CHARTER FOR THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF KINDRED HEALTHCARE, INC.

Mission Statement

The Audit Committee (the “Committee”) is appointed to assist the Board of Directors in monitoring (1) the adequacy of the Company’s system of internal controls, accounting policies, financial reporting practices, and the quality and integrity of the Company’s financial reporting; (2) the independent registered public accounting firm’s qualifications and independence; (3) the performance of the Company’s internal audit function and independent registered public accounting firm; and (4) the Company’s compliance with legal and regulatory requirements.

Organization

The Audit Committee of the Board of Directors shall be comprised of at least three directors. Each member of the Committee shall meet the independence, experience and expertise requirements under applicable laws and regulations and the rules of the New York Stock Exchange or such other exchange upon which the Company’s securities are principally traded. The members of the Committee shall be appointed and removed by the Board.

The Board of Directors shall designate a Committee Chairperson. The Board of Directors also shall designate a financial expert for the Committee, which may or may not be the Committee Chairperson. The financial expert shall satisfy the independence, experience and expertise requirements under applicable laws and regulations and the rules of the New York Stock Exchange or such other exchange upon which the Company’s securities are principally traded.

The Committee shall meet at least four times annually and shall regularly report to the Board of Directors on its findings and matters within the scope of its responsibility. A quorum at any Committee meeting shall be at least a majority of the members. All determinations of the Committee shall be made by a majority of its members present at a meeting duly called and held, except as specifically provided herein (or where only two members are present, by unanimous vote). Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held. The Chairperson of the Committee shall be responsible for establishing the agendas for meetings of the Committee. An agenda, together with materials relating to the subject matter of each meeting, shall be sent to the members of the Committee prior to the meeting. The Committee shall maintain minutes of all its meetings to document its activities and recommendations. The Committee shall review and reassess this Charter at least annually or more frequently as conditions dictate and recommend changes it considers appropriate to the Board for approval. A copy of the current version of this Charter shall be posted on the Company's website. The Committee shall annually review its own performance.

Back to Top

Committee Authority and Responsibilities

• The Committee shall have the authority to retain and terminate any outside consultant, advisor or counsel it deems necessary to discharge its responsibilities and shall have sole authority to approve the fees and other retention terms of such consultant, advisor or counsel. In discharging its responsibilities, the Committee shall have full access to any relevant records of the Company. The Committee also may request that any officer or other employee of the Company, the Company’s outside counsel or any other person meet with any members of, or consultants, advisors or counsel to, the Committee.

Engagement and Relationships with the Independent Registered Public Accounting Firm and the Company’s Internal Auditors

• The Committee shall have the sole authority to appoint, evaluate and replace the independent registered public accounting firm of the Company and its subsidiaries. The Committee shall have the sole authority to pre-approve all audit engagement fees and terms and pre-approve all permissible non-audit engagements with the independent registered public accounting firm. The Committee shall consult with management but shall not delegate these responsibilities, except that the Committee may delegate to one or more members of the Committee the pre-approval of audit engagements and permissible non-audit services, and any pre-approval by such member or members shall be presented to the Committee at each of its scheduled meetings.
  
• Communicate to the independent registered public accounting firm that they are ultimately accountable to the Audit Committee, as the shareholders’ representatives, who have the ultimate authority in deciding to engage, evaluate, and if appropriate, terminate their services.
  
• Meet with the independent registered public accounting firm and financial management of the Company to review the scope of the proposed audit and timely quarterly reviews for the current year and the procedures to be utilized and review such audit or review, including any comments or recommendations of the independent registered public accounting firm.
  
• Review any known significant disagreements between management and the independent registered public accounting firm concerning financial reporting matters, as well as management’s responses to those disagreements. The Committee shall have the authority to resolve any such disagreements.
  
• On an annual basis, obtain from the independent registered public accounting firm a written communication delineating all of their relationships and professional services with the Company as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s independence. In addition, review with the independent registered public accounting firm the nature and scope of any disclosed relationships or professional services and take, or recommend that the Board of Directors take, appropriate action to ensure the continuing independence of such registered public accounting firm.
  
