Kindred Healthcare Completes First Phase of Its Repositioning Plan as Company Moves 136 Facilities to Discontinued Operations in

  Kindred Healthcare Completes First Phase of Its Repositioning Plan as
  Company Moves 136 Facilities to Discontinued Operations in 2013, Including
  59 in Recent Agreement with Ventas

   Company Reports Third Quarter Continuing Operations Diluted EPS of $0.05
                           Excluding Certain Items

     Reported Continuing Operations Loss Totaled $0.39 Per Diluted Share

New 2013 Core Continuing Operations EPS Expected to Range from $0.78 to $0.88
                        Before Redeployment of Capital

Company Raises Estimated 2013 Free Cash Flows to $120 Million from $90 Million
 as Redeployment Strategy Advances with Announcement of Home Health and Real
                             Estate Acquisitions

     2014 Continuing Operations EPS Expected to Range from $1.05 to $1.25

  2014 EPS Estimate Includes $0.15 Incremental Rent Charge Related to Recent
                               Ventas Agreement

  Preliminary 2014 Free Cash Flows Estimated at $110 Million after Full-Year
                                Cash Dividend

Business Wire

LOUISVILLE, Ky. -- November 5, 2013

Kindred Healthcare, Inc. (“Kindred” or the “Company”) (NYSE:KND) today
announced its operating results for the third quarter ended September 30,
2013. In connection with its previously announced repositioning plan, during
the third quarter of 2013, the Company sold 15 hospitals and eight skilled
nursing facilities for $227 million in cash and executed an agreement with
Ventas, Inc. (“Ventas”) (NYSE:VTR) to exit 59 skilled nursing facilities and
close another facility. In addition, during the first half of 2013, the
Company successfully exited 54 skilled nursing facilities previously leased
from Ventas. Except for the facility to be closed, the Company has
reclassified the operations of these facilities (136 in number and
approximately $1.3 billion in annualized revenues) as discontinued for all
periods presented. 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.

Highlights:

  *Consolidated revenues declined 2% to $1.2 billion

-- Federal sequestration cuts of 2% reduced revenues by approximately $13
million in the quarter

  *Volume softness in hospital and nursing center divisions dampened overall
    third quarter results
  *Free cash flows (operating cash flows in excess of routine and development
    capital spending and dividends) excluding certain items, surged to $85
    million in the quarter, while year-to-date results totaled $135 million
  *Board of Directors declared quarterly cash dividend of $0.12 per share
  *Available borrowing capacity under the Company’s revolving credit facility
    grew to nearly $600 million at September 30, 2013

Recent Ventas Agreement and Announced Home Health and Real Estate Acquisitions
Accelerate Company’s Growth and Repositioning Plan

Ventas Agreement

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “Having
successfully executed a favorable agreement with Ventas at the end of the
third quarter, we have now established a level of certainty within the Ventas
relationship that we have never before attained and we are pleased to be
moving forward at an accelerated pace with our previously announced
repositioning plan. Since the beginning of the year, we have essentially
disposed of 136 non-strategic and, in many cases, unprofitable facilities and
we are confident that our strategic disposition work will be completed in
advance of our previous timeline. More importantly, as we look to the future,
our divestiture activities will eliminate substantial rent obligations and
provide a significant amount of capital which we intend to redeploy in home
health and other strategic acquisitions in our Integrated Care Markets that
will create a more valuable enterprise for our patients, employees and
shareholders in 2014 and beyond.”

As previously announced, the Company entered into an agreement with Ventas on
September 30, 2013, in which the Company renewed certain existing leases
covering 22 transitional care (“TC”) hospitals and 26 skilled nursing
facilities. In connection with the renewal of certain of these facilities, the
Company agreed to pay additional annual rents aggregating $15 million
beginning October 1, 2014. For accounting purposes, the Company is required to
record the additional rents over the new lease term on a straight-line basis
beginning on October 1, 2013, the effective date of the agreement. As a
result, the Company will record incremental rent expense aggregating
approximately $5 million ($0.05 per diluted share) in the fourth quarter of
2013 and approximately $13 million ($0.15 per diluted share) during the first
nine months of fiscal 2014. Cash payments for the additional annual rent will
not begin until October 1, 2014.

The agreement with Ventas also provided for the Company’s exit from 59 skilled
nursing facilities and the closure of another facility. Under the terms of the
agreement, the lease term for these facilities will expire on September 30,
2014. For accounting purposes, the Company classified the 59 skilled nursing
facilities as assets held for sale and reflected the related operating results
as discontinued operations in the accompanying condensed consolidated
statement of operations for all historical periods. The facility scheduled for
closure will be reflected as a discontinued operation upon completion of the
closure process.

Under the terms of the agreement, the Company paid $20 million ($12 million
net of income taxes) to Ventas on October 1, 2013 in exchange for the early
termination of certain leases. In addition, the Company recorded an asset
impairment charge of $8 million ($5 million net of income taxes) related to
leasehold improvements in the early terminated leases. These charges were
recorded in discontinued operations in the third quarter of 2013 in the
accompanying condensed consolidated statement of operations.

Recent Acquisition Announcements

Earlier this week, the Company announced a definitive agreement to acquire
Senior Home Care, Inc. (“Senior Home Care”), one of the largest home health
providers in Florida and Louisiana with annualized revenues of approximately
$143 million. The Company expects that the Senior Home Care acquisition will
increase 2014 earnings by $0.07 to $0.09 per diluted share.

Mr. Diaz noted, “This transaction is another important example of how we are
redeploying assets from our divestiture process and repositioning Kindred with
a focus on our Integrated Care Markets and our Care Management Division,
including Kindred at Home.”

In addition to the Senior Home Care acquisition, the Company also announced
this week that it intends to acquire nine skilled nursing facilities that it
currently leases from HCP, Inc. (NYSE:HCP) and its affiliates (“HCP”) for
approximately $83 million. The annual lease payments for these facilities
approximate $9 million. Kindred anticipates that the transaction with HCP will
increase 2014 earnings by approximately $0.04 per diluted share.

Mr. Diaz noted, “Purchasing the real estate of these skilled nursing
facilities is an important step as we continue to reduce our lease
obligations, our most expensive debt, and improve the Company’s capital
structure and earnings going forward.”

