Kindred Healthcare Announces Fourth Quarter Results

  Kindred Healthcare Announces Fourth Quarter Results

Excluding Certain Items, Company Reports Fourth Quarter Continuing Operations
                Diluted EPS of $0.46 Compared to $0.28 in 2011

Company Reports GAAP Continuing Operations Loss of $1.56 per Diluted Share in
   the Fourth Quarter Resulting Primarily from a Goodwill Impairment Charge

   Annual Operating Cash Flows in Excess of Routine and Development Capital
                         Spending Totaled $97 Million

    Company Maintains Fiscal 2013 Core Earnings Guidance of $1.10 to $1.30

Business Wire

LOUISVILLE, Ky. -- February 25, 2013

Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today
announced its operating results for the fourth quarter and year ended December
31, 2012. The Company’s consolidated financial statements include the
operating results of RehabCare Group, Inc. (“RehabCare”) since the closing of
the acquisition on June 1, 2011. All financial and statistical information
included in this press release reflects the continuing operations of the
Company’s businesses for all periods presented unless otherwise indicated.

Operating and Financial Highlights:

  *Fourth quarter consolidated revenues grew 2%

       *Hospital and home health combined for revenue gains of 6% compared to
         last year

  *Hospital division posted solid fourth quarter results

       *Fourth quarter revenues grew 3% and operating income rose 8%
       *While overall admissions were soft, same-store non-government
         admissions rose 2% compared to last year

  *RehabCare division fourth quarter revenues grew 1% while operating income
    climbed 53%

       *Operating results were bolstered by 27% growth in hospital-based
         rehabilitation services as well as strong cash collections and a
         related $8 million bad debt benefit
       *New Medicare Part B therapy caps reduced skilled rehabilitation
         therapy operating income by approximately $6 million in the quarter

  *Fourth quarter home health and hospice division revenues and operating
    income nearly doubled from last year

       *Annualized revenues reach $200 million
       *Home health and hospice operations now reside in 12 of 21 Kindred
         integrated care markets

  *Company posted strong full-year cash flows in 2012

       *Operating cash flows less routine and development capital spending
         totaled $97 million

  *Company maintains strong financial position entering 2013

       *Cash flows in excess of routine and development capital spending in
         2013 should approximate $90 million
       *Available credit capacity approximated $420 million at December 31,
         2012

Fourth Quarter Results

Continuing Operations

Consolidated revenues for the fourth quarter ended December 31, 2012 increased
2% to $1.55 billion compared to $1.52 billion in the same period in 2011. The
Company reported a loss from continuing operations for the fourth quarter of
2012 of $80.7 million or $1.56 per diluted share compared to a loss of $65.5
million or $1.28 per diluted share in the fourth quarter of 2011. Operating
results for the fourth quarter of 2012 included (a) an asset impairment
charge, (b) severance and restructuring costs, (c) transaction-related costs
and (d) employee retention costs associated with the upcoming disposal of 54
nursing centers leased from Ventas, Inc. (“Ventas”) (NYSE:VTR) that reduced
income from continuing operations by $105.3 million or $2.04 per diluted
share. Operating results for the fourth quarter of 2011 included asset
impairment charges, transaction-related costs and a loss on a hospital
divestiture that reduced income from continuing operations by $79.9 million or
$1.56 per diluted share.

During the fourth quarter of 2012, the Company recorded a $108 million
goodwill impairment charge to reflect circumstances in which the carrying
value of certain assets exceeded their fair value. The impairment charge
resulted primarily from the expected decline in operating results in the
Company’s rehabilitation division related to previously announced Medicare
reimbursement changes that were recently enacted by Congress in connection
with the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”).

Fiscal Year Results

Continuing Operations

Consolidated revenues for the year ended December 31, 2012 increased 12% to
$6.2 billion compared to $5.5 billion in the previous year. The Company
reported a loss from continuing operations of $33.4 million or $0.65 per
diluted share in 2012 compared to a loss of $47.8 million or $1.04 per diluted
share in 2011.

In addition to the charges noted above in the discussion of fourth quarter
results, operating results in 2012 included (a) costs incurred in connection
with the closing of a regional office, (b) lease cancellation charges and
other costs incurred in connection with two hospital closings and the
cancellation of a sub-acute unit project and (c) a charge in connection with
an employment-related lawsuit, all of which reduced income from continuing
operations by $114.1 million or $2.21 per diluted share. Operating results in
2011 included certain items that reduced income from continuing operations by
$134.3 million or $2.90 per diluted share, most of which were related to asset
impairment charges and the RehabCare acquisition.

Discontinued Operations

During 2012, the Company entered into transactions related to the divestiture
of unprofitable businesses qualifying as discontinued operations. For
accounting purposes, the historical operating results and losses on the
disposal of these businesses have been classified as discontinued operations
in the Company’s consolidated statement of operations for all historical
periods.

The Company will account for the divestiture of 54 nursing centers leased from
Ventas as discontinued operations in 2013.

Management Commentary

Paul J. Diaz, Kindred’s Chief Executive Officer, commented, “In 2012, Kindred
continued to make progress in improving quality and patient satisfaction and
delivering better clinical outcomes for patients in settings across the
post-acute continuum. We want to thank our care givers and colleagues
throughout our organization who delivered on Kindred’s promise of hope,
healing and recovery, as they worked to advance our mission in spite of a very
challenging operating environment.”

Commenting on the Company’s recently issued 2012 Quality and Social
Responsibility Report, Mr. Diaz noted, “Kindred is proud to issue its sixth
annual Quality and Social Responsibility Report to fulfill our commitment to
be transparent about our quality results and our ongoing efforts to improve
the care and services for our patients and residents.” Mr. Diaz also noted
that the report links the Company’s quality initiatives with its Continue the
Care and integrated care market strategies. “Both policymakers and the
marketplace are demanding that healthcare providers participate in coordinated
care strategies to improve care transitions, reduce avoidable hospitalizations
and lower costs. Kindred’s integrated care market strategy is designed to
leverage Kindred’s national scale to build a continuum of post-acute services
in local healthcare delivery markets to achieve these shared goals. Kindred is
aggressively developing a post-acute continuum of service lines in local
markets, including transitional care hospitals, inpatient rehabilitation
facilities, sub-acute or transitional care, and home health and hospice
services, in order to partner with physician groups, hospitals, health systems
and payors to better manage episodes of care while at the same time improving
quality and lowering costs.”

Mr. Diaz remarked, “From an operational standpoint, we finished the year with
a solid quarter. Excluding certain items, our continuing operations earnings
per diluted share of $0.46 in the fourth quarter was a significant improvement
from the comparable $0.28 per share reported last year following major
Medicare cuts in both our nursing center and rehabilitation therapy
divisions.”

