Kindred Healthcare Reports Third Quarter Results

  Kindred Healthcare Reports Third Quarter Results

Reported Results of $0.15 Per Diluted Share Include Charges of $0.06 Per Share
                      Related Primarily to Dispositions

Third Quarter Operating Cash Flows Surged to Near-Record $141 Million from $67
                              Million Last Year

 Company Tightens 2012 Annual EPS Guidance Range to $1.40 to $1.50 from $1.35
 to $1.55, Maintaining Annual Mid-Point at $1.45 and Fourth Quarter Mid-Point
                                   at $0.43

         2013 Annual EPS Guidance Range of $1.20 to $1.40 Reaffirmed

Business Wire

LOUISVILLE, Ky. -- October 29, 2012

Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its
operating results for the third quarter ended September 30, 2012. The
Company’s consolidated financial statements include the operating results of
RehabCare Group, Inc. (“RehabCare”) since the closing of the acquisition on
June 1, 2011.

Third Quarter Highlights:

  *Despite a seasonally weak period, consolidated revenues rose 1% to $1.5
    billion and operating income was nearly $200 million

       *While hospital revenues grew 4%, adverse Medicare reimbursement
         changes hampered revenues in the nursing center and RehabCare
         contract therapy divisions

  *Operating cash flows surged to near-record $141 million in the quarter
    compared to $67 million last year

       *Results are on track to meet annual 2012 guidance range of $260
         million to $280 million

  *Hospital division revenues rose 4% while operating income grew 10%

       *Same-store admissions rose 2% compared to last year
       *Cost per patient day rose only 1% from a year ago

  *Nursing center division reported stable operating income of $71 million in
    difficult reimbursement environment

  *RehabCare contract therapy division reported solid operating income of $37
    million

       *Division reported brisk new contract sales in the first nine months
         this year
       *Recent Medicare rule changes adversely impacted results late in this
         year’s third quarter

  *PeopleFirst home health and hospice division reported significant revenue
    and operating income growth

       *Recent IntegraCare acquisition added approximately $71 million in
         annualized revenues

  *Corporate overhead declined as a percent of revenues to 3.0% from 3.2% in
    last year’s third quarter

       *RehabCare synergies and other cost reductions drove third quarter
         overhead lower by 6% compared to last year

Third Quarter Results

Continuing Operations

Consolidated revenues for the third quarter ended September 30, 2012 rose 1%
to $1.5 billion compared to the third quarter last year. Income from
continuing operations for the third quarter of 2012 totaled $7.9 million or
$0.15 per diluted share compared to $0.6 million or $0.01 per diluted share in
the third quarter last year.

Third quarter 2012 operating results included pretax charges of $4.9 million
related to (1) an impairment charge in connection with the planned divestiture
of a long-term acute care (“LTAC”) hospital, (2) employee retention costs
incurred in connection with the decision to allow the leases to expire for 54
nursing and rehabilitation centers (the “54 Nursing Centers”) currently leased
from Ventas, Inc. (“Ventas”) (NYSE:VTR), (3) a lease cancellation charge in
connection with the closing of a LTAC hospital, and (4) transaction-related
costs. These items reduced income from continuing operations in the third
quarter by $3.3 million or $0.06 per diluted share.

Third quarter 2011 operating results included certain charges, most of which
related to impairment charges and costs associated with the RehabCare
acquisition, that reduced income from continuing operations by $20.9 million
or $0.40 per diluted share.

Discontinued Operations

The Company periodically enters into transactions related to the divestiture
of unprofitable businesses. For accounting purposes, the historical operating
results of these businesses have been classified as discontinued operations in
the Company’s condensed consolidated statement of operations for all
historical periods.

Management Commentary

Paul J. Diaz, Chief Executive Officer of the Company, remarked, “Our third
quarter operating results were in line with our expectations and position us
to achieve our full-year earnings guidance. While the third quarter is
typically a seasonally weak period, our results reflected the same solid cost
management and commitment to quality that we have reported all year.”

Mr. Diaz continued, “Our third quarter operating cash flows of $141 million
were near-record levels. In addition, our demonstrated ability to generate
significant cash flows in excess of our routine capital spending and required
repayments of debt provides the financial flexibility to continue to invest in
our Cluster Market Strategy and strategic acquisitions.”

With respect to the Company’s $200 million credit expansion completed in early
October, Mr. Diaz noted, “Our financial strength and significant liquidity
have enabled us to expand our credit capacity to finance future growth.
Following the closing of the transaction, our unused credit capacity totaled
approximately $450 million compared to $237 million at June 30, 2012.”

Mr. Diaz also discussed the significant reimbursement pressure in the
long-term healthcare industry, “Over the past year, both Kindred and our
industry peers have struggled in an environment of severe Medicare and
Medicaid payment pressures as well as significant survey and enforcement
activity. Most recently, we have been challenged by new Medicare Part B
regulations regarding rehabilitation therapy which have created inefficiencies
in our operations (as much as $1 million per month), and more importantly,
potentially restrict access to therapy services that benefit our most frail
residents. As we have in the past, we will continue our dialogue with
policymakers to improve the current system to make it more patient-centered,
predictable and efficient.”

Earnings Guidance – Continuing Operations

The Company tightened its earnings guidance range for 2012. The Company
expects consolidated revenues for 2012 to approximate $6.2 billion. Operating
income, or earnings before interest, income taxes, depreciation, amortization
and rent, is expected to range from $867 million to $875million. Rent expense
is expected to approximate $430 million, while depreciation and amortization
should approximate $201 million. Net interest expense is expected to
approximate $107 million. The Company expects to report income from continuing
operations for 2012 between $75 million and $80 million or $1.40 to $1.50 per
diluted share (based upon diluted shares of 52 million).

The Company also maintained its operating cash flow guidance range for 2012 at
$260 million to $280 million. Estimated routine capital expenditures for 2012
are expected to range from $135 million to $145 million, including
approximately $17 million of expenditures to complete the information systems
integration of RehabCare. The Company’s expected routine capital expenditures
also include approximately $13 million to upgrade the clinical information
systems in its hospital, nursing center and home health businesses.