Third Quarter Results

Continuing Operations

Consolidated revenues for the third quarter ended September 30, 2013 declined
2% to $1.2 billion compared to $1.23 billion in the third quarter last year.
The Company reported a loss from continuing operations for the third quarter
of 2013 of $20.4 million or $0.39 per diluted share compared to income of $6.8
million or $0.13 per diluted share in the third quarter last year.

Third quarter 2013 operating results included pretax charges of approximately
$33 million related to (1) changes in estimates related to pending litigation,
(2) costs associated with the closure of a hospital and a home health
location, (3) costs associated with certain severance and retirement benefits,
(4) charges associated with the modification of certain of the Company’s
senior debt, and (5) transaction-related costs. These items reduced income
from continuing operations by $23.2 million or $0.44 per diluted share.

Third quarter 2012 operating results included certain charges that reduced
income from continuing operations by $1.0 million or $0.02 per diluted share.

Mr. Diaz noted, “Our adjusted third quarter results, while soft, should be
viewed in the context of the seasonal volume weakness and this extraordinarily
busy period of repositioning activities related to the disposition of
non-strategic assets that we have previously discussed with investors.
Importantly, we also believe that investors should note the very strong free
cash flows being generated by the Company that will enable us to continue to
invest in future growth and support our recurring cash dividend to
shareholders.”

Mr. Diaz continued, “I have great confidence in our repositioning plan and our
“Continue the Care” strategy and we are well on our way in the creation of a
company focused on our Integrated Care Markets, our new Care Management
Division and Kindred at Home and the many benefits associated with the new
business profile of Kindred. In particular, we are moving toward a path to
profitability in a smaller, higher acuity, and more market-focused skilled
nursing facility business. Additionally, we will improve our home health and
hospice operations by investing significant resources to bring together
numerous acquisitions and execute on a more standardized operating model. And
finally, our hospital and RehabCare divisions continue to perform in line with
our expectations so far this year despite significant regulatory headwinds in
each of these businesses.”

Discontinued Operations

As previously discussed, in connection with the Company’s long-range plans to
reposition its businesses and enhance its Integrated Care Market strategy, the
Company has effected various transactions and entered into certain agreements
to significantly change its business mix, operating profile and future
business prospects during fiscal 2013. During the first nine months of 2013,
the Company has exited, sold or agreed to exit 136 facilities (14 TC
hospitals, one inpatient rehabilitation hospital (“IRF”) and 121 skilled
nursing facilities with annualized revenues approximating $1.3 billion). For
accounting purposes, the historical operating results of these businesses have
been classified as discontinued operations in the Company’s accompanying
condensed consolidated statement of operations for all historical periods.

During the first half of 2013, in connection with a previously executed
agreement, the Company exited 54 skilled nursing facilities previously leased
from Ventas. No cash consideration was paid by the Company in connection with
this divestiture.

In addition to the previously discussed September agreement with Ventas, the
Company sold 15 hospitals and eight skilled nursing facilities for $227
million in cash in the third quarter of 2013. Proceeds from these transactions
were used to reduce the Company’s borrowings under its revolving credit
facility. As previously announced, the Company recorded a significant loss
from these sales primarily due to the write-off of a portion of the goodwill
and intangible assets recorded in its hospital division. As a result, the loss
on divestiture of discontinued operations included in the accompanying
condensed consolidated statement of operations reflects a pretax loss of
approximately $78 million ($64 million net of income taxes) in the third
quarter of 2013 and $96 million ($75 million net of income taxes) for the nine
months ended September 30, 2013 associated with these divestitures.

Earnings Guidance – Continuing Operations

The Company’s previously issued earnings guidance for continuing operations
reflected the exit from 54 skilled nursing facilities previously leased from
Ventas completed in the first half of 2013. However, the earnings guidance did
not reflect the impact of (1) the sale of 15 hospitals and eight skilled
nursing facilities or (2) the recent agreement with Ventas to exit 59 skilled
nursing facilities and close another facility, both of which were completed in
the third quarter of 2013.

As a result, the Company has revised its earnings guidance for 2013 to reflect
the discontinued operations reclassifications recorded during the third
quarter of 2013.

The guidance for earnings and cash flows excludes the effect of (1) a one-time
employee bonus distributed in the first quarter of 2013, (2) changes in
estimates related to pending litigation, (3) the early lease termination
payment to Ventas, (4) costs associated with the closure of a hospital and a
home health location, (5) costs associated with certain severance and
retirement benefits, (6) any transaction-related costs, (7) charges associated
with the modification of certain of the Company’s senior debt, (8) any other
reimbursement changes, (9) any further acquisitions or divestitures (unless
otherwise noted), (10) any impairment charges, and (11) any repurchases of
common stock. A schedule detailing the financial impact of certain of these
items is included elsewhere in this press release.

Revised 2013 Continuing Operations Earnings Guidance

The Company expects consolidated revenues for 2013 to approximate $4.9
billion. Operating income, or earnings before interest, income taxes,
depreciation, amortization and rent, is expected to range from $657million to
$665 million. Rent expense is expected to approximate $323 million, while
depreciation and amortization should approximate $159 million. Net interest
expense is expected to approximate $103 million. The Company expects to report
income from continuing operations for 2013 between $42 million to $47 million
or $0.78 to $0.88 per diluted share (based upon diluted shares of 52.3
million). The Company’s previously issued 2013 guidance for diluted earnings
per share ranged from $1.10 to $1.30.

The following table highlights the significant factors impacting the revised
2013 continuing operations earnings guidance:

                                                                
                                                       Low           High
Continuing operations diluted earnings per share       $ 1.10       $ 1.30  
range as of August 5, 2013
                                                                     
                                                                     
Estimated full-year impact of discontinued
operations reclassification recorded in the third
quarter of 2013 (including 23 facilities sold for        (0.25 )       (0.25 )
cash and 59 Ventas facilities to be exited by
September 30, 2014)
                                                                     
Incremental Ventas rent expense associated with          (0.05 )       (0.05 )
renewal of certain leased facilities
                                                                     
Other changes in estimates related to ongoing           (0.02 )      (0.12 )
operations
                                                                     
                                                                     
Continuing operations diluted earnings per share       $ 0.78       $ 0.88  
range as of November 5, 2013
                                                                     

The Company expects diluted earnings per share from continuing operations to
range from $0.10 to $0.20 in the fourth quarter of 2013. Management’s estimate
includes the previously discussed incremental rent charge in connection with
the Ventas agreement that will reduce fourth quarter earnings by approximately
$0.05 per diluted share.

