KND Kindred Healthcare, Inc. (delisted)

Consolidated Revenues of $1.84 billion, Core EBITDAR of $247 million(1), Core Diluted EPS from Continuing Operations of $0.25(1) and Adjusted Core Diluted EPS from Continuing Operations of $0.35(1) in the First Quarter

GAAP Diluted EPS from Continuing Operations of $0.15 and EBITDAR of $233 million(1) in the First Quarter Includes Costs of $14 million Related to Litigation, Transaction, Integration, Research and Development, Impairment and Other Restructuring Costs

Solid Start to Year with Core Financial Results Above Mid-Point of Guidance

Company Reaffirms Full Year Outlook for 2016

Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 2016.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “We are off to a strong start in 2016 with first quarter results at the high end of our expectations. Our performance underscores the value of our diversified portfolio as well as our focus on driving quality outcomes in all of our businesses, particularly as we prepare our Hospital Division to transition to reimbursement under long-term acute care (“LTAC”) patient criteria later this year. The Hospital Division delivered a solid quarter with seasonal volume increases, stable operating results compared to the prior year and significant improvement from the operating trends experienced in the second half of 2015. In addition, we continued to drive growth and momentum in Kindred at Home (“KAH”) and Kindred Hospital Rehabilitation Services (“KHRS”), with strong sequential and year-over-year volume growth and operating performance in these businesses. Solid execution remains our top priority across the Company as we drive effective patient-centered care solutions and adapt to change.”

Mr. Breier continued, “Kindred is the nation’s largest provider of integrated care for people with post-acute and chronic care needs. More important than our size and clinical expertise, we are working to seamlessly connect our service lines to coordinate care and break down traditional silos of care, in advance of the growing demand for value-based care and payment. We are putting the key resources in place to ensure patients receive the right care for the right duration with targeted clinical interventions to support shorter lengths of stay and ongoing wellness. We recently issued our 2015 Quality, Innovation and Social Responsibility Report that highlights our clinical expertise, capabilities across the continuum of post-acute services and care innovations. These strengths support smooth transitions between care settings, produce positive clinical outcomes, and improve the patient experience. As always, I thank Kindred’s 102,000 teammates for the exceptional care and hope that they provide to more than one million patients each year.”

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.

First Quarter Consolidated Highlights(1):

• Consolidated revenues were $1.84 billion, a 9.7% year-over-year increase, and core earnings before interest, income taxes, depreciation, amortization, rent and certain charges (“core EBITDAR”) increased 5.4% to $247 million compared to the same period in 2015. A significant driver of the growth was the acquisition of Gentiva Health Services, Inc. (“Gentiva”) on February 2, 2015.
• Core diluted earnings per share (“EPS”) from continuing operations was $0.25 and adjusted core diluted EPS from continuing operations was $0.35 based upon 87.2 million weighted average diluted shares. In the same period a year ago, core diluted EPS was $0.34 and adjusted core diluted EPS was $0.43 based upon 82.4 million weighted average diluted shares.

 

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        (1) See reconciliation of core results to generally accepted accounting principles (“GAAP”) results beginning on page 12, including a reconciliation of core EBITDAR and EBITDAR to the most comparable GAAP measure, income from continuing operations, which was $25.8 million for the first quarter of 2016.  

First Quarter Consolidated Highlights(1): (Continued)

• Core operating cash flow was approximately breakeven(2) compared to core operating cash flows of $38 million(2) for the same period a year ago. Core free cash flow was a deficit of $35 million(3) compared to core free cash flows of $6 million(3) in the same period a year ago. These quarterly cash flow comparisons were negatively impacted by approximately $93 million of cash flow timing differences related to the Company’s acquisition of Gentiva in February 2015.
• GAAP consolidated operating results:

    Three months ended March 31, 2016     2015 (In thousands, except per share amounts) Diluted earnings (loss) per common share from continuing operations $ 0.15 $ (1.80 ) Income (loss) from continuing operations 25,837 (134,588 ) Operating cash flows (133,062 ) (139,602 )  

• The Kindred Board of Directors declared a cash dividend of $0.12 per share on the Company’s common stock payable on June 10, 2016 to shareholders of record as of the close of business on May 18, 2016.

Stephen D. Farber, Executive Vice President and Chief Financial Officer of Kindred, noted, “Operating cash flows for the first quarter, which are typically lower than the other quarters of the year, were in line with our expectations and are on track for the year. We continue to expect to generate roughly $300 million per year in core operating cash flows(2) and approximately half of that amount in core free cash flows(3).”

First Quarter Segment Highlights(1)(4):

Kindred’s Hospital Division first quarter revenues increased 0.4% over the prior year period to $643 million, with an increase in same-hospital admissions of 1.2% and an increase in same-hospital revenues per patient day of 2.0% compared to the same period last year. As compared to the fourth quarter of 2015, same-hospital admissions increased 9.2%. Core EBITDAR for the first quarter increased 0.5% to $135.5 million from $134.8 million a year ago, and increased 15.1% from $117.7 million in the fourth quarter of 2015.

KAH first quarter revenues and core EBITDAR increased to $606 million and $91 million, respectively, as compared to the prior year period. The home health business achieved strong growth in the first quarter with episodic admissions increasing 2.1% and revenues increasing 6.2% to $364 million, both over the prior year period on a combined basis. These results were achieved despite a 10% net reduction in home health branches since the beginning of 2015, primarily from branch consolidations. Average home health revenue per branch grew 14.8% during the last twelve months compared to a year ago. The hospice business generated $176 million of revenues in the first quarter with average daily census growth of 1.7% compared to the same period a year ago and average daily census growth of 1.0% from the fourth quarter of 2015, notwithstanding an 8.3% net reduction in hospice branches since the beginning of 2015, primarily from branch consolidations. Average hospice revenue per branch grew 8.2% during the last twelve months compared to a year ago.

Kindred Rehabilitation Services Division revenues declined 8.4% to $370 million and core EBITDAR declined 2.0% to $59.9 million compared to the first quarter last year. Strong performance in the first quarter from KHRS freestanding inpatient rehabilitation hospitals (“IRFs”) was offset by the impact of previously reported contract losses in RehabCare that occurred primarily in the first half of 2015. The KHRS segment achieved strong revenue growth of 9.4% and core EBITDAR growth of 7.4% compared to the same period a year ago, with IRF same-hospital discharges growing 5.5% during the quarter. RehabCare revenues declined 19% to $204 million from a year ago. Core EBITDAR and operating margins stabilized in the first quarter with results that improved slightly from the fourth quarter of 2015 despite the late fourth quarter cancellation of a customer contract with 24 sites of service in connection with litigation to collect past due amounts.