In addition to its routine capital expenditures, the Company expects that its
previously announced development projects related to new and replacement
hospitals and new transitional care centers will approximate $40 million to
$45 million in 2012.

Operating cash flows in excess of the Company’s routine and development
capital spending programs, which are expected to approximate $85 million to
$90 million for 2012, will be available to repay debt and fund acquisitions.

The earnings guidance provided by the Company for 2012 excludes the effect of
(1) any costs associated with the closing of a regional office, the planned
divestiture or closing of five LTAC hospitals and the cancellation of a
sub-acute unit project, (2) costs associated with employment-related lawsuits,
(3) employee retention costs incurred in connection with the decision to allow
the leases to expire for 54 Nursing Centers, (4) any transaction-related
charges, (5) any other reimbursement changes, (6) any future acquisitions or
divestitures, (7) any impairment charges, and (8) any repurchases of common
stock.

In addition, the Company reaffirmed its preliminary earnings guidance for
fiscal 2013. The Company expects consolidated revenues for 2013 to approximate
$5.9 billion. Operating income is expected to range from $806 million to $825
million. Rent expense is expected to approximate $387 million, while
depreciation and amortization should approximate $189 million. Net interest
expense is expected to approximate $113 million. The Company expects to report
income from continuing operations for 2013 between $65 million to $76 million
or $1.20 to $1.40 per diluted share (based upon diluted shares of 52.7
million).

The Company estimated its operating cash flows for 2013 to range between $230
million to $250 million. Estimated routine capital expenditures for 2013 are
expected to range from $120 million to $130 million.

In addition to its routine capital expenditures, the Company expects that its
development projects related to new and replacement LTAC hospitals,
transitional care centers, and inpatient rehabilitation hospitals will
approximate $20 million to $30 million in 2013.

Operating cash flows in excess of the Company’s routine and development
capital spending programs, which are expected to approximate $90 million for
2013, will be available to repay debt and fund acquisitions.

In addition, the earnings guidance for 2013 (1) assumes the impact of Medicare
reimbursement reductions that are expected to reduce the Company’s
consolidated revenues between $90 million to $100 million, and further assumes
that the operating results of the 54 Nursing Centers are classified as
discontinued operations effective January 1, 2013, and (2) excludes the effect
of any other reimbursement changes, any future acquisitions or other
divestitures, any impairment charges, and any repurchases of common stock.

Mr. Diaz commented, “Our 2013 guidance reflects our best efforts to respond to
a continued difficult reimbursement environment, including the anticipated
Medicare reductions from sequestration and recently promulgated Medicare
payment regulations negatively impacting our LTAC hospitals. Despite this
environment, we remain committed to making the necessary investments to
improve quality and clinical outcomes and demonstrate our value proposition to
patients, families and payors. Moreover, we must support our dedicated
caregivers by providing appropriate merit increases and affordable benefits.
In this regard, we have continued our efforts to explore other cost saving
initiatives and our 2013 guidance reflects our commitment to reduce enterprise
costs an additional $20 million to $25 million in 2013 by expanding our shared
services model across the Company and focusing on additional non-patient care
expenses. Our confidence level in achieving these savings is high since we are
following the same path we pursued in attaining the approximately $125 million
of RehabCare synergies and other cost reductions in fiscal 2012.”

Finally, Mr. Diaz noted, “We also continue to look for ways to rationalize our
portfolio, in addition to the expiration of the Ventas leases, to advance our
cluster market strategy and improve our business and payor mix over time. The
continued growth in our home health and hospice operations is another key to
our integrated care model and our “Continue the Care” strategy. We believe
that these actions in conjunction with our cost savings measures, position us
well as healthcare reform accelerates over the next several years.”

Webcast of Conference Call

As previously announced, investors and the general public can access a live
webcast of the third quarter 2012 conference call through a link on the
Company’s website at www.kindredhealthcare.com. The conference call will be
held October 30, 2012 at 10:00 a.m. (Eastern Time).

A telephone replay of the conference call will be available at approximately
1:00 p.m. on October 30 by dialing (719) 457-0820, access code: 9543758. The
replay will be available through November 8.

