KND Kindred Healthcare, Inc. (delisted)

Successfully Completed Gentiva Health Services and Centerre Healthcare Acquisitions and Achieved Key First Quarter Integration and Synergy Realization Milestones

Core Diluted EPS from Continuing Operations of $0.34(1) in the First Quarter

GAAP Loss Per Share from Continuing Operations of $1.80 in the First Quarter Includes:

-- $1.19 Per Share to Establish a Loss Contingency Reserve for Previously Disclosed RehabCare Matter

-- $0.97 Per Share Related to Transaction, Integration, Financing, Severance and Other Restructuring Costs

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Establishes 2015 Core EPS Guidance of $1.20 to $1.40 Per Diluted Share and Adjusted Core EPS Guidance of $1.70 to $1.90 Per Diluted Share

Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 2015.

Benjamin A. Breier, President and Chief Executive Officer of the Company commented, “After our efforts to transform the Company over the last several years, I am pleased with the strides we made in the first quarter to strengthen our business and solidify Kindred’s position as a national leader in post-acute care. Our strong results and growth would not have been possible without the dedication of our 103,000 teammates and their commitment to improving the lives of more than one million patients each year.”

Mr. Breier further commented, “In the first quarter, we achieved our integration and synergy objectives for the acquired organizations and their operating results exceeded expectations. These strategic additions significantly improved the growth, margin and cash flow profile of the Company.”

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. The acquisitions of Gentiva Health Services, Inc. (“Gentiva”) and Centerre Healthcare Corporation (“Centerre”) have been included in the operating results presented since the date of acquisition. Prior period segment information has been recast to conform with the current presentation, including the transfer of five inpatient rehabilitation hospitals from the Hospital Division to the Hospital Rehabilitation Services business segment.

First Quarter Consolidated Highlights(1):

• Core diluted EPS from continuing operations of $0.34 and adjusted core diluted EPS from continuing operations of $0.43 based upon 82.4 million weighted average diluted shares as compared to core diluted EPS of $0.35 and adjusted core diluted EPS of $0.46 a year ago based upon 52.7 million weighted average diluted shares
• Consolidated revenues increased 32% to $1.68 billion and earnings before interest, income taxes, depreciation, amortization, rent and certain charges (“core EBITDAR”) increased 29% to $234 million, each as compared to the same period last year primarily due to the acquisitions of Gentiva on February 2, 2015 and Centerre on January 1, 2015

• Core operating cash flows were $38 million compared to $14 million a year ago; core free cash flows were $17 million compared to a core free cash flow deficit of $8 million in the first quarter of 2014

• The Kindred Board of Directors declared regular quarterly cash dividend of $0.12 per share on the Company’s common stock payable on June 10, 2015

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(1)   See reconciliation of core and adjusted results to generally accepted accounting principles (“GAAP”) results beginning on page 12.  

First Quarter Segment Highlights(1):

Kindred at Home (“KAH”) had a very strong start to the year, with the successful acquisition of Gentiva in February, which established KAH as the largest combined home health and hospice operator in the country. The home health segment of KAH experienced strong growth with combined Medicare admissions increasing 3.3% and revenues increasing 6.6%, both for the first quarter of 2015 over the prior year. The hospice segment of KAH is showing signs of stabilization and has begun a return to sequential admissions and census growth on a combined basis. In addition, Kindred achieved key first quarter integration milestones for the Gentiva acquisition and is on track to realize $35 million of contribution from synergies in 2015 and a synergy run rate at year end of at least $55 million.

Kindred’s Hospital Division (“HD”) revenue increased 2.1% over prior year driven by patient day growth of 3.3%, growth in revenue per admission of 2.7% offset by an admissions decline of 0.5%. Core EBITDAR contribution from HD was down 3.4% from prior year, to $135 million, driven primarily by shifts in payor mix and patient acuity. We continue to be pleased with the progress our long-term acute care (“LTAC”) hospital business is making as we transition through the Affordable Care Act roll-out and with preparations for the implementation of LTAC criteria, which will not impact the Company until late 2016.

Kindred’s Rehabilitation Division (“RHB”) had a solid start to the year with the successful acquisition of Centerre and its 11 freestanding inpatient rehabilitation hospitals (“IRFs”), all of which are joint ventured with prominent regional health systems. Strong performance in the quarter from RHB’s freestanding IRFs and contract hospital rehabilitation services business was offset, in part, by contract losses in the skilled nursing rehabilitation services segment.

Kindred’s Nursing Center Division (“NCD”) revenue and admissions grew 4.5% and 6.0%, respectively, over the prior year. Medicare average length of stay contracted 2.4% over the prior year, contributing to a core EBITDAR reduction of 1.6% to $37 million.

Mr. Breier commented, “Our patient-centered care management approach to provide the right care, in the right setting, at the right time - combined with the successful steps we have taken to expand our operations - are driving value creation for our patients, healthcare partners and shareholders. We recently issued our Annual Quality and Social Responsibility Report that highlights our clinical expertise, capabilities across the continuum and care innovations. These strengths support smooth transitions between care settings, produce positive clinical outcomes, and improve the patient experience.”

Mr. Breier continued, “Our solid start to 2015, together with the clarity and stability from the permanent “doc fix” and LTAC preliminary rulemaking in line with expectations, builds upon our excitement for the future and confidence that our strategy best positions us for long-term success.”

RehabCare Loss Contingency Reserve

The Company is engaged in active discussions with the United States Department of Justice in an effort to find a mutually acceptable resolution to the previously disclosed investigation of RehabCare Group, Inc., a therapy services company acquired by Kindred on June 1, 2011. Based on the progress of those settlement discussions beginning in mid-March and into the second quarter of 2015, the Company has accrued an estimated loss contingency reserve of $95 million in the first quarter of 2015. In the event the Company is able to reach a mutually agreeable settlement with the Department of Justice, the Company estimates that the financial component of such a settlement could range from $95 million to $125 million. The discussions are ongoing, and until concluded, there can be no certainty about the timing or likelihood of a definitive resolution, the scope of any potential restrictions that may be agreed upon in connection with a settlement or the cost of a final settlement.