     

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    (1) See reconciliation of core results to GAAP results beginning on page 12, including a reconciliation of core EBITDAR and EBITDAR to the most comparable GAAP measure, income from continuing operations, which was $25.8 million for the first quarter of 2016. (2) Core operating cash flows, similar to the GAAP presentation, include net changes in working capital and exclude routine capital expenditures and distributions to noncontrolling interests. (3) Core free cash flows include net changes in working capital, routine capital expenditures and distributions to noncontrolling interests. (4) See same-hospital and full segment data on pages 8 through 10.  

First Quarter Segment Highlights(1): (Continued)

Kindred’s Nursing Center Division revenues declined 0.8% to $272 million compared to the first quarter last year. Core EBITDAR was $30 million, down from $37 million a year ago, primarily due to a 2.8% decline in average daily census, start-up losses of $1.5 million at two newly opened transitional care centers and higher contract labor costs.

As reported segment results:     Three months ended March 31, 2016     2015 (In thousands) Operating income: Hospital division $ 134,571 $ 134,111   Kindred at Home: Home health 66,941 45,696 Hospice 24,525 16,479 91,466 62,175   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 47,870 44,564 RehabCare 11,987 15,708 59,857 60,272   Nursing center division 30,100 36,963  

2016 Outlook

Kindred today reaffirmed its outlook for 2016. Kindred expects:

• Annual revenues of approximately $7.250 billion, with a range of $7.2 billion to $7.3 billion
• Core EBITDAR of approximately $990 million, with a range of $970 million to $1.010 billion
• Core diluted EPS from continuing operations of approximately $0.90, with a range of $0.80 to $1.00(2)
• Adjusted core diluted EPS from continuing operations of approximately $1.25, with a range of $1.15 to $1.35(2)(3)

For the second quarter of 2016, the Company expects core EBITDAR to approximate $260 million to $275 million, core diluted EPS from continuing operations to approximate $0.30 to $0.40 and adjusted core diluted EPS from continuing operations to approximate $0.40 to $0.50.

Additionally, Kindred reaffirmed its preliminary outlook for 2017 core EBITDAR of at least $1 billion.

Mr. Breier commented, “Our focus for 2016 continues to be on readiness for LTAC patient criteria and on driving growth and development across our faster growing home health, hospice, and inpatient rehabilitation businesses. We are also focused on optimizing our LTAC hospital portfolio as a key element of our LTAC mitigation strategy and our previously announced transactions with Curahealth, LLC (“Curahealth”) and Select Medical Holdings Corporation are important steps to advance these efforts.”

The Company’s outlook does not reflect the potential impact of the previously announced definitive agreement to sell 12 LTAC hospitals to Curahealth. The Company will make the appropriate adjustments to its outlook once there is more clarity around the timing of the transaction closing.

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

     

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    (1) See reconciliation of core results to GAAP results beginning on page 12. (2) The EPS estimate is based upon an estimated weighted average annual diluted share count for 2016 of 88 million shares. (3) Adjusted core diluted EPS 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. The estimated non-cash expenses for 2016 total approximately $53 million ($32 million net of income taxes) or approximately $0.35 per diluted share.  

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.

Cash Dividend

The Company announced that its Board of Directors has approved the payment of a cash dividend of $0.12 per share of common stock to be paid on June 10, 2016 to shareholders of record as of the close of business on May 18, 2016.

Conference Call

As previously announced, investors and the general public may access a live webcast of the first quarter 2016 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on May 5 at 9:00 a.m. (Eastern Time).

A telephone replay of the conference call will become available at approximately 12:00 p.m. on May 5 by dialing (719) 457-0820, access code: 2174744. The replay will be available through May 14.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 11 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). At March 31, 2016, Kindred through its subsidiaries had approximately 102,000 employees providing healthcare services in 2,700 locations in 46 states, including 95 transitional care hospitals, 19 inpatient rehabilitation hospitals, 92 nursing centers, 20 sub-acute units, 618 Kindred at Home home health, hospice and non-medical home care sites of service, 104 inpatient rehabilitation units (hospital-based) and a contract rehabilitation services business, RehabCare, which served 1,752 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 March 31, 2016.               KINDRED HEALTHCARE, INC. Condensed Consolidated Statement of Operations (Unaudited) (In thousands, except per share amounts)   Three months ended March 31, 2016 2015   Revenues $ 1,837,971   $ 1,675,967     Salaries, wages and benefits 926,214 847,093 Supplies 99,416 93,271 Rent 97,768 92,140 Other operating expenses 214,701 197,727 General and administrative expenses 355,527 406,102 Other income (952 ) (480 ) Litigation contingency expense 1,910 95,000 Impairment charges 7,788 6,726 Depreciation and amortization 40,681 38,935 Interest expense 57,499 62,518 Investment income   (254 )   (741 )   1,800,298     1,838,291   Income (loss) from continuing operations before income taxes 37,673 (162,324 ) Provision (benefit) for income taxes   11,836     (27,736 ) Income (loss) from continuing operations 25,837 (134,588 ) Discontinued operations, net of income taxes: Loss from operations (582 ) (3,424 ) Gain on divestiture of operations   262     -   Loss from discontinued operations   (320 )   (3,424 ) Net income (loss) 25,517 (138,012 ) (Earnings) loss attributable to noncontrolling interests: Continuing operations (12,514 ) (8,847 ) Discontinued operations   (2 )   29     (12,516 )   (8,818 ) Income (loss) attributable to Kindred $ 13,001   $ (146,830 )   Amounts attributable to Kindred stockholders: Income (loss) from continuing operations $ 13,323 $ (143,435 ) Loss from discontinued operations   (322 )   (3,395 ) Net income (loss) $ 13,001   $ (146,830 )   Earnings (loss) per common share: Basic: Income (loss) from continuing operations $ 0.15 $ (1.80 ) Discontinued operations: Loss from operations - (0.04 ) Gain on divestiture of operations   -     -   Loss from discontinued operations   -     (0.04 ) Net income (loss) $ 0.15   $ (1.84 )   Diluted: Income (loss) from continuing operations $ 0.15 $ (1.80 ) Discontinued operations: Loss from operations - (0.04 ) Gain on divestiture of operations   -     -   Loss from discontinued operations   -     (0.04 ) Net income (loss) $ 0.15   $ (1.84 )   Shares used in computing earnings (loss) per common share: Basic 86,590 79,575 Diluted 87,249 79,575   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, 2016 2015 ASSETS Current assets: Cash and cash equivalents $ 105,082 $ 98,758 Insurance subsidiary investments 108,872 106,638 Accounts receivable less allowance for loss 1,260,505 1,194,868 Inventories 28,056 27,791 Income taxes 11,283 11,790 Other   65,993     61,054   1,579,791 1,500,899   Property and equipment 2,181,989 2,162,398 Accumulated depreciation   (1,222,782 )   (1,190,402 ) 959,207 971,996   Goodwill 2,683,352 2,669,810 Intangible assets less accumulated amortization 773,237 755,655 Assets held for sale 298 613 Insurance subsidiary investments 194,778 204,498 Deferred tax assets 100,313 104,130 Acquisition deposit - 18,489 Other   320,328     289,133   Total assets $ 6,611,304   $ 6,515,223   LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 176,663 $ 187,061 Salaries, wages and other compensation 424,058 404,925 Due to third party payors 32,785 36,251 Professional liability risks 65,418 64,099 Other accrued liabilities 242,162 394,246 Long-term debt due within one year   25,380     24,630   966,466 1,111,212   Long-term debt 3,358,297 3,133,312 Professional liability risks 271,974 263,273 Deferred credits and other liabilities 305,819 301,379   Equity: Stockholders' equity:

Common stock, $0.25 par value; authorized 175,000 shares; issued 85,171 shares - March 31, 2016 and 83,792 shares - December 31, 2015

21,293 20,948 Capital in excess of par value 1,728,784 1,737,747 Accumulated other comprehensive loss (5,454 ) (2,632 ) Accumulated deficit   (243,279 )   (256,209 ) 1,501,344 1,499,854 Noncontrolling interests   207,404     206,193   Total equity   1,708,748     1,706,047   Total liabilities and equity $ 6,611,304   $ 6,515,223                     KINDRED HEALTHCARE, INC. Condensed Consolidated Statement of Cash Flows (Unaudited) (In thousands)   Three months ended March 31, 2016 2015 Cash flows from operating activities: Net income (loss) $ 25,517 $ (138,012 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 40,783 39,077 Amortization of stock-based compensation costs 4,404 5,824 Amortization of deferred financing costs 3,567 3,062 Payment of capitalized lender fees related to debt issuance - (28,012 ) Provision for doubtful accounts 11,725 8,292 Deferred income taxes 11,496 (25,580 ) Impairment charges 7,788 6,726 Gain on divestiture of discontinued operations (262 ) - Other 303 1,997 Change in operating assets and liabilities: Accounts receivable (87,892 ) (31,656 ) Inventories and other assets (5,232 ) 53,022 Accounts payable (10,621 ) 465 Income taxes 73 (5,768 ) Due to third party payors (4,843 ) (15,419 ) Other accrued liabilities   (129,868 )   (13,620 ) Net cash used in operating activities   (133,062 )   (139,602 )   Cash flows from investing activities: Routine capital expenditures (18,106 ) (20,769 ) Development capital expenditures (10,019 ) (5,788 ) Acquisitions, net of cash acquired (26,339 ) (659,071 ) Acquisition deposits 18,489 195,000 Sale of assets 1,081 948 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 (32,841 ) (25,918 ) Sale of insurance subsidiary investments 30,890 22,029 Net change in insurance subsidiary cash and cash equivalents 9,958 (558 ) Net change in other investments (33,981 ) 24 Other   (1,919 )   5   Net cash provided by (used in) investing activities   (62,787 )   879,340     Cash flows from financing activities: Proceeds from borrowings under revolving credit 533,700 807,450 Repayment of borrowings under revolving credit (303,100 ) (610,050 ) Proceeds from issuance of term loan, net of discount - 199,000 Proceeds from other long-term debt 750 - Repayment of Gentiva debt - (1,177,363 ) Repayment of term loan (3,003 ) - Repayment of other long-term debt (280 ) (441 ) Payment of deferred financing costs (151 ) (2,538 ) Issuance of common stock in connection with employee benefit plans - 66 Payment of costs associated with issuance of common stock and tangible equity units - (915 ) Payment of dividend for mandatory redeemable preferred stock (2,801 ) (2,778 ) Dividends paid (10,068 ) (9,975 ) Contributions made by noncontrolling interests 4,368 - Distributions to noncontrolling interests (16,315 ) (11,019 ) Purchase of noncontrolling interests (1,000 ) - Other   73     1,162   Net cash provided by (used in) financing activities   202,173     (807,401 ) Change in cash and cash equivalents 6,324 (67,663 ) Cash and cash equivalents at beginning of period   98,758     164,188   Cash and cash equivalents at end of period $ 105,082   $ 96,525                           KINDRED HEALTHCARE, INC. Condensed Consolidated and Business Segment Data (a) (Unaudited) (In thousands, except per share amounts)   First First quarter 2015 Quarters Quarter % change v. First Second Third Fourth Year 2016 prior year Consolidated income statement data: Revenues $ 1,675,967 $ 1,833,475 $ 1,764,516 $ 1,780,949 $ 7,054,907 $ 1,837,971 9.7   Core EBITDAR $ 234,211 $ 261,800 $ 236,477 $ 247,839 $ 980,327 $ 246,834 5.4 Rent   91,199     95,528     95,436     96,934     379,097     97,517   6.9 Core EBITDA 143,012 166,272 141,041 150,905 601,230 149,317 4.4 Depreciation and amortization 38,935 38,625 39,329 40,362 157,251 40,681 4.5 Interest, net   44,346     56,140     56,008     55,664     212,158     57,245   29.1

