Current Report Filing (8-k)

Kindred Healthcare, Inc.

November 17, 2014

/s/ JOSEPH L. LANDENWICH

Joseph L. Landenwich

Co-General Counsel and Corporate Secretary

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 17, 2014

KINDRED HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)

Delaware

001-14057

61-1323993

(State or other jurisdiction of

incorporation or organization)

(Commission

File Number)

(IRS Employer

Identification No.)

680 South Fourth Street

Louisville, Kentucky

(Address of principal executive offices)

40202-2412

(Zip Code)

Registrant’s telephone number, including area code: (502) 596-7300

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation to the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01.

Other Events

The unaudited pro forma condensed combined financial information of Kindred Healthcare, Inc. (“Kindred”), giving effect to, among other things, the proposed acquisition of Gentiva Health Services, Inc. (“Gentiva”) by Kindred and the related financing transactions, is set forth as Exhibit 99.1 and is incorporated herein by reference.

The related historical information of Gentiva and Harden Healthcare Holdings, Inc. is included as Exhibits 99.2, 99.3 and 99.4 and is incorporated herein by reference.

Item 9.01.

Financial Statements and Exhibits

(d)

Exhibits.


Exhibit		Description

23.1		Consent of PricewaterhouseCoopers, LLP, dated November 14, 2014, relating to the audit reports on the financial statements of Gentiva Health Services, Inc.

23.2		Consent of Ernst & Young LLP, dated November 13, 2014, relating to the audit report on the financial statements of Harden Healthcare Holdings, Inc. Net Assets Sold (Certain Assets, Liabilities and Operations Related to the Harden Home Health and Hospice Divisions)

99.1		Unaudited pro forma condensed combined financial statements of Kindred, including the notes thereto, as of and for the nine months ended September 30, 2014 and for the year ended December 31, 2013.

99.2		“Part I. Financial Information—Item 1. Financial Statements” to Gentiva Health Services, Inc.’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2014 filed with the Securities and Exchange Commission (the “SEC”) on November 14, 2014 (Comm. File No. 001-15669) is hereby incorporated by reference.

99.3		“Part II. Financial Information—Item 8. Financial Statements and Supplementary Data” to Gentiva Health Services, Inc.’s Annual Report on Form 10-K/A for the year ended December 31, 2013 filed with the SEC on November 14, 2014 (Comm. File No. 001-15669) is hereby incorporated by reference.

99.4		Gentiva Health Services, Inc.’s Current Report on Form 8-K/A (Amendment No. 1) (Exhibits 99.1 and 99.2 only) filed with the SEC on December 23, 2013 (Comm. File No. 001-15669) is hereby incorporated by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Exhibit Index


Exhibit		Description
23.1		Consent of PricewaterhouseCoopers, LLP, dated November 14, 2014, relating to the audit reports on the financial statements of Gentiva Health Services, Inc.

23.2		Consent of Ernst & Young LLP, dated November 13, 2014, relating to the audit report on the financial statements of Harden Healthcare Holdings, Inc.

99.1		Unaudited pro forma condensed combined financial statements of Kindred, including the notes thereto, as of and for the nine months ended September 30, 2014 and for the year ended December 31, 2013.

99.2		“Part I. Financial Information—Item 1. Financial Statements” to Gentiva Health Services, Inc.’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2014 filed with the SEC on November 14, 2014 (Comm. File No. 001-15669) is hereby incorporated by reference.

99.3		“Part II. Financial Information—Item 8. Financial Statements and Supplementary Data” to Gentiva Health Services, Inc.’s Annual Report on Form 10-K/A for the year ended December 31, 2013 filed with the SEC on November 14, 2014 (Comm. File No. 001-15669) is hereby incorporated by reference.

99.4		Gentiva Health Services, Inc.’s Current Report on Form 8-K/A (Amendment No. 1) (Exhibits 99.1 and 99.2 only) filed with the SEC on December 23, 2013 (Comm. File No. 001-15669) is hereby incorporated by reference.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (333-196804) and Form S-8 (Nos. 333-59598, 333-62022, 333-88086, 333-116755, 333-151580, 333-174615, 333-183269 and 333-197755) of Kindred Healthcare, Inc. of our report dated March 12, 2014, except for the effects of the restatement and revision discussed in Note 2 to the consolidated financial statements and the matter described in the second paragraph of Management’s Report on Internal Control over Financial Reporting, as to which the date is November 14, 2014, relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting of Gentiva Health Services, Inc. which appears in this Current Report on Form 8-K of Kindred Healthcare, Inc. dated November 17, 2014.

/s/ PricewaterhouseCoopers LLP

Atlanta, Georgia

November 14, 2014

Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Current Report on Form 8-K of Kindred Healthcare, Inc. dated November 17, 2014 and incorporated by reference in the Registration Statements on Form S-3 (333-196804) and Form S-8 (Nos. 333-59598, 333-62022, 333-88086, 333-116755, 333-151580, 333-174615, 333-183269 and 333-197755) of Kindred Healthcare, Inc. of our report dated December 11, 2013, with respect to the combined financial statements of Harden Healthcare Holdings, Inc. Net Assets Sold (Certain Assets, Liabilities and Operations Related to the Harden Home Health and Hospice Divisions) included in Gentiva Health Services, Inc.’s Current Report on Form 8-K/A (Amendment No. 1) (Exhibits 99.1 and 99.2 only) dated October 18, 2013 and filed with the Securities and Exchange Commission on December 23, 2013.

/s/ Ernst & Young LLP

Dallas, Texas

November 13, 2014

Exhibit 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined financial information is based upon the historical consolidated financial information of Kindred and Gentiva incorporated by reference in this prospectus supplement, and has been prepared to reflect the Merger in which Kindred will acquire all of the outstanding common stock of Gentiva. The unaudited pro forma condensed combined balance sheet is presented as if the Merger and the related Financing Transactions (the “Gentiva Transaction”) had occurred on September 30, 2014. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2013 and for the nine months ended September 30, 2014 were prepared assuming the Gentiva Transaction and other events described below occurred on January 1, 2013. The historical consolidated financial information has been adjusted to give effect to estimated pro forma events that are (1) directly attributable to the Merger, (2) factually supportable and (3) with respect to the statements of operations, expected to have a continuing impact on the combined results of operations. The historical consolidated financial statements of Gentiva have been adjusted to reflect certain reclassifications to conform to Kindred’s financial statement presentation.

In addition to those pro forma adjustments directly linked to the Gentiva Transaction, the unaudited pro forma results of operations for the year ended December 31, 2013 include pro forma adjustments related to Gentiva’s acquisition of Harden (the “Harden Acquisition”), and the unaudited pro forma results of operations for both the year ended December 31, 2013 and the nine months ended September 30, 2014 include pro forma adjustments related to the effect of Kindred’s refinancing of certain debt obligations that occurred in April 2014 (the “April 2014 Refinancing”) and Kindred’s common stock offering in June 2014 (the “June 2014 Equity Offering”).