Preliminary 2014 Continuing Operations Earnings Guidance

The Company also announced its preliminary earnings guidance for 2014.
Consolidated revenues are expected to approximate $5.1 billion. Operating
income should range from $726 million to $744 million, while rent expense is
expected to approximate $339 million. Depreciation and amortization should
approximate $165 million and net interest expense is expected to approximate
$106 million. The Company expects to report income from continuing operations
for 2014 between $58 million to $69 million or $1.05 to $1.25 per diluted
share (based upon diluted shares of 53.2 million).

The Company’s 2014 earnings per share guidance includes the estimated impact
of the previously announced transactions with Senior Home Care and HCP as well
as $0.05 to $0.10 for the estimated impact of other acquisitions that the
Company expects to complete in 2014.

The following table summarizes the Company’s 2014 preliminary earnings
guidance:

                                                      As of November 5, 2013
                                                        Low         High
Operating income                                        $  726       $ 744  
                                                                      
                                                                      
Rent                                                       339          339
Depreciation and amortization                              165          165
Interest, net                                             106        106  
                                                                      
Income from continuing operations before income            116          134
taxes
Provision for income taxes                                46         53   
                                                                      
Income from continuing operations                          70           81
Earnings attributable to noncontrolling interests         (12  )      (12  )
                                                                      
Income from continuing operations attributable to          58           69
the Company
Allocation to participating unvested restricted           (2   )      (2   )
stockholders
                                                                      
Available to common stockholders                        $  56        $ 67   
                                                                             
Earnings per diluted share                              $  1.05       $ 1.25
                                                                             
Shares used in computing earnings per diluted share        53.2         53.2


Cash Flow Guidance

The Company significantly raised its operating cash flow guidance for 2013 and
also announced its preliminary cash flow guidance for fiscal 2014. The
following table summarizes the Company’s cash flow estimates:

                    As of November 5, 2013          As of August 5, 2013
                                                                             
                      2013           2014              2013
                      Low    High    Low    High      Low         High
Operating cash        $ 250   $ 260   $ 255   $ 265     $   235      $  255
flows
                                                                             
Routine capital        105    115    100    110        112        122
expenditures
                                                                             
Adjusted cash           145     145     155     155         123         133
flows
                                                                             
Development
capital                 12      12      19      19          20          30
expenditures
Payment of cash        13     13     26     26         13         13
dividends
                                                                             
                                                                             
Free cash flows       $ 120   $ 120   $ 110   $ 110     $   90       $  90
                                                                             

Management Commentary

Commenting further on the Company’s liquidity and strategic plan, Mr. Diaz
noted, “Our revised 2013 guidance reflects the impact of the divestiture
portion of our repositioning plan. While initially dilutive, we have created
significant levels of free cash flows and enhanced our overall financial
strength and liquidity, which will now fuel substantial growth as we look to
2014 and beyond. Notably during this phase, we have:

  *raised our 2013 free cash flow guidance to $120 million from $90 million
  *announced our estimated 2014 free cash flow guidance (including a full
    year of cash dividends) at $110 million; and
  *increased to nearly $600 million the availability under our revolving
    credit facility, the highest level in our history.

We are excited to be moving into the growth and capital redeployment phase of
our strategic plan. Earlier this week, we announced definitive agreements to:

  *acquire Senior Home Care, a premier home health provider with $143 million
    of annualized revenues and 47 locations in Florida and Louisiana, for $95
    million; and
  *acquire the real estate for nine of our leased skilled nursing facilities
    for approximately $83 million.

We believe that these transactions will add meaningfully to our 2014 earnings
and beyond. In addition, we plan to aggressively pursue other Integrated Care
Market acquisition opportunities that should significantly increase our core
earnings over time and provide for stronger earnings growth rates going
forward.”

Quarterly Cash Dividend

The Company also announced that its Board of Directors has approved the
payment of the regular quarterly cash dividend to its shareholders of $0.12
per common share to be paid on December 9, 2013 to shareholders of record as
of the close of business on November 18, 2013. Future declarations of
quarterly dividends will be subject to the approval of Kindred’s Board of
Directors.

Webcast of Conference Call and Additional Presentation Materials

As previously announced, investors and the general public can access a live
webcast of the third quarter 2013 conference call through a link on the
Company’s website at www.kindredhealthcare.com or by clicking here. The
conference call webcast will feature related presentation materials that will
be discussed during the call to be held on November 6 at 10:00 a.m. (Eastern
Time).

A telephone replay of the conference call will be available at approximately
12:00 p.m. on November 6 by dialing (719) 457-0820, access code: 9286759. The
replay will be available through November 16.

The additional presentation materials are available by clicking here. These
materials are also available in the Investor Relations section on the
Company’s website.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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. Statements in this press release concerning the
Company’s business outlook or future economic performance, anticipated
profitability, revenues, expenses or other financial items, and product or
services line growth, together with other statements that are not historical
facts, are forward-looking statements that are estimates reflecting the best
judgment of the Company based upon currently available information.