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(1)   See reconciliation of core and adjusted results to GAAP results beginning on page 12.  

2015 Outlook

Kindred today established guidance for its estimated 2015 financial results (1) including:

• 2015 annual revenues of approximately $7.2 billion
• Core EBITDAR of approximately $1.0 billion to $1.05 billion (2)
• Core earnings of $1.20 to $1.40 per diluted share (3)
• Adjusted core earnings of $1.70 to $1.90 per diluted share(3)(4)

For the second quarter of 2015, the Company expects core diluted earnings per share from continuing operations to approximate $0.27 to $0.37 and adjusted core diluted earnings per share from continuing operations to approximate $0.39 to $0.49.

Stephen D. Farber, Executive Vice President and Chief Financial Officer, commented, “We are encouraged by the strong performance and integration progress of our Gentiva and Centerre acquisitions, and our solid consolidated operating results. We are establishing guidance for the year at levels that represent significant growth, and we are on track to meet our synergy goal to realize $35 million of synergy contribution in 2015. Our cash flow and growth profile will continue to support a strong balance sheet and allow us to delever while continuing to invest in our businesses and return significant capital to shareholders through our quarterly cash dividends.”

The guidance excludes transaction costs, pre-closing financing costs and post-closing integration costs associated with the acquisitions of Gentiva and Centerre, the effect of reimbursement changes, debt refinancing costs, severance, retirement, retention and restructuring costs, litigation and related contingency expense, other transaction costs, any further acquisitions or divestitures, any impairment charges, any further issuances of common stock or any repurchases of common stock.

Quarterly Cash Dividend

The Company announced that its Board of Directors has approved the payment of the regular quarterly cash dividend of $0.12 per share of common stock to be paid on June 10, 2015 to shareholders of record as of the close of business on May 20, 2015.

Conference Call

As previously announced, investors and the general public may access a live webcast of the first quarter 2015 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on May 7 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 1:00 p.m. on May 7 by dialing (719) 457-0820, access code: 1193715. The replay will be available through May 15.

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(1)

  Guidance includes Gentiva for eleven months and Centerre for the full year.

(2)

Includes $35 million from Gentiva synergies expected to be realized in the year.

(3)

The earnings per share estimate is based upon an estimated weighted average annual diluted share count for 2015 of 86 million shares. The estimated annual diluted share count of 2015 includes approximately 3.4 million shares of common stock issued in late February to holders of 78,010 tangible equity units that elected early conversion settlements.

(4)

Adjusted core earnings per diluted share is calculated by excluding non-cash expenses, net of the income tax benefit, related to amortization of intangible assets, stock-based compensation and deferred financing costs, from core income from continuing operations.  

Forward-Looking Statements and Non-GAAP Reconciliations

See page 11 for important disclosures regarding our forward-looking statements and the non-GAAP financial reconciliations that follow.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-85 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). At March 31, 2015, Kindred through its subsidiaries had approximately 102,600 employees providing healthcare services in 2,787 locations in 47 states, including 97 transitional care hospitals, 16 inpatient rehabilitation hospitals, 90 nursing centers, 21 sub-acute units, 664 Kindred at Home home health, hospice and non-medical home care sites of service, 100 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,799 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for six 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 were computed by combining the twelve months ended December 31, 2014 data for Kindred, Gentiva and Centerre.     KINDRED HEALTHCARE, INC. Condensed Consolidated Statement of Operations (Unaudited) (In thousands, except per share amounts)         Three months ended March 31, 2015 2014   Revenues $ 1,675,967   $ 1,272,610     Salaries, wages and benefits 847,093 618,694 Supplies 93,271 72,965 Rent 92,140 78,530 Other operating expenses 197,727 169,530 General and administrative expenses 406,102 231,272 Other income (480 ) (212 ) Litigation contingency expense 95,000 - Impairment charges 6,726 - Depreciation and amortization 38,935 39,092 Interest expense 62,518 25,799 Investment income   (741 )   (182 )   1,838,291     1,235,488   Income (loss) from continuing operations before income taxes (162,324 ) 37,122 Provision (benefit) for income taxes   (27,736 )   14,195   Income (loss) from continuing operations (134,588 ) 22,927 Discontinued operations, net of income taxes: Loss from operations (3,424 ) (7,442 ) Loss on divestiture of operations   -     (3,006 ) Loss from discontinued operations   (3,424 )   (10,448 ) Net income (loss) (138,012 ) 12,479 (Earnings) loss attributable to noncontrolling interests: Continuing operations (8,847 ) (4,529 ) Discontinued operations   29     70     (8,818 )   (4,459 ) Income (loss) attributable to Kindred $ (146,830 ) $ 8,020     Amounts attributable to Kindred stockholders: Income (loss) from continuing operations $ (143,435 ) $ 18,398 Loss from discontinued operations   (3,395 )   (10,378 ) Net income (loss) $ (146,830 ) $ 8,020     Earnings (loss) per common share: Basic: Income (loss) from continuing operations $ (1.80 ) $ 0.34 Discontinued operations: Loss from operations (0.04 ) (0.13 ) Loss on divestiture of operations   -     (0.06 ) Loss from discontinued operations   (0.04 )   (0.19 ) Net income (loss) $ (1.84 ) $ 0.15     Diluted: Income (loss) from continuing operations $ (1.80 ) $ 0.34 Discontinued operations: Loss from operations (0.04 ) (0.13 ) Loss on divestiture of operations   -     (0.06 ) Loss from discontinued operations   (0.04 )   (0.19 ) Net income (loss) $ (1.84 ) $ 0.15     Shares used in computing earnings (loss) per common share: Basic 79,575 52,641 Diluted 79,575 52,711   Cash dividends declared and paid per common share $ 0.12 $ 0.12     KINDRED HEALTHCARE, INC. Condensed Consolidated Balance Sheet (Unaudited) (In thousands, except per share amounts)         March 31, December 31, 2015 2014 ASSETS Current assets: Cash and cash equivalents $ 96,525 $ 164,188 Insurance subsidiary investments 110,700 99,951 Accounts receivable less allowance for loss 1,255,450 944,219 Inventories 27,151 25,702 Deferred tax assets 93,449 82,391 Income taxes 17,805 8,575 Interest deposit on senior unsecured notes held in escrow - 23,438 Other   72,788     41,598   1,673,868 1,390,062   Property and equipment 2,061,373 1,978,153 Accumulated depreciation   (1,107,611 )   (1,076,049 ) 953,762 902,104   Goodwill 2,633,661 997,597 Intangible assets less accumulated amortization 809,597 400,700 Assets held for sale 2,432 3,475 Insurance subsidiary investments 183,122 166,045 Deferred tax assets 10,509 11,174 Proceeds from senior unsecured notes held in escrow - 1,350,000 Acquisition deposit - 195,000 Other   314,380     236,807   Total assets $ 6,581,331   $ 5,652,964   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 195,397 $ 175,725 Salaries, wages and other compensation 451,564 358,857 Due to third party payors 48,044 43,957 Professional liability risks 66,752 64,137 Other accrued liabilities 340,846 189,980 Long-term debt due within one year   33,240     24,607   1,135,843 857,263   Long-term debt 3,242,780 2,852,531 Professional liability risks 260,781 243,614 Deferred credits and other liabilities 293,271 213,584   Equity:

Stockholders’ equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 83,424 shares - March 31, 2015 and 69,977 shares - December 31, 2014

20,856 17,494 Capital in excess of par value 1,748,599 1,586,692 Accumulated other comprehensive loss (3,607 ) (2,551 ) Accumulated deficit   (308,616 )   (159,768 ) 1,457,232 1,441,867

Noncontrolling interests

 

191,424

    44,105   Total equity  

1,648,656

    1,485,972   Total liabilities and equity $ 6,581,331   $ 5,652,964       KINDRED HEALTHCARE, INC. Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands)         Three months ended March 31, 2015 2014 Cash flows from operating activities: Net income (loss) $ (138,012 ) $ 12,479 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 39,077 41,304 Amortization of stock-based compensation costs 5,824 2,585 Amortization of deferred financing costs 3,062 2,397 Payment of capitalized lender fees related to debt issuance (28,012 ) - Provision for doubtful accounts 8,292 8,760 Deferred income taxes (25,580 ) 3,975 Impairment charges 6,726 444 Loss on divestiture of discontinued operations - 3,006 Other 1,997 2,044 Change in operating assets and liabilities: Accounts receivable (31,656 ) (71,829 ) Inventories and other assets 53,022 (6,218 ) Accounts payable 465 (13,452 ) Income taxes (5,768 ) 29,413 Due to third party payors (15,419 ) (2,013 ) Other accrued liabilities   (13,620 )   (28,649 ) Net cash used in operating activities   (139,602 )   (15,754 )   Cash flows from investing activities: Routine capital expenditures (20,769 ) (21,677 ) Development capital expenditures (5,788 ) (751 ) Acquisitions, net of cash acquired (659,071 ) (22,715 ) Acquisition deposit 195,000 - Sale of assets 948 5,034 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 (25,918 ) (10,114 ) Sale of insurance subsidiary investments 22,029 8,762 Net change in insurance subsidiary cash and cash equivalents (558 ) (6,599 ) Change in other investments 24 640 Other   5     (551 ) Net cash provided by (used in) investing activities   879,340     (47,971 )   Cash flows from financing activities: Proceeds from borrowings under revolving credit 807,450 508,700 Repayment of borrowings under revolving credit (610,050 ) (425,800 ) Proceeds from issuance of term loan, net of discount 199,000 - Repayment of Gentiva debt (1,177,363 ) - Repayment of term loan - (1,969 ) Repayment of other long-term debt (441 ) (90 ) Payment of deferred financing costs (2,538 ) (270 ) Issuance of common stock in connection with employee benefit plans 66 3,804 Payment of costs associated with issuance of common stock and tangible equity units (915 ) - Payment of dividend for mandatory redeemable preferred stock (2,778 ) - Dividends paid (9,975 ) (6,514 ) Distributions to noncontrolling interests (11,019 ) (2,933 ) Other   1,162     1,873   Net cash provided by (used in) financing activities   (807,401 )   76,801   Change in cash and cash equivalents (67,663 ) 13,076 Cash and cash equivalents at beginning of period   164,188     35,972   Cash and cash equivalents at end of period $ 96,525   $ 49,048       KINDRED HEALTHCARE, INC. Condensed Business Segment Data (a) (Unaudited) (In thousands)                         First First quarter 2014 Quarters Quarter % change v. First Second Third Fourth 2015 prior year Consolidated income statement data: Revenues $ 1,272,610 $ 1,261,397 $ 1,228,918 $ 1,264,674 $ 1,675,967 31.7   Core EBITDAR $ 181,044 $ 175,865 $ 157,218 $ 170,088 $ 234,211 29.4 Rent   78,530     77,452     77,643     79,167     91,199   16.1

Core EBITDA

102,514 98,413 79,575 90,921 143,012 39.5 Depreciation and amortization 39,092 39,172 38,748 38,558 38,935 (0.4 ) Interest, net   25,617     21,438     22,171     21,857     44,346   73.1

