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Kindred Healthcare Fourth Quarter Results Exceed Company's Guidance

February 8, 2011
Continuing Operations Income of $0.50 per Diluted Share Tops Guidance of $0.43
Quarter's Continuing Operations EPS Up 19% Over Last Year
Full Year Operating Cash Flows Exceed $200 Million for Second Consecutive Year

LOUISVILLE, Ky., Feb 08, 2011 (BUSINESS WIRE) --

Kindred Healthcare, Inc. ("Kindred" or "the Company") (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2010. 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.

Financial and Operating Highlights:

  • Fourth quarter consolidated results show strong growth compared to last year
    • Revenues grew 6% to $1.1 billion
    • Operating income rose 8% to $158 million
    • Income from continuing operations increased 21% to $20 million
    • Diluted earnings per share from continuing operations grew 19% to $0.50
  • Hospitals report growth from last year's fourth quarter
    • Recent acquisitions drove hospital revenues up 5% to $508 million
    • Operating income grew 3% to $96 million
  • Nursing and rehabilitation centers successfully transitioned to new Medicare payment system in fourth quarter
    • Revenue growth of 4% driven by increased patient acuity and a corresponding increase in the intensity of physician, nursing, respiratory and rehabilitation therapy services provided
    • Admissions grew 4% even as length of stay declined two days and more patients returned home faster
    • Division reports solid 13% growth in operating income
  • Peoplefirst Rehabilitation adds to customer base and adjusts to new Medicare rules in fourth quarter
    • Division reports 21% revenue growth primarily driven by new customers
    • Operating income declined by 15% due to higher therapist costs, the RUGs IV and concurrent therapy rule changes and acquisition-related costs
  • Full-year operating cash flows exceed $200 million for second consecutive year
    • Routine and development capital expenditures were fully funded through internal sources in both years

Fourth Quarter Results

Continuing Operations

Consolidated revenues for the fourth quarter ended December 31, 2010 increased 6% to $1.14 billion compared to $1.07 billion in the same period last year. Income from continuing operations for the fourth quarter of 2010 totaled $19.7 million or $0.50 per diluted share compared to $16.3 million or $0.42 per diluted share in the fourth quarter last year. Operating results for the fourth quarter of 2010 included acquisition-related costs that reduced income from continuing operations by approximately $1.6 million or $0.04 per diluted share.

Discontinued Operations

From time to time, the Company enters into transactions related to the divestiture of unprofitable businesses. For accounting purposes, the historical operating results of these businesses and gains or losses associated with these operations have been classified as discontinued operations in the Company's consolidated statement of operations for all historical periods.

For the fourth quarter of 2010, the Company reported income from discontinued operations totaling $1.1 million or $0.03 per diluted share compared to $2.4 million or $0.06 per diluted share in the fourth quarter of 2009.

In the fourth quarter of 2010, the Company reported a loss of $0.4 million or $0.01 per diluted share related to the divestiture of discontinued operations. During the same period in 2009, the Company recorded a gain of $0.6 million or $0.01 per diluted share related to these divestitures.

Fiscal Year Results

Continuing Operations

Consolidated revenues for the year ended December 31, 2010 increased 2% to $4.4 billion compared to $4.3 billion in the previous year. Income from continuing operations totaled $56.1 million or $1.42 per diluted share in 2010 compared to $62.6 million or $1.60 per diluted share in 2009.

Operating results in 2010 included certain items that reduced income from continuing operations by approximately $2.0 million or $0.05 per diluted share. Operating results in 2009 included certain items that increased income from continuing operations by approximately $1.8 million or $0.04 per diluted share.

Discontinued Operations

The Company reported income from discontinued operations totaling $0.8 million or $0.02 per diluted share in 2010 and $0.9 million or $0.02 per diluted share in 2009.

Losses on the divestiture of discontinued operations totaled $0.4 million or $0.01 per diluted share for 2010 compared to $23.4 million or $0.60 per diluted share for 2009.

Management Commentary

"We are pleased with our fourth quarter operating results," remarked Paul J. Diaz, President and Chief Executive Officer of the Company. "Our performance was particularly noteworthy in the context of a very busy quarter that included the successful transition of our nursing and rehabilitation centers and rehabilitation therapy business to the new Medicare reimbursement rules and the smooth integration of three recent cluster market acquisitions that included five hospitals, three nursing and rehabilitation centers and a home health company."

Commenting further on the Company's fourth quarter results, Mr. Diaz noted, "Despite continued volume challenges, our hospital business reported positive results, as we successfully added five acquired hospitals in southern California and opened a new hospital in Illinois. The successful operational and clinical transition to the new RUGs IV Medicare payment system in both our nursing and rehabilitation centers and our Peoplefirst rehabilitation therapy business resulted from the significant efforts of thousands of our caregivers across the Company. Finally, our 6,000 therapists in Peoplefirst also worked through the new Medicare rules related to RUGs IV and the related concurrent therapy policy while adding 64 more customers to our growing contract therapy business."

Mr. Diaz noted, "For the second consecutive year, our operating cash flows exceeded $200 million. As a result, all of our routine and development capital spending was funded internally, providing the Company with the additional financial flexibility to deploy its $600 million revolving credit facility to fund cluster market acquisitions."

Mr. Diaz also commented on the Company's 2010 Quality and Social Responsibility Report, "The Company is proud to issue its fourth annual Quality and Social Responsibility Report to fulfill our commitment to be transparent about our quality results and our ongoing efforts to improve the care and services for our patients and residents." Mr. Diaz noted that the Report links the Company's quality initiatives with its Continue the Care and cluster market strategies. "Both policymakers and the private markets are demanding that healthcare providers participate in coordinated care strategies to improve quality, reduce avoidable hospitalizations and lower costs. Kindred's cluster market strategy is designed to leverage Kindred's national scale to build a continuum of post-acute services in local healthcare delivery markets to achieve these shared goals. Kindred is aggressively developing a post-acute continuum of service lines in local markets, including long-term acute care hospitals, inpatient rehabilitation facilities, subacute or transitional care, long term care, including Alzheimer's and dementia care, and home care and hospice services, in order to partner with hospitals, health systems and payors to better manage episodes of care while at the same time improving quality and lowering costs."

