354				$	-			$	-			$	-			$	-			$	1,020				$	97,128
Kindred at Home:
Home health				67,682					-				473					-				-				-				-				473					68,155
Hospice				34,025					-				-					-				-				-				-				-					34,025
				101,707					-				473					-				-				-				-				473					102,180
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				42,141					-				-					-				-				-				-				-					42,141
RehabCare				14,544					-				-					-				-				-				-				-					14,544
				56,685					-				-					-				-				-				-				-					56,685
Nursing center division				35,923					-				-					-				-				-				-				-					35,923
Support center				(55,439	)				-				-					-				-				-				-				-					(55,439	)
Litigation contingency expense				(31,462	)				-				-					31,462				-				-				-				31,462					-
Restructuring charges				(2,541	)				-				-					-				2,541				-				-				2,541					-
Transaction costs				(3,846	)				-				-					-				-				3,069				777				3,846					-
EBITDAR				197,135					666				827					31,462				2,541				3,069				777				39,342					236,477
Rent				(95,436	)				-				-					-				-				-				-				-					(95,436	)
Restructuring charges - rent				(808	)				-				-					-				808				-				-				808					-
Depreciation and amortization				(39,329	)				-				-					-				-				-				-				-					(39,329	)
Interest, net				(56,008	)				-				-					-				-				-				-				-					(56,008	)
Income from continuing operations before income taxes				5,554					666				827					31,462				3,349				3,069				777				40,150					45,704
Provision for income taxes				12,523					196				243					429				982				697				228				2,775					15,298
				(6,969	)			$	470			$	584				$	31,033			$	2,367			$	2,372			$	549			$	37,375					30,406
Noncontrolling interests				(9,900	)																																		(9,900	)
Income (loss) attributable to Kindred			$	(16,869	)																																	$	20,506
Diluted earnings (loss) per common share			$	(0.20	)																																	$	0.23
Diluted shares used in computing earnings (loss) per common share				86,184																																			86,892

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measurements (Continued)
(Unaudited)
(In thousands, except per share amounts)
			Nine months ended September 30, 2016
								Charges
																																										Gentiva									Deferred
								Retirement				Facility/				Business																										transaction									tax										Before
			As					and				branch				interruption					Litigation				Impairment					Research and				Debt				Restructuring				and				Other					valuation										charges
			reported					severance				closings				settlements					contingency				charges					development				amendment				charges				integration				transaction					allowance					Total					("core")
Income (loss) from continuing operations:
Segment EBITDAR:
Hospital division			$	344,179				$	-			$	-			$	-				$	-			$	-				$	-			$	-			$	-			$	-			$	-				$	-				$	-				$	344,179
Kindred at Home:
Home health				218,044					-				-				(1,309	)				-				-					-				-				-				-				-					-					(1,309	)				216,735
Hospice				87,521					-				-				-					-				-					-				-				-				-				-					-					-					87,521
				305,565					-				-				(1,309	)				-				-					-				-				-				-				-					-					(1,309	)				304,256
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				147,809					-				747				-					-				-					-				-				-				-				-					-					747					148,556
RehabCare				34,504					-				-				-					-				-					-				-				-				-				-					-					-					34,504
				182,313					-				747				-					-				-					-				-				-				-				-					-					747					183,060
Nursing center division				93,684					-				-				-					-				-					-				-				-				-				-					-					-					93,684
Support center				(199,363	)				658				-				-					-				-					7,227				1,103				-				-				-					-					8,988					(190,375	)
Litigation contingency expense				(2,840	)				-				-				-					2,840				-					-				-				-				-				-					-					2,840					-
Impairment charges				(338,208	)				-				-				-					-				338,208					-				-				-				-				-					-					338,208					-
Restructuring charges				(28,860	)				-				-				-					-				-					-				-				28,860				-				-					-					28,860					-
Transaction costs				(6,513	)				-				-				-					-				-					-				-				-				4,527				1,986					-					6,513					-
