DISCONTINUED OPERATIONS

Kentucky Disposition

On October 30, 2018 the Company entered into an Asset Purchase Agreement (the "Agreement") with Fulton Nursing and Rehabilitation, LLC, Holiday Fulton Propco LLC, Birchwood Nursing and Rehabilitation LLC, Padgett Clinton Propco LLC, Westwood Nursing and Rehabilitation LLC, and Westwood Glasgow Propco (the "Buyers") to sell the assets and transfer the operations of Diversicare of Fulton, LLC, Diversicare of Clinton, LLC and Diversicare of Glasgow, LLC (the "Kentucky Properties"). On December 1, 2018, the Company completed the sale of the Kentucky Properties with the Buyers for a purchase price of $18,700. This transaction did not meet the accounting criteria to be reported as a discontinued operation. The carrying value of these centers' assets was $13,331, resulting in a gain of $4,825, with remaining proceeds for miscellaneous closing costs. The proceeds were used to relieve debt, which is required under the terms of the Company's Amended Mortgage Loan and Amended Revolver. Refer to Note 5, "Long-term Debt and Interest Rate Swap" for more information on this transaction.

On May 22, 2019, the Company announced that it entered into an agreement with Omega to amend its master lease to terminate operations of ten nursing facilities, totaling approximately 885 skilled nursing beds, located in Kentucky and to concurrently transfer operations to an operator selected by Omega. These ten centers are collectively referred to as the "Kentucky Centers." The sale of the Kentucky Properties and the termination of operations at the Kentucky Centers are referred to collectively as the "Kentucky Exit." On August 30, 2019, the Company completed the transaction and no longer operates any skilled nursing centers in the State of Kentucky. The sale of the Kentucky Properties and the termination of operations at the Kentucky Centers are referred to collectively as the "Kentucky Exit." The Company's exit from the state represents a strategic shift that has (or will have) a major effect on the Company's operations and financial results. In accordance with ASC 205, the Company's discontinued financial position, results of operations and cash flows have been reclassified on the face of the financial statements and footnotes for all periods presented to reflect the discontinued status of these operations.

The transaction resulted in a gain on the modification of the Omega lease, which is presented within Discontinued Operations on the Consolidated Statements of Operations. The pretax gain on the transaction was $733.

The net income or loss for the nursing centers included in discontinued operations does not reflect any allocation of corporate general and administrative expense or any allocation of corporate interest expense. The Company considered these additional costs along with the centers' future prospects based upon operating history when determining the contribution of the skilled nursing centers to its operations.

The discontinued assets and liabilities of the disposed skilled nursing centers have been reclassified and are segregated in the interim consolidated balance sheets as assets and liabilities of discontinued operations.The Company did not transfer the accounts receivable or liabilities, inclusive of the reserves for professional liability and workers' compensation, to the new operator. The Company expects to collect the balance of the accounts receivable and pay the remaining liabilities in the ordinary course of business through its future operating cash flows.

A summary of the Kentucky Exit discontinued operations follows:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
PATIENT REVENUES, net	$	11,812		$	22,396		$	46,019		$	66,392
EXPENSES:
Operating	9,229			18,031			36,947			52,694
Lease and rent expense	1,792			1,704			7,169			5,097
Professional liability	2,468			1,329			5,401			3,992
General and administrative	259			664			985			1,925
Depreciation and amortization	1,287			302			2,250			1,006
Operating income (loss)	(3,223		)	366			(6,733		)	1,678
Other income	728			36			736			2
Interest expense, net	(2		)	(284		)	(149		)	(849		)
Income (loss) from discontinued operations before taxes	(2,497		)	118			(6,146		)	831
Income tax (expense) benefit	(459		)	(45		)	(570		)	(233		)
Income (loss) from discontinued operations, net of tax	$	(2,956	)	$	73		$	(6,716	)	$	598

A summary of other discontinued operations follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019		2018
Loss from discontinued operations before taxes	—		(8		)	—		(45		)
Income tax benefit	—		—			—		11
Loss from discontinued operations, net of tax	$	—	$	(8	)	$	—	$	(34	)

A summary of cash inflows and outflows related to the the Kentucky Exit discontinued operations follows:



	Nine Months Ended September 30,
	2019		2018
Net cash provided by (used in) operating activities	(5,130	)	1,153
Net cash provided by (used in) investing activities	6		(1,275	)