Mr. Diaz further noted, “For the full year, we are pleased to report that we
met our core earnings objectives that we estimated at the beginning of the
year. Our hospital results were solid, we maintained stability in our nursing
center division, our rehabilitation therapy division made great progress in
the midst of several Medicare reimbursement changes and we doubled the size of
our home health and hospice business. I would characterize 2012 as solid year
for Kindred as we met or exceeded most of our clinical and financial goals.”

Commenting on the Company’s strategic initiatives, Mr. Diaz noted, “In 2012,
we continued to grow and enhance our integrated care market capabilities,
particularly in home health and hospice services, while advancing a strategy
to reposition our business mix with the goal of improving our long-term
growth, profitability and financial position. Specifically, we completed three
home health and hospice acquisitions that added $75 million of annualized
revenues and we acquired three previously leased facilities for approximately
$103 million that will benefit our balance sheet leverage over time. We also
continued to move forward with the divestiture of 54 nursing centers leased
from Ventas. In addition, our process to divest other non-strategic assets
continues and will result in further changes to our business mix over the
course of 2013 and beyond. We also continue to evaluate our active pipeline of
acquisition opportunities in our integrated care markets in an effort to
advance our strategy, strengthen the Company and enhance shareholder value
going forward.”

Mr. Diaz added, “Our significant operating cash flows in excess of routine and
development capital spending, as well as our $420 million of available credit
going into 2013, provide the financial strength to further reposition the
Company’s business mix and advance our Continue the Care strategy in our
integrated care markets.”

Looking forward to 2013, Mr. Diaz remarked, “The volume momentum that we saw
in December has carried over nicely into our first quarter. Based on our
January results, we believe that the new year is off to a strong start.”

Earnings Guidance – Continuing Operations

The Company maintained its previous earnings guidance for 2013. The Company
expects consolidated revenues for 2013 to approximate $5.9 billion. Operating
income, or earnings before interest, income taxes, depreciation, amortization
and rent, is expected to range from $794 million to $810 million. Rent expense
is expected to approximate $387 million, while depreciation and amortization
should approximate $189 million. Net interest expense is expected to
approximate $113 million. The Company expects to report income from continuing
operations for 2013 between $60 million and $70 million or $1.10 to $1.30 per
diluted share (based upon diluted shares of 52.7 million).

The Company re-affirmed its operating cash flow guidance for 2013 at a range
between $230 million and $250 million. Estimated routine capital expenditures
for 2013 are expected to range from $120 million to $130 million. In addition
to its routine capital expenditures, the Company re-affirmed that its
development of new or replacement transitional care (“TC”) hospitals,
transitional care centers, and inpatient rehabilitation hospitals (“IRFs”)
will approximate $20 million to $30 million in 2013. Operating cash flows in
excess of the Company’s routine and development capital spending programs,
which are expected to approximate $90 million for 2013, will be available to
repay debt and fund acquisitions.

The Company’s earnings guidance for 2013 assumes (a) reductions in Medicare
payments for rehabilitation therapy services, including those contained in the
Taxpayer Relief Act, expected to range from $25 million to $30 million on an
annual basis, and (b) sequestration cuts of 2% related to all of its Medicare
revenues that will begin on April 1, 2013. In addition, the guidance assumes
that the previously announced exit in 2013 from 54 nursing centers leased from
Ventas will be reflected as discontinued operations effective January 1, 2013.
The earnings guidance also excludes the effect of any other reimbursement
changes, any future acquisitions or dispositions, any impairment charges, and
any repurchases of common stock.

In light of the significant reimbursement pressures in 2012, and the expected
further reimbursement reductions that are projected to aggregate approximately
$100 million in 2013, the Company has focused its efforts on reducing costs
and streamlining its operations across the enterprise without impacting the
quality of its services. These initiatives have been pursued under the
direction of an internal project management team commonly referred to as
Project Apollo. Among other things, Project Apollo is driving various
structural changes in human resources, sales, marketing and finance under a
shared service model that more efficiently meets the needs of the Company’s
four major operating divisions. Other areas of emphasis include a re-design of
the Company’s employee health plan (including the introduction of higher
deductible plans complimented by Company-funded health savings accounts) as
well as certain refinements to employee compensation using a market-based
total rewards program.

Project Apollo is expected to result in $60 million to $70 million of cost
savings in 2013, with a fully implemented annual impact of more than $90
million in 2014.

In the context of Project Apollo, the Company recently initiated a pay freeze
across the enterprise and is pursuing certain other cost reductions in 2013.
However, in an effort to remain competitive in the marketplace (without
increasing its structural costs), the Company will pay a one-time bonus to
approximately 47,000 employees who do not participate in the Company’s
incentive compensation program. The aggregate pretax cost of this one-time
item is expected to approximate $25 million and is not included in the
Company’s annual 2013 earnings guidance.

While the Company does not provide quarterly earnings guidance, investors are
advised that the Company’s new employee health plan for 2013 requires that a
larger portion of the Company’s costs be funded in the first quarter of the
year. While the Company expects its aggregate employee health costs for the
full year to be flat with 2012 levels, first quarter 2013 costs will be
approximately $8 million higher than the same period last year and the
subsequent three fiscal quarters will, in aggregate, be lower in costs by the
same amount.

Conference Call

As previously announced, investors and the general public may access a live
webcast of the fourth quarter 2012 conference call through a link on the
Company’s website at http://investors.kindredhealthcare.com or at
www.earnings.com. The conference call will be held February 26 at 9:00 a.m.
(Eastern Time).

A telephone replay of the conference call will become available at
approximately 12:00 p.m. onFebruary 26 by dialing 888-203-1112, access code:
9258742. The replay will be available throughMarch 8.

As previously announced, Mr. Diaz will make a presentation regarding the
Company at the Citi Global Healthcare Conference in New York City on Tuesday,
February 26, 2013, at 2:15 p.m. Eastern Time. He will also take part in a
discussion with Frank G. Morgan, CFA, Managing Director, Equity Research:
Healthcare Services, at the RBC Capital Markets Healthcare Conference in New
York City on Wednesday, February 27, 2013, at 2:30 p.m. (Eastern Time).

In addition, Benjamin A. Breier, President and Chief Operating Officer, will
make a presentation regarding the Company at the J.P. Morgan Global High Yield
and Leveraged Finance Conference in Miami, Florida, on Wednesday, February 27,
2013, at 11:00 a.m. (Eastern Time).