Such forward-looking statements are inherently uncertain, and stockholders and
other potential investors must recognize that actual results may differ
materially from the Company’s expectations as a result of a variety of
factors, including, without limitation, those discussed below. Such
forward-looking statements are based upon management’s current expectations
and include known and unknown risks, uncertainties and other factors, many of
which the Company is unable to predict or control, that may cause the
Company’s actual results 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 American Taxpayer Relief Act of 2012 (the “Taxpayer Relief
Act”)) which will automatically reduce federal spending by approximately $1.2
trillion split evenly between domestic and defense spending. An automatic 2%
reduction on each claim submitted to Medicare began 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 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 costs of defending and
insuring against alleged professional liability and other claims (including
those related to pending whistleblower and wage and hour class action lawsuits
against the Company) and the Company’s ability to predict the estimated costs
and reserves related to such claims, including the impact of differences in
actuarial assumptions and estimates compared to eventual outcomes, (j) the
impact of the Company’s significant level of indebtedness on the Company’s
funding costs, operating flexibility and ability to fund ongoing operations,
development capital expenditures or other strategic acquisitions with
additional borrowings, (k) the Company’s ability to successfully redeploy its
capital and proceeds of asset sales in pursuit of its business strategy and
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, (l) the Company’s ability to pay a dividend as, when and if
declared by the Board of Directors, in compliance with applicable laws and the
Company’s debt and other contractual arrangements, (m) the failure of the
Company’s facilities to meet applicable licensure and certification
requirements, (n) the further consolidation and cost containment efforts of
managed care organizations and other third party payors, (o) the Company’s
ability to meet its rental and debt service obligations, (p) 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, (q) 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, (r) the
Company’s ability to control costs, particularly labor and employee benefit
costs, (s) the Company’s ability to successfully reduce or mitigate (by
divestiture of operations or otherwise) its exposure to professional liability
and other claims, (t) the Company’s obligations under various laws to
self-report suspected violations of law by the Company to various government
agencies, including any associated obligation to refund overpayments to
government payors, fines and other sanctions, (u) the potential for diversion
of management time and resources in seeking to transfer the operations of 60
non-strategic nursing centers currently leased from Ventas (v) national and
regional economic, financial, business and political conditions, including
their effect on the availability and cost of labor, credit, materials and
other services, (w) increased operating costs due to shortages in qualified
nurses, therapists and other healthcare personnel, (x) the Company’s ability
to attract and retain key executives and other healthcare personnel, (y) the
Company’s ability to successfully dispose of unprofitable facilities, (z)
events or circumstances which could result in the impairment of an asset or
other charges, such as the impact of the Medicare reimbursement regulations
that resulted in the Company recording significant impairment charges in 2012
and 2011, (aa) 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 (bb) 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 three months and nine months ended September 30, 2013 and 2012 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 discusses the financial measure of free cash flows
excluding certain items. The Company recognizes that free cash flows excluding
certain items is a non-GAAP measurement and is not intended to replace the
presentation of the Company’s cash flows in accordance with GAAP. The Company
believes that this non-GAAP measurement provides important information to
investors related to the amount of discretionary cash flows that are available
for other investing and financing activities. In addition, management uses
free cash flows excluding certain items in making decisions related to
acquisitions, development capital expenditures, long-term debt repayments and
other uses. The Company believes net cash flows provided by operating
activities is the most comparable GAAP measure. Readers of the Company’s
financial information should consider net cash flows provided by operating
activities as an important measure of the Company’s financial performance
because it provides the most complete measure of its performance. Free cash
flows excluding certain items should be considered in addition to, not as a
substitute for, or superior to, financial measures based upon GAAP as an
indicator of operating performance. A reconciliation of net cash flows
provided by operating activities to free cash flows excluding certain items 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.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-150 private employer in the United States, is
a FORTUNE 500 healthcare services company based in Louisville, Kentucky with
annual revenues of approximately $5 billion and approximately 62,000 employees
in 46 states. At September 30, 2013, Kindred through its subsidiaries provided
healthcare services in 2,146 locations, including 102 transitional care
hospitals, five inpatient rehabilitation hospitals, 102 nursing centers, 21
sub-acute units, 105 Kindred at Home hospice, home health and non-medical home
care locations, 99 inpatient rehabilitation units (hospital-based) and a
contract rehabilitation services business, RehabCare, which served 1,712
non-affiliated facilities. Ranked as one of Fortune magazine’s Most Admired
Healthcare Companies for five 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. You can also follow us on
Twitter and Facebook.

                                                                     
                                                                                 
KINDRED HEALTHCARE, INC.
Financial Summary
(Unaudited)
(In thousands, except per share amounts)
                                                                                 
                           Three months ended                 Nine months ended
                           September 30,                       September 30,
                           2013              2012              2013              2012
                                                                                 
Revenues                   $ 1,198,473      $ 1,226,159      $ 3,705,456      $ 3,725,151 
                                                                                 
Income (loss) from         $ (19,619   )     $ 6,828           $ 1,236           $ 31,541
continuing operations
Discontinued
operations, net of
income taxes:
  Income (loss) from         (21,609   )       3,059             (24,287   )       13,777
  operations
  Loss on divestiture       (65,016   )      (2,280    )      (77,893   )      (3,806    )
  of operations
      Income (loss)
      from                  (86,625   )      779             (102,180  )      9,971     
      discontinued
      operations
        Net income           (106,244  )       7,607             (100,944  )       41,512
        (loss)
Earnings attributable
to noncontrolling           (754      )      (41       )      (1,252    )      (253      )
interests
          Income
          (loss)           $ (106,998  )     $ 7,566          $ (102,196  )     $ 41,259    
          attributable
          to Kindred
                                                                                 
Amounts attributable
to Kindred
stockholders:
  Income (loss) from
  continuing               $ (20,373   )     $ 6,787           $ (16       )     $ 31,288
  operations
  Income (loss) from
  discontinued              (86,625   )      779             (102,180  )      9,971     
  operations
          Net income       $ (106,998  )     $ 7,566          $ (102,196  )     $ 41,259    
          (loss)
                                                                                 
Earnings (loss) per
common share:
  Basic:
      Income (loss)
      from continuing      $ (0.39     )     $ 0.13            $ -               $ 0.59
      operations
      Discontinued
      operations:
        Income (loss)
        from                 (0.41     )       0.05              (0.47     )       0.26
        operations
        Loss on
        divestiture of      (1.24     )      (0.04     )      (1.49     )      (0.07     )
        operations
         Income (loss)
         from               (1.65     )      0.01            (1.96     )      0.19      
         discontinued
         operations
          Net income       $ (2.04     )     $ 0.14           $ (1.96     )     $ 0.78      
          (loss)
                                                                                 
  Diluted:
      Income (loss)
      from continuing      $ (0.39     )     $ 0.13            $ -               $ 0.59
      operations
      Discontinued
      operations:
        Income (loss)
        from                 (0.41     )       0.05              (0.47     )       0.26
        operations
        Loss on
        divestiture of      (1.24     )      (0.04     )      (1.49     )      (0.07     )
        operations
         Income (loss)
         from               (1.65     )      0.01            (1.96     )      0.19      
         discontinued
         operations
          Net income       $ (2.04     )     $ 0.14           $ (1.96     )     $ 0.78      
          (loss)
                                                                                 