EBITDAR				349,957					658				747				(1,309	)				2,840				338,208					7,227				1,103				28,860				4,527				1,986					-					384,847					734,804
Rent				(296,025	)				-				74				-					-				-					-				-				-				272				-					-					346					(295,679	)
Restructuring charges - rent				(59,363	)				-				-				-					-				-					-				-				59,363				-				-					-					59,363					-
Depreciation and amortization				(121,320	)				-				-				-					-				-					-				-				-				-				-					-					-					(121,320	)
Interest, net				(172,856	)				-				-				-					-				-					-				-				-				-				-					-					-					(172,856	)
Income (loss) from continuing operations before income taxes				(299,607	)				658				821				(1,309	)				2,840				338,208					7,227				1,103				88,223				4,799				1,986					-					444,556					144,949
Provision (benefit) for income taxes				311,470					235				293				(468	)				32				64,179					2,582				394				27,930				1,715				710					(366,470	)				(268,868	)				42,602
				(611,077	)				423				528				(841	)				2,808				274,029					4,645				709				60,293				3,084				1,276					366,470					713,424					102,347
Noncontrolling interests				(40,341	)				-				-				-					-				(1,304	)				-				-				-				-				-					-					(1,304	)				(41,645	)
Income (loss) attributable to Kindred			$	(651,418	)			$	423			$	528			$	(841	)			$	2,808			$	272,725				$	4,645			$	709			$	60,293			$	3,084			$	1,276				$	366,470				$	712,120				$	60,702
Diluted earnings (loss) per common share			$	(7.51	)																																																								$	0.68
Diluted shares used in computing earnings (loss) per common share				86,766																																																										87,426
			Nine months ended September 30, 2015
								Charges
																														Gentiva				Gentiva
								Retirement				Facility/																		pre-closing				transaction												Before
			As					and				branch				Litigation					Impairment				Restructuring					financing				and				Other								charges
			reported					severance				closings				contingency					charges				charges					costs				integration				transaction				Total				("core")
Income (loss) from continuing operations:
Segment EBITDAR:
Hospital division			$	361,751				$	666			$	1,029			$	-				$	-			$	-				$	-			$	-			$	-			$	1,695			$	363,446
Kindred at Home:
Home health				187,397					-				473				-					-				-					-				-				-				473				187,870
Hospice				78,908					-				-				-					-				-					-				-				-				-				78,908
				266,305					-				473				-					-				-					-				-				-				473				266,778
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				131,236					-				-				-					-				-					-				-				-				-				131,236
RehabCare				44,933					785				-				-					-				-					-				-				-				785				45,718
				176,169					785				-				-					-				-					-				-				-				785				176,954
Nursing center division				112,763					-				584				-					-				-					-				-				-				584				113,347
Support center				(192,213	)				4,176				-				-					-				-					-				-				-				4,176				(188,037	)
Litigation contingency expense				(130,387	)				-				-				130,387					-				-					-				-				-				130,387				-
Impairment charges				(6,726	)				-				-				-					6,726				-					-				-				-				6,726				-
Restructuring charges				(6,962	)				-				-				-					-				6,962					-				-				-				6,962				-
Transaction costs				(103,764	)				-				-				-					-				-					6,005				94,009				3,750				103,764				-
EBITDAR				476,936					5,627				2,086				130,387					6,726				6,962					6,005				94,009				3,750				255,552				732,488
Rent				(282,955	)				-				-				-					-				-					-				792				-				792				(282,163	)
Restructuring charges - rent				(1,831	)				-				-				-					-				1,831					-				-				-				1,831				-
Depreciation and amortization				(116,889	)				-				-				-					-				-					-				-				-				-				(116,889	)
Interest, net				(173,925	)				-				-				-					-				-					17,431				-				-				17,431				(156,494	)
Income (loss) from continuing operations before income taxes				(98,664	)				5,627				2,086				130,387					6,726				8,793					23,436				94,801				3,750				275,606				176,942
Provision (benefit) for income taxes				9,183					2,202				816				2,108					2,633				3,442					9,173				32,460				1,468				54,302				63,485
				(107,847	)			$	3,425			$	1,270			$	128,279				$	4,093			$	5,351				$	14,263			$	62,341			$	2,282			$	221,304				113,457