Income from continuing operations before income taxes

37,805 37,803 18,656 30,506 59,731 58.0 Provision for income taxes   14,445     13,612     6,168     8,471     22,466   55.5 Income from continuing operations 23,360 24,191 12,488 22,035 37,265 59.5 Noncontrolling interests   (4,529 )   (4,828 )   (4,372 )   (5,143 )   (8,847 ) 95.3 Net income attributable to Kindred $ 18,831   $ 19,363   $ 8,116   $ 16,892   $ 28,418   50.9   Core EPS $ 0.35 $ 0.35 $ 0.13 $ 0.26 $ 0.34 (2.9 ) Adjusted Core EPS $ 0.46 $ 0.50 $ 0.20 $ 0.38 $ 0.43 (6.5 ) Diluted shares 52,711 53,792 62,902 63,163 82,422 56.4   Revenues by segment: Hospital division $ 627,245 $ 612,517 $ 591,121 $ 619,185 $ 640,483 2.1 Kindred at Home: Home health 74,791 75,502 74,026 74,588 300,867 302.3 Hospice   12,913     12,484     12,160     12,538     119,057   822.0 87,704 87,986 86,186 87,126 419,924 378.8 Rehabilitation division: Hospital rehabilitation services 93,177 94,963 93,139 92,922 151,564 62.7 Skilled nursing rehabilitation services   253,943     253,694     246,732     252,667     252,595   (0.5 ) 347,120 348,657 339,871 345,589 404,159 16.4 Nursing center division   262,590     264,437     263,897     271,625     274,308   4.5 1,324,659 1,313,597 1,281,075 1,323,525 1,738,874 31.3 Eliminations   (52,049 )   (52,200 )   (52,157 )   (58,851 )   (62,907 ) 20.9 $ 1,272,610   $ 1,261,397   $ 1,228,918   $ 1,264,674   $ 1,675,967   31.7   Core EBITDAR by segment: Hospital division $ 139,505 $ 131,990 $ 117,604 $ 134,791 $ 134,786 (3.4 ) Kindred at Home: Home health 2,845 5,769 5,961 7,398 46,798 1,544.9 Hospice   1,852     2,139     1,149     524     16,996   817.7 4,697 7,908 7,110 7,922 63,794 1,258.2 Rehabilitation division: Hospital rehabilitation services 25,710 25,742 24,887 23,884 44,564 73.3 Skilled nursing rehabilitation services   18,016     19,863     17,080     16,029     16,493   (8.5 ) 43,726 45,605 41,967 39,913 61,057 39.6 Nursing center division 37,572 38,614 35,920 38,810 36,963 (1.6 ) Support center   (44,456 )   (48,252 )   (45,383 )   (51,348 )   (62,389 ) 40.3 $ 181,044   $ 175,865   $ 157,218   $ 170,088   $ 234,211   29.4   Core EBITDAR margin by segment: Hospital division 22.2 21.5 19.9 21.8 21.0 (5.4 ) Kindred at Home: Home health 3.8 7.6 8.1 9.9 15.6 310.5 Hospice 14.3 17.1 9.4 4.2 14.3 - Kindred at Home 5.4 9.0 8.2 9.1 15.2 181.5 Rehabilitation division: Hospital rehabilitation services 27.6 27.1 26.7 25.7 29.4 6.5 Skilled nursing rehabilitation services 7.1 7.8 6.9 6.3 6.5 (8.5 ) Rehabilitation division 12.6 13.1 12.3 11.5 15.1 19.8 Nursing center division 14.3 14.6 13.6 14.3 13.5 (5.6 ) Consolidated 14.2 13.9 12.8 13.4 14.0 (1.4 )

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(a) See reconciliation of core and adjusted results to GAAP results beginning on page 12.

    KINDRED HEALTHCARE, INC. Condensed Business Segment Data (Continued) (Unaudited)                         First First quarter 2014 Quarters Quarter % change v. First Second Third Fourth 2015 prior year Hospital division: End of period data: Number of transitional care hospitals 97 97 97 97 97 Number of licensed beds 7,145 7,145 7,145 7,147 7,147 Revenue mix %: Medicare 59.8 58.2 57.0 57.0 56.8 Medicaid 6.6 6.8 6.9 6.0 5.5 Medicare Advantage 11.4 11.2 10.5 10.5 11.9 Medicaid Managed 2.4 3.0 3.8 4.5 4.7 Commercial insurance and other 19.8 20.8 21.8 22.0 21.1 Admissions: Medicare 9,038 8,555 8,460 8,525 8,775 (2.9 ) Medicaid 819 896 805 750 610 (25.5 ) Medicare Advantage 1,435 1,389 1,250 1,359 1,555 8.4 Medicaid Managed 317 381 511 572 643 102.8 Commercial insurance and other   1,914   1,885   1,703   1,696   1,868 (2.4 )   13,523   13,106   12,729   12,902   13,451 (0.5 ) Patient days: Medicare 230,350 220,035 213,170 220,548 228,483 (0.8 ) Medicaid 32,712 32,619 30,480 30,454 28,663 (12.4 ) Medicare Advantage 44,025 43,027 39,938 41,260 48,448 10.0 Medicaid Managed 10,733 13,191 16,556 20,000 22,013 105.1 Commercial insurance and other   59,567   59,293   57,486   59,295   62,241 4.5   377,387   368,165   357,630   371,557   389,848 3.3 Average length of stay: Medicare 25.5 25.7 25.2 25.9 26.0 2.0 Medicaid 39.9 36.4 37.9 40.6 47.0 17.8 Medicare Advantage 30.7 31.0 32.0 30.4 31.2 1.6 Medicaid Managed 33.9 34.6 32.4 35.0 34.2 0.9 Commercial insurance and other 31.1 31.5 33.8 35.0 33.3 7.1 Weighted average 27.9 28.1 28.1 28.8 29.0 3.9 Revenues per admission: Medicare $ 41,492 $ 41,670 $ 39,828 $ 41,425 $ 41,483 - Medicaid 50,894 46,106 50,344 49,760 57,594 13.2 Medicare Advantage 49,666 49,352 49,814 47,756 48,908 (1.5 ) Medicaid Managed 47,803 48,814 44,321 48,691 46,740 (2.2 ) Commercial insurance and other 64,858 67,679 75,591 80,167 72,395 11.6 Weighted average 46,384 46,736 46,439 47,991 47,616 2.7 Revenues per patient day: Medicare $ 1,628 $ 1,620 $ 1,581 $ 1,601 $ 1,593 (2.1 ) Medicaid 1,274 1,266 1,330 1,225 1,226 (3.8 ) Medicare Advantage 1,619 1,593 1,559 1,573 1,570 (3.0 ) Medicaid Managed 1,412 1,410 1,368 1,393 1,365 (3.3 ) Commercial insurance and other 2,084 2,152 2,239 2,293 2,173 4.3 Weighted average 1,662 1,664 1,653 1,666 1,643 (1.1 )