The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of the consolidated financial position or results of operations in future periods or the results that actually would have been realized had Kindred and Gentiva been a combined company during the periods specified or the other transactions as previously described. See “The Transactions” and “Risk Factors—Risks Relating to the Merger.”

The unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial information and the following historical consolidated financial statements and accompanying notes of Kindred and Gentiva for the applicable periods, which are incorporated by reference in this prospectus supplement:

•

Historical financial statements and related notes of Kindred for the year ended December 31, 2013, included in Kindred’s Current Report on Form 8-K filed with the SEC on November 14, 2014, and for the nine months ended September 30, 2014, included in Kindred’s Quarterly Report on Form 10-Q filed with the SEC on November 7, 2014.

•

Historical financial statements and related notes of Gentiva for the year ended December 31, 2013, included in Gentiva’s Annual Report on Form 10-K/A filed with the SEC on November 14, 2014, and for the nine months ended September 30, 2014, included in Gentiva’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2014.

•

Historical financial statements of Harden for the year ended December 31, 2012 and for the nine months ended September 30, 2013, included in Gentiva’s Current Report on Form 8-K/A filed with the SEC on December 23, 2013, including any related pro forma adjustments presented in the Form 8-K/A filing.

This offering is not contingent upon completion of the Merger and therefore, investors should refer to Kindred’s historical financial statements incorporated by reference in this prospectus supplement when evaluating an investment in the Units. See “Use of Proceeds” and “Capitalization.”

The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting under existing GAAP. The acquisition accounting for certain items, including property and equipment, identifiable intangible assets, leasehold interests and noncontrolling interests, are preliminary and dependent upon certain valuations and other studies that have not been finalized and are subject to subsequent adjustments. For purposes of this unaudited pro forma condensed combined financial information, the Merger Consideration has been preliminary allocated to the tangible and intangible assets being acquired and liabilities being assumed based upon current estimates of fair value. Any excess of the Merger Consideration over the fair value of Gentiva’s identifiable net assets will be recorded as goodwill. The final allocation is dependent on the aforementioned valuations and other analysis that cannot be completed prior to the completion of the Merger. The actual amounts recorded at the completion of the Merger may differ materially from the information and those differences could have a material impact on the unaudited pro forma condensed combined financial information and the combined company’s future results of operations and financial performance. The unaudited pro forma condensed combined statements of operations do not include expenses and certain write-offs related to debt refinancing that we expect to incur in connection with the Gentiva Transaction, which are estimated to be approximately $157 million as of the date of this prospectus supplement. The unaudited pro forma condensed combined statements of operations do not reflect the cost of any integration activities or benefits from synergies that may be derived from any integration activities.

For capitalized terms used but not defined, see “Glossary of Terms.”

Kindred Healthcare, Inc. and Gentiva Health Services, Inc.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2014

(in thousands)


	Historical									Pro Forma Adjustments
	Kindred			Gentiva			Reclassifications			Merger related financing(k)			Allocation of Merger Consideration			Pro forma combined
ASSETS
Current assets:
Cash and cash equivalents	$	81,784		$	114,206		$	—		$	(1,915,058	)	$	—		$	73,495
											1,792,563
Cash-restricted		2,390			—			—			—			—			2,390
Insurance subsidiary investments		95,425			—			—			—			—			95,425
Accounts receivable less allowance for loss		980,723			285,718			(47,919	)(a)		—			—			1,224,380
								5,858	(b)
Inventories		25,952			—			—			—			—			25,952
Deferred tax assets		57,577			24,270			—			—			—			81,847
Income taxes		35,779			—			11,435	(c)		46,967			—			94,181
Other		42,727			48,776			(5,858	)(b)		—			—			74,210
								(11,435	)(c)

		1,322,357			472,970			(47,919	)		(75,528	)		—			1,671,880

Property and equipment, net		905,968			42,048			—			—			16,830	(l)		964,846
Goodwill		995,240			374,024			—			—			(374,024	)(l)		2,384,072
														1,388,832	(l)
Intangible assets less accumulated amortization		405,900			247,033			—			—			92,431	(l)		745,364
Notes receivable from third party		—			25,000			—			—			—			25,000
Assets held for sale		2,222			—			—			—			—			2,222
Insurance subsidiary investments		158,394			—			—			—			—			158,394
Investment in Gentiva		—			—			—			751,479			(751,479	)(m)		—
Other		234,707			64,151			—			873			(1,190	)(n)		303,659
											29,558
											(24,440	)

Total Assets	$	4,024,788		$	1,225,226		$	(47,919	)	$	681,942		$	371,400		$	6,255,437

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	158,397		$	16,370		$	—		$	—		$	—		$	174,767
Salaries, wages and other compensation		346,957			45,736			12,823	(d)		—			—			473,376
								67,860	(e)
Deferred revenue		—			47,919			(47,919	)(a)		—			—			—
Due to third party payors		47,320			—			17,640	(f)		—			—			64,960
Professional liability risks		66,974			—			10,402	(g)		—			—			77,376
Other accrued liabilities		138,620			—			46,216	(h)		—			(3,601	)(o)		200,297
								19,014	(i)
								48	(j)
Medicare liabilities		—			17,640			(17,640	)(f)		—			—			—
Obligations under insurance programs		—			78,310			(10,402	)(g)		—			—			—
								(67,860	)(e)
								(48	)(j)
Accrued nursing home costs		—			19,014			(19,014	)(i)		—			—			—
Long-term debt due within one year		10,233			51,138			—			(51,138	)		—			19,928
											9,695
Accrued interest expense		—			7,788			—			(7,788	)		—			—
Other		—			59,039			(12,823	)(d)		—			—			—
								(46,216	)(h)

		768,501			342,954			(47,919	)		(49,231	)		(3,601	)		1,010,704

Long-term debt		1,484,436			1,105,750			—			(1,124,450	)		18,700	(l)		3,046,386
											1,350,000
											19,388
											192,562
Professional liability risks		243,496			—			—			—			—			243,496
Deferred tax liabilities		7,683			6,264			—			—			60,148	(l)		74,095
Deferred credits and other liabilities		217,218			55,456			—			(7,741	)		7,143	(l)		272,076
Equity:
Stockholders’ equity:
Common stock, par value		16,153			3,827			—			1,228			(3,827	)(p)		19,779
											2,398
Capital in excess of par value		1,357,134			466,777			—			98,772			(466,777	)(p)		1,764,863
											195,917
											120,917
											(3,627	)
											(4,250	)
Accumulated other comprehensive loss		(905	)		—			—			—			—			(905	)
Treasury stock		—			(19,165	)		—			—			19,165	(p)		—
Accumulated deficit		(112,044	)		(740,449	)		—			(109,941	)		740,449	(p)		(221,985	)

		1,260,338			(289,010	)		—			301,414			289,010			1,561,752
Noncontrolling interests		43,116			3,812			—			—			—			46,928

Total equity		1,303,454			(285,198	)		—			301,414			289,010			1,608,680

Total liabilities and equity	$	4,024,788		$	1,225,226		$	(47,919	)	$	681,942		$	371,400		$	6,255,437