Income from continuing operations before income taxes

59,731 71,507 45,704 54,879 231,821 51,391 (14.0 ) Provision for income taxes   22,466     25,721     15,298     13,758     77,243     16,546   (26.4 ) Income from continuing operations 37,265 45,786 30,406 41,121 154,578 34,845 (6.5 ) Noncontrolling interests   (8,847 )   (11,735 )   (9,900 )   (12,082 )   (42,564 )   (12,514 ) 41.4 Net income attributable to Kindred $ 28,418   $ 34,051   $ 20,506   $ 29,039   $ 112,014   $ 22,331   (21.4 )   Core diluted EPS $ 0.34 $ 0.39 $ 0.23 $ 0.33 $ 1.28 $ 0.25 (26.5 ) Adjusted core diluted EPS $ 0.43 $ 0.51 $ 0.33 $ 0.44 $ 1.70 $ 0.35 (18.6 ) Diluted shares 82,422 86,402 86,892 87,232 86,098 87,249 5.9   Revenues by segment: Hospital division $ 640,483 $ 627,206 $ 579,497 $ 593,593 $ 2,440,779 $ 643,299 0.4 Kindred at Home: Home health 300,867 427,820 424,054 425,759 1,578,500 430,035 42.9 Hospice   119,057     178,005     181,140     178,325     656,527     176,426   48.2 419,924 605,825 605,194 604,084 2,235,027 606,461 44.4 Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 151,564 152,544 149,435 155,579 609,122 165,774 9.4 RehabCare   252,595     236,791     219,518     206,582     915,486     204,248   (19.1 ) 404,159 389,335 368,953 362,161 1,524,608 370,022 (8.4 ) Nursing center division   274,308     273,870     270,510     273,387     1,092,075     272,227   (0.8 ) 1,738,874 1,896,236 1,824,154 1,833,225 7,292,489 1,892,009 8.8 Eliminations   (62,907 )   (62,761 )   (59,638 )   (52,276 )   (237,582 )   (54,038 ) (14.1 ) $ 1,675,967   $ 1,833,475   $ 1,764,516   $ 1,780,949   $ 7,054,907   $ 1,837,971   9.7   Core EBITDAR by segment: Hospital division $ 134,786 $ 131,532 $ 97,128 $ 117,675 $ 481,121 $ 135,495 0.5 Kindred at Home: Home health 46,798 72,917 68,155 68,826 256,696 65,803 40.6 Hospice   16,996     27,887     34,025     30,212     109,120     24,866   46.3 63,794 100,804 102,180 99,038 365,816 90,669 42.1 Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 44,564 44,531 42,141 45,098 176,334 47,870 7.4 RehabCare   16,493     14,681     14,544     11,858     57,576     11,987   (27.3 ) 61,057 59,212 56,685 56,956 233,910 59,857 (2.0 ) Nursing center division 36,963 40,461 35,923 36,601 149,948 30,100 (18.6 ) Support center   (62,389 )   (70,209 )   (55,439 )   (62,431 )   (250,468 )   (69,287 ) 11.1 $ 234,211   $ 261,800   $ 236,477   $ 247,839   $ 980,327   $ 246,834   5.4   Core EBITDAR margin by segment: Hospital division 21.0 21.0 16.8 19.8 19.7 21.1

0.1

Kindred at Home: Home health 15.6 17.0 16.1 16.2 16.3 15.3

(0.3

) Hospice 14.3 15.7 18.8 16.9 16.6 14.1

(0.2

) Kindred at Home 15.2 16.6 16.9 16.4 16.4 15.0

(0.2

) Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 29.4 29.2 28.2 29.0 28.9 28.9

(0.5

) RehabCare 6.5 6.2 6.6 5.7 6.3 5.9

(0.6

) Kindred Rehabilitation Services 15.1 15.2 15.4 15.7 15.3 16.2

1.1

Nursing center division 13.5 14.8 13.3 13.4 13.7 11.1

(2.4

) Consolidated 14.0 14.3 13.4 13.9 13.9 13.4

(0.6

)

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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) (In thousands, except statistics)                       First First quarter 2015 Quarters Quarter % change v. First Second Third Fourth Year 2016 prior year Hospital division: End of period data: Number of transitional care hospitals 97 96 95 95 95 Number of licensed beds 7,147 7,124 7,094 7,094 7,089 Revenue mix %: Medicare 56.8 55.2 57.1 57.3 56.6 57.8 Medicaid 5.5 5.3 5.3 5.1 5.3 4.2 Medicare Advantage 11.9 11.6 10.8 11.1 11.4 11.5 Medicaid Managed 4.7 5.6 6.1 6.2 5.6 5.6 Commercial insurance and other 21.1 22.3 20.7 20.3 21.1 20.9 Admissions: Medicare 8,775 8,267 7,976 8,169 33,187 8,919 1.6 Medicaid 610 610 556 520 2,296 463 (24.1 ) Medicare Advantage 1,555 1,352 1,212 1,304 5,423 1,453 (6.6 ) Medicaid Managed 643 675 646 612 2,576 733 14.0 Commercial insurance and other   1,868   1,815   1,763   1,701   7,147   1,871 0.2   13,451   12,719   12,153   12,306   50,629   13,439 (0.1 ) Patient days: Medicare 228,483 218,577 210,870 210,409 868,339 229,004 0.2 Medicaid 28,663 25,213 23,167 21,795 98,838 21,134 (26.3 ) Medicare Advantage 48,448 44,740 39,585 41,079 173,852 45,760 (5.5 ) Medicaid Managed 22,013 24,833 24,412 24,802 96,060 25,341 15.1 Commercial insurance and other   62,241   62,922   58,631   57,321   241,115   62,769 0.8   389,848   376,285   356,665   355,406   1,478,204   384,008 (1.5 ) Average length of stay: Medicare 26.0 26.4 26.4 25.8 26.2 25.7 (1.2 ) Medicaid 47.0 41.3 41.7 41.9 43.0 45.6 (3.0 ) Medicare Advantage 31.2 33.1 32.7 31.5 32.1 31.5 1.0 Medicaid Managed 34.2 36.8 37.8 40.5 37.3 34.6 1.2 Commercial insurance and other 33.3 34.7 33.3 33.7 33.7 33.5 0.6 Weighted average 29.0 29.6 29.3 28.9 29.2 28.6 (1.4 ) Revenues per admission: Medicare $ 41,483 $ 41,892 $ 41,451 $ 41,656 $ 41,620 $ 41,717 0.6 Medicaid 57,594 54,795 55,415 57,724 56,352 57,928 0.6 Medicare Advantage 48,908 53,578 51,495 50,680 51,077 51,080 4.4 Medicaid Managed 46,740 51,950 54,976 60,263 53,383 49,287 5.4 Commercial insurance and other 72,395 77,110 68,151 70,735 72,150 71,651 (1.0 ) Weighted average 47,616 49,312 47,683 48,236 48,209 47,868 0.5 Revenues per patient day: Medicare $ 1,593 $ 1,584 $ 1,568 $ 1,617 $ 1,591 $ 1,625 2.0 Medicaid 1,226 1,326 1,330 1,377 1,309 1,269 3.5 Medicare Advantage 1,570 1,619 1,577 1,609 1,593 1,622 3.3 Medicaid Managed 1,365 1,412 1,455 1,487 1,432 1,426 4.5 Commercial insurance and other 2,173 2,224 2,049 2,099 2,139 2,136 (1.7 ) Weighted average 1,643 1,667 1,625 1,670 1,651 1,675 1.9