Forward-Looking Statements

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

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

In addition to the factors set forth above, other factors that may affect the
Company’s plans or results include, without limitation, (a) 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, including reforms resulting from the
Patient Protection and Affordable Care Act and the Healthcare Education and
Reconciliation Act (collectively, the “ACA”). Healthcare reform is affecting
certain of the Company’s businesses and the Company expects that it will
impact all of them in some manner. There is also the possibility that
implementation of the provisions expanding health insurance coverage or the
entire ACA will be delayed, revised or eliminated as a result of efforts to
repeal or amend the law. Although the U.S. Supreme Court has upheld the
constitutionality of the ACA, the potential for future court proceedings, the
outcome of the 2012 presidential election and potential efforts in the U.S.
Congress to repeal, amend or retract funding for various aspects of the ACA
create additional uncertainty about the ultimate impact of the ACA on the
Company and the healthcare industry. Due to the substantial regulatory changes
that will need to be implemented by the Centers for Medicare and Medicaid
Services (“CMS”) and others, and the numerous processes required to implement
these reforms, the Company cannot predict which healthcare initiatives will be
implemented at the federal or state level, the timing of any such reforms, or
the effect such reforms or any other future legislation or regulation will
have on the Company’s business, financial position, results of operations and
liquidity, (b) the impact of the rules issued by CMS on August 1, 2012 which,
among other things, will reduce Medicare reimbursement to the Company’s LTAC
hospitals in 2013 and beyond by imposing a budget neutrality adjustment and
modifying the short-stay outlier rules, (c) the impact of final rules issued
by CMS on July 29, 2011 which significantly reduced Medicare reimbursement to
nursing centers and changed payments for the provision of group therapy
services effective October1, 2011, (d) the impact of the Budget Control Act
of 2011 which will automatically reduce federal spending by approximately $1.2
trillion split evenly between domestic and defense spending. At this time, the
Company believes this will result in an automatic 2% reduction on each claim
submitted to Medicare beginning February1, 2013, (e) 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 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 the Company’s LTAC
hospitals, nursing and rehabilitation centers, inpatient rehabilitation
hospitals and home health and hospice operations, and the expiration of the
Medicare Part B therapy cap exception process, (f) 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, (g) the impact of the Medicare, Medicaid and SCHIP
Extension Act of 2007, including the ability of the Company’s hospitals to
adjust to potential LTAC certification, medical necessity reviews and the
moratorium on future hospital development, (h) the impact of the Company’s
significantly increased levels of indebtedness as a result of the RehabCare
acquisition on the Company’s funding costs, operating flexibility and ability
to fund ongoing operations, development capital expenditures or other
strategic acquisitions with additional borrowings, (i) the Company’s ability
to successfully pursue its development activities, including through
acquisitions, and successfully integrate new operations, including the
realization of anticipated revenues, economies of scale, cost savings and
productivity gains associated with such operations, as and when planned,
including the potential impact of unanticipated issues, expenses and
liabilities associated with those activities, (j) the failure of the Company’s
facilities to meet applicable licensure and certification requirements, (k)
the further consolidation and cost containment efforts of managed care
organizations and other third party payors, (l) the Company’s ability to meet
its rental and debt service obligations, (m) the Company’s ability to operate
pursuant to the terms of its debt obligations, and comply with its covenants
thereunder, and its ability to operate pursuant to its master lease agreements
with Ventas, (n) 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, (o) national and regional economic, financial,
business and political conditions, including their effect on the availability
and cost of labor, credit, materials and other services, (p) the Company’s
ability to control costs, particularly labor and employee benefit costs, (q)
increased operating costs due to shortages in qualified nurses, therapists and
other healthcare personnel, (r) the Company’s ability to attract and retain
key executives and other healthcare personnel, (s) the increase in the costs
of defending and insuring against alleged professional liability and other
claims and the Company’s ability to predict the estimated costs related to
such claims, including the impact of differences in actuarial assumptions and
estimates compared to eventual outcomes, (t) the Company’s ability to
successfully reduce (by divestiture of operations or otherwise) its exposure
to professional liability and other claims, (u) the Company’s ability to
successfully dispose of unprofitable facilities, (v) events or circumstances
which could result in the impairment of an asset or other charges, such as the
impact of the Medicare reimbursement regulations that resulted in the Company
recording significant impairment charges in 2011, (w) 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 (x) the Company’s ability to maintain an effective system
of internal control over financial reporting. Many of these factors are beyond
the Company’s control. The Company cautions investors that any forward-looking
statements made by the Company are not guarantees of future performance. The
Company disclaims any obligation to update any such factors or to announce
publicly the results of any revisions to any of the forward-looking statements
to reflect future events or developments.

In addition to the results provided in accordance with GAAP, the Company has
provided information in this release to compute certain non-GAAP measurements
for the third quarter and nine months ended September 30, 2012 and 2011 before
certain charges or on a core basis. A reconciliation of the non-GAAP
measurements to the GAAP measurements is included in this press release.

As noted above, the Company’s earnings release includes a financial measure
referred to as operating income, or earnings before interest, income taxes,
depreciation, amortization and rent. The Company’s management uses operating
income as a meaningful measure of operational performance in addition to other
measures. The Company uses operating income to assess the relative performance
of its operating divisions as well as the employees that operate these
businesses. In addition, the Company believes this measurement is important
because securities analysts and investors use this measurement to compare the
Company’s performance to other companies in the healthcare industry. The
Company believes that income 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.

About Kindred Healthcare

Kindred Healthcare, Inc., a top-125 private employer in the United States, is
a FORTUNE 500 healthcare services company based in Louisville, Kentucky with
annual revenues of $6 billion and approximately 78,000 employees in 46 states.
At September 30, 2012, Kindred through its subsidiaries provided healthcare
services in 2,212 locations, including 117 long-term acute care hospitals, six
inpatient rehabilitation hospitals, 224 nursing and rehabilitation centers, 27
sub-acute units, 102 hospice, home care and private duty locations, 104
inpatient rehabilitation units (hospital-based) and a contract rehabilitation
services business, RehabCare, which served 1,632 non-affiliated facilities.
Ranked as one of Fortune magazine’s Most Admired Healthcare Companies for four
years in a row, Kindred’s mission is to promote healing, provide hope,
preserve dignity and produce value for each patient, resident, family member,
customer, employee and shareholder we serve. For more information, go to
www.kindredhealthcare.com.






KINDRED HEALTHCARE, INC.
Financial Summary
(Unaudited)
(In thousands, except per share amounts)
                                                              
                       Three months ended              Nine months ended
                       September 30,                   September 30,
                       2012            2011            2012            2011
                                                                       
Revenues               $ 1,525,792    $ 1,514,062    $ 4,641,590    $ 3,999,075
                                                                       
Income from
continuing             $ 7,909         $ 907           $ 41,718        $ 16,643
operations
Discontinued
operations, net of
income taxes:
  Income from            47              1,119           143             1,527
  operations
  Loss on
  divestiture of        (349      )    -             (349      )    -
  operations
    Income (loss)
    from                (302      )    1,119         (206      )    1,527
    discontinued
    operations
      Net income         7,607           2,026           41,512          18,170
(Earnings) loss
attributable to         (41       )    (241      )    (253      )    180
noncontrolling
interests
        Income
        attributable   $ 7,566        $ 1,785        $ 41,259       $ 18,350
        to Kindred
                                                                       
Amounts attributable
to Kindred
stockholders:
  Income from
  continuing           $ 7,868         $ 666           $ 41,465        $ 16,823
  operations
  Income (loss) from
  discontinued          (302      )    1,119         (206      )    1,527
  operations
        Net income     $ 7,566        $ 1,785        $ 41,259       $ 18,350
                                                                       