Acquisition of RehabCare Group, Inc.

In a separate release earlier today, the Company announced the execution of a definitive agreement to acquire RehabCare Group, Inc. ("RehabCare") (NYSE:RHB).

Company Suspends 2011 Earnings Guidance

In connection with the pending acquisition of RehabCare, the Company has suspended its fiscal 2011 earnings guidance.

Conference Call

As noted in today's separate announcement of the RehabCare acquisition, a joint conference call to discuss the pending transaction will be held at 8:30 a.m. EST on Tuesday, February 8, 2011. The conference call can be accessed by dialing (913) 312-1305. Investors can access a live webcast of a conference call through a link on Kindred's website at www.kindredhealthcare.com.

A telephone replay of the conference call will be available at approximately 11:30 a.m. on February 8 by dialing (719) 457-0820, access code: 7191328. The replay will be available through February 16.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements regarding the Company's expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing the words such as "anticipate," "approximate," "believe," "plan," "estimate," "expect," "project," "could," "should," "will," "intend," "may" and other similar expressions, are forward-looking statements.

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

In addition to the factors set forth above, other factors that may affect the Company's plans or results include, without limitation, (a) the receipt of all required licensure and regulatory approvals and the satisfaction of the closing conditions to the RehabCare acquisition, including approval of the pending transaction by the stockholders of the respective companies, and the Company's ability to complete the required financing as contemplated by the financing commitment, (b) the Company's ability to integrate the operations of the acquired hospitals and rehabilitation services operations and realize the anticipated revenues, economies of scale, cost synergies and productivity gains in connection with the RehabCare acquisition and any other acquisitions that may be undertaken during 2011, as and when planned, including the potential for unanticipated issues, expenses and liabilities associated with those acquisitions and the risk that RehabCare fails to meet its expected financial and operating targets, (c) the potential for diversion of management time and resources in seeking to complete the RehabCare acquisition and integrate its operations, (d) the potential failure to retain key employees of RehabCare, (e) the impact of the Company's significantly increased levels of indebtedness as a result of the RehabCare acquisition on the Company's funding costs, operating flexibility and ability to fund ongoing operations with additional borrowings, particularly in light of ongoing volatility in the credit and capital markets, (f) the potential for dilution to the Company's stockholders as a result of the RehabCare acquisition, (g) the impact of healthcare reform, which will initiate significant reforms 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. Healthcare reform will impact each of the Company's businesses in some manner. Due to the substantial regulatory changes that will need to be implemented by the Centers for Medicare and Medicaid Services 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, (h) 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 reimbursements for nursing centers, and the expiration of the Medicare Part B therapy cap exception process, (i) 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, (j) the ability to successfully pursue 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, (k) the impact of the Medicare, Medicaid and SCHIP Extension Act of 2007 (the "SCHIP Extension Act"), including the ability of the Company's hospitals to adjust to potential LTAC certification, medical necessity reviews and the moratorium on future hospital development, (l) the impact of the expiration of several moratoriums under the SCHIP Extension Act which could impact the short stay rules, the budget neutrality adjustment as well as implement the policy known as the "25 Percent Rule," which would limit certain patient admissions, (m) failure of any 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 ability to meet rental and debt service obligations, (p) the ability of the Company to operate pursuant to the terms of its debt obligations, including the Company's obligations under financings undertaken to complete the RehabCare acquisition, and the ability of the Company to operate pursuant to its master lease agreements with Ventas, Inc. (NYSE:VTR), (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) national and regional economic, financial, business and political conditions, including their effect on the availability and cost of labor, credit, materials and other services, (s) the ability of the Company to control costs, particularly labor and employee benefit costs, (t) increased operating costs due to shortages in qualified nurses, therapists and other healthcare personnel, (u) the ability to attract and retain key executives and other healthcare personnel, (v) the increase in the costs of defending and insuring against alleged professional liability and other claims and the ability to predict the estimated costs related to such claims, including the impact of differences in actuarial assumptions and estimates compared to eventual outcomes, (w) the Company's ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability and other claims, (x) the ability to successfully dispose of unprofitable facilities, (y) events or circumstances which could result in the impairment of an asset or other charges, (z) 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 (aa) the 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.

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 from continuing operations is the most comparable GAAP measure. Readers of the Company's financial information should consider income from continuing operations as an important measure of the Company's financial performance because it provides the most complete measure of its performance. Operating income should be considered in addition to, not as a substitute for, or superior to, financial measures based upon GAAP as an indicator of operating performance. A reconciliation of operating income to income from continuing operations provided in the Condensed Business Segment Data is included in this press release.

As noted in this earnings release, the Company presents the financial measure of free cash flows available for investment and other capital uses. The Company recognizes that free cash flows available for investment and other capital uses 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 other financing activities. In addition, management uses free cash flows available for investment and other capital uses in making decisions related to acquisitions, development capital expenditures, long-term debt repayments and other uses.

Additional Information About this Transaction

In connection with the pending transaction with RehabCare, Kindred will file with the SEC a Registration Statement on Form S-4 that will include a joint proxy statement of Kindred and RehabCare that also constitutes a prospectus of Kindred. Kindred and RehabCare will mail the definitive proxy statement/prospectus to their respective stockholders. WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE PENDING TRANSACTION WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the joint proxy statement/prospectus (when available) and other related documents filed by Kindred and RehabCare with the SEC at the SEC's website at www.sec.gov. The joint proxy statement/prospectus (when available) and the other documents filed by Kindred and RehabCare with the SEC may also be obtained for free by accessing Kindred's website at www.kindredhealthcare.com and clicking on the "Investors" link then clicking on the link for "SEC Filings" or by accessing RehabCare's website at www.rehabcare.com and clicking on the "Investor Information" link and then clicking on the link for "SEC Filings".

