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Kindred Healthcare Reports First Quarter 2017 Results

May 3, 2017

Consolidated Revenues of $1.77 Billion, GAAP Income from Continuing Operations of $9 Million(1), GAAP Diluted Loss Per Share from Continuing Operations of $0.07(1) and EBITDAR of $202 Million(2) in the First Quarter

Core EBITDAR of $218 Million(3) and Core Diluted EPS from Continuing Operations of $0.04(3) in the First Quarter, including $0.03 EPS negative impact from 2017 Change in GAAP(4)

Solid Start to Year - Company Reaffirms Full Year Outlook for 2017 and 2018

LOUISVILLE, Ky.--(BUSINESS WIRE)--May 3, 2017-- Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today announced its operating results for the first quarter ended March 31, 2017.

Benjamin A. Breier, President and Chief Executive Officer of the Company, commented, “We are pleased to report progress in the first quarter of 2017, as evidenced by strong growth in our home health, hospice and inpatient rehabilitation businesses and continued advancement by our Hospital Division in its second full quarter under long-term acute care (“LTAC”) patient criteria. Furthermore, we are reaffirming our expectations for 2017 and 2018.”

Mr. Breier continued, “In the first quarter, we delivered very encouraging sequential and year-over-year improvement in our Kindred at Home Division, with strong same-store volume growth in both our home health and hospice businesses. Combined with a sequential reduction of labor costs in the first quarter, we returned to historic growth levels and delivered results in line with our 2017 expectations.”

“Our Hospital Division continued to advance our multi-pronged LTAC patient criteria mitigation strategy in the first quarter. Our successful execution is reflected in the exceptional growth of the Hospital Division’s same-hospital non-government admissions, a key element of our LTAC mitigation strategy that helped offset light Medicare volumes. We also continue to make progress in reducing patients’ length of stay through our efforts to eliminate avoidable clinical delays. We remain confident that our mitigation strategies will offset at least half of the expected run-rate impact of LTAC patient criteria by year-end,” remarked Mr. Breier.

Mr. Breier added, “Since announcing our transformative initiative to divest our skilled nursing center business, our Nursing Center Division has maintained high standards of care while delivering stable operating results. We continue to make progress on our nursing center divestiture and remain focused on completing an accretive, value-enhancing transaction by year end.”

Mr. Breier concluded, “On behalf of Kindred’s entire leadership team, I am proud to share that our recently completed 2017 Quality, Innovation and Social Responsibility Report demonstrates another year of outperforming quality benchmarks and success in sending more patients home with better outcomes. We continue to deliver innovative post-acute solutions while building and deepening our relationships with key partners. Our clinical excellence, national reach, and innovative use of technology and data enable the development of new products that create value for all of our stakeholders, including our shareholders, payors and partners.”

____________

(1) Results reflect after-tax costs of $9.8 million or $0.11 per diluted share related to restructuring costs and impairment charges.
(2) Results reflect pre-tax costs of $15.4 million related to restructuring costs and impairment charges. As used herein, “EBITDAR” means earnings before interest, income taxes, depreciation, amortization and rent. See reconciliation of generally accepted accounting principles (“GAAP”) results to non-GAAP results beginning on page 13.
(3) See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.
(4) Effective January 1, 2017, GAAP requires book to tax differences associated with stock-based compensation to be recorded to the provision for income taxes in the statement of operations rather than the statement of stockholders’ equity, which resulted in a $2.3 million or $0.03 per diluted share negative Core impact for the first quarter of 2017. There is no income tax provision impact (on a net provision basis) under GAAP reporting due to the deferred tax valuation allowance.
   

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

First Quarter Consolidated Results(1):

  • Consolidated revenues were $1.77 billion, a 3.8% year-over-year decrease, primarily attributable to the impact of the transition to LTAC patient criteria and the sale or closure of 15 LTAC hospitals in the second half of 2016. GAAP income from continuing operations was $8.8 million compared to $25.8 million in the same period a year ago, primarily due to the impact of LTAC patient criteria and an increase in restructuring costs. Core EBITDAR declined to $217.8 million compared to $245.2 million in the same period of 2016, primarily due to LTAC patient criteria and the sale or closure of 15 LTAC hospitals noted above.
  • GAAP operating cash flows were a deficit of $92.6 million compared to a deficit of $130.4 million for the same period a year ago. Core operating cash flows were a deficit of $71.7 million compared to $1.0 million for the same period a year ago. Core free cash flows were a deficit of $109.4 million compared to a deficit of $33.4 million in the same period a year ago. GAAP operating cash flows improved in the first quarter of 2017 primarily due to a reduction in litigation settlements, including a $126 million litigation payment made in the first quarter of 2016. The decrease in core operating and core free cash flows was primarily attributable to an additional payroll of approximately $40 million, LTAC patient criteria and an increase in net working capital in the first quarter of 2017 compared to the prior year period.
  • GAAP diluted loss per share from continuing operations was $0.07 as compared to GAAP diluted earnings per share (“EPS”) from continuing operations of $0.15 a year ago. This decrease was primarily attributable to LTAC patient criteria and an increase in restructuring charges in the first quarter of 2017. Core diluted EPS from continuing operations was $0.04 as compared to $0.24 a year ago. The decline in core diluted EPS was primarily attributable to LTAC patient criteria and a $2.3 million, or $0.03 per diluted share, increase in the provision for income taxes due to an accounting rule change effective January 1, 2017 that requires book to tax differences associated with stock-based compensation to be recorded to the provision for income taxes in the statement of operations rather than the statement of stockholders’ equity.

First Quarter Segment Results(1)(2):

Our Kindred at Home Division, which comprises the Company’s home health, hospice, community care and home-based primary care businesses, recorded first quarter revenues that increased 3.9% over the prior year period to $630.2 million. On a same-store basis, home health episodic admissions grew 4.3% (5.4% increase excluding the impact of the extra leap year day in the first quarter of 2016 (“leap year adjusted”)) and hospice admissions grew 3.9% (5.1% increase leap year adjusted) over the prior year period. Both Segment EBITDAR and Core EBITDAR were relatively flat in the first quarter of 2017 compared to the prior year period. On a sequential basis for both Segment EBITDAR and Core EBITDAR, home health direct labor costs per visit declined 3.7% and hospice direct labor costs per patient day were relatively flat in the first quarter of 2017 compared to the fourth quarter of 2016.

Kindred’s Hospital Division first quarter revenues declined to $540.3 million from $643.3 million in the prior year period primarily due to the impact of LTAC patient criteria, a 1.8% decline in same-hospital admissions (0.7% decline leap year adjusted) compared to last year and the sale or closure of 15 LTAC hospitals in the second half of 2016, which contributed approximately $63 million of revenue in the first quarter of 2016. Same-hospital non-government admissions increased 9.1% (10.3% increase leap year adjusted) in the first quarter of 2017 compared to the prior year period. Sequentially, same-hospital admissions increased 4.6%, non-government admissions increased 8.7% and same-hospital census improved 5.0% as compared to the fourth quarter of 2016. For the first quarter of 2017, approximately 86% (90% excluding Texas LTAC hospitals) of same-hospital revenue came from compliant patients, which include all patients except Medicare site neutral patients, down from approximately 89% (92% excluding Texas LTAC hospitals) in the fourth quarter of 2016. Importantly, same-hospital compliant admissions grew 3.9% to 8,401 in the first quarter of 2017 from 8,087 compliant admissions in the fourth quarter of 2016. Segment EBITDAR and Core EBITDAR in the Hospital Division for the first quarter both declined to $91.2 million from $135.5 million a year ago, primarily due to the impact of LTAC patient criteria, increases in labor and other costs, and the sale or closure of 15 LTAC hospitals noted above, which contributed approximately $8 million of EBITDAR in the first quarter of 2016.

____________

(1) See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.
(2) See same-hospital and full segment data on pages 8 through 12.
   

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

Kindred Rehabilitation Services (“KRS”) Division, which comprises the Company’s hospital-based rehabilitation segment, increased first quarter revenues by 1.8% to $376.8 million as compared to $370.0 million in the prior year period. Segment EBITDAR and Core EBITDAR for KRS both increased 3.6% to $62.0 million as compared to $59.9 million in the prior year period. The Kindred Hospital Rehabilitation Services segment achieved strong revenue growth of 6.7% to $176.8 million, and Segment EBITDAR and Core EBITDAR both grew to $51.4 million, an increase of 7.4% compared to the same period a year ago, as a result of the development of new inpatient rehabilitation facilities (“IRFs”) and a 2.3% increase (3.4% increase leap year adjusted) in same-IRF discharges. RehabCare revenues declined 2.1% to $200.0 million for the first quarter, while first quarter Segment EBITDAR and Core EBITDAR both decreased to $10.6 million as compared to $12.0 million, all relative to the prior year period, primarily due to the reduction in sites of service, declines in customer census and average wage rate pressure. Sequentially, RehabCare Segment EBITDAR and Core EBITDAR grew from $5.6 million in the fourth quarter of 2016 to $10.6 million in the first quarter of 2017.