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

Kindred Healthcare, Inc. and Gentiva Health Services, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the year ended December 31, 2013

(in thousands, except per share amounts)


	Historical						Gentiva Adjustments									Pro Forma Adjustments
	Kindred			Gentiva			Reclassifications(q)			Harden Acquisition			After giving effect to reclassifications and Harden Acquisition			April 2014 Refinancing(y)			Merger related financing			Allocation of Merger Consideration			Pro forma combined
Revenues	$	4,835,585		$	1,726,644		$	—		$	355,480		$	2,082,124		$	—		$	—		$	—		$	6,917,709
Cost of services sold		—			942,180			(942,180	)		—			—			—			—			—			—

		4,835,585			784,464			942,180			355,480			2,082,124			—			—			—			6,917,709
Salaries, wages and benefits		2,954,663			—			773,500			289,399			1,536,994			—			—			—			4,491,657
								474,095
Supplies		322,941			—			85,259			15,010			107,834			—			—			—			430,775
								7,565
Rent		311,526			—			43,370			8,957			52,327			—			—			(1,453	)(v)		362,400
Other operating expenses		965,760			—			82,713			19,548			259,049			—			—			—			1,224,809
								156,788
Other (income) expense		(1,442	)		—			496			1,194			1,690			—			—			—			248
Impairment charges		77,193			612,380			—			—			612,380			—			—			—			689,573
Depreciation and amortization		154,206			—			708			6,582			31,203			—			—			(9,304	)(t)		179,754
								23,913															3,649	(u)
Interest expense		108,009			113,088			—			8,787			121,875			(107,130	)		(121,875	)(aa)		—			203,483
																	94,048			108,556	(aa)
Investment income		(4,046	)		(2,704	)		—			(32	)		(2,736	)		—			—			—			(6,782	)
Selling, general and administrative		—			706,227			(706,227	)		—			—			—			—			—			—

		4,888,810			1,428,991			942,180			349,445			2,720,616			(13,082	)		(13,319	)		(7,108	)		7,575,917

Income (loss) from continuing operations before income taxes		(53,225	)		(644,527	)		—			6,035			(638,492	)		13,082			13,319			7,108			(658,208	)
Provision (benefit) for income taxes		(11,319	)		(39,953	)		—			1,872			(38,081	)		5,148	(s)		5,241	(s)		2,797	(s)		(36,214	)

Income (loss) from continuing operations		(41,906	)		(604,574	)		—			4,163			(600,411	)		7,934			8,078			4,311			(621,994	)
Earnings attributable to noncontrolling interests		(3,890	)		(487	)		—			—			(487	)		—			—			—			(4,377	)

Income (loss) attributable to Kindred from continuing operations	$	(45,796	)	$	(605,061	)	$	—		$	4,163		$	(600,898	)	$	7,934		$	8,078		$	4,311		$	(626,371	)

Earnings (loss) per common share from continuing operations:
Basic		$(0.88	)		$(18.94	)																				$(7.58	)(w)
Diluted		$(0.88	)		$(18.94	)																				$(7.58	)(w)
Shares used in computing earnings (loss) per common share:
Basic		52,249			31,954															30,368	(w)					82,617
Diluted		52,249			31,954															30,368	(w)					82,617

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

Kindred Healthcare, Inc. and Gentiva Health Services, Inc.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the nine months ended September 30, 2014

(in thousands, except per share amounts)


	Historical									Pro Forma Adjustments
	Kindred			Gentiva			Reclassifications(r)			April 2014 Refinancing(z)			Merger related financing			Allocation of merger consideration			Pro forma combined
Revenues	$	3,806,019		$	1,483,551		$	—		$	—		$	—		$	—		$	5,289,570
Cost of services sold		—			811,077			(811,077	)		—			—			—			—

		3,806,019			672,474			811,077			—			—			—			5,289,570
Salaries, wages and benefits		2,300,567			—			682,472			—			—			—			3,372,115
								389,076			—
Supplies		242,176			—			68,062			—			—			—			313,927
								3,689
Rent		241,449			—			33,467			—			—			(1,090	)(v)		273,826
Other operating expenses		768,247			—			60,096			—			(5,279	)(x)		—			941,758
								120,997						(2,303	)(x)
Other (income) expense		(741	)		490			(267	)		—			—			—			(518	)
Depreciation and amortization		117,802			—			447			—			—			(5,287	)(t)		130,325
								20,760									(3,397	)(u)
Interest expense		128,845			75,805			—			(82,087	)		81,091	(aa)		—			151,428
											23,579			(75,805	)(aa)
Investment income		(2,975	)		(1,899	)		—			—			—			—			(4,874	)
Selling, general and administrative		—			567,722			(567,722	)		—			—			—			—

		3,795,370			642,118			811,077			(58,508	)		(2,296	)		(9,774	)		5,177,987

Income from continuing operations before income taxes		10,649			30,356			—			58,508			2,296			9,774			111,583
Provision for income taxes		3,582			12,499			—			23,023	(s)		904	(s)		3,900	(s)		43,908

Income from continuing operations		7,067			17,857			—			35,485			1,392			5,874			67,675
Earnings attributable to noncontrolling interests		(13,729	)		(170	)		—			—			—			—			(13,899	)

Income (loss) attributable to Kindred from continuing operations	$	(6,662	)	$	17,687		$	—		$	35,485		$	1,392		$	5,874		$	53,776

Earnings (loss) per common share from continuing operations:
Basic		($0.12	)	$	0.49															$0.63	(w)
Diluted		($0.12	)	$	0.48															$0.62	(w)
Shares used in computing earnings (loss) per common share:
Basic		56,443			36,285									26,928	(w)					83,371
Diluted		56,443			37,052									28,219	(w)					84,662

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information

Notes to Unaudited Condensed Combined Pro Forma Financial Information

Note 1—Basis Of Presentation

The accompanying unaudited pro forma condensed combined financial information was prepared in accordance with the provisions of the authoritative guidance for business combinations using the acquisition method of accounting.

The accompanying unaudited pro forma condensed combined financial information presents the pro forma combined financial position and results of operations based upon the historical audited financial statements for the year ended December 31, 2013 and unaudited financial statements as of and for the nine months ended September 30, 2014, after giving effect to the Gentiva Transaction, the Harden Acquisition, the April 2014 Refinancing and the June 2014 Equity Offering. The unaudited pro forma condensed combined financial information has been prepared for illustrative purposes only and does not reflect the cost of any integration activities or benefits from synergies that may be derived from any integration activities, nor does the unaudited pro forma condensed combined statements of operations include the effects of any items directly attributable to these transactions that are not expected to have a continuing impact on the combined results of operations. The effects of the April 2014 Refinancing, the June 2014 Equity Offering and the Harden Acquisition have been shown separately as these transactions have already occurred.