Earnings per common
share:
  Basic:
    Income from
    continuing         $ 0.15          $ 0.01          $ 0.79          $ 0.37
    operations
    Discontinued
    operations:
      Income from        -               0.02            -               0.03
      operations
      Loss on
      divestiture of    (0.01     )    -             (0.01     )    -
      operations
        Net income     $ 0.14         $ 0.03         $ 0.78         $ 0.40
                                                                       
  Diluted:
    Income from
    continuing         $ 0.15          $ 0.01          $ 0.79          $ 0.37
    operations
    Discontinued
    operations:
      Income from        -               0.02            -               0.03
      operations
      Loss on
      divestiture of    (0.01     )    -             (0.01     )    -
      operations
        Net income     $ 0.14         $ 0.03         $ 0.78         $ 0.40
                                                                       
Shares used in
computing earnings
per common share:
  Basic                  51,676          51,329          51,648          44,577
  Diluted                51,709          51,406          51,675          44,934







KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
                                                              
                       Three months ended              Nine months ended
                       September 30,                   September 30,
                       2012            2011            2012            2011
                                                                       
Revenues               $ 1,525,792    $ 1,514,062    $ 4,641,590    $ 3,999,075 
                                                                       
Salaries, wages and      912,924         900,570         2,765,332       2,344,398
benefits
Supplies                 106,594         107,514         326,127         294,254
Rent                     108,449         105,511         323,958         292,641
Other operating          305,988         305,305         929,947         851,806
expenses
Other income             (2,775    )     (2,815    )     (8,221    )     (8,480    )
Impairment charges       3,911           26,712          5,107           26,712
Depreciation and         50,600          46,947          149,092         117,367
amortization
Interest expense         26,668          25,790          79,962          54,675
Investment income       (229      )    (37       )    (796      )    (789      )
                        1,512,130     1,515,497     4,570,508     3,972,584 
Income (loss) from
continuing               13,662          (1,435    )     71,082          26,491
operations before
income taxes
Provision (benefit)     5,753         (2,342    )    29,364        9,848     
for income taxes
  Income from
  continuing             7,909           907             41,718          16,643
  operations
Discontinued
operations, net of
income taxes:
  Income from            47              1,119           143             1,527
  operations
  Loss on
  divestiture of        (349      )    -             (349      )    -         
  operations
    Income (loss)
    from                (302      )    1,119         (206      )    1,527     
    discontinued
    operations
      Net income         7,607           2,026           41,512          18,170
(Earnings) loss
attributable to         (41       )    (241      )    (253      )    180       
noncontrolling
interests
        Income
        attributable   $ 7,566        $ 1,785        $ 41,259       $ 18,350    
        to Kindred
                                                                       
Amounts attributable
to Kindred
stockholders:
  Income from
  continuing           $ 7,868         $ 666           $ 41,465        $ 16,823
  operations
  Income (loss) from
  discontinued          (302      )    1,119         (206      )    1,527     
  operations
        Net income     $ 7,566        $ 1,785        $ 41,259       $ 18,350    
                                                                       
Earnings per common
share:
  Basic:
    Income from
    continuing         $ 0.15          $ 0.01          $ 0.79          $ 0.37
    operations
    Discontinued
    operations:
      Income from        -               0.02            -               0.03
      operations
      Loss on
      divestiture of    (0.01     )    -             (0.01     )    -         
      operations
        Net income     $ 0.14         $ 0.03         $ 0.78         $ 0.40      
                                                                       
  Diluted:
    Income from
    continuing         $ 0.15          $ 0.01          $ 0.79          $ 0.37
    operations
    Discontinued
    operations:
      Income from        -               0.02            -               0.03
      operations
      Loss on
      divestiture of    (0.01     )    -             (0.01     )    -         
      operations
        Net income     $ 0.14         $ 0.03         $ 0.78         $ 0.40      
                                                                       
Shares used in
computing earnings
per common share:
  Basic                  51,676          51,329          51,648          44,577
  Diluted                51,709          51,406          51,675          44,934







KINDRED HEALTHCARE, INC.
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands, except per share amounts)
                                                          
                                                September 30,    December 31,
                                                2012             2011
ASSETS
Current assets:
  Cash and cash equivalents                     $ 35,695         $ 41,561
  Cash - restricted                               5,344            5,551
  Insurance subsidiary investments                79,642           70,425
  Accounts receivable less allowance for loss     1,050,077        994,700
  Inventories                                     31,787           31,060
  Deferred tax assets                             24,641           17,785
  Income taxes                                    6,424            39,513
  Other                                          32,477         32,687    
                                                  1,266,087        1,233,282
                                                                 
Property and equipment                            2,144,499        1,975,063
Accumulated depreciation                         (1,041,036 )    (916,022  )
                                                  1,103,463        1,059,041
                                                                 
Goodwill                                          1,146,801        1,084,655
Intangible assets less accumulated                446,165          447,207
amortization
Assets held for sale                              4,103            5,612
Insurance subsidiary investments                  118,256          110,227
Other                                            212,952        198,469   
           Total assets                         $ 4,297,827     $ 4,138,493 
LIABILITIES AND EQUITY
Current liabilities:
  Accounts payable                              $ 208,213        $ 216,801
  Salaries, wages and other compensation          392,564          407,493
  Due to third party payors                       39,820           37,306
  Professional liability risks                    48,931           46,010
  Other accrued liabilities                       148,882          130,693
  Long-term debt due within one year             8,787          10,620    
                                                  847,197          848,923
                                                                 
Long-term debt                                    1,610,888        1,531,882
Professional liability risks                      236,296          217,717
Deferred tax liabilities                          20,537           17,955
Deferred credits and other liabilities            211,109          191,771
                                                                 