Kindred’s Nursing Center Division first quarter revenues were up slightly to $272.8 million, due to a 2.2% increase in revenue per patient day partially offset by an overall average daily census decline of 0.9% and Medicare length of stay contraction of 5.3%, both as compared to the prior year period. Segment EBITDAR and Core EBITDAR in the first quarter both increased 5.4% to $31.7 million from $30.1 million a year ago, as a result of an increase in revenue per patient day and improved cost efficiencies.

2017 Outlook(3)

All forward-looking non-GAAP financial measures used to provide “2017 Outlook” and “2018 Outlook” (collectively “Outlook”) are provided only on a non-GAAP basis. This is due to the inherent difficulty of forecasting the timing or amount of items that would be included in the most directly comparable forward-looking GAAP financial measures. As a result, reconciliation of the forward-looking non-GAAP financial measures to GAAP financial measures is not available without unreasonable effort and the Company is unable to assess the probable significance of the unavailable information.

The Company’s Outlook does not take into account the effect of any reimbursement changes, any further acquisitions or divestitures, and any further issuances or repurchases of common stock.

For the 2017 Outlook, Kindred reaffirms:

  • Annual revenues of $7.2 billion, with a range of $7.1 billion to $7.3 billion.
  • Core EBITDAR of $930 million, with a range of $910 million to $950 million.
  • Core diluted EPS from continuing operations of $0.55, with a range of $0.40 to $0.70 per share(4).

For the second quarter of 2017, Kindred expects Core EBITDAR of approximately $225 million to $240 million, and Core diluted EPS from continuing operations of approximately $0.10 to $0.20.

The 2017 Outlook assumes the Company’s skilled nursing facility business is operated for the entire year. For accounting purposes, this business may qualify as a discontinued operation prior to the completion of the divestiture. At the time the skilled nursing facility business qualifies as a discontinued operation, the Company will be required to recast its historical operating results from continuing operations to exclude the business for all periods presented. Kindred will also update its 2017 Outlook during the quarter in which the recasting occurs.

____________

(1) See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.
(2) See same-hospital and full segment data on pages 8 through 12.
(3) See Forward-Looking Statements beginning on page 13.
(4) The EPS estimate is based upon an estimated weighted average annual diluted share count for 2017 of 88.5 million shares.
   

2018 Outlook(1)

Kindred’s planned divestiture of its skilled nursing facilities will significantly impact the Company’s reported results, reducing revenues and expenses, and is expected to increase profitability.

For the 2018 Outlook, Kindred reaffirms:

  • Annual revenues of approximately $6.3 billion.
  • Core EBITDAR of approximately $840 million.
  • Core diluted EPS from continuing operations of approximately $0.80(2).

Please note that all of these items represent midpoint estimates that the Company expects to update over time, and these estimates assume that Kindred completes its skilled nursing facilities exit prior to the start of 2018.

Cash Flow

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 in other quarters of the year, were in line with our expectations, and, as noted above, included the impact of an extra payroll of approximately $40 million compared to the prior year quarter, LTAC patient criteria and typical fluctuations in working capital. As previously discussed, once we complete the sale of our skilled nursing facility business and with our continued progress in 2017 mitigating LTAC patient criteria, we expect Kindred’s cash flow in 2018 to return to historical levels of roughly $300 million per year in core operating cash flows. Core free cash flows, which have been approximately half of core operating cash flows, will benefit from reductions in capital expenditures and noncontrolling interests that will result from our exit from the skilled nursing facility business.”

Conference Call

As previously announced, investors and the general public may access a live webcast of the first quarter 2017 conference call through a link on the Company’s website at http://investors.kindredhealthcare.com. The conference call will be held on May 4 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 4 by dialing (719) 457-0820, access code: 8925579. The replay will be available through May 14.

Forward-Looking Statements and Non-GAAP Reconciliations

See page 13 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(3). At March 31, 2017, Kindred through its subsidiaries had approximately 100,100 employees providing healthcare services in 2,624 locations in 46 states, including 82 LTAC hospitals, 19 inpatient rehabilitation hospitals, 91 nursing centers, 19 sub-acute units, 619 Kindred at Home home health, hospice and non-medical home care sites of service, 101 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,693 non-affiliated sites of service. Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for eight years, Kindred’s mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com. You can also follow us on Twitter and Facebook.

____________

(1) See Forward-Looking Statements beginning on page 13.
(2) The EPS estimate is based upon an estimated weighted average annual diluted share count for 2018 of 90.0 million shares.
(3) Revenues for the last twelve months ended March 31, 2017.
   
 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
                       
                Three months ended
                March 31,
                2017     2016
                       
Revenues     $ 1,768,396       $ 1,837,971  
                       
Salaries, wages and benefits       931,880         926,214  
Supplies         90,186         99,416  
Rent             95,612         97,517  
Other operating expenses       205,483         214,701  
General and administrative expenses       323,236         353,826  
Other income       (228 )       (952 )
Litigation contingency expense       -         1,910  
Impairment charges       1,157         7,788  
Restructuring charges       16,172         1,952  
Depreciation and amortization       34,960         40,681  
Interest expense       59,334         57,499  
Investment income       (527 )       (254 )
                  1,757,265         1,800,298  
Income from continuing operations before income taxes       11,131         37,673  
Provision for income taxes       2,302         11,836  
  Income from continuing operations       8,829         25,837  
Discontinued operations, net of income taxes:            
  Income (loss) from operations       387         (582 )
  Gain on divestiture of operations       -         262  
    Income (loss) from discontinued operations       387         (320 )
      Net income       9,216         25,517  
(Earnings) loss attributable to noncontrolling interests:            
  Continuing operations       (14,965 )       (12,514 )
  Discontinued operations       1         (2 )
                  (14,964 )       (12,516 )
          Income (loss) attributable to Kindred     $ (5,748 )     $ 13,001  
                       
Amounts attributable to Kindred stockholders:            
  Income (loss) from continuing operations     $ (6,136 )     $ 13,323  
  Income (loss) from discontinued operations       388         (322 )
          Net income (loss)     $ (5,748 )     $ 13,001  
                       
Earnings (loss) per common share:            
  Basic:              
    Income (loss) from continuing operations     $ (0.07 )     $ 0.15  
    Discontinued operations:            
      Income (loss) from operations       -         -  
      Gain on divestiture of operations       -         -  
        Income (loss) from discontinued operations       -         -  
          Net income (loss)     $ (0.07 )     $ 0.15  
                       
  Diluted:              
    Income (loss) from continuing operations     $ (0.07 )     $ 0.15  
    Discontinued operations:            
      Income (loss) from operations       -         -  
      Gain on divestiture of operations       -         -  
        Income (loss) from discontinued operations       -         -  
          Net income (loss)     $ (0.07 )     $ 0.15  
                       
Shares used in computing earnings (loss) per common share:            
  Basic           87,085         86,590  
  Diluted         87,085         87,249  
                       
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,
              2017     2016
ASSETS            
Current assets:            
  Cash and cash equivalents     $ 116,913       $ 137,061  
  Insurance subsidiary investments       110,872         108,966  
  Accounts receivable less allowance for loss       1,246,855         1,172,078  
  Inventories       24,701         24,673  
  Income taxes       7,776         10,067  
  Other       66,899         63,693  
                1,574,016         1,516,538  
                     
Property and equipment       2,014,453         2,026,430  
Accumulated depreciation       (1,158,911 )       (1,147,844 )
                855,542         878,586  
                     
Goodwill       2,427,074         2,427,074  
Intangible assets less accumulated amortization       783,020         790,235  
Insurance subsidiary investments       201,115         204,929  
Other         303,842         295,362  
      Total assets     $ 6,144,609       $ 6,112,724  
LIABILITIES AND EQUITY            
Current liabilities:            
  Accounts payable     $ 179,151       $ 203,925  
  Salaries, wages and other compensation       378,805         397,486  
  Due to third party payors       34,481         41,320  
  Professional liability risks       66,073         65,284  
  Other accrued liabilities       241,387         269,736  
  Long-term debt due within one year       24,828         27,977  
                924,725         1,005,728  
                     
Long-term debt       3,344,511         3,215,062  
Professional liability risks       300,773         295,311  
Deferred tax liabilities       202,867         201,808  
Deferred credits and other liabilities       354,277         353,294  
                     
Equity:              
  Stockholders' equity:            
   

Common stock, $0.25 par value; authorized 175,000 shares; issued 85,691 shares - March 31, 2017 and 85,166 shares - December 31, 2016

      21,423         21,291  
    Capital in excess of par value       1,700,748         1,710,231  
    Accumulated other comprehensive income       3,444         1,573  
    Accumulated deficit       (926,292 )       (920,544 )
                799,323         812,551  
  Noncontrolling interests       218,133         228,970  
      Total equity       1,017,456         1,041,521  
      Total liabilities and equity     $ 6,144,609       $ 6,112,724  
                   