Participants in this Transaction

Kindred, RehabCare and their respective directors, executive officers and certain other members of management and employees may be soliciting proxies from their respective stockholders in favor of the pending transaction. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of stockholders in connection with the pending transaction will be set forth in the joint proxy statement/prospectus when it is filed with the SEC. You can find information about Kindred's executive officers and directors in Kindred's definitive proxy statement filed with the SEC on April 1, 2010. You can find information about RehabCare's executive officers and directors in its definitive proxy statement filed with the SEC on March 23, 2010. You can obtain free copies of these documents from Kindred or RehabCare, respectively, using the contact information above.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-200 private employer in the United States, is a FORTUNE 500 healthcare services company based in Louisville, Kentucky with annual revenues of over $4.3 billion and approximately 56,800 employees in 40 states. At December 31, 2010, Kindred through its subsidiaries provided healthcare services in 696 locations, including 89 long-term acute care hospitals, 226 nursing and rehabilitation centers and a contract rehabilitation services business, Peoplefirst rehabilitation services, which served 381 non-affiliated facilities. Ranked as one of Fortune magazine's Most Admired Healthcare Companies in 2009 and 2010, Kindred's mission is to promote healing, provide hope, preserve dignity and produce value for each patient, resident, family member, customer, employee and shareholder we serve. For more information, go to www.kindredhealthcare.com.

KINDRED HEALTHCARE, INC.
Financial Summary
(In thousands, except per share amounts)
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
Revenues $ 1,135,484 $ 1,069,991 $ 4,359,697 $ 4,270,007
Income from continuing operations $ 19,755 $ 16,345 $ 56,146 $ 62,612
Discontinued operations, net of income taxes:
Income from operations 1,125 2,396 798 931
Gain (loss) on divestiture of operations (456 ) 567 (453 ) (23,432 )
Net income $ 20,424 $ 19,308 $ 56,491 $ 40,111
Earnings per common share:
Basic:
Income from continuing operations $ 0.50 $ 0.42 $ 1.42 $ 1.61
Discontinued operations:
Income from operations 0.03 0.06 0.02 0.02
Gain (loss) on divestiture of operations (0.01 ) 0.01 (0.01 ) (0.60 )
Net income $ 0.52 $ 0.49 $ 1.43 $ 1.03
Diluted:
Income from continuing operations $ 0.50 $ 0.42 $ 1.42 $ 1.60
Discontinued operations:
Income from operations 0.03 0.06 0.02 0.02
Gain (loss) on divestiture of operations (0.01 ) 0.01 (0.01 ) (0.60 )
Net income $ 0.52 $ 0.49 $ 1.43 $ 1.02
Shares used in computing earnings per
common share:
Basic 38,790 38,465 38,738 38,339
Diluted 39,089 38,693 38,954 38,502
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
Revenues $ 1,135,484 $ 1,069,991 $ 4,359,697 $ 4,270,007
Salaries, wages and benefits 652,703 617,961 2,505,690 2,483,086
Supplies 87,103 86,408 342,197 333,056
Rent 90,777 88,084 357,372 348,248
Other operating expenses 240,750 222,521 948,609 886,205
Other income (2,687 ) (2,947 ) (11,422 ) (11,512 )
Depreciation and amortization 31,412 31,893 121,552 125,730
Interest expense 2,843 1,432 7,090 7,880
Investment income (342 ) (1,159 ) (1,245 ) (4,413 )
1,102,559 1,044,193 4,269,843 4,168,280
Income from continuing operations before income taxes 32,925 25,798 89,854 101,727
Provision for income taxes 13,170 9,453 33,708 39,115
Income from continuing operations 19,755 16,345 56,146 62,612
Discontinued operations, net of income taxes:
Income from operations 1,125 2,396 798 931
Gain (loss) on divestiture of operations (456 ) 567 (453 ) (23,432 )
Net income $ 20,424 $ 19,308 $ 56,491 $ 40,111
Earnings per common share:
Basic:
Income from continuing operations $ 0.50 $ 0.42 $ 1.42 $ 1.61
Discontinued operations:
Income from operations 0.03 0.06 0.02 0.02
Gain (loss) on divestiture of operations (0.01 ) 0.01 (0.01 ) (0.60 )
Net income $ 0.52 $ 0.49 $ 1.43 $ 1.03
Diluted:
Income from continuing operations $ 0.50 $ 0.42 $ 1.42 $ 1.60
Discontinued operations:
Income from operations 0.03 0.06 0.02 0.02
Gain (loss) on divestiture of operations (0.01 ) 0.01 (0.01 ) (0.60 )
Net income $ 0.52 $ 0.49 $ 1.43 $ 1.02
Shares used in computing earnings per common share:
Basic 38,790 38,465 38,738 38,339
Diluted 39,089 38,693 38,954 38,502
KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(In thousands, except per share amounts)
December 31, December 31,
2010 2009
ASSETS
Current assets:
Cash and cash equivalents $ 17,168 $ 16,303
Cash - restricted 5,494 5,820
Insurance subsidiary investments 76,753 106,834
Accounts receivable less allowance for loss 631,877 610,959
Inventories 24,327 22,303
Deferred tax assets 13,439 42,791
Income taxes 42,118 17,447
Other 24,862 21,194
836,038 843,651
Property and equipment 1,754,170 1,515,700
Accumulated depreciation (857,623 ) (765,602 )
896,547 750,098
Goodwill 242,420 81,223
Intangible assets less accumulated amortization 92,883 64,491
Assets held for sale 7,167 8,806
Insurance subsidiary investments 101,210 100,223
Deferred tax assets 88,816 110,930
Other 72,334 62,802
$ 2,337,415 $ 2,022,224
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 174,495 $ 161,066
Salaries, wages and other compensation 291,116 287,772
Due to third party payors 27,115 28,261
Professional liability risks 41,555 47,076
Other accrued liabilities 87,012 78,358
Long-term debt due within one year 91 86
621,384 602,619
Long-term debt 365,556 147,647
Professional liability risks 207,669 195,126
Deferred credits and other liabilities 111,047 110,238
Stockholders' equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 39,495 shares - December 31, 2010 and 39,104 shares - December 31, 2009
9,874 9,776
Capital in excess of par value 828,593 820,407
Accumulated other comprehensive income (loss) 135 (423 )
Retained earnings 193,157 136,834
1,031,759 966,594
$ 2,337,415 $ 2,022,224
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(In thousands)
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
Cash flows from operating activities:
Net income $ 20,424 $ 19,308 $ 56,491 $ 40,111