Noncontrolling interests				(30,482	)																																										(30,482	)
Income (loss) attributable to Kindred			$	(138,329	)																																									$	82,975
Diluted earnings (loss) per common share			$	(1.65	)																																									$	0.95
Diluted shares used in computing earnings (loss) per common share				83,960																																											85,691

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measurements (Continued)
(Unaudited)
(In thousands, except per share amounts)
			Three months ended March 31, 2016
								Charges
																																	Gentiva
								Retirement				Business																					transaction													Before
			As					and				interruption					Litigation				Impairment				Research and				Restructuring				and				Other									charges
			reported					severance				settlements					contingency				charges				development				charges				integration				transaction				Total					("core")
Income from continuing operations:
Segment EBITDAR:
Hospital division			$	135,495				$	-			$	-				$	-			$	-			$	-			$	-			$	-			$	-			$	-				$	135,495
Kindred at Home:
Home health				66,941					-				(1,138	)				-				-				-				-				-				-				(1,138	)				65,803
Hospice				24,866					-				-					-				-				-				-				-				-				-					24,866
				91,807					-				(1,138	)				-				-				-				-				-				-				(1,138	)				90,669
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				47,870					-				-					-				-				-				-				-				-				-					47,870
RehabCare				11,987					-				-					-				-				-				-				-				-				-					11,987
				59,857					-				-					-				-				-				-				-				-				-					59,857
Nursing center division				30,100					-				-					-				-				-				-				-				-				-					30,100
Support center				(70,808	)				658				-					-				-				863				-				-				-				1,521					(69,287	)
Litigation contingency expense				(1,910	)				-				-					1,910				-				-				-				-				-				1,910					-
Impairment charges				(7,788	)				-				-					-				7,788				-				-				-				-				7,788					-
Restructuring charges				(1,701	)				-				-					-				-				-				1,701				-				-				1,701					-
Transaction costs				(1,685	)				-				-					-				-				-				-				1,603				82				1,685					-
EBITDAR				233,367					658				(1,138	)				1,910				7,788				863				1,701				1,603				82				13,467					246,834
Rent				(97,517	)				-				-					-				-				-				-				-				-				-					(97,517	)
Restructuring charges - rent				(251	)				-				-					-				-				-				251				-				-				251					-
Depreciation and amortization				(40,681	)				-				-					-				-				-				-				-				-				-					(40,681	)
Interest, net				(57,245	)				-				-					-				-				-				-				-				-				-					(57,245	)
Income from continuing operations before income taxes				37,673					658				(1,138	)				1,910				7,788				863				1,952				1,603				82				13,718					51,391
Provision for income taxes				11,836					226				(391	)				656				2,674				296				670				551				28				4,710					16,546
				25,837				$	432			$	(747	)			$	1,254			$	5,114			$	567			$	1,282			$	1,052			$	54			$	9,008					34,845
Noncontrolling interests				(12,514	)																																										(12,514	)
Income attributable to Kindred			$	13,323																																										$	22,331
Diluted earnings per common share			$	0.15																																										$	0.25
Diluted shares used in computing earnings per common share				87,249																																											87,249
			Three months ended March 31, 2015
								Charges
																													Gentiva				Gentiva
								Retirement				Facility/																	pre-closing				transaction													Before
			As					and				branch					Litigation				Impairment				Restructuring				financing				and				Other									charges
			reported					severance				closings					contingency				charges				charges				costs				integration				transaction				Total					("core")
Income (loss) from continuing operations:
Segment EBITDAR:
Hospital division			$	134,111				$	-			$	675				$	-			$	-			$	-			$	-			$	-			$	-			$	675				$	134,786
Kindred at Home:
Home health				46,798					-				-					-				-				-				-				-				-				-					46,798
Hospice				16,996					-				-					-				-				-				-				-				-				-					16,996