                     
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
                     
              Three months ended
              March 31,
              2017     2016
Cash flows from operating activities:            
  Net income     $ 9,216       $ 25,517  
  Adjustments to reconcile net income to net cash used in operating activities:            
    Depreciation expense       30,300         33,957  
    Amortization of intangible assets       4,660         6,826  
    Amortization of stock-based compensation costs       3,132         4,404  
    Amortization of deferred financing costs       4,132         3,567  
   

Payment of lender fees related to debt amendment

      (5,403 )       -  
    Provision for doubtful accounts       11,218         11,725  
    Deferred income taxes       1,227         11,496  
    Impairment charges       1,157         7,788  
    Gain on divestiture of discontinued operations       -         (262 )
    Other       6,050         303  
    Change in operating assets and liabilities:            
      Accounts receivable       (85,833 )       (87,892 )
      Inventories and other assets       (4,457 )       (5,232 )
      Accounts payable       (24,497 )       (10,621 )
      Income taxes       2,291         146  
      Due to third party payors       (6,839 )       (4,843 )
      Other accrued liabilities       (38,992 )       (127,219 )
        Net cash used in operating activities       (92,638 )       (130,340 )
                     
Cash flows from investing activities:            
  Routine capital expenditures       (11,941 )       (18,106 )
  Development capital expenditures       (5,439 )       (10,019 )
  Acquisitions, net of cash acquired       (3,150 )       (26,339 )
  Acquisition deposits       -         18,489  
  Sale of assets       -         1,081  
  Purchase of insurance subsidiary investments       (22,308 )       (32,841 )
  Sale of insurance subsidiary investments       18,699         30,890  
  Net change in insurance subsidiary cash and cash equivalents       6,412         9,958  
  Net change in other investments       29         (33,981 )
  Other       154         (1,919 )
        Net cash used in investing activities       (17,544 )       (62,787 )
                     
Cash flows from financing activities:            
  Proceeds from borrowings under revolving credit       478,600         533,700  
  Repayment of borrowings under revolving credit       (343,400 )       (303,100 )
  Proceeds from other long-term debt       -         750  
  Repayment of term loan       (3,509 )       (3,003 )
  Repayment of other long-term debt       (284 )       (280 )
  Payment of deferred financing costs       (79 )       (151 )
  Payment of dividend for mandatory redeemable preferred stock       (3,010 )       (2,801 )
  Dividends paid       (10,228 )       (10,068 )
  Contributions made by noncontrolling interests       -         4,368  
  Distributions to noncontrolling interests       (25,801 )       (16,315 )
  Purchase of noncontrolling interests       -         (1,000 )
  Payroll tax payments for equity awards issuance       (2,255 )       (2,649 )
        Net cash provided by financing activities       90,034         199,451  
Change in cash and cash equivalents       (20,148 )       6,324  
Cash and cash equivalents at beginning of period       137,061         98,758  
Cash and cash equivalents at end of period     $ 116,913       $ 105,082  
             
                                           
KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data
(Unaudited)
(In thousands, except per share amounts)
                                           
                                      First   First quarter
                  2016 Quarters       Quarter   % change v.
                  First   Second   Third   Fourth   Year   2017   prior year
  Condensed consolidated income statement data:                            
  GAAP presentation:                            
    Revenues     $ 1,837,971     $ 1,842,070     $ 1,793,527     $ 1,745,951     $ 7,219,519     $ 1,768,396     (3.8 )
    Operating expenses     1,604,855       1,591,898       1,986,221       1,558,329       6,741,303       1,567,886     (2.3 )
    Rent           97,517       100,093       98,415       94,509       390,534       95,612     (2.0 )
    Depreciation and amortization     40,681       40,257       40,382       38,082       159,402       34,960     (14.1 )
    Interest, net     57,245       57,559       58,052       58,629       231,485       58,807     2.7  
   

Income (loss) from continuing operations before income taxes

    37,673       52,263       (389,543 )     (3,598 )     (303,205 )     11,131     (70.5 )
    Provision (benefit) for income taxes     11,836       17,882       281,752       2,860       314,330       2,302     (80.6 )
      Income (loss) from continuing operations     25,837       34,381       (671,295 )     (6,458 )     (617,535 )     8,829     (65.8 )
    Noncontrolling interests     (12,514 )     (13,522 )     (14,305 )     (13,261 )     (53,602 )     (14,965 )   19.6  
      Net income (loss) attributable to Kindred   $ 13,323     $ 20,859     $ (685,600 )   $ (19,719 )   $ (671,137 )   $ (6,136 )   (146.1 )
                                           
    Diluted EPS   $ 0.15     $ 0.23     $ (7.89 )   $ (0.23 )   $ (7.73 )   $ (0.07 )   (146.7 )
    Diluted shares     87,249       87,500       86,869       86,904       86,800       87,085     (0.2 )
                                           
  Core presentation (a):                            
    EBITDAR     $ 245,209     $ 267,543     $ 217,596     $ 214,928     $ 945,276     $ 217,839     (11.2 )
    Rent           97,517       100,093       98,143       94,509       390,262       95,612     (2.0 )
    Provision for income taxes     16,013       21,335       3,901       3,262       44,511       9,837     (38.6 )
    Net income attributable to Kindred     21,239       33,761       2,525       7,185       64,710       3,658     (82.8 )
                                           
    Core diluted EPS   $ 0.24     $ 0.38     $ 0.03     $ 0.08     $ 0.72     $ 0.04     (83.3 )
    Diluted shares     87,249       87,500       87,529       87,641       87,491       87,744     0.6  
                                           
  Revenues by segment:                            
    Kindred at Home:                            
      Home health   $ 430,035     $ 438,556     $ 449,958     $ 444,073     $ 1,762,622     $ 450,831     4.8  
      Hospice       176,426       185,641       188,575       186,161       736,803       179,378     1.7  
                    606,461       624,197       638,533       630,234       2,499,425       630,209     3.9  
    Hospital division     643,299       633,695       575,323       530,746       2,383,063       540,280     (16.0 )
    Kindred Rehabilitation Services:                            
      Kindred Hospital Rehabilitation Services     165,774       169,815       169,018       170,041       674,648       176,812     6.7  
      RehabCare     204,248       196,075       192,480       191,489       784,292       200,031     (2.1 )
                    370,022       365,890       361,498       361,530       1,458,940       376,843     1.8  
    Nursing center division     272,227       272,395       270,259       273,055       1,087,936       272,845     0.2  
                    1,892,009       1,896,177       1,845,613       1,795,565       7,429,364       1,820,177     (3.8 )
    Eliminations     (54,038 )     (54,107 )     (52,086 )     (49,614 )     (209,845 )     (51,781 )   (4.2 )
                  $ 1,837,971     $ 1,842,070     $ 1,793,527     $ 1,745,951     $ 7,219,519     $ 1,768,396     (3.8 )
                                           

____________

(a)

See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

                                           
KINDRED HEALTHCARE, INC.
Condensed Consolidated and Business Segment Data (Continued)
(Unaudited)
(In thousands, except statistics)
                                           
                                      First   First quarter
                  2016 Quarters       Quarter   % change v.
                  First   Second   Third   Fourth   Year   2017   prior year
  Segment EBITDAR:                            
    Kindred at Home:                            
      Home health   $ 66,941     $ 76,030     $ 75,073     $ 61,487     $ 279,531     $ 63,750     (4.8 )
      Hospice       24,866       31,329       31,326       28,805       116,326       27,581     10.9  
                    91,807       107,359       106,399       90,292       395,857       91,331     (0.5 )
    Hospital division     135,495       125,932       82,752       91,892       436,071       91,169     (32.7 )
    Kindred Rehabilitation Services:                            
      Kindred Hospital Rehabilitation Services     47,870       50,469       49,470       49,314       197,123       51,403     7.4  
      RehabCare     11,987       13,269       9,248       5,578       40,082       10,609     (11.5 )
                    59,857       63,738       58,718       54,892       237,205       62,012     3.6  
    Nursing center division     30,100       33,662       29,922       33,658       127,342       31,718     5.4  
                                           