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 31,412 31,893 121,552 126,404
Amortization of stock-based compensation costs 2,600 2,357 10,714 9,905
Provision for doubtful accounts 6,010 7,573 24,397 29,320
Deferred income taxes 35,190 16,097 21,446 10,876
(Gain) loss on divestiture of discontinued operations 456 (567 ) 453 23,432
Other 2,118 6 252 (1,186 )
Change in operating assets and liabilities:
Accounts receivable (23,853 ) 46,828 (45,232 ) (29,247 )
Inventories and other assets (6,720 ) (5,631 ) (14,294 ) (17,386 )
Accounts payable 25,139 34 9,446 (4,088 )
Income taxes (22,272 ) (3,365 ) 3,462 35,009
Due to third party payors (8,886 ) (2,029 ) 1,213 (6,369 )
Other accrued liabilities (2,485 ) (20,993 ) 20,088 16,939
Net cash provided by operating activities 59,133 91,511 209,988 233,720
Cash flows from investing activities:
Routine capital expenditures (39,788 ) (23,082 ) (108,896 ) (97,550 )
Development capital expenditures (27,622 ) (9,669 ) (67,841 ) (48,058 )
Acquisitions (191,925 ) - (279,794 ) (83,432 )
Sale of assets 649 11,948 649 25,967
Purchase of insurance subsidiary investments (9,229 ) (25,997 ) (43,913 ) (103,477 )
Sale of insurance subsidiary investments 9,765 24,733 82,736 122,410
Net change in insurance subsidiary cash and cash equivalents
2,091 5,153 (8,521 ) 22,005
Change in other investments - - 2 2,002
Other (317 ) (339 ) 962 3,538
Net cash used in investing activities (256,376 ) (17,253 ) (424,616 ) (156,595 )
Cash flows from financing activities:
Proceeds from borrowings under revolving credit 920,900 261,900 2,030,800 1,214,400
Repayment of borrowings under revolving credit (720,400 ) (365,300 ) (1,812,800 ) (1,416,100 )
Payment of deferred financing costs (1,417 ) (251 ) (2,831 ) (855 )
Issuance of common stock 14 389 49 957
Other (7 ) 4 275 (19 )
Net cash provided by (used in) financing activities 199,090 (103,258 ) 215,493 (201,617 )
Change in cash and cash equivalents 1,847 (29,000 ) 865 (124,492 )
Cash and cash equivalents at beginning of period 15,321 45,303 16,303 140,795
Cash and cash equivalents at end of period $ 17,168 $ 16,303 $ 17,168 $ 16,303
KINDRED HEALTHCARE, INC.
Supplemental Cash Flow Data
(In thousands)
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009

Reconciliation of net cash flows provided by operating activities to free cash flows:

Net cash provided by operating activities $ 59,133 $ 91,511 $ 209,988 $ 233,720
Less routine capital expenditures (39,788 ) (23,082 ) (108,896 ) (97,550 )
Free cash flows available for investment and other capital uses
$ 19,345 $ 68,429 $ 101,092 $ 136,170
Routine capital expenditures represent expenditures necessary to maintain existing facilities that generally do not increase capacity or add services. As disclosed in the accompanying Condensed Consolidated Statement of Cash Flows, the Company also expends discretionary capital for the development of new facilities or the expansion of services at existing facilities. Due to the discretionary nature of these capital expenditures, they are excluded from the computation of free cash flows available for investment and other capital uses.
The Company recognizes that free cash flows available for investment and other capital uses 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 other financing activities. In addition, management uses free cash flows available for investment and other capital uses in making decisions related to acquisitions, development capital expenditures, long-term debt repayments and other uses.
KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(In thousands, except per share amounts)
2009 Quarters 2010 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Revenues $ 1,069,474 $ 1,073,054 $ 1,057,488 $ 1,069,991 $ 4,270,007 $ 1,089,837 $ 1,081,364 $ 1,053,012 $ 1,135,484 $ 4,359,697
Salaries, wages and benefits 615,218 620,830 629,077 617,961 2,483,086 627,175 612,205 613,607 652,703 2,505,690
Supplies 80,336 83,912 82,400 86,408 333,056 85,886 85,455 83,753 87,103 342,197
Rent 85,201 86,882 88,081 88,084 348,248 88,319 88,981 89,295 90,777 357,372
Other operating expenses 220,405 221,755 221,524 222,521 886,205 234,204 238,687 234,968 240,750 948,609
Other income (2,872 ) (2,823 ) (2,870 ) (2,947 ) (11,512 ) (3,084 ) (2,857 ) (2,794 ) (2,687 ) (11,422 )
Depreciation and amortization 30,490 31,355 31,992 31,893 125,730 31,121 29,852 29,167 31,412 121,552
Interest expense 2,478 2,229 1,741 1,432 7,880 1,307 1,298 1,642 2,843 7,090
Investment (income) loss (1,475 ) (1,033 ) (746 ) (1,159 ) (4,413 ) (877 ) 377 (403 ) (342 ) (1,245 )
1,029,781 1,043,107 1,051,199 1,044,193 4,168,280 1,064,051 1,053,998 1,049,235 1,102,559 4,269,843
Income from continuing operations before income taxes
39,693 29,947 6,289 25,798 101,727 25,786 27,366 3,777 32,925 89,854
Provision (benefit) for income taxes 16,352 12,409 901 9,453 39,115 10,631 11,230 (1,323 ) 13,170 33,708
Income from continuing operations 23,341 17,538 5,388 16,345 62,612 15,155 16,136 5,100 19,755 56,146
Discontinued operations, net of income taxes:
Income (loss) from operations (581 ) (897 ) 13 2,396 931 (154 ) 87 (260 ) 1,125 798
Gain (loss) on divestiture of operations - (24,051 ) 52 567 (23,432 ) (137 ) 54 86 (456 ) (453 )
Net income (loss) $ 22,760 $ (7,410 ) $ 5,453 $ 19,308 $ 40,111 $ 14,864 $ 16,277 $ 4,926 $ 20,424 $ 56,491
Earnings (loss) per common share:
Basic:
Income from continuing operations $ 0.60 $ 0.45 $ 0.14 $ 0.42 $ 1.61 $ 0.38 $ 0.41 $ 0.13 $ 0.50 $ 1.42
Discontinued operations:
Income (loss) from operations (0.02 ) (0.02 ) - 0.06 0.02 - - (0.01 ) 0.03 0.02
Gain (loss) on divestiture of operations - (0.62 ) - 0.01 (0.60 ) - - - (0.01 ) (0.01 )
Net income (loss) $ 0.58 $ (0.19 ) $ 0.14 $ 0.49 $ 1.03 $ 0.38 $ 0.41 $ 0.12 $ 0.52 $ 1.43
Diluted:
Income from continuing operations $ 0.60 $ 0.45 $ 0.14 $ 0.42 $ 1.60 $ 0.38 $ 0.41 $ 0.13 $ 0.50 $ 1.42
Discontinued operations:
Income (loss) from operations (0.02 ) (0.02 ) - 0.06 0.02 - - (0.01 ) 0.03 0.02
Gain (loss) on divestiture of operations - (0.62 ) - 0.01 (0.60 ) - - - (0.01 ) (0.01 )
Net income (loss) $ 0.58 $ (0.19 ) $ 0.14 $ 0.49 $ 1.02 $ 0.38 $ 0.41 $ 0.12 $ 0.52 $ 1.43

Shares used in computing earnings (loss) per common share:

Basic 38,184 38,307 38,398 38,465 38,339 38,626 38,756 38,778 38,790 38,738
Diluted 38,315 38,415 38,524 38,693 38,502 38,859 38,914 38,838 39,089 38,954
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(In thousands)
2009 Quarters 2010 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Revenues:
Hospital division $ 492,509 $ 487,145 $ 468,069 $ 485,169 $ 1,932,892 $ 507,062 $ 493,401 $ 465,198 $ 507,660 $ 1,973,321
Nursing center division 529,942 537,545 539,217 543,638 2,150,342 539,321 542,215 539,914 566,435 2,187,885
Rehabilitation division 117,647 120,450 122,625 114,316 475,038 120,144 122,061 124,243 138,507 504,955
1,140,098 1,145,140 1,129,911 1,143,123 4,558,272 1,166,527 1,157,677 1,129,355 1,212,602 4,666,161
Eliminations (70,624 ) (72,086 ) (72,423 ) (73,132 ) (288,265 ) (76,690 ) (76,313 ) (76,343 ) (77,118 ) (306,464 )
$ 1,069,474 $ 1,073,054 $ 1,057,488 $ 1,069,991 $ 4,270,007 $ 1,089,837 $ 1,081,364 $ 1,053,012 $ 1,135,484 $ 4,359,697
Income from continuing operations:
Operating income (loss):
Hospital division $ 100,899 $ 91,027 $ 78,674 $ 93,211 $ 363,811 $ 95,033 $ 90,893 $ 75,373 $ 95,801 (a) $ 357,100
Nursing center division 75,574 79,522 73,383 77,111 305,590 70,249 76,493 69,077 86,853 302,672
Rehabilitation division 15,453 13,599 10,912 10,628 50,592 14,635 14,078 14,148 9,062 (a) 51,923
Corporate:
Overhead (34,087 ) (33,586 ) (33,843 ) (33,120 ) (134,636 ) (33,781 ) (32,799 ) (34,337 ) (33,002 ) (133,919 )
Insurance subsidiary (1,452 ) (1,182 ) (1,769 ) (1,782 ) (6,185 ) (480 ) (791 ) (783 ) (1,099 ) (3,153 )
(35,539 ) (34,768 ) (35,612 ) (34,902 ) (140,821 ) (34,261 ) (33,590 ) (35,120 ) (34,101 ) (137,072 )
Operating income 156,387 149,380 127,357 146,048 579,172 145,656 147,874 123,478 157,615 574,623
Rent (85,201 ) (86,882 ) (88,081 ) (88,084 ) (348,248 ) (88,319 ) (88,981 ) (89,295 ) (90,777 ) (357,372 )
Depreciation and amortization (30,490 ) (31,355 ) (31,992 ) (31,893 ) (125,730 ) (31,121 ) (29,852 ) (29,167 ) (31,412 ) (121,552 )
Interest, net (1,003 ) (1,196 ) (995 ) (273 ) (3,467 ) (430 ) (1,675 ) (1,239 ) (2,501 ) (5,845 )
Income from continuing operations before income taxes
39,693 29,947 6,289 25,798 101,727 25,786 27,366 3,777 32,925 89,854
Provision (benefit) for income taxes 16,352 12,409 901 9,453 39,115 10,631 11,230 (1,323 ) 13,170 33,708
$ 23,341 $ 17,538 $ 5,388 $ 16,345 $ 62,612 $ 15,155 $ 16,136 $ 5,100 $ 19,755 $ 56,146
(a) Includes acquisition-related costs approximating $1.5 million for the hospital division and $0.6 million for the rehabilitation division.
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(In thousands)
Fourth Quarter 2009 Fourth Quarter 2010
Nursing Nursing
Hospital center Rehabilitation Hospital center Rehabilitation
division division division Corporate Eliminations Consolidated division division division Corporate Eliminations Consolidated
Revenues $ 485,169 $ 543,638 $ 114,316 $ - $ (73,132 ) $ 1,069,991 $ 507,660 $ 566,435 $ 138,507 $ - $ (77,118 ) $ 1,135,484
Salaries, wages and benefits 218,409 278,379 96,976 24,197 - 617,961 230,385 274,784 123,767 23,813 (46 ) 652,703
Supplies 56,802 28,231 1,158 218 (1 ) 86,408 57,884 28,131 944 144 - 87,103
Rent 37,153 49,525 1,373 33 - 88,084 39,406 49,647 1,689 35 - 90,777
Other operating expenses 116,747 159,917 5,554 13,434 (73,131 ) 222,521 123,590 176,667 4,734 12,831 (77,072 ) 240,750
Other income - - - (2,947 ) - (2,947 ) - - - (2,687 ) - (2,687 )
Depreciation and amortization 13,127 12,500 611 5,655 - 31,893 13,421 11,646 830 5,515 - 31,412
Interest expense (1 ) 32 - 1,401 - 1,432 2 35 - 2,806 - 2,843
Investment income (2 ) (20 ) (2 ) (1,135 ) - (1,159 ) (2 ) (14 ) (2 ) (324 ) - (342 )
442,235 528,564 105,670 40,856 (73,132 ) 1,044,193 464,686 540,896 131,962 42,133 (77,118 ) 1,102,559
Income from continuing operations before income taxes
$ 42,934 $ 15,074 $ 8,646 $ (40,856 ) $ - 25,798 $ 42,974 $ 25,539 $ 6,545 $ (42,133 ) $ - 32,925
Provision for income taxes 9,453 13,170
Income from continuing operations $ 16,345 $ 19,755
Capital expenditures, excluding acquisitions (including discontinued operations):
Routine $ 6,311 $ 5,130 $ 412 $ 11,229 $ - $ 23,082 $ 13,835 $ 12,292 $ 1,816 $ 11,845 $ - $ 39,788
Development 9,606 63 - - - 9,669 12,257 15,365 - - - 27,622
$ 15,917 $ 5,193 $ 412 $ 11,229 $ - $ 32,751 $ 26,092 $ 27,657 $ 1,816 $ 11,845 $ - $ 67,410
KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations (Continued)
(In thousands)
Year ended December 31, 2009 Year ended December 31, 2010
Nursing Nursing
Hospital center Rehabilitation Hospital center Rehabilitation
division division division Corporate Eliminations Consolidated division division division Corporate Eliminations Consolidated
Revenues $ 1,932,892 $ 2,150,342 $ 475,038 $ - $ (288,265 ) $ 4,270,007 $ 1,973,321 $ 2,187,885 $ 504,955 $ - $ (306,464 ) $ 4,359,697
Salaries, wages and benefits 875,788 1,102,975 402,986 101,337 - 2,483,086 894,702 1,080,344 431,224 99,480 (60 ) 2,505,690
Supplies 221,529 108,038 2,827 664 (2 ) 333,056 228,157 110,266 3,217 557 - 342,197
Rent 147,494 194,835 5,778 141 - 348,248 152,986 198,105 6,136 145 - 357,372
Other operating expenses 471,764 633,739 18,633 50,332 (288,263 ) 886,205 493,362 694,603 18,591 48,457 (306,404 ) 948,609
Other income - - - (11,512 ) - (11,512 ) - - - (11,422 ) - (11,422 )
Depreciation and amortization 51,932 48,631 2,291 22,876 - 125,730 51,639 45,471 2,709 21,733 - 121,552
Interest expense 2 130 1 7,747 - 7,880 5 131 - 6,954 - 7,090
Investment income (7 ) (111 ) (8 ) (4,287 ) - (4,413 ) (3 ) (70 ) (6 ) (1,166 ) - (1,245 )
1,768,502 2,088,237 432,508 167,298 (288,265 ) 4,168,280 1,820,848 2,128,850 461,871 164,738 (306,464 ) 4,269,843
Income from continuing operations before income taxes
$ 164,390 $ 62,105 $ 42,530 $ (167,298 ) $ - 101,727 $ 152,473 $ 59,035 $ 43,084 $ (164,738 ) $ - 89,854
Provision for income taxes 39,115 33,708
Income from continuing operations $ 62,612 $ 56,146

Capital expenditures, excluding acquisitions (including discontinued operations):