Medicare case mix index (discharged patients only)

1.166 1.163 1.150 1.164 1.162 1.163 (0.3 ) Average daily census 4,332 4,135 3,877 3,863 4,050 4,220 (2.6 ) Occupancy % 69.2 66.1 62.2 62.2 64.9 68.0 (1.7 ) Same-hospital data: Revenues (a) $ 634,975 $ 622,018 $ 577,337 $ 594,091 $ 2,428,421 $ 643,413 1.3 Admissions: Medicare 8,652 8,172 7,932 8,169 32,925 8,919 3.1 Medicaid 602 608 556 520 2,286 463 (23.1 ) Medicare Advantage 1,546 1,348 1,212 1,304 5,410 1,453 (6.0 ) Medicaid Managed 640 670 644 612 2,566 733 14.5 Commercial insurance and other   1,840   1,797   1,762   1,701   7,100   1,871 1.7   13,280   12,595   12,106   12,306   50,287   13,439 1.2 Patient days: Medicare 225,992 216,230 209,662 210,466 862,350 229,004 1.3 Medicaid 28,458 25,060 23,141 21,795 98,454 21,134 (25.7 ) Medicare Advantage 48,276 44,548 39,585 41,079 173,488 45,760 (5.2 ) Medicaid Managed 21,933 24,673 24,280 24,783 95,669 25,341 15.5 Commercial insurance and other   61,715   62,462   58,625   57,325   240,127   62,769 1.7   386,374   372,973   355,293   355,448   1,470,088   384,008 (0.6 ) Total average length of stay 29.1 29.6 29.3 28.9 29.2 28.6 (1.7 ) Total revenues per patient day $ 1,643 $ 1,668 $ 1,625 $ 1,671 $ 1,652 $ 1,676 2.0

__________

(a) See reconciliation of same-hospital revenues to reported revenues for the Hospital Division on page 14.

    KINDRED HEALTHCARE, INC. Condensed Business Segment Data (Continued) (Unaudited) (In thousands, except statistics)                       First First quarter 2015 Quarters Quarter % change v. First Second Third Fourth Year 2016 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 Revenue mix %: Medicare 80.9 80.4 80.0 80.0 80.3 79.8 Medicaid 2.1 2.1 2.1 2.1 2.1 2.1 Commercial and other 7.3 7.9 8.2 8.5 8.1 8.4 Commercial paid at episodic rates 9.7 9.6 9.7 9.4 9.5 9.7 Episodic revenues ($ 000s) $ 308,317 $ 324,027 $ 319,820 $ 320,698 $ 1,272,862 $ 325,821 5.7 Total episodic admissions 69,936 67,808 66,753 66,157 270,654 71,426 2.1 Medicare episodic admissions 61,186 59,394 58,479 57,804 236,863 62,011 1.3 Total episodes 110,980 109,599 108,519 108,300 437,398 113,887 2.6 Episodes per admission 1.59 1.62 1.63 1.64 1.62 1.59 - Revenue per episode $ 2,778 $ 2,956 $ 2,947 $ 2,961 $ 2,910 $ 2,861 3.0 Hospice: Sites of service (at end of period) 190 185 181 175 177 Admissions 13,164 12,574 12,091 12,129 49,958 13,234 0.5 Average length of stay 95 93 101 100 97 92 (3.2 ) Patient days 1,150,841 1,190,604 1,211,291 1,185,330 4,738,066 1,183,908 2.9 Revenue per patient day $ 151 $ 150 $ 150 $ 150 $ 150 $ 149 (1.3 ) Average daily census 12,787 13,084 13,166 12,884 12,981 13,010 1.7

Community Care and other revenues (included in Home Health business segment)

$ 65,530 $ 67,647 $ 67,338 $ 67,684 $ 268,199 $ 66,305 1.2   Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services: Freestanding IRFs: End of period data: Number of IRFs 16 16 18 18 19 Number of licensed beds 829 829 919 919 969 Discharges (a) 3,806 3,927 3,941 4,317 15,991 4,448 16.9 Same-hospital discharges (a) 3,806 3,927 3,842 4,040 15,615 4,016 5.5 Occupancy % (a) 73.2 71.5 68.7 68.0 70.2 70.6 (3.6 ) Average length of stay (a) 13.7 13.1 13.2 12.7 13.2 13.2 (3.6 ) Revenue per discharge (a) $ 19,517 $ 19,325 $ 18,992 $ 18,640 $ 19,104 $ 19,731 1.1 Contract services: Sites of service (at end of period): Inpatient rehabilitation units 100 99 101 100 104 LTAC hospitals 120 120 119 119 119 Sub-acute units 8 8 7 7 7 Outpatient units   138   139   135   130   139   366   366   362   356   369   Revenue per site $ 211,151 $ 209,436 $ 206,041 $ 210,978 $ 837,606 $ 211,417 0.1   RehabCare: Sites of service (at end of period) 1,829 1,789 1,821 1,798 1,767 Revenue per site $ 138,106 $ 132,359 $ 120,548 $ 114,896 $ 505,909 $ 115,590 (16.3 )   Nursing center division: End of period data: Number of nursing centers 90 90 90 90 92 Number of licensed beds 11,535 11,535 11,535 11,535 11,815 Admissions (b) 10,376 9,831 9,558 9,237 39,002 9,815 (5.4 ) Medicare average length of stay (b) 28.9 28.9 28.5 28.4 28.7 28.2 (2.4 ) Patient days (b) 861,278 852,691 851,332 845,924 3,411,225 846,578 (1.7 ) Revenues per patient day (b) $ 319 $ 321 $ 318 $ 323 $ 320 $ 322 0.9 Average daily census (b) 9,570 9,370 9,254 9,195 9,346 9,303 (2.8 ) Occupancy % (b) 81.3 79.6 78.6 78.1 79.4 77.3 (4.9 )  