  Core EBITDAR by segment (a):                            
    Kindred at Home:                            
      Home health   $ 65,803     $ 75,859     $ 75,073     $ 61,185     $ 277,920     $ 63,750     (3.1 )
      Hospice       24,866       31,329       31,326       27,668       115,189       27,581     10.9  
                    90,669       107,188       106,399       88,853       393,109       91,331     0.7  
    Hospital division     135,495       125,932       82,752       91,262       435,441       91,169     (32.7 )
    Kindred Rehabilitation Services:                            
      Kindred Hospital Rehabilitation Services     47,870       50,469       49,470       49,314       197,123       51,403     7.4  
      RehabCare     11,987       13,269       9,248       5,578       40,082       10,609     (11.5 )
                    59,857       63,738       58,718       54,892       237,205       62,012     3.6  
    Nursing center division     30,100       33,662       29,922       33,658       127,342       31,718     5.4  
    Support center     (69,945 )     (62,625 )     (58,463 )     (53,350 )     (244,383 )     (58,391 )   (16.5 )
    Litigation contingency expense     (885 )     (180 )     -       -       (1,065 )     -      
    Transaction costs     (82 )     (172 )     (1,732 )     (387 )     (2,373 )     -      
                  $ 245,209     $ 267,543     $ 217,596     $ 214,928     $ 945,276     $ 217,839     (11.2 )
                                           
  EBITDAR margin by segment:                            
    Kindred at Home:                            
      Home health     15.6       17.3       16.7       13.8       15.9       14.1     (1.5 )
      Hospice       14.1       16.9       16.6       15.5       15.8       15.4     1.3  
        Kindred at Home     15.1       17.2       16.7       14.3       15.8       14.5     (0.6 )
    Hospital division     21.1       19.9       14.4       17.3       18.3       16.9     (4.2 )
    Kindred Rehabilitation Services:                            
      Kindred Hospital Rehabilitation Services     28.9       29.7       29.3       29.0       29.2       29.1     0.2  
      RehabCare     5.9       6.8       4.8       2.9       5.1       5.3     (0.6 )
        Kindred Rehabilitation Services     16.2       17.4       16.2       15.2       16.3       16.5     0.3  
    Nursing center division     11.1       12.4       11.1       12.3       11.7       11.6     0.5  
                                           
  Core EBITDAR margin by segment (a):                            
    Kindred at Home:                            
      Home health     15.3       17.3       16.7       13.8       15.8       14.1     (1.2 )
      Hospice       14.1       16.9       16.6       14.9       15.6       15.4     1.3  
        Kindred at Home     15.0       17.2       16.7       14.1       15.7       14.5     (0.5 )
    Hospital division     21.1       19.9       14.4       17.2       18.3       16.9     (4.2 )
    Kindred Rehabilitation Services:                            
      Kindred Hospital Rehabilitation Services     28.9       29.7       29.3       29.0       29.2       29.1     0.2  
      RehabCare     5.9       6.8       4.8       2.9       5.1       5.3     (0.6 )
        Kindred Rehabilitation Services     16.2       17.4       16.2       15.2       16.3       16.5     0.3  
    Nursing center division     11.1       12.4       11.1       12.3       11.7       11.6     0.5  
    Consolidated     13.3       14.5       12.1       12.3       13.1       12.3     (1.0 )
                                           

____________

(a)

See reconciliation of GAAP results to non-GAAP results beginning on page 13. During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

                                   
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
                                   
                              First   First quarter
          2016 Quarters       Quarter   % change v.
          First   Second   Third   Fourth   Year   2017   prior year
Kindred at Home:                          
  Home Health:                          
    Sites of service (at end of period)   384     384     395     390         379    
    Revenue mix %:                          
      Medicare   79.8     79.3     78.1     77.9     78.8     76.7    
      Medicaid   2.1     2.1     2.5     1.9     2.1     1.7    
      Commercial and other   8.4     8.2     8.6     10.6     8.9     11.5    
      Commercial paid at episodic rates   9.7     10.4     10.8     9.6     10.2     10.1    
    Episodic revenues ($ 000s) $ 325,821   $ 332,193   $ 332,562   $ 323,398   $ 1,313,974   $ 326,881   0.3  
    Total episodic admissions   71,426     70,212     69,219     67,501     278,358     73,270   2.6  
    Same-store total episodic admissions   65,485     64,326     63,529     62,132     255,472     68,278   4.3  
    Medicare episodic admissions   62,011     60,730     59,823     59,540     242,104     62,404   0.6  
    Total episodes   113,887     113,278     113,256     111,164     451,585     114,964   0.9  
    Episodes per admission   1.59     1.61     1.64     1.65     1.62     1.57   (1.3 )
    Revenue per episode $ 2,861   $ 2,933   $ 2,936   $ 2,909   $ 2,910   $ 2,843   (0.6 )
  Hospice:                          
    Sites of service (at end of period)   177     177     185     183         180    
    Admissions   13,234     13,149     12,916     12,660     51,959     13,649   3.1  
    Same-store admissions   12,387     12,365     12,104     11,946     48,802     12,870   3.9  
    Average length of stay   92     91     98     100     95     96   4.3  
    Patient days   1,183,908     1,238,584     1,277,125     1,246,152     4,945,769     1,193,061   0.8  
    Average daily census   13,010     13,611     13,882     13,545     13,513     13,256   1.9  
    Revenue per patient day $ 149   $ 150   $ 148   $ 149   $ 149   $ 150   0.7  
  Community Care and other revenues (included                        
    in Home Health business segment) ($ 000s) $ 66,305   $ 68,229   $ 75,978   $ 74,875   $ 285,387   $ 74,095   11.7  
                                   
Hospital division:                          
  End of period data:                          
    Number of transitional care hospitals   95     97     94     82         82    
    Number of licensed beds   7,089     7,067     6,890     6,107         6,107    
  Revenue mix %:                          
    Medicare   57.8     55.5     54.6     53.5     55.5     52.8    
    Medicaid   4.2     4.2     4.0     4.5     4.2     3.9    
    Medicare Advantage   11.5     12.0     12.1     11.0     11.7     12.2    
    Medicaid Managed   5.6     6.3     7.3     8.0     6.7     9.1    
    Commercial insurance and other   20.9     22.0     22.0     23.0     21.9     22.0    
  Admissions:                          
    Medicare   8,919     8,253     7,861     7,351     32,384     7,529   (15.6 )
    Medicaid   463     386     375     336     1,560     354   (23.5 )
    Medicare Advantage   1,453     1,382     1,327     1,210     5,372     1,354   (6.8 )
    Medicaid Managed   733     768     861     787     3,149     851   16.1  
    Commercial insurance and other   1,871     1,807     1,727     1,488     6,893     1,614   (13.7 )
            13,439     12,596     12,151     11,172     49,358     11,702   (12.9 )
  Patient days:                          
    Medicare   229,004     219,013     202,482     186,290     836,789     187,738   (18.0 )
    Medicaid   21,134     19,409     16,781     12,181     69,505     13,334   (36.9 )
    Medicare Advantage   45,760     47,697     43,241     37,526     174,224     41,020   (10.4 )
    Medicaid Managed   25,341     27,267     28,534     29,275     110,417     32,713   29.1  
    Commercial insurance and other   62,769     63,009     59,856     54,148     239,782     53,695   (14.5 )
            384,008     376,395     350,894     319,420     1,430,717     328,500   (14.5 )
  Average length of stay:                          
    Medicare   25.7     26.5     25.8     25.3     25.8     24.9   (3.1 )
    Medicaid   45.6     50.3     44.7     36.3     44.6     37.7   (17.3 )
    Medicare Advantage   31.5     34.5     32.6     31.0     32.4     30.3   (3.8 )
    Medicaid Managed   34.6     35.5     33.1     37.2     35.1     38.4   11.0  
    Commercial insurance and other   33.5     34.9     34.7     36.4     34.8     33.3   (0.6 )
    Weighted average   28.6     29.9     28.9     28.6     29.0     28.1   (1.7 )
  Revenues per admission:                          
    Medicare $ 41,717   $ 42,579   $ 39,945   $ 38,602   $ 40,800   $ 37,867   (9.2 )
    Medicaid   57,928     69,797     61,338     70,333     64,356     60,091   3.7  
    Medicare Advantage   51,080     55,105     52,363     48,387     51,826     48,555   (4.9 )
    Medicaid Managed   49,287     51,696     48,631     54,238     50,932     57,736   17.1  
    Commercial insurance and other   71,651     77,193     73,515     82,066     75,819     73,750   2.9  
    Weighted average   47,868     50,309     47,348     47,507     48,281     46,170   (3.5 )
  Revenues per patient day:                          
    Medicare $ 1,625   $ 1,605   $ 1,551   $ 1,523   $ 1,579   $ 1,519   (6.5 )
    Medicaid   1,269     1,388     1,371     1,940     1,444     1,595   25.7  
    Medicare Advantage   1,622     1,597     1,607     1,560     1,598     1,603   (1.2 )
    Medicaid Managed   1,426     1,456     1,467     1,458     1,453     1,502   5.3  
    Commercial insurance and other   2,136     2,214     2,121     2,255     2,180     2,217   3.8  
    Weighted average   1,675     1,684     1,640     1,662     1,666     1,645   (1.8 )
                                   
  Medicare case mix index (discharged patients only)   1.163     1.179     1.172     1.153     1.169     1.172   0.8  
  Average daily census   4,220     4,136     3,814     3,472     3,909     3,650   (13.5 )
  Occupancy %   68.0     67.5     61.6     64.1     65.1     67.6   (0.6 )
                             