An updated investor presentation will be available on the Company’s website
prior to these meetings.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of
Section27A of the Securities Act of 1933, as amended, and Section21E of the
Securities Exchange Act of 1934, as amended. All statements regarding the
Company’s expected future financial position, results of operations, cash
flows, financing plans, business strategy, budgets, capital expenditures,
competitive positions, growth opportunities, plans and objectives of
management and statements containing the words such as “anticipate,”
“approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,”
“should,” “will,” “intend,” “may” and other similar expressions, are
forward-looking statements.

Such forward-looking statements are inherently uncertain, and stockholders and
other potential investors must recognize that actual results may differ
materially from the Company’s expectations as a result of a variety of
factors, including, without limitation, those discussed below. Such
forward-looking statements are based upon management’s current expectations
and include known and unknown risks, uncertainties and other factors, many of
which the Company is unable to predict or control, that may cause the
Company’s actual results or performance to differ materially from any future
results or performance expressed or implied by such forward-looking
statements. These statements involve risks, uncertainties and other factors
discussed below and detailed from time to time in the Company’s filings with
the Securities and Exchange Commission.

In addition to the factors set forth above, other factors that may affect the
Company’s plans, results or stock price include, without limitation, (a) the
impact of healthcare reform, which will initiate significant changes to the
United States healthcare system, including potential material changes to the
delivery of healthcare services and the reimbursement paid for such services
by the government or other third party payors, including reforms resulting
from the Patient Protection and Affordable Care Act and the Healthcare
Education and Reconciliation Act (collectively, the “ACA”) or future deficit
reduction measures adopted at the federal or state level. Healthcare reform is
affecting each of the Company’s businesses in some manner. Potential future
efforts in the U.S. Congress to repeal, amend, modify or retract funding for
various aspects of the ACA create additional uncertainty about the ultimate
impact of the ACA on the Company and the healthcare industry. Due to the
substantial regulatory changes that will need to be implemented by the Centers
for Medicare and Medicaid Services (“CMS”) and others, and the numerous
processes required to implement these reforms, the Company cannot predict
which healthcare initiatives will be implemented at the federal or state
level, the timing of any such reforms, or the effect such reforms or any other
future legislation or regulation will have on the Company’s business,
financial position, results of operations and liquidity, (b) the impact of
final rules issued by CMS on August 1, 2012 which, among other things, will
reduce Medicare reimbursement to the Company’s TC hospitals in 2013 and beyond
by imposing a budget neutrality adjustment and modifying the short-stay
outlier rules, (c) the impact of final rules issued by CMS on July 29, 2011
which significantly reduced Medicare reimbursement to the Company’s nursing
centers and changed payments for the provision of group therapy services
effective October 1, 2011, (d) the impact of the Budget Control Act of 2011
(as amended by the Taxpayer Relief Act) which will automatically reduce
federal spending by approximately $1.2 trillion split evenly between domestic
and defense spending. At this time, the Company believes that the automatic 2%
reduction on each claim submitted to Medicare will begin on April 1, 2013, (e)
the impact of the Taxpayer Relief Act which, among other things, reduces
Medicare payments by 50% for subsequent procedures when multiple therapy
services are provided on the same day. At this time, the Company believes that
the new rules related to multiple therapy services will reduce the Company’s
Medicare revenues by $25 million to $30 million on an annual basis, (f)
changes in the reimbursement rates or the methods or timing of payment from
third party payors, including commercial payors and the Medicare and Medicaid
programs, changes arising from and related to the Medicare prospective payment
system for long-term acute care (“LTAC”) hospitals, including potential
changes in the Medicare payment rules, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, and changes in Medicare and
Medicaid reimbursement for the Company’s TC hospitals, nursing centers, IRFs
and home health and hospice operations, and the expiration of the Medicare
Part B therapy cap exception process, (g) the effects of additional
legislative changes and government regulations, interpretation of regulations
and changes in the nature and enforcement of regulations governing the
healthcare industry, (h) the ability of the Company’s hospitals to adjust to
potential LTAC certification and medical necessity reviews, (i) the impact of
the Company’s significantly increased levels of indebtedness as a result of
the RehabCare acquisition on the Company’s funding costs, operating
flexibility and ability to fund ongoing operations, development capital
expenditures or other strategic acquisitions with additional borrowings, (j)
the Company’s ability to successfully pursue its development activities,
including through acquisitions, and successfully integrate new operations,
including the realization of anticipated revenues, economies of scale, cost
savings and productivity gains associated with such operations, as and when
planned, including the potential impact of unanticipated issues, expenses and
liabilities associated with those activities, (k) the failure of the Company’s
facilities to meet applicable licensure and certification requirements, (l)
the further consolidation and cost containment efforts of managed care
organizations and other third party payors, (m) the Company’s ability to meet
its rental and debt service obligations, (n) the Company’s ability to operate
pursuant to the terms of its debt obligations, and comply with its covenants
thereunder, and its ability to operate pursuant to its master lease agreements
with Ventas, (o) the condition of the financial markets, including volatility
and weakness in the equity, capital and credit markets, which could limit the
availability and terms of debt and equity financing sources to fund the
requirements of the Company’s businesses, or which could negatively impact the
Company’s investment portfolio, (p) national and regional economic, financial,
business and political conditions, including their effect on the availability
and cost of labor, credit, materials and other services, (q) the Company’s
ability to control costs, particularly labor and employee benefit costs, (r)
increased operating costs due to shortages in qualified nurses, therapists and
other healthcare personnel, (s) the Company’s ability to attract and retain
key executives and other healthcare personnel, (t) the increase in the costs
of defending and insuring against alleged professional liability and other
claims and the Company’s ability to predict the estimated costs related to
such claims, including the impact of differences in actuarial assumptions and
estimates compared to eventual outcomes, (u) the Company’s ability to
successfully reduce (by divestiture of operations or otherwise) its exposure
to professional liability and other claims, (v) the Company’s ability to
successfully dispose of unprofitable facilities, (w) events or circumstances
which could result in the impairment of an asset or other charges, such as the
impact of Medicare reimbursement regulations that resulted in the Company
recording significant impairment charges in 2012 and 2011, (x) changes in
generally accepted accounting principles (“GAAP”) or practices, and changes in
tax accounting or tax laws (or authoritative interpretations relating to any
of these matters), and (y) the Company’s ability to maintain an effective
system of internal control over financial reporting. 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.

In addition to the results provided in accordance with GAAP, the Company has
provided information in this release to compute certain non-GAAP measurements
for the fourth quarter and years ended December 31, 2012 and 2011 before
certain charges or on a core basis.A reconciliation of the non-GAAP
measurements to the GAAP measurements is included in this press release.