Routine $ 26,716 $ 39,663 $ 1,043 $ 30,128 $ - $ 97,550 $ 36,967 $ 37,024 $ 2,715 $ 32,190 $ - $ 108,896
Development 42,371 5,687 - - - 48,058 41,140 26,701 - - - 67,841
$ 69,087 $ 45,350 $ 1,043 $ 30,128 $ - $ 145,608 $ 78,107 $ 63,725 $ 2,715 $ 32,190 $ - $ 176,737
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
2009 Quarters 2010 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Hospital data:
End of period data:
Number of hospitals 82 82 82 83 83 83 83 89
Number of licensed beds 6,520 6,520 6,520 6,580 6,580 6,576 6,563 6,887
Revenue mix %:
Medicare 56 55 55 56 55 56 56 55 58 56
Medicaid 10 10 11 9 10 9 9 9 9 9
Medicare Advantage 10 11 9 9 10 10 10 10 9 10
Commercial insurance and other 24 24 25 26 25 25 25 26 24 25
Admissions:
Medicare 7,421 7,117 6,875 7,283 28,696 7,432 7,125 6,769 7,640 28,966
Medicaid 1,052 1,053 1,165 984 4,254 997 990 1,022 1,034 4,043
Medicare Advantage 1,094 1,091 926 919 4,030 1,129 1,106 936 1,071 4,242
Commercial insurance and other 1,921 1,869 1,969 2,280 8,039 2,262 2,048 1,978 2,020 8,308
11,488 11,130 10,935 11,466 45,019 11,820 11,269 10,705 11,765 45,559
Admissions mix %:
Medicare 65 64 63 63 64 63 63 63 65 64
Medicaid 9 9 11 9 9 8 9 10 9 9
Medicare Advantage 9 10 8 8 9 10 10 9 9 9
Commercial insurance and other 17 17 18 20 18 19 18 18 17 18
Patient days:
Medicare 197,377 197,203 188,712 196,067 779,359 202,882 195,964 179,324 198,129 776,299
Medicaid 50,868 50,485 53,585 47,352 202,290 47,813 45,952 48,514 46,596 188,875
Medicare Advantage 35,229 36,806 29,912 30,315 132,262 34,524 36,000 31,186 32,868 134,578
Commercial insurance and other 65,509 61,960 65,717 74,253 267,439 75,483 70,651 70,198 69,585 285,917
348,983 346,454 337,926 347,987 1,381,350 360,702 348,567 329,222 347,178 1,385,669
Average length of stay:
Medicare 26.6 27.7 27.4 26.9 27.2 27.3 27.5 26.5 25.9 26.8
Medicaid 48.4 47.9 46.0 48.1 47.6 48.0 46.4 47.5 45.1 46.7
Medicare Advantage 32.2 33.7 32.3 33.0 32.8 30.6 32.5 33.3 30.7 31.7
Commercial insurance and other 34.1 33.2 33.4 32.6 33.3 33.4 34.5 35.5 34.4 34.4
Weighted average 30.4 31.1 30.9 30.3 30.7 30.5 30.9 30.8 29.5 30.4
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
2009 Quarters 2010 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Hospital data (continued):
Revenues per admission:
Medicare $ 37,262 $ 37,748 $ 37,105 $ 37,620 $ 37,436 $ 38,078 $ 38,938 $ 37,675 $ 38,368 $ 38,272
Medicaid 45,160 45,759 43,640 43,314 44,465 45,738 42,774 42,910 41,704 43,266
Medicare Advantage 46,387 46,950 47,597 47,807 47,141 45,187 46,169 48,122 44,744 45,979
Commercial insurance and other 61,286 63,716 59,957 54,662 59,647 56,344 59,842 61,314 61,131 59,553
Weighted average 42,872 43,769 42,805 42,314 42,935 42,899 43,784 43,456 43,150 43,313
Revenues per patient day:
Medicare $ 1,401 $ 1,362 $ 1,352 $ 1,397 $ 1,378 $ 1,395 $ 1,416 $ 1,422 $ 1,479 $ 1,428
Medicaid 934 954 949 900 935 954 922 904 925 926
Medicare Advantage 1,440 1,392 1,473 1,449 1,436 1,478 1,418 1,444 1,458 1,449
Commercial insurance and other 1,797 1,922 1,796 1,678 1,793 1,688 1,735 1,728 1,775 1,730
Weighted average 1,411 1,406 1,385 1,394 1,399 1,406 1,416 1,413 1,462 1,424
Medicare case mix index (discharged patients only) 1.22 1.23 1.19 1.18 1.21 1.21 1.21 1.19 1.17 1.19
Average daily census 3,878 3,807 3,673 3,782 3,785 4,008 3,830 3,579 3,774 3,796
Occupancy % 66.0 64.7 63.6 64.3 64.7 68.2 66.1 62.0 64.0 65.1
Annualized employee turnover % 21.3 22.1 22.8 22.1 21.8 22.6 22.3 22.0
Nursing and rehabilitation center data:
End of period data:
Number of facilities:
Nursing and rehabilitation centers:
Owned or leased 218 218 218 218 218 219 222 222
Managed 4 4 4 4 4 4 4 4
Assisted living facilities 6 6 6 6 6 7 7 7
228 228 228 228 228 230 233 233
Number of licensed beds:
Nursing and rehabilitation centers:
Owned or leased 26,821 26,821 26,769 26,711 26,711 26,760 27,030 26,957
Managed 485 485 485 485 485 485 485 485
Assisted living facilities 317 317 317 327 327 463 463 463
27,623 27,623 27,571 27,523 27,523 27,708 27,978 27,905
Revenue mix %:
Medicare 35 35 34 33 34 35 34 33 36 35
Medicaid 41 41 42 43 42 41 41 41 39 40
Medicare Advantage 6 6 6 6 6 6 7 7 7 7
Private and other 18 18 18 18 18 18 18 19 18 18
KINDRED HEALTHCARE, INC.
Condensed Business Segment Data (Continued)
(Unaudited)
2009 Quarters 2010 Quarters
First Second Third Fourth Year First Second Third Fourth Year
Nursing and rehabilitation center data (continued):
Patient days (excludes managed facilities):
Medicare 374,853 375,140 360,009 353,443 1,463,445 369,102 363,149 346,837 344,018 1,423,106
Medicaid 1,326,654 1,323,157 1,357,596 1,368,198 5,375,605 1,312,517 1,292,246 1,289,643 1,287,739 5,182,145