                                       
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                                       
                                  First   First quarter
              2016 Quarters       Quarter   % change v.
              First   Second   Third   Fourth   Year   2017   prior year
  Same-hospital data (a):                            
    End of period data:                            
      Number of transitional care hospitals     78     78     78     78         78    
      Number of licensed beds     5,960     5,960     5,960     5,960         5,960    
    Revenues   $ 563,201   $ 557,989   $ 508,608   $ 521,244   $ 2,151,042   $ 528,994   (6.1 )
    Revenue mix %:                            
      Medicare     58.0     55.4     54.1     53.0     55.2     52.3    
      Medicaid     3.7     3.9     3.7     4.5     3.9     4.1    
      Medicare Advantage     11.3     11.7     12.3     11.0     11.6     12.1    
      Medicaid Managed     5.8     6.6     7.8     8.2     7.1     9.3    
      Commercial insurance and other     21.2     22.4     22.1     23.3     22.2     22.2    
    Admissions:                            
      Medicare     7,802     7,209     6,882     7,132     29,025     7,319   (6.2 )
      Medicaid     395     342     343     336     1,416     354   (10.4 )
      Medicare Advantage     1,219     1,148     1,165     1,187     4,719     1,315   7.9  
      Medicaid Managed     632     702     792     787     2,913     849   34.3  
      Commercial insurance and other     1,567     1,528     1,462     1,456     6,013     1,566   (0.1 )
                11,615     10,929     10,644     10,898     44,086     11,403   (1.8 )
    Patient days:                            
      Medicare     200,004     190,955     177,079     180,794     748,832     182,442   (8.8 )
      Medicaid     14,670     13,547     12,085     12,175     52,477     13,587   (7.4 )
      Medicare Advantage     38,617     40,835     38,462     36,900     154,814     39,924   3.4  
      Medicaid Managed     22,421     24,893     26,698     29,284     103,296     32,701   45.8  
      Commercial insurance and other     53,613     53,821     51,772     53,391     212,597     52,473   (2.1 )
                329,325     324,051     306,096     312,544     1,272,016     321,127   (2.5 )
    Average length of stay:                            
      Medicare     25.6     26.5     25.7     25.3     25.8     24.9   (2.7 )
      Medicaid     37.1     39.6     35.2     36.2     37.1     38.4   3.5  
      Medicare Advantage     31.7     35.6     33.0     31.1     32.8     30.4   (4.1 )
      Medicaid Managed     35.5     35.5     33.7     37.2     35.5     38.5   8.5  
      Commercial insurance and other     34.2     35.2     35.4     36.7     35.4     33.5   (2.0 )
      Weighted average     28.4     29.7     28.8     28.7     28.9     28.2   (0.7 )
    Revenues per admission:                            
      Medicare   $ 41,876   $ 42,883   $ 39,959   $ 38,720   $ 40,896   $ 37,829   (9.7 )
      Medicaid     53,232     62,945     54,765     70,288     59,996     61,194   15.0  
      Medicare Advantage     51,955     57,112     53,701     48,440     52,757     48,690   (6.3 )
      Medicaid Managed     51,511     52,419     50,027     54,286     52,076     57,871   12.3  
      Commercial insurance and other     76,305     81,779     77,047     83,278     79,565     74,905   (1.8 )
      Weighted average     48,489     51,056     47,784     47,829     48,792     46,391   (4.3 )
    Revenues per patient day:                            
      Medicare   $ 1,634   $ 1,619   $ 1,553   $ 1,527   $ 1,585   $ 1,518   (7.1 )
      Medicaid     1,433     1,589     1,554     1,940     1,619     1,594   11.2  
      Medicare Advantage     1,640     1,606     1,627     1,558     1,608     1,604   (2.2 )
      Medicaid Managed     1,452     1,478     1,484     1,459     1,469     1,502   3.4  
      Commercial insurance and other     2,230     2,322     2,176     2,271     2,250     2,235   0.2  
      Weighted average     1,710     1,722     1,662     1,668     1,691     1,647   (3.7 )
                                       
    Average daily census     3,619     3,561     3,327     3,397     3,475     3,568   (1.4 )

____________

(a)

All historical statistics have been adjusted to present the ongoing hospital division portfolio excluding four hospitals acquired during the second quarter of 2016. See reconciliation of same-hospital revenues to reported revenues for the Hospital Division on page 16.

   
                                       
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
                                       
                                  First   First quarter
              2016 Quarters       Quarter   % change v.
              First   Second   Third   Fourth   Year   2017   prior year
  Kindred Rehabilitation Services:                            
    Kindred Hospital Rehabilitation Services:                            
      Freestanding IRFs:                            
        End of period data:                            
          Number of IRFs     19     19     19     19         19    
          Number of licensed beds     969     969     969     995         995    
        Discharges (a)     4,448     4,646     4,644     4,671     18,409     4,775   7.4  
        Same-hospital discharges (a)     4,295     4,535     4,546     4,538     17,914     4,393   2.3  
        Occupancy % (a)     70.6     70.6     68.8     66.5     69.1     71.4   1.1  
        Average length of stay (a)     13.2     12.9     12.7     12.6     12.8     12.8   (3.0 )
        Revenue per discharge (a)   $ 19,731   $ 19,318   $ 19,599   $ 19,486   $ 19,531   $ 20,097   1.9  
      Contract services:                            
        Sites of service (at end of period):                            
          Inpatient rehabilitation units     104     105     104     102         101    
          LTAC hospitals     119     121     120     119         119    
          Sub-acute units     7     7     7     5         7    
          Outpatient units     139     138     139     132         129    
                369     371     370     358         356    
                                       
        Revenue per site   $ 211,417   $ 215,798   $ 210,810   $ 220,733   $ 858,758   $ 227,100   7.4  
                                       
    RehabCare:                            
      Sites of service (at end of period)     1,767     1,759     1,754     1,718         1,703    
      Revenue per site   $ 115,590   $ 111,470   $ 109,738   $ 111,460   $ 448,258   $ 117,458   1.6  
                                       
  Nursing center division:                            
    End of period data:                            
      Number of nursing centers     92     92     91     91         91    
      Number of licensed beds     11,815     11,815     11,568     11,568         11,568    
    Admissions (b)     9,815     9,480     9,698     9,409     38,402     9,787   (0.3 )
    Medicare average length of stay (b)     28.2     28.4     27.4     26.7     27.7     26.7   (5.3 )
    Patient days (b)     846,578     842,681     845,037     846,361     3,380,657     829,970   (2.0 )
    Revenues per patient day (b)   $ 322   $ 323   $ 320   $ 323   $ 322   $ 329   2.2  
    Average daily census (b)     9,303     9,260     9,185     9,200     9,237     9,222   (0.9 )
    Occupancy % (b)     77.3     76.7     77.5     77.9     77.4     78.1   1.0  

____________

(a)

Excludes non-consolidating IRF.

(b)

Excludes managed facilities.

   
 
Forward-Looking Statements
 

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

 
Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results, performance, or plans to differ materially from any future results, performance or plans expressed or implied by such forward-looking statements. These statements involve risks, uncertainties, and other factors detailed from time to time in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission (the "SEC").
 
Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
 
Non-GAAP Measures
 
In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures. The use of these non-GAAP measures are not intended to replace the presentation of the Company’s financial results in accordance with GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the following pages of this earnings release.
 
During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures as a result of the Company’s continued review of its presentation of non-GAAP measures in response to the guidance issued by the SEC in May 2016. As updated, the Company’s core non-GAAP measures, including core net income attributable to Kindred, core EBITDAR, core diluted EPS, core operating cash flows and core free cash flows, no longer exclude (1) transaction, integration, research and development, and litigation contingency expenses that are not individually material, (2) non-restructuring related facility closing charges, and (3) non-executive or non-restructuring related severance, retirement and retention costs. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.
 
EBITDAR: The Company defines EBITDAR as earnings before interest, income taxes, depreciation, amortization and rent, and believes that the presentation of EBITDAR is useful to the investors because creditors, securities analysts and investors use EBITDAR as a measure of earnings used to compare the performance of companies in the healthcare industry before consideration of the capital structure of fixed assets and financing costs, which can vary significantly among companies.
 
For each of the Company’s segments, EBITDAR is a measure of performance used by the Company’s chief operating decision makers in accordance with “Accounting Standard Codification 280—Segment Reporting.” In this context, the Company defines segment EBITDAR as earnings before interest, income taxes, depreciation, amortization, and rent, excluding litigation contingency expense, impairment charges, restructuring charges, transaction costs, and the allocation of support center overhead.
 
