NOTE 20 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The accompanying condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” The Company’s Notes due 2020, Notes due 2022 and Notes due 2023 are fully and unconditionally guaranteed by substantially all of the Company’s domestic 100% owned subsidiaries. The Company’s Notes due 2020 and the Notes due 2023, which were issued during 2014, were senior unsecured obligations of the Escrow Issuer, which, prior to the Gentiva Merger, was a non-guarantor subsidiary of the Company. In connection with the Gentiva Merger, the Escrow Issuer was merged with and into the Company, with the Company assuming the Notes due 2020 and Notes due 2023. See Note 12. The equity method has been used with respect to the parent company’s investment in subsidiaries.

The following condensed consolidating financial data present the financial position of the parent company/issuer, the guarantor subsidiaries and the non-guarantor subsidiaries as of December 31, 2015 and December 31, 2014, and the respective results of operations and cash flows for the three years ended December 31, 2015.

Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)

	Year ended December 31, 2015
(In thousands)	Parent company/ issuer			Guarantor subsidiaries			Non-guarantor subsidiaries			Consolidating and eliminating adjustments			Consolidated
Revenues	$	–		$	6,185,250		$	972,531		$	(102,874	)	$	7,054,907
Salaries, wages and benefits		–			3,384,596			229,495			–			3,614,091
Supplies		–			333,358			50,996			–			384,354
Rent		–			306,075			76,534			–			382,609
Other operating expenses		–			726,135			99,861			–			825,996
General and administrative expenses		–			1,109,357			388,805			(102,874	)		1,395,288
Other (income) expense		–			86			(3,102	)		–			(3,016	)
Litigation contingency expense		–			138,648			–			–			138,648
Impairment charges		–			24,757			–			–			24,757
Depreciation and amortization		–			147,308			9,943			–			157,251
Management fees		–			(19,904	)		19,904			–			–
Intercompany interest (income) expense from affiliates		(205,411	)		160,172			45,239			–			–
Interest expense		228,826			3,220			349			–			232,395
Investment income		–			(1,650	)		(1,156	)		–			(2,806	)
Equity in net loss of consolidating affiliates		79,183			–			–			(79,183	)		–
		102,598			6,312,158			916,868			(182,057	)		7,149,567
Income (loss) from continuing operations before income taxes		(102,598	)		(126,908	)		55,663			79,183			(94,660	)
Provision (benefit) for income taxes		(9,214	)		(41,167	)		7,584			–			(42,797	)
Income (loss) from continuing operations		(93,384	)		(85,741	)		48,079			79,183			(51,863	)
Discontinued operations, net of income taxes:
Income (loss) from operations		–			755			(990	)		–			(235	)
Gain on divestiture of operations		–			1,244						–			1,244
Income (loss) from discontinued operations		–			1,999			(990	)		–			1,009
Net income (loss)		(93,384	)		(83,742	)		47,089			79,183			(50,854	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations		–			–			(42,564	)		–			(42,564	)
Discontinued operations		–			–			34			–			34
		–			–			(42,530	)		–			(42,530	)
Income (loss) attributable to Kindred	$	(93,384	)	$	(83,742	)	$	4,559		$	79,183		$	(93,384	)
Comprehensive income (loss)	$	(93,465	)	$	(83,286	)	$	46,890		$	78,926		$	(50,935	)
Comprehensive income (loss) attributable to Kindred	$	(93,465	)	$	(83,286	)	$	4,360		$	78,926		$	(93,465	)

NOTE 20 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Condensed Consolidating Statement of Operations and Comprehensive Loss (Continued)