The accompanying unaudited pro forma condensed combined balance sheet gives effect to the Gentiva Transaction as if the acquisition and related financing have been consummated on September 30, 2014, and includes estimated pro forma adjustments for the preliminary valuations of assets acquired and liabilities assumed. These adjustments are subject to further revision as additional information becomes available. The unaudited pro forma condensed combined statements of operations give effect to all of the above transactions as if they had been consummated on January 1, 2013.

Note 2—Preliminary Allocation of Merger Consideration

On October 9, 2014, Kindred entered into the Merger Agreement with Gentiva, providing for Kindred’s acquisition of all of the outstanding Gentiva Shares. Each Gentiva Share outstanding immediately prior to the effective time (subject to certain exceptions) will be converted into the right to receive $14.50 in cash, without interest and 0.257 of a share of Common Stock. No fractional shares of Common Stock will be issued in the Merger and Gentiva stockholders will receive cash in lieu of fractional shares. The value of the equity consideration portion of the preliminary Merger Consideration is subject to change based upon changes in the market price of Common Stock prior to closing. The total value of the transaction, including the assumption and refinancing of Gentiva long-term debt and financing and transaction costs, is approximately $2.1 billion.

Upon completion of the Merger, Gentiva stockholders will own approximately 12% of Kindred’s outstanding Common Stock assuming 4.9 million shares issued during the Common Stock offering and 9.6 million shares issued directly to Gentiva stockholders.

Kindred has obtained a financing commitment from the various lenders in connection with the Merger. These funds, along with the proposed issuance of Common Stock and the Units in the public market, and existing cash balances are expected to be sufficient to fund the Cash Consideration to Gentiva stockholders, refinance Gentiva’s revolving credit, term loan facilities and notes, and pay transaction costs. Subject to certain conditions, Kindred expects to have in place approximately $3.6 billion of long-term financing, of which $3.1 billion is expected to be outstanding upon the consummation of the Merger.

Each Unit is comprised of Mandatory Redeemable Preferred Stock and a Purchase Contract. The Purchase Contracts were recorded as capital in excess of par value, net of issuance costs, and the Mandatory Redeemable Preferred Stock have been recorded as long-term debt due to the mandatory redemption feature. Issuance costs associated with the debt component were recorded as deferred financing costs and are being amortized using the

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

effective interest rate method over the term of the instrument. Proceeds from the issuance of the Units were allocated to equity and debt based on the relative fair values of the respective components of each Unit. Dividends on the Mandatory Redeemable Preferred Stock are treated as interest expense as the preferred stock is classified as debt.

An estimate of the Merger Consideration paid to Gentiva stockholders at the effective time and a preliminary allocation of the Merger Consideration to the assets to be acquired and the liabilities to be assumed follows (in thousands, except per share and per option amounts):


Estimate of Merger Consideration:
Cash Consideration:
Shares eligible at November 13, 2014 for Merger Consideration		37,328
Cash Consideration	$	14.50

		541,256
Gentiva employee stock options outstanding as of November 13, 2014		1,807
Weighted average intrinsic value per outstanding Gentiva stock option as of November 13, 2014	$	6.59

Cash buyout of stock options		11,908

Total Cash Consideration		553,164
Kindred equity consideration:
Gentiva common stock and unvested restricted stock outstanding as of November 13, 2014		37,328
Exchange ratio		0.257

Assumed Common Stock to be issued		9,593
Kindred closing price per share as of November 13, 2014	$	20.36

Stock based equity consideration		195,313
Fair value of replacement stock options		3,002

Total equity consideration		198,315

Total Merger Consideration	$	751,479

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

Allocation of Merger Consideration to assets acquired and liabilities assumed:


	Historical balances of Gentiva as of September 30, 2014			Fair value adjustments			Allocation of Merger Consideration
Cash and cash equivalents	$	114,206		$	—		$	114,206
Accounts receivable		285,718			—			285,718
Deferred tax assets		24,270			—			24,270
Other current assets		48,776			—			48,776
Property and equipment		42,048			16,830			58,878
Identifiable intangible assets		247,033			92,431			339,464
Other assets		89,151			(1,190	)		87,961
Current portion of long-term debt		(51,138	)		—			(51,138	)
Accounts payable and other current liabilities		(291,816	)		3,601			(288,215	)
Long-term debt, less current portion		(1,105,750	)		(18,700	)		(1,124,450	)
Deferred tax liabilities		(6,264	)		(60,148	)		(66,412	)
Other liabilities		(55,456	)		(7,143	)		(62,599	)
Noncontrolling interests		(3,812	)		—			(3,812	)

Total identifiable net assets		(663,034	)					(637,353	)
Goodwill		374,024						1,388,832

Net assets	$	(289,010	)				$	751,479

A change of $1 in the price of Common Stock would increase or decrease the equity consideration including unvested employee restricted shares and employee stock option consideration, by approximately $10 million, which would result in a corresponding adjustment to goodwill.

The final Merger Consideration allocation for certain items, including property and equipment, identifiable intangible assets, leasehold interests, debt and noncontrolling interests, are preliminary and dependent upon certain valuations and other studies that have not been finalized and are subject to subsequent adjustments. The actual amounts recorded at the completion of the Merger may differ materially from the information presented herein.

Note 3—Reclassification and Pro Forma Adjustments

The unaudited pro forma condensed combined financial information includes the following reclassification adjustments to conform the Gentiva balance sheet and statements of operations to Kindred’s presentation, and pro forma adjustments to give effect to the April 2014 Refinancing and the Gentiva Transaction.

In addition, the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 includes pro forma adjustments to incorporate the operating results of Harden for the nine months ended September 30, 2013 as the acquisition of Harden was not consummated by Gentiva until October 18, 2013. These adjustments were included in order to incorporate a full year of Harden’s operations into Gentiva’s statement of operations for the year ended December 31, 2013 and should be read in conjunction with Gentiva’s Form 8-K/A filed with the SEC on December 23, 2013.

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

Unaudited pro forma condensed combined balance sheet adjustments

To reclassify $47.9 million of Gentiva deferred revenue to accounts receivable.

To reclassify $5.9 million of Gentiva third party receivables from other current assets to accounts receivable.

To reclassify $11.4 million of Gentiva income tax receivables from other current assets to income taxes.

To reclassify $12.8 million of Gentiva accrued incentive compensation from other accrued expenses to salaries, wages and other compensation.

To reclassify $67.9 million of Gentiva workers compensation and health liabilities from obligations under insurance programs to salaries, wages and other compensation.

To reclassify $17.6 million of Gentiva Medicare liabilities to due to third party payors.

To reclassify $10.4 million of Gentiva professional liability risks from obligations under insurance programs to professional liability risks.

To reclassify $46.2 million of Gentiva other current liabilities to other accrued liabilities.

To reclassify $19.0 million of Gentiva accruals from accrued nursing home costs to other accrued liabilities.