As noted above, the Company’s earnings release includes a financial measure
referred to as operating income, or earnings before interest, income taxes,
depreciation, amortization and rent. The Company’s management uses operating
income as a meaningful measure of operational performance in addition to other
measures. The Company uses operating income to assess the relative performance
of its operating divisions as well as the employees that operate these
businesses. In addition, the Company believes this measurement is important
because securities analysts and investors use this measurement to compare the
Company’s performance to other companies in the healthcare industry. The
Company believes that income (loss) from continuing operations is the most
comparable GAAP measure.Readers of the Company’s financial information should
consider income (loss) from continuing operations as an important measure of
the Company’s financial performance because it provides the most complete
measure of its performance.Operating income 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. A reconciliation of operating
income to income (loss) from continuing operations provided in the Condensed
Business Segment Data is included in this press release.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-125 private employer in the United States, is
a FORTUNE 500 healthcare services company based in Louisville, Kentucky with
annual revenues of $6 billion and approximately 78,000 employees in 46 states.
At December 31, 2012, Kindred through its subsidiaries provided healthcare
services in 2,203 locations, including 116 transitional care hospitals, six
inpatient rehabilitation hospitals, 223 nursing centers, 27 sub-acute units,
101 hospice, home care and private duty locations, 105 inpatient
rehabilitation units (hospital-based) and a contract rehabilitation services
business, RehabCare, which served 1,625 non-affiliated facilities. Ranked as
one of Fortune magazine’s Most Admired Healthcare Companies for four years in
a row, 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.

                                                             
KINDRED HEALTHCARE, INC.
Financial Summary
(In thousands, except per share amounts)
                                                                   
                   Three months ended              Year ended
                   December 31,                    December 31,
                   2012            2011            2012            2011
                                                                   
Revenues           $ 1,547,721    $ 1,517,435    $ 6,181,291    $ 5,503,928 
                                                                   
Loss from
continuing         $ (79,892   )   $ (65,534   )   $ (32,371   )   $ (48,053   )
operations
Discontinued
operations,
net of income
taxes:
Loss from            (5        )     (6,355    )     (2,208    )     (5,666    )
operations
Loss on
divestiture of      (939      )    -             (4,745    )    -         
operations
Loss from
discontinued        (944      )    (6,355    )    (6,953    )    (5,666    )
operations
Net loss             (80,836   )     (71,889   )     (39,324   )     (53,719   )
(Earnings)
loss
attributable        (790      )    58            (1,043    )    238       
to
noncontrolling
interests
Loss
attributable       $ (81,626   )   $ (71,831   )   $ (40,367   )   $ (53,481   )
to Kindred
                                                                   
Amounts
attributable
to Kindred
stockholders:
Loss from
continuing         $ (80,682   )   $ (65,476   )   $ (33,414   )   $ (47,815   )
operations
Loss from
discontinued        (944      )    (6,355    )    (6,953    )    (5,666    )
operations
Net loss           $ (81,626   )   $ (71,831   )   $ (40,367   )   $ (53,481   )
                                                                   
Loss per
common share:
Basic:
Loss from
continuing         $ (1.56     )   $ (1.28     )   $ (0.65     )   $ (1.04     )
operations
Discontinued
operations:
Loss from            -               (0.12     )     (0.04     )     (0.12     )
operations
Loss on
divestiture of      (0.02     )    -             (0.09     )    -         
operations
Net loss           $ (1.58     )   $ (1.40     )   $ (0.78     )   $ (1.16     )
                                                                   
Diluted:
Loss from
continuing         $ (1.56     )   $ (1.28     )   $ (0.65     )   $ (1.04     )
operations
Discontinued
operations:
Loss from            -               (0.12     )     (0.04     )     (0.12     )
operations
Loss on
divestiture of      (0.02     )    -             (0.09     )    -         
operations
Net loss           $ (1.58     )   $ (1.40     )   $ (0.78     )   $ (1.16     )
                                                                   
Shares used in
computing loss
per common
share:
Basic                51,692          51,335          51,659          46,280
Diluted              51,692          51,335          51,659          46,280

                                                             
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
                                                                   
                   Three months ended              Year ended
                   December 31,                    December 31,
                   2012            2011            2012            2011
                                                                   
Revenues           $ 1,547,721    $ 1,517,435    $ 6,181,291    $ 5,503,928 
                                                                   
Salaries,
wages and            914,171         907,853         3,672,475       3,243,603
benefits
Supplies             107,125         107,043         432,008         399,819
Rent                 107,737         106,135         428,979         398,045
Other
operating            306,113         311,333         1,233,134       1,160,293
expenses
Other income         (2,591    )     (2,711    )     (10,812   )     (11,191   )
Impairment           108,952         91,490          110,856         118,202
charges
Depreciation
and                  52,353          48,101          201,068         165,227
amortization
Interest             27,934          26,244          107,896         80,919
expense
Investment          (258      )    (242      )    (1,054    )    (1,031    )
income
                    1,621,536     1,595,246     6,174,550     5,553,886 
Income (loss)
from
continuing           (73,815   )     (77,811   )     6,741           (49,958   )
operations
before income
taxes
Provision
(benefit) for       6,077         (12,277   )    39,112        (1,905    )
income taxes
Loss from
continuing           (79,892   )     (65,534   )     (32,371   )     (48,053   )
operations
Discontinued
operations,
net of income
taxes:
Loss from            (5        )     (6,355    )     (2,208    )     (5,666    )
operations
Loss on
divestiture of      (939      )    -             (4,745    )    -         
operations
Loss from
discontinued        (944      )    (6,355    )    (6,953    )    (5,666    )
operations
Net loss             (80,836   )     (71,889   )     (39,324   )     (53,719   )
(Earnings)
loss
attributable        (790      )    58            (1,043    )    238       
to
noncontrolling
interests
Loss
attributable       $ (81,626   )   $ (71,831   )   $ (40,367   )   $ (53,481   )
to Kindred
                                                                   
Amounts
attributable
to Kindred
stockholders:
Loss from
continuing         $ (80,682   )   $ (65,476   )   $ (33,414   )   $ (47,815   )
operations
Loss from
discontinued        (944      )    (6,355    )    (6,953    )    (5,666    )
operations
Net loss           $ (81,626   )   $ (71,831   )   $ (40,367   )   $ (53,481   )
                                                                   
Loss per
common share:
Basic:
Loss from
continuing         $ (1.56     )   $ (1.28     )   $ (0.65     )   $ (1.04     )
operations
Discontinued
operations:
Loss from            -               (0.12     )     (0.04     )     (0.12     )
operations
Loss on
divestiture of      (0.02     )    -             (0.09     )    -         
operations
Net loss           $ (1.58     )   $ (1.40     )   $ (0.78     )   $ (1.16     )
                                                                   