Shares used in
computing earnings
(loss) per common
share:
  Basic                      52,323            51,676            52,218            51,648
  Diluted                    52,323            51,709            52,218            51,675

                                                                      
                                                                                 
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
                                                                                 
                           Three months ended                  Nine months ended
                           September 30,                       September 30,
                           2013              2012              2013              2012
                                                                                 
Revenues                   $ 1,198,473      $ 1,226,159      $ 3,705,456      $ 3,725,151 
                                                                                 
Salaries, wages and          733,605           754,761           2,264,525         2,282,803
benefits
Supplies                     81,812            85,129            251,672           261,586
Rent                         79,269            79,312            238,115           234,445
Other operating              269,927           230,076           745,556           699,692
expenses
Other (income) expense       52                (3,178    )       (983      )       (9,479    )
Impairment charges           441               406               1,085             1,015
Depreciation and             37,591            41,304            119,872           121,429
amortization
Interest expense             25,633            26,663            82,888            79,946
Investment income           (1,235    )      (212      )      (2,798    )      (753      )
                            1,227,095       1,214,261       3,699,932       3,670,684 
Income (loss) from
continuing operations        (28,622   )       11,898            5,524             54,467
before income taxes
Provision (benefit)         (9,003    )      5,070           4,288           22,926    
for income taxes
  Income (loss) from
  continuing                 (19,619   )       6,828             1,236             31,541
  operations
Discontinued
operations, net of
income taxes:
  Income (loss) from         (21,609   )       3,059             (24,287   )       13,777
  operations
  Loss on divestiture       (65,016   )      (2,280    )      (77,893   )      (3,806    )
  of operations
      Income (loss)
      from                  (86,625   )      779             (102,180  )      9,971     
      discontinued
      operations
        Net income           (106,244  )       7,607             (100,944  )       41,512
        (loss)
Earnings attributable
to noncontrolling           (754      )      (41       )      (1,252    )      (253      )
interests
          Income
          (loss)           $ (106,998  )     $ 7,566          $ (102,196  )     $ 41,259    
          attributable
          to Kindred
                                                                                 
Amounts attributable
to Kindred
stockholders:
  Income (loss) from
  continuing               $ (20,373   )     $ 6,787           $ (16       )     $ 31,288
  operations
  Income (loss) from
  discontinued              (86,625   )      779             (102,180  )      9,971     
  operations
          Net income       $ (106,998  )     $ 7,566          $ (102,196  )     $ 41,259    
          (loss)
                                                                                 
Earnings (loss) per
common share:
  Basic:
      Income (loss)
      from continuing      $ (0.39     )     $ 0.13            $ -               $ 0.59
      operations
      Discontinued
      operations:
        Income (loss)
        from                 (0.41     )       0.05              (0.47     )       0.26
        operations
        Loss on
        divestiture of      (1.24     )      (0.04     )      (1.49     )      (0.07     )
        operations
         Income (loss)
         from               (1.65     )      0.01            (1.96     )      0.19      
         discontinued
         operations
          Net income       $ (2.04     )     $ 0.14           $ (1.96     )     $ 0.78      
          (loss)
                                                                                 
  Diluted:
      Income (loss)
      from continuing      $ (0.39     )     $ 0.13            $ -               $ 0.59
      operations
      Discontinued
      operations:
        Income (loss)
        from                 (0.41     )       0.05              (0.47     )       0.26
        operations
        Loss on
        divestiture of      (1.24     )      (0.04     )      (1.49     )      (0.07     )
        operations
         Income (loss)
         from               (1.65     )      0.01            (1.96     )      0.19      
         discontinued
         operations
          Net income       $ (2.04     )     $ 0.14           $ (1.96     )     $ 0.78      
          (loss)
                                                                                 
Shares used in
computing earnings
(loss) per common
share:
  Basic                      52,323            51,676            52,218            51,648
  Diluted                    52,323            51,709            52,218            51,675

                                                         
                                                                
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
                                                                
                                              September 30,     December 31,
                                              2013              2012
ASSETS
Current assets:
   Cash and cash equivalents                  $ 44,579          $ 50,007
   Cash - restricted                            3,953             5,197
   Insurance subsidiary investments             93,686            86,168
   Accounts receivable less allowance for       929,931           1,038,605
   loss
   Inventories                                  26,291            32,021
   Deferred tax assets                          16,543            12,663
   Income taxes                                 43,309            13,573
   Other                                       40,032          35,532     
                                                1,198,324         1,273,766
                                                                
Property and equipment                          1,862,049         2,226,903
Accumulated depreciation                       (997,057  )      (1,083,777 )
                                                864,992           1,143,126
                                                                
Goodwill                                        976,611           1,041,266
Intangible assets less accumulated              405,771           439,767
amortization
Assets held for sale                            22,092            4,131
Insurance subsidiary investments                149,916           116,424
Deferred tax assets                             6,250             -
Other                                          240,653         219,466    
              Total assets                    $ 3,864,609      $ 4,237,946  
LIABILITIES AND EQUITY
Current liabilities:
   Accounts payable                           $ 169,217         $ 210,668
   Salaries, wages and other compensation       354,016           389,009
   Due to third party payors                    52,134            35,420
   Professional liability risks                 59,439            54,088
   Other accrued liabilities                    184,781           137,204
   Long-term debt due within one year          8,225           8,942      
                                                827,812           835,331
                                                                
Long-term debt                                  1,382,385         1,648,706
Professional liability risks                    246,482           236,630
Deferred tax liabilities                        -                 9,764
Deferred credits and other liabilities          220,202           214,671
                                                                
Equity:
   Stockholders' equity:
     Common stock, $0.25 par value;
     authorized 175,000 shares; issued
     54,149 shares - September 30, 2013         13,537            13,320
     and 53,280 shares - December 31,
     2012
     Capital in excess of par value             1,149,521         1,145,922
     Accumulated other comprehensive loss       (1,632    )       (1,882     )
     Retained earnings (deficit)               (10,275   )      98,799     
                                                1,151,151         1,256,159
   Noncontrolling interests                    36,577          36,685     
              Total equity                     1,187,728       1,292,844  
              Total liabilities and           $ 3,864,609      $ 4,237,946  
              equity