Noncontrolling interests-redeemable               -                9,704
                                                                 
Equity:
  Stockholders' equity:
     Common stock, $0.25 par value;
     authorized 175,000 shares; issued 53,271     13,318           13,029
     shares - September 30, 2012 and 52,116
     shares - December 31, 2011
     Capital in excess of par value               1,142,923        1,138,189
     Accumulated other comprehensive loss         (1,092     )     (1,469    )
     Retained earnings                           180,426        139,172   
                                                  1,335,575        1,288,921
  Noncontrolling interests-nonredeemable         36,225         31,620    
           Total equity                          1,371,800      1,320,541 
           Total liabilities and equity         $ 4,297,827     $ 4,138,493 







KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
                                                           
                     Three months ended            Nine months ended
                     September 30,                 September 30,
                     2012           2011           2012             2011
Cash flows from
operating
activities:
  Net income         $ 7,607        $ 2,026        $ 41,512         $ 18,170
  Adjustments to
  reconcile net
  income to net
  cash
    provided by
    operating
    activities:
    Depreciation
    and                50,600         46,947         149,092          117,367
    amortization
    Amortization
    of stock-based     3,132          3,505          8,011            9,611
    compensation
    costs
    Amortization
    of deferring       2,375          2,141          7,091            5,231
    financing
    costs
    Payment of
    lender fees        -              -              -                (46,232    )
    related to
    debt issuance
    Provision for
    doubtful           9,117          7,793          22,654           22,049
    accounts
    Deferred           (1,235   )     (2,286   )     (18,140    )     (4,975     )
    income taxes
    Impairment         3,911          26,712         5,107            26,712
    charges
    Loss on
    divestiture of     349            -              349              -
    discontinued
    operations
    Other              732            (3,063   )     3,077            (3,766     )
    Change in
    operating
    assets and
    liabilities:
      Accounts         13,175         (27,497  )     (67,913    )     (108,072   )
      receivable
      Inventories
      and other        (5,490   )     6,304          (20,897    )     3,649
      assets
      Accounts         5,281          (831     )     (7,252     )     386
      payable
      Income taxes     6,366          (6,881   )     37,097           20,792
      Due to third     12,627         1,143          1,688            4,698
      party payors
      Other
      accrued         32,942       10,505       29,611         52,186     
      liabilities
        Net cash
        provided
        by            141,489      66,518       191,087        117,806    
        operating
        activities
                                                                    
Cash flows from
investing
activities:
  Routine capital      (25,939  )     (36,595  )     (76,804    )     (95,263    )
  expenditures
  Development
  capital              (15,177  )     (44,152  )     (38,175    )     (69,570    )
  expenditures
  Acquisitions,
  net of cash          (71,440  )     (50,928  )     (139,308   )     (710,907   )
  acquired
  Sale of assets       -              -              1,110            1,714
  Purchase of
  insurance            (9,692   )     (8,867   )     (30,890    )     (25,904    )
  subsidiary
  investments
  Sale of
  insurance            8,063          10,398         30,073           37,587
  subsidiary
  investments
  Net change in
  insurance
  subsidiary cash      (685     )     (826     )     (15,171    )     (4,870     )
  and cash
  equivalents
  Change in other      1,003          -              1,454            1,000
  investments
  Other               (25      )    (663     )    (1,029     )    (692       )
        Net cash
        used in       (113,892 )    (131,633 )    (268,740   )    (866,905   )
        investing
        activities
                                                                    
Cash flows from
financing
activities:
  Proceeds from
  borrowings under     364,600        533,200        1,329,300        1,633,300
  revolving credit
  Repayment of
  borrowings under     (390,400 )     (474,700 )     (1,244,900 )     (1,749,800 )
  revolving credit
  Proceeds from
  issuance of          -              -              -                550,000
  senior unsecured
  notes
  Proceeds from
  issuance of term     -              -              -                693,000
  loan, net of
  discount
  Repayment of
  other long-term      (2,665   )     (2,545   )     (7,976     )     (348,233   )
  debt
  Payment of
  deferred             (288     )     (1,855   )     (601       )     (8,715     )
  financing costs
  Contribution
  made by              -              -              200              -
  noncontrolling
  interest
  Distribution
  made to              -              -              (3,521     )     -
  noncontrolling
  interests
  Purchase of
  noncontrolling       (715     )     (7,292   )     (715       )     (7,292     )
  interests
  Issuance of          -              -              -                3,019
  common stock
  Other               -            3            -              747        
        Net cash
        provided
        by (used      (29,468  )    46,811       71,787         766,026    
        in)
        financing
        activities
Change in cash and     (1,871   )     (18,304  )     (5,866     )     16,927
cash equivalents
Cash and cash
equivalents at        37,566       52,399       41,561         17,168     
beginning of
period
Cash and cash
equivalents at end   $ 35,695      $ 34,095      $ 35,695        $ 34,095     
of period







KINDRED HEALTHCARE, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
                                                                                                           
                                                                                                                       
                       2011 Quarters                                                   2012 Quarters
                       First           Second          Third           Fourth          First           Second          Third
                                                                                                                       
Revenues               $ 1,192,421    $ 1,292,592    $ 1,514,062    $ 1,522,688    $ 1,579,970    $ 1,535,828    $ 1,525,792 
                                                                                                                       