Diluted:
Loss from
continuing         $ (1.56     )   $ (1.28     )   $ (0.65     )   $ (1.04     )
operations
Discontinued
operations:
Loss from            -               (0.12     )     (0.04     )     (0.12     )
operations
Loss on
divestiture of      (0.02     )    -             (0.09     )    -         
operations
Net loss           $ (1.58     )   $ (1.40     )   $ (0.78     )   $ (1.16     )
                                                                   
Shares used in
computing loss
per common
share:
Basic                51,692          51,335          51,659          46,280
Diluted              51,692          51,335          51,659          46,280

                                                            
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(In thousands, except per share amounts)
                                                                 
                                              December 31,       December 31,
                                              2012               2011
ASSETS
Current assets:
Cash and cash equivalents                     $ 50,007           $ 41,561
Cash - restricted                               5,197              5,551
Insurance subsidiary investments                86,168             70,425
Accounts receivable less allowance for          1,038,605          994,700
loss
Inventories                                     32,021             31,060
Deferred tax assets                             12,663             17,785
Income taxes                                    13,573             39,513
Other                                          35,532           32,687    
                                                1,273,766          1,233,282
                                                                 
Property and equipment                          2,226,903          1,975,063
Accumulated depreciation                       (1,083,777 )      (916,022  )
                                                1,143,126          1,059,041
                                                                 
Goodwill                                        1,041,266          1,084,655
Intangible assets less accumulated              439,767            447,207
amortization
Assets held for sale                            4,131              5,612
Insurance subsidiary investments                116,424            110,227
Other                                          219,466          198,469   
Total assets                                  $ 4,237,946       $ 4,138,493 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable                              $ 210,668          $ 216,801
Salaries, wages and other compensation          389,009            407,493
Due to third party payors                       35,420             37,306
Professional liability risks                    54,088             46,010
Other accrued liabilities                       137,204            130,693
Long-term debt due within one year             8,942            10,620    
                                                835,331            848,923
                                                                 
Long-term debt                                  1,648,706          1,531,882
Professional liability risks                    236,630            217,717
Deferred tax liabilities                        9,764              17,955
Deferred credits and other liabilities          214,671            191,771
                                                                 
Noncontrolling interests-redeemable             -                  9,704
                                                                 
Equity:
Stockholders' equity:
Common stock, $0.25 par value; authorized
175,000 shares; issued 53,280 shares -          13,320             13,029
December 31, 2012 and 52,116 shares -
December 31, 2011
Capital in excess of par value                  1,145,922          1,138,189
Accumulated other comprehensive loss            (1,882     )       (1,469    )
Retained earnings                              98,799           139,172   
                                                1,256,159          1,288,921
Noncontrolling interests-nonredeemable         36,685           31,620    
Total equity                                   1,292,844        1,320,541 
Total liabilities and equity                  $ 4,237,946       $ 4,138,493 

                                                            
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
                                                                  
                   Three months ended            Year ended
                   December 31,                  December 31,
                   2012           2011           2012             2011
Cash flows
from operating
activities:
Net loss           $ (80,836  )   $ (71,889  )   $ (39,324    )   $ (53,719    )
Adjustments to
reconcile net
loss to net
cash provided
by operating
activities:
Depreciation
and                  52,392         48,227         201,484          165,594
amortization
Amortization
of stock-based       2,841          3,208          10,852           12,819
compensation
costs
Amortization
of deferred          2,592          2,350          9,683            7,581
financing
costs
Payment of
lender fees          (2,940   )     -              (2,940     )     (46,232    )
related to
debt issuance
Provision for
doubtful             1,038          13,084         23,692           35,133
accounts
Deferred             6,616          5,170          (11,524    )     195
income taxes
Impairment           108,952        102,569        110,856          129,281
charges
Loss on
divestiture of       939            -              4,745            -
discontinued
operations
Other                (981     )     1,703          1,772            (2,063     )
Change in
operating
assets and
liabilities:
Accounts             9,208          (36,758  )     (58,705    )     (144,830   )
receivable
Inventories
and other            (8,485   )     (4,451   )     (29,382    )     (802       )
assets
Accounts             737            299            (6,515     )     685
payable
Income taxes         (9,294   )     (25,537  )     29,991           (4,745     )
Due to third         (4,411   )     (4,130   )     (2,723     )     568
party payors
Other accrued       (6,893   )    2,055        20,600         54,241     
liabilities
Net cash
provided by         71,475       35,900       262,562        153,706    
operating
activities
                                                                  
Cash flows
from investing
activities:
Routine
capital              (38,371  )     (37,640  )     (115,175   )     (132,903   )
expenditures
Development
capital              (12,147  )     (18,085  )     (50,322    )     (87,655    )
expenditures
Acquisitions,
net of cash          (38,904  )     (4,551   )     (178,212   )     (715,458   )
acquired
Sale of assets       150            -              1,260            1,714
Purchase of
insurance            (7,151   )     (9,719   )     (38,041    )     (35,623    )
subsidiary
investments
Sale of
insurance            8,290          8,720          38,363           46,307
subsidiary
investments
Net change in
insurance
subsidiary           (6,114   )     (9,343   )     (21,285    )     (14,213    )
cash and cash
equivalents
Change in
other                11             3              1,465            1,003
investments
Other               490          180          (539       )    (512       )
Net cash used
in investing        (93,746  )    (70,435  )    (362,486   )    (937,340   )
activities
                                                                  
Cash flows
from financing
activities:
Proceeds from
borrowings
under                455,000        493,500        1,784,300        2,126,800
revolving
credit
Repayment of
borrowings
under                (512,200 )     (448,500 )     (1,757,100 )     (2,198,300 )
revolving
credit
Proceeds from
issuance of
senior               -              -              -                550,000
unsecured
notes
Proceeds from
issuance of          97,500         -              97,500           693,000
term loan, net
of discount
Repayment of
other                (2,688   )     (2,645   )     (10,664    )     (350,878   )
long-term debt
Payment of
deferred             (864     )     (383     )     (1,465     )     (9,098     )
financing
costs
Contribution
made by              -              -              200              -
noncontrolling
interest
Distribution
made to              (308     )     -              (3,829     )     -
noncontrolling
interests
Purchase of
noncontrolling       (4       )     -              (719       )     (7,292     )
interests
Issuance of          147            -              147              3,019
common stock
Other               -            29           -              776        
Net cash
provided by         36,583       42,001       108,370        808,027    
financing
activities
Change in cash
and cash             14,312         7,466          8,446            24,393
equivalents
Cash and cash
equivalents at      35,695       34,095       41,561         17,168     
beginning of
period
Cash and cash
equivalents at     $ 50,007      $ 41,561      $ 50,007        $ 41,561     
end of period