                                                                
                                                                            
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
                                                                            
                       Three months ended                Nine months ended
                       September 30,                     September 30,
                       2013             2012             2013               2012
Cash flows from
operating
activities:
  Net income           $ (106,244 )     $ 7,607          $ (100,944   )     $ 41,512
  (loss)
  Adjustments to
  reconcile net
  income (loss) to
  net cash
  provided by
  operating
  activities:
     Depreciation
     and                 42,831           50,600           142,745            149,092
     amortization
     Amortization
     of
     stock-based         1,553            3,132            7,641              8,011
     compensation
     costs
     Amortization
     of deferred         2,509            2,375            9,529              7,091
     financing
     costs
     Payment of
     lender fees
     related to          (4,589   )       -                (6,189     )       -
     senior debt
     modifications
     Provision for
     doubtful            13,152           9,117            34,489             22,654
     accounts
     Deferred            2,336            (1,235   )       (22,985    )       (18,140    )
     income taxes
     Impairment          8,995            708              10,077             1,904
     charges
     Loss on
     divestiture
     of                  65,016           2,280            77,893             3,806
     discontinued
     operations
     Other               6,316            786              5,452              2,753
     Change in
     operating
     assets and
     liabilities:
       Accounts          45,862           13,175           26,745             (67,913    )
       receivable
       Inventories
       and other         3,467            (5,490   )       67                 (20,897    )
       assets
       Accounts          (12,901  )       5,281            (31,979    )       (7,252     )
       payable
       Income            (27,969  )       7,588            (5,269     )       39,285
       taxes
       Due to
       third party       25,931           12,627           16,716             1,688
       payors
       Other
       accrued          44,485         32,938         25,229           27,493     
       liabilities
        Net cash
        provided
        by              110,750        141,489        189,217          191,087    
        operating
        activities
                                                                            
Cash flows from
investing
activities:
  Routine capital        (23,152  )       (25,939  )       (62,952    )       (76,804    )
  expenditures
  Development
  capital                (3,235   )       (15,177  )       (10,709    )       (38,175    )
  expenditures
  Acquisitions,
  net of cash            (12,173  )       (71,440  )       (39,106    )       (139,308   )
  acquired
  Acquisition            (14,675  )       -                (14,675    )       -
  deposit
  Sale of assets         236,397          -                248,700            1,110
  Purchase of
  insurance              (7,765   )       (9,692   )       (30,360    )       (30,890    )
  subsidiary
  investments
  Sale of
  insurance              9,899            8,063            35,427             30,073
  subsidiary
  investments
  Net change in
  insurance
  subsidiary cash        (1,416   )       (685     )       (44,294    )       (15,171    )
  and cash
  equivalents
  Change in other        (140     )       1,003            218                1,454
  investments
  Other                 79             (25      )      (142       )      (1,029     )
        Net cash
        provided
        by (used        183,819        (113,892 )      82,107           (268,740   )
        in)
        investing
        activities
                                                                            
Cash flows from
financing
activities:
  Proceeds from
  borrowings under       238,900          364,600          1,100,300          1,329,300
  revolving credit
  Repayment of
  borrowings under       (519,200 )       (390,400 )       (1,363,600 )       (1,244,900 )
  revolving credit
  Repayment of
  other long-term        (92      )       (2,665   )       (4,818     )       (7,976     )
  debt
  Payment of
  deferred               (683     )       (288     )       (1,340     )       (601       )
  financing costs
  Contribution
  made by                -                -                -                  200
  noncontrolling
  interests
  Distribution
  made to                (118     )       -                (1,628     )       (3,521     )
  noncontrolling
  interests
  Purchase of
  noncontrolling         -                (715     )       -                  (715       )
  interests
  Issuance of            222              -                429                -
  common stock
  Dividends paid         (6,499   )       -                (6,499     )       -
  Other                 53             -              404              -          
        Net cash
        provided
        by (used        (287,417 )      (29,468  )      (276,752   )      71,787     
        in)
        financing
        activities
Change in cash and       7,152            (1,871   )       (5,428     )       (5,866     )
cash equivalents
Cash and cash
equivalents at          37,427         37,566         50,007           41,561     
beginning of
period
Cash and cash
equivalents at end     $ 44,579        $ 35,695        $ 44,579          $ 35,695     
of period

                                                                                                                   
                                                                                                                                
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
                                                                                                                                
                                                                                                                                
                            2012 Quarters                                                       2013 Quarters
                            First           Second          Third           Fourth              First           Second          Third
                                                                                                                                
Revenues                    $ 1,269,884    $ 1,229,108    $ 1,226,159    $ 1,247,549        $ 1,288,867    $ 1,218,116    $ 1,198,473 
                                                                                                                                
Salaries, wages and           780,050         747,992         754,761         761,494             799,519         731,401         733,605
benefits
Supplies                      89,805          86,652          85,129          85,535              86,835          83,025          81,812
Rent                          76,947          78,186          79,312          79,047              78,982          79,864          79,269
Other operating               233,198         236,418         230,076         227,873             239,402         236,227         269,927
expenses
Other (income) expense        (3,136    )     (3,165    )     (3,178    )     (3,181    )         (1,009    )     (26       )     52
Impairment charges            498             111             406             108,127             187             457             441
Depreciation and              39,470          40,655          41,304          42,623              42,650          39,631          37,591
amortization
Interest expense              26,570          26,713          26,663          27,929              28,171          29,084          25,633
Investment income            (283      )    (258      )    (212      )    (246      )        (88       )    (1,475    )    (1,235    )
                             1,243,119     1,213,304     1,214,261     1,329,201         1,274,649     1,198,188     1,227,095 
Income (loss) from
continuing operations         26,765          15,804          11,898          (81,652   )         14,218          19,928          (28,622   )
before income taxes
Provision (benefit) for      11,039        6,817         5,070         2,870             5,264         8,027         (9,003    )
income taxes
  Income (loss) from          15,726          8,987           6,828           (84,522   )         8,954           11,901          (19,619   )
  continuing operations
Discontinued
operations, net of
income taxes:
  Income (loss) from          4,086           6,632           3,059           4,625               (3,456    )     778             (21,609   )
  operations
  Loss on divestiture        (1,170    )    (356      )    (2,280    )    (939      )        (2,025    )    (10,852   )    (65,016   )
  of operations
     Income (loss) from
     discontinued            2,916         6,276         779           3,686             (5,481    )    (10,074   )    (86,625   )
     operations
        Net income            18,642          15,263          7,607           (80,836   )         3,473           1,827           (106,244  )
        (loss)
(Earnings) loss
attributable to              (451      )    239           (41       )    (790      )        (416      )    (82       )    (754      )
noncontrolling
interests
           Income
           (loss)           $ 18,191       $ 15,502       $ 7,566        $ (81,626   )       $ 3,057        $ 1,745        $ (106,998  )
           attributable
           to Kindred
                                                                                                                                