To reclassify $0.05 million of Gentiva accruals from obligations under insurance programs to other accrued liabilities

Concurrently, and in connection with entering into the Merger Agreement, Kindred has entered into a Commitment Letter with various lenders pursuant to which Kindred received committed financing, including the Bridge Facility of up to $1.7 billion if Kindred is unable to issue senior unsecured notes up to $1.7 billion. The committed financing, together with cash on hand, are sufficient to fund the Gentiva Transaction. Accessing the Bridge Facility may not be necessary if Kindred is able to complete the Financing Transactions. The unaudited pro forma condensed combined financial information assumes, based upon management’s current expectations, that the Financing Transactions are completed prior to consummation of the proposed Merger and the Bridge Facility is not accessed. Kindred expects to pay financing costs of $29.6 million related to executing these debt instruments that will be amortized over the terms of the loans.

Notwithstanding the foregoing, for purposes of the unaudited pro forma condensed combined financial information, Kindred has assumed the Gentiva Transaction financing will consist of the following:

an assumed $122.5 million in excess cash;

an assumed $1.35 billion aggregate principal amount of the Senior Notes;

the sale of 4.9 million shares of Common Stock at the November 13, 2014 closing price of $20.36 per share resulting in estimated gross proceeds of approximately $100 million and excluding any shares that may be issued if the underwriters exercise their option to purchase additional shares of Common Stock;

the issuance of 9.6 million shares of Common Stock directly to Gentiva stockholders;

the sale of approximately $150 million of Units, comprised of approximately $29.1 million of Mandatory Redeemable Preferred Stock and $120.9 million of Purchase Contracts. For accounting purposes, the Purchase Contracts are recorded as capital in excess of par value, net of issuance costs, and the Mandatory Redeemable Preferred Stock is recorded as long-

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

term debt due to the mandatory redemption feature. Issuance costs associated with the debt component were recorded as deferred financing costs and are being amortized using the effective interest rate method over the term of the instrument. Proceeds from the issuance of the Units were allocated to equity and debt based on the relative fair values of the respective components of each Unit. Dividends on the Mandatory Redeemable Preferred Stock are recorded as interest expense as the preferred stock is classified as debt; and

an assumed draw of approximately $192.6 million of Kindred’s current ABL Facility.

The final terms of the Financing Transactions will be subject to market conditions and may change materially from the assumptions described above. Changes in assumptions described above with respect to Senior Notes, Common Stock, and Units of the Gentiva Transaction financing would result in changes to various components of the unaudited pro forma condensed combined balance sheet, long-term debt, shareholders’ equity and various components of the unaudited pro forma condensed combined statements of operations, including interest expense and earnings per share. Depending upon the nature of the changes, the impact on the unaudited pro forma condensed combined financial information could be material.

•

Each 0.125% increase (decrease) in the assumed interest rate of the Senior Notes would increase (decrease) pro forma interest expense by approximately $1.7 million for the year ended December 31, 2013 and approximately $1.3 million for the nine months ended September 30, 2014, and would (increase) decrease earnings per share (basic and diluted) by approximately $0.02 and $0.01, respectively for the year ended December 31, 2013 and for the nine months ended September 30, 2014.

•

Each $50.0 million increase (decrease) in the principal amount of the Senior Notes would increase (decrease) pro forma interest expense by $3.5 million for the year ended December 31, 2013 and by $2.6 million for the nine months ended September 30, 2014 respectively, and (increase) decrease earnings per share (basic and diluted) by approximately $0.04 for the year ended December 31, 2013 and $0.03 for the nine months ended September 30, 2014 respectively.

•

Each 0.125% increase (decrease) in the assumed interest rate of the Mandatory Redeemable Preferred Stock component of the Units would increase (decrease) pro forma interest expense by less than $0.1 million for both the year ended December 31, 2013 and the nine months ended September 30, 2014, and would have no impact on earnings per share (basic and diluted) respectively for the year ended December 31, 2013 and nine months ended September 30, 2014.

•

Each $10.0 million increase (decrease) in the principal amount of the Mandatory Redeemable Preferred Stock component of the Units would increase (decrease) pro forma interest expense by $0.4 million for the year ended December 31, 2013 and by $0.2 million for the nine months ended September 30, 2014, and (increase) decrease earnings per share (basic and diluted) by approximately $0.01 for the year ended December 31, 2013 and have no impact on earnings per share for the nine months ended September 30, 2014.

•

For each 0.125% change in the assumed interest rate, the amount allocable to the Mandatory Redeemable Preferred Stock component of the Units would increase (decrease) by approximately $0.1 million based on the current total assumed value of the instrument.

•

If we had to use the Bridge Facility of $1.7 billion, the pro forma interest expense would be $134 million for the year ended December 31, 2013 and $116 million for the nine months ended September 30, 2014. For each 0.125% increase (decrease) in the assumed interest rate on the Bridge Facility, pro forma interest expense would increase (decrease) $2.1 million for the year ended December 31, 2013 and $1.6 million for the nine months ended September 30, 2014, and would (increase) decrease earnings per share (basic and diluted) by approximately $0.03 and $0.02, respectively for the year ended December 31, 2013 and for the nine months ended September 30, 2014.

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

Based on the assumptions outlined above, the following table outlines the anticipated sources and uses of funds (in thousands, except per share amounts):


Financing sources:
Excess cash			$	122,495
New debt:
$1.35 billion Senior Notes				1,350,000
Units debt portion:
Long-term debt	$	19,388
Current portion of long-term debt		9,695		29,083

Existing ABL Facility draw				192,562
Equity exchanged and issued:
Equity issued to open market:
Common Stock, $0.25 par value		1,228
Capital in excess of par value		98,772		100,000

Equity exchanged:
Common Stock, $0.25 par value		2,398
Capital in excess of par value		195,917		198,315

Units equity portion (capital in excess of par value)				120,917

			$	2,113,372

Financing uses:
Consideration to acquire Gentiva (see Note 2):
Cash Consideration	$	553,164
Equity consideration		198,315	$	751,479

Retirement of Gentiva debt:
Long-term debt		1,105,750
Current portion of long-term debt		51,138
Call premium on Gentiva’s unsecured senior notes		18,700
Accrued interest		7,788
Unamortized debt discount		6,368		1,189,744

Long-term debt financing fees				29,558
Units financing fees debt portion (accounted for as deferred financing cost)				873
Units financing fees equity portion (accounted for as reduction to equity)				3,627
Equity to market issuance fee (accounted for as reduction to equity)				4,250
Settlement of Gentiva’s long-term incentive plan				7,741
Expenses paid at closing				126,100

			$	2,113,372

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)


Expenses related to Merger closing:
Cash payments:
Legal and professional fees	$	74,100
Employee change in control payments		35,000
Bridge Facility commitment fee		17,000

		126,100
Non-cash write-offs:
Gentiva deferred financing costs		24,440
Gentiva unamortized debt discount		6,368

		30,808

		156,908
Income tax benefit(1)		(46,967	)

Charge to retained earnings	$	109,941

(1)	The combined company estimated statutory income tax rate of 39.35% was only applied to expenses related to the Merger that are expected to be deductible for income tax purposes.