Medicare case mix index (discharged patients only)

1.173 1.182 1.157 1.139 1.166 (0.6 ) Average daily census 4,193 4,046 3,887 4,039 4,332 3.3 Occupancy % 67.3 64.6 62.1 64.5 69.2 2.8     KINDRED HEALTHCARE, INC. Condensed Business Segment Data (Continued) (Unaudited)                         First First quarter 2014 Quarters Quarter % change v. First Second Third Fourth 2015 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) 447 440 439 427 415 Revenue mix %: Medicare 81.8 81.5 80.7 80.7 80.9 Medicaid 2.7 2.6 2.4 2.2 2.1 Commercial and other 9.1 9.0 8.9 6.7 7.3 Commercial paid at episodic rates 6.4 6.9 8.0 10.4 9.7 Episodic revenues ($ 000s) $ 281,226 $ 294,208 $ 292,675 $ 305,668 $ 308,317 9.6 Total episodic admissions 65,077 63,676 65,049 65,183 69,936 7.5 Medicare episodic admissions 59,248 58,140 57,921 57,372 61,186 3.3 Total episodes 103,758 103,689 105,906 106,708 110,980 7.0 Episodes per admission 1.59 1.63 1.63 1.64 1.59 - Revenue per episode $ 2,710 $ 2,837 $ 2,764 $ 2,865 $ 2,778 2.5 Hospice: Sites of service (at end of period) 216 200 199 193 190 Admissions 13,807 12,751 12,088 12,151 13,164 (4.7 ) Average length of stay 103 106 103 103 95 (7.8 ) Patient days 1,252,787 1,251,301 1,236,792 1,215,209 1,150,841 (8.1 ) Revenue per patient day $ 150 $ 148 $ 149 $ 154 $ 151 0.7 Average daily census 13,920 13,751 13,443 13,209 12,787 (8.1 )   Rehabilitation division: Hospital rehabilitation services: Freestanding IRFs: End of period data: Number of IRFs 5 5 5 5 16 Number of licensed beds 215 215 215 215 829 Discharges (a) 1,053 1,121 1,004 1,046 3,806 261.4 Occupancy % (a) 71.6 71.6 68.5 69.6 73.2 2.2 Average length of stay (a) 13.2 12.5 13.5 13.2 13.7 3.8 Revenue per discharge (a) $ 18,246 $ 17,519 $ 18,259 $ 17,039 $ 19,517 7.0 Contract services: Sites of service (at end of period): Inpatient rehabilitation units 105 104 102 100 100 LTAC hospitals 121 118 117 117 120 Sub-acute units 10 9 10 10 8 Outpatient units   143   143   139   138   138   379   374   368   365   366   Revenue per site $ 195,157 $ 201,400 $ 203,284 $ 205,749 $ 211,151 8.2   Skilled nursing rehabilitation services: Sites of service (at end of period) 1,851 1,863 1,896 1,935 1,829 Revenue per site $ 137,193 $ 136,175 $ 130,133 $ 130,576 $ 138,106 0.7   Nursing center division: End of period data: Number of nursing centers 89 89 90 90 90 Number of licensed beds 11,503 11,491 11,575 11,535 11,535 Admissions (b) 9,789 9,621 9,746 9,616 10,376 6.0 Medicare average length of stay (b) 29.6 29.8 29.9 29.0 28.9 (2.4 ) Patient days (b) 861,340 858,772 865,415 871,976 861,278 - Revenues per patient day (b) $ 305 $ 308 $ 305 $ 312 $ 319 4.6 Average daily census (b) 9,570 9,437 9,407 9,478 9,570 - Occupancy % (b) 81.7 80.7 80.1 80.5 81.3 (0.5 )

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(a) Excludes non-consolidating IRF.

(b) Excludes managed facilities.

    Forward-Looking Statements   This press 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, statements regarding the Company’s acquisitions of Gentiva and Centerre (including the benefits, results and effects of such acquisitions), 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, 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 press release concerning the Company’s business outlook or future economic performance, anticipated profitability, revenues, expenses, dividends or other financial items, and product or services line growth, 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, including, without limitation, those discussed below. 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 discussed below and detailed from time to time in the Company’s filings with the Securities and Exchange Commission.   Risks and uncertainties related to the Company’s acquisitions of Gentiva and Centerre include, but are not limited to, uncertainties as to whether the acquisitions will have the accretive effect on the Company’s earnings or cash flows that it expects, the inability to obtain, or delays in obtaining, cost savings and synergies from the acquisitions, costs and difficulties related to the integration of Gentiva’s and Centerre’s businesses and operations with the Company’s businesses and operations, unexpected costs, liabilities, charges or expenses resulting from the acquisitions, adverse effects on the Company’s stock price resulting from the acquisitions, the inability to retain key personnel, and potential adverse reactions, changes to business relationships or competitive responses resulting from the acquisitions.   In addition to the factors set forth above, other factors that may affect the Company’s plans, results or stock price are set forth in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.   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 release to compute certain non-GAAP measurements for the three months ended March 31, 2015 and 2014 before certain charges or on a core and adjusted core basis. The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. 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 believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a useful performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures. The Company’s earnings release also includes financial measures referred to as operating income, or EBITDAR or core EBITDAR, and earnings before interest, income taxes, depreciation and amortization (“EBITDA”). The Company’s management uses core EBITDAR or core EBITDA as meaningful measures of operational performance in addition to other measures. The Company uses core EBITDAR or core EBITDA to assess the relative performance of its operating divisions as well as the employees that operate these businesses. In addition, the Company believes these measurements are important because securities analysts and investors use these measurements to compare the Company’s performance to other companies in the healthcare industry. The Company believes that income (loss) from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations as an important measure of the Company’s financial performance because it provides the most complete measure of its performance. Operating results presented on a core and adjusted core basis and core EBITDAR or core EBITDA 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. Reconciliations of the non-GAAP measurements to the GAAP measurements are included in the following pages of this press release.   Also in this press 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. The Company recognizes that operating cash flows and free cash flows excluding certain items are non-GAAP measurements and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide important information to investors for comparability to other companies that use similar measures. In addition, management uses operating cash flows and free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses. 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 of the Company’s financial performance because it provides the most complete measure of its performance. Operating cash flows and free cash flows excluding certain items 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. Reconciliations of net cash flows provided by operating activities to operating cash flows and free cash flows excluding certain items are included in this press release.     KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (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 release to compute certain non-GAAP measurements for the three months ended March 31, 2015 and 2014 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 22.6% and 36.6% for the three months ended March 31, 2015 and 2014, respectively. The difference in the effective income tax rate for the three months ended March 31, 2015 compared to the same prior year period is attributable to the composition of charges that are non-deductible for income tax purposes, including the litigation contingency expense.  