• At least annually, obtain and review a report by the independent registered public accounting firm describing the independent registered public accounting firm’s quality control procedures, issues raised by their most recent internal quality control reviews, or peer review, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, in respect of one or more independent audits performed by the independent registered public accounting firm and any steps taken to deal with any such issues, and review and evaluate the lead partner of the independent registered public accounting firm.
  
• Ensure that the independent registered public accounting firm’s primary or reviewing partner on the Company’s audit engagement is rotated every five years as required by the Sarbanes-Oxley Act.
  
• Recommend to the Board policies for the Company’s hiring of employees and former employees of the independent registered public accounting firm who were engaged on the Company’s account.
  
• Review and, concur with or reject, management’s appointment, termination, or replacement of the Vice President of Internal Audit.
  
• Review the internal audit function of the Company including the experience and qualification of the senior members of the internal audit department, the quality control procedures of the internal auditors, the independence and authority of the internal audit function’s reporting obligations, the proposed internal audit plans for the coming year, and the coordination of such plans with the independent registered public accounting firm.
  
• Review the significant reports from completed internal audits as well as management’s responses and periodically review with internal audit that management is taking the actions it committed to take in the responses.
  
• Receive prior to each meeting, a progress report on the proposed internal audit plan, with explanations for any deviations from the original plan.
  
• Review and approve annually, the internal audit plan and the budget for the internal audit department, providing input or recommendations regarding areas of risk, internal controls or other concerns. The internal audit plan should address fraud risk and a mechanism to ensure that internal audit can express concerns about management’s commitment to appropriate internal controls, or to report suspicions or allegations of fraud.

Financial Reporting

• Review the quarterly financial statements with financial management and the independent registered public accounting firm, including disclosures made in the management’s discussion and analysis section, prior to the filing of the Form 10-Q (or prior to the press release of results, if possible) to determine that the independent registered public accounting firm does not take exception to the disclosure and content of the financial statements, and discuss any other matters required to be communicated to the Committee by the independent registered public accounting firm. The Committee also shall discuss the results of the independent registered public accounting firm’s review of the Company’s quarterly financial information conducted in accordance with Statement of Auditing Standards No. 100.
  
• Review the audited financial statements to be contained in the annual report to shareholders with management and the independent registered public accounting firm, including disclosures made in the management’s discussion and analysis section, to determine that the independent registered public accounting firm is satisfied with the disclosure and content of the financial statements to be presented to the shareholders. Any changes in accounting principles should be reviewed. The Committee shall recommend to the Board whether the audited financial statements should be included in the Company’s Form 10-K.
  
• Discuss with financial management and the independent registered public accounting firm the quality of the accounting principles and judgments used in preparing the financial statements, including the Company’s selection or application of, or changes in, accounting principles, any major issues as to the adequacy of the Company’s internal controls, the development, selection and disclosure of critical accounting estimates, and analysis of the effect of alternative assumptions, estimates or GAAP methods on the Company’s financial statements, and material written communications between management and independent registered public accounting firm such as management letters and schedule of unadjusted differences.
  
• Assess the risk of financial fraud by management and ensure that controls are in place to prevent, deter and detect fraud by management as required by Statement of Auditing Standards No. 99, as amended. The assessment should include a periodic and systematic review of internal controls over financial reporting established by management. The assessment should include, but is not limited to, management’s antifraud programs and controls, potential for management override of those controls, and mechanisms for employees to report concerns.
  
• Discuss with management the Company’s earnings press releases, including the use of “pro forma” or “adjusted” non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.
  
• Review in separate meetings with the Company’s independent registered public accounting firm, internal auditors, and management, the adequacy and effectiveness of the accounting and financial controls of the Company, and elicit any recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures are desirable. The Committee should review whether recommendations made have been implemented by management. The Committee also shall review any fraud involving persons having a significant role in the internal controls.
  