To adjust the tangible and identifiable intangible assets acquired and liabilities assumed based upon preliminary estimates of fair value and eliminate historical Gentiva balances. To record a fair value adjustment related to Gentiva’s unsecured senior notes of $18.7 million based on trading value. The preliminary estimates of fair value for property and equipment and identifiable intangible assets follow (in thousands):


Property and equipment:	Historical net book value as of September 30, 2014		Estimated fair value(1)		Estimated fair value adjustment
Land and land improvements	$	595	$	595	$	—
Buildings and improvements		8,503		15,313		6,810
Software and equipment		32,124		42,144		10,020
Construction in progress		826		826		—

	$	42,048	$	58,878	$	16,830

(1)

Fair value is determined based upon a valuation report as of June 30, 2014, along with any subsequent additions or disposals in the period from July 1, 2014 to September 30, 2014.


Identifiable intangible assets and liabilities:	Estimated fair value
Indefinite lived:
Licenses and certificates of need	$	317,710
Finite lived:
Trade name		17,700
Leasehold interest		2,124
Legacy non-compete agreements		1,930

	$	339,464

Leasehold interest liability	$	(7,143	)

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

The excess of the Merger Consideration for Gentiva over the fair value of its identifiable net assets of $1.4 billion is recorded as goodwill. See Note 2.

Adjustments to deferred tax liabilities related to the tax effect of fair value adjustments (in thousands):


Property and equipment	$	6,555
Identifiable intangible assets and liabilities		53,593

	$	60,148

To allocate the total Merger Consideration paid to Gentiva stockholders to the assets acquired and liabilities assumed. See Note 2.

To eliminate $1.2 million of net unfavorable operating lease obligations recorded by Gentiva related to the Harden Acquisition.

To eliminate $3.6 million of deferred rent liabilities related to straight-line rent accruals. In subsequent periods following the date of the Merger, lease payments that are not contingent will continue to be accounted for on a straight-line basis.

To eliminate the historical stockholders’ equity balances of Gentiva.

Unaudited pro forma condensed combined statements of operations adjustments

To reclassify Gentiva’s statement of operations for the year ended December 31, 2013 to conform to Kindred’s presentation (in thousands):


	Cost of services sold			Selling, general and administrative			Total expenses
Salaries, wages and benefits	$	773,500		$	474,095		$	1,247,595
Supplies		85,259			7,565			92,824
Rent		—			43,370			43,370
Other operating expenses		82,713			156,788			239,501
Other income (expense)		—			496			496
Depreciation and amortization		708			23,913			24,621
Selling, general and administrative expenses		—			(706,227	)		(706,227	)
Cost of services sold		(942,180	)		—			(942,180	)

	$	—		$	—		$	—

To reclassify Gentiva’s statement of operations for the nine months ended September 30, 2014 to conform to Kindred’s presentation (in thousands):


	Cost of services sold			Selling, general and administrative			Total expenses
Salaries, wages and benefits	$	682,472		$	389,076		$	1,071,548
Supplies		68,062			3,689			71,751
Rent		—			33,467			33,467
Other operating expenses		60,096			120,997			181,093
Other income (expense)		—			(267	)		(267	)
Depreciation and amortization		447			20,760			21,207
Selling, general and administrative expenses		—			(567,722	)		(567,722	)
Cost of services sold		(811,077	)		—			(811,077	)

	$	—		$	—		$	—

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

To adjust the income tax provision to reflect the pro forma combined company estimated statutory income tax rate of 39.35%.

To adjust depreciation expense based upon the estimated fair value of the property and equipment related to each asset’s estimated remaining useful life (dollars in thousands):


	As of September 30, 2014									Depreciation expense
	Historical net book value		Estimated fair value adjustment		Estimated fair value		Estimated remaining useful life			Year ended December 31, 2013			Nine months ended September 30, 2014
Land and land improvements	$	595	$	—	$	595				$	—		$	—
Buildings and improvements		8,503		6,810		15,313		(1	)		1,764			1,323
Software and equipment		32,124		10,020		42,144		4			10,536			7,902
Construction in progress		826		—		826					—			—

	$	42,048	$	16,830	$	58,878		9			12,300			9,225

Historical Gentiva depreciation expense											21,604			14,512

Depreciation expense adjustment										$	(9,304	)	$	(5,287	)

(1)

Gentiva possesses a $3.9 million building improvement asset which is depreciated using a life of 30 years. The remaining portion of the buildings and improvements assets are depreciated using a useful life of 7 years.

To adjust intangible assets amortization expense based upon the estimated fair value of finite-lived intangible assets (dollars in thousands):


	As of September 30, 2014					Amortization expense
	Estimated fair value		Estimated weighted average useful life			Year ended December 31, 2013		Nine months ended September 30, 2014
Trade name	$	17,700		(1	)	$	12,390	$	2,655
Legacy non-compete agreements		1,930		2.25			858		643

	$	19,630					13,248		3,298

Historical Gentiva amortization expense							9,599		6,695

Amortization expense adjustment						$	3,649	$	(3,397	)

(1)

Amortization expense of 70% in year one, 20% in year two and 10% in year 3 is applied for the trade name based upon the assumed usage of this asset over a 3 year life.

To amortize the fair market value of leasehold interest assets and liabilities acquired over their remaining lease term in the amounts of $1.5 million and $1.1 million for the year ended December 31, 2013 and for the nine months ended September 30, 2014 respectively.

Pro forma earnings (loss) from continuing operations per common share attributable to Kindred are based upon the weighted average number of common shares outstanding. On June 25, 2014, Kindred sold 9.0 million shares of Common Stock in the public market and on July 14, 2014, an additional 0.7 million shares of Common Stock were sold to the underwriters pursuant to the exercise of their option to purchase additional shares. While the share issuance is included in Kindred’s September 30, 2014 balance sheet, for pro forma earnings (loss) per share, the earnings (loss) per share calculations

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

assume this Common Stock issuance occurred on January 1, 2013. The weighted average number of shares outstanding reflect the elimination of Gentiva’s common stock and also includes 4.9 million shares issued during an additional Common Stock offering, 9.6 million shares issued directly to Gentiva stockholders, and shares related to the Units. The Units are assumed to be settled at the minimum settlement rate for weighted average shares for basic calculation of pro forma earnings (loss) from continuing operations per common share, which totaled 6.2 million shares. The diluted calculation of pro forma earnings (loss) from continuing operations per common share includes the dilutive effect of Kindred’s stock options and the dilutive effect of the Units which are assumed to be settled at the maximum settlement rate, which resulted in incremental shares of 1.2 million. Kindred follows the provisions of the authoritative guidance for determining whether instruments granted in share-based payment transactions are participating securities, which requires that unvested restricted stock that entitles the holder to receive nonforfeitable dividends before vesting be included as a participating security in the basic and diluted earnings per common share calculation pursuant to the two-class method. A computation of pro forma earnings (loss) from continuing operations per common share follows for the year ending December 31, 2013 and nine months ended September 30, 2014 respectively (in thousands, except per share amounts).