The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. 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 for the three months ended March 31, 2015 and 2014 that are not representative of its ongoing operations due to the materiality and the nature of the charges. The Company’s core operating results also represent a key performance measure for the purpose of evaluating performance internally. The Company believes the presentation of adjusted core operating results, which excludes non-cash expenses related to amortization of intangible assets, stock-based compensation and deferred financing costs from core operating results, is a performance measure used by some investors, equity analysts and others to make informed investment decisions and for comparability to other companies that use similar measures.

  Three months ended March 31, Detail of charges: 2015 2014 Litigation contingency expense ($95,000 ) $ - Retirement and severance costs (4,961 ) (339 ) Home health and hospice closings (1,619 ) - Development project cancellation and other restructuring costs (1,027 ) - Gentiva transaction and integration costs: Professional and consulting fees (32,134 ) - Severance and retention (54,464 ) - Lease termination (charged to rent expense) (589 ) - 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   (2,099 )   (344 ) (222,055 ) (683 ) Income tax benefit   50,202     250   Charges net of income taxes (171,853 ) (433 ) Allocation to participating unvested restricted stockholders   -     13   Available to common stockholders   ($171,853 )   ($420 )   Weighted average diluted shares outstanding   79,575     52,711     Diluted loss per common share related to charges   ($2.16 )   ($0.01 )   Reconciliation of income from continuing operations before charges: Amounts attributable to Kindred stockholders: Income from continuing operations before charges $ 28,418 $ 18,831 Charges net of income taxes   (171,853 )   (433 ) Reported income (loss) from continuing operations   ($143,435 ) $ 18,398     Reconciliation of diluted earnings per common share from continuing operations before charges: Diluted earnings per common share before charges (a) $ 0.34 $ 0.35 Charges net of income taxes (2.16 ) (0.01 ) Other   0.02     -   Reported diluted earnings (loss) per common share from continuing operations   ($1.80 ) $ 0.34    

Weighted average diluted shares used to compute earnings per common share from continuing operations before charges

  82,422     52,711     Reconciliation of effective income tax rate before charges: Effective income tax rate before charges 37.6 % 38.2 % Impact of charges on effective income tax rate   -20.5 %   -   Reported effective income tax rate   17.1 %   38.2 %

____________

(a) For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.5 million and $0.6 million for the three months ended March 31, 2015 and 2014, respectively, for the allocation of income to participating unvested restricted stockholders.

    KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands, except per share amounts and statistics)                       A reconciliation of adjusted core earnings follows:   First 2014 Quarters Quarter Reconciliation of adjusted core earnings: First Second Third Fourth 2015

Income from continuing operations before charges (as calculated and reconciled to GAAP measurement on the following pages)

$ 18,831 $ 19,363 $ 8,116 $ 16,892 $ 28,418 Add back non-cash expenses: Amortization of intangible assets 5,560 5,513 5,378 5,215 6,932 Amortization of stock-based compensation costs 2,585 5,924 748 5,073 3,141 Amortization of deferred financing costs   2,397   1,950   1,982   2,044   3,062 10,542 13,387 8,108 12,332 13,135 Income tax benefit related to non-cash expenses   4,148   5,268   3,190   4,853   5,169 Non-cash expenses, net of income taxes   6,394   8,119   4,918   7,479   7,966 Adjusted core earnings $ 25,225 $ 27,482 $ 13,034 $ 24,371 $ 36,384   Reconciliation of diluted adjusted core earnings from continuing operations:

Diluted income per common share before charges (as calculated on the following pages)

$ 0.35 $ 0.35 $ 0.13 $ 0.26 $ 0.34 Non-cash expenses, net of income taxes   0.11   0.15   0.07   0.12   0.09

Diluted adjusted core earnings per common share from continuing operations

$ 0.46 $ 0.50 $ 0.20 $ 0.38 $ 0.43  

Weighted average diluted shares used to compute adjusted core earnings per common share