(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, 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 press 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 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 release to compute certain non-GAAP measurements for the three months ended March 31, 2016 and 2015 before certain charges or on a core and adjusted core basis, and on a same-hospital 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 believes the presentation of same-hospital revenues, which excludes the results from two hospitals that closed during 2015, 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. 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 revenues. The Company’s earnings release also includes financial measures referred to as operating income, or EBITDAR or core EBITDAR, and core earnings before interest, income taxes, depreciation and amortization (“core 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, 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. 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 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 for comparability to other companies that use similar measures. In addition, management uses core operating cash flows and core free cash flows 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. 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 operating performance. Reconciliations of net cash flows provided by operating activities to core operating cash flows and core free cash flows 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, 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 34.3% and 22.6% for the three months ended March 31, 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 composition of charges that are non-deductible for income tax purposes, including the litigation contingency expense.     Three months ended March 31, Detail of charges: 2016 2015 Litigation contingency expense ($1,910 ) ($95,000 ) Retirement and severance costs (1,582 ) (4,961 ) Home health and hospice closings (341 ) (1,619 ) Property and equipment impairment charges (7,788 ) - Business interruption settlements 1,138 - Research and development (863 ) - Development project cancellation and other restructuring costs - (1,027 ) Gentiva transaction and integration costs: Professional and consulting fees (1,048 ) (32,134 ) Severance and retention (555 ) (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 ) Lease termination (charged to rent expense) (251 ) - Other transaction costs   (518 )   (2,099 ) (13,718 ) (222,055 ) Income tax benefit   4,710     50,202   Charges net of income taxes (9,008 ) (171,853 ) Allocation to participating unvested restricted stockholders   133     -   Available to common stockholders   ($8,875 )   ($171,853 ) Weighted average diluted shares outstanding   87,249     79,575   Diluted earnings (loss) per common share related to charges   ($0.10 )   ($2.16 )   Reconciliation of income from continuing operations before charges: Amounts attributable to Kindred stockholders: Income from continuing operations before charges $ 22,331 $ 28,418 Charges net of income taxes   (9,008 )   (171,853 ) Reported income (loss) from continuing operations $ 13,323     ($143,435 )   Reconciliation of core diluted EPS from continuing operations: Diluted core EPS (a) $ 0.25 $ 0.34 Charges net of income taxes (0.10 ) (2.16 ) Other   -     0.02   Reported diluted earnings (loss) per common share from continuing operations $ 0.15     ($1.80 )

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

  87,249     82,422     Reconciliation of effective income tax rate before charges: Effective income tax rate before charges 32.2 % 37.6 % Impact of charges on effective income tax rate   -0.8 %   -20.5 % Reported effective income tax rate   31.4 %   17.1 %

__________

(a) For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.3 million and $0.5 million for the three months ended March 31, 2016 and 2015, 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 2015 Quarters Quarter Reconciliation of adjusted core earnings: First Second Third Fourth Year 2016

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

$ 28,418 $ 34,051 $ 20,506 $ 29,039 $ 112,014 $ 22,331 Add back non-cash expenses: Amortization of intangible assets 6,932 7,536 7,728 7,645 29,841 6,826 Amortization of stock-based compensation costs 3,141 6,687 3,194 4,778 17,800 3,746 Amortization of deferred financing costs   3,062   3,539   3,554     3,566   13,721     3,567 13,135 17,762 14,476 15,989 61,362 14,139 Income tax benefit related to non-cash expenses   5,169   6,989   5,696     6,292   24,146     5,564 Non-cash expenses, net of income taxes   7,966   10,773   8,780     9,697   37,216     8,575 Adjusted core earnings $ 36,384 $ 44,824 $ 29,286   $ 38,736 $ 149,230   $ 30,906   Reconciliation of diluted adjusted core earnings from continuing operations:

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

$ 0.34 $ 0.39 $ 0.23 $ 0.33 $ 1.28 $ 0.25 Non-cash expenses, net of income taxes   0.09   0.12   0.10     0.11   0.42     0.10 Adjusted diluted core EPS from continuing operations $ 0.43 $ 0.51 $ 0.33   $ 0.44 $ 1.70   $ 0.35  

Weighted average diluted shares used to compute adjusted core EPS

  82,422   86,402   86,892     87,232   86,098     87,249         A reconciliation of combined Kindred and Gentiva home health revenues (excluding community care) for each historical period follows:   First First quarter 2015 Quarters Quarter % change v. First Second Third Fourth Year 2016 prior year Kindred $ 254,965 $ 360,173 $ 356,716 $ 358,075 $ 1,329,929 $ 363,730 Gentiva   87,520   -   -   -     87,520   -   $ 342,485 $ 360,173 $ 356,716 $ 358,075   $ 1,417,449 $ 363,730   6.2         A reconciliation of same-hospital revenues to reported revenues for the Hospital Division for each historical period follows:   First First quarter 2015 Quarters Quarter % change v. First Second Third Fourth Year 2016 prior year Same-hospital revenues $ 634,975 $ 622,018 $ 577,337 $ 594,091 $ 2,428,421 $ 643,413 1.3 Two hospitals that closed during 2015 (a)   5,508   5,188   2,160   (498 )   12,358   (114 ) Reported revenues $ 640,483 $ 627,206 $ 579,497 $ 593,593   $ 2,440,779 $ 643,299   0.4  

__________

(a) One hospital closed during the second quarter of 2015 and one hospital closed during the third quarter of 2015.

    KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands, except per share amounts)                                   Three months ended March 31, 2016 Charges Gentiva Before Retirement Business transaction charges and Hospice interruption Litigation Impairment Research and and Other As ("core") severance closings settlements contingency charges development integration transaction Total reported Income from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 135,495 $ (924 ) $ - $ - $ - $ - $ - $ - $ - $ (924 ) $ 134,571   Kindred at Home: Home health 65,803 - - 1,138 - - - - - 1,138 66,941 Hospice   24,866     -     (341 )   -     -     -     -     -     -     (341 )   24,525     90,669     -     (341 )   1,138     -     -     -     -     -     797     91,466     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 (69,287 ) (658 ) - - - - (863 ) - - (1,521 ) (70,808 ) Litigation contingency expense - - - - (1,910 ) - - - - (1,910 ) (1,910 ) Impairment charges - - - - - (7,788 ) - - - (7,788 ) (7,788 ) Transaction costs   -     -     -     -     -     -     -     (1,603 )   (518 )   (2,121 )   (2,121 ) Operating income (EBITDAR) 246,834 (1,582 ) (341 ) 1,138 (1,910 ) (7,788 ) (863 ) (1,603 ) (518 ) (13,467 ) 233,367 Rent   (97,517 )   -     (251 )   -     -     -     -     -     -     (251 )   (97,768 ) EBITDA 149,317 (1,582 ) (592 ) 1,138 (1,910 ) (7,788 ) (863 ) (1,603 ) (518 ) (13,718 ) 135,599 Depreciation and amortization (40,681 ) - - - - - - - - - (40,681 ) Interest, net   (57,245 )   -     -     -     -     -     -     -     -     -     (57,245 )