Amounts attributable to
Kindred stockholders:
  Income (loss) from        $ 15,275        $ 9,226         $ 6,787         $ (85,312   )       $ 8,538         $ 11,819        $ (20,373   )
  continuing operations
  Income (loss) from
  discontinued               2,916         6,276         779           3,686             (5,481    )    (10,074   )    (86,625   )
  operations
           Net income       $ 18,191       $ 15,502       $ 7,566        $ (81,626   )       $ 3,057        $ 1,745        $ (106,998  )
           (loss)
                                                                                                                                
Earnings (loss) per
common share:
  Basic:
     Income (loss) from
     continuing             $ 0.29          $ 0.17          $ 0.13          $ (1.65     )       $ 0.16          $ 0.22          $ (0.39     )
     operations
     Discontinued
     operations:
        Income (loss)         0.08            0.13            0.05            0.09                (0.06     )     0.01            (0.41     )
        from operations
        Loss on
        divestiture of       (0.02     )    (0.01     )    (0.04     )    (0.02     )        (0.04     )    (0.20     )    (1.24     )
        operations
          Income (loss)
          from               0.06          0.12          0.01          0.07              (0.10     )    (0.19     )    (1.65     )
          discontinued
          operations
           Net income       $ 0.35         $ 0.29         $ 0.14         $ (1.58     )       $ 0.06         $ 0.03         $ (2.04     )
           (loss)
                                                                                                                                
  Diluted:
     Income (loss) from
     continuing             $ 0.29          $ 0.17          $ 0.13          $ (1.65     )       $ 0.16          $ 0.22          $ (0.39     )
     operations
     Discontinued
     operations:
        Income (loss)         0.08            0.13            0.05            0.09                (0.06     )     0.01            (0.41     )
        from operations
        Loss on
        divestiture of       (0.02     )    (0.01     )    (0.04     )    (0.02     )        (0.04     )    (0.20     )    (1.24     )
        operations
          Income (loss)
          from               0.06          0.12          0.01          0.07              (0.10     )    (0.19     )    (1.65     )
          discontinued
          operations
           Net income       $ 0.35         $ 0.29         $ 0.14         $ (1.58     )       $ 0.06         $ 0.03         $ (2.04     )
           (loss)
                                                                                                                                
Shares used in
computing earnings
(loss) per common
share:
     Basic                    51,603          51,664          51,676          51,692              52,062          52,265          52,323
     Diluted                  51,638          51,675          51,709          51,692              52,083          52,284          52,323

                                                                                                              
                                                                                                                                         
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)
                                                                                                                                         
                                                                                                                                         
                       2012 Quarters                                                       2013 Quarters
                       First           Second          Third           Fourth              First           Second          Third
Revenues:
  Hospital             $ 683,068       $ 648,152       $ 636,463       $ 647,794           $ 677,246       $ 623,877       $ 608,506
  division
                                                                                                                                         
  Nursing center         285,032         279,353         282,223         283,451             283,771         278,191         277,668
  division
                                                                                                                                         
  Rehabilitation
  division:
    Skilled
    nursing              253,595         253,181         252,201         244,558             257,585         248,331         243,968
    rehabilitation
    services
    Hospital
    rehabilitation      74,369        73,402        71,899        73,910            74,523        69,777        68,296    
    services
                        327,964       326,583       324,100       318,468           332,108       318,108       312,264   
                                                                                                                                         
  Home health and       28,432        28,872        35,943        50,093            51,621        53,039        53,801    
  hospice division
                         1,324,496       1,282,960       1,278,729       1,299,806           1,344,746       1,273,215       1,252,239
                                                                                                                                         
  Eliminations:
    Skilled
    nursing              (28,953   )     (28,481   )     (27,805   )     (26,788   )         (30,161   )     (30,122   )     (29,414   )
    rehabilitation
    services
    Hospital
    rehabilitation       (25,023   )     (24,496   )     (23,904   )     (24,463   )         (24,505   )     (23,976   )     (23,191   )
    services
    Nursing             (636      )    (875      )    (861      )    (1,006    )        (1,213    )    (1,001    )    (1,161    )
    centers
                        (54,612   )    (53,852   )    (52,570   )    (52,257   )        (55,879   )    (55,099   )    (53,766   )
                       $ 1,269,884    $ 1,229,108    $ 1,226,159    $ 1,247,549        $ 1,288,867    $ 1,218,116    $ 1,198,473 
                                                                                                                                         
Income (loss) from
continuing
operations:
Operating income
(loss):
  Hospital             $ 151,491       $ 131,933       $ 130,798       $ 146,649           $ 149,644       $ 131,958       $ 112,290     (a)
  division
                                                                                                                                         
  Nursing center         32,810          35,030          37,865          31,276              28,519          35,381          30,304
  division
                                                                                                                                         
  Rehabilitation
  division:
    Skilled
    nursing              10,904          19,519          16,996          21,074              12,074          20,307          (8,571    ) (b)
    rehabilitation
    services
    Hospital
    rehabilitation      16,116        17,860        16,977        18,792            18,132        19,573        18,215     (c)
    services
                        27,020        37,379        33,973        39,866            30,206        39,880        9,644     
                                                                                                                                         
  Home health and        2,341           2,789           3,645           4,933               2,786           3,961           1,085       (d)
  hospice division
                                                                                                                                         