				63,794					-				-					-				-				-				-				-				-				-					63,794
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				44,564					-				-					-				-				-				-				-				-				-					44,564
RehabCare				15,708					785				-					-				-				-				-				-				-				785					16,493
				60,272					785				-					-				-				-				-				-				-				785					61,057
Nursing center division				36,963					-				-					-				-				-				-				-				-				-					36,963
Support center				(66,565	)				4,176				-					-				-				-				-				-				-				4,176					(62,389	)
Litigation contingency expense				(95,000	)				-				-					95,000				-				-				-				-				-				95,000					-
Impairment charges				(6,726	)				-				-					-				6,726				-				-				-				-				6,726					-
Restructuring charges				(1,619	)				-				-					-				-				1,619				-				-				-				1,619					-
Transaction costs				(94,702	)				-				-					-				-				-				6,005				86,598				2,099				94,702					-
EBITDAR				30,528					4,961				675					95,000				6,726				1,619				6,005				86,598				2,099				203,683					234,211
Rent				(91,788	)				-				-					-				-				-				-				589				-				589					(91,199	)
Restructuring charges - rent				(352	)				-				-					-				-				352				-				-				-				352					-
Depreciation and amortization				(38,935	)				-				-					-				-				-				-				-				-				-					(38,935	)
Interest, net				(61,777	)				-				-					-				-				-				17,431				-				-				17,431					(44,346	)
Income (loss) from continuing operations before income taxes				(162,324	)				4,961				675					95,000				6,726				1,971				23,436				87,187				2,099				222,055					59,731
Provision (benefit) for income taxes				(27,736	)				2,133				290					-				2,891				848				10,075				33,063				902				50,202					22,466
				(134,588	)			$	2,828			$	385				$	95,000			$	3,835			$	1,123			$	13,361			$	54,124			$	1,197			$	171,853					37,265
Noncontrolling interests				(8,847	)																																										(8,847	)
Income (loss) attributable to Kindred			$	(143,435	)																																									$	28,418
Diluted earnings (loss) per common share			$	(1.80	)																																									$	0.34
Diluted shares used in computing earnings (loss) per common share				79,575																																											82,422

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measurements (Continued)
(Unaudited)
(In thousands, except per share amounts)
			Three months ended June 30, 2016
								Charges
																																				Gentiva
								Business																												transaction														Before
			As					interruption					Litigation					Impairment					Research and				Debt				Restructuring					and					Other									charges
			reported					settlements					contingency					charges					development				amendment				charges					integration					transaction				Total					("core")
Income from continuing operations:
Segment EBITDAR:
Hospital division			$	125,932				$	-				$	-				$	-				$	-			$	-			$	-				$	-				$	-			$	-				$	125,932
Kindred at Home:
Home health				76,030					(171	)				-					-					-				-				-					-					-				(171	)				75,859
Hospice				31,329					-					-					-					-				-				-					-					-				-					31,329
				107,359					(171	)				-					-					-				-				-					-					-				(171	)				107,188
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				50,469					-					-					-					-				-				-					-					-				-					50,469
RehabCare				13,269					-					-					-					-				-				-					-					-				-					13,269
				63,738					-					-					-					-				-				-					-					-				-					63,738
Nursing center division				33,662					-					-					-					-				-				-					-					-				-					33,662
Support center				(66,804	)				-					-					-					3,076				1,103				-					-					-				4,179					(62,625	)
Litigation contingency expense				(930	)				-					930					-					-				-				-					-					-				930					-
Impairment charges				(6,131	)				-					-					6,131					-				-				-					-					-				6,131					-
Restructuring charges				(4,346	)				-					-					-					-				-				4,346					-					-				4,346					-
Transaction costs				(1,846	)				-					-					-					-				-				-					1,674					172				1,846					-
EBITDAR				250,634					(171	)				930					6,131					3,076				1,103				4,346					1,674					172				17,261					267,895
Rent				(100,093	)				-					-					-					-				-				-					-					-				-					(100,093	)