Non-GAAP Measures (Continued)
 
Core Operating Results: The Company calculates core operating results, including core net income attributable to Kindred, core EBITDAR and core diluted EPS, by excluding charges related to impairments, business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs. The Company believes that the presentation of core operating results provides additional information to investors to facilitate the comparison between periods by excluding certain charges that are not representative of its ongoing operations due to the materiality and nature of the charges. The Company’s management uses core net income attributable to Kindred, core EBITDAR and core diluted EPS as measures of operational performance that are meaningful to investors, and for the measurement of internal incentive compensation goals, in addition to other measures. The Company uses these measures to assess the relative performance and attainment of internal incentive compensation goals of its operating divisions, as well as the employees that operate these businesses. In addition, the Company believes these measures are important, because securities analysts and investors use these measures to compare the Company’s performance to other companies in the healthcare industry.
 
Same-Hospital Revenues: The same-hospital revenues are calculated by excluding from the Company's Hospital Division revenues the results from four hospitals acquired in 2016, 15 hospitals sold in 2016, three hospitals that closed during 2016, and two hospitals that closed during 2015. The Company believes the presentation of same-hospital revenues provides investors, equity analysts and others with useful information regarding the performance of the Company's hospital operations that are comparable for the periods presented.
 
For EBITDAR, core net income attributable to Kindred, and core EBITDAR, the Company believes that income (loss) from continuing operations is the most comparable GAAP measure. For core diluted EPS, the Company believes that GAAP diluted earnings (loss) per share from continuing operations is the most comparable GAAP measure. Readers of the Company’s financial information should consider income (loss) from continuing operations and diluted earnings (loss) per share from continuing operations as important measures of the Company’s financial performance, because they provide the most complete measures of its performance. For same-hospital revenues, the Company believes that reported hospital segment revenues is the most comparable GAAP measure. Readers of the Company’s financial information should consider reported hospital segment revenues as an important measure of the Company’s Hospital Division financial performance because it provides the most complete measure of its performance. Operating results presented on a core basis, as well as a same-hospital basis, should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance.
 
Also in this earnings release, the Company provides the financial measures of operating cash flows and free cash flows excluding certain items, which the Company refers to as core operating cash flows and core free cash flows, respectively.
 
Core Operating Cash Flows: The Company defines core operating cash flows as operating cash flows excluding payments related to business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, net of income tax benefits. The Company believes that core operating cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core operating cash flows to evaluate consolidated operating performance and in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.
 
Core Free Cash Flows: The Company defines core free cash flows as operating cash flows excluding payments related to business interruption settlements, restructuring charges, debt amendment costs, executive or restructuring-related severance, retirement and retention costs, restructuring-related facility closing charges, and material transaction, integration, litigation, and research and development costs, net of income tax benefits but including routine capital expenditures and distributions to noncontrolling interests. The Company believes that core free cash flows provide important information to investors for comparability to other companies that use similar measures. Management uses core free cash flows in making decisions related to acquisitions, development capital expenditures, dividends, long-term debt repayments and other uses.
 
The Company recognizes that core operating cash flows and core free cash flows are non-GAAP measures and are not intended to replace the presentation of the Company’s cash flows in accordance with GAAP. For core operating cash flows and core free cash flows, the Company believes net cash flows provided by operating activities is the most comparable GAAP measure. Readers of the Company’s financial information should consider net cash flows provided by operating activities as an important measure because it provides the most complete measure of cash provided by operating activities. Core operating cash flows and core free cash flows should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of the Company’s cash flows provided by operating activities.
 
                   
  KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures
(Unaudited)
(In thousands, except per share amounts and statistics)
                   
In addition to the results provided in accordance with GAAP, the Company has provided information in this earnings release to compute certain non-GAAP measures for the three months ended March 31, 2017 and 2016 before certain charges or on a core basis. The charges that were excluded from core operating results are denoted in the tables below.
                   

The income tax benefit associated with the excluded charges, including the deferred tax valuation allowance for the three months ended March 31, 2017, was calculated using an effective income tax rate of 43.5% and 34.5% for the three months ended March 31, 2017 and 2016, respectively. The difference in the effective income tax rate compared to the same prior year period is primarily attributable to the deferred tax valuation allowance.

                   
                   
              Three months ended
              March 31,
              2017   2016
  Reconciliation of income from continuing operations before charges:        
                   
  As reported:        
    Income (loss) from continuing operations attributable to Kindred     ($6,136 )   $ 13,323  
    Diluted income (loss) per common share from continuing operations     ($0.07 )   $ 0.15  
    Weighted average diluted shares outstanding     87,085       87,249  
                   
  Detail of charges:        
    Restructuring charges:        
      Facility/branch divestitures and closings     ($5,487 )     ($341 )
      Retention and severance costs     (8,548 )     (924 )
      Transaction costs     (232 )     (436 )
                (14,267 )     (1,701 )
      Lease termination costs (charged to rent restructuring charges)     (1,905 )     (251 )
                   
    Impairment charges     (1,157 )     (7,788 )
    Research and development     -       (863 )
    Litigation contingency expense     -       (1,025 )
    Business interruption settlements     -       1,138  
    Gentiva transaction costs:        
      Professional and consulting fees     -       (1,048 )
      Severance and retention     -       (555 )
                (17,329 )     (12,093 )
    Income tax benefit     6,819       4,177  
    Deferred tax valuation allowance     716       -  
    Charges net of income taxes     (9,794 )     (7,916 )
    Allocation to participating unvested restricted stockholders     -       117  
    Available to common stockholders     ($9,794 )     ($7,799 )
                   
    Diluted loss per common share related to charges     ($0.11 )     ($0.09 )
                   
    Weighted average diluted shares outstanding     87,744       87,249  
                   
  Core:            
    Income from continuing operations attributable to Kindred before charges   $ 3,658     $ 21,239  
    Diluted earnings per common share from continuing operations before charges (a)   $ 0.04     $ 0.24  
   

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

    87,744       87,249  
                   
  Reconciliation of effective income tax rate before charges:        
    Effective income tax rate before charges     34.6 %     32.2 %
    Impact of charges on effective income tax rate     -13.9 %     -0.8 %
    Reported effective income tax rate     20.7 %     31.4 %

____________

(a)

For purposes of computing diluted earnings per common share before charges, income from continuing operations before charges was reduced by $0.1 million and $0.3 million for the three months ended March 31, 2017 and 2016, respectively, for the allocation of income to participating unvested restricted stockholders.

                                     
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands)
                                     
                                     
  Home health revenues (excluding community care) for each historical period follows:
                                     
                                First   First quarter
            2016 Quarters       Quarter   % change v.
            First   Second   Third   Fourth   Year   2017   prior year
  Kindred   $ 363,730     $ 370,327     $ 373,980     $ 369,198     $ 1,477,235     $ 376,736     3.6  
                                     
                                     
                                     
  A reconciliation of reported revenues to same-hospital revenues for the Hospital Division for each historical period follows:
                                     
                                First   First quarter
            2016 Quarters       Quarter   % change v.
            First   Second   Third   Fourth   Year   2017   prior year
  Reported revenues   $ 643,299     $ 633,695     $ 575,323     $ 530,746     $ 2,383,063     $ 540,280     (16.0 )
  Hospitals acquired during 2016 (a)     -       (2,836 )     (10,655 )     (9,958 )     (23,449 )     (11,717 )    
  Hospitals sold during 2016 (b)     (71,941 )     (64,084 )     (47,098 )     732       (182,391 )     449      
  Hospitals closed during 2016 (c)     (8,271 )     (8,864 )     (8,908 )     (183 )     (26,226 )     (32 )    
  Hospitals closed during 2015 (d)     114       78       (54 )     (93 )     45       14      
  Same-hospital revenues   $ 563,201     $ 557,989     $ 508,608     $ 521,244     $ 2,151,042     $ 528,994     (6.1 )

____________

(a)

Four hospitals acquired during the second quarter of 2016.

(b)

Three hospitals sold during the second quarter of 2016 and 12 hospitals sold during the fourth quarter of 2016.

(c)

Three hospitals closed during the third quarter of 2016.