Salaries, wages and      678,695         765,133         900,570         911,417         945,302         907,106         912,924
benefits
Supplies                 90,022          96,718          107,514         107,760         111,295         108,238         106,594
Rent                     91,453          95,677          105,511         106,616         107,968         107,541         108,449
Other operating          259,369         287,132         305,305         312,674         310,964         312,995         305,988
expenses
Other income             (2,785    )     (2,880    )     (2,815    )     (2,711    )     (2,748    )     (2,698    )     (2,775    )
Impairment charges       -               -               26,712          102,569         867             329             3,911
Depreciation and         32,549          37,871          46,947          48,227          48,690          49,802          50,600
amortization
Interest expense         5,728           23,157          25,790          26,244          26,578          26,716          26,668
Investment income       (495      )    (257      )    (37       )    (242      )    (292      )    (275      )    (229      )
                        1,154,536     1,302,551     1,515,497     1,612,554     1,548,624     1,509,754     1,512,130 
Income (loss) from
continuing               37,885          (9,959    )     (1,435    )     (89,866   )     31,346          26,074          13,662
operations before
income taxes
Provision (benefit)     15,609        (3,419    )    (2,342    )    (16,952   )    12,814        10,797        5,753     
for income taxes
  Income (loss) from
  continuing             22,276          (6,540    )     907             (72,914   )     18,532          15,277          7,909
  operations
Discontinued
operations, net of
income taxes:
  Income (loss) from     (179      )     587             1,119           1,025           110             (14       )     47
  operations
  Loss on
  divestiture of        -             -             -             -             -             -             (349      )
  operations
    Income (loss)
    from                (179      )    587           1,119         1,025         110           (14       )    (302      )
    discontinued
    operations
      Net income         22,097          (5,953    )     2,026           (71,889   )     18,642          15,263          7,607
      (loss)
(Earnings) loss
attributable to         -             421           (241      )    58            (451      )    239           (41       )
noncontrolling
interests
        Income
        (loss)         $ 22,097       $ (5,532    )   $ 1,785        $ (71,831   )   $ 18,191       $ 15,502       $ 7,566     
        attributable
        to Kindred
                                                                                                                       
Amounts attributable
to Kindred
stockholders:
  Income (loss) from
  continuing           $ 22,276        $ (6,119    )   $ 666           $ (72,856   )   $ 18,081        $ 15,516        $ 7,868
  operations
  Income (loss) from
  discontinued          (179      )    587           1,119         1,025         110           (14       )    (302      )
  operations
        Net income     $ 22,097       $ (5,532    )   $ 1,785        $ (71,831   )   $ 18,191       $ 15,502       $ 7,566     
        (loss)
                                                                                                                       
Earnings (loss) per
common share:
  Basic:
    Income (loss)
    from continuing    $ 0.56          $ (0.14     )   $ 0.01          $ (1.42     )   $ 0.35          $ 0.29          $ 0.15
    operations
    Discontinued
    operations:
      Income (loss)
      from               -               0.01            0.02            0.02            -               -               -
      operations
      Loss on
      divestiture of    -             -             -             -             -             -             (0.01     )
      operations
        Net income     $ 0.56         $ (0.13     )   $ 0.03         $ (1.40     )   $ 0.35         $ 0.29         $ 0.14      
        (loss)
                                                                                                                       
  Diluted:
    Income (loss)
    from continuing    $ 0.55          $ (0.14     )   $ 0.01          $ (1.42     )   $ 0.35          $ 0.29          $ 0.15
    operations
    Discontinued
    operations:
      Income (loss)
      from               -               0.01            0.02            0.02            -               -               -
      operations
      Loss on
      divestiture of    -             -             -             -             -             -             (0.01     )
      operations
        Net income     $ 0.55         $ (0.13     )   $ 0.03         $ (1.40     )   $ 0.35         $ 0.29         $ 0.14      
        (loss)
                                                                                                                       
Shares used in
computing earnings
(loss) per common
share:
    Basic                39,035          43,231          51,329          51,335          51,603          51,664          51,676
    Diluted              39,543          43,231          51,406          51,335          51,638          51,675          51,709







KINDRED HEALTHCARE, INC.
Condensed Business Segment Data
(Unaudited)
(In thousands)


                    2011 Quarters                                                  2012 Quarters
                     First          Second         Third          Fourth          First          Second         Third
Revenues:
  Hospital          $ 558,974       $ 593,425       $ 684,781       $ 712,812       $ 765,823       $ 729,419       $ 714,738
   division
                                                                                                                     
   Nursing center      567,472         568,199         571,226         547,202         544,319         535,644         534,188
   division

   Rehabilitation
   division:
    Skilled
    nursing            114,618         161,246         252,574         246,720         255,451         255,187         253,459
    rehabilitation
    services
    Hospital
    rehabilitation    22,490        38,291        69,811        70,232        74,369        73,379        71,899
    services
                      137,108       199,537       322,385       316,952       329,820       328,566       325,358

   Home health and
   hospice            8,038         10,828        15,419        26,451        28,432        28,872        35,943
   division
                       1,271,592       1,371,989       1,593,811       1,603,417       1,668,394       1,622,501       1,610,227

   Eliminations:
    Skilled
    nursing            (57,081   )     (57,587   )     (57,922   )     (57,087   )     (58,433   )     (57,056   )     (55,534   )
    rehabilitation
    services
    Hospital
    rehabilitation     (21,225   )     (20,706   )     (20,528   )     (22,167   )     (28,317   )     (27,755   )     (27,097   )
    services
    Nursing and
    rehabilitation    (865      )    (1,104    )    (1,299    )    (1,475    )    (1,674    )    (1,862    )    (1,804    )
    centers
                      (79,171   )    (79,397   )    (79,749   )    (80,729   )    (88,424   )    (86,673   )    (84,435   )
                     $ 1,192,421    $ 1,292,592    $ 1,514,062    $ 1,522,688    $ 1,579,970    $ 1,535,828    $ 1,525,792

Income (loss) from
continuing
operations:
Operating income
(loss):
   Hospital          $ 108,385       $ 108,465       $ 125,701       $ 144,891       $ 160,669       $ 141,511       $ 138,762
   division
                                                                                                                     
   Nursing center      87,350          93,532          89,592          67,791          65,533          71,005          70,928    (a)
   division
                                                                                                                     
   Rehabilitation
   division:
    Skilled
    nursing            9,159           15,978          27,575          13,204          14,193          22,942          19,659
    rehabilitation
    services
    Hospital
    rehabilitation    5,332         8,033         15,606        14,760        16,116        17,860        16,977
    services
                      14,491        24,011        43,181        27,964        30,309        40,802        36,636
                                                                                                                     
   Home health and
   hospice             (10       )     (447      )     1,107           2,453           2,341           2,789           3,645
   division
                                                                                                                     
   Corporate:
    Overhead           (38,315   )     (43,801   )     (48,806   )     (43,878   )     (42,728   )     (44,723   )     (45,883   )
    Insurance         (602      )    (420      )    (750      )    (534      )    (482      )    (600      )    (545      )
    subsidiary
                       (38,917   )     (44,221   )     (49,556   )     (44,412   )     (43,210   )     (45,323   )     (46,428   )
                                                                                                                     