Income from continuing operations before income taxes

51,391 (1,582 ) (592 ) 1,138 (1,910 ) (7,788 ) (863 ) (1,603 ) (518 ) (13,718 ) 37,673 Provision for income taxes   16,546     (543 )   (203 )   391     (656 )   (2,674 )   (296 )   (551 )   (178 )   (4,710 )   11,836   34,845 $ (1,039 ) $ (389 ) $ 747   $ (1,254 ) $ (5,114 ) $ (567 ) $ (1,052 ) $ (340 ) $ (9,008 ) 25,837 Noncontrolling interests   (12,514 )   (12,514 ) Income (loss) attributable to Kindred $ 22,331   $ 13,323     Diluted earnings (loss) per common share $ 0.25 $ 0.15

Diluted shares used in computing earnings per common share

87,249 87,249   Three months ended March 31, 2015 Charges Home health Development Gentiva Gentiva Before Retirement and project pre-closing transaction charges and hospice cancellation Litigation Impairment financing and Other As ("core") 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     Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 44,564 - - - - - - - - - 44,564 RehabCare   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 ) Impairment charges - - - - - (6,726 ) - - - (6,726 ) (6,726 ) Transaction costs   -     -     -     -     -     -     (6,005 )   (86,598 )   (2,099 )   (94,702 )   (94,702 ) 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 ) Income (loss) 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     KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands, except per share amounts)                             Three months ended June 30, 2015 Charges Hospital Development Gentiva Before and home project transaction charges health/hospice cancellation Litigation and Other As ("core") closings and other contingency integration transaction Total reported Income from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 131,532 $ (565 ) $ - $ - $ - $ - $ (565 ) $ 130,967   Kindred at Home: Home health 72,917 (588 ) - - - - (588 ) 72,329 Hospice   27,887     (1,649 )   -     -     -     -     (1,649 )   26,238     100,804     (2,237 )   -     -     -     -     (2,237 )   98,567     Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 44,531 - - - - - - 44,531 RehabCare   14,681     -     -     -     -     -     -     14,681     59,212     -     -     -     -     -     -     59,212     Nursing center division 40,461 - (584 ) - - - (584 ) 39,877   Support center (70,209 ) - - - - - - (70,209 ) Litigation contingency expense - - - (3,925 ) - - (3,925 ) (3,925 ) Transaction costs   -     -     -     -     (4,342 )   (874 )   (5,216 )   (5,216 ) Operating income (EBITDAR) 261,800 (2,802 ) (584 ) (3,925 ) (4,342 ) (874 ) (12,527 ) 249,273 Rent   (95,528 )   (671 )   -     -     (203 )   -     (874 )   (96,402 ) EBITDA 166,272 (3,473 ) (584 ) (3,925 ) (4,545 ) (874 ) (13,401 ) 152,871 Depreciation and amortization (38,625 ) - - - - - - (38,625 ) Interest, net   (56,140 )   -     -     -     -     -     -     (56,140 )

Income from continuing operations before income taxes

71,507 (3,473 ) (584 ) (3,925 ) (4,545 ) (874 ) (13,401 ) 58,106 Provision for income taxes   25,721     (368 )   (62 )   (416 )   (386 )   (93 )   (1,325 )   24,396   45,786 $ (3,105 ) $ (522 ) $ (3,509 ) $ (4,159 ) $ (781 ) $ (12,076 ) 33,710 Noncontrolling interests   (11,735 )   (11,735 ) Income attributable to Kindred $ 34,051   $ 21,975     Diluted earnings per common share $ 0.39 $ 0.25

Diluted shares used in computing earnings per common share

86,402 86,402   Three months ended September 30, 2015 Charges Hospital Gentiva Before Retirement and home transaction charges and health/hospice Litigation and Other As ("core") severance closings contingency integration transaction Total reported Income (loss) from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 97,128 $ (666 ) $ (479 ) $ - $ - $ - $ (1,145 ) $ 95,983   Kindred at Home: Home health 68,155 - (2,571 ) - - - (2,571 ) 65,584 Hospice   34,025     -     (318 )   -     -     -     (318 )   33,707     102,180     -     (2,889 )   -     -     -     (2,889 )   99,291     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 ) Transaction costs   -     -     -     -     (3,069 )   (777 )   (3,846 )   (3,846 ) Operating income (EBITDAR) 236,477 (666 ) (3,368 ) (31,462 ) (3,069 ) (777 ) (39,342 ) 197,135 Rent   (95,436 )   -     (808 )   -     -     -     (808 )   (96,244 ) EBITDA 141,041 (666 ) (4,176 ) (31,462 ) (3,069 ) (777 ) (40,150 ) 100,891 Depreciation and amortization (39,329 ) - - - - - - (39,329 ) Interest, net   (56,008 )   -     -     -     -     -     -     (56,008 )

Income from continuing operations before income taxes

45,704 (666 ) (4,176 ) (31,462 ) (3,069 ) (777 ) (40,150 ) 5,554 Provision for income taxes   15,298     (196 )   (1,225 )   (429 )   (697 )   (228 )   (2,775 )   12,523   30,406 $ (470 ) $ (2,951 ) $ (31,033 ) $ (2,372 ) $ (549 ) $ (37,375 ) (6,969 ) Noncontrolling interests   (9,900 )   (9,900 ) Income (loss) attributable to Kindred $ 20,506   $ (16,869 )   Diluted earnings (loss) per common share $ 0.23 $ (0.20 )