	Year ended December 31, 2014
(In thousands)	Parent company/ issuer			Guarantor subsidiaries			Non-guarantor subsidiaries			Consolidating and eliminating adjustments			Consolidated
Revenues	$	–		$	4,466,335		$	664,504		$	(103,240	)	$	5,027,599
Salaries, wages and benefits		–			2,309,844			133,035			–			2,442,879
Supplies		–			257,066			31,977			–			289,043
Rent		–			263,783			49,256			–			313,039
Other operating expenses		–			594,596			85,396			–			679,992
General and administrative expenses		–			783,244			293,219			(103,240	)		973,223
Other (income) expense		–			233			(1,105	)		–			(872	)
Litigation contingency expense		–			4,600			–			–			4,600
Depreciation and amortization		–			146,994			8,576			–			155,570
Management fees		–			(13,256	)		13,256			–			–
Intercompany interest (income) expense from affiliates		(117,330	)		80,093			37,237			–			–
Interest expense		164,229			15			4,519			–			168,763
Investment income		–			(587	)		(3,409	)		–			(3,996	)
Equity in net loss of consolidating affiliates		51,393			–			–			(51,393	)		–
		98,292			4,426,625			651,957			(154,633	)		5,022,241
Income (loss) from continuing operations before income taxes		(98,292	)		39,710			12,547			51,393			5,358
Provision (benefit) for income taxes		(18,455	)		13,086			5,831			–			462
Income (loss) from continuing operations		(79,837	)		26,624			6,716			51,393			4,896
Discontinued operations, net of income taxes:
Loss from operations		–			(47,647	)		(5,983	)		–			(53,630	)
Loss on divestiture of operations		–			(10,572	)		(2,126	)		–			(12,698	)
Loss from discontinued operations		–			(58,219	)		(8,109	)		–			(66,328	)
Net loss		(79,837	)		(31,595	)		(1,393	)		51,393			(61,432	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations		–			–			(18,872	)		–			(18,872	)
Discontinued operations		–			–			467			–			467
		–			–			(18,405	)		–			(18,405	)
Loss attributable to Kindred	$	(79,837	)	$	(31,595	)	$	(19,798	)	$	51,393		$	(79,837	)
Comprehensive loss	$	(82,136	)	$	(32,701	)	$	(2,560	)	$	53,666		$	(63,731	)
Comprehensive loss attributable to Kindred	$	(82,136	)	$	(32,701	)	$	(20,965	)	$	53,666		$	(82,136	)

NOTE 20 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Condensed Consolidating Statement of Operations and Comprehensive Loss (Continued)

	Year ended December 31, 2013
(In thousands)	Parent company/ issuer			Guarantor subsidiaries			Non-guarantor subsidiaries			Consolidating and eliminating adjustments			Consolidated
Revenues	$	−		$	4,392,006		$	499,315		$	(116,086	)	$	4,775,235
Salaries, wages and benefits		−			2,234,195			129,943			–			2,364,138
Supplies		−			275,504			10,762			–			286,266
Rent		−			267,601			34,591			–			302,192
Other operating expenses		−			562,950			70,956			–			633,906
General and administrative expenses		−			775,992			215,864			(116,086	)		875,770
Other (income) expense		−			635			(1,496	)		–			(861	)
Litigation contingency expense		−			30,850			−			−			30,850
Impairment charges		–			77,193			–			–			77,193
Depreciation and amortization		–			144,062			8,883			–			152,945
Management fees		–			(12,908	)		12,908			–			–
Intercompany interest (income) expense from affiliates		(106,068	)		70,995			35,073			–			–
Interest expense		107,785			11			212			–			108,008
Investment income		–			(233	)		(3,813	)		–			(4,046	)
Equity in net loss of consolidating affiliates		167,455			–			–			(167,455	)		–
		169,172			4,426,847			513,883			(283,541	)		4,826,361
Loss from continuing operations before income taxes		(169,172	)		(34,841	)		(14,568	)		167,455			(51,126	)
Provision (benefit) for income taxes		(680	)		(11,348	)		1,535			–			(10,493	)
Loss from continuing operations		(168,492	)		(23,493	)		(16,103	)		167,455			(40,633	)
Discontinued operations, net of income taxes:
Loss from operations		–			(38,793	)		(1,522	)		–			(40,315	)
Loss on divestiture of operations		–			(83,887	)		–			–			(83,887	)
Loss from discontinued operations		–			(122,680	)		(1,522	)		–			(124,202	)
Net loss		(168,492	)		(146,173	)		(17,625	)		167,455			(164,835	)
(Earnings) loss attributable to noncontrolling interests:
Continuing operations		–			–			(3,890	)		–			(3,890	)
Discontinued operations		–			–			233			–			233
		–			–			(3,657	)		–			(3,657	)
Loss attributable to Kindred	$	(168,492	)	$	(146,173	)	$	(21,282	)	$	167,455		$	(168,492	)
Comprehensive loss	$	(166,862	)	$	(146,173	)	$	(17,859	)	$	167,689		$	(163,205	)
Comprehensive loss attributable to Kindred	$	(166,862	)	$	(146,173	)	$	(21,516	)	$	167,689		$	(166,862	)

NOTE 20 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Condensed Consolidating Balance Sheet