   Impairment          -               -               (26,712   )     (102,569  )     (867      )     (329      )     (3,911    )(b)
   charges
   Transaction        (4,179    )    (34,851   )    (6,537    )    (5,139    )    (485      )    (597      )    (482      )
   costs
       Operating      167,120         146,489         176,776         90,979          214,290         209,858         199,150
        income
Rent                   (91,453   )     (95,677   )     (105,511  )     (106,616  )     (107,968  )     (107,541  )     (108,449  )(c)
Depreciation and       (32,549   )     (37,871   )     (46,947   )     (48,227   )     (48,690   )     (49,802   )     (50,600   )
amortization
Interest, net         (5,233    )    (22,900   )    (25,753   )    (26,002   )    (26,286   )    (26,441   )    (26,439   )
Income (loss) from
continuing             37,885          (9,959    )     (1,435    )     (89,866   )     31,346          26,074          13,662
operations before
income taxes
Provision
(benefit) for         15,609        (3,419    )    (2,342    )    (16,952   )    12,814        10,797        5,753
income taxes
                     $ 22,276       $ (6,540    )   $ 907          $ (72,914   )   $ 18,532       $ 15,277       $ 7,909


(a) Includes employee retention costs of $0.6 million incurred in connection with the decision to allow the leases to expire for 54
    nursing and rehabilitation centers leased from Ventas.

(b) Includes an impairment charge of $3.2 million incurred in connection with the planned divestiture of a LTAC hospital.

(c) Includes a lease cancellation charge of $0.6 million incurred in connection with the closing of a LTAC hospital.







KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations
(Unaudited)
(In thousands)
                                                                                                                                
                                                                                                                                              
                  Third Quarter 2012
                                Nursing       Rehabilitation division                  Home                     Transaction-
                  Hospital      center        Skilled       Hospital                   health                   related
                                              nursing                                  and
                  division      division      services      services     Total         hospice    Corporate     costs          Eliminations   Consolidated
                  (a)           (b)
                                                                                                                                              
Revenues          $ 714,738    $ 534,188    $ 253,459    $ 71,899    $ 325,358    $ 35,943   $ -          $  -          $  (84,435 )   $ 1,525,792 
                                                                                                                                              
Salaries, wages     321,810       259,095       223,305       50,724       274,029       26,332     32,008         (350    )      -             912,924
and benefits
Supplies            77,536        26,587        697           33           730           1,557      184            -              -             106,594
Rent                55,391        50,290        1,309         2            1,311         805        652            -              -             108,449
Other operating     176,630       177,578       9,798         4,165        13,963        4,409      17,011         832            (84,435 )     305,988
expenses
Other income        -             -             -             -            -             -          (2,775  )      -              -             (2,775    )
Impairment          3,487         424           -             -            -             -          -              -              -             3,911
charges
Depreciation
and                 23,110        13,564        2,791         2,328        5,119         1,137      7,670          -              -             50,600
amortization
Interest            231           20            36            -            36            4          26,377         -              -             26,668
expense
Investment         (17     )    (22     )    -           -          -           -         (190    )     -            -           (229      )
income
                   658,178     527,536     237,936     57,252     295,188     34,244    80,937       482          (84,435 )    1,512,130 
Income from
continuing
operations        $ 56,560     $ 6,652      $ 15,523     $ 14,647    $ 30,170     $ 1,699    $ (80,937 )   $  (482    )   $  -            13,662
before income
taxes
Provision for                                                                                                                                  5,753     
income taxes
   Income from
   continuing                                                                                                                                 $ 7,909     
   operations
                                                                                                                                              
Capital
expenditures,
excluding
acquisitions
(including
discontinued
operations):
    Routine       $ 9,015       $ 4,965       $ 707         $ 125        $ 832         $ 160      $ 10,967      $  -           $  -           $ 25,939
    Development    14,334      843         -           -          -           -         -            -            -           15,177    
                  $ 23,349     $ 5,808      $ 707        $ 125       $ 832        $ 160      $ 10,967     $  -          $  -          $ 41,116    
                                                                                                                                              
                                                                                                                                              
                                                                                                                                              
                  Third Quarter 2011
                                Nursing       Rehabilitation division                  Home                     Transaction-
                  Hospital      center        Skilled       Hospital                   health                   related
                                              nursing                                  and
                  division      division      services      services     Total         hospice    Corporate     costs          Eliminations   Consolidated
                                                                                                                                              
Revenues          $ 684,781    $ 571,226    $ 252,574    $ 69,811    $ 322,385    $ 15,419   $ -          $  -          $  (79,749 )   $ 1,514,062 
                                                                                                                                              
Salaries, wages     316,507       272,505       215,889       49,297       265,186       11,653     33,482         1,256          (19     )     900,570
and benefits
Supplies            77,045        28,650        858           58           916           652        251            -              -             107,514
Rent                52,737        49,862        1,811         95           1,906         358        648            -              -             105,511
Other operating     165,528       180,479       8,252         4,850        13,102        2,007      18,638         5,281          (79,730 )     305,305
expenses
Other income        -             -             -             -            -             -          (2,815  )      -              -             (2,815    )
Impairment          3,102         23,610        -             -            -             -          -              -              -             26,712
charges
Depreciation
and                 21,612        12,655        2,699         2,372        5,071         324        7,285          -              -             46,947
amortization
Interest            206           25            -             -            -             -          25,559         -              -             25,790
expense
Investment         (1      )    (18     )    (1      )    (1     )    (2      )    -         (16     )     -            -           (37       )
income
                   636,736     567,768     229,508     56,671     286,179     14,994    83,032       6,537        (79,749 )    1,515,497 
Income (loss)
from continuing
operations        $ 48,045     $ 3,458      $ 23,066     $ 13,140    $ 36,206     $ 425      $ (83,032 )   $  (6,537  )   $  -            (1,435    )
before income
taxes
Income tax                                                                                                                                     (2,342    )
benefit
   Income from
   continuing                                                                                                                                 $ 907       
   operations
                                                                                                                                              