	Basic			Diluted
For the year ended December 31, 2013:
Pro forma loss:
Loss attributable to Kindred stockholders from continuing operations:
As reported in Unaudited Pro Forma Condensed Combined Statement of Operations	$	(626,371	)	$	(626,371	)
Allocation to participating unvested restricted stockholders		—			—

Available to common stockholders	$	(626,371	)	$	(626,371	)

Shares used in the computation:
Weighted average share outstanding—basic computation		82,617			82,617

Dilutive effect of Kindred employee stock options					—
Dilutive effect of Kindred performance-based restricted shares					—

Adjusted weighted average shares outstanding—diluted computation					82,617

Pro forma loss from continuing operations per common share	$	(7.58	)	$	(7.58	)

	Basic			Diluted
For the nine months ended September 30, 2014:
Pro forma earnings:
Income attributable to Kindred stockholders from continuing operations:
As reported in Unaudited Pro Forma Condensed Combined Statement of Operations	$	53,776		$	53,776
Allocation to participating unvested restricted stockholders		(1,052	)		(1,037	)

Available to common stockholders	$	52,724		$	52,739

Shares used in the computation:
Weighted average share outstanding—basic computation		83,371			83,371

Dilutive effect of Units					1,228
Dilutive effect of Kindred employee stock options					63

Adjusted weighted average shares outstanding—diluted computation					84,662

Pro forma income from continuing operations per common share	$	0.63		$	0.62

x)	To eliminate $5.3 million of direct incremental costs of the Merger that are reflected in the historical statement of operations of Kindred, and to eliminate $2.3 million of direct incremental costs of the Merger that are reflected in the historical statement of operations of Gentiva.

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)

y)	To eliminate historical interest expense and deferred financing cost amortization and recalculate interest expense based upon the new terms for the year ended December 31, 2013 related to the April 2014 Refinancing (dollars in thousands):


	Interest expense		Deferred cost amortization		Total decrease to interest expense
Historical Kindred interest expense eliminated		$95,243	$	11,887	$	107,130


New interest expense:	Interest expense		Deferred cost amortization		Total increase to interest expense
$750 million revolving credit facility	$	9,298	$	3,553	$	12,851
$1 billion term loan		40,402		4,152		44,554
$500 million senior unsecured notes		31,875		1,168		33,043
Interest rate swap		3,600		—		3,600

	$	85,175	$	8,873	$	94,048


Interest rates and term:	Interest rate index and margin	Assumed rate			Term (years)
$750 million revolving credit facility (base rate)	N/A		4.50	%	5
$750 million revolving credit facility	LIBOR (1) + 2.25%		2.44	%	5
$1 billion term loan	LIBOR (2) + 3.00%		4.00	%	7
$500 million senior unsecured notes	N/A		6.38	%	8
Interest rate swap	N/A		1.867	%	4

(1)	LIBOR—One month London Interbank Offered Rate

(2)	LIBOR—One month London Interbank Offered Rate with floor of 1.0%

To eliminate historical interest expense and deferred financing cost amortization and recalculate interest expense based upon the new terms for the nine months ended September 30, 2014 related to the April 2014 Refinancing (dollars in thousands):


	Interest expense		Deferred cost amortization		Total decrease to interest expense
Historical Kindred interest expense eliminated	$	64,812	$	17,275	$	82,087


New interest expense:	Interest expense		Deferred cost amortization		Total increase to interest expense
$750 million revolving credit facility	$	2,592	$	888	$	3,480
$1 billion term loan		9,900		1,038		10,938
$500 million senior unsecured notes		7,969		292		8,261
Interest rate swap		900		—		900

	$	21,361	$	2,218	$	23,579

Notes to Unaudited Condensed Combined Pro Forma Financial Information (Continued)


Interest rates and term:	Interest rate index and margin	Assumed rate			Term (years)
$750 million revolving credit facility (base rate)	N/A		4.25	%		5
$750 million revolving credit facility	LIBOR (1) + 2.00%		2.19	%		5
$1 billion term loan	LIBOR (2) + 3.00%		4.00	%		7
$500 million senior unsecured notes	N/A		6.38	%		8
Interest rate swap	N/A		1.867	%		4

(1)	LIBOR—One month London Interbank Offered Rate

(2)	LIBOR—One month London Interbank Offered Rate with floor of 1.0%

aa)

To eliminate historical interest expense and deferred financing cost amortization related to Gentiva debt obligations that will be retired at the closing date of the Merger, and to add the new interest expense and deferred financing cost amortization related to new debt, which are computed as follows (dollars in thousands):


Historical Gentiva interest expense eliminated:	Interest expense		Deferred cost amortization		Total decrease to interest expense
Year ended December 31, 2013	$	91,075	$	30,800	$	121,875
Nine months ended September 30, 2014	$	71,033	$	4,772	$	75,805


New interest expense:	Debt borrowings		Deferred costs related to financing		Interest expense		Deferred cost amortization		Total increase to interest expense
Year ended December 31, 2013:
$1.35 billion Senior Notes	$	1,350,000	$	29,558	$	94,500	$	3,695	$	98,195
Units debt portion		29,083		873		1,284		291		1,575
Existing ABL Facility		192,562		—		8,786		—		8,786

	$	1,571,645	$	30,431	$	104,570	$	3,986	$	108,556

Nine months ended September 30, 2014:
$1.35 billion Senior Notes	$	1,350,000	$	29,558	$	70,875	$	2,771	$	73,646
Units debt portion		29,083		873		656		218		874
Existing ABL Facility		192,562		—		6,571		—		6,571

	$	1,571,645	$	30,431	$	78,102	$	2,989	$	81,091


Interest rates and term:	Interest rate index and margin per commitment letter			Assumed rate at closing			Term (years)
$1.35 billion Senior Notes		LIBOR (1) + 2.00	%		7.0	%		8
Units debt portion		n/a			7.0	%		3
Existing ABL Facility		n/a			4.5	%		5

(1)	LIBOR—One month London Interbank Offered Rate with floor of 1.5%

CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS

The following is a summary of certain U.S. federal income and estate tax consequences generally applicable to the ownership and disposition of our Common Stock by a “non-U.S. holder” (as defined below) as of the date of this prospectus supplement. Except where noted, this summary deals only with shares of our Common Stock that are held as capital assets (generally, investment property) by a non-U.S. holder who purchases our Common Stock in this offering. Except as modified for estate tax purposes, a “non-U.S. holder” means a beneficial owner of our Common Stock (other than a partnership or other entity or an arrangement treated as a partnership for U.S. federal income tax purposes) that is not for U.S. federal income tax purposes any of the following:

•

an individual citizen or resident of the United States;

•

a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; or

•

any other person that would otherwise be subject to U.S. federal income tax on a net income basis in respect of such Common Stock.

This discussion does not cover all aspects of U.S. federal income and estate tax consequences that may be relevant to the purchase, ownership or disposition of our Common Stock by prospective investors in light of their particular circumstances. In particular, this discussion does not address all of the tax considerations that may be relevant to persons in special tax situations, including persons that will hold shares of our Common Stock in connection with a U.S. trade or business or a U.S. permanent establishment, persons that hold more than 5% of our Common Stock, controlled foreign corporations, passive foreign investment companies, certain U.S. expatriates or persons otherwise subject to special treatment under the Internal Revenue Code of 1986, as amended (the “Code”).