  52,711   53,792   62,902   63,163   82,422       A reconciliation of combined Kindred and Gentiva home health revenues (excluding community care) for each historical period follows:   First First quarter 2014 Quarters Quarter % change v. First Second Third Fourth 2015 prior year Kindred $ 67,266 $ 67,830 $ 65,954 $ 66,491 $ 254,965 Gentiva   253,895   267,018   266,340   275,342   87,520 $ 321,161 $ 334,848 $ 332,294 $ 341,833 $ 342,485 6.6     KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands)                                             Three months ended March 31, 2015 Charges Home health Development Gentiva Gentiva Retirement and project pre-closing transaction Before and hospice cancellation Litigation Impairment financing and Other As charges severance closings and other contingency charges costs integration transaction Total reported Income (loss) from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 134,786 $ - $ - $ (675 ) $ - $ - $ - $ - $ - $ (675 ) $ 134,111   Kindred at Home: Home health 46,798 - (1,102 ) - - - - - - (1,102 ) 45,696 Hospice   16,996     -     (517 )   -     -     -     -     -     -     (517 )   16,479     63,794     -     (1,619 )   -     -     -     -     -     -     (1,619 )   62,175     Rehabilitation division: Hospital rehabilitation services 44,564 - - - - - - - - - 44,564 Skilled nursing rehabilitation services   16,493     (785 )   -     -     -     -     -     -     -     (785 )   15,708     61,057     (785 )   -     -     -     -     -     -     -     (785 )   60,272     Nursing center division 36,963 - - - - - - - - - 36,963   Support center (62,389 ) (4,176 ) - - - - - - - (4,176 ) (66,565 ) Litigation contingency expense - - - - (95,000 ) - - - - (95,000 ) (95,000 ) Transaction costs - - - - - - (6,005 ) (86,598 ) (2,099 ) (94,702 ) (94,702 ) Impairment charges   -     -     -     -     -     (6,726 )   -     -     -     (6,726 )   (6,726 ) Operating income (EBITDAR) 234,211 (4,961 ) (1,619 ) (675 ) (95,000 ) (6,726 ) (6,005 ) (86,598 ) (2,099 ) (203,683 ) 30,528 Rent   (91,199 )   -     -     (352 )   -     -     -     (589 )   -     (941 )   (92,140 ) EBITDA 143,012 (4,961 ) (1,619 ) (1,027 ) (95,000 ) (6,726 ) (6,005 ) (87,187 ) (2,099 ) (204,624 ) (61,612 ) Depreciation and amortization (38,935 ) - - - - - - - - - (38,935 ) Interest, net   (44,346 )   -     -     -     -     -     (17,431 )   -     -     (17,431 )   (61,777 )

Income (loss) from continuing operations before income taxes

59,731 (4,961 ) (1,619 ) (1,027 ) (95,000 ) (6,726 ) (23,436 ) (87,187 ) (2,099 ) (222,055 ) (162,324 ) Provision (benefit) for income taxes   22,466     (2,133 )   (696 )   (442 )   -     (2,891 )   (10,075 )   (33,063 )   (902 )   (50,202 )   (27,736 ) 37,265 $ (2,828 ) $ (923 ) $ (585 ) $ (95,000 ) $ (3,835 ) $ (13,361 ) $ (54,124 ) $ (1,197 ) $ (171,853 ) (134,588 ) Noncontrolling interests   (8,847 )   (8,847 ) Net income attributable to Kindred $ 28,418   $ (143,435 )   Diluted earnings (loss) per common share $ 0.34 $ (1.80 )

Diluted shares used in computing earnings (loss) per common share

82,422 79,575   Three months ended March 31, 2014 Charges Before Transaction As charges costs reported Income from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 139,505 $ - $ 139,505   Kindred at Home: Home health 2,845 - 2,845 Hospice   1,852     -     1,852     4,697     -     4,697     Rehabilitation division: Hospital rehabilitation services 25,710 - 25,710 Skilled nursing rehabilitation services   18,016     -     18,016     43,726     -     43,726     Nursing center division 37,572 - 37,572   Support center (44,456 ) - (44,456 ) Transaction costs   -     (683 )   (683 ) Operating income (EBITDAR) 181,044 (683 ) 180,361 Rent   (78,530 )   -     (78,530 ) EBITDA 102,514 (683 ) 101,831 Depreciation and amortization (39,092 ) - (39,092 ) Interest, net   (25,617 )   -     (25,617 )

Income from continuing operations before income taxes

37,805 (683 ) 37,122 Provision for income taxes   14,445     (250 )   14,195   23,360 $ (433 ) 22,927 Noncontrolling interests   (4,529 )   (4,529 ) Net income attributable to Kindred $ 18,831   $ 18,398     Diluted earnings per common share $ 0.35 $ 0.34

Diluted shares used in computing earnings per common share

52,711 52,711     KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands)                             Three months ended December 31, 2014 Charges Severance LTAC Gentiva Before and other criteria pre-closing As charges restructuring consulting financing Transaction Total reported Income (loss) from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 134,791 $ (318 ) $ - $ - $ - $ (318 ) $ 134,473   Kindred at Home: Home health 7,398 (828 ) - - - (828 ) 6,570 Hospice   524     (106 )   -     -     -     (106 )   418     7,922     (934 )   -     -     -     (934 )   6,988     Rehabilitation division: Hospital rehabilitation services 23,884 - - - - - 23,884 Skilled nursing rehabilitation services   16,029     -     -     -     -     -     16,029     39,913     -     -     -     -     -     39,913     Nursing center division 38,810 (500 ) - - - (500 ) 38,310   Support center (51,348 ) (10,193 ) (2,460 ) - - (12,653 ) (64,001 ) Transaction costs   -     -     -     -     (8,690 )   (8,690 )   (8,690 ) Operating income (EBITDAR) 170,088 (11,945 ) (2,460 ) - (8,690 ) (23,095 ) 146,993 Rent   (79,167 )   -     -     -     -     -     (79,167 ) EBITDA 90,921 (11,945 ) (2,460 ) - (8,690 ) (23,095 ) 67,826 Depreciation and amortization (38,558 ) - - - - - (38,558 ) Interest, net   (21,857 )   -     -     (17,041 )   -     (17,041 )   (38,898 )