Restructuring charges - rent				(462	)				-					-					-					-				-				462					-					-				462					-
Depreciation and amortization				(40,257	)				-					-					-					-				-				-					-					-				-					(40,257	)
Interest, net				(57,559	)				-					-					-					-				-				-					-					-				-					(57,559	)
Income from continuing operations before income taxes				52,263					(171	)				930					6,131					3,076				1,103				4,808					1,674					172				17,723					69,986
Provision for income taxes				17,882					(123	)				(1,307	)				4,403					2,209				792				(3,765	)				1,202					124				3,535					21,417
				34,381					(48	)				2,237					1,728					867				311				8,573					472					48				14,188					48,569
Noncontrolling interests				(13,522	)				-					-					(1,016	)				-				-				-					-					-				(1,016	)				(14,538	)
Income attributable to Kindred			$	20,859				$	(48	)			$	2,237				$	712				$	867			$	311			$	8,573				$	472				$	48			$	13,172				$	34,031
Diluted earnings per common share			$	0.23																																														$	0.38
Diluted shares used in computing earnings per common share				87,500																																															87,500
			Three months ended June 30, 2015
								Charges
																							Gentiva
								Facility/															transaction													Before
			As					branch					Litigation					Restructuring					and				Other									charges
			reported					closings					contingency					charges					integration				transaction				Total					("core")
Income from continuing operations:
Segment EBITDAR:
Hospital division			$	131,532				$	-				$	-				$	-				$	-			$	-			$	-				$	131,532
Kindred at Home:
Home health				72,917					-					-					-					-				-				-					72,917
Hospice				27,887					-					-					-					-				-				-					27,887
				100,804					-					-					-					-				-				-					100,804
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				44,531					-					-					-					-				-				-					44,531
RehabCare				14,681					-					-					-					-				-				-					14,681
				59,212					-					-					-					-				-				-					59,212
Nursing center division				39,877					584					-					-					-				-				584					40,461
Support center				(70,209	)				-					-					-					-				-				-					(70,209	)
Litigation contingency expense				(3,925	)				-					3,925					-					-				-				3,925					-
Restructuring charges				(2,802	)				-					-					2,802					-				-				2,802					-
Transaction costs				(5,216	)				-					-					-					4,342				874				5,216					-
EBITDAR				249,273					584					3,925					2,802					4,342				874				12,527					261,800
Rent				(95,731	)				-					-					-					203				-				203					(95,528	)
Restructuring charges - rent				(671	)				-					-					671					-				-				671					-
Depreciation and amortization				(38,625	)				-					-					-					-				-				-					(38,625	)
Interest, net				(56,140	)				-					-					-					-				-				-					(56,140	)
Income from continuing operations before income taxes				58,106					584					3,925					3,473					4,545				874				13,401					71,507
Provision for income taxes				24,396					62					416					368					386				93				1,325					25,721
				33,710				$	522				$	3,509				$	3,105				$	4,159			$	781			$	12,076					45,786
Noncontrolling interests				(11,735	)																																(11,735	)
Income attributable to Kindred			$	21,975																																$	34,051
Diluted earnings per common share			$	0.25																																$	0.39
Diluted shares used in computing earnings per common share				86,402																																	86,402

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measurements (Continued)
(Unaudited)
(In thousands, except per share amounts)
			Three months ended December 31, 2015
								Charges
																RehabCare																	Gentiva
								Retirement				Facility/				customer																	transaction													Before
			As					and				branch				contract				Litigation					Impairment				Restructuring				and				Other									charges
			reported					severance				closings				litigation				contingency					charges				charges				integration				transaction				Total					("core")
Income from continuing operations:
Segment EBITDAR:
Hospital division			$	116,454				$	1,221			$	-			$	-			$	-				$	-			$	-			$	-			$	-			$	1,221				$	117,675
Kindred at Home:
Home health				68,776					-				50				-				-					-				-				-				-				50					68,826
Hospice				30,212					-				-				-				-					-				-				-				-				-					30,212
				98,988					-				50				-				-					-				-				-				-				50					99,038
Kindred Rehabilitation Services:
Kindred Hospital Rehabilitation Services				44,891					207				-				-				-					-				-				-				-				207					45,098
RehabCare				(1,118	)				112				-				12,864				-					-				-				-				-				12,976					11,858
				43,773					319				-				12,864				-					-				-				-				-				13,183					56,956
Nursing center division				36,601					-				-				-				-					-				-				-				-				-					36,601
Support center				(63,016	)				585				-				-				-					-				-				-				-				585					(62,431	)
Litigation contingency expense				(8,261	)				-				-				-				8,261													-				-				8,261					-
Impairment charges				(18,031	)				-				-				-				-					18,031				-				-				-				18,031					-
Restructuring charges				(3,288	)				-				-				-				-					-				3,288				-				-				3,288					-
Transaction costs				(5,367	)				-				-				-				-					-				-				4,189				1,178				5,367					-
EBITDAR				197,853					2,125				50				12,864				8,261					18,031				3,288				4,189				1,178				49,986					247,839
Rent				(96,934	)				-				-				-				-					-				-				-				-				-					(96,934	)
Restructuring charges - rent				(889	)				-				-				-				-					-				889				-				-				889					-
Depreciation and amortization				(40,362	)				-				-				-				-					-				-				-				-				-					(40,362	)
Interest, net				(55,664	)				-				-				-				-					-				-				-				-				-					(55,664	)
Income from continuing operations before income taxes				4,004					2,125				50				12,864				8,261					18,031				4,177				4,189				1,178				50,875					54,879
Provision (benefit) for income taxes				(51,980	)				836				20				5,062				50,329					6,205				1,643				1,487				156				65,738					13,758
				55,984				$	1,289			$	30			$	7,802			$	(42,068	)			$	11,826			$	2,534			$	2,702			$	1,022			$	(14,863	)				41,121
Noncontrolling interests				(12,082	)																																										(12,082	)
Income attributable to Kindred			$	43,902																																										$	29,039
Diluted earnings per common share			$	0.50																																										$	0.33
Diluted shares used in computing earnings per common share				87,232																																											87,232

KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measurements (Continued)
(Unaudited)
(In thousands)
			Three months ended										Nine months ended
			September 30,										September 30,
			2016					2015					2016					2015
Reconciliation of net cash flows provided by operating activities to free cash flows:
Net cash flows provided by operating activities			$	36,082				$	132,290				$	38,048				$	93,067
Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows provided by operating activities:
Transaction, severance, retirement and retention				8,898					5,251					20,989					102,100
Business interruption settlements				-					-					(1,309	)				-
Ventas, Inc. lease termination fee				-					-					3,500					40,000
Capitalized lender fees related to debt refinancing				42					-					7,375					28,012
Other debt refinancing costs (expensed)				291					13,438					917					40,439
Other lease termination fees				-					-					-					353
Litigation				3,074					-					133,523					16,575
				12,305					18,689					164,995					227,479
Net cash flows provided by operating activities excluding certain items before income tax benefit of certain payments				48,387					150,979					203,043					320,546
Benefit of reduced income tax payments resulting from certain payments				(18,048	)				(22,541	)				(46,674	)				(56,295	)
Net cash flows provided by operating activities excluding certain items (core operating cash flows)				30,339					128,438					156,369					264,251
Less routine capital expenditures				(21,873	)				(35,422	)				(68,703	)				(80,691	)
Less distributions to noncontrolling interests				(4,694	)				(10,685	)				(35,240	)				(31,823	)
Free cash flows excluding certain items (core free cash flows)			$	3,772				$	82,331				$	52,426				$	151,737

View source version on businesswire.com: http://www.businesswire.com/news/home/20161107006523/en/

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

Source: Kindred Healthcare, Inc.