  Corporate:
    Overhead             (42,728   )     (44,723   )     (45,883   )     (45,729   )         (45,582   )     (43,199   )     (39,151   ) (e)
    Insurance           (482      )    (600      )    (545      )    (500      )        (509      )    (384      )    (482      )
    subsidiary
                         (43,210   )     (45,323   )     (46,428   )     (46,229   )         (46,091   )     (43,583   )     (39,633   )
                                                                                                                                         
  Impairment             (498      )     (111      )     (406      )     (108,127  )         (187      )     (457      )     (441      )
  charges
  Transaction           (485      )    (597      )    (482      )    (667      )        (944      )    (108      )    (613      )
  costs
        Operating        169,469         161,100         158,965         67,701              163,933         167,032         112,636
        income
Rent                     (76,947   )     (78,186   )     (79,312   )     (79,047   )         (78,982   )     (79,864   )     (79,269   )
Depreciation and         (39,470   )     (40,655   )     (41,304   )     (42,623   )         (42,650   )     (39,631   )     (37,591   )
amortization
Interest, net           (26,287   )    (26,455   )    (26,451   )    (27,683   )        (28,083   )    (27,609   )    (24,398   ) (f)
Income (loss) from
continuing               26,765          15,804          11,898          (81,652   )         14,218          19,928          (28,622   )
operations before
income taxes
Provision
(benefit) for           11,039        6,817         5,070         2,870             5,264         8,027         (9,003    )
income taxes
                       $ 15,726       $ 8,987        $ 6,828        $ (84,522   )       $ 8,954        $ 11,901       $ (19,619   )
                                                                                                                                         
     
(a) Includes costs of $5.5 million in connection with the closing of a TC hospital and a litigation charge of $0.7 million.
                                                                                                                                         
(b) Includes $23.1 million of litigation charges.
                                                                                                                                         
(c) Includes $0.3 million of severance and retirement costs.
                                                                                                                                         
(d) Includes $0.6 million of severance and retirement costs and $0.5 million of costs associated with closing a home health location.
                                                                                                                                         
(e) Includes $1.0 million of severance and retirement costs and $0.5 million of fees associated with the modification of certain of the
    Company's senior debt.
                                                                                                                                         
(f) Includes $0.1 million of charges associated with the modification of certain of the Company's senior debt.

                                                                                                                                       
                                                                                                                                                     
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
                                                                                                                                                     
                                                                                                                                                     
                    Three months ended September 30, 2013
                                  Nursing       Rehabilitation division                Home                            Transaction-
                    Hospital      center        Skilled       Hospital                 health and                      related
                                                nursing
                    division      division      services      services   Total         hospice (d)       Corporate     costs          Eliminations   Consolidated
                    (a)                         (b)           (c)                                        (e)
                                                                                                                                                     
Revenues            $ 608,506    $ 277,668    $ 243,968    $ 68,296   $ 312,264    $      53,801    $ -          $   -         $  (53,766 )   $ 1,198,473 
                                                                                                                                                     
Salaries, wages       269,295       134,068       220,267       45,872     266,139            43,184       21,022          -             (103    )     733,605
and benefits
Supplies              65,351        13,155        750           28         778                2,277        251             -             -             81,812
Rent                  50,929        25,450        1,123         19         1,142              1,193        555             -             -             79,269
Other operating       161,568       100,321       31,342        4,150      35,492             7,237        18,359          613           (53,663 )     269,927
expenses
Other (income)        2             (180    )     180           31         211                18           1               -             -             52
expense
Impairment            418           23            -             -          -                  -            -               -             -             441
charges
Depreciation
and                   17,483        6,830         2,461         2,281      4,742              1,638        6,898           -             -             37,591
amortization
Interest              203           13            63            -          63                 6            25,348          -             -             25,633
expense
Investment           (8      )    (19     )    (50     )    -         (50     )         -          (1,158  )      -           -           (1,235    )
income
                     565,241     279,661     256,136     52,381    308,517          55,553     71,276        613         (53,766 )    1,227,095 
Income (loss)
from continuing
operations          $ 43,265     $ (1,993  )   $ (12,168 )   $ 15,915   $ 3,747      $      (1,752 )   $ (71,276 )   $   (613  )    $  -            (28,622   )
before income
taxes
Income tax                                                                                                                                            (9,003    )
benefit
   Loss from
   continuing                                                                                                                                        $ (19,619   )
   operations
                                                                                                                                                     
Capital
expenditures,
excluding
acquisitions
(including
discontinued
operations):
    Routine         $ 6,421       $ 5,584       $ 860         $ 31       $ 891         $      522        $ 9,734       $   -          $  -           $ 23,152
    Development      3,235       -           -           -         -                -          -             -           -           3,235     
                    $ 9,656      $ 5,584      $ 860        $ 31       $ 891        $      522       $ 9,734      $   -         $  -          $ 26,387    
                                                                                                                                                     
                                                                                                                                                     
                    Three months ended September 30, 2012
                                  Nursing       Rehabilitation division                Home                            Transaction-
                    Hospital      center        Skilled       Hospital                 health and                      related
                                                nursing
                    division      division      services      services   Total         hospice           Corporate     costs          Eliminations   Consolidated
                    (f)
                                                                                                                                                     
Revenues            $ 636,463    $ 282,223    $ 252,201    $ 71,899   $ 324,100    $      35,943    $ -          $   -         $  (52,570 )   $ 1,226,159 
                                                                                                                                                     
Salaries, wages       283,611       138,153       224,283       50,724     275,007            26,332       32,008          (350  )       -             754,761
and benefits
Supplies              67,820        14,831        704           33         737                1,557        184             -             -             85,129
Rent                  52,197        24,300        1,356         2          1,358              805          652             -             -             79,312
Other operating       154,286       91,769        10,216        4,165      14,381             4,409        16,969          832           (52,570 )     230,076
expenses
Other (income)        (52     )     (395    )     2             -          2                  -            (2,733  )       -             -             (3,178    )
expense
Impairment            284           122           -             -          -                  -            -               -             -             406
charges
Depreciation
and                   20,060        7,298         2,811         2,328      5,139              1,137        7,670           -             -             41,304
amortization
Interest              231           15            36            -          36                 4            26,377          -             -             26,663
expense
                                                                                       
Investment           (5      )    (17     )    -           -         -          *Story
income                                                                                 too
                                                                                       large*

[TRUNCATED]