                                                                                                                                                       
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
                                                                                                                                                                   
                   2011 Quarters                                                                   2012 Quarters
                   First           Second          Third           Fourth          Year            First           Second          Third           Fourth          Year
                                                                                                                                                                   
Revenues           $ 1,189,851    $ 1,288,478    $ 1,508,164    $ 1,517,435    $ 5,503,928    $ 1,576,359    $ 1,533,235    $ 1,523,976    $ 1,547,721    $ 6,181,291 
                                                                                                                                                                   
Salaries,
wages and            676,757         762,375         896,618         907,853         3,243,603       941,939         905,037         911,328         914,171         3,672,475
benefits
Supplies             89,753          96,274          106,749         107,043         399,819         110,729         107,783         106,371         107,125         432,008
Rent                 91,216          95,489          105,205         106,135         398,045         105,872         107,053         108,317         107,737         428,979
Other
operating            258,641         286,142         304,177         311,333         1,160,293       309,678         311,940         305,403         306,113         1,233,134
expenses
Other income         (2,785    )     (2,880    )     (2,815    )     (2,711    )     (11,191   )     (2,748    )     (2,698    )     (2,775    )     (2,591    )     (10,812   )
Impairment           -               -               26,712          91,490          118,202         867             329             708             108,952         110,856
charges
Depreciation
and                  32,496          37,816          46,814          48,101          165,227         48,434          49,742          50,539          52,353          201,068
amortization
Interest             5,728           23,157          25,790          26,244          80,919          26,578          26,716          26,668          27,934          107,896
expense
Investment          (495      )    (257      )    (37       )    (242      )    (1,031    )    (292      )    (275      )    (229      )    (258      )    (1,054    )
income
                    1,151,311     1,298,116     1,509,213     1,595,246     5,553,886     1,541,057     1,505,627     1,506,330     1,621,536     6,174,550 
Income (loss)
from
continuing           38,540          (9,638    )     (1,049    )     (77,811   )     (49,958   )     35,302          27,608          17,646          (73,815   )     6,741
operations
before income
taxes
Provision
(benefit) for       15,861        (3,295    )    (2,194    )    (12,277   )    (1,905    )    14,347        11,392        7,296         6,077         39,112    
income taxes
Income (loss)
from                 22,679          (6,343    )     1,145           (65,534   )     (48,053   )     20,955          16,216          10,350          (79,892   )     (32,371   )
continuing
operations
Discontinued
operations,
net of income
taxes:
Income (loss)
from                 (582      )     390             881             (6,355    )     (5,666    )     (1,143    )     (597      )     (463      )     (5        )     (2,208    )
operations
Loss on
divestiture of      -             -             -             -             -             (1,170    )    (356      )    (2,280    )    (939      )    (4,745    )
operations
Income (loss)
from                (582      )    390           881           (6,355    )    (5,666    )    (2,313    )    (953      )    (2,743    )    (944      )    (6,953    )
discontinued
operations
Net income           22,097          (5,953    )     2,026           (71,889   )     (53,719   )     18,642          15,263          7,607           (80,836   )     (39,324   )
(loss)
(Earnings)
loss
attributable        -             421           (241      )    58            238           (451      )    239           (41       )    (790      )    (1,043    )
to
noncontrolling
interests
Income (loss)
attributable       $ 22,097       $ (5,532    )   $ 1,785        $ (71,831   )   $ (53,481   )   $ 18,191       $ 15,502       $ 7,566        $ (81,626   )   $ (40,367   )
to Kindred
                                                                                                                                                                   
Amounts
attributable
to Kindred
stockholders:
Income (loss)
from               $ 22,679        $ (5,922    )   $ 904           $ (65,476   )   $ (47,815   )   $ 20,504        $ 16,455        $ 10,309        $ (80,682   )   $ (33,414   )
continuing
operations
Income (loss)
from                (582      )    390           881           (6,355    )    (5,666    )    (2,313    )    (953      )    (2,743    )    (944      )    (6,953    )
discontinued
operations
Net income         $ 22,097       $ (5,532    )   $ 1,785        $ (71,831   )   $ (53,481   )   $ 18,191       $ 15,502       $ 7,566        $ (81,626   )   $ (40,367   )
(loss)
                                                                                                                                                                   
Earnings
(loss) per
common share:
Basic:
Income (loss)
from               $ 0.57          $ (0.14     )   $ 0.02          $ (1.28     )   $ (1.04     )   $ 0.39          $ 0.31          $ 0.19          $ (1.56     )   $ (0.65     )
continuing
operations
Discontinued
operations:
Income (loss)
from                 (0.01     )     0.01            0.01            (0.12     )     (0.12     )     (0.02     )     (0.01     )     (0.01     )     -               (0.04     )
operations
Loss on
divestiture of      -             -             -             -             -             (0.02     )    (0.01     )    (0.04     )    (0.02     )    (0.09     )
operations
Net income         $ 0.56         $ (0.13     )   $ 0.03         $ (1.40     )   $ (1.16     )   $ 0.35         $ 0.29         $ 0.14         $ (1.58     )   $ (0.78     )
(loss)
                                                                                                                                                                   
Diluted:
Income (loss)
from               $ 0.56          $ (0.14     )   $ 0.02          $ (1.28     )   $ (1.04     )   $ 0.39          $ 0.31          $ 0.19          $ (1.56     )   $ (0.65     )
continuing
operations
Discontinued
operations:
Income (loss)
from                 (0.01     )     0.01            0.01            (0.12     )     (0.12     )     (0.02     )     (0.01     )     (0.01     )     -               (0.04     )
operations
Loss on
divestiture of      -             -             -             -             -             (0.02     )    (0.01     )    (0.04     )    (0.02     )    (0.09     )
operations
Net income         $ 0.55         $ (0.13     )   $ 0.03         $ (1.40     )   $ (1.16     )   $ 0.35         $ 0.29         $ 0.14         $ (1.58     )   $ (0.78     )
(loss)
                                                                                                                                                                   
Shares used in
computing
earnings
(loss) per
common share:
Basic                39,035          43,231          51,329          51,335          46,280          51,603          51,664          51,676          51,692          51,659
Diluted              39,543          43,231          51,406          51,335          46,280          51,638          51,675          51,709          51,692          51,659

                                                                                                                                            
    KINDRED HEALTHCARE, INC.
    Condensed Business Segment Data
    (In thousands)
                                                                                                                                                                           