(d)

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

     
                                                   
  KINDRED HEALTHCARE, INC.
  Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
  (Unaudited)
  (In thousands, except per share amounts)
                                                   
                                                   
                  Three months ended March 31, 2017            
                      Charges                
                              Deferred                    
                              tax       Before            
                  As   Impairment   Restructuring   valuation       charges            
                  reported   charges   charges   allowance   Total   ("core") (a)            
  Income (loss) from continuing operations:                                    
  Segment EBITDAR:                                    
    Kindred at Home:                                    
      Home health   $ 63,750     $ -     $ -   $ -     $ -   $ 63,750              
      Hospice     27,581       -       -     -       -     27,581              
                    91,331       -       -     -       -     91,331              
                                                   
    Hospital division     91,169       -       -     -       -     91,169              
                                                   
    Kindred Rehabilitation Services:                                    
      Kindred Hospital Rehabilitation Services     51,403       -       -     -       -     51,403              
      RehabCare     10,609       -       -     -       -     10,609              
                    62,012       -       -     -       -     62,012              
                                                   
    Nursing center division     31,718       -       -     -       -     31,718              
                                                   
    Support center     (58,391 )     -       -     -       -     (58,391 )            
    Impairment charges     (1,157 )     1,157       -     -       1,157     -              
    Restructuring charges     (14,267 )     -       14,267     -       14,267     -              
        EBITDAR     202,415       1,157       14,267     -       15,424     217,839              
  Rent             (95,612 )     -       -     -       -     (95,612 )            
  Restructuring charges - rent     (1,905 )     -       1,905     -       1,905     -              
  Depreciation and amortization     (34,960 )     -       -     -       -     (34,960 )            
  Interest, net     (58,807 )     -       -     -       -     (58,807 )            
 

Income from continuing operations before income taxes

    11,131       1,157       16,172     -       17,329     28,460              
  Provision for income taxes     2,302       455       6,364     716       7,535     9,837              
                    8,829     $ 702     $ 9,808   $ (716 )   $ 9,794     18,623              
  Noncontrolling interests     (14,965 )                     (14,965 )            
    Income (loss) attributable to Kindred   $ (6,136 )                   $ 3,658              
                                                   
  Diluted earnings (loss) per common share   $ (0.07 )                   $ 0.04              
 

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

    87,085                       87,744              
                                                   
                  Three months ended March 31, 2016
                      Charges    
                                          Gentiva        
                      Business                   transaction       Before
                  As   interruption   Litigation   Impairment   Research and   Restructuring   and       charges
                  reported   settlements   contingency   charges   development   charges   integration   Total   ("core") (a)
  Income from continuing operations:                                    
  Segment EBITDAR:                                    
    Kindred at Home:                                    
      Home health   $ 66,941     $ (1,138 )   $ -   $ -     $ -   $ -     $ -   $ (1,138 )   $ 65,803  
      Hospice     24,866       -       -     -       -     -       -     -       24,866  
                    91,807       (1,138 )     -     -       -     -       -     (1,138 )     90,669  
                                                   
    Hospital division     135,495       -       -     -       -     -       -     -       135,495  
                                                   
    Kindred Rehabilitation Services:                                    
      Kindred Hospital Rehabilitation Services     47,870       -       -     -       -     -       -     -       47,870  
      RehabCare     11,987       -       -     -       -     -       -     -       11,987  
                    59,857       -       -     -       -     -       -     -       59,857  
                                                   
    Nursing center division     30,100       -       -     -       -     -       -     -       30,100  
                                                   
    Support center     (70,808 )     -       -     -       863     -       -     863       (69,945 )
    Litigation contingency expense     (1,910 )     -       1,025     -       -     -       -     1,025       (885 )
    Impairment charges     (7,788 )     -       -     7,788       -     -       -     7,788       -  
    Restructuring charges     (1,701 )     -       -     -       -     1,701       -     1,701       -  
    Transaction costs     (1,685 )     -       -     -       -     -       1,603     1,603       (82 )
        EBITDAR     233,367       (1,138 )     1,025     7,788       863     1,701       1,603     11,842       245,209  
  Rent             (97,517 )     -       -     -       -     -       -     -       (97,517 )
  Restructuring charges - rent     (251 )     -       -     -       -     251       -     251       -  
  Depreciation and amortization     (40,681 )     -       -     -       -     -       -     -       (40,681 )
  Interest, net     (57,245 )     -       -     -       -     -       -     -       (57,245 )
 

Income from continuing operations before income taxes

    37,673       (1,138 )     1,025     7,788       863     1,952       1,603     12,093       49,766  
  Provision for income taxes     11,836       (393 )     354     2,690       298     674       554     4,177       16,013  
                    25,837     $ (745 )   $ 671   $ 5,098     $ 565   $ 1,278     $ 1,049   $ 7,916       33,753  
  Noncontrolling interests     (12,514 )                                 (12,514 )
    Income attributable to Kindred   $ 13,323                                 $ 21,239  
                                                   
  Diluted earnings per common share   $ 0.15                                 $ 0.24  
 

Diluted shares used in computing earnings per common share

    87,249                                   87,249  

____________

         

(a)

During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

                     
                                                       
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
                                                       
                                                       
                  Three months ended June 30, 2016
                      Charges    
                                              Gentiva        
                      Business                       transaction       Before
                  As   interruption   Litigation   Impairment   Research and   Debt   Restructuring   and       charges
                  reported   settlements   contingency   charges   development   amendment   charges   integration   Total   ("core") (a)
  Income from continuing operations:                                        
  Segment EBITDAR:                                        
    Kindred at Home:                                        
      Home health   $ 76,030     $ (171 )   $ -     $ -     $ -   $ -     $ -     $ -     $ (171 )   $ 75,859  
      Hospice     31,329       -       -       -       -     -       -       -       -       31,329  
                    107,359       (171 )     -       -       -     -       -       -       (171 )     107,188  
                                                       
    Hospital division     125,932       -       -       -       -     -       -       -       -       125,932  
                                                       
    Kindred Rehabilitation Services:                                        
      Kindred Hospital Rehabilitation Services     50,469       -       -       -       -     -       -       -       -       50,469  
      RehabCare     13,269       -       -       -       -     -       -       -       -       13,269  
                    63,738       -       -       -       -     -       -       -       -       63,738  
                                                       
    Nursing center division     33,662       -       -       -       -     -       -       -       -       33,662  
                                                       
    Support center     (66,804 )     -       -       -       3,076     1,103       -       -       4,179       (62,625 )
    Litigation contingency expense     (930 )     -       750       -       -     -       -       -       750       (180 )
    Impairment charges     (6,131 )     -       -       6,131       -     -       -       -       6,131       -  
    Restructuring charges     (4,346 )     -       -       -       -     -       4,346       -       4,346       -  
    Transaction costs     (1,846 )     -       -       -       -     -       -       1,674       1,674       (172 )
        EBITDAR     250,634       (171 )     750       6,131       3,076     1,103       4,346       1,674       16,909       267,543  
  Rent             (100,093 )     -       -       -       -     -       -       -       -       (100,093 )
  Restructuring charges - rent     (462 )     -       -       -       -     -       462       -       462       -  
  Depreciation and amortization     (40,257 )     -       -       -       -     -       -       -       -       (40,257 )
  Interest, net     (57,559 )     -       -       -       -     -       -       -       -       (57,559 )
 

Income from continuing operations before income taxes

    52,263       (171 )     750       6,131       3,076     1,103       4,808       1,674       17,371       69,634  
  Provision for income taxes     17,882       (129 )     (1,511 )     4,633       2,324     833       (3,962 )     1,265       3,453       21,335  
                    34,381       (42 )     2,261       1,498       752     270       8,770       409       13,918       48,299  
  Noncontrolling interests     (13,522 )     -       -       (1,016 )     -     -       -       -       (1,016 )     (14,538 )
    Income attributable to Kindred   $ 20,859     $ (42 )   $ 2,261     $ 482     $ 752   $ 270     $ 8,770     $ 409     $ 12,902     $ 33,761  
                                                       
  Diluted earnings per common share   $ 0.23                                     $ 0.38  
 

Diluted shares used in computing earnings per common share

    87,500                                       87,500  
                                                       
                  Three months ended September 30, 2016
                      Charges            
                                  Gentiva   Deferred                
                                  transaction   tax       Before        
                  As   Impairment   Research and   Restructuring   and   valuation       charges        
                  reported   charges   development   charges   integration   allowance   Total   ("core") (a)        
  Income (loss) from continuing operations:                                        
  Segment EBITDAR:                                        
    Kindred at Home:                                        
      Home health   $ 75,073     $ -     $ -     $ -     $ -   $ -     $ -     $ 75,073          
      Hospice     31,326       -       -       -       -     -       -       31,326          
                    106,399       -       -       -       -     -       -       106,399          
                                                       
    Hospital division     82,752       -       -       -       -     -       -       82,752          
                                                       
    Kindred Rehabilitation Services:                                        
      Kindred Hospital Rehabilitation Services     49,470       -       -       -       -     -       -       49,470          
      RehabCare     9,248       -       -       -       -     -       -       9,248          
                    58,718       -       -       -       -     -       -       58,718          
                                                       
    Nursing center division     29,922       -       -       -       -     -       -       29,922          
                                                       
    Support center     (61,751 )     -       3,288       -       -     -       3,288       (58,463 )        
    Impairment charges     (324,289 )     324,289       -       -       -     -       324,289       -          
    Restructuring charges     (22,813 )     -       -       22,813       -     -       22,813       -          
    Transaction costs     (2,982 )     -       -       -       1,250     -       1,250       (1,732 )        
        EBITDAR     (134,044 )     324,289       3,288       22,813       1,250     -       351,640       217,596          
  Rent             (98,415 )     -       -       -       272     -       272       (98,143 )        
  Restructuring charges - rent     (58,650 )     -       -       58,650       -     -       58,650       -          
  Depreciation and amortization     (40,382 )     -       -       -       -     -       -       (40,382 )        
  Interest, net     (58,052 )     -       -       -       -     -       -       (58,052 )        
 