Income (loss) from continuing operations before income taxes

30,506 (11,945 ) (2,460 ) (17,041 ) (8,690 ) (40,136 ) (9,630 ) Provision (benefit) for income taxes   8,471     (4,251 )   (875 )   (5,975 )   (2,197 )   (13,298 )   (4,827 ) 22,035 $ (7,694 ) $ (1,585 ) $ (11,066 ) $ (6,493 ) $ (26,838 ) (4,803 ) Noncontrolling interests   (5,143 )   (5,143 ) Net income attributable to Kindred $ 16,892   $ (9,946 )   Diluted earnings (loss) per common share $ 0.26 $ (0.15 )

Diluted shares used in computing earnings (loss) per common share

63,163 65,135   Three months ended September 30, 2014 Charges Severance Before and other Customer As charges restructuring bankruptcy Transaction Total reported Income from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 117,604 $ (617 ) $ - $ - $ (617 ) $ 116,987   Kindred at Home: Home health 5,961 (275 ) - - (275 ) 5,686 Hospice   1,149     (46 )   -     -     (46 )   1,103     7,110     (321 )   -     -     (321 )   6,789     Rehabilitation division: Hospital rehabilitation services 24,887 - (1,857 ) - (1,857 ) 23,030 Skilled nursing rehabilitation services   17,080     162     -     -     162     17,242     41,967     162     (1,857 )   -     (1,695 )   40,272     Nursing center division 35,920 (483 ) - - (483 ) 35,437   Support center (45,383 ) (427 ) - - (427 ) (45,810 ) Transaction costs   -     -     -     (4,114 )   (4,114 )   (4,114 ) Operating income (EBITDAR) 157,218 (1,686 ) (1,857 ) (4,114 ) (7,657 ) 149,561 Rent   (77,643 )   -     -     -     -     (77,643 ) EBITDA 79,575 (1,686 ) (1,857 ) (4,114 ) (7,657 ) 71,918 Depreciation and amortization (38,748 ) - - - - (38,748 ) Interest, net   (22,171 )   -     -     -     -     (22,171 )

Income (loss) from continuing operations before income taxes

18,656 (1,686 ) (1,857 ) (4,114 ) (7,657 ) 10,999 Provision (benefit) for income taxes   6,168     (923 )   (1,017 )   (451 )   (2,391 )   3,777   12,488 $ (763 ) $ (840 ) $ (3,663 ) $ (5,266 ) 7,222 Noncontrolling interests   (4,372 )   (4,372 ) Net income attributable to Kindred $ 8,116   $ 2,850     Diluted earnings per common share $ 0.13 $ 0.04

Diluted shares used in computing earnings per common share

62,902 62,902     KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands)                             Three months ended June 30, 2014 Charges Severance Before and other Debt As charges restructuring Litigation refinancing Transaction Total reported Income (loss) from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 131,990 $ - $ (4,600 ) $ - $ - $ (4,600 ) $ 127,390   Kindred at Home: Home health 5,769 (721 ) - - - (721 ) 5,048 Hospice   2,139     (122 )   -     -     -     (122 )   2,017     7,908     (843 )   -     -     -     (843 )   7,065     Rehabilitation division: Hospital rehabilitation services 25,742 (170 ) - - - (170 ) 25,572 Skilled nursing rehabilitation services   19,863     (176 )   -     -     -     (176 )   19,687     45,605     (346 )   -     -     -     (346 )   45,259     Nursing center division 38,614 (3,205 ) - - - (3,205 ) 35,409   Support center (48,252 ) (556 ) - - - (556 ) (48,808 ) Transaction costs   -     -     -     -     (4,496 )   (4,496 )   (4,496 ) Operating income (EBITDAR) 175,865 (4,950 ) (4,600 ) - (4,496 ) (14,046 ) 161,819 Rent   (77,452 )   (247 )   -     -     -     (247 )   (77,699 ) EBITDA 98,413 (5,197 ) (4,600 ) - (4,496 ) (14,293 ) 84,120 Depreciation and amortization (39,172 ) - - - - - (39,172 ) Interest, net   (21,438 )   -     -     (56,643 )   -     (56,643 )   (78,081 )

Income (loss) from continuing operations before income taxes

37,803 (5,197 ) (4,600 ) (56,643 ) (4,496 ) (70,936 ) (33,133 ) Provision (benefit) for income taxes   13,612     (1,985 )   (1,757 )   (21,639 )   (914 )   (26,295 )   (12,683 ) 24,191 $ (3,212 ) $ (2,843 ) $ (35,004 ) $ (3,582 ) $ (44,641 ) (20,450 ) Noncontrolling interests   (4,828 )   (4,828 ) Net income attributable to Kindred $ 19,363   $ (25,278 )   Diluted earnings (loss) per common share $ 0.35 $ (0.47 )

Diluted shares used in computing earnings (loss) per common share

53,792 53,714     KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands)        

The Company recognizes that 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, are non-GAAP measurements and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. The Company believes that these non-GAAP measurements provide important information to investors related to the amount of discretionary cash flows that are available for other investing and financing activities. In addition, management uses operating cash flows and free cash flows excluding certain items in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.

  Three months ended March 31, 2015 2014   Reconciliation of net cash flows used in operating activities to free cash flows: Net cash flows used in operating activities ($139,602 ) ($15,754 )

Adjustments to remove certain payments (including payments made for discontinued operations) included in net cash flows used in operating activities:

Transaction, severance, retirement and retention

82,340

4,187

Ventas, Inc. lease termination fee 40,000 - Capitalized lender fees related to debt refinancing 28,012 - Other debt refinancing costs (expensed) 27,001 - Lease cancellation charges 353 - Litigation   -   25,150   177,706 29,337 Benefit of reduced income tax payments resulting from certain payments (a)   -   -     177,706   29,337  

Net cash flows provided by operating activities excluding certain items (core operating cash flows)

38,104 13,583   Less routine capital expenditures   (20,769 ) (21,677 ) Free cash flows excluding certain items (core free cash flows) $ 17,335   ($8,094 )

____________

(a) No tax deposits were due in first quarter of 2015 or 2014.

 

Kindred Healthcare, Inc.Susan E. Moss, 502-596-6569Investor Relations