                       2011 Quarters                                                                   2012 Quarters
                       First           Second          Third           Fourth          Year            First           Second          Third           Fourth              Year
    Revenues:
    Hospital           $ 556,244       $ 589,102       $ 678,714       $ 707,388       $ 2,531,448     $ 762,056       $ 726,717       $ 712,834       $ 725,888           $ 2,927,495
    division
                                                                                                                                                                           
    Nursing center       567,472         568,199         571,226         547,202         2,254,099       544,319         535,644         534,188         533,989             2,148,140
    division
                                                                                                                                                                           
    Rehabilitation
    division:
    Skilled
    nursing              114,618         161,246         252,574         246,720         775,158         255,451         255,187         253,459         246,004             1,010,101
    rehabilitation
    services
    Hospital
    rehabilitation      22,490        38,291        69,811        70,232        200,824       74,369        73,379        71,899        73,885            293,532   
    services
                        137,108       199,537       322,385       316,952       975,982       329,820       328,566       325,358       319,889           1,303,633 
                                                                                                                                                                           
    Home health
    and hospice         8,038         10,828        15,419        26,451        60,736        28,432        28,872        35,943        50,093            143,340   
    division
                         1,268,862       1,367,666       1,587,744       1,597,993       5,822,265       1,664,627       1,619,799       1,608,323       1,629,859           6,522,608
                                                                                                                                                                           
    Eliminations:
    Skilled
    nursing              (57,081   )     (57,587   )     (57,922   )     (57,087   )     (229,677  )     (58,433   )     (57,056   )     (55,534   )     (52,496   )         (223,519  )
    rehabilitation
    services
    Hospital
    rehabilitation       (21,065   )     (20,497   )     (20,359   )     (21,996   )     (83,917   )     (28,161   )     (27,646   )     (27,009   )     (27,694   )         (110,510  )
    services
    Nursing             (865      )    (1,104    )    (1,299    )    (1,475    )    (4,743    )    (1,674    )    (1,862    )    (1,804    )    (1,948    )        (7,288    )
    centers
                        (79,011   )    (79,188   )    (79,580   )    (80,558   )    (318,337  )    (88,268   )    (86,564   )    (84,347   )    (82,138   )        (341,317  )
                       $ 1,189,851    $ 1,288,478    $ 1,508,164    $ 1,517,435    $ 5,503,928    $ 1,576,359    $ 1,533,235    $ 1,523,976    $ 1,547,721        $ 6,181,291 
                                                                                                                                                                           
    Income (loss)
    from
    continuing
    operations:
    Operating
    income (loss):
    Hospital           $ 108,750       $ 108,543       $ 125,648       $ 145,260       $ 488,201       $ 162,273       $ 142,497       $ 139,350       $ 156,529     (a)   $ 600,649
    division
                                                                                                                                                                           
    Nursing center       87,350          93,532          89,592          67,791          338,265         65,533          71,005          70,928          65,676      (a,b)   273,142
    division
                                                                                                                                                                           
    Rehabilitation
    division:
    Skilled
    nursing              9,159           15,978          27,575          13,204          65,916          14,193          22,942          19,659          23,869      (a)     80,663
    rehabilitation
    services
    Hospital
    rehabilitation      5,332         8,033         15,606        14,760        43,731        16,116        17,860        16,977        18,792     (a)    69,745    
    services
                        14,491        24,011        43,181        27,964        109,647       30,309        40,802        36,636        42,661            150,408   
                                                                                                                                                                           
    Home health
    and hospice          (10       )     (447      )     1,107           2,453           3,103           2,341           2,789           3,645           4,933       (a)     13,708
    division
                                                                                                                                                                           
    Corporate:
    Overhead             (38,315   )     (43,801   )     (48,806   )     (43,878   )     (174,800  )     (42,728   )     (44,723   )     (45,883   )     (45,729   ) (a)     (179,063  )
    Insurance           (602      )    (420      )    (750      )    (534      )    (2,306    )    (482      )    (600      )    (545      )    (500      )        (2,127    )
    subsidiary
                         (38,917   )     (44,221   )     (49,556   )     (44,412   )     (177,106  )     (43,210   )     (45,323   )     (46,428   )     (46,229   )         (181,190  )
                                                                                                                                                                           
    Impairment           -               -               (26,712   )     (91,490   )     (118,202  )     (867      )     (329      )     (708      )     (108,952  )         (110,856  )
    charges
    Transaction         (4,179    )    (34,851   )    (6,537    )    (5,139    )    (50,706   )    (485      )    (597      )    (482      )    (667      )        (2,231    )
    costs
    Operating            167,485         146,567         176,723         102,427         593,202         215,894         210,844         202,941         113,951             743,630
    income
    Rent                 (91,216   )     (95,489   )     (105,205  )     (106,135  )     (398,045  )     (105,872  )     (107,053  )     (108,317  )     (107,737  ) (c)     (428,979  )
    Depreciation
    and                  (32,496   )     (37,816   )     (46,814   )     (48,101   )     (165,227  )     (48,434   )     (49,742   )     (50,539   )     (52,353   )         (201,068  )
    amortization
    Interest, net       (5,233    )    (22,900   )    (25,753   )    (26,002   )    (79,888   )    (26,286   )    (26,441   )    (26,439   )    (27,676   )        (106,842  )
    Income (loss)
    from
    continuing           38,540          (9,638    )     (1,049    )     (77,811   )     (49,958   )     35,302          27,608          17,646          (73,815   )         6,741
    operations
    before income
    taxes
    Provision
    (benefit) for       15,861        (3,295    )    (2,194    )    (12,277   )    (1,905    )    14,347        11,392        7,296         6,077             39,112    
    income taxes
                       $ 22,679       $ (6,343    )   $ 1,145        $ (65,534   )   $ (48,053   )   $ 20,955       $ 16,216       $ 10,350       $ (79,892   )       $ (32,371   )
____________
(a) Includes employee severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4 million, home health and
    hospice division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred in connection with restructuring activities.
    
(b) Includes employee retention costs of $0.9 million incurred in connection with the decision to allow the leases to expire for 54 nursing centers leased from Ventas.
                                                                                                                                                                           
(c) Includes a lease cancellation charge of $0.1 million incurred in connection with restructuring activities.