Medicare Advantage 80,352 82,652 84,322 86,449 333,775 87,692 92,051 91,643 94,336 365,722
Private and other 403,320 415,510 415,467 403,166 1,637,463 397,550 415,921 437,413 453,357 1,704,241
2,185,179 2,196,459 2,217,394 2,211,256 8,810,288 2,166,861 2,163,367 2,165,536 2,179,450 8,675,214
Patient day mix %:
Medicare 17 17 16 16 17 17 17 16 16 16
Medicaid 61 60 61 62 61 61 60 60 59 60
Medicare Advantage 4 4 4 4 4 4 4 4 4 4
Private and other 18 19 19 18 18 18 19 20 21 20
Revenues per patient day:
Medicare Part A $ 457 $ 459 $ 464 $ 466 $ 461 $ 470 $ 469 $ 468 $ 534 $ 485
Total Medicare (including Part B) 497 500 508 510 503 513 515 519 587 533
Medicaid 165 167 166 170 167 168 171 171 171 170
Medicare Advantage 380 392 398 405 394 398 400 405 432 409
Private and other 235 232 234 239 235 238 234 232 228 233
Weighted average 243 245 243 246 244 249 250 249 260 252
Average daily census 24,280 24,137 24,102 24,035 24,138 24,076 23,773 23,538 23,690 23,768
Admissions (excludes managed facilities) 18,166 18,456 17,803 18,376 72,801 19,026 18,924 19,383 19,118 76,451
Occupancy % 89.3 88.9 88.9 88.9 89.0 89.0 87.3 86.8 86.4 87.4
Medicare average length of stay 34.8 35.5 36.3 35.1 35.4 33.7 35.2 34.3 33.0 34.0
Annualized employee turnover % 37.9 39.9 40.2 38.9 36.7 38.8 39.8 39.6
Rehabilitation data:
Revenue mix %:
Company-operated 61 60 59 64 61 64 63 61 56 61
Non-affiliated 39 40 41 36 39 36 37 39 44 39
Sites of service (at end of period) 661 659 660 622 619 633 650 696
Revenue per site $ 177,984 $ 182,775 $ 185,797 $ 183,789 $ 730,345 $ 194,094 $ 192,829 $ 191,142 $ 199,004 $ 777,069
Therapist productivity % 84.8 84.8 83.5 83.8 84.2 83.8 84.2 82.1 78.6 82.0
Annualized employee turnover % 10.9 11.6 13.1 12.8 12.6 14.2 15.4 14.4
KINDRED HEALTHCARE, INC.
Earnings Per Common Share Reconciliation (a)
(In thousands, except per share amounts)
Three months ended December 31, Year ended December 31,
2010 2009 2010 2009
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
Earnings:
Income from continuing operations:
As reported in Statement of Operations $ 19,755 $ 19,755 $ 16,345 $ 16,345 $ 56,146 $ 56,146 $ 62,612 $ 62,612
Allocation to participating unvested restricted stockholders
(347 ) (344 ) (260 ) (259 ) (1,015 ) (1,009 ) (1,094 ) (1,090 )
Available to common stockholders $ 19,408 $ 19,411 $ 16,085 $ 16,086 $ 55,131 $ 55,137 $ 61,518 $ 61,522
Discontinued operations, net of income taxes:
Income from operations:
As reported in Statement of Operations $ 1,125 $ 1,125 $ 2,396 $ 2,396 $ 798 $ 798 $ 931 $ 931
Allocation to participating unvested restricted stockholders
(20 ) (20 ) (38 ) (38 ) (14 ) (14 ) (16 ) (16 )
Available to common stockholders $ 1,105 $ 1,105 $ 2,358 $ 2,358 $ 784 $ 784 $ 915 $ 915
Gain (loss) on divestiture of operations:
As reported in Statement of Operations $ (456 ) $ (456 ) $ 567 $ 567 $ (453 ) $ (453 ) $ (23,432 ) $ (23,432 )
Allocation to participating unvested restricted stockholders
8 8 (9 ) (9 ) 8 8 409 408
Available to common stockholders $ (448 ) $ (448 ) $ 558 $ 558 $ (445 ) $ (445 ) $ (23,023 ) $ (23,024 )
Net income:
As reported in Statement of Operations $ 20,424 $ 20,424 $ 19,308 $ 19,308 $ 56,491 $ 56,491 $ 40,111 $ 40,111
Allocation to participating unvested restricted stockholders
(359 ) (356 ) (307 ) (306 ) (1,021 ) (1,015 ) (701 ) (698 )
Available to common stockholders $ 20,065 $ 20,068 $ 19,001 $ 19,002 $ 55,470 $ 55,476 $ 39,410 $ 39,413
Shares used in the computation:
Weighted average shares outstanding - basic computation
38,790 38,790 38,465 38,465 38,738 38,738 38,339 38,339
Dilutive effect of employee stock options 137 158 135 128
Dilutive effect of performance-based restricted shares
162 70 81 35
Adjusted weighted average shares outstanding - diluted computation

39,089

38,693

38,954

38,502
Earnings per common share:
Income from continuing operations $ 0.50 $ 0.50 $ 0.42 $ 0.42 $ 1.42 $ 1.42 $ 1.61 $ 1.60
Discontinued operations:
Income from operations 0.03 0.03 0.06 0.06 0.02 0.02 0.02 0.02
Gain (loss) on divestiture of operations (0.01 ) (0.01 ) 0.01 0.01 (0.01 ) (0.01 ) (0.60 ) (0.60 )
Net income $ 0.52 $ 0.52 $ 0.49 $ 0.49 $ 1.43 $ 1.43 $ 1.03 $ 1.02
(a) Earnings per common share are based upon the weighted average number of common shares outstanding during the respective periods. The diluted calculation of earnings per common share includes the dilutive effect of stock options. On January 1, 2009, the Company adopted the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that certain unvested restricted stock be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method.

SOURCE: Kindred Healthcare, Inc.

Kindred Healthcare, Inc.
Richard A. Lechleiter, 502-596-7734
Executive Vice President and
Chief Financial Officer