This summary is based upon provisions of the Code, and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be repealed, revoked, modified or subject to differing interpretations, potentially on a retroactive basis, so as to result in U.S. federal income and estate tax consequences different from those summarized below. This summary does not address all aspects of U.S. federal income and estate taxes, any other U.S. federal tax considerations (such as gift taxes) and does not deal with non-U.S., state, local or other tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances.

If a partnership (or other entity or an arrangement treated as a partnership for U.S. federal income tax purposes) holds our Common Stock, the tax treatment of a partner will generally depend upon the status of the partner, the activities of the partnership, and certain determinations made at the partner level. If you are a partner of a partnership considering an investment in our Common Stock, you should consult your tax advisors.

If you are considering the purchase of our Common Stock, we recommend that you consult your own tax advisors concerning the particular U.S. federal tax consequences to you of the ownership and disposition of our Common Stock, as well as the consequences to you arising under the laws of any other taxing jurisdiction.

Dividends

In the event that we make a distribution of cash or property with respect to our Common Stock, any such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. Holder’s investment, up to such holder’s tax basis in our Common Stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in “—Gain on Sale or Other Taxable Disposition of Common Stock.” Unless we provide a statement to holders of record or provide information on our website to the contrary, the entire distribution should be treated as a dividend.

Dividends paid to you generally will be subject to withholding of U.S. federal tax at a 30% rate, or such lower rate as may be specified by an applicable tax treaty. Even if you are eligible for a lower treaty rate, U.S. federal tax will generally be required to be withheld at a 30% rate (rather than the lower treaty rate) on dividend payments to you, unless:

•

you have furnished to the applicable U.S. withholding agent a valid Internal Revenue Service (“IRS”) Form W-8BEN, Form W-8 BEN-E or other documentary evidence establishing your entitlement to the lower treaty rate with respect to such payments, and

•

Pursuant to the rules generally known as “FATCA,” you have provided the applicable U.S. withholding agent with certain information with respect to your direct and indirect U.S. owners if you are a legal entity; and, if you are or hold our Common Stock through a non-U.S. financial institution, such institution (i) has entered into an agreement with the U.S. government to collect and provide to the U.S. tax authorities information about its accountholders (including certain investors in such institution), (ii) qualifies for an exception from the requirement to enter into such an agreement or (iii) complies with the terms of an applicable intergovernmental agreement between the U.S. government and the jurisdiction in which such foreign financial institution is organized, is resident or operates, as the case may be.

A non-U.S. holder of our Common Stock eligible for a reduced rate of withholding of U.S. federal tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Investors are encouraged to consult with their own tax advisors regarding the possible implications of these withholding requirements on their investment in our Common Stock.

Gain on Sale or Other Taxable Disposition of Common Stock

You generally will not be subject to U.S. federal income tax with respect to any gain recognized on a sale, exchange or other taxable disposition of our Common Stock unless you are an individual who is present in the United States for 183 or more days in the taxable year of the sale, exchange or other taxable disposition and certain other requirements are met. If you are such an individual, you will generally be subject to a flat 30% tax on any gain derived from the sale, exchange or other taxable disposition that may be offset by certain U.S. source capital losses (even though you are not considered a resident of the United States).

Under the U.S. withholding tax and reporting rules known as “FATCA,” in the case of the sale or disposition of our Common Stock after December 31, 2016, you may be subject to a 30% withholding of U.S. federal income tax on the gross proceeds of the sale or disposition (including any distribution on our Common Stock that is treated as a return of your investment or capital gain) unless the FATCA requirements described in the last bullet point above under “—Dividends” are satisfied. Investors are encouraged to consult with their own tax advisors regarding the possible implications of these withholding requirements on their investment in our Common Stock and the potential for a refund or credit in the case of any withholding tax.

Federal Estate Tax

Our Common Stock held (or deemed to be owned) by an individual who is not a citizen of the United States or a resident of the United States (as specially defined for U.S. federal estate tax purposes) at the time of death will be included in such holder’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Backup Withholding, Information Reporting and Other Reporting Requirements

We must report annually to the IRS and to you the amount of dividends paid to you and any tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns

reporting such dividends and withholding may also be made available to the tax authorities in the country in which you reside under the provisions of an applicable income tax treaty, exchange of information treaty or other agreement.

You will be subject to backup withholding for dividends paid to you unless you certify under penalty of perjury that you are not a “United States person” as defined in the Code, and the payor does not have actual knowledge or reason to know that you are a United States person, or you otherwise establish an exemption.

Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of our Common Stock within the United States or conducted through certain U.S.-related financial intermediaries, unless you certify under penalty of perjury that you are not a United States person (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person) or you otherwise establish an exemption.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a credit against your U.S. federal income tax liability, and may entitle you to a refund, provided the required information is timely furnished to the IRS.

GLOSSARY OF TERMS

“ABL Facility” refers to our ABL Credit Agreement dated as of June 1, 2011, as amended and restated from time to time.

“Bridge Facility” refers to the senior unsecured bridge loan facility pursuant to which the lenders party thereto committed to provide us with financing to consummate the Merger.

“Common Stock” refers to the shares of Kindred common stock, par value $0.25 per share.

“Financing Transactions” refers to the following transactions that are expected to occur in connection with the Merger: (i) we plan to issue 150,000 Units, (ii) we plan to issue approximately 5,000,000 shares of our Common Stock ( the “Common Stock Offering”) (iii) we plan to amend the Credit Facilities and borrow approximately $193 million under the ABL Facility, and (iv) we plan to issue between $1.3 billion and $1.4 billion aggregate principal amount of the Senior Notes.

“Gentiva” refers to “Gentiva Health Services, Inc.

“Kindred” refers to Kindred Healthcare, Inc.

“Merger” refers to the merger of Kindred Healthcare Development 2, Inc. (the “Merger Sub”), a wholly owned subsidiary of the Company, with and into Gentiva, with Gentiva surviving the merger as a wholly owned subsidiary of Kindred.

“Merger Agreement” refers to the Agreement and Plan of Merger, dated as of October 9, 2014 between Kindred and Gentiva.

“Merger Consideration” refers to (i) $14.50 in cash (the “Cash Consideration”), without interest, together with (ii) 0.257 shares of a validly issued, fully paid and nonassessable share of our Common Stock (the “Stock Consideration”) per share of Gentiva’s common stock, $0.10 par value (each a “Gentiva Share”), that Kindred will pay to acquire Gentiva and its subsidiaries.

“Senior Notes” refers to between $1.3 billion and $1.4 billion aggregate principal amount of senior unsecured notes that we expect to issue prior to the completion of the Merger and subject to market and other conditions.

“Units” means tangible equity units. Each Unit is comprised of a prepaid stock purchase contract issued by the Company (a “Purchase Contract”) and one share of Mandatory Redeemable Preferred Stock, Series A of the Company (the “Mandatory Redeemable Preferred Stock”).

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