	As of December 31, 2015
(In thousands)	Parent company/ issuer		Guarantor subsidiaries			Non-guarantor subsidiaries		Consolidating and eliminating adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	–	$	18,232		$	80,526	$	–		$	98,758
Insurance subsidiary investments		–		–			106,638		–			106,638
Accounts receivable, net		–		1,039,761			155,107		–			1,194,868
Inventories		–		23,125			4,666		–			27,791
Income taxes		–		10,913			877		–			11,790
Other		–		53,648			7,406		–			61,054
		–		1,145,679			355,220		–			1,500,899
Property and equipment, net		–		911,611			60,385		–			971,996
Goodwill		–		2,098,812			570,998		–			2,669,810
Intangible assets, net		–		707,792			47,863		–			755,655
Assets held for sale		–		613			–		–			613
Insurance subsidiary investments		–		–			204,498		–			204,498
Intercompany		4,749,257		–			–		(4,749,257	)		–
Deferred tax assets		–		95,721			8,409		–			104,130
Acquisition deposit		–		18,489			–		–			18,489
Other		61,989		116,079			114,778		–			292,846
	$	4,811,246	$	5,094,796		$	1,362,151	$	(4,749,257	)	$	6,518,936
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	–	$	106,253		$	80,808	$	–		$	187,061
Salaries, wages and other compensation		–		348,548			56,377		–			404,925
Due to third party payors		–		36,251			–		–			36,251
Professional liability risks		–		4,813			59,286		–			64,099
Other accrued liabilities		75,134		297,608			21,504		–			394,246
Long-term debt due within one year		23,524		–			1,106		–			24,630
		98,658		793,473			219,081		–			1,111,212
Long-term debt		3,135,751		–			1,274		–			3,137,025
Intercompany/deficiency in earnings of consolidated subsidiaries		76,983		4,142,653			606,604		(4,826,240	)		–
Professional liability risks		–		61,472			201,801		–			263,273
Deferred credits and other liabilities		–		175,173			126,206		–			301,379
Commitments and contingencies
Equity:
Stockholders’ equity (deficit)		1,499,854		(77,975	)		992		76,983			1,499,854
Noncontrolling interests		–		–			206,193		–			206,193
		1,499,854		(77,975	)		207,185		76,983			1,706,047
	$	4,811,246	$	5,094,796		$	1,362,151	$	(4,749,257	)	$	6,518,936

NOTE 20 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Condensed Consolidating Balance Sheet (Continued)

	As of December 31, 2014
(In thousands)	Parent company/ issuer		Guarantor subsidiaries		Non-guarantor subsidiaries			Consolidating and eliminating adjustments			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	–	$	129,408	$	34,780		$	–		$	164,188
Insurance subsidiary investments		–		–		99,951			–			99,951
Accounts receivable, net		–		852,007		92,212			–			944,219
Inventories		–		22,908		2,794			–			25,702
Income taxes		–		7,621		954			–			8,575
Interest deposit on senior unsecured notes held in escrow		–		–		23,438			–			23,438
Other		–		37,639		3,959			–			41,598
		–		1,049,583		258,088			–			1,307,671
Property and equipment, net		–		859,414		42,690			–			902,104
Goodwill		–		704,790		292,807			–			997,597
Intangible assets, net		–		377,710		22,990			–			400,700
Assets held for sale		–		3,475		–			–			3,475
Insurance subsidiary investments		–		–		166,045			–			166,045
Investment in subsidiaries		1,943		–		–			(1,943	)		–
Intercompany		2,937,529		–		–			(2,937,529	)		–
Deferred tax assets		–		86,453		7,112			–			93,565
Proceeds from senior unsecured notes held in escrow		–		–		1,350,000			–			1,350,000
Acquisition deposit		–		195,000		–			–			195,000
Other		46,130		104,463		86,214			–			236,807
	$	2,985,602	$	3,380,888	$	2,225,946		$	(2,939,472	)	$	5,652,964
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	–	$	126,173	$	49,552		$	–		$	175,725
Salaries, wages and other compensation		–		311,271		47,586			–			358,857
Due to third party payors		–		43,957		–			–			43,957
Professional liability risks		–		3,323		60,814			–			64,137
Other accrued liabilities		20,317		157,169		12,494			–			189,980
Long-term debt due within one year		20,887		–		3,720			–			24,607
		41,204		641,893		174,166			–			857,263
Long-term debt		1,502,531		–		1,350,000			–			2,852,531
Intercompany		–		2,539,697		397,832			(2,937,529	)		–
Professional liability risks		–		55,634		187,980			–			243,614
Deferred credits and other liabilities		–		133,353		80,231			–			213,584
Commitments and contingencies
Equity:
Stockholders’ equity (deficit)		1,441,867		10,311		(8,368	)		(1,943	)		1,441,867
Noncontrolling interests		–		–		44,105			–			44,105
		1,441,867		10,311		35,737			(1,943	)		1,485,972
	$	2,985,602	$	3,380,888	$	2,225,946		$	(2,939,472	)	$	5,652,964