• Establish and maintain procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters.
  
• Review with the Compliance Officer or Vice President of Internal Audit, the types of issues regarding accounting, internal controls or auditing matters, reported to the Company through its compliance hotline and the results of any internal investigations initiated by the Company in response to compliance issues reported through the hotline or otherwise brought to the Company’s attention.
  
• Inquire of management, the Compliance Officer, the internal auditor, and the independent registered public accounting firm about significant risks or exposures (whether financial, operational or otherwise) and review the steps management has taken to assess and manage such risks or exposure.
  
• Discuss with the independent registered public accounting firm the matters required to be discussed by Statement of Auditing Standards No. 61, as amended from time to time, relating to the conduct of the audit.
  
• At least twice each year, the members of the Committee should meet with the Compliance Officer, internal auditors and the independent registered public accounting firm without members of management present. Among the items to be discussed in these meetings are the independent registered public accounting firm’s evaluation of the Company’s financial, accounting, and auditing personnel, the cooperation that the independent registered public accounting firm and internal auditors received during the course of their audits, any audit problems or difficulties and management’s response, including any restrictions placed on the scope of audit work or access to requested information, and any accounting adjustments that were noted or proposed by the independent registered public accounting firm or internal auditors but were not made due to immateriality or otherwise.
  
• Prepare a report of the Audit Committee as required to be included in the Company’s proxy statement.
  
• Report the results of the annual audit to the Board of Directors. If the Committee considers it advisable or if requested by the Board of Directors, invite the independent registered public accounting firm to attend the full Board of Directors meeting to assist in reporting the results of the annual audit or to answer other directors’ questions (alternatively, the other directors, particularly the other independent directors, may be invited to attend the Committee meeting during which the results of the annual audit are reviewed).

Other Responsibilities

• Review and approve on an on-going basis the Company’s transactions with directors and officers of the Company and with firms that employ directors, as well as any other related person transactions required to be disclosed under applicable SEC rules. The Committee generally evaluates each related person transaction involving a director or officer for the purpose of determining whether to recommend to the disinterested members of the Board of Directors that the transactions are fair, reasonable and within Company policy, and whether they should be ratified and approved by the Board of Directors. The Committee generally considers each related person transaction in light of all relevant factors and the controls implemented to protect the interests of the Company and its shareholders, including the benefits of the transaction to the Company, the terms of the transaction and whether the terms have been negotiated at arm’s-length and in the ordinary course of the Company’s business, the direct or indirect nature of the related person’s interest in the transaction, the amount involved and the expected term of the transaction, and other facts and circumstances that bear on the materiality of the related person transaction under applicable law and listing standards.
  
• Review with the Company’s General Counsel as necessary legal matters that may have a material impact on the Company’s financial statements and any material inquiries or reports from regulators or governmental agencies.
  
• Review the adequacy of the Company’s system of internal controls, accounting policies, financial reporting practices, and the quality and integrity of financial reporting to Federal health care programs.
  
• Review any known significant disagreements between management and the Company’s internal auditors or independent registered public accounting firm concerning matters of regulatory or corporate compliance, as well as management’s responses to those disagreements.
  
• Form and delegate authority to subcommittees when appropriate and carry out such other duties that may be delegated to it by the Board of Directors from time to time or as may be required by law.
  
• Take any other actions necessary or advisable from time to time to comply with applicable laws and regulations and all applicable listing standards.
  

Back to Top

Limitation on Committee’s Responsibilities

While the Committee has the responsibility and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent registered public accounting firm. Management is responsible for the financial statements and the underlying financial reporting processes, including the system of internal controls. The independent registered public accounting firm is responsible for auditing the Company's financial statements, expressing an opinion on the conformity of such audited consolidated financial statements with generally accepted accounting principles and expressing an opinion on the effectiveness of the Company's internal control over financial reporting. In addition, the Committee has the responsibility to interact with the independent registered public accounting firm but it is not responsible for the audits performed by the independent registered public accounting firm.

Back to Top

Return to Investor Information