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

86,892 86,184     KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands, except per share amounts)                                     Three months ended December 31, 2015 Charges Hospital RehabCare Gentiva Before Retirement and home customer transaction charges and health/hospice contract Litigation Impairment and Other As ("core") severance closings litigation contingency charges integration transaction Total reported Income from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 117,675 $ (1,221 ) $ - $ - $ - $ - $ - $ - $ (1,221 ) $ 116,454   Kindred at Home: Home health 68,826 - (1,794 ) - - - - - (1,794 ) 67,032 Hospice   30,212     -     (1,544 )   -     -     -     -     -     (1,544 )   28,668     99,038     -     (3,338 )   -     -     -     -     -     (3,338 )   95,700     Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 45,098 (207 ) - - - - - - (207 ) 44,891 RehabCare   11,858     (112 )   -     (12,864 )   -     -     -     -     (12,976 )   (1,118 )   56,956     (319 )   -     (12,864 )   -     -     -     -     (13,183 )   43,773     Nursing center division 36,601 - - - - - - - - 36,601   Support center (62,431 ) (585 ) - - - - - - (585 ) (63,016 ) Litigation contingency expense - - - - (8,261 ) - - (8,261 ) (8,261 ) Impairment charges - - - - - (18,031 ) - - (18,031 ) (18,031 ) Transaction costs   -     -     -     -     -     -     (4,189 )   (1,178 )   (5,367 )   (5,367 ) Operating income (EBITDAR) 247,839 (2,125 ) (3,338 ) (12,864 ) (8,261 ) (18,031 ) (4,189 ) (1,178 ) (49,986 ) 197,853 Rent   (96,934 )   -     (889 )   -     -     -     -     -     (889 )   (97,823 ) EBITDA 150,905 (2,125 ) (4,227 ) (12,864 ) (8,261 ) (18,031 ) (4,189 ) (1,178 ) (50,875 ) 100,030 Depreciation and amortization (40,362 ) - - - - - - - - (40,362 ) Interest, net   (55,664 )   -     -     -     -     -     -     -     -     (55,664 )

Income from continuing operations before income taxes

54,879 (2,125 ) (4,227 ) (12,864 ) (8,261 ) (18,031 ) (4,189 ) (1,178 ) (50,875 ) 4,004 Provision (benefit) for income taxes   13,758     (836 )   (1,663 )   (5,062 )   (50,329 )   (6,205 )   (1,487 )   (156 )   (65,738 )   (51,980 ) 41,121 $ (1,289 ) $ (2,564 ) $ (7,802 ) $ 42,068   $ (11,826 ) $ (2,702 ) $ (1,022 ) $ 14,863   55,984 Noncontrolling interests   (12,082 )   (12,082 ) Income attributable to Kindred $ 29,039   $ 43,902     Diluted earnings per common share $ 0.33 $ 0.50

Diluted shares used in computing earnings per common share

87,232 87,232   Year ended December 31, 2015 Charges Hospital Development RehabCare Gentiva Gentiva Before Retirement and home project customer pre-closing transaction charges and health/hospice cancellation contract Litigation Impairment financing and Other As ("core") severance closings and other litigation contingency charges costs integration transaction Total reported Income (loss) from continuing operations: Operating income (loss) (EBITDAR): Hospital division $ 481,121 $ (1,887 ) $ (1,044 ) $ (675 ) $ - $ - $ - $ - $ - $ - $ (3,606 ) $ 477,515   Kindred at Home: Home health 256,696 - (6,055 ) - - - - - - - (6,055 ) 250,641 Hospice   109,120     -     (4,028 )   -     -     -     -     -     -     -     (4,028 )   105,092     365,816     -     (10,083 )   -     -     -     -     -     -     -     (10,083 )   355,733     Kindred Rehabilitation Services: Kindred Hospital Rehabilitation Services 176,334 (207 ) - - - - - - - - (207 ) 176,127 RehabCare   57,576     (897 )   -     -     (12,864 )   -     -     -     -     -     (13,761 )   43,815     233,910     (1,104 )   -     -     (12,864 )   -     -     -     -     -     (13,968 )   219,942     Nursing center division 149,948 - - (584 ) - - - - - - (584 ) 149,364   Support center (250,468 ) (4,761 ) - - - - - - - - (4,761 ) (255,229 ) Litigation contingency expense - - - - - (138,648 ) - - - - (138,648 ) (138,648 ) Impairment charges - - - - - - (24,757 ) - - - (24,757 ) (24,757 ) Transaction costs   -     -     -     -     -     -     -     (6,005 )   (98,198 )   (4,928 )   (109,131 )   (109,131 ) Operating income (EBITDAR) 980,327 (7,752 ) (11,127 ) (1,259 ) (12,864 ) (138,648 ) (24,757 ) (6,005 ) (98,198 ) (4,928 ) (305,538 ) 674,789 Rent   (379,097 )   -     (2,368 )   (352 )   -     -     -     -     (792 )   -     (3,512 )   (382,609 ) EBITDA 601,230 (7,752 ) (13,495 ) (1,611 ) (12,864 ) (138,648 ) (24,757 ) (6,005 ) (98,990 ) (4,928 ) (309,050 ) 292,180 Depreciation and amortization (157,251 ) - - - - - - - - - - (157,251 ) Interest, net   (212,158 )   -     -     -     -     -     -     (17,431 )   -     -     (17,431 )   (229,589 )

Income (loss) from continuing operations before income taxes

231,821 (7,752 ) (13,495 ) (1,611 ) (12,864 ) (138,648 ) (24,757 ) (23,436 ) (98,990 ) (4,928 ) (326,481 ) (94,660 ) Provision for income taxes   77,243     (3,063 )   (5,333 )   (637 )   (5,084 )   (51,965 )   (8,890 )   (9,261 )   (34,266 )   (1,541 )   (120,040 )   (42,797 ) 154,578 $ (4,689 ) $ (8,162 ) $ (974 ) $ (7,780 ) $ (86,683 ) $ (15,867 ) $ (14,175 ) $ (64,724 ) $ (3,387 ) $ (206,441 ) (51,863 ) Noncontrolling interests   (42,564 )   (42,564 ) Income (loss) attributable to Kindred $ 112,014   $ (94,427 )   Diluted earnings (loss) per common share $ 1.28 $ (1.12 )

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

86,098 84,558     KINDRED HEALTHCARE, INC. Reconciliation of Non-GAAP Measurements to GAAP Results (Continued) (Unaudited) (In thousands)                 Three months ended March 31, 2016 2015   Reconciliation of net cash flows provided by operating activities to free cash flows: Net cash flows used in operating activities ($133,062 ) ($139,602 )

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 5,379 82,340 Business interruption settlements (1,138 ) - Ventas, Inc. lease termination fee - 40,000 Capitalized lender fees related to debt refinancing - 28,012 Other debt refinancing costs (expensed) - 27,001 Other lease termination fees - 353 Litigation 128,419     -   132,660     177,706  

Net cash flows provided by (used in) operating activities excluding certain items before income tax benefit of certain payments

(402 ) 38,104 Benefit of reduced income tax payments resulting from certain payments (a) -     -  

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

(402 ) 38,104   Less routine capital expenditures (18,106 ) (20,769 ) Less distributions to noncontrolling interests (16,315 )   (11,019 ) Free cash flows excluding certain items (core free cash flows) ($34,823 ) $ 6,316      

__________

(a) No tax deposits were due in first quarter of 2016 or 2015.

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