NOTE 20 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Condensed Consolidating Statement of Cash Flows

	Year ended December 31, 2015
(In thousands)	Parent company/ issuer			Guarantor subsidiaries			Non-guarantor subsidiaries			Consolidating and eliminating adjustments		Consolidated
Net cash provided by operating activities	$	21,963		$	71,617		$	69,682		$	–	$	163,262
Cash flows from investing activities:
Routine capital expenditures		–			(110,776	)		(11,155	)		–		(121,931	)
Development capital expenditures		–			(19,931	)		–			–		(19,931	)
Acquisitions, net of cash acquired		–			(511,683	)		(161,864	)		–		(673,547	)
Acquisition deposit		–			176,511			–			–		176,511
Sale of assets		–			8,735			–			–		8,735
Proceeds from senior unsecured notes offering held in escrow		–			–			1,350,000			–		1,350,000
Interest in escrow for senior unsecured notes		–			–			23,438			–		23,438
Purchase of insurance subsidiary investments		–			–			(85,222	)		–		(85,222	)
Sale of insurance subsidiary investments		–			–			75,075			–		75,075
Net change in insurance subsidiary cash and cash equivalents		–			–			(12,271	)		–		(12,271	)
Proceeds from note receivable		–			25,000			–			–		25,000
Net change in other investments		–			(4,620	)		–			–		(4,620	)
Other		–			10,972			–			–		10,972
Net cash provided by (used in) investing activities		–			(425,792	)		1,178,001			–		752,209
Cash flows from financing activities:
Proceeds from borrowings under revolving credit		1,740,450			–			–			–		1,740,450
Repayment of borrowings under revolving credit		(1,631,850	)		–			–			–		(1,631,850	)
Proceeds from issuance of senior unsecured notes due 2020 and 2023		1,350,000			–			(1,350,000	)		–		–
Proceeds from issuance of term loan, net of discount		199,000			–			–			–		199,000
Repayment of Gentiva debt		–			(1,177,363	)		–			–		(1,177,363	)
Repayment of term loan		(12,010	)		–			–			–		(12,010	)
Repayment of other long-term debt		–			–			(6,752	)		–		(6,752	)
Payment of deferred financing costs		(3,446	)		–			–			–		(3,446	)
Issuance of Common Stock in connection with employee benefit plans		534			–			–			–		534
Payment of costs associated with issuance of common stock and tangible equity units		(915	)		–			–			–		(915	)
Payment of dividend for Mandatory Redeemable Preferred Stock		(10,887	)		–			–			–		(10,887	)
Dividends paid		(40,119	)		–			–			–		(40,119	)
Contributions made by noncontrolling interests		–			–			2,152			–		2,152
Distributions to noncontrolling interests		–			–			(42,458	)		–		(42,458	)
Change in intercompany accounts		(1,612,720	)		1,417,599			195,121			–		–
Other		–			2,763			–			–		2,763
Net cash provided by (used in) financing activities		(21,963	)		242,999			(1,201,937	)		–		(980,901	)
Change in cash and cash equivalents		–			(111,176	)		45,746			–		(65,430	)
Cash and cash equivalents at beginning of period		–			129,408			34,780			–		164,188
Cash and cash equivalents at end of period	$	–		$	18,232		$	80,526		$	–	$	98,758

NOTE 20 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Condensed Consolidating Statement of Cash Flows (Continued)