                                                                                                                                      
    KINDRED HEALTHCARE, INC.
    Condensed Consolidating Statement of Operations
    (In thousands)
                                                                                                                                                  
                      Fourth Quarter 2012
                                    Nursing       Rehabilitation division                Home                       Transaction-
                      Hospital      center        Skilled       Hospital                 health and                 related
                                                  nursing
                      division     division     services     services  Total         hospice     Corporate    costs          Eliminations  Consolidated
                      (a,b)         (a,c)         (a)           (a)                      (a)          (a)
                                                                                                                                                  
    Revenues          $ 725,888    $ 533,989    $ 246,004    $ 73,885   $ 319,889    $ 50,093    $ -          $  -          $  (82,138 )   $ 1,547,721 
                                                                                                                                                  
    Salaries,
    wages and           316,809       261,313       219,400       51,210     270,610       36,474       29,065         (100    )      -             914,171
    benefits
    Supplies            76,031        27,839        868           36         904           2,127        224            -              -             107,125
    Rent                54,580        50,222        1,190         21         1,211         1,111        613            -              -             107,737
    Other
    operating           176,519       179,161       1,867         3,847      5,714         6,559        19,531         767            (82,138 )     306,113
    expenses
    Other income        -             -             -             -          -             -            (2,591  )      -              -             (2,591    )
    Impairment          118           935           107,899       -          107,899       -            -              -              -             108,952
    charges
    Depreciation
    and                 23,574        14,014        2,918         2,334      5,252         1,482        8,031          -              -             52,353
    amortization
    Interest            206           20            120           -          120           (4     )     27,592         -              -             27,934
    expense
    Investment         (19     )    (30     )    (1      )    -         (1      )    -          (208    )     -            -           (258      )
    income
                       647,818     533,474     334,261     57,448    391,709     47,749     82,257       667          (82,138 )    1,621,536 
    Income (loss)
    from
    continuing        $ 78,070      $ 515         $ (88,257 )   $ 16,437   $ (71,820 )   $ 2,344      $ (82,257 )   $  (667    )   $  -             (73,815   )
    operations
    before income
    taxes
    Provision for                                                                                                                                  6,077     
    income taxes
    Loss from
    continuing                                                                                                                                    $ (79,892   )
    operations
                                                                                                                                                  
    Capital
    expenditures,
    excluding
    acquisitions
    (including
    discontinued
    operations):
    Routine           $ 9,817       $ 8,153       $ 672         $ 117      $ 789         $ 1,187      $ 18,425      $  -           $  -           $ 38,371
    Development        6,693       5,454       -           -         -           -          -            -            -           12,147    
                      $ 16,510     $ 13,607     $ 672        $ 117      $ 789        $ 1,187     $ 18,425     $  -          $  -          $ 50,518    
                                                                                                                                                  
                                                                                                                                                  
                      Fourth Quarter 2011
                                    Nursing       Rehabilitation division                Home                       Transaction-
                      Hospital      center        Skilled       Hospital                 health and                 related
                                                  nursing
                      division     division      services      services   Total         hospice      Corporate     costs          Eliminations  Consolidated
                      (d)
                                                                                                                                                  
    Revenues          $ 707,388    $ 547,202    $ 246,720    $ 70,232   $ 316,952    $ 26,451    $ -          $  -          $  (80,558 )   $ 1,517,435 
                                                                                                                                                  
    Salaries,
    wages and           318,093       269,454       221,404       50,151     271,555       19,155       28,976         647            (27     )     907,853
    benefits
    Supplies            76,407        28,450        843           67         910           1,025        251            -              -             107,043
    Rent                51,818        49,748        1,415         72         1,487         568          695            1,819          -             106,135
    Other
    operating           167,628       181,507       11,269        5,254      16,523        3,818        17,896         4,492          (80,531 )     311,333
    expenses
    Other income        -             -             -             -          -             -            (2,711  )      -              -             (2,711    )
    Impairment          43,246        2,245         45,999        -          45,999        -            -              -              -             91,490
    charges
    Depreciation
    and                 22,322        12,554        2,617         2,349      4,966         902          7,357          -              -             48,101
    amortization
    Interest            228           26            -             -          -             1            25,989         -              -             26,244
    expense
    Investment         (3      )    (28     )    -           -         -           (1     )    (210    )     -            -           (242      )
    income
                       679,739     543,956     283,547     57,893    341,440     25,468     78,243       6,958        (80,558 )    1,595,246 
    Income (loss)
    from
    continuing        $ 27,649     $ 3,246      $ (36,827 )   $ 12,339   $ (24,488 )   $ 983       $ (78,243 )   $  (6,958  )   $  -            (77,811   )
    operations
    before income
    taxes
    Income tax                                                                                                                                     (12,277   )
    benefit
    Loss from
    continuing                                                                                                                                    $ (65,534   )
    operations
                                                                                                                                                  
    Capital
    expenditures,
    excluding
    acquisitions
    (including
    discontinued
    operations):
    Routine           $ 9,521       $ 7,577       $ 1,031       $ 60       $ 1,091       $ 65         $ 19,386      $  -           $  -           $ 37,640
    Development        13,157      4,027       -           -         -           901        -            -            -           18,085    
                      $ 22,678     $ 11,604     $ 1,031      $ 60       $ 1,091      $ 966       $ 19,386     $  -          $  -          $ 55,725    
____________
    Includes employee severance costs of $3.4 million (hospital division - $0.7 million, nursing center division - $1.9 million, rehabilitation division - $0.4
(a) million, home health and hospice division - $0.2 million and corporate - $0.2 million) and contract cancellation costs of $0.9 million (corporate) incurred
    in connection with restructuring activities.
    
(b) Includes a lease cancellation charge of $0.1 million incurred in connection with restructuring activities.
                                                                                                                                                  
(c) Includes employee retention costs of $0.9 million incurred in connection with the decision to allow the leases to expire for 54 nursing centers leased from
    Ventas.
                                                                                                                                                  
(d) Includes loss on divestiture of a hospital of $1.5 million.

<td*Story too large*
                                                                                                                                           
 KINDRED HEALTHCARE, INC.
 Condensed Consolidating Statement of Operations (Continued)
 (In thousands)
                                                                                                                                                       
               Year ended December 31, 2012
                               Nursing         Rehabilitation division                       Home                        Transaction-
               Hospital        center          Skilled         Hospital                      health and                  related
                                               nursing
               division        division        services (a)    services      Total           hospice (a)   Corporate     costs          Eliminations   Consolidated
               (a,b)           (a,c)                           (a)                                         (a)
                                                                                                                                                       
 Revenues      $ 2,927,495    $ 2,148,140    $ 1,010,101    $ 293,532    $ 1,303,633    $ 143,340    $ -          $   -         $ (341,317 )   $ 6,181,291 
                                                                                                                                                       
 Salaries,
 wages and       1,291,835       1,048,079       899,315         206,614       1,105,929       105,303       121,848         (450  )      (69      )     3,672,475
 benefits
 Supplies        314,230         107,766         3,093           163           3,256           5,953         803             -            -              432,008
 Rent            217,341         200,679         5,250           140           5,390           3,140         2,429           -            -              428,979
 Other
 operating       720,781         719,153         27,030
 expenses

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