Capital
expenditures,
excluding
acquisitions
(including
discontinued
operations):
    Routine       $ 12,919      $ 10,572      $ 255         $ 81         $ 336         $ 41       $ 12,727      $  -           $  -           $ 36,595
    Development    39,964      4,113       -           -          -           75        -            -            -           44,152    
                  $ 52,883     $ 14,685     $ 255        $ 81        $ 336        $ 116      $ 12,727     $  -          $  -          $ 80,747    
                                                                                                                                            

(a) Includes an impairment charge of $3.2 million and a lease cancellation charge of $0.6 million incurred in connection with the planned divestiture of a
    LTAC hospital and the closing of a LTAC hospital, respectively.

(b) Includes employee retention costs of $0.6 million incurred in connection with the decision to allow the leases to expire for 54 nursing and
    rehabilitation centers leased from Ventas.

<td clas*Story too large*






KINDRED HEALTHCARE, INC.
Condensed Consolidating Statement of Operations (Continued)
(Unaudited)
(In thousands)
                                                                                                                                       
                                                                                                                                                     
                 Nine months ended September 30, 2012
                                 Nursing         Rehabilitation division                   Home                        Transaction-
                 Hospital        center          Skilled       Hospital                    health and                  related
                                                 nursing
                 division        division (c)    services      services      Total         hospice      Corporate      costs          Eliminations   Consolidated
                 (a,b)
                                                                                                                                                     
Revenues         $ 2,209,980    $ 1,614,151    $ 764,097    $ 219,647    $ 983,744    $ 93,247    $ -           $  -          $ (259,532 )   $ 4,641,590 
                                                                                                                                                     
Salaries,
wages and          982,054         786,766         679,915       155,404       835,319       68,829       92,783          (350    )     (69      )     2,765,332
benefits
Supplies           239,443         79,927          2,225         127           2,352         3,826        579             -             -              326,127
Rent               165,477         150,457         4,060         119           4,179         2,029        1,816           -             -              323,958
Other
operating          547,541         539,992         25,163        13,163        38,326        11,817       49,820          1,914         (259,463 )     929,947
expenses
Other income       -               -               -             -             -             -            (8,221   )      -             -              (8,221    )
Impairment         3,838           1,269           -             -             -             -            -               -             -              5,107
charges
Depreciation
and                68,579          39,534          8,143         6,975         15,118        2,960        22,901          -             -              149,092
amortization
Interest           810             68              36            -             36            4            79,044          -             -              79,962
expense
Investment        (60       )    (68       )    (1      )    -           (1      )    -          (667     )     -           -            (796      )
income
                  2,007,682     1,597,945     719,541     175,788     895,329     89,465     238,055       1,564       (259,532 )    4,570,508 
Income from
continuing
operations       $ 202,298      $ 16,206       $ 44,556     $ 43,859     $ 88,415     $ 3,782     $ (238,055 )   $  (1,564  )   $ -             71,082
before income
taxes
Provision for                                                                                                                                         29,364    
income taxes
  Income from
  continuing                                                                                                                                         $ 41,718    
  operations
                                                                                                                                                     
Capital
expenditures,
excluding
acquisitions
(including
discontinued
operations):
   Routine       $ 28,455        $ 12,611        $ 1,602       $ 231         $ 1,833       $ 429        $ 33,476       $  -           $ -            $ 76,804
   Development    35,572        2,603         -           -           -           -          -             -           -            38,175    
                 $ 64,027       $ 15,214       $ 1,602      $ 231        $ 1,833      $ 429       $ 33,476      $  -          $ -           $ 114,979   
                                                                                                                                                     
                                                                                                                                                     
                                                                                                                                                     
                 Nine months ended September 30, 2011
                                 Nursing         Rehabilitation division                   Home                        Transaction-
                 Hospital        center          Skilled       Hospital                    health and                  related
                                                 nursing
                 division        division        services      services      Total         hospice      Corporate      costs          Eliminations   Consolidated
                                                                                                                                                     
Revenues         $ 1,837,180    $ 1,706,897    $ 528,438    $ 130,592    $ 659,030    $ 34,285    $ -           $  -          $ (238,317 )   $ 3,999,075 
                                                                                                                                                     
Salaries,
wages and          842,829         816,022         457,773       93,996        551,769       26,223       91,502          16,122        (69      )     2,344,398
benefits
Supplies           206,504         83,645          1,983         122           2,105         1,413        587             -             -              294,254
Rent               137,033         148,808         4,860         156           5,016         798          986             -             -              292,641
Other
operating          445,296         536,756         15,970        7,503         23,473        5,999        49,085          29,445        (238,248 )     851,806
expenses
Other income       -               -               -             -             -             -            (8,480   )      -             -              (8,480    )
Impairment         3,102           23,610          -             -             -             -            -               -             -              26,712
charges
Depreciation
and                52,462          37,486          4,574         3,288         7,862         547          19,010          -             -              117,367
amortization
Interest           272             76              -             -             -             -            40,525          13,802        -              54,675
expense
Investment        (4        )    (58       )    (3      )    (1      )    (4      )    -          (723     )     -           -            (789      )
income
                  1,687,494     1,646,345     485,157     105,064     590,221     34,980     192,492       59,369      (238,317 )    3,972,584 
Income (loss)
from
continuing       $ 149,686      $ 60,552       $ 43,281     $ 25,528     $ 68,809     $ (695   )   $ (192,492 )   $  (59,369 )   $ -             26,491
operations
before income
taxes
Provision for                                                                                                                                         9,848     
income taxes
  Income from
  continuing                                                                                                                                         $ 16,643    
  operations
                                                                                                                                                     
Capital
expenditures,
excluding
acquisitions
(including
discontinued
operations):
   Routine       $ 36,872        $

[TRUNCATED]
 
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