	Year ended December 31, 2014
(In thousands)	Parent company/ issuer			Guarantor subsidiaries			Non-guarantor subsidiaries			Consolidating and eliminating adjustments		Consolidated
Net cash provided by (used in) operating activities	$	(26,637	)	$	91,605		$	40,503		$	–	$	105,471
Cash flows from investing activities:
Routine capital expenditures		–			(85,983	)		(5,098	)		–		(91,081	)
Development capital expenditures		–			(5,257	)		–			–		(5,257	)
Acquisitions, net of cash acquired		–			(23,986	)		(150	)		–		(24,136	)
Acquisition deposit		–			(195,000	)		–			–		(195,000	)
Sale of assets		–			23,861			–			–		23,861
Proceeds from senior unsecured notes offering held in escrow		–			–			(1,350,000	)		–		(1,350,000	)
Interest in escrow for senior unsecured notes		–			–			(23,438	)		–		(23,438	)
Purchase of insurance subsidiary investments		–			–			(105,324	)		–		(105,324	)
Sale of insurance subsidiary investments		–			–			51,716			–		51,716
Net change in insurance subsidiary cash and cash equivalents		–			–			33,683			–		33,683
Net change in other investments		–			1,406			–			–		1,406
Other		–			679			–			–		679
Net cash used in investing activities		–			(284,280	)		(1,398,611	)		–		(1,682,891	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit		1,551,515			–			–			–		1,551,515
Repayment of borrowings under revolving credit		(1,807,615	)		–			–			–		(1,807,615	)
Proceeds from issuance of term loan, net of discount		997,500			–			–			–		997,500
Proceeds from issuance of senior unsecured notes due 2022		500,000			–			–			–		500,000
Proceeds from issuance of senior unsecured notes due 2022 and 2023		–			–			1,350,000			–		1,350,000
Proceeds from issuance of debt component of tangible equity units		34,773			–			–			–		34,773
Repayment of senior unsecured notes		(550,000	)		–			–			–		(550,000	)
Repayment of term loan		(788,563	)		–			–			–		(788,563	)
Repayment of other long-term debt		–			(35	)		(238	)		–		(273	)
Payment of deferred financing costs		(3,431	)		–			–			–		(3,431	)
Equity offering, net of offering costs		321,968			–			–			–		321,968
Issuance of equity component of tangible equity units, net of issuance costs		133,336			–			–			–		133,336
Issuance of Common Stock in connection with employee benefit plans		6,243			–			–			–		6,243
Dividends paid		(28,594	)		–			–			–		(28,594	)
Distributions to noncontrolling interests		–			–			(13,692	)		–		(13,692	)
Change in intercompany accounts		(340,495	)		296,114			44,381			–		–
Other		–			2,469			–			–		2,469
Net cash provided by (used in) financing activities		26,637			298,548			1,380,451			–		1,705,636
Change in cash and cash equivalents		–			105,873			22,343			–		128,216
Cash and cash equivalents at beginning of period		–			23,535			12,437			–		35,972
Cash and cash equivalents at end of period	$	–		$	129,408		$	34,780		$	–	$	164,188

NOTE 20 – CONDENSED CONSOLIDATING FINANCIAL INFORMATION (Continued)

Condensed Consolidating Statement of Cash Flows (Continued)

	Year ended December 31, 2013
(In thousands)	Parent company/ issuer			Guarantor subsidiaries			Non-guarantor subsidiaries			Consolidating and eliminating adjustments			Consolidated
Net cash provided by (used in) operating activities	$	(1,290	)	$	171,717		$	28,985		$	–		$	199,412
Cash flows from investing activities:
Routine capital expenditures		–			(96,051	)		(4,857	)		–			(100,908	)
Development capital expenditures		–			(11,206	)		(618	)		–			(11,824	)
Acquisitions, net of cash acquired		–			(223,917	)		(402	)		–			(224,319	)
Sale of assets		–			250,606			–			–			250,606
Purchase of insurance subsidiary investments		–			–			(46,127	)		–			(46,127	)
Sale of insurance subsidiary investments		–			–			49,954			–			49,954
Net change in insurance subsidiary cash and cash equivalents		–			–			(44,077	)		–			(44,077	)
Net change in other investments		–			122			–			–			122
Capital contribution to insurance subsidiary		–			(14,220	)		–			14,220			–
Other		–			376			–			–			376
Net cash used in investing activities		–			(94,290	)		(46,127	)		14,220			(126,197	)
Cash flows from financing activities:
Proceeds from borrowings under revolving credit		1,675,800			–			–			–			1,675,800
Repayment of borrowings under revolving credit		(1,740,400	)		–			–			–			(1,740,400	)
Repayment of term loan		(5,937	)		–			–			–			(5,937	)
Repayment of other long-term debt		–			(103	)		(836	)		–			(939	)
Payment of deferred financing costs		(1,666	)		–			–			–			(1,666	)
Issuance of Common Stock in connection with employee benefit plans		461			–			–			–			461
Dividends paid		(13,001	)		–			–			–			(13,001	)
Distributions to noncontrolling interests		–			–			(2,051	)		–			(2,051	)
Change in intercompany accounts		86,033			(91,642	)		5,609			–			–
Capital contribution to insurance subsidiary		–			–			14,220			(14,220	)		–
Other		–			483			–			–			483
Net cash provided by (used in) financing activities		1,290			(91,262	)		16,942			(14,220	)		(87,250	)
Change in cash and cash equivalents		–			(13,835	)		(200	)		–			(14,035	)
Cash and cash equivalents at beginning of period		–			37,370			12,637			–			50,007
Cash and cash equivalents at end of period	$	–		$	23,535		$	12,437		$	–		$	35,972