Income (loss) from continuing operations before income taxes

    (389,543 )     324,289       3,288       81,463       1,522     -       410,562       21,019          
  Provision for income taxes     281,752       58,278       1,156       28,650       535     (366,470 )     (277,851 )     3,901          
                    (671,295 )     266,011       2,132       52,813       987     366,470       688,413       17,118          
  Noncontrolling interests     (14,305 )     (288 )     -       -       -     -       (288 )     (14,593 )        
    Income (loss) attributable to Kindred   $ (685,600 )   $ 265,723     $ 2,132     $ 52,813     $ 987   $ 366,470     $ 688,125     $ 2,525          
                                                       
  Diluted earnings (loss) per common share   $ (7.89 )                           $ 0.03          
 

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

    86,869                               87,529          

____________

(a)

During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

       
                                                           
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands, except per share amounts)
                                                           
                                                           
                  Three months ended December 31, 2016        
                     

Charges

           
                                      Gentiva   Deferred                
                      Business               transaction   tax       Before        
                  As   interruption   Impairment   Research and   Restructuring   and   valuation       charges        
                  reported   settlements   charges   development   charges   integration   allowance   Total   ("core") (a)      
  Income (loss) from continuing operations:                                            
  Segment EBITDAR:                                            
    Kindred at Home:                                            
      Home health   $ 61,487     $ (302 )   $ -     $ -     $ -   $ -   $ -     $ (302 )   $ 61,185          
      Hospice     28,805       (1,137 )     -       -       -     -     -       (1,137 )     27,668          
                    90,292       (1,439 )     -       -       -     -     -       (1,439 )     88,853          
                                                           
    Hospital division     91,892       (630 )     -       -       -     -     -       (630 )     91,262          
                                                           
    Kindred Rehabilitation Services:                                            
      Kindred Hospital Rehabilitation Services     49,314       -       -       -       -     -     -       -       49,314          
      RehabCare     5,578       -       -       -       -     -     -       -       5,578          
                    54,892       -       -       -       -     -     -       -       54,892          
                                                           
    Nursing center division     33,658       -       -       -       -     -     -       -       33,658          
                                                           
    Support center     (57,643 )     -       -       4,293       -     -     -       4,293       (53,350 )        
    Impairment charges     (4,351 )     -       4,351       -       -     -     -       4,351       -          
    Restructuring charges     (16,923 )     -       -       -       16,923     -     -       16,923       -          
    Transaction costs     (2,166 )     -       -       -       -     1,779     -       1,779       (387 )        
        EBITDAR     189,651       (2,069 )     4,351       4,293       16,923     1,779     -       25,277       214,928          
  Rent             (94,509 )     -       -       -       -     -     -       -       (94,509 )        
  Restructuring charges - rent     (2,029 )     -       -       -       2,029     -     -       2,029       -          
  Depreciation and amortization     (38,082 )     -       -       -       -     -     -       -       (38,082 )        
  Interest, net     (58,629 )     -       -       -       -     -     -       -       (58,629 )        
 

Income (loss) from continuing operations before income taxes

    (3,598 )     (2,069 )     4,351       4,293       18,952     1,779     -       27,306       23,708          
  Provision for income taxes     2,860       (1,718 )     3,613       3,565       15,736     1,208     (22,002 )     402       3,262          
                    (6,458 )   $ (351 )   $ 738     $ 728     $ 3,216   $ 571   $ 22,002     $ 26,904       20,446          
  Noncontrolling interests     (13,261 )                                 (13,261 )        
    Income (loss) attributable to Kindred   $ (19,719 )                               $ 7,185          
                                                           
  Diluted earnings (loss) per common share   $ (0.23 )                               $ 0.08          
 

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

    86,904                                   87,641          
                                                           
                  Year ended December 31, 2016
                     

Charges

   
                                              Gentiva   Deferred        
                      Business                       transaction   tax       Before
                  As   interruption   Litigation   Impairment   Research and   Debt   Restructuring   and   valuation       charges
                  reported   settlements   contingency   charges   development   amendment   charges   integration   allowance   Total   ("core") (a)
  Income (loss) from continuing operations:                                            
  Segment EBITDAR:                                            
    Kindred at Home:                                            
      Home health   $ 279,531     $ (1,611 )   $ -     $ -     $ -   $ -   $ -     $ -     $ -     $ (1,611 )   $ 277,920  
      Hospice     116,326       (1,137 )     -       -       -     -     -       -       -       (1,137 )     115,189  
                    395,857       (2,748 )     -       -       -     -     -       -       -       (2,748 )     393,109  
                                                           
    Hospital division     436,071       (630 )     -       -       -     -     -       -       -       (630 )     435,441  
                                                           
    Kindred Rehabilitation Services:                                            
      Kindred Hospital Rehabilitation Services     197,123       -       -       -       -     -     -       -       -       -       197,123  
      RehabCare     40,082       -       -       -       -     -     -       -       -       -       40,082  
                    237,205       -       -       -       -     -     -       -       -       -       237,205  
                                                           
    Nursing center division     127,342       -       -       -       -     -     -       -       -       -       127,342  
                                                           
    Support center     (257,006 )     -       -       -       11,520     1,103     -       -       -       12,623       (244,383 )
    Litigation contingency expense     (2,840 )     -       1,775       -       -     -     -       -       -       1,775       (1,065 )
    Impairment charges     (342,559 )     -       -       342,559       -     -     -       -       -       342,559       -  
    Restructuring charges     (45,783 )     -       -       -       -     -     45,783       -       -       45,783       -  
    Transaction costs     (8,679 )     -       -       -       -     -     -       6,306       -       6,306       (2,373 )
        EBITDAR     539,608       (3,378 )     1,775       342,559       11,520     1,103     45,783       6,306       -       405,668       945,276  
  Rent             (390,534 )     -       -       -       -     -     -       272       -       272       (390,262 )
  Restructuring charges - rent     (61,392 )     -       -       -       -     -     61,392       -       -       61,392       -  
  Depreciation and amortization     (159,402 )     -       -       -       -     -     -       -       -       -       (159,402 )
  Interest, net     (231,485 )     -       -       -       -     -     -       -       -       -       (231,485 )
 

Income (loss) from continuing operations before income taxes

    (303,205 )     (3,378 )     1,775       342,559       11,520     1,103     107,175       6,578       -       467,332       164,127  
  Provision for income taxes     314,330       (1,356 )     (391 )     69,806       4,624     443     43,017       2,510       (388,472 )     (269,819 )     44,511  
                    (617,535 )     (2,022 )     2,166       272,753       6,896     660     64,158       4,068       388,472       737,151       119,616  
  Noncontrolling interests     (53,602 )     -       -       (1,304 )     -     -     -       -       -       (1,304 )     (54,906 )
    Income (loss) attributable to Kindred   $ (671,137 )   $ (2,022 )   $ 2,166     $ 271,449     $ 6,896   $ 660   $ 64,158     $ 4,068     $ 388,472     $ 735,847     $ 64,710  
                                                           
  Diluted earnings (loss) per common share   $ (7.73 )                                       $ 0.72  
 

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

    86,800                                           87,491  

____________

(a)

During the first quarter of 2017, the Company updated its definitions of “core” non-GAAP measures. See “Non-GAAP Measures” beginning on page 13 for a discussion regarding the updated definitions. For comparability, “core” results for 2016 have been revised to conform to the current year presentation.

   
                   
KINDRED HEALTHCARE, INC.
Reconciliation of GAAP Results to Non-GAAP Measures (Continued)
(Unaudited)
(In thousands)
                   
                   
              Three months ended
              March 31,
              2017   2016
                   
  Reconciliation of net cash flows used in operating activities to core operating cash flows and core free cash flows:        
    Net cash flows used in operating activities   ($92,638 )   ($130,340 )
   

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

       
        Transaction, severance, research and development, and retention   6,986     4,841  
        Business interruption settlements   (1,993 )   (1,138 )
        Lease termination fees - restructuring   1,998     -  
       

Capitalized lender fees related to debt amendment

  5,403     -  
        Litigation   8,536     127,669  
              20,930     131,372  
     

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

  (71,708 )   1,032  
      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)   (71,708 )   1,032  
                   
    Less routine capital expenditures   (11,941 )   (18,106 )
    Less distributions to noncontrolling interests   (25,801 )   (16,315 )
        Free cash flows excluding certain items (core free cash flows)   ($109,450 )   ($33,389 )
                   
                   

_____________

(a)

No tax deposits were due in first quarter of 2017 or 2016.

 

Source: Kindred Healthcare, Inc.

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